Safeway 2004 Annual Report Download - page 45

SAFEWAY INC. AND SUBSIDIARIES
SAFEWAY INC. 2004 ANNUAL REPORT 43
Note F: Interest Expense
Interest expense consisted of the following (in millions):
2004 2003 2002
Commercial paper $ 7.8 $ 16.4 $ 32.0
Bank credit agreement 4.0 3.5 3.1
Other bank borrowings 0.4 0.4 –
Mortgage notes payable 2.4 3.3 4.2
9.30% Senior Secured Debentures 2.3 2.3 2.3
10% Senior Notes ––0.5
7.00% Senior Notes ––29.4
3.625% Senior Notes –12.3 14.5
6.05% Senior Notes –18.3 21.2
6.85% Senior Notes 9.8 13.7 13.7
7.25% Senior Notes 20.3 29.0 29.0
2.50% Senior Notes 5.0 0.9 –
Floating Rate Senior Notes 2.9 0.4 –
3.80% Senior Notes 8.6 8.6 3.3
6.15% Senior Notes 43.1 43.1 43.1
4.80% Senior Notes 23.0 23.0 10.5
7.00% Senior Notes 17.5 17.5 17.5
4.125% Senior Notes 12.4 2.3 –
6.50% Senior Notes 16.3 16.3 16.3
7.50% Senior Notes 37.5 37.5 37.5
4.95% Senior Notes 9.7 ––
6.50% Senior Notes 32.5 32.5 32.5
5.80% Senior Notes 46.4 46.4 17.7
5.625% Senior Notes 5.5 ––
7.45% Senior Debentures 11.2 11.2 11.2
7.25% Senior Debentures 43.5 43.5 43.5
9.65% Senior Subordinated
Debentures 0.2 7.8 7.8
9.875% Senior Subordinated
Debentures 2.4 2.4 2.4
Other notes payable 0.7 0.7 1.8
Medium-term notes –0.4 1.4
Obligations under capital leases 66.0 63.1 57.0
Amortization of deferred
finance costs 7.8 8.0 7.8
Interest rate swap agreements (8.3) (0.5) 0.6
Capitalized interest (19.7) (21.9) (31.0)
$411.2 $442.4 $430.8
The Company effectively converted $500 million of its
4.95% fixed-rate debt to floating rate debt through an interest
swap agreement in 2004. In 2003, the Company effectively
converted $300.0 million of its 4.125% fixed-rate debt to
floating rate debt through an interest rate swap agreement.
Note G: Capital Stock
SHARES AUTHORIZED AND ISSUED Authorized preferred
stock consists of 25 million shares, of which none was
outstanding during 2004, 2003 or 2002. Authorized common
stock consists of 1.5 billion shares at $0.01 par value.
Common stock outstanding at year-end 2004 was 447.7
million shares (net of 130.8 million shares of treasury stock)
and 444.2 million shares at year-end 2003 (net of 131.2
million shares of treasury stock).
STOCK OPTION PLANS Under Safeway’s stock option
plans, the Company may grant incentive and non-qualified
options to purchase common stock at an exercise price equal
to or greater than the fair market value at the grant date, as
determined by the Compensation and Stock Option Committee
of the Board of Directors. Options generally vest over five or
seven years. Vested options are exercisable in part or in full
at any time prior to the expiration date of 10 to 15 years
from the date of the grant. Options to purchase 24.4 million
shares were available for grant at year-end 2004.
On July 31, 2002, the Board of Directors adopted the
2002 Equity Incentive Plan of Safeway Inc. (the “2002 Plan”),
under which awards of non-qualified stock options and stock-
based awards may be made. There are 2.0 million shares of
common stock authorized for issuance pursuant to grants
under the 2002 plan. As of year-end 2004, no options have
been granted under this plan.
In September 2004, Safeway initiated a voluntary
exchange program for stock options and stock rights having
an exercise price greater than $35.00 to eligible employees.
The Company’s executive officers, members of the Board
of Directors and former employees were not eligible to
participate. The exchange program ended on October 5, 2004
and approximately 9.7 million stock options and rights were
surrendered and cancelled. Replacement stock options and
replacement stock rights totaling approximately 4.5 million
will 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 the date of issuance. Such replacement stock
options will have a six year term and will vest over five years.
RESTRICTED STOCK The Company awarded 263,135 shares
of restricted stock in 2004 and 706,236 shares of restricted
stock in 2003 to certain officers and key employees. No
restricted stock awards were granted in 2002. These shares
vest over a period of between three to four years and are
subject to certain transfer restrictions and forfeiture prior to
vesting. Deferred stock compensation, representing the fair
value of the stock at the measurement date of the award, is
amortized to compensation expense over the vesting period.
The amortization of this restricted stock resulted in $4.5
million in compensation expense in 2004 and $0.2 million in
compensation expense in 2003. As of January 1, 2005,
176,554 restricted shares were vested, 792,817 restricted
shares were unvested and 22,730 shares have been returned to
Safeway to satisfy tax withholding obligations of employees.