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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2010 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-8207 THE HOME DEPOT, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE (State or other jurisdiction of incorporation or organization) 95-3261426 (I.R.S. Employer Identification No.) 2455 PACES FERRY ROAD, N.W., ATLANTA, GEORGIA 30339 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (770) 433-8211 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH REGISTERED TITLE OF EACH CLASS Common Stock, $0.05 Par Value Per Share 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant on August 3, 2009 was $43.9 billion. The number of shares outstanding of the Registrant's common stock as of March 22, 2010 was 1,693,341,736 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's proxy statement for the 2010 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K to the extent described herein. THE HOME DEPOT, INC. FISCAL YEAR 2009 FORM 10-K TABLE OF CONTENTS PART I Item 1. Business 1 Item 1A. Risk Factors 6 Item 1B. Unresolved Staff Comments 9 Item 2. Properties 10 Item 3. Legal Proceedings 12 Item 4. [Reserved] 12 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 28 Item 8. Financial Statements and Supplementary Data 29 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 54 Item 9A. Controls and Procedures 54 Item 9B. Other Information 54 Item 10. Directors, Executive Officers and Corporate Governance 55 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 56 Item 13. Certain Relationships and Related Transactions, and Director Independence 56 Item 14. Principal Accounting Fees and Services 56 Exhibits and Financial Statement Schedules 57 Signatures 61 PART II Item 5. PART III PART IV Item 15. CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements regarding our future performance 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 store sales, state of the economy, state of the residential construction, housing and home improvement markets, state of the credit markets, including mortgages, home equity loans and consumer credit, commodity price inflation and deflation, implementation of store initiatives, continuation of reinvestment plans, net earnings performance, earnings per share, stock-based compensation expense, capital allocation and expenditures, liquidity, the effect of adopting certain accounting standards, return on invested capital, management of our purchasing or customer credit policies, the effect of accounting charges, the planned recapitalization of the Company, timing of the completion of the recapitalization, the ability to issue debt securities on terms and at rates acceptable to us, impact of cannibalization, store openings and closures and financial outlook. Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You are cautioned not to place undue reliance on our forwardlooking 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 or are currently unknown to us - as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those described in Item 1A, \"Risk Factors.\" 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 periodic filings with the Securities and Exchange Commission (\"SEC\"). PART I 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 31, 2010 (\"fiscal 2009\"). 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 105,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. As of the end of fiscal 2009, we had 2,244 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 (\"U.S.\"), Canada, China and Mexico. 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 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 only as textual references. The information contained on our websites is not incorporated by reference into this report. 1 Our Business Operating Strategy. In fiscal 2009, despite prolonged difficulties in the economy, we continued to focus on our core retail business, investing in our associates and stores and improving our customer service. This focus reflected a continuation of strategies implemented in the fiscal year ended February 1, 2009 (\"fiscal 2008\"), including the decision, announced in late January 2009, to close our EXPO Design Center, THD Design Center, Yardbirds and HD Bath businesses (the \"Exited Businesses\"). In fiscal 2009, we maintained our focus on maximizing the productivity of our existing store base. During the year, we continued to implement significant changes in our store operations to make them simpler, more consistent and more customer-focused. We shifted associate hours to be more customer facing, provided additional customer service and product knowledge training to our associates and refocused our efforts on offering every day values in the stores. Additionally, we continued to make strategic decisions intended to optimize our capital allocation, control expenses and create long-term value for our shareholders. Customers. The Home Depot stores serve three primary customer groups: Do-It-Yourself (\"D-I-Y\") Customers: These customers are typically home owners who purchase products and complete their own projects and installations. Do-It-For-Me (\"D-I-F-M\") Customers: These customers are typically home owners who purchase materials themselves and hire third parties to complete the project or installation. We arrange for the installation of a variety of The Home Depot products through qualified independent contractors. Professional Customers: These customers are professional remodelers, general contractors, repairmen, small business owners and tradesmen. In many stores, we offer a variety of programs to these customers, including delivery and will-call services, dedicated staff and expanded credit programs, all of which we believe increase sales to these customers. Products. A typical Home Depot store stocks approximately 30,000 to 40,000 products during the year, including both national brand name and proprietary items. 