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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 3, 1998
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 Road
Pleasanton, California 94588
------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (925) 467-3000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ------------------------
<S> <C> <C>
Common Stock, $0.01 par value per share New York Stock Exchange
9.30% Senior Secured Debentures due 2007 New York Stock Exchange
10% Senior Notes due 2002 New York Stock Exchange
9.35% Senior Subordinated Notes due 1999 New York Stock Exchange
10% Senior Subordinated Notes due 2001 New York Stock Exchange
9.65% Senior Subordinated Debentures due 2004 New York Stock Exchange
9.875% Senior Subordinated Debentures due 2007 New York Stock Exchange
6.85% Senior Notes due 2004 New York Stock Exchange
7.00% Senior Notes due 2007 New York Stock Exchange
7.45% Senior Debentures due 2027 New York Stock Exchange
</TABLE>
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Aggregate market value of the voting stock held by non-affiliates of Registrant
as of March 17, 1998, was $13.2 billion.
As of March 17, 1998, there were issued and outstanding 478.7 million shares of
the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference to the extent
specified herein:
<TABLE>
<CAPTION>
Document Description 10-K Part
-------------------- ---------
<S> <C>
1997 Annual Report to Stockholders I, II, III, IV
1998 Proxy Statement dated March 27, 1998 III
</TABLE>
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SAFEWAY INC. AND SUBSIDIARIES
PART I
ITEM 1. BUSINESS AND ITEM 2. PROPERTIES
GENERAL:
Information appearing under the caption "Company in Review" beginning on page 12
of the Company's 1997 Annual Report to Stockholders is incorporated herein by
this reference.
RETAIL OPERATIONS:
Information appearing under the captions "Retail Operations" and "Distribution"
on pages 12 and 13 of the Company's 1997 Annual Report to Stockholders is
incorporated herein by this reference.
MANUFACTURING AND WHOLESALE OPERATIONS:
Information appearing under the caption "Manufacturing and Wholesale Operations"
on page 13 of the Company's 1997 Annual Report to Stockholders is incorporated
herein by this reference.
Various agricultural commodities constitute the principal raw materials used by
the Company in the manufacture of its food products. Management believes that
raw materials for its products are not in short supply, and all are readily
available from a wide variety of independent suppliers.
CAPITAL EXPENDITURES:
Information appearing under the caption "Capital Expenditure Program" on pages
13 and 14 of the Company's 1997 Annual Report to Stockholders is incorporated
herein by this reference.
Safeway's new stores, remodels, and closures during the last five years were as
follows:
<TABLE>
<CAPTION>
Total
Five
Years 1997 1996 1995 1994 1993
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
New stores:
New locations 53 15 14 10 6 8
Replacements 80 22 16 22 14 6
--- -- -- -- -- --
133 37 30 32 20 14
=== == == == == ==
Remodels: (Note A)
Expansions 110 34 29 13 7 27
"Four-Wall" remodels 436 147 112 95 64 18
--- --- --- -- -- --
546 181 141 108 71 45
=== === === === == ==
Vons stores acquired 316 316 - - - -
Closures 184 37 37 35 36 39
Stores at year-end 1,368 1,052 1,059 1,062 1,078
</TABLE>
Note A. Defined as store projects (other than maintenance) generally requiring
expenditures in excess of $200,000.
3
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED)
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS:
This information is omitted because the Company has no significant lines of
business or industry segments except the principal business of operating retail
supermarkets.
TRADEMARKS:
The Company has invested significantly in the development and protection of the
"Safeway" name. The right to use the "Safeway" name is considered to be an
important asset. Safeway also owns approximately 100 other trademarks registered
or pending in the United States Patent and Trademark Office, including its
product line names such as Safeway, Safeway SELECT, Lucerne and Mrs. Wright's,
and the marks Vons and Pavilions. Each trademark registration is for an initial
period of 10 or 20 years and is renewable for as long as the use of the
trademark continues. Safeway considers certain of its trademarks to be of
material importance to its business and actively defends and enforces such
trademarks. Safeway has also registered certain of its trademarks in Canada.
WORKING CAPITAL:
At year-end 1997, working capital deficit was composed of $2.0 billion of
current assets and $2.5 billion of current liabilities. Normal operating
fluctuations in these substantial balances can result in changes to cash flow
from operations presented in the Consolidated Statements of Cash Flows that are
not necessarily indicative of long-term operating trends. There are no unusual
industry practices or requirements relating to working capital items.
COMPETITION:
Food retailing is intensely competitive. The number of competitors and the
amount of competition experienced by Safeway's stores vary by market area. The
principal competitive factors that affect the Company's business are location,
quality, service, price and consumer loyalty to other brands and stores.
Local, regional, and national food chains as well as independent food stores and
markets comprise the principal competition, although Safeway also faces
substantial competition from convenience stores, liquor retailers, membership
warehouse clubs, specialty retailers, supercenters, and large-scale drug and
pharmaceutical chains. Safeway and its competitors engage in price competition
which, from time to time, has adversely affected operating margins in many of
its markets.
COMPLIANCE WITH ENVIRONMENTAL LAWS:
The Company's compliance with the federal, state, and local provisions which
have been enacted or adopted regulating the discharge of materials into the
environment or otherwise relate to the protection of the environment has not had
and is not expected to have a material adverse effect upon the financial
position or results of operations of the Company.
4
<PAGE> 5
SAFEWAY INC. AND SUBSIDIARIES
ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED)
EMPLOYEES:
At year-end 1997, Safeway Inc. ("Safeway" or the "Company") had approximately
147,000 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 agreements having terms of up to five years. Accordingly,
Safeway renegotiates a significant number of these agreements every year.
By year-end 1997, Safeway had concluded early negotiations and signed new labor
contracts covering employees whose collective bargaining agreements had been due
to expire in 1998. Certain of these contracts were with employees represented by
the United Food and Commercial Workers Union in northern California and Spokane,
Washington. In addition, union members in British Columbia ratified a new labor
contract. Management considers the terms of these new contracts to be
satisfactory. As a result of these early negotiations, the only significant
remaining labor contracts due to expire in 1998 are in the Seattle and Winnipeg
operating areas covering approximately 110 stores.
In the last three years there have been four significant work stoppages. During
the second quarter of 1997, Safeway was engaged in a 75-day labor dispute
affecting 74 stores in the Alberta, Canada operating area. The Company continued
to operate the affected stores with a combination of replacement workers,
management and employees who returned to work. During the second and third
quarters of 1996, Safeway was engaged in a labor dispute in British Columbia
which lasted 40 days and affected 86 stores. Under Provincial law in British
Columbia, 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 44 days
also during the second and third quarters of 1996. All of the Denver stores
operated during the strike-lockout, largely with replacement workers. A nine-day
strike during the second quarter of 1995 affected 208 stores in northern
California. These work stoppages were resolved in a manner that management
considered generally satisfactory. Safeway estimates that the Alberta strike
reduced 1997 net income by approximately $0.04 per share, that the combined
impact of the disputes in Denver and British Columbia reduced 1996 earnings by
approximately $0.07 per share, and that the dispute in northern California
reduced 1995 earnings by an estimated $0.01 per share.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES:
Note L to the consolidated financial statements, included on page 36 of the
Company's 1997 Annual Report to Stockholders and incorporated herein by this
reference, contains financial information by geographic area. At year-end 1997,
the Company's foreign operations were composed of retail grocery and wholesale
operations in Canada and a 49% equity investment in Casa Ley, S.A. de C.V.
("Casa Ley"), a Mexican company. Other than the competitive nature of the retail
food business and the economic situation in Mexico, the Company is not aware of
any significant risks of operating in these foreign countries.
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SAFEWAY INC. AND SUBSIDIARIES
The Company's policy for translating Casa Ley's financial statements into U.S.
dollars is described under the caption "Translation of Foreign Currencies" on
page 25 of the Company's 1997 Annual Report to Stockholders. Casa Ley had total
assets of $319.0 million and $263.1 million as of September 30, 1997 and 1996,
based on financial information provided by Casa Ley. Sales and net income for
Casa Ley were as follows (in millions):
<TABLE>
<CAPTION>
12 months ended September 30,
----------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Sales $943.8 $810.1 $861.4
====== ====== ======
Net income $ 38.6 $ 33.8 $ 17.9
====== ====== ======
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Information about legal proceedings appearing under the caption "Legal Matters"
as reported in Note K to the consolidated financial statements on page 35 of the
Company's 1997 Annual Report to Stockholders is incorporated herein by this
reference.
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders during the fourth
quarter of 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the current executive officers of the Company and their
positions as of March 17, 1998, are set forth below. Unless otherwise indicated,
each of the executive officers served in various managerial capacities with the
Company over the past five years. None of the executive officers named below is
related to any other executive officer or director by blood, marriage or
adoption. Officers serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Year First Elected
Name and all Positions with the Company -------------------------
Held at March 17, 1998 Age Officer Present Office
- ---------------------- --- ------- --------------
<S> <C> <C> <C>
Steven A. Burd 48 1992 1992
President and Chief Executive Officer
Kenneth W. Oder(1) 50 1993 1993
Executive Vice President
Labor Relations, Human Resources, Law and Public Affairs
Julian C. Day(2) 45 1993 1993
Executive Vice President and
Chief Financial Officer
David F. Bond(3) 44 1997 1997
Senior Vice President
Finance and Control
David T. Ching(4) 45 1994 1994
Senior Vice President and
Chief Information Officer
Lawrence V. Jackson(5) 44 1997 1997
Senior Vice President
Supply Operations
Diane Peck 49 1990 1995
Senior Vice President
Human Resources
Melissa C. Plaisance 38 1993 1995
Senior Vice President
Finance and Public Affairs
</TABLE>
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 4. EXECUTIVE OFFICERS OF THE COMPANY (CONTINUED)
<TABLE>
<CAPTION>
Year First Elected
Name and all Positions with the Company -------------------------
Held at March 17, 1998 Age Officer Present Office
- ---------------------- --- ------- --------------
<S> <C> <C> <C>
Larree M. Renda 39 1991 1994
Senior Vice President
Corporate Retail Operations
Michael C. Ross(1) 50 1993 1993
Senior Vice President
Secretary and General Counsel
Gary D. Smith 55 1988 1995
Senior Vice President and
Director of Marketing
Richard A. Wilson 64 1988 1988
Vice President
Tax
Donald P. Wright 45 1991 1991
Senior Vice President
Real Estate and Engineering
</TABLE>
- ----------
(1) Mr. Oder and Mr. Ross were previously partners at the law firm of Latham &
Watkins.
(2) Mr. Day was previously self-employed as an independent
consultant.
(3) Mr. Bond was previously a partner at the accounting firm of Deloitte &
Touche LLP.
(4) During 1994, Mr. Ching was the General Manager -- North America for the
British American Consulting Group. From 1979 to 1994, he was employed by
Lucky Stores, Inc., where he was the Senior Vice President of Information
Systems beginning in 1989.
(5) Mr. Jackson was previously the Senior Vice President, Worldwide Operations
of PepsiCo Food Systems, a division of PepsiCo, Inc. from 1995-97, and Vice
President and General manager of Pepsi-Cola Company, a unit of PepsiCo,
Inc., from 1992-95.
Section 16(a) Beneficial Ownership. Information appearing under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 1998
Proxy Statement is incorporated herein by this reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, $0.01 par value, is listed on the New York Stock
Exchange. Information as to quarterly sales prices for the Company's common
stock appears in Note M to the consolidated financial statements on page 37 of
the Company's 1997 Annual Report to Stockholders and is incorporated herein by
this reference. There were 9,162 stockholders of record as of March 17, 1998;
however, approximately 76% of the Company's outstanding stock is held in
"street name" by depositories or nominees on behalf of beneficial holders. The
price per share of common stock, as reported on the New York Stock Exchange
Composite Tape, was $35 1/2 at the close of business on March 17, 1998.
8
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(CONTINUED)
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. The Company has not paid dividends on common stock through 1997 and
has no current plans for dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
The "Five-Year Summary Financial Information" included on page 15 of the
Company's 1997 Annual Report to Stockholders is incorporated herein by this
reference. The Five-Year Summary should be read in conjunction with the
Company's consolidated financial statements and accompanying notes incorporated
by reference in Item 8, Consolidated Financial Statements and Supplementary
Data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information appearing under the caption "Financial Review" on pages 16 through
18 and under the caption "Capital Expenditure Program" on pages 13 and 14 of the
Company's 1997 Annual Report to Stockholders is incorporated herein by this
reference.
Information regarding the terms of outstanding indebtedness appearing in Note C
to the consolidated financial statements on pages 27 through 28 of the Company's
1997 Annual Report to Stockholders is incorporated herein by this reference.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. To the extent that the
Company's software applications contain source code that is unable to
appropriately interpret the uncoming calendar year 2000 and beyond, some level
of modification or replacement of such applications will be necessary to avoid
system failures and the temporary inability to process transactions or engage
in other normal business activities.
The Company utilizes a significant number of computer software programs and
operating systems across its entire organization, including applications used in
stores, manufacturing, product development, financial business systems and
various administrative functions. In addition, the Company is communicating
with major vendors to determine the extent to which the Company is vulnerable
to third-party Year 2000 compliance issues.
Given information known at this time about the Company's systems that are
non-compliant, coupled with the Company's ongoing, normal course-of-business
efforts to upgrade or replace critical systems, as necessary, management does
not expect Year 2000 compliance costs to have any material adverse impact on
the Company's liquidity or ongoing results of operations.
9
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SAFEWAY INC. AND SUBSIDIARIES
By year-end 1997, Safeway had concluded early negotiations and signed new labor
contracts covering employees whose collective bargaining agreements had been due
to expire in 1998. Certain of these contracts were with employees represented by
the United Food and Commercial Workers Union in northern California and Spokane,
Washington. In addition, union members in British Columbia ratified a new labor
contract. Management considers the terms of these new contracts to be
satisfactory. As a result of these early negotiations, the only significant
remaining labor contracts due to expire in 1998 are in the Seattle and Winnipeg
operating areas covering approximately 110 stores.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 19 through 39 of the Company's 1997 Annual Report to Stockholders, which
include the consolidated financial statements, Computation of Earnings Per
Common Share and Common Share Equivalent (listed as Exhibit 11.1 to
Item 14(a)3), and the Independent Auditors' Report as listed in Item 14(a)1, are
incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
Directors of the Company. Information on the nominees for election as Directors
and the continuing Directors of the Company, which appears under the caption
"Election of Directors" in the Company's 1998 Proxy Statement, is incorporated
herein by this reference.
Executive Officers of the Company. See PART I under the caption "Executive
Officers of the Company".
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the captions "Executive Compensation" and "Pension
Plans" in the Company's 1998 Proxy Statement is incorporated herein by this
reference. Information appearing under the captions "Report of the Compensation
and Stock Option Committee; Report of the Section 162(m) Committee" and "Stock
Performance Graph" in the Company's 1998 Proxy Statement is not incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Beneficial Ownership of Securities" in
the Company's 1998 Proxy Statement is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note J to the consolidated financial statements, included on page 34 of the
Company's 1997 Annual Report to Stockholders, and the captions "Certain
Relationships and Transactions" and "Compensation Committee Interlocks and
Insider Participation" in the Company's 1998 Proxy Statement contain information
about certain relationships and related transactions and are incorporated herein
by this reference.
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SAFEWAY INC. AND SUBSIDIARIES
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. Consolidated Financial Statements of the Company are incorporated by
reference in PART II, Item 8:
Consolidated Statements of Income for fiscal 1997, 1996, and 1995.
Consolidated Balance Sheets as of the end of fiscal 1997 and 1996.
Consolidated Statements of Cash Flows for fiscal 1997, 1996, and 1995.
Consolidated Statements of Stockholders' Equity for fiscal 1997, 1996,
and 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Consolidated Financial Statement Schedules:
None required
3. The following exhibits are filed as part of this report:
<TABLE>
<S> <C>
Exhibit 2.1 Agreement and Plan of Merger dated as of December 15, 1996,
by and among Safeway Inc., SSCI Merger Sub, Inc. and The
Vons Companies, Inc., as amended on January 8, 1997
(incorporated by reference to Exhibit 2.1 to Registrant's
Registration on Form S-4 No. 333-22837 dated March 5, 1997).
Exhibit 2.2 Amended and Restated Stock Repurchase Agreement, dated
as of January 8, 1997 by and between Safeway Inc. and SSI
Associates, L.P. (incorporated by reference to Exhibit 2.1
to Registrant's Current Report on Form 8-K dated January 8,
1997).
Exhibit 3.1 Restated Certificate of Incorporation of the Company and
Certificate of Amendment of Restated Certificate of
Incorporation by the Company (incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 15, 1996).
Exhibit 3.2 Form of By-laws of the Company as amended (incorporated
by reference to Exhibit 3.2 to Registration Statement No.
33-33388), and Amendment to the Company's By-laws effective
March 8, 1993 (incorporated by reference to Exhibit 3.2 to
Registrant's Form 10-K for the year ended January 2, 1993).
Exhibit 4(i).1 Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4(i).2 to Registration Statement No.
33-33388).
Exhibit 4(i).2 Registration Rights Agreement dated November 25, 1986
between the Company and certain limited partnerships
(incorporated by reference to Exhibit 4(i).4 to Registration
Statement No. 33-33388).
Exhibit 4(i).3 Indenture dated as of November 20, 1991 between the
Company and The Bank of New York, as Trustee, relating to
the Company's Senior Subordinated Debt Securities
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated November 13, 1991), as supplemented by the
Supplemental Indenture dated as of September 4, 1997.
</TABLE>
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C>
Exhibit 4(i).4 Form of Officers' Certificate establishing the terms of the
10% Senior Subordinated Notes due December 1, 2001,
including the form of Note (incorporated by reference to
Exhibit 4.4 of Registrant's Form 8-K dated November 13,
1991).
Exhibit 4(i).5 Form of Officers' Certificate establishing the terms of the
9.65% Senior Subordinated Debentures due January 15, 2004,
including the form of Debenture (incorporated by reference
to Exhibit 4.1 of Registrant's Form 8-K dated January 15,
1992).
Exhibit 4(i).6 Indenture dated as of February 1, 1992 between the Company
and The First National Bank of Chicago, as Trustee, relating
to the Company's 9.30% Senior Secured Debentures due 2007,
including the form of Debenture and the forms of Deed of
Trust and Environmental Indemnity Agreement attached as
exhibits thereto (incorporated by reference to Exhibit
4(i).14 of Registrant's Form 10-K for the year ended
December 28, 1991), as supplemented by the Supplemental
Indenture dated as of September 4, 1997.
Exhibit 4(i).7 Indenture dated as of March 15, 1992 between the Company and
Harris Trust and Savings Bank, as Trustee, relating to the
Company's Senior Subordinated Debt Securities (incorporated
by reference to Exhibit 4.1 of Registrant's Form 8-K dated
March 17, 1992), as supplemented by the Supplemental
Indenture dated as of September 4, 1997.
Exhibit 4(i).8 Form of Officers' Certificate establishing the terms of the
9.35% Senior Subordinated Notes due March 15, 1999 and the
9.875% Senior Subordinated Debentures due March 15, 2007,
including the form of Note and form of Debenture
(incorporated by reference to Exhibit 4.2 of Registrant's
Form 8-K dated March 17, 1992).
Exhibit 4(i).9 Indenture dated as of September 1, 1992 between the Company
and The Chase Manhattan Bank (National Association), as
Trustee, relating to the Company's Debt Securities
(incorporated by reference to Exhibit 4.1 of Registrant's
Form 8-K dated September 16, 1992), as supplemented by the
Supplemental Indenture dated as of September 4, 1997.
Exhibit 4(i).10 Form of Officers' Certificate relating to the Company's
Fixed Rate Medium-Term Notes and the Company's Floating Rate
Medium-Term Notes, form of Fixed Rate Note and form of
Floating Rate Note (incorporated by reference to Exhibits
4.2, 4.3 and 4.4 of Registrant's Form 8-K dated September
16, 1992).
Exhibit 4(i).11 Form of Officers' Certificate establishing the terms of a
separate series of Safeway Inc.'s Medium-Term Notes entitled
10% Senior Notes due November 1, 2002, including the form of
Note (incorporated by reference to Exhibits 4.1 and 4.2 of
Registrant's Form 8-K dated November 5, 1992).
Exhibit 4(i).12 Form of Officers' Certificate establishing the terms of a
separate series of Safeway Inc.'s Medium-Term Notes entitled
Medium-Term Notes due June 1, 2003 (Series OPR-1), including
the form of Note (incorporated by reference to Exhibits 4.1
and 4.2 of Registrant's Form 8-K dated June 1, 1993).
</TABLE>
12
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SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C>
Exhibit 4(i).13 Common Stock Purchase Warrants to purchase 14,148,969 shares
of Safeway Inc. common stock.
Exhibit 4(i).14 Credit Agreement dated as of April 8, 1997 among Safeway
Inc., The Vons Companies, Inc. and Canada Safeway Limited as
Borrowers; Bankers Trust Company as Administrative Agent;
The Chase Manhattan Bank as Syndication Agent; The Bank of
Nova Scotia and Bank of America National Trust and Savings
Association as Documentation Agents; the agents listed
therein as Agents; and the lenders listed therein as
Lenders. (incorporated by reference to Exhibit 4(i).1 of the
Registrant's Form 10-Q for the quarterly period ended March
22, 1997).
Exhibit 4(i).15 Indenture, dated as of September 10, 1997, between Safeway
Inc. And The Bank of New York, as Trustee (incorporated by
reference to Exhibit 4.1 to Registrant's Form 8-K dated
September 10, 1997).
Exhibit 4(i).16 Form of Officers' Certificate establishing the terms of the
Registrant's 6.85% Senior Notes due 2004, the Registrant's
7.00% Senior Notes due 2007 and the company's 7.45% Senior
Debentures due 2027 (incorporated by reference to Exhibit
4.2 to Registrant's Form 8-K dated September 10, 1997).
Exhibit 4(i).17 Form of 6.85% Senior Note due 2004 (incorporated by
reference to Exhibit 4.3 to Registrant's Form 8-K dated
September 10, 1997).
Exhibit 4(i).18 Form of 7.00% Senior Note due 2007 (incorporated by
reference to Exhibit 4.4 to Registrant's Form 8-K dated
September 10, 1997).
Exhibit 4(i).19 Form of 7.45% Senior Debenture due 2027 (incorporated by
reference to Exhibit 4.6 to Registrant's Form 8-K dated
September 10, 1997).
Exhibit 4(iii) Registrant agrees to provide the Securities and Exchange
Commission, upon request, with copies of instruments
defining the rights of holders of long-term debt of the
Registrant and all of its subsidiaries for which
consolidated financial statements are required to be filed
with the Securities and Exchange Commission.
Exhibit 10(iii).1* Safeway Inc. Outside Director Equity Purchase Plan
(incorporated by reference to Exhibit 4.1 to Registration
Statement No. 33-36753), and First Amendment to the Safeway
Inc. Outside Director Equity Purchase Plan dated as of July
5, 1994 (incorporated by reference to Exhibit 10(iii).1 to
Registrant's Form 10-Q for the quarterly period ended
September 10, 1994).
Exhibit 10(iii).2* Share Appreciation Rights Plan of Canada Safeway Limited
(incorporated by reference to Exhibit 10(iii).17 to
Registrant's Form 10-K for the year ended December 29, 1990)
and Amendment No. 1 thereto dated December 13, 1991
(incorporated by reference to Exhibit 10(iii).17 to
Registrant's Form 10-K for the year ended December 28,
1991).
Exhibit 10(iii).3* Share Appreciation Rights Plan of Lucerne Foods Ltd.
(incorporated by reference to Exhibit 10(iii).18 to
Registrant's Form 10-K for the year ended December 29, 1990)
and Amendment No. 1 thereto dated December 13, 1991
(incorporated by reference to Exhibit 10(iii).18 to
Registrant's Form 10-K for the year ended December 28,
1991).
Exhibit 10(iii).4* Stock Option Plan for Consultants of Safeway Inc.
(incorporated by reference to Exhibit 10(iii).7 to
Registrant's Form 10-Q for the quarterly period ending June
19, 1993).
</TABLE>
* Management contract, or compensatory plan or arrangement.
13
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C>
Exhibit 10(iii).5* First Amendment to the Stock Option Plan for Consultants
of Safeway Inc. (incorporated by reference to Exhibit
10(iii).7 to Registrant's Form 10-K for the year ended
January 1, 1994).
Exhibit 10(iii).6* 1994 Amended and Restated Stock Option and Incentive Plan
for Key Employees of Safeway Inc. (incorporated by reference
to Exhibit 10(iii).8 to Registrant's Form 10-K for the year
ended January 1, 1994) and First Amendment thereto dated
March 1, 1995 (incorporated by reference to Exhibit
10(iii).7 of Registrant's Form 10-K/A for the year ended
December 31, 1994).
Exhibit 10(iii).7* Operating Performance Bonus Plan for Executive Officers of
Safeway Inc. (incorporated by reference to Exhibit 10(iii).9
to Registrant's Form 10-K for the year ended January 1,
1994); First Amendment thereto dated January 1, 1997.
(incorporated by reference to Exhibit 110(iii).12 of
Registrant's Form 10-K for the year ended December 28,
1996); Second Amendment thereto dated October 7, 1997; and
Third Amendment thereto dated March 10, 1998.
Exhibit 10(iii).8* Capital Performance Bonus Plan for Executive Officers of
Safeway Inc.
Exhibit 10(iii).9* Retirement Restoration Plan of Safeway Inc. (incorporated
by reference to Exhibit 10(iii).11 to Registrant's Form 10-K
for the year ended January 1, 1994).
Exhibit 10(iii).10* Deferred Compensation Plan for Safeway Directors
(incorporated by reference to Exhibit 10(iii).11 of
Registrant's Form 10-K for the year ended December 31,
1994).
Exhibit 10(iii).11* Form of stock option agreement for former directors of The
Vons Companies, Inc. (incorporated by reference to Exhibit
10(iii).12 of Registrant's Form 10-K for the year ended
December 28, 1996).
