This excerpt taken from the SWY 10-Q filed May 3, 2006.
On April 10, 2006, Safeway announced that it had settled a federal income tax refund claim under which Safeway expects to receive approximately $316 million in cash in the second half of 2006. The settlement relates to Safeways claim for refunds in the years 1992 through 1999 for costs associated with debt financing.
The expected federal tax refund of approximately $259 million will be recorded in the second quarter of 2006 as an increase to additional paid-in capital and will not be recorded in the income statement.
The Company will receive interest on the federal tax refund and will accrue interest until payment is received. As of April 26, 2006 the accrued interest on the federal tax refund, net of income tax, is approximately $57 million ($0.13 per diluted share). Accrued interest will be recorded in the second quarter of 2006 as a reduction of Safeways income tax expense. The final interest amount will depend on the date of receipt of the cash.
In addition, Safeway has similar claims for refunds of income tax and interest in several states. As of April 26, 2006, the Company expects these state income tax refunds and interest will be approximately $30 million and $10 million, respectively, net of income tax. Collection of these funds may take several years. When collection is assured, the state income tax refunds will be recorded as an increase to additional paid-in capital and net interest will be recorded as a reduction of the income tax expense.
The total expected federal and state refunds and related interest as of April 26, 2006 is approximately $356 million.
SAFEWAY INC. AND SUBSIDIARIES