Appendix A: The Home Depot, Inc. Annual Report in Fundamentals of Financial Accounting
Write a 1,050- to 1,750-word paper in which you answer the following questions:
What does the Consolidated Statements of Earnings?the income statement?tell you about the company? Why is this statement important? What business decisions could be made using the income statement?
What does the balance sheet tell you about the company? Why is the balance sheet important? What business decisions could be made using the balance sheet?
What does the statement of cash flows tell you about the company? What business decisions could be made using the statement of cash flows?
What information is provided in the statements that will assist you in making these business decisions? What information is not provided that could assist in managerial decision making?
INSTRUCTOR HOMEWORK HINTS?
Make sure on the individual assignment that you answer all the questions ask of the assignment. The last question in particular seems to be one that does not get answered thoroughly. Think about them carefully. For the group assignments I would say the same. Read the questions carefully and respond to them completely. For the individual and group assignments there are points assigned to each of the sections.
Remember also, that you need to reference the Home Depot Financial statements within the context of your discussion. It is good to talk in general as to the question be asked but add to that how it relates to Home Depot. In week 3 we will be ask to compare our financial assessment to Management’s assessment. You will not be able to do this if you do not talk about this in week 2. There are points tied to this discussion in week 3.
The Home Depot 2008 Annual Report Dear Shareholders:
In 2008, our retail sales declined by 7.8 percent, with comp sales down 8.7 percent.
Our adjusted earnings per share from continuing operations declined 22 percent. In
ordinary times, these would be very disappointing results. But 2008 was not an
Despite the difficult economic environment, we continued to improve our retail
business, through investing in our associates and our stores, rebuilding our supply
chain and improving customer service. We also made several strategic decisions to
optimize our capital allocation, concentrating our efforts on our core business.
In the first quarter, we closed 15 underperforming stores and reduced our pipeline of
new stores by 50. In the third quarter, we renegotiated our private label credit card
agreement, capping our cost of private label credit. In the fourth quarter, we
announced our decision to exit EXPO and related businesses. These actions will
make the Company stronger.
On the financial side, we ended the year with a solid operating profit and $41 billion
in assets. We generated cash from the business of approximately $5.5 billion, which
allowed us to invest in the business where necessary and reduce our debt obligations
while maintaining a healthy dividend.
On the operational side, we implemented an ?Aprons on the Floor? initiative, which
deployed over $200 million in annualized savings onto the floor of the stores for
customer service. Our customer service levels, as measured by our Voice of
Customer surveys and other external sources, continue to improve.
We launched our ?New Lower Price? campaign in the fall and have been very
pleased with the customer response to this program. More than ever, our customers
expect great value and exciting products in our stores, and we are committed to
providing for these expectations.
We started the roll-out of our enhanced supply chain. At the end of January, we
opened our fifth Rapid Deployment Center (RDC), and RDCs now serve
approximately 500 of our U.S. stores. Our goal is to have approximately 20 RDCs
in place by the end of 2010, serving all of our U.S. stores. We also rolled out new merchandising tools allowing our merchants to better plan
and assort our products. These tools helped us drive better inventory productivity
and provided better markdown control, particularly for our seasonal categories.
On the international front, our stores in Mexico continued their strong performance,
ending the year with double digit positive comps. We also took a major step in
transforming our information technology application footprint by converting our
Canadian business to a new enterprise resource planning platform. The rest of the
business will benefit from the lessons learned from the Canadian effort.
None of these activities would be possible without outstanding associates. Our
associates carry our service culture to our customers every day. For 2008, we issued
success sharing checks in excess of $88 million to our hourly associates. This is a
Company record, and it is a source of pride that we can take care of associates in
economically difficult times like these. Furthermore, associates under the officer
level will receive performance based merit increases and our 401(k) matching
program remains intact. Taking care of our associates is an important part of taking
care of our customers.
We are expecting another challenging year in 2009. Across the business, we are
making the adjustments necessary to respond to the economic environment. We are
carefully controlling our discretionary spending, scrutinizing every dollar of capital,
and ? most importantly ? intensifying our focus on our customers.
Our strategy is simple and straightforward: We are passionate about customer
service. We are ? and must continue to be ? the number one authority on products
in the home improvement market. And we will drive shareholder return through
disciplined capital allocation.
Above all, we are a values-based business. The Home Depot was founded in 1979
when the U.S. was in the middle of a recession. Our values ? taking care of our
customers and taking care of our associates ? speak even more powerfully in
I hope as you spend time in our stores you will notice our continuing improvement. Francis S. Blake
Chairman & Chief Executive Officer
April 2, 2009 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 FORM 10-K
? ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2009
OR n 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.
