Stock-based Compensation

12 Months Ended

Feb. 02, 2020

Share-based Payment Arrangement [Abstract]

Stock-based Compensation

STOCK-BASED COMPENSATION

Omnibus Stock Incentive Plans

The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan (the “2005 Plan”) and The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan (the “1997 Plan” and collectively with the 2005 Plan, the “Plans”) provide that incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred shares, and other stock-based awards may be issued to certain of our associates and non-employee directors. Under the 2005 Plan, the maximum number of shares of our common stock authorized for issuance is 255 million shares, with any award other than a stock option or stock appreciation right reducing the number of shares available for issuance by 2.11 shares. At February 2, 2020, there were approximately 123 million shares available for future grants under the 2005 Plan. No additional equity awards could be issued from the 1997 Plan after the adoption of the 2005 Plan on May 26, 2005.

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

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

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

	Fiscal			Fiscal			Fiscal
	2019			2018			2017
Per share weighted average fair value	$	27.33		$	32.28		$	21.85
Risk-free interest rate	2.2		%	2.7		%	1.9		%
Assumed volatility	19.8		%	21.3		%	19.4		%
Assumed dividend yield	2.9		%	2.3		%	2.4		%
Assumed lives of options	5 years			5 years			5 years

The total intrinsic value of stock options exercised follow:

in millions	Fiscal		Fiscal		Fiscal
	2019		2018		2017
Total intrinsic value of stock options exercised	$	241	$	138	$	223

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

shares in thousands	Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of year	6,380		$	91.78
Granted	519		190.66
Exercised	(1,649	)	58.65
Forfeited	(38	)	170.25
Outstanding at end of year	5,212		111.54

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

Details regarding outstanding and exercisable stock options at February 2, 2020 follow:

shares in thousands, dollars in millions, except for per share amounts	Number of Shares	Intrinsic Value		Weighted Average Remaining Life	Weighted Average Exercise Price
Outstanding	5,212	$	607	5 years	$	111.54
Exercisable	3,260	470		4 years	84.06

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

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

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

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

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

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

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

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

Deferred shares granted to non-employee directors follow:

	Fiscal	Fiscal	Fiscal
	2019	2018	2017
Deferred shares granted to non-employee directors	22,000	26,000	27,000

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

shares in thousands	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at beginning of year	4,242		$	150.51
Granted	1,652		186.56
Vested	(1,597	)	134.28
Forfeited	(322	)	168.09
Nonvested at end of year	3,975		170.58

Stock-based compensation expense, net of estimated forfeitures follows:

in millions	Fiscal		Fiscal		Fiscal
	2019		2018		2017
Stock-based compensation expense, net	$	251	$	282	$	273

At February 2, 2020, there was $379 million of unamortized stock-based compensation expense, which is expected to be recognized over a weighted average period of two years.

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

in millions	Fiscal		Fiscal		Fiscal
	2019		2018		2017
Total fair value vested	$	303	$	367	$	309

Employee Stock Purchase Plans

We maintain two ESPPs (a U.S. and a non-U.S. plan). The plan for U.S. associates is a tax-qualified plan under Section 423 of the Internal Revenue Code. The non-U.S. plan is not a Section 423 plan. At February 2, 2020, there were 18 million shares available under the U.S. plan and 19 million shares available under the non-U.S. plan. The purchase price of shares under the ESPPs is equal to 85% of the stock’s fair market value on the last day of the purchase period, which is a six-month period ending on December 31 and June 30 of each year. During fiscal 2019, there were 1 million shares purchased under the ESPPs at an average price of $180.87. Under the outstanding

ESPPs at February 2, 2020, associates have contributed $23 million to purchase shares at 85% of the stock’s fair market value on the last day of the current purchase period, June 30, 2020.