Safeway 2008 Annual Report Download - page 68

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Employee Benefit Plans In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106, and 132(R).” SFAS No. 158 requires an employer to recognize in its statement of financial position an
asset for a plan’s overfunded status or a liability for a plan’s underfunded status, measure a plan’s assets and its
obligations that determine its funded status as of the end of the employer’s fiscal year and recognize changes in the
funded status of a defined benefit postretirement plan in the year in which the changes occur. Additional disclosures are
also required. Safeway adopted SFAS No. 158 as of December 30, 2006, as required. See Note I.
Self-Insurance The Company is primarily self-insured for workers’ compensation, automobile and general liability costs.
The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet
reported, and is discounted using a risk-free rate of interest. The present value of such claims was calculated using a
discount rate of 1.75% in 2008, 3.5% in 2007 and 4.5% in 2006.
A summary of changes in Safeway’s self-insurance liability is as follows (in millions):
2008 2007 2006
Beginning balance $ 477.6 $ 512.7 $ 532.4
Expense 161.6 117.1 133.2
Claim payments (150.5) (153.2) (152.9)
Currency translation loss (0.9) 1.0 –
Ending balance 487.8 477.6 512.7
Less current portion (126.2) (130.2) (138.7)
Long-term portion $ 361.6 $ 347.4 $ 374.0
The current portion of the self-insurance liability is included in other accrued liabilities, and the long-term portion is
included in accrued claims and other liabilities in the consolidated balance sheets. The total undiscounted liability was
$531.0 million at year-end 2008 and $564.5 million at year-end 2007.
Deferred Rent
Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term.
Rent Holidays. Certain of the Company’s operating leases contain rent holidays. For these leases, Safeway recognizes
the related rent expense on a straight-line basis at the earlier of the first rent payment or the date of possession of the
leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease
incentives and amortized over the lease term.
Construction Allowances. As part of certain lease agreements, the Company receives construction allowances from
landlords. The construction allowances are deferred and amortized on a straight-line basis over the life of the lease as a
reduction to rent expense.
Income Taxes The Company provides income tax expense or benefit in accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Deferred income taxes represent future net tax
effects resulting from temporary differences between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. Accrued interest on tax
deficiencies and refunds is included in the income tax expense or benefit.
The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on
December 31, 2006, the first day of the 2007 fiscal year. FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in tax
returns. For benefits to be realized, a tax position must be more likely than not to be sustained upon examination. The
amount recognized is measured as the largest amount of benefit that is more likely than not of being realized upon
settlement.
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