Safeway 1997 Annual Report Download - page 32

Note D: Lease Obligations
Approximately two-thirds of the premises that the Company
occupies are leased. The Company had approximately 1,310
leases at year-end 1997, including approximately 180 which are
capitalized for financial reporting purposes. Most leases have
renewal options, some with terms and conditions similar to the
original lease, others with reduced rental rates during the option
periods. Certain of these leases contain options to purchase the
property at amounts that approximate fair market value.
As of year-end 1997, future minimum rental payments applica-
ble to non-cancelable capital and operating leases with remaining
terms in excess of one year were as follows (in millions):
Capital Operating
Leases Leases
1998 $ 48.7 $ 202.3
1999 44.5 198.6
2000 39.1 189.5
2001 35.4 173.5
2002 34.3 161.1
Thereafter 282.2 1,315.7
■■■
Total minimum lease payments 484.2 $2,240.7
Less amounts representing interest (239.1)
Present value of net minimum lease
payments 245.1
Less current obligations (22.0)
Long-term obligations $ 223.1
Future minimum lease payments under non-cancelable
capital and operating lease agreements have not been reduced
by minimum sublease rental income totalling $142.7 million.
Amortization expense for property under capital leases was
$21.1 million in 1997, $17.9 million in 1996 and $18.9 million
in 1995. Accumulated amortization of property under capital
leases was $153.4 million at year-end 1997 and $156.1 million
at year-end 1996.
The following schedule shows the composition of total rental
expense for all operating leases (in millions). In general, contin-
gent rentals are based on individual store sales.
1997 1996 1995
Property leases:
Minimum rentals $206.0 $138.2 $132.7
Contingent rentals 12.3 9.9 9.1
Less rental income
from subleases (13.4) (11.1) (11.1)
■■ ■■
204.9 137.0 130.7
Equipment leases 19.3 21.0 20.8
■■ ■■
$224.2 $158.0 $151.5
■■ ■■
Note E: Interest Expense
Interest expense consisted of the following (in millions):
1997 1996 1995
Bank Credit Agreement $ 36.9 $ 16.4 $ 25.2
Commercial paper 43.8 ––
9.30% Senior Secured
Debentures 5.3 6.6 6.6
10% Senior Subordinated Notes 19.3 24.1 24.1
9.875% Senior Subordinated
Debentures 8.2 10.9 10.9
9.65% Senior Subordinated
Debentures 17.8 22.0 22.0
9.35% Senior Subordinated Notes 12.3 15.3 16.1
7.45% Senior Debentures 3.4 ––
7.00% Senior Notes 5.2 ––
6.85% Senior Notes 4.1 ––
Vons Debentures 10.2 ––
10% Senior Notes 4.3 5.9 5.9
Mortgage notes payable 22.0 33.0 43.3
Other notes payable 9.9 11.9 11.3
Medium-term notes 4.4 6.0 7.1
Short-term bank borrowings 8.8 5.1 6.6
Obligations under capital leases 26.0 20.8 21.0
Amortization of deferred
finance costs 1.7 1.8 4.0
Interest rate swap and
cap agreements 3.3 3.0 0.3
Capitalized interest (5.7) (4.3) (4.6)
■■■■■■■■
$241.2 $178.5 $199.8
■■■■■■■■
In May 1997, Safeway entered into interest rate cap agree-
ments which expire in 1999 and entitle the Company to
receive from counterparties the amounts, if any, by which
interest at LIBOR on an $850 million notional amount exceeds
7%. The unamortized cost to purchase the cap agreements
was $2.5 million at year-end 1997.
Additionally, as of year-end 1997, the Company had effec-
tively converted $135.1 million of its floating rate debt to
fixed interest rate debt through the use of interest rate swap
agreements. The significant terms of the swap agreements
outstanding at year-end 1997 were as follows (dollars in
millions):
Variable
Canada Interest
U.S. Fixed Fixed Rates
Notional Interest Interest to be Origination Expiration
Principal Rates Paid Rates Paid Received Date Date
$100.0 6.2% 5.8% 1997 2007
35.1 6.0% 4.9 1993 1998
$135.1
The variable interest rate received on the U.S. swap is based
on federal reserve rates quoted for commercial paper. The vari-
able interest rate received on the Canadian swap is based on the
average of bankers’ acceptance rates quoted by Canadian banks.
At year-end 1997 and 1996, net unrealized losses on the interest
rate swap agreements totaled $0.4 million and $2.0 million.
The notional principal amounts do not represent cash flows
and therefore are not subject to credit risk. The Company is
subject to risk from nonperformance of the counterparties to
the swap and cap agreements in the amount of any interest
differential to be received. Because the Company monitors the
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