<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-00037 & 333-00715
PROSPECTUS SUPPLEMENT
(To Prospectus dated February 5, 1996)
20,166,696 Shares
Safeway Inc.
(LOGO) COMMON STOCK
------------------------
This prospectus replaces a previously distributed prospectus dated February
5, 1996 and deletes page F 30 which the previously distributed prospectus
included due to a printer's error.
The date of this Prospectus Supplement is February 9, 1996.
<PAGE> 2
PROSPECTUS
Issued February 5, 1996
20,166,696 Shares
Safeway Inc.
(LOGO) COMMON STOCK
------------------------
OF THE 20,166,696 SHARES OF COMMON STOCK OFFERED, 16,573,357 SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
3,593,339 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE
SHARES OF COMMON STOCK OFFERED ARE BEING SOLD BY THE SELLING STOCKHOLDERS
AS DESCRIBED HEREIN UNDER "PRINCIPAL AND SELLING STOCKHOLDERS" AND
INCLUDE 18,058,902 PRESENTLY OUTSTANDING SHARES AND 1,907,794 AND
200,000 SHARES TO BE ISSUED CONCURRENTLY WITH THE CONSUMMATION OF
THESE OFFERINGS UPON THE EXERCISE OF OUTSTANDING WARRANTS AND
OPTIONS, RESPECTIVELY. NONE OF THE PROCEEDS FROM THE SALE OF THE
SHARES WILL BE RECEIVED BY THE COMPANY OTHER THAN $2,107,794
(ASSUMING NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION) REPRESENTING THE EXERCISE PRICE OF THE WARRANTS AND
OPTIONS. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO A STOCK
DISTRIBUTION WHEREBY EACH HOLDER OF THE COMPANY'S COMMON STOCK
RECEIVED ON JANUARY 30, 1996 ONE ADDITIONAL SHARE OF COMMON
STOCK FOR EACH SHARE OWNED AS OF JANUARY 16, 1996. THE
COMPANY'S COMMON STOCK IS LISTED ON THE NEW YORK AND
PACIFIC STOCK EXCHANGES. ON FEBRUARY 5, 1996, THE REPORTED
LAST SALE PRICE OF THE COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE COMPOSITE TAPE WAS $25 3/8.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $25 3/8 A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $25.375 $0.855 $24.520
Total(3)............................... $511,729,911 $17,242,525 $494,487,386
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
(2) Includes an aggregate of $2,107,794 to be paid to the Company
representing the exercise price of warrants for 1,907,794 Shares at
$1.00 per share and the exercise price of options for 200,000 Shares at
$1.00 per share. Expenses of the offerings, estimated at $550,000, will
be paid by the Company.
(3) The Selling Stockholders have granted to the U.S. Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of 3,025,004 additional Shares at the price to public, less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Stockholders will be $588,489,388,
$19,828,904 and $568,660,484, respectively, and the total amount to be
paid to the Company representing the exercise price of warrants and
options will be $2,423,963. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters, and subject to approval of certain legal matters by Brown &
Wood, counsel for the Underwriters. It is expected that the delivery of the
Shares will be made on or about February 9, 1996, at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in New York
funds.
------------------------
MORGAN STANLEY & CO.
Incorporated
DILLON, READ & CO. INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
SMITH BARNEY INC.
February 5, 1996
<PAGE> 3
(LOGO)
SAFEWAY OPERATING AREAS
[Map]
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AND THE MERGER WARRANTS TO PURCHASE COMMON STOCK AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, ON THE PACIFIC STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERINGS MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY BY
ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 3
Company Overview...................................................................... 4
Recent Developments................................................................... 6
Price Range of Common Stock........................................................... 9
Dividend Policy....................................................................... 9
Capitalization........................................................................ 10
Selected Financial Data............................................................... 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 12
Business.............................................................................. 17
Principal and Selling Stockholders.................................................... 21
Description of Capital Stock.......................................................... 24
Certain United States Tax Consequences to Non-United States Holders................... 25
Underwriters.......................................................................... 28
Legal Matters......................................................................... 31
Experts............................................................................... 31
Incorporation of Certain Documents by Reference....................................... 32
Financial Statements.................................................................. F-1
</TABLE>
------------------------
AVAILABLE INFORMATION
Safeway Inc. ("Safeway" or the "Company") has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (of which this
Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in the Prospectus as to
the contents of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
which may be obtained from the Commission at its principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission.
Safeway is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports, proxy statements and other information filed by
Safeway with the Commission in accordance with the Exchange Act can be inspected
and copied at the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, Safeway Common Stock is listed on the New York Stock Exchange, 20
Broad Street, New York, New York 10005 and the Pacific Stock Exchange, 301 Pine
Street, San Francisco, California 94104, and such material may also be inspected
at the offices of the New York Stock Exchange and the offices of the Pacific
Stock Exchange.
3
<PAGE> 5
COMPANY OVERVIEW
Except as otherwise indicated, the information contained in this Prospectus
has been adjusted to give effect to a stock distribution whereby each holder of
the Company's Common Stock received on January 30, 1996 one additional share of
Common Stock for each share owned as of January 16, 1996. See "Selected
Financial Data," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Capital
Stock." Unless otherwise indicated, the information in this Prospectus assumes
that the Underwriters' over-allotment option will not be exercised.
Safeway is one of the world's largest food retailers, operating 1,059
stores at the end of 1995 in the United States and Canada. U.S. retail
operations are located principally in northern California, Oregon, Washington
and the Rocky Mountain, Southwest and Mid-Atlantic regions. Canadian retail
operations are located principally in British Columbia, Alberta and
Manitoba/Saskatchewan. For each of its nine retail operating areas, Safeway
believes that it holds the number one or number two market share position for
the total area served. In support of its retail 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 retailers. Safeway holds a 35% interest in The
Vons Companies, Inc. ("Vons"), which operates 329 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 71 food and general merchandise
stores in western Mexico.
In early 1992, Safeway undertook a strategic review of its business and
concluded that its cost structure was one of the highest in the food retailing
industry and that there existed significant opportunities for improvement. In
late 1992, Steve Burd was appointed President of Safeway and established three
priorities for improving Safeway's operating results: (1) controlling costs, (2)
increasing sales and (3) improving capital management. These priorities are
reinforced by performance-based compensation plans that cover more than 7,000 of
the Company's management employees, from store department managers to executive
officers.
CONTROLLING COSTS
Operating and administrative expenses as a percentage of sales have
declined primarily through sales increases and by reducing or controlling
costs. Efforts to reduce or control costs have included overhead reduction
in the Company's administrative support functions, negotiation of
competitive labor agreements, store level work simplification,
consolidation of the Company's information technology operations,
elimination of corporate perquisites and the general encouragement of a
"culture of thrift" among employees. As a result, operating and
administrative expenses as a percentage of sales declined 146 basis points
from 24.19% in 1992 to 22.73% in 1995.
[BAR GRAPH entitled OPERATING AND ADMINISTRATIVE
EXPENSES AS A PERCENT OF SALES]
The Company also has controlled its cost of sales primarily through
better buying practices, lower advertising expenses, distribution
efficiencies and manufacturing plant closures and consolidations.
4
<PAGE> 6
INCREASING SALES
The Company has reinvested cost savings into more competitive pricing
and improving store standards and customer service, which Safeway believes
has resulted in increased sales. Safeway's efforts to upgrade store
standards and customer service have focused on improving store appearance,
in-stock condition, employee friendliness and speed of checkout. In
addition, management believes that the successful introduction of the
"Safeway SELECT" line of premium quality private label products in early
1993 has contributed to sales growth.
[LINE GRAPH entitled SAME-STORE SALES TRENDS]
Same-store sales growth has
exceeded 3.0% in each of the last
10 quarters. Annual same-store
sales have improved from a 1.6%
decrease in 1992 to an increase of
4.6% in 1995. Safeway's same-store
sales increases since year-end 1992
through 1995 have been among the
highest in the industry.
IMPROVING CAPITAL MANAGEMENT
Safeway's capital management has improved in two key areas: capital
expenditures and working capital. During 1994, improved operations and
lower project costs improved the returns on capital projects, and Safeway
increased capital expenditures (including new operating lease obligations)
from $290 million in 1993 to $352 million in 1994. In 1995, the Company's
$503 million in capital expenditures financed, among other things, the
opening of 32 new stores and the completion of 108 remodels. The Company is
making greater use of standardized layouts and central purchasing
agreements for building materials, fixtures and equipment for its new
stores and remodels. As a result, the new store prototype is less expensive
to build and more efficient to operate. Capital expenditures for 1996 are
expected to increase to approximately $550 million to open 30 to 35 new
stores and complete more than 100 remodels.
[BAR GRAPH entitled CAPTIAL EXPENDITURES]
Working capital invested in the business has declined substantially
since year-end 1992 primarily through lower warehouse inventory levels and
improved payables management. Stronger operating results, combined with
improved working capital management and lower capital expenditures, have
allowed the Company to reduce its debt level from $3.0 billion at the end
of 1992 to $2.2 billion at the end of 1995.
5
<PAGE> 7
Operating cash flow (FIFO earnings before interest, taxes, depreciation,
amortization, income from unconsolidated affiliates, extraordinary losses and
cumulative effect of accounting changes) increased from $768.6 million in 1992
to $1,068.6 million in 1995. In addition, income per share (before extraordinary
items and the cumulative effect of accounting changes) increased from $0.41 in
1992 to $1.35 in 1995. See "Recent Developments" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Management intends to continue to focus on controlling costs, increasing
sales and improving capital management in 1996. There can be no assurance that
the Company will be successful in its efforts in these areas or that past
results in these areas are indicative of results that may be achieved in the
future.
* * * *
Safeway was founded in 1926 and became one of the world's largest food
retailers. In 1986, Safeway, which was then a publicly-held corporation, was
acquired (the "Acquisition") by a corporation formed by Kohlberg Kravis Roberts
& Co. ("KKR"). Safeway was incorporated in the State of Delaware in July 1986 as
SSI Holdings Corporation, and thereafter its name was changed to Safeway Stores,
Incorporated. In February 1990, the Company changed its name to Safeway Inc.
Unless the context otherwise requires, references herein to "Safeway" or
the "Company" include Safeway Inc. and its subsidiaries and also include Safeway
Stores, Incorporated, a Maryland corporation, and its subsidiaries, the
predecessor to Safeway prior to the Acquisition. The executive offices of
Safeway are located at Fourth and Jackson Streets, Oakland, California 94660 and
its telephone number is (510) 891-3000.
RECENT DEVELOPMENTS
1995 RESULTS
On January 25, 1996, Safeway reported income (before extraordinary loss) of
$113.9 million ($0.47 per share) for the fourth quarter of 1995, compared to
$85.7 million ($0.35 per share) in 1994. The Company incurred fourth quarter
extraordinary losses of $2.0 million in 1995 and $0.4 million in 1994 for the
early retirement of debt, which reduced net income for those periods to $111.9
million ($0.46 per share) and $85.3 million ($0.35 per share).
Total sales for the quarter increased 5.6% from a year earlier to $5.2
billion. On a same-store basis, sales were up 4.7%. Same-store sales gains have
now exceeded 3% in each of the past ten quarters.
Gross profit was 27.1% of sales in the quarter compared to 27.3% last year.
While Safeway continued to make progress in lowering its cost of sales, it
invested in pricing throughout the quarter to maintain its competitive position.
At the same time, operating and administrative expense declined 58 basis points
to 22.64% of sales. Operating and administrative expense as a percentage of
sales has now improved for eleven consecutive quarters.
Interest expense also fell in the fourth quarter, to $58.5 million from
$65.1 million, primarily due to lower average debt outstanding during the
quarter. Year end total debt of $2.19 billion remained essentially flat compared
to 1994 despite an increase of $151 million in capital expenditures and the
previously announced acquisition of limited partnership interests in SSI Equity
Associates, L.P. ("SSI Equity Associates") for $196 million. SSI Equity
Associates is a limited partnership whose sole assets are warrants to purchase
27.9 million shares of Common Stock at $1.00 per share.
