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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-8207
THE HOME DEPOT, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
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(State or Other Jurisdiction of Incorporation or Organization)
IRS NO. 95-3261426
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(I.R.S. Employer Identification No.)
2455 PACES FERRY ROAD, ATLANTA, GEORGIA
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(Address of Principal Executive Offices)
30339-4024
(Zip Code)
Registrant's telephone number, including area code: (770) 433-8211
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.05 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by
nonaffiliates of the Registrant on April 3, 2000, was $148,469,370,936. The
aggregate market value was computed by reference to the closing price of the
Common Stock on the New York Stock Exchange on such date. For the purposes of
this response, executive officers and directors are deemed to be the affiliates
of the Registrant and the holdings by nonaffiliates was computed at 125,436,460
shares.
The number of shares outstanding of the Registrant's Common Stock as of April 3,
2000 was 2,308,809,562 shares.
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INCORPORATION BY REFERENCE
Filings made by companies with the Securities and Exchange Commission sometimes
"incorporate information by reference." This means that the company is referring
you to information that was previously filed with the SEC, and this information
is considered to be part of the filing you are reading. The following materials
are incorporated by reference into this Form 10-K:
o Information contained in our Proxy Statement for the 2000
Annual Meeting of Stockholders is incorporated by reference in
response to Items 10 through 13 of Part III.
o Information contained on pages 22 through 33 of our 1999
Annual Report to Stockholders is incorporated by reference in
response to Item 8 of Part II.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Certain statements we make in this report, and other written and oral statements
made by us or our authorized executive officers on our behalf may constitute
"forward-looking statements" within the meaning of the federal securities laws.
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:
o unanticipated weather conditions;
o stability of costs and availability of sourcing channels;
o our ability to attract, train and retain highly-qualified associates;
o conditions affecting the availability, acquisition, development and
ownership of real estate;
o general economic conditions;
o the impact of competition; and
o regulatory and litigation matters.
You should not place undue reliance on forward-looking statements, since such
statements speak only as of the date they are made. Additional information
concerning the risks and uncertainties listed above and other factors you may
wish to consider are provided beginning on page 24 under "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition -
Forward-Looking Statements May Prove Inaccurate."
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PART I
ITEM 1. BUSINESS
The Home Depot, Inc. is the world's largest home improvement retailer and the
third largest retailer in the United States based on net sales volume for fiscal
1999. At the end of our 1999 fiscal year, we were operating 913 Home Depot(R)
stores and fifteen EXPO Design Center(R) stores. A description of these two
types of stores is as follows:
o HOME DEPOT STORES: Home Depot stores sell a wide assortment of
building materials and home improvement and lawn and garden
products. Home Depot stores average approximately 108,000
square feet of enclosed space, with an additional
approximately 24,000 square feet in the outside garden area.
At fiscal year end, we had 909 Home Depot stores located
throughout the United States and Canada, as well as four in
Chile.
o EXPO DESIGN CENTER STORES: EXPO Design Center stores sell
products and services primarily for design and renovation
projects. Unlike Home Depot stores, EXPO Design Center stores
do not sell building materials and lumber. Rather, EXPO Design
Center stores offer high-end interior design products, such as
kitchen and bathroom cabinetry, tiles, flooring and lighting
fixtures. The prototypical EXPO Design Center is approximately
90,000 square feet. At fiscal year end, EXPO Design Center
stores were operating in California, Florida, Georgia, New
York, Texas and Virginia.
Additionally, at the end of fiscal 1999 we were operating two Villager's
Hardware(SM) test stores in New Jersey. Villager's Hardware stores offer
products for home enhancement and small projects.
We also offer products through two direct marketing subsidiaries. Our
Maintenance Warehouse(R) subsidiary is a leading direct mail marketer of
maintenance, repair and operations products serving primarily the multi-family
housing and lodging facilities management market. The company fills orders
through its 15 distribution centers, which are located throughout the United
States. Our National Blinds & Wallpaper(SM) subsidiary is a telephone mail order
service for wallpaper and custom window treatments.
During fiscal 1999, we acquired two companies, Georgia Lighting, Inc. and Apex
Supply Company, Inc., each of which we operate as a wholly owned subsidiary.
Georgia Lighting(R), a leading specialty lighting designer, distributor and
retailer, has six retail locations. Apex Supply Company(SM) is a wholesale
supplier of plumbing, HVAC and other related professional products with 21
locations in Georgia, Tennessee and South Carolina.
Our Store Support Center (corporate office) is located at 2455 Paces Ferry Road,
Atlanta, Georgia 30339-4024. The telephone number is (770) 433-8211.
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RETAIL BUSINESSES
HOME DEPOT STORES
OPERATING STRATEGY. The operating strategy for Home Depot stores is to offer a
broad assortment of high-quality merchandise at competitive prices using highly
knowledgeable, service-oriented personnel and aggressive advertising. We believe
that our associates' knowledge of products and home improvement techniques and
applications are very important in our marketing approach and our ability to
maintain customer satisfaction. We regularly check our competitors' prices to
ensure that our low "day-in day-out" warehouse prices are competitive within
each market.
CUSTOMERS. Home Depot stores serve three primary customer groups:
o DO-IT-YOURSELF (D-I-Y) CUSTOMERS: These customers are
typically homeowners who purchase products and complete their
own projects and installations. To complement the in-store
expertise of our associates, Home Depot stores offer many
D-I-Y "how-to" clinics taught by associates and merchandise
vendors.
o BUY-IT-YOURSELF (B-I-Y) CUSTOMERS: These customers are
typically homeowners who purchase materials themselves and
hire third parties to complete the project and/or
installation. We offer B-I-Y customers installation services
for a variety of products through third party contractors.
o PROFESSIONAL CUSTOMERS: These customers are professional
repair remodelers, general contractors and tradesmen. We offer
a variety of programs to these professional customers,
including additional delivery and will-call services;
dedicated staff; extensive merchandise selections; and
expanded credit programs, all of which we believe increase
sales.
PRODUCTS. A typical Home Depot store stocks approximately 40,000 to 50,000
product items, including variations in color and size. Each store carries a wide
selection of high-quality and nationally advertised brand name merchandise. The
following table shows the percentage of sales of each major product group for
each of the last three fiscal years:
<TABLE>
<CAPTION>
Percentage of Sales for
Fiscal Year Ended
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Jan. 30, Jan. 31, Feb.1,
2000 1999 1998
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<S> <C> <C> <C>
PRODUCT GROUP
Building materials, lumber and
millwork ............................ 24.7% 24.4% 24.8%
Plumbing, electrical and
kitchen ............................. 26.6 26.8 27.0
Hardware and seasonal ................. 28.5 28.5 28.3
Paint, flooring and wall coverings .... 20.2 20.3 19.9
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Total ................................. 100.0% 100.0% 100.0%
========= ========= =========
</TABLE>
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We buy our store merchandise from vendors located throughout the world. No
single vendor accounts for as much as five percent of our total purchases, and
we are not dependent on any single vendor. Most of our merchandise is purchased
directly from manufacturers, which eliminates "middleman" costs. We believe that
competitive sources of supply are readily available for substantially all of the
products we sell in Home Depot stores.
We maintain an import merchandise program to source high-quality products
directly from overseas manufacturers, which gives our customers a broader
selection of products and better values and enhances our gross margins. We
currently source products from approximately 35 countries. Our product
development managers travel internationally to identify opportunities to
purchase items directly for our stores. This enables us to improve product
quality, to import products not currently available to our customers and to
offer at a lower price products that would otherwise be purchased from third
party importers.
To complement the established national brand name products we offer, we have
formed strategic alliances with vendor partners to market products under brand
names that are only offered through The Home Depot. At the end of fiscal year
1999, we offered products under more than 40 proprietary and other exclusive
brands, including RIDGID(R) power tools; Behr(R) paint; Mill's Pride(R)
cabinets; GE SmartWater(TM) water heaters; Vigoro(R) fertilizer; and Hampton
Bay(TM) fans, lighting and accessories. During fiscal 2000 we will begin
offering Thomasville(R) kitchen and bathroom cabinets. In the future, we may
consider additional strategic alignments with other vendors to offer products
under proprietary brand names. Additionally, we will continue to assess
opportunities to expand the range of products available under existing
proprietary brands.
INSTALLED SALES SERVICES. Home Depot stores offer a variety of installed sales
programs. These programs include the installation of carpeting, flooring,
kitchen cabinets, solid surface countertops, millwork, garage doors, garage door
openers, window treatments and water heaters. This service targets the B-I-Y
customer who will select and purchase materials for a project but lacks the
desire, the time or the ability to undertake the installation. We implement our
installed sales programs through approximately 6,200 independent licensed
contractors in the U.S. and Canada.
IN-STORE INITIATIVES. We continually assess our business to find opportunities
to increase customer loyalty, thereby increasing sales. Accordingly, we
implemented or expanded a number of in-store initiatives in Home Depot stores
during fiscal 1999, including:
o PROFESSIONAL BUSINESS CUSTOMER INITIATIVE. We are committed to
being the supplier of choice to a variety of professional
customers, including certain repair remodelers, carpenters,
plumbers, painters, electricians, building maintenance
professionals and designers. During fiscal 1999, we expanded
an initiative that adds service-related programs to our stores
designed to increase sales to professional customers. Stores
participating in the program added associates at a sales desk
dedicated to providing more personalized service to
professional customers, including managing accounts and taking
and filling orders for pick-up or same-day delivery.
Additionally, during the hours when professionals typically
shop, these stores assigned sales associates in certain
departments to assist these customers. To better serve our
professional customers, we also increased quantities of
existing products typically purchased by professionals in
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bulk quantities and offered certain items in each department
packaged in bulk to offer additional savings. While aimed at
the professional customer, this program has also enabled us to
better serve our D-I-Y customer with improved customer
service, including delivery and will-call services, expanded
credit programs and additional merchandise. Additionally,
through this initiative, we have identified best practices in
serving our professional customers that are being implemented
in many of our stores without material additional costs. By
the end of fiscal 1999, we had expanded the professional
customer initiative into 13 markets with approximately 110
stores, which included at least one market in each of our
divisions. During fiscal 2000, we will continue to monitor the
operational and financial results of this program and expect
to finalize plans to begin a three-year company-wide rollout
of the program.
o APPLIANCE SALES. During fiscal 1999, we began selling major
appliances manufactured by General Electric in selected
markets. We display and stock the more popular appliances in
these stores and offer the ability to special order over 1,000
additional products through computer kiosks. Through the
computer we can check inventory and arrange for delivery to
the customer directly from the manufacturer as soon as 48
hours after the order is placed. At January 30, 2000, we were
selling appliances in 135 stores, and we currently expect to
offer appliances in the majority of Home Depot stores in the
U.S. by the end of fiscal 2000.
o CREDIT SERVICES. Home Depot offers credit purchase programs to
both professional and D-I-Y customers. In fiscal 1999, 1.8
million new Home Depot credit accounts were opened, bringing
the total number of Home Depot account holders to over 6
million. Proprietary credit card sales accounted for
approximately 17% of all Home Depot sales in fiscal 1999.
During fiscal 1999 we also tested a new in-store initiative in
certain markets that gives our customers the opportunity to
apply for unsecured Home Improvement Loans to purchase
products and services in our stores. This program is currently
being tested in approximately 60 stores, and we anticipate
offering it in substantially all U.S. stores during fiscal
2000.
o TOOL RENTAL. As part of our efforts to satisfy a broad range
of the needs of our professional customers, as well as our
D-I-Y customers, we offer a tool rental service in certain
stores. Under this program, we rent approximately 200
commercial-quality tools in ten categories, including saws,
floor sanders, generators, gas powered lawn equipment and
plumbing tools. Customers can lease the tools on an hourly,
daily, weekly or monthly basis. Our associates who work in the
tool rental area receive special training concerning the use
and maintenance of the tools. As of January 30, 2000, we
offered tool rental service in approximately 150 stores
compared to 46 stores at the end of fiscal 1998. During fiscal
2000, we anticipate expanding tool rental services into more
than 200 additional stores, and we believe that ultimately
tool rental centers will be in approximately 60% of our
stores. We believe that offering this service increases the
sales of related merchandise without reducing the sales of
equipment similar to that available for rental.
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o SPECIAL ORDER CENTER TEST. We are currently testing the
special order center, or SOC, in approximately 85 Home Depot
stores in Michigan, Minnesota and Georgia. The SOC supports
special order sales of blinds and wallpaper, which sales are
time intensive due to the precise measurements that are
required. Customers are initially helped in selecting
merchandise by in-store associates, but when they are ready to
place an order, they use telephones placed in the store to
speak to an associate at the SOC. The SOC associate can also
assist with scheduling the installation of the product. We
believe that the special expertise offered by the SOC
increases the accuracy of orders, while decreasing the time
required to place a special order, and enables in-store
associates to assist more customers. We are currently
assessing plans to open additional call centers and to add the
services of the SOC to more stores during fiscal 2000. We will
also research and test how the SOC may support other Home
Depot special order processes.
o CUSTOMER EDUCATION PROGRAMS. We offer several programs to
enhance the skills and confidence of our D-I-Y customers. Our
associates and vendors teach "how-to" clinics, which focus on
D-I-Y projects, such as installing garbage disposals, laying
patio pavers or building a deck. In addition to the clinics,
we have initiated Home Depot UniversitySM, which was available
in all stores at the end of fiscal 1999. Home Depot University
presents four-week modules allowing our customers to learn
about several facets of a home improvement topic. For example,
a room enhancement module may provide instruction on paint,
wallpaper and window treatments. Through The Home Depot's Kids
WorkshopSM program, children are instructed in tool safety and
complete a small project, such as building a birdhouse or tool
box. We believe that these types of educational programs
increase our sales by encouraging our customers to undertake
more projects, differentiating us from our competition and
reinforcing our position as experts in home improvement.
STORE GROWTH
UNITED STATES. At the end of fiscal 1999, we were operating 856 Home Depot
stores in the United States, including Puerto Rico. During fiscal 1999 in the
U.S., we opened 155 new Home Depot stores and relocated six existing Home Depot
stores. Although these new store openings occurred primarily in existing
markets, we continued our geographic expansion by opening stores in a number of
new markets.
In existing markets, we believe a number of Home Depot stores are operating at
or above their optimum capacity. To increase customer service levels and enhance
long-term market penetration, we often open new stores near the edge of the
market areas served by existing stores. While these openings may initially have
a negative impact on comparable store-for-store sales, we believe this
"cannibalization" strategy increases customer satisfaction and overall market
share by reducing delays in shopping, increasing utilization by existing
customers and attracting new customers to more convenient locations.
CANADA. At the end of fiscal 1999, we were operating 53 Home Depot stores in
five Canadian provinces. Of these stores, ten were opened during fiscal 1999.
During fiscal 2000, we plan to
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open additional stores in Canada, including our first stores in Quebec. Our
Canadian stores are operated through a wholly owned Canadian subsidiary of The
Home Depot.
LATIN AMERICA. At the end of fiscal 1999, we were operating four Home Depot
stores in Chile, and we anticipate opening additional stores in Latin America
during fiscal 2000. We operate our Chilean Home Depot stores through a joint
venture with S.A.C.I. Falabella, a leading department store retailer in Chile.
Our controlling share of the joint venture is 66.67%. We have offices in Chile
from which day-to-day operations are handled by a management team comprised of
both Chilean nationals and seasoned U.S. Home Depot managers. We expect to open
our first Home Depot store in Buenos Aires, Argentina during fiscal 2000. During
fiscal 1999, we opened offices in Argentina to manage the operation of the
business.
ANTICIPATED FUTURE GROWTH. We currently anticipate opening approximately 200 new
Home Depot, EXPO Design Center and Villager's Hardware stores during fiscal
2000. This plan is consistent with our policy of opening stores at a consistent
rate of 21-22% per year for the foreseeable future. Overall, our current plan
anticipates having over 1,900 stores by the end of fiscal 2003, the substantial
majority of which will be Home Depot stores located in the United States.
EXPO DESIGN CENTER STORES
OPERATING STRATEGY. The operating strategy for our EXPO Design Center stores is
to offer complete interior design services and high-quality, competitively
priced products to assist our customers in their home decor and remodeling
projects. Each EXPO Design Center store features up to eight different
showrooms, each with full-size displays to help customers visualize the end
result of possible projects. To assist our customers, we employ associates who
have expertise in designing, planning and completing projects and who provide
exceptional customer service.
CUSTOMERS. Typically, customers at EXPO Design Center stores are middle to upper
income B-I-Y customers, who purchase merchandise for installation by others.
Accordingly, we offer installation services for most of the products we sell.
PRODUCTS. EXPO Design Center stores offer interior design products and
installation services in the following core product categories:
o Kitchens
o Baths
o Decor
o Lighting
o Flooring
o Appliances
o Patio
o Window Treatments
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EXPO Design Center stores offer a broad range of merchandise in an effort to
meet all the needs of shoppers whose interior design preferences may go beyond
the items available in a Home Depot store. While there is minimal overlap
between the products offered in Home Depot stores and EXPO Design Center stores,
those available at EXPO Design Center stores are typically higher-end or more
unique items. In addition to nationally advertised brand name products, we also
offer items that must be special ordered or that are typically offered through
showrooms open only to design professionals.
STORE GROWTH. At the end of fiscal 1999, we were operating fifteen EXPO Design
Center stores in California, Florida, Georgia, Texas, New York and Virginia. We
opened seven of these stores during fiscal 1999. We currently anticipate opening
eleven additional stores in fiscal 2000, and we expect to be operating
approximately 200 stores in the next five to six years. These new stores are
expected to average approximately 90,000 square feet and will incorporate a
showroom environment.
IN-STORE SERVICES. We have associates at our EXPO Design Center stores to assist
with every phase of a project. Certified kitchen and bath designers are on
staff. We also have design professionals to help our customers design lighting,
tile and flooring, custom upholstery and bedding, and custom closets and window
treatments. Installation services are available for most products at EXPO Design
Center stores, including kitchens, baths, flooring, wallpaper, tile, lighting
fixtures and window treatments. Our project managers ensure that the products
are available and then schedule licensed third party contractors to complete the
work. We warrant the workmanship of each installation for as long as the
customer owns the home.
GEORGIA LIGHTING
We acquired our wholly owned subsidiary Georgia Lighting in June 1999. Georgia
Lighting is a leading specialty lighting designer, distributor and retailer
based in Atlanta. The company, which has six retail locations, offers an
extensive collection of decorative lighting fixtures, supplies, accents and
accessories to commercial and retail customers. We believe the acquisition of
Georgia Lighting will allow us to strengthen our sourcing, training and
merchandising in lighting for both The Home Depot and EXPO Design Center stores.
APEX SUPPLY COMPANY
In January 2000, we acquired Apex Supply Company, a wholesale distributor of
plumbing, HVAC and other related products. The Company offers these products
through 21 locations in Georgia, Tennessee and South Carolina and employs
approximately 525 associates. Through this acquisition, we believe we will
increase our penetration of the professional plumbing trades and be able to
handle special orders for plumbing products more efficiently in Home Depot
stores.
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VILLAGER'S HARDWARE STORES
During fiscal 1999, we opened the first two Villager's Hardware test stores in
New Jersey. These stores stock approximately 40,000 items, including variations
in color and size, including hardware, fasteners, tools, plumbing, electrical
and seasonal, as well as a broad selection of home enhancement products,
including paint and wallpaper, window treatments, lighting, storage, housewares
and giftware. We believe that the primary focus for these stores will be home
enhancement and small projects. Each Villager's Hardware store has approximately
35,000 to 40,000 square feet of selling space in a retail environment,
emphasizing customer service and education. We currently anticipate opening two
additional Villager's Hardware test stores in fiscal 2000.
INTERNET
In June 1999, we re-launched our website at www.homedepot.com. The new site
offers more information about projects and our products, calculators to estimate
the amount of materials needed to complete a project, as well as information
about our company. As with our stores, the focus of our website is customer
service. More than 100,000 users have registered for reminder notices and for a
personalized home page on the site. We receive approximately 700 e-mails and
telephone calls per day requesting information about projects and our products
and services. These requests are typically answered in 24 hours.
We currently sell Home Depot gift cards through our Internet site. Additionally,
beginning during the second quarter of fiscal 2000, we plan to offer Home Depot
products over the Internet in selected markets. We will offer customers all of
the products available at stores in their local market on our website, and the
products will be priced based on the market in which the customer lives. Orders
will be fulfilled from our stores, and customers can either pick up their
purchases or have them delivered. By integrating Internet purchases with our
stores, we hope to provide our customers with greater flexibility and service.
DIRECT MARKETING SALES
We have two subsidiaries that sell merchandise through direct marketing:
o MAINTENANCE WAREHOUSE. Our Maintenance Warehouse subsidiary is
a leading provider of maintenance, repair and operations
products to the multi-family housing and lodging facilities
management market. Through its catalog, which is published
semi-annually, Maintenance Warehouse offers approximately
13,000 items, including variations in color and size.
Maintenance Warehouse, which employs approximately 800 people,
emphasizes accurate order taking, delivery and personalized
service. Orders are typically placed over the telephone,
through a field sales representative or through the company's
website at www.mwh.com, are filled through one of Maintenance
Warehouses' 15 distribution centers and are shipped for
same-day or next-day delivery.
o NATIONAL BLINDS & WALLPAPER. National Blinds and Wallpaper
sells decor products through telephone sales. The company
markets primarily through magazine advertising
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aimed at customers seeking the lowest prices. The company
maintains no inventory, but rather acts as a broker to fill
special order sales.
STORE SUPPORT SERVICES
INFORMATION SYSTEMS. Each Home Depot, EXPO Design Center and Villager's Hardware
store is equipped with a computerized point of sale system, electronic bar code
scanning system and a UNIX server. Store information is communicated to the
Store Support Center's computers via a land-based frame relay network. This
frame relay network is in the process of being converted to an Asynchronous
Transfer Mode ("ATM") network, which will provide much greater bandwidth and
allow Internet access in the future. These computers provide corporate,
financial, merchandising and other back office function support. We believe our
systems provide efficient customer check-out (with a greater than 90% rate of
scannable products) and returns, store-based inventory management, rapid order
replenishment, labor planning support and item movement information. Fast
registers, credit authorizations and check approvals expedite transactions in
our stores at a pace that we believe sets the standard for our industry. For
example, to better serve the increasing number of customers applying for credit,
the charge card approval process time has been reduced to less than 30 seconds.
We have implemented a mobile ordering system in our Home Depot stores using
portable carts with computers to assist our associates in placing accurate
orders for inventory. Through the system, an associate on the sales floor can
see the supply the store has for a given item, review the suggested re-order
quantities based on the store's historical experience and place an order with
the vendor. We believe the system increases the efficiency and productivity of
our associates because it requires less time and fewer people to assess and
order inventory. We are also in the process of rolling out a mobile signing
system to help ensure that our signing is in sync with our point-of-sale price
data. Additionally, we are in the process of rolling out additional systems
tools to assist with labor scheduling to help ensure the best possible customer
service levels.
We are continuously assessing and upgrading our information systems to support
growth, reduce and control costs and enable our associates to make better
decisions. We continue to realize greater efficiency as a result of our
electronic data interchange ("EDI") program. Currently, most of our high volume
vendors are participating in the EDI program, which represents more than 70% of
our total transactional volume. EDI is a paperless system, which processes
orders from buying offices to vendors, alerts the stores when the merchandise is
to arrive and transmits invoice data from the vendors and freight carriers to
the Store Support Center.
ASSOCIATE DEVELOPMENT. As of January 30, 2000, we employed approximately 201,000
associates, of whom approximately 12,000 were salaried, with the remainder
compensated on an hourly basis. Approximately 75% of our associates are employed
on a full-time basis. To attract and retain qualified personnel, we seek to
maintain salary and wage levels above those of our competitors in each market
area. Store managers have access to information regarding competitive salary
rates in their respective markets.
In fiscal 1999, we enhanced our training programs in a continuing effort to
service the needs of our associates. These programs are designed to increase
associates' knowledge of merchandising
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departments and products, including mandatory product knowledge training
classes, and to educate, develop and test the skills of those associates who are
interested in being promoted. Because our policy is to promote or relocate
current associates to serve as managers and assistant managers for new stores,
training and assessment of our associates is essential to our growth. Our
district managers and store managers typically meet with our human resources
associates to discuss the development of assistant managers and certain
department heads and consider possible candidates for promotion.
We have implemented programs to ensure that we hire and promote the best
qualified associates in a non-discriminatory way. These programs integrate
validated computerized tests for all applicants, as well as specialized tests
for certain positions. If an applicant passes the computer test, he or she may
be selected for a structured interview in which questions to be asked are
selected by the computer based on the answers given on the original computer
test. We also maintain a list of qualified associates who are interested in a
new assignment and of qualified outside applicants that can be reviewed when
positions become available.
We have never experienced a strike or any work stoppage, and we believe that our
employee relations are good. There are no collective bargaining agreements
covering any of our associates.
MARKETING. We are one of the nation's largest retail advertisers, and we utilize
all forms of mass media and selected forms of highly targeted media. We also
incorporate major sponsorships into our marketing plan, such as NASCAR(R), the
Olympics, CBS College Football and home and garden shows. We extend our reach
and educate our customers through proprietary publications, such as the HOME
IMPROVEMENT 1-2-3(TM) series and the STYLE IDEAS magazine.
We execute our marketing campaigns on both a national and local basis. Because
our stores are located throughout the United States and Canada, we can achieve
greater efficiencies than smaller retailers by using national advertising. At
the same time, we tailor the majority of our advertising locally to respond to
market differences, both in terms of products and the competitive environment.
INTELLECTUAL PROPERTY. Through our wholly owned subsidiary, Homer TLC, Inc., we
have registered or applied for registration of a variety of trade names, service
marks or trademarks for use in our business, including The Home Depot(R), the
"Homer"(R) character, Villager's Hardware(SM) and EXPO Design Center(R) stores.
We regard our intellectual property as having significant value and as being an
important factor in the marketing of the Company and our stores and direct
marketing efforts. We are not aware of any facts that could be expected to
negatively impact our intellectual property.
QUALITY ASSURANCE PROGRAM. As part of our import merchandise program, we have
implemented a quality assurance program. Through this program, we have
established criteria for both vendor/factory and product performance, which
measure factors including product quality, timely shipments, fill rate and
policy compliance. The performance record is monitored for compliance with our
10
<PAGE> 13
standards and is also made available to the factories to allow them to strive
for improvement. This quality assurance program, which is applied to products
directly imported by Home Depot, has four components:
o we authorize laboratories to test products prior to purchase
to ensure compliance with requirements;
o we develop and document requirements, based on test results,
applicable national and international standards and features
determined by our merchants;
o we assess the capability of factories to manufacture quality
products that meet the standards we have developed, as well as
to assess their compliance with Home Depot policies on child
and forced labor; and
o we make routine audits of purchases by conducting inspections
at the factory on shipments to assure continued compliance
with our product requirements and with our policies.
LOGISTICS. We use several mechanisms to lower distribution costs and increase
our efficiencies. The vast majority of our products are shipped from the
manufacturer directly to the stores. Certain import products require the use of
distribution centers. Accordingly, we have six distribution centers, located in
Savannah, Georgia; Cranbury, New Jersey; Ontario, California (where we have two
facilities); Ontario, Canada; and Chicago, Illinois. During fiscal 2000, we plan
to open additional distribution centers in Montgomery, New York and Buenos
Aires, Argentina. Additionally, at the end of fiscal 1999, we had 25 lumber
distribution facilities located throughout the United States and Canada to
support the lumber demands of our stores. We also operate a cross-docking
transit facility in Philadelphia, Pennsylvania. At this facility, we receive
merchandise from manufacturers and immediately load it onto trucks for delivery
to our stores. We are currently evaluating sites for establishing additional
transit facilities.
COMPETITION. Our business is highly competitive, based in part on price, store
location, customer service and depth of merchandise. In each of the markets we
serve, there are a number of other electrical, plumbing and building materials
supply houses, lumber yards and home improvement stores. With respect to some
products, we also compete with discount stores, local, regional and national
hardware stores, mail order firms, warehouse clubs, independent building supply
stores and, to a lesser extent, other retailers. In addition to these entities,
our EXPO Design Center stores also compete with specialty design stores or
showrooms, some of which are only open to interior design professionals.
Due to the variety of competition we face, we are unable to precisely measure
our market share in existing market areas. We believe that we are an effective
and significant competitor in our markets. Based on U.S. Census data estimates,
internal estimates and data provided by the Home Improvement Research Institute,
we believe that our market share in the U.S. and Canada, currently defined as
including the Do-It-Yourself/Buy-It-Yourself, Tradesmen, Builders/General
Contractors, Heavy Industrial, Repair and Remodeling and Property Maintenance
markets, is approximately 8.9%.
11
<PAGE> 14
EXECUTIVE OFFICERS
Executive officers of Home Depot are elected by, and serve at the
pleasure of, the Board of Directors. The following provides information as of
January 30, 2000 concerning our executive officers:
BERNARD MARCUS, age 70, is a co-founder of The Home Depot and serves as
Chairman of the Board. From inception of the Company in 1978 until 1997, he
served as Chairman of the Board and Chief Executive Officer, at which time the
title of CEO was passed on to Mr. Arthur M. Blank. Mr. Marcus serves as a
director on the boards of National Service Industries, Inc., Westfield America,
Inc. and DBT Online, Inc.
ARTHUR M. BLANK, age 57, has been the President, Chief Operating
Officer and a director of The Home Depot since its inception in 1978 and was
named President and CEO in 1997. He is, together with Mr. Bernard Marcus and Mr.
Kenneth G. Langone, a co-founder of the Company. Mr. Blank is a member of the
Board of Directors of Cox Enterprises, Inc. and Post Properties, Inc.
RONALD M. BRILL, age 56, has been Executive Vice President and Chief
Administrative Officer of the Company since 1995. Mr. Brill joined The Home
Depot as Controller in 1978, was elected Treasurer in 1980, Vice
President-Finance in 1981, Senior Vice President and Chief Financial Officer in
1984, Executive Vice President and CFO in 1993 and was elected as a director in
1987. Mr. Brill has announced his intention to retire in March 2001 and will not
stand for reelection to the Board upon expiration of his term in May 2000.
MARK R. BAKER, age 42, has been Group President and Senior Vice
President - Merchandising since June 1999. From 1997 until 1999, he was
President of the Midwest Division. Mr. Baker joined the Company in 1996 as Vice
President-Merchandising for the Midwest Division. Prior to joining The Home
Depot, from 1992 until 1996, Mr. Baker was an Executive Vice President -
Merchandising for HomeBase Inc. in Fullerton, California. In March 2000, Mr.
Baker was promoted to Executive Vice President and Chief Operating Officer of
Home Depot stores in the U.S.
DENNIS J. CAREY, age 53, has been Executive Vice President and Chief
Financial Officer since May 1998. From 1994 to 1998, Mr. Carey was employed by
AT&T Corp., most recently as Vice President and General Manager - Corporate
Productivity and Mergers and Acquisitions. Prior to joining AT&T, Mr. Carey held
a number of positions during his 25 year tenure with General Electric Company,
including Vice President and General Manager of International Operations.
JEFFREY W. COHEN, age 41, has been Group President - Direct Marketing
Businesses since May 1998. From January 1997 until he joined The Home Depot, Mr.
Cohen was President of Cohen & Associates Management Consultants. From 1995
through 1997, he was Executive Vice President of Harte-Hanks Direct Marketing,
and prior thereto he was a Senior Vice President - General Manager at GE Capital
Corp. He also spent seven years at American Express Company where he held
various marketing positions.
12
<PAGE> 15
MARSHALL L. DAY, age 56, was Senior Vice President-Finance and
Accounting from 1998 until his retirement in April 2000. Mr. Day previously
served as Senior Vice President - Chief Financial Officer from 1995 to 1998 and
as Senior Vice President - Finance from 1993 to 1995.
PATRICK FARRAH, age 56, has been Executive Vice President of
Merchandising since August 1999. Prior thereto, he was Senior Vice President of
Merchandising from 1995 until his promotion to his current position.
VERNON JOSLYN, age 48, has been Group President since June 1999. He
previously served as President of the Northeast Division from 1996 until his
most recent promotion. Mr. Joslyn also previously served as Vice
President-Operations for the Northeast Division from 1993 until 1996.
LARRY M. MERCER, age 53, is Executive Vice President of Operations. He
is responsible for the functional leadership across the entire Home Depot
enterprise, both domestically since March 1996 and internationally since January
2000. Prior to his promotion Mr. Mercer was President of the Northeast Division
for five years. Mr. Mercer joined the Company in 1979 as an Assistant Store
Manager and has risen through the ranks to his current position.
ANDERS C. MOBERG, age 50, joined the Company as Group President -
International and Global Resourcing in August 1999. Prior to such time, Mr.
Moberg was President of The IKEA Group for more than the last five years.
STEPHEN R. MESSANA, age 55, has been Senior Vice President - Human
Resources since 1993.
LAWRENCE A. SMITH, age 52, has been Senior Vice President - Legal since
1998 and Secretary since 1997. Mr. Smith has been employed by the Company since
1983 and served as Vice President - Legal prior to his promotion to his current
position. Mr. Smith is the nephew of Mr. Marcus.
DAVID SULITEANU, age 47, has served as Group President - Diversified
Businesses since April 1998. Mr. Suliteanu previously served as Vice Chairman
and Director of Stores for Macy's East, a position he held from 1993 until he
joined The Home Depot.
