Dr. Keven Yost
BUSI 7110
Financial Analysis
Course Packet
Fall 2023
Module 00: Financial Statements and Financial Statement Analysis
Module 00:
Financial Statements
Overview
Financial Statements
•The Annual Report and Form
10‐K
• Balance Sheet
• Income Statement
• Statement of Cash Flows
•EDGAR
• www.sec.gov
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Module 00: Financial Statements and Financial Statement Analysis
Things to Keep in Mind
• Backward Looking vs. Forward Looking
• Book Values vs. Market Values
• Accounting Numbers vs. Cash Flows
• Tax Deductible vs. Taxable
• Notes to Financial Statements
4
Financial Statements
The Balance Sheet
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Module 00: Financial Statements and Financial Statement Analysis
The Balance Sheet
•The Balance Sheet Identity:
Assets = Liabilities + Stockholder’s Equity
•Liquidity
6
The Balance Sheet
•Assets
• Current Assets:
• Cash and Equivalents
• Accounts Receivables
• Inventories
• Other
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Module 00: Financial Statements and Financial Statement Analysis
The Balance Sheet
•Assets
• Fixed Assets:
• Property, Plant, Equipment
• Less Accumulated Depreciation
• Net Property, Plant, Equipment
• Intangible Assets and Other
8
Yost Rocks, Inc.
Balance Sheet
December 31, 20XX and 20YY
(In $millions)
Assets
Current Assets:
Cash and Equivalents
Accounts Receivable
Inventories
Other
Total Current Assets
20XX
20YY
$140
294
269
58
$761
$107
270
280
50
$707
Fixed assets:
Property, Plant, Equipment
$1,423 $1,274
Less Accumulated Depreciation
(550) (460)
Net Property, Plant, Equipment
873
814
Intangible assets and other
245
221
Total Fixed Assets
$1,118 $1,035
Total Assets
$1,879 $1,742
Liabilities (Debt) and Stockholder's Equity
Current Liabilities:
Accounts Payable
Notes Payable
Accrued Expenses
Total Current Liabilities
Long‐Term Liabilities:
Deferred Taxes
Long‐Term Debt
Long‐Term Liabilities
Stockholder's Equity:
Preferred Stock
Common stock ($1 per value)
Capital surplus
Accumulated Retained Earnings
Less Treasury Stock
Total Equity
Total Liabilities and Stockholder's Equity
20XX
20YY
$213
50
223
$486
$197
53
205
$455
$117
471
$588
$104
458
$562
$39
$39
55
32
347
327
390
347
(26)
(20)
$805
$725
$1,879 $1,742
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Module 00: Financial Statements and Financial Statement Analysis
The Balance Sheet
•Liabilities & Stockholder's Equity
• Current Liabilities:
• Accounts Payable
• Notes Payable
• Accrued Expenses
10
The Balance Sheet
•Liabilities & Stockholder's Equity
• Long‐Term Liabilities:
• Deferred Taxes
• Long‐Term Debt
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Module 00: Financial Statements and Financial Statement Analysis
The Balance Sheet
•Liabilities & Stockholder's Equity
• Stockholder's Equity:
• Preferred Stock
• Common Stock
• Capital Surplus
• Accumulated Retained Earnings
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The Balance Sheet
• Market Value vs. Book Value
• What is market value?
• What is book value?
• Where can we find the market value of
the firm’s assets?
• Where can we find the market value of
the firm’s equity?
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Module 00: Financial Statements and Financial Statement Analysis
Financial Statements
The Income Statement
14
The Income Statement
• Revenues – Expenses = Income
• The Bottom Line:
_________________________
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Module 00: Financial Statements and Financial Statement Analysis
Yost Rocks, Inc.
Income Statement
For Year Ended December 31, 20XX
(In $ millions)
Total Operating Revenues
Cost of Goods Sold
Selling, General, and Administrative Expenses
Depreciation
Operating Income
Other Income
Earnings Before Interest and Taxes
Interest Expense
Pretax Income
Taxes
Current: $71
Deferred: 13
Net Income
Retained Earnings:
Dividends:
$2,262
(1,655)
(327)
(90)
$190
29
$219
(49)
$170
(84)
$86
$43
$43
16
The Income Statement
• Revenues – Expenses = Income
• The Bottom Line: Net Income or EPS
• GAAP
• The Timing of Cash Flows
• The Matching Principle
• Non‐Cash Items (e.g., depreciation)
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Module 00: Financial Statements and Financial Statement Analysis
Financial Statements
The Statement of Cash Flows
18
The Statement of Cash Flows
•Cash Flow From Operating Activities
•Cash Flow From Investing Activities
•Cash Flow From Financing Activities
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Module 00: Financial Statements and Financial Statement Analysis
The Statement of Cash Flows
• Sources and Uses of Funds
• Changes in Assets
• Changes in Liabilities & Equity
• Examples:
•
•
•
•
 Accounts Payable
 Inventory
 Accounts Receivable
 Accrued Expenses
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Yost Rocks, Inc.
Statement of Cash Flows
For Year Ended December 31, 20XX
(In $ Millions )
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Cash Flow from Operating Activities
Net Income
Depreciation
Deferred Taxes
Change in Assets and Liabilities
Accounts Receivable
Inventories
Accounts Payable
Accrued Expense
Other
Cash Flow from Operating Activities
(24)
11
16
18
(8)
$202
Cash Flow from Investing Activities
Acquisition of Fixed Assets
Sale of Fixed Assets
Cash Flow from Investing Activities
($198)
25
($173)
Cash Flow from Financing Activities
Change in Notes Payable
Net Change in Long‐Term Debt
Dividends
Repurchase of Stock
Proceeds from New Stock Issues
Cash Flow from Financing Activities
($3)
13
(43)
(6)
43
$4
Total Change in Cash
$33
$86
90
13
21
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Module 00: Financial Statements and Financial Statement Analysis
Financial Statements
Taxes
22
Corporate Taxes
• Capital Gains
• Taxed as ordinary income
• Dividends Received
• If own < 20%, can exclude 50%
• If own > 20% but < 80%, can exclude 65%
• If own > 80%, can exclude 100%
• Interest
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Module 00: Financial Statements and Financial Statement Analysis
Sample Corporate Tax Rates
Taxable Income
$0 ‐ $50,000
$50,001 ‐ $75,000
$75,001 ‐ $100,000
$100,001 – $335,000
$335,001 ‐ $10,000,000
$10,000,001 ‐ $15,000,000
$15,000,001 ‐ $18,333,333
$18,333,334 +
Tax Rate
15%
25%
34%
39%
34%
35%
38%
35%
24
Taxes
• Average Tax Rate
• Marginal Tax Rate
• Assume a corporation has $100,000 of taxable income from
operations, $5,000 of interest income, and $10,000 of
dividend income. What is its tax liability?
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Module 00: Financial Statements and Financial Statement Analysis
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Module 00: Financial Statements and Financial Statement Analysis
Financial Statements
Taxes – An Update
28
Corporate Taxes: 2018 and Beyond
• Tax Cuts and Jobs Act of 2017
• Flat corporate tax rate = ________
• Dividend Exclusion
%
• If own < 20%, can exclude 50% (was 70%)
• If own > 20% but < 80%, can exclude 65% (was 80%)
• If own > 80%, can exclude 100%
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Module 00: Financial Statements and Financial Statement Analysis
Chapter 2
Suggested Problems
Concept Questions
◦2, 3, and 5
Questions and Problems
◦3, 4, 7, and 13 (part a only)
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Module 00: Financial Statements and Financial Statement Analysis
Module 00:
Financial Statement Analysis
Common‐size Statements
Common‐Size
Financial Statements
• Balance sheet items as a percentage of ___________________.
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Module 00: Financial Statements and Financial Statement Analysis
Suzie Q Corporation
Balance Sheet
December 31, 20XX
Assets:
Current Assets:
Cash
Accounts Rec.
Inventory
Total CA
Fixed Assets:
Net Fixed Assets
Total Assets
$ 80
140
155
$375
12.5%
21.9%
24.2%
58.6%
265
$640
41.4%
100.0%
Liabilities & Equity:
Current Liabilities:
Accts. Payable
Notes Payable
Total CL
Long‐term Debt:
Common Stock
Retained Earnings
Total Liab. & S.E.
$ 95
110
$205
120
40
275
$640
14.8%
17.2%
32.0%
18.8%
6.2%
43.0%
100.0%
Common‐Size
Financial Statements
• Balance sheet items as a percentage of total assets.
• Income statement items as a percentage of ___________________.
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Module 00: Financial Statements and Financial Statement Analysis
Suzie Q Corporation
Income Statement
For Year Ended December 31, 20XX
Sales
Cost of Goods Sold
SG&A Expenses
Depreciation
EBIT
Interest Expense
EBT
Taxes
Net Income
$910
470
210
60
$170
40
$130
52
$78
100.0%
51.6%
23.1%
6.6%
18.7%
4.4%
14.3%
5.7%
8.6%
Financial Analysis:
Financial Statement Analysis
Ratio Analysis
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Module 00: Financial Statements and Financial Statement Analysis
Ratio Analysis
• Liquidity Ratios
• Leverage Ratios
• Asset Management Ratios
• Profitability Ratios
• Market Value Ratios
Liquidity Ratios
• Current Ratio
= Current Assets / Current Liabilities
• Quick Ratio
= (Current Assets – Inventory) / Current Liabilities
• Cash Ratio
= Cash / Current Liabilities
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Module 00: Financial Statements and Financial Statement Analysis
Leverage Ratios
• Debt Ratio
= Total Liabilities / Total Assets
• Debt‐Equity Ratio
= Total Liabilities / Total Equity
• Equity Multiplier
= Total Assets / Total Equity
Leverage Ratios
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Module 00: Financial Statements and Financial Statement Analysis
More Leverage Ratios
• Times Interest Earned (TIE) Ratio
= EBIT / Interest
• Cash Coverage
= [EBIT + (Depreciation & Amort.)] / Interest
Asset Management Ratios
• Inventory Turnover
= COGS / Inventory
• Days’ Sales in Inventory
= 365 Days / Inventory Turnover
• Receivables Turnover
= Sales / Accounts Receivable
• Days’ Sales in Receivables
= 365 Days / Receivables Turnover
• Total Asset Turnover
= Sales / Total Assets
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Module 00: Financial Statements and Financial Statement Analysis
Profitability Ratios
• Net Profit Margin
= Net Income / Sales
• EBITDA Margin
= EBITDA / Sales
• Return on Assets (ROA)
= Net Income / Total Assets
• Return on Equity (ROE)
= Net Income / Total Equity
Market Value Ratios
•Earnings per Share (EPS)
= Net Income/ Shares Outstanding
•Price/Earnings (PE) Ratio
= Price per Share / Earnings per Share
•Market‐to‐Book (M/B) Ratio
= Market Value per Share / Book Value per Share
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Module 00: Financial Statements and Financial Statement Analysis
More Market Value Ratios
•Market Capitalization
= Price per Share X Shares Outstanding
•Enterprise Value
= Market Cap. + Market Value of Interest‐bearing Debt ‐
Cash
•Enterprise Value Multiple
= EV / EBITDA
Financial Analysis:
Financial Statement Analysis
The DuPont Identity
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Module 00: Financial Statements and Financial Statement Analysis
DuPont Identity
DuPont Identity
•ROE =
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Profit Margin
x Total Asset Turnover
x Equity Multiplier
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Module 00: Financial Statements and Financial Statement Analysis
Financial Analysis:
Financial Statement Analysis
Uses and Limitations
Limitations to Ratio Analysis
•Benchmarking/conglomerates
•Industry median
•Inflation
•Seasonal factors
•Window dressing
•Different operating and accounting
practices
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Module 00: Financial Statements and Financial Statement Analysis

Concept Questions


1, 8, and 9 (which should say EBITDA/Assets)
Questions and Problems
1, 2, 11, 14, and 16
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Module 00: Financial Statement Analysis
Comparables
(Median)
The Home
Depot, Inc.
Rank of
Home Depot
Current Ratio
Quick Ratio
Cash Ratio
1.33
0.21
0.07
1.41
0.33
0.12
4
3
3
Debt Ratio
Debt‐Equity Ratio
Equity Multiplier
Times Interest Earned (TIE)
Ratio*
Cash Coverage Ratio*
0.76
1.40
2.40
0.98
47.94
48.94
4
1
1
10.88
14.87
3
15.38
16.57
3
Inventory Turnover
Days' Sales in Inventory
Receivables Turnover*
Days' Sales in Recievables*
Total Asset Turnover
3.41
107.12
38.81
9.46
1.81
4.19
87.07
47.45
7.69
2.06
3
6
2
4
4
Net Profit Margin
EBITDA Margin
Return on Assets (ROA)
Return on Equity (ROE)
6.63%
12.59%
6.85%
15.23%
10.87%
17.02%
22.38%
1095.07%
1
2
1
1
2.81
22.78
4.76
17.63
16.84
19.25
210.86
13.04
1
5
1
6
Liquidity Ratios
Leverage Ratios
Asset Management Ratios
Profitability Ratios
Market Value Ratios
Earnings per Share (EPS)
Price/Earnings (PE) Ratio*
Market‐to‐Book (M/B) Ratio*
Enterprise Value Multiple**
The comparables are: Tractor Supply (TSCO), LL Flooring Holdings (LL), Floor & Décor Holdings
(FND), Lowe's Companies Inc. (LOW), Leslie's (LESL), Wayfair A (W), and Walmart (WMT).
Rank is of values in descending order.
*Negative or undefined values ignored.
**Values from FactSet.
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Module 01: Overview of Financial Management
Module 01: Overview of
Financial Management
Chapter 1
At the end of this module, you will be able to:
1. Describe what is finance.
2. Contrast types of business organization.
3. Explain agency conflicts and how to mitigate them.
The Main Point
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Module 01: Overview of Financial Management
What is Corporate Finance?
Corporate finance focuses on 3 questions:
1. What should we invest in?
2. How do we finance those investments?
3. How do we manage the day‐to‐day operations
of the firm?
The Balance Sheet Model of the Firm
• Balance Sheet Identity:
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Module 01: Overview of Financial Management
Capital Budgeting
• What is capital budgeting?
• The process of _________________________the firm’s
___________________________.
• How do we do it?
1. Estimate cash flows.
2. Estimate the cost of those cash flows.
3. Discount the cash flows.
Capital Structure
• What is capital structure?
• The ____________________ describing how
Equity
the firm is financed.
30%
• Does capital structure matter?
• How do taxes affect this decision?
• How does this relate to the goal of the
financial manager?
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Debt
70%
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Module 01: Overview of Financial Management
Short-Term Cash Flow Management
• What does short‐term cash flow
management entail?
• Net Working Capital =
• Cash Management
• Credit Management
The Sole Proprietorship
Advantages
1. Ease of formation
2. Subject to few regulations
3. No __________________
Disadvantages
1. Limited life
2. Difficult to raise capital to support growth
3. _____________________
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Module 01: Overview of Financial Management
The Partnership
Advantages
1. Ease of formation
2. Subject to few regulations
3. No __________________
Disadvantages
1. Limited life
2. Difficult to raise capital to support growth
3. __________________
• General versus ____________ partnerships
• General versus ____________ partners
The Corporation
• A corporation is a legal entity separate from
its owners and managers.
• Articles of Incorporation or Charter
• Name, activities, amount of stock, directors
• Bylaws
• How directors are elected
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Module 01: Overview of Financial Management
The Corporation
Advantages
1. Unlimited life
2. Easy transfer of ownership
3. Ease of raising capital
4. __________________
Disadvantages
1. Cost of set‐up and report filing
2. __________________
Other Types of Business Organization
• Limited liability partnership (LLP) or
limited liability company (LLC)
• Professional corporation (PC) or
professional association (PA)
• S corporation
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Module 01: Overview of Financial Management
Firm
Firm issues securities (A)
Invests
in assets (B)
Retained
cash flows (F)
Cash flow
from firm (C)
Ultimately, the firm
must be a cash
generating activity.
Dividends and
debt payments (E)
Taxes (D)
Current assets
Fixed assets
Financial
Markets
Government
Short-term debt
Long-term debt
Equity shares
The cash flows from
the firm must exceed
the cash flows from
the financial markets.
Agency Conflicts
• What is a principal‐agent relationship?
• Agency Problem/Conflict: The possibility
of ______________________ between the
stockholders (the principal) and
management (the agent) of a firm.
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Module 01: Overview of Financial Management
Agency Conflicts
• Agency Costs: The costs of the conflict of
interest between stockholders and management.
• Direct agency costs:
• Wasteful spending
• Monitoring and auditing
• Indirect agency costs
• Missed opportunities
How do we control agency conflicts?
• Managerial Compensation
• Control of the Firm
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Module 01: Overview of Financial Management
Transparency
• Our financial system is dependent upon
_________________________________________.
• This includes:
•
•
•
•
•
GAAP
Audits of financial statements
Filing financial statements with the SEC
Release of information to ALL investors
Sarbanes‐Oxley
Chapter 1 Suggested Problems
• Concept Questions
• 1, 3, 4, 6, and 8
• Questions and Problems
• None for this chapter
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Module 02: Forecasting
At the end of this module, you will be able to:
1. Calculate external financing needs using the
EFN formula.
2. Compute internal and sustainable growth
rates.
3. Calculate external financing needs using pro
forma financial statements.
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Module 02: Forecasting
Financial Planning Process
1. Forecast financial statements under
alternative operating plans.
2. Determine amount of capital needed to
support the plan.
3. Forecast the funds that will be generated
internally and identify sources from which
required external capital can be raised.
The Plan
0 Two methods of forecasting external
financing needs:
0 The ___________________
0 Forecasted (pro forma) _______________ _______________
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Module 02: Forecasting
Key Factors
0 Sales growth: The higher sales growth is, the ___________
external financing needs will be, other things held
constant. (ΔS)
0 Capital intensity ratio: The higher the capital intensity
ratio, the ________ external financing needs will be, other
things held constant.
0 Spontaneous-liabilities-to-sales ratio: The higher the
firm’s spontaneous liabilities, the ____________ external
financing needs will be, other things held constant.
Key Factors
(Continued)
0 Profit margin: The higher the profit margin, the
___________ external financing needs will be, other
things held constant.
0 Dividend payout ratio: The lower the payout
ratio, the _____________ external financing needs
will be, other things held constant.
(Dividends/Net Income)
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Module 02: Forecasting
External Financing Needed (EFN)
External
Financing =
Needed
=
EFN
Required
increase
in assets
𝐴𝑠𝑠𝑒𝑡𝑠
Δ𝑆
𝑆𝑎𝑙𝑒𝑠
‒
‒
Increase in
spontaneous
liabilities
𝑆𝑝𝑜𝑛𝑡𝑎𝑛𝑒𝑜𝑢𝑠
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑆𝑎𝑙𝑒𝑠
Increase in
retained
earnings
‒
Δ𝑆
‒
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑆𝑎𝑙𝑒𝑠
𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑
𝑆𝑎𝑙𝑒𝑠
1
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
EFN Example
0 Yostmeister, Inc. was operating at full capacity
last year. Sales are expected to increase by
15% over the next year, while the capital
intensity ratio, spontaneous-liabilities-to-sales
ratio, profit margin, and payout ratio will all
remain the same. Calculate Yostmeister’s
external financing needed for next year.
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Module 02: Forecasting
Yostmeister, Inc.
Balance Sheet
December 31, 2022
(in $ millions)
Cash and securities
Accounts receivable
Inventories
Total current assets
Gross fixed assets
less depreciation
Net fixed assets
Total assets
$ 20
$ 290
$ 390
$ 700
$ 800
$ 300
$ 500
$ 1,200
Accounts pay. & accruals
Notes payable
Total current liabilities
Long‐term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities & equity
$ 100
$
80
$ 180
$ 520
$ 700
$ 300
$ 200
$ 500
$ 1,200
Yostmeister, Inc.
Income Statement
For the Year Ended December 31, 2022
(in $ millions)
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Sales
Total operating costs
EBIT
Interest
EBT
Taxes (40%)
Net income
$ 2,000
$ 1,900
$ 100
$
60
$
40
$
16
$
24
Dividends
Addition to retained earnings
Shares outstanding
EPS
DPS
Year‐end stock price
$
$
9
15
10
$ 2.40
$ 0.90
$ 24.00
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Module 02: Forecasting
External Financing Needed (EFN)
External
Financing =
Needed
=
EFN
Required
increase
in assets
𝐴𝑠𝑠𝑒𝑡𝑠
Δ𝑆
𝑆𝑎𝑙𝑒𝑠
‒
‒
Increase in
spontaneous
liabilities
𝑆𝑝𝑜𝑛𝑡𝑎𝑛𝑒𝑜𝑢𝑠
𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝑆𝑎𝑙𝑒𝑠
Increase in
retained
earnings
‒
Δ𝑆
‒
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝑆𝑎𝑙𝑒𝑠
𝑃𝑟𝑜𝑗𝑒𝑐𝑡𝑒𝑑
𝑆𝑎𝑙𝑒𝑠
1
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Internal Growth Rate
0 The internal growth rate is the maximum
growth rate the firm could achieve with _______
additional external financing.
Internal Growth Rate =
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𝑅𝑂𝐴
1
𝑅𝑂𝐴
1
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
1
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
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Module 02: Forecasting
Sustainable Growth Rate
0 The sustainable growth rate is the maximum
growth rate the firm could achieve while
maintaining a constant __________________________.
Sustainable Growth Rate =
𝑅𝑂𝐸
1
𝑅𝑂𝐸
1
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
1
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Calculate the internal growth rate and
sustainable growth rate for Yostmeister, Inc.
BUSI 7110 - Yost
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Module 02: Forecasting
The Plan
0 Two methods of forecasting external
financing needs:
0 The formula
0 Forecasted (pro forma) financial statements
Forecasted (Pro Forma) Financial Statements
0 The firm is operating at full capacity. Operating ratios remain unchanged.
0
0
0
0
In other words, the ratios of assets, costs, expenses, and depreciation to
sales are expected to remain constant, as is the ratio of accounts payable
and accrued expenses to assets.
No additional notes payable, LT bonds, or common stock will be issued.
The interest rate on all debt is 10%. Interest expense is expected to
remain the same for the forthcoming year
If additional financing is needed, then it will be raised through a line of
credit. The line of credit will be tapped on the last day of the year, so there
will be no additional interest expenses due to the line of credit.
If surplus funds are available, the surplus will be paid out as a special
dividend payment.
Regular dividends (dollar amount) will grow by 15%. Sales will grow by
15%.
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Module 02: Forecasting
Yostmeister, Inc.
Forecasted Balance Sheet
December 31, 2023
(in $ millions)
Cash and securities
Accounts receivable
Inventories
Total current assets
Gross fixed assets
less depreciation
Net fixed assets
Total assets
Accounts pay. & accruals
Notes payable
Line of credit (EFN)
Total current liabilities
Long‐term debt
Total liabilities
Common stock
Retained earnings
Total common equity
Total liabilities & equity
Yostmeister, Inc.
Forecasted Income Statement
For the Year Ended December 31, 2023
(in $ millions)
Sales
Total operating costs
EBIT
Interest
EBT
Taxes (40%)
Net income
Dividends
Addition to retained earnings
Shares outstanding
EPS
DPS
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45
Module 02: Forecasting
Forecasting Feedback
0 Additional interest from line of credit
0 When financing cost are included:
0 Net income ____________
0 Addition to retained earnings ____________
0 Balance sheet no longer balances
0 ____________ financing is needed
0 The process repeats
Chapter 3 Suggested Problems
0 Concept Questions
0 5 and 7
0 Questions and Problems
0 4 (use pro forma), 5 (think growth rates, not EFN), 6, 9 (use formula for part b
and pro forma for part c), 13 (use formula for part a and pro forma for part b), and
21 (use pro forma)
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Module 03: Discounted Cash Flow Valuation
At the end of this module, you will be able to:
1. Interpret present and future values of cash flows.
2. Calculate present and future values of cash flows.
3. Recommend the best alternative based on the time
value of money.
MODULE 03: DISCOUNTED
CASH FLOW VALUATION
(The Time Value of Money)
Chapter 4
SUPPOSE YOU HAVE $100 TODAY…
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Module 03: Discounted Cash Flow Valuation
FUTURE VALUE DEFINITIONS
• Future Value (FV): The amount an investment is worth
after one or more periods.
• Simple Interest: Interest earned only on the original
principal amount invested.
• Compound Interest: Interest earned on both the initial
principal and the interest reinvested from prior periods.
FUTURE VALUE
• Compounding: The process of accumulating
interest on an investment over time to earn more
interest.
• Future Value:
FVt = PV0  (1 + r)t
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Module 03: Discounted Cash Flow Valuation
FUTURE VALUE: EXAMPLE #1
You deposit $500 into a savings account. You plan on withdrawing the
money and closing the account exactly two years from today. Interest rates
are 10%, compounded annually, and will remain constant over the two years.
FUTURE VALUE: EXAMPLE #1
• How much money will you have when you close the
account (future value)?
• How much simple interest did you accumulate?
• How much compound interest did you accumulate?
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Module 03: Discounted Cash Flow Valuation
THE EFFECTS OF COMPOUNDING
• The effects/benefits of compounding:
• Increase with the interest rate.
• Increase with time.
• Increase with the frequency of compounding.
(more on the details of this later)
FUTURE VALUE: EXAMPLE #2
• You are scheduled to receive $17,000 in two
years. When you receive it, you will invest it for
six more years at 6 percent per year. How
much will you have eight years from today?
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Module 03: Discounted Cash Flow Valuation
FUTURE VALUE: EXAMPLE #3
• You are trying to save to put a $40,000 down
payment on a home. You have $20,000 today
that can be invested at your bank. The bank
pays 4 percent annual interest on its accounts.
How long will it be before you have enough?
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Module 03: Discounted Cash Flow Valuation
FUTURE VALUE: EXAMPLE #4
• Assume you are only willing to wait 10 years in the
previous example. What rate of return would you
need to earn?
PRESENT VALUE DEFINITIONS
• Present Value (PV): The current value of future cash
flows discounted at the appropriate discount rate.
• Discount: Calculate the present value of some
future amount.
• Discount Rate: The rate used to calculate the
present value of future cash flows.
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Module 03: Discounted Cash Flow Valuation
CALCULATING PRESENT VALUE
• Future Value:
FVt = PV0  (1 + r)t
• Present Value:
FVt
PV0 =
(1 + r)t
-------------------------------
PRESENT VALUE: EXAMPLE #1
• You have five of the six Florida Lottery numbers. Lottery
officials offer you the choice of the following alternative
payouts:
• Alternative 1: $100,000 one year from now.
• Alternative 2: $200,000 five years from now.
• Which alternative would you choose if interest rates are
12%?
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Module 03: Discounted Cash Flow Valuation
What rate makes the two alternatives equally attractive?
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Module 03: Discounted Cash Flow Valuation
PRESENT VALUE: EXAMPLE #2
• Suppose you are still committed to a $40,000 down
payment. If you believe your mutual fund can achieve
a 9 percent annual rate of return and you want to buy
the house in 5 years, how much must you invest today?
TIPS ON SOLVING PRESENT VALUE AND
FUTURE VALUE PROBLEMS
• For multiple cash flows, just add up the individual present
(or future) values.
• As t ,
PV  and FV 
• As r ,
PV  and FV 
• There are (currently) only 4 components: PV, FV, t, and r
• With ANY 3 components, you can solve for the 4th
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Module 03: Discounted Cash Flow Valuation
FINANCIAL CALCULATORS
REVISITING
PRESENT VALUE: EXAMPLE #2
• Suppose you are still committed to a $40,000 down
payment. If you believe your mutual fund can achieve
a 9 percent annual rate of return and you want to buy
the house in 5 years, how much must you invest today?
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Module 03: Discounted Cash Flow Valuation
REVISITING
FUTURE VALUE: EXAMPLE #2
• You are scheduled to receive $17,000 in two
years. When you receive it, you will invest it for
six more years at 6 percent per year. How
much will you have eight years from today?
REVISITING
FUTURE VALUE: EXAMPLE #3
• You are trying to save to put a $40,000 down
payment on a home. You have $20,000 today
that can be invested at your bank. The bank
pays 4 percent annual interest on its accounts.
How long will it be before you have enough?
BUSI 7110 - Yost
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Module 03: Discounted Cash Flow Valuation
REVISITING
FUTURE VALUE: EXAMPLE #4
• Assume you are only willing to wait 10 years in the
previous example. What rate of return would you
need to earn?
PRESENT AND FUTURE VALUE
OF MULTIPLE CASH FLOWS
FV
t
PV
0
 CF
 CF
 1  r   CF 1  1  r 
t
0
0

t 1
 ...  CF
t
CF 1
CF 2
CF t

 ... 
1
2
1  r  1  r 
1  r t
• You just inherited some money from now dead Uncle Fred.
You plan to use the money for a vacation, but know you first
need to put aside some to cover your books and supplies
over the next two years. You expect to need $4,000 in each
of the next two years. Interest rates are 10%, compounded
annually. How much of now dead Uncle Fred’s money do
you need to put aside today?
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Module 03: Discounted Cash Flow Valuation
VALUING PERPETUITIES
• Perpetuity: A level stream of cash flows
which continue forever (sometimes
called consols).
• Present Value of a Perpetuity:
PV
BUSI 7110 - Yost
0

CF
r
1
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Module 03: Discounted Cash Flow Valuation
VALUING PERPETUITIES
• Assuming that interest rates are 10%, what is the value
today of a perpetuity paying $500 per year, with the
first payment one year from today?
VALUING PERPETUITIES
• Would you be willing to pay $6,500 for the
same perpetuity if interest rates were 8%?
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Module 03: Discounted Cash Flow Valuation
GROWING PERPETUITIES
• Present Value of a Growing Perpetuity:
PV
0

CF 1
r  g
GROWING PERPETUITIES
• Assume a growing perpetuity just made a payment of
$120 yesterday. If the cash flow is expected to grow at
5% and interest rates are still 10%, what is the price of
the perpetuity today?
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Module 03: Discounted Cash Flow Valuation
PRESENT VALUE OF AN ANNUITY
• Annuity: A level stream of cash flows for a
fixed period of time.
• Present Value of an Annuity:
PV
0


CF 1 
1
 1 
r
1  r t 

PRESENT VALUE OF AN ANNUITY
• We can rearrange the equation to the following:
• Present Value of an Annuity:
PV
BUSI 7110 - Yost
0


CF 1 
1
 1 
r
1  r t 

PV
0


1
1


1  r t 

 CF 1 
r
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Module 03: Discounted Cash Flow Valuation
PRESENT VALUE OF AN ANNUITY
Let’s return to our earlier example:
• You just inherited some money from now dead
Uncle Fred. You plan to use the money for a
vacation, but know you first need to put aside
some to cover your books and supplies over the
next two years. You expect to need $4,000 in
each of the next two years. Interest rates are
10%. How much of now dead Uncle Fred’s
money do you need to put aside today?
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Module 03: Discounted Cash Flow Valuation
FUTURE VALUE OF AN ANNUITY
• Future Value of an Annuity:
FV

t

CF
t
 1  r   1
r

• This can also be rearranged to…
1  r 

t
FV
t
 CF
1

r
FUTURE VALUE OF AN ANNUITY
• If you deposit $300 into a retirement account at the end of
each month, starting next month, and the account earns 0.75%
per month, how much will you have in 35 years?
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Module 03: Discounted Cash Flow Valuation
ANNUITIES: A REAL-LIFE EXAMPLE
• Books and beer are expensive! You now have a balance of
$2,000 on your VISA card. The interest rate on that card is 2%
per month. However, you pay only the $50 minimum payment
each month (starting next month) and make no more charges
on that card. How long will it take you to pay off the balance?
GROWING ANNUITIES
• Present Value of a Growing Annuity:
PV
BUSI 7110 - Yost
0
t

CF 1
1 g  

 1  
 
r  g
 1  r  

65
Module 03: Discounted Cash Flow Valuation
ANNUITIES DUE
• Annuity Due: An annuity for which the cash
flows occur at the beginning of the period.
ANNUITIES DUE
• Annuity Due: An annuity for which the cash
flows occur at the beginning of the period.
• PV Annuity Due
= (PV Ordinary Annuity) x (1 + r)
• FV Annuity Due
= (FV Ordinary Annuity) x (1 + r)
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Module 03: Discounted Cash Flow Valuation
Annual Percentage Rate (APR): The nominal, stated
annual interest rate that ignores the effect of
compound interest within the year. The APR is the
periodic rate (r) times the number of compoundings
per year (m).
12% APR compounded quarterly
Annual Percentage Rate (APR): The nominal, stated
annual interest rate that ignores the effect of
compound interest within the year. The APR is the
periodic rate (r) times the number of compoundings
per year (m).
12% APR compounded monthly
=
12% APR compounded quarterly
=
12% APR compounded semiannually =
12% APR compounded annually
BUSI 7110 - Yost
=
67
Module 03: Discounted Cash Flow Valuation
THE EFFECT OF COMPOUNDING
• Effective Annual Rate (EAR): The
effective annual interest rate, which
takes into account the effect of
compound interest.
APR AND EAR
• Example: A bank loan is quoted as 12% APR,
compounded semiannually. What is the EAR?
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Module 03: Discounted Cash Flow Valuation
APR AND EAR
• Example: A bank loan is quoted as 12% APR,
compounded semiannually. What is the EAR?
EAR

 APR
 1  
 m




m
 1
AMORTIZATION
• What is an amortized loan?
• You plan to buy a $200,000 house. You will put 10%
down and finance the rest with a 30 year
mortgage at 6% APR, compounded monthly.
What are the monthly payments?
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Module 03: Discounted Cash Flow Valuation
AMORTIZATION SCHEDULE
Month
Beg. Bal
PMT
Interest
Principal
End. Bal.
357
4,263.34
1,079.19
21.32
1,057.87
3,205.46
358
3,205.46
1,079.19
16.03
1,063.16
2,142.30
359
2,142.30
1,079.19
10.71
1,068.48
1,073.82
360
1,073.82
1,079.19
5.37
1,073.82
0.00
1
2
3
4
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Module 03: Discounted Cash Flow Valuation
CHAPTER 4 SUGGESTED PROBLEMS
• Concept Questions
• 1 through 6, and 8
• Questions and Problems
• 1 through 7, 9, 11, 12, 15, 19, 23, 24, 30, 35, 36, 41, 43,
49, and 52
ADDITIONAL PRACTICE
• Assuming a 10% interest rate, compounded
annually, what is the value today of $1,000
per year forever, with the first payment
starting one year from today?
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Module 03: Discounted Cash Flow Valuation
ADDITIONAL PRACTICE
• What if the first payment was in 5 years?
ADDITIONAL PRACTICE
• Given an interest rate of 10% APR, compounded annually,
what is the value in five years of a perpetual stream of $120
annual payments starting in nine years?
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Module 03: Discounted Cash Flow Valuation
ADDITIONAL PRACTICE
• You have just read an advertisement that
says, “Pay us $100 a year for 10 years,
starting next year, and we will pay you
(and your heirs) $100 a year thereafter in
perpetuity.” At what range of interest
rates would you accept this deal?
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Review for Exam #1
 For On-Campus Students: Wednesday, September 20th
7:15 – 9:15 AM
 For Online Students: Wed. (10 AM) through Sun. (Noon)
(deadline: Sept. 24th 11:59 AM CST)
 Don’t Forget:
 Financial Calculator
 Formula Sheet
 Show Work for Possible Partial Credit
BUSI 7110 - Yost
74
Review for Exam #1
 Study both the notes and the book.
 Do suggested problems.
 Do more problems!
 Be comfortable with calculator, but understand
concepts (e.g., timeline).
 Get help if you are having problems.
147
Weekly Reviews
on Zoom (recording posted)
Office Hours
or by appointment
You can ask questions up to your exam time.
148
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75
Review for Exam #1
 Study solutions and not do problems.
 Memorize all the formulas.
 Forget your calculator.
 Think bad thoughts about me between now and the exam.
149
150
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76
Review for Exam #1
 Chapter 2 (2.1 – 2.3 and 2.6) and Orientation
 Financial Statements
 Balance Sheet, Income Statement, Statement of Cash Flows
 How are they constructed? What do they tell us? Things to
Keep in Mind
 Sources and Uses of Cash
 Taxes
 Calculation
 Average and Marginal Tax Rates
Chapter 3 (3.1 – 3.3) and Orientation
Common-size Financial Statements
Ratios
How to use them/interpret them/what they tell us
How they are related
DuPont Identity
Uses and Limitations of Ratio Analysis
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Review for Exam #1
 Chapter 1
 The Goal of the Firm
 The 3 Elements of Corporate Finance
 Sole Proprietorships, Partnerships, Corporations
 Characteristics
 Pros
 Cons
 Agency Conflicts and How to Mitigate Them
 Chapter 3 (3.4 – 3.6)
 Using the EFN Formula
 Calculating the Internal Growth Rate and
Sustainable Growth Rate
 Forecasting Financial Statements to Calculate EFN
 The Impact of Additional Interest on Estimated EFN
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Review for Exam #1
 Chapter 4
 Present and future values of single and multiple cash flows
 Present values of perpetuities and growing perpetuities
 Present and future values of annuities
 Ordinary annuities vs. annuities due
 APR vs. EAR
 Amortization
 Solving for any of the unknown variables
 Setup vs. Calculator
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Review for Exam #1
When you were born, your dear old Aunt Minnie
promised to deposit $500 into a savings account
bearing a 5% compounded annual rate on each
birthday, beginning with your first. You have just
turned 21 and want the dough. However, it turns
out that dear old (forgetful) Aunt Minnie made
no deposits on your fifth and eleventh birthdays.
How much is in the account right now?
BUSI 7110 - Yost
80
Review for Exam #1
 McIntosh, Inc. is forecasting a 12% increase in sales next
year (2024). Assets, spontaneous liabilities, depreciation,
and operating expenses are expected to increase in
proportion, as the firm is operating at full capacity.
However, Notes Payable, Long-term Debt, and Interest are
expected to remain constant, and the firm is not expected
to issue or buyback any shares. The tax rate and payout
ratio are not expected to change.
 Using the information on the attached balance sheet and
income statement, calculate external funding needed for
McIntosh, Inc. in 2024 using pro forma financial statements.
BUSI 7110 - Yost
81
Review for Exam #1
McIntosh, Inc.
Balance Sheet
August 31, 2023 and 2022
(In $millions)
Assets
Current Assets:
Cash
Marketable Securities
Accounts Receivable
Inventories
Total Current Assets
2023
2022
$550
110
2,750
1,650
$5,060
$500
100
2,500
1,500
$4,600
Fixed assets:
Property, Plant, Equipment
Less Accumulated Depreciation
Net Property, Plant, Equipment
$5,300 $5,125
(1,450) (1,625)
3,850
3,500
Total Assets
$8,910
$8,100
Liabilities (Debt) and Stockholder's Equity
Current Liabilities:
Accounts Payable
Notes Payable
Accrued Expenses
Total Current Liabilities
Long‐Term Liabilities:
Long‐Term Debt
Long‐Term Liabilities
Stockholder's Equity:
Common stock
Accumulated Retained Earnings
Total Equity
Total Liabilities and Stockholder's Equity
2023
2022
$1,100
384
550
$2,034
$1,000
200
500
$1,700
1,100
$1,100
1,000
$1,000
4,312
1,464
$5,776
$8,910
4,400
1,000
$5,400
$8,100
McIntosh, Inc.
Income Statement
For Year Ended August 31, 2023 and 2022
(In $ millions)
Total Operating Revenues
Cost of Goods Sold
Selling, General, and Administrative Expenses
Depreciation
Earnings Before Interest and Taxes
Interest Expense
Pretax Income
Taxes (40%)
Net Income
Dividends
BUSI 7110 - Yost
2023
2022
$11,000
(8,500)
(860)
(380)
$1,260
(120)
$1,140
(456)
$684
$10,000
(8,000)
(500)
(360)
$1,140
(100)
$1,040
(416)
$624
$220
$200
82
Review for Exam #1
You are looking to buy a car. You will use $4,200
in savings and finance the rest. You believe you
can get a 36 month loan at 3% APR. If your
desired car will cost $36,500 out the door, how
much will be your monthly payments?
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Review for Exam #1
Continuing with the previous example, how
much interest will you pay in the first six
months?
Continuing with the previous example, assume
you can only budget $600 per month for a car
payment. If you instead take out a 5 year loan,
what is the most your desired car can cost?
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84
Review for Exam #1
The following information is for The Home Depot
for 2022:
 Net profit margin = 10.8670%
 Total Asset Turnover = 2.0590
 Debt Ratio = 0.9796
Calculate ROE, ROA, and the Debt-Equity Ratio.
BUSI 7110 - Yost
85
Module 04: Bonds and Their Values
MODULE 04:
BONDS AND THEIR VALUES
Chapter 8
At the end of this module, you will be able to:
1. Define the terms of bonds.
2. Compute prices and yields to maturity of bonds.
3. Explain the risks associated with bond investing.
What are bonds? An Example
• One year ago, Yost Corporation borrowed
money by issuing bonds. Each bondholder
lent the firm money for 10 years at a 10
percent annual coupon. Yost Corporation
pays each bondholder $100 per year and
returns the principal ($1,000) back to the
bondholder at the end of the 10 years, or 9
years from today.
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Module 04: Bonds and Their Values
171
Bond Terms
• Coupon: The stated interest payment made on a bond.
• Face Value: The principal amount of a bond that is repaid ________ of
the term. Also called ______________.
• Coupon Rate: The _______ coupon divided by the face value of a
bond.
• Maturity: Specific date on which the principal amount of a bond (i.e.,
the face value) is repaid.
• Yield to Maturity (YTM): The rate required in the ______ on the bond.
This is quoted as an APR and is often not the same as the coupon rate.
172
Calculating the Price of a Bond
• How do we calculate the price of a bond?
• The price of a bond is equal to the
__________
__________
BUSI 7110 - Yost
________ of the bond’s
_______________.
87
Module 04: Bonds and Their Values
173
Bond Valuation
• What was the price of the bond when it was issued if the
yield to maturity was 10 percent?
Bond Valuation
• What is the value of the bond now if the yield to maturity is
10 percent? 7 percent? 13 percent?
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Module 04: Bonds and Their Values
Bond Valuation Over Time
Bond
Value
$1,195.46
$1,000.00
$846.05
0
1
2
3
4
5
6
7
8
9
10
Years Since
Issue
Payment Frequency
• Now, assume that the bond makes semiannual coupon
payments. What is the value of the bond now if the yield
to maturity is 10 percent?
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Module 04: Bonds and Their Values
Bond Yields
• What is a yield to maturity?
• What is a yield to call?
• What is a current yield?
An Example
• A recently issued $1,000 par value bond has 10 years to
maturity and currently sells for $1,163.51. It has a 6
percent coupon rate, paid semiannually. It is callprotected for 5 years, after which it pays a call premium
equal to an annual coupon payment, steadily declining
thereafter. What are the YTM, YTC, and current yield?
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Module 04: Bonds and Their Values
180
Another Example
• There are two $1,000 bonds identical (i.e., same risk)
except for their coupons and their prices. Both have 3
years to maturity and annual coupons. The first has
an 8 percent coupon rate and sells for $974.69. What
is its yield to maturity (YTM)?
• The second bond has a 10 percent coupon rate. If it
has the same YTM as the first bond, what is its price?
• Which is better?
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Module 04: Bonds and Their Values
181
182
What about zero-coupon bonds?
• What are they?
• How do I calculate their price?
• What is the price of a zero-coupon bond that has
a face value of $1,000 and matures in 10 years,
if the YTM is 8%? Assume semiannual
compounding.
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Module 04: Bonds and Their Values
Types of Bonds
• Coupon vs. Zero Coupon
• Corporate
• Treasury
• Bonds
• Notes
• Bills
• Municipal
• Foreign
Interest Rate Risk
• What is it?
• How is it minimized?
Value
Current Market
Interest Rate
5%
10%
15%
20%
25%
BUSI 7110 - Yost
$
$
$
$
$
1-Year Bond
10% coupon
1,047.62
1,000.00
956.52
916.67
880.00
$
$
$
$
$
15-Year Bond
10% coupon
1,518.98
1,000.00
707.63
532.45
421.11
93
Module 04: Bonds and Their Values
Interest Rate Risk
$1,600.00
$1,400.00
$1,200.00
$1,000.00
1-Year Bond
$800.00
15-Year Bond
$600.00
$400.00
$200.00
$5%
10%
15%
20%
25%
Reinvestment Rate Risk
• What is it?
• How is it minimized?
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94
Module 04: Bonds and Their Values
187
The Term Structure of Interest Rates
• Term Structure: The relationship between interest rates
and time-to-maturity of a debt security.
188
The Term Structure of Interest Rates
• Term Structure: The relationship between interest
rates and time-to-maturity of a debt security.
• Yield on Bonds
• Real Interest Rate
• Inflation Premium
• Interest Rate Risk Premium
• Default Risk Premium
• Liquidity/Marketability Premium
BUSI 7110 - Yost
95
Module 04: Bonds and Their Values
The Bond Contract
• Indenture
• Restrictive covenants
• Seniority
• Mortgage bonds
• First, second (or senior, junior)
• Debentures
• Debentures and subordinated debentures
Bond Features
• Call Provisions
• Call Premium
• Deferred Call
• Who benefits?
• Redeemable Bonds
• Who benefits?
BUSI 7110 - Yost
96
Module 04: Bonds and Their Values
Bond Features
• Sinking Fund Provisions
• Lottery redemption at par
• Purchase in the open market
• Which should be chosen?
• Other Types of Bonds:
• Convertible
• Income
• Inflation Indexed
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97
Module 04: Bonds and Their Values
Financial Distress
• Out-of-court Restructuring
• Chapter 11 Reorganization
• Chapter 7 Liquidation
194
Corporate Bond Reporting
http://finra-markets.morningstar.com/BondCenter/
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98
Module 04: Bonds and Their Values
195
Government Bond
Reporting
https://www.wsj.com/market-data/bonds/treasuries
196
Differences Between Debt and Equity
•
Debt
• Equity
•
Not an ownership interest
•
Ownership interest
•
Creditors do not have voting rights
•
Common stockholders vote for the
board of directors and other issues
•
Interest is considered a cost of doing
business and is tax deductible
•
Dividends are not considered a cost
of doing business and are not tax
deductible
•
Creditors have legal recourse if interest
or principal payments are missed
•
Dividends are not a liability of the firm
and stockholders have no legal
recourse if dividends are not paid
•
Excess debt can lead to financial
distress and bankruptcy
•
An all equity firm can not go bankrupt
BUSI 7110 - Yost
99
Module 04: Bonds and Their Values
Chapter 8 Suggested Problems
• Concept Questions
• 1, 2, 5, 7, 8, 12, 16, and 17
• Questions and Problems
• 1, 2, 3, 7, 8, 19, 20, 21, and 28 (parts a and b only)
198
Example #1
• I just purchased a $1,000 zero-coupon bond that
matures in 8 years. If the yield-to-maturity is 6.5%,
how much did I pay? Assume semiannual
compounding.
BUSI 7110 - Yost
100
Module 04: Bonds and Their Values
199
Example #2
• You are considering purchasing a $1,000 Alpha Corp.
bond at par. The bond has a 10% coupon rate, paid
semiannually, and matures in 4 years. What is its
YTM?
200
Example #3
• Beta Enterprises is issuing 10 year bonds with a face
value of $1,000. The coupon rate is 10%, paid
semiannually. What is the price of the bond if the YTM is
8%?
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101
Module 04: Bonds and Their Values
201
Example #4
• Gamma Corporation bonds are selling for $1,386.09. They
have a face value of $1,000 and a current yield of
7.2145%. If the YTM is 5%, interest is paid annually, and
the bond has 10 years to maturity, what is the coupon rate?
BUSI 7110 - Yost
102
Module 05: Stocks and Their Values
Chapter 9
At the end of this module, you will be able to:
1. Explain the types of stocks and the rights of
stockholders.
2. Compute the prices and required returns of
stocks.
3. Distinguish between the characteristics of
stocks and bonds.
Voting
Dividends (if declared)
New shares
The Proxy Statement
BUSI 7110 - Yost
103
Module 05: Stocks and Their Values
Non‐publically Traded Shares
Publically Traded Shares
Classified Stock
Tracking Stock
Preferred Stock (not common stock)
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104
Module 05: Stocks and Their Values
Voting Rights
Majority Voting or Straight Voting
Cumulative Voting
Dividends
Voting Rights
Dividends
 Cumulative
 Non‐cumulative
Stated/Liquidating Value
Preferred Stock and Debt
BUSI 7110 - Yost
105
Module 05: Stocks and Their Values
Debt
Equity
 Not an ownership interest
 Creditors do not have voting rights
 Ownership interest
 Interest is considered a cost of
doing business and is tax
deductible
 Dividends are not considered a cost
of doing business and are not tax
deductible
 Creditors have legal recourse if
interest or principal payments are
missed
 Excess debt can lead to financial
distress and bankruptcy
 Dividends are not a liability of the
firm and stockholders have no legal
recourse if dividends are not paid
 Common stockholders vote for the
board of directors and other issues
 An all equity firm can not go
bankrupt
Stock Valuation
• First, recall: How do you calculate the price of a bond?
• The price (value) of a share of stock is equal to the
_________ _________ of the stock's __________
cash flows.
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106
Module 05: Stocks and Their Values
D  P
D
D
D
D
n
n
n 1
3
1
2
P 


 ... 

o
n
n
1
2
3

1
1  r  1  r 
1  r 
1  r 
1  r 
Zero Growth
Constant Growth
Non‐constant Growth
1.
2.
3.
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107
Module 05: Stocks and Their Values
BUSI 7110 - Yost
108
Module 05: Stocks and Their Values
Yostmeister, Inc. just paid a $2 dividend.
Dividends are expected to grow at 10 percent
for the next two years, after which they will
grow at 4 percent for the foreseeable future.
If investors require a return of 16 percent for
stocks of this risk, what is the current price?
BUSI 7110 - Yost
109
Module 05: Stocks and Their Values
What are the two components of our return?
Consider a constant growth stock…
The Growth Rate
• How might we estimate the dividend growth rate?
1.
2.
3.
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110
Module 05: Stocks and Their Values
Is stock valuation really this easy?
Stock Valuation vs. Company Valuation
What about market multiples?
Stock Markets
• Primary vs. Secondary Markets
• Dealers vs. Brokers
• NYSE vs. NASDAQ
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111
Module 05: Stocks and Their Values
What happens when expectations change?
The Efficient Markets Hypothesis
 __________________ Form Efficiency
 __________________ Form Efficiency
 __________________ Form Efficiency
BUSI 7110 - Yost
112
Module 05: Stocks and Their Values
Intrinsic Values and Market Stock Prices
Managerial Actions, the Economic
Environment, and the Political Climate
“True” Expected
“True”
“Perceived” Expected
“Perceived”
Future Cash Flows
Risk
Future Cash Flows
Risk
Stock’s
Intrinsic Value
Stock’s
Market Price
Market Equilibrium:
Intrinsic Value = Stock Price
Concept Questions
1, 2, 3, 5, 6, and 10
Questions and Problems
1, 2, 3, 4, 5, 8, 10, 12, 14, 15, 18, and 19
BUSI 7110 - Yost
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Module 05: Stocks and Their Values
Griffin Corporation will pay a $5.00 per share
dividend next year. The company pledges to
increase its dividend by 3 percent per year,
indefinitely. If you require a 16 percent return
on your investment, how much will you pay
for the company’s stock today?
The next dividend payment by SAF, Inc., will
be $4 per share. The dividends are
anticipated to maintain a 6 percent growth
rate, forever. If SAF stock currently sells for
$45.00 per share, what is the required return?
BUSI 7110 - Yost
114
Module 05: Stocks and Their Values
Suppose you know that a company’s stock
currently sells for $60 per share and the required
return on the stock is 18 percent. You also know
that the total return on the stock is evenly divided
between a capital gains yield and a dividend
yield. If it’s the company’s policy to always
maintain a constant growth rate in its dividends,
what is the dividend per share that was just paid?
Nematode, Inc., has an issue of preferred
stock outstanding that pays a $9.50 dividend
every year, in perpetuity. If this issue currently
sells for $110 per share, what is the required
return?
BUSI 7110 - Yost
115
Module 05: Stocks and Their Values
Key Corporation, is a start‐up tech. firm. No
dividends will be paid on the stock over the
next five years, because the firm needs the
money for growth. The company will then pay
a $6 per share dividend and will increase the
dividend by 5 percent per year thereafter. If
the required return on this stock is 23 percent,
what is the current share price?
Taza Corporation is expected to pay the
following dividends over the next four years:
$4.75, $3, $2, $1. Afterwards, the company
pledges to maintain a constant 9 percent
growth rate in dividends, forever. If the
required return on the stock is 17 percent,
what is the current share price?
BUSI 7110 - Yost
116
Module 05: Stocks and Their Values
Torsion Corporation stock currently sells for
$108 per share. The market requires a 15
percent return on the firm’s stock. If the
company maintains a constant 7 percent
growth rate in dividends, what was the most
recent dividend per share paid on the stock?
BUSI 7110 - Yost
117
Module 06: Risk and Return
Chapter 10
Chapter 11: Sections 11.1-11.3, 11.6, and 11.9
At the end of this module, you will be able to:
1. Explain the risk-return tradeoff.
2. Evaluate measures of risk and return for individual
assets and portfolios.
3. Apply the Capital Asset Pricing Model.
BUSI 7110 - Yost
118
Module 06: Risk and Return


All else equal, people like returns.

