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Safeway Inc. 2000 Annual Report
GROWTH THROUGH LEADERSHIP

Table of contents

  • Page 1
    Safeway Inc. 2000 Annual Report GROW TH THROUGH LEADERSHI P

  • Page 2
    ... in Pennsylvania, Delaware and New Jersey. Safeway also holds a 49% interest in Casa Ley, S.A. de C.V., which at December 30, 2000 operated 97 food and general merchandise stores in western Mexico. P E RCE N T AGE OF ST ORE S W I T H SP E CI ALT Y DE PART M E N T S 2000 1996 Bakery Deli Floral...

  • Page 3
    ...1,601.7 806.7 1.59 1,189.7 Common shares outstanding (in millions) (Note 2) Retail square feet (in millions) Number of stores 504.1 73.6 1,688 493.6 70.8 1,659 490.3 61.6 1,497 Note 1: Defined in the table on page 16 under "Capital Expenditure Program." Note 2: Net of 64.3 million, 65.4 million...

  • Page 4
    ... gross profit and operating cash flow margins, accelerated our capital spending program and initiated another promising acquisition. Randall's acquisition completed in the fourth quarter of 1999. On a strike-adjusted basis, comparable-store sales increased 3.3%, while identical-store sales (which...

  • Page 5
    ... margin improvement. ACQU I SI T I ON S In early February 2001, we acquired Genuardi's Family Markets, Inc. which, at the close of the transaction, operated 39 stores in Pennsylvania, D elaware and New Jersey. O ne of the region's leading supermarket chains, Genuardi's is renowned for superior...

  • Page 6
    ...buying practices, better shrink control and growing consumer acceptance of our award-winning private label brands. â- T he exceptional productivity of our capital spending program. Our new stores are achieving profitability faster and accounting for a significantly larger share of overall earnings...

  • Page 7
    ...CRE ASE D M ORE T H AN A T H OU SAN DF OL D F ROM A $ 3 0 M I L L I ON BASE I N 1 9 2 6 . W E H AV E ACH I E V E D T H I S GROW T H BY ST RI V I N G T O SAT I SF Y S H OP P E R S B E T T E R T H A N OU R C OM P E T I T OR S . C ON S U M E R S T ODAY L E AD BU SY, DE M AN DI N G L I V E S. T O RE...

  • Page 8
    ... > Safeway common stock listed on NYSE. 1929 > Canada Safeway Ltd. established in Winnipeg. 1931 > After acquiring 1,400-store M cM arr chain, Safeway reaches all-time high of 3,257 stores. 1966 > Central data processing established in Oakland, California. in developing innovative programs to...

  • Page 9
    ... Vons common shares it did not already own. 1998 > Safeway common stock is added to S&P 500 I ndex. > Company acquires Dominick's Supermarkets, I nc. 1999 > Safeway acquires Carr-Gottstein Foods Co. > Company acquires Randall's Food M arkets, I nc. 2000 > Safeway announces acquisition of Genuardi...

  • Page 10
    ... performance: same-store sales growth, cost reduction, working capital management, operating cash flow margin expansion and earnings-per-share growth.* â- We have achieved these results by focusing on the three priorities detailed on the following pages. * Based on latest available information 8

  • Page 11
    ... stores at almost twice the average rate of the nearest competitor. To sustain our growth, we continue to focus on sales-building strategies designed to attract new customers and increase purchases by current shoppers. With the Genuardi's acquisition, our fifth in the last four years, we have added...

  • Page 12
    ... cost structure and become more efficient. We became a founding member of the WorldWide Retail Exchange, a webbased, business-to-business marketplace developed to reduce product procurement costs. We began converting Randall's accounting and merchandising applications to Safeway's automated systems...

  • Page 13
    ... to support operations. In the aggregate, capital projects continue to exceed our targeted return-on-investment rate. T hese projects contribute significantly to earnings growth and add substantial long-term value to the company. At year-end 2000, approximately 70% of our store system had been...

  • Page 14
    ... H manufacturing scale. OU R CU ST OM E R RE ACH We serve some 25 million households and com- plete more than 100 million transactions each month. With the emerging technologies we are now pursuing, advertisers could deliver high-impact messages through our stores, reaching an equivalent audience...

  • Page 15
    ... W ORK T hrough our expansive store network - almost 74 million square feet of retail space in prime, convenient locations - we now partner with other network-based businesses to provide shoppers with non-traditional services such as banking. Similar opportunities exist for other routine household...

  • Page 16
    ... be accounted for as a purchase and was funded through the issuance of commercial paper and debentures. Genuardi's operates 39 stores in the greater Philadelphia, Pennsylvania area, including New Jersey and Delaware, and had annualized sales of approximately $1 billion prior to the acquisition. ST...

