Safeway 1999 Annual Report Download

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SAFEWAY INC. 1999 ANNUAL REPORT
Taking Care
of Business

Table of contents

  • Page 1
    S A FEW AY I N C . 19 9 9 A N N U A L R EP O R T Taki ng C a re o f B u si n e ss

  • Page 2
    ... 1999 U.S. Canada Notes to Consolidated Financial Statements 27 Management's Report 41 Independent Auditors' Report 41 Directors and Principal Officers 42 Investor Information 43 Milk Plants Bread Baking Plants Ice Cream Plants Cheese and Meat Packaging Plants Soft Drink Bottling Plants Fruit and...

  • Page 3
    ...189.7 $ 22,483.8 6,414.7 1,279.7 621.5 557.4 $ 1.25 1.12 829.4 At Year-End: Common shares outstanding (in millions) (Note 2) Retail square feet (in millions) Number of stores Note 1: Defined on page 15 under " Capital Expenditure Program." Note 2: Net of 65.4 million, 60.6 million and 61.2 million...

  • Page 4
    ... â- Our interest coverage ratio (operating cash flow divided by interest expense) remained a very strong 7.45 times despite the additional debt incurred to finance acquisitions and the stock repurchase program, described below. â- Net income rose 20% to $970.9 million ($1.88 per share) from $806...

  • Page 5
    ... up to at least 100 shares. Store Modernization Capital spending in 1999 increased to $1.5 billion. We opened 67 new stores, closed 54 older ones and expanded or remodeled 251 existing stores, resulting in a 3.1% net addition to total retail square footage, exclusive of acquisitions. During 2000 we...

  • Page 6
    ... 1960. In September we acquired Randall's Food Markets, Inc., a Texas-based supermarket chain that, at the close of the transaction, operated 117 stores in the Houston, Dallas/Fort Worth and Austin areas under the Randalls and Tom Thumb banners. Like the Dominick's merger in 1998, the combination...

  • Page 7
    ...found in our divisions and apply them throughout the company. We believe this creates a better shopping experience for our customers, greater value for our investors, enhanced training and advancement potential for our employees, and increased financial and in-kind support for our communities. As we...

  • Page 8
    ... cannot duplicate elsewhere. Our goal is to delight and surprise shoppers by consistently delivering superior quality, selection, value and service in attractive, conveniently located stores. As we continue to gain market share in most of our operating areas, we believe we are making good progress...

  • Page 9
    ... costs, managing capital effectively and pursuing acquisitions. We also reviewed our financial performance and discussed our growth strategy. To further enhance communications with investors, we are expanding the financial content of our web site to include more useful, timely information about...

  • Page 10
    ... build more new stores and remodel existing ones, we create greater career advancement opportunities for our employees. Excluding acquisitions, we added almost 1,400 new retail jobs during 1999. In addition to their pay and benefits, many of our people share in the company's success as stockholders...

  • Page 11
    ...' ' KATHY LUSSIER, PUBLIC AFFAIRS DIRECTOR, RANDALL' S FOOD MARKETS, INC. I n 1999 we made cash and in-kind contributions of more than $80 million to non-profit organizations throughout the communities we serve. The primary recipients of our donations are food banks, educational institutions and...

  • Page 12
    ... the past seven years, Safeway has consistently ranked among the industry's leaders in the following key measures of financial performance:* • Sales growth • Expense ratio reduction • Working capital management • Operating cash flow margin • Earnings per share growth We have achieved...

  • Page 13
    ...acquired operations and core Safeway divisions. We operated 1,074 stores with pharmacies at year- end 19 9 9, ranking us among the top 10 drug retailers in North America. We introduced 185 new items under Annual Sales Growth (In billions) the Safeway SELECT brand of premium quality private- label...

  • Page 14
    ... reduction, measured as a percentage of sales, since 1992. We made further improvements in cost of goods sold by applying best practices in product procurement, distribution and category management. We converted Carrs, and all remaining Vons and Dominick's applications, to Safeway's accounting and...

