UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended April 30, 201729, 2018
- OR -
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¨ | 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
THE HOME DEPOT, INC.
(Exact name of Registrant as specified in its charter)
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Delaware | | 95-3261426 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
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2455 Paces Ferry Road, Atlanta, Georgia | | 30339 |
(Address of principal executive offices) | | (Zip Code) |
(770) 433-8211
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x | | Accelerated filer ¨ | | Non-accelerated filer ¨ (Do not check if a smaller reporting company) | | 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. ¨ |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,195,554,9701,153,543,611 shares of common stock, $0.05 par value, as of May 16, 201715, 2018
THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
TABLE OF CONTENTS
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Item 1. | | |
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Item 2. | | |
Item 3. | | |
Item 4. | | |
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Item 1A. | | |
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Item 6. | | |
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COMMONLY USED OR DEFINED TERMS |
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Term | | Definition |
ASR | | Accelerated share repurchase |
ASU | | Accounting Standards Update |
Comparable sales | | |
Exchange Act | | Securities Exchange Act of 1934, as amended |
| | Financial Accounting Standards Board |
fiscal 2017 | | Fiscal year ended January 28, 2018 (includes 52 weeks) |
fiscal 2018 | | Fiscal year ending February 3, 2019 (includes 53 weeks) |
GAAP | | U.S. generally accepted accounting principles |
Interline | | Interline Brands, Inc. |
MD&A | | Management's Discussion and Analysis of Financial Condition and Results of Operations |
NOPAT | | Net operating profit after tax |
PLCC | | Private label credit card |
Restoration Plan | | Home Depot FutureBuilder Restoration Plan |
ROIC | | Return on invested capital |
SEC | | Securities and Exchange Commission |
Securities Act | | Securities Act of 1933, as amended |
SG&A | | Selling, general, and administrative |
Tax Act | | 2017 tax reform, commonly referred to Exhibitsas the Tax Cuts and Jobs Act of 2017 |
2017 Form 10-K | | Annual Report on Form 10-K as filed with the SEC on March 22, 2018 for fiscal 2017 |
FORWARD-LOOKING STATEMENTS
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; issues related to the payment methods we accept; state of the economy; state of the residential construction, housing and home improvement markets; state of the credit markets, including mortgages, home equity loans and consumer credit; demand for credit offerings; inventory and in-stock positions; management of relationships with our 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; 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 or are 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 Part II, Item 1A, "Risk Factors" and elsewhere in this report and as also may be described from time to time in our future reports we file with the SEC. You should read such information in conjunction with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not currently perceive them to be material. Such factors could cause results to differ materially from our expectations.
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.
PART I.I – FINANCIAL INFORMATION
Item 1.Financial StatementsStatements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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in millions, except per share data | April 29, 2018 | | January 28, 2018 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 3,599 |
| | $ | 3,595 |
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Receivables, net | 2,296 |
| | 1,952 |
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Merchandise inventories | 14,432 |
| | 12,748 |
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Other current assets | 887 |
| | 638 |
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Total current assets | 21,214 |
| | 18,933 |
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Property and equipment, net of accumulated depreciation of $19,668 at April 29, 2018 and $19,339 at January 28, 2018 | 21,928 |
| | 22,075 |
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Goodwill | 2,281 |
| | 2,275 |
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Other assets | 1,227 |
| | 1,246 |
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Total assets | $ | 46,650 |
| | $ | 44,529 |
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Liabilities and Stockholders' Equity | | | |
Current liabilities: | | | |
Short-term debt | $ | 350 |
| | $ | 1,559 |
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Accounts payable | 9,726 |
| | 7,244 |
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Accrued salaries and related expenses | 1,413 |
| | 1,640 |
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Sales taxes payable | 730 |
| | 520 |
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Deferred revenue | 1,911 |
| | 1,805 |
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Current installments of long-term debt | 1,199 |
| | 1,202 |
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Other accrued expenses | 2,804 |
| | 2,224 |
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Total current liabilities | 18,133 |
| | 16,194 |
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Long-term debt, excluding current installments | 24,244 |
| | 24,267 |
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Other long-term liabilities | 2,586 |
| | 2,614 |
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Total liabilities | 44,963 |
| | 43,075 |
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Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,781 shares at April 29, 2018 and 1,780 shares at January 28, 2018; outstanding: 1,154 shares at April 29, 2018 and 1,158 shares at January 28, 2018 | 89 |
| | 89 |
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Paid-in capital | 10,017 |
| | 10,192 |
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Retained earnings | 41,221 |
| | 39,935 |
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Accumulated other comprehensive loss | (596 | ) | | (566 | ) |
Treasury stock, at cost, 627 shares at April 29, 2018 and 622 shares at January 28, 2018 | (49,044 | ) | | (48,196 | ) |
Total stockholders’ equity | 1,687 |
| | 1,454 |
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Total liabilities and stockholders’ equity | $ | 46,650 |
| | $ | 44,529 |
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amounts in millions, except share and per share data | April 30, 2017 | | January 29, 2017 |
ASSETS | | | |
Current Assets: | | | |
Cash and Cash Equivalents | $ | 3,565 |
| | $ | 2,538 |
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Receivables, net | 2,164 |
| | 2,029 |
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Merchandise Inventories | 13,609 |
| | 12,549 |
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Other Current Assets | 558 |
| | 608 |
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Total Current Assets | 19,896 |
| | 17,724 |
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Property and Equipment, at cost | 40,656 |
| | 40,426 |
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Less Accumulated Depreciation and Amortization | 18,867 |
| | 18,512 |
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Net Property and Equipment | 21,789 |
| | 21,914 |
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Goodwill | 2,095 |
| | 2,093 |
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Other Assets | 1,164 |
| | 1,235 |
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Total Assets | $ | 44,944 |
| | $ | 42,966 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current Liabilities: | | | |
Short-Term Debt | $ | — |
| | $ | 710 |
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Accounts Payable | 9,138 |
| | 7,000 |
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Accrued Salaries and Related Expenses | 1,353 |
| | 1,484 |
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Sales Taxes Payable | 710 |
| | 508 |
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Deferred Revenue | 1,832 |
| | 1,669 |
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Income Taxes Payable | 904 |
| | 25 |
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Current Installments of Long-Term Debt | 544 |
| | 542 |
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Other Accrued Expenses | 1,957 |
| | 2,195 |
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Total Current Liabilities | 16,438 |
| | 14,133 |
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Long-Term Debt, excluding current installments | 22,393 |
| | 22,349 |
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Other Long-Term Liabilities | 1,916 |
| | 1,855 |
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Deferred Income Taxes | 235 |
| | 296 |
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Total Liabilities | 40,982 |
| | 38,633 |
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STOCKHOLDERS’ EQUITY | | | |
Common Stock, par value $0.05; authorized: 10 billion shares; issued: 1.778 billion shares at April 30, 2017 and 1.776 billion shares at January 29, 2017; outstanding: 1.197 billion shares at April 30, 2017 and 1.203 billion shares at January 29, 2017 | 89 |
| | 88 |
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Paid-In Capital | 9,779 |
| | 9,787 |
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Retained Earnings | 36,461 |
| | 35,519 |
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Accumulated Other Comprehensive Loss | (923 | ) | | (867 | ) |
Treasury Stock, at cost, 581 million shares at April 30, 2017 and 573 million shares at January 29, 2017 | (41,444 | ) | | (40,194 | ) |
Total Stockholders’ Equity | 3,962 |
| | 4,333 |
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Total Liabilities and Stockholders’ Equity | $ | 44,944 |
| | $ | 42,966 |
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See accompanying Notesnotes to Consolidated Financial Statements.
consolidated financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
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| Three Months Ended |
amounts in millions, except per share data | April 30, 2017 | | May 1, 2016 |
NET SALES | $ | 23,887 |
| | $ | 22,762 |
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Cost of Sales | 15,733 |
| | 14,971 |
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GROSS PROFIT | 8,154 |
| | 7,791 |
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Operating Expenses: | | | |
Selling, General and Administrative | 4,361 |
| | 4,281 |
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Depreciation and Amortization | 444 |
| | 433 |
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Total Operating Expenses | 4,805 |
| | 4,714 |
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OPERATING INCOME
| 3,349 |
| | 3,077 |
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Interest and Other (Income) Expense: | | | |
Interest and Investment Income | (13 | ) | | (7 | ) |
Interest Expense | 254 |
| | 244 |
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Interest and Other, net | 241 |
| | 237 |
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EARNINGS BEFORE PROVISION FOR INCOME TAXES | 3,108 |
| | 2,840 |
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Provision for Income Taxes | 1,094 |
| | 1,037 |
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NET EARNINGS | $ | 2,014 |
| | $ | 1,803 |
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Basic Weighted Average Common Shares | 1,198 |
| | 1,247 |
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BASIC EARNINGS PER SHARE
| $ | 1.68 |
| | $ | 1.45 |
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Diluted Weighted Average Common Shares | 1,204 |
| | 1,252 |
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DILUTED EARNINGS PER SHARE
| $ | 1.67 |
| | $ | 1.44 |
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Dividends Declared per Share | $ | 0.89 |
| | $ | 0.69 |
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| Three Months Ended |
in millions, except per share data | April 29, 2018 | | April 30, 2017 |
Net sales | $ | 24,947 |
| | $ | 23,887 |
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Cost of sales | 16,330 |
| | 15,733 |
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Gross profit | 8,617 |
| | 8,154 |
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Operating expenses: | | | |
Selling, general and administrative | 4,779 |
| | 4,361 |
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Depreciation and amortization | 457 |
| | 444 |
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Total operating expenses | 5,236 |
| | 4,805 |
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Operating income | 3,381 |
| | 3,349 |
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Interest and other (income) expense: | | | |
Interest and investment income | (22 | ) | | (13 | ) |
Interest expense | 261 |
| | 254 |
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Interest and other, net | 239 |
| | 241 |
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Earnings before provision for income taxes | 3,142 |
| | 3,108 |
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Provision for income taxes | 738 |
| | 1,094 |
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Net earnings | $ | 2,404 |
| | $ | 2,014 |
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Basic weighted average common shares | 1,152 |
| | 1,198 |
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Basic earnings per share | $ | 2.09 |
| | $ | 1.68 |
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Diluted weighted average common shares | 1,158 |
| | 1,204 |
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Diluted earnings per share | $ | 2.08 |
| | $ | 1.67 |
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Dividends declared per share | $ | 1.03 |
| | $ | 0.89 |
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See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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| Three Months Ended |
amounts in millions | April 30, 2017 | | May 1, 2016 |
Net Earnings | $ | 2,014 |
| | $ | 1,803 |
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Other Comprehensive (Loss) Income: | | | |
Foreign Currency Translation Adjustments | (30 | ) | | 309 |
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Cash Flow Hedges, net of tax | (25 | ) | | 11 |
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Other | (1 | ) | | — |
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Total Other Comprehensive (Loss) Income | (56 | ) | | 320 |
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COMPREHENSIVE INCOME | $ | 1,958 |
| | $ | 2,123 |
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| Three Months Ended |
in millions | April 29, 2018 | | April 30, 2017 |
Net earnings | $ | 2,404 |
| | $ | 2,014 |
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Other comprehensive income (loss): | | | |
Foreign currency translation adjustments | (76 | ) | | (30 | ) |
Cash flow hedges, net of tax | 28 |
| | (25 | ) |
Other | 18 |
| | (1 | ) |
Total other comprehensive income (loss) | (30 | ) | | (56 | ) |
Comprehensive income | $ | 2,374 |
| | $ | 1,958 |
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See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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| Three Months Ended |
amounts in millions | April 30, 2017 | | May 1, 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Earnings | $ | 2,014 |
| | $ | 1,803 |
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Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: | | | |
Depreciation and Amortization | 505 |
| | 486 |
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Stock-Based Compensation Expense | 81 |
| | 72 |
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Changes in Assets and Liabilities: | | | |
Receivables, net | (145 | ) | | (57 | ) |
Merchandise Inventories | (1,051 | ) | | (1,319 | ) |
Other Current Assets | 51 |
| | 44 |
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Accounts Payable and Accrued Expenses | 2,062 |
| | 1,828 |
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Deferred Revenue | 166 |
| | 30 |
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Income Taxes Payable | 877 |
| | 844 |
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Deferred Income Taxes | (65 | ) | | (78 | ) |
Other | 69 |
| | (17 | ) |
Net Cash Provided by Operating Activities | 4,564 |
| | 3,636 |
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CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital Expenditures | (458 | ) | | (325 | ) |
Proceeds from Sales of Property and Equipment | 13 |
| | 4 |
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Net Cash Used in Investing Activities | (445 | ) | | (321 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Repayments of Short-Term Debt, net | (710 | ) | | (350 | ) |
Proceeds from Long-Term Debt, net of discounts | — |
| | 2,989 |
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Repayments of Long-Term Debt | (11 | ) | | (3,012 | ) |
Repurchases of Common Stock | (1,289 | ) | | (1,157 | ) |
Proceeds from Sales of Common Stock | 31 |
| | 29 |
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Cash Dividends Paid to Stockholders | (1,069 | ) | | (862 | ) |
Other Financing Activities | (33 | ) | | 25 |
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Net Cash Used in Financing Activities | (3,081 | ) | | (2,338 | ) |
Change in Cash and Cash Equivalents | 1,038 |
| | 977 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents | (11 | ) | | 64 |
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Cash and Cash Equivalents at Beginning of Period | 2,538 |
| | 2,216 |
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Cash and Cash Equivalents at End of Period | $ | 3,565 |
| | $ | 3,257 |
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| Three Months Ended |
in millions | April 29, 2018 | | April 30, 2017 |
Cash Flows from Operating Activities: | | | |
Net earnings | $ | 2,404 |
| | $ | 2,014 |
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Reconciliation of net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 532 |
| | 505 |
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Stock-based compensation expense | 84 |
| | 81 |
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Changes in assets and liabilities, net of acquisition effects: | | | |
Receivables, net | (319 | ) | | (145 | ) |
Merchandise inventories | (1,687 | ) | | (1,051 | ) |
Other current assets | (250 | ) | | 51 |
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Accounts payable and other accrued expenses | 2,532 |
| | 2,062 |
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Income taxes payable | 547 |
| | 877 |
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Deferred revenue | 208 |
| | 166 |
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Deferred income taxes | (9 | ) | | (65 | ) |
Other | (61 | ) | | 69 |
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Net cash provided by operating activities | 3,981 |
| | 4,564 |
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Cash Flows from Investing Activities: | | | |
Capital expenditures | (556 | ) | | (458 | ) |
Proceeds from sales of property and equipment | 8 |
| | 13 |
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Net cash used in investing activities | (548 | ) | | (445 | ) |
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Cash Flows from Financing Activities: | | | |
Repayments of short-term debt, net | (1,209 | ) | | (710 | ) |
Repayments of long-term debt | (10 | ) | | (11 | ) |
Repurchases of common stock | (1,121 | ) | | (1,289 | ) |
Proceeds from sales of common stock | 14 |
| | 31 |
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Cash dividends | (1,189 | ) | | (1,069 | ) |
Other financing activities | 115 |
| | (33 | ) |
Net cash used in financing activities | (3,400 | ) | | (3,081 | ) |
Change in cash and cash equivalents | 33 |
| | 1,038 |
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Effect of exchange rate changes on cash and cash equivalents | (29 | ) | | (11 | ) |
Cash and cash equivalents at beginning of period | 3,595 |
| | 2,538 |
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Cash and cash equivalents at end of period | $ | 3,599 |
| | $ | 3,565 |
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Supplemental Disclosures: | | | |
Cash paid for interest, net of interest capitalized | $ | 339 |
| | $ | 321 |
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Cash paid for income taxes | 119 |
| | 135 |
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See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying Consolidated Financial Statementsconsolidated financial statements of The Home Depot, Inc. and Subsidiariesits subsidiaries (the "Company""Company," "Home Depot," "we," "our" or "us") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("GAAP")GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these financial statements should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and notes thereto included in our 2017 Form 10-K.
There were no significant changes to our significant accounting policies as disclosed in the Company's Annual Report on2017 Form 10-K, except as set forth below.
Net Sales
We recognize revenue, net of expected returns and sales tax, at the time the customer takes possession of merchandise, or when a service is performed. The liability for sales returns, including the impact to gross profit, is estimated based on historical return levels, and recognized at the transaction price. We also recognize a return asset, and corresponding adjustment to cost of sales, for our right to recover the goods returned by the customer, measured at the former carrying amount of the goods, less any expected recovery cost. At each financial reporting date, we assess our estimates of expected returns, refund liabilities, and return assets.
Net sales include services revenue generated through a variety of installation, home maintenance, and professional service programs. In these programs, the customer selects and purchases material for a project, and we provide or arrange for professional installation. These programs are offered through our stores and in-home sales programs. Under certain programs, when we provide or arrange for the year ended installation of a project and the subcontractor provides material as part of the installation, both the material and labor are included in services revenue. We recognize this revenue when the service for the customer is complete, which is not materially different from recognizing the revenue over the service period as the substantial majority of our services are completed within one week.
For merchandise sold in one of our stores or online, tender is accepted at the point of sale. For services, we generally accept tender upon completion of the job. When we receive payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue until the sale or service is complete. Such performance obligations are part of contracts with expected original durations of three months or less. We further record deferred revenue for the sale of gift cards and recognize the associated revenue upon the redemption of those gift cards in net sales. Gift card breakage income (estimated non-redeemed gift card balance) is recognized in proportion to the redemption pattern of rights exercised by the customer. For merchandise sold to customers to whom we directly extend credit, collection of tender is typically expected within three months or less from the time of purchase. We also have agreements with third-party service providers who directly extend credit to customers and manage our PLCC program. The deferred interest charges we incur for our deferred financing programs offered to our customers, interchange fees charged to us for our customers’ use of the cards, and any profit sharing with the third-party service providers are included in net sales.
Cost of Sales
Cost of sales includes the actual cost of merchandise sold and services performed; the cost of transportation of merchandise from vendors to our distribution network, stores, or customers; shipping and handling costs from our stores or distribution network to customers; and the operating cost and depreciation of our sourcing and distribution network and online fulfillment centers.
Recently Adopted Accounting Pronouncements
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, 2017, as filed with2018, we adopted ASU No. 2014-09 using the Securities and Exchange Commission on March 23, 2017 (the "2016 Form 10-K").modified retrospective transition method.
Valuation Reserves
In preparation for implementation of the standard, we concluded on 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 April 30, 2017the 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 $75 million increase to the opening balance of retained earnings as of January 29, 2017,2018. The comparative prior period information continues to be reported under the valuation allowancesaccounting 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.
The effect of the adoption of ASU No. 2014-09 on our consolidated balance sheet as of April 29, 2018, follows.
|
| | | | | | | | | | | |
in millions | As Reported | | ASU No. 2014-09 Effect (1) | | Excluding ASU No. 2014-09 Effect |
Receivables, net | $ | 2,296 |
| | $ | (46 | ) | | $ | 2,342 |
|
Other current assets | 887 |
| | 269 |
| | 618 |
|
Other accrued expenses | 2,804 |
| | 223 |
| | 2,581 |
|
—————(1) Does not include the cumulative effect of initially applying ASU No. 2014-09 to our consolidated balance sheet as adjusted as of January 29, 2018.
The effect of the adoption of ASU No. 2014-09 on our consolidated statement of earnings for Merchandise Inventoriesthe three months ended April 29, 2018 follows.
|
| | | | | | | | | | | |
in millions | As Reported | | ASU No. 2014-09 Effect | | Excluding ASU No. 2014-09 Effect |
Net sales | $ | 24,947 |
| | $ | 33 |
| | $ | 24,914 |
|
Cost of sales | 16,330 |
| | (98 | ) | | 16,428 |
|
Gross profit | 8,617 |
| | 131 |
| | 8,486 |
|
Selling, general and administrative | 4,779 |
| | 131 |
| | 4,648 |
|
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 uncollectible Receivables were not material.cash flows on an ongoing basis.
Recent Accounting Pronouncements
There have been no material changes to the Company’s position regarding recent accounting pronouncements pending adoption as disclosed in the 2016 Form 10-K, except as set forth below.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In addition, ASU No. 2014-09 requires disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU No. 2014-09 supersedes most existing U.S. GAAP revenue recognition principles, and it permits the use of either the retrospective or modified retrospective transition method. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual periods.
The Company continues to evaluate the effect that ASU No. 2014-09 will have on its Consolidated Financial Statements and related disclosures and controls. Based on its preliminary assessment, the Company has determined that the adoption of ASU No. 2014-09 could impact the timing of revenue recognition through its services, gift card and various incentive programs. ASU No. 2014-09 will impact the Company’s method of recognizing gift card breakage income, which is currently recognized based upon historical redemption patterns. ASU No. 2014-09 requires gift card breakage income to be recognized in proportion to the pattern of rights exercised by the customer when the Company expects to be entitled to breakage. The Company is also evaluating the principal versus agent considerations as it relates to certain arrangements with third parties that could impact the presentation of gross or net revenue reporting. Other areas which could be impacted may be identified as the Company continues its evaluation of ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 on January 29, 2018 using the modified retrospective transition method.
Recent accounting pronouncements pending adoption not discussed above or in the 20162017 Form 10-K are either not applicable or will not have or are not expected to have a material impact on the Company. us.
| |
2. | RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTSNET SALES |
On January 30, 2017,No sales to an individual customer or country other than the Company adopted ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". Upon adoptionU.S. accounted for more than 10% of this update, all excess tax benefits or deficiencies related to share-based payment awards are recognized in the provision for income taxes in the period in which they occur. Previously these amounts were reflected in paid-in capital. In addition, upon adoption these amounts are classified as an operating activity in the consolidated statements of cash flows in the period in which they occur. Previously, these amounts were reflected as a financing activity. Cash paid by the Company to tax authorities when directly withholding shares for tax withholding purposes will continue to be classified as a financing activity in the consolidated statements of cash flows. Stock-based compensation expense will continue to reflect estimated forfeitures of share-based awards. The Company has adopted the applicable provisions of ASU No. 2016-09 prospectively.
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As a result of the adoption of ASU No. 2016-09, the Company recognized $65 million of excess tax benefits related to share-based payment awards in its provision for income taxesnet sales during the first quarter of fiscal
2017. The recognition of these benefits contributed $0.05 to Diluted Earnings per Share.2018. Net sales, classified by geography, for the three months ended April 29, 2018 follow. |
| | | |
in millions | |
Net sales – in the U.S. | $ | 23,043 |
|
Net sales – outside the U.S. | 1,904 |
|
Net sales | $ | 24,947 |
|
Net sales by products and services for the three months ended April 29, 2018 follow. |
| | | |
in millions | |
Net sales – products | $ | 23,735 |
|
Net sales – services | 1,212 |
|
Net sales | $ | 24,947 |
|
Major product lines, as well as the associated merchandising departments (and related services) for the three months ended April 29, 2018 follow. |
| | |
Major Product Line | | Merchandising Departments |
Building Materials | | Building Materials, Electrical, Lighting, Lumber, Millwork, and Plumbing |
Décor | | Appliances, Décor, Flooring, Kitchen and Bath, and Paint |
Hardlines | | Hardware, Indoor Garden, Outdoor Garden, and Tools |
Net sales by major product lines for the three months ended April 29, 2018 follow. |
| | | |
in millions | |
Building Materials | $ | 9,326 |
|
Hardlines | 8,415 |
|
Décor | 7,206 |
|
Net sales | $ | 24,947 |
|
On December 22, 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. For the three months ended April 29, 2018, our accounting for the Tax Act is incomplete. As disclosed in our 2017 Form 10-K, however, we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the deemed repatriation transition tax and remeasurement of deferred tax assets and liabilities. We have not made any measurement-period adjustments related to these items during the first quarter of fiscal 2018 because we have not finalized the following items: the earnings and profits of the relevant subsidiaries, deemed repatriation of deferred foreign income, and prior year deferred tax activity. We are continuing to gather additional information to complete our accounting for these items and expect to complete our accounting within the one-year time period provided by SAB 118. Any adjustment to these amounts during the measurement period will be recorded in income tax expense in the period in which the analysis is complete.
The Tax Act also creates a new requirement that certain income (i.e., global intangible low-taxed income or "GILTI") earned by controlled foreign corporations ("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 are not yet able to reasonably estimate the long-term effects of this provision. Therefore, we have not recorded any potential deferred tax effects related to GILTI in our consolidated financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI or use the period cost method. We have, however, included an estimate of the current GILTI impact in our annual effective tax rate for fiscal 2018.
