NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Home Depot, Inc., together with its subsidiaries (the “Company,” “Home Depot,” “we,” “our” or “us”), is a home improvement retailer that sells a wide assortment of building materials, home improvement products, lawn and garden products, décor items, and facilities maintenance, repair and operations products, and provides a number of services, in stores and online. We operate in the U.S. (including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and Mexico, each representing one of our three operating segments, which we aggregate into one reportable segment due to their similar operating and financial characteristics.
Basis of Presentation
The accompanying consolidated financial statements of the Company 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 2021 Form 10-K.
There were no significant changes to our significant accounting policies as disclosed in the 2021 Form 10-K.
Recent Accounting Pronouncements
We did not adopt any new accounting pronouncements during the three months ended May 1, 2022 that had a material impact on our consolidated financial condition, results of operations or cash flows. Recent accounting pronouncements pending adoption not discussed in the 2021 Form 10-K are either not applicable or will not have or are not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.
2.NET SALES
The following table presents net sales, classified by geography:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
in millions | | | | | May 1, 2022 | | May 2, 2021 |
Net sales – in the U.S. | | | | | $ | 36,006 | | | $ | 34,717 | |
Net sales – outside the U.S. | | | | | 2,902 | | | 2,783 | |
Net sales | | | | | $ | 38,908 | | | $ | 37,500 | |
The following table presents net sales by products and services:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
in millions | | | | | May 1, 2022 | | May 2, 2021 |
Net sales – products | | | | | $ | 37,465 | | | $ | 36,271 | |
Net sales – services | | | | | 1,443 | | | 1,229 | |
Net sales | | | | | $ | 38,908 | | | $ | 37,500 | |
The following table presents major product lines and the related merchandising departments (and related services):
| | | | | | | | |
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 |
The following table presents net sales by major product lines (and related services):
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
in millions | | | | | May 1, 2022 | | May 2, 2021 |
Building Materials | | | | | $ | 14,869 | | | $ | 13,660 | |
Décor | | | | | 12,874 | | | 11,882 | |
Hardlines | | | | | 11,165 | | | 11,958 | |
Net sales | | | | | $ | 38,908 | | | $ | 37,500 | |
Deferred Revenue
For products and services sold in stores or online, payment is typically due at the point of sale. When we receive payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue until the sale or service is complete. Such performance obligations are part of contracts with expected original durations of typically three months or less. As of May 1, 2022 and January 30, 2022, deferred revenue for products and services was $2.7 billion and $2.6 billion, respectively.
We further record deferred revenue for the sale of gift cards and recognize the associated revenue upon the redemption of those gift cards, which generally occurs within six months of gift card issuance. As of May 1, 2022 and January 30, 2022, our performance obligations for unredeemed gift cards were $944 million and $1.0 billion, respectively. Gift card breakage income, which is our estimate of the portion of our gift card balance not expected to be redeemed, was immaterial during the three months ended May 1, 2022 and May 2, 2021.
3.PROPERTY AND LEASES
Net Property and Equipment
Net property and equipment includes accumulated depreciation and amortization of $26.6 billion as of May 1, 2022 and $26.1 billion as of January 30, 2022.
Leases
The following table presents the consolidated balance sheet location of assets and liabilities related to operating and finance leases:
| | | | | | | | | | | | | | |
in millions | Consolidated Balance Sheet Classification | May 1, 2022 | | January 30, 2022 |
Assets: | | | | |
Operating lease assets | Operating lease right-of-use assets | $ | 5,980 | | | $ | 5,968 | |
Finance lease assets (1) | Net property and equipment | 2,972 | | | 2,896 | |
Total lease assets | | $ | 8,952 | | | $ | 8,864 | |
| | | | |
Liabilities: | | | | |
Current: | | | | |
Operating lease liabilities | Current operating lease liabilities | $ | 859 | | | $ | 830 | |
Finance lease liabilities | Current installments of long-term debt | 214 | | | 198 | |
Long-term: | | | | |
Operating lease liabilities | Long-term operating lease liabilities | 5,335 | | | 5,353 | |
Finance lease liabilities | Long-term debt, excluding current installments | 3,112 | | | 3,038 | |
Total lease liabilities | | $ | 9,520 | | | $ | 9,419 | |
—————
(1) Finance lease assets are recorded net of accumulated amortization of $1.1 billion as of May 1, 2022 and $1.0 billion as of January 30, 2022.
