FORWARD-LOOKING STATEMENTS
Certain statements contained herein 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, inventory and in-stock positions, commodity price inflation and deflation, implementation of store and supply chain initiatives, continuation of share repurchase programs, net earnings performance, earnings per share, capital allocation and expenditures, liquidity, return on invested capital, management of relationships with our suppliers and vendors, stock-based compensation expense, the effect of accounting charges, the effect of adopting certain accounting standards, the ability to issue debt on terms and at rates acceptable to us, store openings and closures, expense leverage and financial outlook.
Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You should not rely on our forward-looking 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" and elsewhere in our Annual Report on Form 10-K for the fiscal year ended January 29, 2012 as filed with the Securities and Exchange Commission ("SEC") on March 22, 2012 ("Form 10-K") and in Item 1A of Part II and elsewhere in this report. You should read such information in conjunction with our Consolidated Financial Statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this report. 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. Such factors could cause results to differ materially from our expectations.
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 SEC.
EXECUTIVE SUMMARY AND SELECTED CONSOLIDATED STATEMENTS OF EARNINGS DATA For the third quarter of fiscal 2012, we reported Net Earnings of $947 million and Diluted Earnings per Share of $0.63 compared to Net Earnings of $934 million and Diluted Earnings per Share of $0.60 for the third quarter of fiscal 2011. For the first nine months of fiscal 2012, we reported Net Earnings of $3.5 billion and Diluted Earnings per Share of $2.32 compared to Net Earnings of $3.1 billion and Diluted Earnings per Share of $1.97 for the first nine months for fiscal 2011.
The results for the third quarter and first nine months of fiscal 2012 included a total charge of $165 million, net of tax, related to the closing of our remaining seven big box stores in China ("China store closings") in the third quarter of fiscal 2012, which had a negative impact of $0.11 to Diluted Earnings per Share. The results for the first nine months of fiscal 2012 also included a $67 million pretax benefit related to the termination of our guarantee of a senior secured loan of HD Supply, Inc. ("HD Supply Guarantee") in the first quarter of fiscal 2012, which had a positive impact of $0.03 to Diluted Earnings per Share. Excluding the charges related to the China store closings, Net Earnings were $1.1 billion and Diluted Earnings per Share were $0.74 for the third quarter of fiscal 2012. Excluding the HD Supply Guarantee and the charges related to the China store closings, Net Earnings were $3.6 billion and Diluted Earnings per Share were $2.40 for the first nine months of fiscal 2012. Net Sales increased 4.6% to $18.1 billion for the third quarter of fiscal 2012 from $17.3 billion for the third quarter of fiscal 2011. For the first nine months of fiscal 2012, Net Sales increased 3.9% to $56.5 billion from $54.4 billion for the first nine months of fiscal 2011. Our comparable store sales increased 4.2% in the third quarter of fiscal 2012, driven by a 2.9% increase in our comparable store average ticket and an increase in our comparable store customer transactions. Comparable store sales for our U.S. stores increased 4.3% in the third quarter of fiscal 2012.
In the third quarter and first nine months of fiscal 2012, we continued to focus on the following four key initiatives:
Customer Service - Our focus on customer service is anchored on the principles of creating an emotional connection with customers, putting customers first and simplifying the business. In the third quarter of fiscal 2012, we opened new customer call centers in Utah and Georgia to support our interconnected business. Through this and other efforts, we have improved our customer satisfaction surveys such that our net promoter score is consistently over 70%. Product Authority - Our focus on product authority is facilitated by our merchandising transformation and portfolio strategy, which is aimed at delivering innovation, assortment and value. As part of this effort, we are introducing innovative new

