Home Depot 2004 Annual Report Download

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Building Platforms for Growth
2004 Annual Report

Table of contents

  • Page 1
    Building Platforms for Growth 2004 Annual Report

  • Page 2
    ... on a global basis, with fiscal 2004 sales of $73.1 billion. The Home Depot ® stores are full-service, warehouse-style stores averaging approximately 106,000 square feet in size. The stores stock 40,000 to 50,000 different types of building materials, home improvement supplies, décor and lawn and...

  • Page 3
    ... better customer service. We enhanced our compensation and rewards programs with record Success Sharing payouts of approximately $90 million. We launched exciting new hiring partnerships with AARP and the Departments of Defense, Veterans Affairs and Labor, and we added new benefits programs that...

  • Page 4
    ..., in January 2004, a leading national design center partner for production homebuilders, which is now part of The Home Depot Supply, Builder Solutions; and Litemor, in February 2005, Canada's largest national commercial lighting distributor. These acquisitions give us strong entry points into the...

  • Page 5
    ... Platforms for Growth During 2004, we celebrated The Home Depot's 25 anniversary. It was a year of strong performance made possible by 325,000 orange-blooded associates who are committed to shaping the company's future. We will continue to build on our history and position ourselves as the retail...

  • Page 6
    ... Plus® paints, Toro® lawn mowers and Vermont Castings™ gas grills have received accolades from leading consumer organizations. Throughout 2004, our products won over 20 major awards for innovation, energy efficiency and value. Our innovation is carefully planned. Through our market-back customer...

  • Page 7
    ... in-store experience for customers. During 2004, The Home Depot invested in new lighting, brighter aisles, more informative signage and an improved merchandising mix. In addition, our technology investments enabled us to accelerate checkout, improve special orders, installed sales and returns...

  • Page 8
    ... projects, including kitchen and bath design, millwork and flooring. Our trained associates assist customers as they choose from numerous product options. These associates help ensure a successful project for customers, from start to finish. The Home Depot Tool Rental Centers rent everything from...

  • Page 9
    ...to have products installed by certified installers. To benefit our retail customers and professional contractors, we expanded our Tool Rental Centers. During 2004, we opened our 1,000th Tool Rental Center, making us the largest in the industry by number of locations. This initiative complements our...

  • Page 10
    ...component of our market expansion plan. We have been steadily growing our presence in Mexico and Canada, and have become the home improvement leader in both countries. We also announced plans to expand our presence in China. At the end of 2004, we had 44 stores in Mexico and 117 stores in Canada. 8

  • Page 11
    ... than 1,560 stores featuring contractor services desks and our The Home Depot Supply, Inc. offers facilities maintenance professionals next day delivery of thousands of maintenance, repair and operating products from its 20 distribution centers. The Home Depot Supply is positioned for future growth...

  • Page 12
    ...2004 Olympic and Paralympic Games and earned 41 medals • 2 million children participated in our Kids Workshop program The Home Depot's values and culture propel the philanthropic and volunteer support we give to the communities where our associates live and work. Our extensive community relations...

  • Page 13
    ...Operation Career Front, a partnership with the Departments of Defense, Labor and Veterans Affairs that extends employment opportunities to military veterans and their spouses. The Freedom Award - Employer Support of the Guard and Reserve (ESGR) • Corporate Citizen Award - AmeriCorps*NCCC The Home...

  • Page 14
    ... At The Home Depot, our priority is to build on our differentiation. We are committed to offering customers the most innovative and distinctive products and services in the industry. From the floor to the ceiling, kitchens to lawns and everything in between, The Home Depot has home improvement...

  • Page 15
    ...Consolidated Financial Statements 28 Management's Responsibility for Financial Statements 40 Management's Report on Internal Control over Financial Reporting 40 Reports of Independent Registered Public Accounting Firm 40 10-Year Summary of Financial and Operating Results 42 Corporate and Stockholder...

  • Page 16
    ... of 10.8% for fiscal 2004. We extended our business by opening new stores and by offering a variety of installation and home maintenance programs through our Home Depot and EXPO Design Center stores. We currently offer 23 national installation programs that provide products and services to our do-it...

  • Page 17
    ... Supply brand (Apex Supply Company, Inc., The Home Depot Supply, Inc., Your Other Warehouse, LLC, White Cap Industries, Inc. and HD Builder Solutions Group, Inc.) since their inclusion may cause distortion of the data presented due to operational differences from our retail stores. The total number...

  • Page 18
    ...customers. These programs are offered through Home Depot and EXPO Design Center stores. We also arrange for the provision of flooring, countertop and window coverings installation services to production homebuilders through HD Builder Solutions Group, Inc. Our services revenue is expected to benefit...

  • Page 19
    ... and benefits from our private label credit card, which carries a lower discount rate than other forms of credit, like bank cards. Labor productivity, as measured by sales per labor hour, reached an all-time high in fiscal 2004, as we moved our associates from tasking to selling activities. This...

  • Page 20
    ... expense associated with our store modernization program. These rising costs were offset, however, by increasing levels of sales productivity by our associates and benefits from our new private label credit program. General and Administrative Expenses, which are included in Operating Expenses...

  • Page 21
    ... costs incurred to promote vendors' products. In fiscal 2004 and fiscal 2003, net advertising expense was $1.0 billion and $58 million, respectively, which was recorded in Selling and Store Operating Expenses. The following table illustrates the full-year effect on Cost of Merchandise Sold...

  • Page 22
    ...Long-Term Debt by $282 million during the first quarter of fiscal 2004 but had no economic impact on our financial condition (see Note 5 in "Notes to Consolidated Financial Statements"). If the estimated net present value of future payments under the operating leases were capitalized, our total debt...

  • Page 23
    ... for insurance programs, purchases of import merchandise inventories and construction contracts. Our purchase obligations consist of commitments for both merchandise and services. Under an off-balance sheet lease for certain stores, office buildings and distribution centers totaling $282 million...

  • Page 24
    ... related to our purchase of certain commodity products. During fiscal 2004, rising lumber prices increased our comparable store sales by approximately 100 basis points. We do not believe that changing prices for other commodities have had a material effect on our Net Sales or results of operations...

  • Page 25
    ... for Stock Issued to Employees." SFAS 123(R) requires all public entities to recognize compensation expense for all share-based payments as measured by the fair value on the grant date over the requisite service period. SFAS 123(R) becomes effective as of the first interim or annual reporting period...

  • Page 26
    ...336 1.57 2,344 1.56 NET SALES Cost of Merchandise Sold GROSS PROFIT Operating Expenses: Selling and Store Operating General and Administrative Total Operating Expenses OPERATING INCOME Interest Income (Expense): Interest and Investment Income Interest Expense Interest, net EARNINGS BEFORE PROVISION...

  • Page 27
    ...Taxes Payable Current Installments of Long-Term Debt Other Accrued Expenses Total Current Liabilities Long-Term Debt, excluding current installments Other Long-Term Liabilities Deferred Income Taxes STOCKHOLDERS' EQUITY Common Stock, par value $0.05; authorized: 10,000 shares; issued 2,385 shares at...

  • Page 28
    ... Shares Issued Under Employee Stock Plans Tax Effect of Sale of Option Shares by Employees Translation Adjustments Stock Options, Awards and Amortization of Restricted Stock Repurchase of Common Stock Cash Dividends ($0.26 per share) Comprehensive Income BALANCE, FEBRUARY 1, 2004 Net Earnings Shares...

  • Page 29
    ... Provided by Operating Activities: Depreciation and Amortization Stock-Based Compensation Expense Changes in Assets and Liabilities, net of the effects of acquisitions: (Increase) Decrease in Receivables, net Increase in Merchandise Inventories Increase in Accounts Payable and Accrued Liabilities...

  • Page 30
    ... primarily flooring products and installation services. At the end of fiscal 2004, the Company was operating 1,890 stores in total, which included 1,657 Home Depot stores, 54 EXPO Design Center stores, 11 Home Depot Landscape Supply stores, 5 Home Depot Supply stores and 2 Home Depot Floor Stores in...

  • Page 31
    ... that amounts reflected in the accompanying Consolidated Financial Statements for Merchandise Inventories are properly stated. During the period between physical inventory counts, the Company accrues for estimated losses related to shrink on a store by store basis based on historical shrink results...

  • Page 32
    ... sold and services performed, the cost of transportation of merchandise from vendors to the Company's stores, locations or customers, the operating cost of the Company's distribution centers and the cost of deferred interest programs offered through the Company's private label credit card program...