M. FAYE WILSON, age 62, has served as Senior Vice President - Value
Initiatives since 1998 and has served on the Board of Directors for the Company
since 1992. From 1992 until joining The Home Depot, she was an Executive Vice
President of Bank of America NT&SA. Ms. Wilson serves as a director of Acsys,
Inc. and Farmers Insurance Group.
13
<PAGE> 16
Item 2. PROPERTIES
The following tables show the number of Home Depot store locations by state in
the United States and internationally as of January 30, 2000:
Number of Stores
State in State
----------------------------------------------------------
Alabama 8
Alaska 1
Arizona 23
Arkansas 3
California 122
Colorado 14
Connecticut 14
Delaware 3
Florida 83
Georgia 44
Hawaii 1
Idaho 4
Illinois 31
Indiana 4
Iowa 3
Kansas 5
Kentucky 6
Louisiana 14
Maine 4
Maryland 20
Massachusetts 23
Michigan 34
Minnesota 13
Mississippi 5
Missouri 13
Montana 1
Nevada 8
New Hampshire 5
New Jersey 35
New Mexico 5
New York 47
North Carolina 20
Ohio 28
Oklahoma 6
Oregon 10
Pennsylvania 32
Puerto Rico 2
Rhode Island 1
South Carolina 12
Tennessee 21
Texas 72
Utah 6
Vermont 1
Virginia 22
Washington 18
Wisconsin 9
-------
Subtotal 856
-------
14
<PAGE> 17
Number of Stores
International Location in Location
-------------------------------------------------------------
Canadian Provinces
Alberta 8
British Columbia 9
Manitoba 2
Ontario 33
Saskatchewan 1
Latin America
Chile 4
-----
Subtotal 57
-----
TOTAL HOME DEPOT STORES 913
=====
The following table shows the number of EXPO Design Center store locations by
state as of January 30, 2000:
Number of Stores
State in State
-------------------------------------------------------------
California 3
Florida 3
Georgia 2
New York 1
Texas 5
Virginia 1
-----
TOTAL EXPO DESIGN
CENTER STORES 15
=====
Additionally, as of January 30, 2000, we were operating two Villager's Hardware
test stores, six Georgia Lighting retail locations and 21 Apex Supply locations.
Of our 930 Home Depot stores, EXPO Design Center stores and Villager's Hardware
stores at January 30, 2000, approximately 77% were owned (including those owned
subject to a ground lease) consisting of approximately 77,000,000 square feet
and approximately 23% were leased consisting of approximately 23,000,000 square
feet. In recent years, we have increased the relative percentage of new stores
that are owned. Although we take advantage of lease financing opportunities, we
generally prefer to own stores because of greater operating control and
flexibility, generally lower occupancy costs and certain other economic
advantages.
Our executive, corporate staff and accounting offices occupy approximately
1,300,000 square feet of leased and owned space in Atlanta, Georgia. In
addition, as of January 30, 2000, we occupied an aggregate of approximately
1,087,000 square feet, of which approximately 236,000 square feet is owned and
approximately 851,000 square feet is leased, for divisional store support
centers and subsidiary customer support centers. These support centers are
located in Orange and San Leandro, California; Tampa, Florida; Atlanta, Georgia;
Arlington Heights, Illinois; Canton, Massachusetts; Plymouth, Michigan; South
Plainfield, New Jersey; Dallas, Texas; Tukwila,
15
<PAGE> 18
Washington; Scarborough, Ontario, Burnaby, and British Columbia, Canada;
Santiago, Chile; and Buenos Aires, Argentina.
At January 30, 2000, we utilized approximately 7,424,000 square feet of
warehousing and distribution space, of which approximately 710,000 is owned and
approximately 6,714,000 is leased.
We believe that at the end of existing lease terms, our current leased space can
be either relet or replaced by alternate space for lease or purchase that is
readily available.
Item 3. LEGAL PROCEEDINGS
We have litigation arising from the normal course of business. In our opinion,
this litigation will not materially affect our consolidated financial position
or our results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of fiscal 1999.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since April 19, 1984, our common stock has been listed on the New York Stock
Exchange under the symbol "HD." The table below sets forth the low and high
sales prices of our common stock on the New York Stock Exchange Composite Tape
as reported in THE WALL STREET JOURNAL and the quarterly cash dividends declared
per share of common stock during the periods indicated.
<TABLE>
<CAPTION>
Price Range* Cash
--------------------- Dividends
Low High Declared*
--- ---- ---------
<S> <C> <C> <C>
FISCAL YEAR 1997
First Quarter ended May 4, 1997 $11.00 $13.03 $.013
Second Quarter ended August 3, 1997 12.75 16.67 .017
Third Quarter ended November 2, 1997 15.69 18.88 .017
Fourth Quarter ended February 1, 1998 17.65 20.55 .017
FISCAL YEAR 1998
First Quarter ended May 3, 1998 $20.42 $24.23 $.017
Second Quarter ended August 2, 1998 22.56 32.67 .020
Third Quarter ended November 1, 1998 21.08 30.63 .020
Fourth Quarter ended January 31, 1999 28.75 41.33 .020
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
FISCAL YEAR 1999
First Quarter ended May, 2, 1999 $35.88 $45.29 $.020
Second Quarter ended August 1, 1999 36.75 46.63 .027
Third Quarter ended October 31, 1999 35.75 52.33 .027
Fourth Quarter ended January 30, 2000 49.92 69.75 .040
</TABLE>
- ----------
*On December 30, 1999, there was a three-for-two stock split on all shares of
stock owned by stockholders as of December 2, 1999. On July 2, 1998, there was a
two-for-one stock split on all shares of stock owned by stockholders as of June
11, 1998. On July 3, 1997, there was a three-for-two stock split on all shares
of stock owned by stockholders as of June 12, 1997. The stock prices and
dividends in the table set forth above have been adjusted to reflect these
splits.
The Company paid its first cash dividend on June 22, 1987, and has paid
dividends during each subsequent quarter. Future dividend payments will depend
on the Company's earnings, capital requirements, financial condition and other
factors considered relevant by the Board of Directors.
The number of record holders of The Home Depot's Common Stock as of April 14,
2000 was 196,126 (excluding individual participants in nominee security position
listings).
RECENT SALES OF UNREGISTERED SECURITIES
In September 1999, the Company issued $500 million of its 6 1/2% Senior Notes
due September 24, 2004 in a transaction not registered under the Securities Act
of 1933. The transaction was exempt from registration under Section 4(2) of the
Securities Act. The Senior Notes were subsequently exchanged for identical notes
registered under the Securities Act.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of The Home Depot, Inc. for and as of
the end of each of the periods indicated in the five-year period ended January
30, 2000 have been derived from the audited consolidated financial statements of
The Home Depot, Inc., which consolidated financial statements have been audited
by KPMG LLP. The selected consolidated financial data should be read in
conjunction with the consolidated financial statements of The Home Depot, Inc.,
including the notes to those consolidated financial statements, and the audit
reports of KPMG LLP, which are incorporated by reference elsewhere herein.
17
<PAGE> 20
<TABLE>
<CAPTION>
Fiscal Year (1)
--------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(amounts in millions)
<S> <C> <C> <C> <C> <C>
Net Sales ......................... $38,434 $30,219 $24,156 $19,535 $15,470
Net Earnings ...................... 2,320 1,614 1,160(2) 938 732
Diluted Earnings per Share(3) ..... 1.00 0.71 0.52(2) 0.43 0.34
Total Assets ...................... 17,081 13,465 11,229 9,342 7,354
Long-Term Debt .................... 750 1,566 1,303 1,247 720
Cash Dividends per Share(3) ....... 0.11 0.08 0.06 0.05 0.04
</TABLE>
(1) Fiscal 1995, 1996, 1997, 1998 and 1999 refer to the fiscal years ended
January 28, 1996; February 2, 1997; February 1, 1998; January 31, 1999;
and January 30, 2000, respectively. Fiscal year 1996 consisted of 53
weeks; all other fiscal years noted consisted of 52 weeks.
(2) Includes the effect of a $104 million pre-tax non-recurring charge.
(3) All per share data have been adjusted for a three-for-two stock split
on December 30, 1999.
18
<PAGE> 21
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The data below reflect 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.
<TABLE>
<CAPTION>
PERCENTAGE
INCREASE (DECREASE)
IN DOLLAR AMOUNTS
FISCAL YEAR(1) ------------------------
SELECTED CONSOLIDATED ------------------------------------------- 1999 1998
STATEMENTS OF EARNINGS DATA 1999 1998 1997 vs. 1998 vs. 1997
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES ........................................... 100.0% 100.0% 100.0% 27.2% 25.1%
GROSS PROFIT ........................................ 29.7 28.5 28.1 32.6 26.9
OPERATING EXPENSES:
Selling and Store Operating(2) .................. 17.8 17.7 17.8 27.9 24.1
Pre-Opening ..................................... 0.3 0.3 0.3 28.4 35.4
General and Administrative ...................... 1.7 1.7 1.7 30.3 24.7
Non-Recurring Charge ............................ -- -- 0.4 NM(3) NM(3)
----------- ----------- ----------- --------- ---------
Total Operating Expenses ..................... 19.8 19.7 20.2 28.1 21.7
----------- ----------- ----------- --------- ---------
OPERATING INCOME ............................. 9.9 8.8 7.9 42.6 40.3
INTEREST INCOME (EXPENSE):
Interest and Investment Income ................. 0.1 0.1 0.2 23.3 (31.8)
Interest Expense ............................... (0.1) (0.1) (0.2) (24.3) (11.9)
----------- ----------- ----------- --------- ---------
Interest, net .............................. -- -- -- (228.6) (450.0)
----------- ----------- ----------- --------- ---------
Earning Before Income Taxes ................ 9.9 8.8 7.9 43.3 39.8
Income Taxes ........................................ 3.9 3.5 3.1 42.7 40.9
----------- ----------- ----------- --------- ---------
NET EARNINGS ................................. 6.0% 5.3% 4.8% 43.7% 39.1%
----------- ----------- ----------- --------- ---------
SELECTED CONSOLIDATED SALES DATA(4)
Number of Transactions (000s) ....................... 797,229 665,125 550,226 19.9% 20.9%
Average Sale per Transaction ........................ $ 47.87 $ 45.05 $ 43.63 6.3 3.3
Weighted Average Weekly Sales Per Operating Store ... $ 876,000 $ 844,000 $ 829,000 3.8 1.8
Weighted Average Sales per Square Foot .............. $ 422.53 $ 409.79 $ 405.56 3.1 1.0
</TABLE>
- ----------------------
(1) Fiscal years 1999, 1998 and 1997 refer to the fiscal years ended
January 30, 2000; January 31, 1999; and February 1, 1998, respectively.
(2) Minority interest has been reclassified to selling and store operating
expenses.
(3) Not meaningful.
(4) Excludes wholly-owned subsidiaries: Apex Supply Company, Georgia
Lighting, Maintenance Warehouse and National Blinds and Wallpaper.
19
<PAGE> 22
RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the Company's
performance during the past three fiscal years, the following discussion should
be read in conjunction with the consolidated financial statements and the notes
to consolidated financial statements presented in our Annual Report to
Stockholders for the fiscal year ended January 30, 2000, which are incorporated
herein by reference.
FISCAL YEAR ENDED JANUARY 30, 2000 COMPARED TO JANUARY 31, 1999
Net sales for fiscal 1999 increased 27.2% to $38.4 billion from $30.2 billion in
fiscal 1998. This increase was attributable to, among other things, full year
sales from the 138 new stores opened during fiscal 1998, a 10% comparable
store-for-store sales increase, and 169 new store openings and six store
relocations during fiscal 1999.
Gross profit as a percent of sales was 29.7% for fiscal 1999 compared to 28.5%
for fiscal 1998. The rate increase was primarily attributable to a lower cost of
merchandise resulting from product line reviews and increased sales of imported
products, other merchandising initiatives begun in prior years and continued
during fiscal 1999, and sales mix shifts to higher gross margin product
categories and assortments. In addition, inventory and refund systems
improvements and more effective training resulted in better inventory shrink
results and lower product markdowns.
Operating expenses as a percent of sales were 19.8% for fiscal 1999 compared to
19.7% for fiscal 1998. Selling and store operating expenses as a percent of
sales increased to 17.8% in fiscal 1999 from 17.7% in fiscal 1998. The increase
was primarily attributable to higher store selling payroll expenses resulting
from market wage pressures and an increase in employee longevity, as well as to
the Company's continued investment in new customer service initiatives. In
addition, medical costs increased due to higher family enrollment in the
Company's medical plans, increased claims and higher prescription drug costs.
The Company's strong financial performance during fiscal 1999 also resulted in
higher bonus expenses as a percent of sales. Credit card discounts increased as
a result of higher penetrations of credit card sales and increases in
non-private label discount rates. Partially offsetting these increases were
lower net advertising expenses resulting from higher cooperative advertising
participation by vendors and economies realized from the increased use of
national advertising.
Pre-opening expenses as a percent of sales were 0.3% for both fiscal 1999 and
1998. The Company opened 169 new stores and relocated six stores in fiscal 1999,
compared to 138 new stores and four store relocations in fiscal 1998.
Pre-opening expenses averaged $643,000 per store in fiscal 1999 compared to
$618,000 per store in fiscal 1998. The higher average expense was primarily due
to the opening of more EXPO Design Center stores and expansion into certain new
Home Depot markets, which involved longer pre-opening periods and higher
training, travel and relocation costs.
General and administrative expenses as a percent of sales were 1.7% for both
fiscal 1999 and 1998. Incremental expenses related to long-term growth and
business planning initiatives,
20
<PAGE> 23
including Internet development, international operations and the opening of four
new divisional offices, were offset by efficiencies realized from increased
sales.
Interest and investment income as a percent of sales was 0.1% for both fiscal
1999 and 1998. Interest expense as a percent of sales was 0.1% for both
comparable periods.
The Company's combined federal and state effective income tax rate decreased to
39.0% for fiscal 1999 from 39.2% for fiscal 1998. The decrease was attributable
to higher tax credits in fiscal 1999 compared to fiscal 1998.
Net earnings as a percent of sales were 6.0% for fiscal 1999 compared to 5.3%
for fiscal 1998, reflecting a higher gross profit rate partially offset by
higher operating expenses as a percent of sales as described above. Diluted
earnings per share were $1.00 for fiscal 1999 compared to $0.71 for fiscal 1998.
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FEBRUARY 1, 1998
Net sales for fiscal 1998 increased 25.1% to $30.2 billion from $24.2 billion in
fiscal 1997. This increase was attributable to, among other things, full year
sales from the 112 new stores opened during fiscal 1997, a 7% comparable
store-for-store sales increase, and 138 new store openings and four store
relocations during fiscal 1998. One store opened during fiscal 1998 was
subsequently closed during the year and reopened during fiscal 1999.
Gross profit as a percent of sales was 28.5% for fiscal 1998 compared to 28.1%
for fiscal 1997. The rate increase was primarily attributable to a lower cost of
merchandise resulting from product line reviews and other merchandising
initiatives begun in fiscal 1996 and continued through fiscal 1997 and 1998. In
addition, sales mix changes, better inventory shrink results and benefits from
import strategies contributed to the overall gross profit improvement.
Operating expenses as a percent of sales were 19.7% for fiscal 1998 compared to
20.2% for fiscal 1997. Operating expenses for fiscal 1997 included a $104
million non-recurring charge related to the settlements of a class action gender
discrimination lawsuit and three other gender discrimination lawsuits. Excluding
the non-recurring charge, operating expenses as a percent of sales were 19.8%
for fiscal 1997.
Selling and store operating expenses as a percent of sales decreased to 17.7% in
fiscal 1998 from 17.8% in fiscal 1997. The decrease was primarily attributable
to lower net advertising expenses resulting from higher cooperative advertising
participation by vendors, increased use of national advertising and leverage
achieved from opening stores in existing markets. In addition, improved claims
management and focus on safety programs resulted in lower workers' compensation
and general liability claims experience as a percent of sales. Also, minority
interest decreased from fiscal 1997, mainly due to the purchase of the remaining
25% of The Home Depot Canada partnership from The Molson Companies during the
first quarter of fiscal 1998. Partially offsetting these decreases were higher
medical costs from increased family enrollment in the Company's medical plans
and higher store selling payroll expenses as a percent of sales. The increase in
store selling payroll expenses was primarily due to increased sales penetrations
in
21
<PAGE> 24
higher margin decor categories, which require more hours and higher average pay
rates to support. Overall productivity, in terms of sales per labor hour,
increased from fiscal 1997.
Pre-opening expenses as a percent of sales were 0.3% for both fiscal 1998 and
1997. The Company opened 138 new stores and relocated four stores in fiscal
1998, and opened 112 new stores and relocated five stores in fiscal 1997.