Equity in earnings of unconsolidated affiliates, recorded on a one-quarter
delay basis, increased to $9.7 million in the fourth quarter of 1995 from $4.5
million a year earlier. Safeway's share of Vons' earnings
6
<PAGE> 8
was $6.1 million in the fourth quarter of 1995, compared with $1.2 million in
1994 (which reflects a reduction of $3.9 million in 1994 for Vons' restructuring
charges). Fourth quarter earnings from Casa Ley also improved slightly, to $3.6
million from $3.3 million a year ago. Since the December 1994 devaluation of the
peso, Mexico has experienced economic difficulties, including very high interest
rates. Interest rates and inflation have moderated in recent months, and Casa
Ley's financial results have gradually improved. Worsening of the economic
situation in Mexico could have an effect on Casa Ley. However, any such effect
is not expected to be material to Safeway's operating results.
Operating cash flow for the fourth quarter rose to 6.52% of sales, compared
to 6.09% in 1994. The interest coverage ratio -- operating cash flow divided by
interest expense -- improved to 5.76 times from 4.57 times in the same period a
year ago.
For the full year, which included the effect of a nine-day strike in 208
northern California stores, results were in line with those described above.
Income before extraordinary items was $328.3 million ($1.35 per share) in 1995
compared to $250.2 million ($1.01 per share) in 1994.
Total sales were up 4.9% to $16.4 billion, with annual same-store sales
growth of 4.6%. Gross profit remained flat at 27.2% of sales, while operating
and administrative expenses fell 55 basis points to 22.73%. Interest expense
also decreased by $21.9 million to $199.8 million.
Safeway's equity in earnings of Vons and Casa Ley fell slightly in 1995 to
$26.9 million from $27.3 million a year earlier. Earnings from Casa Ley fell to
$8.6 million, down from $15.7 million the previous year, while earnings from
Vons increased by $6.7 million to $18.3 million.
The income tax rate was 41.0% for the year, down from an estimated rate of
42.5% as of the end of the third quarter. The decrease is primarily due to the
Canadian tax treaty with the U.S. which was ratified in the fourth quarter of
1995. Safeway now estimates that its 1996 tax rate will also be approximately
41.0%.
Operating cash flow for the year rose to 6.52% of sales in 1995 compared to
6.06% in 1994. The interest coverage ratio was 5.35 times in 1995 compared to
4.27 times last year.
Improved operations and lower project costs have raised the return on
capital projects, allowing Safeway to increase capital expenditures to $503
million in 1995 from $352 million in 1994. In 1995, Safeway opened 32 new stores
and completed 108 remodels. In 1996, the Company expects to spend approximately
$550 million for capital expenditures to open 30 to 35 new stores and complete
more than 100 remodels.
7
<PAGE> 9
SAFEWAY INC. AND SUBSIDIARIES
OPERATING RESULTS
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOURTH QUARTER YEAR
--------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales............................................. $ 5,166.3 $ 4,890.3 $16,397.5 $15,626.6
-------- -------- --------- ---------
Gross profit...................................... $ 1,401.7 $ 1,335.2 $ 4,453.8 $ 4,250.0
Operating and administrative expense.............. (1,169.8) (1,135.7) (3,726.4) (3,637.9)
-------- -------- --------- ---------
Operating profit.................................. 231.9 199.5 727.4 612.1
Interest expense.................................. (58.5) (65.1) (199.8) (221.7)
Equity in earnings of unconsolidated affiliates... 9.7 4.5 26.9 27.3
Other income, net................................. 0.5 1.5 2.0 6.4
-------- -------- --------- ---------
Income before income taxes and extraordinary
loss............................................ 183.6 140.4 556.5 424.1
Income taxes...................................... (69.7) (54.7) (228.2) (173.9)
-------- -------- --------- ---------
Income before extraordinary loss.................. 113.9 85.7 328.3 250.2
Extraordinary loss related to early retirement of
debt, net of income tax benefit................. (2.0) (0.4) (2.0) (10.5)
-------- -------- --------- ---------
Net income.............................. $ 111.9 $ 85.3 $ 326.3 $ 239.7
======== ======== ========= =========
Fully diluted earnings per common share and common
share equivalent:
Income before extraordinary loss.................. $ 0.47 $ 0.35 $ 1.35 $ 1.01
Extraordinary loss.............................. (0.01) -- (0.01) (0.04)
-------- -------- --------- ---------
Net income...................................... $ 0.46 $ 0.35 $ 1.34 $ 0.97
======== ======== ========= =========
Weighted average common shares and common share
equivalents (fully diluted) (in millions)....... 240.2 247.2 243.5 247.1
======== ======== ========= =========
Operating cash flow:
Net income........................................ $ 111.9 $ 85.3 $ 326.3 $ 239.7
Add (subtract):
Income taxes.................................... 69.7 54.7 228.2 173.9
Interest expense................................ 58.5 65.1 199.8 221.7
Depreciation.................................... 98.8 97.7 319.3 316.0
Goodwill amortization........................... 3.2 3.2 10.4 10.4
LIFO expense (income)........................... 2.6 (4.2) 9.5 2.7
Equity in earnings of unconsolidated
affiliates................................... (9.7) (4.5) (26.9) (27.3)
Extraordinary loss.............................. 2.0 0.4 2.0 10.5
-------- -------- --------- ---------
Total operating cash flow......................... $ 337.0 $ 297.7 $ 1,068.6 $ 947.6
======== ======== ========= =========
As a percent of sales........................... 6.52% 6.09% 6.52% 6.06%
As a multiple of interest expense............... 5.76x 4.57x 5.35x 4.27x
Other statistics during the period:
Stores opened................................... 16 9 32 20
Stores closed................................... 14 15 35 36
Other statistics at year end:
Total stores.................................... 1,059 1,062
Total retail square footage (in millions)....... 40.1 39.5
Square footage increase......................... 1.5% 0.3%
</TABLE>
8
<PAGE> 10
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been listed on the New York Stock Exchange
under the symbol SWY since its initial public offering in May 1990. The
Company's Common Stock also is listed on the Pacific Stock Exchange.
The following table sets forth the high and low closing sale prices for the
Company's Common Stock for the fiscal quarters indicated as reported by the New
York Stock Exchange Composite Tape, adjusted to give effect to a stock
distribution whereby each holder of the Company's Common Stock received on
January 30, 1996 one additional share of Common Stock for each share owned as of
January 16, 1996.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C> <C> <C>
1994
First quarter................................................. $13 7/16 $ 9 3/4
Second quarter................................................ 13 1/8 10 15/16
Third quarter................................................. 13 15/16 11 11/16
Fourth quarter................................................ 15 15/16 13 5/16
1995
First quarter................................................. 17 15/16 15 3/8
Second quarter................................................ 19 1/4 15 13/16
Third quarter................................................. 20 3/16 18 1/16
Fourth quarter................................................ 25 3/4 20
1996
First quarter (through February 5, 1996)...................... 26 1/4 22 13/16
</TABLE>
The reported last sale price of the Common Stock on the New York Stock
Exchange Composite Tape as of a recent date is set forth on the cover page of
this Prospectus.
DIVIDEND POLICY
Safeway has not declared or paid any cash dividends on its Common Stock
since the Acquisition and does not currently intend to declare or pay any cash
dividends. Any determination to pay dividends in the future will be at the
discretion of the Company's Board of Directors and will be dependent upon
Safeway's results of operations, financial condition, capital expenditures,
working capital requirements, any contractual restrictions and other factors
deemed relevant by the Board of Directors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Financial Resources" and "Description of Capital Stock -- Dividends" for a
description of certain limitations on the Company's ability to pay dividends.
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the short-term debt and the capitalization
of Safeway at September 9, 1995 (in millions). None of the proceeds from the
sale of the shares of Common Stock offered hereby will be received by the
Company other than an aggregate of $2,107,794 representing the exercise price of
certain outstanding warrants and options.
<TABLE>
<S> <C>
Short-term borrowings(1)................................................... $ 165.3
========
Long-term debt and capital lease obligations............................... $1,940.3
Stockholders' equity:
Common stock, par value $0.01 per share; 300.0 shares authorized; 212.7
shares outstanding(2)(3).............................................. 2.1
Additional paid-in capital............................................... 675.0
Unexercised warrants purchased: 8.9 shares(3)(4)......................... (113.2)
Retained earnings........................................................ 172.5
Cumulative translation adjustments....................................... 22.0
--------
Total stockholders' equity............................................ 758.4
--------
Total capitalization............................................. $2,698.7
========
</TABLE>
- ---------------
(1) Consists of current portion of long-term debt and capital lease obligations.
(2) Excludes 23.2 million shares of Common Stock underlying stock options, 1.8
million shares of Common Stock issuable upon exercise of warrants issued in
connection with the Acquisition (the "Merger Warrants") and 27,856,000
shares of Common Stock issuable upon exercise of warrants (the "SSI
Warrants") held by SSI Equity Associates. In connection with the offerings,
it is anticipated that options to purchase 200,000 shares of Common Stock
will be exercised for an aggregate exercise price of $200,000, SSI Warrants
to purchase 1,907,794 shares of Common Stock will be exercised for an
aggregate exercise price of $1,907,794, and SSI Warrants to purchase
1,961,812 shares of Common Stock will be cancelled. See "Principal and
Selling Stockholders."
(3) SSI Equity Associates is a partnership whose sole assets consist of the SSI
Warrants. At September 9, 1995, 8.9 million of such shares were attributable
to limited partnership interests in SSI Equity Associates acquired by a
subsidiary of Safeway for $113.1 million in January 1995.
(4) In October 1995, a subsidiary of Safeway acquired additional limited
partnership interests in SSI Equity Associates for $83 million using
proceeds from bank borrowings. Approximately 5.3 million of the 27,856,000
shares of Common Stock issuable upon exercise of the SSI Warrants are
attributable to the limited partnership interests purchased in October. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
10
<PAGE> 12
SELECTED FINANCIAL DATA
SAFEWAY INC. AND SUBSIDIARIES
(DOLLARS IN MILLIONS, EXCEPT PER-SHARE AND WEEKLY SALES AMOUNTS)
The financial data below are derived from the audited Consolidated
Financial Statements of Safeway, except for the financial data for the 36 week
periods ended September 9, 1995 and September 10, 1994, which are unaudited. The
selected financial data should be read in conjunction with Safeway's
Consolidated Financial Statements and accompanying Notes which are included
herein. The results of operations for the 36 weeks ended September 9, 1995 and
September 10, 1994 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 results for the 36 weeks ended September 9,
1995 are not necessarily indicative of the results expected for the full year.
See "Recent Developments."
