Albertsons 2012 Annual Report Download - page 52

Cost of Sales
Cost of sales in the Consolidated Statement of Earnings 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 and are expensed as incurred. Retail food
advertising expenses, net of cooperative advertising reimbursements, were $164, $120 and $137 for fiscal 2012,
2011 and 2010, 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 25, 2012, February 26, 2011, and February 27, 2010, the
Company had net book overdrafts of $268, $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 at February 25, 2012 and February 26, 2011. Bad debt expense was
$7, $12 and $4 in fiscal 2012, 2011 and 2010, 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 25, 2012 and February 26, 2011, approximately 78 percent and 79 percent, respectively, 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. The majority of the Company’s inventory are valued
using the replacement cost method. 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.
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