<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 7, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-41
SAFEWAY INC.
(Exact name of registrant as specified in its charter)
<TABLE>
Delaware 94-3019135
-------- ----------
<S> <C>
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
5918 Stoneridge Mall Road
Pleasanton, California 94588-3229
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 467-3000
</TABLE>
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO .
As of October 11, 1996, there were issued and outstanding 220.2 million shares
of the registrant's common stock.
<PAGE> 2
SAFEWAY INC. AND SUBSIDIARIES
INDEX
<TABLE>
PART I FINANCIAL INFORMATION (UNAUDITED) Page
------ --------------------------------- ----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 7, 1996 and 3
December 30, 1995
Condensed Consolidated Statements of Income for the 12 and 36 weeks ended 5
September 7, 1996 and September 9, 1995
Condensed Consolidated Statements of Cash Flows for the 36 weeks ended 6
September 7, 1996 and September 9, 1995
Notes to the Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 10
OF OPERATIONS
PART II OTHER INFORMATION
------- -----------------
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 7, December 30,
1996 1995
---- ----
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and equivalents $ 25.5 $ 74.8
Receivables 173.5 152.7
Merchandise inventories 1,172.6 1,191.8
Prepaid expenses and other current assets 153.8 95.5
---------- ----------
Total current assets 1,525.4 1,514.8
---------- ----------
Property 4,891.7 4,687.2
Less accumulated depreciation and amortization (2,261.9) (2,094.3)
---------- ----------
Property, net 2,629.8 2,592.9
Goodwill, net of accumulated amortization
of $113.2 and $106.3 315.7 323.8
Prepaid pension costs 326.1 322.4
Investments in unconsolidated affiliates 354.2 336.0
Other assets 121.1 104.4
---------- ----------
Total assets $ 5,272.3 $ 5,194.3
</TABLE>
========== ==========
(Continued)
3
<PAGE> 4
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 7, December 30,
1996 1995
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of notes
and debentures $ 228.5 $ 221.4
Current obligations under capital leases 19.7 19.0
Accounts payable 1,013.2 1,040.0
Accrued salaries and wages 210.4 234.6
Other accrued liabilities 562.5 424.0
---------- ----------
Total current liabilities 2,034.3 1,939.0
---------- ----------
Long-term debt:
Notes and debentures 1,420.1 1,783.6
Obligations under capital leases 160.5 166.2
---------- ----------
Total long-term debt 1,580.6 1,949.8
Deferred income taxes 108.0 108.5
Accrued claims and other liabilities 413.1 401.5
---------- ----------
Total liabilities 4,136.0 4,398.8
---------- ----------
Contingencies
Stockholders' equity:
Common stock: par value $0.01 per share;
750 shares authorized; 218.6 and 213.7
shares outstanding 2.2 2.1
Additional paid-in capital 719.0 684.9
Unexercised warrants purchased (196.2) (196.2)
Cumulative translation adjustments 17.9 20.3
Retained earnings 593.4 284.4
---------- ----------
Total stockholders' equity 1,136.3 795.5
---------- ----------
Total liabilities and stockholders' equity $ 5,272.3 $ 5,194.3
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks Ended 36 Weeks Ended
------------------------- ---------------------------
Sept. 7, Sept. 9, Sept. 7, Sept. 9,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 3,954.0 $ 3,845.5 $ 11,782.1 $ 11,231.2
Cost of goods sold (2,867.4) (2,787.1) (8,500.9) (8,152.6)
----------- ----------- ------------ ------------
Gross profit 1,086.6 1,058.4 3,281.2 3,078.6
