Home Depot 2007 Annual Report Download - page 57

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The Company and its eligible subsidiaries file a consolidated U.S. federal income tax return. Non-
U.S. subsidiaries and certain U.S. subsidiaries,
which are consolidated for financial reporting purposes, are not eligible to be included in the Company's consolidated U.S. federal income tax
return. Separate provisions for income taxes have been determined for these entities. The Company intends to reinvest substantially all of the
unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes for
these non-U.S. subsidiaries was recorded in the accompanying Consolidated Statements of Earnings.
Depreciation and Amortization
The Company's Buildings, Furniture, Fixtures and Equipment are recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the assets. Leasehold Improvements are amortized using the straight-line method over the original term of the lease or
the useful life of the improvement, whichever is shorter. The Company's Property and Equipment is depreciated using the following estimated
useful lives:
Capitalized Software Costs
The Company capitalizes certain costs related to the acquisition and development of software and amortizes these costs using the straight-line
method over the estimated useful life of the software, which is three to six years. These costs are included in Furniture, Fixtures and Equipment
in the accompanying Consolidated Balance Sheets. Certain development costs not meeting the criteria for capitalization are expensed as
incurred.
Revenues
The Company recognizes revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives
services. The liability for sales returns is estimated based on historical return levels. When the Company receives payment from customers
before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as Deferred
Revenue in the accompanying Consolidated Balance Sheets until the sale or service is complete. The Company also records Deferred Revenue
for the sale of gift cards and recognizes this revenue upon the redemption of gift cards in Net Sales. Gift card breakage income is recognized
based upon historical redemption patterns and represents the balance of gift cards for which the Company believes the likelihood of redemption
by the customer is remote. During fiscal 2007, 2006 and 2005, the Company recognized $36 million, $33 million and $52 million, respectively,
of gift card breakage income. Fiscal 2005 was the first year in which the Company recognized gift card breakage income, and therefore, the
amount recognized includes the gift card breakage income related to gift cards sold since the inception of the gift card program. This income is
recorded as other income and is included in the accompanying Consolidated Statements of Earnings as a reduction in SG&A.
Services Revenue
Net Sales include services revenue generated through a variety of installation, home maintenance and professional service programs. In these
programs, the customer selects and purchases material for a project and the Company provides or arranges professional installation. These
programs are offered through the Company's stores. Under certain programs, when the Company provides or arranges the installation of a project
and the subcontractor provides material as part of the installation, both the
40
Life
Buildings
10
-
45 years
Furniture, Fixtures and Equipment
3
-
20 years
Leasehold Improvements
5
-
45 years