Safeway 1997 Annual Report Download - page 37

Collective Bargaining Agreements At year-end 1997, Safeway
had approximately 147,000 full and part-time employees.
Approximately 90% of Safeway’s employees in the United States
and Canada are covered by collective bargaining agreements
negotiated with local unions affiliated with one of 12 different
international unions. There are approximately 400 such agree-
ments, typically having three-year terms, with some agreements
having terms up to five years. Accordingly, Safeway negotiates a
significant 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, Washington. In addition, union members in British
Columbia ratified a new labor contract. As a result of these early
negotiations, the only significant remaining labor contracts due
to expire in 1998 are in the Seattle and Winnipeg operating areas
covering approximately 110 stores. Management considers the
terms of these new contracts to be satisfactory.
Note I : Investment in Unconsolidated Affiliates
Safeway’s investment in unconsolidated affiliates consists of a
49% ownership interest in Casa Ley, S.A. de C.V. (“Casa Ley”),
which operates 74 food and general merchandise stores in
western Mexico.
Income from Safeway’s equity investment in Casa Ley, recorded
on a one-quarter delay basis, increased to $22.7 million in 1997
from $18.8 million in 1996 and $8.6 million in 1995. For much of
1995, Mexico suffered from high interest rates and inflation which
adversely affected Casa Ley. Since 1996, interest rates and infla-
tion in Mexico moderated and Casa Ley’s financial results have
gradually improved.
Casa Ley had total assets of $319.0 million and $263.1 million
as of September 30, 1997 and 1996 based on financial informa-
tion provided by Casa Ley. Sales and net income for Casa Ley were
as follows (in millions of U.S. dollars):
12 months ended September 30,
1997 1996 1995
Sales $943.8 $810.1 $861.4
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Net income $ 38.6 $ 33.8 $ 17.9
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Through April 8, 1997, the Company also owned 15.1 million
common shares, or 34.4% of the total shares outstanding, of
Vons. Vons is now a wholly-owned subsidiary of Safeway, and as
of the beginning of the second quarter of 1997, Safeway’s con-
solidated financial statements include Vons’ financial position
and results of operations.
Safeway’s share of Vons’ earnings was $12.2 million for the
first quarter of 1997 compared to $7.2 million for the first quarter
of 1996, and $31.2 million for the year in 1996.
Note J: Related-Party Transactions
KKR provides management, consulting and financial services to
the Company for an annual fee. Such services include, but are
not necessarily limited to, advice and assistance concerning any
and all aspects of the operation, planning and financing of the
Company. Payments for management fees, special services and
reimbursement of expenses were $1,399,000 in 1997,
$1,364,000 in 1996 and $1,355,000 in 1995.
The Company holds an 80% interest in Property Development
Associates (“PDA”), a partnership formed in 1987 with a compa-
ny controlled by an affiliate of KKR, to purchase, manage and
dispose of certain Safeway facilities which are no longer used in
the retail grocery business. The financial statements of PDA are
consolidated with those of the Company and a minority interest
of $24.0 million and $25.1 million at year-end 1997 and 1996 is
included in accrued claims and other liabilities in the accompa-
nying consolidated balance sheets. During 1997, the Company
contributed to PDA six properties no longer used in its retail gro-
cery business which had an aggregate net book value of $4.9
million. During 1996, the Company contributed to PDA 16 prop-
erties no longer used in its retail grocery business which had an
aggregate net book value of $8.4 million. The minority partner
contributed cash in an amount sufficient to maintain its 20%
ownership. No gains or losses were recognized on these transac-
tions. Safeway paid PDA $1.5 million in 1997, $1.6 million in
1996 and $1.5 million in 1995 for reimbursement of expenses
related to management and real estate services provided by PDA.
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