HDAnnual Report 2018
HDAnnual Report 2018
HDAnnual Report 2018
LETTER TO
SHAREHOLDERS
Dear Shareholders:
Fiscal 2018 was an exciting year for our company as we began our accelerated investment program to position the
business for long-term success. At our Investor & Analyst Conference in December of 2017, we outlined our strategic
vision to create the “One Home Depot” experience. We believe our One Home Depot strategy will further unlock the
frictionless shopping experience that we envisioned for our customers when we started talking about interconnected
retail nearly ten years ago. Back then, we were deliberate in our choice of the word interconnected because we believed
that for our customers, a great shopping experience is one that allows them to blend seamlessly the digital and physical
worlds.
Our strategic efforts are yielding solid returns. Now more than ever, customers view us as One Home Depot rather than
a brick & mortar retailer with a website. While our stores remain the hub of our business, our data tells us that many of
our in-store sales are influenced by an online visit and nearly 50 percent of all online U.S. orders are picked up inside our
stores. As our customers continue to blend the channels of engagement with The Home Depot, we are investing to drive
the One Home Depot experience. Last year we began a multi-year, approximately $11 billion investment program in our
stores, our associates, our digital experience, and our supply chain.
As I reflect on the first year of our investment journey, I am happy to report that we are on track with respect to our
strategic priorities. Although it is early days with a lot of work ahead, I would like to take this opportunity to share some
2018 investment highlights.
INVESTMENT HIGHLIGHTS
We believe that when a customer comes to one of our physical stores, it needs to be a great experience. Our customers
asked us to reduce several pain points around store navigation and checkout and we made great strides in 2018. We
implemented our enhanced wayfinding sign and store refresh package in nearly 1,300 stores, ahead of our initial plan.
We also made solid progress on the rollout of our re-designed front-end areas to facilitate faster checkout and are
adding automated lockers that make picking up an online order easier and more convenient. These in-store changes are
resonating, as customer service scores for checkout time satisfaction and ease of online order pickup have increased.
Our best-in-class customer experience is delivered by our orange-aproned associates who serve our customers every
day. The Company’s culture, opportunities for career growth, competitive wages and benefits are all part of attracting
and retaining talent. Additionally, we are implementing tools that generally make working at The Home Depot a better
experience. The enhancement of our in-store order management system, Order Up, and the rollout of our new Overhead
Management application on associate FIRST phones, have simplified operations and increased associate productivity.
These applications result in less time spent learning and navigating our systems, which means more time in the aisles
engaging our customers.
Our enhanced store and associate experience is complemented by investments we are making in an interconnected,
digital customer experience. In 2018 we continued to invest in our website and mobile applications, improving search
capabilities, site functionality, and product content. This ongoing focus on our digital properties, which fuels the
interconnected experience, continues to yield improved customer satisfaction scores, better conversion and increased
sales.
LETTER TO SHAREHOLDERS
Delivering a best-in-class interconnected shopping experience encompasses more than our digital properties and
physical store assets. As part of our investment program, we committed to a five year, $1.2 billion investment in our
supply chain to create the fastest, most efficient delivery network for home improvement goods. When finished, our
expanded network will enable same-day and next-day delivery capabilities for 90 percent of the U.S. population for both
parcel and big and bulky products. We told you that 2018 would be the year of the pilot as we test and learn with new
fulfillment centers, and we are now live with a number of these pilot facilities.
As we work on our longer-term supply chain build out, we remain focused on meeting our customer’s immediate delivery
needs. We made great progress with our store delivery enhancements in 2018, rolling out car and van Express Delivery
offerings that enable same-day and next-day delivery of store goods to over 40 percent of the U.S. population for car
delivery and over 70 percent coverage for van.
I am encouraged by the progress we have made over the past twelve months, and I am excited about the work and
opportunities ahead as we remain focused on enhancing the customer experience by investing in our business.
PRODUCT AUTHORITY
While our journey towards the One Home Depot vision does involve a great deal of change, our passion to maintain
our position as the number one retailer in product authority for home improvement never will. We know that we must
keep pace with changing customer expectations. Innovation, localization and speed to market are critical, and we are
investing to achieve a first to market approach by arming our merchants with better tools, leveraging data to offer greater
personalization, and driving a deeper level of collaboration with our supplier partners.
Our professional and do-it-yourself customers shop at The Home Depot because we offer products and services at great
values. Our supplier partners work with us to bring new product innovation that saves our customers time and money.
We will continue to be the customer’s advocate for value, delivering the best products and services at the best value,
every single day.
While implementing year one of our investment program, our team delivered another year of record results. During fiscal
2018, sales grew 7.2 percent to $108.2 billion, with comparable sales growth of 5.2 percent for the total company and
5.4 percent in the U.S. We saw sales growth in all of our U.S. regions, Canada and Mexico. Our fiscal 2018 net earnings
were $11.1 billion, or $9.73 per share, a 33.5 percent increase in earnings per share from the prior year.
Our capital allocation philosophy is straightforward. We will continue to invest in the business to drive growth as well as
productivity and efficiency. We look to return a meaningful percentage of earnings to our shareholders through dividends
and share repurchases. In fact, during fiscal 2018, after investing in the business, we returned $14.7 billion to our
shareholders in the form of dividends and share repurchases.
As we look ahead, we expect our investments will result in continued growth and profitability. Our strong performance
in fiscal 2018 positions us well with respect to our 2020 financial targets. By fiscal 2020 we are aiming to grow our sales
to a range of $115 billion to $120 billion, with an operating margin range of 14.4 percent to 15.0 percent, and a return on
invested capital1 of more than 40 percent.
1
Return on invested capital, or ROIC, is defined as net operating profit after tax, a non-GAAP financial measure, for the most recent twelve-month
period, divided by the average of beginning and ending long-term debt (including current installments) and equity for the most recent twelve-month
period. For a reconciliation of net operating profit after tax to net earnings, the most comparable GAAP financial measure, and our calculation of ROIC,
see “Non-GAAP Financial Measures” on page 24 of the Annual Report on Form 10-K for the fiscal year ended February 3, 2019.
OUR CULTURE
In 2019 we will celebrate our 40th anniversary. In 1979 our founders
established the culture of The Home Depot, and it remains our foundation.
LIVING OUR VALUES The culture centers around our values and a leadership construct. It is the
lens through which we evaluate and manage important environmental, social
and governance (“ESG”) issues that impact our business. We organize our
approach to ESG around three key pillars: Focus on People, Strengthen
Increased our commitment to Communities and Operate Sustainably.
$500M
for veteran causes by 2025
We focus on people by making The Home Depot a great place to work.
For us that means fostering an environment centered on our core value of
respect for all people, where diversity and inclusion are celebrated, and
people have the opportunity to develop and advance their careers. Our more
than 400,000 orange-blooded associates live our culture every day. They are
our single-greatest asset, and they differentiate us in the marketplace.
35,000
associates are U.S. military
Our commitment to strengthen the communities in which we operate is
also rooted in one of our eight core values – doing the right thing. When
natural disasters strike, as they did once again in 2018, we work tirelessly
to deliver aid to those impacted. Beyond disaster relief, we continued to
veterans or reservists positively impact the lives of military veterans and their families, and in 2018
we increased our commitment to $500 million dollars for veteran causes by
2025.
In 2018 The Home Depot Foundation also expanded its mission beyond
Committed to training veteran causes and natural disasters, committing $50 million to train 20,000
20,000
tradespeople over the next 10 years in order to fill the growing skilled labor
gap in the U.S.
skilled tradespeople over the Our commitment to operate sustainably goes back decades. As the world’s
next 10 years largest home improvement retailer, we believe that we are in a unique
position to source products and foster ideas that not only help us operate
sustainably as a company, but also reduce the environmental impact of
our customers. In 2018 we continued our fantastic progress in this area.
In recognition of these efforts, CDP, an environmental impact non-profit,
$13M
donated to associates in need
named The Home Depot to its Climate Change “A” List for actions to cut
carbon emissions and mitigate climate risks.
95%
of associates donated to
The Homer Fund
Craig Menear
March 28, 2019
FINANCIAL HIGHLIGHTS
$108.2B
$100.9B
SALES $94.6B
2016
2017 2018
6.8%
5.6%
5.2%
COMPARABLE
SALES GROWTH
2016
2017 2018
$9.73
$7.29
$6.45
DILUTED
EPS
2016
2017 2018
44.8%
34.2%
RETURN ON 31.4%
INVESTED
CAPITAL*
2016
2017 2018
*For a calculation of ROIC, please see page 24 of the Annual Report on Form 10-K for the fiscal year ended February 3, 2019.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark
One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 3, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8207
95-3261426
Delaware
State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization Registrant’s telephone number, including area code:
2455 Paces Ferry Road, Atlanta, Georgia 30339 (770) 433-8211
(Address of principal executive offices) (Zip Code)
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of voting common stock held by non-affiliates of the registrant on July 29, 2018 was $225.3 billion.
The number of shares outstanding of the registrant’s common stock as of March 8, 2019 was 1,103,903,507 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2019 Annual Meeting of Shareholders are incorporated by reference in Part III of
this Form 10-K to the extent described herein.
TABLE OF CONTENTS
Commonly Used or Defined Terms ii
Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995 iii
PART I
Item 1. Business. 1
Item 1A. Risk Factors. 8
Item 1B. Unresolved Staff Comments. 15
Item 2. Properties. 15
Item 3. Legal Proceedings. 17
Item 4. Mine Safety Disclosures. 18
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 18
Equity Securities.
Item 6. Selected Financial Data. 19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 28
Item 8. Financial Statements and Supplementary Data. 29
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. 59
Item 9A. Controls and Procedures. 59
Item 9B. Other Information. 61
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 61
Item 11. Executive Compensation. 62
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 62
Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence. 62
Item 14. Principal Accounting Fees and Services. 62
PART IV
Item 15. Exhibits, Financial Statement Schedules. 62
Item 16. Form 10-K Summary. 66
SIGNATURES 67
i
Table of Contents
ii
CAUTIONARY STATEMENT PURSUANT TO THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained herein, as well as in other filings we make with the SEC and other written and oral
information we release, 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 sales; effects of competition; implementation
of store, interconnected retail, supply chain and technology initiatives; inventory and in-stock positions; state of the
economy; state of the housing and home improvement markets; state of the credit markets, including mortgages,
home equity loans, and consumer credit; issues related to the payment methods we accept; demand for credit
offerings; management of relationships with our associates, suppliers and vendors; continuation of share
repurchase programs; net earnings performance; earnings per share; dividend targets; capital allocation and
expenditures; liquidity; return on invested capital; expense leverage; stock-based compensation expense;
commodity price inflation and deflation; the ability to issue debt on terms and at rates acceptable to us; the impact
and expected outcome of investigations, inquiries, claims, and litigation; the effect of accounting charges; the effect
of adopting certain accounting standards; the impact of the Tax Act and other regulatory changes; store openings
and closures; financial outlook; and the integration of acquired companies into our organization and the ability to
recognize the anticipated synergies and benefits of those acquisitions.
Forward-looking statements are based on currently available information and our current assumptions, expectations
and projections about future events. You should not rely on our forward-looking statements. These statements are
not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are
beyond our control, dependent on actions of third parties, or currently unknown to us – as well as potentially
inaccurate assumptions that could cause actual results to differ materially from our expectations and projections.
These risks and uncertainties include, but are not limited to, those described in Item 1A, "Risk Factors," and
elsewhere in this report and also as may be described from time to time in our future reports we file with the SEC.
Forward-looking statements speak only as of the date they are made, and we do not undertake to update these
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 SEC.
Table of Contents
PART I
Item 1. Business.
Introduction
The Home Depot, Inc. is the world’s largest home improvement retailer based on net sales for fiscal 2018. We offer
our customers a wide assortment of building materials, home improvement products, lawn and garden products,
and décor products and provide a number of services, including home improvement installation services and tool
and equipment rental. As of the end of fiscal 2018, we had 2,287 The Home Depot stores located throughout the
U.S. (including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada,
and Mexico. The Home Depot stores average approximately 104,000 square feet of enclosed space, with
approximately 24,000 additional square feet of outside garden area. We also maintain a network of distribution and
fulfillment centers, as well as a number of e-commerce websites. When we refer to "The Home Depot," the
"Company," "we," "us" or "our" in this report, we are referring to The Home Depot, Inc. and its consolidated
subsidiaries.
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, Atlanta, Georgia 30339. Our telephone number at that
address is (770) 433-8211.
Our Business
Our Strategy
Our two primary objectives are growing market share with our customers and delivering shareholder value. We
have historically been guided by three principles to drive growth: delivering an exceptional customer experience,
leading in product authority, and maintaining a disciplined approach to capital allocation. These principles reflect
how we fundamentally run our business. As the retail landscape continues to evolve, we must become more agile in
responding to the changing competitive environment and customer preferences. Our customers expect to be able to
buy how, when and where they want. We believe that providing a seamless and frictionless shopping experience
across multiple channels, featuring curated and innovative product choices, personalized for the individual
shopper’s need, which are then delivered in a fast and cost-efficient manner, is a key enabler for our future
success. This is what we call the One Home Depot experience. In late 2017, we announced that we would be
investing approximately $11 billion over a multi-year period in our stores, associates, digital experience and supply
chain to drive value for our customers, our associates, our suppliers and our shareholders. To accomplish this, we
are executing against five key strategies designed to drive growth in our business:
• Connect associates to customer needs
• Interconnected experience: stores to online, and online to stores
• Connect products and services to customer needs
• Connect product to shelf, site and customer
• Innovate our business model and value chain
Taken together, these strategies are helping us to create the One Home Depot experience that our customers
demand. Below are some of the ways we have been investing in that experience during fiscal 2018.
Connect Associates to Customer Needs
We serve two primary customer groups and have different approaches to meeting their needs:
• DIY Customers. These customers are typically home owners who purchase products and complete their
own projects and installations. Our associates assist these customers both in our stores and through online
resources and other media designed to provide product and project knowledge. We also offer a variety of
clinics and workshops both to share this knowledge and to build an emotional connection with our DIY
customers.
