Lowe's 2010 Annual Report Download - page 40

36 LOWE’S 2010 ANNUAL REPORT
Accounts Payable – The Company has an agreement with a third
party to provide an accounts payable tracking system which facilitates
participating suppliers’ ability to finance payment obligations from the
Company with designated third-party financial institutions. Participating
suppliers may, at their sole discretion, make offers to finance one or
more payment obligations of the Company prior to their scheduled
due dates at a discounted price to participating financial institutions.
The Company’s goal in entering into this arrangement is to capture
overall supply chain savings, in the form of pricing, payment terms or
vendor funding, created by facilitating suppliers’ ability to finance
payment obligations at more favorable discount rates, while providing
them฀with฀greater฀working฀capital฀exibility.
The Company’s obligations to its suppliers, including amounts
due and scheduled payment dates, are not impacted by suppliers’
decisions to finance amounts under this arrangement. However, the
Company’s right to offset balances due from suppliers against pay-
ment obligations is restricted by this arrangement for those payment
obligations that have been financed by suppliers. As of January 28,
2011฀and฀January฀29,฀2010,฀$645฀million฀and฀$602฀million,฀respec-
tively, of the Company’s outstanding payment obligations had been
placed on the accounts payable tracking system, and participating
suppliers฀had฀nanced฀$476฀million฀and฀$253฀million,฀respectively,฀
of those payment obligations to participating financial institutions.
Other Current Liabilities – Other current liabilities on the
consolidated balance sheets consist of:
January 28, January 29,
(In millions) 2011 2010
Self-insurance฀liabilities฀ ฀ $฀ ฀฀311฀ $฀ ฀฀300
Accrued dividends 148 131
Accrued interest 115 102
Accrued฀property฀taxes฀ ฀฀ 113฀ 103
Sales฀tax฀liabilities฀ ฀฀ 112฀ 131
Other 559 489
Total $1,358 $1,256
Self-Insurance – The Company is self-insured for certain losses
relating to workers’ compensation, automobile, property, and general
and product liability claims. The Company has stop-loss coverage to
limit฀the฀exposure฀arising฀from฀these฀claims.฀The฀Company฀is฀also฀self-
insured฀for฀certain฀losses฀relating฀to฀extended฀protection฀plan฀and฀
medical and dental claims. Self-insurance claims filed and claims incurred
but not reported are accrued based upon management’s estimates of
the discounted ultimate cost for self-insured claims incurred using
actuarial assumptions followed in the insurance industry and historical
experience.฀Although฀management฀believes฀it฀has฀the฀ability฀to฀reason-
ably estimate losses related to claims, it is possible that actual results
could differ from recorded self-insurance liabilities.
The Company provides surety bonds issued by insurance companies
to secure payment of workers’ compensation liabilities as required in
certain states where the Company is self-insured. Outstanding surety
bonds฀relating฀to฀self-insurance฀totaled฀$235฀million฀at฀January฀28,฀2011.
฀ Income฀Taxes฀–฀The฀Company฀establishes฀deferred฀income฀tax฀
assets฀and฀liabilities฀for฀temporary฀differences฀between฀the฀tax฀and฀
nancial฀accounting฀bases฀of฀assets฀and฀liabilities.฀The฀tax฀effects฀of฀
such฀differences฀are฀reected฀in฀the฀consolidated฀balance฀sheets฀at฀
the฀enacted฀tax฀rates฀expected฀to฀be฀in฀effect฀when฀the฀differences฀
reverse. A valuation allowance is recorded to reduce the carrying
amount฀of฀deferred฀tax฀assets฀if฀it฀is฀more฀likely฀than฀not฀that฀all฀or฀a฀
portion฀of฀the฀asset฀will฀not฀be฀realized.฀The฀tax฀balances฀and฀income฀
tax฀expense฀recognized฀by฀the฀Company฀are฀based฀on฀management’s฀
interpretation฀of฀the฀tax฀statutes฀of฀multiple฀jurisdictions.฀
฀ The฀Company฀establishes฀a฀liability฀for฀tax฀positions฀for฀which฀
there is uncertainty as to whether or not the position will be ultimately
sustained.฀The฀Company฀includes฀interest฀related฀to฀tax฀issues฀as฀part฀
of net interest on the consolidated financial statements. The Company
records฀any฀applicable฀penalties฀related฀to฀tax฀issues฀within฀the฀
income฀tax฀provision.
Revenue Recognition – The Company recognizes revenues,
net฀of฀sales฀tax,฀when฀sales฀transactions฀occur฀and฀customers฀take฀
possession of the merchandise. A provision for anticipated merchandise
returns is provided through a reduction of sales and cost of sales in
the period that the related sales are recorded. Revenues from product
installation services are recognized when the installation is completed.
Deferred revenues associated with amounts received for which customers
have not yet taken possession of merchandise or for which installation
has฀not฀yet฀been฀completed฀were฀$371฀million฀and฀$354฀million฀at฀
January 28, 2011, and January 29, 2010, respectively.
Revenues from stored-value cards, which include gift cards and
returned merchandise credits, are deferred and recognized when the
cards are redeemed. The liability associated with outstanding stored-
value฀cards฀was฀$336฀million฀and฀$329฀million฀at฀January฀28,฀2011,฀
and January 29, 2010, respectively, and these amounts are included
in deferred revenue on the consolidated balance sheets. The Company
recognizes income from unredeemed stored-value cards at the point
at which redemption becomes remote. The Company’s stored-value
cards฀have฀no฀expiration฀date฀or฀dormancy฀fees.฀Therefore,฀to฀determine฀
when redemption is remote, the Company analyzes an aging of the
unredeemed cards based on the date of last stored-value card use.
฀ Extended฀Protection฀Plans – The Company sells separately-priced
extended฀protection฀plan฀contracts฀under฀a฀Lowe’s-branded฀program฀
for which the Company is ultimately self-insured. The Company
recognizes฀revenue฀from฀extended฀protection฀plan฀sales฀on฀a฀straight-
line฀basis฀over฀the฀respective฀contract฀term.฀Extended฀protection฀plan฀
contract terms primarily range from one to four years from the date
of purchase or the end of the manufacturer’s warranty, as applicable.
Changes฀in฀deferred฀revenue฀for฀extended฀protection฀plan฀contracts฀
are summarized as follows:
(In millions) 2010 2009
Deferred฀revenue฀–฀extended฀protection฀plans,฀
฀ beginning฀of฀year฀ ฀ $฀549฀฀ $฀479฀
Additions to deferred revenue 253 220
Deferred revenue recognized (171) (150)
Deferred฀revenue฀–฀extended฀protection฀plans,฀
฀ end฀of฀year฀ ฀ $฀631฀฀ $฀549฀
Incremental direct acquisition costs associated with the sale of
extended฀protection฀plans฀are฀also฀deferred฀and฀recognized฀as฀expense฀
on a straight-line basis over the respective contract term. Deferred costs
associated฀with฀extended฀protection฀plan฀contracts฀were฀$166฀million฀and฀
$150฀million฀at฀January฀28,฀2011฀and฀January฀29,฀2010,฀respectively.฀
The฀Company’s฀extended฀protection฀plan฀deferred฀costs฀are฀included฀in฀
other assets (non-current) on the consolidated balance sheets. All other
costs, such as costs of services performed under the contract, general
and฀administrative฀expenses฀and฀advertising฀expenses฀are฀expensed฀
as incurred.