Lowe's 2015 Annual Report Download - page 52

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43
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 $20 million and $30 million at January 29, 2016, and January 30, 2015, 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 $127
million, $123 million, and $114 million for 2015, 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, incl
uding 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 fr
om 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;
Other administrative costs, such as supplies, and
travel and entertainment.
Advertising - Costs associated with advertising are charged to expense as incurred. Advertising expenses were $769 million,
$819 million, and $811 million in 2015, 2014, and 2013, respectively.
Shipping and Handling Costs - The Company includes shipping and handling costs relating to the delivery of products
directly from vendors to customers by third parties in cost of sales. Shipping and handling costs, which include third-party
delivery costs, salaries, and vehicle operations expenses relating to the delivery of products from stores and distribution centers
to customers, are classified as SG&A expense. Shipping and handling costs included in SG&A expense were $607 million,
$548 million and $501 million in 2015, 2014, and 2013, respectively.
Store Opening Costs - Costs of opening new or relocated retail stores, which include payroll and supply costs incurred prior to
store opening and grand opening advertising costs, are charged to expense as incurred.
Comprehensive Income - The Company reports comprehensive income in its consolidated statements of comprehensive
income and consolidated statements of shareholders’ equity. Comprehensive income represents changes in shareholders’ equity
from non-owner sources and is comprised of net earnings adjusted primarily for foreign currency translation adjustments. Net
foreign currency translation losses, net of tax, classified in accumulated other comprehensive loss were $394 million, $103
million, and $17 million at January 29, 2016, January 30, 2015, and January 31, 2014, respectively.
Segment Information - The Company’s home improvement retail operations represent a single reportable segment. Key
operating decisions are made at the Company level in order to maintain a consistent retail store presentation. The Company’s
home improvement retail stores sell similar products and services, use similar processes to sell those products and services, and
sell their products and services to similar classes of customers. In addition, the Company’s operations exhibit similar economic
characteristics. The amounts of long-lived assets and net sales outside of the U.S. were not significant for any of the periods
presented.