<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended June 17, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-41
----
SAFEWAY INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3019135
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5918 Stoneridge Mall Rd.
Pleasanton, California 94588-3229
------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (925) 467-3000
--------------
Not Applicable
--------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES X
NO __ As of July 21, 2000 there were issued and outstanding 497.8
million shares of the registrant's common stock.
<PAGE> 2
SAFEWAY INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION (UNAUDITED) Page
------ --------------------------------- ----
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 17, 2000
and January 1, 2000..................................3
Condensed Consolidated Statements of Income for the 12 and
24 weeks ended June 17, 2000 and June 19, 1999.......5
Condensed Consolidated Statements of Cash Flows for
the 24 weeks ended June 17, 2000 and June 19, 1999...6
Notes to the Condensed Consolidated Financial Statements..7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTs OF OPERATIONS.................10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ........................................12
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .......................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 17, January 1,
2000 2000
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents .......................................... $ 88.8 $ 106.2
Receivables ................................................... 291.1 292.9
Merchandise inventories ....................................... 2,285.9 2,444.9
Prepaid expenses and other current assets ..................... 269.4 208.1
------------ -------------
Total current assets .......................................... 2,935.2 3,052.1
------------ -------------
Property ........................................................ 9,825.4 9,726.6
Less accumulated depreciation and amortization ................ (3,380.2) (3,281.9)
------------ -------------
Property, net ................................................. 6,445.2 6,444.7
Goodwill, net of accumulated amortization
of $372.1 and $314.4 .......................................... 4,738.2 4,786.6
Prepaid pension costs ........................................... 448.7 405.6
Investment in unconsolidated affiliate .......................... 142.1 131.6
Other assets .................................................... 127.4 79.7
------------ -------------
Total assets .................................................... $ 14,836.8 $ 14,900.3
============ =============
</TABLE>
(Continued)
3
<PAGE> 4
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 17, January 1,
2000 2000
------------ -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes
and debentures .............................................. $ 548.9 $ 557.1
Current obligations under capital leases ...................... 46.0 41.8
Accounts payable .............................................. 1,611.5 1,878.4
Accrued salaries and wages .................................... 345.3 387.7
Other accrued liabilities ..................................... 906.5 717.6
------------ -------------
Total current liabilities ..................................... 3,458.2 3,582.6
------------ -------------
Long-term debt:
Notes and debentures .......................................... 5,548.5 5,922.0
Obligations under capital leases .............................. 421.7 435.4
------------ -------------
Total long-term debt .......................................... 5,970.2 6,357.4
Deferred income taxes ........................................... 360.2 379.1
Accrued claims and other liabilities ............................ 380.4 495.4
------------ -------------
Total liabilities ............................................... 10,169.0 10,814.5
------------ -------------
Commitments and contingencies
Stockholders' equity:
Common stock: par value $0.01 per share;
1,500 shares authorized; 497.1 and 493.6 shares
issued, after deducting 65.0 and 65.4 treasury shares ...... 5.6 5.6
Additional paid-in capital .................................... 1,386.2 1,321.8
Retained earnings ............................................. 3,292.7 2,769.9
Accumulated other comprehensive loss .......................... (16.7) (11.5)
------------ -------------
Total stockholders' equity .................................... 4,667.8 4,085.8
------------ -------------
Total liabilities and stockholders' equity ...................... $ 14,836.8 $ 14,900.3
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER-SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
---------------------------- -----------------------------
June 17, June 19, June 17, June 19,
2000 1999 2000 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Sales ............................................... $ 7,418.1 $ 6,337.0 $ 14,504.4 $ 12,450.2
Cost of goods sold .................................. (5,216.4) (4,442.0) (10,193.0) (8,733.6)
------------ ------------ ------------- -------------
Gross profit ................................... 2,201.7 1,895.0 4,311.4 3,716.6
Operating and administrative expense ................ (1,589.6) (1,404.4) (3,155.3) (2,780.8)
Goodwill amortization ............................... (29.2) (21.0) (58.3) (41.0)
------------ ------------ ------------- -------------
Operating profit ............................... 582.9 469.6 1,097.8 894.8
Interest expense .................................... (108.3) (74.2) (218.1) (147.5)
Equity in earnings of unconsolidated affiliate ...... 3.4 5.2 10.5 13.2
Other income, net ................................... 2.1 0.8 3.4 2.0
------------ ------------ ------------- -------------
Income before income taxes ..................... 480.1 401.4 893.6 762.5