• Professional Customers (or “Pros”). These customers are primarily professional renovators/remodelers,
general contractors, handymen, property managers, building service contractors and specialty tradesmen,
such as electricians, plumbers and painters. These customers build, renovate, remodel, repair and maintain
residential properties, multifamily properties, hospitality properties and commercial facilities, including
education facilities, healthcare facilities, government buildings and office buildings. We recognize the great
value our Pro customers provide to their clients, and we strive to make the Pros' job easier and help them
1
grow their business. We believe that investments aimed at deepening our relationships with our Pro
customers are yielding increased engagement and will continue to translate into incremental spend. As part
of our continued commitment to invest in Pro customer relationships and the significant market opportunity
these customers represent, we have created an enhanced Pro customer experience, both online and in-
store.
At the end of 2018, we announced a new consolidated, go-to-market strategy for all of our Pro initiatives,
including our MRO business (formerly known as Interline), under “The Home Depot Pro” banner. With The
Home Depot Pro, Pros have access to a comprehensive offering that includes a combination of our vast
store network, a best-in-class dedicated sales force, quality and affordable products from trusted brands, an
extensive delivery network and online business solutions. We provide specialized programs such as an
expanded MRO assortment, inventory management solutions, custom product offerings, in-store Pro desk
and Pro services, and enhanced credit programs. We also provide and are continuously working to improve
our delivery options for Pros, including pick up in-store, direct to job site delivery or ship-to home, to allow
us to deliver when, where and how our customers demand. Online, our Pros receive a personalized
experience based on their business, their needs, their industry and their purchasing behavior.
Pro customers are not one-size-fits-all, and The Home Depot Pro offers the level of value-added services
that our diverse Pro customers demand. Our Pro loyalty program, Pro Xtra, provides Pros with benefits
related to useful business services, exclusive product offers and a purchase monitoring tool to enable
receipt lookup and job tracking of purchases across all forms of payment. We will continue to invest in the
Pro customer experience to provide the services, solutions, support, and online tools they need to grow
their businesses.
Intersecting our DIY customers and our Pros are our DIFM customers. These customers are typically home owners
who engage with Pros to complete their project or installation, instead of completing the project or installation
themselves. DIFM customers can purchase a variety of installation services in our stores, online or in their homes
through in-home consultations. Our installation programs include many categories, such as flooring, cabinets and
cabinet makeovers, countertops, furnaces and central air systems, and windows. We believe that changing
demographics are increasing the demand for our installation services, particularly for our "baby boomer" customers
who may have historically been DIY customers but who are now looking for someone to complete a project for
them. We also believe our focus on serving the Pros who perform services for our DIFM customers will help us drive
higher product sales.
We help our customers finance their projects by offering PLCC products through third-party credit providers. Our
PLCC program includes other benefits, such as a 365-day return policy and, for our Pros, commercial fuel rewards
and extended payment terms. In fiscal 2018, our customers opened approximately 4.8 million new The Home Depot
private label credit accounts, and at the end of fiscal 2018 the total number of The Home Depot active account
holders was approximately 16 million. PLCC sales accounted for approximately 23% of net sales in fiscal 2018.
We strive to provide an outstanding customer experience by putting customers first and taking care of our
associates. Our customer experience begins with excellent customer service, and our associates are key to
delivering on that experience. Our goal is to remove complexity and inefficient processes from the stores to allow
our associates to focus on our customers. To this end, in fiscal 2018 we continued to invest in freight handling
capabilities as part of an end-to-end initiative to optimize how product flows from suppliers to our shelves. Among
other benefits, this initiative improves our on-shelf availability while decreasing the amount of time a store associate
spends locating product on the receiving dock or in overhead storage. We deployed our new overhead
management application on our FIRST phones, our web-enabled handheld devices, in fiscal 2018, which helps
associates locate product stored in overhead storage quickly and accurately, saving time, improving the customer
experience, and assisting with inventory management. In addition, we launched a new order management system
called “Order Up” to consolidate certain of our existing legacy systems into a simple and intuitive user interface that
requires minimal training and significantly decreases associate time required to create, sell, manage and edit
orders. These efforts allow our associates to devote more time to the customer and make working at The Home
Depot a better experience.
During fiscal 2018, we also enhanced our labor model to better align associate activity with customer needs, shifting
from a model based on the number of transactions to one that correlates to the specific volume of activity within
each store down to the department level. This change, which is now live in all stores, allows us to better allocate our
workforce to provide a best-in-class customer experience.
At the end of fiscal 2018, we employed approximately 413,000 associates, of whom approximately 29,000 were
salaried, with the remainder compensated on an hourly or temporary basis. To attract, reward, and retain qualified
personnel, we seek to maintain competitive salary and wage levels in each market we serve. We also have a
number of programs to recognize stores and individual associates for exceptional customer service. In fiscal 2018,
as part of our strategic investments, we made a number of investments in our associates, including changes to our
benefits programs to eliminate a waiting period for new hires and an enhanced paid maternity and parental leave
program. We measure associate satisfaction regularly, and we believe that our employee relations are very good.
Interconnected Experience: Stores to Online, and Online to Stores
Our customers are shopping and interacting with us differently today than they did several years ago. As a result,
we have taken a number of steps to provide our customers with a seamless and frictionless interconnected
shopping experience across our stores, online, on the job site, and in their homes.
We do not view the customer experience as a specific transaction; rather, we believe it encompasses an entire
process from inspiration and know-how, to purchase and fulfillment and to post-purchase care and support. From
the inspirational point of the purchase journey to providing product know-how, we are investing in the infrastructure
and processes needed to deliver the most relevant marketing messages to our customers based upon what is
important for them today. This means adjusting messages so that they are personalized to the customer, such as
showing product that completes their project based upon what was recently purchased, or highlighting products and
services that are most relevant based upon changing weather conditions. Customers desire more personalized
messaging, so we are focusing on connecting marketing activities with the online and in-store experiences to create
a seamless series of contacts across all channels. Doing this well provides tremendous value to the customer,
which in turn drives business results.
Our stores are the hub of our business, and we are investing to improve the customer shopping experience through
easier navigation and increasing the convenience and speed of checkout. For several years, our associates have
used our FIRST phones to help expedite the online order checkout process, locate products in the aisles and online,
and check inventory on hand. In fiscal 2018, we empowered our customers with additional self-help tools. As part of
our strategic investments, we have made progress with the implementation of our wayfinding sign and store refresh
package, with almost 1,300 of our U.S. stores completed by the end of fiscal 2018, ahead of our original plan. This
package includes new, more intuitive signage, better lighting, and basic store enhancements. We also continued the
roll out of our re-designed front end area, including optimized layouts in all checkout areas and expanded and
enhanced self-checkout options, as well as the addition of self-service lockers at the front entrance to offer
convenient pick up of online orders.
We continue to make investments in our website and mobile apps. Enhancements to these digital properties are
critical for our increasingly interconnected customers who research products online and then go into one of our
stores to view the products in person or talk to an associate before making their purchase. We also continued to
invest in a better digital navigation experience through store-specific maps, which allow customers to pinpoint the
exact location of an item on their mobile devices. While in the store, customers may also go online to access ratings
and reviews, compare prices, view our extended assortment and purchase products. During fiscal 2018, we
continued to improve our e-commerce platform with a goal of driving a more personalized customer experience, as
discussed above. To create an enhanced customer experience, we have been expanding our use of technology,
including machine learning and data sciences. In fiscal 2018, we continued to enhance our search and mobile
functionality, our checkout speed, and our chat functionality with our online contact centers.
We believe that by connecting our stores to online and online to our stores, we drive sales not just in-store but also
online. In fiscal 2018, we saw increased traffic to our online properties and improved online sales conversion rates.
Sales from our online channels increased over 26% during fiscal 2018. We will continue to leverage our physical
and digital assets in a seamless and frictionless way to enhance the end-to-end customer experience.
Connect Products and Services to Customer Needs
We strive to be the number one retailer in product authority in home improvement by delivering product innovation,
assortment and value and by offering a range of home improvement services. In fiscal 2018, we continued to
introduce a wide range of innovative new products to our DIY and Pro customers, while remaining focused on
offering everyday values in our stores and online.
To enhance our merchandising capabilities, we continued to make improvements to our information technology
tools in fiscal 2018 to build an interconnected shopping experience that is tailored to our customers’ persona,
shopping context, and location; to ensure we have the best value in the market; and to optimize our product
assortments.
A typical The Home Depot store stocks approximately 30,000 to 40,000 items during the year, including both
national brand name and proprietary products. Our online product offerings complement our stores by serving as an
extended aisle, and we offer a significantly broader product assortment through our websites, including
homedepot.com, blinds.com, and thecompanystore.com, an online retailer of textiles and décor products that we
acquired in late fiscal 2017 to expand our offering of online décor categories. We also routinely use our
merchandising tools to refine our online assortment to balance the extended choice with a more curated offering.
In fiscal 2018, we introduced a number of innovative and distinctive products to our customers at attractive values.
Examples of these new products include the Halo Color Selectable LED Downlight Retrofits, Behr Quick Dry Oil-
Based Wood Finish, EGO® 56V Carbon Fiber PowerLoad Technology™ Trimmer, Andersen ® LuminAire™
Retractable Screen, and Loctite® PL® Premium Max Construction Adhesive.
During fiscal 2018, we continued to offer value to our customers through a wide range of our proprietary and
exclusive brands. Highlights of these offerings include Husky® hand tools, tool storage and work benches, water
resistant gloves, dual beam flashlights, diamond tip screwdrivers, and 15-in-1 screwdriver/nut drivers; Everbilt ®
products, including hardware fasteners, plumbing parts, pumps and garbage disposals; Hampton Bay ® lighting,
ceiling fans and kitchen cabinets; Glacier Bay® bath fixtures and toilets; LifeProof® flooring including carpet, carpet
with PetProof® technology, rigid core vinyl plank flooring, and new slip resistant tiles; EcoSmart ® lighting, featuring
all-glass LED light bulbs; Vigoro® lawn care products; Stanley® hand tools; Troy-Bilt® outdoor snow throwers; and
RIDGID® and Ryobi® power tools, featuring Ryobi® 40V cordless push mowers. We will continue to assess our
merchandising departments and product lines for opportunities to expand the assortment of products offered within
The Home Depot’s portfolio of proprietary and exclusive brands.
We also offer a number of services for our customers. As noted above, we provide a number of special programs for
our Pro customers to meet their particular needs, and for our DIY and DIFM customers, we provide a number of
installation services. We also provide tool and equipment rentals at over 1,200 locations across the U.S. and
Canada, providing value and convenience for both our Pro and DIY customers.
Connect Product to Shelf, Site and Customer
We continue to drive productivity and efficiency by building best-in-class competitive advantages in our information
technology and supply chain. These efforts are designed to ensure product availability for our customers while
managing our costs, which results in higher returns for our shareholders. We recognize that our customers’
expectations are changing rapidly and that our supply chain needs to be responsive to their expectations for how,
when and where they choose to receive our products and services. We will continue to improve productivity and
connectivity across our supply chain platforms to achieve the fastest, most efficient delivery capabilities in home
improvement. We refer to this process, which encompasses a multi-year effort, as One Home Depot Supply Chain.
During fiscal 2018, we continued to build the foundation to meet this goal.
We centrally forecast and replenish over 98% of our store products through sophisticated inventory management
systems and utilize a network of over 200 distribution centers to serve both our stores' and customers' needs. This
network includes multiple distribution center platforms in the U.S., Canada, and Mexico tailored to meet the needs
of our stores and customers based on the types of products, location, transportation, and delivery requirements.
These platforms primarily include rapid deployment centers, stocking distribution centers, bulk distribution centers,
and direct fulfillment centers. As part of our investment in One Home Depot Supply Chain, we will add a number of
different fulfillment facilities designed to help us meet our goal of reaching 90% of the U.S. population with same or
next day delivery for an extended home improvement product offering, including big and bulky goods. These
facilities include more direct fulfillment centers and market delivery operations, or MDOs, which function as local
hubs to consolidate freight for dispatch to customers for the final mile of delivery. In fiscal 2018, we began piloting
these facilities.
In addition to our distribution centers, we leverage our almost 2,000 U.S. stores as a network of convenient
customer pick-up, return and delivery fulfillment locations. For customers who shop online and wish to pick-up or
return merchandise at, or have merchandise delivered from, our U.S. stores, we have fully implemented our four
interconnected retail programs, BOSS, BOPIS, BODFS, and BORIS, which we believe provide us with a
competitive advantage. For example, as of the end of fiscal 2018, almost 50% of our U.S. online orders were picked
up in the store. We also continue to focus on developing new capabilities to improve both the efficiency and
customer experience in our store delivery program. For example, as of the end of fiscal 2018, we have rolled out
van and car delivery to over 70% and 40% of the U.S. population, respectively, which provides our customers with
a fast and affordable service for smaller deliveries.
A key component of our strategy is enabled through our technology portfolio, which consists of a network of
systems that help us centrally manage customer orders and optimize where, when and how we fulfill them in order
to maximize speed, efficiency, and the customer’s experience. During fiscal 2018, we continued to improve our
customer order management platform, or COM, and our delivery management system, which substantially improves
our ability to sell and execute deliveries from our stores.
Innovate Our Business Model and Value Chain
In the changing retail environment, we must increase our investments to enhance the interconnected customer
experience and position our Company for the future. Our customers view us as One Home Depot and expect us to
function in an interconnected, seamless manner. To fully realize the One Home Depot experience, we will continue
to connect the various aspects of our business and leverage our scale. We will also invest in our physical locations,
our digital properties, our associates, products and innovation, our Pro and DIY customers, our services business,
and our supply chain. Underlying all of these investments is our continued investment in information technology,
which provides the backbone of the One Home Depot experience.
We continue to focus on driving productivity throughout the business. This process includes lowering our costs and
reinvesting in the business to drive higher sales, creating what we refer to as a virtuous cycle. Through technology
development, we drive productivity and speed. By focusing on the elimination of waste across the value chain,
improved processes, and simplified systems, we support a cycle of productivity. This virtuous cycle has allowed us
to improve the customer experience, increase our competitiveness in the market, increase sales, and deliver on
shareholder value.
Our strategy to create the One Home Depot experience is driven by our desire to create value for all stakeholders,
including our customers, our associates, our supplier partners, the communities we serve, and our shareholders.
We are accelerating our investments in the business within our disciplined approach to capital allocation. Our first
use of cash has been and will continue to be investing in our business, with use of the remainder guided by our
shareholder return principles:
• Dividend Principle. We target a dividend payout of approximately 55% of prior year earnings per share, with
the goal of increasing our dividend every year.
