<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 December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-- EXCHANGE ACT OF 1934
For the transition period from to
------ -----
Commission file number 1-41
SAFEWAY INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-3019135
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
Fourth and Jackson Streets
Oakland, California 94660
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 891-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $0.01 par value per share New York Stock Exchange and Pacific Stock Exchange
Warrants to purchase Common Stock New York Stock Exchange
9.30% Senior Secured Debentures due 2007 New York Stock Exchange
9.35% Senior Subordinated Notes due 1999 New York Stock Exchange
10% Senior Subordinated Notes due 2001 New York Stock Exchange
9.65 Senior Subordinated Debentures due 2004 New York Stock Exchange
9.875% Senior Subordinated Debentures due 1007 New York Stock Exchange
</TABLE>
(Cover continued on following page)
<PAGE> 2
(Cover continued from previous page)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
(Title of Class)
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 X .
---
Aggregate market value of the voting stock held by non-affiliates of Registrant
as of March 14, 1995, was $1.4 billion.
As of March 14, 1995, there were issued and outstanding 105,497,700 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>
1994 Annual Report to Stockholders I, II, III, IV
1995 Proxy Statement dated March 24, 1995 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 1994 Annual Report to Stockholders is incorporated herein by
this reference.
RETAIL OPERATIONS:
Information appearing under the caption "Retail Operations" on page 10 of the
Company's 1994 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 1994 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. 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 1994 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 1994 1993 1992 1991 1990
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
New stores:
New locations 54 6 8 12 9 19
Replacements 78 14 6 23 24 11
-- -- - -- -- --
132 20 14 35 33 30
=== == == == == ==
Remodels:
Expansions 90 7 27 23 22 11
"Four-Wall" remodels 256 64 18 40 55 79
--- -- -- -- -- --
346 71 45 63 77 90
=== == == == == ==
Closures 187 36 39 49 37 26
Stores at year-end 1,062 1,078 1,103 1,117 1,121
</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 75 other trademarks registered
or pending in the United States Patent and Trademark Office, including its
product line names such as Lucerne, Bel-air, TownHouse, Mrs. Wright's, and
Safeway SELECT. Each trademark registration is for an initial period of 10 or 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 1994, working capital deficit was composed of $1.4 billion of
current assets and $1.8 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 1994
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.
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 relate 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 1994, the Company had approximately 110,000 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 12 different international unions. There are approximately 500 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 34 of the
Company's 1994 Annual Report to Stockholders and incorporated herein by this
reference, contains financial information by geographic area. At year-end 1994,
the Company's foreign operations were composed of retail grocery and wholesale
operations in Canada and a 49% equity investment in Casa Ley, S.A. de C.V.
("Casa Ley"), a Mexican company. The recent devaluation of the peso will have an
adverse impact on Safeway's income from Casa Ley beginning in 1995 but is not
expected to be material to Safeway's net income. Other than the competitive
nature of the retail food business, the Company is not aware of any other
significant risks of operating in these foreign countries.
Casa Ley had total assets of $448.4 million and $365.5 million as of September
30, 1994 and 1993, based on financial information provided by Casa Ley. Sales
were $1,052.4 million and net income was $32.0 million for the 12 months ended
September 30, 1994. Sales were $925.8 million and net income was $39.5 million
for the 12 months ended September 30, 1993. Sales were $752.7 million and net
income was $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 1994 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, the 10% Senior
Subordinated Notes due 2001, the 9.30% Senior Secured Debentures due 2007, and
the 10% Senior Notes due 2002 (collectively, the "Notes and Debentures") 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 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 page 32 of the
Company's 1994 Annual Report to Stockholders is incorporated herein by this
reference.
In March 1995, Service District No. 1 of the Clackamas County, Oregon
Department of Utilities (the "District") issued a Notice of Violation and
Intent to Assess Civil Penalty ("NOV") alleging violations of a wastewater
discharge permit at a Company facility. The violations relate to the Company's
alleged failure to comply with discharge limitations for pH and reporting
requirements under the permit. The NOV may result in the assessment of civil
penalties and a compliance order, the amount and content of which will depend
on a variety of factors, including mitigating factors presented to the
District. Although the Company is unable to predict the amount of civil
penalties, if any, that it will be required to pay with respect to the
facility, the Company does not believe that the payment of any such amount will
be significant. The Company intends to respond promptly to the NOV, and has had
discussions with the District, in order to resolve this matter.
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 1994.
6
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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 and the Pacific 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 35 of the Company's 1994 Annual Report to
Stockholders and is incorporated herein by this reference. There were 4,596
stockholders of record as of March 14, 1995; however, approximately 36% 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 $35.00
as of the close of business on March 14, 1995.
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,
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 from
its initial public offering and from 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 1994
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 1994 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 1994 Annual Report to Stockholders is incorporated herein by this
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 17 through 37 of the Company's 1994 Annual Report to Stockholders, which
include the consolidated financial statements, Computation of Earnings Per
Common Share and Common Share Equivalent listed as Exhibit 11.1 to Item 14(a)3,
and the Independent Auditors' Report as listed in Item 14(a)1, are incorporated
herein by this reference.
7
<PAGE> 8
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 1995 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 14, 1995, 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>
Name and all Positions with the Company Year First Elected
Held at March 14, 1995 Age Officer Present Office
- ---------------------- --- ------- --------------
<S> <C> <C> <C>
Steven A. Burd (1) 45 1992 1992
President and Chief Executive Officer
David T. Ching (2) 42 1994 1994
Senior Vice President and
Chief Information Officer
Frithjof J. Dale 50 1982 1991
Group Vice President
Finance
Julian C. Day (3) 42 1993 1993
Executive Vice President and
Chief Financial Officer
E. Richard Jones 50 1983 1988
Executive Vice President
Supply Operations
George D. Marshall 55 1979 1979
Vice President
Labor Relations
Kenneth W. Oder (4) 47 1993 1993
Executive Vice President
Labor Relations, Human Resources, Law and Public Affairs
Melissa C. Plaisance 35 1993 1995
Senior Vice President
Finance and Public Affairs
Larree M. Renda 36 1991 1994
Senior Vice President
Corporate Retail Operations
Michael C. Ross (4) 47 1993 1993
Senior Vice President
Secretary and General Counsel
</TABLE>
8
<PAGE> 9
SAFEWAY INC. 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 14, 1995 Age Officer Present Office
- ---------------------- --- ------- --------------
<S> <C> <C> <C>
Wilber L. Schinner 54 1984 1988
Senior Vice President and
Director of Marketing
Richard A. Wilson 61 1988 1988
Vice President
Tax
Donald P. Wright 42 1991 1991
Senior Vice President
Real Estate and Engineering
</TABLE>
- -------------------------------
(1) Previously the owner of Burd & Associates.
(2) During 1994, Mr. Ching was the General Manager - North America for the
British American Consulting Group. From 1979 to 1994, he was employed by Lucky
Stores, Inc., where he was the Senior Vice President of Information Systems
beginning in 1989.
(3) Previously self-employed as an independent consultant.
(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
1995 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 1995 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 1995
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 1995 Proxy Statement is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note J to the consolidated financial statements, included on pages 33 and 34 of
the Company's 1994 Annual Report to Stockholders, and the captions "Certain
Relationships and Transactions" and "Compensation Committee Interlocks and
Insider Participation" in the Company's 1995 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 1994, 1993, and 1992.
Consolidated Balance Sheets as of the end of fiscal 1994 and 1993.
Consolidated Statements of Cash Flows for fiscal 1994, 1993, and 1992.
Consolidated Statements of Stockholders' Equity for fiscal 1994, 1993, and
1992.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Consolidated Financial Statement Schedules:
None required
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 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 (incorporated by reference to Exhibit 3.2 to
Registrant's Form 10-K for the year ended January 2, 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
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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
2007, including the form of Debenture and the forms of Deed
of Trust and Environmental Indemnity Agreement attached as
exhibits thereto (incorporated by reference to Exhibit
4(i).14 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
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
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).
12
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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, 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), the Extension
Agreement and Sixth Amendment dated March 31, 1994
(incorporated by reference to Exhibit 4(i).20 of the
Registrant's Form 10-Q for the quarterly period ended March
26, 1994), the Seventh Amendment dated August 19, 1994
(incorporated by reference to Exhibit 4(i).20 of the
Registrant's Form 10-Q for the quarterly period ended
September 10, 1994), and the Eighth Amendment and Limited
Waiver dated January 13, 1995.
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, 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), the
Extension Agreement and Sixth Amendment dated March 31, 1994
(incorporated by reference to Exhibit 4(i).21 to the
Registrant's Form 10-K for the year ended January 2, 1993),
the Extension Agreement and Sixth Amendment dated March 31,
1994 (incorporated by reference to Exhibit 4(i).21 of the
Registrant's Form 10-Q for the quarterly period ended March
26, 1994), the Seventh Amendment dated as of August 19, 1994
(incorporated by reference to Exhibit 4(i).21 of the
Registrant's Form 10-Q for the quarterly period ended
September 10, 1994), and the Eighth Amendment and Limited
Waiver dated January 13, 1995.
Exhibit 4(i).22 Form of Common Stock Purchase Warrants dated November
25, 1986 to purchase 13,928,000 shares of Safeway Common
Stock (incorporated by reference to Exhibit 4.7 to
Registration Statement No. 33-9254).
Exhibit 4(iii) Registrant agrees to provide the Securities and
Exchange Commission, upon request, with 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.
13
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
Exhibit 10(iii).1* Safeway Inc. Outside Director Equity Purchase
Plan (incorporated by reference to Exhibit 4.1 to
Registration Statement No. 33-36753), and First Amendment
to the Safeway Inc. Outside Director Equity Purchase Plan
dated as of July 5, 1994 (incorporated by reference to
Exhibit 10(iii).1 to Registrant's Form 10-Q for the
quarterly period ended September 10, 1994).
Exhibit 10(iii).2* Share Appreciation Rights Plan of Canada
Safeway Limited (incorporated by reference to Exhibit
10(iii).17 to Registrant's Form 10-K for the year ended
December 29, 1990) and Amendment No. 1 thereto dated
December 13, 1991 (incorporated by reference to Exhibit
10(iii).17 to Registrant's Form 10-K for the year ended
December 28, 1991).
Exhibit 10(iii).3* Share Appreciation Rights Plan of Lucerne
Foods Ltd. (incorporated by reference to Exhibit
10(iii).18 to Registrant's Form 10-K for the year ended
December 29, 1990) and Amendment No. 1 thereto dated
December 13, 1991 (incorporated by reference to Exhibit
10(iii).18 to Registrant's Form 10-K for the year ended
December 28, 1991).
Exhibit 10(iii).4* Letter Agreement dated March 24, 1993 between
the Company and Peter A. Magowan (incorporated by
reference to Exhibit 10(iii).6 to Registrant's Form 10-Q
for the quarterly period ending June 19, 1993).
Exhibit 10(iii).5* 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).6* First Amendment to the Stock Option Plan for
Consultants of Safeway Inc. (incorporated by reference to
Exhibit 10(iii).7 to Registrant's Form 10-K for the year
ended January 1, 1994).
Exhibit 10(iii).7* 1994 Amended and Restated Stock Option and
Incentive Plan for Key Employees of Safeway Inc.
(incorporated by reference to Exhibit 10(iii).8 to
Registrant's Form 10-K for the year ended January 1,
1994) and First Amendment thereto dated March 1, 1995.
Exhibit 10(iii).8* Operating Performance Bonus Plan for Executive
Officers of Safeway Inc. (incorporated by reference to
Exhibit 10(iii).9 to Registrant's Form 10-K for the year
ended January 1, 1994).
Exhibit 10(iii).9* Capital Performance Bonus Plan (incorporated
by reference to Exhibit 10(iii).10 to Registrant's Form
10-K for the year ended January 1, 1994).
Exhibit 10(iii).10* Retirement Restoration Plan of Safeway Inc.
(incorporated by reference to Exhibit 10(iii).11 to
Registrant's Form 10-K for the year ended January 1,
1994).
Exhibit 10(iii).11* Deferred Compensation Plan for Safeway Directors.
- --------------
* Management contract, or compensatory plan or arrangement.
14
<PAGE> 15
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
Exhibit 11.1 Computation of Earnings Per Common Share and Common
Share Equivalent (incorporated by reference to page 36 of the
Company's 1994 Annual Report to Stockholders).
Exhibit 13.1 Registrant's 1994 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 22.1 Subsidiaries of Registrant.
Exhibit 23.1 Independent Auditors' Consent.
Exhibit 27 Financial Data Schedule (electronic filing only).
(B) REPORTS ON FORM 8-K:
On November 14, 1994, 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 1994.
15
<PAGE> 16
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:
------------------
SAFEWAY INC March 23, 1995
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 President
Chief Financial Officer Finance
Date: March 23, 1995 Date: March 23, 1995
Director Date
-------- ----
/s/Steven A. Burd March 23, 1995
- --------------------------
Steven A. Burd
/s/ Sam Ginn March 23, 1995
- --------------------------
Sam Ginn
/s/ James H. Greene, Jr March 23, 1995
- --------------------------
James H. Greene, Jr
/s/ Paul Hazen March 23, 1995
- --------------------------
Paul Hazen
/s/ Henry R. Kravis March 23, 1995
- --------------------------
Henry R. Kravis
/s/ Robert I. MacDonnell March 23, 1995
- --------------------------
Robert I. MacDonnell
/s/ Peter A. Magowan March 23, 1995
- --------------------------
Peter A. Magowan
/s/ George R. Roberts March 23, 1995
- --------------------------
George R. Roberts
/s/ Michael T. Tokarz March 23, 1995
- --------------------------
Michael T. Tokarz
16
<PAGE> 17
EXHIBIT INDEX
SAFEWAY INC. AND SUBSIDIARIES
LIST OF EXHIBITS FILED WITH FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994
(as required by Regulation S-T Item 102(d))
Exhibit 4(i).20 Eighth Amendment and Limited Waiver to Second Amended and
Restated Credit Agreement, dated as of January 13, 1995
Exhibit 4(i).21 Eighth Amendment and Limited Waiver to Second Amended and
Restated Working Capital Credit Agreement, dated as of
January 13, 1995
Exhibit 10(iii).7 First Amendment to the 1994 Amended and Restated Stock
Option and Incentive Plan for Key Employees of Safeway
Inc., dated March 1, 1995
Exhibit 10(iii).11 Deferred Compensation Plan for Safeway Directors, dated
December 24, 1994
Exhibit 11.1 Computation of Earnings Per Common Share and Common Share
Equivalent (incorporated by reference to page 36 of the
Company's 1994 Annual Report to Stockholders)
Exhibit 13.1 Registrant's 1994 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 22.1 Subsidiaries of Registrant
Exhibit 23.1 Independent Auditors' Consent
Exhibit 27 Financial Data Schedule (electronic filing only)
<PAGE> 1
EXHIBIT 4(1).20
SAFEWAY INC.
EIGHTH AMENDMENT AND LIMITED WAIVER
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF JANUARY 13, 1995
This EIGHTH AMENDMENT AND LIMITED WAIVER TO SECOND AMENDED AND
RESTATED CREDIT AGREEMENT dated as of January 13, 1995 (this "Amendment") to
the Second Amended and Restated Credit Agreement dated as of June 12, 1990, as
amended by a First Amendment dated as of March 22, 1991, a Second Amendment
dated as of June 7, 1991, a Third Amendment dated as of August 7, 1991, a
Fourth Amendment and Consent to Documents dated as of November 8, 1991, a Fifth
Amendment and Consent to Documents dated as of January 28, 1992 and an
Extension Agreement, Sixth Amendment dated as of March 31, 1994 and a Seventh
Amendment dated as of August 19, 1994 (as so amended, the "Credit Agreement"),
is by and among Safeway Inc., a Delaware corporation ("Company"), the financial
institutions named on the signature pages hereof ("Banks"), Bankers Trust
Company ("Bankers"), as Lead Manager and Agent for Banks ("Agent"), the
Managers named on the signature pages hereof ("Managers"), the Co-Managers
named on the signature pages hereof ("Co- Managers"), the Guarantors named on
the signature pages hereof ("Guarantors") and the Pledgors named on the
signature pages hereof ("Pledgors"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, Company proposes to make certain borrowings under the
Credit Agreement and apply the proceeds thereof, together with other funds, to
purchase, directly or indirectly, limited partnership interests in a limited
partnership, the principal assets of which are certain of Company's outstanding
warrants to purchase Common Stock;
WHEREAS, in connection with such borrowings and purchases,
Company and Banks have agreed, subject to the terms and conditions of this
Amendment, to consent to such purchase transactions and to make certain other
modifications to the Credit Agreement as set forth herein;
WHEREAS, Guarantors desire expressly to consent to this
Amendment and to reaffirm the effectiveness of the First Tier Guaranty, the
Second Tier Guaranty, the Guaranty and Assumption Agreement and the
Contribution Agreement; and
<PAGE> 2
WHEREAS, Pledgors desire expressly to consent to this
Amendment and to reaffirm the effectiveness of the Company Pledge Agreement,
the Safeway Pledge Agreement, the Inventory Pledge Agreement, the First Tier
Pledge Agreements and the Second Tier Pledge Agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT.
Subsection 6.6C of the Credit Agreement is hereby deleted and
the following substituted therefor:
" C. MAXIMUM LEVERAGE RATIO.
Company will not permit the ratio of Consolidated Total Debt
to Consolidated Capitalization as of the last day of each fiscal
quarter of each fiscal year of Company indicated below to be more
than the correlative ratio indicated for such fiscal year:
<TABLE>
<CAPTION>
Fiscal Maximum Leverage
Year Ratio
<S> <C>
1991 1.05:1.00
1992 1.05:1.00
1993 1.00:1.00
1994 .90:1.00
1995 .90:1.00
1996 .80:1.00
1997 .70:1.00
and thereafter"
</TABLE>
SECTION 2. WAIVER.
Company has requested that Banks waive its compliance with the
provisions of subsection 6.3 (relating to Investments) of the Credit Agreement
so as to permit Company or one of its Subsidiaries (the "Investor") to make
Investments in an aggregate amount not exceeding $375,000,000 in limited
partnership interests of a partnership the principal assets of which are
certain of Company's outstanding warrants to purchase Common Stock (the
"Warrant Partnership"). Such Investments are anticipated to be effected
through the purchase of such limited partnership interests from Persons that
are not Affiliates of Company. Company has also requested that Banks waive
compliance with
2
<PAGE> 3
(i) subsection 6.5 of the Credit Agreement (relating to Restricted Junior
Payments) to the extent necessary to permit the Investor to make payments to
effect such Investments in the Warrant Partnership in the event such payments
are deemed Restricted Junior Payments, (ii) subsection 6.7 of the Credit
Agreement (relating to fundamental changes) to the extent necessary to permit
purchases of limited partnership interests in the Warrant Partnership even
though, as a result of such purchases, Company may acquire, directly or
indirectly, 50% or more of the beneficial interests in the Warrant Partnership,
and (iii) subsection 6.12 of the Credit Agreement (relating to affiliate
transactions) to the extent necessary to permit such Investments in the Warrant
Partnership in the event the provisions of such subsection are deemed to apply
to such Investments even though the Investor will purchase the limited
partnership interests in the Warrant Partnership from Persons that are not
Affiliates.
Each Bank by its execution of a counterpart of this Amendment
hereby waives the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the
Credit Agreement to the extent, and only to the extent, necessary to permit the
Investor to make Investments (and Restricted Junior Payments to effect such
Investments) through the purchase of limited partnership interests in the
Warrant Partnership from Persons that are not Affiliates of Company, provided
that the aggregate amount of such Investments (and Restricted Junior Payments)
does not exceed $375,000,000.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
In order to induce Banks to enter into this Amendment, Company
represents and warrants to each Bank that:
A. No event would result from the execution of this
Amendment and, after giving effect to this Amendment, no event has
occurred or is continuing which constitutes an Event of Default or
Potential Event of Default;
B. After giving effect to this Amendment, the
representations and warranties of Company contained in the Credit
Agreement, as amended by this Amendment (the "Amended Credit
Agreement") are true, correct and complete in all material respects on
and as of the date hereof to the same extent as though made on and as
of the date hereof, except that the representations and warranties
need not be true and correct to the extent that changes in the facts
and conditions on which such
3
<PAGE> 4
representations and warranties are based are required or permitted
under the Credit Agreement;
C. This Amendment, the Amended Credit Agreement, and the
consummation of the transactions contemplated hereby or thereby do not
and will not (i) violate any provisions of law applicable to Company
or any of its Subsidiaries, the Certificate of Incorporation or Bylaws
of Company or any of its Subsidiaries, or any order, judgment or
decree of any court or other agency of government binding on Company
or any of its Subsidiaries, or (ii) conflict with, result in a breach
of, or constitute (with due notice or lapse of time or both) a default
under, the indentures pursuant to which any outstanding Subordinated
Indebtedness (including, without limitation, the Senior Subordinated
Debt) has been issued (the "Indentures") or any term of any other
material agreement or instrument to which Company or any of its
Subsidiaries is a party or by which any of their properties or assets
are bound;
D. If the Commitments were fully utilized as of the date
hereof, all Indebtedness of Company with respect to the Loans under
the Amended Credit Agreement would be within the definition of "Senior
Indebtedness" contained in the Indentures, the definition of "Senior
Secured Obligations" contained in the Company Pledge Agreement, the
Inventory Pledge Agreement and the Safeway Pledge Agreement, the
definition of "Secured Obligations" contained in the First Tier Pledge
Agreements and the Second Tier Pledge Agreements and the definition of
"Guarantied Obligations" contained in the First Tier Guaranty, the
Second Tier Guaranty, the Guaranty and the Assumption Agreement and
the Contribution Agreement;
E. Each Loan Party has performed in all material
respects all agreements and satisfied all conditions which the Credit
Agreement and this Amendment provide shall be performed by it on or
before the date hereof;
F. The Guarantors mean and include Company and all of
the First Tier Subsidiaries, the Second Tier Subsidiaries (including
ICC Subsidiary but excluding the Canadian Second Tier Subsidiary) and
the Domestic Third Tier Subsidiaries presently owned either directly
or indirectly by Company;
G. The Pledgors mean and include Company and all of the
First Tier Subsidiaries and all of the Second Tier Subsidiaries
(including ICC Subsidiary but excluding the Canadian Second Tier
Subsidiary);
4
<PAGE> 5
H. The execution, delivery and performance by Company of
this Amendment are within the corporate power of Company and have been
duly authorized by all necessary corporate action on the part of
Company, and this Amendment and the Amended Credit Agreement
constitute the valid and binding obligations of Company enforceable
against Company in accordance with their respective terms, subject to
the effect of any applicable bankruptcy, insolvency, reorganization or
other laws relating to or affecting the enforcement of creditors'
rights generally; and
I. Each Loan Guaranty and the Contribution Agreement
shall continue in full force and effect and remain the valid and
binding obligations of the Guarantors party thereto enforceable
against the Guarantors party thereto in accordance with their
respective terms, subject to the effect of any applicable bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally. The Pledge Agreements
shall continue in full force and effect and remain the valid and
binding obligations of the Pledgors party thereto, enforceable against
the Pledgors party thereto in accordance with their respective terms,
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement
of creditors' rights generally.
SECTION 4. EFFECTIVENESS.
This Amendment shall become effective on the first date Agent,
on behalf of Banks, shall have received all of the following, in form and
substance satisfactory to Agent (the "Eighth Amendment Effective Date"):
A. Resolutions of the Board of Directors of
Company authorizing and approving the execution, delivery and
performance of this Amendment and resolutions of the Board of
Directors of each Guarantor and each Pledgor authorizing and
approving the execution and delivery of this Amendment, in
each case certified by the corporate secretary or an assistant
secretary of Company, each Guarantor and each Pledgor, as the
case may be, as of the Eighth Amendment Effective Date;
B. A certificate of the corporate secretary or
an assistant secretary of Company, each Guarantor and each
Pledgor which shall certify, as of the Eighth Amendment
Effective Date, the names and offices of the officers of
Company, each
5
<PAGE> 6
Guarantor and each Pledgor authorized to sign this Amendment;
C. A counterpart hereof executed by a duly
authorized officer of Company, Requisite Banks, Agent, each
Guarantor and each Pledgor, or in the case of any Bank,
telecopy or telephone confirmation from such Bank of its
execution hereof;and
D. Copies of an amendment to the Working Capital
Credit Agreement executed by Canadian Borrowers and Banks (as
defined therein) approving, among other things, the
transactions contemplated by this Amendment.
SECTION 5. THE GUARANTIES AND THE CONTRIBUTION AGREEMENT.
In order to induce Banks to enter into this Amendment, each
Guarantor represents and warrants to each Bank that the execution, delivery and
performance by such Guarantor of this Amendment are within the corporate power
of such Guarantor and have been duly authorized by all necessary corporate
action on the part of such Guarantor and that this Amendment constitutes the
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization or other laws relating to or affecting
the enforcement of creditors' rights generally.
Each Guarantor agrees to and acknowledges the terms and
provisions of this Amendment and confirms that each Loan Guaranty to which it
is a party will, from and after the Eighth Amendment Effective Date, continue
to guaranty to the fullest extent possible the payment and performance of the
Guarantied Obligations (as that term is defined in each Loan Guaranty) and
furthermore, that from and after the Eighth Amendment Effective Date, each such
Loan Guaranty will also guaranty, to the fullest extent possible, the
performance of all obligations (including, without limitation, due and punctual
payment of all amounts) under, referred to in, or contemplated by this
Amendment by Company and the Guarantied Obligations (as defined in each Loan
Guaranty) shall include all such obligations of Company. Each Guarantor agrees
and acknowledges that the Contribution Agreement will continue to establish the
rights and obligations of contribution among Guarantors with respect to the
payment and performance of all Guarantied Obligations (as that term is defined
in the Contribution Agreement), including, without limitation, the payment and
performance of all Obligations of Company now or hereafter
6
<PAGE> 7
existing under or in respect of the Amended Credit Agreement. Without limiting
the generality of the foregoing, each Guarantor hereby acknowledges and
confirms the understanding and intent of such Guarantor that, upon the
effectiveness of this Amendment, as a result of this Amendment, the definition
of "Obligations" contained in the Credit Agreement includes the obligations of
Company set forth in the Amended Credit Agreement and that the obligations of
Company guarantied under any Loan Guaranty shall include the obligations of
Company under the Amended Credit Agreement.
Each Guarantor agrees and acknowledges that each Loan Guaranty
to which it is a party and the Contribution Agreement shall continue in full
force and effect and that all of its obligations thereunder shall be valid and
enforceable and shall not be impaired or affected by the execution of this
Amendment. Each Guarantor represents and warrants that all representations and
warranties contained in this Amendment and the Loan Guaranty to which it is a
party are true, correct and complete as of the date hereof to the same extent
as though made on such date except that the representations and warranties need
not be true and correct to the extent that changes in the facts and conditions
on which such representations and warranties are based are required or
permitted under such agreements.
SECTION 6. THE PLEDGE AGREEMENTS.
In order to induce Banks to enter into this Amendment, each
Pledgor represents and warrants to each Bank that the execution, delivery and
performance by each Pledgor of this Amendment are within the corporate power of
such Pledgor and have been duly authorized by all necessary corporate action on
the part of such Pledgor and that this Amendment constitutes the valid and
binding obligation of such Pledgor, enforceable against such Pledgor in
accordance with its terms, subject to the effect of any applicable bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally.
Each Pledgor agrees to and acknowledges the terms and
provisions of this Amendment and confirms that the Pledge Agreement(s) to which
it is a party and the Pledged Collateral (as that term is defined in each such
Pledge Agreement) will continue to secure to the fullest extent possible the
payment and performance of all Senior Secured Obligations (as that term is
defined in the Company Pledge Agreement, the Safeway Pledge Agreement and the
Inventory Pledge Agreement) and all Secured Obligations (as that term is
defined in each First Tier Pledge Agreement and each Second Tier Pledge
Agreement), including, without
7
<PAGE> 8
limitation, the payment and performance of all Obligations of Company now or
hereafter existing under or in respect of the Amended Credit Agreement.
Without limiting the generality of the foregoing, each Pledgor hereby
acknowledges and confirms the understanding and intent of such Pledgor that,
upon the effectiveness of this Amendment, as a result of this Amendment, the
definition of "Obligations" contained in the Credit Agreement includes the
obligations of Company set forth in the Amended Credit Agreement.
Each Pledgor agrees and acknowledges that the Pledge
Agreements to which it is a party shall continue in full force and effect and
that all of its obligations thereunder shall be valid and enforceable and shall
not be impaired or affected by the execution of this Amendment. Each Pledgor
represents and warrants that all representations and warranties contained in
this Amendment and the Pledge Agreement to which it is a party are true,
correct and complete as of the date hereof to the same extent as though made on
such date except that the representations and warranties need not be true and
correct to the extent that changes in the facts and conditions on which such
representations and warranties are based are required or permitted under such
agreements.
SECTION 7. COUNTERPARTS.
This Amendment may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 8. EFFECT OF AMENDMENT; LIMITATION OF WAIVER.
Without limiting the generality of the provisions of
subsection 9.7 of the Credit Agreement, the waiver set forth in Section 2 above
shall be limited precisely as written and relates solely to the noncompliance
with the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the Credit
Agreement in the manner and to the extent described above, and nothing in this
Waiver shall be deemed to:
(a) constitute a waiver of compliance by Company with
respect to (i) subsections 6.3, 6.5, 6.7 and 6.12 of the Credit
Agreement in any other instance or (ii) any other term, provision or
condition of the Credit Agreement or any other instrument or agreement
referred to therein; or
8
<PAGE> 9
(b) prejudice any right or remedy that Agent or any
Lender may now have (except to the extent such right or remedy was
based upon existing defaults that will not exist after giving effect
to this Waiver) or may have in the future under or in connection with
the Credit Agreement or any other instrument or agreement referred to
therein.
It is hereby agreed that, except as specifically provided
herein, this Amendment does not in any way affect or impair the terms and
conditions of the Credit Agreement, and all terms and conditions of the Credit
Agreement are to remain in full force and effect unless otherwise specifically
amended, waived or changed pursuant to the terms and conditions of this
Amendment.
SECTION 9. APPLICABLE LAW.
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
[Remainder of Page Intentionally Left Blank]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date first above written, by their
respective officers thereunto duly authorized.
SAFEWAY INC.
By /s/ Melissa C. Plaisance
-----------------------------------
Name: Melissa C. Plaisance
Title: Vice President
BANKERS TRUST COMPANY,
individually and as Agent
By /s/ Mary Jo Jolly
----------------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
CITICORP U.S.A, INC.,
individually and as Manager
By /s/ Edward Lettieri
----------------------------------
Name: Edward Lettieri
Title: Vice President
THE CHASE MANHATTAN BANK, N.A.
individually and as Manager
By /s/ Ellen G
----------------------------------
Name: Ellen G
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, individually and
as Manager
By /s/ Steven F. Sterling
----------------------------------
Name: Steven F. Sterling
Title: Vice President
S-1
<PAGE> 11
THE BANK OF NOVA SCOTIA,
individually and as Manager
By /s/ John Quik
----------------------------------
Name: John Quick
Title: Officer
BANK OF MONTREAL,
individually and as Manager
By /s/ J. Donald Higgins
----------------------------------
Name: J. Donald Higgins
Title: Managing Director
UNITED STATES NATIONAL BANK OF OREGON
By /s/ Janet Jordan
----------------------------------
Name: Janet Jordan
Title:
CIBC INC.
By /s/ Paul Mohme
----------------------------------
Name: Paul M. Mohme
Title: Assistant Vice President
THE BANK OF NEW YORK
By /s/ Robert Louk
----------------------------------
Name: Robert Louk
Title: Vice President
BANK OF AMERICA ILLINOIS, N.A.
By /s/ Steven F. Sterling
----------------------------------
Name: Steven F. Sterling
Title: Vice President
S-2
<PAGE> 12
NATIONSBANK OF TEXAS, N.A.
By /s/ M.M. S
----------------------------------
Name: M.M. S
Title: Senior Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By /s/ Genichi Imai
----------------------------------
Name: Genichi Imai
Title: Joint General Manager
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ L. Gene Beube
----------------------------------
Name: L. Gene Beube
Title: Senior Vice President
THE FUJI BANK, LIMITED
By /s/ Keiichi Ozawa
----------------------------------
Name: Keiichi Ozawa
Title: Joint General Manager
UNION BANK
By /s/ Cecelia M. Valente
----------------------------------
Name: Cecelia M. Valente
Title: Vice President
ROYAL BANK OF CANADA
By /s/ D.J. Delliveali
----------------------------------
Name: D.J. Delliveali
Title: Senior Manager
S-3
<PAGE> 13
SOCIETE GENERALE
By /s/ J. Blaine Shaum
----------------------------------
Name: J. Blaine Shaum
Title: Regional Manager
CHEMICAL BANK
By
----------------------------------
Name:
Title:
ARAB BANK, PLC
By /s/ Peter Boyadjian
----------------------------------
Name: Peter Boyadjian
Title: Senior Vice President
THE TOKAI BANK LTD., LOS ANGELES AGENCY
By /s/ Masahiko Saito
----------------------------------
Name: Masahiko Saito
Title: Asst. General Manager
THE DAI-ICHI KANGYO BANK, LIMITED
(SAN FRANCISCO AGENCY)
By /s/ Seigo Makino
----------------------------------
Name: Seigo Makino
Title: Joint General Manager
ROYAL BANK OF SCOTLAND
By /s/ Derek Bonnar
----------------------------------
Name: Derek Bonnar
Title: Vice President
S-4
<PAGE> 14
CREDIT LYONNAIS LOS ANGELES BRANCH
By /s/ Thierry F. Vincent
-------------------------------------
Name: Thierry F. Vincent
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By /s/ Thierry F. Vincent
-------------------------------------
Name: Thierry F. Vincent
Title: Authorized Signatory
THE YASUDA TRUST & BANKING CO., LTD.
(Los Angeles Agency)
By /s/ Nobuo Nishino
----------------------------------
Name: Nobuo Nishino
Title: Joint General Manager
FIRST HAWAIIAN BANK
By /s/ Adolph F. Chang
----------------------------------
Name: Adolph F. Chang
Title: Vice President
BANK OF HAWAII
By /s/
----------------------------------
Name:
Title:
CREDIT SUISSE
By /s/ Marilou Palenzuela
----------------------------------
Name: Marilou Palenzuela
Title: Member of Senior Management
By /s/ Maria N. Gaspara
----------------------------------
Name: Maria N. Gaspara
Title: Associate
S-5
<PAGE> 15
THE NIPPON CREDIT BANK, LTD.,
(Los Angeles Agency)
By /s/ Bernardo E. Correa-Henschke
----------------------------------
Name: Bernardo E. Correa-Henschke
Title: Vice President & Manager
BANQUE NATIONALE DE PARIS
By /s/ Judith A. Dowling
----------------------------------
Name: Judith A. Dowling
Title: Vice President
By /s/ Katherine Wolfe
----------------------------------
Name: Katherine Wolfe
Title: Vice President
BANCA DI ROMA
By /s/ Thomas C. Woodruff
----------------------------------
Name: Thomas C. Woodruff
Title: Vice President
By /s/ Richard G. Dietz
----------------------------------
Name: Richard G. Dietz
Title: 97271
ABN AMRO BANK, N.V.
By /s/ Dianne D. Waggoner
----------------------------------
Name: Dianne D. Waggoner
Title: Group Vice President
By /s/ Gina M. Brusatori
----------------------------------
Name: Gina M. Brusatori
Title: Vice President
WESTDEUTSCHE LANDESBANK GIROZENTRALE
NEW YORK BRANCH
By /s/ S. Gattinelli
----------------------------------
Name: S. Gattinelli
Title: Vice President
By /s/ C.D. Rooney
----------------------------------
Name: C.D. Rooney
Title:
S-6
<PAGE> 16
FIRST NATIONAL BANK OF MARYLAND
By /s/ Carol A. Dalton
----------------------------------
Name: Carol A. Dalton
Title: Vice President
GIROZENTRALE VIENNA
By /s/ John P. Redding
----------------------------------
Name: John P. Redding
Title: Vice President
By /s/ Dhuane G. Stephens
----------------------------------
Name: Dhuane G. Stephens
Title: Vice President
BANK HAPOALIM
By /s/ Bruce E. Wetter
----------------------------------
Name: Bruce E. Wetter
Title: Vice President
By /s/ G.S. Jacobs
----------------------------------
Name: G.S. Jacobs
Title: F. Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION, LOS ANGELES AGENCY
By /s/ Takashi Sugita
----------------------------------
Name: Takashi Sugita
Title: Sr. Vice President &
Chief Manager
S-7
<PAGE> 17
THE MITSUI TRUST & BANKING CO., LTD.,
LOS ANGELES AGENCY
By /s/ Ken Takahashi
----------------------------------
Name: Ken Takahashi
Title: General Manager & Agent
FIRST SECURITY BANK OF IDAHO, N.A.
By /s/ Vicki V. Riga
----------------------------------
Name: Vicki V. Riga
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Debra Zurka
----------------------------------
Name: Debra Zurka
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By /s/ J. Gregory Seibly
----------------------------------
Name: J. Gregory Seibly
Title: Vice President
THE SUMITOMO BANK, LIMITED
By /s/ Kazuaki Kawakatsu
----------------------------------
Name: Kazuaki Kawakatsu
Title: General Manager
GUARANTORS AND PLEDGORS:
SAFEWAY INC.
By /s/ Harvey K. Naito
----------------------------------
Name:
Title:
S-8
<PAGE> 18
GUARANTORS AND PLEDGORS:
SAFEWAY INC.
By /s/ Harvey K. Naito
----------------------------------
Name:
Title:
SAFEWAY AUSTRALIA HOLDINGS, INC.
SAFEWAY CANADA HOLDINGS, INC.
SAFEWAY U.S. HOLDINGS, INC.
SAFEWAY WAREHOUSE, INC.
By /s/ Harvey K. Naito
----------------------------------
As an authorized officer of each of
the foregoing First Tier Subsidiaries
SAFEWAY SOUTHERN CALIFORNIA, INC.
SAFEWAY DENVER, INC.
SAFEWAY RICHMOND, INC.
SAFEWAY DALLAS, INC. (formerly named
"SAFEWAY WASHINGTON, D.C., INC.")
SAFEWAY SUPPLY, INC.
SAFEWAY CORPORATE, INC.
SAFEWAY TRUCKING, INC.
By /s/ Harvey K. Naito
----------------------------------
As an authorized officer of each of
the foregoing Domestic Second Tier
Subsidiaries
S-9
<PAGE> 19
SAFEWAY STORES 18, INC. SAFEWAY STORES 72, INC.
SAFEWAY STORES 26, INC. SAFEWAY STORES 73, INC.
SAFEWAY STORES 28, INC. SAFEWAY STORES 74, INC.
SAFEWAY STORES 31, INC. SAFEWAY STORES 75, INC.
SAFEWAY STORES 42, INC. SAFEWAY STORES 76, INC.
SAFEWAY STORES 43, INC. SAFEWAY STORES 77, INC.
SAFEWAY STORES 44, INC. SAFEWAY STORES 78, INC.
SAFEWAY STORES 45, INC. SAFEWAY STORES 79, INC.
SAFEWAY STORES 46, INC. SAFEWAY STORES 80, INC.
SAFEWAY STORES 47, INC. SAFEWAY STORES 81, INC.
SAFEWAY STORES 48, INC. SAFEWAY STORES 82, INC.
SAFEWAY STORES 49, INC. SAFEWAY STORES 85, INC.
SAFEWAY STORES 50, INC. SAFEWAY STORES 86, INC.
SAFEWAY STORES 58, INC. SAFEWAY STORES 87, INC.
SAFEWAY STORES 59, INC. SAFEWAY STORES 88, INC.
SAFEWAY STORES 64, INC. SAFEWAY STORES 89, INC.
SAFEWAY STORES 67, INC. SAFEWAY STORES 90, INC.
SAFEWAY STORES 68, INC. SAFEWAY STORES 91, INC.
SAFEWAY STORES 69, INC. SAFEWAY STORES 92, INC.
SAFEWAY STORES 70, INC. SAFEWAY STORES 96, INC.
SAFEWAY STORES 71, INC. SAFEWAY STORES 97, INC.
SAFEWAY STORES 98, INC.
By /s/ Harvey K. Naito
-----------------------------------
As an authorized officer of each of
the foregoing Domestic Third Tier
Subsidiaries
S-10
<PAGE> 1
EXHIBIT 4(1).21
SAFEWAY INC.
CANADA SAFEWAY LIMITED
LUCERNE FOODS LTD.
EIGHTH AMENDMENT AND LIMITED WAIVER
TO SECOND AMENDED AND RESTATED
WORKING CAPITAL CREDIT AGREEMENT
This EIGHTH AMENDMENT AND LIMITED WAIVER dated as of January
13, 1995 (this "Amendment") to the Second Amended and Restated Working Capital
Credit Agreement dated as of June 14, 1990, as amended by a First Amendment and
Consent dated as of March 22, 1991, a Second Amendment and Consent dated as of
June 7, 1991, a Third Amendment and Consent dated as of August 7, 1991, a
Fourth Amendment and Consent dated as of November 8, 1991, a Fifth Amendment
and Consent dated as of January 28, 1992 and an Extension Agreement, Sixth
Amendment and Consent dated as of March 31, 1994 and Seventh Amendment and
Consent dated as of August 19, 1994 (as so amended, "Working Capital Credit
Agreement") is by and among Safeway Inc., a Delaware corporation ("Company"),
Canada Safeway Limited, an Alberta corporation ("Safeway Canada"), Lucerne
Foods Ltd., an Alberta corporation ("Lucerne"), the financial institutions
named on the signature pages hereof ("Banks"), The Bank of Nova Scotia, as
paying agent with respect to the Canadian Loans and Bankers' Acceptance
Facility ("Canadian Paying Agent"), BT Bank of Canada, as administrative agent
with respect to the Canadian Loans and Bankers' Acceptance Facility ("Canadian
Administrative Agent"), Bankers Trust Company, as Lead Manager and Agent for
the Banks ("Agent"), the Guarantors named on the signature pages hereof
("Guarantors") and the Pledgors named on the signature pages hereof
("Pledgors"). Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Working Capital Credit Agreement.
RECITALS
WHEREAS, Company proposes to make certain borrowings under the
Acquisition Credit Agreement and apply the proceeds thereof, together with
other funds, to purchase, directly or indirectly, limited partnership interests
in a limited partnership, the principal assets of which are certain of
Company's outstanding warrants to purchase Common Stock;
WHEREAS, in connection with such borrowings and purchases,
Company and Banks have agreed, subject to the terms and conditions of this
Amendment, to consent to such purchase transactions and to make certain other
<PAGE> 2
modifications to the Working Capital Credit Agreement as set forth herein;
WHEREAS, Company proposes to amend the Acquisition Credit
Agreement and has requested that Banks consent to the amendments to the
Acquisition Credit Agreement (as amended prior to the date hereof) to be
effected by that certain Eighth Amendment and Limited Waiver to Second Amended
and Restated Credit Agreement dated as of January __, 1995 (the "Eighth ACA
Amendment") by and among Company, the Acquisition Banks, the managers party
thereto, the co-managers party thereto, the Acquisition Agent, the guarantors
party thereto and the pledgors party thereto;
WHEREAS, subject to the terms and conditions of this
Amendment, Banks, Canadian Paying Agent, Canadian Administrative Agent and
Agent are willing to agree to such amendments, it being understood that,
pursuant to the definition of Requisite Banks under the Working Capital Credit
Agreement, each Domestic Bank having a Canadian Bank Affiliate under the
Working Capital Credit Agreement is entitled to execute this Amendment on
behalf of its Canadian Bank Affiliate;
WHEREAS, Guarantors desire expressly to consent to this
Amendment and to reaffirm the effectiveness of the First Tier Guaranty, the
Second Tier Guaranty, the Safeway Guaranty, the Safeway New Canada Guaranty,
the Safeway Canada Guaranty, the Lucerne Guaranty and the Contribution
Agreement; and
WHEREAS, Pledgors desire expressly to consent to this
Amendment and to reaffirm the effectiveness of the Company Pledge Agreement,
the Safeway Pledge Agreement, the Inventory Pledge Agreement, the First Tier
Pledge Agreements, the Second Tier Pledge Agreements, the Safeway Canada Pledge
Agreement and the Safeway New Canada Pledge Agreement (collectively, the
"Pledge Agreements");
AGREEMENT
NOW, THEREFORE, in consideration of the terms and conditions
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
2
<PAGE> 3
SECTION 1. INCORPORATION BY REFERENCE FROM ACQUISITION
CREDIT AGREEMENT OF THE EIGHTH ACA AMENDMENT.
Banks hereby agree and consent to the Eighth ACA Amendment,
substantially in the form attached hereto as Annex A, and to all of the
amendments and modifications to the Acquisition Credit Agreement effected by
the Eighth ACA Amendment. It is hereby agreed that all definitions,
representations, warranties, covenants and other provisions contained in the
Acquisition Credit Agreement which are incorporated in the Working Capital
Credit Agreement by reference (the "Incorporated Provisions") are so
incorporated in the form in which such Incorporated Provisions exist in the
Acquisition Credit Agreement, as amended by the Eighth ACA Amendment, subject
to the proviso set forth in subsection 1.5 of the Amended Working Capital
Credit Agreement.
SECTION 2. WAIVER.
Company has requested that the Banks waive its compliance with
the provisions of subsection 6.3 (relating to Investments) of the Acquisition
Credit Agreement so as to permit Company or one of its Subsidiaries (the
"Investor") to make Investments in an aggregate amount not exceeding
$375,000,000 in limited partnership interests of a partnership the principal
assets of which are certain of Company's outstanding warrants to purchase Common
Stock (the "Warrant Partnership"). Such Investments are anticipated to be
effected through the purchase of such limited partnership interests from Persons
that are not Affiliates of Company. Company has also requested that the Banks
waive compliance with (i) subsection 6.5 of the Acquisition Credit Agreement
(relating to Restricted Junior Payments) to the extent necessary to permit the
Investor to make payments to effect such Investments in the Warrant Partnership
in the event such payments are deemed Restricted Junior Payments, (ii)
subsection 6.7 of the Acquisition Credit Agreement (relating to fundamental
changes) to the extent necessary to permit purchases of limited partnership
interests in the Warrant Partnership even though, as a result of such purchases,
Company may acquire, directly or indirectly, 50% or more of the beneficial
interests in the Warrant Partnership, and (iii) subsection 6.12 of the
Acquisition Credit Agreement (relating to affiliate transactions) to the extent
necessary to permit such Investments in the Warrant Partnership in the event the
provisions of such subsection are deemed to apply to such Investments even
though the Investor will purchase the limited partnership interests in the
Warrant Partnership from Persons that are not Affiliates.
3
<PAGE> 4
Each Bank by its execution of a counterpart of this Amendment
hereby waives the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the
Acquisition Credit Agreement to the extent, and only to the extent, necessary
to permit the Investor to make Investments (and Restricted Junior Payments to
effect such Investments) through the purchase of limited partnership interests
in the Warrant Partnership from Persons that are not Affiliates of Company,
provided that the aggregate amount of such Investments (and Restricted Junior
Payments) does not exceed $375,000,000.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
In order to induce Banks to enter into this Amendment,
Company, Safeway Canada, and Lucerne each represent and warrant (which
representations and warranties in the case of Safeway Canada and Lucerne, as
the case may be, shall be limited to Safeway Canada and its Subsidiaries and
Lucerne and its Subsidiaries, respectively, and other facts and circumstances
known to Safeway Canada and its Subsidiaries, or Lucerne and its Subsidiaries,
as the case may be) to each Bank that:
A. No event would result from the execution of this
Amendment and, after giving effect to this Amendment, no event has
occurred or is continuing which constitutes an Event of Default or
Potential Event of Default;
B. The representations and warranties of Company
contained in the Working Capital Credit Agreement, as amended by this
Amendment (the "Amended Working Capital Credit Agreement") are true,
correct and complete in all material respects on and as of the date
hereof to the same extent as though made on and as of the date hereof
except that the representations and warranties need not be true and
correct to the extent that changes in the facts and conditions on
which such representations and warranties are based are required or
permitted under the Amended Working Capital Credit Agreement;
C. This Amendment, the Amended Working Capital Credit
Agreement, and the consummation of the transactions contemplated
hereby or thereby do not and will not (i) violate any provisions of
law applicable to Company or any of its Subsidiaries, the Certificate
of Incorporation or Bylaws of Company or any of its Subsidiaries, or
any order, judgment or decree of any court or other agency of
government binding on Company or any of its Subsidiaries, or (ii)
conflict with, result in a breach of, or constitute (with due notice
or lapse of time or both) a default under, the indentures pursuant to
which any outstanding
4
<PAGE> 5
Subordinated Indebtedness (including, without limitation, the Senior
Subordinated Indebtedness) has been issued (the "Indentures") or any
term of any other material agreement or instrument to which Company or
any of its Subsidiaries is a party or by which any of their properties
or assets are bound;
D. If the Working Capital Commitments were fully
utilized as of the date hereof, all indebtedness of Company with
respect to the Loans under the Amended Working Capital Credit
Agreement and all indebtedness of Company under the Company Guaranty
with respect to (i) monies borrowed by the Canadian Borrowers under
the Amended Working Capital Credit Agreement and (ii) amounts owed by
Safeway Canada with respect to repayment of Drafts, Bankers'
Acceptances and Bankers' Acceptance Equivalent Notes issued under the
Amended Working Capital Credit Agreement would be within the
definition of "Senior Indebtedness" contained in the Indentures;
E. All monetary obligations of Company, Safeway Canada
and Lucerne now or hereafter existing under or in respect of the
Amended Working Capital Credit Agreement, whether for principal,
interest, fees or otherwise, are within the definition of "Guarantied
Obligations" contained in the Contribution Agreement, the First Tier
Guaranty, the Second Tier Guaranty and the Safeway Guaranty and all
such monetary obligations of Company are within the definition of
"Senior Secured Obligations" contained in the Company Pledge Agreement
and the Inventory Pledge Agreement and the Collateral Agent is
entitled to the benefit of the Liens created pursuant to the
Collateral Documents referred to in this sentence with respect to all
such obligations of Company. The obligations of each First Tier
Subsidiary and each Domestic Second Tier Subsidiary under the First
Tier Guaranty and the Second Tier Guaranty, respectively, are within
the definition of "Secured Obligations" contained in the First Tier
Pledge Agreements and the Second Tier Pledge Agreements and the
Collateral Agent is entitled to the benefit of the Liens created
pursuant to the Collateral Documents referred to in this sentence to
which such First Tier Subsidiary or Domestic Second Tier Subsidiary is
a party with respect to all such obligations of such Subsidiary;
F. All monetary obligations of Safeway Canada or Lucerne
now or hereafter existing under or in respect of the Amended Working
Capital Credit Agreement, whether for principal, interest, fees or
otherwise, are within the definition of "Guarantied Obligations"
contained in the Safeway Canada Guaranty and the
5
<PAGE> 6
Lucerne Guaranty, as applicable, and, with the exception of the
aforementioned obligations of Lucerne, are within the definition of
"Secured Obligations" contained in the Safeway Canada Pledge Agreement
and the Canadian Administrative Agent is entitled to the benefit of
the Liens created pursuant to the Collateral Documents referred to in
this sentence with respect to all such obligations of Safeway Canada
or Lucerne;
G. Each Loan Party has performed in all material
respects all agreements and satisfied all conditions which the Working
Capital Credit Agreement and this Amendment provide shall be performed
by it on or before the date hereof;
H. The Guarantors mean and include Company, Safeway New
Canada, Safeway Canada, Lucerne and all of the First Tier
Subsidiaries, Safeway Warehouse, Inc., all of the Second Tier
Subsidiaries (including ICC Subsidiary) and all of the Domestic Third
Tier Subsidiaries presently owned either directly or indirectly by
Company;
I. The Pledgors mean and include Company, Safeway New
Canada, Safeway Canada and all of the First Tier Subsidiaries and all
of the Second Tier Subsidiaries (including ICC Subsidiary);
J. The execution, delivery and performance by Company of
this Amendment are within the corporate power of Company and have been
duly authorized by all necessary corporate action on the part of
Company, and this Amendment and the Amended Working Capital Credit
Agreement constitute the valid and binding obligations of Company
enforceable against Company in accordance with their respective terms,
subject to the effect of any applicable bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement
of creditors' rights generally; and
K. Each Working Capital Guaranty and the Contribution
Agreement shall continue in full force and effect and remain the valid
and binding obligations of the Guarantors party thereto enforceable
against the Guarantors party thereto in accordance with their
respective terms, subject to the effect of any applicable bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally. The Pledge Agreements
shall continue in full force and effect and remain the valid and
binding obligations of the Pledgors party thereto, enforceable against
the Pledgors party thereto in accordance with their respective terms,
subject to the effect of any applicable bankruptcy, insolvency,
6
<PAGE> 7
reorganization or other laws relating to or affecting the enforcement
of creditors' rights generally.
SECTION 4. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective as of the first date
Agent, on behalf of Banks, shall have received all of the following in form and
substance satisfactory to Agent (the "Eighth Amendment Effective Date"):
A. Resolutions of the Board of Directors of Company,
Safeway Canada and Lucerne authorizing and approving the execution,
delivery and performance of this Amendment and resolutions of the
Board of Directors of each Guarantor and each Pledgor authorizing and
approving the execution and delivery of this Amendment, in each case
certified by the corporate secretary or an assistant secretary of
Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor, as
the case may be, as of the Eighth Amendment Effective Date;
B. A certificate of the corporate secretary or an
assistant secretary of Company, Safeway Canada, Lucerne, each
Guarantor and each Pledgor which shall certify, as of the Eighth
Amendment Effective Date, the names and offices of the officers of
Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor
authorized to sign this Amendment;
C. A counterpart hereof executed by a duly authorized
officer of Company, Requisite Banks, Canadian Paying Agent, Canadian
Administrative Agent and Agent, each Guarantor and each Pledgor or in
the case of any Bank, telecopy or telephone confirmation from such
Bank of its execution hereof; and
D. The Eighth ACA Amendment, which shall have become
effective in accordance with its terms.
