Albertsons 2009 Annual Report Download - page 52

Cost of Sales
Cost of sales includes cost of inventory sold during the period, including purchasing and distribution costs and
shipping and handling fees.
Retail food advertising expenses are a component of Cost of sales in the Consolidated Statements of Earnings
and are expensed as incurred. Retail food advertising expenses, net of cooperative advertising reimbursements,
were $193, $162 and $157 for fiscal 2009, 2008 and 2007, respectively.
The Company recognizes vendor funds for merchandising and buying activities as a reduction of Cost of sales
when the related products are sold in accordance with EITF Issue No. 02-16, “Accounting by a Customer
(Including a Reseller) for Certain Consideration Received from a Vendor.” Vendor funds that have been earned
as a result of completing the required performance under the terms of the underlying agreements but for which
the product has not yet been sold are recognized as reductions of inventory. When payments or rebates can be
reasonably estimated and it is probable that the specified target will be met, the payment or rebate is accrued.
However, when attaining the milestone is not probable, the payment or rebate is recognized only when and if
the milestone is achieved. Any upfront payments received for multi-period contracts are generally deferred and
amortized on a straight-line basis over the life of the contracts.
Selling and Administrative Expenses
Selling and administrative expenses consist primarily of store and corporate employee-related costs, such as
salaries and wages, health and welfare, worker’s compensation and pension benefits, as well as rent, occupancy
and operating costs, depreciation and amortization and other administrative costs.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of
purchase to be cash equivalents. The Company’s banking arrangements allow the Company to fund outstanding
checks when presented to the financial institution for payment, resulting in book overdrafts. Book overdrafts
are recorded in Accounts payable in the Consolidated Balance Sheets and are reflected as an operating activity
in the Consolidated Statements of Cash Flows. As of February 28, 2009 and February 23, 2008, the Company
had net book overdrafts of $389 and $371, respectively.
Allowances for Losses on Receivables
Management makes estimates of the uncollectibility of its accounts and notes receivable portfolios. In
determining the adequacy of the allowances, management analyzes the value of the collateral, customer
financial statements, historical collection experience, aging of receivables and other economic and industry
factors. The allowance for losses on current and long-term receivables was $15 and $20 in fiscal 2009 and
2008, respectively. Bad debt expense was $7, $10 and $2 in fiscal 2009, 2008 and 2007, respectively.
Inventories
Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventory consists of
finished goods.
Approximately 81 percent and 82 percent of the Company’s inventories were valued using the last-in, first-out
(“LIFO”) method for fiscal 2009 and 2008, respectively. The Company uses a combination of the retail
inventory method (“RIM”) and replacement cost method to determine the current cost of its inventory before
any LIFO reserve is applied. Under RIM, the current cost of inventories and the gross margins are calculated
by applying a cost-to-retail ratio to the current retail value of inventories. Under the replacement cost method,
the most current unit purchase cost is used to calculate the current cost of inventories. The first-in, first-out
method (“FIFO”) is primarily used to determine cost for some of the remaining highly perishable inventories.
If the FIFO method had been used to determine cost of inventories for which the LIFO method is used, the
Company’s inventories would have been higher by approximately $258 and $180 as of February 28, 2009 and
February 23, 2008, respectively. In addition, the LIFO reserve was reduced by $28 as a result of the
finalization of the fair value of inventory for the Acquired Operations during the first quarter of fiscal 2008.
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