Home Depot 2007 Annual Report Download - page 44

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estimates are reasonable based on the information currently available, if actual trends, including the severity or frequency of claims, medical cost
inflation, or fluctuations in premiums, differ from our estimates, our results of operations could be impacted. Actual results related to these types
of claims did not vary materially from estimated amounts for fiscal 2007, 2006 or 2005.
Vendor Allowances
Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and advertising co-op
allowances for the promotion of vendors' products that are typically based on guaranteed minimum amounts with additional amounts being
earned for attaining certain purchase levels. These vendor allowances are accrued as earned, with those allowances received as a result of
attaining certain purchase levels accrued over the incentive period based on estimates of purchases. We believe that our estimate of vendor
allowances earned based on expected volume of purchases over the incentive period is an accurate reflection of the ultimate allowance to be
received from our vendors.
Volume rebates and advertising co-op allowances earned are initially recorded as a reduction in Merchandise Inventories and a subsequent
reduction in Cost of Sales when the related product is sold. Certain advertising co-op allowances that are reimbursements of specific,
incremental and identifiable costs incurred to promote vendors' products are recorded as an offset against advertising expense.
Impairment of Long-Lived Assets
We evaluate the carrying value of long-lived assets when management makes the decision to relocate or close a store or other location, or when
circumstances indicate the carrying amount of an asset may not be recoverable. A store's assets are evaluated for impairment by comparing its
undiscounted cash flows with its carrying value. If the carrying value is greater than the undiscounted cash flows, a provision is made to write
down the related assets to fair value if the carrying value is greater than the fair value. We make critical assumptions and estimates in completing
impairment assessments of long-lived assets. While we believe these estimates are reasonable based on the information currently available, if
actual results differ from our estimates, our results of operations could be impacted. Impairment losses are recorded as a component of SG&A in
the accompanying Consolidated Statements of Earnings. When a location closes, we also recognize in SG&A the net present value of future
lease obligations, less estimated sublease income.
In fiscal 2005, we recorded $91 million in SG&A related to asset impairment charges and on-going lease obligations associated with closing 20
EXPO Design Center stores. Additionally, we recorded $29 million of expense in Cost of Sales in fiscal 2005 related to inventory markdowns in
these stores. We also recorded impairments on other closings and relocations in the ordinary course of business, which were not material to the
Consolidated Financial Statements in fiscal 2007, 2006 and 2005.
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