Safeway 2012 Annual Report Download - page 45

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SAFEWAY INC. AND SUBSIDIARIES
33
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. 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 $50.9 million outstanding at year-end 2012. 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 1.10% on the face amount of the
letters of credit.
New Accounting Pronouncements Not Yet Adopted
See Part II, Item 8, Note A to this report for new accounting pronouncements which have not yet been adopted
by the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Safeway is exposed to market risk from changes in interest rates, foreign currency exchange rates and
commodity prices. The Company has, from time to time, selectively used derivative financial instruments to
reduce these market risks. The Company does not utilize financial instruments for trading or other speculative
purposes, nor does it utilize leveraged financial instruments.
Safeway’s market risk exposures related to interest rates, foreign currency and commodity prices are
discussed below and have not materially changed from the prior fiscal year.
Interest Rate Risk Safeway manages interest rate risk through the use of fixed- and variable-interest rate
debt and, from time to time, interest rate swaps. At year-end 2012, the Company had no interest rate swaps.
Foreign Currency Exchange Risk Safeway is exposed to foreign currency risk, primarily through its
operations in Canada. Certain transactions and the Company’s net equity investment in Canada are exposed
to economic losses in the event of adverse changes in the currency exchange rate. Currently, Safeway does
not use derivative financial instruments to offset the risk of foreign currency.
Commodity Price Risk Safeway has entered into fixed-priced contracts to purchase electricity and natural
gas for a portion of its energy needs. Safeway expects to take delivery of these commitments in the normal
course of business, and as a result, these commitments qualify as normal purchases. See Part II, Item 7,
under the caption “Contractual Obligations” for the Company’s obligations related to fixed-price energy
contracts as of year-end 2012.
Long-Term Debt The table below presents principal amounts and related weighted-average rates by year
of maturity for the Company’s debt obligations at year-end 2012 (dollars in millions):
2013 2014 2015 2016 2017 Thereafter Total Fair value
Long-term debt: (1)
Principal $ 294.0 $1,170.5 $ 588.2 $ 401.9 $ 501.9 $ 2,169.4 $ 5,125.9 $ 5,408.2
Weighted average
interest rate 1.79% 4.80% 1.74% 3.42% 6.35% 5.52% 4.63%
(1) Primarily fixed-rate debt.