Kroger 2010 Annual Report Download - page 119

A-39
NO T E S T O CO N S O L I D A T E D FI N A N C I A L ST A T E M E N T S , CO N T I N U E D
value of the division’s goodwill. Goodwill impairment is recognized for any excess of the carrying value of
the division’s goodwill over the implied fair value. Results of the goodwill impairment reviews performed
during 2010, 2009 and 2008 are summarized in Note 2 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
The Company monitors the carrying value of long-lived assets for potential impairment each quarter
based on whether certain trigger events have occurred. These events include current period losses
combined with a history of losses or a projection of continuing losses or a significant decrease in the
market value of an asset. When a trigger event occurs, an impairment calculation is performed, comparing
projected undiscounted future cash flows, utilizing current cash flow information and expected growth
rates related to specific stores, to the carrying value for those stores. If the Company identifies impairment
for long-lived assets to be held and used, the Company compares the assets’ current carrying value to
the assets’ fair value. Fair value is based on current market values or discounted future cash flows. The
Company records impairment when the carrying value exceeds fair market value. With respect to owned
property and equipment held for sale, the value of the property and equipment is adjusted to reflect
recoverable values based on previous efforts to dispose of similar assets and current economic conditions.
Impairment is recognized for the excess of the carrying value over the estimated fair market value, reduced
by estimated direct costs of disposal. The Company recorded asset impairments in the normal course of
business totaling $25, $48 and $26 in 2010, 2009 and 2008, respectively. Included in the 2009 amount
are asset impairments recorded totaling $24 for a southern California reporting unit. Costs to reduce the
carrying value of long-lived assets for each of the years presented have been included in the Consolidated
Statements of Operations as “Operating, general and administrative” expense.
Store Closing Costs
The Company provides for closed store liabilities relating to the present value of the estimated
remaining noncancellable lease payments after the closing date, net of estimated subtenant income. The
Company estimates the net lease liabilities using a discount rate to calculate the present value of the
remaining net rent payments on closed stores. The closed store lease liabilities usually are paid over the
lease terms associated with the closed stores, which generally have remaining terms ranging from one to
20 years. Adjustments to closed store liabilities primarily relate to changes in subtenant income and actual
exit costs differing from original estimates. Adjustments are made for changes in estimates in the period
in which the change becomes known. Store closing liabilities are reviewed quarterly to ensure that any
accrued amount that is not a sufficient estimate of future costs, or that no longer is needed for its originally
intended purpose, is adjusted to income in the proper period.
Owned stores held for disposal are reduced to their estimated net realizable value. Costs to reduce the
carrying values of property, equipment and leasehold improvements are accounted for in accordance with
the Company’s policy on impairment of long-lived assets. Inventory write-downs, if any, in connection with
store closings, are classified in “Merchandise costs.” Costs to transfer inventory and equipment from closed
stores are expensed as incurred.