Albertsons 2006 Annual Report Download - page 22

The expectations on timing of disposition or sublease and the estimated sales price or sublease income
associated with closed properties are impacted by variable factors such as inflation, the general health of the
economy, resultant demand for commercial property, the ability to secure subleases, the creditworthiness of
sublessees and the company’s success at negotiating early termination agreements with lessors. While
management believes the current estimates on closed properties are adequate, it is possible that market conditions
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, health care for certain employees 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, health care 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 would increase the company’s liability
by approximately $0.8 million.
Benefit Plans
The company sponsors 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 related
expense for company sponsored 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 expense and obligation in future periods. While the company believes that its
assumptions are appropriate, significant differences in actual experience or significant changes in assumptions
may materially impact non-union pension and other post retirement obligations and future expenses.
For fiscal 2007, when not considering other changes in assumptions or impacts from the Proposed
Transaction, the impact to pension expense of each 25 basis point reduction in the discount rate is to increase
pension expense by approximately $5 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. Similarly, for post retirement benefits,
a one percent change in the health care cost trend rate would impact the accumulated post retirement benefit
obligation by approximately $10 million and the service and interest cost by $0.6 million in fiscal 2007. 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
determined primarily based on valuation studies performed by the company, which utilize a discounted cash flow
methodology. Valuation analysis requires significant judgments and estimates to be made by management. The
company’s estimates could be materially impacted by factors such as competitive forces, customer behaviors,
changes in growth trends and specific industry conditions.
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