<TABLE>
<CAPTION>
36 WEEKS ENDED
-----------------------
SEPT. 9, SEPT. 10, 52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS
1995 1994 1994 1993 1992 1991 1990
---------- ---------- --------- --------- --------- --------- ---------
RESULTS OF OPERATIONS:
<S> <C> <C> <C> <C> <C> <C> <C>
Sales................................. $ 11,231.2 $ 10,736.3 $15,626.6 $15,214.5 $15,151.9 $15,119.2 $14,873.6
========= ========= ========= ========= ========= ========= =========
Gross profit.......................... $ 3,052.1 $ 2,914.8 $ 4,250.0 $ 4,083.4 $ 4,106.4 $ 4,059.1 $ 3,903.0
Operating and administrative
expenses............................ (2,556.6) (2,502.2) (3,637.9) (3,641.9) (3,664.8) (3,510.8) (3,367.7)
AppleTree charge...................... -- -- -- -- -- (115.0) --
--------- --------- --------- --------- --------- --------- ---------
Operating profit...................... 495.5 412.6 612.1 441.5 441.6 433.3 535.3
Interest expense...................... (141.3) (156.6) (221.7) (265.5) (290.4) (355.4) (384.1)
Equity in earnings of unconsolidated
affiliates.......................... 17.2 22.8 27.3 33.5 39.1 45.8 25.5
Gain on common stock offering by
unconsolidated affiliate............ -- -- -- -- -- 27.4 --
Other income, net..................... 1.5 4.9 6.4 6.8 7.1 15.1 18.0
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes........ 372.9 283.7 424.1 216.3 197.4 166.2 194.7
Income taxes.......................... (158.5) (119.2) (173.9) (93.0) (99.0) (87.2) (107.6)
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary loss and
cumulative effect of accounting
changes............................. 214.4 164.5 250.2 123.3 98.4 79.0 87.1
Extraordinary loss, net of tax benefit
of $6.5, $6.7, $17.1 and $14.9...... -- (10.1) (10.5) -- (27.8) (24.1) --
Cumulative effect of accounting
changes, net of tax benefit of
$12.0............................... -- -- -- -- (27.1) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income............................ $ 214.4 $ 154.4 $ 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........................... $ 0.88 $ 0.67 $ 1.01 $ 0.50 $ 0.41 $ 0.34 $ 0.45
Extraordinary loss.................. -- (0.04) (0.04) -- (0.12) (0.10) --
Cumulative effect of accounting
changes........................... -- -- -- -- (0.11) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income.......................... $ 0.88 $ 0.63 $ 0.97 $ 0.50 $ 0.18 $ 0.24 $ 0.45
========= ========= ========= ========= ========= ========= =========
FINANCIAL STATISTICS:
Same-store sales*..................... 4.6% 4.0% 4.4% 2.1% (1.6)% (0.3)% 2.5%
Average weekly sales per store per
week
(in thousands)...................... $ 285 $ 267 $ 270 $ 256 $ 247 $ 250 $ 246
Average weekly sales per square
foot................................ 7.64 7.29 7.36 7.07 7.01 7.21 7.25
Gross profit margin................... 27.2% 27.1% 27.2% 26.8% 27.1% 26.8% 26.2%
Operating and administrative expenses
as a percent of sales............... 22.76% 23.31% 23.28% 23.94% 24.19% 23.22% 22.64%
Operating profit margin............... 4.4% 3.8% 3.9% 2.9% 2.9% 2.9% 3.6%
Capital expenditures.................. $ 279.3 $ 185.6 $ 352.2 $ 290.2 $ 553.4 $ 635.0 $ 489.6
Depreciation and amortization......... 227.7 225.5 326.4 330.2 320.3 295.9 276.2
Total assets.......................... 5,032.7 4,887.3 5,022.1 5,074.7 5,225.8 5,170.7 4,739.1
Total debt............................ 2,105.6 2,247.8 2,196.1 2,689.2 3,048.6 3,066.0 3,083.6
Stockholders' equity (deficit)........ 758.4 549.7 643.8 382.9 243.1 214.4 (183.4)
Weighted average common shares and
common share equivalents (fully
diluted) (in millions).............. 242.4 245.0 247.1 246.9 238.0 230.4 192.0
OTHER STATISTICS:
Stores opened during the period....... 16 11 20 14 35 33 30
Stores closed or sold during the
period.............................. 21 21 36 39 49 37 26
Total stores at period-end............ 1,057 1,068 1,062 1,078 1,103 1,117 1,121
Remodels**............................ n/a n/a 71 45 63 77 90
Total retail square footage (in
millions)........................... 39.7 39.3 39.5 39.4 39.7 38.9 38.2
</TABLE>
- ---------------
* Reflects sales increases (decreases) for stores operating the entire
measurement period in both the current and prior periods and does not include
replacement stores.
** Defined as store projects (other than maintenance) generally requiring
expenditures in excess of $200,000.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
36 WEEKS ENDED SEPTEMBER 9, 1995 COMPARED TO 36 WEEKS ENDED SEPTEMBER 10, 1994
Net income for the first 36 weeks of 1995 was $214.4 million ($0.88 per
share) compared to income before extraordinary loss of $164.5 million ($0.67 per
share) for the same period of 1994. A nine-day strike during the second quarter
of 1995 affected 208 stores in Northern California and reduced earnings per
share for the first 36 weeks of 1995 by an estimated $0.025 per share. Net
income for the 36 weeks ended September 10, 1994, which included an
extraordinary loss of $10.1 million ($0.04 per share) for the early retirement
of debt, was $154.4 million ($0.63 per share).
For the first 36 weeks of 1995, sales were $11.2 billion compared to $10.7
billion for the same period of 1994. Same-store sales for the first 36 weeks of
1995 increased 4.6%. Safeway's commitment to reinvest the cost savings achieved
throughout the Company has resulted in sales growth despite very low food price
inflation.
For the first 36 weeks of 1995, gross profit was 27.2% of sales compared to
27.1% in 1994. Gross profit represents the portion of sales revenue remaining
after deducting the costs of inventory sold during the period, including
purchase, advertising and distribution costs. LIFO expense was $6.9 million for
the first 36 weeks of both 1995 and 1994, reflecting the Company's expectation
of low inflation for the year.
For the first three quarters of 1995, operating and administrative expense
decreased as a percent of sales to 22.76% from 23.31% for the same period of
1994. Higher overall Company sales and ongoing efforts to reduce or control
expenses contributed to the lower operating and administrative expense ratio.
For the first 36 weeks of 1995, interest expense fell to $141.3 million
compared to $156.6 million for the same period of 1994. Interest expense
decreased in 1995 primarily due to reduced debt levels.
For the first three quarters of 1995, equity in earnings of unconsolidated
affiliates, recorded on a one-quarter delay basis, fell to $17.2 million
compared to $22.8 million in 1994. For the first 36 weeks of 1995, Safeway's
share of Vons' earnings increased to $12.2 million from $10.4 million in 1994.
For the first 36 weeks of 1995, Safeway's share of Casa Ley's earnings was $5.0
million compared to $12.4 million in 1994. Since the December 1994 devaluation
of the peso, Mexico has experienced economic difficulties, including very high
interest rates. Interest rates and inflation have moderated in recent months,
and Casa Ley's financial results have gradually improved. While the economic
situation in Mexico will continue to affect Casa Ley's financial results, the
impact is not expected to be material to the consolidated operating results of
Safeway.
1994 COMPARED TO 1993 AND 1992
Safeway's net income was $239.7 million ($0.97 per share) in 1994, $123.3
million ($0.50 per share) in 1993, and $43.5 million ($0.18 per share) in 1992.
In 1994 and 1992, income before extraordinary items and the cumulative effect of
accounting changes was $250.2 million ($1.01 per share) and $98.4 million ($0.41
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 ($0.12 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 simplified work
methods in the stores, streamlined backstage operations, improved inventory
management and achieved labor cost parity through a competitive labor contract
signed in Alberta. Safeway reinvested these fundamental cost savings into more
competitive pricing and improved store standards and customer service.
12
<PAGE> 14
GROSS PROFIT
In 1994, Safeway began classifying advertising expenses as part of 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 a 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.
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 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 stores.
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 ($0.12 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.
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 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 ($0.06 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 have been 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.
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 and a 49%
interest in Casa Ley.
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 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
13
<PAGE> 15
$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 its 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 charges 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.
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.
EXTRAORDINARY LOSS
Safeway's net income was reduced by extraordinary losses of $10.5 million
($0.04 per share) in 1994 and $27.8 million ($0.12 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.
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 of tax benefit of $6.4.................. $10.5
Postemployment benefits, net of tax benefit of $1.1.................. 1.8
Vons' income taxes, net of tax benefit of $3.2....................... 10.6
Vons' postretirement benefits, net of tax benefit of $1.3............ 4.2
-----
$27.1
=====
</TABLE>
Except for the cumulative effect of adoption, the impact of these
accounting changes on Safeway's 1992 net income was not material.
LIQUIDITY AND FINANCIAL RESOURCES
Operating cash flow, as presented below, 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
14
<PAGE> 16
companies having different capital structures. Safeway's computation of
operating cash flow is as follows (dollars in millions):
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 53 WEEKS
1995 1994 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income before income taxes, extraordinary loss and
cumulative effect of accounting changes......... $ 556.5 $424.1 $216.3 $197.4
LIFO expense (income)............................. 9.5 2.7 (1.5) (0.4)
Interest expense.................................. 199.8 221.7 265.5 290.4
Depreciation and amortization..................... 329.7 326.4 330.2 320.3
Equity in earnings of unconsolidated affiliates... (26.9) (27.3) (33.5) (39.1)
------ ------ ------ ------
Operating cash flow............................... $1,068.6 $947.6 $777.0 $768.6
====== ====== ====== ======
As a percent of sales............................. 6.52% 6.06% 5.11% 5.07%
As a multiple of interest expense................. 5.35x 4.27x 2.93x 2.65x
</TABLE>
Management expects operating cash flow, supplemented by credit available
under the Credit Agreement (as defined below), 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 year end 1995, the Company had available
unused borrowing capacity of $675.2 million under the Credit Agreement.
During 1994, Safeway retired $44.2 million of senior debt and $247.9
million of senior subordinated debt which resulted in annual interest expense
savings of approximately $8.0 million. During 1995, Safeway retired $53.5
million of mortgage debt. Safeway purchased the long-term debt in 1994 and 1995
primarily with proceeds from floating rate bank borrowings. Depending on market
conditions, Safeway may continue to purchase and retire long-term debt.
CAPITAL EXPENDITURE PROGRAM
The Company's capital expenditure program funds new stores, remodels,
expenditures for information technology and the Company's other facilities,
including its plant and distribution facilities and its corporate headquarters.
In 1995, the Company's $503 million of capital expenditures financed, among
other things, the opening of 32 new stores and the completion of 108 remodels.
Capital expenditures for 1996 are expected to increase to approximately $550
million to open 30 to 35 new stores and complete more than 100 remodels.
ACQUISITION OF INTEREST IN WARRANTS TO PURCHASE SAFEWAY STOCK
In January 1995, a subsidiary of the Company acquired 31.8% of the
partnership interests in SSI Equity Associates for $113 million with proceeds
from bank borrowings. SSI Equity Associates is a limited partnership whose sole
assets consist of SSI Warrants to purchase 27,856,000 shares of Common Stock.
See "Principal and Selling Stockholders." In October 1995, a subsidiary of the
Company acquired an additional 18.9% of the partnership interests of SSI Equity
Associates for $83 million using proceeds from bank borrowings. Safeway
estimates that, as of December 30, 1995, the combined effect of these
transactions would reduce common stock equivalents by about 13.6 million shares.
The favorable effect on earnings per share from reducing common stock
equivalents is being partially offset by interest expense on the bank
borrowings.
In connection with the offerings, SSI Equity Associates will sell to the
Underwriters SSI Warrants to purchase 1,907,794 shares of Common Stock which
will be exercised and sold in the offerings. SSI Equity Associates will also
transfer to Safeway for cancellation SSI Warrants to purchase 1,961,812 shares
of Common Stock, such SSI Warrants representing the pro rata portion of the SSI
Warrants that are attributable to the limited partnership interests held by a
subsidiary of Safeway. Following the offerings, SSI Equity Associates will hold
SSI Warrants to purchase 23,986,394 shares of Common Stock (of which 12,160,622
shares will be attributable to limited partnership interests held by a
subsidiary of Safeway).
15
<PAGE> 17
NEW CREDIT AGREEMENT AND INDENTURES
On May 24, 1995, Safeway entered into a new unsecured bank credit agreement
(the "Credit Agreement") that is less restrictive than Safeway's previous bank
agreement, extends the maturity date and provides lower borrowing costs. The
Credit Agreement matures in 2000 and has two one-year extension options. Safeway
may borrow up to $1.15 billion under the Credit Agreement, including up to $400
million in Canada. In connection with obtaining the new Credit Agreement, all
collateral securing the Company's senior subordinated notes and debentures was
released.
U.S. borrowings under the Credit Agreement carry interest at one of the
following rates selected by the Company: (i) the prime rate; (ii) the rate at
which Eurodollar deposits are offered to first-class banks by the lenders in the
Credit Agreement plus a pricing margin based on the Company's debt rating or
interest coverage ratio (the "Pricing Margin"); or (iii) rates quoted at the
discretion of the lenders. Canadian borrowings denominated in U.S. dollars carry
interest at one of the following rates selected by the Company: (x) the Canadian
base rate; or (y) the Canadian Eurodollar rate plus the Pricing Margin. Canadian
borrowings denominated in Canadian dollars carry interest at the Canadian prime
rate.
The Credit Agreement and the indentures related to Safeway's 9.30% Senior
Secured Debentures due 2007, certain of its medium-term notes and its 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 contain certain covenants which limit Safeway with respect to,
among other things: (i) paying cash dividends on its capital stock; (ii)
incurring additional indebtedness; (iii) creating liens upon its assets; (iv)
repurchasing shares of its capital stock or certain indebtedness; (v) acquiring
any outstanding warrants, options or other rights to acquire shares of any class
of stock of Safeway; and (vi) disposing of material amounts of assets other than
in the ordinary course of business.
Other provisions of the Credit Agreement limit certain acts of the Company
and require the Company to meet certain financial tests which pertain to its
ability to generate adequate cash to meet required payments.
