Lowe's 2010 Annual Report Download - page 48

44 LOWE’S 2010 ANNUAL REPORT
The Company maintains a non-qualified deferred compensation
program called the Lowe’s Cash Deferral Plan. This plan is designed to
permit certain employees to defer receipt of portions of their compensa-
tion,฀thereby฀delaying฀taxation฀on฀the฀deferral฀amount฀and฀on฀subsequent฀
earnings until the balance is distributed. This plan does not provide for
employer contributions.
฀ The฀Company฀recognized฀expense฀associated฀with฀employee฀
retirement฀plans฀of฀$154฀million฀in฀both฀2010฀and฀2009฀and฀$112฀million฀
in 2008.
NOTE 10 INCOME TAXES
The฀following฀is฀a฀reconciliation฀of฀the฀effective฀tax฀rate฀to฀the฀federal฀
statutory฀tax฀rate:
2010 2009 2008
Statutory฀federal฀income฀tax฀rate฀ ฀฀35.0%฀ ฀35.0%฀ ฀35.0%
State฀income฀taxes,฀net฀of
฀ federal฀tax฀benet฀ ฀3.0฀฀ ฀2.2฀฀฀ ฀2.9
Other, net (0.3) (0.3) (0.5)
Effective tax rate 37.7% 36.9% 37.4%
฀ The฀components฀of฀the฀income฀tax฀provision฀are฀as฀follows:
(In millions) 2010 2009 2008
Current:
฀ Federal฀ $1,171฀ $1,046฀ $1,070
State 188 123 166
Total current 1,359 1,169 1,236
Deferred:
Federal (117) (108) 82
State (24) (19) (7)
Total deferred (141) (127) 75
Total income tax provision $1,218 $1,042 $1,311
฀ The฀tax฀effects฀of฀cumulative฀temporary฀differences฀that฀gave฀rise฀
to฀the฀deferred฀tax฀assets฀and฀liabilities฀were฀as฀follows:
January 28 , January 29 ,
(In millions) 2011 2010
Deferred tax assets:
฀ Self-insurance฀ ฀ ฀ $฀ 303฀ $฀251
฀ Share-based฀payment฀expense฀ ฀฀ ฀ 128฀ ฀115
Deferred rent 89 75
Other, net 249 223
Total deferred tax assets 769 664
Valuation allowance (99) (65)
Net deferred tax assets 670 599
Deferred tax liabilities:
Property (870) (934)
Other, net (74) (55)
Total deferred tax liabilities (944) (989)
Net deferred tax liability $ (274) $ (390)
The Company operates as a branch in various foreign jurisdictions
and฀cumulatively฀has฀incurred฀net฀operating฀losses฀of฀$310฀million฀and฀
$209฀million฀as฀of฀January฀28,฀2011,฀and฀January฀29,฀2010,฀respectively.฀
The฀net฀operating฀losses฀are฀subject฀to฀expiration฀in฀2017฀through฀2030.฀
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 for the full amount
of฀the฀net฀deferred฀tax฀assets,฀$99฀million฀and฀$65฀million฀at฀January฀28,฀
2011, and January 29, 2010, respectively.
A reconciliation of the beginning and ending balances of
unrecognized฀tax฀benets฀is฀as฀follows:
(In millions) 2010 2009 2008
Unrecognized฀tax฀benets,฀
฀ beginning฀of฀year฀ $154฀ $200฀฀ $138
Additions฀for฀tax฀positions฀of฀prior฀years฀ 22฀ ฀31฀ ฀82฀
Reductions฀for฀tax฀positions฀of฀prior฀years฀ (19)฀ ฀(45)฀ ฀(16)
Net฀additions฀based฀on฀tax฀positions฀
related to the current year 9 5 16
Settlements (1) (37) (19)
Reductions due to a lapse in applicable
statute of limitations – – (1)
Unrecognized฀tax฀benets,฀end฀of฀year฀ $165฀฀ $154฀฀ $200฀
฀ The฀amounts฀of฀unrecognized฀tax฀benets฀that,฀if฀recognized,฀would฀
favorably฀impact฀the฀effective฀tax฀rate฀were฀$8฀million฀and฀$7฀million฀as฀
of January 28, 2011, and January 29, 2010, respectively.
฀ During฀2010,฀the฀Company฀recognized฀$7฀million฀of฀interest฀
expense฀and฀a฀$0.2฀million฀increase฀in฀penalties฀related฀to฀uncertain฀
tax฀positions.฀As฀of฀January฀28,฀2011,฀the฀Company฀had฀$21฀million฀
of฀accrued฀interest฀and฀$0.7฀million฀of฀accrued฀penalties.฀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฀$3฀million฀of฀penalties฀related฀to฀uncertain฀
tax฀positions.
฀ The฀Company฀is฀subject฀to฀examination฀by฀various฀foreign฀and฀
domestic฀taxing฀authorities.฀The฀Company฀is฀appealing฀an฀IRS฀
examination฀for฀scal฀years฀2004฀and฀2005฀related฀to฀insurance฀
deductions. It is reasonably possible this issue will be settled within
the฀next฀twelve฀months฀resulting฀in฀a฀reduction฀in฀its฀unrecognized฀
tax฀benet฀of฀approximately฀$70฀million.฀The฀Company’s฀U.S.฀federal฀
income฀tax฀returns฀for฀fiscal฀years฀2006฀and฀2007฀are฀currently฀
under฀audit.฀There฀are฀also฀ongoing฀U.S.฀state฀audits฀covering฀tax฀
years 2002 to 2009. The Company believes appropriate provisions
for all outstanding issues have been made for all jurisdictions and all
open years.