-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2i/5WAKIvng2gcgYBp+IuLvp12jKk157j7jNLfTJl7iAJQ/0V5ujfjOXITisUBA KZhcsXula9sQkcbGmN2fUg== 0000950149-01-000370.txt : 20010327 0000950149-01-000370.hdr.sgml : 20010327 ACCESSION NUMBER: 0000950149-01-000370 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFEWAY INC CENTRAL INDEX KEY: 0000086144 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 943019135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-00041 FILM NUMBER: 1579284 BUSINESS ADDRESS: STREET 1: 5918 STONERIDGE MALL RD CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 9254673000 MAIL ADDRESS: STREET 1: 5918 STONERIDGE MALL ROAD CITY: PLEASANTON STATE: CA ZIP: 94588 FORMER COMPANY: FORMER CONFORMED NAME: SAFEWAY STORES INC DATE OF NAME CHANGE: 19900226 10-K405 1 f70314e10-k405.txt FORM 10-K405 1 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 December 30, 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 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:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- 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 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
(Cover continued on following page) 2 (Cover continued from previous page) 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 [X]. Aggregate market value of the voting stock held by non-affiliates of Registrant as of March 13, 2001, was $26.7 billion. As of March 13, 2001, there were issued and outstanding 505.2 million shares of the Registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference to the extent specified herein:
Document Description 10-K Part -------------------- --------- 2000 Annual Report to Stockholders I, II, III, IV Proxy Statement dated March 23, 2001 III
3 PART I ITEM 1. BUSINESS AND ITEM 2. PROPERTIES GENERAL: Information appearing on pages 8 through 17 of the 2000 Annual Report to Stockholders of Safeway Inc. ("Safeway" or the "Company") is incorporated herein by this reference. Safeway was incorporated in the state of Delaware in July 1986 as SSI Holdings Corporation and, thereafter, its name was changed to Safeway Stores, Incorporated. In February 1990, the Company changed its name to Safeway Inc. CAPITAL EXPENDITURES: Information appearing under the caption "Capital Expenditure Program" on pages 15 and 16 of the Company's 2000 Annual Report to Stockholders is incorporated herein by this reference. Safeway's stores opened, remodels completed, acquired stores and stores closed or sold during the last five years were as follows:
Total Five Years 2000 1999 1998 1997 1996 ----- ---- ---- ---- ---- ---- Stores opened: New locations 120 31 32 28 15 14 Replacements 135 44 35 18 22 16 ----- --- --- --- --- --- 255 75 67 46 37 30 ===== === === === === === Remodels completed: (Note A) Expansions 153 29 33 28 34 29 "Four-Wall" remodels 929 246 218 206 147 112 --- --- --- --- --- --- 1,082 275 251 234 181 141 ===== === === === === === Randall's stores acquired 117 -- 117 -- -- -- Carrs stores acquired 32 -- 32 -- -- -- Dominick's stores acquired 113 -- -- 113 -- -- Vons stores acquired 316 -- -- -- 316 -- Stores closed or sold 204 46 54 30 37 37 Total stores at year-end 1,688 1,659 1,497 1,368 1,052
Note A. Defined as store projects (other than maintenance) generally requiring expenditures in excess of $200,000. 3 4 ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: Note L to the consolidated financial statements, included on page 41 of the Company's 2000 Annual Report to Stockholders, is incorporated herein by this reference. TRADEMARKS: Safeway 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 250 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 Pak n' Save Foods, Vons, Pavilions, Dominick's, Carrs, Randalls, Tom Thumb and Genuardi's Family Markets. 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. Canada Safeway has also registered certain of its trademarks in Canada. WORKING CAPITAL: At year-end 2000, working capital deficit was composed of $3.2 billion of current assets and $3.8 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 Company's 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 the Company's markets. RAW MATERIALS: 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. 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 5 ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED) EMPLOYEES: At year-end 2000, Safeway had more than 192,000 full and part-time employees. Approximately 78% 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. During 2001, collective bargaining agreements covering employees in the Company's stores in Alberta, Washington and California come up for renewal. OTHER LABOR MATTERS: Employees of companies that operate certain of the Company's distribution centers in northern California, Maryland and Vancouver, British Columbia are covered by collective bargaining agreements. Summit Logistics, a company that operates the Company's northern California distribution center, was engaged in a 47-day strike during the fourth quarter of 2000 which had an unexpectedly large adverse effect on sales, product costs and distribution expenses at 246 Safeway stores in northern California, Nevada and Hawaii. Safeway estimates that the strike reduced 2000 net income by approximately $0.13 per share. Additional information concerning the strike is set forth under the caption "Financial Review" on pages 19 through 22 of the Company's 2000 Annual Report to Stockholders and is incorporated herein by reference. During the last three years, there have been no other significant work stoppages affecting the employees of the Company or the operators of the Company's distribution centers. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES: Note L to the consolidated financial statements, included on page 41 of the Company's 2000 Annual Report to Stockholders and incorporated herein by this reference, contains financial information by geographic area. 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 pages 40 and 41 of the Company's 2000 Annual Report to Stockholders is incorporated herein by this reference. 5 6 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 2000. EXECUTIVE OFFICERS OF THE COMPANY The names and ages of the current executive officers of the Company and their positions as of March 13, 2001, 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.
Year First Elected Name and all Positions with the Company ------------------ Held at March 13, 2001 Age Officer Present Office - ---------------------- --- ------- -------------- Steven A. Burd 51 1992 1993 Chairman, President and Chief Executive Officer Richard W. Dreiling 47 1994 1999 Executive Vice President Marketing, Manufacturing and Distribution Vasant M. Prabhu(1) 41 2000 2000 Executive Vice President and Chief Financial Officer Larree M. Renda 42 1991 1999 Executive Vice President Retail Operations, Human Resources, Public Affairs, Labor and Government Relations David F. Bond(2) 47 1997 1997 Senior Vice President Finance and Control David T. Ching 48 1994 1994 Senior Vice President and Chief Information Officer David F. Faustman(3) 48 2000 2000 Senior Vice President Labor Relations and Public Affairs Dick W. Gonzales(4) 54 1998 1998 Senior Vice President Human Resources Robert A. Gordon(5) 49 2000 2000 Senior Vice President and General Counsel Lawrence V. Jackson(6) 47 1997 1997 Senior Vice President Supply Operations
6 7 EXECUTIVE OFFICERS OF THE COMPANY (CONTINUED)
Year First Elected Name and all Positions with the Company ------------------ Held at March 13, 2001 Age Officer Present Office - ---------------------- --- ------- -------------- Melissa C. Plaisance 41 1993 1995 Senior Vice President Finance and Investor Relations Kenneth M. Shachmut 52 1994 1999 Senior Vice President Corporate Reengineering Donald P. Wright 48 1991 1991 Senior Vice President Real Estate and Engineering
- ------------------------------- (1) Mr. Prabhu was previously the President of the Information and Media Group at the McGraw-Hill Companies, Inc., from 1998 to 2000, Chief Financial Officer of Pepsi-Cola International, a division of PepsiCo, Inc. from 1997 to 1998 and Senior Vice President, Finance and Chief Financial Officer of PepsiCo Restaurants International, a division of PepsiCo, Inc. from 1996 to 1997. (2) Mr. Bond was previously a partner at the accounting firm of Deloitte & Touche LLP. (3) Mr. Faustman was previously a partner at the law firm of Carlton, DiSante and Freudenberger LLP. (4) Mr. Gonzales held the positions of Group Vice President -- Human Resources and Senior Vice President --Human Resources at The Vons Companies, Inc. from 1993 to 1998. (5) Mr. Gordon was previously a partner in the law firm of Pillsbury Winthrop LLP. (6) Mr. Jackson was previously the Senior Vice President, Worldwide Operations of PepsiCo Food Systems, a division of PepsiCo, Inc., from 1995 to 1997. Section 16(a) Beneficial Ownership. Information appearing under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 2001 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 N to the consolidated financial statements on page 43 of the Company's 2000 Annual Report to Stockholders and is incorporated herein by this reference. There were 13,740 stockholders of record as of March 13, 2001; however, approximately 96% 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 $54.30 at the close of business on March 13, 2001. 7 8 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 2000 and has no current plans for dividend payments. ITEM 6. SELECTED FINANCIAL DATA The "Five-Year Summary Financial Information" included on page 18 of the Company's 2000 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. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information appearing under the caption "Financial Review" on pages 19 through 22 and under the captions "Capital Expenditure Program" and "Market Risk from Financial Instruments" on pages 15 through 17 of the Company's 2000 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 32 through 34 of the Company's 2000 Annual Report to Stockholders is incorporated herein by this reference. Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for the Company as of December 31, 2000. SFAS 133 defines derivatives, requires that derivatives be carried at fair value on the balance sheet, and provides for hedge accounting when certain conditions are met. Initial adoption of this new accounting standard did not have a material impact on Safeway's financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information appearing under the caption "Market Risk from Financial Instruments" on pages 16 and 17 of the Company's 2000 Annual Report to Stockholders is incorporated herein by this reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS Pages 23 through 45 of the Company's 2000 Annual Report to Stockholders, which include the consolidated financial statements and the Independent Auditors' Report as listed in Item 14(a)1 below, are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 8 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 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 2001 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 2001 Proxy Statement is incorporated herein by this reference. Information appearing under the captions "Report of the Compensation Committee; Report of the Section 162(m) Committee"; "Report of the Audit Committee" and "Stock Performance Graph" in the Company's 2001 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 2001 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 40 of the Company's 2000 Annual Report to Stockholders, and the captions "Certain Relationships and Transactions" and "Compensation Committee Interlocks and Insider Participation" in the Company's 2001 Proxy Statement contain information about certain relationships and related transactions and are incorporated herein by this reference. 9 10 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 2000, 1999, and 1998. Consolidated Balance Sheets as of the end of fiscal 2000 and 1999. Consolidated Statements of Cash Flows for fiscal 2000, 1999, and 1998. Consolidated Statements of Stockholders' Equity for fiscal 2000, 1999, and 1998. 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: Exhibit 2.1 Agreement and Plan of Merger, dated as of July 22, 1999, among Safeway Inc., SI Merger Sub, Inc. and Randall's Food Markets Inc. (incorporated by reference to Exhibit 2 to the Registrant's Form 8-K dated August 3, 1999). Exhibit 2.2 Agreement and Plan of Merger dated as of August 6, 1998 among Carr-Gottstein Foods Co., Safeway Inc. and ACG Merger Sub, Inc. and Stockholder Support Agreement dated August 6, 1998 entered into by Green Equity Investors, L.P. for the benefit of Safeway Inc. (incorporated by reference to Exhibit 2.1 of the Registrant's Form 10-Q for the quarterly period ended September 12, 1998). Exhibit 2.3 Agreement and Plan of Merger dated as of October 13, 1998, by and among Safeway Inc., Windy City Acquisition Corp. and Dominick's Supermarkets, Inc. (incorporated by reference to Exhibit (c)(1) to Registrant's Schedule 14D-1 dated October 19, 1998), and Stockholders Agreement dated as of October 12, 1998 between Safeway Inc., Windy City Acquisition Corp., and each of the stockholders of Dominick's Supermarkets, Inc. named on the signature pages thereto (incorporated by reference to Exhibit (c)(2) to Registrant's Schedule 14D-1 dated October 19, 1998). Exhibit 3.1 Restated Certificate of Incorporation of the Company and Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 15, 1996) and Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended June 20, 1998). Exhibit 3.2 Form of By-laws of the Company as amended and restated (incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ended September 9, 2000).
10 11 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) 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) and Amendment to the Registration Rights Agreement dated as of July 22, 1999 by and between the Company, certain limited partnerships and RFM Acquisition LLC (incorporated by reference to Exhibit 4.5 to Registration Statement No. 333-84749). Exhibit 4(i).3 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 (incorporated by reference to Exhibit 4(i).9 to Registrant's Form 10-K for the year ended January 3, 1998). Exhibit 4(i).4 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).5 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).6 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). Exhibit 4(i).7 Common Stock Purchase Warrants to purchase shares of Safeway Inc. common stock (incorporated by reference to Exhibit 4(i).13 to Registrant's Form 10-K for the year ended January 3, 1998) and Amendment to Safeway Inc. Common Stock Purchase Warrant dated as of January 29, 1999 (incorporated by reference to Exhibit A to Registrant's Form 8-K dated February 11, 1999). Exhibit 4(i).8 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).9 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).
11 12 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 4(i).10 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, including the forms of Notes (incorporated by reference to Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to Registrant's Form 8-K dated September 10, 1997). Exhibit 4(i).11 Form of Officers' Certificate establishing the terms of the Registrant's 5.75% Notes due 2000, 5.875% Notes due 2001, 6.05% Notes due 2003, and 6.50% Notes due 2008, including forms of Notes (incorporated by reference to Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to Registrant's Form 8-K dated November 9, 1998). Exhibit 4(i).12 Form of Officers' Certificate establishing terms of the Registrant's 7.00% Notes due 2002, 7.25% Notes due 2004, and 7.5% Notes due 2004, including the forms of Notes (incorporated by reference to Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to Registrant's Form 8-K dated September 14, 1999). Exhibit 4(i).13 Form of Officers' Certificate establishing terms of the Registrant's 7.25% Debentures due 2031, including the forms of Notes (incorporated by reference to Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to Registrant's Form 8-K dated January 31, 2001). Exhibit 4(i).14 Form of Officers' Certificate establishing terms of the Registrant's 6.15% Notes due 2006 and 6.50% Notes due 2011, including the forms of Notes (incorporated by reference to Exhibits 4.2, 4.3, 4.4, 4.5 and 4.6 to Registrant's Form 8-K dated March 5, 2001). 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* 1999 Amended and Restated Equity Participation Plan of Safeway Inc. (incorporated by reference to Exhibit 10(iii).1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period ending June 19, 1999). 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* Amended and Restated 1997 Stock Purchase and Option Plan for Key Employees for Randall's Food Markets, Inc. and Subsidiaries (incorporated by reference to Exhibit 4.3 to Randall's Food Markets, Inc.'s Registration Statement on Form S-8 dated January 19, 1999). Exhibit 10(iii).5* Randall's Food Markets, Inc. Stock Option Plan and Restricted Stock Plan (incorporated by reference to Exhibit 4.2 of Registration Statement 333-84749).
- -------------- * Management contract, or compensatory plan or arrangement. 12 13 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 10(iii).6* Amendment dated September 11, 1999 to the Randall's Food Markets, Inc. Stock Option and Restricted Stock and the Amended and Restated 1997 Stock Purchase and Option Plan for Randall's Food Markets, Inc. and Subsidiaries (incorporated by reference to Exhibit 4.3 of Registration Statement 333-84749). Exhibit 10(iii).7* The 1996 Equity Participation Plan of Dominick's Supermarkets, Inc. (incorporated by reference to Exhibit 10.13 to Dominick's Supermarkets, Inc.'s Form 10-K for the year ended November 1, 1996). Exhibit 10(iii).8* The 1995 Amended and Restated Stock Option Plan of Dominick's Supermarkets, Inc. (incorporated by reference to Exhibit 10.12 to Dominick's Supermarkets, Inc.'s Form 10-K for the year ended November 1, 1996). Exhibit 10(iii).9* Form of Amendment to Stock Option Agreements under The 1996 Equity Participation Plan of Dominick's Supermarkets, Inc., and the 1995 Amended and Restated Stock Option Plan of Dominick's Supermarkets, Inc. (incorporated by reference to Exhibit 4.5 to Registrant's Registration on Form S-8 No. 333-67575 dated November 19, 1998). Exhibit 10(iii).10* The 2001 Amended and Restated Operating Performance Bonus Plan for Executive Officers of Safeway Inc. Exhibit 10(iii).11* Capital Performance Bonus Plan for Executive Officers of Safeway Inc. (incorporated by reference to Exhibit 10(iii).8 of Registrant's Form 10-K for the year ended January 2, 1998). Exhibit 10(iii).12* 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).13* 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).14* 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).15* 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).16* 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).
- -------------- * Management contract, or compensatory plan or arrangement. 13 14 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 10(iii).17* 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).18* Safeway Executive Deferred Compensation Plan and Deferral Election Form (incorporated by reference to Exhibit 10(iii).18 to the Registrant's Form 10-K for the year ended January 1, 2000). Exhibit 10(iii).19* Canada Safeway Limited Executive Deferred Compensation Plan and Deferral Election Form (incorporated by reference to Exhibit 10(iii).19 to the Registrant's Form 10-K for the year ended January 1, 2000). Exhibit 10(iii).20* Safeway Inc. Stock Option Gain Deferred Compensation Plan and Deferral Election Form (incorporated by reference to Exhibit 10(iii).20 to the Registrant's Form 10-K for the year ended January 1, 2000). Exhibit 10(iii).21* 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).22* 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). Exhibit 10(iii).23* Employment Agreement made and entered into as of August 14, 2000 by and between Safeway Inc. and Vasant Prabhu. Exhibit 11.1 Computation of Earnings per Share (incorporated by reference to page 42 of the Company's 2000 Annual Report to Stockholders). Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges. Exhibit 13.1 Registrant's 2000 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 21.1 Schedule of Subsidiaries. Exhibit 23.1 Independent Auditors' Consent.
- -------------- * Management contract, or compensatory plan or arrangement. 14 15 (b) REPORTS ON FORM 8-K: On November 1, 2000, the Company filed a current report on Form 8-K under "Item 9. Regulation FD Disclosure." 15 16 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 26, 2001 ------------------ SAFEWAY INC. Steven A. Burd Chairman, 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: /s/ Vasant M. Prabhu /s/ David F. Bond - -------------------- ----------------- Vasant M. Prabhu David F. Bond Executive Vice President and Senior Vice President Chief Financial Officer Finance and Control Date: March 26, 2001 Date: March 26, 2001
Director Date -------- ---- /s/ Steven A. Burd March 26, 2001 - ------------------ Steven A. Burd /s/ James H. Greene, Jr. March 26, 2001 - ------------------------ James H. Greene, Jr. /s/ Paul Hazen March 26, 2001 - -------------- Paul Hazen /s/ Hector Ley Lopez March 26, 2001 - --------------------------- Hector Ley Lopez /s/ Robert I. MacDonnell March 26, 2001 - -------------------------- Robert I. MacDonnell /s/ Peter A. Magowan March 26, 2001 - -------------------- Peter A. Magowan /s/ George R. Roberts March 26, 2001 - --------------------- George R. Roberts /s/ Rebecca A. Stirn March 26, 2001 - -------------------- Rebecca A. Stirn /s/ William Y. Tauscher March 26, 2001 - ----------------------- William Y. Tauscher
16 17 Exhibit Index LIST OF EXHIBITS FILED WITH FORM 10-K FOR THE PERIOD ENDED December 30, 2000 Exhibit 10(iii).10 The 2001 Amended and Restated Operating Performance Bonus Plan for Executive Officers of Safeway Inc. Exhibit 10(iii).23 Employment Agreement made and entered into as of August 14, 2000 by and between Safeway Inc. and Vasant Prabhu. Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges. Exhibit 13.1 Registrant's 2000 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 21.1 Schedule of Subsidiaries. Exhibit 23.1 Independent Auditors' Consent.
EX-10.(III)10 2 f70314ex10-iii10.txt EXHIBIT 10(III).10 1 EXHIBIT 10(iii).10 THE 2001 AMENDED AND RESTATED OPERATING PERFORMANCE BONUS PLAN FOR EXECUTIVE OFFICERS OF SAFEWAY INC. Safeway Inc., a Delaware corporation (the "Company"), previously adopted The Operating 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 stockholder value and to encourage individual and team behavior that helps the Company achieve both short and long-term corporate objectives. Under the terms of the Plan, the Board of Directors of the Company (the "Board") reserved the right to amend the Plan. The Board of Directors of the Company has adopted this amendment and restatement of the Plan, effective with respect to bonuses for fiscal years beginning on or after December 31, 2000, subject to approval of this amendment and restatement of the Plan by the stockholders of the Company. 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 of the Company shall be taken into account, on a proportionate basis, in computing any bonus award for the fiscal year. Section 1.2 - 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 1.3 - Participant. "Participant" shall mean the Company's Chief Executive Officer ("CEO") and any other Executive Officer (including the Senior Vice President - Supply). "Executive Officer" shall mean any officer of the Company subject to Section 16(a) of the Securities Exchange Act of 1934, as amended.. ARTICLE II. BONUS AWARDS Section 2.1 - CEO. The CEO is eligible for a bonus award under this Section 2.1. For each fiscal year of the Company, the Section 162(m) Committee of the Board (the "Committee") shall establish an objectively determinable performance target under this Section 2.1, which shall include one or more of the following components of overall Company 2 performance: (i) identical store sales, (ii) operating profit, and (iii) working capital, in each case as determined in accordance with the Company's accounting practices, as in effect on the first day of such fiscal year, and which may also provide for adjustments in accordance with Section 2.4. Achievement of specified levels above the performance target will result in a bonus award to the CEO not to exceed a percentage of Base Compensation determined by the Committee, up to a maximum bonus award of $3.0 million, paid in accordance with Article III. The Committee shall establish such specified levels above the performance target and the bonus award to be paid at each such specified level. Prior to the payment of a bonus award, the Committee shall certify in writing the level of performance attained by the Company for the fiscal year to which such bonus award relates. Section 2.2 - Executive Officers. Each Executive Officer (including the Senior Vice President - Supply, but excluding the CEO) is eligible for a bonus award under this Section 2.2. Achievement of specified levels above the performance target described under Section 2.1 will result in a bonus award to an Executive Officer not to exceed a percentage of such Executive Officer's Base Compensation determined by the Committee, up to a maximum bonus award of $1.5 million, paid in accordance with Article III. For each Executive Officer, the Committee shall establish such specified levels above the performance target and the bonus award to be paid at each such specified level. At the discretion of the Committee, however, the Committee may reduce the bonus amount payable to any Executive Officer. Prior to the payment of a bonus award, the Committee shall certify in writing the level of performance attained by the Company for the fiscal year to which such bonus award relates. Section 2.3 - Senior Vice President - Supply. The Senior Vice President - Supply is eligible for a bonus award under this Section 2.3. For each fiscal year of the Company, the Committee shall establish an objectively determinable performance target under this Section 2.3, which shall include one or more of the following components of performance for the Supply Division: (i) Supply Division operating income, (ii) plant performance, (iii) third party sales income contribution, (iv) working capital, and (v) identical store sales, in each case as determined in accordance with the Company's accounting practices, as in effect on the first day of such fiscal year, and which may also provide for adjustments in accordance with Section 2.4. Achievement of specified levels above the performance target will result in a bonus award not to exceed a percentage of Base Compensation determined by the Committee, up to a maximum bonus award of $550,000, paid in accordance with Article III. The Committee shall establish such specified levels above the performance target and the bonus award to be paid at each such specified level. Prior to the payment of a bonus award, the Committee shall certify in writing the level of performance attained by the Supply Division for the fiscal year to which such bonus award relates. Section 2.4 - Adjustments to Performance Components. For each fiscal year of the Company, the Committee may provide for objectively determinable adjustments, as determined in accordance with generally accepted accounting principles ("GAAP"), to any of the performance components under Section 2.1, 2.3 or 5.3 for one or more of the items of gain, loss, profit or expense: (i) determined to be extraordinary or unusual in nature or infrequent in occurrence, (ii) related to the disposal of a segment of a business, (iii) related to a change in accounting principle under GAAP, (iv) related to discontinued operations that do not qualify as a segment of a business under GAAP, and (v) attributable to the business operations of any entity acquired by the Company during the fiscal year. 2 3 ARTICLE III. PAYMENT OF BONUS AWARD Section 3.1 - Form of Payment. Each Participant's bonus award may be paid, at the option of the Participant, in cash or in stock, or in any combination of cash and stock. Stock bonuses shall be paid in accordance with the provisions of the 1999 Amended and Restated Equity Participation Plan of Safeway Inc. 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. ARTICLE IV. SECTION 162(m) Section 4.1 - Qualified Performance Based Compensation. The Committee, in its 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. 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 targets described in Sections 2.1 and 2.3, if applicable to such bonus award, shall be established in writing before the first day of the fiscal year to which such bonus award relates; provided, however, that, to the extent permitted under Section 162(m)(4)(C) of the Code and the Treasury Regulations thereunder, such performance targets may be established in writing by the Committee not later than 90 days after the commencement of the period of service to which the performance targets relate, provided that the outcome is substantially uncertain at the time the Committee actually establishes the performance targets; and, provided, further, that in no event shall the performance targets be established after 25% of the period of service (as scheduled in good faith at the time the performance targets are established) has elapsed. ARTICLE V. TRANSFERS, TERMINATIONS AND NEW EXECUTIVE OFFICERS Section 5.1 - Transfers. For a Participant who is transferred from one Executive Officer position to another during a fiscal year, the bonus award for the fiscal 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 Executive Officer at any time during a fiscal year shall not be eligible to receive a partial fiscal year bonus award, except when the reason for leaving the position is for reason of health or retirement; provided, however, that 3 4 with respect to a Participant who leaves for reason of health or retirement, the Committee may determine that such Participant shall not receive a partial fiscal year bonus award. Section 5.3 - New Executive Officers. A Participant who is transferred from a non-Executive Officer position to an Executive Officer position during a fiscal year, or who commences employment with the Company in an Executive Officer position during a fiscal year, shall be eligible for a bonus award for such fiscal year in accordance with Article II, unless the Committee determines, on the basis that the performance targets established under Article II are no longer substantially uncertain or otherwise, that such Participant shall be eligible for a bonus award for such fiscal year under this Section 5.3. In the event a Participant is eligible for a bonus award under this Section 5.3, for such fiscal year, the Committee shall establish an objectively determinable performance target under this Section 5.3, which shall relate to such Participant's period of service as an Executive Officer during such fiscal year, and which shall include one or more of the performance components specified in Section 2.1 (and, if such a Participant is the Senior Vice President - Supply, one or more of the performance components under Section 2.3) and may also provide for adjustments in accordance with Section 2.4. Achievement of specified levels above the performance target will result in a bonus award to such Participant not to exceed a percentage of Base Compensation determined by the Committee, up to a maximum bonus award of $3.0 million (in the case of the CEO) or $1.5 million (in the case of any Executive Officer other than the CEO), paid in accordance with Article III. The Committee shall establish such specified levels above the performance target and the bonus award to be paid at each such specified level. At the discretion of the Committee, however, the Committee may reduce the bonus payable to any such Participant (other than the CEO). Prior to the payment of a bonus award, the Committee shall certify in writing the level of performance attained by the Company for the fiscal year to which such bonus award relates. With respect to any bonus award under this Section 5.3 which the Committee determines should qualify as performance-based compensation, any of the performance targets described in this Section 5.3, if applicable to such bonus award, shall be established in writing before the first day of such Participant's employment in an Executive Officer position during the fiscal year to which such bonus relates; provided, however, that, to the extent permitted under Section 162(m)(4)(C) of the Code and the Treasury Regulations thereunder, such performance targets may be established in writing by the Committee after the commencement of the period of service to which the performance targets relate, provided that the outcome is substantially uncertain at the time the Committee actually establishes the performance targets; and, provided, further, that in no event shall the performance targets be established after 25% of the period of service (as scheduled in good faith at the time the performance targets are established) has been established. ARTICLE VI. ADMINISTRATION Section 6.1 - Committee (a) The Committee shall consist of at least two persons appointed by and holding office at the pleasure of the Board. 4 5 (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 Sections 2.1 and 2.3 if applicable to such bonus awards, after the commencement of the year with respect to which such bonus awards relate. Section 7.2 - Approval of Plan by Stockholders. This amendment and restatement of the Plan shall be submitted for the approval of the Company's stockholders at the annual meeting of stockholders to be held in 2001. In the event that this amendment and restatement of the Plan is not so approved, this amendment and restatement of the Plan shall cease to be effective, and the Plan, as in effect prior to this amendment and restatement of the Plan, shall continue in accordance with the terms thereof. 5 EX-10.(III)23 3 f70314ex10-iii23.txt EXHIBIT 10(III).23 1 EXHIBIT 10(iii).23 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of August 14, 2000 by and between Safeway Inc., a Delaware corporation ("Safeway") and Vasant Prabhu ("Prabhu"). WHEREAS, Safeway has offered and wishes to employ Prabhu in accordance with the terms of this Agreement; and WHEREAS, Prabhu wishes to become employed by Safeway in accordance with the terms of this Agreement; NOW THEREFORE, in consideration of the foregoing and the mutual covenants and conditions set forth herein, the parties agree that Prabhu shall be employed by Safeway on the following terms and conditions: 1. Position. Prabhu will be employed by Safeway in the position of Executive Vice President, Chief Financial Officer and President, E-Commerce. 2. Start Date. Prabhu's employment with Safeway will commence on a date (the "Start Date") to be mutually agreed upon by the parties, but in no event later than September 30, 2000. 3. Term. Prabhu's employment with Safeway shall be for no specific term. Subject only to the terms of this Agreement, the employment relationship between Prabhu and Safeway may be terminated by either party at any time, with or without cause and with or without prior notice. 4. Salary. Prabhu's starting annualized base compensation will be $500,000, less state and federal tax withholdings and other authorized deductions. He will be eligible for a merit increase review in or about March, 2001 and, thereafter, in accordance with Safeway's normal employment policies and practices. 5. Performance Bonus. Prabhu will be covered by and eligible to participate in a bonus plan pursuant to which he will be eligible to receive a potential annual performance bonus, payable by the end of the first calendar quarter of the year following the year in which the bonus is earned, of up to 125% of his base salary. For services rendered during 2000, Prabhu's bonus will not be less than a gross amount of $325,000. 6. Retention Bonuses. Prabhu will be eligible to receive retention bonuses as follows: $250,000 for services rendered during 2000, payable by the end of the first calendar quarter of 2001; $250,000 for services rendered during 2001 and $250,000 for 1 2 services rendered during 2002 (for a total of $500,000), payable by the end of the first calendar quarter of 2003; and $ 250,000 for services rendered during 2003, payable by the end of the first calendar quarter of 2004; provided, in each case, that Prabhu remains employed by Safeway as of December 30 of 2000, 2001, 2002 or 2003, as applicable. 7. Signing Bonus. Prabhu will receive a one-time signing bonus in the gross amount of $325,000, said signing bonus to be paid to Prabhu within ten (10) days after the Start Date. 8. Home Purchase Mortgage Loan. Within sixty (60) days after the Start Date, and upon Prabhu's execution of an appropriate Promissory Note, Safeway will loan Prabhu the amount of $1,000,000 to facilitate Prabhu's purchase of a residence in Northern California. Said Promissory Note will be interest free and will be secured by a second deed of trust upon the subject property. This loan will be for a four-year term. Twenty per cent (20%) of the loan amount will be due on September 1, 2001, forty per cent (40%) of the loan amount will be due on April 30, 2003 and the remaining forty per cent (40%) of the loan amount will be due on September 1, 2004. If, at any time prior to the fourth anniversary of the Start Date, Prabhu resigns his employment with Safeway, the remaining loan balance shall become due and payable in full within ninety (90) days of such resignation. 9. Stock Options. Prabhu will be granted 600,000 Safeway stock options, at the stock closing price on the Start Date. These stock options will have a 10-year term and will vest 20% upon each anniversary of the Start Date, provided that Prabhu remains employed as of that anniversary date. Prabhu will also be granted at least an additional 200,000 Safeway stock options on or before the third anniversary of the Start Date, provided that Prabhu remains employed as of that anniversary date. 10. Restricted Stock. Prabhu will receive approximately 40,000 shares of restricted stock, which will vest 25 % on December 31, 2000, 25% on January 1, 2001 and 50% on January 1, 2002, provided that Prabhu remains employed by Safeway as of those dates. The actual amount of restricted stock will be determined by the stock closing price on the Start Date and will be calculated so as to provide Prabhu with restricted stock valued at $2,000,000. 11. Benefits. Prabhu and his eligible dependents will be eligible for coverage under Safeway's group health plan upon his Start Date. Prabhu will be eligible to participate in the Safeway 401(k) Plan on the first of the month following the month in which he completes thirty (30) days of employment. Prabhu will be entitled to all other benefits available to executive employees of Safeway in accordance with the normal terms and conditions of the applicable benefit plans. 12. Vacation. Effective immediately upon the Start Date, Prabhu will begin accruing paid vacation benefits at the rate of four (4) weeks per year. 2 3 13. Relocation. Prabhu will be eligible to receive Level 1 relocation benefits in accordance with Safeway's Relocation Assistance Policy. 14. Relocation Allowance. In addition to any other relocation benefits available to him in accordance with the terms of this Agreement, Prabhu will be granted a one-time relocation allowance in the gross amount of $25,000, said allowance to be paid to Prabhu within ten (10) days of the Start Date. 15. Termination. a. Termination for Cause. Prabhu's rights to receive any salary, bonus compensation and other benefits shall terminate upon termination of his employment by Safeway for Cause. "Cause" shall mean any acts or omissions on the part of Prabhu involving any or all of the following: (i) material dishonesty or misappropriation adversely affecting Safeway or its property or funds; (ii) misconduct, including but not limited to violation of Safeway's policy against harassment, or reckless or willful destruction of Safeway property; (iii) a breach of any of the covenants set forth in paragraphs 16(a) through 16(c), below; or (iv) illegal, fraudulent or other conduct tending to place Prabhu, or Safeway, by reason of its association with him, in disrepute or to subject Safeway to financial loss. b. Termination without Cause . Subject to the provisions of paragraphs 8 and 15(d) of this Agreement, Prabhu's employment hereunder may be terminated by Safeway without Cause at any time and without prior notice to Prabhu. c. Resignation for Good Reason. Prabhu may resign his employment with Safeway at any time, provided that such resignation shall be considered to be for Good Reason for purposes of this Agreement if, but only if, one or more of the following conditions occur and such condition(s) is (are) not fully corrected within ten (10) days after written notice from Prabhu to Safeway: (i) the assignment to Prabhu of any duties or responsibilities materially inconsistent with the position of Executive Vice President, Chief Financial Officer and President, E-Commerce; or (ii) the failure by Safeway either to pay Prabhu any salary or bonus due hereunder within ten (10) days of the date that such payment is due and/or to provide any employment benefits as required by this Agreement. 3 4 d. Payments upon Termination without Cause or Resignation for Good Reason. In the event that Prabhu's employment with Safeway is terminated by Safeway without Cause pursuant to paragraph 15(b), above, or by Prabhu as the result of a resignation for Good Reason pursuant to paragraph 15(c), above, then Prabhu shall be entitled to receive: (i) payment of one year of his base salary in effect as of the date of such termination without Cause or resignation for Good Reason, said payments to be made in accordance with the normal payroll cycle of Safeway and subject to any required tax withholdings and deductions; (ii) accelerated vesting of any restricted stock granted to him in accordance with paragraph 9, above; and (iii) remaining unpaid retention bonuses pursuant to paragraph 6, above. For such time that Prabhu is entitled to receive continued salary payments pursuant to paragraph 15(d)(i), above, he will also be eligible for continued vesting of stock options granted to him pursuant to paragraph 9 of this Agreement and continued participation in any Safeway employee benefit plans in which he participated prior to the date of his termination or resignation, with the exception that he shall not be eligible for continued participation in the Long-Term Disability Plan. In the event that Prabhu breaches any of the covenants set forth in paragraphs 16(a) through 16(c), below, Safeway shall have no further obligation to provide, and Prabhu shall have no further right to receive, any payments or benefits pursuant to this paragraph 15(d). 16. Non-Compete, Confidentiality, Non-Disparagement and Non-Solicitation Covenants. a. Non-Compete. Prabhu covenants and agrees that, during his employment with Safeway and for a period of one year thereafter, he shall not, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control, or be connected as a director, officer, employee, partner, consultant or otherwise, with any Competing Food or Drug Retailing Business, other than as a shareholder or beneficial owner of 5% or less of the outstanding securities of a Competing Food or Drug Retailing Business that is a public company. For purposes of this Agreement, "Competing Food or Drug Retailing Business" shall mean any business, firm or enterprise engaged in a food and drug retailing business substantially similar to that of either Safeway, or any of its subsidiaries, within any geographical location(s) in which Safeway operates. The provisions of this paragraph 16(a) shall survive the expiration or termination, for any reason, of this Agreement. b. Confidentiality. Prabhu acknowledges that he has learned or will learn trade secrets and has obtained or will obtain other confidential information concerning the business operations, policies and plans of Safeway. Prabhu covenants and agrees that he will not divulge or otherwise disclose any such trade secrets or other confidential information concerning the business operations, policies or plans of Safeway which he may learn as a result of his employment with Safeway, or may have learned prior thereto, except to the extent that such information is lawfully obtainable from public sources or such use or disclosure is either required by applicable laws or is authorized in writing by an executive officer of Safeway. The provisions of this paragraph 16(b) shall survive the expiration or termination, for any reason, of this Agreement. 4 5 c. Non-Disparagement and Non-Solicitation. Prabhu covenants and agrees that, during his employment with Safeway and for a period of two years thereafter, he shall not, whether acting for himself or for any third party: (i) disparage the image or reputation of Safeway; (ii) interfere with the contractual relationship between Safeway and any of its vendors or suppliers; or (iii) without the advance written approval of an executive officer of Safeway, employ or solicit for employment any person who is employed by Safeway. The provisions of this paragraph 16(c)shall survive the expiration or termination, for any reason, of this Agreement. 17. Miscellaneous. a. Non-Assignment. The obligations and duties of Prabhu hereunder shall be personal and not assignable. b. Notices. Unless otherwise provided herein or subsequently agreed to by the parties, any notice, instruction or document to be given hereunder by any party shall be in writing and delivered in person, by facsimile transmission or by mail as follows: If to Prabhu: Vasant M. Prabhu 350 East 57th Street, #8A New York, NY 10022 If to Safeway: Safeway Inc. 5918 Stoneridge Mall Rd. Pleasanton, CA 94588 Attn: Sr. Vice President, Human Resources c. Entire Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter hereof, and it replaces and supersedes any prior agreements, written or oral, between the parties relating to such subject matter. d. Amendments. This Agreement may be amended only by a written agreement signed by the parties. e. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. f. Severability. If any provision of the Agreement is found to be invalid or unenforceable in whole or part, the remainder of the Agreement shall nevertheless remain in full force and effect. 5 6 g. Counterparts. This Agreement may be executed by one or more counterparts, each of which shall be deemed to be an original copy of the Agreement and all of which taken together shall constitute one agreement. In witness whereof, the parties have executed this Agreement as of the date first written above. SAFEWAY INC. VASANT PRABHU By: /s/ Steven A. Burd /s/ Vasant Prabhu ------------------ ----------------- Its: Chairman, President & CEO 6 EX-12.1 4 f70314ex12-1.txt EXHIBIT 12.1 1 SAFEWAY INC. Exhibit 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in millions)
Fiscal Year ------------------------------------------------------------------------- 52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Income before income taxes and extraordinary loss $ 1,866.5 $ 1,674.0 $ 1,396.9 $ 1,076.3 $ 767.6 Add interest expense 457.2 362.2 235.0 241.2 178.5 Add interest on rental expense(a) 218.7 183.0 108.2 88.5 90.0 Less equity in earnings of unconsolidated affiliates (31.2) (34.5) (28.5) (34.9) (50.0) Add minority interest in subsidiary 1.1 5.9 5.1 4.4 3.4 --------- --------- --------- --------- --------- Earnings $ 2,512.3 $ 2,190.6 $ 1,716.7 $ 1,375.5 $ 989.5 --------- --------- --------- --------- --------- Interest expense $ 457.2 $ 362.2 $ 235.0 $ 241.2 $ 178.5 Add capitalized interest 17.0 9.3 8.5 5.7 4.4 Add interest on rental expense(a) 218.7 183.0 108.2 88.5 90.0 --------- --------- --------- --------- --------- Fixed charges $ 692.9 $ 554.5 $ 351.7 $ 335.4 $ 272.9 --------- --------- --------- --------- --------- Ratio of earnings to fixed charges 3.63 3.95 4.88 4.10 3.63 --------- --------- --------- --------- ---------
(a) Based on a 10% discount factor on the estimated present value of future operating lease payments. EX-13.1 5 f70314ex13-1.txt EXHIBIT 13.1 1 EXHIBIT 13.1 Safeway Inc. 2000 Annual Report GROWTH THROUGH LEADERSHIP [PICTURES] 2 COMPANY PROFILE Safeway Inc. is one of the largest food and drug retailers in North America. As of December 30, 2000, the company operated 1,688 stores in the Western, Southwestern, Rocky Mountain and Mid-Atlantic regions of the United States and in western Canada. In support of its stores, Safeway has an extensive network of distribution, manufacturing and food processing facilities. In early February 2001, Safeway acquired Genuardi's Family Markets, Inc. which, at the close of the transaction, operated 39 stores in Pennsylvania, Delaware and New Jersey. Safeway also holds a 49% interest in Casa Ley, S.A. de C.V., which at December 30, 2000 operated 97 food and general merchandise stores in western Mexico. [MAP] PERCENTAGE OF STORES WITH SPECIALTY DEPARTMENTS
2000 1996 ---- ---- Bakery 94% 80% Deli 95 91 Floral 90 94 Pharmacy 69 58
MANUFACTURING AND PROCESSING FACILITIES
Year-end 2000 ------------------- U.S. Canada ---- ------ Milk Plants 7 3 Bread Baking Plants 6 2 Ice Cream Plants 4 2 Cheese and Meat Packaging Plants 1 2 Soft Drink Bottling Plants 4 -- Fruit and Vegetable Processing Plants 2 3 Other Food Processing Plants 3 1 Pet Food Plant 1 -- -- -- 28 13 == ==
[SAFEWAY LOGO] [PAK 'N SAVE FOODS LOGO] [VONS LOGO] [PAVILIONS LOGO] [DOMINICK'S LOGO] [CARRS LOGO] [RANDALLS LOGO] [TOM THUMB LOGO] [GENUARDI'S LOGO] CONTENTS Letter to Stockholders 2 Growth Through Leadership 5 Company in Review 14 Five-Year Summary Financial Information 18 Financial Review 19 Consolidated Financial Statements 23 Notes to Consolidated Financial Statements 29 Management's Report 44 Independent Auditors' Report 45 Directors and Principal Officers 46 Investor Information 47
3 FINANCIAL HIGHLIGHTS
52 Weeks 52 Weeks 52 Weeks (Dollars in millions, except per-share amounts) 2000 1999 1998 ---------- ---------- ---------- FOR THE YEAR: Sales $ 31,976.9 $ 28,859.9 $ 24,484.2 Gross profit 9,494.5 8,510.7 7,124.5 Operating profit 2,281.7 1,997.9 1,601.7 Net income 1,091.9 970.9 806.7 Diluted earnings per share 2.13 1.88 1.59 Capital expenditures (Note 1) 1,755.7 1,485.6 1,189.7 AT YEAR-END: Common shares outstanding (in millions) (Note 2) 504.1 493.6 490.3 Retail square feet (in millions) 73.6 70.8 61.6 Number of stores 1,688 1,659 1,497
Note 1: Defined in the table on page 16 under "Capital Expenditure Program." Note 2: Net of 64.3 million, 65.4 million and 60.6 million shares held in treasury in 2000, 1999 and 1998, respectively. [GRAPH] 96 $0.97 97 $1.25 98 $1.59 99 $1.88 00 $2.13
DILUTED EARNINGS PER SHARE (Before extraordinary loss) [GRAPH] 96 7.18% 97 7.70% 98 8.75% 99 9.35% 00 9.76%
OPERATING CASH FLOW(*) (% of sales) [GRAPH] 96 6.94x 97 7.18x 98 9.11x 99 7.45x 00 6.83x
INTEREST COVERAGE RATIO(*) *Defined on page 21 1 4 TO OUR STOCKHOLDERS [PICTURE] Safeway continued to perform exceptionally well in 2000, the company's 75th year of operation. We exceeded $1 billion in earnings for the first time, improved our already strong gross profit and operating cash flow margins, accelerated our capital spending program and initiated another promising acquisition. OPERATING AND FINANCIAL RESULTS As indicated in the highlights below, we recorded strong operating results in 2000. Net income increased 12.5% to $1.1 billion ($2.13 per share) from $971 million ($1.88 per share) in 1999. Excluding the estimated effects of a strike involving the operator of our northern California distribution center described below, net income in 2000 was up 19.3% to $1.2 billion ($2.26 per share). Total sales rose 11% to $32.0 billion, primarily due to strong store operations, new store openings and the Randall's acquisition completed in the fourth quarter of 1999. On a strike-adjusted basis, comparable-store sales increased 3.3%, while identical-store sales (which exclude replacement stores) were up 2.7%. Gross profit, adjusted for the effects of the strike, improved 64 basis points to 29.93% of sales from pro forma results in 1999. The increase reflects continuing improvements in buying practices and product mix. On a pro forma basis, operating and administrative expense, excluding the effects of the strike, declined 11 basis points to 22.49% of sales. This was the eighth consecutive year of improvement in our O&A expense-to-sales ratio. Operating cash flow as a percentage of sales on a strike-adjusted basis reached 10.05%, our best ever and one of the highest EBITDA levels in the industry. Our interest coverage ratio (operating cash flow divided by interest expense) remained a strong 2 5 6.83 times despite the additional debt incurred to finance the acquisition of Randall's in September 1999 and the repurchase of Safeway stock in late 1999. During the fourth quarter of 2000, there was a 47-day strike involving the Teamsters union and Summit Logistics, the company that operates our Northern California Division's distribution center. Although the strike was settled on favorable terms, it had a one-time adverse effect on sales, product costs and distribution expenses at 246 Safeway stores in northern California, Nevada and Hawaii. We estimate the strike reduced fourth-quarter earnings by approximately $0.13 per share. CAPITAL SPENDING Capital spending increased to approximately $1.8 billion in 2000. During the year we opened 75 new stores, expanded or remodeled 275 existing ones and closed 46 older stores, resulting in a 4% net addition to total retail square footage. In 2001 we expect to invest more than $2.1 billion and open 90 to 95 new stores while completing some 250 remodels. At Safeway, capital spending is a carefully planned, highly disciplined process. Projects are tracked over an extended period to measure actual results against targeted rates of return. Almost 85% of our sales come from stores located in areas growing faster than the national average in the U.S. and Canada. By concentrating the majority of our capital spending in attractive, high-growth areas where we command strong market positions, we believe we enhance our prospects for long-term sales growth and operating margin improvement. ACQUISITIONS In early February 2001, we acquired Genuardi's Family Markets, Inc. which, at the close of the transaction, operated 39 stores in Pennsylvania, Delaware and New Jersey. One of the region's leading supermarket chains, Genuardi's is renowned for superior-quality perishables and great customer service. Its operating philosophy and corporate culture should mesh well with Safeway's. Later in February 2001, we purchased 11 ABCO stores in Arizona to complement our 89-store Phoenix Division. We anticipate considerable benefits from the combined operation. Acquisitions continue to be a key element of our long-range growth strategy. As additional assets that meet our criteria become available, we intend to evaluate them for possible purchase. COMMUNITY INVOLVEMENT During 2000 we made cash and in-kind contributions to numerous non-profit organizations throughout the communities we serve. Among these donations was approximately $20 million worth of merchandise to food banks and various programs to assist the hungry. We also contributed over $20 million to local schools through innovative fundraising programs. In addition, we supported hundreds of local civic, charitable and cultural organizations within our operating areas. 3 6 Since becoming a corporate sponsor of Easter Seals in 1985, the company and its employees have raised almost $65 million to help people with disabilities lead more productive, independent lives. At Safeway, we believe integrating our values with our work is good business as well as good corporate citizenship. OUTLOOK Looking ahead, we are encouraged by several positive developments: The increasing proficiency of our store-level execution -- from friendly service and fast checkout to appealing displays and good in-stock condition -- which we believe gives us a significant competitive advantage. Of further benefit, the Genuardi's acquisition should add approximately $1 billion in annual sales going forward. The continuing expansion of our gross margin, largely the result of improved buying practices, better shrink control and growing consumer acceptance of our award-winning private label brands. The exceptional productivity of our capital spending program. Our new stores are achieving profitability faster and accounting for a significantly larger share of overall earnings growth. We intend to invest greater amounts of capital at higher levels of return. As we look back on 2000 -- and over the preceding 74 years of Safeway's history - -- we are gratified by our achievements. They reflect the dedication and hard work of our employees, who take pride in executing our priorities and outperforming the competition. With their ongoing support, we look for continued progress in 2001 and beyond. /s/ Steven A. Burd Steven A. Burd Chairman, President and Chief Executive Officer February 22, 2001 4 7 GROWTH THROUGH LEADERSHIP DURING THE PAST 75 YEARS, ANNUAL SALES AT SAFEWAY HAVE INCREASED MORE THAN A THOUSANDFOLD FROM A $30 MILLION BASE IN 1926. WE HAVE ACHIEVED THIS GROWTH BY STRIVING TO SATISFY SHOPPERS BETTER THAN OUR COMPETITORS. CONSUMERS TODAY LEAD BUSY, DEMANDING LIVES. TO RESPOND TO THEIR CHANGING NEEDS MORE EFFECTIVELY, WE ARE USING TECHNOLOGY TO IMPROVE THEIR SHOPPING EXPERIENCE.WE ARE ALSO DELIVERING EXCEPTIONAL VALUE BY OFFERING TIME-PRESSED SHOPPERS SUPERIOR QUALITY, SELECTION AND SERVICE AT COMPETITIVE PRICES -- ALL IN CONVENIENT, ATTRACTIVE FACILITIES. AT SAFEWAY THE CUSTOMER ALWAYS HAS BEEN, AND ALWAYS WILL BE, THE CENTRAL FOCUS OF EVERYTHING WE DO. THIS FOCUS, WHICH HELPED SHAPE OUR PAST, CONTINUES TO BE A GUIDING FORCE BEHIND OUR CURRENT SUCCESS AND PROMISING FUTURE. 5 8 Growth Through Leadership: Yesterday 75 YEARS OF INNOVATION 1926 > Safeway incorporated in Maryland. 1928 > Safeway common stock listed on NYSE. 1929 > Canada Safeway Ltd. established in Winnipeg. 1931 > After acquiring 1,400-store McMarr chain, Safeway reaches all-time high of 3,257 stores. 1966 > Central data processing established in Oakland, California. 1977 > Company consolidates its private-label manufacturing divisions into a single complex in Walnut Creek, California. 1981 > Safeway enters into a joint venture with Casa Ley,S.A.,acquiring a 49% interest in Mexican retailer. 