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Annual Report Project Lowe's Companies, Inc. - Fiscal 2015 Project is Activated >SAVING YOUR PROJECT -- Immediately after Activation Save your project by following these directions - - - - - - - - - - - - - - Save your project in a file that uses your name as the file name. The file name should be in the form: LastNameFirstName-ARP For example, Mary Smith would save her project with the file name SmithMary-ARP Your Excel Project 2016 Contains Windows, 16 follow Tabs these -- Pg1directions: to Pg16 - Click File (top left) - Click Save As (in list on left) - Click This PC (or click Computer) C:> Red Company 10e (center of screen) Print-- Click Lowe's Financial Statements In File name: enter LastNameFirstName-ARP - Save as type: must be Excel Macro-Enabled Workbook - Click Save To print Lowe's financial statements, follow the directions below. After you print Excel 2013 Windows, follow these directions: the financial statements, fill-in the three basic information questions on this page. - Click File (top left) - Click Save As (in list on left) This ARP is for Lowe's 2015 fiscal -year which ended (or on click January 29, 2016. Be sure to follow Click Computer This PC) Click Red 10e statements. (under Current Folder) the directions below for printing the- 2015 fiscalCompany year financial In File name: enter LastNameFirstName-ARP See your instructor if you have any- questions concerning the fiscal year of the statements. - Save as type: must be Excel Macro-Enabled Workbook - Click Save Use Adobe Acrobat to open the file Lowe's 2015 Annual Report.pdf. This file is located Excel 2010 Windows, follow these directions: in the Company Financial Statements folder that is under the Red Company 10e folder. - Click File (top left) - Click Save As (in list on left) - In File name: enter LastNameFirstName-ARP Print the following from Lowe's Fiscal Annual - Save2015 as type: mustReport: be Excel Macro-Enabled Workbook _ Report of Independent Registered Public Accounting Firm (PDF pg 1 / report pg 32) - Click Save _ Consolidated Statements of Earnings (PDF pg 3 / report pg 34) _ Consolidated Balance Sheets (PDF pg 4 / report pg 35) _ Consolidated Statements ofRead Shareholders' Equity pg 5 / report pg 36) Tip: the information under(PDF the heading _ Consolidated Statements of Cash Flows (PDF pg 6 / report "Fiscal Year" on page 38 of the Notespg to 37) Consolidated Financial Statements. This _ Notes to Consolidated Financial Statements item will not be graded by the grading software, but might be graded by your instructor. (print the first page and the fifth page of the Notes located on PDF pgs 7 and 11 / report pgs 38 and 42) Be careful not to print out the entire annual report. Go to the correct page in the PDF document, select File, then Print, then Current Page. 1. Lowe's Fiscal 2015 year ended on what date? January 29, 2016 (mm/dd/yyyy) 2. List the name of Lowe's Independent Registered Public Accounting Firm: DELOITTE & TOUCHE LLP 3. Revenue Recognition Record below when Lowe's recognizes revenue from the sale of merchandise. This can be found in Notes to Consolidated Financial Statements under "Revenue Recognition". As found in the Notes section of the Consolidated Financial Statements for "Revenue recogniition": The Company recognizes revenues, net of sales tax, when sales transactions occur and customers take possession of the merchandise." This occurs during the year accounting period, January 29, 2016, and January 30, 2015, respectively. As you work on your project, be sure to save your file often. Lowe's -- Fiscal 2015 Pg. 2 Vertical Analysis of the Income Statement (Common-Size Statements) Use the data from Lowe's Consolidated Statements of Earnings to fill in Fiscal 2015 below. Enter the amounts exactly as they are shown on the financial statement, which are in millions. Lowe's Consolidated Statements of Earnings (Dollars in Millions) Fiscal 2015 Fiscal 2014 Fiscal 2013 ended January 29, 2016 ended January 30, 2015 ended January 31, 2014 Dollars Net Sales Cost of Sales Gross Margin $ % 59,074 38,504 20,570 100.00% 65.18% 34.82% 14,115 1,484 552 16,151 Pre-Tax Earnings Income Tax Provision Expenses: Selling, General and Admin. Depreciation Interest - net Total Expenses Net Earnings $ Dollars $ 56,223 36,665 19,558 100.00% 65.21% 34.79% 23.89% 2.51% 0.93% 27.34% 13,281 1,485 516 15,282 4,419 7.48% 1,873 3.17% 2,546 4.31% $ ** % columns may not add-up due to rounding $2.73 Dollars $ % 53,417 34,941 18,476 100.00% 65.41% 34.59% 23.62% 2.64% 0.92% 27.18% 12,865 1,462 476 14,803 24.08% 2.74% 0.89% 27.71% 4,276 7.61% 3,673 6.88% 1,578 2.81% 1,387 2.60% 2,698 4.80% 2,286 4.28% ** Basic Earnings per Common Share % $ ** $2.71 ** $2.14 Lowe's -- Fiscal 2015 Pg. 3 Horizontal Analysis of the Income Statement Enter the amounts for Fiscal 2015 for the following income statement items. Then calculate and enter the Dollar Change and the % Change from Fiscal 2014 to Fiscal 2015. Enter the dollar amounts just as they are shown on the financial statement. Round the percentages to 2 decimal places. xx.xx% Fiscal 2015 $xxx,xxx Net Sales $59,074 Dollar Change % Change 2014 to 2015 Fiscal 2014 Dollar Change % Change 2013 to 2014 Fiscal 2013 $xxx,xxx $2,851 5.07 % $56,223 $2,806 5.25 % $53,417 $36,665 $1,724 4.93 % $34,941 $19,558 $1,082 5.86 % $18,476 $13,281 $416 3.23 % $12,865 $4,276 $603 16.42 % $3,673 $1,578 $191 13.77 % $1,387 $2,698 $412 18.02 % $2,286 $2.71 $0.57 26.64 % $2.14 xx.xx% $xxx,xxx Cost of Sales $38,504 $xxx,xxx $1,839 5.01 % xx.xx% $xxx,xxx Gross Margin $20,570 $xxx,xxx $1,012 5.17 % xx.xx% $xxx,xxx Selling, General and Administrative $14,115 $xxx,xxx $834 6.28 % xx.xx% Pre-Tax Earnings $xxx,xxx $xxx,xxx $4,419 $143 3.34 % xx.xx% Income Tax Provision $xxx,xxx $xxx,xxx $1,873 $297 18.59 % $xxx,xxx $xxx,xxx xx.xx% Net Earnings ($11,732) $9,034 76.98 % xx.xx% $xx.xx Basic Earnings Per Share $2.73 $xx.xx $0.02 0.74 % xx.xx% Lowe's -- Fiscal 2015 Pg. 4 Vertical Analysis of the Balance Sheet (Common-Size Statements) Use the data from Lowe's Consolidated Balance Sheets to fill in Fiscal 2015 below. Enter the amounts exactly as they are shown on the financial statement, which are in millions. Lowe's Consolidated Balance Sheets (Dollars in Millions) Fiscal 2015 Fiscal 2014 as of January 29, 2016 as of January 30, 2015 Dollars % Dollars % Assets CURRENT ASSETS: Cash and Cash Equivalents Short-Term Investments Merchandise Inventory - net Other Current Assets Total Current Assets Property, Less Accumulated Depreciation Long-Term Investments Deferred Income Taxes - net Other Assets Total Assets Liabilities and Shareholders' Equity CURRENT LIABILITIES: Short-term Borrowings Current Maturities of Long-Term Debt Accounts Payable Accrued Compensation and Employee Benefits Deferred Revenue Other Current Liabilities $ $ $ Total Current Liabilities Long-Term Debt, Excluding Current Maturities Deferred Revenue - Extended Protection Plans Other Liabilities Total Liabilities SHAREHOLDERS' EQUITY Preferred Stock Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income Total Shareholders' Equity Total Liabilities and Shareholders' Equity $ 405 307 9,458 391 1.30% 0.98% 30.25% 1.25% 10,561 19,577 222 241 665 31,266 33.78% 62.61% 0.71% 0.77% 2.13% 100.00% 43 1,061 5,633 820 1,078 1,857 0.14% 3.39% 18.02% 2.62% 3.45% 5.94% 10,492 11,545 729 846 23,612 466 125 8,911 349 1.47% 0.39% 28.09% 1.10% 9,851 20,034 354 133 1,349 31,721 31.06% 63.16% 1.12% 0.42% 4.25% 100.00% 552 5,124 773 979 1,920 0.00% 1.74% 16.15% 2.44% 3.09% 6.05% 33.56% 36.93% 2.33% 2.71% 75.52% 9,348 10,806 730 869 21,753 29.47% 34.07% 2.30% 2.74% 68.58% 0 455 0 7,593 (394) 7,654 0.00% 1.46% 0.00% 24.29% (1.26%) 24.48% 0 480 0 9,591 (103) 9,968 0.00% 1.51% 0.00% 30.24% (0.32%) 31.42% 31,266 100.00% 31,721 100.00% ** ** % columns may not add-up due to rounding $ $ $ $ ** Lowe's -- Fiscal 2015 Pg. 5 Horizontal Analysis of the Balance Sheet For the following balance sheet items enter the amounts for Fiscal 2015, and then calculate the Dollar Change and the % Change from 2014 to 2015. Enter the 2015 dollar amounts as shown on the financial statement, which are in millions. Round the percentages to 2 decimal places. xx.xx% Fiscal 2015 $xxx,xxx Dollar Change % Change 2014 to 2015 Fiscal 2014 $xxx,xxx $8,911 Merchandise Inventory - net % xx.xx% $xxx,xxx $xxx,xxx $9,851 Total Current Assets % xx.xx% $xxx,xxx $xxx,xxx $20,034 Property, Less Accumulated Depreciation % xx.xx% $xxx,xxx $xxx,xxx $31,721 Total Assets % xx.xx% $xxx,xxx $xxx,xxx $552 Current Maturities of Long-Term Debt % xx.xx% $xxx,xxx $xxx,xxx $9,348 Total Current Liabilities % xx.xx% $xxx,xxx $xxx,xxx $21,753 Total Liabilities % xx.xx% $xxx,xxx $xxx,xxx $9,591 Retained Earnings % xx.xx% $xxx,xxx $xxx,xxx $9,968 Total Shareholders' Equity % xx.xx% Lowe's -- Fiscal 2015 Pg. 6 DuPont Analysis -- Return on Assets C Do NOT on any Apply DuPont Analysis and the Return on Assets % to evaluate Lowe's overall financial performance. Use the information in Lowe's Income Statement and Balance Sheets for Fiscal 2015 and Fiscal 2014 to calculate the four DuPont Ratios and the Return on Assets %. In the left-hand column enter the names of the financial statement items that will be used in the numerator and the denominator of the ratios. Enter the financial statement dollar amounts just as they are shown on the financial statements. Round all averages to 0 decimal places -- a whole number $xxx,xxx Round the percentages to 2 decimal places. xx.xx% Round the decimal results to 2 decimal places. xx.xx Note: Since each ratio is being rounded, it is possible that Return on Equity % will not exactly equal (Profitability x Efficiency x Leverage). Calculate each ratio separately. Do not calculate Return on Equity % by multiplying (Profitability x Efficiency x Leverage). Tip: When e financial sta terminology statements. graded by th might be gra DuPont Analysis (Profitability) 2015 2014 Net Profit Margin % $xxx,xxx Net Earnings xx.xx% % $xxx,xxx x 4.80 % x (Efficiency) Total Assets Turnover Ratio For example calculate the result to 0 d $xxx,xxx xx.xx Beg. Yr. Amt. End. Yr. Amt. Average $xxx,xxx $xxx,xxx $xxx,xxx times x Tip: If you u Average ce function to r 1.74 =Round(( E x (Leverage) Assets-to-Equity Ratio $xxx,xxx xx.xx Beg. Yr. Amt. End. Yr. Amt. Average $xxx,xxx $xxx,xxx $xxx,xxx to 1 = 2.95 = Return on Equity % $xxx,xxx % 24.73 % xx.xx% $xxx,xxx Return on Assets 2015 2014 Return on Assets % $xxx,xxx xx.xx% % $xxx,xxx 8.37 % Tip: The ca and the calc Stockholder time you ne you calculat that average ratio calcula Lowe's -- Fiscal 2015 Pg. 7 Profitability Indicators Apply the three Profitability Indicators to evaluate Lowe's profitability. Use the information in Lowe's Fiscal 2015 Income Statement to calculate the three Profitability Indicators. In the left-hand column enter the names of the items that will be used in the numerator and the denominator of the ratios. Enter the financial statement dollar amounts just as they are shown on the financial statements. Round the percentages to 2 decimal places. xx.xx% 2015 2014 Gross Profit Margin % $xxx,xxx % 34.79 % % 8.52 % % 4.80 % xx.xx% $xxx,xxx Operating Profit Margin % $xxx,xxx xx.xx% $xxx,xxx Net Profit Margin % $xxx,xxx xx.xx% $xxx,xxx Lowe's -- Fiscal 2015 Pg. 8 Efficiency Indicators Apply the Efficiency Indicators to drill down into Lowe's efficiency. Use the information in Lowe's Income Statement and Balance Sheets for Fiscal 2015 and Fiscal 2014 to calculate the Efficiency Indicators. In the left-hand column enter the names of the financial statement items that will be used in the numerator and the denominator of the ratios. Enter the financial statement dollar amounts just as they are shown on the financial statements. Round all averages to 0 decimal places -- a whole number $xxx,xxx Round the decimal results to 2 decimal places. xx.xx 2015 2014 Accounts Receivable Turnover Ratio $xxx,xxx Net Sales Average Accounts Receivable, net $59,074 Beg. Yr. Amt. End. Yr. Amt. Average $0 $0 $0 $xxx,xxx $xxx,xxx $xxx,xxx N/A times N/A days 0.00 times 4.07 xx.xx Number of Days' Sales in Receivables xxx Days in a Year (365) 365 Accounts Receivable Turnover Ratio N/A 0.00 xx.xx xx.xx Inventory Turnover Ratio $xxx,xxx Beg. Yr. Amt. End. Yr. Amt. Average xx.xx $xxx,xxx $xxx,xxx $xxx,xxx Number of Days' Sales in Inventory xxx Days in a Year (365) days Inventory Turnover Ratio 89.68 xx.xx xx.xx Accounts Payable Turnover Ratio $xxx,xxx Beg. Yr. Amt. End. Yr. Amt. times Average 7.24 xx.xx $xxx,xxx $xxx,xxx $xxx,xxx Number of Days' Purchases in Accounts Payable xxx Days in a Year (365) days Accounts Payable Turnover Ratio 50.41 xx.xx xx.xx Cash-to-Cash Cycle xx.xx 89.68 (50.41) 39.27 0.00 39.27 Number of Days' Sales in Inventory less Number of Days' Purchases in Accounts Payable Net Number of Days Cash is Invested in Inventory 0.00 plus Number of Days' Sales in Receivables