Home Depot, Inc 10-Q for FY2021 Q3
Home Depot, Inc. (HD)
10-Q
2020-11-24
For: 2020-11-01
View Original
Added on
April 02, 2026
About this 10-Q
Home Depot, Inc filed this 10-Q on November 24, 2020, covering the quarter ended November 1, 2020 (FY2021 Q3).
Headline figures
Quarter ended November 1, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $33.54B
- up 23.2% from $27.22B a year earlier
- Net income
- $3.43B
- up 23.9% from net income of $2.77B a year earlier
- Diluted EPS
- $3.18
- up 25.7% from $2.53 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended November 1, 2020
or
For the transition period from to
Commission File Number: 1-8207
THE HOME DEPOT, INC.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
(770 ) 433-8211
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
| Securities registered pursuant to Section 12(b) of the Act: | |||||||||||||||||
| Title of each class | Trading Symbol | Name of each exchange on which registered | |||||||||||||||
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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.
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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
TABLE OF CONTENTS
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
i
COMMONLY USED OR DEFINED TERMS
| Term | Definition | |||||||
| ASU | Accounting Standards Update | |||||||
| Comparable sales | ||||||||
| Exchange Act | Securities Exchange Act of 1934, as amended | |||||||
| FASB | Financial Accounting Standards Board | |||||||
| fiscal 2019 | Fiscal year ended February 2, 2020 | |||||||
| fiscal 2020 | Fiscal year ending January 31, 2021 | |||||||
| fiscal 2021 | Fiscal year ending January 30, 2022 | |||||||
| GAAP | U.S. generally accepted accounting principles | |||||||
| HD Supply | HD Supply Holdings, Inc. | |||||||
| MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| MRO | Maintenance, repair and operations | |||||||
| NOPAT | Net operating profit after tax | |||||||
| 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 | |||||||
| 2019 Form 10-K | Annual Report on Form 10-K for fiscal 2019 as filed with the SEC on March 25, 2020 | |||||||
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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 impact of the COVID-19 pandemic on our business, results of operations, cash flows and financial condition (which, among other things, may affect many of the items listed below); the demand for our products and services; net sales growth; comparable sales; effects of competition; implementation of store, interconnected retail, supply chain and technology initiatives; inventory and in-stock positions; state of the economy; state of the housing and home improvement markets; state of the credit markets, including mortgages, home equity loans, and consumer credit; impact of tariffs; issues related to the payment methods we accept; demand for credit offerings; management of relationships with our associates, suppliers and vendors; international trade disputes, natural disasters, public health issues (including pandemics and related quarantines, shelter-in-place and other governmental orders, and similar restrictions), and other business interruptions that could disrupt supply or delivery of, or demand for, the Company’s products or services; continuation of share repurchases; 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 regulatory changes; store openings and closures; financial outlook; successful closing of the HD Supply acquisition; and the integration of acquired companies into our organization and the ability to recognize the anticipated synergies and benefits of those acquisitions.
Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You should not rely on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are beyond our control, dependent on the actions of third parties, or currently unknown to us – as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those described in Part II, Item 1A, "Risk Factors" and elsewhere in this report and as also may be described from time to time in 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 and in our other public statements.
iii
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
THE HOME DEPOT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| in millions, except per share data | November 1, 2020 | February 2, 2020 | |||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables, net | |||||||||||
| Merchandise inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
Net property and equipment | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Goodwill | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Short-term debt | $ | $ | |||||||||
| Accounts payable | |||||||||||
| Accrued salaries and related expenses | |||||||||||
| Sales taxes payable | |||||||||||
| Deferred revenue | |||||||||||
| Current installments of long-term debt | |||||||||||
| Current operating lease liabilities | |||||||||||
| Other accrued expenses | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, excluding current installments | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
Common stock, par value $ | |||||||||||
| Paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
Treasury stock, at cost, | ( | ( | |||||||||
| Total stockholders’ equity (deficit) | ( | ||||||||||
Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
1
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions, except per share data | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Interest and other (income) expense: | |||||||||||||||||||||||
| Interest and investment income | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Interest and other, net | |||||||||||||||||||||||
| Earnings before provision for income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average common shares | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted weighted average common shares | |||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
2
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Cash flow hedges, net of tax | ( | ||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
3
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
| Common Stock: | |||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Shares issued under employee stock plans | |||||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Paid-in Capital: | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Shares issued under employee stock plans | |||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||
| Repurchases of common stock | ( | ( | |||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Retained Earnings: | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Cumulative effect of accounting changes | — | — | — | ||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
Cash dividends | ( | ( | ( | ( | |||||||||||||||||||
| Other | ( | ( | |||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Accumulated Other Comprehensive Income (Loss): | |||||||||||||||||||||||
| Balance at beginning of period | ( | ( | ( | ( | |||||||||||||||||||
| Cumulative effect of accounting change | — | — | — | ( | |||||||||||||||||||
| Foreign currency translation adjustments | ( | ( | ( | ||||||||||||||||||||
| Cash flow hedges, net of tax | ( | ||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Balance at end of period | ( | ( | ( | ( | |||||||||||||||||||
| Treasury Stock: | |||||||||||||||||||||||
| Balance at beginning of period | ( | ( | ( | ( | |||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ||||||||||||||||||||
| Balance at end of period | ( | ( | ( | ( | |||||||||||||||||||
| Total stockholders' equity (deficit) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
See accompanying notes to consolidated financial statements.
4
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | |||||||||||
| in millions | November 1, 2020 | November 3, 2019 | |||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net earnings | $ | $ | |||||||||
| Reconciliation of net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Changes in receivables, net | ( | ( | |||||||||
| Changes in merchandise inventories | ( | ( | |||||||||
| Changes in other current assets | ( | ||||||||||
| Changes in accounts payable and accrued expenses | |||||||||||
| Changes in deferred revenue | |||||||||||
| Changes in income taxes payable | |||||||||||
| Changes in deferred income taxes | ( | ||||||||||
| Other operating activities | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
Capital expenditures | ( | ( | |||||||||
| Proceeds from sales of property and equipment | |||||||||||
| Other investing activities | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Repayments of short-term debt, net | ( | ( | |||||||||
| Proceeds from long-term debt, net of discounts and premiums | |||||||||||
| Repayments of long-term debt | ( | ( | |||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Proceeds from sales of common stock | |||||||||||
Cash dividends | ( | ( | |||||||||
| Other financing activities | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Change in cash and cash equivalents | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental Disclosures: | |||||||||||
| Cash paid for interest, net of interest capitalized | $ | $ | |||||||||
| Cash paid for income taxes | |||||||||||
See accompanying notes to consolidated financial statements.
5
THE HOME DEPOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of The Home Depot, Inc. and its subsidiaries (the "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 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2019 Form 10-K.
Impact of COVID-19
The outbreak of the novel coronavirus COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and has impacted and continues to impact our supply chain, operations, and customer demand. Even though the Company has taken measures to adapt to operating in this challenging environment, the pandemic could further affect our operations and the operations of our suppliers and vendors as a result of additional shelter-in-place and other governmental orders, facility closures, travel and logistics restrictions, and other factors as circumstances continue to evolve.
In response to COVID-19, we expanded our associate pay and benefits through the third quarter of fiscal 2020 to provide additional paid time off, weekly bonuses and other benefits. These expanded pay and benefits are included in SG&A in the Consolidated Statements of Earnings and resulted in $354 million of additional expense for the third quarter of fiscal 2020 and $1.7 billion of additional expense for the first nine months of fiscal 2020. As of November 1, 2020, there were $311 million of additional expense included in accrued salaries and related expenses in the Consolidated Balance Sheets related to these expanded pay and benefits.
Also in response to COVID-19, in March 2020 we took steps to further solidify our liquidity position by expanding our commercial paper program and corresponding revolving credit facility capacity, as well as issuing senior notes. See Note 4 for further discussion.
Reclassifications
Effective February 3, 2020, we reclassified cash flows relating to book overdrafts from financing to operating activities for all periods presented in the Consolidated Statements of Cash Flows. The amounts of these reclassifications were not material.
There were no significant changes to our significant accounting policies as disclosed in the 2019 Form 10-K.
Recently Adopted Accounting Pronouncements
ASU No. 2018-15. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. On February 3, 2020, we adopted ASU No. 2018-15 with no material impact to our consolidated financial position, results of operations or cash flows.
ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment. The amendments in ASU No. 2017-04 require goodwill impairment to be measured using the difference between the carrying amount and the fair value of the reporting unit and require the loss recognized to not exceed the total amount of goodwill allocated to that reporting unit. On February 3, 2020, we adopted ASU No. 2017-04 with no material impact to our consolidated financial position, results of operations or cash flows.
ASU No. 2016-13. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost. The model replaces the probable, incurred loss model for those assets and broadens the information an entity must consider in developing its expected credit loss
6
estimate for assets measured at amortized cost. On February 3, 2020, we adopted ASU No. 2016-13 with no material impact to our consolidated financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
ASU 2020-04. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022 and may be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020. We will adopt this standard when LIBOR is discontinued. We are evaluating the impact the new standard will have on our consolidated financial statements and related disclosures but do not anticipate a material impact.
Recent accounting pronouncements pending adoption not discussed above or in the 2019 Form 10-K are either not applicable or will not have or are not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
2.NET SALES
No sales to an individual customer accounted for more than 10% of our net sales during the three and nine months ended November 1, 2020 and November 3, 2019. Net sales, classified by geography, follow:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
Net sales – in the U.S. | $ | $ | $ | $ | |||||||||||||||||||
Net sales – outside the U.S. | |||||||||||||||||||||||
Net sales | $ | $ | $ | $ | |||||||||||||||||||
Net sales by products and services follow:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
| Net sales – products | $ | $ | $ | $ | |||||||||||||||||||
| Net sales – services | |||||||||||||||||||||||
Net sales | $ | $ | $ | $ | |||||||||||||||||||
Major product lines and the related merchandising departments (and related services) follow:
| Major Product Line | Merchandising Departments | |||||||
| Building Materials | Building Materials, Electrical/Lighting, Lumber, Millwork, and Plumbing | |||||||
| Décor | Appliances, Décor/Storage, Flooring, Kitchen and Bath, and Paint | |||||||
| Hardlines | Hardware, Indoor Garden, Outdoor Garden, and Tools | |||||||
7
Net sales by major product lines (and related services) follow:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
| Building Materials | $ | $ | $ | $ | |||||||||||||||||||
| Décor | |||||||||||||||||||||||
| Hardlines | |||||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
3.PROPERTY AND LEASES
Net Property and Equipment
Net property and equipment includes accumulated depreciation and amortization of $23.5 billion as of November 1, 2020 and $22.1 billion as of February 2, 2020.
Leases
We lease certain retail locations, office space, warehouse and distribution space, equipment, and vehicles. We consider various factors such as market conditions and the terms of any renewal options that may exist to determine whether we will renew or replace the lease. A substantial majority of our leases have remaining lease terms of to 20 years, typically with the option to extend the leases for up to five years . Some of our leases may include the option to terminate in less than five years . In the event we are reasonably certain to exercise the option to extend or early terminate a lease at commencement, we will include the respective terms in the related lease assets and liabilities. Real estate taxes, insurance, maintenance, and operating expenses applicable to the leased property are generally our obligations under our lease agreements.
Certain of our property lease agreements contain residual value guarantees, which generally become due at the expiration of the lease term and are estimated as the greater of the fair value of the leased asset or a set minimum value. These residual value guarantees are primarily related to leases of facilities whose construction was funded by industrial revenue bonds.
Our lease agreements do not contain any material restrictive covenants. Further, certain lease agreements include rental payments based on an index or rate and others include rental payments based on a percentage of sales.
The Consolidated Balance Sheet location of assets and liabilities related to operating and finance leases follow:
| in millions | Consolidated Balance Sheet Caption | November 1, 2020 | February 2, 2020 | |||||||||||
| Assets: | ||||||||||||||
| Operating lease assets | Operating lease right-of-use assets | $ | $ | |||||||||||
Finance lease assets (1) | Net property and equipment | |||||||||||||
| Total lease assets | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||
| Current: | ||||||||||||||
| Operating lease liabilities | Current operating lease liabilities | $ | $ | |||||||||||
| Finance lease liabilities | Current installments of long-term debt | |||||||||||||
| Long-term: | ||||||||||||||
| Operating lease liabilities | Long-term operating lease liabilities | |||||||||||||
| Finance lease liabilities | Long-term debt, excluding current installments | |||||||||||||
| Total lease liabilities | $ | $ | ||||||||||||
—————
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The components of lease cost follow:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| in millions | Consolidated Statement of Earnings Caption | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||||
| Operating lease cost | Selling, general and administrative | $ | $ | $ | $ | |||||||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||||||||
| Amortization of leased assets | Depreciation and amortization | |||||||||||||||||||||||||
| Interest on lease liabilities | Interest expense | |||||||||||||||||||||||||
| Short-term lease cost | Selling, general and administrative | |||||||||||||||||||||||||
| Variable lease cost | Selling, general and administrative | |||||||||||||||||||||||||
| Sublease income | Selling, general and administrative | ( | ( | ( | ( | |||||||||||||||||||||
| Net lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
The discount rate used to calculate the present value of lease payments is the rate implicit in the lease, when readily determinable. As the rate implicit in the lease is rarely readily determinable, we use a secured incremental borrowing rate as the discount rate for the present value of lease payments. We determine a secured rate on a quarterly basis and update the weighted average discount rate accordingly. Lease terms and discount rates follow:
| November 1, 2020 | February 2, 2020 | ||||||||||
| Weighted Average Remaining Lease Term (Years): | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted Average Discount Rate: | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
The approximate future minimum lease payments under operating and finance leases as of November 1, 2020 follow:
| in millions | Operating Leases | Finance Leases | |||||||||
| Fiscal 2020 | $ | $ | |||||||||
| Fiscal 2021 | |||||||||||
| Fiscal 2022 | |||||||||||
| Fiscal 2023 | |||||||||||
| Fiscal 2024 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less imputed interest | |||||||||||
| Present value of lease liabilities | $ | $ | |||||||||
—————
Note: Future minimum lease payments do not include approximately $900 million of leases (undiscounted basis) that have not yet commenced. These leases will commence primarily between the remainder of fiscal 2020 and fiscal 2021 with lease terms of up to 20 years.
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Other lease information follows:
| Nine Months Ended | |||||||||||
| in millions | November 1, 2020 | November 3, 2019 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows - operating leases | $ | $ | |||||||||
| Operating cash flows - finance leases | |||||||||||
| Financing cash flows - finance leases | |||||||||||
| Lease assets obtained in exchange for new operating lease liabilities | |||||||||||
| Lease assets obtained in exchange for new finance lease liabilities | |||||||||||
4.DEBT AND DERIVATIVE INSTRUMENTS
Short-Term Debt
In March 2020, we expanded our commercial paper programs from $3.0 billion to $6.0 billion. All of our short-term borrowings in the first nine months of fiscal 2020 were under these commercial paper programs, and the maximum amount outstanding at any time was $1.0 billion. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings of up to $6.5 billion, which consist of (1) a 364 -day $3.5 billion credit facility that was entered into in March 2020 in connection with our expanded commercial paper program and is scheduled to expire in March 2021, (2) a five-year $2.0 billion credit facility scheduled to expire in December 2022, and (3) a 364 -day $1.0 billion credit facility scheduled to expire in December 2020. At November 1, 2020, there were no outstanding borrowings under our commercial paper programs.
Long-Term Debt
March 2020 Issuance. In March 2020, we issued four tranches of senior notes.
•The first tranche consisted of $750 million of 2.50 % senior notes due April 15, 2027 (the “2027 notes”) at a discount of $4 million. Interest on the 2027 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.
•The second tranche consisted of $1.5 billion of 2.70 % senior notes due April 15, 2030 (the “2030 notes”) at a discount of $8 million. Interest on the 2030 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.
•The third tranche consisted of $1.25 billion of 3.30 % senior notes due April 15, 2040 (the "2040 notes") at a discount of $11 million. Interest on the 2040 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.
•The fourth tranche consisted of $1.5 billion of 3.35 % senior notes due April 15, 2050 (the "2050 notes") at a discount of $17 million (together with the 2027 notes, the 2030 notes and the 2040 notes, the "March 2020 issuance"). Interest on the 2050 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2020.
•Issuance costs for the March 2020 issuance totaled $36 million. The net proceeds of the March 2020 issuance were used for general corporate purposes, which included the repayment of outstanding senior notes that matured in June 2020 and the early repayment of outstanding senior notes that had a maturity date in September 2020.
Redemption. The 2027 notes, 2030 notes, 2040 notes and 2050 notes may be redeemed by us at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. 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, as defined in the notes, occurs, holders of all notes have the right to require us to redeem those notes at 101 % of the aggregate principal amount of the notes plus accrued interest up to the redemption date. We are generally not limited under the indentures governing the notes in our ability to incur additional indebtedness or required to maintain financial ratios or specified levels of net worth or liquidity. The indentures governing the notes contain various customary covenants; however, none are expected to impact our liquidity or capital resources.
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Derivative Instruments
We use derivative and nonderivative financial instruments in the management of our exposure to fluctuations in foreign currency exchange rates and interest rates on certain long-term debt.
We had outstanding interest rate swap agreements with combined notional amounts of $3.2 billion at November 1, 2020 and $2.1 billion at February 2, 2020. These agreements were accounted for as fair value hedges that swap fixed for variable rate interest to hedge changes in the fair values of certain senior notes. The fair values of these agreements were $176 million at November 1, 2020 and $120 million at February 2, 2020.
At November 1, 2020 and February 2, 2020, we had outstanding foreign currency forward contracts accounted for as cash flow hedges, which hedge the variability of forecasted cash flows associated with certain payments made in our foreign operations. The notional amounts and the fair values of these contracts were not material.
At February 2, 2020, we had outstanding foreign currency forward contracts accounted for as net investment hedges, with a combined notional amount of $1.2 billion. These agreements hedged against foreign currency exposure on our net investment in certain subsidiaries. At February 2, 2020, the fair values of these contracts were not material. These foreign currency forward contracts settled during the first quarter of fiscal 2020, resulting in an immaterial gain.
In addition to our forward contracts, we also hedge a portion of our foreign currency risk by designating nonderivative foreign-currency-denominated intercompany debt as hedges of our net investment in certain of our foreign operations. As of November 1, 2020, we had outstanding intercompany debt instruments with a combined notional value of $1.2 billion that were designated as hedges of our net investment in our foreign operations. For the three and nine months ended November 1, 2020, $8 million of foreign currency losses and $15 million of foreign currency gains associated with this debt, respectively, were recorded as foreign currency translation adjustments in accumulated other comprehensive income (loss). As of February 2, 2020, the notional value of our nonderivative hedges and related foreign currency translation adjustments were immaterial.
We generally enter into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit our credit risk, we enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain derivative instruments exceeds or falls below contractually established thresholds. Derivative assets and derivative liabilities are presented at their gross fair values in the Consolidated Balance Sheets. As of November 1, 2020, the cash collateral received by the Company related to derivative instruments under our collateral security arrangements was $141 no t receive any cash collateral as of February 2, 2020 or have any cash collateral posted with counterparties as of November 1, 2020 or February 2, 2020.
