Safeway 2004 Annual Report Download - page 37

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 1,802 stores as of year-end 2004.
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,
manufacturing and food processing facilities. The Company
also has a 49% ownership interest in Casa Ley, S.A. de C.V.
(“Casa Ley”), which operates 115 food and general
merchandise stores in western Mexico. In addition, Safeway
has a strategic alliance with and a 54% ownership interest
in GroceryWorks Holdings, Inc. (“GroceryWorks”), an
Internet grocer.
BASIS OF CONSOLIDATION The consolidated financial
statements include Safeway Inc., a Delaware corporation,
and all majority-owned subsidiaries. All significant
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 in Safeway’s consolidated results
until the following reporting period.
FISCAL YEAR The Company’s fiscal year ends on the
Saturday nearest December 31. The last three fiscal years
consist of the 52-week period ended January 1, 2005, the
53-week period ended January 3, 2004 and the 52-week
period ended December 28, 2002.
RECLASSIFICATIONS Historically, Safeway has classified
certain minor revenue items such as partner gift card and
vending machine income as a reduction of costs and
expenses. As the value of these items has grown, the
Company has determined that they are more appropriately
classified as other revenue in 2004. These items have been
reclassified for prior periods to conform to the 2004 presen-
tation. These reclassifications had no effect on previously
reported operating profit or net income (loss) and are
summarized as follows (in millions):
2004 2003 2002
Sales, before reclassifications $ 35,621.9 $ 35,552.7 $ 34,767.5
Reclassifications 201.0 174.5 149.7
Sales and other revenue,
as adjusted $ 35,822.9 $ 35,727.2 $ 34,917.2
Cost of goods sold, before
reclassifications $(25,230.0) $(25,018.9) $(23,955.5)
Reclassifications 2.4 15.9 34.7
Cost of goods sold, as adjusted $(25,227.6) $(25,003.0) $(23,920.8)
Gross profit, before
reclassifications $ 10,391.9 $ 10,533.8 $ 10,812.0
Reclassifications 203.4 190.4 184.4
Gross profit, as adjusted $ 10,595.3 $ 10,724.2 $ 10,996.4
Operating and administrative
expense, before
reclassifications $ (9,219.1) $ (9,230.8) $ (8,576.4)
Reclassifications (203.4) (190.4) (184.4)
Operating and administrative
expense, as adjusted $ (9,422.5) $ (9,421.2) $ (8,760.8)
REVENUE RECOGNITION Revenue is recognized at the
point of sale for retail sales. Discounts provided to
customers in connection 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
distribution costs. These costs include inbound freight charges,
purchasing and receiving costs, warehouse inspection costs,
warehousing costs and other costs of Safeway’s distribution
network. Advertising and promotional expenses are also
included as a component of cost of goods sold. Such costs
are expensed in the period the advertisement occurs. Advertising
and promotional expenses totaled $487.8 million in 2004,
$419.9 million in 2003 and $384.6 million in 2002.
Vendor allowances totaled $2.2 billion in 2004, 2003 and
2002. Vendor allowances did not materially impact the
Company’s gross profit in 2004, 2003 and 2002 because
Safeway spends the allowances received on pricing
promotions, advertising expenses and slotting expenses.
Vendor allowances can be grouped into the following broad
categories: promotional allowances, slotting allowances,
and contract allowances. All vendor allowances are
classified as an element of cost of goods sold.
SAFEWAY INC. 2004 ANNUAL REPORT 35
SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements