Safeway 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Safeway annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 60

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60

Safeway Inc.
2004 Annual Report
Life is changing.

Table of contents

  • Page 1
    Safew ay I nc. 2004 Annu al Report Li fe is c h a n g i n g .

  • Page 2
    ...Fa c i l i t i e s Year-end 2004 U.S. M ilk Plants Bread Baking Plants Ice Cream Plants Cheese and M eat Packaging Plants Soft Drink Bottling Plants Fruit and Vegetable Processing Plants Other Food Processing Plants Pet Food Plant Canada 6 5 2 - 4 1 2 1 21 3 2 2 2 - 3 - - 12 Co n t e n t s 2 5 14...

  • Page 3
    ...(in millions) (Note 1) Retail square feet (in millions) Number of stores 447.7 82.1 1,802 444.2 82.6 1,817 441.0 81.5 1,808 Note 1: Net of 130.8 million, 131.2 million and 132.0 million shares held in treasury in 2004, 2003 and 2002, respectively. S A FEW A Y I N C. 2 0 0 4 A N N U A L REPORT 1

  • Page 4
    ... reduce total debt; w e dramatically improved the quality, selection and presentation of our perishable offerings; and w e began the rollout of our highly successful Lifestyle stores through an aggressive remodeling program. W e also made substantial progress restructuring labor contracts, w hich...

  • Page 5
    ...but tw o of our retail divisions, w here contracts have expired and w e are currently negotiating new ones. The modified agreements have begun to arrest the rapid increase in employee health care premiums and, over time, are expected to reduce the gap in our total labor costs versus those of our non...

  • Page 6
    ... and Chief Executive Officer M arch 15, 2005 1 Re c o n c i l i a t i o n o f GA A P N e t I n c o m e (Loss) to A djusted Inc ome (Unaudited) (Dollars in millions, except per-share amounts) 2004 Amount Per Diluted Share Amount 2003 Per Diluted Share Net income, as reported Dominick's store...

  • Page 7
    Li f e i s c h a n g i n g . So a r e w e . S A FEW A Y I N C. 2 0 0 4 A N N U A L REPORT 5

  • Page 8
    ... more selective and have an unprecedented range of options w hen choosing w here they shop for food. Increasing time constraints and shifting demographic trends - such as greater ethnicity, changing household composition and grow ing affluence - have accelerated the profusion of new retail formats...

  • Page 9
    ... a food store. When seeking a food store, consumers look for one that recognizes they live and eat differently today. More shoppers are demanding meal solutions customized to their lifestyles. At the same time, shopping for food has become a continuous series of trade-offs. Despite relentless time...

  • Page 10
    ... high-quality food that fits consumers' changing lifestyles. Every day, in every department of every store, we strive to establish clear, compelling points of difference in our offerings so we will be demonstrably superior to our competitors and can provide an exceptionally satisfying shopping...

  • Page 11
    ... for superb fresh foods and innovative, consumerfocused initiatives such as restaurant-quality meal solutions and organic produce. We have designed and merchandised our Lifestyle stores to reflect the way today's consumers shop. Our ultimate objective with this exciting new format is to make Safeway...

  • Page 12
    ... ensure exceptional taste and tenderness. Our beef experts carefully select and trim every cut of Rancher's Reserve by hand. The result is beef that's guaranteed to please or we offer another cut and a full refund. We cut our customers' meat purchases any way they like them and gladly offer cooking...

  • Page 13
    ...-style pizzas, gourmet specialties such as teriyaki salmon and grilled rosemary chicken, and "comfort food" like traditional meatloaf. Busy shoppers can also select numerous ready-to-go offerings from our Signature line of premium sandwiches, soups and salads. 11 SAFEWAY INC. 2004 ANNUAL REPORT

  • Page 14
    ...extensive array of Signature Sandwiches created with the finest Old World-style Primo Taglio meats and cheeses, piled high between slices of fresh-from-the-oven Safeway SELECT Artisan breads. This popular, expanding line also includes low-carb wraps. SIGNATURE PANINI SANDWICHES A popular new "grab...

