10-Q 1 e10-q.txt QUARTERLY REPORT FOR THE PERIOD ENDED 06-17-2000 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. 2 SAFEWAY INC. AND SUBSIDIARIES INDEX
PART I FINANCIAL INFORMATION (UNAUDITED) Page ------ --------------------------------- ---- 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
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN MILLIONS) (UNAUDITED)
June 17, January 1, 2000 2000 ------------ ------------- 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 ============ =============
(Continued) 3 4 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED)
June 17, January 1, 2000 2000 ------------ ------------- 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 ============ =============
See accompanying notes to condensed consolidated financial statements. 4 5 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED)
12 Weeks Ended 24 Weeks Ended ---------------------------- ----------------------------- June 17, June 19, June 17, June 19, 2000 1999 2000 1999 ------------ ------------ ------------- ------------- 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 ============ ============ ============= =============
See accompanying notes to condensed consolidated financial statements. 5 6 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) (UNAUDITED)
24 Weeks Ended ------------------------------------ June 17, June 19, 2000 1999 ---------------- ---------------- 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 ================ ================
See accompanying notes to condensed consolidated financial statements. 6 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 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):
June 17, 2000 January 1, 2000 ------------------------ ----------------------- Long-term Current Long-term Current --------- ------- ---------- ------- 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 ========= ======= ========== =======
8 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.
24 Weeks Ended (in millions, except per-share amounts) -------------------------------------- (Actual) (Pro Forma) June 17, 2000 June 19, 1999 ------------- ------------- Sales ..................................... $14,504.4 $13,784.1 Net income ................................ $522.8 $434.3 Diluted earnings per share ................ $1.03 $0.82
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 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 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:
12 Weeks Ended 24 Weeks Ended ------------------------------ ------------------------------ (Dollars in millions) June 17, 2000 June 19, 1999 June 17, 2000 June 19, 1999 ------------- ------------- ------------- ------------- 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 ============= ============= ============= =============
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 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 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:
Votes Against Votes Votes For or Withheld Abstained Broker Non-Votes ----------- ------------ --------- ---------------- 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
13 14 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. 14 15 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 15 16 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