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5. STOCKHOLDERS' EQUITY
Stock Rollforward
A reconciliation of the number of shares of our common stock and dividends per share follows:
| shares in millions | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | ||||||||||||||||||||
| Common stock: | |||||||||||||||||||||||
| Balance at beginning of period | |||||||||||||||||||||||
| Shares issued under employee stock plans | |||||||||||||||||||||||
| Balance at end of period | |||||||||||||||||||||||
| Treasury stock: | |||||||||||||||||||||||
| Balance at beginning of period | ( | ( | ( | ( | |||||||||||||||||||
| Repurchases of common stock | ( | ( | ( | ||||||||||||||||||||
| Balance at end of period | ( | ( | ( | ( | |||||||||||||||||||
| Shares outstanding at end of period | |||||||||||||||||||||||
| Cash dividends per share | $ | $ | $ | $ | |||||||||||||||||||
6.FAIR VALUE MEASUREMENTS
The fair value of an asset is considered to 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
Assets and liabilities that are measured at fair value on a recurring basis follow:
| Fair Value at November 1, 2020 Using | Fair Value at February 2, 2020 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 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Derivative agreements – liabilities | ( | ||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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 are subject to nonrecurring fair value measurement for the assessment of impairment or as the result of business acquisitions. During the third quarter of fiscal 2020, we completed our annual assessment of the recoverability of goodwill for our U.S., Canada and Mexico reporting units based on qualitative factors. As part of this analysis, we assessed the current environment to determine if there were any indicators of impairment as a result of the operating conditions resulting from COVID-19 or otherwise and concluded that while there have been events and circumstances in the macro-environment that have impacted us, we have not experienced any entity-specific indicators of impairment of goodwill or other indefinite-lived intangibles that would require us to perform a quantitative impairment assessment.
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Including goodwill as described above, we did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis as of November 1, 2020 or February 2, 2020.
The aggregate fair values and carrying values of our senior notes follow:
| November 1, 2020 | February 2, 2020 | ||||||||||||||||||||||
| in millions | Fair Value (Level 1) | Carrying Value | Fair Value (Level 1) | Carrying Value | |||||||||||||||||||
| Senior notes | $ | $ | $ | $ | |||||||||||||||||||
7. WEIGHTED AVERAGE COMMON SHARES
The reconciliation of our basic to diluted weighted average common shares follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| in millions | November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | |||||||||||||||||||
| Basic weighted average common shares | |||||||||||||||||||||||
| Effect of potentially dilutive securities | |||||||||||||||||||||||
| Diluted weighted average common shares | |||||||||||||||||||||||
| Anti-dilutive securities excluded from diluted weighted average common shares | |||||||||||||||||||||||
8. COMMITMENTS AND CONTINGENCIES
9.SUBSEQUENT EVENTS
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
The Home Depot, Inc.:
Results of Review of Interim Financial Information
We have reviewed the Consolidated Balance Sheet of The Home Depot, Inc. and its subsidiaries (the “Company”) as of November 1, 2020, the related Consolidated Statements of Earnings, Comprehensive Income, and Stockholders’ Equity for the three-month and nine-month periods ended November 1, 2020 and November 3, 2019, the related Consolidated Statements of Cash Flows for the nine-month periods ended November 1, 2020 and November 3, 2019, and the 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 Information for it to be in conformity with U.S. generally accepted accounting principles.
We have 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 February 2, 2020, 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 25, 2020, we expressed an unqualified opinion on those consolidated financial statements. Our report referred to a change in the Company’s method of accounting for leases. In our opinion, the information set forth in the accompanying Consolidated Balance Sheet as of February 2, 2020, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
Basis for Review Results
This Consolidated Interim Financial Information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the 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.
/s/ KPMG LLP
Atlanta, Georgia
November 23, 2020
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our MD&A includes the following sections:
Executive Summary
Quarter to date and year to date highlights of our financial performance follow:
| dollars in millions, except per share data | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| November 1, 2020 | November 3, 2019 | November 1, 2020 | November 3, 2019 | ||||||||||||||||||||
| Net sales | $ | 33,536 | $ | 27,223 | $ | 99,849 | $ | 84,443 | |||||||||||||||
| Net earnings | 3,432 | 2,769 | 10,009 | 8,761 | |||||||||||||||||||
| Diluted earnings per share | $ | 3.18 | $ | 2.53 | $ | 9.28 | $ | 7.96 | |||||||||||||||
| Net cash provided by operating activities | $ | 17,415 | $ | 10,793 | |||||||||||||||||||
| Proceeds from long-term debt, net of discounts and premiums | 4,960 | 1,404 | |||||||||||||||||||||
| Repayments of long-term debt | 1,836 | 1,046 | |||||||||||||||||||||
| Repurchases of common stock | 791 | 3,909 | |||||||||||||||||||||
We reported net sales of $33.5 billion in the third quarter of fiscal 2020. Net earnings were $3.4 billion, or $3.18 per diluted share. For the first nine months of fiscal 2020, net sales were $99.8 billion and net earnings were $10.0 billion, or $9.28 per diluted share.
We opened one store in the U.S. and one store in Mexico during the third quarter of fiscal 2020, resulting in a total store count of 2,295 at the end of the quarter. As of November 1, 2020, a total of 309 of our stores, or 13.5%, were located in Canada and Mexico. For the third quarter of fiscal 2020, total sales per retail square foot were $552.85. Our inventory turnover ratio was 5.9 times, up from 5.0 times last year, driven by a significant increase in customer demand across all of our merchandising departments.
We generated $17.4 billion of cash flow from operations and issued $5.0 billion of long-term debt, net of discounts, during the first nine months of fiscal 2020. These funds, together with cash on hand, were used to pay $4.8 billion of dividends, repay an aggregate of $1.8 billion of senior notes that matured in June 2020 and that were scheduled to mature in September 2020, fund $1.5 billion in capital expenditures, repay $974 million of net short-term borrowings, and fund cash payments of $791 million for share repurchases before we suspended share repurchases in March 2020. In February 2020, we announced a 10% increase in our quarterly cash dividend to $1.50 per share.
Our ROIC for the trailing twelve-month period was 41.6% at the end of the third quarter of fiscal 2020 and 45.1% at the end of the third quarter of fiscal 2019. See the "Non-GAAP Financial Measures" section below for our definition and calculation of ROIC, as well as a reconciliation of NOPAT, a non-GAAP financial measure, to net earnings (the most comparable GAAP financial measure). The decrease in ROIC from the third quarter of fiscal 2019 primarily reflects our decision to temporarily enhance our liquidity position, including the suspension of share repurchases.
On November 16, 2020, we announced that we have entered into a definitive agreement to acquire HD Supply, a leading national distributor of MRO products in the multi-family and hospitality sectors. Under the terms of the merger agreement, a subsidiary of Home Depot will commence a cash tender offer to purchase all outstanding shares of HD Supply common stock for $56 per share, for a total enterprise value (including net cash) of approximately $8 billion. The completion of the acquisition is subject to customary closing conditions, including regulatory approvals and the tender of a majority of the shares of HD Supply common stock then outstanding (on a fully diluted basis), and is expected to be completed during our fiscal fourth quarter, which ends on January 31, 2021. The transaction is expected to be funded through cash on hand and debt.
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COVID-19
The outbreak of the novel coronavirus COVID-19, which was declared a global pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and has impacted and continues to impact our supply chain, operations, and customer demand. Even though the Company has taken measures to adapt to operating in this challenging environment, the pandemic could further affect our operations and the operations of our suppliers and vendors as a result of additional shelter-in-place or other governmental orders; restrictions and limitations on travel, logistics and other business activities; potential product and labor shortages; limitations on store or facility operations up to and including closures; and other governmental, business or consumer actions. As circumstances have evolved, our focus has been and continues to be on two key priorities: the safety and well-being of our associates and customers, and providing our customers and communities with the products and services that they need.
As we adapted to operations in a COVID-19 environment during fiscal 2020, we took a number of actions to promote social and physical distancing. At the beginning of the pandemic, we implemented a change to store operating hours, and we took measures to limit the number of customers in stores, which included canceling or modifying certain annual merchandising events and rolling out curbside pickup at our stores. We also shifted store support operations to remote or virtual. As we have continued to adapt and refine our approach, we have adjusted our response to reduce constriction and better manage growing demand in the stores, including adopting a more localized approach on limits to the number of customers in stores and expanding store hours while still focusing on promoting a safe shopping environment. In addition, masks or facial coverings are now required for all associates and customers in our U.S. stores and other facilities.
The impact of COVID-19 and the actions we have taken in response to it had varying effects on our results of operations throughout the first nine months of fiscal 2020. Overall we saw a significant acceleration in sales with strong performance across most of our departments during the first nine months of fiscal 2020. This acceleration in sales growth was due to customers’ focus on home improvement projects and repairs, which continued during the third quarter of fiscal 2020. As our customers continued to seek alternative methods for obtaining the products they needed, online sales grew by approximately 80% in the third quarter of fiscal 2020, and approximately 87% in the first nine months of fiscal 2020.
The increase in customer demand for certain products together with the impact of COVID-19 on our supply chain has put pressure on our ability to maintain inventory in-stock levels, particularly for certain high demand products. We have been able to mitigate some of the impact, however, due to the benefits from our strategic investments as well as through such actions as working cross-functionally and partnering with our suppliers to make real-time adjustments to our product assortments, introducing alternative products or reducing assortments to the most popular selections in certain product categories.
Given these ongoing demands and the complexity of the current environment, we have continued to focus on taking care of our associates by investing in additional pay and benefits, including expanded paid time off for all hourly associates to use at their discretion and the implementation of a temporary weekly bonus program. These enhanced pay and benefits resulted in additional expense of $354 million for the third quarter of fiscal 2020, and $1.7 billion for the first nine months of fiscal 2020, which increased SG&A in fiscal 2020 compared to fiscal 2019. To continue to support our associates we have announced that we have transitioned away from these temporary programs, and we are implementing permanent compensation enhancements for frontline, hourly associates. This will result in approximately $1 billion of incremental compensation expense on an annualized basis.
Although we cannot estimate the future impact of COVID-19, we believe our existing liquidity will be sufficient to continue to run our business effectively. We also believe that the investments we have made in recent years in our stores, interconnected and digital assets, associates, supply chain, and merchandising organization have allowed us to quickly adapt to shifts in customer needs and behaviors and the fluid circumstances created by COVID-19. We continue to actively monitor our business and operations and may take further actions as may be required by federal, state or local authorities or that we determine are in the best interests of our associates, customers, suppliers, vendors and shareholders.
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Results of Operations and Non-GAAP Financial Measures
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 2019 Form 10-K and with our MD&A included in the 2019 Form 10-K. The following table displays 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.
Fiscal 2020 and Fiscal 2019 Three Month Comparisons
| Three Months Ended | |||||||||||||||||||||||
| November 1, 2020 | November 3, 2019 | ||||||||||||||||||||||
| dollars in millions | $ | % of Net Sales | $ | % of Net Sales | |||||||||||||||||||
| Net sales | $ | 33,536 | $ | 27,223 | |||||||||||||||||||
| Gross profit | 11,456 | 34.2 | % | 9,387 | 34.5 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 6,076 | 18.1 | 4,942 | 18.2 | |||||||||||||||||||
| Depreciation and amortization | 528 | 1.6 | 498 | 1.8 | |||||||||||||||||||
| Total operating expenses | 6,604 | 19.7 | 5,440 | 20.0 | |||||||||||||||||||
| Operating income | 4,852 | 14.5 | 3,947 | 14.5 | |||||||||||||||||||
| Interest and other (income) expense: | |||||||||||||||||||||||
| Interest and investment income | (11) | — | (22) | (0.1) | |||||||||||||||||||
| Interest expense | 340 | 1.0 | 302 | 1.1 | |||||||||||||||||||
| Interest and other, net | 329 | 1.0 | 280 | 1.0 | |||||||||||||||||||
| Earnings before provision for income taxes | 4,523 | 13.5 | 3,667 | 13.5 | |||||||||||||||||||
| Provision for income taxes | 1,091 | 3.3 | 898 | 3.3 | |||||||||||||||||||
| Net earnings | $ | 3,432 | 10.2 | % | $ | 2,769 | 10.2 | % | |||||||||||||||
—————
Note: Certain percentages may not sum to totals due to rounding.
| Three Months Ended | |||||||||||||||||||||||
| Selected financial and sales data: | November 1, 2020 | November 3, 2019 | % Change | ||||||||||||||||||||
Comparable sales (% change) | 24.1 | % | 3.6 | % | N/A | ||||||||||||||||||
Comparable customer transactions (% change) (1) | 13.0 | % | 1.8 | % | N/A | ||||||||||||||||||
Comparable average ticket (% change) (1) | 10.0 | % | 1.8 | % | N/A | ||||||||||||||||||
Customer transactions (in millions) (1) | 453.2 | 400.9 | 13.0 | % | |||||||||||||||||||
Average ticket (1) (2) | $ | 72.98 | $ | 66.36 | 10.0 | % | |||||||||||||||||
Sales per retail square foot (1) (3) | $ | 552.85 | $ | 449.17 | 23.1 | % | |||||||||||||||||
Diluted earnings per share | $ | 3.18 | $ | 2.53 | 25.7 | % | |||||||||||||||||
—————
(1)Does not include results for the legacy Interline Brands business, now operating as a part of The Home Depot Pro.
(2)Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.
(3)Sales per retail square foot represents sales divided by the retail store square footage. Sales per retail square foot is a measure of the efficiency of sales based on the total square footage of our stores and is used by management to monitor the performance of the Company as an indicator of the productivity of owned and leased square footage for retail operations.
Sales. We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales. Net sales for the third quarter of fiscal 2020 increased 23.2% to $33.5 billion from $27.2 billion for the third quarter of fiscal 2019. The increase in net sales for the third quarter of fiscal 2020 primarily reflected the impact of positive comparable sales driven by an increase in comparable customer transactions and comparable average ticket. Online sales, which consist of sales generated online through our websites for products picked up at our stores or delivered to customer locations, represented 13.0% of net sales and grew by approximately 80% during
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the third quarter of fiscal 2020. The increase in online sales for the third quarter of fiscal 2020 was driven in large part by the impact of COVID-19, with customers continuing to turn online for their shopping needs. A stronger U.S. dollar negatively impacted sales growth by $99 million in the third quarter of fiscal 2020.
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 excludes permanently closed stores. Retail stores become comparable on the Monday following their 52nd week of operation. Acquisitions, digital or otherwise, are included in comparable sales after they are owned for more than 52 weeks. 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 24.1% for the third quarter of fiscal 2020, reflecting a 10.0% increase in comparable average ticket and a 13.0% increase in comparable customer transactions. The increase in comparable sales reflected a number of factors, including increased consumer demand across our core categories and the execution of our strategic efforts to drive an enhanced interconnected experience in both the physical and digital worlds. The increase in comparable average ticket and comparable customer transactions was driven by strong customer traffic both physically and digitally, commodity price inflation primarily from lumber, and mix of product sold.
All of our merchandising departments posted double-digit positive comparable sales in the third quarter of fiscal 2020.
Gross Profit. Gross profit for the third quarter of fiscal 2020 increased 22.0% to $11.5 billion from $9.4 billion for the third quarter of fiscal 2019. Gross profit as a percentage of net sales, or gross profit margin, was 34.2% for the third quarter of fiscal 2020 compared to 34.5% for the third quarter of fiscal 2019. The decrease in gross profit margin was primarily driven by changes in the mix of products sold and pressure from shrink, offset slightly by the benefit of reduced promotional events during the quarter.
Operating Expenses. Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A for the third quarter of fiscal 2020 increased 22.9% to $6.1 billion from $4.9 billion for the third quarter of fiscal 2019. As a percentage of net sales, SG&A was 18.1% for the third quarter of fiscal 2020 compared to 18.2% for the third quarter of fiscal 2019. The decrease in SG&A as a percentage of sales was primarily driven by leverage resulting from a positive comparable sales environment, partially offset by an additional $354 million of expense related to the expansion of our associate pay and benefits as part of our COVID-19 response to support our associates and an additional $59 million of operational COVID-related expenses.
Depreciation and Amortization. Depreciation and amortization increased 6.0% to $528 million for the third quarter of fiscal 2020 from $498 million for the third quarter of fiscal 2019. As a percentage of net sales, depreciation and amortization was 1.6% for the third quarter of fiscal 2020 compared to 1.8% for the third quarter of fiscal 2019. The decrease in depreciation and amortization as a percentage of net sales primarily reflected leverage resulting from a positive comparable sales environment and timing of asset additions, partially offset by strategic investments in the business.
Interest and Other, net. Interest and other, net, was $329 million for the third quarter of fiscal 2020 compared to $280 million for the third quarter of fiscal 2019. Interest and other, net, as a percentage of net sales was 1.0% for the third quarter of both fiscal 2020 and fiscal 2019, and primarily reflected higher interest expense resulting from higher debt balances offset by leverage resulting from a positive comparable sales environment.
Provision for Income Taxes. Our combined effective income tax rate was 24.1% for the third quarter of fiscal 2020 compared to 24.5% for the third quarter of fiscal 2019.
Diluted Earnings per Share. Diluted earnings per share were $3.18 for the third quarter of fiscal 2020 compared to $2.53 for the third quarter of fiscal 2019. The increase in diluted earnings per share for the third quarter of fiscal 2020 reflected the impact of a positive comparable sales environment, partially offset by the additional expenses incurred in response to COVID-19.
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Fiscal 2020 and Fiscal 2019 Nine Month Comparisons
| Nine Months Ended | |||||||||||||||||||||||
| November 1, 2020 | November 3, 2019 | ||||||||||||||||||||||
| dollars in millions | $ | % of Net Sales | $ | % of Net Sales | |||||||||||||||||||
| Net sales | $ | 99,849 | $ | 84,443 | |||||||||||||||||||
| Gross profit | 34,022 | 34.1 | % | 28,836 | 34.1 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 18,260 | 18.3 | 14,926 | 17.7 | |||||||||||||||||||
| Depreciation and amortization | 1,567 | 1.6 | 1,470 | 1.7 | |||||||||||||||||||
| Total operating expenses | 19,827 | 19.9 | 16,396 | 19.4 | |||||||||||||||||||
| Operating income | 14,195 | 14.2 | 12,440 | 14.7 | |||||||||||||||||||
| Interest and other (income) expense: | |||||||||||||||||||||||
| Interest and investment income | (37) | — | (56) | (0.1) | |||||||||||||||||||
| Interest expense | 1,010 | 1.0 | 892 | 1.1 | |||||||||||||||||||
| Interest and other, net | 973 | 1.0 | 836 | 1.0 | |||||||||||||||||||
| Earnings before provision for income taxes | 13,222 | 13.2 | 11,604 | 13.7 | |||||||||||||||||||
| Provision for income taxes | 3,213 | 3.2 | 2,843 | 3.4 | |||||||||||||||||||
| Net earnings | $ | 10,009 | 10.0 | % | $ | 8,761 | 10.4 | % | |||||||||||||||
—————
Note: Certain percentages may not sum to totals due to rounding.
| Nine Months Ended | |||||||||||||||||||||||
| Selected financial and sales data: | November 1, 2020 | November 3, 2019 | % Change | ||||||||||||||||||||
| Comparable sales (% change) | 18.3% | 3.0% | N/A | ||||||||||||||||||||
Comparable customer transactions (% change) (1) | 7.4% | 1.1% | N/A | ||||||||||||||||||||
Comparable average ticket (% change) (1) | 10.3% | 1.9% | N/A | ||||||||||||||||||||
Customer transactions (in millions) (1) | 1,339.5 | 1,246.4 | 7.5% | ||||||||||||||||||||
Average ticket (1) (2) | $ | 73.90 | $ | 67.00 | 10.3% | ||||||||||||||||||
Sales per retail square foot (1) (3) | $ | 549.26 | $ | 464.68 | 18.2% | ||||||||||||||||||
Diluted earnings per share | $ | 9.28 | $ | 7.96 | 16.6% | ||||||||||||||||||
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(1)Does not include results for the legacy Interline Brands business, now operating as a part of The Home Depot Pro.
