Safeway 2002 Annual Report Download - page 44

42 SAFEWAY INC. 2002 ANNUAL REPORT
The reconciliation of the provision for income taxes from
continuing operations at the U.S. federal statutory income
tax rate to the Company’s income taxes is as follows (dollars
in millions):
2002 2001 2000
Statutory rate 35% 35% 35%
Income tax expense using
federal statutory rate $462.1 $743.0 $680.0
State taxes on income net
of federal benefit 50.6 70.4 70.2
Nondeductible goodwill 246.5 31.2 29.7
Difference between statutory rate
and foreign effective rate 4.7 15.6 20.9
Other (12.2) (24.2) (12.1)
$751.7 $836.0 $788.7
Significant components of the Company’s net deferred
tax liability at year-end were as follows (in millions):
2002 2001
Deferred tax assets:
Workers’ compensation and
other claims $ 133.9 $ 134.9
Reserves not currently deductible 74.9 83.7
Accrued claims and other liabilities 41.3 38.8
Employee benefits 43.6 28.6
Operating loss carryforwards 60.1 –
Other assets 137.3 152.8
491.1 438.8
Less valuation allowance (60.1) –
431.0 438.8
Deferred tax liabilities:
Property (487.3) (471.6)
Prepaid pension costs (215.0) (217.5)
Inventory (197.9) (176.1)
Investments in foreign operations (97.2) (89.7)
(997.4) (954.9)
Net deferred tax liability $(566.4) $(516.1)
Less current asset (liability) 11.5 (42.4)
Long-term portion $(577.9) $(473.7)
At December 28, 2002, certain undistributed earnings of
the Company’s foreign operations totaling $901.2 million
were considered to be permanently reinvested. No deferred
tax liability has been recognized for the remittance of such
earnings to the United States since it is the Company’s
intention to utilize those earnings in the foreign operations
for an indefinite period of time, or to repatriate such earn-
ings only when tax efficient to do so. Determination of the
amount of unrecognized deferred U.S. income tax liability
is not practicable; however, unrecognized foreign tax credit
carryovers may be available to reduce some portion of the
U.S. income tax liability.
As of December 28, 2002, GroceryWorks’ net operating
loss (“NOL”) carryforwards were approximately $171.6 mil-
lion. These carryforwards expire at various dates from 2019
to 2022. Until sufficient evidence exists that GroceryWorks
will have future taxable income to absorb the NOL carry-
forwards, Safeway will provide a valuation allowance for the
entire deferred tax asset relating to these carryforwards. In
the case of any subsequent reversal of this valuation
allowance, approximately $24.2 million of the tax benefit
realized will result in a reduction to GroceryWorks’ goodwill
or other noncurrent intangible assets.
NOTE J: EMPLOYEE BENEFIT
PLANS AND COLLECTIVE
BARGAINING AGREEMENTS
RETIREMENT PLANS The Company maintains defined bene-
fit, non-contributory retirement plans for substantially all of its
employees not participating in multi-employer pension plans.
In connection with the Genuardi’s Acquisition in 2001, the
Randall’s acquisition in 1999 and the Vons merger in 1997,
the Company assumed the sponsorship and obligations of
Genuardi’s, Randall’s and Vons’ retirement plans. The actu-
arial assumptions for the existing Genuardi’s, Randall’s and
Vons retirement plans are comparable to those for the
Safeway retirement plan. Genuardi’s, Randall’s and Vons’
retirement plans have been combined with Safeway’s for
financial statement presentation.