1985 > Australia Division sold to Woolworth's Ltd. 1986 > Company is taken private via a leveraged buyout with Kohlberg Kravis Roberts & Co. 1987 > Safeway divests United Kingdom,Dallas,Salt Lake City,El Paso and Oklahoma Divisions,as well as its Liquor Barn subsidiary. A TRADITION OF INNOVATION Safeway was first incorporated 75 years ago, on March 24, 1926, upon payment of a $960 tax and a $15 recording fee to the state of Maryland. However, we trace our roots back to 1915 and the small Idaho town of American Falls, where Marion B. Skaggs bought his father's tiny grocery store for $1,088. Less than 11 years later, with the help of his five brothers and other pioneering grocers, Skaggs built his fledgling organization to 428 grocery stores and meat markets spanning 10 western states. In 1926 these units merged with the 322 former Sam Seelig stores in southern California (which had adopted the name "Safeway" the previous year). The combined company was called Safeway, with M. B. Skaggs as chief executive. From the beginning, the company has been an industry leader in developing innovative programs to help consumers make wiser buying decisions. We believe we were the first grocer to price produce by the pound rather than by the piece or bunch. As early as 1935, we were including expiration dates on labels of perishable products to ensure freshness. We also helped pioneer unit pricing to show both the total price and the price per [PICTURES] 6 9 pound, ounce or other unit of measure. On nutritional labeling as well, we moved early and voluntarily to provide useful information to consumers. At only 576 square feet in overall size, Mr. Skaggs' first store was minuscule compared to our 55,000 square-foot-prototype superstore today. The progression from small to large stores has been continuous over the years, keeping pace with consumers' changing needs and interests. Here, too, Safeway has been a champion of innovation. In the 1930s, for example, our stores were among the first to have adjacent parking lots. Decades later, we helped lead the way in recycling, electronic scanning, energy management, computerized inventory control and a host of other operational improvements that have enabled us to serve our customers better at lower cost. Although the scope and complexity of our business have changed dramatically since 1926, our basic operating philosophy remains the same. Central to that philosophy is a disarmingly simple idea: Take care of our customers, employees and stockholders, and share with them the success they help make possible. This principle has enabled Safeway to emerge from humble beginnings to its current status as one of North America's preeminent food and drug retailers. 1988 > Company divests Kansas City,Little Rock and Houston Divisions and parts of Richmond Division. > Safeway sells Southern California Division to The Vons Companies,Inc., receiving a 30% interest in Vons along with cash proceeds. 1990 > Safeway becomes a publicly traded company again, selling 46 million shares in IPO. 1993 > Steve Burd,a longtime consultant to Safeway, is named CEO and begins implementing a new growth strategy. 1997 > Safeway and Vons merge, with Safeway acquiring the Vons common shares it did not already own. 1998 > Safeway common stock is added to S&P Index. > Company acquires Dominick's Supermarkets, Inc. 1999 > Safeway acquires Carr-Gottstein Foods Co. > Company acquires Randall's Food Markets, Inc. 2000 > Safeway announces acquisition of Genuardi's Family Markets,Inc. > Company joins 10 other leading international retailers as a founding member of the WorldWide Retail Exchange. [PICTURES] 7 10 2000 HIGHLIGHTS > Same-store sales growth > Cost reduction > Working capital management > Operating cash flow margin expansion > Earnings-per-share growth CONTINUED PERFORMANCE During the past eight years, Safeway has consistently ranked among the industry's leaders in the following key measures of financial performance: same-store sales growth, cost reduction, working capital management, operating cash flow margin expansion and earnings-per-share growth.(*) We have achieved these results by focusing on the three priorities detailed on the following pages. (*)Based on latest available information [PICTURES] 8 11 INCREASING SALES Driving top-line growth is an ongoing priority at Safeway. We have led our sector in same-store sales growth for six of the last eight years, increasing annual sales in continuing stores at almost twice the average rate of the nearest competitor. To sustain our growth, we continue to focus on sales-building strategies designed to attract new customers and increase purchases by current shoppers. With the Genuardi's acquisition, our fifth in the last four years, we have added approximately $1 billion in annual sales and extended our geographic reach into Pennsylvania, Delaware and New Jersey. 2000 HIGHLIGHTS With 1,160 in-store pharmacies at year-end 2000,we were the eighth largest drug retailer in North America. We introduced 170 new items to our Safeway SELECT line of premium quality products,bringing the total count to 1,123 items. We added fuel stations to a number of our stores in 2000 and plan to add more in 2001. Almost 85% of our stores were located in areas with above-average population growth. [GRAPH] 96 5.8% 97 2.3% 98 4.1% 99 2.2% 00(*) 2.8%
ANNUAL SAME-STORE SALES GROWTH - - Comparable-Store Sales Growth - - Identical-Store Sales Growth Our sales gains in continuing stores have been among the best in the supermarket industry. - - 2000 same-store sales growth was reduced by an estimated 50 basis points because of the northern California distribution center strike. 9 12 Growth Through Leadership: Today 2000 HIGHLIGHTS We continued to exchange best practices throughout the company to improve our cost structure and become more efficient. We became a founding member of the WorldWide Retail Exchange,a web-based, business-to-business marketplace developed to reduce product procurement costs. We began converting Randall's accounting and merchandising applications to Safeway's automated systems. We launched a major initiative to reduce product damage and distress, and to eliminate or curtail other causes of "shrink." [GRAPH] 96 48 97(*) 35 98 28 99(*) 30 00(*) 4
IMPROVEMENT IN OPERATING AND ADMINISTRATIVE EXPENSE MARGIN (In basis points) Our O&A expense-to-sales margin declined again in 2000, continuing an eight-year trend. (*) Pro forma as defined on page 19. The northern California distribution center strike adversely affected 2000 by an estimated seven basis points. CONTROLLING COSTS Pro forma operating and administrative expense as a percentage of sales declined for the eighth consecutive year in 2000. No other food and drug retailer comes close to matching this record of ongoing improvement in its cost structure. Building on this trend, we continue to find new opportunities for significant savings in operating and administrative expense. In addition, we expect to improve our buying practices and reduce product costs, further expanding our gross margin. We try to run the business at its simple best - to exceed our customers' expectations at the lowest cost. [PICTURES] 10 13 MANAGING CAPITAL Strong operating results enabled us to increase capital spending again, to $1.8 billion in 2000 from $1.5 billion the year before. We invested two-thirds of these funds in new and remodeled stores, with the balance allocated to support operations. In the aggregate, capital projects continue to exceed our targeted return-on-investment rate. These projects contribute significantly to earnings growth and add substantial long-term value to the company. At year-end 2000, approximately 70% of our store system had been newly built, enlarged or extensively remodeled during the preceding five years. [PICTURES] 2000 HIGHLIGHTS We opened 75 new stores and expanded or remodeled 275 existing stores, increasing total retail square footage by 4%. The vast majority of our newly opened stores continued to produce exceptionally strong operating and financial results. We maintained negative working capital for the seventh consecutive year by managing inventory and payables effectively. Our interest coverage ratio remained at a strong 6.8 times in 2000 despite additional debt incurred to finance acquisitions. [GRAPH] 96 $0.6 97 $0.8 98 $1.2 99 $1.5 00 $1.8
CAPITAL EXPENDITURES (In billions) Capital investments have increased steadily, reflecting strong operating results. 11 14 Growth Through Leadership: Tomorrow 25M HOUSEHOLDS 100M TRANSACTIONS A MONTH EXTENDING THE ENTERPRISE Taking an unconventional look at our business, we see interesting possibili- ties for leveraging our asset base to generate additional revenue and profit streams not factored into our growth assumptions. Some of these potential new business opportunities could stem from non-traditional uses of intangible assets such as our customer reach, our network and our purchasing and manufacturing scale. OUR CUSTOMER REACH We serve some 25 million households and complete more than 100 million transactions each month. With the emerging technologies we are now pursuing, advertisers could deliver high-impact messages through our stores, reaching an equivalent audience at a fraction of the cost of conventional media. [PICTURES] 12 15 OUR NETWORK Through our expansive store network - almost 74 million square feet of retail space in prime, convenient locations - we now partner with other network-based businesses to provide shoppers with non-traditional services such as banking. Similar opportunities exist for other routine household needs. OUR PURCHASING AND MANUFACTURING SCALE With buying expertise in more than 80 product categories and manufacturing capabilities in 41 plants, we could create a wide range of new business opportunities in addition to our existing third-party procurement and production arrangements. While we are currently evaluating many such opportunities and are developing a few that we believe have the greatest potential, our principal focus remains on our core business of food and drug retailing. [PICTURES] 74M SQUARE FEET OF RETAIL SPACE 41 MANUFACTURING PLANTS 13 16 Safeway Inc. and Subsidiaries COMPANY IN REVIEW Safeway Inc. ("Safeway" or the "Company") is one of the largest food and drug retailers in North America, with 1,688 stores at year-end 2000. The Company's U.S. retail operations are located principally in California, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region. The Company's Canadian retail operations are located principally 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. During 2000, the Company invested $40 million cash and entered into strategic alliance and grocery supply agreements with GroceryWorks.com, an internet grocer. In addition, Safeway has a 49% interest in Casa Ley, S.A. de C.V. ("Casa Ley") which operates 97 food and general merchandise stores in western Mexico. ACQUISITION OF GENUARDI'S FAMILY MARKETS, INC. ("GENUARDI'S") In February 2001, Safeway acquired all of the assets of Genuardi's for approximately $530 million in cash (the "Genuardi's Acquisition"). The Genuardi's Acquisition will be accounted for as a purchase and was funded through the issuance of commercial paper and debentures. Genuardi's operates 39 stores in the greater Philadelphia, Pennsylvania area, including New Jersey and Delaware, and had annualized sales of approximately $1 billion prior to the acquisition. STORES Safeway's average store size is approximately 44,000 square feet. Safeway's primary new store prototype is 55,000 square feet and is designed both to accommodate changing consumer needs and to achieve certain operating efficiencies. The Company 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. Safeway continues to operate a number of smaller stores which also 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 2000:
Number Percent of Stores of Total --------- -------- Less than 30,000 square feet 318 19% 30,000 to 50,000 784 46 More than 50,000 586 35 ----- --- Total stores 1,688 100% ===== ===
STORE OWNERSHIP At year-end 2000, Safeway owned approximately one-third of its stores and leased its remaining stores. In recent years, the Company has preferred ownership because it provides control and flexibility with respect to financing terms, remodeling, 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. To provide one-stop shopping for today's busy shoppers, the Company emphasizes high quality produce and meat, as well as specialty departments, including in-store bakery, delicatessen, floral and pharmacy. 14 17 Safeway Inc. and Subsidiaries Safeway has developed a line of more than 1,100 premium corporate brand products since 1993 under the "Safeway SELECT" banner. The award-winning Safeway SELECT line is designed to offer premium quality products that the Company believes are equal or superior in quality to comparable best-selling nationally advertised brands, or are unique to the category and not available from national brand manufacturers. The Safeway SELECT line of products includes carbonated soft drinks; unique salsas; the Indulgence line of cookies and other sweets; the Verdi line of fresh and frozen pastas, pasta sauces and olive oils; Artisan fresh-baked breads; Twice-the-Fruit yogurt; NutraBalance pet food; Ultra laundry detergents and dish soaps; and Softly paper products. The Safeway SELECT line also includes an extensive array of ice creams, frozen yogurts and sorbets; Healthy Advantage items such as low-fat ice creams and low-fat cereal bars; and Gourmet Club frozen entrees and hors d'oeuvres. In addition, Safeway has repackaged over 2,500 corporate brand products primarily under the Safeway, Lucerne and Mrs. Wright's labels. MANUFACTURING AND WHOLESALE 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, approximately one-third of Safeway's private label merchandise is manufactured in company-owned plants, and the remainder is purchased from third parties. 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 2000:
U.S. Canada ---- ------ Milk plants 7 3 Bread baking plants 6 2 Ice cream plants 4 2 Cheese and meat packaging plants 1 2 Soft drink bottling plants 4 -- Fruit and vegetable processing plants 2 3 Other food processing plants 3 1 Pet food plant 1 -- -- -- Total 28 13 == ==
In addition, the Company operates laboratory facilities for quality assurance and research and development in certain of its plants and at its corporate offices. DISTRIBUTION Each of Safeway's 12 retail operating areas is served by a regional distribution center consisting of one or more facilities. Safeway has 16 distribution/warehousing centers (13 in the United States and three in Canada), which collectively provide the majority of all products to Safeway stores. Safeway's distribution centers in northern California and Maryland are operated by third parties. Safeway also sources product from an additional distribution center in British Columbia that is owned and operated by a third party. CAPITAL EXPENDITURE PROGRAM A component of the Company's long-term strategy is its capital expenditure program. The program funds, among other things, new stores, remodels, manufacturing plants, distribution facilities and information technology advances. Over the last several years, Safeway management has significantly strengthened its program to select and approve new capital investments, resulting in continuing strong returns on investment. 15 18 Safeway Inc. and Subsidiaries 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, and also details changes in the Company's store base over the last three years:
(Dollars in millions) 2000 1999 1998 -------- -------- -------- Cash paid for property additions $1,572.5 $1,333.6 $1,075.2 Less: Purchases of previously leased properties (37.4) (37.2) (35.7) Plus: Present value of all lease obligations incurred 201.1 179.5 117.4 Mortgage notes assumed in property acquisitions 19.5 9.7 32.8 -------- -------- -------- Total capital expenditures $1,755.7 $1,485.6 $1,189.7 ======== ======== ======== Capital expenditures as a percent of sales 5.5% 5.1% 4.9% Stores opened (Note 1) 75 67 46 Stores closed or sold 46 54 30 Remodels (Note 2) 275 251 234 Total retail square footage at year-end (in millions) 73.6 70.8 61.6
Note 1: Excludes acquisitions. Note 2: Defined as store projects (other than maintenance) generally requiring expenditures in excess of $200,000. Improved operations and lower project costs have kept the return on capital projects at a high level, allowing Safeway to increase capital expenditures to $1.8 billion in 2000 and open 75 stores and remodel 275 stores. In 2001, Safeway expects to spend more than $2.1 billion and open 90 to 95 new stores and complete approximately 250 remodels. PERFORMANCE-BASED COMPENSATION The Company has performance-based compensation plans that cover approximately 13,000 management and professional employees. These 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 that measure the performance of capital projects based on operating performance over several years. MARKET RISK FROM FINANCIAL INSTRUMENTS Safeway manages interest rate risk through the strategic use of fixed and variable interest rate debt and, to a limited extent, interest rate swaps. As of year-end 2000, the Company had effectively converted $100 million of its floating-rate debt to fixed-rate debt through an interest rate swap agreement. Under the swap agreement, Safeway pays interest of 6.2% on a $100 million notional amount and receives a variable interest rate based on Federal Reserve rates quoted for commercial paper. This agreement expires in 2007. The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments. The Company does not consider the potential losses in future earnings, fair values and cash flows from reasonable possible near-term changes in interest rates and exchange rates to be material. 16 19 Safeway Inc. and Subsidiaries The table below presents principal amounts and related weighted average rates by year of maturity for the Company's debt obligations at year-end 2000 and 1999 (dollars in millions):
December 30, 2000 2001 2002 2003 2004 2005 Thereafter Total --------- --------- --------- --------- --------- ---------- ----------- Commercial paper: Principal -- $ 2,328.1 -- -- -- -- $ 2,328.1(2) Weighted average interest rate -- 7.21% -- -- -- -- 7.21% Bank borrowings: Principal $ 75.0 $ 134.3 -- -- -- -- $ 209.3(2) Weighted average interest rate 7.18% 6.13% -- -- -- -- 6.51% Long-term debt:(1) Principal $ 551.8 $ 641.2 $ 378.6 $ 698.6 $ 6.5 $ 1,219.0 $ 3,495.7(2) Weighted average interest rate 6.76% 7.03% 6.20% 7.42% 7.11% 7.25% 7.05%
January 1, 2000 2000 2001 2002 2003 2004 Thereafter Total --------- --------- --------- --------- --------- ---------- ----------- Commercial paper: Principal -- -- $ 2,358.1 -- -- -- $ 2,358.1(2) Weighted average interest rate -- -- 6.81% -- -- -- 6.81% Bank borrowings: Principal $ 129.7 -- $ 75.7 -- -- -- $ 205.4(2) Weighted average interest rate 6.27% -- 5.18% -- -- -- 5.87% Long-term debt:(1) Principal $ 427.4 $ 548.6 $ 637.2 $ 377.2 $ 700.0 $ 1,225.2 $ 3,915.6(2) Weighted average interest rate 5.89% 6.80% 7.03% 6.19% 7.43% 7.25% 6.93%
(1) Primarily fixed-rate debt (2) Carrying value approximates fair value 17 20 Safeway Inc. and Subsidiaries FIVE-YEAR SUMMARY FINANCIAL INFORMATION
