Dollar General 2014 Annual Report Download - page 135

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Basis of presentation and accounting policies (Continued)
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 January 30,
2015, 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 $2.5 million and $4.3 million at January 30, 2015 and January 31, 2014,
respectively, and is recorded in Accrued expenses and other liabilities. Estimated breakage revenue, a
percentage of gift cards that will never be redeemed based on historical redemption rates, is recognized
over time in proportion to actual gift card redemptions. For the year ended January 30, 2015, the
Company recorded breakage revenue of $2.4 million.
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
$77.3 million, $70.5 million and $61.7 million in 2014, 2013 and 2012, 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 $35.0 million, $31.9 million and
$23.6 million in 2014, 2013 and 2012, respectively.
Share-based payments
The Company recognizes compensation expense for share-based compensation based on the fair
value of the awards on the grant date. Forfeitures are estimated at the time of valuation and reduce
expense ratably over the vesting period. This estimate may be adjusted periodically based on the extent
to which actual forfeitures differ, or are expected to differ, from the prior estimate. The forfeiture rate
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