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 July 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. ¨ |
| | | |
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.
1,178,817,5841,144,138,185 shares of common stock, $0.05 par value, as of August 15, 201714, 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. | | |
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Item 4. | | |
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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 |
FASB | | 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 as 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
(Unaudited)
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amounts in millions, except share and per share data | July 30, 2017 | | January 29, 2017 |
ASSETS | | | |
Current Assets: | | | |
Cash and Cash Equivalents | $ | 4,830 |
| | $ | 2,538 |
|
Receivables, net | 2,187 |
| | 2,029 |
|
Merchandise Inventories | 12,868 |
| | 12,549 |
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Other Current Assets | 626 |
| | 608 |
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Total Current Assets | 20,511 |
| | 17,724 |
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Property and Equipment, at cost | 41,405 |
| | 40,426 |
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Less Accumulated Depreciation and Amortization | 19,370 |
| | 18,512 |
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Net Property and Equipment | 22,035 |
| | 21,914 |
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Goodwill | 2,235 |
| | 2,093 |
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Other Assets | 1,178 |
| | 1,235 |
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Total Assets | $ | 45,959 |
| | $ | 42,966 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current Liabilities: | | | |
Short-Term Debt | $ | — |
| | $ | 710 |
|
Accounts Payable | 8,541 |
| | 7,000 |
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Accrued Salaries and Related Expenses | 1,503 |
| | 1,484 |
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Sales Taxes Payable | 711 |
| | 508 |
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Deferred Revenue | 1,931 |
| | 1,669 |
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Income Taxes Payable | 329 |
| | 25 |
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Current Installments of Long-Term Debt | 545 |
| | 542 |
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Other Accrued Expenses | 2,263 |
| | 2,195 |
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Total Current Liabilities | 15,823 |
| | 14,133 |
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Long-Term Debt, excluding current installments | 24,422 |
| | 22,349 |
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Other Long-Term Liabilities | 1,923 |
| | 1,855 |
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Deferred Income Taxes | 237 |
| | 296 |
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Total Liabilities | 42,405 |
| | 38,633 |
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STOCKHOLDERS’ EQUITY | | | |
Common Stock, par value $0.05; authorized: 10 billion shares; issued: 1.779 billion shares at July 30, 2017 and 1.776 billion shares at January 29, 2017; outstanding: 1.181 billion shares at July 30, 2017 and 1.203 billion shares at January 29, 2017 | 89 |
| | 88 |
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Paid-In Capital | 9,958 |
| | 9,787 |
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Retained Earnings | 38,073 |
| | 35,519 |
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Accumulated Other Comprehensive Loss | (482 | ) | | (867 | ) |
Treasury Stock, at cost, 598 million shares at July 30, 2017 and 573 million shares at January 29, 2017 | (44,084 | ) | | (40,194 | ) |
Total Stockholders’ Equity | 3,554 |
| | 4,333 |
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Total Liabilities and Stockholders’ Equity | $ | 45,959 |
| | $ | 42,966 |
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in millions, except per share data | July 29, 2018 | | January 28, 2018 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 3,490 |
| | $ | 3,595 |
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Receivables, net | 2,164 |
| | 1,952 |
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Merchandise inventories | 14,044 |
| | 12,748 |
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Other current assets | 1,104 |
| | 638 |
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Total current assets | 20,802 |
| | 18,933 |
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Property and equipment, net of accumulated depreciation of $19,955 at July 29, 2018 and $19,339 at January 28, 2018 | 21,909 |
| | 22,075 |
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Goodwill | 2,251 |
| | 2,275 |
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Other assets | 1,270 |
| | 1,246 |
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Total assets | $ | 46,232 |
| | $ | 44,529 |
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Liabilities and Stockholders' Equity | | | |
Current liabilities: | | | |
Short-term debt | $ | — |
| | $ | 1,559 |
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Accounts payable | 9,407 |
| | 7,244 |
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Accrued salaries and related expenses | 1,535 |
| | 1,640 |
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Sales taxes payable | 750 |
| | 520 |
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Deferred revenue | 1,989 |
| | 1,805 |
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Current installments of long-term debt | 2,203 |
| | 1,202 |
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Other accrued expenses | 2,542 |
| | 2,224 |
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Total current liabilities | 18,426 |
| | 16,194 |
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Long-term debt, excluding current installments | 23,295 |
| | 24,267 |
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Other long-term liabilities | 2,502 |
| | 2,614 |
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Total liabilities | 44,223 |
| | 43,075 |
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Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,782 shares at July 29, 2018 and 1,780 shares at January 28, 2018; outstanding: 1,145 shares at July 29, 2018 and 1,158 shares at January 28, 2018 | 89 |
| | 89 |
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Paid-in capital | 10,079 |
| | 10,192 |
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Retained earnings | 43,543 |
| | 39,935 |
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Accumulated other comprehensive loss | (774 | ) | | (566 | ) |
Treasury stock, at cost, 637 shares at July 29, 2018 and 622 shares at January 28, 2018 | (50,928 | ) | | (48,196 | ) |
Total stockholders’ equity | 2,009 |
| | 1,454 |
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Total liabilities and stockholders’ equity | $ | 46,232 |
| | $ | 44,529 |
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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 | | Six Months Ended |
amounts in millions, except per share data | July 30, 2017 | | July 31, 2016 | | July 30, 2017 | | July 31, 2016 |
NET SALES | $ | 28,108 |
| | $ | 26,472 |
| | $ | 51,995 |
| | $ | 49,234 |
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Cost of Sales | 18,647 |
| | 17,545 |
| | 34,380 |
| | 32,516 |
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GROSS PROFIT | 9,461 |
| | 8,927 |
| | 17,615 |
| | 16,718 |
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Operating Expenses: | | | | | | | |
Selling, General and Administrative | 4,549 |
| | 4,388 |
| | 8,910 |
| | 8,669 |
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Depreciation and Amortization | 449 |
| | 436 |
| | 893 |
| | 869 |
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Total Operating Expenses | 4,998 |
| | 4,824 |
| | 9,803 |
| | 9,538 |
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OPERATING INCOME | 4,463 |
| | 4,103 |
| | 7,812 |
| | 7,180 |
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Interest and Other (Income) Expense: | | | | | | | |
Interest and Investment Income | (16 | ) | | (8 | ) | | (29 | ) | | (15 | ) |
Interest Expense | 265 |
| | 236 |
| | 519 |
| | 480 |
|
Interest and Other, net | 249 |
| | 228 |
| | 490 |
| | 465 |
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EARNINGS BEFORE PROVISION FOR INCOME TAXES | 4,214 |
| | 3,875 |
| | 7,322 |
| | 6,715 |
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Provision for Income Taxes | 1,542 |
| | 1,434 |
| | 2,636 |
| | 2,471 |
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NET EARNINGS | $ | 2,672 |
| | $ | 2,441 |
| | $ | 4,686 |
| | $ | 4,244 |
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Basic Weighted Average Common Shares | 1,183 |
| | 1,235 |
| | 1,191 |
| | 1,242 |
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BASIC EARNINGS PER SHARE | $ | 2.26 |
| | $ | 1.98 |
| | $ | 3.93 |
| | $ | 3.42 |
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Diluted Weighted Average Common Shares | 1,189 |
| | 1,240 |
| | 1,197 |
| | 1,247 |
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DILUTED EARNINGS PER SHARE | $ | 2.25 |
| | $ | 1.97 |
| | $ | 3.91 |
| | $ | 3.40 |
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Dividends Declared per Share | $ | 0.89 |
| | $ | 0.69 |
| | $ | 1.78 |
| | $ | 1.38 |
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| Three Months Ended | | Six Months Ended |
in millions, except per share data | July 29, 2018 | | July 30, 2017 | | July 29, 2018 | | July 30, 2017 |
Net sales | $ | 30,463 |
| | $ | 28,108 |
| | $ | 55,410 |
| | $ | 51,995 |
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Cost of sales | 20,098 |
| | 18,647 |
| | 36,428 |
| | 34,380 |
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Gross profit | 10,365 |
| | 9,461 |
| | 18,982 |
| | 17,615 |
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Operating expenses: | | | | | | | |
