Lowe's 2015 Annual Report Download - page 51

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Self-Insurance - The Company is self-insured for certain losses relating to workers’ compensation, automobile, property, and
general and product liability claims. The Company has insurance coverage to limit the exposure arising from these
claims. The Company is also self-insured for certain losses relating to extended protection plan and medical and dental
claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the
discounted ultimate cost for self-insured claims incurred using actuarial assumptions followed in the insurance industry and
historical experience. Although management believes it has the ability to reasonably estimate losses related to claims, it is
possible that actual results could differ from recorded self-insurance liabilities. The total self-insurance liability, including the
current and non-current portions, was $883 million and $905 million at January 29, 2016, and January 30, 2015, respectively.
The Company provides surety bonds issued by insurance companies to secure payment of workers’ compensation liabilities as
required in certain states where the Company is self-insured. Outstanding surety bonds relating to self-insurance were $240
million and $234 million at January 29, 2016, and January 30, 2015, respectively.
Income Taxes - The Company establishes deferred income tax assets and liabilities for temporary differences between the tax
and financial accounting bases of assets and liabilities. The tax effects of such differences are reflected in the consolidated
balance sheets at the enacted tax rates expected to be in effect when the differences reverse. A valuation allowance is recorded
to reduce the carrying amount of deferred tax assets if it is more likely than not that all or a portion of the asset will not be
realized. The tax balances and income tax expense recognized by the Company are based on management’s interpretation of
the tax statutes of multiple jurisdictions.
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 $619 million and $545 million at
January 29, 2016, and January 30, 2015, 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 $459 million and $434 million
at January 29, 2016, and January 30, 2015, 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. The amount of revenue recognized from unredeemed stored-value cards for which redemption was
deemed remote was not significant for 2015, 2014, and 2013.
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)
2015
2014
2013
Deferred revenue - extended protection plans, beginning of year
$
730
$
730
$
715
Additions to deferred revenue
350
318
294
Deferred revenue recognized
(351
)
(318
)
(279
)
Deferred revenue - extended protection plans, end of year
$
729
$
730
$
730