Dollar General 2008 Annual Report Download - page 81

79
options that are either granted after the adoption of SFAS 123(R) or are partially vested on the
date of adoption were computed in accordance with the provisions of SFAS 123(R).) The
amount of any excess deferred tax asset over the actual income tax benefit realized for options
that are exercised after the adoption of SFAS 123(R) will be absorbed by the excess tax benefit
pool. Income tax expense will be increased should the Company’ s excess tax benefit pool be
insufficient to absorb any future deferred tax asset amounts in excess of the actual tax benefit
realized. The Company has determined that its excess tax benefit pool was approximately $68
million as of the adoption of SFAS 123(R) on February 4, 2006. After the Merger and the
related application of purchase accounting, the excess tax benefit pool has been reduced to zero.
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 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 $1.5 million and $1.2 million at January 30, 2009 and
February 1, 2008, respectively, and is recorded in Accrued expenses and other. Through January
30, 2009, the Company has not recorded any breakage income related to its gift card program.
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 $27.8 million, $23.6 million, $17.3 million and $45.0 million
in 2008, the 2007 Successor and Predecessor periods, and 2006, respectively. These costs
primarily include promotional circulars, targeted circulars supporting new stores, television and
radio advertising, in-store signage, and costs associated with the sponsorships of certain
automobile racing activities. Vendor funding for cooperative advertising offset reported expenses
by $7.8 million, $6.6 million, $2.0 million and $7.9 million in 2008, the 2007 Successor and
Predecessor periods, and 2006, 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 equal to zero in 2008 and the 2007 periods, and were
approximately $2.9 million in 2006.