Albertsons 2014 Annual Report Download - page 73

The Company receives allowances and credits from vendors for volume incentives, promotional allowances and,
to a lesser extent, new product introductions which are typically based on contractual arrangements covering a
period of one year or less. 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, impairment charges on property, plant and equipment 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. The Company funds all intraday bank balance
overdrafts during the same business day. Checks outstanding in excess of bank balances create book overdrafts,
which 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 22, 2014 and February 23, 2013, the
Company had net book overdrafts of $134 and $131, 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. It is
possible that the accuracy of the estimation process could be materially impacted by different judgments,
estimations and assumptions based on the information considered and result in a further deterioration of accounts
and notes receivable. The allowance for losses on receivables was $9 and $5 at February 22, 2014 and
February 23, 2013, respectively. Bad debt expense was $16, $11 and $6 in fiscal 2014, 2013 and 2012,
respectively.
Inventories, Net
Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventory consists of
finished goods.
The Company uses one of either replacement cost, weighted average cost, or the retail inventory method (“RIM”)
to value discrete inventory items at lower of cost or market before application of any last-in, first-out (“LIFO”)
reserve. As of February 22, 2014 and February 23, 2013, approximately 57 percent and 60 percent, respectively,
of the Company’s inventories were valued under the LIFO method.
As of February 22, 2014 and February 23, 2013, approximately 5 percent of the Company’s inventories were
valued under the replacement cost method before application of any LIFO reserve. The weighted average cost
and RIM methods of inventory valuation together comprised approximately 52 percent and 55 percent of
inventory as of February 22, 2014 and February 23, 2013, respectively, before application of any LIFO reserve.
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