Pre-opening expenses averaged $618,000 per store in fiscal 1998 compared to
$559,000 per store in fiscal 1997. The higher average expense resulted primarily
from the Company's initial entry into markets such as Chile, Puerto Rico and
Alaska, which involve longer pre-opening periods and higher travel and
relocation costs.
General and administrative expenses as a percent of sales were 1.7% for both
fiscal 1998 and 1997. Incremental expenses related to long-term growth and
business planning initiatives incurred in fiscal 1998 were offset by
efficiencies realized from increased sales.
Interest and investment income as a percent of sales decreased to 0.1% in fiscal
1998 from 0.2% in fiscal 1997 due to lower investment balances and lower
interest rates. Interest expense as a percent of sales was 0.1% in fiscal 1998
compared to 0.2% in fiscal 1997. The decrease from fiscal 1997 was primarily
attributable to economies realized from a 25.1% increase in sales for fiscal
1998 and higher capitalized interest resulting from a higher percentage of owned
stores under construction.
The Company's combined federal and state effective income tax rate was 39.2% for
fiscal 1998 compared to 38.9% for fiscal 1997. The increase was due to a
reduction in tax-exempt interest income as investment balances declined during
the year and to higher effective state tax rates.
Net earnings as a percent of sales were 5.3% for fiscal 1998 compared to 4.8%
for fiscal 1997, reflecting a higher gross profit rate, lower selling and store
operating expenses as a percent of sales and the non-recurring charge recorded
in fiscal 1997. Diluted earnings per share were $0.71 for fiscal 1998 compared
to $0.52 for fiscal 1997.
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.
The Company plans to open approximately 200 new stores and relocate six existing
stores during fiscal 2000. It is anticipated that approximately 89% of these
locations will be owned, and the remainder will be leased. The Company also
plans to open approximately 240 stores, including relocations, in fiscal 2001.
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
22
<PAGE> 25
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 locations for 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 is currently estimated to average
approximately $13.2 million per location. The cost to remodel and/or fixture
stores to be leased is expected to average approximately $4.3 million per store.
In addition, each new store will require approximately $3.2 million to finance
inventories, net of vendor financing.
During fiscal 1999, the Company issued $500 million of 6 1/2% 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 commencing
March 15, 2000. 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.
During fiscal 1999, the Company redeemed its 3 1/4% Convertible Subordinated
Notes. A total principal amount of $1.1 billion was converted into 72 million
shares of the Company's common stock. As a result, the total principal amount
converted, net of unamortized expenses of the original debt issue, was credited
to common stock at par and to additional paid-in capital in the amount of $1.1
billion.
The Company has a commercial paper program that allows borrowings up to a
maximum of $800 million. As of January 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 January 30, 2000, the Company had $168 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, funds available from the operating
lease agreements, 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.
YEAR 2000
During fiscal 1999, the Company addressed a universal situation commonly
referred to as the "Year 2000 Problem." The Company implemented extensive
testing of its own systems and also assessed the year 2000 compliance status of
certain third parties, including vendors and infrastructure providers. To date,
the Company has not experienced any material year 2000
23
<PAGE> 26
system problems, nor does it believe there will be any future material adverse
impact to the Company's business, operations or financial condition related to
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133," which deferred implementation of SFAS 133 by one year. Consequently, SFAS
133 will be effective for all fiscal quarters of fiscal years beginning after
June 15, 2000.
SFAS 133 requires all derivatives to be carried on the balance sheet at fair
value. Changes in the fair value of derivatives must be recognized in the
Company's Consolidated Statements of Earnings when they occur; however, there is
an exception for derivatives that qualify as hedges as defined by SFAS 133. If a
derivative qualifies as a hedge, a company can elect to use "hedge accounting"
to eliminate or reduce the income statement volatility that would arise from
reporting changes in a derivative's fair value. Adoption of SFAS 133 is not
expected to materially impact the Company's reported financial results.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Certain statements we make in this report, and other written or oral statements
made by or on behalf of the Company, may constitute "forward-looking statements"
within the meaning of the federal securities laws. Words or phrases such as
"should result," "are expected to," "we estimate," "we project," or similar
expressions are intended to identify forward-looking statements. Examples of
such statements in this report include descriptions of our plans with respect to
new store openings and relocations, our plans to enter new markets and
expectations relating to our continuing growth. 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. Management believes that these forward-looking statements are
reasonable; however, you should not place undue reliance on such statements.
Such statements speak only as of the date they are made, and we undertake no
obligation to publicly update or revise any forward-looking statement, whether
as a result of future events, new information or otherwise.
24
<PAGE> 27
The following are some of the factors that could cause the Company's actual
results to differ materially from the expected results described in the
Company's forward-looking statements:
o Adverse or unanticipated weather conditions, which may affect the
Company's overall level of sales and sales of particular lines of
products, such as building materials, lumber and lawn and garden
supplies.
o Instability of costs and availability of sourcing channels, which may
affect the prices that the Company pays for certain commodity products,
such as lumber and plywood, as well as the Company's ability to improve
its mix of merchandise. Our cost of sales is affected by our ability to
maintain favorable arrangements and relationships with our suppliers.
Our sources of supply may be affected by trade restrictions, tariffs,
currency exchange rates, transport costs and capacity, and other
factors affecting domestic and international markets.
o Our ability to attract, train and retain highly qualified associates to
staff both existing and new stores.
o Conditions affecting the availability, acquisition, development and
ownership of real estate, including local zoning and land use issues,
environmental regulations and general conditions in the commercial real
estate market.
o General economic conditions, which affect consumer confidence and home
improvement and home-building spending, including interest rates, the
overall level of economic activity, the availability of consumer credit
and mortgage financing and unemployment rates.
o The impact of competition, including competition for customers,
locations and products and in other important aspects of our business.
Our primary competitors include chains of electrical, plumbing and
building materials supply houses, lumber yards, home improvement
stores and other local, regional or national hardware stores, as well
as discount department stores and any other channel of distribution
that offers products that we sell. Our business is highly competitive,
and we may face new types of competitors as we enter new markets or
lines of business.
o Changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations and environmental and land use
regulations, and uncertainties of litigation.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have not entered into any transactions using derivative financial instruments
or derivative commodity instruments and believe that our exposure to market risk
associated with other financial instruments (such as investments and borrowings)
and interest rate risk is not material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
We refer you to the "Consolidated Statements of Earnings," "Consolidated Balance
Sheets," "Consolidated Statements of Stockholders' Equity and Comprehensive
Income," "Consolidated
25
<PAGE> 28
Statements of Cash Flows," "Notes to Consolidated Financial Statements" and
"Independent Auditors' Report" contained in our Annual Report to Stockholders
for the fiscal year ended January 30, 2000.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We refer you to our Proxy Statement for the 2000 Annual Meeting of Stockholders
under the heading "Election of Directors and Director Biographies," "Director
Biographies" and "Board of Directors Information." Biographical information on
our executive officers is contained in Item I of this Annual Report on Form
10-K.
26
<PAGE> 29
Item 11. EXECUTIVE COMPENSATION
We refer you to the information in our Proxy Statement for the 2000 Annual
Meeting of Stockholders under the heading "Executive Compensation."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
We refer you to the information in our Proxy Statement for the 2000 Annual
Meeting of Stockholders under the heading "Stock Ownership."
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We refer you to the information in our Proxy Statement for the 2000 Annual
Meeting of Stockholders under the heading "Insider Transactions."
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are incorporated by reference from pages 22
through 33 of our Annual Report to Stockholders for the fiscal year ended
January 30, 2000, as provided in Item 8 hereof:
- Consolidated Statements of Earnings for the fiscal years ended
January 30, 2000; January 31, 1999 and February 1, 1998.
- Consolidated Balance Sheets as of January 30, 2000 and January
31, 1999.
- Consolidated Statements of Stockholders' Equity and
Comprehensive Income for the fiscal years ended January 30,
2000, January 31, 1999 and February 1, 1998.
- Consolidated Statements of Cash Flows for the fiscal years
ended January 30, 2000, January 31, 1999 and February 1, 1998.
- Notes to Consolidated Financial Statements.
- Independent Auditors' Report.
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as the required information is inapplicable or the
information is presented
27
<PAGE> 30
in the consolidated financial statements or related notes.
(b) REPORTS ON FORM 8-K
There were no Current Reports on Form 8-K filed during the fourth quarter of
fiscal 1999.
(c) EXHIBITS
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits
or appendices previously filed with the SEC, as indicated by the references in
brackets.
*3.l Restated Certificate of Incorporation of The Home Depot, Inc.,
as amended. [FORM 10-Q FOR THE FISCAL QUARTER ENDED MAY 2,
1999, EXHIBIT 3.1]
3.2 By-laws, as amended and restated.
*10.1 Credit Agreement dated September 17, 1999 (the "Credit
Agreement") 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. [FORM 10-Q FOR THE FISCAL QUARTER ENDED OCTOBER 31,
1999, EXHIBIT 10.1]
10.2 Assignment and Acceptance of the Credit Agreement dated
February 23, 2000 by and among The Home Depot, Inc., the banks
party thereto, Bank of America, N.A., as Administrative Agent,
Wachovia Bank, N.A., as Syndication Agent, and First Union
National Bank and Bank of New York, as Co-Documentation
Agents.
10.3 Assignment and Acceptance of the Credit Agreement dated March
31, 2000 by and among The Home Depot, Inc., the banks party
thereto, Bank of America, N.A., as Administrative Agent,
Wachovia Bank, N.A., as Syndication Agent, and First Union
National Bank and The Bank of New York, as Co-Documentation
Agents.
*10.4 +Corporate Office Management Bonus Plan of the Registrant
dated March 1, 1991. [FORM 10-K FOR THE FISCAL YEAR ENDED
FEBRUARY 1, 1998, EXHIBIT 10.2]
*10.5 +Employee Stock Purchase Plan, as amended. [APPENDIX A TO
REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF
STOCKHOLDERS HELD MAY 31, 1995]
*10.6 +Senior Officers' Bonus Pool Plan, as amended. [APPENDIX A TO
REGISTRANT'S PROXY STATEMENT FOR THE ANNUAL MEETING OF
STOCKHOLDERS HELD MAY 26, 1999]
*10.7 +Executive Officers' Bonus Plan. [APPENDIX B TO REGISTRANT'S
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS HELD
MAY 27, 1998]
*10.8 +The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan. [FORM
10-K FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 10.5]
28
<PAGE> 31
*10.9 +Executive Medical Reimbursement Plan, effective January 1,
1992. [FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31, 1999,
EXHIBIT 10.7]
*10.10 +The Home Depot ESOP Restoration Plan. [FORM 10-K FOR THE
FISCAL YEAR ENDED JANUARY 29, 1995, EXHIBIT 10.8]
*10.11 Participation Agreement dated as of October 22, 1998 among The
Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc. as
Lessee; HD Real Estate Funding Corp. II as Facility Lender;
Credit Suisse Leasing 92A L.P. as Lessor; The Bank of New York
as Indenture Trustee; and Credit Suisse First Boston
Corporation and Invemed Associates, Inc. as Initial
Purchasers. [FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999,
EXHIBIT 10-10.]
*10.12 Participation Agreement dated as of June 25, 1996 among The
Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc. as
Lessee and Construction Agent; HD Real Estate Funding Corp. as
Facility Lender; the lenders named on the Schedule thereto as
Lenders; Credit Suisse First Boston Corporation as Agent Bank
and Lender; and Credit Suisse Leasing 92A L.P. as Lessor.
[FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT 10.11]
*10.13 First Amendment and Supplement to the Participation Agreement
dated as of May 8, 1997 among The Home Depot, Inc. as
Guarantor; Home Depot U.S.A., Inc. as Lessee and Construction
Agent; HD Real Estate Funding Corp. as Facility Lender; the
lenders named on the Schedule thereto as Lenders; Credit
Suisse First Boston Corporation as Agent Bank and Lender; and
Credit Suisse Leasing 92A L.P. as Lessor. [FORM 10-K FOR THE
YEAR ENDED JANUARY 31, 1999, EXHIBIT 10-12.]
*10.14 Master Modification Agreement dated as of April 20, 1998 among
The Home Depot, Inc. as Guarantor; Home Depot U.S.A., Inc., as
Lessee and Construction Agent; HD Real Estate Funding Corp.,
as Facility Lender; Credit Suisse Leasing 92A L.P. as Lessor;
the lenders named on the Schedule thereto as Lenders; and
Credit Suisse First Boston Corporation as Agent Bank. [FORM
10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT 10.13]
*10.15 Indenture, dated as of September 27, 1999 among The Home
Depot, Inc., Credit Suisse First Boston Corporation and
Invemed Associates. [FORM S-4 (FILE NO. 333-89935) FILED
OCTOBER 29, 1999, EXHIBIT 4.1]
*10.16 +Supplemental Executive Choice Program, effective January 1,
1999. [FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1999, EXHIBIT
10.14]
*11 Computation of Earnings Per Common and Common Equivalent
Share. [ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR
ENDED JANUARY 30, 2000, FILED HEREWITH AS EXHIBIT 13, NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS, NOTE 7]
29
<PAGE> 32
13 The Registrant's Annual Report to Stockholders for the fiscal
year ended January 30, 2000. Only those portions of said
report which are specifically designated in this Form 10-K as
being incorporated by reference are being electronically filed
pursuant to the Securities Exchange Act of 1934.
*21 List of Subsidiaries of the Registrant. [FORM 10-K FOR THE
FISCAL YEAR ENDED FEBRUARY 1, 1998, EXHIBIT 21]
23 Consent of Independent Auditors.
24 Special Powers of Attorney authorizing execution of this Form
10-K Annual Report have been granted and are filed herewith as
follows:
Power of Attorney from Frank Borman.
Power of Attorney from John L. Clendenin.
Power of Attorney from Berry R. Cox.
Power of Attorney from William S. Davila.
Power of Attorney from Milledge A. Hart, III.
Power of Attorney from Bonnie G. Hill.
Power of Attorney from Kenneth G. Langone.
Power of Attorney from M. Faye Wilson.
27 Financial Data Schedule. [FILED ELECTRONICALLY WITH SEC ONLY.]
- ----------
+Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this form pursuant to Item 14(c) of this report.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Arthur M. Blank
----------------------------------
(Arthur M. Blank, President & CEO)
Date: April 20, 2000
-------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, The Home Depot, Inc., and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bernard Marcus Chairman of the Board April 20, 2000
- ----------------------------------
(Bernard Marcus)
/s/ Arthur M. Blank President & CEO April 20, 2000
- ---------------------------------- and Director
(Arthur M. Blank) (Principal Executive Officer)
/s/ Ronald M. Brill Executive Vice President,
- ---------------------------------- Chief Administrative Officer, Assistant April 20, 2000
(Ronald M. Brill) Secretary and Director
/s/ Dennis Carey Executive Vice President and April 20, 2000
- ---------------------------------- Chief Financial Officer (Principal Financial
(Dennis Carey) Officer)
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Carol B. Tome Senior Vice President-Finance April 20, 2000
- ---------------------------------- and Accounting (Principal
(Carol B. Tome) Accounting Officer)
* Director
- ----------------------------------
(Frank Borman)
* Director
- ----------------------------------
(John L. Clendenin)
* Director
- ----------------------------------
(Berry R. Cox)
* Director
- ----------------------------------
(William Davila)
* Director
- ----------------------------------
(Milledge A. Hart, III)
* Director
- ----------------------------------
(Bonnie G. Hill)
* Director
- ----------------------------------
(Kenneth G. Langone)
* Director
- ----------------------------------
(M. Faye Wilson)
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign this
report on behalf of each of the above-indicated directors of the
Registrant pursuant to powers of attorney, executed on behalf of each
such director.
By: /s/ Arthur M. Blank
-----------------------------------
(Arthur M. Blank, Attorney-in-fact)
32
<PAGE> 35
EXHIBIT INDEX
3.2 By-laws, as amended and restated.
10.2 Assignment and Acceptance of the Credit Agreement dated
February 23, 2000 by and among The Home Depot, Inc., the banks
party thereto, Bank of America, N.A., as Administrative Agent,
Wachovia Bank, N.A., as Syndication Agent, and First Union
National Bank and Bank of New York, as Co-Documentation
Agents.
10.3 Assignment and Acceptance of the Credit Agreement dated March
31, 2000 by and among The Home Depot, Inc., the banks party
thereto, Bank of America, N.A., as Administrative Agent,
Wachovia Bank, N.A., as Syndication Agent, and First Union
National Bank and The Bank of New York, as Co-Documentation
Agents.
13 The Registrant's Annual Report to Stockholders for the fiscal
year ended January 30, 2000. Only those portions of said
report which are specifically designated in this Form 10-K as
being incorporated by reference are being electronically filed
pursuant to the Securities Exchange Act of 1934.
