Harris Teeter 2009 Annual Report Download - page 44

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RUDDICK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
Counterparty Credit Risk
By entering into derivative instrument contracts, the Company exposes itself, from time to time, to
counterparty credit risk. Counterparty credit risk is the failure of the counterparty to perform under the terms of
the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a
liability to the Company, which creates credit risk for the Company. The Company attempts to minimize this risk
by selecting counterparties with investment grade credit ratings, limiting its exposure to any single counterparty
and regularly monitoring its market position with each counterparty.
Credit-Risk Related Contingent Features
The Company’s derivative instruments do not contain any credit-risk related contingent features.
Revenue Recognition
The Company recognizes revenue from retail operations at the point of sale to its customers and from
manufacturing operations at the point of shipment to its customers, based on shipping terms.
Cost of Sales
The major components of cost of sales in the retail supermarket segment are (a) the cost of products sold
determined under the Retail Inventory Method (see “Inventories” above) reduced by purchase cash discounts
and vendor purchase allowances and rebates, (b) the cost of various sales promotional activities reduced by
vendor promotional allowances, and reduced by cooperative advertising allowances to the extent an advertising
allowance exceeds the cost of the advertising, (c) the cost of product waste, including, but not limited to, physical
waste and theft, (d) the cost of product distribution, including warehousing, freight and delivery, and (e) any
charges, or credits, associated with LIFO reserves and reserves for obsolete and slow moving inventories.
Additionally, the costs of production of product sold by the dairy operation to outsiders are included in cost of
sales in the period in which the sales are recognized in revenues.
The major components of cost of sales in the textile manufacturing and distribution segment are (a) the
materials and supplies, labor costs and overhead costs associated with the manufactured products sold, (b) the
purchased cost of products bought for resale, (c) any charges, or credits, associated with LIFO reserves and
reserves for obsolete and slow moving inventories, (d) the freight costs incurred to deliver the products to the
customer from the point of sale, and (e) all other costs required to be classified as cost of sales under authoritative
accounting pronouncements.
Selling, General and Administrative Expenses
The major components of selling, general and administrative expenses in the retail supermarket segment
are (a) the costs associated with store operations, including store labor and training, fringe benefits and incentive
compensation, supplies and maintenance, regional and district management and store support, store rent and
other occupancy costs, property management and similar costs, (b) advertising costs, (c) shipping and handling
costs, excluding freight, warehousing and distribution costs, (d) merchandising and purchasing department
staffing, supplies and associated costs, (e) customer service and support, and (f) the costs of maintaining general
and administrative support functions, including, but not limited to, personnel administration, finance and
accounting, treasury, credit, information systems, marketing, and environmental, health and safety, based on
appropriate classification under generally accepted accounting principles.