Home Depot 2015 Annual Report Download - page 21

Table of Contents
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Board of Directors and executive officers. We were also named as a nominal defendant in both suits, which together assert
claims for breaches of fiduciary duty, waste of corporate assets and violations of the Securities Exchange Act of 1934. In the
first quarter of fiscal 2016, the two actions were consolidated into a single derivative complaint. The complaint seeks
unspecified damages, equitable relief to reform our corporate governance structure, restitution, disgorgement of profits,
benefits and other compensation obtained by the defendants, and reasonable costs and expenses. In addition, several state and
federal agencies, including State Attorneys General, are investigating events related to the Data Breach, including how it
occurred, its consequences and our responses. We are cooperating in the governmental investigations, and we may be subject
to fines or other obligations. While a loss from these matters, including the Canadian class actions and the U.S. financial
institution class actions, is reasonably possible, we are not able to estimate the costs, or range of costs, related to these
matters because the proceedings remain in the early stages, alleged damages have not been specified, there is uncertainty as
to the likelihood of a class or classes being certified or the ultimate size of any class if certified, and there are significant
factual and legal issues to be resolved. We have not concluded that a loss from these matters is probable; therefore, we have
not recorded an accrual for litigation, claims and governmental investigations related to these matters in fiscal 2015. We will
continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is
both probable that a loss has been incurred and the amount of the loss is reasonably estimable. We believe that the ultimate
amount paid on these actions, claims and investigations could have an adverse effect on our consolidated financial condition,
results of operations or cash flows in future periods.
Expenses Incurred and Amounts Accrued
In fiscal 2015, we recorded $198 million of pretax gross expenses related to the Data Breach, partially offset by $70 million
of expected insurance proceeds, for pretax net expenses of $128 million. Since the Data Breach occurred, we have recorded
$261 million of pretax gross expenses related to the Data Breach, partially offset by $100 million of expected insurance
proceeds, for pretax net expenses of $161 million. These expenses include costs to investigate the Data Breach; provide
identity protection services, including credit monitoring, to impacted customers; increase call center staffing; and pay legal
and other professional services, all of which were expensed as incurred. Expenses also include the accruals for estimated
probable losses that we have incurred or expect to incur in connection with the claims made by the payment card networks
and the U.S. customer class actions. These expenses are included in Selling, General and Administrative expenses ("SG&A")
in the accompanying Consolidated Statements of Earnings.
Future Costs
We expect to incur additional legal and other professional services expenses associated with the Data Breach in future periods
and will recognize these expenses as services are received. Costs related to the Data Breach that may be incurred in future
periods may include additional liabilities to payment card networks and impacted customers; liabilities from current and
future civil litigation, governmental investigations and enforcement proceedings; future expenses for legal, investigative and
consulting fees; and incremental expenses and capital investments for remediation activities. We believe that the ultimate
amount paid on these services and claims could have an adverse effect on our consolidated financial condition, results of
operations or cash flows in future periods.
Insurance Coverage
We maintained $100 million of network security and privacy liability insurance coverage in fiscal 2014, above a $7.5 million
deductible, to limit our exposure to losses such as those related to the Data Breach. As of January 31, 2016, we had received
initial payments totaling $30 million of insurance reimbursements under the fiscal 2014 policy, and expect to receive
additional payments. We maintained $100 million of network security and privacy liability insurance coverage in fiscal 2015,
above a $10 million deductible, to limit our exposure to similar losses. In the first quarter of fiscal 2016, we entered into a
new policy, with $100 million of network security and privacy liability insurance coverage, above a $10 million deductible,
to limit our exposure to similar losses.
Key Initiatives
In fiscal 2015, we continued to focus on the following key initiatives:
Customer Experience – Our customer experience initiative is anchored on the principles of putting customers first and taking
care of our associates. Our commitment to customer service remains strong, and in fiscal 2015, we re-trained our store
associates on our Customer FIRST program. We have also taken a number of steps to enhance this initiative to provide our
customers with a seamless and frictionless shopping experience in our stores, online, on the job site or in their homes. For
example, in fiscal 2015 we utilized our second generation FIRST phones, our web-enabled handheld devices, to enhance
customer service in our stores by allowing our associates to convert online sales in the aisle and expedite the checkout
process for customers during peak traffic periods.