<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 15, 1996
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)
5918 Stoneridge Mall Road
Pleasanton, California 94588-3229
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 467-3000
</TABLE>
Fourth and Jackson Streets
Oakland, California 94660
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO .
As of July 19, 1996, there were issued and outstanding 218.1 million shares of
the registrant's common stock.
<PAGE> 2
SAFEWAY INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION (UNAUDITED) Page
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 15, 1996 and December 3
30, 1995
Condensed Consolidated Statements of Income for the 12 and 24 weeks 5
ended June 15, 1996 and June 17, 1995
Condensed Consolidated Statements of Cash Flows for the 12 and 24 weeks 6
ended June 15, 1996 and June 17, 1995
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 10
OF OPERATIONS
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 6. EXHIBITS 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 15, December 30,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
- ----------------
Current assets:
Cash and equivalents $ 18.7 $ 74.8
Receivables 178.0 152.7
Merchandise inventories 1,095.3 1,191.8
Prepaid expenses and other current assets 165.7 95.5
------------- -------------
Total current assets 1,457.7 1,514.8
------------- -------------
Property 4,785.9 4,687.2
Less accumulated depreciation and amortization (2,207.8) (2,094.3)
------------- -------------
Property, net 2,578.1 2,592.9
Goodwill, net of accumulated amortization
of $110.9 and $106.3 318.2 323.8
Prepaid pension costs 329.0 322.4
Investments in unconsolidated affiliates 357.2 336.0
Other assets 120.1 104.4
------------- -------------
Total assets $ 5,160.3 $ 5,194.3
------------- -------------
</TABLE>
(Continued)
3
<PAGE> 4
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 15, December 30,
1996 1995
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------
Current liabilities:
Current maturities of notes
and debentures $ 186.7 $ 221.4
Current obligations under capital leases 19.0 19.0
Accounts payable 910.0 1,040.0
Accrued salaries and wages 212.3 234.6
Other accrued liabilities 546.7 424.0
------------- -------------
Total current liabilities 1,874.7 1,939.0
------------- -------------
Long-term debt:
Notes and debentures 1,591.8 1,783.6
Obligations under capital leases 163.2 166.2
------------- -------------
Total long-term debt 1,755.0 1,949.8
Deferred income taxes 108.1 108.5
Accrued claims and other liabilities 406.7 401.5
------------- -------------
Total liabilities 4,144.5 4,398.8
------------- -------------
Contingencies
Stockholders' equity:
Common stock: par value $0.01 per share;
750 shares authorized; 217.7 and 213.7
shares outstanding 2.2 2.1
Additional paid-in capital 704.0 684.9
Unexercised warrants purchased (196.2) (196.2)
Cumulative translation adjustments 18.3 20.3
Retained earnings 487.5 284.4
------------- -------------
Total stockholders' equity 1,015.8 795.5
------------- -------------
Total liabilities and stockholders' equity $ 5,160.3 $ 5,194.3
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------------------------------------------------
June 15, June 17, June 15, June 17,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 3,945.4 $ 3,753.4 $ 7,828.1 $ 7,385.7
Cost of goods sold (2,843.3) (2,736.6) (5,633.5) (5,365.5)
--------- --------- --------- ---------
Gross profit 1,102.1 1,016.8 2,194.6 2,020.2
Operating and administrative expense (892.0) (851.7) (1,790.4) (1,701.1)
--------- --------- --------- ---------
Operating profit 210.1 165.1 404.2 319.1
Interest expense (42.2) (49.2) (86.5) (96.7)
Equity in earnings of unconsolidated affiliates 10.0 5.0 21.2 7.8
Other income, net 1.3 0.6 2.4 1.1
--------- --------- --------- ---------
Income before income taxes 179.2 121.5 341.3 231.3
Income taxes (72.5) (52.8) (138.2) (100.6)
--------- --------- --------- ---------
Net income $ 106.7 $ 68.7 $ 203.1 $ 130.7
========= ========= ========= =========
Primary and fully diluted earnings per common
share and common share equivalent $ 0.44 $ 0.29 $ 0.85 $ 0.54
