Safeway 1998 Annual Report Download - page 33

Note E: Interest Expense
Interest expense consisted of the following (in millions):
In 1997 the Company entered into interest rate cap agree-
ments which entitle Safeway to receive the excess, if any, of
LIBOR over 7% on an $850 million notional amount. The cap
agreements expire in May 1999. The unamortized cost to pur-
chase the cap agreements was $0.6 million at year-end 1998.
Also in 1997, the Company entered into an interest rate
swap agreement with a notional amount of $100.0 million.
Under the swap agreement, Safeway pays interest of 6.2%
on the $100.0 million notional amount and receives a variable
i n t e rest rate based on Federal Reserve rates quoted for
c o m m e r cial paper. The agreement expires in the year 2007.
At year-end 1998 and 1997, the net unrealized loss on the inter-
est rate swap agreement was $7.0 million and $0.4 million.
1998 1997 1996
Commercial paper $ 83.7 $ 43.8
Bank credit agreement 10.8 36.9 $ 16.4
9.30% Senior Secured
Debentures 2.3 5.3 6.6
6.85% Senior Notes 13.7 4.1 –
7.00% Senior Notes 17.5 5.2 –
7.45% Senior Debentures 11.2 3.4 –
5.75% Notes 3.5 – –
5.875% Notes 3.6 – –
6.05% Notes 3.2 – –
6.50% Notes 2.5 – –
9.35% Senior Subordinated Notes 6.2 12.3 15.3
10% Senior Subordinated Notes 8.0 19.3 24.1
9.65% Senior Subordinated
Debentures 7.8 17.8 22.0
9.875% Senior Subordinated
Debentures 2.4 8.2 10.9
10% Senior Notes 0.6 4.3 5.9
Vons Debentures –10.2 –
Mortgage notes payable 12.1 22.0 33.0
Other notes payable 9.5 9.9 11.9
Medium-term notes 2.1 4.4 6.0
Short-term bank borrowings 10.6 8.8 5.1
Obligations under capital leases 27.8 26.0 20.8
Amortization of deferred
finance costs 1.6 1.7 1.8
Interest rate swap and cap
agreements 2.8 3.3 3.0
Capitalized interest (8.5) (5.7) (4.3)
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
$235.0 $241.2 $178.5
■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■
The Company is not subject to credit risk because the
notional amounts do not re p resent cash flows. The Company
is subject to risk from nonperf o rmance of the counterparties
to the swap and cap agreements in the amount of any intere s t
d i ff e rential to be received. Because the Company monitors
the credit ratings of its counterparties, which are limited to
major financial institutions, Safeway does not anticipate
nonperformance by the counterparties.
Because the Company intends to hold these agreements as
hedges for the term of the agreements, the market risk associ-
ated with changes in interest rates should not be significant.
Note F: Capital Stock
Shares Authorized and Issued Authorized pre f e rred stock
consists of 25 million shares of which none was outstanding
during 1998, 1997 or 1996. Authorized common stock consists
of 1.5 billion shares at $0.01 par value. Common stock outstand-
ing was 490.3 million shares (net of 60.6 million shares of trea-
s u ry stock) at year-end 1998 and 476.2 million shares (net of
61.2 million shares of treasury stock) at year-end 1997.
Stock Option Plans Under Safeway’s stock option plans,
the Company may grant incentive and non-qualified options
to purchase common stock at an exercise price equal to or
g reater than the fair market value at the grant date, as deter-
mined by the Compensation and Stock Option Committee of
the Board of Directors. Options generally vest over seven
years. Vested options are exercisable in part or in full at any
time prior to the expiration date of 10 to 15 years from the
date of the grant.