Safeway 2012 Annual Report Download - page 24

Download and view the complete annual report

Please find page 24 of the 2012 Safeway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

SAFEWAY INC. AND SUBSIDIARIES
12
• Blackhawk's prospects could be adversely affected as a result of changes in card association rules
or standards set by Visa, MasterCard and others, or changes in card association and debit network
fees or products or interchange rates; and
• Blackhawk has operations in several international locations, and it may find a different business or
competitive environment in markets outside the U.S. that could adversely affect its profitability.
New Business Initiatives and Strategies The introduction, implementation, success and timing of new
business initiatives and strategies, including but not limited to, initiatives to increase revenue, develop real
estate or enter into new areas of business may be less successful or may be different than anticipated, which
could adversely affect Safeway's business.
Pension and Post-Retirement Benefit Plans We maintain defined benefit retirement plans for
substantially all employees not participating in multiemployer pension plans. The funded status of these
plans (the difference between the fair value of the plan assets and the projected benefit obligation) is a
significant factor in determining annual pension expense and may have an impact on the cash contributions
to fund the plans. Historically, Safeway’s retirement plans have been well funded, and prior to 2011, cash
contributions to the plans have been relatively small.
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 have improved. Despite the improvement, the
projected benefit obligation exceeds the fair value of the plan assets. As a result, cash contributions to
pension and post-retirement plans increased from $17.7 million in 2010 to approximately $176.2 million in
2011 and $159.5 million in 2012. Cash contributions are expected to decline to approximately $94.0 million
in 2013 due primarily to the impact of the Pension Funding Stabilization legislation which increased the
discount rate used to determine pension funding (which had no effect on pension expense).
If financial markets do not continue to improve or if financial markets decline, increased pension expense
and cash contributions may have an adverse impact on our financial results.
In addition, we participate in various multiemployer pension plans for substantially all employees represented
by unions. We are required to make contributions to these plans in amounts established under collective
bargaining agreements. Under the Pension Protection Act of 2006 (“PPA”), additional contributions may be
required in the form of a surcharge that is equal to 5% of the contributions due in the first year and 10% each
year thereafter until the applicable bargaining agreement expires. If surcharges are required, many of our
bargaining agreements provide for an offset against contribution amounts otherwise required under those
agreements.
Pension expense for multiemployer pension plans is recognized as contributions are made. Benefits generally
are based on a fixed amount for each year of service. We contributed $310.0 million, $312.2 million and
$292.3 million to these plans in 2012, 2011 and 2010, respectively. Based on the most recent information
available to us, a number of these multiemployer plans are underfunded. As a result, contributions to these
plans may increase. The amount of any increase or decrease in our required contributions to these
multiemployer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees
who manage the plans, government regulations, the actual return on assets held in the plans and the potential
payment of a withdrawal liability if we choose to exit a market, among other factors. Additionally, the benefit
levels and related issues will continue to create collective bargaining challenges. Under current law, an
employer that withdraws or partially withdraws from a multiemployer pension plan may incur withdrawal
liability, which is related to the portion of the plan's underfunding, if any, that is allocable to the withdrawing
employer under very complex actuarial and allocation rules. Multiemployer pension legislation passed in
2006, 2008, and 2010 will continue to apply to the funds in which we participate, which may have an impact
on future pension contributions.
Substantial Indebtedness We currently have, and expect to continue to have, a significant amount of
debt, which could adversely affect our financial health. As of December 29, 2012, we had approximately
$5.6 billion in total consolidated debt outstanding, including capital lease obligations. This substantial