Cash-to-Cash Days 2015 2014 Fixed Asset Turnover Ratio $xxx,xxx Beg. Yr. Amt. End. Yr. Amt. times Average xx.xx $xxx,xxx $xxx,xxx $xxx,xxx 2.75 Lowe's -- Fiscal 2015 Pg. 9 Leverage Indicators (at year-end) -- Interest Coverage Use the information in Lowe's 2015 Balance Sheet and Income Statement to calculate the two "year-end" Leverage Indicators and the Times Interest Earned Ratio. In the left-hand column enter the names of the items that will be used in the numerator and the denominator of the ratios. Enter the financial statement dollar amounts just as they are shown on the financial statements. Round the percentages to 2 decimal places. xx.xx% Round the decimal results to 2 decimal places. xx.xx 2015 2014 Debt % $xxx,xxx % 68.58 % xx.xx% $xxx,xxx Debt-to-Equity Ratio $xxx,xxx to 1 2.18 times 9.29 xx.xx $xxx,xxx Times Interest Earned Ratio $xxx,xxx Pre-tax earnings + Interest-net Interest-net xx.xx $xxx,xxx Lowe's -- Fiscal 2015 Pg. 10 Liquidity Indicators Use the information in Lowe's 2015 Balance Sheet to calculate the three Liquidity Indicators. In the left-hand column enter the names of the items that will be used in the calculation. Enter the financial statement dollar amounts just as they are shown on the Balance Sheet. Round the decimal results to 2 decimal places. xx.xx 2015 2014 Working Capital $xxx,xxx Working Capital $503 Current Ratio $xxx,xxx to 1 1.05 to 1 0.06 xx.xx $xxx,xxx (Acid Test Ratio) Quick Ratio $xxx,xxx Cash and Near-Cash Assets xx.xx $xxx,xxx Lowe's -- Fiscal 2015 Pg. 11 Statement of Cash Flows Indicators Use the information in Lowe's 2015 Consolidated Statement of Cash Flows to calculate the three Statement of Cash Flows Indicators. In the left-hand column enter the names of the items that will be used in the calculation. Enter the financial statement dollar amounts in millions of dollars as shown on the Consolidated Statement of Cash Flows. Round the decimal results to 2 decimal places. xx.xx (Quality of Income Ratio) 2015 2014 Cash Flow to Net Income Ratio $xxx,xxx to 1 1.83 to 1 5.95 xx.xx $xxx,xxx (Cash Flow Adequacy Ratio) Cash Flow to Capital Expenditures Ratio $xxx,xxx Net Cash Paid to Purchase PP&E xx.xx $xxx,xxx Free Cash Flow $xxx,xxx Net Cash Paid to Purchase PP&E Free Cash Flow $3,279 Lowe's -- Fiscal 2015 Pg. 12 Equity Investor Indicators Use the information in Lowe's Consolidated Statements of Shareholders' Equity to calculate Lowe's Dividend Payout %. Use the information at the bottom of Lowe's Consolidated Statements of Earnings and Lowe's Year-End Closing Market Price of 1 Common Share to calculate Lowe's Price-Earnings Ratio and Dividend Yield %. Enter the financial statement dollar amounts just as they are shown on the financial statements. Round the percentages to 2 decimal places. xx.xx% Round the decimal results to 2 decimal places. xx.xx 2015 2014 Dividend Payout % $xxx,xxx % 31.80 % xx.xx% $xxx,xxx Year-End Closing Market Price of 1 Common Share The Year-End Closing Market Price of 1 share of Lowe's Common Stock is not given in Lowe's annual report. The Year-End Closing Market Price is used in the two calculations below. The last day in Lowe's 2015 fiscal year was Friday, Jan. 29, 2016. Lowe's common stock trades on the New York Stock Exchange (NYSE). On the NYSE, Lowe's year-end closing market price on Friday, Jan. 29, 2016 was $71.66. Enter that price in the box below. 2015 Year-End Closing Market Price of 1 Common Share: $xx.xx (PE Ratio) 2015 2014 Price-Earnings Ratio $xx.xx times Basic earnings per common share 25.00 xx.xx $xx.xx Dividend Yield % $xx.xx Cash dividends per share % xx.xx% $xx.xx 1.28 % Lowe's -- Fiscal 2015 Pg. 13 Analytical Observations You will now utilize the information developed in Pages 2 to 12 to answer various analytical questions. 1. Vertical Analysis of the Income Statement (Pg. 2) 1> Which fiscal year had the highest Pre-Tax Earnings in terms of total dollars? [ "x" only one answer ] 2015 2014 2013 2014 2013 2> Which fiscal year had the highest Total Expenses as a % of Net Sales? [ "x" only one answer ] 2015 3> Based on Gross Margin as a % of Net Sales, rank the fiscal years 2015, 2014, and 2013 in terms of which year had the highest. Place a "1" in the box of the highest year, a "2" in the box of the second highest year, etc. 2015 2014 2013 4> Which fiscal year had the highest Net Earnings as a % of Net Sales? [ "x" only one answer ] 2015 2014 2013 2. Horizontal Analysis of the Income Statement (Pg. 3) 1> Rank the following items in terms of which had the largest % increase from Fiscal 2013 to Fiscal 2014. Place a "1" in the box of the largest, a "2" in the box of the second largest, etc. Selling, General and Net Sales Cost of Sales Administrative Basic Earnings Per Share 2> Rank the following items in terms of which had the largest % increase from Fiscal 2014 to Fiscal 2015. Place a "1" in the box of the largest, a "2" in the box of the second largest, etc. Selling, General and Net Sales Cost of Sales Administrative Basic Earnings Per Share 3> True or False? In terms of % Change, Basic Earnings Per Share grew more than Net Earnings from Fiscal 2013 to Fiscal 2014. [ "x" only one answer ] True False 4> True or False? In terms of % Change, from Fiscal 2014 to Fiscal 2015 Selling, General and Administrative increased more than Net Sales. [ "x" only one answer ] True False 5> True or False? In terms of % Change, Cost of Sales had a smaller increase than Net Sales from Fiscal 2014 to Fiscal 2015. [ "x" only one answer ] True False Lowe's -- Fiscal 2015 Pg. 14 Analytical Observations 3. Vertical Analysis of the Balance Sheet (Pg.4) 1> For fiscal year 2015, rank the following assets in terms of which was the largest as a % of Total Assets. Place a "1" in the box of the largest, a "2" in the box of the second largest, etc. Cash and Cash Equivalents Short-Term Investments Merchandise Inventory - net Property, Less Accum. Depr. 2> For fiscal year 2015, rank the following items in terms of which was the largest as a % of Total Liabilities and Shareholders' Equity. Place a "1" in the box of the largest, a "2" in the box of the second largest, etc. Long-Term Debt, Accounts Payable Excluding Current Maturities Common Stock Retained Earnings 4. Horizontal Analysis of the Balance Sheet (Pg. 5) 1> Rank the following items in terms of which had the largest % increase from Fiscal 2014 to Fiscal 2015. Place a "1" in the box of the largest, a "2" in the box of the second largest, etc. Merchandise