(2)Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.
(3)Sales per retail square foot represents sales divided by the retail store square footage. Sales per retail square foot is a measure of the efficiency of sales based on the total square footage of our stores and is used by management to monitor the performance of the Company as an indicator of the productivity of owned and leased square footage for retail operations.
Sales. We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales. For the first nine months of fiscal 2020, net sales increased 18.2% to $99.8 billion from $84.4 billion for the first nine months of fiscal 2019. The increase in net sales for the first nine months of fiscal 2020 primarily reflected the impact of positive comparable sales driven by an increase in comparable average ticket and comparable customer transactions. Online sales, which consist of sales generated online through our websites for products picked up in our stores or delivered to customer locations, represented 14.0% of net sales and grew 87.0% during the first nine months of fiscal 2020. The increase in online sales for the first nine months of fiscal 2020 was driven in large part by the impact of COVID-19, with customers turning online for their shopping needs. A stronger U.S. dollar negatively impacted sales growth by $356 million for the first nine months of fiscal 2020.
Comparable Sales. For the first nine months of fiscal 2020, total comparable sales increased 18.3%, consisting of a 10.3% increase in comparable average ticket and a 7.4% increase in comparable customer transactions. This
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increase reflected a number of factors, including increased consumer demand across our core categories and the execution of our strategic efforts to drive an enhanced interconnected experience in both the physical and digital worlds. The increase in comparable average ticket and comparable customer transactions for the first nine months of fiscal 2020 was primarily driven by an increase in the number of products sold per transaction and stronger online customer engagement.
During the first nine months of fiscal 2020, 11 of our 14 merchandising departments posted double-digit positive comparable sales, while Kitchen and Bath, Plumbing, and Flooring posted mid-to-high single-digit positive comparable sales when compared to last year.
Gross Profit. For the first nine months of fiscal 2020, gross profit increased 18.0% to $34.0 billion from $28.8 billion for the first nine months of fiscal 2019. Gross profit as a percentage of net sales, or gross profit margin, was 34.1% for the first nine months of both fiscal 2020 and fiscal 2019, reflecting the benefit from lower promotional activity as we cancelled or modified certain annual merchandising events in response to COVID-19; this benefit was partially offset by higher shrink, supply chain expense and a change in product mix.
Operating Expenses. Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A increased 22.3% to $18.3 billion for the first nine months of fiscal 2020 from $14.9 billion for the first nine months of fiscal 2019. As a percentage of net sales, SG&A was 18.3% for the first nine months of fiscal 2020 compared to 17.7% for the first nine months of fiscal 2019. The increase in SG&A as a percentage of net sales for the first nine months of fiscal 2020 was primarily driven by an additional $1.7 billion of expense related to expanded associate pay and benefits offered in response to COVID-19 and an additional $183 million of operational expense related to COVID-19, partially offset by leverage resulting from a positive comparable sales environment.
Depreciation and Amortization. Depreciation and amortization increased 6.6% to $1.6 billion for the first nine months of fiscal 2020 from $1.5 billion for the first nine months of fiscal 2019. As a percentage of net sales, depreciation and amortization was 1.6% for the first nine months of fiscal 2020 compared to 1.7% for the first nine months of fiscal 2019. The decrease in depreciation and amortization as a percentage of net sales primarily reflected leverage resulting from a positive comparable sales environment and timing of asset additions, partially offset by strategic investments in the business.
Interest and Other, net. Interest and other, net was $973 million for the first nine months of fiscal 2020, compared to $836 million for the first nine months of fiscal 2019. As a percentage of net sales, interest and other, net was 1.0% for the first nine months of both fiscal 2020 and fiscal 2019, primarily reflecting increased interest expense resulting from higher debt balances offset by leverage resulting from a positive comparable sales environment.
Provision for Income Taxes. Our combined effective income tax rate was 24.3% for the first nine months of fiscal 2020 compared to 24.5% for the first nine months of fiscal 2019.
Diluted Earnings per Share. Diluted earnings per share were $9.28 for the first nine months of fiscal 2020, compared to $7.96 for the first nine months of fiscal 2019. The increase in diluted earnings per share for the first nine months of fiscal 2020 reflected the impact of a positive comparable sales environment, partially offset by the additional expenses incurred in response to COVID-19.
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. We believe ROIC is meaningful for investors and management because it measures how effectively we deploy our capital base. We define ROIC as NOPAT, a non-GAAP financial measure, for the most recent twelve-month period, divided by average debt and equity. We define average debt and equity 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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The calculation of ROIC, together with a reconciliation of NOPAT to net earnings (the most comparable GAAP measure), follows:
| Twelve Months Ended | ||||||||||||||
| dollars in millions | November 1, 2020 | November 3, 2019 | ||||||||||||
| Net earnings | $ | 12,490 | $ | 11,105 | ||||||||||
| Interest and other, net | 1,265 | 1,101 | ||||||||||||
| Provision for income taxes | 3,843 | 3,612 | ||||||||||||
| Operating income | 17,598 | 15,818 | ||||||||||||
Income tax adjustment (1) | (4,252) | (3,845) | ||||||||||||
| NOPAT | $ | 13,346 | $ | 11,973 | ||||||||||
| Average debt and equity | $ | 32,095 | $ | 26,520 | ||||||||||
| ROIC | 41.6 | % | 45.1 | % | ||||||||||
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(1)Income tax adjustment is defined as operating income multiplied by our effective tax rate for the trailing twelve months.
Additional Information
For information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial position, results of operations or cash flows, see Note 1 to our consolidated financial statements.
Liquidity and Capital Resources
Cash and Cash Equivalents
At November 1, 2020, we had $14.7 billion in cash and cash equivalents, of which $1.5 billion was held by our foreign subsidiaries. We currently believe that our current cash position, access to the long-term debt capital markets, cash flow generated from operations, and funds available under our commercial paper programs should be sufficient not only for our operating requirements but also to enable us to complete our capital expenditure programs, fund dividend payments and any required long-term debt payments through the next several fiscal years, and complete the acquisition of HD Supply. In addition, we believe that we have the ability to obtain alternative sources of financing, if necessary.
We remain committed to our strategic investment program. However, given the current uncertainty related to COVID-19 and the priority around safety, as well as the complexities of the current operating environment, we have decided to postpone some of our in-store investments. As a result, we now expect that our capital expenditures for fiscal 2020 will be less than initially planned and that some spending originally planned for fiscal 2020 will move to fiscal 2021. In addition, we may further adjust our capital expenditures as necessary or appropriate to support the operations of the business.
Debt and Derivatives
In March 2020, we expanded our commercial paper programs from $3.0 billion to $6.0 billion. All of our short-term borrowings in the first nine months of fiscal 2020 were under these commercial paper programs, and the maximum amount outstanding at any time was $1.0 billion. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings up to $6.5 billion, which consist of (1) a 364-day $3.5 billion credit facility that we entered into in March 2020 in connection with the expanded commercial paper program and is scheduled to expire in March 2021, (2) a five-year $2.0 billion credit facility scheduled to expire in December 2022, and (3) a 364-day $1.0 billion credit facility scheduled to expire in December 2020. We may enter into additional credit facilities or other debt financing.
At November 1, 2020, we were in compliance with all of the covenants contained in the credit facilities, and none of these covenants are expected to impact our liquidity or capital resources. At November 1, 2020, there were no outstanding borrowings under our commercial paper programs. We also issued $5.0 billion of senior notes in March 2020. See Note 4 to our consolidated financial statements for further discussion of our senior notes issuances. We issue senior notes from time to time as part of our capital management strategy.
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We use derivative and nonderivative 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 4 to our consolidated financial statements for further discussion of these financial instruments.
Share Repurchases
In February 2019, our Board of Directors authorized $15.0 billion in share repurchases, of which approximately $7.7 billion remained available as of November 1, 2020. In the first nine months of fiscal 2020, we had cash payments of $791 million for repurchases of our common stock through open market purchases. On March 13, 2020, we suspended our share repurchases until such time as we deem appropriate. We currently expect to resume share repurchases in fiscal 2021.
Cash Flows Summary
Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, associate compensation, operations, and occupancy costs.
Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any point in time is subject to many variables, including seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.
Net cash provided by operating activities increased by $6.6 billion in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 and was primarily driven by an increase in net earnings and changes in working capital associated with accounts payable and accrued expenses and merchandise inventories.
Investing Activities. Cash used in investing activities decreased by $429 million in the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019, primarily as the result of decreased capital expenditures given the current uncertainty related to COVID-19 and our decision to postpone certain of our strategic investments.
Financing Activities. Cash used in financing activities in the first nine months of fiscal 2020 primarily reflected $5.0 billion of net proceeds from long-term debt, offset by $4.8 billion of cash dividends paid, $1.8 billion of repayments of long-term debt, $974 million of net repayments of short-term debt, and $791 million of share repurchases prior to our suspension of share repurchases in March 2020.
Cash used in financing activities in the first nine months of fiscal 2019 primarily reflected $4.5 billion of cash dividends paid, $3.9 billion of share repurchases, $1.0 billion of net repayments of long-term debt, and $644 million of net repayments of short-term debt, partially offset by $1.4 billion of net proceeds from long-term debt.
Critical Accounting Policies
There were no changes during the first nine months of fiscal 2020 to our critical accounting policies as disclosed in the 2019 Form 10-K. Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risk 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. Additionally, we may experience inflation and deflation related to our purchase of certain commodity products. There have been no material changes to our exposure to market risks from those disclosed in the 2019 Form 10-K.
Item 4. Controls and Procedures.
Under the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) and concluded that our disclosure controls and procedures were effective as of November 1, 2020.
During the second quarter of fiscal 2020, we temporarily suspended physical inventory counts in our stores as a result of COVID-19. We resumed physical inventory counts during the third quarter of fiscal 2020; however, to
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account for the impact of uncounted stores, we have assessed our current inventory shrink reserve methodology and have updated the reserve based upon historical results.
During our third quarter of fiscal 2020, we upgraded and migrated our enterprise resource planning system and certain other systems in the U.S. The changes are part of an ongoing business transformation initiative, and we plan to continue to migrate additional business processes over the course of the next few years. In connection with this change in the third quarter, we modified the design and implementation of certain internal control processes.
Except as described above, there were no other changes in our internal control over financial reporting during the fiscal quarter ended November 1, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Except as set forth below, there were no material changes during the third quarter of fiscal 2020 to our disclosure in Item 3 of our 2019 Form 10-K.
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 above a stated threshold. Pursuant to the SEC regulations, the Company uses a threshold of $1 million or more for purposes of determining whether disclosure of any such proceedings is required.
As previously reported, in January 2017, we became aware of an investigation by the U.S. Environmental Protection Agency’s (“EPA”) criminal investigation division into our compliance with lead-safe work practices for certain jobs performed through our installation services business. We 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 EPA civil enforcement division. In the second quarter of fiscal 2019, we received a grand jury subpoena from the U.S. Attorney for the Northern District of Georgia and an amendment of the subpoena from the EPA civil enforcement division. In November 2020, we agreed in principle to a civil consent decree with the U.S. Department of Justice, the EPA, and the State of Utah that requires certain changes to lead-safe work practices in our installation services business and the payment of a penalty of $20.75 million. Following execution of the consent decree, it will be subject to approval by the United States District Court for the Northern District of Georgia. In addition, we have been informed by the United States Attorney for the Northern District of Georgia that the government is declining to pursue criminal charges related to the investigation of our lead-safe work practices.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under Item 1A, "Risk Factors" and elsewhere in the 2019 Form 10-K. These risks and uncertainties could materially and adversely affect our business, consolidated financial condition, results of 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 material to our business. There have been no material changes in the risk factors discussed in the 2019 Form 10-K, except as set forth below.
The continuing impacts of the COVID-19 pandemic are highly unpredictable, volatile, and uncertain, and could adversely affect our business operations, demand for our products and services, our costs of doing business, availability of labor, access to inventory, supply chain operations, our ability to predict future performance, our exposure to litigation, and our financial performance, among other things.
The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility, all of which have impacted and may continue to impact our business. While we have taken numerous steps to mitigate the impact of the pandemic on our results of operations, there can be no assurance that these efforts will be successful.
Due to numerous uncertainties and factors beyond our control, we are unable to predict the impact that COVID-19 will have going forward on our business, results of operations, cash flows, and financial condition. These factors and uncertainties include, but are not limited to:
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•the severity and duration of the pandemic, including whether there are additional “waves” or other continued periods of increases or spikes in the number of COVID-19 cases in future periods in areas in which we or our suppliers operate;
•the rapidly changing and fluid circumstances caused by the pandemic and our ability to respond quickly enough or appropriately to those circumstances;
•the duration and degree of governmental, business or other actions in response to the pandemic, including but not limited to quarantine or shelter-in-place measures and other governmental orders; restrictions on our operations up to and including complete or partial closure of our stores, facilities and distribution centers; economic measures; access to unemployment compensation; fiscal policy changes; or additional measures that may yet be effected;
•the health of, and effect of the pandemic on, our associates and our ability to maintain staffing needs to effectively operate our business;
•evolving macroeconomic factors, including general economic uncertainty, unemployment rates, and recessionary pressures;
•the impact of the pandemic and related economic uncertainty on consumer confidence, economic well-being, spending, and shopping behaviors, both during and after the pandemic;
•impacts – financial, operational or otherwise – on our supply chain, including manufacturers or suppliers of our products and logistics or transportation providers, and on our service providers or subcontractors;
•unknown consequences on our business performance and strategic initiatives stemming from the substantial investment of time and other resources to the pandemic response, including further delays in or adjustments to our strategic investments;
•the incremental costs of doing business during and/or after the pandemic;
•volatility in the credit and financial markets during and after the pandemic;
•the potential effects on our internal control environment and data security as a result of changes to a remote work environment;
•the impact of regulatory and judicial changes in liability for workers’ compensation;
•potential increases in insurance premiums, medical claims costs, and workers’ compensation claim costs;
•the availability of, and prevalence of access to, effective medical treatments and vaccines for COVID-19;
•the impact of litigation or claims from customers, associates, suppliers, regulators or other third parties relating to COVID-19 or our actions in response thereto;
•the pace of recovery when the pandemic subsides; and
•the long-term impact of the pandemic on our business.
The above factors and uncertainties, or others of which we are not currently aware, may result in adverse impacts to our business, results of operations, cash flows, and financial condition.
In addition to the factors above, the COVID-19 pandemic has subjected our business to a number of risks, including, but not limited to those discussed below:
Associate and Customer Safety-Related Risks. In response to the COVID-19 pandemic, we have taken a number of actions across our business to help protect our associates, customers, and others in the communities we serve. These measures include, among other things, adjusted store hours; increased cleaning and sanitizing measures; limits on customer traffic in stores to maintain physical and social distancing protocols; other physical and social distancing efforts such as markings on floors, signage, plexiglass shields and mask requirements; providing masks and thermometers to associates in stores and distribution centers; instituting curbside pickup from stores; and cancellation or modification of certain annual merchandising events to avoid driving additional footsteps to stores that might undermine our efforts to prioritize safety. In certain jurisdictions, we temporarily ceased sales or delayed commencement of certain in-home services deemed non-essential early in the pandemic, and we may have to do so again or in other jurisdictions. Several of these actions adversely impacted our sales, and they may continue to do so going forward. We also took other steps to support our associates, including expanding our paid time off policy to help alleviate some of the challenges our associates are facing as a result of COVID-19; instituting weekly bonuses for hourly associates in our stores and distribution centers; temporarily providing double pay for overtime worked; and expanding dependent care benefits. We are now transitioning from some of these temporary pay and benefits programs to permanent compensation enhancements for our frontline, hourly associates. The actions that we have taken in response to the pandemic have resulted in significant incremental costs, and we expect that we will continue to incur additional costs due to the pandemic going forward, which in turn will have an adverse impact on our results of operations.
The health and safety of our associates and customers are of primary concern to our management team. However, due to the unpredictable nature of COVID-19 and the consequences of our actions, we may see unexpected
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outcomes from our added safety measures. For example, if we do not respond appropriately to the pandemic, or if our customers or associates do not participate in social distancing and other safety measures, the well-being of our associates and customers could be at risk. Furthermore, any failure to appropriately respond, or the perception of an inadequate response, could cause reputational harm to our brand and/or subject us to claims and litigation from associates, customers, suppliers, regulators or other third parties. Additionally, we have faced, and may continue to face, periodic labor shortages at our stores and facilities due to COVID-19, which can result in modifications to our operations including temporary closures and negatively impact our business, costs and results of operations.
Additionally, some jurisdictions have taken measures intended to expand the availability of workers’ compensation or to change the presumptions applicable to workers compensation measures. These actions may increase our exposure to workers’ compensation claims and increase our cost of insurance.
Information Technology-Related Risks. As a result of the pandemic and related quarantines, shelter-in-place orders, and similar restrictions, we have experienced increased demand for online purchases of products. While we have managed this increased volume to date without interruption, there are no assurances that we will continue to be able to do so. We have also had to rapidly modify certain technology to support our interconnected offerings in connection with the pandemic, such as the addition of curbside pickup. Disruptions, failures or other performance issues with our customer-facing technology systems, either due to the increased volume or other factors, could impair the benefits they provide, adversely impact our sales, and negatively affect our relationship with our customers. In addition, as more business activities have shifted online due to COVID-19 restrictions, and as many of our store support associates are working remotely, we face an increased risk due to the potential failure of internal or external information technology infrastructure as well as increased cybersecurity threats and attempts to breach our security networks.
Supply Chain-Related Risks. Circumstances related to the COVID-19 pandemic have significantly impacted the global supply chain, with restrictions and limitations on business activities and impacts of COVID-19 outbreaks on labor supply causing disruptions and delays. These disruptions and delays, which may expand depending on the progression of the pandemic, are placing strain on the domestic and international supply chain, which has affected and could continue to negatively affect the flow or availability of certain products. Customer demand for certain products has also fluctuated as the pandemic has progressed and customer behaviors have changed, which has challenged our ability to anticipate and/or adjust inventory levels to meet that demand. These factors have resulted in higher out-of-stock inventory positions in certain products as well as delays in delivering those products to our distribution centers, stores or customers. Even if we are able to find alternate sources for certain products, they may cost more or require us to incur higher transportation costs, which could adversely impact our profitability and financial condition. Similarly, increased demand for online purchases of products has impacted our fulfillment operations, as well as those of our third-party carriers, resulting in delays in delivering products to customers. The operation of our distribution and fulfillment centers is crucial to our business operations. We have experienced, and may continue to experience, labor shortages at and temporary closures of some of our distribution and fulfillment centers, and any such labor shortages or closures, whether temporary or sustained, may adversely impact the flow or availability of products to our stores and customers. Any of these circumstances could impair our ability to meet customer demand for products and result in lost sales, increased supply chain costs, or damage to our reputation.