The following table presents supplemental non-cash information related to leases:
| | | | | | | | | | | |
| Three Months Ended |
in millions | May 1, 2022 | | May 2, 2021 |
Lease assets obtained in exchange for new operating lease liabilities | $ | 256 | | | $ | 164 | |
Lease assets obtained in exchange for new finance lease liabilities | 148 | | | 200 | |
4.DEBT AND DERIVATIVE INSTRUMENTS
Short-Term Debt
We have commercial paper programs that allow for borrowings up to $3.0 billion. All of our short-term borrowings in the first three months of fiscal 2022 were under these commercial paper programs, and the maximum amount outstanding at any time was $2.7 billion. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings of up to $3.0 billion, which consist of a five-year $2.0 billion credit facility scheduled to expire in December 2023 and a 364-day $1.0 billion credit facility scheduled to expire in December 2022. At May 1, 2022, there were no outstanding borrowings under our commercial paper programs, and at January 30, 2022, we had $1.0 billion of outstanding borrowings under our commercial paper programs.
Long-Term Debt
March 2022 Issuance. In March 2022, we issued four tranches of senior notes.
•The first tranche consisted of $500 million of 2.70% senior notes due April 15, 2025 (the “2025 notes”) at a discount of $1 million. Interest on the 2025 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2022.
•The second tranche consisted of $750 million of 2.875% 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, 2022.
•The third tranche consisted of $1.25 billion of 3.25% senior notes due April 15, 2032 (the “2032 notes”) at a discount of $6 million. Interest on the 2032 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2022.
•The fourth tranche consisted of $1.5 billion of 3.625% senior notes due April 15, 2052 (the “2052 notes”) at a discount of $32 million (together with the 2025 notes, the 2027 notes, and the 2032 notes, the “March 2022 issuance”). Interest on the 2052 notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2022.
•Issuance costs for the March 2022 issuance totaled $22 million.
The 2025 notes, 2027 notes, 2032 notes, and 2052 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. Prior to the Par Call Date, as defined in the notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Par Call Date. On or after the Par Call Date, the redemption price is equal to 100% of the principal amount of the notes. Additionally, if a Change in Control Triggering Event occurs, as defined in the notes, holders of all such 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.
The indenture governing the notes does not generally limit our ability to incur additional indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity. The indenture governing the notes contains various customary covenants; however, none are expected to impact our liquidity or capital resources.
Repayments. In March 2022, we repaid our $700 million 3.25% senior notes and $300 million floating rate senior notes at maturity. In May 2022, subsequent to the end of our first fiscal quarter, we fully repaid our $1.25 billion 2.625% senior notes, which had a maturity date of June 2022, at the Par Call Date for the notes.
Derivative Instruments and Hedging Activities
We had outstanding interest rate swap agreements with combined notional amounts of $5.4 billion at both May 1, 2022 and January 30, 2022. These agreements are accounted for as fair value hedges that swap fixed for variable rate interest to hedge changes in the fair values of certain senior notes. At May 1, 2022, the fair values of these agreements totaled $652 million, with $660 million recognized in other long-term liabilities and $8 million recognized in other assets on the consolidated balance sheet. At January 30, 2022, the fair values of these agreements totaled $191 million, with $249 million recognized in other long-term liabilities and $58 million recognized in other assets on the consolidated balance sheet.
All of our interest rate swap agreements designated as fair value hedges meet the shortcut method requirements under GAAP. Accordingly, the changes in the fair values of these agreements offset the changes in the fair value of the hedged long-term debt.
There were no material changes to the other hedging arrangements disclosed in our 2021 Form 10-K, and all related activity was immaterial for the periods presented within this document.
Collateral. 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. The cash collateral posted by the Company related to derivative instruments under our collateral security arrangements was $489 million as of May 1, 2022, which was recorded in other current assets on the consolidated balance sheet. We did not hold any cash collateral as of May 1, 2022, and cash collateral both held and posted was immaterial as of January 30, 2022.
