Albertsons 2011 Annual Report Download - page 44

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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 $120, $137 and $184 for fiscal 2011, 2010 and 2009, respectively.
The Company recognizes vendor funds for merchandising and buying 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. 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 26, 2011 and February 27,
2010, the Company had net book overdrafts of $360 and $330, 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 receivables was $8 and $12 in fiscal 2011 and 2010, respectively. Bad
debt expense was $12, $4 and $7 in fiscal 2011, 2010 and 2009, respectively.
Inventories
Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventory consists of
finished goods.
As of February 26, 2011 and February 27, 2010, approximately 79 percent of the Company’s inventories were
valued using the last-in, first-out (“LIFO”) method. The Company uses a combination of the replacement cost
method and the retail inventory method (“RIM”) to determine the current cost of its inventory before any
LIFO reserve is applied. Under the replacement cost method, the most current unit purchase cost is used to
calculate the current cost of inventories. 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. 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 $282 and $264 as of February 26, 2011 and
February 27, 2010, respectively.
During fiscal 2011, 2010 and 2009, inventory quantities in certain LIFO layers were reduced. These reductions
resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of fiscal 2011, 2010 and 2009 purchases. As a result, Cost of sales decreased by $11,
$22 and $10 in fiscal 2011, 2010 and 2009, respectively.
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