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Safeway to Get $315 Million in Tax Settlement
April 10, 2006 · Reuters
Safeway Inc. the third-largest U.S. grocery chain, on Monday said it expects to receive about $315 million in cash in the second half of 2006 after settling a federal income tax refund claim with the U.S. Internal Revenue Service.
Safeway said the settlement relates to its claim for refunds in 1992 through 1999 for costs associated with debt financing.
The company also said it could receive an additional $40 million in refunds of income tax and interest in state claims, but that collecting those funds could take several years.
The grocer is set to record the expected federal tax refund of about $259 million in the second quarter of 2006 as an increase to additional paid-in capital and said it would not be recorded in its income statement. Safeway will also receive interest on the federal tax refund and accrue interest until payment is received. As of April 7, the accrued interest on the federal tax refund, net of income tax, is about $56 million, or 12 cents per share.
Safeway said it would record accrued interest in the second quarter of 2006 as a reduction of its income tax expense. The final interest amount depends on when the cash is received.
As of April 7, Safeway expected the state income tax refunds to total about $30 million, with interest of about $10 million, net of income tax. The grocer said collecting those funds could take several years.
Safeway, based in Pleasanton, California, operates 1,775 stores in the United States and Canada. Its shares rose 4 cents to $25.07 in early morning trading on the New York Stock Exchange.