52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks (Dollars in millions, except per-share amounts) 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- RESULTS OF OPERATIONS Sales $ 31,976.9 $ 28,859.9 $ 24,484.2 $ 22,483.8 $ 17,269.0 ========== ========== ========== ========== ========== Gross profit 9,494.5 8,510.7 7,124.5 6,414.7 4,774.2 Operating and administrative expense (7,086.6) (6,411.4) (5,466.5) (5,093.2) (3,872.1) Goodwill amortization (126.2) (101.4) (56.3) (41.8) (10.4) ---------- ---------- ---------- ---------- ---------- Operating profit 2,281.7 1,997.9 1,601.7 1,279.7 891.7 Interest expense (457.2) (362.2) (235.0) (241.2) (178.5) Equity in earnings of unconsolidated affiliates (Note 1) 31.2 34.5 28.5 34.9 50.0 Other income, net 10.8 3.8 1.7 2.9 4.4 ---------- ---------- ---------- ---------- ---------- Income before income taxes and extraordinary loss 1,866.5 1,674.0 1,396.9 1,076.3 767.6 Income taxes (774.6) (703.1) (590.2) (454.8) (307.0) ---------- ---------- ---------- ---------- ---------- Income before extraordinary loss 1,091.9 970.9 806.7 621.5 460.6 Extraordinary loss, net of tax benefit of $41.1 -- -- -- (64.1) -- ---------- ---------- ---------- ---------- ---------- Net income $ 1,091.9 $ 970.9 $ 806.7 $ 557.4 $ 460.6 ========== ========== ========== ========== ========== Diluted earnings per share: Income before extraordinary loss $ 2.13 $ 1.88 $ 1.59 $ 1.25 $ 0.97 Extraordinary loss -- -- -- (0.13) -- ---------- ---------- ---------- ---------- ---------- Net Income $ 2.13 $ 1.88 $ 1.59 $ 1.12 $ 0.97 ========== ========== ========== ========== ========== FINANCIAL STATISTICS Comparable-store sales increases (Note 2) 2.8% 2.2% 4.1% 2.3% 5.8% Identical-store sales increases (Note 2) 2.2% 1.7% 3.7% 1.3% 5.1% Gross profit margin 29.69% 29.49% 29.10% 28.53% 27.65% Operating and administrative expense margin (Note 3) 22.56% 22.57% 22.56% 22.84% 22.48% Operating profit margin 7.1% 6.9% 6.5% 5.7% 5.2% Operating cash flow (Note 4) $ 3,122.1 $ 2,698.5 $ 2,141.9 $ 1,732.3 $ 1,239.5 Operating cash flow margin (Note 4) 9.76% 9.35% 8.75% 7.70% 7.18% Capital expenditures (Note 5) $ 1,755.7 $ 1,485.6 $ 1,189.7 $ 829.4 $ 620.3 Depreciation 704.5 594.2 475.1 414.0 328.1 Total assets 15,965.3 14,900.3 11,389.6 8,493.9 5,545.2 Total debt 6,495.9 6,956.3 4,972.1 3,340.3 1,984.2 Stockholders' equity 5,389.8 4,085.8 3,082.1 2,149.0 1,186.8 Weighted average shares outstanding - diluted (in millions) 511.6 515.4 508.8 497.7 475.7 OTHER STATISTICS Randall's stores acquired during the year -- 117 -- -- -- Carrs stores acquired during the year -- 32 -- -- -- Dominick's stores acquired during the year -- -- 113 -- -- Vons stores acquired during the year -- -- -- 316 -- Stores opened during the year 75 67 46 37 30 Stores closed or sold during the year 46 54 30 37 37 Total stores at year-end 1,688 1,659 1,497 1,368 1,052 Remodels completed during the year (Note 6) 275 251 234 181 141 Total retail square footage at year-end (in millions) 73.6 70.8 61.6 53.2 40.7
Note 1. Includes equity in Vons' earnings through the first quarter of 1997. Note 2. Defined as stores operating the entire year in both the current year and the previous year. Comparable stores include replacement stores while identical stores do not. 1997 and 1996 sales increases exclude British Columbia stores, which were closed during a labor dispute in 1996. 2000 sales increases were reduced by an estimated 50 basis points because of the northern California distribution center strike. Note 3. Includes goodwill amortization. Note 4: Defined in the table on page 21 under "Liquidity and Financial Resources". Note 5. Defined in the table on page 16 under "Capital Expenditure Program". Note 6. Defined as store projects (other than maintenance) generally requiring expenditures in excess of $200,000. 18 21 Safeway Inc. and Subsidiaries FINANCIAL REVIEW ACQUISITION OF GENUARDI'S FAMILY MARKETS, INC. ("GENUARDI'S") In February 2001, Safeway acquired all of the assets of Genuardi's for approximately $530 million in cash (the "Genuardi's Acquisition"). The Genuardi's Acquisition will be accounted for as a purchase and was funded through the issuance of commercial paper and debentures. Genuardi's operates 39 stores in the greater Philadelphia, Pennsylvania area, including New Jersey and Delaware, and had annualized sales of approximately $1 billion prior to the acquisition. 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"). On the acquisition date Randall's operated 117 stores in Texas. 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 of Randall's debt, through the issuance of senior notes. Randall's sales for its last full fiscal year prior to the acquisition were $2.6 billion. ACQUISITION OF CARR-GOTTSTEIN FOODS CO. ("CARRS") In April 1999, Safeway acquired of all the outstanding shares of Carrs for approximately $106 million in cash (the "Carrs Acquisition"). On the acquisition date, Carrs operated 49 stores. The Carrs Acquisition was accounted for as a purchase. Safeway funded the acquisition, and subsequent repayment of $239 million of Carrs' debt, with the issuance of commercial paper. Carrs' sales for its last full fiscal year prior to the acquisition were $602 million. ACQUISITION OF DOMINICK'S SUPERMARKETS, INC. ("DOMINICK'S") In November 1998, Safeway acquired all the outstanding shares of Dominick's for approximately $1.2 billion in cash (the "Dominick's Acquisition"). The Dominick's Acquisition was accounted for as a purchase. Safeway funded the Dominick's Acquisition, including repayment of approximately $560 million in debt and lease obligations, with a combination of bank borrowings and commercial paper. Dominick's sales for its last full fiscal year prior to the acquisition were $2.4 billion. STOCK REPURCHASE In October 1999, Safeway announced that its Board of Directors had authorized a stock repurchase program under which Safeway may acquire up to $1.0 billion of its common stock. By the end of 1999, the Company incurred $651.0 million in short-term debt to repurchase 17.9 million shares of common stock. The Company did not repurchase any shares in 2000. RESULTS OF OPERATIONS Safeway's net income was $1,091.9 million ($2.13 per share) in 2000, $970.9 million ($1.88 per share) in 1999 and $806.7 million ($1.59 per share) in 1998. Safeway's 2000 income statement includes Dominick's, Carrs' and Randall's operating results for a full year. Safeway's 1999 income statement includes Dominick's operating results for a full [GRAPH] NET INCOME (In millions) 98 $ 806.7 99 $ 970.9 00 $ 1,091.9
19 22 Safeway Inc. and Subsidiaries year, Carrs' operating results for 40 weeks and Randall's operating results for one quarter. Safeway's 1998 income statement includes Dominick's operating results for eight weeks. In order to facilitate an understanding of the Company's operations, this financial review presents certain pro forma information as if the Dominick's, Carrs and Randall's Acquisitions had been effective for the comparable periods of 1999 and 1998. See Note B to the Company's 2000 consolidated financial statements. Summit Logistics, a company that operates Safeway's northern California distribution center, was engaged in a 47-day strike during the fourth quarter of 2000 which had an unexpectedly large adverse effect on sales, product costs and distribution expenses at 246 Safeway stores in northern California, Nevada and Hawaii. Safeway is currently in discussions with Summit over certain of these distribution expenses. Safeway estimates that the overall cost of the strike, including all costs under discussion with Summit, reduced 2000 net income by approximately $0.13 per share. SALES Strong store operations helped to increase identical-store sales (stores operating the entire year in both 2000 and 1999, excluding replacement stores) 2.2% in 2000, while comparable-store sales, which include replacement stores, increased 2.8%. Excluding the estimated effects of the fourth quarter 2000 strike, identical-store sales increased 2.7% and comparable-store sales increased 3.3% in 2000. In 1999, identical-store sales increased 1.7% while com- parable-store sales increased 2.2%. Total sales for the 52 weeks of 2000 were $32.0 billion, compared to $28.9 billion for the 52 weeks of 1999 and $24.5 billion for the 52 weeks of 1998. Total sales increases are attributed to new store openings, increased sales at continuing stores, the Dominick's Acquisition in 1998 and the Carrs and Randall's Acquisitions in 1999. [PIE CHART] PORTIONS OF 2000 SALES DOLLAR - -- Costs of Goods Sold: 70.3% - -- Operating and Administrating Expense: 22.6% - -- Operating Profit: 7.1% 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. Safeway considers store occupancy costs to be operating and administrative expenses. Safeway's continuing improvement in buying practices and product mix helped to increase gross profit to 29.69% of sales in 2000, from 29.49% in 1999 and 29.10% in 1998. On a pro forma basis, gross profit increased 40 basis points in 2000 from 29.29% in 1999. Application of the LIFO method reduced cost of goods sold by $1.1 million in 2000, and increased cost of goods sold by $1.2 million in 1999 and $7.1 million in 1998. OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense, including amortization of goodwill, was 22.56% of sales in 2000 compared to 22.57% in 1999 and 22.56% in 1998. Safeway's operating and administrative expense-to-sales ratio remained essentially flat in 2000 and 1999 because increased sales and ongoing efforts to reduce or control expenses were offset by the impact of the strike in 2000 and the effects of the Company's 1999 and 1998 acquisitions. The Dominick's, Carrs and Randall's Acquisitions adversely affected Safeway's operating and administrative expense ratio because, prior to their being acquired, these companies had historical operating and administrative expense ratios that were higher than Safeway's. Annual goodwill amortization increased to $126.2 million in 2000 from $101.4 million in 1999 and $56.3 million in 1998. On a pro forma basis, the operating and administrative expense ratio declined 4 basis points in 2000 from 22.60% in 1999. 20 23 Safeway Inc. and Subsidiaries INTEREST EXPENSE Interest expense was $457.2 million in 2000, compared to $362.2 million in 1999 and $235.0 million in 1998. Interest expense increased in 2000 primarily due to debt incurred to finance the Randall's Acquisition, debt incurred to finance the repurchase of Safeway stock during the fourth quarter of 1999 and, to a lesser extent, higher interest rates on variable-rate borrowings. Interest expense increased in 1999 primarily because of the debt incurred to finance the Dominick's, Carrs and Randall's Acquisitions and, to a lesser extent, to finance the repurchase of Safeway stock during the fourth quarter of 1999. As of year-end 2000, the Company had effectively converted $100 million of its floating-rate debt to fixed-rate debt through an interest rate swap agreement. Under the swap agreement, Safeway pays interest of 6.2% on a $100 million notional amount and receives a variable interest rate based on Federal Reserve rates quoted for commercial paper. This agreement expires in 2007. Interest rate swap agreements, and a cap agreement that expired in 1999, increased interest expense by $0.2 million in 2000, $1.7 million in 1999 and $2.8 million in 1998. EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE Safeway's investment in unconsolidated affiliate consists of a 49% ownership interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 97 food and general merchandise stores in western Mexico. Safeway records its equity in earnings of unconsolidated affiliate on a one-quarter delay basis. Income from Safeway's equity investment in Casa Ley decreased slightly to $31.2 million in 2000, from $34.5 million in 1999 and $28.5 million in 1998. LIQUIDITY AND FINANCIAL RESOURCES Net cash flow from operating activities was $1,901.1 million in 2000, $1,488.4 million in 1999 and $1,252.7 million in 1998. Net cash flow from operating activities increased in 2000 and 1999 largely due to increased net income and changes in working capital. Cash flow used by investing activities was $1,481.0 million in 2000, $2,064.3 million in 1999 and $2,186.4 million in 1998. Cash flow used by investing activities declined in 2000 primarily because of cash used to acquire Randall's and Dominick's in 1999 and 1998, offset, in part, by increased capital expenditures in 2000. Safeway opened 75 new stores and remodeled 275 stores in 2000. In 1999, Safeway opened 67 new stores and remodeled 251 stores. Cash flow used by financing activities was $434.4 million in 2000 primarily due to cash flows from operations being used to pay down debt. Cash flow from financing activities was $636.0 million in 1999 primarily due to borrowing related to the Randall's and Carrs Acquisitions. Cash flow from financing activities was $903.4 million in 1998, reflecting borrowing related to the Dominick's Acquisition. Net cash flow from operating activities as presented on the consolidated 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 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. Operating cash flow also 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:
(Dollars in millions) 2000 1999 1998 --------- --------- --------- Income before income taxes $ 1,866.5 $ 1,674.0 $ 1,396.9 LIFO (income) expense (1.1) 1.2 7.1 Interest expense 457.2 362.2 235.0 Depreciation and amortization 830.7 695.6 531.4 Equity in earnings of unconsolidated affiliate (31.2) (34.5) (28.5) --------- --------- --------- Operating cash flow $ 3,122.1 $ 2,698.5 $ 2,141.9 ========= ========= ========= As a percent of sales 9.76% 9.35% 8.75% ========= ========= ========= As a multiple of interest expense 6.83x 7.45x 9.11x ========= ========= =========
21 24 Safeway Inc. and Subsidiaries Total debt, including obligations under capital leases, decreased to $6.50 billion at year-end 2000 from $6.96 billion at year-end 1999 primarily because the Company paid down debt with cash flows from operations. Total debt increased from $4.97 billion at year-end 1998 primarily due to the Randall's and Carrs Acquisitions and the Safeway stock repurchase. Annual debt maturities over the next five years are set forth in Note C of the Company's 2000 consolidated financial statements. In January 2001, Safeway issued $600 million of 7.25% senior unsecured debentures due in 2031. Proceeds from this issuance were used to repay commercial paper borrowings and finance the Genuardi's Acquisition. Also, in February 2001, the Company filed a shelf registration with the Securities and Exchange Commission to sell, periodically, up to $2 billion in debt securities and common stock. 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 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. FORWARD-LOOKING STATEMENTS This Annual Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 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 competitive factors, which could include pricing strategies, store openings and remodels; results of our programs to control or reduce costs; results of our programs to increase sales; results of our programs to improve capital management; the ability to integrate any companies we acquire and achieve operating improvements at those companies; increases in labor costs and relations with union bargaining units representing our employees or employees of the third-party operators of our distribution centers; opportunities or acquisitions that 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. 22 25 Safeway Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
52 Weeks 52 Weeks 52 Weeks (In millions, except per-share amounts) 2000 1999 1998 ---------- ---------- ---------- Sales $ 31,976.9 $ 28,859.9 $ 24,484.2 Cost of goods sold (22,482.4) (20,349.2) (17,359.7) ---------- ---------- ---------- Gross profit 9,494.5 8,510.7 7,124.5 Operating and administrative expense (7,086.6) (6,411.4) (5,466.5) Goodwill amortization (126.2) (101.4) (56.3) ---------- ---------- ---------- Operating profit 2,281.7 1,997.9 1,601.7 Interest expense (457.2) (362.2) (235.0) Equity in earnings of unconsolidated affiliate 31.2 34.5 28.5 Other income, net 10.8 3.8 1.7 ---------- ---------- ---------- Income before income taxes 1,866.5 1,674.0 1,396.9 Income taxes (774.6) (703.1) (590.2) ---------- ---------- ---------- Net income $ 1,091.9 $ 970.9 $ 806.7 ========== ========== ========== Basic earnings per share $ 2.19 $ 1.95 $ 1.67 ========== ========== ========== Diluted earnings per share $ 2.13 $ 1.88 $ 1.59 ========== ========== ========== Weighted average shares outstanding - basic 497.9 498.6 482.8 Weighted average shares outstanding - diluted 511.6 515.4 508.8
See accompanying notes to consolidated financial statements. 23 26 Safeway Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS
Year-end Year-end (In millions) 2000 1999 --------- --------- ASSETS Current assets: Cash and equivalents $ 91.7 $ 106.2 Receivables 374.5 292.9 Merchandise inventories, net of LIFO reserve of $80.4 and $81.5 2,508.2 2,444.9 Prepaid expenses and other current assets 249.1 208.1 --------- --------- Total current assets 3,223.5 3,052.1 --------- --------- Property: Land 1,085.3 996.2 Buildings 2,910.8 2,502.3 Leasehold improvements 1,883.5 1,784.3 Fixtures and equipment 4,262.0 3,852.4 Property under capital leases 586.5 591.4 --------- --------- 10,728.1 9,726.6 Less accumulated depreciation and amortization (3,582.0) (3,281.9) --------- --------- Total property, net 7,146.1 6,444.7 Goodwill, net of accumulated amortization of $439.3 and $314.4 4,709.9 4,786.6 Prepaid pension costs 491.5 405.6 Investments in unconsolidated affiliate 166.6 131.6 Other assets 227.7 79.7 --------- --------- Total assets $15,965.3 $14,900.3 ========= =========
24 27 Safeway Inc. and Subsidiaries
Year-end Year-end (In millions, except per-share amounts) 2000 1999 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of notes and debentures $ 626.8 $ 557.1 Current obligations under capital leases 47.0 41.8 Accounts payable 1,920.2 1,878.4 Accrued salaries and wages 389.9 387.7 Other accrued liabilities 795.6 717.6 --------- --------- Total current liabilities 3,779.5 3,582.6 --------- --------- Long-term debt: Notes and debentures 5,406.3 5,922.0 Obligations under capital leases 415.8 435.4 --------- --------- Total long-term debt 5,822.1 6,357.4 Deferred income taxes 508.7 379.1 Accrued claims and other liabilities 465.2 495.4 --------- --------- Total liabilities 10,575.5 10,814.5 --------- --------- Commitments and contingencies Stockholders' equity: Common stock: par value $0.01 per share; 1,500 shares authorized; 568.4 and 559.0 shares outstanding 5.7 5.6 Additional paid-in capital 3,194.9 2,993.4 Cumulative translation adjustments (25.7) (11.5) Retained earnings 3,987.8 2,895.9 --------- --------- 7,162.7 5,883.4 Less: Treasury stock at cost; 64.3 and 65.4 shares (1,646.9) (1,671.6) Unexercised warrants purchased (126.0) (126.0) --------- --------- Total stockholders' equity 5,389.8 4,085.8 --------- --------- Total liabilities and stockholders' equity $15,965.3 $14,900.3 ========= =========
See accompanying notes to consolidated financial statements. 25 28 Safeway Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks 52 Weeks 52 Weeks (In millions) 2000 1999 1998 -------- -------- -------- OPERATING ACTIVITIES: Net income $1,091.9 $ 970.9 $ 806.7 Reconciliation to net cash flow from operating activities: Depreciation and amortization 830.7 695.6 531.4 Amortization of deferred finance costs 7.0 4.8 1.6 Deferred income taxes 176.0 244.7 59.4 LIFO (income) expense (1.1) 1.2 7.1 Equity in earnings of unconsolidated affiliate (31.2) (34.5) (28.5) Net pension income (77.3) (35.1) (18.3) Gain on pension settlement (15.0) -- -- Contributions to Canadian pension plan (0.6) (0.9) (6.8) Decrease in accrued claims and other liabilities (47.5) (8.4) (17.5) (Gain) loss on property retirements (58.5) (30.6) 13.3 Changes in working capital items: Receivables (82.6) (31.9) (5.5) Inventories at FIFO cost (95.9) (283.1) (48.0) Prepaid expenses and other current assets (42.4) 23.0 (36.9) Payables and accruals 247.6 (27.3) (5.3) -------- -------- -------- Net cash flow from operating activities 1,901.1 1,488.4 1,252.7 -------- -------- -------- INVESTING ACTIVITIES: Cash paid for property additions (1,572.5) (1,333.6) (1,075.2) Proceeds from sale of property 159.1 143.5 47.6 Net cash used to acquire Randall's -- (729.8) -- Net cash used to acquire Carrs -- (94.4) -- Net cash used to acquire Dominick's -- -- (1,144.9) Other (67.6) (50.0) (13.9) -------- -------- -------- Net cash flow used by investing activities (1,481.0) (2,064.3) (2,186.4) -------- -------- --------
