10-Q 1 a2050575z10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended APRIL 29, 2001 -------------- - OR - |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ----------------------- Commission file number 1-8207 ------ THE HOME DEPOT, INC. (Exact name of registrant as specified in its charter) Delaware 95-3261426 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2455 Paces Ferry Road Atlanta, Georgia 30339 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (770) 433-8211 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $.05 par value 2,333,638,407 Shares, as of May 24, 2001 Page 1 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q April 29, 2001
PAGE PART I. FINANCIAL INFORMATION: Item 1. Financial Statements CONSOLIDATED STATEMENTS OF EARNINGS - Three-Month Periods Ended April 29, 2001 and April 30, 2000.............................3 CONSOLIDATED CONDENSED BALANCE SHEETS - As of April 29, 2001 and January 28, 2001...............................................4 CONSOLIDATED STATEMENTS OF CASH FLOWS - Three-Month Periods Ended April 29, 2001 and April 30, 2000.............................5 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME- Three-Month Periods Ended April 29, 2001 and April 30, 2000............................6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.........................................................................7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.........................................8 - 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk................................12 PART II. OTHER INFORMATION: Item 4. Submission of Matters to a Vote of Security Holders.......................................13 Item 5. Other Information........................................................................ 13 Item 6. Exhibits and Report on Form 8-K......................................................13 - 14 Signature Page.....................................................................................15 Index to Exhibits..................................................................................16
Page 2 of 15 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)
(In Millions, Except Per Share Data) Three Months Ended --------------------------------------- April 29, April 30, 2001 2000 -------------- -------------- Net Sales $ 12,200 $ 11,112 Cost of Merchandise Sold 8,545 7,838 -------------- -------------- Gross Profit 3,655 3,274 Operating Expenses: Selling and Store Operating 2,394 2,026 Pre-Opening 27 25 General and Administrative 207 204 -------------- -------------- Total Operating Expenses 2,628 2,255 Operating Income 1,027 1,019 Interest Income (Expense): Interest and Investment Income 6 11 Interest Expense (3) (3) -------------- -------------- Interest, Net 3 8 -------------- -------------- Earnings Before Income Taxes 1,030 1,027 Income Taxes 398 398 -------------- -------------- Net Earnings $ 632 $ 629 ============== ============== Weighted Average Number of Common Shares Outstanding 2,326 2,308 Basic Earnings Per Share $ 0.27 $ 0.27 ============== ============== Weighted Average Number of Common Shares Outstanding Assuming Dilution 2,347 2,354 Diluted Earnings Per Share $ 0.27 $ 0.27 ============== ============== Dividends Per Share $ 0.04 $ 0.04 ============== ==============
See accompanying notes to consolidated condensed financial statements. Page 3 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In Millions) April 29, January 28, 2001 2001 -------------- -------------- ASSETS Current Assets: Cash and Cash Equivalents $ 1,363 $ 167 Short-Term Investments 10 10 Receivables, Net 1,039 835 Merchandise Inventories 7,240 6,556 Other Current Assets 202 209 -------------- -------------- Total Current Assets 9,854 7,777 Property and Equipment, at cost 15,978 15,232 Less: Accumulated Depreciation and Amortization 2,317 2,164 -------------- -------------- Net Property and Equipment 13,661 13,068 Long-Term Investments 16 15 Notes Receivable 78 77 Cost in Excess of the Fair Value of Net Assets Acquired 307 314 Other 160 134 -------------- -------------- $ 24,076 $ 21,385 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 3,627 $ 1,976 Accrued Salaries and Related Expenses 786 627 Sales Taxes Payable 358 298 Other Accrued Expenses 1,507 1,402 Income Taxes Payable 379 78 Current Installments of Long-Term Debt 29 4 -------------- -------------- Total Current Liabilities 6,686 4,385 Long-Term Debt, excluding current installments 1,268 1,545 Other Long-Term Liabilities 270 245 Deferred Income Taxes 195 195 Minority Interest 11 11 Stockholders' Equity: Common Stock, par value $0.05. Authorized: 10,000,000,000 shares; issued and outstanding - 2,329,476,000 shares at 4/29/01 and 2,323,747,000 shares at 1/28/01 116 116 Paid-In Capital 4,956 4,810 Retained Earnings 10,691 10,151 Accumulated Other Comprehensive Loss (108) (67) Unearned Compensation (9) (6) -------------- -------------- Total Stockholders' Equity 15,646 15,004 -------------- -------------- $ 24,076 $ 21,385 ============== ==============
