Safeway 2008 Annual Report Download - page 79

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note H: Taxes on Income
The components of income before income tax expense are as follows (in millions):
2008 2007 2006
Domestic $ 1,241.2 $ 1,141.9 $ 1,029.2
Foreign 263.4 261.7 210.8
$ 1,504.6 $ 1,403.6 $ 1,240.0
The components of income tax expense are as follows (in millions):
2008 2007 2006
Current:
Federal $ 251.1 $ 258.3 $ 251.0
State 40.2 37.1 48.7
Foreign 76.3 89.0 68.6
367.6 384.4 368.3
Deferred:
Federal 142.7 108.4 (4.2)
State 24.8 16.9 (1.0)
Foreign 4.2 5.5 6.3
171.7 130.8 1.1
$ 539.3 $ 515.2 $ 369.4
Reconciliation of the provision for income taxes at the U.S. federal statutory income tax rate to the Company’s income
taxes is as follows (dollars in millions):
2008 2007 2006
Statutory rate 35% 35% 35%
Income tax expense using federal statutory rate $ 526.6 $ 491.3 $ 434.0
State taxes on income net of federal benefit 42.2 35.1 31.0
Charitable donations of inventory (13.4) (7.7) (14.7)
Interest on debt financing tax refunds, net of tax (0.2) (0.2) (62.6)
Other (15.9) (3.3) (18.3)
$ 539.3 $ 515.2 $ 369.4
In April 2006, Safeway announced that it had settled a federal income tax refund claim for the years 1992 through 1999
for costs associated with debt financing. The federal refund consisted of a tax refund of $259.2 million and interest, net
of tax, earned on that refund of $60.8 million. The state income tax refunds received in 2006 consisted of $3.1 million of
tax and $1.8 million of interest, net of tax.
The federal and state tax refunds of $262.3 million were recorded in 2006 as an increase to additional paid-in capital
since the tax deductions associated with the debt financing exceeded the previously recognized book expense. The
interest earned reduced income tax expense by $62.6 million, net of tax, in 2006.
As a result of acquiring the remaining minority interests in Safeway.com in 2006, the Company eliminated the valuation
allowance on Safeway.com’s net operating loss (“NOL”) carryforwards. The utilization of these NOL carryforwards
resulted in a tax benefit of $84.8 million, which reduced income tax expense by $13.6 million and goodwill by
$71.2 million in 2006.
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