  • Page 17
    ... olive oils; Artisan fresh-baked breads; Twice-the-Fruit yogurt; NutraBalance pet food; Ultra laundry detergents and dish soaps; and Softly paper products. T he Safeway SELECT line also includes an extensive array of ice creams, frozen yogurts and sorbets; Healthy Advantage items such as low-fat ice...

  • Page 18
    ...: Present value of all lease obligations incurred Mortgage notes assumed in property acquisitions Total capital expenditures Capital expenditures as a percent of sales Stores opened (Note 1) Stores closed or sold Remodels (Note 2) Total retail square footage at year-end (in millions) $ 1,572.5 (37...

  • Page 19
    ... related weighted average rates by year of maturity for the Company's debt obligations at year-end 2000 and 1999 (dollars in millions): December 30, 2000 2001 2002 2003 2004 2005 T hereafter Total Commercial paper: Principal Weighted average interest rate Bank borrowings: Principal Weighted average...

  • Page 20
    ....2 1,984.2 1,186.8 475.7 $ $ $ $ $ $ $ $ Randall's stores acquired during the year Carrs stores acquired during the year Dominick's stores acquired during the year Vons stores acquired during the year Stores opened during the year Stores closed or sold during the year Total stores at year-end...

  • Page 21
    ... any shares in 2000. In September 1999, Safeway acquired all of the outstanding shares of Randall's in exchange for $1.3 billion consisting of $754 million of cash and 12.7 million shares of Safeway stock (the "Randall's Acquisition"). On the acquisition date Randall's operated 117 stores in Texas...

  • Page 22
    ...pro forma information as if the Dominick's, Carrs and Randall's Acquisitions had been effective for the comparable periods of 1999 and 1998. See Note B to the Company's 2000 consolidated financial statements. Summit Logistics, a company that operates Safeway's northern California distribution center...

  • Page 23
    ... the Dominick's, Carrs and Randall's Acquisitions and, to a lesser extent, to finance the repurchase of Safeway stock during the fourth quarter of 1999. As of year-end 2000, the Company had effectively converted $100 million of its floating-rate debt to fixed-rate debt through an interest rate swap...

  • Page 24
    ...general business and economic conditions in our operating regions, including the rate of inflation, population, employment and job growth in our markets; pricing pressures and competitive factors, which could include pricing strategies, store openings and remodels; results of our programs to control...

  • Page 25
    Safeway Inc. and Subsidiaries CON SOL I DAT E D ST AT E M E N T S OF I N COM E (In millions, except per-share amounts) 52 Weeks 2000 52 Weeks 1999 52 Weeks 1998 Sales Cost of goods sold Gross profit Operating and administrative expense Goodwill amortization Operating profit Interest expense ...

  • Page 26
    ...2000 Year-end 1999 ASSE T S Current assets: Cash and equivalents Receivables Merchandise inventories, net of LIFO reserve of $80.4 and $81.5 Prepaid expenses and other current assets Total current assets Property: Land Buildings Leasehold improvements Fixtures and equipment Property under capital...

  • Page 27
    Safeway Inc. and Subsidiaries (In millions, except per-share amounts) Year-end 2000 Year-end 1999 L I ABI L I T I E S AN D ST OCK H OL DE RS ' E QU I T Y Current liabilities: Current maturities of notes and debentures Current obligations under capital leases Accounts payable Accrued salaries ...

  • Page 28
    ... 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 other current assets Payables and accruals Net cash flow from operating activities I N V E ST...

  • Page 29
    ... Cash payments during the year for: Interest Income taxes, net of refunds N ON CASH I N V E ST I N G AN D F I N AN CI N G ACT I V I T I E S: $ 469.7 414.4 $ 351.4 378.2 $ 241.0 468.7 Stock issued for acquisition of Randall's Tax benefit from stock options exercised Capital lease obligations...

  • Page 30
    ...CON SOL I DAT E D ST AT E M E N T S OF ST OCK H OL DE RS ' E QU I T Y Common Stock (In millions) Shares Amount Additional Paid-in Capital Treasury Stock Shares Cost Unexercised Warrants Purchased Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Comprehensive...

  • Page 31
    ...ON Safeway Inc. ("Safeway" or the "Company") is one of the largest food and drug retailers in North America, with 1,688 stores as of year-end 2000. Safeway's U.S. retail operations are located principally in California, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan...

  • Page 32
    ... Company's Canadian subsidiaries and Casa Ley are translated into U.S. dollars at year-end rates of exchange, and income and expenses are translated at average rates during the year. Adjustments resulting from translating financial statements into U.S. dollars are reported, net of applicable income...

