Albertsons 2009 Annual Report Download - page 53

During fiscal 2009, 2008 and 2007, inventory quantities in certain LIFO layers were reduced. These reductions
resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of fiscal 2009, 2008 and 2007 purchases. As a result, Cost of sales decreased by $10,
$5 and $6 in fiscal 2009, 2008 and 2007, respectively.
The Company evaluates inventory shortages throughout each fiscal year based on actual physical counts in its
facilities. Allowances for inventory shortages are recorded based on the results of these counts to provide for
estimated shortages as of the end of each fiscal year.
Reserves for Closed Properties
The Company maintains reserves for costs associated with closures of retail stores, distribution centers and
other properties that are no longer being utilized in current operations in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal
Activities.” The Company provides for closed property operating lease liabilities using a discount rate to
calculate the present value of the remaining noncancellable lease payments after the closing date, reduced by
estimated subtenant rentals that could be reasonably obtained for the property. The closed property lease
liabilities usually are paid over the remaining lease terms, which generally range from one to 20 years.
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.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is based on the estimated useful lives of the
assets using the straight-line method. Estimated useful lives generally are 10 to 40 years for buildings and
major improvements, three to 10 years for equipment, and the shorter of the term of the lease or expected life
for leasehold improvements and assets under capital leases. Interest on property under construction of $14, $8
and $11 was capitalized in fiscal 2009, 2008 and 2007, respectively.
Goodwill and Intangible Assets
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. 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. Intangible assets with estimable useful lives
are amortized on a straight-line basis with estimated useful lives ranging from less than one to 35 years.
Impairment of Long-Lived Assets
In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the
Company monitors the recoverability of its long-lived assets whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable, including current period losses combined with a
49