========= ========= ========= =========
Weighted average common shares and common
share equivalents:
Primary 239.8 240.4 239.1 241.2
========= ========= ========= =========
Fully diluted 239.9 240.6 239.5 241.9
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
24 Weeks Ended
------------------------------------
June 15, June 17,
1996 1995
--------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATIONS
Net income $ 203.1 $ 130.7
Reconciliation to net cash flow from operations:
Depreciation and amortization 153.8 150.9
LIFO expense 4.6 4.6
Equity in undistributed earnings of unconsolidated affiliates (21.2) (7.8)
Other 4.6 28.8
Changes in working capital items:
Receivables and prepaid expenses (95.8) (26.5)
Inventories at FIFO cost 89.4 48.5
Payables and accruals (15.9) (86.9)
--------------- ----------------
Net cash flow from operations 322.6 242.3
--------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for property additions (164.9) (163.1)
Proceeds from sale of property 17.9 12.7
Other (1.9) (4.4)
--------------- ----------------
Net cash flow used by investing activities (148.9) (154.8)
--------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES
Additions to short-term borrowings 92.0 92.2
Payments on short-term borrowings (142.7) (37.7)
Additions to long-term borrowings 129.6 502.3
Payments on long-term borrowings (313.2) (568.5)
Net proceeds from exercise of warrants and stock options 7.8 5.5
Purchase of unexercised warrants - (113.2)
Other (3.3) (0.6)
--------------- ----------------
Net cash flow used by financing activities (229.8) (120.0)
--------------- ----------------
Decrease in cash and equivalents (56.1) (32.5)
CASH AND EQUIVALENTS
Beginning of period 74.8 60.7
--------------- ----------------
End of period $ 18.7 $ 28.2
--------------- ----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Safeway Inc. and
subsidiaries ("Safeway" or the "Company") for the 12 and 24 weeks ended June 15,
1996 and June 17, 1995 are unaudited and, in the opinion of management, contain
all adjustments that are of a normal and recurring nature necessary to present
fairly the financial position and results of operations for such periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's 1995 Annual Report to Stockholders. The results of operations for the
12 and 24 weeks ended June 15, 1996 and June 17, 1995 are not necessarily
indicative of the results expected for the full year.
INVENTORY
Net income reflects the application of the LIFO method of valuing certain
domestic inventories, based upon estimated annual inflation ("LIFO Indices").
LIFO expense was $2.3 million in the second quarters of both 1996 and 1995 and
was $4.6 million for the first 24 weeks of both 1996 and 1995. Actual LIFO
Indices are calculated during the fourth quarter of the year based upon a
statistical sampling of inventories.
NOTE B - FINANCING
Notes and debentures were composed of the following at June 15, 1996 and
December 30, 1995 (in millions):
<TABLE>
<CAPTION>
June 15, 1996 December 30, 1995
----------------------- ------------------------
Long-term Current Long-term Current
<S> <C> <C> <C> <C>
Credit Agreement, unsecured $ 283.8 $ 395.0
9.30% Senior Secured Debentures due 2007 70.7 70.7
Mortgage notes payable, secured 255.7 $ 97.1 322.3 $ 67.0
10% Senior Notes due 2002, unsecured 59.1 - 59.1 -
Medium-term notes, unsecured 65.5 - 65.5 14.5
Other notes payable, unsecured 115.9 4.1 118.9 3.8
Short-term bank borrowings, unsecured - 85.5 - 136.1
9.35% Senior Subordinated Notes due 1999, unsecured 161.5 - 172.5 -
10% Senior Subordinated Notes due 2001, unsecured 241.4 - 241.4 -
9.65% Senior Subordinated Debentures due 2004,
unsecured 228.2 - 228.2 -
9.875% Senior Subordinated Debentures due 2007,
unsecured 110.0 - 110.0 -
--------- ------ --------- ------
$1,591.8 $186.7 $1,783.6 $221.4
======= ===== ======= =====
</TABLE>
Note B to the Company's consolidated financial statements on pages 27 through 29
of the 1995 Annual Report to Stockholders describes all of the material
restrictive covenants of the Credit Agreement, the 9.30% Senior Secured
Debentures, and the Subordinated Securities.
