Safeway 1997 Annual Report Download

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Safeway Inc.
P.O. Box 99
Pleasanton, CA 94566-0009

Table of contents

  • Page 1
    Safeway Inc. P.O. Box 99 Pleasanton, CA 94566-0009

  • Page 2
    Safeway Inc. 1997 Annual Report Growing Our Business

  • Page 3
    ...3, 1998 operated 74 food and general merchandise stores in western Mexico. Percentage of Stores with Specialty Departments 1997 1992 Floral Deli Bakery Pharmacy 91% 92 82 59 77% 86 71 46 Manufacturing and Processing Facilities U.S. Canada Milk Plants Bread Baking Plants Ice Cream Plants Cheese...

  • Page 4
    ... Sales Gross profit Operating profit Income before extraordinary loss Net income Diluted earnings per share (Note 1): Income before extraordinary loss Net income Capital expenditures (Note 2) At Year-End: Common shares outstanding (in millions) (Notes 1 and 3) Retail square feet (in millions) Number...

  • Page 5
    ... loss of $64.1 million ($0.13 per share) for the early retirement of debt, which reduced net income to $557.4 ($1.12 per share). Per-share amounts reflect a two-for-one stock split on February 25, 1998. The company's 1997 income statement includes Vons' operating results since the beginning of the...

  • Page 6
    ... paper market and negotiating a new bank credit agreement. Review and Outlook It has now been five years since the current management team began working to turn around a company that was struggling with high costs, sluggish sales and inadequate returns on invested capital. In 1992 Safeway was an...

  • Page 7
    ...but powerful formula with three basic elements: control costs, increase sales and improve capital management. Until recently, we concentrated our efforts on adding value to assets within our existing market areas. With the Vons merger in April 1997, we looked beyond these areas for continued growth...

  • Page 8
    ..., it is reviewed by our Real Estate Committee, whose seven members include the chief executive officer and the chief financial officer. At Safeway, capital spending is a carefully planned, highly disciplined process. We require a 22.5% pretax return on investment for all new store and remodel...

  • Page 9
    ...left) The expanding Safeway SELECT line of premium quality products continued to record strong sales in 1997. We have an extensive private label program, comprising some 3,870 items - including more than 850 Safeway SELECT products. As a result of our commitment to private label, our customers enjoy...

  • Page 10
    ... private label marketing. Several promising developments have already evolved from the exchange of ideas and expertise. The merger has also enhanced geographic diversity and should result in significant economies of scale in purchasing, administrative support and information systems. Shared Values...

  • Page 11
    ...Expense •Working sales growth ratio reduction capital management cash flow margin •Operating •Earnings per share growth As a result of this performance, the value of Safeway common stock on the New York Stock Exchange at the close of trading in 1997 rose to $31.625 (post-split) per share...

  • Page 12
    ...-label manufacturing operations, closing two plants. Major union contracts signed during 1997 will help achieve competitive labor costs in several key markets. Vons' data processing operations, previously outsourced, were combined with Safeway's information technology group. Improvement in Annual...

  • Page 13
    ... customers' needs more effectively. Great Meal Combos, our new line of prepared entrees and side dishes, were popular additions to our deli offerings. We introduced 211 new Safeway SELECT items during 1997, bringing the total product line to more than 850 items. Annual Identical-Store Sales Growth...

  • Page 14
    ... warehouse inventory levels and improved payables management. Combined capital spending at Safeway and Vons was $829 million in 1997. Safeway and Vons opened 37 new stores and remodeled 181 existing stores. Construction began on a new distribution center in Maryland. We signed a new bank agreement...

  • Page 15
    ... "Merger"). The Company also holds a 49% interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 74 food and general merchandise stores in western Mexico. Retail Operations Stores Safeway operates stores ranging in size from approximately 5,900 square feet to over 89,000 square feet. Safeway...

  • Page 16
    ... brands and private label products to independent grocery stores and institutional customers. Safeway operated the following manufacturing and processing facilities at year-end 1997: U.S. Canada Milk plants Bread baking plants Ice cream plants Cheese and meat packaging plants Soft drink bottling...

  • Page 17
    ...: Present value of all lease obligations incurred Mortgage notes assumed in property additions Vons first quarter expenditures Total capital expenditures Capital expenditures as a percent of sales Vons stores acquired New stores opened Stores closed or sold Remodels Total retail square footage at...

  • Page 18
    ... Gross profit margin Operating and administrative expense margin Operating profit margin Capital expenditures (Note 4) Depreciation and amortization Total assets Total debt Stockholders' equity Weighted average shares outstanding - diluted (in millions) (Note 2) Other Statistics Vons stores acquired...

  • Page 19
    ... quarter of 1997, Safeway was engaged in a 75-day labor dispute affecting 74 stores in the Alberta, Canada operating area. The Company estimates that the Alberta strike reduced 1997 net income by approximately $0.04 per share, and labor disputes in the British Columbia and Denver operating areas...

  • Page 20
    ... in cash flow used by investing activities in 1997 is primarily the result of increased capital expenditures to open 37 new stores, complete 181 remodels, complete construction of a manufacturing plant in California and begin work on a new distribution center in Maryland. Cash flow used by financing...

  • Page 21
    ... the Company acquired 64.5% of the partnership interests in SSI for $322.7 million, which was accounted for as a reduction to stockholders' equity. Stock Offerings In December 1997, the Company completed the public offering of 50.0 million shares of common stock owned by affiliates of KKR, including...

  • Page 22
    ... (In millions, except per-share amounts) 53 Weeks 1997 â- â- â- 52 Weeks 1996 â- â- â- 52 Weeks 1995 Sales Cost of goods sold Gross profit Operating and administrative expense Operating profit Interest expense Equity in earnings of unconsolidated affiliates Other income, net Income before...

  • Page 23
    ...assets Property: Land Buildings Leasehold improvements Fixtures and equipment Property under capital leases Less accumulated depreciation and amortization Total property, net Goodwill, net of accumulated amortization of $157.0 and $116.4 Prepaid pension costs Investments in unconsolidated affiliates...

  • Page 24
    SAFEWAY INC. AND SUBSIDIARIES (In millions, except share and per-share amounts) Year-End 1997 â- â- â- Year-End 1996 Liabilities and Stockholders' Equity Current liabilities: Current maturities of notes and debentures Current obligations under capital leases Accounts payable Accrued salaries ...

  • Page 25
    ...) expense Equity in earnings of unconsolidated affiliates Net pension (income) expense Contributions to Canadian pension plan Increase (decrease) in accrued claims and other liabilities Loss (gain) on property retirements Changes in working capital items: Receivables Inventories at FIFO cost Prepaid...

  • Page 26
    ... and stock options Premiums paid on early retirement of debt Other Net cash flow used by financing activities Effect of changes in exchange rates on cash Increase (decrease) in cash and equivalents Cash and Equivalents Beginning of year End of year Other Cash Flow Information Cash payments during...

  • Page 27
    ... Translation adjustments Balance, year-end 1996 Shares issued for acquisition of The Vons Companies, Inc. Equity in Vons' pre-merger earnings due to timing of recording earnings Treasury stock purchased Options and warrants exercised Stock bonuses Net income Translation adjustments Balance, year...

  • Page 28
    ...interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 74 food and general merchandise stores in western Mexico. Stock Split In January 1998, Safeway's Board of Directors authorized a two-for-one split of the Company's common stock. The stock split was effected by a distribution on February...

  • Page 29
    ... amortization increased in 1997 due to the Merger with Vons, discussed in Note B. Self-insurance The Company is primarily self-insured for workers' compensation, automobile, and general liability costs. The selfinsurance liability is determined actuarially, based on claims filed and an estimate...