SECTION 5. THE WORKING CAPITAL GUARANTIES AND THE
CONTRIBUTION AGREEMENT.
In order to induce Banks to enter into this Amendment, each
Guarantor represents and warrants to each Bank that the execution, delivery and
performance by such Guarantor of this Amendment are within the corporate power
of such Guarantor and have been duly authorized by all necessary corporate
action on the part of such Guarantor and that this Amendment constitutes the
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms, subject to the effect of any applicable
bankruptcy, insolvency, reorgani-
7
<PAGE> 8
zation or other laws relating to or affecting the enforcement of creditors'
rights generally.
Each Guarantor agrees to and acknowledges the terms and
provisions of this Amendment and acknowledges and confirms that each Working
Capital Guaranty to which it is a party will, from and after the Eighth
Amendment Effective Date, continue to guaranty to the fullest extent possible
the payment and performance of the Guarantied Obligations (as that term is
defined in each Working Capital Guaranty) and, furthermore, that from and after
the Eighth Amendment Effective Date, each such Working Capital Guaranty will
also guaranty, to the fullest extent possible, the performance of all
obligations (including, without limitation, due and punctual payment of all
amounts) under, referred to in, or contemplated by this Amendment by the
principal debtor(s) whose obligations are guaranteed by the particular
Guarantor and the Guarantied Obligations (as defined in each Working Capital
Guaranty) shall include all such obligations of the principal debtor(s). Each
Guarantor (other than Safeway Canada and Lucerne) agrees and acknowledges that
the Contribution Agreement will continue to establish the rights and
obligations of contribution among Guarantors with respect to the payment and
performance of all Guarantied Obligations (as that term is defined in the
Contribution Agreement). Without limiting the generality of the foregoing,
each Guarantor hereby acknowledges and confirms the understanding and intent of
such Guarantor that, upon the effectiveness of this Amendment, as a result of
this Amendment, the definition of "Working Capital Obligations" contained in
the Working Capital Credit Agreement includes the obligations of Borrowers set
forth in the Amended Working Capital Credit Agreement and that the obligations
of any Borrower guarantied under any Working Capital Guaranty shall include the
obligations of such Borrower under the Amended Working Capital Credit
Agreement.
Each Guarantor agrees and acknowledges that each Working
Capital Guaranty to which it is a party and, to the extent that such Guarantor
is also a party thereto, the Contribution Agreement shall continue in full
force and effect and that all of its obligations thereunder shall be valid and
enforceable and shall not be impaired or affected by the execution of this
Amendment. Each Guarantor represents and warrants that all representations and
warranties contained in this Amendment and the Working Capital Guaranty to
which it is a party are true, correct and complete as of the date hereof to the
same extent as though made on such date except that the representations and
warranties need not be true and correct to the extent that changes in the facts
and conditions on which such representations and warranties are based are
required or permitted under such agreements.
8
<PAGE> 9
SECTION 6. THE PLEDGE AGREEMENTS.
In order to induce Banks to enter into this Amendment, each
Pledgor represents and warrants to each Bank that the execution, delivery and
performance by each Pledgor of this Amendment are within the corporate power of
such Pledgor and have been duly authorized by all necessary corporate action on
the part of such Pledgor and that this Amendment constitutes the valid and
binding obligation of such Pledgor, enforceable against such Pledgor in
accordance with its terms, subject to the effect of any applicable bankruptcy,
insolvency, reorganization or other laws relating to or affecting the
enforcement of creditors' rights generally.
Each Pledgor agrees to and acknowledges the terms and
provisions of this Amendment and confirms that the Pledge Agreements to which
it is a party and the Pledged Collateral (as that term is defined in each such
Pledge Agreement) will continue to secure to the fullest extent possible the
payment and performance of all Senior Secured Obligations (as that term is
defined in the Company Pledge Agreement, the Safeway Pledge Agreement and the
Inventory Pledge Agreement) and all Secured Obligations (as that term is
defined in the Safeway Canada Pledge Agreement, the Safeway New Canada Pledge
Agreement, each First Tier Pledge Agreement and each Second Tier Pledge
Agreement), and furthermore, that from and after the Eighth Amendment Effective
Date, each such Pledge Agreement will also secure, to the fullest extent
possible, the performance of all obligations (including, without limitation,
due and punctual payment of all amounts) under, referred to in, or contemplated
by this Amendment of each Borrower or Pledgor whose Working Capital Obligations
are secured by any such Pledge Agreement. Without limiting the generality of
the foregoing, each Pledgor hereby acknowledges and confirms the understanding
and intent of such Pledgor that, upon the effectiveness of this Amendment, as a
result of this Amendment, the definition of "Working Capital Obligations"
contained in the Working Capital Credit Agreement includes the obligations of
Borrowers set forth in the Amended Working Capital Credit Agreement and that
the obligations of any Borrower secured under any Pledge Agreement shall
include the obligations of such Borrower under the Amended Working Capital
Credit Agreement.
Each Pledgor agrees and acknowledges that the Pledge Agreement
to which it is a party shall continue in full force and effect and that all of
its obligations thereunder shall be valid and enforceable and shall not be
impaired or affected by the execution of this Amendment. Each Pledgor
represents and warrants that all representations and warranties contained in
this Amendment and the Pledge Agreement to which it is a party are true,
9
<PAGE> 10
correct and complete as of the date hereof to the same extent as though made on
such date except that the representations and warranties need not be true and
correct to the extent that changes in the facts and conditions on which such
representations and warranties are based are required or permitted under such
agreements.
SECTION 7. COUNTERPARTS.
This Amendment may be executed in any number of counterparts,
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument.
SECTION 8. EFFECT OF AMENDMENT; LIMITATION OF WAIVER.
Without limiting the generality of the provisions of
subsection 9.7 of the Working Capital Credit Agreement, the waiver set forth in
Section 2 above shall be limited precisely as written and relates solely to the
noncompliance with the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the
Acquisition Credit Agreement in the manner and to the extent described above,
and nothing in this Waiver shall be deemed to:
(a) constitute a waiver of compliance by Company with
respect to (i) subsections 6.3, 6.5, 6.7 and 6.12 of the Acquisition
Credit Agreement in any other instance or (ii) any other term,
provision or condition of the Working Capital Credit Agreement or the
Acquisition Credit Agreement or any other instrument or agreement
referred to therein; or
(b) prejudice any right or remedy that Agent or any
Lender may now have (except to the extent such right or remedy was
based upon existing defaults that will not exist after giving effect
to this Waiver) or may have in the future under or in connection with
the Working Capital Credit Agreement or any other instrument or
agreement referred to therein.
It is hereby agreed that, except as specifically provided
herein, this Amendment does not in any way affect or impair the terms and
conditions of the Working Capital Credit Agreement, and all terms and
conditions of the Working Capital Credit Agreement are to remain in full force
and effect unless otherwise specifically amended, waived or changed pursuant to
the terms and conditions of this Amendment.
10
<PAGE> 11
SECTION 9. APPLICABLE LAW.
THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK.
[Remainder of Page Intentionally Left Blank]
11
<PAGE> 12
WITNESS the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
SAFEWAY INC., (as a Borrower,
Guarantor and Pledgor)
By /s/ Melissa C. Plaisance
-------------------------------
Name: Melissa C. Plaisance
Title: Vice President
CANADA SAFEWAY LIMITED, (as a
Borrower, Guarantor and Pledgor)
By /s/ Harvey K. Naito
-------------------------------
Name: Harvey K. Naito
Title:
LUCERNE FOODS LTD., (as a Borrower
and Guarantor)
By /s/ Harvey K. Naito
------------------------------
Name: Harvey K. Naito
Title:
BANKERS TRUST COMPANY, individually
as a Domestic Bank and as Agent and
on behalf of its Canadian Bank
Affiliate
By /s/ Mary Jo Jolly
-------------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
BT BANK OF CANADA, individually as
a Canadian Bank and as Canadian
Administrative Agent
By /s/ Ted Hirst
-------------------------------
Name: Ted Hirst
Title: Vice President
S-1
<PAGE> 13
THE BANK OF NOVA SCOTIA, individually
as a Domestic Bank and Canadian Bank
and as Canadian Paying Agent
By /s/ John York
-------------------------------
Name: John York
Title: Controller
BANK OF MONTREAL, as a Domestic Bank
and a Canadian Bank
By /s/ J. Donald Higgins
-------------------------------
Name: J. Donald Higgins
Title: Managing Director
CHEMICAL BANK, as a Domestic Bank
By
-------------------------------
Name:
Title:
CHEMICAL BANK OF CANADA, as a
Canadian Bank
By
-------------------------------
Name:
Title:
By
-------------------------------
Name:
Title:
ROYAL BANK OF CANADA, as a Domestic
and Canadian Bank
By /s/ B. J. Belliveau
-------------------------------
Name: B. J. Belliveau
Title: Senior Manager
S-2
<PAGE> 14
THE CHASE MANHATTAN BANK, N.A., as
a Domestic Bank and on behalf of its
Canadian Bank Affiliate
By /s/ Ellen Gutrey
-------------------------------
Name: Ellen Gutrey
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as a Domestic
Bank and on behalf of its Canadian
Bank Affiliate
By /s/ Steven F. Sterling
-------------------------------
Name: Steven F. Sterling
Title: Vice President
CITICORP USA, INC., as a Domestic
Bank and on behalf of its Canadian
Bank Affiliate
By /s/ Edward Lettern
-------------------------------
Name: Edward Lettern
Title: Vice President
THE BANK OF TOKYO - SAN FRANCISCO
AGENCY, as a Domestic Bank and on
behalf of its Canadian Bank
Affiliate
By /s/ George K. Negoro
-------------------------------
Name: George K. Negoro
Title: Vice President
THE MITSUI TRUST & BANKING CO., LTD.,
as a Domestic Bank and a Canadian
Bank
By /s/ Ken Takahashi
-------------------------------
Name: Ken Takahashi
Title: General Manager & Agent
S-3
<PAGE> 15
THE SUMITOMO BANK, LIMITED, as a
Domestic Bank and on behalf of its
Canadian Bank Affiliate
By /s/ Kazuaki Kawakatsu
-------------------------------
Name: Kazuaki Kawakatsu
Title: General Manager
CREDIT LYONNAIS LOS ANGELES BRANCH,
as a Domestic Bank and on behalf of
its Canadian Bank Affiliate
By /s/ Thierry F. Vincent
--------------------------------
Name: Thierry F. Vincent
Title: Vice President
ABN AMRO N.V., as a Domestic Bank and
on behalf of its Canadian Bank
Affiliate
By /s/ Dianne D. Waggoner
-------------------------------
Name: Diane D. Waggoner
Title: Group Vice President
By /s/ Gina M. Brausazori
-------------------------------
Name: Gina M. Brausazori
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN, LTD.,
as a Domestic Bank
By /s/ Makoto Masuda
-------------------------------
Name: Makoto Masuda
Title: Deputy General Manager
THE INDUSTRIAL BANK OF JAPAN
(CANADA), as a Canadian Bank
By /s/ Akira Haruna
-------------------------------
Name: Akira Haruna
Title: Executive Vice President &
General Manager
S-4
<PAGE> 16
BANQUE NATIONALE DE PARIS, as a
Domestic Bank and on behalf of its
Canadian Bank Affiliate
By
-------------------------------
Name:
Title:
By
-------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS (CANADA),
as a Canadian Bank
By /s/ B. Gunrots
-------------------------------
Name: B. Gunrots
Title: Vice President, Operations
By /s/ S. Pular
-------------------------------
Name: S. Pular
Title: CM Manager
CIBC INC., as a Domestic Bank and
Canadian Bank
By /s/ Paul M. Mohme
-------------------------------
Name: Paul M. Mohme
Title: Assistant Vice President
BANK HAPOALIM, as a Domestic Bank
By /s/ Dave E. Whettin
-------------------------------
Name: Dave E. Whettin
Title:
By /s/ G. S. Jacobs
-------------------------------
Name: G. S. Jacobs
Title: FVP
S-5
<PAGE> 17
BANK HAPOALIM (CANADA), as a Canadian
Bank
By
-------------------------------
Name:
Title:
By
-------------------------------
Name:
Title:
THE SAKURA BANK, LIMITED, as a
Domestic Bank
By /s/ Ken-ichi Sato
-------------------------------
Name: Ken-ichi Sato
Title: General Manager
SAKURA BANK (CANADA), as a Canadian
Bank
By /s/ Kenjiro Shinohe
-------------------------------
Name: Kenjiro Shinohe
Title: Executive Vice President
S-6
<PAGE> 18
GUARANTORS AND PLEDGORS:
SAFEWAY NEW CANADA, INC.
By /s/ Harvey K. Naito
-------------------------------
Name: Harvey K. Naito
Title:
FIRST TIER SUBSIDIARIES:
SAFEWAY AUSTRALIA HOLDINGS, INC.
SAFEWAY CANADA HOLDINGS, INC.
SAFEWAY U.S. HOLDINGS, INC.
SAFEWAY WAREHOUSE, INC.
By /s/ Harvey K. Naito
--------------------------------
As an authorized officer of each
of the foregoing First Tier
Subsidiaries
DOMESTIC SECOND TIER SUBSIDIARIES:
SAFEWAY SOUTHERN CALIFORNIA, INC.
SAFEWAY DENVER, INC.
SAFEWAY RICHMOND, INC.
SAFEWAY DALLAS, INC. (formerly named
"SAFEWAY WASHINGTON, D.C., INC.")
SAFEWAY SUPPLY, INC.
SAFEWAY CORPORATE, INC.
SAFEWAY TRUCKING, INC.
By /s/ Harvey K. Naito
-------------------------------
As an authorized officer of each
of the foregoing Domestic Second
Tier Subsidiaries
S-7
<PAGE> 19
DOMESTIC THIRD TIER SUBSIDIARIES:
<TABLE>
<S> <C>
SAFEWAY STORES 18, INC. SAFEWAY STORES 72, INC.
SAFEWAY STORES 26, INC. SAFEWAY STORES 73, INC.
SAFEWAY STORES 28, INC. SAFEWAY STORES 74, INC.
SAFEWAY STORES 31, INC. SAFEWAY STORES 75, INC.
SAFEWAY STORES 42, INC. SAFEWAY STORES 76, INC.
SAFEWAY STORES 43, INC. SAFEWAY STORES 77, INC.
SAFEWAY STORES 44, INC. SAFEWAY STORES 78, INC.
SAFEWAY STORES 45, INC. SAFEWAY STORES 79, INC.
SAFEWAY STORES 46, INC. SAFEWAY STORES 80, INC.
SAFEWAY STORES 47, INC. SAFEWAY STORES 81, INC.
SAFEWAY STORES 48, INC. SAFEWAY STORES 82, INC.
SAFEWAY STORES 49, INC. SAFEWAY STORES 85, INC.
SAFEWAY STORES 50, INC. SAFEWAY STORES 86, INC.
SAFEWAY STORES 58, INC. SAFEWAY STORES 87, INC.
SAFEWAY STORES 59, INC. SAFEWAY STORES 88, INC.
SAFEWAY STORES 64, INC. SAFEWAY STORES 89, INC.
SAFEWAY STORES 67, INC. SAFEWAY STORES 90, INC.
SAFEWAY STORES 68, INC. SAFEWAY STORES 91, INC.
SAFEWAY STORES 69, INC. SAFEWAY STORES 92, INC.
SAFEWAY STORES 70, INC. SAFEWAY STORES 96, INC.
SAFEWAY STORES 71, INC. SAFEWAY STORES 97, INC.
SAFEWAY STORES 98, INC.
</TABLE>
By /s/ Harvey K. Naito
-----------------------------------
As an authorized officer of each of
the foregoing Domestic Third Tier
Subsidiaries
S-8
<PAGE> 1
EXHIBIT 10(iii).7
FIRST AMENDMENT TO THE 1994 AMENDED AND RESTATED STOCK OPTION AND
INCENTIVE PLAN FOR KEY EMPLOYEES OF SAFEWAY INC.
Safeway Inc. (the "Company"), a corporation organized under the laws of the
State of Delaware, by resolution of its Board of Directors has adopted this
First Amendment to the 1994 Amended and Restated Stock Option and Incentive Plan
for Key Employees of Safeway Inc. (the "Plan") pursuant to Section 9.2 of the
Plan, effective as of March 1, 1995.
1. Section 2.1(a) of the Plan is hereby amended to read in its entirety as
follows:
"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 21,500,000 (8,000,000 of which were authorized under the
original Plan (prior to the 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, 4,000,000 of which were
authorized by the Plan as amended on October 10, 1991, and 3,500,000 of
which were authorized by the Plan as amended on March 1, 1995."
2. Section 4.4(a) of the Plan is hereby amended to read in its entirety as
follows:
"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
<PAGE> 2
(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 on or after age 55 in
accordance with the Company's retirement policies, as then in effect; or
(iv) The engagement by the Employee in willful misconduct with
injures the Company, any Parent Corporation or any of its Subsidiaries."
* * * * *
I hereby certify that the foregoing First Amendment to the Plan was
duly adopted by the Board of Directors of Safeway Inc. as of March 1, 1995.
Executed on this ___ day of ________, 1995.
-------------------------------
Secretary
* * * *
I hereby certify that the foregoing First Amendment to the Plan was
duly approved by the stockholders of Safeway Inc. on _______________, 1995.
Executed on this ___ day of ________, 1995.
-------------------------------
Secretary
<PAGE> 3
EXHIBIT 10(iii).11
DEFERRED COMPENSATION PLAN FOR SAFEWAY DIRECTORS
ARTICLE I
1.1 Name and Purpose. The name of this plan is the "Deferred Compensation
Plan for Safeway Directors" (the "Plan"). Its purpose is to provide non-employee
Directors of the Company with increased flexibility in timing the receipt of
board service fees and to assist the Company in attracting and retaining
qualified individuals to serve as Directors.
