Safeway 2001 Annual Report Download

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Safeway Inc. 2001 Annual Report

Table of contents

  • Page 1
    Safeway Inc. 2001 Annual Report

  • Page 2
    ... Bakery Deli Floral Pharmacy 93% 95 91 70 82% 92 91 59 M A N U FA C T U R I N G A N D P R O C E S S I N G FA C I L I T I E S Year-end 2001 U.S. Canada Milk Plants Bread Baking Plants Ice Cream Plants Cheese and Meat Packaging Plants Soft Drink Bottling Plants Fruit and Vegetable Processing...

  • Page 3
    ... 8,510.7 1,997.9 970.9 1.88 1,485.6 Common shares outstanding (in millions) (Note 2) Retail square feet (in millions) Number of stores 488.1 78.8 1,773 504.1 73.6 1,688 493.6 70.8 1,659 Note 1: Defined in the table on page 10 under "Capital Expenditure Program." Note 2: Net of 82.7 million, 64...

  • Page 4
    ... stores) were up 1.1%. Gross profit increased 123 basis points to 30.92% of sales. In addition to the Summit strike, which depressed gross margins in 2000, the improvement in 2001 was due primarily to better buying practices, continued reduction in "shrink" (product loss) and stronger private-label...

  • Page 5
    ...cash and in-kind donations of more than $100 million to non-profit organizations throughout the communities we serve. The primary recipients of our donations are food banks, schools, health and human service programs, and local charitable, civic and cultural organizations. During 2001 we also raised...

  • Page 6
    ... brands along with our own award-winning corporate brands. In 2001 we launched a new advertising campaign under this theme. It was designed to position our stores as the supermarkets of choice for consumers who want the very best along with great values. We believe the campaign's powerful images...

  • Page 7
    ...we deliver good values every day. When they speak, we listen and respond. We receive continuous feedback from our customers. 2001 Highlights CUSTOMERS â- We expanded our selection of time-saving products and services such as ready-to-serve meals from the deli and onehour photo processing. â- We...

  • Page 8
    ... of premium quality products, continues to be extremely well received. Many of these products rate superior to the leading national brands in consumer taste tests. duce and flowers; tempting bakery, deli and dairy products; and a growing assortment of wholesome natural foods. All Fuel Centers As...

  • Page 9
    ...the Mid-Atlantic region. Genuardi's is renowned for exceptional quality and superior service. Genuardi's Acquisition with their day-to-day banking. We have also launched the first phase of our new online home shopping service. Unlike previous business models of the Internet grocery concept, ours...

  • Page 10
    ...and continuing expansion of private label brands. $2.0 ANNUAL SAME-STORE SALES GROWTH Comparable-Store Sales Growth â- Identical-Store Sales Growth â- *Actual results have not been adjusted to eliminate the estimated 50-basispoint impact of the 2000 northern California distribution center strike...

  • Page 11
    ... prices. To provide one-stop shopping for today's busy shoppers, the Company emphasizes high quality produce and meat, as well as various specialty departments. Safeway has developed a line of more than 1,250 premium corporate brand products since 1993 under the "Safeway SELECT" banner. The award...

  • Page 12
    ... 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 2001: U.S. Canada 2000 1999 Milk plants Bread baking plants Ice cream plants Cheese and meat...

  • Page 13
    ... by capital investment bonus plans The table below presents principal amounts and related weighted average rates by year of maturity for the Company's debt obligations at year-end 2001 and 2000 (dollars in millions): December 29, 2001 2002 2003 2004 2005 2006 Thereafter Total Fair value Commercial...

  • Page 14
    ... closed during a labor dispute in 1996. 2001 and 2000 sales increases reflect actual results that have not been adjusted to eliminate the estimated 50-basis-point impact of the 2000 northern California distribution center strike. Note 2. Includes goodwill amortization. Management believes this ratio...

  • Page 15
    ...Holdings, LLC ("FBO"), a meat processing company based in Denver, Colorado was placed in bankruptcy in March 2002. Safeway is a 15% equity investor in FBO, has a supply contract for the purchase of beef from FBO and has a common board member with FBO. In addition, Safeway has a first loss deficiency...

