Home Depot 2012 Annual Report Download - page 32

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The assets of a store with indicators of impairment are evaluated by comparing its undiscounted cash flows with its carrying
value. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from
the use of those assets in operations, including gross margin on Net Sales, payroll and related items, occupancy costs,
insurance allocations and other costs to operate a store. If the carrying value is greater than the undiscounted cash flows, an
impairment loss is recognized for the difference between the carrying value and the estimated fair market value. Impairment
losses are recorded as a component of SG&A in the accompanying Consolidated Statements of Earnings. When a leased
location closes, we also recognize in SG&A the net present value of future lease obligations less estimated sublease income.
We make critical assumptions and estimates in completing impairment assessments of long-lived assets. Our cash flow
projections look several years into the future and include assumptions on variables such as future sales and operating margin
growth rates, economic conditions, market competition and inflation. A 10% decrease in the estimated undiscounted cash
flows for the stores with indicators of impairment would not have a material impact on our results of operations. Our
estimates of fair market value are generally based on market appraisals of owned locations and estimates on the amount of
potential sublease income and the time required to sublease for leased locations. A 10% decrease in estimated sublease
income and a 10% increase in the time required to sublease would not have a material impact on our results of operations. We
recorded impairments and lease obligation costs on closings and relocations in the ordinary course of business, as well as for
the China store closings in fiscal 2012, which were not material to the Consolidated Financial Statements in fiscal 2012, 2011
or 2010.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the fair value of net assets acquired. We do not amortize goodwill but
do assess the recoverability of goodwill in the third quarter of each fiscal year, or more often if indicators warrant, by
determining whether the fair value of each reporting unit supports its carrying value. We assess qualitative factors to
determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis
for determining whether it is necessary to complete quantitative impairment assessments. During fiscal 2012, for all reporting
units other than our China reporting unit, we used qualitative factors to determine that our goodwill balances for each
reporting unit were not impaired. For our China reporting unit, we recorded a charge of $97 million to impair all of the
goodwill associated with that reporting unit in fiscal 2012. Impairment charges related to our remaining goodwill were not
material for fiscal 2012, 2011 or 2010.
We amortize the cost of other intangible assets over their estimated useful lives, which range up to ten years, unless such lives
are deemed indefinite. Intangible assets with indefinite lives are tested in the third quarter of each fiscal year for impairment,
or more often if indicators warrant. Impairment charges related to our other intangible assets were not material for fiscal
2012, 2011 or 2010.
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-05,
"Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU No. 2011-05"). ASU No. 2011-05
eliminates the option to report other comprehensive income and its components in the Consolidated Statements of
Stockholders' Equity and Comprehensive Income. Under ASU No. 2011-05, an entity can elect to present items of net
earnings and other comprehensive income in one continuous statement or in two separate, but consecutive, statements. This
guidance was effective for annual reporting periods beginning after December 15, 2011 and for interim and annual reporting
periods thereafter, and retrospective application was required. This guidance impacted the presentation of our Consolidated
Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is incorporated by reference to Item 7, "Management’s Discussion and Analysis of
Financial Condition and Results of Operations" of this report.