Harris Teeter 2009 Annual Report Download - page 41

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RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Vendor Rebates, Credits and Promotional Allowances
Consistent with standard practices in the retail industry, Harris Teeter receives allowances from vendors
through a variety of programs and arrangements. These allowances are generally intended to defray the costs of
promotion, advertising and selling the vendor’s products. Vendor rebates, credits and other promotional allowances
that relate to Harris Teeter’s buying and merchandising activities, including lump-sum payments associated with
long-term contracts, are recorded as a component of cost of sales as they are earned, the recognition of which
is determined in accordance with the underlying agreement with the vendor, the authoritative guidance and
completion of the earning process. Portions of vendor allowances that are refundable to the vendor, in whole or in
part, by the nature of the provisions of the contract are deferred from recognition until realization is reasonably
assured.
Harris Teeter recognizes allowances when the purpose for which the vendor funds were intended and
committed to be used has been fulfilled and a cost has been incurred by the retailer. Thus, it is the Company’s
policy to recognize the vendor allowance consistent with the timing of the recognition of the expense that the
allowance is intended to reimburse and to determine the accounting classification consistent with the economic
substance of the underlying transaction. Where the Company provides an identifiable benefit or service to
the vendor apart from the purchase of merchandise, that transaction is recorded separately. For example, co-
operative advertising allowances are accounted for as a reduction of advertising expense in the period in which
the advertising cost is incurred. If the advertising allowance exceeds the cost of advertising, then the excess is
recorded against the cost of sales in the period in which the related expense is recognized.
Vendor allowances for price markdowns are credited to the cost of sales during the period in which the
related markdown was taken and charged to the cost of sales. Slotting and stocking allowances received from a
vendor to ensure that its products are carried or to introduce a new product at the Company’s stores are recorded
as a reduction of cost of sales over the period covered by the agreement with the vendor based on the estimated
inventory turns of the merchandise to which the allowance applies. Display allowances are recognized as a
reduction of cost of sales in the period earned in accordance with the vendor agreement. Volume rebates by the
vendor in the form of a reduction of the purchase price of the merchandise reduce the cost of sales when the
related merchandise is sold. Generally, volume rebates under a structured purchase program with allowances
awarded based on the level of purchases are recognized, when realization is assured, as a reduction in the cost of
sales in the appropriate monthly period based on the actual level of purchases in the period relative to the total
purchase commitment and adjusted for the estimated inventory turns of the merchandise.
Property and Depreciation
Property is recorded at cost and is depreciated, using principally the straight-line method, over the following
useful lives:
Land improvements . . . . . . . . . . . . . . . . . . . . . . 10-40 years
Buildings ............................... 15-40 years
Machinery and equipment . . . . . . . . . . . . . . . . . 3-15 years
Leasehold improvements are depreciated over the lesser of the estimated useful life or the remaining term
of the lease. Assets under capital leases are amortized on a straight-line basis over the lesser of the estimated
useful life or the lease term. Maintenance and repairs are charged against income when incurred. Expenditures
for major renewals, replacements and betterments are added to property. The cost and the related accumulated
depreciation of assets retired are eliminated from the accounts with gains or losses on disposal being added to
or deducted from income. Property categories include $88,373,000 and $46,224,000 of accumulated costs for
construction in progress at September 27, 2009 and September 28, 2008, respectively.