7
<PAGE> 8
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - INVESTMENTS IN AFFILIATES
Investments in affiliates consists of a 35% interest in The Vons Companies, Inc.
("Vons") which operates 325 supermarkets located mostly in southern California,
and a 49% interest in Casa Ley, S.A. de C.V. which operates 71 stores in western
Mexico. Safeway records income from its equity investments on a one-quarter
delay basis.
Safeway's share of Casa Ley's earnings increased to $4.1 million and $8.1
million for the 12 and 24 weeks ended June 15, 1996, compared to $0.4 million
for both of the comparable periods in 1995. For much of 1995, Mexico suffered
from high interest rates and inflation which adversely affected Casa Ley.
Interest rates and inflation have since moderated and Casa Ley's financial
results have gradually improved.
Safeway's recorded investment in Vons at June 15, 1996 was $268.3 million,
including unamortized goodwill of $45.0 million that is being amortized over a
40-year life. Safeway's share of Vons' earnings increased to $5.9 million in the
second quarter of 1996 from $4.6 million in 1995, and to $13.1 million in the
first 24 weeks of 1996 from $7.4 million in 1995.
Based on the June 14, 1996 closing price for Vons common stock as quoted on the
New York Stock Exchange, the Company's 15.1 million shares of Vons common stock
had an aggregate market value of $571.0 million.
Summarized financial information derived from Vons' financial reports to the
Securities and Exchange Commission is as follows (in millions):
<TABLE>
<CAPTION>
March 24, December 31,
FINANCIAL POSITION 1996 1995
- ------------------ ---- ----
<S> <C> <C>
Current assets $ 445.5 $ 452.3
Property and equipment, net 1,195.4 1,192.5
Other assets 538.1 541.7
-------- --------
Total assets $2,179.0 $2,186.5
======= =======
Current liabilities $ 613.6 $ 593.4
Long-term liabilities 921.7 969.8
Shareholders' equity 643.7 623.3
-------- --------
Total liabilities and shareholders' equity $2,179.0 $2,186.5
======= =======
</TABLE>
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
----------------------------- --------------------------------
March 24, March 26, March 24, March 26,
RESULTS OF OPERATIONS 1996 1995 1996 1995
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 1,205.6 $ 1,142.5 $ 2,429.0 $ 2,318.7
Cost of sales and other expenses (1,188.1) (1,128.5) (2,390.4) (2,295.6)
-------- -------- -------- --------
Net income $ 17.5 $ 14.0 $ 38.6 $ 23.1
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - CONTINGENCIES
LEGAL MATTERS
Note J to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 35 and 36 of the 1995 Annual Report to Stockholders,
provides information on certain claims and litigation in which the Company is
involved.
On March 8, 1996, a purported class action was filed on behalf of persons
allegedly injured as a result of the July 1988 fire at the Company's dry grocery
warehouse in Richmond, California. The complaint generally alleges that the
Company fraudulently (i) obtained settlements of certain claims arising out of
the fire and (ii) made statements that induced claimants not to file actions
within the time period allowed under the statute of limitations. The complaint
seeks compensatory and punitive damages.
The Company has received notice from its insurance carrier that, pending
completion of its investigation of its defenses relating to Safeway's insurance
policy and the purported class action, the insurance carrier has reached a
preliminary view that there may be no coverage under the policy for this action.
Safeway disagrees with the insurance carrier's preliminary view and continues to
believe that its coverage will be sufficient and available for resolution of all
remaining third-party claims arising out of the fire.
9
<PAGE> 10
SAFEWAY INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Safeway's net income for the second quarter ended June 15, 1996 was $106.7
million ($0.44 per share) compared to $68.7 million ($0.29 per share) for the
second quarter of 1995. For the first 24 weeks of the year, net income was
$203.1 million ($0.85 per share) in 1996, compared to $130.7 million ($0.54 per
share) in 1995. The second quarter of both years was affected by the labor
disputes discussed below.
