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Business Context and Reporting Period

This Form 10-K covers The Home Depot, Inc. for the fiscal year ended January 30, 2000. The Company is the world's largest home improvement retailer and the third largest retailer in the United States by net sales volume. As of the fiscal year-end, the Company operated 913 Home Depot stores, 15 EXPO Design Center stores, and two Villager's Hardware test stores. The Company also operates direct marketing subsidiaries (Maintenance Warehouse and National Blinds & Wallpaper) and recently acquired Georgia Lighting, Inc. and Apex Supply Company, Inc.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Net sales increased 27.2% to $38.4 billion, driven by a 10% increase in comparable store sales and the addition of 169 new stores and six relocations during fiscal 1999.
• Profitability: Net earnings rose 43.7% to $2.32 billion. Gross profit margin improved to 29.7% due to lower merchandise costs, increased sales of imported products, and better inventory shrink results.
• Debt Reduction: Long-term debt decreased significantly from $1.566 billion to $750 million. This was primarily due to the conversion of $1.1 billion in 3 1/4% Convertible Subordinated Notes into 72 million shares of common stock.
• Operating Expenses: Operating expenses as a percent of sales increased slightly to 19.8% from 19.7%, driven by higher store selling payroll expenses, medical costs, and bonus expenses, partially offset by lower net advertising expenses.
• Acquisitions: The Company acquired Georgia Lighting, Inc. (June 1999) and Apex Supply Company, Inc. (January 2000) to strengthen lighting and plumbing product offerings.

Guidance, Outlook, and Risks

• Store Expansion: The Company anticipates opening approximately 200 new stores (Home Depot, EXPO, and Villager's Hardware) in fiscal 2000, maintaining a growth rate of 21-22% per year. The goal is to operate over 1,900 stores by the end of fiscal 2003.
• Capital Resources: Management expects to fund capital expenditures through internally generated funds, an $800 million commercial paper program, and operating lease agreements. No borrowings were outstanding under the commercial paper program as of January 30, 2000.
• Strategic Initiatives: Plans include a company-wide rollout of the Professional Business Customer initiative, expansion of appliance sales to the majority of U.S. stores, and the introduction of Home Improvement Loans in substantially all U.S. stores.
• Risks: Key risks include unanticipated weather conditions, instability in sourcing costs (e.g., lumber), competition, real estate availability, and general economic conditions affecting consumer confidence.
• Year 2000 Compliance: The Company reported no material Year 2000 system problems and does not anticipate future material adverse impacts.

Investor Verification Checklist

• Verify the sustainability of the 10% comparable store sales growth rate in the context of a highly competitive retail environment.
• Confirm the impact of the $1.1 billion debt conversion on future interest expense and leverage ratios.
• Monitor the execution of the 200 new store openings planned for fiscal 2000 and associated capital expenditure costs (estimated at $13.2 million per owned location).
• Assess the effectiveness of new initiatives (Professional Customer, Appliance Sales, Tool Rental) in driving margin expansion.
• Review the integration progress of recent acquisitions (Georgia Lighting and Apex Supply) and their contribution to professional customer penetration.