Safeway 2001 Annual Report Download - page 19

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GAAP) as an indicator of operating performance or a measure of
liquidity. Management believes that EBITDA is relevant because
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 struc-
tures. Other companies may define EBITDA differently and, as a
result, such measures may not be comparable to Safeway’s EBIT-
DA. Safeway’s computation of EBITDA is as follows:
(Dollars in millions) 2001 2000 1999
EBITDA:
Net income $ 1,253.9 $ 1,091.9 $ 970.9
Add (subtract):
Income taxes 841.1 774.6 703.1
LIFO expense (income) 2.2 (1.1) 1.2
Interest expense 446.9 457.2 362.2
Depreciation and amortization 937.7 830.7 695.6
FBO bankruptcy charge 51.0 ––
Furr’s and Homeland
bankruptcy charge 42.7 ––
GroceryWorks impairment charge 30.1 ––
Equity in earnings of
unconsolidated affiliates, net (20.2) (31.2) (34.5)
Total EBITDA $ 3,585.4 $ 3,122.1 $ 2,698.5
As a percent of sales 10.45% 9.76% 9.35%
As a multiple of interest expense 8.02x 6.83x 7.45x
CASH FLOW:
Net cash flow from operating
activities $ 2,231.3 $ 1,901.1 $ 1,488.4
Net cash flow used by investing
activities $ (2,242.3) $(1,481.0) $(2,064.3)
Net cash flow (used by) from
financing activities $ (11.8) $ (434.4) $ 636.0
Total debt, including capital leases, was $7.39 billion at year-
end 2001, $6.50 billion at year-end 2000 and $6.96 billion at
year-end 1999. Total debt increased in 2001 primarily due to the
Genuardi’s Acquisition and Safeway stock repurchases, partially
offset by debt paid down with cash flows from operations. Total
debt decreased in 2000 primarily because debt was paid down
with cash flows from operations. Annual debt maturities over the
next five years are set forth in Note D of the Company’s 2001
consolidated financial statements.
Based upon the current level of operations, Safeway believes
that EBITDA and other sources of liquidity, including borrow-
ings under the Company’s commercial paper program and bank
credit agreement, will be adequate to meet anticipated require-
ments for working capital, capital expenditures, interest pay-
ments and scheduled principal payments for the foreseeable
future. There can be no assurance, however, that Safeway’s busi-
ness will continue to generate cash flow at or above current lev-
els or that the Company will maintain its ability to borrow under
the commercial paper program and bank credit agreement.
If the Company’s credit rating were to decline below its cur-
rent level of Baa2/BBB, the ability to borrow under the com-
mercial paper program would be adversely affected. Safeway’s
ability to borrow under the bank credit agreement is unaffected
by Safeway’s credit rating. However, if Safeway’s 2001 EBITDA
to interest ratio of 8.02 to 1 were to decline to 2.0 to 1, or if
Safeway’s year-end 2001 debt to EBITDA ratio of 2.06 to 1 were
to grow to 3.5 to 1, Safeway’s ability to borrow under the bank
credit agreement would be impaired.
The table below presents significant contractual obligations of the Company at year-end 2001:
(In millions) 2002 2003 2004 2005 2006 Thereafter Total
Long-term debt $642.6 $ 789.2 $698.5 $ 6.3 $2,429.9 $2,312.9 $6,879.4
Capital lease obligations(1) 44.9 33.9 44.5 31.4 26.8 338.9 520.4
Operating leases 384.3 383.1 360.8 351.9 332.4 3,035.0 4,847.5
Contracts for purchase of property,
equipment and construction of buildings 121.6 –––––121.6
(1) Minimum lease payments, less amounts representing interest.