Safeway 2011 Annual Report Download - page 77

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income tax expense increased by $98.9 million in 2011 as a result of repatriation taxes on a $1.1 billion dividend from the
Company’s Canadian subsidiary to the U.S. parent.
Safeway began to accrue repatriation taxes on the earnings of its Canadian subsidiary in the second quarter of 2011. As a
result of this change in policy, income tax for 2011 was reduced by $28.5 million as Safeway will use foreign tax credits
to reduce the U.S. tax on those earnings.
Income tax expense was reduced by $74.9 million in 2009 for previously unrecognized tax benefits and related interest
income. The recognition of these items is primarily due to the settlement of a claim with the Internal Revenue Service
(“IRS”) with respect to the 2002 and 2003 impairment of the Company’s investment in Dominick’s, and the completion
of the IRS examination of the Company’s tax returns for 2004 and 2005.
Significant components of the Company’s net deferred tax liability at year end were as follows (in millions):
2011 2010
Deferred tax assets:
Pension liability $295.3 $ 244.1
Workers’ compensation and other claims 189.2 187.7
Employee benefits 205.5 175.0
Accrued claims and other liabilities 91.5 74.1
Reserves not currently deductible 36.7 43.7
Foreign tax credit carryforwards 35.3 –
State tax credit carryforwards 20.7 17.8
Operating loss carryforwards 2.0 2.3
Other assets 14.2 21.7
890.4 766.4
Valuation Allowance (29.1) –
$861.3 $ 766.4
2011 2010
Deferred tax liabilities:
Property $663.8 $ 649.5
Inventory 312.9 306.5
Investments in foreign operations 9.5 60.2
986.2 1,016.2
Net deferred tax liability 124.9 249.8
At December 31, 2011, the Company had net operating loss carryforwards for federal income tax purposes of
approximately $5.7 million which expire at various dates from 2022 to 2026. The Company also had state tax credit
carryforwards of $31.9 million which have no expiration date.
At December 31, 2011, the Company had foreign tax credit carryforwards of $35.3 million which expire in 2021. A
valuation allowance has been recorded against $29.1 million of these carryforwards. The valuation allowance is recorded
when it becomes more likely than not that a portion of the deferred tax asset will not be realized.
At year-end 2010, Safeway considered the unremitted earnings of its foreign operations totaling $2.1 billion to be
indefinitely reinvested. No deferred tax liability had been recognized at year-end 2010 for the remittance of such earnings
to the U.S., because the Company intended to utilize those earnings in its foreign operations for an indefinite period of
time or to repatriate such earnings only when tax efficient to do so. In the first quarter of 2011, Safeway finalized a tax
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