Jeff, I assume you can coordinate a conference call from work.  Call me at 
home:
415-388-2548.

Excellent points and I was thinking along similar lines.  Questions I have:

How do you know that LT debt gives more advantageous terms?  We have no yield
curve info nor do we know their credit rating.
At what point does their borrowing exceed their covenents?
Is our strategy to not raise the required $66million or to stop/slow PPE
spending so that the $66m is not needed?



**********************************************
Mark D. Guinney, CFA
Consultant
Watson Wyatt Investment Consulting
345 California Street, Ste. 1400
San Francisco, CA  94104
(415) 733-4487 ph.
(415) 733-4190 fax


____________________Reply Separator____________________
Subject:    Re: HD Case: Proposed Plan
Author: Jeff.Dasovich@enron.com
Date:       02/07/2001 11:25 AM

Hi folks:

Since we have only one page, the write up for number 4 will have to be very
brief.  Before writing it, though, I wanted to offer a few bullets
regarding what angle we might take, and let folks respond, comment,
counter, etc. before writing it up.  I'll clean and beef up once we've
agreed to the approach we'd like to take to question #4.  Finally, I can
work from my office on this this evening, which means that I can use the
conference call capability of my office phone to patch everyone in if we'd
like to do a conference call. If that's what folks would like to do, I'd
prefer to do the call at around 7 PM.  Just let me know.

Best,
Jeff

The question for #4 is:

Stock price is down 23%, significant debt has already been tapped to
support massive growth and covenants on that debt restrict taking on a lot
more debt.

What should HD do w.r.t. current operations and future growth strategy?
In the near term focus less on growth and more on getting margins and
EBIT growth back in line with results from previous years.  (Management's
Letter to Shareholders alludes to this, but it's difficult to determine
whether management is just paying lip service to the need to capitalize on
the growth spurt and grown earnings, or continue on the growth effort.)

With respect to funding future (more moderate growth), the company
does have some room to increase long-term debt (e.g., current ratio for
1986 = 2.26).  It seems that HD would get better terms and have increased
flexibility by issuing additional debt rather than relying on lines of
credit.  As such, HD ought to look those sources of funding and fill in any
"funding gaps" with funds from the line of credit.

Given the significant drop in stock price, HD is likely better off in
the near term 1) moderating growth, 2) improving performance to generate
cash internally, and 3) using long-term debt issuance to provide the funds
needed.  Once performance and stock price improves, then HD should consider
a stock issuance.

How can company improve operating performance?
Reduce selling, store operating expenses and pre-opening expenses
Improve receivables turnover
Improve inventory turnover
Improve per store/sales
Consider closing poor-performing stores
All of which will improve margins

Should company change its strategy?  If so how?
Shift from meteoric growth to moderate, targeted growth, and focus on
generating positive cash flow from operations
Focus on improving performance at existing stores; specifically focus on
controlling costs and asset turnover and productivity
Consider another debt issuance rather than rely extensively on credit
line in order to decrease cost of funds and increase flexibility