Home Depot 2002 Annual Report Download - page 34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE HOME DEPOT, INC. AND SUBSIDIARIES
1SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BUSINESS, CONSOLIDATION AND PRESENTATION
The Home Depot, Inc. and subsidiaries (the “Company”) operate
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-your-
selfers, but also to home improvement contractors, trades-
people 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, Home Depot Landscape Supply stores which service
landscape professionals and garden enthusiasts with lawn,
landscape and garden products and Home Depot Supply stores
serving primarily professional customers. The Company also
operates one Home Depot Floor Store, a test store that offers
only flooring products and installation services. At the end of
fiscal 2002, the Company was operating 1,532 stores in total,
which included 1,370 Home Depot stores, 52 EXPO Design
Center stores, 5 Home Depot Supply stores, 3 Home Depot
Landscape Supply stores and 1 Home Depot Floor Store in the
United States (“U.S.”); 89 Home Depot stores in Canada and
12 Home Depot stores in Mexico. Included in the Company’s
Consolidated Balance Sheet at February 2, 2003, were
$1.2 billion of net assets of the Canada and Mexico operations.
The consolidated results include several wholly-owned sub-
sidiaries. The Company offers facilities maintenance and repair
products as well as wallpaper and custom window treatments via
direct shipment through its subsidiaries, Maintenance Warehouse
America Corp. and National Blinds and Wallpaper, Inc. (doing
business as Designplace Direct). Georgia Lighting, Inc. is a
specialty lighting designer, distributor and retailer to both commer-
cial and retail customers. The Company offers plumbing, HVAC
and other professional plumbing products through wholesale
plumbing distributors Apex Supply Company, Inc. and Home
Depot Your “other” Warehouse, LLC. The Company also arranges
for the provision of flooring installation services to homebuilders
through HD Builder Solutions Group, Inc. The consolidated
financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.
FISCAL YEAR
The Company’s fiscal year is a 52 or 53-week period ending on
the Sunday nearest to January 31. Fiscal years 2002 and 2000,
which ended February 2, 2003, and January 28, 2001, respec-
tively, include 52 weeks. Fiscal year 2001, which ended
February 3, 2002, includes 53 weeks.
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 high-grade commercial
paper, money market funds, U.S. government agency securi-
ties and tax-exempt notes and bonds.
ACCOUNTS RECEIVABLE
The Company has an agreement with a third-party service
provider who manages the Company’s private label credit card
program and directly extends credit to customers. The Company’s
valuation reserve related to accounts receivable was not material
as of February 2, 2003 and February 3, 2002.
MERCHANDISE INVENTORIES
The majority of the Company’s inventory is stated at the lower
of cost (first-in, first-out) or market, as determined by the retail
inventory method.
Certain subsidiaries and distribution centers record inven-
tories at lower of cost (first-in, first-out) or market, as determined
by the cost method. These inventories represent approximately
7% of total inventory.
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 due to
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 statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted income tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates is recognized as income
or expense in the period that includes the enactment date.
32 THE HOME DEPOT, INC. 2002 ANNUAL REPORT