Item 8. Financial Statements and Supplementary Data.

Table of Contents

Report of Independent Registered Public Accounting Firm						37
Consolidated Balance Sheets						39
Consolidated Statements of Earnings						40
Consolidated Statements of Comprehensive Income						41
Consolidated Statements of Stockholders' Equity						42
Consolidated Statements of Cash Flows						43
Notes to Consolidated Financial Statements						44
Note 1. Summary of Significant Accounting Policies						44
Note 2. Net Sales and Segment Reporting						51
Note 3. Property and Leases						53
Note 4. Debt and Derivative Instruments						55
Note 5. Income Taxes						60
Note 6. Stockholders' Equity						63
Note 7. Fair Value Measurements						63
Note 8. Stock-Based Compensation						64
Note 9. Employee Benefit Plans						67
Note 10. Weighted Average Common Shares						67
Note 11. Commitments and Contingencies						67
Note 12. HD Supply Acquisition						67

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

The Home Depot, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of The Home Depot, Inc. and subsidiaries (the Company) as of January 31, 2021 and February 2, 2020, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and February 2, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 24, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company elected to change its method of accounting for Leases as of February 4, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), and related amendments.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Estimation of store shrink using a sampling approach

As discussed in Note 1 to the consolidated financial statements, the majority of the Company’s U.S. merchandise inventory balances are stated at lower of cost (first-in, first out) or market as determined by the retail inventory method. The retail inventory method is based on a number of factors such as markups, markdowns, and inventory losses (or shrink). Shrink is the difference between the recorded amount of inventory and the physical inventory counted. The Company calculates shrink based on actual inventory losses identified as a result of physical inventory counts during each fiscal period and estimated inventory losses occurring between physical

Table of Contents

inventory counts. The estimate for shrink occurring in the interim period between physical inventory counts is calculated on a store-specific basis and is primarily based on recent shrink results. Due to changes in operating conditions during fiscal 2020 as a result of the COVID-19 pandemic, the Company used the results from a sample of stores that were able to conduct physical inventory counts as a basis for estimating shrink for those stores at which physical inventory counts were temporarily suspended during the year.

We identified the evaluation of the estimation of store shrink using a sampling approach as a critical audit matter. Evaluating the Company’s use of sampling and its reliability to produce results substantially the same as those which would be obtained by a count of all U.S. retail stores involved a high degree of auditor judgment. Additionally, professionals with specialized skills and knowledge assisted the engagement team.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the process of developing and selecting the sampling model to estimate store shrink. We evaluated the appropriateness of the Company using sampling by comparing shrink results and store characteristics across the population to assess the sample’s reliability to produce results substantially the same as those which would be obtained by a count of all U.S. retail stores. We involved sampling professionals with specialized skills and knowledge who assisted in:

• Evaluating the Company’s design of a sampling method and key parameters used; and

• Testing the Company’s application of a sampling model by evaluating formulas and calculations.

Fair value of customer relationships intangible asset

As discussed in Note 12 to the consolidated financial statements, on December 24, 2020, the Company acquired HD Supply Holdings, Inc. (HDS) in a business combination. As a result of the transaction, the Company acquired a customer relationships intangible asset associated with the generation of future income from existing customers. The preliminary, estimated acquisition-date fair value for the customer relationships intangible asset was approximately $2.6 billion. The Company used an income approach to determine the estimated fair value of the customer relationships intangible asset.

We identified the evaluation of the fair value of the customer relationships intangible asset acquired in the HDS business combination as a critical audit matter. There was a high degree of subjective auditor judgment related to certain assumptions used in the valuation model. Significant assumptions included the amount and timing of future cash flows, growth rates, customer attrition rate, and the discount rate applied. Changes in these assumptions could have a significant impact on the fair value of the customer relationships intangible asset. Professionals with specialized skill and knowledge were also required to assess significant assumptions and evaluate evidence obtained.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s acquisition-date valuation process, including controls related to the development of the above assumptions. We evaluated the amount and timing of future cash flows and growth rates used by the Company by comparing projected cash flows to certain publicly available information for comparable companies, industry reports, and historical revenues achieved. We performed sensitivity analyses over the Company’s assumptions used to determine the preliminary, estimated fair value of the customer relationships intangible asset to assess the impact changes in those assumptions would have on the Company’s determination of fair value. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating:

• Long term growth rates used to project future cash flows by comparing to certain nationwide economic trend data such as GDP, inflation, and relevant industry data;

• Expected customer attrition rate applied by developing an independent attrition rate using historical sales data; and

• Discount rate applied by developing an independent discount rate and comparing inputs to certain publicly available market data for comparable entities.

/s/ KPMG LLP

We have served as the Company’s auditor since 1979.

Atlanta, Georgia

March 24, 2021

Table of Contents

THE HOME DEPOT, INC.

CONSOLIDATED BALANCE SHEETS

in millions, except per share data			January 31, 2021						February 2, 2020
Assets
Current assets:
Cash and cash equivalents			$	7,895					$	2,133
Receivables, net			2,992						2,106
Merchandise inventories			16,627						14,531
Other current assets			963						1,040
Total current assets			28,477						19,810
Net property and equipment			24,705						22,770
Operating lease right-of-use assets			5,962						5,595
Goodwill			7,126						2,254
Other assets			4,311						807
Total assets			$	70,581					$	51,236
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term debt			$	—					$	974
Accounts payable			11,606						7,787
Accrued salaries and related expenses			2,463						1,494
Sales taxes payable			774						605
Deferred revenue			2,823						2,116
Income taxes payable			193						55
Current installments of long-term debt			1,416						1,839
Current operating lease liabilities			828						828
Other accrued expenses			3,063						2,677
Total current liabilities			23,166						18,375
Long-term debt, excluding current installments			35,822						28,670
Long-term operating lease liabilities			5,356						5,066
Deferred income taxes			1,131						706
Other long-term liabilities			1,807						1,535
Total liabilities			67,282						54,352
Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,789 shares at January 31, 2021 and 1,786 shares at February 2, 2020; outstanding: 1,077 shares at January 31, 2021 and February 2, 2020			89						89
Paid-in capital			11,540						11,001
Retained earnings			58,134						51,729
Accumulated other comprehensive loss			(671)						(739)
Treasury stock, at cost, 712 shares at January 31, 2021 and 709 shares at February 2, 2020			(65,793)						(65,196)
Total stockholders’ equity (deficit)			3,299						(3,116)
Total liabilities and stockholders’ equity			$	70,581					$	51,236

—————

See accompanying notes to consolidated financial statements.

Table of Contents

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

in millions, except per share data			Fiscal						Fiscal						Fiscal
2020						2019						2018
Net sales			$	132,110					$	110,225					$	108,203
Cost of sales			87,257						72,653						71,043
Gross profit			44,853						37,572						37,160
Operating expenses:
Selling, general and administrative			24,447						19,740						19,513
Depreciation and amortization			2,128						1,989						1,870
Impairment loss			—						—						247
Total operating expenses			26,575						21,729						21,630
Operating income			18,278						15,843						15,530
Interest and other (income) expense:
Interest and investment income			(47)						(73)						(93)
Interest expense			1,347						1,201						1,051
Other			—						—						16
Interest and other, net			1,300						1,128						974
Earnings before provision for income taxes			16,978						14,715						14,556
Provision for income taxes			4,112						3,473						3,435
Net earnings			$	12,866					$	11,242					$	11,121
Basic weighted average common shares			1,074						1,093						1,137
Basic earnings per share			$	11.98					$	10.29					$	9.78
Diluted weighted average common shares			1,078						1,097						1,143
Diluted earnings per share			$	11.94					$	10.25					$	9.73

—————

Fiscal 2020 and fiscal 2019 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

Table of Contents

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			Fiscal						Fiscal						Fiscal
in millions			2020						2019						2018
Net earnings			$	12,866					$	11,242					$	11,121
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			60						53						(267)
Cash flow hedges			8						8						53
Other			—						3						8
Total other comprehensive income (loss)			68						64						(206)
Comprehensive income			$	12,934					$	11,306					$	10,915

—————

Fiscal 2020 and fiscal 2019 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

