Safeway 1997 Annual Report Download - page 21

the foreseeable future. There can be no assurance, however,
that the Company’s business will continue to generate cash flow
at or above current levels. The Bank Credit Agreement is used
primarily as a backup facility to the commercial paper program.
Repurchase and Acquisition of Common Stock Equivalents
In connection with the Merger, Safeway repurchased 64.0 mil-
lion shares of Safeway common stock from a partnership affiliat-
ed with KKR & Co., L.L.C. (“KKR”) at $21.50 per share, for an
aggregate purchase price of $1.376 billion (the “Repurchase”).
To finance the Repurchase, Safeway entered into a new $3.0
billion bank credit agreement (the “Bank Credit Agreement”)
that provides for, among other things, increased borrowing
capacity, extended maturities and the opportunity to pay lower
interest rates based on interest coverage ratios or public debt
ratings. The Company subsequently began a commercial paper
program, which reduced its outstanding bank debt. As a result
of the stock repurchase, Safeway increased its debt and interest
expense, but also reduced the number of common shares out-
standing used to calculate earnings per share. This reduction of
64.0 million shares partially offsets the increase of 83.2 million
shares issued pursuant to the Merger.
At year-end 1997, warrants (the “SSI Warrants”) to purchase
30.7 million shares of the Company’s common stock at $0.50
per share were held by SSI Equity Associates, L.P. (“SSI”), a lim-
ited partnership whose sole assets consist of the SSI Warrants.
The SSI Warrants are exercisable through November 15, 2001.
SSI Partners, L.P., an affiliate of KKR, is the general partner of
SSI. During 1996 and 1995, 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 5.73 million shares issued upon the exercise of
SSI Warrants. In January 1998, the underwriters to the offering
exercised their over-allotment options for an additional 6.5 million
shares of common stock, including 0.8 million issued upon the
exercise of SSI Warrants. In connection with the offering, SSI
Warrants to purchase 11.9 million shares attributable to the limit-
ed partnership interests owned by Safeway were canceled.
The Company received proceeds totalling $3.3 million for
the exercise of the warrants. Affiliates of KKR received the
balance of proceeds from the stock offering. After the offering,
two limited partnerships affiliated with KKR own 104.5 million
shares of Safeway common stock, and SSI Equity Associates,
L.P. holds SSI Warrants to purchase 28.3 million shares of
Safeway common stock.
In February 1996, the Company completed the public offer-
ing of 45.9 million shares of common stock owned by affiliates of
KKR, including 4.4 million shares issued upon the exercise of
SSI Warrants and 0.4 million shares issued upon the exercise of
employee stock options. Also in 1996, SSI Warrants to purchase
4.6 million shares attributable to the limited partnership interests
owned by Safeway were canceled. The Company received pro-
ceeds of $2.4 million for the exercise price of the options and
warrants. Affiliates of KKR and the option holder received the bal-
ance of proceeds from the stock offering.
Forward-Looking Statements
This Annual Report contains certain forward-looking statements
relating to, among other things, capital expenditures, cost reduc-
tion and operating improvements. Such statements are subject
to inherent uncertainties and risks, including among others:
business and economic conditions generally in the Company’s
operating regions; pricing pressures and other competitive
factors; results of the Company’s programs to reduce costs;
the ability to integrate Vons and continue to achieve operating
improvements; relations with union bargaining units; and the
availability and terms of financing. Consequently, actual events
and results may vary significantly from those included in or
contemplated or implied by such statements.
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