Safeway 2006 Annual Report Download - page 47

Download and view the complete annual report

Please find page 47 of the 2006 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 93

  • 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
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93

SAFEWAY INC. AND SUBSIDIARIES
Contractual Obligations The Company’s total outstanding debt, including capital leases, was $5.9 billion, $6.4
billion and $6.8 billion at fiscal year-end 2006, 2005 and 2004, respectively. Total debt declined in 2006, 2005 and
2004 as Safeway used cash flow from operations to pay down debt. As of year-end 2006, annual debt maturities are
set forth in the contractual obligation table below.
The table below presents significant contractual obligations of the Company at year-end 2006 (in millions)(1):
2007 2008 2009 2010 2011 Thereafter Total
Long-term debt (2) $790.7 $811.6 $752.4 $501.7 $554.5 $1,808.5 $5,219.4
Estimated interest on long-term debt (3) 309.9 265.6 214.5 173.3 127.4 1,119.2 2,209.9
Capital lease obligations (2),(4) 40.8 43.0 43.1 37.0 32.0 452.8 648.7
Interest on capital leases 63.0 59.9 54.7 50.7 47.2 332.5 608.0
Self-insurance liability 138.7 102.4 68.0 47.4 33.1 123.1 512.7
Interest on self-insurance liability 3.3 7.0 7.9 7.8 7.3 72.5 105.8
Operating leases (4) 425.3 417.4 373.9 345.7 312.3 2,773.8 4,648.4
Contracts for purchase of property,
equipment and construction of
buildings 254.0 –––– –254.0
Contracts for purchase of inventory 98.1 –––– –98.1
Fixed-price energy contracts 63.7 24.8 12.4 – – – 100.9
(1) Excludes funding of pension and other postretirement benefit obligations, which totaled approximately $40.7 million in 2006.
(2) Required principal payments only.
(3) Excludes payments received or made relating to interest rate swap as discussed below.
(4) Operating and capital lease obligations do not include common area maintenance, insurance or tax payments for which the
Company is also obligated. In fiscal 2006, these charges totaled approximately $205.4 million.
Off-Balance Sheet Arrangements
Guarantees The Company is party to a variety of contractual agreements under which it may be obligated to
indemnify the other party for certain matters. These contracts primarily relate to the Company’s commercial contracts,
operating leases and other real estate contracts, trademarks, intellectual property, financial agreements and various
other agreements. Under these agreements, the Company may provide certain routine indemnifications relating to
representations and warranties (for example, ownership of assets, environmental or tax indemnifications) or personal
injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Historically,
Safeway has not made significant payments for these indemnifications. The Company believes that if it were to incur a
loss in any of these matters, the loss would not have a material effect on the Company’s financial statements.
Letters of Credit The Company had letters of credit of $63.1 million outstanding at year-end 2006. The letters of
credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The
Company pays commissions ranging from 0.15% to 1.00% on the face amount of the letters of credit.
Interest Rate Swap Agreements The Company has, from time to time, entered into interest rate swap agreements
to change its portfolio mix of fixed- and floating-rate debt to more desirable levels. Interest rate swap agreements
involve the exchange with a counterparty of fixed- and floating-rate interest payments periodically over the life of the
agreements without exchange of the underlying notional principal amounts. The differential to be paid or received is
recognized over the life of the agreements as an adjustment to interest expense. The Company’s counterparties have
been major financial institutions. As of year-end 2006, the Company effectively converted $500 million of its 4.95%
fixed-rate debt and $300 million of its 4.125% fixed-rate debt to floating-rate debt through interest rate swap
agreements.
Energy Contracts The Company has entered into contracts to purchase electricity and natural gas at fixed prices for
a portion of its energy needs. Safeway expects to take delivery of the electricity and natural gas in the normal course
of business, and these contracts are not net settled. Since these contracts qualify for the normal purchase exception of
29