products and great values for both our professional and do-it-yourself customers in a variety of departments, including the Moen Haysfield MotionSense faucet in Plumbing and Kidde's Worry-Free smoke alarms in Electrical. Also in the third quarter of fiscal 2012, we began the rollout of a 120-store pilot to expand some of our appliance showrooms to include the Electrolux, Whirlpool and Frigidare brands and plan to complete the rollout during the fourth quarter of fiscal 2012. These brands were also added to our e-commerce platform in the third quarter of fiscal 2012.
Disciplined Capital Allocation, Productivity and Efficiency - Our approach to driving productivity and efficiency is advanced through continuous operational improvement, incremental supply chain benefits and building shareholder value through higher returns on invested capital and total value returned to shareholders in the form of dividends and share repurchases. In the third quarter of fiscal 2012, we completed the mechanization of all of our rapid deployment centers, which we expect to further improve the cost effectiveness of this platform. Our inventory turnover ratio was 4.6 times at the end of the third quarter of fiscal 2012 compared to 4.3 times at the end of the third quarter of fiscal 2011.
During the third quarter of fiscal 2012, we settled a $1.4 billion Accelerated Share Repurchase ("ASR") agreement that was entered into in the second quarter of fiscal 2012. We received a total of approximately 27 million shares under the $1.4 billion ASR agreement in the first nine months of fiscal 2012, including approximately 5 million shares received upon settlement of the agreement in the third quarter of fiscal 2012. Also during the third quarter of fiscal 2012, we entered into a $650 million ASR agreement. We received an initial delivery of approximately 9 million shares of our common stock in the third quarter of fiscal 2012 under the $650 million ASR agreement. During the first nine months of fiscal 2012, we also received approximately 20 million shares of our common stock through our $1.0 billion ASR agreement settled in the second quarter of fiscal 2012 and approximately 5 million additional shares of our common stock through open market purchases.
Interconnected Retail - Our focus on interconnected retail is based on building a competitive platform across all commerce channels. During the third quarter of fiscal 2012, we launched improvements to our website, including MyInstall, which is designed to improve transparency and communication in installation projects and to simplify the customer experience. We also made several enhancements to our professional customer website, including a bulk pricing program that mirrors our in-store bulk pricing program.
In October 2012, we completed the acquisition of U.S. Home Systems, Inc. ("USHS"). USHS is an exclusive provider of kitchen and bath refacing products and services as well as closet and garage organizational systems to The Home Depot. This acquisition will allow us to create more effective interconnection between our stores and the USHS in-home selling platform, similar to what we have done with our roofing, siding and windows businesses. We opened three new stores, including two new stores in Mexico and one relocation in the U.S., and closed seven stores in China during the third quarter of fiscal 2012, for a total store count of 2,250 at the end of the quarter. As of the end of the third quarter of both fiscal 2012 and 2011, a total of 274 of our stores, or 12.2%, were located in Canada, Mexico and China. We generated $5.4 billion of cash flow from operations in the first nine months of fiscal 2012. We used this cash flow to fund $3.3 billion of share repurchases, pay $1.3 billion of dividends and fund $887 million in capital expenditures.
At the end of the third quarter of fiscal 2012, our long-term debt-to-equity ratio increased to 60.8% from 60.4% at the end of the third quarter of fiscal 2011. Our return on invested capital (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 16.1% for the third quarter of fiscal 2012 compared to 14.1% for the third quarter of fiscal 2011.

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.

                                                                % of Net Sales                                      % Increase (Decrease)
                                             Three Months Ended                      Nine Months Ended                in Dollar Amounts
                                                                               October 28,      October 30,
                                   October 28, 2012      October 30, 2011          2012             2011        Three Months     Nine Months
NET SALES                                  100.0  %              100.0  %           100.0  %         100.0  %        4.6  %            3.9  %
GROSS PROFIT                                34.6                  34.4               34.5             34.3           5.1               4.3
Operating Expenses:
Selling, General and
Administrative                              22.8                  22.8               21.8             22.3           4.6               1.2
Depreciation and Amortization                2.2                   2.3                2.1              2.2           1.3              (1.2 )
Total Operating Expenses                    25.0                  25.1               23.8             24.5           4.3               0.9

OPERATING INCOME                             9.6                   9.3               10.6              9.8           7.3              12.8
Interest and Other (Income)
Expense:
Interest and Investment Income                 -                     -                  -                -          25.0              55.6
Interest Expense                             0.9                   0.9                0.8              0.8          (4.3 )             3.1
Other                                          -                     -               (0.1 )              -           N/A               N/A
Interest and Other, net                      0.8                   0.9                0.7              0.8          (5.1 )           (13.1 )