• Return on Invested Capital Principle. Our goal is to maintain a high return on invested capital,
benchmarking all uses of excess liquidity against the value created for our shareholders through share
repurchases.
• Share Repurchase Principle. After meeting the needs of the business, we use excess cash to repurchase
shares as long as it is value creating.
In fiscal 2018, we drove higher returns on invested capital, which allowed us to return value to shareholders through
$10.0 billion in share repurchases and $4.7 billion in cash dividends, as discussed in Item 7, "Management’s
Discussion and Analysis of Financial Condition and Results of Operations."
Competition
Our industry is highly competitive and evolving. As a result, we face competition for our products and services from
a variety of retailers, suppliers, and service providers, ranging from traditional brick-and-mortar, to multichannel, to
exclusively online. In each of the markets we serve, there are a number of other home improvement retailers;
electrical, plumbing and building materials supply houses; and lumber yards. With respect to some products and
services, we also compete with specialty design stores, showrooms, discount stores, local, regional and national
hardware stores, paint stores, mail order firms, warehouse clubs, independent building supply stores, MRO
companies, home décor retailers, and other retailers, as well as with providers of home improvement services and
tool and equipment rental.
We compete, both in-store and online, primarily based on customer experience, price, quality, availability, product
assortment, and delivery options. With respect to our stores, we also compete based on store location and
appearance as well as presentation of merchandise. Our customers routinely use a variety of electronic devices and
platforms to shop online, read product reviews, and compare prices, products, and delivery options, regardless of
where or how they shop. Further, online and multichannel retailers are increasingly focusing on delivery services,
with customers seeking faster, guaranteed delivery times and low-price or free shipping. Our ability to be
competitive on delivery times and delivery costs depends on many factors, including the success of our investments
in One Home Depot Supply Chain.
Sustainability Efforts
The Home Depot is committed to sustainable business practices – from the products that we offer to our customers,
to the environmental impact of our operations, to our sourcing activities, to our involvement within the communities
in which we do business. We believe these efforts continue to be successful in creating value for our customers,
shareholders, and communities.
Environmentally Preferred Products and Programs. We offer a growing selection of environmentally preferred
products, which supports sustainability and helps our customers save energy, water and money. Through our Eco
Options® Program introduced in 2007, we have helped our customers more easily identify products that meet
specifications for energy efficiency, water conservation, healthy home, clean air and sustainable forestry. As of the
end of fiscal 2018, our Eco Options® Program included over 20,000 products. Through this program, we sell
ENERGY STAR® certified appliances, LED light bulbs, tankless water heaters, and other products that enable our
customers to save on their utility bills. We estimate that in fiscal 2018 we helped customers save over $1.2 billion in
electricity costs through sales of energy-saving products. We also estimate our customers saved over 59 billion
gallons of water resulting in over $655 million in water bill savings in fiscal 2018 through the sales of our
WaterSense®-labeled bath faucets, showerheads, aerators, toilets, and irrigation controllers.
In 2017, we announced customer energy, greenhouse gas emissions, and water goals, anchored by our sale of
ENERGY STAR® and WaterSense® products. We are committed to providing innovative products that, through
proper use, will help to reduce North American customers’ electricity costs by more than $2.8 billion; greenhouse
gas emissions by 20 million metric tons; and water consumption by 250 billion gallons by 2020. We also updated
our wood purchasing policy to require FSC certification for wood products from the Amazon basin, Congo basin,
Papua New Guinea, and the Solomon Islands. Our 2018 Responsibility Report, available on our website at https://
corporate.homedepot.com/responsibility, describes many of our other environmentally preferred products that
promote energy efficiency, water conservation, clean air, and a healthy home.
We continue to offer store recycling programs in the U.S., such as an in-store CFL bulb recycling program launched
in 2008. This service is offered to customers free of charge and is available in all U.S. stores. We also maintain an
in-store rechargeable battery recycling program. Launched in 2001 and currently done in partnership with
Call2Recycle, this program is also available to customers free of charge in all U.S. stores. Through our recycling
programs, in fiscal 2018 we helped recycle over 888,000 pounds of CFL bulbs and over 1 million pounds of
rechargeable batteries. Since program inception, we have helped recycle 10 million pounds of rechargeable
batteries. In fiscal 2018, we also recycled over 230,000 lead acid batteries collected from our customers under our
lead acid battery exchange program, as well as over 247,000 tons of cardboard through a nationwide cardboard
recycling program across our U.S. operations. We believe our environmentally-preferred product selection and our
recycling efforts drive sales, which in turn benefits our shareholders, in addition to our customers, the communities
in which we work and live, and the environment.
Commitment to Sustainability and Environmentally Responsible Operations. The Home Depot also focuses
on sustainable operations and is committed to conducting business in an environmentally responsible manner. This
commitment impacts all areas of our operations, including energy usage, supply chain and packaging, and store
construction and maintenance. In 2015, we announced two major sustainability commitments for 2020. Our first
goal is to reduce our U.S. stores’ energy use by 20% over 2010 levels, and our second goal is to produce and
procure, on an annual basis, 135 megawatts of energy for our stores through renewable or alternate energy
sources, such as wind, solar and fuel cell technology. As of the end of fiscal 2018, we have 45 stores with solar
rooftop power and over 202 fuel cell systems that are either operational or in development, which puts us on track
to exceed both of our goals before the end of 2020. In 2018, we set a Science Based Target goal in connection with
our annual CDP reporting (discussed below) with commitments to a 2.1% annual reduction in carbon emissions.
Our goal is to achieve a 39.9% reduction by 2030 and a 50.4% reduction by 2035. We are committed to
implementing strict operational standards that establish energy efficient operations in all of our U.S. facilities and
continuing to invest in renewable and alternative energy. Additionally, we implemented a rainwater reclamation
project in our stores in 2010. As of the end of fiscal 2018, 148 of our stores used reclamation tanks to collect
rainwater and condensation from HVAC units and garden center roofs, which is in turn used to water plants in our
outside garden centers. Our 2018 Responsibility Report, which uses the Global Reporting Initiative, or GRI,
framework for sustainability reporting, provides more information on sustainability efforts in other aspects of our
operations.
Awards and Recognition. Our commitment to corporate sustainability has resulted in a number of environmental
awards and recognitions. From 2008 to 2017, we received 21 significant awards from three EPA programs. Multiple
times over these years, the ENERGY STAR® division named us "Retail Partner of the Year – Sustained Excellence"
for our overall excellence in energy efficiency, and we received the WaterSense ® Sustained Excellence Award
for our overall excellence in water efficiency. We have also received the EPA’s "SmartWay Excellence Award,"
which recognizes The Home Depot as an industry leader in freight supply chain environmental performance and
energy efficiency.
We participate in the CDP reporting process. CDP is an independent, international, not-for-profit organization
providing a global system for companies and cities to measure, disclose, manage and share environmental
information. In January 2019, we received a score of A from CDP, reflecting a high level of action on climate change
mitigation, adaptation and transparency. We also were named an industry leader by CDP.
Sourcing and Quality Assurance
We maintain a global sourcing program to obtain high-quality and innovative products directly from manufacturers
around the world. During fiscal 2018, in addition to our U.S. sourcing operations, we maintained sourcing offices in
Mexico, Canada, China, India, Southeast Asia and Europe. Our suppliers are contractually obligated to ensure that
their products comply with applicable international, federal, state and local laws. All of our vendors and service
providers must comply with our responsible sourcing standards, which cover a variety of expectations across
multiple areas of social compliance, including supply chain transparency, sources of supply, and child and forced
labor. In addition, we have both quality assurance and engineering resources dedicated to establishing criteria and
overseeing compliance with safety, quality and performance standards for our proprietary branded products. We
also have a global responsible sourcing program designed to ensure that suppliers adhere to high standards of
social and environmental responsibility. Our 2018 Responsible Sourcing Report, available on our website at https://
corporate.homedepot.com/responsibility/sourcing-responsibility, provides more information about this program.
Safety
We are strongly committed to maintaining a safe shopping and working environment for our customers and
associates. Our EH&S function is dedicated to ensuring the health and safety of our customers and associates, with
trained associates who evaluate, develop, implement and enforce policies, processes and programs on a
Company-wide basis. Our EH&S policies are woven into our everyday operations and are part of The Home Depot
culture. Some common program elements include: daily store inspection checklists (by department); routine follow-
up audits from our store-based safety team members and regional, district and store operations field teams;
equipment enhancements and preventative maintenance programs to promote physical safety; departmental
merchandising safety standards; training and education programs for all associates, with varying degrees of training
provided based on an associate’s role and responsibilities; and awareness, communication and recognition
programs designed to drive operational awareness and an understanding of EH&S issues.
Intellectual Property
Our business has one of the most recognized brands in North America. As a result, we believe that The Home
Depot® trademark has significant value and is an important factor in the marketing of our products, e-commerce,
stores and business. We have registered or applied for registration of trademarks, service marks, copyrights and
internet domain names, both domestically and internationally, for use in our business, including our expanding
proprietary brands such as HDX®, Husky®, Hampton Bay®, Home Decorators Collection®, Glacier Bay® and Vigoro®.
We also maintain patent portfolios relating to some of our products and services and seek to patent or otherwise
protect innovations we incorporate into our products or business operations.
Seasonality
Our business is subject to seasonal influences. Generally, our highest volume of sales occurs in our second fiscal
quarter, and the lowest volume occurs either during our first or fourth fiscal quarter.
Available Information
Our internet website is www.homedepot.com. We make available on the Investor Relations section of 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, and amendments to those reports, as
soon as reasonably practicable after filing such documents with, or furnishing such documents to, the SEC.
We include our website addresses throughout this report for reference only. The information contained on our
websites is not incorporated by reference into this report.
Other Financial Information
For information on key financial highlights, including historical revenues, profits and total assets, see the "Selected
Financial Data" on page F-1 of this report and Item 7, "Management’s Discussion and Analysis of Financial
Condition and Results of Operations."
Item 2. Properties.
The percentage of our owned versus leased facilities that were operating at the end of fiscal 2018, along with the
total square footage, follows.
Total Square
square footage in millions Owned Leased Footage
Stores (1) 90% 10% 237.7
Warehouses and distribution centers (2) 4% 96% 56.1
Offices and other 22% 78% 4.3
Total 298.1
—————
(1) Our owned stores include those subject to ground leases.
(2) Located in 49 states, territories, and provinces.
Our U.S. store locations at the end of fiscal 2018 follow.
Our store locations outside of the U.S. at the end of fiscal 2018 follow.
17
Table of Contents
applicable rules. We are currently in discussions with SCAQMD. Although we cannot predict the outcome of this
matter, we do not expect the outcome to have a material adverse effect on our consolidated financial condition,
results of operations, or cash flows.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Since April 19, 1984, our common stock has been listed on the NYSE, trading under the symbol "HD". We paid our
first cash dividend on June 22, 1987 and have paid a cash dividend during each subsequent quarter. While we
currently expect a cash dividend to be paid in the future, future dividend payments will depend on our earnings,
capital requirements, financial condition, and other factors considered relevant by our Board of Directors.
At March 8, 2019, there were approximately 110,000 holders of record of our common stock and approximately
2,561,000 additional "street name" holders whose shares are held of record by banks, brokers, and other financial
institutions.
Stock Performance Graph
The graph and table below present our cumulative total shareholder returns relative to the performance of the S&P
Retail Composite Index and the S&P 500 Index for the five most recent fiscal years. The graph assumes $100 was
invested at the closing price of our common stock on the NYSE and in each index on the last trading day of fiscal
2013 and assumes that all dividends were reinvested on the date paid. The points on the graph represent fiscal
year-end amounts based on the last trading day in each fiscal year.
$400
$350
$300
$250
$200
$150
$100
—●— The Home Depot —— S&P Retail Composite Index —■— S&P 500 Index
18
Fiscal Year Ended
February 2, February 1, January 31, January 29, January 28, February 3,
2014 2015 2016 2017 2018 2019
The Home Depot $ 100.00 $ 138.83 $ 170.59 $ 191.64 $ 293.71 $ 267.16
S&P Retail Composite Index 100.00 120.09 140.26 166.28 241.50 254.29
S&P 500 Index 100.00 114.22 113.45 137.11 175.09 168.30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our MD&A includes the following sections:
• Executive Summary
• Results of Operations and Non-GAAP Measures
• Liquidity and Capital Resources
• Critical Accounting Policies
Executive Summary
Highlights of our annual financial performance follow.
Fiscal Fiscal Fiscal
dollars in millions, except per share data 2018 2017 2016
Net sales $ 108,203 $ 100,904 $ 94,595
Net earnings 11,121 8,630 7,957
Effective tax rate 23.6% 37.0% 36.3%
We reported net sales of $108.2 billion in fiscal 2018. Net earnings were $11.1 billion, or $9.73 per diluted share.
The 53rd week in fiscal 2018 added $1.7 billion of net sales and $241 million of net earnings and increased diluted
earnings per share by $0.21. Our effective tax rate was 23.6% for fiscal 2018 and lower than fiscal 2017 and fiscal
2016 primarily due to enactment of the Tax Act.
We opened two new stores in Mexico and one new store in the U.S. during fiscal 2018, for a total store count of
2,287 at February 3, 2019. At the end of fiscal 2018, a total of 306 of our stores, or 13.4%, were located in Canada
and Mexico. Total sales per square foot were $446.86 in fiscal 2018, and our inventory turnover ratio was 5.1 times
at the end of fiscal 2018.
We generated $13.0 billion of cash flow from operations during fiscal 2018 and issued $3.5 billion of long-term debt
in fiscal 2018. This cash flow, along with cash on hand, was used to fund cash payments of $10.0 billion for share
repurchases, pay $4.7 billion of dividends, fund $2.4 billion in capital expenditures, repay $1.2 billion of senior notes
that matured in September 2018, and repay $220 million of net short-term borrowings.
During fiscal 2018, we repurchased $10.0 billion of our common stock through ASR agreements and open market
transactions. In February 2019, our Board of Directors authorized a $15.0 billion share repurchase program that
replaced the December 2017 authorization, and we announced a 32% increase in our quarterly cash dividend to
$1.36 per share.
Our ROIC was 44.8% for fiscal 2018. See the "Non-GAAP Financial Measures" section below for our definition and
calculation of ROIC, as well as a reconciliation of NOPAT, a non-GAAP financial measure, to net earnings (the most
comparable GAAP financial measure).
