Diane Dayhoff - Vice President of Investor Relations Robert L. Nardelli - Chairman of the Board, President, Chief Executive Officer Craig Menear - Senior Vice President of Merchandising Carol B. Tome - Chief Financial Officer, Executive Vice President Joe DeAngelo - Executive Vice President, HD Supply

Matthew J. Fassler - Goldman Sachs Budd Bugatch - Raymond James Chris Horvers - Bear Stearns Eric Bosshard - Cleveland Research Mark Rowen - Prudential Equity Group Gary Balter - Credit Suisse Colin McGranahan - Bernstein Danielle E. Fox - Merrill Lynch

Good day, everyone, and welcome to today’s Home Depot third quarter earnings results conference call. As a reminder, today’s call is being recorded. Beginning today’s discussion is Ms. Diane Dayhoff, Vice President of Investor Relations. Please go ahead.

Thank you, Bill, and good morning to everyone. Welcome to the Home Depot third quarter earnings conference call. Joining us on our call today are Bob Nardelli, Chairman, President and CEO of The Home Depot; Craig Menear, Senior Vice President of Merchandising; Carol Tome, Executive Vice President and Chief Financial Officer. Today’s discussion will begin with a review of our business by Bob, Craig will provide insight into our merchandising efforts, and Carol will complete our prepared statement with a discussion of our financial results. Following our brief discussion, the call will be open for analysts’ questions. Questions will be limited to analysts and investors, and as a reminder, we would appreciate it if the participants would limit themselves to one question with one follow-up please. This conference call is being broadcast real-time on the Internet at homedepot.com, with links on both our homepage and the Investor Relations section. The replay will also be available on our site. If we are unable to get to your question during the call, please feel free to call our Investor Relations department at 770-384-2387. Before I turn the call over to Bob, let me remind you today that today’s press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties. These risks and uncertainties include but are not limited to those factors identified in the release and in our filings with the Securities and Exchange Commission. Now, let me turn the call over to Bob Nardelli. Robert L. Nardelli: Thanks, Diane. In August, we predicted that the third quarter was going to be soft, and it was actually more challenging than we anticipated. We felt the impact of the U.S. retail home improvement market slowing significantly. However, during the quarter, we did stay on strategy by accelerating our investment in our core retail business and growing our supply businesses. In the third quarter, consolidated sales were $23 billion. That is up 11% from last year, and our diluted earnings per share were $0.73. That is up 1%, while consolidated net income earnings were $1.5 billion, down 3%. Carol will walk you through the specifics of the financial results later on. Our total retail segment grew by 1.1%. The softness in sales was a result of continued deterioration in the U.S. home improvement market. The slowdown accelerated through the quarter and Carol will describe that to you later. While part of our sales performance is due to the fact that we were lapping really two years of active hurricane seasons, we were with some tough comparisons. We believe that the slowing housing market was really the biggest contributor. Relative to other players in the home improvement sector, we feel more pressure given the number of stores that we operate in slower housing markets, such as the Northeast, California, and certainly Florida. We saw softness in most categories, but especially in discretionary projects in certain big ticket items, particularly in kitchens, soft flooring, windows and hurricane-related products like generators. Despite this, during the quarter we did gain market share in some key categories, like tractors, patio furniture, and appliances. We will continue to focus on gaining share in other categories by creating a compelling shopping environment through our accelerated retail investment program. Despite the negative environment, we are continuing to invest in our merchandising resets, our store appearance, and our associates. By the end of the year, we will have completed Rapid Refresh, resetting 100 bays in over 500 stores. Craig will describe the early indications from these resets, which are positive. Year over year, we will increase spending on store maintenance and appearance by more than 20%, and Carol will discuss this. We will complete the rollout of self-checkout in all of our U.S. and Canadian stores by year-end. Our labor staffing model will continue to be richer than it was a year ago, and we recently introduced our Orange Juiced incentive program. This program rewards associates and stores for great customer service. Our Orange Juiced program will pay out $30 million this year alone. I want to thank our associates for their hard work and focus on taking care of our customers. Every week, we hear from 250,000 customers through our voice of customer survey. We have seen significant improvements in our survey results. Key customer service attributes, including customer engagement, waiting to check out, find and buy, likelihood to recommend, and associate availability were up over last year and showed sequential improvement this quarter. Overall satisfaction with our company, as measured by scores of 9s and 10s, is up over 2004 and 2005 levels. We are making a lot of investments into our core business, and we did not expect an immediate return, but we do expect that we will see a return over time. We are encouraged with the customer feedback to date. Now, let’s take a look at other parts of our business. Mexico had the strongest and very strong performance of any division in the company during the quarter, posting a double-digit comp. As the market leader today, we have 58 stores in Mexico and will end the year with 62 stores. We had strong sales in Canada, and by year-end we will have 155 stores throughout the country, and we will continue to be the market leader. Our catalog and Internet business, Home Depot Direct, continues to exceed our expectations and is on the way to becoming a billion-dollar business by the end of this year. Our services revenue, which is included in the retail segment, grew by over 11% in the quarter to $1 billion. Leading categories included countertops, HVAC, and exterior patio. Additionally in the quarter, we acquired Jubilee Home Solutions, which is a full service bath remodeling business based in Kansas City, Missouri, and we want to welcome Jubilee associates to the Home Depot family. Now let’s turn to HD Supply. As you know, our strategy with supply business is to extend the strong relationship with the pro customer who is shopping our stores and accounts for about 30% of our retail sales to date. The combination of over 2,000 stores and over 950 supply branches positions us to serve the pro market better than anyone else. Now, in the third quarter, sales in our supply segment grew by 159%. While organic growth was up about 7% from last year, supply experienced some deceleration in organic growth from prior quarters due to the slowdown in residential construction. Anticipating this, we focused on driving synergies across all of the supply businesses, shifting our focus from residential to commercial construction, where we continue to see strength. We are pleased with the integration of Hughes business and we are exceeding our acquisition pro forma and realizing synergies ahead of schedule. For example, by the end of the year, Waterworks, which is the largest business within supply, will be completely integrated under one common operating platform with one common payroll system. Further, the branch network within Waterworks will be fully rationalized. The Home Depot made three acquisitions that will be integrated into Home Depot Supply. We would like to welcome Grafton Utility Supply, Edson Electric Supply, and the Burrus Contractors Supply into the Home Depot family. This quarter, we launched the re-branding of all of our HD Supply businesses. The supply businesses will now operate under one brand to unite the various brands that resonates with our diverse customer segment and convey our value proposition and market differentiation is simple but in a compelling way. Finally, we will continue to return cash to our shareholders. Since 2000, we have more than tripled our annual dividend, increasing it from $0.16 to now $0.60 a year. In addition, since the inception of our share repurchase program in late 2002, we have repurchased approximately 16% of our outstanding shares using about $13.3 billion of our $17.5 billion authorization. Over the past five years, we have returned about 65% of our cumulative earnings to our shareholders in the form of dividends and share repurchase. Before I turn it over to Craig, I just want to comment on our new organizational structure. It has only been in place 30 days, but I could not be happier with the focus, alignment and speed of decision-making we have gained as a result of de-layering. I have a great and experienced team. I would like to introduce Craig Menear, our Senior Vice President of Merchandising. For those of you who have not met Craig yet, he is a seasoned merchant with over 25 years of retail experience, and nine of those with The Home Depot. Craig.

