Dollar General 2013 Annual Report Download - page 140

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of presentation and accounting policies (Continued)
has estimated the fair value of all stock option awards as of the grant date by applying the Black-
Scholes-Merton option pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and highly sensitive in the determination of compensation expense.
The Company calculates compensation expense for restricted stock, share units and similar awards
as the difference between the market price of the underlying stock on the grant date and the purchase
price, if any. Such expense is recognized on a straight-line basis for graded awards or an accelerated
basis for performance awards over the period in which the recipient earns the awards.
Store pre-opening costs
Pre-opening costs related to new store openings and the related construction periods are expensed
as incurred.
Income taxes
Under the accounting standards for income taxes, 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.
The Company includes income tax related interest and penalties as a component of the provision
for income tax expense.
Income tax reserves are determined using a methodology which requires companies to assess each
income tax position taken using a two-step process. A determination is first made as to whether it is
more likely than not that the position will be sustained, based upon the technical merits, upon
examination by the taxing authorities. If the tax position is expected to meet the more likely than not
criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50%
likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions
require determinations and estimated liabilities to be made based on provisions of the tax law which
may be subject to change or varying interpretation. If the Company’s determinations and estimates
prove to be inaccurate, the resulting adjustments could be material to the Company’s future financial
results.
Management estimates
The preparation of financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Accounting standards
In February 2013, the Financial Accounting Standards Board issued an accounting standards
update which requires additional disclosures with regard to an entity’s balances of and amounts
reclassified out of accumulated other comprehensive income in its financial statements. The Company
adopted this guidance in the first quarter of 2013. All of the Company’s related balances are cash flow
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10-K