Inventory - Net Current Maturities of Long-Term Debt Total Current Assets Total Liabilities 2> Rank the following items in terms of which had the largest Dollar increase from Fiscal 2014 to Fiscal 2015. Place a "1" in the box of the largest, a "2" in the box of the second largest, etc. Merchandise Inventory - Net Current Maturities of Long-Term Debt Total Current Assets Total Liabilities 5. DuPont Analysis -- Return on Assets Ratio (Pg. 6) 1> Which of the following increased from Fiscal 2014 to Fiscal 2015? ["x" each item that increased] Profitability Efficiency Leverage 2015 2014 2015 2014 2> Which fiscal year has the highest Return on Assets %? [ "x" only one answer ] 3> Which fiscal year has the highest Return on Equity%? [ "x" only one answer ] 6. Profitability Indicators (Pg. 7) 1> Which fiscal year, 2015 or 2014, had higher profitability based on Operating Profit Margin % and Net Profit Margin %? [ "x" only one answer ] 2015 2014 Lowe's -- Fiscal 2015 Pg. 15 Analytical Observations 7. Efficiency Indicators (Pg.8) 1> Based on the Inventory Turnover Ratio, in which fiscal year, 2015 or 2014, did Lowe's more efficiently manage the Inventory asset? [ "x" only one answer ] 2015 2014 2> Based on Number of Days' Sales in Inventory, in which fiscal year, 2015 or 2014, did Lowe's have an item in inventory for the shortest amount of time? [ "x" only one answer ] 2015 2014 3> Based on the Number of Days' Purchases in Accounts Payable, in which fiscal year, 2015 or 2014, did Lowe's hold on to its cash longer before paying the cash to vendors? [ "x" only one answer ] 2015 2014 4> Which fiscal year, 2015 or 2014, had the better Cash-to-Cash Cycle? [ "x" only one answer ] 2015 2014 5> In which fiscal year, 2015 or 2014, did Lowe's have the better Fixed Asset Turnover Ratio? [ "x" only one answer ] 2015 2014 8. Leverage Indicators (at year-end) -- Interest Coverage (Pg. 9) 1> Based on the Debt %, who had the greatest claim to Lowe's assets in Fiscal 2014? [ "x" only one answer ] Creditors Shareholders 2> True or False? In Fiscal 2015 more than half of Lowe's Total Assets were financed with debt? [ "x" only one answer ] True False 3> Based on the Times Interest Earned Ratio, were the creditors' interest payments more secure in Fiscal 2015 or Fiscal 2014? [ "x" only one answer ] 2015 2014 9. Liquidity Indicators (Pg. 10) 1> Based on Working Capital and the Current Ratio did Liquidity increase or decrease from Fiscal 2014 to Fiscal 2015? [ "x" only one answer ] Liquidity Increased Liquidity Decreased Lowe's -- Fiscal 2015 Pg. 16 Analytical Observations 10. Statement of Cash Flows Indicators (Pg. 11) 1> True or False? By looking at the Cash Flow to Capital Expenditure Ratio it can be seen that Lowe's was able to internally fund the purchases of Fixed Assets in Fiscal 2015 and in Fiscal 2014. [ "x" only one answer ] True False 2> In which fiscal year, 2015 or 2014, did Lowe's have more Free Cash Flow? [ "x" only one answer ] 2015 2014 11. Equity Investor Indicators (Pg. 12) 1> True or False? Based on the Dividend Payout % it can be seen that Lowe's paid out a larger percent of Net Income, in the form of Cash Dividends, in Fiscal 2015 than in Fiscal 2014. [ "x" only one answer ] True False 2> Based on the Price-Earnings Ratio, in which fiscal year, 2015 or 2014, did investors place a higher value on Lowe's earnings? [ "x" only one answer ] 2015 2014 3> Based on the Dividend Yield %, in which fiscal year, 2015 or 2014, did an investor in Lowe's Common Stock earn a higher return from the cash dividends she received on her Lowe's Common Stock? [ "x" only one answer ] 2015 2014 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Lowe's Companies, Inc. Mooresville, North Carolina We have audited the accompanying consolidated balance sheets of Lowe's Companies, Inc. and subsidiaries (the \"Company\") as of January 29, 2016 and January 30, 2015, and the related consolidated statements of earnings, comprehensive income, shareholders' equity, and cash flows for each of the three fiscal years in the period ended January 29, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 29, 2016 and January 30, 2015, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 29, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 29, 2016, based on the criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 28, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Charlotte, North Carolina March 28, 2016 32 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Lowe's Companies, Inc. Mooresville, North Carolina We have audited the internal control over financial reporting of Lowe's Companies, Inc. and subsidiaries (the \"Company\") as of January 29, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 29, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended January 29, 2016 of the Company and our report dated March 28, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule. /s/ DELOITTE & TOUCHE LLP Charlotte, North Carolina March 28, 2016 33 Lowe's Companies, Inc. Consolidated Statements of Earnings (In millions, except per share and percentage data) Fiscal years ended on Net sales Cost of sales January 29, 2016 $ 59,074 38,504 January 30, 2015 100.00 % $ 56,223 65.18 36,665 % Sales January 31, 2014 100.00 % $ 53,417 65.21 34,941 % Sales % Sales 100.00% 65.41 Gross margin Expenses: 20,570 34.82 19,558 34.79 18,476 34.59 Selling, general and administrative 14,115 23.90 13,281 23.62 12,865 24.08 Depreciation 1,484 2.51 1,485 2.64 1,462 2.74 Interest - net 552 0.93 516 0.92 476 0.89 16,151 27.34 15,282 27.18 14,803 27.71 4,419 1,873 7.48 3.17 4,276 1,578 7.61 2.81 3,673 1,387 6.88 2.60 4.28 % Total expenses Pre-tax earnings Income tax provision Net earnings $ 2,546 4.31 % $ 2,698 4.80 % $ 2,286 Basic earnings per common share $ 2.73 $ 2.71 $ 2.14 Diluted earnings per common share $ 2.73 $ 2.71 $ 2.14 Cash dividends per share $ 1.07 $ 0.87 $ 0.70 Lowe's Companies, Inc. Consolidated Statements of Comprehensive Income (In millions, except percentage data) Fiscal years ended on Net earnings Foreign currency translation adjustments net of tax Net unrealized investment losses - net of tax January 29, 2016 $ 2,546 (291) (0.49) Other comprehensive loss Comprehensive income January 30, 2015 4.31 % $ 2,698 % Sales (291) $ (0.49) 2,255 3.82 % $ See accompanying notes to consolidated financial statements. 