  • Page 30
    ... Weeks 1997 1996 Sales Income before extraordinary loss Net income Diluted earnings per share: Income before extraordinary loss Net income Allocation of purchase price (in millions): Fair value of assets acquired Fair value of liabilities assumed Stock issued Safeway's equity investment in Vons Net...

  • Page 31
    ... these redemptions, Safeway recorded extraordinary losses of $64.1 million ($0.13 per share) in 1997 and $2.0 million in 1995. The extraordinary losses represent the payment of redemption premiums and the write-off of deferred finance costs, net of the related tax benefits. Annual Debt Maturities As...

  • Page 32
    ...-end 1996. The following schedule shows the composition of total rental expense for all operating leases (in millions). In general, contingent rentals are based on individual store sales. 1997 1996 1995 In May 1997, Safeway entered into interest rate cap agreements which expire in 1999 and entitle...

  • Page 33
    ...Safeway's stock option plans, the Company may grant incentive and non-qualified options to purchase up to 98 million shares of common stock at an exercise price equal to or greater than the fair market value at the grant date, as determined by the Compensation and Stock Option Committee of the Board...

  • Page 34
    Additional Stock Plan Information As discussed in Note A, the Company continues to account for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and its related interpretations. ...

  • Page 35
    ... not currently deductible Accrued claims and other liabilities Employee benefits Canadian operating loss carryforward Other assets Deferred tax liabilities: Property Prepaid pension costs LIFO inventory reserves Investments in unconsolidated affiliates Cumulative translation adjustments Other...

  • Page 36
    ... Plan benefits, the Company sponsors plans that provide postretirement medical and life insurance benefits to certain salaried employees. Retirees share a portion of the cost of the postretirement medical plans. Safeway pays all of the cost of the life insurance plans. The plans are not funded...

  • Page 37
    ... number of these agreements every year. Safeway concluded early negotiations and signed new labor contracts that would have been due to expire in 1998. Certain of these contracts were with employees represented by the United Food and Commercial Workers Union in northern California and Spokane...

  • Page 38
    ... Grocery Company, et al., was filed in the Superior Court of San Diego County, California against Vons and two other grocery store chains operating in southern California. In the complaint it is alleged, among other things, that Vons and the other defendants conspired to fix the retail price of eggs...

  • Page 39
    ... Information by Geographic Area (In millions) United States Canada Total 1997 Sales Gross profit Operating profit Income before income taxes and extraordinary loss Net working capital (deficit) Total assets Net assets 1996 Sales Gross profit Operating profit Income before income taxes Net working...

  • Page 40
    ... Third 12 Weeks Second 12 Weeks First 12 Weeks 1997 Sales Gross profit Operating profit Income before income taxes and extraordinary loss Extraordinary loss related to early retirement of debt Net income Earnings per share: Basic Income before extraordinary loss Extraordinary loss Net income...

  • Page 41
    ... with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares Common stock price used under the treasury stock method Common shares assumed purchased with potential proceeds $621.5 $621.5 $460.6 $460.6 $328.3 $328.3 (64.1) (64.1) - - (2.0) (2.0 557...

  • Page 42
    ...LLP, and the careful selection, training and development of employees. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the Board, and corrective actions are taken to address control deficiencies and other opportunities...

  • Page 43
    ... Board Safeway Inc. George R. Roberts Member KKR & Co., L.L.C. Michael T. Tokarz Member KKR & Co., L.L.C. EXECUTIVE OFFICERS Steven A. Burd President and Chief Executive Officer Kenneth W. Oder Executive Vice President Labor Relations, Human Resources, Law and Public Affairs Julian C. Day Executive...

  • Page 44
    ... and Public Affairs, at our executive offices. To obtain or access financial reports, please write to our Investor Relations Department, call 925-467-3790 or check our web site at http://www.safeway.com. EEO-1 REPORT As an equal opportunity employer, Safeway values and actively supports diversity...