(Exact Name of Registrant as Specified in its Charter) DELAWARE (State or other jurisdiction of incorporation or organization) 95-3261426 (I.R.S. Employer Identification No.) 2455 PACES FERRY ROAD, N.W., ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code) Registrant?s Telephone Number, Including Area Code: (770) 433-8211
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF NAME OF EACH EXCHANGE
ON WHICH REGISTERED EACH CLASS Common Stock, $0.05 Par Value Per Share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ? No n
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. Yes n No ?
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 ? No n
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. n
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of ?large accelerated filer,? ?accelerated filer?
and ?smaller reporting company? in Rule 12b-2 of the Exchange Act. (Check one):
Smaller reporting company n
Large accelerated filer ? Accelerated filer n
Non-accelerated filer n
(Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes n
The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant
on August 3, 2008 was $39.7 billion.
The number of shares outstanding of the Registrant?s common stock as of March 23, 2009 was
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant?s proxy statement for the 2009 Annual Meeting of Shareholders are incorporated
by reference in Part III of this Form 10-K to the extent described herein. THE HOME DEPOT, INC.
FISCAL YEAR 2008 FORM 10-K
TABLE OF CONTENTS
Item 1. Business 1 Item 1A. Risk Factors 5 Item 1B. Unresolved Staff Comments 8 Item 2. Properties 8 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Market for Registrant?s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities 12 Item 6. Selected Financial Data 14 Item 7. Management?s Discussion and Analysis of Financial Condition and Results of
Operations 15 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24 Item 8. Financial Statements and Supplementary Data 25 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure 50 Item 9A. Controls and Procedures 50 Item 9B. Other Information 50 Item 10. Directors, Executive Officers and Corporate Governance 51 Item 11. Executive Compensation 52 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters 52 Item 13. Certain Relationships and Related Transactions, and Director Independence 52 Item 14. Principal Accounting Fees and Services 52 Exhibits, Financial Statement Schedules 53 Signatures 57 PART II PART III PART IV
Item 15. CAUTIONARY STATEMENT PURSUANT TO THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements regarding our future performance constitute ?forward-looking statements? as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, the demand for
our products and services, net sales growth, comparable store sales, impact of cannibalization, store openings and
closures, state of the economy, state of the residential construction, housing and home improvement markets, commodity
price inflation and deflation, implementation of store initiatives, continuation of reinvestment plans, net earnings
performance, earnings per share, stock-based compensation expense, capital allocation and expenditures, liquidity, the
effect of adopting certain accounting standards, return on invested capital, management of our purchasing or customer
credit policies, the effect of charges, the planned recapitalization of the Company, timing of the completion of such
recapitalization and the ability to issue debt securities on terms and at rates acceptable to us.
Forward-looking statements are based on currently available information and our current assumptions, expectations and
projections about future events. You are cautioned not to place undue reliance on our forward-looking statements. Such
statements are not guarantees of future performance and are subject to future events, risks and uncertainties ? many of
which are beyond our control or are currently unknown to us ? as well as potentially inaccurate assumptions that could
cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include, but are
not limited to, those described in Item 1A, ?Risk Factors.?
Forward-looking statements speak only as of the date they are made, and we do not undertake to update such statements
other than as required by law. You are advised, however, to review any further disclosures we make on related subjects in
our periodic filings with the Securities and Exchange Commission (?SEC?). PART I
Item 1. Business. Introduction
The Home Depot, Inc. is the world?s largest home improvement retailer based on Net Sales for the fiscal year ended
February 1, 2009 (?fiscal 2008?). The Home Depot stores sell a wide assortment of building materials, home improvement
and lawn and garden products and provide a number of services. The Home Depot stores average approximately
105,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. As of the
end of fiscal 2008, we had 2,233 The Home Depot stores located throughout the United States including the
Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam (?U.S.?), Canada, China and
Mexico. In addition, at the end of fiscal 2008, the Company operated 34 EXPO Design Center stores, two THD Design
Center stores and five Yardbirds stores. On January 26, 2009, we announced the planned closing of our EXPO, THD
Design Center and Yardbirds stores as part of our focus on our core business.
The Home Depot, Inc. is a Delaware corporation that was incorporated in 1978. Our Store Support Center (corporate
office) is located at 2455 Paces Ferry Road, N.W., Atlanta, Georgia 30339. Our telephone number is (770) 433-8211.
We maintain an Internet website at www.homedepot.com. We make available on our website, free of charge, our Annual
Reports to shareholders, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
Proxy Statements and Forms 3, 4 and 5 as soon as reasonably practicable after filing such documents with, or furnishing
such documents to, the SEC.
We include our website addresses throughout this filing only as textual references. The information contained on our
websites is not incorporated by reference into this report. 1 Our Business
Operating Strategy. In fiscal 2008, despite the continuing difficult economic environment, we continued to focus on our
core retail business, investing in our associates and stores and improving our customer service. We shifted our focus from
new square footage growth to maximizing the productivity of our existing store base. During the year, we implemented
significant changes in our store operations to make them simpler, more consistent and more customer-focused. We shifted
associate hours to be more customer facing and refocused our efforts on offering every day values in the stores.
