Safeway 2007 Annual Report Download - page 35

SAFEWAY INC. AND SUBSIDIARIES
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 our 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.
Despite the Company’s considerable efforts and technology to secure our computer network, security could be
compromised, confidential information could be misappropriated, or system disruptions could occur. This could lead to
loss of sales or profits or cause the Company to incur significant costs to reimburse third parties for damages.
Changes in Accounting Standards Financial statements are prepared in accordance with accounting principles
generally accepted in the United States. They are subject to interpretation by various governing bodies, including the
Financial Accounting Standards Board (“FASB”) and the SEC, which create and interpret accounting standards. For many
aspects of our business, such as workers’ compensation, store closures, employee benefit plans, stock-based employee
compensation, goodwill and income tax contingencies, these standards and their interpretations require management’s
most difficult, subjective or complex judgments. A change from current accounting standards could have a significant
effect on the Company’s results of operations.
Energy and Fuel Safeway’s operations are dependent upon the availability of a significant amount of energy and fuel
to manufacture, store and transport products. Energy and fuel costs have experienced volatility over time. To reduce the
impact of volatile energy costs, the Company has entered into contracts to purchase electricity and natural gas at fixed
prices to satisfy a portion of its energy needs. This is discussed further in Part II, Item 7 of this report under the caption
“Energy Contracts.”
Safeway also sells fuel. Significant increases in wholesale fuel costs could result in retail price increases and in lower gross
profit on fuel sales. Additionally, consumer demand for fuel may decline if retail prices increase. Such volatility and the
impact to our operations and financial results are difficult to predict.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The information required by this item is set forth in Part I, Item 1 of this report.
Item 3. Legal Proceedings
Information about legal proceedings appears under the caption “Legal Matters” in Note K to the consolidated financial
statements set forth in Part II, Item 8 of this report.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders during the fourth quarter of fiscal 2007.
13