Safeway 2004 Annual Report Download - page 5

SAFEWAY INC. 2004 ANNUAL REPORT 3
We continued to make substantial progress renegotiating labor contracts under favorable
terms. As of this writing, we have restructured collective bargaining agreements in all but two
of our retail divisions, where contracts have expired and we 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-union competitors.
Interest Expense
Interest expense declined $31.2 million to $411.2 million in 2004, primarily because strong cash
flow from operations enabled us to reduce debt by $1.1 billion to $6.7 billion.
Capital Spending
Cash capital expenditures increased to $1.2 billion in 2004. During the year we opened 33 new
stores, all designed to our new Lifestyle format featured later in this report. We also expanded
or remodeled 115 existing stores – 94 of which were refurbished to Lifestyle standards – and
we closed 48 older stores.
In 2005, we plan to invest approximately $1.4 billion in cash capital expenditures and open
30 to 35 new Lifestyle stores while completing some 275 to 285 Lifestyle remodels. By the end
of this year, we plan to operate approximately 450 Lifestyle stores, more than three times the
current total.
We also opened 41 fuel centers adjacent to our stores. As of year-end 2004, 311 of our
stores sold gasoline, boosting sales at these locations while enhancing one-stop shopping
convenience for our customers.
Cash Flow
Net cash flow from operating activities in 2004 rose $617 million to $2.2 billion, while net cash
flow from investing activities, which consists principally of cash paid for property additions,
increased $275 million to approximately $1.1 billion. Net cash flow used by financing activities
– mainly cash used to retire debt – was also up significantly, to approximately $1.1 billion in
2004 from $724 million the prior year. As noted above, total debt declined to $6.7 billion at
year-end 2004 from $7.8 billion at year-end 2003.
Community Involvement
Each year we make cash and in-kind donations to hundreds of non-profit organizations
throughout the communities we serve. Many of these contributions are channeled through
The Safeway Foundation, which is sustained by fundraising events and an annual employee-
giving campaign.
During 2004 in our U.S. retail operations alone, we donated more than $100 million
worth of merchandise to Second Harvest food banks and other hunger-relief organizations.
We also contributed more than $20 million to local schools through eScrip and other
educational programs. In addition, we conducted major fundraising campaigns to support
awareness, research and treatment programs for breast and prostate cancer as well as
muscular dystrophy.
Although we generally limit our charitable giving to worthy causes within our operating
areas, we made an exception for victims of the devastating tsunami in South Asia and
Eastern Africa, raising more than $3.5 million to support relief efforts on their behalf earlier
in 2005.