  • Page 15
    ...significantly enhances the shopping experience. As of year-end 2004, we had built 34 new stores of this design and remodeled 108 existing stores to the same standards. Sales at these stores have been strong, reflecting positive customer response to the new format. SAFEWAY INC. 2004 ANNUAL REPORT 13

  • Page 16
    ... Company in Review Five-Year Summary Financial Information Financial Review Consolidated Statements of Operations Consolidated Balance Sheets Consolidated Statements of Cash Flow s Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements M anagement's Annual Report...

  • Page 17
    ... in the market and the most tender and flavorful meat, through the Company's Rancher's Reserve Tender Beef offering. In addition, Safew ay has developed a variety of new items in the deli/ food service department, including Signature sandw iches, soups and salads that provide meal solutions to today...

  • Page 18
    ... line of meats, cheeses and sandw iches; Signature soups, sandw iches and salads; Artisan fresh-baked breads; NutraBalance pet food; and Ultra laundry detergents and dish soaps. The Safew ay SELECT line also includes an extensive array of ice creams, frozen yogurts and sorbets; Healthy Advantage...

  • Page 19
    ...450 Lifestyle stores, more than three times the current total. 2004 2003 2002 Cash capital expenditures Cash capital expenditures as a percentage of sales and other revenue Stores opened Stores closed Remodels (Note 1) Total retail square footage at year end (in millions) Number of fuel stations...

  • Page 20
    ....0 1,866.5 (774.6) 1,091.9 - $ 1,091.9 Gross profit Operating and administrative expense Goodw ill impairment charges Goodw ill amortization Operating profit Interest expense Other income (expense), net Income before income taxes and cumulative effect of accounting change Income taxes Income (loss...

  • Page 21
    ... 2000 sales increases include the estimated 50-basis-point impact of the 2000 Northern California distribution center strike. Note 3. M anagement believes this ratio is relevant because it assists investors in evaluating Safew ay's ability to control costs. Note 4. Defined as store remodel projects...

  • Page 22
    ...value received during the sale process. In November 2003, Safew ay announced that it w as taking Dominick's off the market after the w inning bidder and the unions representing Dominick's could not reach an agreement on a labor contract. Safew ay reclassified Dominick's from an " asset held for sale...

  • Page 23
    ... diluted share) in 2004 related to rent holidays. This adjustment conformed the Company's lease accounting policies to view s expressed by the Office of the Chief Accountant of the SEC on February 7, 2005. In 2003, Safew ay changed its accounting policy to a pre-tax goodw ill impairment charge of...

  • Page 24
    ... due primarily to the additional w eek in 2003, new store openings and additional fuel sales, partially offset by the estimated impact of the strike in Southern California. Excluding the estimated effects of the strike in Southern California, comparable-store sales w ere flat, w hile identical-store...

  • Page 25
    ... of targeted pricing and promotion. Gross profit improved 19 basis points to 31.49% in 2002 primarily due to shrink control, improved buying practices and private-label grow th. The increased gross margin dollars w ere largely reinvested in targeted pricing and promotion. Vendor allow ances totaled...

  • Page 26
    ... due to higher employee benefit costs, soft sales and settlement income from the termination of an in-store banking agreement recorded in 2002 operating and administrative expense. Operating and administrative expense increased 172 basis points in 2002. The Dominick's impairment charge added...

  • Page 27
    ...'s assumptions may materially affect Safew ay's pension and other post-retirement obligations and its future expense. W hen not considering other changes in assumptions or actual return on plan assets, a 100-basis-point reduction in the year-end 2004 discount rate alone w ould negatively impact 2005...