Thanks, Bob, and good morning, everyone. Several factors pressured our business during the quarter, including faster-than-expected deceleration in housing, the absence of hurricanes, commodity pricing, and the softness in discretionary projects in some big ticket items. We saw softness in most departments across the store. Lumber prices are at the lowest level since 2003, which had a negative impact to the department sales. For the third quarter, lumber price deflation negatively impacted comps by 68 basis points. The lack of hurricanes and a tough year-over-year comparisons resulted in negative comps in hurricane-related products like generators, roofing, flashlights and batteries. We also saw softness in big ticket items, particularly kitchens, soft flooring, and windows. This affected both our transactions and our average ticket. Average ticket was $58.33, down 1% year over year. From a merchandising perspective, we remain focused on providing our customers with the best merchandising and a compelling shopping experience. We saw strength in certain repair/remodel categories, and gained market share in key categories. Our repair/remodel business was driven by enhanced services for the pros, building materials, hand tools, power tool accessories, plumbing tools, wire, conduit, pipes and fittings, all performed well, driven by whole project selling as well as increases in commodity pricing. The pro is an important customer for us. We are always focused on improving our products and services for our pro customers. We are extremely pleased with the progress we have made with our business toolbox program and the introduction of our co-branded MasterCard, two programs that are available only at The Home Depot. In addition, in partnership with our suppliers, we introduced a bid room for our larger professional customers being serviced in our stores through our pro desk. This bid room allows us to provide better service and value for our customers. In the face of a slowing home improvement market, we gained share in key categories, including hand tools and accessories, tractors, patio furniture, hard flooring and appliances. I am going to share with you some market share statistics which all came from an independent third party based on a rolling 12 months. We saw continued strength in patio furniture during the quarter as a result of our broadened assortment, enhanced quality, and great values through our proprietary Hampton Bay brand. Our patio furniture market share increased 220 basis points to 10.7%. In hand tools and accessories, we gained share through the introduction of innovative products, including the expanded assortment of proprietary toolsets and Stanley’s FatMax Extreme tool line. Our hand tool and accessories market share increased 60 basis points to 16.2%. In tractors, we gained share in a shrinking market as a result of our comprehensive line-up of tractors, including John Deere, Cub Cadet, and Toro. We are the only home improvement retailer to carry these three national brands in our stores. Our tractor market share increased 110 basis points to 14.8%. Our momentum in appliances continued, as we grew market share and hit our highest draw in close rates ever. Core market share increased 110 basis points to 10.3%. Results were driven by our merchandising assortment and our knowledgeable sales associates. Customers continue to respond to innovative and distinctive products. During the quarter, we rolled out the exclusive Wild Cherry Red LG Steamfresh laundry, with LED displays. We were first to market with a new Maytag Epic front-load laundry pair, and we also introduced the GE Adora appliance suite in a new graphite metallic color, which you will only find at the Home Depot. We have been challenged all year in flooring, but we are making progress. In the third quarter, we introduced new, fashion-forward merchandise in every category included in hard and soft flooring. In wood and laminate, we introduced new finishes in plank sizes through our Thomasville wood flooring and DuPont Real Touch Elite flooring. As part of our accelerate capital investment in the stores, we will reset ceramic tile in 500 stores and wood and laminate in 1,000 stores by year-end. We are very pleased with the initial results and we have seen market share gains in laminate flooring. In soft flooring, the introduction of Puresque Carpet, which reduces odors in the home, and Sorona, which offers superior stain resistance, have been well-received by our customers. We continue to help our customers reduce energy costs inside their homes. As the Energy Star Retailer of the Year, we have a comprehensive program, including clinics that teach our customers how to reduce costs in their homes through the use of energy-efficient products. In October, which was Energy Awareness Month, we held weekly clinics in each of our stores. We offer over 2,500 energy efficient products, including everything from home sealing products, such as attic insulation, windows and doors, to interior lighting. This year, we expanded our holiday décor assortment. We have a broader selection of energy-efficient light sets, pre-lit artificial trees, wreaths, garland, silk poinsettias, and other holiday items. We also added new merchandise, like decorative accessories for the home and ornaments. This year, we set holiday early and we are very pleased with the initial results. During the quarter, we began implementing our rapid refresh, which resets 100 bays in over 500 of our highest volume stores. Today, we have touched over 30% of the targeted stores and expect to complete the program by year’s end. While still early, we are very pleased with the initial results. The reset stores’ customer satisfaction scores are increasing at a faster rate than the control stores, as measured through our voice of customers surveys. In the fourth quarter, we have a number of new products that we will roll out to the stores, geared mostly towards our pro and serious do-it-yourself customers. We will be introducing some new, low maintenance products like new styles of fiberglass doors and composite fencing. The fiberglass doors, by Feather River, come pre-finished, they have the look of real wood, and will not rust, dent, or peel. We will also introduce pre-assembled composite fencing, with the look of real wood that requires no painting or staining. In the fourth quarter, our exclusive commercial electric brand of recessed cans will have new, unique features that make installation easier and faster for our professional and do-it-yourself customers. These products offer exceptional quality at great value. Demonstrating our continued commitment to innovation, in the fourth quarter, we will add to our rigid line-up by introducing the first aluminum twin-stack air compressor in the market. It delivers longer lasting reliable performance, has 20% more capacity than comparable units, is lighter, and guaranteed to be corrosion free. Collectively, my merchandising leadership team has over 300 years of retail experience, of which over half has been at The Home Depot. I am proud to lead this group. It is knowledgeable. It is energized. It is engaged, and we are focused on the basics -- bringing the right merchandise to our stores at the right value. Now, I would like to turn the call over to Carol. Carol B. Tome: Thank you, Craig, and hello, everyone. As Bob mentioned, our total company sales grew by 11.3%, or $2.3 billion to $23.1 billion in the third quarter. Of the $2.3 billion in sales growth, $217 million came from our retail segment and $2.1 billion came from our supply segment. In the third quarter, sales in the retail segment were $19.7 billion, a 1.1% increase over the same period in 2005. This sales increase was driven by the addition of new stores. Against a retail comp of 2.7% in the third quarter of 2005, comp or same-store sales were a negative 5.1% for the third quarter of 2006. At the beginning of the quarter, we expected that softness in the economy would have a negative impact on our business, and we projected that our retail comps would be down slightly. August comps met our expectations at a negative 1%, but comp sales in September and October were much softer, with negative comps of 4.3% and 8.7% respectively. The last two weeks in October were very soft, as we anniversaried last year’s highly successful clearance event, and sales arising from hurricane damage. As Bob said, the retail home improvement market has slowed significantly. Our transactions grew by 1% in the quarter to 332 million. On a comp store basis, customer transactions fell by about 4%, due in part to our self-cannibalization strategy. As a reminder, we strategically cannibalize our stores to take pressure off of high volume stores and to support market growth. In the third quarter, we cannibalized about 16% of our stores, which had a negative impact on comps of approximately 1.9%. Sales in the supply segment were $3.5 billion, up 159% over the same period in 2005. We look at sales growth in this segment from an organic and an acquired perspective. Excluding 2006 acquired sales, total revenues at supply grew by 33% in the third quarter, and for the businesses we owned as of the end of the third quarter last year, the year-over-year organic growth rate was approximately 7%. The supply organic growth rates, while very good, has decelerated from the first two quarters in the year, due primarily to negative growth in residential construction. In the third quarter, consolidated gross margin was 32.6%, a decrease of 92 basis points from the same period last year. Given the growth in our supply segment, we are experiencing a higher penetration of lower supply gross margin dollars. In the third quarter, 12% of our gross margin dollars came from supply, as compared to 6% last year. 81 basis points of the consolidated gross margin decline in the third quarter was a result of higher penetration of supply business, as well as a drop in its gross margin rate, due to a change in the mix of businesses owned. Supply’s gross margin rate was approximately 26.5% in the third quarter, down over 350 basis points from last year. In the retail segment, the retail gross margin rate dropped 11 basis points to 33.6%, and the year-over-year decline is directly attributable to an increased penetration of appliance sales. As Craig mentioned, we continue to gain share in this key category. The gross margin on appliances is less than 20%, so as it grows, we will experience slight gross margin pressure in the retail business. In the third quarter, expenses grew faster than sales, and consolidated operating expenses increased by 30 basis points to 21.9% of sales. As Bob mentioned, at the beginning of the quarter, we launched an accelerated reinvestment program in our retail stores. We stayed true to that plan, despite the economic headwinds that came our way. In the retail segment, our operating margin was 11.4%, down 80 basis points compared to last year, reflecting the lower gross margin I just mentioned, as well as expense deleverage due to soft sales and our accelerated retail reinvestment program. In this segment, we deleveraged expenses by 69 basis points, of which 50 basis points were directly attributable to our richer labor stacking model. On a personal note, I am really excited to be leading our store operations teams, who are doing a great job. Let me give you some examples. By the end of the year, we will have remodeled 400 restrooms, re-striped over 1,000 parking lots, painted over 400 storefronts, re-lamped about 300 stores with brighter and energy-efficient lighting, refinished the floors in over 300 stores, and replaced the cashier checkout stands in over 200 of our stores. This activity, among others, demonstrates our commitment to continually improve the customer shopping experience. In the supply segment, we leveraged expenses, but our operating margin decreased by 136 basis points to 6.9%, consistent with our expectations, given the change in mix of businesses owned and the integration of Hughes. Consolidated operating margin for the third quarter was 10.7%, down 122 basis points from the same period last year, reflecting both the sales environment and our evolving business model. Net interest expense was $92 million in the third quarter, up $71 million from the third quarter last year. In support of our acquisition and share repurchase activities, our outstanding indebtedness at the end of the third quarter was $5 billion higher than last year, and our long-term debt-to-equity ratio at the third quarter was approximately 24%. In the third quarter, our income tax provision rate was 37.3%, and for the year, we expect our income tax provision rate to be approximately 38%. Consolidated net earnings totaled $1.5 billion for the quarter, a decrease of 3.1% from the third quarter of 2005. Diluted earnings per share increased by 1.4% to $0.73 per share. Diluted shares for the third quarter were 2.05 billion shares, compared to 2.14 billion shares at the end of the third quarter of 2005. The reduction in outstanding shares is due to our share repurchase program. In the third quarter, we repurchased 24 million shares and cumulatively, since 2002 when the program began, we have repurchased 372 million shares and spent $13.3 billion under our $17.5 billion authorization. Now I would like to share some of our operational metrics. During the third quarter, we opened 26 new stores, including one relocation, with two new stores in Canada and one new store in Mexico. Approximately 10% of our store base is found in Canada and Mexico. We own 87% of our retail stores. In the supply segment, we lease most of our locations and today, we have over 950 branches in the U.S. and Canada. At the end of the third quarter, selling retail square footage was 221 million, a 6.3% increase from a year ago. The average square footage per store was 105,000 square feet, same as last year. Retail sales per square foot were approximately $351 for the quarter, down 6.9% from last year. New store productivity was down about 5% from last year, but flat to what we experienced in the third quarter of 2004. Turning to the balance sheet, at the end of the quarter, total inventory was $13.7 billion, an increase of $1.7 billion, or 13.9% from last year. Inventory turns were 4.9 times, flat to last year. Of the $1.7 billion increase, $1 billion came from acquired businesses in our supply segment. On a per store basis, inventory was down about 1% from last year. Computed on beginning long-term debt and equity for the trailing four quarters, return on invested capital was 22.3%, an increase of 50 basis points from last year. We ended the quarter with $53 billion in assets, including $617 million in cash and short-term investments. This is a reduction of approximately $190 million in cash and short-term investments from the end of fiscal 2005, reflecting cash flow generated by the business of approximately $6.9 billion, along with the net proceeds of $4 billion from financing activities, offset by $4.2 billion paid to acquire new businesses, $3.5 billion paid for share repurchases, $2.5 billion of capital expenditures, and $936 million in dividends paid. In August, we told you that we thought we would grow our 2006 sales and earnings at the low-end of the guidance we gave in January. Given the current challenging housing environment, we think our comps will be mid-single-digit negative in the fourth quarter. We are staying true to our strategy of accelerating reinvestment in our retail business, despite the softness in the top-line. As a result, we expect that fourth quarter earnings per share will decline by as much as 12% to 16% from last year. Based on our performance for the first nine months of the year, and our fourth quarter forecast, we now believe our fiscal 2006 sales will grow by approximately 12% and diluted earnings per share will grow in the 4% to 5% range. The market is challenging, but we are committed to taking care of our customers and driving operational excellence in both our retail and supply businesses. The Home Depot is using its stellar financial position to invest in the long-term for our customers, our business, and our shareholders. Thank you for your participation in today’s call. Bill, we are now ready for questions.