34 (86) (86) 2,612 January 31, 2014 4.80 % $ 2,286 % Sales (0.15) (0.15) 4.65 % $ (68) (1) (69) 2,217 % Sales 4.28 % (0.13) (0.13) 4.15 % Lowe's Companies, Inc. Consolidated Balance Sheets (In millions, except par value and percentage data) January 29, 2016 % Total January 30, 2015 % Total Assets Current assets: Cash and cash equivalents $ 405 1.3 % $ 466 1.5 % 307 1.0 125 0.4 9,458 30.3 8,911 28.1 391 1.3 349 1.1 10,561 19,577 33.9 62.6 9,851 20,034 31.1 63.2 Long-term investments 222 0.7 354 1.1 Deferred income taxes - net 241 0.8 133 0.4 Other assets 665 2.0 1,349 4.2 Short-term investments Merchandise inventory - net Other current assets Total current assets Property, less accumulated depreciation Total assets $ 31,266 100.0 % $ 31,721 100.0 % $ 43 0.1 % $ % Liabilities and shareholders' equity Current liabilities: Short-term borrowings Current maturities of long-term debt 1,061 3.4 552 1.7 Accounts payable 5,633 18.0 5,124 16.2 820 2.6 773 2.4 1,078 3.4 979 3.1 Accrued compensation and employee benefits Deferred revenue Other current liabilities 1,857 6.1 1,920 6.1 Total current liabilities Long-term debt, excluding current maturities 10,492 11,545 33.6 36.9 9,348 10,806 29.5 34.1 Deferred revenue - extended protection plans 729 2.3 730 2.3 Other liabilities Total liabilities 846 2.7 869 2.7 23,612 75.5 21,753 68.6 455 1.5 480 1.5 7,593 24.3 9,591 30.2 Commitments and contingencies Shareholders' equity: Preferred stock - $5 par value, none issued Common stock - $.50 par value; Shares issued and outstanding January 29, 2016 910 January 30, 2015 960 Capital in excess of par value Retained earnings Accumulated other comprehensive loss (394) Total shareholders' equity 7,654 Total liabilities and shareholders' equity $ See accompanying notes to consolidated financial statements. 35 31,266 (1.3) 24.5 100.0 % $ (103) (0.3) 9,968 31.4 31,721 100.0 % Lowe's Companies, Inc. Consolidated Statements of Shareholders' Equity (In millions) Common Stock Shares Balance February 1, 2013 Comprehensive income: Amount 1,110 $ Accumulated Total Other Retained Comprehensive Shareholders' Earnings Equity Income/(Loss) 26 $ 13,224 $ 52 $ 13,857 Capital in Excess of Par Value 555 $ Net earnings 2,286 Other comprehensive loss (69) Total comprehensive income Tax effect of non-qualified stock options exercised and restricted stock vested Cash dividends declared, $0.70 per share Share-based payment expense Repurchase of common stock Issuance of common stock under share-based payment plans Balance January 31, 2014 Comprehensive income: 2,217 25 25 (741) (741) 102 (88) (44) (312) 8 4 159 1,030 $ 515 $ $ Net earnings 102 (3,414) (3,770) 163 11,355 $ (17) $ 11,853 2,698 Other comprehensive loss (86) Total comprehensive income Tax effect of non-qualified stock options exercised and restricted stock vested Cash dividends declared, $0.87 per share Share-based payment expense 2,612 41 41 (858) (858) 111 Repurchase of common stock Issuance of common stock under share-based payment plans (75) (37) (286) Balance January 30, 2015 Comprehensive income: 5 2 134 960 $ 480 $ $ Net earnings 111 (3,604) (3,927) 136 9,591 $ (103) $ 9,968 2,546 Other comprehensive loss (291) Total comprehensive income Tax effect of non-qualified stock options exercised and restricted stock vested Cash dividends declared, $1.07 per share 2,255 61 Share-based payment expense 61 (991) (991) (3,553) (3,878) 112 Repurchase of common stock Issuance of common stock under share-based payment plans (54) (27) (298) 4 2 125 Balance January 29, 2016 910 $ 455 $ $ See accompanying notes to consolidated financial statements. 36 112 127 7,593 $ (394) $ 7,654 Lowe's Companies, Inc. Consolidated Statements of Cash Flows (In millions) January 29, 2016 Fiscal years ended on Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to net cash provided by operating activities: $ Depreciation and amortization Deferred income taxes Loss on property and other assets - net January 30, 2015 January 31, 2014 2,546 $ 2,698 $ 2,286 1,587 1,586 1,562 (68) (124) (162) 33 25 64 Loss on equity method investments 591 57 52 Share-based payment expense 117 119 100 Changes in operating assets and liabilities: Merchandise inventory - net (582) 170 (396) Other operating assets (34) 83 (5) Accounts payable 524 127 291 70 188 319 4,784 4,929 4,111 Other operating liabilities Net cash provided by operating activities Cash flows from investing activities: Purchases of investments (934) Proceeds from sale/maturity of investments 884 Capital expenditures Contributions to equity method investments - net Proceeds from sale of property and other long-term assets Acquisition of business - net Other - net Net cash used in investing activities Cash flows from financing activities: Net change in short-term borrowings 805 709 (880) (940) (125) (241) (173) 57 52 75 (203) (28) (4) (1,343) (1,088) 1,718 Repayment of long-term debt (552) Proceeds from issuance of common stock under share-based payment plans Cash dividend payments Repurchase of common stock Other - net (759) (1,197) 43 Net proceeds from issuance of long-term debt (820) (386) 1,239 (48) 5 (1,286) 386 985 (47) 125 137 165 (957) (822) (733) (3,925) (3,905) (3,710) 55 24 (15) Net cash used in financing activities (3,493) (3,761) (2,969) Effect of exchange rate changes on cash (9) (5) (6) Net increase/(decrease) in cash and cash equivalents (61) 75 (150) Cash and cash equivalents, beginning of year 466 391 541 405 $ 466 $ 391 Cash and cash equivalents, end of year $ See accompanying notes to consolidated financial statements. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JANUARY 29, 2016, JANUARY 30, 2015 AND JANUARY 31, 2014 NOTE 1: Summary of Significant Accounting Policies Lowe's Companies, Inc. and subsidiaries (the Company) is the world's second-largest home improvement retailer and operated 1,857 stores in the United States, Canada, and Mexico at January 29, 2016. Below are those accounting policies considered by the Company to be significant. Fiscal Year - The Company's fiscal year ends on the Friday nearest the end of January. Each of the fiscal years presented contained 52 weeks. All references herein for the years 2015, 2014, and 2013 represent the fiscal years ended January 29, 2016, January 30, 2015, and January 31, 2014, respectively. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its whollyowned or controlled operating subsidiaries. All intercompany accounts and transactions have been eliminated. Foreign Currency - The functional currencies of the Company's international subsidiaries are generally the local currencies of the countries in which the subsidiaries are located. Foreign currency denominated assets and liabilities are translated into U.S. dollars using the exchange rates in effect at the consolidated balance sheet date. Results of operations and cash flows are translated using the average exchange rates throughout the period. The effect of exchange rate fluctuations on translation of assets and liabilities is included as a component of shareholders' equity in accumulated other comprehensive loss. Gains and losses from foreign currency transactions, which are included in selling, general and administrative (SG&A) expense, have not been significant. Use of Estimates - The preparation of the Company's financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. The Company bases these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less when purchased. Cash and cash equivalents are carried at amortized cost on the consolidated balance sheets. The majority of payments due from financial institutions for the settlement of credit card and debit card transactions process within two business days and are, therefore, classified as cash and cash equivalents. Investments - As of January 29, 2016, investments consisted primarily of money market funds, municipal obligations, certificates of deposit, and municipal floating rate obligations, all of which are classified as available-for-sale. Available-forsale securities are recorded at fair value, and unrealized gains and losses are recorded, net of tax, as a component of accumulated other comprehensive income. Gross unrealized gains and losses were insignificant at January 29, 2016 and January 30, 2015. The proceeds from sales of available-for-sale securities were $394 million, $283 million, and $276 million for 2015, 2014, and 2013, respectively. Gross realized gains and losses on the sale of available-for-sale securities were not significant for any of the periods presented. Investments with a stated maturity date of one year or less from the balance sheet date or that are expected to be used in current operations are classified as short-term investments. All other investments are classified as long-term. Investments classified as long-term at January 29, 2016, will mature in one to 34 years, based on stated maturity dates. The Company classifies as investments restricted balances primarily pledged as collateral for the Company's extended protection plan program. Restricted balances included in short-term investments were $234 million at January 29, 2016, and $99 million at January 30, 2015. Restricted balances included in long-term investments were $202 million at January 29, 2016, and $305 million at January 30, 2015. Merchandise Inventory - Inventory is stated at the lower of cost or market using the first-in, first-out method of inventory accounting. The cost of inventory also includes certain costs associated with the preparation of inventory for resale, including distribution center costs, and is net of vendor funds. 38 The Company records an inventory reserve for the anticipated loss associated with selling inventories below cost. This reserve is based on management's current knowledge with respect to inventory levels, sales trends, and historical experience. Management does not believe the Company's merchandise inventories are subject to significant risk of obsolescence in the near term, and management has the ability to adjust purchasing practices based on anticipated sales trends and general economic conditions. However, changes in consumer purchasing patterns could result in the need for additional reserves. The Company also records an inventory reserve for the estimated shrinkage between physical inventories. This reserve is based primarily on actual shrink results from previous physical inventories. Changes in the estimated shrink reserve are made based on the timing and results of physical inventories. The Company receives funds from vendors in the normal course of business, principally as a result of purchase volumes, sales, early payments, or promotions of vendors' products. Generally, these vendor funds do not represent the reimbursement of specific, incremental, and identifiable costs incurred by the Company to sell the vendor's product. Therefore, the Company treats these funds as a reduction in the cost of inventory as the amounts are accrued, and are recognized as a reduction of cost of sales when the inventory is sold. Funds that are determined to be reimbursements of specific, incremental, and identifiable costs incurred to sell vendors' products are recorded as an offset to the related expense. The Company develops accrual rates for vendor funds based on the provisions of the agreements in place. Due to the complexity and diversity of the individual vendor agreements, the Company performs analyses and reviews historical trends throughout the year and confirms actual amounts with select vendors to ensure the amounts earned are appropriately recorded. Amounts accrued throughout the year could be impacted if actual purchase volumes differ from projected annual purchase volumes, especially in the case of programs that provide for increased funding when graduated purchase volumes are met. Derivative Financial Instruments - The Company occasionally utilizes derivative financial instruments to manage certain business risks. However, the amounts were not material to the Company's consolidated financial statements in any of the years presented. The Company does not use derivative financial instruments for trading purposes. Credit Programs - The majority of the Company's accounts receivable arises from sales of goods and services to commercial business customers. The Company has an agreement with Synchrony Bank (Synchrony), formerly GE Capital Retail, under which Synchrony purchases at face value commercial business accounts receivable originated by the Company and services these accounts. This agreement expires in December 2023, unless terminated sooner by the parties. The Company primarily accounts for these transfers as sales of the accounts receivable. When the Company transfers its commercial business accounts receivable, it retains certain interests in those receivables, including the funding of a loss reserve and its obligation related to Synchrony's ongoing servicing of the receivables sold. Any gain or loss on the sale is determined based on the previous carrying amounts of the transferred assets