Kroger 2011 Annual Report Download - page 88

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A-33
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
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation expense, which includes the
amortization of assets recorded under capital leases, is computed principally using the straight-line method
over the estimated useful lives of individual assets. Buildings and land improvements are depreciated based
on lives varying from 10 to 40 years. All new purchases of store equipment are assigned lives varying from
three to nine years. Leasehold improvements are amortized over the shorter of the lease term to which they
relate, which varies from four to 25 years, or the useful life of the asset. Manufacturing plant and distribution
center equipment is depreciated over lives varying from three to 15 years. Information technology assets are
generally depreciated over five years. Depreciation and amortization expense was $1,638 in 2011, $1,600 in
2010 and $1,525 in 2009.
Interest costs on significant projects constructed for the Company’s own use are capitalized as part of the
costs of the newly constructed facilities. Upon retirement or disposal of assets, the cost and related accumulated
depreciation are removed from the balance sheet and any gain or loss is reflected in net earnings.
Deferred Rent
The Company recognizes rent holidays, including the time period during which the Company has access
to the property for construction of buildings or improvements and escalating rent provisions on a straight-line
basis over the term of the lease. The deferred amount is included in Other Current Liabilities and Other Long-
Term Liabilities on the Company’s Consolidated Balance Sheets.
Goodwill
The Company reviews goodwill for impairment during the fourth quarter of each year, and also upon
the occurrence of trigger events. The reviews are performed at the operating division level. Generally, fair
value is determined using a multiple of earnings, or discounted projected future cash flows, and is compared
to the carrying value of a division for purposes of identifying potential impairment. Projected future cash
flows are based on management’s knowledge of the current operating environment and expectations for the
future. If potential for impairment is identified, the fair value of a division is measured against the fair value
of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair 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 2011, 2010 and
2009 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 $37, $25 and $48 in 2011,
2010 and 2009, respectively. Included in the 2009 amount are asset impairments recorded totaling $24 for the
Ralphs reporting unit in southern California. 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.