Operating and administrative expense (882.8) (882.0) (2,673.2) (2,583.1)
------------ ----------- ------------ ------------
Operating profit 203.8 176.4 608.0 495.5
Interest expense (39.8) (44.6) (126.3) (141.3)
Equity in earnings of unconsolidated affiliates 13.1 9.4 34.3 17.2
Other income, net 1.0 0.4 3.4 1.5
----------- ----------- ------------ ------------
Income before income taxes 178.1 141.6 519.4 372.9
Income taxes (72.2) (57.9) (210.4) (158.5)
----------- ----------- ------------ ------------
Net income $ 105.9 $ 83.7 $ 309.0 $ 214.4
----------- ----------- ------------ ------------
Earnings per common share and common
share equivalent:
Primary $ 0.44 $ 0.35 $ 1.29 $ 0.89
------------ ----------- ------------ ------------
Fully diluted $ 0.44 $ 0.35 $ 1.29 $ 0.88
------------ ----------- ------------ ------------
Weighted average common shares and common
share equivalents:
Primary 240.3 241.0 239.5 241.1
------------ ----------- ------------ ------------
Fully diluted 240.5 241.6 240.1 242.4
------------ ----------- ------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
36 Weeks Ended
-------------------------
September 7, September 9,
1996 1995
------------ -----------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 309.0 $ 214.4
Reconciliation to net cash flow from operating activities:
Depreciation and amortization 233.5 227.7
LIFO expense 6.9 6.9
Equity in undistributed earnings of unconsolidated affiliates (34.3) (17.2)
Other (5.5) 40.6
Changes in working capital items:
Receivables and prepaid expenses (79.5) (31.9)
Inventories at FIFO cost 9.2 34.1
Payables and accruals 107.6 (17.5)
-------- --------
Net cash flow provided by operating activities 546.9 457.1
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for property additions (286.9) (253.2)
Proceeds from sale of property 46.1 25.2
Other (5.3) (19.8)
-------- --------
Net cash flow used by investing activities (246.1) (247.8)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Additions to short-term borrowings 121.7 98.2
Payments on short-term borrowings (205.5) (112.3)
Additions to long-term borrowings 148.4 558.9
Payments on long-term borrowings (432.7) (660.5)
Net proceeds from exercise of warrants and stock options 14.0 8.2
Purchase of unexercised warrants -- (113.2)
Other 4.0 (0.6)
-------- --------
Net cash flow used by financing activities (350.1) (221.3)
-------- --------
Decrease in cash and equivalents (49.3) (12.0)
CASH AND EQUIVALENTS
Beginning of period 74.8 60.7
-------- --------
End of period $ 25.5 $ 48.7
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Safeway Inc. and
subsidiaries ("Safeway" or the "Company") for the 12 and 36 weeks ended
September 7, 1996 and September 9, 1995 are unaudited and, in the opinion of
management, contain all adjustments that are of a normal and recurring nature
necessary to present fairly the financial position and results of operations for
such periods. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's 1995 Annual Report to Stockholders. The results of
operations for the 12 and 36 weeks ended September 7, 1996 and September 9, 1995
are not necessarily indicative of the results expected for the full year.
INVENTORY
Net income reflects the application of the LIFO method of valuing certain
domestic inventories, based upon estimated annual inflation ("LIFO Indices").
LIFO expense was $2.3 million in the third quarters of both 1996 and 1995, and
was $6.9 million for the first 36 weeks of both years. Actual LIFO Indices are
calculated during the fourth quarter of the year based upon a statistical
sampling of inventories.
