Lowe's 2001 Annual Report Download - page 32

Lo we’s Co mpanies, Inc. 30
Deprec iatio n is pro vided o ver the estimated useful lives o f the
depreciable assets. Assets are generally depreciated using the
straight- line metho d. Leaseho ld impro vements are depreciated
o ver the sho rter of their estimated useful lives o r the term of the
related lease.
Leases Assets under capital leases are amo rtized in acco r-
dance with the Co mpany's no rmal depreciatio n po licy fo r o wned
assets o r o ver the lease term, if sho rter, and the charge to earn-
ings is included in depreciatio n expense in the co nso lidated finan-
cial statements.
Self-I nsurance The Co mpany is self- insured fo r certain lo sses
relating to wo rkers' co mpensatio n, auto mo bile, general and pro d-
uct liability claims. The Co mpany has sto p loss co verage to limit
the expo sure arising fro m these claims. Self- insurance lo sses fo r
claims filed and claims incurred but no t repo rted are accrued based
upo n the Co mpany's estimates of the aggregate liability fo r unin-
sured claims incurred using actuarial assumptio ns fo llo wed in the
insurance industry and the Co mpany's histo rical experience.
I ncome Taxes Inco me taxes are pro vided fo r tempo rary dif-
ferences between the tax and financial acco unting bases o f assets
and liabilities using the liability metho d. The tax effects of such
differences are reflected in the balance sheet at the enacted tax
rates expected to be in effect when the differences reverse.
Store Pre-opening Costs Co sts of o pening new retail sto res
are charged to o peratio ns as incurred.
I mpairment/ Store Closing Costs Lo sses related to impair-
ment o f lo ng- lived assets and fo r lo ng- lived assets to be dispo sed
of are reco gnized when circumstances indicate the carrying amo unt
of the assets may no t be reco verable. At the time management
co mmits to clo se o r relo cate a sto re lo catio n, the Co mpany evalu-
ates the carrying value of the assets in relatio n to its expected
future cash flo ws. If the carrying value o f the assets is greater than
the expected future cash flo ws, a pro visio n is made fo r the impair-
ment o f the assets based o n the assets’ estimated fair value.
Impairment lo sses fo r closed real estate are made when the carry-
ing value of the assets exc eed fair value. The impairment lo ss is
measured based o n the excess o f carrying value o ver estimated fair
value. When a leased lo catio n is clo sed o r beco mes impaired, a pro -
visio n is made fo r the present value of future lease o bligatio ns, net
of antic ipated sublease inco me. Pro visio ns fo r impairment and
sto re clo sing co sts are included in selling, general and administra-
tive expenses.
Revenue Recognition The Co mpany rec o g nizes revenues when
sales transactio ns o c cur and c usto mers take po ssessio n of the
merchandise. A pro visio n fo r anticipated merchandise returns is
provided in the perio d that the related sales are rec o rded.
Advertising Co sts asso ciated with advertising are charged to
o peratio ns as incurred. Advertising expenses were $94.3, $114.1
and $69.2 millio n fo r 2001, 2000 and 1999, respectively.
Stock-Based Compensation The Co mpany applies the intrin-
sic value metho d o f acc o unting fo r its sto ck- based co mpensatio n
plans. Acco rdingly, no co mpensatio n expense has been reco gnized
fo r sto ck-based co mpensatio n where the o ptio n price appro ximat-
ed the fair market value o f the sto ck o n the date of grant, o ther
than fo r restricted sto ck grants.
Recent Accounting Pronouncements In Octo ber 2001, the
Financial Acco unting Standards Bo ard ( FASB) issued SFAS No . 144,
“Acco unting fo r the Impairment o r Dispo sal of Long-Lived Assets,”
which supersedes SFAS No. 121, “Acco unting fo r the Impairment o r
Dispo sal of Long- Lived Assets and fo r Long- Lived Assets to be
Dispo sed Of,” but retains many o f its fundamental provisio ns.
Additio nally, this statement expands the sco pe o f disco ntinued
o peratio ns to include mo re dispo sal transactio ns. SFAS No. 144 will
be effective fo r the Co mpany fo r the fisc al year beg inning February
2, 2002. In June 2001, the FASB issued SFAS No . 143, “Acc o unting
fo r Obligatio ns Asso ciated with the Retirement of Lo ng-Lived
Assets.” SFAS No . 143 will require the accrual, at fair value, of the
estimated retirement o bligation fo r tangible lo ng-lived assets if
the co mpany is legally o bligated to perfo rm retirement activities at
the end of the related asset's life. SFAS No . 143 is effective fo r the
Co mpany fo r the fiscal year beginning February 1, 2003.
Management do es not believe that the initial ado ptio n o f these
standards will have a material impact o n the Co mpany's financial
statements.