  • Page 15
    ... remodeled 251 existing stores and acquired 14 9 stores. age ratio despite the additional debt incurred to finance the Carrs and Randall's acquisitions and the stock repurchase program. acquisitions, we increased total retail square footage by 15% . We maintained negative working capital for the...

  • Page 16
    ...' debt, with issuance of commercial paper. Carrs' sales for its last full fiscal year prior to the acquisition were $602 million. to its customers by maintaining high store standards and a wide selection of high quality products at competitive prices. To provide one-stop shopping for today's busy...

  • Page 17
    ... a wholesale operation that distributes both national brands and private label products to independent grocery stores and institutional customers. Safeway operated the following manufacturing and processing facilities at year-end 1999: U.S. Milk plants Bread baking plants Ice cream plants Cheese and...

  • Page 18
    ...of the Randall's Acquisition. Under these swap agreements, Safeway pays interest of 5.30% and 5.49% , respectively, on the $50 notional amounts and receives a variable interest rate based on Federal Reserve rates quoted for commercial paper. These swap agreements expire in 2001. The Company does not...

  • Page 19
    ... margin Capital expenditures (Note 4) Depreciation Total assets Total debt Stockholders' equity Weighted average shares outstanding - diluted (in millions) Other Statistics Randall's stores acquired Carrs stores acquired Dominick's stores acquired Vons stores acquired Stores opened Stores closed...

  • Page 20
    ... with the Vons merger, Safeway repurchased 64.0 million shares of its common stock from a partnership affiliated with KKR & Co., L.L.C. at $21.50 per share, for an aggregate purchase price of $1.4 billion. Safeway funded the purchase through bank borrowings. Acquisition of Randall's Food M arkets...

  • Page 21
    ... Total sales increases are attributed to comparable-store sales increases, the Vons Merger in 1997, the Dominick's Acquisition in 1998, and the Carrs and Randall's Acquisitions in 1999. Gross Profit Safeway's continuing improvement in buying practices and product mix helped to increase gross profit...

  • Page 22
    ... due to the Randall's, Carrs and Dominick's Acquisitions, the Vons Merger and the Safeway stock repurchase. Annual debt maturities over the next five years are set forth in Note C of the Company's 1999 consolidated financial statements. Based upon the current level of operations, Safeway believes...

  • Page 23
    ... amortization Operating profit Interest expense Equity in earnings of unconsolidated affiliates Other income, net Income before income taxes and extraordinary loss Income taxes Income before extraordinary loss Extraordinary loss related to early retirement of debt, net of income tax benefit of...

  • Page 24
    ... improvements Fixtures and equipment Property under capital leases Less accumulated depreciation and amortization Total property, net Goodwill, net of accumulated amortization of $314.4 and $211.0 Prepaid pension costs Investment in unconsolidated affiliate Other assets Total assets $ 106.2 292...

  • Page 25
    ... Total current liabilities Long-term debt: Notes and debentures Obligations under capital leases Total long-term debt Deferred income taxes Accrued claims and other liabilities Total liabilities Commitments and contingencies Stockholders' equity: Common stock: par value $0.01 per share; 1,500 shares...

  • Page 26
    ... expense (income) Equity in earnings of unconsolidated affiliates Net pension income Contributions to Canadian pension plan Decrease in accrued claims and other liabilities (Gain) loss on property retirements Changes in working capital items: Receivables Inventories at FIFO cost Prepaid expenses and...

  • Page 27
    ... long-term borrowings Purchase of treasury stock Net proceeds from exercise of warrants and stock options Premiums paid on early retirement of debt Other Net cash flow from (used by) financing activities Effect of changes in exchange rates on cash Increase (decrease) in cash and equivalents $ 204...

  • Page 28
    ... Amount Capital Shares Cost Common Stock Unexercised Warrants Purchased Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Comprehensive Income Balance, year-end 1996 Net income Translation adjustments Equity in Vons' pre-merger earnings due to timing of...

  • Page 29
    ..." ). The Carrs acquisition was accounted for as a purchase. Safeway's 1999 income statement includes 40 weeks of Carrs' operating results. In November 1998 the Company acquired Dominick's Supermarkets, Inc. (" Dominick's" ), by purchasing all of the outstanding shares of Dominick's for a total of...