Table of Contents

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Common Stock:
Balance at beginning of year			$	89					$	89					$	89
Shares issued under employee stock plans			—						—						—
Balance at end of year			89						89						89
Paid-in Capital:
Balance at beginning of year			11,001						10,578						10,192
Shares issued under employee stock plans			229						172						104
Stock-based compensation expense			310						251						282
Balance at end of year			11,540						11,001						10,578
Retained Earnings:
Balance at beginning of year			51,729						46,423						39,935
Cumulative effect of accounting changes			—						26						75
Net earnings			12,866						11,242						11,121
Cash dividends			(6,451)						(5,958)						(4,704)
Other			(10)						(4)						(4)
Balance at end of year			58,134						51,729						46,423
Accumulated Other Comprehensive Income (Loss):
Balance at beginning of year			(739)						(772)						(566)
Cumulative effect of accounting changes			—						(31)						—
Foreign currency translation adjustments, net of tax			60						53						(267)
Cash flow hedges, net of tax			8						8						53
Other, net of tax			—						3						8
Balance at end of year			(671)						(739)						(772)
Treasury Stock:
Balance at beginning of year			(65,196)						(58,196)						(48,196)
Repurchases of common stock			(597)						(7,000)						(10,000)
Balance at end of year			(65,793)						(65,196)						(58,196)
Total stockholders’ equity (deficit)			$	3,299					$	(3,116)					$	(1,878)

—————

Fiscal 2020 and fiscal 2019 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

Table of Contents

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Fiscal						Fiscal						Fiscal
in millions			2020						2019						2018
Cash Flows from Operating Activities:
Net earnings			$	12,866					$	11,242					$	11,121
Reconciliation of net earnings to net cash provided by operating activities:
Depreciation and amortization			2,519						2,296						2,152
Stock-based compensation expense			310						251						282
Impairment loss			—						—						247
Changes in receivables, net			(465)						(170)						33
Changes in merchandise inventories			(1,657)						(593)						(1,244)
Changes in other current assets			43						(135)						(257)
Changes in accounts payable and accrued expenses			5,118						32						870
Changes in deferred revenue			702						334						80
Changes in income taxes payable			(149)						44						(42)
Changes in deferred income taxes			(569)						202						26
Other operating activities			121						184						(103)
Net cash provided by operating activities			18,839						13,687						13,165
Cash Flows from Investing Activities:
Capital expenditures			(2,463)						(2,678)						(2,442)
Payments for businesses acquired, net			(7,780)						—						(21)
Other investing activities			73						25						47
Net cash used in investing activities			(10,170)						(2,653)						(2,416)
Cash Flows from Financing Activities:
Repayments of short-term debt, net			(974)						(365)						(220)
Proceeds from long-term debt, net of discounts and premiums			7,933						3,420						3,466
Repayments of long-term debt			(2,872)						(1,070)						(1,209)
Repurchases of common stock			(791)						(6,965)						(9,963)
Proceeds from sales of common stock			326						280						236
Cash dividends			(6,451)						(5,958)						(4,704)
Other financing activities			(154)						(140)						(153)
Net cash used in financing activities			(2,983)						(10,798)						(12,547)
Change in cash and cash equivalents			5,686						236						(1,798)
Effect of exchange rate changes on cash and cash equivalents			76						119						(19)
Cash and cash equivalents at beginning of year			2,133						1,778						3,595
Cash and cash equivalents at end of year			$	7,895					$	2,133					$	1,778
Supplemental Disclosures:
Cash paid for income taxes			$	4,654					$	3,220					$	3,774
Cash paid for interest, net of interest capitalized			1,241						1,112						1,035
Non-cash capital expenditures			274						136						248

—————

Fiscal 2020 and fiscal 2019 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

Table of Contents

THE HOME DEPOT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

**1.**SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

The Home Depot, Inc., together with its subsidiaries (the “Company,” “Home Depot,” “we,” “our” or “us”), is a home improvement retailer that sells a wide assortment of building materials, home improvement products, lawn and garden products, 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.

Consolidation and Presentation

Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. Intercompany transactions are eliminated in consolidation. Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31st. Fiscal 2020 and fiscal 2019 include 52 weeks while fiscal 2018 includes 53 weeks.

Impact of COVID-19

The outbreak of the COVID-19 coronavirus, which was declared a pandemic by the World Health Organization in March 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 shut-downs 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.

In response to COVID-19, we expanded our associate pay and benefits to provide additional paid time off, weekly bonuses and other benefits. To continue to support our associates, we transitioned away from these temporary programs and implemented permanent compensation enhancements for frontline, hourly associates beginning in the third quarter of fiscal 2020. These expanded pay and benefits are included in SG&A in the consolidated statements of earnings.

Use of Estimates

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these financial statements in conformity with GAAP. While we believe these estimates and assumptions are reasonable, actual results could differ from these estimates, including changes due to uncertainty in the current economic environment resulting from the COVID-19 pandemic.

Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Our cash equivalents are carried at fair market value and consist primarily of money market funds.

Receivables

The components of receivables, net, follow:

in millions			January 31, 2021						February 2, 2020
Card receivables			$	992					$	778
Rebate receivables			987						668
Customer receivables			571						292
Other receivables			442						368
Receivables, net			$	2,992					$	2,106

Card receivables consist of payments due from financial institutions for the settlement of credit card and debit card transactions. Rebate receivables represent amounts due from vendors for volume and co-op advertising rebates. Customer receivables relate to credit extended directly to certain customers in the ordinary course of business. The

Table of Contents

valuation allowance related to these receivables was not material to our consolidated financial statements at the end of fiscal 2020 or fiscal 2019.

Merchandise Inventories

The majority of our merchandise inventories are stated at the lower of cost (first-in, first-out) or market, as determined by the retail inventory method, which is based on a number of factors such as markups, markdowns, and inventory losses (or shrink). As the inventory retail value is adjusted regularly to reflect market conditions, inventory valued using the retail method approximates the lower of cost or market. Certain subsidiaries, including retail operations in Canada and Mexico, and distribution centers, record merchandise inventories at the lower of cost or net realizable value, as determined by a cost method. These merchandise inventories represent approximately 36% of the total merchandise inventories balance. We evaluate the inventory valued using a cost method at the end of each quarter to ensure that it is carried at the lower of cost or net realizable value. The valuation allowance for merchandise inventories valued under a cost method was not material to our consolidated financial statements at the end of fiscal 2020 or fiscal 2019.

Physical inventory counts or cycle counts are taken on a regular basis in each store and distribution center to ensure that amounts reflected in merchandise inventories are properly stated. Shrink (or in the case of excess inventory, swell) is the difference between the recorded amount of inventory and the physical inventory count. We calculate shrink based on actual inventory losses identified as a result of physical inventory counts during each fiscal period and estimated inventory losses between physical inventory counts. The estimate for shrink occurring in the interim period between physical inventory counts is calculated on a store-specific basis and is primarily based on recent shrink results. Due to changes in operating conditions during fiscal 2020 as a result of the COVID-19 pandemic, we used the results from a sample of stores that were able to conduct physical inventories as a basis for estimating shrink for those stores at which physical inventory counts were temporarily suspended during the year. We believe the sample of stores that were selected for inventory counts in the current year provides a reasonable basis for estimating shrink where a physical inventory count was not performed in fiscal 2020. Historically, the difference between estimated shrink and actual inventory losses has not been material to our annual financial results.

Property and Equipment

Buildings, furniture, fixtures, and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over the original term of the lease or the useful life of the improvement, whichever is shorter.

The estimated useful lives of our property and equipment follow:

			Life
Buildings			5 – 45 years
Furniture, fixtures and equipment			2 – 20 years
Leasehold improvements			5 – 45 years

We capitalize certain costs, including interest, related to construction in progress and the acquisition and development of software. Costs associated with the acquisition and development of software are amortized using the straight-line method over the estimated useful life of the software, which is three to six years. Certain development costs not meeting the criteria for capitalization are expensed as incurred.

We evaluate our long-lived assets each quarter for indicators of potential impairment. Indicators of impairment include current period losses combined with a history of losses, our decision to relocate or close a store or other location before the end of its previously estimated useful life, or when changes in other circumstances indicate the carrying amount of an asset may not be recoverable. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The assets of a store with indicators of impairment are evaluated for recoverability by comparing its undiscounted future cash flows with its carrying value. If the carrying value is greater than the undiscounted future cash flows, we then measure the asset’s fair value to determine whether an impairment loss should be recognized. If the resulting fair value is less than the carrying value, an impairment loss is recognized for the difference between the carrying value and the estimated fair value. Impairment losses on property and equipment are recorded as a component of SG&A. Impairment charges for long-lived assets were not material to our consolidated financial statements in fiscal 2020, fiscal 2019, or fiscal 2018.

