<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 18, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _____
Commission file number 1-41
SAFEWAY INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-3019135
-------- ----------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
Fourth and Jackson Streets
Oakland, California 94660
------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 891-3000
--------------
</TABLE>
Not Applicable
--------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO ___.
As of July 15, 1994, there were issued and outstanding 103,035,274 shares of
the registrant's common stock.
<PAGE> 2
SAFEWAY INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
PART I FINANCIAL INFORMATION (UNAUDITED) Page
------ --------------------------------- ----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 18, 1994 and January 3
1, 1994
Condensed Consolidated Statements of Income for the 12 and 24 weeks 5
ended June 18, 1994 and June 19, 1993
Condensed Consolidated Statements of Cash Flows for the 24 weeks 6
ended June 18, 1994 and June 19, 1993
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 11
RESULTS OF OPERATIONS
PART II OTHER INFORMATION
------- -----------------
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
June 18, January 1,
1994 1994
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 49.3 $ 118.4
Receivables 129.3 119.5
Merchandise inventories 1,051.4 1,128.1
Prepaid expenses and other 97.0 98.0
--------- ---------
Total current assets 1,327.0 1,464.0
--------- ---------
Property 4,214.8 4,207.3
Less accumulated depreciation
and amortization 1,739.3 1,647.2
--------- ---------
Property, net 2,475.5 2,560.1
Goodwill, net of amortization of $89.7
and $86.2, respectively 337.5 347.6
Prepaid pension costs 311.6 307.1
Investments in unconsolidated affiliates 321.8 303.4
Other assets 107.1 92.5
--------- ---------
Total assets $ 4,880.5 $ 5,074.7
========= =========
</TABLE>
(Continued)
3
<PAGE> 4
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 18, January 1,
1994 1994
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes
and debentures $ 124.4 $ 188.6
Current obligations under capital leases 19.2 19.3
Accounts payable 909.3 880.5
Accrued salaries and wages 199.9 216.3
Other accrued liabilities 421.1 406.7
-------- --------
Total current liabilities 1,673.9 1,711.4
-------- --------
Long-term debt:
Notes and debentures 2,045.4 2,287.7
Obligations under capital leases 186.3 193.6
-------- --------
Total long-term debt 2,231.7 2,481.3
Deferred income taxes 142.8 145.5
Accrued claims and other liabilities 356.1 353.6
-------- --------
Total liabilities 4,404.5 4,691.8
-------- --------
Stockholders' equity:
Common stock: par value $.01 per share;
300 shares authorized; 102.9 and 101.5
shares outstanding, respectively 1.0 1.0
Additional paid-in capital 632.6 624.5
Cumulative translation adjustments 30.6 39.0
Accumulated deficit (188.2) (281.6)
-------- --------
Total stockholders' equity 476.0 382.9
-------- --------
Total liabilities and stockholders' equity $4,880.5 $5,074.7
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------- --------------------
June 18, June 19, June 18, June 19,
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 3,612.7 $ 3,549.4 $ 7,104.5 $ 6,954.0
Cost of goods sold (2,623.9) (2,589.6) (5,164.0) (5,068.5)
--------- --------- --------- ---------
Gross profit 988.8 959.8 1,940.5 1,885.5
Operating and administrative expenses (842.1) (843.0) (1,676.4) (1,726.4)
--------- --------- --------- ---------
Operating profit 146.7 116.8 264.1 159.1
Interest expense (52.7) (63.2) (108.5) (126.4)
Equity in earnings of unconsolidated affiliates 7.9 7.2 18.4 23.3
Other income, net 1.5 2.4 2.9 4.1
--------- --------- --------- ---------
Income before income taxes and
extraordinary loss 103.4 63.2 176.9 60.1
Income taxes (44.5) (27.2) (76.1) (25.8)
--------- --------- --------- ---------
Income before extraordinary loss 58.9 36.0 100.8 34.3
Extraordinary loss related to early retirement of
debt, net of income tax benefit of $4.8 (7.4) - (7.4) -
--------- --------- --------- ---------
Net income $ 51.5 $ 36.0 $ 93.4 $ 34.3
========= ========= ========= =========
Primary and fully diluted earnings per common
share and common share equivalent:
Income before extraordinary loss $ 0.48 $ 0.30 $ 0.83 $ 0.29
Extraordinary loss (0.06) - (0.06) -
--------- --------- --------- ---------
Net income $ 0.42 $ 0.30 $ 0.77 $ 0.29
========= ========= ========= =========
Weighted average common shares and common
share equivalents:
Primary 121.6 119.8 121.3 119.3
========= ========= ========= =========
Fully diluted 121.9 119.9 121.9 119.8
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
24 Weeks Ended
----------------------
June 18, June 19,
1994 1993
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATIONS:
Net income $ 93.4 $ 34.3
Reconciliation to net cash flow from operations:
Extraordinary loss related to early retirement of debt,
before income tax benefit 12.2 -
Depreciation and amortization 150.1 152.4
LIFO expense 4.6 6.5
Equity in undistributed earnings of unconsolidated affiliates (18.4) (23.3)
Other 23.9 8.8
Changes in working capital items:
Receivables and prepaids (11.7) 0.1
Inventories at FIFO cost 57.1 104.3
Payables and accruals 34.6 (63.1)
------- -------
Net cash flow from operations 345.8 220.0
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for property additions (105.9) (89.5)
Proceeds from sale of property 14.4 18.7
Other (26.9) (27.0)
------- -------
Net cash flow used by investing activities (118.4) (97.8)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Additions to short-term borrowings 39.8 26.0
Payments on short-term borrowings (33.9) (44.9)
Additions to long-term borrowings 233.1 206.0
Payments on long-term borrowings (531.6) (306.5)
Premiums paid on early retirement of debt (9.5) -
Net proceeds from sale of common stock 7.2 1.6
Other (1.6) 0.8
------- -------
Net cash flow used by financing activities (296.5) (117.0)
------- -------
(Decrease) increase in cash and equivalents (69.1) 5.2
CASH AND EQUIVALENTS:
Beginning of period 118.4 96.6
------- -------
End of period $ 49.3 $ 101.8
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Safeway Inc.
and subsidiaries ("Safeway" or the "Company") for the 12 and 24 weeks ended
June 18, 1994 and June 19, 1993 are unaudited and, in the opinion of
management, contain all adjustments that are of a normal and recurring nature
necessary to present fairly the financial position and results of operations
for such periods. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and related
notes contained in the Company's 1993 Annual Report to Stockholders. The
results of operations for the 12 and 24 weeks ended June 18, 1994 are not
necessarily indicative of the results expected for the full year.
NOTE B - INVENTORY
Net income reflects the application of the LIFO method of valuing certain
domestic inventories, based upon estimated annual inflation ("LIFO Indices").
LIFO expense was $2.3 million and $3.3 million in the second quarter of 1994
and 1993. Actual LIFO Indices are calculated during the fourth quarter of the
year based upon a statistical sampling of inventories.
NOTE C - INVESTMENTS IN AFFILIATES
Investments in affiliates consist of a 35% interest in The Vons Companies, Inc.
("Vons") which operates 346 supermarkets located mostly in southern California,
and a 49% interest in Casa Ley, S.A. de C.V. which operates 57 stores in
western Mexico.
The Company's recorded investment in Vons at June 18, 1994 was $234.4 million,
including unamortized goodwill of $47.6 million that is being amortized over a
40 year life. Income from Safeway's equity investment in Vons, recorded on a
one-quarter delay basis, was $2.8 million and $9.1 million for 12 and 24 weeks
ended June 18, 1994 compared to $5.0 million and $14.7 million for the same
periods in 1993.
Based on the June 17, 1994 closing price for Vons' common stock as quoted on
the New York Stock Exchange, the Company's 15.1 million shares of the
outstanding common stock of Vons had an aggregate market value of $262.8
million.
7
<PAGE> 8
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - INVESTMENTS IN AFFILIATES (CONTINUED)
Summarized financial information derived from Vons' financial reports to the
Securities and Exchange Commission is as follows (in millions):
<TABLE>
<CAPTION>
March 27, January 2,
FINANCIAL POSITION 1994 1994
--------- ----------
<S> <C> <C>
Current assets $ 480.1 $ 473.4
Property and capital leases 1,223.0 1,215.6
Other assets 561.1 560.5
-------- --------
Total assets $2,264.2 $2,249.5
======== ========
Current liabilities $ 526.1 $ 542.7
Long-term obligations 1,204.2 1,181.9
Shareholders' equity 533.9 524.9
-------- --------
Total liabilities and shareholders' equity $2,264.2 $2,249.5
======== ========
</TABLE>
<TABLE>
<CAPTION>
12 Weeks 12 Weeks 24 Weeks 25 Weeks
Ended Ended Ended Ended
March 27, March 28, March 27, March 28,
RESULTS OF OPERATIONS 1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales $ 1,144.0 $ 1,194.2 $ 2,314.5 $ 2,553.8
Cost of sales and other expenses (1,135.0) (1,178.3) (2,286.6) (2,510.3)
--------- --------- --------- ---------
Income before extraordinary item 9.0 15.9 27.9 43.5
Extraordinary item - - - (0.1)
--------- --------- --------- ---------
Net income $ 9.0 $ 15.9 $ 27.9 $ 43.4
========= ========= ========= =========
</TABLE>
As of December 31, 1993 Casa Ley had total assets of $411.9 million based on
financial information provided by Casa Ley. Sales and net income were $526.1
million and $18.9 million for the six months ended March 31, 1994, and $476.7
million and $17.6 million for the six months ended March 31, 1993.
8
<PAGE> 9
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - FINANCING
Notes and debentures were composed of the following at June 18, 1994 and
January 1, 1994 (in millions):
<TABLE>
<CAPTION>
June 18, 1994 January 1, 1994
------------- ---------------
Long-term Current Long-term Current
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Bank Credit Agreement, secured $ 127.0 $ 35.0
Working Capital Credit Agreement,
secured 245.8 340.3
9.30% Senior Secured Debentures due
2007 100.0 100.0
10% Senior Notes due 2002, unsecured 62.8 74.0
10% Senior Subordinated Notes due
2001, secured 243.3 300.0
9.875% Senior Subordinated
Debentures due 2007, secured 113.0 150.0
9.65% Senior Subordinated Debentures
due 2004, secured 236.2 300.0
9.35% Senior Subordinated Notes due
1999, secured 221.8 250.0
Mortgage notes payable, secured 469.1 $ 62.4 494.5 $ 72.8
Other notes payable, unsecured 226.4 22.1 243.9 81.8
Other bank borrowings, unsecured - 39.9 - 34.0
-------- ------ -------- ------
$2,045.4 $124.4 $2,287.7 $188.6
======== ====== ======== ======
</TABLE>
Note B to the Company's consolidated financial statements on pages 25 through
27 of the 1993 Annual Report to Stockholders and the information appearing
under the caption "Terms of Outstanding Indebtedness" in Item 1 of the
Company's 1993 Form 10-K describe all of the material restrictive covenants of
the Company's indebtedness.
In April 1994, the Company revised the Bank Credit Agreement and Working
Capital Credit Agreement (together the "Bank Agreements"). The revisions
extend the maturity of the Bank Agreements by one year to 1998. The revisions
also include a $150 million voluntary reduction of the borrowing capacity under
the Bank Agreements, which decreases the annual commitment fees by $0.6 million
and leaves remaining commitments of $1.25 billion. The revisions permit the
Company to purchase Senior Subordinated Debt of up to $300 million per year or
$500 million over the life of the Bank Agreements.
During the second quarter of 1994, using proceeds from floating rate bank
borrowings, the Company purchased $199.4 million of long-term debt. In
connection with these debt purchases, Safeway recorded an extraordinary loss of
approximately $7.4 million after estimated tax benefit during the second
quarter of 1994. The extraordinary loss consists primarily of premiums paid to
purchase debt and the write-off of related deferred finance costs.
Through July 20, 1994, the Company had purchased $42.7 million of Senior Debt
and $237.1 million of Senior Subordinated Debt and will record the additional
extraordinary loss in the third quarter of 1994. Subject to fluctuations in
short-term interest rates, estimated annual interest expense savings on the
debt retired through July 20, 1994 will be approximately $11 million.
Depending on market conditions, Safeway may continue to purchase and retire
long-term debt.
9
<PAGE> 10
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E - CONTINGENCIES
LEGAL MATTERS
Note H to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 32 and 33 of the 1993 Annual Report to Stockholders,
provides information on significant claims and litigation in which the Company
is involved. In part, Note H provides information on certain claims arising
from the July 1988 Richmond, California warehouse fire. The Company's excess
insurance carrier asserted that its liability policy does not cover third-party
claims against the Company arising from the fire, and the Company filed suit
against the carrier to establish coverage. The court ordered that the claim be
arbitrated in London in accordance with the policy's arbitration clause. A
panel of arbitrators in London has rendered a decision in Safeway's favor in
the arbitration proceeding between the Company and the insurance carrier.
Under the panel's decision, Safeway is entitled to be indemnified by the
carrier under the policy. Safeway believes that coverage under the policy will
be sufficient for resolution of all remaining third-party claims arising out of
the fire.
Note H also provides information regarding two class action employment
discrimination lawsuits filed against the Company. In June 1994, the court
gave final approval to a voluntary consent decree in settlement of the
lawsuits. The settlement covers over 20,000 current and former employees at
more than 200 store locations in Northern California and provides for a fund of
$5.0 million for payments to certain class members and an additional payment of
$2.5 million in attorneys' fees and costs. The consent decree includes
provisions for enhancing the Company's equal opportunity programs by setting
additional affirmative action goals for certain retail positions, tracking the
distribution of hours of work and training opportunities, and continuing a
system for posting job vacancies. This settlement did not have a material
impact on the Company's second quarter 1994 financial position or results of
operations, and is not expected to have a significant impact on future results.
10
<PAGE> 11
SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Safeway's income before extraordinary loss for the second quarter ended June
18, 1994 was $58.9 million ($0.48 per share) compared to net income for the
second quarter of 1993 of $36.0 million ($0.30 per share). Net income of $51.5
million ($0.42 per share) in the second quarter of 1994 included an
extraordinary loss of $7.4 million ($0.06 per share) for the early retirement
of debt. For the first 24 weeks of 1994, income before extraordinary loss was
$100.8 million ($0.83 per share) compared to net income of $34.3 million ($0.29
per share) for the same period of 1993. Net income for the first 24 weeks of
1993 included a $30.2 million after-tax charge ($0.25 per share) for a
voluntary employee buyout program in Safeway's Alberta, Canada division.
Sales were $3.6 billion in the second quarter and $7.1 billion for the first 24
weeks of 1994 compared to $3.5 billion and $7.0 billion for the same periods of
1993. Same-store sales increased 4.2% in the second quarter of 1994,
continuing a six-quarter trend of same-store sales increases. Same-store sales
for the first 24 weeks of 1994 also increased 4.2%. Despite low food price
inflation, Safeway achieved sales growth in the first 24 weeks of 1994. The
savings from efforts to lower the Company's fundamental cost of doing business
were reinvested into improved service and more competitive pricing. The
Company has simplified work methods in the stores, streamlined the support
functions at corporate headquarters and retail division offices, achieved labor
cost parity through competitive labor contracts signed in Alberta, and improved
inventory management.
Gross profit was 27.4% and 27.3% of sales for the 12 and 24 weeks ended June
18, 1994, respectively, compared to 27.0% and 27.1% in the same periods of
1993. This improvement was due to the normalization of prices in the Alberta
division following the pricing actions taken during the second quarter of 1993.
LIFO expense decreased to $4.6 million for the first 24 weeks of 1994 compared
to $6.5 million in the same period of 1993, reflecting the Company's
expectation of low inflation for the year.
Operating and administrative expense improved to 23.31% of sales in the
second quarter of 1994 from 23.75% in the second quarter of 1993. In the first
24 weeks of 1994, operating and administrative expense decreased to 23.60% from
24.83% for the same period of 1993 primarily because of the $54.9 million
pre-tax charge for the Alberta buyout in 1993. Excluding the buyout charge,
operating and administrative expense for the first 24 weeks of 1993 would have
been 24.04%. Higher sales, competitive labor contracts in Alberta, and
programs to control expenses combined to further reduce operating and
administrative expense as a percent of sales during 1994. New programs to
control expenses, such as the recently announced information technology
reorganization, are expected to generate additional reductions to operating and
administrative expense in future periods.
Interest expense fell to $52.7 million in the second quarter of 1994 compared
to $63.2 million in the same quarter of 1993. For the first 24 weeks of 1994,
interest expense was $108.5 million compared to $126.4 million for the same
period of 1993. The decreases in 1994 were primarily due to reduced debt,
resulting from Safeway's strong cash flow from operations in excess of capital
expenditures.
Equity in earnings of unconsolidated affiliates, recorded on a one-quarter
delay basis, increased to $7.9 million for the 12 weeks ended June 18, 1994
compared to $7.2 million for the same period of 1993. Vons reported that its
net income reflected a same-store sales decrease of 5.5% for the quarter ended
March 27, 1994. For the first 24 weeks of the year, equity in earnings of
unconsolidated subsidiaries fell to $18.4 million in 1994 from $23.3 million in
1993. A small increase in income from Safeway's equity investment in Casa Ley
was offset by reduced income from Safeway's equity investment in Vons.
11
<PAGE> 12
SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
In April 1994, the Company revised the Bank Credit Agreement and Working
Capital Credit Agreement (together the "Bank Agreements"). The revisions
extend the maturity of the Bank Agreements by one year to 1998. The revisions
also include a $150 million voluntary reduction of the borrowing capacity under
the Bank Agreements, which decreases the annual commitment fees by $0.6 million
and leaves remaining commitments of $1.25 billion. The revisions permit the
Company to purchase Senior Subordinated Debt of up to $300 million per year or
$500 million over the life of the Bank Agreements.
During the second quarter of 1994, using proceeds from floating rate bank
borrowings, the Company purchased $199.4 million of long-term debt. In
connection with these debt purchases, Safeway recorded an extraordinary loss of
approximately $7.4 million after estimated tax benefit during the second
quarter of 1994. The extraordinary loss consists primarily of premiums paid to
purchase debt and the write-off of related deferred finance costs.
Through July 20, 1994, the Company had purchased $42.7 million of Senior Debt
and $237.1 of Senior Subordinated Debt and will record the additional
extraordinary loss in the third quarter of 1994. Subject to fluctuations in
short-term interest rates, estimated annual interest expense savings on the
debt retired through July 20, 1994 will be approximately $11 million.
Depending on market conditions, Safeway may continue to purchase and retire
long-term debt. Overall debt levels have decreased as a result of Safeway's
strong cash flow from operations in excess of capital expenditures.
Operating cash flow, as presented below, provides a measure of the Company's
ability to generate cash to pay interest and fixed charges, and facilitates the
comparison of Safeway's results of operations with those of companies having
different capital structures. Safeway's computation of operating cash flow is
as follows (dollars in millions):
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
----------------------- -----------------------
June 18, June 19, June 18, June 19,
1994 1993 1994 1993
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before income taxes and
extraordinary loss $103.4 $ 63.2 $176.9 $ 60.1
LIFO expense 2.3 3.3 4.6 6.5
Interest expense 52.7 63.2 108.5 126.4
Depreciation and amortization 75.4 76.1 150.1 152.4
Equity in earnings of unconsolidated
affiliates (7.9) (7.2) (18.4) (23.3)
------ ------ ------ ------
Operating cash flow $225.9 $198.6 $421.7 $322.1
====== ====== ====== ======
As a percent of sales 6.25% 5.60% 5.94% 4.63%
====== ====== ====== ======
As a multiple of interest expense 4.29 3.14 3.89 2.55
====== ====== ====== ======
</TABLE>
Excluding the Alberta buyout charge, operating cash flow for the 12 and 24
weeks ended June 19, 1993 was 5.73% and 5.42% of sales, and was a 3.22 and 2.98
multiple of interest expense.
12
<PAGE> 13
SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cash flow from operations supplemented by credit available under the Bank
Agreements are the Company's primary sources of short-term liquidity. At June
18, 1994, the Company had available unused borrowing capacity of $682.2 million
under the Bank Agreements. Management believes that this amount is adequate to
meet the Company's requirements.
CAPITAL EXPENDITURE PROGRAM
A key component of the Company's long-term strategy is its capital
expenditure program. In order to enhance the quality of projects and to focus
on near-term operating challenges, Safeway scaled back its capital expenditure
program in 1993, investing $290.2 million to open 14 stores and complete 45
major remodels. As a result of consolidating its information technology
systems in 1994, Safeway expects expenditures for capitalized computer software
to be less than planned. In addition, store design improvements have lowered
the cost of new stores and remodels. Accordingly, Safeway has adjusted its
planned 1994 capital expenditures to between $350 million and $400 million
without changing the number of expected store openings and remodels. For the
first 24 weeks of 1994, capital expenditures totaled $106.8 million. Safeway
expects to increase its level of capital expenditures gradually over time.