Financial and Liquidity Risks. In an effort to strengthen our liquidity position while navigating the COVID-19 pandemic, we took proactive steps during the first quarter of fiscal 2020, including suspending our share repurchases, expanding our commercial paper program and related revolving credit facility capacity, and issuing $5 billion of long-term notes. The increased debt levels have increased our interest expense costs. Further, the financial and credit markets have experienced and may continue to experience significant volatility and turmoil. Our continued access to external sources of liquidity depends on multiple factors, including the condition of debt capital markets, our operating performance, and maintaining strong credit ratings. If the impacts of the pandemic continue to create severe disruptions or turmoil in the financial markets, or if rating agencies lower our credit ratings, it could adversely affect our ability to access the debt markets, our cost of funds, and other terms for new debt or other sources of external liquidity. Additionally, changes in our capital allocation strategy could have adverse impacts, both short- and long-term, on our results of operations and financial position. Suspension of our share repurchases impacts our earnings per share and return on invested capital, which in turn could adversely impact our stock price. While not contemplated at this time, any potential suspension or reduction in our dividend declaration could have an adverse impact on investor perception and our stock price.
To the extent the COVID-19 pandemic continues to adversely affect the U.S. and global economy and/or to adversely affect our business, results of operations, cash flows, or financial condition, it may also have the effect of heightening other risks described in the “Risk Factors” section in our 2019 Form 10-K and other SEC filings, including but not limited to those related to consumer behavior and expectations, competition, brand reputation,
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implementation of strategic initiatives, cybersecurity threats, technology systems disruption, supply chain disruptions, labor availability and cost, litigation, and regulatory requirements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The number and average price of shares purchased in each fiscal month of the third quarter of fiscal 2020 follow:
| Period | Total Number of Shares Purchased (1) (3) | 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) | ||||||||||||||||||||||
| August 3, 2020 – August 30, 2020 | 5,167 | $ | 280.66 | — | $ | 7,680,368,043 | ||||||||||||||||||||
| August 31, 2020 – September 27, 2020 | 12,605 | 272.36 | — | 7,680,368,043 | ||||||||||||||||||||||
| September 28, 2020 – November 1, 2020 | 1,428 | 282.04 | — | 7,680,368,043 | ||||||||||||||||||||||
| Total | 19,200 | 275.31 | — | |||||||||||||||||||||||
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(1) These amounts include repurchases pursuant to our Amended and Restated 2005 Omnibus Stock Incentive Plan and our 1997 Omnibus Stock Incentive Plan (collectively, the "Plans"). Under the Plans, participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards. Participants in the Plans may also exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreement and not pursuant to publicly announced share repurchase programs.
(2) In February 2019, our Board of Directors authorized $15.0 billion in share repurchases that replaced the previous authorization. The authorization does not have a prescribed expiration date.
(3) On March 13, 2020, we suspended our share repurchases until such time as we deem appropriate.
Sales of Unregistered Securities
During the third quarter of fiscal 2020, we issued 423 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 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 third quarter of fiscal 2020. 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 third quarter of fiscal 2020, we credited 887 deferred stock units to participant accounts under the Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan.
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Item 6. Exhibits.
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith.
| Exhibit | Description | |||||||
| * | ||||||||
| [Form 10-Q filed on September 1, 2011, Exhibit 3.1] | ||||||||
| * | ||||||||
| [Form 8-K filed on March 4, 2019, Exhibit 3.2] | ||||||||
| † | ||||||||
| † | ||||||||
| † | ||||||||
| † | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
† Management or compensatory plan or arrangement
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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.
THE HOME DEPOT, INC. (Registrant) | |||||
| By: | /s/ CRAIG A. MENEAR | ||||
| Craig A. Menear, Chairman and Chief Executive Officer | |||||
/s/ RICHARD V. MCPHAIL | |||||
| Richard V. McPhail, Executive Vice President and Chief Financial Officer | |||||
/s/ STEPHEN L. GIBBS | |||||
| Stephen L. Gibbs, Vice President, Chief Accounting Officer and Corporate Controller | |||||
| Date: | November 23, 2020 | ||||
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Exhibit 10.1
[Home Depot Letterhead]
October 1, 2020
Richard McPhail
Dear Richard:
I am pleased to confirm The Home Depot, Inc.’s (the “Company” or “Home Depot”) offer to expand the scope of your position of EVP, Chief Financial Officer on the terms and conditions described herein. Please sign below to indicate your acceptance of this offer.
1.Your Position, Reporting, Effective Date
You will remain in the position of EVP, Chief Financial Officer with expanded responsibilities to include corporate strategy and strategic business development, reporting directly to me, with an effective date of October 5, 2020.
2.Your Compensation and Benefits
a.Base Salary
Your annual base salary will be $825,000 payable in equal bi-weekly installments. Your next salary review will be held in April of 2021, with salary reviews held annually thereafter.
b.Management Incentive Plan for Officers
In addition to your base salary, you will continue to be eligible to participate in the Management Incentive Plan (“MIP”) for Officers which provides an annual incentive target of up to 100% of your base salary. MIP will be paid annually based on achievement of the established financial goals. The earned incentive, if any, will be prorated based on the number of full fiscal months since the effective date of your new position. To be eligible for payment of any incentive, you must be employed on the day on which the incentive is paid.
c.Equity Grants
Home Depot has typically awarded an annual equity grant to Officers in March of each year under the Amended and Restated 2005 Omnibus Stock Incentive Plan (the “Omnibus Plan”). Currently, equity awards for Officers in March 2021 are expected to consist of restricted stock, stock options, and performance shares. Vesting and performance goals for these awards are established annually for each grant. In March 2021, you will continue to be eligible to receive the same types of equity awards as other Officers in the Company. Annual equity awards are not guaranteed as compensation, and there is no minimum or guaranteed award.
At the next regularly scheduled quarterly meeting of the Leadership Development and Compensation Committee of The Home Depot, Inc. Board of Directors following the effective date of your new position, you will receive a grant under the Omnibus Plan of the greatest number of whole shares of restricted common stock of The Home Depot, Inc. (“Common Stock”) resulting from dividing $250,000 by the closing stock price on the grant date, vesting 50% after 30 months and 50% after 60 months. Once
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these provisions lapse, the shares will be yours, free and clear of restrictions, subject to the applicable provisions of the Omnibus Plan and award document. You will also receive a grant of nonqualified stock options under the Omnibus Plan equal to the greatest number of whole shares of Common Stock resulting from dividing $250,000 by the grant date accounting cost of the stock options, with an exercise price equal to the closing stock price on the grant date. Twenty-five percent of the stock options will become exercisable on the second, third, fourth and fifth anniversaries of the grant date. Expiration of all stock options will be the earlier of ten years from the grant date, employment termination, or any earlier time provided by the Omnibus Plan or your award document. As a condition to receiving any equity grant, you agree to comply with The Home Depot, Inc.’s Securities Laws Policy.
d.The Home Depot Inc. Employee Stock Purchase Plan Eligibility
You will continue to be eligible to participate in The Home Depot, Inc.’s Employee Stock Purchase Plan. The plan affords you the opportunity to purchase The Home Depot, Inc. common stock at a 15% discount through payroll deductions.
e.The Home Depot Deferred Compensation Plan for Officers
You will continue to be eligible to participate in The Home Depot Deferred Compensation Plan for Officers. This plan affords you the opportunity to defer up to 50% of your base salary and 100% of your MIP payment into the plan.
f.Other Benefit Programs
You will remain eligible for employee benefits and other programs on the same terms and conditions available to other senior officers of the Company.
g.Other Terms
The terms of your annual base salary, the MIP and other benefits set forth herein are subject to future modification or termination at the Company’s discretion. All compensation and benefits are subject to any required tax withholding.
3.Your General Obligations to Home Depot While You are Employed with the Company
a.Exclusive Employment with Home Depot
You agree that you will devote your full business time and attention to your job with Home Depot and that your job with Home Depot will be your sole occupation during the time you are employed with the Company. Except for passive personal investment or charitable work for nonprofit organizations, as of the date you begin employment with Home Depot, you will not perform any work for any person or entity for which you receive any form of compensation, including cash, equity, or in-kind payments, without the express written consent of the Executive Vice President - Human Resources of The Home Depot, Inc.
b.Restrictions on Outside Activities or Investments
You agree that you shall not, without the prior express written consent of the Executive Vice President - Human Resources of The Home Depot, Inc., engage in or have any financial or other interests in, or render any service in any capacity to any competitor or supplier of the Company, its parents, subsidiaries,
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affiliates, or related entities during the course of your employment with the Company. Hereinafter, the Company and its parents, subsidiaries, affiliates and related entities are referred to collectively as the “Company-Related Parties.” Notwithstanding the foregoing, you shall not be restricted from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers, provided that such ownership was acquired in a manner not prohibited by the Company’s Conflict of Interest policy. The provisions of this paragraph shall apply to you and your immediate family members.
c.Compliance with Policies of Home Depot
You recognize that, as a Company leader, your compliance with both the letter and spirit of Company policies, rules, and procedures is critical to reinforcing the Company’s culture of compliance. Accordingly, you agree that you will fully comply with all applicable Company rules, policies, and procedures, including The Home Depot Business Code of Conduct and Ethics, Corporate Compliance Policies, and Standard Operating Procedures, and you will take all appropriate measures to ensure others comply as well.
4.Your Obligations to Home Depot Regarding the Handling of Confidential Information, Trade Secrets, and Work Product
a.Protection of Trade Secrets and Confidential Information of Home Depot
You acknowledge that through your employment with the Company, you will acquire and have access to Confidential Information of the Company-Related Parties. You agree to use any Confidential Information of the Company-Related Parties that you acquire or have access to only for the purpose of conducting and completing your duties for the Company. You agree not to use any Confidential Information of the Company-Related Parties in any other manner or for any other purpose. You agree that you will not disclose any Confidential Information to any third party, other than as required for the purpose of conducting or completing your duties for the Company, subject to obtaining the appropriate approvals and implementing appropriate safeguards, and you further agree to return all documents or any other item or source containing Confidential Information or any other property of the Company-Related Parties, to the Company immediately upon termination for any reason of your employment with the Company. This obligation shall remain in effect, both during and after your employment, for as long as the information or materials you have acquired or to which you have access retain their status as Confidential Information. This letter is not intended to, and does not, alter either the Company-Related Parties’ rights or your obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. You agree that the Company may prevent the use or disclosure of its Confidential Information through use of an injunction or other means and acknowledge that the Company-Related Parties have taken reasonable steps necessary to protect the secrecy of the Confidential Information.
For purposes of this letter, “Confidential Information” means any data or information that belongs and is valuable to the Company-Related Parties and not generally known to competitors of the Company-Related Parties or other outsiders, regardless of whether the Confidential Information is in printed, written or electronic form, retained in your memory or has been compiled or created by you, including but not limited to information related to: operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, or other information similar to the foregoing.
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Pursuant to 18 U.S.C. § 1833(b), nothing in this letter shall be interpreted to expose you to criminal or civil liability under Federal or state trade secret law for disclosure, in confidence, of trade secrets (i) to Federal, state, and local government officials, directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, provided the filing is made under seal and otherwise protected from disclosure except pursuant to court order. If you file a lawsuit for retaliation for reporting a suspected violation of law, you may disclose trade secrets to your attorney and use the trade secret information in a court proceeding, provided that you file any document containing the trade secret under seal and you do not otherwise disclose the trade secret, except pursuant to court order. Nothing herein is intended to prohibit you from reporting possible violations of law or regulation to any governmental agency or entity having responsibility to investigate same or from making any truthful statement in connection with any legal proceeding or investigation by any governmental agency or entity.
b.Ownership of “Work Product”
You acknowledge and agree that any new work product, including without limitation concepts, designs, notes, reports, documentation, drawings, computer programs (source code, object code, and listings), ideas, inventions (whether or not patentable), trade secrets, improvements, creations, scientific and mathematical models, writings, works, works of authorship (whether or not copyrightable), theses, books, lectures, illustrations, devices, masks, models, work-in-process, photographs, pictorial, graphical or audiovisual works or sound recordings or video recordings, prints, and deliverables, and any other subject matter which is or may become legally protectable or recognized as a form of property, and all materials contained therein and prepared in connection therewith and/or therefrom, whether in draft or final form (collectively, “Work Product”), which are designed, created, conceived, developed or reduced to practice, writing or publication by you, either solely or jointly with others, during your employment with Home Depot, which relate to or are useful in Home Depot’s business, or which derive in any way from using Home Depot property, shall be considered works made for hire and shall be owned by, and deemed the exclusive property of, Home Depot. Without in any way limiting the foregoing, and without any further compensation, in the event that it is determined that any Work Product does not quality as a work made for hire or that it is not otherwise owned by Home Depot, you agree to assign and do hereby assign to Home Depot your right, title, and interest in and to any Work Product, whether now existing or created in the future, that arises from your employment with Home Depot, or that derives in any way from using Home Depot property. You further agree to execute any additional documents that Home Depot deems, in its sole discretion, necessary to vest ownership of Work Product with Home Depot or perfect such intellectual property rights in the United States and any other jurisdiction worldwide.
c.Protection of Information that Belongs to Others
You understand that it is not the intention of Home Depot to receive or obtain any trade secrets, proprietary information, or other confidential information of others. Accordingly, you agree that you will not disclose or use during or in connection with your employment with Home Depot any trade secrets, proprietary information, or confidential information to which you may have been exposed or that you may have acquired in connection with your prior employment or engagement as an independent contractor or consultant. Further, you agree that you will not bring Home Depot any documents or materials in any form containing trade secrets, proprietary information, or confidential information from a prior employer, client, or customer.
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5.Post-Employment Restrictive Covenants
a.Non-Competition
By accepting this offer, you acknowledge and agree that, as a key executive of the Company, you will receive training and Confidential Information regarding, among other things, the Company-Related Parties’ operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, and/or other business processes, and that you have been and will be provided and entrusted with access to the Company-Related Parties’ customer and employee relationships and goodwill. You further acknowledge that such Confidential Information, including trade secrets and other business processes, are utilized by the Company-Related Parties throughout the entire United States and in other locations in which it conducts business. You further acknowledge and agree that the Company-Related Parties’ Confidential Information, customer, service provider, vendor and employee relationships, and goodwill are valuable assets of the Company-Related Parties and are legitimate business interests that are properly subject to protection through the covenants contained in this letter. Consequently, you agree that during the Restricted Period you shall not, directly or indirectly, enter into or maintain an employment, contractual or other business relationship, in the United States, Canada, or Mexico, in which (A) you own an equity interest in a Competitor greater than one percent (1%) of its outstanding equity, or manage, operate, finance, or control a Competitor; or (B) you provide services or perform duties for a Competitor that (i) are the same as or similar to the services or job duties you performed for the Company at any point during the two-year period prior to the termination of your employment, or (ii) involve executive, managerial, financial, or other significant leadership responsibilities.
“Competitor” shall mean:
(X) the following companies or entities, including their subsidiaries, affiliates, franchisees, or business units: Lowe’s Companies, Inc.; Sears Holding Corp.; Amazon.com; Menard, Inc.; HD Supply Holdings, Inc.; Floor & Decor; Ace Hardware; True Value Company; Lumber Liquidators; Tractor Supply Company; Wayfair; Canadian Tire; and Wal-Mart;
(Y) any company or entity that sells or offers Competitive Products or Services that, in combination with its subsidiaries, affiliates, franchisees, or business units (a) operates more than 100 retail outlets across the United States, Canada, and Mexico or (b) generates more than $500 million in annual revenue; or
(Z) any company or entity that is formed through, or as a result of, a sale, merger, combination, renaming, restructuring, spin-off, or other corporate transaction involving a business or entity defined in clause (X) or (Y) of this sentence, and which sells Competitive Products or Services.
“Competitive Products or Services” means anything of commercial value of the type offered, provided or sold by the Company-Related Parties, in the United States, Canada, or Mexico, within two (2) years prior to termination of your employment and during the Restricted Period, including, without limitation: goods; personal, real, or intangible property; services; financial products; business opportunities or assistance; or any other object or aspect of business conducted or provided by Company-Related Parties.
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“Restricted Period” shall mean the period during which you are employed with the Company and for a period of twenty-four (24) months following the termination of your employment, regardless of the reason for such termination.
b.Non-Solicitation of Company Employees
You agree that during the course of your employment and for a period of thirty-six (36) months following the termination of your employment with the Company (“Non-Solicitation Period”), you will not directly or indirectly, on your own behalf or on behalf of any other entity or person, Solicit any person who is, or during the last twelve (12) months of your employment with the Company was, an employee of any of the Company-Related Parties, with whom you had material contact during your employment, or with respect to whom you obtained or had authorized access to Confidential Information while employed with the Company, to terminate his or her employment or other relationship with any of the Company-Related Parties, or to refer any such employee to anyone, without the prior written approval from the Executive Vice President - Human Resources. For purposes of this paragraph, “Solicit” shall include any solicitation, enticement, or encouragement whatsoever, regardless of which party initiated the initial contact, as well as any direct or indirect involvement in the recruitment, referral, interviewing, hiring, or setting of the initial terms and conditions of employment.
c.Remedies for Breach
i.Injunctive Relief
You acknowledge and agree that quantifying the damages suffered by the Company for your breach of Section 4(a), 4(b), 5(a) or 5(b) might not be possible or feasible, or provide adequate compensation to the Company at law and that the balance of the hardships tips in favor of enforcing such section(s). You agree that the Company shall be entitled, if any such breach shall occur or be either threatened or attempted, if it so elects, to seek from a court a temporary, preliminary, and permanent injunction, without being required to post a bond, enjoining and restraining such breach or threatened or attempted breach.
ii.Liquidated Damages
Because of the potential difficulty in quantifying damages that the Company may suffer in the event of a breach by you of Section 4(a), 4(b), 5(a) or 5(b), you and the Company agree that it is appropriate to reasonably estimate such damages in advance and set an amount of liquidated damages that you will owe the Company in the event of a breach. Accordingly, after due consideration, you and the Company agree that, if you breach Section 4(a), 4(b), 5(a) or 5(b), you shall pay the Company, upon demand, an amount specified by the Company, up to the sum of the then-current market value of the shares of Common Stock that you hold that were granted by any equity awards and the aggregate after-tax proceeds you received upon the sale or other disposition of any shares of Common Stock granted by any equity award(s).
iii.Other Remedies
In addition to any and all other remedies at law or equity, including monetary damages, the Company shall be entitled to recover its reasonable attorney fees if it succeeds in obtaining an injunction against you for breach or threatened breach of Section 4(a), 4(b), 5(a) or 5(b), or otherwise proving in court that you violated any provision of Section 4(a), 4(b), 5(a) or 5(b).
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You acknowledge that the purpose and effect of Section 5(a) or 5(b) would be frustrated by measuring the duration of the Restricted Period or the Non-Solicitation Period from the termination of your employment if you were to fail to honor your obligation(s) until directed to do so by court order. Should legal proceedings be initiated by the Company to enforce Section 5(a) or Section 5(b), the commencement of the Restricted Period or the Non-Solicitation Period shall be tolled and extended and will instead begin on the date of the entry of an order granting the Company injunctive, monetary or other relief from your actual or threatened breach of this Agreement.
You further agree to waive and not assert any claim for advancement of legal fees, costs, or expenses pursuant to the Company’s by-laws or based on other authority in the event the Company initiates a legal action against you for violation of Section 4(a), 4(b), 5(a) or 5(b).
d.Reasonableness of Restrictions
You acknowledge and agree that each of the covenants in this letter is reasonable, appropriate, and narrowly tailored to protect the Company’s legitimate interests, including but not limited to protecting Company-Related Parties’ Confidential Information, and that your full compliance with such restrictions will not unduly or unreasonably interfere with your ability to obtain and undertake other gainful future employment. You and the Company acknowledge and agree that there a number of unique circumstances that provide the Company with protectable interests that justify and necessitate the 24-month Restricted Period in Section 5(a) and the 36-month Non-Solicitation Period in Section 5(b). As one of the Company’s senior-most officers, you will be involved in developing, and have unique access to, the Company’s Confidential Information, including its plans and strategies for the business, personnel leadership, talent management, and succession. This involvement and access enables you to learn information about the skills, capabilities, strengths, and weaknesses of Company personnel, as well as information about their compensation, bonuses, and performance, and Company plans and strategies for same. In addition, your senior position at the Company provides you with a unique and special access to the Company’s non-public business plans, strategies, and methods. Furthermore, your role with the Company enables you to utilize the Company’s goodwill to develop relationships with subordinate employees throughout the Company.
Accordingly, you agree that these and other facts and circumstances associated with your position justify the scope and duration of the restrictions in Sections 5(a) and 5(b). You further agree that, with respect to the 36-month Non-Solicitation Period in Section 5(b), the above facts and circumstances are sufficient to overcome any presumption of unreasonableness under the Georgia Restrictive Covenant Act, O.C.G.A. § 13-8-50 et seq., for restrictions lasting longer than 24 months.
With respect to Section 5(a), in the event you wish to enter into any relationship or employment on or before the end of the Restricted Period that would potentially violate the restrictions in Section 5(a), you agree to request written permission from Company’s Executive Vice President, Human Resources before entering any such relationship or employment. The Company may approve or not approve of the relationship or employment at its absolute discretion.
You and the Company agree that the amounts set forth in Section 5(c)(ii) for a breach of Section 4(a), 4(b), 5(a) or 5(b) shall represent a fair and reasonable measure of the Company's estimated damages for your breach, shall be deemed to have been fully negotiated and established bilaterally by you and the Company through such negotiations, and shall not constitute a penalty.
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e.Reformation, Severability, and “Blue-Penciling”
If any of the provisions of Section 4(a), 4(b), 5(a) or 5(b) should ever be held by a court of competent jurisdiction to exceed the scope permitted by applicable law, you agree such provision or provisions shall first be modified to such lesser scope as the court may deem just and proper for the reasonable protection of the Company’s legitimate business interests. In the alternative, if modification is not available, you and the Company agree that the court may sever such provision from this Offer Letter and enforce the remaining provisions. If the amounts set forth in Section 5(c)(ii) should be deemed for any reason by a court of competent jurisdiction not to constitute a permissible liquidated damage, you and the Company agree that the court may establish a liquidated damage in such lesser amount that is in accordance with applicable law.
6.At-Will Employment
This letter should not be construed, nor is it intended, to be a contract of employment for a specified period of time or in any way limiting the Company’s right to terminate the employment relationship. Your employment relationship is “at will.” The Company reserves the right to terminate your employment with or without cause at any time.
7.Interpretation and Enforcement of this Offer Letter and the Terms Contained Herein
This letter supersedes any prior employment agreement, offer letters, or understandings, written or oral between you and the Company-Related Parties and contains the entire understanding of the Company and you with respect to the subject matter hereof, except that this letter does not supersede or limit your rights, restrictions, or obligations as to the Company-Related Parties contained in the plans and agreements between you and the Company-Related Parties referenced in or associated with Sections 2(b)-(e) of this Offer Letter.
The terms of this letter shall be binding on, and in favor of, the Company’s successors in interest and assigns.
This letter shall be construed, interpreted and applied in accordance with the law of the State of Georgia, without giving effect to any choice of law provisions thereof that would require the application of any other jurisdiction’s laws. You agree to irrevocably submit any dispute arising out of or relating to this letter to the exclusive jurisdiction of the Atlanta Division of the U.S. District Court for the Northern District of Georgia, or if federal jurisdiction is not available, the Superior Court of Cobb County, Georgia. You also irrevocably waive, to the fullest extent permitted by applicable law, any objection you may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute, and you agree to personal jurisdiction and to accept service of legal process from the courts of Georgia. Subject to the parties’ agreement set forth above regarding modification, in the event any provision in this letter is determined to be legally invalid or unenforceable by any court of competent jurisdiction, and cannot be modified to be enforceable, the affected provision shall be stricken from the letter, and the remaining terms of the letter and its enforceability shall remain unaffected. You agree to accept service of process by mail or by any other means sufficient to ensure that you receive a copy of the items served.
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Richard, we are pleased to extend this offer to you, and we are excited about the opportunities that your leadership will bring to this new role. We have enclosed a copy of this letter for your records. Please sign, date and return the original to us.
Sincerely,
/s/Craig Menear
Craig Menear
Chairman and Chief Executive Officer
I accept this offer as EVP, Chief Financial Officer pursuant to the foregoing terms and conditions:
/s/Richard McPhail 10/2/2020
Richard McPhail Date Signed
Exhibit 10.2
[Home Depot Letterhead]
October 1, 2020
Edward Decker
Dear Ted:
I am pleased to confirm The Home Depot, Inc.’s (the “Company” or “Home Depot”) offer to you of the position of President and Chief Operating Officer on the terms and conditions described herein. Please sign below to indicate your acceptance of this offer.
1.Your Position, Reporting, Effective Date
You are being offered the position of President and Chief Operating Officer, reporting directly to me, with an effective date of October 5, 2020.
2.Your Compensation and Benefits
a.Base Salary
Your annual base salary will be $1,000,000 payable in equal bi-weekly installments. Your next salary review will be held in April of 2021, with salary reviews held annually thereafter.
b.Management Incentive Plan for Officers
In addition to your base salary, you will continue to be eligible to participate in the Management Incentive Plan (“MIP”) for Officers which provides an annual incentive target of up to 150% of your base salary. MIP will be paid annually based on achievement of the established financial goals. The earned incentive, if any, will be prorated based on the number of full fiscal months since the effective date of your new position. To be eligible for payment of any incentive, you must be employed on the day on which the incentive is paid.
c.Equity Grants
Home Depot has typically awarded an annual equity grant to Officers in March of each year under the Amended and Restated 2005 Omnibus Stock Incentive Plan (the “Omnibus Plan”). Currently, equity awards for Officers in March 2021 are expected to consist of restricted stock, stock options, and performance shares. Vesting and performance goals for these awards are established annually for each grant. In March 2021, you will continue to be eligible to receive the same types of equity awards as other Officers in the Company. Annual equity awards are not guaranteed as compensation, and there is no minimum or guaranteed award.
At the next regularly scheduled quarterly meeting of the Leadership Development and Compensation Committee of The Home Depot, Inc. Board of Directors following the effective date of your new position, you will receive a grant under the Omnibus Plan of the greatest number of whole shares of restricted common stock of The Home Depot, Inc. (“Common Stock”) resulting from dividing $250,000 by the closing stock price on the grant date, vesting 50% after 30 months and 50% after 60 months. Once these provisions lapse, the shares will be yours, free and clear of restrictions, subject to the applicable
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provisions of the Omnibus Plan and award document. You will also receive a grant of nonqualified stock options under the Omnibus Plan equal to the greatest number of whole shares of Common Stock resulting from dividing $250,000 by the grant date accounting cost of the stock options, with an exercise price equal to the closing stock price on the grant date. Twenty-five percent of the stock options will become exercisable on the second, third, fourth and fifth anniversaries of the grant date. Expiration of all stock options will be the earlier of ten years from the grant date, employment termination, or any earlier time provided by the Omnibus Plan or your award document. As a condition to receiving any equity grant, you agree to comply with The Home Depot, Inc.’s Securities Laws Policy.
d.The Home Depot Inc. Employee Stock Purchase Plan Eligibility
You will continue to be eligible to participate in The Home Depot, Inc.’s Employee Stock Purchase Plan. The plan affords you the opportunity to purchase The Home Depot, Inc. common stock at a 15% discount through payroll deductions.
e.The Home Depot Deferred Compensation Plan for Officers
You will continue to be eligible to participate in The Home Depot Deferred Compensation Plan for Officers. This plan affords you the opportunity to defer up to 50% of your base salary and 100% of your MIP payment into the plan.
f.Other Benefit Programs
You will remain eligible for employee benefits and other programs on the same terms and conditions available to other senior officers of the Company.
g.Other Terms
The terms of your annual base salary, the MIP and other benefits set forth herein are subject to future modification or termination at the Company’s discretion. All compensation and benefits are subject to any required tax withholding.
3.Your General Obligations to Home Depot While You are Employed with the Company
a.Exclusive Employment with Home Depot
You agree that you will devote your full business time and attention to your job with Home Depot and that your job with Home Depot will be your sole occupation during the time you are employed with the Company. Except for passive personal investment or charitable work for nonprofit organizations, as of the date you begin employment with Home Depot, you will not perform any work for any person or entity for which you receive any form of compensation, including cash, equity, or in-kind payments, without the express written consent of the Executive Vice President - Human Resources of The Home Depot, Inc.
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b.Restrictions on Outside Activities or Investments
You agree that you shall not, without the prior express written consent of the Executive Vice President - Human Resources of The Home Depot, Inc., engage in or have any financial or other interests in, or render any service in any capacity to any competitor or supplier of the Company, its parents, subsidiaries, affiliates, or related entities during the course of your employment with the Company. Hereinafter, the Company and its parents, subsidiaries, affiliates and related entities are referred to collectively as the “Company-Related Parties.” Notwithstanding the foregoing, you shall not be restricted from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers, provided that such ownership was acquired in a manner not prohibited by the Company’s Conflict of Interest policy. The provisions of this paragraph shall apply to you and your immediate family members.
c.Compliance with Policies of Home Depot
You recognize that, as a Company leader, your compliance with both the letter and spirit of Company policies, rules, and procedures is critical to reinforcing the Company’s culture of compliance. Accordingly, you agree that you will fully comply with all applicable Company rules, policies, and procedures, including The Home Depot Business Code of Conduct and Ethics, Corporate Compliance Policies, and Standard Operating Procedures, and you will take all appropriate measures to ensure others comply as well.
4.Your Obligations to Home Depot Regarding the Handling of Confidential Information, Trade Secrets, and Work Product
a.Protection of Trade Secrets and Confidential Information of Home Depot
You acknowledge that through your employment with the Company, you will acquire and have access to Confidential Information of the Company-Related Parties. You agree to use any Confidential Information of the Company-Related Parties that you acquire or have access to only for the purpose of conducting and completing your duties for the Company. You agree not to use any Confidential Information of the Company-Related Parties in any other manner or for any other purpose. You agree that you will not disclose any Confidential Information to any third party, other than as required for the purpose of conducting or completing your duties for the Company, subject to obtaining the appropriate approvals and implementing appropriate safeguards, and you further agree to return all documents or any other item or source containing Confidential Information or any other property of the Company-Related Parties, to the Company immediately upon termination for any reason of your employment with the Company. This obligation shall remain in effect, both during and after your employment, for as long as the information or materials you have acquired or to which you have access retain their status as Confidential Information. This letter is not intended to, and does not, alter either the Company-Related Parties’ rights or your obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. You agree that the Company may prevent the use or disclosure of its Confidential Information through use of an injunction or other means and acknowledge that the Company-Related Parties have taken reasonable steps necessary to protect the secrecy of the Confidential Information.
For purposes of this letter, “Confidential Information” means any data or information that belongs and is valuable to the Company-Related Parties and not generally known to competitors of the Company-Related Parties or other outsiders, regardless of whether the Confidential Information is in printed, written or electronic form, retained in your memory or has been compiled or created by you, including but not
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limited to information related to: operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, or other information similar to the foregoing.
Pursuant to 18 U.S.C. § 1833(b), nothing in this letter shall be interpreted to expose you to criminal or civil liability under Federal or state trade secret law for disclosure, in confidence, of trade secrets (i) to Federal, state, and local government officials, directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, provided the filing is made under seal and otherwise protected from disclosure except pursuant to court order. If you file a lawsuit for retaliation for reporting a suspected violation of law, you may disclose trade secrets to your attorney and use the trade secret information in a court proceeding, provided that you file any document containing the trade secret under seal and you do not otherwise disclose the trade secret, except pursuant to court order. Nothing herein is intended to prohibit you from reporting possible violations of law or regulation to any governmental agency or entity having responsibility to investigate same or from making any truthful statement in connection with any legal proceeding or investigation by any governmental agency or entity.
b.Ownership of “Work Product”
You acknowledge and agree that any new work product, including without limitation concepts, designs, notes, reports, documentation, drawings, computer programs (source code, object code, and listings), ideas, inventions (whether or not patentable), trade secrets, improvements, creations, scientific and mathematical models, writings, works, works of authorship (whether or not copyrightable), theses, books, lectures, illustrations, devices, masks, models, work-in-process, photographs, pictorial, graphical or audiovisual works or sound recordings or video recordings, prints, and deliverables, and any other subject matter which is or may become legally protectable or recognized as a form of property, and all materials contained therein and prepared in connection therewith and/or therefrom, whether in draft or final form (collectively, “Work Product”), which are designed, created, conceived, developed or reduced to practice, writing or publication by you, either solely or jointly with others, during your employment with Home Depot, which relate to or are useful in Home Depot’s business, or which derive in any way from using Home Depot property, shall be considered works made for hire and shall be owned by, and deemed the exclusive property of, Home Depot. Without in any way limiting the foregoing, and without any further compensation, in the event that it is determined that any Work Product does not quality as a work made for hire or that it is not otherwise owned by Home Depot, you agree to assign and do hereby assign to Home Depot your right, title, and interest in and to any Work Product, whether now existing or created in the future, that arises from your employment with Home Depot, or that derives in any way from using Home Depot property. You further agree to execute any additional documents that Home Depot deems, in its sole discretion, necessary to vest ownership of Work Product with Home Depot or perfect such intellectual property rights in the United States and any other jurisdiction worldwide.
c.Protection of Information that Belongs to Others
You understand that it is not the intention of Home Depot to receive or obtain any trade secrets, proprietary information, or other confidential information of others. Accordingly, you agree that you will not disclose or use during or in connection with your employment with Home Depot any trade secrets, proprietary information, or confidential information to which you may have been exposed or that you may have acquired in connection with your prior employment or engagement as an independent contractor or
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consultant. Further, you agree that you will not bring Home Depot any documents or materials in any form containing trade secrets, proprietary information, or confidential information from a prior employer, client, or customer.
5.Post-Employment Restrictive Covenants
a.Non-Competition
By accepting this offer, you acknowledge and agree that, as a key executive of the Company, you will receive training and Confidential Information regarding, among other things, the Company-Related Parties’ operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, and/or other business processes, and that you have been and will be provided and entrusted with access to the Company-Related Parties’ customer and employee relationships and goodwill. You further acknowledge that such Confidential Information, including trade secrets and other business processes, are utilized by the Company-Related Parties throughout the entire United States and in other locations in which it conducts business. You further acknowledge and agree that the Company-Related Parties’ Confidential Information, customer, service provider, vendor and employee relationships, and goodwill are valuable assets of the Company-Related Parties and are legitimate business interests that are properly subject to protection through the covenants contained in this letter. Consequently, you agree that during the Restricted Period you shall not, directly or indirectly, enter into or maintain an employment, contractual or other business relationship, in the United States, Canada, or Mexico, in which (A) you own an equity interest in a Competitor greater than one percent (1%) of its outstanding equity, or manage, operate, finance, or control a Competitor; or (B) you provide services or perform duties for a Competitor that (i) are the same as or similar to the services or job duties you performed for the Company at any point during the two-year period prior to the termination of your employment, or (ii) involve executive, managerial, financial, or other significant leadership responsibilities.
“Competitor” shall mean:
(X) the following companies or entities, including their subsidiaries, affiliates, franchisees, or business units: Lowe’s Companies, Inc.; Sears Holding Corp.; Amazon.com; Menard, Inc.; HD Supply Holdings, Inc.; Floor & Decor; Ace Hardware; True Value Company; Lumber Liquidators; Tractor Supply Company; Wayfair; Canadian Tire; and Wal-Mart;
(Y) any company or entity that sells or offers Competitive Products or Services that, in combination with its subsidiaries, affiliates, franchisees, or business units (a) operates more than 100 retail outlets across the United States, Canada, and Mexico or (b) generates more than $500 million in annual revenue; or
(Z) any company or entity that is formed through, or as a result of, a sale, merger, combination, renaming, restructuring, spin-off, or other corporate transaction involving a business or entity defined in clause (X) or (Y) of this sentence, and which sells Competitive Products or Services.
“Competitive Products or Services” means anything of commercial value of the type offered, provided or sold by the Company-Related Parties, in the United States, Canada, or Mexico, within two (2) years prior to termination of your employment and during the Restricted Period, including, without limitation: goods;
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personal, real, or intangible property; services; financial products; business opportunities or assistance; or any other object or aspect of business conducted or provided by Company-Related Parties.
“Restricted Period” shall mean the period during which you are employed with the Company and for a period of twenty-four (24) months following the termination of your employment, regardless of the reason for such termination.
b.Non-Solicitation of Company Employees
You agree that during the course of your employment and for a period of thirty-six (36) months following the termination of your employment with the Company (“Non-Solicitation Period”), you will not directly or indirectly, on your own behalf or on behalf of any other entity or person, Solicit any person who is, or during the last twelve (12) months of your employment with the Company was, an employee of any of the Company-Related Parties, with whom you had material contact during your employment, or with respect to whom you obtained or had authorized access to Confidential Information while employed with the Company, to terminate his or her employment or other relationship with any of the Company-Related Parties, or to refer any such employee to anyone, without the prior written approval from the Executive Vice President - Human Resources. For purposes of this paragraph, “Solicit” shall include any solicitation, enticement, or encouragement whatsoever, regardless of which party initiated the initial contact, as well as any direct or indirect involvement in the recruitment, referral, interviewing, hiring, or setting of the initial terms and conditions of employment.
c.Remedies for Breach
i.Injunctive Relief
You acknowledge and agree that quantifying the damages suffered by the Company for your breach of Section 4(a), 4(b), 5(a) or 5(b) might not be possible or feasible, or provide adequate compensation to the Company at law and that the balance of the hardships tips in favor of enforcing such section(s). You agree that the Company shall be entitled, if any such breach shall occur or be either threatened or attempted, if it so elects, to seek from a court a temporary, preliminary, and permanent injunction, without being required to post a bond, enjoining and restraining such breach or threatened or attempted breach.
ii.Liquidated Damages
Because of the potential difficulty in quantifying damages that the Company may suffer in the event of a breach by you of Section 4(a), 4(b), 5(a) or 5(b), you and the Company agree that it is appropriate to reasonably estimate such damages in advance and set an amount of liquidated damages that you will owe the Company in the event of a breach. Accordingly, after due consideration, you and the Company agree that, if you breach Section 4(a), 4(b), 5(a) or 5(b), you shall pay the Company, upon demand, an amount specified by the Company, up to the sum of the then-current market value of the shares of Common Stock that you hold that were granted by any equity awards and the aggregate after-tax proceeds you received upon the sale or other disposition of any shares of Common Stock granted by any equity award(s).
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iii.Other Remedies
In addition to any and all other remedies at law or equity, including monetary damages, the Company shall be entitled to recover its reasonable attorney fees if it succeeds in obtaining an injunction against you for breach or threatened breach of Section 4(a), 4(b), 5(a) or 5(b), or otherwise proving in court that you violated any provision of Section 4(a), 4(b), 5(a) or 5(b).