Exhibit 10(iii).12* The Vons Companies, Inc. Management Stock Option Plan
(incorporated by reference to Exhibit 10.3 to The Vons
Companies, Inc. Annual Report on Form 10-K for the
twenty-seven weeks ended January 3, 1988).
Exhibit 10(iii).13* The Vons Companies, Inc. 1990 Stock Option and Restricted
Stock Plan (incorporated by reference to Appendix A to The
Vons Companies, Inc. Proxy Statement for its May 17, 1990
Annual Meeting of Shareholders).
Exhibit 10(iii).14* Amendment, dated February 17, 1993, to The Vons Companies,
Inc. 1990 Stock Option and Restricted Stock Plan
(incorporated by reference to Exhibit 10.13.1 to The Vons
Companies, Inc. Form 10-Q for the quarterly period ended
March 28, 1993).
Exhibit 10(iii).15* Amendment, effective as of December 13, 1996, to The Vons
Companies, Inc. 1990 Stock Option and Restricted Stock Plan
(incorporated by reference to Exhibit 10.7.2 to The Vons
Companies, Inc. Form 10-K for the fiscal year ended December
29, 1996).
Exhibit 10(iii).16* Form of Amendments, dated April 8, 1997, to The Vons
Companies, Inc. Management Stock Option Plan and The Vons
Companies, Inc. 1990 Stock Option and Restricted Stock Plan
(incorporated by reference to Exhibit 4.5 to Registrant's
Form S-4 filed on March 5, 1997).
</TABLE>
14
<PAGE> 15
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
<TABLE>
<S> <C>
Exhibit 11.1 Computation of Earnings Per Share (incorporated by
reference to page 38 of the Company's 1997 Annual Report to
Stockholders).
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 13.1 Registrant's 1997 Annual Report to Stockholders (considered
filed to the extent specified in Item 1, Item 2, Item 3,
Item 5, Item 6, Item 7, Item 8, Item 13 and Exhibit 11.1
above).
Exhibit 22.1 Schedule of Subsidiaries.
Exhibit 23.1 Independent Auditors' Consent.
Exhibit 27 Financial Data Schedule (electronic filing only).
</TABLE>
- --------------
* Management contract, or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K:
On September 10, 1997, the Company filed a Current Report on Form 8-K stating
under "Item 5. Other Events" that on that day it had completed an underwritten
offering of $200 million aggregate principal amount of its 6.85% Senior Notes
due 2004, $250 million aggregate principal amount of its 7.00% Senior Notes due
2007, and $150 million aggregate principal amount of its 7.45% Senior Debentures
due 2027 under its Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on August 4, 1997 (File no. 333-32741).
15
<PAGE> 16
SAFEWAY INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
By: /s/ Steven A. Burd Date: March 24, 1998
- ------------------------ ---------------------
SAFEWAY INC.
Steven A. Burd
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<S> <C>
/s/ Julian C. Day /s/ David F. Bond
- ------------------ -----------------
Julian C. Day David F. Bond
Executive Vice President and Senior Vice President
Chief Financial Officer Finance and Control
Date: March 24, 1998 Date: March 24, 1998
</TABLE>
<TABLE>
<CAPTION>
Director Date
-------- ----
<S> <C>
/s/Steven A. Burd March 24, 1998
- ----------------- --------------
Steven A. Burd
/s/ Sam Ginn March 24, 1998
- ------------ --------------
Sam Ginn
/s/ James H. Greene, Jr. March 24, 1998
- ------------------------ --------------
James H. Greene, Jr.
/s/ Paul Hazen March 24, 1998
- -------------- --------------
Paul Hazen
/s/ Henry R. Kravis March 24, 1998
- -------------------------- --------------
Henry R. Kravis
/s/ Robert I. MacDonnell March 24, 1998
- -------------------------- --------------
Robert I. MacDonnell
/s/ Peter A. Magowan March 24, 1998
- -------------------- --------------
Peter A. Magowan
/s/ George R. Roberts March 24, 1998
- --------------------- --------------
George R. Roberts
/s/ Michael T. Tokarz March 24, 1998
- --------------------- --------------
Michael T. Tokarz
</TABLE>
16
<PAGE> 17
SAFEWAY INC, AND SUBSIDIARIES
Exhibit Index
LIST OF EXHIBITS FILED WITH FORM 10-K FOR THE PERIOD
ENDED JANUARY 3, 1998
Exhibit 4(i).3 Supplemental Indenture dated as of September 4, 1997 between
the Company and The Bank of New York, as Trustee, relating
to the Company's Senior Subordinated Debt Securities.
Exhibit 4(i).6 Supplemental Indenture dated as of September 4, 1997 between
the Company and The First National Bank of Chicago, as
Trustee, relating to the Company's 9.30% Senior Secured
Debentures due 2007.
Exhibit 4(i).7 Supplemental Indenture dated as of September 4, 1997 between
the Company and Harris Trust and Savings Bank, as Trustee,
relating to the Company's Senior Subordinated Debt
Securities.
Exhibit 4(i).9 Supplemental Indenture dated as of September 4, 1997 between
the Company and The Chase Manhattan Bank (National
Association), as Trustee, relating to the Company's Debt
Securities.
Exhibit 4(i).13 Common Stock Purchase Warrants to purchase 14,148,969
shares of Safeway Inc. common stock.
Exhibit 10(iii).7 Second Amendment to the Operating Performance Bonus Plan for
Executive Officers of Safeway Inc. dated October 7, 1997 and
Third Amendment to the Operating Performance Bonus Plan for
Executive Officers of Safeway Inc. dated March 10, 1988.
Exhibit 10(iii).8 The Capital Performance Bonus Plan for Executive Officers of
Safeway Inc.
Exhibit 11.1 Computation of Earnings Per Share (incorporated by reference
to page 38 of the Company's 1997 Annual Report to
Stockholders).
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges
Exhibit 13.1 Registrant's 1997 Annual Report to Stockholders (considered
filed to the extent specified in Item 1, Item 2, Item 3,
Item 5, Item 6, Item 7, Item 8, Item 13 and Exhibit 11.1
above).
Exhibit 22.1 Schedule of Subsidiaries
Exhibit 23.1 Independent Auditors' Consent.
Exhibit 27 Financial Data Schedule (electronic filing only)
<PAGE> 1
EXHIBIT 4(i).3
================================================================================
SAFEWAY INC.,
ISSUER
AND
THE BANK OF NEW YORK,
TRUSTEE
_________________
SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 4, 1997
_________________
Supplemental to the Indenture
dated as of November 20, 1991
with respect to the following series of Securities:
10.00% Senior Subordinated Notes due 2001 and
9.65% Senior Subordinated Debentures due 2004
================================================================================
<PAGE> 2
SUPPLEMENTAL INDENTURE, dated as of September 4, 1997, between
SAFEWAY INC., a Delaware corporation (hereinafter called the "Company"), as
issuer, and THE BANK OF NEW YORK, as trustee (hereinafter called the
"Trustee"), under the Indenture, dated as of November 20, 1991, between the
Company and the Trustee, as amended and supplemented to the date hereof (the
"Indenture").
RECITALS OF THE COMPANY
The Company has implemented a refinancing plan designed to
reduce its interest expense, extend the maturities of the Company's outstanding
long-term debt and enhance its operating and financial flexibility.
As part of the refinancing plan, the Company is making cash
tender offers (each of the offers is referred to herein individually, as an
"Offer" and, collectively, as the "Offers") to purchase certain debt securities
of the Company (the "Debt Securities"), including the Company's 10.00% Senior
Subordinated Notes due 2001 and 9.65% Senior Subordinated Debentures due 2004
(the "Securities"), which were issued as separate series of securities under
the Indenture.
The Company also is soliciting consents from Holders of the
Securities to amendments to the Indenture (the "Amendments") and to each
indenture under which each other series of Debt Securities was issued (all as
described in the Company's Offer to Purchase and Consent Solicitation Statement
dated August 4, 1997 (the "Statement")).
In accordance with Section 11.2 of the Indenture, the Holders
of not less than a majority of the principal amount of the outstanding
Securities of each series have consented to the Amendments.
The Board of Directors of the Company has duly authorized the
execution and delivery of this Supplemental Indenture. In addition, the
Company has delivered an Opinion of Counsel to the Trustee pursuant to Section
11.5 of the Indenture and has done all other things necessary to make this
Supplemental Indenture a valid agreement of the Company in accordance with the
terms hereof and of the Indenture.
This Supplemental Indenture is effective as of the date upon
which the conditions set forth in Section 1.9 hereof are satisfied and the
Amendments effected by this Supplemental Indenture will become operative with
respect to the 10.00% Senior Subordinated Notes due 2001 on the date such
Securities are accepted for payment by the Company pursuant to the Offer
therefor and with respect to the 9.65% Senior Subordinated Debentures due 2004
on the date such Securities are accepted for payment by the Company pursuant to
the Offer therefor.
WHEREFORE, each party agrees as follows for the benefit of the
other party and for the equal or ratable benefit of the Holders of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 DEFINITIONS.
For all purposes of the Indenture and this Supplemental
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
<PAGE> 3
(a) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to the Indenture and this Supplemental
Indenture as a whole and not to any particular Article, Section or subdivision;
and
(b) capitalized terms used but not defined herein shall
have the meanings assigned to them in the Indenture.
1.2 GOVERNING LAW.
This Supplemental Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
1.3 SUCCESSORS.
All agreements of the Company in this Supplemental Indenture
shall bind its successors. All agreements of the Trustee in this Supplemental
Indenture shall bind its successors.
1.4 DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
1.5 SEPARABILITY.
In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
1.6 HEADINGS, ETC.
The Article and Section headings of this Supplemental
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms and provisions hereof. Except as expressly provided herein and
notwithstanding the elimination of certain Sections of the Indenture as set
forth in Article Two hereof, all references to Sections in the Indenture shall
remain unchanged.
1.7 BENEFITS OF SUPPLEMENTAL INDENTURE.
Nothing in this Supplemental Indenture, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders, any benefit or any legal or
equitable right, remedy or claim under this Supplemental Indenture.
1.8 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
accuracy of this Supplemental Indenture.
2
<PAGE> 4
1.9 EFFECTIVENESS.
This Supplemental Indenture shall take effect on the date (the
"Effective Date") that each of the following conditions shall have been
satisfied or waived:
(a) each of the parties hereto shall have executed and
delivered this Supplemental Indenture; and
(b) the Trustee shall have received an opinion of Latham
& Watkins, Counsel to the Company, dated the Effective Date, pursuant to
Section 11.5 of the Indenture;
provided, however, that the Amendments set forth in Article Two hereof shall
take effect only upon and simultaneously with, and shall have no force and
effect prior to, (i) with respect to the 10.00% Senior Subordinated Notes due
2001, the acceptance for purchase and payment of the Securities of such series
tendered pursuant to the Offer therefor and (ii) with respect to the 9.65%
Senior Subordinated Debentures due 2004, the acceptance for purchase and
payment of the Securities of such series tendered pursuant to the Offer
therefor.
ARTICLE II
THE AMENDMENTS
2.1 AMENDMENTS.
The Indenture is hereby amended as follows:
(1) Section 3.9 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.9 [Intentionally
omitted]."
(2) Section 3.10 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.10 [Intentionally
omitted]."
(3) Section 3.11 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.11 [Intentionally
omitted]."
(4) Section 3.12 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.12 [Intentionally
omitted]."
(5) Section 3.13 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.13 [Intentionally
omitted]."
(6) Section 6.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 6.1. Events of Default. The following events
are hereby defined for all purposes of this Indenture with respect to
Securities of any series (except where the term is otherwise defined for
specific purposes) as "defaults":
(a) Failure to pay the principal of and premium,
if any, on any of the Securities of that series, when and as the same shall
become due and payable, whether at Stated Maturity
3
<PAGE> 5
thereof, by call for redemption or otherwise, whether or not such payment is
prohibited by the provisions of Article VII hereof; or
(b) Failure to pay any installment of interest on
any of the Securities of that series, when and as the same shall become payable
as therein expressed, and such failure shall continue for a period of 30 days
(it being understood that if the entire amount of such payment of interest is
deposited by the Company with the Trustee, or with another paying agent duly
appointed hereunder, before the expiration of such period of 30 days, such
default shall no longer be considered to be continuing under this Indenture),
whether or not such payment is prohibited by the provisions of Article VII
hereof; or
(c) Failure to perform or observe any other of
the covenants, conditions or agreements on the part of the Company in this
Indenture (other than a covenant, condition or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with or which has expressly been included in this Indenture solely for the
benefit of series of Securities other than that series) or in the Securities of
that series, and such failure shall continue for a period of 60 days after
written notice to the Company from the Trustee or to the Company and to the
Trustee from the Holders of not less than a majority of the principal amount of
the Securities of that series then outstanding under this Indenture; or
(d) [Intentionally omitted].
(e) If the Company shall file a petition
commencing a voluntary case under any chapter of the Federal bankruptcy laws or
any similar state law for the relief of debtors; or the Company shall file a
petition or answer or consent seeking reorganization, arrangement, adjustment,
or composition under any other similar applicable law, or shall consent to the
filing of any such petition, answer, or consent; or the Company shall appoint,
or consent to the appointment of, a custodian, receiver, liquidator, trustee,
assignee, sequestrator or other similar official in bankruptcy or insolvency of
it or of any substantial part of its property; or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or
(f) If any order for relief against the Company
shall have been entered by a court having jurisdiction in the premises under
any chapter of the Federal bankruptcy laws or any similar state law for the
relief of debtors, and such order shall have continued undischarged or unstayed
for a period of 120 days; or a decree or order by a court having jurisdiction
in the premises shall have been entered approving as properly filed a petition
seeking reorganization, arrangement, adjustment, or composition of the Company
under any other similar applicable law, and such decree or order shall have
continued undischarged or unstayed for a period of 120 days; or a decree or
order of a court having jurisdiction in the premises for the appointment of a
custodian, receiver, liquidator, trustee, assignee, sequestrator, or other
similar official in bankruptcy or insolvency of the Company or of any
substantial part of its property, or for the winding up or liquidation of its
affairs, shall have been entered, and such decree or order shall have remained
in force undischarged or unstayed for a period of 120 days; or
(g) Any other default provided with respect to
Securities of that series.
If one or more defaults with respect to Securities of any
series shall happen and be continuing, then, and in each and every such case,
either the Trustee, by notice in writing to the Company and to the agent under
the Bank Credit Agreement (the "Credit Agent"), or the Holders of not less than
a majority of the principal amount of the Securities of that series then
outstanding, by notice in writing to the Company, the Trustee and the Credit
Agent, may declare due and payable, if not already due and payable,
4
<PAGE> 6
the principal (or, if the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of, premium, if any, plus any accrued interest on all of
the Securities of that series; and upon any such declaration all such amounts
upon such Securities of that series shall become and be immediately due and
payable upon the first to occur of an acceleration under the Bank Credit
Agreement or five Business Days after receipt by the Company and the Credit
Agent of such written notice given hereunder (if upon such first occurrence such
default or defaults shall be continuing), anything in this Indenture or in any
of such Securities contained to the contrary notwithstanding. This provision,
however, is subject to the condition that if, at any time after the principal
(or portion thereof) of, premium, if any, plus any accrued interest on the
Securities of that series shall have been declared due and payable, and prior to
the Stated Maturity of the principal thereof, all arrears of interest upon all
such Securities (with interest so far as may be lawful on any overdue
installments of interest at the rate specified in such Securities) and the
expenses of the Trustee, its agents or attorneys shall be paid by or for the
account of the Company, and all defaults as aforesaid (other than the payment of
principal which has been so declared due and payable) shall have been made good
or secured to the satisfaction of the Trustee and provision deemed by the
Trustee to be adequate shall be made therefor, then and in every such case the
Trustee shall, upon the written request of the Holders of a majority in
principal amount of the Securities of that series then outstanding, delivered to
the Company and to the Trustee, waive such default and its consequences and
rescind or annul such declaration; but no such waiver shall extend to or affect
any subsequent default, or impair any right consequent thereon.
Notwithstanding the foregoing, to the extent the Company shall
have been relieved of any of its obligations under this Indenture with respect
to Securities of any series pursuant to Section 13.4 hereof, the failure of the
Company to perform any such obligations as to which it has been relieved shall
not constitute a default as contemplated by this Indenture.
(7) Section 9.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 9.1. Company May Merge, etc. Only on Certain
Terms. The Company may not consolidate with or merge with or into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, unless:
(1) in case the Company shall consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety (the "Surviving Person") shall be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of and any premium and interest on all the Securities and the
performance of every covenant of this Indenture on the part of the Company to
be performed or observed;
(2) immediately after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Surviving Person, the Company or any Subsidiary as a result of such transaction
as having been incurred by the Surviving Person, the Company, or such
Subsidiary at the time of such transaction, no default or event of default
shall have occurred and be continuing;
(3) [Intentionally omitted].
5
<PAGE> 7
(4) the Company has previously given the Trustee
not less than 10 days' prior written notice of such transaction and has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
each stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture shall comply with this Article and
that all conditions precedent herein provided for relating to such transaction
have been complied with.
ARTICLE III
ENDORSEMENT AND CHANGE OF FORM OF SECURITIES
3.1 NOTICE TO SECURITYHOLDERS.
After the Amendments become effective, the Company shall mail
to Holders a notice briefly describing such Amendments.
3.2 NOTATION ON SECURITIES.
(a) Securities authenticated and delivered after the
effectiveness of this Supplemental Indenture shall be affixed by the Trustee at
the Company's expense with the following notation:
"The Company and the Trustee have entered into a
Supplemental Indenture, dated as of September 4, 1997, which
(i) eliminated certain restrictive covenants contained in
Article III of the Indenture; (ii) amended certain provisions
with respect to defaults and remedies contained in Article VI
of the Indenture and (iii) amended certain provisions
contained in Article IX of the Indenture. Reference is hereby
made to such Supplemental Indenture, copies of which are on
file with The Bank of New York, Trustee."
The Trustee may, but shall not be required to, require holders
of Securities authenticated and delivered prior to the effectiveness of this
Supplemental Indenture to deliver such Securities to the Trustee so that the
Trustee may place the aforementioned notation on such Securities.
(b) If the Company or the Trustee so determines, the
Company, in exchange for the Securities, shall issue and the Trustee shall
authenticate new securities that reflect the changed terms.
[signature page follows]
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date first written
above.
SAFEWAY INC.,
Issuer
By:______________________________________________
Name: Melissa C. Plaisance
Title: Senior Vice President - Finance and
Public Affairs
THE BANK OF NEW YORK,
Trustee
By:______________________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4(i).6
================================================================================
SAFEWAY INC.,
ISSUER
AND
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
_________________
SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 4, 1997
_________________
Supplemental to the Indenture
dated as of February 1, 1992
relating to the Issuer's
9.30% Senior Secured Debentures due 2007
================================================================================
<PAGE> 2
SUPPLEMENTAL INDENTURE, dated as of September 4, 1997, between
SAFEWAY INC., a Delaware corporation (hereinafter called the "Company"), as
issuer, and THE FIRST NATIONAL BANK OF CHICAGO, as trustee (hereinafter called
the "Trustee"), under the Indenture, dated as of February 1, 1992, between the
Company and the Trustee, as amended and supplemented to the date hereof (the
"Indenture").
RECITALS OF THE COMPANY
The Company has implemented a refinancing plan designed to
reduce its interest expense, extend the maturities of the Company's outstanding
long-term debt and enhance its operating and financial flexibility.
As part of the refinancing plan, the Company is making cash
tender offers (each of the offers is referred to herein individually, as an
"Offer" and, collectively, as the "Offers") to purchase certain debt securities
of the Company (the "Debt Securities"), including the Company's 9.30% Senior
Secured Debentures due 2007 (the "Securities"), which were issued under the
Indenture.
The Company also is soliciting consents from Holders of the
Securities to amendments to the Indenture (the "Amendments") and to each
indenture under which each other series of Debt Securities was issued (all as
described in the Company's Offer to Purchase and Consent Solicitation Statement
dated August 4, 1997 (the "Statement")).
In accordance with Section 9.2 of the Indenture, the Holders
of not less than a majority of the principal amount of the outstanding
Securities have consented to such Amendments.
The Board of Directors of the Company has duly authorized the
execution and delivery of this Supplemental Indenture. In addition, the Company
has delivered an Opinion of Counsel to the Trustee pursuant to Section 9.5 of
the Indenture and has done all other things necessary to make this Supplemental
Indenture a valid agreement of the Company in accordance with the terms hereof
and of the Indenture.
This Supplemental Indenture is effective as of the date upon
which the conditions set forth in Section 1.9 hereof are satisfied and the
Amendments effected by this Supplemental Indenture will become operative on the
date the Securities are accepted for payment by the Company pursuant to the
Offer therefor.
WHEREFORE, each party agrees as follows for the benefit of the
other party and for the equal or ratable benefit of the Holders of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 DEFINITIONS.
For all purposes of the Indenture and this Supplemental
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to the Indenture and this Supplemental
Indenture as a whole and not to any particular Article, Section or subdivision;
and
<PAGE> 3
(b) capitalized terms used but not defined herein shall
have the meanings assigned to them in the Indenture.
1.2 GOVERNING LAW.
This Supplemental Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
1.3 SUCCESSORS.
All agreements of the Company in this Supplemental Indenture
shall bind its successors. All agreements of the Trustee in this Supplemental
Indenture shall bind its successors.
1.4 DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
1.5 SEPARABILITY.
In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
1.6 HEADINGS, ETC.
The Article and Section headings of this Supplemental
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms and provisions hereof. Except as expressly provided herein and
notwithstanding the elimination of certain Sections of the Indenture as set
forth in Article Two hereof, all references to Sections in the Indenture shall
remain unchanged.
1.7 BENEFITS OF SUPPLEMENTAL INDENTURE.
Nothing in this Supplemental Indenture, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders, any benefit or any legal or
equitable right, remedy or claim under this Supplemental Indenture.
1.8 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
accuracy of this Supplemental Indenture.
1.9 EFFECTIVENESS.
This Supplemental Indenture shall take effect on the date (the
"Effective Date") that each of the following conditions shall have been
satisfied or waived:
(a) each of the parties hereto shall have executed and
delivered this Supplemental Indenture; and
2
<PAGE> 4
(b) the Trustee shall have received an opinion of Latham
& Watkins, Counsel to the Company, dated the Effective Date, pursuant to
Section 9.5 of the Indenture;
provided, however, that the Amendments set forth in Article Two hereof shall
take effect only upon and simultaneously with, and shall have no force and
effect prior to, the acceptance for purchase and payment of the Securities
tendered pursuant to the Offer therefor.
ARTICLE II
THE AMENDMENTS
2.1 AMENDMENTS.
The Indenture is hereby amended as follows:
(1) Section 3.9 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.9 [Intentionally
omitted]."
(2) Section 3.10 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.10 [Intentionally
omitted]."
(3) Section 3.11 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.11 [Intentionally
omitted]."
(4) Section 3.13 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.13 [Intentionally
omitted]."
(5) Section 5.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 5.1. Events of Default. The following events are
hereby defined for all purposes of this Indenture (except where the term is
otherwise defined for specific purposes) as "defaults":
(a) Failure to pay the principal of any Security, when
and as the same shall become due and payable, whether at Stated Maturity
thereof, by call for redemption, offer to repurchase or otherwise; or
(b) Failure to pay any installment of interest on any
Security, when and as the same shall become payable as therein expressed, and
such failure shall continue for a period of 30 days (it being understood that
if the entire amount of such payment of interest is deposited by the Company
with the Trustee, or with another Paying Agent duly appointed hereunder, before
the expiration of such period of 30 days, such default shall no longer be
considered to be continuing under this Indenture); or
(c) Failure to perform or observe any other of the
covenants, conditions or agreements on the part of the Company in this
Indenture, the Securities or the Deed of Trust (in each case other than a
covenant, condition or agreement a default in whose performance or whose breach
is elsewhere in this Section specifically dealt with), or in the Environmental
Indemnity Agreement, and such failure shall continue for a period of 60 days
after written notice to the Company from the Trustee or to the Company and to
the Trustee from the Holders of not less than a majority of the principal
amount of the Securities then outstanding; or
3
<PAGE> 5
(d) [Intentionally omitted].
(e) If the Company shall file a petition commencing a
voluntary case under any chapter of the Federal bankruptcy laws or any similar
state law for the relief of debtors; or the Company shall file a petition or
answer or consent seeking reorganization, arrangement, adjustment, or
composition under any other similar applicable law, or shall consent to the
filing of any such petition, answer, or consent; or the Company shall appoint,
or consent to the appointment of, a custodian, receiver, liquidator, trustee,
assignee, sequestrator or other similar official in bankruptcy or insolvency of
it or of any substantial part of its property; or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or
(f) If any order for relief against the Company shall
have been entered by a court having jurisdiction in the premises under any
chapter of the Federal bankruptcy laws or any similar state law for the relief
of debtors, and such order shall have continued undischarged or unstayed for a
period of 120 days; or a decree or order by a court having jurisdiction in the
premises shall have been entered approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of the Company under
any other similar applicable law, and such decree or order shall have continued
undischarged or unstayed for a period of 120 days; or a decree or order of a
court having jurisdiction in the premises for the appointment of a custodian,
receiver, liquidator, trustee, assignee, sequestrator, or other similar
official in bankruptcy or insolvency of the Company or of any substantial part
of its property, or for the winding up or liquidation of its affairs, shall
have been entered, and such decree or order shall have remained in force
undischarged or unstayed for a period of 120 days.