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: Percentage of Net Sales for Fiscal Year Ended January 31, 2010 Total February 3, 2008 30.6% 28.7 22.1 18.6 31.0% 28.0 22.3 18.7 100.0% Plumbing, electrical and kitchen Hardware and seasonal Building materials, lumber and millwork Paint and flooring February 1, 2009 2 9 .8 % 2 9 .1 2 1 .9 1 9 .2 Product Group 100.0% 100.0% In fiscal 2009, we reduced our inventory while improving our in-stock rate. We also reduced a number of onetime discount promotions and refocused our efforts on offering every day values. We continued to introduce innovative and distinctive products to our customers, including Thomasville deep seating patio furniture, Behr Premium Plus Ultra paint and primer in one, Charbroil infrared grills, RIDGID pressure washers and Homelite trimmers. To complement and enhance our product selection, we have formed strategic alliances and exclusive relationships with selected suppliers to market products under a variety of well-recognized brand names. During fiscal 2009, we offered a number of proprietary and exclusive brands across a wide range of departments including, but not limited to, Behr Premium Plus paint, Hampton Bay lighting, Vigoro lawn care products, Husky hand tools, RIDGID and Ryobi power tools and Glacier Bay bath fixtures. We also announced our 2 partnership with Martha Stewart Living Omnimedia to offer an exclusive Martha Stewart Living brand of home improvement products in select categories including outdoor living and paint. We may consider additional strategic alliances and relationships with other suppliers and will continue to assess 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 merchandise program to source high-quality products directly from manufacturers around the world. Our merchant team identifies and purchases market leading 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. Services. Our stores offer a variety of installation services. These services target D-I-F-M customers who select and purchase products and installation of those products from us. These installation programs include products such as carpeting, flooring, cabinets, countertops and water heaters. In addition, we provide professional installation of a number of products sold through our in-home sales programs, such as generators and furnace and central air systems. Store Growth. United States. At the end of fiscal 2009, we were operating 1,976 The Home Depot stores in the U.S., including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam. During fiscal 2009, we opened five new The Home Depot stores in the U.S. Canada. At the end of fiscal 2009, we were operating 179 The Home Depot stores in ten Canadian provinces. Of these stores, three were opened during fiscal 2009. Mexico. At the end of fiscal 2009, we were operating 79 The Home Depot stores in Mexico. Of these stores, five were opened during fiscal 2009. China. At the end of fiscal 2009, we were operating 10 The Home Depot stores in four Chinese cities. Net Sales for the Company outside of the U.S. were $7.0 billion for fiscal 2009 and were $7.4 billion for fiscal 2008 and 2007. Long-lived assets outside of the U.S. totaled $3.0 billion, $2.8 billion and $3.1 billion as of January 31, 2010, February 1, 2009 and February 3, 2008, respectively. Store Support Services Information Technologies. During fiscal 2009, we continued to make information technology investments to better support our customers and provide an improved overall shopping environment and experience. We invested in our supply chain and merchandising tools to improve inventory management capabilities and streamline our operations. With regard to our supply chain, in fiscal 2009 we continued implementation of our new warehouse management system and new transportation management system. We also made additional enhancements to our Central Automated Replenishment system. We provided additional tools and made improvements to existing tools utilized in merchandising systems in the areas of assortment management, forecasting and replenishment. With our continued focus on the stores, we provided additional technology improvements designed to help store associates perform their tasks and improve customer service. In fiscal 2009, we equipped 1,977 stores with new servers, 211 stores with new computers, registers and printers and 63 stores with new paint dispensers. Credit Services. We offer private label credit products in our stores through a third-party credit provider to professional, D-I-Y and D-I-F-M customers. In fiscal 2009, approximately 2.8 million new The Home Depot 3 private label credit accounts were opened, and the total number of The Home Depot active account holders was approximately 12 million. Private label credit card sales accounted for approximately 25% of store sales in fiscal 2009. In fiscal 2008, Home Depot renegotiated and extended the term of the primary contracts governing the private label program. In fiscal 2009, we continued to benefit from our new contracts which established a ceiling for the cost of credit for the program while retaining the ability for portfolio performance improvements to lower the cost of credit. Logistics. We continued our supply chain transformation in fiscal 2009 to ensure product availability for customers, effective use of our investment in inventory and low total supply chain costs. Across our supply chain operations in the U.S., Canada and Mexico, we restructured our distribution center network to meet the changing needs of our business, including the Rapid Deployment Center (\"RDC\") build-out in the U.S. and general distribution center space rationalization initiatives. RDCs allow for aggregation of store product needs to a single purchase order, and then rapid allocation and deployment of inventory to individual stores upon arrival at the center. This process allows improved transportation, simplified order processing at suppliers and reduced lead time from the time that product needs at stores are determined to actual replenishment. As a result of the changes to our distribution network, in fiscal 2009 we added 5.2 million square feet of distribution center space, primarily for new RDCs, and closed other distribution center operations occupying approximately 2.4 million square feet, primarily as a result of eliminating conventional distribution center space in the U.S. At the end of fiscal 2009, we operated 30 lumber distribution centers, 36 conventional distribution centers and two transit facilities, all located in the U.S., Canada and Mexico. Additionally in fiscal 2009, we opened seven new RDCs in the U.S., bringing our total number of RDCs to 12. We now serve approximately 1,250 of our U.S. stores from RDCs, which represents approximately 65% of our U.S. stores, and have onboarded approximately 35% of our costs of sales for those stores. We plan to open additional RDCs during fiscal 2010 and ultimately serve all of our U.S. stores from RDCs. We remain committed to our overall RDC roll-out strategy, supporting our goal of increasing our central distribution penetration. Associates. At the end of fiscal 2009, we employed approximately 317,000 associates, of whom approximately 19,000 were salaried, with the remainder compensated on an hourly or temporary basis. Approximately 61% of our associates are employed on a full-time basis. We believe that our employee relations are very good. To attract and retain qualified personnel, we seek to maintain competitive salary and wage levels in each market we serve. 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. Quality Assurance Program. We have both quality assurance and engineering resources that are dedicated to overseeing the quality of our directly imported, globally-sourced and proprietary products at the factory, product and packaging levels. Through these programs, we have established criteria for supplier and product performance that are designed to ensure that our products comply with federal, state and local safety, quality and performance standards and to allow us to measure and track the timeliness of shipments. 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. Environmental, Health & Safety (\"EH&S\"). We are committed to maintaining a safe environment for our customers and associates and protecting the environment of the communities in which we do business. Our EH&S function in the field is directed by trained associates focused primarily on the execution of the EH&S programs. Additionally, we have a Store Support Center-based team of dedicated EH&S professionals who evaluate, develop, implement and enforce policies, processes and programs on a Company-wide basis. 4 Environmental. The Home Depot is committed to conducting business in an environmentally responsible manner. This commitment impacts all areas of our business, including store construction and maintenance, energy usage, supply chain, product selection and delivery of product knowledge to our customers. In fiscal 2009, we spent approximately $22 million for energy efficiency-related projects and saved over 114 million kilowatt hours (kWh) compared to fiscal 2008, enough to power over 10,000 U.S. homes for one year. 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 utilizing the Novar Energy Management and Alarm System in each store to monitor energy efficiency. We estimate that by implementing and utilizing these energy saving programs, we have saved over 2.6 billion kWh since 2004, enough to power approximately 203,000 U.S. homes for one year. We have achieved a 16 percent reduction in kWh per square foot of energy consumption in our U.S. stores since 2004, and our goal is to achieve a 20 percent reduction in our U.S. stores by 2015, through our energy conservation initiatives. We have also partnered with the U.S. Green Building Council and have built seven Leadership in Energy and Environmental Design (\"LEED\") green certified and equivalent stores. Through our supply chain efficiencies created by the actions described above under \"Logistics,\" we are also targeting a 20 percent 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 or approximately 8,000 trips around the earth's circumference. We received the 2009 Environmental Excellence Award from the U.S. Environmental Protection Agency SmartWaySM Transport Partnership for our leadership in conserving energy and lowering greenhouse gas emission from our supply chain activities. 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. Through our Eco OptionsSM Program introduced in 2007, we have created product categories that allow consumers to easily identify environmentally preferred product selections in our stores. Our Eco OptionsSM Program has certified approximately 4,000 products that meet specifications for energy efficiency, water conservation, healthy home, clean air and sustainable forestry. During 2009, we sold more than 90 million Energy Star refrigerators, dishwashers, compact fluorescent light bulbs, programmable thermostats, water heaters and other products, which are capable of saving our customers approximately $740 million on their utility bills. We also sold more than six million WaterSense-labeled bath faucets, aerators and toilets, giving our customers the potential to save at least 1.8 billion gallons of water. In 2009, we also upgraded our Eco OptionsSM page on our website, which offers consumer education on environmental impacts of various products as well as identifying 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 OptionsSM product categories, helps us to meet a growing customer demand for environmentally responsible and cost-saving products and projects. We continue to offer our nationwide, in-store compact fluorescent light bulb recycling program launched in June 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 U.S. and Canada stores. Seasonality. Our business is seasonal to a certain extent. 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. 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, 5 other retailers. Due to the variety of competition we face, we are unable to precisely measure the impact on our sales by our competitors. Item 1A. Risk Factors. The risks and uncertainties described below could materially and adversely affect our business, financial condition and results of operations and could cause actual results to differ materially from our expectations and projections. The Risk Factors described below include the considerable risks associated with the current economic environment and the related potential adverse effects on our financial condition and results of operations. You should read these Risk Factors in conjunction with \"Management's Discussion and Analysis of Financial Condition and Results of Operations\" in Item 7 and our Consolidated Financial Statements and related notes in Item 8. There also may be other factors that we cannot anticipate or that are not described in this report generally because we do not currently perceive them to be material. Those factors could cause results to differ materially from our expectations. Sustained uncertainty regarding current economic conditions and other factors beyond our control could adversely affect demand for our products and services, our costs of doing business and our financial performance. Our financial performance depends significantly on the stability of the housing, residential construction and home improvement markets. Adverse conditions in or sustained uncertainty about these markets could adversely impact consumer confidence, causing our customers to delay purchasing or determine not to purchase home improvement products and services. Other factors including high levels of unemployment and foreclosures, interest rate fluctuations, fuel and other energy costs, labor and healthcare costs, the availability of financing, the state of the credit markets, including mortgages, home equity loans and consumer credit, weather, natural disasters and other conditions beyond our control could further adversely affect demand for our products and services, our costs of doing business and our financial performance. Strong competition could adversely affect prices and demand for our products and services and could decrease our market share. We operate in markets that are highly competitive. We compete principally based on customer services, price, store location and assortment of merchandise. In each market 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 other retailers. Intense competitive pressures from one or more of our competitors could affect prices or demand for our products and services. If we are unable to timely and appropriately respond to these competitive pressures, including through maintenance of superior customer service and customer loyalty, our financial performance and our market share could be adversely affected. We may not timely identify or effectively respond to consumer needs, expectations or trends, which could adversely affect our relationship with customers, the demand for our products and services and our market share. It is difficult to successfully predict the products and services our customers will demand. The success of our business depends in part on our ability to identify and respond promptly to evolving trends in demographics and consumer preferences, expectations and needs. Failure to maintain attractive stores and to timely identify or effectively respond to changing consumer tastes, preferences, expectations as to service levels, spending patterns and home improvement needs could adversely affect our relationship with customers, the demand for our products and services and our market share. 