All else equal, people dislike risk.
On October 12, 2022, Home Depot stock
closed at $280.52 It paid dividends of
$1.90 per share on November 30, 2022 and
$2.09 per share on March 8,
_______________, and _______________, 2023.
It is currently trading at $________. What is
your dollar return over this period? What is
your percent return?
BUSI 7110 - Yost
119
Module 06: Risk and Return

The stock of Home Depot has had
the following annual returns:
2022:
2021:
2020:
2019:
BUSI 7110 - Yost
-21.98%
59.51%
24.50%
30.56%
120
Module 06: Risk and Return

Arithmetic Mean:
R 

R 1  ... 
RT

T
The variance (2) of returns tells us how
much the actual returns each year vary
from the average return. In other words, it
is a measure of the volatility of returns.

2

 1 
 R1  R
 
 T  1 

BUSI 7110 - Yost
2
  R
2
1

T 1
2
 R

 R
2
T
t 1
t

 ...  R T  R
 R

2

2
121
Module 06: Risk and Return

The standard deviation () is just the
square root of the variance and explains
the deviation from expected returns as a
percentage.
 
BUSI 7110 - Yost

2
122
Module 06: Risk and Return
68.26%
95.46%
99.74%
There are four possible states of the world: severe
recession with a probability of 10%, slow growth with a
probability of 30%, recovery with a probability of 40%,
and boom with a probability of 20%. Big Maui, Inc.
stock will have a return of -3% in the severe recession
state, 3% in the slow growth state, 7% in the recovery
state, and 10% in the boom state. What is the expected
return on this stock?
BUSI 7110 - Yost
123
Module 06: Risk and Return

Little Gulf, Inc. stock will have a return of
2% in the severe recession state, 4% in the
slow growth state, 10% in the recovery
state, and 20% in the boom state. What
is the expected return on this stock?

2


 P1  R 1  R

2
  P  R
2
2

T

t 1
BUSI 7110 - Yost
2
 R
  ...  P  R


2
Pt  R t  R
T
T
 R

2
2
124
Module 06: Risk and Return
 

BUSI 7110 - Yost

2
Calculate the variance and standard
deviation of the expected returns for
Big Maui, Inc. and Little Gulf, Inc.
125
Module 06: Risk and Return

BUSI 7110 - Yost
The return on a portfolio is simply
a weighted sum of the returns of
the securities in the portfolio.
126
Module 06: Risk and Return

In 2022, Papa John’s Pizza (PZZA) had a return
of -37.26% and the Boston Beer Company
(SAM) had a return of -34.76%. If we had a
$100 portfolio with $50 invested in Papa
John’s Pizza and $50 invested in the Boston
Beer Company, what is the return on our beer
and pizza portfolio?


BUSI 7110 - Yost
The expected return on a portfolio is
simply a weighted sum of the expected
returns of the securities in the portfolio.
What is the expected return on an
equally-weighted portfolio of Big Maui,
Inc. and Little Gulf, Inc.?
127
Module 06: Risk and Return

The covariance of returns tells us how
returns of different securities move
together.
Cov ( X , Y )  P1
Cov
X
1
 X
Y
( X ,Y ) 
1
 Y
T

t1

 

Pt X
P2
t
X
2
 X
 X
Y
Y
 Y
t
2
 Y
  ...

Like variance, covariance is unbounded.
The correlation coefficient is a
standardized measure of how returns move
together. The correlation coefficient is
always between –1 and +1.
Corr ( X , Y )  
X ,Y
Cov ( X , Y )  
BUSI 7110 - Yost

X ,Y
COV

X
( X ,Y )
Y

X

Y
128
Module 06: Risk and Return

BUSI 7110 - Yost
Calculate the covariance and
correlation coefficient of the expected
returns for Big Maui, Inc. and Little
Gulf, Inc.
129
Module 06: Risk and Return

For a portfolio containing two securities,
with weights w1 and w2, variances 12 and
22, and covariance Cov(R1,R2):
BUSI 7110 - Yost

2
p
 w 12 

2
p
 w 12 
2
1
 w 22 
2
1
2
2
 w 22 
 2 w 1 w 2 Cov ( R 1 , R 2 )
2
2
 2 w 1 w 2  1 , 2  1
2
130
Module 06: Risk and Return


BUSI 7110 - Yost
What if there are more than 2 assets?
What are the variance and standard
deviation of an equally-weighted
portfolio of Big Maui, Inc. and Little Gulf,
Inc.?
131
Module 06: Risk and Return

What is risk?

Systematic and Unsystematic Risk

What is diversification?

What does diversification do?
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132
Module 06: Risk and Return


What does it measure?

What is the market portfolio’s beta?

What is the beta of a risk-free asset?

How do we calculate a beta coefficient?
The CAPM: An equilibrium asset pricing
model showing that the expected return for
a particular asset depends on the pure time
value of money plus a reward for bearing
systematic risk.
CAPM
BUSI 7110 - Yost
 E R i

R
f
 
i
R
M
 R
f

133
Module 06: Risk and Return

What is the expected return on a share of
stock whose beta is 1.15 if the risk-free
rate is 4% and the expected return on the
market is 10%?

BUSI 7110 - Yost
An Example: We have $100 invested in stock A,
which has an expected return of 7% and a beta of
0.5. We have $150 invested in stock B, which has
an expected return of 11.2% and a beta of 1.2. We
also have $250 invested in stock C, which has an
expected return of 10% and a beta of 1.0. What is
the expected return of this portfolio? What is the
portfolio beta?
134
Module 06: Risk and Return


Strengths:

Weaknesses:
Concept Questions
◦ Chapter 10: 3, 4, 6, and 7
◦ Chapter 11: 2, 3, 4, 5, and 8

Questions and Problems
◦ Chapter 10: 1, 2, 3, 4 (part a only), 9, 13, and 14
◦ Chapter 11: 2, 5, 10, 11, 12, 23, 26, and 27
BUSI 7110 - Yost
135
Module 06: Risk and Return

There are three possible states of the world:
recession (20% of the time), growth (60% of the
time), and boom (20% of the time). Catwoman
Cruiselines, Inc. earns –15%, 3%, and 25% in the
recession, growth, and boom states,
respectively. Batman Repossessions, Inc. earns
15%, -3%, and –6% in the recession, growth,
and boom states, respectively.

What is the expected return of Catwoman
Cruiselines, Inc.?
E(RC) = 3.8%

What is the variance and standard deviation
of the expected returns of Catwoman?
C2 = 0.0161
C = 0.1269
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136
Module 06: Risk and Return

What is the expected return of Batman
Repossessions, Inc.?
E(RB) = 0.0%

What is the variance and standard deviation
of the expected returns of Batman?
B2 = 0.0058
B = 0.0759

What are the covariance and correlation
coefficient of the expected returns of
Catwoman and Batman?
Cov(C,B) = -0.0080
Corr(C,B) = -0.8347
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137
Module 06: Risk and Return

What is the expected return of an equallyweighted portfolio of Catwoman and
Batman?
E(RP) = 1.9%

What is the standard deviation of the
equally-weighted portfolio?
P = 0.0384
BUSI 7110 - Yost
138
Module 07: Cost of Capital
Chapter 13
At the end of this module, you will be able to:
1. Estimate a firm’s weighted average cost of capital
(WACC).
2. Summarize the challenges in estimating the WACC.
3. Explain how to estimate the cost of capital for a
project.
 What
 How
BUSI 7110 - Yost
are the sources of capital?
do I calculate the WACC?
139
Module 07: Cost of Capital
 What
do I use for the cost of debt?
 How
do I estimate the cost of
preferred stock?
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140
Module 07: Cost of Capital
 Is
it costly to issue common stock?
 How
do I estimate the cost of common
stock?
1.
2.
_____________
Dividend Yield Plus Growth Rate (DCF Model)
 What
is the risk-free rate?
 What
is the market risk premium?
 Where
BUSI 7110 - Yost
does beta come from?
141
Module 07: Cost of Capital
 How
do I estimate the growth rate?
1.
2.
3.
 The
WACC
formula:
 Common
Equity
 
 Total Capital

 Preferred Equity
  R E  

 Total Capital


Debt
  R P  

 Total Capital

  R D 1  t 

 Keep in mind:
 ____________ Capital Structure
 ________________ NOT Book Values
 What does the WACC measure?
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142
Module 07: Cost of Capital
 Interest
Rates
 Market Risk Premium
 Taxes
 Capital Structure
 Dividend Policy
 Investment Policy
 What
if the risk of a project or division is
different than that of the firm?
 Using Betas
 Pure Play Method
 Accounting Beta Method
 Risk-Adjusted
BUSI 7110 - Yost
Cost of Capital
143
Module 07: Cost of Capital
 What
are flotation costs?
 How
do I estimate the costs of debt and
equity including flotation costs?
BUSI 7110 - Yost
144
Module 07: Cost of Capital
As CFO of Callipygian, Inc., you are trying to determine
the firm’s weighted average cost of capital (WACC). You
have gathered the following information: The firm has
2,000 bonds, 35,000 preferred shares, and 100,000
common shares of stock outstanding. The bonds
currently have a yield to maturity of 6.5881% and trade
at 125% of par. The preferred stock pays a $5.25 annual
dividend and currently trades at $70. The firm’s
common stock currently sells for $32.10 and has a beta
of 0.95. You know the yield on 10 year U.S. Treasuries is
5.3%, the historical market risk premium is 6 percent,
and the firm has a marginal tax rate of 40 percent.
BUSI 7110 - Yost
145
Module 07: Cost of Capital
 Concept
 1,
Questions
2, 5, 6, and 7
 Questions
 1,
BUSI 7110 - Yost
and Problems
3, 5, 6, 11, 12, and 17
146
Review for Exam #2
 For On-Campus Students: Wednesday, November 1st
7:15 – 9:15 AM
 For Online Students: Wed. (10 AM) through Sun. (Noon)
(deadline: Nov. 5th 11:59 AM CST)
 Don’t Forget:
 Financial Calculator
 Formula Sheet
 Show Work for Possible Partial Credit
BUSI 7110 - Yost
147
Review for Exam #2
 Study both the notes and the book.
 Do suggested problems.
 Do more problems!
 Be comfortable with calculator, but understand
concepts (e.g., timeline).
 Get help if you are having problems.
289
Weekly Reviews
on Zoom (recording posted)
Office Hours
or by appointment
You can ask questions up to your exam time.
290
BUSI 7110 - Yost
148
Review for Exam #2
 Study solutions and not do problems.
 Memorize all the formulas.
 Forget your calculator.
 Think bad thoughts about me between now and the exam.
291
292
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149
Review for Exam #2
 Chapter 8
 Calculate price, YTM, YTC, Current Yield, or other parts
 Annual or semiannual; coupon or zero coupon
 Understand relation among coupon rate, YTM, price, par
 Bond features
 E.g., sinking fund provisions, call provisions, seniority,
restrictive covenants
 The term structure of interest rates
 Interest rate risk and reinvestment rate risk
 Chapter 9
 The Rights of Stockholders
 The Proxy Statement
 Types of Stock Issues
 Common vs. Preferred Stock
 Differences Between Debt and Equity
 Calculating Stock Value
 The Components of Return
 Stock Market Efficiency
BUSI 7110 - Yost
150
Review for Exam #2
 Chapters 10-11 (sections 11.1 - 11.3, 11.6, and 11.9)
 Calculating Holding Period Returns, Sample Variance and
Standard Deviation, Expected Returns and the Variance and
Standard Deviation of Expected Returns, Portfolio Returns
and Portfolio Expected Returns, Covariance, Correlation
Coefficient, the Variance and Standard Deviation of a Twoasset Portfolio, Beta, Portfolio Betas, the CAPM
 ↑ Know What They Mean ↑ (The Conceptual Side of Things)
 Diversification and Risk
 Chapter 13
 How to Calculate it
 How to Estimate the Pieces (and the Challenges)
 What it Measures
 What Affects it
 How to Adjust it for a Project
 Flotation Costs
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Review for Exam #2
As financial vice president of Butler Industries, you have been tasked
with estimating the firm’s cost of capital. You have been provided the
following information:
 The firm’s tax rate is 40%.
 The current price of Butler’s 12% coupon, semiannual payment,
noncallable bonds with 15 years remaining to maturity is $1,153.72.
Butler does not use short-term interest-bearing debt on a permanent
basis. New bonds would be privately placed with no flotation cost.
(continued on next slide)
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Review for Exam #2
 The current price of the firm’s 10%, $100 par value, perpetual preferred
stock is $116.95. Butler would incur flotation costs equal to 5% of the
proceeds on a new issue.
 Butler’s common stock is currently selling for $50 per share. Its last
dividend was $3.12, and dividends are expected to grow at a constant
rate of 5.8% in the foreseeable future. Butler’s beta is 1.2, the yield on Tbonds is 5.6%, and the market risk premium is estimated to be 6%. For
the dividend yield plus growth rate approach, assume flotation costs of
15%.
 Butler’s target capital structure is 30% long-term debt, 10% preferred
stock, and 60% common equity.
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153
Review for Exam #2
Wesson Enterprises is expanding rapidly, and it
does not pay any dividends because it currently
needs to retain all of its earnings. However,
investors expect Wesson to begin paying dividends,
with the first dividend of $1.00 coming 3 years from
today. The dividend should grow rapidly – at a rate
of 50% per year – during years 4 and 5. After year 5,
the company should grow at a rate of 8% per year. If
the required return on the stock is 15%, what is the
value of the stock today?
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154
Review for Exam #2
Clark Rentals has issued bonds that have a 10%
coupon rate, payable semiannually. The bonds
mature in 8 years, have a face value of $1,000, and a
yield to maturity of 8.5%. What is the price of the
bonds?
Suppose you manage a $4 million fund that consists
of four stocks with the following investments:
Stock
Investment
Beta
A
$400,000
1.50
B
600,000
-0.50
C
1,000,000
1.25
D
2,000,000
0.75
If the CAPM holds, the market’s required rate of
return is 14%, and the risk-free rate is 6%, what is
the fund’s required rate of return?
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Review for Exam #2
You have a $2 million portfolio consisting of a
$100,000 investment in each of 20 different stocks.
The portfolio has a beta of 1.1. You are considering
selling $100,000 worth of one stock with a beta of 0.9
and using the proceeds to purchase another stock
with a beta of 1.4. What will the portfolio’s new beta
be after these transactions?
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Review for Exam #2
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157
Module 08: Investment Criteria
Chapter 5
Chapter 6 (pages 186-187)
At the end of this module, you will be able to:
1. Compute various decision criteria.
2. Compare the benefits and implications of various
decision criteria.
3. Determine if a project should be accepted.
 Consider
a firm with two projects, A and
B, each with the following cash flows and
a 10 percent cost of capital:
Year
0
1
2
BUSI 7110 - Yost
Project A
Cash Flows
-$100
$70
$70
Project B
Cash Flows
-$150
$100
$100
158
Module 08: Investment Criteria
 What is it?
• Measure of ___________________ from project
 How do I do it?
• PV of future CFs – Initial Cost
 The Investment Rule:
• Accept projects with ____________ NPV and accept
highest NPV first
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Module 08: Investment Criteria
 Pros:
• Uses _____ _______________
• Incorporates time value of money
 Cons:
• Need appropriate discount rate
• Relatively more difficult to explain
 What is it?
• Discount rate that makes the NPV = _________
 How do I do it?
• Set NPV = 0 and solve for discount rate
 The Investment Rule:
• Accept if IRR is _______ than required rate of return and
accept highest IRR first
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Module 08: Investment Criteria
 Pros:
• Closely related to NPV, leads to same decision
MOST of the time
• Relatively more easy to explain
 Cons:
• May result in ____________________
• May result in ____________________
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Module 08: Investment Criteria
 What
is an NPV profile?
 Nonnormal
Cash Flows
Year
Cash Flow
0
1
2
3
4
-$252
$1,431
-$3,035
$2,850
-$1,000
NPV Profile
$0.06
$0.04
25.00%
66.67%
33.33%
$0.02
$NPV
0%
10%
20%
30%
40%
50%
60%
70%
80%
$(0.02)
42.68%
$(0.04)
$(0.06)
$(0.08)
$(0.10)
BUSI 7110 - Yost
Rate
162
Module 08: Investment Criteria
 What
about mutually exclusive projects?
 What is it?
• Discount rate that makes present value of outflows
equal to future value of inflows
 How do I do it?
• Take present value of outflows and future value of
inflows and solve for breakeven rate
 The Investment Rule:
• Accept if the MIRR is ________ than the required rate
of return and accept highest MIRR first.
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Module 08: Investment Criteria
Year
0
1
2
3
4
BUSI 7110 - Yost
Cash Flow
-$252
$1,431
-$3,035
$2,850
-$1,000
164
Module 08: Investment Criteria
 Pros:
• Assumes all cash flows are reinvested at the __________
__________________
• Closely related to NPV, leading to the same decision
more than the IRR
• No longer possible to get _______________________
 Cons:
• Can still lead to incorrect decisions when size/scale
differences and mutually exclusive projects
 What
is it?
• Benefit-cost ratio
 How
do I do it?
• Present value of future cash inflows divided by initial cost
 The
Investment Rule:
• Accept if PI ___________ than 1 and accept highest PI first.
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165
Module 08: Investment Criteria
 Pros:
• Closely related to NPV, leading to same decision
MOST of the time
• May be useful when available funds are limited
 Cons:
• May result in __________________
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166
Module 08: Investment Criteria
 What is it?
• Time to recover initial investment
 How do I do it?
• Add up cash flows to determine time
 The Investment Rule:
• Accept if payback period is ________ than cutoff and
accept shortest payback first
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167
Module 08: Investment Criteria
 Pros:
• Simple, no need for discount rate
• Biased toward projects with higher liquidity
 Cons:
• Ignores ________________________________
• Can accept __________________ projects
• Ignores cash flows beyond cutoff
• Can reject ___________________ projects
• Arbitrary cutoff
• Biased against long-term projects (e.g., R&D)
 What
is it?
• Time for present value of cash flows to recover initial
investment
 How
do I do it?
• Add up present value of cash flows to determine time
 The
Investment Rule:
• Accept if discounted payback period is _____ than cutoff
and accept shortest discounted payback first
BUSI 7110 - Yost
168
Module 08: Investment Criteria
 Pros:
• Incorporates the time value of money
• Does not accept ____________________ projects
• Biased toward liquidity
 Cons:
• Ignores cash flows beyond the cutoff
• Can reject _________________ projects
• Arbitrary cutoff
• Biased against long-term projects (e.g., R&D)
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169
Module 08: Investment Criteria
 Replacement
Chain or
Common Life Approach
 Equivalent
Annual Annuity (EAA) or
Equivalent Annual Cost
• Calculate the annuity payment based on the NPV
Your firm is considering which pollution reduction system
to purchase and implement to meet required EPA
standards. Option 1 involves an initial $30,000 investment
and subsequent annual costs of $10,000, and must be
replaced again after 3 years. Option 2 requires an initial
investment of $55,000 and has a 6 year life, requiring
subsequent annual costs of $4,000, $6,000, $8,000, $12,000,
$14,000, and $16,000, respectively. The appropriate
discount rate for this project is 12 percent. Which option
do you recommend?
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Module 08: Investment Criteria
NPV
EAA
 Concept
0
1
2
3
$(30,000)
$(10,000)
$(10,000)
$(10,000)
$(55,000)
$ (4,000)
$ (6,000)
$ (8,000)
4
5
6
$(12,000)
$(14,000)
$(16,000)
Questions
• Chapter 5: 2, 9, and 11
 Questions
and Problems
• Chapter 5: 1, 3, 6, 8, 11, 12, 14, 15, and 17
BUSI 7110 - Yost
171
Module 09: Capital Budgeting
At the end of this module, you will be able to:
1. Estimate a project’s relevant incremental free cash flows.
2. Determine if a project should be accepted.
3. Explain various risk analyses.
Chapter 6
Chapter 7: Sections 7.1 - 7.2 and 7.4
Shipping and Installation
 Noncash Items

 depreciation & amortization
 accounting allocations
Interest Expense
 Sunk Costs
 Opportunity Costs
 Side Effects (product cannibalization)

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Module 09: Capital Budgeting

BUSI 7110 - Yost
FCF =
 Cash flow available to ______________ after
______________________ in fixed assets and
working capital
173
Module 09: Capital Budgeting
1.
2.
3.
4.
5.
BUSI 7110 - Yost

Straight‐line

MACRS
174
Module 09: Capital Budgeting

You purchase a machine for $20,000, which has a
depreciable life of 5 years. What is the annual
depreciation expense?

If you sell the machine at the end of the year 4 for
$5,000, what is the after‐tax salvage value if the firm’s
tax rate is 40 percent?
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175
Module 09: Capital Budgeting


Half‐year convention
Table 6.3
Asset Class
BUSI 7110 - Yost
Year
3‐Year
5‐Year
1
33.33%
20.00%
2
44.45%
32.00%
3
14.81%
19.20%
4
7.41%
11.52%
5
11.52%
6
5.76%
176
Module 09: Capital Budgeting

You purchase a machine for $80,000, which is in the 3‐
year asset class. The machine costs an additional
$20,000 in delivery and installation. Create a
depreciation schedule.

BUSI 7110 - Yost
If you sell the machine at the end of year 3
for $5,000, what is the after‐tax salvage
value if the firm’s tax rate is 40 percent?
177
Module 09: Capital Budgeting
The Effing House Family Restaurant, Inc. is considering producing and
selling Effing Waffle Irons. Plans are to keep the items on the market
for 5 years. Last year, they spent $20,000 on a market study to
determine the appropriate price would be $20 per iron. They expect
sales to be 10,000 units in each year after. Costs are expected to be
20% of sales, and the firm’s marginal tax rate is 40%. In addition, they
must purchase an iron manufacturing machine for $500,000, which is
depreciated using the straight‐line method and worthless at the end of
the project. Due to an increase in inventories, net working capital is
expected to increase by $15,000. If the required return on this project is
10%, should they introduce the new product?
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Module 09: Capital Budgeting
Norfolk and Waypal, Inc. is considering a project that will last 4 years and
produce annual sales of 1,250 units at an initial price of $200 per unit. The
initial cost to produce each unit is $100. Assume that price and cost
increase at 3 percent per year after the first year. The firm requires net
operating working capital to be 12 percent of next year’s sales and has a
40 percent marginal tax rate. The project requires machinery costing
$200,000, plus an additional $10,000 for shipping and $30,000 for
installation. It is in the MACRS 3‐year asset class and is expected to have a
$25,000 salvage value before taxes at the end of the project. Projects of
this risk have a 10 percent cost of capital. In addition, the firm spent
$100,000 last year to improve the production line site. Should they invest?
BUSI 7110 - Yost
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Module 09: Capital Budgeting

Sensitivity Analysis

Scenario Analysis

Types of Risk
 Stand‐alone risk
 Corporate or firm risk

Simulation Analysis

Phased Decisions
 Market risk

What happens to NPV if we change a
______________ variable?

For a particular input, evaluate a base case
and then deviations from the base case.
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Module 09: Capital Budgeting
Change From
Base level
Resulting NPV (000s)
Rate
$113
Unit sales
$17
Salvage
$85
-15%
$100
$52
$86
0%
$88
$88
$88
15%
$76
$124
$90
30%
$65
$159
$91
-30%
Unit Sales
NPV
(000s)
Salvage
Rate
88
-30
BUSI 7110 - Yost
-20
-10 Base 10
20
30
(%)
181
Module 09: Capital Budgeting

Pros
 Gives some idea of stand‐alone risk.
 Identifies dangerous variables.
 Gives some breakeven information.

Cons
 Does not reflect diversification.
 Says nothing about the likelihood of change in a variable.
 Ignores relationships among variables.

Incorporates the __________ of changes in our inputs

Allows more than _________ to be changed at a time
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182
Module 09: Capital Budgeting
Scenario
Probability
NPV(000)
Best
0.25
$279
Base
0.50
$88
Worst
0.25
-$49
E(NPV) = $101.5
σ(NPV) = 116.6

Pros
 Gives some idea of stand‐alone risk.
 Incorporates the probability of outcomes.
 Allows more than one input to be changed simultaneously.

Cons
 Only considers a few possible outcomes.
 Assumes that inputs are perfectly correlated.
 Focuses on stand‐alone risk.
BUSI 7110 - Yost
183
Module 09: Capital Budgeting






A computerized version of scenario analysis that uses
continuous probability distributions.
Computer selects values for each variable based on given
probability distributions.
NPV and IRR are calculated.
Process is repeated many times (1,000 or more).
End result: Probability distribution of NPV and IRR based on
sample of simulated values.
Generally shown with a graph.

Normal distribution for unit sales:
 Mean = 1,250
 Standard deviation = 200

Normal distribution for unit price:
 Mean = $200
 Standard deviation = $30
BUSI 7110 - Yost
184
Module 09: Capital Budgeting
Units
Price
NPV
1,252
$200
$88,808
199
30
$82,519
Maximum
1,927
294
$475,145
Minimum
454
94
-$166,208
Median
685
$163
$84,551
Mean
Std deviation
Prob NPV > 0
86.9%
Probability of NPV
18%
16%
14%
12%
10%
8%
6%
4%
2%
NPV
0%
($475,145)
BUSI 7110 - Yost
($339,389)
($203,634)
($67,878)
$67,878
$203,634
$339,389
$475,145
185
Module 09: Capital Budgeting

Pros
 Reflects the probability distributions of each input.
 Shows range of NPVs, E(NPV), and σNPV.
 Gives an intuitive graph of the risk situation.

Cons
 Difficult to specify probability distributions and correlations.
 “Garbage in, garbage out.”

Ignore __________________

Now what?
BUSI 7110 - Yost
186
Module 09: Capital Budgeting

Create a decision tree

Re‐evaluate project at key points

Proceed or end project?

Use a nominal discount rate with nominal cash flows

Use a real discount rate with real cash flows

(1+rn) = (1+rr) x (1+i)
 rn = rr + i + (rr x i)
BUSI 7110 - Yost
187
Module 09: Capital Budgeting
Yost Rocks, Inc. is a landscape supply company based in Boring, Oregon. The firm
purchased a machine 5 years ago at a cost of $90,000. It had an expected life of 10
years at the time of purchase and an expected salvage value of $10,000 at the end of
10 years. It is being depreciated by the straight line method to zero, or by $9,000 per
year. A new machine can be purchased for $150,000, including installation costs.
Over its 5‐year life, it will reduce cash operating expenses by $50,000 per year. Sales
are not expected to change. At the end of its useful life, the machine is estimated to
be worthless. MACRS depreciation will be used, and it will be depreciated over a 3‐
year recovery period rather than its 5‐year economic life.
The old machine can be sold today for $65,000. The firm’s tax rate is 34 percent. The
appropriate discount rate is 15 percent. Should Yost Rocks, Inc. purchase the new
machine now?
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188
Module 09: Capital Budgeting

Concept Questions
 Chapter 6: 1, 2, 3, 4, 5, 7, and 9
 Chapter 7: 1, 2, and 8

Questions and Problems
 Chapter 6: 1, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 23, and 24
 Chapter 7: none
BUSI 7110 - Yost
189
Module 10: Capital Structure
Module 10:
Capital Structure
Chapters 16 and 17 (except section 17.8)
At the end of this module, you will be able to:
1. Explain the theories of capital structure.
2. Demonstrate the impact of taxes on firm value and risk.
3. Demonstrate the impact of financial distress on firm
value and risk.
Optimal Capital Structure


What is capital structure?
How should a firm choose a debt-to-equity ratio?
BUSI 7110 - Yost

The goal: _________________________

Which is done by: __________________

Which is done by: __________________
190
Module 10: Capital Structure
Financial Leverage
Market Value of Debt
Market Value of Equity
Market Value of Assets
Scenario
A
B
C
$0 $50 $75
$100 $50 $25
$100 $100 $100
Debt-to-Equity Ratio
Financial Leverage
Scenario
A
B
C
Corporate Borrowing Rate 8% 8% 8%
EBIT
$20 $20 $20
Interest Expense
$0 $4 $6
Taxes (assume 0%)
$0 $0 $0
Net Income
$20 $16 $14
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Module 10: Capital Structure
Financial Leverage
Scenario
A
B
C
20% 16% 14%
20% 32% 56%
$0.20 $0.32 $0.56
1.0
2.0
4.0
ROA
ROE
EPS
e (assume A= 1)
Asset Betas and Equity Betas
 Asset 
Equity
Equity
  Equity
 [(1 - t)  Debt]

Debt

 Equity   Asset  1  1 - t 
Equity 

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Module 10: Capital Structure
A Note on Notation…

Yost uses different notation than the textbook
(and textbook solutions).
Yost
E
RE
D
RD
t
RA






Book
S
RS
B
RB
tc
R0
Financial Leverage

What is financial leverage?

What are the effects of financial leverage?

What is meant by “homemade leverage”?

BUSI 7110 - Yost
The use of personal borrowing to change the
overall amount of financial leverage to which
an individual is exposed.
193
Module 10: Capital Structure
Homemade Leverage



BUSI 7110 - Yost
Assume the firm in the previous
example has no debt (Scenario A).
Also assume you personally prefer to
have the leverage in Scenario C.
How could you do this on your own?
194
Module 10: Capital Structure
The M&M Propositions


Franco Modigliani and Merton Miller won Nobel
prizes for the following (irrelevance) propositions.
Consider a world of no taxes (we will consider the
role of taxes later), no bankruptcy costs, and
perfect, efficient capital markets. People can
borrow and lend at the same rate as the firm.
M&M Proposition I (no taxes)



BUSI 7110 - Yost
Does capital structure matter?
In our world of no taxes, bankruptcy costs,
and perfect, efficient markets, is an
individual firm’s capital structure important?
The value of the firm is ____________ of the
firm’s capital structure. ________________
195
Module 10: Capital Structure
M&M Proposition II (no taxes)

What happens to the risk shareholders face
when the firm increases its use of debt?

What happens to beta?

What happens to the cost of equity?
M&M Proposition II (no taxes)

The firm’s cost of equity capital is a
positive linear function of the firm’s
debt-to-equity ratio.
RE  R
BUSI 7110 - Yost
A

  R

A
 RD

 D 


 E 
196
Module 10: Capital Structure
M&M Proposition II (no taxes)
RE
Cost of
Capital
RA
•
WACC
RD
Debt-to-Equity Ratio
BUSI 7110 - Yost
197
Module 10: Capital Structure
An Example (no taxes)
Mullet Manufacturing, Inc. is financed solely by
common stock and has outstanding 25 million
shares with a market value of $10 per share. It
now announces that it intends to issue $160 million
of debt and use the proceeds to buy back common
stock. The firm’s current cost of equity is 10
percent. The cost of debt is 8 percent. Assume an
M&M world, where all assumptions hold.
An Example (no taxes) -- continued




How many shares can the company buy back?
What is the market value of the firm after the
change in capital structure?
What is the firm’s new debt-to-equity ratio?
After the repurchase, what will be the firm’s
new cost of equity? New cost of capital?
BUSI 7110 - Yost
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Module 10: Capital Structure
BUSI 7110 - Yost
199
Module 10: Capital Structure
Features of Debt

Two features of debt that we ignored
in our “perfect” financial world in the
previous lecture:
1.
__________________
2.
Costs of __________ or Financial Distress
Back to our previous example…
Scenario
A
B
C
Corporate Borrowing Rate 8% 8% 8%
EBIT
$20 $20 $20
Interest Expense
$0 $4 $6
Taxes (assume 50%)
$10 $8 $7
Net Income
$10 $8 $7
BUSI 7110 - Yost
200
Module 10: Capital Structure
Back to our previous example…
Cash Flow to Stockholders
Cash Flow to Debtholders
Total Cash Flow from Assets

Scenario
A
B
C
$10 $8 $7
$0 $4 $6
$10 $12 $13
What, then, should happen to firm value?
Firm Value with Debt and Taxes
BUSI 7110 - Yost
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Module 10: Capital Structure
M&M Proposition I (with taxes)

__________________

How do we calculate the value of the firm?

VU = [EBIT x (1 – t)] / RA

Assume that the cost of equity for the firm in
scenario A is 10%...
Back to our previous example…
A
Scenario
B
C
Market Value of Debt
Market Value of Equity
Market Value of Assets
Debt-to-Equity Ratio
$0
$100
$100
0.0
ROE (assume $1 per share)
10% 10.67% 11.2%
BUSI 7110 - Yost
$50
$75
$75 $62.50
$125 $137.50
2/3
1.2
202
Module 10: Capital Structure
M&M Proposition I (with taxes)
Value
of the
Firm
(V)
VL = VU + (t x D)
txD
•
VU
VU
Debt-to-Equity Ratio
M&M Proposition II (with taxes)

The firm’s cost of equity capital is a
positive linear function of the firm’s
debt-to-equity ratio.
RE = RA + (RA – RD)(D/E)(1 - t)
BUSI 7110 - Yost
203
Module 10: Capital Structure
M&M Proposition II (with taxes)

Assume that the cost of equity for the firm
in scenario A is 10%. What is the required
rate of return on equity for each scenario?
RE = RA + (RA – RD)(D/E)(1 - t)
M&M Proposition II (with taxes)

What is the WACC in each scenario?
WACC = [E/(D+E)] x Re + [D/(D+E)] x Rd x (1-t)
BUSI 7110 - Yost
204
Module 10: Capital Structure
M&M Proposition II (with taxes)
RE
Cost of
Capital
RA
•
WACC
RD
Debt-to-Equity Ratio
Therefore…
BUSI 7110 - Yost

What is the optimal capital structure?

Why don’t we see this?
205
Module 10: Capital Structure
Let’s take another look…
Mullet Manufacturing, Inc. is financed solely by
common stock and has outstanding 25 million shares
with a market value of $10 per share. It now
announces that it intends to issue $160 million of debt
and use the proceeds to buy back common stock. The
firm’s current cost of equity is 10 percent. The cost of
debt is 8 percent. The tax rate is 40 percent. Assume
an M&M world, where all assumptions hold.
Let’s take another look…




BUSI 7110 - Yost
What is the market value of the firm after
the announcement?
How many shares can the company buy
back?
What is the firm’s new debt-to-equity ratio?
After the repurchase, what will be the firm’s
new cost of equity? New cost of capital?
206
Module 10: Capital Structure
BUSI 7110 - Yost
207
Module 10: Capital Structure
Optimal Capital Structure
(with taxes and bankruptcy costs)

Why do different firms have different capital
structures?

____ of financial distress greater for some firms.

____ of financial distress greater for some firms.
The Costs of Financial Distress

Direct Costs



Indirect Costs



BUSI 7110 - Yost
Legal expenses
Administrative expenses
Lost sales
Lost time
Loss of morale and employees
208
Module 10: Capital Structure
Optimal Capital Structure
(with taxes and bankruptcy costs)

Trade-Off Theory of Capital Structure:
The firm borrow up to the point where
the tax benefits from an extra dollar of
debt is exactly equal to the cost that
comes from the increased probability
of financial distress.
Optimal Capital Structure
(with taxes and bankruptcy costs)
RE
Cost of
Capital
RA
•
WACC
RD
D*
BUSI 7110 - Yost
Debt-to-Equity Ratio
209
Module 10: Capital Structure
Optimal Capital Structure
(with taxes and bankruptcy costs)
Value
of the
Firm
(V)
VL = VU + (t x D)
txD
PV of Financial
Distress Costs
Actual
Value
•
VU
VU
D*
Debt-to-Equity Ratio
Other Capital Structure
Theories and Issues
BUSI 7110 - Yost

Signaling Theory

Pecking Order Theory

Windows of Opportunity

Using Debt to Constrain Managers

Estimating Optimal Capital Structure
210
Module 10: Capital Structure
Chapters 16 and 17
Suggested Problems

Concept Questions



Chapter 16: 2, 3, 5, 7, 8, 9, and 10
Chapter 17: 1, 5, and 9
Questions and Problems


BUSI 7110 - Yost
Chapter 16: 12, 14, 15, 17, 24, and 25
Chapter 17: none
211
Review for Final Exam
 For On-Campus Students: ____________________________
_________________
 For Online Students: _________________________________
(deadline: __________________ CST)
 Don’t Forget:
 Financial Calculator
 Formula Sheet
 Show Work for Possible Partial Credit
BUSI 7110 - Yost
212
Review for Final Exam
 Study both the notes and the book.
 Do suggested problems.
 Do more problems!
 Be comfortable with calculator, but understand
concepts (e.g., timeline).
 Get help if you are having problems.
417
Weekly Reviews
on Zoom (recording posted)
Office Hours
or by appointment
You can ask questions up to your exam time.
418
BUSI 7110 - Yost
213
Review for Final Exam
 Study solutions and not do problems.
 Memorize all the formulas.
 Forget your calculator.
 Think bad thoughts about me between now and the exam.
419
 Chapter 5
 NPV, IRR, MIRR, PI, PB, DPB
 Pros and Cons
 When do they always agree? When might they disagree?
 Projects with Unequal Lives
 Replacement Chain/Common Life
 Equivalent Annual Annuity/Equivalent Annual Cost
BUSI 7110 - Yost
214
Review for Final Exam
 Chapters 6 and 7 (sections 7.1-7.2 and 7.4)
 Calculating Project Free Cash Flows
 Relevant Incremental Cash Flows
 Depreciation (Straight-line and MACRS)
 After-tax Salvage Value
 Risk Analyses
 Sensitivity Analysis
 Scenario Analysis
 Simulation Analysis
 Phased Decisions
 Chapters 16 and 17
 M&M Propositions (firm value, RE, WACC) without Taxes
 M&M Propositions (firm value, RE, WACC) with Taxes
 Assumptions (taxes, financial distress costs), calculations, and
concepts
 Trade-off Theory of Capital Structure
BUSI 7110 - Yost
215
Review for Final Exam
 Time Value of Money
 Free Cash Flow
 Required Return
 Bond Value
 Stock Value
 YTM
 RE
 WACC
424
BUSI 7110 - Yost
216
Review for Final Exam
Comprehensive, Inc. is evaluating an expansion project that will last 3 years. The
project has the same risk as the firm’s current operations and the firm is in the 40
percent tax bracket. The project will require equipment costing $850,000 and an
increase in net working capital of $60,000. The equipment is expected to have a
salvage value of $275,000 at the end of the project. Sales are forecasted to be $1.2
million annually, with costs at 45 percent of sales. The equipment falls in the MACRS 3year asset class.
The common stock of Comprehensive, Inc. has a beta of 1.6 and maintains a constant
growth rate in dividends of 7.6 percent. The firm just paid a $1.35 annual dividend
yesterday and there are 22 million common shares outstanding. The firm also has 5
million shares of preferred stock outstanding that currently have a dividend yield of 9
percent and pay a $3.24 annual dividend, of which the most recent one was paid
yesterday. The 10 year Treasury is yielding 4 percent and you use a 6 percent estimate
for the market risk premium. Further, you are instructed to only use the CAPM to
estimate the required return on common stock (i.e., ignore other methods).
Comprehensive, Inc. has 200,000 bonds outstanding that mature in 12 years, have a
$1,000 face value, and make semiannual coupon payments. The coupon rate is 8
percent and they currently have a yield to maturity of 7 percent. Assume the firm made
its most recent coupon payment yesterday.
Should the firm invest in this project?
BUSI 7110 - Yost
217
ANNUAL REPORT 2022
218
219
220
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-8207
THE HOME DEPOT, INC.
(Exact name of registrant as specified in its charter)
Delaware
95-3261426
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2455 Paces Ferry Road
Atlanta, Georgia
(Address of principal executive offices)
30339
(Zip Code)
Registrant’s telephone number, including area code: (770) 433-8211
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $0.05 Par Value Per Share
HD
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting common stock held by non-affiliates of the registrant on July 29, 2022 was $308.0 billion.
The number of shares outstanding of the registrant’s common stock as of March 1, 2023 was 1,014,955,506 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement for the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III of
this Form 10-K to the extent described herein.
221
TABLE OF CONTENTS
Commonly Used or Defined Terms
Forward-Looking Statements
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
ii
iii
Business.
Risk Factors.
Unresolved Staff Comments.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
1
10
22
22
23
24
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Reserved.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
24
25
25
32
33
62
63
65
65
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
65
66
66
66
66
PART IV
Item 15. Exhibit and Financial Statement Schedules.
Item 16. Form 10-K Summary.
67
71
SIGNATURES
72
Fiscal 2022 Form 10-K
i
222
Table of Contents
COMMONLY USED OR DEFINED TERMS
Term
Definition
ASU
BODFS
BOPIS
BORIS
BOSS
CDP
Comparable sales
DIFM
DIY
EH&S
EPA
ESG
ESPP
Exchange Act
FASB
fiscal 2020
fiscal 2021
fiscal 2022
fiscal 2023
GAAP
IRS
LIBOR
MD&A
MRO
NOPAT
NYSE
PLCC
Pro
Restoration Plans
ROIC
SEC
Securities Act
SG&A
Accounting Standards Update
Buy Online, Deliver From Store
Buy Online, Pickup In Store
Buy Online, Return In Store
Buy Online, Ship to Store
The not-for-profit organization formerly known as the Carbon Disclosure Project
As defined in the Results of Operations section of MD&A
Do-It-For-Me
Do-It-Yourself
Environmental, Health, and Safety
U.S. Environmental Protection Agency
Environmental, social, and governance
Employee Stock Purchase Plan
Securities Exchange Act of 1934, as amended
Financial Accounting Standards Board
Fiscal year ended January 31, 2021 (includes 52 weeks)
Fiscal year ended January 30, 2022 (includes 52 weeks)
Fiscal year ended January 29, 2023 (includes 52 weeks)
Fiscal year ending January 28, 2024 (includes 52 weeks)
U.S. generally accepted accounting principles
Internal Revenue Service
London interbank offered rate
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Maintenance, repair, and operations
Net operating profit after tax
New York Stock Exchange
Private label credit card
Professional customer
Home Depot FutureBuilder Restoration Plan and HD Supply Restoration Plan
Return on invested capital
Securities and Exchange Commission
Securities Act of 1933, as amended
Selling, general, and administrative
Fiscal 2022 Form 10-K
ii
223
Table of Contents
FORWARD-LOOKING STATEMENTS
Certain statements contained herein, as well as in other filings we make with the SEC and other written and oral
information we release, regarding our performance or other events or developments in the future constitute
“forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may relate to, among other things, the demand for our products and services; net sales growth;
comparable sales; the effects of competition; our brand and reputation; implementation of store, interconnected
retail, supply chain and technology initiatives; inventory and in-stock positions; the state of the economy; the state of
the housing and home improvement markets; the state of the credit markets, including mortgages, home equity
loans, and consumer credit; the impact of tariffs; issues related to the payment methods we accept; demand for
credit offerings; management of relationships with our associates, potential associates, suppliers and service
providers; cost and availability of labor; costs of fuel and other energy sources; international trade disputes, natural
disasters, climate change, public health issues (including the continuing impacts of the COVID-19 pandemic and the
related recovery), cybersecurity events, military conflicts or acts of war, supply chain disruptions, and other business
interruptions that could compromise data privacy or disrupt operation of our stores, distribution centers and other
facilities, our ability to operate or access communications, financial or banking systems, or supply or delivery of, or
demand for, our products or services; our ability to address expectations regarding ESG matters and meet ESG
goals; continuation or suspension of share repurchases; net earnings performance; earnings per share; dividend
targets; capital allocation and expenditures; liquidity; return on invested capital; expense leverage; changes in
interest rates; changes in foreign currency exchange rates; commodity or other price inflation and deflation; our
ability to issue debt on terms and at rates acceptable to us; the impact and expected outcome of investigations,
inquiries, claims, and litigation, including compliance with related settlements; the challenges of international
operations; the adequacy of insurance coverage; the effect of accounting charges; the effect of adopting certain
accounting standards; the impact of legal and regulatory changes, including changes to tax laws and regulations;
store openings and closures; financial outlook; and the impact of acquired companies on our organization and the
ability to recognize the anticipated benefits of any acquisitions.
Forward-looking statements are based on currently available information and our current assumptions, expectations
and projections about future events. You should not rely on our forward-looking statements. These statements are
not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are
beyond our control, dependent on the actions of third parties, or currently unknown to us – as well as potentially
inaccurate assumptions that could cause actual results to differ materially from our historical experience and our
expectations and projections. These risks and uncertainties include, but are not limited to, those described in Part I,
Item 1A. Risk Factors, and elsewhere in this report and also as may be described from time to time in future reports
we file with the SEC. You should read such information in conjunction with our consolidated financial statements
and related notes and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations in this report. There also may be other factors that we cannot anticipate or that are not described herein,
generally because we do not currently perceive them to be material. Such factors could cause results to differ
materially from our expectations. Forward-looking statements speak only as of the date they are made, and we do
not undertake to update these statements other than as required by law. You are advised, however, to review any
further disclosures we make on related subjects in our filings with the SEC and in our other public statements.
Fiscal 2022 Form 10-K
iii
224
Table of Contents
PART I
Item 1. Business.
INTRODUCTION
The Home Depot, Inc. is the world’s largest home improvement retailer based on net sales for fiscal 2022. We offer
our customers a wide assortment of building materials, home improvement products, lawn and garden products,
décor products, and facilities maintenance, repair and operations products. We also provide a number of services,
including home improvement installation services and tool and equipment rental. As of the end of fiscal 2022, we
operated 2,322 stores located throughout the U.S. (including the Commonwealth of Puerto Rico and the territories
of the U.S. Virgin Islands and Guam), Canada, and Mexico. The Home Depot stores average approximately
104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area.
We also maintain a network of distribution and fulfillment centers, as well as a number of e-commerce websites in
the U.S., Canada and Mexico. When we refer to “The Home Depot,” the “Company,” “we,” “us” or “our” in this report,
we are referring to The Home Depot, Inc. and its consolidated subsidiaries.
The Home Depot, Inc. is a Delaware corporation that was incorporated in 1978. Our Store Support Center
(corporate headquarters) is located at 2455 Paces Ferry Road, Atlanta, Georgia 30339. Our telephone number at
that address is (770) 433-8211.
OUR BUSINESS
OUR STRATEGY
The retail landscape has changed rapidly over the past several years, with customer expectations constantly
evolving. In fiscal 2022, we continued to operate with agility to meet the challenges created by a fluid domestic and
global business environment, including supply chain disruptions, tight labor market conditions, and ongoing
inflationary pressures. Our ability to operate successfully and meet the needs of our customers was due in
significant part to our investments over the past several years aimed at creating an interconnected, frictionless
shopping experience that enables our customers to seamlessly blend the digital and physical worlds. Going forward,
we will leverage the momentum of these investments and continue to invest in our business in support of the
following goals:
•
•
•
We intend to provide the best customer experience in home improvement;
We intend to extend our position as the low-cost provider in home improvement; and
We intend to be the most efficient investor of capital in home improvement.
We believe that these goals will help us grow faster than the market and deliver value to our shareholders. We are
steadfast in this commitment, while also recognizing that exercising corporate responsibility and being informed by
the needs of our other stakeholders, including our customers, associates, supplier partners, and communities,
creates value for all stakeholders, including our shareholders.
DELIVER SHAREHOLDER VALUE
We deliver on our objective to create shareholder value through our disciplined approach to capital allocation. Our
capital allocation principles are as follows:
•
•
•
First, we intend to reinvest in our business to drive growth faster than the market.
Second, after meeting the needs of the business, we look to pay a quarterly dividend, which we intend to
increase as we grow earnings.
Third, after reinvesting in our business and paying our dividend, we intend to return excess cash to our
shareholders through share repurchases.
In fiscal 2022, we invested $3.1 billion in capital expenditures to support our business, advance our goals, and
continue to build an interconnected customer experience. We also focused on driving productivity throughout the
business to lower our costs. The combination of reinvesting in the business to drive higher sales and supporting
productivity to lower costs creates what we refer to as a virtuous cycle, which has allowed us to improve the
customer experience, increase our competitiveness in the market, and deliver shareholder value.
In fiscal 2022, we returned over $14 billion to shareholders in the form of cash dividends and share repurchases.
Our capital allocation is discussed further in Part II, Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Fiscal 2022 Form 10-K
1
225
Table of Contents
FOREIGN CURRENCY EXCHANGE RATE RISK
We are exposed to risks from foreign currency exchange rate fluctuations on the translation of our foreign
operations into U.S. dollars and on the purchase of goods by these foreign operations that are not denominated in
their local currencies. We use derivative instruments to hedge a portion of our foreign currency exchange rate risk,
none of which are for trading or speculative purposes. Our foreign currency related hedging arrangements
outstanding at the end of fiscal 2022 were not material.
COMMODITY PRICE RISK
We experience inflation and deflation related to our purchase of certain commodity products. This price volatility
could potentially have a material impact on our financial condition and/or our results of operations. In order to
mitigate price volatility, we monitor commodity price fluctuations and may adjust our selling prices accordingly;
however, our ability to recover higher costs through increased pricing may be limited by the competitive environment
in which we operate. We currently do not use derivative instruments to manage these risks.
Item 8. Financial Statements and Supplementary Data.
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm
34
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
Note 2. Segment Reporting and Net Sales
Note 3. Property and Leases
Note 4. Debt and Derivative Instruments
Note 5. Income Taxes
Note 6. Stockholders' Equity
Note 7. Fair Value Measurements
Note 8. Stock-Based Compensation
Note 9. Employee Benefit Plans
Note 10. Weighted Average Common Shares
Note 11. Commitments and Contingencies
Note 12. HD Supply Acquisition
36
37
38
39
40
41
41
48
49
51
55
57
58
59
61
62
62
62
Fiscal 2022 Form 10-K
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226
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the 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 29, 2023 and January 30, 2022, 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 29, 2023, 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 29, 2023 and January 30, 2022, and the results of its operations and its cash flows for each of the fiscal
years in the three-year period ended January 29, 2023, 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 29, 2023, 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 15, 2023 expressed an unqualified opinion
on the effectiveness of the Company’s internal control over financial reporting.
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 Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates 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 a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Estimation of store shrink
As discussed in Note 1 to the consolidated financial statements, the majority of the Company’s U.S. 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).
Shrink is the difference between the recorded amount of inventory and the physical inventory count. 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 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.
We identified the evaluation of the estimation of store shrink occurring in the period between physical inventory
counts and fiscal year-end as a critical audit matter. Evaluating the Company’s estimation of shrink at the end of
the fiscal year using interim inventory loss experience in U.S. retail stores involved auditor judgment.
Fiscal 2022 Form 10-K
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Table of Contents
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 the
estimate of store shrink. We evaluated the appropriateness of the Company using interim physical inventory
counts to estimate inventory losses in U.S. retail stores at the end of the fiscal year by:
•
•
•
•
Evaluating the method and certain assumptions used;
Testing the application of the method and certain assumptions used;
Performing a current year trend analysis; and
Performing a sensitivity analysis over the shrink reserve estimate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1979.
Atlanta, Georgia
March 15, 2023
Fiscal 2022 Form 10-K
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Table of Contents
THE HOME DEPOT, INC.
CONSOLIDATED BALANCE SHEETS
January 29,
2023
in millions, except per share data
Assets
Current assets:
Cash and cash equivalents
Receivables, net
Merchandise inventories
Other current assets
Total current assets
Net property and equipment
Operating lease right-of-use assets
Goodwill
Other assets
Total assets
$
$
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term debt
Accounts payable
Accrued salaries and related expenses
Sales taxes payable
Deferred revenue
Income taxes payable
Current installments of long-term debt
Current operating lease liabilities
Other accrued expenses
Total current liabilities
Long-term debt, excluding current installments
Long-term operating lease liabilities
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 11)
$
Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,794 shares
at January 29, 2023 and 1,792 shares at January 30, 2022; outstanding: 1,016
shares at January 29, 2023 and 1,035 shares at January 30, 2022
Paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 778 shares at January 29, 2023 and 757 shares at
January 30, 2022
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity
January 30,
2022
2,757
3,317
24,886
1,511
32,471
25,631
6,941
7,444
3,958
76,445
$
—
11,443
1,991
528
3,064
50
1,231
945
3,858
23,110
41,962
6,226
1,019
2,566
74,883
$
$
90
12,592
76,896
(718)
$
(87,298)
1,562
76,445 $
2,343
3,426
22,068
1,218
29,055
25,199
5,968
7,449
4,205
71,876
1,035
13,462
2,426
848
3,596
158
2,447
830
3,891
28,693
36,604
5,353
909
2,013
73,572
90
12,132
67,580
(704)
(80,794)
(1,696)
71,876
—————
See accompanying notes to consolidated financial statements.
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THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Fiscal
2022
in millions, except per share data
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Operating income
Interest and other (income) expense:
Interest income and other, net
Interest expense
Interest and other, net
Earnings before provision for income taxes
Provision for income taxes
Net earnings
$
$
Basic weighted average common shares
Basic earnings per share
Diluted weighted average common shares
Diluted earnings per share
157,403
104,625
52,778
Fiscal
2021
$
151,157
100,325
50,832
Fiscal
2020
$
132,110
87,257
44,853
26,284
2,455
28,739
24,039
25,406
2,386
27,792
23,040
24,447
2,128
26,575
18,278
(55)
1,617
1,562
22,477
5,372
17,105 $
(44)
1,347
1,303
21,737
5,304
16,433 $
(47)
1,347
1,300
16,978
4,112
12,866
$
1,022
16.74
$
1,025
16.69
$
1,054
15.59
$
1,058
15.53
$
1,074
11.98
$
1,078
11.94
—————
See accompanying notes to consolidated financial statements.
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THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal
2022
in millions
Net earnings
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments
Cash flow hedges
Other
Total other comprehensive (loss) income, net of tax
Comprehensive income
Fiscal
2021
$
17,105
$
$
(22)
9
(1)
(14)
17,091 $
16,433
Fiscal
2020
$
12,866
(77)
9
35
(33)
16,400 $
60
8
—
68
12,934
—————
See accompanying notes to consolidated financial statements.
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THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Fiscal
2022
in millions
Common Stock:
Balance at beginning of year
Shares issued under employee stock plans, net
Balance at end of year
$
Fiscal
2021
90
—
90
$
Fiscal
2020
89
1
90
$
89
—
89
Paid-in Capital:
Balance at beginning of year
Shares issued under employee stock plans, net
Stock-based compensation expense
Balance at end of year
12,132
94
366
12,592
11,540
194
398
12,132
11,001
229
310
11,540
Retained Earnings:
Balance at beginning of year
Net earnings
Cash dividends
Other
Balance at end of year
67,580
17,105
(7,789)
—
76,896
58,134
16,433
(6,985)
(2)
67,580
51,729
12,866
(6,451)
(10)
58,134
(704)
(22)
9
(1)
(718)
(671)
(77)
9
35
(704)
(739)
60
8
—
(671)
(80,794)
(6,504)
(87,298)
1,562 $
(65,793)
(15,001)
(80,794)
(1,696) $
Accumulated Other Comprehensive Loss:
Balance at beginning of year
Foreign currency translation adjustments, net of tax
Cash flow hedges, net of tax
Other, net of tax
Balance at end of year
Treasury Stock:
Balance at beginning of year
Repurchases of common stock
Balance at end of year
Total stockholders’ equity (deficit)
$
(65,196)
(597)
(65,793)
3,299
—————
See accompanying notes to consolidated financial statements.
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THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal
2022
in millions
Cash Flows from Operating Activities:
Net earnings
Reconciliation of net earnings to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation expense
Changes in receivables, net
Changes in merchandise inventories
Changes in other current assets
Changes in accounts payable and accrued expenses
Changes in deferred revenue
Changes in income taxes payable
Changes in deferred income taxes
Other operating activities
Net cash provided by operating activities
$
Cash Flows from Investing Activities:
Capital expenditures
Payments for businesses acquired, net
Other investing activities
Net cash used in investing activities
Cash Flows from Financing Activities:
(Repayments of) proceeds from short-term debt, net
Proceeds from long-term debt, net of discounts
Repayments of long-term debt
Repurchases of common stock
Proceeds from sales of common stock
Cash dividends
Other financing activities
Net cash used in financing activities
Change in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental Disclosures:
Cash paid for income taxes
Cash paid for interest, net of interest capitalized
Non-cash capital expenditures
$
$
17,105
Fiscal
2021
$
16,433
Fiscal
2020
$
12,866
2,975
366
111
(2,830)
(311)
(2,577)
(526)
(107)
138
271
14,615
2,862
399
(435)
(5,403)
(330)
2,401
775
(51)
(276)
196
16,571
2,519
310
(465)
(1,657)
43
5,118
702
(149)
(569)
121
18,839
(3,119)
—
(21)
(3,140)
(2,566)
(421)
18
(2,969)
(2,463)
(7,780)
73
(10,170)
(1,035)
6,942
(2,491)
(6,696)
264
(7,789)
(188)
(10,993)
482
(68)
2,343
2,757 $
5,435
1,449
351
$
1,035
2,979
(1,532)
(14,809)
337
(6,985)
(145)
(19,120)
(5,518)
(34)
7,895
2,343 $
5,504
1,269
421
$
(974)
7,933
(2,872)
(791)
326
(6,451)
(154)
(2,983)
5,686
76
2,133
7,895
4,654
1,241
274
—————
See accompanying notes to consolidated financial statements.
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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, in stores and online. We
also provide a number of services, including home improvement installation services and tool and equipment rental.
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 balances and transactions are eliminated in consolidation. Our fiscal year is a 52- or 53-week period
ending on the Sunday nearest to January 31st. All periods presented include 52 weeks.
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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments purchased with original maturities
of three months or less.
Receivables, net
The following table presents components of receivables, net:
January 29,
2023
in millions
Card receivables
Rebate receivables
Customer receivables
Other receivables
Receivables, net
$
$
1,003
948
871
495
3,317
January 30,
2022
$
$
1,028
1,170
703
525
3,426
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
valuation allowance related to these receivables was not material to our consolidated financial statements at the
end of fiscal 2022 or fiscal 2021.
Merchandise Inventories
Inventory cost includes the amount we pay to acquire inventory, including freight and import costs, as well as
operating costs and depreciation associated with our sourcing and distribution network, and is net of certain vendor
allowances. 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 42% 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, and the
adjustments recorded to merchandise inventories valued under a cost method were not material to our consolidated
financial statements at the end of fiscal 2022 or fiscal 2021.
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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. Historically, the difference between estimated shrink and actual inventory losses has not
been material to our annual financial results.
Property and Equipment
Buildings and related improvements, furniture, fixtures, and equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives. Leasehold improvements and assets held under finance
leases are amortized using the straight-line method over the original term of the lease or the useful life of the asset,
whichever is shorter.
The following table presents the estimated useful lives of our property and equipment:
Life
Buildings and improvements
Furniture, fixtures and equipment
Leasehold improvements
5 – 45 years
2 – 20 years
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 ranges from three to seven 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 their undiscounted future cash flows with their carrying
value. If the carrying value is greater than the undiscounted future cash flows, we then measure the asset group’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 2022, fiscal 2021, or fiscal
2020.
Leases
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.
Our leases include 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. Our real estate leases typically
provide the option to extend the lease for five-year terms, and 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.
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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 asset 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. Shortterm 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 as facts and circumstances warrant. 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 2022, we completed our annual assessment of the recoverability of goodwill for our
U.S., Canada, and Mexico reporting units based on qualitative factors. We performed a qualitative assessment to
determine if there were any indicators of impairment 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 that would indicate that it is more likely than not that the fair value of any of our reporting units were less
than their carrying amounts. There were no impairment charges related to goodwill for fiscal 2022, fiscal 2021, or
fiscal 2020.
The following table presents the changes in the carrying amount of our goodwill:
Fiscal
2022
in millions
Goodwill, balance at beginning of year
Acquisitions
Other (2)
$
(1)
Fiscal
2021
7,449 $
7,126
—
(5)
Goodwill, balance at end of year
$
7,444 $
323
—
7,449
—————
(1) Represents goodwill from a small acquisition completed during the second quarter of Fiscal 2021.
(2)
Reflects the net impact of foreign currency translation.
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Other Intangible Assets
Intangible assets other than goodwill are included in other assets on the consolidated balance sheets. We amortize
the cost of definite-lived intangible assets on a straight-line basis over their estimated useful lives, which range up to
20 years, as this approximates the pattern of expected economic benefit. Intangible assets with indefinite lives are
tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant. During the third
quarter of fiscal 2022, we completed our annual assessment of the recoverability of our indefinite-lived intangible
assets based on quantitative factors and concluded no impairment losses should be recognized. There were no
impairment losses related to intangible assets for fiscal 2022, fiscal 2021, and fiscal 2020.
The following table presents information regarding our intangible assets:
January 29, 2023
Gross
Carrying
Amount
in millions
Accumulated
Amortization
January 30, 2022
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Definite-Lived Intangible Assets:
Customer relationships
$
Trade names
Other
3,034 $
(495) $
2,539 $
3,034 $
(326) $
2,708
151
(16)
135
151
(8)
143
12
(12)
—
12
(9)
3
649
649
Indefinite-Lived Intangible Assets:
Trade names
Total Intangible Assets
649
$
3,846 $
(523) $
3,323 $
3,846 $
649
(343) $
3,503
Our intangible asset amortization expense was immaterial for fiscal 2022, fiscal 2021, and fiscal 2020.
The following table presents the estimated future amortization expense related to definite-lived intangible assets as
of January 29, 2023:
Amortization
Expense
in millions
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Thereafter
Total
$
$
178
178
178
178
167
1,795
2,674
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 noncurrent 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 on a gross basis 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
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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, if any, 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.
Self-Insurance Reserves
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 both January 29, 2023 and January 30, 2022.
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.
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. 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 fiscal 2022, fiscal 2021, and fiscal 2020.
Services revenue is 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 subcontractor provides
material as part of the installation, both the material and labor are included in services revenue. We recognize
services 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 products and services sold in stores or online, payment is typically due at the point of sale. When we receive
payment from customers before the customer has taken possession of the merchandise or the service has been
performed, the amount received is recorded as deferred revenue until the sale or service is complete. Such
performance obligations are part of contracts with expected original durations of typically three months or less. As of
January 29, 2023 and January 30, 2022, deferred revenue for products and services was $2.0 billion and $2.6
billion, respectively.
We further record deferred revenue for the sale of gift cards and recognize the associated revenue upon the
redemption of those gift cards, which generally occurs within six months of gift card issuance. As of January 29,
2023 and January 30, 2022, our performance obligations for unredeemed gift cards were $1.1 billion and $1.0
billion, respectively. Gift card breakage income, which is our estimate of the portion of our gift card balance not
expected to be redeemed, is recognized in net sales and was immaterial in fiscal 2022, fiscal 2021, and fiscal 2020.
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.
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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. Vendor allowances that are not reimbursements of specific, incremental, and identifiable costs are also
included within cost of sales.
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.
Selling, General and Administrative
Selling, general and administrative expenses include compensation and benefits for retail and store support center
associates, occupancy and operating costs of retail locations and store support centers, insurance-related
expenses, advertising costs, credit and debit card processing fees, and other administrative costs.
Advertising Expense
Advertising costs, including digital, television, radio and print, are expensed when the advertisement first appears.
Certain 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.
The following table presents net advertising expense included in SG&A:
Fiscal
2022
in millions
Net advertising expense
$
1,085
Fiscal
2021
$
1,044
Fiscal
2020
$
909
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 stock-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. We include estimated forfeitures expected to occur when calculating stock-based compensation expense.
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 it is more likely than not 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.
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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”) tax, 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 and recognized within accumulated other comprehensive loss as a component of equity, which consist
primarily of foreign currency translation adjustments. Accumulated other comprehensive loss also includes net
losses on cash flow hedges that were immaterial as of January 29, 2023 and January 30, 2022. Reclassifications
from accumulated other comprehensive loss into earnings were immaterial in fiscal 2022, fiscal 2021, and fiscal
2020.
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.
Cumulative foreign currency translation adjustments recorded in accumulated other comprehensive loss as of
January 29, 2023 and January 30, 2022 were losses of $597 million and $575 million, respectively.
Recently Adopted Accounting Pronouncements
ASU No. 2021-10. In November 2021, the FASB issued ASU No. 2021-10, “Government Assistance (Topic 832),” to
improve the transparency of government assistance received by business entities that are accounted for by
applying either the International Accounting Standards 20 grant model or Accounting Standards Codification
958-605 contribution model by analogy. Topic 832 requires disclosure of the nature of the transactions and the
related accounting policy used, the line items on the balance sheet and income statement that are affected and the
amounts applicable to each financial statement line item, and significant terms of the transactions. On January 31,
2022, we adopted ASU No. 2021-10 with no impact to our financial statements or related disclosures as the
transactions in scope of this guidance were immaterial.
Recently Issued Accounting Pronouncements
ASU No. 2022-04. In September 2022, the FASB issued ASU No. 2022-04, “Liabilities—Supplier Finance Programs
(Topic 405-50) - Disclosure of Supplier Finance Program Obligations,” to enhance the transparency of supplier
finance programs used by an entity in connection with the purchase of goods and services. The standard requires
entities that use supplier finance programs to disclose the key terms, including a description of payment terms, the
confirmed amount outstanding under the program at the end of each reporting period, a description of where those
obligations are presented on the balance sheet, and an annual rollforward, including the amount of obligations
confirmed and the amount paid during the period. The guidance does not affect the recognition, measurement, or
financial statement presentation of obligations covered by supplier finance programs. ASU No. 2022-04 is effective
for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the
requirement on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early
adoption is permitted. We are currently evaluating the impact of the standard on our consolidated financial
statement disclosures.
ASU No. 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. ASU No. 2020-04 is effective as of March 12,
Fiscal 2022 Form 10-K
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The following table presents approximate future minimum payments under operating and finance leases at
January 29, 2023:
Operating
Leases
in millions
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Thereafter
Total lease payments
Less: imputed interest
Present value of lease liabilities
$
Finance
Leases
1,152
1,186
1,032
900
769
3,446
8,485
1,314
7,171
$
$
347
364
406
297
278
2,449
4,141
856
3,285
$
—————
Note: We have excluded approximately $2.1 billion of leases (undiscounted basis) that have not yet commenced. These leases are expected to
commence primarily in fiscal 2023 with lease terms of up to 30 years.
The following table presents supplemental cash flow information related to leases:
Fiscal
2022
in millions
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – operating leases
$
Operating cash flows – finance leases
Financing cash flows – finance leases
Supplemental non-cash information:
Lease assets obtained in exchange for new operating lease liabilities
Lease assets obtained in exchange for new finance lease liabilities
Fiscal
2021
1,157
125
241
$
Fiscal
2020
1,090
127
182
1,991
322
964
672
$
1,022
112
122
969
1,730
4. DEBT AND DERIVATIVE INSTRUMENTS
Short-Term Debt
In July 2022, we expanded our commercial paper program from $3.0 billion to $5.0 billion to further enhance our
financial flexibility. All of our short-term borrowings in fiscal 2022 and fiscal 2021 were under our commercial paper
program. In connection with our program, we had back-up credit facilities with a consortium of banks for borrowings
up to $5.0 billion at January 29, 2023, which consisted of a five-year $3.5 billion credit facility scheduled to expire in
July 2027 and a 364-day $1.5 billion credit facility scheduled to expire in July 2023. These facilities replaced our
previously existing five-year $2.0 billion credit facility, which was scheduled to expire in December 2023, and our
364-day $1.0 billion credit facility, which was scheduled to expire in December 2022.
At January 29, 2023, we had no borrowings outstanding under our commercial paper program, and at January 30,
2022, we had $1.0 billion of borrowings outstanding under our commercial paper program with a weighted-average
interest rate of 0.1%.
The following table presents additional information on borrowings under our commercial paper program during fiscal
2022 and fiscal 2021:
Fiscal
2022
in millions
Maximum amount outstanding during the period
Average daily short-term borrowings
Fiscal 2022 Form 10-K
$
51
2,745
269
Fiscal
2021
$
1,368
45
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Table of Contents
Long-Term Debt
The following table presents details of the components of our long-term debt:
Carrying Amount (1)
in millions
Floating rate senior notes due March 2022
3.25% Senior notes due March 2022
2.625% Senior notes due June 2022
2.70% Senior notes due April 2023
3.75% Senior notes due February 2024
2.70% Senior notes due April 2025
3.35% Senior notes due September 2025
4.00% Senior notes due September 2025
3.00% Senior notes due April 2026
2.125% Senior notes due September 2026
2.875% Senior notes due April 2027
2.50% Senior notes due April 2027
2.80% Senior notes due September 2027
0.90% Senior notes due March 2028
1.50% Senior notes due September 2028
3.90% Senior notes due December 2028
2.95% Senior notes due June 2029
2.70% Senior notes due April 2030
1.375% Senior notes due March 2031
1.875% Senior notes due September 2031
3.25% Senior notes due April 2032
4.50% Senior notes due September 2032
5.875% Senior notes due December 2036
3.30% Senior notes due April 2040
5.40% Senior notes due September 2040
5.95% Senior notes due April 2041
4.20% Senior notes due April 2043
4.875% Senior notes due February 2044
4.40% Senior notes due March 2045
4.25% Senior notes due April 2046
3.90% Senior notes due June 2047
4.50% Senior notes due December 2048
3.125% Senior notes due December 2049
3.35% Senior notes due April 2050
2.375% Senior notes due March 2051
2.75% Senior notes due September 2051
3.625% Senior notes due April 2052
4.95% Senior notes due September 2052
3.50% Senior notes due September 2056
Total senior notes
Finance lease obligations; payable in varying
installments through April 30, 2076
Total long-term debt
Less current installments of long-term debt
Long-term debt, excluding current installments
Interest
Payable
Quarterly
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Semi-annually
Principal
Amount
$
$
—
—
—
1,000
1,100
500
1,000
750
1,300
1,000
750
750
1,000
500
1,000
1,000
1,750
1,500
1,250
1,000
1,250
1,250
3,000
1,250
500
1,000
1,000
1,000
1,000
1,600
1,150
1,500
1,250
1,500
1,250
1,000
1,500
1,000
1,000
41,150
January 29,
2023
$
January 30,
2022
$
$
—
—
—
1,000
1,099
498
998
748
1,295
994
744
745
979
496
993
977
1,675
1,347
1,170
942
1,237
1,242
2,874
1,075
496
990
939
981
980
1,586
1,144
1,464
1,178
1,472
1,156
983
1,458
980
973
39,908
$
300
700
1,249
999
1,098
—
998
—
1,293
992
—
744
1,001
495
992
1,035
1,768
1,422
1,210
981
—
—
2,916
1,164
496
990
977
981
979
1,586
1,144
1,464
1,214
1,471
1,201
982
—
—
973
35,815
$
3,285
$
3,236
$
43,193
1,231
41,962
$
39,051
2,447
36,604
—————
(1) Includes unamortized discounts, premiums, debt issuance costs, and the effects of fair value hedges.
Fiscal 2022 Form 10-K
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September 2022 Issuance. In September 2022, we issued three tranches of senior notes.
• The first tranche consisted of $750 million of 4.00% senior notes due September 15, 2025 at a discount of
$0.3 million. Interest on these notes is due semi-annually on March 15 and September 15 of each year,
beginning March 15, 2023.
• The second tranche consisted of $1.25 billion of 4.50% senior notes due September 15, 2032 at a discount
of $1 million. Interest on these notes is due semi-annually on March 15 and September 15 of each year,
beginning March 15, 2023.
• The third tranche consisted of $1.0 billion of 4.95% senior notes due September 15, 2052 at a discount of
$14 million. Interest on these notes is due semi-annually on March 15 and September 15 of each year,
beginning March 15, 2023.
• Issuance costs totaled $15 million.
March 2022 Issuance. In March 2022, we issued four tranches of senior notes.
• The first tranche consisted of $500 million of 2.70% senior notes due April 15, 2025 at a discount of
$1 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning
October 15, 2022.
• The second tranche consisted of $750 million of 2.875% senior notes due April 15, 2027 at a discount of
$4 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning
October 15, 2022.
• The third tranche consisted of $1.25 billion of 3.25% senior notes due April 15, 2032 at a discount of
$6 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning
October 15, 2022.
• The fourth tranche consisted of $1.5 billion of 3.625% senior notes due April 15, 2052 at a discount of
$32 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning
October 15, 2022.
• Issuance costs totaled $22 million.
Repayments. In March 2022, we repaid our $700 million 3.25% senior notes and $300 million floating rate senior
notes at maturity. In May 2022, we repaid our $1.25 billion 2.625% senior notes, which had a maturity date of June
2022, at the Par Call Date for the notes.
Redemption. All of our senior 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 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, prior to the Par Call Date, as defined
in the respective notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes
to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest
to the Par Call Date. On or after the Par Call Date, the redemption price is equal to 100% of the principal amount of
the notes. Additionally, if a Change in Control Triggering Event occurs, as defined in the notes, holders of all such
notes have the right to require us to redeem those notes at 101% of the aggregate principal amount of the notes
plus accrued interest up to the redemption date.
The indentures governing the notes do not generally limit our ability to incur additional indebtedness or require us to
maintain financial ratios or specified levels of net worth or liquidity. The indentures governing the notes contain
various customary covenants; however, none are expected to impact our liquidity or capital resources.
Fiscal 2022 Form 10-K
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Table of Contents
Maturities of Long-Term Debt. The following table presents our long-term debt maturities, excluding finance
leases, as of January 29, 2023:
in millions
Principal
Fiscal 2023
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Thereafter
Total
$
$
1,000
1,100
2,250
2,300
2,500
32,000
41,150
Derivative Instruments and Hedging Activities
We use derivative 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.
Fair Value Hedges. We had outstanding interest rate swap agreements with combined notional amounts of $5.4
billion at January 29, 2023 and January 30, 2022. 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 29, 2023,
the fair values of these agreements totaled $778 million, all of which is recognized in other long-term liabilities on
the consolidated balance sheet. At January 30, 2022, the fair values of these agreements totaled $191 million, with
$58 million recognized in other assets and $249 million recognized in other long-term liabilities on the consolidated
balance sheet. All of our interest rate swap agreements designated as fair value hedges meet the shortcut method
requirements under GAAP. Accordingly, the changes in the fair values of these agreements offset the changes in the
fair value of the hedged long-term debt.
Cash Flow Hedges. At January 29, 2023 and January 30, 2022, 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 29, 2023 and January 30, 2022, the notional amounts
and the fair values of these contracts were not material. Additionally, the realized and unrealized gains and losses
on these instruments were not material during fiscal 2022, fiscal 2021, and fiscal 2020.
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. Unamortized losses recognized on these swaps
remaining in accumulated other comprehensive loss were immaterial as of January 29, 2023 and January 30, 2022,
as were the losses recognized within interest expense for fiscal 2022, fiscal 2021, and fiscal 2020.
We expect an immaterial amount recorded in accumulated other comprehensive loss as of January 29, 2023 to be
reclassified into earnings within the next 12 months.
Net Investment Hedges. During fiscal 2022, we issued foreign currency forward contracts accounted for as net
investment hedges, which hedged against foreign currency exposure on our net investment in certain subsidiaries.
These foreign currency forward contracts were immaterial and were settled in fiscal 2022. The related foreign
currency translation adjustment amounts recorded in accumulated other comprehensive loss upon settlement were
also immaterial. There were no arrangements accounted for as net investment hedges outstanding as of
January 29, 2023 or January 30, 2022.
Collateral. We generally enter into master netting arrangements, which are designed to reduce credit risk by
permitting net settlement of transactions with the same counterparty. To further limit our credit risk, we enter into
collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain
derivative instruments exceeds or falls below contractually established thresholds. The cash collateral posted by the
Company related to derivative instruments under our collateral security arrangements was $634 million as of
January 29, 2023, which was recorded in other current assets on the consolidated balance sheet. We did not hold
any cash collateral as of January 29, 2023, and cash collateral both held and posted was immaterial as of
January 30, 2022.
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Table of Contents
5. INCOME TAXES
Provision for Income Taxes
The following table presents our earnings before the provision for income taxes:
Fiscal
2022
in millions
United States
Foreign
Total
$
$
20,990
1,487
22,477
Fiscal
2021
$
$
20,320
1,417
21,737
Fiscal
2020
$
$
16,013
965
16,978
The following table presents our provision for income taxes:
Fiscal
2022
in millions
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Provision for income taxes
$
$
3,918
880
436
5,234
Fiscal
2021
$
102
61
(25)
138
5,372 $
4,066
981
511
5,558
Fiscal
2020
$
(155)
(11)
(88)
(254)
5,304 $
3,462
928
329
4,719
(404)
(209)
6
(607)
4,112
The following table presents our combined federal, state, and foreign effective tax rates:
Fiscal
2022
Combined federal, state, and foreign effective tax rates
23.9 %
Fiscal
2021
24.4 %
Fiscal
2020
24.2 %
The following table presents the reconciliation of our provision for income taxes at the federal statutory rate of 21%
to the actual tax expense:
Fiscal
2022
in millions
Income taxes at federal statutory rate
State income taxes, net of federal income tax benefit
Other, net
Total
$
$
4,720 $
743
(91)
5,372 $
Fiscal
2021
4,565 $
766
(27)
5,304 $
Fiscal
2020
3,565
568
(21)
4,112
On August 16, 2022, the Inflation Reduction Act of 2022 (“2022 Tax Act”) was enacted into law. The key tax
provisions include a 15% minimum tax on adjusted financial statement income. We do not expect any impact to the
Company’s effective tax rate as a result of the new 15% minimum tax under the 2022 Tax Act.
Fiscal 2022 Form 10-K
55
245
THE HOME DEPOT
PROXY STATEMENT
AND
NOTICE OF 2023 ANNUAL MEETING OF SHAREHOLDERS
Thursday, May 18, 2023
Virtual meeting at 9:00 a.m., Eastern Time
www.virtualshareholdermeeting.com/HD2023
246
Table of Contents
INVESTOR FACTSHEET
Strategy
We aim to deliver shareholder value and grow our market share by providing best-in-class customer service
through a seamless, interconnected experience for our customers. We are continuously investing to improve
our online and in-store experience, which includes investing in our associates and in enhanced fulfillment
options. In addition, to ensure we are the product authority in home improvement, we strive to provide unique
and comprehensive product offerings, continued product innovation, and exceptional convenience and value.
Capital Allocation Principles
Our disciplined approach to capital allocation enables our success, and our principles are as follows:
•
First, we intend to invest in our business to drive growth faster than the market, targeting capital
expenditures of approximately 2% of annual net sales on an ongoing basis.
•
Second, after meeting the needs of the business, we look to pay a quarterly dividend, which we intend to
increase as we grow earnings.
•
After reinvesting in the business and paying our dividend, we plan to return excess cash to our
shareholders through share repurchases.
Following our capital allocation principles, we returned over $14 billion to shareholders in the form of
dividends and share repurchases in Fiscal 2022.
Fiscal 2022 Key Financial Performance Metrics
Sales
Operating Profit
ROIC*
$157.4 billion
$24.0 billion
44.6%
Increased $6.2 billion from
Fiscal 2021
Increased $1.0 billion from
Fiscal 2021
Compared to 44.7% in
Fiscal 2021
5 YEAR TOTAL SHAREHOLDER RETURN
$200
$175
$150
$125
$100
$75
JAN. 28, 2018 FEB. 3, 2019
HD
FEB. 2, 2020 JAN. 31, 2021 JAN. 30, 2022 JAN. 29, 2023
S&P 500 Index
S&P Retail Composite Index
* ROIC is defined as net operating profit after tax, a non-GAAP financial measure, for the most recent twelve-month period,
divided by the average of beginning and ending long-term debt (including current installments) and equity for the most recent
twelve-month period. For a reconciliation of net operating profit after tax to net earnings, the most comparable GAAP financial
measure, and our calculation of ROIC, see “Non-GAAP Financial Measures” on page 29 of our 2022 Form 10-K.
247
Table of Contents
DEAR FELLOW SHAREHOLDERS:
We continue to be inspired by the tireless work of our approximately 475,000 associates who serve our
customers. Their dedication allowed us to bring exciting innovations to our businesses, expand our
assortment of products and services, and meet the demands of a changing economic climate. Inspired by
their example, the Board has remained focused on overseeing the execution of our growth strategies, which
includes taking care of our associates and supporting our communities.
Taking Care of Our People. As the labor market has grown more complex, our culture of taking care of our
associates has grown even more central to our strategy. We have remained competitive by promoting our
unique culture, maintaining safety and wellness, and offering attractive pay and benefits and career
development opportunities. Our LDC Committee receives regular updates regarding the Company’s efforts
with respect to diversity, equity and inclusion to make sure that we offer an environment that allows us to
attract and retain the best associates. Responding to feedback from our engagement with investors, we
enhanced our disclosure by providing pay equity disclosures for our U.S. workforce in our 2022 ESG Report.
Managing Leadership Changes. In Fiscal 2022, the Board oversaw the transition of leadership from Craig
Menear, our CEO since 2014, to Edward (Ted) Decker, our current Chair, President and CEO, with
Mr. Menear retiring as Chair in September 2022. The Board is extremely grateful to Mr. Menear for his many
years of dedicated service to the Company. Mr. Decker, who had been with the Company for more than two
decades, is supported in his new role by a broadly skilled and diverse Board. The Board continually assesses
its composition to ensure that it has the skills and diversity needed to provide effective oversight and support
strategic planning.
Focus on the Customer. In Fiscal 2022, we continued to see strong home improvement demand, while
navigating inflationary pressures, a tight labor market, and global supply chain disruptions. We believe our
focus on the customer experience and investments in our people, infrastructure, stores, digital platforms and
fulfillment options enabled us to deliver strong performance despite challenging macroeconomic trends. The
Board’s engagement with management helped to shape our investment priorities, enriched our ability to
anticipate the needs of our customers, and informed strategic investments across our business.
Driving Long-Term Shareholder Value. Underpinning all of these actions is a long-term commitment to our
shareholders, which is embodied in our business investment and capital allocation principles. In Fiscal 2022,
we returned over $14 billion to our shareholders through dividends and share repurchases.
Please join us for our virtual 2023 Annual Meeting of Shareholders on Thursday, May 18, 2023. The enclosed
Notice of 2023 Annual Meeting of Shareholders and Proxy Statement provides information about the Meeting,
including the matters on which you will be asked to vote. The Meeting will also include a report on the
Company’s performance and operations and a question and answer session. Thank you for your support of
The Home Depot.
Sincerely,
Edward P. Decker
Chair, President and Chief Executive Officer
Gregory D. Brenneman
Independent Lead Director
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THE HOME DEPOT, INC.
2455 Paces Ferry Road
Atlanta, Georgia 30339
NOTICE OF 2023 ANNUAL MEETING OF SHAREHOLDERS
DATE:
TIME:
PLACE:
Thursday, May 18, 2023
9:00 a.m., Eastern Time
This year’s Meeting will be held virtually via a live webcast at
www.virtualshareholdermeeting.com/HD2023. We are not holding an in-person
meeting this year.
ITEMS OF
BUSINESS:
(1)
To elect as directors of the Company the 13 persons named in the
accompanying Proxy Statement for terms expiring at the 2024 Annual Meeting
of Shareholders;
(2)
To ratify the appointment of KPMG LLP as the Company’s independent
registered public accounting firm for the fiscal year ending January 28, 2024;
(3)
To cast an advisory vote to approve executive compensation (“Say-on-Pay”);
(4)
To cast an advisory vote on the frequency of future Say-on-Pay votes;
(5)
To act on five shareholder proposals described in the Proxy Statement, if
properly presented; and
(6)
To transact any other business properly brought before the Meeting.
WHO MAY VOTE:
Shareholders of record as of the close of business on March 20, 2023 are entitled to
vote.
ANNUAL MEETING
MATERIALS:
A copy of this Proxy Statement and our 2022 Annual Report are available on our
Investor Relations website at https://ir.homedepot.com under “Financial Reports.”
DATE OF MAILING: A Notice of Internet Availability of Proxy Materials or this Proxy Statement is first
being sent to shareholders on or about April 3, 2023.
This Proxy Statement contains important information, including a description of the business that will be acted
upon at the Meeting.
Attending the Virtual Meeting: Shareholders may attend the Meeting online, vote their shares electronically,
and submit questions during the Meeting by visiting www.virtualshareholdermeeting.com/HD2023 and
entering the 16-digit control number included in their proxy card, the Notice of Internet Availability, or the
voting information form provided by their bank or broker. Online access to the Meeting will begin at 8:45 a.m.,
Eastern Time. If you encounter difficulties accessing the virtual Meeting, please call the technical support
number that will be posted at www.virtualshareholdermeeting.com/HD2023. Prior to the Meeting,
shareholders can vote at www.proxyvote.com using their 16-digit control number or by the other methods
described in this Proxy Statement. Shareholders may also submit questions in advance of the Meeting via
www.proxyvote.com.
For more information about our virtual Meeting, please see “About the 2023 Annual Meeting of
Shareholders” beginning on page 83 of this Proxy Statement.
By Order of the Board of Directors,
Teresa Wynn Roseborough
Corporate Secretary
250
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TABLE OF CONTENTS
THE HOME DEPOT 2023 PROXY STATEMENT SUMMARY
CORPORATE GOVERNANCE
Board of Directors
Board Leadership
Attendance at Board, Committee and Annual Shareholder Meetings
Committees of the Board of Directors
Company Culture: Doing the Right Thing
Board Role in Strategic Planning
Board Oversight of Risk
Commitment to ESG Matters
Shareholder Outreach and Engagement
Governance Best Practices
Director Independence
Related Person Transactions
Selecting Nominees to the Board of Directors
Director Candidates Recommended by Shareholders
Communicating with the Board
ELECTION OF DIRECTORS
Director Criteria and Qualifications
Board Refreshment and Diversity
2023 Director Nominees
RATIFICATION OF THE APPOINTMENT OF KPMG LLP
AUDIT COMMITTEE REPORT
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S FEES
Audit and Other Fees
Pre-Approval Policy and Procedures
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (“SAY-ON-PAY”)
ADVISORY VOTE ON THE FREQUENCY OF FUTURE SAY-ON-PAY VOTES
SHAREHOLDER PROPOSALS
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Summary Compensation Table
Material Terms of NEO Employment Arrangements
Fiscal 2022 Grants of Plan-Based Awards
Terms of Plan-Based Awards Granted to NEOs for Fiscal 2022
Outstanding Equity Awards at 2022 Fiscal Year-End
Options Exercised and Stock Vested in Fiscal 2022
Nonqualified Deferred Compensation for Fiscal 2022
Potential Payments Upon Termination or Change in Control
Pay Versus Performance
CEO Pay Ratio
Equity Compensation Plan Information
DIRECTOR COMPENSATION
LEADERSHIP DEVELOPMENT AND COMPENSATION COMMITTEE REPORT
BENEFICIAL OWNERSHIP OF COMMON STOCK
ABOUT THE 2023 ANNUAL MEETING OF SHAREHOLDERS
GENERAL
Section 16(a) Beneficial Ownership Reporting Compliance
Shareholder Proposals or Director Nominations for the 2024 Annual Meeting
Other Proposed Actions
Solicitation of Proxies
The Home Depot 2023 Proxy Statement
iii
1
1
1
2
2
4
4
5
7
8
9
10
11
12
13
13
14
14
14
16
25
26
27
27
27
28
29
30
41
41
58
60
61
62
64
66
67
68
71
75
77
78
80
81
83
88
88
88
89
89
252
i
Table of Contents
COMMONLY USED OR DEFINED TERMS
TERM
1997 Plan
2022 annual meeting
2022 Form 10-K
Board
By-Laws
CDP
CEO
CFO
COO
Company
Directors Plan
ESG
ESPP
EVP-HR
Exchange Act
FASB ASC Topic 718
FCPA
Fiscal 2023
Fiscal 2022
Fiscal 2021
Fiscal 2020
Fiscal 2019
Fiscal 2013
GRI
HD Supply
IT
KPMG
LDC Committee
Meeting
MIP
MRO
NACD
NCG Committee
NEO
Non-U.S. ESPP
Notice
NYSE
Omnibus Plan
Pay Governance
PEO
ROIC
SASB
Say-on-Pay
SEC
TCFD
THD Restoration Plan
TSR
DEFINITION
1997 Omnibus Stock Incentive Plan
Annual meeting of shareholders held on May 19, 2022
Annual Report on Form 10-K as filed with the SEC on March 15, 2023
Board of Directors of the Company
By-Laws of the Company (amended and restated effective February 23, 2023)
The not-for-profit organization formerly known as the Carbon Disclosure Project
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
The Home Depot, Inc. and its consolidated subsidiaries
Nonemployee Directors’ Deferred Stock Compensation Plan
Environmental, Social and Governance
Amended and Restated Employee Stock Purchase Plan
Executive Vice President – Human Resources
The Securities Exchange Act of 1934, as amended
Financial Accounting Standards Board Accounting Standards Codification Topic 718
U.S. Foreign Corrupt Practices Act
Fiscal year ending January 28, 2024
Fiscal year ended January 29, 2023
Fiscal year ended January 30, 2022
Fiscal year ended January 31, 2021
Fiscal year ended February 2, 2020
Fiscal year ended February 2, 2014
Global Reporting Initiative
HD Supply Holdings, Inc., acquired by the Company in December 2020
Information technology
KPMG LLP, the Company’s independent registered public accounting firm
Leadership Development and Compensation Committee
2023 Annual Meeting of Shareholders of the Company
Management Incentive Plan
Maintenance, repair and operations
National Association of Corporate Directors
Nominating and Corporate Governance Committee
Named executive officer
Non-U.S. Employee Stock Purchase Plan
Notice of Internet Availability of Proxy Materials
New York Stock Exchange
Omnibus Stock Incentive Plan, as Amended and Restated May 19, 2022
Pay Governance LLC, the LDC Committee’s independent compensation consultant
Principal Executive Officer
Return on invested capital
Sustainability Accounting Standards Board
Advisory vote to approve executive compensation
The U.S. Securities and Exchange Commission
Task Force on Climate-related Financial Disclosures
The Home Depot FutureBuilder Restoration Plan
Total Shareholder Return
We include website addresses throughout this Proxy Statement for reference only. The information contained
in these websites is not incorporated by reference into this Proxy Statement.