Results of Operations and Non-GAAP Measures
The tables and discussion below should be read in conjunction with our consolidated financial statements and
related notes included in this report. We believe the percentage relationship between net sales and major
categories in our consolidated statements of earnings, as well as the percentage change in the associated dollar
amounts, are relevant to an evaluation of our business.
Fiscal Fiscal Fiscal
2018 2017 2016
% of Net % of Net % of Net
dollars in millions $ Sales $ Sales $ Sales
Net sales $ 108,203 $ 100,904 $ 94,595
Gross profit 37,160 34.3% 34,356 34.0% 32,313 34.2%
Operating expenses:
Selling, general and administrative 19,513 18.0 17,864 17.7 17,132 18.1
Depreciation and amortization 1,870 1.7 1,811 1.8 1,754 1.9
Impairment loss 247 0.2 — — — —
Total operating expenses 21,630 20.0 19,675 19.5 18,886 20.0
Operating income 15,530 14.4 14,681 14.5 13,427 14.2
Interest and other (income) expense:
Interest and investment income (93) (0.1) (74) (0.1) (36) —
Interest expense 1,051 1.0 1,057 1.0 972 1.0
Other 16 — — — — —
Interest and other, net 974 0.9 983 1.0 936 1.0
Earnings before provision for income
taxes 14,556 13.5 13,698 13.6 12,491 13.2
Provision for income taxes 3,435 3.2 5,068 5.0 4,534 4.8
Net earnings $ 11,121 10.3% $ 8,630 8.6% $ 7,957 8.4%
—————
Note: Fiscal 2018 includes 53 weeks. Fiscal 2017 and fiscal 2016 include 52 weeks. Certain percentages may not sum to totals
due to rounding.
% Change
Fiscal Fiscal Fiscal Fiscal Fiscal
Selected financial and sales data: 2018 2017 2016 2018 vs. 2017 2017 vs. 2016
Comparable sales increase (1) (2) 5.2% 6.8% 5.6% N/A N/A
(2) (3)
Comparable customer transactions increase 1.0% 2.2% 2.8% N/A N/A
Comparable average ticket increase (2) (3) 4.2% 4.5% 2.7% N/A N/A
Customer transactions (in millions) (3) (4) 1,620.8 1,578.6 1,544.0 2.7% 2.2%
Average ticket (3) (4) $ 65.74 $ 63.06 $ 60.35 4.2% 4.5%
Sales per square foot (3) (4) $ 446.86 $ 417.02 $ 390.78 7.2% 6.7%
Diluted earnings per share $ 9.73 $ 7.29 $ 6.45 33.5% 13.0%
—————
(1) The calculations for fiscal 2017 and fiscal 2016 do not include results for Interline, which was acquired in fiscal 2015.
(2) The calculations do not include results from the 53rd week of fiscal 2018.
(3) The calculations do not include results for Interline.
(4) The 53rd week of fiscal 2018 increased customer transactions by 24.5 million, added $0.01 to average ticket, and increased
sales per square foot by $6.87.
Fiscal 2018 Compared to Fiscal 2017
Sales. We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales. Fiscal 2018 consisted of 53 weeks compared to 52 weeks in fiscal 2017. Net sales for fiscal 2018
increased $7.3 billion, or 7.2%, to $108.2 billion. The increase in net sales in fiscal 2018 primarily reflected the
impact of positive comparable sales driven by average ticket growth and increased customer transactions as well as
$1.7 billion of net sales attributable to the additional week in fiscal 2018. Online sales, which consist of sales
generated online through our websites for products picked up in our stores or delivered to customer locations,
represented 7.9% of net sales and grew 26.2% during fiscal 2018. The adoption of ASU No. 2014-09 benefited net
sales by $216 million in fiscal 2018, while the effect of foreign currency had a negligible impact on net sales. See
Note 1 to our consolidated financial statements for more information on ASU No. 2014-09 and the implementation of
this new standard for revenue recognition.
Comparable Sales. Comparable sales is a measure that highlights the performance of our existing locations and
websites by measuring the change in net sales for a period over the comparable prior-period of equivalent length.
Comparable sales includes sales at all locations, physical and online, open greater than 52 weeks (including
remodels and relocations) and excluding closed stores. Retail stores become comparable on the Monday following
their 365th day of operation. Acquisitions, digital or otherwise, are included in comparable sales after we own them
for more than 52 weeks (with the exception of Interline which is excluded from comparable sales for periods prior to
fiscal 2018). Net sales for the 53rd week in a fiscal year are not included in the comparable sales calculation for that
fiscal year. For example, our comparable sales results for fiscal 2018 compare weeks 1 through 52 in fiscal 2018 to
the 52-week period reported for fiscal 2017. Comparable sales is intended only as supplemental information and is
not a substitute for net sales presented in accordance with GAAP.
Total comparable sales increased 5.2% in fiscal 2018. The increase in comparable sales reflected a number of
factors, including the execution of our strategic efforts to drive an enhanced interconnected experience in both the
physical and digital worlds. All of our merchandising departments posted positive comparable sales in fiscal 2018
except for Lighting, which was negative primarily due to LED price deflation. For fiscal 2018, comparable sales for
our Appliances, Tools, Electrical, Décor, Plumbing, Lumber, and Indoor Garden merchandising departments were
above the Company average. Our comparable average ticket increased 4.2% in fiscal 2018 while comparable
customer transactions increased 1.0% during fiscal 2018. The increase in comparable average ticket was due in
large part to strong sales in big ticket purchases in certain categories, such as appliances and vinyl plank flooring.
Gross Profit. Gross profit increased $2.8 billion, or 8.2%, to $37.2 billion in fiscal 2018. Gross profit as a percent of
net sales, or gross profit margin, was 34.3% in fiscal 2018 compared to 34.0% in fiscal 2017. The increase in gross
profit margin for fiscal 2018 was primarily driven by a $598 million benefit from the adoption of ASU No. 2014-09
and a benefit from mix of products sold, partially offset by higher transportation and fuel costs in our supply chain
and shrink. The additional week in fiscal 2018 contributed $615 million to gross profit.
Operating Expenses. Our operating expenses are composed of SG&A, depreciation and amortization, and
impairment loss.
Selling, General & Administrative. SG&A increased $1.6 billion, or 9.2%, to $19.5 billion in fiscal 2018. As a percent
of net sales, SG&A was 18.0% for fiscal 2018 compared to 17.7% for fiscal 2017. The increase in SG&A as a
percent of net sales for fiscal 2018 reflected an increase of $598 million from the adoption of ASU No. 2014-09 and
$544 million of incremental investments made in the business, partially offset by expense leverage resulting from
the positive sales environment and continued expense control. The additional week in fiscal 2018 contributed $301
million to SG&A.
Depreciation and Amortization. Depreciation and amortization increased $59 million, or 3.3%, in fiscal 2018. As a
percent of net sales, depreciation and amortization was 1.7% for fiscal 2018 compared to 1.8% in fiscal 2017. The
decrease in depreciation and amortization as a percent of net sales reflected expense leverage resulting from the
positive sales environment and the timing of asset additions, partially offset by $136 million of incremental
depreciation stemming from investments in the business. The additional week in fiscal 2018 did not result in
incremental expense because we recognize depreciation and amortization expense on a monthly basis.
Impairment Loss. We recognized a $247 million impairment loss in fiscal 2018 related to certain trade names
associated with Interline. See Note 1 to our consolidated financial statements for more information.
Interest and Other, net. Interest and other, net, was $974 million for fiscal 2018 compared to $983 million for
fiscal 2017. Interest and other, net, as a percent of net sales decreased to 0.9% in fiscal 2018 from 1.0% in
fiscal 2017, primarily reflecting sales leverage resulting from the positive sales environment, decreased tax reserves
due to certain positive audit settlements, and higher interest income, partially offset by higher interest expense on
long-term debt balances in fiscal 2018 and a loss on the sale of a non-strategic asset.
Provision for Income Taxes. Our combined effective income tax rate was 23.6% for fiscal 2018 compared to
37.0% for fiscal 2017. The decrease in the provision for income taxes in fiscal 2018 primarily reflected the
enactment of the Tax Act and adjustments to the provisional tax charge recorded in the fourth quarter of fiscal 2017
as well as certain positive audit settlements. See Note 5 to our consolidated financial statements for further
discussion.
Diluted Earnings per Share. Diluted earnings per share were $9.73 for fiscal 2018 compared to $7.29 for
fiscal 2017. Diluted earnings per share for fiscal 2018 reflected a benefit of $1.48 per share resulting from the
enactment of the Tax Act, a benefit of $0.21 per share for the 53 rd week, and a decrease of $0.16 per share due to
the impairment loss.
Diluted earnings per share for fiscal 2017 included a benefit of $0.09 per share as a result of the adoption of ASU
No. 2016-09, which requires that we recognize tax benefits or deficiencies related to share-based payment awards
in the provision for income taxes. Diluted earnings per share for fiscal 2017 also reflected decreases of $0.11 per
share due to the net tax charge recorded in connection with the enactment of the Tax Act and $0.06 per share due
to the one-time bonus payment to hourly associates made as a result of the Tax Act.
$13.0
$12.0 $12.4
$9.8
(in billions)
$8.9
$7.9
$2.4 $2.2
$1.6
Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our
operating cash flows result primarily from cash received from our customers, offset by cash payments we make for
products and services, employee compensation, operations and occupancy costs. Cash provided by or used in
operating activities is also subject to changes in working capital. Working capital at any specific point in time is
subject to many variables, including seasonality, inventory management and category expansion, the timing of cash
receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.
Net cash provided by operating activities increased $1.0 billion in fiscal 2018 and increased $2.2 billion in fiscal
2017. The increase in fiscal 2018 primarily reflected an increase in net earnings, partially offset by net cash outflows
associated with changes in working capital. The increase in net earnings during fiscal 2018 was primarily due to a
lower effective income tax rate in fiscal 2018 resulting from the enactment of the Tax Act and higher comparable
sales. The increase in fiscal 2017 primarily reflected an increase in net earnings and net cash inflows associated
with changes in working capital. The increase in earnings in fiscal 2017 resulted from higher comparable sales and
expense leverage.
Investing Activities. Cash used in investing activities primarily reflected:
• $2.4 billion of capital expenditures for investments in our business in fiscal 2018;
• $1.9 billion of capital expenditures for investments in our business and $374 million cash paid in connection
with the acquisitions of Compact Power Equipment, Inc. and The Company Store in fiscal 2017; and
• $1.6 billion of capital expenditures for investments in our business in fiscal 2016.
Financing Activities. Cash used in financing activities primarily reflected:
• $10.0 billion of share repurchases and $4.7 billion of cash dividends paid, partially offset by $2.0 billion of
net proceeds from short- and long-term debt in fiscal 2018;
• $8.0 billion of share repurchases and $4.2 billion of cash dividends paid, partially offset by $3.3 billion of net
proceeds from short- and long-term debt in fiscal 2017; and
• $6.9 billion of share repurchases and $3.4 billion of cash dividends paid, partially offset by $2.3 billion of net
proceeds from short- and long-term debt in fiscal 2016.
Contractual Obligations
Our significant contractual obligations at February 3, 2019 were as follows:
Payments Due by Period
Less than 1 to 3 to More Than
in millions Total 1 Year 3 Years 5 Years 5 Years
Short-term debt $ 1,339 $ 1,339 $ — $ — $ —
Long-term debt – principal payments (1) 27,100 1,000 4,100 3,250 18,750
Long-term debt – interest payments (2) 16,768 1,022 1,913 1,664 12,169
Capital lease obligations (3) 1,709 150 310 279 970
Operating lease obligations 7,036 976 1,704 1,266 3,090
Purchase obligations (4) 1,601 1,080 302 182 37
Unrecognized tax benefits (5) 65 65 — — —
Total $ 55,618 $ 5,632 $ 8,329 $ 6,641 $ 35,016
—————
(1) Excludes capital lease obligations.
(2) Interest payments are calculated at current interest rates, including the impact of active interest rate swaps.
(3) Includes $660 million of imputed interest.
(4) Purchase obligations include all legally binding contracts such as firm commitments for inventory purchases, utility
purchases, capital expenditures, software acquisitions and license commitments, and legally binding service
contracts. Purchase orders that are not binding agreements are excluded from the table above.
(5) Excludes $429 million of noncurrent unrecognized tax benefits due to uncertainty regarding the timing of future cash
tax payments.
Additional Information
For information on accounting pronouncements that have impacted or are expected to materially impact our
financial condition, results of operations, or cash flows, see Note 1 to our consolidated financial statements.
Table of Contents
Report of Independent Registered Public Accounting Firm 30
Consolidated Balance Sheets 31
Consolidated Statements of Earnings 32
Consolidated Statements of Comprehensive Income 33
Consolidated Statements of Stockholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 36
Note 1. Summary of Significant Accounting Policies 36
Note 2. Net Sales and Segment Reporting 43
Note 3. Property and Leases 45
Note 4. Debt and Derivative Instruments 46
Note 5. Income Taxes 49
Note 6. Stockholders' Equity 53
Note 7. Fair Value Measurements 53
Note 8. Stock-Based Compensation 54
Note 9. Employee Benefit Plans 57
Note 10. Weighted Average Common Shares 57
Note 11. Commitments and Contingencies 57
Note 12. Quarterly Financial Data (Unaudited) 58
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors
The Home Depot, Inc.:
Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,782 at
February 3, 2019 and 1,780 shares at January 28, 2018; outstanding: 1,105
shares at February 3, 2019 and 1,158 shares at January 28, 2018 89 89
Paid-in capital 10,578 10,192
Retained earnings 46,423 39,935
Accumulated other comprehensive loss (772) (566)
Treasury stock, at cost, 677 shares at February 3, 2019 and 622 shares at January
28, 2018 (58,196) (48,196)
Total stockholders’ (deficit) equity (1,878) 1,454
Total liabilities and stockholders’ equity $ 44,003 $ 44,529
—————
See accompanying notes to consolidated financial statements.
