Safeway 2001 Annual Report Download - page 40

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charge in other (loss) income in 2001 to reduce the carrying
amount of the Company’s investment in GroceryWorks to its
estimated fair value. The impairment charge was equal to the
difference in Safeway’s recorded investment in GroceryWorks
and Safeway’s share of the estimated fair value of GroceryWorks
based on the valuations indicated by cash invested in preferred
stock in June 2001 (having substantially the same terms as
Safeway’s preferred stock, which is nonredeemable, voting and
convertible) made by other shareholders.
Safeway has a first loss deficiency agreement with FBO’s prin-
cipal lender which provides that, under certain circumstances and
in the event of a liquidation of FBO, Safeway will pay the lender
up to $40 million if proceeds from the sale of collateral do not
fully repay the amount owed by FBO to the lender. FBO was
placed in bankruptcy in March 2002 and Safeway accrued a pre-
tax charge of $51 million in other (loss) income related to the
bankruptcy in 2001. The charge is primarily for payments under
contractual obligations and the first loss deficiency agreement in
the event FBO is liquidated.
Note K: Related Party Transactions
Prior to April 2000, the Company held an 80% interest in Property
Development Associates (“PDA”), a partnership formed in 1987
with Pacific Resources Associates, L.P. (“PRA”), a company con-
trolled by an affiliate of Kohlberg Kravis Roberts & Co.
(“KKR”), to purchase, manage and dispose of certain Safeway
facilities that were no longer used in the retail grocery business.
Three of the Company’s directors are affiliated with KKR. This
partnership was dissolved in April 2000.
During 2001, Safeway sold 22 properties to PRA with an
aggregate carrying value of $7.5 million for $13.9 million cash,
resulting in an aggregate gain of $6.4 million. During 2000,
Safeway sold 48 properties to PRA with an aggregate carrying
value of $43.5 million for total consideration of $84.4 million,
resulting in an aggregate gain of $40.9 million. Of the consider-
ation received, $13.4 million was in the form of a note receivable
and the remainder was in cash. The note bore interest at 8.5%
and was fully paid in cash before the end of 2000.
Safeway paid PDA $1.1 million in 2000 and $2.7 million in
1999 for reimbursement of 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 in connection with their relocations. The promissory
notes bear no interest and are secured by personal residences. At
year-end 2001, $3.1 million was outstanding under these notes
with repayment terms ranging from 2003 through 2006.
The Company has conducted various transactions with each
of its equity investees which were not material.
Note L: Commitments and Contingencies
LEGAL MATTERS In July 1988, there was a major fire at the
Company’s dry grocery warehouse in Richmond, California.
Through February 1, 2002, in excess of 126,000 claims for per-
sonal injury and property damage arising from the fire have been
settled for an aggregate amount of approximately $125 million.
The Company’s loss as a result of the fire damage to its property and
settlement of the above claims was substantially covered by insurance.
As of February 1, 2002, there were still pending approximately
2,100 claims against the Company for personal injury (including
punitive damages), and approximately 290 separate active claims
for property damage, arising from the smoke, ash and embers gen-
erated by the fire. A substantial percentage of these claims have
been asserted in lawsuits against the Company filed in the Superior
Court for Alameda County, California. There can be no assurance
that the pending claims will be settled or otherwise disposed of for
amounts and on terms comparable to those settled to date. Safeway
continues to believe that coverage under its insurance policy will be
sufficient and available for resolution of all remaining personal
injury and property damage claims arising out of the fire.