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THE HOME DEPOT 2023 PROXY STATEMENT SUMMARY
This summary highlights information contained in this Proxy Statement. This summary does not contain all of
the information you should consider. Please read the entire Proxy Statement carefully before voting as it
contains important information about matters upon which you are being asked to vote.
2023 ANNUAL MEETING INFORMATION (see pages 83-87)
Date:
Time:
Place:
Record Date:
Admission:
Meeting Archive:
Thursday, May 18, 2023
9:00 a.m., Eastern Time
Virtual meeting site: www.virtualshareholdermeeting.com/HD2023
March 20, 2023
You will need the 16-digit control number found on your proxy card, the Notice, or
the voting information form provided by your bank or broker to attend and
participate in the Meeting.
A recording of the Meeting will be available for replay at https://ir.homedepot.com
under “Events and Presentations” shortly after the Meeting.
To facilitate the participation of our shareholders, associates and other members of our community, our 2023
Annual Meeting of Shareholders will be held in a virtual format only. Shareholders can participate from any
geographic location with internet connectivity. For more information on attending the Meeting, voting your
shares during the Meeting, and submitting questions, please see “About the 2023 Annual Meeting of
Shareholders” beginning on page 83 of this Proxy Statement.
ITEMS OF BUSINESS
Board
Recommendation
Proposal
Page
Number
1.
Election of 13 directors named in this Proxy Statement for one-year terms
For each nominee
14
2.
Ratification of appointment of KPMG LLP as our independent registered public
accounting firm
For
25
3.
Advisory vote to approve executive compensation (“Say-on-Pay”)
For
28
4.
Advisory vote on the frequency of future Say-on-Pay votes
One Year
29
5.
Shareholder proposal regarding amendment of shareholder written consent right
Against
30
6.
Shareholder proposal regarding independent Board chair
Against
32
7.
Shareholder proposal regarding political contributions congruency analysis
Against
34
8.
Shareholder proposal regarding rescission of racial equity audit proposal vote
Against
37
9.
Shareholder proposal regarding senior management commitment to avoid
political speech
Against
39
Shareholders of record may vote without attending the Meeting by one of the following methods:
Vote by Internet
Vote by telephone
Vote by mail
www.proxyvote.com
1-800-690-6903
Complete and mail your proxy card
Your vote is important. Whether or not you plan to attend the Meeting,
we urge you to vote and submit your proxy over the Internet,
by telephone or by mail.
The Home Depot 2023 Proxy Statement
254 iii
Table of Contents
COMPANY CULTURE: DOING THE RIGHT THING (see page 4)
The Company’s culture is based on our servant leadership philosophy represented by the inverted pyramid,
which puts primary importance on our customers and our associates — particularly our frontline, hourly
associates — by positioning them at the top, with senior management at the base in a support role. Our
culture is brought to life through our core values, which serve as the foundation of our business and the
guiding principles behind the decisions we make every single day. These principles have served as our guide
as we have navigated the unprecedented challenges of the past few years.
Our values also guide our efforts to create an environment that will help us attract and retain skilled
associates in the competitive marketplace for talent. We believe our culture helps set us apart and provides a
distinct competitive advantage for The Home Depot. We empower our associates to deliver a superior
customer experience, and we reward associates when they provide excellent customer service and embody
The Home Depot values. We routinely assess our culture and values through associate surveys and by using
our values as a basis for our associate performance reviews. Our officers and other leaders also participate in
programs designed to build and strengthen our culture and to help support the organizational changes
necessary to create an interconnected customer experience. That focus on culture extends to our Board,
where we look for director candidates focused on integrity, innovation, and a servant-leader mindset. The
Board and its committees provide oversight and guidance to support the continued focus on and importance
of culture to our Company.
FISCAL 2022 COMPANY PERFORMANCE HIGHLIGHTS (see page 42)
Continued demand for home improvement projects, combined with nimble execution and supported by our
strategic initiatives, resulted in positive performance in Fiscal 2022. Highlights include:
•
•
•
•
•
•
Increased net sales by 4.1% to $157.4 billion.
Increased operating income by 4.3% to $24.0 billion.
Increased net earnings by 4.1% to $17.1 billion and diluted earnings per share by 7.5% to $16.69.
Generated $14.6 billion in operating cash flow.
Returned value to shareholders during Fiscal 2022 through $7.8 billion in dividends and $6.5 billion in
share repurchases.
Generated ROIC of 44.6%, compared to 44.7% in Fiscal 2021. ROIC is defined as net operating profit
after tax, a non-GAAP financial measure, for the most recent twelve-month period, divided by the average
of beginning and ending long-term debt (including current installments) and equity for the most recent
twelve-month period. For a reconciliation of net operating profit after tax to net earnings, the most
comparable GAAP financial measure, and our calculation of ROIC, see “Non-GAAP Financial Measures”
on page 29 of the 2022 Form 10-K.
FISCAL 2022 EXECUTIVE COMPENSATION HIGHLIGHTS (see pages 41-57)
We pay for performance:
• A significant portion of our NEOs’ target compensation is linked to Company performance:
¢ Approximately 90% for our CEO
¢ Approximately 80% for our other NEOs
• 100% of NEO annual cash incentive compensation and 80% of NEO annual equity compensation are tied
to Company performance against pre-established, specific, measurable financial performance goals
We seek to mitigate compensation-related risk through a variety of means:
• Annual compensation risk assessment
• Compensation recoupment policy applicable to all executive officers and clawback provisions in all equity
awards
• Anti-hedging policy applicable to all associates, officers, and directors
• Stock ownership and retention guidelines for executive officers
• No change in control agreements
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CORPORATE GOVERNANCE BEST PRACTICES (see pages 1-13)
Our corporate governance policies reflect best practices:
Shareholder Protections
Board Engagement and Oversight
ü Annual election of directors, with majority voting
ü Annual Board strategy session and review of the
ü
ü
ü
standard in uncontested director elections
Shareholder ability to call special meetings and
act by written consent
A market standard shareholder right of proxy
access
Independent Lead Director
Company’s strategic plan
Director overboarding policy
ü Director store walk policy
ü
ü Approximately 92% of directors and all Board
ü Board education and orientation program
ü Annual Board and committee self-evaluations,
ü
ü
committee members are independent
Director mandatory retirement age (age 72)
ü No shareholder rights plan, also referred to as a
“poison pill”
ü
including individual director interviews
Management succession policy set forth in
Corporate Governance Guidelines
Independent directors meet without
management
ESG ENGAGEMENT PROGRAM (see page 8)
The Company values the views of its shareholders. For a number of years, the Company has had an
expanded ESG engagement program with our institutional shareholders to discuss our environmental, social
and governance efforts and their alignment with our business priorities. In Fiscal 2022, we engaged with
holders representing over 40% of our outstanding shares on these topics. The NCG Committee receives
quarterly feedback on our ESG engagement program. This engagement, together with our commitment to
corporate governance best practices, has led to several changes in recent years, including:
• Updating our Investor Relations website to provide a page dedicated to disclosure of ESG matters, which
can be found at https://ir.homedepot.com/esg-investors, to better enable our investors to access key
information about our oversight and management of these areas.
• Making significant enhancements to our annual ESG Report to provide more transparent and quantitative
disclosure informed by several third-party standards and frameworks, including the GRI standards, the
SASB standards, the TCFD framework, and the United Nations Sustainable Development Goals.
• Providing enhanced disclosure of racial, ethnic and gender diversity of our U.S. workforce, along with the
breakdown of our U.S. workforce by race, ethnicity and gender from our consolidated EEO-1 report, and,
starting in Fiscal 2022, enhanced disclosures regarding gender and racial/ethnic pay equity within our
U.S. workforce, all of which can be found on our ESG Investor webpage and/or in our 2022 ESG Report.
• Lowering the percentage of outstanding shares required to call a special meeting of shareholders from
25% to 15%.
• Expanding our executive compensation clawback policy to specifically include conduct that causes
significant reputational harm to the Company.
• Reducing the number of outside public company boards on which our directors can serve.
• Amending our NCG Committee charter to specifically reflect the NCG Committee’s oversight of ESG
matters and Company government relations and political activity.
• Enhancing our policies and disclosure around our political activity, including updating and enhancing our
annual report on corporate political donations and trade associations memberships (as well as adding
disclosure of support for ballot initiatives), and making several years’ worth of information available on our
ESG Investor webpage.
•
In Fiscal 2022, in response to shareholder proposals approved at the 2022 annual meeting, announcing
that we are undertaking racial equity and deforestation assessments that will be completed and reported
on publicly in the second half of Fiscal 2023, as well as plans to participate in the CDP Forests reporting
process.
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Table of Contents
2023 DIRECTOR NOMINEES (see pages 16-24)
Board Committee
Composition
Director Nominees
Name
Director
Since
Gerard J. Arpey*
Ari Bousbib*
2015
2007
Jeffery H. Boyd*
2016
Gregory D. Brenneman*
Lead Director
J. Frank Brown*
Audit Committee
Financial Expert
2000
Albert P. Carey*
Edward P. Decker
2008
2022
2011
Position
Audit
Partner, Emerald Creek Group, LLC
Chairman and Chief Executive Officer,
ü
IQVIA Holdings Inc.
Former Chairman and Chief Executive
Officer, Booking Holdings Inc.
Executive Chairman, CCMP Capital
Advisors, LP
Former Managing Director and Chief
Risk Officer, General Atlantic LLC
Chair
LDC
NCG
Finance
ü
ü
Chair
Chair
ü
ü
Executive Chairman, Unifi, Inc.
Chair
ü
Chair, President and Chief Executive
Officer, The Home Depot, Inc.
Linda R. Gooden*
2015 Former Executive Vice President,
Audit Committee
Information Systems & Global
ü
ü
Financial Expert
Solutions, Lockheed Martin
Corporation
Wayne M. Hewett*
2014 Chairman, Cambrex Corporation
ü
ü
Manuel Kadre*
2018 Chairman and Chief Executive Officer,
ü
ü
MBB Auto Group
Stephanie C. Linnartz*
2018 President, Chief Executive Officer and
ü
ü
Director, Under Armour, Inc.
Paula Santilli*
2022 Chief Executive Officer, Latin America,
ü
ü
PepsiCo, Inc.
Caryn Seidman-Becker*
2022 Chair and Chief Executive Officer,
ü
ü
CLEAR Secure, Inc.
* All director nominees are independent except Mr. Decker, our Chair, President and Chief Executive Officer.
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CORPORATE GOVERNANCE
The Company has a long-standing commitment to strong corporate governance, which promotes the longterm interests of shareholders, strengthens Board and management accountability, and helps build public
trust in the Company. The Board has adopted policies and processes that foster effective Board oversight of
critical matters such as strategy, risk management, financial and other controls, compliance, culture, ESG,
and management succession planning. The Board regularly reviews our major governance documents,
policies, and processes in the context of current corporate governance trends, regulatory changes, and
recognized best practices. The following sections provide an overview of our corporate governance structure,
policies, and processes, including key aspects of our Board operations.
BOARD OF DIRECTORS
Our Board currently has 13 members: Gerard J. Arpey, Ari Bousbib, Jeffery H. Boyd, Gregory D. Brenneman,
J. Frank Brown, Albert P. Carey, Edward P. Decker, Linda R. Gooden, Wayne M. Hewett, Manuel Kadre,
Stephanie C. Linnartz, Paula Santilli and Caryn Seidman-Becker. In addition, Craig A. Menear served as a
director during Fiscal 2022 until his retirement on September 30, 2022. Each director who served during
Fiscal 2022 was, and each current director continues to be, independent other than Mr. Decker, our Chair,
President and CEO, and Mr. Menear, our former Chair and CEO.
BOARD LEADERSHIP
On at least an annual basis, our Board assesses its leadership structure, including the appointment of the
Chair of the Board. Our Lead Director is annually elected by the independent members of the Board. In
January 2022, when Mr. Menear decided to step down from the role of CEO, the independent members of our
Board assessed the circumstances faced by the Company as well as alternative leadership structures, and
determined that it was in the Company’s best interest for Mr. Menear to remain on the Board as Chair to
support the leadership transition following Mr. Decker’s appointment as CEO. When Mr. Menear announced
his retirement, the independent members of the Board again assessed its leadership structure and
determined it would be in the Company’s best interests for Mr. Decker to assume the role of Chair. The Board
believes that, given the Company’s current circumstances, having a combined Chair and CEO, a strong
independent Lead Director, and Board committees composed entirely of independent directors currently
provides the best Board leadership structure for the Company. This structure, together with our other robust
corporate governance practices, provides strong independent oversight of management while ensuring clear
strategic alignment throughout the Company.
Our Chair, with input from our Lead Director, proposes strategic priorities to the Board, and communicates the
Board’s guidance to management, which is ultimately responsible for implementing the Company’s key
strategic initiatives. Gregory D. Brenneman currently serves as our Lead Director and brings to the role a high
level of energy, engagement and oversight. He has broad and varied business experience, including in
various CEO roles; has served on our Board through multiple business cycles; and as Lead Director has
guided a number of successful leadership transitions and management changes. This experience makes him
a particularly valued advisor to our Chair, President and CEO, and provides Mr. Brenneman with a deep level
of understanding of our business that enhances his independence from management and his ability to provide
strong oversight. Our Lead Director:
•
•
•
•
•
•
•
•
Chairs Board meetings when the Chair is not present, including presiding at executive sessions of the
Board (without management present) at every regularly scheduled Board meeting;
Works with management to determine the information and materials provided to Board members;
Approves Board meeting agendas, schedules and other information provided to the Board;
Consults regularly with the Chair on other matters that are pertinent to the Board and the Company;
Has the authority to call meetings of the independent directors;
Is available for communication and consultation with major shareholders upon request;
Serves as liaison between the Chair and the independent directors; and
Conducts annual interviews of each independent director as part of the annual evaluation process.
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Table of Contents
To maximize the effectiveness of the Lead Director role, our Lead Director does not serve on any standing
Board committees but is available to attend meetings of any of our Board committees and serve as a
resource for the committees as needed.
ATTENDANCE AT BOARD, COMMITTEE AND ANNUAL SHAREHOLDER MEETINGS
The Board met 8 times during Fiscal 2022. The number of times that each standing committee of the Board
met in Fiscal 2022 is shown in the next section. Each incumbent director attended at least 75% of the
meetings of the Board and of the committees of which he or she was a member during Fiscal 2022. Every
director serving on our Board at the time of the 2022 annual meeting attended that meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
During Fiscal 2022, the Board had standing Audit, Nominating and Corporate Governance, Leadership
Development and Compensation, and Finance Committees. The charter for each committee is available on
the Company’s Investor Relations website at https://ir.homedepot.com under “Corporate Governance >
Committee Members & Charters.” The current members of our committees, the principal functions of each
committee and the number of meetings held in Fiscal 2022 are shown below. Each member of each
committee during Fiscal 2022 was, and each current member continues to be, independent under our Director
Independence Standards, as well as applicable SEC rules and NYSE listing standards.
Committee
Audit:
J. Frank Brown, Chair
Ari Bousbib
Linda R. Gooden
Wayne M. Hewett
Manuel Kadre
Stephanie C. Linnartz
Number of Meetings:
8
Leadership
Development and
Compensation:
Albert P. Carey, Chair
Linda R. Gooden
Wayne M. Hewett
Stephanie C. Linnartz
Caryn Seidman-Becker
Number of Meetings:
5
2
Committee Functions
• Oversees the Company’s accounting and financial reporting process, as well
as the integrity of the Company’s consolidated financial statements and its
internal control over financial reporting, including the audits thereof
• Has primary responsibility for overseeing risk assessment and risk
management
• Has primary responsibility for overseeing data protection and cybersecurity
risks
• Reviews the Company’s compliance with legal and regulatory requirements,
including the FCPA and other anti-bribery laws
• Reviews the qualifications, performance and independence of the Company’s
independent registered public accounting firm
• Oversees the performance of the Company’s internal audit function
• Reviews the Company’s compliance programs, including the whistleblower
program, and the Company’s monitoring of such programs
• Reviews and evaluates the performance of executive officers
• Reviews and recommends compensation of directors and the CEO and
approves compensation of other executive officers
• Reviews and recommends policies, practices and procedures concerning
compensation strategy and other human capital management matters,
including diversity, equity and inclusion
• Administers stock incentive and stock purchase plans, including determining
grants of equity awards under the plans
• Undertakes annual review and risk assessment of compensation policies and
practices
• Oversees senior management succession planning policies and procedures
• Monitors the independence of its compensation consultant
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Committee
Nominating and
Corporate Governance:
Jeffery H. Boyd, Chair
Gerard J. Arpey
Albert P. Carey
Paula Santilli
Caryn Seidman-Becker
Number of Meetings:
4
Finance:
Ari Bousbib, Chair
Gerard J. Arpey
Jeffery H. Boyd
J. Frank Brown
Manuel Kadre
Paula Santilli
Number of Meetings:
4
Committee Functions
• Develops the Company’s corporate governance practices and procedures and
oversees the related risks
• Provides oversight and makes recommendations for Company corporate
social responsibility efforts and their alignment with business priorities,
including ESG matters such as environmental initiatives, responsible sourcing,
and Company political activity
• Reviews and monitors the performance and composition of the Board and its
committees
• Makes recommendations for director nominees
• Reviews the independence of directors
• Oversees communications between directors and shareholders
• Reviews and approves related person transactions involving executive officers
and directors
• Oversees director engagement, education and orientation activities
• Oversees the management of the Company’s long-range financial outlook and
finance-related risks
• Reviews and recommends policies, practices and strategies concerning
financial matters, including the Company’s capital structure, investments, use
of derivatives, share repurchases, credit programs, credit ratings, and
insurance
• Oversees the Company’s annual capital plan, significant capital investments,
and strategies with respect to mergers and acquisitions activity
In determining the composition of the committees, the Board and the NCG Committee considered directors’
skills and qualifications in key areas relevant to the Company and each committee’s responsibilities. The table
below lists the key skills, qualifications and attributes held by the members of our committees. For more
information about the skills and qualifications of our Board members, see “2023 Director Nominees” beginning
on page 16.
Audit
Leadership Development
and Compensation
Nominating and
Corporate Governance
Finance
Strategic Management
Retail/Merchandising
CEO Experience
Supply Chain
IT
Risk Management
Finance
Cybersecurity
International
Diversity
Strategic Management
Retail/Merchandising
CEO Experience
Supply Chain
IT
E-commerce
Human Capital Management
Marketing/Communications
International
Diversity
Strategic Management
Retail/Merchandising
CEO Experience
Supply Chain
IT
E-commerce
Governance
Marketing/Communications
International
Diversity
Strategic Management
Retail/Merchandising
CEO Experience
Supply Chain
IT
E-commerce
Finance
Real Estate
International
Diversity
The Home Depot 2023 Proxy Statement
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COMPANY CULTURE: DOING THE RIGHT THING
The Home Depot has a strong commitment to ethics and integrity, and we are a values- and culture-centric
company. Our values are present in the way we do business and are more formally codified in the Company’s
Business Code of Conduct and Ethics. These values and our culture are also reflected in our annual ESG
Report, which can be found on our website at https://corporate.homedepot.com/responsibility, and which is
discussed in more detail under “Commitment to ESG Matters” beginning on page 7 below. Our focus on
culture extends to our Board, where we look for directors with a focus on doing the right thing and with a
servant-leader mindset. The Board and its committees provide oversight and guidance to support the
continued focus on and importance of culture to our Company.
Inverted Pyramid and Values Wheel
The Company’s culture is based on our servant leadership philosophy represented by the inverted pyramid,
which puts primary importance on our customers and our associates by positioning them at the top, with
senior management at the base in a support role. We bring our culture to life through our core values, which
serve as the foundation of our business and the guiding principles behind the decisions we make every day.
We believe our culture helps set us apart and provides a distinct competitive advantage for The Home Depot.
Our values also guide our efforts to create an environment that will help us attract and retain skilled
associates in the competitive marketplace for talent. We empower our associates to deliver a superior
customer experience, and we position our associates to embody our core values by integrating the
importance of our culture into ongoing development programs, performance management practices, and
rewards programs. We routinely assess our culture and values through associate surveys, which are done on
an annual basis for all associates and more frequently as “pulse check” surveys for groups of associates. Our
officers and other leaders also regularly participate in programs designed to build and strengthen our culture,
such as training on leadership skills, cross-functional collaboration, inclusiveness, and associate engagement,
and all associates receive training on unconscious bias.
Business Code of Conduct and Ethics
The Company has a Business Code of Conduct and Ethics that is applicable to all directors, officers and
associates of the Company, including the CEO and the CFO. The Business Code of Conduct and Ethics
reflects our strong commitment to ethics and integrity and provides guidance on making decisions that align
with our core values. The complete text of the code is available on the Company’s Investor Relations website
at https://ir.homedepot.com under “Corporate Governance > Overview” and is also available in print upon
request at no charge. The Company will post any amendments to or waivers from the Business Code of
Conduct and Ethics (to the extent applicable to the Company’s executive officers and directors) at this
location on its website.
BOARD ROLE IN STRATEGIC PLANNING
The Company’s strategy is rooted in its culture, guided by our inverted pyramid to put customers first and
focus on investments that better meet their changing needs and expectations. We are focused on bringing to
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life our vision of an interconnected, frictionless shopping experience that enables our customers to
seamlessly blend the digital and physical worlds.
Our Board plays an important role in the continued evolution of the Company’s strategic planning process. At
a dedicated strategy session each fall and through regular discussions at each quarterly Board meeting, our
Board reviews the Company’s strategy and capabilities and actively engages with management to ensure that
the Company is well-positioned to continue creating shareholder value. In Fiscal 2022, those discussions
focused on growing our sales with our professional customers, particularly by building our capabilities to
support larger planned purchases by these customers, as well as our continuing efforts to create a frictionless
customer experience. As discussed in “Election of Directors” beginning on page 14, each director nominee
possesses specific skills and qualifications that provide the Company with key insights into elements
necessary to continue to enhance our customer experience and support our strategy. As a result of our focus
on Board composition, we believe we have a Board with an appropriate mix of skills, backgrounds and
experiences that leverages its diversity to effectively oversee our strategy as the Company positions itself to
remain agile in a dynamic retail environment.
BOARD OVERSIGHT OF RISK
The Board’s oversight of risk is accomplished through (1) the identification of key risks facing the Company
and (2) the mapping of those risks to the appropriate Board committee and/or to the full Board for oversight,
based on the nature of the risk. The enterprise risk framework that we use to identify and manage those key
risks considers a number of enterprise-level risks, including competitive environment, brand and reputation,
regulatory and compliance, and security, as well as external and internal factors that could distract the
Company from our business or derail our strategic objectives. The Board reviews these key risks and the
related framework annually, including periodic surveys of Board members and senior management to identify
and assess key enterprise risks. The Board or appropriate Board committees also discuss selected risks in
more detail throughout the year.
The table below identifies key risk areas overseen by the Board and its committees.
Key Areas of Risk Oversight
Full Board
•
Has primary responsibility for risk oversight, including approval of strategic objectives and
defining risk appetite
•
Delegates oversight of management of certain risks to Board committees
•
Receives regular reports from the committees regarding risk-related matters
Audit
• Overall risk assessment and
management
Leadership Development
Nominating and
and Compensation
Corporate Governance
• Senior executive
• Corporate governance
compensation
Finance
• Long-range strategic
planning
• Financial exposures,
statements, controls,
systems, and reporting
• Senior executive
succession planning
• Regulatory and compliance,
including FCPA/anti-bribery
and our whistleblower
program
• Data protection and
cybersecurity
• Internal audit and related
investigatory matters
• Overall risk related to the • Policies on political
• Capital structure, including
Company’s
activity, including political
investments and capital
compensation policies
spending and payments
allocation principles
and practices
to trade associations
• Human capital
• Related person
• Annual capital plan and
management
transactions
key capital investments
• Non-employee director
• Corporate social
• Merger and acquisition
strategy
compensation
responsibility,
environmental, and
• Diversity, equity and
responsible sourcing
inclusion, including pay
initiatives, risks and
equity
opportunities
• Product quality and safety
and associate and customer
safety
The Home Depot 2023 Proxy Statement
• Director succession
planning and board
composition
• Long-range financial
outlook and financerelated risks
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While the Board and its committees have responsibility for general risk oversight, management is charged
with managing risk. As part of our risk assessment process, the Board and each committee receive
presentations from management throughout the year regarding specific potential risks and trends as
necessary. At each Board meeting, our Chair has the opportunity to discuss in a directors-only session
matters of particular importance or concern, including any significant, evolving or nascent risks that may be of
concern to the Board or the Company, and our Lead Director presides over an executive session of our
independent directors at which risks faced by the Company may be discussed. Additionally, during Boardlevel review of the Company’s short- and long-term strategies, as discussed in more detail above, the Board
considers significant risks facing the Company, as well as emerging risks and current trends, and their
potential impact. We believe that the practices described above and our current leadership structure facilitate
effective Board oversight of our key risks.
Certain of the risk areas identified in the table above are discussed in more detail below.
Enterprise Risk Management
In accordance with NYSE requirements and our Audit Committee charter, our Audit Committee has primary
responsibility for overseeing risk assessment and management, including the Company’s major financial
exposures and compliance risks and the steps management has taken to monitor and control those
exposures and risks. The Audit Committee stays apprised of significant actual and potential risks faced by the
Company in part through review of quarterly reports of our top enterprise risks. These reports denote whether
primary oversight of each risk resides with a particular Board committee or the full Board. Our Internal Audit
and Corporate Compliance team holds quarterly risk discussions with each member of our senior leadership
team, which inform the development and updating of the top enterprise risks. In addition, leaders from Internal
Audit, Corporate Compliance and Legal hold quarterly meetings to discuss key risks. The Company also
maintains an Enterprise Risk Council composed of leaders from the principal functional areas of the Company
who can be called as needed to discuss significant new or emerging risks. Our Vice President of Internal Audit
and Corporate Compliance attends each of the various risk-related meetings and reports the top enterprise
risks to senior management regularly, attends each quarterly Audit Committee meeting, and leads the Board’s
annual review of our risk framework.
Data Protection and Cybersecurity
The Audit Committee has primary responsibility for overseeing risks related to data protection and
cybersecurity, although the full Board also exercises oversight over these risks. On a quarterly basis, or more
frequently as needed, the Audit Committee and/or the full Board receives detailed reports on data protection
and cybersecurity matters from senior members of our IT department, including our Chief Information Officer
and Chief Information Security Officer. At least once a year, the full Board holds a meeting dedicated to data
protection and cybersecurity. The topics covered at the various Audit Committee and full Board meetings
include risk identification and management strategies, consumer data protection, the Company’s ongoing risk
mitigation activities, results of third party assessments and testing, results of tabletop exercises, updates on
potential cybersecurity threats, cybersecurity resilience, updates on annual associate training and other
specific training initiatives, and cybersecurity strategy and governance structure. In addition, our Internal Audit
department routinely performs audits on various aspects of data protection and cybersecurity and reports the
results of these audits in its quarterly reports to the Audit Committee.
Our Vice President of Internal Audit and Corporate Compliance chairs our Data Security and Privacy
Governance Committee, which meets quarterly and is composed of leaders from the functional areas of the
Company. The Data Security and Privacy Governance Committee was created to provide enterprise-wide
awareness of data protection, privacy and cybersecurity matters, including oversight of related risks,
mitigation and incident response plans, awareness and training programs, and regulatory compliance. Its
activities are reported to the Audit Committee and/or the full Board by the chair of the committee, as
appropriate.
FCPA and Anti-Bribery
The Audit Committee is responsible for oversight of risks relating to bribery, corruption and FCPA compliance,
in part through quarterly reports from our FCPA Oversight Committee, which oversees enterprise-wide
compliance with the FCPA and the anti-bribery laws of the other jurisdictions in which we conduct business.
The FCPA Oversight Committee meets quarterly and is composed of our Executive Vice President, General
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Counsel and Corporate Secretary, who chairs the committee; our Executive Vice President and CFO; our Vice
President of Internal Audit and Corporate Compliance; and representatives from each non-U.S. division, the
business functions responsible for administration of our policies, and the business functions that manage our
transactions outside of the U.S. The FCPA Oversight Committee receives regular updates and manages
enhancements to company policies, regular risk assessments, the Company’s training program for key
associates and third parties, and its third-party diligence and monitoring program. It also oversees any
relevant investigatory work and FCPA-specific audits of our international operations performed through our
internal audit team and utilizing outside anti-bribery experts.
COMMITMENT TO ESG MATTERS
We believe the significant ESG matters for our Company are embedded in how we run our business, align
closely with our corporate culture and strategy, and support value creation for our business and shareholders.
We have three key pillars of focus for our ESG initiatives: (1) Focus on Our People, (2) Operate Sustainably,
and (3) Strengthen Our Communities. Within the context of each of these three pillars, our annual ESG
Report describes the key corporate social responsibility, sustainability, and governance issues relevant to the
Company, our initiatives and goals related to those issues, and our progress with respect to those initiatives.
The Company maintains a dedicated webpage to provide access to information about the Company’s
oversight and management of relevant ESG matters, which can be found at https://ir.homedepot.com/esginvestors. Our annual ESG Reports, which are available on this dedicated ESG Investor webpage, reflect our
cross-functional efforts as well as feedback from our shareholders and other stakeholders.
Board and Committee ESG Oversight
Because it encompasses such a broad area, ESG oversight is divided among several committees and the full
Board.
•
•
•
•
Each year, the full Board receives a report on our corporate social responsibility and sustainability
strategy and activities, including a discussion of our ESG efforts, ESG communications, and annual ESG
Report.
The NCG Committee has primary responsibility for oversight of ESG matters generally and the alignment
of those matters with our business priorities. This includes reviewing and making recommendations to the
Board regarding our ESG practices and operational initiatives. The NCG Committee oversees our
responsible sourcing program and related supply chain risks. The NCG Committee also provides
oversight of corporate political activity, reviewing corporate donations, payments to trade associations,
and our political activity policy at least annually and more frequently as needed. The NCG Committee
receives regular reports on ESG engagements with shareholders and related investor feedback, as well
as information on recent developments with respect to ESG matters.
The LDC Committee oversees risks related to human capital management, including matters relating to
associate compensation and benefits; associate engagement, development and training; and diversity,
equity and inclusion, including our pay equity analyses. The LDC Committee receives updates on our
diversity, equity and inclusion initiatives at every regularly scheduled quarterly meeting. The LDC
Committee also receives regular updates on the findings from our reviews of compensation practices for
our U.S. associates.
The Audit Committee oversees risks related to customer and associate safety. Our full Board also
receives quarterly updates on safety matters.
ESG Governance Committee
To provide management-level oversight and coordination of ESG efforts, the Company has formed a crossfunctional ESG Governance Committee chaired by a member of the senior leadership team. The Committee
is focused on identifying key ESG-related issues of concern to our stakeholders, further developing our ESG
strategies to ensure they support the business and long-term value creation, and coordinating the execution
of our efforts. This Committee builds on the efforts of our previous ESG Communications Committee, which
was designed to better communicate the Company’s ESG activities and efforts.
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SHAREHOLDER OUTREACH AND ENGAGEMENT
We approach shareholder engagement as an integrated, year-round process involving senior management,
our investor relations team and our corporate governance team, as well as other subject matter experts as
appropriate. In Fiscal 2022, we engaged with holders of over 40% of our outstanding shares to discuss ESG
topics as well as the matters raised by the shareholder proposals on the ballot at our annual meetings and
other topics of interest to our investors. In addition to our ESG engagement, we also have an active investor
relations program engaging throughout the year with a significant portion of our shareholders (and potential
holders) on matters regarding corporate strategy, financial performance, business environment, and other
relevant topics. The Board values our shareholders’ perspectives, and feedback from our shareholders on our
business, corporate governance, compensation, sustainability practices, human capital management, and
other matters has been important for discussions with the Board and its committees throughout the year. This
engagement, together with our cross-functional ESG efforts and our commitment to robust corporate
governance, has led to a number of enhancements and best practices over the past several years, including
the following:
•
•
•
•
•
•
•
•
•
8
As noted above, we maintain on our Investor Relations webpage a page dedicated to disclosure of ESG
matters, which can be found at https://ir.homedepot.com/esg-investors, to better enable our investors to
access key information about our oversight and management of these areas.
In our annual ESG Report, we provide a chart highlighting our key ESG goals and timelines to increase
transparency and enhance our disclosure. This chart includes several ESG-related goals, including a
pledge to produce or procure renewable electricity equivalent to the electricity needs for all Home Depot
facilities worldwide by 2030.
We have made continual enhancements to our annual ESG Report to provide more transparent and
quantitative disclosure informed by several third-party standards and frameworks, including the GRI
standards, the SASB standards, the TCFD framework, and the United Nations Sustainable Development
Goals (UN SDGs). We are also continuing to work with the Science Based Targets Initiative (SBTi) on
evaluating potential SBTi goals to reduce carbon emissions.
We provide detailed disclosure in our ESG Report of the racial, ethnic and gender diversity of our U.S.
workforce, along with the breakdown of our U.S. workforce by race, ethnicity and gender from our
consolidated EEO-1 report, and, starting in Fiscal 2022, we added disclosures regarding the gender and
racial/ethnic pay equity within our U.S. workforce.
We lowered the percentage of outstanding shares required to call a special meeting of shareholders from
25% to 15%.
We expanded our executive compensation clawback policy to specifically include conduct that causes
significant reputational harm to the Company. We are currently evaluating our clawback policy for
additional updates in light of recently adopted SEC rules.
We reduced the number of outside public company boards on which our directors can serve.
We updated our NCG Committee Charter to specifically address the NCG Committee’s oversight of ESG
matters and Company political activity, including an annual review of our political activity policy. We
enhanced our political activity policy to add detail around oversight and alignment with our core values. In
Fiscal 2022, we updated and enhanced our annual report on corporate political donations and trade
associations memberships (including the addition of disclosure of support for ballot initiatives), and we
make several years’ worth of information available on our ESG Investor webpage. We have also
expanded our disclosure regarding oversight of our political activity, as well as the focus areas of our
advocacy, in our ESG Report and on our corporate website at https://corporate.homedepot.com under
“Responsibility > Political Engagement.”
In Fiscal 2022, in response to shareholder proposals approved at the 2022 annual meeting, we
announced that we are undertaking racial equity and deforestation assessments that will be completed in
the second half of Fiscal 2023. We also announced plans to participate in the CDP Forests reporting
process. Both assessments are being conducted by a third-party firm with recognized expertise, and we
will publicly release reports on these assessments that will provide expanded disclosure on our efforts in
connection with supporting diversity, equity and inclusion and sustainable forestry.
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GOVERNANCE BEST PRACTICES
Our Board believes that effective governance means regular and thoughtful evaluation of the Company’s
governance policies and processes in light of the broader governance landscape. As a result, our governance
framework contains a variety of methods for shareholder engagement, as well as mechanisms to ensure
effective Board operations.
Shareholder Rights
Our shareholders have the following important rights:
•
Right to call a special meeting of shareholders. In early 2019, based on feedback from our ESG
shareholder engagement program, we amended our By-Laws to reduce the threshold for calling a special
meeting to holders of 15% or more of our common stock, from the prior 25%.
•
Right to act by majority written consent in lieu of a meeting.
•
Right to include director nominees in our Proxy Statement. Our “proxy access” right permits a
shareholder, or group of up to 20 shareholders, owning at least 3% of the Company’s outstanding
common stock continuously for at least three years to nominate and include in the Company’s proxy
materials director nominees constituting up to the greater of two individuals or 20% of the Board, provided
that the shareholders and the nominees satisfy the requirements specified in the Company’s By-Laws.
In addition, as described in more detail on page 13, shareholders may recommend Board candidates for
consideration by the NCG Committee.
Corporate Governance Guidelines
The Company maintains Corporate Governance Guidelines that establish a common set of expectations to
assist the Board and its committees in performing their duties. The table below provides an overview of
several key elements of our Corporate Governance Guidelines, which are available on the Company’s
Investor Relations website at https://ir.homedepot.com under “Corporate Governance > Overview” and in print
at no charge upon request.
Key Corporate Governance Guidelines Provisions
Outside Board We limit the number of other public company boards our directors may join to ensure that
Policy
a director is not “overboarded” and is able to devote the appropriate amount of time and
attention to the oversight of the Company. In Fiscal 2019, based on an assessment of the
overboarding policies of a number of our institutional shareholders, we updated our
outside board policy to reduce the number of outside public company boards on which our
directors may serve. Generally, a director who is an executive officer with another public
company may only serve on the board of that company in addition to his or her service on
our Board. If the only executive officer role held by a director is that of executive chair of
another company, the director may serve on the board of that company, our Board, and
the board of one other public company, subject to a determination by the NCG Committee
that the additional commitment, when added to the director’s existing executive chair role,
permits sufficient time for, and will not impair his or her service on, our Board. Other
directors may not serve on more than three other public company boards, and no member
of the Company’s Audit Committee may serve on more than two other public company
audit committees. In addition, our CEO may not serve on more than one other public
company board. Any director seeking to join the board of directors of another public
company or for-profit organization must first notify the NCG Committee and obtain its
approval to continue as a member of our Board.
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Key Corporate Governance Guidelines Provisions
Succession
A key responsibility of the Board is overseeing the identification and development of senior
Planning
leadership. Both the Board and LDC Committee are actively engaged in succession
planning. The LDC Committee oversees the development and implementation of
succession plans for senior leadership positions. This process includes review and
discussion of the performance and development of senior leadership on a regular basis,
along with management’s evaluation and recommendations for senior leadership
succession. The Board also annually reviews succession plans for senior management
and the CEO, including both a long-term succession plan and an emergency succession
plan. To assist the Board, our CEO annually provides his assessment of senior leaders
and their potential to succeed at key senior management positions. The Board meets
potential leaders at many levels across the organization through formal presentations and
informal events throughout the year, including through the store walks and management
meetings that are part of our director engagement program.
Director
The NCG Committee oversees the director engagement, continuing education and
Engagement,
orientation program, which includes both internal activities and access to external
Continuing
programming. Our ongoing engagement program includes periodic walks of our stores and
Education and other facilities and in-depth meetings with management to provide our directors with the
Orientation
opportunity to observe our strategic initiatives in action and to expand their insight into
Program
business operations and activities. We also have a structured director orientation program
for new directors during their first year on the Board. This program includes information
sessions with committee chairs and senior management and visits to our stores and
facilities to accelerate their on-boarding. We also provide all directors with membership in
the NACD and continuing education opportunities.
Board SelfEach year, the Board, as required by our Corporate Governance Guidelines, conducts an
Evaluations
evaluation of its performance and effectiveness. As set forth in its charter, the NCG
Committee oversees this process, which includes two key components:
• The Board and each committee conduct self-evaluations, which solicit feedback on a
range of issues, including Board and committee structure, leadership, culture and
dynamics; meeting content; and interactions with management. The results of these
self-evaluations are discussed in executive session, generally at the first regularly
scheduled meeting of the fiscal year.
• Our Lead Director conducts individual interviews with each of the directors. These
interviews address similar topics, with the one-on-one setting permitting more detailed
feedback on Board operations and director performance, as well as providing
opportunities for mentoring newer directors. The feedback from these interviews is
typically discussed with the full Board at its February meeting.
DIRECTOR INDEPENDENCE
The Director Independence Standards in our Corporate Governance Guidelines, which are available on the
Company’s Investor Relations website at https://ir.homedepot.com under “Corporate Governance >
Overview,” exceed the independence standards adopted by the NYSE. Pursuant to these Corporate
Governance Guidelines, the Board and the NCG Committee reviewed the independence of each current
director in early 2023. During this review, the Board and the NCG Committee considered all relevant facts and
circumstances related to transactions and relationships between each director (and his or her immediate
family and affiliates) and the Company and its management to determine whether any such relationship or
transaction would prohibit a director from being independent under SEC rules, NYSE listing standards, or the
Company’s Director Independence Standards.
Based on this review and the recommendation of the NCG Committee, the Board affirmatively determined
that all of our current directors and director nominees are independent except Edward P. Decker, our Chair,
President and CEO.
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The Company has purchase, sale and other transactions and relationships in the normal course of business
with companies with which certain Company directors are associated but which our Board determined are not
material to our Company, the directors or, except as otherwise indicated below, the companies with which the
directors are associated. These transactions were reviewed and considered by the Board and the NCG
Committee in determining the independence of Company directors. In particular, the Board and the NCG
Committee took into account the following transactions during Fiscal 2022:
•
•
•
•
•
•
•
•
•
Mr. Arpey serves as a director of S.C. Johnson & Son, Inc., from which we purchased cleaning supply
merchandise. In addition, S.C. Johnson purchased MRO products from us.
Mr. Boyd serves as a director of CLEAR Secure, Inc., from which we purchased travel-related services.
Mr. Brenneman serves as Executive Chairman of CCMP Capital Advisors, LP, which manages funds that
have or had an equity interest in: (1) BGIS, from which we purchased facilities management services and
which purchased MRO products from us; (2) Hayward Holdings, Inc. (“Hayward”), from which we
purchased pool equipment and related accessories; (3) Hillman Holdings, Inc. (“Hillman”), from which we
purchased fasteners and other small hardware items and which purchased MRO products from us; and
(4) Shoes for Crews, from which we purchased footwear. In Fiscal 2022, the Company was one of
Hillman’s largest customers. Mr. Brenneman is a member of the board of directors of Hayward and BGIS,
but otherwise, he does not serve as a director or officer of these portfolio companies.
Ms. Gooden serves as a director of General Motors Company, which purchased MRO products from us.
Mr. Hewett serves as a director of Wells Fargo & Company, from which we obtained banking services,
and as a director of United Parcel Service, Inc., from which we purchased shipping and logistics services.
In addition, Wells Fargo and UPS purchased MRO products from us.
Mr. Kadre serves as a director and Chairman of Republic Services, Inc., from which we purchased waste
management services and which purchased MRO products from us.
Ms. Linnartz served in Fiscal 2022 as President of Marriott International, Inc., from which we purchased
lodging and event-related services. In addition, Marriott purchased MRO products from us.
Ms. Santilli serves as Chief Executive Officer, Latin America of PepsiCo, Inc., from which we purchased
food and beverage products and which purchased MRO products from us.
Ms. Seidman-Becker serves as Chair and Chief Executive Officer of CLEAR Secure, Inc., from which we
purchased travel-related services.
In each instance described above, the amount of payments made and received by each entity represented an
immaterial percentage of the Company’s and, except as otherwise stated above, the other entity’s revenues.
The Board and the NCG Committee believe that all of the transactions and relationships during Fiscal 2022
described above were on arm’s-length terms that were reasonable and competitive and that the directors did
not participate in or receive any direct personal benefit from these transactions.
RELATED PERSON TRANSACTIONS
The NCG Committee reviews all transactions of the Company involving any of the Company’s executive
officers, directors, or any of their immediate family members, and approves, ratifies (where permitted by
NYSE listing standards), or rejects any related person transaction that is identified. The Company has
adopted a written policy requiring reasonable prior review and approval by the NCG Committee of all “Related
Person Transactions.” These are transactions in which the Company is a participant, the amount involved
exceeds $120,000, and a director, executive officer, or holder of more than 5% of our common stock has a
direct or indirect material interest.
Under our Related Person Transaction Policy, our General Counsel has primary responsibility for determining
whether, based on the facts and circumstances, a related person has a direct or indirect material interest in a
proposed or existing transaction. To help identify Related Person Transactions, each director and executive
officer completes a questionnaire that requires the disclosure of any transaction that the person, any member
of his or her immediate family, or any entity with which he or she is affiliated, has or will have with the
Company. Our General Counsel also conducts an investigation that includes a review of the Company’s
financial systems to determine if a director or executive officer, or a company with which he or she is affiliated,
engaged in transactions with the Company during the fiscal year. Additionally, the Company’s Business Code
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of Conduct and Ethics, Corporate Governance Guidelines and conflict of interest policies require that all
associates and directors promptly disclose all conflicts or potential conflicts of interest.
If the General Counsel determines that the related person would have a direct or indirect material interest in
the transaction, the General Counsel must present the transaction to the NCG Committee for review, which
must then either approve or reject the transaction in accordance with the terms of the policy. While making
this determination, the NCG Committee must consider all relevant information available and, as appropriate,
take into consideration the following:
•
•
•
•
•
•
•
Whether the transaction was undertaken in the ordinary course of business of the Company;
Whether the transaction was initiated by the Company or the related person;
Whether the transaction contains terms no less favorable to the Company than terms that could have
been reached with an unrelated third party;
The purpose of the transaction and its potential benefits to the Company;
The approximate dollar value of the transaction, particularly as it involves the related person;
The related person’s interest in the transaction; and
Any other information regarding the related person’s interest in the transaction that would be material to
investors under the circumstances.
The NCG Committee may only approve the transaction if it determines that the transaction is reasonable, on
competitive terms, and fair to the Company and not inconsistent with the best interests of the Company as a
whole. Further, in approving any such transaction, the NCG Committee has the authority to impose any terms
or conditions it deems appropriate on the Company or the related person.
If review of a Related Person Transaction by the Chair of the NCG Committee is required between NCG
Committee meetings, and it is determined that approval of a Related Person Transaction by the entire NCG
Committee prior to consummation or effectiveness of the transaction is impracticable under the
circumstances, the Chair of the NCG Committee will review and may approve the transaction at his or her
discretion. The Chair of the NCG Committee must report that transaction to the NCG Committee at its next
regularly scheduled meeting, including the rationale for approving the transaction prior to full committee
review. Transactions that are determined to be directly or indirectly material to the Company or a related
person are disclosed in the Company’s Proxy Statement. During Fiscal 2022, there were no Related Person
Transactions that require disclosure in this Proxy Statement.
SELECTING NOMINEES TO THE BOARD OF DIRECTORS
The NCG Committee is responsible for considering candidates for the Board and recommending director
nominees to the Board. All members of the NCG Committee have been determined to be independent by the
Board pursuant to SEC rules, NYSE listing standards and the Company’s Director Independence Standards.
The NCG Committee considers a diverse slate of candidates for nomination to the Board from a variety of
sources. Current members of the Board are considered for re-election unless they have notified the Company
that they do not wish to stand for re-election and provided they have not reached age 72 by the calendar
year-end immediately preceding the Company’s next annual meeting of shareholders. The NCG Committee
may also consider candidates recommended by current members of the Board, members of management,
and shareholders, as discussed below under “Director Candidates Recommended by Shareholders.”
From time to time, the NCG Committee engages independent search firms to assist in identifying potential
Board candidates. Services provided by the search firms include identifying and assessing potential director
candidates, ensuring candidates meet criteria established by the NCG Committee, verifying information about
the prospective candidate’s credentials, and obtaining a preliminary indication of interest and willingness to
serve as a Board member.
The NCG Committee evaluates all candidates, regardless of who recommended a candidate, based on the
same criteria. The criteria and the process by which director nominees are considered and selected are
discussed further below under “Election of Directors.”
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DIRECTOR CANDIDATES RECOMMENDED BY SHAREHOLDERS
The NCG Committee will consider all candidates recommended by a shareholder (or group of shareholders)
who owns at least 1% of the Company’s outstanding shares of common stock and who has held such shares
for at least one year as of the date of the recommendation. If the shareholder does not meet these
requirements, the NCG Committee may, but is not obligated to, evaluate the candidate and consider him or
her for nomination to the Board. A shareholder wishing to recommend a candidate must submit the following
documents to the Corporate Secretary, The Home Depot, Inc., 2455 Paces Ferry Road, Building C-22,
Atlanta, Georgia 30339 not less than 120 calendar days prior to the anniversary of the date on which the
Company’s Proxy Statement was released to shareholders in connection with the previous year’s annual
meeting of shareholders:
•
•
•
A recommendation that identifies the candidate and provides contact information for that candidate;
The written consent of the candidate to serve as a director of the Company, if elected; and
Documentation establishing that the shareholder making the recommendation meets the ownership
requirements set forth above.
If the candidate is to be evaluated by the NCG Committee, the Corporate Secretary will request from the
candidate a detailed résumé, an autobiographical statement explaining the candidate’s interest in serving as a
director of the Company, a completed statement regarding conflicts of interest, and a waiver of liability for a
background check. These documents must be received from the candidate before the first day of February
preceding the annual meeting of shareholders.
COMMUNICATING WITH THE BOARD
Shareholders and others who are interested in communicating directly with the Board, our Lead Director, or
other independent directors, including those wishing to express concerns relating to accounting, internal
controls, audit matters, fraud or unethical behavior, may do so by e-mail at HD_Directors@homedepot.com or
by writing to the directors at the following address:
[Name of Director or Directors]
c/o Corporate Secretary
The Home Depot, Inc.
2455 Paces Ferry Road
Building C-22
Atlanta, Georgia 30339
The Corporate Secretary reviews and provides the Board and the NCG Committee with a summary of all such
communications and a copy of any correspondence that, in the opinion of the Corporate Secretary, deals with
the functions of the Board or the standing committees of the Board or that otherwise requires the attention of
the Board and the NCG Committee. Correspondence relating to accounting, internal controls or auditing
matters is brought to the attention of the Company’s internal audit department and, if appropriate, to the Audit
Committee. All communications are treated confidentially.
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ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
The Board is elected annually by shareholders to oversee the long-term health and the overall success and
financial strength of the Company’s business. The NCG Committee is responsible for considering candidates
for the Board and recommending director nominees for the Board.
DIRECTOR CRITERIA AND QUALIFICATIONS
The NCG Committee, when considering the composition of our Board, focuses on ensuring a diverse mix of
directors that collectively possess the breadth of expertise and experience appropriate for a retailer of our size
and geographic scope. The Company is the world’s largest home improvement retailer, with 2,322 stores in
the United States, Canada and Mexico as of the end of Fiscal 2022. Our business involves all facets of retail,
including merchandising, supply chain, finance, real estate, human capital management, information
technology and cybersecurity, e-commerce, strategic management, marketing and communications,
international commerce, and corporate governance. The NCG Committee evaluates each director candidate
on the basis of the length, breadth and quality of the candidate’s business experience, the applicability of the
