Kroger 2011 Annual Report Download - page 91

A-36
NO T E S T O CO N S O L I D A T E D FI N A N C I A L ST A T E M E N T S , CO N T I N U E D
A number of years may elapse before a particular matter, for which an allowance has been established, is
audited and fully resolved. As of January 28, 2012, the most recent examination concluded by the Internal
Revenue Service covered the years 2005 through 2007.
The assessment of the Company’s tax position relies on the judgment of management to estimate the
exposures associated with the Company’s various filing positions.
Self-Insurance Costs
The Company is primarily self-insured for costs related to workers’ compensation and general liability
claims. Liabilities are actuarially determined and are recognized based on claims filed and an estimate of
claims incurred but not reported. The liabilities for workers’ compensation claims are accounted for on a
present value basis. The Company has purchased stop-loss coverage to limit its exposure to any significant
exposure on a per claim basis. The Company is insured for covered costs in excess of these per claim limits.
The following table summarizes the changes in the Company’s self-insurance liability through January 28,
2012.
2011 2010 2009
Beginning balance ...................................... $ 514 $ 485 $ 468
Expense ............................................... 215 210 202
Claim payments ........................................ (200) (181) (185)
Ending balance ......................................... 529 514 485
Less current portion ..................................... (197) (181) (182)
Long-term portion ....................................... $ 332 $ 333 $ 303
The current portion of the self-insured liability is included in “Other current liabilities”, and the long-
term portion is included in “Other long-term liabilities” in the Consolidated Balance Sheets.
The Company is also similarly self-insured for property-related losses. The Company has purchased stop-
loss coverage to limit its exposure to losses in excess of $25 on a per claim basis, except in the case of an
earthquake, for which stop-loss coverage is in excess of $50 per claim, up to $200 per claim in California and
$300 outside of California.
Revenue Recognition
Revenues from the sale of products are recognized at the point of sale. Discounts provided to customers
by the Company at the time of sale, including those provided in connection with loyalty cards, are recognized
as a reduction in sales as the products are sold. Discounts provided by vendors, usually in the form of paper
coupons, are not recognized as a reduction in sales provided the coupons are redeemable at any retailer that
accepts coupons. The Company records a receivable from the vendor for the difference in sales price and
cash received. Pharmacy sales are recorded when provided to the customer. Sales taxes are recorded as other
accrued liabilities and not as a component of sales. The Company does not recognize a sale when it sells its
own gift cards and gift certificates. Rather, it records a deferred liability equal to the amount received. A sale
is then recognized when the gift card or gift certificate is redeemed to purchase the Company’s products.
Gift card and certificate breakage is recognized when redemption is deemed remote and there is no legal
obligation to remit the value of the unredeemed gift card. The amount of breakage has not been material for
2011, 2010 and 2009.
Merchandise Costs
The “Merchandise costs” line item of the Consolidated Statements of Operations includes product costs,
net of discounts and allowances; advertising costs (see separate discussion below); inbound freight charges;
warehousing costs, including receiving and inspection costs; transportation costs; and manufacturing