(Operator Instructions) We will take our first question from Matthew Fassler, Goldman Sachs. Matthew J. Fassler - Goldman Sachs: Thanks a lot, and good morning. Just a couple of very quick questions. First of all, you guided to just now, Carol, a mid-single-digit negative comp for the fourth quarter, coming off a negative 9 for the month of October, and also going up against a somewhat tougher comp in the fourth quarter, both a one- and a two-year basis. I guess the question is what gives you the conviction to assume some sequential improvement in Q4 numbers from where you were in October? Carol B. Tome: Matt, it is a great question. I will tell you for the first three weeks of the fourth quarter, we are seeing improvement from how we exited the third quarter. We have a number of really interesting merchandising things that are happening inside of our stores, particularly as you think about holiday. We have an expanded assortment of holiday hitting our stores now. If you are in the stores, you will see that expanded assortment of holiday, and so based on everything that we are seeing with our current sales trends, the merchandising initiatives we have underway, we are predicting a mid-single-digit negative comp. From a year-over-year comparison, November is our toughest compare. Matthew J. Fassler - Goldman Sachs: Not to put too fine a point on it, but is the improvement essentially in line with that guidance for the quarter? In other words, have you improved to the mid-single-digit negative declines? Carol B. Tome: We have. Matthew J. Fassler - Goldman Sachs: Okay, to follow-up on that, is that ticket or traffic driven, in so far as you can tell? Carol B. Tome: We are seeing strength in categories we saw weakness in the third quarter. Matthew J. Fassler - Goldman Sachs: Just to follow-up finally, on the hurricane impact, if you could, now that you know the perspective of a year of distance and having watched the patterns in the hurricane-impacted regions, when do you think you saw the greatest hurricane impact, and how long do you think that lasted? How deep do you think the impact was on your comps last year? Carol B. Tome: Well, if we look at the hurricane impact in comps for Q3 last year, we think it was about two points of comp that we did not get this year. Matthew J. Fassler - Goldman Sachs: Would you say that impact lasted through 4Q, or beyond 4Q? At what point should we stop thinking about that as something that is making your comparisons even tougher? Carol B. Tome: Well clearly we saw some of that carry into the fourth quarter. Matthew J. Fassler - Goldman Sachs: And into the early part of this year as well? Carol B. Tome: A little bit, yes, absolutely. Matthew J. Fassler - Goldman Sachs: But less so. Okay, thank you very much.