candidate’s skills and expertise to the Company’s business and strategic direction, the perspectives that the
candidate would bring to the entire Board, and the personality or “fit” of the candidate with our culture, existing
members of the Board, and management.
The NCG Committee seeks directors who can:
•
•
•
•
Demonstrate integrity, accountability, informed judgment, financial literacy, creativity and vision, and our
servant leadership mindset;
Be prepared to represent the best interests of all Company shareholders and not just one particular
constituency;
Demonstrate a record of professional accomplishment in his or her chosen field; and
Be prepared and able to participate fully in Board activities, including membership on at least two
committees.
BOARD REFRESHMENT AND DIVERSITY
We routinely assess the composition of the Board and aim to strike a balance between the knowledge and
understanding of the business that comes from longer-term service on the Board and the fresh ideas and
perspective that can come from adding new members. We also consider the complement of relevant skills
and experience on the Board as our business changes and expands. As explained in more detail below, we
also believe that it is important that our Board reflects diversity of age, gender, race and ethnicity.
Our director nominees have a balance of tenure, diversity and age, which provides our Board with an
effective mix of experience and fresh perspective
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The retail landscape has rapidly evolved over the past decade and continues to change and develop. We
believe that Board refreshment is critical as the Company’s business strategy continues to evolve with the
competitive landscape. In the past six years, we have added four new independent directors who have added
to the skills and experience of our Board and its ability to support the Company’s business and the creation of
long-term shareholder value. These new directors also expanded the diversity of the Company’s board, as
each is either female and/or identifies as being part of a historically under-represented racial or ethnic group.
A number of our directors have first-hand experience building an interconnected experience for their own
companies’ customers.
We believe that we also benefit from having several seasoned directors, including our Lead Director, who are
well-versed in the Company’s business and who can help facilitate the transfer of institutional knowledge.
Having a tenured Lead Director who has served with five of our CEOs and through several different business
cycles has proven extremely valuable, particularly as we have added new Board members and experienced
senior management transitions. We believe the average tenure of our directors reflects the balance the Board
seeks to achieve between different perspectives brought by long-serving and newer directors.
Commitment to Diversity
In addition, the NCG Committee recognizes the importance of selecting directors from various backgrounds
and professions and who are diverse as to age, gender, race and ethnicity, to ensure that the Board as a
whole has a wealth of experiences and perspectives to inform its decisions and keep pace with a rapidly
changing marketplace. We believe diversity makes our business stronger and more innovative.
To accomplish this goal, the NCG Committee is committed to including in each director search candidates
who reflect diverse backgrounds, including diversity of race and gender, as set forth in our Policy on the
Consideration and Evaluation of Board Candidates, available on our Investor Relations website at https://
ir.homedepot.com under “Corporate Governance > Overview.” The NCG Committee assesses the
composition, including the diversity, of the Board at least once a year and more frequently as needed,
particularly when considering potential new candidates.
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2023 DIRECTOR NOMINEES
After evaluating the performance and experience of each of the current directors and the composition of the
full Board, the NCG Committee and the Board have recommended the election of all 13 of our incumbent
Board members. The tables and the detailed director biographies below summarize the skills, qualifications
and attributes of our directors that are important to us and depict how the composition of our nominees for the
Board meets these needs.
Qualifications and
Attributes
Retail/
Merchandising
Strategic
Management
Supply Chain
Marketing/
Communications
E-Commerce
Real Estate
Human Capital
Management
Information
Technology
Data Protection/
Cybersecurity
International
Finance
Governance
CEO Experience
Diversity
16
Relevance to The Home Depot
Experience in the retail industry provides a relevant understanding of our business,
strategy and marketplace dynamics.
Our Board regularly reviews and has input on our strategic plan, which guides our
long-term business investments and objectives and our capital allocation.
Upstream and downstream supply chain structure and design, as well as last-mile
offerings, are critical to our strategic initiatives and responsible sourcing.
Effective marketing and communications are critical to building customer loyalty,
deepening customer engagement, and expanding market share.
E-commerce is an essential part of the Company’s strategy for growth of the
business and optimization of our customer experience.
Given our significant physical footprint, directors with real estate experience can
provide insight on opportunities and managing our locations.
With our significant associate population, directors with experience in organizational
management and talent development provide key insights into developing and
investing in our associates.
We rely on technology to manage customer, associate and supplier data and deliver
products and services to the market.
The protection of customer, associate, and supplier data is of the utmost importance
and will continue to grow in importance as we expand technological capabilities.
With global operations in several countries, international experience helps us
understand opportunities and challenges.
Our business involves complex financial transactions and reporting requirements.
As a public company, we and our shareholders expect effective oversight and
transparency.
The significant leadership experience that comes from a CEO role can provide
insight on business operations, driving growth, and building and strengthening
corporate culture.
We believe diversity strengthens our competitive advantage and reflects the
customers we serve.
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Each of the 13 individuals nominated for election to the Board would hold office until the 2024 Annual Meeting
of Shareholders and until his or her successor is elected and qualified. Each nominee has agreed to serve as
a director if elected. If for some unforeseen reason a nominee becomes unwilling or unable to serve, the
Board may reduce the number of directors that serve on the Board or choose a substitute nominee in
accordance with our By-Laws. If a substitute nominee is chosen and you have submitted your proxy, the proxy
holders may vote your shares for the substitute nominee in their discretion.
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The 13 nominees for election to the Board are set forth below.
GERARD J. ARPEY
Director since: 2015
Age: 64
Committees:
Nominating and
Corporate Governance
Finance
Mr. Arpey has been a partner in Emerald Creek Group, LLC, a private equity firm
based in Southern California, since 2012. Prior to his retirement in November 2011,
Mr. Arpey served as Chief Executive Officer of AMR Corporation, a global airline
holding company, and its subsidiary American Airlines, from 2003 through
November 2011. From 2004 through November 2011, he was also Chairman of the
AMR Board of Directors. Mr. Arpey previously served as American Airlines’
President and Chief Operating Officer, Senior Vice President of Finance and
Planning, and Chief Financial Officer. Mr. Arpey currently serves on the board of
directors of S. C. Johnson & Son, Inc., a privately-held company. He also served as
a trustee of the American Beacon Funds from 2012 to 2021.
Skills and qualifications: Mr. Arpey brings to the Board extensive organizational
management, strategic, financial, IT, governance, and international experience from
his service as chairman, chief executive officer, and chief financial officer of one of
the largest global airlines and service as a director of public and private companies.
Other U.S. Public Company Board Memberships in Past Five Years:
None
ARI BOUSBIB
Director since: 2007
Age: 62
Committees:
Audit
Finance (Chair)
Mr. Bousbib serves as Chairman and Chief Executive Officer of IQVIA Holdings Inc.,
a leading global provider of advanced analytics, technology solutions and
contracted research services to the life sciences industry. He assumed this position
in October 2016 following the merger of IMS Health Holdings, Inc. (“IMS Holdings”)
and Quintiles Transnational Holdings, Inc. From 2010 to October 2016, Mr. Bousbib
served as Chairman and Chief Executive Officer of IMS Health Incorporated (“IMS
Health”), a subsidiary of IMS Holdings, and he also served as Chairman, Chief
Executive Officer and President of IMS Holdings since its initial public offering in
2014. Prior to joining IMS Health, Mr. Bousbib spent 14 years at United
Technologies Corporation (“UTC”), a commercial aerospace, defense and building
industries company. From 2008 until 2010, he served as President of UTC’s
Commercial Companies, including Otis Elevator Company (“Otis”), Carrier
Corporation, UTC Fire & Security and UTC Power. From 2002 until 2008, Mr.
Bousbib was President of Otis, and from 2000 until 2002, he served as its Chief
Operating Officer. Prior to joining UTC, Mr. Bousbib was a partner at Booz Allen
Hamilton, a global management and technology consulting firm.
Skills and qualifications: In serving on our Board, Mr. Bousbib draws from his
experience with managing large, sophisticated businesses, including oversight of
extensive global operations, as well as strategic, finance, supply chain and IT
matters. He plays a key role in the Board’s oversight of the Company’s supply
chain, IT, international and finance matters, as well as providing insight into the
development of corporate strategy.
Other U.S. Public Company Board Memberships in Past Five Years:
IQVIA Holdings Inc. (2016 to present)
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JEFFERY H. BOYD
Mr. Boyd served in a number of senior executive positions during his long and
successful tenure at Booking Holdings Inc. (“Booking”), a leading provider of online
travel and related services. His strategic leadership at Booking guided the company
to grow from a loss in 2002 to a multi-billion dollar profitable business. He served as
Chairman of the Board of Booking from June 2018 to June 2020, and from January
2017 to June 2018, he served as Booking’s Executive Chairman. Prior to January
2017, Mr. Boyd served in a number of roles of increasing responsibility at Booking,
including most recently as its President and Chief Executive Officer from November
2002 until December 2013, Chairman from January 2013 to December 2016, and
Director since: 2016 interim Chief Executive Officer and President during a portion of 2016. Mr. Boyd
was Booking’s President and Co-Chief Executive Officer from August 2002 to
Age: 66
November 2002; its Chief Operating Officer from November 2000 to August 2002;
Committees:
and its Executive Vice President, General Counsel and Secretary from January
Nominating and
2000 to October 2000. Prior to joining Booking, Mr. Boyd was Executive Vice
Corporate Governance President, General Counsel and Secretary of Oxford Health Plans, Inc.
(Chair)
Skills and qualifications: Mr. Boyd brings to our Board extensive experience in
Finance
global e-commerce, sales, and digital marketing, as well as proven leadership,
corporate governance and strategic management skills. His e-commerce
experience provides valuable insights into the continued execution and evolution of
our interconnected retail strategy.
Other U.S. Public Company Board Memberships in Past Five Years:
CLEAR Secure, Inc. (2021 to present)
Oscar Health, Inc. (2021 to present)
Booking Holdings Inc. (2001 to 2021)
GREGORY D. BRENNEMAN
Mr. Brenneman, our Lead Director, serves as Executive Chairman of CCMP Capital
Advisors, LP (“CCMP”), a private equity firm with over $3 billion under management,
a position he has held since October 2016. Previously, he served as Chairman of
CCMP from 2008 until October 2016 and as its President and Chief Executive
Officer from February 2015 until October 2016. He is also Chairman and Chief
Executive Officer of TurnWorks, Inc., a private equity firm focusing on corporate
turnarounds, which he founded in 1994. Prior to joining CCMP, Mr. Brenneman led
restructuring and turnaround efforts at Quiznos, Burger King Corporation, PwC
Consulting, a division of PricewaterhouseCoopers (“PwC”), and Continental Airlines,
Director since: 2000 Inc. that resulted in improved customer service, profitability, and financial returns.
Age: 61
Skills and qualifications: As a successful business leader who has been involved
in several well-known corporate spin-off and turnaround-driven transformations,
Lead Director
Mr. Brenneman has an extensive background in general management of large
organizations and expertise in accounting and corporate finance, retail, supply
chain, marketing, and international matters. In addition, his directorships at other
public companies provide him with broad experience on governance issues.
Other U.S. Public Company Board Memberships in Past Five Years:
Hayward Holdings, Inc. (2021 to present)
Baker Hughes Company (2017 to present)
Ecovyst Inc. (formerly PQ Group Holdings Inc.) (2017 to 2022)
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J. FRANK BROWN
Director since: 2011
Age: 66
Audit Committee
Financial Expert
Committees:
Audit (Chair)
Finance
Mr. Brown currently serves as an advisor to General Atlantic LLC, a global growth
equity firm investing in innovative and technology-driven companies, where he
served as Managing Director and Chief Risk Officer from 2020 until his retirement at
the end of 2021. He served as Managing Director and Chief Operating Officer of
General Atlantic from 2011 through 2019. From 2006 to 2011, Mr. Brown was Dean
of INSEAD, an international business school with campuses in France, Singapore
and Abu Dhabi. Before his appointment as Dean of INSEAD, he served as a
member of its Board and as Chairman of its U.S. Council. Prior to his tenure at
INSEAD, Mr. Brown spent 26 years at PwC, where he held a series of leadership
roles, including head of its Assurance and Business Advisory Service, Transactions
Services, and Corporate Development practices, and most recently the leader of its
$3.5 billion Advisory Services operating unit. He also launched PwC’s Genesis Park,
a leadership development program to train the next generation of global leaders
within the firm. Mr. Brown is a trustee of The Asia Society and a member of the
American Institute of Certified Public Accountants. He is also an author and frequent
speaker on leadership.
Skills and qualifications: Mr. Brown is a seasoned international business and
academic leader whose strong technical expertise in financial and accounting
matters qualifies him as an “audit committee financial expert” under SEC guidelines.
In addition, his role at General Atlantic provided insight into real estate, human
capital management, IT and cybersecurity, and e-commerce.
Other U.S. Public Company Board Memberships in Past Five Years:
None
ALBERT P. CAREY
Mr. Carey currently serves as Executive Chairman of Unifi, Inc., a global textile
solutions provider and innovator in manufacturing synthetic and recycled
performance fibers. Prior to his retirement in early 2019, Mr. Carey served as Chief
Executive Officer of PepsiCo North America (“PepsiCo”), a consumer products
company, from 2016 to March 2019. In this role, he was responsible for leading
PepsiCo’s beverages, Frito-Lay and Quaker Foods businesses in North America.
Previously, he was Chief Executive Officer of PepsiCo North America Beverages
from 2011 to 2016, and President and Chief Executive Officer of Frito-Lay North
America, the largest North American business division of PepsiCo, from 2006 to
2011. He also served as President of PepsiCo Sales, the sales division of PepsiCo,
from 2003 to 2006, leading PepsiCo’s sales and customer management for its retail,
food service and fountain businesses. Other positions that Mr. Carey has held at
PepsiCo include Chief Operating Officer of PepsiCo Beverages & Foods North
America and Chief Operating Officer of Frito-Lay North America. Prior to his career
at PepsiCo, Mr. Carey spent seven years at The Procter & Gamble Company.
Director since: 2008
Age: 71
Committees:
Leadership
Development and
Compensation (Chair)
Skills and qualifications: Having served in a number of senior executive positions
Nominating and
at PepsiCo, Mr. Carey enhances our Board’s experience in and oversight of retail,
Corporate Governance supply chain and marketing matters, as well as contributing to the general
management and strategic business development skills of our Board.
Other U.S. Public Company Board Memberships in Past Five Years:
Unifi, Inc. (2018 to present)
Omnichannel Acquisition Corp. (2020 to 2022)
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EDWARD P. DECKER
Director since: 2022
Age: 60
Chair, President and
CEO
Mr. Decker has served as our Chair since October 2022 and as our President and
CEO since March 2022. Prior to assuming the role of CEO, he served as our
President and COO from October 2020 through February 2022, where he was
responsible for global store operations, global sourcing operations, global supply
chain, outside sales and service, and real estate, as well as merchandising,
marketing and online strategy. From August 2014 to October 2020, he served as
Executive Vice President – Merchandising, where he was responsible for
merchandising strategy, marketing, vendor management, and in-store environment.
From October 2006 through July 2014, he served as Senior Vice President – Retail
Finance, Pricing Analytics, and Assortment Planning. Mr. Decker joined The Home
Depot in 2000 and held various strategic planning roles, including serving as Vice
President – Strategic Business Development from November 2002 to April 2006
and Senior Vice President – Strategic Business and Asset Development from April
2006 to September 2006. Prior to joining the Company, Mr. Decker held various
positions in strategic planning, business development, finance, and treasury at
Kimberly-Clark Corp. and Scott Paper Co.
Skills and qualifications: With over two decades of experience with the Company,
Mr. Decker brings to our Board extensive retail experience and knowledge of our
business, including leadership experience in retail operations, merchandising,
marketing, e-commerce, supply chain, real estate, strategic business development,
finance, vendor management, and organizational development.
Other U.S. Public Company Board Memberships in Past Five Years:
None
LINDA R. GOODEN
Director since: 2015
Age: 69
Audit Committee
Financial Expert
Committees:
Audit
Leadership
Development and
Compensation
Ms. Gooden enjoyed a 30-plus year career in various senior leadership roles with
Lockheed Martin Corporation (“Lockheed”), a global aerospace, defense, security
and advanced technologies company. Before her retirement, she most recently
served as Executive Vice President, Information Systems & Global Solutions
(“IS&GS”) of Lockheed from 2007 to 2013. Under her leadership as Executive Vice
President of IS&GS, Lockheed expanded its IT capabilities beyond government
customers to international and commercial markets. She also served as Lockheed’s
Deputy Executive Vice President, Information and Technology Services from
October to December 2006 and its President, Information Technology from 1997 to
December 2006. In her role as President of Lockheed’s IT division, Ms. Gooden
grew the business over a ten-year period to become a multibillion dollar business.
Skills and qualifications: Ms. Gooden brings to our Board her strong leadership
capability demonstrated through her career at Lockheed. She has an extensive
background in IT and cybersecurity (including achievement of a Cyber Risk
Oversight Certification from NACD in 2018), significant operations and strategic
planning expertise, and experience in business restructuring, finance,
communications and risk management. She also brings to our Board her
experience as a director at other public companies, particularly in the areas of
finance, audit, strategic investments, acquisitions and divestitures. She serves as
an “audit committee financial expert” on our Audit Committee and takes regular
courses for audit committee members to deepen her financial expertise.
Other U.S. Public Company Board Memberships in Past Five Years:
Bright Health Group, Inc. (2021 to present)
General Motors Company (2015 to present)
Automatic Data Processing, Inc. (2009 to 2019)
WGL Holdings, Inc. (2013 to 2018)
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WAYNE M. HEWETT
Director since: 2014
Age: 58
Committees:
Audit
Leadership
Development and
Compensation
Mr. Hewett is a seasoned executive leader who has worked across a number of
industries. Since March 2018, he has served as a senior advisor to Permira, a
global private equity firm. Since December 2019, he has also served as Chairman
of Cambrex Corporation, a contract developer and manufacturer of active
pharmaceutical ingredients, and since January 2022, he has served as a director of
Lytx Inc., a leading provider of video telematics solutions, both of which are Permira
portfolio companies. In March 2023, he became lead director of Hexion Inc., a
producer of adhesives and performance materials. From March 2018 to December
2021, he served as Chairman of DiversiTech Corporation, a manufacturer and
supplier of HVAC equipment. From August 2015 to November 2017, Mr. Hewett
served as Chief Executive Officer of Klöckner Pentaplast Group, a supplier of plastic
films for pharmaceutical, medical devices, food and specialty applications. From
January 2010 to February 2015, he served as President, Chief Executive Officer
and a member of the board of directors of Arysta LifeScience Corporation (“Arysta”),
a privately-held crop protection and life science company. In February 2015, Arysta
was acquired by Platform Specialty Products Corporation, a global producer of high
technology specialty chemical products, where Mr. Hewett served as President until
August 2015. Prior to joining Arysta in 2009, Mr. Hewett served as a senior
consultant to GenNx360, a private equity firm. Mr. Hewett’s career has also included
over 20 years with General Electric Company (“GE”), including leadership roles in
various GE business units and membership on GE’s Corporate Executive Council.
Skills and qualifications: Mr. Hewett brings to our Board extensive experience in
general management, finance, supply chain, operational and international matters.
He has significant experience executing company-wide initiatives across large
organizations, developing proprietary products, optimizing a supply chain, and using
emerging technologies to provide new products and services to customers.
Other U.S. Public Company Board Memberships in Past Five Years:
United Parcel Service, Inc. (2020 to present)
Wells Fargo & Company (2019 to present)
MANUEL KADRE
Director since: 2018
Age: 57
Committees:
Audit
Finance
Mr. Kadre is Chairman and Chief Executive Officer of MBB Auto Group, a premium
luxury retail automotive group with a number of dealerships in the Northeast, a
position he has held since 2012. Mr. Kadre also serves as Chairman of the Board of
Republic Services, Inc., an industry leader in U.S. recycling and non-hazardous
solid waste disposal. Prior to his current role, he was the Chief Executive Officer of
Gold Coast Caribbean Importers, LLC from July 2009 until 2014. From 1995 until
July 2009, Mr. Kadre served in various roles, including President, Vice President,
General Counsel and Secretary, for CC1 Companies, Inc., a distributor of beverage
products in markets throughout the Caribbean. Mr. Kadre also serves on the Board
of Trustees of the University of Miami.
Skills and qualifications: Mr. Kadre brings significant chief executive and senior
management expertise to our Board, together with financial, strategic,
environmental, and real estate experience. His service on other boards, including
service as chairman and lead independent director of two public companies,
enhances our Board’s capabilities in the areas of management oversight, corporate
governance and board dynamics.
Other U.S. Public Company Board Memberships in Past Five Years:
Bright Health Group, Inc. (2021 to present)
Republic Services, Inc. (2014 to present)
Mednax, Inc. (2007 to 2022)
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STEPHANIE C. LINNARTZ
Ms. Linnartz has served as the President, Chief Executive Officer and a member of
the board of directors of Under Armour, Inc., a leading sportswear company, since
February 2023. From 2021 through February 2023, Ms. Linnartz served as the
President of Marriott International, Inc. (“Marriott”), the world’s largest hospitality
company, with the travel industry’s largest customer-loyalty program, Marriott
BonvoyTM, and some of the most iconic brands in travel. She served as Group
President, Consumer Operations, Technology & Emerging Businesses for Marriott
from 2020 to 2021, and as Marriott’s Executive Vice President and Global Chief
Commercial Officer from 2013 to 2019. Ms. Linnartz joined Marriott as a financial
Director since: 2018 analyst in 1997, and held positions in operations, finance, revenue management,
sales, distribution, technology and digital over the years. Under her leadership,
Age: 55
Marriott launched a new premium home rental offering and expanded its consumer
Committees:
offerings to include travel categories beyond hotels. Prior to Marriott, Ms. Linnartz
Audit
worked for the Hilton Hotels Corporation.
Leadership
Skills and qualifications: In her new role at Under Armour, Ms. Linnartz adds to
Development and
the retail and executive leadership experience on our Board. In her role at Marriott,
Compensation
Ms. Linnartz was responsible for providing strategic leadership for all aspects of
Marriott’s global strategy, including brand management, sales (including ecommerce), marketing, revenue management, customer engagement, information
technology, emerging businesses, and loyalty strategies. She also had oversight of
Marriott’s global real estate development, design and operations services functions,
and played a critical role in Marriott’s progress on issues including the intersection
of technology and hospitality, the Marriott Bonvoy loyalty platform, and
environmental sustainability. Her experience, along with her strong financial
background, enhances the Board’s oversight of our interconnected retail strategy
and the investments we are making for our customer experience.
Other U.S. Public Company Board Memberships in Past Five Years:
Under Armour, Inc. (2023 to present)
PAULA SANTILLI
Director since: 2022
Age: 58
Committees:
Nominating and
Corporate Governance
Finance
Paula Santilli has been the Chief Executive Officer, Latin America, for PepsiCo, Inc.,
a consumer products company, since 2019. Previously she served in various
leadership positions at PepsiCo Mexico Foods, as President from 2017 to 2019, as
Chief Operating Officer from 2016 to 2017, and as Vice President and General
Manager from 2011 to 2016. Prior to joining PepsiCo Mexico Foods, she held a
variety of roles, including leadership positions, with PepsiCo in Mexico and in the
Latin America Southern Cone region comprising Argentina, Uruguay and Paraguay.
Ms. Santilli joined PepsiCo in 2001 following PepsiCo’s acquisition of the Quaker
Oats Company, where she held various roles of increasing responsibility from 1992
to 2001, including running the regional Quaker Foods and Gatorade businesses in
Argentina, Chile and Uruguay.
Skills and qualifications: Ms. Santilli brings extensive experience in oversight of
retail, marketing and international operations, as well as the human capital
management and compensation needs of a complex sales organization, from her
time at PepsiCo, and contributes to the general strategic management experience
of the Board.
Other U.S. Public Company Board Memberships in Past Five Years:
None
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CARYN SEIDMAN-BECKER
Caryn Seidman-Becker has served as the Chief Executive Officer of CLEAR
Secure, Inc. (“CLEAR”), a secure identity platform operating in travel, healthcare,
sports and entertainment, since she and a co-founder purchased and relaunched its
predecessor, Alclear Holdings, LLC, in 2010, and she serves as the Chair of
CLEAR’s board of directors. Prior to CLEAR, Ms. Seidman-Becker founded and was
the managing partner of Arience Capital, an over $1 billion value-oriented asset
management firm focused on investing in companies across a broad spectrum of
industries, including consumer, technology, aerospace and defense and
turnarounds. Prior to Arience Capital, she served as managing director at Iridian
Director since: 2022 Asset Management, an investment advisor firm, and assistant vice president at
Arnhold and S. Bleichroeder, an investment bank.
Age: 50
Skills and qualifications:
Ms. Seidman-Becker brings significant strategic
Committees:
management experience, operational insights and expertise on technology from her
Leadership
experience serving as Chair and Chief Executive Officer of CLEAR, as well as
Development and
finance and financial management expertise from her leadership roles with asset
Compensation
management firms and her investment banking experience.
Nominating and
Corporate Governance Other U.S. Public Company Board Memberships in Past Five Years:
CLEAR Secure, LLC (2021 to present)
Lemonade, Inc. (2020 to 2022)
WE RECOMMEND THAT YOU VOTE “FOR” THE ELECTION
OF EACH NOMINEE TO THE BOARD OF DIRECTORS.
24
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RATIFICATION OF THE APPOINTMENT OF KPMG LLP
(ITEM 2 ON THE PROXY CARD)
The Audit Committee is directly responsible for the appointment, compensation, retention, evaluation and
oversight of the Company’s independent registered public accounting firm. As part of this responsibility, the
Audit Committee annually evaluates the independent registered public accounting firm’s qualifications,
performance and independence and assesses whether to continue to retain the firm or select a different firm.
The Audit Committee and its Chair are also involved in and approve the selection of the lead audit partner,
who is limited to no more than five consecutive years in that role before the position must be rotated in
accordance with SEC rules.
The Audit Committee has appointed KPMG to serve as the Company’s independent registered public
accounting firm for Fiscal 2023. KPMG (or its predecessor firms) has served in that capacity for the Company
since 1979. The Audit Committee and the Board believe that the continued retention of KPMG as the
Company’s independent registered public accounting firm is in the best interests of the Company and its
shareholders. Although we are not required to submit this matter to shareholders, the Board believes that it is
a sound corporate governance practice to seek shareholder ratification of the appointment of KPMG. If
shareholders do not ratify the appointment of KPMG, the Audit Committee will reconsider the appointment.
Even if the appointment of KPMG is ratified by shareholders, the Audit Committee in its discretion may
change the appointment at any time if it determines that such a change would be in the best interests of the
Company.
One or more representatives of KPMG will be present at the Meeting. The representatives will have an
opportunity to make a statement if they desire and will be available to respond to questions from
shareholders.
WE RECOMMEND THAT YOU VOTE “FOR” THE RATIFICATION OF
KPMG LLP AS THE COMPANY’S FISCAL 2023 INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.
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AUDIT COMMITTEE REPORT
Each member of the Audit Committee is independent under SEC rules, the NYSE listing standards and the
Director Independence Standards set forth in the Company’s Corporate Governance Guidelines. The Board
has determined that Mr. Brown and Ms. Gooden are “audit committee financial experts” as such term is
defined in SEC rules.
The Audit Committee acts under a written charter, which sets forth its responsibilities and duties, as well as
requirements for the Audit Committee’s composition and meetings. The Audit Committee charter is available
on the Company’s Investor Relations website at https://ir.homedepot.com under “Corporate Governance >
Committee Members & Charters” and is also available in print at no charge upon request.
The Audit Committee has:
•
•
•
•
Reviewed and discussed the audited consolidated financial statements with the Company’s management
and discussed with KPMG LLP, independent registered public accounting firm for the Company, the
matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard
No. 1301, Communications with Audit Committees;
Received from KPMG the written communications required by applicable requirements of the Public
Company Accounting Oversight Board regarding KPMG’s independence, discussed with KPMG its
independence, and concluded that KPMG is independent from the Company and its management;
After review and discussions with management and KPMG, recommended to the Board that the audited
consolidated financial statements for the Company be included in the Company’s Annual Report on Form
10-K for Fiscal 2022 for filing with the SEC; and
Reviewed and discussed the fees billed to the Company by KPMG for audit, audit-related, tax and all
other services provided during Fiscal 2022, which are set forth below under “Independent Registered
Public Accounting Firm’s Fees,” and determined that the provision of non-audit services is compatible with
KPMG’s independence.
This report has been furnished by the current members of the Audit Committee:
•
•
•
•
•
•
26
J. Frank Brown, Chair
Ari Bousbib
Linda R. Gooden
Wayne M. Hewett
Manuel Kadre
Stephanie C. Linnartz
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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S FEES
AUDIT AND OTHER FEES
The following table presents fees billed or expected to be billed for services rendered by KPMG during Fiscal
2022 and Fiscal 2021 (amounts in thousands):
Fiscal
2022
Fiscal
2021
Audit Fees
$
7,335 $
5,912
Audit-Related Fees
$
250 $
477
Tax Fees
$
282 $
244
All Other Fees
$
— $
—
Total Fees
$
7,867 $
6,633
Audit fees consist of fees for the annual audit of the Company’s consolidated financial statements included in
its Annual Report on Form 10-K, the annual audit of the Company’s internal control over financial reporting,
the quarterly reviews of the Company’s consolidated financial statements included in its Quarterly Reports on
Form 10-Q, services related to other regulatory filings made with the SEC, comfort letters, and statutory audits
of certain subsidiaries.
Audit-related fees consist of fees for assurance and related services that are reasonably related to the
performance of the audit or review of the consolidated financial statements but are not reported in the prior
paragraph. These fees are also related to the Company’s employee benefit plan audits.
Tax fees for Fiscal 2022 consist of fees of $236,000 for tax compliance and preparation services and $46,000
for tax planning, advisory and consulting services. Tax fees for Fiscal 2021 consist of fees of $240,000 for tax
compliance and preparation services and $4,000 for tax planning, advisory and consulting services.
PRE-APPROVAL POLICY AND PROCEDURES
The Audit Committee has adopted a policy regarding the retention of the independent registered public
accounting firm that requires pre-approval of all services by the Audit Committee or by the Chair of the Audit
Committee. Prior to the engagement of our independent registered public accounting firm, our Audit
Committee pre-approves the above-described services by category of service and maximum amount of fees
per category. During the year, circumstances may arise when it may become necessary to engage the
independent registered public accounting firm for additional services not contemplated in the original preapproval or for services in excess of the originally pre-approved amount. In those instances, our Audit
Committee requires that we obtain specific pre-approval for those services. If pre-approval is required
between Audit Committee meetings, the Chair of the Audit Committee may pre-approve the services, provided
that notice of such pre-approval is given to the other members of the Audit Committee and presented to the
full Audit Committee at its next regularly scheduled meeting.
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ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (“SAY-ONPAY”) (ITEM 3 ON THE PROXY CARD)
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and
Section 14A of the Exchange Act, the Company provides its shareholders with the opportunity each year to
vote to approve, on an advisory basis, the compensation of our named executive officers. The Company
recommends that you vote for the approval of the compensation of our NEOs as described in this Proxy
Statement. Accordingly, you may vote on the following resolution at the Meeting:
RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the
Company’s named executive officers as disclosed in the Compensation Discussion and Analysis,
the accompanying compensation tables, and the related narrative disclosure in the Company’s
Proxy Statement for the 2023 Annual Meeting of Shareholders.
As described in the Compensation Discussion and Analysis beginning on page 41 and our “Fiscal 2022
Executive Compensation Report Card” on page 43, the Company’s compensation philosophy is to align
executive pay with Company performance. We believe that this alignment motivates our executives to achieve
our key financial and strategic goals, creating long-term shareholder value.
Our executive compensation program links pay to performance and reflects best practices as follows:
ü
ü
ü
ü
Approximately 90% of the Fiscal 2022 target compensation for our CEO and approximately 80% of the
Fiscal 2022 target compensation for our other NEOs was variable and paid based upon attainment of our
pre-determined corporate performance objectives or the performance of our common stock.
For Fiscal 2022, approximately 71% of our CEO’s target compensation, approximately 79% of our former
Chair’s target compensation, and approximately 60% of the target compensation of our other NEOs was
equity-based and paid in a mix of performance shares, performance-based restricted stock, and options.
Our NEOs do not receive tax reimbursements (also known as “gross-ups”), supplemental executive
retirement plans, defined benefit pension plans, guaranteed salary increases or guaranteed bonuses and
have limited perquisites.
We employ a number of mechanisms to mitigate the chance of our compensation programs encouraging
excessive risk taking, including an annual review and risk assessment of all elements of compensation by
the LDC Committee, a compensation recoupment policy, stock ownership guidelines, and an anti-hedging
policy.
Because the vote on this proposal is advisory in nature, it will not affect any compensation already paid or
awarded to any NEO and will not be binding on or overrule any decisions by the LDC Committee or the
Board. Because we value our shareholders’ views, however, the LDC Committee and the Board will consider
the results of this advisory vote when formulating future executive compensation policy. As noted on page 49
in the Compensation Discussion and Analysis, the LDC Committee considered the result of last year’s vote, in
which approximately 95% of the shares voted were voted in support of the compensation of the Company’s
NEOs. Your advisory vote serves as an additional tool to guide the LDC Committee and the Board in
continuing to align the Company’s executive compensation program with the interests of the Company and its
shareholders and is consistent with our commitment to high standards of corporate governance.
This vote is not intended to express a view on any specific element of compensation, but rather on the overall
NEO compensation program and philosophy as described in the Compensation Discussion and Analysis, the
accompanying compensation tables, and the related narrative disclosure as set forth below under “Executive
Compensation.” We encourage you to carefully review these disclosures and to indicate your support for the
NEO compensation program.
WE RECOMMEND THAT YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS AS PRESENTED IN THIS PROXY STATEMENT.
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ADVISORY VOTE ON THE FREQUENCY OF FUTURE SAY-ON-PAY
VOTES (ITEM 4 ON THE PROXY CARD)
In addition to providing you with the opportunity to cast an advisory vote on executive compensation, this
year, in accordance with the Dodd-Frank Act and Section 14A of the Exchange Act, we are also offering you
the opportunity to cast an advisory vote on the frequency of that Say-on-Pay vote. You are being asked to
indicate whether the advisory Say-on-Pay vote should be held every one, two or three years.
The Board recommends an annual shareholder advisory vote on executive compensation. We believe that an
annual vote would provide us with timely feedback from our shareholders on executive compensation matters.
An annual advisory vote is also consistent with our LDC Committee’s practice of conducting an in-depth
review of executive compensation philosophy and practices each year, as well as our practice of engaging
with our shareholders and obtaining their input on significant corporate governance matters.
The proxy card gives you four choices for voting on this proposal. You can choose whether the Say-on-Pay
vote should be held every year, every two years or every three years. You may also abstain from voting. You
are not voting to approve or disapprove the Board’s recommendation on this proposal.
Although the vote on this proposal is non-binding, the Board and the LDC Committee value the opinions of
our shareholders and will take into account the outcome of the vote in considering the frequency of future
advisory votes on executive compensation.
WE RECOMMEND THAT YOU VOTE TO HOLD
FUTURE SAY-ON-PAY VOTES EVERY “ONE YEAR”.
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SHAREHOLDER PROPOSAL REGARDING AMENDMENT OF
SHAREHOLDER WRITTEN CONSENT RIGHT (ITEM 5 ON THE PROXY CARD)
Mr. John Chevedden, located at 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, has been
the beneficial owner of more than $2,000 in shares of the Company’s common stock for at least three years
prior to submission of its proposal and has notified the Company of his intention to present the following
proposal at the Meeting. The Company is not responsible for the accuracy or content of the proposal, which is
presented as received from the proponent in accordance with SEC rules.
Proposal 5 – Improve Shareholder Written Consent
Shareholders request that our board of directors take the steps necessary to enable 10% of shares to request
a record date to initiate shareholder written consent.
This proposal topic won 46% support at the 2021 Home Depot annual meeting.
Currently it takes the formal backing 35% of the shares, that cast ballots at our annual meeting, to do so little
as request a record date for written consent.
Plus any action taken by written consent would still need more than our 73% supermajority approval from the
shares that normally cast ballots at the annual meeting. This 73%-vote requirement gives substantial
supermajority protection to management that will remain unchanged.
Enabling 10% of shares to apply for a record date for written consent makes sense because scores of
companies do not even require 01% of stock ownership to do so little as request a record date.
Taking action by written consent is a means shareholders can use to raise important matters outside the
normal annual meeting cycle like the election of a new director. For instance shareholders might determine
that a director out of his element is in need of replacement. For instance shareholders might consider that the
Home Depot Lead Director, Mr. Gregory Brenneman, needs replacing.
Mr. Brenneman violates the most important attribute of a Lead Director – independence. As director tenure
goes up director independence goes down. Mr. Brenneman has 23-years long director tenure at Home Depot.
23-years director means that the skills Mr. Brenneman had 23-years ago, and his intervening skills, may no
longer be relevant to Home Depot.
Plus Mr. Brenneman seems satisfied with a de minimis role for a Home Depot Lead Director with hardly any
exclusive powers. According to the Home Depot proxy the Lead Director shares most of the following
responsibilities:
• Is one of the persons who works with management to determine the information and materials
provided to directors.
• Is one of the persons who okays, but does not initiate, Board meeting agendas.
• Is one of the persons who consults with the Chairman on other matters.
• Is one of the persons who has the authority to call meetings of the independent directors.
• Is one of the persons who serves as liaison between the Chairman and the independent directors.
When the Lead Director shares roles with others it means that the Lead Director may need to do little or
nothing in those roles in a given year.
Please vote for this proposal so that shareholders at least have a realistic power to replace a Lead Director by
acting by written consent. Merely having such a power might induce the Board to adopt a real Lead Director
role or a requirement for an independent Board Chairman.
Proposal 5 – Improve Shareholder Written Consent
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RESPONSE TO PROPOSAL REGARDING AMENDMENT OF
SHAREHOLDER WRITTEN CONSENT RIGHT
The Company recommends that you vote against this shareholder proposal. The proposal mistakenly
indicates that holders of 35% of our shares must request a record date to initiate action by written consent. As
approved by our shareholders when the right to act by written consent was adopted, holders of 25% of our
common stock (as few as six holders) can initiate a written consent solicitation by requesting a record date.
This proposal asks the Company to amend our written consent right to lower the percentage to 10%. Our
Board continues to believe that the 25% threshold approved by our shareholders is the appropriate threshold
and balances and promotes the interests of all of our shareholders, particularly when viewed together with our
robust corporate governance practices and the many shareholder protections that we have adopted.
When our shareholders approved the Company’s proposal implementing our written consent right in 2011,
with over 96% of voted shares voting in favor, they approved as part of that right the 25% threshold to request
a record date to initiate the written consent process. We solicited input from many of the Company’s large
institutional investors as we were considering how to implement our written consent right, and they supported
the inclusion of this 25% threshold as an important shareholder protection and to guard against abuse of the
right. The 25% threshold ensures that the matter is of interest to more than a handful of our shareholders. At a
10% threshold, as proposed by the proponent, that number could represent as few as two shareholders.
A written consent solicitation asks for action without a meeting of the shareholders. Because no actual
meeting occurs at which shareholders can ask questions and different viewpoints can be aired, many do not
favor consent solicitations over shareholder meetings as a means to implement shareholder action. Our
shareholders already have a meaningful right to call special meetings on the request of 15% of our
outstanding shares. A consent solicitation can also generate significant costs, require diversion of corporate
resources, and require the time and attention of management and the Board, all of which impacts the
Company and ultimately our shareholders as a whole. Recognizing this burden, the Board believes that the
Company’s existing 25% threshold to request a record date under our written consent right strikes the
appropriate balance between a meaningful mechanism to influence the direction of the Company and
preventing abuse of this right in a manner that is not in the best long-term interests of our shareholders. We
believe that if a meaningful number of shareholders agree to initiate a consent action, as reflected by our
current 25% threshold, then such a use of corporate resources is appropriate.
We also believe that our written consent right should be viewed in light of our robust corporate governance
standards, including other shareholder protections that we have adopted. As noted in the Proxy Statement
Summary on page v, we have adopted extensive governance best practices, including majority voting for
directors in uncontested elections, annual director elections, a market standard proxy access right, and a
shareholder right to call a special meeting with a 15% threshold, in addition to our written consent right. When
viewed together with our robust corporate governance practices and our many shareholder protections, we
believe that our current written consent right is appropriate, and enhances shareholder rights while still
ensuring appropriate support among shareholders is required to initiate a written consent solicitation.
Furthermore, we believe the proponent’s gratuitous comments about our Lead Director are also mistaken.
The Company’s Lead Director, an independent director elected annually by the independent members of the
Board, serves an important role in the functioning of the Board. Our Lead Director works with the Board Chair
to develop and approve board agendas, to evaluate the performance of the Board and its committees, and to
support engagement with investors. Mr. Brenneman, who currently serves as our lead director, brings to the
role a high level of energy, engagement, and oversight. He has broad and varied business experience,
including in various CEO roles; has served on our Board through multiple business cycles; and as Lead
Director has guided a number of successful leadership transitions and management changes. This
experience makes him a particularly valued advisor to our Chair, President and CEO, and provides Mr.
Brenneman with a deep level of understanding of our business that enhances his independence from
management and his ability to provide strong oversight.
In light of our current corporate governance standards and the many shareholder protections we already have
in place, and considering what is in the best interest of our shareholders, we believe that at least 25% of our
shareholders should agree that a matter be addressed before soliciting a written consent.
WE RECOMMEND THAT YOU VOTE “AGAINST” THE
ADOPTION OF THIS SHAREHOLDER PROPOSAL.
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SHAREHOLDER PROPOSAL REGARDING INDEPENDENT BOARD
CHAIR (ITEM 6 ON THE PROXY CARD)
National Legal and Policy Center, located at 107 Park Washington Court, Falls Church, Virginia 22046, has
been the beneficial owner of more than $2,000 in shares of the Company’s common stock for at least three
years prior to submission of its proposal and has notified the Company of its intention to present the following
proposal at the Meeting. The Company is not responsible for the accuracy or content of the proposal, which is
presented as received from the proponent in accordance with SEC rules.
Request for Board of Directors to Adopt Policy for an Independent Chair
RESOLVED:
Shareholders request the Board of Directors adopt as policy, and amend the governing documents as
necessary, to require hereafter that two separate people hold the office of the Chairman and the office of the
CEO as follows:
Selection of the Chairman of the Board: The Board requires the separation of the offices of the Chairman
of the Board and the Chief Executive Officer.
Whenever possible, the Chairman of the Board shall be an Independent Director.
The Board may select a Temporary Chairman of the Board who is not an Independent Director to serve while
the Board seeks an Independent Chairman of the Board.
The Chairman shall not be a former CEO of the company.
Selection of the Chairman of the Board shall be consistent with applicable law and existing contracts.
SUPPORTING STATEMENT:
The Chief Executive Officer of The Home Depot, Inc., is also Board Chairman. We believe these roles – each
with separate, different responsibilities that are critical to the health of a successful corporation – are greatly
diminished when held by a singular company official, thus weakening its governance structure.
Expert perspectives substantiate our position:
32
•
According to the Council of Institutional Investors ( https://bit.ly/3pKrtJK ), “A CEO who also serves as
chair can exert excessive influence on the board and its agenda, weakening the board’s oversight of
management. Separating the chair and CEO positions reduces this conflict, and an independent chair
provides the clearest separation of power between the CEO and the rest of the board.”
•
A 2014 report from Deloitte ( https://bit.ly/3vQGqe1 ) concluded, “The chairman should lead the board
and there should be a clear division of responsibilities between the chairman and the chief executive
officer (CEO).”
•
A pair of business law professors wrote for Harvard Business Review (https://bit.ly/3xvcIOA ) in March
2020 that “letting the CEO chair the board can compromise board discussion quality, weakening the
corporation's risk management ability... Splitting the CEO and board chair jobs between two people
can help strengthen the quality of questions the corporation asks itself. When those questions remain
weak, the organization is less likely to develop strategies that mitigate risk."
•
Proxy adviser Glass Lewis advised ( https://bit.ly/3xwuJwa ) in 2021, “the presence of an independent
chair fosters the creation of a thoughtful and dynamic board not dominated by the views of senior
management. Further, we believe that the separation of these two key roles eliminates the conflict of
interest that inevitably occurs when a CEO is responsible for self-oversight.”
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RESPONSE TO PROPOSAL REGARDING INDEPENDENT BOARD CHAIR
The Company recommends that you vote against this shareholder proposal. Shareholders of the Company
rejected similar proposals in 2006, 2007, 2010 2015, and most recently in 2022, where 76% of votes were
cast against the proposal. Our Board believes in the importance of having the flexibility to meet the needs of
the Company and its shareholders rather than being limited to a particular leadership structure. On at least an
annual basis, our Board assesses its leadership structure, including the appointment of the Board Chair. The
stability and consistency in the leadership provided by one person serving as Chair and CEO, together with
our independent Board committees, our independent Lead Director, and our other robust corporate
governance practices, has provided a very effective Board leadership structure for our Company at many
times throughout our history. Since 1998, the Company has had a Lead Director, an independent director
elected annually by the independent members of the Board. Gregory D. Brenneman currently serves as our
Lead Director, and has served on the Board through multiple business cycles and with a number of different
management teams, which provides him with a deep level of understanding of our business that enhances his
independence from management and his ability to provide strong oversight. Our Lead Director and other
independent directors, together with our independent Board committees, have provided strong independent
oversight of management. In his role of the Chair, to which he was appointed in October 2022 after careful
deliberation by our NCG Committee and independent Board members, Mr. Decker serves as a conduit
between the Board and the operating organization to promote communication and provide consistent
leadership on the Company’s key strategic objectives. Our performance since 1998 has shown the
effectiveness of this leadership structure.
Our Board recognizes that circumstances may change such that a different structure may be warranted to
support the Company’s needs. Twice in the past decade, the Board has recognized the importance of the
departing CEO remaining as the Chair of the Board for a period of time to assist with a smooth succession
process and leadership transition for the incoming CEO. During Fiscal 2014, our former CEO, Frank Blake,
served as executive Chair for three months following Mr. Menear’s appointment as CEO. Upon Mr. Blake’s
retirement in early 2015, the independent Board members assessed the circumstances faced by the
Company as well as the leadership alternatives, and determined that it was in the Company’s best interest to
return to a combined Chair and CEO. Under Mr. Menear’s leadership, the Company managed a
transformational journey to enhance our interconnected customer experience, navigated unprecedented
challenges including the COVID-19 pandemic, and consistently delivered shareholder value. In January 2022,
when Mr. Menear announced that he would be stepping down from the role of CEO, the independent
members of our Board again determined that it was in the best interest of the Company for Mr. Menear to
remain on the Board as Chair following Mr. Decker’s appointment as CEO to support the leadership transition.
When Mr. Menear retired in September 2022, the independent members of the Board again assessed its
leadership structure to determine what best supported the Company and decided to return to a combined
Chair and CEO structure, with Mr. Decker serving as Chair, having had sufficient time to ensure a smooth
management transition.
We believe that our Board is best situated to determine which director should serve as Chair. Our
independent directors have determined that having a combined Chair and CEO, a strong independent Lead
Director, and Board committees composed entirely of independent directors provides a successful Board
leadership structure for the Company at this time. Alternatively, having a separate CEO and Chair has
supported a smooth management transition and ensured strong leadership at other times in the Company’s
history. We believe that the Board should retain the flexibility to decide the most effective leadership structure
given the needs of the Company and its shareholders at any given time.
WE RECOMMEND THAT YOU VOTE “AGAINST” THE
ADOPTION OF THIS SHAREHOLDER PROPOSAL.
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SHAREHOLDER PROPOSAL REGARDING POLITICAL CONTRIBUTIONS
CONGRUENCY ANALYSIS (ITEM 7 ON THE PROXY CARD)
Tara Health Foundation, located at 47 Kearney Street, San Francisco, California 94108, has been the
beneficial owner of more than $2,000 in shares of the Company’s common stock for at least three years prior
to submission of its proposal and has notified the Company of its intention to present the following proposal at
the Meeting as lead proponent along with one other co-proponent. We will provide the name, address and
amount of shares held by the co-proponent to shareholders promptly upon oral or written request. The
Company is not responsible for the accuracy or content of the proposal, which is presented as received from
the proponent in accordance with SEC rules.
POLITICAL SPENDING MISALIGNMENT
Whereas:
The Home Depot’s Political Activity and Government Relations Policy states that it “actively participates, and
encourages its associates to participate, in the political process,” in an effort to ensure that governments of
countries “in which we conduct business act responsibly and in the best interest of our customers and
associates.” Home Depot sponsors a political action committee (PAC) which “supports public officials and
candidates who understand the issues affecting Home Depot and promote a favorable business climate for
the Company.”
However, The Home Depot’s politically focused expenditures appear to be misaligned with its public
statements of its views and operational practices. For example, The Home Depot has committed to achieving
a 50% reduction in carbon emissions by 2035, yet is a member of the U.S. Chamber of Commerce, which has
long and consistently lobbied to constrain US climate regulations.
In addition, The Home Depot has evidenced a strong commitment to gender diversity through its support of a
women’s employee resource group, a “Women in Leadership” curriculum, and other actions, including the
provision of strong reproductive health and maternity benefits. Yet based on public data, the proponent
estimates that in the 2010-2022 election cycles, The Home Depot and its employee PAC made political
donations of more than $4.65 million to politicians and political organizations working to weaken access to
abortion.
Shortly after the Capitol insurrection, The Home Depot paused donations to the members of Congress who
voted against certifying the 2020 election results. Since then, it has donated more than $540,000 to
candidates for office who continue to deny or question the election results.
Corporate political activity that misaligns with organizational values has been subjected to widespread media
coverage, some of which has focused on or included mention of The Home Depot. (See, for example,
“Georgia Faith Leaders Urge Boycott of Home Depot Over Voting Law,” New York Times, 4.20.21.)
Proponents believe The Home Depot should establish policies and reporting systems that minimize risk to the
firm's reputation and brand by addressing possible missteps in corporate electioneering and political spending
that contrast with its stated diversity and environmental policies.
Resolved:
Shareholders request that The Home Depot publish, at least annually, a report, at reasonable expense,
analyzing the congruence of political and electioneering expenditures during the preceding year against
publicly stated company values and policies and disclosing or summarizing any actions taken regarding
pausing or terminating support for organizations or politicians, and the types of incongruent policy advocacy
triggering those decisions.
Supporting Statement:
Proponents recommend that such report also contain management's analysis of risks to our company's brand,
reputation, or shareholder value of expenditures in conflict with company values. “Expenditures for
electioneering communications" means spending, from the corporate treasury and from the PAC, directly or
through a third party, at any time during the year, on printed, internet or broadcast communications, which are
reasonably susceptible to interpretation as in support of or opposition to a specific candidate.
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RESPONSE TO PROPOSAL REGARDING POLITICAL CONTRIBUTIONS
CONGRUENCY ANALYSIS
The Board recommends that you vote against this shareholder proposal. As the world’s largest home
improvement retailer, we recognize that laws at the federal, state and local level impact our business, and we
believe that it is important for us to participate in the political process in a bipartisan manner to support
policies that further our business priorities and create shareholder value. We believe that this proposal is
aimed not at more transparency, but instead at diverting the Company’s focus from core business priorities to
issues on which we do not have expertise and that are not central to our business, with the practical impact,
whether intended or not, of limiting our bipartisan participation. We are committed to complying with all laws
governing our participation in the political process and conducting our activities in a transparent manner. As
part of our investor engagement efforts, we have also sought out input from our shareholders on our
disclosures, and made several changes in recent years to enhance our transparency and disclosure. We
