Safeway 2008 Annual Report Download - page 67

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
vendor allowances are classified as an element of cost of goods sold.
Promotional allowances make up approximately three-quarters of all allowances. With promotional allowances, vendors
pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature
in print ads, a feature in a Safeway circular or a preferred location in the store. The promotions are typically one to two
weeks long.
Slotting allowances are a small portion of total allowances (typically less than 5% of all allowances). With slotting
allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation
or commitment to keep the product on the shelf for a minimum period.
Contract allowances make up the remainder of all allowances. Under a typical contract allowance, a vendor pays Safeway
to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.
Promotional and slotting allowances are accounted for as a reduction in the cost of purchased inventory and recognized
when the related inventory is sold. Contract allowances are recognized as a reduction in the cost of goods sold as volume
thresholds are achieved or through the passage of time.
Use of Estimates The preparation of financial statements, in conformity with accounting principles generally accepted
in the United States of America, requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Translation of Foreign Currencies Assets and liabilities of the Company’s Canadian subsidiaries and Casa Ley are
translated into U.S. dollars at year-end rates of exchange, and income and expenses are translated at average rates during
the year. Adjustments resulting from translating financial statements into U.S. dollars are reported, net of applicable
income taxes, as a separate component of comprehensive income in the consolidated statements of stockholders’ equity.
Cash and Cash Equivalents Short-term investments with original maturities of less than three months are considered
to be cash equivalents. Book overdrafts at year-end 2008 and 2007 of $185.1 million and $313.2 million, respectively, are
included in accounts payable.
Merchandise Inventories Merchandise inventory of $1,740 million at year-end 2008 and $1,886 million at year-end
2007 is valued at the lower of cost on a last-in, first-out (“LIFO”) basis or market value. Such LIFO inventory had a
replacement or current cost of $1,838 million at year-end 2008 and $1,949 million at year-end 2007. Liquidations of LIFO
layers during the three years reported did not have a material effect on the results of operations. All remaining inventory
is valued at the lower of cost on a first-in, first-out (“FIFO”) basis or market value. The FIFO cost of inventory
approximates replacement or current cost. The Company takes a physical count of perishable inventory in stores every
four weeks and nonperishable inventory in stores and all distribution centers twice a year. The Company records an
inventory shrink adjustment upon physical counts and also provides for estimated inventory shrink adjustments for the
period between the last physical inventory and each balance sheet date.
Property and Depreciation Property is stated at cost. Depreciation expense on buildings and equipment is computed
on the straight-line method using the following lives:
Stores and other buildings 7 to 40 years
Fixtures and equipment 3 to 15 years
Property under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the
remaining terms of the leases or the estimated useful lives of the assets.
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