  • Page 28
    ... 2006 2007 2008 2009 Thereafter Total Long-term debt Capital lease obligations(1) Operating leases Self-insurance liability Contracts for purchase of property, equipment and construction of buildings Contracts for purchase of inventory (1) M inimum lease payments, less amounts representing interest...

  • Page 29
    ... requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on their fair value on the date of grant. Fair value of share-based aw ards w ill be determined using option-pricing models (e.g. Black...

  • Page 30
    ... strategies, store openings and remodels by our competitors; results of our programs to control or reduce costs, improve buying practices and control shrink; results of our programs to increase sales, including private-label sales, improvement in our perishables departments and our promotional...

  • Page 31
    ...I A RI ES (In millions, except per-share amounts) 52 W eeks 2004 53 W eeks 2003 52 W eeks 2002 Sales and other revenue Cost of goods sold Gross profit Operating and administrative expense Goodw ill impairment charges Operating profit Interest expense Other income, net Income before income taxes...

  • Page 32
    ...Year-end 2003 Assets Current assets: Cash and equivalents Receivables M erchandise inventories, net of LIFO reserve of $48.6 and $63.8 Prepaid expenses and other current assets Total current assets Property: Land Buildings Leasehold improvements Fixtures and equipment Property under capital leases...

  • Page 33
    ... Total current liabilities Long-term debt: Notes and debentures 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...

  • Page 34
    ...LIFO income Equity in (earnings) losses of unconsolidated affiliates Net pension expense Contributions to pension plans Restricted stock expense Other Long-term accrued claims and other liabilities Loss (gain) on property retirements Changes in w orking capital items: Receivables Inventories at FIFO...

  • Page 35
    ... to long-term borrow ings Payments on long-term borrow ings Purchase of treasury stock Net proceeds from exercise of stock options Other Net cash flow used by financing activities Effect of changes in exchange rates on cash Increase in cash and equivalents $ 11.2 (1.5) 1,173.5 (2,278.6) (0.4) 24...

  • Page 36
    ...Stock Shares Cost Deferred Stock Retained Compensation Earnings Accumulated Other Comprehensive (Loss) Income Total Stockholders' Comprehensive Equity (Loss) Income Balance, year-end 2001 Net loss Translation adjustments Other Treasury stock purchased Options exercised Balance... A N N U A L REPORT

  • Page 37
    ... intercompany transactions 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...

  • Page 38
    ... ances make up nearly three-quarters of all allow ances. W ith promotional allow ances, vendors pay Safew ay to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safew ay circular, or a preferred location in the store...

  • Page 39
    ... approximates fair value. Long-term debt. M arket values quoted on the New York Stock Exchange are used to estimate the fair value of publicly traded debt. To estimate the fair value of debt issues that are not quoted on an exchange, the Company uses those interest rates that are currently available...

  • Page 40
    ...applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148: (In millions, except per-share amounts) 2004 2003 2002 Net income (loss) - as reported Add: Stock-based employee compensation expense included in reported net income, net of related tax effects Less: Total...

  • Page 41
    ... requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on their fair value on the date of grant. Fair value of sharebased aw ards w ill be determined using option-pricing models (e.g. Black...

  • Page 42
    ... fair value. Impairment in both cases w as due to a combination of factors including acquisition price, post-acquisition capital expenditures and operating performance. In accordance w ith SFAS No. 142, the impairment charge w as reflected as a cumulative effect of accounting change in the Company...

  • Page 43
    ... ing rates selected by the Company: (i) the prime rate; (ii) a rate based on rates at w hich Eurodollar deposits are offered to first-class banks by the lenders in the bank credit agreement plus a pricing margin based on the Company's debt rating or interest coverage ratio (the " Pricing M argin...

  • Page 44
    ... original lease, others w ith 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 2004, future minimum rental payments applicable to non-cancelable capital and operating leases...

  • Page 45
    ... 9.7 million stock options and rights w ere surrendered and cancelled. Replacement stock options and replacement stock rights totaling approximately 4.5 million w ill be issued on or after April 7, 2005 at the fair market value on the date of the grant to those eligible employees still employed at...

