The Home Depot, Inc is an American home improvement chain based in Atlanta. It operates 2,284 DIY stores (as of April 2018) in North America (USA, Canada, Mexico, Puerto Rico) and claims to be the largest DIY store chain in the world. The company has over 400,000 employees.
The Home Depot also owns home improvement stores and user stores, such as the EXPO Design Center, Landscape Supply Garden Center, and a number of specialized stores.
The company was founded in Atlanta in 1978 by Bernie Marcus and Arthur Blank. It grew rapidly, with annual sales of $1 billion in 1986. In fiscal 2017, sales were $ 100.9 billion.
UNITED 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 October 31, 1999 - OR - TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8207 THE HOME DEPOT, INC. (Exact name of registrant as specified in its charter) Delaware 95-3261426 (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification Number) 2455 Paces Ferry Road N.W. Atlanta, Georgia 30339 (Address of principal executive offices) (Zip Code) (770) 433-8211 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. $.05 par value 1,534,909,250 Shares, as of December 1, 1999
THE HOME DEPOT, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q October 31, 1999 Page Part I. Financial Information: Item 1. Financial Statements CONSOLIDATED STATEMENTS OF EARNINGS - Three-Month and Nine-Month Periods Ended October 31, 1999 and November 1, 1998....................3 CONSOLIDATED CONDENSED BALANCE SHEETS - As of October 31, 1999 and January 31, 1999....................4 CONSOLIDATED STATEMENTS OF CASH FLOWS - Nine-Month Periods Ended October 31, 1999 and November 1, 1998....................5 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - Three-Month and Nine-Month Periods Ended October 31, 1999 and November 1, 1998....................6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS..............................................7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition..................8-13 Item 3. Quantitative and Qualitative Disclosures about Market Risk..............................................14 Part II. Other Information: Item 4. Submission of Matters to a Vote of Security Holders..................................................14 Item 5. Other Information ...........................................14 Item 6. Exhibits and Reports on Form 8-K.............................14 Signature Page........................................................15 Index to Exhibits.....................................................16
<TABLE> <CAPTION> PART I. FINANCIAL INFORMATION Item 1. Financial Statements THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (In Millions, Except Per Share Data) Three Months Ended Nine Months Ended October 31, November 1, October 31, November 1, 1999 1998 1999 1998 <S> <C> <C> <C> <C> Net Sales $ 9,877 $ 7,699 $ 29,260 $ 22,961 Cost of Merchandise Sold 6,983 5,522 20,771 16,552 Gross Profit 2,894 2,177 8,489 6,409 Operating Expenses: Selling and Store Operating 1,760 1,377 5,065 3,998 Pre-Opening 24 24 78 61 General and Administrative 171 131 480 375 Total Operating Expenses 1,955 1,532 5,623 4,434 Operating Income 939 645 2,866 1,975 Interest Income (Expense): Interest and Investment Income 12 9 24 24 Interest Expense (8) (8) (25) (29) Interest, Net 4 1 (1) (5) Earnings Before Income Taxes 943 646 2,865 1,970 Income Taxes 370 254 1,123 774 Net Earnings $ 573 $ 392 $ 1,742 $ 1,196 Weighted Average Number of Common Shares Outstanding 1,490 1,471 1,483 1,469 Basic Earnings Per Share $ 0.38 $ 0.27 $ 1.17 $ 0.81 Weighted Average Number of Common Shares Outstanding Assuming Dilution 1,561 1,547 1,559 1,544 Diluted Earnings Per Share $ 0.37 $ 0.26 $ 1.13 $ 0.79 Dividends Per Share $ 0.040 $ 0.030 $ 0.110 $ 0.085 </TABLE> See accompanying notes to consolidated condensed financial statements.
