Extended Protection Plans

6 Months Ended

Aug. 02, 2013

Note 5: 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:

	Three Months Ended				Six Months Ended
(In millions)	August 2, 2013		August 3, 2012		August 2, 2013		August 3, 2012
Deferred revenue - extended protection plans, beginning of period	$	717	$	716	$	715	$	704
Additions to deferred revenue		85		68		155		134
Deferred revenue recognized		(69)		(58)		(137)		(112)
Deferred revenue - extended protection plans, end of period	$	733	$	726	$	733	$	726

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 $72 million at August 2, 2013, $119 million at August 3, 2012, and $95 million at February 1, 2013. 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:

	Three Months Ended				Six Months Ended
(In millions)	August 2, 2013		August 3, 2012		August 2, 2013		August 3, 2012
Liability for extended protection plan claims, beginning of period	$	20	$	22	$	20	$	21
Accrual for claims incurred		29		25		56		42
Claim payments		(22)		(24)		(49)		(40)
Liability for extended protection plan claims, end of period	$	27	$	23	$	27	$	23