Home Depot 2002 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
THE HOME DEPOT, INC. AND SUBSIDIARIES
Effective February 3, 2003, we adopted the fair value method
of recording compensation expense related to all stock options
granted after February 2, 2003, in accordance with SFAS Nos. 123
and 148. Accordingly, the fair value of stock options as deter-
mined on the date of grant using the Black-Scholes option-pricing
model will be expensed over the vesting period of the related
stock options. The estimated negative impact on diluted earnings
per share is approximately $.02 for fiscal 2003. The actual
impact may differ from this estimate as the estimate is based
upon a number of factors including, but not limited to, the number
of stock options granted and the fair value of the stock options
on the date of grant.
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board
(“FASB”) issued Interpretation No. 46, “Consolidation of Variable
Interest Entities.” Interpretation No. 46 requires consolidation of
a variable interest entity if a company’s variable interest absorbs
a majority of the entity’s losses or receives a majority of the entity’s
expected residual returns, or both. We do not have a variable
interest in the SPE created as part of our off-balance sheet struc-
tured financing arrangements and, therefore, we are not required
to consolidate the SPE. We do not expect Interpretation No. 46 to
have any impact on our consolidated financial statements.
In January 2003, the Emerging Issues Task Force issued
EITF 02-16, “Accounting by a Customer (Including a Reseller) for
Certain Consideration Received from a Vendor,” which states that
cash consideration received from a vendor is presumed to be a
reduction of the prices of the vendor’s products or services and
should, therefore, be characterized as a reduction of Cost of
Merchandise Sold when recognized in our Consolidated
Statements of Earnings. That presumption is overcome when the
consideration is either a reimbursement of specific, incremental,
identifiable costs incurred to sell the vendor’s products, or a pay-
ment for assets or services delivered to the vendor. EITF 02-16
is effective for arrangements entered into after December 31,
2002. We are currently assessing the impact of the adoption of
EITF 02-16 and do not expect the adoption to materially impact
net earnings in fiscal 2003. We do, however, expect that certain
payments received from our vendors that are currently reflected
as a reduction in advertising expense, which is classified as
Selling and Store Operating Expense, will be reclassified as a
reduction of Cost of Merchandise Sold.
In December 2002, the FASB issued Interpretation No. 45,
“Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others,” which provides for additional disclosures to be made by
a guarantor in its interim and annual financial statements about
its obligations and requires, under certain circumstances, a guar-
antor to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee.
We have adopted the disclosure requirements for the fiscal year
ended February 2, 2003. We do not expect the recognition and
measurement provisions of Interpretation No. 45 for guarantees
issued or modified after December 31, 2002, to have a material
impact on our consolidated financial statements.
THE HOME DEPOT, INC. 2002 ANNUAL REPORT 27