<TABLE> <CAPTION> THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In Millions, Except Share Data) October 31, January 31, ASSETS 1999 1999 <S> <C> <C> Current Assets: Cash and Cash Equivalents $ 946 $ 62 Short-Term Investments 30 --- Receivables, Net 648 469 Merchandise Inventories 5,274 4,293 Other Current Assets 160 109 Total Current Assets 7,058 4,933 Property and Equipment, at cost 11,113 9,422 Less: Accumulated Depreciation and Amortization 1,538 1,262 Net Property and Equipment 9,575 8,160 Long-Term Investments 15 15 Notes Receivable 40 26 Cost in Excess of the Fair Value of Net Assets Acquired 276 268 Other 73 63 $ 17,037 $ 13,465 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 2,603 $ 1,586 Accrued Salaries and Related Expenses 522 395 Sales Taxes Payable 255 176 Other Accrued Expenses 702 586 Income Taxes Payable 74 100 Current Installments of Long-Term Debt 8 14 Total Current Liabilities 4,164 2,857 Long-Term Debt, excluding current installments 735 1,566 Other Long-Term Liabilities 275 208 Deferred Income Taxes 86 85 Minority Interest 11 9 Stockholders' Equity: Common Stock, par value $0.05. Authorized: 5,000,000,000 shares; issued and outstanding 1,534,405,000 shares at 10/31/99 and 1,475,452,000 shares at 1/31/99 76 74 Paid-In Capital 4,285 2,854 Retained Earnings 7,455 5,876 Cumulative Translation Adjustments (44) (61) 11,772 8,743 Less Shares Purchased for Compensation 6 3 Total Stockholders' Equity 11,766 8,740 $ 17,037 $ 13,465 </TABLE> See accompanying notes to consolidated condensed financial statements.
<TABLE> <CAPTION> THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In Millions) Nine Months Ended October 31, 1999 November 1,1998 <S> <C> <C> Cash Provided From Operations: Net Earnings $ 1,742 $ 1,196 Reconciliation of Net Earnings to Net Cash Provided by Operations: Depreciation and Amortization 338 277 (Increase) Decrease in Receivables, Net (175) 95 Increase in Merchandise Inventories (963) (567) Increase in Accounts Payable and Accrued Expenses 1,395 981 Increase in Income Taxes Payable 62 29 Other (25) 26 Net Cash Provided by Operations 2,374 2,037 Cash Flows From Investing Activities: Capital Expenditures (1,794) (1,486) Proceeds from Sales of Property and Equipment 50 30 Purchase of Remaining Interest in the Home Depot Canada --- (261) Purchase of Business Acquired (28) --- Purchases of Investments (32) (2) Proceeds from Maturities of Investments 2 3 Repayments of Advances Secured by Real Estate, Net (14) (1) Net Cash Used in Investing Activities (1,816) (1,717) Cash Flows From Financing Activities: Repayments of Commercial Paper Obligations, Net (246) --- Proceeds from Long-Term Borrowings, Net 497 --- Principal Repayments of Long-Term Debt (7) (5) Proceeds from Sale of Common Stock, Net 239 150 Cash Dividends Paid to Stockholders (163) (125) Minority Interest Contributions to Partnership 7 7 Net Cash Provided by Financing Activities 327 27 Effect of Exchange Rate Changes on Cash and Cash Equivalents (1) (4) Increase in Cash and Cash Equivalents 884 343 Cash and Cash Equivalents at Beginning of Period 62 172 Cash and Cash Equivalents at End of Period $ 946 $ 515 </TABLE> See accompanying notes to consolidated condensed financial statements.
<TABLE> <CAPTION> THE HOME DEPOT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In Millions) Three Months Ended Nine Months Ended October 31, November 1, October 31, November 1, 1999 1998 1999 1998 <S> <C> <C> <C> <C> Net Earnings $ 573 $ 392 $ 1,742 $ 1,196 Other Comprehensive Income: Foreign Currency Translation Adjustments 17 (9) 17 (28) Total Other Comprehensive Income 17 (9) 17 (28) Comprehensive Income $ 590 $ 383 $ 1,759 $ 1,168 </TABLE>
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 31, 1999, as filed with the Securities and Exchange Commission (File No. 1-8207). 2. Redemption of Convertible Notes: On October 5, 1999, the Company announced its decision to redeem, on November 1, 1999, all of its outstanding 3.25% Convertible Subordinated Notes due October 1, 2001 (the "Notes") at a redemption price including a premium of $1,008.13 per $1,000 principal amount of Notes. The Notes were convertible into Common Stock at the rate of one share for each $23.0417 principal amount of Notes owned. All but 215 of the $1,000 Notes were converted to Common Stock. Since the third fiscal quarter of 1996, the Company has reported earnings per share assuming the Notes had been converted as of the beginning of the accounting period and accordingly, the conversion of the Notes did not have a dilutive effect on earnings per share. 3. Issuance of Senior Notes: On September 27, 1999, the Company issued $500,000,000 of 6.50% Senior Notes due September 15, 2004. The Company will pay interest semiannually on March 15 and September 15 of each year commencing March 15, 2000. 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 premium plus accrued interest up to the redemption date. The net proceeds from the issuance of the Senior Notes will be used to finance a portion of the Company's capital expenditure programs, including planned store expansions and renovations, and for general corporate purposes. In the interim, the net proceeds are being invested in cash equivalent and short-term interest-bearing investments.
