Safeway 2005 Annual Report Download - page 31

SAFEWAY INC. AND SUBSIDIARIES
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year of service. We contributed $234.5 million, $196.8 million and $172.1 million to these funds in 2005, 2004 and 2003,
respectively. Based on the most recent information available to us, we believe a number of these multi-employer plans are
underfunded. As a result, we expect that contributions to these plans may continue to increase, although at a slower rate
than in recent years. Additionally, the benefit levels and related issues will continue to create collective bargaining
challenges. Most recently completed labor negotiations resulted in a reduction of pension liabilities (and, therefore, a
reduction of projected contribution increases). Under current law, an employer that withdraws or partially withdraws from a
multi-employer pension plan may incur withdrawal liability to the plan, which represents the portion of the plan’s
underfunding that is allocable to the withdrawing employer under very complex actuarial and allocation rules. The amount
of any increase or decrease in our required contributions to these multi-employer pension plans will depend upon the
outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, the actual
return on assets held in the plans, and the potential payment of a withdrawal liability if we choose to exit a market, among
other factors.
Legal Proceedings From time to time, we are a party to legal proceedings, including matters involving personnel and
employment issues, personal injury, antitrust claims and other proceedings arising in the ordinary course of business. In
addition, there is an increasing number of cases being filed against companies generally, which contain class-action
allegations under federal and state wage and hour laws. We estimate our exposure to these legal proceedings and establish
reserves for the estimated liabilities. Assessing and predicting the outcome of these matters involves substantial
uncertainties. Although not currently anticipated by management, unexpected outcomes in these legal proceedings, or
changes in management’s evaluations or predictions, could have a material adverse impact on our financial results.
Insurance Plan Claims We use a combination of insurance and self-insurance to provide for potential liabilities for workers’
compensation, automobile and general liability, property insurance, director and officers’ liability insurance, and employee
health care benefits. We estimate the liabilities associated with the risks that are retained by us, in part, by considering
historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are
subject to a high degree of variability. Any actuarial projection of losses concerning workers’ compensation and general
liability is subject to a high degree of variability. Among the causes of this variability are unpredictable external factors
affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim
settlement patterns.
The majority of the Company’s workers’ compensation liability is from claims occurring in California. California workers’
compensation has received intense scrutiny from the state’s politicians, insurers, employers and providers, as well as the
public in general. Recent years have seen escalation in the number of legislative reforms, judicial rulings and social
phenomena affecting this business. Some of the many sources of uncertainty in the Company’s reserve estimates include
changes in benefit levels, medical fee schedules, medical utilization guidelines, vocation rehabilitation and apportionment.
Goodwill/Impairment of Long-Lived Assets We have $2.4 billion of goodwill on our balance sheet that is subject to
periodic testing for impairment. Our long-lived assets, primarily stores, also are subject to periodic testing for impairment.
Failure to achieve sufficient levels of cash flow at specific divisions or specific stores could result in impairment charges on
goodwill and/or long-lived assets. We have incurred significant impairment charges to earnings in the past for goodwill and
for long-lived assets.
Information Technology Risks The Company has large, complex information technology systems that are important to
business operations. The Company could encounter difficulties developing new systems or maintaining and upgrading
existing systems. Such difficulties could lead to significant expenses or to losses due to disruption in business operations.
Despite the Company’s considerable efforts and technology to secure our computer network, security could be
compromised, confidential information could be misappropriated, or system disruptions could occur. This could lead to loss
of sales or profits or cause the Company to incur significant costs to reimburse third parties for damages.
Item 1B. Unresolved Staff Comments
None.