Additionally, we made several strategic decisions which are intended to optimize our capital allocation, concentrate our
efforts on our core business and create long-term value for our shareholders, including our decision to close 15 stores,
remove approximately 50 stores from our new store pipeline and exit our EXPO, THD Design Center, Yardbirds and HD
Customers. The Home Depot stores serve three primary customer groups:
? Do-It-Yourself (?D-I-Y?) Customers: These customers are typically home owners who purchase products
and complete their own projects and installations.
? Do-It-For-Me (?D-I-F-M?) Customers: These customers are typically home owners who purchase
materials themselves and hire third parties to complete the project or installation, or both. We arrange for the
installation of a variety of The Home Depot products through qualified independent contractors.
? Professional Customers: These customers are professional remodelers, general contractors, repairmen, small
business owners and tradesmen. In many stores, we offer a variety of programs to these customers, including
delivery and will-call services, dedicated staff, extensive merchandise selections and expanded credit
programs, all of which we believe increase sales to these customers.
Products. A typical Home Depot store stocks approximately 30,000 to 40,000 products during the year, including both
national brand name and proprietary items. The following table shows the percentage of Net Sales of each major product
group (and related services) for each of the last three fiscal years:
Percentage of Net Sales for
Fiscal Year Ended
2007 Product Group 30.6%
18.6 Total 31.0%
18.6 100.0% Plumbing, electrical and kitchen
Hardware and seasonal
Building materials, lumber and millwork
Paint and flooring 100.0% 100.0% In fiscal 2008, we reduced our inventory while maintaining a favorable in-stock rate. We also reduced a number of onetime discount promotions and refocused our efforts on offering every day values. We continued to introduce innovative
and distinctive products to our customers, including Thomasville» deep seating patio furniture, Charbroil» infrared grills,
RIDGID» pressure washers and Homelite» trimmers.
To complement and enhance our product selection, we have formed strategic alliances and exclusive relationships with
selected suppliers to market products under a variety of well-recognized brand names. During fiscal 2008, we offered a
number of proprietary and exclusive brands across a wide range of departments including, but not limited to, Behr
Premium Plus» paint, Hampton Bay» lighting, Vigoro» lawn care products, Husky» hand tools, RIDGID» and Ryobi»
power tools, Pegasus» faucets, and Glacier Bay» bath fixtures. We may consider additional strategic alliances and
relationships with other suppliers and will continue to assess opportunities to expand the range of products available under
brand names that are exclusive to The Home Depot.
From our Store Support Center we maintain a global sourcing merchandise program to source high-quality products
directly from manufacturers around the world. Our Product Development Merchants identify and purchase market leading
innovative products directly for our stores. Additionally, we have three sourcing offices located in the Chinese cities of
Shanghai, Shenzhen and Dalian, and offices in Gurgaon, India; Milan, Italy; Monterrey, Mexico and Toronto, Canada.
2 Services. Our stores offer a variety of installation services. These services target D-I-F-M customers who select and
purchase products and installation of those products from us. These installation programs include products such as
carpeting, flooring, cabinets, countertops and water heaters. In addition, we provide professional installation of a number
of products sold through our in-home sales programs, such as generators and furnace and central air systems.
United States. At the end of fiscal 2008, we were operating 1,971 The Home Depot stores in the U.S., including the
Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam. During fiscal 2008, we opened 41
new The Home Depot stores, including five relocations, in the U.S.
Canada. At the end of fiscal 2008, we were operating 176 The Home Depot stores in ten Canadian provinces. Of these
stores, 12 were opened during fiscal 2008, including one relocation.
Mexico. At the end of fiscal 2008, we were operating 74 The Home Depot stores in Mexico. Of these stores, nine were
opened during fiscal 2008.
China. At the end of fiscal 2008, we were operating 12 The Home Depot stores in six Chinese cities.
Certain financial information about our operations outside of the U.S. is reported in Note 1 to the Consolidated Financial
Store Support Services
Information Technologies. During fiscal 2008, we continued to make information technology investments to better
support our customers and provide an improved overall shopping environment and experience. We invested in our supply
chain and merchandising tools to improve inventory management capabilities and streamline our operations.
We completed the deployment of a new enterprise resource planning (?ERP?) system to our Canadian division, which
includes all stores and distribution centers. We will assess the return on investment and performance of the system in the
fiscal year ended January 31, 2010 (?fiscal 2009?) as we evaluate alternatives for our U.S. application footprint.
With regard to our supply chain, we implemented a new warehouse management system to support the U.S. and Canadian
stores, continued implementation of a new transportation management system, completed a technology refresh at our
distribution centers, and implemented improvements to our Central Automated Replenishment system.
