Safeway 2009 Annual Report Download - page 66

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of changes in Safeway's goodwill by geographic area is as follows (in millions):
2009 2008
U.S. Canada Total U.S. Canada Total
Balance – beginning of year:
Goodwill $ 4,325.0 $ 82.3 $ 4,407.3 $ 4,325.9 $ 97.5 $ 4,423.4
Accumulated impairment
charges (2,017.1) – (2,017.1) (2,017.1) – (2,017.1)
2,307.9 82.3 2,390.2 2,308.8 97.5 2,406.3
Activity during the year:
Impairment charge (1,974.2) – (1,974.2) –– –
Other adjustments (0.6) 11.2 (1) 10.6 (0.9) (15.2) (1) (16.1)
(1,974.8) 11.2 (1,963.6) (0.9) (15.2) (16.1)
Balance – end of year:
Goodwill 4,324.4 93.5 4,417.9 4,325.0 82.3 4,407.3
Accumulated impairment
charges (3,991.3) – (3,991.3) (2,017.1) – (2,017.1)
$ 333.1 $ 93.5 $ 426.6 $ 2,307.9 $ 82.3 $ 2,390.2
(1) Represents foreign currency translation adjustments in Canada.
We test goodwill for impairment annually (on the first day of the fourth quarter), or whenever events or circumstances
indicate that it is more likely than not that the fair value of a reporting unit is below its carrying amount. The test to
evaluate for impairment is a two-step process. In the first step, we compare the fair value of each of our reporting units
to its carrying value. If the fair value of any reporting unit is less than its carrying value, we perform a second step to
determine the implied fair value of goodwill associated with that reporting unit. If the carrying value of goodwill exceeds
the implied fair value of goodwill, such excess represents the amount of goodwill impairment.
Under generally accepted accounting principles, a reporting unit is either the equivalent to, or one level below, an
operating segment. Each reporting unit constitutes a business for which discrete financial information is available and for
which segment management regularly reviews the operating results. Our operating segments are our retail divisions. Our
reporting units are generally consistent with our operating segments.
As a result of the Company’s annual impairment test, Safeway recorded a non-cash impairment charge in the amount of
$1,974.2 million (pre-tax) to reduce the carrying value of goodwill. The impairment was due primarily to Safeway’s
reduced market capitalization and a weak economy. The difficult economic environment negatively impacted all of
Safeway’s divisions; however, due to their large goodwill balances, the goodwill impairment resulted primarily from the
Vons and Eastern divisions. Based upon the results of our 2008 and 2007 analyses, no impairment of goodwill was
indicated in 2008 or 2007.
Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimated fair
value of each reporting unit is based on an average of the guideline company method and the discounted cash flow
method. These methods are based on historical and forecasted amounts specific to each reporting unit and consider,
sales, gross profit, operating profit and cash flows and general economic and market conditions, as well as the impact of
planned business and operational strategies. We base our fair value estimates on assumptions we believe to be
reasonable at the time, but such assumptions are subject to inherent uncertainty.
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