Safeway 2008 Annual Report Download - page 81

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of January 3, 2009 and December 29, 2007, the Company had unrecognized tax benefits of $129.2 million and
$123.1 million, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits follows (in
millions):
2008 2007
Balance at beginning of year $ 123.1 $ 138.8
Additions based on tax positions related to the current year 11.7 1.7
Additions for tax positions of prior years 7.5 9.4
Reductions based on tax positions related to the current year (9.8) (12.0)
Reductions for tax positions of prior years (2.8) (14.8)
Additions related to changes in foreign currency translation 0.3 –
Settlements (0.8) –
Balance at end of year $ 129.2 $ 123.1
As of January 3, 2009 and December 29, 2007, the balance of unrecognized tax benefits included tax positions of
$121.7 million (net of tax) and $121.3 million (net of tax), respectively, that would reduce the Company’s effective
income tax rate if recognized in future periods.
The Company recognizes interest and penalties on income taxes in income tax expense. Income tax expense in 2008
included a benefit of $4.8 million (net of tax) related to interest on income taxes. In 2007 the benefit related to interest
on income taxes was $5.7 million (net of tax). As of January 3, 2009 and December 29, 2007, the Company had net
receivables for interest on income taxes of $15.1 million (net of tax) and $13.6 million (net of tax), respectively. There was
no liability for penalties on income taxes in either 2007 or 2008.
The Company and its domestic subsidiaries file income tax returns with federal, state and local tax authorities within the
United States. The Company’s foreign affiliates file income tax returns in various foreign jurisdictions, the most significant
of which are Canada and certain of its provinces. The Internal Revenue Service’s (“IRS”) examination of the Company’s
federal income tax returns for 2002 and 2003 is complete, and examination of the returns for 2004 and 2005 is expected
to be completed in 2009. The IRS and other tax authorities have proposed tax deficiencies on several issues. The
Company is contesting these proposed tax deficiencies. With limited exceptions, including these proposed tax deficiencies
and certain income tax refund claims, the Company is no longer subject to federal income tax examinations for fiscal
years before 2004, and is no longer subject to state and local income tax examinations for fiscal years before 2001. With
limited exceptions, the Company’s foreign affiliates are no longer subject to examination by Canada and certain of its
provinces for fiscal years before 2002.
It is reasonably possible that the Company will recognize a decrease of up to $83 million in unrecognized tax benefits
within the next 12 months as a result of the settlement of federal and state tax audits. A significant portion of this
decrease in unrecognized tax benefits could result in lower income tax expense. However, the timing and amounts of
these audit settlements are subject to significant uncertainty.
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