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A-44
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
2. GO O D W I L L
The following table summarizes the changes in the Company’s net goodwill balance through
January 29, 2011.
2010 2009
Balance beginning of the year
Goodwill ................................................ $ 3,672 $ 3,672
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,514) (1,401)
1,158 2,271
Activity during the year
Goodwill impairment charge ................................. (18) (1,113)
Balance end of year
Goodwill ................................................ 3,672 3,672
Accumulated impairment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,532) (2,514)
$ 1,140 $ 1,158
Testing for impairment must be performed annually, or on an interim basis upon the occurrence of
a triggering event or a change in circumstances that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. The annual evaluation of goodwill performed during the fourth
quarter of 2009 and 2008 did not result in impairment.
The annual evaluation of goodwill performed during the fourth quarter of 2010 resulted in an
impairment charge of $18. Based on the results of the Company’s step one analysis in the fourth quarter of
2010, a supermarket reporting unit with a small number of stores indicated potential impairment. Due to
estimated future expected cash flows being lower than in the past, the estimated fair value of the reporting
unit decreased. Management concluded that the carrying value of goodwill for this reporting unit exceeded
its implied fair value due to the decreased fair value of the reporting unit, resulting in a pre-tax impairment
charge of $18 ($12 after-tax). In 2009, the Company disclosed that a 10% reduction in fair value of this
supermarket reporting unit would indicate a potential for impairment. Subsequent to the impairment, no
goodwill remains at this reporting unit.
In the third quarter of 2009, the Company’s operating performance suffered due to deflation and
intense competition. During the third quarter of 2009, based on revised forecasts for 2009 and the initial
results of the Company’s 2010 annual budget process of the supermarket reporting units, management
believed that there were circumstances evident to warrant impairment testing of these reporting units. In
the third quarter of 2009, the Company did not test the variable interest entities with recorded goodwill
for impairment as no triggering event occurred.
Based on the results of the Company’s step one analysis in the third quarter of 2009, the Ralphs
reporting unit in Southern California was the only reporting unit for which there was a potential impairment.
In 2009, the operating performance of the Ralphs reporting unit was significantly affected by the economic
conditions at the time and responses to competitive actions in Southern California. As a result of this decline
in current and future expected cash flows, along with comparable fair value information, management
concluded that the carrying value of goodwill for the Ralphs reporting unit exceeded its implied fair value,
resulting in a pre-tax impairment charge of $1,113 ($1,036 after-tax). Subsequent to the impairment, no
goodwill remains at the Ralphs reporting unit.