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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended June 14, 1997
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-41
SAFEWAY INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3019135
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5918 Stoneridge Mall Rd.
Pleasanton, California 94588-3229
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, (510) 467-3000
including area code
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 July 18, 1997 there were issued and outstanding 233.5
million shares of the registrant's common stock.
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SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross profit was 28.68% of sales in the second quarter of 1997 compared to
27.93% in 1996 on a historical basis and 28.42% on a pro forma basis.
Improvements in buying practices and product mix were partially offset by
investments to drive sales in various regions. In addition, the Company did not
record LIFO expense this quarter, reflecting management's expectation of little
or no inflation for the full year. For the first 24 weeks of the year, on a
historical basis gross profit was 28.42% of sales in 1997 compared to 28.03% in
1996.
Operating and administrative expense was 23.00% of sales in 1997 compared to
22.61% in 1996 due to the effect in 1997 of Vons' higher operating and
administrative expense margin. On a pro forma combined basis, operating and
administrative expense for the second quarter of 1997 was down 34 basis points
from 23.34% last year. Efforts to reduce or control expenses combined with
increased sales have continued to result in lower operating and administrative
expenses as a percentage of sales on a pro forma basis. For the first 24 weeks
of the year, operating and administrative expense on a historical basis fell
slightly to 22.82% in 1997 from 22.87% of sales in 1996. It is expected that
Safeway's operating and administrative expense-to-sales ratio will increase
compared to historical results because Vons' operating and administrative
expense ratio, when conformed to Safeway's presentation, has historically been
higher than Safeway's. In addition, annual goodwill amortization will increase
by approximately $25 million. Safeway plans to apply its cost reduction, sales
growth and capital management strategies to Vons' operations in an effort to
offset these negative effects, although there can be no assurance as to the
results Safeway will be able to achieve in this regard.
As a result of the interest on the debt incurred on April 8, 1997 to repurchase
the KKR stock, interest expense rose to $62.7 million for the second quarter of
1997 compared to $42.2 million last year, and to $101.4 million for the first 24
weeks of 1997 compared to $86.5 million last year. On April 30, 1997, Safeway
purchased interest rate caps with a notional principal amount of $850 million at
7% for two years. These caps are intended to provide partial protection from the
exposure to higher floating interest rates over the life of the cap.
At the end of the second quarter of 1997, Safeway's investment in unconsolidated
affiliates consisted of a 49% interest in Casa Ley, which operated 71 food and
general merchandise stores in western Mexico. Income from Safeway's equity
investment in Casa Ley increased slightly to $4.3 million in the second quarter
of 1997 from $4.1 million in 1996. For the first 24 weeks of the year, Safeway's
share of Casa Ley's earnings rose to $9.3 million in 1997 from $8.1 million in
1996. Safeway's share of Vons' earnings, recorded on a one-quarter delay basis,
was $12.2 million for the first quarter of 1997, $7.2 million in the first
quarter of 1996, and $13.1 million in the first 24 weeks of 1996.
The income tax rate increased to 42.25% for the first 24 weeks of 1997 from
39.98% in the first quarter of the year due to the increase in nondeductible
goodwill amortization resulting from the acquisition of Vons.
LIQUIDITY AND FINANCIAL RESOURCES
Net cash flow from operations for the first 24 weeks of the year was $347.2
million in 1997, compared to $322.6 million in 1996.
Cash flow used by investing activities for the first 24 weeks of the year was
$93.8 million in 1997 compared to $148.9 million in 1996. The change in cash
flow used by investing activities is primarily the result of the acquisition of
Vons' cash, offset by increased capital expenditures to open four new stores,
continue construction of a manufacturing plant in California and begin work on a
new distribution center in Maryland.
Cash flow used by financing activities for the first 24 weeks of the year was
$296.4 million in 1997, compared to $229.8 million in 1996, reflecting Safeway's
repurchase of KKR stock and the early retirement of $150 million of long-term
debt, partially offset by the debt incurred to repurchase the KKR stock.
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SAFEWAY INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: July 28, 1997 \s\ Steven A. Burd
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Steven A. Burd
President and Chief Executive Officer
Date: July 28, 1997 \s\ Julian C. Day
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Julian C. Day
Executive Vice President and Chief
Financial Officer
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