If one or more defaults shall happen and be continuing, then,
and in each and every such case, either the Trustee, by notice in writing to
the Company and to the agent under the Bank Credit Agreement (the "Credit
Agent"), or the Holders of not less than a majority of the principal amount of
the Securities then outstanding, by notice in writing to the Company, the
Trustee and the Credit Agent, may declare due and payable, if not already due
and payable, the principal of plus any accrued interest on the Securities; and
upon any such declaration all such amounts upon the Securities shall become and
be immediately due and payable upon the first to occur of an acceleration under
the Bank Credit Agreement or five Business Days after receipt by the Company
and the Credit Agent of such written notice given hereunder (if upon such first
occurrence such default or defaults shall be continuing), anything in this
Indenture, the Deed of Trust or the Securities contained to the contrary
notwithstanding. This provision, however, is subject to the condition that if,
at any time after the principal of and accrued interest on the Securities shall
have been declared due and payable, and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in
this Article provided, all arrears of interest upon all such Securities and the
expenses of the Trustee, the Deed of Trust Trustee and their respective agents
or attorneys shall be paid by or for the account of the Company, and all
defaults as aforesaid (other than the payment of principal which has been so
declared due and payable) shall have been made good or secured to the
satisfaction of the Trustee and provision deemed by the Trustee to be adequate
shall be made therefor, then and in every such case the Trustee shall, upon the
written request of the Holders of a majority in principal amount of the
Securities then outstanding, delivered to the Company and to the Trustee, waive
such default and its consequences and rescind or annul such declaration; but no
such waiver shall extend to or affect any subsequent default, or impair any
right consequent thereon.
Notwithstanding the foregoing, to the extent the Company shall
have been relieved of any of its obligations under this Indenture pursuant to
Section 11.4 hereof, the failure of the Company to perform any such obligations
as to which it has been relieved shall not constitute a default as contemplated
by this Indenture.
4
<PAGE> 6
(6) Section 7.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 7.1. Company May Merge, Etc. Only on Certain Terms.
The Company may not consolidate with or merge with or into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) in case the Company shall consolidate with or merge
into any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety (the "Surviving Person") shall (i) be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia, (ii) expressly assume,
by an indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, the due and punctual payment of the principal
of and interest on all the Securities and the performance of every covenant of
this Indenture on the part of the Company to be performed or observed and (iii)
expressly assume, by written instruments executed and delivered to the Trustee,
in form satisfactory to the Trustee, all covenants, agreements and obligations
of the Company under the Deed of Trust and the Environmental Indemnity
Agreement;
(2) immediately after giving effect to such transaction
and treating any Indebtedness which becomes an obligation of the Surviving
Person, the Company or any Subsidiary as a result of such transaction as having
been incurred by the Surviving Person, the Company, or such Subsidiary at the
time of such transaction, no default or event which, with giving of notice or
lapse of time or both, would be a default shall have occurred and be
continuing;
(3) [Intentionally omitted].
(4) the Company has previously given the Trustee not less
than 10 days' prior written notice of such transaction and has delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel each stating that
such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture and written instruments are required in connection with
such transaction, such supplemental indenture and written instruments shall
comply with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
ARTICLE III
ENDORSEMENT AND CHANGE OF FORM OF SECURITIES
3.1 NOTICE TO SECURITYHOLDERS.
After the Amendments become effective, the Company shall mail
to Holders a notice briefly describing such Amendments.
5
<PAGE> 7
3.2 NOTATION ON SECURITIES.
(a) Securities authenticated and delivered after the
effectiveness of this Supplemental Indenture shall bear the following notation:
"The Company and the Trustee have entered into a
Supplemental Indenture, dated as of September 4, 1997, which
(i) eliminated certain restrictive covenants contained in
Article III of the Indenture; (ii) amended certain provisions
with respect to defaults and remedies contained in Article V
of the Indenture and (iii) amended certain provisions
contained in Article VII of the Indenture. Reference is hereby
made to such Supplemental Indenture, copies of which are on
file with The First National Bank of Chicago, Trustee."
The Trustee may require holders of Securities authenticated
and delivered prior to the effectiveness of this Supplemental Indenture to
deliver such Securities to the Trustee so that the Trustee may place the
aforementioned notation on such Securities.
(b) If the Company or the Trustee so determines, the
Company, in exchange for the Securities, shall issue and the Trustee shall
authenticate new securities that reflect the changed terms.
[signature page follows]
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date first written
above.
SAFEWAY INC.,
Issuer
By:_______________________________________________
Name: Melissa C. Plaisance
Title: Senior Vice President - Finance and
Public Affairs
THE FIRST NATIONAL BANK OF CHICAGO,
Trustee
By:_______________________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4(i).7
================================================================================
SAFEWAY INC.,
ISSUER
AND
HARRIS TRUST AND SAVINGS BANK,
TRUSTEE
_________________
SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 4, 1997
_________________
Supplemental to the Indenture
dated as of March 15, 1992
with respect to the following series of Securities:
9.35% Senior Subordinated Notes due 1999 and
9.875% Senior Subordinated Debentures due 2007
================================================================================
<PAGE> 2
SUPPLEMENTAL INDENTURE, dated as of September 4, 1997, between
SAFEWAY INC., a Delaware corporation (hereinafter called the "Company"), as
issuer, and HARRIS TRUST AND SAVINGS BANK, as trustee (hereinafter called the
"Trustee"), under the Indenture, dated as of March 15, 1992, between the
Company and the Trustee, as amended and supplemented to the date hereof (the
"Indenture").
RECITALS OF THE COMPANY
The Company has implemented a refinancing plan designed to
reduce its interest expense, extend the maturities of the Company's outstanding
long-term debt and enhance its operating and financial flexibility.
As part of the refinancing plan, the Company is making cash
tender offers (each of the offers is referred to herein individually, as an
"Offer" and, collectively, as the "Offers") to purchase certain debt securities
of the Company (the "Debt Securities"), including the Company's 9.35% Senior
Subordinated Notes due 1999 and 9.875% Senior Subordinated Debentures due 2007
(the "Securities"), which were issued as separate series of securities under
the Indenture.
The Company also is soliciting consents from Holders of the
Securities to amendments to the Indenture (the "Amendments") and to each
indenture under which each other series of Debt Securities was issued (all as
described in the Company's Offer to Purchase and Consent Solicitation Statement
dated August 4, 1997 (the "Statement")).
In accordance with Section 11.2 of the Indenture, the Holders
of not less than a majority of the principal amount of the outstanding
Securities of each series have consented to the Amendments.
The Board of Directors of the Company has duly authorized the
execution and delivery of this Supplemental Indenture. In addition, the
Company has delivered an Opinion of Counsel to the Trustee pursuant to Section
11.5 of the Indenture and has done all other things necessary to make this
Supplemental Indenture a valid agreement of the Company in accordance with the
terms hereof and of the Indenture.
This Supplemental Indenture is effective as of the date upon
which the conditions set forth in Section 1.9 hereof are satisfied and the
Amendments effected by this Supplemental Indenture will become operative with
respect to the 9.35% Senior Subordinated Notes due 1999 on the date such
Securities are accepted for payment by the Company pursuant to the Offer
therefor and with respect to the 9.875% Senior Subordinated Debentures due 2007
on the date such Securities are accepted for payment by the Company pursuant to
the Offer therefor.
WHEREFORE, each party agrees as follows for the benefit of the
other party and for the equal or ratable benefit of the Holders of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 DEFINITIONS.
For all purposes of the Indenture and this Supplemental
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
<PAGE> 3
(a) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to the Indenture and this Supplemental
Indenture as a whole and not to any particular Article, Section or subdivision;
and
(b) capitalized terms used but not defined herein shall
have the meanings assigned to them in the Indenture.
1.2 GOVERNING LAW.
This Supplemental Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
1.3 SUCCESSORS.
All agreements of the Company in this Supplemental Indenture
shall bind its successors. All agreements of the Trustee in this Supplemental
Indenture shall bind its successors.
1.4 DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
1.5 SEPARABILITY.
In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
1.6 HEADINGS, ETC.
The Article and Section headings of this Supplemental
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms and provisions hereof. Except as expressly provided herein and
notwithstanding the elimination of certain Sections of the Indenture as set
forth in Article Two hereof, all references to Sections in the Indenture shall
remain unchanged.
1.7 BENEFITS OF SUPPLEMENTAL INDENTURE.
Nothing in this Supplemental Indenture, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders, any benefit or any legal or
equitable right, remedy or claim under this Supplemental Indenture.
1.8 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
accuracy of this Supplemental Indenture.
2
<PAGE> 4
1.9 EFFECTIVENESS.
This Supplemental Indenture shall take effect on the date (the
"Effective Date") that each of the following conditions shall have been
satisfied or waived:
(a) each of the parties hereto shall have executed and
delivered this Supplemental Indenture; and
(b) the Trustee shall have received an opinion of Latham
& Watkins, Counsel to the Company, dated the Effective Date, pursuant to
Section 11.5 of the Indenture;
provided, however, that the Amendments set forth in Article Two hereof shall
take effect only upon and simultaneously with, and shall have no force and
effect prior to, (i) with respect to the 9.35% Senior Subordinated Notes due
1999, the acceptance for purchase and payment of the Securities of such series
tendered pursuant to the Offer therefor and (ii) with respect to the 9.875%
Senior Subordinated Debentures due 2007, the acceptance for purchase and
payment of the Securities of such series tendered pursuant to the Offer
therefor.
ARTICLE II
THE AMENDMENTS
2.1 AMENDMENTS.
The Indenture is hereby amended as follows:
(1) Section 3.9 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.9 [Intentionally
omitted]."
(2) Section 3.10 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.10 [Intentionally
omitted]."
(3) Section 3.11 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.11 [Intentionally
omitted]."
(4) Section 3.12 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.12 [Intentionally
omitted]."
(5) Section 3.13 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.13 [Intentionally
omitted]."
(6) Section 6.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 6.1. Events of Default. The following events are
hereby defined for all purposes of this Indenture with respect to Securities of
any series (except where the term is otherwise defined for specific purposes)
as "defaults":
(a) Failure to pay the principal of and premium, if any,
on any of the Securities of that series, when and as the same shall become due
and payable, whether at Stated Maturity thereof, by call for
3
<PAGE> 5
redemption upon surrender for repurchase or otherwise, whether or not such
payment is prohibited by the provisions of Article VII hereof; or
(b) Failure to pay any installment of interest on any of
the Securities of that series, when and as the same shall become payable as
therein expressed, and such failure shall continue for a period of 30 days (it
being understood that if the entire amount of such payment of interest is
deposited by the Company with the Trustee, or with another paying agent duly
appointed hereunder, before the expiration of such period of 30 days, such
default shall no longer be considered to be continuing under this Indenture),
whether or not such payment is prohibited by the provisions of Article VII
hereof; or
(c) Failure to perform or observe any other of the
covenants, conditions or agreements on the part of the Company in this
Indenture (other than a covenant, condition or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with or which, pursuant to Section 2.1, is not applicable to Securities of that
series or which has expressly been included in this Indenture solely for the
benefit of series of Securities other than that series) or in the Securities of
that series, and such failure shall continue for a period of 60 days after
written notice to the Company from the Trustee or to the Company and to the
Trustee from the Holders of not less than a majority of the principal amount of
the Securities of that series then outstanding under this Indenture; or
(d) [Intentionally omitted].
(e) If the Company shall file a petition commencing a
voluntary case under any chapter of the Federal bankruptcy laws or any similar
state law for the relief of debtors; or the Company shall file a petition or
answer or consent seeking reorganization, arrangement, adjustment, or
composition under any other similar applicable law, or shall consent to the
filing of any such petition, answer, or consent; or the Company shall appoint,
or consent to the appointment of, a custodian, receiver, liquidator, trustee,
assignee, sequestrator or other similar official in bankruptcy or insolvency of
it or of any substantial part of its property; or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or
(f) If any order for relief against the Company shall
have been entered by a court having jurisdiction in the premises under any
chapter of the Federal bankruptcy laws or any similar state law for the relief
of debtors, and such order shall have continued undischarged or unstayed for a
period of 120 days; or a decree or order by a court having jurisdiction in the
premises shall have been entered approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of the Company under
any other similar applicable law, and such decree or order shall have continued
undischarged or unstayed for a period of 120 days; or a decree or order of a
court having jurisdiction in the premises for the appointment of a custodian,
receiver, liquidator, trustee, assignee, sequestrator, or other similar
official in bankruptcy or insolvency of the Company or of any substantial part
of its property, or for the winding up or liquidation of its affairs, shall
have been entered, and such decree or order shall have remained in force
undischarged or unstayed for a period of 120 days; or
(g) Any other default provided with respect to Securities
of that series.
If one or more defaults with respect to Securities of any
series shall happen and be continuing, then, and in each and every such case,
either the Trustee, by notice in writing to the Company and to the agent under
the Bank Credit Agreement (the "Credit Agent"), or the Holders of not less than
a majority of the principal amount of the Securities of that series then
outstanding, by notice in writing to the Company, the Trustee and the Credit
Agent, may declare due and payable, if not already due and payable,
4
<PAGE> 6
the principal (or, if the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of, premium, if any, plus any accrued interest on all of
the Securities of that series; and upon any such declaration all such amounts
upon such Securities of that series shall become and be immediately due and
payable upon the first to occur of an acceleration under the Bank Credit
Agreement or five Business Days after receipt by the Company and the Credit
Agent of such written notice given hereunder (if upon such first occurrence
such default or defaults shall be continuing), anything in this Indenture or in
any of such Securities contained to the contrary notwithstanding. This
provision, however, is subject to the condition that if, at any time after the
principal (or portion thereof) of, premium, if any, plus any accrued interest
on the Securities of that series shall have been declared due and payable, and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, all arrears of interest
upon all such Securities (with interest so far as may be lawful on any overdue
installments of interest at the rate specified in such Securities) and the
expenses of the Trustee, its agents or attorneys shall be paid by or for the
account of the Company, and all defaults as aforesaid (other than the payment
of principal which has been so declared due and payable) shall have been made
good or secured to the satisfaction of the Trustee and provision deemed by the
Trustee to be adequate shall be made therefor, then and in every such case the
Trustee shall, upon the written request of the Holders of a majority in
principal amount of the Securities of that series then outstanding, delivered
to the Company and to the Trustee, waive such default and its consequences and
rescind or annul such declaration; but no such waiver shall extend to or affect
any subsequent default, or impair any right consequent thereon.
Notwithstanding the foregoing, to the extent the Company shall
have been relieved of any of its obligations under this Indenture with respect
to Securities of any series pursuant to Section 13.4 hereof, the failure of the
Company to perform any such obligations as to which it has been relieved shall
not constitute a default as contemplated by this Indenture.
(7) Section 9.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 9.1. Company May Merge, Etc. Only on Certain Terms.
The Company may not consolidate with or merge with or into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person, unless:
(1) in case the Company shall consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety (the "Surviving Person") shall be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of and any premium and interest on all the Securities and the
performance of every covenant of this Indenture on the part of the Company to
be performed or observed;
(2) immediately after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Surviving Person, the Company or any Subsidiary as a result of such transaction
as having been incurred by the Surviving Person, the Company, or such
Subsidiary at the time of such transaction, no default or event which, with
giving of notice or lapse of time or both, would be a default shall have
occurred and be continuing;
5
<PAGE> 7
(3) [Intentionally omitted].
(4) the Company has previously given the Trustee
not less than 10 days' prior written notice of such transaction and has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel
each stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture shall comply with this Article and
that all conditions precedent herein provided for relating to such transaction
have been complied with.
ARTICLE III
ENDORSEMENT AND CHANGE OF FORM OF SECURITIES
3.1 NOTICE TO SECURITYHOLDERS.
After the Amendments become effective, the Company shall mail
to Holders a notice briefly describing such Amendments.
3.2 NOTATION ON SECURITIES.
(a) Securities authenticated and delivered after the
effectiveness of this Supplemental Indenture shall bear the following notation:
"The Company and the Trustee have entered into a
Supplemental Indenture, dated as of September 4, 1997, which
(i) eliminated certain restrictive covenants contained in
Article III of the Indenture; (ii) amended certain provisions
with respect to defaults and remedies contained in Article VI
of the Indenture and (iii) amended certain provisions
contained in Article IX of the Indenture. Reference is hereby
made to such Supplemental Indenture, copies of which are on
file with Harris Trust and Savings Bank, Trustee."
The Trustee may require holders of Securities authenticated
and delivered prior to the effectiveness of this Supplemental Indenture to
deliver such Securities to the Trustee so that the Trustee may place the
aforementioned notation on such Securities.
(b) If the Company or the Trustee so determines, the
Company, in exchange for the Securities, shall issue and the Trustee shall
authenticate new securities that reflect the changed terms.
[signature page follows]
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date first written
above.
SAFEWAY INC.,
Issuer
By:______________________________________________
Name: Melissa C. Plaisance
Title: Senior Vice President - Finance and
Public Affairs
HARRIS TRUST AND SAVINGS BANK,
Trustee
By:______________________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4(i).9
================================================================================
SAFEWAY INC.,
ISSUER
AND
THE CHASE MANHATTAN BANK,
TRUSTEE
----------------------
SUPPLEMENTAL INDENTURE
DATED AS OF SEPTEMBER 4, 1997
----------------------
Supplemental to the Indenture
dated as of September 1, 1992
with respect to the following series of Securities:
10.00% Senior Notes due 2002
================================================================================
<PAGE> 2
SUPPLEMENTAL INDENTURE, dated as of September 4, 1997, between
SAFEWAY INC., a Delaware corporation (hereinafter called the "Company"), as
issuer, and THE CHASE MANHATTAN BANK (successor to The Chase Manhattan Bank
(National Association)) as trustee (hereinafter called the "Trustee"), under
the Indenture, dated as of September 1, 1992, between the Company and the
Trustee, as amended and supplemented to the date hereof (the "Indenture").
RECITALS OF THE COMPANY
The Company has implemented a refinancing plan designed to
reduce its interest expense, extend the maturities of the Company's outstanding
long-term debt and enhance its operating and financial flexibility.
As part of the refinancing plan, the Company is making cash
tender offers (each of the offers is referred to herein individually, as an
"Offer" and, collectively, as the "Offers") to purchase certain debt securities
of the Company (the "Debt Securities"), including the Company's 10.00% Senior
Notes due 2002 (the "Securities"), which were issued as a series of securities
under the Indenture.
The Company also is soliciting consents from Holders of the
Securities to amendments to the Indenture (the "Amendments") and to each
indenture under which each other series of Debt Securities was issued (all as
described in the Company's Offer to Purchase and Consent Solicitation Statement
dated August 4, 1997 (the "Statement")).
In accordance with Section 10.2 of the Indenture, the Holders
of not less than a majority of the principal amount of the outstanding
Securities of each series have consented to the Amendments.
The Board of Directors of the Company has duly authorized the
execution and delivery of this Supplemental Indenture. In addition, the
Company has delivered an Opinion of Counsel to the Trustee pursuant to Section
10.5 of the Indenture and has done all other things necessary to make this
Supplemental Indenture a valid agreement of the Company in accordance with the
terms hereof and of the Indenture.
This Supplemental Indenture is effective as of the date upon
which the conditions set forth in Section 1.9 hereof are satisfied and the
Amendments effected by this Supplemental Indenture will become operative on the
date the Securities are accepted for payment by the Company pursuant to the
Offer therefor.
WHEREFORE, each party agrees as follows for the benefit of the
other party and for the equal or ratable benefit of the Holders of the
Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 DEFINITIONS.
For all purposes of the Indenture and this Supplemental
Indenture, except as otherwise expressly provided or unless the context
otherwise requires:
(a) the words "herein," "hereof" and "hereunder" and
other words of similar import refer to the Indenture and this Supplemental
Indenture as a whole and not to any particular Article, Section or subdivision;
and
<PAGE> 3
(b) capitalized terms used but not defined herein shall
have the meanings assigned to them in the Indenture.
1.2 GOVERNING LAW.
This Supplemental Indenture shall be governed by and construed
in accordance with the laws of the State of New York.
1.3 SUCCESSORS.
All agreements of the Company in this Supplemental Indenture
shall bind its successors. All agreements of the Trustee in this Supplemental
Indenture shall bind its successors.
1.4 DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Supplemental
Indenture. Each signed copy shall be an original, but all of them together
represent the same agreement.
1.5 SEPARABILITY.
In case any provision in this Supplemental Indenture shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
1.6 HEADINGS, ETC.
The Article and Section headings of this Supplemental
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms and provisions hereof. Except as expressly provided herein and
notwithstanding the elimination of certain Sections of the Indenture as set
forth in Article Two hereof, all references to Sections in the Indenture shall
remain unchanged.
1.7 BENEFITS OF SUPPLEMENTAL INDENTURE.
Nothing in this Supplemental Indenture, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder, any Paying Agent and the Holders, any benefit or any legal or
equitable right, remedy or claim under this Supplemental Indenture.
1.8 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
accuracy of this Supplemental Indenture.
1.9 EFFECTIVENESS.
This Supplemental Indenture shall take effect on the date (the
"Effective Date") that each of the following conditions shall have been
satisfied or waived:
(a) each of the parties hereto shall have executed and
delivered this Supplemental Indenture; and
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<PAGE> 4
(b) the Trustee shall have received an opinion of Latham
& Watkins, Counsel to the Company, dated the Effective Date, pursuant to
Section 10.5 of the Indenture;
provided, however, that the Amendments set forth in Article Two hereof shall
take effect only upon and simultaneously with, and shall have no force and
effect prior to, the acceptance for purchase and payment of the Securities
tendered pursuant to the Offer therefor.
ARTICLE II
THE AMENDMENTS
2.1 AMENDMENTS.
The Indenture is hereby amended as follows:
(1) Section 3.9 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.9 [Intentionally
omitted]."
(2) Section 3.10 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.10 [Intentionally
omitted]."
(3) Section 3.11 of the Indenture is hereby eliminated in
its entirety and replaced with the words: "SECTION 3.11 [Intentionally
omitted]."
(4) Section 6.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 6.1. Events of Default. The following events are
hereby defined for all purposes of this Indenture with respect to Securities of
any series (except where the term is otherwise defined for specific purposes)
as "defaults":
(a) Failure to pay the principal of and premium, if any,
on any of the Securities of that series, when and as the same shall become due
and payable, whether at Stated Maturity thereof, by call for redemption upon
surrender for repurchase or otherwise; or
(b) Failure to pay any installment of interest on any of
the Securities of that series, when and as the same shall become payable as
therein expressed, and such failure shall continue for a period of 30 days (it
being understood that if the entire amount of such payment of interest is
deposited by the Company with the Trustee, or with another paying agent duly
appointed hereunder, before the expiration of such period of 30 days, such
default shall no longer be considered to be continuing under this Indenture);
or
(c) Failure to perform or observe any other of the
covenants, conditions or agreements on the part of the Company in this
Indenture (other than a covenant, condition or agreement a default in whose
performance or whose breach is elsewhere in this Section specifically dealt
with or which, pursuant to Section 2.1, is not applicable to Securities of that
series or which has expressly been included in this Indenture solely for the
benefit of series of Securities other than that series) or in the Securities of
that series, and such failure shall continue for a period of 60 days after
written notice to the Company from the Trustee or to the Company and to the
Trustee from the Holders of not less than a majority of the principal amount of
the Securities of that series then outstanding under this Indenture; or
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<PAGE> 5
(d) [Intentionally omitted].
(e) If the Company shall file a petition commencing a
voluntary case under any chapter of the Federal bankruptcy laws or any similar
state law for the relief of debtors; or the Company shall file a petition or
answer or consent seeking reorganization, arrangement, adjustment, or
composition under any other similar applicable law, or shall consent to the
filing of any such petition, answer, or consent; or the Company shall appoint,
or consent to the appointment of, a custodian, receiver, liquidator, trustee,
assignee, sequestrator or other similar official in bankruptcy or insolvency of
it or of any substantial part of its property; or shall make an assignment for
the benefit of creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or
(f) If any order for relief against the Company shall
have been entered by a court having jurisdiction in the premises under any
chapter of the Federal bankruptcy laws or any similar state law for the relief
of debtors, and such order shall have continued undischarged or unstayed for a
period of 120 days; or a decree or order by a court having jurisdiction in the
premises shall have been entered approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of the Company under
any other similar applicable law, and such decree or order shall have continued
undischarged or unstayed for a period of 120 days; or a decree or order of a
court having jurisdiction in the premises for the appointment of a custodian,
receiver, liquidator, trustee, assignee, sequestrator, or other similar
official in bankruptcy or insolvency of the Company or of any substantial part
of its property, or for the winding up or liquidation of its affairs, shall
have been entered, and such decree or order shall have remained in force
undischarged or unstayed for a period of 120 days; or
(g) Any other default provided with respect to Securities
of that series.
If one or more defaults with respect to Securities of any
series shall happen and be continuing, then, and in each and every such case,
either the Trustee, by notice in writing to the Company and to the agent under
the Bank Credit Agreement (the "Credit Agent"), or the Holders of not less than
a majority of the principal amount of the Securities of that series then
outstanding, by notice in writing to the Company, the Trustee and the Credit
Agent, may declare due and payable, if not already due and payable, the
principal (or, if any of the Securities of that series are Original Issue
Discount Securities, such portion of the principal amount thereof as may be
specified in the terms of such Securities) of, premium, if any, plus any
accrued interest on all of the Securities of that series; and upon any such
declaration all such amounts upon such Securities of that series shall become
and be immediately due and payable upon the first to occur of an acceleration
under the Bank Credit Agreement or five Business Days after receipt by the
Company and the Credit Agent of such written notice given hereunder (if upon
such first occurrence such default or defaults shall be continuing), anything
in this Indenture or in any of such Securities contained to the contrary
notwithstanding. This provision, however, is subject to the condition that if,
at any time after the principal (or portion thereof) of, premium, if any, plus
any accrued interest on the Securities of that series shall have been declared
due and payable, and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, all
arrears of interest upon all such Securities (with interest so far as may be
lawful on any overdue installments of interest at the rate specified in such
Securities) and the expenses of the Trustee, its agents or attorneys shall be
paid by or for the account of the Company, and all defaults as aforesaid (other
than the payment of principal which has been so declared due and payable) shall
have been made good or cured to the satisfaction of the Trustee and provision
deemed by the Trustee to be adequate shall be made therefor, then and in every
such case the Trustee shall, upon the written request of the Holders of a
majority in principal amount of the Securities of that series then outstanding,
delivered to the Company and to the Trustee, waive such default and its
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<PAGE> 6
consequences and rescind or annul such declaration; but no such waiver shall
extend to or affect any subsequent default, or impair any right consequent
thereon.
Notwithstanding the foregoing, to the extent the Company shall
have been relieved of any of its obligations under this Indenture with respect
to Securities of any series pursuant to Section 11.4 hereof, the failure of the
Company to perform any such obligations as to which it has been relieved shall
not constitute a default as contemplated by this Indenture.
