Lowe's 2013 Annual Report Download - page 48

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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.
Shareholders' Equity - The Company has a share repurchase program that is executed through purchases made from time to
time either in the open market or through private market transactions. Shares purchased under the repurchase program are
retired and returned to authorized and unissued status. Any excess of cost over par value is charged to additional paid-in capital
to the extent that a balance is present. Once additional paid-in capital is fully depleted, remaining excess of cost over par value
is charged to retained earnings.
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 $461 million and $441 million at
January 31, 2014, and February 1, 2013, 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 $431 million and $383 million
at January 31, 2014, and February 1, 2013, 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)
2013
2012
Deferred revenue - extended protection plans, beginning of year
$
715
$
704
Additions to deferred revenue
294
251
Deferred revenue recognized
(279
)
(240
)
Deferred revenue - extended protection plans, end of year
$
730
$
715
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 $53 million and $95 million at January 31, 2014 and February 1, 2013, respectively. The Company’s extended
protection plan deferred costs are included in other assets (noncurrent) 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.
The liability for extended protection plan claims incurred is included in other current liabilities on the consolidated balance
sheets. Changes in the liability for extended protection plan claims are summarized as follows:
(In millions)
2013
2012
Liability for extended protection plan claims, beginning of year
$
20
$
21
Accrual for claims incurred
114
102
Claim payments
(116
)
(103
)
Liability for extended protection plan claims, end of year
$
18
$
20
Cost of Sales and Selling, General and Administrative Expenses - The following lists the primary costs classified in each
major expense category: