Safeway 2007 Annual Report Download - page 77

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note H: Taxes on Income
The components of income before income tax expense are as follows (in millions):
2007 2006 2005
Domestic $ 1,141.9 $ 1,029.2 $ 723.7
Foreign 261.7 210.8 125.3
$ 1,403.6 $ 1,240.0 $ 849.0
U.S. and Canadian tax authorities notified the Company during 2005 that they had concluded their transfer pricing
negotiations with respect to a bilateral Advance Pricing Agreement for the years 2000 through 2006. The agreement
established arm’s length charges for intercompany sales of goods and services and use of property by the Company and
its Canadian subsidiary which are eliminated in consolidation. As a result of this agreement, foreign income before tax
expense for 2005 was reduced, and domestic income before tax expense for 2005 was increased by the amount of the
charges.
The components of income tax expense are as follows (in millions):
2007 2006 2005
Current:
Federal $ 258.3 $ 251.0 $ 389.4
State 37.1 48.7 59.1
Foreign 89.0 68.6 55.3
384.4 368.3 503.8
Deferred:
Federal 108.4 (4.2) (186.2)
State 16.9 (1.0) (17.6)
Foreign 5.5 6.3 (12.1)
130.8 1.1 (215.9)
$ 515.2 $ 369.4 $ 287.9
Reconciliation of the provision for income taxes at the U.S. federal statutory income tax rate to the Company’s income
taxes is as follows (dollars in millions):
2007 2006 2005
Statutory rate 35% 35% 35%
Income tax expense using federal statutory rate $ 491.3 $ 434.0 $ 297.2
State taxes on income net of federal benefit 35.1 31.0 27.0
Charitable donations of inventory (7.7) (14.7) (11.1)
Interest on debt financing tax refunds, net of tax (0.2) (62.6) –
Repatriation of foreign earnings –– (16.5)
Other (3.3) (18.3) (8.7)
$ 515.2 $ 369.4 $ 287.9
In April 2006, Safeway announced that it had settled a federal income tax refund claim for the years 1992 through 1999
for costs associated with debt financing. The federal refund consisted of a tax refund of $259.2 million and interest, net
of tax, earned on that refund of $60.8 million. The state income tax refunds received in 2006 consisted of $3.1 million of
tax and $1.8 million of interest, net of tax.
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