During the second quarter of 1996, Safeway was engaged in a labor dispute
affecting 86 stores in British Columbia which lasted the final 16 days of the
second quarter and the first 24 days of the third quarter of 1996. Under
Provincial law, replacement workers could not be hired, and therefore all the
affected stores were closed throughout the strike-lockout. Separately, the
Company was engaged in a strike-lockout in the Denver operating area which
lasted the final 33 days of the second quarter and the first 11 days of the
third quarter of 1996. All of the Denver stores operated during the
strike-lockout, largely with replacement workers. Safeway estimates that the
combined impact of both disputes reduced second-quarter 1996 earnings by
approximately $0.05 per share. The Company has not yet determined the impact on
third-quarter earnings. However, because of the lingering effects of the strike,
the estimated impact is expected to be greater in the third quarter of 1996 than
the second quarter.
A nine-day strike during the second quarter of 1995 affected 208 stores in
northern California, reducing earnings by an estimated $0.025 per share.
Sales were $3.9 billion for the second quarter of 1996 compared to $3.8 billion
in 1995. For the first 24 weeks of the year, sales increased to $7.8 billion in
1996 compared to $7.4 billion in 1995. Same-store sales (sales of stores
operating the entire measurement period in both 1996 and 1995, including stores
that remained open during strikes or lockouts) increased 5.8% for the quarter
and 5.6% for the first 24 weeks of 1996. These same-store sales increases
exclude the Company's stores in British Columbia which were closed during the
strike-lockout.
Gross profit for the second quarter of 1996 increased 0.84 percentage points to
27.93% of sales from 27.09% in 1995, due to both the favorable comparison
created by the 1995 strike in northern California, and improved buying practices
and product mix. The strike-lockouts which occurred during the second quarter of
1996 did not have a significant effect on the gross profit margin due to the
Company's ability to better manage inventory which prevented loss of
perishables. For the first two quarters of the year, gross profit rose to 28.03%
of sales in 1996 from 27.35% in 1995.
Operating and administrative expense fell to 22.61% of sales from 22.69% for the
quarter, and to 22.87% from 23.03% for the first 24 weeks of the year. Higher
sales and efforts to reduce or control expenses continue to improve operating
and administrative expense as a percentage of sales.
Due to lower interest rates and reduced debt levels, interest expense fell to
$42.2 million in the second quarter of 1996 from $49.2 million in 1995, and to
$86.5 million for the first 24 weeks of 1996 from $96.7 million in 1995.
Equity in earnings of unconsolidated affiliates, recorded on a one-quarter delay
basis, was $10.0 million in the second quarter of 1996, up from $5.0 million in
1995. For the first two quarters of the year, equity in earnings from
unconsolidated affiliates rose to $21.2 million in 1996 from $7.8 million in
1995. Safeway's share of Casa Ley's earnings increased to $4.1 million and $8.1
million for the 12 and 24 weeks ended June 15, 1996, compared to $0.4 million
for both of the comparable periods in 1995. For much of 1995, Mexico suffered
from high interest rates and inflation which adversely affected Casa Ley.
Interest rates and inflation have since moderated and Casa Ley's financial
results have gradually improved. Safeway's share of Vons' earnings increased to
$5.9 million in the second quarter of 1996 from $4.6 million in 1995, and to
$13.1 million in the first 24 weeks of 1996 from $7.4 million in 1995.
10
<PAGE> 11
SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
Operating cash flow, as presented below, provides a measure of the Company's
ability to generate cash to pay interest and fixed charges, and facilitates the
comparison of Safeway's results of operations with those of companies having
different capital structures. Safeway's computation of operating cash flow is as
follows (dollars in millions):
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
------------------------ -----------------------
June 15, June 17, June 15, June 17,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before income taxes $179.2 $121.5 $341.3 $231.3
LIFO expense 2.3 2.3 4.6 4.6
Interest expense 42.2 49.2 86.5 96.7
Depreciation and amortization 78.2 76.4 153.8 150.9
Equity in earnings of unconsolidated affiliates (10.0) (5.0) (21.2) (7.8)
------ ------ ------ -------
Operating cash flow $291.9 $244.4 $565.0 $475.7
===== ===== ===== =====
As a percentage of sales 7.40% 6.51% 7.22% 6.44%
==== ==== ==== ====
As a multiple of interest expense 6.92x 4.97x 6.53x 4.92x
==== ==== ==== ====
</TABLE>
Management expects operating cash flow, supplemented by credit available under
the Credit Agreement, to be Safeway's primary sources of long-term liquidity.