Table of Contents

Leases

On February 4, 2019, we adopted the new leases standard using the modified retrospective transition method.

We enter into contractual arrangements for the utilization of certain non-owned assets which are evaluated as finance or operating leases upon commencement, and are accounted for accordingly. Specifically, a contract is or contains a lease when (1) the contract contains an explicitly or implicitly identified asset and (2) we obtain substantially all of the economic benefits from the use of that underlying asset and direct how and for what purpose the asset is used during the term of the contract in exchange for consideration. We assess whether an arrangement is or contains a lease at inception of the contract.

We lease certain retail locations, warehouse and distribution space, office space, equipment, and vehicles. A substantial majority of our leases have remaining lease terms of one to 20 years, typically with the option to extend the leases for five-year terms. Some of our leases may include the option to terminate in less than five years. The lease term used to calculate the right-of-use asset and lease liability at commencement includes the impacts of options to extend or terminate the lease when it is reasonably certain that we will exercise that option. When determining whether it is reasonably certain that we will exercise an option at commencement, we consider various existing economic factors, including market conditions, real estate strategies, the nature, length, and terms of the agreement, as well as the uncertainty of the condition of leased equipment at the end of the lease term. Based on these determinations, we generally conclude that the exercise of renewal options would not be reasonably certain in determining the lease term at commencement.

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, which is updated on a quarterly basis, as the discount rate for the present value of lease payments.

Real estate taxes, insurance, maintenance, and operating expenses applicable to the leased property are generally our obligations under our lease agreements. In instances where these payments are fixed, they are included in the measurement of our lease liabilities, and when variable, are excluded and recognized in the period in which the obligation for those payments is incurred. Certain of our lease agreements also include rental payments based on an index or rate and others include rental payments based on a percentage of sales. For variable payments dependent upon an index or rate, we apply the active index or rate as of the lease commencement date. Variable lease payments not based on an index or rate are not included in the measurement of our lease liabilities as they cannot be reasonably estimated, and are recognized in the period in which the obligation for those payments is incurred.

Leases that have a term of twelve months or less upon commencement are considered short-term in nature. Accordingly, short-term leases are not included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term. We have also elected to not separate lease and non-lease components for certain classes of assets including real estate and certain equipment.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Business Combinations

The assets and liabilities of acquired businesses are recorded at their fair values at the date of acquisition. The excess of the purchase price over the fair values of the identifiable assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired. We do not amortize goodwill, but assess the recoverability of goodwill in the third quarter of each fiscal year, or more often if indicators warrant, by determining whether the fair value of each reporting unit supports its carrying value. Each fiscal year, we may assess qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments, with a quantitative assessment completed at least once every three years. We completed our last quantitative assessment in fiscal 2019 and concluded that the fair value of our reporting units substantially exceeded their respective carrying values, including goodwill.

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

Table of Contents

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. There were no impairment charges related to goodwill for fiscal 2020, fiscal 2019, or fiscal 2018.

Changes in the carrying amount of our goodwill follow:

in millions			Fiscal						Fiscal
2020						2019
Goodwill, balance at beginning of year			$	2,254					$	2,252
Acquisitions (1)			4,870						—
Other (2)			2						2
Goodwill, balance at end of year			$	7,126					$	2,254

—————

(1) Fiscal 2020 includes the preliminary determination of goodwill related to the acquisition of HD Supply. See Note 12 for details regarding the HD Supply acquisition.

(2) Primarily reflects the impact of foreign currency translation.

Other Intangible Assets

We amortize the cost of definite-lived intangible assets over their estimated useful lives, which range up to 20 years. Intangible assets with indefinite lives are tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant. Intangible assets other than goodwill are included in other assets on the consolidated balance sheets.

The gross carrying amount and accumulated amortization relating to intangible assets are as follows:

in millions			January 31, 2021
Gross Carrying Amount						Accumulated Amortization
Definite-Lived Intangible Assets:
Customer relationships			$	2,965					$	(157)
Trade names			151						(1)
Other			16						(11)
Indefinite-Lived Intangible Assets:
Trade names			649
Total Intangible Assets			$	3,781					$	(169)

The gross carrying amounts are primarily driven by the preliminary allocation of fair value to indefinite and definite-lived intangible assets recognized as part of the HD Supply acquisition as further discussed in Note 12. Our definite-lived and indefinite-lived intangible assets were not material at the end of fiscal 2019, and intangible asset amortization expense was immaterial in fiscal 2020, fiscal 2019 and fiscal 2018.

As of January 31, 2021, estimated future amortization expense related to definite-lived intangible assets, including definite-lived intangible assets recognized as part of the HD Supply acquisition based on the preliminary allocation of fair value, was as follows:

in millions
Fiscal 2021			$	176
Fiscal 2022			176
Fiscal 2023			174
Fiscal 2024			174
Fiscal 2025			174
Thereafter			2,089
Total			$	2,963

Table of Contents

There were no impairment losses related to intangible assets for fiscal 2020 or fiscal 2019. In fiscal 2018, we recognized a pre-tax impairment loss of $247 million for certain trade names.

Debt

We record any premiums or discounts associated with an issuance of long-term debt as a direct addition or deduction to the carrying value of the related senior notes. We also record debt issuance costs associated with an issuance of long-term debt as a direct deduction to the carrying value of the related senior notes. Premium, discount, and debt issuance costs are amortized over the term of the respective notes using the effective interest rate method.

Derivative Instruments and Hedging Activities

We use derivative instruments in the management of our interest rate exposure on long-term debt and our exposure to foreign currency fluctuations. We enter into derivative instruments for risk management purposes only; we do not enter into derivative instruments for trading or speculative purposes. All derivative instruments are recognized at their fair values in either assets or liabilities at the balance sheet date and are classified as either current or non-current based on each contract’s respective maturity. While we enter into master netting arrangements, our policy is to present the fair value of derivative instruments gross in our consolidated balance sheets.

Changes in the fair values for derivative instruments designated as cash flow or net investment hedges are recognized in accumulated other comprehensive income (loss) until the hedged item is recognized in earnings, which for net investment hedges is upon sale or substantial liquidation of the underlying net investment. Changes in fair value of outstanding fair value hedges and the offsetting changes in fair values of the hedged item are recognized in earnings. We record realized gains and losses from derivative instruments in the same financial statement line item as the hedged item.

Derivative instruments that are not designated as hedges are recorded at fair value with unrealized gains or losses reported in earnings each period in the same financial statement line item as the hedged item. Cash flows from the settlement of derivative instruments appear in the consolidated statements of cash flows in the same categories as the cash flows of the hedged item.

Insurance

We are self-insured for certain losses related to general liability (including product liability), workers’ compensation, employee group medical, and automobile claims. We recognize the expected ultimate cost for claims incurred (undiscounted) at the balance sheet date as a liability. The expected ultimate cost for claims incurred is estimated based upon analysis of historical data and actuarial estimates.

Our self-insurance liabilities, which are included in accrued salaries and related expenses, other accrued expenses and other long-term liabilities in the consolidated balance sheets, were $1.3 billion at January 31, 2021 and February 2, 2020.

We also maintain network security and privacy liability insurance coverage to limit our exposure to losses such as those that may be caused by a significant compromise or breach of our data security. Insurance-related expenses are included in SG&A.

Treasury Stock

Treasury stock is reflected as a reduction of stockholders’ equity at cost. We use the weighted-average purchase cost to determine the cost of treasury stock that is reissued, if any.

Net Sales

We recognize revenue, net of expected returns and sales tax, at the time the customer takes possession of merchandise or when a service is performed. Our liability for sales returns is estimated based on historical return levels and our expectation of future returns, and is recognized at the transaction price. We also recognize a return asset, and corresponding adjustment to cost of sales, for our right to recover the goods returned by the customer, measured at the former carrying amount of the goods, less any expected recovery cost. At each financial reporting date, we assess our estimates of expected returns, refund liabilities, and return assets. Adjustments related to changes in return estimates were immaterial in all periods presented.

Net sales include services revenue generated through a variety of installation, home maintenance, and professional service programs. In these programs, the customer selects and purchases material for a project, and we provide or arrange for professional installation. These programs are offered through our stores, online, and in-home sales programs. Under certain programs, when we provide or arrange for the installation of a project and the

Table of Contents

subcontractor provides material as part of the installation, both the material and labor are included in services revenue. We recognize this revenue when the service for the customer is complete, which is not materially different from recognizing the revenue over the service period as the substantial majority of our services are completed within one week.

For product 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 three months or less. As of January 31, 2021 and February 2, 2020, deferred revenue for products and services was $1.9 billion and $1.3 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 in net sales, which generally occurs within six months of gift card issuance. As of January 31, 2021 and February 2, 2020, our performance obligations for unredeemed gift cards were $839 million and $721 million, respectively. Gift card breakage income, which is our estimate of the portion of our gift card balance not expected to be redeemed, is recognized in net sales and was immaterial in fiscal 2020, fiscal 2019 and fiscal 2018.

We also have agreements with third-party service providers who directly extend credit to customers, manage our PLCC program, and own the related receivables. We have evaluated the third-party entities holding the receivables under the program and concluded that they should not be consolidated. The agreement with the primary third-party service provider for our PLCC program expires in 2028, with us having the option, but no obligation, to purchase the existing receivables at the end of the agreement. Deferred interest charges incurred for our deferred financing programs offered to these customers, interchange fees charged to us for their use of the cards, and any profit sharing with the third-party service providers are included in net sales.

Cost of Sales

Cost of sales includes the actual cost of merchandise sold and services performed; the cost of transportation of merchandise from vendors to our distribution network, stores, or customers; shipping and handling costs from our stores or distribution network to customers; and the operating cost and depreciation of our sourcing and distribution network and online fulfillment centers.

Vendor Allowances

Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and co-op advertising allowances for the promotion of vendors’ products that are typically based on guaranteed minimum amounts with additional amounts being earned for attaining certain purchase levels. These vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates and certain co-op advertising allowances reduce the carrying cost of inventory and are recognized in cost of sales when the related inventory is sold.

Certain other co-op advertising allowances that are reimbursements of specific, incremental, and identifiable costs incurred to promote vendors’ products are recorded as an offset against advertising expense in SG&A. The co-op advertising allowances recorded as an offset to advertising expense follow:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Specific, incremental, and identifiable co-op advertising allowances			$	291					$	282					$	235

Advertising Expense

Television and radio advertising production costs, along with media placement costs, are expensed when the advertisement first appears. Certain co-op advertising allowances are recorded as an offset against advertising expense. Gross advertising expense included in SG&A follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Gross advertising expense			$	1,200					$	1,186					$	1,156

Table of Contents

Stock-Based Compensation

We are currently authorized to issue incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and deferred shares to certain of our associates and non-employee directors under certain stock incentive plans. We measure and recognize compensation expense for all share-based payment awards made to associates and non-employee directors based on estimated fair values. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expense, on a straight-line basis, over the requisite service period or as restrictions lapse. Additional information on our stock-based payment awards is included in Note 8.

Income Taxes

Income taxes are accounted for under the asset and liability method. We provide for federal, state, and foreign income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date. We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We file a consolidated U.S. federal income tax return which includes certain eligible subsidiaries. Non-U.S. subsidiaries and certain U.S. subsidiaries, which are consolidated for financial reporting purposes, are not eligible to be included in our consolidated U.S. federal income tax return. Separate provisions for income taxes have been determined for these entities. For unremitted earnings of our non-U.S. subsidiaries, we are required to make an assertion regarding reinvestment or repatriation for tax purposes. For any earnings that we do not make a permanent reinvestment assertion, we recognize a provision for deferred income taxes. For earnings where we have made a permanent reinvestment assertion, no provision is recognized. See Note 5 for further discussion.

We recognize interest and penalties related to income tax matters in interest expense and SG&A, respectively, on our consolidated statements of earnings. Accrued interest and penalties related to income tax matters are recognized in other accrued expenses and other long-term liabilities on our consolidated balance sheets.

We are subject to global intangible low-taxed income (“GILTI”), an incremental tax on foreign income. We have made an accounting election to record this tax in the period the tax arises.

Comprehensive Income

Comprehensive income includes net earnings adjusted for certain gains and losses that are excluded from net earnings under GAAP, which consist primarily of foreign currency translation adjustments.

Foreign Currency Translation

Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Revenues and expenses are translated using average exchange rates for the period and equity transactions are translated using the actual rate on the day of the transaction.

Reclassifications

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.

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

Table of Contents

develop or obtain internal-use software. On February 3, 2020, we adopted ASU No. 2018-15 with no material impact to our consolidated financial condition, 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 impact to our consolidated financial condition, 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 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 condition, 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 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. In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope,” which clarified the scope and application of the original guidance. ASU No. 2020-04 and ASU No. 2021-01 are 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 are evaluating the impact these standards will have on our consolidated financial statements and related disclosures and do not anticipate a material impact.

ASU No. 2019-12. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of Topic 740, “Income Taxes,” and simplification in several other areas. ASU No. 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods therein. We are evaluating the impact the standard will have on our consolidated financial statements and related disclosures and do not anticipate a material impact.

Recent accounting pronouncements pending adoption not discussed above are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations, or cash flows.

**2.**NET SALES AND SEGMENT REPORTING

We currently conduct our retail operations in the U.S., Canada, and Mexico, each of which represents one of our three operating segments. Our operating segments reflect the way in which internally-reported financial information is used to make decisions and allocate resources. For disclosure purposes, we aggregate these three operating segments into one reportable segment due to their similar operating and financial characteristics and how the business is managed.

Net property and equipment, classified by geography, follows:

in millions			January 31, 2021						February 2, 2020						February 3, 2019
Net property and equipment – in the U.S.			$	22,205					$	20,302					$	19,930
Net property and equipment – outside the U.S.			2,500						2,468						2,445
Net property and equipment			$	24,705					$	22,770					$	22,375

Table of Contents

No sales to an individual customer accounted for more than 10% of revenue during any of the last three fiscal years. Net sales, classified by geography, follow:

			Fiscal						Fiscal						Fiscal
in millions			2020						2019						2018
Net sales – in the U.S.			$	122,158					$	101,333					$	99,386
Net sales – outside the U.S.			9,952						8,892						8,817
Net sales			$	132,110					$	110,225					$	108,203

Net sales by products and services follow:

			Fiscal						Fiscal						Fiscal
in millions			2020						2019						2018
Net sales – products			$	127,671					$	105,194					$	102,933
Net sales – services			4,439						5,031						5,270
Net sales			$	132,110					$	110,225					$	108,203

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

Net sales by major product lines (and related services) follow:

			Fiscal						Fiscal						Fiscal
in millions			2020						2019						2018
Building Materials			$	46,536					$	39,338					$	39,883
Décor			43,409						37,390						36,273
Hardlines			42,165						33,497						32,047
Net sales			$	132,110					$	110,225					$	108,203

Table of Contents

Net sales by merchandising department (and related services) follow:

			Fiscal												Fiscal												Fiscal
			2020												2019												2018
dollars in millions			Net Sales						% of Net Sales						Net Sales						% of Net Sales						Net Sales						% of Net Sales
Appliances			$	11,860					9.0		%				$	9,852					8.9		%				$	9,027					8.3		%
Building Materials			8,682						6.6						7,712						7.0						7,770						7.2
Décor/Storage			4,872						3.7						3,758						3.4						3,583						3.3
Electrical/Lighting			11,173						8.5						9,844						8.9						9,941						9.2
Flooring			8,155						6.2						7,443						6.8						7,494						6.9
Hardware			7,656						5.8						6,381						5.8						6,203						5.7
Indoor Garden			14,296						10.8						10,989						10.0						10,450						9.7
Kitchen and Bath			8,465						6.4						7,717						7.0						7,728						7.1
Lumber			11,310						8.6						7,894						7.2						8,393						7.8
Millwork			6,460						4.9						5,757						5.2						5,757						5.3
Outdoor Garden			9,600						7.3						7,564						6.9						7,259						6.7
Paint			10,057						7.6						8,620						7.8						8,441						7.8
Plumbing			8,911						6.7						8,131						7.4						8,022						7.4
Tools			10,613						8.0						8,563						7.8						8,135						7.5
Total			$	132,110					100.0		%				$	110,225					100.0		%				$	108,203					100.0		%

—————

Note: Certain percentages may not sum to totals due to rounding.