16
<PAGE> 18
BUSINESS
Safeway was founded in 1926 and is one of the world's largest food
retailers, operating 1,059 stores at the end of 1995 in the United States and
Canada. U.S. retail operations are located principally in northern California,
Oregon, Washington and the Rocky Mountain, Southwest, and Mid-Atlantic regions.
Canadian retail operations are located principally in British Columbia, Alberta
and Manitoba/Saskatchewan. For each of its nine retail operating areas, Safeway
believes that it holds the number one or number two market share position for
the total area served. In support of its retail 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 retailers. Safeway holds a 35% interest in
Vons, which operates 329 grocery stores located mostly in southern California,
and a 49% interest in Casa Ley, which operates 71 food and general merchandise
stores in western Mexico.
RETAIL OPERATIONS
STORES
Safeway operates stores ranging in size from approximately 7,200 square
feet to over 60,000 square feet. Safeway determines the size of a new store
based on a number of considerations, including the needs of the community the
store serves, the location and site plan, and the estimated returns on capital
invested. Most Safeway 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's primary new store
prototype is 55,000 square feet and is designed to accommodate changing consumer
needs and to obtain certain operating efficiencies.
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 feasible because of space limitations and/or community
needs or restrictions.
Stores opened in 1995 averaged 51,200 square feet. The following table
summarizes Safeway's stores by size at December 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
STORES TOTAL
--------- ----------
<S> <C> <C>
Less than 30,000 square feet........................... 307 29%
30,000 to 50,000....................................... 581 55
More than 50,000....................................... 171 16
----- ---
Total stores................................. 1,059 100%
===== ===
</TABLE>
STORE OWNERSHIP
At December 30, 1995, 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.
17
<PAGE> 19
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 provided in many stores, including video tape rentals,
photo processing counters, in-store automatic teller machines and bank
branches, are designed to provide one-stop shopping for today's busy
shopper.
- Since 1993, Safeway has introduced a line of over 400 premium private
label products under the banner "Safeway SELECT." These products include
soft drinks, pastas and pasta sauces, salsa, whole bean coffee, cookies,
ice cream, yogurt, pet foods and laundry detergent. In addition, the line
includes Safeway SELECT "Enlighten" items such as no-fat salad dressings
and low sodium, single-serving, quick lunches. Safeway SELECT products
are designed to offer value-conscious consumers premium quality products
at prices lower than comparable national brands. The Company plans to
continue introducing more Safeway SELECT items over the next few years.
Safeway also offers a wide selection of private label products under
well-known and respected brand names such as Safeway, Lucerne and Mrs.
Wright's.
- Safeway offers high quality perishables in the produce, meat, dairy,
seafood, bakery and delicatessen departments. The Company continually
refines its merchandising strategies to identify and accommodate changing
demographics, lifestyles, and product preferences of its customers.
Percentage of Stores with Specialty Departments
<TABLE>
<CAPTION>
AT DECEMBER 30, 1995
--------------------
<S> <C>
Bakery............................................ 76%
Deli.............................................. 91
Pharmacy.......................................... 55
Seafood........................................... 44
Floral............................................ 93
</TABLE>
- 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.
MANUFACTURING AND WHOLESALE OPERATIONS
The principal function of manufacturing operations is to manufacture and
process private label merchandise sold in Safeway stores under brand names such
as Safeway, Lucerne, Mrs. Wright's and Safeway SELECT. As measured by sales,
approximately two-thirds of Safeway SELECT merchandise, and approximately half
of its other private label merchandise, is manufactured in company-owned plants.
The remainder of such private label merchandise is procured from third parties.
During 1994, Safeway began a review to identify manufacturing operations in
the U.S. that do not provide acceptable returns. This review resulted in the
closure of six plants and a reorganization of the manufacturing division
administrative office during 1994 and the closure of five plants during 1995.
The ongoing review of all remaining manufacturing operations, including Canadian
facilities, may result in additional plant closures.
Safeway's Canadian subsidiary has a wholesale operation that distributes
both national brands and private label products to independent grocery stores
and institutional customers.
18
<PAGE> 20
Safeway operated the following manufacturing and processing facilities at
December 30, 1995:
<TABLE>
<CAPTION>
U.S. CANADA
---- ------
<S> <C> <C>
Milk plants.................................................. 6 3
Bread baking plants.......................................... 5 2
Ice cream plants............................................. 4 3
Cheese packaging plants...................................... 1 1
Soft drink bottling plants................................... 4 0
Fruit and vegetable processing plants........................ 2 4
Other food processing plants................................. 3 4
Pet food plant............................................... 1 0
-- --
Total plants....................................... 26 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.
DISTRIBUTION
Each of Safeway's retail operating areas is served by a regional
distribution center consisting of one or more facilities. Safeway owns 11
distribution/warehousing centers (seven in the United States and four in
Canada), which collectively provide the majority of all products to Safeway
stores. Safeway's northern California distribution center is operated by a third
party.
Management regularly reviews distribution operations to ensure that these
operations support their respective operating areas in a cost-effective manner.
The Company is currently exploring ways to reduce the high costs associated with
the physical condition and layout of the distribution center in Landover,
Maryland, which serves the Company's stores in the Mid-Atlantic region. The
Company is exploring the feasibility of replacing the current distribution
center with a new facility or contracting with a third party to provide
distribution services. Management does not expect to be able to determine the
impact on the Company's operations of these alternatives until it has completed
its review. However, management expects that there would be potentially
significant one-time expenses associated with either alternative.
CAPITAL EXPENDITURE PROGRAM
A key component of the Company's long-term strategy is its capital
expenditure program. The Company's capital expenditure program funds new stores,
remodels, expenditures for information technology and the Company's other
facilities, including its plant and distribution facilities and its corporate
headquarters. In the last several years, Safeway management has significantly
strengthened its program to select and approve new capital investments.
19
<PAGE> 21
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>
52 WEEKS 52 WEEKS 52 WEEKS 53 WEEKS
1995 1994 1993 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for property additions................... $450.9 $339.9 $245.3 $483.6
Less: Purchase of previously leased properties..... (9.9) (54.5) (21.4) (9.9)
Plus: Present value of all lease obligations
incurred......................................... 62.2 55.5 58.8 79.3
Mortgage notes assumed in property
acquisitions.................................. -- 11.3 7.5 0.4
------ ------ ------ ------
Total capital expenditures............... $503.2 $352.2 $290.2 $553.4
====== ====== ====== ======
Capital expenditures as a percent of sales......... 3.1% 2.3% 1.9% 3.7%
New stores opened.................................. 32 20 14 35
Stores closed or sold.............................. 35 36 39 49
Remodels........................................... 108 71 45 63
Total retail square footage (in millions).......... 40.1 39.5 39.4 39.7
</TABLE>
During 1994, improved operations and lower project costs improved the
return on capital projects, and Safeway increased capital expenditures
(including new operating lease obligations) to $352 million from $290 million in
1993. During 1994, Safeway opened 20 new stores and completed 71 remodels. In
1995, the Company's capital expenditures financed, among other things, the
opening of 32 new stores and the completion of 108 remodels. Capital
expenditures for 1996 are expected to increase to approximately $550 million to
open 30 to 35 new stores and complete more than 100 remodels.
Management regularly reviews the performance of individual stores and other
facilities on the basis of a variety of economic factors. Upon the decision to
close a store or a facility, 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. As of December 30, 1995, Safeway had an accrued
liability of $30.8 million for the anticipated future closure of 48 stores and
$18.6 million for the anticipated future closure of other facilities.
EMPLOYEES
At year-end 1995, Safeway had approximately 113,000 full and part-time
employees. Approximately 90% of Safeway's employees in the United States and
Canada are covered by collective bargaining agreements negotiated with local
unions affiliated with one of 12 different international unions. There are
approximately 400 such agreements, typically having three-year terms, with some
contracts having terms up to five years. Accordingly, Safeway renegotiates a
significant number of the these agreements every year. In the last three years,
despite the large number of negotiations, there have only been two significant
work stoppages, which were in Portland, Oregon and northern California. These
work stoppages were resolved in a manner that management considered generally
satisfactory, and did not individually or in the aggregate have a material
adverse effect on the Company. Both work stoppages involved all of the major
food retailers in those markets. The strike in northern California lasted nine
days during the second quarter of 1995, affected 18,000 employees at 208 stores
and adversely impacted sales and earnings during that quarter.
Of Safeway's approximately 100,000 unionized employees, approximately
37,000 are covered by labor contracts in four operating areas which are
scheduled to expire at various times in 1996. While Safeway believes that its
relationship with its employees is good, there can be no assurance that
contracts covering such 37,000 employees, or that labor contracts which come up
for renewal after 1996, will be renewed. Failure to renew contracts covering a
significant number of employees leading to work stoppages could have an adverse
effect on Safeway's results of operations.
The Company has performance-based compensation plans which cover
approximately 7,000 management employees. Performance-based 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.
20
<PAGE> 22
PRINCIPAL AND SELLING STOCKHOLDERS
All of the shares of Common Stock being offered hereby are being sold by
certain stockholders of the Company described in the following table (the
"Selling Stockholders").
The following table sets forth information regarding the beneficial
ownership of Safeway's outstanding Common Stock as of December 15, 1995,
assuming the exercise of all options exercisable on, or within 60 days of, such
date, and as adjusted to give effect to the offerings, for (i) each of Safeway's
directors who is a stockholder, (ii) each of the Selling Stockholders, (iii) the
Company's Chief Executive Officer, (iv) each of the Company's four other most
highly compensated executive officers who were serving as executive officers at
the end of fiscal 1994, (v) all executive officers and directors of Safeway as a
group and (vi) each person believed by Safeway to own beneficially more than 5%
of its outstanding shares of Common Stock. Except as indicated by the notes to
the following table, the holders listed below have sole voting power and
investment power over the shares beneficially held by them. The address of KKR
Associates, a New York limited partnership ("KKR Associates"), SSI Equity
Associates and SSI Partners, L.P. is 9 West 57th Street, New York, New York
10019.
<TABLE>
<CAPTION>
BEFORE OFFERINGS AFTER OFFERINGS
--------------------------- ---------------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES(1) PERCENTAGE(1) SHARES OFFERED SHARES(1) PERCENTAGE(1)
----------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
KKR Associates(2)............... 130,000,000 61.0% 18,058,902 111,941,098 52.0%
James H. Greene, Jr.(3)....... 24,000 * 24,000 *
Henry R. Kravis(4)............ -- --
Robert I. MacDonnell(5)....... -- --
George R. Roberts(6).......... -- --
Michael T. Tokarz............. 10,000 * 10,000 *
SSI Equity Associates(7)........ 27,856,000 11.6 1,907,794 23,986,394 10.0
Sam Ginn(8)..................... 68,748 * 68,748 *
Paul Hazen(8)................... 68,748 * 68,748 *
Peter A. Magowan(9)............. 2,731,940 1.3 200,000 2,531,940 1.2
Steven A. Burd(9)............... 927,610 * 927,610 *
Kenneth W. Oder(9).............. 605,560 * 605,560 *
E. Richard Jones(9)(10)......... 1,050,372 * 1,050,372 *
Julian C. Day(9)................ 177,732 * 177,732 *
Frithjof J. Dale(9)............. 473,444 * 473,444 *
All executive officers and
directors as a group (17
persons, excluding Messrs.
Greene, Kravis, Roberts,
MacDonnell and Tokarz)(9)..... 7,010,922 3.2 200,000 6,810,922 3.1
</TABLE>
- ---------------
* Less than 1%
(1) For purposes of this table, a person or a group of persons is deemed to
have "beneficial ownership" as of a given date of any shares which such
person has the right to acquire within 60 days after such date. For
purposes of computing the percentage of outstanding shares held by each
person or group of persons named above on a given date, any shares which
such person or persons has the right to acquire within 60 days after such
date are deemed to be outstanding, but are not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(2) The 130,000,000 shares are owned of record by two limited partnerships (the
"Common Stock Partnerships"), the sole general partner of each of which is
KKR Associates. KKR Associates, in its capacity as general partner, may be
deemed to beneficially own such shares. Messrs. Greene, Kravis, MacDonnell,
Roberts, Tokarz, Saul A. Fox, Edward A. Gihuly, Perry Golkin, Michael W.
