Item 1. Business. Introduction The Home Depot, Inc. is the world’s largest home improvement retailer based on Net Sales for the fiscal year ended January 29, 2012 ("fiscal 2011"). The Home Depot stores sell a wide assortment of building materials, home improvement and lawn and garden products and provide a number of services. The Home Depot stores average approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. As of the end of fiscal 2011, we had 2,252 The Home Depot stores located throughout the United States including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam, Canada, China 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 office) is located at 2455 Paces Ferry Road, N.W., Atlanta, Georgia 30339. Our telephone number is (770) 433-8211. We maintain an Internet website at www.homedepot.com. We make available on our website, free of charge, our Annual Reports to shareholders, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements and Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after filing such documents with, or furnishing such documents to, the SEC. We include our website addresses throughout this filing for reference only. The information contained on our websites is not incorporated by reference into this report. For information on key financial highlights, including historical revenues, profits and total assets, see the "Five-Year Summary of Financial and Operating Results" on page F-1 of this report and Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." 1 Table of Contents Our Business Operating Strategy     In fiscal 2011, we continued to execute on our strategy focused on the following key initiatives: Customer Service     Our Customers.    The Home Depot stores serve three primary customer groups, and we have different customer service approaches to meet their particular needs: In fiscal 2011, we introduced new information technology to serve our customers more effectively and enhance the overall shopping environment. To improve our labor efficiency, we completed the roll out of our new associate forecast and scheduling system and a centralized returns system in fiscal 2011. These systems allow us to take tasks out of the stores and allocate more associate hours to assisting customers and to better align our labor hours with customer traffic patterns. As of the end of fiscal 2011, approximately 53% of our store labor hours were dedicated to customer-facing activity, with a goal of reaching 60% by the end of fiscal 2013. During fiscal 2011, we also implemented enhancements to our website to improve our customers' experience when shopping online. These include Buy Online, Pick-up In Store ("BOPIS"), which allows our customers to choose how they would like to receive merchandise ordered online, and "SuperSku," which provides greater flexibility in how items are displayed online and minimizes the number of clicks necessary to find a product. In February 2012, we rolled out a significant upgrade of our website, which enhances the layout, visual appearance and responsiveness of the site, as well as further reducing the number of clicks necessary to navigate our pages. 2 Table of Contents We help our professional, D-I-Y and D-I-F-M customers finance their projects by offering private label credit products in our stores through third-party credit providers. In fiscal 2011, approximately 2.4 million new The Home Depot private label credit accounts were opened, and at fiscal year end the total number of The Home Depot active account holders was approximately 10 million. Private label credit card sales accounted for approximately 22% of sales in fiscal 2011. In addition, to provide alternate payment options to our customers, in fiscal 2011 we launched a pilot program for our in-store customers to use PayPal® and plan to roll it out more broadly in the fiscal year ending February 3, 2013 ("fiscal 2012"). Our Associates.    Employee relations matter to us, and our associates are key to our customer service initiative. We empower our associates to deliver excellent customer service through our Customers FIRST training program. At the end of fiscal 2011, we employed approximately 331,000 associates, of whom approximately 20,000 were salaried, with the remainder compensated on an hourly or temporary basis. To attract and retain qualified personnel, we seek to maintain competitive salary and wage levels in each market we serve. We measure associate satisfaction regularly and maintain multiple means of ensuring effective communications with our associates. We believe that our employee relations are very good. Product Authority Our Products.    Our product portfolio strategy is aimed at delivering innovation, assortment and value. A typical Home Depot store stocks approximately 30,000 to 40,000 products during the year, including both national brand name and proprietary items. We also offer over 300,000 products through our website, homedepot.com. To enhance our merchandising capabilities, we made enhancements to our information technology tools in fiscal 2011 to give our merchants and vendors greater visibility into category and item performance. In addition, as part of a multi-phased project to improve our special order performance and make the special order process both simpler and more accurate for our customers and associates, we digitized our vendor catalogs in fiscal 2011. In fiscal 2011, we continued to introduce a number of innovative and distinctive products to our customers at attractive values. Examples of these new products include lithium battery technology for power tools, Ryobi® lithium ion cordless outdoor tools, Glidden® DUO™ paint + primer, Toro® gas trimmers and organic lawn care products from Vigoro®. To complement and enhance our product selection, we continued to form strategic alliances and exclusive relationships with selected suppliers to market products under a variety of well-recognized brand names. During fiscal 2011, we offered a number of proprietary and exclusive brands across a wide range of departments, such as Defiant® door locks, Everbilt® hardware fasteners, Husky® paint tools and hand tools, Hampton Bay® lighting, Vigoro® lawn care products, RIDGID® and Ryobi® power tools and Glacier Bay® bath fixtures. We also continued our partnership with Martha Stewart Living Omnimedia to offer the exclusive Martha Stewart Living brand in select categories including outdoor living, paint, cabinetry, flooring, and shelving and storage. We will continue to assess strategic alliances and relationships with suppliers and opportunities to expand the range of products available under brand names that are exclusive to The Home Depot. From our Store Support Center, we maintain a global sourcing program to obtain high-quality products directly from manufacturers around the world. Our merchant team identifies and purchases innovative products directly for our stores. Additionally, we have three sourcing offices located in the Chinese cities of Shanghai, Shenzhen and Dalian, and offices in Gurgaon, India; Rome, Italy; Monterrey, Mexico and Toronto, Canada. Quality Assurance. We have both quality assurance and engineering resources that are dedicated to overseeing the quality of all of our products, whether they are directly imported, locally or globally sourced or proprietary branded products. Through these programs, we have established criteria for supplier and product performance that are designed to ensure that our products comply with applicable international, federal, state and local safety, quality and performance standards. We also have a Supplier Social and Environmental Responsibility Program designed to ensure that our suppliers adhere to the highest standards of social and environmental responsibility. Energy Saving Products and Programs. As the world's largest home improvement retailer, we are in a unique position to enable our customers to achieve energy savings through our products and services and to educate our customers about "green" products and practices. Through our Eco Options® Program introduced in fiscal 2007, we have created product categories that allow consumers to easily identify environmentally preferred product selections in our stores. Our Eco Options® Program has certified over 4,000 products that meet specifications for energy efficiency, water conservation, healthy home, clean air and sustainable forestry. Through this program, we sell products such as ENERGY STAR® refrigerators, dishwashers, compact fluorescent light ("CFL") bulbs, EcoSmart® LED light bulbs, programmable thermostats, water heaters and other products, enabling our customers to save on their utility bills. LED light bulbs, which use approximately 85% less energy and last up to 20 years longer than traditional incandescent bulbs, were one of our fastest growing categories for the year. In fiscal 2011, the sales of ENERGY STAR® qualified products helped consumers save over 3 Table of Contents $700 million in annual utility costs, which equate to an over six billion kilowatt reduction and an almost five million ton decrease in greenhouse gas emissions. We also help our customers save water through sales of WaterSense®-labeled bath faucets, showerheads, aerators and toilets. Through the sales of these products, we have helped consumers save over 30 billion gallons of water and over $200 million in water bills. Our Eco Options® page on our website offers consumer education on environmental impacts of various products and identifies easy green D-I-Y projects. This online experience, coupled with our D-I-Y in-store how-to clinics on green projects and our continual enhancement of our Eco Options® product categories, helps us to meet a growing customer demand for environmentally responsible and cost-saving products and projects. In 2011, we also partnered with the U.S. Green Building Council to establish a list of products sold at our stores that meet "LEED for Homes" product specifications. This program helps our customers easily identify products with potential Leadership in Energy and Environmental Design ("LEED") point values and is designed to simplify the complexities of building green. At the end of fiscal 2011, we had approximately 2,000 LEED for Homes products. We continue to offer our nationwide, in-store CFL bulb recycling program launched in 2008. This service is offered to customers free of charge and is available in all U.S. stores. We also maintain an in-store rechargeable battery recycling program. Launched in 2001 in partnership with the Rechargeable Battery Recycling Corporation, this program is also available to customers free of charge in all stores throughout the U.S. and Canada. Through these recycling programs, in fiscal 2011 we helped recycle over 480,000 pounds of CFL bulbs and over 770,000 pounds of rechargeable batteries collected from our customers. In fiscal 2011, we also recycled over 130,000 lead acid batteries collected from our customers under our lead acid battery exchange program, as well as approximately 150,000 tons of cardboard through a nationwide cardboard recycling program across our U.S. stores. Net Sales of Major Product Groups. The following table shows the percentage of Net Sales of each major product group (and related services) for each of the last three fiscal years: Net Sales outside the U.S. were $8.0 billion, $7.5 billion and $7.0 billion for fiscal 2011, 2010 and 2009, respectively. Long-lived assets outside the U.S. totaled $3.1 billion, $3.2 billion and $3.0 billion as of January 29, 2012, January 30, 2011 and January 31, 2010, respectively. Seasonality.    