Family Dollar 2009 Annual Report Download - page 48

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Revenues
The Company recognizes revenue, net of returns and sales tax, at the time the customer tenders payment for and
takes possession of the merchandise. Sales of prepaid services such as phone cards, cell phones and related
air-time minutes are recorded on a net basis. As a result, only the markup on the sales of these products is
recorded as revenue.
Cost of sales
Cost of sales includes the purchase cost of merchandise and transportation costs to the Company’s distribution
centers and stores. Buying, distribution center and occupancy costs, including depreciation, are not included in
cost of sales. As a result, cost of sales may not be comparable to those of other retailers that may include similar
costs in their cost of sales.
Selling, general and administrative expenses
All operating costs, except transportation costs to the Company’s distribution centers and stores, are included in
selling, general, and administrative expenses (“SG&A”). Buying, distribution center and occupancy costs,
including depreciation, are included in SG&A rather than cost of sales.
Insurance liabilities
The Company is primarily self-insured for health care, property loss, workers’ compensation, general liability,
and auto liability costs. These liabilities are based on the total estimated costs of claims filed and estimates of
claims incurred but not reported, less amounts paid against such claims, and are not discounted.
Advertising costs
Advertising costs, net of co-op recoveries from vendors, are expensed during the period of the advertisement and
amounted to $9.8 million, $15.3 million and $4.1 million in fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
Vendor allowances
Cash consideration received from a vendor is presumed to be a reduction of the purchase cost of merchandise and
is reflected as a reduction of cost of sales, unless it can be demonstrated that it offsets an incremental expense, in
which case it is netted against that expense.
Store opening and closing costs
The Company charges pre-opening costs against operating results when incurred. For properties under operating
lease agreements, the present value of any remaining liability under the lease, net of expected sublease and lease
termination recoveries, is expensed when the closing occurs.
Operating leases
Except for its corporate headquarters and distribution centers, the Company generally conducts its operations
from leased facilities. Generally, store real estate leases are for initial terms of from five to ten years with
multiple renewal options for additional five-year periods. The Company also has leases for equipment generally
with lease terms of five years to ten years.
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