  • Page 16
    ... center, was engaged in a 47-day strike during the fourth quarter of 2000 (the "Summit strike") which had an adverse effect on sales, product costs and distribution expenses at 246 Safeway stores in northern California, Nevada and Hawaii. Safeway is currently in discussions â- Costs of Goods Sold...

  • Page 17
    ... and private-label growth. This improvement was adversely impacted by approximately 24 basis points due to the Summit strike and approximately 20 basis points due to the Carrs and Randall's Acquisitions in 1999. O P E R AT I N G A N D A D M I N I S T R AT I V E E X P E N S E INTEREST EXPENSE...

  • Page 18
    ...workers' compensation liability is from claims occurring in California. California workers' compensation has received a tremendous amount of attention from the state's politicians, insurers, employers and providers, as well as the public in general. Recent years have seen an escalation in the number...

  • Page 19
    ... it assists investors in evaluating Safeway's ability to service its debt by providing a commonly used measure of cash available to pay interest, and it facilitates comparisons of Safeway's results of operations with those of companies having different capital structures. Other companies may define...

  • Page 20
    ... Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, capital expenditures, acquisitions, the valuation of Safeway's investment in GroceryWorks, operating improvements and costs and gross profit improvement and are indicated by words or...

  • Page 21
    ...1999 Sales Cost of goods sold Gross profit Operating and administrative expense Goodwill amortization Operating profit Interest expense Other (loss) income, net Income before income taxes Income taxes Net income Basic earnings per share Diluted earnings per share Weighted average shares outstanding...

  • Page 22
    ... assets: Cash and equivalents Receivables Merchandise inventories, net of LIFO reserve of $82.6 and $80.4 Prepaid expenses and other current assets Total current assets Property: Land Buildings Leasehold improvements Fixtures and equipment Property under capital leases Less accumulated depreciation...

  • Page 23
    ... 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 authorized; 570.8 and 568.4 shares outstanding Additional paid...

  • Page 24
    ... charge Equity in earnings of unconsolidated affiliates, net Net pension income Gain on pension settlement Contributions to Canadian pension plan Increase (decrease) in accrued claims and other liabilities Gain on property retirements Changes in working capital items: Receivables Inventories at...

  • Page 25
    ...45.7 106.2 Cash payments during the year for: Interest Income taxes, net of refunds NONCASH INVESTING AND FINANCING ACTIVITIES: $ 456.4 728.6 $ 469.7 414.4 $ 351.4 378.2 Stock issued for acquisition of Randall's Tax benefit from stock options exercised Capital lease obligations entered into...

  • Page 26
    S A F E WAY I N C . A N D S U B S I D I A R I E S Consolidated Statements of Stockholders' Equity Common Stock (In millions) Shares Amount Additional Paid-in Capital Treasury Stock Shares Cost Unexercised Warrants Purchased Retained Earnings Accumulated Other Comprehensive (Loss) Income Total ...

  • Page 27
    ... through the issuance of commercial paper and debentures. Safeway's 2001 income statement includes 47 weeks of Genuardi's operating results. In September 1999, Safeway acquired all of the outstanding shares of Randall's Food Markets, Inc. ("Randall's") in exchange for $1.3 billion consisting of...

  • Page 28
    ... 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 taxes, as a separate component of comprehensive income in the consolidated statements of stockholders' equity...

  • Page 29
    ...class of financial instruments: Cash and Equivalents, Accounts Receivable, Accounts Payable and Short-Term Debt. The carrying amount of these items approximates fair value. Long-Term Debt. Market values quoted on the New York Stock Exchange are used to estimate the fair value of publicly traded debt...

  • Page 30
    ... for Safeway beginning in the first quarter of 2002. These Issues address the appropriate accounting for certain vendor contracts and loyalty programs. Adoption of these issues did not have a material effect on the Company's financial statements. based awards to employees using the intrinsic value...

  • Page 31
    ...-lived assets at stores to be closed. Below is a reconciliation of the number of owned stores that the Company planned to close during 2001, 2000 and 1999: 2001 2000 2000 1999 Beginning balance Additional stores added during fiscal year Reversals for stores that management has determined will...

  • Page 32
    ... coverage ratio (the "Pricing Margin"); or (iii) rates quoted at the discretion of the lenders. Canadian borrowings 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. SENIOR...

  • Page 33
    ..., others with reduced rental rates during the option periods. Certain of these leases contain options to purchase the property at amounts that approximate fair market value. As of year-end 2001, future minimum rental payments applicable to non-cancelable capital and operating leases with remaining...

  • 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
    ... A restricted stock award of 41,344 shares with a fair value of $48.38 per share was granted to an executive officer in 2000. Activity in the Company's stock option plans for the three-year period ended December 29, 2001 was as follows: Options Weighted Average Exercise Price Outstanding, year-end...

  • Page 36
    ...models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time...

  • Page 37
    ...the exercise of employee stock options of $34.8 million in 2001, $148.9 million in 2000 and $77.0 million in 1999 were credited directly to paid-in capital and, therefore, are excluded from income tax expense. Deferred tax liabilities: Property Prepaid pension costs Inventory Investments in foreign...

  • Page 38
    ...on a number of factors that cannot be known until a decision to repatriate the earnings is made. Change in fair value of plan assets: Beginning balance Actual loss on plan assets Acquisition of Genuardi's Employer contributions Benefit payments Transfer of plan assets Currency translation adjustment...

  • Page 39
    ... of accumulated benefits and net assets of such plans, is not readily available. During 1988 and 1987, the Company sold certain operations. In most cases, the party acquiring the operation agreed to continue making contributions to the plans. Safeway is relieved of the obligations related to these...

  • Page 40
    ... expenses related to management and real estate services provided by PDA. Safeway has a supply contract to purchase beef from FBO, which has a common board member with Safeway. In March 2002 FBO was placed in bankruptcy. See Note J. The Company has made loans to certain executive officers of Safeway...

  • Page 41
    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 southern California. The complaint alleged, among other things, ...

  • Page 42
    ...Segments Safeway's retail grocery business, which represents more than 98% of consolidated sales and operates in the United States and Canada, is its only reportable segment. The following table presents information about the Company by geographic area (in millions): U.S. 2001 Sales Operating profit...

  • Page 43
    ...12 Weeks Second 12 Weeks First 12 Weeks (in millions, except per-share amounts) 2001(1) Sales Gross profit Operating profit Income before income taxes Net income Earnings per share: Basic Diluted Price range, New York Stock Exchange $ 52 Weeks $ 34,301.0 10,604.3 2,588.8 2,095.0 1,253.9 2.49 2.44...

  • Page 44
    ... financial statements. Internal Control System Safeway maintains a system of internal control over financial reporting, which is designed to provide reasonable assurance to management and the Board of Directors regarding the Steven A. Burd Chairman, President and Chief Executive Officer Vasant...

  • Page 45
    ... E WAY I N C . A N D S U B S I D I A R I E S Independent Auditors' Report The Board of Directors and Stockholders of Safeway Inc. We have audited the accompanying consolidated balance sheets of Safeway Inc. and subsidiaries as of December 29, 2001 and December 30, 2000, and the related consolidated...

  • Page 46
    ... President Labor Relations and Public Affairs D I C K W. G O N Z A L E S President Dominick's Finer Foods, Inc. FRANK LAZARAN Managing General Partner and President San Francisco Giants GEORGE R. ROBERTS Senior Vice President Human Resources ROBERT A. GORDON President Randall's Food Markets, LP...

  • Page 47
    .... A copy of the company's 2001 summary EEO-1 report, filed with the federal Equal Employment Opportunity Commission, is available upon request at our executive offices. Bank One Trust Company, N.A. Corporate Trust - Investor Relations One Bank One Plaza, Suite 0134 Chicago, IL 60670-0134 800...

  • Page 48
    S A F E WAY I N C . P. O. Box 99 Pleasanton, CA 94566-0009