Michelson, Paul E. Raether, Clifton S. Robbins and Scott Stuart, as general
partners of KKR Associates, may be deemed to share beneficial ownership of
any shares beneficially owned by KKR Associates, but disclaim
21
<PAGE> 23
any such beneficial ownership. Messrs. Greene, Kravis, MacDonnell, Roberts
and Tokarz are members of Safeway's Board of Directors.
(3) Represents shares owned jointly by Mr. Greene and his wife. Does not
include 10,000 shares owned by Mrs. Greene, as to which Mr. Greene
disclaims any beneficial ownership. Does not include 6,000 shares held in
trust by Mrs. Greene for the benefit of their children, as to which Mr.
Greene disclaims any beneficial ownership.
(4) Does not include 400,000 shares held by Mr. Kravis as a trustee of an
irrevocable trust created by Mr. Roberts for the benefit of his children
(the "Roberts Trust"). As co-trustee, Mr. Kravis shares the authority to
vote and dispose of the shares, but has no economic interest in such
shares.
(5) Does not include 60,000 shares held in an irrevocable trust created by Mr.
MacDonnell for the benefit of his children (the "MacDonnell Trust") with
respect to which Mr. MacDonnell disclaims any beneficial ownership.
(6) Does not include 60,000 shares held by Mr. Roberts as a trustee of the
MacDonnell Trust. As co-trustee, Mr. Roberts shares the authority to vote
and to dispose of the shares, but has no economic interest in such shares.
Does not include 400,000 shares held in the Roberts Trust with respect to
which Mr. Roberts disclaims any beneficial ownership.
(7) SSI Equity Associates is a Delaware limited partnership, the sole general
partner of which is SSI Partners, L.P., a Delaware limited partnership. SSI
Partners, L.P., in its capacity as general partner, may be deemed to own
any shares beneficially owned by SSI Equity Associates. Messrs. Kravis,
MacDonnell, Raether and Roberts, as general partners of SSI Partners, L.P.,
may be deemed to share beneficial ownership of any shares beneficially
owned by SSI Partners, L.P., but disclaim any such beneficial ownership.
Messrs. Kravis, MacDonnell and Roberts are members of Safeway's Board of
Directors. All 27,856,000 shares shown as beneficially owned before the
offerings represent shares of Common Stock issuable upon exercise of SSI
Warrants. In connection with the offerings, the Underwriters will acquire
1,907,794 shares of Common Stock upon the purchase of a portion of the SSI
Warrants and exercise thereof. SSI Equity Associates also will transfer to
Safeway for cancellation SSI Warrants to purchase 1,961,812 shares of
Common Stock, such SSI Warrants representing the pro rata portion of the
SSI Warrants that are attributable to the limited partnership interests
held by a subsidiary of Safeway. These 3,869,606 shares to be sold or
cancelled in connection with the offerings represent 13.9% of the shares
issuable upon exercise of the SSI Warrants.
(8) Includes 47,914 shares issuable upon exercise of stock options.
(9) Includes shares issuable upon exercise of stock options as follows: Mr.
Magowan, 1,346,156; Mr. Burd, 790,000; Mr. Oder, 555,000; Mr. Jones,
650,000; Mr. Day, 145,000; Mr. Dale, 294,800; and all executive officers
and directors as a group, 4,571,904. Does not include shares issuable upon
exercise of warrants as follows: Mr. Dale, 30; Mr. Jones, 188; and all
executive officers and directors as a group, 776. In connection with the
offerings, Mr. Magowan will sell to the Underwriters 200,000 shares
acquired upon exercise of a portion of his stock options.
(10) Does not include 12,000 shares owned by Mr. Jones' children to which Mr.
Jones disclaims any beneficial ownership.
Shares sold by the Common Stock Partnerships in the offerings, including
shares sold pursuant to any exercise of the over-allotment option, will be sold
by each of the Common Stock Partnerships in proportion to the amount of Common
Stock owned by them. Following the offerings, the Common Stock Partnerships will
hold 111,941,098 shares of Common Stock, which will represent approximately
52.0% of the outstanding Common Stock and 42.5% on a fully diluted basis. As a
result of the Common Stock Partnerships' stock ownership of the Company, the
Common Stock Partnerships, KKR Associates, and their general partners will
continue to be able to exercise effective control over the Company, through
their representation on the Board of Directors and by reason of their
substantial voting power with respect to the election of directors and actions
requiring stockholder approval.
In connection with the offerings, SSI Equity Associates will sell to the
Underwriters SSI Warrants to purchase 1,907,794 shares of Common Stock which
will be exercised and sold in the offerings. SSI Equity
22
<PAGE> 24
Associates also will transfer to Safeway for cancellation SSI Warrants to
purchase 1,961,812 shares of Common Stock, such SSI Warrants representing the
pro rata portion of the SSI Warrants that are attributable to the limited
partnership interests held by a subsidiary of Safeway. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Financial Resources." Following the offerings, SSI
Equity Associates will hold SSI Warrants to purchase 23,986,394 shares of Common
Stock (of which 12,160,622 shares will be attributable to limited partnership
interests held by a subsidiary of Safeway).
The Company, the Selling Stockholders and certain directors and executive
officers of the Company have agreed, with certain exceptions, not to (i) offer,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) with respect to the Company only, enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise, except for (i) the shares
to be sold in the offerings and the SSI Warrants to be cancelled, (ii) any
shares of Common Stock issued by the Company pursuant to stock option plans in
effect on the date of this Prospectus, (iii) option grants under stock option
plans in effect on the date of this Prospectus, (iv) any agreement of the
Company in connection with an acquisition of assets or properties or any capital
stock issuable pursuant to the terms of such an agreement, (v) capital stock
issuable upon the exercise of warrants outstanding on the date of this
Prospectus or (vi) the cancellation of warrants for a period of at least 90 days
from the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated. If any such consent is given it would not
necessarily be preceded or followed by a public announcement thereof.
The Company, the Common Stock Partnerships, SSI Equity Associates and
certain other parties entered into an agreement dated as of November 25, 1986
(the "Registration Agreement"), a copy of which is incorporated by reference as
an exhibit to the Registration Statement of which this Prospectus is a part,
pursuant to which the Company agreed to register the offer and sale of shares of
Common Stock held by such parties, including the shares of Common Stock offered
hereby, under the Securities Act, and such parties and the Company agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act in connection with the sale of the shares pursuant to the
Registration Agreement. Pursuant to the Registration Agreement, the Common Stock
Partnerships and SSI Equity Associates are required to pay the underwriting
discounts and commissions and transfer taxes, if any, associated with the
offerings, and the Company is required to pay substantially all expenses
directly associated with the offerings, including, without limitation, the cost
of registering the shares offered hereby, including applicable registration and
filing fees, printing expenses, certain underwriting expenses and applicable
expenses for legal counsel and accountants incurred by the Company or the Common
Stock Partnerships and SSI Equity Associates.
In addition, from December 1986 through December 1989, certain other
investors, consisting primarily of members of management, purchased and/or
acquired options to purchase an aggregate of 19,272,000 shares of Common Stock.
Such investors paid, and stock options held by such investors are exercisable
primarily at, $1.00 per share. Each such investor entered into a subscription
agreement with Safeway, pursuant to which all shares of Common Stock held by
such investor are subject to certain restrictions on transfer and certain
repurchase rights and obligations under certain circumstances, primarily
relating to such investor's termination of employment. The investors have
registration rights with respect to shares of Common Stock owned by such
investors. Mr. Magowan has exercised his registration rights with respect to
230,000 shares (including shares to be sold in the over-allotment option, if
any) of Common Stock issuable upon exercise of stock options. Such shares will
be offered on the same terms and conditions applicable to the other Selling
Stockholders under the Registration Agreement, including provisions for the
payment of fees and expenses associated with the offerings.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock (including shares issued upon the exercise of stock
options or warrants), or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock.
23
<PAGE> 25
DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to Safeway's Restated Certificate of Incorporation (the "Restated
Certificate"), the authorized capital stock of Safeway consists of 300,000,000
shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock, par value $0.01 per share. At October 13, 1995, Safeway had
outstanding 213,185,948 shares of Common Stock and no outstanding shares of
preferred stock. All shares of Common Stock are fully paid and nonassessable. As
of October 13, 1995, there were approximately 4,700 holders of record of Common
Stock. At the Company's next annual stockholders meeting, the Company intends to
submit a proposal to its stockholders to increase its authorized Common Stock to
750,000,000 shares.
COMMON STOCK
On January 30, 1996, the Company effected a distribution of its Common
Stock whereby each holder thereof received one additional share of Common Stock
for each share owned as of January 16, 1996.
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote is
required for all action to be taken by stockholders. In the event of a
liquidation, dissolution or winding-up of Safeway, the holders of Common Stock
are entitled to share equally and ratably in the assets of Safeway, if any,
remaining after the payment of all debts and liabilities of Safeway and the
liquidation preference of any outstanding preferred stock. The Common Stock has
no preemptive rights, no cumulative voting rights and no redemption, sinking
fund or conversion provisions.
The Restated Certificate provides for a classified Board of Directors
consisting of three classes as nearly equal in size as practicable. Each class
will hold office until the third annual meeting for election of directors
following the election of such class.
Safeway's By-laws provide for additional notice requirements for
stockholder nominations and proposals at annual or special meetings of Safeway.
At annual meetings, stockholders may submit nominations for directors or other
proposals only upon written notice to Safeway at least 50 days prior to the
annual meeting.
The Common Stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange. The transfer agent and registrar for the Common Stock is The
First National Bank of Boston.
PREFERRED STOCK
The Board of Directors of Safeway is authorized without further stockholder
action, to divide any or all shares of the authorized preferred stock into
series and to fix and determine the designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date of this Prospectus, the Board of Directors has not
authorized any series of preferred stock and there are no plans, agreements or
understandings for the issuance of any shares of preferred stock.
DIVIDENDS
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 Credit Agreement and
the indentures relating to the Company's senior and senior subordinated debt
securities. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Financial
Resources."
24
<PAGE> 26
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a holder who is not a United States person or entity (a "Non-U.S.
Holder"). For purposes of this discussion, a "Non-U.S. Holder" is any person or
entity that is, as to the United States, a foreign corporation, a non-resident
alien individual, a non-resident fiduciary of a foreign estate or trust, or a
foreign partnership. An individual may, subject to certain exceptions, be deemed
to be a resident alien (as opposed to a non-resident alien) by virtue of being
present in the United States on at least 31 days in the calendar year and for an
aggregate of at least 183 days during a three-year period ending in the current
calendar year (counting for such purposes all of the days present in the current
year, one-third of the days present in the immediately preceding year, and
one-sixth of the days present in the second preceding year). Resident aliens are
subject to United States federal tax as if they were United States citizens and
residents.
This discussion does not address all aspects of United States federal
income and estate taxes or consider any specific facts or circumstances that may
apply to a particular Non-U.S. Holder. Nor does it deal with foreign, state and
local consequences that may be relevant to Non-U.S. Holders. Furthermore, this
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed regulations promulgated
thereunder and public administrative and judicial interpretations thereof, all
of which are subject to changes which could be applied retroactively. Each
prospective purchaser of Common Stock is advised to consult a tax advisor with
respect to current and possible future tax consequences of acquiring, holding
and disposing of Common Stock.
DIVIDENDS
The Company does not currently intend to pay cash dividends on shares of
Common Stock. See "Dividend Policy." In the event that such dividends are paid
on shares of Common Stock, except as described below, dividends paid to a
Non-U.S. Holder of Common Stock will be subject to withholding of United States
federal income tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States. If the dividend is effectively connected with the conduct of a trade or
business of the Non-U.S. Holder within the United States, the dividend will be
subject to United States federal income tax on a net income basis at applicable
graduated individual or corporate rates and will be exempt from the 30%
withholding tax described above (assuming the necessary certification and
disclosure requirements are met). Any such effectively connected dividends
received by a foreign corporation may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above (unless the payor has
knowledge to the contrary), and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of a
tax treaty rate. Under proposed United States Treasury regulations not currently
in effect, however, a Non-U.S. Holder of Common Stock who wishes to claim the
benefit of an applicable treaty rate would be required to file certain forms and
meet other certification requirements.
A Non-U.S. Holder of Common Stock who is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate, timely claim for
refund with the United States Internal Revenue Service (the "Service").
25
<PAGE> 27
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has been
a "United States real property holding corporation" (a "USRPHC") within the
meaning of section 897(c)(2) of the Code at any time within the shorter of the
five-year period preceding such disposition or such Non-U.S. Holder's holding
period (the "Required Holding Period"), (ii) the gain is effectively connected
with the conduct of a trade or business within the United States of the Non-U.S.
Holder and, if a tax treaty applies, attributable to a permanent establishment
maintained by the Non-U.S. Holder, (iii) the Non-U.S. Holder is an individual
who holds the share of Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition and
either (a) such individual has a "tax home" (as defined for United States
federal income tax purposes) in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual, or (iv) the Non-U.S. Holder is subject to tax
pursuant to the Code provisions applicable to certain United States expatriates.
If an individual Non-U.S. Holder falls under clause (ii) or (iv) above, he or
she will be taxed on his or her net gain derived from the sale under regular
United States federal income tax rates. If the individual Non-U.S. Holder falls
under clause (iii) above, he or she will be subject to a flat 30% tax on the
gain derived from the sale which may be offset by United States capital losses
(notwithstanding the fact that he or she is not considered a resident of the
United States). If a Non-U.S. Holder that is a foreign corporation falls under
clause (ii) above, it will be taxed on its gain under regular graduated United
States federal income tax rates and, in addition, will under certain
circumstances be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits" within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable income tax treaty.
A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interests plus its other assets used
or held for use in a trade or business. The Company believes that it is not
currently a USRPHC; however, even if the Company met the test for a USRPHC, a
Non-U.S. Holder would generally not be subject to tax, or withholding in respect
of such tax, on gain from a sale or other disposition of Common Stock by reason
of the Company's USRPHC status if the Common Stock is regularly traded on an
established securities market ("regularly traded") during the calendar year in
which such sale or disposition occurs, provided that such holder does not own,
actually or constructively, Common Stock with a fair market value in excess of
5% of the fair market value of all Common Stock outstanding at any time during
the Required Holding Period. The Company believes that the Common Stock will be
treated as regularly traded.
If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-U.S. Holder owns in excess of 5% of the fair market value of Common
Stock (as described in the preceding paragraph), such Non-U.S. Holder of Common
Stock will be subject to United States federal income tax at regular graduated
rates under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such Common Stock. In addition, if the Company is or has been a
USRPHC within the Required Holding Period and if the Common Stock were not
treated as regularly traded, a Non-U.S. Holder (without regard to its ownership
percentage) would be subject to withholding in respect to FIRPTA tax at a rate
of 10% of the amount realized on a sale or other disposition of Common Stock in
USRPHCs and would be further subject to FIRPTA tax in excess of the amounts
withheld. Any amount withheld pursuant to such withholding tax would be
creditable against such Non-U.S. Holder's United States federal income tax
liability. Non-U.S. Holders are urged to consult their tax advisors concerning
the potential applicability of these provisions.
FEDERAL ESTATE TAXES
Common Stock owned, or treated as owned, by an individual Non-U.S. Holder
at the time of his or her death will be included in such holder's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise.
26
<PAGE> 28
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld with respect to
such dividends. These information reporting requirements apply regardless of
whether withholding is required. Copies of the information returns reporting
such dividends and withholding may also be made available to the tax authorities
in the country in which the Non-U.S. Holder resides under the provisions of an
applicable income tax treaty or other agreement with the tax authorities in that
country.
Backup withholding of United States federal income tax (which, in general,
is a withholding tax imposed at the rate of 31% on certain payments to persons
that fail to furnish certain information under the United States information
reporting requirements) generally will not apply to (a) the payment of dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States or (b) the payment of the proceeds of the sale of Common Stock to or
through the foreign office of a broker. In the case of the payment of proceeds
from such a sale of Common Stock through a foreign office of a broker that is a
United States person or a "U.S. related person," however, information reporting
(but not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S. Holder
(and has no actual knowledge to the contrary) and certain other requirements are
met or the holder otherwise establishes an exemption. For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for United States
federal income tax purposes, or (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The payment of
the proceeds of a sale of shares of Common Stock to or through a United States
office of a broker is subject to information reporting and possible backup
withholding unless the owner certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. Any amounts withheld
under the backup withholding rules from a payment to a Non-U.S. Holder will be
allowed as a refund or a credit against such Non-U.S. Holder's United States
federal income tax liability, provided that the required information is
furnished to the Service.
These information reporting and backup withholding rules are under review
by the United States Treasury, and their application to the Common Stock could
be changed prospectively by future regulations.
27
<PAGE> 29
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof, the U.S. Underwriters named below have severally agreed
to purchase, directly or through the exercise of SSI Warrants, and the Selling
Stockholders have severally agreed to sell to them, and the International
Underwriters named below have severally agreed to purchase, directly or through
the exercise of SSI Warrants, and the Selling Stockholders have severally agreed
to sell to them, the respective number of shares of the Company's Common Stock
set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...................................... 1,795,562
Dillon, Read & Co. Inc. ............................................... 1,795,559
Goldman, Sachs & Co. .................................................. 1,795,559
Merrill Lynch, Pierce, Fenner & Smith Incorporated..................... 1,795,559
Salomon Brothers Inc................................................... 1,795,559
Smith Barney Inc. ..................................................... 1,795,559
BT Securities Corporation.............................................. 500,000
Dean Witter Reynolds Inc. ............................................. 500,000
Donaldson, Lufkin & Jenrette Securities Corporation.................... 500,000
A.G. Edwards & Sons, Inc. ............................................. 500,000
J.P. Morgan Securities Inc. ........................................... 500,000
PaineWebber Incorporated............................................... 500,000
CIBC Wood Gundy Securities Corp. ...................................... 200,000
Crowell, Weedon & Co. ................................................. 200,000
Duff & Phelps Securities Co. .......................................... 200,000
EVEREN Securities, Inc. ............................................... 200,000
Janney Montgomery Scott Inc. .......................................... 200,000
Jensen Securities Co. ................................................. 200,000
McDonald & Company Securities, Inc. ................................... 200,000
Nesbitt Burns Securities Inc. ......................................... 200,000
Piper Jaffray Inc. .................................................... 200,000
Raymond James & Associates, Inc. ...................................... 200,000
RBC Dominion Securities Inc. .......................................... 200,000
Scotia Mcleod Inc. .................................................... 200,000
Muriel Siebert & Co., Inc. ............................................ 200,000
Sutro & Co. Incorporated............................................... 200,000
---------
Subtotal....................................................... 16,573,357
---------
International Underwriters:
Morgan Stanley & Co. International Limited............................. 515,559
Dillon, Read & Co. Inc. ............................................... 515,556
Goldman Sachs International............................................ 515,556
Merrill Lynch International Limited.................................... 515,556
Salomon Brothers International Limited................................. 515,556
Smith Barney Inc. ..................................................... 515,556
ABN Amro Bank N.V. .................................................... 50,000
Argentaria Bolsa, S.V.B., S.A. ........................................ 50,000
Cazenove & Co. ........................................................ 50,000
Deutsche Bank/Morgan Grenfell & Co. Limited............................ 50,000
HSBC Investment Bank Limited........................................... 50,000
Nomura International Plc............................................... 50,000
Societe Generale....................................................... 50,000
UBS Limited............................................................ 50,000
SBC Warburg............................................................ 50,000
Westdeutsche Landesbank Girozentrale................................... 50,000
---------
Subtotal....................................................... 3,593,339
---------
Total.......................................................... 20,166,696
=========
</TABLE>
28
<PAGE> 30
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that the
obligations of the several Underwriters to pay for and accept delivery of the
shares of Common Stock offered hereby are subject to the approval of certain
legal matters by their counsel and to certain other conditions. The Underwriters
are obligated to take and pay for all of the shares of Common Stock (directly or
through the purchase and exercise of SSI Warrants) offered hereby (other than
those covered by the over-allotment option described below) if any such shares
are taken. With respect to shares of Common Stock obtained upon the purchase and
exercise of SSI Warrants, the Underwriters will remit the exercise price of the
SSI Warrants to the Company.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions, (i) it is not purchasing any International Shares (as defined below)
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
International Shares or distribute any prospectus relating to the International
Shares within the United States or Canada or to any United States or Canadian
Person. With respect to Dillon, Read & Co. Inc. and Smith Barney Inc., the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter shall apply only to shares of Common Stock purchased by it in
its capacity as a U.S. Underwriter, (ii) made by it in its capacity as an
International Underwriter shall apply only to shares of Common Stock purchased
by it in its capacity as an International Underwriter and (iii) shall not
restrict its ability to distribute any prospectus relating to the shares of
Common Stock to any person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada of any political
subdivision thereof (other than a branch located outside the United States and
Canada of any United States or Canadian Person) and includes any United States
or Canadian branch of a person who is otherwise not a United States or Canadian
Person. All shares of Common Stock to be purchased by the U.S. Underwriters and
the International Underwriters are referred to herein as the U.S. Shares and the
International Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and the International
Underwriters of any number of shares of Common Stock to be purchased pursuant to
the Underwriting Agreement as may be mutually agreed. The per share price and
currency of any shares sold shall be the Price to Public set forth on the cover
page hereof, in United States dollars, less an amount not greater than the per
share amount of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of Common Stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer of Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made, and that such dealer will
deliver to any other dealer to whom it sells any of such Common Stock a notice
to the foregoing effect.
29
<PAGE> 31
Each International Underwriter has agreed that: (i) it has not offered or
sold and will not offer or sell any shares of Common Stock to persons in the
United Kingdom (the "U.K.") except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
U.K. within the meaning of the Public Offers of Securities Regulation 1995; (ii)
it has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Common
Stock in, from or otherwise involving the U.K.; and (iii) it has only issued or
passed on, and will only issue or pass on, in the U.K. any document received by
it in connection with the issue of the Common Stock, to a person who is of a
kind described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisement) (Exemptions) Order 1995 or is a person to whom the document may
otherwise lawfully be issued or passed on.
The Underwriters propose to offer part of the Common Stock directly to the
public at the Price to Public set forth on the cover page hereof and part to
certain dealers at a price which represents a concession not in excess of $0.51
per share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $0.10 a share to other
Underwriters or to certain dealers.
Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted to the U.S. Underwriters an option, exercisable for 30 days from the
date of this Prospectus, to purchase up to 3,025,004 additional shares of Common
Stock at the Price to Public set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each U.S. Underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of U.S.
Shares offered hereby.
The SSI Warrants being purchased by the several Underwriters from SSI
Equity Associates will be purchased at a price per underlying share equal to the
Price to Public less the exercise price of each such SSI Warrant and the
underwriting discount per underlying share. The Underwriters will immediately
exercise such SSI Warrants by paying the Company the aggregate exercise price of
the SSI Warrants, and will include in the offering the 1,907,794 shares of
Common Stock issuable as a result of such exercise.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The Company, the Selling Stockholders and certain directors and executive
officers of the Company have agreed in the Underwriting Agreement, with certain
exceptions, not to (i) offer, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) with respect to the Company
only, enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, except
for (i) the shares to be sold in the offerings and the SSI Warrants to be
cancelled, (ii) any shares of Common Stock issued by the Company pursuant to
stock option plans in effect on the date of this Prospectus, (iii) option grants
under stock option plans in effect on the date of this Prospectus, (iv) any
agreement of the Company in connection with an acquisition of assets or
properties or any capital stock issuable pursuant to the terms of such an
agreement, (v) capital stock issuable upon the exercise of warrants outstanding
on the date of this Prospectus or (vi) the cancellation of warrants for a period
of at least 90 days from the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated, on behalf of the several
Underwriters. If any such consent is given it would not necessarily be preceded
or followed by a public announcement thereof.
30
<PAGE> 32
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for Safeway and the Selling
Stockholders by Latham & Watkins, San Francisco, California. Certain partners of
Latham & Watkins, members of their families, related persons and others own, or
through limited partnerships have an indirect interest in, less than 1% of the
Common Stock. Such persons do not have the power to vote or dispose of shares
which are indirectly held, some of which shares will be sold in the offerings.
Certain legal matters in connection with the offerings will be passed upon for
the U.S. Underwriters and the International Underwriters by Brown & Wood, San
Francisco, California.
EXPERTS
Safeway's consolidated financial statements as of December 31, 1994 and
January 1, 1994 and for each of the three fiscal years in the period ended
December 31, 1994 included herein have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report included herein (which report
expresses an unqualified opinion and includes an explanatory paragraph relating
to changes in Safeway's methods of accounting during the fiscal year ended
January 2, 1993), and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
31
<PAGE> 33
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the Commission by the
Company are hereby incorporated by reference in this Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(2) Quarterly Report on Form 10-Q for the fiscal quarter ended March 25,
1995.
(3) Quarterly Report on Form 10-Q for the fiscal quarter ended June 17,
1995.
(4) Quarterly Report on Form 10-Q for the fiscal quarter ended September 9,
1995.
(5) 1995 Proxy Statement.
(6) Current Reports on Form 8-K dated March 29, 1995, May 22, 1995 and
January 25, 1996.
(7) Description of Safeway's Common Stock contained in Safeway's
Registration Statement on Form 8-A filed with the Commission on
February 20, 1990, including the amendment on Form 8 dated March 26,
1990.
All documents filed by Safeway pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of the offerings made hereby, shall be deemed incorporated by
reference herein and to be a part hereof from the date of filing such reports
and documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered, upon written or oral request. Copies of this
Prospectus, as amended or supplemented from time to time, and any other
documents (or parts of documents) that constitute part of the Prospectus under
Section 10(a) of the Securities Act will also be provided without charge to each
such person, upon written or oral request. Requests should be directed to
Safeway Inc., Attention: Investor Relations Department, Safeway Inc., Fourth and
Jackson Streets, Oakland, California 94660, telephone number (510) 891-3790.
32
<PAGE> 34
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets as of September 9, 1995 and
December 31, 1994 F-2
Condensed Consolidated Statements of Income for the 12 and 36 weeks
ended September 9, 1995 and September 10, 1994 F-4
Condensed Consolidated Statements of Cash Flows for the 36 weeks
ended September 9, 1995 and September 10, 1994 F-5
Notes to the Condensed Consolidated Financial Statements F-6
Independent Auditors' Report F-10
Consolidated Statements of Income for fiscal years 1994 and 1993 F-11
Consolidated Balance Sheets as of year-end 1994 and 1993 F-12
Consolidated Statements of Cash Flows for fiscal years 1994, 1993 and
1992 F-14
Consolidated Statements of Stockholders' Equity for fiscal years 1994,
1993 and 1992 F-16
Notes to the Consolidated Financial Statements F-17
</TABLE>
F-1
<PAGE> 35
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
September 9, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 48.7 $ 60.7
Receivables 169.4 147.9
Merchandise inventories 1,107.0 1,136.0
Prepaid expenses and other current assets 104.7 93.0
---------- ----------
Total current assets 1,429.8 1,437.6
---------- ----------
Property 4,575.8 4,375.3
Less accumulated depreciation
and amortization 2,042.8 1,868.9
---------- ----------
Property, net 2,533.0 2,506.4
Goodwill, net of amortization of $103.3
and $95.0, respectively 327.8 331.1
Prepaid pension costs 321.3 319.6
Investments in unconsolidated affiliates 326.2 329.3
Other assets 94.6 98.1
---------- ----------
Total assets $ 5,032.7 $ 5,022.1
========== ==========
</TABLE>
(Continued)
F-2
<PAGE> 36
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(In millions, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 9, December 31,
1995 1994
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes
and debentures $ 145.9 $ 152.5
Current obligations under capital leases 19.4 19.3
Accounts payable 922.2 1,012.1
Accrued salaries and wages 214.7 223.6
Other accrued liabilities 497.4 416.1
---------- ----------
Total current liabilities 1,799.6 1,823.6
---------- ----------
Long-term debt:
Notes and debentures 1,767.6 1,849.5
Obligations under capital leases 172.7 174.8
---------- ----------
Total long-term debt 1,940.3 2,024.3
Deferred income taxes 125.5 128.3
Accrued claims and other liabilities 408.9 402.1
---------- ----------
Total liabilities 4,274.3 4,378.3
---------- ----------
Stockholders' equity:
Common stock: par value $0.01 per share;
300 shares authorized; 212.7 and 209.6
shares outstanding, respectively 2.1 2.1
Additional paid-in capital 675.0 654.5
Unexercised warrants purchased: 8.9 shares (113.2) --
Retained earnings (accumulated deficit) 172.5 (41.9)
Cumulative translation adjustments 22.0 29.1
---------- ----------
Total stockholders' equity 758.4 643.8
---------- ----------
Total liabilities and stockholders' equity $ 5,032.7 $ 5,022.1
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-3
<PAGE> 37
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
12 Weeks Ended 36 Weeks Ended
------------------------- ----------------------------
Sept. 9, Sept. 10, Sept. 9, Sept. 10,
1995 1994 1995 1994
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 3,845.5 $ 3,631.8 $ 11,231.2 $ 10,736.3
Cost of goods sold (2,796.4) (2,640.7) (8,179.1) (7,821.5)
---------- ---------- ------------ ------------
Gross profit 1,049.1 991.1 3,052.1 2,914.8
Operating and administrative expenses (872.7) (842.6) (2,556.6) (2,502.2)
---------- ---------- ------------ ------------
Operating profit 176.4 148.5 495.5 412.6
Interest expense (44.6) (48.1) (141.3) (156.6)
Equity in earnings of unconsolidated affiliates 9.4 4.4 17.2 22.8
Other income, net 0.4 2.0 1.5 4.9
---------- ---------- ------------ ------------
Income before income taxes and extraordinary loss 141.6 106.8 372.9 283.7
Income taxes (57.9) (43.1) (158.5) (119.2)
---------- ---------- ------------ ------------
Income before extraordinary loss 83.7 63.7 214.4 164.5
Extraordinary loss related to early
retirement of debt, net of income tax
benefit of $1.7 and $6.5, respectively -- (2.7) -- (10.1)
---------- ---------- ------------ ------------
Net income $ 83.7 $ 61.0 $ 214.4 $ 154.4
========== ========== ============ ============
Earnings per common share and common
share equivalent:
Primary
Income before extraordinary loss $ 0.35 $ 0.26 $ 0.89 $ 0.68
Extraordinary loss -- (0.01) -- (0.04)
========== ========== ============ ============
Net income $ 0.35 $ 0.25 $ 0.89 $ 0.64
========== ========== ============ ============
Fully diluted
Income before extraordinary loss $ 0.35 $ 0.26 $ 0.88 $ 0.67
Extraordinary loss -- (0.01) -- (0.04)
========== ========== ============ ============
Net income $ 0.35 $ 0.25 $ 0.88 $ 0.63
========== ========== ============ ============
Weighted average common shares and common
share equivalents:
Primary 241.0 244.2 241.1 243.1
========== ========== ============ ============
Fully diluted 241.6 245.0 242.4 245.0
========== ========== ============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-4
<PAGE> 38
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
36 Weeks Ended
----------------------------
September 9, September 10,
1995 1994
------------ -------------
<S> <C> <C>
CASH FLOW FROM OPERATIONS:
Net income $ 214.4 $ 154.4
Reconciliation to net cash flow from operations:
Extraordinary loss related to early retirement of debt,
before income tax benefit -- 16.6
Depreciation and amortization 227.7 225.5
LIFO expense 6.9 6.9
Equity in undistributed earnings of unconsolidated affiliates (17.2) (22.8)
Other 40.6 40.3
Changes in working capital items:
Receivables and prepaids (31.9) (7.1)
Inventories at FIFO cost 34.1 50.1
Payables and accruals (17.5) 84.3
-------- --------
Net cash flow from operations 457.1 548.2
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for property additions (253.2) (181.6)
Proceeds from sale of property 25.2 27.6
Other (19.8) (27.0)
-------- --------
Net cash flow used by investing activities (247.8) (181.0)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Additions to short-term borrowings 98.2 93.9
Payments on short-term borrowings (112.3) (43.6)
Additions to long-term borrowings 558.9 345.4
Payments on long-term borrowings (660.5) (821.8)
Premiums paid on early retirement of debt -- (12.7)
Net proceeds from exercise of warrants and stock options 8.2 10.5
Purchase of unexercised warrants (113.2) --
Other (0.6) 1.1
-------- --------
Net cash flow used by financing activities (221.3) (427.2)
-------- --------
Decrease in cash and equivalents (12.0) (60.0)
CASH AND EQUIVALENTS:
Beginning of period 60.7 118.4
-------- --------
End of period $ 48.7 $ 58.4
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-5
<PAGE> 39
NOTE A - BASIS OF PRESENTATION
Stock Split. On January 3, 1996, Safeway's Board of Directors authorized a
two-for-one split of the Company's common stock. The stock split was effected by
a distribution on January 30, 1996, of one additional share for each share owned
by stockholders of record on January 16, 1996. Share and per-share amounts
presented in the condensed consolidated financial statements and related notes
have been restated to reflect the stock split.
The accompanying condensed consolidated financial statements of Safeway Inc. and
subsidiaries ("Safeway" or the "Company") for the 12 and 36 weeks ended
September 9, 1995 and September 10, 1994 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 this Prospectus. The results of operations for the 12 and 36 weeks
ended September 9, 1995 are not necessarily indicative of the results expected
for the full year.
NOTE B - INVENTORY
Net income reflects the application of the LIFO method of valuing certain
domestic inventories, based upon estimated annual inflation ("LIFO Indices").
LIFO expense was $2.3 million in the third quarters of both 1995 and 1994 and
was $6.9 million for the first 36 weeks of both 1995 and 1994. Actual LIFO
Indices are calculated during the fourth quarter of the year based upon a
statistical sampling of inventories.
NOTE C - INVESTMENTS IN AFFILIATES
Investments in affiliates consist of a 35% interest in The Vons Companies, Inc.
("Vons") which operates 326 supermarkets located mostly in southern California,
and a 49% interest in Casa Ley, S.A. de C.V. which operates 71 food and general
merchandise stores in western Mexico. Safeway records income from its equity
investments on a one-quarter delay basis.
Since the December 1994 devaluation of the peso, Mexico has experienced economic
difficulties, including very high interest rates. Interest rates and inflation
have moderated in recent months, and Safeway's share of Casa Ley's earnings for
the third quarter of 1995 increased to $4.6 million from $3.1 million in the
comparable period of 1994. For the 36 weeks ended September 9, 1995, Safeway's
share of Casa Ley's earnings fell to $5.0 million from $12.4 million in 1994.
The Company's recorded investment in Vons at September 9, 1995 was $249.1
million, including unamortized goodwill of $46.0 million that is being amortized
over a 40 year life. Income from Safeway's equity investment in Vons was $4.8
million for the third quarter of 1995 compared to $1.3 million in the third
quarter of 1994. For the 36 weeks ended September 9, 1995 Safeway's share of
Vons earnings was $12.2 compared to $10.4 in 1994.
Based on the September 8, 1995 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 $353.6 million.
F-6
<PAGE> 40
NOTE C - INVESTMENTS IN AFFILIATES (CONTINUED)
Summarized financial information derived from Vons' financial reports to the
Securities and Exchange Commission is as follows (in millions):
<TABLE>
<CAPTION>
June 18, January 1,
FINANCIAL POSITION 1995 1995
- ------------------ ---- ----
<S> <C> <C>
Current assets $ 413.0 $ 467.8
Property and equipment, net 1,194.7 1,203.0
Other assets 548.4 551.2
-------- --------
Total assets $2,156.1 $2,222.0
======== ========
Current liabilities $ 519.5 $ 563.9
Long-term obligations 1,053.8 1,105.7
Shareholders' equity 582.8 552.4
-------- --------
Total liabilities and shareholders' equity $2,156.1 $2,222.0
======== ========
</TABLE>
<TABLE>
<CAPTION>
12 Weeks Ended 36 Weeks Ended
--------------------------- --------------------------
June 18, June 19, June 18, June 19,
RESULTS OF OPERATIONS 1995 1994 1995 1994
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 1,139.5 $ 1,160.2 $ 3,458.2 $ 3,474.7
Cost of sales and other expenses (1,125.0) (1,155.7) (3,420.6) (3,442.3)
--------- --------- --------- ---------
Net income $ 14.5 $ 4.5 $ 37.6 $ 32.4
========= ========= ========= =========
</TABLE>
F-7
<PAGE> 41
NOTE D - FINANCING
Notes and debentures were composed of the following at September 9, 1995 and
December 31, 1994 (in millions):
<TABLE>
<CAPTION>
September 9, 1995 December 31, 1994
----------------------- ------------------------
Long-term Current Long-term Current
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Credit Agreement, unsecured $ 295.4
Bank Credit Agreement, secured - $ 135.0
Working Capital Credit Agreement,
secured - 196.8
9.30% Senior Secured Debentures due 2007 70.7 70.7
10% Senior Notes due 2002, unsecured 59.1 59.1
10% Senior Subordinated Notes due 2001,
unsecured 241.4 241.4
9.875% Senior Subordinated Debentures
due 2007, unsecured 110.0 110.0
9.65% Senior Subordinated Debentures
due 2004, unsecured 228.2 228.2
9.35% Senior Subordinated Notes due
1999, unsecured 172.5 172.5
Mortgage notes payable, secured 399.2 $ 49.3 426.7 $ 51.3
Other notes payable, unsecured 191.1 26.7 209.1 13.3
Other bank borrowings, unsecured - 69.9 - 87.9
-------- ------- --------- -------
$1,767.6 $ 145.9 $ 1,849.5 $ 152.5
======== ======= ========= =======
</TABLE>
Note B to the Company's consolidated financial statements on pages F-11 through
F-29 and the information appearing under the caption "Terms of Outstanding
Indebtedness" in Item 1 of the Company's 1994 Form 10-K describe all of the
material restrictive covenants of the Company's senior subordinated notes and
debentures.
CREDIT AGREEMENT
On May 24, 1995, Safeway entered into a new unsecured bank credit agreement (the
"Credit Agreement") that is less restrictive than Safeway's previous bank
agreement, extends the maturity date and provides lower borrowing costs. The
Credit Agreement matures in 2000 and has two one-year extension options. Safeway
may borrow up to $1.15 billion under the Credit Agreement, including up to $400
million in Canada. In connection with obtaining the new Credit Agreement, all
collateral securing the Company's senior subordinated notes and debentures was
released.
U.S. borrowings under the Credit Agreement carry interest at one of the
following rates selected by the Company: (i) the prime rate; (ii) the rate at
which Eurodollar deposits are offered to first-class banks by the lenders in the
Credit Agreement plus a pricing margin based on the Company's debt rating or
interest coverage ratio (the "Pricing Margin"); or (iii) rates quoted at the
discretion of the lenders. Canadian borrowings denominated in U.S. dollars carry
interest at one of the following rates selected by the Company: (i) the Canadian
base rate; or (ii) the Canadian Eurodollar rate plus the Pricing Margin.
Canadian borrowings denominated in Canadian dollars carry interest at the
Canadian prime rate.
F-8
<PAGE> 42
The Credit Agreement sets certain restrictions on payments by the Company (i) of
dividends on any class of stock; (ii) to acquire shares of any class of stock of
the Company; or (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 and employees.
Other provisions of the Credit Agreement limit certain acts of the Company and
require the Company to meet certain financial tests which pertain to its ability
to generate adequate cash to meet required payments.
NOTE E - CONTINGENCIES
LEGAL MATTERS
Note H to the Company's consolidated financial statements, under the caption
"Legal Matters" on F-26, provides information on certain claims and litigation
in which the Company is involved.
In February 1988, the Company sold its Kansas City Division to a company formed
by Morgan, Lewis, Githen & Ahn Fund I ("Morgan Lewis") and financed principally
by the Prudential Insurance Company of America ("Prudential") and its affiliate,
PruCo Insurance Company ("PruCo"). 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 $293 million plus interest, and $100 million in punitive damages. In
April 1995, the Company filed motions to dismiss, and for summary judgment on,
Food Barn's claims, and in August 1995 the Bankruptcy Court denied the motions.
In September 1995, the Company filed its answer and counterclaims, denying the
operative allegations of the complaint, asserting numerous defenses, and
alleging that any losses sustained by Food Barn were the result of actions and
omissions of Morgan Lewis and its principals, Prudential and PruCo. Safeway
believes that it has numerous meritorious defenses, and intends to defend itself
vigorously, in this case.
F-9
<PAGE> 43
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.
DELOITTE & TOUCHE LLP
Oakland, California
February 20, 1995 (January 30, 1996 as to the effects of the stock split
described in Note A)
F-10
<PAGE> 44
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 $ 1.02 $ 0.51 $ 0.41
Extraordinary loss (0.04) -- (0.12)
Cumulative effect of accounting changes ..................... -- -- (0.11)
----------------------------------------------
Net income ................................................ $ 0.98 $ 0.51 $ 0.18
==============================================
Fully diluted
Income before extraordinary loss and cumulative effect
of accounting changes $ 1.01 $ 0.50 $ 0.41
Extraordinary loss (0.04) -- (0.12)
Cumulative effect of accounting changes ..................... -- -- (0.11)
----------------------------------------------
Net income ................................................ $ 0.97 $ 0.50 $ 0.18
==============================================
Weighted average common shares and
common share equivalents:
Primary 244.1 242.1 237.9
Fully diluted 247.1 246.9 238.0
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE> 45
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>
F-12
<PAGE> 46
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
YEAR-END YEAR-END
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; 209.6 and 203.0 shares
outstanding 2.1 2.0
Additional paid-in capital 654.5 623.5
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.
F-13
<PAGE> 47
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>
F-14
<PAGE> 48
<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.
F-15
<PAGE> 49
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> <C>
Balance, year-end 1991 195.5 $ 2.0 $600.0 $ 60.8 $(448.4) $214.4
Options and warrants exercised 2.2 -- 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 197.7 2.0 603.5 42.5 (404.9) 243.1
Options and warrants exercised 5.3 -- 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 203.0 2.0 623.5 39.0 (281.6) 382.9
Options and warrants exercised 6.6 0.1 30.1 -- -- 30.2
Stock bonuses -- -- 0.9 -- -- 0.9
Net income -- -- -- -- 239.7 239.7
Translation adjustments -- -- -- (9.9) -- (9.9)
------------------------------------------------------------------------------------
Balance, year-end 1994 209.6 $ 2.1 $654.5 $ 29.1 $(41.9) $643.8
====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A
SIGNIFICANT ACCOUNTING POLICIES
Stock Split
On January 3, 1996, Safeway's Board of Directors authorized a two-for-one split
of the Company's common stock. The stock split was effected by a distribution on
January 30, 1996, of one additional share for each share owned by stockholders
of record on January 16, 1996. Share and per-share amounts presented in the
consolidated financial statements and related notes have been restated to
reflect the stock split.
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:
Stores and other buildings 10 - 30 years
Fixtures and equipment 3 - 15 years
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.
F-17
<PAGE> 51
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.
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
F-18
<PAGE> 52
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.
F-19
<PAGE> 53
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 ($0.04 per share) in 1994 and $27.8
million ($0.12 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):
1995 $ 152.5
1996 87.0
1997 159.0
1998 398.9
1999 218.0
Thereafter 986.6
--------
$2,002.0
========
F-20
<PAGE> 54
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>
F-21
<PAGE> 55
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
National Rates Rates to be Origination Expiration
Principal Paid Paid Received Date Date
- --------- ----- ----- --------- ------------ --------------
<C> <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 209.6 million and 203.0
million shares. Two limited partnerships formed by Kohlberg Kravis Roberts & Co.
("KKR") own 130 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 39 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 $25,874,376 $1.000 - 9.563
1992 Activity:
Granted 3,905,584 5.000 - 9.250
Canceled (652,594) 5.000 - 9.563
Exercised (1,017,844) 1.000 - 6.938
-----------
Outstanding, year-end 1992 28,109,522 1.000 - 9.563
1993 Activity:
Granted 3,158,050 5.750 -10.500
Canceled (1,100,572) 5.000 - 9.563
Exercised (3,079,760) 1.000 - 9.250
-----------
Outstanding, year-end 1993 27,087,240 1.000 -10.500
1994 Activity:
Granted 3,709,250 10.250 -15.250
Canceled (1,154,168) 5.000 -12.875
Exercised (4,329,298) 1.000 - 9.563
-----------
Outstanding, year-end 1994 $25,313,024 1.000 -15.250
===========
Exercisable, year-end 1993 $14,825,680 1.000 - 9.563
===========
Exercisable, year-end 1994 $12,886,098 1.000 -10.500
===========
</TABLE>
F-22
<PAGE> 56
Of the options exercisable at year-end 1994, 6,641,856 were exercisable at
$1.00 per share. There were 3,960,386 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 2.3 million shares of common stock. Each warrant
represents the right to purchase 0.558 shares of the Company's common stock for
approximately $1.052 per warrant. In order to purchase a whole share of common
stock, a holder must exercise 1.792 warrants and pay an aggregate exercise price
of $1.8846. During 1994, 4.1 million warrants representing 2.3 million shares of
common stock were exercised. During 1993, 3.8 million warrants representing 2.1
million shares of common stock were exercised. The warrants expire on November
24, 1996.
Warrants (the "SSI Warrants") to purchase 27.9 million shares of the
Company's common stock at $1.00 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 209.6
Options to purchase
common stock 25.3 $154.2
Warrants 2.3 4.3
SSI Warrants 19.0 19.0
----- ------
256.2 $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>
F-23
<PAGE> 57
Significant components of the Company's net deferred tax liability at
year-end were as follows (in millions):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1994 1995
- -------------------------------------------------------------------
<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
Net pension plan income (expense) consisted of the following (in
millions):
<CAPTION>
- ----------------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------------
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>
F-24
<PAGE> 58
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 ($0.04 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.
F-25
<PAGE> 59
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.
F-26
<PAGE> 60
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,
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
Results of Operations OCTOBER 9, OCTOBER 10, OCTOBER 4,
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.
F-27
<PAGE> 61
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>
F-28
<PAGE> 62
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>
<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>
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 $ 1.02 $ 0.35 $ 0.26 $ 0.24 $ 0.17
EXTRAORDINARY LOSS (0.04) -- (0.01) (0.03) --
-------------------------------------------------------------------------
NET INCOME $ 0.98 $ 0.35 $ 0.25 $ 0.21 $ 0.17
=========================================================================
FULLY DILUTED
INCOME BEFORE EXTRAORDINARY LOSS $ 1.01 $ 0.35 $ 0.26 $ 0.24 $ 0.17
EXTRAORDINARY LOSS (0.04) -- (0.01) (0.03) --
-------------------------------------------------------------------------
NET INCOME $ 0.97 $ 0.35 $ 0.25 $ 0.21 $ 0.17
=========================================================================
PRICE RANGE, NEW YORK STOCK EXCHANGE $ 9 3/4 $ 13 5/16 $ 11 11/16 $ 10 15/16 $ 9 3/4
to 15 15/16 to 15 15/16 to 13 15/16 to 13 1/8 to 13 7/16
</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 $ 0.51 $ 0.19 $ 0.18 $ 0.15 $ (0.01)
Fully diluted 0.50 0.19 0.17 0.15 (0.01)
Price range, New York Stock Exchange $ 5 11/16 $ 9 1/16 $ 7 7/16 $ 6 3/4 $ 5 11/16
to 11 1/4 to 11 1/4 to 9 9/16 to 8 3/16 to 7 1/16
</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.
F-29
<PAGE> 63
(LOGO)
<PAGE> 64
APPENDIX A
CHART DESCRIPTIONS
PAGE 4
A bar graph entitled "Operating and Administrative Expenses as a Percent of
Sales" which shows operating and administrative expenses as a percentage of
sales as follows:
<TABLE>
<S> <C>
1992............................................ 24.19%
1993............................................ 23.94%
1994............................................ 23.28%
1995............................................ 22.73%
</TABLE>
The graph has an initial value of 20%.
PAGE 5
A line graph entitled "Annual Same-Store Sales Trends" which shows
same-store sales trends as follows:
<TABLE>
<S> <C>
1990............................................ 2.5%
1991............................................ -0.3%
1992............................................ -1.6%
1993............................................ 2.1%
1994............................................ 4.4%
1995............................................ 4.6%
</TABLE>
The graph has an initial value of -4%.
PAGE 5
A bar graph entitled "Capital Expenditures" which shows capital
expenditures as follows:
<TABLE>
<S> <C>
1992........................................... $553.4
1993........................................... $290.2
1994........................................... $352.2
1995........................................... $503.2
1996*.......................................... $ 550
</TABLE>
- ---------------
* Forecasted.
The graph has an initial value of $0.
