Home Depot 2015 Annual Report Download - page 58

Table of Contents
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members of the Company’s Board of Directors and executive officers. The Company was 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 the Company’s 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 the Company’s responses. The Company is
cooperating in the governmental investigations, and the Company 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, the Company is 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. The Company has not concluded that a loss from these matters is probable; therefore, the Company has not
recorded an accrual for litigation, claims and governmental investigations related to these matters in fiscal 2015. The
Company 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. The Company
believes that the ultimate amount paid on these actions, claims and investigations could have an adverse effect on the
Company’s consolidated financial condition, results of operations or cash flows in future periods.
Expenses Incurred and Amounts Accrued
In fiscal 2015, the Company 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, the
Company has 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 the Company has incurred or expects 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 SG&A expenses in the
accompanying Consolidated Statements of Earnings.
At January 31, 2016, accrued liabilities and insurance receivable related to the Data Breach consisted of the following
(amounts in millions):
Accrued
Liabilities Insurance Receivable
(Expenses incurred) insurance receivable recorded in fiscal 2014 $ (63) $ 30
Payments made (received) in fiscal 2014 51 (10)
Balance at February 1, 2015 (12) 20
(Expenses incurred) insurance receivable recorded in fiscal 2015 (198) 70
Payments made (received) in fiscal 2015 176 (20)
Balance at January 31, 2016 $(34) $ 70
Future Costs
The Company expects 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. The Company
believes that the ultimate amount paid on these services and claims could have an adverse effect on the Company’s
consolidated financial condition, results of operations or cash flows in future periods.