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. These agreements are structured as outlined in the 2017 Form 10-K. The terms of the ASR agreement entered into during the first three months of fiscal 2018 follow (in millions). |
| | | | | | | | | | |
Agreement Date | | Settlement Date | | Agreement Amount | | Initial Shares Delivered | | Additional Shares Delivered | | Total Shares Delivered |
Q1 2018 (1) | | Q2 2018 (2) | | $750 | | 3.4 | | 0.8 | | 4.2 |
—————
| |
(1) | The fair market value of the initial 3.4 million shares on the date of delivery was $598 million and is included in treasury stock as of April 29, 2018, with the remaining $152 million included in paid-in capital. |
| |
(2) | The ASR agreement terminated on May 17, 2018, at which time we became contractually entitled to receive an additional 0.8 million shares upon settlement. |
See Note 6 to the consolidated financial statements in the 2017 Form 10-K for further discussion.
| |
5. | FAIR VALUE MEASUREMENTS |
The carrying amount of Cash and Cash Equivalents, Receivables and Accounts Payable reported in the Company's Consolidated Balance Sheets approximates fair value dueof an asset is considered to their short-term maturities.be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the assetsAssets and liabilities if any, of the Company that are measured at fair value on a recurring basis (amounts in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at April 30, 2017 Using | | Fair Value at January 29, 2017 Using |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Derivative agreements - assets | $ | — |
| | $ | 221 |
| | $ | — |
| | $ | — |
| | $ | 271 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value at April 29, 2018 Using | | Fair Value at January 28, 2018 Using |
amounts in millions | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Derivative agreements - assets | $ |
|
| | $ | 200 |
| | $ |
|
| | $ |
|
| | $ | 235 |
| | $ |
|
|
Derivative agreements - liabilities | — |
| | (29 | ) | | — |
| | — |
| | (12 | ) | | — |
|
Total | $ |
|
| | $ | 171 |
| | $ |
|
| | $ |
|
| | $ | 223 |
| | $ |
|
|
The Company usesWe use derivative financial instruments from time to time in the management of itsour interest rate exposure on certain Long-Term Debtlong-term debt and itsour exposure toon foreign currency fluctuations. The fair value of our derivative financial instruments was measured using observable market information (level 2).
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 and other intangible assets were analyzed for impairment on a nonrecurring basis using fair value measurements with unobservable inputs (level 3). Impairment charges related to long-lived assets in the first three months of fiscal 2017 and 2016 were not material.
The aggregate fair values and carrying values of the Company'sour senior notes were as follows (amounts in billions):follow. |
| | | | | | | | | | | | | | | |
| April 30, 2017 | | January 29, 2017 |
| Fair Value (Level 1) | | Carrying Value | | Fair Value (Level 1) | | Carrying Value |
Senior notes | $ | 24.0 |
| | $ | 22.0 |
| | $ | 23.6 |
| | $ | 22.0 |
|
|
| | | | | | | | | | | | | | | |
| April 29, 2018 | | January 28, 2018 |
in millions | Fair Value (Level 1) | | Carrying Value | | Fair Value (Level 1) | | Carrying Value |
Senior notes | $ | 25,545 |
| | $ | 24,469 |
| | $ | 26,617 |
| | $ | 24,485 |
|
| |
6. | WEIGHTED AVERAGE COMMON SHARES |
The reconciliation of our basic to diluted weighted average common shares follows. |
| | | | | |
| Three Months Ended |
in millions | April 29, 2018 | | April 30, 2017 |
Basic weighted average common shares | 1,152 |
| | 1,198 |
|
Effect of potentially dilutive securities | 6 |
| | 6 |
|
Diluted weighted average common shares | 1,158 |
| | 1,204 |
|
|
| | | | | |
Anti-dilutive securities excluded from diluted weighted average common shares (1) | — |
| | 1 |
|
————— (1) Represent options that were granted under our employee stock plans to purchase shares of our common stock.
| |
4. | BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
|
The following table present the reconciliation of basic to diluted weighted average common shares as well as the effect of anti-dilutive securities excluded from diluted weighted average common shares (amounts in millions):
|
| | | | | |
| Three Months Ended |
| April 30, 2017 | | May 1, 2016 |
Basic Weighted Average Common Shares | 1,198 |
| | 1,247 |
|
Effect of potentially dilutive securities - stock plans | 6 |
| | 5 |
|
Diluted Weighted Average Common Shares | 1,204 |
| | 1,252 |
|
|
| | | | | |
Effect of anti-dilutive securities excluded from diluted weighted average common shares | 1 |
| | 1 |
|
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
5.7. | COMMITMENTS AND CONTINGENCIES |
Data Breach
As previously reported,We are involved in litigation arising in the third quarternormal course of fiscal 2014, the Company confirmed that its payment data systems were breached, which potentially impacted customers who used payment cards at self-checkout systems in the Company’s U.S. and Canadian stores (the "Data Breach"). Since the end of fiscal 2016, there have been no material changes with respectbusiness. In management’s opinion, any such litigation is not expected to the Data Breach, except as discussed below.
As reported in the 2016 Form 10-K, in the first quarter of fiscal 2017, the Company agreed to settlement terms that, upon approval of the court, will resolve and dismiss the claims asserted in the financial institutions class actions. In addition, in the first quarter of fiscal 2017, the parties to the two purported shareholder derivative actions agreed to settlement terms that, upon approval of the court, will resolve and dismiss the claims asserted in those actions.
As of the end of the first quarter of fiscal 2017, the Company has resolved the most significant claims relating to the Data Breach, and there were no material changes during the first quarter to the Company’s loss contingency assessment relating to any remaining matters. The Company does not believe that the ultimate amounts paid with respect to any remaining matters will have a material adverse effect on the Company’sour consolidated financial condition, results of operations, or cash flows in future periods.flows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Stockholders and Board of Directors and Stockholders
The Home Depot, Inc.:
Results of Review of Interim Financial Information
We have reviewed the Consolidated Balance Sheet of The Home Depot, Inc. and subsidiariesSubsidiaries (the "Company") as of April 30, 201729, 2018, and the related Consolidated Statements of Earnings, Comprehensive Income, and Cash Flows for the three-month periods ended April 29, 2018 and April 30, 2017, and May 1, 2016. Thesethe related notes (collectively, the "Consolidated Interim Financial Information"). Based on our reviews, we are not aware of any material modifications that should be made to the Consolidated Interim Financial Statements are the responsibility of the Company's management.Information for it to be in conformity with U.S. generally accepted accounting principles.
We conducted our reviewshave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). ("PCAOB"), the Consolidated Balance Sheet of the Company as of January 28, 2018, and the related Consolidated Statements of Earnings, Comprehensive Income, Stockholders’ Equity, and Cash Flows for the year then ended (not presented herein); and in our report dated March 22, 2018, we expressed an unqualified opinion on those Consolidated Financial Statements. In our opinion, the information set forth in the accompanying Consolidated Balance Sheet as of January 28, 2018, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
Basis for Review Results
This Consolidated Interim Financial Information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the Consolidated Financial Statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheet of The Home Depot, Inc. and subsidiaries as of January 29, 2017, and the related Consolidated Statements of Earnings, Comprehensive Income, Stockholders' Equity, and Cash Flows for the year then ended (not presented herein); and in our report dated March 23, 2017, we expressed an unqualified opinion on those Consolidated Financial Statements. In our opinion, the information set forth in the accompanying Consolidated Balance Sheet as of January 29, 2017, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
/s/ KPMG LLP
Atlanta, Georgia
May 22, 201721, 2018
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
Our MD&A includes the following sections:
FORWARD-LOOKING STATEMENTSExecutive Summary
Certain statements contained herein regardingHighlights of our futurefinancial 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 store sales; effects of competition; state of the economy; state of the residential construction, housing and home improvement markets; state of the credit markets, including mortgages, home equity loans and consumer credit; demand for credit offerings; inventory and in-stock positions; implementation of store, interconnected retail, supply chain and technology initiatives; management of relationships with our suppliers and vendors; the impact and expected outcome of investigations, inquiries, claims and litigation, including those related to the data breach we discovered in the third quarter of fiscal 2014 (the "Data Breach"); issues related to the payment methods we accept; 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 effect of accounting charges; the effect of adopting certain accounting standards; store openings and closures; financial outlook; and the integration of Interline Brands, Inc. ("Interline") into our organization and the ability to recognize the anticipated synergies and benefits of the acquisition.
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 or are 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 Part II, Item 1A, "Risk Factors" and elsewhere in this report. You should read such information in conjunction with our Consolidated Financial Statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. There also may be other factors that we cannot anticipate or that are not described in this report, generally because we do not currently perceive them to be material. Such factors could cause results to differ materially from our expectations.
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 Securities and Exchange Commission ("SEC").