Management believes that these sources will be adequate to meet the Company's
requirements. At June 15, 1996, the Company had total borrowing capacity under
the Credit Agreement of $1.15 billion, of which $801.3 million was unused.
CAPITAL EXPENDITURE PROGRAM
A key component of the Company's long-term strategy is its capital expenditure
program. During the first two quarters of 1996, Safeway invested $182.7 million
in capital expenditures and opened five new stores. The Company plans to invest
over $600 million for capital expenditures in 1996 to open 30 to 35 new stores
and complete more than 125 remodels.
11
<PAGE> 12
SAFEWAY INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note J to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 35 and 36 of the 1995 Annual Report to Stockholders,
provides information on certain claims and litigation in which the Company is
involved.
On March 8, 1996, a purported class action was filed on behalf of persons
allegedly injured as a result of the July 1988 fire at the Company's dry grocery
warehouse in Richmond, California. The complaint generally alleges that the
Company fraudulently (i) obtained settlements of certain claims arising out of
the fire and (ii) made statements that induced claimants not to file actions
within the time period allowed under the statute of limitations. The complaint
seeks compensatory and punitive damages.
The Company has received notice from its insurance carrier that, pending
completion of its investigation of its defenses relating to Safeway's insurance
policy and the purported class action, the insurance carrier has reached a
preliminary view that there may be no coverage under the policy for this action.
Safeway disagrees with the insurance carrier's preliminary view and continues to
believe that its coverage will be sufficient and available for resolution of all
remaining third-party claims arising out of the fire.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 14, 1996 at which the
stockholders voted on proposals as follows:
<TABLE>
<CAPTION>
Votes Against Votes Abstained and
Votes For or Withheld Broker Non-votes
--------- ----------- ------------------
<S> <C> <C> <C>
Election of Directors:
Peter A. Magowan 200,668,128 1,784,118 Not applicable
George R. Roberts 188,103,368 14,348,878 Not applicable
Michael T. Tokarz 187,754,883 14,697,363 Not applicable
Adoption of amendment to Certificate of
Incorporation to increase total number of
authorized shares of common stock and
preferred stock 145,542,436 46,396,536 10,513,274
Adoption of stockholder proposal on
disclosure of political contributions 2,659,820 186,611,600 13,180,826
Ratification of appointment of Deloitte &
Touche LLP as independent auditors for fiscal
year 1996. 201,159,466 451,197 841,583
</TABLE>
12
<PAGE> 13
SAFEWAY INC. AND SUBSIDIARIES
ITEM 6(a). EXHIBITS
Exhibit 3.1 Restated Certificate of Incorporation of Safeway Inc.
and Certificate of Amendment of Restated Certificate of
Incorporation of Safeway Inc.
Exhibit 11.1 Computation of Earnings Per Common Share and Common
Share Equivalent.
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27.1 Financial Data Schedule (electronic filing only).
13
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements 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.
Date: July 26, 1996 \s\ Steven A. Burd
--------------------- ------------------
Steven A. Burd
President and Chief Executive Officer
Date: July 26, 1996 \s\ Julian C. Day
--------------------- -----------------
Julian C. Day
Executive Vice President and
Chief Financial Officer
14
<PAGE> 15
SAFEWAY INC. AND SUBSIDIARIES
EXHIBIT INDEX
LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD
ENDED JUNE 15, 1996
Exhibit 3.1 Restated Certificate of Incorporation of Safeway Inc.
and Certificate of Amendment of Restated Certificate of
Incorporation of Safeway Inc.
Exhibit 11.1 Computation of Earnings Per Common Share and Common
Share Equivalent
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27.1 Financial Data Schedule (electronic filing only)
15
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
SAFEWAY STORES, INCORPORATED
Safeway Stores, Incorporated, a corporation existing under the laws of
the State of Delaware, which was originally incorporated under the name SSI
Holdings Corporation on July 23, 1986 (the "Corporation"), does hereby certify:
FIRST: That the Certificate of Incorporation of the Corporation is
hereby amended and restated to read as follows:
ARTICLE I
The name of the Corporation is Safeway Inc.
