Home Depot 1999 Annual Report Download - page 30

Notes to Consolidated Financial Statements
The Home Depot, Inc. and Subsidiaries
>Note 1
Summary of Significant Accounting Policies
The Company operates Home Depot stores, which are full-service,
warehouse-style stores averaging approximately 108,000 square feet in
size. The stores stock approximately 40,000 to 50,000 different kinds of
building materials, home improvement supplies and lawn and garden
products that are sold primarily to do-it-yourselfers, but also to home
improvement contractors, tradespeople and building maintenance
professionals. In addition, the Company operates EXPO Design Center
stores, which offer products and services primarily related to design and
renovation projects, and is currently testing two Villager’s Hardware
stores, a convenience hardware concept that offers products and ser-
vices for home enhancement and smaller project needs. At the end
of fiscal 1999, the Company was operating 930 stores, including
854 Home Depot stores, 15 EXPO Design Center stores and 2 Villager’s
Hardware stores in the United States; 53 Home Depot stores in
Canada; 4 Home Depot stores in Chile; and 2 Home Depot stores
in Puerto Rico. Included in the Company’s Consolidated Balance Sheets
at January 30, 2000 were $707 million of net assets of the Canada,
Chile and Argentina operations.
Fiscal Year
The Company’s fiscal year is a 52- or 53-week period ending on the
Sunday nearest to January 31. Fiscal years 1999, 1998 and 1997, which
ended January 30, 2000, January 31, 1999 and February 1, 1998,
respectively, consisted of 52 weeks.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries, and its majority-owned part-
nership. All significant intercompany transactions have been eliminated
in consolidation.
Stockholders’ equity, share and per share amounts for all periods
presented have been adjusted for a three-for-two stock split
effected in the form of a stock dividend on December 30, 1999, a
two-for-one stock split effected in the form of a stock dividend on
July 2, 1998, and a three-for-two stock split effected in the form of a
stock dividend on July 3, 1997.
Cash Equivalents
The Company considers all highly liquid investments purchased with
a maturity of three months or less to be cash equivalents. The
Company’s cash and cash equivalents are carried at fair market value
and consist primarily of commercial paper, money market funds, U.S.
government agency securities and tax-exempt notes and bonds.
Merchandise Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market,
as determined by the retail inventory method.
Investments
The Company’s investments, consisting primarily of high-grade
debt securities, are recorded at fair value and are classified as
available-for-sale.
Income Taxes
The Company provides for federal, state and foreign income taxes
currently payable, as well as for those deferred because of timing
differences between reporting income and expenses for financial
statement purposes versus tax purposes. Federal, state and foreign
incentive tax credits are recorded as a reduction of income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial state-
ment carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recov-
ered or settled. The effect of a change in tax rates is recognized as
income or expense in the period that includes the enactment date.
The Company and its eligible subsidiaries file a consolidated U.S.
federal income tax return. Non-U.S. subsidiaries, which are consoli-
dated for financial reporting, are not eligible to be included in
consolidated U.S. federal income tax returns, and separate provisions
for income taxes have been determined for these entities. The
Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance. Accordingly, no provision
for U.S. income taxes for non-U.S. subsidiaries was required for any
year presented.
Depreciation and Amortization
The Company’s buildings, furniture, fixtures and equipment are depre-
ciated using the straight-line method over the estimated useful lives
of the assets. Improvements to leased premises are amortized using
the straight-line method over the life of the lease or the useful life of
the improvement, whichever is shorter. The Company’s property and
equipment is depreciated using the following estimated useful lives:
Life
Buildings 10 – 45 years
Furniture, fixtures and equipment 5 – 20 years
Leasehold improvements 5 – 30 years
Computer software 3 – 5 years
Advertising
Television and radio advertising production costs are amortized over
the fiscal year in which the advertisements first appear. All media
placement costs are expensed in the month the advertisement
appears. Included in Current Assets in the Company’s Consolidated
Balance Sheets were $24.4 million and $22.6 million at the end of
fiscal 1999 and 1998, respectively, relating to prepayments of produc-
tion costs for print and broadcast advertising.
Cost in Excess of the Fair Value of Net Assets Acquired
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis
over 40 years. The Company assesses the recoverability of this intan-
gible asset by determining whether the amortization of the goodwill
balance over its remaining useful life can be recovered through
undiscounted future operating cash flows of the acquired operation.
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