6 Our success depends upon our ability to attract, train and retain highly qualified associates while also controlling our labor costs. Our customers expect a high level of customer service and product knowledge from our associates. To be successful, we must attract, train and retain a large number of highly qualified associates to meet the needs and expectations of our customers while at the same time controlling labor costs. Our ability to control labor costs is subject to numerous external factors, including prevailing wage rates, the impact of legislation or regulations governing healthcare benefits or labor relations, such as the proposed Employee Free Choice Act, and health and other insurance costs. In addition, we compete with other retail businesses for many of our associates in hourly positions, and we invest significant resources in training and motivating them. These positions have historically had high turnover rates, which can lead to increased training and retention costs. There is no assurance that we will be able to attract or retain highly qualified associates in the future. In addition, our centralization of certain human resources functions might not be readily adapted by our associates and therefore might not provide the anticipated benefits. The inflation or deflation of commodity prices could affect our prices, demand for our products, our sales and our profit margins. Prices of certain commodity products, including lumber and other raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations and periodic delays in delivery. Rapid and significant changes in commodity prices may affect the demand for our products, our sales and our profit margins. We rely on third party suppliers. If we fail to identify and develop relationships with a sufficient number of qualified suppliers, or if our current suppliers experience financial difficulties, our ability to timely and efficiently access products that meet our high standards for quality could be adversely affected. We buy our products from suppliers located throughout the world. Our ability to continue to identify and develop relationships with qualified suppliers who can satisfy our high standards for quality and our need to access products in a timely and efficient manner is a significant challenge. Our ability to access products also can be adversely affected by political instability, the financial instability of suppliers (particularly in light of recent economic conditions), suppliers' noncompliance with applicable laws, trade restrictions, tariffs, currency exchange rates, transport capacity and cost and other factors beyond our control. If we are unable to effectively manage and expand our alliances and relationships with selected suppliers of brand name products, we may be unable to effectively execute our strategy to differentiate ourselves from our competitors. As part of our focus on product differentiation, we have formed strategic alliances and exclusive relationships with selected suppliers to market products under a variety of well-recognized brand names. If we are unable to manage and expand these alliances and relationships or identify alternative sources for comparable products, we may not be able to effectively execute product differentiation. If we do not maintain the security of customer, associate or company information, we could damage our reputation, incur substantial additional costs and become subject to litigation. Any significant compromise or breach of customer, associate or company data security could significantly damage our reputation and result in additional costs, lost sales, fines and lawsuits. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches. 7 A failure of a key information technology system or process could adversely affect our business. We rely extensively on information technology systems, some of which are managed by third-party service providers, to analyze, process and manage transactions and data. We also rely heavily on the integrity of this data in managing our business. We or our service providers could experience errors, interruptions, delays or cessations of service in key portions of our information technology infrastructure, which could significantly disrupt our operations and be expensive, time consuming and resource-intensive to remedy. The implementation of our supply chain and technology initiatives could disrupt our operations in the near term, and these initiatives might not provide the anticipated benefits or might fail. We have made, and we plan to continue to make, significant investments in our supply chain and technology. These initiatives are designed to streamline our operations to allow our associates to continue to provide high quality service to our customers. The cost and potential problems and interruptions associated with the implementation of these initiatives, including those associated with managing third-party service providers, could disrupt or reduce the efficiency of our operations in the near term. In addition, our improved supply chain and new or upgraded technology might not provide the anticipated benefits, it might take longer than expected to realize the anticipated benefits, or the initiatives might fail altogether. Our costs of doing business could increase as a result of changes in federal, state or local regulations. Changes in the federal, state or local minimum wage or living wage requirements or changes in other wage or workplace regulations could increase our costs of doing business. In addition, changes in federal, state or local regulations governing the sale of some of our products or tax regulations could increase our costs of doing business. Passage of the Employee Free Choice Act or other similar laws in Congress could lead to higher labor costs by encouraging unionization efforts among our associates and disruption of store