<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 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)
Delaware 94-3019135
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
Fourth and Jackson Streets
Oakland, California 94660
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, (510) 891-3000
including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock, $0.01 par New York Stock Exchange
value per share
Warrants to purchase Common New York Stock Exchange
Stock
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
(Cover continued on following page)
<PAGE> 2
(Cover continued from previous page)
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 ___.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K ___.
Aggregate market value of the voting stock held by non-
affiliates of Registrant as of March 15 1994, was $887
million.
As of March 15, 1994, there were issued and outstanding
102,164,599 shares of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference to the
extent specified herein:
<TABLE>
<CAPTION>
Document Description 10-K Part
-------------------- ---------
<S> <C>
1993 Annual Report to Stockholders I, II, III, IV
1994 Proxy Statement dated March 29, 1994 III
</TABLE>
<PAGE> 3
SAFEWAY INC. AND SUBSIDIARIES
PART I
Item 1. Business and Item 2. Properties
General:
Information appearing under the caption "Company in Review"
beginning on page 10 of the Company's 1993 Annual Report to
Stockholders is incorporated herein by this reference.
Retail Operations:
Information appearing under the caption "Retail Operations"
on pages 10 and 11 of the Company's 1993 Annual Report to
Stockholders is incorporated herein by this reference.
Manufacturing and Wholesale Operations:
Information appearing under the caption "Manufacturing and
Wholesale Operations" on page 11 of the Company's 1993
Annual Report to Stockholders is incorporated herein by this
reference.
Various agricultural commodities constitute the principal
raw materials used by the Company in the manufacture of its
food products. The Company's non-food products are
manufactured from a wide variety of minerals, chemicals,
fabrics, plastics, and metals. Management believes that raw
materials for its products are not in short supply, and all
are readily available from a wide variety of independent
suppliers.
Capital Expenditures:
Information appearing under the caption "Capital Expenditure
Program" on page 11 of the Company's 1993 Annual Report to
Stockholders is incorporated herein by this reference.
Safeway's new stores, remodels, and closures during the last
five years were as follows:
<TABLE>
<CAPTION>
Total
Five
Years 1993 1992 1991 1990 1989
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
New stores:
New locations 55 8 12 9 19 7
Replacements 90 6 23 24 11 26
--- ----- ----- ----- ----- -----
145 14 35 33 30 33
--- ----- ----- ----- ----- -----
--- ----- ----- ----- ----- -----
Remodels:
Expansions 104 27 23 22 11 21
"Four-Wall" remodels 306 18 40 55 79 114
--- ----- ----- ----- ----- -----
410 45 63 77 90 135
--- ----- ----- ----- ----- -----
--- ----- ----- ----- ----- -----
Closures 211 39 49 37 26 60
Stores at year-end 1,078 1,103 1,117 1,121 1,117
</TABLE>
3
<PAGE> 4
SAFEWAY INC. AND SUBSIDIARIES
Item 1. Business and Item 2. Properties (continued)
Financial Information About Industry Segments:
This information is omitted because the Company has no
significant lines of business or industry segments except
the principal business of operating retail supermarkets.
Trademarks:
The Company has invested significantly in the development
and protection of the "Safeway" name. The right to use the
"Safeway" name is considered to be an important asset.
Safeway also owns approximately 100 other trademarks
registered in the United States Patent and Trademark Office,
including its product line names such as Lucerne, Bel-air,
TownHouse, and SELECT. Each trademark registration is for
an initial period of 20 years and is renewable for as long
as the use of the trademark continues. Safeway considers
certain of its trademarks to be of material importance to
its business and actively defends and enforces such
trademarks. Safeway has also registered certain of its
trademarks in Canada.
Working Capital:
At year-end 1993, working capital deficit was composed of
$1.5 billion of current assets and $1.7 billion of current
liabilities. Normal operating fluctuations in these
substantial balances can result in changes to cash flow from
operations presented in the Consolidated Statements of Cash
Flows that are not necessarily indicative of long-term
operating trends; however, during 1993 Safeway significantly
increased cash flow from operations through improved working
capital management. There are no unusual industry practices
or requirements relating to working capital items.
Competition:
Food retailing is intensely competitive. The number of
competitors and the amount of competition experienced by
Safeway's stores vary by market area. The principal
competitive factors that affect the Company's business are
location, quality, service, price and consumer loyalty to
other brands and stores.
Local, regional, and national food chains as well as
independent food stores and markets comprise the principal
competition, although Safeway also faces substantial
competition from convenience stores, liquor retailers,
membership warehouse clubs, specialty retailers, and large-
scale drug and pharmaceutical chains. Safeway and its
competitors engage in price competition which, from time to
time, has adversely affected operating margins in many of
its markets.
Through year-end 1992, new store openings by competitors
with labor costs substantially below Safeway's were
threatening the Company's long-term viability in its
Alberta, Canada division. This competitive wage disparity
was significantly reduced during the first quarter of 1993,
when retail employees in the Alberta division approved a new
contract which reduced wages, established a gain-sharing
plan, and provided for a voluntary buyout program. Several
weeks before employees approved the new contract, Safeway
dramatically reduced prices in the Alberta division. The
savings that Safeway began realizing in the second quarter
of 1993 from the new labor contract were offset through the
third quarter by the increased training costs and reduced
productivity associated with the new employees. By the
fourth quarter, the Alberta division had improved
productivity.
4
<PAGE> 5
SAFEWAY INC. AND SUBSIDIARIES
Item 1. Business and Item 2. Properties (continued)
Compliance with Environmental Laws:
The Company's compliance with the federal, state, and local
provisions, which have been enacted or adopted regulating
the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has
not had and is not expected to have a material adverse
effect upon the capital expenditures, earnings or
competitive position of the Company.
Employees:
At year-end 1993, the Company had approximately 105,900 full
and part-time employees. Approximately 90% of the Company's
employees are covered by collective bargaining agreements
negotiated with local unions affiliated with one of 13
different international unions. There are approximately 575
such agreements, typically having three-year terms, with
some agreements having terms up to five years. The Company
renegotiates a significant number of these agreements every
year. While the Company believes that its relationship with
its employees is good, work stoppages that could result from
failure to renew contracts covering a significant number of
employees could have an adverse effect on Safeway's
operations.
Financial Information About Foreign and Domestic Operations
and Export Sales:
Note K to the consolidated financial statements, included on
page 35 of the Company's 1993 Annual Report to Stockholders
and incorporated herein by this reference, contains financial
information by geographic area. At year-end 1993, the Company's
foreign operations were composed of retail grocery, manufacturing,
and wholesale operations in Canada and a 49% equity investment
in Casa Ley, S.A. de C.V. ("Casa Ley"), a Mexican company. Other
than the competitive nature of the retail food business, the Company
is not aware of anyother significant risks of operating in these
foreign countries.
Casa Ley had total assets of $365.5 million and $294.5
million as of September 30, 1993 and 1992, respectively,
based on financial information provided by Casa Ley.
According to Casa Ley's financial statements, sales and net
income were $925.8 million and $39.5 million, respectively,
for the 12 months ended September 30, 1993, and $752.7
million and $33.8 million for the 12 months ended September
30, 1992.
5
<PAGE> 6
SAFEWAY INC. AND SUBSIDIARIES
Item 1. Business and Item 2. Properties (continued)
Terms of Outstanding Indebtedness:
Information appearing in Note B to the consolidated
financial statements on pages 25 through 27 of the Company's
1993 Annual Report to Stockholders is incorporated herein by
this reference.
The following description of the Bank Credit Agreement and
the Working Capital Credit Agreement (the "Bank Agreements")
and the indentures related to the 9.35% Senior Subordinated
Notes due 1999, the 9.65% Senior Subordinated Debentures due
2004, the 9.875% Senior Subordinated Debentures due 2007 and
the 10% Senior Subordinated Notes due 2001 (collectively,
the "Notes and Debentures"), the 9.30% Senior Secured
Debentures due 2007 (the "9.30% Senior Debentures") and the
10% Senior Notes due 2002 (the "10% Senior Notes") does not
purport to be complete and is subject to and qualified in
its entirety by reference to the Bank Agreements and such
indentures, which have been filed with the Commission.
Capitalized terms used herein which are not otherwise
defined shall have the meanings assigned to them in the
definitive agreements and instruments governing such
indebtedness.
Negative covenants contained in the Bank Agreements prohibit
the Company from paying cash dividends on its capital stock
and restrict the ability of the Company and, in some cases,
its subsidiaries, to, among other things: (i) incur debt,
(ii) incur liens, (iii) make investments or enter into joint
ventures, (iv) incur or create contingent obligations, (v)
make distributions on or redemptions of its capital stock,
(vi) make capital expenditures, (vii) prepay or repay
subordinated indebtedness, including the Notes and the
Debentures, (viii) make certain fundamental changes in
corporate structure or business activities including certain
mergers or consolidations, liquidations, dissolutions, or
disposing of material amounts of assets other than in the
ordinary course of business, (ix) incur obligations as
lessee with respect to the lease of any property, (x) become
liable in sale and leaseback transactions, (xi) sell or
discount receivables, (xii) enter into certain transactions
with shareholders and affiliates, (xiii) dispose of
subsidiary equity securities, (xiv) engage in unrelated
business activities, (xv) amend or modify the documents
governing subordinated indebtedness, and (xvi) engage in
transactions or fail to make payments which result in
penalties under ERISA.
In addition, the Bank Agreements require that the Company
meet specific financial ratio tests, including a ratio of
consolidated cash flow available for fixed charges to
consolidated fixed charges and a ratio of consolidated total
debt to consolidated capitalization.
The indentures related to the Notes and the Debentures
restrict the ability of the Company, and in some cases, its
subsidiaries, to, among other things: (i) pay cash
dividends or make other distributions on or redemptions of
its capital stock, (ii) incur debt, (iii) incur liens, (iv)
enter into transactions with stockholders and affiliates,
and (v) consolidate, merge or dispose of all or
substantially all of its assets. In particular, the
indentures limit the ability of the Company to incur debt in
certain circumstances, unless the Company meets a specified
consolidated fixed charge ratio.
Item 3. Legal Proceedings
Information about legal proceedings appearing under the
caption "Legal Matters" as reported in Note H to the
consolidated financial statements on pages 32 and 33 of the
Company's 1993 Annual Report to Stockholders is incorporated
herein by this reference.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the stockholders
during the fourth quarter of 1993.
6
<PAGE> 7
SAFEWAY INC. AND SUBSIDIARIES
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock, $0.01 par value, is listed on
the New York Stock Exchange. Information as to quarterly
sales prices for the Company's common stock appears in Note
L to the consolidated financial statements on page 36 of the
Company's 1993 Annual Report to Stockholders and is
incorporated herein by this reference. There were 4,833
stockholders of record as of March 15, 1994, however,
approximately 34% of the Company's outstanding stock is held
in "street name" by depositories or nominees on behalf of
beneficial holders. The price per share of common stock was
$24.625 as of the close of business on March 15, 1994.
Holders of common stock are entitled to receive dividends
if, as, and when declared by the Board of Directors out of
funds legally available therefor, subject to the dividend
and liquidation rights of any preferred stock that may be
issued and subject to the dividend restrictions in the Bank
Agreements and the indentures relating to the Notes and
Debentures. The Bank Agreements provide that the Company
may not declare or pay any dividend or make any distribution
with respect to its common stock (other than dividends or
distributions payable in its common stock). Under the
indentures relating to the Notes and Debentures and the
9.30% Senior Debentures, the Company may declare or pay
dividends or make distributions with respect to its common
stock (other than dividends or distributions payable in its
common stock) if at the time of such payment or distribution
(i) no default or event of default under such indentures
shall have occurred and be continuing and (ii) certain
aggregate payment limitations set forth in such indentures
shall have been satisfied provided that the foregoing is not
violated by the payment of dividends up to 6% per annum of
the net proceeds received by the Company in the initial
public offering and in any subsequent public offerings of
Common Stock. Net proceeds from the 1990 initial public
offering and the 1991 public offering of Common Stock were
approximately $120 million and $340 million, respectively.
The Company has not paid dividends on common stock through
1993 and has no current plans for dividend payments.
Item 6. Selected Financial Data
The "Five-Year Summary Financial Information" included on
page 12 of the Company's 1993 Annual Report to Stockholders
is incorporated herein by this reference. The Five-Year
Summary should be read in conjunction with the Company's
consolidated financial statements and accompanying notes
included under Item 8, Consolidated Financial Statements and
Supplementary Data.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Information appearing under the caption "Financial Review"
on pages 13 through 16 and under the caption "Capital
Expenditure Program" on page 11 of the Company's 1993 Annual
Report to Stockholders is incorporated herein by this
reference.
Item 8. Consolidated Financial Statements and Supplementary
Data
Pages 17 through 41 of the Company's 1993 Annual Report to
Stockholders, which include the consolidated financial
statements, consolidated financial statement schedules,
Computation of Earnings Per Common Share and Common Share
Equivalent listed as Exhibit 11.1 to Item 14(a)3, and the
Independent Auditors' Reports as listed in Item 14(a)1 and
14(a)2.2, are incorporated herein by this reference.
7
<PAGE> 8
SAFEWAY INC. AND SUBSIDIARIES
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
and Compliance with Section 16(a) of the Exchange
Act
Directors of the Company. Information on the nominees for
election as Directors and the continuing Directors of the
Company, which appears under the caption "Election of
Directors" in the Company's 1994 Proxy Statement, is
incorporated herein by this reference.
Executive Officers of the Company. The names and ages of
the current executive officers of the Company and their
positions as of March 15, 1994, are set forth below. Unless
otherwise indicated, each of the executive officers served
in various managerial capacities with the Company over the
past five years. None of the executive officers named below
is related to any other executive officer or director by
blood, marriage or adoption. Officers serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
Year First Elected
Name and all Positions with the Company ------------------
Held at March 15, 1994 Age Officer Present Office
- --------------------------------------- --- ------- --------------
<S> <C> <C> <C>
Steven A. Burd (1) 44 1992 1992
President and Chief Executive Officer
Frithjof J. Dale 49 1982 1991
Group Vice President
Finance
Julian C. Day (2) 41 1993 1993
Executive Vice President and Chief
Financial Officer
E. Richard Jones 49 1983 1988
Executive Vice President
Supply Operations
George D. Marshall 54 1979 1979
Senior Vice President
Industrial Relations
Kenneth W. Oder (3) 46 1993 1993
Executive Vice President
Labor Relations, Human Resources,
Legal and Public Affairs
Larree M. Renda 35 1994 1994
Senior Vice President
Corporate Retail Operations
Michael C. Ross (4) 46 1993 1993
Senior Vice President
Secretary and General Counsel
</TABLE>
8
<PAGE> 9
SAFEWAY AND SUBSIDIARIES
Item 10. Directors and Executive Officers of the Registrant
and Compliance with Section 16(a) of the Exchange
Act (continued)
<TABLE>
<CAPTION>
Year First Elected
Name and all Positions with the Company ------------------
Held at March 15, 1994 Age Officer Present Office
- --------------------------------------- --- ------- --------------
<S> <C> <C> <C>
Wilber L. Schinner 53 1984 1988
Senior Vice President
Director of Marketing
Richard A. Wilson 60 1988 1988
Vice President
Tax
Donald P. Wright 41 1991 1991
Senior Vice President
Real Estate and Engineering
</TABLE>
_______________________________
(1) Previously the owner of Burd & Associates.
(2) Previously self-employed as an independent consultant.
(3) Previously a partner at the law firm of Latham & Watkins.
(4) Previously a partner at the law firm of Latham & Watkins.
Compliance with Section 16(a) of the Exchange Act. Information appearing
under the caption "Compliance with Section 16(a) of the Exchange Act" in the
Company's 1994 Proxy Statement is incorporated herein by this reference.
Item 11. Executive Compensation
Information appearing under the captions "Executive Compensation" and
"Pension Plans" in the Company's 1994 Proxy Statement is incorporated
herein by this reference. Information appearing under the captions
"Report of the Compensation and Stock Option Committee" and "Stock
Performance Graph" in the Company's 1994 Proxy Statement is not
incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Information appearing under the caption "Beneficial Ownership of
Securities" in the Company's 1994 Proxy Statement is incorporated herein
by this reference.
Item 13. Certain Relationships and Related Transactions
Note J to the consolidated financial statements, included on page 35 of
the Company's 1993 Annual Report to Stockholders, and the captions
"Certain Relationships and Transactions" and "Compensation Committee
Interlocks and Insider Participation" in the Company's 1994 Proxy Statement
contain information about certain relationships and related transactions
and are incorporated herein by this reference.
9
<PAGE> 10
SAFEWAY INC. AND SUBSIDIARIES
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) The following documents are filed as a part of this
report:
1. Consolidated Financial Statements of the Company are
incorporated by reference in PART II, Item 8:
Consolidated Statements of Income for fiscal 1993, 1992,
and 1991.
Consolidated Balance Sheets as of the end of fiscal 1993
and 1992.
Consolidated Statements of Cash Flows for fiscal 1993,
1992, and 1991.
Consolidated Statements of Stockholders' Equity for
fiscal 1993, 1992, and 1991.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2.1 Consolidated Financial Statement Schedules of the
Company for fiscal 1993, 1992, and 1991 are incorporated
by reference in PART II, Item 8:
Schedule V Property, Plant and Equipment
Schedule VI Accumulated Depreciation and Amortization of
Property, Plant and Equipment
Schedule IX Short-term Borrowings
2.2 Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees Other Than
Related Parties, and Independent Auditors' Report
thereon are included on pages 16 and 17 of this report.
3. The following exhibits are filed as part of this report:
Exhibit 3.1 Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit
3.1 to Registration Statement No. 33-33388).
Exhibit 3.2 Form of By-laws of each of the SSI Companies
except the Company (incorporated by reference to
Exhibit 3.2 to Registration Statement No. 33-9047),
Form of By-laws of the Company as amended
(incorporated by reference to Exhibit 3.2 to
Registration Statement No. 33-33388), and
Amendment to the Company's By-laws effective
March 8, 1993.
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).
10
<PAGE> 11
SAFEWAY INC. AND SUBSIDIARIES
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
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 4.14 of
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).
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).
11
<PAGE> 12
SAFEWAY INC. AND SUBSIDIARIES
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
<TABLE>
<S> <C>
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 the 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
the 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 the 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).
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 the 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).
</TABLE>
12
<PAGE> 13
SAFEWAY INC. AND SUBSIDIARIES
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
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
the 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(1).19 of
Registrant's Form 10-K for the year ended
January 2, 1993).
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(1).20 of
Registrant's Form 10-K dated January 2, 1993).
Exhibit 4(iii) Registrant agrees to provide 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).
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).
________________________
* Management contract, or compensatory
plan or arrangement
13
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
<TABLE>
<S> <C>
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
ending 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 ending
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 ending June 19, 1993).
Exhibit 10(iii).7* First Amendment to the Stock Option Plan for
Consultants of Safeway Inc.
Exhibit 10(iii).8* 1994 Amended and Restated Stock Option and
Incentive Plan for Key Employees of Safeway Inc.
Exhibit 10(iii).9* Operating Performance Bonus Plan for Executive
Officers of Safeway Inc.
Exhibit 10(iii).10* Capital Performance Bonus Plan.
Exhibit 10(iii).11* Retirement Restoration Plan of Safeway Inc.
Exhibit 11.1 Computation of Earnings Per Common Share and
Common Share Equivalent (incorporated by
reference to page 40 of the Company's 1993
Annual Report to Stockholders).
Exhibit 13.1 Registrant's 1993 Annual Report to Stockholders
(considered filed to the extent specified in
Item 1, Item 2, Item 3, Item 5, Item 6, Item 7,
Item 8, Item 13 and Exhibit 11.1 above).
Exhibit 13.2 Registrant's 1994 Proxy Statement (considered
filed to the extent specified in Item 10, Item
11, Item 12 and Item 13 above).
Exhibit 22.1 Subsidiaries of Registrant.
Exhibit 23.1 Independent Auditors' Consent.
Exhibit 27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
On November 1, 1993, the Company filed a Form 8-K listing
under item 7 (Exhibits) its Computation of Ratio of Earnings
to Fixed Charges for the third quarter of 1993.
_________________________
* Management contract, or compensatory
plan or arrangement.
14
<PAGE> 15
SAFEWAY INC. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: /s/ STEVEN A. BURD Date: March 25,
1994
SAFEWAY INC.
Steven A. Burd
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
and on the dates indicated:
/s/ JULIAN C. DAY /s/ F. J. DALE
Julian C. Day F. J. Dale
Executive Vice President and Group Vice
Chief Financial Officer President,
Date: March 25, 1994 Finance
Date: March 25,
1994
<TABLE>
<CAPTION>
Director Date
<S> <C>
/s/STEVEN A. BURD March 25, 1994
Steven A. Burd
/s/ SAM GINN March 25, 1994
Sam Ginn
/s/ JAMES H. GREENE, JR. March 25, 1994
James H. Greene, Jr.
/s/ PAUL HAZEN March 25, 1994
Paul Hazen
/s/ HENRY R. KRAVIS March 25, 1994
Henry R. Kravis
/s/ ROBERT I. MACDONNELL March 25, 1994
Robert I. MacDonnell
/s/ PETER A. MAGOWAN March 25, 1994
Peter A. Magowan
/s/ GEORGE R. ROBERTS March 25, 1994
George R. Roberts
/s/ MICHAEL T. TOKRARZ March 25, 1994
Michael T. Tokarz
</TABLE>
15
<PAGE> 16
Consolidated Supplemental Financial Schedules
Schedule II
SAFEWAY INC. AND SUBSIDIARIES
Amounts Receivable from Related Parties
and Underwriters, Promoters, and Employees Other Than Related Parties
(in thousands)
<TABLE>
<CAPTION>
Balance at
Beginning Amounts Balance at End of Period
Name of Debtor of Period Additions Payments (5) Written Off (5) Current Not Current
- -------------------------------------- ------------ ----------- -------------- -------------- ------- -----------
1993
- ----
<S> <C> <C> <C> <C> <C> <C>
R. H. Kinnie:
7.16% Promissory Note due 1995 (1) $ 61.6 $ (61.6) $ -- $ --
7.88% Promissory Note due 1996 (1) 43.5 (43.5) -- --
7.88% Promissory Note due 1996 (1) 575.4 (575.4) -- --
7.95% Promissory Note due 2002 (2) 385.0 (385.0) -- --
Non-interest bearing Promissory Note
due 2002 (2) 1,100.0 (582.8) $ (517.2) -- --
7.88% Promissory Note due 1996 (3) 165.0 (165.0) -- -- --
7% Promissory Note Due 1996 (4) 2,330.4 (2,330.4) -- -- --
M. C. Ross
Relocation Loan (6) -- $ 170.0 -- -- -- 170.0
------------ ---------- --------- --------- --------- ---------
$ 4,660.9 $ 170.0 $(4,143.7) $ (517.2) $ $ 170.0
============ ========== ========= ========= ========= =========
1992
- ----
R. H. Kinnie:
7.16% Promissory Note due 1995 (1) $ 82.2 $ (20.6) $ 20.5 $ 41.1
7.88% Promissory Note due 1996 (1) 43.5 -- -- 43.5
7.88% Promissory Note due 1996 (1) 575.4 -- -- 575.4
7.95% Promissory Note due 2002 (2) 385.0 -- -- 385.0
Non-interest bearing Promissory Note
due 2002 (2) 1,100.0 -- -- 1,100.0
7.88% Promissory Note due 1996 (3) 165.0 -- -- 165.0
7% Promissory Note Due 1996 (4) $ 2,330.4 -- -- 2,330.4
------------ ---------- --------- --------- --------- ---------
$ 2,351.1 $ 2,330.4 $ (20.6) $ 20.5 $ 4,640.4
============ ========== ========= ========= ========= =========
1991
- ----
R. H. Kinnie:
7.16% Promissory Note due 1995 (1) $ 102.8 $ (20.6) $ 20.6 $ 61.6
7.88% Promissory Note due 1996 (1) 43.5 -- 43.5
7.88% Promissory Note due 1996 (1) $ 575.4 -- -- 575.4
7.95% Promissory Note due 2002 (2) -- 385.0 -- -- 385.0
Non-interest bearing Promissory Note
due 2002 (2) -- 1,100.0 -- -- 1,100.0
7.88% Promissory Note due 1996 (3) -- 165.0 -- -- 165.0
------------ ---------- --------- --------- --------- ---------
$ 146.3 $ 2,225.4 $ (20.6) $ 20.6 $ 2,330.5
============ ========== ========= ========= ========= =========
</TABLE>
(1) Loan made to purchase common stock of the Company. Loan was secured by
common stock owned by Mr. Kinnie.
(2) Loan made to purchase personal residence and was secured by Deed of Trust
on the property.
(3) Loan made to purchase personal residence and was secured by common stock of
the Company owned by Mr. Kinnie.
(4) Loan made to pay income tax obligations related to Mr. Kinnie's change of
residence from Canada to the U.S., and was secured by common stock of
the Company owned by Mr. Kinnie.
(5) In June 1993 Mr. Kinnie resigned from his positions as Executive Vice
President and Chief Operations Officer and became an employee of Canada
Safeway Limited. In connection therewith, all outstanding principal and
interest was repaid, with the exception of $517,229 which was forgiven.
(6) Loan made for expenses incurred with relocation of residence to Oakland,
Ca. The loan bears no interest and is due on the date of sale of his
prior residence.
16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
of Safeway Inc.:
We have audited the consolidated balance sheets of Safeway Inc. and
subsidiaries as of January 1, 1994, and January 2, 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended January 1, 1994, and have issued
our report thereon dated February 21, 1994; such financial statements and
report are included in your 1993 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the Consolidated
Financial Statement Schedule II listed in Item 14(a)2.2 of this Form 10-K.
Such consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on such
consolidated financial statement schedule. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information shown therein.
DELOITTE & TOUCHE
Oakland, California
February 21, 1994
17
<PAGE> 1
EXHIBIT 10(iii).7
FIRST AMENDMENT TO
STOCK OPTION PLAN FOR
CONSULTANTS OF
SAFEWAY INC.
Safeway Inc., a Delaware corporation, hereby adopts this First
Amendment to the Stock Option Plan for Consultants of Safeway Inc. (the
"Plan").
1. The Plan shall be amended to add Section 1.1 which shall
read in its entirety as follows:
Section 1.1 - Award Limit
"Award Limit" shall mean 400,000 shares of Common Stock
or, as the context may require, Options to acquire more than
400,000 shares of Common Stock.
2. Section 2.1 of the Plan shall be amended to read in its
entirety as follows:
Section 2.1 - Shares Subject to Plan
The shares of stock subject to Options shall be
shares of the Company's Common Stock. The aggregate number of
such shares which may be issued upon exercise of Options shall
not exceed 1,000,000. No individual shall receive Options for
more than the Award Limit during any calendar year. To the
extent required by Section 162(m) of the Code, Options which
are canceled continue to be counted against the Award Limit and
if, after grant of an Option, the price of shares subject to
such Option is reduced, the transaction is treated as a
cancellation of the Option and a grant of a new Option and
both the Option deemed to be canceled and the Option deemed to
be granted are counted against the Award Limit.
3. Section 2.3 of the Plan shall be amended to read in its
entirety as follows:
Section 2.3 - Changes in Common Stock
In the event that the outstanding shares of
Common Stock of the Company are hereafter changed into or
exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason
of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend, combination
of shares or otherwise, appropriate adjustments shall be made by
the Committee in the number and kind of shares for the purchase
of which Options may be granted, including adjustments of the
limitations in Section 2.1 on the maximum number and kind of
shares which may be issued on exercise of Options and of the
Award Limit set forth in Section 1.1..
<PAGE> 2
4. Section 3.2(a)(ii) of the Plan shall be amended to read in
its entirety as follows:
(ii) Subject to the Award Limit, determine the
number of shares to be subject to such Options granted to such
selected Consultants; and
5. Section 6.2 of the Plan shall be amended to read in its
entirety as follows:
Section 6.2 - Duties and Powers of Committee
It shall be the duty of the Committee to
conduct the general administration of the Plan in accordance
with its provisions. The Committee shall have the power to
interpret the Plan and the Stock Option Agreements and to
adopt such rules for the administration, interpretation and
application of the Plan and the Stock Option Agreements as
are consistent therewith and to interpret, amend or revoke any
such rules. In its absolute discretion, the Board may at any
time and from time to time exercise any and all rights and
duties of the Committee under the Plan except with respect to
matters which under Section 162(m) are required to be
determined in the absolute discretion of the Committee.
6. Section 7.2 of the Plan shall be amended to read in its
entirety as follows:
Section 7.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from
time to time by the Board. However, to the extent required by
the Code, no action of the Board may, except as provided in
Section 2.3, modify the Award Limit, modify the eligibility
requirements of Section 3.1 and 6.1, reduce the minimum Option
price requirements of Section 4.2 or otherwise amend the Plan
in a manner requiring stockholder approval as a matter of
Section 162(m) of the Code or other applicable law, regulation
or rule without approval of the Company's shareholders given
within 12 months before or after the action by the Board.
Neither the amendment, suspension nor termination of the Plan
shall, without the consent of the holder of the Option, impair
any rights or obligations under any Option theretofore granted.
No Option may be granted during any period of suspension nor
after termination of the Plan, and in no event may any Option be
granted under this Plan after the expiration of ten years from
the date the Plan is adopted by the Board.
7. The Plan shall be amended to add Section 7.5 which shall
read in its entirety as follows:
Section 7.5 - Approval of Plan by Stockholders.
This Plan shall be submitted for the approval
of the Company's stockholders.
* * * *
<PAGE> 3
I hereby certify that the foregoing amendment to the Plan was
duly adopted by the Board of Directors of Safeway Inc. as of _____________,
1994.
Executed on this ____ day of ___________, 1994.
______________________________
Secretary
<PAGE> 1
EXHIBIT 10(iii).8
1994 AMENDED AND RESTATED
STOCK OPTION AND INCENTIVE PLAN FOR
KEY EMPLOYEES OF SAFEWAY INC.
Safeway Inc., a corporation organized under the laws of the State of
Delaware (and the successor to Safeway Stores, Incorporated) hereby adopts this
1994 Amended and Restated Stock Option and Incentive Plan for Key Employees of
Safeway Inc. The Plan was originally adopted in 1986 and was amended and
restated on July 18, 1990. The Plan was further amended effective October 10,
1991 and December 13, 1991. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the
Company by providing additional incentives to certain of its key Employees who
have been or will be given responsibility for the management or administration
of the Company's business affairs, by assisting them to become owners of
capital stock of the Company and thus to benefit directly from its growth,
development and financial success.
(2) To enable the Company to obtain and retain the services of the
type of professional, technical and managerial employees considered essential
to the long-range success of the Company by providing and offering them an
opportunity to become owners of capital stock of the Company under options,
including options that are intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have
the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.
Section 1.1 - Award Limit
(a) With respect to executive officers of the Company and with
respect to Employees (other than executive officers of the Company) solely for
their year of hire, "Award Limit" shall mean 500,000 shares of Common Stock or,
as the context may require, Options to acquire 500,000 shares of Common Stock.
(b) With respect to Employees other than executive officers of the
Company for each year after their year of hire, "Award Limit" shall mean
200,000 shares of Common Stock or, as the context may require, Options to
acquire 200,000 shares of Common Stock.
Section 1.2 - Board
"Board" shall mean the Board of Directors of the Company.
<PAGE> 2
Section 1.3 - Bonus Plan
"Bonus Plan" shall mean collectively The Operating Performance Bonus
Plan for Executive Officers of Safeway Inc. and the Operating Performance Bonus
Plan for Key Employees of Safeway, Inc.
Section 1.4 - Bonus Stock
"Bonus Stock" shall mean Common Stock awarded pursuant to Article VI
of this Plan.
Section 1.5 - Bonus Stockholder
"Bonus Stockholder" shall mean an Executive to whom Bonus Stock has
been awarded under this Plan.
Section 1.6 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.7 - Committee
"Committee" shall mean the Stock Option Committee of the Board,
appointed as provided in Section 8.1.
Section 1.8 - Common Stock
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
Section 1.9 - Company
"Company" shall mean Safeway Inc.
Section 1.10 - Consultant
"Consultant" shall mean any person who is not an Employee and who
renders services to the Company, or any entity which is then a Parent
Corporation or a Subsidiary, as a consultant or as an adviser, whether as an
independent contractor or an employee of an employer, and whether such person
renders such services at the time this Plan is adopted or renders such services
subsequent to the adoption of this Plan.
Section 1.11 - Director
"Director" shall mean a member of the Board.
Section 1.12 - Disability
"Disability" shall have the meaning set forth in Section 22(e)(3) of
the Code.
2
<PAGE> 3
Section 1.13 - Employee
"Employee" shall mean any employee (as defined in accordance with the
regulations and revenue rulings then applicable under Section 340l(c) of the
Code) of the Company, or of any entity which is then a Parent Corporation or a
Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
Section 1.14 - Executive
"Executive" shall mean any Employee eligible for a bonus award under
the Bonus Plan.
Section 1.15 - Fair Market Value
"Fair Market Value" of a share of Common Stock as of any given date
shall mean: (i) the closing price of the Common Stock on the New York Stock
Exchange on such date or, if shares were not traded on such date, then on the
next preceding trading day during which a sale occurred; or (ii) if such stock
is not traded on an exchange but is quoted on NASDAQ or a successor quotation
system, (1) the last sales price (if the stock is then listed as a National
Market Issue under the NASD National Market System) or (2) the mean between the
closing representative bid and asked prices (in all other cases) for the stock
on such date as reported by NASDAQ or such successor quotation system; or (iii)
if such stock is not publicly traded on an exchange and not quoted on NASDAQ or
a successor quotation system, the mean between the closing bid and asked prices
for the stock, on such date, as determined in good faith by the Committee; or
(iv) if the Company's stock is not publicly traded, the fair market value
established by the Committee acting in good faith. In determining the Fair
Market Value of the Company's Common Stock under subsection (i) of this Section
1.16, the Committee may rely on the closing price as reported in the New York
Stock Exchange composite transactions published in the Western Edition of the
Wall Street Journal.
Section 1.16 - Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies under
Section 422 of the Code and which is designated as an Incentive Stock Option by
the Committee.
Section 1.17 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an Incentive
Stock Option.
Section 1.18 - Officer
"Officer" shall mean an officer of the Company, any Parent Corporation
or any Subsidiary.
Section 1.19 - Option
"Option" shall mean an option to purchase Common Stock of the Company,
granted under the Plan. "Options" includes both Incentive Stock Options and
Non-Qualified Options.
3
<PAGE> 4
Section 1.20 - Optionee
"Optionee" shall mean an Employee to whom an Option is granted under
the Plan.
Section 1.21 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain
of corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
Section 1.22 - Plan
"Plan" shall mean this 1994 Amended and Restated Stock Option and
Incentive Plan for Key Employees of Safeway Inc.
Section 1.23 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.24 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.25 - Subsidiary
(a) Except as provided in subsection (b) below, with respect to
Incentive Stock Options and with respect to Nonqualified Stock Options granted
before January 31, 1994, "Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain then owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
(b) With respect to Bonus Stock, Nonqualified Stock Options granted on
or after January 31, 1994 and, if the Committee shall so determine in its
absolute discretion, with respect to Non-Qualified Stock Options granted before
such date which are designated by the Committee and with respect to Incentive
Stock Options granted at any time which are designated by the Committee,
"Subsidiary" shall mean (i) any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain and (ii) any other entity in which the Company
has a substantial ownership interest and which has been so designated by the
Committee in its absolute discretion; provided, however, that if the Committee
so designates an Incentive Stock Option, to the extent required by Section 422
of the Code and the then applicable regulations and revenue rulings, such
Incentive Stock Option shall thereafter be deemed to be a Nonqualified Stock
Option.
Section 1.26 - Termination of Employment
4
<PAGE> 5
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee or Bonus Stockholder and the Company, a
Parent Corporation or a Subsidiary is terminated for any reason, with or
without cause, including, but not by way of limitation, a termination by
resignation, discharge, death or retirement, but, except with respect to
Incentive Stock Options as required by Section 422(a)(2) of the Code and the
then applicable regulations and revenue rulings under said Section, excluding
terminations where there is a simultaneous reemployment by the Company, a
Parent Corporation or a Subsidiary; provided, however, that with respect to
Bonus Stock, Nonqualified Stock Options granted on or after January 31, 1994
and, if the Committee shall so determine in its absolute discretion, with
respect to Non-Qualified Stock Options granted before such date which are
designated by the Committee and with respect to Incentive Stock Options granted
at any time which are designated by the Committee, when such termination is
simultaneously accompanied by commencement of an engagement of the Optionee or
Bonus Stockholder as a Consultant to the Company, a Parent Corporation or a
Subsidiary, no Termination of Employment shall then occur and Termination of
Employment with respect to such Optionee or Bonus Stockholder shall then mean
Termination of Service with respect to such employment; provided, however, that
if the Committee so designates an Incentive Stock Option, to the extent
required by Section 422 of the Code and the then applicable regulations and
revenue rulings, such Incentive Stock Option shall thereafter be deemed to be a
Nonqualified Stock Option. The Committee, in its absolute discretion, shall
determine the effect of all other matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether particular leaves of absence constitute Terminations of
Employment; provided, however, that, with respect to Incentive Stock Options, a
leave of absence shall constitute a Termination of Employment if, and to the
extent that, such leave of absence interrupts employment for the purposes of
Section 422(a)(2) of the Code and the then applicable regulations and revenue
rulings under said Section.
Section 1.27 - Termination of Service
"Termination of Service" shall mean the time when the engagement of
Optionee or Bonus Stockholder as a Consultant to the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without
cause, including without limitation, resignation, discharge, death or
retirement; provided that, except with respect to Incentive Stock Options as
required by Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section, when such termination is simultaneously
accompanied by commencement of employment with the Company, a Parent
Corporation or a Subsidiary, no Termination of Service shall then occur and
Termination of Service with respect to such Optionee or Bonus Stockholder shall
thereafter mean Termination of Employment with respect to such employment. The
Committee, in its absolute discretion, shall determine all questions relating
to Termination of Service.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
(a) The shares of stock subject to Options and awarded as Bonus Stock
shall be shares of the Company's Common Stock. The aggregate number of such
shares which may be issued upon exercise of Options or as Bonus Stock shall not
exceed 18,000,000 (8,000,000 of which were authorized under
5
<PAGE> 6
the original Plan (prior to first amendment and restatement of the Plan on July
18, 1990), 6,000,000 of which were authorized by the first amendment and
restatement of the Plan on July 18, 1990 and 4,000,000 of which were authorized
by the Plan as amended on October 10, 1991.
(b) No individual shall receive Options for more than the Award Limit
during any calendar year. To the extent required by Section 162(m) of the
Code, options which are canceled continue to be counted against the Award Limit
and if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction is treated as a cancellation of the Option and a grant
of a new Option and both the Option deemed to be canceled and the Option deemed
to be granted are counted against the Award Limit.
Section 2.2 - Unexercised Options
If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
optioned hereunder, subject to the limitations of Section 2.1.
Section 2.3 - Changes in Common Stock
In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or kind
of shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend, combination of shares or
otherwise, appropriate adjustments shall be made by the Committee in the number
and kind of shares for the purchase of which Options may be granted and in the
number and kind of shares of Bonus Stock which may be awarded, including
adjustments of the limitations in Section 2.1 on the maximum number and kind of
shares which may be issued on exercise of Options and of the Award Limit set
forth in Section 1.1.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any key Employee of the Company or of any corporation which is then a
Parent Corporation or a Subsidiary shall be eligible to be granted Options,
except as provided in Section 3.2.
Section 3.2 - Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the
Code.
Section 3.3 - Granting of Options
(a) The Committee shall from time to time, in its absolute discretion:
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(i) Determine which Employees are key Employees and select
from among the key Employees (including those to whom Options have
been previously granted under the Plan) such of them as in its opinion
should be granted Options; and
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to such selected key
Employees, and determine whether such Options are to be Incentive
Stock Options or Non-Qualified Options; and
(iii) Determine the terms and conditions of such Options,
consistent with the Plan, including, but not limited to such terms and
conditions as may be required in order for such Options to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of
the Code.
Notwithstanding the above, the Committee may delegate certain powers
relating to the granting of Options as it deems appropriate to executive
officers of the Company including the power to determine the number of shares
to be subject to Options (subject to a maximum amount set by the Committee),
whether such Options are to be Incentive Stock Options or Non-Qualified Options
and to determine the terms and conditions of such Options; provided, however,
that the Committee shall not delegate any powers that are required to be
exercised by the Committee under Section 16(b) of the Securities Exchange Act
of 1934, as amended, or any rules promulgated thereunder, or Section 162(m) of
the Code, or any regulations or rules issued thereunder.
(b) Upon the selection of an Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose such
conditions on the grant of such Option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may, in its
absolute discretion and on such terms as it deems appropriate, require as a
condition on the grant of an Option to an Employee that the Employee surrender
for cancellation some or all of the unexercised Options which have been
previously granted to him. An Option the grant of which is conditioned upon
such surrender may have an option price lower (or higher) than the option price
of the surrendered Option, may cover the same (or a lesser or greater) number
of shares as the surrendered Option, may contain such other terms as the
Committee deems appropriate and shall be exercisable in accordance with its
terms, without regard to the number of shares, price, option period or any
other term or condition of the surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement,
which shall be executed by the Optionee and an authorized Officer of the
Company and which shall contain such terms and conditions as the Committee
shall determine, consistent with the Plan, including, but not limited to, such
terms and conditions as may be required in order for such Options to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code. Stock Option Agreements evidencing Incentive Stock Options shall contain
such terms and conditions as may be necessary to qualify such Options as
"incentive stock options" under Section 422 of the Code.
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Section 4.2 - Option Price
The price of the shares subject to each Option shall be set by the
Committee; provided, however, that (i) the price per share of a Non-Qualified
Option shall be not less than the lesser of 100% of the Fair Market Value of
such shares on the date such Option is granted or the average of the Fair
Market Values of such shares on the five most recent trading days prior to the
date that such Option is granted, and (ii) the price per share of an Incentive
Stock Option shall not be less than 100% of the Fair Market Value of such
shares on the date such Option is granted; provided, further, that, in the case
of an Incentive Stock Option granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company, any Subsidiary or any
Parent Corporation, the price per share shall not be less than 110% of the Fair
Market Value of such shares on the date such Option is granted.
Section 4.3 - Commencement of Exercisability
(a) Subject to the provisions of Sections 4.3(b), 4.3(c) and 9.3,
Options shall become exercisable at such times and in such installments (which
may be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that no Option shall be exercisable by
any Optionee who is then subject to Section 16 of the Exchange Act within the
period ending six months after the date the Option is granted and provided,
further, that by a resolution adopted after an Option is granted the Committee
may, on such terms and conditions as it may determine to be appropriate and
subject to Sections 4.3(b), 4.3(c) and 9.3, accelerate the time at which such
Option or any portion thereof may be exercised.
(b) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
(c) Notwithstanding any other provision of this Plan, in the case of
an Incentive Stock Option, the aggregate Fair Market Value (determined at the
time the Incentive Stock Option is granted) of the shares of the Company's
stock with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code) are exercisable for the first time by the Optionee
during any calendar year (under the Plan and all other incentive stock option
plans of the Company, any Subsidiary and any Parent Corporation) shall not
exceed $100,000.
Section 4.4 - Expiration of Options
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) In the case of an Incentive Stock Option, (1) the
expiration of ten years from the date the Option was granted or (2) in
the case of an Optionee owning (within the meaning of Section 424(d)
of the Code), at the time the Incentive Stock Option was granted, more
than 10% of the total combined voting power of all classes of stock of
the Company, any Subsidiary or any Parent Corporation, the expiration
of five years from the date the Incentive Stock Option was granted; or
(ii) In the case of a Non-Qualified Option, the expiration of
fifteen years and one day from the date the Option was granted; or
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(iii) The expiration of three months from the date of the
Optionee's Termination of Employment for any reason other than such
Optionee's death, Disability, or retirement; or
(iv) The expiration of one year from the date of the
Optionee's Termination of Employment by reason of the Optionee's
death, Disability or retirement on or after age 55 in accordance with
the Company's retirement policies, as then in effect; or
(v) The engagement by the Employee in willful misconduct
which injures the Company, any Parent Corporation or any of its
Subsidiaries.
(b) Subject to the provisions of Section 4.4(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires and
becomes unexercisable; and (without limiting the generality of the foregoing)
the Committee may provide in the terms of individual Options that said Options
expire immediately upon a Termination of Employment for any reason.
Section 4.5 - Consideration
In consideration of the granting of the Option, the Optionee shall
agree, in the written Stock Option Agreement, to remain in the employ of the
Company, a Parent Corporation or a Subsidiary for a period of at least one year
after the Option is granted. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in the
employ of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company, its Parent
Corporations and its Subsidiaries, which are hereby expressly reserved, to
discharge any Optionee at any time for any reason whatsoever, with or without
cause.
Section 4.6 - Adjustments in Outstanding Options
In the event that the outstanding shares of the stock subject to
Options are changed into or exchanged for a different number or kind of shares
of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend, combination of shares or otherwise, the Committee shall make an
appropriate and equitable adjustment in the number and kind of shares as to
which all outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the total
price applicable to the Option or the unexercised portion of the Option (except
for any change in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding adjustment in Option
price per share; provided, however, that, in the case of Incentive Stock
Options, each such adjustment shall be made in such manner as not to constitute
a "modification" within the meaning of Section 424(h)(3) of the Code. Any such
adjustment made by the Committee shall be final and binding upon all Optionees,
the Company and all other interested persons.
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
Notwithstanding the provisions of Section 4.6, in its absolute
discretion, and on such terms and conditions as it deems appropriate, the
Committee may provide by the terms of any Option that such Option cannot be
exercised after the merger or consolidation of the Company with or into another
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corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or the liquidation or dissolution of the Company; and
if the Committee so provides, it may, in its absolute discretion and on such
terms and conditions as it deems appropriate, also provide, either by the terms
of such Option or by a resolution adopted prior to the occurrence of such
merger, consolidation, acquisition, liquidation or dissolution, that, for some
period of time prior to such event, such Option shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in Section
4.3(a), Section 4.3(b) and/or any installment provisions of such Option.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee, any
exercisable portion of an Option may, prior to the time when such portion
becomes unexercisable under Section 4.4 or Section 4.7, be exercised by his
personal representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and distribution.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
Section 4.4 or Section 4.7, such Option or portion thereof may be exercised in
whole or in part; provided, however, that the Company shall not be required to
issue fractional shares and the Committee may, by the terms of the Option,
require any partial exercise to be with respect to a specified minimum number
of shares.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4 or Section 4.7:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option
or portion is exercised, such notice complying with all applicable
rules established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is thereby exercised;
or
(ii) Subject to the Committee's consent, shares of Common
Stock owned by the Optionee duly endorsed for transfer to the
Company with a Fair Market Value on the date of delivery equal
to the aggregate Option price of the shares with respect to
which such Option or portion is thereby exercised; or
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(iii) Subject to the Committee's consent, full payment in any
other form approved by the Committee, consistent with
applicable law and the Plan; or
(iv) Any combination of the consideration provided in the
foregoing subsections (i), (ii) and (iii); and
(c) On or prior to the date the same is required to be withheld:
(i) Full payment (in cash or by check) of any amount that
must be withheld by the Company for federal, state and/or
local tax purposes; or
(ii) Subject to the Committee's consent, full payment by
delivery to the Company of shares of the Common Stock owned by
the Optionee duly endorsed for transfer to the Company by the
Optionee or other person then entitled to exercise such Option
or portion with an aggregate Fair Market Value equal to the
amount that must be withheld by the Company for federal, state
and/or local tax purposes; or
(iii) Subject to the Committee's consent, full payment by
retention by the Company of shares of Common Stock to be
issued pursuant to such Option exercise with an aggregate Fair
Market Value equal to the amount that must be withheld by the
Company for federal, state and/or local tax purposes; or
(iv) Any combination of payments provided for in the
foregoing subsections (i), (ii) or (iii);
provided that if and to the extent required by Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended
("Rule 16b-3"), an election to make full payment by the means
described in Section 5.3(c)(ii) or 5.3(c)(iii) shall be made more than
six months after grant of the Option and either (x) made and the
Option exercised only during the period beginning of the third
business day following the date of release of quarterly or annual
summary statements of sales and earnings of the Company and ending on
the twelfth business day following such date, or (y) irrevocably made
more than six months prior to the date the amount of tax to be
withheld is determined in the case of Sections 5.3(c)(ii) and
5.3(iii); and
(d) Such representations and documents as the Committee, in its
absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other
federal or state securities laws or regulations. The Committee may,
in its absolute discretion, also take whatever additional actions it
deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall be
exercised pursuant to Section 5.1 by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons
to exercise the Option or portion thereof.
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Section 5.4 - Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any certificate
or certificates for shares of stock purchased upon the exercise of any Option
or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee shall, in its
absolute discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer corporation) of all
amounts which it is required to withhold under federal, state or local
law in connection with the exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may establish from time to
time for reasons of administrative convenience.
Section 5.5 - Rights as Stockholders
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
Section 5.6 - Transfer Restrictions
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the exercise
of an Option as it deems appropriate. Any such restriction shall be set forth
in the respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares. The Committee may require the Employee to
give the Company prompt notice of any disposition of shares of stock, acquired
by exercise of an Incentive Stock Option, within two years from the date of
granting such Option or one year after the transfer of such shares to such
Employee. The Committee may direct that the certificates evidencing shares
acquired by exercise of an Incentive Stock Option refer to such requirement to
give prompt notice of disposition.
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ARTICLE VI
AWARD OF BONUS STOCK
Section 6.1 - Award of Bonus Stock
Stock bonuses awarded to any Executive under the Bonus Plan shall be
awarded as Bonus Stock pursuant to this Article VI.
Section 6.2 - Value of Bonus Stock
Each share of Bonus Stock shall be valued at 100% of the Fair Market
Value of a share of Common Stock on the date such Bonus Stock is awarded.
Section 6.3 - Terms of Bonus Stock
The Committee shall from time to time, in its absolute discretion,
determine the terms and conditions applicable to such Bonus Stock, consistent
with this Plan.
Section 6.4 - Issuance of Bonus Stock
Upon the determination of the number of shares of Bonus Stock which
the Executive shall receive pursuant to the Bonus Plan and Section 6.2(b), the
Committee shall instruct the Secretary of the Company to issue such Bonus Stock
and may impose such conditions on the issuance of such Bonus Stock as it deems
appropriate. Notwithstanding anything to the contrary contained herein, bonus
stock to be awarded from time to time to an executive officer of Canada Safeway
Limited or Lucerne Foods Ltd. may be first issued to either or both of such
subsidiaries for distribution to such executive officer.
ARTICLE VII
TERMS OF BONUS STOCK
Section 7.1 - Bonus Stock Agreement
Bonus Stock shall be issued only pursuant to a written Bonus Stock
Agreement, which shall be executed by the Executive and an authorized officer
of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with this Plan, including, but not
limited to, such terms and conditions as may be required in order for the Bonus
Stock to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code if the Committee determines, in its absolute
discretion, that the award of Bonus Stock should so qualify.
Section 7.2 - Rights as Stockholders
Upon delivery of the shares of Bonus Stock to the Bonus Stockholder
or, if applicable, the escrow holder pursuant to Section 7.4, the Bonus
Stockholder shall have all the rights of a stockholder with respect to said
shares, subject to the restrictions in his Bonus Stock Agreement, including the
right to vote the shares and to receive all dividends and other distributions
paid or made with respect to the shares; provided, however, that in the
absolute discretion of the Committee, any extraordinary
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distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 7.3.
Section 7.3 - Restriction
All shares of Bonus Stock issued under this Plan (including any shares
received by holders thereof with respect to shares of Bonus Stock as a result
of stock dividends, stock splits or any other form of recapitalization) shall,
in the terms of each individual Bonus Stock Agreement, be subject to such
restrictions as the Committee shall provide, which restrictions may include,
without limitation, restrictions on sale and other dispositions of the Bonus
Stock and restrictions based on duration of employment with the Company;
provided however, that by a resolution adopted after the Bonus Stock is issued,
the Committee may, on such terms and conditions as it may determine to be
appropriate, remove any or all of the restrictions imposed by the terms of the
Bonus Stock Agreement. Bonus Stock may not be sold or encumbered until all
restrictions on such Bonus Stock are terminated or expire.
Section 7.4 - Custody of Stock
The Secretary of the Company or such other escrow holder as the
Committee may appoint may, if requested by the Committee, retain physical
custody of each certificate representing Bonus Stock until all of the
restrictions imposed under the Bonus Stock Agreement with respect to the shares
evidenced by such certificate expire or shall have been removed.
Section 7.5 - Legend
In order to enforce the restrictions imposed upon shares of Bonus
Stock hereunder, the Committee shall cause a legend or legends to be placed on
certificates representing all shares of Bonus Stock that are still subject to
restrictions under Bonus Stock Agreements, which legend or legends shall make
appropriate reference to the conditions imposed thereby.
ARTICLE VIII
ADMINISTRATION
Section 8.1 - Stock Option Committee
(a) The Stock Option Committee shall consist of at least three
persons (or such smaller number as may be permitted under Rule 16b-3 which has
been adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, if and as such Rule is then in effect ("Rule 16b-3"))
appointed by and holding office during the pleasure of the Board. No Options
or Bonus Stock may be granted to any member of the Committee during the term of
his membership on the Committee. No person shall be eligible to serve on the
Committee unless he is then a "disinterested person" within the meaning of Rule
16b-3.
(b) Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee shall be
filled by the Board.
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Section 8.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan, the Stock Option Agreements and the
Bonus Stock Agreements, and to adopt such rules for the administration,
interpretation and application of the Plan, the Stock Option Agreements and the
Bonus Stock Agreements as are consistent therewith and to interpret, amend or
revoke any such rules. Any such interpretations and rules in regard to
Incentive Stock Options shall be consistent with the basic purpose of the Plan
to grant "incentive stock options" within the meaning of Section 422 of the
Code. In its absolute discretion, the Board may at any time and from time to
time exercise any and all rights and duties of the Committee under the Plan
except with respect to matters which under Rule 16b-3 or Section 162(m) are
required to be determined in the absolute discretion of the Committee.
Section 8.3 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 8.4 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company and its
Officers and Directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon all Optionees and Bonus Stockholders, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan,
the Options or the Bonus Stock, and all members of the Committee shall be fully
protected by the Company in respect to any such action, determination or
interpretation.
ARTICLE IX
OTHER PROVISIONS
Section 9.1 - Options Not Transferable
No Option or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 9.1 shall prevent transfers by
will or by the applicable laws of descent and distribution.
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Section 9.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board.
However, to the extent required by Rule 16b-3 or the Code, no action of the
Board may, except as provided in Section 2.3, increase any limit imposed in
Section 2.1 on the maximum number of shares which may be issued on exercise of
Options or as Bonus Stock, modify the Award Limit, modify the eligibility
requirements of Section 3.1 and 6.1, reduce the minimum Option price
requirements of Section 4.2 or extend the limit imposed in this Section 9.2 on
the period during which Options and Bonus Stock may be granted or otherwise
amend the Plan in a manner requiring stockholder approval as a matter of
Regulation 16b-3, Section 162(m) of the Code or other applicable law,
regulation or rule without approval of the Company's stockholders given within
12 months before or after the action by the Board. Neither the amendment,
suspension nor termination of the Plan shall, without the consent of the holder
of the Option or Bonus Stockholder, impair any rights or obligations under any
Option or Bonus Stock theretofore granted. No Option or Bonus Stock may be
granted during any period of suspension nor after termination of the Plan, and
in no event may any Option or Bonus Stock be granted under this Plan after the
first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's stockholders under Section 9.3.
Section 9.3 - Approval of Plan by Stockholders
The original Plan was approved by the Company's stockholders in 1986.
The first Amended and Restated Plan was approved by the Company's stockholders
in 1990. The Plan was further amended effective October 10, 1991 and December
13, 1991 and, to the extent required by applicable law, such amendments were
approved by the Company's shareholders in 1992. The 1994 Amended and Restated
Plan shall be submitted for the approval of the Company's stockholders within
12 months after the date of the Board's initial adoption of the 1994 Amended
and Restated Plan. Options may be granted under the first Amended and Restated
Plan, as amended in 1991, until the Company's stockholders approve the 1994
Amended and Restated Plan. In addition, Options and Bonus Stock may be granted
under the 1994 Amended and Restated Plan prior to such stockholder approval;
provided, however, that Options granted under the 1994 Amended and Restated
Plan after the adoption of the 1994 Amended and Restated Plan by the Board but
prior to such stockholder approval shall not be excisable prior to the time
when the Plan is approved by the stockholders; provided, further, that if
stockholder approval of Options and Bonus Stock granted under the 1994 Amended
and Restated Plan after adoption has not been obtained at the end of said
12-month period, all such Options and Bonus Stock shall thereupon be cancelled
and become null and void.
Section 9.4 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume options or other rights
otherwise than under this Plan in
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connection with any proper corporate purpose, including, but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, firm or association.
Section 9.5 - Titles
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
* * * *
I hereby certify that the foregoing Amended and Restated Plan was duly
adopted by the Board of Directors of Safeway Inc. as of January 31, 1994.
Executed on this ____ day of ____________, 1994.
_____________________________
Secretary
* * * *
I hereby certify that the foregoing Amended and Restated Plan was duly
approved by the stockholders of Safeway Inc. on __________ __, 1994.
Executed on this ____ day of ____________, 1994.
_____________________________
Secretary
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EXHIBIT 10(iii).9
THE OPERATING PERFORMANCE BONUS PLAN
FOR EXECUTIVE OFFICERS OF SAFEWAY INC.
Safeway Inc., a Delaware corporation (the "Company"), hereby
adopts The Operating Performance Bonus Plan for Executive Officers of Safeway
Inc. (the "Plan"). The objectives of the Plan are to motivate and reward
executives to produce results that increase shareholder value and to encourage
individual and team behavior that helps the Company achieve both short and
long-term corporate objectives.
ARTICLE I
DEFINITIONS
Section 1.1 - Base Compensation. "Base Compensation" shall mean
the Participant's regular weekly base salary rate as of the first day of the
year, excluding moving expenses, bonus pay and other payments which are not
considered part of regular weekly salary rate, multiplied by the number of
weeks the Participant is eligible, including up to six weeks of Paid Leave of
Absence.
Section 1.2 - Paid Leave of Absence. "Paid Leave of Absence"
shall mean a period of time during which a Participant performs no duties due
to an illness, incapacity (including disability), layoff, jury duty, military
duty or a leave of absence for which the Participant is so paid or so entitled
to payment by the Company, whether direct or indirect, but excluding vacation
time.
Section 1.3 - Participant. "Participant" shall mean any of the
Chief Executive Officer ("CEO"), the Executive Vice President - Supply and any
Executive Officer.
ARTICLE II
BONUS AWARDS
Section 2.1 - CEO. For each fiscal year the Compensation
Committee (the "Committee") shall establish a performance target which shall
include three components of overall Company performance: (i) same store sales,
(ii) operating profit and (iii) working capital. Achievement of specified
levels above the performance target will result in an award not to exceed 80%
of Base Compensation, paid in accordance with Article III. Prior to the
payment of a bonus award the Committee must certify the level of performance
attained by the Company during the year to which such bonus award relates.
<PAGE> 2
Section 2.2 - Executive Officers. Each Executive Officer
(including the Executive Vice President - Supply, but excluding the CEO) is
eligible for this bonus award. Achievement of specified levels above the
performance target described under Section 2.1 will result in bonus awards not
to exceed 40% for some and up to 100% of other Executive Officers' Base
Compensation, as previously established by the Committee. At the CEO's
discretion, however, the CEO may reduce the amount payable to any Executive
Officer, paid in accordance with Article III. Prior to the payment of a bonus
award the Committee must certify the level of performance attained by the
Company during the year to which such bonus award relates.
Section 2.3 - Executive Vice President - Supply. For each fiscal
year the Committee shall establish a performance target which shall include
four components of performance for the Supply Division: (i) total Supply
Division income, (ii) plant performance, (iii) Glencourt income contribution
and (iv) working capital turnover. Achievement of specified levels above the
performance target will result in an award not to exceed 40% of Base
Compensation, paid in accordance with Article III. Prior to the payment of a
bonus award the Committee must certify the level of performance attained by the
Supply Division during the year to which such bonus award relates.
ARTICLE III
PAYMENT OF BONUS AWARD
Section 3.1 - Form of Payment. Each bonus award shall be divided
into two components, a cash bonus and a stock bonus. The amount of cash bonus
shall be between 70% and 80% of the bonus award and the amount of stock bonus
shall be between 20% and 30% of the bonus award. Stock bonuses shall be paid
in accordance with the provisions of the 1994 Amended and Restated Stock Option
and Incentive Plan for Key Employees of Safeway Inc.
Section 3.2 - Timing of Payment. Each bonus award shall be paid
as soon as practicable after the end of the fiscal year to which such bonus
award relates.
ARTICLE IV
SECTION 162(m)
Section 4.1 - Qualified Performance Based Compensation. The
Committee, in it discretion, may determine whether a bonus award should qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the "Code") and may take such
actions which it may deem necessary to ensure that such bonus award will so
qualify.
<PAGE> 3
Section 4.2 - Performance Goals. With respect to any bonus award
which the Committee determines should qualify as performance-based
compensation, any of the performance targets described in Sections 2.1 and 2.3,
if applicable to such bonus award, shall be established before the first day of
the fiscal year to which such bonus award relates, except as may be otherwise
provided under Section 162(m)(4)(C) of the Code.
ARTICLE V
TRANSFERS AND TERMINATIONS
Section 5.1 - Transfers. For a Participant who moves from one
Executive Officer position to another during a year, the bonus award for the
year will be the sum of the pro-rata bonus awards calculated for each position.
Section 5.2 - Terminations. Except as provided in Section 5.1 or
as otherwise provided by the Committee, a Participant who, whether voluntarily
or involuntarily, is terminated, demoted, transferred or otherwise ceases to be
an Executive Officer at any time during a year shall not be eligible to receive
a partial year bonus award, except when the reason for leaving the position is
for reasons of health or retirement; provided, however, that with respect to a
Participant who leaves for reasons of health or retirement, the Committee or
the CEO, in their discretion, may determine that such participant shall not
receive a partial year bonus award.
ARTICLE VI
ADMINISTRATION
Section 6.1 - Compensation Committee
(a) The Committee shall consist of at least two persons
appointed by and holding office at the pleasure of the Board.
(b) Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee shall be
filled by the Board.
Section 6.2 - Duties and Powers of Committee. It shall be the
duty of the Committee to conduct the general administration of the Plan in
accordance with its provisions. The Committee shall have the power to
interpret the Plan, and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret, amend or revoke any such rules. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan except with respect to matters which
under Section 162(m) of the Code are required to be determined in the sole and
absolute discretion of the Committee.
<PAGE> 4
Section 6.3 - Majority Rule. The Committee shall act by a
majority of its members in office. The Committee may act either by vote at a
meeting or by a memorandum or other written instrument signed by a majority of
the Committee.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - Amendment, Suspension or Termination of the Plan.
This Plan does not constitute a promise to pay and may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board. However, to the extent required by Section 162(m) with
respect to bonus awards which the Committee determines should qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code, no action of the Board may modify the performance targets described in
Sections 2.1 and 2.3 if applicable to such bonus awards, after the commencement
of the year with respect to which such bonus awards relate.
Section 7.2 - Approval of Plan by Stockholders. This Plan shall
be submitted for the approval of the Company's stockholders.
<PAGE> 1
Exhibit 10(iii).10
SAFEWAY INC.
BONUS PLAN
CAPITAL PERFORMANCE
A bonus will be calculated according to the Corporation's Capital Performance,
defined in terms of the return on investment (ROMV) generated by new stores and
remodel projects that have been (1) completed and audited in the current year
and (2) completed and audited two years earlier under this program.
Actual capital performance results will be compared to the RE-45 projected
capital performance results. The RE-45 is the financial justification,
established by the Real Estate Committee, for store openings, expansions
(considered new stores when adding 8,000 square feet or more) and major
remodels.
Bonus Based on First Year Audit Results: The return on each completed project
will be audited separately and will be based on the actual results compared
with the first year RE-45 projected ROMV over a twenty week period beginning
thirteen full periods after the new store completion date and from two to six
to twelve full periods after the remodel project completion date. (Wherever
seasonality is a factor in any capital project, the results will be adjusted to
reflect a full year's performance.) In order to earn a bonus under the first
year audit results there must be a sufficient number of projects to be
completed and/or capital budget expense during a bonus period. To the extent,
the year's capital program is insufficiently large to justify paying a bonus,
the Corporate Compensation Committee will provide a fair and equitable
alternative. The bonus is awarded only if the Corporation's new store and
remodel cost does not exceed 10% of the sum of the projects authorized.
Bonus Based on Third Year Audit Results: The return on each completed new
store and remodel project will be reaudited separately two years after the
initial audit and will be based on the current actual results measured over the
same twenty week time frame the initial audit covered and will be compared with
the third year RE-45 projected ROMV.
The established rates of return on investment (the hurdle rate) will be set at
25% IRR (Internal Rate of Return) for new stores and 30% IRR for remodel
projects but are subject to change.
Individual projects are labeled either as defensive or offensive investments.
For an offensive project, the measurement of performance is based on converting
the RE-45 projected ROMV to an adjusted, projected ROMV. The adjustment factor
used is equal to the hurdle rate divided by the projected IRR. In the case of
a defensive project an adjustment is not applicable.
An average target ROMV, weighted by each project's planned capital expenditure,
is calculated for all projects to be measured in a bonus year. Minimum and
maximum ROMV targets which serve to set the parameters around which bonus
payments are made are calculated as follow.
<PAGE> 2
Exhibit 10(iii).10 continued
A minimum target for a remodel project is established by adjusting planned
incremental cash flow downward by 10/30 and determining the resulting ROMV.
For a new store incremental cash flow is reduced by 10/25. The overall minimum
target is a weighted average of these lower ROMVs for all projects to be
measured.
A maximum target for a remodel project is established by adjusting planned
incremental cash flow upward by 5/30 and determining the resulting ROMV. For a
new store incremental cash flow is increased by 5/25. The overall maximum
target is a weighted average of these higher ROMVs for all project's to be
measured.
The actual ROMV for each project is determined by comparing annualized net cash
flow to annualized net assets. For seasonal projects, the annualized cash flow
is adjusted by a factor that accounts for the seasonality found in the periods
being measured. The overall ROMV is weighted by the individual projects
planned spending to total planned spending.
The capital maximum bonus potential varies by position and ranges from 18% to
30%. The calculation for each year is separate (1st and 3rd year results) and
is equally divided into two components. In the case of real estate executives
who are new in their position since the earlier of the two years being
measured, the entire capital bonus is based on the 1st year calculation.
<PAGE> 1
EXHIBIT 10(iii).11
RETIREMENT RESTORATION PLAN
OF
SAFEWAY INC.
Effective January 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
ARTICLE I - Definitions 1
ARTICLE II - Eligibility for and Amount of Retirement
Related Benefits 2
ARTICLE III - Executive Death Benefits 6
ARTICLE IV - Miscellaneous 7
</TABLE>
<PAGE> 3
1
SAFEWAY INC.
RETIREMENT RESTORATION PLAN
This Retirement Restoration Plan for designated employees of Safeway Inc. is
adopted by the Company to be effective as of January 1, 1994.