NOTE B - FINANCING
Notes and debentures were composed of the following at September 7, 1996 and
December 30, 1995 (in millions):
<TABLE>
<CAPTION>
September 7, 1996 December 30, 1995
----------------- -----------------
Long-term Current Long-term Current
--------- ------- --------- -------
<S> <C> <C>
Credit Agreement, unsecured $ 212.8 $ 395.0
9.30% Senior Secured Debentures due 2007 70.7 70.7
Mortgage notes payable, secured 155.3 $172.1 322.3 $ 67.0
10% Senior Notes due 2002, unsecured 59.1 - 59.1 -
Medium-term notes, unsecured 65.5 - 65.5 14.5
Other notes payable, unsecured 115.6 4.1 118.9 3.8
Short-term bank borrowings, unsecured - 52.3 - 136.1
9.35% Senior Subordinated Notes due 1999,
unsecured 161.5 - 172.5 -
10% Senior Subordinated Notes due 2001, unsecured 241.4 - 241.4 -
9.65% Senior Subordinated Debentures due 2004,
unsecured 228.2 - 228.2 -
9.875% Senior Subordinated Debentures due 2007,
unsecured 110.0 - 110.0 -
-------- ------ -------- ------
$1,420.1 $228.5 $1,783.6 $221.4
======== ===== ======== ======
</TABLE>
Note B to the Company's consolidated financial statements on pages 27 through 29
of the 1995 Annual Report to Stockholders describes all of the material
restrictive covenants of the Credit Agreement, the 9.30% Senior Secured
Debentures, and the Subordinated Securities.
7
<PAGE> 8
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C - INVESTMENTS IN AFFILIATES
Investments in affiliates consists of a 35% interest in The Vons Companies, Inc.
("Vons") which operates 325 supermarkets located mostly in southern California,
and a 49% interest in Casa Ley, S.A. de C.V. which operates 71 stores in western
Mexico. Safeway records income from its equity investments on a one-quarter
delay basis.
Safeway's share of Casa Ley's earnings for the quarter was $4.4 million in 1996
compared to $4.6 million in 1995, and $12.5 million year-to-date in 1996
compared to $5.0 million in 1995. Although Mexico suffered from high interest
rates and inflation throughout 1995, these factors have moderated and Casa Ley's
financial results have gradually improved since early 1995.
Safeway's recorded investment in Vons at September 7, 1996 was $277.0 million,
including unamortized goodwill of $44.7 million that is being amortized over a
40-year life. Safeway's share of Vons' earnings increased to $8.7 million in the
third quarter of 1996 from $4.8 million in 1995, and to $21.8 million in the
first 36 weeks of 1996 from $12.2 million in 1995.
Based on the September 6, 1996 closing price for Vons common stock as quoted on
the New York Stock Exchange, the Company's 15.1 million shares of Vons common
stock had an aggregate market value of $641.0 million.
Summarized financial information derived from Vons' financial reports to the
Securities and Exchange Commission is as follows (in millions):
<TABLE>
<CAPTION>
June 16, December 31,
FINANCIAL POSITION 1996 1995
- ------------------ ---- ----
<S> <C> <C>
Current assets $ 417.3 $ 452.3
Property and equipment, net 1,188.7 1,192.5
Other assets 536.1 541.7
--------- --------
Total assets $ 2,142.1 $ 2,186.5
======== ========
Current liabilities $ 603.1 $ 593.4
Long-term liabilities 869.3 969.8
Shareholders' equity 669.7 623.3
--------- --------
Total liabilities and shareholders' equity $ 2,142.1 $ 2,186.5
========= ========
</TABLE>
<TABLE>
<CAPTION>
12 Weeks Ended 36 Weeks Ended
-------------- --------------
June 16, June 18, June 16, June 18,
RESULTS OF OPERATIONS 1996 1995 1996 1995
- --------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 1,261.0 $ 1,139.5 $ 3,690.0 $ 3,458.2
Cost of sales and other expenses (1,238.3) (1,125.0) (3,628.7) (3,420.6)
-------- -------- -------- --------
Net income $ 22.7 $ 14.5 $ 61.3 $ 37.6
========= ========= ========= =========
</TABLE>
8
<PAGE> 9
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - CONTINGENCIES
LEGAL MATTERS
Note J to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 35 and 36 of the 1995 Annual Report to Stockholders,
provides information on certain claims and litigation in which the Company is
involved.