operations. Healthcare reform, if enacted, could also adversely impact our labor costs and our ability to negotiate favorable terms under our benefit plans for our associates. Our ability to obtain additional financing on favorable terms, if needed, could be adversely affected by the volatility in the capital markets. We obtain and manage liquidity from the positive cash flow we generate from our operating activities and our access to capital markets, including our commercial paper programs supported by a back-up credit facility with a consortium of banks. Although we currently maintain a strong investment grade rating and had no outstanding commercial paper obligations as of the end of fiscal 2009, there is no assurance that our ability to obtain additional financing through the capital markets, if needed, will not be adversely impacted due to current economic conditions. New or incremental tightening in the credit markets, low liquidity and continued volatility in the capital markets could result in diminished availability of credit, higher cost of borrowing and lack of confidence in the equity market, making it more difficult to obtain additional financing on terms that are favorable to us. If we cannot successfully manage the unique challenges presented by international markets, we may not be successful in our international operations. Our ability to successfully operate in international markets is affected by many of the same operational risks we face in our U.S. operations, as well as unique costs and difficulties of managing international operations. Our international operations, including any expansion in international markets, may be adversely affected by our inability to identify and gain access to local suppliers as well as by local laws and customs, U.S. laws applicable to foreign operations, such as the Foreign Corrupt Practices Act (\"FCPA\"), other legal and regulatory constraints, political and economic conditions and currency regulations of the countries or regions in which we currently operate or intend to operate in the future. Risks inherent in international operations also include, among others, adverse tax consequences, greater difficulty in enforcing intellectual property rights and risks associated with FCPA and local anti-bribery law compliance. Additionally, foreign currency exchange rates and fluctuations may have an impact on our future costs or on future cash flows from our international operations. 8 If we are unable to manage effectively our installation service business, we could be subject to fines and lawsuits. We act as a general contractor to provide installation services to our D-I-F-M customers through third-party installers. As such, we are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of our third-party installers. We have established processes and procedures that provide protections beyond those required by law to manage these requirements and ensure customer satisfaction. If we fail to manage these processes effectively, we could suffer lost sales, fines and lawsuits. Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition. Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment, impairment of goodwill and other intangible assets, inventories, lease obligations, self-insurance, tax matters and litigation, are highly complex and involve many subjective assumptions, estimates and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments could significantly change our reported or expected financial performance or financial condition. We are involved in a number of legal proceedings, and while we cannot predict the outcomes of those proceedings and other contingencies with certainty, some of these outcomes may adversely affect our operations or increase our costs. We are involved in a number of legal proceedings, including government inquiries and investigations, and consumer, employment, tort and other litigation that arise from time to time in the ordinary course of business. Litigation is inherently unpredictable, and the outcome of some of these proceedings and other contingencies could require us to take or refrain from taking actions which could adversely affect our operations or could result in excessive verdicts. Additionally, defending against these lawsuits and proceedings may involve significant expense and diversion of management's attention and resources from other matters. Item 1B. Unresolved Staff Comments. Not applicable. 9 Item 2. Properties. The following tables show locations of the 1,976 The Home Depot stores located in the U.S. and its territories and the 268 The Home Depot stores outside of the U.S. at the end of fiscal 2009: U.S. Locations Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Guam Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana U.S. Locations Number of Stores Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virgin Islands Virginia Washington West Virginia Wisconsin Wyoming 28 7 56 14 231 46 28 9 1 153 90 1 7 11 76 24 10 16 14 28 11 40 45 71 33 14 34 6 Total U.S. 10 Number of Stores 8 21 20 67 13 100 43 1 70 16 26 70 8 8 25 1 39 178 22 3 1 49 45 6 27 5 1,976 International Locations Canada: Alberta British Columbia Manitoba New Brunswick Newfoundland Nova Scotia Ontario Prince Edward Island Quebec Saskatchewan Number of Stores International Locations Number of Stores 179 China: Beijing Henan Shaanxi Tianjin 2 1 2 5 Total China 10 1 5 2 2 5 3 1 6 1 4 1 1 4 1 1 9 2 2 1 1 3 2 11 1 4 4 1 Total Mexico Total Canada Mexico: Aguascalientes Baja California Norte Baja California Sur Chiapas Chihuahua Coahuila Colima Distrito Federal Durango Guanajuato Guerrero Hidalgo Jalisco Michoacn Morelos Nuevo Len Puebla Queretaro Quintana Roo San Luis Potosi Sinaloa Sonora State of Mexico Tabasco Tamaulipas Veracruz Yucatan 27 25 6 3 1 4 86 1 22 4 79 Additionally, at the end of fiscal 2009, we had six Home Decorators Collection locations in Illinois, Kansas, Missouri and New Jersey. Of our 2,244 stores operating at the end of fiscal 2009, approximately 89% were owned (including those owned subject to a ground lease) consisting of approximately 209.4 million square feet, and approximately 11% of such stores were leased consisting of approximately 25.8 million square feet. At the end of fiscal 2009, we utilized 188 warehouses and distribution centers located in 33 states or provinces, consisting of approximately 32.1 million square feet, of which approximately 0.2 million is owned and approximately 31.9 million is leased. Our executive, corporate staff, divisional staff and financial offices occupy approximately 2.1 million square feet of leased and owned space in Atlanta, Georgia. At the end of fiscal 2009, we occupied an aggregate of approximately 3.7 million square feet, of which approximately 2.4 million square feet is owned and approximately 1.3 million square feet is leased, for store support centers and customer support centers. 