believe that our current practices and continued enhancements, as described below, provide transparency
and accountability with respect to our political spending and the governance and oversight of that spending.
Following the continued enhancements to our Policy and our disclosures in recent years, we were recently
elevated to the First Tier of the CPA-Zicklin Index of Corporate Political Disclosure and Accountability, which
seeks to measure electoral spending transparency and accountability among the largest public corporations
in the U.S.
We maintain a Political Activity and Government Relations Policy (the “Policy”), available on our Investor
Relations website at https://ir.homedepot.com under “Corporate Governance > Overview,” that sets forth the
standards for participation in the political process by the Company and its associates. The Policy, which we
have updated in the past year, contains a link to an advocacy and political activity report, which is also
available on our ESG Investor page of our website at https://ir.homedepot.com/esg-investors. The report
includes a list of the Company’s political contributions for the past fiscal year. The report also provides the
aggregate dues paid by the Company in the last fiscal year to trade associations that engage in lobbying
activities and to issue coalitions, including the total amount spent on those activities, as well as a list of any of
these organizations to which the Company made payments of $5,000 or more in the prior calendar year. In
2022, we enhanced this report by adding disclosure regarding the Company’s support of ballot initiatives.
Starting in Fiscal 2021, we also made several prior years of our reports on corporate political contributions
and trade association payments available on our website to provide historical context. Collectively, we believe
this information provides transparency about the Company’s political contributions and trade association
activities.
The Policy also provides a review process for the Company’s political expenditures, addressing both
corporate political contributions and electioneering activity. As part of that process, the NCG Committee
conducts an annual review of the Company’s political contributions and payments to trade associations that
engage in lobbying activities. In 2020, we updated the NCG Committee charter to more specifically discuss
the NCG Committee’s oversight of political activity, including a requirement that the NCG Committee conduct
an annual review of the Policy. With respect to electioneering, the Policy provides that the NCG Committee
must approve in advance any public advertisement directly or indirectly paid for by the Company that
expressly advocates the election or defeat of a candidate in which the Company is identified specifically as an
advocate of such election or defeat. To date, the Company has not made any expenditure for such
electioneering communications, and has no present plans to make any such expenditures. In addition to
these specific approval processes, the NCG Committee also receives regular updates regarding the
Company’s political activity and advocacy efforts, and how those efforts support our business and our core
values.
In addition, in response to feedback received from our shareholders, we have added more detailed discussion
of our government relations and political activity in our annual ESG Report (available on our website at https://
corporate.homedepot.com/responsibility). This enhanced disclosure specifically addresses oversight of our
political activity, our top priorities in determining where to focus our advocacy, and how the employee-funded
political action committee sponsored by the Company (the “PAC”) functions and assesses potential recipients
of PAC contributions. In addition, information about the PAC is available through the Federal Election
Commission’s website at http://www.fec.gov. Finally, in Fiscal 2022, we created a new page on our website to
provide additional information on political engagement at The Home Depot, available at https://
corporate.homedepot.com under “Responsibility > Political Engagement.”
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As discussed in the Policy and our ESG Report, our Government Relations Department, led by a vice
president who reports to our General Counsel, manages our political activity. The Government Relations team
carefully analyzes our engagement activities, trade association partnerships, and political contributions,
guided by our top priorities and our eight core values. As noted in our ESG Report and the Policy, our political
donations are made to promote the interests of the Company, not based on the private political preferences of
our executives or directors. We may not agree with every position taken by a candidate, elected official, or
trade association we support, and a contribution to any individual or organization should not be taken to mean
agreement with every position taken by that individual or group. However, we use several business-focused
criteria and our core values to make decisions that will allow us to have a seat at the table to engage, both on
the issues on which we align and those on which we disagree, to support our business, associates and
communities.
Our ESG Report also discusses the PAC, whose finances, governance and communications are governed by
a PAC Board. The PAC Board is chaired by our vice president of Government Relations and is composed of
leaders who represent each functional area of the business and each field division to ensure a wide range of
experiences and perspectives. Our PAC supports candidates on both sides of the aisle who champion probusiness, pro-retail positions that stimulate economic growth. The PAC Board also re-evaluates support on an
ongoing basis to ensure alignment with our values.
We also encourage our associates to get involved in the political process and make their individual voices
heard. We help our associates engage in democracy through company-wide get-out-the-vote campaigns that
encourage associates to register to vote. We also maintain an internal website to provide our associates with
resources on voter registration, polling locations and candidate information to make it easier for them to
engage in our democratic process.
We believe that participating in the political process in a bipartisan and transparent manner, together with our
encouragement of our associates to participate in the political process to address their own diverse interests
and priorities, both enhances shareholder value and promotes good corporate citizenship. We also believe
that the reporting requested by the proposal will divert us from our focus on core business priorities and
impede our ability to participate in a bipartisan manner.
WE RECOMMEND THAT YOU VOTE “AGAINST” THE
ADOPTION OF THIS SHAREHOLDER PROPOSAL.
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SHAREHOLDER PROPOSAL REGARDING RESCISSION OF 2022
RACIAL EQUITY AUDIT PROPOSAL (ITEM 8 ON THE PROXY CARD)
The National Center for Public Policy Research located at 2005 Massachusetts Ave. NW, Washington, DC
20036, has been the beneficial owner of more than $2,000 in shares of the Company’s common stock for at
least three years prior to submission of its proposal and has notified the Company of its intention to present
the following proposal at the Meeting. The Company is not responsible for the accuracy or content of the
proposal, which is presented as received from the proponent in accordance with SEC rules.
Rescission of 2022 “Racial Equity Audit” Proposal
Whereas shareholders adopted in 2022 a “Shareholder Proposal Regarding [a] Racial Equity Audit” that
called for the company to “analyz[e] Home Depot’s adverse impacts [exclusively] on nonwhite stakeholders
and communities of color,” and whereas racial equity calls for potential discrimination on the basis of race,
Resolved: Shareholders commit to rescind the 2022 Racial Equity Audit proposal and reject any racially
discriminatory practices at the company.
Supporting statement: Such an audit may jeopardize Home Depot’s value by elevating divisive identity
politics above its commitment to excellence, while also raising serious legal and commercial risks for the
company.
Racial equity audits do not benefit the companies that conduct them. They are non-neutral evaluations
designed to embarrass the companies who elect to conduct them, and there is no evidence to suggest that
such audits increase shareholder value. The 2022 proposal essentially admits as much as the evidence cited
for the audit focused on Home Depot’s philanthropic and political donations noting, “Home Depot has donated
to police foundations in Detroit and Atlanta… The Atlanta Police Foundation has funded a network of 11,000
surveillance cameras… surveillance technology has been used to target communities of color and nonviolent
protestors.” And “[d]uring the 2019-2020 election cycle, Home Depot’s political action committee (“PAC”) gave
$465,000 to 63 Republican Congress members who objected to the 2020 election results, an action some
viewed as ‘a direct attack on the voting rights of people of color.’”1
Racial equity audits also increase in-company racial division rather than ameliorating it. They distract
leadership and staff from focusing on core business concerns. They promote claims about “white supremacy”
in America that many Home Depot employees, shareholders, and customers don’t accept. They sow division
among employees and consumers. They’re also expensive: some auditors reportedly charge more than
$2,000 per hour.
Racial equity audits generally do not help the audited companies: the publication of such reports often trigger
more negative news, criticism, and boycotts of the company by certain consumers, while also alienating other
consumers who disapprove of the company’s decision to conduct such an audit in the first place. Such reports
may also fuel unwarranted government investigations, employee grievances, and meritless discrimination
claims.
Home Depot’s board was correct to oppose the 2022 proposal. The board strongly opposed the proposal
noting that its firm “commitment to diversity, equity and inclusion for our associates, customers and the
communities we serve.” Given this commitment, combined with the rest of the board’s opposition statement,
conducting such an audit now would not serve a recognizable business interest for Home Depot.
Such an audit is therefore far beyond the Company’s fiduciary remit. That remit requires that Home Depot
make decisions so as to maximize the objectively determined and financially measurable return on
shareholders’ investment. To the extent that Home Depot hires, promotes, or trains on the basis of any
metrics other than merit, it violates its fiduciary duties by privileging considerations that cannot enhance the
financially measurable return on shareholder investment.2
1
https://otp.tools.investis.com/clients/1 us/home_depot/SEC/sec-show.aspx?
FilingId=15708089&Cik=0000354950&Type=PDF&hasPdf=1
2
Id.
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RESPONSE TO PROPOSAL REGARDING RESCISSION OF 2022
RACIAL EQUITY AUDIT PROPOSAL
The Board recommends that you vote against this shareholder proposal. The Home Depot endeavors to be
the employer, retailer, investment, and neighbor of choice in the home improvement industry. To achieve
these goals and in furtherance of our values, culture, and compliance program, we have adopted a Business
Code of Conduct and Ethics that states, among other things: “The Home Depot is an equal opportunity
employer committed to ensuring associates work in an environment of mutual respect. We will not
discriminate against any associate or applicant with regard to race, color, sex (gender), sexual orientation,
gender identity or expression, age, religion, national origin, disability, protected veteran or other uniformed
service status or any other characteristic or basis protected by applicable law.”
Accordingly, at The Home Depot, we strive to create an environment centered on our core value of respect for
all people. This includes a focus on diversity, equity and inclusion (“DEI”) for all of our associates, customers,
suppliers, and the communities we serve, in line with the best interests of our business. As explained more
fully in our 2022 ESG Report, we define diversity, equity and inclusion as follows:
Diversity: Composition of people, such as their similarities and differences;
Equity: Norms, practices and policies in place that ensure just and fair opportunities and outcomes,
allowing individuals to reach their full potential; and
Inclusion: How we embrace and enable all of our associates to feel safe, respected, engaged,
motivated and valued for who they are and their contributions.
At the 2022 annual meeting, the Board recommended a vote against a shareholder proposal urging the
Company to conduct a racial equity audit because we believe a focus on DEI has long been embedded in our
culture and our core values. As we outlined in last year’s proxy statement as well as in our other public
disclosures, we have established a strategic framework and launched a number of initiatives, in line with our
business objectives, to support our DEI efforts. These efforts are focused on the areas we believe drive the
biggest impacts to our business and culture and fuel our success: our associates, the communities where we
operate, and our suppliers. While we believe our efforts so far have been effective and responsive to the input
of our investors, we also value our shareholders’ perspectives. Feedback from our shareholders on our
business, corporate governance, compensation, human capital management, sustainability practices, and
other matters are important considerations for the decisions of our Board and management.
We engaged extensively with our shareholders to discuss the 2022 shareholder proposal to conduct a racial
equity audit. While our holders were supportive of the Company’s ongoing DEI efforts, our shareholders
showed significant support for a third-party assessment of the Company’s initiatives and their impacts. That
support was reflected by nearly 63% of shareholder votes cast at the 2022 annual meeting being voted in
favor of the 2022 racial equity audit proposal. We believe that failing to be responsive to such a significant
majority shareholder vote in the absence of a material change in circumstances would not align with our
history of responsiveness to shareholder feedback, our values, or our corporate governance practices.
After discussion with our Board, we engaged an independent third-party law firm to undertake an assessment
that is aligned with our priorities, supports our business, and is responsive to shareholder feedback. Our
continued engagements with our shareholders since the 2022 annual meeting indicate that the vast majority
remain supportive of the Company moving forward with such an assessment, in a way that makes sense for
The Home Depot.
We believe in the work our Company has done to drive our business forward and obtain competitive
advantages through efforts to build a diverse, equitable and inclusive environment where hiring and promotion
are based on merit. We welcome feedback from all perspectives and the opportunity to learn, and we look
forward to the insights this assessment will provide to assist us in directing future efforts, advancing strategic
priorities, and better communicating our efforts to our investors, associates, customers, and communities.
WE RECOMMEND THAT YOU VOTE “AGAINST” THE
ADOPTION OF THIS SHAREHOLDER PROPOSAL.
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SHAREHOLDER PROPOSAL REGARDING SENIOR MANAGEMENT
COMMITMENT TO AVOID POLITICAL SPEECH (ITEM 9 ON THE PROXY CARD)
The American Conservative Values ETF, located at 9711 Washingtonian Blvd, Suite 550, Gaithersburg, MD
20878, has been the beneficial owner of more than $25,000 in shares of the Company’s common stock for at
least one year prior to submission of its proposal and has notified the Company of its intention to present the
following proposal at the Meeting. The Company is not responsible for the accuracy or content of the
proposal, which is presented as received from the proponent in accordance with SEC rules.
Senior Management Commitment to Avoid Political Speech
Whereas: We view Home Depot and all corporations as being organized to provide the best quality goods and
services to its customers while maximizing the return to the investors who fund the Company. In the recent
past we have witnessed several instances of corporate America’s senior managers engaging in seemingly
unnecessary political speech on behalf of the corporations they manage, which partisan assertions
subsequently became controversial and created massive reputational, legal, and financial risk. As an
example, the CEO of Coca Cola engaged in divisive speech regarding Georgia voting laws, thereby creating
an unnecessary maelstrom of publicity, with far-reaching business consequences.
This previously underappreciated risk exists for all public corporations and needs to be recognized by
shareholders and their representative boards. This significant risk factor seems easily and reasonably
mitigated by senior management committing to avoid political speech made on behalf of the corporations they
manage.
RESOLVED:
Shareholders request that the Board of Directors encourage a Senior Management Commitment at Home
Depot to avoid supporting or taking a public position on any controversial social or political issues (collectively
“political speech”), without having previously, comprehensively and without bias justified by action on the
basis of underlying business strategy, exigencies, and priorities. [sic]
SUPPORTING STATEMENT:
As Shareholders we acknowledge that a potential cost pertains to reducing senior management’s freedom of
action. Although that cost is justified by the magnitude of the business risk we seek to mitigate, we feel that
such a cost should be considered and minimized. As such we recommend that the board use its discretion in
determining guidelines defining political speech, delineating the senior management positions affected, and
detailing the mechanism and measurement of commitment.
The fiduciary duty that all senior management owe to the company itself, and through it the shareholders,
does not permit those managers to take political stances on behalf of the company that conform with the
political policy preferences of those managers, or to take any controversial political or social stances on behalf
of the company without having undertaken a full and unbiased analysis of all of the consequences that could
follow from taking the stance, and ensuring that the stance is required by business necessity rather than
driven by the personal policy preferences of senior managers.
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RESPONSE TO PROPOSAL REGARDING SENIOR MANAGEMENT
COMMITMENT TO AVOID POLITICAL SPEECH
The Board recommends that you vote against this shareholder proposal. The Company already has
structures in place to manage speech on behalf of the Company and address the risks raised by the
proponent. Furthermore, we believe that this proposal is aimed not at more rigorous oversight or risk
management, but instead at impeding our ability to comment on and react to issues that may impact our
business, associates or customers.
As noted in the Corporate Governance section of this Proxy Statement, the Company has a longstanding
commitment to strong corporate governance. Our governance structure includes policies and procedures that
address who can speak on behalf of the Company, as well as oversight of corporate speech. We maintain a
Political Activity and Government Relations Policy (the “Political Activity Policy”), available on our Investor
Relations website at https://ir.homedepot.com under “Corporate Governance > Overview,” that sets forth the
standards for participation in the political process by the Company and its associates. With respect to political
speech, the Political Activity Policy specifically states that political communications, lobbying activities,
grassroots lobbying communications, and other communications with government officials made on behalf of
the Company may only be made or conducted by the Company’s Government Relations department.
Similarly, we have policies related to communications with investors and the media that specifically require
any statements or inquiries to be handled through our investor relations or public relations departments, and
that only an authorized Company spokesperson can speak on behalf of the Company. Our policies include
governance of our utilization of social media as well. To complement these policies, we have a thoughtful
process for determining if an authorized Company spokesperson should speak on a particular issue, which
includes a risk analysis, careful deliberation, assessment of business impact, and consideration of alignment
with our core values.
We also have Board-level oversight of political speech on behalf of the Company. Our NCG Committee
oversees our political activity, including an annual review of the Political Activity Policy, and receives regular
reports on our political activity. Management has also discussed with the NCG Committee the considerations
used by management in deciding whether the Company should make a statement on political or social issues.
As a result, we believe that current policies, procedures and oversight provide sufficient processes and
protections to effectively manage the risks presented by the proponent.
WE RECOMMEND THAT YOU VOTE “AGAINST” THE
ADOPTION OF THIS SHAREHOLDER PROPOSAL.
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This section of the Proxy Statement provides our discussion and analysis of the Company’s Fiscal 2022
executive compensation program, focusing on the compensation of our named executive officers, or “NEOs.”
Our NEOs for Fiscal 2022 were as follows:
•
•
•
•
•
•
Edward P. Decker, Chair, President and CEO. Mr. Decker served as President and COO before becoming
our President and CEO, effective March 1, 2022, and Chair, effective October 1, 2022.
Craig A. Menear, our former Chair and former CEO. Mr. Menear served as our Chair and CEO until
stepping down from the CEO position on March 1, 2022, and remained as our Chair until his retirement
from the Company and the Board on September 30, 2022.
Richard V. McPhail, Executive Vice President and CFO.
Ann-Marie Campbell, Executive Vice President – U.S. Stores and International Operations.
Matthew A. Carey, Executive Vice President – Customer Experience.
Jeffrey G. Kinnaird, former Executive Vice President – Merchandising, who served in this role until
March 13, 2023.
The Compensation Discussion and Analysis is organized as follows:
EXECUTIVE SUMMARY
42
Fiscal 2022 Company Business Objectives and Performance
Compensation Philosophy and Objectives: Pay for Performance
Fiscal 2022 Executive Compensation Report Card: The Home Depot Pays for Performance
Performance-Based Features of Fiscal 2022 Compensation
Impact of Fiscal 2022 Business Results on Executive Compensation
Fiscal 2022 Management Transitions
CEO and Executive Chair Pay Highlights
Opportunity for Shareholder Feedback
COMPENSATION DETERMINATION PROCESS
Benchmarking
Mitigating Compensation Risk
Consideration of Last Year’s Say-on-Pay Vote
ELEMENTS OF OUR COMPENSATION PROGRAMS
Base Salaries
42
42
43
44
44
45
45
46
46
47
48
49
49
49
Annual Cash Incentive
Long-Term Incentives
Deferred Compensation Plans
Perquisites
Other Benefits
MANAGEMENT OF COMPENSATION-RELATED RISK
SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
50
52
55
55
55
55
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EXECUTIVE SUMMARY
Fiscal 2022 Company Business Objectives and Performance
Fiscal 2022 presented a unique and dynamic environment, in which we continued to operate with agility to
meet the challenges created by a fluid domestic and global business environment, including supply chain
disruptions, tight labor market conditions, and inflationary pressures. We started Fiscal 2022 with continued
uncertainty regarding the ongoing impact of the pandemic and related recovery, not knowing if consumer
spending would begin to revert back to more traditional spending patterns away from the heightened level of
home improvement demand experienced over the preceding two years.
As the year progressed, our performance remained positive, reflecting strong demand from our professional
customers and continued strength of our DIY customers, albeit at a more moderate level than the prior year.
This performance also reflected the benefits of our investments aimed at providing our customers with a
frictionless interconnected shopping experience, which enabled agility that positioned us well to serve our
customers as we navigated the global supply chain disruption and broad-based inflationary pressures that
continued through Fiscal 2022, against a backdrop of monetary policy shifts intended to moderate demand.
Highlights of our 2022 performance include the following:
•
•
•
•
•
Increased net sales by 4.1% to $157.4 billion.
Increased operating income by 4.3% to $24.0 billion.
Increased net earnings by 4.1% to $17.1 billion and diluted earnings per share by 7.5% to $16.69.
Generated $14.6 billion in operating cash flow.
Generated ROIC of 44.6%, compared to 44.7% in Fiscal 2021.
As a result of our significant cash flow from operations and disciplined capital allocation, we were also able to
return value to our shareholders during Fiscal 2022 through $7.8 billion in dividends and $6.5 billion in share
repurchases. Our one-, three- and five-year total shareholder return, or TSR, was (11.4)%, 48.8% and 72.0%,
respectively.
At the same time, we continued to operate by aligning our decisions and actions with some of our most
important values — doing the right thing and taking care of our people — maintaining our focus on the safety
and well-being of our associates and customers and providing our customers and communities with the
products and services that they need. Throughout the year, we continued to invest in our associates, making
wage enhancements for our frontline, hourly associates. Our associates also earned approximately $409
million of Success Sharing bonus payments in Fiscal 2022 as a result of continued positive performance in
the challenging environment, as discussed under “CEO Pay Ratio” starting on page 75.
Compensation Philosophy and Objectives: Pay for Performance
We designed our compensation program for associates at all levels with the intent to align pay with
performance. By doing so, we seek to motivate associate performance and enhance morale, which drives a
superior customer experience. We believe this alignment encourages achievement of our strategic goals and
creation of long-term shareholder value.
The principal elements of our compensation program for executive officers are base salary, annual cash
incentives and long-term equity incentives. We use several of the financial metrics highlighted above, which
drive shareholder value, as the key performance metrics in our compensation programs. This congruency
aligns both pay with performance and executive interests with shareholder interests. The following Executive
Compensation Report Card highlights the alignment between pay and performance for each of these
elements of our compensation program for Fiscal 2022.
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FISCAL 2022 EXECUTIVE COMPENSATION REPORT CARD:
THE HOME DEPOT PAYS FOR PERFORMANCE
Approximately 90.4% of our current CEO’s target compensation for Fiscal 2022 (approximately 91.4% for our
former Chair and approximately 79.8% on average for our other NEOs) was at risk and contingent upon the
achievement of corporate performance objectives and/or share price performance. The components of total
target compensation for Fiscal 2022 were:
Below are the variable components of Fiscal 2022 total target compensation, including the performance
measures used for each, the actual Company performance in Fiscal 2022 relevant to those measures, and
the resulting compensation paid to our NEOs.
Fiscal 2022 Performance Measures and Actual Performance
Executive Compensation Results
Management Incentive Plan:
($ in billions)
Target
Maximum
Performance as
% of Target
MIP Payout
E. Decker
106%
$2,848,936
$24.09
C. Menear
106%
$962,180
4.22
R. McPhail
106%
$934,310
A. Campbell
106%
$955,544
M. Carey
106%
$923,692
J. Kinnaird
106%
$796,655
Metrics
Threshold
Actual**
Sales (45%)
$138.07
$153.41
$176.43
$157.74
Operating Profit (45%)
$21.14
$23.49
$27.01
Inventory Turns (10%)
4.46
4.95
5.69
NEO
Fiscal 2022-2024 Performance Share Award:
Threshold
Target
Maximum
Results
as of
FYE2022**
Three-Year Average
ROIC (50%)
42.1%
46.7%
51.4%
44.7%
Three-Year Average
Operating Profit (50%)
$21.41
$23.79
$26.17
$24.09
Payout as a Percent of
Target
25%
100%
200%
n/a
($ in billions)
Metrics
At the end of the first year of the three-year
performance cycle, results are tracking between the
threshold and target level.
Shares are received following the end of the threeyear performance period, if and to the extent the
performance measures are met.
* Amounts do not include promotional equity grants made in May 2022 to Mr. Carey.
** See “—Elements of Our Compensation Programs—Potential Adjustments” beginning on page 50 below, “—Elements of Our Compensation Programs—
Fiscal 2022 MIP Results” starting on page 52 below, and “—Elements of Our Compensation Programs—Performance Shares” starting on page 53
below.
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Fiscal 2022 Performance Measures and Actual Performance
Executive Compensation Results
Performance-Based Restricted Stock:
Restricted stock is forfeited if Fiscal 2022 operating profit is not at least 90%
of the MIP target.
($ in billions)
Metric
Operating Profit
Threshold
(90% of Target)
$21.14
Target
$23.49
Shares of restricted stock were not forfeited, and will
vest 50% after 30 months and 50% after 60 months
from grant date.
Actual**
$24.09
Stock Options:
Based on stock price performance – annual grant with an exercise price of
$317.05 made on March 23, 2022.
At the end of Fiscal 2022, options were out-of themoney by $0.36 per share.
Options vest 25% on the second, third, fourth and fifth
anniversaries of the grant date.
** See “—Elements of Our Compensation Programs—Potential Adjustments” beginning on page 50 below, “—Elements of Our Compensation Programs—
Fiscal 2022 MIP Results” starting on page 52 below, and “—Elements of Our Compensation Programs—Performance Shares” starting on page 53 below.
Performance-Based Features of Fiscal 2022 Compensation
The following features of our compensation program for executive officers illustrate our performance-based
compensation philosophy and our practice of following compensation best practices:
ü
ü
ü
ü
ü
ü
ü
100% of annual incentive compensation under our Fiscal 2022 MIP was tied to performance against preestablished, specific, measurable financial performance goals.
One half of the annual Fiscal 2022 equity grant was in the form of a three-year performance share award
with payout contingent on achieving pre-established average ROIC and average operating profit targets
over the three-year performance period.
Our performance-based restricted stock awards, which comprised 30% of the annual Fiscal 2022 equity
grant, were forfeitable if Fiscal 2022 operating profit had been less than 90% of the MIP target. Dividends
on performance-based restricted stock grants are accrued and not paid out to executive officers unless
and until the performance goal is met.
Our equity awards have longer vesting periods than many of our peers, with the performance-based
restricted stock and stock options vesting over five years and the performance shares cliff vesting after
three years (subject to achievement of performance goals), which aligns executive officers’ interests with
the interests of our shareholders in the long-term performance of the Company.
Approximately 90.4% of our CEO’s total target compensation (approximately 91.4% for our former Chair)
was tied to the achievement of corporate performance objectives and/or share price performance.
We do not provide tax reimbursements, also known as “gross-ups,” to executive officers; we have limited
perquisites; and we do not have any supplemental executive retirement plans, defined benefit pension
plans, guaranteed salary increases or guaranteed bonuses for executive officers.
We prohibit all associates, officers and directors from entering into hedging or monetization transactions
designed to limit the financial risk of owning Company stock.
Impact of Fiscal 2022 Business Results on Executive Compensation
The amount of incentive compensation paid to our executive officers, if any, is determined by our performance
against our Fiscal 2022 business plan, a plan created at the beginning of the year and intended to be
challenging in light of the prevailing economic conditions, yet attainable through disciplined execution of our
strategic initiatives. Due to the continuing uncertainty regarding economic conditions at the beginning of Fiscal
2022, our executive compensation program reflected a modest increase in sales and operating profit goals
from the actual results for the prior year, consistent with our financial plan. In May 2022, however, the
Company updated its Fiscal 2022 financial forecast to reflect performance exceeding expectations. As a
result, in August 2022 the LDC Committee decided to increase the MIP sales and operating profit
performance targets adopted at the beginning of the year for our executive officers, making achievement of
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those targets more challenging, as discussed in more detail below under “Elements of our Compensation
Programs—Annual Cash Incentive.” Our NEOs earned the following compensation in Fiscal 2022:
•
•
•
•
The LDC Committee approved salary increases for the NEOs (other than Mr. Menear) based on its
assessment of individual performance and other factors, as discussed in more detail below.
Our MIP paid out above the target level as a result of performance above target for the revised sales
metric, above target for the revised operating profit metric, and below the threshold for the inventory turns
metric.
The performance condition on the performance-based restricted stock granted in Fiscal 2022 was
satisfied, although the shares still remain subject to time-based vesting requirements. In connection with
the CEO succession, Mr. Menear did not receive performance-based restricted stock as a part of his
Fiscal 2022 compensation.
The NEOs earned 200.0% of their 2020-2022 performance share award because we achieved average
ROIC and operating profit over the three-year performance period of 54.3% and $22.55 billion,
respectively, reflecting performance above the maximum level for average ROIC and average operating
profit.
Fiscal 2022 Management Transitions
In January 2022, we announced that after seven years as our Chair and CEO, Mr. Menear decided to step
down from the CEO position, effective March 1, 2022, and he remained as our executive Chair. At the same
time, consistent with our succession planning process, we announced the appointment of Mr. Decker to the
position of President and CEO and his appointment to our Board, effective March 1, 2022. In his role as Chair,
Mr. Menear supported the leadership transition process, with a focus on Board and investor matters as well
as the overall strategic direction of the Company. Mr. Menear retired from the Board effective September 30,
2022, and the Board appointed Mr. Decker as Chair, in addition to his position as President and CEO,
effective October 1, 2022.
In addition, as announced in April 2022, Matthew A. Carey, who previously served as Executive Vice
President and Chief Information Officer, was appointed to the newly created role of Executive Vice
President – Customer Experience, effective April 25, 2022.
The compensation of each of Mr. Decker, Mr. Menear, and Mr. Carey was revised to reflect these changes, as
discussed in more detail below in this Compensation Discussion and Analysis.
CEO and Executive Chair Pay Highlights
As part of our CEO succession process, in February 2022 the independent members of our Board, upon the
recommendation of our LDC Committee, set the compensation for Mr. Decker as our new President and CEO
and for Mr. Menear in his role as executive Chair of the Board. Mr. Decker’s salary did not change in
connection with his additional appointment as our Chair in October 2022.
Mr. Decker. With respect to Mr. Decker, the independent directors and the LDC Committee, with support
from the LDC Committee’s independent compensation consultant, considered the compensation of CEOs at
the top ten retail peer companies by market capitalization and at Fortune 50 companies. They also considered
the Company’s existing pay structure for executive officers, noting that the Board had been conservative in
setting executive compensation and that Mr. Menear had declined to accept any salary increases since 2014.
As a result, the Company faced significant salary compression at the NEO level, and as of the end of Fiscal
2021, Mr. Menear’s salary as CEO was at the 16th percentile of the Fortune 50 and at the 48th percentile of
top 10 retail peers by market capitalization, and his total target compensation was at the 3rd percentile of the
Fortune 50 and the 12th percentile of the top ten retail peers, despite Company revenues at the 60th and 67th
percentile, respectively.
In light of these considerations, and taking into account Mr. Decker’s performance in 2021 in his role as
President and COO, the independent directors determined to set Mr. Decker’s annual base salary at
$1.4 million and to increase his MIP target to 200% of base salary, the Company’s standard MIP target for its
CEO, effective with his promotion on March 1, 2022. For Fiscal 2022, the amount of his MIP award was
determined using the applicable target percentage for the portion of the year that he served in each of the
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roles he held during the fiscal year, subject in each case to performance against the performance goals as
updated by the LDC Committee in August 2022. The independent directors granted Mr. Decker an annual
long-term incentive award for Fiscal 2022 in the amount of $10.2 million, using our standard mix of 50%
performance shares, 30% performance-based restricted stock, and 20% stock options. Mr. Decker’s new total
target compensation ranked at approximately the 14th percentile of the Fortune 50 and the 21st percentile of
top ten retail peers, based on peer compensation data as of the end of Fiscal 2021.
Mr. Menear. In determining the compensation for Mr. Menear in his role as Chair, the independent directors
and the LDC Committee considered his performance and tenure as CEO; the demands of the leadership
transition process; and the expectation that his new role would continue to be a full-time, executive-level
position with a shift in focus to Board and investor matters as well as the Company’s overall strategic
direction. The independent directors and the LDC Committee, with support from the LDC Committee’s
independent compensation consultant, also considered the compensation paid at companies with revenues
greater than $10 billion that disclosed pay to an executive chair role in 2020 or 2021. Additionally, the
independent compensation consultant provided observations on compensation actions taken by companies
that experienced a transition from CEO to executive chair since 2016. Based on these considerations,
effective March 1, 2022, the independent directors set Mr. Menear’s annual base salary at $750,000 and his
Fiscal 2022 MIP target at 150% of base salary, reflecting his anticipated active role and contributions in Fiscal
2022. The independent directors also granted Mr. Menear an annual long-term incentive award for Fiscal
2022 in the amount of $7.3 million, of which 50% was granted in performance shares and 50% in stock
options.
Opportunity for Shareholder Feedback
The LDC Committee carefully considers feedback from our shareholders regarding executive compensation
matters. Shareholders are invited to express their views or concerns directly to the LDC Committee or the
Board in the manner described under “Communicating with the Board” on page 13 of this Proxy Statement.
COMPENSATION DETERMINATION PROCESS
Participant
Independent
Members of the
Board
LDC Committee
Executive Officers
46
Role in the Executive Compensation Determination Process
• The independent members of the Board, consisting of all directors in Fiscal 2022
other than Mr. Decker and Mr. Menear, evaluated the performance and determined
the compensation of Mr. Decker and Mr. Menear.
• The LDC Committee evaluated the performance and determined the compensation
of our executive officers other than Mr. Decker and Mr. Menear.
• The LDC Committee evaluated the performance of Mr. Decker and Mr. Menear and
made recommendations to the independent members of the Board regarding their
compensation.
• The LDC Committee may delegate its responsibilities to subcommittees but did not
delegate any of its authority with respect to the compensation of any executive
officer for Fiscal 2022.
• Mr. Decker, Mr. Menear, and our EVP-HR made recommendations to the LDC
Committee as to the amount and form of executive compensation for executive
officers (other than their own compensation).
• At the request of the LDC Committee, the EVP-HR, Mr. Decker and Mr. Menear
regularly attended LDC Committee meetings, excluding executive sessions where
their respective compensation and other matters were discussed.
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Participant
Independent
Compensation
Consultant
Role in the Executive Compensation Determination Process
• In November 2021, the LDC Committee engaged Pay Governance LLC as its
independent compensation consultant for Fiscal 2022 to provide research, market
data, survey information and design expertise in developing executive and director
compensation programs. Pay Governance provides consulting services solely to
compensation committees.
• A representative of Pay Governance attended LDC Committee meetings in Fiscal
2022 and advised the LDC Committee on all principal aspects of executive
compensation, including the competitiveness of program design and award values
and specific analyses with respect to the Company’s executive officers, including
Mr. Decker and Mr. Menear. The compensation consultant reports directly to the
LDC Committee, and the LDC Committee is free to replace the consultant or hire
additional consultants or advisers at any time.
• Pursuant to the independent compensation consultant policy adopted by the LDC
Committee, its compensation consultant provides services solely to the LDC
Committee and is prohibited from providing services or products of any kind to the
Company. Further, affiliates of the compensation consultant may not receive
payments from the Company that would exceed 2% of the consolidated gross
revenues of the compensation consultant and its affiliates during any year.
• Pay Governance provided services solely to the LDC Committee in Fiscal 2022, and
none of its affiliates provided any services to the Company. In addition, under the
Company’s independent compensation consultant policy, the LDC Committee
assessed Pay Governance’s independence and whether its work raised any
conflicts of interest, taking into consideration the independence factors set forth in
applicable SEC and NYSE rules. Based on that assessment, including review of a
letter from Pay Governance addressing those factors, the LDC Committee
determined that Pay Governance was independent and that its work did not raise
any conflicts of interest.
Benchmarking
We do not target any specific peer group percentile ranking for total compensation or for any particular
component of compensation for our NEOs. The LDC Committee considers each executive’s compensation
history and peer group market position as reference points in awarding annual compensation. As discussed
above under “CEO and Executive Chair Pay Highlights,” for Mr. Decker’s Fiscal 2022 compensation, the LDC
Committee considered data provided by Pay Governance from two peer groups. The first consisted of the
Fortune 50 companies, excluding certain financial services and other companies due to their unique
compensation structure (as noted below). This group reflects companies of similar size and complexity to us.
The second group, listed below, consisted of the top ten retail companies by market capitalization, with whom
we compete for executive talent.
Retail Peer Group
Amazon.com
O’Reilly Automotive, Inc.
Costco Wholesale Corporation
Target Corporation
Dollar General Corporation
The TJX Companies, Inc.
eBay, Inc.
Walgreens Boots Alliance, Inc.
Lowe’s Companies, Inc.
Walmart Inc.
The top ten retail peer group remained largely unchanged from Fiscal 2021. We replaced Ross Stores, Inc.
with Amazon.com, which was previously excluded from our retail peer group due to the atypical compensation
structure of its former CEO and founder.
In reviewing the benchmarking data from 2021 in connection with setting Mr. Decker’s Fiscal 2022
compensation as President and CEO in early 2022, the LDC Committee and the independent directors also
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reviewed the percentile ranking of our revenues and Mr. Decker’s target total compensation compared to
each of these peer groups, as reflected below:
Category
Company Revenue(1)
CEO Target Total Compensation
Percentile Rank
Fortune 50(2)
Retail Peers
60%
67%
14%
21%
(1)
Based on fiscal 2021 revenue as reported in SEC filings.
(2)
Excludes Bank of America Corporation, Citigroup Inc., Fannie Mae, Freddie Mac, JP Morgan Chase & Co., and Wells
Fargo & Company. Berkshire Hathaway Inc., Meta Platforms, Inc. and Dell Technologies, Inc. were also excluded due
to the atypical compensation structures of their founder/CEOs. State Farm Mutual Automobile Insurance was
excluded because it is a private company and did not disclose executive compensation data.
For Mr. Menear’s compensation as Chair, the independent directors reviewed and considered the
compensation paid at companies with revenues greater than $10 billion that disclosed pay to an executive
chair role in 2020 or 2021, as well as compensation actions taken by companies that experienced a transition
from CEO to executive chair since 2016, as discussed above under “CEO and Executive Chair Pay
Highlights.” The broader group was considered to provide a more representative sample given the relative
infrequency of the executive chair position.
For our other NEOs, the LDC Committee considered data from the Aon Radford Total Compensation
Database, which provides information and comparisons on compensation for executive and industry-specific
positions. Data from the survey for Fortune 50 companies and top ten retail companies by market cap was
utilized to the extent it was available for each NEO role. In some cases, proxy data was used where survey
data was not available. This survey data helps the LDC Committee understand the competitive market for the
industry in which the Company principally competes for retail-specific talent and for customers.
Mitigating Compensation Risk
In November 2021, the LDC Committee undertook its annual broad-based review and risk assessment of the
proposed compensation policies and practices for the Company’s associates, including but not limited to our
executive officers, for Fiscal 2022. The assessment considered both qualitative and quantitative factors.
Based on the collective assessment, management and the LDC Committee determined that our
compensation policies and practices did not create risks that are reasonably likely to have a material adverse
effect on the Company. In reaching that conclusion, management and the LDC Committee considered the
following qualitative and quantitative factors:
Qualitative Factors:
• Management and the LDC Committee, with the advice of the independent compensation consultant,
regularly review our executive compensation programs, with a focus on both their efficacy in driving
quality performance and how the programs will be viewed by the investment community and other
external constituencies.
• The LDC Committee and, for Mr. Decker and Mr. Menear, the independent members of the Board,
provide effective oversight in setting goals and monitoring attainment of those goals.
• Robust internal controls are in place to ensure compensation plans are operated as designed and
approved.
• Compensation programs and pay amounts at various leadership levels are routinely analyzed against
market data by the LDC Committee and management to ensure compensation is appropriate to the
market.
• Bonus, incentive and equity awards to executive officers are subject to a recoupment policy, as described
below on page 56, to discourage manipulation of incentive program elements.
• Stock ownership guidelines are in place to further align the interests of shareholders and executive
officers, as described below on page 56.
Quantitative Factors:
• Performance and payment time horizons are appropriate, and they are not overweight in short-term
incentives.
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•
•
•
•
•
The relationship between the incremental achievement levels and corresponding payouts in our incentive
plans is appropriate, and all incentives, other than equity incentives that are tied to growth in our share
price, have payout caps.
Programs employ a reasonable mix of performance metrics and are not overly concentrated on a single
metric. Although the operating profit metric is used in more than one incentive, it is a key corporate goal
that takes into account both revenue and expense, and the risk of overweighting it is mitigated by using it
across different time horizons.
Criteria for payments are closely aligned with our strategic initiatives, our financial plan and shareholder
interests.
Payout curves are reasonable and do not contain steep “cliffs” that might encourage unreasonable shortterm business decisions to achieve payment thresholds.
Equity for senior officers is paid in a mix of performance shares, performance-based restricted stock, and
stock options; other associates receive equity in the form of time-based restricted stock.
Consideration of Last Year’s Say-on-Pay Vote
At our 2022 annual meeting on May 19, 2022, approximately 95% of the shares voted were voted in support
of the compensation of our NEOs. Since then, as part of our regular interaction with our institutional
shareholders, we have continued to request input on our compensation practices. In considering the results of
the 2022 advisory vote on executive compensation and feedback from these shareholders, the LDC
Committee concluded that the compensation paid to our executive officers and the Company’s overall
executive pay practices have strong shareholder support and therefore determined to maintain the current
overall compensation structure for Fiscal 2022.
Frequency of Say-on-Pay Vote.
At our 2017 annual meeting on May 18, 2017, our shareholders
expressed a preference that advisory votes on executive compensation occur every year, as recommended
by our Board. Consistent with this preference, the Board implemented an annual advisory vote on executive
compensation until the next advisory vote on the frequency of shareholder votes on executive compensation,
which will occur at this Meeting. As discussed above under “Item 4 – Advisory Vote on the Frequency of
Future Say-on-Pay Votes,” the Board recommends that shareholders vote for an annual advisory vote on
executive compensation.
ELEMENTS OF OUR COMPENSATION PROGRAMS
The principal elements of our compensation programs are discussed below.
Base Salaries
We provide competitive base salaries that allow us to attract and retain a high-performing leadership team.
Base salaries for our NEOs are reviewed and generally adjusted annually based on a comprehensive
management assessment process. For Fiscal 2022, following discussion with the LDC Committee and based
upon a review of competitive market data, the Company’s performance in Fiscal 2021, and assessments of
the Company’s business plan and then-anticipated economic conditions in Fiscal 2022, we established a
Company-wide merit increase budget of between 3.0% and 4.0%.
In late February 2022, the LDC Committee, and in the case of Mr. Decker and Mr. Menear, the independent
directors, performed their annual review of base salaries for the NEOs. As noted above under “Fiscal 2022
Management Transitions,” Mr. Decker was promoted from our President and COO to our President and CEO,
effective March 1, 2022, and he was also appointed as Chair of the Board effective October 1, 2022. Upon
Mr. Decker’s promotion to President and CEO effective March 1, 2022, the independent directors determined
to set his base salary to $1,400,000, as discussed above under “CEO and Executive Chair Pay Highlights.”
Mr. Decker’s compensation remained unchanged in connection with his subsequent appointment as Chair in
October 2022.
As discussed above under “CEO and Executive Chair Pay Highlights,” the independent directors set
Mr. Menear’s annual base salary as Chair at $750,000, effective March 1, 2022. Mr. Menear retired from the
Board and the Company on September 30, 2022.
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In establishing the actual base salaries for the other NEOs for Fiscal 2022, the LDC Committee considered
total compensation, scope of responsibilities, performance over the previous year, experience, internal pay
equity, potential to assume additional responsibilities, and the competitive marketplace. The changes from this
salary review were effective in April 2022. As a result of this assessment, Mr. McPhail, Ms. Campbell,
Mr. Carey and Mr. Kinnaird received annual salary increases in April 2022 of between 3.3% and 4.5%, as set
forth in the table below.
Fiscal 2022 Base Salary Changes as of April 2022
Name
Edward P. Decker
2022 Base Salary 2021 Base Salary
Percent Change
$1,400,000
$1,025,000
36.6 %
Craig A. Menear
$750,000
$1,300,000
(42.3)%
Richard V. McPhail
$880,000
$846,000
4.0 %
Ann-Marie Campbell
$900,000
$871,000
3.3 %
Matthew A. Carey
$870,000
$840,500
3.5 %
Jeffrey G. Kinnaird
$750,000
$717,500
4.5 %
Annual Cash Incentive
All NEOs participate in the MIP, our cash-based annual incentive plan. The Fiscal 2022 MIP payout was
contingent upon the achievement of financial performance goals initially set by the LDC Committee at the
beginning of the Fiscal 2022 performance period. Due to the continuing uncertainty regarding economic
conditions at the beginning of Fiscal 2022, the MIP targets set in early 2022 reflected a modest increase in
sales and operating profit goals from the actual results from the prior year, and a slight decrease in the
inventory turns metric due to continued supply chain disruption and a recognition that inventory turns in the
pandemic environment were at record levels. However, following the Company’s update to its Fiscal 2022
financial forecast in May 2022 as a result of performance exceeding expectations, in August 2022 the LDC
Committee decided to increase the MIP sales and operating profit performance metrics adopted at the
beginning of the year to make them more challenging. The Fiscal 2022 inventory turns performance metrics
remained unchanged. The LDC Committee bases the payout of the MIP on achievement of financial metrics
to align MIP goals with shareholder value creation and achievement of the Company’s business plan.
Performance Goals. Set forth below are the MIP financial performance measures and the final threshold,
target and maximum Company achievement levels selected by the LDC Committee for Fiscal 2022, as
updated in August 2022 (dollars in billions):
Fiscal 2022 Performance Measures
Measure
Sales
Weighting
Threshold
% of Target
Goal
% of Target
Payout
Target
Maximum
% of Target % of Target
Goal
Payout
45%
$138.07
90%
25%
$153.41
$176.43
115%
200%
Operating Profit
45%
$21.14
90%
25%
$23.49
$27.01
115%
200%
Inventory Turns
10%
4.46
90%
25%
4.95
5.69
115%
200%
The original threshold, target and maximum sales metrics set at the beginning of the year were $136.94
billion, $152.16 billion and $174.98 billion, respectively, and the original threshold, target and maximum
operating profit metrics were $20.76 billion, $23.07 billion and $26.53 billion, respectively.
The operating profit threshold must be met for any MIP payout to occur. The relative weighting among the
goals was determined by the LDC Committee, with input from the then-CEO and the EVP-HR, to reflect the
Company’s priorities for Fiscal 2022. The weighting of each of the sales and operating profit goals was
aligned to emphasize top line sales growth balanced with the Company’s continued focus on profitability as a
means to drive bottom line results for shareholders. The weighting of the inventory turns goal at 10%
maintained visibility and attention on inventory turns while at the same time recognizing that this metric may
be impacted by the Company’s ongoing supply chain investments and the global supply chain disruption,
which were likely to create more variability in the metric.
Potential Adjustments. The pre-established definitions of all performance metrics under the MIP provided
for adjustments for the impact of acquisitions or dispositions of businesses with annualized sales of $1 billion
or more. The definitions also provided for adjustments in connection with specified types of nonrecurring
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charges and write-offs related to strategic restructuring transactions or changes in tax laws, accounting
principles or other laws that materially impact results in excess of $50 million in the aggregate. The LDC
Committee included the adjustment for restructuring transactions because it believes these types of strategic
decisions support the long-term best interests of the Company and should not adversely affect incentive
opportunities. The adjustment for changes in laws or accounting principles reflects the fact that these changes
are outside of the control of the executive officers, and the LDC Committee similarly believes that they should
not affect incentive opportunities (positively or negatively).
As in prior years, the LDC Committee also included in the pre-established definitions of sales and operating
profit under the MIP an adjustment to neutralize the impact of any change (positive or negative) in currency
exchange rates during the fiscal year for any country where the Company has annual sales in excess of
$1 billion. This adjustment reflected the volatility in exchange rates and in the value of the U.S. dollar against
other currencies, in particular the Canadian dollar and the Mexican peso, that has occurred over the last
several years. The LDC Committee noted that adjustments for currency fluctuations are not uncommon for
large multinational corporations. These fluctuations represent external, macro-economic influences outside of
the control of the executive officers, and the LDC Committee believes that they should not affect incentive
opportunities.
In addition, taking into account the experience of the COVID-19 pandemic as well as the potential for future
pandemic impacts, the LDC Committee included in the definitions of sales and operating profit an adjustment
for the impact of any store closures required due to a pandemic with an aggregate impact to sales in excess
of $1 billion, and in the operating profit definition, an adjustment for specific expenses in excess of $50 million
that were not already included in the metrics set for Fiscal 2022 and that would not otherwise have been
incurred but for combating the impact on business operation of a pandemic. By neutralizing the impact of
these expenses on MIP results, the LDC Committee desired to incentivize management to make appropriate
expenditures for the safety of our customers and associates, without penalizing their incentive opportunity. At
the same time, the LDC Committee retained the ability to use negative discretion to reduce the amount of any
MIP payout if the impact of this adjustment, or any of the adjustments discussed above, were to result in a
payment to an executive inconsistent with our pay for performance philosophy.
Payout Calculations.
For achieving the target level of performance for the Fiscal 2022 MIP, executive
officers receive 100% payout. The target performance level was set consistent with our 2022 financial plan, as
revised mid-year as discussed above. For Fiscal 2022, the LDC Committee tightened the performance payout
curve and increased the payout minimum for the MIP from the prior year, reflecting a closer return to a prepandemic performance range and payout minimum. Specifically, for Fiscal 2022, the LDC Committee set the
threshold performance levels at 90% of the performance targets for each of the sales, operating profit and
inventory turns measures, replacing the prior threshold of 80%. Threshold payout was increased to 25% of
target payout, from 15% the prior year. In addition, for Fiscal 2022, the LDC Committee set the maximum
performance goal for each of those measures at 115% of the target performance goal, replacing the prior
120%. The payout for maximum achievement for the sales, operating profit and inventory turns measures
remained at 200% of target payout. These changes increased the level of performance needed for a threshold
payout, with a small incremental increase in the threshold payout amount that better aligned with prepandemic and market practice. At the same time, the LDC Committee returned to the 115% maximum
performance level, given market practice and historical experience that indicated the ability to achieve 120%
of target is highly unlikely under more normal circumstances, which can negatively impact the effectiveness of
the incentive structure.
The Company used interpolation to determine the specific amount of the payout for each NEO with respect to
the achievement of financial goals between the various levels. The LDC Committee does not have discretion
to increase the MIP payout earned by an NEO, but it may decrease the payout even if the performance goals
are achieved.
The annual target payout levels were determined as a percentage of base salary: 200% for the CEO, 150%
for Mr. Menear as Chair and for Mr. Decker as President and COO, and 100% for Executive Vice Presidents.
The amount of Mr. Decker’s Fiscal 2022 annual incentive award was determined using the applicable target
percentage for the portion of the year that he served in each of the roles he held during the fiscal year.
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The payouts for achievement of the performance goals were based on overall Company performance for all of
our NEOs except Mr. Kinnaird. For Mr. Kinnaird, payouts were based upon performance of the portion of the
Company’s business for which he was accountable. The specific performance levels for the portions of the
Company’s business for which Mr. Kinnaird was responsible are not material to an understanding of the
Company’s compensation program, and we do not believe disclosure of this information would be meaningful
to shareholders since it would not be apparent how this information correlates to our consolidated financial
statements.
Fiscal 2022 MIP Results.
For Fiscal 2022, for purposes of determining the achievement of MIP awards,
sales were $157.74 billion, operating profit was $24.09 billion and inventory turns were 4.22 times, above the
target level for the sales metric and the operating profit metric, and below the threshold for the inventory turns
metric. Pursuant to the pre-established definition of sales under the MIP, sales were adjusted up by
$340.4 million for the impact of changes in currency exchange rates in Fiscal 2022. Pursuant to the preestablished definition of operating profit under the MIP, operating profit was adjusted up by $52.9 million due
to the impact of changes in currency exchange rates in Fiscal 2022. Actual sales and operating profit without
any adjustments were $157.40 billion and $24.04 billion, respectively, which were also above the target
performance level for the sales goal and the operating profit goal.
Based on performance in Fiscal 2022 against the performance goals, the following were the target and actual