**3.**PROPERTY AND LEASES

Net Property and Equipment

The components of net property and equipment follow:

in millions			January 31, 2021						February 2, 2020
Land			$	8,543					$	8,390
Buildings			18,838						18,432
Furniture, fixtures, and equipment			15,119						13,666
Leasehold improvements			1,925						1,789
Construction in progress			1,068						1,005
Finance leases			3,308						1,578
Property and equipment, at cost			48,801						44,860
Less accumulated depreciation and finance lease amortization			24,096						22,090
Net property and equipment			$	24,705					$	22,770

Table of Contents

Depreciation and finance lease amortization expense, including depreciation and finance lease amortization expense included in cost of sales, follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Depreciation and finance lease amortization expense			$	2,425					$	2,223					$	2,076

Leases

The consolidated balance sheet location of assets and liabilities related to operating and finance leases follow:

in millions			Consolidated Balance Sheet Caption			January 31, 2021						February 2, 2020
Assets:
Operating lease assets			Operating lease right-of-use assets			$	5,962					$	5,595
Finance lease assets (1)			Net property and equipment			2,493						934
Total lease assets						$	8,455					$	6,529
Liabilities:
Current:
Operating lease liabilities			Current operating lease liabilities			$	828					$	828
Finance lease liabilities			Current installments of long-term debt			66						84
Long-term:
Operating lease liabilities			Long-term operating lease liabilities			5,356						5,066
Finance lease liabilities			Long-term debt, excluding current installments			2,700						1,081
Total lease liabilities						$	8,950					$	7,059

—————

(1) Finance lease assets are recorded net of accumulated amortization of $815 million and $644 million as of January 31, 2021 and February 2, 2020, respectively.

The components of lease cost follow:

						Fiscal						Fiscal
in millions			Consolidated Statement of Earnings Caption**(1)**			2020						2019
Operating lease cost			Selling, general and administrative			$	782					$	827
Finance lease cost:
Amortization of leased assets			Depreciation and amortization			167						86
Interest on lease liabilities			Interest expense			112						92
Short-term lease cost			Selling, general and administrative			75						98
Variable lease cost			Selling, general and administrative			277						241
Sublease income			Selling, general and administrative			(13)						(14)
Net lease cost						$	1,400					$	1,330

—————

*(1)*Costs associated with our sourcing and distribution network and online fulfillment centers are recorded in cost of sales, with the exception of interest on finance lease liabilities.

Rent expense related to operating leases for fiscal 2018 totaled $1.1 billion.

Table of Contents

Weighted average remaining lease terms and discount rates follow:

			January 31, 2021						February 2, 2020
Weighted Average Remaining Lease Term (Years):
Operating leases			10						10
Finance leases			15						12
Weighted Average Discount Rate:
Operating leases			2.9		%				3.1		%
Finance leases			5.6		%				10.4		%

The approximate future minimum lease payments under operating and finance leases at January 31, 2021 follow:

in millions			Operating Leases						Finance Leases
Fiscal 2021			$	955					$	272
Fiscal 2022			960						285
Fiscal 2023			854						280
Fiscal 2024			738						273
Fiscal 2025			614						317
Thereafter			3,001						2,266
Total lease payments			7,122						3,693
Less: imputed interest			938						927
Present value of lease liabilities			$	6,184					$	2,766

—————

Note: We have excluded approximately $833 million of leases (undiscounted basis) that have not yet commenced. These leases will commence primarily between fiscal 2021 and 2023 with lease terms of up to 20 years.

Supplemental cash flow information related to leases follows:

			Fiscal						Fiscal
in millions			2020						2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – operating leases			$	1,022					$	1,003
Operating cash flows – finance leases			112						92
Financing cash flows – finance leases			122						70
Supplemental non-cash information:
Lease assets obtained in exchange for new operating lease liabilities			969						748
Lease assets obtained in exchange for new finance lease liabilities			1,730						186

**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 to further enhance our liquidity position in response to the pandemic. All of our short-term borrowings in fiscal 2020 and fiscal 2019 were under these commercial paper programs. In connection with these programs, we had back-up credit facilities with a consortium of banks for borrowings up to $6.5 billion, which consisted of (1) a five-year $2.0 billion credit facility scheduled to expire in December 2023, (2) a 364-day $1.0 billion credit facility scheduled to expire in December 2021, and (3) a 364-day $3.5 billion credit facility that we entered into in March 2020 that was scheduled to expire in March 2021. In December 2020, we completed the renewal of our 364-day $1.0 billion credit facility and extended our five-year $2.0 billion credit facility, which extended the maturities from December 2020 to December 2021 and from December 2022 to December 2023, respectively. On January 29, 2021, we terminated the 364-day $3.5 billion credit facility and at the same time reduced our commercial paper programs back to a maximum of $3.0 billion. At

Table of Contents

January 31, 2021, there were no outstanding borrowings under our commercial paper programs compared to $974 million outstanding at February 2, 2020.

Certain information on our commercial paper programs follow:

dollars in millions			January 31, 2021						February 2, 2020
Weighted average interest rate			—		%				1.56		%
Balance outstanding at fiscal year-end			$	—					$	974
Maximum amount outstanding at any month-end			$	11					$	2,097
Average daily short-term borrowings			$	11					$	624

Table of Contents

Long-Term Debt

Details of the components of our long-term debt follow:

															Carrying Amount
in millions			Interest Payable						Principal Amount						January 31, 2021						February 2, 2020
Floating rate senior notes due June 2020			Quarterly						$	—					$	—					$	500
1.80% Senior notes due June 2020			Semi-annually						—						—						750
3.95% Senior notes due September 2020			Semi-annually						—						—						506
4.40% Senior notes due April 2021			Semi-annually						—						—						999
2.00% Senior notes due April 2021			Semi-annually						1,350						1,350						1,348
Floating rate senior notes due March 2022			Quarterly						300						300						299
3.25% Senior notes due March 2022			Semi-annually						700						699						698
2.625% Senior notes due June 2022			Semi-annually						1,250						1,248						1,246
2.70% Senior notes due April 2023			Semi-annually						1,000						998						998
3.75% Senior notes due February 2024			Semi-annually						1,100						1,096						1,095
3.35% Senior notes due September 2025			Semi-annually						1,000						997						996
3.00% Senior notes due April 2026			Semi-annually						1,300						1,291						1,290
2.125% Senior notes due September 2026			Semi-annually						1,000						990						989
2.50% Senior notes due April 2027			Semi-annually						750						743						—
2.80% Senior notes due September 2027			Semi-annually						1,000						1,017						1,007
0.90% Senior notes due March 2028			Semi-annually						500						494						—
3.90% Senior notes due December 2028			Semi-annually						1,000						1,075						1,059
2.95% Senior notes due June 2029			Semi-annually						1,750						1,828						1,797
2.70% Senior notes due April 2030			Semi-annually						1,500						1,464						—
1.375% Senior notes due March 2031			Semi-annually						1,250						1,229						—
5.875% Senior notes due December 2036			Semi-annually						3,000						2,935						2,953
3.30% Senior notes due April 2040			Semi-annually						1,250						1,207						—
5.40% Senior notes due September 2040			Semi-annually						500						496						495
5.95% Senior notes due April 2041			Semi-annually						1,000						990						989
4.20% Senior notes due April 2043			Semi-annually						1,000						989						989
4.875% Senior notes due February 2044			Semi-annually						1,000						980						979
4.40% Senior notes due March 2045			Semi-annually						1,000						979						978
4.25% Senior notes due April 2046			Semi-annually						1,600						1,585						1,585
3.90% Senior notes due June 2047			Semi-annually						1,150						1,144						1,144
4.50% Senior notes due December 2048			Semi-annually						1,500						1,463						1,462
3.125% Senior notes due December 2049			Semi-annually						1,250						1,222						1,221
3.35% Senior notes due April 2050			Semi-annually						1,500						1,470						—
2.375% Senior notes due March 2051			Semi-annually						1,250						1,220						—
3.50% Senior notes due September 2056			Semi-annually						1,000						973						972
Total senior notes									$	34,750					34,472						29,344
Finance lease obligations; payable in varying installments through January 31, 2055															2,766						1,165
Total long-term debt															37,238						30,509
Less current installments of long-term debt															1,416						1,839
Long-term debt, excluding current installments															$	35,822					$	28,670

Table of Contents

January 2021 Issuance. In January 2021, we issued three tranches of senior notes.

• The first tranche consisted of $500 million of 0.90% senior notes due March 15, 2028 (the “2028 notes”) at a discount of $3 million. Interest on the 2028 notes is due semi-annually on March 15 and September 15 of each year, beginning September 15, 2021.