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
ARTICLE IV
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Three Hundred Ten Million
(310,000,000) consisting of Three Hundred Million (300,000,000) shares of common
stock, par value $.01 per share (the
<PAGE> 2
"Common Stock"), and Ten Million (10,000,000) shares of preferred stock, par
value $.01 per share (the "Preferred Stock"). The designation, powers,
preferences and relative, participating, optional or other special rights,
including voting rights, and qualifications, limitations or restrictions of the
Preferred Stock shall be established by resolution of the Board of Directors
pursuant to Section 151 of the General Corporation Law of the State of Delaware.
ARTICLE V
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors consisting of not less than 6
directors nor more than 12 directors, the exact number of directors to be
determined from time to time by resolution adopted by the Board of Directors.
The directors shall be divided into three classes, designated Class I, Class II
and Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. The term of the initial Class I directors shall terminate on the date
of the 1991 annual meeting of stockholders; the term of the initial Class II
directors shall terminate on the date of the 1992 annual meeting of
stockholders; and the term of the initial Class III directors shall terminate on
the date of the 1993 annual meeting of stockholders. At each annual meeting of
stockholders beginning in 1991, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional directors of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that
<PAGE> 3
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on the Board of
Directors, howsoever resulting, may be filled by a majority of the directors
then in office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
ARTICLE VI
Any or all of the directors of the Corporation may be removed from
office at any time, either with or without cause, by the affirmative vote of
stockholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding, and entitled to vote.
ARTICLE VII
Elections of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall
otherwise provide.
ARTICLE VIII
Special meetings of the stockholders of the Corporation for any purpose
or purposes may be called at any time by the Board of Directors, the Chairman of
the Board of Directors, the President or the stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding,
and entitled to vote.
ARTICLE IX
<PAGE> 4
The officers of the Corporation shall be chosen in such a manner, shall
hold their offices for such terms and shall carry out such duties as are
determined by the Board of Directors, subject to the right of the Board of
Directors to remove any officer or officers at any time with or without cause.
ARTICLE X
A. The Corporation shall indemnify to the full extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a defendant or witness to any action, suit or proceeding (whether
civil or criminal or otherwise) by reason of the fact that he, his testator or
intestate, is or was a director or officer of the Corporation or by reason of
the fact that such director or officer, at the request of the Corporation, is or
was serving any other corporation, partnership, joint venture, employee benefit
plan or other enterprise, in any capacity. Nothing contained herein shall affect
any rights to indemnification to which employees other than directors or
officers may be entitled by law. No amendment or repeal of this Section A of
Article X shall apply to or have any effect on any right to indemnification
provided hereunder with respect to any acts or omissions occurring prior to such
amendment or repeal.
B. No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
GCL, or (iv) for any transaction from which such director derived an improper
<PAGE> 5
personal benefit. No amendment to or repeal of this Section B of this Article X
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
C. In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters
of credit, surety bonds and/or other similar arrangements), as well as
enter into contracts providing indemnification to the full extent
authorized or permitted by law and including as part thereof provisions
with respect to any or all of the foregoing to ensure the payment of
such amount as may become necessary to effect indemnification as
provided therein, or elsewhere.
ARTICLE XI
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal, alter,
amend or rescind the Bylaws of
<PAGE> 6
the Corporation. In addition, the Bylaws of the Corporation may be adopted,
repealed, altered, amended, or rescinded by the affirmative vote of a majority
of the outstanding stock of the Corporation entitled to vote thereon.
ARTICLE XII
The Corporation reserves the right to repeal, alter, amend, or rescind
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred on stockholders
herein are granted subject to this reservation.
SECOND: That this Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
<PAGE> 7
IN WITNESS WHEREOF, Safeway Stores, Incorporated has caused its corporate seal
to be hereunto affixed and this Restated Certificate of Incorporation to be
signed by Peter A. Magowan, its President, and attested by Bernat Rosner, its
Secretary, this 22nd day of February, 1990.
SAFEWAY STORES, INCORPORATED
/s/ Peter A. Magowan
---------------------------------
Peter A. Magowan
ATTEST:
/s/ Bernat Rosner
- ------------------------
Bernat Rosner
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
SAFEWAY INC.
