Home Depot Inc. (HD) | Income Taxes

Income Tax Accounting Policy

Income taxes are accounted for under the asset and liability method. Home Depot provides 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.

Home Depot recognizes 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.

Home Depot and its eligible subsidiaries file a consolidated U.S. federal income tax return. Non-U.S. subsidiaries and certain U.S. subsidiaries, which are consolidated for financial reporting purposes, are not eligible to be included in Home Depot's consolidated U.S. federal income tax return. Separate provisions for income taxes have been determined for these entities. Home Depot intends to reinvest substantially all of the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes for these non-U.S. subsidiaries was recorded in the accompanying Consolidated Statements of Earnings.

Source: Home Depot Inc., Annual Report

Income Tax Expense (Benefit)

Home Depot Inc., income tax expense (benefit), continuing operations

USD $ in millions

12 months ended	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Federal	2,060	1,566	1,478	1,157	1,283	2,055
State	302	234	181	184	198	285
Foreign	230	150	151	195	85	310
Current	2,592	1,950	1,810	1,536	1,566	2,650
Federal	114	199	79	(121)	(209)	(242)
State	1	35	21	(24)	(56)	17
Foreign	(21)	1	25	(29)	(23)	(15)
Deferred	94	235	125	(174)	(288)	(240)
Provision for income taxes	2,686	2,185	1,935	1,362	1,278	2,410

Source: Based on data from Home Depot Inc. Annual Reports

Item	Description	The company
Current	The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations.	Home Depot Inc.'s current increased from 2011 to 2012 and from 2012 to 2013.
Deferred	The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations.	Home Depot Inc.'s deferred increased from 2011 to 2012 but then declined significantly from 2012 to 2013.
Provision for income taxes	The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy.	Home Depot Inc.'s provision for income taxes increased from 2011 to 2012 and from 2012 to 2013.

Components of Deferred Tax Assets and Liabilities

Home Depot Inc., components of deferred tax assets and liabilities

USD $ in millions

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Property and equipment	–	–	64	85	85	–
Deferred compensation	265	324	393	372	286	–
Accrued self-insurance liabilities	459	476	460	447	460	440
State income taxes	97	76	69	123	118	105
Non-deductible reserves	285	292	–	–	–	–
Capital loss carryover	104	101	141	86	65	56
Net operating losses	71	65	66	74	71	52
Foreign tax credit carryforward	–	–	30	65	7	–
Impairment of investment	120	120	120	–	–	–
Other	174	185	408	594	419	655
Deferred tax assets	1,575	1,639	1,751	1,846	1,511	1,308
Valuation allowance	(27)	(19)	(66)	(15)	(12)	(7)
Deferred tax assets after valuation allowance	1,548	1,620	1,685	1,831	1,499	1,301
Inventory	(92)	(94)	(106)	(114)	(114)	(118)
Property and equipment	(1,194)	(1,192)	(1,073)	(1,178)	(1,068)	(1,133)
Goodwill and other intangibles	(112)	(97)	(95)	(88)	(78)	(69)
Other	(128)	(101)	(114)	(114)	(118)	(144)
Deferred tax liabilities	(1,526)	(1,484)	(1,388)	(1,494)	(1,378)	(1,464)
Net deferred tax assets (liabilities)	22	136	297	337	121	(163)

Source: Based on data from Home Depot Inc. Annual Reports

Item	Description	The company
Deferred tax assets	The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies.	Home Depot Inc.'s deferred tax assets declined from 2011 to 2012 and from 2012 to 2013.
Deferred tax assets after valuation allowance	The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value.	Home Depot Inc.'s deferred tax assets after valuation allowance declined from 2011 to 2012 and from 2012 to 2013.
Net deferred tax assets (liabilities)	For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods.	Home Depot Inc.'s net deferred tax assets (liabilities) declined from 2011 to 2012 and from 2012 to 2013.

Deferred Tax Assets and Liabilities, Classification

Home Depot Inc., deferred tax assets and liabilities, classification

USD $ in millions

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Current deferred tax assets (included in other current assets)	313	454	553	650	491	535
Noncurrent deferred tax assets (included in other assets)	30	25	21	12	4	–
Current deferred tax liabilities (included in other accrued expenses)	2	3	5	6	5	10
Noncurrent deferred tax liabilities	319	340	272	319	369	688

Source: Based on data from Home Depot Inc. Annual Reports

Item	Description	The company
Current deferred tax assets (included in other current assets)	The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.	Home Depot Inc.'s current deferred tax assets (included in other current assets) declined from 2011 to 2012 and from 2012 to 2013.
Noncurrent deferred tax assets (included in other assets)	The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Home Depot Inc.'s noncurrent deferred tax assets (included in other assets) increased from 2011 to 2012 and from 2012 to 2013.
Current deferred tax liabilities (included in other accrued expenses)	Represents the current portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A current taxable temporary difference is a difference between the tax basis and the carrying amount of a current asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Home Depot Inc.'s current deferred tax liabilities (included in other accrued expenses) declined from 2011 to 2012 and from 2012 to 2013.
Noncurrent deferred tax liabilities	Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference.	Home Depot Inc.'s noncurrent deferred tax liabilities increased from 2011 to 2012 but then slightly declined from 2012 to 2013.

Analyst Adjustments: Removal of Deferred Taxes

Home Depot Inc., adjustments to financial data

USD $ in millions

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Adjustment to Current Assets
Current assets (as reported)	15,372	14,520	13,479	13,900	13,362	14,674
Less: Current deferred tax assets, net	313	454	553	650	491	535
Current assets (adjusted)	15,059	14,066	12,926	13,250	12,871	14,139
Adjustment to Total Assets
Total assets (as reported)	41,084	40,518	40,125	40,877	41,164	44,324
Less: Current deferred tax assets, net	313	454	553	650	491	535
Less: Noncurrent deferred tax assets, net	30	25	21	12	4	–
Total assets (adjusted)	40,741	40,039	39,551	40,215	40,669	43,789
Adjustment to Current Liabilities
Current liabilities (as reported)	11,462	9,376	10,122	10,363	11,153	12,706
Less: Current deferred tax liabilities, net	2	3	5	6	5	10
Current liabilities (adjusted)	11,460	9,373	10,117	10,357	11,148	12,696
Adjustment to Total Liabilities
Total liabilities (as reported)	23,307	22,620	21,236	21,484	23,387	26,610
Less: Current deferred tax liabilities, net	2	3	5	6	5	10
Less: Noncurrent deferred tax liabilities, net	319	340	272	319	369	688
Total liabilities (adjusted)	22,986	22,277	20,959	21,159	23,013	25,912
Adjustment to Stockholders’ Equity
Stockholders’ equity (as reported)	17,777	17,898	18,889	19,393	17,777	17,714
Less: Current deferred tax assets, net	313	454	553	650	491	535
Less: Noncurrent deferred tax assets, net	30	25	21	12	4	–
Add: Current deferred tax liabilities, net	2	3	5	6	5	10
Add: Noncurrent deferred tax liabilities, net	319	340	272	319	369	688
Stockholders’ equity (adjusted)	17,755	17,762	18,592	19,056	17,656	17,877
Adjustment to Net Earnings
Net earnings (as reported)	4,535	3,883	3,338	2,661	2,260	4,395
Add: Deferred income tax expense (benefit)	94	235	125	(174)	(288)	(240)
Net earnings (adjusted)	4,629	4,118	3,463	2,487	1,972	4,155

Adjusted Ratios: Removal of Deferred Taxes (Summary)

