Safeway 2006 Annual Report Download - page 30

SAFEWAY INC. AND SUBSIDIARIES
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. 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 $253.8 million, $234.5 million and $196.8 million to these
plans in 2006, 2005 and 2004, 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 continue to
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, 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 may impact the funds in which we participate, which may have an impact
on future pension contributions.
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 addition, there is an increasing number of cases being filed against companies generally, which contain
class-action allegations under federal and state wage and hour laws. We estimate our exposure to these legal
proceedings and establish reserves for the estimated liabilities. Assessing and predicting the outcome of these matters
involves substantial uncertainties. Although not currently anticipated by management, unexpected outcomes in these
legal proceedings, or changes in management’s evaluations or predictions, could have a material adverse impact on
our financial results.
Insurance Plan Claims We use a combination of insurance and self-insurance to provide for potential liabilities for
workers’ compensation, automobile and general liability, property insurance, director and officers’ liability insurance,
and employee health care benefits. We estimate the liabilities associated with the risks retained by us, in part, by
considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by
their nature, are subject to a high degree of variability. Any actuarial projection of losses concerning workers’
compensation and general liability is subject to a high degree of variability. Among the causes of this variability are
unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations,
benefit level changes and claim settlement patterns.
The majority of the Company’s workers’ compensation liability is from claims occurring in California. California
workers’ compensation has received intense scrutiny from the state’s politicians, insurers, employers and providers, as
well as the public in general. Recent years have seen escalation in the number of legislative reforms, judicial rulings
and social phenomena affecting this business. Some of the many sources of uncertainty in the Company’s reserve
estimates include changes in benefit levels, medical fee schedules, medical utilization guidelines, vocation
rehabilitation and apportionment.
Impairment of Goodwill and Long-Lived Assets On our balance sheet, we have $2.4 billion of goodwill subject
to periodic testing for impairment. Our long-lived assets, primarily stores, also are subject to periodic testing for
impairment. Failure to achieve sufficient levels of cash flow at specific stores or divisions could result in impairment
charges on goodwill and/or long-lived assets. We have incurred significant impairment charges to earnings in the past
for goodwill and long-lived assets.
Information Technology Risks The Company has large, complex information technology systems that are
important to business operations. The Company could encounter difficulties developing new systems or maintaining
and upgrading existing systems. Such difficulties could lead to significant expenses or losses due to disruption in
business operations.
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