Home Depot 2004 Annual Report Download - page 25

Management’s Discussion and Analysis of
Results of Operations and Financial Condition (continued)
The Home Depot, Inc. and Subsidiaries
23The Home Depot, Inc.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 123(R). This statement
revises SFAS Statement No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”) and supersedes Accounting Principles
Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees.” SFAS 123(R) requires all public entities to recognize
compensation expense for all share-based payments as measured
by the fair value on the grant date over the requisite service period.
SFAS 123(R) becomes effective as of the first interim or annual
reporting period that begins after June 15, 2005, therefore we will
adopt SFAS 123(R) in the third quarter of fiscal 2005. Effective
February 3, 2003, we adopted the fair value of recording stock-
based compensation expense in accordance with SFAS 123. We
selected the prospective method of adoption as described in
SFAS No. 148, “Accounting for Stock-Based Compensation –
Transition and Disclosure,” and accordingly, stock-based compen-
sation expense was recorded for all share-based payments granted
or modified after the beginning of fiscal 2003. SFAS 123(R)
requires that all share-based payments granted prior to the adop-
tion date that remain unvested at the adoption date also be
expensed over the remaining service period. We currently intend to
adopt SFAS 123(R) using the modified-prospective method, there-
fore in addition to continuing to recognize stock-based compensa-
tion expense for all share-based payments awarded since our
adoption of SFAS 123 in fiscal 2003, we will also begin expensing
unvested options granted prior to 2003 upon the adoption of
SFAS 123(R). We currently estimate the impact of adopting SFAS 123(R)
will be a reduction of Earnings before Provision for Income Taxes
of $34 million and $31 million for our third and fourth quarters of
fiscal 2005, respectively.
In November 2004, the FASB issued EITF No. 03-13, “Applying
the Conditions in Paragraph 42 of FASB Statement No. 144
in Determining Whether to Report Discontinued Operations”
(“EITF 03-13”). EITF 03-13 clarifies guidance on how an ongoing
entity should evaluate whether the operations and cash flows of a
disposed component have been or will be eliminated from the
ongoing operations of the entity. Additionally, guidance is given on
the types of continuing involvement that constitute significant
continuing involvement in the operations of the disposed company.
EITF 03-13 becomes effective for fiscal periods beginning after
December 15, 2004, therefore we will adopt EITF 03-13 in the first
quarter of fiscal 2005. The adoption of EITF 03-13 will impact our
determination of whether a disposed component of a business
should be reflected as a discontinued operation for any such
disposals occurring after January 30, 2005.