See accompanying notes to consolidated condensed financial statements. Page 4 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended -------------------------------------- (In Millions) April 29, April 30, 2001 2000 ---------------- -------------- CASH PROVIDED FROM OPERATIONS: Net Earnings $ 632 $ 629 Reconciliation of Net Earnings to Net Cash Provided by Operations: Depreciation and Amortization 177 137 Increase in Receivables, Net (205) (160) Increase in Merchandise Inventories (692) (914) Increase in Accounts Payable and Accrued Expenses 1,999 1,731 Increase in Income Taxes Payable 349 367 Other (39) (67) ---------------- -------------- Net Cash Provided by Operations 2,221 1,723 ---------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital Expenditures (816) (673) Proceeds from Sales of Property and Equipment 39 19 Payments for Businesses Acquired, Net --- (5) Purchases of Investments (7) (6) Proceeds from Maturities of Investments 8 --- Advances Secured by Real Estate, Net (2) (21) ---------------- -------------- Net Cash Used in Investing Activities (778) (686) ---------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of Commercial Paper Obligations, Net (754) --- Proceeds from Long-Term Borrowings 504 3 Repayments of Long-Term Debt --- (3) Proceeds from Sale of Common Stock, Net 99 87 Cash Dividends Paid to Stockholders (93) (92) ---------------- -------------- Net Cash Used in Financing Activities (244) (5) ---------------- -------------- Effect of Exchange Rate Changes on Cash and Cash Equivalents (3) 2 ---------------- -------------- Increase in Cash and Cash Equivalents 1,196 1,034 Cash and Cash Equivalents at Beginning of Period 167 168 ---------------- -------------- Cash and Cash Equivalents at End of Period $ 1,363 $ 1,202 ================ ==============
See accompanying notes to consolidated condensed financial statements. Page 5 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In Millions) Three Months Ended ------------------------------------ April 29, April 30, 2001 2000 -------------- -------------- Net Earnings $ 632 $ 629 Other Comprehensive Income (1) : Foreign Currency Translation Adjustments (26) (18) Cumulative Effect of Adopting SFAS 133 (5) -- Change in Fair Value of Derivatives Accounted for as Hedges (6) -- Derivative Losses Reclassified to Earnings 1 -- -------------- -------------- Total Other Comprehensive Income (36) (18) -------------- -------------- Comprehensive Income $ 596 $ 611 ============== ==============
(1) Components of comprehensive income are reported net of related taxes. See accompanying notes to consolidated condensed financial statements. Page 6 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation - The accompanying consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 28, 2001, as filed with the Securities and Exchange Commission (File No. 1-8207). 2. ISSUANCE OF SENIOR NOTES: On April 12, 2001, the Company issued $500,000,000 of 5 3/8% Senior Notes ("Senior Notes") due April 1, 2006. The Company will pay interest semiannually on April 1 and October 1 of each year commencing October 1, 2001. The Company, at its option, may at any time redeem all or any portion of the Senior Notes by notice to the holders. The Senior Notes are redeemable at a redemption price plus accrued interest up to the redemption date. The redemption price is 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 value of the remaining scheduled payments of principal and interest to maturity. The Senior Notes are not subject to sinking fund requirements. 3. IMPLEMENTATION OF NEW ACCOUNTING STANDARD: On January 29, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended. Under SFAS 133, all derivatives are carried on the balance sheet at fair value with changes in fair value recognized immediately in earnings, unless the derivatives qualify as hedges. For a derivative qualifying as a hedge, the effective portion of the derivative's gain or loss is recorded temporarily in accumulated other comprehensive loss, and then recognized in earnings along with the related effect of the hedged item. The ineffective portion of the derivative's gain or loss is reported in earnings as it occurs. The adoption of SFAS 133 did not have a material impact on the Company's financial results. 4. SUBSEQUENT EVENT: On May 2, 2001, the Company signed a definitive agreement to acquire Total HOME de Mexico, S.A. de C.V. ("Total HOME"), a four-store chain of home improvement stores in Mexico. Page 7 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES Item 2. 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.
