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BP Business Economic Loss Claim Appeal 2017-1176; Drugstore Markdowns Not “Variable Expenses” But Are “Contra-Revenue”

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The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms

This is one of two BP appeals from Business Economic Loss awards made to drugstores operated by Claimant in the state of Mississippi. Analysis of Claimant’s financial records pursuant to CAO Policy 495 revealed no matching issues and the Claims Administrator utilized the General BEL Methodology in calculating the claims. In due course, an Eligibility Notice with a compensation amount of $248,514.90 was issued on this claim.
BP argues on appeal that the Administrator improperly treated as variable expenses certain “Markdowns” on the products which it sold. It contends claimant improperly records these markdowns as a COGS expense instead of correctly reflecting a reduction in the sales price; i.e., a contra-revenue. According to BP, in its treatment of previous claims by other locations, the Administrator has explicitly recognized that the markdown accounts must be treated as contra-revenue and not as COGS expenses. In this claim, however, it did not do so. Accordingly, it requests this claim and the others which raise this same issue, be remanded to the Claims Administrator for treatment consistent with the prior claims. Alternatively, it submits a Final Proposal amount of $207,939 which it asserts would be the result if the markdowns are treated as contra-revenue as opposed to variable expenses.
Claimant strenuously argues that its reported revenues never included the full “sticker price” of its mark downs and that it only recorded revenue actually received as part of a sale.
In response,  BP asserts that Claimant’s profit and loss statements recorded as Cost s of Goods Sold (COGS) substantial amounts of mark downs each year.
Following review, this panelist concluded input from the Claims Administrator was necessary and asked for a Summary of Review advising whether BP’s position was correct and, if so, whether its Final Proposal Compensation Amount is accurate. The following response, which is quoted in pertinent part, was received:
The Claims Administrator submits the following response to the Appeal Panelist’s request for further information
on the claims referenced above. Specifically, the Appeal Panelist asked about the Settlement Program’s treatment of
“Markdowns”and whether BP’s Final Proposal is correct. DWH Accountant inadvertently did not adjust the COGS markdowns
to contra-revenue accounts.
Adjusting the COGS markdowns to contra-revenue accounts results in a Compensation Amount of $207,938.39, prior to Risk Transfer Premium and Prior Payment Offsets. Leaving markdowns within COGS, and not adjusting them to contra-revenue accounts, results in a Compensation Amount of $248,514.90. This is a Compensation Amount difference of $40,576.5.
Tourism Part of Decision omitted.

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