Home Depot 2008 Annual Report Download - page 42

stores, five Yardbirds stores, two THD Design Center stores and seven HD Bath locations in the first quarter of fiscal
2009, and expects to dispose or sublet those locations over varying periods. These steps will impact approximately 5,000
associates in those locations, their support functions and their distribution centers.
The Company also restructured its support functions to better align the Company’s cost structure with the current
economic environment. These actions impacted approximately 2,000 associates.
The Company recognized $951 million in total pretax charges for fiscal 2008 related to these actions. The significant
components of the total expected charges and charges incurred to date are as follows (in millions):
Total
Expected
Charges
Fiscal
2008
Charges
Estimated
Remaining
Charges
Asset impairments $ 580 $580 $ —
Lease obligation costs, net 336 252 84
Severance 82 78 4
Other 103 41 62
Total $1,101 $951 $150
Inventory markdown costs in Other are included in Cost of Sales in the accompanying Consolidated Statements of
Earnings and costs related to asset impairments, lease obligations, severance and other are included in SG&A expenses.
Asset impairment charges, including contractual costs to complete certain assets, were determined based on fair market
value using market data for each individual property. Lease obligations represent the present value of contractually
obligated rental payments offset by estimated sublet income, and therefore are not generally incremental uses of cash.
Activity related to Rationalization Charges for fiscal 2008 was as follows (in millions):
Fiscal
2008
Charges Cash Uses Non-cash Uses
Accrued
Balance,
February 1,
2009
Asset impairments $580 $— $542 $ 38
Lease obligation costs, net 252 39 — 213
Severance 78 6 — 72
Other 41 18 3 20
Total $951 $63 $545 $343
3. CHANGE IN ACCOUNTING PRINCIPLE
During fiscal 2008, the Company implemented a new enterprise resource planning (“ERP”) system, including a new
inventory system, for its retail operations in Canada. Along with this implementation, the Company changed its method of
accounting for Merchandise Inventories for its retail operations in Canada from the lower of cost (first-in, first-out) or
market, as determined by the retail inventory method, to the lower of cost or market using a weighted-average cost
method. As of the end of fiscal 2008, the implementation of the new inventory system and related conversion to the
weighted-average cost method for Canadian retail operations was complete.
The new ERP system allows the Company to utilize the weighted-average cost method, which the Company believes will
result in greater precision in the costing of inventories and a better matching of cost of sales with revenue generated. The
effect of the change on the Merchandise Inventories and Retained Earnings balances was not material. Prior to the
inventory system conversion, the Company could not determine the impact of the change to the weighted-average cost
method and therefore, could not retroactively apply the change to periods prior to fiscal 2008.
4. DISPOSITION AND ACQUISITIONS
On August 30, 2007, the Company closed the sale of HD Supply. The Company received $8.3 billion of net proceeds for
the sale of HD Supply and recognized a $4 million loss, net of tax, in fiscal 2007. In fiscal 2008, the Company finalized
working capital adjustments related to the sale and recorded a loss of $52 million, net of tax.
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