Kohl's 2014 Annual Report Download - page 51

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



Advertising costs, which include primarily television and radio broadcast, direct mail, digital, and newspaper circulars, are expensed when the
advertisement is first seen. Advertising costs, net of related vendor allowances, were as follows:

Gross advertising costs  
$ 1,185
$ 1,163
Vendor allowances 
(172)
(170)
Net advertising costs  
$ 1,013
$ 993
Net advertising costs as a percent of net sales 
5.3%
5.2%

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recorded based on
differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes.
Deferred tax assets and liabilities are calculated using the enacted tax rates and laws that are expected to be in effect when the differences are expected to
reverse. We establish valuation allowances for deferred tax assets when we believe it is more likely than not that the asset will not be realizable for tax
purposes.
We recognize interest and penalty expense related to unrecognized tax benefits in our provision for income tax expense.

Basic net income per share is net income divided by the average number of common shares outstanding during the period. Diluted net income per share
includes incremental shares assumed to be issued upon exercise of stock options.
The information required to compute basic and diluted net income per share is as follows:

Numerator—net income  
$ 889
$ 986
Denominator—weighted average shares
Basic
218
235
Impact of dilutive employee stock options (a)
2
2
Diluted
220
237
Net income per share:
Basic  
$ 4.08
$ 4.19
Diluted  
$ 4.05
$ 4.17
(a) Excludes 3 million share-based awards for 2014, 10 million share-based awards for 2013 and 14 million share-based awards for 2012 as the
impact of such awards was antidilutive.

Stock-based compensation expense is generally recognized on a straight-line basis over the vesting period based on the fair value of awards which are
expected to vest. The fair value of all share-based awards is estimated on the date of grant.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606),
which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to
depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. We are required to adopt the new pronouncement in the first quarter of fiscal 2017 using one of two retrospective application
methods. We are evaluating the application method and the impact of this new statement on our financial statements.
F-12