Lowe's 2012 Annual Report Download - page 49

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35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 1, 2013, FEBRUARY 3, 2012 AND JANUARY 28, 2011
NOTE 1: Summary of Significant Accounting Policies
Lowe’s Companies, Inc. and subsidiaries (the Company) is the world’s second-largest home improvement retailer and
operated 1,754 stores in the United States, Canada and Mexico at February 1, 2013. Below are those accounting policies
considered by the Company to be significant.
Fiscal Year - The Company’s fiscal year ends on the Friday nearest the end of January. Fiscal years 2012 and 2010 each
contained 52 weeks and fiscal year 2011 contained 53 weeks. All references herein for the years 2012, 2011 and 2010
represent the fiscal years ended February 1, 2013, February 3, 2012, and January 28, 2011, respectively.
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-
owned or controlled operating subsidiaries. All intercompany accounts and transactions have been eliminated.
Foreign Currency - The functional currencies of the Company’s international subsidiaries are generally the local
currencies of the countries in which the subsidiaries are located. Foreign currency denominated assets and liabilities are
translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Results of operations
and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate
fluctuations on translation of assets and liabilities is included as a component of shareholders’ equity in accumulated other
comprehensive income (loss). Gains and losses from foreign currency transactions, which are included in selling, general
and administrative (SG&A) expense, have not been significant.
Use of Estimates - The preparation of the Company’s financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make estimates that affect the reported
amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. The Company
bases these estimates on historical results and various other assumptions believed to be reasonable, all of which form the
basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other
sources. Actual results may differ from these estimates.
Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, demand deposits and short-term
investments with original maturities of three months or less when purchased. Cash and cash equivalents are carried at
amortized cost on the consolidated balance sheets. The majority of payments due from financial institutions for the
settlement of credit card and debit card transactions process within two business days and are, therefore, classified as cash
and cash equivalents.
Investments - As of February 1, 2013, investments consisted primarily of municipal obligations, money market funds and
municipal floating rate obligations. The Company classifies as investments restricted balances primarily pledged as
collateral for the Company’s extended protection plan program. At February 3, 2012, investments also included restricted
balances pledged as collateral for a portion of the Company’s casualty insurance and Installed Sales program liabilities.
Investments, exclusive of cash equivalents, with a stated maturity date of one year or less from the balance sheet date or
that are expected to be used in current operations, are classified as short-term investments. The Company’s trading
securities are also classified as short-term investments. All other investments are classified as long-term.
Prior to the end of 2012, the Company maintained investment securities that were previously held in conjunction with
certain employee benefit plans that are classified as trading securities. These securities were carried at fair value with
unrealized gains and losses included in SG&A expense. All other investment securities are classified as available-for-sale
and are carried at fair value with unrealized gains and losses included in accumulated other comprehensive income (loss) in
shareholders’ equity.
Merchandise Inventory - Inventory is stated at the lower of cost or market using the first-in, first-out method of inventory
accounting. The cost of inventory also includes certain costs associated with the preparation of inventory for resale,
including distribution center costs, and is net of vendor funds.