Big Lots 2008 Annual Report Download - page 119

Download and view the complete annual report

Please find page 119 of the 2008 Big Lots annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 156

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156

51
BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Commitments and Contingencies
We are subject to various claims and contingencies including legal actions and other claims arising out of the
normal course of business. In connection with such claims and contingencies, we estimate the likelihood and
amount of any potential obligation, where it is possible to do so, using management’s judgment. Management used
various internal and external specialists to assist in the estimating process. We accrue, if material, a liability if the
likelihood of an adverse outcome is probable and the amount is estimable. If the likelihood of an adverse outcome
is only reasonably possible (as opposed to probable), or if it is probable but an estimate is not determinable,
disclosure of a material claim or contingency is made in the notes to our consolidated financial statements.
Revenue Recognition
We recognize sales at the time the customer takes possession of the merchandise. Sales are recorded net of
discounts and estimated returns and exclude any sales tax. The reserve for merchandise returns is estimated
based on our prior return experience.
We have sold gift cards in our stores since fiscal 2002. We have issued merchandise credits, typically as a result
of customer returns, on stored value cards since fiscal 2003. We do not charge administrative fees on unused
gift card or merchandise credit balances and our gift cards and merchandise credits do not expire. We recognize
sales revenue from gift cards and merchandise credits when (1) the gift card or merchandise credit is redeemed
in a sales transaction by the customer or (2) breakage occurs. We recognize gift card and merchandise credit
breakage when we estimate that the likelihood of the card or credit being redeemed by the customer is remote
and we determine that we do not have a legal obligation to remit the value of unredeemed cards or credits to the
relevant regulatory authority. We estimate breakage based upon historical redemption patterns. For 2008 and
2007, we recognized in net sales on our consolidated statements of operations breakage of $0.4 million and $0.3
million, respectively, related to unredeemed gift card and merchandise credit balances that had aged at least four
years beyond the end of their original issuance month. The liability for the unredeemed cash value of gift cards
and merchandise credits is recorded in accrued operating expenses.
We offer price hold contracts on selected furniture merchandise. Revenue for price hold contracts is recognized
when the customer makes the final payment and takes possession of the merchandise. Amounts paid by
customers under price hold contracts are recorded in accrued operating expenses until a sale is consummated.
Cost of Sales
Cost of sales includes the cost of merchandise, net of cash discounts and rebates, markdowns, and inventory
shrinkage. Cost of merchandise includes related inbound freight to our distribution centers, duties, and
commissions. We classify warehousing and outbound distribution and transportation costs as selling and
administrative expenses. Due to this classification, our gross margin rates may not be comparable to those of
other retailers that include warehousing and outbound distribution and transportation costs in cost of sales.
Selling and Administrative Expenses
We include store expenses (such as payroll and occupancy costs), warehousing, distribution, outbound
transportation costs to our stores, advertising, purchasing, insurance, non-income taxes, and overhead costs in
selling and administrative expenses. Selling and administrative expense rates may not be comparable to those
of other retailers that include distribution and outbound transportation costs in cost of sales. Distribution and
outbound transportation costs included in selling and administrative expenses were $181.2 million, $198.3
million, and $222.1 million for 2008, 2007, and 2006, respectively.
Note 1 — Summary of Significant Accounting Policies (Continued)