Albertsons 2016 Annual Report Download - page 53

51
actual results due to changing market and economic conditions, higher or lower withdrawal rates and longer or shorter life
spans of participants.
Income Taxes
The Company’s current and deferred tax provision is based on estimates and assumptions that could materially differ from the
actual results reflected in its income tax returns filed during the subsequent year and could significantly affect the effective tax
rate and cash flows in future years.
The Company recognizes deferred tax assets and liabilities for the expected tax consequences of temporary differences between
the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year in which it expects
the differences to reverse.
The Company’s effective tax rate is influenced by tax planning opportunities available in the various jurisdictions in which the
Company operates. Management’s judgment is involved in determining the effective tax rate and in evaluating the ultimate
resolution of any uncertain tax positions. In addition, the Company is currently in various stages of audits, appeals or other
methods of review with taxing authorities from various taxing jurisdictions. The Company establishes liabilities for
unrecognized tax benefits in a variety of taxing jurisdictions when, despite management’s belief that the Company’s tax return
positions are supportable, certain positions may be challenged and may need to be revised. The Company adjusts these
liabilities in light of changing facts and circumstances, such as the progress of a tax audit. The effective income tax rate
includes the impact of reserve provisions and changes to those reserves. The Company also provides interest on these liabilities
at the appropriate statutory interest rate. The actual benefits ultimately realized for tax positions may differ from the Company’s
estimates due to changes in facts, circumstances and new information. As of February 27, 2016 and February 28, 2015, the
Company had $70 and $94 of unrecognized tax benefits, respectively.
The Company records a valuation allowance to reduce the deferred tax assets to the amount that it is more-likely-than-not to
realize. Forecasted earnings, future taxable income and future prudent and feasible tax planning strategies are considered in
determining the need for a valuation allowance. In the event the Company was not able to realize all or part of its net deferred
tax assets in the future, the valuation allowance would be increased. Likewise, if it was determined that the Company was
more-likely-than-not to realize the net deferred tax assets, the applicable portion of the valuation allowance would reverse. The
Company had a valuation allowance of $1,408 and $1,404 as of February 27, 2016 and February 28, 2015, respectively.
Included in discontinued operations is the recognition of the additional tax basis in the shares of NAI offset by a valuation
allowance on the estimated capital loss, as there is no current evidence that the capital loss will be used prior to its expiration.
Self-Insurance Liabilities
The Company uses a combination of insurance and self-insurance for workers’ compensation, automobile and general liability
costs. It is the Company’s policy to record its self-insurance liabilities based on management’s estimate of the ultimate cost of
reported claims and claims incurred but not yet reported and related expenses, discounted at a risk-free interest rate.
In determining its self-insurance liabilities, the Company performs a continuing review of its overall position and reserving
techniques. Since recorded amounts are based on estimates, the ultimate cost of all incurred claims and related expenses may be
more or less than the recorded liabilities. Any projection of losses concerning workers’ compensation, healthcare and general
and automobile liability is subject to a degree of variability. Among the causes of this variability are unpredictable external
factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, regulatory changes, benefit level
changes and actual claim settlement patterns.
If, in the future, the Company were to experience significant volatility in the amount and timing of cash payments compared to
its earlier estimates, the Company would assess whether to continue to discount these liabilities. The Company had net self-
insurance liabilities of approximately $95, net of the discount of $6, and $93, net of the discount of $6, as of February 27, 2016
and February 28, 2015, respectively. For the claims that occurred during the fiscal year ending February 27, 2016, each 25 basis
point change in the discount rate would impact the net self-insurance liabilities by less than $1.