<TABLE> <CAPTION> THE HOME DEPOT, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The data below reflects selected sales data, the percentage relationship between sales and major categories in the Consolidated Statements of Earnings, and the percentage change in the dollar amounts of each of the items. Percentage Increase Three Months Nine Months (Decrease) in Ended Ended Dollar Amounts Selected Consolidated Oct.31, Nov. 1, Oct.31, Nov. 1, Three Nine Statements of Earnings Data 1999 1998 1999 1998 Months Months <S> <C> <C> <C> <C> <C> <C> Net Sales 100.0% 100.0% 100.0% 100.0% 28.3% 27.4% Gross Profit 29.3 28.3 29.0 27.9 32.9 32.5 Operating Expenses: Selling and Store Operating 17.8 17.9 17.3 17.4 27.8 26.7 Pre-Opening 0.3 0.3 0.3 0.3 0.0 27.9 General and Administrative 1.7 1.7 1.6 1.6 30.5 28.0 Total Operating Expenses 19.8 19.9 19.2 19.3 27.6 26.8 Operating Income 9.5 8.4 9.8 8.6 45.6 45.1 Interest Income (Expense): Interest and Investment Income 0.1 0.1 0.1 0.1 33.3 0.0 Interest Expense (0.1) (0.1) (0.1) (0.1) 0.0 (13.8) Interest, Net 0.0 0.0 0.0 0.0 300.0 (80.0) Earnings Before Income Tax 9.5 8.4 9.8 8.6 46.0 45.4 Income Taxes 3.7 3.3 3.8 3.4 45.7 45.1 Net Earnings 5.8% 5.1% 6.0% 5.2% 46.2 45.7 Selected Consolidated Sales Data Number of Transactions (000's) 201,483 167,308 602,151 503,089 20.4 19.7 Average Sale Per Transaction $48.75 $45.62 $48.28 $45.26 6.9 6.7 Weighted Average Weekly Sales Per Operating Store (000's) $ 879 $ 847 $ 912 $ 878 3.8 3.9 Weighted Average Sales Per Square Foot $ 425 $ 412 $ 441 $ 427 3.2 3.3 </TABLE>
THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) FORWARD-LOOKING STATEMENTS Certain written and oral statements made by The Home Depot, Inc. and subsidiaries (the "Company") or with the approval of an authorized executive officer of the Company may constitute "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as "should result,""are expected to," "we anticipate," "we estimate," "we project" or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections. These risks and uncertainties include, but are not limited to, unanticipated weather conditions, stability of costs and availability of sourcing channels, our ability to attract, train and retain highly-qualified associates, conditions affecting the availability, acquisition, development and ownership of real estate, year 2000 problems, general economic conditions, the impact of competition, and regulatory and litigation matters. Caution should be taken not to place undue reliance on any such forward-looking statements, since such statements speak only as of the date of the making of such statements. Additional information concerning these risks and uncertainties is contained in the Company's Annual Report on Form 10-K for the year ended January 31, 1999, as filed with the Securities and Exchange Commission. RESULTS OF OPERATIONS Sales for the third quarter of fiscal 1999 increased 28.3% to $9.877 billion from $7.699 billion for the third quarter of fiscal 1998. For the first nine months of fiscal 1999, sales increased 27.4% to $29.260 billion from $22.961 billion for the comparable period in fiscal 1998. The sales increase for both periods was primarily attributable to new stores (878 stores open at the end of the third quarter of fiscal 1999 compared with 717 at the end of the third quarter of fiscal 1998) and a comparable store-for-store sales increase of approximately 10% for both the third quarter and first nine months of fiscal 1999. Gross profit as a percent of sales was 29.3% for the third quarter of fiscal 1999 compared with 28.3% for the third quarter of fiscal 1998. For the first nine months of fiscal 1999, gross profit as a percent of sales was 29.0% compared with 27.9% for the comparable period of fiscal 1998. The gross profit rate increase for both periods was primarily attributable to the ongoing benefits of product line reviews, which have resulted in lower costs of merchandise and more effective product assortments, cost reductions through direct sourcing of imports, additional tool rental centers in certain stores and better shrink results. Total operating expenses as a percent of sales decreased to 19.8% for the third quarter of fiscal 1999 from 19.9% for the third quarter of fiscal 1998. For the first nine months of fiscal 1999, operating expenses decreased as a percent of sales to 19.2% from 19.3% for the comparable period in fiscal 1998. Selling and store operating