Selling, general and administrative | 5,004 |
| | 4,549 |
| | 9,783 |
| | 8,910 |
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Depreciation and amortization | 460 |
| | 449 |
| | 917 |
| | 893 |
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Total operating expenses | 5,464 |
| | 4,998 |
| | 10,700 |
| | 9,803 |
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Operating income | 4,901 |
| | 4,463 |
| | 8,282 |
| | 7,812 |
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Interest and other (income) expense: | | | | | | | |
Interest and investment income | (26 | ) | | (16 | ) | | (48 | ) | | (29 | ) |
Interest expense | 272 |
| | 265 |
| | 533 |
| | 519 |
|
Interest and other, net | 246 |
| | 249 |
| | 485 |
| | 490 |
|
Earnings before provision for income taxes | 4,655 |
| | 4,214 |
| | 7,797 |
| | 7,322 |
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Provision for income taxes | 1,149 |
| | 1,542 |
| | 1,887 |
| | 2,636 |
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Net earnings | $ | 3,506 |
| | $ | 2,672 |
| | $ | 5,910 |
| | $ | 4,686 |
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Basic weighted average common shares | 1,144 |
| | 1,183 |
| | 1,148 |
| | 1,191 |
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Basic earnings per share | $ | 3.06 |
| | $ | 2.26 |
| | $ | 5.15 |
| | $ | 3.93 |
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Diluted weighted average common shares | 1,149 |
| | 1,189 |
| | 1,154 |
| | 1,197 |
|
Diluted earnings per share | $ | 3.05 |
| | $ | 2.25 |
| | $ | 5.12 |
| | $ | 3.91 |
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Dividends declared per share | $ | 1.03 |
| | $ | 0.89 |
| | $ | 2.06 |
| | $ | 1.78 |
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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 | | Six Months Ended |
amounts in millions | July 30, 2017 | | July 31, 2016 | | July 30, 2017 | | July 31, 2016 |
NET EARNINGS | $ | 2,672 |
| | $ | 2,441 |
| | $ | 4,686 |
| | $ | 4,244 |
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Other Comprehensive Income (Loss): | | | | | | | |
Foreign Currency Translation Adjustments | 419 |
| | (192 | ) | | 389 |
| | 117 |
|
Cash Flow Hedges, net of tax | 22 |
| | (9 | ) | | (3 | ) | | 2 |
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Other | — |
| | 1 |
| | (1 | ) | | 1 |
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Total Other Comprehensive Income (Loss) | 441 |
| | (200 | ) | | 385 |
| | 120 |
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COMPREHENSIVE INCOME | $ | 3,113 |
| | $ | 2,241 |
| | $ | 5,071 |
| | $ | 4,364 |
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| Three Months Ended | | Six Months Ended |
in millions | July 29, 2018 | | July 30, 2017 | | July 29, 2018 | | July 30, 2017 |
Net earnings | $ | 3,506 |
| | $ | 2,672 |
| | $ | 5,910 |
| | $ | 4,686 |
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Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | (187 | ) | | 419 |
| | (263 | ) | | 389 |
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Cash flow hedges, net of tax | 20 |
| | 22 |
| | 48 |
| | (3 | ) |
Other | (11 | ) | | — |
| | 7 |
| | (1 | ) |
Total other comprehensive income (loss) | (178 | ) | | 441 |
| | (208 | ) | | 385 |
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Comprehensive income | $ | 3,328 |
| | $ | 3,113 |
| | $ | 5,702 |
| | $ | 5,071 |
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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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| Six Months Ended |
amounts in millions | July 30, 2017 | | July 31, 2016 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net Earnings | $ | 4,686 |
| | $ | 4,244 |
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Reconciliation of Net Earnings to Net Cash Provided by Operating Activities: | | | |
Depreciation and Amortization | 1,015 |
| | 978 |
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Stock-Based Compensation Expense | 148 |
| | 133 |
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Changes in Assets and Liabilities, net of the effects of acquisitions: | | | |
Receivables, net | (96 | ) | | (91 | ) |
Merchandise Inventories | (188 | ) | | (495 | ) |
Other Current Assets | — |
| | (38 | ) |
Accounts Payable and Accrued Expenses | 1,714 |
| | 1,773 |
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Deferred Revenue | 254 |
| | 94 |
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Income Taxes Payable | 299 |
| | 389 |
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Deferred Income Taxes | (79 | ) | | (86 | ) |
Other, net | 109 |
| | (24 | ) |
Net Cash Provided by Operating Activities | 7,862 |
| | 6,877 |
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CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Capital Expenditures | (846 | ) | | (697 | ) |
Payments for Business Acquired, net | (268 | ) | | — |
|
Proceeds from Sales of Property and Equipment | 23 |
| | 23 |
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Net Cash Used in Investing Activities | (1,091 | ) | | (674 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Repayments of Short-Term Debt, net | (710 | ) | | (350 | ) |
Proceeds from Long-Term Debt, net of discounts | 1,994 |
| | 2,989 |
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Repayments of Long-Term Debt | (21 | ) | | (3,023 | ) |
Repurchases of Common Stock | (3,921 | ) | | (2,441 | ) |
Proceeds from Sales of Common Stock | 137 |
| | 121 |
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Cash Dividends Paid to Stockholders | (2,130 | ) | | (1,718 | ) |
Other Financing Activities | 2 |
| | 1 |
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Net Cash Used in Financing Activities | (4,649 | ) | | (4,421 | ) |
Change in Cash and Cash Equivalents | 2,122 |
| | 1,782 |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents | 170 |
| | 20 |
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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 | $ | 4,830 |
| | $ | 4,018 |
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| Six Months Ended |
in millions | July 29, 2018 | | July 30, 2017 |
Cash Flows from Operating Activities: | | | |
Net earnings | $ | 5,910 |
| | $ | 4,686 |
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Reconciliation of net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization | 1,062 |
| | 1,015 |
|
Stock-based compensation expense | 144 |
| | 148 |
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Changes in assets and liabilities, net of acquisition effects: | | | |
Receivables, net | (192 | ) | | (96 | ) |
Merchandise inventories | (1,355 | ) | | (188 | ) |
Other current assets | (468 | ) | | — |
|
Accounts payable and other accrued expenses | 2,617 |
| | 1,714 |
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Deferred revenue | 287 |
| | 254 |
|
Income taxes payable | 21 |
| | 299 |
|
Deferred income taxes | (120 | ) | | (79 | ) |
Other | 1 |
| | 109 |
|
Net cash provided by operating activities | 7,907 |
| | 7,862 |
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| | | |
Cash Flows from Investing Activities: | | | |
Capital expenditures | (1,091 | ) | | (846 | ) |
Payments for business acquired, net | — |
| | (268 | ) |
Proceeds from sales of property and equipment | 16 |
| | 23 |
|
Net cash used in investing activities | (1,075 | ) | | (1,091 | ) |
| | | |
Cash Flows from Financing Activities: | | | |
Repayments of short-term debt, net | (1,559 | ) | | (710 | ) |
Proceeds from long-term debt, net of discounts | — |
| | 1,994 |
|
Repayments of long-term debt | (28 | ) | | (21 | ) |
Repurchases of common stock | (3,121 | ) | | (3,921 | ) |
Proceeds from sales of common stock | 125 |
| | 137 |
|
Cash dividends | (2,373 | ) | | (2,130 | ) |
Other financing activities | 142 |
| | 2 |
|
Net cash used in financing activities | (6,814 | ) | | (4,649 | ) |
Change in cash and cash equivalents | 18 |
| | 2,122 |
|
Effect of exchange rate changes on cash and cash equivalents | (123 | ) | | 170 |
|
Cash and cash equivalents at beginning of period | 3,595 |
| | 2,538 |
|
Cash and cash equivalents at end of period | $ | 3,490 |
| | $ | 4,830 |
|
| | | |
Supplemental Disclosures: | | | |
Cash paid for interest, net of interest capitalized | $ | 515 |
| | $ | 490 |
|
Cash paid for income taxes | 2,009 |
| | 2,268 |
|
See accompanying Notesnotes to Consolidated Financial Statements.consolidated financial statements.
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
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 product sold in stores or online, payment is typically due at the point of sale. For services, payment in full is due 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 finalized key accounting assessments and then implemented internal controls and updated processes to appropriately recognize and present the associated financial information. Based on these efforts, we determined that the adoption of ASU No. 2014-09 changes the presentation of (i) certain expenses and cost reimbursements associated with our PLCC program (now recognized in net sales), (ii) certain expenses related to the sale of gift cards to customers (now recognized in operating expense), and (iii) gift card breakage income (now recognized in net sales). We also have changed our recognition of gift card breakage income to be recognized proportionately as redemption occurs, rather than based on historical redemption patterns.
In addition, the adoption of ASU No. 2014-09 requires that we recognize our sales return allowance on a gross basis rather than as a net liability. As such, we now recognize (i) a return asset for the right to recover the goods returned by the customer, measured at the former carrying amount of July 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 allowances for Merchandise Inventoriesaccounting standards in effect during those periods. We expect the impact of the adoption to be immaterial to our financial position, results of operations, and uncollectible Receivables werecash flows on an ongoing basis.
The effect of the adoption of ASU No. 2014-09 on our consolidated balance sheet as of July 29, 2018, follows.
|
| | | | | | | | | | | |
in millions | As Reported | | ASU No. 2014-09 Effect(1) | | Excluding ASU No. 2014-09 Effect |
Receivables, net | $ | 2,164 |
| | $ | (46 | ) | | $ | 2,210 |
|
Other current assets | 1,104 |
| | 272 |
| | 832 |
|
Other accrued expenses | 2,542 |
| | 226 |
| | 2,316 |
|
—————(1) Does not material.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 statements of earnings follows.
|
| | | | | | | | | | | |
in millions | As Reported | | ASU No. 2014-09 Effect | | Excluding ASU No. 2014-09 Effect |
Three Months Ended July 29, 2018: | | | | | |
Net sales | $ | 30,463 |
| | $ | 33 |
| | $ | 30,430 |
|
Cost of sales | 20,098 |
| | (119 | ) | | 20,217 |
|
Gross profit | 10,365 |
| | 152 |
| | 10,213 |
|
Selling, general and administrative | 5,004 |
| | 152 |
| | 4,852 |
|
| | | | | |
Six Months Ended July 29, 2018: | | | | | |
Net sales | $ | 55,410 |
| | $ | 66 |
| | $ | 55,344 |
|
Cost of sales | 36,428 |
| | (217 | ) | | 36,645 |
|
Gross profit | 18,982 |
| | 283 |
| | 18,699 |
|
Selling, general and administrative | 9,783 |
| | 283 |
| | 9,500 |
|
ASU No. 2016-16.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires an entity to recognize the income tax consequences of an intercompany transfer of assets other than inventory when the transfer occurs. An entity will continue to recognize the income tax consequences of an intercompany transfer of inventory when the inventory is sold to a third party.
On January 29, 2018, we adopted ASU No. 2016-16 using the modified retrospective transition method with no impact on our consolidated financial statements. We expect the impact of the adoption to be immaterial to our financial position, results of operations, and cash flows on an ongoing basis.
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 |
No sales to an individual customer or country other than the U.S. accounted for more than 10% of net sales during the three and six months ended July 29, 2018. Net sales, classified by geography follow.
|
| | | | | | | |
in millions | Three Months Ended July 29, 2018 | | Six Months Ended July 29, 2018 |
Net sales – in the U.S. | $ | 27,852 |
| | $ | 50,895 |
|
Net sales – outside the U.S. | 2,611 |
| | 4,515 |
|
Net sales | $ | 30,463 |
| | $ | 55,410 |
|
Net sales by products and services for the three and six months ended July 29, 2018 follow.
|
| | | | | | | |
in millions | Three Months Ended July 29, 2018 | | Six Months Ended July 29, 2018 |
Net sales – products | $ | 29,076 |
| | $ | 52,811 |
|
Net sales – services | 1,387 |
| | 2,599 |
|
Net sales | $ | 30,463 |
| | $ | 55,410 |
|
Major product lines, as well as the associated merchandising departments (and related services) for the three and six months ended July 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 follow.
|
| | | | | | | |
in millions | Three Months Ended July 29, 2018 | | Six Months Ended July 29, 2018 |
Building Materials | $ | 10,678 |
| | $ | 20,004 |
|
Décor | 9,642 |
| | 18,057 |
|
Hardlines | 10,143 |
| | 17,349 |
|
Net sales | $ | 30,463 |
| | $ | 55,410 |
|
On January 30,December 22, 2017, the Company adopted ASUSEC issued Staff Accounting Bulletin No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements118 ("SAB 118") to Employee Share-Based Payment Accounting". Upon adoptionaddress the application of this update, all excessGAAP 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 benefits or deficiencieseffects of the Tax Act. As of July 29, 2018, our accounting for the Tax Act was 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. During the second quarter of fiscal 2018, we made a measurement-period adjustment related to share-based payment awardswithholding taxes that did not have a material impact to the financial statements. We have not made any additional measurement-period adjustments during 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 recognized incontinuing to gather additional information to complete our accounting for these items and expect to complete o
ur accounting within the one-year time period provided by SAB 118. Any adjustment to these amounts during the measurement period will be recorded to 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 activitythe 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 of cash flows inand have not made a policy decision regarding whether to record deferred taxes on GILTI or use 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 resultcost method. We have, however, included an estimate of the adoption of ASU No. 2016-09, the Company recognized $20 million and $85 million of excesscurrent GILTI impact in our annual effective tax benefits related to share-based payment awards in its provisionrate for income taxes during the second quarter and first six months of fiscal 2017, respectively. The recognition of these benefits contributed $0.02 and $0.07 to Diluted Earnings per Share for the second quarter and first six months of fiscal 2017, respectively.2018.
In June 2017, the Company issued $500 million of floating rate senior notes due June 5, 2020 (the "2020 floating rate notes"); $750 million of 1.80% senior notes due June 5, 2020 (the "2020 notes") at a discount of $1 million; and $750 million of 3.90% senior notes due June 15, 2047 (the "2047 notes") at a discount of $5 million (together, the “June 2017 issuance”). The 2020 floating rate notes bear interest at a variable rate determined quarterly equal to the three-month London Interbank Offered Rate ("LIBOR") plus 15 basis points. Interest on the 2020 floating rate notes is due quarterly on March 5, June 5, September 5, and December 5 of each year, beginning September 5, 2017. Interest on the 2020 notes is due semi-annually on June 5 and December 5 of each year, beginning December 5, 2017. Interest on the 2047 notes is due semi-annually on June 15 and December 15 of each year, beginning December 15, 2017. Interest payments for the 2020 notes and 2047 notes will include accrued interest from and including June 5, 2017. The $6 million discount associated with the 2020 notes and the 2047 notes is being amortized over the term of the notes using the effective interest rate method. Issuance costs of $12 million associated with the June 2017 issuance were recorded as a direct deduction to the senior notes and are being amortized over the term of the notes. The net proceeds of the June 2017 issuance will be used for general corporate purposes, including repurchases of the Company's common stock.
All of the Company's senior notes, other than its outstanding floating rate notes, may be redeemed by the Company at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. The redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Par Call Date, as defined in the respective notes. Additionally, if a Change in Control Triggering Event occurs, as defined in the notes, holders of all notes have the right to require the Company to redeem those notes at 101% of the aggregate principal amount of the notes plus accrued interest up to the redemption date. The Company is generally not limited under the indentures governing the notes in its ability to incur additional indebtedness or required to maintain financial ratios or specified levels of net worth or liquidity. The indentures governing the notes contain various customary covenants; however, none are expected to impact the Company's liquidity or capital resources.
| |
4. | ACCELERATED SHARE REPURCHASE AGREEMENTSSTOCKHOLDERS' EQUITY |
The Company enters into Accelerated Share Repurchase ("ASR")Agreements
We enter into ASR agreements from time to time with third-party financial institutions to repurchase shares of the Company’sour common stock. Under an ASR agreement, the Company pays a specified amount to the financial institution and receives an initial delivery of shares. This initial delivery of shares represents the minimum number of shares that the Company may receive under the agreement. Upon settlement of the ASR agreement, the financial institution delivers additional shares, with the final number of shares delivered determined with reference to the volume weighted average price per share of the Company’s common stock over the term of the ASR agreement, less a negotiated discount. The transactionsThese agreements are accounted forstructured as equity transactions and are included in Treasury Stock when the shares are received, at which time there is an immediate reductionoutlined in the weighted average common shares calculation for basic and diluted earnings per share.
The Company entered into an ASR agreement during the second quarter of fiscal 2017.2017 Form 10-K. The terms of the ASR agreement, whichagreements entered into during the first six months of fiscal 2018 follow the structure outlined above, were as follows (amounts in(in millions):.
|
| | | | | | | | | | | | |
Agreement Date | | Settlement Date | | Amount | | Initial Shares Delivered | | Additional Shares Delivered | | Total Shares Delivered |
Q2 2017 | | Q2 2017 | | $ | 1,650 |
| | 9.7 | | 1.1 | | 10.8 |
|
| | | | | | | | | | |
Agreement Date | | Settlement Date | | Agreement Amount | | Initial Shares Delivered | | Additional Shares Delivered | | Total Shares Delivered |
Q1 2018 | | Q2 2018 | | $750 | | 3.4 | | 0.8 | | 4.2 |
Q2 2018(1) | | Q3 2018(2) | | 1,600 | | 7.1 | | 1.0 | | 8.1 |
—————
| |
(1) | The fair market value of the initial 7.1 million shares on the date of delivery was $1.3 billion and is included in treasury stock as of July 29, 2018, with the remaining $268 million included in paid-in capital. |
| |
(2) | We received an additional 1.0 million shares upon termination of the ASR agreement in August 2018. |
See Note 6 to the consolidated financial statements in the 2017 Form 10-K for further discussion.
