Safeway 2007 Annual Report Download - page 79

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) on
December 31, 2006, the first day of the 2007 fiscal year. The Company recorded the cumulative effect of adopting FIN 48
by increasing stockholders’ equity by $139.7 million.
As of December 29, 2007 the Company had unrecognized tax benefits of $123.1 million. A reconciliation of the
beginning and ending amount of unrecognized tax benefits follows (in millions):
Balance at December 31, 2006 $ 138.8
Additions based on tax positions related to the current year 1.7
Additions for tax positions of prior years 9.4
Reductions based on tax positions related to the current year (12.0)
Reductions for tax positions of prior years (14.8)
Balance at December 29, 2007 $ 123.1
Included in the balance of unrecognized tax benefits at December 29, 2007 are tax positions of $121.3 million (net of tax)
that would reduce the Company’s effective income tax rate, if recognized in future periods.
The Company recognizes interest and penalties on income taxes in income tax expense. Income tax expense in 2007
included a benefit of $5.7 million (net of tax) related to interest on income taxes. During 2007 there were no penalties
included in income tax expense. As of December 29, 2007, the Company had a net receivable for interest on income
taxes of $13.6 million (net of tax) and no liability for penalties on income taxes.
The Company and its domestic subsidiaries file income tax returns with federal, state and local tax authorities within the
United States. The Company’s foreign affiliates file income tax returns in various foreign jurisdictions, the most significant
of which are Canada and certain of its provinces. The Internal Revenue Service’s (“IRS”) examination of the Company’s
federal income tax returns for 2002 and 2003 is complete, and examination of the returns for 2004 and 2005 began in
May 2007. The IRS and other tax authorities have proposed tax deficiencies on several issues. The Company is contesting
these proposed tax deficiencies. With limited exceptions, including these proposed tax deficiencies and certain income tax
refund claims, the Company is no longer subject to federal income tax examinations for fiscal years before 2004, and is
no longer subject to state and local income tax examinations for fiscal years before 2001. With limited exceptions, the
Company’s foreign affiliates are no longer subject to examination by Canada and certain of its provinces for fiscal years
before 2002.
The Company does not anticipate that total unrecognized tax benefits will significantly change prior to the end of 2008.
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