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Property and Equipment, at Cost (note 3):
Land 44,396,000 30,044,000
Buildings 38,005,000 3,728,000
Furniture, ¬xtures, and equipment 34,786,000 18,162,000
Leasehold improvements 23,748,000 11,743,000
Construction in progress 27,694,000 14,039,000
168,629,000 77,716,000
Less accumulated depreciation and amortization 7,813,000 4,139,000
Net property and equipment 160,816,000 73,577,000
Cost in Excess of the Fair Value of Net Assets Acquired,
net of accumulated amortization of $730,000 in 1985 and
$93,000 in 1984 (note 2) 24,561,000 25,198,000
Other 4,755,000 3,177,000
$380,193,000 $249,364,000


LIABILITIES AND STOCKHOLDERS™ EQUITY
Current Liabilities:
Accounts payable $ 53,881,000 $ 32,356,000
Accrued salaries and related expenses 5,397,000 3,819,000
Other accrued expenses 13,950,000 10,214,000
Income taxes payable (note 4) ” 626,000
Current portion of long-term debt (note 3) 10,382,000 287,000
Total current liabilities 83,610,000 47,302,000

Long-Term Debt, Excluding Current Installments
(note 3):
Convertible subordinated debentures 100,250,000 100,250,000
Other long-term debt 99,693,000 17,692,000
$199,943,000 $117,942,000

(continued)
362 Financial Analysis




9-46
Financial Analysis




February 3, 1985
February 2, 1986

Other Liabilities 861,000 1,320,000

Deferred Income Taxes (note 4) 6,687,000 2,586,000

Stockholders™ Equity (note 5):
Common stock, par value $.05. Authorized: 50,000,000
shares; issued and outstanding “ 25,150,063 shares at
February 2, 1986 and 25,055,188 shares at February 3,
1985 1,258,000 1,253,000




The Home Depot
Paid-in capital 48,900,000 48,246,000
Retained earnings 38,934,000 30,715,000
Total stockholders™ equity 89,092,000 80,214,000
Commitments and Contingencies
(notes 5, 6 and 8) $380,193,000 $249,364,000




CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION

Fiscal Year Ended
February 2, 1986 February 3, 1985 January 29, 1984

Sources of Working Capital:
Net earnings $8,219,000 $14,122,000 $ 10,261,000
Items which do not use working capital:
Depreciation and amortization of property
and equipment 4,376,000 2,275,000 903,000
Deferred income taxes 3,612,000 1,508,000 713,000
Amortization of cost in excess of the fair
value of net assets required 637,000 93,000 ”
Net gain on disposition of property and
equipment (1,317,000) ” ”
Other 180,000 77,000 59,000
Working capital provided by operations 15,707,000 18,075,000 11,936,000
Proceeds from disposition of property and
equipment 9,469,000 861,000 3,000
Proceeds from long-term borrowings 92,400,000 120,350,000 4,200,000
Proceeds from sale of common stock, net 659,000 814,000 36,663,000
$118,235,000 $140,100,000 $ 52,802,000

(continued)
363
Financial Analysis




9-47 Part 2 Business Analysis and Valuation Tools




CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (continued)

Fiscal Year Ended
February 2, 1986 February 3, 1985 January 29, 1984

Uses of Working Capital:
Additions to property and equipment $ 99,767,000 $50,769,000 $ 16,081,000
Current installments and repayments of long-
term debt 10,399,000 6,792,000 52,000
Acquisition of Bowater Home Center, Inc., net
of working capital of $9,227,000 (note 2):
The Home Depot




Property and equipment ” 4,815,000 ”
Cost in excess of the fair value of net assets
acquired ” 25,291,000 ”
Other assets, net of liabilities ” (913,000) ”
Other, net 1,728,000 2,554,000 252,000
Increase in working capital 6,341,000 50,792,000 36,417,000
$118,235,000 $140,100,000 $ 52,802,000

Changes in Components of Working
Capital:
Increase (decrease) in current assets:
Cash (42,391,000) $29,894,000 $ 13,917,000
Receivables, net 15,799,000 7,170,000 1,567,000
Merchandise inventories 68,654,000 25,334,000 41,137,000
Prepaid expenses 587,000 1,206,000 227,000
42,649,000 63,604,000 56,848,000
Increase (decrease) in current liabilities:
Accounts payable 21,525,000 10,505,000 17,150,000
Accrued salaries and related expenses 1,578,000 (93,000) 2,524,000
Other accrued expenses 3,736,000 2,824,000 341,000
Income taxes payable (626,000) (657,000) 406,000
Current portion of long-term debt 10,095,000 233,000 10,000
36,308,000 12,812,000 20,431,000
Increase in Working Capital $ 6,341,000 $ 50,792,000 $ 36,417,000
364 Financial Analysis




