Albertsons 2010 Annual Report Download - page 31

historical information available to record reasonable estimates for inventory shortages, it is possible that actual
results could differ. As of February 27, 2010, each 25 basis point change in the estimated inventory shortages
would impact the allowances for inventory shortages by approximately $12.
Reserves for Closed Properties and Property, Plant and Equipment-Related Impairment Charges
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. 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. 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. 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 $128, net of estimated sublease recoveries of $55, as of
February 27, 2010 and $167, net of estimated sublease recoveries of $77, as of February 28, 2009. The
Company recognized asset impairment charges of $52, $75 and $12 in fiscal 2010, 2009 and 2008,
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 by using both the market approach, applying a multiple of earnings based on guideline for publicly
traded companies, and the income approach, 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
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