Big Lots 2009 Annual Report Download - page 167

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BIG LOTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
Note 1 — Summary of Significant Accounting Policies (Continued)
Variable rate demand note securities are issued by various corporate, non-profit and governmental entities
that are of high credit quality with many being secured by direct-pay letters of credit from a major financial
institution. Also, variable demand note securities can be tendered for sale upon notice (generally no longer than
seven days) to the original issuer.
The carrying value of accounts receivable, accounts payable, and accrued expenses approximates fair value
because of the relatively short maturity of these items. The carrying value of our obligations under our
bank credit facility at January 31, 2009, approximates fair value because the interest rates were variable and
approximated current market rates.
Effective February 3, 2008, we adopted guidance under ASC 820, Fair Value Measurements and Disclosures
(SFAS No. 157, Fair Value Measurements (“SFAS No. 157”)), for financial assets and liabilities on a prospective
basis. This guidance addresses how companies should approach measuring fair value and expands disclosures
about fair value measurements under other accounting pronouncements that require or permit fair value
measurements. The guidance provides a single definition of fair value that is to be applied consistently for most
accounting applications and also generally describes and prioritizes according to reliability the methods and
inputs used in valuations. This guidance prescribes additional disclosures regarding the extent of fair value
measurements included in a company’s financial statements and the methods and inputs used to arrive at these
values. The adoption of this guidance for financial assets and liabilities did not have any impact on our financial
condition, results of operations, or liquidity.
Effective February 3, 2008, we adopted guidance under ASC 825, Financial Instruments (SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities). This guidance permits us to choose to
measure certain financial instruments and other items at fair value. We did not elect to measure any additional
financial assets or liabilities at fair value. The adoption of this guidance for financial assets and liabilities did
not have any impact on our financial condition, results of operations, or liquidity.
Commitments and Contingencies
We are subject to various claims and contingencies including legal actions and other claims arising out of the
normal course of business. In connection with such claims and contingencies, we estimate the likelihood and
amount of any potential obligation, where it is possible to do so, using management’s judgment. Management used
various internal and external specialists to assist in the estimating process. We accrue, if material, a liability if the
likelihood of an adverse outcome is probable and the amount is estimable. If the likelihood of an adverse outcome
is only reasonably possible (as opposed to probable), or if it is probable but an estimate is not determinable,
disclosure of a material claim or contingency is made in the notes to our consolidated financial statements.
Revenue Recognition
We recognize sales at the time the customer takes possession of the merchandise. Sales are recorded net of
discounts and estimated returns and exclude any sales tax. The reserve for merchandise returns is estimated
based on our prior return experience.
We sell gift cards in our stores and issue merchandise credits, typically as a result of customer returns, on store
value cards. We do not charge administrative fees on unused gift card or merchandise credit balances and our
gift cards and merchandise credits do not expire. We recognize sales revenue from gift cards and merchandise
credits when (1) the gift card or merchandise credit is redeemed in a sales transaction by the customer or
(2) breakage occurs. We recognize gift card and merchandise credit breakage when we estimate that the
likelihood of the card or credit being redeemed by the customer is remote and we determine that we do not have
a legal obligation to remit the value of unredeemed cards or credits to the relevant regulatory authority. We
estimate breakage based upon historical redemption patterns. For 2009 and 2008, we recognized in net sales
on our consolidated statements of operations breakage of $0.6 million and $0.4 million, respectively, related to