Home Depot 2006 Annual Report Download - page 54

Foreign Currency Translation
Assets and Liabilities denominated in a foreign currency are translated into U.S. dollars at the current
rate of exchange on the last day of the reporting period. Revenues and Expenses are generally
translated at a daily exchange rate and equity transactions are translated using the actual rate on the
day of the transaction.
Reclassifications
Certain amounts in prior fiscal years have been reclassified to conform with the presentation adopted
in the current fiscal year.
2. STAFF ACCOUNTING BULLETIN NO. 108
In September 2006, the Securities and Exchange Commission (‘‘SEC’’) issued Staff Accounting Bulletin
No. 108, ‘‘Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements’’ (‘‘SAB 108’’). SAB 108 addresses the process of quantifying prior
year financial statement misstatements and their impact on current year financial statements. The
provisions of SAB 108 allow companies to report the cumulative effect of correcting immaterial prior
year misstatements, based on the Company’s historical method for evaluating misstatements, by
adjusting the opening balance of retained earnings in the current year financial statements rather than
amending previously filed reports. SAB 108 is effective for fiscal years ending after November 15, 2006,
and therefore was effective for The Home Depot in fiscal 2006. In accordance with SAB 108, the
Company has adjusted beginning Retained Earnings for fiscal 2006 in the accompanying Consolidated
Financial Statements for the items described below. The Company does not consider these adjustments
to have a material impact on the Company’s consolidated financial statements in any of the prior years
affected.
Historical Stock Option Practices
During fiscal 2006, the Company requested that its Board of Directors review its historical stock option
granting practices. A subcommittee of the Audit Committee undertook the review with the assistance of
independent outside counsel, and it has completed its review. The principal findings of the review are
as follows:
• All options granted in the period from 2002 through the present had an exercise price based on
the market price of the Company’s stock on the date the grant was approved by the Board of
Directors or an officer acting pursuant to delegated authority. During this period, the stock
administration department corrected administrative errors retroactively and without separate
approvals. The administrative errors included inadvertent omissions of grantees from lists that
were approved previously and miscalculations of the number of options granted to particular
employees on approved lists.
• All options granted from December 1, 2000 through the end of 2001 had an exercise price based
on the market price of the Company’s stock on the date of a meeting of the Board of Directors
or some other date selected without the benefit of hindsight. The February 2001 annual grant
was not finally allocated to recipients until several weeks after the grant was approved. During
this period, the stock administration department also corrected administrative errors retroactively
and without separate approvals as in the period 2002 to the present.
• For annual option grants and certain quarterly option grants from 1981 through November 2000,
the stated grant date was routinely earlier than the actual date on which the grants were
approved by a committee of the Board of Directors. In almost every instance, the stock price on
the apparent approval date was higher than the price on the stated grant date. The backdating
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