EXECUTIVE SUMMARY AND SELECTED FINANCIAL AND OPERATING DATA
Net Sales increased 4.9% to $23.9 billion for the first quarter of fiscal
2017 from $22.82018 follow. |
| | | | | | | |
dollars in millions, except per share data | Three Months Ended |
April 29, 2018 | | April 30, 2017 |
Net sales | $ | 24,947 |
| | $ | 23,887 |
|
Net earnings | 2,404 |
| | 2,014 |
|
Effective tax rate | 23.5 | % | | 35.2 | % |
| | | |
Diluted earnings per share | $ | 2.08 |
| | $ | 1.67 |
|
| | | |
Net cash provided by operating activities | $ | 3,981 |
| | $ | 4,564 |
|
Repurchases of common stock | 1,121 |
| | 1,289 |
|
We reported net sales of $24.9 billion for the first quarter of fiscal 2016. Our total comparable store sales increased 5.5% in the first quarter of fiscal 2017, driven by a 3.9% increase in our comparable2018. Net earnings were $2.4 billion, or $2.08 per diluted share.
We opened one new store average ticket and a 1.5% increase in our comparable store customer transactions. Comparable store sales for our U.S. stores increased 6.0% in the first quarter of fiscal 2017.
For the first quarter of fiscal 2017, we reported Net Earnings of $2.0 billion and Diluted Earnings per Share of $1.67 compared to Net Earnings of $1.8 billion and Diluted Earnings per Share of $1.44 for the first quarter of fiscal 2016. The results for the first quarter of fiscal 2017 included a $65 million benefit to our Provision for Income Taxes for share-based payment awards resulting from the adoption of ASU No. 2016-09 in the first quarter of fiscal 2017. This benefit contributed $0.05 to Diluted Earnings per Share for the first quarter of fiscal 2017. See Note 2 to the Consolidated Financial Statements included in this report.
In the first quarter of fiscal 2017, we continued to focus on the following:
Customer Experience – Customer experience is anchored on the principles of putting customers first and taking care of our associates, and our commitment to customer service remains strong. In the first quarter of fiscal 2017, we continued to connect our associates to the needs of our customers by empowering our associates to deliver excellent customer service, enabled by differentiated staffing models, tools and organizational support. We also continued to connect our stores to our online properties, and our online properties to our stores, to provide a frictionless customer experience across all channels. In the first quarter of fiscal 2017, we continued the roll out of Interline's product catalog to our stores, which is now operational in over 1,500 U.S. stores, and the capability to accept payment that is linked to existing Interline customer accounts.
We also leveraged our digital assets to better understand our customers and meet their needs through targeted online offerings and localized online experiences. We simplified and expedited our online checkout process, effectively reducing our customers'
checkout time, and we are seeing increased sales, conversion rates and customer satisfaction scores. Sales from our online channels increased 22.8% for the first quarter of fiscal 2017 compared to the same period last year, and represented 6.6% of our total Net Sales for the first quarter of fiscal 2017.
Product Authority – Product authority is facilitated by our merchandising transformation and portfolio strategy, which is focused on delivering product innovation, assortment and value. We strive to be the leader in product authority, connecting products and services to the needs of our customers. In the first quarter of fiscal 2017, our merchants continued to collaborate with our suppliers to introduce a wide range of innovative new products to our do-it-yourself, do-it-for-me and professional customers, while remaining focused on offering everyday values in our stores and online.
Productivity and Efficiency Driven by Capital Allocation – We drive productivity and efficiency through continuous operational improvement in our stores and supply chain. Further, our disciplined capital allocation builds shareholder value through higher returns on invested capital and total value returned to shareholders in the form of dividends and share repurchases. In the first quarter of fiscal 2017, we continued to optimize the flow of products from suppliers to shelves and to our customers’ locations through Project Sync. This multi-year supply chain program is designed to create an end-to-end solution that will benefit all participants in our supply chain. We plan to continue to innovate our business model and value chain to support our productivity cycle and enhance overall value for customers throughout the year.
In February 2017, our Board of Directors authorized a new $15.0 billion share repurchase program that replaced the previous authorization. Under the program, we repurchased a total of 8.5 million shares of our common stock for $1.2 billion through the open market during the first quarter of fiscal 2017. Also in February 2017, our Board of Directors increased our targeted dividend payout ratio to 55% of Diluted Earnings per Share for fiscal 2016.
We opened two new stores in the U.S. and one new store in Mexico during the first quarter of fiscal 2017,2018, for a total store count of 2,2812,285 at the end of the quarter. As of April 29, 2018, a total of 304 of our stores, or 13.3%, were located in Canada and Mexico. Total sales per square foot were $412.03 in the first quarter of fiscal 2018, and our inventory turnover ratio was 4.9 times at the end of the first quarter of fiscal 2017,2018.
During the first quarter of fiscal 2018, we repurchased a total of 3024.7 million shares of our stores, or 13.2%, were locatedcommon stock for $1.0 billion through an ASR agreement and open market transactions. In February 2018, we announced a 15.7% increase in Canada and Mexico.our quarterly cash dividend to $1.03 per share.
We generated $4.6$4.0 billion of cash flow from operations in the first quarter of fiscal 2017.2018. This cash flow was used to pay $1.2 billion of dividends, repay $1.2 billion of short-term borrowings, fund cash payments of $1.3$1.1 billion for share repurchases, pay $1.1 billion of dividends, repay $710 million of short-term debt and fund $458$556 million in capital expenditures.
Our inventory turnover ratioROIC was 4.8 times at the end of the first quarter of both fiscal 2017 and 2016. Our return on invested capital (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) was 32.3%36.0% for the first quarter of fiscal 2017 compared to 29.2%2018. See the "Non-GAAP Financial Measures" section below for the first quarterour definition and calculation of fiscal 2016. ForROIC, as well as a reconciliation of NOPAT, a non-GAAP financial measure, to net operating profit after tax to Net Earnings,earnings, the most comparable GAAP financial measure, and our calculation of return on invested capital, see "Non-GAAP Financial Measures" below.measure.
Results of Operations
The tables and discussion below should be read in conjunction with our consolidated financial statements and related notes included in this report and in our MD&A included in our 2017 Form 10-K. We believe the percentage relationship between Net Salesnet sales and the major categories in the Consolidated Statementsour consolidated statements of Earnings andearnings, as well as the percentage change in the associated dollar amounts, of each of these items as well as the selected sales data presented below are important in evaluating the performancerelevant to an evaluation of our business operations.business.
