Safeway 1997 Annual Report Download - page 30

Stock-Based Compensation Safeway accounts for stock-based
awards to employees using the intrinsic value method in accor-
dance with Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees.” Safeway elected
to adopt the disclosure requirements of SFAS No. 123,
“Accounting for Stock-Based Compensation,” in 1996.
New Accounting Pronouncement In 1997, the Financial
Accounting Standards Board issued two new pronounce-
ments, SFAS No. 130 “Reporting Comprehensive Income” and
SFAS No. 131 “Disclosures about Segments of an Enterprise
and Related Information.” SFAS No. 130 requires companies to
report by major components and as a single total, the change in
its net assets during the period from non-owner sources. SFAS
No. 131 establishes annual and interim reporting standards for
a Company’s operating segments and related disclosures about
its products, services, geographic areas and major customers.
SFAS Nos. 130 and 131 are effective for fiscal years beginning
after December 15, 1997. Adoption of these new pronounce-
ments will not impact the financial position, results of operations
or cash flows of Safeway and any effect will be limited to the
form and content of its disclosures.
Earnings Per Share In the fourth quarter of 1997, Safeway
adopted SFAS No. 128, “Earnings per Share” (“SFAS No. 128”).
SFAS No. 128 replaces current reporting requirements for earn-
ings per share (“EPS”) and requires a dual presentation of basic
and diluted EPS. Basic EPS is computed by dividing net income
by the weighted average shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
contracts to issue common stock were exercised or converted to
common stock. Prior periods have been restated to conform to
SFAS No. 128.
Note B: Merger with Vons
On April 8, 1997, Safeway completed the Merger with Vons
pursuant to which the Company issued 83.2 million shares of
Safeway common stock for all of the shares of Vons stock that it
did not already own. The Merger was accounted for using the
purchase method and resulted in additional goodwill of $1.5 billion
which is being amortized over 40 years. Vons is now a wholly-
owned subsidiary of Safeway, and as of the beginning of the
second quarter of 1997, Safeway’s consolidated financial state-
ments include Vons’ financial results. In connection with the
Merger, Safeway repurchased 64.0 million shares of Safeway
common stock from a partnership affiliated with KKR & Co., L.L.C.
(“KKR”) at $21.50 per share, for an aggregate purchase price of
$1.376 billion. To finance the repurchase, Safeway used borrow-
ings under the Bank Credit Agreement as described in Note C.
The following unaudited pro forma summary financial infor-
mation combines the consolidated results of operations of
Safeway and Vons as if the Merger and related stock repurchase
had occurred as of the beginning of each of the years present-
ed. The following pro forma financial information is presented for
informational purposes only and may not be indicative of what
the actual consolidated results of operations would have been if
the Merger had been effective earlier (in millions, except per-
share amounts):
Pro Forma
53 Weeks 52 Weeks
1997 1996
Sales $23,735.3 $22,625.0
Income before extraordinary loss 632.6 435.6
Net income 568.5 435.6
Diluted earnings per share:
Income before extraordinary loss $ 1.25 $ 0.87
Net income 1.12 0.87
Allocation of purchase price (in millions):
Fair value of assets acquired $ 3,115.8
Fair value of liabilities assumed (1,166.9)
Stock issued (1,693.0)
Safeway’s equity investment in Vons (311.2)
Net cash acquired $ (55.3)
Note C : Financing
Notes and debentures were composed of the following at year-
end (in millions):
1997 1996
Bank Credit Agreement, unsecured $ 238.2 $ 360.6
Commercial paper 1,473.5 –
9.30% Senior Secured Debentures
due 2007 24.3 70.7
10% Senior Subordinated Notes
due 2001, unsecured 79.9 241.4
9.875% Senior Subordinated Debentures
due 2007, unsecured 24.2 110.0
9.65% Senior Subordinated Debentures
due 2004, unsecured 81.2 228.2
9.35% Senior Subordinated Notes
due 1999, unsecured 66.7 161.5
7.45% Senior Debentures
due 2027, unsecured 150.0 –
7.00% Senior Notes due 2007, unsecured 250.0 –
6.85% Senior Notes due 2004, unsecured 200.0 –
10% Senior Notes due 2002, unsecured 6.1 59.1
Mortgage notes payable, secured 150.8 306.4
Other notes payable, unsecured 114.8 119.0
Medium-term notes, unsecured 25.5 65.5
Short-term bank borrowings, unsecured 210.0 83.0
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3,095.2 1,805.4
Less current maturities (277.4) (237.3)
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Long-term portion $ 2,817.8 $1,568.1
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