1.2 Definitions. Whenever used in this Plan, the following terms shall have
the meaning set forth below:
(a) "Closing Price" means the closing price of the Company's Common Stock
as reported in The Wall Street Journal.
(b) "Common Stock" means the Common Stock, par value $.01 per share, of
Safeway Inc.
(c) "Company" means Safeway Inc. and each Participating Company.
(d) "Compensation" means all remuneration paid to a Director for services
as a Director other than reimbursement for expenses and shall include,
but not be limited to, monthly fees for service and fees for attendance
at meetings.
(e) "Director" means any individual serving on the Board of Directors of
the Company who is not an employee of the Company or any of its
subsidiaries.
(f) "Participant" means a Director who has filed an election to participate
under Section 3.1 with regard to any Plan Year.
(g) "Participating Company" means any corporation which is a direct or
indirect subsidiary of Safeway Inc. which has, by action of its board
of directors, adopted the Plan and consented to being a Participating
Company in the Plan.
(h) "Plan Administrator" means a committee consisting of one or more senior
executives of the Company designated by the Chief Executive Officer of
the Company.
(i) "Plan Year" means the calendar year.
1
<PAGE> 4
ARTICLE II
2.1 Participation in the Plan. Any individual who is a Director as defined
in Section 1.2(e) may participate in the Plan.
ARTICLE III
3.1 Election to Participate. Each Director may elect annually to have
payment of all or any portion of his or her Compensation for that Plan Year
deferred. An election to defer may also provide that the Compensation deferred
will be paid in January of a specified year in the future; provided, however,
that if the Participant ceases to be a Director prior to such specified year,
the Participant's account will be paid as soon as practicable following the date
on which the Participant ceases to be a Director. No election to defer under
this Plan may be made after December 31 of the year preceding the Plan Year
during which Compensation would otherwise be paid. An election to defer any
Compensation shall be in writing and shall be delivered to the Plan
Administrator. An election to defer shall be irrevocable by the Director and
shall be effective for the Plan Year or Plan Years immediately following the
date on which it was filed as set forth in the notice of election. In the
absence of a written election to defer filed by a Director with the Plan
Administrator, any Compensation will be paid directly to the Director.
Notwithstanding the foregoing, a Director may make an election to defer under
this Plan with respect to all or any specified part of any unpaid Compensation
within one month after the date on which this Plan is initially adopted or, if
later, within thirty days after the date a Director becomes a Director.
3.2 Mode of Deferral. Payment of a Participant's Compensation may be
deferred by means of a cash credit, a stock credit or a combination of the two
as the Participant shall elect in writing at the same time as the election
provided for in Section 3.1. If a Participant fails to make an election as to
mode of deferral, he or she shall be deemed to have elected deferral by means of
a cash credit. Cash credits and stock credits shall be recorded in accounts
established in Participants' names on the books of the Company.
(a) Cash Credits. If the deferral is wholly or partly by means of a cash
credit, the Participant's cash credit account shall be credited, as of the last
day of the calendar quarter, with the dollar amount of Compensation deferred
during the quarter by means of a cash credit. As of the last day of each
calendar quarter, the Participant's cash credit account shall also be credited
with interest equivalent in an amount determined by applying to the balance in
the account as of the first day of the quarter (less any distributions during
the quarter) an interest rate for such quarter which, when annualized, shall be
the prime rate of Bankers Trust Company or such other rate as the Plan
Administrator may designate, as of the first business day of the quarter.
Interest shall be calculated on the actual number of days in the quarter based
upon a 360-day year.
(b) Stock Credits. If deferral is wholly or partly by means of a stock
credit, the Participant's stock credit account shall be credited, as of the last
day of the calendar quarter, with a
2
<PAGE> 5
Common Stock equivalent equal to the number of shares of Common Stock (including
fractions of a share) that could have been purchased at the average of the
Closing Price of Common Stock on each business day during the last month of the
calendar quarter with the amount of the Compensation deferred during the quarter
by means of a stock credit. As of the date any dividend is paid to holders of
Common Stock, the Participant's stock credit account shall also be credited with
an additional Common Stock equivalent equal to the number of shares of Common
Stock (including fractions of a share) that could have been purchased at the
Closing Price of Common Stock on such date with the dividend paid on the number
of shares of Common Stock to which the Participant's stock credit account is
then equivalent. In case of dividends paid in property, the dividend shall be
deemed to be the fair market value of the property at the time of distribution
of the dividend, as determined by the Plan Administrator.
3.3 Distribution of Credits. (a) If a Participant has elected payment in a
specified year under Section 3.1, distribution of his or her accounts will only
be made in a single sum payment. Otherwise, unless a Participant has elected to
receive installment payments as provided below, payment of a Participant's
accounts shall be made in one lump sum as soon as practicable following the date
on which the Participant ceases to be a Director.
(b) At the election of the Participant made in writing and delivered to the
Plan Administrator at any time on or before December 1 of the year of
termination of the Participant's service as a Director, distribution of all of
his or her accounts, commencing as soon as practicable following the end of the
Plan Year in which the Participant ceases to be a Director, shall be made in any
number of annual installments not exceeding ten. Any such election, unless made
irrevocable by its terms, may be changed by written notice to the Plan
Administrator at any time prior to December 1 of the Plan Year of a
Participant's termination of service as a Director.
(c) Distribution of a Participant's cash credit and stock credit accounts
shall be made in cash. The amount of the distribution for stock credit accounts
shall be determined by multiplying the number of shares of Common Stock
attributable to the installment by the average of the Closing Price of Common
Stock on each business day in the month of December immediately prior to the
Plan Year in which the installment is to be paid.
3.4 Adjustment. If at any time the number of outstanding shares of Common
Stock shall be increased as the result of any stock dividend, subdivision or
reclassification of shares, the number of shares of Common Stock to which each
Participant's stock credit account is equivalent shall be increased in the same
proportion as the outstanding number of shares of Common Stock is increased, or
if the number of outstanding shares of Common Stock shall at any time be
decreased as the result of any combination or reclassification of shares, the
number of shares of Common Stock to which each Participant's stock credit
account is equivalent shall be decreased in the same proportion as the
outstanding number of shares of Common Stock is decreased. In the event the
Company shall at any time be consolidated with or merged into any other
corporation and holders of the Company's Common Stock receive common shares of
the resulting or surviving corporation, there shall be credited to each
Participant's stock credit account, in place of the shares then credited
3
<PAGE> 6
thereto, a stock equivalent determined by multiplying the number of common
shares of stock given in exchange for a share of Common Stock upon such
consolidation or merger, by the number of shares of Common Stock to which the
Participant's account is then equivalent. If in such a consolidation or merger,
holders of the Company's Common Stock shall receive any consideration other than
common shares of the resulting or surviving corporation, the Plan Administrator,
in its sole discretion, shall determine the appropriate change in Participants'
stock credit accounts.
3.5 Installment Amount. In the event a Participant has elected to receive
distribution of his or her accounts in more than one installment, the amount of
each installment shall be determined by multiplying the current balance
(denominated in cash units for the portion elected to be deferred as cash
credits and denominated in stock units for the portion elected to be deferred in
stock credits) in the accounts as determined under Section 3.2, by a fraction,
the numerator of which is one, and the denominator of which is the number of
installments yet to be paid. With respect to cash credits, interest shall
continue to be credited in accordance with Section 3.2 during the payment
period.
3.6 Distribution upon Death. In the event of the death of a Participant,
whether before or after ceasing to serve as a Director, any cash credit account
and stock credit account to which he or she was entitled, shall be converted to
cash and distributed in a lump sum to such person or persons or the survivors
thereof, including corporations, unincorporated associations or trusts, as the
Participant may have designated. All such designations shall be made in writing
signed by the Participant and delivered to the Plan Administrator. A Participant
may from time to time revoke or change any such designation by written notice to
the Plan Administrator. If there is no unrevoked designation on file with the
Plan Administrator at the time of the Participant's death, or if the person or
persons designated therein shall have all predeceased the Participant or
otherwise ceased to exist, such distributions shall be made in accordance with
the Participant's will or in the absence of a will, to the administrator of the
Participant's estate. Any distribution under this Section 3.6 shall be made as
soon as practicable following the end of the fiscal quarter in which the Plan
Administrator is notified of the Participant's death. In this case, a
Participant's stock credit account shall be converted to cash by multiplying the
number of whole and fractional shares of Common Stock to which the Participant's
stock credit account is equivalent by the average of the Closing Price of Common
Stock on each business day during the last month of the calendar quarter prior
to the date of death.
3.7 Withholding Taxes. The Company shall deduct from all distributions
under the Plan any taxes required to be withheld by federal, state or local
governments.
ARTICLE IV
4.1 Plan Administrator. The Plan Administrator shall have full power and
authority to administer the Plan including the power to promulgate forms to be
used with regard to the Plan, the power to promulgate rules of Plan
administration, the power to settle any disputes as to rights or
4
<PAGE> 7
benefits arising from the Plan, and the power to make such decisions or take
such actions as the Plan Administrator, in its sole discretion, deems necessary
or advisable to aid in the proper maintenance of the Plan.
ARTICLE V
5.1 Funding. No promise hereunder shall be secured by any specific assets
of the Company, nor shall any assets of the Company be designated as
attributable or allocated to the satisfaction of such promises.
ARTICLE VI
6.1 Non-alienation of Benefits. No benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge; and any attempt to do so shall be void. No such benefit
shall, prior to receipt thereof by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements, or torts of the
Participant.
ARTICLE VII
7.1 Delegation of Administrative Duties. Administrative duties imposed by
this Plan may be delegated by the Plan Administrator or the individual charged
with such duties.
7.2 Governing Law. This Plan shall be governed by the laws of the State of
Delaware.
7.3 Amendment, Modification and Termination of the Plan. The Plan
Administrator at any time may terminate and in any respect, amend or modify the
Plan.
IN WITNESS WHEREOF, the Board has caused this Plan to be executed by a duly
authorized officer of the Company this 21st day of December 1994.
SAFEWAY INC.
By Michael J. Boylan
-----------------------
Its: Vice-President
Attest:
Meredith Parry
- -----------------------------
Assistant Secretary
5
<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 1,062 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 each of its nine operating areas. Management of the retail operations
is largely 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 336 grocery stores located
mostly in southern California, and a 49% interest in a privately held company,
Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 70 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 an
extensive 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 1994 averaged 54,000 square feet. The following table
summarizes by size Safeway's stores at year-end 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------
Number of Percent of
Stores Total
- --------------------------------------------------------
<S> <C> <C>
Less than 30,000 square feet 324 31%
30,000 to 50,000 584 55
More than 50,000 154 14
----------------
Total stores 1,062 100%
================
</TABLE>
Store Ownership
At year-end 1994, Safeway owned one-third and leased two-thirds of its 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. Safeway has reallocated time and resources
to improve in-stock conditions, enhance the presentation of perishable
merchandise, and provide 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.
- - During the last two years, Safeway introduced a line of approximately 350 new
premium private label products under the banner, "Safeway SELECT." These new
products include soft drinks, pastas and pasta sauces, salsa, pet foods, whole
bean coffee, cookies, and ice cream. In addition, the new Safeway SELECT
Enlighten brand offers items such as no-fat salad dressings and low sodium,
single-serving, quick lunches. Safeway SELECT offers today's value-conscious
consumers premium quality products at prices lower than comparable national
brands. The Company plans to introduce many more Safeway SELECT items over the
next few years.
- - Safeway offers high quality perishables in the produce, meat, dairy, seafood,
bakery, and delicatessen departments. There is an effort to tailor 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 today's value-conscious consumers,
and features a line of Valu Pack merchandise which includes more than 100 of the
large-size products most frequently purchased at membership club stores.
10
<PAGE> 2
MANUFACTURING AND WHOLESALE OPERATIONS
The principal function of manufacturing operations is to purchase, manufacture,
and process private label merchandise sold in Safeway stores under such
well-known and respected brand names as Lucerne, Mrs. Wright's, and the Safeway
SELECT line of products.
During 1994, Safeway began a review to identify manufacturing operations
which do not provide acceptable returns. This review resulted in the closure of
six plants during 1994 and a reorganization of the manufacturing division
administrative office. The ongoing review of all remaining manufacturing
operations is expected to result in additional plant closures.
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 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------
U.S. Canada
- --------------------------------------------------------
<S> <C> <C>
Milk plants 7 3
Bread baking plants 5 2
Ice cream plants 4 3
Cheese packaging plants 2 1
Soft drink bottling plants 4 --
Fruit and vegetable processing plants 2 4
Other food processing plants 6 4
Pet food plant 1 --
-----------
Total 31 17
===========
</TABLE>
In addition, the Company operates 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>
- ----------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for
property additions $339.9 $245.3 $483.6
Less: Purchases of
previously leased
properties (54.5) (21.4) (9.9)
Plus: Present value of all
lease obligations incurred 55.5 58.8 79.3
Mortgage notes assumed
in property acquisitions 11.3 7.5 0.4
--------------------------
Total capital expenditures $352.2 $290.2 $553.4
==========================
Capital expenditures as
a percent of sales 2.3% 1.9% 3.7%
==========================
New stores opened 20 14 35
==========================
Stores closed or sold* 36 39 49
==========================
Remodels 71 45 63
==========================
Total retail square footage
(in millions) 39.5 39.4 39.7
==========================
</TABLE>
* Includes 15 stores sold to Farm Fresh, Inc. in 1993
Safeway scaled back its capital expenditure program in 1993 in order to
focus on near-term operating challenges, as well as to develop ways to enhance
the quality and lower the costs of projects. During 1994, improved operations
and lower project costs improved the quality of capital projects and allowed
Safeway to increase capital expenditures to $352 million from $290 million in
1993. During 1994, Safeway opened 20 new stores and completed 71 remodels. The
Company plans to invest in excess of $400 million for capital expenditures in
1995 while opening 25 to 30 new stores and completing 90 to 100 remodels.
Safeway expects to increase its level of capital expenditures gradually over
time.
Management regularly reviews the performance of individual stores on the
basis of a variety of economic factors. Upon the decision to close a store, the
Company accrues estimated future losses, if any, which may include lease
payments or other costs of holding the facility, net of estimated future income.
At year-end 1994, Safeway had an accrued liability of $26.9 million for the
anticipated future closure of 57 stores and $20.8 million for the anticipated
future closure of manufacturing and administrative facilities.
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 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS
(Dollars in millions, except per-share amounts) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Results of Operations
Sales .......................................... $ 15,626.6 $ 15,214.5 $ 15,151.9 $ 15,119.2 $ 14,873.6
==================================================================
Gross profit 4,250.0 4,083.4 4,106.4 4,059.1 3,903.0
Operating and administrative expenses (3,637.9) (3,641.9) (3,664.8) (3,510.8) (3,367.7)
AppleTree charge................................. -- -- -- (115.0) --
------------------------------------------------------------------
Operating profit 612.1 441.5 441.6 433.3 535.3
Interest expense (221.7) (265.5) (290.4) (355.4) (384.1)
Equity in earnings of unconsolidated affiliates 27.3 33.5 39.1 45.8 25.5
Gain on common stock offering by
unconsolidated affiliate -- -- -- 27.4 --
Other income, net ............................... 6.4 6.8 7.1 15.1 18.0
------------------------------------------------------------------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes 424.1 216.3 197.4 166.2 194.7
Income taxes .................................... (173.9) (93.0) (99.0) (87.2) (107.6)
------------------------------------------------------------------
Income before extraordinary loss and
cumulative effect of accounting changes 250.2 123.3 98.4 79.0 87.1
Extraordinary loss, net of tax benefit of
$6.7, $17.1 and $14.9 (10.5) -- (27.8) (24.1) --
Cumulative effect of accounting changes,
net of tax benefit of $12.0 .................. -- -- (27.1) -- --
------------------------------------------------------------------
Net income ...................................... $ 239.7 $ 123.3 $ 43.5 $ 54.9 $ 87.1
==================================================================
Earnings per common share and common
share equivalent (fully diluted):
Income before extraordinary loss and
cumulative effect of accounting changes $ 2.02 $ 1.00 $ 0.83 $ 0.69 $ 0.91
Extraordinary loss (0.08) -- (0.23) (0.21) --
Cumulative effect of accounting changes .... -- -- (0.23) -- --
------------------------------------------------------------------
Net income ................................. $ 1.94 $ 1.00 $ 0.37 $ 0.48 $ 0.91
==================================================================
Financial Statistics
Gross profit margin 27.2% 26.8% 27.1% 26.8% 26.2%
Operating and administrative expenses
as a percent of sales 23.28% 23.94% 24.19% 23.22% 22.64%
Operating profit margin 3.9% 2.9% 2.9% 2.9% 3.6%
Capital expenditures $ 352.2 $ 290.2 $ 553.4 $ 635.0 $ 489.6
Depreciation and amortization 326.4 330.2 320.3 295.9 276.2
Total assets 5,022.1 5,074.7 5,225.8 5,170.7 4,739.1
Total debt 2,196.1 2,689.2 3,048.6 3,066.0 3,083.6
Stockholders' equity (deficit) 643.8 382.9 243.1 214.4 (183.4)
Common shares outstanding at
year-end (in millions) 104.8 101.5 98.8 97.7 79.3
Stockholders' equity (deficit) per common
share outstanding at year-end $ 6.14 $ 3.77 $ 2.46 $ 2.19 $ (2.31)
Weighted average common shares and
common share equivalents
(fully diluted) (in millions) 123.6 123.4 119.0 115.2 96.0
Other Statistics
Employees at year-end 110,000 105,900 104,900 110,100 114,500
Stores opened during the year 20 14 35 33 30
Stores closed or sold during the year 36 39 49 37 26
Total stores at year-end 1,062 1,078 1,103 1,117 1,121
Total retail square footage at year-end (in millions) 39.5 39.4 39.7 38.9 38.2
</TABLE>
12
<PAGE> 4
FINANCIAL REVIEW
RESULTS OF OPERATIONS
Safeway's net income was $239.7 million ($1.94 per share) in 1994, $123.3
million ($1.00 per share) in 1993, and $43.5 million ($0.37 per share) in 1992.