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal Fiscal Fiscal
in millions, except per share data 2018 2017 2016
Net sales $ 108,203 $ 100,904 $ 94,595
Cost of sales 71,043 66,548 62,282
Gross profit 37,160 34,356 32,313
Operating expenses:
Selling, general and administrative 19,513 17,864 17,132
Depreciation and amortization 1,870 1,811 1,754
Impairment loss 247 — —
Total operating expenses 21,630 19,675 18,886
Operating income 15,530 14,681 13,427
Interest and other (income) expense:
Interest and investment income (93) (74) (36)
Interest expense 1,051 1,057 972
Other 16 — —
Interest and other, net 974 983 936
Earnings before provision for income taxes 14,556 13,698 12,491
Provision for income taxes 3,435 5,068 4,534
Net earnings $ 11,121 $ 8,630 $ 7,957
Paid-in Capital:
Balance at beginning of year 10,192 9,787 9,347
Shares issued under employee stock plans 104 132 76
Tax effect of stock-based compensation — — 97
Stock-based compensation expense 282 273 267
Balance at end of year 10,578 10,192 9,787
Retained Earnings:
Balance at beginning of year 39,935 35,519 30,973
Cumulative effect of accounting change 75 — —
Net earnings 11,121 8,630 7,957
Cash dividends (4,704) (4,212) (3,404)
Other (4) (2) (7)
Balance at end of year 46,423 39,935 35,519
Treasury Stock:
Balance at beginning of year (48,196) (40,194) (33,194)
Repurchases of common stock (10,000) (8,002) (7,000)
Balance at end of year (58,196) (48,196) (40,194)
Total stockholders' (deficit) equity $ (1,878) $ 1,454 $ 4,333
—————
Fiscal 2018 includes 53 weeks. Fiscal 2017 and fiscal 2016 include 52 weeks.
See accompanying notes to consolidated financial statements.
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Cash Flows from Operating Activities:
Net earnings $ 11,121 $ 8,630 $ 7,957
Reconciliation of net earnings to net cash provided by operating
activities:
Depreciation and amortization 2,152 2,062 1,973
Stock-based compensation expense 282 273 267
Impairment loss 247 — —
Changes in receivables, net 33 139 (138)
Changes in merchandise inventories (1,244) (84) (769)
Changes in other current assets (257) (10) (48)
Changes in accounts payable and accrued expenses 743 352 446
Changes in deferred revenue 80 128 99
Changes in income taxes payable (42) 29 109
Changes in deferred income taxes 26 92 (117)
Other operating activities (103) 420 4
Net cash provided by operating activities 13,038 12,031 9,783
Supplemental Disclosures:
Cash paid for income taxes $ 3,774 $ 4,732 $ 4,623
Cash paid for interest, net of interest capitalized 1,035 991 924
Non-cash capital expenditures 248 150 179
—————
Fiscal 2018 includes 53 weeks. Fiscal 2017 and fiscal 2016 include 52
weeks.
See accompanying notes to consolidated financial statements.
THE HOME DEPOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Home Depot, Inc., together with its subsidiaries (the "Company," "Home Depot," "we," "our" or "us"), is a home
improvement retailer that sells a wide assortment of building materials, home improvement products, lawn and
garden products, and décor items and provides a number of services, in stores and online. We operate in the U.S.
(including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and
Mexico.
Consolidation and Presentation
Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All
significant intercompany transactions have been eliminated in consolidation. Certain amounts in prior fiscal years
have been reclassified to conform with the presentation adopted in the current fiscal year. Our fiscal year is a 52- or
53-week period ending on the Sunday nearest to January 31. Fiscal 2018 includes 53 weeks compared to fiscal
2017 and fiscal 2016, both of which include 52 weeks.
Use of Estimates
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these
financial statements in conformity with GAAP. Actual results could differ from these estimates.
Cash Equivalents
We consider all highly liquid investments purchased with original maturities of three months or less to be cash
equivalents. Our cash equivalents are carried at fair market value and consist primarily of money market funds.
Receivables
The components of receivables, net, follow.
February 3, January 28,
in millions 2019 2018
Card receivables $ 696 $ 734
Rebate receivables 660 609
Customer receivables 284 261
Other receivables 296 348
Receivables, net $ 1,936 $ 1,952
Card receivables consist of payments due from financial institutions for the settlement of credit card and debit card
transactions. Rebate receivables represent amounts due from vendors for volume and co-op advertising rebates.
Receivables due from customers relate to credit extended directly to certain customers in the ordinary course of
business. The valuation reserve related to accounts receivable was not material to our consolidated financial
statements at the end of fiscal 2018 or fiscal 2017.
Merchandise Inventories
The majority of our merchandise inventories are stated at the lower of cost (first-in, first-out) or market, as
determined by the retail inventory method. As the inventory retail value is adjusted regularly to reflect market
conditions, the inventory valued using the retail method approximates the lower of cost or market. Certain
subsidiaries, including retail operations in Canada and Mexico, and distribution centers, record merchandise
inventories at the lower of cost or net realizable value, as determined by a cost method. These merchandise
inventories represent approximately 29% of the total merchandise inventories balance. We evaluate the inventory
valued using a cost method at the end of each quarter to ensure that it is carried at the lower of cost or net
realizable value. The valuation allowance for merchandise inventories valued under a cost method was not material
to our consolidated financial statements at the end of fiscal 2018 or fiscal 2017.
Independent physical inventory counts or cycle counts are taken on a regular basis in each store and distribution
center to ensure that amounts reflected in merchandise inventories are properly stated. Shrink (or in the case of
excess inventory, "swell") is the difference between the recorded amount of inventory and the physical inventory.
We calculate shrink based on actual inventory losses occurring as a result of physical inventory counts during each
fiscal period and estimated inventory losses occurring between physical inventory counts. The estimate for shrink
occurring in the interim period between physical inventory counts is calculated on a store-specific basis based on
recent shrink results and current trends in the business.
Property and Equipment, including Capitalized Lease Assets
Buildings, furniture, fixtures, and equipment are recorded at cost and depreciated using the straight-line method
over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over the
original term of the lease or the useful life of the improvement, whichever is shorter. The estimated useful lives of
our property and equipment follow.
Life
Buildings5 – 45 years
Furniture, fixtures and equipment 2 – 20 years
Leasehold improvements 5 – 45 years
We capitalize certain costs related to the acquisition and development of software and amortize these costs using
the straight-line method over the estimated useful life of the software, which is three to six years. Certain
development costs not meeting the criteria for capitalization are expensed as incurred.
We evaluate our long-lived assets each quarter for indicators of potential impairment. Indicators of impairment
include current period losses combined with a history of losses, our decision to relocate or close a store or other
location before the end of its previously estimated useful life, or when changes in other circumstances indicate the
carrying amount of an asset may not be recoverable. The evaluation for long-lived assets is performed at the lowest
level of identifiable cash flows, which is generally the individual store level. The assets of a store with indicators of
impairment are evaluated for recoverability by comparing its undiscounted future cash flows with its carrying value.
If the carrying value is greater than the undiscounted future cash flows, we then measure the asset’s fair value to
determine whether an impairment loss should be recognized. If the resulting fair value is less than the carrying
value, an impairment loss is recognized for the difference between the carrying value and the estimated fair value.
Impairment losses on property and equipment are recorded as a component of SG&A. When a leased location
closes, we also recognize, in SG&A, the net present value of future lease obligations less estimated sublease
income. Impairments and lease obligation costs on closings and relocations were not material to our consolidated
financial statements in fiscal 2018, fiscal 2017, or fiscal 2016.
Leases
We categorize leases at their inception as either operating or capital leases. Lease agreements include certain retail
locations, office space, warehouse and distribution space, equipment, and vehicles. Most of these leases are
operating leases. However, certain retail locations and equipment are leased under capital leases. Short-term and
long-term obligations for capital leases are included in the applicable long-term debt category based on maturity.
We expense rent related to operating leases on a straight-line basis over the lease term, which commences on the
date we have the right to control the property. The cumulative expense recognized on a straight-line basis in excess
of the cumulative payments is included in other accrued expenses and other long-term liabilities. Total rent expense
for fiscal 2018, fiscal 2017, and fiscal 2016 is net of an immaterial amount of sublease income.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net assets acquired. We do not amortize
goodwill, but assess the recoverability of goodwill in the third quarter of each fiscal year, or more often if indicators
warrant, by determining whether the fair value of each reporting unit supports its carrying value. Each fiscal year, we
may assess qualitative factors to determine whether it is more likely than not that the fair value of each reporting
unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative
impairment assessments, with a quantitative assessment completed at least once every three years. We completed
our last quantitative assessment in fiscal 2016.
In fiscal 2018, we completed our annual assessment of the recoverability of goodwill for the U.S., Canada, and
Mexico reporting units. We performed qualitative assessments, concluding that the fair value of the reporting units
substantially exceeded the respective reporting unit's carrying value, including goodwill. As a result, there were no
impairment charges related to goodwill for fiscal 2018, fiscal 2017, or fiscal 2016.
Changes in the carrying amount of our goodwill follow.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Goodwill, balance at beginning of year $ 2,275 $ 2,093 $ 2,102
(1)
Acquisitions 4 164 —
Disposition (15) — —
Other (2) (12) 18 (9)
Goodwill, balance at end of year $ 2,252 $ 2,275 $ 2,093
—————
(1) Includes purchase price allocation adjustments.
(2) Primarily reflects the impact of foreign currency translation.
Advertising Expense
Television and radio advertising production costs, along with media placement costs, are expensed when the
advertisement first appears. Certain co-op advertising allowances are recorded as an offset against advertising
expense. Gross advertising expense included in SG&A follows.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Gross advertising expense $ 1,156 $ 995 $ 955
Stock-Based Compensation
We are currently authorized to issue incentive and nonqualified stock options, stock appreciation rights, restricted
stock, restricted stock units, performance shares, performance units, and deferred shares to certain of our
associates, officers, and directors under certain stock incentive plans. We measure and recognize compensation
expense for all share-based payment awards made to associates and directors based on estimated fair values. The
value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation
expense over the requisite service period or as restrictions lapse. Additional information on our stock-based
payment awards is included in Note 8.
Income Taxes
Income taxes are accounted for under the asset and liability method. We provide for federal, state, and foreign
income taxes currently payable, as well as for those deferred due to timing differences between reporting income
and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted income tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is
recognized as income or expense in the period that includes the enactment date.
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs.
We file a consolidated U.S. federal income tax return which includes certain eligible subsidiaries. Non-U.S.
subsidiaries and certain U.S. subsidiaries, which are consolidated for financial reporting purposes, are not eligible to
be included in our consolidated U.S. federal income tax return. Separate provisions for income taxes have been
determined for these entities. For unremitted earnings of our non-U.S. subsidiaries, we are required to make an
assertion regarding reinvestment or repatriation for tax purposes. For any earnings that we do not make a
permanent reinvestment assertion, we recognize a provision for deferred income taxes. For earnings where we
have made a permanent reinvestment assertion, no provision is recognized. See Note 5 for further discussion.
Comprehensive Income
Comprehensive income includes net earnings adjusted for certain gains and losses that are excluded from net
earnings under GAAP, which consists primarily of foreign currency translation adjustments.
Foreign Currency Translation
Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of
exchange on the last day of the reporting period. Revenues and expenses are translated using average exchange
rates for the period and equity transactions are translated using the actual rate on the day of the transaction.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s financial statement
presentation. See "Recently Adopted Accounting Pronouncements" below for a discussion of our adoption of new
accounting standards.
Recently Adopted Accounting Pronouncements
ASU No. 2016-16. In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity
Transfers of Assets Other Than Inventory," which requires an entity to recognize the income tax consequences of
an intercompany transfer of assets other than inventory when the transfer occurs. An entity will continue to
recognize the income tax consequences of an intercompany transfer of inventory when the inventory is sold to a
third party.
On January 29, 2018, we adopted ASU No. 2016-16 using the modified retrospective transition method with no
impact on our consolidated financial statements. We expect the impact of the adoption to be immaterial to our
financial position, results of operations, and cash flows on an ongoing basis.
ASU No. 2014-09. In May 2014, the FASB issued a new standard related to revenue recognition. Under ASU
No. 2014-09, "Revenue from Contracts with Customers (Topic 606)," revenue is recognized when a customer
obtains control of promised goods or services in an amount that reflects the consideration the entity expects to
receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount,
timing, and uncertainty of revenue and cash flows arising from contracts with customers. On January 29, 2018, we
adopted ASU No. 2014-09 using the modified retrospective transition method.
In preparation for implementation of the standard, we finalized key accounting assessments and then implemented
internal controls and updated processes to appropriately recognize and present the associated financial information.
Based on these efforts, we determined that the adoption of ASU No. 2014-09 changes the presentation of (i) certain
expenses and cost reimbursements associated with our PLCC program (now recognized in net sales), (ii) certain
expenses related to the sale of gift cards to customers (now recognized in operating expense), and (iii) gift card
breakage income (now recognized in net sales). We also have changed our recognition of gift card breakage
income to be recognized proportionately as redemption occurs, rather than based on historical redemption patterns.
In addition, the adoption of ASU No. 2014-09 requires that we recognize our sales return allowance on a gross
basis rather than as a net liability. As such, we now recognize (i) a return asset for the right to recover the goods
returned by the customer, measured at the former carrying amount of the goods, less any expected recovery costs
(recorded as an increase to other current assets) and (ii) a return liability for the amount of expected returns
(recorded as an increase to other accrued expenses and a decrease to receivables, net).
We applied ASU No. 2014-09 only to contracts that were not completed prior to fiscal 2018. The cumulative effect of
initially applying ASU No. 2014-09 was a $99 million reduction to deferred revenue, a $24 million increase to
deferred income taxes (included in other long-term liabilities), and a $75 million increase to the opening balance of
retained earnings as of January 29, 2018. The comparative prior period information continues to be reported under
the accounting standards in effect during those periods. We expect the impact of the adoption to be immaterial to
our financial position, results of operations, and cash flows on an ongoing basis.
Excluding the effect of the opening balance sheet adjustment noted above, the impact of the adoption of ASU No.
2014-09 on our consolidated balance sheet as of February 3, 2019 follows.
Excluding
ASU No. ASU No.
As 2014-09 2014-09
in millions Reported Impact Impact
Receivables, net $ 1,936 $ (40) $ 1,976
Other current assets 890 256 634
Other accrued expenses 2,611 216 2,395
The impact of the adoption of ASU No. 2014-09 on our consolidated statements of earnings for fiscal 2018 follows.
Excluding
ASU No. ASU No.
