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    Safeway to Receive $300 Million Tax Settlement in 2006

    PLEASANTON, Calif. -- Safeway yesterday settled a federal income tax refund claim with the Internal Revenue Service under which the retailer expects to receive approximately $315 million in cash in the second half of 2006. The settlement relates to Safeway's claim for refunds in the years 1992 through 1999 for costs associated with debt financing.

    PLEASANTON, Calif. -- Safeway yesterday settled a federal income tax refund claim with the Internal Revenue Service under which the retailer expects to receive approximately $315 million in cash in the second half of 2006. The settlement relates to Safeway's 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.

    Safeway will receive interest on the tax refund and will accrue interest until payment is received. As of April 7, the accrued interest on the federal tax refund, net of income tax, was about $56 million, or 12 cents per share. Accrued interest will be recorded in the second quarter of 2006 as a reduction of Safeway's income tax expense. The final interest amount depends 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 7, the retailer expects that these state income tax refunds and interest will be about $30 million and $10 million, respectively, net of income tax.

    Collection of these funds, however, 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 7 is about $355 million.

    Safeway operates 1,775 stores in the United States and Canada and had annual sales of $38.4 billion in 2005.

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