In 1994 and 1992, income before extraordinary items and the cumulative effect of
accounting changes was $250.2 million ($2.02 per share) and $98.4 million ($0.83
per share). In 1993, severance paid for a voluntary employee buyout in Alberta,
Canada reduced 1993 operating profit by $54.9 million and net income by $30.2
million ($0.24 per share).
Sales
Sales were $15.6 billion in 1994 (a 52-week year), and $15.2 billion in both
1993 (a 52-week year) and 1992 (a 53-week year). Safeway's same-store sales
increased 4.4% in 1994 and 2.1% in 1993. In spite of low food price inflation,
Safeway achieved sales growth in 1994 and 1993. The Company has simplified work
methods in the stores, streamlined backstage operations, improved inventory
management and achieved labor cost parity through competitive labor contracts
signed in Alberta. Safeway continues to reinvest these fundamental cost savings
into improved service and more competitive pricing.
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. In 1994, Safeway began classifying advertising expenses as
cost of goods sold. Previously, advertising expenses were included in
operating and administrative expenses. All prior periods have been
reclassified to conform to the 1994 presentation.
After reclassifying advertising expenses, gross profit was 27.2% of sales
in 1994, compared to 26.8% in 1993 and 27.1% in 1992. The improvement in 1994
was primarily due to decreased advertising expense, the price recovery in
Alberta following the 1993 price war, the disposal of stores with low gross
margins in Richmond, Virginia, and company-wide improvements to bakery
operations. The decline in 1993 primarily reflects the effect of the price war
in Alberta.
1994 PORTIONS OF THE
SALES DOLLAR
[CHART]
Operating and Administrative Expenses
After reclassifying advertising expenses, operating and administrative expenses
were 23.28% of sales in 1994, compared to 23.94% in 1993 (23.58% excluding the
Alberta buyout) and 24.19% in 1992 (24.04% excluding a restructuring charge).
Operating and administrative expenses as a percentage of sales have declined
since 1992 as a result of increased sales and efforts to reduce or control
expenses. The principal efforts included reorganizing the administrative support
functions, centralizing information technology operations, improving labor costs
in Alberta, Canada, and simplifying work methods in the stores.
OPERATING AND ADMINISTRATIVE
EXPENSES (% OF SALES)
[CHART]
During 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). The new contract approved by retail employees in
Alberta reduced wages, established a gain-sharing plan, and provided for a
voluntary buyout program, while significantly reducing a competitive wage
disparity in that area. Safeway began realizing savings from the new contract
during the second quarter of 1993, which were offset through the third quarter
of 1993 by the increased training costs and reduced productivity associated with
new employees. Productivity improved during the fourth quarter of 1993 and
returned to normal levels in 1994. Safeway believes that the combination of
lower prices and the new labor contract has positioned Alberta for long-term
growth. Savings from the labor contract are being invested in pricing and
service, and as a result, estimated annual savings of $45 million have not
directly affected operating profit or cash flow in Alberta.
In 1992, the Company recorded a restructuring charge for the anticipated
costs associated with downsizing its corporate administrative staff and closing
its distribution center in Sacramento, California. The Sacramento
13
<PAGE> 5
facility, which was leased following the 1988 fire that destroyed the Richmond,
California distribution center, was consolidated into the Company's distribution
center in Tracy, California. The charge reduced 1992 operating profit by $22.3
million and net income by $13.8 million ($0.12 per share). Approximately
one-half of this charge was for severance payments. All employee terminations
associated with this restructuring were completed in 1993. Annual savings from
these restructurings are between $15 million and $20 million.
Interest Expense
Interest expense fell to $221.7 million in 1994 from $265.5 million in 1993 and
$290.4 million in 1992. The decrease in 1994 was primarily due to overall debt
reductions resulting from Safeway's strong cash flow from operations, and the
replacement of high interest rate long-term debt with short-term floating rate
debt. The decrease in 1993 reflects reduced borrowings, lower short-term
interest rates, and the refinancing of high interest rate debt during 1992.
INTEREST EXPENSE
(IN MILLIONS)
[CHART]
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates, recorded on a one-quarter delay
basis, fell to $27.3 million in 1994, compared to $33.5 million in 1993 and
$39.1 million in 1992. Safeway holds a 35% interest in Vons, which operates 336
grocery stores located mostly in southern California, and a 49% interest in Casa
Ley, which operates 70 stores in western Mexico.
Income from Safeway's equity investment in Vons was $11.6 million in 1994,
compared to $12.9 million in 1993 and $18.6 million in 1992. According to Vons'
financial reports to the Securities and Exchange Commission, Vons' same-store
sales declined 1.6% and 3.2% for the 16 and 40 weeks ended October 9, 1994. In
addition to lower operating income, Vons reported restructuring charges which
decreased Safeway's equity in Vons' earnings by $3.9 million in 1994 and $11.7
million in 1993. According to Vons, these restructuring charges included
anticipated expenses associated with a program to close under-performing stores
and reduce work force.
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 1992 cumulative effect of accounting
changes in the Company's Consolidated Statements of Income.
Income from Safeway's equity investment in Casa Ley fell to $15.7 million
in 1994 from $20.6 million in 1993 and $20.5 million in 1992 due to changes in
the competitive environment in Mexico. The recent devaluation of the peso will
have an adverse impact on Safeway's income from Casa Ley beginning in 1995 but
is not expected to be material to Safeway's net income.
Income Taxes
Income taxes declined to 41.0% of pre-tax income in 1994 from 43.0% in 1993 and
50.2% in 1992. 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 the
price war 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.
14
<PAGE> 6
Extraordinary Loss
Safeway's net income was reduced by extraordinary losses of $10.5 million ($0.08
per share) in 1994 and $27.8 million ($0.23 per share) in 1992 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.
Acquisition of Interest in Warrants to Purchase Safeway Stock
In January 1995, the Company acquired 31.8% of the partnership interests in SSI
Equity Associates, L.P. for $113 million with proceeds from bank borrowings. SSI
Equity Associates, L.P., a related party, is a limited partnership whose sole
asset consists of warrants to purchase 13.9 million shares of Safeway common
stock at $2.00 per share. The acquisition of the partnership interests will
reduce common stock equivalents by about 4.16 million shares which, in turn,
will have a favorable effect on earnings per share beginning in 1995. The
favorable effect on earnings per share from reducing common stock equivalents
will be partially offset by interest expense on the bank borrowings.
Accounting Changes
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, "Accounting for Income Taxes," and SFAS No. 106. The
cumulative effect of accounting changes recognized on Safeway's Consolidated
Statement of Income in 1992 was as follows (in millions):
<TABLE>
<S> <C>
Postretirement benefits, net 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 $947.6 million in 1994 compared to
$777.0 million in 1993 and $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>
- ----------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes,
extraordinary loss and
cumulative effect of
accounting changes $424.1 $216.3 $197.4
LIFO expense (income) 2.7 (1.5) (0.4)
Interest expense 221.7 265.5 290.4
Depreciation and
amortization 326.4 330.2 320.3
Equity in earnings of
unconsolidated affiliates (27.3) (33.5) (39.1)
--------------------------
Operating cash flow $947.6 $777.0 $768.6
===========================
As a percent of sales 6.06% 5.11% 5.07%
===========================
As a multiple of
interest expense 4.27x 2.93x 2.65x
===========================
</TABLE>
In 1994, the Bank Credit Agreement and the Working Capital Credit Agreement
(together the "Bank Agreements") were amended to (i) permit the purchase of up
to $500 million of senior subordinated debt over the life of the Bank
Agreements, (ii) extend bank borrowing maturities one year to 1998, (iii)
voluntarily reduce bank borrowing capacity by $250 million, and (iv) reduce
commitment fees and borrowing costs on bank borrowings.
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. Management believes that these sources will be adequate to meet
the Company's requirements. At year-end 1994, the Company had total borrowing
capacity under the Bank Agreements of $1.15 billion, of which $694.2 million was
unused.
During 1994, Safeway retired $44.2 million of senior debt and $247.9
million of senior subordinated debt. Safeway purchased the long-term debt
primarily with proceeds from floating rate bank borrowings. These redemptions
will result in estimated annual interest expense savings of approximately $8
million, subject to fluctuations in short-term interest rates. Depending on
market conditions, Safeway may continue to purchase and retire long-term debt.
15
<PAGE> 7
During 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 $700 million of high interest rate debt.
In 1992, the Company also issued $100 million of 9.30% Senior Secured
Debentures due 2007 and used the proceeds to repay borrowings incurred under 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. Pursuant to this shelf registration, the Company issued $160
million of medium-term notes during 1993 and 1992. The Company used the proceeds
from these notes to finance capital expenditures.
Annual debt maturities over the next five years are set forth in Note B of
the Company's 1994 consolidated financial statements.
During 1994, Safeway significantly increased cash flow from operations
through improved working capital management. At year-end 1994, the working
capital deficit was composed of $1.4 billion of current assets and $1.8 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 Statement of Cash Flows that are not necessarily indicative of
long-term operating trends. There are no unusual industry practices or
requirements relating to working capital items.
As of year-end 1994, the Company had effectively converted $208.3 million of its
$475.9 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 1994 are described in Note D to the Company's 1994
consolidated financial statements.
Interest rate swap and collar agreements increased interest expense by $4.4
million in 1994, $8.3 million in 1993, and $7.7 million in 1992.
16
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
52 WEEKS 52 WEEKS 53 WEEKS
(In millions, except per-share amounts) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 15,626.6 $ 15,214.5 $ 15,151.9
Cost of goods sold ....................................................... (11,376.6) (11,131.1) (11,045.5)
----------------------------------------
Gross profit 4,250.0 4,083.4 4,106.4
Operating and administrative expenses .................................... (3,637.9) (3,641.9) (3,664.8)
----------------------------------------
Operating profit 612.1 441.5 441.6
Interest expense (221.7) (265.5) (290.4)
Equity in earnings of unconsolidated affiliates 27.3 33.5 39.1
Other income, net ........................................................ 6.4 6.8 7.1
----------------------------------------
Income before income taxes, extraordinary loss and
cumulative effect of accounting changes 424.1 216.3 197.4
Income taxes ............................................................. (173.9) (93.0) (99.0)
----------------------------------------
Income before extraordinary loss and cumulative effect of
accounting changes 250.2 123.3 98.4
Extraordinary loss related to early retirement of debt, net of
income tax benefit of $6.7 and $17.1 (10.5) -- (27.8)
Cumulative effect of accounting changes, net of
income tax benefit of $12.0 ........................................... -- -- (27.1)
----------------------------------------
Net income .......................................................... $ 239.7 $ 123.3 $ 43.5
========================================
Earnings per common share and common share equivalent:
Primary
Income before extraordinary loss and cumulative effect
of accounting changes $ 2.05 $ 1.02 $ 0.83
Extraordinary loss (0.09) -- (0.23)
Cumulative effect of accounting changes.............................. -- -- (0.23)
----------------------------------------
Net income ........................................................ $ 1.96 $ 1.02 $ 0.37
========================================
Fully diluted
Income before extraordinary loss and cumulative effect
of accounting changes $ 2.02 $ 1.00 $ 0.83
Extraordinary loss (0.08) -- (0.23)
Cumulative effect of accounting changes ............................. -- -- (0.23)
----------------------------------------
Net income ........................................................ $ 1.94 $ 1.00 $ 0.37
========================================
Weighted average common shares and
common share equivalents:
Primary 122.0 121.0 119.0
Fully diluted 123.6 123.4 119.0
</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) 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 60.7 $ 118.4
Receivables 147.9 119.5
Merchandise inventories, net of LIFO
reserve of $64.8 and $62.1 1,136.0 1,128.1
Prepaid expenses and other current assets.................... 93.0 98.0
------------------------
Total current assets......................................... 1,437.6 1,464.0
------------------------
Property:
Land 408.9 384.7
Buildings 1,095.0 1,009.6
Leasehold improvements 814.5 791.5
Fixtures and equipment 1,765.2 1,711.1
Property under capital leases ................................ 291.7 310.4
-------------------------
4,375.3 4,207.3
Less accumulated depreciation and amortization ............... 1,868.9 1,647.2
------------------------
Total property, net 2,506.4 2,560.1
Goodwill, net of accumulated amortization of $95.0 and $86.2 331.1 347.6
Prepaid pension costs 319.6 307.1
Investments in unconsolidated affiliates 329.3 303.4
Other assets ................................................... 98.1 92.5
------------------------
Total assets ................................................... $ 5,022.1 $5,074.7
========================
</TABLE>
18
<PAGE> 10
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
YEAR-END YEAR-END
(In millions, except per-share amounts) 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes and debentures $ 152.5 $ 188.6
Current obligations under capital leases 19.3 19.3
Accounts payable 1,012.1 880.5
Accrued salaries and wages 223.6 216.3
Other accrued liabilities .................................... 416.1 369.1
------------------------
Total current liabilities .................................... 1,823.6 1,673.8
------------------------
Long-term debt:
Notes and debentures 1,849.5 2,287.7
Obligations under capital leases ............................. 174.8 193.6
------------------------
Total long-term debt 2,024.3 2,481.3
Deferred income taxes 128.3 145.5
Accrued claims and other liabilities ........................... 402.1 391.2
------------------------
Total liabilities .............................................. 4,378.3 4,691.8
------------------------
Commitments and contingencies
Stockholders' equity:
Common stock: par value $.01 per share;
300 shares authorized; 104.8 and 101.5 shares
outstanding 1.0 1.0
Additional paid-in capital 655.6 624.5
Cumulative translation adjustments 29.1 39.0
Accumulated deficit .......................................... (41.9) (281.6)
------------------------
Total stockholders' equity ................................... 643.8 382.9
------------------------
Total liabilities and stockholders' equity ..................... $ 5,022.1 $5,074.7
========================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
52 WEEKS 52 WEEKS 53 WEEKS
(In millions) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow From Operations
Net income $ 239.7 $ 123.3 $ 43.5
Reconciliation to net cash flow from operations:
Extraordinary loss related to early retirement of debt,
before income tax benefit 17.2 -- 44.9
Cumulative effect of accounting changes, before income tax benefit -- -- 39.1
Depreciation and amortization 326.4 330.2 320.3
Amortization of deferred finance costs 3.0 3.8 4.0
Deferred income taxes (12.9) (35.8) 17.5
LIFO expense (income) 2.7 (1.5) (0.4)
Equity in earnings of unconsolidated affiliates (27.3) (33.5) (39.1)
Net pension (income) expense (1.4) 0.4 (4.6)
Pension contributions (11.5) (1.2) --
Increase (decrease) in accrued claims and other liabilities (5.7) 29.3 8.2
Loss (gain) on property retirements 56.3 (2.9) 48.9
Changes in working capital items:
Receivables (24.5) 15.4 9.3
Inventories at FIFO cost (31.8) 61.6 10.2
Prepaid expenses and other current assets 3.6 (9.4) (12.5)
Payables and accruals 165.2 95.6 21.0
Income taxes ........................................................ 54.3 24.1 (1.8)
-------------------------------------
Net cash flow from operations...................................... 753.3 599.4 508.5
-------------------------------------
Cash Flow From Investing Activities
Cash paid for property additions (339.9) (245.3) (483.6)
Proceeds from sale of property 36.3 66.7 26.3
Other ................................................................... (28.0) (49.3) (26.9)
-------------------------------------
Net cash flow used by investing activities............................. (331.6) (227.9) (484.2)
-------------------------------------
</TABLE>
20
<PAGE> 12
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
52 WEEKS 52 WEEKS 53 WEEKS
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow From Financing Activities
Additions to short-term borrowings $ 157.9 $ 60.0 $ 237.4
Payments on short-term borrowings (108.0) (44.9) (280.5)
Additions to long-term borrowings 455.7 352.1 1,888.4
Payments on long-term borrowings (986.2) (732.7) (1,774.1)
Net proceeds from exercise of warrants and stock options 14.6 10.4 3.5
Premiums paid on early retirement of debt (13.2) -- (35.1)
Other .................................................................. 0.7 1.2 (13.9)
-------------------------------------
Net cash flow from (used by) financing activities..................... (478.5) (353.9) 25.7
-------------------------------------
Effect of changes in exchange rates on cash.............................. (0.9) 4.2 (7.6)
-------------------------------------
Increase (decrease) in cash and equivalents (57.7) 21.8 42.4
Cash and Equivalents
Beginning of year........................................................ 118.4 96.6 54.2
-------------------------------------
End of year.............................................................. $ 60.7 $ 118.4 $ 96.6
=====================================
Other Cash Flow Information
Cash payments during the year for:
Interest $ 230.1 $ 270.2 $ 293.5
Income taxes, net of refunds 126.0 100.6 56.4
Noncash Investing And Financing Activities
Tax benefit from stock options exercised $ 15.6 $ 9.6
Mortgage notes assumed in property acquisitions 11.3 7.5 $ 0.4
Capital lease obligations entered into 4.5 20.3 5.7
Capital lease assets retired, net of accumulated amortization 2.5 3.1 1.7
Capital lease obligations retired 0.8 2.5 0.6
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 13
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Cumulative Total
(In millions) -------------------- Paid-in Translation Accumulated Stockholders'
Shares Amount Capital Adjustments Deficit Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Options and warrants exercised 3.3 -- 30.2 -- -- 30.2
Stock bonuses -- -- 0.9 -- -- 0.9
Net income -- -- -- -- 239.7 239.7
Translation adjustments ................ -- -- -- (9.9) -- (9.9)
------------------------------------------------------------------------------
Balance, year-end 1994 ................. 104.8 $ 1.0 $ 655.6 $ 29.1 $ (41.9) $ 643.8
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 1994, the
52-week period ended January 1, 1994, and the 53-week period ended January 2,
1993.