  • Page 46
    ...2004 W eighted average fair value of options ...stock option information at year-end 2004: Options Outstanding Range of Exercise Prices Number of Options Weighted-Average Remaining Contractual Life Weighted-Average Exercise Price Options Exercisable Number of Options Weighted-Average Exercise Price...

  • Page 47
    ... per share as if the Company had adopted the fair value method as of the beginning of fiscal 1995. Under SFAS No. 123, the fair value of stock-based aw ards to employees is calculated through the use of option pricing models, even though such models w ere developed to estimate the fair value of...

  • Page 48
    ... maintains defined benefit, non-contributory retirement plans for substantially all of its employees not participating in multi-employer pension plans. In connection w ith the Genuardi 's acquisition in 2001, the Randall 's acquisition in 1999 and the Vons merger in 1997, the Company assumed the...

  • Page 49
    ... investment mandate. Expected rates of return on plan assets w ere developed by determining projected stock and bond returns and then applying these returns to the target asset allocations of the employee benefit trusts, resulting in a w eighted average rate of return on plan assets. Equity returns...

  • Page 50
    ... in many cases, specific benefit levels are not negotiated w ith or know n by the employer-contributors. Contributions of $196.8 million in 2004, $172.1million in 2003 and $151.6 million in 2002 w ere made and charged to expense. Under U.S. law applicable to such pension plans, a company is required...

  • Page 51
    ... some of the Company's divisions in order to enable KKR and certain directors and officers to sell shares of Company stock at an inflated price. The complaint asserts causes of action for breach of fiduciary duty, abuse of control, violations of the California Corporations Code and other claims. The...

  • Page 52
    ... a number of leases to Furr 's Inc. (" Furr 's" ) and Homeland Stores, Inc. (" Homeland " ) as part of the sale of the Company's former El Paso, Texas and Oklahoma City, Oklahoma divisions. Safew ay is contingently liable if Furr 's and Homeland are unable to continue making rental payments on...

  • Page 53
    ... potential proceeds Common share equivalents Calculation of common shares assumed purchased w ith potential proceeds: Potential proceeds from exercise of options to purchase common shares Common stock price used under the treasury stock method Common shares assumed purchased w ith potential proceeds...

  • Page 54
    ...California strike and $6.5 million after-tax for an accrual for rent holidays. Income tax expense includes a tax benefit of $8.8 million due to tax law changes...of the Southern California strike and a $28.5 million after-tax charge related to closing 12 under-performing Dominick's stores. (6) Net loss...

  • Page 55
    ..., management has concluded the Company's internal controls over financial reporting w ere effective as of January 1, 2005. S T EV EN A . B U RD ROB ERT L. ED W A RD S Chairman, President and Chief Executive Officer M arch 15, 2005 Executive Vice President and Chief Financial Officer M arch...

  • Page 56
    ... financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance...

  • Page 57
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. W e conducted our audits in accordance w ith the standards of the Public Company Accounting Oversight Board (United States). Those standards require that w e plan and perform...

  • Page 58
    .... REN D A Denver Division K A RL S CH ROED ER Chair and Chief Executive Officer Federated M erchandising Group Vice Chair Federated Department Stores, Inc. M O H A N G YA N I Executive Vice President Retail Operations, Human Resources, Public Affairs, Labor and Government Relations, Reengineering...

  • Page 59
    ... to the Investor Relations Department at our executive offices or by calling 925-467-3790. Ce r t i f i c a t i o n s The company submitted a Section 12(a) CEO certification to the New York Stock Exchange w ithin 30 days of its 2004 Annual M eeting of Stockholders. The company filed the CEO/ CFO...

  • Page 60
    S A FEW AY I N C. P.O. B o x 99 P l e a s a n t o n , CA 94566- 0009