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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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:basis follow.
| | amounts in millions | Fair Value at July 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) | Fair Value at July 29, 2018 Using | | Fair Value at January 28, 2018 Using |
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 | $ | — |
| | $ | 208 |
| | $ | — |
| | $ | — |
| | $ | 271 |
| | $ | — |
| $ |
|
| | $ | 231 |
| | $ |
|
| | $ |
|
| | $ | 235 |
| | $ |
|
|
Derivative agreements - liabilities | | — |
| | (20 | ) | | — |
| | — |
| | (12 | ) | | — |
|
Total | | $ |
|
| | $ | 211 |
| | $ |
|
| | $ |
|
| | $ | 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 six 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:follow.
| | amounts in millions | July 30, 2017 | | January 29, 2017 | |
| Fair Value (Level 1) | | Carrying Value | | Fair Value (Level 1) | | Carrying Value | July 29, 2018 | | January 28, 2018 |
in millions | | Fair Value (Level 1) | | Carrying Value | | Fair Value (Level 1) | | Carrying Value |
Senior notes | $ | 26,194 |
| | $ | 24,005 |
| | $ | 23,620 |
| | $ | 22,013 |
| $ | 25,625 |
| | $ | 24,484 |
| | $ | 26,617 |
| | $ | 24,485 |
|
| |
6. | BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES |
The following table presents the reconciliation of our basic to diluted weighted average common shares as well as the effectfollows.
|
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
in millions | July 29, 2018 | | July 30, 2017 | | July 29, 2018 | | July 30, 2017 |
Basic weighted average common shares | 1,144 |
| | 1,183 |
| | 1,148 |
| | 1,191 |
|
Effect of potentially dilutive securities | 5 |
| | 6 |
| | 6 |
| | 6 |
|
Diluted weighted average common shares | 1,149 |
| | 1,189 |
| | 1,154 |
| | 1,197 |
|
|
| | | | | | | | | | | |
Anti-dilutive securities excluded from diluted weighted average common shares (1) | — |
| | 1 |
| | — |
| | 1 |
|
—————(1) Represent options that were granted under our employee stock plans to purchase shares of anti-dilutive securities excluded from diluted weighted averageour common shares:
|
| | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
amounts in millions | July 30, 2017 | | July 31, 2016 | | July 30, 2017 | | July 31, 2016 |
Basic Weighted Average Common Shares | 1,183 |
| | 1,235 |
| | 1,191 |
| | 1,242 |
|
Effect of potentially dilutive securities - stock plans | 6 |
| | 5 |
| | 6 |
| | 5 |
|
Diluted Weighted Average Common Shares | 1,189 |
| | 1,240 |
| | 1,197 |
| | 1,247 |
|
|
| | | | | | | | | | | |
Effect of anti-dilutive securities excluded from diluted weighted average common shares | 1 |
| | 1 |
| | 1 |
| | 1 |
|
stock.
THE HOME DEPOT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
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 six months of fiscal 2017 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 July 30, 2017,29, 2018, the related Consolidated Statements of Earnings and Comprehensive Income for the three-month and six-month periods ended July 30, 201729, 2018 and July 31, 2016, and30, 2017, the related Consolidated Statements of Cash Flows for the six-month periods ended July 29, 2018 and July 30, 2017, and July 31, 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 interim financial informationConsolidated 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
August 21, 201720, 2018
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations. |
FORWARD-LOOKING STATEMENTS
Certain statements contained herein regarding our future performance constitute "forward-looking statements" as defined inOur MD&A includes 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 acquired companies into our organization and the ability to recognize the anticipated synergies and benefits of those acquisitions.following sections:
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 DATAExecutive Summary
Net Sales increased 6.2%Quarter to $28.1date and year to date highlights of our financial performance follow.
|
| | | | | | | | | | | | | | | |
dollars in millions, except per share data | Three Months Ended | | Six Months Ended |
July 29, 2018 | | July 30, 2017 | | July 29, 2018 | | July 30, 2017 |
Net sales | $ | 30,463 |
| | $ | 28,108 |
| | $ | 55,410 |
| | $ | 51,995 |
|
Net earnings | 3,506 |
| | 2,672 |
| | 5,910 |
| | 4,686 |
|
Effective tax rate | 24.7 | % | | 36.6 | % | | 24.2 | % | | 36.0 | % |
| | | | | | | |
Diluted earnings per share | $ | 3.05 |
| | $ | 2.25 |
| | $ | 5.12 |
| | $ | 3.91 |
|
| | | | | | | |
Net cash provided by operating activities | | | | | $ | 7,907 |
| | $ | 7,862 |
|
Repurchases of common stock | | | | | 3,121 |
| | 3,921 |
|
We reported net sales of $30.5 billion forin the second quarter of fiscal 2017 from $26.52018. Net earnings were $3.5 billion, for the second quarter of fiscal 2016.or $3.05 per diluted share. For the first six months of fiscal 2017, Net Sales increased 5.6% to $52.0 billion from $49.2 billion for the first six months of fiscal 2016. Our total comparable store2018, net sales increased 6.3% for the second quarter of fiscal 2017, driven by a 3.6% increase in our comparable store average ticket and a 2.6% increase in our comparable store customer transactions. Comparable store sales for our U.S. stores increased 6.6% for the second quarter of fiscal 2017. For the first six months of fiscal 2017, our total comparable store sales increased 6.0% and comparable store sales for our U.S. stores increased 6.3%.
For the second quarter of fiscal 2017, we reported Net Earnings of $2.7were $55.4 billion and Diluted Earningsnet earnings were $5.9 billion, or $5.12 per Share of $2.25 compared to Net Earnings of $2.4 billion and Diluted Earnings per Share of $1.97 for the second quarter of fiscal 2016. For the first six months of fiscal 2017, we reported Net Earnings of $4.7 billion and Diluted Earnings per Share of $3.91 compared to Net Earnings of $4.2 billion and Diluted Earnings per Share of $3.40 for the first six months of fiscal 2016.
Results for the second quarter and first six months of fiscal 2017 included benefits of $20 million and $85 million, respectively, 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 $0.02 and $0.07 to Diluted Earnings per Share for the second quarter and first six months of fiscal 2017, respectively. See Note 2 to the Consolidated Financial Statements included in this report.
In the second quarter and first six months 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 six months of fiscal 2017, we continued to invest in our digital platforms, including content, website improvements, and the mobile experience to provide a frictionless interconnected experience online, while also remaining focused on improving the interconnected experience in the store. Sales from our online channels increased 23.3% for the second quarter of fiscal 2017 compared to the same period last year, and represented 6.4% of our total Net Sales. For the first six months of fiscal 2017, sales from our online channels increased 23.1%
compared to the same period last year, and represented 6.5% of our total Net Sales. We are also focused on being a valued partner to our professional customers by offering solutions in the store and at the jobsite that help them effectively manage their businesses. For example, during the second quarter of fiscal 2017, we completed the acquisition of Compact Power Equipment, Inc. ("Compact Power"), a leading national provider of equipment rental and maintenance services, to enhance our portfolio of service offerings to our professional customers. Also in the first six months of fiscal 2017, we completed the roll out of Interline Brands, Inc.'s ("Interline") product catalog to our stores and continued the roll out of the capability to accept payment in our stores that is linked to existing Interline customer accounts.
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 six months 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 six months 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 increased our targeted dividend payout ratio to 55% of Diluted Earnings per Share for fiscal 2016. Also 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 17.3 million shares for $2.6 billion through an Accelerated Share Repurchase ("ASR") agreement and the open market during the second quarter of fiscal 2017.diluted share.
We opened one new store in the U.S.Mexico during the second quarter of fiscal 2017,2018, for a total store count of 2,2822,286 at the end of the quarter. As of the end of the second quarter of fiscal 2017,July 29, 2018, a total of 302305 of our stores, or 13.2%13.3%, were located in Canada and Mexico. For the second quarter of fiscal 2018, total sales per square foot were $504.20 and our inventory turnover ratio was 5.4 times.