• The second tranche consisted of $1.25 billion of 1.375% senior notes due March 15, 2031 (the “2031 notes”) at a discount of $7 million. Interest on the 2031 notes is due semi-annually on March 15 and September 15 of each year, beginning September 15, 2021.

• The third tranche consisted of $1.25 billion of 2.375% senior notes due March 15, 2051 (the “2051 notes”) at a discount of $17 million (together with the 2028 notes and the 2031 notes, the “January 2021 issuance”). Interest on the 2051 notes is due semi-annually on March 15 and September 15 of each year, beginning September 15, 2021.

• Issuance costs for the January 2021 issuance totaled $21 million. The net proceeds of the January 2021 issuance were used to replace a portion of the cash on hand used to finance the acquisition of HD Supply. Remaining proceeds will be used for general corporate purposes.

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. All of our senior notes, other than our outstanding floating rate notes, may be redeemed by us at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. With respect to the 3.25% 2022 notes and the 5.875% 2036 notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed that would be due after the related redemption date. With respect to all other notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Par Call Date, as defined in the respective notes. Additionally, if a Change in Control Triggering Event occurs, as defined in the notes, holders of all notes have the right to require us to redeem those notes at 101% of the aggregate principal amount of the notes plus accrued interest up to the redemption date.

In addition to the repayments of the outstanding senior notes discussed above, in January 2021, we fully repaid our $1.0 billion 4.40% senior notes that had a maturity date of April 2021. In March 2021, we also fully repaid our $1.35 billion 2.00% senior notes that had a maturity date of April 2021. The early redemption of each of these notes occurred at or after their respective Par Call 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.

Table of Contents

Maturities of Long-Term Debt. Our long-term debt maturities, excluding finance leases, follow:

in millions			Principal
Fiscal 2021			$	1,350
Fiscal 2022			2,250
Fiscal 2023			1,000
Fiscal 2024			1,100
Fiscal 2025			1,000
Thereafter			28,050
Total			$	34,750

Derivative Instruments and Hedging Activities

We use derivative and nonderivative instruments as part of our normal business operations in the management of our exposure to fluctuations in foreign currency exchange rates and interest rates on certain debt. Our objective in managing these exposures is to decrease the volatility of cash flows affected by changes in the underlying rates and minimize the risk of changes in the fair value of our senior notes.

We had outstanding interest rate swap agreements with combined notional amounts of $4.4 billion at January 31, 2021 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. At January 31, 2021, the fair values of these agreements totaled $101 million, with $172 million recognized in other assets and $71 million recognized in other long-term liabilities on the consolidated balance sheet. At February 2, 2020, the fair values of these agreements totaled $120 million, all of which was recognized within other assets on the consolidated balance sheet. The changes in the fair values of these agreements offset the changes in the fair value of the hedged long-term debt.

We also settled forward-starting interest rate swap agreements in prior years, which were used to hedge the variability in future interest payments attributable to changing interest rates on forecasted debt issuances. Unamortized losses on these forward-starting swaps, which were designated as cash flow hedges, are being amortized to interest expense over the life of the respective notes. Losses recognized on these swaps within interest expense were immaterial in fiscal 2020, fiscal 2019 and fiscal 2018.

During fiscal 2019, we also settled our outstanding cross currency swap agreements accounted for as cash flow hedges, which hedged foreign currency fluctuations on certain intercompany debt, resulting in a gain of $118 million.

At January 31, 2021 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. At January 31, 2021 and February 2, 2020, the notional amounts and the fair values of these contracts were not material.

We had outstanding foreign currency forward contracts accounted for as net investment hedges, with a combined notional amount of $141 million at January 31, 2021 and $1.2 billion at February 2, 2020. These agreements hedge against foreign currency exposure on our net investment in certain subsidiaries. At January 31, 2021 and February 2, 2020, the fair values of these contracts were not material.

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 January 31, 2021 and February 2, 2020, the notional value of our nonderivative hedges and related foreign currency translation adjustments recorded in accumulated other comprehensive income (loss) were immaterial.

We expect an immaterial amount recorded in accumulated other comprehensive income (loss) as of January 31, 2021 to be reclassified into earnings within the next 12 months.

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. As of January 31, 2021, the cash collateral received by the Company related to derivative instruments under our collateral security arrangements was $103 million, which was recorded in other accrued expenses in the consolidated balance sheet. We did not receive any

Table of Contents

cash collateral as of February 2, 2020 or have material cash collateral posted with counterparties as of January 31, 2021 or February 2, 2020.

**5.**INCOME TAXES

Provision for Income Taxes

Our earnings before the provision for income taxes follow:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
United States			$	16,013					$	13,770					$	13,456
Foreign			965						945						1,100
Total			$	16,978					$	14,715					$	14,556

Our provision for income taxes follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Current:
Federal			$	3,462					$	2,370					$	2,495
State			928						572						544
Foreign			329						340						372
Total current			4,719						3,282						3,411
Deferred:
Federal			(404)						259						67
State			(209)						(72)						1
Foreign			6						4						(44)
Total deferred			(607)						191						24
Provision for income taxes			$	4,112					$	3,473					$	3,435

Our combined federal, state, and foreign effective tax rates follow:

			Fiscal						Fiscal						Fiscal
			2020						2019						2018
Combined federal, state, and foreign effective tax rates			24.2		%				23.6		%				23.6		%

The reconciliation of our provision for income taxes at the federal statutory rate of 21% to the actual tax expense follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Income taxes at federal statutory rate			$	3,565					$	3,090					$	3,057
State income taxes, net of federal income tax benefit			568						395						443
Tax on mandatory deemed repatriation			—						—						(62)
Other, net			(21)						(12)						(3)
Total			$	4,112					$	3,473					$	3,435

Table of Contents

Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities follow:

in millions			January 31, 2021						February 2, 2020
Assets:
Deferred compensation			$	472					$	169
Accrued self-insurance liabilities			291						285
State income taxes			117						100
Merchandise inventories			41						—
Non-deductible reserves			199						156
Net operating losses			144						70
Lease liabilities			1,605						1,536
Other			155						135
Total deferred tax assets			3,024						2,451
Valuation allowance			(8)						—
Total deferred tax assets, net of valuation allowance			3,016						2,451
Liabilities:
Merchandise inventories			—						(26)
Property and equipment			(1,061)						(1,107)
Goodwill and other intangibles			(1,030)						(195)
Lease right-of-use assets			(1,555)						(1,458)
Tax on unremitted earnings			(119)						(100)
Other			(77)						(132)
Total deferred tax liabilities			(3,842)						(3,018)
Net deferred tax liabilities			$	(826)					$	(567)

Our noncurrent deferred tax assets and noncurrent deferred tax liabilities, netted by tax jurisdiction, follow:

in millions			January 31, 2021						February 2, 2020
Other assets			$	305					$	139
Deferred income taxes			(1,131)						(706)
Net deferred tax liabilities			$	(826)					$	(567)

As of January 31, 2021, we recorded deferred tax assets of $144 million for net operating losses, primarily related to state jurisdictions. These losses expire at various dates beginning in 2022. We have concluded that it is more likely than not that tax benefits related to substantially all net operating losses will be realized based upon the expectation that we will generate the necessary taxable income in future periods.

Reinvestment of Unremitted Earnings

Substantially all of our current year foreign cash flows in excess of working capital and cash needed for strategic investments are not intended to be indefinitely reinvested offshore. Therefore, the tax effects of repatriation (including applicable state and local taxes and foreign withholding taxes) of such cash flows have been provided for in the accompanying consolidated statements of earnings. We have the intent and ability to reinvest substantially all of the approximately $3 billion of non-cash unremitted earnings of our non-U.S. subsidiaries indefinitely. Accordingly, no provision for state and local taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying consolidated statements of earnings. It is impracticable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings due to the complexities associated with the hypothetical calculation.

Table of Contents

Tax Return Examination Status

Our income tax returns are routinely examined by U.S. federal, state and local, and foreign tax authorities. With few exceptions, as of January 31, 2021, the Company is no longer subject to U.S. federal examinations by tax authorities for years before fiscal 2010. Our U.S. federal tax returns for fiscal years 2010 through 2018 are currently under examination by the IRS. With respect to the fiscal years 2010 to 2014, the IRS has issued a proposed adjustment relating to transfer pricing between our entities in the U.S. and China. We are defending our position using all available remedies including bi-lateral relief from double taxation. There are also ongoing U.S. state and local audits and other foreign audits covering fiscal years 2008 through 2019. We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations, or cash flows.