As 2014-09 2014-09
in millions Reported Impact Impact
Net sales $ 108,203 $ 216 $ 107,987
Cost of sales 71,043 (382) 71,425
Gross profit 37,160 598 36,562
Selling, general and administrative 19,513 598 18,915
No sales to an individual customer accounted for more than 10% of revenue during any of the last three fiscal
years. Net sales, classified by geography, follow.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Net sales – in the U.S. $ 99,386 $ 92,413 $ 86,615
Net sales – outside the U.S. 8,817 8,491 7,980
Net sales $ 108,203 $ 100,904 $ 94,595
Net sales by products and services follow.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Net sales – products $ 102,933 $ 95,956 $ 90,028
Net sales – services 5,270 4,948 4,567
Net sales $ 108,203 $ 100,904 $ 94,595
Major product lines and the related merchandising departments (and related services) follow.
Major Product Line Merchandising Departments
Building MaterialsBuilding Materials, Electrical, Lighting, Lumber, Millwork, and Plumbing
Décor Appliances, Décor, Flooring, Kitchen and Bath, and Paint
Hardlines Hardware, Indoor Garden, Outdoor Garden, and Tools
Depreciation and capital lease amortization expense, including depreciation expense included in cost of sales,
follows.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Depreciation and capital lease amortization expense $ 2,076 $ 1,983 $ 1,899
Leases
We lease certain retail locations, office space, warehouse and distribution space, equipment, and vehicles. While
most of the leases are operating leases, certain locations and equipment are leased under capital leases. As leases
approach maturity, we consider various factors such as market conditions and the terms of any renewal options that
may exist to determine whether we will renew or replace the lease. Short-term and long-term obligations for capital
leases are included in the applicable long-term debt category based on maturity.
Assets under capital leases (net of accumulated amortization) recorded in net property and equipment follow.
February 3, January 28,
in millions 2019 2018
Capital leases, net$856$821
Certain lease agreements include escalating rents over the lease terms. Real estate taxes, insurance, maintenance,
and operating expenses applicable to the leased property are our obligations under the lease agreements.
Our total rent expense related to operating leases follows.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Total rent expense $ 1,091 $ 1,053 $ 984
The approximate future minimum lease payments under capital and operating leases at February 3, 2019 follow.
Operating Capital
in millions Leases Leases
Fiscal 2019 $ 976 $ 150
Fiscal 2020 912 167
Fiscal 2021 792 143
Fiscal 2022 682 142
Fiscal 2023 584 137
Thereafter 3,090 970
$ 7,036 1,709
Less imputed interest 660
Net present value of capital lease obligations 1,049
Less current installments 57
Long-term capital lease obligations, excluding current installments $ 992
Carrying Amount
Interest Principal February 3, January 28,
in millions Payable Amount 2019 2018
2.25% Senior notes due September 2018 Semi-annually $ — $ — $ 1,150
2.00% Senior notes due June 2019 Semi-annually 1,000 999 998
Floating rate senior notes due June 2020 Quarterly 500 499 499
1.80% Senior notes due June 2020 Semi-annually 750 749 748
3.95% Senior notes due September 2020 Semi-annually 500 499 501
4.40% Senior notes due April 2021 Semi-annually 1,000 999 998
2.00% Senior notes due April 2021 Semi-annually 1,350 1,345 1,343
Floating rate senior notes due March 2022 Quarterly 300 299 —
3.25% Senior notes due March 2022 Semi-annually 700 696 —
2.625% Senior notes due June 2022 Semi-annually 1,250 1,245 1,243
2.70% Senior notes due April 2023 Semi-annually 1,000 997 996
3.75% Senior notes due February 2024 Semi-annually 1,100 1,094 1,093
3.35% Senior notes due September 2025 Semi-annually 1,000 995 995
3.00% Senior notes due April 2026 Semi-annually 1,300 1,288 1,287
2.125% Senior notes due September 2026 Semi-annually 1,000 987 986
2.80% Senior notes due September 2027 Semi-annually 1,000 981 980
3.90% Senior notes due December 2028 Semi-annually 1,000 1,005 —
5.875% Senior notes due December 2036 Semi-annually 3,000 2,951 2,949
5.40% Senior notes due September 2040 Semi-annually 500 495 495
5.95% Senior notes due April 2041 Semi-annually 1,000 989 988
4.20% Senior notes due April 2043 Semi-annually 1,000 989 988
4.875% Senior notes due February 2044 Semi-annually 1,000 979 978
4.40% Senior notes due March 2045 Semi-annually 1,000 977 977
4.25% Senior notes due April 2046 Semi-annually 1,600 1,585 1,584
3.90% Senior notes due June 2047 Semi-annually 750 738 738
4.50% Senior notes due December 2048 Semi-annually 1,500 1,462 —
3.50% Senior notes due September 2056 Semi-annually 1,000 972 971
Total senior notes $ 27,100 26,814 24,485
Capital lease obligations; payable in varying
installments through January 31, 2055 1,049 984
Total long-term debt 27,863 25,469
Less current installments of long-term debt 1,056 1,202
Long-term debt, excluding current installments $ 26,807 $ 24,267
December 2018 Issuance. In December 2018, we issued four tranches of senior notes.
• The first tranche consisted of $300 million of floating rate senior notes due March 1, 2022 (the "2022
floating rate notes"). The 2022 floating rate notes bear interest at a variable rate determined quarterly equal
to the three-month LIBOR plus 31 basis points. Interest on the 2022 floating rate notes is due quarterly on
March 1, June 1, September 1, and December 1 of each year, beginning March 1, 2019.
• The second tranche consisted of $700 million of 3.25% senior notes due March 1, 2022 (the "2022 notes")
at a discount of $2 million. Interest on the 2022 notes is due semi-annually on March 1 and September 1 of
each year, beginning March 1, 2019.
• The third tranche consisted of $1.0 billion of 3.90% senior notes due December 6, 2028 (the"2028 notes")
at a discount of $7 million. Interest on the 2028 notes is due semi-annually on June 6 and December 6 of
each year, beginning June 6, 2019.
• The fourth tranche consisted of $1.5 billion of 4.50% senior notes due December 6, 2048 (the "2048 notes")
at a discount of $25 million (together with the 2022 floating rate notes, the 2022 notes and the 2028 notes,
the "December 2018 issuance"). Interest on the 2048 notes is due semi-annually on June 6 and December
6 of each year, beginning June 6, 2019.
• Issuance costs totaled $22 million. The net proceeds of the December 2018 issuance will be used for
general corporate purposes, including repurchases of common stock.
September 2017 Issuance. In September 2017, we issued a single tranche of senior notes.
• The tranche consisted of $1.0 billion of 2.80% senior notes due September 14, 2027 (the "2027 notes" and
the "September 2017 issuance") at a discount of $3 million. Interest on the 2027 notes is due semi-annually
on March 14 and September 14 of each year, beginning March 14, 2018.
• Issuance costs totaled $6 million. The net proceeds of the September 2017 issuance were used to repay
our floating rate notes due September 15, 2017, and for general corporate purposes, including repurchases
of our common stock.
June 2017 Issuance. In June 2017, we issued three tranches of senior notes.
• The first tranche consisted of $500 million of floating rate senior notes due June 5, 2020 (the "2020 floating
rate notes"). The 2020 floating rate notes bear interest at a variable rate determined quarterly equal to the
three-month LIBOR plus 15 basis points. Interest on the 2020 floating rate notes is due quarterly on March
5, June 5, September 5, and December 5 of each year, beginning September 5, 2017.
• The second tranche consisted of $750 million of 1.80% senior notes due June 5, 2020 (the "2020 notes") at
a discount of $1 million. Interest on the 2020 notes is due semi-annually on June 5 and December 5 of each
year, beginning December 5, 2017.
• The third tranche consisted of $750 million of 3.90% senior notes due June 15, 2047 (the "2047 notes") at a
discount of $5 million (together with the 2020 floating rate notes and the 2020 notes, the "June 2017
issuance"). Interest on the 2047 notes is due semi-annually on June 15 and December 15 of each year,
beginning December 15, 2017.
• Issuance costs totaled $12 million. The net proceeds of the June 2017 issuance were used for general
corporate purposes, including repurchases of our common stock.
Redemption. All of our senior notes, other than our outstanding floating rate notes, may be redeemed by us at any
time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. With respect to the
2020 notes and the 2022 notes, the redemption price is equal to the greater of (1) 100% of the principal amount of
the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal
and interest on the notes to be redeemed that would be due after the related redemption date. With respect to all
other notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be
redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the
Par Call Date, as defined in the respective notes. Additionally, if a Change in Control Triggering Event occurs, as
defined in the notes, holders of all notes have the right to require us to redeem those notes at 101% of the
aggregate principal amount of the notes plus accrued interest up to the redemption date. We are generally not
limited under the indentures governing the notes in our ability to incur additional indebtedness or required to
maintain financial ratios or specified levels of net worth or liquidity. The indentures governing the notes contain
various customary covenants; however, none are expected to impact our liquidity or capital resources.
Maturities of Long-Term Debt. Our long-term debt maturities, excluding capital leases, follow.
in millions Principal
Fiscal 2019 $ 1,000
Fiscal 2020 1,750
Fiscal 2021 2,350
Fiscal 2022 2,250
Fiscal 2023 1,000
Thereafter 18,750
Derivative Instruments
We had outstanding cross currency swap agreements with a combined notional amount of $326 million at
February 3, 2019 and $626 million at January 28, 2018, accounted for as cash flow hedges, to hedge foreign
currency fluctuations on certain intercompany debt. The approximate fair values of these agreements were assets
of $121 million at February 3, 2019 and $233 million at January 28, 2018, which were the estimated amounts we
would have received to settle the agreements and were included in other assets.
We had outstanding interest rate swap agreements with combined notional amounts of $1.3 billion at both
February 3, 2019 and January 28, 2018. These agreements were accounted for as fair value hedges that swap
fixed for variable rate interest to hedge changes in the fair values of certain senior notes. The fair values of these
agreements were not material at February 3, 2019 and January 28, 2018.
We had outstanding foreign currency forward contracts with a combined notional amount of $16 million at
February 3, 2019. These agreements were accounted for as cash flow hedges that hedge the variability of
forecasted cash flow associated with certain payments made in our foreign operations. At January 28, 2018, we had
outstanding foreign currency forward contracts with a combined notional amount of $300 million. These agreements
were accounted for as net investment hedges that hedge against foreign currency exposure on our net investment
in certain subsidiaries and were all settled during fiscal 2018. At February 3, 2019 and January 28, 2018, the fair
values of these agreements were not material.
5. INCOME TAXES
Tax Reform
On December 22, 2017, the U.S. enacted comprehensive tax legislation with the Tax Act, making broad and
complex changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21%, transitioning to a
modified territorial system, and providing for current expensing of certain qualifying capital expenditures. Also in
December 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of GAAP
in situations when a registrant does not have the necessary information available, prepared, or analyzed (including
computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As
disclosed in our 2017 Form 10-K, we were able to reasonably estimate certain effects and, therefore, recorded a
total provisional charge of $127 million. The provisional charge included (i) a charge for the deemed repatriation of
historical earnings of foreign subsidiaries, (ii) a provisional benefit for the remeasurement of deferred tax assets and
liabilities, and (iii) an estimated benefit due to a lower U.S. statutory tax rate. As of February 3, 2019, we have
completed our accounting for all of the enactment-date income tax effects of the Tax Act. During fiscal 2018, we
adjusted the provisional charge by a net benefit of $85 million, for a final tax charge of $42 million. These
adjustments were made upon our further analysis of certain aspects of the Tax Act, refinement of our calculations,
and the issuance of guidance by the U.S. Department of the Treasury. The components of the provisional charge
recognized in fiscal 2017 and the adjustments made during fiscal 2018 follow.
Deferred Tax
Deemed Remeasure- Statutory Tax
in millions Repatriation ment Rate Impact Total
Provisional tax charge (benefit) - recognized in fiscal 2017$
400$ (147) $ (126) $ 127
Tax charge (benefit) adjustment - finalized in fiscal
2018 (62) (22) (1) (85)
Total tax charge (benefit) $ 338 $ (169) $ (127) $ 42
We have elected to pay our transition tax over the eight-year period provided in the Tax Act. As of February 3, 2019,
the remaining balance of our transition tax obligation was $14 million, after required application of overpayments.
The Tax Act also created a new requirement that certain income (referred to as global intangible low-taxed income
or “GILTI”) earned by controlled foreign corporations, or CFCs, must be included currently in the gross income of the
CFCs’ U.S. shareholder. Due to the complexity of the new GILTI tax rules, we recorded no GILTI related deferred
taxes as of January 28, 2018. After further considerations in fiscal 2018, we have elected to account for GILTI in the
period the tax is incurred.
We expect additional regulatory guidance and technical clarifications from the U.S. Department of the Treasury and
IRS within the next 12 months. Any subsequent adjustment to these amounts will be recorded to the provision for
income taxes in the period in which the guidance is issued or finalized.
Provision for Income Taxes
Our earnings before the provision for income taxes follow.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
U.S. $ 13,456 $ 12,682 $ 11,568
Foreign 1,100 1,016 923
Total $ 14,556 $ 13,698 $ 12,491
Our combined federal, state, and foreign effective tax rates follow.
Fiscal Fiscal Fiscal
2018 2017 2016
Combined federal, state, and foreign effective tax rates 23.6% 37.0% 36.3%
The reconciliation of our provision for income taxes at the federal statutory rates of 21% for fiscal 2018,
approximately 34% for fiscal 2017, and 35% for fiscal 2016 to the actual tax expense follows.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Income taxes at federal statutory rate $ 3,057 $ 4,648 $ 4,372
State income taxes, net of federal income tax benefit 443 369 309
Tax on mandatory deemed repatriation (62) 400 —
Other, net (3) (349) (147)
Total $ 3,435 $ 5,068 $ 4,534
Deferred Taxes
The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred
tax liabilities follow.
February 3, January 28,
in millions 2019 2018
Assets:
Deferred compensation $ 183 $ 185
Accrued self-insurance liabilities 298 295
State income taxes 96 109
Non-deductible reserves 231 220
Net operating losses 17 19
Other 116 124
Total deferred tax assets 941 952
Valuation allowance — —
Total deferred tax assets after valuation allowance 941 952
Liabilities:
Merchandise inventories (9) (9)
Property and equipment (893) (770)
Goodwill and other intangibles (179) (243)
Other (230) (251)
Total deferred tax liabilities (1,311) (1,273)
Net deferred tax liabilities $ (370) $ (321)
Our noncurrent deferred tax assets and noncurrent deferred tax liabilities, netted by tax jurisdiction, follow.