EARNINGS BEFORE PROVISION FOR
INCOME TAXES                                 8.7                   8.4               10.0              9.0           8.6              15.2
Provision for Income Taxes                   3.5                   3.0                3.7              3.3          21.6              19.0
NET EARNINGS                                 5.2  %                5.4  %             6.2  %           5.7  %        1.4  %           13.0  %
SELECTED SALES DATA
Number of Customer Transactions
(in millions)                              331.0                 325.3            1,034.8          1,014.5           1.7  %            2.0  %
Average Ticket                    $        54.55        $        53.03        $     54.71      $     53.50           2.9  %            2.3  %
Weighted Average Weekly Sales Per
Operating Store (in thousands)    $          616        $          590        $       644      $       620           4.4  %            3.9  %
Weighted Average Sales per Square
Foot                              $       306.62        $       293.26        $    320.55      $    308.17           4.6  %            4.0  %
Comparable Store Sales Increase              4.2  %                4.2  %             3.9  %           2.7  %
(%)(1)                                                                                                               N/A               N/A

Note: Certain percentages may not sum to totals due to rounding.
(1) Includes Net Sales at locations open greater than 12 months, including relocated and remodeled stores and excluding closed 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.

N/A - Not Applicable

RESULTS OF OPERATIONS
Net Sales for the third quarter of fiscal 2012 increased 4.6% to $18.1 billion from $17.3 billion for the third quarter of fiscal 2011. For the first nine months of fiscal 2012, Net Sales increased 3.9% to $56.5 billion from $54.4 billion for the comparable period of fiscal 2011. The increase in Net Sales for the third quarter and first nine months of fiscal 2012 reflects the impact of positive comparable store sales. Total comparable store sales increased 4.2% for the third quarter of both fiscal 2012 and 2011. For the first nine months of fiscal 2012, total comparable store sales increased 3.9% compared to an increase of 2.7% for the same period of fiscal 2011.
The positive comparable store sales for the third quarter and first nine months of fiscal 2012 reflect a number of factors. All of our departments except for one posted positive comparable store sales for the third quarter and first nine months of fiscal 2012, and comparable store average ticket increased 2.9% and 2.2% for the third quarter and first nine months of fiscal 2012, respectively. Comparable store sales for our Lumber, Décor, Paint, Kitchen, Outdoor Garden, Bath, Lighting, Electrical, Indoor Garden, Hardware and Flooring product categories were above the Company average for the third quarter of fiscal 2012. Comparable store sales for our Plumbing, Tools and Millwork product categories were positive for the third quarter of fiscal 2012. Comparable store sales for our Building Materials product category were negative for the third quarter of 2012, reflecting the impact of weather and difficult year-over-year comparisons in roofing due to storm and repair activity that drove sales in the third quarter of fiscal 2011.
Gross Profit increased 5.1% to $6.3 billion for the third quarter of fiscal 2012 from $6.0 billion for the third quarter of fiscal 2011. Gross Profit increased 4.3% to $19.5 billion for the first nine months of fiscal 2012 from $18.7 billion for the first nine months of fiscal 2011. Gross Profit for the third quarter and first nine months of fiscal 2012 included a $10 million charge related to the China store closings. Gross Profit as a percent of Net Sales was 34.6% for the third quarter of fiscal 2012 compared to 34.4% for the third quarter of fiscal 2011. Excluding the charge related to the China store closings, gross profit margin increased 22 basis points for the third quarter of fiscal 2012 driven primarily by lower shrink and our supply chain transformation in the U.S. For the first nine months of fiscal 2012, Gross Profit as a percent of Net Sales was 34.5% compared to 34.3% for the comparable period of fiscal 2011. The increase in gross profit margin for the first nine months of fiscal 2012 was driven primarily by a change in mix of products sold and our supply chain transformation in the U.S.
Selling, General and Administrative expenses ("SG&A") increased 4.6% to $4.1 billion for the third quarter of fiscal 2012 from $4.0 billion for the third quarter of fiscal 2011, and increased 1.2% to $12.3 billion for the first nine months of fiscal 2012 from $12.2 billion for the first nine months of fiscal 2011. SG&A for the third quarter and first nine months of fiscal 2012 included a $155 million charge related to the China store closings. As a percent of Net Sales, SG&A was 22.8% for the third quarter of both fiscal 2012 and 2011. Excluding the charge related to the China store closings, SG&A as a percent of Net Sales was 22.0% for the third quarter of fiscal 2012. For the first nine months of fiscal 2012, SG&A as a percent of Net Sales was 21.8% compared to 22.3% for the same period last year. Excluding the charge related to the China store closings, SG&A as a percent of Net Sales was 21.5% for the first nine months of fiscal 2012. SG&A as a percent of Net Sales for the third quarter and first nine months of fiscal 2012 reflects expense leverage resulting from the positive comparable store sales environment and lower credit card and natural disaster expense offset by the charge related to the China store closings. Depreciation and Amortization increased 1.3% to $395 million for the third quarter of fiscal 2012 from $390 million for the third quarter of fiscal 2011. Depreciation and Amortization was $1.2 billion for the first nine months of both fiscal 2012 and 2011. Depreciation and Amortization as a percent of Net Sales was 2.2% for the third quarter of fiscal 2012 compared to 2.3% for the third quarter of fiscal 2011, and was 2.1% for the first nine months of fiscal 2012 compared to 2.2% for the first nine months of fiscal 2011. The decrease in Depreciation and Amortization as a percent of Net Sales for the third quarter and first nine months of fiscal 2012 reflects expense leverage in the positive comparable store sales environment and an increase in fully depreciated assets that are still utilized in the business.
Operating Income increased 7.3% to $1.7 billion for the third quarter of fiscal 2012 from $1.6 billion for the third quarter of fiscal 2011. Operating Income increased 12.8% to $6.0 billion for the first nine months of fiscal 2012 from $5.3 billion for the first nine months of fiscal 2011. Excluding the charges related to the China store closings, Operating Income increased 17.5% to $1.9 billion for the third quarter of fiscal 2012 and increased 15.9% to $6.2 billion for the first nine months of fiscal 2012.
For the third quarter of fiscal 2012, we recognized $150 million of Interest and Other, net, compared to $158 million for the third quarter of fiscal 2011. We recognized $385 million of Interest and Other, net, for the first nine months of fiscal 2012 compared to $443 million for the same period last year. Interest and Other, net, as a percent of Net Sales was 0.8% for the third quarter of fiscal 2012 compared to 0.9% for third quarter of fiscal 2011. For the first nine months of fiscal 2012, Interest and Other, net, as a percent of Net Sales was 0.7% compared to 0.8% for the same period last year. Interest and Other, net, for the first nine months of fiscal 2012 included a $67 million pretax benefit related to the termination of our HD Supply Guarantee.

Excluding this benefit, Interest and Other, net, as a percent of Net Sales was 0.8% for the first nine months of fiscal 2012, flat compared to the first nine months of fiscal 2011.
Our combined effective income tax rate was 37.6% for the first nine months of fiscal 2012 compared to 36.4% for the first nine months of fiscal 2011. The effective income tax rate for the first nine months of fiscal 2012 was higher than the same period of fiscal 2011 as we were unable to realize any tax benefit from the $165 million of charges related to the China store closings. Excluding the charges related to the China store closings, our combined effective income tax rate was 36.5% for the first nine months of fiscal 2012.

Diluted Earnings per Share were $0.63 and $2.32 for the third quarter and first nine months of fiscal 2012, respectively, compared to $0.60 and $1.97 for the third quarter and first nine months of fiscal 2011, respectively. Excluding the charges related to the China store closings and the benefit from the HD Supply Guarantee, Diluted Earnings per Share were $0.74 and $2.40 for the third quarter and first nine months of fiscal 2012, respectively. Diluted Earnings per Share for the third quarter and first nine months of fiscal 2012 reflect $0.02 and $0.10, respectively, of benefit from repurchases of our common stock in the twelve months ended October 28, 2012.
To provide clarity, internally and externally, about our operating performance, we supplement our reporting with non-GAAP financial measures to reflect certain adjustments. The results for the third quarter and first nine months of fiscal 2012 included a $165 million charge, net of tax, related to the China store closings as described more fully in Note 2 to the Consolidated Financial Statements. Additionally, the results for the first nine months of fiscal 2012 included a $67 million pretax benefit related to the termination of our HD Supply Guarantee as described more fully in Note 4 to the Consolidated Financial Statements. There were no adjustments for the third quarter or first nine months of fiscal 2011 for events of unusual nature or frequency. We believe these non-GAAP financial measures better enable management and investors to understand and analyze our performance by providing them with meaningful information relevant to events of unusual nature or frequency that impact the comparability of underlying business results from period to period. However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP measures. The following reconciles the non-GAAP financial measures to the corresponding GAAP measures for the third quarter and first nine months of fiscal 2012 (amounts in millions, except per share data):