Our next question comes from Budd Bugatch, Raymond James. Budd Bugatch - Raymond James: Good morning. I just have a couple of questions as well, Could you give us any flavor on where you think gross margins and expenses will be? Carol, you said we obviously have a lot of activity going on, putting more activity in the stores, more effort into the stores. Do we think gross margins still trend negatively and operating expense deleverage as well, obviously with the negative comps? Carol B. Tome: Yes, Budd, based on the accelerated investment in our retail stores, as well as an increasing penetration of Home Depot Supply, we are projecting that in the fourth quarter, the gross margin will decline and that we will de-lever expenses. Budd Bugatch - Raymond James: Bob, could you give us any thought on sales and kind of a longer outlook now, in terms of where you think 2007 and when you will get through some of the housing-related issues? I know that is a tough crystal ball right now, but any overarching help you could give us on that would be appreciated. Robert L. Nardelli: I would be happy to share my perspective on this thing. I think I said on the last call that I thought this thing was going to be, certainly was going to be challenging. As I said, it certainly came faster and deeper than we thought. I still continue to believe that, as Carol has indicated, we will have pressure in the fourth quarter. I think that it will continue throughout all of ’07. I know there are a lot of points of view out there, but I still think we have deeper to go than we have seen. If you think about just the loss of jobs in the home improvement market, I mean in the home construction business, it is at unprecedented levels. My 35 years of experience, when I see homebuilders basically writing off earnest money and liquidating land, I just know the ability to remobilize, starting with the purchase of land, getting framing crews, and trimming crews back in line, we are starting to see a lot of that unemployment find its way over to the small repair and remodel contractors in our stores. I think that Joe DeAngelo, whether it is on the retail side or certainly the wholesale side of residential, is seeing the pressure. I would say we have not -- on the home improvement retail portion of this business, I do not think we have seen bottom yet. I do not see anything that says it is going to get significantly better in ’07. Budd Bugatch - Raymond James: My final question is if that remains the case, how much more are you willing to go and stretch the balance sheet or move the balance sheet, maybe use it to acquire some shares in the marketplace? Robert L. Nardelli: Two points, Budd. Certainly as I indicated, we still have a pretty significant outstanding balance of what the board has approved, over $17 billion. I think we have demonstrated over the years and certainly have committed that what you have seen in the past certainly is fair to model going forward. I think our resolve in the third quarter, whether it be on share repurchase or accelerated reinvestment, both on the capital side and the expense side, we have stayed true to our commitments, a pretty exhaustive list Carol shared with just store appearance and enhancing the shopping environment. We are blessed to have a great balance sheet and we certainly would use that as one of our competitive advantages. Budd Bugatch - Raymond James: Thank you, and I would agree with what you are doing on this, on those scores. Thank you very much.