You acknowledge that the purpose and effect of Section 5(a) or 5(b) would be frustrated by measuring the duration of the Restricted Period or the Non-Solicitation Period from the termination of your employment if you were to fail to honor your obligation(s) until directed to do so by court order. Should legal proceedings be initiated by the Company to enforce Section 5(a) or Section 5(b), the commencement of the Restricted Period or the Non-Solicitation Period shall be tolled and extended and will instead begin on the date of the entry of an order granting the Company injunctive, monetary or other relief from your actual or threatened breach of this Agreement.
You further agree to waive and not assert any claim for advancement of legal fees, costs, or expenses pursuant to the Company’s by-laws or based on other authority in the event the Company initiates a legal action against you for violation of Section 4(a), 4(b), 5(a) or 5(b).
d.Reasonableness of Restrictions
You acknowledge and agree that each of the covenants in this letter is reasonable, appropriate, and narrowly tailored to protect the Company’s legitimate interests, including but not limited to protecting Company-Related Parties’ Confidential Information, and that your full compliance with such restrictions will not unduly or unreasonably interfere with your ability to obtain and undertake other gainful future employment. You and the Company acknowledge and agree that there a number of unique circumstances that provide the Company with protectable interests that justify and necessitate the 24-month Restricted Period in Section 5(a) and the 36-month Non-Solicitation Period in Section 5(b). As one of the Company’s senior-most officers, you will be involved in developing, and have unique access to, the Company’s Confidential Information, including its plans and strategies for the business, personnel leadership, talent management, and succession. This involvement and access enables you to learn information about the skills, capabilities, strengths, and weaknesses of Company personnel, as well as information about their compensation, bonuses, and performance, and Company plans and strategies for same. In addition, your senior position at the Company provides you with a unique and special access to the Company’s non-public business plans, strategies, and methods. Furthermore, your role with the Company enables you to utilize the Company’s goodwill to develop relationships with subordinate employees throughout the Company.
Accordingly, you agree that these and other facts and circumstances associated with your position justify the scope and duration of the restrictions in Sections 5(a) and 5(b). You further agree that, with respect to the 36-month Non-Solicitation Period in Section 5(b), the above facts and circumstances are sufficient to overcome any presumption of unreasonableness under the Georgia Restrictive Covenant Act, O.C.G.A. § 13-8-50 et seq., for restrictions lasting longer than 24 months.
With respect to Section 5(a), in the event you wish to enter into any relationship or employment on or before the end of the Restricted Period that would potentially violate the restrictions in Section 5(a), you agree to request written permission from Company’s Executive Vice President, Human Resources before entering any such relationship or employment. The Company may approve or not approve of the relationship or employment at its absolute discretion.
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You and the Company agree that the amounts set forth in Section 5(c)(ii) for a breach of Section 4(a), 4(b), 5(a) or 5(b) shall represent a fair and reasonable measure of the Company's estimated damages for your breach, shall be deemed to have been fully negotiated and established bilaterally by you and the Company through such negotiations, and shall not constitute a penalty.
e.Reformation, Severability, and “Blue-Penciling”
If any of the provisions of Section 4(a), 4(b), 5(a) or 5(b) should ever be held by a court of competent jurisdiction to exceed the scope permitted by applicable law, you agree such provision or provisions shall first be modified to such lesser scope as the court may deem just and proper for the reasonable protection of the Company’s legitimate business interests. In the alternative, if modification is not available, you and the Company agree that the court may sever such provision from this Offer Letter and enforce the remaining provisions. If the amounts set forth in Section 5(c)(ii) should be deemed for any reason by a court of competent jurisdiction not to constitute a permissible liquidated damage, you and the Company agree that the court may establish a liquidated damage in such lesser amount that is in accordance with applicable law.
6.At-Will Employment
This letter should not be construed, nor is it intended, to be a contract of employment for a specified period of time or in any way limiting the Company’s right to terminate the employment relationship. Your employment relationship is “at will.” The Company reserves the right to terminate your employment with or without cause at any time.
7.Interpretation and Enforcement of this Offer Letter and the Terms Contained Herein
This letter supersedes any prior employment agreement, offer letters, or understandings, written or oral between you and the Company-Related Parties and contains the entire understanding of the Company and you with respect to the subject matter hereof, except that this letter does not supersede or limit your rights, restrictions, or obligations as to the Company-Related Parties contained in the plans and agreements between you and the Company-Related Parties referenced in or associated with Sections 2(b)-(e) of this Offer Letter.
The terms of this letter shall be binding on, and in favor of, the Company’s successors in interest and assigns.
This letter shall be construed, interpreted and applied in accordance with the law of the State of Georgia, without giving effect to any choice of law provisions thereof that would require the application of any other jurisdiction’s laws. You agree to irrevocably submit any dispute arising out of or relating to this letter to the exclusive jurisdiction of the Atlanta Division of the U.S. District Court for the Northern District of Georgia, or if federal jurisdiction is not available, the Superior Court of Cobb County, Georgia. You also irrevocably waive, to the fullest extent permitted by applicable law, any objection you may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute, and you agree to personal jurisdiction and to accept service of legal process from the courts of Georgia. Subject to the parties’ agreement set forth above regarding modification, in the event any provision in this letter is determined to be legally invalid or unenforceable by any court of competent jurisdiction, and cannot be modified to be enforceable, the
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affected provision shall be stricken from the letter, and the remaining terms of the letter and its enforceability shall remain unaffected. You agree to accept service of process by mail or by any other means sufficient to ensure that you receive a copy of the items served.
Ted, we are pleased to extend this offer to you, and we are excited about the opportunities that your leadership will bring to this new role. We have enclosed a copy of this letter for your records. Please sign, date and return the original to us.
Sincerely,
/s/Craig Menear
Craig Menear
Chairman and Chief Executive Officer
I accept this offer as President and Chief Operating Officer pursuant to the foregoing terms and conditions:
/s/Edward Decker 10/1/2020
Edward Decker Date Signed
Exhibit 10.3
[Home Depot Letterhead]
October 1, 2020
Ann-Marie Campbell
Dear Ann-Marie:
I am pleased to confirm The Home Depot, Inc.’s (the “Company” or “Home Depot”) offer to you of the position of EVP, US Stores and International Operations on the terms and conditions described herein. Please sign below to indicate your acceptance of this offer.
1.Your Position, Reporting, Effective Date
You are being offered the position of EVP, US Stores and International Operations, reporting directly to me, with an effective date of October 5, 2020.
2.Your Compensation and Benefits
a.Base Salary
Your annual base salary will be $850,000 payable in equal bi-weekly installments. Your next salary review will be held in April of 2021, with salary reviews held annually thereafter.
b.Management Incentive Plan for Officers
In addition to your base salary, you will continue to be eligible to participate in the Management Incentive Plan (“MIP”) for Officers which provides an annual incentive target of up to 100% of your base salary. MIP will be paid annually based on achievement of the established financial goals. The earned incentive, if any, will be prorated based on the number of full fiscal months since the effective date of your new position. To be eligible for payment of any incentive, you must be employed on the day on which the incentive is paid.
c.Equity Grants
Home Depot has typically awarded an annual equity grant to Officers in March of each year under the Amended and Restated 2005 Omnibus Stock Incentive Plan (the “Omnibus Plan”). Currently, equity awards for Officers in March 2021 are expected to consist of restricted stock, stock options, and performance shares. Vesting and performance goals for these awards are established annually for each grant. In March 2021, you will continue to be eligible to receive the same types of equity awards as other Officers in the Company. Annual equity awards are not guaranteed as compensation, and there is no minimum or guaranteed award.
At the next regularly scheduled quarterly meeting of the Leadership Development and Compensation Committee of The Home Depot, Inc. Board of Directors following the effective date of your new position, you will receive a grant under the Omnibus Plan of the greatest number of whole shares of restricted common stock of The Home Depot, Inc. (“Common Stock”) resulting from dividing $250,000 by the closing stock price on the grant date, vesting 50% after 30 months and 50% after 60 months. Once these provisions lapse, the shares will be yours, free and clear of restrictions, subject to the applicable
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provisions of the Omnibus Plan and award document. You will also receive a grant of nonqualified stock options under the Omnibus Plan equal to the greatest number of whole shares of Common Stock resulting from dividing $250,000 by the grant date accounting cost of the stock options, with an exercise price equal to the closing stock price on the grant date. Twenty-five percent of the stock options will become exercisable on the second, third, fourth and fifth anniversaries of the grant date. Expiration of all stock options will be the earlier of ten years from the grant date, employment termination, or any earlier time provided by the Omnibus Plan or your award document. As a condition to receiving any equity grant, you agree to comply with The Home Depot, Inc.’s Securities Laws Policy.
d.The Home Depot Inc. Employee Stock Purchase Plan Eligibility
You will continue to be eligible to participate in The Home Depot, Inc.’s Employee Stock Purchase Plan. The plan affords you the opportunity to purchase The Home Depot, Inc. common stock at a 15% discount through payroll deductions.
e.The Home Depot Deferred Compensation Plan for Officers
You will continue to be eligible to participate in The Home Depot Deferred Compensation Plan for Officers. This plan affords you the opportunity to defer up to 50% of your base salary and 100% of your MIP payment into the plan.
f.Other Benefit Programs
You will remain eligible for employee benefits and other programs on the same terms and conditions available to other senior officers of the Company.
g.Other Terms
The terms of your annual base salary, the MIP and other benefits set forth herein are subject to future modification or termination at the Company’s discretion. All compensation and benefits are subject to any required tax withholding.
3.Your General Obligations to Home Depot While You are Employed with the Company
a.Exclusive Employment with Home Depot
You agree that you will devote your full business time and attention to your job with Home Depot and that your job with Home Depot will be your sole occupation during the time you are employed with the Company. Except for passive personal investment or charitable work for nonprofit organizations, as of the date you begin employment with Home Depot, you will not perform any work for any person or entity for which you receive any form of compensation, including cash, equity, or in-kind payments, without the express written consent of the Executive Vice President - Human Resources of The Home Depot, Inc.
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b.Restrictions on Outside Activities or Investments
You agree that you shall not, without the prior express written consent of the Executive Vice President - Human Resources of The Home Depot, Inc., engage in or have any financial or other interests in, or render any service in any capacity to any competitor or supplier of the Company, its parents, subsidiaries, affiliates, or related entities during the course of your employment with the Company. Hereinafter, the Company and its parents, subsidiaries, affiliates and related entities are referred to collectively as the “Company-Related Parties.” Notwithstanding the foregoing, you shall not be restricted from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers, provided that such ownership was acquired in a manner not prohibited by the Company’s Conflict of Interest policy. The provisions of this paragraph shall apply to you and your immediate family members.
c.Compliance with Policies of Home Depot
You recognize that, as a Company leader, your compliance with both the letter and spirit of Company policies, rules, and procedures is critical to reinforcing the Company’s culture of compliance. Accordingly, you agree that you will fully comply with all applicable Company rules, policies, and procedures, including The Home Depot Business Code of Conduct and Ethics, Corporate Compliance Policies, and Standard Operating Procedures, and you will take all appropriate measures to ensure others comply as well.
4.Your Obligations to Home Depot Regarding the Handling of Confidential Information, Trade Secrets, and Work Product
a.Protection of Trade Secrets and Confidential Information of Home Depot
You acknowledge that through your employment with the Company, you will acquire and have access to Confidential Information of the Company-Related Parties. You agree to use any Confidential Information of the Company-Related Parties that you acquire or have access to only for the purpose of conducting and completing your duties for the Company. You agree not to use any Confidential Information of the Company-Related Parties in any other manner or for any other purpose. You agree that you will not disclose any Confidential Information to any third party, other than as required for the purpose of conducting or completing your duties for the Company, subject to obtaining the appropriate approvals and implementing appropriate safeguards, and you further agree to return all documents or any other item or source containing Confidential Information or any other property of the Company-Related Parties, to the Company immediately upon termination for any reason of your employment with the Company. This obligation shall remain in effect, both during and after your employment, for as long as the information or materials you have acquired or to which you have access retain their status as Confidential Information. This letter is not intended to, and does not, alter either the Company-Related Parties’ rights or your obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. You agree that the Company may prevent the use or disclosure of its Confidential Information through use of an injunction or other means and acknowledge that the Company-Related Parties have taken reasonable steps necessary to protect the secrecy of the Confidential Information.
For purposes of this letter, “Confidential Information” means any data or information that belongs and is valuable to the Company-Related Parties and not generally known to competitors of the Company-Related Parties or other outsiders, regardless of whether the Confidential Information is in printed, written or electronic form, retained in your memory or has been compiled or created by you, including but not
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limited to information related to: operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, or other information similar to the foregoing.
Pursuant to 18 U.S.C. § 1833(b), nothing in this letter shall be interpreted to expose you to criminal or civil liability under Federal or state trade secret law for disclosure, in confidence, of trade secrets (i) to Federal, state, and local government officials, directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, provided the filing is made under seal and otherwise protected from disclosure except pursuant to court order. If you file a lawsuit for retaliation for reporting a suspected violation of law, you may disclose trade secrets to your attorney and use the trade secret information in a court proceeding, provided that you file any document containing the trade secret under seal and you do not otherwise disclose the trade secret, except pursuant to court order. Nothing herein is intended to prohibit you from reporting possible violations of law or regulation to any governmental agency or entity having responsibility to investigate same or from making any truthful statement in connection with any legal proceeding or investigation by any governmental agency or entity.
b.Ownership of “Work Product”
You acknowledge and agree that any new work product, including without limitation concepts, designs, notes, reports, documentation, drawings, computer programs (source code, object code, and listings), ideas, inventions (whether or not patentable), trade secrets, improvements, creations, scientific and mathematical models, writings, works, works of authorship (whether or not copyrightable), theses, books, lectures, illustrations, devices, masks, models, work-in-process, photographs, pictorial, graphical or audiovisual works or sound recordings or video recordings, prints, and deliverables, and any other subject matter which is or may become legally protectable or recognized as a form of property, and all materials contained therein and prepared in connection therewith and/or therefrom, whether in draft or final form (collectively, “Work Product”), which are designed, created, conceived, developed or reduced to practice, writing or publication by you, either solely or jointly with others, during your employment with Home Depot, which relate to or are useful in Home Depot’s business, or which derive in any way from using Home Depot property, shall be considered works made for hire and shall be owned by, and deemed the exclusive property of, Home Depot. Without in any way limiting the foregoing, and without any further compensation, in the event that it is determined that any Work Product does not quality as a work made for hire or that it is not otherwise owned by Home Depot, you agree to assign and do hereby assign to Home Depot your right, title, and interest in and to any Work Product, whether now existing or created in the future, that arises from your employment with Home Depot, or that derives in any way from using Home Depot property. You further agree to execute any additional documents that Home Depot deems, in its sole discretion, necessary to vest ownership of Work Product with Home Depot or perfect such intellectual property rights in the United States and any other jurisdiction worldwide.
c.Protection of Information that Belongs to Others
You understand that it is not the intention of Home Depot to receive or obtain any trade secrets, proprietary information, or other confidential information of others. Accordingly, you agree that you will not disclose or use during or in connection with your employment with Home Depot any trade secrets, proprietary information, or confidential information to which you may have been exposed or that you may have acquired in connection with your prior employment or engagement as an independent contractor or
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consultant. Further, you agree that you will not bring Home Depot any documents or materials in any form containing trade secrets, proprietary information, or confidential information from a prior employer, client, or customer.
5.Post-Employment Restrictive Covenants
a.Non-Competition
By accepting this offer, you acknowledge and agree that, as a key executive of the Company, you will receive training and Confidential Information regarding, among other things, the Company-Related Parties’ operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, and/or other business processes, and that you have been and will be provided and entrusted with access to the Company-Related Parties’ customer and employee relationships and goodwill. You further acknowledge that such Confidential Information, including trade secrets and other business processes, are utilized by the Company-Related Parties throughout the entire United States and in other locations in which it conducts business. You further acknowledge and agree that the Company-Related Parties’ Confidential Information, customer, service provider, vendor and employee relationships, and goodwill are valuable assets of the Company-Related Parties and are legitimate business interests that are properly subject to protection through the covenants contained in this letter. Consequently, you agree that during the Restricted Period you shall not, directly or indirectly, enter into or maintain an employment, contractual or other business relationship, in the United States, Canada, or Mexico, in which (A) you own an equity interest in a Competitor greater than one percent (1%) of its outstanding equity, or manage, operate, finance, or control a Competitor; or (B) you provide services or perform duties for a Competitor that (i) are the same as or similar to the services or job duties you performed for the Company at any point during the two-year period prior to the termination of your employment, or (ii) involve executive, managerial, financial, or other significant leadership responsibilities.
“Competitor” shall mean:
(X) the following companies or entities, including their subsidiaries, affiliates, franchisees, or business units: Lowe’s Companies, Inc.; Sears Holding Corp.; Amazon.com; Menard, Inc.; HD Supply Holdings, Inc.; Floor & Decor; Ace Hardware; True Value Company; Lumber Liquidators; Tractor Supply Company; Wayfair; Canadian Tire; and Wal-Mart;
(Y) any company or entity that sells or offers Competitive Products or Services that, in combination with its subsidiaries, affiliates, franchisees, or business units (a) operates more than 100 retail outlets across the United States, Canada, and Mexico or (b) generates more than $500 million in annual revenue; or
(Z) any company or entity that is formed through, or as a result of, a sale, merger, combination, renaming, restructuring, spin-off, or other corporate transaction involving a business or entity defined in clause (X) or (Y) of this sentence, and which sells Competitive Products or Services.
“Competitive Products or Services” means anything of commercial value of the type offered, provided or sold by the Company-Related Parties, in the United States, Canada, or Mexico, within two (2) years prior to termination of your employment and during the Restricted Period, including, without limitation: goods;
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personal, real, or intangible property; services; financial products; business opportunities or assistance; or any other object or aspect of business conducted or provided by Company-Related Parties.
“Restricted Period” shall mean the period during which you are employed with the Company and for a period of twenty-four (24) months following the termination of your employment, regardless of the reason for such termination.
b.Non-Solicitation of Company Employees
You agree that during the course of your employment and for a period of thirty-six (36) months following the termination of your employment with the Company (“Non-Solicitation Period”), you will not directly or indirectly, on your own behalf or on behalf of any other entity or person, Solicit any person who is, or during the last twelve (12) months of your employment with the Company was, an employee of any of the Company-Related Parties, with whom you had material contact during your employment, or with respect to whom you obtained or had authorized access to Confidential Information while employed with the Company, to terminate his or her employment or other relationship with any of the Company-Related Parties, or to refer any such employee to anyone, without the prior written approval from the Executive Vice President - Human Resources. For purposes of this paragraph, “Solicit” shall include any solicitation, enticement, or encouragement whatsoever, regardless of which party initiated the initial contact, as well as any direct or indirect involvement in the recruitment, referral, interviewing, hiring, or setting of the initial terms and conditions of employment.
c.Remedies for Breach
i.Injunctive Relief
You acknowledge and agree that quantifying the damages suffered by the Company for your breach of Section 4(a), 4(b), 5(a) or 5(b) might not be possible or feasible, or provide adequate compensation to the Company at law and that the balance of the hardships tips in favor of enforcing such section(s). You agree that the Company shall be entitled, if any such breach shall occur or be either threatened or attempted, if it so elects, to seek from a court a temporary, preliminary, and permanent injunction, without being required to post a bond, enjoining and restraining such breach or threatened or attempted breach.
ii.Liquidated Damages
Because of the potential difficulty in quantifying damages that the Company may suffer in the event of a breach by you of Section 4(a), 4(b), 5(a) or 5(b), you and the Company agree that it is appropriate to reasonably estimate such damages in advance and set an amount of liquidated damages that you will owe the Company in the event of a breach. Accordingly, after due consideration, you and the Company agree that, if you breach Section 4(a), 4(b), 5(a) or 5(b), you shall pay the Company, upon demand, an amount specified by the Company, up to the sum of the then-current market value of the shares of Common Stock that you hold that were granted by any equity awards and the aggregate after-tax proceeds you received upon the sale or other disposition of any shares of Common Stock granted by any equity award(s).
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iii.Other Remedies
In addition to any and all other remedies at law or equity, including monetary damages, the Company shall be entitled to recover its reasonable attorney fees if it succeeds in obtaining an injunction against you for breach or threatened breach of Section 4(a), 4(b), 5(a) or 5(b), or otherwise proving in court that you violated any provision of Section 4(a), 4(b), 5(a) or 5(b).
You acknowledge that the purpose and effect of Section 5(a) or 5(b) would be frustrated by measuring the duration of the Restricted Period or the Non-Solicitation Period from the termination of your employment if you were to fail to honor your obligation(s) until directed to do so by court order. Should legal proceedings be initiated by the Company to enforce Section 5(a) or Section 5(b), the commencement of the Restricted Period or the Non-Solicitation Period shall be tolled and extended and will instead begin on the date of the entry of an order granting the Company injunctive, monetary or other relief from your actual or threatened breach of this Agreement.
You further agree to waive and not assert any claim for advancement of legal fees, costs, or expenses pursuant to the Company’s by-laws or based on other authority in the event the Company initiates a legal action against you for violation of Section 4(a), 4(b), 5(a) or 5(b).
d.Reasonableness of Restrictions
You acknowledge and agree that each of the covenants in this letter is reasonable, appropriate, and narrowly tailored to protect the Company’s legitimate interests, including but not limited to protecting Company-Related Parties’ Confidential Information, and that your full compliance with such restrictions will not unduly or unreasonably interfere with your ability to obtain and undertake other gainful future employment. You and the Company acknowledge and agree that there a number of unique circumstances that provide the Company with protectable interests that justify and necessitate the 24-month Restricted Period in Section 5(a) and the 36-month Non-Solicitation Period in Section 5(b). As one of the Company’s senior-most officers, you will be involved in developing, and have unique access to, the Company’s Confidential Information, including its plans and strategies for the business, personnel leadership, talent management, and succession. This involvement and access enables you to learn information about the skills, capabilities, strengths, and weaknesses of Company personnel, as well as information about their compensation, bonuses, and performance, and Company plans and strategies for same. In addition, your senior position at the Company provides you with a unique and special access to the Company’s non-public business plans, strategies, and methods. Furthermore, your role with the Company enables you to utilize the Company’s goodwill to develop relationships with subordinate employees throughout the Company.
Accordingly, you agree that these and other facts and circumstances associated with your position justify the scope and duration of the restrictions in Sections 5(a) and 5(b). You further agree that, with respect to the 36-month Non-Solicitation Period in Section 5(b), the above facts and circumstances are sufficient to overcome any presumption of unreasonableness under the Georgia Restrictive Covenant Act, O.C.G.A. § 13-8-50 et seq., for restrictions lasting longer than 24 months.
With respect to Section 5(a), in the event you wish to enter into any relationship or employment on or before the end of the Restricted Period that would potentially violate the restrictions in Section 5(a), you agree to request written permission from Company’s Executive Vice President, Human Resources before entering any such relationship or employment. The Company may approve or not approve of the relationship or employment at its absolute discretion.
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You and the Company agree that the amounts set forth in Section 5(c)(ii) for a breach of Section 4(a), 4(b), 5(a) or 5(b) shall represent a fair and reasonable measure of the Company's estimated damages for your breach, shall be deemed to have been fully negotiated and established bilaterally by you and the Company through such negotiations, and shall not constitute a penalty.
e.Reformation, Severability, and “Blue-Penciling”
If any of the provisions of Section 4(a), 4(b), 5(a) or 5(b) should ever be held by a court of competent jurisdiction to exceed the scope permitted by applicable law, you agree such provision or provisions shall first be modified to such lesser scope as the court may deem just and proper for the reasonable protection of the Company’s legitimate business interests. In the alternative, if modification is not available, you and the Company agree that the court may sever such provision from this Offer Letter and enforce the remaining provisions. If the amounts set forth in Section 5(c)(ii) should be deemed for any reason by a court of competent jurisdiction not to constitute a permissible liquidated damage, you and the Company agree that the court may establish a liquidated damage in such lesser amount that is in accordance with applicable law.
6.At-Will Employment
This letter should not be construed, nor is it intended, to be a contract of employment for a specified period of time or in any way limiting the Company’s right to terminate the employment relationship. Your employment relationship is “at will.” The Company reserves the right to terminate your employment with or without cause at any time.
7.Interpretation and Enforcement of this Offer Letter and the Terms Contained Herein
This letter supersedes any prior employment agreement, offer letters, or understandings, written or oral between you and the Company-Related Parties and contains the entire understanding of the Company and you with respect to the subject matter hereof, except that this letter does not supersede or limit your rights, restrictions, or obligations as to the Company-Related Parties contained in the plans and agreements between you and the Company-Related Parties referenced in or associated with Sections 2(b)-(e) of this Offer Letter.
The terms of this letter shall be binding on, and in favor of, the Company’s successors in interest and assigns.
This letter shall be construed, interpreted and applied in accordance with the law of the State of Georgia, without giving effect to any choice of law provisions thereof that would require the application of any other jurisdiction’s laws. You agree to irrevocably submit any dispute arising out of or relating to this letter to the exclusive jurisdiction of the Atlanta Division of the U.S. District Court for the Northern District of Georgia, or if federal jurisdiction is not available, the Superior Court of Cobb County, Georgia. You also irrevocably waive, to the fullest extent permitted by applicable law, any objection you may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute, and you agree to personal jurisdiction and to accept service of legal process from the courts of Georgia. Subject to the parties’ agreement set forth above regarding modification, in the event any provision in this letter is determined to be legally invalid or unenforceable by any court of competent jurisdiction, and cannot be modified to be enforceable, the affected provision shall be stricken from the letter, and the remaining terms of the letter and its
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enforceability shall remain unaffected. You agree to accept service of process by mail or by any other means sufficient to ensure that you receive a copy of the items served.
Ann-Marie, we are pleased to extend this offer to you, and we are excited about the opportunities that your leadership will bring to this new role. We have enclosed a copy of this letter for your records. Please sign, date and return the original to us.
Sincerely,
/s/Ted Decker
Ted Decker
President and Chief Operating Officer
I accept this offer as EVP, US Stores and International Operations pursuant to the foregoing terms and conditions:
/s/Ann-Marie Campbell 10/2/2020
Ann-Marie Campbell Date Signed
Exhibit 10.4
THE HOME DEPOT, INC.
EQUITY AWARD TERMS AND CONDITIONS AGREEMENT
Executive Officers – U.S.
GRANTED TO: <NAME>
GRANT DATE: <DATE>
GRANT TYPE: Nonqualified Stock Option Award
VESTING SCHEDULE: 25% on 2nd, 3rd, 4th and 5th Anniversaries of the Grant Date
NUMBER OF SHARES OF THE HOME DEPOT, INC. COMMON STOCK: <X,XXX>
OPTION PRICE PER SHARE: <$AMOUNT>
EXPIRATION DATE: <DATE>
GRANT TYPE: Restricted Stock Award
VESTING SCHEDULE: 50% on 30th Month Anniversary of the Grant Date,
and 50% on 60th Month Anniversary of the Grant Date
NUMBER OF SHARES OF THE HOME DEPOT, INC. COMMON STOCK: <X,XXX>
In recognition of the value of your continued service as a key employee, The Home Depot, Inc., a Delaware corporation, on and as of the date specified above (the “Grant Date”), hereby grants to you, an employee of The Home Depot, Inc. or one of its subsidiaries, affiliates or related entities (collectively the “Company”), pursuant to this Equity Award Agreement (this “Award Agreement”), the following awards (individually referred to as the “Award” and collectively referred to as the “Awards”), a summary of which has been delivered to you:
•A non-qualified stock option award (the “Option”) to purchase from the Company the above-stated number of shares of Common Stock at the price per share stated above (the “Option Price”), which Option will expire on the expiration date stated above (the “Expiration Date”), unless it expires earlier in accordance with the terms and conditions described below; and
•A restricted stock award of the above-stated number of shares of Common Stock (“Restricted Stock”) subject to the terms and conditions described below.
In addition to the terms and conditions set forth herein, the Award is subject to and governed by the terms and conditions set forth in the Company’s Amended and Restated 2005 Omnibus Stock Incentive Plan (the “Plan”), a summary of which has been delivered to you, and the Plan is incorporated herein by reference. Unless defined in the Award Agreement or the context otherwise requires, capitalized terms used in this Award Agreement will have the meanings set forth in the Plan.
You will be deemed to have accepted, and agree to comply with, all the terms and conditions of this Award Agreement upon your acceptance of the Award(s) granted herein.
A.NONQUALIFIED STOCK OPTION TERMS AND CONDITIONS
1.Vesting. The Option will become exercisable in installments, as follows: 25% of the total number of shares subject to the Option will become exercisable on each of the second (2nd), third (3rd), fourth (4th), and fifth (5th) anniversaries of the Grant Date.
2.Change in Employment Status; Termination for Cause. If (a) your employment with the Company terminates for reasons other than death, Disability or Retirement, (b) you violate Section C.6.(a), C.6.
(b), C.7.(a) or C.7.(b) of this Award Agreement, or (c) your employment is terminated for Cause, then all Option shares granted to you pursuant to this Award that have not become exercisable as of the date of your termination will immediately lapse. Option shares that are exercisable as of the date of termination of employment will lapse unless exercised within a period of three (3) months from the date of your termination of employment. Upon your Retirement, all Option shares that are not exercisable as of the date of your Retirement will continue to vest according to the schedule set forth in Section A.1. of this Award Agreement, and all Option shares will remain exercisable until the Expiration Date. Upon your death or the termination of your employment by reason of Disability, all Option shares will immediately become fully exercisable as of the date of death or termination on account of Disability and will lapse unless exercised within a period of one (1) year from the date of death or such termination. In no event will the above time periods extend beyond the Expiration Date. After attaining Retirement Eligibility, if you violate Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b) of this Award Agreement, are discharged for Cause, or the Company discovers after the termination of your employment that grounds existed for Cause at the time of your termination, all Option shares, whether presently exercisable or not, will immediately lapse and become null and void on and as of the earlier of (a) the date of your termination of employment, (b) or if applicable, the date of such violation of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b).
3.Change in Control. All unvested options will vest immediately upon your termination of employment without Cause within twelve (12) months following the occurrence of a Change in Control and will remain exercisable until the Expiration Date.
4.Exercise of the Option. You may exercise the vested portion of your Option in whole or in part (but in no event with respect to a fractional share) from time to time until the Expiration Date. In order to exercise your Option, you must provide written notice of exercise to the Company, specifying the number of shares to be purchased, the Option Price of each share and the aggregate Option Price for all shares being purchased under such Option. This notice must be accompanied by payment of the aggregate Option Price for the number of shares purchased. Such exercise (subject to Section D.5. hereof) will be effective upon the actual receipt of such payment and notice to the Company. The aggregate Option Price for all shares purchased pursuant to an exercise of the Option may be paid by check payable to the order of the Company, or shares of Common Stock held by you for at least six (6) months, the fair market value of which at the time of such exercise is equal to the aggregate Option Price (or portion thereof to be paid with previously owned shares of Common Stock). In addition, the aggregate Option Price for all shares purchased pursuant to your exercise of the Option may be paid from the proceeds of sale through a bank or broker on the date of exercise of some or all of the shares to which the exercise relates. Payment of the Option Price in shares of Common Stock may be made by delivering properly endorsed stock certificates to the Company or otherwise causing such Common Stock to be transferred to the account of the Company, either physically or through attestation. The Company may, in its discretion, require that you furnish, along with the notice of exercise, such documents as the Company deems necessary to assure compliance with applicable rules and regulations of any stock exchange or governmental authority. No rights or privileges of a shareholder of the Company in respect to such shares issuable upon the exercise of any part of the Option will accrue to you unless and until such shares have been registered in your name.
5.Transferability. Except as otherwise provided in the Plan, the Option may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, other than by will or under the laws of descent and distribution, whether by the operation of law or otherwise. An option may be exercised, during your lifetime, only by you or your legal representative. You may, however, transfer the Option, in whole or in part, to a spouse or lineal descendant (a “Family Member”), a trust for the exclusive benefit of you and/or your Family Members, a partnership or other entity in which all the beneficial owners are you and/or your Family Members, or any other entity affiliated with you that may be approved by the Committee. Upon any attempt to do anything prohibited by this paragraph, the Option will immediately become null and void.
B.RESTRICTED STOCK TERMS AND CONDITIONS
1.Restrictions. To the extent not previously forfeited as provided in Section B.2., the Restricted Shares will vest and become transferable as follows: 50% of the shares granted will vest and become transferable upon the 30th month anniversary of the Grant Date; and 50% of the shares granted will vest and become transferable upon the 60th month anniversary of Grant Date. Restricted Shares that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated.
2.Change in Employment Status or Change in Control; Termination for Cause. If (a) your employment with the Company terminates for reasons other than death, Disability, or Retirement or your termination without Cause, defined below, within twelve (12) months following the occurrence of a Change in Control, (b) you violate Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b) of this Award Agreement, or (c) your employment is terminated for Cause, then all Restricted Shares granted to you pursuant to this Award that have not yet become vested and transferable as of the date of your employment termination will be immediately forfeited. Upon Retirement, all unvested Restricted Shares will continue to vest in accordance with the vesting conditions set forth in Section B.1. of this Award Agreement, provided that a sufficient number of shares will vest at the time your Restricted Shares become taxable to cover applicable tax withholding required pursuant to Section C.2.; further provided, that if after attaining Retirement Eligibility, you violate Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b) of this Award Agreement, are discharged for Cause, or the Company discovers after the termination of your employment that grounds existed for Cause at the time of your termination, all unvested Restricted Shares (including shares that are continuing to vest as provided above) will be immediately forfeited. Notwithstanding any other provision of this Award Agreement, in the event the Company terminates your employment without Cause within twelve (12) months after a Change in Control, or in the event of employment termination on account of your death or Disability, any unvested Restricted Shares will immediately vest and become transferable by you or your estate.
3.Book Entry Account. Within a reasonable time after the date of this Award, the Company will instruct its transfer agent to establish a book entry account representing the Restricted Shares in your name effective as of the Grant Date, provided that the Company will retain control of such account until the Restricted Shares have become vested in accordance with the Award.
4.Shareholder Rights. Upon the effective date of the book entry pursuant to Section B.3., you will have all of the rights of a shareholder with respect to the Restricted Shares, including the right to vote the shares and to receive all dividends or other distributions paid or made available with respect to such shares. Notwithstanding the foregoing, any stock dividends or other in-kind dividends or distributions will be held by the Company until the related Restricted Shares have become vested in accordance with this Award and will remain subject to the forfeiture provisions applicable to the Restricted Shares to which such dividends or distributions relate.
5.Transferability. Except as otherwise provided in this Section B., the Restricted Shares cannot be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, whether by the operation of law or otherwise. Subsequent transfers of the Restricted Shares will be prohibited except in accordance with this Section B. Any attempted transfer of the Restricted Shares prohibited by this Section B.5. will be null and void.
C.GENERAL TERMS AND CONDITIONS
1.Limitation of Rights. The granting of this Award will not give you any rights to similar grants in future years or any right to be retained in the employ or service of the Company or interfere in any way with the right of the Company to terminate your employment at any time.
2.Withholding. You are responsible for all applicable federal, state and local income and employment taxes (including taxes of any foreign jurisdiction) which the Company is required to withhold at any time with respect to your Award to satisfy statutory withholding requirements. Unless you promptly tender payment in full by cash, check or shares of Common Stock, such payment will be made by withholding shares of Common Stock then due to be delivered to you. Shares withheld or tendered as
payment of required withholding will be valued at the closing price per share of the Common Stock on the date such withholding obligation arises, or if there were no sales on such date, the closing price on the nearest preceding date on which sales occurred.
3.Limitation of Actions. Any lawsuit with respect to any matter arising out of or relating to this Award must be filed no later than one (1) year after the date that the Company and/or its affiliates denies your claim or any earlier date that the claim otherwise accrues.
4.Adjustments. The Award will be subject to adjustment or substitution in accordance with Section 12 of the Plan.
5.Delivery of Shares. The Company will not be required to deliver any shares, or establish a book entry account representing such shares, pursuant to this Award if, in the opinion of counsel for the Company, such issuance would violate (i) the Securities Act of 1933 or any other applicable federal, state or foreign laws or regulations; or (ii) the requirements of any stock exchange or authority upon which the securities of the Company may then be listed or traded. Prior to the issuance of any shares pursuant to this Award, the Company may require that you (or your legal representative upon your death or Disability) enter into such written representations, warranties and agreements as the Company may reasonably request in order to comply with applicable securities laws or with this Award Agreement.
6.Your Obligations to the Company Regarding the Handling of Confidential Information, Trade Secrets, and Work Product.
a.Protection of Trade Secrets and Confidential Information of the Company. You acknowledge that through your employment with the Company, you will acquire and have access to Confidential Information of the Company. You agree to use any Confidential Information of the Company that you acquire or have access to only for the purpose of conducting and completing your duties for the Company. You agree not to use any Confidential Information of the Company in any other manner or for any other purpose. You agree that you will not disclose any Confidential Information to any third party, other than as required for the purpose of conducting or completing your duties for the Company, subject to obtaining the appropriate approvals and implementing appropriate safeguards, and you further agree to return all documents or any other item or source containing Confidential Information or any other property of the Company, to the Company immediately upon termination for any reason of your employment with the Company. This obligation shall remain in effect, both during and after your employment, for as long as the information or materials you have acquired or to which you have access retain their status as Confidential Information. This Award Agreement is not intended to, and does not, alter either the Company’s rights or your obligations under any state or federal statutory or common law regarding trade secrets and unfair trade practices. You agree that the Company may prevent the use or disclosure of its Confidential Information through use of an injunction or other means and acknowledge that the Company have taken reasonable steps necessary to protect the secrecy of the Confidential Information.