On March 8, 1996, a purported class action was filed on behalf of persons
allegedly injured as a result of the July 1988 fire at the Company's dry grocery
warehouse in Richmond, California. The complaint generally alleges that the
Company fraudulently (i) obtained settlements of certain claims arising out of
the fire and (ii) made statements that induced claimants not to file actions
within the time period allowed under the statute of limitations. The complaint
seeks compensatory and punitive damages.
The Company has received notice from its insurance carrier that, pending
completion of its investigation of its defenses relating to Safeway's insurance
policy and the purported class action, the insurance carrier has reached a
preliminary view that there may be no coverage under the policy for this action.
Safeway disagrees with the insurance carrier's preliminary view and continues to
believe that its coverage will be sufficient and available for resolution of all
remaining third-party claims arising out of the fire.
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 damages of $78 million (the alleged
difference between the value of the division and the purchase price), and
consequential damages of approximately $696 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.
9
<PAGE> 10
SAFEWAY INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Safeway's net income for the third quarter ended September 7, 1996 was $105.9
million ($0.44 per share) compared to $83.7 million ($0.35 per share) for the
third quarter of 1995. For the first 36 weeks of the year, net income was $309.0
million ($1.29 per share) in 1996, compared to $214.4 million ($0.88 per share)
in 1995. Each year was affected by labor disputes as discussed below.
During the second and third quarters of 1996, Safeway was engaged in a labor
dispute affecting 86 stores in British Columbia which lasted the final 16 days
of the second quarter and the first 24 days of the third quarter of 1996. Under
Provincial law, replacement workers could not be hired, and therefore all the
affected stores were closed throughout the strike-lockout. Separately, the
Company was engaged in a strike-lockout in the Denver operating area which
lasted the final 33 days of the second quarter and the first 11 days of the
third quarter of 1996. All of the Denver stores operated during the
strike-lockout, largely with replacement workers. Safeway estimates that the
combined impact of both disputes reduced 1996 earnings by approximately $0.05
per share in the second quarter and $0.07 per share in the third quarter. Any
lingering effect of the strike on fourth-quarter results is not expected to be
material.
A nine-day strike during the second quarter of 1995 affected 208 stores in
northern California. The Company estimates that the dispute reduced earnings for
the first 36 weeks of 1995 by an estimated $0.025 per share.
Sales were $4.0 billion for the third quarter of 1996 compared to $3.8 billion
for the third quarter of 1995. For the first 36 weeks of the year, sales
increased to $11.8 billion in 1996 compared to $11.2 billion in 1995. Same-store
sales (sales of stores operating the entire measurement period in both 1996 and
1995, including stores that remained open during strikes or lockouts) increased
4.5% for the quarter and 5.3% for the first 36 weeks of 1996. These same-store
sales increases exclude stores in British Columbia which were closed during the
strike-lockout.
Gross profit was 27.48% of sales in the third quarter of 1996, essentially flat
compared to 27.52% in 1995. Improvements in buying practices and product mix
were offset by the impact of the labor disputes in Denver and British Columbia.
For the first three quarters of the year, gross profit rose to 27.85% of sales
in 1996 from 27.41% in 1995.
Operating and administrative expense fell 0.61 percentage points to 22.33% of
sales in the third quarter of 1996 from 22.94% in the third quarter of 1995. For
the first three quarters of the year, operating and administrative expense fell
to 22.69% of sales in 1996 from 23.00% in 1995. Higher sales and efforts to
reduce or control expenses continue to improve operating and administrative
expense as a percentage of sales.
Due primarily to reduced debt levels, interest expense fell to $39.8 million in
the third quarter of 1996 from $44.6 million in 1995. For the first three
quarters of the year, interest expense decreased to $126.3 million in 1996 from
$141.3 million in 1995 due to a combination of lower interest rates and reduced
debt levels.
Equity in earnings of unconsolidated affiliates, recorded on a one-quarter delay
basis, was $13.1 million in the third quarter of 1996, up from $9.4 million in
1995. For the first three quarters of the year, equity in earnings from
unconsolidated affiliates rose to $34.3 million in 1996 from $17.2 million in
1995. Safeway's share of Casa Ley's earnings for the quarter was $4.4 million in
1996 compared to $4.6 million in 1995, and $12.5 million year-to-date in 1996
compared to $5.0 million in 1995. Although Mexico suffered from high interest
rates and inflation throughout 1995, these factors have moderated and Casa Ley's
financial results have gradually improved since early 1995. Safeway's share of
Vons' earnings increased to $8.7 million in the third quarter of 1996 from $4.8
million in 1995, and to $21.8 million in the first 36 weeks of 1996 from $12.2
million in 1995.
10
<PAGE> 11
SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND FINANCIAL RESOURCES
Operating cash flow, as presented below, provides a measure of the Company's
ability to generate cash to pay interest and fixed charges, and facilitates the
comparison of Safeway's results of operations with those of companies having
different capital structures. Safeway's computation of operating cash flow is as
follows (dollars in millions):
<TABLE>
<CAPTION>
12 Weeks Ended 36 Weeks Ended
-------------- --------------
Sept. 7, Sept. 9, Sept. 7, Sept. 9,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income before income taxes $178.1 $141.6 $519.4 $372.9
LIFO expense 2.3 2.3 6.9 6.9
Interest expense 39.8 44.6 126.3 141.3
Depreciation and amortization 79.7 76.8 233.5 227.7
Equity in earnings of unconsolidated affiliates (13.1) (9.4) (34.3) (17.2)
------ ------ ------ ------
Operating cash flow $286.8 $255.9 $851.8 $731.6
====== ====== ====== ======
As a percentage of sales 7.25% 6.65% 7.23% 6.51%
====== ====== ====== ======
As a multiple of interest expense 7.21x 5.74x 6.74x 5.18x
====== ====== ====== ======
</TABLE>
Management expects operating cash flow, supplemented by credit available under
the Credit Agreement, to be Safeway's primary sources of long-term liquidity.
Management believes that these sources will be adequate to meet the Company's
requirements. At September 7, 1996, the Company had total borrowing capacity
under the Credit Agreement of $1.15 billion, of which $799.4 million was unused.
CAPITAL EXPENDITURE PROGRAM
A key component of the Company's long-term strategy is its capital expenditure
program. During the first three quarters of 1996, Safeway invested $324 million
in capital expenditures and opened 11 new stores. The Company expects to invest
over $600 million for capital expenditures in 1996 and expects to open 30 to 35
new stores and complete more than 125 remodels. In 1997, Safeway plans to invest
approximately $700 million in capital expenditures, open 35 new stores and
complete 150 remodels.
11
<PAGE> 12
SAFEWAY INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note J to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 35 and 36 of the 1995 Annual Report to Stockholders,
provides information on certain claims and litigation in which the Company is
involved.
On March 8, 1996, a purported class action was filed on behalf of persons
allegedly injured as a result of the July 1988 fire at the Company's dry grocery
warehouse in Richmond, California. The complaint generally alleges that the
Company fraudulently (i) obtained settlements of certain claims arising out of
the fire and (ii) made statements that induced claimants not to file actions
within the time period allowed under the statute of limitations. The complaint
seeks compensatory and punitive damages.
The Company has received notice from its insurance carrier that, pending
completion of its investigation of its defenses relating to Safeway's insurance
policy and the purported class action, the insurance carrier has reached a
preliminary view that there may be no coverage under the policy for this action.
Safeway disagrees with the insurance carrier's preliminary view and continues to
believe that its coverage will be sufficient and available for resolution of all
remaining third-party claims arising out of the fire.
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 damages of $78 million (the alleged
difference between the value of the division and the purchase price), and
consequential damages of approximately $696 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.
12
<PAGE> 13
SAFEWAY INC. AND SUBSIDIARIES
ITEM 6(a). EXHIBITS
Exhibit 11.1 Computation of Earnings Per Common Share and Common Share
Equivalent.
