Safeway 2007 Annual Report Download - page 53

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SAFEWAY INC. AND SUBSIDIARIES
information to disclose regarding business combinations. SFAS No. 141R applies prospectively to business combinations
for which the acquisition date is on or after the beginning of the first annual report period beginning on or after
December 15, 2008. The Company is currently assessing the potential impact of SFAS No. 141R on its financial
statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an
ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.
Additionally, SFAS No. 160 requires expanded disclosures in the consolidated financial statements. SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The
Company is currently assessing the potential impact of SFAS No. 160 on its financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Safeway manages interest rate risk through the strategic use of fixed and variable interest rate debt and, from time to
time, interest rate swaps. As of year-end 2007, 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. During
2007 the weighted-average pay rate on the $500 million debt was 6.22%, and the weighted-average pay rate on the
$300 million debt was 5.97%. At year-end 2007, the fair value of the interest rate swap on the $300 million debt was a
liability of $2.4 million, and the fair value of the interest rate swap on the $500 million debt was an asset of $3.8 million.
As a result of a decline in interest rates in early 2008, the fair value of these swaps increased. In January 2008, Safeway
terminated its interest rate swap agreements on its $500 million debt due in 2010 at a gain of approximately $7.5 million.
This gain will be included in debt and will be amortized as an offset to interest expense over the remaining term of the
debt.
The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged
financial instruments. The Company does not consider the potential declines in future earnings, fair values and cash flows
from reasonably possible near-term changes in interest rates and exchange rates to be material.
The table below presents principal amounts and related weighted-average rates by year of maturity for the Company’s
debt obligations at year-end 2007 (dollars in millions):
2008 2009 2010 2011 2012 Thereafter Total Fair value
Long-term debt: (1)
Principal $ 954.9 $ 752.5 $ 505.5 $ 502.1 $ 825.6 $ 1,507.8 $ 5,048.4 $ 5,203.3
Weighted average
interest rate 4.97% 6.73% 4.98% 6.51% 5.79% 6.70% 6.04%
(1) Primarily fixed-rate debt
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