Dollar General 2011 Annual Report Download - page 165

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of presentation and accounting policies (Continued)
The Company records all derivatives on the balance sheet at fair value. The accounting for
changes in the fair value of derivatives depends on the intended use of the derivative, whether the
Company has elected to designate a derivative in a hedging relationship and apply hedge accounting
and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.
Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an
asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are
considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to
variability in expected future cash flows, or other types of forecasted transactions, are considered cash
flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net
investment in a foreign operation. Hedge accounting generally provides for the matching of the timing
of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or
the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter
into derivative contracts that are intended to economically hedge a certain portion of its risk, even
though hedge accounting does not apply or the Company elects not to apply the hedge accounting
standards.
The Company’s derivative financial instruments, in the form of interest rate swaps at February 3,
2012, are related to variable interest rate risk exposures associated with the Company’s long-term debt
and were entered into in an effort to manage that risk. The counterparties to the Company’s derivative
agreements are all major international financial institutions. The Company continually monitors its
position and the credit ratings of its counterparties and does not anticipate nonperformance by the
counterparties.
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 $2.9 million and $2.4 million at February 3, 2012 and January 28, 2011,
respectively, and is recorded in Accrued expenses and other liabilities. Through February 3, 2012, 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
in SG&A expenses net of earned cooperative advertising amounts provided by vendors which are
specific, incremental and otherwise qualifying expenses related to the promotion or sale of vendor
products for dollar amounts up to but not exceeding actual incremental costs. Advertising costs were
$50.4 million, $46.9 million and $41.5 million in 2011, 2010 and 2009, 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.
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