9-48
Financial Analysis




SELECTED FINANCIAL DATA

Fiscal Year Ended
February 3, January 29, January 30, January 31,
February 2,
1985a 1984 1983 1982
1986

Selected Consolidated Statement of Earnings Data:
$700,729,00
Net sales 0 $432,779,000 $256,184,000 $117,645,000 $51,542,000
Gross pro¬t 181,457,000 114,319,000 70,014,000 33,358,000 14,735,000
Earnings before income taxes




The Home Depot
and extraordinary item 11,619,000 26,252,000 18,986,000 9,870,000 1,963,000
Earnings before extraordi-
nary item 8,219,000 14,122,000 10,261,000 5,315,000 1,211,000
Extraordinary item-reduction
of income taxes arising
from carryforward of prior
years™ operating losses ” ” ” ” 234,000
$ 8,219,00
Net earnings 0 $ 14,122,000 $10,261,000 $5,315,000 $1,445,000

Per Common and Common Equivalent Share:
Earnings before extraordi-
nary item $ .33 $ .56 $ .41 $ .24 $.06
Extraordinary item ” ” ” ” .01
Net earnings $ .33 $ .56 $ .41 $ .24 $ .07
Weighted average number
of common and common
equivalent shares 25,247,000 25,302,000 24,834,000 22,233,000 21,050,000

Selected Consolidated Balance Sheet Data:
$106,451,00
Working capital 0 $100,110,000 $ 49,318,000 $ 12,901,000 $ 5,502,000
Total assets 380,193,000 249,364,000 105,230,000 33,014,000 16,906,000
Long-term debt 199,943,000 117,942,000 4,384,000 236,000 3,738,000
Stockholders™ equity 89,092,000 80,214,000 65,278,000 18,354,000 5,024,000


a. 53-week fiscal year; all others were 52-week fiscal years.
365
Financial Analysis




9-49 Part 2 Business Analysis and Valuation Tools




MANAGEMENT™S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION

The data below re¬‚ect the percentage relationship between sales and major categories in
the Consolidated Statements of Earnings and selected sales data of the percentage
change in the dollar amounts of each of the items.
Percentage Increase
(Decrease) of Dollar
Fiscal Yeara Amounts

1985 v. 1984 v.
1985 1984 1983 1984 1983
The Home Depot




Selected Consolidated Statements of
Earnings Data:
Net sales 100.0% 100.0% 100.0% 61.9% 68.9%
Gross pro¬t 25.9 26.4 27.3 58.7 63.3
Cost and expenses:
Selling and store operating 19.2 17.2 17.0 80.5 71.1
Preopening 1.1 .4 .9 292.3 (21.9)
General and administrative 2.9 3.0 2.9 60.4 73.8
Net gain on disposition of property and
equipment (.2) ” ” ” ”
Interest income (.2) (1.2) (.9) (71.7) 116.2
Interest expense 1.4 .9 ” 147.6 3,863.5
24.2 20.3 19.9 92.9 72.6
Earnings before income taxes 1.7 6.1 7.4 (55.7) 38.3
Income taxes .5 2.8 3.4 (72.0) 39.0
Net earnings 1.2% 3.3% 4.0% (41.8%) 37.6%

Selected Consolidated Sales Data:
Number of customer transactions 23,324,000 14,256,000 8,479.000 63.6% 68.1%
Average amount of sale per transaction $30.04 $30.36 $30.21 (1.1) .5
Weighted average weekly sales per
operating store $ 342,500 $ 365,500 $ 360,300 (6.3) 1.4


a. Fiscal years 1985, 1984 and 1983 refer to the fiscal years ended February 2, 1986, February 3, 1985 and January 29, 1984, respectively.
Fiscal 1984 consisted of 53 weeks while 1985 and 1983 each consisted of 52 weeks.



Results of Operations
For an understanding of the signi¬cant factors that in¬‚uenced the Company™s perfor-
mance during the past three ¬scal years, the following discussion should be read in con-
junction with the consolidated ¬nancial statements appearing elsewhere in this annual
report.

Fiscal Year Ended February 2, 1986 Compared to February 3, 1985
Net sales in ¬scal year 1985 increased 62% from $432,779,000 to $700,729,000.

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