Income taxes ........................................ (199.2) (165.0) (370.8) (320.3)
------------ ------------ ------------- -------------
Net income .......................................... $ 280.9 $ 236.4 $ 522.8 $ 442.2
============ ============ ============= =============
Basic earnings per share: ........................... $ 0.57 $ 0.48 $ 1.06 $ 0.89
============ ============ ============= =============
Diluted earnings per share: ......................... $ 0.55 $ 0.46 $ 1.03 $ 0.86
============ ============ ============= =============
Weighted average shares outstanding - basic ......... 496.3 496.5 495.2 494.6
============ ============ ============= =============
Weighted average shares outstanding - diluted ....... 510.5 513.0 509.2 512.9
============ ============ ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
24 Weeks Ended
------------------------------------
June 17, June 19,
2000 1999
---------------- ----------------
<S> <C> <C>
CASH FLOW FROM OPERATIONS
Net income .................................................................... $ 522.8 $ 442.2
Reconciliation to net cash flow from operations:
Depreciation and amortization ............................................... 379.8 292.3
LIFO expense ................................................................ 1.3 4.6
Equity in undistributed earnings of unconsolidated affiliate ................ (10.5) (13.2)
Net pension income .......................................................... (40.8) (8.3)
Gain on pension settlement .................................................. (10.0) --
Decrease in accrued claims and other liabilities ............................ (44.4) (11.8)
Other ....................................................................... (42.9) (0.5)
Change in working capital items:
Receivables and prepaid expenses .......................................... (61.9) (6.1)
Inventories at FIFO cost .................................................. 152.0 29.6
Payables and accruals ..................................................... (86.7) (202.4)
---------------- ----------------
Net cash flow from operations ........................................... 758.7 526.4
---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for property additions .............................................. (420.7) (374.7)
Proceeds from sale of property ................................................ 63.0 32.3
Net cash paid for Carr-Gottstein Foods Co. .................................... -- (91.3)
Other ......................................................................... (26.7) (6.7)
---------------- ----------------
Net cash flow used by investing activities ............................... (384.4) (440.4)
---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES
Additions to short-term borrowings ............................................ 20.9 58.9
Payments on short-term borrowings ............................................. (69.0) (111.0)
Additions to long-term borrowings ............................................. 126.5 697.0
Payments on long-term borrowings .............................................. (490.5) (749.5)
Net proceeds from exercise of stock options and warrants ...................... 21.6 16.1
Other ......................................................................... (1.2) (2.9)
---------------- ----------------
Net cash flow used by financing activities ................................ (391.7) (91.4)
---------------- ----------------
Decrease in cash and equivalents .............................................. (17.4) (5.4)
CASH AND EQUIVALENTS
Beginning of period ....................................................... 106.2 45.7
---------------- ----------------
End of period ............................................................. $ 88.8 $ 40.3
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Safeway Inc. and
subsidiaries ("Safeway" or the "Company") for the 12 and 24 weeks ended June 17,
2000 and June 19, 1999 are unaudited and, in the opinion of management, contain
all adjustments that are of a normal and recurring nature necessary to present
fairly the financial position and results of operations for such periods. The
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and related notes contained in the
Company's 1999 Annual Report to Stockholders. The results of operations for the
12 and 24 weeks ended June 17, 2000 are not necessarily indicative of the
results expected for the full year.
ACQUISITION OF CARR-GOTTSTEIN FOODS CO. ("CARRS")
In April 1999, Safeway completed its acquisition of Carrs by purchasing all of
the outstanding shares of Carrs for approximately $106 million in cash (the
"Carrs Acquisition"). The Carrs Acquisition was accounted for as a purchase and
Carrs operating results have been consolidated with Safeway's since the
beginning of the second quarter of 1999. See Note D.
ACQUISITION OF RANDALL'S FOOD MARKETS, INC. ("RANDALL'S")
In September 1999, Safeway acquired Randall's by purchasing all of the
outstanding shares of Randall's for $1.3 billion consisting of $754 million in
cash and 12.7 million shares of Safeway stock (the "Randall's Acquisition"). The
Randall's Acquisition was accounted for as a purchase and Randall's operating
results have been consolidated with Safeway's since the beginning of the fourth
quarter of 1999. See Note D.
INVENTORY
Net income reflects the application of the LIFO method of valuing certain
domestic inventories, based upon estimated annual inflation ("LIFO Indices").
Safeway recorded estimated LIFO expense of $1.3 million during the first 24
weeks of 2000 and $4.6 million during the first 24 weeks of 1999. Actual LIFO
Indices are calculated during the fourth quarter of the year based upon a
statistical sampling of inventories.
COMPREHENSIVE INCOME
Comprehensive income includes net income and foreign currency translation
adjustments. Total comprehensive income approximates net income.
NOTE B - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
derivatives be carried at fair value, and provides for hedge accounting when
certain conditions are met. Safeway will adopt SFAS No. 133 as required by SFAS
137, "Deferral of the Effective Date of the FASB Statement No. 133," beginning
in the first quarter of 2001. Although the Company has not fully assessed the
implications of this new statement, the Company does not believe adoption of
this statement will have a material impact on its financial statements.
7
<PAGE> 8
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides the SEC staff's views on selected revenue
recognition issues. The guidance in SAB 101 must be adopted during the
Company's quarter ended December 30, 2000 and the effects, if any, are required
to be recorded through a retroactive, cumulative-effect adjustment as of the
beginning of the fiscal year, with a restatement of all prior interim quarters
in the year. Management has not completed its evaluation of the effects, if
any, that SAB 101 will have on the Company's income statement presentation,
operating results or financial position.
NOTE C - FINANCING
Notes and debentures were composed of the following at June 17, 2000 and January
1, 2000 (in millions):
<TABLE>
<CAPTION>
June 17, 2000 January 1, 2000
------------------------ -----------------------
Long-term Current Long-term Current
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Commercial paper ............................................ $2,051.5 $2,358.1
Bank credit agreement, unsecured ............................ 67.7 75.7
9.30% Senior Secured Debentures due 2007 .................... 24.3 24.3
6.85% Senior Notes due 2004, unsecured ...................... 200.0 200.0
7.00% Senior Notes due 2007, unsecured ...................... 250.0 250.0
7.45% Senior Debentures due 2027, unsecured ................. 150.0 150.0
5.75% Senior Notes due 2000, unsecured ...................... -- $400.0 -- $400.0
5.875% Senior Notes due 2001, unsecured ..................... 400.0 400.0
6.05% Senior Notes due 2003, unsecured ...................... 350.0 350.0
6.50% Senior Notes due 2008, unsecured ...................... 250.0 250.0
7.00% Senior Notes due 2002, unsecured ...................... 600.0 600.0
7.25% Senior Notes due 2004, unsecured ...................... 400.0 400.0
7.50% Senior Notes due 2009, unsecured ...................... 500.0 500.0
10% Senior Subordinated Notes due 2001, unsecured ........... 79.9 79.9
9.65% Senior Subordinated Debentures due 2004, unsecured .... 81.2 81.2
9.875% Senior Subordinated Debentures due 2007, unsecured ... 24.2 24.2
10% Senior Notes due 2002, unsecured ........................ 6.1 6.1
Mortgage notes payable, secured ............................. 61.0 15.7 63.5 12.1
Other notes payable, unsecured .............................. 36.1 51.6 92.5 6.3
Medium-term notes, unsecured ................................ 16.5 -- 16.5 9.0
Short-term bank borrowings, unsecured ....................... -- 81.6 -- 129.7
--------- ------- ---------- -------
$5,548.5 $548.9 $5,922.0 $557.1
========= ======= ========== =======
</TABLE>
8
<PAGE> 9
SAFEWAY INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D - UNAUDITED PRO FORMA SUMMARY FINANCIAL INFORMATION
The following unaudited pro forma combined summary financial information is
based on the historical consolidated results of the operations of Safeway,
Randall's and Carrs, as if the Randall's and Carrs Acquisitions had occurred as
of the beginning of the 24-week period ended June 19, 1999. This 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 acquisitions had been effective as of the period being presented.
Under purchase accounting, the purchase price is allocated to acquired assets
and liabilities based on their estimated fair values at the date of acquisition,
and any excess is allocated to goodwill. For Randall's, such allocations are
subject to adjustment when additional analysis concerning asset and liability
balances is finalized. Management does not expect the final allocations to
differ materially from the amounts presented herein.
<TABLE>
<CAPTION>
24 Weeks Ended
(in millions, except per-share amounts) --------------------------------------
(Actual) (Pro Forma)
June 17, 2000 June 19, 1999
------------- -------------
<S> <C> <C>
Sales ..................................... $14,504.4 $13,784.1
Net income ................................ $522.8 $434.3
Diluted earnings per share ................ $1.03 $0.82
</TABLE>
NOTE E - CONTINGENCIES
LEGAL MATTERS
Note K to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 37 and 38 of the 1999 Annual Report to Stockholders,
provides information on certain litigation in which the Company is involved.
There have been no material developments to these matters, except as described
below.
On April 26, 2000, in the case of Sanders, et al. v. Lucky Stores, Inc., et al.,
the court approved the settlement agreement of the parties and the case was
subsequently dismissed.
