Home Depot 2006 Annual Report Download - page 64

cumulative payments is included in Other Accrued Expenses and Other Long-Term Liabilities in the
accompanying Consolidated Balance Sheets.
The Company has a lease agreement under which the Company leases certain assets totaling
$282 million. This lease was originally created under a structured financing arrangement and involves
two special purpose entities. The Company financed a portion of its new stores opened in fiscal years
1997 through 2003 under this lease agreement. Under this agreement, the lessor purchased the
properties, paid for the construction costs and subsequently leased the facilities to the Company. The
Company records the rental payments under the terms of the operating lease agreements as SG&A in
the accompanying Consolidated Statements of Earnings.
The $282 million lease agreement expires in fiscal 2008 with no renewal option. The lease provides for
a substantial residual value guarantee limited to 79% of the initial book value of the assets and
includes a purchase option at the original cost of each property. During fiscal 2005, the Company
committed to exercise its option to purchase the assets under this lease for $282 million at the end of
the lease term in fiscal 2008.
In the first quarter of fiscal 2004, the Company adopted the revised version of FASB Interpretation
No. 46, ‘‘Consolidation of Variable Interest Entities’’ (‘‘FIN 46’’). FIN 46 requires consolidation of a
variable interest entity if a company’s variable interest absorbs a majority of the entity’s expected losses
or receives a majority of the entity’s expected residual returns, or both.
In accordance with FIN 46, the Company was required to consolidate one of the two aforementioned
special purpose entities that, before the effective date of FIN 46, met the requirements for
non-consolidation. The second special purpose entity that owns the assets leased by the Company
totaling $282 million is not owned by or affiliated with the Company, its management or its officers.
Pursuant to FIN 46, the Company was not deemed to have a variable interest, and therefore was not
required to consolidate this entity.
FIN 46 requires the Company to measure the assets and liabilities at their carrying amounts, which
amounts would have been recorded if FIN 46 had been effective at the inception of the transaction.
Accordingly, during the first quarter of fiscal 2004, the Company recorded Long-Term Debt of
$282 million and Long-Term Notes Receivable of $282 million on the Consolidated Balance Sheets. The
Company continues to record the rental payments under the operating lease agreements as SG&A in
the Consolidated Statements of Earnings. The adoption of FIN 46 had no economic impact on the
Company.
Total rent expense, net of minor sublease income for fiscal 2006, 2005 and 2004 was $958 million,
$782 million and $684 million, respectively. Certain store leases also provide for contingent rent
payments based on percentages of sales in excess of specified minimums. Contingent rent expense for
fiscal 2006, 2005 and 2004 was approximately $9 million, $9 million and $11 million, respectively. Real
estate taxes, insurance, maintenance and operating expenses applicable to the leased property are
obligations of the Company under the lease agreements.
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