Over the next twelve months, it is reasonably possible that the resolution of federal and state tax examinations, as well as the expiration of statutes of limitations, could reduce our unrecognized tax benefits by an immaterial amount. We do not anticipate the resolution of these matters will result in a material change to our consolidated financial condition or results of operations.

Unrecognized Tax Benefits

Reconciliations of the beginning and ending amount of our gross unrecognized tax benefits follow:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Unrecognized tax benefits balance at beginning of fiscal year			$	473					$	494					$	637
Additions based on tax positions related to the current year			75						96						91
Additions for tax positions of prior years			72						82						100
Reductions for tax positions of prior years			(53)						(147)						(245)
Reductions due to settlements			(22)						(13)						(66)
Reductions due to lapse of statute of limitations			(5)						(39)						(23)
Unrecognized tax benefits balance at end of fiscal year			$	540					$	473					$	494

Unrecognized tax benefits that if recognized would affect our annual effective income tax rate on net earnings were $458 million, $407 million, and $398 million at January 31, 2021, February 2, 2020, and February 3, 2019, respectively.

Interest and Penalties

Net adjustments to accruals for interest and penalties associated with uncertain tax positions were immaterial in fiscal 2020, fiscal 2019 and fiscal 2018.

Our total accrued interest and penalties follow:

in millions			January 31, 2021						February 2, 2020
Total accrued interest and penalties			$	97					$	87

Table of Contents

**6.**STOCKHOLDERS’ EQUITY

Stock Rollforward

A reconciliation of the number of shares of our common stock follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Common stock:
Balance at beginning of year			1,786						1,782						1,780
Shares issued under employee stock plans			3						4						2
Balance at end of year			1,789						1,786						1,782
Treasury stock:
Balance at beginning of year			(709)						(677)						(622)
Repurchases of common stock			(3)						(32)						(55)
Balance at end of year			(712)						(709)						(677)
Shares outstanding at end of year			1,077						1,077						1,105

Annual per share cash dividends follow:

			Fiscal						Fiscal						Fiscal
2020						2019						2018
Cash dividends per share			$	6.00					$	5.44					$	4.12

Accelerated Share Repurchase Agreements

We enter into ASR agreements from time to time with third-party financial institutions to repurchase shares of our common stock. Under an ASR agreement, we pay a specified amount to the financial institution and receive an initial delivery of shares. This initial delivery of shares represents the minimum number of shares that we may receive under the agreement. Upon settlement of the ASR agreement, the financial institution delivers additional shares, with the final number of shares delivered determined with reference to the volume weighted average price per share of our common stock over the term of the agreement, less a negotiated discount. The transactions are accounted for as equity transactions and are included in treasury stock when the shares are received, at which time there is an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share.

The terms of each ASR agreement entered into during the last three fiscal years, structured as outlined above, follow (in millions):

Agreement Date						Settlement Date						Agreement Amount						Initial Shares Delivered						Additional Shares Delivered						Total Shares Delivered
Q1 2018						Q2 2018						750						3.4						0.8						4.2
Q2 2018						Q3 2018						1,600						7.1						1.0						8.1
Q3 2019						Q4 2019						820						3.2						0.4						3.6

**7.**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.

Table of Contents

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 January 31, 2021 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			$	—					$	172					$	—					$	—					$	133					$	—
Derivative agreements – liabilities			—						(71)						—						—						—						—
Total			$	—					$	101					$	—					$	—					$	133					$	—

The fair values of our derivative instruments are determined using an income approach and Level 2 inputs, which include the respective interest rate and foreign currency forward curves and discount rates.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The carrying amounts of cash and cash equivalents, receivables, short-term debt, and accounts payable approximate fair value due to the short-term maturities of these financial instruments.

Long-lived assets, goodwill, and other intangible assets are subject to nonrecurring fair value measurement for the measurement of impairment. We did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis as of January 31, 2021 or February 2, 2020.

The aggregate fair values and carrying values of our senior notes follow:

			January 31, 2021												February 2, 2020
in millions			Fair Value (Level 1)						Carrying Value						Fair Value (Level 1)						Carrying Value
Senior notes			$	41,289					$	34,472					$	34,102					$	29,344

**8.**STOCK-BASED COMPENSATION

Omnibus Stock Incentive Plans

The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan (the “2005 Plan”) and The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan (the “1997 Plan” and collectively with the 2005 Plan, the “Plans”) provide that incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred shares, and other stock-based awards may be issued to certain of our associates and non-employee directors. Under the 2005 Plan, the maximum number of shares of our common stock authorized for issuance is 255 million shares, with any award other than a stock option or stock appreciation right reducing the number of shares available for issuance by 2.11 shares. At January 31, 2021, there were approximately 120 million shares available for future grants under the 2005 Plan. No additional equity awards could be issued from the 1997 Plan after the adoption of the 2005 Plan on May 26, 2005.

Stock Options. Under the terms of the Plans, incentive stock options and nonqualified stock options must have an exercise price at or above the fair market value of our stock on the date of the grant. Typically, nonqualified stock options vest at the rate of 25% per year commencing on the first or second anniversary date of the grant and expire on the tenth anniversary date of the grant. Additionally, a majority of our stock options may become non-forfeitable upon the associate reaching age 60, provided the associate has had five years of continuous service. No incentive stock options have been issued under the 2005 Plan.

We estimate the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model. Our determination of fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model is affected by our stock price as well as assumptions regarding a number of variables.

Table of Contents

The per share weighted average fair value of stock options granted and the assumptions used in determining fair value at the date of grant using the Black-Scholes option-pricing model follow:

			Fiscal						Fiscal						Fiscal
			2020						2019						2018
Per share weighted average fair value			$	36.77					$	27.33					$	32.28
Risk-free interest rate			0.6		%				2.2		%				2.7		%
Assumed volatility			29.9		%				19.8		%				21.3		%
Assumed dividend yield			3.1		%				2.9		%				2.3		%
Assumed lives of options			6 years						5 years						5 years

The total intrinsic value of stock options exercised follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Total intrinsic value of stock options exercised			$	217					$	241					$	138

A summary of stock option activity by number of shares and weighted average exercise price during fiscal 2020 follows:

shares in thousands			Number of Shares						Weighted Average Exercise Price
Outstanding at beginning of year			5,212						$	111.54
Granted			422						193.84
Exercised			(1,258)						75.83
Forfeited			(26)						169.40
Outstanding at end of year			4,350						129.50

Shares of common stock issued from stock option exercises are made available from authorized and unissued common stock or treasury stock.

Details regarding outstanding and exercisable stock options at January 31, 2021 follow:

shares in thousands, dollars in millions, except for per share amounts			Number of Shares						Intrinsic Value						Weighted Average Remaining Life						Weighted Average Exercise Price
Outstanding			4,350						$	615					5 years						$	129.50
Exercisable			2,677						454						4 years						101.08

Restricted Stock and Performance Share Awards. Restrictions on the restricted stock issued under the Plans generally lapse according to one of the following schedules:

• the restrictions on the restricted stock lapse over various periods up to five years; or

• the restrictions on 25% of the restricted stock lapse upon the third and sixth anniversaries of the date of issuance with the remaining 50% of the restricted stock lapsing upon the associate’s attainment of age 62.

At the grant date of the award, recipients of restricted stock are granted voting rights and generally receive dividends on unvested shares, paid in the form of cash on each dividend payment date. Additionally, the majority of our restricted stock awards may become non-forfeitable upon the associate’s attainment of age 60, provided the associate has had five years of continuous service.

We have also granted performance share awards under the Plans. These awards provide for the issuance of shares of our common stock at the end of the three-year performance cycle based upon our performance against target average ROIC and operating profit over that performance cycle. Additionally, the awards become non-forfeitable upon the associate’s attainment of age 60, provided the associate has had five years of continuous service and minimum performance targets are achieved. Recipients of performance share awards have no voting rights until the shares are issued following completion of the performance period. Dividend equivalents accrue on the performance shares (as reinvested shares) and are paid upon the payout of the award based upon the actual number of shares earned.

The fair value of the restricted stock and performance shares is based on the closing stock price on the date of grant and is expensed over the period during which the restrictions lapse.