|
| | | | | | | | | | |
| % of Net Sales | |
| Three Months Ended | | |
| April 30, 2017 | | May 1, 2016 | | % Increase (Decrease) in Dollar Amounts |
NET SALES | 100.0 | % | | 100.0 | % | | 4.9 | % |
GROSS PROFIT | 34.1 |
| | 34.2 |
| | 4.7 |
|
Operating Expenses: | | | | | |
Selling, General and Administrative | 18.3 |
| | 18.8 |
| | 1.9 |
|
Depreciation and Amortization | 1.9 |
| | 1.9 |
| | 2.5 |
|
Total Operating Expenses | 20.1 |
| | 20.7 |
| | 1.9 |
|
| | | | | |
OPERATING INCOME | 14.0 |
| | 13.5 |
| | 8.8 |
|
Interest and Other (Income) Expense: | | | | | |
Interest and Investment Income | (0.1 | ) | | — |
| | 85.7 |
|
Interest Expense | 1.1 |
| | 1.1 |
| | 4.1 |
|
Interest and Other, net | 1.0 |
| | 1.0 |
| | 1.7 |
|
| | | | | |
EARNINGS BEFORE PROVISION FOR INCOME TAXES | 13.0 |
| | 12.5 |
| | 9.4 |
|
Provision for Income Taxes | 4.6 |
| | 4.6 |
| | 5.5 |
|
NET EARNINGS | 8.4 | % | | 7.9 | % | | 11.7 | % |
SELECTED SALES DATA(1) | | | | | |
Number of Customer Transactions (in millions) | 380.8 |
| | 374.8 |
| | 1.6 | % |
Average Ticket | $ | 62.39 |
| | $ | 60.03 |
| | 3.9 | % |
Sales per Square Foot | $ | 394.17 |
| | $ | 376.73 |
| | 4.6 | % |
Comparable Store Sales Increase (%)(2) | 5.5 | % | | 6.5 | % | | N/A |
|
Online Sales (% of Net Sales)(3) | 6.6 | % | | 5.7 | % | | 22.8 | % |
|
| | | | | | | | | | | | | |
| Three Months Ended |
| April 29, 2018 | | April 30, 2017 |
dollars in millions | $ | | % of Net Sales | | $ | | % of Net Sales |
Net sales | $ | 24,947 |
| | | | $ | 23,887 |
| | |
Gross profit | 8,617 |
| | 34.5 | % | | 8,154 |
| | 34.1 | % |
Operating expenses: | | | | | | | |
Selling, general and administrative | 4,779 |
| | 19.2 |
| | 4,361 |
| | 18.3 |
|
Depreciation and amortization | 457 |
| | 1.8 |
| | 444 |
| | 1.9 |
|
Total operating expenses | 5,236 |
| | 21.0 |
| | 4,805 |
| | 20.1 |
|
Operating Income | 3,381 |
| | 13.6 |
| | 3,349 |
| | 14.0 |
|
Interest and other (income) expense: | | | | | | | |
Interest and investment income | (22 | ) | | (0.1 | ) | | (13 | ) | | (0.1 | ) |
Interest expense | 261 |
| | 1.0 |
| | 254 |
| | 1.1 |
|
Interest and other, net | 239 |
| | 1.0 |
| | 241 |
| | 1.0 |
|
Earnings before provision for income taxes | 3,142 |
| | 12.6 |
| | 3,108 |
| | 13.0 |
|
Provision for income taxes | 738 |
| | 3.0 |
| | 1,094 |
| | 4.6 |
|
Net earnings | $ | 2,404 |
| | 9.6 | % | | $ | 2,014 |
| | 8.4 | % |
—————
Note: Certain percentages may not sum to totals due to rounding. |
| | | | | | | | | |
| Three Months Ended | | |
Selected financial and sales data: | April 29, 2018 | | April 30, 2017 | | % Change |
Comparable sales (% change) (1) | 4.2% |
| | 5.5% |
| | N/A |
Comparable customer transactions (% change) (2) | (1.5)% |
| | 1.5% |
| | N/A |
Comparable average ticket (% change) (2) | 5.8% |
| | 3.9% |
| | N/A |
Customer transactions (in millions) (2) | 375.9 |
| | 380.8 |
| | (1.3)% |
Average ticket (2) | $ | 66.02 |
| | $ | 62.39 |
| | 5.8% |
Sales per square foot (2) | $ | 412.03 |
| | $ | 394.17 |
| | 4.5% |
Diluted earnings per share | $ | 2.08 |
| | $ | 1.67 |
| | 24.6% |
—————
| |
(1) | Selected Sales DataThe calculation for the three months ended April 30, 2017 does not include results for Interline, which was acquired in the third quarter of fiscal 2015.year ended January 31, 2016. |
| |
(2) | Includes sales at locations open greater than 12 months, including relocated and remodeled stores and online sales, and excluding closed stores. Retail stores become comparable on the Monday following their 365th day of operation. Comparable store sales is intended only as supplemental information and isDoes not a substituteinclude results for Net Sales or Net Earnings presented in accordance with U.S. generally accepted accounting principles.
|
| |
(3) | Consists of sales generated online through our websites for products picked up in stores or delivered to customer locations.Interline. |
N/A – Not ApplicableFirst Quarter of Fiscal 2018 Compared to First Quarter of Fiscal 2017
RESULTS OF OPERATIONSSales. We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales. Net sales for the first quarter of fiscal 2018 increased 4.4% to $24.9 billion from $23.9 billion for the first quarter of fiscal 2017. The increase in net sales in the first quarter of fiscal 2018 primarily reflected the impact of positive comparable sales driven by a 5.8% increase in comparable average ticket and a benefit of $33 million resulting from the adoption of ASU No. 2014-09, partially offset by a decline in customer transactions. See Note 1 to our consolidated financial statements for further discussion. Comparable Sales. Comparable sales is a measure that highlights the performance of our existing locations and websites by measuring the change in 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 after we own them for greater than 52 weeks (with the exception of Interline, which is excluded from comparable sales for periods prior to fiscal 2018). 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 4.9% to $23.9 billion from $22.8 billion for4.2% in the first quarter of fiscal 20162018. The increase in Net Sales for the first quarter of fiscal 2017 primarily reflects the impact of positive comparable store sales driven by average ticket growth and increased customer transactions. The increase in Net Sales was partially offset by pressure from foreign currency fluctuations, which negatively impacted total sales growth by $71 million in the first quarter of fiscal 2017.
Total comparable store sales increased 5.5% for the first quarter of fiscal 2017, which reflects a number of factors, including the execution of our strategy and broad-based growth across our stores. Allstores and online. Online sales, which consist of sales generated online through our departments posted positive comparable storewebsites for products picked up in our stores or delivered to customer locations, represented 7.6% of net sales forand grew 20.2% during the first quarter of fiscal 2017.2018. All of our departments, except for three, posted positive comparable sales in the first quarter of fiscal 2018. Comparable store sales for our Appliances, Electrical, Lumber, Décor, Tools, Plumbing, Flooring, Tools, Electrical, Plumbing, Décor,Millwork, Building Materials, Kitchen and Bath, Paint, and Indoor Garden product categoriesHardware merchandising departments were above or at the Company average forin the first quarter of fiscal 2017. Further,2018. Comparable sales in our Indoor and Outdoor Garden merchandising departments were negatively impacted by extreme winter weather in the quarter, while comparable storesales for Lighting were lower due to LED price deflation. Our comparable average ticket increased 3.9% for5.8% during the first quarter of fiscal 2017,2018, due in part to strong sales in big ticket purchases in certain merchandising departments, such as appliances, flooring and roofing, offsetAppliances.
Gross Profit.Gross profit increased 5.7% to $8.6 billion in part by pressurethe first quarter of fiscal 2018 from foreign currency fluctuations. Our comparable store customer transactions increased 1.5%$8.2 billion in the first quarter of fiscal 2017. Gross profit as a percent of net sales, or gross profit margin, was 34.5% for the first quarter of fiscal 2017.
Gross Profit increased 4.7% to $8.2 billion for the first quarter of fiscal 2017 from $7.8 billion for the first quarter of fiscal 2016. Gross Profit as a percent of Net Sales, or gross profit margin, was 34.1% for the first quarter of fiscal 20172018 compared to 34.2%34.1% for the first quarter of fiscal 20162017. The decreaseincrease in gross profit margin for the first quarter of fiscal 2017 reflects2018 primarily reflected $131 million of benefit from the impactadoption of ASU 2014-09, expansion due to changes in product mix, changes.and the benefit of recent acquisitions, partially offset by higher shrink and higher transportation costs in our supply chain.
Operating Expenses. Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General and& Administrative expenses (". SG&A")&A increased 1.9%9.6% to $4.8 billion in the first quarter of fiscal 2018 from $4.4 billion in the first quarter of fiscal 2017. As a percent of net sales, SG&A was 19.2% for the first quarter of fiscal 2018 compared to 18.3% for the first quarter of fiscal 2017. The increase in SG&A as a percent of net sales for the first quarter of fiscal 20172018 reflected an increase of $131 million from $4.3 billion for the first quarteradoption of fiscal 2016. As a percent of Net Sales, SG&A was 18.3% forASU 2014-09, and incremental investments made in the first quarter of fiscal 2017 compared to 18.8% for the first quarter of fiscal 2016. The decrease in SG&A as a percent of Net Sales for the first quarter of fiscal 2017 reflectsbusiness, partially offset by expense leverage resulting from the positive comparable store sales environment and continued expense control.
Depreciation and Amortization.Depreciation and amortization increased 2.5%2.9% to $457 million in the first quarter of fiscal 2018 from $444 million forin the first quarter of fiscal 2017 from $433 million for. The decrease in depreciation and amortization as a percent of net sales to 1.8% in the first quarter of fiscal 2016. Depreciation and Amortization as a percent of Net Sales was 1.9% for the first2018 quarter of both fiscal 2017 and 2016. Depreciation and Amortization as a percent of Net Sales forfrom 1.9% in the first quarter of fiscal 2017 reflectsreflected expense leverage resulting from the positive comparable store sales environment.
Operating Income increased 8.8%Interest and Other, net.Interest and other, net, was $239 million in the first quarter of fiscal 2018 compared to $3.3 billion for$241 million in the first quarter of fiscal 2017 from $3.1 billion for the first quarter of fiscal 2016. Operating Income as a percent of Net Sales was 14.0% for the first quarter of fiscal 2017 compared to 13.5% for the first quarter of fiscal 2016.