13
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note H to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 32 and 33 of the 1993 Annual Report to Stockholders,
provides information on significant claims and litigation in which the Company
is involved. In part, Note H provides information on certain claims arising
from the July 1988 Richmond, California warehouse fire. The Company's excess
insurance carrier asserted that its liability policy does not cover third-party
claims against the Company arising from the fire, and the Company filed suit
against the carrier to establish coverage. The court ordered that the claim be
arbitrated in London in accordance with the policy's arbitration clause. A
panel of arbitrators in London has rendered a decision in Safeway's favor in
the arbitration proceeding between the Company and the insurance carrier.
Under the panel's decision, Safeway is entitled to be indemnified by the
carrier under the policy. Safeway believes that coverage under the policy will
be sufficient for resolution of all remaining third-party claims arising out of
the fire.
Note H also provides information regarding two class action employment
discrimination lawsuits filed against the Company. In June 1994, the court
gave final approval to a voluntary consent decree in settlement of the
lawsuits. The settlement covers over 20,000 current and former employees at
more than 200 store locations in Northern California and provides for a fund of
$5.0 million for payments to certain class members and an additional payment of
$2.5 million in attorneys' fees and costs. The consent decree includes
provisions for enhancing the Company's equal opportunity programs by setting
additional affirmative action goals for certain retail positions, tracking the
distribution of hours of work and training opportunities, and continuing a
system for posting job vacancies. This settlement did not have a material
impact on the Company's second quarter 1994 financial position or results of
operations, and is not expected to have a significant impact on future results.
14
<PAGE> 15
SAFEWAY INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 10, 1994 at which the
stockholders voted on proposals as follows:
<TABLE>
<CAPTION>
Votes Votes Against Votes Abstained and
For or Withheld Broker Non-votes
--------- ------------- -------------------
<S> <C> <C> <C>
Election of Directors:
James H. Greene, Jr. 96,416,187 358,353 Not Applicable
Paul Hazen 96,626,961 147,579 Not Applicable
Henry R. Kravis 94,750,909 2,023,631 Not Applicable
Adoption of the 1994 Amended and Restated
Stock Option and Incentive Plan for Key
Employees of Safeway Inc. 93,413,833 3,246,098 114,609
Adoption of the Stock Option Plan for
Consultants of Safeway Inc., as amended 91,966,243 4,656,920 151,377
Adoption of the Operating Performance Bonus
Plan for Executive Officers of Safeway Inc. 95,706,762 950,023 117,755
Adoption of stockholder proposal concerning
disclosure of executive compensation 4,135,851 87,049,267 5,589,422
Ratification of appointment of Deloitte &
Touche as independent auditors for fiscal
year 1994. 96,449,618 249,029 75,893
</TABLE>
15
<PAGE> 16
SAFEWAY INC. AND SUBSIDIARIES
ITEM 6(A). EXHIBITS
Exhibit 4(i).1 Form of Warrant Agreement between the Company and The
First National Bank of Boston as Warrant Agent relating
to Warrants to purchase shares of common stock of the
Company (incorporated by reference to Exhibit 4.5 to
Registration Statement No. 33-9913) and Amendment to the
Warrant Agreement between the Company and The First
National Bank of Boston as Warrant Agent relating to
Warrants to purchase shares of common stock of the
Company (incorporated by reference to Exhibit 4(i).6 to
Registrant's Form 10-K for the year ended December 30,
1989).
Exhibit 4(i).2 Specimen Warrant (incorporated by reference to Exhibit
4(i).5 to Registration Statement No. 33-33388).
Exhibit 4(i).3 Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4(i).2 to Registration Statement No.
33-33388).
Exhibit 4(i).4 Registration Rights Agreement dated November 25, 1986
between the Company and certain limited partnerships
(incorporated by reference to Exhibit 4(i).4 to
Registration Statement No. 33-33388).
Exhibit 4(i).5 Indenture dated as of November 20, 1991 among the
Company and The Bank of New York as Trustee relating to
the Company's Senior Subordinated Debt Securities
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated November 13, 1991).
Exhibit 4(i).6 Form of Officers' Certificate establishing the terms of
the 10% Senior Subordinated Notes due December 1, 2001,
including the form of Note (incorporated by reference to
Exhibit 4.4 of Registrant's Form 8-K dated November 13,
1991).
Exhibit 4(i).7 Form of Officers' Certificate establishing the terms of
the 9.65% Senior Subordinated Debentures due January 15,
2004, including the form of Debenture (incorporated by
reference to Exhibit 4.1 of Registrant's Form 8-K dated
January 15, 1992).
Exhibit 4(i).8 Indenture dated as of February 1, 1992 between the
Company and The First National Bank of Chicago as Trustee
relating to the Company's 9.30% Senior Secured Debentures
due 2001, including the form of Debenture and the forms
of Deed of Trust and Environmental Indemnity Agreement
attached as exhibits thereto (incorporated by reference
to Exhibit 4(i).14 to Registrant's Form 10-K for the year
ended December 28, 1991).
Exhibit 4(i).9 Indenture dated as of March 15, 1992 between the
Company and Harris Trust and Savings Bank as Trustee
relating to the Company's Senior Subordinated Debt
Securities (incorporated by reference to Exhibit 4.1 of
Registrant's Form 8-K dated March 17, 1992).
Exhibit 4(i).10 Form of Officers' Certificate establishing the terms of
the 9.35% Senior Subordinated Notes due March 15, 1999
and the 9.875% Senior Subordinated Debentures due March
15, 2007, including the form of Note and form of
Debenture (incorporated by reference to Exhibit 4.2 of
Registrant's Form 8-K dated March 17, 1992).
Exhibit 4(i).11 Indenture dated as of September 1, 1992 between the
Company and The Chase Manhattan Bank (National
Association), as Trustee relating to the Company's Debt
Securities (incorporated by reference to Exhibit 4.1 of
Registrant's Form 8-K dated September 16, 1992).
16
<PAGE> 17
SAFEWAY INC. AND SUBSIDIARIES
ITEM 6(A). EXHIBITS (CONTINUED)
Exhibit 4(i).12 Form of Officers' Certificate relating to the Company's
Fixed Rate Medium-Term Notes and the Company's Floating
Rate Medium-Term Notes, form of Fixed Rate Note and form
of Floating Rate Note (incorporated by reference to
Exhibits 4.2, 4.3 and 4.4 of Registrant's Form 8-K dated
September 16, 1992).
Exhibit 4(i).13 Form of Officers' Certificate establishing the terms of
a separate series of Safeway Inc.'s Medium-Term Notes
entitled 10% Senior Notes due November 1, 2002, including
the form of Note (incorporated by reference to Exhibits
4.1 and 4.2 of Registrant's Form 8-K dated November 5,
1992).
Exhibit 4(i).14 Form of Officers' Certificate establishing the terms of
a separate series of Safeway Inc.'s Medium-Term Notes
entitled Medium-Term Notes due June 1, 2003 (Series
OPR-1), including the form of Note (incorporated by
reference to Exhibits 4.1 and 4.2 of Registrant's Form
8-K dated June 1, 1993).
Exhibit 4 (i).15 Company Pledge Agreement dated as of November 24, 1986
between the Company and Bankers Trust Company, as
collateral agent, form of First Amendment thereto dated
as of June 12, 1990 and form of Second Amendment thereto
dated as of November 8, 1991 (incorporated by reference
to Exhibit 4.5 of Registrant's Form 8-K dated November
13, 1991), and Third Amendment dated as of January 28,
1992 to Company Pledge Agreement between the Company and
Bankers Trust Company, as collateral agent and interest
rate exchanger (incorporated by reference to Exhibit 4.3
of Registrant's Form 8-K dated March 17, 1992).
Exhibit 4(i).16 Trademark Security Agreement and Conditional Assignment
dated as of November 24, 1986 between the Company and
Bankers Trust Company, as collateral agent, form of First
Amendment thereto dated as of June 12, 1990, and form of
Second Amendment thereto dated as of November 8, 1991
(incorporated by reference to Exhibit 4.6 of Registrant's
Form 8-K dated November 13, 1991), and Third Amendment
dated as of January 28, 1992 to Safeway Pledge Agreement
between the Company and Bankers Trust Company, as
collateral agent and interest rate exchanger
(incorporated by reference to Exhibit 4.4 of Registrant's
Form 8-K dated March 17, 1992).
Exhibit 4(i).17 Pledge and Security Agreement dated as of November 26,
1986 between the Company and Bankers Trust Company, as
collateral agent, form of First Amendment thereto dated
as of June 12, 1990, and form of Second Amendment thereto
dated as of November 8, 1991 (incorporated by reference
to Exhibit 4.7 of Registrant's Form 8-K dated November
13, 1991), and Third Amendment dated as of January 28,
1992, to Company Pledge and Security Agreement
(Inventory) between the Company and Bankers Trust
Company, as collateral agent and interest rate exchanger
(incorporated by reference to Exhibit 4.5 of Registrant's
Form 8-K dated March 17, 1992).
17
<PAGE> 18
SAFEWAY INC. AND SUBSIDIARIES
ITEM 6(A). EXHIBITS (CONTINUED)
Exhibit 4(i).18 Intercreditor Agreement (Company Pledge) dated as of
November 24, 1986 among the Company, Bankers Trust
Company, as agent and collateral agent, Harris Trust and
Savings Bank, and Norwest Bank Minneapolis, N.A., and
form of First Amendment thereto dated as of November 8,
1991 (incorporated by reference to Exhibit 4.8 of
Registrant's Form 8-K dated November 13, 1991) and Second
Amendment dated as of January 28, 1992 to Intercreditor
Agreement (Company Pledge) among the Company, Bankers
Trust Company, as agent, collateral agent and interest
rate exchanger, Harris Trust and Savings Bank, Norwest
Bank Minneapolis, N.A., and The Bank of New York
(incorporated by reference to Exhibit 4.6 of Registrant's
Form 8-K dated March 17, 1992).
Exhibit 4(i).19 Intercreditor Agreement (Substitute Collateral) dated
as of November 24, 1986 among the Company, Bankers Trust
Company, as agent and collateral agent, Harris Trust and
Savings Bank, and Norwest Bank Minneapolis, N.A., and
form of First Amendment thereto dated as of November 8,
1991 (incorporated by reference to Exhibit 4.9 of
Registrant's Form 8-K dated November 13, 1991) and Second
Amendment dated as of January 28, 1992 to Intercreditor
Agreement (Substitute Collateral) among the Company,
Bankers Trust Company, as agent, collateral agent and
interest rate exchanger, Harris Trust and Savings Bank,
Norwest Bank Minneapolis, N.A,. and The Bank of New York
(incorporated by reference to Exhibit 4.7 of Registrant's
Form 8-K dated March 17, 1992).