Our next question comes from Chris Horvers, Bear Stearns. Chris Horvers - Bear Stearns: Good morning. Joe, I was wondering if you could perhaps bucket the supply business. You talked about -- Carol mentioned that water is the biggest piece of it. Could you bucket it between water, MRO, and then residential, housing related businesses, and how the organic growth in those businesses trended in the current quarter?

I will take you through just what the portfolio configuration is. We look at it in terms of the way the cycle of execution goes, so if you look at our infrastructure businesses, water and utilities, they make up 36% of our portfolio. You look at all the construction businesses, anywhere from the construction supply businesses to the plumbing, electrical, and interiors businesses, they make up 43% of our portfolio. Maintenance is 16%, which is our facilities maintenance business and our industrial PVF business, and then repair and remodel and international make up the balance of 6% of the businesses. When you look at the overall portfolio in aggregate, we have about 20% of the portfolio that is directly home building, residential, the lumber and building materials business and the interiors business. When you look at in aggregate about 43% of our business is residential construction, so we have a good mix of businesses in there. I think the strength of the portfolio is exactly that, having a diversified portfolio allows us to see what is happening throughout every cycle and we can adjust to it as it happens. Then, I think in every case we have been able to be very successful in terms of gaining share. I will just give you one example. If you look year over year in our lumber and building materials business that operated out of Georgia, this is just the Williams Brothers business, since that is the only one we have owned year over year, we were down about 2%. That is in a marketplace where the prices have dropped for structural lumber, about 24% and panels have dropped about 48%, so incredible pricing pressure, and it is a marketplace where housing starts have been down. So you combine those two and to be only down 2%, I think is significant job of gaining share as you go throughout that. We have ups and downs throughout the portfolio, but in every case, we are growing faster in the markets we are participating in. Chris Horvers - Bear Stearns: So would you say that the supply business and the multi-family MRO showed growth in the quarter? Does supply include -- didn’t you acquire National Waterworks last September?

