Safeway 2004 Annual Report Download - page 23

SAFEWAY INC. 2004 ANNUAL REPORT 21
SAFEWAY INC. AND SUBSIDIARIES
RANDALL’S In the first quarter of 2002, Safeway recorded
a pre-tax goodwill impairment charge of $111.0 million at
Randall’s when it adopted SFAS No. 142. During the fourth
quarter of 2002, Safeway performed its annual review of
goodwill and recorded a pre-tax impairment charge at
Randall’s of $704.2 million. In the fourth quarter of 2003,
Safeway again performed its annual review of goodwill and
wrote off the remaining $447.7 million of goodwill at
Randall’s. Pre-tax goodwill impairment charges at Randall’s
are summarized below (in millions):
2003 2002
Cumulative effect of adopting SFAS
No. 142 (goodwill impairment) – $111.0
Goodwill impairment $447.7 704.2
Randall’s has incurred operating losses and declining
sales in each of the last two years due primarily to over-
storing in Texas. Historically, other markets which were
over-stored eventually self-corrected through population
growth or as operators left the market. There can be no
assurance that the Texas market will experience such a
correction, and operating conditions in Texas are expected
to remain extremely competitive in 2005.
OTHER CHARGES Other significant pre-tax charges (credits)
consist of the following (in millions):
2004 2003 2002
Northern California health
and welfare contribution $31.1 ––
Accrual for rent holidays 10.6 ––
Inventory loss accrual –$71.0 –
Impairment of miscellaneous
equity investments –10.6 –
Employee buyouts, severance
costs and other related costs –25.5 –
Termination of in-store banking
agreement –– $(32.7)
Lease liability credits related
to Furr’s and Homeland
bankruptcies –– (12.1)
In 2004, Safeway was notified that it was required to
contribute an additional $31.1 million before tax ($0.04 per
diluted share) during the year to two Northern California
multi-employer health and welfare plans for its share of
funding deficits.
Safeway incurred a lease expense adjustment of $10.6
million before tax ($0.01 per diluted share) in 2004 related
to rent holidays. This adjustment conformed the Company’s
lease accounting policies to views expressed by the Office
of the Chief Accountant of the SEC on February 7, 2005.
In 2003, Safeway changed its accounting policy to
accrue estimated physical inventory losses for the period
between the last physical inventory count and the balance
sheet date. Safeway also made a change to its physical
inventory loss calculation methodology to reflect more
precise data from new financial software implemented in
2003. The effect of these changes was recorded in 2003.
However, most of the adjustment was accumulated over
many prior years. These charges reduced earnings by $71.0
million before tax ($0.10 per diluted share).
Safeway wrote off miscellaneous equity investments in
2003 totaling $10.6 million ($0.01 per diluted share), after
determining they were impaired. Safeway also incurred pre-
tax charges totaling $25.5 million ($0.04 per diluted share)
for employee buyouts, severance costs and other related
costs related to the restructuring of the Company’s adminis-
trative offices.
In 2002, Safeway received $32.7 million ($0.04 per
diluted share) from a bank for the termination of an in-store
banking agreement with Safeway.
In 1987, Safeway assigned a number of leases to Furr’s
Inc. (“Furr’s”) and Homeland Stores, Inc. (“Homeland”) as
part of the sale of the Company’s former El Paso, Texas and
Oklahoma City, Oklahoma divisions. Safeway is contingently
liable if Furr’s and Homeland are unable to continue making
rental payments on these leases. In 2001, Furr’s and
Homeland declared bankruptcy and Safeway recorded a pre-
tax charge to earnings of $42.7 million ($0.05 per diluted
share) to recognize the estimated lease liabilities
associated with these bankruptcies and for a single lease