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27.1 Financial Data Schedule (electronic filing only).
13
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Date: October 17, 1996 \s\ Steven A. Burd
--------------------- ------------------
Steven A. Burd
President and Chief Executive Officer
Date: October 17, 1996 \s\ Julian C. Day
--------------------- -----------------
Julian C. Day
Executive Vice President and Chief Financial Officer
</TABLE>
14
<PAGE> 15
SAFEWAY INC. AND SUBSIDIARIES
EXHIBIT INDEX
LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD
ENDED SEPTEMBER 7, 1996
Exhibit 11.1 Computation of Earnings Per Common Share and Common Share
Equivalent
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27.1 Financial Data Schedule (electronic filing only)
15
<PAGE> 1
EXHIBIT 11.1
SAFEWAY INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks Ended
--------------------------------------------
Sept. 7, 1996 Sept. 9, 1995
------------------- -------------------
Fully Fully
Diluted Primary Diluted Primary
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 105.9 $ 105.9 $ 83.7 $ 83.7
--------- --------- --------- ---------
Weighted average common shares outstanding 218.1 218.1 212.7 212.3
Common share equivalents 22.4 22.2 28.9 28.7
--------- --------- --------- ---------
Weighted average common shares and common
share equivalents 240.5 240.3 241.6 241.0
--------- --------- --------- ---------
Earnings per common share and common
share equivalent $ 0.44 $ 0.44 $ 0.35 $ 0.35
--------- --------- --------- ---------
Calculation of common share equivalents:
Options and warrants to purchase common shares 33.6 33.6 43.7 44.1
Common shares assumed purchased with potential
proceeds (11.2) (11.4) (14.8) (15.4)
--------- ---------- ---------- ----------
Common share equivalents 22.4 22.2 28.9 28.7
--------- --------- --------- ---------
Calculation of common shares assumed purchased with
potential proceeds:
Potential proceeds from exercise of options and
warrants to purchase common shares $ 425.5 $ 404.7 $ 298.1 $ 290.4
Common stock price used under the treasury
stock method $ 37.87 $ 35.35 $ 20.19 $ 18.92
Common shares assumed purchased with
potential proceeds 11.2 11.4 14.8 15.4
</TABLE>
(Continued)
16
<PAGE> 2
EXHIBIT 11.1
SAFEWAY INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
AND COMMON SHARE EQUIVALENT (CONTINUED)
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
36 Weeks Ended
-------------------------------------------
Sept. 7, 1996 Sept. 9, 1995
------------------- --------------------
Fully Fully
Diluted Primary Diluted Primary
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 309.0 $ 309.0 $ 214.4 $ 214.4
--------- --------- --------- ---------
Weighted average common shares outstanding 217.0 217.0 212.7 211.4
Common share equivalents 23.1 22.5 29.7 29.7
--------- --------- --------- ---------
Weighted average common shares and common
share equivalents 240.1 239.5 242.4 241.1
--------- --------- --------- ---------
Earnings per common share and common
share equivalent $ 1.29 $ 1.29 $ 0.88 $ 0.89
--------- --------- --------- ---------
Calculation of common share equivalents:
Options and warrants to purchase common shares 34.6 34.6 44.4 45.7
Common shares assumed purchased with potential
proceeds (11.5) (12.1) (14.7) (16.0)
--------- --------- --------- ---------
Common share equivalents 23.1 22.5 29.7 29.7
--------- --------- --------- ---------
Calculation of common shares assumed purchased with potential
proceeds:
Potential proceeds from exercise of options and
warrants to purchase common shares $ 434.1 $ 377.5 $ 297.2 $ 286.7
Common stock price used under the treasury