Yes, we did, so if you look at the multi-family business, the multi-family business was up strong double digits, which tends to run counter-cyclical to the residential construction, so homes are not being built and people will be moving into apartments. Consistently, we have been able to execute well there, as well as across the portfolio. We only had one month of Waterworks, and it was a flat execution this year because we had incredible comps relative to PVC commodity increases, and we did have a lot of hurricane growth in there, so the business again took share in that marketplace. Chris Horvers - Bear Stearns: Thank you very much.

Our next question comes from Eric Bosshard, Cleveland Research. Eric Bosshard - Cleveland Research: Good morning. Two things. First of all, in terms of inventory management, can you talk a little bit about where you think you are and what you are trying to do at the retail level? Also, how promotional you in the market might become in 4Q in this softer environment? Robert L. Nardelli: Carol, why don’t you handle the inventory? Carol B. Tome: Well, we have a number of things underway from an inventory management perspective, Eric, as you know, from how we order inventory to how we receive inventory and to how we ship inventory from our suppliers. From an ordering perspective, today about 26% of the inventory is ordered off of our centralized auto-replenishment program. The rest is either ordered from the host here at the store support center or through our inventory management associates. We will continue to add products to our centralized auto-replenishment program over time. From a receiving perspective, we re-engineered the back-end, introduced our automated receiving process last year, and that is helping drive productivity on the back-end, allowing us to put hours on the floor of the store for selling. Then, from a supply chain perspective, we are delighted to have Mark Holifield on board with us. Mark is working through his plans for 2007. Right now, there is a lot of blocking and tackling going on from a supply chain perspective, but I think over time you will see some changes in our supply chain. When we are ready to talk to you about that, we will. Now, from a promotional perspective, I will turn it over to Craig.

Eric, when we look at our promotional strategy in the fourth quarter, we are really looking to stay on our strategy. We are focused on making sure we are trying to provide compelling, attractive values to our customer across our entire line segments, and then we, as always, will continue to match and deal with any competitive offers that come up in the marketplace. Eric Bosshard - Cleveland Research: Does that mean the promotions on a year-over-year basis, up, flat, down? Do you have a sense of that? Carol B. Tome: For the fourth quarter, or in the third quarter? Eric Bosshard - Cleveland Research: For the fourth quarter, how you are thinking about it at this point. Robert L. Nardelli: Eric, it is hard to predict at this point. We certainly, as Craig said, have a strategy, but obviously we will have to be responsive to what is occurring in the marketplace. I think the focus on this thing has really been to provide, and where we have gained share, great value, great pricing, you know, everyday low pricing has continued to be one of our mainstays, so it is not our intention to go out and be overly promotional, but we also will not be put at a disadvantage. Carol B. Tome: If I could just jump in to give you some color for the third quarter, we use our private label credit card as a promotional tour because our customers love it. The penetration of the private label credit card was 28.5% in the third quarter, and our everyday value proposition is no interest, no payment if you spend $299 on the card. From time to time, we offer 12 months no interest, no payment programs. In the third quarter, we had four more days of credit offering than we did a year ago, so it was not a significant change. Eric Bosshard - Cleveland Research: Bob, one question for you, as you think about the ’07 sales environment. Could you talk about how you are thinking about capital investment within the business, including the number of stores you are thinking about opening in the softer 2007 you described? Robert L. Nardelli: Yes, well, I would say, Eric, we are obviously in the process of putting together our cap-ex plan for ’07, but as I indicated to Budd earlier, I would not see us coming off the strategy of continuing to invest, particularly in our core business. As you know, Eric, we did take, over the last couple of years, our new store growth from -- let me use a round number, around 200 down to 100. We said at the last analyst conference that would kind of be the range we would use over the next three, four, five years. At this point, I do not see a change, number one, in that. Two, I would tell you that we will continue -- of our capital plan, continue to spend a significant portion on reinvesting in the core. The resets that we see going on today certainly give us confidence that we will be accelerating that in ’07. We will be looking at the next 100 bays in mass, but we have continual resets going on. For example, we are very encouraged with the laminate performance that Craig talked about. It is, on flooring, it is the fastest growing segment over soft. We have introduced a new large tile set. We are very excited about that. We are excited about the success we are seeing with a capital investment in our mezzanines to expand our appliance showroom capabilities. I think, Eric, what you would see is a continuation of those capital investments that enhance the customer experience, expand the sales per square foot in the store, as really the driving force in ’07. Carol B. Tome: If I could just jump in, we are also looking at continuing our investment in technology. We have a big technology budget, as you know, and that will be increasing in 2007, as well as supply chain. So for modeling purposes, while we have not finalized our numbers yet, you should expect that capital will increase. This year, we are spending $3.8 billion. Next year, we are going to spend a bit more. Eric Bosshard - Cleveland Research: Perfect. Thank you.