THREE MONTHS ENDED ------------------ Percentage Increase SELECTED CONSOLIDATED April 29, April 30, (Decrease) in STATEMENTS OF EARNINGS DATA 2001 2000 Dollar Amounts ------------- ------------ ---------------- Net Sales 100.0% 100.0% 9.8% Gross Profit 30.0 29.5 11.6 Operating Expenses: Selling and Store Operating 19.6 18.3 18.2 Pre-Opening 0.2 0.2 8.0 General and Administrative 1.7 1.8 1.5 ------------- ------------ ---------------- Total Operating Expenses 21.5 20.3 16.5 Operating Income 8.5 9.2 0.8 Interest Income (Expense): Interest and Investment Income 0.0 0.1 (45.5) Interest Expense 0.0 0.0 0.0 ------------- ------------ ---------------- Interest, Net 0.0 0.1 (62.5) Earnings Before Income Taxes 8.5 9.3 0.3 Income Taxes 3.3 3.6 0.0 ------------- ------------ ---------------- Net Earnings 5.2 % 5.7 % 0.5 % ============= ============ ================ SELECTED CONSOLIDATED SALES DATA Number of Transactions (000's) 249,477 222,643 12.1% Average Sale Per Transaction $ 48.64 $ 49.53 (1.8) Weighted Average Weekly Sales Per Operating Store (000's) $ 807 $ 892 (9.5) Weighted Average Sales Per Square Foot $ 386 $ 429 (10.0)
Page 8 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FORWARD-LOOKING STATEMENTS Certain written and oral statements made by us or our authorized executive officers on our behalf constitute "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as "should result," "are expected to," "we anticipate," "we estimate," "we project" or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, unanticipated weather conditions; stability of costs and commodity prices and availability of sourcing channels; the ability to attract, train and retain highly-qualified associates; conditions affecting the availability, acquisition, development and ownership of real estate; general economic conditions; the impact of competition; and regulatory and litigation matters. You should not place undue reliance on forward-looking statements, since such statements speak only as of the date of the making of such statements. Additional information concerning these risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended January 28, 2001. RESULTS OF OPERATIONS Net sales for the first quarter of fiscal 2001 increased 9.8% to $12.2 billion from $11.1 billion for the first quarter of fiscal 2000. The sales increase was primarily attributable to new stores opened since the end of the first fiscal quarter last year (1,178 stores open at the end of the first quarter of fiscal 2001 compared to 971 at the end of the first quarter of fiscal 2000). The increase in sales was partially offset by a 3% decline in comparable store-for-store sales. Price deflation in lumber and certain building material products negatively impacted comparable store-for-store sales by approximately 1% for the first quarter of fiscal 2001. We expect the impact of price deflation in lumber and certain building material products to be less significant in the second quarter of fiscal 2001, as we begin to anniversary cost declines in the previous year. Gross profit as a percent of sales was 30.0% for the first quarter of fiscal 2001 compared to 29.5% for the first quarter of fiscal 2000. The gross profit rate increase was primarily attributable to lower costs of merchandise resulting from ongoing benefits of product line reviews; reduced penetration of lower margin lumber sales; and the addition of tool rental centers. At the end of the first quarter of fiscal 2001, we were operating 381 tool rental centers compared to 177 at the end of the first quarter of fiscal 2000. The increase in the gross profit rate was partially offset by increased sales penetration of appliances, which typically carry a lower margin rate. Page 9 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) RESULTS OF OPERATIONS - (Continued) Selling and store operating expenses as a percent of sales were 19.6% for the first quarter of fiscal 2001 compared to 18.3% for the same period in fiscal 2000. The increase was primarily attributable to higher store selling payroll expenses resulting mainly from continued market wage pressures, partially offset by an increase in labor productivity as measured by sales per labor hour. The addition of 204 tool rental centers also increased payroll, depreciation and other costs, while increasing gross margin. In addition, medical insurance costs were higher during the first quarter of fiscal 2001 compared to the same period of fiscal 2000, due to expansion in the insured base of associates and rising healthcare costs. Finally, store occupancy costs, including property taxes, property rent and utilities, increased due to new store growth and energy rate increases. Pre-opening expenses as a percent of sales were 0.2% for the first quarters of fiscal 2001 and fiscal 2000. We opened 44 stores and relocated two stores during the first quarter of fiscal 2001 compared with 41 new stores and one store relocation during the first quarter of fiscal 2000. For the first quarter of fiscal 2001, pre-opening expenses averaged $585,000 per store compared to $587,000 for the first quarter of fiscal 2000. General and administrative expenses as a percent of sales were 1.7% for the first quarter of fiscal 2001 compared to 1.8% for the first quarter of fiscal 2000. The decrease was related to our continued focus on expense control, which has not affected our continuing investment in long-term growth and strategic initiatives. As a percent of sales, interest and investment income was 0.0% for the first quarter of fiscal 2001 compared to 0.1% for the first quarter of fiscal 2000. Interest expense as a percent of sales was 0.0% for the first quarters of fiscal 2001 and fiscal 2000. Our combined federal and state effective income tax rate decreased to 38.6% for the first quarter of fiscal 2001 from 38.8% for the first quarter of fiscal 2000. The decrease is attributable to higher projected tax credits during fiscal 2001 compared to