26 29
52 Weeks 52 Weeks 52 Weeks (In millions) 2000 1999 1998 -------- -------- -------- FINANCING ACTIVITIES: Additions to short-term borrowings $ 100.0 $ 204.9 $ 251.7 Payments on short-term borrowings (154.7) (237.0) (299.9) Additions to long-term borrowings 686.1 3,840.7 2,722.3 Payments on long-term borrowings (1,144.8) (2,520.0) (1,789.9) Purchase of treasury stock -- (651.0) -- Net proceeds from exercise of warrants and stock options 80.1 22.9 34.5 Other (1.1) (24.5) (15.3) -------- -------- -------- Net cash flow (used by) from financing activities (434.4) 636.0 903.4 -------- -------- -------- Effect of changes in exchange rates on cash (0.2) 0.4 (1.2) -------- -------- -------- (Decrease) increase in cash and equivalents (14.5) 60.5 (31.5) CASH AND EQUIVALENTS: Beginning of year 106.2 45.7 77.2 -------- -------- -------- End of year $ 91.7 $ 106.2 $ 45.7 ======== ======== ======== OTHER CASH FLOW INFORMATION: Cash payments during the year for: Interest $ 469.7 $ 351.4 $ 241.0 Income taxes, net of refunds 414.4 378.2 468.7 NONCASH INVESTING AND FINANCING ACTIVITIES: Stock issued for acquisition of Randall's -- 546.4 -- Tax benefit from stock options exercised 148.9 77.0 85.2 Capital lease obligations entered into 53.3 24.8 34.2 Mortgage notes assumed in property additions 19.5 9.7 32.8
See accompanying notes to consolidated financial statements. 27 30 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Treasury Stock ------------------------------ Paid-in ------------------------------ (In millions) Shares Amount Capital Shares Cost ------------ ------------ ------------ ----------- ------------ Balance, year-end 1997 537.4 $ 5.3 $ 2,467.4 (61.2) $ (1,316.6) Net income -- -- -- -- -- Translation adjustments -- -- -- -- -- Dominick's options converted -- -- 27.0 -- -- Options and warrants exercised 13.5 0.2 105.5 0.6 14.0 Warrants canceled -- -- -- -- -- ------------ ----------- ------------ ----------- ------------ Balance, year-end 1998 550.9 5.5 2,599.9 (60.6) (1,302.6) Net income -- -- -- -- -- Translation adjustments -- -- -- -- -- Shares issued for acquisition of Randall's -- -- 272.8 12.7 273.6 Randall's options converted -- -- 29.3 -- -- Treasury stock purchased -- -- -- (17.9) (651.0) Options and warrants exercised 8.1 0.1 91.4 0.4 8.4 ------------ ----------- ------------ ----------- ------------ Balance, year-end 1999 559.0 5.6 2,993.4 (65.4) (1,671.6) Net income -- -- -- -- -- Translation adjustments -- -- -- -- -- Options exercised 9.4 0.1 201.5 1.1 24.7 ------------ ----------- ------------ ----------- ------------ Balance, year-end 2000 568.4 $ 5.7 $ 3,194.9 (64.3) $ (1,646.9) Accumulated Unexercised Other Total Warrants Retained Comprehensive Stockholders' Comprehensive (In millions) Purchased Earnings Income (Loss) Equity Income ------------ ------------ ------------- ------------ ------------ Balance, year-end 1997 $ (322.7) $ 1,315.0 $ 0.6 $ 2,149.0 $ 546.0 Net income -- 806.7 -- 806.7 $ 806.7 Translation adjustments -- -- (20.3) (20.3) (20.3) Dominick's options converted -- -- -- 27.0 -- Options and warrants exercised -- -- -- 119.7 -- Warrants canceled 196.7 (196.7) -- -- -- ------------ ------------ ------------ ------------ ------------ Balance, year-end 1998 (126.0) 1,925.0 (19.7) 3,082.1 $ 786.4 ============ Net income -- 970.9 -- 970.9 $ 970.9 Translation adjustments -- -- 8.2 8.2 8.2 Shares issued for acquisition of Randall's -- -- -- 546.4 -- Randall's options converted -- -- -- 29.3 -- Treasury stock purchased -- -- -- (651.0) -- Options and warrants exercised -- -- -- 99.9 -- ------------ ------------ ------------- ------------ ------------ Balance, year-end 1999 (126.0) 2,895.9 (11.5) 4,085.8 $ 979.1 ============ Net income -- 1,091.9 -- 1,091.9 $ 1,091.9 Translation adjustments -- -- (14.2) (14.2) (14.2) Options exercised -- -- -- 226.3 -- ------------ ------------ ------------- ------------ ------------ Balance, year-end 2000 $ (126.0) $ 3,987.8 $ (25.7) $ 5,389.8 $ 1,077.7 ============
See accompanying notes to consolidated financial statements. 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A: THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Safeway Inc. ("Safeway" or the "Company") is one of the largest food and drug retailers in North America, with 1,688 stores as of year-end 2000. Safeway's U.S. retail operations are located principally in California, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region. The Company's Canadian retail operations are located principally 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. In February 2001, the Company acquired all of the assets of Genuardi's Family Markets, Inc. ("Genuardi's") for approximately $530 million in cash (the "Genuardi's Acquisition"). The Genuardi's Acquisition will be accounted for as a purchase and was funded through the issuance of commercial paper and debentures. During 2000, the Company invested $40 million cash and entered into strategic alliance and grocery supply agreements with GroceryWorks.com, an internet grocer, in exchange for non-voting convertible preferred stock that is not yet exercisable. This investment is accounted for under the cost method. In September 1999, Safeway acquired all of the outstanding shares of Randall's Food Markets, Inc. ("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 and resulted in goodwill of approximately $1.3 billion which is being amortized over 40 years. Safeway funded the cash portion of the acquisition, and subsequent repayment of approximately $403 million of Randall's debt, through the issuance of senior notes. Randall's operating results have been consolidated with Safeway's since the beginning of the fourth quarter of 1999. In April 1999, Safeway acquired Carr-Gottstein Foods Co. ("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 resulted in goodwill of approximately $213 million which is being amortized over 40 years. Safeway funded the acquisition, and subsequent repayment of $239 million of Carrs' debt, with the issuance of commercial paper. Safeway's 1999 income statement includes 40 weeks of Carrs' operating results. In November 1998, the Company acquired Dominick's Supermarkets, Inc. ("Dominick's") by purchasing all of the outstanding shares of Dominick's for approximately $1.2 billion in cash (the "Dominick's Acquisition"). The Dominick's Acquisition was accounted for as a purchase and resulted in goodwill of approximately $1.6 billion which is being amortized over 40 years. Dominick's operating results have been consolidated with Safeway's since approximately midway through the fourth quarter of 1998. In addition to these operations, the Company has a 49% ownership interest in Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 97 food and general merchandise stores in western Mexico. 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. Safeway records its equity in earnings of unconsolidated affiliate on a one-quarter delay basis. FISCAL YEAR The Company's fiscal year ends on the Saturday nearest December 31. The last three fiscal years consist of the 52-week periods ended December 30, 2000, January 1, 2000 and January 2, 1999. REVENUE RECOGNITION Revenue is recognized at the point of sale for retail sales. 29 32 USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 Casa Ley 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, net of applicable income taxes, as a separate component of comprehensive income in the consolidated statements of stockholders' equity. CASH AND CASH EQUIVALENTS Short-term investments with original maturities of less than three months are considered to be cash equivalents. MERCHANDISE INVENTORIES Merchandise inventory of $1,846 million at year-end 2000 and $1,823 million at year-end 1999 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 $1,926 million at year-end 2000 and $1,905 million at year-end 1999. Liquidations of LIFO layers did not have a significant effect on the results of operations. All remaining inventory is valued at the lower of cost on a first-in, first-out ("FIFO") basis or market value. The FIFO cost of inventory approximates replacement or current cost. Vendor allowances and credits that relate to the Company's buying and merchandising activities are recognized as a reduction of costs of goods sold as earned. PROPERTY AND DEPRECIATION Property is stated at cost. Depreciation expense on buildings and equipment is computed on the straight-line method using the following lives: - ----------------------------------------------------------------------- Stores and other buildings 7 to 40 years Fixtures and equipment 3 to 15 years - ------------------------------------------------------------------------ Property under capital leases and 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. 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 calculated using a discount rate of 6.0% in 2000 and 1999. The current portion of the self-insurance liability of $103.4 million at year-end 2000 and $103.2 million at year-end 1999 is included in Other Accrued Liabilities in the consolidated balance sheets. The long-term portion of $195.7 million at year-end 2000 and $243.2 million at year-end 1999 is included in Accrued Claims and Other Liabilities. Claims payments were $132.0 million in 2000, $123.6 million in 1999 and $98.2 million in 1998. The total undiscounted liability was $352.2 million at year-end 2000 and $391.9 million at year-end 1999. 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. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS As discussed in Note E, the Company has entered into interest rate swap agreements to limit the exposure of certain of its floating-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. The Company's counterparties are major financial institutions. 30 33 FAIR VALUE OF FINANCIAL INSTRUMENTS Accounting principles generally accepted in the United States of America 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 2000 and 1999, the estimated fair value of debt approximated carrying values. Off-balance sheet instruments The fair value of interest rate swap agreements are the amounts at which they could be settled based on estimates obtained from dealers. At year-end 2000, the net unrealized loss on such agreements was $1.9 million compared to net unrealized gains of $4.7 million at year-end 1999. Because the Company intends to hold this agreement as a hedge for the term of the agreement, the market risk associated with changes in interest rates is not expected to be significant. STORE CLOSING AND IMPAIRMENT CHARGES Safeway continually reviews its stores' operating performance and assesses the Company's plans for certain store and plant closures. The write-down of long-lived assets at stores that were assessed for impairment because of management's intention to close the store or because of changes in circumstances that indicate the carrying value of an asset many not be recoverable is recognized in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Safeway recognized impairment charges on the write-down of long-lived assets at stores to be closed of $8.4 million in 2000, $15.2 million in 1999 and $15.3 million in 1998. For stores to be closed that are under long-term leases, the Company records a liability for the future minimum lease payments and related ancillary costs, from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting properties or through favorable lease terminations, at the time management commits to closing the store. The operating costs, including depreciation, of stores or other facilities to be closed are expensed during the period they remain in use. Safeway had an accrued liability of $138.5 million at year-end 2000 and $180.6 million at year-end 1999 for such store lease exit costs, which is included in Accrued Claims and Other Liabilities in the Company's consolidated balance sheets. GOODWILL Goodwill was $4.7 billion at year-end 2000 and $4.8 billion at year-end 1999, and is being amortized on a straight-line basis over its estimated useful life of 40 years. If it became probable that the projected future undiscounted cash flows of acquired assets were less than the carrying value of the goodwill, Safeway would recognize an impairment loss in accordance with the provisions of SFAS No. 121. Goodwill amortization was $126.2 million in 2000, $101.4 million in 1999 and $56.3 million in 1998. 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." The disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," are set forth in Note F. 31 34 NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for the Company as of December 31, 2000. SFAS No. 133 defines derivatives, requires that derivatives be carried at fair value on the balance sheet, and provides for hedge accounting when certain conditions are met. Initial adoption of this new accounting standard did not have a material impact on Safeway's financial statements. NOTE B: ACQUISITIONS The following unaudited pro forma combined summary financial information is based on the historical consolidated results of operations of Safeway, Dominick's, Carrs and Randall's as if the acquisitions had occurred as of the beginning of 1998. 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 beginning of 1998. Pro forma adjustments were applied to the respective historical financial statements to account for the acquisitions as purchases. 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.
- ------------------------------------------------------------------------- Pro Forma (in millions, except per-share amounts) 1999 1998 ------------ ------------ Sales $ 30,801.8 $ 29,474.1 Net income $ 957.6 $ 706.2 Diluted earnings per share $ 1.82 $ 1.42
NOTE C: FINANCING Notes and debentures were composed of the following at year-end (in millions):
2000 1999 ---------- ---------- Commercial paper $ 2,328.1 $ 2,358.1 Bank credit agreement, unsecured 134.3 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 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 76.7 75.6 Other notes payable, unsecured 86.8 98.8 Medium-term notes, unsecured 16.5 25.5 Short-term bank borrowings, unsecured 75.0 129.7 ---------- ---------- 6,033.1 6,479.1 Less current maturities (626.8) (557.1) ---------- ---------- Long-term portion $ 5,406.3 $ 5,922.0 ========== ==========
COMMERCIAL PAPER The amount of commercial paper borrowings is limited to the unused borrowing capacity under the bank credit agreement. Commercial paper 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 6.59% during 2000 and 7.17% at year-end 2000. 32 35 Safeway Inc. and Subsidiaries BANK CREDIT AGREEMENT Safeway's total borrowing capacity under the bank credit agreement is $3.0 billion. 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 is also required to meet certain financial tests under the bank credit agreement. At year-end 2000, the Company had total unused borrowing capacity under the bank credit agreement of $492 million. 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 6.03% during 2000 and 6.13% at year-end 2000. SENIOR SECURED INDEBTEDNESS The 9.30% Senior Secured Debentures due 2007 are secured by a deed of trust that created a lien on the land, buildings and equipment owned by Safeway at its distribution center in Tracy, California. SENIOR UNSECURED INDEBTEDNESS In September 1999, Safeway issued senior unsecured debt facilities consisting of 7.00% Notes due 2002, 7.25% Notes due 2004 and 7.5% Notes due 2009. In 1998 Safeway issued senior unsecured debt securities consisting of 5.75% Notes due 2000, 5.875% Notes due 2001, 6.05% Notes due 2003 and 6.50% Notes due 2008. On November 15, 2000, the 5.75% Notes, described above, were paid. In 1997 Safeway issued senior unsecured debt securities consisting of 6.85% Senior Notes due 2004, 7.00% Senior Notes due 2007 and 7.45% Senior Debentures due 2027. The Company used the proceeds from this debt to redeem a portion of the Senior Subordinated Indebtedness, described below. SENIOR SUBORDINATED INDEBTEDNESS The 10% Senior Subordinated Notes due 2001, 9.65% Senior Subordinated Debentures due 2004 and 9.875% Senior Subordinated Debentures due 2007 are subordinated in right of payment to, among other things, the Company's borrowings under the bank credit agreement, the 9.30% Senior Secured Debentures, the Senior Unsecured Indebtedness and mortgage notes payable. MORTGAGE NOTES PAYABLE Mortgage notes payable at year-end 2000 have remaining terms ranging from one to 23 years, have a weighted average interest rate of 8.28% and are secured by properties with a net book value of approximately $214 million. OTHER NOTES PAYABLE Other notes payable at year-end 2000 have remaining terms ranging from one to nine years and a weighted average interest rate of 7.09%. 33 36 Safeway Inc. and Subsidiaries SHORT-TERM BANK BORROWINGS Short-term bank borrowings at year-end 2000 have remaining terms of 43 days or less and have a weighted average interest rate of 7.18%. ANNUAL DEBT MATURITIES As of year-end 2000, annual debt maturities were as follows (in millions):
2001 $ 626.8 2002 3,103.6 2003 378.6 2004 698.6 2005 6.5 Thereafter 1,219.0 -------- $6,033.1 ========
LETTERS OF CREDIT The Company had letters of credit of $89.7 million outstanding at year-end 2000, of which $45.4 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 0.20% to 1.00% on the outstanding portion of the letters of credit. SUBSEQUENT ISSUANCE OF SENIOR UNSECURED DEBT In January 2001, Safeway issued $600 million of 7.25% senior unsecured debentures due in 2031. Proceeds from this issuance were used to repay commercial paper borrowings and finance the Genuardi's Acquisition. SHELF REGISTRATION In February 2001, the Company filed a shelf registration with the Securities and Exchange Commission to sell, periodically, up to $2 billion in debt securities and common stock. NOTE D: LEASE OBLIGATIONS Approximately two-thirds of the premises that the Company occupies are leased. The Company had approximately 1,500 leases at year-end 2000, including approximately 210 that 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 2000, 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):
Capital Operating Leases Leases ----------- ----------- 2001 $ 95.6 $ 336.4 2002 78.5 340.2 2003 74.1 325.0 2004 80.6 301.4 2005 63.6 290.9 Thereafter 501.6 2,649.6 ----------- ----------- Total minimum lease payments 894.0 $ 4,243.5 =========== Less amounts representing interest (431.2) ----------- Present value of net minimum lease payments 462.8 Less current obligations (47.0) ----------- Long-term obligations $ 415.8 ===========
Future minimum lease payments under non-cancelable capital and operating lease agreements have not been reduced by minimum sublease rental income of $246.8 million. Amortization expense for property under capital leases was $43.9 million in 2000, $38.5 million in 1999 and $22.3 million in 1998. Accumulated amortization of property under capital leases was $132.2 million at year-end 2000 and $132.3 million at year-end 1999. 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.