expenses as a percent of sales decreased to 17.8% for the third quarter of fiscal 1999 from 17.9% for the comparable period in fiscal 1998. Net advertising expenses decreased as a percent of sales due to higher co-op support from vendors, increased national advertising and cost leverage achieved from opening new stores in existing markets. Also contributing to the decrease were store relocation costs, which were lower than last year as the Company recorded expenses for one relocation during the third quarter of fiscal 1999 compared to five relocations during the comparable period in fiscal 1998. The Company also leveraged occupancy and certain other operating expenses as the result of the high comparable store sales. Partially offsetting these decreases were higher costs for store selling payroll as some non-selling hours were shifted to the sales floor combined with continued staffing tests and increased labor standards in certain departments, and higher medical costs resulting from increased
THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) RESULTS OF OPERATIONS - (Continued) participation in the Company's medical plan and higher costs related to prescription drugs. In addition, credit card discounts for the first nine months of fiscal 1999 were higher than the comparable period of fiscal 1998 as a percent of sales, due to a higher penetration of credit card sales and non-private label discount rate increases. For the first nine months of fiscal 1999 selling and store operating expenses as a percent of sales decreased to 17.3% from 17.4% for the first nine months of fiscal 1998. This decrease was due primarily to lower net advertising expenses, fewer store relocations and leverage achieved from high comparable store sales, partially offset by higher credit card discounts and medical plan expenses as described above. Pre-opening expenses as a percent of sales were 0.3% for all comparable periods in fiscal 1999 and fiscal 1998. The Company opened 30 new stores and reopened two stores, that were closed in prior quarters, during the third quarter of fiscal 1999 compared with 38 new stores and three store relocations during the third quarter of fiscal 1998. General and administrative expenses as a percent of sales were 1.7% for the third quarter of both fiscal 1999 and fiscal 1998, and 1.6% for the first nine months of both fiscal 1999 and fiscal 1998. Net interest as a percent of sales was 0.0% for the third quarter and first nine months of both fiscal 1999 and fiscal 1998. As a percent of sales, interest and investment income was 0.1% for both the third quarter and first nine months of fiscal 1999 and the comparable periods of fiscal 1998. Interest expense as a percent of sales was 0.1% for all comparable periods. The Company's combined federal and state effective income tax rate decreased to 39.2% for the third quarter and first nine months of fiscal 1999 from 39.3% for the comparable periods of fiscal 1998, respectively. During the fourth quarter of fiscal 1998, an adjustment was made to lower the annual effective tax rate to 39.2%. Net earnings as a percent of sales increased to 5.8% and 6.0% for the third quarter and first nine months of fiscal 1999, respectively, from 5.1% and 5.2% for the third quarter and first nine months of fiscal 1998, respectively. The increases for fiscal 1999 were primarily attributable to higher gross margin rates and lower selling and store operating expenses, as a percent of sales, as described above. Diluted earnings per share were $0.37 and $1.13 for the third quarter and first nine months of fiscal 1999, respectively, compared to $0.26 and $0.79 for the third quarter and first nine months of fiscal 1998, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash flow generated from store operations provides the Company with a significant source of liquidity. Additionally, a significant portion of the Company's inventory is financed under vendor credit terms. During the first nine months of fiscal 1999, the Company opened 117 new stores, reopened 1 store that was closed in fiscal 1998 and relocated 5 stores. During the remainder of fiscal 1999, the Company plans to open approximately 52 new stores including 1 additional Villager's Hardware test store, and relocate 1 store, for a 22% unit growth rate for the year. It is anticipated that approximately 84% of the fourth quarter new locations will be owned, and the remainder will be leased.