23 Consent of Independent Auditors.
24 Special Powers of Attorney authorizing execution of this Form
10-K Annual Report have been granted and are filed herewith as
follows:
Power of Attorney from Frank Borman.
Power of Attorney from John L. Clendenin.
Power of Attorney from Berry R. Cox.
Power of Attorney from William S. Davila.
Power of Attorney from Milledge A. Hart, III.
Power of Attorney from Bonnie G. Hill.
Power of Attorney from Kenneth G. Langone.
Power of Attorney from M. Faye Wilson.
27 Financial Data Schedule. [FILED ELECTRONICALLY WITH SEC ONLY.]
- ----------
+Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this form pursuant to Item 14(c) of this report.
<PAGE> 1
EXHIBIT 3.2
THE HOME DEPOT, INC.
BY-LAWS (AMENDED AND RESTATED)
ARTICLE I.
MEETINGS OF STOCKHOLDERS
SECTION l. The annual meeting of the stockholders for the election of
Directors and for the transaction of such other business as may properly come
before the meeting shall be held on such date and at such time and place as the
Board of Directors may by resolution provide. Notice of any other business to
be brought before an annual meeting of stockholders by a stockholder must be
provided in writing to the Secretary of the Corporation not later than the
close of business on the 90th day nor earlier than the close of business on the
120th day prior to the date of the meeting. Such stockholder's notice shall set
forth (a) a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made and (b) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the proposal is made (i) the name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner and (ii) the
class and number of shares of the Corporation that are owned beneficially and
held of record by such stockholder and such beneficial owner. In addition, if
the stockholder intends to solicit proxies from the stockholders of the
Corporation, such stockholder's notice shall notify the Corporation of this
intent. If a stockholder fails to notify the Corporation of his or her intent
to solicit proxies and does in fact solicit proxies, the Chairman of the Board
shall have the authority, in his or her discretion, to strike the proposal or
nomination by the stockholder.
SECTION 2. Special meetings of the stockholders may be called at any
time by the Chairman of the Board, the President or the Board of Directors.
SECTION 3. Written notice of the time and place of every annual or
special meeting of the stockholders shall be given at least ten but not more
than sixty days previous to such meetings by personal delivery to the
stockholder of a copy of such notice or by mailing a copy of such notice
addressed to the stockholder at his post office address as the same shall
appear on the record of stockholders of the Corporation or, if he shall have
filed with the Secretary of the Corporation a written request that notices to
him be mailed to him at some other address, then addressed to him at such other
address; provided, however, that notice of any meeting to take action on a
proposed merger or consolidation of the Corporation or on a proposed sale of
all or substantially all of the assets of the Corporation shall be given at
least twenty but not more than sixty days prior to such meeting. Notice of a
special meeting of the stockholders shall also state the purpose or purposes
for which the meeting is called. Each notice of a special meeting of
stockholders shall indicate that it has been issued by or at the direction of
the person or persons calling the meeting. Notice shall be deemed given when
deposited, postage prepaid, in a United States post office or official
depository. A written waiver of notice signed by the stockholder entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a stockholder at a meeting shall constitute
a waiver of notice of such meeting, except when the stockholder attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be
1
<PAGE> 2
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
SECTION 4. Every annual meeting of the stockholders shall be held at
such place within or without the State of Delaware as may be determined by the
Board of Directors and stated in the notice of any such meeting, and every
special meeting shall be held at such place within or without the State of
Delaware as may be stated in the notice of such special meeting.
SECTION 5. No business shall be transacted at any special meeting of
the stockholders except that business which related to the purpose or purposes
set forth in the notice of the meeting.
SECTION 6. At each meeting of the stockholders there shall be present,
either in person or by proxy, the holders of a majority of the shares of the
Corporation entitled to vote thereat in order to constitute a quorum. Any
meeting of the stockholders at which a quorum is not present may be adjourned
from time to time to some other time without any new notice other than an
announcement at the meeting by the votes cast in person or by proxy of the
holders of a majority of those shares which are cast on a motion to adjourn,
provided, however, that if any adjournment is for more than thirty days, notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
SECTION 7. At all meetings of the stockholders, all questions except
as otherwise required by the laws of the State of Delaware shall be determined
by a majority of the votes cast at the meeting of the holders of shares
entitled to vote thereon. Upon all questions, every stockholder of record shall
be entitled at every meeting of stockholders to one vote for every share of
common stock standing in his name on the books of the Corporation and qualified
to vote. Holders of shares of $50 Series A Preferred Stock and $50 Series B
Preferred Stock all have not right to vote such shares at any meeting of
stockholders and shall have no voice in the management of the Corporation.
SECTION 8. At all meetings of the stockholders, absent stockholders
entitled to vote thereat may vote by proxy or by the attorney-in-fact thereof.
No proxy shall be valid after the expiration of three years from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the person executing it except as otherwise provided by the
laws of the State of Delaware.
SECTION 9. Any action required to be taken or which may be taken at a
meeting of the stockholders may be taken without a meeting, without prior
notice and without a vote if consent in writing, setting forth the action so
taken, shall be signed by the holders of stock having not less than the minimum
number of votes necessary to take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate actions without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II.
DIRECTORS
SECTION 1. The business and affairs of the Corporation shall be
managed by and under the direction of the Board of Directors. Except as
otherwise provided by law and except as hereinafter otherwise provided for
filling vacancies, the directors of the Corporation shall be elected by the
stockholders entitled to vote at the annual meeting of the stockholders, to
hold office until the expiration of
2
<PAGE> 3
the term for which he is elected and until his successor has been elected and
qualified or until his earlier resignation or removal.
SECTION 2. An annual meeting of the Board of Directors shall be held
after each annual election of directors. If such election occurs at an annual
meeting of stockholders, the annual meeting of the Board of Directors shall
take place as soon after such written consent is duly filed with the
Corporation as is practicable.
SECTION 3. Special meetings of the Board of Directors shall be called
at any time by the Secretary at the direction of the Chairman of the Board, the
President or a majority of the directors.
SECTION 4. Written notice of each special meeting of the Board of
Directors shall be given to each member thereof specifying the time and place
of the meeting. Notice shall be given by first class mail, telegram, radiogram,
telex or personal service. At least forty-eight hours' notice must be given by
telegram, radiogram, telex or personal service when less than six days' notice
is given. If notice to a director is given by mail, the notice shall be
directed to him at the address designated by him for the purpose, or, if none
is designated, at his last known address, and shall be deemed given when
deposited, postage prepaid, in a post office or official depository of any
nation. If notice to a director is given by telegram, radiogram or telex, it
shall be directed to his last known address and, in the case of notice by
telegram or radiogram, shall be deemed given when received by the
communications carrier. Notice by telex shall be deemed given when transmitted.
A written waiver of notice signed by the director entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except when the director attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of
any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the directors need be specified in any written waiver of notice.
SECTION 5. Except for meeting held after an annual meeting of
stockholders, meetings of the Board of Directors shall be held at such place as
may be specified in the notice thereof, or, if no place is specified in the
notice, at such other place or places as the Board of Directors may from time
to time fix thereof.
SECTION 6. Members of the Board of Directors may participate in a
meeting of the Board by means of conference telephone or similar communications
equipment by means of which all person participating in the meeting can hear
each other. Participation in a meeting pursuant to this section shall
constitute presence in person at such meeting.
SECTION 7. A majority of the total number of directors shall be
necessary to constitute a quorum for the transaction of business and the act of
the majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors. Any regular or special meeting of
the Board at which a quorum is not present may be adjourned from time to time
to some other place or time or both by a majority of the directors present
without any new notice other than an announcement at the meeting.
3
<PAGE> 4
SECTION 8. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution of the Board of
Directors and to the extent permitted by law, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority to (i) amend the certificate of
incorporation, (ii) adopt an agreement of merger or consolidation, (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution or (v) amend the by-laws of the Corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board.
SECTION 9. Any action required or permitted to be taken at any meeting
of the Board of Directors may be taken without a meeting if all members of the
Board consent thereto in writing and the writing is filed with the minutes of
proceedings of the Board.
SECTION 10. The Board of Directors of the Corporation shall consist of
not less than three nor more than fifteen members, the exact number of
Directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors.
SECTION 11. Directors may receive compensation for services to the
Corporation in their capacities as directors or otherwise in such manner and in
such amounts as may be fixed from time to time by resolution of the Board of
Directors.
SECTION 12. A majority of the Board of Directors shall be independent.
A director shall be considered independent for purposes hereof if he or she has
no relationship with the Company that may interfere with the exercise of his or
her independence from management and the Company. Examples of relationships
that would be considered as interfering with such exercise include:
1. a director being employed or having been employed by the
Company;
2. a director being a member of the immediate family of an
individual who is, or has been, employed by the Company or
any of its affiliates as an executive officer;
3. a director being employed by a significant customer or
supplier of the Company;
4. a director being affiliated with a paid advisor or consultant
to the Company;
5. a director having a personal services contract with the
Company;
6. a director being employed by a foundation, university or
other nonprofit institution that has received significant
charitable contributions from the Company that are disclosed
in the Company's proxy statement; and
7. a director being employed as an executive officer of another
company where any of the Company's executive officers serves
on that company's compensation committee.
4
<PAGE> 5
For purposes of item 3 above, "significant" shall have the meaning set forth in
the Recommendations of the Blue Ribbon Committee on Improving the Effectiveness
of Corporate Audit Committees (February 1999), which references Section
I.34(a)(4) of the American Law Institute Principles of Corporate Governance and
the accompanying commentary to that Section.
ARTICLE III.
OFFICERS
SECTION 1. The Board of Directors, at the annual meeting thereof,
shall appoint a Chairman of the Board, a President, a Treasurer and a
Secretary. The Board may at any time appoint one or more Vice Presidents,
Assistant Treasurers and Assistant Secretaries. Each such officer shall serve
from time of his appointment until a successor shall be chosen and qualified or
until his earlier resignation or removal. The compensation of the officers
shall be fixed by the Board.
SECTION 2. The Chairman of the Board shall preside at all meetings of
stockholders and of the Board of Directors. He shall be the chief executive
officer and head of the Corporation and, subject to the Board of Directors,
shall have the general control and management of the business and affairs of
the Corporation. He shall vote any shares of stock or other voting securities
owned by the Corporation. In general, he shall perform all duties incident to
the office of the Chairman of the Board and such other duties as may from time
to time be assigned to him by the Board.
SECTION 3. The President shall be the Chief operating officer of the
Corporation and, subject to the Board of Directors and the Chairman of the
Board, shall have control of the operational aspects of the business and
affairs of the Corporation. He shall see that all orders of the Chairman of the
Board are carried into effect, and shall perform all other duties necessary to
his office or properly required of him by the Board or the Chairman of the
Board.
SECTION 4. During the absence or disability of the President, or
during a vacancy in the office of President, the Vice President with the
greatest seniority shall perform the duties and have the powers of the
President.
SECTION 5. The Secretary shall have custody of the seal of the
Corporation. He shall keep the minutes of the Board of Directors, and of the
stockholders, and shall attend to the giving and serving of all notices of the
Corporation. He shall have charge of the certificate book and such other books
and papers as the Board may direct; and he shall perform such other duties as
may be incidental to his office or as may be assigned to him by the Board of
Directors. He shall also keep or cause to be kept a stock book, containing the
names, alphabetically arranged, of all persons who are stockholders of the
Corporation showing their respective addresses, the number of shares registered
in the name of each, and the dates when they respectively became the owners of
record thereof, and such books shall be open for inspection as prescribed by
the laws of the States of Delaware. During the absence or disability of the
Secretary, or during a vacancy in the office of Secretary, the Assistant
Secretary with the greatest seniority shall perform the duties and have the
powers of the Secretary.
SECTION 6. The Treasurer shall have the care and custody of the funds
and securities of the Corporation and shall deposit the same in the name of the
Corporation in such bank or banks as the Board of Directors may determine. The
Treasurer shall also have the care and custody of the Corporation's
5
<PAGE> 6
books of account and he shall be responsible for the general and cost
accounting functions of the Corporation. During the absence or disability of
the Treasurer, or during a vacancy in the office of Treasurer, the Assistant
Treasurer with the greatest seniority shall perform the duties and have the
powers of the Treasurer.
ARTICLE IV.
RESIGNATIONS, REMOVALS, VACANCIES AND
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. Any director or officer may resign his office at any time,
such resignation to be made in writing and to take effect from the time of its
receipt by the Corporation, unless some future time be fixed in the resignation
and in that case from that time. The acceptance of a resignation shall not be
required to make it effective. Nothing herein shall be deemed to affect any
contractual rights of the Corporation.
SECTION 2. Any officer may be removed with or without cause at any
time by the Board of Directors. Any employee of the Corporation may be removed
at any time by the Board of Directors or by an officer. The removal of an
officer or employee without cause shall be without prejudice to his contractual
rights, if any. The election or appointment of an officer or employee shall not
of itself create contractual rights. Any director or the entire Board may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
SECTION 3. Any vacancy or newly created directorship on the Board of
Directors may be filled by a majority vote of the Directors then in office, or
by majority vote of the stockholders.
SECTION 4. Each former, present or future director, officer, employee
or agent of the Corporation, and each person who may serve at the request of
the Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise shall be
indemnified by the Corporation in all events, to the fullest extent and in the
manner permitted by the laws of the State of Delaware then in effect.
ARTICLE V.
COMMON STOCK
SECTION 1. Certificates for shares of the common stock of the
Corporation shall be numbered and registered on the books of the Corporation in
the order in which they shall be issued and shall be signed by the Chairman of
the Board, the President or a Vice President, and the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer and sealed with the seal
of the Corporation.
SECTION 2. Transfers of shares shall be made upon the books of the
Corporation (i) only by the holder thereof in person or by power of attorney
duly executed and filed with the Corporation, (ii) in accordance with the
Shareholders Agreement, and (iii) upon the surrender to the Corporation of the
certificate or certificates for such shares.
6
<PAGE> 7
ARTICLE VI
PREFERRED STOCK
SECTION 1. Certificates for shares of the $50 Series A Preferred Stock
and the $50 Series B Preferred Stock of the Corporation shall be numbered and
registered on the books of the Corporation in the order in which they shall be
issued and shall be signed by the Chairman of the Board or the President or a
Vice President, and the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer and sealed with the seal of the Corporation.
SECTION 2. In accordance with the terms under which such preferred
shares were issued, all of the shares of the $50 Series A Preferred Stock of
the Corporation shall be deemed by the Corporation at its election expressed by
resolution of the Board of Directors but no later than six (6) calendar months
following the close of any fiscal year at which the Net Worth of the
Corporation and any subsidiaries thereof, computed in accordance with generally
accepted accounting principles consistently applied on a consolidated basis,
shall be equal to or exceed Ten Million Dollars ($10,000,000.00), and subject
to there being sufficient surplus to repurchase all of the Common Shares which
the Corporation is obligated to repurchase pursuant to the Shareholders
Agreement.
SECTION 3. In accordance with the terms under which such preferred
shares were issued, the shares of the $50 Series B Preferred Stock of the
Corporation shall be redeemed by the Corporation at the election of the holder
of such shares; provided, however, that such election may not be exercised at
any time prior to the redemption of the Series A Preferred Stock.
ARTICLE VII.
CHECKS, DRAFTS AND NOTES
The Chairman of the Board or the President or any officers designated
by Resolution of the Board of Directors shall sign all checks and drafts
necessary to be drawn and may accept any drafts drawn upon the Corporation in
due course of business. No check or draft shall be endorsed by the Corporation
and no promissory note, bond, debenture or other evidence of indebtedness shall
be made, signed, issued or endorsed by the Corporation unless signed by the
Chairman or the President or any officer designated under powers given by a
resolution of the Board except that any officer may endorse for collection or
deposit only, expressly stating the purpose of such endorsements, checks,
drafts and promissory notes to the order of the Corporation.
ARTICLE VIII.
SEAL
The seal of the Corporation shall be in the custody of the Secretary.
It shall be circular in form and shall have engraved upon it the name of the
Corporation arranged in a circle and the words and figures "Incorporated 1978
Delaware" across the center of the space enclosed.
7
<PAGE> 8
ARTICLE IX
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
The Corporation shall not be subject to the provisions of Section 203
of the General Corporation Law of the State of Delaware (Business Combination
with Interested Stockholders). This Article IX shall not be amended only by the
affirmative vote of a majority of the Corporation's stockholders entitled to
vote on such matter.
8
<PAGE> 1
EXHIBIT 10.2
ASSIGNMENT AND ACCEPTANCE
Dated February 23, 2000
Reference is made to the Credit Agreement dated as of September 17,
1999 (together with all amendments and modifications thereto, the "Credit
Agreement") among The Home Depot, Inc., a Delaware corporation (the
"Borrower"), the Banks (as defined in the Credit Agreement), Bank of America,
N.A., as Administrative Agent (the "Agent"), Wachovia Bank, N.A., as
Syndication Agent, and First Union National Bank and The Bank of New York, as
Co-Documentation Agents. Terms defined in the Credit Agreement are used herein
with the same meaning.