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
1.01 "Actuarial Equivalent" shall mean the equivalent of a given benefit or a given amount payable in another manner or by other
means, determined by or under the direction of the Committee in accordance with actuarial principles, methods and
assumptions which are found to be appropriate by the Committee. Unless otherwise determined by the Committee, such
assumptions shall be those assumptions which are in effect from time to time under the Basic Plan.
1.02 "Affiliate" means any corporation, partnership or other entity in which the Company has a substantial economic interest and
which the Committee designates as an Affiliate.
1.03 "Basic Plan" means the Employee Retirement Plan of Safeway Inc. and its Domestic Subsidiaries, as amended and restated from
time to time.
1.04 "Beneficiary" means any person designated in writing by the Participant to receive benefits under the terms of the Basic
Plan. "Life Insurance Beneficiary" means any person designated in writing by the Participant to receive benefits under the
terms of the Safeway Inc. Group Term Life Insurance Plan.
1.05 "Board of Directors" means the Board of Directors of Safeway Inc.
1.06 "Committee" means the Executive Compensation Committee appointed by the Board of Directors of the Company, and given
authority by the Board of Directors to administer this Plan.
1.07 "Company" means Safeway Inc.
1.08 "Executive Officer" means any Senior Vice President, Executive Vice President or more senior executive officer of the
Company (or an Affiliate of the Company) provided that he is on a U.S. payroll. Certain Executive Officers are eligible
for special death benefits under Article III. By written resolution, the Committee may specify other key employees to be
eligible for those benefits or may discontinue coverage for otherwise eligible Executive Officers.
</TABLE>
<PAGE> 4
2
<TABLE>
<S> <C>
1.09 "Participant" means any employee who was a Participant in the Senior Executive Supplemental Benefit Plan as of December 31,
1993, or any salaried employee on the U.S. payroll of the Company, any Subsidiary, or any Affiliate, who is a Participant
in the Basic Plan and whose benefits under the Basic Plan are limited by the restrictions of Sections 401(a)(17) and/or 415
of the Internal Revenue Code of 1954 or the Internal Revenue Code of 1986, as amended (collectively, the "Code"); provided
that no employee shall become or remain a Participant if the Committee determines that such employee is not a member of "a
select group of management or highly compensated employees" within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Certain employees who might otherwise
qualify as Participants in this Plan shall specifically be ineligible for benefits set forth in Article II, Article III or
both Articles of this Plan as set forth in Appendix B, which appendix may be amended or supplemented by the Committee, from
time to time, in its sole discretion and the Committee shall have the power to exclude current Participants from the Plan
in its sole discretion.
1.10 "Plan" means this Retirement Restoration Plan.
1.11 "Service" shall mean service of a Participant as a common law employee of the Company, any Subsidiary, or any Affiliate.
1.12 "Subsidiary" means any corporation in which the Company holds stock, directly or indirectly, possessing more than 50% of
the total combined voting power of all classes of stock of such corporation.
1.13 The masculine gender, where appearing in the Plan will be deemed to include the feminine gender, and the singular may
include the plural, unless the context clearly indicates the contrary.
</TABLE>
ARTICLE II
ELIGIBILITY FOR AND AMOUNT OF RETIREMENT RELATED BENEFITS
2.01 Eligibility
Each Participant is eligible to receive a retirement benefit under
this Plan if he is eligible to receive a benefit under the terms of
the Basic Plan and if he separates from Service after attaining age
55. Notwithstanding the foregoing, the Beneficiary of a Participant
who separates from Service due to death shall be eligible for a
benefit hereunder regardless of the Participant's age at death.
<PAGE> 5
3
2.02 Amount of Benefit
Unless a Participant is entitled to receive a greater retirement
benefit under paragraph 2.03 below, the Participant's retirement
benefit under this Plan shall be the Actuarial Equivalent of the
Participant's benefits under the Basic Plan with respect to the period
of the Participant's participation in the Basic Plan, subject to the
adjustments described in subparagraphs (a), (b), and (c) below,
reduced by the Actuarial Equivalent of the benefits to which the
Participant is entitled under the Basic Plan:
(a) "Compensation", as defined in the Basic Plan shall be
determined without reference to the limitations of Section
401(a)(17) of the Code,
(b) the limitation on benefits of Section 415 of the Code shall
not apply, and
(c) a Participant's number of Years of Participation which are
taken into account in determining the Participant's benefits
under the Basic Plan shall be limited to 35 years, unless the
Participant had more than 35 Years of Participation as of
December 31, 1993, in which case the Participant's Years of
Participation shall be the Participant's number of Years of
Participation as of the date of his separation from Service.
2.03 Minimum Benefit
The amount of monthly benefit payable to a Participant who was a
member of the Senior Executive Supplemental Benefit Plan as of
December 31, 1993 under paragraph 2.02 above shall not be less than
the "gross frozen benefit" defined in (a) below, minus the "frozen
offsets" defined in (b) below, minus the amount deemed payable to the
Participant under the terms of the Basic Plan offset defined in (c)
below.
(a) "Gross frozen benefit" shall mean the Participant's retirement
benefit under the Senior Executive Supplemental Benefit Plan
as in effect immediately prior to its termination based on the
Participant's age and service determined as of December 31,
1993, and final average compensation calculated as of December
31, 1993 as if the Participant separated from Service on such
date, as modified below. This amount shall be frozen as of
December 31, 1993 and shall equal the product of (i), (ii) and
(iii), as follows:
(i) 85% of the Participant's final average annual
compensation calculated as of December 31, 1993 as if
the Participant separated from Service on such date
under the terms of the Senior Executive Supplemental
Benefit Plan, divided by 12.
(ii) The early retirement factor under the terms of the
Senior Executive Supplemental Benefit Plan based on
the Participant's age as of December 31, 1993,
provided that if the Participant is then under age
55, the early retirement factor for age 55 will be
used.
<PAGE> 6
4
(iii) A fraction, not to exceed 1.0, where the numerator is
the Participant's years of Service determined as of
December 31, 1993 under the terms of the Senior
Executive Supplemental Benefit Plan and the
denominator is 20 years.
(b) The "frozen offsets" shall also be calculated under the terms
of the Senior Executive Supplemental Benefit Plan as in effect
immediately prior to its termination, as modified below, and
shall equal the sum of (i) and (ii), as follows.
(i) The Participant's maximum monthly primary Social
Security benefit projected to be payable at age 65
based on the Social Security law in effect on
December 31, 1993 and assuming:
* 4% annual growth in the National Average
Earnings Index, and
* 3% annual increases in the Consumer Price
Index.
This amount shall be multiplied by an early
retirement factor under the Senior Executive
Supplemental Benefit Plan based on the Participant's
actual retirement date, as selected from the
following table:
<TABLE>
<CAPTION>
Actual Retirement Age Early Retirement Factor
--------------------- -----------------------
<S> <C>
65 100.0%
64 93.3
63 86.7
62 80.0
61 73.3
60 66.7
59 63.3
58 60.0
57 56.7
56 53.3
55 50.0
</TABLE>
The early retirement factor shall be
interpolated for fractional ages.
<PAGE> 7
5
(ii) The monthly benefit, payable as a single life
annuity, that can be purchased at the Participant's
actual retirement date based on:
* The Participant's assumed account balance in
the Safeway Inc. Profit Sharing Plan as of
December 31, 1992, increased by the lesser of
the GIC rate of return or the aggregate
annual earnings rate of the Profit Sharing
Plan for 1993. This amount shall be further
increased by 7% assumed annual growth
compounded from December 31, 1993 until the
Participant's actual retirement date.
* Single life annuity factors based on the 1983
Group Annuity Mortality Table discounted at
7% interest.
(c) A Participant's Basic Plan offset shall equal the amount
payable to the Participant under the Basic Plan, in a single
life annuity form, increased by any additional benefits,
stated in single life annuity form, which the Participant
would have been entitled to receive with respect to any period
of time during which the Participant was eligible to, but
elected not to, participate in the Basic Plan and by the
single life annuity benefits attributable to any employee
contributions which were withdrawn by the Participant from the
Basic Plan.
This paragraph 2.03 generally grandfathers retirement benefits payable
under the Senior Executive Supplemental Benefit Plan prior to its
termination on December 31, 1993, but does not grandfather any
benefits that would have been payable on account of a Participant's
pre-retirement or post-retirement death, except to the extent that
post-retirement survivor benefits are payable in connection with the
annuity form payable under paragraph 2.04 below. To clarify the
calculation of the minimum benefit hereunder, Appendix A attached
hereto sets forth the amounts calculated under paragraph 2.03(a) and
under subparagraphs (i) and (ii) of paragraph 2.03(b) assuming
retirement occurs at age 65 or December 31, 1993, if later.
2.04 Forms and Times of Benefit Payments
Any benefit to which a Participant or Beneficiary is determined to be
entitled to under this Plan will be payable in the same form, at the
same time, and subject to the same actuarial reductions, if any, as
benefits payable under the terms of the Basic Plan; provided, however,
the option to choose a lump sum distribution shall not be available
under this Plan. Accordingly, if benefits under the Basic Plan are
paid in a lump sum, the Participant or Beneficiary shall elect, at
least one month prior to commencement of payments, one of the annuity
options offered under the Basic Plan for payment of benefits under
this Plan and the amount of the benefit shall be reduced if a form
other than single life annuity is elected. If periodic payments are
nominal, the Committee may, in its sole discretion, pay the benefit in
a lump sum payment on an Actuarially Equivalent present value basis.
<PAGE> 8
6
ARTICLE III
EXECUTIVE DEATH BENEFITS
3.01 Eligibility for Pre-retirement Death Benefit
A death benefit shall be payable to the Life Insurance Beneficiary of
any Executive Officer who is a Participant and who dies subsequent to
December 31, 1993 while employed as an Executive Officer by the
Company, a Subsidiary, or an Affiliate, regardless of whether death
occurs while performing services.
3.02 Amount of Pre-retirement Death Benefit
The death benefit payable to a Life Insurance Beneficiary on account
of the pre-retirement death of an eligible Executive Officer shall
equal 400% of the Executive Officer's annual rate of base salary in
effect at time of his death to a maximum death benefit of $4 million,
minus the amount payable on account of the Executive Officer's death
to his Life Insurance Beneficiary.
3.03 Eligibility for Post-retirement Death Benefit
A post-retirement death benefit shall be payable to the Life Insurance
Beneficiary of a Participant if and only if he retires from the
Company, a Subsidiary, or an Affiliate as an Executive Officer after
attaining age 55 and after December 31, 1993.
3.04 Amount of Post-retirement Death Benefit
The death benefit payable to a Life Insurance Beneficiary on account
of the post-retirement death of an eligible Executive Officer shall
equal the greater of (a) or (b), as follows:
(a) (i) Death prior to age 70: If the eligible Executive
Officer dies prior to age 70, 100% of the his final
average annual compensation at retirement as defined
under the Basic Plan, to a maximum of $1 million.
(ii) Death on or after attainment of age 70: If the
eligible Executive Officer dies upon or after
attaining age 70, 25% of the amount in (i) above.
(b) If the eligible Executive Officer was a member of the Senior
Executive Supplemental Benefit Plan, and had both attained age
50 and participated in the Safeway Executive Supplemental
Benefit Plan for at least five years as of December 31, 1993,
the lump sum post-retirement death benefit in effect on
December 31, 1993 under the terms of the Senior Executive
Supplemental Benefit Plan based on final average compensation
determined as of December 31, 1993.
<PAGE> 9
7
3.05 Post-retirement Death Benefit for Certain Former Senior Executive
Supplemental Benefit Plan Members
Participants who were members of the Senior Executive Supplemental
Benefit Plan who are not eligible for a post-retirement death benefit
under paragraph 3.03 shall be eligible for the Safeway Post-Retirement
Life Insurance Plan (irrespective of the 15-year service requirement).
If such a Participant's death benefit under the Post-Retirement Life
Insurance Plan is less than the amount payable under paragraph
3.04(b), and if the Participant had both attained age 50 and
participated in the Safeway Executive Supplemental Benefit Plan for at
least five years as of December 31, 1993, then the difference between
such amounts shall be paid under this Plan to the Participant's Life
Insurance Beneficiary.
3.06 Forms and Times of Benefit Payments
Death benefits shall be paid as soon as practicable to the Life
Insurance Beneficiary following submission of an authentic death
certificate. In the event that lump sum payments result in cash flow
strain or other adverse impact on the Company as determined by the
Committee, the Committee shall have sole discretion to make payment in
the form of periodic installments which have the same Actuarially
Equivalent value as the lump sum benefit specified herein.
ARTICLE IV
MISCELLANEOUS
4.01 Accrual and Vesting of Benefits
No Participant, or Life Insurance Beneficiary shall have accrued a
right to or vested in any benefits under Article III of this Plan
until the date on which payment of such benefits shall have commenced
thereunder. No Participant or Beneficiary shall have accrued a right
to or vested in any benefits under Article II of this Plan until the
earlier of the date on which payment of such benefits shall have
commenced thereunder or the last day of the calendar year of the
Participant's retirement.
4.02 Amendment and Plan Termination
The Company may, in its sole and absolute discretion, terminate,
suspend or amend this Plan at any time or from time to time, in whole
or in part. Any such termination, suspension or amendment may reduce
or eliminate any benefits payable hereunder except with respect to any
Participant, Beneficiary or Life Insurance Beneficiary who is
receiving benefit payments hereunder as of the date of such
termination, suspension or amendment.
<PAGE> 10
8
In the event of a Plan termination, the Board of Directors, may, at
its sole and absolute discretion, elect any one or more of the
following alternatives to satisfy the Company's obligations to
Participants or Beneficiaries who are then receiving benefits under
the Plan:
(a) Continue to provide benefit payments in accordance with
Articles II and III.
(b) Make lump sum payments which are Actuarially Equivalent to the
benefits payable under the Plan.
4.03 Not An Employment Agreement
Nothing contained herein will confer upon any Participant the right to
be retained in the service of the Company, nor will it interfere with
the right of the Company to deal with Participants without regard to
the existence of this Plan or to terminate a Participant's employment
at any time with or without cause.
4.04 No Advance Funding
This Plan is unfunded, and the Company will make Plan benefit payments
solely on a current disbursement basis. Nothing in the establishment
of this Plan is to be construed as requiring or authorizing the
Company to create or maintain any separate fund, account or reserve to
provide for the payment of the Company's liability to a Participant
under the Plan.
All payments hereunder shall be made from the general assets of the
Company and no Participant shall have any right hereunder to any
specific asset of the Company.
4.05 Assignment of Benefits
A Participant may not, either voluntarily or involuntarily, assign,
anticipate, alienate, commute, pledge, discount, borrow against or
encumber any benefits to which he is or may become entitled to under
the Plan, nor may the same be subject to attachment or garnishment by
any creditor of a Participant.
4.06 Interpretation
This Plan is intended to qualify for exemption from Parts II, III and
IV of the Employee Retirement Income Security Act of 1974, as amended,
as a plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated
employees under Sections 201(2), 301(a)(3) and 401(a)(1) of such Act,
and shall be so interpreted. Subject to that restriction, the
Committee shall have the sole discretion to interpret this Plan and to
adopt rules and interpretations for the application and implementation
of this Plan. The decisions and interpretations by the Committee
shall be final and binding on all Participants.
<PAGE> 11
9
4.07 Governing Law
This Plan shall be construed, administered and governed in all
respects under and by the laws of the State of California, except to
the extent preempted by federal law.
IN WITNESS WHEREOF, Safeway Inc. has adopted this Plan, effective
January 1, 1994.
SAFEWAY INC.
BY___________________________________
<PAGE> 12
APPENDIX A
<TABLE>
<CAPTION>
Gross Frozen Frozen Offsets At Age 65 Under
Benefit Under ------------------------------
Participant Provision 2.03(b) Provision 2.03(b)(i) Provision 2.03(b)(ii)
- ----------- ----------------- -------------------- ---------------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 13
APPENDIX B
<TABLE>
<CAPTION>
Ineligible for Benefits Under
------------------------------------------------------------------------------
Employee Article II Article III Articles II and III
- -------- ---------- ----------- -------------------
<S> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 13.1
COMPANY IN REVIEW
Safeway Inc. ("Safeway" or the "Company") was founded in 1926 and is one of the
world's largest food retailers, operating approximately 1,080 stores in the
United States and Canada. U.S. retail operations are located in northern
California, Oregon, Washington, and the Rocky Mountain, Southwest, and
Mid-Atlantic regions. Canadian retail operations are located principally in
British Columbia, Alberta, Saskatchewan, and Manitoba. Safeway believes that it
is among the market share leaders in the areas served by each of its nine
retail divisions. Management of the retail operations is decentralized to
encourage local autonomy in responding to consumer demands within the Company's
diverse markets. In support of these operations, Safeway has an extensive
network of distribution, manufacturing, and food processing facilities.
In addition to stores operated under the Safeway name, the Company has
ownership interests in two other retail companies. Safeway holds a 35% interest
in The Vons Companies, Inc. ("Vons"), which operates more than 350 grocery
stores located mostly in southern California, and a 49% interest in a privately
held company, Casa Ley, S.A. de C.V., which operates 54 stores in western
Mexico.
RETAIL OPERATIONS
STORES
To accommodate changing consumer needs and to obtain certain operating
efficiencies, Safeway emphasizes the development of larger stores. These stores
offer a wide selection of both food and general merchandise, and feature a
variety of specialty departments which historically have enhanced operating
margins. In most of Safeway's larger stores, specialty departments are
showcased in each corner and along the perimeter walls of the store to create a
pleasant shopping atmosphere.
Safeway continues to operate a number of smaller stores which offer a full
selection of food and general merchandise, and generally include one or more
specialty departments. These stores remain an important part of the Company's
store network in smaller communities and certain other locations where larger
stores may not be appropriate.
Stores opened in 1993 averaged 58,000 square feet. The percentage of
Safeway's total stores by size at year-end 1993 compared to 1988 was as
follows:
<TABLE>
<CAPTION>
1993 1988
---- ----
<S> <C> <C>
Less than 30,000 square feet 32% 44%
30,000 to 50,000 55 52
More than 50,000 13 4
---- ----
100% 100%
---- ----
---- ----
</TABLE>
STORE OWNERSHIP
At year-end 1993, Safeway owned one-third and leased two-thirds of its stores.
Safeway built, sold, and leased back approximately one-quarter of the leased
stores. Third-party developers built the remaining stores. In recent years, the
Company has preferred ownership because it provides control and flexibility
with respect to financing terms, remodeling, expansions, and closures.
MERCHANDISING
Safeway's merchandising strategy is to provide maximum value to its customers
by maintaining high store standards and offering high quality products at
competitive prices.
* The Company has intensified its efforts to elevate store standards and
provide friendly, helpful customer service. Among the initiatives that
Safeway has undertaken is a program to reallocate time and resources
to improve service, including better in-stock conditions and faster,
more efficient checkout. Debit/credit card and check authorization
systems have been installed for customer convenience and to speed up
checkout. Specialty departments and special services, including video
tape rentals, photo processing counters, in-store automatic teller
machines, and bank branches provide one-stop shopping for today's busy
shopper.
* Safeway offers high quality perishables in the produce, meat, dairy,
seafood, bakery, and delicatessen departments. There is a strong
emphasis on tailoring merchandise selection to the neighborhood served
by each store. The Company continually refines its merchandising
strategies to identify and accommodate changing demographics,
lifestyles, and product preferences of its customers.
* The Company offers competitive prices for value-oriented customers.
The Company also features a line of Valu Pack merchandise which
includes more than 100
10
<PAGE> 2
of the large-size products most frequently
purchased at club stores.
* During 1993, Safeway introduced a line of 255 new private label
products under the banner, "Safeway SELECT." These new products
include soft drinks, pastas and pasta sauces, pet foods, and snacks
such as popcorn, tortilla chips and salsa. SELECT offers today's
value-conscious consumers premium quality products at prices lower
than comparable national brands. The Company plans to introduce many
more SELECT items over the next few years.
MANUFACTURING AND WHOLESALE OPERATIONS
Manufacturing operations are an integral part of the Company's business. The
principal function of manufacturing operations is to manufacture, process, and
purchase private label merchandise sold in Safeway stores under such well-known
and respected brand names as Lucerne, Bel-air, TownHouse, and the new SELECT
line of products.
Safeway's Canadian subsidiary has a wholesale operation which distributes
both national brands and private label products to independent grocery stores
and institutional customers.
Safeway operated the following manufacturing and processing facilities at
year-end 1993:
<TABLE>
<CAPTION>
U.S. Canada
---- ------
<S> <C> <C>
Milk plants 7 3
Bread baking plants 6 3
Ice cream plants 4 3
Cheese packaging plants 3 1
Soft drink bottling plants 4 -
Fruit and vegetable processing plants 2 4
Other food processing plants 6 4
Non-food plants 4 -
---- ----
Total 36 18
---- ----
---- ----
</TABLE>
In addition, the Company operates modern laboratory facilities for quality
assurance and research and development in certain of its plants and at its U.S.
manufacturing headquarters in Walnut Creek, California.
CAPITAL EXPENDITURE PROGRAM
A key component of the Company's long-term strategy is its capital expenditure
program. In the last several years, Safeway management has significantly
strengthened its program to select and approve new capital investments. This
program requires that proposed projects meet targeted pre-tax internal rates of
return ("IRR") which measure the incremental cash flows of proposed projects.
To be accepted, new stores and remodels must generally project an IRR in excess
of 25%. To date, the aggregate results of projects accepted under this program
have met expectations.
The table below reconciles cash paid for property additions reflected in the
Consolidated Statements of Cash Flows to a broader definition of capital
expenditures (dollars in millions):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash paid for
property additions $245.3 $483.6 $589.9
Less: Purchases of
previously leased
properties (21.4) (9.9) (26.5)
Plus: Present value of all
lease obligations incurred 58.8 79.3 63.0
Mortgage notes assumed
in property acquisitions 7.5 0.4 8.6
------ ------ ------
Total capital expenditures $290.2 $553.4 $635.0
------ ------ ------
------ ------ ------
Capital expenditures as
a percent of sales 1.9% 3.7% 4.2%
New stores opened 14 35 33
Stores closed or sold* 39 49 37
Major remodels 45 63 77
Total retail square footage
(in millions) 39.4 39.7 38.9
</TABLE>
*Including 15 stores sold to Farm Fresh, Inc. in 1993.
Safeway scaled back its capital expenditure program during 1993 in order to
enhance the quality of projects and to focus on near-term operating
challenges. The Company expects to invest approximately $400 million for
capital expenditures in 1994 while opening 15 to 20 new stores and completing
50 to 60 remodels. Safeway expects to increase its level of capital
expenditures gradually over time. Capital expenditures in 1991 included most of
the cost of constructing a new distribution center for the Northern California
Division in Tracy, California, which began operations in the second quarter of
1992.