We generated $7.9 billion of cash flow from operations induring the first six months of fiscal 2017.2018. This cash flow along with $2.0was used to pay $2.4 billion of long-term debt issueddividends, repay $1.6 billion of short-term borrowings, fund cash payments of $3.1 billion for share repurchases, and fund $1.1 billion in capital expenditures.
During the first six months of fiscal 2017,2018, we repurchased a total of 14.9 million shares of our common stock for $3.0 billion through two ASR agreements and open market transactions. In February 2018, we announced a 15.7% increase in our quarterly cash dividend to $1.03 per share.
Our ROIC for the trailing twelve-month period was used to fund cash payments of $3.9 billion for share repurchases, pay $2.1 billion of dividends, fund $846 million in capital expenditures and repay $710 million of short-term debt.
Our inventory turnover ratio was 5.3 times37.9% at the end of the second quarter of fiscal
2017 compared to 5.2 times at2018. See the
end"Non-GAAP Financial Measures" section below for our definition and calculation of the second quarterROIC, as well as a reconciliation of fiscal 2016. Our return on invested capital (defined as net operating profit after tax,NOPAT, a non-GAAP financial measure, forto net earnings, the most recent twelve-month period, dividedcomparable GAAP financial 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 the 2017 Form 10-K and with our MD&A included in the 2017 Form 10-K. We believe the percentage relationship between net sales and major categories in our consolidated statements of earnings, as well as the percentage change in the associated dollar amounts, are relevant to an evaluation of our business.
Fiscal 2018 and Fiscal 2017 Three Month Comparisons
|
| | | | | | | | | | | | | |
| Three Months Ended |
| July 29, 2018 | | July 30, 2017 |
dollars in millions | $ | | % of Net Sales | | $ | | % of Net Sales |
Net sales | $ | 30,463 |
| | | | $ | 28,108 |
| | |
Gross profit | 10,365 |
| | 34.0 | % | | 9,461 |
| | 33.7 | % |
Operating expenses: | | | | | | | |
Selling, general and administrative | 5,004 |
| | 16.4 |
| | 4,549 |
| | 16.2 |
|
Depreciation and amortization | 460 |
| | 1.5 |
| | 449 |
| | 1.6 |
|
Total operating expenses | 5,464 |
| | 17.9 |
| | 4,998 |
| | 17.8 |
|
Operating income | 4,901 |
| | 16.1 |
| | 4,463 |
| | 15.9 |
|
Interest and other (income) expense: | | | | | | | |
Interest and investment income | (26 | ) | | (0.1 | ) | | (16 | ) | | (0.1 | ) |
Interest expense | 272 |
| | 0.9 |
| | 265 |
| | 0.9 |
|
Interest and other, net | 246 |
| | 0.8 |
| | 249 |
| | 0.9 |
|
Earnings before provision for income taxes | 4,655 |
| | 15.3 |
| | 4,214 |
| | 15.0 |
|
Provision for income taxes | 1,149 |
| | 3.8 |
| | 1,542 |
| | 5.5 |
|
Net earnings | $ | 3,506 |
| | 11.5 | % | | $ | 2,672 |
| | 9.5 | % |
—————
Note: Certain percentages may not sum to totals due to rounding. |
| | | | | | | | | |
| Three Months Ended | | |
Selected financial and sales data: | July 29, 2018 | | July 30, 2017 | | % Change |
Comparable sales (% change)(1) | 8.0% |
| | 6.3% |
| | N/A |
Comparable customer transactions (% change)(2) | 2.9% |
| | 2.6% |
| | N/A |
Comparable average ticket (% change)(2) | 4.9% |
| | 3.6% |
| | N/A |
Customer transactions (in millions)(2) | 455.4 |
| | 441.8 |
| | 3.1% |
Average ticket(2) | $ | 66.20 |
| | $ | 63.05 |
| | 5.0% |
Sales per square foot(2) | $ | 504.20 |
| | $ | 464.38 |
| | 8.6% |
Diluted earnings per share | $ | 3.05 |
| | $ | 2.25 |
| | 35.6% |
————— | |
(1) | The calculation for the three months ended July 30, 2017 does not include results for Interline, which was acquired in the fiscal year ended January 31, 2016. |
| |
(2) | Does not include results for Interline. |
Sales. We assess our sales performance by the average of beginningevaluating both net sales and ending long-term debt, including current installments, and equity for the most recent twelve-month period) was 32.0%comparable sales.
Net Sales. Net sales for the second quarter of fiscal 2017 compared2018 increased 8.4% to 29.0%$30.5 billion from $28.1 billion in the comparable prior-year period. The increase in net sales in the second quarter of fiscal 2018 primarily reflected the impact of positive comparable sales driven by an increase in comparable average ticket and comparable customer transactions. Net sales also benefited $33 million as a result of the adoption of ASU No. 2014-09. 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 net sales for a period over the comparable prior-period of equivalent length. Comparable sales includes sales at all locations, physical and online, open greater than 52 weeks (including remodels and relocations) and excluding closed stores. Retail stores become comparable on the Monday following their 365th day of operation. Acquisitions, digital or otherwise, are included 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 8.0% in the second quarter of fiscal 2018. The increase in comparable sales reflects a number of factors, including recovery of spring sales that were delayed due to extreme and extended winter weather as well as the execution of our strategy and broad-based growth across our stores and online. All of our departments, except for Lighting, posted positive comparable sales in the second quarter of fiscal 2018. Comparable sales for our Lumber, Indoor Garden, Outdoor Garden, Electrical, Tools, and Appliances merchandising departments were above the Company average in the second quarter of fiscal 2018. Comparable sales for Lighting were negative primarily due to LED price deflation. Our comparable average ticket increased 4.9% during the second quarter of fiscal 2018, primarily due to strong sales in big ticket purchases, such as vinyl plank flooring and appliances, strong sales to our professional customers, and index-based commodity price inflation. The 2.9% growth in comparable customer transactions for the second quarter of fiscal 2016. For a reconciliation2018 benefited from customer traffic that was delayed due to extreme winter weather in the first quarter of fiscal 2018. Online sales, which consist of sales generated online through our websites for products picked up in our stores or delivered to customer locations, represented 7.5% of net sales and grew 25.7% during the second quarter of fiscal 2018.
Gross Profit.Gross profit increased 9.6% to $10.4 billion in the second quarter of fiscal 2018 from $9.5 billion in the comparable prior-year period. Gross profit as a percent of net sales, or gross profit margin, was 34.0% for the second quarter of fiscal 2018 compared to 33.7% for the second quarter of fiscal 2017. The increase in gross profit margin for the second quarter of fiscal 2018 primarily reflected $152 million of benefit from the adoption of ASU No. 2014-09 and expansion due to the net result of a number of factors including sales mix and the impact of recent acquisitions. These factors were partially offset by higher transportation and fuel costs in our supply chain.
Operating Expenses. Our operating profit afterexpenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A increased 10.0% to $5.0 billion in the second quarter of fiscal 2018 from $4.5 billion in the comparable prior-year period. As a percent of net sales, SG&A was 16.4% for the second quarter of fiscal 2018 compared to 16.2% for the second quarter of fiscal 2017. The increase in SG&A as a percent of net sales for the second quarter of fiscal 2018 reflected an increase of $152 million from the adoption of ASU No. 2014-09 and incremental investments made in the business, partially offset by expense leverage resulting from the positive comparable sales environment and continued expense control.
Depreciation and Amortization.Depreciation and amortization increased 2.4% to $460 million in the second quarter of fiscal 2018 from $449 million in the comparable prior-year period. As a percent of net sales, depreciation and amortization was 1.5% in the second quarter of fiscal 2018 compared to 1.6% in the second quarter of fiscal 2017. The decrease in depreciation and amortization as a percent of net sales primarily reflected leverage resulting from the positive comparable sales environment and timing of asset additions, partially offset by certain investments in shorter-lived assets.
Interest and Other, net.Interest and other, net, was $246 million in the second quarter of fiscal 2018 compared to $249 million in the comparable prior-year period. Interest and other, net, as a percent of net sales was 0.8% for the second quarter of fiscal 2018 and 0.9% for the second quarter of fiscal 2017. The decrease as a percent of net sales primarily reflected expense leverage resulting from the positive comparable sales environment and higher interest income, partially offset by higher interest expense resulting from higher debt balances.
Provision for Income Taxes.Our combined effective income tax rate was 24.7% for the second quarter of fiscal 2018 compared to Net36.6% for the second quarter of fiscal 2017. The decrease in the provision for income taxes in the second quarter of fiscal 2018 was primarily attributable to the enactment of the Tax Act.