Our next question comes from Mark Rowen, Prudential. Mark Rowen - Prudential Equity Group: Thank you. Just a couple of questions. Following up on the pricing question, given the severity of the downturn in the market, I am surprised that either you or your competitors are not lowering prices to try to stimulate sales. Could you just give us a sense of whether you think that will need to be done as we go maybe deeper into the downturn? Robert L. Nardelli: Let me just say this, Mark, obviously pricing discussions are probably out of bounds for the call here. I would tell you that Craig and the merchants are doing a great job in working with our suppliers. Our suppliers, I could not be more appreciative of the partnering that is going on with them. Craig talked about lumber pricing. We are certainly seeing it in some of the other building commodities, so our position would be to make sure that we are priced sharply to the market, that we are working with our suppliers, and as prices and commodity costs fluctuate, we are making sure we are passing those on to our customers to maintain that brand loyalty and shopping experience. Craig, I do not know if you want to comment anything more than that.

No, and in total, Bob, we are constantly looking at market pricing across the country to make sure that we are competitive every day. We will continue to do that and really focus on driving the best value for our customer every day. Mark Rowen - Prudential Equity Group: Okay, and then on the rapid reset program, you said that your customer satisfaction scores were way up in the stores that you had implemented it in. Could you give us a sense of any movement on sales, or any improvement in sales in those stores? Robert L. Nardelli: Mark, I think two points, just to be real clear. What we talked about is that overall customer satisfaction, or voice of customer, as we call it, is up across the entire network of stores, and that is the 250,000 customer shopping experiences, that they go online and call and score us on associate availability, ability to find and buy, et cetera. We have seen a sequential improvement month over month in the third quarter for sure, and we would expect the same thing to continue in the fourth quarter. In other words, the customers that are scoring us 9s and 10s. That is one point, and let’s set that aside for the moment, and then I would let Craig talk about specifically what we are seeing early on in the resets, the 100 bay resets in the 500 stores.

Mark, as you look at the customer satisfaction scores, while as Bob mentioned they are up across the board, in the stores that we are going in in these categories and resetting, we are seeing those scores outpace the total. Likewise, when we look at the overall performance, as I mentioned, we are pleased with the results that we are seeing with the sales performance of the rest stores in comparison to the control stores. Carol B. Tome: I think it is important to note we are seeing a lift in those categories that we are touching.

We will take our next question from Gary Balter, Credit Suisse. Gary Balter - Credit Suisse: Thank you. Just a few questions. First of all, strategically, it sounds like you are moving in a direction that makes a lot of sense, but how do you measure whether you are actually gaining or losing market share versus your competitors? Robert L. Nardelli: Gary, as you know, we use external data. There is an outside firm that a number of us contribute to. We are able to get that data on a quarterly basis, that looks at the various classes within our departments. For example, we can look at flooring. We can look at interior paint, et cetera, et cetera. So Craig and the merchants, along with the rest of us, look at that data, look at market expansion, look at our growth relative to that, and we are able to determine share gain or share loss. Gary Balter - Credit Suisse: And is your sense that you are holding on to your share? Robert L. Nardelli: Well, as we said, in some cases, as Craig mentioned, we have seen share gain. For example, in the categories he mentioned like outdoor patio, tractors, appliances, and in some cases, Gary, as we have said over the last couple of calls, we certainly are not pleased with soft flooring. While getting better, it is still not where we want to be, and clearly that would represent a share loss. Gary Balter - Credit Suisse: Could you talk about the strategy to carry televisions? You are getting bigger in consumer electronics for this Christmas. Robert L. Nardelli: Sure, but I will let Craig handle that, but again, let me just be clear to you and everyone on the phone here. We really see this as an in-and-out, and opportunistic. We know that it is a highly sought after commodity, particularly in the holiday season, since again a couple of holiday events throughout the year. Therefore, we want to go out. We have the strength of our buying power. We are able to purchase right. We pass those great purchasing values on, whether it be on Black Friday and the Thanksgiving holidays, and so our strategy at this point is kind of an in-and-out on consumer electronics, particularly the flat panel plasma TVs and consumer electronics. Craig, do you want to add anything to that?

No, Bob, I think that pretty much describes it. Gary Balter - Credit Suisse: Do you worry, Craig or Bob, on the returns? Costco, for example, which has been big in this category and has been hurt a lot by the returns. Robert L. Nardelli: Again, to date, Gary, we have not seen that as a problem, again because of the quantities certainly are not of the order of magnitude of someone that is in consumer electronics as a mainstay, so we bring them in on container loads. We distribute those. We pass on great purchasing opportunities to our customers, and we are kind of in and out. At this point, Gary, I can tell you we have not seen returns as an issue for us.

We will take our next question from Colin McGranahan, Bernstein. Colin McGranahan - Bernstein: Good morning. First, as a follow-up for Joe. Joe, you talked about the deceleration in organic growth in supply, and pointed to the slowdown in residential construction as we would expect. It looks like in the second quarter, it was about 12% organic growth, down to 7%, so a 5% decline. I think you said that residential construction is maybe 20% of the business today. Am I thinking about that correctly, which would imply about a 25% drop in your aggregate residential construction businesses, or roughly in line with what we are seeing in the overall home building marketplace?

