Albertsons 2007 Annual Report Download - page 32

calculated by applying a cost-to-retail ratio to the current retail value of inventories. The replacement cost
met
h
o
d
ut
ili
zes t
h
e most current un
i
t purc
h
ase cost to ca
l
cu
l
ate t
h
eva
l
ue o
fi
nventor
i
es
.
During fiscal 2007, 2006 and 200
5
, inventory quantities in certain LIFO layers were reduced. These reductions
resu
l
te
di
na
li
qu
id
at
i
on o
f
LIFO
i
nventory quant
i
t
i
es carr
i
e
d
at
l
ower costs preva
ili
ng
i
npr
i
or years as compare
d
with the cost of fiscal 2007, 2006 and 2005 purchases. As a result, Cost of sales decreased b
y
$6, $7 and $11 i
n
f
iscal 2007, 2006 and 2005, respectively. This increased Net earnings per diluted share by
$
0.02,
$
0.03 and
$
0.05
in 2007, 2006 and 2005, respectively.
T
he Company evaluates inventory shortages throughout the year based on actual physical counts in its facilities.
A
ll
owances
f
or
i
nventory s
h
ortages are recor
d
e
db
ase
d
on t
h
e resu
l
ts o
f
t
h
ese counts to prov
id
e
f
or est
i
mate
d
shorta
g
es as of the financial statement date
.
Reserves
f
or C
l
ose
d
Pro
p
erties an
d
Asset Im
p
airment C
h
arge
s
T
he Company maintains reserves for estimated losses on retail stores, distribution warehouses and othe
r
propert
i
es t
h
at are no
l
onger
b
e
i
ng ut
ili
ze
di
n current operat
i
ons. T
h
e Company prov
id
es
f
or c
l
ose
d
propert
y
o
peratin
g
lease liabilities usin
g
a discount rate to calculate the present value of the remainin
g
noncancellable
l
ease payments after the closing date, net of estimated subtenant income. The closed property lease liabilitie
s
u
sually are paid over the remaining lease terms, which generally range from one to 2
6
years. The Company
estimates subtenant income and future cash flows based on the Compan
y
’s experience and knowled
g
eofth
e
market in which the closed property is located, the Company’s previous efforts to dispose of similar assets and
ex
i
st
i
ng econom
i
c con
di
t
i
ons
.
Owned
p
ro
p
erties and ca
p
ital lease
p
ro
p
erties that are closed are reduced to their estimated fair value. Reductio
n
i
nt
h
e carry
i
ng va
l
ues o
f
property, equ
i
pment an
dl
ease
h
o
ld i
mprovements are recogn
i
ze
d
w
h
en expecte
d
net
f
uture cash flows are less than the assets’ carr
y
in
g
value. The Compan
y
estimates net future cash flows based o
n
its experience and knowledge of the market in which the closed property is located and, when necessary, utilizes
l
oca
l
rea
l
estate
b
ro
k
ers
.
Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit cost
s
diff
er
i
ng
f
rom or
i
g
i
na
l
est
i
mates. A
dj
ustments are ma
d
e
f
or c
h
anges
i
n est
i
mates
i
nt
h
e per
i
o
di
nw
hi
c
h
t
h
e
chan
g
es become known
.
Th
e expectat
i
ons on t
i
m
i
ng o
fdi
spos
i
t
i
on or su
bl
ease an
d
t
h
e est
i
mate
d
sa
l
es pr
i
ce or su
bl
ease
i
ncome assoc
i
ate
d
with closed properties are impacted b
y
variable factors such as inflation, the
g
eneral health of the econom
y,
resultant demand for commercial property, the ability to secure subleases, the creditworthiness of sublessees an
d
t
h
e Company’s success at negot
i
at
i
ng ear
l
y term
i
nat
i
on agreements w
i
t
hl
essors. W
hil
e management
b
e
li
eves t
he
current estimates on closed
p
ro
p
erties are ade
q
uate, it is
p
ossible that market conditions in the real estate marke
t
could cause changes in the Company’s assumptions and may require additional reserves and asset impairment
c
h
arges to
b
e recor
d
e
d.
Reserves for Self-Insuranc
e
T
he Compan
y
is primaril
y
self-insured for workers’ compensation, health care for certain emplo
y
ees and
g
eneral
a
nd automobile liability costs. It is the Company’s policy to record its self-insurance liabilities based on claim
s
fil
e
d
an
d
an est
i
mate o
f
c
l
a
i
ms
i
ncurre
db
ut not yet reporte
d
,
di
scounte
d
at a r
i
s
k
-
f
ree
i
nterest rate. Any
pro
j
ection of losses concernin
g
workers’ compensation, health care and
g
eneral and automobile liabilit
y
i
s
subject to a considerable degree of variability. Among the causes of this variability are unpredictable external
f
actors a
ff
ect
i
ng
f
uture
i
n
fl
at
i
on rates,
di
scount rates,
li
t
i
gat
i
on tren
d
s,
l
ega
li
nterpretat
i
ons,
b
ene
fi
t
l
eve
l
c
h
anges
a
nd claim settlement patterns. The Compan
y
had reserves of approximatel
y
$992 and $58 as of Februar
y
24,
2007 and February 2
5
, 2006, respectively. The increase in the reserve is primarily a result of reserves related t
o
26