Exhibit 4(i).20 Form of Second Amended and Restated Credit Agreement
dated as of June 12, 1990 incorporating changes through
the Third Amendment dated as of August 7, 1991, the
Fourth Amendment dated November 8, 1991, and the Fifth
Amendment dated January 28, 1992 among the Company, the
banks listed therein, and Bankers Trust Company as Lead
Manager and Agent (incorporated by reference to Exhibit
4(i).19 to Registrant's Form 10-K for the year ended
January 2, 1993), and the Extension Agreement and Sixth
Amendment dated March 31, 1994 (incorporated by reference
to Exhibit 4(i).20 of Registrant's Form 10-Q for the
quarter ended March 26, 1994).
Exhibit 4(i).21 Form of Second Amended and Restated Working Capital
Credit Agreement dated as of June 14, 1990 incorporating
changes through the Third Amendment dated as of August 7,
1991, the Fourth Amendment dated November 8, 1991, and
the Fifth Amendment dated January 28, 1992, among the
Company, the Banks listed therein, and Bankers Trust
Company as Lead Manager and Agent (incorporated by
reference to Exhibit 4(i).20 to Registrant's Form 10-K
for the year ended January 2, 1993), and the Extension
Agreement and Sixth Amendment dated March 31, 1994
(incorporated by reference to Exhibit 4(i).21 of
Registrant's Form 10-Q for the quarter ended
March 26, 1994).
Exhibit 4(iii) Registrant agrees to provide to the Securities and
Exchange Commission, upon request, copies of instruments
defining the rights of holders of long-term debt of
Registrant and all of its subsidiaries for which
consolidated financial statements are required to be
filed with the Securities and Exchange Commission.
Exhibit 10(iii).1* Safeway Inc. Outside Director Equity Purchase Plan
(incorporated by reference to Exhibit 4.1 to
Registration Statement No. 33-36753).
__________________
* Management contract, or compensatory plan or arrangement
18
<PAGE> 19
SAFEWAY INC. AND SUBSIDIARIES
ITEM 6(A). EXHIBITS (CONTINUED)
Exhibit 10(iii).2* Share Appreciation Rights Plan of Canada Safeway
Limited (incorporated by reference to Exhibit 10(iii).17
to Registrant's Form 10-K for the year ended December 29,
1990) and Amendment No. 1 thereto dated December 13, 1991
(incorporated by reference to Exhibit 10(iii).17 to
Registrant's Form 10-K for the year ended December 28,
1991).
Exhibit 10(iii).3* Share Appreciation Rights Plan of Lucerne Foods Ltd.
(incorporated by reference to Exhibit 10(iii).18 to
Registrant's Form 10-K for the year ended December 29,
1990) and Amendment No. 1 thereto dated December 13, 1991
(incorporated by reference to Exhibit 10(iii).18 to
Registrant's Form 10-K for the year ended December 28,
1991).
Exhibit 10(iii).4* Letter Agreement dated March 24, 1993 between the
Company and Peter A. Magowan (incorporated by reference
to Exhibit 10(iii).6 to Registrant's Form 10-Q for the
quarterly period ended June 19, 1993).
Exhibit 10(iii).5* Settlement Agreement and General Release of Claims
dated October 6, 1993 between the Company and Robert H.
Kinnie (incorporated by reference to Exhibit 10(iii).8 to
Registrant's Form 10-Q for the quarterly period ended
September 11, 1993).
Exhibit 10(iii).6* Stock Option Plan for Consultants of Safeway Inc.
(incorporated by reference to Exhibit 10(iii).7 to
Registrant's Form 10-Q for the quarterly period ended
June 19, 1993).
Exhibit 10(iii).7* First Amendment to the Stock Option Plan for
Consultants of Safeway Inc. (incorporated by reference to
Exhibit 10(iii).7 to Registrant's Form 10-K for the year
ended January 1, 1994).
Exhibit 10(iii).8* 1994 Amended and Restated Stock Option and Incentive
Plan for Key Employees of Safeway Inc. (incorporated by
reference to Exhibit 10(iii).8 to Registrant's Form 10-K
for the year ended January 1, 1994).
Exhibit 10(iii).9* Operating Performance Bonus Plan for Executive Officers
of Safeway Inc. (incorporated by reference to Exhibit
10(iii).9 to Registrant's Form 10-K for the year ended
January 1, 1994).
Exhibit 10(iii).10* Capital Performance Bonus Plan (incorporated by
reference to Exhibit 10(iii).10 to Registrant's Form
10-K for the year ended January 1, 1994).
Exhibit 10(iii).11* Retirement Restoration Plan of Safeway Inc.
(incorporated by reference to Exhibit 10(iii).11 to
Registrant's Form 10-K for the year ended January 1,
1994).
Exhibit 11.1 Computation of Earnings Per Common Share and Common
Share Equivalent.
Exhibit 27.1 Financial Data Schedule
_______________
* Management contract, or compensatory plan or arrangement
ITEM 6(B). REPORTS ON FORM 8-K.
On May 20, 1994, the Company filed a Form 8-K listing under Item 7 (Exhibits)
its Computation of Ratio of Earnings to Fixed Charges for the first quarter of
1994.
