Safeway 1997 Annual Report Download - page 5

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2
To Our Stockholders
We continued to make solid progress in 1997. During
the year we improved our operating results, accelerated
our store building and remodeling program, and com-
pleted a major acquisition.
Strong Operating Results
Income in 1997 was $621.5 million ($1.25 per share)
before extraordinary loss compared to net income of
$460.6 million ($0.97 per share) the year before.
During 1997 we incurred an extraordinary 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 sec-
ond quarter, while the income statements for 1996 and
the first quarter of 1997 reflect Safeway’s 35% equity
interest in Vons. Labor disputes reduced net income by
an estimated $0.04 per share in 1997 and $0.07 per
share in 1996.
Sales for the 53 weeks of 1997 were $22.5 billion
compared to $17.3 billion for the 52 weeks of 1996.
The increase was due primarily to the Vons merger and
the additional week in 1997.
On a pro forma basis, gross profit rose to 28.63% of
sales in 1997 from 28.20% in 1996, mainly because
of improvements in buying practices and product mix.
In addition, we recorded $6.1 million of LIFO income
in 1997, reflecting slight deflation for the year. On a
pro forma basis, operating and administrative expense
as a percentage of sales declined to 22.95% in 1997
from 23.30% in 1996. Pro forma information is based
on the combined historical financial statements of
Safeway and Vons as if the merger had occurred at
the beginning of 1996.
Maintaining Financial Strength
Interest expense rose to $241.2 million in 1997 from
$178.5 million the prior year. The increase resulted
from the debt incurred to repurchase stock in conjunc-
tion with the Vons merger and from the additional week
in 1997. Despite the large increase in interest expense,
*
Albertson’s, Inc., American Stores Company, Food Lion, Inc., Fred Meyer, Inc., The Great
Atlantic & Pacific Tea Company, Inc., Giant Food Inc., Hannaford Bros. Co., The Kroger Co.,
The Penn Traffic Company, Safeway Inc. and Winn-Dixie Stores, Inc.
Increased Stockholder Value
(FIVE-YEAR CUMULATIVE TOTAL RETURN)
1,000
800
600
400
200
100
300
500
700
900
92 93 94 95 96 97
Safeway S&P 500 Peer Group*