9
<PAGE> 10
SAFEWAY INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Safeway's net income was $280.9 million ($0.55 per share) for the second quarter
ended June 17, 2000, compared to $236.4 million ($0.46 per share) for the second
quarter of 1999.
Second-quarter sales increased 17.5% to $7.4 billion in 2000 from $6.3 billion
in 1999, primarily because of strong store operations and the Randall's
Acquisition. Comparable-store sales increased 4.9%, while identical-store sales
(which exclude replacement stores) increased 4.4%.
In September 1999, Safeway acquired Randall's Food Markets, Inc. (the "Randall's
Acquisition"). In April 1999, Safeway acquired Carr-Gottstein Foods Co. (the
"Carrs Acquisition"). In order to facilitate an understanding of the Company's
operations, the following discussions of gross profit and operating and
administrative expense include certain pro forma information based on the 1999
combined historical financial statements as if the Randall's and Carrs
Acquisitions had been effective as of the beginning of 1999.
Safeway's continued improvement in buying practices and product mix helped
increase gross profit to 29.68% of sales in the second quarter of 2000 from
29.55% on a pro forma basis in the second quarter of 1999. Gross profit
decreased on a historical basis from 29.90% in the second quarter of 1999.
Operating and administrative expense, including goodwill amortization, declined
to 21.82% of sales in the second quarter of 2000 from 22.49% in 1999 on a
historical basis and 22.47% on a pro forma basis, reflecting increased sales
and ongoing efforts to reduce or control expenses.
Interest expense increased to $108.3 million in the second quarter of 2000 from
$74.2 million in the second quarter of 1999. This increase was primarily due to
debt incurred in the fourth quarter of 1999 to finance the Randall's
Acquisition, debt incurred in the fourth quarter of 1999 to finance the
repurchase of Safeway stock and, to a lesser extent, higher interest rates on
variable rate borrowings. Despite the increase in interest expense, the interest
coverage ratio (operating cash flow divided by interest expense) remains very
strong at 6.90 times over the last four quarters. Operating cash flow (defined
on page 11) as a percentage of sales reached 9.66% over the last four quarters
compared to 9.19% one year ago.
Equity in earnings of Casa Ley, Safeway's unconsolidated affiliate, was $3.4
million for the second quarter of 2000, compared to $5.2 million in 1999. Casa
Ley operates 91 food and general merchandise stores in western Mexico.
For the first 24 weeks of 2000, sales were $14.5 billion compared to sales of
$12.5 billion for the first 24 weeks of 1999. The gross profit margin decreased
to 29.72% from 29.85% on a historical basis because of the Carrs and Randall's
acquisitions. On a pro forma basis, gross profit margin improved from 29.51% in
the first 24 weeks of 1999. Operating and administrative expense decreased to
22.16% of sales in the first 24 weeks of 2000 from 22.66% on a historical basis,
and 22.67% on a pro forma basis, in the first 24 weeks of 1999.
ACQUISITION OF CARR-GOTTSTEIN FOODS CO. ("CARRS")
In April 1999, Safeway completed its acquisition of all of the outstanding
shares of Carrs for approximately $106 million in cash (the "Carrs
Acquisition"). The Carrs Acquisition was accounted for as a purchase. Safeway
funded the acquisition, and subsequent repayment of approximately $239 million
of Carrs' debt, with the issuance of commercial paper.
10
<PAGE> 11
SAFEWAY INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITION OF RANDALL'S FOOD MARKETS, INC. ("RANDALL'S")
In September 1999, Safeway acquired all of the outstanding shares of Randall's
in exchange for $1.3 billion consisting of $754 million of cash and 12.7 million
shares of Safeway stock (the "Randall's Acquisition"). The Randall's Acquisition
was accounted for as a purchase. Safeway funded the cash portion of the
acquisition and subsequent repayment of approximately $403 million in Randall's
debt, through the issuance of senior notes.
LIQUIDITY AND FINANCIAL RESOURCES
Cash flow from operations was $758.7 million in the first 24 weeks of 2000
compared to cash flow from operations of $526.4 million in the first 24 weeks of
1999. This change is primarily due to improved results of operations and changes
in working capital. Working capital (excluding cash and debt) at June 17, 2000
was a deficit of $16.9 million compared to a deficit of $138.4 million at June
19, 1999.
Cash flow used by investing activities for the first 24 weeks of the year was
$384.4 million in 2000 compared to $440.4 million in 1999. The decrease is
primarily due to the acquisition of Carrs in 1999 offset by increased capital
expenditures in 2000.
Cash flow used by financing activities was $391.7 million in the first 24 weeks
of 2000 and $91.4 million in 1999, primarily due to net borrowing activity.