MIP awards for Fiscal 2022 for each of the NEOs:
At Target Performance
Name
Edward P. Decker
% of Base Salary(1)
At Actual Performance
% of Target
192%
Dollar Amount
$2,683,333
106%
Dollar Amount
$2,848,936
Craig A. Menear
121%
$906,250
106%
$962,180
Richard V. McPhail
100%
$880,000
106%
$934,310
Ann-Marie Campbell
100%
$900,000
106%
$955,544
Matthew A. Carey
100%
$870,000
106%
$923,692
Jeffrey G. Kinnaird
100%
$750,000
106%
$796,655
(1)
Percent of base salary for Mr. Decker and Mr. Menear reflects a blended rate based on the portion of the year that each
served in the respective roles held in Fiscal 2022.
MIP Program Change for Fiscal 2023.
To better align the MIP structure with the current business
environment and remain market competitive, the LDC Committee assessed the broader market practices with
respect to performance goal range and payout leverage, as well as the historical results of the MIP program,
when setting the program design for Fiscal 2023. The LDC Committee noted that the Company’s maximum
performance level tended to be wider than the market, with threshold payout levels set lower than the market.
For Fiscal 2023, the LDC Committee determined to lower the maximum performance level for all metrics to
110% of target (from the Fiscal 2022 maximum of 115%) and increase the payout at the threshold
performance level to 50% of target payout (from the prior 25%).
Long-Term Incentives
For Fiscal 2022, consistent with prior years, we awarded the NEOs (other than Mr. Menear) annual long-term
incentives consisting of 50% performance shares, 30% performance-based restricted stock, and 20% stock
options. The LDC Committee selected this mix to highlight the focus on pay for performance and alignment
with shareholder interests. The LDC Committee also believed that this mix of equity components provided an
appropriate mix of mid- and long-term performance measures and retention incentive, without promoting
excessive risk-taking. As discussed above under “CEO and Executive Chair Pay Highlights,” in connection
with Mr. Menear’s anticipated role and contributions as Chair, the independent directors granted Mr. Menear
an annual long-term incentive award for Fiscal 2022 in the amount of $7.3 million, of which 50% was granted
in performance shares and 50% in stock options. Due to his change in role, Mr. Menear was not granted
performance-based restricted stock as part of his Fiscal 2022 compensation.
The total value of the annual equity awards granted in March 2022 to the NEOs other than Mr. Decker and
Mr. Menear was determined by the LDC Committee after considering the value of equity grants of officers with
similar responsibilities at peer group companies described under “Compensation Determination Process—
Benchmarking” above and individual performance relating to financial management, leadership, talent
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management and operational effectiveness, as well as retention risk. For Fiscal 2022, the annual equity
award for Mr. Decker and Mr. Menear at the target level was 729% and 973%, respectively, of their Fiscal
2022 base salary approved in February 2022. For the other NEOs, the target equity value for the annual
equity grant ranged from 264% to 313% of their Fiscal 2022 base salary approved in February 2022.
Performance Shares. The Fiscal 2022-2024 performance share awards granted in March 2022 provide for
the issuance of shares of our common stock at the end of a three-year period based on the achievement of
average ROIC and operating profit goals over that period, as follows (dollars in billions):
Fiscal 2022-2024 Performance Shares
Three-Year Average ROIC
Three-Year Average Operating Profit
Percent of Target Payout
Threshold
Target
42.1%
46.7%
Maximum
51.4%
$21.41
$23.79
$26.17
25%
100%
200%
Directionally similar to the change made to the payout curve for the Fiscal 2022 MIP, the LDC Committee
revised the payout curve for the Fiscal 2022-2024 performance share awards granted in March 2022 to return
to our pre-COVID structure. For the Fiscal 2022-2024 performance share awards, the threshold performance
level was set at 90% of target performance for each metric, and the maximum level was set at 110% of target
performance (compared to 85% and 115%, respectively, for the 2021-2023 awards). For results between the
threshold, target and maximum levels, the number of shares is determined by interpolation. There is no
payout for results below the threshold level. Each performance measure is separately determined and equally
weighted. ROIC for each year in the performance period is defined as operating profit, net of tax, divided by
the average of beginning and ending long-term debt and equity for the relevant fiscal year. The preestablished definitions of operating profit and ROIC include adjustments for acquisitions and dispositions of
businesses with annualized sales of $1 billion or more; certain nonrecurring write-offs or charges, changes in
tax laws, accounting principles or other laws or provisions which have an impact on reported results that
exceed $50 million in the aggregate during any fiscal year; and changes in foreign exchange rates, similar to
the Fiscal 2022 MIP. Also similar to the Fiscal 2022 MIP, the LDC Committee included in the pre-established
definitions of operating profit and ROIC an adjustment for the impact of any store closures as a result of a
pandemic in excess of $1 billion and an adjustment for expenses in excess of $50 million that were not
already included in the metrics for the performance period and that would not otherwise have been incurred
but for a pandemic.
In Fiscal 2021 and Fiscal 2020, the LDC Committee also granted performance share awards that were
structured similarly to the Fiscal 2022-2024 awards, although the 2021-2023 awards have a different payout
curve as noted above. The Fiscal 2021-2023 and Fiscal 2020-2022 awards each provide for the grant of
shares of our common stock at the end of the respective three-year period based on the achievement of
average ROIC and operating profit goals over that period, as follows (dollars in billions):
Fiscal 2021-2023 Performance Shares
Three-Year Average ROIC
Three-Year Average Operating Profit
Percent of Target Payout
Fiscal 2020-2022 Performance Shares
Three-Year Average ROIC
Three-Year Average Operating Profit
Percent of Target Payout
Threshold
Target
28.9%
34.0%
Maximum
39.1%
$15.26
$17.95
$20.64
25%
100%
200%
Threshold
Target
Maximum
40.1%
44.5%
49.0%
$15.05
$16.72
$18.39
25%
100%
200%
The pre-established definitions of operating profit and ROIC for the Fiscal 2021-2023 and Fiscal 2020-2022
performance share awards are the same as those used for the Fiscal 2022-2024 awards. Dividend
equivalents accrue on each of the performance share awards (as reinvested shares) and will be paid upon
the payout of the award based on the actual number of shares earned.
The performance period for the Fiscal 2020-2022 performance share awards ended on January 29, 2023.
Over the three-year period, the Company achieved an average operating profit of $22.55 billion and an
average ROIC of 54.3%, as calculated pursuant to the terms of the awards. As a result, the NEOs earned
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200.0% of their Fiscal 2020-2022 awards, reflecting performance above the maximum level for both average
operating profit and average ROIC. Pursuant to the pre-established definition of operating profit for the Fiscal
2020-2022 awards, operating profit was adjusted up by $29.4 million due to changes in currency exchange
rates in Fiscal 2020, Fiscal 2021 and Fiscal 2022; adjusted down by $394.1 million due to the acquisition of
HD Supply in Fiscal 2020; and adjusted up by $2.67 billion due to the impact of COVID-19 expense. Pursuant
to the pre-established definition of ROIC for the Fiscal 2020-2022 awards, ROIC also includes the same
adjustments to operating profit reflected above and also reflects a $7.78 billion adjustment due to the
acquisition of HD Supply in Fiscal 2020. Because the average operating profit and the ROIC results for
purposes of calculating the Fiscal 2020-2022 performance share award payouts exceeded the maximum
performance levels prior to the adjustment for COVID-19 expense, that adjustment was effectively moot and
had no impact on the payouts. Average operating profit and ROIC over the three-year period without any
adjustments were $21.79 billion and 43.4%, respectively, which was above the maximum for average
operating profit and between threshold and target for average ROIC. The NEOs earned the following shares
under the award, which include reinvested accrued dividends:
Name
Edward P. Decker
Value at Date of Grant(1)
(3/25/2020)
Shares Earned at
End of Performance
Period (1/29/2023)
Value at
End of Performance
(2)
Period (1/29/2023)
$1,099,830
12,882
$4,079,612
Craig A. Menear
$3,649,923
42,750
$13,538,703
Richard V. McPhail
$999,862
$1,099,830
11,711
$3,708,800
12,882
$4,079,612
$1,099,830
$312,445
12,882
$4,079,612
3,659
$1,158,958
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
(1)
Reflects the grant date fair value.
(2)
Reflects the value based upon the closing stock price of $316.69 on January 27, 2023, the last trading day of Fiscal 2022.
Similar to the change made for the Fiscal 2021-2023 performance share awards, due to continued
macroeconomic uncertainty, particularly over the longer term, the LDC Committee revised the payout curve
for the Fiscal 2023-2025 performance share awards granted in March 2023. For the Fiscal 2023-2025
performance share awards, the threshold performance level was set at 85% of target performance for each
metric, and the maximum performance level was set at 115% of target performance (compared to the 90%
and 110%, respectively, used for the Fiscal 2022-2024 awards).
Performance-Based Restricted Stock.
In March 2022, we granted performance-based restricted stock
awards that were forfeitable if operating profit was less than 90% of the MIP target for Fiscal 2022. As
discussed above under “Annual Cash Incentive,” the LDC Committee increased the MIP operating profit
metric in August 2022 based on the Company’s revised financial plan. As a result, the performance feature of
the Fiscal 2022 performance-based restricted stock was based on the higher Fiscal 2022 MIP operating profit
target as revised. Dividends on the restricted stock awards are accrued and not paid out unless the
performance goal is met. Once the performance goal is met, cash dividends are then paid on the shares of
restricted stock. The performance goal was met at the end of Fiscal 2022. As a result, the restricted stock will
vest 50% on each of the 30- and 60-month anniversaries of the grant date.
Stock Options.
In March 2022, we granted stock options with an exercise price equal to the fair market
value of our stock, which is defined as the market closing price on the date of grant. The options vest 25% on
each of the second, third, fourth and fifth anniversaries of the grant date. Option re-pricing is expressly
prohibited by our Omnibus Plan without shareholder approval.
Promotional Equity Grants.
In connection with Mr. Carey’s promotion to Executive Vice President –
Customer Experience, the LDC Committee granted Mr. Carey promotional equity awards consisting of
$125,000 in restricted stock and $125,000 in stock options. In accordance with our equity grant procedures,
the awards were granted on May 19, 2022, the date of the first regularly scheduled Board meeting following
his role change on April 25, 2022 and the effective date of our Omnibus Plan (which was amended and
restated effective May 19, 2022). The restricted stock will vest 50% on each of the 30- and 60-month
anniversaries of the grant date, and the options will vest 25% on each of the second, third, fourth and fifth
anniversaries of the grant date.
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Deferred Compensation Plans
In addition to the FutureBuilder 401(k) Plan (a broad-based tax-qualified plan), our executive officers can
participate in two nonqualified deferred compensation plans for our management and highly-compensated
associates:
•
•
The Deferred Compensation Plan For Officers (solely funded by the individuals who participate in the
plan); and
The THD Restoration Plan, which provides a Company matching contribution equal to 3.5% of the
amount of salary and annual cash incentive earned by a management-level associate in excess of the
Internal Revenue Service annual compensation limit for tax-qualified plans, payable in shares of common
stock of the Company upon retirement or other employment termination.
The plans are designed to permit participants to accumulate income for retirement and other personal
financial goals. The Deferred Compensation Plan For Officers and the THD Restoration Plan are described in
the notes to the Nonqualified Deferred Compensation table on page 67. Deferred compensation
arrangements are common executive programs, and we believe that these arrangements help us in the
recruitment and retention of executive talent; however, we do not view nonqualified deferred compensation as
a significant element of our compensation programs. None of these plans provides above-market or
preferential returns.
Perquisites
We provide very limited perquisites to our executive officers and do not view them as a significant element of
our compensation program. We do not provide tax reimbursements, or “gross-ups,” on perquisites to our
executive officers.
Our NEOs participate in a death-benefit-only program, under which they are entitled to a $400,000 benefit
upon death if they are employed by the Company at that time. For executive officers with ten years of service
with the Company, the benefit is paid upon death even if they are no longer employed by the Company.
Currently, all of our NEOs have met this service requirement and are entitled to lifetime death benefit
coverage. In Fiscal 2009, we discontinued this benefit for any new executive officers.
The Company previously requested that Mr. Menear, in his prior roles as Chair and as CEO, and currently
requests that Mr. Decker, in his role as Chair, President and CEO, travel by Company aircraft, including travel
for personal reasons. We also permit non-business use of Company aircraft by other NEOs on a more limited
basis.
Other Benefits
Our NEOs have the option to participate in various employee benefit programs, including medical, dental,
disability and life insurance benefit programs. These benefit programs are generally available to all full-time
associates. We also provide all associates, including our NEOs, with the opportunity to purchase our common
stock through payroll deductions at a 15% discount through our ESPP, a nondiscriminatory, tax-qualified plan.
All associates, including our NEOs, are also eligible to participate in our charitable matching gift program
through The Home Depot Foundation.
MANAGEMENT OF COMPENSATION-RELATED RISK
We employ a number of mechanisms to mitigate the chance of our compensation programs encouraging
excessive risk-taking, including those described below.
Annual Risk Assessment
As discussed above under “Mitigating Compensation Risk” beginning on page
48, the LDC Committee undertakes an annual review and risk assessment of
our compensation policies and practices.
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Anti-Hedging Policy
Compensation
Recoupment Policy
Stock Ownership and
Retention Guidelines
The Company has adopted a policy that prohibits all associates, officers and
directors from entering into hedging or monetization transactions designed to
limit the financial risk of owning Company stock. These include prepaid
variable forward contracts, equity swaps, collars, exchange funds and other
similar transactions, as well as speculative transactions in derivatives of the
Company’s securities, such as puts, calls, options (other than those granted
under a Company compensation plan) or other derivatives.
We have an executive compensation clawback policy, which is set forth in our
Corporate Governance Guidelines and LDC Committee charter. Pursuant to
the clawback policy, to the extent deemed appropriate and as permitted by law,
the Board or the LDC Committee will recover from an executive officer any
bonus, incentive payment, equity award or other compensation (in whole or in
part) awarded to or received by an executive officer if the compensation was
based on any financial results or operating metrics that were achieved as a
result of that executive officer’s knowing or intentional fraudulent or illegal
conduct or if the executive officer engaged in any intentional misconduct that
caused the Company material financial or reputational harm. We are currently
assessing our clawback policy for additional updates in light of recently
adopted SEC rules.
Our Executive Stock Ownership and Retention Guidelines require our NEOs to
hold shares of common stock with a value equal to the specified multiples of
base salary indicated below. This program assists in focusing executives on
long-term success and shareholder value. Shares owned outright, restricted
stock, and shares acquired pursuant to the ESPP, the FutureBuilder 401(k)
Plan, and the THD Restoration Plan, are counted towards this requirement.
Unearned performance shares and unexercised stock options are not counted
toward this requirement. Newly hired and promoted executives have four years
to satisfy the requirements and must hold all shares received upon vesting of
equity awards (net of shares withheld to pay taxes) until the requirements are
met.
As of March 1, 2023, all of our NEOs complied with the stock ownership and
retention guidelines and held the following multiples of base salary (rounded to
the nearest whole multiple):
Multiple of Base Salary
Name
Edward P. Decker
56
Current Ownership
23x
Guideline
6x
Craig A. Menear
85x
6x
Richard V. McPhail
13x
4x
Ann-Marie Campbell
25x
4x
Matthew A. Carey
13x
4x
Jeffrey G. Kinnaird
11x
4x
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Equity Grant Procedures
Company-wide annual equity grants, including the annual equity grants to the
NEOs, are approved at the LDC Committee (or Board meeting, in the case of
the CEO) typically held in late February but are awarded effective as of the
date of the March meeting of the LDC Committee, which is generally
scheduled at least a year in advance and is several weeks after the approval.
Throughout the year, equity awards are made to new hires, promoted
employees, and, in some circumstances, for retention purposes or as a reward
for exceptional performance. In each of these cases, the effective grant date
for these mid-year awards is the date of the next regularly-scheduled quarterly
LDC Committee meeting, except for the promotional grant for Mr. Carey, which
was set as the date of the next regularly-scheduled quarterly Board meeting to
align with the effective date of the Company’s Omnibus Plan. The exercise
price of each of our stock option grants is the market closing price on the
effective grant date.
SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
The employment arrangements for our NEOs do not entitle them to severance payments upon employment
termination. We also do not have any change in control agreements with our executives. Since Fiscal 2013,
our standard form of equity award agreement has provided for accelerated vesting if the executive is
terminated without cause within 12 months following a change in control, and our Omnibus Plan incorporates
this “double-trigger” change in control provision into the plan for awards issued after May 2022. Prior to Fiscal
2013, our equity awards provided for accelerated vesting solely upon a change in control regardless of any
termination of employment. The vast majority of these awards have vested in accordance with their terms. In
the event the value of any accelerated vesting constitutes an “excess parachute payment,” the executive
would be subject to a 20% excise tax on such amount, and the amount would not be tax deductible by the
Company.
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SUMMARY COMPENSATION TABLE
The following table sets forth the compensation during the last three fiscal years paid to or earned by (1) each
of our current and former CEOs; (2) our CFO; and (3) the three other most highly compensated executive
officers who were serving as executive officers as of the end of Fiscal 2022 (collectively referred to as the
named executive officers or NEOs).
SUMMARY COMPENSATION TABLE
Option
Awards
($)(2)
Non-Equity
Incentive
Plan
Compensation
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)(4) (5)
Total
($)
2022
1,369,712
—
8,263,788
2021
1,019,231
—
3,599,654
2020
898,673
—
2,054,873
Craig A. Menear
Former Chair and Former Chief Executive Officer(6)
2,039,958
899,973
689,957
2,848,936
2,594,933
2,250,000
—
—
—
97,395
40,362
35,776
14,619,789
8,154,153
5,929,279
2022
549,231
—
3,821,739
2021
1,300,000
—
5,839,484
2020
1,300,000
—
5,931,394
Richard V. McPhail
Executive Vice President and Chief Financial Officer
3,649,932
1,459,998
1,459,992
962,180
4,388,180
5,200,000
—
—
—
37,780
72,089
103,706
9,020,862
13,059,751
13,995,092
549,966
449,958
649,982
934,310
1,427,846
1,650,000
—
—
—
28,064
23,146
21,695
4,661,157
4,541,638
4,954,489
955,544
1,470,040
1,700,000
—
—
—
23,613
20,901
38,162
4,751,692
5,106,812
5,286,752
923,692
1,418,564
1,640,000
—
—
—
22,663
18,055
17,631
4,435,634
4,472,091
4,714,660
796,655
—
58,046
3,714,397
Name,
Principal
Stock
Position and
Salary
Bonus
Awards
(1)
Year
($)
($)
($)(2) (3)
Edward P. Decker
Chair, President and Chief Executive Officer(6)
2022
2021
2020
872,154
841,154
749,712
—
—
—
2,276,663
1,799,534
1,883,100
Ann-Marie Campbell
Executive Vice President – U.S. Stores and International Operations
2022
893,308
—
2,319,245
559,982
2021
866,154
—
2,199,724
549,993
2020
808,366
—
2,050,267
689,957
Matthew A. Carey
Executive Vice President – Customer Experience(7)
2022
863,192
—
2,041,162
584,925
2021
835,769
—
1,759,720
439,983
2020
815,385
—
1,801,671
439,973
Jeffrey G. Kinnaird
Former Executive Vice President – Merchandising(8)
2022
759,996
—
1,679,731
419,969
(1)
Amount of salary actually received in any year may differ from the annual base salary amount due to the timing of payroll periods and
the timing of changes in base salary, which typically occur in April or following a mid-year promotion.
(2)
Amounts set forth in the Stock Awards and Option Awards columns represent the aggregate grant date fair value of awards granted in
Fiscal 2022, Fiscal 2021 and Fiscal 2020 computed in accordance with FASB ASC Topic 718. The assumptions made in the valuation
of the option awards are set forth in Note 8 to the Company’s consolidated financial statements included in the Company’s 2022 Form
10-K. The valuation of performance-based restricted stock, performance share awards, and share equivalents granted under the THD
Restoration Plan is based on the closing stock price on the grant date.
(3)
Amounts reflect the grant date fair value of performance share and performance-based restricted stock awards granted to the NEOs
during Fiscal 2022, Fiscal 2021 and Fiscal 2020, plus the value of share equivalents under the THD Restoration Plan in Fiscal 2022,
Fiscal 2021 and Fiscal 2020, as set forth in the table below. No contributions to the THD Restoration Plan are shown for Fiscal 2021
because the January 31, 2022 allocation date fell within Fiscal 2022.
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Name
Grant Date Fair Value for
Performance Shares
($)
Grant Date Fair Value for
Performance-Based Restricted Stock
($)
Value of Share Equivalents Under
THD Restoration Plan
($)
Fiscal 2022 Fiscal 2021 Fiscal 2020
Fiscal 2022 Fiscal 2021 Fiscal 2020
Fiscal 2022 Fiscal 2021 Fiscal 2020
Edward P. Decker
Craig A. Menear
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
5,099,749
3,649,880
1,374,729
1,399,776
1,149,940
1,049,753
2,249,784
3,649,714
1,124,746
1,374,754
1,099,862
N/A
1,099,830
3,649,923
999,862
1,099,830
1,099,830
N/A
3,059,850
—
824,964
839,865
814,789
629,978
1,349,870
2,189,770
674,789
824,970
659,859
N/A
909,768
2,189,844
849,787
909,768
659,971
N/A
104,189
171,859
76,970
79,604
76,433
—
—
—
—
—
—
N/A
45,276
91,627
33,452
40,670
41,870
N/A
The grant date fair value of the performance shares reflected in the table above is computed based upon the probable outcome of the
performance goals as of the grant date, in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. For the
performance-based restricted stock granted in Fiscal 2022, Fiscal 2021 and Fiscal 2020, this value is the same as the value
calculated assuming the maximum level of performance under the awards.
The value of the performance share awards granted in Fiscal 2022, Fiscal 2021 and Fiscal 2020 as of the grant date, assuming that
the maximum level of the performance goals will be achieved, is as follows for each of the NEOs:
Value of Performance Shares Assuming Maximum Performance
($)
Name
Edward P. Decker
Craig A. Menear
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
Fiscal 2022
10,199,499
7,299,759
2,749,458
2,799,552
2,299,881
2,099,505
Fiscal 2021
4,499,568
7,299,429
2,249,491
2,749,508
2,199,724
N/A
Fiscal 2020
2,199,660
7,299,845
1,999,724
2,199,660
2,199,660
N/A
(4)
Incremental cost of perquisites is based on actual cost to the Company. The incremental cost of personal use of Company aircraft is
based on the average direct cost of use per hour, which includes fuel, maintenance, crew travel and lodging expense, landing and
parking fees, and engine restoration cost. Any applicable deadhead flights are allocated to the NEOs. No incremental cost for
personal use of the Company aircraft was attributed to an NEO where the plane was already traveling to the destination for business
reasons. Since our aircraft are used primarily for business travel, we do not include the fixed costs that do not change based on
usage, such as crew salaries, depreciation, hangar rent and insurance. In addition to the incremental cost of personal aircraft use
reported in the All Other Compensation column and in footnote 5 below, we also impute taxable income to the NEOs for any personal
aircraft use in accordance with Internal Revenue Service regulations. We do not provide tax reimbursements, or “gross-ups,” on these
amounts to executive officers.
(5)
The following table identifies the perquisites and personal benefits for Fiscal 2022 that are required to be quantified under SEC rules.
These consist of personal aircraft use for Mr. Decker and Mr. Menear, relocation expenses for Mr. Kinnaird for the relocation of him
and his family from Canada to the United States, and matching contributions made by the Company under the FutureBuilder 401(k)
Plan.
Name
Edward P. Decker
Craig A. Menear
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
Use of Airplane
($)
42,436
5,871
—
—
—
—
Relocation Expense
($)
—
—
—
—
—
27,225
FutureBuilder 401(k)
Plan Company Match
($)
9,978
5,469
10,767
10,753
9,048
7,067
Other perquisites and personal benefits for Fiscal 2022 were long-term disability insurance premiums; gifts associated with certain
corporate events; car service costs for a corporate event for Ms. Campbell, Mr. Carey and Mr. Kinnaird; retirement recognition gifts for
Mr. Menear; matching charitable contributions; the annual cost of premiums for the insurance policies underlying the death-benefitonly program; and for Mr. Decker, Mr. Kinnaird and Mr. McPhail, tickets for an entertainment event. Other perquisites and personal
benefits for Mr. Kinnaird include amounts to assist with U.S. tax compliance given the Company-initiated relocation from Canada, and
the cost of continued medical coverage for family members remaining in Canada. We do not provide tax gross-ups on any of these
perquisites or personal benefits.
(6)
Effective March 1, 2022, Mr. Menear stepped down from his role as CEO and became our executive Chair, and Mr. Decker was
appointed as President and CEO. Effective October 1, 2022, Mr. Decker was also appointed our Chair following Mr. Menear’s
retirement from the Company and the Board on September 30, 2022.
(7)
Mr. Carey was promoted to Executive Vice President – Customer Experience effective April 25, 2022. He previously served as
Executive Vice President and Chief Information Officer.
(8)
Mr. Kinnaird served as Executive Vice President – Merchandising until March 13, 2023.
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MATERIAL TERMS OF NEO EMPLOYMENT ARRANGEMENTS
This section describes employment arrangements in effect for the NEOs during Fiscal 2022, all of which are
“at-will” employment arrangements set forth in the offer letters provided to the NEOs at the time of hire,
promotion or change in role, as applicable. Because the offer letters reflect at-will employment, they have no
set duration and consequently no renewal or extension provisions. The letters are all filed as exhibits to the
2022 Form 10-K.
The offer letters state each NEO’s initial base salary and annual MIP target as a percentage of base salary,
payout of which is subject to the achievement of pre-established goals. Both the base salary and MIP target
are subject to adjustment upon future review by the LDC Committee, or independent members of the Board in
the case of Mr. Decker and Mr. Menear. The Fiscal 2022 base salary and MIP target as a percentage of base
salary for each NEO are set forth above in the Compensation Discussion and Analysis.
In addition, the offer letters provide that the NEOs are eligible to participate in other benefit programs
available to salaried associates and/or officers. These benefits include the ESPP, the Deferred Compensation
Plan For Officers, the THD Restoration Plan, and the death-benefit-only insurance program. Any provisions in
the letters regarding termination of employment are discussed below in the section entitled “Potential
Payments Upon Termination or Change in Control” beginning on page 68.
The offer letter for Mr. Decker in his position as President and CEO states that the Company has requested
that he travel, whenever practicable, by Company aircraft, including when traveling for personal reasons.
Mr. Menear’s offer letters, in both his positions as CEO and as Chair, similarly stated that the Company
requested that he travel, whenever practicable, by Company aircraft, including when traveling for personal
reasons. Following his retirement at the end of September 2022, Mr. Menear no longer uses Company aircraft
for personal travel. The Company does not provide a tax gross-up for any imputed compensation resulting
from personal use of Company aircraft.
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FISCAL 2022 GRANTS OF PLAN-BASED AWARDS
The following table sets forth the plan-based awards granted to the NEOs pursuant to Company plans during
Fiscal 2022.
FISCAL 2022 GRANTS OF PLAN-BASED AWARDS
Name
Grant
Date(1)(3)
All Other
Stock
Awards:
Estimated Future Payouts
Estimated Future Payouts
Number
Under Non-Equity Incentive
Under Equity Incentive Plan
of
Plan Awards
Awards
Shares
of Stock
Approval Threshold
Target Maximum Threshold Target Maximum or Units
Date(3)
($)
($)
($)
(#)
(#)
(#)
(#)
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
Exercise or
Base
Price of
Option
Awards
($/Sh)
Grant
Date Fair
Value of
Stock
and
Option
Awards(4)
($)
Edward P. Decker
Performance Shares
3/23/2022 2/24/2022
—
—
—
32,170
—
—
Annual Stock Grant
3/23/2022 2/24/2022
—
—
—
2,010 16,085
—
9,651
—
—
—
— 5,099,749
— 3,059,850
Annual Option Grant
3/23/2022 2/24/2022
—
—
—
—
—
—
—
29,737
317.05 2,039,958
MIP(2)
2/24/2022 2/24/2022
301,875 2,683,333 5,366,667
—
—
—
—
—
1,439 11,512
—
—
Craig A. Menear
Performance Shares
3/23/2022 2/24/2022
—
—
—
23,024
—
—
— 3,649,880
Annual Option Grant
3/23/2022 2/24/2022
—
—
—
—
—
—
—
53,206
317.05 3,649,932
MIP(2)
2/24/2022 2/24/2022
101,953
906,250
1,812,500
—
—
—
—
—
—
Performance Shares
3/23/2022 2/24/2022
—
—
—
542
4,336
8,672
—
—
— 1,374,729
Annual Stock Grant
3/23/2022 2/24/2022
—
—
—
—
2,602
—
—
—
—
824,964
Annual Option Grant
3/23/2022 2/24/2022
—
—
—
—
—
—
—
8,017
317.05
549,966
MIP(2)
2/24/2022 2/24/2022
99,000
880,000
1,760,000
—
—
—
—
—
—
—
Performance Shares
3/23/2022 2/24/2022
—
—
—
551
4,415
8,830
—
—
— 1,399,776
Annual Stock Grant
3/23/2022 2/24/2022
—
—
—
—
2,649
—
—
—
—
839,865
Annual Option Grant
3/23/2022 2/24/2022
—
—
—
—
—
—
—
8,163
317.05
559,982
MIP(2)
2/24/2022 2/24/2022
101,250
900,000
1,800,000
—
—
—
—
—
—
—
Performance Shares
3/23/2022 2/24/2022
—
—
—
453
3,627
7,254
—
—
— 1,149,940
Annual Stock Grant
3/23/2022 2/24/2022
—
—
—
—
2,176
—
—
—
—
689,901
Annual Option Grant
3/23/2022 2/24/2022
—
—
—
—
—
—
—
6,705
317.05
459,963
5/19/2022 4/18/2022
—
—
—
—
—
—
434
—
—
124,888
—
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
Promotional Stock
Grant
Promotional Option
Grant
5/19/2022 4/18/2022
—
—
—
—
—
—
—
1,848
287.76
124,962
2/24/2022 2/24/2022
97,875
870,000
1,740,000
—
—
—
—
—
—
—
Performance Shares
3/23/2022 2/24/2022
—
—
—
413
3,311
6,622
—
—
— 1,049,753
Annual Stock Grant
3/23/2022 2/24/2022
—
—
—
—
1,987
—
—
—
—
629,978
Annual Option Grant
3/23/2022 2/24/2022
—
—
—
—
—
—
—
6,122
317.05
419,969
MIP(2)
2/24/2022 2/24/2022
84,375
750,000
1,500,000
—
—
—
—
—
—
—
MIP(2)
Jeffrey G. Kinnaird
(1)
(2)
(3)
(4)
All awards were granted under the Omnibus Plan other than MIP awards.
The Fiscal 2022 MIP was based on achievement of pre-established performance goals, as revised in August 2022, as described in
the Compensation Discussion and Analysis. The amount in the “Threshold” column for the Fiscal 2022 MIP reflects the minimum
possible payout based upon assumed achievement of the threshold performance levels as discussed below under “Terms of PlanBased Awards Granted to the NEOs for Fiscal 2022—Fiscal 2022 MIP.”
Annual equity awards under the Omnibus Plan were approved at the February 24, 2022 meeting of the LDC Committee (or on
February 24, 2022 by the independent Board members for Mr. Decker and Mr. Menear) but were effective as of March 23, 2022. The
promotional stock grant and option awards for Mr. Carey were approved by the LDC Committee on April 18, 2022, but were effective
on May 19, 2022. See discussion under “—Management of Compensation-Related Risk—Equity Grant Procedures” on page 57 in the
Compensation Discussion and Analysis above.
Amounts represent the grant date fair value of awards granted in Fiscal 2022 computed in accordance with FASB ASC Topic 718. The
assumptions made in the valuation of the option awards are set forth in Note 8 to the Company’s consolidated financial statements as
filed with the SEC in the 2022 Form 10-K. The valuation of restricted stock and performance share awards is based on the closing
stock price on the grant date.
The Home Depot 2023 Proxy Statement
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Table of Contents
TERMS OF PLAN-BASED AWARDS GRANTED TO NEOS FOR FISCAL 2022
The LDC Committee approved the Fiscal 2022 annual grants of performance shares, performance-based
restricted stock and stock options under the Omnibus Plan for the NEOs other than Mr. Decker and
Mr. Menear. Mr. Decker’s and Mr. Menear’s awards were approved by the independent members of the
Board.
Award Type
Performance Shares
Annual Stock Grants
Annual Stock Option
Grants
62
Award Terms
For Fiscal 2022, 50% of the annual equity grant provided to the NEOs was in
the form of performance shares. The terms and conditions of the awards are
described under “—Elements of our Compensation Programs—Long-Term
Incentives” in the Compensation Discussion and Analysis above. Upon
termination of employment without cause within 12 months following a change
in control, the executive would be entitled to a pro rata portion of performance
shares based on actual performance for the portion of the performance period
before a change in control, plus a pro rata portion of the target performance
shares for the portion of the performance period after a change in control.
In the event of death, disability or termination of employment at or after age 60
with at least five years of continuous service (“retirement”), the executive or his
or her estate will be entitled to receive any performance shares ultimately
earned, and in the event of death or disability before retirement, a pro rata
portion of any shares ultimately earned. Because Mr. Menear had reached age
60 and had more than five years of service at the time of the grant of the
awards, he was “retirement eligible” and his performance share awards are
non-forfeitable, although payout, if any, is based on achievement of the
performance goals. Dividend equivalents accrue on performance share
awards (as reinvested shares) and are paid upon the payout of the award
based on the actual number of shares earned.
For Fiscal 2022, 30% of the annual equity grant provided to the NEOs (other
than Mr. Menear) was in the form of performance-based restricted stock,
which was forfeitable if Fiscal 2022 operating profit was less than 90% of the
MIP target for Fiscal 2022. If the performance target is met, as it was for Fiscal
2022, the awards are then subject to time-based vesting. The annual restricted
stock grants vest 50% on each of the 30-month and 60-month anniversaries of
the grant date, subject to continued employment through the vesting date, or
upon termination due to death or disability or termination without cause within
12 months following a change in control. Mr. Menear was not granted annual
performance-based restricted stock for Fiscal 2022.
In addition, if the performance target is met, the restricted stock becomes nonforfeitable once the executive reaches retirement eligibility, but it is not
transferable before the time-based vesting dates. Dividends on the restricted
stock are accrued (as cash dividends) and not paid out to executive officers
unless the performance target is met. Once the performance target is met,
cash dividends are then paid currently on the shares of restricted stock.
For Fiscal 2022, 20% of the annual equity grant provided to the NEOs (50%
for Mr. Menear) was in the form of nonqualified stock options. The stock option
awards vest 25% per year on the second, third, fourth and fifth anniversaries
of the grant date, subject to continued employment through the vesting date,
or upon termination due to death or disability or termination without cause
within 12 months following a change in control.
319
The Home Depot 2023 Proxy Statement
Table of Contents
Award Type
Annual Stock Option
Grants (continued)
Award Terms
In addition, the stock option awards become non-forfeitable once the executive
becomes retirement eligible but are not exercisable before the time-based
vesting dates. Generally, stock options may be exercised, once vested, over
the remainder of the ten-year option term, subject to continued employment or
meeting the retirement eligibility requirements. Because Mr. Menear was
retirement eligible at the time of the grant, his option awards are nonforfeitable but are not exercisable until the time-based vesting dates.
Fiscal 2022 MIP
Each of the NEOs participated in the Fiscal 2022 MIP, the Company’s annual
cash-based incentive plan. The Fiscal 2022 MIP payout was based upon
achievement of pre-established financial performance goals, as described
under “—Elements of Our Compensation Programs—Annual Cash Incentive”
in the Compensation Discussion and Analysis starting on page 50 above.
The LDC Committee approved threshold, target and maximum payout levels
for Fiscal 2022 for the NEOs under the MIP. The threshold, target and
maximum potential payouts under the MIP for the NEOs reflect the following
percentages of base salary at the end of Fiscal 2022:
Percentage of Base Salary
Name
Edward P. Decker
Threshold
Target
Maximum
22%
192%
383%
Craig A. Menear
14%
121%
242%
Richard V. McPhail
11%
100%
200%
Ann-Marie Campbell
11%
100%
200%
Matthew A. Carey
11%
100%
200%
Jeffrey G. Kinnaird
11%
100%
200%
Because the operating profit threshold must be met for any payout to occur,
the threshold percentage above reflects the minimum possible payout based
upon assumed achievement of that threshold. The potential payouts for Mr.
Decker and Mr. Menear are based on the applicable payout percentage for
each position in which they served during the fiscal year, prorated based on
the number of months they served in each of those positions. In addition, once
an executive becomes retirement eligible, if the executive retires prior to the
MIP payment date, the executive receives a payout that is prorated based on
the time the executive served in his or her role during the fiscal year until the
date of retirement. Because Mr. Menear was retirement eligible at the time of
his retirement, he received a prorated MIP payment for Fiscal 2022. The actual
amounts earned by the NEOs based on achievement of Fiscal 2022 MIP
performance goals are reported in the Non-Equity Incentive Plan
Compensation column of the Summary Compensation Table.
The Home Depot 2023 Proxy Statement
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Table of Contents
OUTSTANDING EQUITY AWARDS AT 2022 FISCAL YEAR-END
The following table sets forth information regarding outstanding equity awards as of the end of Fiscal 2022
granted to the NEOs.
OUTSTANDING EQUITY AWARDS AT 2022 FISCAL YEAR-END
Option Awards
Name
Edward P. Decker
Craig A. Menear
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
64
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
35,987
—
116.15
3/23/2025
2,500
791,725
12,882
4,079,612
32,897
—
130.22
3/22/2026
4,000
1,266,760
15,999
5,066,789
19,350
—
147.36
3/21/2027
1,854
587,143
16,405
5,195,199
10,245
3,415
178.02
3/20/2028
1,744
552,307
—
—
8,154
8,154
189.25
3/26/2029
1,816
575,109
—
—
3,084
9,254
181.76
3/24/2030
922
291,988
—
—
1,240
3,720
270.93
11/18/2030
4,611
1,460,258
—
—
—
15,789
292.75
3/23/2031
9,651
3,056,375
—
—
—
29,737
317.05
3/22/2032
—
—
—
—
83,630
—
78.87
3/25/2024
3,377
1,069,462
42,750
13,538,703
215,305
—
97.57
11/19/2024
3,510
1,111,582
25,955
8,219,604
125,955
—
116.15
3/23/2025
3,601
1,140,401
11,741
3,718,193
120,075
—
130.22
3/22/2026
4,106
1,300,329
—
—
67,265
—
147.36
3/21/2027
—
—
—
—
33,995
11,332
178.02
3/20/2028
—
—
—
—
27,057
27,057
189.25
3/26/2029
—
—
—
—
10,235
30,707
181.76
3/24/2030
—
—
—
—
—
25,614
292.75
3/23/2031
—
—
—
—
—
53,206
317.05
3/22/2032
—
—
—
—
10,796
—
116.15
3/23/2025
548
173,546
11,711
3,708,800
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(2)
Market
Equity Incentive
Value of
Plan Awards:
Equity Incentive
Shares or
Market or Payout
Plan Awards:
Units of Unearned Shares, Value of Unearned
Stock That
Units or
Shares, Units or
Have Not Other Rights That Other Rights That
Vested Have Not Vested
Have Not Vested
($)(2)
(#)(3)
($)(3)
9,869
—
130.22
3/22/2026
515
163,095
7,999
2,533,065
5,989
—
147.36
3/21/2027
572
181,147
4,422
1,400,459
3,027
1,009
178.02
3/20/2028
1,651
522,855
—
—
2,409
2,409
189.25
3/26/2029
922
291,988
—
—
3,641
3,641
218.54
11/20/2029
2,305
729,970
—
—
2,804
8,413
181.76
3/24/2030
2,602
824,027
—
—
1,240
3,720
270.93
11/18/2030
—
—
—
—
—
7,894
292.75
3/23/2031
—
—
—
—
—
8,017
317.05
3/22/2032
—
—
—
—
8,224
—
130.22
3/22/2026
1,854
587,143
12,882
4,079,612
19,350
—
147.36
3/21/2027
1,744
552,307
9,776
3,096,114
10,245
3,415
178.02
3/20/2028
1,816
575,109
4,503
1,425,975
8,154
8,154
189.25
3/26/2029
922
291,988
—
—
3,084
9,254
181.76
3/24/2030
2,818
892,432
—
—
1,240
3,720
270.93
11/18/2030
2,649
838,912
—
—
—
9,649
292.75
3/23/2031
—
—
—
—
—
8,163
317.05
3/22/2032
—
—
—
—
20,271
—
147.36
3/21/2027
1,854
587,143
12,882
4,079,612
10,245
3,415
178.02
3/20/2028
1,744
552,307
7,822
2,477,023
8,154
8,154
189.25
3/26/2029
1,816
575,109
3,699
1,171,463
3,084
9,254
181.76
3/24/2030
2,254
713,819
—
—
—
7,719
292.75
3/23/2031
2,176
689,117
—
—
—
6,705
317.05
3/22/2032
434
137,443
—
—
—
1,848
287.76
5/18/2032
—
—
—
—
321
The Home Depot 2023 Proxy Statement
Table of Contents
OUTSTANDING EQUITY AWARDS AT 2022 FISCAL YEAR-END
Option Awards
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Name
Jeffrey G. Kinnaird
(1)
Stock Awards
Market
Equity Incentive
Value of
Plan Awards:
Equity Incentive
Shares or
Market or Payout
Plan Awards:
Units of Unearned Shares, Value of Unearned
Stock That
Units or
Shares, Units or
Have Not Other Rights That Other Rights That
Vested Have Not Vested
Have Not Vested
($)(2)
(#)(3)
($)(3)
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable(1)
Option
Exercise
Price
($)
Option
Expiration
Date
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)(2)
3,528
—
147.36
3/21/2027
1,097
347,553
3,659
1,158,958
2,910
970
178.02
3/20/2028
970
307,302
7,110
2,251,540
2,316
2,317
189.25
3/26/2029
2,133
675,462
3,377
1,069,400
876
2,629
181.76
3/24/2030
2,026
641,769
—
—
1,240
3,720
270.93
11/18/2030
—
—
—
—
—
7,017
292.75
3/23/2031
—
—
—
—
—
6,122
317.05
3/22/2032
—
—
—
—
Unexercisable stock options outstanding as of the end of Fiscal 2022 for each NEO vest as follows:
Vesting Date
March 21, 2023
March 24, 2023
March 25, 2023
March 27, 2023
November 19, 2023
November 21, 2023
March 23, 2024
March 24, 2024
March 25, 2024
March 27, 2024
May 19, 2024
November 19, 2024
November 21, 2024
March 23, 2025
March 24, 2025
March 25, 2025
May 19, 2025
November 19, 2025
March 23, 2026
March 24, 2026
May 19, 2026
March 23, 2027
May 19, 2027
Total
The Home Depot 2023 Proxy Statement
E. Decker
3,415
3,947
3,085
4,077
1,240
—
7,434
3,947
3,084
4,077
—
1,240
—
7,434
3,947
3,085
—
1,240
7,434
3,948
—
7,435
—
70,069
C. Menear
11,332
6,403
10,236
13,528
—
—
13,301
6,404
10,235
13,529
—
—
—
13,302
6,403
10,236
—
—
13,301
6,404
—
13,302
—
147,916
R. McPhail
1,009
1,973
2,804
1,204
1,240
1,820
2,004
1,974
2,804
1,205
—
1,240
1,821
2,004
1,973
2,805
—
1,240
2,004
1,974
—
2,005
—
35,103
A. Campbell
3,415
2,412
3,085
4,077
1,240
—
2,040
2,412
3,084
4,077
—
1,240
—
2,041
2,412
3,085
—
1,240
2,041
2,413
—
2,041
—
42,355
M. Carey
3,415
1,929
3,085
4,077
—
—
1,676
1,930
3,084
4,077
462
—
—
1,676
1,930
3,085
462
—
1,676
1,930
462
1,677
462
37,095
J. Kinnaird
970
1,754
876
1,158
1,240
—
1,530
1,754
876
1,159
—
1,240
—
1,531
1,754
877
—
1,240
1,530
1,755
—
1,531
—
22,775
32265
Table of Contents
(2)
Restricted stock outstanding as of the end of Fiscal 2022 for each NEO vests as follows:
Vesting Date
March 21, 2023
March 25, 2023
May 19, 2023
September 24, 2023
November 19, 2023
March 24, 2024
March 27, 2024
September 23, 2024
November 19, 2024
November 21, 2024
March 13, 2025
March 23, 2025
March 25, 2025
November 19, 2025
March 24, 2026
March 23, 2027
May 19, 2027
Total
E. Decker
1,854
—
461
2,305
—
—
1,744
4,825
—
—
6,500
—
1,816
461
2,306
4,826
—
27,098
C. Menear
3,377
—
—
2,053
—
—
3,510
—
—
—
—
—
3,601
—
2,053
—
—
14,594
R. McPhail
548
—
461
1,152
—
—
515
1,301
—
572
—
—
1,651
461
1,153
1,301
—
9,115
A. Campbell
1,854
—
461
1,409
—
—
1,744
1,324
—
—
—
—
1,816
461
1,409
1,325
—
11,803
M. Carey
1,854
—
—
1,127
—
—
1,744
1,088
217
—
—
—
1,816
—
1,127
1,088
217
10,278
J. Kinnaird
—
1,097
—
—
970
2,133
—
—
—
—
—
2,026
—
—
—
—
—
6,227
The reported value of the restricted stock awards is based on the closing stock price on January 27, 2023, the last trading day of
Fiscal 2022.
(3)
The NEOs’ performance share awards are earned upon the completion of the three-year performance periods ending January 29,
2023, January 28, 2024, and February 2, 2025, based on achievement of pre-established average ROIC and operating profit goals,
as described above in the Compensation Discussion and Analysis under “—Elements of Our Compensation Programs—Long-Term
Incentives—Performance Shares” starting on page 53 and under “Terms of Plan-Based Awards Granted to NEOs for Fiscal 2022—
Performance Shares” on page 62. The awards are paid out following certification by the LDC Committee of the achievement of the
goals after completion of the applicable performance period. For the Fiscal 2020-2022 award, the shares reported are the actual
amounts earned based on the performance level met as of January 29, 2023, as certified by the LDC Committee on February 22,
2023, and include dividend equivalents accrued on the award. For the Fiscal 2021-2023 award and the Fiscal 2022-2024 award, the
reported number of shares includes dividend equivalents accrued through January 29, 2023 and assumes achievement of the
maximum level of performance and the target level of performance, respectively, in accordance with SEC requirements. The reported
value of the performance share awards is based on the closing stock price on January 27, 2023, the last trading day of Fiscal 2022.
OPTIONS EXERCISED AND STOCK VESTED IN FISCAL 2022
The following table sets forth the options exercised and the shares of restricted stock and performance shares
that vested for the NEOs during Fiscal 2022.
OPTIONS EXERCISED AND STOCK VESTED IN FISCAL 2022
Option Awards
Name
Edward P. Decker
Craig A. Menear
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
(1)
66
Stock Awards
Number of Shares
Acquired on Exercise
(#)
Value Realized
on Exercise
($)
Number of Shares
Acquired on
Vesting
(#)
44,078
10,184,488
15,177
—
—
48,281
Value Realized
on Vesting
($)
4,712,634
(1)
13,976,704
—
—
6,198
1,868,001
11,293
1,796,322
15,177
4,712,634
—
—
15,278
4,745,937
6,403
1,127,402
4,249
1,328,288
Includes 3,374 shares withheld to pay taxes on restricted stock grants that became non-forfeitable on February 24, 2022. The remaining
shares under these grants continue to be restricted until the time-based vesting dates are reached.
323
The Home Depot 2023 Proxy Statement
Table of Contents
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2022
The following table sets forth information regarding the participation of the NEOs in the Company’s
nonqualified deferred compensation plans for Fiscal 2022.
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2022
Name
Executive
Contributions
in Last FY
($)(1)
Registrant
Contributions
in Last FY
($)(2)
Aggregate
Earnings
in Last FY
($)(3)
Aggregate
Withdrawals/
Distributions
($)
Aggregate
Balance
at Last
FYE
($)(4)
N/A
104,189
(323,252)
—
2,523,107
—
—
(39,776)
—
927,601
Edward P. Decker
THD Restoration Plan(5)
Deferred Compensation Plan For Officers(6)
Craig A. Menear
THD Restoration Plan(5)
Deferred Compensation Plan For Officers(6)
N/A
171,859
(582,505)
—
2,194,090
—
(128,527)
59,224
4,546,821
N/A
76,970
(128,776)
—
1,004,811
N/A
79,604
(211,631)
—
1,651,753
N/A
76,433
(243,378)
—
1,899,679
N/A
—
—
—
(7)
10,170,889
Richard V. McPhail
THD Restoration Plan(5)
Ann-Marie Campbell
THD Restoration Plan(5)
Matthew A. Carey
THD Restoration Plan(5)
Jeffrey G. Kinnaird
THD Restoration Plan(5)
—
(1)
Executive contributions represent deferral of base salary and incentive awards under the MIP during Fiscal 2022, which amounts are
also disclosed in the Fiscal 2022 Salary column and the Fiscal 2021 Non-Equity Incentive Plan Compensation column of the
Summary Compensation Table. The THD Restoration Plan is non-elective, and the participants cannot make contributions to it.
(2)
All Company contributions to the THD Restoration Plan are included as compensation in the Stock Awards column of the Summary
Compensation Table. The Company does not make contributions to the Deferred Compensation Plan For Officers.
(3)
Deferred Compensation Plan For Officers earnings represent notional returns on participant-selected investments. THD Restoration
Plan earnings represent the change in the value of the underlying Company stock during Fiscal 2022 plus dividends that are credited
at the same rate, and at the same time, that dividends are paid to all shareholders.
(4)
For the THD Restoration Plan, amounts in the aggregate balance for Mr. Decker, Mr. Menear, Mr. McPhail, Ms. Campbell and
Mr. Carey of $236,382, $947,408, $58,260, $84,405 and $455,800, respectively, were previously reported in the Summary
Compensation Table. For the Deferred Compensation Plan For Officers, $5,830,173 of the aggregate balance amount for Mr. Menear
was previously reported in the Summary Compensation Table.
(5)
The THD Restoration Plan, an unfunded, nonqualified deferred compensation plan, provides management-level associates with a
benefit equal to the matching contributions that they would have received under the Company’s FutureBuilder 401(k) Plan if certain
Internal Revenue Code limitations were not in place. On January 31 of each year, the plan makes an allocation to participant
accounts in an amount equal to the participant’s eligible earnings (generally, salary plus annual cash incentive award) during the prior
calendar year minus the Internal Revenue Code limit for tax-qualified plans ($305,000 for 2022) multiplied by the current Company
match level of 3.5%. This amount is then converted to units representing shares of the Company’s common stock. Stock units
credited to a participant’s account are also credited with dividend equivalents at the same time, and in the same amount, as dividends
are paid to shareholders. Participant account balances vest at the same time their account in the Company’s tax-qualified
FutureBuilder 401(k) Plan vests, which provides for 100% cliff vesting after three years of service. A participant’s vested account
balance is payable in shares of common stock on retirement or other employment termination. In-service withdrawals are not
permitted.
(6)
The Deferred Compensation Plan For Officers is an unfunded, nonqualified deferred compensation plan that allows officers to defer
payment of up to 50% of base salary and up to 100% of annual cash incentive compensation until retirement or other employment
termination. The Company makes no contributions to the Deferred Compensation Plan For Officers. Participants may also elect an inservice distribution during a designated calendar year or over a period of not more than ten years, or upon a change in control of the
Company. Commencing at retirement after age 60 or one year thereafter, payment is made, at the participant’s election, in a single
sum or equal annual installment payments over a period of not more than ten years, provided that distribution in a single sum is
automatically made on termination for reasons other than retirement or disability. Participants direct the manner in which their account
balances are deemed invested among an array of investment funds, and notional earnings are credited to participant accounts based
on fund returns. Accounts are 100% vested at all times.
(7)
The withdrawal amount for Mr. Menear reflects payment of the portions of his vested account balance under the Deferred
Compensation Plan For Officers paid out on January 13, 2023 that were deferred prior to the enactment of Section 409A of the
Internal Revenue Code and therefore were not subject to the six-month payment delay requirement under Section 409A.
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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Termination Without Cause or For Good Reason
The employment arrangements with our NEOs do not entitle them to severance payments upon employment
termination. They would, however, be entitled to any vested benefits under Company plans in which they
participate. Each of the NEOs is subject to non-competition and non-solicitation restrictions for periods
ranging from 24 to 36 months post-termination. Each NEO is also subject to post-termination confidentiality
restrictions.
Change in Control
The Company does not maintain change in control agreements for its executives. Since Fiscal 2013, our
standard form of equity award agreement adopted by the LDC Committee has provided for accelerated
vesting if the executive is terminated without cause within 12 months following a change in control, and our
Omnibus Plan incorporates this “double-trigger” provision into the plan for all awards issued after May 2022.
Prior to Fiscal 2013, our equity awards provided for accelerated vesting solely upon a change in control
regardless of any termination of employment. The vast majority of these awards have vested in accordance
with their terms.
The following table sets forth the estimated value that the NEOs employed at the end of Fiscal 2022 would
have been entitled to receive due to accelerated vesting of outstanding awards assuming a change in control
of the Company as of January 29, 2023, both with and without a termination of employment. In addition, in the
event of a termination of employment, the NEOs would be entitled to receive vested benefits under Company
plans in which they participate, including amounts under the THD Restoration Plan and, if applicable, the
Deferred Compensation Plan For Officers, as set forth in the Nonqualified Deferred Compensation table on
page 67 of this Proxy Statement.
CHANGE IN CONTROL
Change in
Control Only
Name
Edward P. Decker
Richard V. McPhail
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
Value of
Restricted
Stock
Awards
($)(1)
2,058,485
—
—
—
—
Change in Control Followed by
Termination Without Cause
Value of
Additional
Restricted
Stock and
Option Awards
Vesting on
Termination
($)(2)
9,832,743
5,185,290
6,900,462
6,254,541
3,094,820
Value of
Performance
Shares Vesting
on Termination
($)(3)
9,245,131
3,464,589
3,958,625
3,196,669
2,909,748
Total Assuming
Change in
Control AND
Termination of
Employment
($)
21,136,359
8,649,879
10,859,087
9,451,210
6,004,568
(1)
Value reflects outstanding shares of restricted stock granted prior to Fiscal 2013, multiplied by a closing stock price of $316.69 on
January 27, 2023.
(2)
Value reflects outstanding shares of restricted stock granted since Fiscal 2013, multiplied by a closing stock price of $316.69 on
January 27, 2023, and the intrinsic value as of January 27, 2023 of outstanding unvested stock options granted in Fiscal 2013
through Fiscal 2022, using the closing stock price of $316.69 on January 27, 2023.
(3)
Value reflects the following: (a) for the Fiscal 2021-2023 performance share award, (i) shares that would have been earned based on
200.0% actual performance at the end of Fiscal 2022 multiplied by a ratio of 728 days in the performance period through January 29,
2023 to 1,092 total days in the performance period, plus (ii) target performance shares multiplied by the ratio of 364 days remaining in
the performance period after January 29, 2023 to 1,092 total days in the performance period; and (b) for the Fiscal 2022-2024
performance share award, (i) shares that would have been earned based on 90.0% actual performance at the end of Fiscal 2022
multiplied by a ratio of 364 days in the performance period through January 29, 2023 to 1,099 total days in the performance period,
plus (ii) target performance shares multiplied by the ratio of 735 days remaining in the performance period after January 29, 2023 to
1,099 total days in the performance period. In each case, the number of performance shares obtained is multiplied by a closing stock
price of $316.69 on January 27, 2023 to determine the value as of the end of Fiscal 2022. Amounts include dividend equivalents
accrued through the end of Fiscal 2022 converted into additional performance shares. Amounts do not include the value of the Fiscal
2020-2022 award because it was earned as of January 29, 2023, the last day of the performance period, and would be received
regardless of whether there was a change in control.
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Termination Due to Death or Disability
Equity awards made to salaried associates, including the NEOs, generally provide for accelerated vesting of
the award upon employment termination due to death or disability. The following table sets forth the estimated
value of benefits that the NEOs employed at the end of Fiscal 2022 would have been entitled to receive
assuming death or disability as of January 29, 2023. In addition, the NEOs would be entitled to receive vested
benefits under Company plans in which they participate, including amounts under the THD Restoration Plan
and, if applicable, the Deferred Compensation Plan For Officers, as set forth in the Nonqualified Deferred
Compensation table on page 67 of this Proxy Statement.
DEATH OR DISABILITY
Name
Edward P. Decker
Richard V. McPhail
Value of
Restricted
Stock and
Option Awards
($)(1)
11,891,228
Value of
Performance
Shares
($)
4,926,430
5,185,290
2,105,989
Death Benefit
($)(3)
400,000
Total
($)
17,217,658
(2)
400,000
7,691,279
(2)
Ann-Marie Campbell
6,900,462
2,488,867
(2)
400,000
9,789,329
Matthew A. Carey
6,254,541
2,000,214
(2)
400,000
8,654,755
1,819,384
(2)
400,000
5,314,204
Jeffrey G. Kinnaird
3,094,820
(1)
Value reflects outstanding restricted stock at the end of Fiscal 2022, multiplied by a closing stock price of $316.69 on January 27,
2023, and outstanding unvested stock options based on the intrinsic value as of January 29, 2023, using the closing stock price of
$316.69 on January 27, 2023.
(2)
Value reflects the following: (a) for the Fiscal 2021-2023 performance share award, the prorated portion of shares that would have
been earned based on 200.0% actual performance at the end of Fiscal 2022 multiplied by a ratio of 728 days in the performance
period through January 29, 2023 to 1,092 total days in the performance period; and (b) for the Fiscal 2022-2024 performance share
award, the prorated portion of shares that would have been earned based on 90.0% actual performance at the end of Fiscal 2022
multiplied by a ratio of 364 days in the performance period through January 29, 2023 to 1,099 total days in the performance period.
The number of performance shares obtained is multiplied by a closing stock price of $316.69 on January 27, 2023 to determine the
value as of the end of Fiscal 2022. Amounts include dividend equivalents accrued through the end of Fiscal 2022 converted into
additional performance shares. Amounts do not include the value of the Fiscal 2020-2022 award because it was earned as of
January 29, 2023, the last day of the performance period, and would be received regardless of the individual’s death or disability.
(3)
Value reflects a death benefit under the death-benefit-only program, which is only paid out upon death, not disability.
Termination Due to Retirement
With very few exceptions, equity awards made to salaried associates, including the NEOs, provide that the
awards are no longer forfeitable upon retirement on or after age 60 with at least five years of continuous
service with the Company. As of January 29, 2023, none of the NEOs employed at that time had met this
condition.
Payments Made to Former Executive in Fiscal 2022
Mr. Menear.
Upon his retirement on September 30, 2022, Mr. Menear did not receive any severance
benefits. As noted above, certain equity awards held by Mr. Menear provide that the awards are no longer
forfeitable upon retirement on or after age 60 with five years of continuous service, which conditions
Mr. Menear had met at the time of his retirement. The following table sets forth the estimated value of benefits
that Mr. Menear received as a result of this provision upon retirement on September 30, 2022. Mr. Menear is
also entitled to vested benefits under Company plans in which he participated. These include the prorated
portion of his MIP award for Fiscal 2022, as disclosed in the Non-Equity Incentive Plan column of the
Summary Compensation Table on page 58, and amounts under the THD Restoration Plan and the Deferred
Compensation Plan For Officers, as set forth in the Nonqualified Deferred Compensation table on page 67 of
this Proxy Statement.
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RETIREMENT
Name
Craig A. Menear
Value of Restricted
Stock and Option Awards
($)(1)
Value of
Performance Shares
($)(2)
Total
($)
14,397,821
11,565,519
25,963,340
(1)
Value reflects restricted stock grants that have the retirement eligibility provision described above and that are outstanding at the end
of Fiscal 2022, multiplied by a closing stock price of $316.69 on January 27, 2023, and unvested stock options that have the
retirement eligibility provision, based on the intrinsic value as of January 29, 2023, using the closing stock price of $316.69 on
January 27, 2023. The restricted stock grants would remain non-transferable, and the stock options would remain non-exercisable,
until the time-based vesting dates.
(2)
Value reflects the following: (a) for the Fiscal 2020-2022 performance share award, the actual number of shares earned at the end of
Fiscal 2022 based on 200.0% actual performance at the end of the three-year performance period; (b) for the Fiscal 2021-2023
performance share award, the shares that would have been earned based on 200.0% actual performance at the end of Fiscal 2022;
and (c) for the Fiscal 2022-2024 performance share award, the shares that would have been earned based on 90.0% actual
