Albertsons 2013 Annual Report Download - page 69

Download and view the complete annual report

Please find page 69 of the 2013 Albertsons annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

Fair values of the Company’s tradenames were 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 discounted using rates based on the
weighted average cost of capital 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. The calculation of the impairment charge contains significant judgments and estimates
including weighted average cost of capital and the specified risk profile of the tradename and future revenue and
profitability.
During the third and fourth quarters of fiscal 2012 and 2011 the Company’s stock price experienced a significant
and sustained decline and the book value per share substantially exceeded the stock price. As a result, the
Company performed reviews of goodwill and intangible assets with indefinite useful lives for impairment, which
indicated that the carrying value of Retail Food’s goodwill and certain intangible assets with indefinite useful
lives exceeded their estimated fair values. The Company recorded preliminary non-cash goodwill impairment
charges of $54 during the third quarter of fiscal 2012 due to the significant and sustained decline in the
Company’s market capitalization and updated discounted cash flows. The finalization of third quarter impairment
charges and the results of the fourth quarter impairment review resulted in an additional non-cash goodwill
impairment charge of $38 including an immaterial finalization to the third quarter preliminary charge. The
impairment charge was due to the significant and sustained decline in the Company’s market capitalization as of
and subsequent to the end of the fourth quarter of fiscal 2012 and was recorded in the Retail Food segment.
During fiscal 2012 the Company sold 10 retail fuel centers which were part of the Retail Food segment. The
Company completed the sale during the third and fourth quarter of fiscal 2012.
For the full fiscal 2012 year the Company recorded non-cash goodwill impairment charges of $92 in the Retail
Food segment. The calculation of the impairment charges contains significant judgments and estimates including
weighted average cost of capital, future revenue, profitability, cash flows and fair values of assets and liabilities.
The Company undertook reviews for impairment of goodwill and intangible assets with indefinite useful lives
twice during fiscal 2011. During the second quarter of fiscal 2011 the Company’s stock price had a significant
and sustained decline and book value per share substantially exceeded the stock price. As a result, the Company
completed an impairment review and recorded non-cash goodwill impairment charge of $110 within the Retail
Food segment. The result of the fiscal 2011 annual review of goodwill and tradenames undertaken in the fourth
quarter indicated no further reduction to the carrying value of goodwill or tradenames was required.
Amortization expense of intangible assets with definite useful lives of $8 was recorded in fiscal 2013, 2012 and
2011. Future amortization expense will average approximately $6 per year for the next five years.
NOTE 3—RESERVES FOR CLOSED PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT-
RELATED IMPAIRMENT CHARGES
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. 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. Adjustments to closed property reserves primarily relate to changes in subtenant income or
actual exit costs differing from original estimates.
67