Translation of Foreign Currencies
Assets and liabilities of the Company's Canadian subsidiaries and Mexican
unconsolidated affiliate 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 1994 and 1993, merchandise inventory of $660 million and $634
million 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 $724
million and $696 million at year-end 1994 and 1993. 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 a $2.7 million increase in cost
of goods sold in 1994, compared to decreases of $1.5 million in 1993 and $0.4
million in 1992. Liquidations of LIFO layers during the three years reported did
not have a significant effect on the results of operations.
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 $10.4 million in 1994, $10.6 million in 1993, and $12.7 million
in 1992.
Closed Store Expense
Upon the decision to close a store, the Company accrues estimated future losses,
if any, which may include lease payments or 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 was accrued using discount rates
of 6.5% in 1994 and 5% in 1993. The current portion of the self-insurance claim
liability ($77 million and $78 million at year-end 1994 and 1993) is included in
other accrued liabilities in the consolidated balance sheets. The noncurrent
portion of $186 million and $176 million at year-end 1994 and 1993 is included
in accrued claims and other liabilities. Claims payments were $75.3 million in
1994, $83.0 million in 1993 and $85.7 million in 1992. The total undiscounted
liability was $304 million and $289 million at year-end 1994 and 1993.
23
<PAGE> 15
Income Taxes
The Company provides a deferred tax expense or benefit equal to the change in
the deferred tax liability during the year in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
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.
Earnings per Common Share and Common Share Equivalent
Earnings 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 has entered 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
Generally accepted accounting principles require 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 below 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, these
fair values were estimated as of 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. At year-end 1994 and 1993, the
carrying value of long-term debt approximated fair value.
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. At year-end 1994, net unrealized gains on interest
rate swap agreements were $5.4 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.
Reclassifications
Certain amounts for prior years have been reclassified to conform to the 1994
presentation.
Accounting Changes
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 The Vons
Companies, Inc. ("Vons"), an unconsolidated affiliate of Safeway, adopted SFAS
No. 109, "Accounting for Income Taxes," and SFAS No. 106. The cumulative effect
of accounting changes recognized in Safeway's
24
<PAGE> 16
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.
B. FINANCING
Notes and debentures were composed of the following at year-end (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------
1994 1993
- --------------------------------------------------------------
<S> <C> <C>
Bank Credit Agreement, secured $ 135.0 $ 35.0
Working Capital Credit Agreement,
secured 196.8 340.3
9.30% Senior Secured Debentures
due 2007 70.7 100.0
10% Senior Notes due 2002,
unsecured 59.1 74.0
10% Senior Subordinated Notes
due 2001, secured 241.4 300.0
9.875% Senior Subordinated
Debentures due 2007, secured 110.0 150.0
9.65% Senior Subordinated
Debentures due 2004, secured 228.2 300.0
9.35% Senior Subordinated Notes
due 1999, secured 172.5 250.0
Mortgage notes payable, secured 478.0 567.3
Other notes payable, unsecured 222.4 313.9
Other bank borrowings, unsecured 87.9 45.8
---------------------
2,002.0 2,476.3
Less current maturities 152.5 188.6
---------------------
Long-term portion $1,849.5 $2,287.7
=====================
</TABLE>
Bank Credit Agreement and Working Capital Credit Agreement
In 1994, the Bank Credit Agreement and the Working Capital Credit Agreement
(together the "Bank Agreements") were amended to (i) permit the purchase of up
to $500 million of senior subordinated debt over the life of the Bank
Agreements, (ii) extend bank borrowing maturities one year to 1998, (iii)
voluntarily reduce bank borrowing capacity by $250 million, and (iv) reduce
commitment fees and borrowing costs on bank borrowings. At year-end 1994, the
Company had total borrowing capacity under the Bank Agreements of $1.15 billion,
of which $694.2 million was unused.
At year-end 1994, domestic borrowings under the Bank Agreements carried
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 0.50%, or (iv) rates quoted at the discretion of the
Banks. Canadian borrowings denominated in U.S. dollars under the Working Capital
Credit Agreement carried interest at one of the following rates selected by the
Company: (i) the Canadian base rate or (ii) the Canadian Eurodollar rate plus
0.50%. Canadian borrowings denominated in Canadian dollars carried interest at
(i) the Canadian Bankers' Acceptance rate plus 0.50% or (ii) the Canadian prime
rate. The Company paid an annual commitment fee of 0.20% on the unused portion
of borrowings available under the Bank Agreements.
The weighted average interest rate on borrowings under the Bank Credit
Agreement was 5.0% during 1994, 4.7% during 1993, and 5.3% during 1992. At
year-end 1994, the weighted average interest rate on borrowings under the Bank
Credit Agreement was 6.6%. The weighted average interest rate on borrowings
under the Working Capital Credit Agreement was 6.0% during 1994, 5.6% during
1993, and 7.4% during 1992. At year-end 1994, the weighted average interest rate
on borrowings under the Working Capital Credit Agreement was 6.8%. Amounts due
under the Working Capital Credit Agreement consist 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
30% of the Company's stores and approximately 70% of the Company's manufacturing
facilities.
Senior Secured Indebtedness
The 9.30% Senior Secured Debentures due 2007 are secured by a Deed of Trust
which created a lien on the land, buildings, and equipment owned by Safeway at
its distribution center in Tracy, California.
25
<PAGE> 17
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 $160
million of medium-term notes during 1993 and 1992. 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 Secured 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.
Redemptions
During 1994, Safeway retired $44.2 million of senior debt and $247.9 million of
senior subordinated debt. Safeway purchased the long-term debt primarily with
proceeds from floating rate bank borrowings. These redemptions will result in
estimated annual interest expense savings of approximately $8 million, subject
to fluctuations in short-term interest rates. During 1992, the Company redeemed
$700 million of high interest rate debt using cash from operations and proceeds
from issuing the Subordinated Securities. These redemptions resulted in
extraordinary losses of $10.5 million ($0.08 per share) in 1994 and $27.8
million ($0.23 per share) in 1992. The extraordinary losses represent the
payment of redemption premiums and the write-off of deferred finance costs, net
of the related tax benefits. Depending on market conditions, Safeway may
continue to purchase and retire long-term debt.
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) to retire or
repurchase any debt which is subordinate to the Bank Agreements, and (iii) to
acquire certain outstanding warrants or any 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 Secured 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 1994 are secured by properties with a net
book value of approximately $550 million, have remaining terms ranging from one
to 15 years, and have a weighted average interest rate of 10.0%.
Other Notes Payable
Other notes payable at year-end 1994 have remaining terms ranging from one to 17
years and a weighted average interest rate of 7.9%.
Annual Debt Maturities
As of year-end 1994, annual debt maturities were as follows (in millions):
<TABLE>
<S> <C>
1995 $ 152.5
1996 87.0
1997 159.0
1998 398.9
1999 218.0
Thereafter 986.6
--------
$2,002.0
========
</TABLE>
26
<PAGE> 18
Letters of Credit
The Company had letters of credit of $335.2 million outstanding at year-end 1994
of which $124.0 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 0.625% to 0.875% on the
outstanding portion of the letters of credit.
C. LEASE OBLIGATIONS
A majority of the premises that the Company occupies are leased. The Company had
approximately 1,080 leases at year-end 1994, including approximately 210 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 1994, 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>
1995 $ 40.9 $ 130.1
1996 39.0 127.3
1997 35.4 123.6
1998 32.1 119.8
1999 28.6 114.3
Thereafter 188.5 943.9
---------------------
Total minimum lease payments 364.5 $1,559.0
========
Less amounts representing interest 170.4
-------
Present value of net minimum
lease payments 194.1
Less current obligations 19.3
------
Long-term obligations $174.8
======
</TABLE>
Future minimum lease payments under non-cancelable capital and operating
lease agreements have not been reduced by minimum sublease rental income of
$139.3 million.
Amortization expense for property under capital leases was $20.6 million in
1994, $22.3 million in 1993 and $23.2 million in 1992. Accumulated amortization
of property under capital leases was $150.1 million and $148.1 million at
year-end 1994 and 1993.
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>
- ------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
Property leases:
Minimum rentals $126.4 $129.6 $130.9
Contingent rentals 9.8 10.3 10.3
Less rentals from subleases (13.7) (15.1) (11.1)
--------------------------
122.5 124.8 130.1
Equipment leases 20.9 24.0 26.7
--------------------------
$143.4 $148.8 $156.8
==========================
</TABLE>
D. INTEREST EXPENSE
Interest expense consisted of the following (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------
<S> <C> <C> <C>
Bank Agreements $ 20.5 $ 31.9 $ 51.5
9.30% Senior Secured
Debentures 8.0 9.3 8.2
10% Senior Notes 6.5 7.4 1.2
10% Senior Subordinated
Notes 26.6 30.0 30.0
9.875% Senior Subordinated
Debentures 12.1 14.8 11.4
9.65% Senior Subordinated
Debentures 24.5 29.0 27.3
9.35% Senior Subordinated
Notes 19.6 23.4 18.1
11.75% Senior Subordinated
Notes -- -- 9.7
12% Subordinated Debentures -- -- 9.1
Mortgage notes payable 50.2 58.6 63.9
Other notes payable 24.0 28.4 29.7
Other bank borrowings 3.0 0.9 1.6
Obligations under capital
leases 22.2 23.9 25.0
Amortization of deferred
finance costs 3.0 3.8 4.0
Interest rate swap and collar
agreements 4.4 8.3 7.7
Capitalized interest (2.9) (4.2) (8.0)
-------------------------
$221.7 $265.5 $290.4
=========================
</TABLE>
27
<PAGE> 19
As of year-end 1994, the Company had effectively converted $208.3 million of
its $475.9 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 1994 were as follows (dollars in millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
U.S. Fixed Canada Fixed Variable
Interest Interest Interest Rates
Notional Rates Rates to be Origination Expiration
Principal Paid Paid Received Date Date
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 50.0 5.1% 6.3% 1991 1995
10.0 5.8 6.4 1992 1997
6.0 5.4 6.9 1992 1995
35.6 8.7% 6.1 1991 1996
35.6 8.7 5.8 1992 1997
35.6 6.0 7.0 1993 1998
35.5 9.0 5.4 1993 1995
------
$208.3
======
</TABLE>
Variable interest rates received on U.S. swaps are based on LIBOR rates.
Variable interest rates received on Canadian swaps are based on the average of
Bankers' Acceptance rates quoted by Canadian banks.
The notional principal amounts do not represent cash flows and therefore are
not subject to credit risk. The Company is subject to 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 1994, net unrealized gains on the interest rate swap agreements
were $5.4 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.
E. CAPITAL STOCK
Shares Authorized and Issued
Authorized preferred stock consists of 10 million shares of which none was
outstanding during 1994, 1993, or 1992.
Authorized common stock consists of 300 million shares of $0.01 par value.
Common stock outstanding at year-end 1994 and 1993 was 104.8 million and 101.5
million shares. 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 equal to or greater than the fair market value at the date of
grant, as 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.
Activity in the stock option plans for the three-year period ended December
31, 1994 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Option
Options Price
- --------------------------------------------------------------
<S> <C> <C>
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
1994 Activity:
Granted 1,854,625 20.50-30.50
Canceled (577,084) 10.00-25.75
Exercised (2,164,649) 2.00-19.125
----------
Outstanding, year-end 1994 12,656,512 2.00-30.50
==========
Exercisable, year-end 1993 7,412,840 2.00-19.125
==========
Exercisable, year-end 1994 6,443,049 2.00-21.00
==========
</TABLE>
28
<PAGE> 20
Of the options exercisable at year-end 1994, 3,320,928 were exercisable at
$2.00 per share. There were 1,980,193 options available for grant at year-end
1994.
At year-end 1994, there were 4.1 million warrants to purchase common stock
outstanding, which represented 1.1 million shares of 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 1994, 4.1 million warrants representing 1.1 million shares of common
stock were exercised. During 1993, 3.8 million warrants representing 1.1 million
shares of common stock were exercised. 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 are held by SSI Equity Associates,
L.P., a limited partnership (the "SSI Partnership"), whose sole asset consists
of the SSI Warrants. 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. In January 1995, the Company acquired 31.8% of the limited
partnership interests in the SSI Partnership for $113 million with proceeds from
bank borrowings.
Outstanding common stock and the effect of options and warrants at year-end
1994, after giving effect to the January 1995 acquisition of the interests in
the SSI Partnership, are summarized as follows (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Potential Proceeds
Shares from Exercise
- ------------------------------------------------------------
<S> <C> <C>
Common stock outstanding 104.8
Options to purchase
common stock 12.7 $154.2
Warrants 1.1 4.3
SSI Warrants 9.5 19.0
------------------------
128.1 $177.5
========================
</TABLE>
F. TAXES ON INCOME
The components of income tax expense were as follows (in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------
1994 1993 1992
- -----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $112.6 $ 80.2 $34.2
State 23.1 10.7 7.6
Foreign 51.4 37.9 39.7
-------------------------
187.1 128.8 81.5
-------------------------
Deferred:
Federal (0.6) 20.3 23.9
State 1.9 6.2 3.0
Foreign (14.5) (62.3) (9.4)
-------------------------
(13.2) (35.8) 17.5
-------------------------
Total $173.9 $ 93.0 $99.0
=========================
</TABLE>
Extraordinary losses and the cumulative effect of accounting changes are
presented net of related tax benefits. Therefore, 1994 income tax expense
excludes a tax benefit of $6.7 million on an extraordinary loss. The 1992 tax
provision excludes tax benefits of $17.1 million on an extraordinary loss, and
$12.0 million on the cumulative effect of accounting changes. In 1994 and 1993,
tax benefits from the exercise of employee stock options of $15.6 million and
$9.6 million were credited directly to paid-in capital and, therefore, are
excluded from income tax expense.
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>
- ---------------------------------------------------------------
1994 1993 1992
- ---------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35% 35% 34%
Income tax expense using
federal statutory rate $148.4 $75.7 $67.1
State taxes on income less
federal benefit 16.3 11.0 7.0
Taxes provided on equity
earnings of affiliates at rates
below the statutory rate (6.9) (8.3) (3.2)
Taxes on foreign earnings
not permanently reinvested 6.6 8.3 10.0
Withholding tax on
Canadian earnings not
permanently reinvested 4.4 (2.1) 4.1
Nondeductible amortization 3.3 3.9 3.3
Difference between statutory
rate and foreign effective rate 2.2 (9.7) 5.8
Deferred tax adjustment due
to 1993 federal rate increase -- 3.4 --
Other accruals -- 9.2 3.9
Other (0.4) 1.6 1.0
------------------------
Income taxes $173.9 $93.0 $99.0
========================
</TABLE>
29
<PAGE> 21
Significant components of the Company's net deferred tax liability at
year-end were as follows (in millions):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Workers' compensation and
other claims $ 104.9 $ 100.4
Reserves not currently deductible 65.2 50.0
Accrued claims and other liabilities 40.4 54.9
Employee benefits 35.3 25.3
Canadian operating loss carryforward 51.5 42.8
Foreign tax credit carryforwards -- 118.8
Valuation allowance -- (118.8)
Other assets 3.2 22.3
------------------
300.5 295.7
------------------
Deferred tax liabilities:
Property (138.0) (163.9)
Prepaid pension costs (139.2) (135.0)
LIFO inventory reserves (51.2) (49.7)
Investments in unconsolidated
affiliates (34.6) (30.7)
Cumulative translation
adjustments (20.3) (27.0)
Other liabilities (45.5) (34.9)
------------------
(428.8) (441.2)
------------------
Net deferred tax liability $(128.3) $(145.5)
==================
</TABLE>
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 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 1994, 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 1994 and 1993, the Company
contributed $11.5 million and $1.2 million to the Canadian Plan. No
contributions were made to the Canadian Plan in 1992. 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>
- -----------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------
<S> <C> <C> <C>
Weighted average assumed
discount rate used to
determine the projected
benefit obligation:
U.S. Plan 8.0% 7.0% 8.5%
Canadian Plan 8.0 7.5 8.5
Combined weighted
average rate 8.0 7.1 8.5
Long-term rate of return
on plan assets:
U.S. Plan 9.0 9.0 9.0
Canadian Plan 8.0 9.0 9.0
Assumed rate of
compensation increase 5.5 5.5 6.0
</TABLE>
Net pension plan income (expense) consisted of the following (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Return on plan assets:
Actual return, (loss) gain $ (26.9) $ 198.9 $ 41.2
Deferred loss (gain) 123.6 (114.4) 44.0
---------------------------------
Actuarial assumed return 96.7 84.5 85.2
Service cost (41.2) (36.8) (32.6)
Interest cost on projected
benefit obligations (44.9) (45.9) (44.7)
Net amortization (9.2) (2.2) (3.3)
---------------------------------
Net pension plan income
(expense) recognized in
consolidated statements
of income $ 1.4 $ (0.4) $ 4.6
=================================
</TABLE>
30
<PAGE> 22
The funded status of the Plans at year-end was as follows (in millions):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------
<S> <C> <C>
Fair value of assets at year-end $1,040.3 $1,139.4
---------------------
Actuarially determined present value of:
Vested benefit obligations 545.1 612.4
Nonvested benefit obligations 7.8 9.0
---------------------
Accumulated benefit obligations 552.9 621.4
Additional amounts related to
projected compensation increases 84.3 100.0
---------------------
Projected benefit obligations 637.2 721.4
---------------------
Fair value of assets in excess of
projected benefit obligations 403.1 418.0
Adjustment for difference in book and
tax basis of assets (165.1) (167.1)
Unamortized prior service costs
resulting from improved Plan benefits 71.0 61.8
Net loss (gain) from actuarial experience
which has not been recognized in the
consolidated financial statements 10.6 (5.6)
---------------------
Prepaid pension costs $ 319.6 $ 307.1
=====================
</TABLE>
Multi-Employer Pension Plans
Safeway 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 in both 1994
and 1993, and $100 million in 1992 were made and charged to income.
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 an 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.
Retirement Restoration Plan
The Retirement Restoration Plan (the successor to the Senior Executive
Supplemental Benefit Plan) provides death benefits and supplemental income
payments after retirement for senior executives. The Company recognized expense
of $1.7 million in 1994, $7.8 million in 1993, and $6.4 million in 1992. The
aggregate projected benefit obligation of the Retirement Restoration Plan was
approximately $38.4 million at year-end 1994 and $45.4 million at year-end 1993.