Bank of America, N.A. (the "Assignor") and Wachovia Bank, N.A. (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee,
without recourse to the Assignor, and the Assignee hereby purchases and assumes
from the Assignor, a 100% interest in and to all of the Assignor's rights and
obligations under the Credit Agreement as of the Effective Date (as defined
below) (including, without limitation, a 100% interest in the Assignor's
Commitment, a 100% interest in the Assignor's Swing Line Commitment, a 100%
interest in the Syndicated Loans owing to the Assignor, a 100% interest in the
Money Market Loans owing to the Assignor and a 100% interest in the Swing Line
Loans owing to the Assignor.
2. The Assignor (i) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document finished
pursuant thereto, other than it is the legal and beneficial owner of the
interest being assigned by it hereunder, that such interest is free and clear
of any adverse claim and that as of the date hereof (without giving effect to
assignments thereof which have not yet become effective), its Commitment is
$95,000,000, its Swing Line Commitment is $50,000,000, the aggregate
outstanding principal amount of Syndicated Loans owing to Assignor is $0.00,
the aggregate outstanding principal amount of the Money Market Loans owing to
Assignor is $0.00, and the aggregate outstanding principal amount of the Swing
Line Loans owing to the Assignor is $_0.00; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower of any of its
obligations under the Credit Agreement or any other instrument or document
furnished pursuant thereto; and (iii) attaches the Notes referred to in
paragraph 1 above and requests that the Agent exchange such Notes for new
Notes, each dated the date of the "Effective Date" (as hereafter defined) and
payable to the order of the Assignee, as follows: a Syndicated Loan Note in the
principal amount
<PAGE> 2
of $95,000,000, a Money Market Loan Note in the principal amount of
$800,000,000 and a Swing Line Note in the principal amount of $50,000,000.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.04(a) thereof (or any more recent financial statements of the
Borrower and its Subsidiaries delivered pursuant to Section 5.01(a) or (b)
thereof) and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Agent, the Assignor or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement;
(iii) confirms that it is a bank or financial institution; (iv) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement as are delegated to the Agent by the
terms thereof, together with such powers as are reasonably incidental thereto;
(v) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank; (vi) specifies as its Lending Office (and address
for notices) the office currently in effect for the Assignee under the Credit
Agreement, and (vii) represents and warrants that the execution, delivery and
performance of this Assignment and Acceptance are within its corporate powers
and have been duly authorized by all necessary corporate action.
4. The Effective Date for this Assignment and Acceptance shall
be Feb. 23, 2000 (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for execution and
acceptance by the Agent and to the Borrower for execution by the Borrower (if
required).
5. Upon such execution and acceptance by the Agent, from and
after the Effective Date, (i) the Assignee shall be a part to the Credit
Agreement and, to the extent rights and obligations have been transferred to it
by this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent its rights and
obligations have been transferred to the Assignee by this Assignment and
Acceptance, relinquish its rights (other than under Sections 8.03, 9.03 and
9.04 of the Credit Agreement) and be released from its obligations under the
Credit Agreement.
6. Upon such execution and acceptance by the Agent, from and
after the effective Date, the Agent shall make all payments in respect of the
interest assigned hereby to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments for periods prior to such acceptance by
the Agent directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
2
<PAGE> 3
BANK OF AMERICA, N.A.
By: /s/ Kathryn W. Robinson
-------------------------------
Name: Kathryn W. Robinson
Title: Managing Director
WACHOVIA BANK, N.A.
By: /s/ Thomas L. Gleason
-------------------------------
Name: Thomas L. Gleason
Title: Senior Vice President
BANK OF AMERICA, N.A.,
As Agent
By: /s/ Kathryn W. Robinson
------------------------------
Name: Kathryn W. Robinson
Title: Managing Director
3
<PAGE> 1
EXHIBIT 10.3
ASSIGNMENT AND ACCEPTANCE
Dated March 31, 2000
Reference is made to the Credit Agreement dated as of September 17,
1999 (together with all amendments and modifications thereto, the "Credit
Agreement") among The Home Depot, Inc., a Delaware corporation (the
"Borrower"), the Banks (as defined in the Credit Agreement), Bank of America,
N.A., as Administrative Agent (the "Agent"), Wachovia Bank, N.A., as
Syndication Agent, and First Union National Bank and The Bank of New York, as
Co-Documentation Agents. Terms defined in the Credit Agreement are used herein
with the same meaning.
Wachovia Bank, N.A. (the "Assignor") and The Chase Manhattan Bank (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee,
without recourse to the Assignor, and the Assignee hereby purchases and assumes
from the Assignor, a 100% interest in and to all of the Assignor's rights and
obligations under the Credit Agreement as of the Effective Date (as defined
below) (including, without limitation, a 100% interest in the Assignor's
Commitment, a 100% interest in the Assignor's Swing Line Commitment, a 100%
interest in the Syndicated Loans owing to the Assignor, a 100% interest in the
Money Market Loans owing to the Assignor and a 100% interest in the Swing Line
Loans owing to the Assignor.
2. The Assignor (i) makes no representations and warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of the Credit Agreement or any other instrument or document finished
pursuant thereto, other than that it is the legal and beneficial owner of the
interest being assigned by it hereunder, that such interest is free and clear
of any adverse claim and that as of the date hereof (without giving effect to
assignments thereof which have not yet become effective), its Commitment is
$95,000,000, its Swing Line Commitment is $50,000,000, the aggregate
outstanding principal amount of Syndicated Loans owing to Assignor is $0.00,
the aggregate outstanding principal amount of the Money Market Loans owing to
Assignor is $0.00, and the aggregate outstanding principal amount of the Swing
Line Loans owing to the Assignor is $0.00; (ii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower of any of its
obligations under the Credit Agreement or any other instrument or document
furnished pursuant thereto; and (iii) attaches the Notes referred to in
paragraph 1 above and requests that the Agent exchange such Notes for new
Notes, each dated the date of the "Effective Date" (as hereafter defined) and
payable to the order of the Assignee, as follows: a Syndicated Loan Note in the
principal amount of $95,000,000, a Money Market Loan Note in the principal
amount of $800,000,000 and a Swing Line Loan Note in the principal amount of
$50,000,000.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 4.04(a) thereof (or any more recent financial statements of the
Borrower and its Subsidiaries delivered pursuant to Section 5.01(a) or (b)
thereof) and such other documents and information as it has deemed
<PAGE> 2
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is a bank or financial institution; (iv)
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under the Credit Agreement as are delegated to the
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (v) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Bank; (vi) specifies as its Lending Office
(and address for notices) the office currently in effect for the Assignee under
the Credit Agreement, and (vii) represents and warrants that the execution,
delivery and performance of this Assignment and Acceptance are within its
corporate powers and have been duly authorized by all necessary corporate
action.
4. The Effective Date for this Assignment and Acceptance shall
be March 31, 2000 (the "Effective Date"). Following the execution of this
Assignment and Acceptance, it will be delivered to the Agent for execution and
acceptance by the Agent and to the Borrower for execution by the Borrower (if
required).
5. Upon such execution and acceptance by the Agent, from and
after the Effective Date, (i) the Assignee shall be a party to the Credit
Agreement and, to the extent rights and obligations have been transferred to it
by this Assignment and Acceptance, have the rights and obligations of a Bank
thereunder and (ii) the Assignor shall, to the extent its rights and
obligations have been transferred to the Assignee by this Assignment and
Acceptance, relinquish its rights (other than under Sections 8.03, 9.03 and
9.04 of the Credit Agreement) and be released from its obligations under the
Credit Agreement.
6. Upon such execution and acceptance by the Agent, from and
after the Effective Date, the Agent shall make all payments in respect of the
interest assigned hereby to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments for periods prior to such acceptance by
the Agent directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of Georgia.
1-2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused the Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written, such execution being made on
Schedule 1 hereto.
WACHOVIA BANK, N.A., as Assignor
By: /s/ Thomas L. Gleason
-----------------------------------
Name: Thomas L. Gleason
Title: Senior Vice President
THE CHASE MANHATTAN BANK, as Assignee
By: /s/ Margaret T. Lane
-----------------------------------
Name: Margaret T. Lane
Title: Vice President
THE CHASE MANHATTAN BANK, as Agent
By: /s/ Margaret T. Lane
-----------------------------------
Name: Margaret T. Lane
Title: Vice President
<PAGE> 1
CONSOLIDATED STATEMENTS OF EARNINGS
The Home Depot, Inc. and Subsidiaries
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales $ 38,434 $ 30,219 $ 24,156
Cost of Merchandise Sold 27,023 21,614 17,375
-------- -------- --------
Gross Profit 11,411 8,605 6,781
Operating Expenses:
Selling and Store Operating 6,832 5,341 4,303
Pre-Opening 113 88 65
General and Administrative 671 515 413
Non-Recurring Charge (note 8) -- -- 104
-------- -------- --------
Total Operating Expenses 7,616 5,944 4,885
-------- -------- --------
Operating Income 3,795 2,661 1,896
Interest Income (Expense):
Interest and Investment Income 37 30 44
Interest Expense (note 2) (28) (37) (42)
-------- -------- --------
Interest, net 9 (7) 2
-------- -------- --------
Earnings Before Income Taxes 3,804 2,654 1,898
Income Taxes (note 3) 1,484 1,040 738
-------- -------- --------
Net Earnings $ 2,320 $ 1,614 $ 1,160
-------- -------- --------
Basic Earnings Per Share (note 7) $ 1.03 $ 0.73 $ 0.53
Weighted Average Number of Common Shares Outstanding 2,244 2,206 2,188
-------- -------- --------
Diluted Earnings Per Share (note 7) $ 1.00 $ 0.71 $ 0.52
Weighted Average Number of Common Shares Outstanding Assuming Dilution 2,342 2,320 2,287
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
The Home Depot, Inc. and Subsidiaries
AMOUNTS IN MILLIONS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
2000 1999
----------- -----------
<S> <C> <C>
Assets
Current Assets:
Cash and Cash Equivalents $ 168 $ 62
Short-Term Investments, including current maturities of long-term investments 2 --
Receivables, net 587 469
Merchandise Inventories 5,489 4,293
Other Current Assets 144 109
-------- --------
Total Current Assets 6,390 4,933
-------- --------
Property and Equipment, at cost:
Land 3,248 2,739
Buildings 4,834 3,757
Furniture, Fixtures and Equipment 2,279 1,761
Leasehold Improvements 493 419
Construction in Progress 791 540
Capital Leases (notes 2 and 5) 245 206
-------- --------
11,890 9,422
Less Accumulated Depreciation and Amortization 1,663 1,262
-------- --------
Net Property and Equipment 10,227 8,160
-------- --------
Long-Term Investments 15 15
Notes Receivable 48 26
Cost in Excess of the Fair Value of Net Assets Acquired, net of accumulated
amortization of $33 at January 30, 2000 and $24 at January 31, 1999 311 268
Other 90 63
-------- --------
$ 17,081 $ 13,465
-------- --------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts Payable $ 1,993 $ 1,586
Accrued Salaries and Related Expenses 541 395
Sales Taxes Payable 269 176
Other Accrued Expenses 763 586
Income Taxes Payable 61 100
Current Installments of Long-Term Debt (notes 2 and 5) 29 14
-------- --------
Total Current Liabilities 3,656 2,857
-------- --------
Long-Term Debt, excluding current installments (notes 2 and 5) 750 1,566
Other Long-Term Liabilities 237 208
Deferred Income Taxes (note 3) 87 85
Minority Interest 10 9
Stockholders' Equity (notes 2, 4 and 6)
Common Stock, par value $0.05. Authorized: 5,000,000,000 shares; issued and
outstanding-2,304,317,000 shares at January 30, 2000 and 2,213,178,000
shares at January 31,1999 115 111
Paid-In Capital 4,319 2,817
Retained Earnings 7,941 5,876
Accumulated Other Comprehensive Income (27) (61)
-------- --------
12,348 8,743
Less Shares Purchased for Compensation Plans (notes 4 and 6) 7 3
-------- --------
Total Stockholders' Equity 12,341 8,740
-------- --------
Commitments and Contingencies (notes 5 and 9) $ 17,081 $ 13,465
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
The Home Depot, Inc. and Subsidiaries
AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
-------------- PAID-IN RETAINED COMPREHENSIVE OTHER TOTAL COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY STOCKHOLDERS' INCOME (1)
------ ------ ------- -------- ------------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 2,1997 $2,163 $ 108 $ 2,439 $ 3,407 $ 2 $ (1) $ 5,955
------ ------ ------- -------- --------- ----- ---------
Shares Sold Under Employee Stock
Purchase and Option Plans, net of
retirements (note 4) 12 1 123 -- -- -- 124
Tax Effect of Sale of Option Shares
by Employees -- -- 26 -- -- -- 26
Net Earnings -- -- -- 1,160 -- -- 1,160 $ 1,160
Translation Adjustments -- -- -- -- (30) -- (30) (30)
Immaterial Pooling of Interests 21 1 1 2 -- -- 4
Shares Purchased for Compensation
Plans (notes 4 and 6) -- -- -- -- -- (2) (2)
Cash Dividends ($0.063 per share) -- -- -- (139) -- -- (139)
-------
Comprehensive Income for Fiscal 1997 $ 1,130
------ ------ ------- -------- --------- ----- --------- -------
Balance, February 1, 1998 2,196 $ 110 $ 2,589 $ 4,430 $ (28) $ (3) $ 7,098
------ ------ ------- -------- --------- ----- ---------
Shares Sold Under Employee Stock
Purchase and Option Plans, net of
retirements (note 4) 17 1 165 -- -- -- 166
Tax Effect of Sale of Option Shares
by Employees -- -- 63 -- -- -- 63
Net Earnings -- -- -- 1,614 -- -- 1,614 1,614
Translation Adjustments -- -- -- -- (33) -- (33) (33)
Cash Dividends ($0.077 per share) -- -- - (168) -- -- (168)
-------
Comprehensive Income for Fiscal 1998 $ 1,581
------ ------ ------- -------- --------- ----- --------- -------
Balance, January 31, 1999 2,213 $ 111 $ 2,817 $ 5,876 $ (61) $ (3) $ 8,740
------ ------ ------- -------- --------- ----- ---------
Shares Sold Under Employee Stock
Purchase and Option Plans, net of
retirements (note 4) 19 1 273 -- -- -- 274
Tax Effect of Sale of Option Shares
by Employees -- -- 132 -- -- -- 132
Conversion of 3 1/4% Convertible
Subordinated Notes, net (note 2) 72 3 1,097 -- -- -- 1,100
Net Earnings -- -- -- 2,320 -- -- 2,320 2,320
Translation Adjustments -- -- -- -- 34 -- 34 34
Shares Purchased for Compensation
Plans (notes 4 and 6) -- -- -- -- (4) (4)
Cash Dividends ($0.113 per share) -- -- -- (255) -- -- (255)
-------
Comprehensive Income for Fiscal 1999 $ 2,354
------ ------ ------- -------- --------- ----- --------- =======
Balance, January 30, 2000 2,304 $ 115 $ 4,319 $ 7,941 $ (27) $ (7) $ 12,341
====== ====== ======= ======== ========= ===== =========
</TABLE>
(1) COMPONENTS OF COMPREHENSIVE INCOME ARE REPORTED NET OF RELATED TAXES.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Home Depot, Inc. and Subsidiaries
AMOUNTS IN MILLIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash Provided from Operations:
Net Earnings $ 2,320 $ 1,614 $ 1,160
Reconciliation of Net Earnings to Net Cash Provided by Operations:
Depreciation and Amortization 463 373 283
(Increase) Decrease in Receivables, net (85) 85 (166)
Increase in Merchandise Inventories (1,142) (698) (885)
Increase in Accounts Payable and Accrued Expenses 820 423 577
Increase in Income Taxes Payable 93 59 83
Other (23) 61 (23)
------- ------- -------
Net Cash Provided by Operations 2,446 1,917 1,029
------- ------- -------
Cash Flows from Investing Activities:
Capital Expenditures, net of $37, $41 and $44 of non-cash capital
expenditures in fiscal 1999, 1998 and 1997, respectively (2,581) (2,053) (1,420)
Purchase of Remaining Interest in The Home Depot Canada -- (261) --
Payments for Businesses Acquired, net (101) (6) (61)
Proceeds from Sales of Property and Equipment 87 45 85
Purchases of Investments (32) (2) (194)
Proceeds from Maturities of Investments 30 4 599
Advances Secured by Real Estate, net (25) 2 20
------- ------- -------
Net Cash Used in Investing Activities (2,622) (2,271) (971)
------- ------- -------
Cash Flows from Financing Activities:
(Repayments) Issuance of Commercial Paper Obligations, net (246) 246 --
Proceeds from Long-Term Borrowings, net 522 -- 15
Repayments of Long-Term Debt (14) (8) (40)
Proceeds from Sale of Common Stock, net 267 167 122
Cash Dividends Paid to Stockholders (255) (168) (139)
Minority Interest Contributions to Partnership 7 11 10
------- ------- -------
Net Cash Provided by (Used in) Financing Activities 281 248 (32)
------- ------- -------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 1 (4) --
Increase (Decrease) in Cash and Cash Equivalents 106 (110) 26
Cash and Cash Equivalents at Beginning of Year 62 172 146
------- ------- -------
Cash and Cash Equivalents at End of Year $ 168 $ 62 $ 172
------- ------- -------
Supplemental Disclosure of Cash Payments Made for:
Interest, net of interest capitalized $ 26 $ 36 $ 42
Income Taxes $ 1,396 $ 940 $ 685
------- ------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Home Depot, Inc. and Subsidiaries
>NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company operates Home Depot stores, which are full-service, warehouse-style
stores averaging approximately 108,000 square feet in size. The stores stock
approximately 40,000 to 50,000 different kinds of building materials, home
improvement supplies and lawn and garden products that are sold primarily to
do-it-yourselfers, but also to home improvement contractors, tradespeople and
building maintenance professionals. In addition, the Company operates EXPO
Design Center stores, which offer products and services primarily related to
design and renovation projects, and is currently testing two Villager's Hardware
stores, a convenience hardware concept that offers products and services for
home enhancement and smaller project needs. At the end of fiscal 1999, the
Company was operating 930 stores, including 854 Home Depot stores, 15 EXPO
Design Center stores and 2 Villager's Hardware stores in the United States; 53
Home Depot stores in Canada; 4 Home Depot stores in Chile; and 2 Home Depot
stores in Puerto Rico. Included in the Company's Consolidated Balance Sheets at
January 30, 2000 were $707 million of net assets of the Canada, Chile and
Argentina operations.