2000 1999 1998 ------- ------- ------- Property leases: Minimum rentals $ 323.3 $ 280.3 $ 208.7 Contingent rentals 16.7 18.6 19.2 Less rentals from subleases (27.2) (13.2) (12.0) ------- ------- ------- 312.8 285.7 215.9 Equipment leases 31.0 42.9 22.4 ------- ------- ------- $ 343.8 $ 328.6 $ 238.3 ======= ======= =======
34 37 Safeway Inc. and Subsidiaries NOTE E: INTEREST EXPENSE Interest expense consisted of the following (in millions):
2000 1999 1998 ------- ------- ------- Commercial paper $ 138.8 $ 87.4 $ 83.7 Bank credit agreement 7.7 19.4 10.8 9.30% Senior Secured Debentures 2.3 2.3 2.3 6.85% Senior Notes 13.7 13.7 13.7 7.00% Senior Notes 17.5 17.5 17.5 7.45% Senior Debentures 11.2 11.2 11.2 5.75% Senior Notes 19.9 23.0 3.5 5.875% Senior Notes 23.5 23.5 3.6 6.05% Senior Notes 21.2 21.2 3.2 6.50% Senior Notes 16.3 16.3 2.5 7.00% Senior Notes 42.0 12.8 -- 7.25% Senior Notes 29.0 8.8 -- 7.5% Senior Notes 37.5 11.4 -- 9.35% Senior Subordinated Notes -- 1.3 6.2 10% Senior Subordinated Notes 8.0 8.0 8.0 9.65% Senior Subordinated Debentures 7.8 7.8 7.8 9.875% Senior Subordinated Debentures 2.4 2.4 2.4 10% Senior Notes 0.6 0.6 0.6 Mortgage notes payable 6.7 7.3 12.1 Other notes payable 7.1 16.0 9.5 Medium-term notes 1.6 2.1 2.1 Short-term bank borrowings 3.9 4.9 10.6 Obligations under capital leases 48.3 46.1 27.8 Amortization of deferred finance costs 7.0 4.8 1.6 Interest rate swap and cap agreements 0.2 1.7 2.8 Capitalized interest (17.0) (9.3) (8.5) ------- ------- ------- $ 457.2 $ 362.2 $ 235.0 ======= ======= =======
As of year-end 2000, the Company had effectively converted $100 million of its floating-rate debt to fixed-rate debt through an interest rate swap agreement. Under the swap agreement, Safeway pays interest of 6.2% on a $100 million notional amount and receives a variable interest rate based on Federal Reserve rates quoted for commercial paper. This agreement expires in 2007. Interest rate swap agreements, and a cap agreement that expired in 1999, increased interest expense by $0.2 million in 2000, $1.7 million in 1999 and $2.8 million in 1998. At year-end 2000, the net unrealized loss on the interest rate swap agreement was $1.9 million compared to a net unrealized gain on interest rate swap agreements of $4.7 million at year-end 1999. The Company is not subject to credit risk because the notional amounts do not represent cash flows. The Company is subject to risk from nonperformance of the counterparties to the swap agreements in the amount of any interest differential to be received. Because the Company monitors the credit ratings of its counterparties, which are limited to major financial institutions, Safeway does not anticipate nonperformance by the counterparties. Because the Company intends to hold this agreement as a hedge for the term of the agreement, the market risk associated with changes in interest rates is not expected to be significant. NOTE F: CAPITAL STOCK SHARES AUTHORIZED AND ISSUED Authorized preferred stock consists of 25 million shares of which none was outstanding during 2000, 1999 or 1998. Authorized common stock consists of 1.5 billion shares at $0.01 par value. Common stock outstanding at year-end 2000 was 504.1 million shares (net of 64.3 million shares of treasury stock) and 493.6 million shares at year-end 1999 (net of 65.4 million shares of treasury stock). STOCK OPTION PLANS Under Safeway's stock option plans, the Company may grant incentive and non-qualified options to purchase 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. Options to purchase 9.8 million shares were available for grant at year-end 2000. 35 38 Safeway Inc. and Subsidiaries Activity in the Company's stock option plans for the three-year period ended December 30, 2000 was as follows:
Weighted Average Options Exercise Price ---------- ---------------- Outstanding, year-end 1997 40,997,228 $ 7.53 1998 Activity: Granted 4,987,038 40.28 Converted Dominick's options 922,701 19.70 Canceled (848,482) 14.61 Exercised (6,680,083) 3.90 ----------- Outstanding, year-end 1998 39,378,402 12.15 1999 Activity: Granted 6,455,276 43.17 Converted Randall's options 1,069,432 15.54 Canceled (1,325,892) 37.81 Exercised (5,070,905) 4.95 ----------- Outstanding, year-end 1999 40,506,313 17.44 2000 Activity: Granted 8,617,500 43.93 Canceled (1,502,400) 33.81 Exercised (10,441,672) 7.40 ----------- Outstanding, year-end 2000 37,179,741 25.66 =========== Exercisable, year-end 1998 24,447,905 5.79 =========== Exercisable, year-end 1999 23,775,488 7.84 =========== Exercisable, year-end 2000 17,239,036 11.52 =========== Weighted average fair value of options granted during the year: 1998 $17.06 1999 20.83 2000 21.31
The following table summarizes stock option information at year-end 2000:
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 - ----------------- ------------ -------------------------- ------------------ ------------ ------------------- $1.57 to $ 2.81 2,981,413 6.81 years $ 2.75 2,981,413 $ 2.75 3.00 to 4.78 3,742,213 5.42 3.64 3,742,213 3.64 4.99 to 8.32 5,613,597 3.60 6.59 4,789,417 6.55 8.50 to 14.25 2,886,443 4.76 11.38 1,665,261 11.09 14.31 to 26.78 3,516,370 7.06 22.28 1,931,040 21.19 28.63 to 35.94 6,317,824 8.28 33.61 766,022 32.41 36.20 to 48.44 6,830,399 8.42 42.45 1,012,438 41.68 48.63 to 60.94 5,291,482 9.18 53.24 351,232 54.31 ---------- ---------- 1.57 to 60.94 37,179,741 6.93 25.66 17,239,036 11.52 ========== ==========
ADDITIONAL STOCK PLAN INFORMATION The Company accounts 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 option awards granted at fair market value. SFAS 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 36 39 Safeway Inc. and Subsidiaries method as of the beginning of fiscal 1995. Under SFAS No. 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; stock volatility of 34% in 2000 and 31% in 1999 and 1998; risk-free interest rates of 6.16% in 2000, 5.79% in 1999 and 5.26% in 1998; 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 unvested 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 Safeway's stock option plans been determined based on the fair value at the grant date for awards from 1996 through 2000, 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:
2000 1999 1998 --------- --------- --------- Net income (in millions): As reported $ 1,091.9 $ 970.9 $ 806.7 Pro forma 1,061.5 951.5 794.8 Basic earnings per share: As reported $ 2.19 $ 1.95 $ 1.67 Pro forma 2.13 1.91 1.65 Diluted earnings per share: As reported $ 2.13 $ 1.88 $ 1.59 Pro forma 2.07 1.85 1.56
NOTE G: TAXES ON INCOME The components of income tax expense are as follows (in millions):
2000 1999 1998 ------- ------- ------- Current: Federal $ 441.3 $ 333.7 $ 398.8 State 76.4 62.3 80.0 Foreign 80.9 62.4 52.0 ------- ------- ------- 598.6 458.4 530.8 ------- ------- ------- Deferred: Federal 140.5 188.9 44.4 State 30.4 38.1 12.2 Foreign 5.1 17.7 2.8 ------- ------- ------- 176.0 244.7 59.4 ------- ------- ------- $ 774.6 $ 703.1 $ 590.2 ------- ------- -------
Tax benefits from the exercise of employee stock options of $148.9 million in 2000, $77.0 million in 1999 and $85.2 million in 1998 were credited directly to paid-in capital and, therefore, are excluded from income tax expense. 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):
2000 1999 1998 ------- ------- ------- Statutory rate 35% 35% 35% Income tax expense using federal statutory rate $ 653.3 $ 585.9 $ 488.9 State taxes on income net of federal benefit 69.4 65.2 59.9 Taxes provided on equity in earnings of unconsolidated affiliate at rates below the statutory rate (7.3) (12.1) (10.0) Taxes on foreign earnings not permanently reinvested -- 8.3 7.9 Nondeductible expenses and amortization 31.5 32.9 17.6 Difference between statutory rate and foreign effective rate 20.9 16.6 11.1 Other accruals 6.8 6.3 14.8 ------- ------- ------- $ 774.6 $ 703.1 $ 590.2 ======= ======= =======
37 40 Safeway Inc. and Subsidiaries Significant components of the Company's net deferred tax liability at year-end were as follows (in millions):
2000 1999 ------- ------- Deferred tax assets: Workers' compensation and other claims $ 122.6 $ 144.7 Reserves not currently deductible 87.1 111.3 Accrued claims and other liabilities 36.9 28.9 Employee benefits 33.7 46.1 Other assets 117.4 112.0 ------- ------- 397.7 443.0 ------- ------- Deferred tax liabilities: Property (445.1) (387.8) Prepaid pension costs (203.9) (165.4) Inventory (165.0) (171.3) Investments in foreign operations (92.4) (97.6) ------- ------- (906.4) (822.1) ------- ------- Net deferred tax liability $(508.7) $(379.1) ======= =======
At December 30, 2000, certain undistributed earnings of the Company's foreign operations totaling $676.2 million were considered to be permanently reinvested. No deferred tax liability has been recognized for the remittance of such earnings to the United States since it is the Company's intention to utilize those earnings in the foreign operations for an indefinite period of time, or to repatriate such earnings only when tax efficient to do so. The determination of the amount of deferred taxes on these earnings is not practicable since the computation would depend on a number of factors that cannot be known until a decision to repatriate the earnings is made. NOTE H: EMPLOYEE BENEFIT PLANS AND COLLECTIVE BARGAINING AGREEMENTS RETIREMENT PLANS The Company maintains defined benefit, non-contributory retirement plans for substantially all of its employees not participating in multi-employer pension plans. In connection with the Randall's Acquisition and the Vons merger in 1997, the Company assumed the obligations of Randall's and Vons' retirement plans. The actuarial assumptions for the existing Randall's and Vons retirement plans are comparable to those for the existing plans of the Company. Randall's and Vons' retirement plans have been combined with Safeway's for financial statement presentation. The following tables provide a reconciliation of the changes in the retirement plans' benefit obligation and fair value of assets over the two-year period ending December 30, 2000 and a statement of the funded status as of year-end 2000 and 1999 (in millions):
2000 1999 -------- -------- Change in benefit obligation: Beginning balance $1,119.7 $1,165.7 Service cost 47.2 54.4 Interest cost 84.1 81.6 Plan amendments 17.8 17.5 Actuarial loss (gain) 20.0 (129.4) Acquisition of Randall's -- 28.1 Benefit payments (85.1) (87.3) Transfer of plan liabilities (20.0) -- Curtailment (2.3) -- Change in assumptions 8.3 (23.4) Currency translation adjustment (7.8) 12.5 -------- -------- Ending balance $1,181.9 $1,119.7 ======== ======== 2000 1999 -------- -------- Change in fair value of plan assets: Beginning balance $2,153.4 $1,766.1 Actual (loss) return on plan assets (60.4) 432.4 Acquisition of Randall's -- 27.6 Employer contributions 0.6 0.9 Benefit payments (85.1) (87.3) Transfer of plan assets (43.0) -- Currency translation adjustment (8.8) 13.7 -------- -------- Ending balance $1,956.7 $2,153.4 ======== ======== 2000 1999 -------- -------- Funded status: Fair value of plan assets $1,956.7 $2,153.4 Projected benefit obligation (1,181.9) (1,119.7) -------- -------- Funded status 774.8 1,033.7 Adjustment for difference in book and tax basis of assets (165.1) (165.1) Unamortized prior service cost 94.3 97.2 Unrecognized gain (212.5) (560.2) -------- -------- Prepaid pension cost $ 491.5 $ 405.6 ======== ========
38 41 Safeway Inc. and Subsidiaries The following table provides the components of 2000, 1999 and 1998 net pension income for the retirement plans (in millions):
2000 1999 1998 ------- ------- ------- Estimated return on assets $ 182.3 $ 162.7 $ 141.5 Service cost (47.7) (54.4) (52.5) Interest cost (84.7) (81.6) (69.7) Amortization of prior service cost (14.8) (15.4) (14.3) Amortization of unrecognized gains 42.2 23.8 13.3 ------- ------- ------- Net pension income $ 77.3 $ 35.1 $ 18.3 ======= ======= =======
Prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Actuarial gains and losses are amortized over the average remaining service life of active participants when the accumulation of such gains and losses exceeds 10% of the greater of the projected benefit obligation and the fair value of plan assets. In May 2000, Safeway entered into an agreement to have a third party operate the Company's Maryland distribution center. Pursuant to the agreement, Safeway and the third party jointly established a new multiple employer defined benefit pension plan to provide benefits for the employees that were transferred as a result of this agreement. The Company recorded a $15 million settlement gain in 2000 as a result of transfers of accrued benefits and assets from the Safeway Plan to the Multiple Employer Plan. The actuarial assumptions used to determine year-end plan status were as follows:
2000 1999 1998 ---- ---- ---- Discount rate used to determine the projected benefit obligation: United States Plans 7.8% 7.8% 6.5% Canadian Plans 7.0 7.5 6.3 Combined weighted average rate 7.6 7.7 6.5 Expected return on plan assets: United States Plans 9.0% 9.0% 9.0% Canadian Plans 8.0 8.0 8.0 Rate of compensation increase: United States Plans 5.0% 5.0% 5.0% Canadian Plans 5.0 5.0 4.5
RETIREMENT RESTORATION PLAN The Retirement Restoration Plan provides death benefits and supplemental income payments for senior executives after retirement. The Company recognized expense of $4.7 million in 2000, $5.4 million in 1999 and $5.0 million in 1998. The aggregate projected benefit obligation of the Retirement Restoration Plan was approximately $53.1 million at year-end 2000 and $48.4 million at year-end 1999. 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 that 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 $154 million in 2000, $144 million in 1999 and $119 million in 1998 were made and charged to expense. 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 that 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. COLLECTIVE BARGAINING AGREEMENTS At year-end 2000, Safeway had approximately 192,000 full and parttime employees. Approximately 78% 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 39 42 Safeway Inc. and Subsidiaries approximately 400 such agreements, typically having three-year terms, with some agreements having terms of up to five years. Accordingly, Safeway negotiates a significant number of these agreements every year. NOTE I: INVESTMENT IN UNCONSOLIDATED AFFILIATE At year-end 2000, Safeway's investment in unconsolidated affiliate consisted of a 49% ownership interest in Casa Ley, which operates 97 food and general merchandise stores in western Mexico. Income from Safeway's equity investment in Casa Ley, recorded on a one-quarter delay basis, was $31.2 million in 2000, $34.5 million in 1999 and $28.5 million in 1998. NOTE J: RELATED PARTY TRANSACTIONS Prior to April 2000, the Company held an 80% interest in Property Development Associates ("PDA"), a partnership formed in 1987 with Pacific Resources Associates, L.P. ("PRA"), a company controlled by an affiliate of KKR, to purchase, manage and dispose of certain Safeway facilities that are no longer used in the retail grocery business. This partnership was dissolved in April 2000. During 2000, Safeway sold 48 properties to PRA for an aggregate gain of $40.9 million. Prior to the dissolution, the financial statements of PDA were consolidated with those of the Company and a minority interest of $19.9 million is included in Accrued Claims and Other Liabilities in the accompanying consolidated balance sheet at year-end 1999. Safeway paid PDA $1.1 million in 2000, $2.7 million in 1999 and $1.9 million in 1998 for reimbursement of expenses related to management and real estate services provided by PDA. 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 February 2, 2001, in excess of 126,000 claims for personal injury and property damage arising from the fire have been settled for an aggregate amount of approximately $124.4 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 February 2, 2001, there were still pending approximately 2,600 claims against the Company for personal injury (including punitive damages), and approximately 290 separate active 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. On July 10, 1998, Safeway was served with a new case filed in the Superior Court for Alameda County, California, authored by the same attorney who had filed a previous class action relating to the Richmond warehouse fire that was dismissed and affirmed on appeal. The July 1998 action, as amended, alleges that Safeway committed fraud and breach of contract in connection with settlements involving the Richmond warehouse fire. The case purports to be filed on behalf of approximately 21,500 individual plaintiffs. Plaintiffs seek damages according to proof, plus interest and punitive damages. On March 5, 1999, the court sustained the Company's demurrer to plaintiffs' fraud claim. On May 20, 1999, the court granted the Company's motion for judgment on the pleadings on plaintiffs' contract claim. Plaintiffs filed a notice of appeal, and the appeal is pending. The Company believes that the claims in this case are without merit and that the judgment of the trial court will be affirmed. The Company has received notice from its insurance carrier denying coverage for the claims asserted in the two purported class action suits described above. Safeway strongly disagrees with the insurance carrier's denial of coverage. Safeway continues to believe that coverage under its insurance policy will be sufficient and available for resolution of all remaining personal injury and property damage 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. The complaint alleged, among other things, that Vons and the other defendants conspired to fix the retail price of eggs in southern California, in violation of the California Cartwright Act, and that they engaged in unfair competition. The court subsequently certified a class of retail purchasers of white chicken eggs by the dozen in southern California from September 1992 to October 1997. A jury trial commenced in July 1999, and plaintiffs asked the jury to award damages against Vons (before trebling) of $36.8 million. On September 2, 1999, the jury returned a 40 43 Safeway Inc. and Subsidiaries verdict in favor of Vons and the other defendants. On October 15, 1999, the court denied plaintiffs' motion for judgment notwithstanding the verdict or a new trial, and also denied their motion for judgment on the unfair competition claim. On November 1, 1999, judgment was entered in favor of defendants, and plaintiffs appealed. The appeal is pending. The Company believes that plaintiffs have no meritorious grounds for an appeal and expects the judgment to be affirmed. On August 23, 2000, a lawsuit entitled Baker, et al. v. Jewel Food Stores, Inc., et al. was filed in the Circuit Court of Cook County, Illinois, against the Company's subsidiary, Dominick's, and Jewel Food Stores, a subsidiary of Albertson's, Inc. The complaint alleges, among other things, that Dominick's and Jewel conspired to fix the retail price of milk in nine Illinois counties in the Chicago area, in violation of the Illinois Antitrust Act. The plaintiffs purport to bring the lawsuit as a class action on behalf of all persons residing in the nine-county area who purchased milk from the defendants' retail stores in these counties. The complaint seeks unspecified damages, and an injunction enjoining the defendants from acts in restraint of trade. If damages were to be awarded, they may be trebled under the applicable statute. The defendants have filed a motion for summary judgment, seeking dismissal of the entire action. The court has set a discovery and briefing schedule for the motion, and the defendants expect a ruling by the fall of 2001. The Company believes that the allegations in the complaint are without merit and plans to defend this action vigorously. 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 of 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 $95.7 million at year-end 2000. NOTE L: SEGMENTS Safeway's food and drug business, which represents more than 98% of consolidated sales and operates in the United States and Canada, is its only reportable segment. The following table presents information about the Company by geographic area (in millions):
U.S. Canada Total --------- --------- --------- 2000 SALES $28,533.9 $ 3,443.0 $31,976.9 OPERATING PROFIT 2,081.5 200.2 2,281.7 INCOME BEFORE INCOME TAXES 1,675.6 190.9 1,866.5 TOTAL ASSETS 14,931.5 1,033.8 15,965.3 1999 Sales $25,535.3 $ 3,324.6 $28,859.9 Operating profit 1,815.4 182.5 1,997.9 Income before income taxes 1,499.0 175.0 1,674.0 Total assets 13,960.2 940.1 14,900.3 1998 Sales $21,241.7 $ 3,242.5 $24,484.2 Operating profit 1,467.3 134.4 1,601.7 Income before income taxes 1,272.3 124.6 1,396.9 Total assets 10,541.9 847.7 11,389.6
41 44 Safeway Inc. and Subsidiaries NOTE M: COMPUTATION OF EARNINGS PER SHARE
2000 1999 1998 ----------------------- ------------------------ ------------------------ (In millions, except per-share amounts) DILUTED BASIC Diluted Basic Diluted Basic --------- --------- --------- --------- --------- --------- Net income $ 1,091.9 $ 1,091.9 $ 970.9 $ 970.9 $ 806.7 $ 806.7 ========= ========= ========= ========= ========= ========= Weighted average common shares outstanding 497.9 497.9 498.6 498.6 482.8 482.8 ========= ========= ========= Common share equivalents 13.7 16.8 26.0 --------- --------- --------- Weighted average shares outstanding 511.6 515.4 508.8 ========= ========= ========= Earnings per common share and common share equivalent: $ 2.13 $ 2.19 $ 1.88 $ 1.95 $ 1.59 $ 1.67 ========= ========= ========= ========= ========= ========= Calculation of common share equivalents: Options and warrants to purchase common shares 36.8 37.7 48.0 Common shares assumed purchased with potential proceeds (23.1) (20.9) (22.0) --------- --------- --------- Common share equivalents 13.7 16.8 26.0 ========= ========= ========= Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares $ 1,077.4 $ 986.8 $ 913.9 Common stock price used under the treasury stock method $ 46.57 $ 47.26 $ 41.60 Common shares assumed purchased with potential proceeds 23.1 20.9 22.0
42 45 Safeway Inc. and Subsidiaries NOTE N: QUARTERLY INFORMATION (UNAUDITED) The summarized quarterly financial data presented below reflect all adjustments that, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented.