(5) Section 8.1 of the Indenture is hereby amended to
state, in its entirety, the following:
SECTION 8.1. Company May Merge, Etc. Only on Certain
Terms. The Company may not consolidate with or merge with or into any other
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, unless:
(1) in case the Company shall consolidate with
or merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which acquires
by conveyance or transfer, or which leases, the properties and assets of the
Company substantially as an entirety (the "Surviving Person") shall be a
corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment of
the principal of and any premium and interest on all the Securities and the
performance of every covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately after giving effect to such
transaction and treating any Indebtedness which becomes an obligation of the
Surviving Person, the Company or any Subsidiary as a result of such transaction
as having been incurred by the Surviving Person, the Company, or such Subsidiary
at the time of such transaction, no default or event which, with giving of
notice or lapse of time or both, would be a default shall have occurred and be
continuing;
(3) [Intentionally omitted].
(4) the Company has previously given the Trustee
not less than 10 days' prior written notice of such transaction and has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each
stating that such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture shall comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
ARTICLE III
ENDORSEMENT AND CHANGE OF FORM OF SECURITIES
3.1 NOTICE TO SECURITYHOLDERS.
After the Amendments become effective, the Company shall mail
to Holders a notice briefly describing such Amendments.
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<PAGE> 7
3.2 NOTATION ON SECURITIES.
(a) Securities authenticated and delivered after the
effectiveness of this Supplemental Indenture shall bear the following notation:
"The Company and the Trustee have entered into a
Supplemental Indenture, dated as of September 4, 1997, which
(i) eliminated certain restrictive covenants contained in
Article III of the Indenture; (ii) amended certain provisions
with respect to defaults and remedies contained in Article VI
of the Indenture and (iii) amended certain provisions
contained in Article VIII of the Indenture. Reference is
hereby made to such Supplemental Indenture, copies of which
are on file with The Chase Manhattan Bank, Trustee."
The Trustee may require holders of Securities authenticated
and delivered prior to the effectiveness of this Supplemental Indenture to
deliver such Securities to the Trustee so that the Trustee may place the
aforementioned notation on such Securities.
(b) If the Company or the Trustee so determines, the
Company, in exchange for the Securities, shall issue and the Trustee shall
authenticate new securities that reflect the changed terms.
[signature page follows]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date first written
above.
SAFEWAY INC.,
Issuer
By:______________________________________________
Name: Melissa C. Plaisance
Title: Senior Vice President - Finance and
Public Affairs
THE CHASE MANHATTAN BANK,
Trustee
By:______________________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 4(i).13
VOID AFTER 5:00 P.M., NEW YORK CITY TIME, NOVEMBER 15, 2001
Certificate No. 10
SAFEWAY INC.
COMMON STOCK PURCHASE WARRANTS
CERTIFICATE FOR 14,148,969 WARRANTS TO PURCHASE
14,148,969 SHARES OF COMMON STOCK
OF SAFEWAY INC.
This certifies that, for value received, SSI Equity Associates,
L.P., or registered assigns (the "Holder") is entitled to purchase from Safeway
Inc., a Delaware corporation (the "Company"), at any time after the date hereof
and until 5:00 p.m., New York City time, on November 15, 2001, at the purchase
price of $1.00 per share, up to an aggregate of 14,148,969 shares of common
stock, par value $.01 per share, of the Company (the "Common Stock"), subject to
adjustment as herein provided. In this warrant certificate (the "Warrant
Certificate"), the right to purchase each share of Common Stock is referred to
as a "Warrant"; the shares of Common Stock or, pursuant to the terms hereof,
other securities, issuable upon exercise of the Warrants are referred to as the
"Warrant Shares", and the purchase price of $1.00 per Warrant Share, subject to
adjustment as herein provided, is referred to as the "Warrant Price".
The Warrants are subject to the following terms, conditions and
provisions:
SECTION 1. Registration; Transferability; Exchange of Warrant
Certificate.
1.1 Registration. The Company shall number and register the
Warrants in a register (the "Warrant Register") as they are issued by the
Company. The Company shall be entitled to treat the Holder of any Warrant as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any other
person, and shall not be liable for complying with a request by a fiduciary or
nominee of a fiduciary to register a transfer of any Warrant which is registered
in the name of such fiduciary or nominee.
<PAGE> 2
1.2 Transfer. Subject to compliance with Section 3 hereof, the
Warrants shall be transferable only in the Warrant Register maintained at the
office of the Company in New York, New York (the "Office"), upon presentation of
this Warrant Certificate and proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and remain with the Company in its discretion.
1.3 Exchange of Warrant Certificate. This Warrant Certificate may
be exchanged for another certificate or certificates entitling the Holder to
purchase a like aggregate number of Warrant Shares as this Warrant Certificate
then entitles the Holder to purchase. If the Holder desires to exchange this
Warrant Certificate, it shall make such request in writing delivered to the
Company, and shall surrender, properly endorsed, this Warrant Certificate for
exchange. Thereupon, the Company shall countersign and deliver to the person
entitled thereto a new Warrant certificate or certificates, as the case may be,
as so requested.
SECTION 2. Term of Warrants; Exercise of Warrants.
2.1 Term of Warrants. Subject to the terms of this Warrant
Certificate, the Holder shall have the right, which may be exercised at any time
from the date hereof until 5:00 p.m., New York City time, on November 15, 2001
(the "Expiration Date"), to purchase from the Company up to an aggregate of
14,148,969 fully paid and nonassessable Warrant Shares, or such other number of
Warrant Shares which the Holder may at the time be entitled to purchase in
accordance with the provisions of this Warrant Certificate. Each Warrant not
exercised prior to 5:00 p.m., New York City time, on the Expiration Date shall
become void and all rights in respect thereof under this Warrant Certificate
shall cease as of such time.
2.2 Exercise of Warrants.
(a) The Warrants evidenced by this Warrant Certificate may
be exercised in whole or in part upon surrender to the Company at its
Office of this Warrant Certificate, together with the Form of Election to
Purchase attached hereto duly filed in and signed, and upon payment to the
Company of the Warrant Price (as determined in accordance with the
provisions of Section 7 hereof), for the number of Warrant Shares in
respect of which such Warrants are then exercised.
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<PAGE> 3
(b) Payment of the Warrant Price for Warrant Shares upon
exercise of any Warrants may be made (i) in cash, (ii) by certified or
official bank check in immediately available funds, or (iii) by any
combination of (i) and (ii).
(c) Subject to Section 3 hereof, upon the surrender of this
Warrant Certificate and payment of the Warrant Price as aforesaid, the
Company shall cause to be issued and delivered with all reasonable
dispatch to or upon the written order of the Holder and in such name or
names as the Holder may designate a certificate or certificates for the
number of Warrant Shares so purchased. If permitted by applicable law,
such certificate or certificates shall be deemed to have been issued and
any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of the date of the
surrender of this Warrant Certificate and payment of the Warrant Price, as
aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Holder, either in full or from time to
time in part and, in the event that this Warrant Certificate is exercised
in respect of less than all the Warrant Shares purchasable on such
exercise at any time prior to the Expiration Date, a new certificate
evidencing the remaining Warrant or Warrants will be issued by the
Company.
2.3 Compliance with Government Regulations. The Company covenants
that if any Warrant Shares required to be reserved for purposes of exercise of
Warrants require, under any Federal or state law or applicable governing rule or
regulation of any national securities exchange, registration with or approval of
any governmental authority, or listing on any such national securities exchange,
before such Warrant Shares may be issued upon exercise, the Company will in good
faith and as expeditiously as possible endeavor to cause such shares to be duly
registered or approved by such governmental authority or listed on the relevant
national securities exchange, as the case may be; provided, however, that in no
event shall such Warrant Shares be issued, and the Company is hereby authorized
to suspend the exercise of all Warrants, for the period during which such
registration, approval or listing is required but not in effect.
SECTION 3. Payment of Taxes. The Company will pay all documentary
stamp and other taxes, if any, attributable to the initial issuance of Warrant
Shares upon the exercise of Warrants; provided, however, that the Company shall
not be required to pay any tax or other governmental charge which may be payable
in respect of any transfer involved in the issue or delivery of any Warrants, or
certificates for Warrant Shares, in a name other than that of the registered
Holder of such Warrants, and the
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<PAGE> 4
Company shall not register any such transfer or issue any such certificate until
such tax or governmental charge, if required, shall have been paid.
SECTION 4. Mutilated or Missing Warrants. In case this Warrant
Certificate shall be mutilated, lost, stolen or destroyed, the Company may, in
its discretion, issue and deliver in exchange and substitution for and upon
cancellation of this Warrant Certificate, if mutilated, or in lieu of and in
substitution for this Warrant Certificate, if lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent right or
interest, but only upon, in the event this Warrant Certificate has been lost,
stolen or destroyed, receipt of evidence satisfactory to the Company of such
loss, theft or destruction. An applicant for such a substitute Warrant
Certificate shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 5. Reservation of Warrant Shares; Purchase, Call and
Cancellation of Warrants.
5.1 Reservation of Warrant Shares. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized Common
Stock, a number of shares of Common Stock (which will at all times remain free
of preemptive rights) sufficient to provide for the exercise of the rights of
purchase represented by the outstanding Warrants evidenced by this Warrant
Certificate. The Company or, if appointed, the transfer agent for the Common
Stock and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of any of the rights of purchase
aforesaid (each, a "Transfer Agent") will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be required
for such purpose. The Company will keep a copy of this Warrant Certificate on
file with each Transfer Agent. The Company will furnish such Transfer Agent a
copy of all notices of adjustments and certificates related thereto, transmitted
to each Holder pursuant to Section 7.3 hereof. All Warrant Certificates
surrendered in the exercise of the rights thereby evidenced shall be cancelled
by the Company and retired.
5.2 Purchase of Warrants by the Company. The Company shall have
the right, except as limited by law, other agreements or herein, to purchase or
otherwise acquire Warrants evidenced hereby at such times, in such manner and
for such consideration as it may deem appropriate.
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<PAGE> 5
5.3 Call of Warrants.
(a) The Company shall have the right to call all (but not
less than all) of the Warrants evidenced hereby for redemption at a cash
price for each Warrant Share covered by such Warrants equal to $1.00 upon
no less than 90 days' written notice if, at the date of such notice, the
Securities and Exchange Commission has, under the Securities Act of 1933,
as amended, declared effective a registration statement covering shares of
the Common Stock and any shares of such Common Stock have been sold and
the Warrant Shares are to be sold pursuant to such registration statement,
or any subsequent registration statement of a type contemplated by the
Registration Rights Agreement dated November 25, 1986, by and between the
Company and SSI Equity Associates, L.P., filed with the Securities and
Exchange Commission and declared effective; provided, however, that (i) at
the time such registration statement covering the Warrant Shares becomes
effective there shall exist an Active Public Trading Market (as such term
is defined below) in the shares of Common Stock, and (ii) if at the date
of such notice this Warrant shall be owned by SSI Equity Associates, L.P.
or any successor partnership it may be called for redemption under the
circumstances referred to in this Section 5.3(a) only if the exercise of
this Warrant shall then be permissible under the terms of the Limited
Partnership Agreement of SSI Equity Associates, L.P. or such successor
partnership.
(b) If a "Change of Ownership Transaction" (as said term is
defined below) occurs or is pending, the Company shall have the right to
call all (but not less than all) of the Warrants evidenced hereby, upon
written notice to the Holder at a cash price for each Warrant equal to the
greater of (x) $.075 or (y) the excess of (A) the fair market value of one
Warrant Share (or the fair market value of the securities issuable upon
exercise of the Warrants, if other than Warrant Shares) over (B) the
Warrant Price therefor; provided, that upon notice from the Holder to the
Company, the Company shall deliver, or cause to be delivered, in lieu of
cash, securities of the same class for which Warrants would be, or would
become, exercisable pursuant to Section 7 hereof, having a fair market
value (which shall be the same value as was used to determine the fair
market value of one Warrant Share) equal to such excess, except that if as
a result of such Change of Ownership Transaction the Warrants (if not
redeemed) would not be immediately exercisable for cash or securities that
have an Active Public Trading Market (a "Non-Marketable Acquisition
Transaction") the Holder shall not have the option to request such
securities in lieu of cash if the distribution of such securities to the
Holder would require registration under the Securities Act. For
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<PAGE> 6
purposes of determining the fair market value of one Warrant Share
pursuant to the preceding sentence, each Warrant Share shall be deemed to
have a fair market value equal to the value stated for the consideration
for which said Warrant Share is exchangeable in the Change of Ownership
Transaction or, in the event there is no such stated value, the value, in
the case of securities that have an Active Public Trading Market, equal to
the average closing sale price for the 30 trading days ending on the date
immediately preceding the date of consummation of the Change of Ownership
Transaction (if such securities are then publicly traded on a national
securities exchange) or the average closing bid price for the 30 trading
days ending on the date immediately preceding the date of consummation of
the Change of Ownership Transaction (if such securities are not then
publicly traded on a national securities exchange but are included in a
national quotation system). If the consideration for which said Warrant
Share is exchangeable is other than securities that have an Active Public
Trading Market and there is no stated value for the transaction, each
Warrant Share shall be deemed to have a fair market value as determined by
the Board of Directors of the Company, provided that any such
determination of fair market value shall be sent to the Holder at least 30
days prior to the date of redemption, together with written information as
to the basis upon which the Board of Directors of the Company made such
determination. Such determination by the Board of Directors shall be
conclusive and undisputed unless objected to in writing at least 10 days
prior to the date of redemption by the holders of a majority of the
Warrants.
(c) For purposes hereof, (i) a "Change of Ownership
Transaction" means (A) a consolidation of the Company with, or a merger of
the Company into, another entity, (B) an exchange of all or substantially
all of the Common Stock for securities, cash or property of another
entity, or (C) a sale, transfer or lease to another entity of all or
substantially all of the assets of the Company, if, as a result of any
transaction described in the foregoing clauses (A), (B) or (C), and after
giving effect thereto, the holders of the Common Stock will own less than
50% of the voting power of all classes of stock having general voting
rights of the resulting or acquiring entity and such resulting or
acquiring entity is not an "affiliate" of the Company (as such term is
defined in Rule 405 under the Securities Act of 1933, as amended, at the
date hereof), and (ii) an "Active Public Trading Market" in the shares of
Common Stock shall be deemed to exist only if at least 25% of the issued
and outstanding shares of Common Stock has been publicly sold and
continues to be freely tradeable and the Common Stock is traded on a
national securities
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<PAGE> 7
exchange, or included in a national quotation system, or there are at
least three active market-makers with respect to the Common Stock who are
recognized investment bankers or securities dealers.
(d) The Company shall mail the notice of any call for
redemption pursuant to Section 5.3(a) or (b) hereof to the Holder hereof
not more than 120 days nor less than 90 days prior to the date scheduled
for redemption (the "Call Date"); provided, however, that if the Company
desires to call the Warrants for redemption pursuant to Section 5.3(a)
hereof, such notice shall be mailed not later than the date the
registration statement referred to therein shall have been initially filed
with the Securities and Exchange Commission. Such notice shall state the
Call Date and the place and price of such call. The Holder shall continue
to have the right to exercise the warrants until 5:00 p.m., New York time,
on the last business day preceding the Call Date. The term "business day"
as used herein shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in New York, New York are not required to be
open.
5.4 Cancellation of Warrants. In the event the Company shall
purchase or otherwise acquire Warrants, the same shall thereupon be cancelled by
it and retired. The Company shall cancel any warrant surrendered for exchange,
substitution, transfer or exercise in whole or in part.
SECTION 6. Warrant Price. Subject to adjustment as provided in
Section 7 hereof, the Warrant Price shall be $1.00 per Warrant Share.
SECTION 7. Adjustment of Warrant Price and Number of Warrant Shares.
The number and kind of securities purchasable upon the exercise of each Warrant
and the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter described.
7.1 Mandatory Adjustments. The number and kind of securities
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend on its
outstanding Common Stock in shares of Common Stock or make a distribution
to all holders of its outstanding Common Stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue
by reclassification of its shares of
7
<PAGE> 8
Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant Shares
purchasable upon exercise of each Warrant immediately prior thereto shall
be adjusted so that the Holder of each Warrant upon exercise thereof shall
be entitled to receive the kind and number of Warrant Shares or other
securities of the Company which he would have owned or have been entitled
to receive after the happening of any of the events described above had
such Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant
to this paragraph (a) shall become effective on the date of dividend
payment, subdivision, combination or issuance retroactive to the record
date with respect thereto, if any, for such event. Such adjustment shall
be made successively, whenever such an issuance is made.
(b) (i) In case the Company shall distribute to all holders
of its outstanding Common Stock evidences of its indebtedness or assets or
securities other than its Common Stock (excluding cash distributions
payable out of consolidated earnings or earned surplus and dividends or
distributions referred to in Section 7.1(a) above or in Section 7.1(b)(ii)
hereof) or rights, options or warrants to subscribe for or purchase shares
of Common Stock, or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock, then in each
case the number of Warrant Shares thereafter purchasable upon the exercise
of each Warrant shall be determined by multiplying the number of Warrant
Shares theretofore purchasable upon the exercise of each Warrant by a
fraction, of which the numerator shall be the then current Warrant Price
on the date of such distribution, and of which the denominator shall be
the then current Warrant Price, less the then fair value (as determined by
the Board of Directors of the Company, whose determination shall be
conclusive), up to the then current Warrant Price less $.01, of the
portion of the evidences of indebtedness, assets, securities, rights,
options, warrants or convertible or exchangeable securities so distributed
attributable to one share of Common Stock.
(ii) In the event of a distribution by the Company to
all holders of its outstanding Common Stock of stock of a subsidiary or
securities convertible into or exercisable for such stock, then in lieu of
an adjustment in the number of Warrant Shares purchasable upon the
exercise of each Warrant, the Holder of each Warrant, upon the exercise
thereof at any time after such distribution, shall be entitled to receive
from the Company, such subsidiary or
8
<PAGE> 9
both, as the Company shall determine, the stock or other securities to
which such Holder would have been entitled if such Holder had exercised
such Warrant immediately prior thereto.
(iii) The adjustment required by this Section 7.1(b)
shall be made whenever any such distribution is made, and shall become
effective on the date of distribution retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
(c) In case the Company shall after the date hereof sell and
issue shares of Common Stock, or rights, options, warrants or convertible
or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (all of the foregoing being referred to in
this Section 7.1(c) as "Shares") (excluding (i) Shares issued in any of
the transactions described in Section 7.1(a) or (b) above, (ii) Shares
issuable upon exercise of stock options granted or to be granted to
employees or directors of the Company or its subsidiaries, other than
pursuant to Shares included in clause (iii) below, (iii) Shares issued to
employees of the Company or its subsidiaries pursuant to stock bonus or
incentive compensation plans or agreements approved by the stockholders of
the Company, provided that the number of Shares so excluded pursuant to
this clause (iii) and the immediately preceding clause (ii) shall not
exceed in the aggregate 28,000,000 Shares, subject to adjustment under the
terms of any such stock options, (iv) Shares issued pursuant to a dividend
or interest reinvestment plan, or (v) Shares issued to stockholders of any
corporation which is acquired by, merged into or becomes part of the
Company or a subsidiary of the Company in an arm's length transaction), at
a price per Share (determined, in the case of rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total amount
received or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants or convertible or exchangeable
securities, plus the total consideration payable to the Company upon
exercise or conversion or exchange thereof, by (y) the total number of
shares of Common Stock covered by such rights, options, warrants or
convertible or exchangeable securities) lower than the then current
Warrant Price in effect immediately prior to such sale and issuance, then
in each case the number of Warrant Shares thereafter purchasable upon the
exercise of each Warrant shall be determined by multiplying the number of
Warrant Shares theretofore purchasable upon the exercise of each Warrant
by a fraction, the numerator of which shall be the total number of shares
of Common Stock outstanding immediately after such sale and issuance and
the
9
<PAGE> 10
denominator of which shall be an amount equal to the sum of (A) the
total number of shares of Common Stock outstanding immediately prior to
such sale and issuance plus (B) the number of shares of Common Stock
which the aggregate consideration received (determined as provided
below) for such sale or issuance would purchase at the Warrant Price in
effect immediately prior to such sale and issuance. Such adjustment
shall be made successively whenever such an issuance is made. For the
purposes of such adjustments, the shares of Common Stock which the
holder of any such rights, options, warrants, or convertible or
exchangeable securities shall be entitled to subscribe for or purchase
shall be deemed to be issued and outstanding as of the date of such sale
and issuance and the consideration received by the Company therefor
shall be deemed to be the consideration received by the Company (plus
any underwriting discounts or commissions in connection therewith) for
such rights, options, warrants or convertible or exchangeable
securities, plus the consideration or premiums stated in such rights,
options, warrants or convertible or exchangeable securities to be paid
for the shares of Common Stock owned thereby. In case the Company shall
sell and issue Shares for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in determining
the "price per share of Common Stock" and the "consideration received by
the Company" for purposes of the first sentence and the immediately
preceding sentence of this Section 7.1(c), the Board of Directors of the
Company shall determine, in its discretion, the fair value of said
property, and such determinations, if made in good faith, shall be
binding on all Holders. The determination of whether any adjustment is
required under this Section 7.1(c), by reason of the sale and issuance
of any rights, options, warrants or convertible or exchangeable
securities and the amount of such adjustment, if any, shall be made only
at such time and not at the subsequent time of issuance of Shares upon
the exercise of such rights to subscribe or purchase.
(d) No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number
of Warrant Shares purchasable upon the exercise of each Warrant; provided,
however, that any adjustments which by reason of this Section 7.1(d) are
not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations shall be made to the nearest
one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon
the exercise of each Warrant is adjusted, as herein
10
<PAGE> 11
provided, the Warrant Price payable upon exercise of each Warrant shall be
adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number of
Warrant Shares purchasable upon the exercise of each Warrant immediately
prior to such adjustment, and of which the denominator shall be the number
of Warrant Shares purchasable immediately thereafter.
(f) No adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant need be made under Section
7.1(b) hereof if the Company issues or distributes to each Holder of
Warrants the rights, options, warrants, convertible or exchangeable
securities, evidences of indebtedness, assets or securities referred to in
such paragraph which each Holder of Warrants would have been entitled to
receive had the Warrants been exercised prior to the happening of such
event or the record date with respect thereto. No adjustment need be made
for a change in the par value of the Warrant Shares that does not affect
the number of shares of Common Stock outstanding after giving effect to
such change.
(g) For the purposes of this Section 7.1, the term "shares
of Common Stock" shall mean (i) the class of stock designated as the
Common Stock of the Company at the date of this Warrant Certificate or
(ii) any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from no par value to par value. In the event that at any time,
as a result of an adjustment made pursuant to Section 7.1(a) above, the
Holders shall become entitled to purchase any securities other than shares
of Common Stock, thereafter the number of such other securities so
purchasable upon exercise of each Warrant and the Warrant Price of such
securities shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the Warrant Shares contained in Section 7.1(a) through (e),
inclusive, above, and the provisions of Section 2 and Sections 7.2 through
7.4, inclusive, with respect to the Warrant Shares, shall apply on like
terms to any such other securities.
(h) Upon the expiration of any rights, options, warrants or
conversion or exchange privileges which resulted in adjustments pursuant
to subsections (a), (b) or (c) of this Section 7.1, if any thereof shall
not have been exercised, the Warrant Price and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be
readjusted and shall thereafter be such as it would have been had it been
originally adjusted (or had the
11
<PAGE> 12
original adjustment not been required, as the case may be) as if (A) the
only shares of Common Stock purchasable upon exercise of such rights,
options, warrants or conversion or exchange privileges were the shares of
Common Stock, if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion or exchange privileges and (B)
such shares of Common Stock so issued or sold, if any, were issuable for
the consideration actually received by the Company for the issuance, sale
or grant of all such rights, options, warrants or conversion or exchange
privileges whether or not exercised; provided, that no such readjustment
shall have the effect of increasing the Warrant Price or decreasing the
number of Warrant Shares purchasable upon the exercise of each Warrant by
an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant of such rights, options, warrants
or conversion or exchange privileges.
7.2 Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of the Warrants, reduce the then current
Warrant Price to any amount deemed appropriate by the Board of Directors of the
Company; provided that if the Company elects so to reduce the then current
Warrant Price, such reduction shall remain in effect for at least a 15-day
period, after which time the Company may, at its option, reinstate the Warrant
Price in effect prior to such reduction.
7.3 Notice of Adjustment. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Warrant Price of such
Warrant Shares is adjusted, as herein provided, the Company shall promptly mail
by first class mail, postage prepaid, to each Holder a notice of such adjustment
or adjustments and a certificate of an officer of the Company accompanied by the
report thereon by a firm of independent public accountants selected by the Board
of Directors of the Company (who may be the regular accountants for the Company)
setting forth the number of Warrant Shares purchasable upon the exercise of each
Warrant and the Warrant Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such
certificate shall be conclusive evidence of the correctness of such adjustment.
7.4 No Adjustment for Dividends. Except as provided in Section 7.1
hereof, no adjustment in respect of any dividends or other payments or
distributions made to holders of securities issuable upon exercise of Warrants
shall be made during the term of a Warrant or upon the exercise of a Warrant.
7.5 Preservation of Purchase Rights Upon Merger, Consolidation,
etc. Subject to Section 5.3 hereof, in case of
12
<PAGE> 13
any consolidation of the Company with or merger of the Company into another
entity (whether or not the Company is the surviving corporation), or in the case
of any sale, transfer or lease to another of all or substantially all the
property of the Company, the Company or such successor or purchasing entity, as
the case shall be, shall deliver to the Holder an undertaking that the Holder
shall have the right thereafter upon payment of the Warrant Price in effect
immediately prior to such action to purchase upon exercise of each Warrant the
kind and amount of securities, cash and property which the Holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had such Warrant been exercised
immediately prior to such action. Upon the execution of such agreement, such
Warrant shall be exercisable only for such securities, cash and property. Such
agreement shall provide for adjustments, which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 7. The
provisions of this Section 7.5 shall similarly apply to successive
consolidations, mergers, sales, transfers or leases.
7.6 Statement on Warrants. Irrespective of any adjustments in the
Warrant Price or the number or kind of securities purchasable upon the exercise
of the Warrants, Warrants theretofore or thereafter issued may continue to
express the same price and number and kind of shares as are stated in the
Warrants initially issuable pursuant to this Warrant Certificate.
SECTION 8. Fractional Interests. The Company shall not be required
to issue fractional Warrant Shares on the exercise of Warrants. If more than one
Warrant shall be presented for exercise in full at the same time by the Holder,
the exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 8,
be issuable on the exercise of any Warrant (or specified portion thereof) there
will be paid in cash to the Holder of the Warrants an amount per Warrant Share
equal to the same fraction of the current market value of a share of Common
Stock. For purposes of this Section 8, the "current market value" per share of
Common Stock shall be (a) if the Common Stock is then publicly traded on a
national securities exchange, the closing sale price of the Common Stock on such
exchange on the last trading day prior to the date of determination, (b) if the
Common Stock is not then publicly traded on a national securities exchange but
is included in a national quotation system, the closing bid price for the Common
Stock on the last trading day prior to the date of determination, and (c) if
neither (a) nor (b) is applicable, as determined in good faith by the Board of
Directors of the Company.
13
<PAGE> 14
SECTION 9. No Rights as Stockholders; Notices to Holders. Nothing
contained in this Warrant Certificate shall be construed as conferring upon the
Holder or its transferees the right to vote or to receive dividends or to
consent or to receive notice as stockholders in respect of any meeting of
stockholders of the Company for the election of the directors of the Company or
any other matter, or any rights whatsoever as stockholders of the Company. If,
however, at any time prior to the expiration of the Warrants and prior to their
exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in cash
or in any securities upon its shares of Common Stock or make any
distribution to the holders of its shares of Common Stock;
(b) the Company shall offer to all holders of its shares of
Common Stock any additional shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock or any right
to subscribe for or purchase any thereof;
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation, merger, sale, transfer or
lease of all or substantially all of its property, assets and business as
an entirety) shall be proposed: or
(d) a proposed transaction, which, if consummated, would
permit the Company to call the Warrants pursuant to Section 5.3 hereof,
then in any one or more of said events, the Company shall give notice in writing
of such event to the Holder as provided in Section 11 hereof, such giving of
notice to be completed at least 20 days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, or subscription rights, or
for the determination of the stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
mail or receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in connection with such
dividend, distribution or subscription rights, or such proposed dissolution,
liquidation or winding up.
SECTION 10. Identity of Transfer Agent. Forthwith upon the
appointment of any Transfer Agent for the Warrant Shares, or any other
securities issuable upon the exercise of the
14
<PAGE> 15
Warrants, the Company will notify the Holder of the name and address of such
Transfer Agent.
SECTION 11. Notices. Any notice pursuant to this Warrant Certificate
by the Holder to the Company shall be in writing and shall be delivered in
person or by facsimile transmission, or mailed by first class mail, postage
prepaid to the Company, at Safeway Inc., 5918 Stoneridge Mall Road, Pleasanton,
California 94588. Any notice pursuant to this agreement by the Company to the
Holder shall be in writing and shall be mailed first class, postage prepaid, or
otherwise delivered, to the Holder at its address on the books of the Company.
Each party hereto may from time to time change the address to which
notices to it are to be delivered or mailed hereunder by notice to the other
party.
SECTION 12. Supplements and Amendments. The Company may from time to
time supplement or amend this Warrant Certificate without the approval of the
Holder in order to cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any other provision
herein or to make any other provisions in regard to matters or questions arising
hereunder which the Company may deem necessary or desirable and which shall not
be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the Holder in any material respect.
SECTION 13. Successors. All the covenants and provisions of this
Warrant Certificate by or for the benefit of the Company shall bind and inure to
the benefit of its successors and assigns hereunder.
SECTION 14. Merger or Consolidation of the Company. The Company will
not merge or consolidate with or into, or sell, transfer or lease all or
substantially all of its property to, any other corporation unless the
successor, transferee or lessee corporation, as the case may be (if not the
Company), shall expressly assume the due and punctual performance and observance
of each and every covenant and condition of this Warrant Certificate to be
performed and observed by the Company, subject to Sections 5.3 and 7.5 hereof.
SECTION 15. Applicable Law. This Warrant Certificate and each
Warrant issued hereunder shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflict of laws. The parties hereto agree to submit to the jurisdiction of the
courts of the State of New York in any action or proceeding arising out
15
<PAGE> 16
of or relating to this Warrant Certificate and/or the Warrants
evidenced hereby.
SECTION 16. Benefits of this Warrant Certificate. Nothing in this
Warrant Certificate shall be construed to give to any person or entity other
than the Company and the Holder any legal or equitable right, remedy or claim
under this Warrant Certificate; but this Warrant Certificate shall be for the
sole and exclusive benefit of the Company and the Holder.
SECTION 17. Captions. The captions of the sections and paragraphs of
this Warrant Certificate have been inserted for convenience only and shall have
no substantive effect.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed this __th day of January, 1998.
SAFEWAY INC.
By:____________________________________
Name: Michael C. Ross
Title: Senior Vice President
16
<PAGE> 17
[FORM OF ELECTION TO PURCHASE]
(To be executed upon exercise of Warrants)
To Safeway Inc.:
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______ shares of Common Stock, as provided for therein, and requests
that a certificate or certificates for such shares of Common Stock be issued in
the name of, and any cash for any fractional shares be paid to:
Name ____________________________
(Please print name,
address and Social
Security or other
taxation identification No.)
If said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, the undersigned requests that a new
Warrant Certificate for the balance remaining of the shares purchasable
thereunder (less any fraction of a share paid in cash pursuant to the terms of
the Warrant Certificate) be issued to:
Name ____________________________
(Please print name,
address and Social
Security or other
taxation identification No.)
In full payment of the Warrant Price with respect to the Warrants
exercised hereby and transfer taxes, if any, the undersigned hereby tenders
payment of $______, payable as follows: (a) in cash, as to $______ and/or (b) by
certified or official bank check, as to $___________.
Dated: __________________
-----------------------------------------
(Name, signature, address and social
security or other taxation identification
number of Holder - signature must conform
in all respects to name of Holder on the
face of Warrant Certificate or with the
name of assignee appearing in the Warrant
Register.)
17
<PAGE> 1
EXHIBIT 10(iii).7
SECOND AMENDMENT TO THE OPERATING PERFORMANCE
BONUS PLAN FOR EXECUTIVE OFFICERS OF SAFEWAY INC.
Safeway Inc. (the "Company"), a corporation organized under the laws of
the State of Delaware, by resolution of its Board of Directors has adopted this
Second Amendment to The Operating Performance Bonus Plan for Executive Officers
of Safeway Inc. (the "Plan") pursuant to Section 9.2 of the Plan, effective as
of October 7, 1997.
1. The second sentence of Section 2.1 of the Plan is hereby amended in its
entirety to read as follows:
"Achievement of specified levels above the performance target
will result in an award not to exceed 120% of Base Compensation,
paid in accordance with Article III."
2. The second sentence of Section 2.2 of the Plan is hereby amended to
read in its entirety as follows:
"Achievement of specified levels above the performance target
described under Section 2.1 will result in bonus awards not to
exceed 40% for some and up to 120% of other Executive Officers'
Base Compensation, as previously established by the Committee."
3. Section 3.2 of the Plan is hereby amended to read in its entirety as
follows:
"Section 3.2 - Timing of Payment. Unless otherwise directed by
the Committee, each bonus award shall be paid as soon as
practicable after the end of the fiscal year to which such bonus
award relates."
* * * * * * * * *
I hereby certify that the foregoing Second Amendment to the Plan was
duly adopted by the Board of Directors of Safeway Inc. as of October 7, 1997.
Executed on this _____ day of _________________ , 1997.
-------------------------------------
Assistant Secretary
<PAGE> 2
THIRD AMENDMENT TO THE OPERATING PERFORMANCE BONUS PLAN
FOR EXECUTIVE OFFICERS OF SAFEWAY INC.
Safeway Inc. (the "Company"), a corporation organized under the laws of
the State of Delaware, by resolution of its Board of Directors has adopted this
Third Amendment to The Operating Performance Bonus Plan for Executive Officers
of Safeway Inc. (the "Plan") pursuant to Section 9.2 of the Plan, effective as
of March 10, 1998.
1. Section 1.1 of the Plan is hereby amended in its entirety to read as
follows:
Section 1.1 - Base Compensation. "Base Compensation" shall mean the
Participant's regular weekly base salary rate, excluding moving
expenses, bonus pay and other payments which are not considered part
of regular weekly salary rate, multiplied by the number of weeks the
Participant is eligible, including up to six weeks of Paid Leave of
Absence. Any changes in the Participant's regular weekly base salary
rate effected during the fiscal year shall be taken into account, on
a proportionate basis, in computing any bonus award for the fiscal
year.
2. Section 2.1 of the Plan is hereby amended to read in its entirety as
follows:
Section 2.1 - CEO. For each fiscal year the Section 162(m) Committee
of the Board (the "Committee") shall establish a performance target
which shall include three components of overall Company performance:
(i) identical store sales, (ii) operating profit and (iii) working
capital. Achievement of specified levels above the performance target
will result in an award not to exceed 120% of Base Compensation, up
to a maximum of $1.5 million, paid in accordance with Article III.
Prior to the payment of a bonus award the Committee must certify the
level of performance attained by the Company during the year to which
such bonus award relates.
3. Section 2.2 of the Plan is hereby amended to read in its entirety as
follows:
Section 2.2 - Executive Officers. Each Executive Officer (including
the Senior Vice President - Supply, but excluding the CEO) is
eligible for this bonus award. Achievement of specified levels above
the performance target described under Section 2.1 will result in
bonus awards not to exceed 30% for some and up to 120% of other
Executive Officers' Base Compensation, as previously established by
the CEO, up to a maximum bonus award of $1.5 million, paid in
accordance with Article III. At the CEO's discretion, however, the
CEO may reduce the amount payable to any Executive Officer.
<PAGE> 3
Prior to the payment of a bonus award the Committee must certify
in writing the level of performance attained by the Company during
the year to which such bonus award relates.
4. Section 2.3 is hereby amended to read in its entirety as follows:
Section 2.3 - Senior Vice President - Supply. For each fiscal year
the Committee shall establish a performance target which shall
include four components of performance for the Supply Division: (i)
total Supply Division income, (ii) plant performance, (iii) Glencourt
income contribution and (iv) working capital turnover. Achievement of
specified levels above the performance target will result in an award
not to exceed 55% of Base Compensation, up to a maximum of $550,000,
paid in accordance with Article III. Prior to the payment of a bonus
award the Committee must certify in writing the level of performance
attained by the Supply Division during the year to which such bonus
relates.
* * * * * * * * *
I hereby certify that the foregoing Third Amendment to the Plan was duly
adopted by the Board of Directors of Safeway Inc. as of March 10, 1998.
Executed on this _____ day of _________________ , 1998.
------------------------------------
Assistant Secretary
<PAGE> 1
EXHIBIT 10(iii).8
THE CAPITAL PERFORMANCE BONUS PLAN
FOR EXECUTIVE OFFICERS OF SAFEWAY INC.
Safeway Inc., a Delaware corporation (the "Company"), hereby
adopts The Capital Performance Bonus Plan for Executive Officers of Safeway
Inc. (the "Plan"). The objectives of the Plan are to motivate and reward
executives to produce results that increase shareholder value and to encourage
individual and team behavior that helps the Company achieve both short and
long-term corporate objectives.
ARTICLE I
DEFINITIONS
Section 1.1 - Base Compensation. "Base Compensation" shall mean
the Participant's regular weekly base salary rate, excluding moving expenses,
bonus pay and other payments which are not considered part of regular weekly
salary rate, multiplied by the number of weeks the Participant is eligible,
including up to six weeks of Paid Leave of Absence. Any changes in the
Participant's regular weekly base salary rate effected during the fiscal year
shall be taken into account, on a proportionate basis, in computing any bonus
award for the fiscal year.
Section 1.2 - Eligible Project. "Eligible Project" shall mean
either a First Year Eligible Project or a Third Year Eligible Project. "First
Year Eligible Project" shall mean a new store or remodel project which (a) has
been completed during the current fiscal year or the immediately preceding
fiscal year (unless otherwise determined by the Committee) and (b) with respect
to which an audit has been completed in the current fiscal year. "Third Year
Eligible Project" shall mean a new store or remodel project with respect to
which an audit has been completed during the second fiscal year following the
fiscal year during which such project was audited as a First Year Eligible
Project.
Section 1.3 - Paid Leave of Absence. "Paid Leave of Absence"
shall mean a period of time during which a Participant performs no duties due
to an illness, incapacity (including disability), layoff, jury duty, military
duty or a leave of absence for which the Participant is so paid or so entitled
to payment by the Company, whether direct or indirect, but excluding vacation
time.
Section 1.4 - Participant. "Participant" shall mean any of the
Chief Executive Officer ("CEO"), the Chief Financial Officer, the Senior Vice
President - Corporate Retail Operations, the Senior Vice President and Director
of Marketing, the
<PAGE> 2
Senior Vice President - Supply Operations and the Senior Vice President - Real
Estate ("SVP-Real Estate").
Section 1.5 - Performance Goal. "Performance Goal" shall mean one or
more levels of targeted return on invested capital for each Eligible Project
for each fiscal year that correspond to a bonus award with respect to any
Participant expressed as a percentage (which need not be identical for each
Participant) of Base Compensation, as determined by the Committee as provided
in Section 4.2.
ARTICLE II
BONUS AWARDS
Section 2.1 - CEO. For each fiscal year, the Section 162(m)
Committee of the Board (the "Committee") shall establish Performance Goals for
each Eligible Project that apply to the determination of the bonus award for
the CEO. Achievement of specified levels above the Performance Goals will
result in an award to the CEO not to exceed 30% of the CEO's Base Compensation,
up to a maximum of $375,000, for all Eligible Projects in the aggregate for any
fiscal year, paid in accordance with Article III. Prior to the payment of a
bonus award the Committee must certify in writing the extent to which the
Performance Goals have been achieved for each Eligible Project for the fiscal
year to which such bonus award relates.
Section 2.2 - Other Executive Officers. Each Participant (other
than the CEO) is eligible for a bonus award in any fiscal year equal to a fixed
percentage of Base Compensation based on the Performance Goals established
under Section 2.1. Achievement of specified levels above the Performance Goals
described under Section 2.1 will result in an award to each such Executive
Officer that ranges from 15% up to a maximum of 30% of such Executive Officer's
Base Compensation, up to a maximum of $300,000, for all Eligible Projects in
the aggregate for any fiscal year, paid in accordance with Article III. At the
CEO's discretion, however, the CEO may reduce the amount payable to any such
Executive Officer. Prior to the payment of a bonus award, the Committee must
certify in writing the extent to which the Performance Goals have been achieved
for each Eligible Project for the fiscal year to which such bonus award
relates.
ARTICLE III
PAYMENT OF BONUS AWARD
Section 3.1 - Form of Payment. Each bonus award shall be paid in
cash.
Section 3.2 - Timing of Payment. Unless otherwise determined by
the Committee, each bonus award shall be paid as soon as practicable after the
end of the fiscal year to which such bonus award relates.
5
<PAGE> 3
Section 3.3 - Taxes. All amounts payable hereunder shall be
subject to applicable federal, state and local tax withholding.
ARTICLE IV
SECTION 162(m)
Section 4.1 - Qualified Performance Based Compensation. The
Committee, in it discretion, may determine whether a bonus award should qualify
as performance-based compensation as described in Section 162(m)(4)(C) of the
Internal Revenue Code of 1986, as amended (the "Code") and may take such
actions which it may deem necessary to ensure that such bonus award will so
qualify. Any such bonus award shall be subject to any additional limitations
set forth in Section 162(m) of the Code (including any amendment to Section
162(m) and of the Code) or any regulations or rulings issued thereunder that
are requirements for qualifications as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed
amended to the extent necessary to conform to such requirements.
Section 4.2 - Performance Goals. With respect to any bonus award
which the Committee determines should qualify as performance- based
compensation, any of the Performance Goals described in Section 2.1, if
applicable to such bonus award, shall be established before the first day of
the fiscal year to which such bonus award relates, except as may be otherwise
provided under Section 162(m)(4)(C) of the Code.
ARTICLE V
TRANSFERS AND TERMINATIONS
Section 5.1 - Transfers. For a Participant who moves from one
eligible Executive Officer position to another during a year, the bonus award
for the year will be the sum of the pro-rata bonus awards calculated for each
position.
Section 5.2 - Terminations. Except as provided in Section 5.1 or
as otherwise provided by the Committee, a Participant who, whether voluntarily
or involuntarily, is terminated, demoted, transferred or otherwise ceases to be
an eligible Executive Officer at any time during a year shall not be eligible
to receive a partial year bonus award, except when the reason for leaving the
position is for reasons of health or retirement; provided, however, that with
respect to a Participant who leaves for reasons of health or retirement, the
Committee or the CEO, in their discretion, may determine that such participant
shall not receive a partial year bonus award.
<PAGE> 4
ARTICLE VI
ADMINISTRATION
Section 6.1 - 162(m) Committee
(a) The Committee shall consist of at least two persons, each of
whom is an "outside director" for purposes of Section 162(m) of the Code,
appointed by and holding office at the pleasure of the Board.
(b) Appointment of Committee members shall be effective upon
acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee shall be
filled by the Board.
Section 6.2 - Duties and Powers of Committee. It shall be the
duty of the Committee to conduct the general administration of the Plan in
accordance with its provisions. The Committee shall have the power to
interpret the Plan, and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent therewith and to
interpret, amend or revoke any such rules. In its absolute discretion, the
Board may at any time and from time to time exercise any and all rights and
duties of the Committee under the Plan except with respect to matters which
under Section 162(m) of the Code are required to be determined in the sole and
absolute discretion of the Committee.
Section 6.3 - Majority Rule. The Committee shall act by a
majority of its members in office. The Committee may act either by vote at a
meeting or by a memorandum or other written instrument signed by a majority of
the Committee.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - Amendment, Suspension or Termination of the Plan.
This Plan does not constitute a promise to pay and may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board. However, to the extent required by Section 162(m) with
respect to bonus awards which the Committee determines should qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code, no action of the Board may modify the performance targets described in
Section 2.1 if applicable to such bonus awards, after the commencement of the
year with respect to which such bonus awards relate, except as may be otherwise
provided under Section 162(m)(4)(C) of the Code.
<PAGE> 5
Section 7.2 - Approval of Plan by Stockholders. This Plan shall
be submitted for the approval of the Company's stockholders.
* * * * * * * * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Safeway Inc. as of March 10, 1998.
Executed on this___________ day of__________________, 1998
_______________________________
Assistant Secretary
<PAGE> 1
Exhibit 12.1
SAFEWAY INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in millions)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------------------------
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
1997 1996 1995 1994 1993
--------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income before income taxes and
extraordinary loss $1,076.3 $767.6 $556.5 $424.1 $216.3
Add interest expense 241.2 178.5 199.8 221.7 265.5
Add interest on rental expense (a) 88.5 90.0 87.5 86.6 88.0
Less equity in earnings of unconsolidated
affiliates (34.9) (50.0) (26.9) (27.3) (33.5)
Add minority interest in subsidiary 4.4 3.4 3.9 3.0 3.5
--------- -------- -------- -------- --------
Earnings $1,375.5 $989.5 $820.8 $708.1 $539.8
========= ======== ======== ======== ========
Interest expense $ 241.2 $178.5 $199.8 $221.7 $265.5
Add capitalized interest 5.7 4.4 4.6 2.9 4.2
Add interest on rental expense (a) 88.5 90.0 87.5 86.6 88.0
--------- -------- -------- -------- --------
Fixed charges $ 335.4 $272.9 $291.9 $311.2 $357.7
========= ======== ======== ======== ========
Ratio of earnings to fixed charges 4.10 3.63 2.81 2.28 1.51
========= ======== ======== ======== ========
(b)
</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.
<PAGE> 1
EXHIBIT 13.1
COMPANY IN REVIEW
Safeway Inc. ("Safeway" or the "Company") is the second largest food and drug
chain in North America based on sales, with 1,368 stores, including 315 Vons
stores, at year-end 1997.
The Company's U.S. retail operating areas are located principally in
Washington, Oregon, northern California, southern California, Arizona, Colorado
and the Mid-Atlantic region. The Company also has Canadian retail operations
which are located primarily in British Columbia, Alberta and
Manitoba/Saskatchewan. For each of its 10 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, the Company has an
extensive network of distribution, manufacturing and food processing facilities.
On April 8, 1997, Safeway completed the acquisition of The Vons
Companies, Inc. ("Vons") pursuant to which the Company issued 83.2 million
shares of the Company's Common Stock for all of the shares of Vons common stock
that it did not already own (the "Merger"). The Company also holds a 49%
interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 74 food and
general merchandise stores in western Mexico.
RETAIL OPERATIONS
STORES Safeway operates stores ranging in size from approximately 5,900 square
feet to over 89,000 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 return on capital
invested. Most stores offer a wide selection of both food and general
merchandise and feature a variety of specialty departments such as bakery,
delicatessen, floral and pharmacy. 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 achieve 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.
The following table summarizes Safeway's stores by size at year-end 1997:
<TABLE>
<CAPTION>
Number Percent
of Stores of Total
--------- --------
<S> <C> <C>
Less than 30,000 square feet 368 27%
30,000 to 50,000 730 53
More than 50,000 270 20
----- ---
Total stores 1,368 100%
===== ===
</TABLE>
STORE OWNERSHIP At year-end 1997, Safeway owned more than one-third of its
stores. Safeway leased its remaining stores. In recent years, the Company has
preferred ownership because it provides control and flexibility with respect to
financing, remodel- ing, expansions and closures.
MERCHANDISING Safeway's operating strategy is to provide value to its customers
by maintaining high store standards and a wide selection of high quality
products at competitive prices. The Company emphasizes high quality perishables
such as produce and meat, and specialty departments, including in-store bakery,
delicatessen, floral, and pharmacy designed to provide one-stop shopping for
today's busy shoppers.
Safeway has introduced a line of more than 850 premium corporate brand
products since 1993 under the "Safeway SELECT" banner. These products include
soft drinks, pasta and pasta sauces, salsa, whole bean coffee, cookies, ice
cream, yogurt, pet food and laundry detergent. The line also includes Safeway
SELECT "Healthy Advantage" items such as low-fat ice cream and low-fat cereal
bars, and Safeway SELECT "Gourmet Club" frozen entrees and hors d'oeuvres.
12
<PAGE> 2
The Safeway SELECT line is designed to offer premium quality products
that are equal or superior in quality to comparable best-selling nationally
advertised brands, are offered at more competitive prices, or are not available
from national brand manufacturers. Safeway also offers a wide selection of
private label products under well-known and respected brand names such as
Safeway, Vons, Lucerne, Jerseymaid and Mrs. Wright's, which the Company believes
are equivalent in quality to comparable nationally advertised brands.
The Company continually refines its merchandising strategies, which are
designed to identify and accommodate changing demographics, lifestyles and
product preferences of its customers. Safeway has intensified its efforts to
improve in-stock conditions and enhance merchandise presentation and selection.
MANUFACTURING AND WHOLESALE OPERATIONS
The principal function of manufacturing operations is to purchase, manufacture
and process private label merchandise sold in stores operated by the Company. As
measured by sales dollars, over one-half of Safeway's private label merchandise
is manufactured in company-owned plants, and the remainder is purchased from
third parties.
During 1993, Safeway began a review to identify manufacturing operations
that were not providing acceptable returns. This review resulted in the sale or
closure of 19 plants from 1993 through 1997 and a reorganization of the
manufacturing division administrative office during 1994. In 1998, Safeway
expects to have fully operational a new food processing plant in California
which will replace one that was closed in 1997 and another that is expected to
close in 1998. The ongoing review of remaining manufacturing operations 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.
Safeway operated the following manufacturing and processing facilities
at year-end 1997:
<TABLE>
<CAPTION>
U.S. Canada
-- --
<S> <C> <C>
Milk plants 7 3
Bread baking plants 6 2
Ice cream plants 5 2
Cheese and meat packaging plants 2 2
Soft drink bottling plants 4 --
Fruit and vegetable processing plants 1 3
Other food processing plants 3 1
Pet food plant 1 --
-- --
Total 29 13
== ==
</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 10 retail operating areas is served by a regional distribution
center consisting of one or more facilities. Safeway has 13
distribution/warehousing centers (10 in the United States and three in Canada),
which collectively provide the majority of all products to stores operated by
the Company. Safeway's distribution centers in northern California and British
Columbia are operated by third parties. Management regularly reviews
distribution operations focusing on whether these operations support their
operating areas in a cost-effective manner. As a result of such reviews, Safeway
is constructing a replacement distribution center in Maryland.
CAPITAL EXPENDITURE PROGRAM
A component of the Company's long-term strategy is its capital expenditure
program. The capital expenditure program funds new stores, remodels, advances in
information technology, and other facilities including plant and distribution
facilities and corporate headquarters. In the last several years, Safeway
management has significantly strengthened its program to select and approve new
capital investments resulting in improved returns on investment.
13
<PAGE> 3
\ The table below reconciles cash paid for property additions reflected in the
Consolidated Statements of Cash Flows to Safeway's broader definition of capital
expenditures (dollars in millions), and also details changes in the Company's
store base during such period:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash paid for property
additions $758.2 $541.8 $450.9
Less: Purchases of
previously leased
properties (28.2) (13.2) (9.9)
Plus: Present value of all
lease obligations
incurred 91.3 91.7 62.2
Mortgage notes assumed
in property additions 0.9 -- --
Vons first quarter expenditures 7.2 -- --
------ ------ ------
Total capital expenditures $829.4 $620.3 $503.2
====== ====== ======
Capital expenditures as a
percent of sales 3.7% 3.6% 3.1%
Vons stores acquired 316 --
New stores opened 37 30 32
Stores closed or sold 37 37 35
Remodels 181 141 108
Total retail square footage
at year-end (in millions) 53.2 40.7 40.1
</TABLE>
Improved operations and lower project costs have raised the return on
capital projects, allowing Safeway to increase capital expenditures to $829
million in 1997 from $620 million in 1996 and $503 million in 1995. In 1998,
Safeway expects to spend approximately $950 million and plans to open 40 to 45
new stores, complete more than 200 remodels and finish construction of the
Maryland distribution center.
