2. Revenue Recognition

Effective February 4, 2018, we adopted Revenue from Contracts with Customers (ASC Topic 606) as required. We adopted the new standard using the full retrospective method. The standard eliminates the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replaces it with a principles-based approach for revenue recognition and disclosures. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.

Net Sales

Net sales include revenue from the sale of merchandise and shipping revenues. Net sales are recognized when merchandise is received by the customer and we have fulfilled all performance obligations. We do not have any sales that are recorded as commissions.

The following table summarizes net sales by line of business for the quarters ended May 5, 2018 and April 29, 2017:

(Dollars in Millions)	May 5, 2018		April 29, 2017
Women's	$	1,255	$	1,224
Men's		790		754
Home		691		641
Children's		454		471
Footwear		426		399
Accessories		337		326
Net Sales	$	3,953	$	3,815

We maintain various rewards programs whereby customers earn rewards based on their spending and other promotional activities. The rewards are typically in the form of dollar off discounts which can be used on future purchases. These programs create performance obligations which require us to defer a portion of the original sale until the rewards are redeemed. Sales are recorded net of returns. At the end of each reporting period, we record a reserve based on historical return rates and patterns which reverses sales that we expect to be returned in the following period. Revenue from the sale of Kohl's gift cards is recognized when the gift card is redeemed.

Liabilities for performance obligations resulting from our rewards programs, return reserves, and unredeemed gift cards totaled $380 million as of May 5, 2018 and $368 million as of April 29, 2017.

Net sales do not include sales tax as we are considered a pass-through conduit for collecting and remitting sales taxes.

Other Revenue

Other revenue consists primarily of revenue from our credit card operations, unused gift cards (breakage), and other non-merchandise revenues.

Revenue from credit card operations includes our share of the finance charges and interest fees, less charge-offs of the Kohl’s credit card pursuant to the Private Label Credit Card Program Agreement. Expenses related to our credit card operations are reported in SG&A.

Income from unused gift cards (breakage) is recorded in proportion and over the time period gift cards are actually redeemed.

The following tables summarize the impact of adoption of the new standard by financial statement line item:

Three Months Ended April 29, 2017 (Dollars in Millions, Except per Share Data)	As Previously Reported		New Standard Adjustment		Adjusted
Net sales	$	3,843	$	(28)	$	3,815
Other revenue				250		250
Total revenue				222		4,065
Cost of merchandise sold		2,445		(17)		2,428
Gross margin		1,398
Operating expenses:
Selling, general and administrative		975		239		1,214
Depreciation and amortization		238		-		238
Operating income		185		-		185
Interest expense, net		76		-		76
Income before income taxes		109		-		109
Provision for income taxes		43		-		43
Net income	$	66	$	-	$	66
Net income per share:
Basic	$	0.39	$	-	$	0.39
Diluted	$	0.39	$	-	$	0.39

April 29, 2017 (Dollars in Millions)	As Previously Reported		New Standard Adjustment			Adjusted
Assets
Current assets:
Cash and cash equivalents	$	625	$	-		$	625
Merchandise inventories		3,991		-			3,991
Other		328		50			378
Total current assets		4,944		50			4,994
Property and equipment, net		8,069		-			8,069
Other assets		231		-			231
Total assets	$	13,244	$	50		$	13,294

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,480	$	-		$	1,480
Accrued liabilities		1,088		59			1,147
Income taxes payable		137		-			137
Current portion of capital lease and financing obligations		134		-			134
Total current liabilities		2,839		59			2,898
Long-term debt		2,795		-			2,795
Capital lease and financing obligations		1,657		-			1,657
Deferred income taxes		285		(2	)		283
Other long-term liabilities		674		-			674
Total shareholders’ equity		4,994		(7	)		4,987
Total liabilities and shareholders’ equity	$	13,244	$	50		$	13,294

February 3, 2018 (Dollars in Millions)	As Previously Reported		New Standard Adjustment			Adjusted
Assets
Current assets:
Cash and cash equivalents	$	1,308	$	-		$	1,308
Merchandise inventories		3,542		-			3,542
Other		481		49			530
Total current assets		5,331		49			5,380
Property and equipment, net		7,773		-			7,773
Other assets		236		-			236
Total assets	$	13,340	$	49		$	13,389

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,271	$	-		$	1,271
Accrued liabilities		1,155		58			1,213
Income taxes payable		99		-			99
Current portion of capital lease and financing obligations		126		-			126
Total current liabilities		2,651		58			2,709
Long-term debt		2,797		-			2,797
Capital lease and financing obligations		1,591		-			1,591
Deferred income taxes		213		(2	)		211
Other long-term liabilities		662		-			662
Total shareholders’ equity		5,426		(7	)		5,419
Total liabilities and shareholders’ equity	$	13,340	$	49		$	13,389

The adoption of the new standard had no impact on our basic or diluted earnings per share or our net cash provided by (used in) operating, financing, or investing activities.