Safeway 2013 Annual Report Download - page 31

Table of Contents
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expected net future cash flows are less than the assets’ carrying values. When stores that are under long-term leases close, Safeway records
a liability for the future minimum lease payments and related ancillary costs, net of estimated cost recoveries. In both cases, fair value is
determined by estimating net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future
cash flows based on its experience and knowledge of the market in which the closed store is located and, when necessary, uses real estate
brokers. However, these estimates project future cash flows several years into the future and are affected by factors such as inflation, real
estate markets and economic conditions.
At any one time, Safeway has a portfolio of closed stores which is widely dispersed over several markets. While individual closed store
reserves are likely to be adjusted up or down in the future to reflect changes in assumptions, the change to the total closed store reserve has
not been nor is expected to be material.
Employee Benefit Plans The Company recognizes in its balance sheet a liability for the underfunded status of its employee benefit plans.
The Company measures plan assets and obligations that determine the funded status as of fiscal year end. Additional disclosures are
provided in Note M to the consolidated financial statements, set forth in Part II, Item 8 of this report.
The determination of Safeway’s obligation and expense for pension benefits is dependent, in part, on the Company’s selection of certain
assumptions used by its actuaries in calculating these amounts. These assumptions are disclosed in Note M to the consolidated financial
statements and include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rate of
compensation increases. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors.
In accordance with generally accepted accounting principles (“GAAP”), the amount by which actual results differ from the actuarial
assumptions is accumulated and amortized over future periods and, therefore, affects recognized expense in such future periods. While
Safeway believes its assumptions are appropriate, significant differences in actual results or significant changes in the Company’s
assumptions may materially affect Safeway’s pension and other postretirement obligations and its future expense.
Safeway bases the discount rate on current investment yields on high-quality fixed-income investments. The discount rate assumption used
to determine the year-end projected benefit obligation is increased or decreased to be consistent with the change in yield rates for high-quality
fixed-income investments for the expected period to maturity of the pension benefits. The discount rate used to determine 2013 pension
expense was 4.2%. A lower discount rate increases the present value of benefit obligations and increases pension expense. Expected return
on pension plan assets is based on historical experience of the Company’s portfolio and the review of projected returns by asset class on
broad, publicly traded equity and fixed-income indices, as well as target asset allocation. Safeway’s target asset allocation mix is designed to
meet the Company’s long-term pension requirements. For 2013, the Company’s assumed rate of return was 7.50% on U.S. pension
assets. Over the 10-year period ended December 28, 2013, the average rate of return was approximately 6% for U.S. pension assets,
slightly below the Company's assumed rate of return. A poor global financial market during 2008 led to a substantial reduction in the 10-year
average rate of return on Safeway's pension assets. We expect that the markets will eventually recover to our assumed long-term rate of
return.
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