For the first quarter of fiscal 2017, we recognized $241 million of Interest and Other, net, compared to $237 million for the first quarter of fiscal 2016. Interest and Other,other, net, as a percent of Net Salesnet sales was 1.0% for the first quarter of both fiscal 20172018 and 20162017. and primarily reflected higher interest expense resulting from higher short-term and long-term debt balances, partially offset by higher interest income.
Provision for Income Taxes.Our combined effective income tax rate was 23.5% for the first quarter of fiscal 2018 compared to 35.2% for the first quarter of fiscal 2017 compared to 36.5%2017. The decrease in the provision for income taxes in the first quarter of fiscal 2016. The effective income tax rate for2018 was primarily attributable to the first quarter of fiscal 2017 included a $65 million benefit to our Provision for Income Taxes for share-based payment awards as a resultenactment of the adoption of ASU No. 2016-09.Tax Act.
Diluted Earnings per ShareShare. Diluted earnings per share were $1.67$2.08 for the first quarter of fiscal 20172018 compared to $1.44 for the first quarter of fiscal 2016. Diluted Earnings per Share$1.67 for the first quarter of fiscal 2017 included $0.052017. Diluted earnings per share for the first quarter of fiscal 2018 reflected a benefit as a resultof $0.32 per diluted share resulting from the enactment of the adoption of ASU No. 2016-09.Tax Act.
Non-GAAP Financial Measures
To provide clarity, internally and externally, about our operating performance, we supplement our reporting with certain non-GAAP financial measures. However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP measures. Non-GAAP financial measures presented herein may differ from similar measures used by other companies.
Return on Invested Capital
Capital. We believe return on invested capital ("ROIC")ROIC is meaningful for investors and management because it measures how effectively we deploy our capital base. We define ROIC as net operating profit after tax ("NOPAT"),NOPAT, a non-GAAP financial measure, for the most recent twelve-month period, divided by the average of beginning and ending long-term debt including(including current installments,installments) and equity for the most recent twelve-month period.
The following table provides ourcalculation of ROIC, calculation and reconcilestogether with a reconciliation of NOPAT to Net Earnings, thenet earnings (the most comparable GAAP financial measure, for the twelve months ended April 30, 2017 and May 1, 2016 (amounts in millions):measure), follows. |
| | | | | | | | |
| | Twelve Months Ended |
dollars in millions | | April 29, 2018 | | April 30, 2017 |
Net earnings | | $ | 9,020 |
| | $ | 8,168 |
|
Interest and other, net | | 981 |
| | 940 |
|
Provision for income taxes | | 4,712 |
| | 4,591 |
|
Operating income | | 14,713 |
| | 13,699 |
|
Income tax adjustment (1) | | (4,988 | ) | | (4,936 | ) |
NOPAT | | $ | 9,725 |
| | $ | 8,763 |
|
| | | | |
Average debt and equity | | $ | 27,014 |
| | $ | 27,091 |
|
| | | | |
ROIC | | 36.0 | % | | 32.3 | % |
|
| | | | | | | | |
| | For the Twelve Months Ended |
| | April 30, 2017 | | May 1, 2016 |
Net Earnings | | $ | 8,168 |
| | $ | 7,233 |
|
Add: | | | | |
Interest and Other, net | | 940 |
| | 797 |
|
Provision for Income Taxes | | 4,591 |
| | 4,224 |
|
Operating Income | | 13,699 |
| | 12,254 |
|
Subtract: | | | | |
Income Tax Adjustment (1) | | 4,936 |
| | 4,464 |
|
Net Operating Profit After Tax | | $ | 8,763 |
| | $ | 7,790 |
|
| | | | |
Average Debt and Equity (2) | | $ | 27,091 |
| | $ | 26,639 |
|
| | | | |
Return on Invested Capital (NOPAT / Average Debt and Equity) | | 32.3 | % | | 29.2 | % |
—————
| |
(1) | Income Tax Adjustmenttax adjustment is defined as Operating Incomeoperating income multiplied by the Company'sour effective tax rate. |
| |
(2) | Average Debt and Equity is defined as the average of beginning and ending long-term debt, including current installments, and equity for the most recent twelve-month period. |
Additional Information
For information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations, or cash flows, see Note 1 to our consolidated financial statements. LIQUIDITY AND CAPITAL RESOURCESLiquidity and Capital Resources
Cash flow generated from operations provides us with a significant source of liquidity. For the first quarter of fiscal 2017, Netand Cash Provided by Operating Activities was $4.6 billion compared to $3.6 billion for the same period in fiscal 2016. This increase was primarily due to $268 million more in cash provided by the effective management of Merchandise Inventories, a $234 million increase in cash flows from Accounts Payable and Accrued Expenses related to the timing of purchases and payments, and a $211 million increase in Net Earnings resulting from higher comparable store sales and expense leverage.Equivalents
Net Cash Used in Investing Activities for the first quarter of fiscal 2017 was $445 million compared to $321 million for the same period in fiscal 2016. This change was primarily due to a $133 million increase in Capital Expenditures in the first quarter of fiscal 2017 compared to the same period in fiscal 2016.
Net Cash Used in Financing Activities for the first quarter of fiscal 2017 was $3.1 billion compared to $2.3 billion for the same period of fiscal 2016. This change was primarily the result of $360 million more in Repayments of Short-Term Debt, $207 million more in Cash Dividends Paid to Stockholders and $132 million more in Repurchases of Common Stock in the first quarter of fiscal 2017 compared to the same period in fiscal 2016.
We have commercial paper programs that allow for borrowings up to $2.0 billion. In connection with these programs, we have a back-up credit facility with a consortium of banks for borrowings up to $2.0 billion. The credit facility expires in December 2019 and contains various restrictive covenants. At April 30, 2017, we were in compliance with all of the covenants, and they are not expected to impact our liquidity or capital resources. During the first quarter of fiscal 2017, all of our short-term borrowings were under these commercial paper programs, and the maximum amount outstanding at any time during the first quarter of fiscal 2017 was $1.0 billion. As of April 30, 2017, there were no borrowings outstanding under the commercial paper programs or the related credit facility.
As of April 30, 2017,29, 2018, we had $3.6 billion in Cashcash and Cash Equivalents.cash equivalents, of which $3.2 billion was held by our foreign subsidiaries. We believe that our current cash position, access to the long-term debt capital markets, and cash flow generated from operations should be sufficient not only for our operating requirements but also to enable us to complete our capital expenditure programs and fund dividend payments, share repurchases, and any required long-term debt payments through the next several fiscal years. In addition, we have funds available from our commercial paper programs and the ability to obtain alternative sources of financing.
As we accelerate our investments in the business within our disciplined approach to capital allocation, we expect capital expenditures of approximately $2.5 billion in fiscal 2018.
Debt and Derivatives
We have commercial paper programs that allow for borrowings up to $3.0 billion. All of our short-term borrowings in the first quarter of fiscal 2018 were under these commercial paper programs, and the maximum amount outstanding at any time during the first quarter of fiscal 2018 was $2.4 billion. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings up to $3.0 billion. Our back-up credit facilities consist of a five-year $2.0 billion credit facility scheduled to expire in December 2022 and a 364-day $1.0 billion credit facility scheduled to expire in December 2018. At April 29, 2018, we were in compliance with all of the covenants contained in the credit facilities, and none are expected to impact our liquidity or capital resources. At April 29, 2018, there were $350 million of borrowings outstanding under the commercial paper programs. We also issue senior notes from time to time.
We use derivative financial instruments in the management of our exposure to fluctuations in foreign currency exchange rates and interest rates on certain long-term debt. See Note 5 to our consolidated financial statements for further discussion. Share Repurchases
In December 2017, our Board of Directors authorized a new $15.0 billion share repurchase program that replaced the previous authorization. In the first quarter of fiscal 2018, we repurchased 4.7 million shares of our common stock for $1.0 billion through an ASR agreement and open market transactions. See Note 4 to our consolidated financial statements for further discussion on the ASR agreement.
RECENT ACCOUNTING PRONOUNCEMENTSCash Flows Summary
ForOperating Activities. Cash flow generated from operations provides us with a summarysignificant source of recently issued accounting pronouncements which may be applicable to us, see Note 1liquidity. 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.
Net cash provided by operating activities decreased $583 million in the first quarter of fiscal 2018 compared to the Consolidated Financial Statements includedsame period last year and primarily reflected increased merchandise inventory purchases, offset by an increase in this report.net earnings, excluding changes in working capital and non-cash items from operations. The increase in net earnings resulted from higher comparable sales and expense leverage in the first quarter of fiscal 2018, as well as a lower effective income tax rate in the first quarter of fiscal 2018 resulting from the enacting of the Tax Act.