Our business is subject to seasonal influences. Generally, our highest volume of sales occurs in our second fiscal quarter, and the lowest volume occurs during our fourth fiscal quarter. Competition.    Our business is highly competitive, based primarily on customer service, price, store location and assortment of merchandise. Although we are currently the world’s largest home improvement retailer, in each of the markets we serve there are a number of other home improvement stores, electrical, plumbing and building materials supply houses and lumber yards. With respect to some products, we also compete with specialty design stores, showrooms, discount stores, local, regional and national hardware stores, mail order firms, warehouse clubs, independent building supply stores and, to a lesser extent, other retailers. In addition, we face growing competition from online and multichannel retailers. Intellectual Property.    Our business has one of the most recognized brands in North America. As a result, we believe that The Home Depot® trademark has significant value and is an important factor in the marketing of our products, e-commerce, stores and business. We have registered or applied for registration of trademarks, service marks, copyrights and internet domain names, both domestically and internationally, for use in our business. We also maintain patent portfolios relating to some of our products and services and seek to patent or otherwise protect innovations we incorporate into our products or business operations. 4 Table of Contents Productivity and Efficiency Logistics.    Our supply chain operations are focused on creating a competitive advantage through ensuring product availability for our customers, effectively using our investment in inventory, and managing total supply chain costs. Following the completion of our RDC rollout, our initiatives in fiscal 2011 have been to further optimize and efficiently operate our network, build new logistics capabilities and improve our inventory management systems and processes. Our distribution strategy is to provide the optimal flow path for a given product. RDCs play a key role in optimizing our network as they allow for aggregation of product needs for multiple stores to a single purchase order and then rapid allocation and deployment of inventory to individual stores upon arrival at the RDC. This results in a simplified ordering process and improved transportation and inventory management. To enhance our RDC network, we continued adding mechanization, and at the end of fiscal 2011, 15 of our 19 RDCs were mechanized. Over the past two years, we have expanded our transload pilot program to three facilities near ocean ports, with a fourth facility expected to become operational in fiscal 2012. Transload facilities allow us to improve our import logistics costs and inventory management by enabling imported product to flow through our RDC network. In addition, we implemented a new distribution forecasting and replenishment system to further improve our inventory management. We added approximately 1.5 million net square feet of distribution center space in fiscal 2011, primarily for new repair and liquidation centers as part of our centralized returns system. These centers consolidate product from our stores to return to our vendors, liquidate or recycle. They also provide a small engine repair service for our stores and customers primarily focused on outdoor and hardware power equipment. At the end of fiscal 2011, in addition to our 19 RDCs in the U.S., we operated 33 bulk distribution centers, which handle products distributed optimally on flat bed trucks, in the U.S. and Canada. We also operated 35 conventional distribution centers, which include stocking, direct fulfillment and specialty distribution centers, in the U.S., Canada and Mexico. In fiscal 2011 we made further progress toward our goal of 75% central distribution penetration. In the U.S. our central distribution penetration was approximately 70% as of the end of fiscal 2011, with the remainder of goods shipped directly to our stores from our suppliers. We remain committed to leveraging our supply chain capabilities to fully utilize and optimize our improved logistics network. Commitment to Environmentally Responsible Operations. The Home Depot is committed to conducting business in an environmentally responsible manner. This commitment impacts all areas of our business, including energy usage, supply chain, store construction and maintenance, and, as noted above under "Energy Saving Products and Programs," product selection and delivery