  • Page 30
    ... on the New York Stock Exchange are used to estimate the fair value of publicly traded debt. To estimate the fair value of debt issues that are not quoted on an exchange, the Company uses those interest rates that are currently available to it for issuance of debt with similar terms and remaining...

  • Page 31
    ... and related amortization have increased due to the acquisitions of Randall's, Dominick's and Carrs and the Vons Merger discussed in Note B. Stock-Based Compensation Safeway accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board...

  • Page 32
    ... following rates selected by the Company: (i) the prime rate; (ii) a rate based on rates at which Eurodollar deposits are offered to first-class banks by the lenders in the bank credit agreement plus a pricing margin based on the Company's debt rating or interest coverage ratio (the " Pricing Margin...

  • Page 33
    ... and commercial paper program. In connection with this redemption, Safeway recorded an extraordinary loss of $64.1 million ($0.13 per share). The extraordinary loss represents the payment of redemption premiums and the write-off of deferred finance costs, net of the related tax benefits. $3,970...

  • Page 34
    ... 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 greater than the fair market value at the grant date, as determined by the Compensation and Stock Option Committee of the Board of Directors...

  • Page 35
    ...adopted the fair value method as of the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options...

  • Page 36
    ...period pro forma results. Had compensation cost for Safeway's stock option plans been determined based on the fair value at the grant date for awards in 1999, 1998 and 1997, consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the...

  • Page 37
    ...Change in fair value of plan assets: Beginning balance Actual return on plan assets Acquisition of Randall's Employer contributions Benefit payments Currency translation adjustment Ending balance $ 1,766.1 432.4 27.6 0.9 (8 7 . 3 ) 13.7 $ 1,662.6 193.2 - 1999 1998 1997 Discount rate used to...

  • Page 38
    ... Safeway's share of Vons' earnings was $12.2 million for the first quarter of 1997. Note J: Related- Party Transactions The Company holds an 80% interest in Property Development Associates (" PDA " ), a partnership formed in 1987 with a company controlled by an affiliate of KKR, to purchase, manage...

  • Page 39
    ...Ralphs Grocery Company, et al., was filed in the Superior Court of San Diego County, California against Vons and two other grocery store chains operating in southern California. The complaint alleged, among other things, that Vons and the other defendants conspired to fix the retail price of eggs in...

  • Page 40
    ... Lucky Stores, Inc., et al. was filed in the California Superior Court, San Francisco County, against the Company and five other retail grocery store operations. The complaint alleges, among other things, that the Company conspired with the other defendants to fix the retail price of milk in six San...

  • Page 41
    ...warrants to purchase common shares Common shares assumed purchased with potential proceeds Common share equivalents Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares Common stock price used under...

  • Page 42
    ... the periods presented. Last 16 (in millions, except per-share amounts) 52 Weeks Weeks Third 12 Weeks Second 12 Weeks First 12 Weeks 1999 Sales Gross profit Operating profit Income before income taxes Net income Earnings per share: Basic Diluted Price range, New York Stock Exchange $ 1.95 1.88...

  • Page 43
    ...which are communicated throughout Safeway; and the careful selection, training and development of employees. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the Board, and corrective actions are taken to address control...

  • Page 44
    ... Managing General Partner and President San Francisco Giants David T. Ching Senior Vice President and Chief Information Officer Thomas C. Keller President The Vons Companies, Inc. George R. Roberts Member KKR & Co., LLC David F. Faustman Senior Vice President Labor Relations and Public Affairs...

  • Page 45
    ...are listed on the New York Stock Exchange. SA N Trustee The Chase Manhattan Bank Corporate Trust Administration 101 California Street, Suite 2725 San Francisco, CA 94111 415-954-9581 B RO O M , I N C . , B RO O M Paying Agent Bankers Trust Company Corporate Trust & Agency Group 4 Albany Street...

  • Page 46
    Safeway Inc. P.O. Box 99 Pleasanton, CA 94566-0009