Kohl's 2008 Annual Report Download - page 50

KOHL’S CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. Business and Summary of Accounting Policies (continued)
Cost of Merchandise Sold and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in Cost of Merchandise Sold and Selling, General
and Administrative Expenses:
Cost of Merchandise Sold
Selling, General and
Administrative Expenses
• Total cost of products sold including product
development costs, net of vendor payments other
than reimbursement of specific, incremental and
identifiable costs
• Inventory shrink
• Markdowns
• Freight expenses associated with moving
merchandise from our vendors to our distribution
centers
• Shipping and handling expenses of E-commerce
sales
• Terms cash discount
• Compensation and benefit costs including:
• Stores
• Corporate headquarters, including buying
and merchandising
• Distribution centers
• Occupancy and operating costs of our retail,
distribution and corporate facilities
• Net operations of servicing the Kohl’s credit
card
• Freight expenses associated with moving
merchandise from our distribution centers to our
retail stores, and among distribution and retail
facilities
• Advertising expenses, offset by vendor
payments for reimbursement of specific,
incremental and identifiable costs
• Other administrative costs
The classification of these expenses varies across the retail industry.
Vendor Allowances
We receive consideration for a variety of vendor-sponsored programs, such as markdown allowances,
volume rebates and promotion and advertising support. The vendor consideration is recorded either as a
reduction of inventory costs or Selling, General and Administrative (“SG&A”) expenses based on the application
of Emerging Issues Task Force No. 02-16, “Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor.” Promotional and advertising allowances are intended to offset our
advertising costs to promote vendors’ merchandise. Markdown allowances and volume rebates are recorded as a
reduction of inventory costs.
Advertising
Advertising costs, which include primarily television and radio broadcast and newspaper circulars, are
expensed when the advertisement is first seen. Advertising costs, net of related vendor allowances, were as follows:
2008 2007 2006
(In Millions)
Gross advertising costs .................................. $1,037 $981 $880
Vendor allowances ..................................... 147 142 112
Net advertising costs ................................... $ 890 $839 $768
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