Management regularly reviews the performance of individual stores and
other facilities on the basis of a variety of economic factors. Upon reaching
the decision to close a store or other 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 year-end 1997,
Safeway had an accrued liability of $72.0 million for the anticipated future
closure of 42 stores and $19.7 million for the anticipated future closure of
other facilities.
PERFORMANCE-BASED COMPENSATION
The Company has performance-based compensation plans that cover approximately
7,750 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.
14
<PAGE> 4
SAFEWAY INC. AND SUBSIDIARIES
FIVE-YEAR SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(Dollars in millions, except 53 WEEKS 52 Weeks 52 Weeks 52 Weeks 52 Weeks
per-share amounts) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Sales $ 22,483.8 $ 17,269.0 $ 16,397.5 $ 15,626.6 $ 15,214.5
========== ========== ========== ========== ==========
Gross profit 6,414.7 4,774.2 4,492.4 4,287.3 4,123.3
Operating and administrative expense (5,135.0) (3,882.5) (3,765.0) (3,675.2) (3,681.8)
---------- ---------- ---------- ---------- ----------
Operating profit 1,279.7 891.7 727.4 612.1 441.5
Interest expense (241.2) (178.5) (199.8) (221.7) (265.5)
Equity in earnings of unconsolidated
affiliates (Note 1) 34.9 50.0 26.9 27.3 33.5
Other income, net 2.9 4.4 2.0 6.4 6.8
---------- ---------- ---------- ---------- ----------
Income before income taxes
and extraordinary loss 1,076.3 767.6 556.5 424.1 216.3
Income taxes (454.8) (307.0) (228.2) (173.9) (93.0)
---------- ---------- ---------- ---------- ----------
Income before extraordinary loss 621.5 460.6 328.3 250.2 123.3
Extraordinary loss, net of tax benefit
of $41.1, $1.3 and $6.7 (64.1) -- (2.0) (10.5) --
---------- ---------- ---------- ---------- ----------
Net income $ 557.4 $ 460.6 $ 326.3 $ 239.7 $ 123.3
========== ========== ========== ========== ==========
Diluted earnings per share (Note 2):
Income before extraordinary loss $ 1.25 $ 0.97 $ 0.68 $ 0.51 $ 0.25
Extraordinary loss (0.13) -- -- (0.02) --
---------- ---------- ---------- ---------- ----------
Net income $ 1.12 $ 0.97 $ 0.68 $ 0.49 $ 0.25
========== ========== ========== ========== ==========
FINANCIAL STATISTICS
Identical-store sales increases (Note 3) 1.3% 5.1% 4.6% 4.4% 2.1%
Gross profit margin 28.53% 27.65% 27.40% 27.44% 27.10%
Operating and administrative expense margin 22.84% 22.48% 22.96% 23.52% 24.20%
Operating profit margin 5.7% 5.2% 4.4% 3.9% 2.9%
Capital expenditures (Note 4) $ 829.4 $ 620.3 $ 503.2 $ 352.2 $ 290.2
Depreciation and amortization 455.8 338.5 329.7 326.4 330.2
Total assets 8,493.9 5,545.2 5,194.3 5,022.1 5,074.7
Total debt 3,340.3 1,984.2 2,190.2 2,196.1 2,689.2
Stockholders' equity 2,149.0 1,186.8 795.5 643.8 382.9
Weighted average shares outstanding -
diluted (in millions) (Note 2) 497.7 475.7 481.2 494.2 493.8
OTHER STATISTICS
Vons stores acquired during the year 316 -- -- -- --
Stores opened during the year 37 30 32 20 14
Stores closed or sold during the year 37 37 35 36 39
Total stores at year-end 1,368 1,052 1,059 1,062 1,078
Remodels completed during the year (Note 5) 181 141 108 71 45
Total retail square footage at
year-end (in millions) 53.2 40.7 40.1 39.5 39.4
</TABLE>
Note 1. Reflects equity in Vons' earnings through the first quarter of 1997.
Note 2. Share and per-share amounts have been restated to reflect the
two-for-one stock splits effected February 1998 and January 1996.
Earnings per share have been restated in accordance with Statement of
Financial Accounting Standards No. 128.
Note 3. Reflects sales increases for stores operating the entire measurement
period in both the current and prior periods. 1997 and 1996
identical-store sales exclude British Columbia stores, which were closed
during a labor dispute in 1996.
Note 4. Defined on pages 13 and 14 under "Capital Expenditure Program."
Note 5. Defined as store projects (other than maintenance) generally
requiring expenditures in excess of $200,000.
15
<PAGE> 5
FINANCIAL REVIEW
STOCK SPLIT
On January 28, 1998, 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
February 25, 1998 of one additional share for each share owned by stockholders
of record on February 10, 1998. Share and per-share amounts presented herein
have been restated to reflect this stock split.
MERGER WITH THE VONS COMPANIES, INC. ("VONS") On April 8, 1997, Safeway acquired
Vons (the "Merger"). Pursuant to the Merger, Safeway issued 83.2 million shares
of Safeway common stock for all of the Vons stock that Safeway did not already
own. Vons is now a wholly-owned subsidiary of Safeway, and as of the beginning
of the second quarter of 1997, Safeway's consolidated financial statements
include Vons' financial results.
INCOME BEFORE EXTRAORDINARY LOSS
(IN MILLIONS)
[BAR GRAPH]
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Income before extraordinary loss $328.3 $460.6 $621.5
</TABLE>
RESULTS OF OPERATIONS
Safeway's net income was $557.4 million ($1.12 per share) in 1997, $460.6
million ($0.97 per share) in 1996, and $326.3 million ($0.68 per share) in 1995.
In 1997 and 1995, income before extraordinary items related to debt refinancings
was $621.5 million ($1.25 per share) and $328.3 million ($0.68 per share),
respectively.
Safeway's 1997 income statement includes Vons' operating results since
the second quarter plus the effect of Safeway's 34.4% equity interest in Vons in
the first quarter, while the 1996 income statement reflects Safeway's equity
interest in Vons for the full year. In order to facilitate an understanding of
the Company's operations, this financial review presents certain pro forma
information based on the 1997 and 1996 combined historical financial statements
of the two companies as if the Merger had been effective as of the beginning of
each of the years discussed. See Note B to the Company's 1997 Consolidated
Financial Statements
PORTIONS OF 1997 SALES DOLLAR
[PIE CHART]
<TABLE>
<S> <C>
Operating Profit 5.69%
Operating & Administrative Expense 22.84%
Costs of Goods sold 71.47%
</TABLE>
During the second quarter of 1997, Safeway was engaged in a 75-day labor
dispute affecting 74 stores in the Alberta, Canada operating area. The Company
estimates that the Alberta strike reduced 1997 net income by approximately $0.04
per share, and labor disputes in the British Columbia and Denver operating areas
reduced 1996 net income by an estimated $0.07 per share.
A nine-day strike during the second quarter of 1995 affected 208 stores
in northern California. The Company estimates that this dispute reduced 1995
earnings by approximately $0.01 per share.
SALES Sales for the 53 weeks of 1997 were $22.5 billion compared to $17.3
billion for the 52 weeks of 1996. The increase was due primarily to the Vons
merger and the additional week in 1997. Identical-store sales (stores operating
the entire year in both 1997 and 1996, excluding replacement stores but
including Vons for 41 weeks in both years) increased 1.3% while comparable-store
sales, which includes replacement stores, increased 2.2%. The effects of the
second-quarter strike in Alberta weakened 1997 identical and comparable-store
sales comparisons. Lack of inflation also softened 1997 sales comparisons.
Excluded from identical and comparable-store sales comparisons are 86 stores in
British Columbia that were closed during a strike-lockout for a portion of the
second and third quarters of 1996.
GROSS PROFIT Gross profit represents the portion of sales revenue remaining
after deducting the costs of inventory sold during the period, including
purchase and distribution costs. Gross profit was 28.53% of sales in 1997
compared to 27.65% in 1996 and 27.40% in 1995. On a pro forma basis, gross
profit increased to 28.63% of sales in 1997 from 28.20% in 1996, primarily due
to improvements in buying practices and product mix. In addition, the Company
recorded LIFO income of $6.1 million in 1997 compared to LIFO expense of $4.9
million in 1996 reflecting slight deflation in 1997.
OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense was
22.84% of sales in 1997 compared to 22.48% in 1996 and 22.96% in 1995. Safeway's
operating and administrative expense-to-sales ratio has increased compared to
1996 because Von's operating and administrative expense ratio has historically
been higher
16
<PAGE> 6
than Safeway's (partially due to the high cost of real estate and labor in
southern California). In addition, goodwill amortization has increased by
approximately $30 million as a result of the Merger. On a pro forma basis,
operating and administrative expense declined 35 basis points to 22.95% of sales
in 1997, from 23.30% in 1996.
INTEREST EXPENSE Interest expense increased to $241.2 million in 1997 from
$178.5 million in 1996 because of the debt incurred during the second quarter of
1997 to repurchase stock in conjunction with the Merger.
During 1997, Safeway recorded an extraordinary loss of $64.1 million
($0.13 per share) for the repurchase of $589.0 million of Safeway's public debt,
$285.5 million of Vons' public debt, and $40.0 million of medium-term notes. The
extraordinary loss represents the payment of premiums on retired debt and the
write-off of deferred finance costs, net of the related tax benefits. Safeway
financed this repurchase with a public offering of $600 million of senior debt
securities and the balance with commercial paper. The refinancing extends
Safeway's overall long-term debt maturities, increases financial flexibility
and, based on current interest rates, is expected to reduce annual interest
expense.
In May 1997, Safeway entered into interest rate cap agreements which
expire in 1999 and entitle the Company to receive from counterparties the
amounts, if any, by which interest at LIBOR on an $850 million notional amount
exceeds 7%. The unamortized cost to purchase the cap agreements was $2.5 million
at year-end 1997.
As of year-end 1997, the Company had effectively converted $135.1
million of its floating rate debt to fixed interest rate debt through the use of
interest rate swap agreements. Interest rate swap and cap agreements increased
interest expense by $3.3 million in 1997, $3.0 million in 1996 and $0.3 million
in 1995. The significant terms of swap and cap agreements outstanding at
year-end 1997 are described in Note E to the Company's 1997 consolidated
financial statements.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES Safeway's investment in
unconsolidated affiliates consists of a 49% ownership interest in Casa Ley, S.A.
de C.V. ("Casa Ley"), which operates 74 food and general merchandise stores in
western Mexico. Through the first quarter of 1997, Safeway also held a 34.4%
interest in Vons. Safeway records its equity in earnings of unconsolidated
affiliates on a one-quarter delay basis.
Income from Safeway's equity investment in Casa Ley increased to $22.7
million in 1997 from $18.8 million in 1996 and $8.6 million in 1995. For much of
1995, Mexico suffered from high interest rates and inflation which adversely
affected Casa Ley. Since 1996, interest rates and inflation in Mexico moderated
and Casa Ley's financial results have gradually improved.
Equity in earnings of unconsolidated affiliates included Safeway's share
of Vons' earnings of $12.2 million in the first quarter of 1997, $31.2 million
in 1996 and $18.3 million in 1995.
LIQUIDITY AND FINANCIAL RESOURCES
Net cash flow from operations was $1,221.6 million in 1997, $825.2 million in
1996 and $657.7 million in 1995. Net cash flow from operations increased in 1997
and 1996 largely due to increased net income.
Cash flow used by investing activities was $607.7 million in 1997,
$482.3 million in 1996 and $425.7 million in 1995. The increase in cash flow
used by investing activities in 1997 is primarily the result of increased
capital expenditures to open 37 new stores, complete 181 remodels, complete
construction of a manufacturing plant in California and begin work on a new
distribution center in Maryland.
Cash flow used by financing activities was $614.6 million in 1997,
$337.5 million in 1996 and $218.4 million in 1995, reflecting Safeway's
reduction in total debt in 1995 and 1996, followed by increased borrowing
related to the Merger in 1997.
Net cash flow from operations as presented on the Statement of Cash
Flows is an important measure of cash generated by the Company's operating
activities. Operating cash flow, as defined below, is similar to net cash flow
from operations because it excludes certain non-cash items. However, operating
cash flow also excludes interest expense and income taxes. Management believes
that operating cash flow is relevant because it assists investors in evaluating
Safeway's ability to service its debt by providing a commonly used measure of
cash available to pay interest. Operating cash flow also facilitates comparisons
of Safeway's results of operations with companies having different capital
structures. Other companies may define operating cash flow differently, and as a
result, such measures may not be comparable to Safeway's operating cash flow.
Safeway's computation of operating cash flow is as follows (dollars in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Income before income taxes
and extraordinary loss $ 1,076.3 $ 767.6 $ 556.5
LIFO expense (income) (6.1) 4.9 9.5
Interest expense 241.2 178.5 199.8
Depreciation
and amortization 455.8 338.5 329.7
Equity in earnings of
unconsolidated affiliates (34.9) (50.0) (26.9)
--------- --------- ---------
Operating cash flow $ 1,732.3 $ 1,239.5 $ 1,068.6
========= ========= =========
As a percent of sales 7.70% 7.18% 6.52%
========= ========= =========
As a multiple of interest expense 7.18x 6.94x 5.35x
========= ========= =========
</TABLE>
Total debt increased to $3.34 billion at year-end 1997 from $1.98
billion at year-end 1996 due primarily to the Merger. Annual debt maturities
over the next five years are set forth in Note C of the Company's 1997
Consolidated Financial Statements.
Based upon the current level of operations, Safeway believes that
operating cash flow and other sources of liquidity, including borrowings under
Safeway's commercial paper program and the Bank Credit Agreement (defined
below), will be adequate to meet anticipated requirements for working capital,
capital expenditures, interest payments and scheduled principal payments for
17
<PAGE> 7
the foreseeable future. There can be no assurance, however, that the Company's
business will continue to generate cash flow at or above current levels. The
Bank Credit Agreement is used primarily as a backup facility to the commercial
paper program.
REPURCHASE AND ACQUISITION OF COMMON STOCK EQUIVALENTS
In connection with the Merger, Safeway repurchased 64.0 million shares of
Safeway common stock from a partnership affiliated with KKR & Co., L.L.C.
("KKR") at $21.50 per share, for an aggregate purchase price of $1.376 billion
(the "Repurchase"). To finance the Repurchase, Safeway entered into a new $3.0
billion bank credit agreement (the "Bank Credit Agreement") that provides for,
among other things, increased borrowing capacity, extended maturities and the
opportunity to pay lower interest rates based on interest coverage ratios or
public debt ratings. The Company subsequently began a commercial paper program,
which reduced its outstanding bank debt. As a result of the stock repurchase,
Safeway increased its debt and interest expense, but also reduced the number of
common shares outstanding used to calculate earnings per share. This reduction
of 64.0 million shares partially offsets the increase of 83.2 million shares
issued pursuant to the Merger.
At year-end 1997, warrants (the "SSI Warrants") to purchase 30.7 million
shares of the Company's common stock at $0.50 per share were held by SSI Equity
Associates, L.P. ("SSI"), a limited partnership whose sole assets consist 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 SSI. During 1996
and 1995, the Company acquired 64.5% of the partnership interests in SSI for
$322.7 million, which was accounted for as a reduction to stockholders' equity.
STOCK OFFERINGS
In December 1997, the Company completed the public offering of 50.0 million
shares of common stock owned by affiliates of KKR, including 5.73 million shares
issued upon the exercise of SSI Warrants. In January 1998, the underwriters to
the offering exercised their over-allotment options for an additional 6.5
million shares of common stock, including 0.8 million issued upon the exercise
of SSI Warrants. In connection with the offering, SSI Warrants to purchase 11.9
million shares attributable to the limited partnership interests owned by
Safeway were canceled.
The Company received proceeds totalling $3.3 million for the exercise of
the warrants. Affiliates of KKR received the balance of proceeds from the stock
offering. After the offering, two limited partnerships affiliated with KKR own
104.5 million shares of Safeway common stock, and SSI Equity Associates, L.P.
holds SSI Warrants to purchase 28.3 million shares of Safeway common stock.
In February 1996, the Company completed the public offering of 45.9
million shares of common stock owned by affiliates of KKR, including 4.4 million
shares issued upon the exercise of SSI Warrants and 0.4 million shares issued
upon the exercise of employee stock options. Also in 1996, SSI Warrants to
purchase 4.6 million shares attributable to the limited partnership interests
owned by Safeway were canceled. The Company received proceeds of $2.4 million
for the exercise price of the options and warrants. Affiliates of KKR and the
option holder received the balance of proceeds from the stock offering.
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements relating to,
among other things, capital expenditures, cost reduction and operating
improvements. Such statements are subject to inherent uncertainties and risks,
including among others: business and economic conditions generally in the
Company's operating regions; pricing pressures and other competitive factors;
results of the Company's programs to reduce costs; the ability to integrate Vons
and continue to achieve operating improvements; relations with union bargaining
units; and the availability and terms of financing. Consequently, actual events
and results may vary significantly from those included in or contemplated or
implied by such statements.
18
<PAGE> 8
SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
53 WEEKS 52 Weeks 52 Weeks
(In millions, except per-share amounts) 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 22,483.8 $ 17,269.0 $ 16,397.5
Cost of goods sold (16,069.1) (12,494.8) (11,905.1)
------------ ------------ ------------
Gross profit 6,414.7 4,774.2 4,492.4
Operating and administrative expense (5,135.0) (3,882.5)
(3,765.0)
------------ ------------ ------------
Operating profit 1,279.7 891.7 727.4
Interest expense (241.2) (178.5) (199.8)
Equity in earnings of unconsolidated affiliates 34.9 50.0 26.9
Other income, net 2.9 4.4 2.0
------------ ------------ ------------
Income before income taxes and extraordinary loss 1,076.3 767.6
556.5
Income taxes (454.8) (307.0) (228.2)
------------ ------------ ------------
Income before extraordinary loss 621.5 460.6 328.3
Extraordinary loss related to early retirement of debt,
net of income tax benefit of $41.1 and $1.3 (64.1) -- (2.0)
------------ ------------ ------------
Net income $ 557.4 $ 460.6 $ 326.3
------------ ------------ ------------
Basic earnings per share:
Income before extraordinary loss $ 1.35 $ 1.06 $ 0.77
Extraordinary loss (0.14) -- --
------------ ------------ ------------
Net income $ 1.21 $ 1.06 $ 0.77
------------ ------------ ------------
Diluted earnings per share:
Income before extraordinary loss $ 1.25 $ 0.97 $ 0.68
Extraordinary loss (0.13) -- --
------------ ------------ ------------
Net income $ 1.12 $ 0.97 $ 0.68
------------ ------------ ------------
Weighted average shares outstanding-- basic 462.3 436.0 423.9
Weighted average shares outstanding-- diluted 497.7 475.7 481.2
</TABLE>
See accompanying notes to consolidated financial statements
19
<PAGE> 9
SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR-END Year-End
(In millions) 1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 77.2 $ 79.7
Receivables 180.8 160.9
Merchandise inventories, net of LIFO
reserve of $73.1 and $79.2 1,613.2 1,283.3
Prepaid expenses and other current assets 158.5 130.5
-------- --------
Total current assets 2,029.7 1,654.4
-------- --------
Property:
Land 722.2 438.3
Buildings 1,719.9 1,286.9
Leasehold improvements 1,247.3 957.2
Fixtures and equipment 2,663.1 2,108.5
Property under capital leases 329.2 278.7
-------- --------
6,681.7 5,069.6
Less accumulated depreciation and amortization 2,566.4 2,313.2
-------- --------
Total property, net 4,115.3 2,756.4
Goodwill, net of accumulated amortization of $157.0 and $116.4 1,824.7
312.5
Prepaid pension costs 341.4 328.7
Investments in unconsolidated affiliates 97.7 362.4
Other assets 85.1 130.8
-------- --------
Total assets $8,493.9 $5,545.2
======== ========
</TABLE>
20
<PAGE> 10
SAFEWAY INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR-END Year-End
(In millions) 1997 1996
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS-EQUITY
Current liabilities:
Current maturities of notes and debentures $ 277.4 $ 237.3
Current obligations under capital leases 22.0 18.4
Accounts payable 1,391.8 1,153.1
Accrued salaries and wages 310.5 231.2
Other accrued liabilities 536.9 390.0
-------- --------
Total current liabilities 2,538.6 2,030.0
-------- --------
Long-term debt:
Notes and debentures 2,817.8 1,568.1
Obligations under capital leases 223.1 160.4
-------- --------
Total long-term debt 3,040.9 1,728.5
Deferred income taxes 297.0 223.8
Accrued claims and other liabilities 468.4 376.1
-------- --------
Total liabilities 6,344.9 4,358.4
-------- --------
Commitments and contingencies
Stockholders- equity:
Common stock: par value $0.01 per share;
750 shares authorized; 537.4 and 442.8 shares outstanding 5.3 4.4
Additional paid-in capital 2,467.4 748.1
Cumulative translation adjustments 0.6 12.0
Retained earnings 1,315.0 745.0
-------- --------
3,788.3 1,509.5
Less: Treasury stock at cost; 61.2 shares in 1997 (1,316.6) --
Unexercised warrants purchased (322.7) (322.7)
-------- --------
Total stockholders-equity 2,149.0 1,186.8
-------- --------
Total liabilities and stockholders-equity $8,493.9 $5,545.2
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 11
SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
53 WEEKS 52 Weeks 52 Weeks
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONS
Net income $ 557.4 $ 460.6 $ 326.3
Reconciliation to net cash flow from operations:
Extraordinary loss related to early retirement of debt,
before income tax benefit 105.2 -- 3.3
Depreciation and amortization 455.8 338.5 329.7
Amortization of deferred finance costs 1.7 1.8 4.0
Deferred income taxes 55.9 113.9 (15.8)
LIFO (income) expense (6.1) 4.9 9.5
Equity in earnings of unconsolidated affiliates (34.9) (50.0) (26.9)
Net pension (income) expense (4.1) 4.2 7.6
Contributions to Canadian pension plan (10.0) (10.6) (10.3)
Increase (decrease) in accrued claims
and other liabilities (13.9) (17.6) 19.0
Loss (gain) on property retirements (12.4) (12.6) 20.4
Changes in working capital items:
Receivables 25.8 (8.5) (3.8)
Inventories at FIFO cost 37.5 (99.3) (55.4)
Prepaid expenses and other current assets 2.7 (35.1) (2.9)
Payables and accruals 61.0 135.0 53.0
-------- -------- --------
Net cash flow from operations 1,221.6 825.2 657.7
-------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for property additions (758.2) (541.8) (450.9)
Proceeds from sale of property and operations 75.6 60.8 54.8
Net cash acquired in acquisition
of The Vons Companies, Inc. 55.3 -- --
Other 19.6 (1.3) (29.6)
-------- -------- --------
Net cash flow used by investing activities (607.7) (482.3) (425.7)
-------- -------- --------
</TABLE>
22
<PAGE> 12
SAFEWAY INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
53 WEEKS 52 Weeks 52 Weeks
(In millions) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES
Additions to short-term borrowings $ 414.5 $ 227.2 $ 183.7
Payments on short-term borrowings (287.5) (280.4) (131.5)
Additions to long-term borrowings 4,254.3 387.1 708.1
Payments on long-term borrowings (3,553.5) (552.0) (787.6)
Purchase of treasury stock (1,376.0) -- --
Purchase of unexercised warrants -- (126.5) (196.2)
Net proceeds from exercise of warrants and stock options 43.9 12.6 12.8
Premiums paid on early retirement of debt (97.7) -- (3.3)
Other (12.6) (5.5) (4.4)
-------- -------- --------
Net cash flow used by financing activities (614.6) (337.5) (218.4)
-------- -------- --------
Effect of changes in exchange rates on cash (1.8) (0.5) 0.5
-------- -------- --------
Increase (decrease) in cash and equivalents (2.5) 4.9 14.1
CASH AND EQUIVALENTS
Beginning of year 79.7 74.8 60.7
-------- -------- --------
End of year $ 77.2 $ 79.7 $ 74.8
======== ======== ========
OTHER CASH FLOW INFORMATION
Cash payments during the year for:
Interest $ 263.6 $ 181.8 $ 203.0
Income taxes, net of refunds 214.6 156.7 213.0
NONCASH INVESTING AND FINANCING ACTIVITIES
Stock issued for acquisition of
The Vons Companies, Inc. 1,693.0 -- --
Tax benefit from stock options exercised 42.4 51.9 16.6
Mortgage notes assumed in property additions 0.9 -- --
Capital lease obligations entered into 37.3 15.5 13.7
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 13
SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Additional Cumulative Earnings Treasury Stock Unexercised Total
------------------ Paid-in Translation (Accumulated ---------------- Warrants Stockholders'
(In millions) Shares Amount Capital Adjustments Deficit) Shares Cost Purchased Equity
----- -------- -------- -------- -------- ----- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, year-end 1994 419.2 $ 4.2 $ 652.4 $ 29.1 $ (41.9) $ 643.8
Options and warrants
exercised 8.0 -- 29.4 -- -- 29.4
Stock bonuses 0.2 -- 1.0 -- -- 1.0
Unexercised warrants
purchased -- -- -- -- -- $ (196.2) (196.2)
Net income -- -- -- -- 326.3 -- 326.3
Translation adjustments -- -- -- (8.8) -- -- (8.8)
----- -------- -------- -------- -------- ----- --------- -------- --------
Balance, year-end 1995 427.4 4.2 682.8 20.3 284.4 (196.2) 795.5
Options and warrants
exercised 15.4 0.2 64.3 -- -- 64.5
Stock bonuses -- -- 1.0 -- -- -- 1.0
Unexercised warrants
purchased -- -- -- -- -- (126.5) (126.5)
Net income -- -- -- -- 460.6 -- 460.6
Translation adjustments -- -- -- (8.3) -- -- (8.3)
----- -------- -------- -------- -------- ----- --------- -------- --------
Balance, year-end 1996 442.8 4.4 748.1 12.0 745.0 (322.7) 1,186.8
Shares issued
for acquisition of
The Vons Companies, Inc. 83.2 0.8 1,692.2 -- -- -- 1,693.0
Equity in Vons' pre-merger
earnings due to timing
of recording earnings -- -- -- -- 12.6 -- 12.6
Treasury stock purchased -- -- -- -- -- (64.0) $(1,376.0) -- (1,376.0)
Options and warrants
exercised 11.4 0.1 26.8 -- -- 2.8 59.4 -- 86.3
Stock bonuses -- -- 0.3 -- -- -- -- -- 0.3
Net income -- -- -- -- 557.4 -- -- -- 557.4
Translation adjustments -- -- -- (11.4) -- -- (11.4)
----- -------- -------- -------- -------- ----- --------- -------- --------
Balance, year-end 1997 537.4 $ 5.3 $2,467.4 $ 0.6 $1,315.0 (61.2) $(1,316.6) $ (322.7) $2,149.0
===== ======== ======== ======== ======== ===== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 14
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY Safeway Inc. ("Safeway" or the "Company") is the second largest food
and drug chain in North America based on sales, with 1,368 stores, including 315
Vons stores, at year-end 1997.
