Safeway 2006 Annual Report Download - page 64

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities–
Including an amendment of FASB Statement No. 115.” SFAS No. 159 permits companies to measure many financial
instruments and certain other items at fair value at specified election dates. Unrealized gains and losses on these items
will be reported in earnings at each subsequent reporting date. The fair value option may be applied instrument by
instrument (with a few exceptions), is irrevocable and is applied only to entire instruments and not to portions of
instruments. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Safeway is currently
assessing the impact of SFAS No. 159 on its financial statements.
Note B: Goodwill
A summary of changes in Safeway’s goodwill during 2006 and 2005 by geographic area is as follows (in millions):
2006 2005
U.S. Canada Total U.S. Canada Total
Balance – beginning of year $ 2,317.8 $ 84.6 $ 2,402.4 $ 2,325.6 $ 81.0 $ 2,406.6
Acquisition of businesses (7.7) (1) – (7.7) –– –
Other adjustments (0.6) (2) (0.6) (3) (1.2) (7.8) (2) 3.6 (3) (4.2)
Balance – end of year $ 2,309.5 $ 84.0 $ 2,393.5 $ 2,317.8 $ 84.6 $ 2,402.4
(1) Net reduction in goodwill results from the expected utilization of net operating loss carryforwards. See Note H.
(2) Primarily represents revised estimate of pre-acquisition tax accrual.
(3) Represents foreign currency translation adjustments in Canada.
Safeway completed its annual impairment tests in the fourth quarters of 2006, 2005 and 2004. Fair value was
determined based on a valuation study which primarily considered the discounted cash flow and guideline company
method. As a result of these annual reviews, Safeway concluded that no impairment charge was required.
Note C: Store Closing and Impairment Charges
Impairment Write-Downs Safeway recognized impairment charges on the write-down of long-lived assets of
$39.2 million in 2006, $78.9 million in 2005 and $39.4 million in 2004. This includes Randall’s impairment charges of
$54.7 million in 2005. These charges are included as a component of operating and administrative expense.
Store Lease Exit Costs The reserve for store lease exit costs includes the following activity for 2006, 2005 and 2004
(in millions):
2006 2005 2004
Beginning balance $197.7 $167.1 $129.1
Provision for estimated net future cash flows of additional closed stores (1) 0.1 67.3 55.1
Net cash flows, interest accretion, changes in estimates of net future cash flows (33.6) (36.7) (17.1)
Ending balance $164.2 $197.7 $167.1
(1) Estimated net future cash flows represents future minimum lease payments and related ancillary costs from the date of closure
to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting properties or
through favorable lease terminations.
Store lease exit costs are included as a component of operating and administrative expense, and the liability is included
in accrued claims and other liabilities.
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