We made improvements to the tools utilized in merchandising systems in the areas of assortment management,
forecasting, and replenishment.
With our continued focus on the stores, we provided technology improvements designed to help store associates perform
their tasks and improve customer service. We equipped 1,100 stores with new computers, registers and printers, and 920
stores received new paint dispensers.
Credit Services. We offer six credit programs through third-party credit providers to professional, D-I-Y and D-I-F-M
customers. In fiscal 2008, approximately 3.2 million new The Home Depot credit accounts were opened, and the total
number of The Home Depot active account holders was approximately 12.5 million. Proprietary credit card sales
accounted for approximately 28% of store sales in fiscal 2008. In fiscal 2008, Home Depot re-negotiated and extended the
term of the primary contracts governing the programs. The new contract with Citibank established a ceiling for the cost of
credit for the program while retaining the ability for portfolio performance improvements to lower the cost of credit.
Logistics. Our logistics programs are designed to ensure product availability for customers, effective use of our
investment in inventory and low total supply chain costs. At the end of fiscal 2008, we operated 30 lumber distribution
centers, 45 conventional distribution centers and five transit facilities, all located in the U.S., Canada and Mexico.
Additionally in 2008, we opened four new Rapid Deployment Centers (?RDC?) in the U.S., bringing our total number of
RDCs to five. We now serve approximately 25% of our U.S. stores from RDCs. RDCs allow for aggregation of store
product needs to a single purchase order, and then rapid allocation and deployment of inventory to individual stores upon
3 arrival at the center. This process allows improved transportation, simplified order processing at suppliers and reduced
lead time from the time that product needs at stores are determined to actual replenishment. We plan to open additional
RDCs during fiscal 2009 and 2010 and ultimately serve all of our U.S. stores from RDCs.
In fiscal 2008, approximately 35% of the merchandise shipped to our U.S. stores flowed through our distribution facilities.
The remaining merchandise was shipped directly from suppliers to our stores. The expansion of the RDC network is
expected to increase our distribution utilization. In addition to replenishing merchandise at our stores, we also provide
delivery of in-stock and special order product directly to our customers.
Associates. At the end of fiscal 2008, we employed approximately 322,000 associates, of whom approximately 22,500
were salaried, with the remainder compensated on an hourly or temporary basis. Approximately 65% of our associates are
employed on a full-time basis. We believe that our employee relations are very good. To attract and retain qualified
personnel, we seek to maintain competitive salary and wage levels in each market we serve.
Intellectual Property. Through our wholly-owned subsidiary, Homer TLC, Inc., we have registered or applied for
registration, in a number of countries, for a variety of internet domain names, service marks and trademarks for use in our
businesses, including The Home Depot»; Hampton Bay» fans, lighting and accessories; Glacier Bay» toilets, sinks and
faucets; Pegasus» faucets and bath accessories; and Workforce» tools, tool boxes and shelving. We have also obtained and
now maintain patent portfolios relating to certain products and services provided by The Home Depot, and continually
seek to patent or otherwise protect selected innovations we incorporate into our products and business operations. We
regard our intellectual property as having significant value to our business and as being an important factor in the
marketing of our brand, e-commerce, stores and new areas of our business.
Quality Assurance Program. We have both quality assurance and engineering resources who oversee the quality of our
directly imported, globally-sourced and proprietary products. Through these programs, we have established criteria for
supplier and product performance that are designed to ensure our products comply with federal, state and local quality and
performance standards. These programs also allow us to measure and track timeliness of shipments. These performance
records are made available to the factories to allow them to strive for improvement. The program addresses quality
assurance at the factory, product and packaging levels.
Environmental, Health & Safety (?EH&S?). We are committed to maintaining a safe environment for our customers
and associates and protecting the environment of the communities in which we do business. Our EH&S function in the
field is directed by trained associates focused primarily on the execution of the EH&S programs. Additionally, we have a
Store Support Center-based team of dedicated EH&S professionals who evaluate, develop, implement and enforce
policies, processes and programs on a Company-wide basis.
Environmental. The Home Depot is committed to conducting business in an environmentally responsible manner and
this commitment impacts all areas of our business, including store construction and maintenance, energy usage, product
selection and customer education.
In fiscal 2008, we spent approximately $27.5 million for energy efficiency related projects. By replacing HVAC units in
approximately 200 existing stores and switching to the use of T-5 lighting in approximately 700 existing stores, we
estimate cumulative savings to be approximately $28 million since fiscal 2006. In addition, we have implemented strict
operational standards that establish energy efficient practices in all of our facilities. These include HVAC unit temperature
regulation and adherence to strict lighting schedules, which are the largest sources of energy consumption in our stores, as
well as utilizing the No…