HDHome Depot

Our financial performance depends significantly on the stability of the housing and home improvement markets, as well as general economic conditions, including changes in gross domestic product. Adverse conditions in or uncertainty about these markets, the economy, or the political or social climate could adversely impact, and we believe in some cases has adversely impacted, our customers’ confidence or financial condition, causing them to decide against purchasing home improvement products and services, causing them to delay purchasing decisions, or impacting their ability to pay for products and services. Other factors beyond our control – including unemployment and foreclosure rates; inventory loss due to theft (including as a result of organized retail crime); inflation or deflation; interest rate fluctuations, including central banks’ actions to control inflation; fuel and other energy costs; raw material or other shortages; labor and healthcare costs; the availability of financing; the state of the credit markets, including mortgages, home equity loans and consumer credit; changes in policy and regulations, including with respect to tax rates; prolonged government shutdowns; weather and natural disasters (including the potential impacts of climate change); acts of terrorism or violence, including active shooter situations; public health issues, including pandemics and related impacts; geopolitical or military conflicts or acts of war, as well as any related sanctions or other government or private responses; and civil unrest, could further adversely affect, and in certain cases has adversely affected, demand for our products and services, our costs of doing business, and our financial performance. For instance, a number of merchandise categories were impacted by inflation in recent years due to, among other things, global supply chain disruptions and the uncertain economic and geopolitical environment. In an effort to address inflation, central banks raised interest rates. Notwithstanding recent rate cuts, the high interest rate environment that persisted throughout fiscal 2024 has adversely impacted and may continue to adversely impact demand for larger remodeling projects. Additionally, the inflationary outlook in the U.S. is currently uncertain, and persistent or increasing inflation could lead to a reversal of recent reductions in interest rates.

On March 27, 2024, June 29, 2025, we entered into a definitive agreement to acquire SRS, GMS, a leading residential distributor of specialty trade distribution company building products, including drywall, ceilings, steel framing and other complementary construction products, through branches located across several verticals serving the professional roofer, landscaper U.S. and pool contractor. On June 18, 2024, following Canada. Under the satisfaction or waiver terms of the applicable closing conditions, merger agreement, we, through a wholly owned subsidiary, made a cash tender offer to purchase all outstanding shares of GMS common stock for $110 per share. All conditions of the offer were satisfied, including receipt of the requisite regulatory approvals, and the acquisition merger was completed on September 4, 2025. As a result of the merger, GMS became a direct subsidiary of SRS and all merger consideration was transferred. an indirect, wholly owned subsidiary of the Company. We believe the GMS acquisition of SRS will accelerate the Company’s growth with the Pro. The acquisition is expected to establish the Company enhance SRS's position as a leading specialty trade distributor across multiple verticals, complement our multi-category building materials distributor, bringing differentiated capabilities, product categories and customer relationships that are highly complementary to SRS's existing capabilities, and enable us to better serve complex project purchase occasions with the renovator/remodeler. business. Refer to Note 2 and Note 13 to our consolidated financial statements for further discussion of on the impact of the acquisition on our consolidated financial statements. acquisition.

As previously reported, in April 2021 we entered into a civil consent decree with the U.S. Department of Justice, the EPA, and the states of Utah, Massachusetts, and Rhode Island. The decree required certain changes to lead-safe work practices in our installation services business and provided for stipulated penalties for failure to perform by third-party installers. In the first second quarter of fiscal 2023, 2025, we made the EPA informed us that it believes we owe certain final payment of stipulated penalties for violations by third-party installers of documentation requirements owed under the decree. We are engaged decree, and in discussions with the EPA regarding fourth quarter of fiscal 2025 the basis for the stipulated penalties we allegedly owe under the decree. While we cannot predict the decree was formally terminated. The aggregate amount of stipulated penalties we may ultimately owe paid to the EPA under the decree, decree totaled approximately $1.7 million, and we do not expect it to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Further, we expect to recoup any amount we ultimately owe collected fines from corresponding fines we levy against our third-party installers. installers for this amount.

ASU No. 2023-07. 2025-06. In November 2023, September 2025, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to Reportable Segment Disclosures,” the Accounting for Internal-Use Software,” which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure requirements included in modernize internal-use software guidance by removing all references to project stages and by clarifying the thresholds entities apply to begin capitalizing costs. ASU No. 2023-07 are required for all public entities, including entities with a single reportable segment. ASU No. 2023-07 2025-06 is effective for fiscal years beginning after December 15, 2023, 2027, and interim periods within fiscal years beginning after December 15, 2024, and early those annual reporting periods. Early adoption is permitted. The guidance is required to can be applied on a prospective basis, a modified basis for in-process projects, or a retrospective basis. We adopted ASU No. 2023-07 in are currently evaluating the fourth quarter impact of fiscal 2024. The adoption of this guidance resulted in additional financial statement disclosures and had no impact to the standard on our consolidated financial condition, results of operations, or cash flows. See Note 2 which includes the disclosures resulting from our adoption of this guidance. statements.