Last 16 Third 12 Second 12 First 12 (In millions, except per-share amounts) 52 Weeks Weeks Weeks Weeks Weeks ---------- ---------- ---------- ---------- ---------- 2000 SALES $ 31,976.9 $ 10,015.4 $ 7,457.2 $ 7,418.1 $ 7,086.3 GROSS PROFIT 9,494.5 2,946.4 2,236.7 2,201.7 2,109.7 OPERATING PROFIT 2,281.7 629.0 554.9 582.9 514.9 INCOME BEFORE INCOME TAXES 1,866.5 511.3 461.6 480.1 413.5 NET INCOME 1,091.9 299.1 270.0 280.9 241.9 EARNINGS PER SHARE: BASIC $ 2.19 $ 0.60 $ 0.54 $ 0.57 $ 0.49 DILUTED 2.13 0.58 0.53 0.55 0.48 PRICE RANGE, NEW YORK STOCK EXCHANGE 62 2/3 62 2/3 53 5/8 50 1/5 44 1/8 to 30 3/4 to 45 2/3 to 40 5/8 to 39 7/8 to 30 3/4 Last 16 Third 12 Second 12 First 12 (In millions, except per-share amounts) 52 Weeks Weeks Weeks Weeks Weeks ---------- ---------- ---------- ---------- ---------- 1999 Sales $ 28,859.9 $ 9,934.7 $ 6,475.0 $ 6,337.0 $ 6,113.2 Gross profit 8,510.7 2,875.3 1,918.8 1,895.0 1,821.6 Operating profit 1,997.9 649.9 453.3 469.6 425.2 Income before income taxes 1,674.0 526.4 385.2 401.4 361.1 Net income 970.9 305.3 223.4 236.4 205.8 Earnings per share: Basic $ 1.95 $ 0.60 $ 0.45 $ 0.48 $ 0.42 Diluted 1.88 0.59 0.44 0.46 0.40 Price range, New York Stock Exchange 62 7/16 46 3/4 55 56 62 7/16 to 29 5/16 to 29 5/16 to 42 11/16 to 43 15/16 to 50 5/16
43 46 Safeway Inc. and Subsidiaries 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 accounting principles generally accepted in the United States of America 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, 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 is presented on the following page. 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 December 30, 2000, Safeway believes its system of internal controls over financial reporting was effective for providing reliable financial statements. /s/ STEVEN A. BURD Steven A. Burd Chairman, President and Chief Executive Officer /s/ VASANT M. PRABHU Vasant M. Prabhu Executive Vice President and Chief Financial Officer 44 47 Safeway Inc. and Subsidiaries 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 December 30, 2000 and January 1, 2000, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 30, 2000. 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 auditing standards generally accepted in the United States of America. 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 December 30, 2000 and January 1, 2000, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP San Francisco, California February 22, 2001 45 48 DIRECTORS AND PRINCIPAL OFFICERS
DIRECTORS EXECUTIVE OFFICERS OTHER PRINCIPAL OFFICERS STEVEN A. BURD STEVEN A. BURD MICHAEL J. BESSIRE Chairman, President Chairman, President and Eastern Division President and Chief Executive Officer Chief Executive Officer BRUCE EVERETTE Safeway Inc. Northern California Division RICHARD W. DREILING President JAMES H. GREENE, JR. Executive Vice President Member Marketing, Manufacturing ROJON HASKER KKR & Co., LLC and Distribution Phoenix Division President PAUL HAZEN VASANT M. PRABHU Chairman Executive Vice President ROBERT H. HENRY Wells Fargo & Co. and Chief Financial Officer Denver Division President HECTOR LEY LOPEZ President, E-Commerce Businesses GREGORY A. SPARKS General Director LARREE M. RENDA Seattle Division President Casa Ley, S.A. de C.V. Executive Vice President LYLE A. WATERMAN ROBERT I. MACDONNELL Retail Operations, Human Resources, Portland Division President Member Public Affairs, Labor and Government THOMAS C. KELLER KKR & Co., LLC Relations President PETER A. MAGOWAN DAVID F. BOND The Vons Companies, Inc. Managing General Partner Senior Vice President TIMOTHY J. HAKIN and President Finance and Control President San Francisco Giants DAVID T. CHING Dominick's Finer Foods, Inc. GEORGE R. ROBERTS Senior Vice President and FRANK LAZARAN Member Chief Information Officer President KKR & Co., LLC DAVID F. FAUSTMAN Randall's Food Markets, Inc. REBECCA A. STIRN Senior Vice President HANK MULLANY Business Consultant Labor Relations and Public Affairs President WILLIAM Y. TAUSCHER DICK W. GONZALES Genuardi's Family Markets LP Private Investor Senior Vice President Former Chairman and Human Resources FOREIGN SUBSIDIARY Chief Executive Officer ROBERT A. GORDON Vanstar Corporation Senior Vice President CANADA SAFEWAY LIMITED and General Counsel LAWRENCE V. JACKSON GRANT M. HANSEN Senior Vice President President and Chief Operating Officer Supply Operations MELISSA C. PLAISANCE EQUITY AFFILIATE Senior Vice President Finance and Investor Relations CASA LEY, S.A. DE C.V. (MEXICO) KENNETH M. SHACHMUT Senior Vice President JUAN MANUEL LEY LOPEZ Corporate Reengineering Chairman and Chief Executive DONALD P. WRIGHT Officer Senior Vice President Real Estate and Engineering
46 49 INVESTOR INFORMATION EXECUTIVE OFFICES Mailing Address: Safeway Inc. P.O. Box 99 Pleasanton, CA 94566-0009 INTERNET ADDRESS Safeway's web site on the Internet can be accessed at www.safeway.com. We do not incorporate the information on our web site into this annual report, and you should not consider it part of this annual report. STOCK TRANSFER AGENT AND REGISTRAR First Chicago Trust Company of New York P.O. Box 2500 Jersey City, NJ 07303-2500 800-756-8200 FORM 10-K Safeway's 2000 Form 10-K filed with the Securities and Exchange Commission can be accessed online at www.safeway.com/investor_relations. Alternately, a copy of the form may be obtained by writing to the Investor Relations Department at our executive offices or by calling 925-467-3790. INDEPENDENT AUDITORS Deloitte & Touche San Francisco, California ANNUAL MEETING The 2001 Annual Meeting of Stockholders will be held on May 8, 2001. A notice of the meeting, together with a proxy statement and a form of proxy, were mailed to stockholders with this annual report. STOCK EXCHANGE LISTING The company's common stock, which trades under the symbol SWY, and certain debentures and notes are listed on the New York Stock Exchange. INVESTOR INQUIRIES Communication regarding investor records, including changes of address or ownership, should be directed to the company's transfer agent, First Chicago Trust Company of New York, at the address listed on the left. To inquire by phone, please call 800-756-8200. Investors, security analysts and members of the media should direct their financial inquiries to our Investor Relations Department at 925-467-3832. To access or obtain financial reports, please visit our web site at www.safeway.com/investor_relations, write to our Investor Relations Department or call 925-467-3790. EEO-1 REPORT As an equal opportunity employer, Safeway values and actively supports diversity in the workplace. A copy of the company's 2000 summary EEO-1 report, filed with the federal Equal Employment Opportunity Commission, is available upon request at our executive offices. TRUSTEES AND PAYING AGENTS 5.875% SENIOR NOTES 6.05% SENIOR NOTES 6.50% SENIOR NOTES 6.85% SENIOR NOTES 7.00% SENIOR NOTES 7.25% SENIOR NOTES 7.45% SENIOR DEBENTURES 7.50% SENIOR NOTES 9.65% SENIOR SUBORDINATED DEBENTURES 9.875% SENIOR SUBORDINATED DEBENTURES 10.00% SENIOR SUBORDINATED NOTES The Bank of New York Bondholder Relations Department Corporate Trust Division Fiscal Agencies Department 101 Barclay Street, 7-East New York, NY 10286 800-548-5075 9.30% SENIOR SECURED DEBENTURES Bank One Trust Company, N.A. Corporate Trust - Investor Relations One Bank One Plaza, Suite 0134 Chicago, IL 60670-0134 800-524-9472 8.48%-10.00% SENIOR MEDIUM-TERM NOTES Trustee The Chase Manhattan Bank Corporate Trust Administration 101 California Street, Suite 2725 San Francisco, CA 94111 415-954-9561 Paying Agent Bankers Trust Company Corporate Trust & Agency Group 4 Albany Street, 4th Floor New York, NY 10006 800-735-7777 47 EX-21.1 6 f70314ex21-1.txt EXHIBIT 21.1 1 Exhibit 21.1 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 30, 2000 Registrant: Safeway Inc. The following is a list of the Company's wholly-owned subsidiaries and includes all subsidiaries deemed significant. 21 companies are not listed because they are maintained solely for the purpose of holding licenses or because they are non-wholly owned. Subsidiaries of Registrant (Tier I subsidiaries): Safeway Canada Holdings, Inc. Safeway Australia Holdings, Inc. Safeway Leasing, Inc. Oakland Property Brokerage, Inc. Omnibrands, Inc. Milford Insurance Ltd. Milford Insurance Brokerage Services, Inc. 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, Inc. Safeway Stores 42, Inc. Safeway Stores 43, Inc. Safeway Stores 64, Inc. Safeway Claim Services, Inc. Safeway Holdings I, Inc. Safeway Stores 99, Inc. Safeway SELECT Gift Source, Inc. Vons REIT, Inc. Taylor Properties, Inc. SSI - AK Holdings, Inc. Randall's Food Markets, Inc. Pt. Fosdick Square LLC 2 Exhibit 21.1 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 30, 2000 (Continued) 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. 3 Exhibit 21.1 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 30, 2000 (Continued) 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. Subsidiary of SSI - AK Holdings, Inc. Carr-Gottstein Foods Co. Subsidiaries of Randall's Food Markets, Inc. Randall's Properties, Inc. Randall's Food & Drugs, Inc. SUBSIDIARIES OF TIER I SUBSIDIARIES (Non-tier Subsidiaries): Subsidiaries of Safeway Canada Holdings, Inc.: Safeway New Canada, Inc. and its subsidiary: Safeway Foreign Sales Ltd. and its subsidiary: Canada Safeway Limited and its subsidiary: Safeway International Finance Corp. of Barbados Ltd. Subsidiary of Vons REIT, Inc.: Dominick's Supermarkets, Inc. Subsidiaries of Dominick's Supermarkets, Inc.: Dominick's Finer Foods, Inc. Blackhawk Properties, Inc. Blackhawk Developments, Inc. 4 Exhibit 21.1 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 30, 2000 (Continued) Subsidiaries of Dominick's Finer Foods, Inc.: Dominick's Finer Foods, Inc. of Illinois The Dominick's/Omni Foundation (non-profit) Dodi Hazelcrest, Inc. Kohl's of Bloomingdale, Inc. Save-It Discount Foods, Inc. SUBSIDIARIES OF TIER II SUBSIDIARIES (Tier III Subsidiaries): Subsidiary of Safeway Stores 58, Inc.: Safelease, Inc. Subsidiary of The Vons Companies, Inc.: Vons Food Services, Inc. Subsidiaries of Carr-Gottstein Foods Co. AOL Express, Inc. APR Forwarders, Inc. Oaken Keg Spirit Shops, Inc. Alaska Advertisers, Inc. CGF Properties, Inc. Seldovia Mart, Inc. Subsidiaries of Randall's Food & Drugs, Inc. Gooch Packing Company, Inc. American Community Stores Corp. Randall's Management Co. Inc.: Randall's Beverage Co., Inc. EX-23.1 7 f70314ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated February 22, 2001, included and incorporated by reference in the Annual Report on Form 10-K of Safeway Inc. and subsidiaries for the fiscal year ended December 30, 2000, in the following Registration Statements of Safeway Inc. and subsidiaries: - - No. 33-36753 on Form S-8 regarding the Safeway Inc. Outside Director Equity Purchase Plan, - - No. 33-37207 on Form S-8 regarding the Profit Sharing Plan of Safeway Inc. and its United States Subsidiaries, - - 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., - - No. 33-48884 on Form S-8 regarding the Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc., - - No. 33-51119 on Form S-8 regarding the Stock Option Plan for Consultants of Safeway Inc., - - No. 33-54581 on Form S-8 regarding the Employee Stock Purchase Plan of Safeway Inc., - - No. 33-63803 on Form S-8 regarding the 1994 Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc., - - No. 333-13677 on Form S-8 regarding the 1987 Plan for Consultants of Safeway Stores, Inc., - - No. 333-22837 on Form S-8 regarding The Vons Companies, Inc. Management Stock Option Plan, - - No. 333-55008 on Form S-3 regarding Debt Securities, - - No. 333-67575 on Form S-8 regarding the 1996 Equity Participation Plan of Dominick's Supermarkets, Inc. and the 1995 Amended and Restricted Stock Option Plan of Dominick's Supermarkets, Inc., - - No. 333-84749 on Form S-8 regarding Randall's Food Markets, Inc. Stock Option Plan and Restricted Stock Plan and Amended and Restated 1997 Stock Purchase and Option Plan for Key Employees for Randall's Food Markets, Inc. and Subsidiaries, - - No. 333-87289 on Form S-8 regarding the 1999 Amended and Restated Equity Participation Plan, - - No. 333-91975 on Form S-8 regarding Randall's Food Markets, Inc. ESOP/401(k) Savings Plan and Dominick's Finer Foods, Inc. 401(k) Retirement Plan for Union Employees, as Amended, and Dominick's Finer Foods, Inc. 401(k) Retirement Plan for Non-Union Employees, as Amended, - - No. 333-30820 on Form S-8 regarding the Safeway Executive Deferred Compensation Plan and Canada Safeway Limited Executive Deferred Compensation Plan, and - - No. 333-45920 on Form S-8 regarding the Safeway 401(k) Plan and Trust. /s/ DELOITTE & TOUCHE LLP San Francisco, California March 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----