Lowe's 2014 Annual Report Download - page 53

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. The amount of revenue recognized from unredeemed stored-value cards for which redemption was
deemed remote was not significant for 2014, 2013, and 2012.
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) 2014 2013
Deferred revenue - extended protection plans, beginning of year $ 730
$ 715
Additions to deferred revenue 318
294
Deferred revenue recognized (318 ) (279)
Deferred revenue - extended protection plans, end of year $ 730
$ 730
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 $30 million and $53 million at January 30, 2015, and January 31, 2014, 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 and was not material in any of the years presented. Expenses for claims are recognized when incurred and totaled $123
million and $114 million for 2014 and 2013, respectively.
Cost of Sales and Selling, General and Administrative Expenses - The following lists the primary costs classified in each
major expense category:
Cost of Sales Selling, General and Administrative

Total cost of products sold, including:
- Purchase costs, net of vendor funds;
- Freight expenses associated with moving
merchandise inventories from vendors to retail
stores;
- Costs associated with operating the Company's
distribution network, including payroll and benefit
costs and occupancy costs;
Costs of installation services provided;
Costs associated with delivery of products directly
from vendors to customers by third parties;
Costs associated with inventory shrinkage and
obsolescence.
Costs of services performed under the extended
protection plan.

Payroll and benefit costs for retail and corporate
employees;
Occupancy costs of retail and corporate facilities;
Advertising;
Costs associated with delivery of products from stores
and distribution centers to customers;
Third-party, in-store service costs;
Tender costs, including bank charges, costs associated
with credit card interchange fees and amounts
associated with accepting the Company's proprietary
credit cards;
Costs associated with self-insured plans, and premium
costs for stop-loss coverage and fully insured plans;
Long-lived asset impairment losses and gains/losses
on disposal of assets;
Advertising - Costs associated with advertising are charged to expense as incurred. Advertising expenses were $819 million,
$811 million and $809 million in 2014, 2013 and 2012, respectively.
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