The Company's U.S. retail operating areas are located principally in
Washington, Oregon, northern California, southern California, Arizona, Colorado
and the Mid-Atlantic region. The Company also has Canadian retail operations
which are located primarily in British Columbia, Alberta and
Manitoba/Saskatchewan. In support of its retail operations, the Company has an
extensive network of distribution, manufacturing and food processing facilities.
As discussed in Note B, on April 8, 1997, Safeway acquired The Vons
Companies, Inc. ("Vons") pursuant to which the Company issued 83.2 million
shares of Safeway common stock for all of the shares of Vons stock that it did
not already own (the "Merger"). Vons is now a wholly-owned subsidiary of
Safeway, and as of the beginning of the second quarter of 1997, Safeway's
consolidated financial statements include Vons' financial results.
In addition to the Safeway and Vons operations, the Company has a 49%
ownership interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 74
food and general merchandise stores in western Mexico.
STOCK SPLIT In January 1998, 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 February 25, 1998 of one additional share for each share owned
by stockholders of record on February 10, 1998. 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. All
significant intercompany transactions and balances have been eliminated in
consolidation. The Company's investment in Casa Ley is reported using the equity
method. Prior to the Merger, the Company's investment in Vons was 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 53-week period ended January 3, 1998
and 52-week periods ended December 28, 1996 and December 30, 1995.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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. Adjustments resulting from
translating financial statements into U.S. dollars are reported as cumulative
translation adjustments and are shown net of applicable income taxes as a
separate component of stockholders' equity.
MERCHANDISE INVENTORIES Merchandise inventory of $1,118 million at year-end 1997
and $756 million at year-end 1996 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 $1,191 million at year-end 1997 and $835 million at year-end
1996. 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. In the United States, inventory on a FIFO basis
includes meat, produce and inventory of manufacturing operations, except for
Vons, which values all inventory on the LIFO basis. All inventories of the
Canadian subsidiaries are valued on the FIFO basis.
Application of the LIFO method resulted in a decrease in cost of goods
sold of $6.1 million in 1997, and increases of $4.9 million in 1996 and $9.5
million in 1995. 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. Property acquired in the
Merger approximates fair values as of the Merger date. 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 improve- ments 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.
25
<PAGE> 15
GOODWILL Goodwill is amortized on a straight-line basis over
40 years. Goodwill amortization was $41.8 million in 1997 and $10.4 million in
both 1996 and 1995. Goodwill amortization increased in 1997 due to the Merger
with Vons, discussed in Note B.
SELF-INSURANCE The Company is primarily self-insured for workers' compensation,
automobile, and general liability costs. The self-insurance 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 a
discount rate of 5.5% in both 1997 and 1996. The current portion of the
self-insurance liability of $96.3 million at year-end 1997 and $65.1 million at
year-end 1996 is included in other accrued liabilities in the consolidated
balance sheets. The long-term portion of $230.7 million at year-end 1997 and
$168.7 million at year-end 1996 is included in accrued claims and other
liabilities. Claims payments were $100.0 million in 1997, $66.7 million in 1996
and $71.4 million in 1995. The total undiscounted liability was $365.5 million
at year-end 1997 and $265.8 million at year-end 1996.
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.
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 As discussed in Note E, the Company has
entered into interest rate swap and cap agreements to limit the exposure of its
floating interest rate debt to changes in market interest rates. Interest rate
swap 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.
Interest rate cap agreements lock in a maximum rate on a notional
principal amount by paying a fee to a counterparty in exchange for the
counterparty's promise to pay to Safeway the difference between a fixed rate and
a floating rate of interest.
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 at
year-end, and current estimates of fair value may differ significantly from the
amounts presented.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and equivalents, accounts receivable, accounts payable and short-term debt.
The carrying amount of these items approximates fair value.
Long-term debt. Market values quoted on the New York Stock Exchange are used to
estimate the fair value of publicly traded debt. To estimate the fair value of
debt issues that are not quoted on an exchange, the Company uses those interest
rates that are currently available to it for issuance of debt with similar terms
and remaining maturities. At year-end 1997, the estimated fair value of debt was
$3.2 billion compared to a carrying value of $3.1 billion. At year-end 1996, the
estimated fair value of debt was $1.9 billion compared to a carrying value of
$1.8 billion.
Off-balance sheet instruments. The fair value of interest rate swap and cap
agreements is the amount at which they could be settled based on estimates
obtained from dealers. At year-end 1997 and 1996, net unrealized losses on such
agreements were $0.4 million and $2.0 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.
IMPAIRMENT OF LONG-LIVED ASSETS In 1996, Safeway adopted the provisions of SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS No. 121 establishes recognition and measurement
criteria for impairment losses when the Company no longer expects to recover the
carrying value of a long-lived asset. Upon reaching the decision to close a
store or other 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 year-end 1997, Safeway had an accrued liability
of $72.0 million for the anticipated future closure of 42 stores and $19.7
million for the anticipated future closure of other facilities.
26
<PAGE> 16
STOCK-BASED COMPENSATION Safeway accounts for stock-based awards to employees
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Safeway elected to
adopt the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1996.
NEW ACCOUNTING PRONOUNCEMENT In 1997, the Financial Accounting Standards Board
issued two new pronouncements, SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 requires companies to report by major components and
as a single total, the change in its net assets during the period from non-owner
sources. SFAS No. 131 establishes annual and interim reporting standards for a
Company's operating segments and related disclosures about its products,
services, geographic areas and major customers. SFAS Nos. 130 and 131 are
effective for fiscal years beginning after December 15, 1997. Adoption of these
new pronouncements will not impact the financial position, results of operations
or cash flows of Safeway and any effect will be limited to the form and content
of its disclosures.
EARNINGS PER SHARE In the fourth quarter of 1997, Safeway adopted SFAS No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 replaces current reporting
requirements for earnings per share ("EPS") and requires a dual presentation of
basic and diluted EPS. Basic EPS is computed by dividing net income by the
weighted average shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if contracts to issue common stock were
exercised or converted to common stock. Prior periods have been restated to
conform to SFAS No. 128.
NOTE B: MERGER WITH VONS
On April 8, 1997, Safeway completed the Merger with Vons pursuant to which the
Company issued 83.2 million shares of Safeway common stock for all of the shares
of Vons stock that it did not already own. The Merger was accounted for using
the purchase method and resulted in additional goodwill of $1.5 billion which is
being amortized over 40 years. Vons is now a wholly-owned subsidiary of Safeway,
and as of the beginning of the second quarter of 1997, Safeway's consolidated
financial statements include Vons' financial results. In connection with the
Merger, Safeway repurchased 64.0 million shares of Safeway common stock from a
partnership affiliated with KKR & Co., L.L.C. ("KKR") at $21.50 per share, for
an aggregate purchase price of $1.376 billion. To finance the repurchase,
Safeway used borrowings under the Bank Credit Agreement as described in Note C.
The following unaudited pro forma summary financial information combines
the consolidated results of operations of Safeway and Vons as if the Merger and
related stock repurchase had occurred as of the beginning of each of the years
presented. The following pro forma financial information is presented for
informational purposes only and may not be indicative of what the actual
consolidated results of operations would have been if the Merger had been
effective earlier (in millions, except per-share amounts):
<TABLE>
<CAPTION>
Pro Forma
--------------------------
53 WEEKS 52 Weeks
1997 1996
--------- ---------
<S> <C> <C>
Sales $23,735.3 $22,625.0
Income before extraordinary loss 632.6 435.6
Net income 568.5 435.6
Diluted earnings per share:
Income before extraordinary loss $ 1.25 $ 0.87
Net income 1.12 0.87
Allocation of purchase price (in millions):
Fair value of assets acquired $ 3,115.8
Fair value of liabilities assumed (1,166.9)
Stock issued (1,693.0)
Safeway's equity investment in Vons (311.2)
---------
Net cash acquired $ (55.3)
=========
</TABLE>
NOTE C: FINANCING
Notes and debentures were composed of the following at year-end (in millions):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Bank Credit Agreement, unsecured $ 238.2 $ 360.6
Commercial paper 1,473.5 --
9.30% Senior Secured Debentures
due 2007 24.3 70.7
10% Senior Subordinated Notes
due 2001, unsecured 79.9 241.4
9.875% Senior Subordinated Debentures
due 2007, unsecured 24.2 110.0
9.65% Senior Subordinated Debentures
due 2004, unsecured 81.2 228.2
9.35% Senior Subordinated Notes
due 1999, unsecured 66.7 161.5
7.45% Senior Debentures
due 2027, unsecured 150.0 --
7.00% Senior Notes due 2007, unsecured 250.0 --
6.85% Senior Notes due 2004, unsecured 200.0 --
10% Senior Notes due 2002, unsecured 6.1 59.1
Mortgage notes payable, secured 150.8 306.4
Other notes payable, unsecured 114.8 119.0
Medium-term notes, unsecured 25.5 65.5
Short-term bank borrowings, unsecured 210.0 83.0
-------- --------
3,095.2 1,805.4
Less current maturities (277.4) (237.3)
-------- --------
Long-term portion $2,817.8 $1,568.1
======== ========
</TABLE>
27
<PAGE> 17
BANK CREDIT AGREEMENT During the second quarter of 1997, the Company entered
into a new $3.0 billion bank credit agreement (the "Bank Credit Agreement"). Of
the $3.0 billion credit line, $2.0 billion matures in 2002 and has two one-year
extension options, and $1.0 billion is renewable annually through 2004. The
restrictive covenants of the Bank Credit Agreement limit Safeway with respect
to, among other things, creating liens upon its assets and disposing of material
amounts of assets other than in the ordinary course of business. Safeway also is
required to meet certain financial tests under the Bank Credit Agreement. At
year-end 1997, the Company had total unused borrowing capacity under the Bank
Credit Agreement of $2.7 billion.
U.S. borrowings under the Bank Credit Agreement carry interest at one of
the following rates selected by the Company: (i) the prime rate; (ii) a rate
based on rates at which Eurodollar deposits are offered to first-class banks by
the lenders in the Bank 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: (a) the Canadian base rate; or (b) the Canadian
Eurodollar rate plus the Pricing Margin. Canadian borrowings denominated in
Canadian dollars carry interest at one of the following rates selected by the
Company: (i) the Canadian prime rate or (ii) the rate for Canadian bankers
acceptances plus the Pricing Margin.
The weighted average interest rate on borrowings under the Bank Credit
Agreement was 6.00% during 1997. At year-end 1997, the weighted average interest
rate on borrowings under the Bank Credit Agreement was 5.90%.
COMMERCIAL PAPER During the third quarter of 1997, Safeway issued commercial
paper in the U.S. The proceeds were used to pay down borrowings under the Bank
Credit Agreement. Commercial paper outstanding at year-end 1997 is classified as
long-term because the Company intends to and has the ability to refinance these
borrowings on a long-term basis through either continued commercial paper
borrowings or utilization of the Bank Credit Agreement, which matures in 2002.
The weighted average interest rate on commercial paper borrowings was 5.79%
during 1997 and 6.15% at year-end 1997. The Company maintains unused borrowing
capacity under the Bank Credit Agreement at least equal to the amount of
commercial paper outstanding.
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.
SENIOR 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 Credit Agreement, the
9.30% Senior Secured Indebtedness, the Senior Debt (defined below) and mortgage
notes payable.
SENIOR UNSECURED INDEBTEDNESS During the fourth quarter of 1997, Safeway issued
new senior unsecured debt securities consisting of 7.45% Senior Debentures due
2027, 7.00% Senior Notes due 2007, and 6.85% Senior Notes due 2004
(collectively, the "Senior Debt"). The Company used the proceeds from this debt
to redeem a portion of the Subordinated Securities.
MORTGAGE NOTES PAYABLE Mortgage notes payable at year-end 1997 have remaining
terms ranging from one to 12 years, have a weighted average interest rate of
9.97% and are secured by properties with a net book value of approximately $300
million.
OTHER NOTES PAYABLE Other notes payable at year-end 1997 have remaining terms
ranging from two to 14 years and a weighted average interest rate of 7.46%.
REDEMPTIONS During 1997, the Company redeemed $588.5 million of the Subordinated
Securities, $285.5 million of Vons' public debt and $40.0 million of medium-term
notes using proceeds from the Senior Debt and commercial paper program. During
1995, Safeway retired $53.5 million of mortgage debt with proceeds from floating
rate bank borrowings. In connection with these redemptions, Safeway recorded
extraordinary losses of $64.1 million ($0.13 per share) in 1997 and $2.0 million
in 1995. The extraordinary losses represent the payment of redemption premiums
and the write-off of deferred finance costs, net of the related tax benefits.
ANNUAL DEBT MATURITIES As of year-end 1997, annual debt maturities were as
follows (in millions):
<TABLE>
<S> <C>
1998 $ 277.4
1999 99.3
2000 24.9
2001 144.3
2002 1,738.6
Thereafter 810.7
--------
$3,095.2
========
</TABLE>
LETTERS OF CREDIT The Company had letters of credit of $226.9 million
outstanding at year-end 1997 of which $64.0 million were issued under the Bank
Credit Agreement. The letters of credit are maintained primarily to support
performance, payment, deposit or surety obligations of the Company. The Company
pays commitment fees ranging from 0.25% to 1.00% on the outstanding portion of
the letters of credit.
28
<PAGE> 18
NOTE D: LEASE OBLIGATIONS
Approximately two-thirds of the premises that the Company occupies are leased.
The Company had approximately 1,310 leases at year-end 1997, including
approximately 180 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 1997, 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>
1998 $ 48.7 $ 202.3
1999 44.5 198.6
2000 39.1 189.5
2001 35.4 173.5
2002 34.3 161.1
Thereafter 282.2 1,315.7
-------- --------
Total minimum lease payments 484.2 $2,240.7
Less amounts representing interest (239.1) ========
--------
Present value of net minimum lease
payments 245.1
Less current obligations (22.0)
--------
Long-term obligations $ 223.1
========
</TABLE>
Future minimum lease payments under non-cancelable capital and operating
lease agreements have not been reduced by minimum sublease rental income
totalling $142.7 million.
Amortization expense for property under capital leases was $21.1 million
in 1997, $17.9 million in 1996 and $18.9 million in 1995. Accumulated
amortization of property under capital leases was $153.4 million at year-end
1997 and $156.1 million at year-end 1996.
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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Property leases:
Minimum rentals $206.0 $138.2 $132.7
Contingent rentals 12.3 9.9 9.1
Less rental income
from subleases (13.4) (11.1) (11.1)
------ ------ ------
204.9 137.0 130.7
Equipment leases 19.3 21.0 20.8
------ ------ ------
$224.2 $158.0 $151.5
====== ====== ======
</TABLE>
NOTE E: INTEREST EXPENSE
Interest expense consisted of the following (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Bank Credit Agreement $ 36.9 $ 16.4 $ 25.2
Commercial paper 43.8 -- --
9.30% Senior Secured
Debentures 5.3 6.6 6.6
10% Senior Subordinated Notes 19.3 24.1 24.1
9.875% Senior Subordinated
Debentures 8.2 10.9 10.9
9.65% Senior Subordinated
Debentures 17.8 22.0 22.0
9.35% Senior Subordinated Notes 12.3 15.3 16.1
7.45% Senior Debentures 3.4 -- --
7.00% Senior Notes 5.2 -- --
6.85% Senior Notes 4.1 -- --
Vons Debentures 10.2 -- --
10% Senior Notes 4.3 5.9 5.9
Mortgage notes payable 22.0 33.0 43.3
Other notes payable 9.9 11.9 11.3
Medium-term notes 4.4 6.0 7.1
Short-term bank borrowings 8.8 5.1 6.6
Obligations under capital leases 26.0 20.8 21.0
Amortization of deferred
finance costs 1.7 1.8 4.0
Interest rate swap and
cap agreements 3.3 3.0 0.3
Capitalized interest (5.7) (4.3) (4.6)
------ ------ ------
$241.2 $178.5 $199.8
====== ====== ======
</TABLE>
In May 1997, Safeway entered into interest rate cap agreements which
expire in 1999 and entitle the Company to receive from counterparties the
amounts, if any, by which interest at LIBOR on an $850 million notional amount
exceeds 7%. The unamortized cost to purchase the cap agreements was $2.5 million
at year-end 1997.
Additionally, as of year-end 1997, the Company had effectively converted
$135.1 million of its floating rate debt to fixed interest rate debt through the
use of interest rate swap agreements. The significant terms of the swap
agreements outstanding at year-end 1997 were as follows (dollars in millions):
<TABLE>
<CAPTION>
Variable
Canada Interest
U.S. Fixed Fixed Rates
Notional Interest Interest to be Origination Expiration
Principal Rates Paid Rates Paid Received Date Date
--------- ---------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
$100.0 6.2% 5.8% 1997 2007
35.1 6.0% 4.9 1993 1998
------
$135.1
======
</TABLE>
The variable interest rate received on the U.S. swap is based on federal
reserve rates quoted for commercial paper. The variable interest rate received
on the Canadian swap is based on the average of bankers' acceptance rates quoted
by Canadian banks. At year-end 1997 and 1996, net unrealized losses on the
interest rate swap agreements totaled $0.4 million and $2.0 million.
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 swap and cap agreements in the
amount of any interest differential to be received. Because the Company monitors
the
29
<PAGE> 19
credit ratings of its counterparties, which are limited to major financial
institutions, Safeway does not anticipate nonperformance by the counterparties.
Since the Company intends to hold these agreements as hedges for the terms of
the agreements, the market risk associated with changes in interest rates should
not be significant.
NOTE F: CAPITAL STOCK
SHARES AUTHORIZED AND ISSUED Authorized preferred stock consists of 25 million
shares of which none was outstanding during 1997, 1996 or 1995. Authorized
common stock consists of 750 million shares at $0.01 par value. Common stock
outstanding at year-end 1997 was 476.2 million shares (net of 61.2 million
shares of treasury stock) and 442.8 million shares at year-end 1996. Safeway's
stockholders will vote at the 1998 Annual Meeting of Stockholders on a proposal
to increase the authorized shares of common stock to 1.5 billion shares.
STOCK OPTION PLANS Under Safeway's stock option plans, the Company may grant
incentive and non-qualified options to purchase up to 98 million shares of
common stock at an exercise price equal to or greater than the fair market value
at the grant date, as determined by the Compensation and Stock Option Committee
of the Board of Directors. Options generally vest over seven years. 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 Company's stock option plans for the three-year period ended
January 3, 1998 was as follows:
<TABLE>
<CAPTION>
Weighted-Average
Options Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, year-end 1994 50,626,048 $ 3.09
1995 Activity:
Granted 2,036,360 9.06
Canceled (1,558,648) 3.73
Exercised (6,773,116) 1.03
----------
Outstanding, year-end 1995 44,330,644 3.52
1996 Activity:
Granted 3,991,984 16.65
Canceled (724,454) 5.07
Exercised (8,825,018) 2.04
----------
Outstanding, year-end 1996 38,773,156 5.07
1997 Activity:
Granted 3,981,766 26.25
Converted Vons options 7,578,098 7.34
Canceled (962,522) 10.01
Exercised (8,373,270) 5.06
----------
Outstanding, year-end 1997 40,997,228 7.53
==========
Exercisable, year-end 1996 23,034,640 4.25
==========
Exercisable, year-end 1997 25,887,094 4.75
==========
</TABLE>
<TABLE>
<CAPTION>
Weighted-average fair value of options granted during this year:
<S> <C>
1996 $ 7.64
1997 $12.43
</TABLE>
The following table summarizes stock option information at year-end 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------ ------------------------------------
Range of Number Weighted-Average Weighted-Average Number Weighted Average
Exercise Prices of Options Remaining Contractual Life Exercise Price of Options Exercise Price
- ------------------------------------------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.50 to $ 0.50 2,320,000 7.15 years $ 0.50 2,320,000 $ 0.50
1.46 to 3.09 6,690,430 8.30 2.68 5,296,564 2.67
3.22 to 3.88 8,373,752 8.88 3.32 7,326,096 3.29
3.94 to 6.31 7,495,386 6.65 5.02 5,540,618 4.93
6.34 to 9.67 8,006,774 8.34 7.39 3,727,382 7.52
10.09 to 29.88 8,110,886 9.52 20.37 1,676,434 16.86
---------- ----------
$ 0.50 to $29.88 40,997,228 8.00 7.53 25,887,094 4.75
========== ==========
</TABLE>
Options to purchase 15.2 million shares were available for grant at
year-end 1997.
30
<PAGE> 20
ADDITIONAL STOCK PLAN INFORMATION As discussed in Note A, the Company continues
to account for its stock-based awards using the intrinsic value method in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," requires the disclosure of pro forma net income and
earnings per share as if the Company had adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using the Black-Scholes option pricing model with the following
weighted average assumptions: seven to nine years expected life to vesting;
stock volatility of 31% in 1997, 30% in 1996 and 29% in 1995; risk-free interest
rates of 6.29% in both 1997 and 1996 and 6.50% in 1995; and no dividends during
the expected term.
The Company's calculations are based on a single option valuation
approach and forfeitures are recognized as they occur. However, the impact of
outstanding non-vested stock options granted prior to 1995 has been excluded
from the pro forma calculation; accordingly, the pro forma results presented
below are not indicative of future period pro forma results. Had compensation
cost for the Safeway's stock option plans been determined based on the fair
value at the grant date for awards in 1995, 1996 and 1997, consistent with the
provisions of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income (in millions):
As reported $ 557.4 $ 460.6 $ 326.3
Pro forma 553.5 459.0 325.8
Basic earnings per share:
As reported $ 1.21 $ 1.06 $ 0.77
Pro forma 1.20 1.05 0.77
Diluted earnings per share:
As reported $ 1.12 $ 0.97 $ 0.68
Pro forma 1.11 0.96 0.68
</TABLE>
REPURCHASES OF COMMON STOCK AND WARRANTS TO PURCHASE COMMON STOCK In connection
with the Merger described in Note B, the Company repurchased 64.0 million shares
of Safeway common stock from a partnership affiliated with KKR at $21.50 per
share, for an aggregate purchase price of $1.376 billion. The repurchased shares
are reported as treasury shares in the accompanying balance sheet. When treasury
shares are reissued, any excess of the acquisition cost of the shares over the
proceeds received is charged to paid-in capital. At year-end 1997, KKR owned
110.2 million shares of Safeway common stock.
At year-end 1997, warrants (the "SSI Warrants") to purchase 30.7 million
shares of the Company's common stock at $0.50 per share were held by SSI Equity
Associates, L.P. ("SSI"), a limited partnership whose sole assets consist 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 SSI. During 1996
and 1995, the Company acquired 64.5% of the partnership interests in SSI for
$322.7 million with proceeds from bank borrowings, which was accounted for as a
reduction to stockholders' equity.
Outstanding common stock and the effect of options and warrants at
year-end 1997 are summarized as follows (in millions):
<TABLE>
<CAPTION>
Potential
Proceeds
from
Shares Exercise
----- ------
<S> <C> <C>
Common stock outstanding (net of
61.2 shares of treasury stock) 476.2
Options to purchase common stock 41.0 $308.7
SSI Warrants 10.9 5.4
----- ------
Total 528.1 $314.1
===== ======
</TABLE>
NOTE G: TAXES ON INCOME
The components of income tax expense are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal $303.6 $162.9 $157.9
State 57.5 30.7 29.9
Foreign 37.8 (0.5) 56.2
------ ------ ------
398.9 193.1 244.0
------ ------ ------
Deferred:
Federal 40.4 49.3 8.2
State 8.4 12.6 (0.8)
Foreign 7.1 52.0 (23.2)
------ ------ ------
55.9 113.9 (15.8)
------ ------ ------
$454.8 $307.0 $228.2
====== ====== ======
</TABLE>
Extraordinary losses are presented net of related tax benefits.
Therefore, 1997 and 1995 income tax expense in the above table excludes tax
benefits of $41.1 million and $1.3 million on extraordinary losses related to
the early retirement of debt. Tax benefits from the exercise of employee stock
options of $42.4 million in 1997, $51.9 million in 1996 and $16.6 million in
1995 were credited directly to paid-in capital and, therefore, are excluded from
income tax expense.