February 3, January 28,
in millions 2019 2018
Other assets $ 121 $ 119
Deferred income taxes (491) (440)
Net deferred tax liabilities $ (370) $ (321)
We believe that the realization of the deferred tax assets is more likely than not, based upon the expectation that we
will generate the necessary taxable income in future periods.
At February 3, 2019, we had federal, state, and foreign net operating loss carryforwards available to reduce future
taxable income, expiring at various dates beginning in 2019 to 2038. We have concluded that it is more likely than
not that the tax benefits related to the federal, state, and foreign net operating losses will be realized.
Reinvestment of Unremitted Earnings
Substantially all of our current year foreign cash flows in excess of working capital and cash needed for strategic
investments are not intended to be indefinitely reinvested offshore. Therefore, the tax effects of repatriation
(including applicable state and local taxes and foreign withholding taxes) of such cash flows have been provided for
in the accompanying consolidated statements of earnings. We intend to reinvest substantially all of the
approximately $3 billion of non-cash unremitted earnings of our non-U.S. subsidiaries indefinitely. Accordingly, no
provision for state and local taxes or foreign withholding taxes was recorded on these unremitted earnings in the
accompanying consolidated statements of earnings. It is impracticable for us to determine the amount of
unrecognized deferred tax liabilities on these indefinitely reinvested earnings due to the complexities associated
with the hypothetical calculation.
Tax Return Examination Status
Our income tax returns are routinely examined by U.S. federal, state and local, and foreign tax authorities. With few
exceptions, as of February 3, 2019, the Company is no longer subject to U.S. federal examinations by tax
authorities for years before fiscal 2010. During fiscal 2018, the Company settled a transfer pricing issue between
the U.S. and Mexican tax authorities. The resolution of this issue reduced our unrecognized tax benefits by $89
million. The net impact of the settlement resulted in an immaterial tax charge in fiscal 2018. Our U.S. federal tax
returns for fiscal years 2010 through 2014 are currently under examination by the IRS. With respect to these years,
the IRS has issued a proposed adjustment relating to transfer pricing between our entities in the U.S. and China.
We intend to defend our position using all available remedies including bi-lateral relief. There are also ongoing U.S.
state and local audits and other foreign audits covering fiscal years 2005 through 2017. We do not expect the
results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results
of operations, or cash flows.
Over the next twelve months, it is reasonably possible that the resolution of federal and state tax examinations
could reduce our unrecognized tax benefits by $65 million. Final settlement of these audit issues may result in
payments that are more or less than this amount, but we do not anticipate the resolution of these matters will result
in a material change to our consolidated financial condition or results of operations.
Unrecognized Tax Benefits
Reconciliations of the beginning and ending amount of our gross unrecognized tax benefits follow.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Unrecognized tax benefits balance at beginning of fiscal year $ 637 $ 659 $ 689
Additions based on tax positions related to the current year 91 74 147
Additions for tax positions of prior years 100 15 14
Reductions for tax positions of prior years (245) (93) (161)
Reductions due to settlements (66) (1) (16)
Reductions due to lapse of statute of limitations (23) (17) (14)
Unrecognized tax benefits balance at end of fiscal year $ 494 $ 637 $ 659
Unrecognized tax benefits that if recognized would affect our annual effective income tax rate on net earnings were
$398 million at February 3, 2019; $483 million at January 28, 2018; and $382 million at January 29, 2017.
Interest and Penalties
Net adjustments to accruals for interest and penalties associated with uncertain tax positions resulted in a benefit of
$33 million in fiscal 2018, and expenses of $24 million in fiscal 2017 and $20 million in fiscal 2016. Interest and
penalties are included in interest expense and SG&A, respectively.
Our total accrued interest and penalties follow.
Accelerated Share Repurchase Agreements. We enter into ASR agreements from time to time with third-party
financial institutions to repurchase shares of our common stock. Under an ASR agreement, we pay a specified
amount to the financial institution and receive an initial delivery of shares. This initial delivery of shares represents
the minimum number of shares that we may receive under the agreement. Upon settlement of the ASR agreement,
the financial institution delivers additional shares, with the final number of shares delivered determined with
reference to the volume weighted average price per share of our common stock over the term of the agreement,
less a negotiated discount. The transactions are accounted for as equity transactions and are included in treasury
stock when the shares are received, at which time there is an immediate reduction in the weighted average
common shares calculation for basic and diluted earnings per share.
The terms of each ASR agreement entered into during the last three fiscal years, structured as outlined above,
follow (in millions).
Agreement Settlement Agreement Initial Additional Total
Date Date Amount Shares Delivered Shares Delivered Shares Delivered
Q2 2017 Q2 2017 $ 1,650 9.7 1.1 10.8
Q3 2017 Q4 2017 1,200 6.7 0.7 7.4
Q1 2018 Q2 2018 750 3.4 0.8 4.2
Q2 2018 Q3 2018 1,600 7.1 1.0 8.1
We use derivative financial instruments from time to time in the management of our interest rate exposure on long-
term debt and our exposure on foreign currency fluctuations. The fair value of our derivative financial instruments
was measured using observable market information (level 2). Our derivative agreements are discussed further in
Note 4.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The carrying amounts of cash and cash equivalents, receivables, short-term debt, and accounts payable
approximate fair value due to the short-term maturities of these financial instruments.
Long-lived assets, goodwill, and other intangible assets were analyzed for impairment on a nonrecurring basis using
fair value measurements with unobservable inputs (level 3).
The aggregate fair values and carrying values of our senior notes follow.
February 3, January 28,
2019 2018
Fair Value Carrying Fair Value Carrying
in millions (Level 1) Value (Level 1) Value
Senior notes $ 28,348 $ 26,814 $ 26,617 $ 24,485
8. STOCK-BASED COMPENSATION
Omnibus Stock Incentive Plans
The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan (the "2005 Plan") and The
Home Depot, Inc. 1997 Omnibus Stock Incentive Plan (the "1997 Plan" and collectively with the 2005 Plan, the
"Plans") provide that incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted
stock units, performance shares, performance units, deferred shares, and other stock-based awards may be issued
to certain of our associates, officers, and non-employee directors. Under the 2005 Plan, the maximum number of
shares of our common stock authorized for issuance is 255 million shares, with any award other than a stock option
or stock appreciation right reducing the number of shares available for issuance by 2.11 shares. At February 3,
2019, there were 127 million shares available for future grants under the 2005 Plan. No additional equity awards
could be issued from the 1997 Plan after the adoption of the 2005 Plan on May 26, 2005.
Stock Options. Under the terms of the Plans, incentive stock options and nonqualified stock options must have an
exercise price at or above the fair market value of our stock on the date of the grant. Typically, nonqualified stock
options vest at the rate of 25% per year commencing on the first or second anniversary date of the grant and expire
on the tenth anniversary date of the grant. Additionally, certain stock options may become non-forfeitable upon the
associate reaching age 60, provided the associate has had five years of continuous service. No incentive stock
options have been issued under the 2005 Plan.
We estimate the fair value of stock option awards on the date of grant using an option-pricing model. We use the
Black-Scholes option pricing model for purposes of valuing stock option awards. Our determination of fair value of
stock option awards on the date of grant using the Black-Scholes option pricing model is affected by our stock price
as well as assumptions regarding a number of subjective variables.
The per share weighted average fair value of stock options granted and the assumptions used in determining fair
value at the date of grant using the Black-Scholes option-pricing model follow.
Fiscal Fiscal Fiscal
2018 2017 2016
Per share weighted average fair value $ 32.28 $ 21.85 $ 20.26
Risk-free interest rate 2.7% 1.9% 1.4%
Assumed volatility 21.3% 19.4% 20.7%
Assumed dividend yield 2.3% 2.4% 2.1%
Assumed lives of options 5 years 5 years 5 years
A summary of stock option activity by number of shares and weighted average exercise price follows.
Weighted
Number of Average
shares in thousands Shares Exercise Price
Outstanding at January 28, 2018 7,196 $ 82.85
Granted 412 178.67
Exercised (1,072) 59.54
Forfeited (156) 130.78
Outstanding at February 3, 2019 6,380 91.78
Shares of common stock issued from stock option exercises are made available from authorized and unissued
common stock or treasury stock.
Details regarding outstanding and exercisable stock options at the end of fiscal 2018 follow.
Weighted Weighted
shares in thousands, dollars in millions, except for per share Number of Intrinsic Average Average
amounts Shares Value Remaining Life Exercise Price
Outstanding 6,380 $ 591 5 years $ 91.78
Exercisable 3,910 463 4 years 66.04
At February 3, 2019, there were approximately 6 million stock options vested or expected to ultimately vest.
Restricted Stock and Performance Shares. Restrictions on the restricted stock issued under the Plans generally
lapse according to one of the following schedules:
• the restrictions on the restricted stock lapse over various periods up to five years;
• the restrictions on 25% of the restricted stock lapse upon the third and sixth anniversaries of the date of
issuance with the remaining 50% of the restricted stock lapsing upon the associate’s attainment of age 62;
or
• the restrictions on 25% of the restricted stock lapse upon the third and sixth anniversaries of the date of
issuance with the remaining 50% of the restricted stock lapsing upon the earlier of the associate’s
attainment of age 60 or the tenth anniversary of the grant date.
At the grant date of the award, recipients of restricted stock are granted voting rights and generally receive
dividends on unvested shares, paid in the form of cash on each dividend payment date. Additionally, certain
restricted stock awards may become non-forfeitable upon the associate's attainment of age 60, provided the
associate has had five years of continuous service.
We have also granted performance shares under the Plans, the payout of which is dependent on our performance
against target average ROIC and operating profit over a three-year performance cycle. Additionally, certain awards
may become non-forfeitable upon the associate's attainment of age 60, provided the associate has had five years of
continuous service and minimum performance targets are achieved. Recipients of performance shares have no
voting rights until payout of the awards. Dividend equivalents accrue on the performance shares (as reinvested
shares) and are paid upon the payout of the award based upon the actual number of shares earned.
The fair value of the restricted stock and performance shares is based on the closing stock price on the date of
grant and is expensed over the period during which the restrictions lapse.
Restricted Stock Units and Deferred Shares. Each restricted stock unit entitles the associate to one share of
common stock to be received upon vesting up to five years after the grant date. Additionally, certain awards may
become non-forfeitable upon the associate reaching age 60, provided the associate has had five years of
continuous service. Recipients of restricted stock units have no voting rights until the vesting of the award.
Recipients receive dividend equivalents that accrue on unvested units and are paid out in the form of additional
shares of stock on the vesting date. The fair value of the restricted stock units is based on the closing stock price on
the date of grant and is expensed over the period during which the units vest.
We grant awards of deferred shares to non-employee directors under the Plans. Each deferred share entitles the
non-employee director to one share of common stock to be received following termination of Board service.
Recipients of deferred shares have no voting rights and receive dividend equivalents that accrue and are paid out in
the form of additional shares of stock upon payout of the underlying shares following termination of service. The fair
value of the deferred shares is based on the closing stock price on the date of grant and is expensed immediately
upon grant.
Deferred shares granted to non-employee directors follow.
Fiscal Fiscal Fiscal
2018 2017 2016
Deferred shares granted 26,000 27,000 29,000
Stock-Based Compensation Activity. A summary of restricted stock, performance shares, and restricted stock unit
activity follows.
Weighted
Average
Number of Grant Date
shares in thousands Shares Fair Value
Nonvested at January 28, 2018 4,729 $ 123.03
Granted 1,930 167.20
Vested (2,068) 104.61
Forfeited (349) 142.58
Nonvested at February 3, 2019 4,242 150.51
At February 3, 2019, there was $379 million of unamortized stock-based compensation expense, which is expected
to be recognized over a weighted average period of two years.
The total fair value of restricted stock, performance shares, and restricted stock units that vested during the fiscal
year follow.
Fiscal Fiscal Fiscal
in millions 2018 2017 2016
Total fair value vested $ 367 $ 309 $ 354
At February 3, 2019, the Benefit Plans and the Restoration Plan held a total of 7 million shares of our common
stock in trust for plan participants.
Fiscal 2017:
Net sales $ 23,887 $ 28,108 $ 25,026 $ 23,883
Gross profit 8,154 9,461 8,648 8,093
Net earnings 2,014 2,672 2,165 1,779
Basic earnings per share 1.68 2.26 1.85 1.53
Diluted earnings per share 1.67 2.25 1.84 1.52
—————
The fourth fiscal quarter of fiscal 2018 includes 14 weeks. The comparable prior-year period included 13 weeks.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this item, other than the information regarding the executive officers set forth below, is
incorporated by reference to the sections entitled "Election of Directors," "Corporate Governance," "General," and
"Audit Committee Report" in our Proxy Statement for the 2019 Annual Meeting of Shareholders ("Proxy Statement").
Executive officers are appointed by, and serve at the pleasure of, the Board of Directors. Our executive officers are
as follows:
ANN-MARIE CAMPBELL, age 53, has been Executive Vice President – U.S. Stores since February 2016. From
January 2009 to February 2016, she served as Division President of the Southern Division, and from December
2005 to January 2009, she served as Vice President – Vendor Services. Ms. Campbell began her career with The
Home Depot in 1985 as a cashier and has held roles of increasing responsibility since she joined the Company,
including vice president roles in the Company’s operations, merchandising, and marketing departments. She serves
as a director of Potbelly Corporation, a chain of neighborhood sandwich shops.
MATTHEW A. CAREY, age 54, has been Executive Vice President and Chief Information Officer since September
2008. From January 2006 through August 2008, he served as Senior Vice President and Chief Technology Officer
at eBay Inc., an online commerce platform. Mr. Carey was previously with Wal-Mart Stores, Inc., a general
merchandise retailer, from June 1985 to December 2005. His final position with Wal-Mart was Senior Vice
President and Chief Technology Officer.
