Safeway 2010 Annual Report Download - page 27

SAFEWAY INC. AND SUBSIDIARIES
exceeds the fair value of the plan assets in each of the last three years. As a result, cash contributions to pension and
post-retirement plans are expected to increase from $17.7 million in 2010 to approximately $175 million in 2011. If
financial markets do not continue to improve or if financial markets decline, increased pension expense and cash
contributions may have an adverse impact on our financial results.
In addition, we participate in various multi-employer pension plans for substantially all employees represented by unions.
We are required to make contributions to these plans in amounts established under collective bargaining agreements.
Under the Pension Protection Act of 2006 (“PPA”), additional contributions may be required in the form of a surcharge
that is equal to 5% of the contributions due in the first year and 10% each year thereafter until the applicable bargaining
agreement expires. If surcharges are required, many of our bargaining agreements provide for an offset against
contribution amounts otherwise required under those agreements.
Pension expense for these plans is recognized as contributions are made. Benefits generally are based on a fixed amount
for each year of service. We contributed $292.3 million, $278.1 million and $286.9 million to these plans in 2010, 2009
and 2008, respectively. Based on the most recent information available to us, we believe a number of these multi-
employer plans are underfunded. As a result, contributions to these plans may increase. 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.
Additionally, the benefit levels and related issues will continue to create collective bargaining challenges. 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. Multi-employer pension legislation passed in 2006 and 2008 will continue to
impact the funds in which we participate, which may have an impact on future pension contributions.
Substantial Indebtedness We currently have, and expect to continue to have, a significant amount of debt, which
could adversely affect our financial health. As of January 1, 2011, we had approximately $4.8 billion in total consolidated
debt outstanding, including capital lease obligations. This substantial indebtedness could increase our vulnerability to
general adverse economic and industry conditions. If debt markets do not permit us to refinance certain maturing debt:
(i) we may be required to dedicate an unplanned portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, dividends
on common stock, stock repurchases, acquisitions, development efforts and other general corporate purposes; (ii) our
flexibility in planning for, or reacting to, changes in our business may be limited; (iii) we might be placed at a competitive
disadvantage relative to our competitors that have less debt; and (iv) we may be limited by the financial and other
restrictive covenants in the documents governing our indebtedness. Changes in our credit ratings may have an adverse
impact on our financing costs and structure in future periods, such as higher interest costs on future financings and our
ability to participate in the commercial paper market. Additionally, interest expense could be materially and adversely
affected by increases in interest rates, increases in the amount of outstanding debt, decisions to incur premiums on the
early redemption of debt and any other factor that results in an increase in debt.
Unfavorable Changes in Government Regulation Our stores are subject to various federal, state, local and foreign
laws, regulations and administrative practices that affect our business. We must comply with numerous provisions
regulating health and sanitation standards, food labeling, energy, equal employment opportunity, minimum wages and
licensing for the sale of food, drugs and alcoholic beverages. We cannot predict either the nature of future laws,
regulations, interpretations or applications, or the effect either additional government regulations or administrative
orders, when and if promulgated, or disparate federal, state, local and foreign regulatory schemes would have on our
future business. They could, however, require the reformulation of certain products to meet new standards, the recall or
discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of
the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such
requirements could have an adverse effect on our results of operations and financial condition.
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
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