Albertsons 2009 Annual Report Download - page 33

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generally range from one to 20 years. The Company estimates subtenant rentals and future cash flows based
on the Company’s experience and knowledge of the market in which the closed property is located, the
Company’s previous efforts to dispose of similar assets and existing economic conditions. Adjustments to
closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from
original estimates. Adjustments are made for changes in estimates in the period in which the changes become
known.
Owned properties, capital lease properties, and the related equipment and leasehold improvements at operating
leased properties that are closed are reduced to their estimated fair value in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company estimates fair value based
on its experience and knowledge of the market in which the closed property is located and, when necessary,
utilizes local real estate brokers.
The expectations on timing of disposition and the estimated sales price or subtenant rentals associated with
closed properties, owned or leased, are impacted by variable factors including 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 of reserves for closed properties and related impairment charges
are adequate, it is possible that market and economic 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.
The Company’s reserve for closed properties was $167, net of estimated sublease recoveries of $77, as of
February 28, 2009 and $97, net of estimated sublease recoveries of $81, as of February 23, 2008. The
Company recognized asset impairment charges of $75, $12 and $7 in fiscal 2009, 2008 and 2007, respectively.
Goodwill and Intangible Assets with Indefinite Useful Lives
The Company reviews goodwill for impairment during the fourth quarter of each year, and also if an event
occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below
its carrying amount. The reviews consist of comparing estimated fair value to the carrying value at the
reporting unit level. The Company’s reporting units are the operating segments of the business. Fair values are
determined primarily by discounting projected future cash flows based on management’s expectations of the
current and future operating environment. The rates used to discount projected future cash flows reflect a
weighted average cost of capital based on the Company’s industry, capital structure and risk premiums
including those reflected in the current market capitalization. If management identifies the potential for
impairment of goodwill, the fair value of the implied goodwill is calculated as the difference between the fair
value of the reporting unit and the fair value of the underlying assets and liabilities, excluding goodwill. An
impairment charge is recorded for any excess of the carrying value over the implied fair value. Fair value
calculations contain significant judgments and estimates related to each reporting unit’s projected future
revenues, profitability and cash flows. When preparing these estimates, management considers each reporting
unit’s historical results, current operating trends, and specific plans in place. These estimates are impacted by
variable factors including inflation, the general health of the economy, and market competition. The Company
has sufficient current and historical information available to support its judgments and estimates. However, if
actual results are not consistent with the Company’s estimates, future operating results may be materially
impacted.
The Company also reviews intangible assets with indefinite useful lives, which primarily consist of trademarks
and tradenames, for impairment during the fourth quarter of each year, and also if events or changes in
circumstances indicate that the asset might be impaired. The reviews consist of comparing estimated fair value
to the carrying value. Fair values of the Company’s trademarks and tradenames are determined primarily by
discounting an assumed royalty value applied to projected future revenues associated with the tradename based
on management’s expectations of the current and future operating environment. The royalty cash flows are
then discounted using rates based on the weighted average cost of capital discussed above and the specific risk
profile of the tradenames relative to the Company’s other assets. These estimates are impacted by variable
factors including inflation, the general health of the economy, and market competition.
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