Home Depot 2015 Annual Report Download - page 45

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Table of Contents
43
2. CHANGE IN ACCOUNTING POLICY
During the first quarter of fiscal 2015, the Company changed its accounting policy for shipping and handling costs from the
Company’s stores, locations or distribution centers to customers and for online fulfillment center costs. Under the new
accounting policy, these costs are included in Cost of Sales, whereas they were previously included in Operating Expenses.
Including these expenses in Cost of Sales better aligns these costs with the related revenue in the gross profit calculation. This
change in accounting policy has been applied retrospectively.
The Consolidated Statements of Earnings for fiscal 2014 and 2013 have been reclassified to reflect this change in accounting
policy. The impact of this reclassification was an increase of $565 million and $475 million to Cost of Sales for fiscal 2014
and 2013, respectively, and a corresponding decrease to Operating Expenses in the same periods. This reclassification had no
impact on Net Sales, Operating Income, Net Earnings or Earnings per Share.
3. INTERLINE ACQUISITION
On August 24, 2015, the Company completed its acquisition of Interline. Interline is a leading national distributor and direct
marketer of broad-line maintenance, repair and operations ("MRO") products. The Company intends to leverage Interline’s
capabilities and expertise in MRO products to expand the Company’s share of the MRO product market with its current
customers as well as gain new customers currently served by Interline.
The aggregate purchase price of this acquisition was $1.7 billion. A portion of the purchase price was used for the repayment
of substantially all of Interline’s existing indebtedness. The acquisition was accounted for in accordance with FASB ASC 805
"Business Combinations" and, accordingly, Interline’s results of operations have been consolidated in the Company’s
financial statements since the date of acquisition. Acquisition-related costs were expensed as incurred and were not material.
Pro forma results of operations would not be materially different as a result of the acquisition and therefore are not presented.
The Company finalized its purchase price allocation during the fourth quarter of fiscal 2015. The following table summarizes
the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for Interline (amounts
in millions):
Fair Value
Cash $ 6
Receivables 262
Inventories 325
Property and Equipment 56
Intangible Assets 563
Goodwill 788
Other Assets 49
Total Assets Acquired 2,049
Current Liabilities 199
Other Liabilities 178
Total Liabilities Assumed 377
Net Assets Acquired $ 1,672
The intangible assets acquired consist of customer relationships of $310 million, with a weighted average useful life of 12
years, and tradenames of $253 million, with an indefinite life, which are included in Other Assets in the accompanying
Consolidated Balance Sheets. The Goodwill of $788 million represents future economic benefits expected to arise from the
Company’s expanded presence in the MRO market and expected revenue and purchasing synergies. Both the intangible
assets and Goodwill acquired are not deductible for income tax purposes.