31
<PAGE> 21
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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory rate 35% 35% 35%
Income tax expense using
federal statutory rate $376.7 $268.7 $194.8
State taxes on income net
of federal benefit 42.8 28.1 18.9
Taxes provided on equity in
earnings of unconsolidated
affiliates at rates below the
statutory rate (9.4) (10.5) (5.3)
Taxes on foreign earnings
not permanently reinvested 8.9 7.3 6.2
Withholding tax on Canadian
earnings not permanently
reinvested -- -- (5.8)
Nondeductible expenses and
amortization 13.6 3.2 4.2
Difference between statutory rate
and foreign effective rate 10.6 11.1 1.0
Other accruals 11.6 (0.9) 14.2
------ ------ ------
$454.8 $307.0 $228.2
====== ====== ======
</TABLE>
Significant components of the Company's net deferred tax liability at
year-end were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Deferred tax assets:
Workers' compensation
and other claims $138.8 $ 91.7 $102.9
Accruals not currently deductible 80.3 48.7 59.5
Accrued claims and other liabilities 48.8 47.4 48.3
Employee benefits 18.4 9.7 34.0
Canadian operating loss
carryforward -- 2.7 54.7
Other assets 14.6 6.0 14.5
------- ------- -------
300.9 206.2 313.9
------- ------- -------
Deferred tax liabilities:
Property (280.8) (110.5) (124.3)
Prepaid pension costs (161.3) (149.9) (142.7)
LIFO inventory reserves (106.0) (66.8) (53.7)
Investments in unconsolidated
affiliates (15.3) (48.1) (40.0)
Cumulative translation
adjustments (16.2) (23.0) (24.6)
Other liabilities (18.3) (31.7) (37.1)
------- ------- -------
(597.9) (430.0) (422.4)
------- ------- -------
Net deferred tax liability $(297.0) $(223.8) $(108.5)
======= ======= =======
</TABLE>
NOTE H: EMPLOYEE BENEFIT PLANS AND COLLECTIVE
BARGAINING AGREEMENTS
RETIREMENT PLANS The Company maintains defined benefit, non-contributory pension
plans (the "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's 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 1997, the assets of Safeway's U.S. Plans have been considered fully
funded for purposes of contribution requirements. Accordingly, no Company
contributions were made to the U.S. Plans during the last three years. In 1997,
1996 and 1995, the Company contributed $10.0 million, $10.6 million and $10.3
million to the Canadian Plan. Assets of the Plans are primarily composed of
marketable equity and interest-bearing securities.
The Company has assumed the obligations of Vons' benefit plan. The
actuarial assumptions for the existing Vons benefit plans are comparable to the
existing plans of the Company. The Vons' retirement plan has been combined with
Safeway's for financial statement presentation.
Actuarial assumptions used to determine year-end Plan status were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--- --- ---
<S> <C> <C> <C>
Discount rate used
to determine the
projected benefit
obligation:
U.S. Plans 7.0% 7.5% 7.0%
Canadian Plan 6.3 7.0 8.0
Combined weighted
average rate 6.8 7.4 7.2
Long-term rate of return on
Plan assets:
U. S. Plans 9.0 9.0 9.0
Canadian Plan 8.0 8.0 8.0
Rate of compensation
increase:
U. S. Plans 5.0 5.5 5.5
Canadian Plan 4.5 5.5 5.5
</TABLE>
Net pension plan income (expense) consisted of the following (in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on plan assets:
Actual return, gain $263.8 $162.4 $241.2
Deferred (gain) (145.5) (14.2) (152.9)
------ ------ ------
Actuarial assumed return 118.3 148.2 88.3
Service cost (42.5) (41.3) (36.7)
Interest cost on projected
benefit obligations (60.1) (51.7) (48.3)
Net amortization (11.6) (56.0) (10.9)
------ ------ ------
Net pension plan income
(expense) recognized in
consolidated statements
of income $ 4.1 $ (0.8) $ (7.6)
====== ====== ======
</TABLE>
32
<PAGE> 22
The funded status of the Plans at year-end was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fair value of assets at year-end $1,662.6 $1,392.0
-------- --------
Actuarially determined present value of:
Vested benefit obligations 916.7 758.9
Non-vested benefit obligations 15.8 9.3
-------- --------
Accumulated benefit obligations 932.5 768.2
Additional amounts related to
projected compensation
increases 124.3 98.9
-------- --------
Projected benefit obligations 1,056.8 867.1
-------- --------
Fair value of assets in excess of
projected benefit obligations 605.8 524.9
Adjustment for difference in book
and tax basis of assets (165.1) (165.1)
Unamortized prior service costs
resulting from improved Plan
benefits 93.7 83.3
Net gain from actuarial experience
which has not been recognized in
the consolidated financial
statements (193.0) (114.4)
-------- --------
Prepaid pension costs $ 341.4 $ 328.7
======== ========
</TABLE>
RETIREMENT RESTORATION PLAN The Retirement Restoration Plan provides death
benefits and supplemental income payments for senior executives after
retirement. The Company recognized expense of $4.3 million in 1997, $4.4 million
in 1996 and $3.4 million in 1995. The aggregate projected benefit obligation of
the Retirement Restoration Plan was approximately $48.4 million at year-end 1997
and $44.9 million at year-end 1996.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to pension and the
Retirement Restoration Plan benefits, the Company sponsors plans that provide
postretirement 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 1996, the Safeway postretirement medical plan was amended to restrict
the types of coverage available, to change the participant contributions, and to
exclude future retirees from participating in the plan. The exclusion of future
retirees in the plan was considered a curtailment under the provisions of SFAS
No. 88 which resulted in recognition of a curtailment gain of $14.5 million in
1996. In 1997, similar amendments were made to the Vons postretirement medical
plan, resulting in a $14.0 million adjustment to the accumulated postretirement
benefit obligation ("APBO") at the date of the Merger.
The Company's APBO was $28.4 million at year-end 1997 and $15.9 million
at year-end 1996. The APBO represents the actuarial present value of benefits
expected to be paid after retirement. Postretirement benefit expense was $2.2
million in 1997, $1.7 million in 1996 and $2.5 million in 1995.
The significant assumptions used to determine the periodic
postretirement benefit expense and the APBO were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.0% 7.0% 7.0%
Rate of compensation increase 5.5 5.5 5.5
</TABLE>
For 1998, a 7.5% annual rate of increase in the per capita cost of
postretirement medical benefits provided under the Company's group health plan
was assumed. The rate was assumed to decrease gradually to 5.5% for 2002 and
remain at that level thereafter. A 5.5% annual rate of increase was assumed for
1998 and thereafter in the per capita cost of postretirement benefits provided
under HMO plans. If the health care cost trend rate assumptions were increased
by 1% in each year, the APBO as of year-end 1997 would increase $0.8 million,
and the net periodic postretirement benefit expense for 1997 would remain
unchanged. 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.
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 $130 million in 1997, $112 million in 1996 and $105 million in
1995 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 the 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.
33
<PAGE> 23
COLLECTIVE BARGAINING AGREEMENTS At year-end 1997, Safeway had approximately
147,000 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 agreements having terms up to five years. Accordingly, Safeway
negotiates a significant number of these agreements every year.
Safeway concluded early negotiations and signed new labor contracts that
would have been due to expire in 1998. Certain of these contracts were with
employees represented by the United Food and Commercial Workers Union in
northern California and Spokane, Washington. In addition, union members in
British Columbia ratified a new labor contract. As a result of these early
negotiations, the only significant remaining labor contracts due to expire in
1998 are in the Seattle and Winnipeg operating areas covering approximately 110
stores. Management considers the terms of these new contracts to be
satisfactory.
NOTE I : INVESTMENT IN UNCONSOLIDATED AFFILIATES
Safeway's investment in unconsolidated affiliates consists of a 49% ownership
interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 74 food and
general merchandise stores in western Mexico.
Income from Safeway's equity investment in Casa Ley, recorded on a
one-quarter delay basis, increased to $22.7 million in 1997 from $18.8 million
in 1996 and $8.6 million in 1995. For much of 1995, Mexico suffered from high
interest rates and inflation which adversely affected Casa Ley. Since 1996,
interest rates and inflation in Mexico moderated and Casa Ley's financial
results have gradually improved.
Casa Ley had total assets of $319.0 million and $263.1 million as of
September 30, 1997 and 1996 based on financial information provided by Casa Ley.
Sales and net income for Casa Ley were as follows (in millions of U.S. dollars):
12 months ended September 30,
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Sales $ 943.8 $ 810.1 $ 861.4
======= ======= =======
Net income $ 38.6 $ 33.8 $ 17.9
======= ======= =======
</TABLE>
Through April 8, 1997, the Company also owned 15.1 million common
shares, or 34.4% of the total shares outstanding, of Vons. Vons is now a
wholly-owned subsidiary of Safeway, and as of the beginning of the second
quarter of 1997, Safeway's consolidated financial statements include Vons'
financial position and results of operations.
Safeway's share of Vons' earnings was $12.2 million for the first
quarter of 1997 compared to $7.2 million for the first quarter of 1996, and
$31.2 million for the year in 1996.
NOTE 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 $1,399,000 in 1997, $1,364,000 in 1996 and
$1,355,000 in 1995.
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 $24.0
million and $25.1 million at year-end 1997 and 1996 is included in accrued
claims and other liabilities in the accompanying consolidated balance sheets.
During 1997, the Company contributed to PDA six properties no longer used in its
retail grocery business which had an aggregate net book value of $4.9 million.
During 1996, the Company contributed to PDA 16 properties no longer used in its
retail grocery business which had an aggregate net book value of $8.4 million.
The minority partner contributed cash in an amount sufficient to maintain its
20% ownership. No gains or losses were recognized on these transactions. Safeway
paid PDA $1.5 million in 1997, $1.6 million in 1996 and $1.5 million in 1995 for
reimbursement of expenses related to management and real estate services
provided by PDA.
34
<PAGE> 24
NOTE K: 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 3, 1998, in excess of 125,000
claims for personal injury and property damage arising from the fire have been
settled for an aggregate amount of approximately $122.5 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 3, 1998, there were still pending approximately 3,500
claims against the Company for personal injury (including punitive damages), and
approximately 460 separate claims 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. 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.
In early 1996, a purported class action was filed on behalf of persons
allegedly injured as a result of the smoke, ash and embers generated by the
fire. The complaint, which was amended after the Court sustained the Company's
demurrer with leave to amend, 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
under the statute of limitations. The amended complaint seeks compensatory and
punitive damages. The Company has received notice from its insurance carrier
denying coverage for claims asserted in this case. Safeway strongly disagrees
with the insurance carrier's denial of coverage. On April 21, 1997, the Court
sustained Safeway's demurrer to the second amended complaint without leave to
amend. In May 1997, the Court dismissed the case, and plaintiffs have filed an
appeal, which is pending.
Safeway believes that coverage under its insurance policy will be
sufficient and available for resolution of all remaining third-party claims
arising out of the fire.
On September 13, 1996, a class action lawsuit entitled McCampbell et al.
v. Ralphs Grocery Company, et al., was filed in the Superior Court of San Diego
County, California against Vons and two other grocery store chains operating in
southern California. In the complaint it is alleged, among other things, that
Vons and the other defendants conspired to fix the retail price of eggs in
southern California. The plaintiffs claim that the defendants violated
provisions of the California Cartwright Act and engaged in unfair competition.
Plaintiffs seek damages they allege the class has sustained; the amount of
damages sought is not specified. If any damages were to be awarded, they may be
trebled under the applicable statute. In addition, plaintiffs seek an injunction
against future acts that would be in restraint of trade or that would constitute
unfair competition. An answer has been filed to the complaint that denies
plaintiffs' allegations and sets forth several defenses. On October 3, 1997, the
Court issued an order certifying a class of retail purchasers of white chicken
eggs by the dozen from defendants' stores within the Counties of Los Angeles,
Riverside, San Bernardino, San Diego, Imperial and Orange during the period from
September 13, 1992 to the present. The Company believes that Vons has
meritorious defenses to plaintiffs' claims.
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 financial statements taken as a whole.
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 $92.5 million at
year-end 1997.
35
<PAGE> 25
NOTE L: FINANCIAL INFORMATION BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
United
(In millions) States Canada Total
--------- --------- ---------
<S> <C> <C> <C>
1997
SALES $19,075.9 $ 3,407.9 $22,483.8
GROSS PROFIT 5,537.9 876.8 6,414.7
OPERATING PROFIT 1,169.6 110.1 1,279.7
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS 978.4 97.9 1,076.3
NET WORKING CAPITAL (DEFICIT) (487.9) (21.0) (508.9)
TOTAL ASSETS 7,613.7 880.2 8,493.9
NET ASSETS 1,712.3 436.7 2,149.0
1996
Sales $13,797.5 $ 3,471.5 $17,269.0
Gross profit 3,901.3 872.9 4,774.2
Operating profit 752.8 138.9 891.7
Income before income taxes 652.2 115.4 767.6
Net working capital (deficit) (442.7) 67.1 (375.6)
Total assets 4,625.4 919.8 5,545.2
Net assets 792.4 394.4 1,186.8
1995
Sales $12,902.4 $ 3,495.1 $16,397.5
Gross profit 3,584.5 907.9 4,492.4
Operating profit 590.1 137.3 727.4
Income before income taxes
and extraordinary loss 448.9 107.6 556.5
Net working capital (deficit) (490.1) 65.9 (424.2)
Total assets 4,261.5 932.8 5,194.3
Net assets 462.6 332.9 795.5
</TABLE>
36
<PAGE> 26
NOTE M: QUARTERLY INFORMATION (UNAUDITED)
The summarized quarterly fianancial 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.
<TABLE>
<CAPTION>
Last 17 Third 12 Second 12 First 12
(In millions, except per-share amounts) Year Weeks Weeks Weeks Weeks
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1997
SALES $ 22,483.8 $ 7,785.4 $ 5,371.4 $ 5,249.2 $ 4,077.8
GROSS PROFIT 6,414.7 2,211.3 1,552.6 1,505.3 1,145.5
OPERATING PROFIT 1,279.7 439.6 317.3 298.0 224.8
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS 1,076.3 372.2 259.8 240.2 204.1
EXTRAORDINARY LOSS RELATED TO
EARLY RETIREMENT OF DEBT (64.1) -- (59.9) (4.2) --
NET INCOME 557.4 214.9 90.1 129.9 122.5
EARNINGS PER SHARE:
BASIC
INCOME BEFORE EXTRAORDINARY LOSS $ 1.35 $ 0.46 $ 0.32 $ 0.29 $ 0.28
EXTRAORDINARY LOSS (0.14) -- (0.13) (0.01) --
---------- ---------- ---------- ---------- ----------
NET INCOME $ 1.21 $ 0.46 $ 0.19 $ 0.28 $ 0.28
========== ========== ========== ========== ==========
DILUTED
INCOME BEFORE EXTRAORDINARY LOSS $ 1.25 $ 0.43 $ 0.30 $ 0.27 $ 0.26
EXTRAORDINARY LOSS (0.13) -- (0.12) (0.01) --
---------- ---------- ---------- ---------- ----------
NET INCOME $ 1.12 $ 0.43 $ 0.18 $ 0.26 $ 0.26
========== ========== ========== ========== ==========
PRICE RANGE, NEW YORK STOCK EXCHANGE $31 23/32 $ 31 23/32 $ 27 3/4 $ 24 13/16 $ 26
to 20 9/16 to 25 11/32 to 23 1/16 to 21 1/8 to 20 9/16
</TABLE>
<TABLE>
<CAPTION>
(In millions, except Last 16 Third 12 Second 12 First 12
per-share amounts) Year Weeks Weeks Weeks Weeks
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Sales $ 17,269.0 $ 5,486.9 $ 3,954.0 $ 3,945.4 $ 3,882.7
Gross profit 4,774.2 1,493.0 1,086.6 1,102.1 1,092.5
Operating profit 891.7 283.7 203.8 210.1 194.1
Income before income taxes 767.6 248.2 178.1 179.2 162.1
Net income 460.6 151.6 105.9 106.7 96.4
Earnings per share:
Basic $ 1.06 $ 0.34 $ 0.24 $ 0.25 $ 0.22
Diluted 0.97 0.31 0.22 0.22 0.20
Price range, New York Stock Exchange $ 22 11/16 $ 22 11/16 $ 19 1/8 $ 17 13/16 $ 15 1/16
to 11 7/32 to 18 5/8 to 15 7/8 to 13 13/16 to 11 7/32
</TABLE>
37
<PAGE> 27
SAFEWAY INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ---------------------- --------------------
(In millions, except per-share amounts) DILUTED BASIC Diluted Basic Diluted Basic
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary loss $ 621.5 $ 621.5 $ 460.6 $ 460.6 $ 328.3 $ 328.3
Extraordinary loss (64.1) (64.1) -- -- (2.0) (2.0)
------- ------- ------- ------- ------- -------
Net income $ 557.4 $ 557.4 $ 460.6 $ 460.6 $ 326.3 $ 326.3
======= ======= ======= ======= ======= =======
Weighted average common shares outstanding 462.3 462.3 436.0 436.0 423.9 423.9
======= ======= =======
Common share equivalents 35.4 39.7 57.3
------- ------- -------
Weighted average shares outstanding 497.7 475.7 481.2
======= ======= =======
Earnings per common share and
common share equivalent:
Income before extraordinary loss $ 1.25 $ 1.35 $ 0.97 $ 1.06 $ 0.68 $ 0.77
Extraordinary loss (0.13) (0.14) -- -- -- --
------- ------- ------- ------- ------- -------
Net income $ 1.12 $ 1.21 $ 0.97 $ 1.06 $ 0.68 $ 0.77
======= ======= ======= ======= ======= =======
Calculation of common share equivalents:
Options and warrants to purchase
common shares 58.6 62.6 88.1
Common shares assumed purchased with
potential proceeds (23.2) (22.9) (30.8)
------- ------- -------
Common share equivalents 35.4 39.7 57.3
======= ======= =======
Calculation of common shares assumed
purchased with potential proceeds:
Potential proceeds from exercise of options
and warrants to purchase common shares $ 597.4 $ 394.3 $ 298.9
Common stock price used under the
treasury stock method $ 25.75 $ 17.22 $ 9.70
Common shares assumed purchased with
potential proceeds 23.2 22.9 30.8
</TABLE>
Share and per-share amounts reflect the two-for-one stock splits effected in
February 1998 and in January 1996.
Earnings per share have been restated in accordance with Statement of Financial
Accounting Standard No. 128, "Earnings per Share."
38
<PAGE> 28
MANAGEMENT'S REPORT
Financial Statements Safeway Inc. is responsible for the preparation, integrity
and fair presentation of its published financial statements. The accompanying
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and necessarily include amounts that
are based on judgments and estimates made by management. Safeway also prepared
the other information included in the annual report and is responsible for its
accuracy and consistency with the financial statements.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors, which was given unrestricted access to all financial
records and related data, including minutes of all meetings of stockholders, the
Board of Directors and committees of the Board. Safeway believes that all
representations made to the independent auditors during their audit were valid
and appropriate. The report of Deloitte & Touche LLP is presented below.
Internal Control System Safeway maintains a system of internal control over
financial reporting, which is designed to provide reasonable assurance to
management and the Board of Directors regarding the preparation of reliable
published financial statements. The system includes a documented organizational
structure and division of responsibility; established policies and procedures
including a code of conduct to foster a strong ethical climate, which are
communicated throughout Safeway; and the careful selection, training and
development of employees. Internal auditors monitor the operation of the
internal control system and report findings and recommendations to management
and the Board, and corrective actions are taken to address control deficiencies
and other opportunities for improving the system as they are identified. The
Board, operating through its Audit Committee, which is composed entirely of
outside directors, provides oversight to the financial reporting process.
There are inherent limitations in the effectiveness of any system of
internal control, including the possibility of circumvention or overriding of
controls. Accordingly, even an effective internal control system can provide
only reasonable assurance with respect to financial statement preparation.
Furthermore, the effectiveness of an internal control system can change with
circumstances. As of January 3, 1998, Safeway believes its system of internal
controls over financial reporting was effective for providing reliable financial
statements.
/s/ STEVEN A. BURD /s/ JULIAN C. DAY
Steven A. Burd Julian C. Day
President and Executive Vice President and
Chief Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Safeway Inc.:
We have audited the accompanying consolidated balance sheets of Safeway Inc. and
subsidiaries as of January 3, 1998 and December 28, 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three fiscal years in the period ended January 3, 1998. 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 as of January 3, 1998 and December 28, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 3, 1998 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 27, 1998
39
<PAGE> 1
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
As of January 3, 1998
Registrant: Safeway Inc.
Subsidiaries of Registrant (Tier I subsidiaries):
Safeway Canada Holdings, Inc.
Safeway Australia Holdings, Inc.
Safeway Leasing, Inc.
Oakland Property Brokerage, Inc.
Glencourt, Inc.
Milford Insurance Ltd.
Pak 'N Save, Inc.
Safeway Trucking, Inc.
Photo Acquisition I, Inc.
Photo Acquisition II, Inc.
Safeway Southern California, Inc.
Safeway Denver, Inc.
Safeway Richmond, Inc.
Safeway Dallas, Inc.
Safeway Supply, Inc.
Safeway Corporate, Inc.
Safeway Stores 42, Inc.
Safeway Stores 43, Inc.
Safeway Stores 64, Inc.
Safeway Claim Services, Inc.
Safeway Stores, Incorporated
Safeway Warehouse, Inc.
Subsidiaries of Safeway Canada Holdings, Inc.:
Safeway New Canada, Inc.
(Continued)
<PAGE> 2
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
As of January 3, 1998
SUBSIDIARIES OF TIER I SUBSIDIARIES (Tier II subsidiaries):
Subsidiaries of Safeway Southern California, Inc.
Safeway Stores 18, Inc.
Safeway Stores 26, Inc.
Safeway Stores 28, Inc.
Safeway Stores 31, Inc.
The Vons Companies, Inc.
Subsidiaries of Safeway Denver, Inc.
Safeway Stores 44, Inc.
Safeway Stores 45, Inc.
Safeway Stores 46, Inc.
Safeway Stores 47, Inc.
Safeway Stores 48, Inc.
Safeway Stores 49, Inc.
Safeway Stores 50, Inc.
Subsidiaries of Safeway Richmond, Inc.
Safeway Stores 58, Inc.
Safeway Stores 59, Inc.
Subsidiaries of Safeway Corporate, Inc.
Safeway Stores 67, Inc.
Safeway Stores 68, Inc.
Safeway Stores 69, Inc.
Safeway Stores 70, Inc.
Subsidiaries of Safeway Supply, Inc.
Safeway Stores 71, Inc.
Safeway Stores 72, Inc.
Safeway Stores 73, Inc.
Safeway Stores 74, Inc.
Safeway Stores 75, Inc.
Safeway Stores 76, Inc.
Safeway Stores 77, Inc.
Consolidated Procurement Services, Inc.
(Continued)
<PAGE> 3
Exhibit 22.1
SAFEWAY INC.
SCHEDULE OF SUBSIDIARIES
As of January 3, 1998
Subsidiaries of Safeway Dallas, Inc.
Safeway Stores 78, Inc.
Safeway Stores 79, Inc.
Safeway Stores 80, Inc.
SMC Rx, Inc.
Safeway Stores 82, Inc.
Safeway Stores 85, Inc.
Safeway Stores 86, Inc.
Safeway Stores 87, Inc.
Safeway Stores 88, Inc.
Safeway Stores 89, Inc.
Safeway Stores 90, Inc.
Safeway Stores 91, Inc.
Safeway Stores 92, Inc.
Safeway Stores 96, Inc.
Safeway Stores 97, Inc.
Safeway Stores 98, Inc.
Subsidiaries of Photo Acquisition I, Inc.
Everett Realty Advisors, Inc.
SUBSIDIARIES OF TIER I SUBSIDIARIES (Non-tier Subsidiaries):
Subsidiary of Safeway New Canada, Inc.:
Canada Safeway Limited and its subsidiaries:
Safeway International Finance Corp. of Canada Ltd.
SUBSIDIARIES OF TIER II SUBSIDIARIES (Tier III Subsidiaries):
Subsidiary of Safeway Stores 58, Inc.:
Safelease, Inc.
19 companies are not listed as they are maintained solely for the purpose of
holding licenses.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February 27,
1998, incorporated by reference in this Annual Report on Form 10-K of Safeway
Inc. for the fiscal year ended January 3, 1998, in the following Registration
Statements of Safeway Inc.:
o No. 33-36753 on Form S-8 regarding the Safeway Inc. Outside Director Equity
Purchase Plan,
o No. 33-37207 on Form S-8 regarding the Profit Sharing Plan of Safeway Inc.
and its United States Subsidiaries,
o No. 33-42232 on Forms S-3 and S-8 regarding the Amended and Restated Stock
Option and Incentive Plan for Key Employees of Safeway Inc.,
o No. 33-48884 on Form S-8 regarding the Amended and Restated Stock Option and
Incentive Plan for Key Employees of Safeway Inc.,
o No. 33-51552 on Form S-3 regarding Debt Securities,
o No. 33-51119 on Form S-8 regarding the Stock Option Plan for Consultants of
Safeway Inc.,
o No. 33-54581 on Form S-8 regarding the Employee Stock Purchase Plan of
Safeway Inc.,
o No. 33-63803 on Form S-8 regarding the 1994 Amended and Restated Stock
Option and Incentive Plan for Key Employees of Safeway Inc.,
o No. 333-13607 on Form S-8 regarding the 1987 Plan for Consultants of Safeway
Stores, Inc.,
o No. 333-22837 on Form S-8 regarding The Vons Companies, Inc. Management
Stock Option Plan, and
o No. 333-40807 on Form S-3 regarding Debt Securities.
Deloitte & Touche LLP
San Francisco, California
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the consolidated statements of income on pages
19 through 21 of the Company's 1997 Annual Report to Stockholders and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JAN-03-1998
<CASH> 77,200
<SECURITIES> 0
<RECEIVABLES> 180,800
<ALLOWANCES> 0
<INVENTORY> 1,613,200
<CURRENT-ASSETS> 2,029,700
<PP&E> 6,681,700
<DEPRECIATION> 2,566,400
<TOTAL-ASSETS> 8,493,900
<CURRENT-LIABILITIES> 2,538,600
<BONDS> 3,040,900
0
0
<COMMON> 5,300
<OTHER-SE> 2,143,700
<TOTAL-LIABILITY-AND-EQUITY> 8,493,900
<SALES> 22,483,800
<TOTAL-REVENUES> 22,483,800
<CGS> (16,069,100)
<TOTAL-COSTS> (16,069,100)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (241,200)
<INCOME-PRETAX> 1,076,300
<INCOME-TAX> (454,800)
<INCOME-CONTINUING> 621,500
<DISCONTINUED> 0
<EXTRAORDINARY> (64,100)
<CHANGES> 0
<NET-INCOME> 557,400
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
</TABLE>
