Lowe's 2009 Annual Report Download - page 46

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NOTE 10 INCOME TAXES
e following is a reconciliation of the effective tax rate to the federal
statutory tax rate:
2009 2008 2007
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal
tax benefit 2.2 2.9 3.0
Other, net (0.3) (0.5) (0.3)
Effective tax rate 36.9% 37.4% 37.7%
e components of the income tax provision are as follows:
(In millions) 2009 2008 2007
Current:
Federal $1,046 $1,070 $1,495
State 123 166 207
Total current 1,169 1,236 1,702
Deferred:
Federal (108) 82 (1)
State (19) (7) 1
Total deferred (127) 75 –
Total income tax provision $1,042 $1,311 $1,702
e tax effects of cumulative temporary differences that gave rise
to the deferred tax assets and liabilities were as follows:
January 29 , January 30 ,
(In millions) 2010 2009
Deferred tax assets:
Self-insurance $ 251 $ 221
Share-based payment expense 115 95
Deferred rent 75 51
Other, net 223 172
Total deferred tax assets $ 664 $ 539
Valuation allowance (65) (42)
Net deferred tax assets $ 599 $ 497
Deferred tax liabilities:
Property $ (934) $ (977)
Other, net (55) (14)
Total deferred tax liabilities $ (989) $ (991)
Net deferred tax liability $ (390) $ (494)
e Company operates as a branch in various foreign jurisdictions
and cumulatively has incurred net operating losses of $209 million
and $130 million as of January 29, 2010, and January 30, 2009,
respectively. e net operating losses are subject to expiration in
2017 through 2029. Deferred tax assets have been established for
these net operating losses in the accompanying consolidated balance
sheets. Given the uncertainty regarding the realization of the foreign
net deferred tax assets, the Company recorded cumulative valuation
allowances of $65 million and $42 million as of January 29, 2010,
and January 30, 2009, respectively.
A reconciliation of the beginning and ending balances of unrec-
ognized tax benefits is as follows:
(In millions) 2009 2008 2007
Unrecognized tax benefits,
beginning of year $200 $138 $186
Additions for tax positions of prior years 31 82 11
Reductions for tax positions of prior years (45) (16) (81)
Net additions based on tax positions
related to the current year 5 16 23
Settlements (37) (19) (1)
Reductions due to a lapse in
applicable statute of limitations – (1) –
Unrecognized tax benefits, end of year $154 $200 $138
e amounts of unrecognized tax benefits that, if recognized, would
favorably impact the effective tax rate were $7 million and $40 million
as of January 29, 2010, and January 30, 2009, respectively.
During 2009, the Company recognized $9 million of interest
income and a $9 million reduction in penalties related to uncertain tax
positions. As of January 29, 2010, the Company had $14 million of
accrued interest and $1 million of accrued penalties. During 2008, the
Company recognized $10 million of interest expense and a $3 million
reduction in penalties related to uncertain tax positions. As of January 30,
2009, the Company had $30 million of accrued interest and $9 million
of accrued penalties. During 2007, the Company recognized $3 million
of interest expense and $5 million of penalties related to uncertain
tax positions.
e Company does not expect any changes in unrecognized tax
benefits over the next 12 months to have a significant impact on the results
of operations, the financial position or the cash flows of the Company.
e Company is subject to examination by various foreign and
domestic taxing authorities. During 2009, the IRS completed its
examination of the Company’s 2004 and 2005 income tax returns, with
the exception of certain issues that are presently under appeal. In addition,
the IRS began its examination of the Company’s U.S. federal income tax
returns for years 2006 and 2007. e Company is subject to examination
in major state tax jurisdictions for years 2002 forward. e Company
believes appropriate provisions for all outstanding issues have been made
for all jurisdictions and all open years.
NOTE 11 EARNINGS PER SHARE
Effective January 31, 2009, the Company adopted authoritative guidance
issued by the FASB that states that all outstanding unvested share-based
payment awards that contain rights to nonforfeitable dividends partici-
pate in undistributed earnings with common shareholders and, therefore,
need to be included in the earnings allocation in computing earnings
per share under the two-class method. e retrospective application of
the provisions of the guidance reduced previously reported basic earnings
per common share by $0.01 for the years ended January 30, 2009 and
February 1, 2008.