fiscal 2000. Net earnings as a percent of sales were 5.2% for the first quarter of fiscal 2001 compared to 5.7% for the first quarter of fiscal 2000. The decrease was attributable to higher selling and store operating expenses as a percent of sales, which was partially offset by a higher gross profit rate as described above. Page 10 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) RESULTS OF OPERATIONS - (Continued) Diluted earnings per share were $0.27 for the first quarters of fiscal 2001 and fiscal 2000. LIQUIDITY AND CAPITAL RESOURCES Cash flow generated from store operations provides a significant source of liquidity. During the first quarter of fiscal 2001, cash provided by operations increased to $2.2 billion compared to $1.7 billion in the same period of fiscal 2000. The increase was primarily due to a decrease in average inventory per store of approximately 7% and because days payable outstanding increased at a higher rate in the first quarter of fiscal 2001 compared to the same period last year. Cash used in investing activities in the first quarter of fiscal 2001 was $778 million compared to $686 million in the same quarter of the prior year. The increase was primarily due to an increase in capital expenditures relating to the planned opening of 118 new stores in the first half of 2001 compared to 81 stores opened during the first half of 2000. We plan to open a total of 200 new stores and relocate 4 stores during fiscal 2001, exclusive of the addition of 4 Total HOME stores. It is anticipated that 92% of these locations will be owned, and the remainder will be leased. The cost of new stores to be constructed and owned varies widely, principally due to land costs, and is expected to average approximately $14.9 million per location. The cost to remodel and/or fixture stores to be leased is expected to average approximately $5.1 million per store. In addition, each new store is projected to require approximately $3.5 million to finance inventories, net of vendor financing. On May 2, 2001, we agreed to acquire Total HOME, a four-store chain of home improvement stores in Mexico. We anticipate that the transaction will close in the second quarter of fiscal 2001 after receipt of regulatory approvals. In the first quarter of fiscal 2001, cash used in financing activities increased to $244 million compared to $5 million in the same quarter of fiscal 2000 due to the repayment of $754 million of commercial paper obligations outstanding as of January 28, 2001. This repayment was funded through cash provided by operations. In addition, we raised $500 million from the issuance of 5 3/8% Senior Notes on April 12, 2001. The Senior Notes are due on April 1, 2006 and pay interest semiannually on April 1 and October 1 of each year commencing October 1, 2001. The net proceeds from the Senior Notes will be used to finance a portion of our capital expenditure programs, for working capital needs and for general corporate purposes. Page 11 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES - (Continued) We have a commercial paper program that allows borrowings up to a maximum of $1 billion. As of April 29, 2001, there were no borrowings outstanding under the program. As of April 29, 2001, we had $1.4 billion in cash and cash equivalents. Management believes that our current cash position, internally generated funds, funds available from the $1 billion commercial paper program and the ability to obtain alternate sources of financing should enable us to complete our capital expenditure programs through the next several fiscal years. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We use derivative financial instruments at various times to manage the risk associated with foreign currency and interest rate fluctuations. These contracts are insignificant to our operations and financial position. Page 12 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS During the first quarter of fiscal 2001, no matters were submitted to a vote of security holders. Item 5. OTHER INFORMATION None Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits 4.1 Indenture, dated as of April 12, 2001, between The Home Depot, Inc. and The Bank of New York. [FORM S-4 (FILE NO. 333-61548) FILED MAY 24, 2001, EXHIBIT 4.1.] 4.2 Registration Rights Agreement, dated as of April 9, 2001, between The Home Depot, Inc., Credit Suisse First Boston Corporation and Invemed Associates. [FORM S-4 (FILE NO. 333-61548 ) FILED MAY 24, 2001, EXHIBIT 4.2.] 4.3 Form of 5 3/8% Note due April 1, 2006 (INCLUDED IN EXHIBIT 4.1). 10.1 Employment Agreement between Dennis M. Donovan and The Home Depot, Inc., dated March 16, 2001. [FORM S-4 (FILE NO. 333-61548 ) FILED MAY 24, 2001, EXHIBIT 10.1.] 10.2 Employment Agreement between Frank L. Fernandez and The Home Depot, Inc., dated April 2, 2001. [FORM S-4 (FILE NO. 333-61548) FILED MAY 24, 2001, EXHIBIT 10.2.] 10.3 Deferred Stock Units Plan and Agreement between Frank L. Fernandez and The Home Depot, Inc., dated April 2, 2001. [FORM S-4 (FILE NO. 333-61548 ) FILED MAY 24, 2001, EXHIBIT 10.3.] 11.1 Computation of Basic and Diluted Earnings Per Share
Page 13 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES PART II. OTHER INFORMATION (CONTINUED) (b) Report on Form 8-K Report on Form 8-K, dated February 20, 2001 and filed April 9, 2001 under Item 5, to report that Registrant issued a press release attached as Exhibit 99, thereto. Page 14 of 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE HOME DEPOT, INC. -------------------- (Registrant) By: /s/ Robert L. Nardelli -------------------------------- Robert L. Nardelli President & CEO /s/ Carol B. Tome --------------------------------- Carol B. Tome Executive Vice President and Chief Financial Officer MAY 29, 2001 ------------------------------ (Date) Page 15 of 15 THE HOME DEPOT, INC. AND SUBSIDIARIES INDEX TO EXHIBITS EXHIBIT DESCRIPTION ------- ------------- 11.1 Computation of Basic and Diluted Earnings Per Share