19
<PAGE> 20
SAFEWAY INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: July 22, 1994 \s\ Steven A. Burd
--------------- ---------------------
Steven A. Burd
President and Chief Executive
Officer
Date: July 22, 1994 \s\ Julian C. Day
--------------- ---------------------
Julian C. Day
Executive Vice President and
Chief Financial Officer
20
<PAGE> 1
Exhibit 11.1
SAFEWAY INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
and Common Share Equivalent
(In millions, except per share amounts)
<TABLE>
<CAPTION>
12 Weeks Ended
---------------------------------------------
June 18, 1994 June 19, 1993
------------------- --------------------
Fully Fully
Diluted Primary Diluted Primary
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income before extraordinary loss $ 58.9 $ 58.9 $ 36.0 $ 36.0
Extraordinary loss (7.4) (7.4) - -
------ ------ ------ ------
Net income $ 51.5 $ 51.5 $ 36.0 $ 36.0
====== ====== ====== ======
Weighted average common shares outstanding 102.9 102.6 99.4 99.1
Common share equivalents 19.0 19.0 20.5 20.7
------ ------ ------ ------
Weighted average common shares and common
share equivalents 121.9 121.6 119.9 119.8
====== ====== ====== ======
Earnings per common share and common
share equivalent:
Income before extraordinary loss $ 0.48 $ 0.48 $ 0.30 $ 0.30
Extraordinary loss (0.06) (0.06) - -
------ ------ ------ ------
Net income $ 0.42 $ 0.42 $ 0.30 $ 0.30
====== ====== ====== ======
Calculation of common share equivalents:
Options and warrants to purchase common shares 28.2 28.5 29.0 29.2
Common shares assumed purchased with potential
proceeds (9.2) (9.5) (8.5) (8.5)
------ ------ ------ ------
Common share equivalents 19.0 19.0 20.5 20.7
====== ====== ====== ======
Calculation of common shares assumed purchased with
potential proceeds:
Potential proceeds from exercise of options and
warrants to purchase common shares $230.8 $231.2 $126.3 $127.2
Common stock price used under the treasury
stock method 25.13 24.46 14.89 14.89
------ ------ ------ ------
Common shares assumed purchased with
potential proceeds 9.2 9.5 8.5 8.5
====== ====== ====== ======
</TABLE>
(Continued)
21
<PAGE> 2
Exhibit 11.1
SAFEWAY INC. AND SUBSIDIARIES
Computation of Earnings Per Common Share
and Common Share Equivalent (Continued)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
24 Weeks Ended
-----------------------------------------
June 18, 1994 June 19, 1993
------------------ ------------------
Fully Fully
Diluted Primary Diluted Primary
------- ------- -------- -------
<S> <C> <C> <C> <C>
Income before extraordinary loss $100.8 $100.8 $ 34.3 $ 34.3
Extraordinary loss (7.4) (7.4) - -
------ ------ ------ ------
Net income $ 93.4 $ 93.4 $ 34.3 $ 34.3
====== ====== ====== ======
Weighted average common shares outstanding 102.9 102.1 99.4 99.1
Common share equivalents 19.0 19.2 20.4 20.2
------ ------ ------ ------
Weighted average common shares and common
share equivalents 121.9 121.3 119.8 119.3
====== ====== ===== =====
Earnings per common share and common
share equivalent:
Income before extraordinary loss $ 0.83 $ 0.83 $ 0.29 $ 0.29
Extraordinary loss (0.06) (0.06) - -
------ ------ ------ ------
Net income $ 0.77 $ 0.77 $ 0.29 $ 0.29
====== ====== ====== ======
Calculation of common share equivalents:
Options and warrants to purchase common shares 28.1 28.9 28.9 29.3
Common shares assumed purchased with potential
proceeds (9.1) (9.7) (8.5) (9.1)
------ ------ ------ ------
Common share equivalents 19.0 19.2 20.4 20.2
====== ====== ====== ======
Calculation of common shares assumed purchased with
potential proceeds:
Potential proceeds from exercise of options and
warrants to purchase common shares $229.6 $228.6 $125.6 $126.9
Common stock price used under the treasury
stock method 25.13 23.53 14.75 13.99
------ ------ ------ ------
Common shares assumed purchased with
potential proceeds 9.1 9.7 8.5 9.1
====== ====== ====== ======
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
income on pages 3 through 5 of the Company's Form 10-Q for the quarterly period
ending June 18, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-18-1994
<CASH> 49,300
<SECURITIES> 0
<RECEIVABLES> 129,300
<ALLOWANCES> 0
<INVENTORY> 1,051,400
<CURRENT-ASSETS> 1,327,000
<PP&E> 4,214,800
<DEPRECIATION> (1,739,300)
<TOTAL-ASSETS> 4,880,500
<CURRENT-LIABILITIES> 1,673,900
<BONDS> 2,231,700
<COMMON> 1,000
0
0
<OTHER-SE> 475,000
<TOTAL-LIABILITY-AND-EQUITY> 4,880,500
<SALES> 7,104,500
<TOTAL-REVENUES> 7,104,500
<CGS> (5,164,000)
<TOTAL-COSTS> (5,164,000)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (108,500)
<INCOME-PRETAX> 176,900
<INCOME-TAX> (76,100)
<INCOME-CONTINUING> 100,800
<DISCONTINUED> 0
<EXTRAORDINARY> (7,400)
<CHANGES> 0
<NET-INCOME> 93,400
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
