Dollar General 2011 Annual Report Download - page 159

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of presentation and accounting policies (Continued)
categorized as held-to-maturity are stated at amortized cost. Debt and equity securities categorized as
available-for-sale are stated at fair value, with any unrealized gains and losses, net of deferred income
taxes, reported as a component of Accumulated other comprehensive loss. Trading securities (primarily
mutual funds held pursuant to deferred compensation and supplemental retirement plans, as further
discussed below in Notes 7 and 10) are stated at fair value, with changes in fair value recorded as a
component of Selling, general and administrative (‘‘SG&A’’) expense. Historical cost information
pertaining to these investments in mutual funds by participants in the Company’s supplemental
retirement and compensation deferral plans is not readily available to the Company.
For the years ended February 3, 2012, January 28, 2011 and January 29, 2010, gross realized gains
and losses on the sales of available-for-sale securities were not material. The cost of securities sold is
based upon the specific identification method.
Merchandise inventories
Inventories are stated at the lower of cost or market with cost determined using the retail last-in,
first-out (‘‘LIFO’’) method as this method results in a better matching of costs and revenues. Under the
Company’s retail inventory method (‘‘RIM’’), the calculation of gross profit and the resulting valuation
of inventories at cost are computed by applying a calculated cost-to-retail inventory ratio to the retail
value of sales at a department level. Costs directly associated with warehousing and distribution are
capitalized into inventory. The excess of current cost over LIFO cost was approximately $100.5 million
and $52.8 million at February 3, 2012 and January 28, 2011, respectively. Current cost is determined
using the RIM on a first-in, first-out basis. Under the LIFO inventory method, the impacts of rising or
falling market price changes increase or decrease cost of sales (the LIFO provision or benefit). The
Company recorded a LIFO provision of $47.7 million in 2011, a LIFO provision of $5.3 million in 2010,
and a LIFO benefit of $2.5 million in 2009.
The 2011 LIFO provision was impacted by increased commodity costs related to food, housewares
and apparel products which were driven by increases in cotton, sugar, coffee, groundnut, resin,
petroleum and other raw material commodity costs. These product costs were relatively stable in 2010
and 2009.
Vendor rebates
The Company accounts for all cash consideration received from vendors in accordance with
applicable accounting standards pertaining to such arrangements. Cash consideration received from a
vendor is generally presumed to be a rebate or an allowance and is accounted for as a reduction of
merchandise purchase costs as earned. However, certain specific, incremental and otherwise qualifying
SG&A expenses related to the promotion or sale of vendor products may be offset by cash
consideration received from vendors, in accordance with arrangements such as cooperative advertising,
when earned for dollar amounts up to but not exceeding actual incremental costs.
Prepaid expenses and other current assets
Prepaid expenses and other current assets include prepaid amounts for rent, maintenance,
advertising, and insurance, as well as amounts receivable for insurance related to a litigation settlement
discussed in greater detail in Note 9, and certain vendor rebates (primarily those expected to be
collected in cash) and coupons.
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