PERFORMANCE-BASED COMPENSATION
The Company has performance-based compensation plans which cover approximately
7,000 employees. Incentive compensation plans set overall bonus levels based
upon both operating results and working capital management. Individual bonuses
are based on job performance. Certain employees are covered by capital
investment bonus plans which measure the performance of capital projects based
on operating performance over several years.
11
<PAGE> 3
FIVE-YEAR SUMMARY FINANCIAL INFORMATION
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks 52 Weeks 52 Weeks
(Dollars in millions except per-share amounts) 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Sales. . . . . . . . . . . . . . . . . . $15,214.5 $15,151.9 $15,119.2 $14,873.6 $14,324.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . 4,131.1 4,164.5 4,105.6 3,976.6 3,689.5
Operating and administrative expenses. . (3,689.6) (3,722.9) (3,557.3) (3,441.3) (3,227.1)
AppleTree charge . . . . . . . . . . . . - - (115.0) - -
--------- --------- --------- --------- ---------
Operating profit . . . . . . . . . . . . 441.5 441.6 433.3 535.3 462.4
Interest expense . . . . . . . . . . . . (265.5) (290.4) (355.4) (384.1) (382.8)
Equity in earnings (loss) of
unconsolidated affiliates . . . . . . 33.5 39.1 45.8 25.5 (4.0)
Gain on common stock offering by
unconsolidated affiliate . . . . . . . - - 27.4 - -
Other income, net. . . . . . . . . . . . 6.8 7.1 15.1 18.0 18.4
--------- --------- --------- --------- ---------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes . . . . . 216.3 197.4 166.2 194.7 94.0
Income taxes . . . . . . . . . . . . . . (93.0) (99.0) (87.2) (107.6) (91.5)
--------- --------- --------- --------- ---------
Income before extraordinary loss and
cumulative effect of accounting changes 123.3 98.4 79.0 87.1 2.5
Extraordinary loss, net of tax benefit of
$17.1 and $14.9 . . . . . . . . . . . - (27.8) (24.1) - -
Cumulative effect of accounting changes,
net of tax benefit of $12.0 . . . . . - (27.1) - - -
--------- --------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . $ 123.3 $ 43.5 $ 54.9 $ 87.1 $ 2.5
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per common share and common
share equivalent (fully diluted):
Income before extraordinary loss and
cumulative effect of
accounting changes . . . . . . . $ 1.00 $ 0.83 $ 0.69 $ 0.91 $ 0.03
Extraordinary loss . . . . . . . . . - (0.23) (0.21) - -
Cumulative effect of
accounting changes . . . . . . . . - (0.23) - - -
--------- --------- --------- --------- ---------
Net income . . . . . . . . . . . . . $ 1.00 $ 0.37 $ 0.48 $ 0.91 $ 0.03
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FINANCIAL STATISTICS:
Gross profit margin . . . . . . . . . . 27.2% 27.5% 27.2% 26.7% 25.8%
Operating profit margin . . . . . . . . 2.9% 2.9% 2.9% 3.6% 3.2%
Operating and administrative expenses
as a percent of sales . . . . . . . . 24.3% 24.6% 23.5% 23.1% 22.5%
Capital expenditures . . . . . . . . . . $ 290.2 $ 553.4 $ 635.0 $ 489.6 $ 375.5
Depreciation and amortization . . . . . 330.2 320.3 295.9 276.2 257.8
Total assets . . . . . . . . . . . . . . 5,074.7 5,225.8 5,170.7 4,739.1 4,538.0
Total debt . . . . . . . . . . . . . . . 2,689.2 3,048.6 3,066.0 3,083.6 3,118.6
Stockholders' equity (deficit) . . . . . 382.9 243.1 214.4 (183.4) (388.9)
Common shares outstanding at
year-end (in millions) . . . . . . . . 101.5 98.8 97.7 79.3 67.7
Stockholders' equity (deficit) per common
share outstanding at year-end . . . . 3.77 2.46 2.19 (2.31) (5.75)
Weighted average common shares and common
share equivalents (fully diluted)
(in millions) . . . . . . . . . . . . 123.4 119.0 115.2 96.0 89.4
OTHER STATISTICS:
Employees at year-end . . . . . . . . . 105,900 104,900 110,100 114,500 110,100
Stores opened during the year . . . . . 14 35 33 30 33
Stores closed or sold during the year . 39 49 37 26 60
Total stores at year-end . . . . . . . . 1,078 1,103 1,117 1,121 1,117
Total retail square footage at
year-end (in millions) . . . . . . . . 39.4 39.7 38.9 38.2 37.5
</TABLE>
12
<PAGE> 4
FINANCIAL REVIEW
RESULTS OF OPERATIONS
Safeway's net income was $123.3 million ($1.00 per share) in 1993, $43.5
million ($0.37 per share) in 1992, and $54.9 million ($0.48 per share) in 1991.
Income before extraordinary items and the cumulative effect of accounting
changes was $98.4 million ($0.83 per share) in 1992 and $79.0 million ($0.69
per share) in 1991. Five unusual events affected these results:
* Severance paid for a voluntary employee buyout in the Company's Alberta,
Canada division reduced 1993 operating profit by $54.9 million and net income
by $30.2 million ($0.24 per share).
* Restructuring charges recorded by Vons reduced Safeway's 1993 equity in
earnings of unconsolidated affiliates by $11.7 million and reduced net income
by $8.7 million ($0.07 per share).
* Restructuring charges reduced 1992 operating profit by $22.3 million and
net income by $13.8 million ($0.12 per share).
* A reserve associated with the bankruptcy of AppleTree Markets, Inc.
("AppleTree") reduced 1991 operating profit by $115.0 million and net income
by $71.0 million ($0.62 per share).
* A $27.4 million gain from the sale of common stock by
Vons increased 1991 net income by $16.9 million ($0.15 per share).
SALES. Sales were $15.2 billion in both 1993 (a 52-week year) and 1992 (a
53-week year), compared to $15.1 billion in 1991 (a 52-week year). Safeway's
same-store sales (sales of stores operating the entire measurement period in
both years and excluding the effect of the change in the Canadian exchange
rate) increased 2.1% in 1993 compared to decreases of 1.6% in 1992 and 0.3% in
1991.
(PIE CHART CAPTIONED "1993 PORTIONS OF THE SALES DOLLAR" SEE APPENDIX)
The same-store sales decreases in 1992 and 1991 were primarily due to the
weak economy, increased competition in certain markets, and a lack of food
price inflation. Although these factors persist, Safeway achieved sales growth
in 1993. The savings from efforts to lower the Company's fundamental cost of
doing business was 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 the six U.S. retail division
offices, achieved labor cost parity through competitive labor contracts signed
in Alberta and other retail divisions, and improved inventory management.
GROSS PROFIT. Gross profit represents the portion of sales revenue remaining
after deducting the costs of inventory sold during the period, including
purchase and distribution costs. Gross profit was 27.2% of sales in 1993,
compared to 27.5% in 1992 and 27.2% in 1991. The decline in 1993 primarily
reflects reduced prices in Alberta. Because of the lack of inflation, the LIFO
method of valuing certain inventories decreased the cost of goods sold by $1.5
million in 1993 and $0.4 million in 1992, compared to an $8.1 million increase
in 1991.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were 24.3% of sales in 1993, compared to 24.6% in 1992, and 23.5% in 1991. In
the first half of 1993, Safeway recorded a charge for the Alberta buyout
reducing operating profit by $54.9 million and net income by $30.2 million
($0.24 per share). Retail employees in that division approved a new contract
which reduced wages, established a gain-sharing plan, and provided for a
voluntary buyout program. The savings that Safeway began realizing in the
second quarter of 1993 from the new labor contract were offset through the
third quarter by the increased training costs and reduced productivity
associated with the new employees. By the fourth quarter, the Alberta division
had improved productivity, and the Company expects continued progress during
1994. Safeway believes that the combination of lower prices and the new labor
contract positions the Alberta division for long-term growth.
13
<PAGE> 5
In 1992, the Company recorded a restructuring charge for the anticipated
costs associated with consolidating its distribution center in Sacramento into
its new distribution center in Tracy, California and downsizing its corporate
administrative staff. The charge reduced 1992 operating profit by $22.3 million
and net income by $13.8 million ($0.12 per share).
Excluding the charges for the buyout in 1993 and the restructuring in 1992,
operating and administrative expenses as a percent of sales were 23.9% in 1993,
24.4% in 1992, and 23.5% in 1991.
APPLETREE CHARGE. In 1991, Safeway recorded a charge in connection with the
bankruptcy of AppleTree that reduced the Company's operating profit by $115
million and net income by $71 million ($0.62 per share). In 1987, Safeway
assigned a significant number of leases to AppleTree as part of the sale of the
Company's former Houston division. In January 1992, AppleTree filed for Chapter
11 bankruptcy protection to restructure its senior and subordinated debt. In
October 1992, AppleTree emerged from bankruptcy with a plan of reorganization
which, among other things, included the rejection of certain leases for which
Safeway is liable. Safeway may also remain liable for AppleTree's remaining
leases in the event that AppleTree is unable to continue making those rental
payments. The $115 million charge in 1991 was an estimate of the eventual net
lease and related cash payments which Safeway expected to make over a period of
up to 16 years. The reserve is considered adequate to cover all known and
probable liabilities associated with AppleTree. Safeway has reviewed its
contingent obligations with respect to other divested operations, and, although
the aggregate amount of assigned leases is large, the Company expects that any
similar losses would not be material to Safeway's consolidated financial
position.
(BAR CHART CAPTIONED "INTEREST EXPENSE" SEE APPENDIX)
INTEREST EXPENSE. Interest expense fell to $265.5 million in 1993 from $290.4
million in 1992 and $355.4 million in 1991. The decrease in 1993 reflects
reduced short-term borrowings, lower short-term interest rates, and the
refinancing of high interest rate debt during 1992. The decline in 1992
reflects refinancings in 1991 and 1992 as well as lower short-term interest
rates.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES. Equity in earnings of
unconsolidated affiliates, recorded on a one-quarter delay basis, was $33.5
million in 1993 compared to $39.1 million in 1992 and $45.8 million in 1991.
Safeway holds a 35% interest in Vons, which operates more than 350 grocery
stores located mostly in southern California, and a 49% interest in Casa Ley,
which operates 54 stores in western Mexico.
Income from Safeway's equity investment in Vons was $12.9 million in 1993
compared to $18.6 million in 1992 and $32.2 million in 1991. According to Vons'
financial reports to the Securities and Exchange Commission, Vons' same-store
sales declined 10.6% and 9.5% for the 16 and 40 weeks ended October 10, 1993.
In addition to lower operating income, Vons reported a restructuring charge
which decreased Safeway's equity in Vons' earnings by $11.7 million in 1993.
According to Vons, this restructuring charge included anticipated expenses
associated with a program to close under-performing stores, convert selected
locations to other store types, reduce work force, and improve cost structure.
For the 53-week period ended October 10, 1993, and the 52-week period ended
October 4, 1992, Vons reported extraordinary losses of $1.5 million and $16.1
million, respectively, from debt refinancing. For the comparable period of
1991, Vons reported a net extraordinary gain of $33.5 million primarily from
the utilization of net operating loss carryforwards.
In 1992, Vons adopted Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." Safeway's share of
Vons' accounting changes is included in the cumulative effect of accounting
changes in the Company's Consolidated Statements of Income. In 1991, Vons
issued 4.5 million new common shares which resulted in a pre-tax gain to
Safeway of $27.4 million in 1991. The Company's standstill agreement with Vons,
which limited the Company's ability to buy Vons common stock, expired in August
1993.
14
<PAGE> 6
INCOME TAXES. Income taxes declined to 43.0% of pre-tax income in 1993 from
50.2% in 1992 and 52.5% in 1991. In August 1993, the maximum statutory federal
income tax rate increased from 34% to 35%. Despite the increased federal income
tax rate, Safeway's effective rate declined in 1993 primarily due to the tax
benefit of a loss in Canada, where the statutory rate is higher than in the
United States. The loss in Canada resulted principally from the employee buyout
charge and price reductions in Alberta. The tax effect of permanently investing
certain foreign earnings which were previously not permanently invested also
contributed to the tax rate decline in 1993. In 1991, Safeway's tax rate would
have been approximately 48% without the impact of the AppleTree charge and the
Vons gain.
EXTRAORDINARY LOSS. In 1992 and 1991, Safeway's net income was reduced by
extraordinary losses of $27.8 million ($0.23 per share) and $24.1 million
($0.21 per share) for the early retirement of debt. The extraordinary losses
represent the payment of premiums on retired debt and the write-off of deferred
finance costs, net of the related tax benefits.
ACCOUNTING CHANGES. Effective the beginning of fiscal 1993, the Company
adopted SFAS No. 109, "Accounting for Income Taxes." This statement supersedes
SFAS No. 96, "Accounting for Income Taxes," which the Company adopted in 1987.
The cumulative effect of the adoption of SFAS No. 109 was not material, and the
change had no effect on income before taxes for 1993.
In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires accrual of the
expected cost of such benefits during employee service periods, and SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which requires
accrual of the expected cost of benefits provided to former or inactive
employees after employment but before retirement. Prior to 1992, the Company
recognized the cost of providing these benefits as claims were paid. In
addition, during 1992 Vons adopted SFAS No. 109 and SFAS No. 106. The
cumulative effect of accounting changes recognized on Safeway's Consolidated
Statements of Income as of the beginning of fiscal 1992 was as follows (in
millions):
<TABLE>
<S> <C>
Postretirement benefits, net of tax benefit of $6.4 $ 10.5
Postemployment benefits, net of tax benefit of $1.1 1.8
Vons' income taxes, net of tax benefit of $3.2 10.6
Vons' postretirement benefits, net of tax benefit of $1.3 4.2
------
$27.1
------
------
</TABLE>
Except for the cumulative effect of adoption, the impact of these accounting
changes on Safeway's 1992 net income was not material.
LIQUIDITY AND FINANCIAL RESOURCES
Operating cash flow, as presented below, was $777.0 million in 1993 compared to
$768.6 million in 1992. Operating cash flow 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>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting changes $ 216.3 $ 197.4 $ 166.2
LIFO (income) expense (1.5) (0.4) 8.1
Interest expense 265.5 290.4 355.4
Depreciation and
amortization 330.2 320.3 295.9
Equity in earnings of
unconsolidated affiliates (33.5) (39.1) (45.8)
Gain on common
stock offering by
unconsolidated affiliate - - (27.4)
AppleTree charge - - 115.0
------- ------- -------
Operating cash flow $ 777.0 $ 768.6 $ 867.4
------- ------- -------
------- ------- -------
As a percent of sales 5.11% 5.07% 5.74%
------- ------- -------
------- ------- -------
As a multiple of
interest expense 2.93 2.65 2.44
------- ------- -------
------- ------- -------
</TABLE>
15
<PAGE> 7
In 1991, the Company issued $300 million of 10% Senior Subordinated Notes due
2001, retired 14.5% Junior Subordinated Debentures totaling $565 million, and
redeemed 11.75% Senior Subordinated Notes totaling $300 million.
In 1992, the Company issued $300 million of 9.65% Senior Subordinated
Debentures due 2004, $150 million of 9.875% Senior Subordinated Debentures due
2007, and $250 million of 9.35% Senior Subordinated Notes due 1999, and used
the proceeds to redeem 11.75% Senior Subordinated Notes totaling $450 million
and the 12% Subordinated Debentures totaling $250 million.
In 1992, the Company issued $100 million of 9.30% Senior Secured Debentures
due 2007 and used the proceeds to repay borrowings incurred under the Bank
Credit Agreement and Working Capital Credit Agreement (together the "Bank
Agreements") to acquire, construct, and equip a new distribution center in
Tracy, California.
In 1992, Safeway filed with the Securities and Exchange Commission a shelf
registration statement relating to public offerings of up to $240 million of
debt securities. The debt securities may be offered to the public on terms
determined by market conditions at the time of any sales and may be offered in
one or more series. The net proceeds from the sale of these debt securities may
be used for capital expenditures, acquisitions, or working capital
requirements; or to repay or repurchase existing indebtedness; or for the
Company's general operations, subject to certain restrictions contained in the
Company's Bank Agreements and existing indentures. Pursuant to this shelf
registration, the Company issued $80 million of medium-term notes during 1992,
which included $74 million of 10% Senior Notes due 2002, and issued an
additional $80 million of medium-term notes in the second quarter of 1993. The
Company used the proceeds from these notes to finance capital expenditures.
Safeway's total borrowing capacity under the Bank Agreements is $1.4 billion.
The total bank line availability under the Bank Agreements decreases by $200
million in both 1995 and 1996, and the Bank Agreements mature in 1997. At
year-end 1993, the Company had unused borrowing capacity of $869.8 million
under the Bank Agreements.
Annual debt maturities over the next five years are set forth in Note B of
the Company's 1993 consolidated financial statements.
Management expects operating cash flow, supplemented by credit available
under the Bank Agreements, to be Safeway's primary sources of liquidity over
the next five years, and believes that these sources will be adequate to meet
the Company's requirements.
At year-end 1993, working capital deficit was composed of $1.5 billion of
current assets and $1.7 billion of current liabilities. Normal operating
fluctuations in these substantial balances can result in changes to the cash
flow from operations presented in the Consolidated Statements of Cash Flows
that are not necessarily indicative of long-term operating trends; however,
during 1993 Safeway significantly increased cash flow from operations through
improved working capital management. There are no unusual industry practices or
requirements relating to working capital items.
INTEREST RATES
At year-end 1993, the Company had effectively converted $218.3 million of its
$421.1 million of floating rate debt to fixed interest rate debt through the
use of interest rate swap agreements. The significant terms of such agreements
outstanding at year-end 1993 are described in Note D to the Company's 1993
consolidated financial statements.
Interest rate swap and collar agreements increased interest expense by $8.3
million, $7.7 million, and $1.9 million in 1993, 1992, and 1991, respectively.
