Safeway 2012 Annual Report Download - page 62

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SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
50
The following methods and assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and equivalents, accounts receivable, accounts payable. The carrying amount of these items
approximates fair value.
Notes receivables The Company's notes receivables, included in other assets, is comprised primarily of
notes receivable resulting from the sale of real estate. The fair value of note receivables is estimated by
discounting expected future cash flows using interest rates, adjusted for credit risk, at which similar loans
could be made under current market conditions. As of December 29, 2012, the carrying value of notes
receivables, which approximates fair value, was $130.6 million.
Long-term debt, including current maturities. Market values quoted in public markets are used to estimate
the fair value of publicly traded debt. To estimate the fair value of debt issues that are not quoted in public
markets, the Company uses those interest rates that are currently available to it for issuance of debt with
similar terms and remaining maturities as a discount rate for the remaining principal payments.
Store Lease Exit Costs and Impairment Charges Safeway regularly reviews its stores’ operating
performance and assesses the Company’s plans for certain store and plant closures. Losses related to the
impairment of long-lived assets are recognized when expected future cash flows are less than the asset’s
carrying value. The Company evaluates the carrying value of the assets in relation to its expected future
cash flows. If the carrying value is greater than the future cash flows, a provision is made for the impairment
of the assets to write the assets down to estimated fair value. Fair value is determined by estimating net
future cash flows, discounted using a risk-adjusted rate of return. The Company calculates impairment on
a store-by-store basis. These provisions are recorded as a component of operating and administrative
expense.
When stores that are under long-term leases close, the Company records a liability for the future minimum
lease payments and related ancillary costs, net of estimated cost recoveries that may be achieved through
subletting properties or through favorable lease terminations, discounted using a risk-adjusted rate of interest.
This liability is recorded at the time the store is closed. Activity included in the reserve for store lease exit
costs is disclosed in Note C.
Accumulated Other Comprehensive (Loss) Income Accumulated other comprehensive (loss) income,
net of applicable taxes, consisted of the following at year-end (in millions):
2012 2011 2010
Translation adjustments $399.0$ 402.1 $ 393.3
Pension and post-retirement benefits adjustment to funded status (737.8) (658.1) (447.8)
Recognition of pension and post-retirement benefits actuarial loss 265.5 196.0 145.0
Other (0.5) (1.5) (2.5)
Total $(73.8)$ (61.5) $ 88.0
Stock-Based Employee Compensation Safeway accounts for all share-based payments to employees,
including grants of employee stock options, as compensation cost based on the fair value on the date of
grant. The Company determines fair value of such awards using the Black-Scholes option pricing model.
The Black-Scholes option pricing model incorporates certain assumptions, such as risk-free interest rate,
expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value
estimate.