  • Page 33
    ... and Store Operating Expenses in the accompanying Consolidated Statements of Earnings. When a location closes, the Company also recognizes in Selling and Store Operating Expenses the net present value of future lease obligations, less estimated sublease income. Stock-Based Compensation Effective...

  • Page 34
    ... which are expected to materially impact the Company's liquidity or capital resources. In September 2004, the Company issued $1.0 billion of 3 3⁄4% Senior Notes due September 15, 2009 at a discount of $5 million with interest payable semi-annually on March 15 and September 15 of each year. The net...

  • Page 35
    Notes to Consolidated Financial Statements The Home Depot, Inc. and Subsidiaries (continued) The $5.0 million discount associated with the issuance is being amortized over the term of the 33⁄4% Senior Notes using the effective interest rate method. Issuance costs of $6.6 million are being ...

  • Page 36
    ... Home Depot, Inc. 1997 Omnibus Stock Incentive Plan ("1997 Plan") provides that incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, performance shares, performance units and deferred shares may be issued to selected associates, officers and directors...

  • Page 37
    Notes to Consolidated Financial Statements The Home Depot, Inc. and Subsidiaries (continued) The Company maintains two employee stock purchase plans (U.S. and non-U.S. plans). The plan for U.S. associates is a tax-qualified plan under Section 423 of the Internal Revenue Code. The non-U.S. plan is ...

  • Page 38
    ...the lessor purchased the properties, paid for the construction costs and subsequently leased the facilities to the Company. The Company records the rental payments under the terms of the operating lease agreements as Selling and Store Operating Expenses in the accompanying Consolidated Statements of...

  • Page 39
    ... stock in the open market. Compensation expense related to this plan for fiscal 2004, 2003 and 2002 was not material. Fiscal Year 2005 2006 2007 2008 2009 Thereafter through 2045 1,108 Less imputed interest Net present value of capital lease obligations Less current installments Long-term capital...

  • Page 40
    ... home improvement retailer in Mexico. The purchase of 20 Home Mart stores increased the total numbers of stores in Mexico to 44 as of the end of fiscal 2004. This acquisition was part of the Company's strategy to expand into new markets. In May 2004, the Company acquired all of the common stock...

  • Page 41
    ... (continued) 10 | QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly consolidated results of operations for the fiscal years ended January 30, 2005 and February 1, 2004 (dollars in millions, except per share data): Increase (Decrease) in Comparable Store Sales...

  • Page 42
    ... of outside directors, meets five times a year with the independent registered public accounting firm, the internal auditors and representatives of management to discuss auditing and financial reporting matters. In addition, a telephonic meeting is held prior to each quarterly earnings release. The...

  • Page 43
    ...opinion on those consolidated financial statements. 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, 2005 and February 1, 2004, and the related Consolidated Statements...

  • Page 44
    ...- % of sales BALANCE SHEET DATA AND FINANCIAL RATIOS Total assets Working capital Merchandise inventories Net property and equipment Long-term debt Stockholders' equity Book value per share ($) Total debt-to-equity (%) Current ratio Inventory turnover Return on invested capital (%) STATEMENT OF CASH...

  • Page 45
    ... with generally accepted accounting principles. (7) Beginning in fiscal 2003, comparable store sales increases were reported to the nearest one-tenth of a percentage. Comparable store sales increases in fiscal years prior to 2003 were not adjusted to reflect this change. The Home Depot, Inc...

  • Page 46
    ...37.89 $31.93 DIRECT STOCK PURCHASE/DIVIDEND REINVESTMENT PLAN New investors may make an initial investment, and stockholders of record may acquire additional shares, of The Home Depot, Inc.'s common stock through the Company's direct stock purchase and dividend reinvestment plan. Subject to certain...

  • Page 47
    ... & Chief Financial Officer Bonnie G. Hill 1, 3 President B. Hill Enterprises, LLC Dennis M. Donovan Executive Vice President Human Resources Annette M. Verschuren Division President Canada & EXPO Design Center Information for the Company's Board of Directors is for fiscal 2004. During fiscal...

  • Page 48
    The Home Depot, Inc. 2455 Paces Ferry Road, NW Atlanta, GA 30339-4024 USA 770.433.8211