FISCAL YEAR
The Company's fiscal year is a 52- or 53-week period ending on the Sunday
nearest to January 31. Fiscal years 1999, 1998 and 1997, which ended January 30,
2000, January 31,1999 and February 1, 1998, respectively, consisted of 52 weeks.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries, and its majority-owned partnership. All significant
intercompany transactions have been eliminated in consolidation.
Stockholders' equity, share and per share amounts for all periods
presented have been adjusted for a three-for-two stock split effected in the
form of a stock dividend on December 30,1999, a two-for-one stock split effected
in the form of a stock dividend on July 2,1998, and a three-for-two stock split
effected in the form of a stock dividend on July 3,1997.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. The Company's cash and cash
equivalents are carried at fair market value and consist primarily of commercial
paper, money market funds, U.S. government agency securities and tax-exempt
notes and bonds.
MERCHANDISE INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market, as
determined by the retail inventory method.
INVESTMENTS
The Company's investments, consisting primarily of high-grade debt securities,
are recorded at fair value and are classified as available-for-sale.
INCOME TAXES
The Company provides for federal, state and foreign income taxes currently
payable, as well as for those deferred because of timing differences between
reporting income and expenses for financial statement purposes versus tax
purposes. Federal, state and foreign incentive tax credits are recorded as a
reduction of income taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their
<PAGE> 6
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
of a change in tax rates is recognized as income or expense in the period that
includes the enactment date.
The Company and its eligible subsidiaries file a consolidated U.S.
federal income tax return. Non-U.S. subsidiaries, which are consolidated for
financial reporting, are not eligible to be included in consolidated U.S.
federal income tax returns, and separate provisions for income taxes have been
determined for these entities. The Company intends to reinvest the unremitted
earnings of its non-U.S. subsidiaries and postpone their remittance.
Accordingly, no provision for U.S. income taxes for non-U.S. subsidiaries was
required for any year presented.
DEPRECIATION AND AMORTIZATION
The Company's buildings, furniture, fixtures and equipment are depreciated using
the straight-line method over the estimated useful lives of the assets.
Improvements to leased premises are amortized using the straight-line method
over the life of the lease or the useful life of the improvement, whichever is
shorter. The Company's property and equipment is depreciated using the following
estimated useful lives:
<TABLE>
<CAPTION>
LIFE
-----------
<S> <C>
Buildings 10-45 years
Furniture, fixtures and equipment 5-20 years
Leasehold improvements 5-30 years
Computer software 3-5 years
</TABLE>
ADVERTISING
Television and radio advertising production costs are amortized over the fiscal
year in which the advertisements first appear. All media placement costs are
expensed in the month the advertisement appears. Included in Current Assets in
the Company's Consolidated Balance Sheets were $24.4 million and $22.6 million
at the end of fiscal 1999 and 1998, respectively, relating to prepayments of
production costs for print and broadcast advertising.
COST IN EXCESS OF THE FAIR VALUE OF NET ASSETS ACQUIRED
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over 40 years. The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining useful life
can be recovered through undiscounted future operating cash flows of the
acquired operation.
The amount of goodwill impairment, if any, is measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds.
STORE PRE-OPENING COSTS
Non-capital expenditures associated with opening new stores are expensed as
incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment when circumstances indicate
the carrying amount of an asset may not be recoverable. An impairment is
recognized to the extent the sum of undiscounted estimated future cash flows
expected to result from the use of the asset is less than the carrying value.
Accordingly, when the Company commits to relocate or close a store, the
estimated unrecoverable costs are charged to selling and store operating
expense. Such costs include the estimated loss on the sale of land and
buildings, the book value of abandoned fixtures, equipment and leasehold
improvements, and a provision for the present value of future lease obligations,
less estimated sub-lease income.
STOCK COMPENSATION
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," encourages the use of a fair-value-based method
of accounting. As allowed by SFAS 123, the Company has elected to account for
its stock-based
<PAGE> 7
compensation plans under the intrinsic value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees." Under APB No. 25, compensation
expense would be recorded on the date of grant if the current market price of
the underlying stock exceeded the exercise price. The Company has adopted the
disclosure requirements of SFAS 123.
COMPREHENSIVE INCOME
Comprehensive income includes net earnings adjusted for certain revenues,
expenses, gains and losses that are excluded from net earnings under generally
accepted accounting principles. Examples include foreign currency translation
adjustments and unrealized gains and losses on investments.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities denominated in a foreign currency are translated into
U.S. dollars at the current rate of exchange on the last day of the reporting
period, revenues and expenses are translated at the average monthly exchange
rates, and all other equity transactions are translated using the actual rate on
the day of the transaction.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
RECLASSIFICATIONS
Certain balances in prior fiscal years have been reclassified to conform with
the presentation in the current fiscal year.
>NOTE 2
LONG-TERM DEBT
The Company's long-term debt at the end of fiscal 1999 and 1998 consisted of the
following (amounts in millions):
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
2000 1999
----------- -----------
<S> <C> <C>
3 1/4% Convertible Subordinated Notes, due
October 1, 2001; converted into shares of
common stock of the Company at a conversion
price of $15.3611 per share in October 1999 $ -- $1,103
6 1/2% Senior Notes, due September 15, 2004;
interest payable semi-annually on March 15
and September 15 beginning in 2000 500 --
Commercial Paper; weighted average
interest rate of 4.8% at January 31,1999 -- 246
Capital Lease Obligations; payable in varying
installments through January 31, 2027
(see note 5) 216 180
Installment Notes Payable; interest imputed
at rates between 5.2% and 10.0%; payable
in varying installments through 2018 45 27
Unsecured Bank Loan; floating interest rate
averaging 6.05% in fiscal 1999 and 5.90%
in fiscal 1998; payable in August 2002 15 15
Variable Rate Industrial Revenue Bonds;
secured by letters of credit or land;
interest rates averaging 2.9% during
fiscal 1999 and 3.8% during fiscal 1998;
payable in varying installments through 2010 3 9
------ ------
Total long-term debt 779 1,580
Less current installments 29 14
------ ------
Long-term debt, excluding current installments $ 750 $1,566
------ ------
</TABLE>
<PAGE> 8
On September 27, 1999, the Company issued $500 million of 6 1/2% Senior
Notes ("Senior Notes"). The Company, at its option, may redeem all or any
portion of the Senior Notes by notice to the holder. The Senior Notes are
redeemable at a redemption price, plus accrued interest, equal to the greater of
(1) 100% of the principal amount of the Senior Notes to be redeemed or (2) the
sum of the present values of the remaining scheduled payments of principal and
interest on the Senior Notes to maturity. The Senior Notes are not subject to
sinking fund requirements.
During fiscal 1999, the Company redeemed its 3 1/4% Convertible
Subordinated Notes ("3 1/4% Notes"). A total principal amount of $1.1 billion
was converted into 72 million shares of the Company's common stock. As a result,
the total principal amount converted, net of unamortized expenses of the
original debt issue, was credited to common stock at par and to additional
paid-in capital in the amount of $1.1 billion.
The Company has a commercial paper program that allows borrowings up to
a maximum of $800 million. As of January 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
convenants, none of which is expected to materially impact the Company's
liquidity or capital resources.
The restrictive covenants related to letter of credit agreements
securing the industrial revenue bonds are no more restrictive than those
referenced above.
Interest expense in the accompanying Consolidated Statements of
Earnings is net of interest capitalized of $45 million in fiscal 1999, $31
million in fiscal 1998 and $19 million in fiscal 1997.
Maturities of long-term debt are $29 million for fiscal 2000, $4
million for fiscal 2001, $19 million for fiscal 2002, $5 million for fiscal 2003
and $506 million for fiscal 2004.
The estimated fair value of the 6 1/2% Senior Notes, which are publicly
traded, was approximately $485 million based on an imputed market price at
January 30, 2000. The estimated fair value of all other long-term borrowings was
approximately $441 million compared to the carrying value of $279 million. These
fair values were estimated using a discounted cash flow analysis based on the
Company's incremental borrowing rate for similar liabilities.
>NOTE 3
INCOME TAXES
THE PROVISION FOR INCOME TAXES CONSISTED OF THE FOLLOWING (IN MILLIONS):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current:
U.S $ 1,209 $ 823 $ 653
State 228 150 98
Foreign 45 20 15
------- ------- -----
1,482 993 766
------- ------- -----
Deferred:
U.S 9 46 (31)
State (4) (1) 1
Foreign (3) 2 2
------- ------- -----
2 47 (28)
------- ------- -----
Total $ 1,484 $ 1,040 $ 738
------- ------- -----
</TABLE>
The Company's combined federal, state and foreign effective tax rates
for fiscal years 1999, 1998 and 1997, net of offsets generated by federal, state
and foreign tax incentive credits, were approximately 39.0%, 39.2% and 38.9%,
respectively. A reconciliation of income tax expense at the federal statutory
rate of 35% to actual tax expense for the applicable fiscal years follows (in
millions):
<PAGE> 9
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes at U.S. statutory rate $1,331 $ 929 $664
State income taxes, net of federal
income tax benefit 145 96 65
Foreign rate differences 2 -- 2
Other, net 6 15 7
------ ------ ----
Total $1,484 $1,040 $738
------ ------ ----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of January
30, 2000 and January 31, 1999 were as follows (in millions):
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
2000 1999
----------- -----------
<S> <C> <C>
Deferred Tax Assets:
Accrued self-insurance liabilities $ 154 $ 110
Other accrued liabilities 142 97
----- -----
Total gross deferred tax assets 296 207
Deferred Tax Liabilities:
Accelerated depreciation (321) (249)
Other (62) (43)
----- -----
Total gross deferred tax liabilities (383) (292)
----- -----
Net deferred tax liability $ (87) $ (85)
----- -----
</TABLE>
No valuation allowance was recorded against the deferred tax assets at
January 30, 2000 or January 31,1999. Company management believes the existing
net deductible temporary differences comprising the total gross deferred tax
assets will reverse during periods in which the Company generates net taxable
income.
>NOTE 4
EMPLOYEE STOCK PLANS
The 1997 Omnibus Stock Incentive Plan ("1997 Plan") provides that incentive
stock options, non-qualified stock options, stock appreciation rights,
restricted stock and deferred shares may be issued to selected associates,
officers and directors of the Company. The maximum number of shares of the
Company's common stock available for issuance under the 1997 Plan is the lesser
of 225 million shares or the number of shares carried over from prior plans plus
one-half percent of the total number of outstanding shares as of the first day
of each fiscal year. In addition, restricted shares issued under the 1997 Plan
may not exceed 22.5 million shares. As of January 30, 2000, there were
128,623,884 shares available for future grants under the 1997 Plan.
Under the 1997 Plan and prior plans, incentive and non-qualified
options for 116,647,978 shares, net of cancellations (of which 48,228,638 had
been exercised), have been granted at prices ranging from $6.42 to $51.46 per
share. Incentive stock options vest at the rate of 25% per year commencing on
the first anniversary date of the grant and expire on the tenth anniversary date
of the grant. The non-qualified options have similar terms; however, vesting
does not generally begin until the second anniversary date of the grant.
As of January 30, 2000, 208,337 shares of restricted stock were
outstanding. The restricted shares vest over varying terms and are generally
based on the attainment of certain performance goals. The expected fair value of
the restricted shares on the vesting dates will be charged to expense ratably
over the vesting periods unless it is determined that the performance goals will
not be met.
The per share weighted average fair value of stock options granted
during fiscal years 1999, 1998 and 1997 was $18.86, $9.94 and $4.20,
respectively. These amounts were determined using the Black-Scholes
option-pricing model, which values options based on the stock price at the grant
date, the expected life of the option, the estimated volatility of the stock,
expected dividend payments, and the risk-free interest rate over the expected
life of the option. The dividend yield was calculated by dividing the current
annualized dividend by the option price for each grant. Expected volatility was
based on stock prices for the fiscal year the grant occurred and the two
previous fiscal years. The risk-free interest rate was the rate available on
zero coupon U.S. government issues with a term equal to the remaining term for
each grant. The expected life of each option was estimated based on the exercise
history from previous grants.
<PAGE> 10
The assumptions used in the Black-Scholes model were as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
GRANTED IN FISCAL YEAR
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate 5.1% 5.6% 6.1%
Expected volatility of common stock 51.6% 45.7% 30.0%
Dividend yield 0.3% 0.4% 0.5%
Expected option term 5 years 5 years 5 years
</TABLE>
The Company applies APB No. 25 in accounting for its stock plans and,
accordingly, no compensation costs have been recognized in the Company's
financial statements for incentive or non-qualified stock options granted. If,
under SFAS 123, the Company determined compensation costs based on the fair
value at the grant date for its stock options, net earnings and earnings per
share would have been reduced to the pro forma amounts below (in millions,
except per share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net Earnings
As reported $ 2,320 $ 1,614 $ 1,160
Pro forma $ 2,186 $ 1,527 $ 1,118
Basic Earnings per Share
As reported $ 1.03 $ 0.73 $ 0.53
Pro forma $ 0.97 $ 0.69 $ 0.51
Diluted Earnings per Share
As reported $ 1.00 $ 0.71 $ 0.52
Pro forma $ 0.94 $ 0.67 $ 0.50
</TABLE>
The following table summarizes options outstanding under the various
stock option plans at January 30, 2000, January 31,1999 and February 1,1998 and
changes during the fiscal years ended on these dates (shares in thousands):
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF SHARES OPTION PRICE
--------- ------------
<S> <C> <C>
Outstanding at February 2, 1997 54,207 $ 8.77
Granted 25,857 14.58
Exercised (10,293) 8.82
Cancelled (4,044) 10.19
------- -------
Outstanding at February 1, 1998 65,727 10.08
Granted 21,041 21.63
Exercised (11,640) 9.07
Cancelled (3,536) 13.89
------- -------
Outstanding at January 31, 1999 71,592 13.45
Granted 14,006 37.81
Exercised (13,884) 10.88
Cancelled (3,295) 18.88
------- -------
Outstanding at January 30, 2000 68,419 $ 18.79
------- -------
Exercisable 22,330 $ 10.61
------- -------
</TABLE>
The following table summarizes information regarding stock options
outstanding as of January 30, 2000 (option shares in thousands):
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS REMAINING OUTSTANDING OPTIONS EXERCISABLE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) OPTION PRICE EXERCISABLE OPTION PRICE
---------------- ----------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 4.00 to 8.00 2,670 2.0 $ 6.90 2,670 $ 6.90
8.00 to 15.00 32,289 6.2 10.20 17,143 9.60
15.00 to 25.00 19,142 8.0 20.80 2,426 20.90
25.00 to 40.00 13,802 9.0 37.30 91 30.10
40.00 to 60.00 516 9.7 51.20 -- --
------ --- ------- ------ -------
68,419 7.1 $ 18.79 22,330 $ 10.61
------ --- ------- ------ -------
</TABLE>
<PAGE> 11
In addition, the Company had 6,252,804 shares available for future
grants under the Employee Stock Purchase Plan ("ESPP") at January 30, 2000. The
ESPP enables the Company to grant substantially all full-time associates options
to purchase up to 99,618,750 shares of common stock, of which 93,365,946 shares
have been exercised from inception of the plan, at a price equal to the lower of
85% of the stock's fair market value on the first day or the last day of the
purchase period. Shares purchased may not exceed the lesser of 20% of the
associate's annual compensation, as defined, or $25,000 of common stock at its
fair market value (determined at the time such option is granted) for any one
calendar year. Associates pay for the shares ratably over a period of one year
(the purchase period) through payroll deductions, and cannot exercise their
option to purchase any of the shares until the conclusion of the purchase
period. In the event an associate elects not to exercise such options, the full
amount withheld is refundable. During fiscal 1999, options for 5,691,474 shares
were exercised at an average price of $21.91 per share. At January 30, 2000,
there were 2,860,618 options outstanding, net of cancellations, at an average
price of $37.64 per share.