                                    Three Months Ended October 28, 2012                               Nine Months Ended October 28, 2012
                             As                             Non-GAAP        % of              As                               Non-GAAP        % of
                          Reported        Adjustments       Measures     Net Sales         Reported          Adjustments       Measures     Net Sales
Gross Profit            $     6,267     $         (10 )   $    6,277         34.6 %    $    19,476         $         (10 )   $   19,486         34.5 %
Selling, General and
Administrative                4,139               155          3,984         22.0 %         12,291                   155         12,136         21.5 %
Operating Income              1,733              (165 )        1,898         10.5 %          6,016                  (165 )        6,181         10.9 %
Interest and Other, net         150                 -            150          0.8 %            385                   (67 )          452          0.8 %
Net Earnings            $       947     $        (165 )   $    1,112          6.1 %    $     3,514         $        (122 )   $    3,636          6.4 %
Diluted Earnings per
Share                   $      0.63     $       (0.11 )   $     0.74          N/A      $      2.32         $       (0.08 )   $     2.40          N/A

LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from operations provides us with a significant source of liquidity. During the first nine months of fiscal 2012, Net Cash Provided by Operating Activities was $5.4 billion compared to $5.7 billion for the same period of fiscal 2011. This change was primarily a result of $481 million less in cash provided by a change in Merchandise Inventories as a result of increased inventory purchases in support of increased sales and $226 million less in cash provided by a change in Income Taxes Payable driven by the timing of tax payments, partially offset by a $405 million increase in Net Earnings. Net Cash Used in Investing Activities for the first nine months of fiscal 2012 was $987 million compared to $683 million for the same period of fiscal 2011. This change was primarily due to Payments for Businesses Acquired, net, of $121 million related to purchases of a flooring measurement company and a provider of kitchen and bath refacing products and services in the first nine months of fiscal 2012, Proceeds from Sale of Business, net, of $101 million in the first nine months of fiscal 2011 related to the sale of a non-core carpet cleaning and cabinet refinishing business, and a $67 million increase in Capital Expenditures in the first nine months of fiscal 2012 compared to the same period of fiscal 2011.
Net Cash Used in Financing Activities for the first nine months of fiscal 2012 was $3.8 billion compared to $3.3 billion for the same period of fiscal 2011. This change was primarily the result of $1.0 billion in net proceeds from long-term borrowings in the first nine months of fiscal 2011 and $274 million more in repurchases of common stock in the first nine months of fiscal

2012 than in the same period of fiscal 2011, partially offset by $606 million more in proceeds from sales of common stock due to increased stock option exercises in the first nine months of fiscal 2012 compared to the same period of fiscal 2011.
In the first quarter of fiscal 2012, we entered into an ASR agreement with a third-party financial institution to repurchase $1.0 billion of our common stock. Under this agreement, we paid $1.0 billion to the financial institution, using cash on hand, and received an initial delivery of approximately 17 million shares in the first quarter of fiscal 2012. The transaction was completed in the second quarter of fiscal 2012, at which time we received approximately 3 million additional shares. The final number of shares delivered upon settlement of the $1.0 billion ASR agreement was determined with reference to the average price of our common stock over the term of the agreement.
In the second quarter of fiscal 2012, we entered into an ASR agreement with a third-party financial institution to repurchase $1.4 billion of our common stock. Under this agreement, we paid $1.4 billion to the financial institution, using cash on hand, and received an initial delivery of approximately 22 million shares in the second quarter of fiscal 2012. The transaction was completed in the third quarter of fiscal 2012, at which time we received approximately 5 million additional shares. The final number of shares delivered upon settlement of the $1.4 billion ASR agreement was determined with reference to the average price of our common stock over the term of the agreement. . . .