Home Depot Inc., adjusted ratios

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
Current Ratio
Reported current ratio	1.34	1.55	1.33	1.34	1.20	1.15
Adjusted current ratio	1.31	1.50	1.28	1.28	1.15	1.11
Net Profit Margin
Reported net profit margin	6.07%	5.52%	4.91%	4.02%	3.17%	5.68%
Adjusted net profit margin	6.19%	5.85%	5.09%	3.76%	2.77%	5.37%
Total Asset Turnover
Reported total asset turnover	1.82	1.74	1.69	1.62	1.73	1.75
Adjusted total asset turnover	1.83	1.76	1.72	1.65	1.75	1.77
Financial Leverage
Reported financial leverage	2.31	2.26	2.12	2.11	2.32	2.50
Adjusted financial leverage	2.29	2.25	2.13	2.11	2.30	2.45
Return on Equity (ROE)
Reported ROE	25.51%	21.70%	17.67%	13.72%	12.71%	24.81%
Adjusted ROE	26.07%	23.18%	18.63%	13.05%	11.17%	23.24%
Return on Assets (ROA)
Reported ROA	11.04%	9.58%	8.32%	6.51%	5.49%	9.92%
Adjusted ROA	11.36%	10.28%	8.76%	6.18%	4.85%	9.49%

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Home Depot Inc.'s adjusted current ratio improved from 2011 to 2012 but then slightly deteriorated from 2012 to 2013 not reaching 2011 level.
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Home Depot Inc.'s adjusted net profit margin improved from 2011 to 2012 and from 2012 to 2013.
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Home Depot Inc.'s adjusted total asset turnover improved from 2011 to 2012 and from 2012 to 2013.
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Home Depot Inc.'s adjusted financial leverage increased from 2011 to 2012 and from 2012 to 2013.
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Home Depot Inc.'s adjusted ROE improved from 2011 to 2012 and from 2012 to 2013.
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Home Depot Inc.'s adjusted ROA improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Current Ratio

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Current assets (USD $ in millions)	15,372	14,520	13,479	13,900	13,362	14,674
Current liabilities (USD $ in millions)	11,462	9,376	10,122	10,363	11,153	12,706

Current ratio¹	1.34	1.55	1.33	1.34	1.20	1.15
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in millions)	15,059	14,066	12,926	13,250	12,871	14,139
Adjusted current liabilities (USD $ in millions)	11,460	9,373	10,117	10,357	11,148	12,696

Adjusted current ratio²	1.31	1.50	1.28	1.28	1.15	1.11

2013 Calculations

¹ Current ratio = Current assets ÷ Current liabilities
= 15,372 ÷ 11,462 = 1.34

² Adjusted current ratio = Adjusted current assets ÷ Adjusted current liabilities
= 15,059 ÷ 11,460 = 1.31

Ratio	Description	The company
Adjusted current ratio	A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities.	Home Depot Inc.'s adjusted current ratio improved from 2011 to 2012 but then slightly deteriorated from 2012 to 2013 not reaching 2011 level.

Adjusted Net Profit Margin

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net earnings (USD $ in millions)	4,535	3,883	3,338	2,661	2,260	4,395
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349

Net profit margin¹	6.07%	5.52%	4.91%	4.02%	3.17%	5.68%
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in millions)	4,629	4,118	3,463	2,487	1,972	4,155
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349

Adjusted net profit margin²	6.19%	5.85%	5.09%	3.76%	2.77%	5.37%

2013 Calculations

¹ Net profit margin = 100 × Net earnings ÷ Net sales
= 100 × 4,535 ÷ 74,754 = 6.07%

² Adjusted net profit margin = 100 × Adjusted net earnings ÷ Net sales
= 100 × 4,629 ÷ 74,754 = 6.19%

Ratio	Description	The company
Adjusted net profit margin	An indicator of profitability, calculated as adjusted net income divided by total revenue.	Home Depot Inc.'s adjusted net profit margin improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Total Asset Turnover

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349
Total assets (USD $ in millions)	41,084	40,518	40,125	40,877	41,164	44,324

Total asset turnover¹	1.82	1.74	1.69	1.62	1.73	1.75
Adjusted for Deferred Taxes
Net sales (USD $ in millions)	74,754	70,395	67,997	66,176	71,288	77,349
Adjusted total assets (USD $ in millions)	40,741	40,039	39,551	40,215	40,669	43,789

Adjusted total asset turnover²	1.83	1.76	1.72	1.65	1.75	1.77

2013 Calculations

¹ Total asset turnover = Net sales ÷ Total assets
= 74,754 ÷ 41,084 = 1.82

² Adjusted total asset turnover = Net sales ÷ Adjusted total assets
= 74,754 ÷ 40,741 = 1.83

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Home Depot Inc.'s adjusted total asset turnover improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Financial Leverage

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Total assets (USD $ in millions)	41,084	40,518	40,125	40,877	41,164	44,324
Stockholders’ equity (USD $ in millions)	17,777	17,898	18,889	19,393	17,777	17,714

Financial leverage¹	2.31	2.26	2.12	2.11	2.32	2.50
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)	40,741	40,039	39,551	40,215	40,669	43,789
Adjusted stockholders’ equity (USD $ in millions)	17,755	17,762	18,592	19,056	17,656	17,877

Adjusted financial leverage²	2.29	2.25	2.13	2.11	2.30	2.45

2013 Calculations

¹ Financial leverage = Total assets ÷ Stockholders’ equity
= 41,084 ÷ 17,777 = 2.31

² Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders’ equity
= 40,741 ÷ 17,755 = 2.29

Ratio	Description	The company
Adjusted financial leverage	A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.	Home Depot Inc.'s adjusted financial leverage increased from 2011 to 2012 and from 2012 to 2013.

Adjusted Return On Equity (ROE)

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net earnings (USD $ in millions)	4,535	3,883	3,338	2,661	2,260	4,395
Stockholders’ equity (USD $ in millions)	17,777	17,898	18,889	19,393	17,777	17,714

ROE¹	25.51%	21.70%	17.67%	13.72%	12.71%	24.81%
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in millions)	4,629	4,118	3,463	2,487	1,972	4,155
Adjusted stockholders’ equity (USD $ in millions)	17,755	17,762	18,592	19,056	17,656	17,877

Adjusted ROE²	26.07%	23.18%	18.63%	13.05%	11.17%	23.24%

2013 Calculations

¹ ROE = 100 × Net earnings ÷ Stockholders’ equity
= 100 × 4,535 ÷ 17,777 = 25.51%

² Adjusted ROE = 100 × Adjusted net earnings ÷ Adjusted stockholders’ equity
= 100 × 4,629 ÷ 17,755 = 26.07%

Ratio	Description	The company
Adjusted ROE	A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity.	Home Depot Inc.'s adjusted ROE improved from 2011 to 2012 and from 2012 to 2013.

Adjusted Return On Assets (ROA)

	Feb 3, 2013	Jan 29, 2012	Jan 30, 2011	Jan 31, 2010	Feb 1, 2009	Feb 3, 2008
As Reported
Net earnings (USD $ in millions)	4,535	3,883	3,338	2,661	2,260	4,395
Total assets (USD $ in millions)	41,084	40,518	40,125	40,877	41,164	44,324

ROA¹	11.04%	9.58%	8.32%	6.51%	5.49%	9.92%
Adjusted for Deferred Taxes
Adjusted net earnings (USD $ in millions)	4,629	4,118	3,463	2,487	1,972	4,155
Adjusted total assets (USD $ in millions)	40,741	40,039	39,551	40,215	40,669	43,789

Adjusted ROA²	11.36%	10.28%	8.76%	6.18%	4.85%	9.49%

2013 Calculations

¹ ROA = 100 × Net earnings ÷ Total assets
= 100 × 4,535 ÷ 41,084 = 11.04%

² Adjusted ROA = 100 × Adjusted net earnings ÷ Adjusted total assets
= 100 × 4,629 ÷ 40,741 = 11.36%

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as adjusted net income divided by adjusted total assets.	Home Depot Inc.'s adjusted ROA improved from 2011 to 2012 and from 2012 to 2013.