  • Page 33
    ... of financial instruments: tinually reviews its stores' operating performance and assesses the Company's plans for certain store and plant closures. T he write-down of long-lived assets at stores that were assessed for impairment because of management's intention to close the store or because of...

  • Page 34
    ...of this new accounting standard did not have a material impact on Safeway's financial statements. N OT E B: ACQU I SI T I ON S Notes and debentures were composed of the following at year-end (in millions): 2000 1999 Commercial paper Bank credit agreement, unsecured 9.30% Senior Secured Debentures...

  • Page 35
    ...% Senior 2000 have remaining terms ranging from one to nine years and a weighted average interest rate of 7.09%. Secured Debentures due 2007 are secured by a deed of trust that created a lien on the land, buildings and equipment owned by Safeway at its distribution center in Tracy, California. 33

  • Page 36
    ... store sales. 2000 In January 2001, Safeway issued $600 million of 7.25% senior unsecured debentures due in 2031. Proceeds from this issuance were used to repay commercial paper borrowings and finance the Genuardi's Acquisition. SH E L F RE GI ST RAT I ON In February 2001, the Company filed...

  • Page 37
    ...par value. Common stock outstanding at year-end 2000 was 504.1 million shares (net of 64.3 million shares of treasury stock) and 493.6 million shares at year-end 1999 (net of 65.4 million shares of treasury stock). ST OCK OP T I ON P L AN S Under Safeway's stock option plans, the Company may grant...

  • Page 38
    Safeway Inc. and Subsidiaries Activity in the Company's stock option plans for the three-year period ended December 30, 2000 was as follows: Weighted Average Exercise Price Options Outstanding, year-end 1997 1998 Activity: Granted Converted Dominick's options Canceled Exercised Outstanding, year-...

  • Page 39
    ...calculated values. T he Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: seven to nine years expected life; stock volatility of 34% in 2000 and 31% in 1999 and 1998; risk-free interest rates of 6.16% in 2000, 5.79% in 1999...

  • Page 40
    ... Unamortized prior service cost Unrecognized gain Prepaid pension cost efit, non-contributory retirement plans for substantially all of its employees not participating in multi-employer pension plans. In connection with the Randall's Acquisition and the Vons merger in 1997, the Company assumed the...

  • Page 41
    ... value of plan assets. In May 2000, Safeway entered into an agreement to have a third party operate the Company's Maryland distribution center. Pursuant to the agreement, Safeway and the third party jointly established a new multiple employer defined benefit pension plan to provide benefits for the...

  • Page 42
    ...personal injury and property damage claims arising out of the fire. On September 13, 1996, a class action lawsuit entitled McCampbell et al. v. 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...

  • Page 43
    ... to be affirmed. On August 23, 2000, a lawsuit entitled Baker, et al. v. Jewel Food Stores, Inc., et al. was filed in the Circuit Court of Cook County, Illinois, against the Company's subsidiary, Dominick's, and Jewel Food Stores, a subsidiary of Albertson's, Inc. T he complaint alleges, among...

  • Page 44
    Safeway Inc. and Subsidiaries N OT E M : COM P U T AT I ON OF E ARN I N GS P E R SH ARE 2000 1999 Basic 1998 Basic Diluted Basic (In millions, except per-share amounts) Diluted Diluted Net income Weighted average common shares outstanding Common share equivalents $ 1,091.9 497.9 13.7 $ 1,091...

  • Page 45
    ...Weeks Second 12 Weeks First 12 Weeks (In millions, except per-share amounts) 52 Weeks 2000 Sales Gross profit Operating profit Income before income taxes Net income Earnings per share: Basic Diluted Price range, New York Stock Exchange $ 2.19 2.13 62 2 ⁄3 to 30 3⁄4 $ 0.60 0.58 62 2 ⁄3 to 45...

  • Page 46
    ... 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 deficiencies...

  • Page 47
    ...December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2000 in conformity with accounting principles generally accepted in the United States of America. San Francisco, California February 22...

  • Page 48
    ... and Control David T. Ching Senior Vice President and Chief Information Officer David F. Faustman Senior Vice President Labor Relations and Public Affairs Dick W. Gonzales Senior Vice President Human Resources Robert A. Gordon Senior Vice President and General Counsel Lawrence V . Jackson Senior...

  • Page 49
    ..., were mailed to stockholders with this annual report. Trustee T he Chase Manhattan Bank Corporate Trust Administration 101 California Street, Suite 2725 San Francisco, CA 94111 415-954-9561 Paying Agent Bankers Trust Company Corporate Trust & Agency Group 4 Albany Street, 4th Floor New York, NY...

  • Page 50
    Safeway Inc. P. O. Box 99 Pleasanton, CA 94566-0009