16
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
52 weeks 53 weeks 52 weeks
(In millions except per-share amounts) 1993 1992 1991
<S> <C> <C> <C>
Sales $ 15,214.5 $ 15,151.9 $ 15,119.2
Cost of goods sold . . . . . . . . . . (11,083.4) (10,987.4) (11,013.6)
---------- ---------- ----------
Gross profit 4,131.1 4,164.5 4,105.6
Operating and administrative expenses (3,689.6) (3,722.9) (3,557.3)
AppleTree charge . . . . . . . . . . . - - (115.0)
---------- ---------- ----------
Operating profit 441.5 441.6 433.3
Interest expense (265.5) (290.4) (355.4)
Equity in earnings of
unconsolidated affiliates 33.5 39.1 45.8
Gain on common stock offering by
unconsolidated affiliate - - 27.4
Other income, net . . . . . . . . . . 6.8 7.1 15.1
---------- ---------- ----------
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting changes 216.3 197.4 166.2
Income taxes . . . . . . . . . . . . . (93.0) (99.0) (87.2)
---------- ---------- ----------
Income before extraordinary loss
and cumulative effect
of accounting changes 123.3 98.4 79.0
Extraordinary loss related to early
retirement of debt, net
of income tax benefit of
$17.1 and $14.9 - (27.8) (24.1)
Cumulative effect of accounting
changes, net of
income tax benefit of $12.0 . . . . - (27.1) -
---------- ---------- ----------
Net income. . . . . . . . . . . . . $ 123.3 $ 43.5 $ 54.9
---------- ---------- ----------
---------- ---------- ----------
Earnings per common share and
common share equivalent:
Primary
Income before extraordinary loss
and cumulative effect
of accounting changes $ 1.02 $ 0.83 $ 0.69
Extraordinary loss - (0.23) (0.21)
Cumulative effect of
accounting changes . . . . . . . - (0.23) -
---------- ---------- ----------
Net income . . . . . . . . . . . $ 1.02 $ 0.37 $ 0.48
---------- ---------- ----------
---------- ---------- ----------
Fully diluted
Income before extraordinary
loss and cumulative effect
of accounting changes $ 1.00 $ 0.83 $ 0.69
Extraordinary loss - (0.23) (0.21)
Cumulative effect of
accounting changes . . . . . . - (0.23) -
---------- ---------- ----------
Net income . . . . . . . . . . $ 1.00 $ 0.37 $ 0.48
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares and
common share equivalents:
Primary 121.0 119.0 114.9
Fully diluted 123.4 119.0 115.2
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
Year-end Year-end
(In millions except per-share amounts) 1993 1992
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 118.4 $ 96.6
Receivables 119.5 135.7
Merchandise inventories, net of LIFO
reserve of $62.1 and $64.5, respectively 1,128.1 1,201.7
Prepaid expenses and other
current assets. . . . . . . . . . . . 98.0 95.1
--------- ---------
Total current assets . . . . . . . . . 1,464.0 1,529.1
--------- ---------
Property:
Land 384.7 384.1
Buildings 1,009.6 968.4
Leasehold improvements 791.5 807.2
Fixtures and equipment 1,711.1 1,668.7
Property under capital leases . . . . 310.4 310.4
--------- ---------
4,207.3 4,138.8
Less accumulated depreciation
and amortization . . . . . . . . . 1,647.2 1,441.7
--------- ---------
Total property, net 2,560.1 2,697.1
Goodwill, net of amortization of
$86.2 and $76.2, respectively 347.6 361.3
Prepaid pension costs 307.1 306.3
Investments in unconsolidated affiliates 303.4 270.6
Other assets . . . . . . . . . . . . . . 92.5 61.4
--------- ---------
Total assets . . . . . . . . . . . . . . $ 5,074.7 $ 5,225.8
--------- ---------
--------- ---------
</TABLE>
18
<PAGE> 10
<TABLE>
<CAPTION>
Year-end Year-end
1993 1992
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes
and debentures $ 188.6 $ 92.0
Current obligations under
capital leases 19.3 20.4
Accounts payable 880.5 811.0
Accrued salaries and wages 216.3 192.5
Other accrued liabilities . . . . . . . 406.7 385.9
---------- ---------
Total current liabilities . . . . . . . 1,711.4 1,501.8
---------- ---------
Long-term debt:
Notes and debentures 2,287.7 2,736.6
Obligations under capital leases. . . . 193.6 199.6
---------- ---------
Total long-term debt 2,481.3 2,936.2
Deferred income taxes 145.5 176.0
Accrued claims and other liabilities . . . 353.6 368.7
---------- ---------
Total liabilities . . . . . . . . . . . . 4,691.8 4,982.7
---------- ---------
Commitments and contingencies
Stockholders' equity:
Common stock: par value $.01 per share;
300 shares authorized; 101.5 and 98.8
shares outstanding, respectively 1.0 1.0
Additional paid-in capital 624.5 604.5
Cumulative translation adjustments 39.0 42.5
Accumulated deficit . . . . . . . . . . (281.6) (404.9)
---------- ---------
Total stockholders equity . . . . . . . 382.9 243.1
---------- ---------
Total liabilities and
stockholders equity . . . . . . . . . . $ 5,074.7 $ 5,225.8
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
19
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
(In millions) 1993 1992 1991
<S> <C> <C> <C>
Cash Flow From Operations:
Net income $ 123.3 $ 43.5 $ 54.9
Reconciliation to net cash flow
from operations:
Extraordinary loss related to
early retirement of debt,
before income tax benefit - 44.9 39.0
Cumulative effect of accounting
changes, before income tax benefit - 39.1 -
Depreciation and amortization 330.2 320.3 295.9
AppleTree charge - - 115.0
Amortization of deferred
finance costs 3.8 4.0 15.5
Deferred income taxes (35.8) 17.5 (12.9)
LIFO (income) expense (1.5) (0.4) 8.1
Equity in undistributed earnings
of unconsolidated affiliates (33.5) (39.1) (45.8)
Gain on common stock offering by
unconsolidated affiliate - - (27.4)
Net pension expense (income) 0.4 (4.6) 1.9
Increase (decrease) in accrued
claims and other liabilities 24.1 4.4 (19.3)
(Gain) loss on property retirements (2.9) 48.9 26.4
Changes in working capital items:
Receivables 15.4 9.3 (7.0)
Inventories at FIFO cost 61.6 10.2 (41.3)
Prepaid expenses and other
current assets (9.4) (12.5) (17.7)
Payables and accruals 99.6 24.8 10.6
Income taxes . . . . . . . . . . 24.1 (1.8) (58.3)
-------- -------- --------
Net cash flow from operations 599.4 508.5 337.6
-------- -------- --------
Cash Flow From Investing Activities:
Cash paid for property additions (245.3) (483.6) (589.9)
Proceeds from sale of property
and operations 66.7 26.3 13.2
Purchases of common stock of
unconsolidated affiliate - - (40.5)
Other. . . . . . . . . . . . . . . (49.3) (26.9) (12.3)
-------- -------- --------
Net cash flow used by
investing activities . . . . . (227.9) (484.2) (629.5)
-------- -------- --------
</TABLE>
20
<PAGE> 12
<TABLE>
<CAPTION>
52 Weeks 53 Weeks 52 Weeks
(In millions) 1993 1992 1991
<S> <C> <C> <C>
Cash Flow From Financing Activities:
Additions to short-term borrowings $ 60.0 $ 237.4 $ 59.8
Payments on short-term borrowings (44.9) (280.5) -
Additions to long-term borrowings 352.1 1,888.4 1,004.9
Payments on long-term borrowings (732.7) (1,774.1) (1,147.9)
Net proceeds from sale of
common stock 10.4 3.5 343.0
Premiums paid on early retirement
of debt - (35.1) (34.8)
Other. . . . . . . . . . . . . . . . 1.2 (13.9) (30.0)
------- -------- --------
Net cash flow from (used by)
financing activities . . . . . . (353.9) 25.7 195.0
------- -------- --------
Effect of changes in exchange
rates on cash. . . . . . . . . . . 4.2 (7.6) 0.5
------- -------- --------
Increase (decrease) in cash
and equivalents 21.8 42.4 (96.4)
Cash And Equivalents:
Beginning of year. . . . . . . . . 96.6 54.2 150.6
------- -------- --------
End of year. . . . . . . . . . . . $ 118.4 $ 96.6 $ 54.2
------- -------- --------
------- -------- --------
Other Cash Flow Information:
Cash payments during the year for:
Interest $ 270.2 $ 293.5 $ 390.5
Income taxes, net of refunds 100.6 56.4 143.9
Noncash Investing And
Financing Activities:
Mortgage notes assumed in
property acquisitions $ 7.5 $ 0.4 $ 8.6
Capital lease obligations
entered into 20.3 5.7 11.2
Capital lease assets retired,
net of accumulated amortization 3.1 1.7 2.8
Capital lease obligations retired 2.5 0.6 8.4
Invested proceeds from mortgage
borrowings - - 48.2
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
Total
Common Stock Additional Cumulative Stockholders'
-------------- Paid-in Translation Accumulated Equity
(In millions) Shares Amount Capital Adjustments Deficit (Deficit)
------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, year-end 1990 79.3 $0.8 $258.2 $ 60.9 $(503.3) $(183.4)
Public stock offering 17.5 0.2 340.2 - - 340.4
Options and warrants exercised 0.9 - 2.5 - - 2.5
Cash received on subscriptions receivable - - 0.1 - - 0.1
Net income - - - - 54.9 54.9
Translation adjustments . . . . . . . . . . - - - (0.1) - (0.1)
------ ------ ------- ------- ------- --------
Balance, year-end 1991 97.7 1.0 601.0 60.8 (448.4) 214.4
Options and warrants exercised 1.1 - 3.4 - - 3.4
Cash received on subscriptions receivable - - 0.1 - - 0.1
Net income - - - - 43.5 43.5
Translation adjustments . . . . . . . . . . - - - (18.3) - (18.3)
------ ------ ------- ------- ------- --------
Balance, year-end 1992 98.8 1.0 604.5 42.5 (404.9) 243.1
Options and warrants exercised 2.7 - 19.3 - - 19.3
Cash received on subscriptions receivable - - 0.7 - - 0.7
Net income - - - - 123.3 123.3
Translation adjustments . . . . . . . . . . - - - (3.5) - (3.5)
------ ------ ------- ------- ------- --------
Balance, year-end 1993 . . . . . . . . . . 101.5 $1.0 $624.5 $ 39.0 $(281.6) $ 382.9
------ ------ ------- ------- ------- --------
------ ------ ------- ------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 14
Note A - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include Safeway Inc., a Delaware
corporation, and all majority owned subsidiaries ("Safeway" or the "Company").
All significant intercompany transactions and balances have been eliminated in
consolidation. Investments in affiliates which are not majority owned are
reported using the equity method.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest December 31. The last
three fiscal years consist of the 52-week period ended January 1, 1994, the
53-week period ended January 2, 1993, and the 52-week period ended December 28,
1991.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of the Company's Canadian subsidiaries are translated
into U.S. dollars at year-end rates of exchange, and income and expenses are
translated at average rates during the year. Cumulative translation adjustments
reflecting the effect of the movement in exchange rates during the year are
shown net of applicable income taxes as a separate component of stockholders'
equity.
MERCHANDISE INVENTORIES
At year-end 1993 and 1992, merchandise inventory of $634 million and $701
million, respectively, is valued at the lower of cost on a last-in, first-out
("LIFO") basis or market value. Such LIFO inventory had a replacement or
current cost of $696 million and $766 million at year-end 1993 and 1992,
respectively. The remaining inventory is valued at the lower of cost on a
first-in, first-out ("FIFO") basis or market value. FIFO cost of inventory
approximates replacement or current cost. Inventory on a FIFO basis includes
meat and produce in the United States, inventory of U.S. manufacturing
operations, and all inventories of the Canadian subsidiaries.
Application of the LIFO method resulted in decreases to cost of goods sold of
$1.5 million in 1993 and $0.4 million in 1992, compared to an increase of $8.1
million in 1991. Liquidations of LIFO layers during the three years reported
did not have a significant effect on the results of operations. The LIFO charge
to cost of goods sold for the first 36 weeks of each year is based upon
estimated annual inflation ("LIFO Indices"). Actual LIFO Indices are calculated
during the fourth quarter of the year based upon a statistical sampling of
inventories. Accordingly, fourth-quarter pre-tax earnings were increased by
$9.2 million, $10.2 million, and $7.7 million in 1993, 1992, and 1991,
respectively.
PROPERTY AND DEPRECIATION
Property is stated at cost. Depreciation expense on buildings and equipment is
computed on the straight-line method using the following lives:
<TABLE>
<S> <C>
Stores and other buildings 10 - 30 years
Fixtures and equipment 3 - 15 years
</TABLE>
Property under capital leases is amortized on a straight-line basis over the
remaining terms of the leases. Leasehold improvements include buildings
constructed on leased land and improvements to leased buildings. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
remaining terms of the lease or the estimated useful lives of the assets.
GOODWILL
Goodwill is amortized on a straight-line basis over 40 years. Goodwill
amortization was $10.6 million, $12.7 million, and $10.6 million in 1993, 1992,
and 1991, respectively.
CLOSED STORE EXPENSE
Upon the decision to close a store, the Company accrues estimated future
losses, which include lease payments and other costs of holding the facility,
net of estimated future income.
SELF-INSURANCE
The Company is primarily self-insured for workers' compensation, automobile,
and general liability costs. The self-insurance claim liability is determined
actuarially, based on claims filed and an estimate of claims incurred but not
yet reported. The present value of such claims is accrued using discount rates
of 5% in 1993 and 8% in 1992. The current portion of the self-insurance claim
liability ($78 million and $67 million at year-end 1993 and 1992, respectively)
is included in other accrued liabilities in the consolidated balance sheets.
The noncurrent portion of $176 million and $148 million at year-end 1993 and
1992 is included in accrued claims and other liabilities. The undiscounted
liability was approximately $289 million and $269 million at year-end 1993 and
1992, respectively.
23
<PAGE> 15
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," effective January 3, 1993. This Statement
supersedes SFAS No. 96, "Accounting for Income Taxes," which the Company
adopted in 1987. Under SFAS No. 109, the Company provides a deferred tax
expense or benefit equal to the change in the deferred tax liability during the
year. Deferred income taxes represent tax credit carryforwards and future net
tax effects resulting from temporary differences between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Income per common share and common share equivalent is calculated by dividing
net income by the weighted average number of common shares outstanding during
the period plus the dilutive effect of stock options and warrants, as
determined by the treasury stock method.
STATEMENT OF CASH FLOWS
Short-term investments with original maturities of less than three months are
considered to be cash equivalents. Borrowings with original maturities of less
than three months are presented net of related repayments.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company enters into interest rate swap agreements to limit the exposure of
its floating interest rate debt to changes in market interest rates. These
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 are major financial
institutions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the disclosure of the fair value of certain financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
fair value. Safeway estimated the fair values presented throughout these
financial statements using appropriate valuation methodologies and market
information available as of year-end. Considerable judgment is required to
develop estimates of fair value, and the estimates presented are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions or estimation
methodologies could have a material effect on the estimated fair values.
Additionally, the fair values presented throughout these financial statements
were estimated at year-end, and current estimates of fair value may differ
significantly from the amounts presented.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and equivalents, accounts receivable, accounts payable and short-term
debt: The carrying amount of these items approximates fair value.
Long-term debt: Market values quoted on the New York Stock Exchange are
used to estimate the fair value of publicly traded debt. To estimate the
fair value of debt issues that are not quoted on an exchange, the Company
uses those interest rates that are currently available to it for issuance
of debt with similar terms and remaining maturities.
Interest rate swap agreements: The fair value of interest rate swap
agreements is the amount at which they could be settled based on estimates
obtained from dealers.
ACCOUNTING CHANGES
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 3, 1993. This Statement supersedes SFAS No. 96, "Accounting for Income
Taxes," which the Company adopted in 1987. The cumulative effect of the
adoption of SFAS No. 109 was not material, and the change had no effect on
income before taxes for 1993.
In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires accrual of the
expected cost of such benefits during employee service periods, and SFAS No.
112, "Employers' Accounting for Postemployment Benefits," which requires
accrual of the expected cost of benefits provided to former or inactive
employees after employment but before retirement. Prior to 1992, the Company
recognized the cost of providing these benefits as claims were paid. In
addition, in 1992
24
<PAGE> 16
The Vons Companies, Inc. ("Vons"), an unconsolidated
affiliate of Safeway, adopted SFAS No. 109 and SFAS No. 106. The cumulative
effect of accounting changes recognized in Safeway's consolidated statements of
income as of the beginning of fiscal 1992 was as follows (in millions):
<TABLE>
<S> <C>
Postretirement benefits, net of tax benefit of $6.4 $10.5
Postemployment benefits, net of tax benefit of $1.1 1.8
Vons' income taxes, net of tax benefit of $3.2 10.6
Vons' postretirement benefits, net of tax benefit of $1.3 4.2
-----
$27.1
-----
-----
</TABLE>
Except for the cumulative effect of adoption, the impact of these accounting
changes on Safeway's 1992 net income was not material.
Note B - FINANCING
Notes and debentures were composed of the following at year-end (in millions):
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Bank Credit Agreement, secured $ 35.0 $ 365.0
Working Capital Credit Agreement,
secured 340.3 406.4
9.30% Senior Secured Debentures
due 2007 100.0 100.0
10% Senior Notes due 2002,
unsecured 74.0 74.0
10% Senior Subordinated Notes
due 2001, secured 300.0 300.0
9.875% Senior Subordinated
Debentures due 2007, secured 150.0 150.0
9.65% Senior Subordinated
Debentures due 2004, secured 300.0 300.0
9.35% Senior Subordinated Notes
due 1999, secured 250.0 250.0
Mortgage notes payable, secured 567.3 588.9
Other notes payable, unsecured 325.7 275.4
Other bank borrowings, unsecured 34.0 18.9
-------- ---------
2,476.3 2,828.6
Less current maturities 188.6 92.0
-------- ---------
Long-term portion $2,287.7 $2,736.6
-------- ---------
-------- ---------
</TABLE>
At year-end 1993 and 1992 the carrying value of long-term debt approximated
fair value.
BANK CREDIT AGREEMENT AND WORKING CAPITAL CREDIT AGREEMENT
Safeway's total borrowing capacity under the Bank Credit Agreement and Working
Capital Credit Agreement (together the "Bank Agreements") is $1.4 billion. The
total bank line availability under the Bank Agreements decreases by $200
million in both 1995 and 1996, and the Bank Agreements mature in 1997. At
year-end 1993, the Company had unused borrowing capacity of $869.8 million
under the Bank Agreements.
Domestic borrowings under the Bank Agreements bear interest at one of the
following rates selected by the Company: (i) the prime rate, (ii) a rate based
on certificates of deposit rates plus 1%, (iii) the rate at which Eurodollar
deposits are offered to first class banks in the Eurodollar market by the Banks
plus 0.75%, or (iv) rates quoted at the discretion of the Banks. Canadian
borrowings denominated in U.S. dollars under the Working Capital Credit
Agreement bear interest at one of the following rates selected by the Company:
(i) the Canadian base rate, or (ii) the Canadian Eurodollar rate plus 0.75%.
Canadian borrowings denominated in Canadian dollars bear interest at the
Canadian prime rate. The Company pays an annual commitment fee of 0.375% on the
unused portion of borrowings available under the Bank Agreements.
The weighted average interest rate on borrowings under the Bank Credit
Agreement was 4.7% during 1993, 5.3% during 1992, and 6.2% during 1991. At
year-end 1993, the weighted average interest rate on borrowings under the Bank
Credit Agreement was 3.7%. The weighted average interest rate on borrowings
under the Working Capital Credit Agreement was 5.6% during 1993, 7.4% during
1992, and 10.1% during 1991. At year-end 1993, the weighted average interest
rate on borrowings under the Working Capital Credit Agreement was 4.9%. Amounts
due under the Working Capital Credit Agreement consist mostly of Canadian
borrowings.
Indebtedness under the Bank Agreements is secured by the pledge of certain
assets of the Company and certain assets and stock of certain subsidiaries and
is also guaranteed by certain subsidiaries. Such subsidiaries own approximately
35% of the Company's stores and approximately 70% of the Company's
manufacturing facilities.
25
<PAGE> 17
SENIOR SECURED INDEBTEDNESS
In 1992, the Company issued $100 million of 9.30% Senior Secured Debentures due
2007. The 9.30% Senior Debentures are secured by a Deed of Trust which created
a lien on the land, buildings, and equipment owned by Safeway at its new
distribution center in Tracy, California.
SENIOR UNSECURED INDEBTEDNESS
In 1992, the Company filed with the Securities and Exchange Commission a shelf
registration statement relating to public offerings of up to $240 million of
debt securities. Pursuant to this shelf registration, the Company issued $80
million of medium-term notes during 1992, which included $74 million of 10%
Senior Notes due 2002, and issued an additional $80 million of medium-term
notes in the second quarter of 1993. The Company used the proceeds from these
notes to finance capital expenditures.
SUBORDINATED INDEBTEDNESS
The 10% Senior Subordinated Notes due 2001, 9.875% Senior Subordinated
Debentures due 2007, 9.65% Senior Subordinated Debentures due 2004, and 9.35%
Senior Subordinated Notes due 1999 (collectively the "Subordinated Securities")
are subordinated in right of payment to, among other things, the Company's
borrowings under the Bank Agreements, the 9.30% Senior Debentures, the
Company's senior unsecured debt, the Company's other secured debt, and mortgage
notes payable. The Subordinated Securities are secured by the pledge of certain
assets of the Company and stock of certain subsidiaries.
REFINANCING
In 1992 and 1991, respectively, the Company redeemed $700 million and $865
million of high interest rate debt using cash from operations and proceeds from
issuing the Subordinated Securities. In connection with these redemptions, the
Company recorded extraordinary losses of $27.8 million ($0.23 per share) in
1992 and $24.1 million ($0.21 per share) in 1991. The extraordinary losses
represent the payment of redemption premiums and the write-off of deferred
finance costs, net of the related tax benefits.
RESTRICTIVE COVENANTS
The Bank Agreements prohibit payments by the Company of dividends on any class
of stock (other than dividends paid through issuance of additional shares of
that class of stock) and restrict, among other things, payments by the Company
(i) to acquire shares of any class of stock of the Company, (ii) of any debt
which is subordinate to the Bank Agreements, and (iii) to acquire any
outstanding warrants, options or other rights to acquire shares of any class of
stock of the Company, other than those held by certain Company officers.
Other provisions of the Bank Agreements limit certain acts of the Company,
including the creation of liens, incurring obligations under leases in excess
of specified levels, incurring capital expenditures in excess of specified
amounts, and entering into certain business activities, investments and
guarantees. The Bank Agreements also limit the amount of indebtedness that the
Company can incur. The Company is also required to meet certain financial tests
which pertain to its ratio of debt to equity and its ability to generate
adequate cash to meet required payments.
The Indentures pursuant to which the 9.30% Senior Debentures, the 10% Senior
Notes and the Subordinated Securities were issued restrict, among other things,
payments by the Company (i) of dividends on any capital stock (other than
dividends paid through issuance of additional shares of that capital stock) and
(ii) to acquire shares of any capital stock of the Company, (including
outstanding warrants, options or other rights to acquire shares of any capital
stock of the Company), other than those held by certain Company officers. The
Indentures also contain provisions which limit the amount of additional debt
that the Company may incur.
MORTGAGE NOTES PAYABLE
Mortgage notes payable at year-end 1993 are secured by properties with a net
book value of approximately $760 million, have remaining terms ranging from one
to 18 years, and have a weighted average interest rate of 9.7%.
26
<PAGE> 18
OTHER NOTES PAYABLE
Other notes payable at year-end 1993 have remaining terms ranging from one to
18 years and a weighted average interest rate of 8.0%.
ANNUAL DEBT MATURITIES
As of year-end 1993, annual debt maturities were as follows (in millions):
<TABLE>
<S> <C>
1994 $ 188.6
1995 71.3
1996 89.4
1997 537.3
1998 79.7
Thereafter 1,510.0
--------
$2,476.3
--------
--------
</TABLE>
LETTERS OF CREDIT
The Company had letters of credit of $374.2 million outstanding at year-end
1993 of which $154.9 million were issued under the Bank Credit Agreement. The
letters of credit are maintained primarily to back the Company's self-insurance
program and to support performance, payment, deposit, or surety obligations of
the Company. The Company pays commitment fees ranging from 0.75% to 0.875% on
the outstanding portion of the letters of credit.
Note C - LEASE OBLIGATIONS
A majority of the premises that the Company occupies are leased. The Company
had approximately 1,150 leases at year-end 1993, including approximately 250
which are capitalized for financial reporting purposes. Most leases have
renewal options, some with terms and conditions similar to the original lease,
others with reduced rental rates during the option periods. Certain of these
leases contain options to purchase the property at amounts that approximate
fair market value.
As of year-end 1993, future minimum rental payments applicable to
non-cancelable capital and operating leases with remaining terms in excess of
one year were as follows (in millions):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
<S> <C> <C>
1994 $ 42.5 $ 132.3
1995 40.9 132.2
1996 39.0 127.1
1997 35.1 122.9
1998 31.8 118.3
Thereafter 222.9 953.6
-------- --------
Total minimum lease payments 412.2 $1,586.4
--------
--------
Less amounts representing interest 199.3
--------
Present value of net minimum
lease payments 212.9
Less current obligation 19.3
--------
Long-term obligations $ 193.6
--------
--------
</TABLE>
Future minimum lease payments under non-cancelable capital and operating
lease agreements have not been reduced by minimum sublease rental income of
$160.6 million.
Amortization expense for property under capital leases was $22.3 million in
1993, $23.2 million in 1992 and $24.5 million in 1991. Accumulated
amortization of property under capital leases was $148.1 million and $140.9
million at year-end 1993 and 1992, respectively.
The following schedule shows the composition of total rental expense for all
operating leases (in millions). In general, contingent rentals are based on
individual store sales.
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Property leases:
Minimum rentals $ 129.6 $ 130.9 $ 132.2
Contingent rentals 10.3 10.3 9.3
Less rentals from subleases (15.1) (11.1) (15.2)
------- ------- -------
124.8 130.1 126.3
Equipment leases 24.0 26.7 26.5
------- ------- -------
$ 148.8 $ 156.8 $ 152.8
------- ------- -------
------- ------- -------
</TABLE>
27
<PAGE> 19
Note D - INTEREST EXPENSE
Interest expense consisted of the following (in millions):
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Bank Agreements $ 31.9 $ 51.5 $ 45.9
9.30% Senior Secured
Debentures 9.3 8.2 -
10% Senior Notes 7.4 1.2 -
10% Senior Subordinated
Notes 30.0 30.0 3.2
9.875% Senior Subordinated
Debentures 14.8 11.4 -
9.65% Senior Subordinated
Debentures 29.0 27.3 -
9.35% Senior Subordinated
Notes 23.4 18.1 -
11.75% Senior Subordinated
Notes - 9.7 87.3
12% Subordinated
Debentures - 9.1 30.0
14.5% Junior Subordinated
Debentures - - 65.3
Mortgage notes payable 58.6 63.9 57.9
Other notes payable 29.3 30.0 33.0
Other bank borrowings - 1.4 0.1
Obligations under capital
leases 23.9 25.0 25.9
Amortization of deferred
finance costs 3.8 3.9 15.5
Interest rate swap and collar
agreements 8.3 7.7 1.9
Capitalized interest (4.2) (8.0) (10.6)
------ ------ ------
$265.5 $290.4 $355.4
------ ------ ------
------ ------ ------
</TABLE>
At year-end 1993, the Company had effectively converted $218.3 million of its
$421.1 million of floating rate debt to fixed interest rate debt through the
use of interest rate swap agreements. The significant terms of such agreements
outstanding at year-end 1993 were as follows (dollars in millions):
<TABLE>
<CAPTION>
U.S. Fixed Canada Fixed
Notional Interest Interest Origination Expiration
Principal Rates Rates Date Date
- --------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
$ 50.0 5.1% 1991 1995
10.0 5.8 1992 1997
6.0 5.4 1992 1995
38.1 8.7% 1991 1996
38.1 8.7 1992 1997
38.1 6.0 1993 1998
38.0 9.0 1993 1995
- -------
$ 218.3
- -------
- -------
</TABLE>
The notional principal amounts do not represent cash flows and therefore are
not subject to credit risk. The Company is subject to credit risk from
nonperformance of the counterparties to the agreements in the amount of any
interest differential to be received. Because the Company monitors the credit
ratings of its counterparties, which are limited to major financial
institutions, Safeway does not anticipate nonperformance by the counterparties.