Postretirement Benefits Other Than Pensions
In addition to pension and the Retirement Restoration Plan 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 1994 and 1993, the Company's accumulated postretirement benefit
obligation ("APBO") was $25.5 million and $26.9 million. The APBO represents the
actuarial present value of benefits expected to be paid after retirement.
Postretirement expense was $2.9 million in 1994 and $2.8 million in both 1993
and 1992.
31
<PAGE> 23
The significant assumptions used to determine the periodic postretirement
benefit expense and the APBO were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------
1994 1993
- -----------------------------------------------------
<S> <C> <C>
Discount rate 8.0% 7.0%
Rate of salary increase 5.5 5.5
</TABLE>
A 13% 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 1994 would increase $1.0 million, and the net periodic postretirement
benefit expense for 1994 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.
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 27, 1995, approximately 125,000 claims for
personal injury and property damage arising from the fire had been settled for
an aggregate amount of approximately $119 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 27, 1995, there were still pending approximately 2,600 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. Although 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 for amounts and on terms
comparable to those settled to date. The Company's excess insurance carrier
asserted that its liability policy does not cover third-party claims against the
Company arising from the fire because of the policy's pollution exclusion and
notice provisions in the exclusion. In 1994, a panel of arbitrators in London
rendered a decision in Safeway's favor, ruling that Safeway is entitled to be
indemnified by the carrier under the policy. Safeway believes that coverage
under the policy will be sufficient and available for resolution of all
remaining third-party claims arising out of the fire.
In February 1988, the Company sold its Kansas City Division to a company
formed by Morgan, Lewis, Githen & Ahn Fund I and financed principally by the
Prudential Insurance Company of America. In January 1993, the buyer (Food Barn
Stores, Inc.) filed a voluntary petition under Chapter 11 of the U. S.
Bankruptcy Code, and the plan of reorganization was confirmed in July 1994. In
January 1995, Food Barn filed suit against the Company and others in the U. S.
Bankruptcy Court for the Western District of Missouri. In its complaint, Food
Barn alleges that (i) the 1988 transaction was a fraudulent conveyance under New
York law and (ii) the Company defrauded Food Barn and fraudulently induced it to
enter into the February 1988 transaction. Food Barn seeks compensatory damages
estimated to approximate $216 million plus interest, and $100 million in
punitive damages. Safeway believes that it has numerous meritorious defenses,
and intends to defend itself vigorously, in this case.
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.
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 $25 million at year-end 1994.
32
<PAGE> 24
I. INVESTMENTS IN AFFILIATES
Investments in affiliates consists of a 35% interest in Vons, which operates 336
grocery stores located mostly in southern California, and a 49% interest in Casa
Ley, which operates 70 stores in western Mexico.
At year-end 1994, the Company owned 15.1 million common shares, or 35% of
total Vons shares outstanding. The Company's recorded investment in Vons was
$236.9 million (including goodwill of $46.9 million) at year-end 1994 and $225.3
million (including goodwill of $48.3 million) at year-end 1993. Goodwill is
being amortized over 40 years. At year-end 1994, the aggregate market value
quoted on the New York Stock Exchange of Safeway's shares of Vons stock was
$272.3 million.
Summarized financial information derived from Vons' financial reports to the
Securities and Exchange Commission was as follows (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------
OCTOBER 9, October 10,
Financial Position 1994 1993
- --------------------------------------------------------
<S> <C> <C>
Current assets $ 445.5 $ 477.6
Property and equipment, net 1,224.1 1,149.1
Other assets 557.8 561.3
-----------------------
Total assets $2,227.4 $2,188.0
=======================
Current liabilities $ 535.3 $ 496.6
Long-term obligations 1,148.7 1,185.4
Shareholders' equity 543.4 506.0
-----------------------
Total liabilities and
shareholders' equity $2,227.4 $2,188.0
=======================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
52 WEEKS ENDED 53 Weeks Ended 52 Weeks Ended
OCTOBER 9, October 10, October 4,
Results of Operations 1994 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 4,990.9 $ 5,263.6 $ 5,475.5
Cost of sales and
other expenses (4,954.5) (5,221.9) (5,402.4)
----------------------------------------------
Income before
extraordinary item
and effect of
accounting changes 36.4 41.7 73.1
Extraordinary item -- (1.5) (16.1)
----------------------------------------------
Income before
effect of accounting
changes $ 36.4 $ 40.2 $ 57.0
==============================================
</TABLE>
Safeway's equity in Vons' income before the effect of accounting changes was
$11.6 million in 1994, $12.9 million in 1993, and $18.6 million in 1992. The
Company records its equity in Vons' net income on a one-quarter delay basis. In
addition to lower operating income, Vons reported restructuring charges which
decreased Safeway's equity in Vons' earnings by $3.9 million in 1994 and $11.7
million in 1993. According to Vons, these restructuring charges included
anticipated expenses associated with a program to close under-performing stores
and reduce work force.
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).
Income from Safeway's equity investment in Casa Ley fell to $15.7 million
in 1994 from $20.6 million in 1993 and $20.5 million in 1992 due to changes in
the competitive environment in Mexico.
Casa Ley had total assets of $448.4 million and $365.5 million as of
September 30, 1994 and 1993 based on financial information provided by Casa Ley.
Sales were $1,052.4 million and net income was $32.0 million for the 12 months
ended September 30, 1994. Sales were $925.8 million and net income was $39.5
million for the 12 months ended September 30, 1993. Sales were $752.7 million
and net income was $33.8 million for the 12 months ended September 30, 1992.
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 $980,000 in 1994, $907,000 in 1993 and $826,000
in 1992.
33
<PAGE> 25
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 which are
no longer used in the retail grocery business. The financial statements of PDA
are consolidated with those of the Company, and a minority interest of $23.0
million and $19.3 million at year-end 1994 and 1993 is included in accrued
claims and other liabilities in the accompanying consolidated balance sheet.
During 1994, the Company contributed to PDA nine properties no longer used in
its retail grocery business which had an aggregate net book value of $9.7
million. In 1993, the Company contributed seven such properties having a net
book value of $2.5 million to PDA. No gains or losses were recognized on these
transactions. The minority partner contributed cash in an amount sufficient to
maintain its 20% ownership. Safeway paid PDA $1.1 million in 1994, $2.0 million
in 1993 and $1.5 million in 1992 for reimbursement of expenses related to
management and real estate services provided by PDA.
During 1994, Safeway began selling products to Vons for resale under their
private label. Sales to Vons in 1994 were $19.5 million, and cost of sales was
$18.5 million.
K. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(In millions) United States Canada Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994:
SALES $12,240.1 $3,386.5 $15,626.6
GROSS PROFIT 3,409.7 840.3 4,250.0
OPERATING PROFIT 490.9 121.2 612.1
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 337.7 86.4 424.1
NET WORKING CAPITAL (DEFICIT) (372.5) (13.5) (386.0)
TOTAL ASSETS 4,171.3 850.8 5,022.1
NET ASSETS 386.6 257.2 643.8
1993:
Sales $11,756.0 $3,458.5 $15,214.5
Gross profit 3,269.0 814.4 4,083.4
Operating profit 436.3 5.2 441.5
Income (loss) before income taxes 252.3 (36.0) 216.3
Net working capital (deficit) (276.3) 66.5 (209.8)
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 3,164.6 941.8 4,106.4
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) (67.2) 126.9 59.7
Total assets 4,177.5 1,048.3 5,225.8
Net assets 12.8 230.3 243.1
</TABLE>
34
<PAGE> 26
L. QUARTERLY INFORMATION (UNAUDITED)
The summarized quarterly financial data presented below reflect all adjustments
which, in the opinion of management, are of a normal and recurring nature
necessary to present fairly the results of operations for the periods presented.
In 1994, Safeway began classifying advertising expenses as cost of goods sold.
Advertising expenses were previously included in operating and administrative
expenses. All prior periods have been reclassified to conform to the 1994
presentation.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
(In millions, except per-share amounts) Last Third Second First
Year 16 Weeks 12 Weeks 12 Weeks 12 Weeks
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
SALES $15,626.6 $4,890.3 $3,631.8 $3,612.7 $3,491.8
GROSS PROFIT 4,250.0 1,335.2(1) 991.1 983.2 940.5
OPERATING PROFIT 612.1 199.5 148.5 146.7 117.4
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 424.1 140.4 106.8 103.4 73.5
EXTRAORDINARY LOSS RELATED TO EARLY
RETIREMENT OF DEBT (10.5) (0.4) (2.7) (7.4) --
NET INCOME 239.7 85.3 61.0 51.5 41.9
INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENT:
PRIMARY
INCOME BEFORE EXTRAORDINARY LOSS $ 2.05 $ 0.69 $ 0.52 $ 0.48 $ 0.34
EXTRAORDINARY LOSS (0.09) -- (0.02) (0.06) --
---------------------------------------------------------------------
NET INCOME $ 1.96 $ 0.69 $ 0.50 $ 0.42 $ 0.34
=====================================================================
FULLY DILUTED
INCOME BEFORE EXTRAORDINARY LOSS $ 2.02 $ 0.69 $ 0.52 $ 0.48 $ 0.34
EXTRAORDINARY LOSS (0.08) -- (0.02) (0.06) --
---------------------------------------------------------------------
NET INCOME $ 1.94 $ 0.69 $ 0.50 $ 0.42 $ 0.34
=====================================================================
PRICE RANGE, NEW YORK STOCK EXCHANGE $ 19-1/2 $ 26-5/8 $ 23-3/8 $ 21-7/8 $ 19-1/2
to 31-7/8 to 31-7/8 to 27-7/8 to 26-1/4 to 26-7/8
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(In millions, except per-share amounts) Last Third Second First
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 4,083.4 1,263.2(1) 957.0 949.6 913.6
Operating profit 441.5 161.3 121.1 116.8(2) 42.3(2)
Income (loss) before income taxes 216.3 82.2 74.0 63.2 (3.1)
Net income (loss) 123.3 46.9(3) 42.1 36.0(2) (1.7)(2)
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>
Note 1. 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 $4.2 million in 1994 and $9.2 million in 1993.
Note 2. Severance paid for a voluntary employee buyout in Alberta, Canada
reduced operating profit and net income by $50.0 million and $27.5 million for
the first quarter of 1993 and by $4.9 million and $2.7 million for the second
quarter of 1993.
Note 3. Restructuring charges recorded by Vons reduced Safeway's net income in
the fourth quarter of 1993 by $8.7 million.
35
<PAGE> 27
COMPUTATION OF EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT (UNAUDITED)
Safeway Inc. and Subsidiaries
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------- ------------------ -------------------
(In millions, except per-share amounts) FULLY Fully Fully
DILUTED PRIMARY Diluted Primary Diluted Primary
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary loss and
cumulative effect of accounting changes $ 250.2 $ 250.2 $ 123.3 $ 123.3 $ 98.4 $ 98.4
Extraordinary loss (10.5) (10.5) -- -- (27.8) (27.8)
Cumulative effect of accounting changes -- -- -- -- (27.1) (27.1)
-------------------------------------------------------------------
Net income $ 239.7 $ 239.7 $ 123.3 $ 123.3 $ 43.5 $ 43.5
===================================================================
Weighted average common shares outstanding 104.9 102.9 101.5 99.6 98.8 98.6
Common share equivalents 18.7 19.1 21.9 21.4 20.2 20.4
Weighted average common shares and -------------------------------------------------------------------
common share equivalents 123.6 122.0 123.4 121.0 119.0 119.0
===================================================================
Earnings per common share and common
share equivalent:
Income before extraordinary loss
and cumulative effect of accounting
changes $ 2.02 $ 2.05 $ 1.00 $ 1.02 $ 0.83 $ 0.83
Extraordinary loss (0.08) (0.09) -- -- (0.23) (0.23)
Cumulative effect of accounting changes -- -- -- -- (0.23) (0.23)
-------------------------------------------------------------------
Net income $ 1.94 $ 1.96 $ 1.00 $ 1.02 $ 0.37 $ 0.37
===================================================================
Calculation of common share equivalents:
Options and warrants to purchase
common shares 26.9 28.2 29.4 30.2 28.0 28.2
Common shares assumed purchased with
potential proceeds (8.2) (9.1) (7.5) (8.8) (7.8) (7.8)
-------------------------------------------------------------------
Common share equivalents 18.7 19.1 21.9 21.4 20.2 20.4
===================================================================
Calculation of common shares assumed
purchased with potential proceeds:
Potential proceeds from exercise of
options and warrants to purchase
common shares $ 262.9 $ 237.5 $ 157.2 $ 146.5 $ 110.6 $ 111.5
Common stock price used under the
treasury stock method $ 31.88 $ 25.96 $ 21.25 $ 16.60 $ 14.26 $ 14.26
Common shares assumed purchased
with potential proceeds 8.2 9.1 7.5 8.8 7.8 7.8
</TABLE>
36
<PAGE> 28
MANAGEMENT'S REPORT
Financial Statements. Safeway Inc. is responsible for the preparation,
integrity and fair presentation of its published financial statements. The
accompanying consolidated financial statements have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
that are based on judgments and estimates made by management. Safeway also
prepared the other information included in this annual report and is responsible
for its accuracy and consistency with the financial statements.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors, which was given unrestricted access to all financial
records and related data, including minutes of all meetings of stockholders, the
Board of Directors, and committees of the Board. Safeway believes that all
representations made to the independent auditors during their audit were valid
and appropriate. The report of Deloitte & Touche LLP is presented below.
Internal Control System. Safeway maintains a system of internal control over
financial reporting, which is designed to provide reasonable assurance to
management and the Board of Directors regarding the preparation of reliable
published financial statements. The system includes a documented organizational
structure and division of responsibility, established policies and procedures
including a code of conduct to foster a strong ethical climate, which are
communicated throughout Safeway, and the careful selection, training and
development of employees. Internal auditors monitor the operation of the
internal control system and report findings and recommendations to management
and the Board, and corrective actions are taken to address control deficiencies
and other opportunities for improving the system as they are identified. The
Board, operating through its Audit Committee, which is composed entirely of
outside directors, provides oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of circumvention or overriding of
controls. Accordingly, even an effective internal control system can provide
only reasonable assurance with respect to financial statement preparation.
Furthermore, the effectiveness of an internal control system can change with
circumstances. As of December 31, 1994, Safeway believes its system of internal
controls over financial reporting was effective for providing reliable financial
statements.
/s/ Steven A. Burd /s/ Julian C. Day
- ---------------------- --------------------
Steven A. Burd Julian C. Day
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
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 December 31, 1994 and January 1, 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 December 31, 1994 and January 1, 1994, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
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 LLP
- ----------------------------
Oakland, California
February 20, 1995
<PAGE> 29
APPENDIX TO EXHIBIT 13.1
GRAPHIC PRESENTATION OF MATERIAL
The following graphs in the Company's 1994 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
"1994 Portions of the Sales Dollar" depicting the following :
Cost of Goods Sold 72.8%
Operating and Administrative Expenses 23.3%
Operating Profit 3.9%
This graph accompanies the subsection entitled "Gross Profit."
On page 13 under the section "Financial Review" is a bar graph entitled
"Operating & Administrative Expenses (% of Sales) which shows operating
and administrative expenses as a percentage of sales as follows:
1992 24.19%
1993 23.94%
1994 23.28%
The graph has an initial value of 20% and accompanies the subsection
entitled "Operating and Administrative Expenses."
On page 14 under the section "Financial Review" is a bar graph entitled
"Interest Expense" which shows interest expense (in millions) as
follows:
1992 $290.4
1993 265.5
1994 221.7
The graph has an initial value of zero, and accompanies the subsection
entitled "Interest Expense"
<PAGE> 1
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
As of December 31, 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.
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
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
As of December 31, 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
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
As of December 31, 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 report dated February 20,
1995, incorporated by reference in this Annual Report on Form 10-K of Safeway
Inc. for the fiscal year ended December 31, 1994, in the following Registration
Statements of Safeway Inc.:
o No. 33-33388 on Form S-3 regarding Warrants to Purchase Common Stock,
o No. 33-36753 on Form S-8 regarding the Safeway Inc. Outside Director Equity
Purchase Plan,
o No. 33-37207 on Form S-8 regarding the Profit Sharing Plan of Safeway Inc.
and its United States Subsidiaries,
o No. 33-42232 on Forms S-3 and S-8 regarding the Amended and Restated Stock
Option and Incentive Plan for Key Employees of Safeway Inc.,
o No. 33-48884 on Form S-8 regarding the Amended and Restated Stock Option
and Incentive Plan for Key Employees of Safeway Inc.,
o No. 33-51552 on Form S-3 regarding Debt Securities,
o No. 33-51119 on Form S-8 regarding the Stock Option Plan for Consultants of
Safeway Inc., and
o No. 33-54581 on Form S-8 regarding the Employee Stock Purchase Plan of
Safeway Inc.
Deloitte & Touche LLP
Oakland, California
March 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 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 1994 ANNUAL REPORT TO STOCKHOLDERS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-2-1994
<PERIOD-END> DEC-31-1994
<CASH> 60,700
<SECURITIES> 0
<RECEIVABLES> 147,900
<ALLOWANCES> 0
<INVENTORY> 1,136,000
<CURRENT-ASSETS> 1,437,600
<PP&E> 4,375,300
<DEPRECIATION> (1,868,900)
<TOTAL-ASSETS> 5,022,100
<CURRENT-LIABILITIES> 1,823,600
<BONDS> 2,024,300
<COMMON> 1,000
0
0
<OTHER-SE> 642,800
<TOTAL-LIABILITY-AND-EQUITY> 5,022,100
<SALES> 15,626,600
<TOTAL-REVENUES> 15,626,600
<CGS> (11,376,600)
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (221,700)
<INCOME-PRETAX> 424,100
<INCOME-TAX> (173,900)
<INCOME-CONTINUING> 250,200
<DISCONTINUED> 0
<EXTRAORDINARY> (10,500)
<CHANGES> 0
<NET-INCOME> 239,700
<EPS-PRIMARY> 1.96
<EPS-DILUTED> 1.94
</TABLE>