Diluted Earnings per Share. Diluted earnings per share were $3.05 for the most comparable GAAP financial measure, and our calculationsecond quarter of return on invested capital, see "Non-GAAP Financial Measures" below.fiscal 2018 compared to $2.25 for the second quarter of fiscal 2017. Diluted earnings per share for the second quarter of fiscal 2018 reflected a benefit of $0.47 per diluted share resulting from enactment of the Tax Act.
We believe the percentage relationship between Net Sales
Fiscal 2018 and the major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of these items as well as the selected sales data presented below are important in evaluating the performance of our business operations.Fiscal 2017 Six Month Comparisons
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| | | | | | | | | | | | | | | | | | | | | |
| % of Net Sales | | % Increase (Decrease) in Dollar Amounts |
| Three Months Ended | | Six Months Ended | |
| July 30, 2017 | | July 31, 2016 | | July 30, 2017 | | July 31, 2016 | | Three Months | | Six Months |
NET SALES | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 6.2 | % | | 5.6 | % |
GROSS PROFIT | 33.7 |
| | 33.7 |
| | 33.9 |
| | 34.0 |
| | 6.0 |
| | 5.4 |
|
Operating Expenses: | | | | |
|
| |
|
| | | | |
Selling, General and Administrative | 16.2 |
| | 16.6 |
| | 17.1 |
| | 17.6 |
| | 3.7 |
| | 2.8 |
|
Depreciation and Amortization | 1.6 |
| | 1.6 |
| | 1.7 |
| | 1.8 |
| | 3.0 |
| | 2.8 |
|
Total Operating Expenses | 17.8 |
| | 18.2 |
| | 18.9 |
| | 19.4 |
| | 3.6 |
| | 2.8 |
|
| | | | | | | | | | | |
OPERATING INCOME | 15.9 |
| | 15.5 |
| | 15.0 |
| | 14.6 |
| | 8.8 |
| | 8.8 |
|
Interest and Other (Income) Expense: | | | | | | | | | | | |
Interest and Investment Income | (0.1 | ) | | — |
| | (0.1 | ) | | — |
| | 100.0 |
| | 93.3 |
|
Interest Expense | 0.9 |
| | 0.9 |
| | 1.0 |
| | 1.0 |
| | 12.3 |
| | 8.1 |
|
Interest and Other, net | 0.9 |
| | 0.9 |
| | 0.9 |
| | 0.9 |
| | 9.2 |
| | 5.4 |
|
| | | | | | | | | | | |
EARNINGS BEFORE PROVISION FOR INCOME TAXES | 15.0 |
| | 14.6 |
| | 14.1 |
| | 13.6 |
| | 8.7 |
| | 9.0 |
|
Provision for Income Taxes | 5.5 |
| | 5.4 |
| | 5.1 |
| | 5.0 |
| | 7.5 |
| | 6.7 |
|
NET EARNINGS | 9.5 | % | | 9.2 | % | | 9.0 | % | | 8.6 | % | | 9.5 | % | | 10.4 | % |
SELECTED SALES DATA (1) | | | | | | | | | | | |
Number of Customer Transactions | 441.8 |
| | 430.0 |
| | 822.6 |
| | 804.8 |
| | 2.8 | % | | 2.2 | % |
Average Ticket | $ | 63.05 |
| | $ | 60.87 |
| | $ | 62.74 |
| | $ | 60.48 |
| | 3.6 | % | | 3.7 | % |
Sales per Square Foot | $ | 464.38 |
| | $ | 438.61 |
| | $ | 429.17 |
| | $ | 407.64 |
| | 5.9 | % | | 5.3 | % |
Comparable Store Sales Increase (%) (2) | 6.3 | % | | 4.7 | % | | 6.0 | % | | 5.5 | % | | N/A |
| | N/A |
|
Online Sales (% of Net Sales) (3) | 6.4 | % | | 5.6 | % | | 6.5 | % | | 5.6 | % | | 23.3 | % | | 23.1 | % |
|
| | | | | | | | | | | | | |
| Six Months Ended |
| July 29, 2018 | | July 30, 2017 |
dollars in millions | $ | | % of Net Sales | | $ | | % of Net Sales |
Net sales | $ | 55,410 |
| | | | $ | 51,995 |
| | |
Gross profit | 18,982 |
| | 34.3 | % | | 17,615 |
| | 33.9 | % |
Operating expenses: | | | | | | | |
Selling, general and administrative | 9,783 |
| | 17.7 |
| | 8,910 |
| | 17.1 |
|
Depreciation and amortization | 917 |
| | 1.7 |
| | 893 |
| | 1.7 |
|
Total operating expenses | 10,700 |
| | 19.3 |
| | 9,803 |
| | 18.9 |
|
Operating income | 8,282 |
| | 14.9 |
| | 7,812 |
| | 15.0 |
|
Interest and other (income) expense: | | | | | | | |
Interest and investment income | (48 | ) | | (0.1 | ) | | (29 | ) | | (0.1 | ) |
Interest expense | 533 |
| | 1.0 |
| | 519 |
| | 1.0 |
|
Interest and other, net | 485 |
| | 0.9 |
| | 490 |
| | 0.9 |
|
Earnings before provision for income taxes | 7,797 |
| | 14.1 |
| | 7,322 |
| | 14.1 |
|
Provision for income taxes | 1,887 |
| | 3.4 |
| | 2,636 |
| | 5.1 |
|
Net earnings | $ | 5,910 |
| | 10.7 | % | | $ | 4,686 |
| | 9.0 | % |
—————
Note: Certain percentages may not sum to totals due to rounding.
|
| | | | | | | | | |
| Six Months Ended | | |
Selected financial and sales data: | July 29, 2018 | | July 30, 2017 | | % Change |
Comparable sales (% change)(1) | 6.2% |
| | 6.0% |
| | N/A |
Comparable customer transactions (% change)(2) | 0.9% |
| | 2.1% |
| | N/A |
Comparable average ticket (% change)(2) | 5.3% |
| | 3.8% |
| | N/A |
Customer transactions (in millions)(2) | 831.2 |
| | 822.6 |
| | 1.1% |
Average ticket(2) | $ | 66.12 |
| | $ | 62.74 |
| | 5.4% |
Sales per square foot(2) | $ | 458.07 |
| | $ | 429.17 |
| | 6.7% |
Diluted earnings per share | $ | 5.12 |
| | $ | 3.91 |
| | 30.9% |
————— | |
(1) | Selected Sales DataThe calculation for the six months ended July 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 ApplicableSales.
RESULTS OF OPERATIONS
Net Sales for the second quarter of fiscal 2017 increased 6.2% to $28.1 billion from $26.5 billion for the second quarter of fiscal 2016.. For the first six months of fiscal 2017, Net Sales2018, net sales increased 5.6%6.6% to $55.4 billion from $52.0 billion from $49.2 billionin the comparable prior-year period. The increase in net sales for the first six months of fiscal 2016. The increase in Net Sales for the second quarter and first six months of fiscal 20172018 primarily reflects the impact of positive comparable store sales driven by an increase in average ticket growth and increased customer transactions and average ticket growth. The increase intransactions. Net Sales was partially offset by pressure from foreign currency fluctuations, which negatively impacted total sales growth by $64also benefited $66 million and $135 millionas a result of the adoption of ASU No. 2014-09. See Note 1 to our consolidated financial statements for further discussion. Comparable Sales. For the second quarter and first six months of fiscal 2017, respectively.
Total2018, total comparable store sales increased 6.3% and 6.0% for the second quarter and first six months of fiscal 2017, respectively, which6.2%. This increase reflects a number of factors, including the execution of our strategy and broad-based growth across our stores. All of our departments posted positive comparable store sales forDuring the second quarter and first six months of fiscal 2017.2018, all of our departments, except for Lighting, posted positive comparable sales. Comparable store sales for our Lumber, Electrical, Appliances, Tools, Flooring, Building Materials, Appliances, Indoor GardenDécor, Plumbing, and DécorFlooring product categories were above the Company average for the second quarterfirst six months of fiscal 2017. Further, our2018. Comparable sales for Lighting were negative primarily due to LED price deflation. Our comparable store average ticket increased 3.6% and 3.8%5.3% for the second quarter and first six months of fiscal 2017, respectively,2018, due in part to strong sales in big ticket purchases such asin appliances and flooring, offset in part by pressure from foreign currency fluctuations. Our comparable store customer transactions increased 2.6%vinyl plank flooring. Online sales represented 7.5% of net sales and 2.1% forgrew 23.1% during the second quarter and first six months of fiscal 2017, respectively.2018.
