Safeway 2006 Annual Report Download - page 59

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note A: The Company and Significant Accounting Policies
The Company Safeway Inc. (“Safeway” or the “Company”) is one of the largest food and drug retailers in North
America, with 1,761 stores as of year-end 2006. Safeway’s U.S. retail operations are located principally in California,
Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region.
The Company’s Canadian retail operations are located principally in British Columbia, Alberta and Manitoba/
Saskatchewan. In support of its retail operations, the Company has an extensive network of distribution,
manufacturing and food processing facilities. The Company also owns and operates GroceryWorks.com Operating
Company, LLC, an online grocery channel, doing business under the names Safeway.com, Vons.com and
Genuardis.com (collectively “Safeway.com”).
Blackhawk Network Holdings, Inc. (“Blackhawk”), a subsidiary of Safeway, provides third-party gift cards, prepaid
cards, and sports and entertainment cards to Safeway, as well as to a broad group of top North American retailers for
sale to retail customers. Blackhawk has recently expanded its gift card business to the United Kingdom.
The Company also has a 49% ownership interest in Casa Ley, S.A. de C.V. (“Casa Ley”), which operates 127 food and
general merchandise stores in Western Mexico.
Basis of Presentation The consolidated financial statements include Safeway Inc., a Delaware corporation, and all
majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in
the United States of America. All intercompany transactions and balances have been eliminated in consolidation. The
Company’s investment in Casa Ley is reported using the equity method and is recorded on a one-month delay basis
because financial information for the latest month is not available from Casa Ley in time to be included in Safeway’s
consolidated results until the following reporting period.
Fiscal Year The Company’s fiscal year ends on the Saturday nearest December 31. The last three fiscal years consist
of the 52-week period ended December 30, 2006 (“fiscal 2006”), the 52-week period ended December 31, 2005
(“fiscal 2005”) and the 52-week period ended January 1, 2005 (“fiscal 2004”).
Reclassifications Certain prior year amounts were reclassified to conform to the 2006 presentation.
Revenue Recognition Retail store sales are recognized at the point of sale. Sales tax is excluded from revenue.
Internet sales are recognized when the merchandise is delivered to the customer. Discounts provided to customers in
connection with loyalty cards are accounted for as a reduction of sales.
Safeway records a deferred revenue liability when it sells Safeway gift cards. Safeway records a sale when a customer
redeems the gift card. Gift cards do not expire. However, based on Safeway’s historical experience, the likelihood of
redemption after three years is remote. Therefore, the Company reduces the liability and operating and administrative
expense, for the unused portion of gift cards (“breakage”) after three years. Breakage amounts were not material to
the Company’s results of operations or financial position for the fiscal years presented in this report.
The Company, through its Blackhawk subsidiary, also sells third-party gift cards through Safeway retail operations and
through other grocery, drug and convenience store retailers. Safeway records a commission as other revenue when
the third-party gift card is sold. The liability for redemption and potential income for breakage remain with the third-
party merchant; therefore, Safeway records no entries for redemption or breakage of these gift cards.
Cost of Goods Sold Cost of goods sold includes cost of inventory sold during the period, including purchase and
distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection
costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses are
also included as a component of cost of goods sold. Such costs are expensed in the period the advertisement occurs.
Advertising and promotional expenses totaled $587.1 million in 2006, $523.7 million in 2005 and $487.8 million in 2004.
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