11 Item 3. Legal Proceedings. In July 2005, the Company received a grand jury subpoena from the United States Attorney's Office in Los Angeles, California, seeking documents and information relating to the Company's handling, storage and disposal of hazardous waste. The Company is cooperating fully with the United States Attorney's Office. Although the Company cannot predict the outcome of this proceeding, it does not expect any such outcome to have a material adverse effect on its consolidated financial condition or results of operations. In August 2005, the Company received an informal request from the staff of the SEC for information related to the Company's return-to-vendor policies and procedures. Subsequent to August 2005, the SEC staff requested additional information related to those policies and procedures. The SEC staff last contacted the Company regarding this matter in January 2007. The Company responded to the requests and will continue to fully cooperate with the SEC staff. The SEC has informed the Company that the informal inquiry is not an indication that any violations of law have occurred. Although the Company cannot predict the outcome of this matter, it does not expect that this informal inquiry will have a material adverse effect on its consolidated financial condition or results of operations. The following actions have been filed against the Company and, in some cases, against certain of its current and former officers and directors as described below. Although the Company cannot predict their outcome, it does not expect these actions, individually or together, will have a material adverse effect on its consolidated financial condition or results of operations. As previously reported, in the second and third quarters of fiscal 2006, three purported, but uncertified, class actions were filed against the Company, The Home Depot FutureBuilder Administrative Committee and certain of the Company's current and former directors and employees alleging breach of fiduciary duty in violation of the Employee Retirement Income Security Act of 1974 (\"ERISA\") in connection with the Company's return-tovendor and stock option practices. These actions were joined into one case in 2007, and the joint amended complaint seeks certification as a class action, unspecified damages, costs, attorney's fees and equitable and injunctive relief. The case is currently before the U.S. District Court for the Northern District of Georgia in Atlanta, following the decision by the U.S. Court of Appeals for the Eleventh Circuit in July 2008 reversing the District Court's prior decision on standing, affirming its finding that the plaintiffs failed to exhaust the administrative remedies provided under ERISA, and remanding the matter to the District Court for further adjudication. On November 9, 2009, plaintiffs filed a third amended complaint following their pursuit of administrative remedies. Although the Company cannot predict the outcome of this matter, it does not expect the outcome to have a material effect on its consolidated financial condition or results of operations. On January 27, 2010, the Superior Court of the County of Los Angeles in California approved the Company's settlement with the plaintiffs in five lawsuits containing multiple class-action allegations that the Company failed to provide meal breaks. The complaints were filed by current and former hourly associates from the first quarter of 2004 through the fourth quarter of 2008. The disposition of this matter is now complete. As previously disclosed, the Company established a reserve for this settlement in the fourth quarter of fiscal 2008. The settlement did not have a material effect on the Company's consolidated financial condition or results of operations. Item 4. [Reserved] 12 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Since April 19, 1984, our common stock has been listed on the New York Stock Exchange, trading under the symbol \"HD.\" The Company paid its first cash dividend on June 22, 1987, and has paid cash dividends during each subsequent quarter. Future dividend payments will depend on the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. The table below sets forth the high and low sales prices of our common stock on the New York Stock Exchange and the quarterly cash dividends declared per share of common stock for the periods indicated. Price Range Cash Dividends Declared High $26.34 $26.21 $28.23 $29.29 $18.00 $22.40 $25.09 $24.96 $ 0.225 $ 0.225 $ 0.225 $0.23625 $ 30.12 $ 29.53 $ 30.16 $ 25.26 Fiscal Year 2009 First Quarter Ended May 3, 2009 Second Quarter Ended August 2, 2009 Third Quarter Ended November 1, 2009 Fourth Quarter Ended January 31, 2010 Fiscal Year 2008 First Quarter Ended May 4, 2008 Second Quarter Ended August 3, 2008 Third Quarter Ended November 2, 2008 Fourth Quarter Ended February 1, 2009 Low $ 25.00 $ 21.46 $ 18.51 $ 18.52 $ 0.225 $ 0.225 $ 0.225 $ 0.225 As of March 22, 2010, there were approximately 149,000 shareholders of record and approximately 1,222,000 additional shareholders holding stock under nominee security position listings. 13 Stock Performance Graph This graph depicts the Company's cumulative total shareholder returns relative to the performance of the Standard & Poor's 500 Composite Stock Index and the Standard & Poor's Retail Composite Index for the fiveyear period commencing January 31, 2005, the first trading day of fiscal 2005, and ending January 29, 2010, the last trading day of fiscal 2009. The graph assumes $100 invested at the closing price of the Company's common stock on the New York Stock Exchange and each index on January 28, 2005 and assumes that all dividends were reinvested on the date paid. The points on the graph represent fiscal year-end amounts based on the last trading day in each fiscal year. Fiscal 2004 The Home Depot S&P 500 Index S&P Retail Composite Index $ 100.00 $ 100.00 $ 100.00 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008 $ 99.97 $111.62 $108.76 $101.64 $126.01 $121.44 $ 79.54 $126.05 $102.17 $58.25 $76.42 $63.63 14 Fiscal 2009 $ 78.64 $101.75 $ 98.97 Issuer Purchases of Equity Securities Since fiscal 2002, the Company has repurchased shares of its common stock having a value of approximately $27.5 billion pursuant to its share repurchase program. The number and average price of shares purchased in each fiscal month of the fourth quarter of fiscal 2009 are set forth in the table below: Total Number of Shares Purchased(1) Period Nov. 2, 2009 - Nov. 29, 2009 Nov. 30, 2009 - Dec. 27, 2009 Dec. 28, 2009 - Jan. 31, 2010 1,362,738 2,826,352 3,758 Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program(2) $27.53 $28.33 $28.48 1,285,226 2,818,380 Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program $12,598,234,372 $12,518,394,686 $12,518,394,686 (1) These amounts include repurchases pursuant to the Company's 1997 and 2005 Omnibus Stock Incentive Plans (the \"Plans\"). Under the Plans, participants may exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Participants in the Plans may also surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreements and not pursuant to publicly announced share repurchase programs. (2) The Company's common stock repurchase program was initially announced on July 15, 2002. As of the end of fiscal 2009, the Board approved purchases up to $40.0 billion. The program does not have a prescribed expiration date. Sales of Unregistered Securities During the fourth quarter of fiscal 2009, the Company issued 427 deferred stock units under The Home Depot, Inc. NonEmployee Directors' Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended. The deferred stock units were credited to the accounts of those nonemployee directors who elected to receive board retainers in the form of deferred stock units instead of cash during the fourth quarter of fiscal 2009. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan. During the fourth quarter of fiscal 2009, the Company credited 41,675 deferred stock units to participant accounts under The Home Depot FutureBuilder Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended, for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following the termination of services as described in this plan. Item 6. Selected Financial Data. The information required by this item is incorporated by reference to pages F-1 and F-2 of this report. 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Executive Summary and Selected Consolidated Statements of Earnings Data For fiscal year ended January 31, 2010 (\"fiscal 2009\"), we reported Net Earnings of $2.7 billion and Diluted Earnings per Share of $1.57 compared to Net Earnings of $2.3 billion and Diluted Earnings per Share of $1.34 for fiscal year ended February 1, 2009 (\"fiscal 2008\"). The results for fiscal 2009 and 2008 reflect the impact of several strategic actions initiated in fiscal 2008. These strategic actions resulted in store rationalization charges related to the closing of 15 underperforming stores and the removal of approximately 50 stores from our new store pipeline, business rationalization charges related to the exit of our EXPO, THD Design Center, Yardbirds and HD Bath businesses (the \"Exited Businesses\") and charges related to the restructuring of support functions (collectively, the \"Rationalization Charges\"). These actions resulted in pretax Rationalization Charges of $146 million and $951 million for fiscal 2009 and 2008, respectively. Our fiscal 2009 and 2008 results included a pretax charge of $163 million in each year to write-down our investment in HD Supply, Inc. Additionally, fiscal 2009 included earnings of $41 million from discontinued operations, net of tax, compared to a loss of $52 million from discontinued operations, net of tax, in fiscal 2008 for the settlement of working capital matters arising from the sale of HD Supply. We reported Earnings from Continuing Operations of $2.6 billion and Diluted Earnings per Share from Continuing Operations of $1.55 for fiscal 2009 compared to Earnings from Continuing Operations of $2.3 billion and Diluted Earnings per Share from Continuing Operations of $1.37 for fiscal 2008. Excluding the Rationalization Charges and the write-downs of our investment in HD Supply, Earnings from Continuing Operations were $2.8 billion and Diluted Earnings per Share from Continuing Operations were $1.66 for fiscal 2009 compared to Earnings from Continuing Operations of $3.0 billion and Diluted Earnings per Share from Continuing Operations of $1.78 for fiscal 2008. Net Sales decreased 7.2% to $66.2 billion for fiscal 2009 from $71.3 billion for fiscal 2008. The slowdown in the global economy and weakness in the U.S. residential construction, housing and home improvement markets negatively impacted our Net Sales for fiscal 2009. Our comparable store sales declined 6.6% in fiscal 2009 driven by a 6.3% decline in our comparable store average ticket to $51.65, as well as a 0.3% decline in comparable store customer transactions. Comparable store sales for our U.S. stores declined 6.2% in fiscal 2009. In fiscal 2009, we continued to focus on our core retail business, investing in our associates and stores and improving our customer service. The roll-out of our Customers FIRST training to all store associates and support staff in the first quarter of fiscal 2009 has brought simplification and focus across the business, and we are seeing the benefit of this in improved customer service ratings for fiscal 2009. We also made significant progress on our merchandising tools in the U.S. that helped us to better manage markdown and clearance activity and to better control inventory. At the end of fiscal 2009, our inventory had decreased by $485 million, or 4.5%, from fiscal 2008. Additionally, our average inventory per store decreased by 3.3% at the end of fiscal 2009 compared to last year. We continued our supply chain transformation to improve product availability. At the end of fiscal 2009, we had 12 Rapid Deployment Centers (\"RDCs\") operating that serve approximately 65% of our U.S. stores. We remain committed to our overall RDC roll-out strategy, supporting our goal of increasing our central distribution penetration. Our supply chain transformation also includes restructuring our stocking distribution centers. We opened 13 new stores in fiscal 2009, closed two stores in China and closed 41 stores related to our Exited Businesses, bringing our total store count at the end of fiscal 2009 to 2,244. As of the end of fiscal 2009, a total of 268 stores, or approximately 12%, were located in Canada, Mexico and China compared to 262 stores, or approximately 12%, as of fiscal 2008. 16 We generated $5.1 billion of cash flow from operations in fiscal 2009. We used a portion of this cash flow to repay $1.8 billion of Long-Term Debt, pay $1.5 billion of dividends, fund $966 million in capital expenditures and fund $213 million of share repurchases. At the end of fiscal 2009, our long-term debt-to-equity ratio was 44.7% compared to 54.4% at the end of fiscal 2008. Our return on invested capital for continuing operations (computed on net operating profit after tax for the trailing twelve months and the average of beginning and ending long-term debt and equity) was 10.7% at the end of fiscal 2009 compared to 9.5% for fiscal 2008. Excluding Rationalization Charges, our return on invested capital for continuing operations was 11.1% for fiscal 2009 compared to 11.4% for fiscal 2008. 