Safeway 1999 Annual Report Download - page 18

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16
Performance-Based Compensation
The Company has performance-based compensation plans that
cover approximately 13,000 management and professional
employees. Performance-based compensation plans set overall
bonus levels based upon both operating results and working capi-
tal management. Individual bonuses are based on job perform-
ance. Certain employees are covered by capital investment bonus
plans which measure the performance of capital projects based
on operating performance over several years.
Market Risk from Financial Instruments
Safeway manages interest rate risk through the strategic use of
fixed and variable interest rate debt and, to a limited extent,
interest rate swaps. As of year-end 1999, the Company had effec-
tively converted $200.0 million of its floating rate debt to fixed
interest rate debt through interest rate swap agreements. Under
one swap agreement, Safeway pays interest of 6.2% on the
$100.0 million notional amount and receives a variable interest
January 1, 2000 2000 2001 2002 2003 2004 Thereafter Total
Commercial paper:
Principal ––$ 2,358.1 –––$ 2,358.1(2)
Weighted average interest rate ––6.81% –––6.81%
Bank borrowings:
Principal $ 129.7 –$ 75.7 –––$ 205.4(2)
Weighted average interest rate 6.27% –5.18% –––5.87%
Long-term debt:(1)
Principal $ 427.4 $ 548.6 $ 637.2 $ 377.2 $ 700.0 $1,225.2 $ 3,915.6(2)
Weighted average interest rate 5.89% 6.80% 7.03% 6.19% 7.43% 7.25% 6.93%
January 2, 1999 1999 2000 2001 2002 2003 Thereafter Total
Commercial paper:
Principal –––$ 1,745.1 ––$ 1,745.1(2)
Weighted average interest rate –––5.99% ––5.99%
Bank borrowings:
Principal $ 161.8 ––$ 89.1 ––$ 250.9(2)
Weighted average interest rate 5.80% ––5.57% ––5.72%
Long-term debt:(1)
Principal $ 118.0 $ 427.5 $ 549.6 $ 37.8 $ 377.6 $1,015.9 $ 2,526.4(2)
Weighted average interest rate 8.97% 5.93% 6.88% 8.95% 6.28% 7.22% 6.89%
(1) Primarily fixed rate debt
(2) Carrying value approximates fair value
rate based on Federal Reserve rates quoted for commercial
paper. This agreement expires in 2007. Additionally, the
Company assumed two interest rate swap agreements, with
notional amounts of $50.0 million each, as part 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 utilize financial instruments for trad-
ing or other speculative purposes, nor does it utilize leveraged
financial instruments. The Company does not consider the poten-
tial losses in future earnings, fair values and cash flows from
reasonable possible near-term changes in interest rates and
exchange rates to be material.
The table below presents principal amounts and related
weighted average rates by year of maturity for the Company’s debt
obligations at year-end 1999 and 1998 (dollars in millions):