On January 30,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.
Investing Activities. Cash used in investing activities primarily reflected capital expenditures for investments in our business of $556 million in the first quarter of fiscal 2018 and $458 million in the first quarter of fiscal 2017.
Financing Activities. Cash used in financing activities primarily reflected:
$1.2 billion of repayments of short-term borrowings; $1.2 billion of cash dividends paid; and $1.1 billion of share repurchases in the first quarter of fiscal 2018 and
$1.3 billion of share repurchases; $1.1 billion of cash dividends paid; and $710 million of repayments of short-term borrowings in the first quarter of fiscal 2017.
Critical Accounting Policies
Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements. There were no changes during the first quarter of fiscal 2018 to our critical accounting policies as disclosed in the 2017 we adopted ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting". See Note 2 to the Consolidated Financial Statements included in this report.Form 10-K. | |
Item 3. | Quantitative and Qualitative Disclosures about Market RiskRisk. |
Our exposure to market risks results primarily from fluctuations in interest rates. We are also exposed to risks from foreign currency exchange rate fluctuations on the translation of our foreign operations into U.S. dollars and on the purchase of goods by these foreign operations that are not denominated in their local currencies. There have been no material changes to our exposure to market risks from those disclosed in our Annual Report onthe 2017 Form 10-K for the fiscal year ended January 29, 2017 as filed with the SEC on March 23, 2017 (the "2016 Form 10-K").
10-K.
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Item 4. | Controls and ProceduresProcedures. |
Under the direction and with the participation of the Company'sour Chief Executive Officer and Chief Financial Officer, the Companywe evaluated itsour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended)Act) and concluded that itsour disclosure controls and procedures were effective as of April 30, 2017.29, 2018. There has been no change in the Company'sour internal control over financial reporting during the fiscal quarter ended April 30, 2017,29, 2018, that has materially affected, or is reasonably likely to materially affect, the Company'sour internal control over financial reporting.
PART II – OTHER INFORMATION
PART II. OTHER INFORMATION
Except as set forth below, there were no material changes during the first quarter of fiscal 2017 to our disclosure in Item 3 of our 2016 Form 10-K.1A. Risk Factors.
For a description of the matters related to the Data Breach, see Note 5 to the Consolidated Financial Statements included in Part I, Item 1, "Financial Statements", which description is incorporated herein by reference.
In addition to the other information set forth in this Form 10-Q,report, you should carefully consider the factors discussed under Item 1A, "Risk Factors" and elsewhere in our 2016the 2017 Form 10-K. These risks and uncertainties could materially and adversely affect our business, consolidated financial condition, and results of operations.operations, or cash flows. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently do not consider immaterialmaterial to our business. There have been no material changes in the risk factors discussed in our 2016the 2017 Form 10-K.
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Item 2. | Unregistered Sales of Equity Securities and Use of ProceedsProceeds. |
(a) Unregistered Sales of Equity Securities
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1. | During the first quarter of fiscal 2017, the Company issued 547 deferred stock units under The Home Depot, Inc. Non-Employee Directors' Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 of the SEC's Regulation D thereunder. The deferred stock units were credited to the accounts of those non-employee directors who elected to receive all or a portion of board retainers in the form of deferred stock units instead of cash during the first quarter of fiscal 2017. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan.
|
| |
2. | During the first quarter of fiscal 2017, the Company credited 1,283 deferred stock units to participant accounts under The Home Depot FutureBuilder Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following the termination of service as described in this plan.
|
(b) Issuer Purchases of Equity Securities
InSince the inception of our initial share repurchase program in fiscal 2002 through the end of the first quarter of fiscal 2017, the Board of Directors authorized a $15.0 billion share repurchase program. Through the end of the first quarter of fiscal 2017, the Company has2018, we have repurchased shares of itsour common stock having a value of approximately $1.2 billion under this program.$76.1 billion. The number and average price of shares purchased in each fiscal month of the first quarter of fiscal 2018 follow. |
| | | | | | | | | | |
Period | Total Number of Shares Purchased(1) | | Average Price Paid Per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | | Dollar Value of Shares that May Yet Be Purchased Under the Program(2) |
January 29, 2018 – February 25, 2018 | 168,708 |
| | $186.49 |
| | 149,500 |
| | $12,917,104,510 |
February 26, 2018 – March 25, 2018 (3) | 4,805,927 |
| | 178.55 |
| | 4,581,219 |
| | 11,945,001,414 |
March 26, 2018 – April 29, 2018 | 447 |
| | 183.71 |
| | — |
| | 11,945,001,414 |
Total | 4,975,082 |
| | 178.82 |
| | 4,730,719 |
| | |
—————(1) These amounts include repurchases pursuant to our Amended and Restated 2005 Omnibus Stock Incentive Plan and our 1997 Omnibus Stock Incentive Plan (collectively, the "Plans"). Under the Plans, participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards. Participants in the Plans may also exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreement and not pursuant to publicly announced share repurchase programs.
(2) In December 2017, our Board of Directors authorized a $15.0 billion share repurchase program that replaced the previous authorization. The program does not have a prescribed expiration date.
(3) In the first quarter of fiscal 2018, we paid $750 million under an ASR agreement and received an initial delivery of 3.4 million shares. See Note 4 to our consolidated financial statements for further discussion. Sales of Unregistered Securities
During the first quarter of fiscal 20172018 are set forth, we issued 569 deferred stock units under the Home Depot, Inc. Nonemployee Directors’ Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of the SEC’s Regulation D thereunder. The deferred stock units were credited to the accounts of those non-employee directors who elected to receive all or a portion of board retainers in the table below:form of deferred stock units instead of cash during the first quarter of fiscal 2018. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan.
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| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share(1) | | Total Number of Shares Purchased as Part of Publicly Announced Program(2) | | Dollar Value of Shares that May Yet Be Purchased Under the Program(2) |
January 30, 2017 – February 26, 2017 | | 663,078 |
| | $ | 145.06 |
| | 522,500 |
| | $ | 14,924,133,239 |
|
February 27, 2017 – March 26, 2017 | | 3,932,835 |
| | $ | 147.21 |
| | 3,609,685 |
| | $ | 14,392,857,295 |
|
March 27, 2017 – April 30, 2017 | | 4,619,924 |
| | $ | 148.54 |
| | 4,324,537 |
| | $ | 13,750,000,298 |
|
| | 9,215,837 |
| | $ | 147.72 |
| | 8,456,722 |
| | |
During the first quarter of fiscal 2018, we credited 1,209 deferred stock units to participant accounts under the Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan.
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(1) | These amounts include repurchases pursuant to the Company's 1997 and Amended and Restated 2005 Omnibus Stock Incentive Plans (the "Plans"). Under the Plans, participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards. Participants in the Plans may also exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreement and not pursuant to publicly announced share repurchase programs. |
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(2) | In the first quarter of fiscal 2017, the Board of Directors authorized a $15.0 billion share repurchase program that replaced the previous authorization. The program does not have a prescribed expiration date. |
Item 6. Exhibits.
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith.
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*Exhibit | | Description |
3.1 | * | |
[Form 10-Q filed on September 1, 2011, Exhibit 3.1] |
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*3.2 | * | |
[Form 8-K filed on March 8, 2016, Exhibit 3.2] |
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12.1 |
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15.1 | |
15.1 |
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31.1 |
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31.2 |
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32.1 |
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32.2 | |
32.2 |
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101.INS | | XBRL Instance Document |
101101.SCH |
| The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| THE HOME DEPOT, INC. | |
| (Registrant) | |
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By: | /s/ CRAIG A. MENEAR | |
| Craig A. Menear | |
| Chairman, Chief Executive Officer and | |
| President
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| /s/ CAROL B. TOMÉ | |
| Carol B. Tomé | |
| Chief Financial Officer and | |
| Executive Vice President – Corporate Services | |
INDEX TO EXHIBITS
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Exhibit | Description |
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Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith. |
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*3.1 |
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*3.2By: |
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| | Craig A. Menear, Chairman, Chief Executive Officer and President |
12.1 |
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15.1 |
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31.1 |
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31.2 |
| and Executive Vice President – Corporate Services pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
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32.1Date: |
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32.2 |
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101 |
| The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2017, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to the Consolidated Financial Statements.May 21, 2018 |