allocated at fair value between the receivables sold and the interests retained. Fair value is based on the present value of expected future cash flows, taking into account the key assumptions of anticipated credit losses, payment rates, late fee rates, Synchrony's servicing costs, and the discount rate commensurate with the uncertainty involved. Due to the short-term nature of the receivables sold, changes to the key assumptions would not materially impact the recorded gain or loss on the sales of receivables or the fair value of the retained interests in the receivables. Total commercial business accounts receivable sold to Synchrony were $2.6 billion in 2015, $2.4 billion in 2014, and $2.2 billion in 2013. The Company recognized losses of $36 million in 2015, $38 million in 2014, and $38 million in 2013 on these receivable sales as SG&A expense, which primarily relates to the fair value of obligations related to servicing costs that are remitted to Synchrony monthly. At January 29, 2016 and January 30, 2015, the fair value of the retained interests was determined based on the present value of expected future cash flows and was insignificant. Sales generated through the Company's proprietary credit cards are not reflected in receivables. Under an agreement with Synchrony, credit is extended directly to customers by Synchrony. All credit program-related services are performed and controlled directly by Synchrony. The Company has the option, but no obligation, to purchase the receivables at the end of the agreement in December 2023. Tender costs, including amounts associated with accepting the Company's proprietary credit cards, are included in SG&A expense in the consolidated statements of earnings. The total portfolio of receivables held by Synchrony, including both receivables originated by Synchrony from the Company's proprietary credit cards and commercial business accounts receivable originated by the Company and sold to Synchrony, approximated $8.8 billion at January 29, 2016, and $7.9 billion at January 30, 2015. Property and Depreciation - Property is recorded at cost. Costs associated with major additions are capitalized and depreciated. Capital assets are expected to yield future benefits and have original useful lives which exceed one year. The total cost of a capital asset generally includes all applicable sales taxes, delivery costs, installation costs, and other appropriate costs incurred by the Company, including interest in the case of self-constructed assets. Upon disposal, the cost of properties and 39 related accumulated depreciation is removed from the accounts, with gains and losses reflected in SG&A expense in the consolidated statements of earnings. Property consists of land, buildings and building improvements, equipment, and construction in progress. Buildings and building improvements includes owned buildings, as well as buildings under capital lease and leasehold improvements. Equipment primarily includes store racking and displays, computer hardware and software, forklifts, vehicles, and other store equipment. Depreciation is provided over the estimated useful lives of the depreciable assets. Assets are depreciated using the straight-line method. Leasehold improvements and assets under capital lease are depreciated over the shorter of their estimated useful lives or the term of the related lease, which may include one or more option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. During the term of a lease, if leasehold improvements are placed in service significantly after the inception of the lease, the Company depreciates these leasehold improvements over the shorter of the useful life of the leasehold assets or a term that includes lease renewal periods deemed to be reasonably assured at the time the leasehold improvements are placed into service. The amortization of these assets is included in depreciation expense in the consolidated financial statements. Long-Lived Asset Impairment/Exit Activities - The carrying amounts of long-lived assets are reviewed whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. A potential impairment has occurred for long-lived assets held-for-use if projected future undiscounted cash flows expected to result from the use and eventual disposition of the assets are less than the carrying amounts of the assets. An impairment loss is recorded for longlived assets held-for-use when the carrying amount of the asset is not recoverable and exceeds its fair value. Excess properties that are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria are classified as long-lived assets held-for-sale. Excess properties consist primarily of retail outparcels and property associated with relocated or closed locations. An impairment loss is recorded for long-lived assets held-for-sale when the carrying amount of the asset exceeds its fair value less cost to sell. A long-lived asset is not depreciated while it is classified as held-for-sale. For long-lived assets to be abandoned, the Company considers the asset to be disposed of when it ceases to be used. Until it ceases to be used, the Company continues to classify the asset as held-for-use and tests for potential impairment accordingly. If the Company commits to a plan to abandon a long-lived asset before the end of its previously estimated useful life, its depreciable life is re-evaluated. The Company recorded long-lived asset impairment losses of $10 million during 2015, including $8 million for operating locations and $2 million for excess properties classified as held-for-use. The Company recorded impairment losses of $28 million during 2014, including $26 million for operating locations and $2 million for excess properties classified as held-foruse. The Company recorded long-lived asset impairment of $46 million during 2013, including $26 million for operating locations, $17 million for excess properties classified as held-for-use, and $3 million, including costs to sell, for excess properties classified as held-for-sale. Impairment losses are included in SG&A expense in the consolidated statements of earnings. Fair value measurements associated with long-lived asset impairments are further described in Note 2 to the consolidated financial statements. The net carrying amount of excess properties that do not meet the held-for-sale criteria is included in other assets (noncurrent) on the consolidated balance sheets and totaled $131 million and $152 million