stock method $ 37.80 $ 31.32 $ 20.19 $ 17.89
Common shares assumed purchased with
potential proceeds 11.5 12.1 14.7 16.0
</TABLE>
17
<PAGE> 1
EXHIBIT 12.1
SAFEWAY INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
36 Weeks Fiscal Year
----------------------- --------------------------------------------------
Sept. 7, Sept. 9,
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes,
extraordinary loss and cumulative
effect of accounting changes $ 519.4 $ 372.9 $ 556.5 $ 424.1 $ 216.3 $ 197.4 $ 166.2
Add interest expense 126.3 141.3 199.8 221.7 265.5 290.4 355.4
Add interest on rental expense (a) 62.3 60.0 87.5 86.6 88.0 88.0 83.0
Less equity in earnings of unconsolidated
affiliates (34.3) (17.2) (26.9) (27.3) (33.5) (39.1) (45.8)
Less gain on common stock offering by
unconsolidated affiliate -- -- -- -- -- -- (27.4)
Add minority interest in subsidiary 2.1 2.6 3.9 3.0 3.5 1.7 1.3
--------- --------- --------- --------- -------- --------- --------
Earnings $ 675.8 $ 559.6 $ 820.8 $ 708.1 $ 539.8 $ 538.4 $ 532.7
========= ========= ========= ========= ======== ========= ========
Interest expense $ 126.3 $ 141.3 $ 199.8 $ 221.7 $ 265.5 $ 290.4 $ 355.4
Add capitalized interest 2.6 3.1 4.6 2.9 4.2 8.0 10.6
Add interest on rental expense (a) 62.3 60.0 87.5 86.6 88.0 88.0 83.0
--------- --------- --------- --------- -------- --------- --------
Fixed charges $ 191.2 $ 204.4 $ 291.9 $ 311.2 $ 357.7 $ 386.4 $ 449.0
========= ========= ========= ========= ======== ========= ========
Ratio of earnings to fixed charges 3.53 2.74 2.81 2.28 1.51(b) 1.39 1.19(c)
========= ========= ========= ========= ======== ========= ========
</TABLE>
(a) Based on a 10% discount factor on the estimated present value
of future operating lease payments.
(b) Safeway's ratio of earnings to fixed charges during 1993 was
adversely affected by a $54.9 million charge to operating and
administrative expense for severance payments made to retail
employees in the Alberta, Canada division as part of a voluntary
employee buyout. Excluding this charge, the ratio of earnings to
fixed charges for 1993 would have been 1.66.
(c) Safeway's ratio of earnings to fixed charges for 1991 was adversely
affected by a $115 million charge to operating profit in connection
with the bankruptcy of AppleTree Markets, Inc. ("AppleTree"). The
$115 million charge was an estimate of the eventual net lease and
related cash payments which Safeway expected to make over a period
of up to 16 years in connection with any liability Safeway may have
on the leases assigned to AppleTree as part of the sale of the
Company's former Houston division. Excluding this charge, the ratio
of earnings to fixed charges for 1991 would have been 1.44.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) the
condensed consolidated balance sheets and the condensed consolidated statements
of income on pages 3 through 5 of the Company's Form 10-Q for the quarterly
period ended September 7, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH(B) financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-07-1996
<CASH> 25,500
<SECURITIES> 0
<RECEIVABLES> 173,500
<ALLOWANCES> 0
<INVENTORY> 1,172,600
<CURRENT-ASSETS> 1,525,400
<PP&E> 4,891,700
<DEPRECIATION> (2,261,900)
<TOTAL-ASSETS> 5,272,300
<CURRENT-LIABILITIES> 2,034,300
<BONDS> 1,580,600
0
0
<COMMON> 2,200
<OTHER-SE> 1,134,100
<TOTAL-LIABILITY-AND-EQUITY> 5,272,300
<SALES> 3,954,000
<TOTAL-REVENUES> 3,954,000
<CGS> 2,867,400
<TOTAL-COSTS> 2,867,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,800
<INCOME-PRETAX> 178,100
<INCOME-TAX> 72,200
<INCOME-CONTINUING> 105,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,900
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