The Company has two operating lease agreements totaling $882 million for the purpose of financing construction costs of certain new stores. Under the operating lease agreements, the lessor purchases the properties, pays for the construction costs and subsequently leases the facilities to the Company. The leases provide for substantial residual value guarantees and include purchase options at original cost on each property. The Company financed a portion of new stores opened 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 during the remainder of fiscal 1999 and in fiscal 2000. In addition, some planned locations for fiscal 1999 and 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. While the cost of new stores to be constructed and owned by the Company varies widely, principally due to land costs, new store costs are currently estimated to average approximately $13.0 million per location. The cost to remodel and/or fixture stores to be leased is expected to average approximately $4.1 million per store. In addition, each new store will require approximately $3.1 million to finance inventories, net of vendor financing. On October 5, 1999, the Company announced its decision to redeem, on November 1, 1999, all of its outstanding 3.25% Convertible Subordinated Notes due October 1, 2001 (the "Notes") at a redemption price including a premium of $1,008.13 per $1,000 principal amount of Notes. The Notes were convertible into Common Stock at the rate of one share for each $23.0417 principal amount of Notes owned. All but 215 of the $1,000 Notes were converted to Common Stock. Since the third fiscal quarter of 1996, the Notes had a dilutive effect on earnings per share and accordingly, the Company has reported earnings per share assuming the Notes had converted at the beginning of the accounting period and accordingly, the conversion of the Notes did not have a dilutive effect on earnings per share. On September 27, 1999, the Company issued $500,000,000 of 6.50% Senior Notes due on September 15, 2004. The Company will pay interest semiannually on March 15 and September 15 of each year commencing March 15, 2000. 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 premium plus accrued interest up to the redemption date. The net proceeds from the issuance of the Senior Notes will be used to finance a portion of the Company's capital expenditure programs, including planned store expansions and renovations, and for general corporate purposes. In the interim, the net proceeds are being invested in cash equivalent and short-term interest-bearing investments. The Company has a commercial paper program that allows borrowings up to a maximum of $800 million. As of October 31, 1999, 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 was refinanced during fiscal 1999 and expires on September 2004, contains various restrictive covenants, none of which is expected to materially impact the Company's liquidity or capital resources.
THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES - (Continued) As of October 31, 1999, the Company had $976 million in cash and cash equivalents and short-term investments, as well as $15 million in long-term investments. The increase in cash and cash equivalents from the prior quarter is primarily attributable to the issuance of the Senior Notes. Management believes that its current cash position, the proceeds from short-term and long-term investments, internally generated funds, funds available from its $800 million commercial paper program, funds available from the $882 million operating lease agreements, and/or the ability to obtain alternate sources of financing should enable the Company to complete its capital expenditure programs, including store expansions and renovations, through the next several fiscal years. YEAR 2000 The Company is currently addressing a universal situation commonly referred to as the "Year 2000 Problem." The Year 2000 Problem relates to the inability of certain computer software programs to properly recognize and process date-sensitive information relative to the year 2000 and beyond. During fiscal 1997, the Company developed a plan to devote the necessary resources to identify and modify internal systems impacted by the Year 2000 Problem, or implement new systems to become year 2000 compliant, in a timely manner. This compliance plan consists of four major areas of focus: systems, desktops, facilities and supplier management. The revised estimated total cost of executing this plan is approximately $11.5 million, and as of October 31, 1999, the Company had expended approximately $10.4 million to effect the plan. All expenditures related to the Company's year 2000 readiness initiative have been funded by cash flow from operations, have been expensed as incurred and have not materially impacted its other operating or investment plans. The Company has completed the systems portion of the compliance plan and no system replacements were necessary. The compliance plan for desktop applications critical to the Company's overall business infrastructure was complete at the end of the third quarter of fiscal 1999. Substantially all critical facilities systems, including, but not limited to, security systems, energy management, material handling, copiers and faxes, have been inventoried and tested. The testing revealed that some of these systems needed to be remediated to avoid year 2000 problems and the Company hired third parties to complete this remediation. As of October 31, 1999, the Company had substantially completed