>NOTE 5
LEASES
The Company leases certain retail locations, office space, warehouse and
distribution space, equipment and vehicles. While the majority of the leases are
operating leases, certain retail locations are leased under capital leases. As
leases expire, it can be expected that in the normal course of business, leases
will be renewed or replaced.
In June 1996, the Company entered into a $300 million operating lease
agreement for the primary purpose of financing construction costs for selected
new stores. The Company increased its available funding under the operating
lease agreement to $600 million in May 1997. In October 1998, through a second
operating lease agreement, the Company further increased the available funding
by $282 million to $882 million. Under the agreements, the lessor purchases the
properties, pays for the construction costs and subsequently leases the
facilities to the Company. The initial lease term for the $600 million agreement
is five years with five 2-year renewal options. The lease term for the $282
million agreement is 10 years with no renewal options. Both lease agreements
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. The Company anticipates utilizing
these facilities to finance selected new stores and an additional office
building in fiscal 2000.
During 1995, the Company entered into two operating lease arrangements
under which the Company leases an import distribution facility, including its
related equipment, and an office building for store support functions. The
operating lease agreement for the office building terminated in 1999 when the
Company refinanced the property under the $600 million operating lease
agreement. The initial lease term for the import distribution facility is five
years with five 5-year renewal options. The lease agreement provides for
substantial residual value guarantees and includes purchase options at the
higher of the cost or fair market value of the assets.
The maximum amount of the residual value guarantees relative to the
assets under the lease agreements described above is projected to be $799
million. As the leased assets are placed into service, the Company estimates its
liability under the residual value guarantees and records additional rent
expense on a straight-line basis over the remaining lease terms.
Total rent expense, net of minor sublease income for the fiscal years
ended January 30, 2000, January 31,1999 and February 1, 1998 was $389 million,
$321 million and $262 million, respectively. Real estate taxes, insurance,
maintenance and operating expenses applicable to the leased property are
obligations of the Company under the building leases. Certain of the store
leases provide for contingent rentals based on percentages of sales in excess of
specified minimums. Contingent rentals for the fiscal years ended January 30,
2000, January 31,1999 and February 1, 1998 were approximately $11 million, $11
million and $10 million, respectively.
The approximate future minimum lease payments under capital and
operating leases at January 30, 2000 were as follows (in millions):
<PAGE> 12
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000 $ 35 $ 466
2001 35 462
2002 35 415
2003 36 384
2004 36 359
Thereafter 505 3,969
------ ------
682 $6,055
------
Less imputed interest (466)
------
Net present value of capital
lease obligations 216
Less current installments (3)
------
Long-term capital lease
obligations, excluding
current installments $ 213
======
</TABLE>
Short-term and long-term obligations for capital leases are included in
the Company's Consolidated Balance Sheets in Current Installments of Long-Term
Debt and Long-Term Debt, respectively. The assets under capital leases recorded
in Net Property and Equipment, net of amortization, totaled $208 million and
$180 million, at January 30, 2000 and January 31, 1999, respectively.
>NOTE 6
EMPLOYEE BENEFIT PLANS
During fiscal 1996, the Company established a defined contribution plan
("401(k)") pursuant to Section 401(k) of the Internal Revenue Code. The 401(k)
covers substantially all associates that meet certain service requirements. The
Company makes weekly matching cash contributions to purchase shares of the
Company's common stock, up to specified percentages of associates' contributions
as approved by the Board of Directors.
During fiscal 1988, the Company established a leveraged Employee Stock
Ownership Plan and Trust ("ESOP") covering substantially all full-time
associates. At January 30, 2000, the ESOP held a total of 32,208,550 shares of
the Company's common stock in trust for plan participants' accounts. The ESOP
purchased the shares in the open market with contributions received from the
Company in fiscal 1998 and 1997, and from the proceeds of loans obtained from
the Company during fiscal 1992, 1990 and 1989 totaling approximately $81
million. All loans payable to the Company in connection with the purchase of
such shares have been paid in full.
During February 1999, the Company made its final contribution to the
ESOP plan and amended its 401(k) plan. In the amendment, the Company elected to
increase its percentage contribution to the 401(k) in lieu of future ESOP
contributions.
The Company adopted a non-qualified ESOP Restoration Plan in fiscal
1994. The Company also made its final contribution to the ESOP Restoration Plan
in February 1999 and established a new 401(k) Restoration Plan. The primary
purpose of the new plan is to provide certain associates deferred compensation
that they would have received under the 401(k) matching contribution if not for
the maximum compensation limits under the Internal Revenue Code of 1986, as
amended. The Company has established a "rabbi trust" to fund the benefits under
the 401(k) Restoration Plan. Compensation expense related to this plan for
fiscal years 1999, 1998 and 1997 was not material. Funds provided to the trust
are primarily used to purchase shares of the Company's common stock in the open
market.
The Company's combined contributions to the 401(k) and ESOP were $57
million, $41 million and $33 million for fiscal years 1999, 1998 and 1997,
respectively.
>NOTE 7
BASIC AND DILUTED EARNINGS PER SHARE
The calculations of basic and diluted earnings per share for fiscal years
1999,1998 and 1997 were as follows (amounts in millions, except per share data):
<PAGE> 13
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 1,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Calculation of Basic Earnings
Per Share:
Net earnings $2,320 $1,614 $1,160
Weighted average number of
common shares outstanding 2,244 2,206 2,188
------ ------ ------
Basic Earnings Per Share $ 1.03 $ 0.73 $ 0.53
------ ------ ------
Calculation of Diluted Earnings
Per Share:
Net earnings $2,320 $1,614 $1,160
Tax-effected interest expense
attributable to 3 1/4% Notes 17 23 23
------ ------ ------
Net earnings assuming dilution $2,337 $1,637 $1,183
------ ------ ------
Weighted average number of
common shares outstanding 2,244 2,206 2,188
Effect of potentially dilutive
securities:
3 1/4% Notes 51 72 72
Employee stock plans 47 42 27
------ ------ ------
Weighted average number of
common shares outstanding
assuming dilution 2,342 2,320 2,287
------ ------ ------
Diluted Earnings Per Share $ 1.00 $ 0.71 $ 0.52
</TABLE>
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 1999, 1998 and 1997,
shares issuable upon conversion of the Company's 3 1/4% 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
1/4% Notes (prior to conversion to equity in October 1999) and divided by
weighted average shares assuming dilution.
> NOTE 8
LAWSUIT SETTLEMENTS
During fiscal 1997, the Company, without admitting any wrongdoing, entered into
a settlement agreement with plaintiffs in the class action lawsuit Butler et.
al. v. Home Depot, Inc., in which the plaintiffs had asserted claims of gender
discrimination. The Company subsequently reached agreements to settle three
other lawsuits seeking class action status, each of which involved claims of
gender discrimination.
As a result of these agreements, the Company recorded a pre-tax
non-recurring charge of $104 million in fiscal 1997 and, in fiscal 1998, made
payments to settle these agreements. The payments made in fiscal 1998 included
$65 million to the plaintiff class members and $22.5 million to the plaintiff's
attorneys in Butler, and approximately $8 million for other related internal
costs, including implementation or enhancement of certain human resources
programs, as well as the settlement terms of the three other lawsuits. Payments
made in fiscal 1999 totaled $3.4 million primarily related to internal costs for
human resources staffing and training for store associates. The Company expects
to spend the remaining $5 million for additional training programs.
> NOTE 9
COMMITMENTS AND CONTINGENCIES
At January 30, 2000, the Company was continently liable for approximately $419
million under outstanding letters of credit issued in connection with purchase
commitments.
The Company is involved in litigation arising from the normal course of
business. In management's opinion, this litigation is not expected to materially
impact the Company's consolidated results of operations or financial condition.
<PAGE> 14
> NOTE 10
ACQUISITIONS
During the first quarter of fiscal 1998, the Company purchased, for $261
million, the remaining 25% partnership interest held by The Molson Companies in
The Home Depot Canada. The excess purchase price over the estimated fair value
of net assets of $117 million as of the acquisition date was recorded as
goodwill and is being amortized over 40 years. As a result of this transaction,
the Company now owns all of The Home Depot's Canadian operations. The Home
Depot Canada partnership was formed in 1994 when the Company acquired 75% of
Aikenhead's Home Improvement Warehouse for approximately $162 million. 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 to complete the purchase
transaction at an earlier date.
During fiscal 1999, the Company acquired Apex Supply Company, Inc. and
Georgia Lighting, Inc. Both acquisitions were recorded under the purchase
method of accounting.
> NOTE 11
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
fiscal years ended January 30, 2000 and January 31, 1999 (dollars in millions,
except per share data):
<TABLE>
<CAPTION>
INCREASE BASIC DILUTED
IN COMPARABLE GROSS NET EARNINGS EARNINGS
NET SALES STORE SALES PROFIT EARNINGS PER SHARE PER SHARE
--------- ------------ ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended January 30, 2000:
First quarter $ 8,952 9% $ 2,566 $ 489 $ 0.22 $ 0.21
Second quarter 10,431 11% 3,029 679 0.30 0.29
Third quarter 9,877 10% 2,894 573 0.26 0.25
Fourth quarter 9,174 9% 2,922 579 0.25 0.25
------- -- ------- ------ ------- --------
Fiscal year $38,434 10% $11,411 $2,320 $ 1.03 $ 1.00
------- -- ------- ------ ------- --------
Fiscal year ended January 31, 1999:
First quarter $ 7,123 7% $ 1,968 $ 337 $ 0.15 $ 0.15
Second quarter 8,139 7% 2,263 467 0.21 0.21
Third quarter 7,699 7% 2,177 392 0.18 0.17
Fourth quarter 7,258 9% 2,197 418 0.19 0.18
------- -- ------- ------ ------- --------
Fiscal year $30,219 7% $ 8,605 $1,614 $ 0.73 $ 0.71
------- -- ------- ------ ------- --------
</TABLE>
<PAGE> 15
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The financial statements presented in this Annual Report have been prepared
with integrity and objectivity and are the responsibility of the management of
The Home Depot, Inc. These financial statements have been prepared in
conformity with generally accepted accounting principles and properly reflect
certain estimates and judgments based upon the best available information.
The Company maintains a system of internal accounting controls, which
is supported by an internal audit program and is designed to provide reasonable
assurance, at an appropriate cost, that the Company's assets are safeguarded
and transactions are properly recorded. This system is continually reviewed and
modified in response to changing business conditions and operations and as a
result of recommendations by the external and internal auditors. In addition,
the Company has distributed to associates its policies for conducting business
affairs in a lawful and ethical manner.
The financial statements of the Company have been audited by KPMG LLP,
independent auditors. Their accompanying report is based upon an audit
conducted in accordance with generally accepted auditing standards, including
the related review of internal accounting controls and financial reporting
matters.
The Audit Committee of the Board of Directors, consisting solely of
outside directors, meets quarterly with the independent auditors, the internal
auditors and representatives of management to discuss auditing and financial
reporting matters. The Audit Committee, acting on behalf of the stockholders,
maintains an ongoing appraisal of the internal accounting controls, the
activities of the outside auditors and internal auditors and the financial
condition of the Company. Both the Company's independent auditors and the
internal auditors have free access to the Audit Committee.
/s/ Dennis Carey /s/ Carol B. Tome
- ----------------------------- --------------------------
Dennis Carey Carol B. Tome
Executive Vice President and Senior Vice President,
Chief Financial Officer Finance and Accounting
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Home Depot, Inc.:
We have audited the accompanying consolidated balance sheets of The
Home Depot, Inc. and subsidiaries as of January 30, 2000 and January 31,1999 and
the related consolidated statements of earnings, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended January 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of The
Home Depot, Inc. and subsidiaries as of January 30, 2000 and January 31, 1999,
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 30, 2000 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
Atlanta, Georgia
February 25, 2000
<PAGE> 1
EXHIBIT 23
The Board of Directors
The Home Depot, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-91943, 333-85759, 333-61733, 333-56207, 33-46476, 33-22531, 33-22299,
33-58807, 333-16695, 333-01385) on Form S-8 and (Nos. 333-81485, 333-03497) on
Form S-3 of The Home Depot, Inc. of our report dated February 25, 2000, relating
to the consolidated balance sheets of The Home Depot, Inc. and subsidiaries as
of January 30, 2000 and January 31, 1999, and the related consolidated
statements of earnings, stockholders' equity and comprehensive income, and cash
flows for each of the years in the three-year period ended January 30, 2000,
which report is incorporated by reference in the January 30, 2000 annual report
on Form 10-K of The Home Depot, Inc.
/s/ KPMG LLP
-----------------------------------
KPMG LLP
Atlanta, Georgia
April 21, 2000
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
I, Frank Borman, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 20th day
of April, 2000.
/s/ Frank Borman
-----------------------------------
Frank Borman
<PAGE> 2
POWER OF ATTORNEY
I, John L. Clendenin, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day
of April, 2000.
/s/ John L. Clendenin
-----------------------------------
John L. Clendenin
<PAGE> 3
POWER OF ATTORNEY
I, Berry Cox, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day
of April, 2000.
/s/ Berry R. Cox
-----------------------------------
Berry R. Cox
<PAGE> 4
POWER OF ATTORNEY
I, Milledge Hart, III, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 13th day
of April, 2000.
/s/ Milledge A. Hart, III
-----------------------------------
Milledge A. Hart, III
<PAGE> 5
POWER OF ATTORNEY
I, William S. Davila, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 20th day
of April, 2000.
/s/ William S. Davila
-----------------------------------
William S. Davila
<PAGE> 6
POWER OF ATTORNEY
I, Kenneth G. Langone, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 20th day
of April, 2000.
/s/ Kenneth G. Langone
-----------------------------------
Kenneth G. Langone
<PAGE> 7
POWER OF ATTORNEY
I, Bonnie G. Hill, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 12th day
of April, 2000.
/s/ Bonnie G. Hill
-----------------------------------
Bonnie G. Hill
<PAGE> 8
POWER OF ATTORNEY
I, M. Faye Wilson, a director of The Home Depot, Inc., a Delaware
corporation, do hereby constitute and appoint Arthur M. Blank and Ronald M.
Brill, jointly and severally, my true and lawful attorneys-in-fact, each with
full power of substitution, for me in any and all capacities, to sign, pursuant
to the requirements of the Securities Exchange Act of 1934, the Annual Report
of the Corporation on Form 10-K for the fiscal year of the Corporation ended
January 30, 2000, and to file the same with the Securities and Exchange
Commission, together with all exhibits thereto and other documents in
connection therewith, including such as are incorporated therein by reference,
and to sign on my behalf and in my stead, in any and all capacities, any
amendments to said Annual Report, incorporating such changes as any of the said
attorneys-in-fact deems appropriate, hereby ratifying and confirming all that
each of said attorneys-in-fact deems appropriate, and all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 11th day
of April, 2000.
/s/ M. Faye Wilson
-----------------------------------
M. Faye Wilson
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-END> JAN-30-2000
<CASH> 168
<SECURITIES> 2
<RECEIVABLES> 587
<ALLOWANCES> 0
<INVENTORY> 5,489
<CURRENT-ASSETS> 6,390
<PP&E> 11,890
<DEPRECIATION> 1,663
<TOTAL-ASSETS> 17,081
<CURRENT-LIABILITIES> 3,656
<BONDS> 0
0
0
<COMMON> 115
<OTHER-SE> 12,226
<TOTAL-LIABILITY-AND-EQUITY> 17,081
<SALES> 38,434
<TOTAL-REVENUES> 38,434
<CGS> 27,023
<TOTAL-COSTS> 27,023
<OTHER-EXPENSES> 7,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (9)
<INCOME-PRETAX> 3,804
<INCOME-TAX> 1,484
<INCOME-CONTINUING> 2,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,320
<EPS-BASIC> 1.03
<EPS-DILUTED> 1.00
</TABLE>