Table of Contents

Restricted Stock Units and Deferred Shares. Each restricted stock unit entitles the associate to one share of common stock to be received upon vesting up to five years after the grant date. Additionally, the majority of these awards may become non-forfeitable upon the associate reaching age 60, provided the associate has had five years of continuous service. Recipients of restricted stock units have no voting rights until the vesting of the award. Recipients receive dividend equivalents that accrue on unvested units and are paid out in the form of additional shares of stock on the vesting date. The fair value of the restricted stock units is based on the closing stock price on the date of grant and is expensed over the period during which the units vest.

We grant awards of deferred shares to non-employee directors under the Plans. Each deferred share entitles the non-employee director to one share of common stock to be received following termination of Board service. Recipients of deferred shares have no voting rights and receive dividend equivalents that accrue and are paid out in the form of additional shares of stock upon payout of the underlying shares following termination of service. The fair value of the deferred shares is based on the closing stock price on the date of grant and is expensed immediately upon grant.

Deferred shares granted to non-employee directors follow:

			Fiscal						Fiscal						Fiscal
2020						2019						2018
Deferred shares granted to non-employee directors			18,000						22,000						26,000

Stock-Based Compensation Activity. A summary of restricted stock, performance shares, and restricted stock unit activity during fiscal 2020 follows:

shares in thousands			Number of Shares						Weighted Average Grant Date Fair Value
Nonvested at beginning of year			3,975						$	170.58
Granted			1,803						181.75
Vested			(1,506)						155.14
Forfeited			(174)						177.71
Nonvested at end of year			4,098						180.87

Stock-based compensation expense, net of estimated forfeitures and related income tax benefit follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Pre-tax stock-based compensation expense			$	310					$	251					$	282
Income tax benefit			(58)						(49)						(49)
After-tax stock-based compensation expense			$	252					$	202					$	233

At January 31, 2021, there was $427 million of unamortized stock-based compensation expense, which is expected to be recognized over a weighted average period of two years.

The total fair value of restricted stock, performance shares, and restricted stock units that vested during the fiscal year follow:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Total fair value vested			$	271					$	303					$	367

Employee Stock Purchase Plans

We maintain two ESPPs (a U.S. and a non-U.S. plan). The plan for U.S. associates is a tax-qualified plan under Section 423 of the Internal Revenue Code. The non-U.S. plan is not a Section 423 plan. At January 31, 2021, there were 17 million shares available under the U.S. plan and 19 million shares available under the non-U.S. plan. The purchase price of shares under the ESPPs is equal to 85% of the stock’s fair market value on the last day of the purchase period, which is a six-month period ending on December 31 and June 30 of each year. During fiscal 2020, there were 1 million shares purchased under the ESPPs at an average price of $219.49. Under the outstanding ESPPs at January 31, 2021, associates have contributed $21 million to purchase shares at 85% of the stock’s fair market value on the last day of the current purchase period, June 30, 2021.

Table of Contents

**9.**EMPLOYEE BENEFIT PLANS

We maintain active defined contribution retirement plans for our associates (the “Benefit Plans”). All associates satisfying certain service requirements are eligible to participate in the Benefit Plans. We make cash contributions each payroll period up to specified percentages of associates’ contributions as approved by our Board of Directors.

We also maintain the Restoration Plan to provide certain associates deferred compensation that they would have received under the Benefit Plans as a matching contribution if not for the maximum compensation limits under the Internal Revenue Code. We fund the Restoration Plan through contributions made to a grantor trust, which are then used to purchase shares of our common stock in the open market.

Our contributions to the Benefit Plans and the Restoration Plan follow:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Contributions to the Benefit Plans and the Restoration Plan			$	267					$	213					$	211

At January 31, 2021, the Benefit Plans and the Restoration Plan held a total of 5.8 million shares of our common stock in trust for plan participants.

**10.**WEIGHTED AVERAGE COMMON SHARES

The reconciliation of our basic to diluted weighted average common shares follows:

in millions			Fiscal						Fiscal						Fiscal
2020						2019						2018
Basic weighted average common shares			1,074						1,093						1,137
Effect of potentially dilutive securities			4						4						6
Diluted weighted average common shares			1,078						1,097						1,143

Anti-dilutive securities excluded from diluted weighted average common shares			—						—						—

**11.**COMMITMENTS AND CONTINGENCIES

At January 31, 2021, we had outstanding letters of credit totaling $510 million, primarily related to certain business transactions, including insurance programs, trade contracts, and construction contracts.

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.

12. HD SUPPLY ACQUISITION

On November 16, 2020, we announced that we entered into a definitive agreement to acquire HD Supply, a leading national distributor of MRO products in the multifamily and hospitality end markets. We believe the acquisition of HD Supply will help position the Company to accelerate sales growth by better serving both existing and new MRO customers. Under the terms of the merger agreement, a subsidiary of Home Depot made a cash tender offer to purchase all outstanding shares of HD Supply common stock for $56 per share. All of the conditions of the offer were satisfied, and the acquisition was completed on December 24, 2020. The acquisition was funded through cash on hand, a portion of which was replaced with the proceeds from our January 2021 debt issuance.

The acquisition was accounted for in accordance with Topic 805 "Business Combinations" and, accordingly, HD Supply’s results of operations have been consolidated in the Company’s financial statements since December 24, 2020, the date of acquisition. We recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of December 24, 2020. Acquisition-related costs were expensed as incurred and totaled $110 million, including the $56 million charge related to the settlement of share-based awards noted below.

Table of Contents

The following table summarizes total purchase consideration:

in millions
Total cash consideration for outstanding shares			$	8,637
Value of share-based awards attributed to services already rendered (1)			55
Total purchase consideration			$	8,692

—————

(1) In connection with the completion of the acquisition, all HD Supply share-based awards were cash settled for an aggregate value of $111 million. As the settlement of the awards was at the discretion of the Company, the portion of the fair value of the awards attributed to services previously provided of $55 million was included as part of purchase consideration, with the remaining $56 million recognized as post-combination expense within SG&A in our consolidated statement of earnings for fiscal 2020.

The following table summarizes the estimated preliminary fair values of the assets acquired and liabilities assumed at the date of the acquisition and is subject to final fair value determination:

in millions			Fair Value
Cash			$	912
Other current assets			879
Goodwill			4,870
Other assets (1)			3,943
Total assets acquired			$	10,604
Current liabilities			$	801
Long-term liabilities (2)			1,111
Total liabilities assumed			$	1,912

—————

(1) Includes identifiable intangible assets of $3.3 billion.

(2) Includes deferred tax liabilities of $836 million primarily resulting from the difference in book and tax basis related to identifiable intangible assets.

Identifiable intangible assets were recognized at their estimated acquisition date fair values. The preliminary fair value of identifiable intangible assets was determined by using certain estimates and assumptions that are not observable in the market. The preliminary fair values were determined using an income based approach, which included significant assumptions such as the amount and timing of projected cash flows, growth rates, customer attrition rates, discount rates, and the assessment of the asset’s life cycle. The preliminary estimated fair value and estimated remaining useful lives of identifiable intangible assets follows:

in millions			Useful Life (Years)						Preliminary Fair Value
Customer relationships			19						$	2,630
Trade name – indefinite lived			Indefinite						520
Trade names – definite lived			20						150
Identifiable intangible assets									$	3,300

The goodwill arising from the acquisition is primarily attributable to operational synergies and acceleration of growth strategy, as well as the assembled workforce. The goodwill generated in the acquisition is not expected to be deductible for U.S. federal and state tax purposes.

We have completed preliminary valuation analyses necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed and the amount of goodwill to be recognized as of the acquisition date. These fair values were based on management’s estimates and assumptions; however, the amounts shown above are preliminary in nature and are subject to adjustment, including income tax related amounts, as additional information is obtained about the facts and circumstances that existed as of the acquisition date. Accordingly, there may be adjustments to the assigned values of acquired assets and liabilities, including, but not limited to, intangible assets and property and equipment and their respective estimated useful lives, that may also give rise to increases or decreases in the amounts of depreciation and amortization expense. The final determination of the fair values and related income tax impacts will be completed as soon as practicable, and within the measurement period of up

Table of Contents

to one year from the acquisition date as permitted under GAAP. Any adjustments to provisional amounts that are identified during the measurement period will be recorded in the reporting period in which the adjustment is determined.

Net sales and net earnings for fiscal 2020 attributable to HD Supply since the completion of the acquisition were immaterial. Pro forma results of operations would not be materially different as a result of the acquisition and therefore are not presented.