Safeway 2001 Annual Report Download - page 27

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Note A: The Company and Significant
Accounting Policies
THE COMPANY Safeway Inc. (“Safeway” or the “Company”) is
one of the largest food and drug retailers in North America, with
1,773 stores as of year-end 2001. Safeway’s U.S. retail operations
are located principally in California, Oregon, Washington,
Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area
and the Mid-Atlantic region. The Company’s Canadian retail
operations are located principally in British Columbia, Alberta
and Manitoba/Saskatchewan. In support of its retail operations,
the Company has an extensive network of distribution, manu-
facturing and food processing facilities.
In February 2001, Safeway acquired all of the assets of
Genuardi’s Family Markets, Inc. (“Genuardi’s”) for approximately
$530 million in cash (the “Genuardi’s Acquisition”). The Genuardi’s
Acquisition was accounted for as a purchase and resulted in good-
will of approximately $498 million. Safeway funded the acquisi-
tion 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 $754 million of cash and 12.7 mil-
lion shares of Safeway stock (the “Randall’s Acquisition”). The
Randall’s Acquisition was accounted for as a purchase and result-
ed in goodwill of approximately $1.3 billion. Safeway funded
the cash portion of the acquisition, and subsequent repayment of
approximately $403 million of Randall’s debt, through the
issuance of senior notes. Randall’s operating results have been
consolidated with Safeway’s since the beginning of the fourth
quarter of 1999.
In April 1999, Safeway acquired Carr-Gottstein Foods Co.
(“Carrs”) by purchasing all of the outstanding shares of Carrs for
approximately $106 million in cash (the “Carrs Acquisition”).
The Carrs Acquisition was accounted for as a purchase and
resulted in goodwill of approximately $213 million. Safeway
funded the acquisition, and subsequent repayment of
$239 million of Carrs’ debt, with the issuance of commercial
paper. Safeway’s 1999 income statement includes 40 weeks of
Carrs’ operating results.
In addition to these operations, the Company has a 49%
ownership interest in Casa Ley, S.A. de C.V. (“Casa Ley”),
which operates 99 food and general merchandise stores in
western Mexico.
BASIS OF CONSOLIDATION The consolidated financial state-
ments include Safeway Inc., a Delaware corporation, and all
majority-owned subsidiaries. All significant intercompany trans-
actions and balances have been eliminated in consolidation. The
Company’s investment in Casa Ley is reported using the equity
method and is recorded on a one-month delay basis because
financial information for the latest month is not available from
Casa Ley in time to be included in Safeway’s consolidated earnings
until the following reporting period.
The Company also has a strategic alliance with and 50% vot-
ing interest in GroceryWorks Holdings, Inc. (“GroceryWorks”),
an Internet grocer, and a 15% ownership interest in Future Beef
Operations Holdings, LLC (“FBO”), a beef processing operation.
These investments are accounted for under the equity method.
FISCAL YEAR The Company’s fiscal year ends on the Saturday
nearest December 31. The last three fiscal years consist of the 52-
week periods ended December 29, 2001, December 30, 2000
and January 1, 2000.
REVENUE RECOGNITION Revenue is recognized at the point of
sale for retail sales. Discounts provided to customers in connec-
tion with loyalty cards are accounted for as a reduction of sales.
COST OF GOODS SOLD Cost of goods sold includes cost of
inventory sold during the period, including purchase and dis-
tribution costs. Advertising and promotional expenses, net of
vendor allowances, are also included as a component of cost of
goods sold. Such costs are expensed in the period the adver-
tisement first takes place. Advertising and promotional
expenses totaled $422.1 million in 2001, $415.9 million in
2000 and $310.6 million in 1999.
Vendor allowances that relate to the Company’s buying and
merchandising activities consist primarily of promotional
SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements