Albertsons 2004 Annual Report Download - page 26

weakness in the real estate market could cause changes in the company’s assumptions and may require additional
reserves and asset impairment charges to be recorded.
Reserves for Self Insurance
The company is primarily self-insured for workers’ compensation and general and automobile liability
costs. It is the company’s policy to record its self-insurance liabilities based on claims filed and an estimate of
claims incurred but not yet reported, discounted at a risk free interest rate. Any projection of losses concerning
workers’ compensation and general and automobile liability is subject to a considerable degree of variability.
Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount
rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. A 100 basis
point change in discount rates, based on changes in market rates would increase the company’s liability by
approximately $1.1 million.
Retirement Plans
The company sponsors non-union pension and other post retirement plans in various forms covering
substantially all employees who meet eligibility requirements. The determination of the company’s obligation
and expense for non-union pension and other post retirement benefits is dependent, in part, on management’s
selection of certain assumptions used by its actuaries in calculating these amounts. These assumptions include,
among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of
increase in compensation and health care costs. In accordance with generally accepted accounting principles,
actual results that differ from the company’s assumptions are accumulated and amortized over future periods and,
therefore, affect its recognized expense and recorded obligation in such future periods. While the company
believes that its assumptions are appropriate, significant differences in actual experience or significant changes in
assumptions may materially impact pension and other post retirement obligations and future expenses.
The company lowered its expected return on plan assets used for fiscal 2004 pension expense by 25 basis
points to 9.00 percent and by an additional 25 basis points to 8.75 percent for fiscal 2005 pension expense. The
company also lowered its discount rate by 75 basis points to 6.25 percent for fiscal 2005 pension expense. For
fiscal 2005, when not considering other changes in assumptions, the impact to pension expense of each 25 basis
point reduction in the discount rate is to increase pension expense by approximately $3 million and the impact of
each 25 basis point reduction in expected return on plan assets is to increase pension expense by approximately
$1 million.
The assumed health care cost trend rate used in measuring the accumulated post retirement benefit
obligation was 8.0 percent in fiscal 2004. The assumed health care cost trend rate will decrease by one percent
each year for the next three years until it reaches the ultimate trend rate of 5.0 percent. The health care cost trend
rate assumption has a significant impact on the amounts reported. A one percent increase in the trend rate would
increase the accumulated post retirement benefit obligation by $7.0 million and the net periodic cost by $0.4
million in fiscal 2004. In contrast, a one percent decrease in the trend rate would decrease the accumulated post
retirement benefit obligation by $6.6 million and the net periodic cost by $0.4 million in fiscal 2004. The
weighted average discount rates used in determining the benefit obligation were 6.25% and 7.00% for fiscal 2004
and 2003, respectively.
The actuarial assumptions used by the company may differ materially from actual results due to changing
market and economic conditions, higher or lower withdrawal rates, and longer or shorter life spans of
participants.
Goodwill
Management assesses the valuation of goodwill for each of the company’s reporting units on an annual basis
through the comparison of the fair value of the respective reporting unit with its carrying value. Fair value is
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