No, that is not the correct math. The correct math is that 43% of our business model is residential construction related, 20% is direct residential, meaning that is all they do is residential. So the lumber business and the interiors business is 100%, and combined, they are about 20% of the portfolio, 100% residential. But if you look at all the pieces across the construction, the waterworks, the utilities, they all have a residential component. You aggregate all that, it is about 43% for the portfolio in total. Colin McGranahan - Bernstein: Okay, so that would then say it is down more like 5% to 10%?

That is right. Colin McGranahan - Bernstein: Okay, so Whitecap has a pretty good chunk of residential construction in its business?

That is correct. When you look at our mix, we are in the great high growth markets. The high growth markets cooled down significantly faster than everything else, so you see a disproportionate touch on that, but Whitecap, for example, year over year, was down about 2%, of which they were probably down 7% or 8% residential, but picking it up in construction to bring it up to the negative 2. Colin McGranahan - Bernstein: Okay, and then just on the commercial construction, the non-res, obviously there is multi-family and then there is true commercial. I think McGraw or Dodge reports predicted some deceleration in the commercial construction in ’07. How should we be thinking about the organic growth rate of that business going forward?

I think when you look at it, we have another couple of weeks before we get the quarterly data. We would be better positioned to give you a clean look at that. We are working from the data that is about 90 days old. We look to still see that as a growth market in the six-ish range, so when you blend the businesses together, it is almost a flat outlook for the markets for HD Supply in aggregate going to the next year. Obviously we will have organic growth because we will gain share. Colin McGranahan - Bernstein: Right, okay. Second question for Carol, how much of the incremental store reinvestment have you been able to offset from expense control elsewhere? Then, if you could just talk about on a year-over-year basis what labor hours per store look like in the third quarter and what you are modeling for the fourth quarter. Carol B. Tome: We were able to offset some of the accelerated reinvestment due to some actions that we took here at the store support center, but as we mentioned, in the third quarter, we de-leveraged expenses in total in the retail segment by 69 basis points. From an hours perspective, our labor staffing model is richer in the third quarter than it was last year and than we planned. As we look to the fourth quarter, the labor standards staffing model will also be richer than last year and what we planned. It is important to note, however, that we do not have a flat staffing model. We have a highly engineered staffing model that allots hours based on tasking and selling activities inside a store. I will tell you, this is highly engineered. The hours that are being allotted to each store today is based on the activities that are happening inside the store today, and there is variability. When I look at it in total, the staffing model and the staffing standard is richer in the fourth quarter. Colin McGranahan - Bernstein: Okay, and then just final quick question for Craig. This was the first quarter we saw average ticket decline in I think something close to four years. How should we think about the positive drivers of that, mix-up on merchandise, growth of appliances faster than the overall business, success with installed sales and broadening of your capabilities there, against what was obviously a period of extraordinarily strong major project selling. So how do you think about the cyclical versus the structural drivers of average ticket?

I think when we look at the business, we saw strength in repair/remodel categories, which certainly allow us to drive some project selling, but when you look at the weakness in flooring, for example, which is a big ticket project, and kitchens, as we mentioned, those were certainly categories that were a detractor to our average ticket. When we look at the expansion of things like our holiday assortment, as we look at that through the fourth quarter, that would actually be a driver that could potentially bring average ticket down compared to the total, with the price points that are offered to that product category. Carol B. Tome: Let me just give you some data for the third quarter. This might be helpful. The average ticket was down $0.59. If you back out the benefit of appliances, the average ticket was down $0.94. So in other words, appliances contributed $0.35 of growth year over year. So if you look at the average ticket down, excluding appliances, as Craig pointed out, it is really big ticket related. It is lumber price deflation. Hopefully that helps you understand the composition of average ticket and where it might go. Colin McGranahan - Bernstein: Craig, it sounds like you just need to attach a 42-inch plasma to every ticket, and you will be set.

We did not buy that many. Robert L. Nardelli: No, we did not.

Bill, we have time for one more question.

That question comes from Danielle Fox, Merrill Lynch. Danielle E. Fox - Merrill Lynch: Thanks, good morning. I am wondering how you are thinking about your long-term growth targets for 2010 that you laid out at the analysts meeting earlier in the year. Bob, are you expecting lower lows and higher highs based on what you are seeing, or have you changed your view of the earnings potential of the business? Robert L. Nardelli: I think two things, Danielle. Obviously given the re-profile we just did for the third quarter, fourth quarter, and therefore the full year, we are going to take a really hard look at ’07, and then we will take a look at, as Budd and some of the other folks asked me about the recovery, we are going to really take a hard look at that, and then we are going to be in a position, I think we have a meeting coming up at the beginning of the year where we will want to sit with all of you, as we do annually, at the investors conference. We will be in a position then to talk a little bit more about certainly ’07, ’08, ’09, and then impact on the 2010 guidance. I think you would agree that given the environment, and certainly what we are experiencing here today, we would have to change the profile of that, certainly the starting point where we are exiting ’06, the impact on ’07, and then the slope or the curve for 2010. What I would like to do, if it is okay, is ask you to give us a chance to digest this, take a look at it, review it internally, and then we will be in a much better position to give you a thoughtful, informed decision on that guidance. Danielle E. Fox - Merrill Lynch: That sounds fair. Thank you very much.

Thank you, everyone, for joining us today. We look forward to talking to you next quarter.

Thank you. That does conclude today’s conference call. We do thank you for your participation. You may disconnect at this time.