17 We believe the selected sales data, the percentage relationship between Net Sales and major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations. % Increase (Decrease) In Dollar Amounts % of Net Sales Fiscal Year(1) 2009 NET SALES Gross Profit Operating Expenses: Selling, General and Administrative Depreciation and Amortization 2008 2009 vs. 2008 100.0% 33.6 24.0 2.6 25.0 2.5 22.1 2.2 (10.9) (4.4) 4.7 4.9 Total Operating Expenses 26.6 27.5 24.3 (10.3) 4.7 OPERATING INCOME Interest and Other (Income) Expense: Interest and Investment Income Interest Expense Other 7.3 6.1 9.4 10.2 (39.8) 1.0 0.2 0.9 0.2 (0.1) 0.9 0.0 8.3 0.0 (75.7) (10.3) 0.0 1.2 1.1 0.8 6.8 23.6 Provision for Income Taxes 6.0 2.1 5.0 1.8 8.6 3.1 10.9 6.6 (45.8) (47.0) EARNINGS FROM CONTINUING OPERATIONS 4.0% 3.2% 5.4% 13.3% (45.1)% 0.2% (6.9) (4.8)% (3.3) EARNINGS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES SELECTED SALES DATA Number of Customer Transactions (in millions)(2) Average Ticket(2) Weighted Average Weekly Sales per Operating Store (in thousands) (2) Weighted Average Sales per Square Foot(2) Comparable Store Sales Decrease (%)(3) 1,274 $ 51.76 1,272 $ 55.61 1,336 $ 57.48 $ 563 $ 601 $ 658 $278.97 $298.19 $331.86 (6.6)% (8.7)% (6.7)% (7.2)% (6.6) 2008 vs. 2007 100.0% 33.7 Interest and Other, net 100.0% 33.9 2007 (6.3) (6.4) N/A (7.8)% (7.7) (8.7) (10.1) N/A Note: Certain percentages may not sum to totals due to rounding. (1) Fiscal years 2009, 2008 and 2007 refer to the fiscal years ended January 31, 2010, February 1, 2009 and February 3, 2008, respectively. Fiscal years 2009 and 2008 include 52 weeks; fiscal year 2007 includes 53 weeks. (2) The 53rd week of fiscal 2007 increased customer transactions by 20 million, negatively impacted average ticket by $0.05, negatively impacted weighted average weekly sales per operating store by $3 thousand and increased weighted average sales per square foot by $4.77. (3) Includes Net Sales at locations open greater than 12 months, including relocated and remodeled stores. Retail stores become comparable on the Monday following their 365th day of operation. Comparable store sales is intended only as supplemental information and is not a substitute for Net Sales or Net Earnings presented in accordance with generally accepted accounting principles. 18 Results of Operations For an understanding of the significant factors that influenced our performance during the past three fiscal years, the following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this report. Fiscal 2009 Compared to Fiscal 2008 Net Sales Net Sales for fiscal 2009 decreased 7.2% to $66.2 billion from $71.3 billion for fiscal 2008. The decrease in Net Sales for fiscal 2009 reflects the impact of negative comparable store sales as well as the net impact of fewer open stores in fiscal 2009 versus fiscal 2008. Total comparable store sales decreased 6.6% for fiscal 2009 compared to a decrease of 8.7% for fiscal 2008. There were a number of factors that contributed to our comparable store sales decline. The U.S. residential construction, housing and home improvement markets continued to be soft, and consumers were challenged due to a number of factors including higher unemployment. We saw relative strength in our Building Materials, Flooring, Paint, Plumbing and Garden/Seasonal product categories as comparable store sales in these areas were above the Company average for fiscal 2009. Comparable store sales for our Lumber, Hardware, Electrical, Kitchen/Bath and Millwork product categories were below the Company average for fiscal 2009. In fiscal 2009, we also saw significant strengthening of the U.S. dollar against all currencies. Fluctuating exchange rates negatively impacted our total Company sales by approximately $565 million for fiscal 2009 compared to last year. We believe that our sales performance has been, and could continue to be, negatively impacted by the level of competition that we encounter in various markets. We estimate our share of the U.S. home improvement market is approximately 21%. Gross Profit Gross Profit decreased 6.6% to $22.4 billion for fiscal 2009 from $24.0 billion for fiscal 2008. Gross Profit as a percent of Net Sales was 33.9% for fiscal 2009 compared to 33.7% for fiscal 2008, an increase of 22 basis points. Through our focused bay portfolio approach, our U.S. merchants continued to introduce new lower prices while growing overall gross margin. Additionally, gross margin expansion for fiscal 2009 was driven by lower markdowns as compared to last year. Operating Expenses Selling, General and Administrative expenses (\"SG&A\") decreased 10.9% to $15.9 billion for fiscal 2009 from $17.8 billion for fiscal 2008. As a percent of Net Sales, SG&A was 24.0% for fiscal 2009 compared to 25.0% for fiscal 2008. Excluding the Rationalization Charges, SG&A as a percent of Net Sales was 23.9% for fiscal 2009 compared to 23.7% for fiscal 2008. Our SG&A results for fiscal 2009 reflect the impact of a negative comparable store sales environment, offset by a lower cost of credit associated with the private label credit card program and solid expense control. For fiscal 2009, the penetration of the private label credit card sales was 25.1% compared to 28.1% for fiscal 2008. Depreciation and Amortization decreased 4.4% to $1.7 billion for fiscal 2009 from $1.8 billion for fiscal 2008. Depreciation and Amortization as a percent of Net Sales was 2.6% for fiscal 2009 and 2.5% for fiscal 2008. The increase in Depreciation and Amortization as a percent of Net Sales was primarily due to lower sales. Operating Income Operating Income increased 10.2% to $4.8 billion for fiscal 2009 from $4.4 billion for fiscal 2008. Operating Income as a percent of Net Sales was 7.3% for fiscal 2009 compared to 6.1% for fiscal 2008. Excluding the 19 Rationalization Charges, Operating Income as a percent of Net Sales was 7.5% for fiscal 2009 compared to 7.4% for fiscal 2008. Interest and Other, net In fiscal 2009, we recognized $821 million of Interest and Other, net, compared to $769 million in fiscal 2008. Interest and Other, net, as a percent of Net Sales was 1.2% for fiscal 2009 compared to 1.1% for fiscal 2008. Interest and Other, net, reflects a $163 million charge in each of fiscal 2009 and 2008 to write-down our investment in HD Supply. Excluding these charges, Interest and Other, net, as a percent of Net Sales was 1.0% for fiscal 2009 compared to 0.9% for fiscal 2008. The increase in Interest and Other, net, as a percent of Net Sales was primarily due to lower sales. Provision for Income Taxes Our combined effective income tax rate for continuing operations decreased to 34.2% for fiscal 2009 from 35.6% for fiscal 2008. The decrease in our effective income tax rate for fiscal 2009 reflects benefits arising from a favorable foreign tax settlement and realignment of our foreign corporate structure. These benefits positively impacted Diluted Earnings per Share by approximately $0.06 for fiscal 2009. Diluted Earnings per Share from Continuing Operations Diluted Earnings per Share from Continuing Operations were $1.55 for fiscal 2009 and $1.37 for fiscal 2008. Excluding the