At year-end 1993, net unrealized losses on the interest rate swap agreements
were $11.2 million. Since the Company intends to hold these agreements as
hedges for the term of the agreements, the market risk associated with changes
in interest rates should not be significant.
Note E - CAPITAL STOCK
SHARES AUTHORIZED AND ISSUED
Authorized preferred stock consists of 10 million shares of which none was
outstanding during fiscal years 1993, 1992, or 1991.
Authorized common stock consists of 300 million shares of $0.01 par value.
Common stock outstanding at year-end 1993 and 1992 was 101.5 million and 98.8
million shares, respectively. In 1991 and 1990 the Company sold a total of 29
million shares of common stock in two public stock offerings. Two limited
partnerships formed by Kohlberg Kravis Roberts & Co. ("KKR") own 65 million
shares of Safeway's common stock.
Common stock issued to certain Company officers is restricted as to
transferability. Generally, this restriction gives the Company the option to
purchase, at market price, any such stock offered for sale.
OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK
Under Safeway's stock option plans, the Company may grant incentive and
non-qualified options to purchase up to 19.5 million shares of common stock at
an exercise price determined by the Compensation and Stock Option Committee of
the Board of Directors. Vested options are exercisable in part or in full at
any time prior to the expiration date of 10 to 15 years from the date of the
grant. The stock option plans prohibit the transfer of options.
28
<PAGE> 20
Activity in the stock option plans for the three-year period ended January 1,
1994, was as follows:
<TABLE>
<CAPTION>
Option
Options Price
---------- ---------------
<S> <C> <C>
Outstanding, year-end 1990 11,625,928 $2.00 - 13.875
1991 Activity:
Granted 1,758,350 9.60 - 19.125
Canceled (148,265) 12.375 - 18.25
Exercised (298,825) 2.00 - 12.875
----------
Outstanding, year-end 1991 12,937,188 2.00 - 19.125
1992 Activity:
Granted 1,952,792 10.00 - 18.50
Canceled (326,297) 10.00 - 19.125
Exercised (508,922) 2.00 - 13.875
----------
Outstanding, year-end 1992 14,054,761 2.00 - 19.125
1993 Activity:
Granted 1,579,025 11.50 - 21.00
Canceled (550,286) 10.00 - 19.125
Exercised (1,539,880) 2.00 - 18.50
-----------
Outstanding, year-end 1993 13,543,620 2.00 - 21.00
----------
----------
Exercisable, year-end 1993 7,412,840 2.00 - 19.125
----------
----------
</TABLE>
Of the options exercisable at year-end 1993, 4,851,928 were exercisable at
$2.00 per share. There were 3,299,741 options available for grant at year-end
1993.
In connection with the 1986 acquisition of Safeway's predecessor company,
Safeway issued warrants ("Warrants") to purchase common stock. Each Warrant
represents the right to purchase 0.279 shares of the Company's common stock for
$1.052 per Warrant. In order to purchase a whole share of common stock, a
holder must exercise 3.584 Warrants and pay an aggregate exercise price of
$3.7691. During 1993, 3.8 million Warrants representing 1.1 million shares of
common stock were exercised. During 1992, 2.2 million Warrants representing 0.6
million shares of common stock were exercised. At year-end 1993, there were 8.2
million Warrants outstanding, which represented 2.3 million shares of common
stock. The Warrants expire on November 24, 1996.
Warrants (the "SSI Warrants") to purchase 13.9 million shares of the
Company's common stock at $2.00 per share were sold in 1986 to SSI Equity
Associates, L.P., a limited partnership (the "SSI Partnership"). The SSI
Warrants are exercisable through November 15, 2001. SSI Partners, L.P., an
affiliate of KKR, is the general partner of the SSI Partnership.
Outstanding common stock and the effect of options and warrants at year-end
1993 are summarized as follows (in millions):
<TABLE>
<CAPTION>
Potential Proceeds
Shares from Exercise
------ ------------------
<S> <C> <C>
Common stock outstanding 101.5
Options to purchase
common stock 13.5 $126.0
Warrants 2.3 8.6
SSI Warrants 13.9 27.9
----- ------
131.2 $162.5
----- ------
----- ------
</TABLE>
Note F - TAXES ON INCOME
The components of income taxes were as follows
(in millions):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ (80.2) $ (34.2) $ (47.0)
State (10.7) (7.6) (8.9)
Foreign (37.9) (39.7) (44.2)
------- ------- -------
(128.8) (81.5) (100.1)
------- ------- -------
Deferred:
Federal (20.3) (23.9) 10.2
State (6.2) (3.0) 1.8
Foreign 62.3 9.4 0.9
------- ------- -------
35.8 (17.5) 12.9
------- ------- -------
Total $ (93.0) $ (99.0) $ (87.2)
------- ------- -------
------- ------- -------
</TABLE>
The 1993 income tax provision above does not include tax benefits of $9.6
million from employee stock options exercised. The 1992 and 1991 income tax
provisions above do not include tax benefits of $17.1 million and $14.9
million, respectively, from the extraordinary losses on early debt retirement
and the tax benefit of $12.0 million in 1992 from the cumulative effect of
accounting changes.
29
<PAGE> 21
The reconciliation of the provision for income taxes at the U.S. federal
statutory income tax rate to the Company's income taxes is as follows (dollars
in millions):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35% 34% 34%
Income tax expense using
federal statutory rate $(75.7) $(67.1) $(56.5)
Difference between statutory
rate and foreign effective rate 9.7 (5.8) (14.9)
Taxes on foreign earnings not
permanently reinvested (8.3) (10.0) (11.2)
Taxes provided on equity
earnings of affiliates at rates
below the statutory rate 8.3 3.2 6.1
Other accruals (10.8) (4.9) (4.2)
State taxes on income less
federal benefit (11.0) (7.0) (4.7)
Unrecognized tax expense
of affiliate's income - - 4.3
Withholding tax on
Canadian earnings not
permanently reinvested 2.1 (4.1) (3.6)
Nondeductible amortization (3.9) (3.3) (2.5)
Deferred tax adjustment due
to 1993 federal rate increase (3.4) - -
------- ------- -------
Income taxes $(93.0) $(99.0) $(87.2)
------- ------- -------
------- ------- -------
</TABLE>
Significant components of the Company's net deferred tax liability at
year-end were as follows (in millions):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Deferred tax assets:
Foreign tax credit carryforwards $ 118.8 $ 118.8
Workers' compensation and
other claims 100.4 83.3
Reserves not currently deductible 50.0 79.0
Accrued claims and other liabilities 54.9 36.3
Employee benefits 25.3 26.5
Operating loss carryforward 42.8 -
Other assets 2.4 16.5
Valuation allowance (118.8) (118.8)
------- -------
275.8 241.6
------- -------
Deferred tax liabilities:
Property (163.9) (168.3)
Prepaid pension costs (135.0) (138.2)
Inventory (49.7) (51.1)
Investments in unconsolidated
affiliates (45.7) (31.2)
Cumulative translation
adjustments (27.0) (28.8)
------- -------
(421.3) (417.6)
------- -------
Net deferred tax liability $(145.5) $(176.0)
------- -------
------- -------
</TABLE>
Note G - EMPLOYEE PENSION AND BENEFIT PLANS
U.S. AND CANADIAN RETIREMENT PLANS
(the "Plans")
The Company maintains defined benefit, non-contributory pension plans for
substantially all of its U.S. and Canadian employees not participating in
multi-employer pension plans. Benefits are generally based upon years of
service, age at retirement date, and employee's compensation during the last
years of employment. The Company's funding policy is to contribute annually the
amount necessary to satisfy the statutory funding standards. Through year-end
1993, the assets of the U.S. Plan have exceeded its actuarially determined
liabilities by such amounts that the U.S. Plan was considered fully funded for
purposes of contribution requirements. Accordingly, no Company contributions
were made to the U.S. Plan during the last three years. In 1993, the Company
contributed $1.2 million to the Canadian Plan. No contributions were made to
the Canadian Plan in 1992 and 1991. Assets of the Plans are primarily composed
of equity and interest-bearing securities.
Actuarial assumptions used to determine year-end plan status were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Weighted average assumed
discount rate used to
determine the projected
benefit obligation:
U.S. Plan 7.0% 8.5% 8.5%
Canadian Plan 7.5% 8.5% 8.5%
Combined weighted
average rate 7.1% 8.5% 8.5%
Assumed rate of
compensation increase 5.5% 6.0% 7.0%
</TABLE>
The assumed long-term rate of return on Plan assets was 8.0% as of year-end
1993, 9.0% during 1993, 1992 and the second half of 1991, and 8.0% during the
first half of 1991.
30
<PAGE> 22
Net pension plan (expense) income consisted of the following (in millions):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Return on plan assets:
Actual return, gain $198.9 $ 41.2 $121.8
Deferred (gain) loss (114.4) 44.0 (44.4)
------- ------ ------
Actuarial assumed return 84.5 85.2 77.4
Service cost (36.8) (32.6) (32.1)
Interest cost on projected
benefit obligations (45.9) (44.7) (42.9)
Net amortization (2.2) (3.3) (4.3)
------- ------ ------
Net pension plan (expense)
income recognized in
consolidated statements
of income $ (0.4) $ 4.6 $ (1.9)
------- ------ ------
------- ------ ------
</TABLE>
The funded status of the Plans at year-end was as follows (in millions):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Fair value of assets at year-end $1,139.4 $982.3
-------- ------
Actuarially determined present value of:
Vested benefit obligations 612.4 481.1
Nonvested benefit obligations 9.0 8.5
-------- ------
Accumulated benefit obligations 621.4 489.6
Additional amounts related to
projected compensation increases 100.0 87.8
-------- ------
Projected benefit obligations 721.4 577.4
-------- ------
Fair value of assets in excess of projected
benefit obligations 418.0 404.9
Adjustment for difference in book and
tax basis of assets (167.1) (173.8)
Unamortized prior service costs
resulting from improved Plan benefits 61.8 63.1
Unrecognized net (gain) loss from
actuarial experience which has not been
recognized in the consolidated
financial statements (5.6) 12.1
-------- ------
Prepaid pension costs $ 307.1 $306.3
-------- ------
-------- ------
</TABLE>
MULTI-EMPLOYER PENSION PLANS
The Company participates in various multi-employer pension plans, covering
virtually all Company employees not covered under the Company's
non-contributory pension plans, pursuant to agreements between the Company and
employee bargaining units which are members of such plans. These plans are
generally defined benefit plans; however, in many cases, specific benefit
levels are not negotiated with or known by the employer-contributors.
Contributions of $70 million, $100 million, and $93 million were made and
charged to income in 1993, 1992, and 1991, respectively.
Under U.S. legislation regarding such pension plans, a company is required to
continue funding its proportionate share of a plan's unfunded vested benefits
in the event of withdrawal (as defined by the legislation) from a plan or plan
termination. Safeway participates in a number of these pension plans, and the
potential obligation as a participant in these plans may be significant. The
information required to determine the total amount of this contingent
obligation, as well as the total amount of accumulated benefits and net assets
of such plans, is not readily available. During 1988 and 1987, the Company sold
certain operations. In most cases the party acquiring the operation agreed to
continue making contributions to the plans. Safeway is relieved of the
obligations related to these sold operations to the extent the acquiring
parties continue to make contributions. Whether such sales could result in
withdrawal under ERISA and, if so, whether such withdrawals could result in
liability to the Company, is not determinable at this time. In 1993, Safeway
settled a claim by the Central States, Southeast and Southwest Pension Fund in
connection with an alleged withdrawal related to sold operations. This
settlement did not have a significant impact on the consolidated financial
statements.
31
<PAGE> 23
SENIOR EXECUTIVE SUPPLEMENTAL BENEFIT PLAN
The Senior Executive Supplemental Benefit Plan (the "SESBP") provides death
benefits and supplemental income payments after retirement for senior
executives. The Company recognized expense of $7.8 million in 1993, $6.4
million in 1992, and $6.1 million in 1991. The aggregate projected benefit
obligation of the SESBP was approximately $45.4 million at year-end 1993 and
$45.5 million at year-end 1992.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to pension and SESBP benefits, the Company sponsors postretirement
plans that provide medical and life insurance benefits to certain salaried
employees. Retirees share a portion of the cost of the postretirement medical
plans. Safeway pays all of the cost of the life insurance plans. The plans are
not funded.
In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," which requires accrual of the
expected cost of such postretirement benefits during employee service periods.
The cumulative effect of adoption was $10.5 million ($0.09 per share). At
year-end 1993 and 1992, the Company's accumulated postretirement benefit
obligation ("APBO") was $26.9 million and $26.4 million. The APBO represents
the actuarial present value of benefits expected to be paid after retirement
that are attributed to past service for plan participants. Postretirement
expense was $2.8 million in 1993 and 1992 and, on a cash basis, was $3.9
million in 1991.
The significant assumptions used to determine the periodic postretirement
benefit expense and the APBO were as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Discount rate 7.0% 8.5%
Rate of salary increase 5.5% 7.0%
</TABLE>
A 14% annual rate of increase in the per capita cost of postretirement
medical benefits was assumed for 1994. The rate was assumed to decrease
gradually to 6% for 2006 and remain at that level thereafter. If the health
care cost trend rate assumptions were increased by 1% in each year, the APBO as
of year-end 1993 would increase $1.1 million, and the net periodic
postretirement benefit expense for 1993 would increase $0.2 million. Retiree
contributions have historically been adjusted when plan costs increase. The
APBO for the medical plans anticipates future cost-sharing changes to the
written plan that are consistent with the Company's past practice.
Note H - COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
In July 1988, there was a major fire at the Company's dry grocery warehouse in
Richmond, California. Through January 12, 1994, approximately 123,000 claims
for personal injury and property damage arising from the fire had been settled
for approximately $117 million. The Company's loss as a result of the fire
damage to its property and settlement of the above claims was substantially
covered by insurance.
As of January 12, 1994, there were still pending approximately 5,200 claims
against the Company for personal injury (including punitive damages) and
approximately 2,500 separate claims against the Company for property damage
arising from the smoke, ash and embers generated by the fire. A substantial
percentage of these claims have been asserted in lawsuits against the Company
filed in the Superior Court for Alameda County, California. While no persons
died or were injured in the fire itself, the claims include wrongful death
actions based on the grounds that pre-existing health conditions were
aggravated by smoke, ash or embers from the fire. There can be no assurance
that the pending claims will be settled or otherwise disposed of on the same
terms as the cases settled to date. Safeway has additional insurance which it
believes will be sufficient and available for resolution of any remaining
claims. The insurance carrier has asserted that its liability policy does not
cover third-party claims because of the
32
<PAGE> 24
policy's pollution exclusion and the notice provisions contained in the
exclusion. The Company sued in the Federal District Court for the
Northern District of California against that insurer to
establish coverage, and named its insurance broker as an additional defendant,
alleging negligence on the part of the broker should the court determine that
insurance coverage does not exist. On August 9, 1993, the Federal District
Court for the Northern District of California issued an order in the suit filed
by the Company against the insurance carrier. The order granted the insurance
carrier's motions to compel arbitration and stay the suit until completion of
arbitration and, on that basis, denied the Company's motion for summary
judgment. The coverage dispute is the subject of a pending arbitration
proceeding between the Company and the insurance carrier. The action against
the broker in the Federal District Court for the Northern District of
California is stayed, pending completion of the arbitration.
In November 1991, the first of two purported class action employment
discrimination suits was filed against the Company in the Federal District
Court for the Northern District of California. Both complaints, which are now
pending in the Eastern District of California, were filed by certain female
retail store employees in Northern California who claim to represent a class of
past, present and future female employees who allegedly were denied employment
opportunities because of their sex in violation of federal and California law.
Both complaints seek unspecified monetary damages and injunctive relief.
In July 1993, discovery and other pretrial activities in the cases were
suspended while the parties conducted settlement discussions. Those discussions
are ongoing, but no assurance can be given that a settlement agreement will be
reached by the parties or approved by the Court. In the event the settlement
discussions do not result in a Court-approved agreement, the Company intends to
continue to defend vigorously these cases on the merits.
There are also pending against the Company various claims and lawsuits arising
in the normal course of business, some of which seek damages and other relief
which, if granted, would require very large expenditures.
It is management's opinion that although the amount of liability with respect
to all of the above matters cannot be ascertained at this time, any resulting
liability, including any punitive damages, will not have a material adverse
effect on the Company's consolidated financial position.
APPLE TREE CHARGE
In 1991, Safeway recorded a $115 million charge to operating profit in
connection with the bankruptcy of AppleTree Markets, Inc. In 1987, Safeway
assigned a significant number of leases to AppleTree as part of the sale of the
Company's former Houston division. In January 1992, AppleTree filed for Chapter
11 bankruptcy protection to restructure its senior and subordinated debt. In
October 1992, AppleTree emerged from bankruptcy with a plan of reorganization
which, among other things, included the rejection of certain leases for which
Safeway is liable. Safeway may also remain liable for AppleTree's remaining
leases in the event that AppleTree is unable to continue making those rental
payments. The $115 million charge in 1991 was an estimate of the eventual net
lease and related cash payments which Safeway expected to make over a period of
up to 16 years. The reserve is considered adequate to cover all known and
probable liabilities associated with AppleTree. Safeway has reviewed its
contingent obligations with respect to other divested operations, and, although
the aggregate amount of assigned leases is large, the Company expects that any
similar losses would not be material to Safeway's consolidated financial
position.
COMMITMENTS
The Company has commitments under contracts for the purchase of property and
equipment and for the construction of buildings. Portions of such contracts
not completed at year-end are not reflected in the consolidated financial
statements. These unrecorded commitments were approximately $30.5 million at
year-end 1993.
33
<PAGE> 25
Note I - INVESTMENTS IN AFFILIATES
Investments in affiliates consists of a 35% interest in Vons, which operates
more than 350 grocery stores located mostly in southern California, and a 49%
interest in Casa Ley, which operates 54 stores in western Mexico.
At year-end 1993, the Company owned 15.1 million common shares, or
approximately 35% of total Vons shares outstanding. As of year-end 1993 and
1992, the Company's recorded investment in Vons was $225.3 million and $212.4
million, including goodwill of $48.3 million and $49.6 million, respectively,
which is being amortized over 40 years. At year-end 1993, the aggregate market
value quoted on the New York Stock Exchange of Safeway's shares of Vons stock
was $242.0 million. The Company's standstill agreement with Vons, which, among
other things, limited the Company's ability to buy Vons common stock, expired
in August 1993.
Summarized financial information derived from Vons' financial reports to the
Securities and Exchange Commission was as follows (in millions):
<TABLE>
<CAPTION>
October 10, October 4,
Financial Position 1993 1992
- ------------------ ----------- ----------
<S> <C> <C>
Current assets $ 477.6 $ 438.6
Property and capital leases, net 1,149.1 907.5
Other assets 561.3 576.0
-------- --------
Total assets $2,188.0 $1,922.1
-------- --------
-------- --------
Current liabilities $ 496.6 $ 544.0
Long-term obligations 1,185.4 858.3
Shareholders' equity 506.0 519.8
-------- --------
Total liabilities and
shareholders' equity $2,188.0 $1,922.1
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
53 Weeks Ended 52 Weeks Ended 52 Weeks Ended
October 10, October 4, October 6,
Results of Operations 1993 1992 1991
- --------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 5,263.6 $ 5,475.5 $ 5,372.5
Cost of sales and
other expenses (5,221.9) (5,402.4) (5,308.2)
--------- --------- ---------
Income before
extraordinary item
and effect of
accounting changes 41.7 73.1 64.3
Extraordinary item (1.5) (16.1) 33.5
--------- --------- ---------
Income before
effect of
accounting changes $ 40.2 $ 57.0 $ 97.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
Safeway's equity in Vons' income before the effect of accounting changes was
$12.9 million, $18.6 million and $32.2 million in 1993, 1992, and 1991,
respectively. The Company records its equity in Vons' net income on a
one-quarter delay basis. In addition to lower operating income, Vons reported a
restructuring charge which decreased Safeway's equity in Vons' earnings by
$11.7 million in 1993. According to Vons, this restructuring charge included
anticipated expenses associated with a program to close under-performing
stores, convert selected locations to other store types, reduce work force, and
improve cost structure. For the 53-week period ended October 10, 1993, and the
52-week period ended October 4, 1992, Vons reported extraordinary losses of
$1.5 million and $16.1 million, respectively, from debt refinancing. For the
comparable period of 1991, Vons reported that net income included a net
extraordinary gain of $33.5 million primarily from the utilization of net
operating loss carryforwards.
In 1992, Vons adopted SFAS No. 109, "Accounting for Income Taxes," and SFAS
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions." The $55.1 million effect of these accounting changes is not
reflected in the summarized financial information presented above. Safeway's
share of Vons' accounting changes is included in the cumulative effect of
accounting changes in the Company's Consolidated Statements of Income (Note A).
In 1991, Vons issued 4.5 million new common shares which resulted in a pre-tax
gain to Safeway of $27.4 million.
Casa Ley had total assets of $365.5 million and $294.5 million as of
September 30, 1993 and 1992, respectively, based on financial information
provided by Casa Ley. Sales and net income were $925.8 million and $39.5
million, respectively, for the 12 months ended September 30, 1993, and $752.7
million and $33.8 million for the 12 months ended September 30, 1992.
