Home Depot 2007 Annual Report Download - page 58

material and labor are included in services revenue. The Company recognizes this revenue when the service for the customer is complete.
All payments received prior to the completion of services are recorded in Deferred Revenue in the accompanying Consolidated Balance Sheets.
Services revenue was $3.5 billion, $3.8 billion and $3.5 billion for fiscal 2007, 2006 and 2005, respectively.
Self-Insurance
The Company is self-insured for certain losses related to general liability, product liability, automobile, workers' compensation and medical
claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. The expected
ultimate cost of claims is estimated based upon analysis of historical data and actuarial estimates.
Prepaid Advertising
Television and radio advertising production costs, along with media placement costs, are expensed when the advertisement first appears.
Included in Other Current Assets in the accompanying Consolidated Balance Sheets are $31 million and $44 million, respectively, at the end of
fiscal 2007 and 2006 relating to prepayments of production costs for print and broadcast advertising as well as sponsorship promotions.
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.
Volume rebates and certain 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. In fiscal 2007,
2006 and 2005, gross advertising expense was $1.2 billion, $1.2 billion and $1.1 billion, respectively, which was recorded in SG&A. Advertising
co-op allowances were $120 million, $83 million and $50 million for fiscal 2007, 2006 and 2005, respectively, and were recorded as an offset to
advertising expense in SG&A.
Cost of Sales
Cost of Sales includes the actual cost of merchandise sold and services performed, the cost of transportation of merchandise from vendors to the
Company's stores, locations or customers, the operating cost of the Company's sourcing and distribution network and the cost of deferred interest
programs offered through the Company's private label credit card program.
The cost of handling and shipping merchandise from the Company's stores, locations or distribution centers to the customer is classified as
SG&A. The cost of shipping and handling, including internal costs and payments to third parties, classified as SG&A was $571 million,
$545 million and $480 million in fiscal 2007, 2006 and 2005, respectively.
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