Dollar General 2007 Annual Report Download - page 73

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Revenue and gain recognition
The Company recognizes retail sales in its stores at the time the customer takes
possession of merchandise. All sales are net of discounts and estimated returns and are presented
net of taxes assessed by governmental authorities that are imposed concurrent with those sales.
The liability for retail merchandise returns is based on the Company’ s prior experience. The
Company records gain contingencies when realized.
The Company began gift card sales in the third quarter of 2005. The Company
recognizes gift card sales revenue at the time of redemption. The liability for the gift cards is
established for the cash value at the time of purchase. The liability for outstanding gift cards was
approximately $1.2 million and $0.8 million at February 1, 2008 and February 2, 2007,
respectively, and is recorded in Accrued expenses and other. Through February 1, 2008, the
Company has not recorded any breakage income related to its gift card program. The Company
will continue to evaluate its current breakage policy as it continues to gain more sufficient
company-specific customer experience.
Advertising costs
Advertising costs are expensed upon performance, “first showing” or distribution, and are
reflected net of qualifying cooperative advertising funds provided by vendors in SG&A
expenses. Advertising costs were $23.6 million $17.3 million, $45.0 million and $15.1 million in
the 2007 Successor and Predecessor periods, 2006 and 2005, respectively. These costs primarily
include promotional circulars, targeted circulars supporting new stores, television and radio
advertising, in-store signage, and costs associated with the sponsorship of a National Association
for Stock Car Auto Racing team. Vendor funding for cooperative advertising offset reported
expenses by $6.6 million, $2.0 million, $7.9 million and $0.8 million in the 2007 Successor and
Predecessor periods, 2006 and 2005, respectively.
Capitalized interest
To assure that interest costs properly reflect only that portion relating to current
operations, interest on borrowed funds during the construction of property and equipment is
capitalized. Interest costs capitalized were approximately $2.9 million and $3.3 million in 2006
and 2005, respectively.
Income taxes
The Company reports income taxes in accordance with SFAS No. 109, “Accounting for
Income Taxes” (“SFAS 109”). Under SFAS 109, the asset and liability method is used for
computing the future income tax consequences of events that have been recognized in the
Company’ s consolidated financial statements or income tax returns. Deferred income tax
expense or benefit is the net change during the year in the Company’ s deferred income tax assets
and liabilities.