performance at the end of Fiscal 2022. The number of performance shares obtained is multiplied by a closing stock price of $316.69
on January 27, 2023 to determine the value as of the end of Fiscal 2022. Amounts include dividend equivalents accrued through the
end of Fiscal 2022 converted into additional performance shares.
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PAY VERSUS PERFORMANCE
As required by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item
402(v) of Regulation S-K, we are providing the following information about the relationship between executive
“compensation actually paid,” or “CAP,” and certain financial performance of the Company. For further
information concerning the Company’s pay-for-performance philosophy and how the Company aligns
executive compensation with the Company’s performance, refer to the Compensation Discussion and
Analysis beginning on page 41.
PAY VERSUS PERFORMANCE TABLE
(a)
(b)
Summary
Compensation Table
Total for PEO
($)(1)
Year
2022
2021
2020
(c)
Compensation
Actually Paid to PEO
($)(2)
Decker
Menear
Decker
Menear
14,619,789 9,020,862 7,501,985 (2,905,659)
N/A 13,059,751
N/A 51,702,946
N/A 13,995,092
N/A 26,400,107
(d)
(e)
(f)
(g)
(h)
Average
Summary
Average
Compen- Compen- Value of Initial Fixed
$100 Investment
sation
sation
Based on:
Table
Actually
Total for
Paid to
Peer
Non-PEO Non-PEO
Group
NEOs
NEOs
TSR
TSR
($)(3)
($)(4)
($)(5)
($)(6)
4,390,720
953,780
148.8
124.0
5,568,673 18,194,527
168.0
149.7
5,261,268 9,186,485
121.6
141.4
(i)
Net
Income
($)(7)
Operating
Profit
($)(8)
(in billions)
(in billions)
17.11
16.43
12.87
24.09
22.92
20.64
(1)
During Fiscal 2022, Mr. Decker and Mr. Menear each served for a period of time as our CEO, as further described in the
Compensation Discussion and Analysis on page 41, and Mr. Menear was our CEO for Fiscal 2021 and Fiscal 2020. The dollar
amounts reported in column (b) are the amounts of total compensation reported in the Total column of the Summary Compensation
Table for Mr. Decker and Mr. Menear for the corresponding years in which each served as our CEO.
(2)
The dollar amounts reported in column (c) represent the amounts of “compensation actually paid” to Mr. Decker and Mr. Menear, as
computed in accordance with Item 402(v) of Regulation S-K, for the years in which each served as our CEO. The dollar amounts do
not reflect the actual amount of compensation earned by or paid to Mr. Decker or Mr. Menear during the applicable year. In
accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to the Summary
Compensation Table total compensation for each year to determine the CAP:
Reported Summary
Reported Compensation Table
Value of Equity
Summary Compensation
Awards
Table Total for PEO
($)(a)
($)
Year
Edward P. Decker
2022
14,619,789
(10,303,746)
Craig A. Menear
2022
9,020,862
(7,471,671)
2021
13,059,751
(7,299,482)
2020
13,995,092
(7,391,385)
Equity
Award Adjustments
($)(b)
Compensation Actually
Paid to PEO
($)
3,185,942
7,501,985
(4,454,850)
45,942,677
19,796,400
(2,905,659)
51,702,946
26,400,107
(a)
Represents the total of the amounts reported in the Stock Awards and Option Awards columns in the Summary
Compensation Table for the applicable year.
(b)
The equity award adjustments for each applicable year include the addition (or subtraction, as applicable) of the
following: (i) the year-end fair value of any equity awards granted in the applicable year that are outstanding and
unvested as of the end of the year; (ii) the amount of change as of the end of the applicable year (from the end of
the prior fiscal year) in the fair value of any awards granted in prior years that are outstanding and unvested as of
the end of the applicable year; (iii) for awards that are granted and vest in the same applicable year, the fair value
as of the vesting date; (iv) for awards granted in prior years that vest in the applicable year, the amount equal to
the change as of the vesting date (from the end of the prior fiscal year) in fair value; (v) for awards granted in prior
years that are determined to fail to meet the applicable vesting conditions during the applicable year, a deduction
for the amount equal to the fair value at the end of the prior fiscal year; and (vi) the dollar value of any dividends or
other earnings paid on stock or option awards in the applicable year prior to the vesting date that are not otherwise
reflected in the fair value of such award or included in any other component of total compensation for the
applicable year. The valuation assumptions used to calculate fair values did not materially differ from those
disclosed at the time of grant. The amounts deducted or added in calculating the equity award adjustments are as
follows:
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Year-OverFair-Value at
Year-End
Fair Value as
Year Change the End of the
Fair Value of
Year-Overof Vesting in Fair Value of
Prior Year of
Unvested
Year Change Date of Equity Equity Awards Equity Awards
Equity in Fair Value of
Awards
Granted in
that Failed to
Awards
Outstanding
Granted and
Prior Years
Meet Vesting
Granted in and Unvested
Vested in the that Vested in Conditions in
the Year Equity Awards
Year
the Year
the Year
Year
($)
($)
($)
($)
($)
Edward P. Decker
2022
7,436,069
(3,176,509)
104,189
(1,588,526)
—
Craig A. Menear
2022
5,526,349
(5,803,683)
171,859
(4,875,517)
—
2021
14,642,944
19,641,699
—
10,395,577
—
2020
14,523,893
7,332,478
91,627
(2,675,847)
—
Value of
Dividends or
Other Earnings
Paid on Stock
or Option
Awards not
Otherwise
Reflected in
Fair Value or
Total
Compensation
($)
Total
Equity
Award
Adjustments
($)
410,719
3,185,942
526,142
1,262,457
524,249
(4,454,850)
45,942,677
19,796,400
(3)
The dollar amounts reported in column (d) represent the average of the amounts reported for our non-PEO NEOs as a group in the
Total column of the Summary Compensation Table in each applicable year. The names of each of these NEOs included for purposes
of calculating the average amounts in each applicable year are as follows: (i) for Fiscal 2022, Mr. McPhail, Ms. Campbell, Mr. Carey,
and Mr. Kinnaird; (ii) for Fiscal 2021, Mr. Decker, Mr. McPhail, Ms. Campbell, and Mr. Carey; and (iii) for Fiscal 2020, Mr. Decker, Mr.
McPhail, Ms. Campbell, and Mr. Mark Holifield.
(4)
The dollar amounts reported in column (e) represent the average amount of “compensation actually paid” to our non-PEO NEOs as a
group, as identified in footnote 3 above, as computed in accordance with Item 402(v) of Regulation S-K. The dollar amounts do not
reflect the actual average amount of compensation earned by or paid to these NEOs as a group during the applicable year. In
accordance with the requirements of Item 402(v) of Regulation S-K, the following adjustments were made to average total
compensation for these NEOs as a group for each year to determine the CAP, using the same methodology described above in
footnote 2:
Year
2022
2021
2020
(a)
Year
2022
2021
2020
Average
Reported Summary
Compensation Table
Total for Non-PEO
NEOs
($)
4,390,720
5,568,673
5,261,268
Average
Reported Summary
Compensation Table
Value of Equity
Awards
($)
(2,607,911)
(2,924,635)
(2,565,582)
Average Average Compensation
Equity Award
Actually Paid to NonAdjustments
PEO NEOs
(a)
($)
($)
(829,029)
15,550,489
6,490,799
953,780
18,194,527
9,186,485
The amounts deducted or added in calculating the total average equity award adjustments are as follows:
Average
Year-OverYear-End Fair Year Average
Value of
Change in
Unvested
Fair Value of
Equity
Outstanding
Awards and Unvested
Granted in the
Equity
Year
Awards
($)
($)
1,887,705
(1,782,926)
5,866,871
6,531,207
4,648,676
2,155,934
Average Fair
Value as of
Vesting Date
of Equity
Awards
Granted and
Vested in the
Year
($)
58,252
—
40,954
Average Value
of Dividends
Year-Over- Average Fair
or Other
Year Average
Value at the
Change in
End of the Earnings Paid
on Stock or
Fair Value of
Prior Year of
Equity
Equity Option Awards
Awards
Awards that not Otherwise
Granted in Failed to Meet
Reflected in
Prior Years
Vesting
Fair Value or
that Vested in Conditions in
Total
the Year
the Year Compensation
($)
($)
($)
(1,201,233)
—
209,173
2,714,008
—
438,403
(546,219)
—
191,454
Total
Average
Equity
Award
Adjustments
($)
(829,029)
15,550,489
6,490,799
(5)
Cumulative TSR is calculated by dividing (a) the sum of the cumulative amount of dividends for the measurement period, assuming
dividend reinvestment, and the difference between the Company’s share price at the end and the beginning of the measurement
period by (b) the Company’s share price at the beginning of the measurement period.
(6)
Represents the weighted peer group TSR, weighted according to the respective companies’ stock market capitalization at the
beginning of each period for which a return is indicated. The peer group used for this purpose is the S&P Retail Composite Index.
(7)
The dollar amounts reported represent the amount of net income reflected in the Company’s audited financial statements for the
applicable year.
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(8)
Operating profit is defined as the Company’s net sales less the sum of the cost of sales, selling, general and administrative expense,
and depreciation and amortization expense (all as determined on a 52-week basis), subject to adjustments as more fully described
under “—Elements of Our Compensation Programs—Annual Cash Incentives—Potential Adjustments” and “—Elements of Our
Compensation Programs—Fiscal 2022 MIP Results” in our Compensation Discussion and Analysis above. While the Company uses
a number of financial performance measures for the purpose of evaluating performance for the Company’s compensation programs,
the Company has determined that operating profit, as adjusted as defined in the MIP, is the financial performance measure that, in the
Company’s assessment, represents the most important performance measure (that is not otherwise required to be disclosed in the
table) used by the Company to link CAP to the Company’s NEOs, for the most recently completed fiscal year, to Company
performance.
Most Important Financial Performance Measures
The most important financial performance measures used by the Company to link CAP to the Company’s
NEOs, for the most recently completed fiscal year, to the Company’s performance are as follows:
•
•
•
•
Operating Profit, as adjusted as defined in the MIP
Sales
Return on Invested Capital
Inventory Turns
Pay Versus Performance Relationship Disclosures
As described in greater detail under the Compensation Discussion and Analysis above, we designed our
compensation program for associates at all levels with the intent to align pay with performance. The metrics
that the Company uses for both our annual cash incentives and long-term equity incentive awards are
selected based on an objective of motivating our associates and driving shareholder value. While the
Company utilizes the financial performance metrics listed above to align executive compensation with
Company performance, only the most important measure is presented in the Pay Versus Performance table in
accordance with the requirements of Item 402(v) of Regulation S-K. Moreover, the Company generally seeks
to create long-term shareholder value, and therefore does not specifically align the Company’s performance
measures with CAP for a particular year. In accordance with Item 402(v) of Regulation S-K, the Company is
providing the following descriptions of the relationships between information presented in the Pay Versus
Performance table.
CAP and Cumulative TSR. As demonstrated by the following chart, the amount of CAP to the Company’s
CEOs for the applicable year and the average amount of CAP to the Company’s other NEOs as a group is
aligned with the Company’s cumulative TSR over the three years presented in the table. The alignment of
CAP reflects the fact that a significant portion of the compensation paid to our CEOs and to the other NEOs is
comprised of equity awards, as described in more detail in the Compensation Discussion and Analysis.
$55,000,000
$50,000,000
$45,000,000
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
$-5,000,000
$300
$250
$168
$150
$122
$100
$50
2020
Decker
$200
$149
Cumulative TSR (value of
initial $100 investment)
Compensation Actually Paid
CAP vs. Company TSR
Menear
2021
2022
Average for Non-PEO NEOs
TSR
CAP and Net Income. The following chart demonstrates the amount of CAP to the Company’s CEOs for
the applicable year and the average amount of CAP to the Company’s other NEOs as a group in relation to
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the Company’s net income over the last three fiscal years. The Company does not use net income as a
performance measure in the overall executive compensation program.
$55,000,000
$50,000,000
$45,000,000
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
$-5,000,000
$30.00
$25.00
$16.43
$12.87
$15.00
$10.00
$5.00
2020
Decker
$20.00
$17.11
Net Income (billions)
Compensation Actually
Paid
CAP vs. Net Income
Menear
2021
2022
Average for Non-PEO NEOs
Net Income
CAP and Operating Profit.
The following graph demonstrates the amount of CAP to our CEOs and the
average amount of CAP to the Company’s other NEOs as a group in relation to the Company’s operating
profit, as adjusted, over the three years presented in the Pay Versus Performance table. As described above,
operating profit is defined as the Company's net sales less the sum of the cost of sales, selling, general and
administrative expense and depreciation and amortization expense (all as determined on a 52-week basis),
subject to adjustments as more fully described under “—Elements of Our Compensation Programs—Annual
Cash Incentives—Potential Adjustments” and “—Elements of Our Compensation Programs—Fiscal 2022 MIP
Results” in our Compensation Discussion and Analysis above. While the Company uses numerous financial
performance measures for the purpose of evaluating performance for the Company’s compensation
programs, the Company has determined that operating profit is the financial performance measure that, in the
Company’s assessment, represents the most important performance measure (that is not otherwise required
to be disclosed in the table) used by the Company to link CAP to the Company’s NEOs, for the most recently
completed fiscal year, to Company performance. As described in more detail in the Compensation Discussion
and Analysis, the Company utilizes operating profit when setting goals in the Company’s annual cash
incentives and long-term equity incentive compensation program because it views operating profit as a key
corporate metric that takes into account both revenue and expense.
$55,000,000
$50,000,000
$45,000,000
$40,000,000
$35,000,000
$30,000,000
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
$-5,000,000
$30.00
$22.92
$20.64
$25.00
$20.00
$15.00
$10.00
$5.00
2020
Decker
Average for Non-PEO NEOs
74
$24.09
2021
Adjusted Operating Profit
(billions)
Compensation Actually
Paid
CAP vs. Operating Profit
2022
Menear
Adjusted Operating Profit
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Cumulative TSR of the Company and Cumulative TSR of the Peer Group.
As demonstrated by the
following chart, the Company’s cumulative TSR over the three year period presented in the table was 48.8%,
while the cumulative TSR of the peer group presented for this purpose, the S&P Retail Composite Index, was
24.0% over the three years presented in the table. For more information regarding the Company’s
performance and the companies that the LDC Committee considers when determining compensation, refer to
the Compensation Discussion and Analysis under “Compensation Determination Process—Benchmarking” on
page 47.
Company TSR vs. Peer Group TSR
Cumulative TSR
(value of initial $100
investment)
$200
$168
$141
$150
$150
$149
$124
$122
$100
$100
$50
2019
2020
Company Cumulative TSR
2021
2022
S&P Retail Composite Index
CEO PAY RATIO
Compensation at all levels of the Company is aligned with our philosophy of taking care of our associates and
motivating them to deliver a superior customer experience. As noted above in the Executive Summary of the
Compensation Discussion and Analysis on page 42, throughout Fiscal 2022, we continued to invest in our
associates, making wage enhancements for our frontline, hourly associates to maintain the competitiveness
of our associate compensation. Non-management associates (full- and part-time) participate in our Success
Sharing bonus program, which provides semi-annual cash awards for performance against our business plan,
including sales plan and productivity goals. In addition, non-management associates are eligible to earn
awards for superior performance and customer service at the individual, store, facility, and district levels. Due
to the outstanding performance of our non-management associates in Fiscal 2022, we made substantial
payouts under our Success Sharing program, with 100% of stores receiving Success Sharing in each of the
first and second halves of Fiscal 2022. This resulted in Success Sharing bonus payments to our nonmanagement associates of approximately $409 million for Fiscal 2022. In addition, we established a merit
increase budget for our associates in Fiscal 2022 of between 3.0% and 4.0%, and we continued our practice
of making matching contributions under the FutureBuilder 401(k) Plan. We also provided a variety of
recognition and teambuilding awards to recognize and reward top-performing associates and support morale.
In accordance with SEC rules, the following ratio compares the annual total compensation of our median-paid
(or middle) associate (the “median-paid associate”) for Fiscal 2022 with the annual total compensation of
Edward P. Decker, our CEO for all but one month of Fiscal 2022. The pay ratio included below is a reasonable
estimate calculated in a manner consistent with Item 402(u) of Regulation S-K (the “pay ratio rule”).
•
•
The annual total compensation of our median-paid associate, other than Mr. Decker, was $30,100. Our
median-paid associate for Fiscal 2022 was an hourly employee in the U.S. The year-over-year increase in
the compensation of our median-paid associate reflects Success Sharing payouts based on our positive
operating results and the compensation enhancements we made in Fiscal 2022.
The annual total compensation of Mr. Decker for Fiscal 2022 was $14,773,944. Mr. Decker was our CEO
as of December 31, 2022, the date we chose to determine our median-paid associate. To calculate
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•
Mr. Decker’s compensation for the pay ratio rule, we annualized the salary and bonus he earned between
March 1, 2022, the day he became CEO, through January 28, 2023, the last day of our fiscal year. As a
result, this amount differs from his compensation as reported in the Summary Compensation Table on
page 58.
Based on this information, for Fiscal 2022 the ratio of the annual total compensation of Mr. Decker to the
annual total compensation of our median-paid associate was 491 to 1.
For purposes of the above disclosure, we are required to identify our median-paid associate based upon our
total workforce, without regard to their location, compensation arrangements, or full-time, part-time or
seasonal status. To identify the median-paid associate, we used the following methodology, material
assumptions, adjustments, and estimates:
•
•
•
76
We determined our median-paid associate as of December 31, 2022, which was within the last three
months of Fiscal 2022 as required by the pay ratio rule.
At the end of Fiscal 2022, we employed a total of approximately 471,600 associates, of which
approximately 418,900 were employed in the U.S. and approximately 52,700 were employed outside of
the U.S. In calculating the pay ratio, we excluded, under the de minimis exception to the pay ratio rule, all
of our associates in each of Mexico (approximately 17,900), China (266), India (28), Vietnam (25),
Italy (1), Poland (1), and Turkey (1), which in total are approximately 18,300 associates, or 3.9% of our
total associates.
For Fiscal 2022, we identified our median-paid associate using W-2 payroll data (or the equivalent for our
Canadian associates), rounded to the nearest dollar, for all associates included in the calculation. In
Fiscal 2022, as we have done in prior years, we annualized pay for newly hired associates and
associates on leave. We pay our Canadian associates in Canadian Dollars. For the purposes of this
calculation, their pay was converted into U.S. Dollars using the exchange rate in effect on December 31,
2022. For Fiscal 2022, we had several full-year associates with the same dollar amount of W-2
compensation. Therefore, for each such associate we determined the associate’s annual total
compensation for Fiscal 2022, which ended January 29, 2023, and then identified the median-paid
associate from that group based on the annual total compensation measure. This amount, consistent with
the compensation of Mr. Decker, includes annual incentive compensation earned in Fiscal 2022 and paid
in March 2023.
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EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information regarding the Company’s equity compensation plans as of the end
of Fiscal 2022.
EQUITY COMPENSATION PLAN INFORMATION
Plan Category
Equity Compensation Plans Approved
by Security Holders(1)
Number of Securities
to Be Issued
Upon Exercise of
Outstanding
Options,
Warrants and Rights
Equity Compensation Plans Not Approved
by Security Holders(5)
Total
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in
First Column)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(2)
4,622,599
(3)
$167.66
(6)
149,574
4,772,173
(4)
97,882,590
(7)
$—
(8)
18,391,873
116,274,463
(1)
These plans are the 1997 Plan, the Omnibus Plan, the ESPP and the Directors Plan. The Directors Plan allows the Company’s outside
directors to elect to defer their cash retainers for deferred stock units payable in shares of the Company’s common stock on
termination of Board service.
(2)
Includes an aggregate of 3,626,062 stock options under the Omnibus Plan, 5,371 deferred shares or deferred stock units under the
1997 Plan, 500,542 deferred shares, deferred stock units or restricted stock units under the Omnibus Plan, 406,792 performance
shares under the Omnibus Plan, and 83,833 deferred stock units credited to participant accounts under the Directors Plan. Does not
include 6,332 outstanding restricted shares granted under the 1997 Plan and 2,782,174 outstanding restricted shares granted under
the Omnibus Plan.
(3)
Weighted-average exercise price of outstanding options; excludes deferred shares, deferred stock units, deferred stock rights,
restricted stock units, performance shares and shares of restricted stock under the 1997 Plan and the Omnibus Plan, deferred stock
units under the Directors Plan, and rights to purchase shares under the ESPP.
(4)
Represents 80,108,211 shares under the Omnibus Plan, 15,805,382 shares under the ESPP (see Note 8 to the Company’s
consolidated financial statements included in the 2022 Form 10-K and Exhibit 10.12 to the 2022 Form 10-K), and 1,968,997 shares
under the Directors Plan.
(5)
These plans are the Company’s Non-U.S. ESPP (see Note 8 to the Company’s consolidated financial statements in the 2022 Form 10K and Exhibit 10.12 to the 2022 Form 10-K), the THD Restoration Plan (see Note 9 to the Company’s consolidated financial statements
in the 2022 Form 10-K and Exhibits 10.7 and 10.8 to the 2022 Form 10-K) and the HD Supply Restoration Plan (see Note 9 to the
Company’s consolidated financial statements in the 2022 Form 10-K and Exhibit 10.9 to the 2022 Form 10-K). The HD Supply
Restoration Plan was adopted in Fiscal 2022, and no deferred stock units were outstanding under the plan as of the end of Fiscal
2022.
(6)
Represents deferred stock units under the THD Restoration Plan referred to in footnote 5.
(7)
Outstanding equity consists solely of rights to purchase shares under the Non-U.S. ESPP and deferred stock units granted under the
THD Restoration Plan; therefore, there is no weighted-average exercise price.
(8)
Represents shares available under the Non-U.S. ESPP.
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DIRECTOR COMPENSATION
Our philosophy with respect to director compensation is to align the interests of non-employee directors with
the interests of our shareholders. To implement this philosophy, our Corporate Governance Guidelines
provide that the annual retainer for non-employee directors must be at least two-thirds equity. The Company
presently provides 82% of each director’s annual retainer in Company equity. Furthermore, consistent with
our Corporate Governance Guidelines, director equity awards stipulate that shares of Company stock must
continue to be held until the director retires from the Board or for one year after Board service ends for any
reason other than ordinary Board retirement (at or after age 72), death, disability or a change in control of the
Company.
Non-employee director compensation is assessed each year by the LDC Committee, based on input from its
independent compensation consultant and taking into account compensation paid to non-employee directors
at the companies in the same peer group used for executive compensation purposes, as described above in
the Compensation Discussion and Analysis under “Compensation Determination Process—Benchmarking”
starting on page 47. For compensation to be paid in Fiscal 2022, this assessment took place in August 2021.
Based on this assessment, the LDC Committee did not recommend any changes to non-employee director
compensation for Fiscal 2022.
Each non-employee director who was a Board member during Fiscal 2022 received an annual retainer of
$280,000 as of the date of the 2022 annual meeting. The annual retainer was paid in the following manner:
•
•
$230,000 in the form of deferred shares granted under the Omnibus Plan; and
$50,000 in the form of cash or deferred stock units under the Directors Plan, at the election of the director.
The deferred shares and deferred stock units, together with dividend equivalents that accrue thereon, are
payable in shares of the Company’s common stock following termination of Board service. Director
compensation is paid for the twelve-month period commencing with each annual meeting of shareholders. A
pro rata portion of annual director compensation is paid to directors who become Board members after the
annual meeting as follows: 100% for appointments on or before the six-month anniversary of the annual
meeting, 50% after the six-month but not later than the nine-month anniversary of the annual meeting, and
25% after the nine-month anniversary of the annual meeting.
For Fiscal 2022, on the date of the 2022 annual meeting the non-employee directors who served as Chairs of
the Board committees also received the following amounts:
Committee
Chair Retainer Amount
Audit
$25,000
Finance
$20,000
Leadership Development and Compensation
$20,000
Nominating and Corporate Governance
$20,000
Board committee Chair retainers were payable in cash or deferred stock units under the Directors Plan, at the
election of the director.
The Lead Director also receives an additional retainer of $80,000 in the form of cash or, at his election,
deferred stock units under the Directors Plan. To meet the two-thirds equity requirement in the Corporate
Governance Guidelines, the Lead Director must elect to receive at least 7.7% of the aggregate of his cash
retainers in the form of deferred stock units under the Directors Plan, with the remainder paid in the form of
cash or deferred stock units under the Directors Plan, at the election of the Lead Director. For Fiscal 2022, our
Lead Director elected to receive 100% of his cash retainers in deferred stock units under the Directors Plan.
The Company also pays (or provides for reimbursement of) the travel and accommodation expenses of
directors and, when requested by the Company, their spouses, to attend Board meetings, conduct store visits
and participate in other corporate functions.
The Company maintains a program through which it will match up to $10,000 of charitable donations made by
each director, including the Chair, for each calendar year. In addition, the Company will match up to $5,000 of
any non-employee director’s contribution to the political action committee sponsored by the Company with a
donation to a charitable organization of the director’s choice. The directors do not receive any financial benefit
from these programs because the charitable deductions, to the extent permitted, accrue solely to the
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Company. Donations under the programs are not made to any charity from which the director (or a party
related to the director) directly or indirectly receives compensation.
The following table sets forth the compensation paid to or earned during Fiscal 2022 by our non-employee
directors who served during Fiscal 2022.
DIRECTOR COMPENSATION
Fees Earned or
Paid in Cash
($)(1)
Stock Awards
($)(2) (3)
All Other
Compensation
($)(4)
Total
($)
Gerard J. Arpey
50,000
230,000
5,000
285,000
Ari Bousbib
70,000
230,000
5,000
305,000
Name
Jeffery H. Boyd
70,000
230,000
5,000
305,000
130,000
230,000
10,000
370,000
J. Frank Brown
75,000
230,000
10,000
315,000
Albert P. Carey
70,000
230,000
15,000
315,000
Linda R. Gooden
50,000
230,000
10,000
290,000
Wayne M. Hewett
50,000
230,000
10,000
290,000
Manuel Kadre
50,000
230,000
5,000
285,000
Stephanie C. Linnartz
50,000
230,000
15,000
295,000
Paula A. Santilli
50,000
230,000
—
280,000
Caryn Seidman-Becker
50,000
230,000
—
280,000
Gregory D. Brenneman
(1)
Fees earned or paid in cash vary because, in addition to the $50,000 annual retainer, they include retainers for Chair and Lead Director
positions. Mr. Bousbib, Mr. Boyd, Mr. Brenneman, Mr. Brown, Mr. Carey, Mr. Hewett, Mr. Kadre, Ms. Linnartz, Ms. Santilli and
Ms. Seidman-Becker deferred 100% of their annual cash Board retainers under the Directors Plan, which retainers were converted into
stock units that are payable in shares of Company common stock following termination of Board service. Mr. Bousbib, Mr. Boyd,
Mr. Brown, and Mr. Carey also deferred 100% of their committee Chair retainers, and Mr. Brenneman deferred 100% of his Lead
Director retainer. Dividend equivalents are credited on stock units in the Directors Plan at the same rate, and at the same time, that
dividends are paid to shareholders.
(2)
Amounts set forth in the Stock Awards column represent the aggregate grant date fair value of awards granted in Fiscal 2022
computed in accordance with FASB ASC Topic 718. The grant date fair value of the deferred share award granted during Fiscal 2022 is
set forth in the following table, computed in accordance with FASB ASC Topic 718 based on the closing stock price on the grant date.
There were no deferred share forfeitures by the directors during Fiscal 2022.
Grant Date
05/19/2022
(3)
Shares (#)
799
Value ($)
229,920
As of the end of Fiscal 2022, our non-employee directors who served during Fiscal 2022 held the following outstanding equity:
Restricted
Stock
Deferred
Shares
Deferred
Stock Units
Shares Owned
Outright
Shares Owned
Indirectly
Total
Gerard J. Arpey
—
11,325
—
1,000
—
12,325
Ari Bousbib
—
80,670
20,846
10,000
—
111,516
Jeffery H. Boyd
—
9,016
2,031
10,000
65
21,112
1,332
98,051
37,527
45,000
16,877
198,787
J. Frank Brown
—
33,391
8,017
1,000
—
42,408
Albert P. Carey
—
72,094
10,450
1,100
—
83,644
Linda R. Gooden
—
11,291
188
1,500
—
12,979
Wayne M. Hewett
—
15,015
1,986
1,650
—
18,651
Manuel Kadre
—
5,199
1,130
3,000
—
9,329
Stephanie C. Linnartz
—
5,286
1,149
1,030
—
7,465
Paula A. Santilli
—
999
217
1,583
—
2,799
Caryn Seidman-Becker
—
999
217
1,500
—
2,716
Name
Gregory D. Brenneman
(4)
Directors Who Received
Arpey, Bousbib, Boyd, Brenneman, Brown, Carey, Gooden, Hewett, Kadre,
Linnartz, Santilli, Seidman-Becker
Amounts reported reflect matching charitable contributions.
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LEADERSHIP DEVELOPMENT AND COMPENSATION
COMMITTEE REPORT
Each member of the LDC Committee is independent under SEC rules, NYSE listing standards and the
Director Independence Standards set forth in the Company’s Corporate Governance Guidelines.
The LDC Committee acts under a written charter which sets forth its responsibilities and duties, as well as
requirements for the LDC Committee’s composition and meetings. The LDC Committee’s primary
responsibility is to (a) assist the Board in developing and evaluating potential candidates for executive
positions, including the CEO, (b) oversee the development of executive succession plans, and (c) approve
compensation strategy, including the corporate goals and objectives relevant to the compensation of the
Company’s senior executive officers, including the CEO, to ensure that management is afforded appropriate
incentives and rewarded appropriately for contributions to the Company’s growth and profitability and that the
executive compensation strategy supports the Company’s objectives and shareholder interests.
The LDC Committee also oversees management’s decisions concerning the performance and compensation
of other Company officers, administers the Company’s equity-based and incentive-based compensation
plans, regularly evaluates the effectiveness of the Company’s overall executive compensation program, and
reviews the overall compensation and benefits strategy for all associates of the Company to ensure
consistency with the Company’s stated compensation strategy, including human capital management and
diversity, equity and inclusion matters. In addition, the LDC Committee periodically reviews the compensation
and benefits offered to non-employee directors and recommends changes as appropriate.
A more complete description of the LDC Committee’s functions is set forth in the LDC Committee charter,
which is available on the Company’s Investor Relations website at https://ir.homedepot.com under “Corporate
Governance > Committee Members & Charters” and is also available in print at no charge upon request.
The LDC Committee has reviewed and discussed the Company’s Compensation Discussion and Analysis
with management. Based upon such review and discussions, the LDC Committee recommended to the Board
that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by
reference in the Company’s Annual Report on Form 10-K for Fiscal 2022.
This report has been furnished by the current members of the LDC Committee:
•
•
•
•
•
80
Albert P. Carey, Chair
Linda R. Gooden
Wayne M. Hewett
Stephanie C. Linnartz
Caryn Seidman-Becker
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BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table shows the Company common stock beneficially owned, as of March 1, 2023, by our
directors, the NEOs, and our directors and executive officers as a group. Except as otherwise noted, the
beneficial owners listed have sole voting and investment power with respect to the shares shown. An
asterisk (*) in the Percent of Class column indicates beneficial ownership of less than 1%. The percentage
ownership is based on the number of shares of our common stock outstanding as of March 1, 2023.
Name of Beneficial Owner
Edward P. Decker
Craig A. Menear
Gerard J. Arpey
Ari Bousbib
Jeffery H. Boyd
Gregory D. Brenneman
J. Frank Brown
Albert P. Carey
Linda R. Gooden
Wayne M. Hewett
Manuel Kadre
Stephanie Linnartz
Paula Santilli
Caryn Seidman-Becker
Ann-Marie Campbell
Matthew A. Carey
Jeffrey G. Kinnaird
Richard V. McPhail
Directors and executive officers as a group (23 people)
Total Beneficial
Ownership(1)
227,192
929,109
1,000
10,000
10,065
63,209
1,000
1,100
1,500
1,650
3,000
1,030
1,583
1,500
134,047
86,135
43,500
81,079
1,888,898
(2)
(3)
(4)
(5)
(6)
Deferred Shares/
Stock Units(7)
8,287
14,357
11,325
101,516
11,047
135,578
41,409
82,544
11,478
17,001
6,329
6,435
1,216
1,216
5,460
6,233
0
3,409
474,369
Percent
of Class
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
0.19%
(1)
Represents the number of shares beneficially owned, which includes equivalent shares credited under our FutureBuilder 401(k) Plan
and restricted stock granted under the Omnibus Plan and the 1997 Plan. In addition, these amounts include shares subject to options
exercisable within 60 days of March 1, 2023 as follows: Edward P. Decker – 125,481; Craig A. Menear – 725,016; Ann-Marie Campbell
– 63,286; Matthew A. Carey – 54,260; Jeffrey G. Kinnaird – 15,628; Richard V. McPhail – 46,765; and directors and executive officers
as a group (23 people) – 1,180,856. Amounts in this column do not include shares to be received upon settlement of deferred stock
units or deferred shares more than 60 days after March 1, 2023, which shares are reflected in the Deferred Shares/Stock Units column
of the table. The deferred stock units and deferred shares have no voting rights. Our Securities Laws Policy requires directors and
executive officers to pre-clear any pledge of shares of our common stock as security for any indebtedness (including any margin
loans), and none of our directors or executive officers has any such pledged shares. Consistent with our anti-hedging policy, described
more fully on page 56 of the Compensation Discussion and Analysis, none of our directors or executive officers has entered into any
hedging transactions with regard to his or her ownership of our common stock.
(2)
This amount includes 24,100 shares held in a family trust.
(3)
This amount includes 65 shares held by Brothers Brook LLC, of which Mr. Boyd is the Managing Director.
(4)
This amount includes 16,877 shares held by a family member.
(5)
This amount includes 12,692 shares held by a charitable trust.
(6)
This amount includes the shares reflected in footnotes 2-5 above and 60 shares held by a spouse.
(7)
These amounts reflect deferred shares and deferred stock units granted under the Omnibus Plan, deferred stock units granted under
the Directors Plan, and stock units granted under the THD Restoration Plan. None of these amounts are included in the Percent of
Class calculation.
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The following table contains information about the number of shares of our common stock held as of
December 31, 2022 by persons we know to be the beneficial owners of more than 5% of our outstanding
common stock. The percentage ownership is based on the number of shares of our common stock
outstanding as of March 1, 2023.
Shares of Common Stock
Beneficially Owned
Percent of Class
The Vanguard Group, Inc.(1)
100 Vanguard Boulevard
Malvern, PA 19355
95,336,930
9.4%
BlackRock, Inc.(2)
55 East 52nd Street
New York, NY 10055
76,257,443
7.5%
Name and Address of Beneficial Owner
(1)
Beneficial ownership information is based on information contained in a Schedule 13G/A filed with the SEC on February 9, 2023. The
Vanguard Group, Inc. reported that it has sole dispositive power as to 90,922,005 of these shares, shared dispositive power as to
4,414,925 of these shares, and shared voting power as to 1,485,574 of these shares.
(2)
Beneficial ownership information is based on information contained in a Schedule 13G/A filed with the SEC on February 7, 2023.
BlackRock, Inc. reported that it has sole dispositive power as to all of these shares and sole voting power as to 67,893,000 of these
shares.
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ABOUT THE 2023 ANNUAL MEETING OF SHAREHOLDERS
WHEN AND WHERE IS THE MEETING?
The 2023 Annual Meeting of Shareholders of the Company will be held on Thursday, May 18, 2023, from 9:00
a.m., Eastern Time, to 10:00 a.m., Eastern Time. The Meeting will be held entirely online via live webcast at
www.virtualshareholdermeeting.com/HD2023.
WHY ARE WE HAVING A VIRTUAL MEETING?
This year’s Meeting will be held in a virtual format only. Shareholders can participate from any geographic
location with internet connectivity. Based on our experience with virtual meetings during the COVID-19
pandemic, we believe this facilitates shareholder attendance and participation, and has allowed a greater
number of questions from a broader group of shareholders to be asked and answered at the Meeting than in
an in-person format. It also reduces our costs and in a small way the carbon footprint of our activities. Please
see below for detailed information on how to attend the Meeting, vote your shares, and submit questions.
HOW CAN I ATTEND THE MEETING?
Shareholders of record as of the close of business on March 20, 2023, the record date, or “street name”
holders that hold a legal proxy, broker’s proxy card or voting information form provided by their bank, broker
or nominee, can attend the Meeting by accessing www.virtualshareholdermeeting.com/HD2023 and entering
the 16-digit control number included in their proxy materials. If you are a beneficial shareholder, you may
contact the bank, broker or other institution where you hold your account if you have questions about
obtaining your control number.
If you do not have a 16-digit control number or you lost your control number, you may still attend the Meeting
as a guest in listen-only mode. To attend as a guest, please access www.virtualshareholdermeeting.com/
HD2023 and enter the information requested on the screen to register as a guest. Please note that you will
not have the ability to ask questions or vote during the Meeting if you participate as a guest.
You may log into the Meeting beginning at 8:45 a.m., Eastern Time on May 18, 2023, and the Meeting will
begin promptly at 9:00 a.m., Eastern Time. We recommend that you log in before the Meeting starts to allow
time to check your internet connection, confirm your browser is up-to-date, and ensure you can hear the
streaming audio. If you experience any technical difficulties accessing the Meeting or during the Meeting,
please call the toll-free number that will be available on www.virtualshareholdermeeting.com/HD2023 for
assistance. Beginning 15 minutes prior to the start of the Meeting, we will have technicians ready to assist
you with any technical difficulties you may have. If there are any technical issues in convening or hosting the
Meeting, we will promptly post information to our Investor Relations website at https://ir.homedepot.com/
shareholder-services/annual-meeting, including information on when the Meeting will be reconvened.
Following the Meeting, a link to a replay of the Meeting will be posted to our Investor Relations website at
https://ir.homedepot.com under “Events and Presentations.”
WHAT AM I VOTING ON?
You will be voting on the following items:
• Election to the Board of the 13 nominees named in this Proxy Statement to serve until the 2024 Annual
Meeting of Shareholders;
• Ratification of the appointment of KPMG as the independent registered public accounting firm of the
Company for Fiscal 2023;
• The advisory Say-on-Pay vote;
• An advisory vote on the frequency of future Say-on-Pay votes;
• The five shareholder proposals described in this Proxy Statement, if properly presented; and
• Any other business properly brought before the Meeting.
The proponents of the shareholder proposals to be voted on at the Meeting will be provided with the
opportunity to present their proposals by remote communications or similar means.
The Board recommends that you vote “For” each of the director nominees, the ratification of KPMG,
and Say-on-Pay. The Board recommends that you vote for a frequency of every “One Year” as
opposed to every “Two Years” or “Three Years” on the advisory vote to approve the frequency of
future Say-on-Pay votes.
The Board recommends that you vote “Against” each of the shareholder proposals.
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WHO IS ENTITLED TO VOTE?
Holders of record of shares of the Company’s common stock as of the close of business on March 20, 2023,
the record date for the Meeting, are entitled to vote. Each share of common stock is entitled to one vote on
each matter presented for a vote of the shareholders. As of March 20, 2023, we had 1,012,668,994 shares of
common stock outstanding.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING?
In order for us to conduct the Meeting, holders of a majority of our outstanding shares of common stock as of
the close of business on March 20, 2023 must be present in person or by proxy. This is referred to as a
quorum. Your shares are counted as present if you attend the Meeting and properly submit your vote online
during the Meeting, or if you properly return a proxy or voting instruction form over the Internet, by telephone
or by mail as explained in more detail below. Abstentions and broker non-votes (as defined below) will be
counted for purposes of establishing a quorum but will not affect the outcome of the vote on any proposal. If a
quorum is not present at the Meeting, the Meeting may be adjourned from time to time until a quorum is
present.
CAN I ASK QUESTIONS AT THE MEETING?
Yes. As part of the Meeting, we will hold a question and answer session, which will include questions
submitted both live and prior to the Meeting. You may submit a question before the Meeting at
www.proxyvote.com after logging in with your 16-digit control number until the day before the Meeting.
Alternatively, you will be able to submit questions live during the Meeting by accessing the Meeting at
www.virtualshareholdermeeting.com/HD2023 using your 16-digit control number.
Shareholder questions or comments are welcome, but we will only answer questions pertinent to Meeting
matters, subject to time constraints. Questions regarding personal matters, including those related to
employment, product or service issues, or suggestions for product innovations, are not pertinent to Meeting
matters and therefore will not be answered at the Meeting. In addition, we will not address comments or
questions that are derogatory to individuals or otherwise in bad taste, related to personal grievances, or
related to matters of individual concern that are not of interest to shareholders generally.
If we are unable to answer your question during the Meeting due to time constraints, you are encouraged to
contact The Home Depot Investor Relations department at investor_relations@homedepot.com.
WHO IS SOLICITING MY VOTE?
The Company is providing this Proxy Statement in connection with the solicitation by the Board of proxies to
be voted at the Meeting and at any reconvened or rescheduled meeting following any adjournment or
postponement of the Meeting.
HOW DO I VOTE BEFORE THE MEETING?
If you are a registered shareholder, which means you hold your shares in certificate form or through an
account with our transfer agent, Computershare Trust Company, N.A., you have three options for voting
before the Meeting:
•
•
•
Over the Internet, at www.proxyvote.com, by following the instructions on the Notice or proxy card;
By telephone, by dialing 1-800-690-6903; or
By completing, dating, signing and returning a proxy card by mail.
If your valid proxy is received by Internet, telephone or mail, your shares will be voted at the Meeting in
accordance with your instructions.
If you are a beneficial holder, meaning you hold your shares in “street name” through an account with a bank
or broker, your ability to vote over the Internet or by telephone depends on the voting procedures of your bank
or broker. Please follow the directions on the voting instruction form that your bank or broker provides.
MAY I VOTE AT THE MEETING?
Yes. If you are attending the Meeting, shares held directly in your name as the shareholder of record may be
voted if you are attending the Meeting by entering the 16-digit control number found on your proxy card or
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Notice of Internet Availability when you log into the Meeting. Even if you plan to attend the Meeting, we
recommend that you vote in advance, as described above under “How Do I Vote Before the Meeting?” so that
your vote will be counted if you later decide not to attend the Meeting.
Shares held in “street name” through a brokerage account or by a broker, bank or other nominee may be
voted at the Meeting by entering the 16-digit control number found on your voter instruction form when you
log into the Meeting.
MAY I REVOKE MY PROXY AND/OR CHANGE MY VOTE?
Yes. You may revoke your proxy and/or change your vote by:
•
•
•
•
Signing another proxy card with a later date and delivering it to us before the Meeting;
Voting again over the Internet or by telephone prior to 11:59 p.m., Eastern Time, on May 17, 2023;
Voting during the Meeting before the polls close using your 16-digit control number; or
Notifying the Company’s Corporate Secretary in writing before the Meeting that you revoke your proxy.
HOW DO I VOTE IF I PARTICIPATE IN ONE OF THE COMPANY’S RETIREMENT PLANS?
You may vote your shares over the Internet, by telephone, by mail or during the Meeting as if you are a
registered shareholder, as described in this Proxy Statement. By voting, you are instructing the trustee of your
plan to vote all of your shares as directed. If you do not vote, the shares credited to your account will be voted
by the trustee in the same proportion that it votes shares in other accounts for which it received timely
instructions. If, however, you hold shares through the self-directed brokerage window of your plan or you
participate in one of the Company’s Canada-based retirement plans and, in either case, you do not vote those
shares, those shares will not be voted.
WHAT IF I SIGN AND RETURN MY PROXY BUT DO NOT PROVIDE VOTING INSTRUCTIONS?
Proxies that are signed, dated and returned but do not contain voting instructions will be voted:
•
•
•
•
•
•
“For” the election of all of the 13 named director nominees;
“For” the ratification of the appointment of KPMG;
“For” the advisory Say-on-Pay vote;
For a frequency of every “One Year” (as opposed to every “Two Years” or “Three Years”) on the advisory
vote to approve the frequency of future Say-on-Pay votes;
“Against” each shareholder proposal; and
On any other matters properly brought before the Meeting, in accordance with the best judgment of the
named proxies.
WILL MY SHARES BE VOTED IF I DO NOT PROVIDE A PROXY OR VOTING INSTRUCTION FORM?
If you are a registered shareholder and do not provide a proxy by voting over the Internet, by telephone or by
signing and returning a proxy card, you must attend the Meeting in order to vote.
If you hold shares through an account with a bank or broker, the voting of the shares by the bank or broker
when you do not provide voting instructions is governed by the rules of the NYSE. These rules allow banks
and brokers to vote shares in their discretion on “routine” matters for which their customers do not provide
voting instructions. On matters considered “non-routine,” banks and brokers may not vote shares without your
instruction. Shares that banks and brokers are not authorized to vote are referred to as “broker non-votes.”
The ratification of KPMG as the Company’s independent registered public accounting firm for Fiscal 2023 is
considered a routine matter. Accordingly, banks and brokers may vote shares on this proposal without your
instructions, and there will be no broker non-votes with respect to this proposal.
The other proposals will be considered non-routine, and banks and brokers therefore cannot vote shares on
those proposals without your instructions. Please note that if you want your vote to be counted on those
proposals, including the election of directors, you must instruct your bank or broker how to vote your shares. If
you do not provide voting instructions, no votes will be cast on your behalf with respect to those proposals.
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HOW MANY VOTES ARE NEEDED TO APPROVE THE PROPOSALS?
The following table provides information about the votes needed to approve each proposal. A “majority of
votes cast” means the number of “For” votes exceeds the number of “Against” votes.
Items of Business
1.
Election of 13 directors
2.
Ratification of KPMG
3.
Say-on-Pay
4.
Frequency of future Say-on-Pay votes
5.-9.
Shareholder proposals
Board
Recommendation
Voting Approval
Standard
Effect of
Abstention
Effect of Broker
Non-Vote
For each director nominee
Majority of votes cast
None
None
For
Majority of votes cast
None
Not applicable
For
Majority of votes cast
None
None
One Year
Majority of votes cast
None
None
Against each proposal
Majority of votes cast
None
None
•
Election of Directors: Each director nominee receiving a majority of votes cast will be elected as a
director. If any incumbent director nominee does not receive a majority of votes cast, under Delaware law
he or she would continue to serve on the Board until a successor is elected and qualified. However, our
By-Laws provide that any incumbent director who fails to receive a majority of votes cast in an
uncontested election must promptly tender his or her resignation to the Board for consideration. The NCG
Committee will then recommend to the Board whether to accept or reject the resignation or to take any
other action. The Board will act on that recommendation and publicly disclose its decision within 90 days
following certification of election results. The director who tenders his or her resignation will not participate
in the NCG Committee’s recommendation or in the Board’s decision.
•
Say-on-Pay and Frequency of Future Say-on-Pay Votes: While these proposals are advisory in nature
and not binding on the Company, our LDC Committee and Board will consider the voting results in
formulating future executive compensation policy and in determining the frequency of future Say-on-Pay
votes.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE NOTICE, PROXY CARD OR VOTING
INSTRUCTION FORM?
This means that your shares are registered in different names or are held in more than one account. To
ensure that all shares are voted, please vote each account over the Internet or by telephone, or sign and
return by mail all proxy cards and voting instruction forms. We encourage you to register all shares in the
same name and address by contacting our transfer agent, Computershare Trust Company, N.A., at
1-800-577-0177. If you hold your shares through an account with a bank or broker, you should contact your
bank or broker and request consolidation.
WHY DID SOME SHAREHOLDERS RECEIVE A NOTICE WHILE OTHERS RECEIVED A PRINTED SET
OF PROXY MATERIALS?
We are allowed to furnish our proxy materials to requesting shareholders over the Internet, rather than by
mailing printed copies, so long as we send them a “Notice of Internet Availability of Proxy Materials.” The
Notice tells shareholders how to access and review the Proxy Statement and 2022 Annual Report online and
how to vote over the Internet at www.proxyvote.com. Using this method of proxy delivery expedites the receipt
of proxy materials by our shareholders, reduces the cost of printing and mailing the full set of proxy materials,
and helps us contribute to sustainable practices. If you receive the Notice and would like to receive printed
proxy materials, follow the instructions in the Notice. If you receive printed proxy materials, you will not receive
the Notice, but you may still access our proxy materials and submit your proxy over the Internet at
www.proxyvote.com.
AVAILABILITY OF ANNUAL REPORT AND PROXY STATEMENT TO SHAREHOLDERS
Only one copy of the Notice or this Proxy Statement and the 2022 Annual Report is being delivered to
shareholders sharing an address unless the Company has received contrary instructions from one or more of
the shareholders at that address. Shareholders sharing an address who wish to receive separate copies of
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the Notice or this Proxy Statement and the 2022 Annual Report, or who wish to begin receiving a single copy
of such materials, may make such request as follows:
•
•
If you are a registered shareholder, by writing to Broadridge Investor Communication Solutions, Inc.,
Householding Department, 51 Mercedes Way, Edgewood, NY 11717 or by calling 1-866-540-7095; or
If you are a beneficial owner, by contacting your broker, dealer, bank, voting trustee or other nominee.
Registered shareholders sharing an address who elect to receive a single copy of the Notice or this Proxy
Statement and the 2022 Annual Report will continue to receive separate proxy cards.
You may also elect to receive the Notice or this Proxy Statement and the 2022 Annual Report via e-mail by
contacting Broadridge if you are a registered shareholder, by contacting your bank or broker if you are a
beneficial owner, or by visiting our Investor Relations website at https://ir.homedepot.com under “Shareholder
Services > Electronic Delivery of Proxy Materials.”
Additional copies of this Proxy Statement and the 2022 Annual Report will be provided without charge
to shareholders upon written request to Investor Relations, The Home Depot, Inc., 2455 Paces Ferry
Road, Atlanta, Georgia 30339, or by calling (770) 384-2871. Copies may also be obtained via the
Internet at https://ir.homedepot.com under “Financial Reports.”
WILL YOU MAKE A LIST OF SHAREHOLDERS ENTITLED TO VOTE AT THE MEETING AVAILABLE?
We will make available a list of shareholders of record as of the record date for inspection by shareholders for
any purpose germane to the Meeting from May 8, 2023 through May 17, 2023 at the principal office of the
Company at 2455 Paces Ferry Road, Atlanta, Georgia 30339.
WHERE AND WHEN WILL I BE ABLE TO FIND THE VOTING RESULTS?
You can find the official results of the voting at the Meeting in our Current Report on Form 8-K that we will file
with the SEC within four business days after the Meeting. If the official results are not available at that time,
we will provide preliminary voting results in the Form 8-K and will provide the final results in an amendment to
the Form 8-K as soon as they become available.
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GENERAL
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of reports required to be filed with the SEC during Fiscal 2022 by directors, officers and
beneficial owners of more than ten percent of the outstanding shares of common stock of the Company
pursuant to Section 16(a) of the Exchange Act, and a review of written certifications provided by them to the
Company, we believe that our directors and executive officers timely complied with the requirements of
Section 16(a) of the Exchange Act during Fiscal 2022.
SHAREHOLDER PROPOSALS OR DIRECTOR NOMINATIONS FOR THE 2024
ANNUAL MEETING
Proposals to Be Included in Next Year’s Proxy Statement
To be considered for inclusion in next year’s Proxy Statement and form of proxy and acted upon at the 2024
Annual Meeting of Shareholders, proposals by shareholders for business other than director nominations
must be submitted in writing not less than 120 calendar days (December 5, 2023) prior to the anniversary of
the date this 2023 Proxy Statement was first sent to shareholders and must comply with the other
requirements of SEC Rule 14a-8. Director nominations to be considered for inclusion in next year’s Proxy
Statement and form of proxy and acted upon at the 2024 Annual Meeting of Shareholders must be received
no earlier than 150 calendar days (November 5, 2023) and no later than 120 calendar days (December 5,
2023) prior to the anniversary of the date this 2023 Proxy Statement was first sent to shareholders and must
comply with the other requirements of our By-Laws. However, if next year’s annual meeting is to be held more
than 30 days before or 30 days after the anniversary of this year’s annual meeting, notice of the nomination
must be received no earlier than 150 days and no later than 120 days prior to next year’s annual meeting
date, or by the tenth day following the Company’s public announcement of next year’s annual meeting date.
Proposals Not to Be Included in Next Year’s Proxy Statement
Our By-Laws also establish advance notice procedures with regard to shareholder proposals or director
nominations that are not submitted for inclusion in the Proxy Statement but that a shareholder instead wishes
to present directly at the 2024 Annual Meeting of Shareholders. For all proposals of business other than
director nominations to be considered at next year’s annual meeting but not included in the Proxy Statement,
notice must be received no earlier than 120 calendar days (January 19, 2024) and no later than 90 calendar
days (February 18, 2024) prior to the anniversary of this year’s annual meeting. However, if next year’s
annual meeting is to be held more than 30 days before or 70 days after the anniversary of this year’s annual
meeting, notice of the proposal must be received no earlier than 120 days and no later than 90 days prior to
next year’s annual meeting date, or by the tenth day following the Company’s public announcement of next
year’s annual meeting date.
A formal nomination by a shareholder of a candidate for election as a director to be considered at next year’s
annual meeting but not included in the Proxy Statement must be in writing and received by our Corporate
Secretary no earlier than 90 calendar days (February 18, 2024) and no later than 60 calendar days
(March 19, 2024) prior to the anniversary of this year’s annual meeting. However, if next year’s annual
meeting is to be held more than 30 days before or 70 days after the anniversary of this year’s annual meeting,
notice of the nomination must be received no earlier than 90 days and no later than 60 days prior to next
year’s annual meeting date, or by the tenth day following the Company’s public announcement of next year’s
annual meeting date.
Further, to comply with the SEC’s universal proxy rules and our current By-Laws, if a shareholder intends to
solicit proxies in support of director nominees submitted under these advance notice provisions, then we must
receive proper written notice that sets forth all information required by Rule 14a-19 under the Exchange Act
no later than March 19, 2024 (or, if the 2024 Annual Meeting of Shareholders is called for a date that is not
within 30 calendar days of the anniversary of the date of this year’s Meeting, then notice must be provided by
the later of 60 calendar days prior to the date of the 2024 Annual Meeting of Shareholders or by the close of
business on the 10th calendar day following the day on which public announcement of the date of the 2024
Annual Meeting of Shareholders is first made). The notice requirement under Rule 14a-19 is in addition to the
applicable advance notice requirements under our By-Laws as described above.
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General Requirements
Each proposal submitted must be a proper subject for shareholder action at the meeting, and all proposals
and nominations must comply with the requirements of our By-Laws. All proposals and nominations must be
submitted to: Corporate Secretary, The Home Depot, Inc., 2455 Paces Ferry Road, Building C-22, Atlanta,
Georgia 30339, or by email to shareholder_proposals@homedepot.com. The shareholder proponent must
appear in person to present the proposal or nomination at the meeting or send a qualified representative to
present such proposal or nomination. If a shareholder gives notice after the applicable deadlines or otherwise
does not satisfy the relevant requirements of SEC Rule 14a-8, Rule 14a-19, or our By-Laws, the shareholder
will not be permitted to present the proposal or nomination for a vote at the meeting.
OTHER PROPOSED ACTIONS
We do not know of any matters to be acted upon at the Meeting other than those discussed in this Proxy
Statement. If any other items or matters are properly presented before the Meeting, the proxy holders will vote
on such matters in their discretion. A proxy granted by a shareholder will give discretionary authority to the
proxy holders to vote on any matters introduced pursuant to these procedures, subject to applicable SEC
rules.
SOLICITATION OF PROXIES
The Company is paying the full costs of the solicitation of proxies. Proxies may be solicited on behalf of the
Board by mail, telephone, other electronic means or in person. D.F. King & Co., Inc. has been retained to
assist in soliciting proxies at a fee of $100,000, plus expenses. We will also reimburse the expenses of
brokers, nominees and fiduciaries who send proxies and proxy materials to our shareholders. Additionally,
some of our directors, officers or associates may solicit shareholders by mail, telephone, other electronic
means or in person. None of these persons will receive any additional or special compensation for doing so.
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