at January 29, 2016 and January 30, 2015, respectively. When locations under operating leases are closed, a liability is recognized for the fair value of future contractual obligations, including future minimum lease payments, property taxes, utilities, common area maintenance, and other ongoing expenses, net of estimated sublease income and other recoverable items. When the Company commits to an exit plan and communicates that plan to affected employees, a liability is recognized in connection with one-time employee termination benefits. Subsequent changes to the liabilities, including a change resulting from a revision to either the timing or the amount of estimated cash flows, are recognized in the period of change. Expenses associated with exit activities are included in SG&A expense in the consolidated statement of earnings. Equity Method Investments - The Company's investments in certain unconsolidated entities are accounted for under the equity method. The balance of these investments is included in other assets (noncurrent) in the accompanying consolidated balance sheets. The balance is increased to reflect the Company's capital contributions and equity in earnings of the investees. The balance is decreased for its equity in losses of the investees, for distributions received that are not in excess of 40 the carrying amount of the investments, and for any other than temporary impairment losses recognized. The Company's equity in earnings and losses of the investees and other than temporary impairment losses are included in SG&A expense. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that a decline in value has occurred that is other than temporary. Evidence considered in this evaluation includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and the Company's strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value. Investments that are determined to have a decline in value deemed to be other than temporary are written down to estimated fair value. In 2015, the Company decided to exit the Australian joint venture investment with Woolworths Limited (Woolworths) and recorded a $530 million impairment of its equity method investment due to a determination that there was a decrease in value that was other than temporary (see Note 2 to the consolidated financial statements for further discussion). Exclusive of this impairment charge recognized in the current year, losses on equity method investments have been immaterial. Leases - For lease agreements that provide for escalating rent payments or free-rent occupancy periods, the Company recognizes rent expense on a straight-line basis over the non-cancellable lease term and option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. The lease term commences on the date that the Company takes possession of or controls the physical use of the property. Deferred rent is included in other liabilities (noncurrent) on the consolidated balance sheets. When the Company renegotiates and amends a lease to extend the non-cancellable lease term prior to the date at which it would have been required to exercise or decline a term extension option, the amendment is treated as a new lease. The new lease begins on the date the lease amendment is entered into and ends on the last date of the non-cancellable lease term, as adjusted to include any option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the lease amendment, to be reasonably assured. The new lease is classified as operating or capital under the authoritative guidance through use of assumptions regarding residual value, economic life, incremental borrowing rate, and fair value of the leased asset(s) as of the date of the amendment. Accounts Payable - The Company has an agreement with a third party to provide an accounts payable tracking system which facilitates participating suppliers' ability to finance payment obligations from the Company with designated third-party financial institutions. Participating suppliers may, at their sole discretion, make offers to finance one or more payment obligations of the Company prior to their scheduled due dates at a discounted price to participating financial institutions. The Company's goal in entering into this arrangement is to capture overall supply chain savings, in the form of pricing, payment terms, or vendor funding, created by facilitating suppliers' ability to finance payment obligations at more favorable discount rates, while providing them with greater working capital flexibility. The Company's obligations to its suppliers, including amounts due and scheduled payment dates, are not impacted by suppliers' decisions to finance amounts under this arrangement. However, the Company's right to offset balances due from suppliers against payment obligations is restricted by this arrangement for those payment obligations that have been financed by suppliers. As of January 29, 2016 and January 30, 2015, $1.3 billion and $1.0 billion, respectively, of the Company's outstanding payment obligations had been placed on the accounts payable tracking system, and participating suppliers had financed $921 million and $724 million, respectively, of those payment obligations to participating financial institutions. Other Current Liabilities - Other current liabilities on the consolidated balance sheets consist of: (In millions) Self-insurance liabilities $ January 29, 2016 343 $ January 30, 2015 346 Accrued dividends 255 222 Accrued interest 179 165 Sales tax liabilities 140 131 Accrued property taxes 111 124 Other 829 Total $ 41 1,857 $ 932 1,920 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) Deferred revenue - extended protection plans, beginning of year $ 2015 730 $ 2014 730 $ 2013 715 Additions to deferred revenue 350 318 294 Deferred revenue recognized (351) (318) (279) Deferred revenue - extended protection plans, end of year $ 42 729 $ 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 $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 \u0003 \u0003\u0003 \u0003 \u0003\u0003 Total cost of products sold, including:\u0003 - 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; \u0003\u0003Costs of installation services provided;\u0003 \u0003\u0003Costs associated with delivery of products directly from vendors to customers by third parties; \u0003 \u0003\u0003Costs associated with inventory shrinkage and obsolescence.\u0003 \u0003\u0003Costs of services performed under the extended protection plan.\u000