Safeway 2008 Annual Report Download - page 66

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A: The Company and Significant Accounting Policies
The Company Safeway Inc. (“Safeway” or the “Company”) is one of the largest food and drug retailers in North
America, with 1,739 stores as of year-end 2008. Safeway’s U.S. retail operations are located principally in California,
Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region. The
Company’s Canadian retail operations are located principally in British Columbia, Alberta and Manitoba/Saskatchewan. In
support of its retail operations, the Company has an extensive network of distribution, manufacturing and food
processing facilities. The Company also owns and operates GroceryWorks.com Operating Company, LLC, an online
grocery channel, doing business under the names Safeway.com, Vons.com and Genuardis.com (collectively
“Safeway.com”).
Blackhawk Network Holdings, Inc. (“Blackhawk”), a subsidiary of Safeway, provides third-party gift cards, prepaid cards,
telecom cards, and sports and entertainment cards to a broad group of top North American retailers for sale to retail
customers. Blackhawk also has gift card businesses in the United Kingdom, France and Australia.
The Company also has a 49% ownership interest in Casa Ley, S.A. de C.V. (“Casa Ley”), which operates 146 food and
general merchandise stores in Western Mexico.
Basis of Presentation The consolidated financial statements include Safeway Inc., a Delaware corporation, and all
majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the
United States of America. All intercompany transactions and balances have been eliminated in consolidation. The
Company’s investment in Casa Ley is reported using the equity method and is recorded on a one-month delay basis
because financial information for the latest month is not available from Casa Ley in time to be included in Safeway’s
consolidated results until the following reporting period.
Fiscal Year The Company’s fiscal year ends on the Saturday nearest December 31. The last three fiscal years consist of
the 53-week period ended January 3, 2009 (“fiscal 2008”), the 52-week period ended December 29, 2007 (“fiscal
2007”) and the 52-week period ended December 30, 2006 (“fiscal 2006”).
Revenue Recognition Retail store sales are recognized at the point of sale. Sales tax is excluded from revenue. Internet
sales are recognized when the merchandise is delivered to the customer. Discounts provided to customers in connection
with loyalty cards are accounted for as a reduction of sales.
Safeway records a deferred revenue liability when it sells Safeway gift cards. Safeway records a sale when a customer
redeems the gift card. Safeway gift cards do not expire. During 2007, Safeway completed an analysis of the historical
redemption patterns of gift cards. As a result of this analysis, the Company has determined that the likelihood of
redemption after two years is remote. Therefore, the Company reduces the liability and increases other revenue for the
unused portion of gift cards (“breakage”) after two years. In 2006, breakage was recognized after three years. Breakage
amounts were $7.9 million, $9.5 million and $3.0 million in 2008, 2007 and 2006, respectively.
The Company, through its Blackhawk subsidiary, also sells third-party gift cards through Safeway retail operations and
through other grocery, drug and convenience store retailers. Safeway records a commission as other revenue when the
third-party gift card is sold. The liability for redemption and potential income for breakage remain with the third-party
merchant; therefore, Safeway does not record redemption or breakage of these gift cards.
Cost of Goods Sold Cost of goods sold includes cost of inventory sold during the period, including purchase and
distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection
costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are
also included as a component of cost of goods sold. Such costs are expensed in the period the advertisement occurs.
Advertising and promotional expenses totaled $492.1 million in 2008, $551.8 million in 2007 and $587.1 million in 2006.
Vendor allowances totaled $2.6 billion in 2008 and $2.5 billion in both 2007 and 2006. Vendor allowances can be
grouped into the following broad categories: promotional allowances, slotting allowances and contract allowances. All
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