Safeway 2012 Annual Report Download - page 64

Download and view the complete annual report

Please find page 64 of the 2012 Safeway 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 106

  • 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

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
52
targets and operational milestones. Goodwill recognized in this transaction amounted to $40.5 million which
is not deductible for tax purposes.
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
value.
The impairment test is a two-step process. In the first step, we determine if the fair value of the reporting
units is less than the book value. 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 management regularly reviews the operating
results. Our operating segments are our retail divisions. Our reporting units are generally consistent with our
operating segments.
If we conclude that fair value is greater than the book value, we do not have to proceed to step two, and we
can conclude there is no goodwill impairment. If we conclude that the fair value of a reporting unit is less
than book value, we must perform step two, in which we calculate the implied fair value of goodwill and
compare it to carrying value. If the carrying value of goodwill exceeds the implied fair value of goodwill, such
excess represents the amount of goodwill impairment.
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. Measuring the fair value of reporting units would constitute a Level 3
measurement under the fair value hierarchy. See Note F for a discussion of levels.
Based upon the results of our 2012, 2011 and 2010 analyses, no impairment of goodwill was indicated in
2012, 2011 or 2010.
Note C: Store Lease Exit Costs and Impairment Charges
Impairment Write-Downs Safeway recognized impairment charges on the write-down of long-lived assets
of $46.5 million in 2012, $44.7 million in 2011 and $71.7 million in 2010. These charges are included as a
component of operating and administrative expense.
Store Lease Exit Costs The reserve for store lease exit costs includes the following activity for 2012,
2011 and 2010 (in millions):
2012 2011 2010
Beginning balance $ 77.0 $ 94.0 $ 87.6
Provision for estimated net future cash flows of additional closed stores (1) 19.4 2.8 5.1
Net cash flows, interest accretion, changes in estimates of net future cash
flows (19.9) (19.8) 1.3
Ending balance $ 76.5 $ 77.0 $ 94.0
(1) Estimated net future cash flows represents future minimum lease payments and related ancillary costs from the date of closure to
the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting properties or through
favorable lease terminations.