Steve,
I think I posted most of the information awhile back, but I'll go over it again.
Since the company doesn't disclose the information outright, you'll have to do some analysis to dig out the numbers.
sec.gov
Scroll down until you come to note 2 on long term debt. From the 10K:
<<<Interest expense in the accompanying Consolidated Statements of Earnings is net of interest capitalized of $84 million, $73 million and $45 million in fiscal 2001, 2000 and 1999, respectively.>>>
It might be worth noting that capitalizing $84 million in interest as an asset adds about .04 per year to earnings. In addition to the $84 million in interest capitalized, the company expensed $28 million, for a total of $112 million in interest expense. Yearly interest on the senior notes is 6.5% on $500M, or $32.5M, and 5.38% on $500M, or $26.9M, for a total of $59.4M. On balance sheet debt accounts for about half of the interest they are paying.
Scrolling down to note 5 under the heading "leases":
<<<The Company has two off-balance sheet lease agreements totaling $882 million comprised of an initial lease agreement of $600 million and a subsequent agreement of $282 million. Off-balance sheet leases include leases created under structured financing arrangements. These lease agreements totaling $882 million involve a special purpose entity which meets the criteria established by generally accepted accounting principles and is not owned by or affiliated with the Company, its management or officers. The Company financed a portion of its new stores opened in fiscal 1997 through 2001, as well as a distribution center and office buildings, under these lease agreements. Under both agreements, the lessor purchases the properties, pays for the construction costs and subsequently leases the facilities to the Company. The lease term for the $600 million agreement expires in 2004 and includes four 2-year renewal options. The lease term for the $282 million agreement expires in 2008 with no renewal options. Both lease agreements provide for substantial residual value guarantees and include purchase options at original cost on each property.>>>
A person has to wonder about the complicated arrangement involved in creating a "special purpose entity" to move the deal off the balance sheet in the first place. If it's a legitimate deal, why not play it straight?
From page 21: sec.gov
<<<Operating and off-balance sheet leases are not reflected in our balance sheet in accordance with generally accepted accounting principles. The net present value of capital lease obligations is reflected in our balance sheet in long-term debt. As of the end of fiscal 2001, our debt to equity ratio was 6.9%. If the estimated present value of future payments under the operating and other off-balance sheet leases were capitalized, our debt to equity ratio would increase to approximately 30%.>>>
On balance sheet debt is $1.25B, shareholders equity is $18.108B. Divide debt by equity to get the 6.9%. To calculate debt including off balance sheet, multiply $18.101B by .3 which gives you $5.432B. Subtract on balance sheet debt from that amount, the difference is $4.182 billion.
Okay, since you stated you don't want to count operating leases as debt, we can subtract the $882M mentioned above, from the total off balance sheet debt, for $3.3 billion in off balance sheet debt-not related to operating leases. A sizeable chunk of that is real live interest bearing debt or they couldn't possibly come up with $112 million in interest expenses last year.
I realize no one wants to accept the fact their beloved Home Depot plays the same games with GAAP as the once beloved Enron, but since GAAP allows these kind of games, there's no reason not to use it to con suckers into buying stock.
It looks ever so much nicer to claim net interest income of $25 million, than to show interest expense of $112 million and have investors wonder why there's so much interest with so little debt. And if 4 officers are sucking over $50 million a year in salaries out of the company, not to mention another $30 million in loans, and tons of stock options, what the heck, they deserve it right? And if they can use a slower rate of depreciation with GAAP than they do for income tax purposes to report an extra .10 per year, it's all good. After all, anyone with their hands that deep in shareholder's pockets has to figure out a way to make shareholders think they're buying something special. Using GAAP to puff up balance sheets and earnings is the American way.
Besides, if a halfwit like Cramer says you'll never see $26 again, you know you're in trouble. As a contrarian indicator the guy is almost fool proof. |