5. STOCKHOLDERS' EQUITY
Stock Rollforward
The following table presents a reconciliation of the number of shares of our common stock and cash dividends per share:
| | | | | | | | | | | | | | | |
shares in millions | | | Three Months Ended |
| | | | May 1, 2022 | | May 2, 2021 |
Common stock: | | | | | | | |
Balance at beginning of period | | | | | 1,792 | | | 1,789 | |
Shares issued under employee stock plans | | | | | 1 | | | 1 | |
Balance at end of period | | | | | 1,793 | | | 1,790 | |
Treasury stock: | | | | | | | |
Balance at beginning of period | | | | | (757) | | | (712) | |
Repurchases of common stock | | | | | (7) | | | (13) | |
Balance at end of period | | | | | (764) | | | (725) | |
Shares outstanding at end of period | | | | | 1,029 | | | 1,065 | |
| | | | | | | |
Cash dividends per share | | | | | $ | 1.90 | | | $ | 1.65 | |
Share Repurchases
In May 2021, our Board of Directors approved a $20.0 billion share repurchase authorization that replaced the previous authorization. This new authorization does not have a prescribed expiration date. As of May 1, 2022, approximately $7.4 billion of the $20.0 billion share repurchase authorization remained available.
The following table presents information about our repurchases of common stock, all of which were completed through open market purchases:
| | | | | | | | | | | | | | | |
in millions | | | Three Months Ended |
| | | | May 1, 2022 | | May 2, 2021 |
Total number of shares repurchased | | | | | 7 | | | 13 | |
Total cost of shares repurchased | | | | | $ | 2,250 | | | $ | 4,000 | |
These amounts may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period.
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. The levels of the fair value hierarchy are:
•Level 1: observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2: inputs other than quoted prices in active markets in Level 1 that are either directly or indirectly observable; and
•Level 3: unobservable inputs for which little or no market data exists, therefore requiring management judgment to develop the Company’s own models with estimates and assumptions.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the assets and liabilities that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| May 1, 2022 | | January 30, 2022 |
in millions | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
Derivative agreements – assets | $ | — | | | $ | 8 | | | $ | — | | | $ | — | | | $ | 58 | | | $ | — | |
Derivative agreements – liabilities | — | | | (661) | | | — | | | — | | | (249) | | | — | |
Total | $ | — | | | $ | (653) | | | $ | — | | | $ | — | | | $ | (191) | | | $ | — | |
The fair values of our derivative instruments are determined using an income approach and Level 2 inputs, which include the respective interest rate or foreign currency forward curves and discount rates. Our derivative instruments are discussed further in Note 4. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Long-lived assets, goodwill, and other intangible assets are subject to nonrecurring fair value measurement for the assessment of impairment. We did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis during the three months ended May 1, 2022 or May 2, 2021.
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, receivables, accounts payable, and short-term debt approximate fair value due to their short-term nature.
The following table presents the aggregate fair values and carrying values of our senior notes:
| | | | | | | | | | | | | | | | | | | | | | | |
| May 1, 2022 | | January 30, 2022 |
in millions | Fair Value (Level 1) | | Carrying Value | | Fair Value (Level 1) | | Carrying Value |
Senior notes | $ | 36,896 | | | $ | 38,295 | | | $ | 39,397 | | | $ | 35,815 | |
7.WEIGHTED AVERAGE COMMON SHARES
The following table presents the reconciliation of our basic to diluted weighted average common shares:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
in millions | | | | | May 1, 2022 | | May 2, 2021 |
Basic weighted average common shares | | | | | 1,030 | | | 1,071 | |
Effect of potentially dilutive securities (1) | | | | | 4 | | | 4 | |
Diluted weighted average common shares | | | | | 1,034 | | | 1,075 | |
| | | | | | | |
Anti-dilutive securities excluded from diluted weighted average common shares | | | | | 1 | | | — | |
—————
(1) Represents the dilutive impact of stock-based awards.
8.CONTINGENCIES
We are involved in litigation arising in the normal course of business. In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
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 May 1, 2022, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended May 1, 2022 and May 2, 2021, 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 January 30, 2022, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated March 23, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 30, 2022, 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
May 23, 2022