Gross Profit increased 6.0% to $9.5 billion for the second quarter of fiscal 2017 from $8.9 billion for the second quarter of fiscal 2016.Profit. For the first six months of fiscal 2017, Gross Profit2018, gross profit increased 5.4%7.8% to $19.0 billion from $17.6 billion in the comparable prior-year period. Gross profit margin was 34.3% for the first six months of fiscal 2018 compared to 33.9% for the first six months of fiscal 2017. The increase in gross profit margin for the first six months of fiscal 2018 primarily reflected $283 million of benefit from $16.7the adoption of ASU No. 2014-09, partially offset by higher transportation and fuel costs in our supply chain.
Operating Expenses. Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A increased 9.8% to $9.8 billion for the first six months of fiscal 2016. Gross Profit as2018, from $8.9 billion in the comparable prior-year period. As a percent of Net Sales, or gross profit margin,net sales, SG&A was 33.7% for the second quarter of both fiscal 2017 and 2016. For the first six months of fiscal 2017, gross profit margin was 33.9% compared to 34.0%17.7% for the first six months of fiscal 2016. Gross profit margin for the second quarter and first six months of fiscal 2017 reflects the impact of product mix changes and higher shrink, offset by benefits from our supply chain driven by increased productivity.
Selling, General and Administrative expenses ("SG&A") increased 3.7%2018 compared to $4.5 billion for the second quarter of fiscal 2017 from $4.4 billion for the second quarter of fiscal 2016. For the first six months of fiscal 2017, SG&A increased 2.8% to $8.9 billion from $8.7 billion17.1% for the first six months of fiscal 2016. As a percent of Net Sales, SG&A was 16.2% for the second quarter of fiscal 2017 compared to 16.6% for the second quarter of fiscal 2016. For the first six months of fiscal 2017,2017. The increase in SG&A as a percent of Net Sales was 17.1% compared to 17.6%net sales for the first six months of fiscal 2016. The decrease2018 reflected an increase of $283 million from the adoption of ASU No. 2014-09 and incremental investments made in SG&A as a percent of Net Sales for the second quarter and first six months of fiscal 2017 reflectsbusiness, partially offset by expense leverage resulting from the positive comparable store sales environment and continued expense control.
Depreciation and Amortization increased 3.0% to $449 million for the second quarter of fiscal 2017 from $436 million for the second quarter of fiscal 2016. For the first six months of fiscal 2017,. Depreciation and Amortization increased 2.8% to $893 million from $869amortization was $917 million for the first six months of fiscal 2016. Depreciation and Amortization as2018 compared to $893 million in the comparable prior-year period. As a percent of Net Salesnet sales, it was 1.6%unchanged at 1.7% for the second quarterfirst six months of both fiscal 2018 and fiscal 2017 and 2016.reflected offsetting effects of leverage resulting from the positive comparable sales environment, timing of asset additions and certain investments.
Interest and Other, net. For the first six months of fiscal 2017, Depreciation2018, interest and Amortization as a percent of Net Sales was 1.7% compared to 1.8% for the first six months of fiscal 2016. Depreciation and Amortization as a percent of Net Sales for the second quarter and first six months of fiscal 2017 reflects expense leverage resulting from the positive comparable store sales environment.
Operating Income increased 8.8% to $4.5 billion for the second quarter of fiscal 2017 from $4.1 billion for the second quarter of fiscal 2016. For the first six months of fiscal 2017, Operating Income increased 8.8% to $7.8 billion from $7.2 billion for the first six months of fiscal 2016. Operating Income as a percent of Net Sales was 15.9% for the second quarter of fiscal 2017 compared to 15.5% for the second quarter of fiscal 2016. For the first six months of fiscal 2017, Operating Income as a percent of Net Sales was 15.0% compared to 14.6% for the first six months of fiscal 2016.
Interest and Other,other, net was $249 million for the second quarter of fiscal 2017 compared to $228 million for the second quarter of fiscal 2016. For the first six months of fiscal 2017, Interest and Other, net, was $490$485 million compared to $465$490 million for the first six months of fiscal 2016. Interest and Other, net, as2017. As a percent of Net Salesnet sales, it was 0.9% for the second quarter and first six months of both fiscal 2018 and fiscal 2017 and 2016.reflected offsetting effects of expense leverage resulting from the positive comparable sales environment and higher interest income and higher interest expense resulting from higher short-term and long-term debt balances.
Provision for Income Taxes.Our combined effective income tax rate was 24.2% for the first six months of fiscal 2018 compared to 36.0% for the first six months of fiscal 2017 compared2017. The decrease in the provision for income taxes in fiscal 2018 was primarily attributable to 36.8%the enactment of the Tax Act.
Diluted Earnings per Share. Diluted earnings per share were $5.12 for the first six months of fiscal 2016. The effective income tax rate2018, compared to $3.91 for the first six months of fiscal 2017 reflects an $85 million benefit to our Provision for Income Taxes for share-based payment awards as a result of the adoption of ASU No. 2016-09.
2017. Diluted Earningsearnings per Share were $2.25 for the second quarter of fiscal 2017 compared to $1.97 for the second quarter of fiscal 2016. For the first six months of fiscal 2017, Diluted Earnings per Share were $3.91 compared to $3.40share for the first six months of fiscal 2016. Diluted Earnings2018 included a benefit of $0.79 per Share fordiluted share resulting from the second quarter and first six months of fiscal 2017 included benefits of $0.02 and $0.07, respectively, as a resultenactment 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 a non-GAAP financial measure, to Net Earnings, thenet earnings (the most comparable GAAP financial measure:measure), follows.
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| | | | | | | | |
| | Twelve Months Ended |
dollars in millions | | July 29, 2018 | | July 30, 2017 |
Net earnings | | $ | 9,854 |
| | $ | 8,399 |
|
Interest and other, net | | 978 |
| | 961 |
|
Provision for income taxes | | 4,319 |
| | 4,699 |
|
Operating income | | 15,151 |
| | 14,059 |
|
Income tax adjustment (1) | | (4,545 | ) | | (5,080 | ) |
NOPAT | | $ | 10,606 |
| | $ | 8,979 |
|
| | | | |
Average debt and equity | | $ | 28,014 |
| | $ | 28,061 |
|
| | | | |
ROIC | | 37.9 | % | | 32.0 | % |
|
| | | | | | | | |
| | For the Twelve Months Ended |
amounts in millions | | July 30, 2017 | | July 31, 2016 |
Net Earnings | | $ | 8,399 |
| | $ | 7,440 |
|
Add: | | | | |
Interest and Other, net | | 961 |
| | 941 |
|
Provision for Income Taxes | | 4,699 |
| | 4,329 |
|
Operating Income | | 14,059 |
| | 12,710 |
|
Subtract: | | | | |
Income Tax Adjustment (1) | | 5,080 |
| | 4,655 |
|
Net Operating Profit After Tax | | $ | 8,979 |
| | $ | 8,055 |
|
| | | | |
Average Debt and Equity (2) | | $ | 28,061 |
| | $ | 27,757 |
|
| | | | |
Return on Invested Capital (3) | | 32.0 | % | | 29.0 | % |
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(1) | Income Tax Adjustmenttax adjustment is defined as Operating Incomeoperating income multiplied by the Company'sour effective tax rate. |
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(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. |
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(3) | Return on Invested Capital is calculated as Net Operating Profit After Tax divided by Average Debt and Equity. |
LIQUIDITY AND CAPITAL RESOURCESAdditional Information
Cash flow generated from operations provides us with a significant source of liquidity. For the first six months of fiscal 2017, Net Cash Provided by Operating Activities was $7.9 billion compared to $6.9 billion for the same period of fiscal 2016. This increase was primarily due to a $442 million increase in Net Earnings resulting from higher comparable store sales and expense leverage, $307 million more in cash related to the effective management of Merchandise Inventories and a $160 million increase in cash related to Deferred Revenue.
Net Cash Used in Investing Activities for the first six months of fiscal 2017 was $1.1 billion compared to $674 million for the same period of fiscal 2016. This change was primarily due to $268 million in Payments for Businesses Acquired, net, related to the acquisition of Compact Power and a $149 million increase in Capital Expenditures.
Net Cash Used in Financing Activities for the first six months of fiscal 2017 was $4.6 billion compared to $4.4 billion for the same period of fiscal 2016. This change was primarily due to $1.5 billion more in Repurchases of Common Stock, $412 million more in Cash Dividends Paid to Stockholders and $360 million more in Repayments of Short-Term Debt, partially offset by $2.0 billion more in net incremental long-term debt issued in the first six months of fiscal 2017 compared to the same period of fiscal 2016.