EDWARD P. DECKER, age 56, has been Executive Vice President – Merchandising since August 2014. From
October 2006 through July 2014, he served as Senior Vice President – Retail Finance, Pricing Analytics, and
Assortment Planning. Mr. Decker joined The Home Depot in 2000 and held various strategic planning roles,
including serving as Vice President – Strategic Business Development from November 2002 to April 2006 and
Senior Vice President – Strategic Business and Asset Development from April 2006 to September 2006. Prior to
joining the Company, Mr. Decker held various positions in strategic planning, business development, finance, and
treasury at Kimberly-Clark Corp. and Scott Paper Co., both of which are consumer products companies.
MARK Q. HOLIFIELD, age 62, has been Executive Vice President – Supply Chain and Product Development since
February 2014. From July 2006 through February 2014, he served as Senior Vice President – Supply Chain. Mr.
Holifield was previously with Office Depot, Inc., an office products and services company, from 1994 through July
2006, where he served in variety of supply chain positions, including Executive Vice President of Supply Chain
Management.
TIMOTHY A. HOURIGAN, age 62, has been Executive Vice President – Human Resources since June 2017. From
February 2016 through June 2017, he served as Division President of the Southern Division. Prior to his role as
Division President, Mr. Hourigan served in various human resources roles with the Company, including Vice
President – Human Resources, U.S. Stores and Operations from September 2013 to February 2016; Vice President
– Compensation and Benefits from February 2007 to September 2013; and Vice President – Human Resources
from July 2002 to February 2007.
WILLIAM G. LENNIE, age 63, has been Executive Vice President – Outside Sales & Service since July 2015. From
March 2011 through January 2016, he served as President of The Home Depot Canada, and he served as Senior
Vice President – International Merchandising, Private Brands, and Global Sourcing from March 2009 through March
2011. Mr. Lennie originally joined the Company in 1992 and held roles of increasing responsibility in the Company’s
merchandising department. In 2006, Mr. Lennie left the Company to be Senior Vice President of Merchandising,
Hardlines for Dick’s Sporting Goods, Inc., a sporting goods retailer, before re-joining The Home Depot in 2009.
CRAIG A. MENEAR, age 61, has been our Chief Executive Officer and President since November 2014 and our
Chairman since February 2015. He previously served as our President, U.S. Retail from February 2014 through
October 2014. From April 2007 through February 2014, he served as Executive Vice President – Merchandising,
and from August 2003 through April 2007, he served as Senior Vice President – Merchandising. From 1997 through
August 2003, Mr. Menear served in various management and vice president level positions in the Company’s
merchandising department, including Merchandising Vice President of Hardware, Merchandising Vice President of
the Southwest Division, and Divisional Merchandise Manager of the Southwest Division.
TERESA WYNN ROSEBOROUGH, age 60, has been Executive Vice President, General Counsel and Corporate
Secretary since November 2011. From April 2006 through November 2011, Ms. Roseborough served in several
legal positions with MetLife, Inc., a provider of insurance and other financial services, including Senior Chief
Counsel – Compliance & Litigation and most recently as Deputy General Counsel. Prior to joining MetLife, Ms.
Roseborough was a partner with the law firm Sutherland Asbill & Brennan LLP from February 1996 through March
2006 and a Deputy Assistant Attorney General in the Office of Legal Counsel of the United States Department of
Justice from January 1994 through February 1996. Ms. Roseborough serves as a director of The Hartford Financial
Services Group, Inc., an investment and insurance company.
CAROL B. TOMÉ, age 62, has been Chief Financial Officer since May 2001 and Executive Vice President –
Corporate Services since January 2007. Prior thereto, Ms. Tomé served as Senior Vice President – Finance and
Accounting/Treasurer from April 2000 through May 2001 and as Vice President and Treasurer from 1995 through
April 2000. From 1992 until 1995, when she joined the Company, Ms. Tomé was Vice President and Treasurer of
Riverwood International Corporation, a provider of paperboard packaging. Ms. Tomé serves as a director of United
Parcel Service, Inc., a global package delivery and logistics provider. She also serves as a member of the Advisory
Board of certain Fidelity funds.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The information required by this item is incorporated by reference to the sections entitled "Beneficial Ownership of
Common Stock" and "Executive Compensation – Equity Compensation Plan Information" in our Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated by reference to the section entitled "Corporate Governance" in
our Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
The following documents are filed as part of this report:
1. Financial Statements
The following financial statements are set forth in Item 8 hereof:
• Report of Independent Registered Public Accounting Firm;
• Consolidated Balance Sheets as of February 3, 2019 and January 28, 2018;
• Consolidated Statements of Earnings for fiscal 2018, fiscal 2017, and fiscal 2016;
• Consolidated Statements of Comprehensive Income for fiscal 2018, fiscal 2017, and fiscal 2016;
• Consolidated Statements of Stockholders’ Equity for fiscal 2018, fiscal 2017, and fiscal 2016;
• Consolidated Statements of Cash Flows for fiscal 2018, fiscal 2017, and fiscal 2016; and
• Notes to Consolidated Financial Statements.
2. Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or the information is presented in our
consolidated financial statements or related notes.
3. Exhibits
Exhibits not filed or furnished herewith are incorporated by reference to exhibits previously filed with the SEC, as
reflected in the table below. Our Current, Quarterly, and Annual Reports are filed with the SEC under File
No. 1-8207. Our Registration Statements have the file numbers noted wherever such statements are identified in
the following list of exhibits. We will furnish a copy of any exhibit to shareholders without charge upon written
request to Investor Relations, The Home Depot, Inc., 2455 Paces Ferry Road, Atlanta, Georgia 30339, via the
internet at http://ir.homedepot.com, or by calling Investor Relations at (770) 384-2871.
4.30 Form of 4.500% Senior Note due December 6, Form 8-K filed December 6, 2018, Exhibit 4.5
2048
10.1 † Form 10-Q for the fiscal quarter ended August 4, 2002, Exhibit 10.1
10.2 † Form of Executive Employment Death Benefit Form 10-K for the fiscal year ended February 3,
Agreement 2013, Exhibit 10.2
10.3 † The Home Depot Deferred Compensation Plan Form 8-K filed on August 20, 2007, Exhibit 10.1
for Officers (As Amended and Restated Effective
January 1, 2008)
10.4 † Amendment No. 1 to The Home Depot Deferred Form 10-K for the fiscal year ended January 31,
Compensation Plan for Officers (As Amended 2010, Exhibit 10.4
and Restated Effective January 1, 2008)
10.5 † Form 10-Q for the fiscal quarter ended May 5, 2013, Exhibit 10.1
10.6 † Amendment No. 1 to The Home Depot, Inc.2005 Form 10-K for the fiscal year ended January 31,
Omnibus Stock Incentive Plan and The Home 2010, Exhibit 10.6
Depot, Inc. 1997 Omnibus Stock Incentive Plan
10.7 † The Home Depot FutureBuilder Restoration Plan Form 8-K filed on August 20, 2007, Exhibit 10.2
10.8 † Amendment No.1 to The Home Depot Form 10-K for the fiscal year ended February 2,
FutureBuilder Restoration Plan 2014, Exhibit 10.8
10.9 † Form 8-K filed on August 20, 2007, Exhibit 10.3
10.10 † The Home Depot, Inc. Amended and Restated Form 10-K for the fiscal year ended February 2,
Management Incentive Plan (Effective November 2014, Exhibit 10.10
21, 2013)
10.11 † The Home Depot, Inc. Amended and Restated Form 10-Q for the fiscal quarter ended April 29,
Employee Stock Purchase Plan, as amended 2012, Exhibit 10.1
and restated effective July 1, 2012
10.12 † Form of Executive Officer Restricted Stock Award Form 10-Q for the fiscal quarter ended October
Pursuant to The Home Depot, Inc. 1997 Omnibus 31, 2004, Exhibit 10.1
Stock Incentive Plan
10.13 † Form of Executive Officer Nonqualified Stock Form 8-K filed on March 13, 2009, Exhibit 10.4
Option Award Pursuant to The Home Depot, Inc.
2005 Omnibus Stock Incentive Plan
10.14 † Form of Deferred Share Award (Nonemployee Form 8-K filed on November 15, 2007, Exhibit
Director) Pursuant to The Home Depot, Inc. 2005 10.1
Omnibus Stock Incentive Plan
10.15 † Form of Equity Award Terms and Conditions Form 8-K filed on March 2, 2011, Exhibit 10.1
Agreement Pursuant to The Home Depot, Inc.
2005 Omnibus Stock Incentive Plan
10.16 † Form of Executive Officer Equity Award Terms Form 8-K filed on March 6, 2013, Exhibit 10.1
and Conditions Agreement Pursuant to The
Home Depot, Inc. Amended and Restated 2005
Omnibus Stock Incentive Plan
10.17 † Form of Executive Officer Equity Award
Form 8-K filed on March 8, 2016, Exhibit 10.1
Agreement (Nonqualified Stock Option) Pursuant
to The Home Depot, Inc. Amended and Restated
2005 Omnibus Stock Incentive Plan
10.18 † Form of Executive Officer Equity Award
Form 8-K filed on March 8, 2016, Exhibit 10.2
Agreement (Performance Based Restricted
Stock) Pursuant to The Home Depot, Inc.
Amended and Restated 2005 Omnibus Stock
Incentive Plan
Exhibit Description Reference
10.19 † Form of Executive Officer Equity Award Form 8-K filed on March 8, 2016, Exhibit 10.3
Agreement (Performance Shares) Pursuant to
The Home Depot, Inc. Amended and Restated
2005 Omnibus Stock Incentive Plan
10.20 † Form of Deferred Share Award (Nonemployee
Form 10-K for the fiscal year ended January 29,
Director) Pursuant to The Home Depot, Inc. 2005 2017, Exhibit 10.21
Omnibus Stock Incentive Plan
10.21 † Form of Executive Officer Equity Award
Agreement (Performance Shares) Pursuant to Form 8-K filed on February 28, 2018, Exhibit 10.1
The Home Depot, Inc. Amended and Restated
2005 Omnibus Stock Incentive Plan
10.22 † Form of Executive Officer Equity Award
Agreement (Performance Based Restricted Form 8-K filed on February 28, 2018, Exhibit 10.2
Stock) Pursuant to The Home Depot, Inc.
Amended and Restated 2005 Omnibus Stock
Incentive Plan
10.23 † Form of Executive Officer Equity Award
Agreement (Nonqualified Stock Option) Pursuant Form 8-K filed on February 28, 2018, Exhibit 10.3
to The Home Depot, Inc. Amended and Restated
2005 Omnibus Stock Incentive Plan
10.24 † Form of Executive Officer Equity Award
Agreement (Performance Shares) Pursuant to Form 8-K filed on March 4, 2019, Exhibit 10.1
The Home Depot, Inc. Amended and Restated
2005 Omnibus Stock Incentive Plan
10.25 † Form of Executive Officer Equity Award
Agreement (Performance-Based Restricted Form 8-K filed on March 4, 2019, Exhibit 10.2
Stock) Pursuant to The Home Depot, Inc.
Amended and Restated 2005 Omnibus Stock
Incentive Plan
10.26 † Form of Executive Officer Equity Award
Agreement (Nonqualified Stock Option) Pursuant Form 8-K filed on March 4, 2019, Exhibit 10.3
to The Home Depot, Inc. Amended and Restated
2005 Omnibus Stock Incentive Plan
10.27 † Employment Arrangement between Craig A.
Menear and The Home Depot, Inc., dated Form 10-Q for the fiscal quarter ended November
October 16, 2014 2, 2014, Exhibit 10.2
10.28 † Employment Arrangement between Carol B.
Tomé and The Home Depot, Inc., dated January Form 8-K/A filed on January 24, 2007, Exhibit
20, 2007 10.2
10.29 † Code Section 409A Amendment to Employment
Arrangement between Carol B. Tomé and The Form 10-K for the fiscal year ended February 3,
Home Depot, Inc., dated December 21, 2012 2013, Exhibit 10.22
10.30 † Employment Arrangement between Matthew A.
Carey and The Home Depot, Inc., dated August Form 10-K for the fiscal year ended January 30,
22, 2008, as amended on September 3, 2008 2011, Exhibit 10.36
10.31 † Employment Arrangement between Mark Q.
Holifield and The Home Depot, Inc., dated Form 10-K for the fiscal year ended February 1,
February 27, 2014 2015, Exhibit 10.30
10.32 † Employment Arrangement between Edward P. Decker
and The Home Depot, Inc., dated July 29, 2014 Form 10-K for the fiscal year ended January 28,
2018, Exhibit 10.31
21 * List
of Subsidiaries of the Company
23 * Consentof Independent Registered Public
Accounting Firm
* Certification
31.1 of Chief Executive Officer and President pursuant to Rule 13a-14(a)
31.2 * Certification
of Chief Financial Officer and
Executive Vice President - Corporate Services
pursuant to Rule 13a-14(a)
Exhibit Description Reference
cation of Chief32.1
Executive Officer and President furnished pursuant Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated as of March 28, 2019.
Signature Title
/s/ CRAIG A. MENEAR Chairman, Chief Executive Officer and President (Principal Executive
Craig A. Menear Officer)
/s/ CAROL B. TOMÉ Chief Financial Officer and Executive Vice President – Corporate
Carol B. Tomé Services (Principal Financial Officer and Principal Accounting Officer)
F-1
BOARD OF DIRECTORS
Craig A. Menear
Gerard J. Arpey
Chairman, Chief Executive Officer
Partner,
and President
Emerald Creek Group, LLC
Director since 2014
Director since 2015
2, 4
Albert P. Carey
Armando Codina
Former Chief Executive Officer,
PepsiCo North America Executive Chairman,
Codina Partners, LLC
Director since 2008
3, 4 Director since 2007
3, 4
Stephanie C. Linnartz
Mark C. Vadon
Executive Vice President and Founder & former Chairman,
Global Chief Commercial Officer,
Marriott International, Inc. zulily, Inc. and Blue Nile, Inc.
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at
9 a.m., Eastern Time, May 23, 2019, at Cobb Galleria
Centre in Atlanta, Georgia.
NUMBER OF SHAREHOLDERS
As of March 8, 2019, there were approximately
110,000 holders of record of our common stock and
approximately 2,561,000 additional “street name”
holders whose shares are held of record by banks, This paper contains fiber from well-managed, independently
brokers and other financial institutions. certified forests.
The Home Depot, Inc. 2455 Paces Ferry Road, Atlanta, GA 30339-4024 770.433.8211 http://ir.homedepot.com