Net cash flow from operations as presented in the Condensed Consolidated
Statements 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 noncash
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, and it
facilitates comparisons of Safeway's results of operations with those of
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:
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
------------------------------ ------------------------------
(Dollars in millions) June 17, 2000 June 19, 1999 June 17, 2000 June 19, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income before income taxes $480.1 $401.4 $893.6 $762.5
LIFO expense 1.3 2.3 1.3 4.6
Interest expense 108.3 74.2 218.1 147.5
Depreciation and amortization 190.1 148.4 379.8 292.3
Equity in earnings of unconsolidated
affiliate (3.4) (5.2) (10.5) (13.2)
------------- ------------- ------------- -------------
Operating cash flow $776.4 $621.1 $1,482.3 $1,193.7
============= ============= ============= =============
As a percent of sales 10.47% 9.80% 10.22% 9.59%
============= ============= ============= =============
As a multiple of interest expense 7.17x 8.37x 6.80x 8.09x
============= ============= ============= =============
</TABLE>
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, will be adequate to meet
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments for 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.
11
<PAGE> 12
CAPITAL EXPENDITURE PROGRAM
During the first two quarters of 2000, Safeway invested $471.1 million in
capital expenditures and opened 25 new stores and closed 19 stores. The Company
expects to spend more than $1.7 billion in 2000 while opening 75 to 80 new
stores and completing approximately 275 remodels.
FORWARD -LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such statements relate to, among other things, capital expenditures,
acquisitions, operating improvements and cost reductions, and are indicated by
words or phrases such as "continuing," "on-going," "expects," and similar words
or phrases. The following factors are among the principal factors that could
cause actual results to differ materially from the forward-looking statements:
general business and economic conditions in our operating regions, including the
rate of inflation, population, employment and job growth in our markets; pricing
pressures and other competitive factors, which could include pricing strategies,
store openings and remodels; results of our program to reduce costs; the ability
to integrate and achieve operating improvements at companies we acquire;
increases in labor costs and deterioration in relations with the union
bargaining units representing the our employees; opportunities or acquisitions
that the we pursue; 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes regarding the Company's market risk
position from the information provided under the caption "Market Risk from
Financial Instruments" on page 16 of the Company's 1999 Annual Report to
Stockholders.
12
<PAGE> 13
SAFEWAY INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note K to the Company's consolidated financial statements, under the caption
"Legal Matters" on pages 37 and 38 of the 1999 Annual Report to Stockholders,
provides information on certain litigation in which the Company is involved.
There have been no material developments to these matters, except as described
below.
On April 26, 2000, in the case of Sanders, et al. v. Lucky Stores, Inc., et al.,
the court approved the settlement agreement of the parties and the case was
subsequently dismissed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 9, 2000 at which the
stockholders voted on proposals as follows:
<TABLE>
<CAPTION>
Votes Against Votes
Votes For or Withheld Abstained Broker Non-Votes
----------- ------------ --------- ----------------
<S> <C> <C> <C> <C>
Election of Directors:
James H. Greene, Jr. ......................... 405,955,027 16,115,417 N/A N/A
Paul Hazen ................................... 406,946,875 15,123,569 N/A N/A
Hector Ley Lopez ............................. 404,186,775 17,883,669 N/A N/A
Stockholder proposal requesting the Board of
Directors to adopt a policy of removing
genetically engineered products from private
label foods ...................................... 8,794,134 341,159,760 24,549,348 47,567,202
Stockholder proposal requesting the Board
of Directors to take the necessary steps to
provide for cumulative voting .................... 135,092,168 229,975,978 9,435,096 47,567,202
Ratification of appointment of Deloitte &
Touche LLP as independent auditors for fiscal
year 2000 ........................................ 420,000,456 986,777 1,083,211 N/A
</TABLE>
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ITEM 6(a). EXHIBITS
Exhibit 11.1 Computation of Earnings Per Common Share.
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 27.1 Financial Data Schedule (electronic filing only).
ITEM 6(b). REPORTS ON FORM 8-K
The Company filed no Current Reports on Form 8-K during the second quarter of
2000.
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SAFEWAY INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: August 1, 2000 /s/ Steven A. Burd
--------------------- ---------------------------
Steven A. Burd
Chairman, President
and Chief Executive Officer
Date: August 1, 2000 /s/ David G. Weed
--------------------- ---------------------------
David G. Weed
Executive Vice President
and Chief Financial Officer
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SAFEWAY INC. AND SUBSIDIARIES
EXHIBIT INDEX
LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD
ENDED JUNE 17, 2000
Exhibit 11.1 Computation of Earnings Per Common Share
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27.1 Financial Data Schedule (electronic filing only)
16
