Safeway 2001 Annual Report Download - page 37

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REPURCHASE OF WARRANTS TO PURCHASE COMMON STOCK
Unexercised warrants purchased, as reflected in the 2000 consol-
idated balance sheet, represented Safeway’s cost to acquire a
64.5% ownership interest in SSI Equity Associates, L.P. (“SSI”),
a limited partnership whose sole asset consisted of warrants
to purchase Safeway stock, less warrants exercised or cancelled
through 1998. Warrants exercised or canceled through 1998
were reclassified from unexercised warrants purchased to
retained earnings. The amount of the reclassification was equal
to the cost of acquiring the underlying ownership in SSI, deter-
mined on a first-in first-out basis.
In January 1999, all of the remaining SSI warrants not controlled
by Safeway were exercised in connection with a secondary stock
offering. As a result, Safeway controlled all of the remaining unex-
ercised warrants. These warrants expired unexercised in November
2001 and were accounted for as a reduction in retained earnings.
Note H: Taxes on Income
The components of income tax expense are as follows (in millions):
2001 2000 1999
Current:
Federal $ 597.9 $ 441.3 $ 333.7
State 96.6 76.4 62.3
Foreign 77.8 80.9 62.4
772.3 598.6 458.4
Deferred:
Federal 48.8 140.5 188.9
State 13.7 30.4 38.1
Foreign 6.3 5.1 17.7
68.8 176.0 244.7
$ 841.1 $ 774.6 $ 703.1
Tax benefits from the exercise of employee stock options of
$34.8 million in 2001, $148.9 million in 2000 and $77.0 mil-
lion in 1999 were credited directly to paid-in capital and, there-
fore, are excluded from income tax expense.
The 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):
2001 2000 1999
Statutory rate 35% 35% 35%
Income tax expense using
federal statutory rate $ 733.3 $ 653.3 $ 585.9
State taxes on income net
of federal benefit 71.7 69.4 65.2
Taxes provided on equity in
earnings of unconsolidated
affiliate at rates below
the statutory rate (9.9) (7.3) (12.1)
Taxes on foreign earnings not
permanently reinvested ––8.3
Nondeductible goodwill
amortization 45.1 43.3 34.6
Difference between statutory rate
and foreign effective rate 15.6 20.9 16.6
Other accruals (14.7) (5.0) 4.6
$ 841.1 $ 774.6 $ 703.1
Significant components of the Company’s net deferred tax
liability at year-end were as follows (in millions):
2001 2000
Deferred tax assets:
Workers’ compensation and other claims $ 134.9 $ 122.6
Reserves not currently deductible 83.7 87.1
Accrued claims and other liabilities 38.8 36.9
Employee benefits 28.6 33.7
Other assets 152.8 117.4
438.8 397.7
Deferred tax liabilities:
Property 471.6 445.1
Prepaid pension costs 217.5 203.9
Inventory 176.1 165.0
Investments in foreign operations 89.7 92.4
954.9 906.4
Net deferred tax liability $ 516.1 $ 508.7
Less current portion 18.0 –
Long-term portion $ 498.1 $ 508.7
At December 29, 2001, certain undistributed earnings of the
Company’s foreign operations totaling $805.5 million were consid-
ered to be permanently reinvested. No deferred tax liability has been