SAFEWAY INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That, by written consent of the Board of Directors of said
corporation as of February 28, 1996, a resolution was duly adopted setting forth
a proposed amendment to the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing its officers
to submit said amendment to the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that Article IV of the Corporation's Restated Certificate of
Incorporation be amended to read as follows, subject to the required
consent of the stockholders of the Corporation:
ARTICLE IV
The total number of shares of all classes of stock which
the Corporation shall have authority to issue is Seven Hundred
Seventy Five Million (775,000,000), consisting of Seven Hundred
Fifty Million (750,000,000) shares of common stock, par value $.01
per share (the "Common Stock"), and Twenty Five Million
(25,000,000) shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The designation, powers, preferences and
relative, participating, optional or other special rights,
including voting rights, and qualifications, limitations or
restrictions of the Preferred Stock shall be established by
resolution of the Board of Directors pursuant to Section 151 of
the General Corporation Law of the State of Delaware.
<PAGE> 9
SECOND: That, thereafter, at the Annual Meeting of the stockholders of
said corporation, the necessary number of shares required by statute were voted
in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, SAFEWAY INC. has caused this certificate to be
signed by Steven A. Burd, its President, and attested by Michael C. Ross, its
Secretary, this 14th day of May, 1996.
SAFEWAY INC.
By: /s/ Steven A. Burd
-------------------------------
Steven A. Burd
President
ATTEST:
/s/ Michael C. Ross
- -----------------------------
Michael C. Ross
Secretary
<PAGE> 1
EXHIBIT 11.1
SAFEWAY INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks Ended
----------------------------------------------------
June 15, 1996 June 17, 1995
---------------------- ----------------------
Fully Fully
Diluted Primary Diluted Primary
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 106.7 $ 106.7 $ 68.7 $ 68.7
======= ======= ======= =======
Weighted average common shares outstanding 217.4 217.4 211.9 211.6
Common share equivalents 22.5 22.4 28.7 28.8
------- ------- ------- -------
Weighted average common shares and common
share equivalents 239.9 239.8 240.6 240.4
======= ======= ======= =======
Earnings per common share and common
share equivalent $ 0.44 $ 0.44 $ 0.29 $ 0.29
======= ======= ======= =======
Calculation of common share equivalents:
Options and warrants to purchase common shares 34.2 34.2 44.3 44.7
Common shares assumed purchased with potential
proceeds (11.7) (11.8) (15.6) (15.9)
------- ------- ------- -------
Common share equivalents 22.5 22.4 28.7 28.8
======= ======= ======= =======
Calculation of common shares assumed purchased with
potential proceeds:
Potential proceeds from exercise of options and
warrants to purchase common shares $ 397.0 $ 384.0 $ 285.2 $ 284.3
Common stock price used under the treasury
stock method $ 33.87 $ 32.36 $ 18.25 $ 17.89
Common shares assumed purchased with
potential proceeds 11.7 11.8 15.6 15.9
</TABLE>
(Continued)
16
<PAGE> 2
SAFEWAY INC. AND SUBSIDIARIES EXHIBIT 11.1
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT (CONTINUED)
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
24 Weeks Ended
----------------------------------------------------
June 15, 1996 June 17, 1995
---------------------- ----------------------
Fully Fully
Diluted Primary Diluted Primary
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 203.1 $ 203.1 $ 130.7 $ 130.7
======= ======= ======= =======
Weighted average common shares outstanding 216.4 216.4 211.9 211.0
Common share equivalents 23.1 22.7 30.0 30.2
------- ------- ------- -------
Weighted average common shares and common
share equivalents 239.5 239.1 241.9 241.2
======= ======= ======= =======
