Safeway 2011 Annual Report Download - page 44

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SAFEWAY INC. AND SUBSIDIARIES
establishing investment guidelines and monitoring procedures for each investment manager to ensure the characteristics
of the portfolio are consistent with the original investment mandate; and (4) maintain adequate controls over
administrative costs.
Sensitivity to changes in the major assumptions for Safeway’s pension plans are as follows (in millions):
United States Canada
Percentage
point
change
Projected benefit
obligation
decrease
(increase)
Expense
decrease
(increase)
Projected benefit
obligation
decrease
(increase)
Expense
decrease
(increase)
Expected return on assets +1 pt – $ 13.3 – $ 3.5
-1 pt – $(13.3) – $ 3.5
Discount rate +1 pt $237.1 $ 28.9 $72.2 $ 5.4
-1 pt $(297.4) $(34.5) $(76.7) $(5.5)
Cash contributions to the Company’s pension and post-retirement benefit plans are expected to total approximately $160
million in 2012 and totaled $176.2 million in 2011, $17.7 million in 2010 and $24.4 million in 2009.
Income Tax Contingencies The Company is subject to periodic audits by the Internal Revenue Service and other
foreign, state and local taxing authorities. These audits may challenge certain of the Company’s tax positions such as the
timing and amount of income and deductions and the allocation of taxable income to various tax jurisdictions. The
Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on
uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted
accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially
differ from these estimates and could significantly affect the Company’s effective tax rate and cash flows in future
years. Note J to the consolidated financial statements set forth in Part II, Item 8 of this report provides additional
information on income taxes.
Liquidity and Financial Resources
Net cash flow from operating activities was $2,023.6 million in 2011, $1,849.7 million in 2010 and $2,549.7 million in
2009. Net cash flow from operating activities increased in 2011 compared to 2010 primarily due to greater cash flow
from working capital, partly offset by increased contributions to pension plans and lower net income.
Blackhawk receives a significant portion of the cash inflow from the sale of third-party gift cards late in the fourth quarter
of the year and remits the majority of the cash, less commissions, to the card partners early in the first quarter of the
following year. Changes in payables related to third-party gift cards, net of receivables increased to a source of cash of
$293.6 million in 2011 from a use of cash of $6.9 million in 2010, primarily as a result of the timing of certain vendor
payments in 2010, higher revenue and a shift in the mix of business with longer payment terms.
The decline in the financial markets during 2008 resulted in a substantial reduction in the fair value of the retirement plan
assets. Since 2008, the financial markets improved. Despite the improvement, the projected benefit obligation exceeds
the fair value of the plan assets in each of the last four years. As a result, cash contributions to pension and post-
retirement plans were $176.2 million and $17.7 million in 2011 and 2010, respectively, and are expected to be
approximately $160 million in 2012. If return on plan assets is less than expected, or if discount rates decline, plan
contributions could increase significantly in 2012 and beyond.
Net cash flow used by investing activities, which consists principally of cash paid for property additions, was $1,014.5
million in 2011, $798.8 million in 2010 and $889.0 million in 2009. Net cash flow used by investing activities increased in
2011 compared to 2010 primarily as a result of higher capital expenditures, partly offset by higher proceeds from the sale
of property in 2011. Net cash flow used by investing activities declined in 2010 compared to 2009 due to higher proceeds
from the sale of property in 2010.
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