Harris Teeter 2007 Annual Report Download - page 40

36
RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
U.S. worker compensation claims, general liability and automotive liability by first analyzing the costs of claims
incurred and then adjusts such estimates by development factors from published insurance industry sources. The
Company measures the cost associated with workers’ compensation claims, and general liability and automotive
liability losses at Harris Teeter based upon a projection of the ultimate cost for claims incurred. The estimated
total expected costs of claims includes an estimate for claims incurred but not reported (IBNR) and is discounted
to present values using a discount rate representing a return on high-quality fixed income securities with an
average maturity equal to the average payout of the related liability.
The Company records an accrual for the estimated amount of self-insured healthcare IBNR claims. These
reserves are recorded based on historical experience and industry trends, which are continually monitored, and
accruals are adjusted when warranted by changes in facts and circumstances.
Deferred Rent
The Company recognizes rent holidays, including the period of time the Company has access prior to the
store opening, which typically includes construction and fixturing activity, and rent escalations on a straight-
line basis over the term of the lease. The deferred rent amount is included in Other Long-Term Liabilities on
the Company’s Consolidated Balance Sheets. In accordance with Financial Accounting Standards Board Staff
Position 13-1, “Accounting for Rental Costs Incurred during a Construction Period,” the Company began
expensing construction period rent as incurred as of the beginning of the second quarter of fiscal 2006.
Derivatives
The Company does not enter into derivative financial instruments for trading purposes. Derivative
instruments (including certain derivative instruments embedded in other contracts) entered into in the normal
course of business were not significant during any of the periods presented.
Revenue Recognition
The Company recognizes revenue from retail operations at the point of sale to its customers and from
manufacturing operations at the point of shipment to its customers, based on shipping terms.
Cost of Sales
The major components of cost of sales in the retail supermarket segment are (a) the cost of products sold
determined under the Retail Inventory Method (see “Inventories” above) reduced by purchase cash discounts
and vendor purchase allowances and rebates, (b) the cost of various sales promotional activities reduced by
vendor promotional allowances, and reduced by cooperative advertising allowances to the extent an advertising
allowance exceeds the cost of the advertising, (c) the cost of product waste, including, but not limited to, physical
waste and theft, (d) the cost of product distribution, including warehousing, freight and delivery, and (e) any
charges, or credits, associated with LIFO reserves and reserves for obsolete and slow moving inventories.
Additionally, the costs of production of product sold by the dairy operation to outsiders are included in cost of
sales in the period in which the sales are recognized in revenues.
The major components of cost of sales in the textile manufacturing and distribution segment are (a) the
materials and supplies, labor costs and overhead costs associated with the manufactured products sold, (b) the
purchased cost of products bought for resale, (c) any charges, or credits, associated with LIFO reserves and
reserves for obsolete and slow moving inventories, (d) the freight costs incurred to deliver the products to the
customer from the point of sale, and (e) all other costs required to be classified as cost of sales under authoritative
accounting pronouncements.