Earnings per common share and common
share equivalent $ 0.85 $ 0.85 $ 0.54 $ 0.54
======= ======= ======= =======
Calculation of common share equivalents:
Options and warrants to purchase common shares 35.0 35.1 45.7 46.6
Common shares assumed purchased with potential
proceeds (11.9) (12.4) (15.7) (16.4)
------- ------- ------- -------
Common share equivalents 23.1 22.7 30.0 30.2
======= ======= ======= =======
Calculation of common shares assumed purchased with
potential proceeds:
Potential proceeds from exercise of options and
warrants to purchase common shares $ 403.7 $ 364.6 $ 285.8 $ 284.4
Common stock price used under the treasury
stock method $ 33.85 $ 29.29 $ 18.25 $ 17.38
Common shares assumed purchased with
potential proceeds 11.9 12.4 15.7 16.4
</TABLE>
17
<PAGE> 1
SAFEWAY INC. AND SUBSIDIARIES EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
24 Weeks
--------------------
June 15, June 17,
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes $ 341.3 $ 231.3 $ 556.5 $ 424.1 $ 216.3 $ 197.4 $ 166.2
Add interest expense 86.5 96.7 199.8 221.7 265.5 290.4 355.4
Add interest on rental expense (a) 41.5 40.0 87.5 86.6 88.0 88.0 83.0
Less equity in earnings of unconsolidated
affiliates (21.2) (7.8) (26.9) (27.3) (33.5) (39.1) (45.8)
Less gain on common stock offering by
unconsolidated affiliate -- -- -- -- -- -- (27.4)
Add minority interest in subsidiary 1.2 1.7 3.9 3.0 3.5 1.7 1.3
------- ------- ------- ------- ------- ------- -------
Earnings $ 449.3 $ 361.9 $ 820.8 $ 708.1 $ 539.8 $ 538.4 $ 532.7
======= ======= ======= ======= ======= ======= =======
Interest expense $ 86.5 $ 96.7 $ 199.8 $ 221.7 $ 265.5 $ 290.4 $ 355.4
Add capitalized interest 1.6 2.0 4.6 2.9 4.2 8.0 10.6
Add interest on rental expense (a) 41.5 40.0 87.5 86.6 88.0 88.0 83.0
------- ------- ------- ------- ------- ------- -------
Fixed charges $ 129.6 $ 138.7 $ 291.9 $ 311.2 $ 357.7 $ 386.4 $ 449.0
======= ======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 3.47 2.61 2.81 2.28 1.51(b) 1.39 1.19(c)
======= ======= ======= ======= ======= ======= =======
</TABLE>
(a) Based on a 10% discount factor on the estimated present value of future
operating lease payments.
(b) Safeway's ratio of earnings to fixed charges during 1993 was adversely
affected by a $54.9 million charge to operating and administrative
expense for severance payments made to retail employees in the Alberta,
Canada division as part of a voluntary employee buyout. Excluding this
charge, the ratio of earnings to fixed charges for 1993 would have been
1.66.
(c) Safeway's ratio of earnings to fixed charges for 1991 was adversely
affected by a $115 million charge to operating profit in connection with
the bankruptcy of AppleTree Markets, Inc. ("AppleTree"). The $115 million
charge was an estimate of the eventual net lease and related cash
payments which Safeway expected to make over a period of up to 16 years
in connection with any liability Safeway may have on the leases assigned
to AppleTree as part of the sale of the Company's former Houston
division. Excluding this charge, the ratio of earnings to fixed charges
for 1991 would have been 1.44.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND THE CONDENSED CONSOLIDATED STATEMENTS
OF INCOME ON PAGES 3 THROUGH 5 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 15, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-15-1996
<CASH> 18,700
<SECURITIES> 0
<RECEIVABLES> 178,000
<ALLOWANCES> 0
<INVENTORY> 1,095,300
<CURRENT-ASSETS> 1,457,700
<PP&E> 4,785,900
<DEPRECIATION> (2,207,800)
<TOTAL-ASSETS> 5,160,300
<CURRENT-LIABILITIES> 1,874,700
<BONDS> 1,755,000
0
0
<COMMON> 2,200
<OTHER-SE> 1,013,600
<TOTAL-LIABILITY-AND-EQUITY> 5,160,300
<SALES> 3,945,400
<TOTAL-REVENUES> 3,945,400
<CGS> 2,843,300
<TOTAL-COSTS> 2,843,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,200
<INCOME-PRETAX> 179,200
<INCOME-TAX> 72,500
<INCOME-CONTINUING> 106,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,700
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