of product knowledge to our customers. In fiscal 2011, we continued to implement strict operational standards that establish energy efficient practices in all of our facilities. These include HVAC unit temperature regulation and adherence to strict lighting schedules, which are the largest sources of energy consumption in our stores, as well as use of energy management systems in each store to monitor energy efficiency. We estimate that by implementing and utilizing these energy saving programs, we have saved over 4.5 billion kilowatt hours (kWh) since 2004, enough to power approximately 400,000 U.S. homes for one year, and we are on track to meet our goal of a 20% reduction in kWh per square foot in our U.S. stores by 2015. Through our supply chain efficiencies described above under "Logistics," we are targeting a 20% reduction in our domestic supply chain greenhouse gas emissions from 2008 to 2015, which would equate to annual fuel savings of approximately 25 million gallons. In fiscal 2011, we also calculated our total carbon dioxide emissions for 2010, and we continue to monitor our "carbon footprint" from the operation of our stores as well as from our transportation and supply chain activities. Through our energy conservation and supply chain initiatives, we reduced our absolute carbon emissions by approximately 540,000 metric tons in 2010 compared to 2009. With respect to construction of our stores, we partnered with the U.S. Green Building Council and have built seven LEED for New Construction certified and other similarly certified stores. In 2011, we also obtained a grant from the U.S. Department of Energy to help design, monitor and verify the energy savings of a new building in Lodi, California that is designed to consume substantially less energy than the 2007 90.1 ASHRAE standards set out by the American Society of Heating, Refrigerating and Air-Conditioning Engineers, an international society that sets forth HVAC and refrigeration standards to promote sustainability. We also implemented a rainwater reclamation pilot in 2010, and we have retrofitted a number of our stores with reclamation tanks to collect rainwater and condensation from HVAC units and garden center roofs, which is in turn used to water plants in our outside garden centers. In September 2011, we opened a store in St. Croix in the U.S. Virgin Islands with both ground mount and roof mount solar panel systems, and we estimate the combined total annual energy production of these systems to be up to 570 megawatt hours. 5 Table of Contents Our efforts have resulted in a number of environmental awards and recognitions. For instance, in 2011, we were named "Retail Partner of the Year" by the WaterSense division of the U.S. Environmental Protection Agency for our overall excellence in water efficiency, and we were recognized as a "High Performer" by the Carbon Disclosure Project. We are also committed to maintaining a safe environment for our customers and associates and protecting the environment of the communities in which we do business. Our Environmental, Health & Safety ("EH&S") function is dedicated to ensuring the health and safety of our customers and associates, with trained associates who evaluate, develop, implement and enforce policies, processes and programs on a Company-wide basis. Our EH&S policies are woven into our everyday operations and are part of The Home Depot culture. Some common program elements include: daily store inspection checklists (by department); routine follow-up audits from our store-based safety team members and regional, district and store operations field teams; equipment enhancements and preventative maintenance programs to promote physical safety; departmental merchandising safety standards; training and education programs for all associates, with more extensive training provided based on an associate's role and responsibilities; and awareness, communication and recognition programs designed to drive operational awareness and understanding of EH&S issues. Interconnected Retail Our interconnected retail initiative supports and connects our three other key initiatives. In fiscal 2011, we focused on leveraging technology to improve our customer's retail experience and provide better access to and information about our products. As described above, these efforts included information technology solutions that take tasks out of the store and free our associates to devote more time to customer-facing activities. They also included significant website enhancements and improvements to our special ordering process that allow customers to more easily find and purchase an expanded array of products and provide a choice in how to receive the order (for example, through our BOPIS program). Through our website, which can be accessed through computers, smart phones and other mobile devices, customers can not only purchase products, but can also connect with our associates and with one another to gain product and project knowledge. Furthermore, to increase the productivity and efficiency of our associates, merchants and vendors and ensure that the right product is in the right place to meet our customers' needs, we developed and implemented the improved merchandising tools that provide better visibility into category and item performance and the new distribution forecasting and replenishment system for enhanced inventory management.