34
<PAGE> 26
Note J - RELATED PARTY TRANSACTIONS
KKR provides management, consulting and financial services to the Company for
an annual fee. Such services include, but are not necessarily limited to,
advice and assistance concerning any and all aspects of the operation, planning
and financing of the Company. Payments for management fees, special services
and reimbursement of expenses were $907,000, $826,000, and $788,000 in 1993,
1992, and 1991, respectively.
The Company holds an 80% interest in Property Development Associates ("PDA"),
a partnership formed in 1987 with a company controlled by an affiliate of KKR,
to purchase, manage and dispose of certain Safeway facilities, primarily those
which are no longer used in the retail grocery business. The financial
statements of PDA are consolidated with those of the Company and the minority
interest of $19.3 million and $14.5 million at year-end 1993 and 1992 is
included in accrued claims and other liabilities in the accompanying
consolidated balance sheet. During 1993, the Company contributed to PDA seven
properties no longer used in its retail grocery business which had an aggregate
net book value of $2.5 million. In 1992, the Company contributed three such
properties having a net book value of $0.9 million to PDA. Safeway paid PDA
$2.0 million in 1993 and $1.5 million in both 1992 and 1991 for reimbursement
of expenses related to management and real estate services provided by PDA. No
gains or losses were recognized on these transactions.
Note K - FINANCIAL INFORMATION BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
United
(In millions) States Canada Total
- ------------- ------ ------ -----
<S> <C> <C> <C>
1993:
Sales $ 11,756.0 $ 3,458.5 $15,214.5
Gross profit 3,327.3 803.8 4,131.1
Operating profit 436.3 5.2 441.5
Income (loss) before income taxes 252.3 (36.0) 216.3
Net working capital (deficit) (313.9) 66.5 (247.4)
Total assets 4,084.0 990.7 5,074.7
Net assets 169.1 213.8 382.9
1992:
Sales $ 11,547.1 $ 3,604.8 $15,151.9
Gross profit 3,237.3 927.2 4,164.5
Operating profit 330.1 111.5 441.6
Income before income
taxes, extraordinary
loss and cumulative effect
of accounting changes 137.3 60.1 197.4
Net working capital (deficit) (99.6) 126.9 27.3
Total assets 4,177.5 1,048.3 5,225.8
Net assets 12.8 230.3 243.1
1991:
Sales $ 11,333.0 $ 3,786.2 $ 15,119.2
Gross profit 3,168.9 936.7 4,105.6
Operating profit 305.2 128.1 433.3
Income before income taxes and
extraordinary loss 93.1 73.1 166.2
Net working capital (deficit) (54.6) 136.8 82.2
Total assets 4,014.9 1,155.8 5,170.7
Net assets 2.2 212.2 214.4
</TABLE>
35
<PAGE> 27
Note L - QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Last Third Second First
(In millions, except per share amounts) Year 16 Weeks 12 Weeks 12 Weeks 12 Weeks
- --------------------------------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1993:
Sales $15,214.5 $4,701.6 $3,558.9 $3,549.4 $3,404.6
Gross profit 4,131.1 1,278.7 966.9 959.8 925.7
Operating profit 441.5 161.3 121.1 116.8 42.3
Income (loss) before income taxes 216.3 82.2 74.0 63.2 (3.1)
Net income (loss) 123.3 46.9 42.1 36.0 (1.7)
Income (loss) per common share and common
share equivalent:
Primary $ 1.02 $ 0.38 $ 0.35 $ 0.30 $ (0.02)
Fully diluted 1.00 0.38 0.34 0.30 (0.02)
Price range, New York Stock Exchange $ 11 3/8 $ 18 1/8 $ 14 7/8 $ 13 1/2 $ 11 3/8
to 22 1/2 to 22 1/2 to 19 1/8 to 16 3/8 to 14 1/8
</TABLE>
<TABLE>
<CAPTION>
Last Third Second First
Year 17 Weeks 12 Weeks 12 Weeks 12 Weeks
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1992:
Sales $15,151.9 $4,849.7 $3,455.5 $3,450.8 $3,395.9
Gross profit 4,164.5 1,342.0 942.2 950.4 929.9
Operating profit 441.6 119.9 98.8 120.5 102.4
Income before income taxes, extraordinary loss
and cumulative effect of accounting changes 197.4 46.5 43.8 64.3 42.8
Extraordinary loss (27.8) - - - (27.8)
Cumulative effect of accounting changes (27.1) - - - (27.1)
Net income (loss) 43.5 22.2 20.0 33.3 (32.0)
Income per common share and common
share equivalent (primary and fully diluted):
Income before extraordinary loss and
cumulative effect of accounting changes $ 0.83 $ 0.19 $ 0.17 $ 0.28 $ 0.19
Extraordinary loss (0.23) - - - (0.23)
Cumulative effect of accounting changes (0.23) - - - (0.23)
--------- -------- -------- -------- --------
Net income (loss) $ 0.37 $ 0.19 $ 0.17 $ 0.28 $ (0.27)
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
Price range, New York Stock Exchange $ 10 $ 10 $ 10 1/2 $ 11 3/4 $ 16 3/4
to 20 1/8 to 15 1/8 to 13 3/8 to 16 5/8 to 20 1/8
</TABLE>
36
<PAGE> 28
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Safeway Inc. and Subsidiaries
SHORT-TERM BORROWINGS
(Dollars in millions)
<TABLE>
<CAPTION>
Average Weighted
Maximum Amount Average
Weighted Amount Outstanding Interest Rate
Average Outstanding During During
Category of Aggregate Year-End Rate at During the Year the Year
Short-term Borrowings Balance Year-end the Year (Note 1) (Note 2)
- --------------------- -------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
1993
Money market facility $34.0 3.42% $46.0 $ 3.8 3.40%
Bankers acceptances - - 18.8 4.4 3.82
1992
Money market facility $10.0 3.75% $45.0 $10.7 4.04%
Bankers acceptances 8.9 3.93 45.0 23.6 4.19
1991
Money market facility $25.0 5.05% $25.0 $ 0.8 5.08%
Bankers acceptances 34.8 5.25 35.0 0.6 5.26
</TABLE>
Note 1. Average amount outstanding during the period was computed by dividing
the total of daily outstanding principal balances by the number of days in the
fiscal period.
Note 2. Weighted average interest rate during the period was computed by
dividing the actual short-term interest expense by the average amount
outstanding during the period as described in Note 1.
37
<PAGE> 29
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Safeway Inc. and Subsidiaries
Property, Plant and Equipment
(In millions)
<TABLE>
<CAPTION>
Other
Balance at Exchange Changes Balance
Beginning Additions Retirements Rate Add (Deduct) at End of
Classification of Period at Cost or Sales Effects (Note 1) Period
- -------------- ---------- --------- ----------- -------- ------------ ---------
1993
<S> <C> <C> <C> <C> <C> <C>
Land $ 384.1 $ 27.3 $ (23.4) $ (2.8) $ (0.5) $ 384.7
Buildings 968.4 61.3 (26.0) (5.8) 11.7 1,009.6
Leasehold improvements 807.2 29.7 (35.9) (2.5) (7.0) 791.5
Fixtures and equipment 1,668.7 134.5 (83.4) (8.7) - 1,711.1
Property under capital leases 310.4 20.3 (16.3) (1.1) (2.9) 310.4
-------- --------- -------- ------- ------- ---------
$4,138.8 $ 273.1 $ (185.0) $ (20.9) $ 1.3 $ 4,207.3
-------- --------- -------- ------- ------- ---------
-------- --------- -------- ------- ------- ---------
1992
Land $ 370.5 $ 34.3 $ (12.0) $ (11.4) $ 2.7 $ 384.1
Buildings 870.3 135.2 (30.0) (21.5) 14.4 968.4
Leasehold improvements 793.0 57.7 (15.1) (10.4) (18.0) 807.2
Fixtures and equipment 1,507.7 256.8 (61.4) (34.4) - 1,668.7
Property under capital leases 322.5 5.7 (8.8) (4.2) (4.8) 310.4
-------- --------- -------- ------- ------- ---------
$3,864.0 $ 489.7 $ (127.3) $ (81.9) $ (5.7) $ 4,138.8
-------- --------- -------- ------- ------- ---------
-------- --------- -------- ------- ------- ---------
1991
Land $ 288.7 $ 61.9 $ (2.1) $ (0.4) $ 22.4 $ 370.5
Buildings 624.3 202.3 (3.5) (0.5) 47.7 870.3
Leasehold improvements 769.1 68.0 (14.6) 0.2 (29.7) 793.0
Fixtures and equipment 1,273.3 266.3 (31.7) (0.2) - 1,507.7
Property under capital leases 331.9 11.2 (10.2) - (10.4) 322.5
-------- --------- -------- ------- ------- ---------
$3,287.3 $ 609.7 $ (62.1) $ (0.9) $ 30.0 $ 3,864.0
-------- --------- -------- ------- ------- ---------
-------- --------- -------- ------- ------- ---------
</TABLE>
Note 1. Amounts include reclassifications and transfers.
38
<PAGE> 30
Accumulated Depreciation and Amortization of Property, Plant and Equipment
(In millions)
<TABLE>
<CAPTION>
Other
Balance at Exchange Changes Balance
Beginning Additions Retirements Rate Add (Deduct) at End of
Classification of Period at Cost or Sales Effects (Note 1) Period
- -------------- ---------- --------- ----------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1993
Buildings $ 247.3 $ 62.7 $ (9.5) $ (1.7) $ 4.6 $ 303.4
Leasehold improvements 259.2 51.3 (14.5) (1.1) (4.3) 290.6
Fixtures and equipment 794.3 183.3 (67.8) (4.7) - 905.1
Property under capital leases 140.9 22.3 (13.2) (0.4) (1.5) 148.1
-------- --------- -------- ------ ------ ---------
$ 1,441.7 $ 319.6 $ (105.0) $ (7.9) $ (1.2) $ 1,647.2
-------- --------- -------- ------ ------ ---------
-------- --------- -------- ------ ------ ---------
1992
Buildings $ 199.2 $ 59.9 $ (11.1) $ (5.5) $ 4.8 $ 247.3
Leasehold improvements 223.3 49.9 (4.1) (3.8) (6.1) 259.2
Fixtures and equipment 688.2 174.6 (51.3) (17.2) - 794.3
Property under capital leases 128.8 23.2 (7.1) (1.5) (2.5) 140.9
-------- --------- -------- ------ ------ ---------
$ 1,239.5 $ 307.6 $ (73.6) $(28.0) $ (3.8) $ 1,441.7
-------- --------- -------- ------ ------ ---------
-------- --------- -------- ------ ------ ---------
1991
Buildings $ 140.3 $ 47.2 $ (1.4) $ - $ 13.1 $ 199.2
Leasehold improvements 186.8 50.5 (5.7) - (8.3) 223.3
Fixtures and equipment 549.1 163.1 (24.1) (0.1) 0.2 688.2
Property under capital leases 115.8 24.5 (7.4) - (4.1) 128.8
-------- --------- -------- ------ ------ ---------
$ 992.0 $ 285.3 $ (38.6) $ (0.1) $ 0.9 $ 1,239.5
-------- --------- -------- ------ ------ ---------
-------- --------- -------- ------ ------ ---------
</TABLE>
Note 1. Amounts include reclassifications and transfers.
39
<PAGE> 31
COMPUTATION OF EARNING PER SHARE AND COMMON SHARE EQUIVALENT
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ------------------ -----------------
Fully Fully Fully
(In millions, except per-share amounts) Diluted Primary Diluted Primary Diluted Primary
- --------------------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary loss and
cumulative effect of accounting changes $ 123.3 $ 123.3 $ 98.4 $ 98.4 $ 79.0 $ 79.0
Extraordinary loss - - (27.8) (27.8) (24.1) (24.1)
Cumulative effect of accounting changes - - (27.1) (27.1) - -
------- ------- ------- ------- ------- -------
Net income $ 123.3 $ 123.3 $ 43.5 $ 43.5 $ 54.9 $ 54.9
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Weighted average common shares outstanding 101.5 99.6 98.8 98.6 92.6 92.0
Common share equivalents 21.9 21.4 20.2 20.4 22.6 22.9
------- ------- ------- ------- ------- -------
Weighted average common shares and
common share equivalents 123.4 121.0 119.0 119.0 115.2 114.9
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Earnings per common share and common
share equivalent:
Income before extraordinary loss
and cumulative effect of accounting
changes $ 1.00 $ 1.02 $ 0.83 $ 0.83 $ 0.69 $ 0.69
Extraordinary loss - - (0.23) (0.23) (0.21) (0.21)
Cumulative effect of accounting changes - - (0.23) (0.23) - -
------- ------- ------- ------- ------- -------
Net income $ 1.00 $ 1.02 $ 0.37 $ 0.37 $ 0.48 $ 0.48
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Calculation of common share equivalents:
Options and warrants to purchase
common shares 29.4 30.2 28.0 28.2 29.1 29.5
Common shares assumed purchased
with potential proceeds (7.5) (8.8) (7.8) (7.8) (6.5) (6.6)
------- ------- ------- ------- ------- -------
Common share equivalents 21.9 21.4 20.2 20.4 22.6 22.9
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Calculation of common shares assumed
purchased with potential proceeds:
Potential proceeds from exercise of
options and warrants to purchase
common shares $ 157.2 $ 146.5 $ 110.6 $111.5 $ 117.0 $ 118.4
Common stock price used under the
treasury stock method $ 21.25 $ 16.60 $ 14.26 $14.26 $ 18.00 $ 17.83
Common shares assumed purchased
with potential proceeds 7.5 8.8 7.8 7.8 6.5 6.6
</TABLE>
40
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Safeway Inc.:
We have audited the accompanying consolidated balance sheets of Safeway Inc.
and subsidiaries as of January 1, 1994 and January 2, 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended January 1, 1994. Our audits also
included the consolidated financial statement schedules appearing on pages 37
through 40. These financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Safeway Inc. and subsidiaries at
January 1, 1994 and January 2, 1993, and the results of their operations and
their cash flows for each of the three fiscal years in the period ended January
1, 1994 in conformity with generally accepted accounting principles. Also, in
our opinion, such consolidated financial statement schedules, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information shown therein.
As discussed in Note A to the consolidated financial statements, during the
fiscal year ended January 2, 1993, the Company changed its methods of
accounting for postretirement and postemployment benefits, and an
unconsolidated equity method affiliate of the Company changed its methods of
accounting for postretirement benefits and income taxes.
/s/ DELOITTE & TOUCHE
Oakland, California
February 21, 1994
41
<PAGE> 33
APPENDIX TO EXHIBIT 13.1
GRAPHIC PRESENTATION OF MATERIAL
The following graphs in the Company's 1993 Annual Report to
Stockholders are incorporated by reference in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of
Operations:
On page 13 under the section "Financial Review" is a pie graph
entitled "1993 Portions of the Sales Dollar" depicting the following :
<TABLE>
<S> <C>
Cost of Goods Sold 72.8%
Operating and Administrative 24.3%
Operating Profit 2.9%
</TABLE>
This graph accompanies the subsection entitled "Sales."
On page 14 under the section "Financial Review" is a bar graph
entitled "Interest Expense" which shows interest expense (in millions)
as follows:
<TABLE>
<S> <C>
1991 $355.4
1992 290.4
1993 265.5
</TABLE>
The graph has an initial value of $100 million, and accompanies the
subsection entitled "Interest Expense"
<PAGE> 1
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
AS OF January 1, 1994
Registrant: Safeway Inc.
Subsidiaries of Registrant (Tier I subsidiaries):
Safeway U.S. Holdings, Inc.
Safeway Canada Holdings, Inc.
Safeway Australia Holdings, Inc.
Safeway Netherlands Antilles Finance Corp.
Salvage, Inc.
Oakland Property Brokerage, Inc.
Glencourt, Inc.
Safeway International DISC, Inc.
Safeway Foreign Sales, Inc.
Johs. Esmarch's, Inc.
Milford Insurance Ltd.
Pak 'N Save, Inc.
SUBSIDIARIES OF TIER I SUBSIDIARIES (Tier II subsidiaries):
Subsidiaries of Safeway U.S. Holdings, Inc.:
Safeway Trucking, Inc.
Photo Acquisition I, Inc.
Photo Acquisition II, Inc.
Safeway Southern California, Inc.
Safeway Denver, Inc.
Safeway Richmond, Inc.
Safeway Dallas, Inc.
Safeway Supply, Inc.
Safeway Corporate, Inc.
Safeway Stores 42, Inc.
Safeway Stores 43, Inc.
Safeway Stores 64, Inc.
Safeway Claim Services, Inc.
Safeway Stores, Incorporated
Safeway Warehouse, Inc.
Subsidiaries of Safeway Canada Holdings, Inc.:
Safeway New Canada, Inc.
(Continued)
<PAGE> 2
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
AS OF January 1, 1994
SUBSIDIARIES OF TIER II SUBSIDIARIES (Tier III subsidiaries):
Subsidiaries of Safeway Southern California, Inc.
Safeway Stores 18, Inc.
Safeway Stores 26, Inc.
Safeway Stores 28, Inc.
Safeway Stores 31, Inc.
Subsidiaries of Safeway Denver, Inc.
Safeway Stores 44, Inc.
Safeway Stores 45, Inc.
Safeway Stores 46, Inc.
Safeway Stores 47, Inc.
Safeway Stores 48, Inc.
Safeway Stores 49, Inc.
Safeway Stores 50, Inc.
Subsidiaries of Safeway Richmond, Inc.
Safeway Stores 58, Inc.
Safeway Stores 59, Inc.
Subsidiaries of Safeway Corporate, Inc.
Safeway Stores 67, Inc.
Safeway Stores 68, Inc.
Safeway Stores 69, Inc.
Safeway Stores 70, Inc.
Subsidiaries of Safeway Supply, Inc.
Safeway Stores 71, Inc.
Safeway Stores 72, Inc.
Safeway Stores 73, Inc.
Safeway Stores 74, Inc.
Safeway Stores 75, Inc.
Safeway Stores 76, Inc.
Safeway Stores 77, Inc.
Consolidated Procurement Services, Inc.
Southern Missouri Charcoal Company
(Continued)
<PAGE> 3
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
AS OF January 1, 1994
Subsidiaries of Safeway Dallas, Inc.
Safeway Stores 78, Inc.
Safeway Stores 79, Inc.
Safeway Stores 80, Inc.
Safeway Stores 81, Inc.
Safeway Stores 82, Inc.
Safeway Stores 85, Inc.
Safeway Stores 86, Inc.
Safeway Stores 87, Inc.
Safeway Stores 88, Inc.
Safeway Stores 89, Inc.
Safeway Stores 90, Inc.
Safeway Stores 91, Inc.
Safeway Stores 92, Inc.
Safeway Stores 96, Inc.
Safeway Stores 97, Inc.
Safeway Stores 98, Inc.
Subsidiaries of Photo Acquisition I, Inc.
Everett Realty Advisors, Inc.
SUBSIDIARIES OF TIER II SUBSIDIARIES (Non-tier Subsidiaries):
Subsidiary of Safeway New Canada, Inc.:
Canada Safeway Limited and its subsidiaries:
Safeway International Finance Corp. of Canada Ltd.
Lucerne Foods Ltd.
SUBSIDIARIES OF TIER III SUBSIDIARIES (Tier IV Subsidiaries):
Subsidiary of Safeway Stores 58, Inc.:
Safelease, Inc.
Ten companies are not listed as they are maintained solely for the purpose of
holding licenses.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our reports dated February 21,
1994, appearing in and incorporated by reference in this Annual Report on Form
10-K of Safeway Inc. for the fiscal year ended January 1, 1994, in the
following Registration Statements of Safeway Inc.:
* No. 33-33388 on Form S-3 regarding Warrants to Purchase Common Stock,
* No. 33-36753 on Form S-8 regarding the Safeway Inc. Outside Director Equity
Purchase Plan,
* No. 33-37207 on Form S-8 regarding the Profit Sharing Plan of Safeway Inc.
and its United States Subsidiaries,
* No. 33-42232 on Forms S-3 and S-8 regarding the Amended and Restated Stock
Option Plan for Key Employees of Safeway Inc.,
* No. 33-48884 on Form S-8 regarding the Amended and Restated Stock Option
Plan for Key Employees of Safeway Inc.,
* No. 33-51552 on Form S-3 regarding Debt Securities, and
* No. 33-51119 on Form S-8 regarding the Stock Option Plan for Consultants of
Safeway Inc.
DELOITTE & TOUCHE
Oakland, California
March 24, 1994
<PAGE> 1
EXHIBIT 27.1
SAFEWAY INC. AND SUBSIDIARIES
FINANCIAL DATA SCHEDULE
(In millions except per-share amounts)
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income on pages 17
through 19 of the Company's 1993 Annual Report to Stockholders and is qualified
in its entirety by reference to such financial statements.
<TABLE>
<CAPTION>
Year End
Item Number Item Description 1993
- ----------- ------------------ ----
<S> <C> <C>
5-02(1) Cash and cash items $ 118.4
5-02(2) Marketable securities -
5-02(3)(a)(1) Notes and accounts receivable - trade 119.5
5-02(4) Allowances for doubtful accounts -
5-02(6) Inventory 1,128.1
5-02(9) Total current assets 1,464.0
5-02(13) Property, plant and equipment 4,207.3
5-02(14) Accumulated depreciation (1,647.2)
5-02(18) Total assets 5,074.7
5-02(21) Total current liabilities 1,711.4
5-02(22) Bonds, mortgages and similar debt 2,481.3
5-02(28) Preferred stock - mandatory redemption -
5-02(29) Preferred stock - no mandatory redemption -
5-02(30) Common stock 1.0
5-02(31) Other stockholders' equity 381.9
5-02(32) Total liabilities and stockholders' equity 5,074.7
</TABLE>
<TABLE>
<CAPTION>
53 weeks
Item Number Item Description 1993
----------- ---------------- ----
<S> <C> <C>
5-03(b)1(a) Net sales of tangible products $15,214.5
5-03(b)1 Total revenues 15,214.5
5-03(b)2(a) Cost of tangible goods sold (11,083.4)
5-03(b)2 Total costs and expenses applicable to sales and revenues (11,083.4)
5-03(b)3 Other costs and expenses -
5-03(b)5 Provision for doubtful accounts and notes -
5-03(b)(8) Interest and amortization of debt discount (265.5)
5-03(b)(10) Income before taxes and other items 216.3
5-03(b)(11) Income tax expense (93.0)
5-03(b)(14) Income/loss continuing operations 123.3
5-03(b)(15) Discontinued operations -
5-03(b)(17) Extraordinary items -
5-03(b)(18) Cumulative effect - changes in accounting principles -
5-03(b)(19) Net income or loss 123.3
5-03(b)(20) Earnings per share - primary 1.02
5-03(b)(20) Earnings per share - fully diluted 1.00
</TABLE>
