Safeway 2009 Annual Report Download - page 63

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Property under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the
remaining terms of the leases or the estimated useful lives of the assets.
Employee Benefit Plans The Company recognizes in its statement of financial position an asset for its employee
benefit plan’s overfunded status or a liability for underfunded status. The Company measures plan assets and obligations
that determine the funded status as of fiscal year end. See Note K.
Self-Insurance The Company is primarily self-insured for workers' compensation, automobile and general liability costs.
The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet
reported, and is discounted using a risk-free rate of interest. The present value of such claims was calculated using a
discount rate of 2.75% in 2009, 1.75% in 2008 and 3.5% in 2007.
A summary of changes in Safeway’s self-insurance liability is as follows (in millions):
2009 2008 2007
Beginning balance $ 487.8 $ 477.6 $ 512.7
Expense 128.8 161.6 117.1
Claim payments (163.4) (150.5) (153.2)
Currency translation 0.6 (0.9) 1.0
Ending balance 453.8 487.8 477.6
Less current portion (131.7) (126.2) (130.2)
Long-term portion $ 322.1 $ 361.6 $ 347.4
The current portion of the self-insurance liability is included in other accrued liabilities, and the long-term portion is
included in accrued claims and other liabilities in the consolidated balance sheets. The total undiscounted liability was
$507.9 million at year-end 2009 and $531.0 million at year-end 2008.
Deferred Rent
Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term.
Rent Holidays. Certain of the Company’s operating leases contain rent holidays. For these leases, Safeway recognizes
the related rent expense on a straight-line basis at the earlier of the first rent payment or the date of possession of the
leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease
incentives and amortized over the lease term.
Construction Allowances. As part of certain lease agreements, the Company receives construction allowances from
landlords. The construction allowances are deferred and amortized on a straight-line basis over the life of the lease as a
reduction to rent expense.
Income Taxes Income tax expense or benefit reflects the amount of taxes payable or refundable for the current year,
the impact of deferred tax liabilities and deferred tax assets, accrued interest on tax deficiencies and refunds and accrued
penalties on tax deficiencies. Deferred income taxes represent future net tax effects resulting from temporary differences
between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
On December 31, 2006, the first day of the 2007 fiscal year, the Company adopted new accounting guidance on the
accounting for uncertainty in income taxes. This accounting guidance prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be
taken in tax returns. For benefits to be recognized, a tax position must be more likely than not to be sustained upon
examination. The amount recognized is measured as the largest amount of benefit that is more likely than not of being
realized upon settlement.
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