Pursuant to 18 U.S.C. § 1833(b), nothing in this Award Agreement shall be interpreted to expose you to criminal or civil liability under Federal or state trade secret law for disclosure, in confidence, of trade secrets (i) to Federal, state, and local government officials, directly or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, provided the filing is made under seal and otherwise protected from disclosure except pursuant to court order. If you file a lawsuit for retaliation for reporting a suspected violation of law, you may disclose trade secrets to your attorney and use the trade secret information in a court proceeding, provided that you file any document containing the trade secret under seal and you do not otherwise disclose the trade secret, except pursuant to court order. Nothing herein is intended to prohibit you from reporting possible violations of law or regulation to any governmental agency or entity having responsibility to investigate same or from making any truthful statement in connection with any legal proceeding or investigation by any governmental agency or entity.
b.Ownership of “Work Product”. You acknowledge and agree that any new work product, including without limitation concepts, designs, notes, reports, documentation, drawings, computer programs (source code, object code, and listings), ideas, inventions (whether or not patentable), trade secrets, improvements, creations, scientific and mathematical models, writings, works, works of authorship (whether or not copyrightable), theses, books, lectures, illustrations, devices, masks, models, work-in-process, photographs, pictorial, graphical or audiovisual works or sound recordings or video recordings, prints, and deliverables, and any other subject matter which is or may become legally protectable or recognized as a form of property, and all materials contained therein and prepared in connection therewith and/or therefrom, whether in draft or final form (collectively, “Work Product”), which are designed, created, conceived, developed or reduced to practice, writing or publication by you, either solely or jointly with others, during your employment with the Company, which relate to or are useful in the Company’s business, or which derive in any way from using Company property, shall be considered works made for hire and shall be owned by, and deemed the exclusive property of, the Company. Without in any way limiting the foregoing, and without any further compensation, in the event that it is determined that any Work Product does not quality as a work made for hire or that it is not otherwise owned by the Company, you agree to assign and do hereby assign to the Company, your right, title, and interest in and to any Work Product, whether now existing or created in the future, that arises from your employment with the Company, or that derives in any way from using Company property. You further agree to execute any additional documents that the Company deems, in its sole discretion, necessary to vest ownership of Work Product with the Company or perfect such intellectual property rights in the United States and any other jurisdiction worldwide.
c.Protection of Information that Belongs to Others. You understand that it is not the intention of the Company to receive or obtain any trade secrets, proprietary information, or other confidential information of others. Accordingly, you agree that you will not disclose or use during or in connection with your employment with the Company any trade secrets, proprietary information, or confidential information to which you may have been exposed or that you may have acquired in connection with your prior employment or engagement as an independent contractor or consultant. Further, you agree that you will not bring the Company any documents or materials in any form containing trade secrets, proprietary information, or confidential information from a prior employer, client, or customer.
7.Post-Employment Restrictive Covenants.
a.Non-Competition. By accepting these Awards, you acknowledge and agree that, as a key executive of the Company, you will receive training and Confidential Information regarding, among other things, the Company’s operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, and/or other business processes, and that you have been and will be provided and entrusted with access to the Company’s customer and employee relationships and goodwill. You further acknowledge that such Confidential Information, including trade secrets and other business processes, are utilized by the Company throughout the entire United States and in other locations in which it conducts business. You further acknowledge and agree that the Company’s Confidential Information, customer, service provider, vendor and employee relationships, and goodwill are valuable assets of the Company and are legitimate business interests that are properly subject to protection through the covenants contained in this Award Agreement. Consequently, you agree that during the Restricted Period you shall not, directly or indirectly, enter into or maintain an employment, contractual or other business relationship, in the United States, Canada, or Mexico, in which (A) you own an equity interest in a Competitor greater than one percent (1%) of its outstanding equity, or manage, operate, finance, or control a Competitor; or (B) you provide services or perform duties for a Competitor that (i) are the same as or similar to the services or job duties you performed for the Company at any point during the two-year period prior to the termination of your employment, or (ii) involve executive, managerial, financial, or other significant leadership responsibilities.
b.Non-Solicitation of Company Employees. You agree that during the course of your employment and for a period of thirty-six (36) months following the termination of your employment with the Company (“Non-Solicitation Period”), you will not directly or indirectly, on your own behalf or on behalf of any other entity or person, Solicit any person who is, or during the last twelve (12) months of your employment with the Company was, an employee of the Company, with whom you had material contact during your employment, or with respect to whom you obtained or had authorized access to Confidential Information while employed with the Company, to terminate his or her employment or other relationship with the Company, or to refer any such employee to anyone, without the prior written approval from the Executive Vice President - Human Resources. For purposes of this paragraph, “Solicit” shall include any solicitation, enticement, or encouragement whatsoever, regardless of which party initiated the initial contact, as well as any direct or indirect involvement in the recruitment, referral, interviewing, hiring, or setting of the initial terms and conditions of employment.
c.Remedies for Breach.
i.Injunctive Relief. You acknowledge and agree that quantifying the damages suffered by the Company for your breach of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b) might not be possible or feasible, or provide adequate compensation to the Company at law and that the balance of the hardships tips in favor of enforcing such section(s). You agree that the Company shall be entitled, if any such breach shall occur or be either threatened or attempted, if it so elects, to seek from a court a temporary, preliminary, and permanent injunction, without being required to post a bond, enjoining and restraining such breach or threatened or attempted breach.
ii.Liquidated Damages. Because of the potential difficulty in quantifying damages that the Company may suffer in the event of a breach by you of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b), you and the Company agree that it is appropriate to reasonably estimate such damages in advance and set an amount of liquidated damages that you will owe the Company in the event of a breach. Accordingly, after due consideration, you and the Company agree that, if you breach Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b), you shall pay the Company, upon demand, an amount specified by the Company, up to the sum of the then-current market value of the shares of Common Stock that you hold that were granted by any equity awards and the aggregate after-tax proceeds you received upon the sale or other disposition of any shares of Common Stock granted by any equity award(s).
iii.Other Remedies. In addition to any and all other remedies at law or equity, including monetary damages, the Company shall be entitled to recover its reasonable attorney fees if it succeeds in obtaining an injunction against you for breach or threatened breach of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b), or otherwise proving in court that you violated any provision of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b).
You acknowledge that the purpose and effect of Section C.7.(a) or C.7.(b) would be frustrated by measuring the duration of the Restricted Period or the Non-Solicitation Period from the termination of your employment if you were to fail to honor your obligation(s) until directed to do so by court order. Should legal proceedings be initiated by the Company to enforce Section C.7.(a) or Section C.7.(b), the commencement of the Restricted Period or the Non-Solicitation Period shall be tolled and extended and will instead begin on the date of the entry of an order granting the Company injunctive, monetary or other relief from your actual or threatened breach of this Agreement.
You further agree to waive and not assert any claim for advancement of legal fees, costs, or expenses pursuant to the Company’s by-laws or based on other authority in the event the Company initiates a legal action against you for violation of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b).
d.Reasonableness of Restrictions. You acknowledge and agree that each of the covenants in this Award Agreement is reasonable, appropriate, and narrowly tailored to protect the Company’s legitimate interests, including but not limited to protecting the Company’s Confidential Information, and that your full compliance with such restrictions will not unduly or unreasonably interfere with your ability to obtain and undertake other gainful future employment. You and the Company acknowledge and agree that there a number of unique circumstances that provide the Company with protectable interests that justify and necessitate the 24-month Restricted Period in Section D.11 and the 36-month Non-Solicitation Period in Section C.7.(b). As one of the Company’s senior-most officers, you will be involved in developing, and have unique access to, the Company’s Confidential Information, including its plans and strategies for the business, personnel leadership, talent management, and succession. This involvement and access enables you to learn information about the skills, capabilities, strengths, and weaknesses of Company personnel, as well as information about their compensation, bonuses, and performance, and Company plans and strategies for same. In addition, your senior position at the Company provides you with a unique and special access to the Company’s non-public business plans, strategies, and methods. Furthermore, your role with the Company enables you to utilize the Company’s goodwill to develop relationships with subordinate employees throughout the Company.
Accordingly, you agree that these and other facts and circumstances associated with your position justify the scope and duration of the restrictions in Sections C.7.(a) and C.7.(b). You further agree that, with respect to the 36-month Non-Solicitation Period in Section C.7.(b), the above facts and circumstances are sufficient to overcome any presumption of unreasonableness under the Georgia Restrictive Covenant Act, O.C.G.A. § 13-8-50 et seq., for restrictions lasting longer than 24 months.
With respect to Section C.7.(a), in the event you wish to enter into any relationship or employment on or before the end of the Restricted Period that would potentially violate the restrictions in Section C.7.(a), you agree to request written permission from Company’s Executive Vice President, Human Resources before entering any such relationship or employment. The Company may approve or not approve of the relationship or employment at its absolute discretion.
You and the Company agree that the amounts set forth in Section C.7.(c)(ii) for a breach of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b) shall represent a fair and reasonable measure of the Company's estimated damages for your breach, shall be deemed to have been fully negotiated and established bilaterally by you and the Company through such negotiations, and shall not constitute a penalty.
e.Reformation, Severability, and “Blue-Penciling.” If any of the provisions of Section C.6.(a), C.6.(b), C.7.(a) or C.7.(b) should ever be held by a court of competent jurisdiction to exceed the scope permitted by applicable law, you agree such provision or provisions shall first be modified to such lesser scope as the court may deem just and proper for the reasonable protection of the Company’s legitimate business interests. In the alternative, if modification is not available, you and the Company agree that the court may sever such provision from this Award Agreement and enforce the remaining provisions. If the amounts set forth in Section C.7.(c)(ii) should be deemed for any reason by a court of competent jurisdiction not to constitute a permissible liquidated damage, you and the Company agree that the court may establish a liquidated damage in such lesser amount that is in accordance with applicable law.
8.Severability. If any term, provision, covenant or restriction contained in the Award Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in the Award Agreement will remain in full force and effect, and will in no way be affected, impaired or invalidated.
9.Controlling Law. This Award will be construed, interpreted and applied in accordance with the law of the State of Georgia, without giving effect to the choice of law provisions thereof. You agree to irrevocably submit any dispute arising out of or relating to this Award to the exclusive jurisdiction of the Atlanta Division of the U.S. District Court for the Northern District of Georgia, or, if federal
jurisdiction is not available, the Superior Court of Cobb County, Georgia. You also irrevocably waive, to the fullest extent permitted by applicable law, any objection you may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute, and you agree to accept service of legal process from the courts of Georgia. You agree to accept service of process by mail or by any other means sufficient to ensure that you receive a copy of the items served.
10.Construction. The Award Agreement and the Plan contain the entire understanding between the parties with respect to this Award. There are no other representations, agreements, arrangements or understandings, oral or written, between and among the parties hereto relating to this Award which are not fully expressed herein.
11.Headings. Section and other headings contained in the Award Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of the Award Agreement or any provision hereof.
12.Disclaimer of Rights. Nothing contained herein will constitute an obligation for continued employment.
13.Offset. The Company may deduct from amounts otherwise payable under this Award all amounts owed by you to the Company and its affiliates to the maximum extent permitted by applicable law.
14.Terms of Plan. The Award is subject to the terms and conditions set forth in the Plan, which are incorporated into and will be deemed to be a part of this Award Agreement, without regard to whether such terms and conditions (including, for example, provisions relating to certain changes in capitalization of the Company) are otherwise set forth in this Award Agreement. In the event that there is any inconsistency between the provisions of this Award Agreement and of the Plan, the provisions of the Plan will govern.
15.Code Section 409A Compliance. To the extent applicable, it is intended that this Award and the Plan not be subject to, or alternatively comply with, the provisions of Code Section 409A, so that the income inclusion provisions of Code Section 409A(a)(1) do not apply. This Award and the Plan will be interpreted and administered in a manner consistent with this intent, and any provision that would cause the Award or the Plan to fail to satisfy Code Section 409A will have no force and effect until amended to comply with Code Section 409A (which amendment may be retroactive to the extent permitted by Code Section 409A and may be made by the Company without your consent).
16.Notice. Any written notice required or permitted by this Award Agreement must be mailed, certified mail (return receipt requested) or hand-delivered, addressed to Company’s Executive Vice President – Human Resources at Company’s corporate headquarters at 2455 Paces Ferry Road, Atlanta, Georgia 30339-4024, or to you at your most recent home address on record with the Company. Notices are effective upon receipt.
D.AWARD DEFINITIONS
As used herein, the following terms will be defined as set forth below:
1.“Board” means the Company’s Board of Directors.
2.“Cause” means a finding by the Company that you have (i) committed any felony or committed a misdemeanor involving theft or moral turpitude, (ii) committed any act or omission that constitutes neglect or misconduct with respect to your employment duties which results in economic harm to the Company, (iii) violated the Company’s code of conduct (including, but not limited to, policies prohibiting sexual harassment, discrimination, workplace violence, or threatened violence), (iv) violated any of the Company’s substance abuse, compliance or any other policies applicable to you, which may be in effect at the time of the occurrence, or (v) breached any material provision of any offer letter, award agreement, employment, non-competition, intellectual property or other agreement, in effect at the time of the breach, between you and the Company.
3.“Change in Control” means and includes the occurrence of any one of the following events:
i)any “person” (as that term is used in Sections 13(d) and 14(d) (2) of the Securities Exchange Act of 1934 (“1934 Act”), is or becomes the “beneficial owner” (as defined in the 1934 Act), directly or indirectly, of securities representing 50% or more of the combined voting power for election of directors of the then outstanding securities of the Company or any successor of the Company; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) an acquisition directly from the Company, (B) an acquisition by the Company, (C) an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or (D) an acquisition pursuant to a Non-Qualifying Transaction (as defined in subsection (iii) below);
ii)during any period of twelve (12) consecutive months, individuals who at the beginning of such period constituted the Board (the “Incumbent Directors”) cease, for any reason, to constitute at least a majority of the Board, provided that any person becoming a director after the beginning of such 12-month period and whose election or nomination for election was approved by at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the Company’s proxy statement in which such individual was named as a nominee for election as a director, without objection to such nomination) shall be an Incumbent Director;
iii)the consummation of (A) any reorganization, merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company (other than an internal reorganization), or (B) the sale or other disposition in one or a series of related transactions of 50% or more of the assets or earning power of the Company (in either such case a “Transaction”), unless immediately following such Transaction: (x) all or substantially all of the individuals and entities who were the beneficial owners of the outstanding Common Stock immediately prior to such Transaction beneficially own, directly or indirectly, more than 50% of the combined voting power for the election of directors of the entity resulting from, or owning the assets so purchased in, such Transaction (the “Surviving Entity”) in substantially the same proportions as their ownership, immediately prior to such Transaction, of the outstanding Common Stock, and (y) at least a majority of the members of the board of directors of the Surviving Entity were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Transaction (any Transaction that satisfies all of the criteria specified in (x) and (y) above shall be deemed to be a “Non-Qualifying Transaction”); or,
iv)the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
4.“Code” means the Internal Revenue Code of 1986, as amended.
5.“Committee” means the Leadership Development and Compensation Committee of the Board.
6.“Common Stock” means the Company’s $.05 par value common stock.
7.“Competitive Products or Services” means anything of commercial value of the type offered, provided or sold by the Company, in the United States, Canada, or Mexico, within two (2) years prior to termination of your employment and during the Restricted Period, including, without limitation: goods; personal, real, or intangible property; services; financial products; business opportunities or assistance; or any other object or aspect of business conducted or provided by Company.
8.“Competitor” shall mean:
(X) the following companies or entities, including their subsidiaries, affiliates, franchisees, or business units: Lowe’s Companies, Inc.; Sears Holding Corp.; Amazon.com; Menard, Inc.; HD Supply Holdings, Inc.; Floor & Decor; Ace Hardware; True Value Company; Lumber Liquidators; Tractor Supply Company; Wayfair; Canadian Tire; and Wal-Mart;
(Y) any company or entity that sells or offers Competitive Products or Services that, in combination with its subsidiaries, affiliates, franchisees, or business units (a) operates more than 100 retail outlets across the United States, Canada, and Mexico or (b) generates more than $500 million in annual revenue; or
(Z) any company or entity that is formed through, or as a result of, a sale, merger, combination, renaming, restructuring, spin-off, or other corporate transaction involving a business or entity defined in clause (X) or (Y) of this sentence, and which sells Competitive Products or Services.
9.“Confidential Information” means any data or information that belongs and is valuable to the Company and not generally known to competitors of the Company or other outsiders, regardless of whether the Confidential Information is in printed, written or electronic form, retained in your memory or has been compiled or created by you, including but not limited to information related to: operations, services, information technology, computer systems, marketing, advertising, e-commerce, interconnected retail, technical, financial, human resources, personnel, staffing, payroll, information about employee compensation and performance, merchandising, pricing, strategic planning, product, vendor, supplier, customer or store planning data, construction, data security information, private brands, supply chain, or other information similar to the foregoing.
10.“Disability” means that you have been found to be “Disabled” by the Company’s long-term disability carrier or third party administrator, or if you are not a participant in the Company’s long-term disability plan, under the criteria used by the Company’s long-term disability plan.
11.“Restricted Period” shall mean the period during which you are employed with the Company and for a period of twenty-four (24) months following the termination of your employment, regardless of the reason for such termination.
12.“Retirement” means termination of employment, other than for Cause, with the Company on or after your attainment of age 60 and having at least five (5) years of continuous service with the Company.
13.“Retirement Eligibility” means attainment of age 60 and completion of at least five (5) years of continuous service with the Company.
Exhibit 15.1
ACKNOWLEDGEMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
The Home Depot, Inc.:
We acknowledge our awareness of the use of our report dated November 23, 2020 related to our review of interim financial information, included within the Quarterly Report on Form 10-Q of The Home Depot, Inc. for the three and nine-month periods ended November 1, 2020, and incorporated by reference in the following Registration Statements:
| Description | Registration Statement Number | ||||
| Form S-3 | |||||
| Depot Direct stock purchase program | 333-249732 | ||||
| Debt securities | 333-227052 | ||||
| Form S-8 | |||||
| The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan | 333-61733 | ||||
| The Home Depot Canada Registered Retirement Savings Plan | 333-38946 | ||||
| The Home Depot, Inc. Restated and Amended Employee Stock Purchase Plan | 333-151849 | ||||
The Home Depot, Inc. Amended and Restated Employee Stock Purchase Plan | 333-182374 | ||||
| The Home Depot, Inc. Non-Qualified Stock Option and Deferred Stock Units Plan and Agreement | 333-56722 | ||||
The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan | 333-125331 | ||||
| The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan | 333-153171 | ||||
The Home Depot FutureBuilder and The Home Depot FutureBuilder for Puerto Rico | 333-125332 | ||||
Pursuant to Rule 436 under the Securities Act of 1933 (“the Act”), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG LLP
Atlanta, Georgia
November 23, 2020
Exhibit 31.1
CERTIFICATION
I, Craig A. Menear, certify that:
1.I have reviewed this quarterly report on Form 10-Q of The Home Depot, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 23, 2020
| /s/ Craig A. Menear | ||
| Craig A. Menear | ||
| Chairman and Chief Executive Officer | ||
Exhibit 31.2
CERTIFICATION
I, Richard V. McPhail, certify that:
1.I have reviewed this quarterly report on Form 10-Q of The Home Depot, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 23, 2020
| /s/ Richard V. McPhail | ||
| Richard V. McPhail | ||
| Executive Vice President and Chief Financial Officer | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Home Depot, Inc. (the “Company”) on Form 10-Q (“Form 10-Q”) for the period ended November 1, 2020 as filed with the Securities and Exchange Commission, I, Craig A. Menear, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)The Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Craig A. Menear | ||
| Craig A. Menear | ||
| Chairman and Chief Executive Officer | ||
| November 23, 2020 | ||
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Home Depot, Inc. (the “Company”) on Form 10-Q (“Form 10-Q”) for the period ended November 1, 2020 as filed with the Securities and Exchange Commission, I, Richard V. McPhail, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)The Form 10-Q fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Richard V. McPhail | ||
| Richard V. McPhail | ||
| Executive Vice President and Chief Financial Officer | ||
| November 23, 2020 | ||