In June 2017, we issued $500 million of floating rate senior notes due June 5, 2020; $750 million of 1.80% senior notes due June 5, 2020 at a discount of $1 million; and $750 million of 3.90% senior notes due June 15, 2047 at a discount of $5 million (together, the “June 2017 issuance”). The net proceeds of the June 2017 issuance will be used for general corporate purposes,
including repurchases of shares of our common stock. See Note 3 to the Consolidated Financial Statements included in this report.
In the second quarter of fiscal 2017, we entered into an ASR agreement under which we paid $1.65 billion to a third party financial institution and received a total of 10.8 million shares. See Note 4 to the Consolidated Financial Statements included in this report.
Weinformation on accounting pronouncements that 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 customary covenants. At July 30, 2017, we were in compliance with all of the covenants, and noneimpacted or are expected to
materially impact our
liquidityconsolidated financial condition, results of operations, or
capital resources. During the first six months of fiscal 2017, all ofcash flows, see Note 1 to our short-term borrowings were under these commercial paper programs,consolidated financial statements.
Liquidity and the maximum amount outstanding at any time during the first six months of fiscal 2017 was $1.0 billion. As of July 30, 2017, there were no borrowings outstanding under the commercial paper programs or the related credit facility.Capital Resources
As of July 30, 2017, we had $4.8 billion in Cash and Cash Equivalents.Equivalents
At July 29, 2018, we had $3.5 billion in cash and cash equivalents, of which $1.6 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 six months of fiscal 2018 were under these commercial paper programs, and the maximum amount outstanding at any time 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 July 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 July 29, 2018, there were no 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. RECENT ACCOUNTING PRONOUNCEMENTSShare Repurchases
ForIn December 2017, our Board of Directors authorized a summarynew $15.0 billion share repurchase program that replaced the previous authorization. In the first six months of recently issued accounting pronouncements which may be applicablefiscal 2018, we repurchased 14.9 million shares of our common stock for $3.0 billion through two ASR agreements and open market transactions. See Note 4 to our consolidated financial statements for further discussion on the ASR agreements.
Cash Flows Summary
Operating Activities. Cash flow generated from operations provides us see Note 1with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.
Net cash provided by operating activities increased $45 million in the first six months of fiscal 2018 compared to the Consolidated Financial Statements includedsame period last year and was primarily driven by an increase in this report.net earnings, offset by higher cash outflows associated with changes in working capital. The increase in net earnings resulted from higher comparable sales and expense leverage in the first six months of fiscal 2018, as well as a lower effective income tax rate in fiscal 2018 resulting from the enactment 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 $1.1 billion during the first six months of fiscal 2018 compared to $846 million of capital expenditures and $268 million for a business acquisition in the comparable prior-year period.
Financing Activities. Cash used in financing activities primarily reflected:
$3.1 billion of share repurchases, $2.4 billion of cash dividends paid, and $1.6 billion of repayments of short-term borrowings in the first six months of fiscal 2018, and
$3.9 billion of share repurchases, $2.1 billion of cash dividends paid, and $710 million of repayments of short-term borrowings in the first six months of fiscal 2017, we adopted ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvementspartially offset by $2.0 billion of net proceeds from long-term borrowings.
Critical Accounting Policies
There were no changes during fiscal 2018 to Employee Share-Based Payment Accounting". See our critical accounting policies as disclosed in the 2017 Form 10-K. Our significant accounting policies are disclosed in Note 21 to the Consolidated Financial Statements included in this report.our consolidated financial statements.
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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 July 30, 2017.29, 2018. There has been no change in the Company'sour internal control over financial reporting during the fiscal quarter ended July 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.II – OTHER INFORMATION
Item 1. Legal Proceedings.
Except as set forth below, there were no material changes during the second quarter of fiscal 20172018 to our disclosure in Item 3 of our 20162017 Form 10-K.
For a description of the matters related to the Data Breach, see Note 7 to the Consolidated Financial Statements included in Part I, Item 1, "Financial Statements", which description is incorporated herein by reference.
SEC regulations require us to disclose certain information about proceedings arising under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions of $100,000 or more.
As previously reported, in February 2018 we received a letter from the Company has been cooperatingCalifornia South Coast Air Quality Management District ("SCAQMD") regarding allegations that we sold certain non-compliant paint thinners and solvents from 2010 to 2015 in violation of applicable rules. In the second quarter of fiscal 2018, we resolved the matter with various District AttorneysSCAQMD, and the California Attorney General’s officevendor from whom we purchased the products paid a settlement on our behalf.
As previously reported, in theirJanuary 2017, we became aware of an investigation by the EPA’s criminal investigation division into our compliance with lead-safe work practices for certain jobs performed through our installation services business. We have also previously responded to civil document requests from several EPA regions. In the second quarter of fiscal 2018, we received a subpoena for documents from the Company’s disposal of hazardous waste at its California facilities. The Company currently expectsEPA civil enforcement division. We are continuing to settle this matter and recorded an accrual for estimated probable losses it expects to incur. The Company does not expectcooperate with the outcome of this matter to have a material adverse effect on its consolidated financial condition, results of operations or cash flows.EPA.
Item 1A. Risk Factors.
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 second quarter of fiscal 2017, the Company issued 4,427 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 second 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.
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2. | During the second quarter of fiscal 2017, the Company credited 1,201 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.
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(b) Issuer Purchases of Equity Securities
InSince the first quarterinception of fiscal 2017, the Board of Directors authorized a $15.0 billionour initial share repurchase program. Throughprogram in fiscal 2002 through the end of the second quarter of fiscal 2017, the Company has2018, we have repurchased shares of itsour common stock having a value of approximately $3.9 billion under this program.$78.1 billion. The number and average price of shares purchased in each fiscal month of the second quarter of fiscal 2018 follow.2017 are set forth in the table below: |
| | | | | | | | | | |
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) |
April 30, 2018 – May 27, 2018 | 2,479,949 |
| | $182.44 |
| | 2,475,046 |
| | $11,645,018,945 |
May 28, 2018 – June 24, 2018(3) | 7,683,329 |
| | 186.51 |
| | 7,680,638 |
| | 9,945,001,669 |
June 25, 2018 – July 29, 2018 | 1,778 |
| | 199.17 |
| | — |
| | 9,945,001,669 |
Total | 10,165,056 |
| | 185.52 |
| | 10,155,684 |
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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) |
May 1, 2017 – May 28, 2017 | | 2,568,802 |
| | $ | 155.10 |
| | 2,541,700 |
| | $ | 13,353,177,965 |
|
May 29, 2017 – June 25, 2017(3) | | 11,024,433 |
| | $ | 153.59 |
| | 11,021,252 |
| | $ | 11,500,000,423 |
|
June 26, 2017 – July 30, 2017(3) | | 3,710,809 |
| | $ | 148.57 |
| | 3,703,136 |
| | $ | 11,109,236,100 |
|
| | 17,304,044 |
| | $ | 152.74 |
| | 17,266,088 |
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(1) These amounts include repurchases pursuant to the Company's 1997 andour Amended and Restated 2005 Omnibus Stock Incentive Plans (thePlan 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 the first quarter of fiscalDecember 2017, theour 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 second quarter of fiscal 2017, the Company2018, we paid $1.65$1.6 billion under an ASR agreement and received an initial delivery of 9.77.1 million shares. The transaction was completed later inSee Note 4 to our consolidated financial statements for further discussion. Sales of Unregistered Securities
During the second quarter of fiscal 2017, at which time2018, we issued 4,055 deferred stock units under the Company received an additional 1.1 million shares. The final number of shares delivered upon settlementHome Depot, Inc. Nonemployee Directors’ Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the agreement was determinedSecurities 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 second 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.
During the second quarter of fiscal 2018, we credited 1,057 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.
Item 6. Exhibits.
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the volume weighted average price per share ofSEC, as indicated by the Company's common stock over the term of the agreement, less a negotiated discount. See Note 4 to the Consolidated Financial Statements includedreferences in this report.brackets. All other exhibits are filed or furnished herewith.
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Item 6.Exhibit | Exhibits | Description |
| * | |
[Form 10-Q filed on September 1, 2011, Exhibit 3.1] |
| * | |
[Form 8-K filed on March 8, 2016, Exhibit 3.2] |
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101.INS | | XBRL Instance Document |
101.SCH | | XBRL 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 |
For a list of the exhibits required to be filed as exhibits to this report, see the Index to Exhibits to the Consolidated Financial Statements included in this report.
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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*3.2 | By: | |
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12.1 |
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15.1 |
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31.1 |
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| /s/ CAROL B. TOMÉ |
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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 July 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.August 20, 2018 |