the facilities systems portion of its compliance plan. The Company, to date, has experienced no material year 2000 system problems. In implementing the systems portion of the plan, the Company completed an inventory of all software programs operating on its systems, identified year 2000 problems, created an appropriate testing environment, completed testing and installed year 2000 compliant software in the production environment. The Company is assessing the year 2000 compliance status of its suppliers, many of which participate in electronic data interchange ("EDI") or similar programs with the Company. Based on information provided by the suppliers and carriers through surveys and telephone interviews, the Company has confirmed that suppliers and carriers representing approximately 98% of its EDI volume have completed their internal year 2000 testing of both EDI and non-EDI systems. Additionally, the Company is conducting substantial testing with EDI merchandise suppliers and transportation carriers including,
with respect to merchandise suppliers participating in EDI programs, point-to- point testing of EDI systems for year 2000 compliance. As of October 31, 1999, the Company had completed testing with suppliers and carriers representing approximately 50% of its EDI volume and had completed testing suppliers and carriers representing approximately 70% of its EDI volume as of November 30, 1999. The Company has engaged in written or oral communications concerning the year 2000 readiness of the remaining 30%. These communications have not revealed to the Company any information that has caused the Company to believe that the systems of its suppliers and carriers will fail to be year 2000 compliant in a timely manner. The Company's risks involved with not solving the Year 2000 Problem include, but are not limited to, the following: - loss of local or regional electrical power; - loss of telecommunication services; - delays or cancellations of merchandise shipments; - manufacturing shutdowns; - delays in processing customer transactions; and - bank errors and computer errors by suppliers. Because the Company's year 2000 compliance is dependent upon certain third parties (including infrastructure providers) also being year 2000 compliant on a timely basis, there can be no assurance that the Company's efforts will prevent a material adverse impact on its results of operations, financial condition or business. However, the Company is taking steps to enable its stores to operate in an independent mode in case of power or tele- communications systems outages, which steps include building alternative processes for stores to communicate with the store support center. The Company has designed its year 2000 contingency plan as an extension of its current business recovery plan, which prescribes the measures to be taken upon the occurrence of a variety of contingencies. The contingency plan focuses on the following priorities: - ability to sell products to customers; - order and distribute merchandise; - pay employees; and - meet other regulatory and administrative needs. In addition to relying upon recovery actions contained in the Company's existing business recovery plan, the Company's year 2000 contingency plan is supported by its year 2000 command center. Key personnel (including managerial, technical, maintenance, logistics and other personnel employed at its stores and store support centers) will be available in the year 2000 command center 24 hours a day beginning on December 31, 1999, to identify and seek to rectify as promptly as possible any business disruptions. Although the Company has substantially completed its year 2000 contingency planning, it will continue to modify and test implementation of these contingency plans throughout the remainder of 1999. In addition, the Company has identified critical activities that would normally be conducted during the first two weeks of January 2000, which may be completed instead in December 1999.
THE HOME DEPOT, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) IMPACT OF INFLATION AND CHANGING PRICES Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has not entered into any transactions using derivative financial instruments or derivative commodity instruments and believes that its exposure to market risk associated with other financial instruments (such as investments) is not material. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders During the third quarter of fiscal 1999, no matters were submitted to a vote of security holders. Item 5. Other Information None PART II. OTHER INFORMATION - Continued Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Credit Agreement dated September 17, 1999 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 the banks party thereto. 11.1 Computation of Basic and Diluted Earnings Per Share 27. Financial Data Schedule (only submitted to SEC in electronic format) (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended October 31, 1999.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE HOME DEPOT, INC. (Registrant) By: /s/ Arthur M.Blank Arthur M. Blank President & CEO /s/ Marshall L. Day Marshall L. Day Senior Vice President Finance & Accounting December 2, 1999 (Date)
THE HOME DEPOT, INC. AND SUBSIDIARIES INDEX TO EXHIBITS Exhibit Description 10.1 Credit Agreement dated September 17, 1999 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. 11.1 Computation of Basic and Diluted Earnings Per Share 27. Financial Data Schedule (only submitted to SEC in electronic format)