Home Depot 2004 Annual Report Download - page 35

Notes to Consolidated Financial Statements (continued)
The Home Depot, Inc. and Subsidiaries
33The Home Depot, Inc.
The $5.0 million discount associated with the issuance is being
amortized over the term of the 33⁄4% Senior Notes using the effec-
tive interest rate method. Issuance costs of $6.6 million are being
amortized over the term of the 33⁄4% Senior Notes using the straight-
line method. The Company also had $500 million of unsecured
53⁄8% Senior Notes outstanding as of January 30, 2005, collectively
referred to as “Senior Notes.”
The Senior Notes may be redeemed by the Company at any time,
in whole or in part, at a redemption price plus accrued interest up
to the redemption date. The redemption price is equal to the
greater of (1) 100% of the principal amount of the Senior Notes
to be redeemed, or (2) the sum of the present values of the remain-
ing scheduled payments of principal and interest to maturity.
The Company is generally not limited under these indentures in its
ability to incur additional indebtedness nor required to maintain
financial ratios or specified levels of net worth or liquidity. However,
the indentures governing the Senior Notes contain various restric-
tive covenants, none of which are expected to impact the
Company’s liquidity or capital resources. The Senior Notes are not
subject to sinking fund requirements.
Interest Expense in the accompanying Consolidated Statements of
Earnings is net of interest capitalized of $40 million, $50 million and
$59 million in fiscal 2004, 2003 and 2002, respectively. Maturities
of Long-Term Debt are $11 million for fiscal 2005, $517 million for
fiscal 2006, $12 million for fiscal 2007, $296 million for fiscal
2008, $1.015 billion for fiscal 2009 and $313 million thereafter.
As of January 30, 2005, the market values of the publicly traded
33⁄4% Senior Notes and 53⁄8% Senior Notes were approximately
$989 million and $515 million, respectively. The estimated fair
value of all other long-term borrowings, excluding capital lease
obligations, was approximately $316 million compared to the
carrying value of $313 million. These fair values were estimated
using a discounted cash flow analysis based on the Company’s
incremental borrowing rate for similar liabilities.
3|INCOME TAXES
The components of Earnings before Provision for Income Taxes for
fiscal 2004, 2003 and 2002 are as follows (amounts in millions):
Fiscal Year Ended
January 30, February 1, February 2,
2005 2004 2003
United States $7,508 $6,440 $5,571
Foreign 404 403 301
Total $7,912 $6,843 $5,872
The Provision for Income Taxes consisted of the following
(amounts in millions):
Fiscal Year Ended
January 30, February 1, February 2,
2005 2004 2003
Current:
Federal $2,153 $1,520 $1,679
State 279 307 239
Foreign 139 107 117
2,571 1,934 2,035
Deferred:
Federal 304 573 174
State 52 27 1
Foreign (16) 5 (2)
340 605 173
Total $2,911 $2,539 $2,208
The Company’s combined federal, state and foreign effective tax
rates for fiscal 2004, 2003 and 2002, net of offsets generated by
federal, state and foreign tax benefits, were approximately 36.8%,
37.1% and 37.6%, respectively.
The reconciliation of the Provision for Income Taxes at the federal
statutory rate of 35% to the actual tax expense for the applicable
fiscal years is as follows (amounts in millions):
Fiscal Year Ended
January 30, February 1, February 2,
2005 2004 2003
Income taxes at
federal statutory rate $2,769 $2,395 $2,055
State income taxes,
net of federal
income tax benefit 215 217 156
Foreign rate differences (17) (29) (1)
Change in valuation allowance (31) ––
Other, net (25) (44) (2)
Total $2,911 $2,539 $2,208