Albertsons 2011 Annual Report Download - page 27

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Net Earnings (Loss)
Net earnings were $393, or $1.86 per basic share and $1.85 per diluted share, for fiscal 2010 compared with
net loss of $2,855, or $13.51 per basic and diluted share in fiscal 2009. Net earnings for fiscal 2010 include
net charges of $39 after tax, or $0.18 per diluted share, related to planned retail market exits, closure of non-
strategic stores announced in fiscal 2009 and fees received from the early termination of a supply agreement.
Net loss for fiscal 2009 includes charges of $3,470 after tax, or $16.40 per diluted share, comprised of
goodwill and intangible asset impairment charges, charges primarily related to the closure of non-strategic
stores announced in fiscal 2009, settlement costs for a pre-Acquisition Albertsons litigation matter and other
Acquisition-related costs.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with accounting standards requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Significant accounting policies are discussed in Note 1 — Summary of Significant Accounting Policies in the
Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Management believes the following critical accounting policies reflect its more subjective or complex
judgments and estimates used in the preparation of the Company’s consolidated financial statements.
Vendor Funds
The Company receives funds from many of the vendors whose products the Company buys for resale in its
stores. These vendor funds are provided to increase the sell-through of the related products. The Company
receives vendor funds for a variety of merchandising activities: placement of the vendors’ products in the
Company’s advertising; display of the vendors’ products in prominent locations in the Company’s stores;
supporting the introduction of new products into the Company’s retail stores and distribution system;
exclusivity rights in certain categories; and to compensate for temporary price reductions offered to customers
on products held for sale at retail stores. The Company also receives vendor funds for buying activities such as
volume commitment rebates, credits for purchasing products in advance of their need and cash discounts for
the early payment of merchandise purchases. The majority of the vendor fund contracts have terms of less than
a year, with a small proportion of the contracts longer than one year.
The Company recognizes vendor funds for merchandising activities as a reduction of Cost of sales when the
related products are sold. 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. The amount and timing of recognition of vendor funds as well as the
amount of vendor funds to be recognized as a reduction to ending inventory requires management judgment
and estimates. Management determines these amounts based on estimates of current year purchase volume
using forecast and historical data and review of average inventory turnover data. These judgments and
estimates impact the Company’s reported gross profit, operating earnings (loss) and inventory amounts. The
historical estimates of the Company have been reliable in the past, and the Company believes the methodology
will continue to be reliable in the future. Based on previous experience, the Company does not expect
significant changes in the level of vendor support. However, if such changes were to occur, cost of sales and
advertising expense could change, depending on the specific vendors involved. If vendor advertising
allowances were substantially reduced or eliminated, the Company would consider changing the volume, type
and frequency of the advertising, which could increase or decrease its advertising expense. Similarly, the
Company is not able to assess the impact of vendor advertising allowances on increasing revenues as such
allowances do not directly generate revenue for the Company’s stores. For fiscal 2011, a 1 percent change in
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