-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NsmDdaCulTTjJhmOGPHWsp4GwABNJtLgP2VvgXFBVqWaIml6dEnrx25CP9jtbQnt U1y2nmKh1tf2WNkduIclmA== 0000950149-95-000128.txt : 19950616 0000950149-95-000128.hdr.sgml : 19950616 ACCESSION NUMBER: 0000950149-95-000128 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950323 SROS: NYSE SROS: PSE 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: 1229 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00041 FILM NUMBER: 95522771 BUSINESS ADDRESS: STREET 1: FOURTH & JACKSON STS CITY: OAKLAND STATE: CA ZIP: 94660 BUSINESS PHONE: 5108913000 MAIL ADDRESS: STREET 1: FOURTH & JACKSONS STS CITY: OAKLAND STATE: CA ZIP: 94660 FORMER COMPANY: FORMER CONFORMED NAME: SAFEWAY STORES INC DATE OF NAME CHANGE: 19900226 10-K 1 FORM 10-K FOR FISCAL YEAR ENDED 12/31/94 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 31, 1994 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 incorporation or (I.R.S. Employer Identification No.) organization)
Fourth and Jackson Streets Oakland, California 94660 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 891-3000 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 and Pacific Stock Exchange Warrants to purchase Common Stock New York Stock Exchange 9.30% Senior Secured Debentures due 2007 New York Stock Exchange 9.35% Senior Subordinated Notes due 1999 New York Stock Exchange 10% Senior Subordinated Notes due 2001 New York Stock Exchange 9.65 Senior Subordinated Debentures due 2004 New York Stock Exchange 9.875% Senior Subordinated Debentures due 1007 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 14, 1995, was $1.4 billion. As of March 14, 1995, there were issued and outstanding 105,497,700 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 -------------------- --------- 1994 Annual Report to Stockholders I, II, III, IV 1995 Proxy Statement dated March 24, 1995 III
3 SAFEWAY INC. AND SUBSIDIARIES PART I ITEM 1. BUSINESS AND ITEM 2. PROPERTIES GENERAL: Information appearing under the caption "Company in Review" beginning on page 10 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. RETAIL OPERATIONS: Information appearing under the caption "Retail Operations" on page 10 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. MANUFACTURING AND WHOLESALE OPERATIONS: Information appearing under the caption "Manufacturing and Wholesale Operations" on page 11 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. Various agricultural commodities constitute the principal raw materials used by the Company in the manufacture of its food products. Management believes that raw materials for its products are not in short supply, and all are readily available from a wide variety of independent suppliers. CAPITAL EXPENDITURES: Information appearing under the caption "Capital Expenditure Program" on page 11 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. Safeway's new stores, remodels, and closures during the last five years were as follows:
Total Five Years 1994 1993 1992 1991 1990 ----- ---- ---- ---- ---- ---- New stores: New locations 54 6 8 12 9 19 Replacements 78 14 6 23 24 11 -- -- - -- -- -- 132 20 14 35 33 30 === == == == == == Remodels: Expansions 90 7 27 23 22 11 "Four-Wall" remodels 256 64 18 40 55 79 --- -- -- -- -- -- 346 71 45 63 77 90 === == == == == == Closures 187 36 39 49 37 26 Stores at year-end 1,062 1,078 1,103 1,117 1,121
3 4 SAFEWAY INC. AND SUBSIDIARIES ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS: This information is omitted because the Company has no significant lines of business or industry segments except the principal business of operating retail supermarkets. TRADEMARKS: The Company has invested significantly in the development and protection of the "Safeway" name. The right to use the "Safeway" name is considered to be an important asset. Safeway also owns approximately 75 other trademarks registered or pending in the United States Patent and Trademark Office, including its product line names such as Lucerne, Bel-air, TownHouse, Mrs. Wright's, and Safeway SELECT. Each trademark registration is for an initial period of 10 or 20 years and is renewable for as long as the use of the trademark continues. Safeway considers certain of its trademarks to be of material importance to its business and actively defends and enforces such trademarks. Safeway has also registered certain of its trademarks in Canada. WORKING CAPITAL: At year-end 1994, working capital deficit was composed of $1.4 billion of current assets and $1.8 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; however, during 1994 Safeway significantly increased cash flow from operations through improved working capital management. There are no unusual industry practices or requirements relating to working capital items. COMPETITION: Food retailing is intensely competitive. The number of competitors and the amount of competition experienced by Safeway's stores vary by market area. The principal competitive factors that affect the Company's business are location, quality, service, price and consumer loyalty to other brands and stores. Local, regional, and national food chains as well as independent food stores and markets comprise the principal competition, although Safeway also faces substantial competition from convenience stores, liquor retailers, membership warehouse clubs, specialty retailers, and large-scale drug and pharmaceutical chains. Safeway and its competitors engage in price competition which, from time to time, has adversely affected operating margins in many of its markets. 4 5 SAFEWAY INC. AND SUBSIDIARIES ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED) 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 capital expenditures, earnings or competitive position of the Company. EMPLOYEES: At year-end 1994, the Company had approximately 110,000 full and part-time employees. Approximately 90% of the Company's employees are covered by collective bargaining agreements negotiated with local unions affiliated with one of 12 different international unions. There are approximately 500 such agreements, typically having three-year terms, with some agreements having terms up to five years. The Company renegotiates a significant number of these agreements every year. While the Company believes that its relationship with its employees is good, work stoppages that could result from failure to renew contracts covering a significant number of employees could have an adverse effect on Safeway's operations. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES: Note K to the consolidated financial statements, included on page 34 of the Company's 1994 Annual Report to Stockholders and incorporated herein by this reference, contains financial information by geographic area. At year-end 1994, the Company's foreign operations were composed of retail grocery and wholesale operations in Canada and a 49% equity investment in Casa Ley, S.A. de C.V. ("Casa Ley"), a Mexican company. The recent devaluation of the peso will have an adverse impact on Safeway's income from Casa Ley beginning in 1995 but is not expected to be material to Safeway's net income. Other than the competitive nature of the retail food business, the Company is not aware of any other significant risks of operating in these foreign countries. Casa Ley had total assets of $448.4 million and $365.5 million as of September 30, 1994 and 1993, based on financial information provided by Casa Ley. Sales were $1,052.4 million and net income was $32.0 million for the 12 months ended September 30, 1994. Sales were $925.8 million and net income was $39.5 million for the 12 months ended September 30, 1993. Sales were $752.7 million and net income was $33.8 million for the 12 months ended September 30, 1992. 5 6 SAFEWAY INC. AND SUBSIDIARIES ITEM 1. BUSINESS AND ITEM 2. PROPERTIES (CONTINUED) TERMS OF OUTSTANDING INDEBTEDNESS: Information appearing in Note B to the consolidated financial statements on pages 25 through 27 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. The following description of the Bank Credit Agreement and the Working Capital Credit Agreement (the "Bank Agreements") and the indentures related to the 9.35% Senior Subordinated Notes due 1999, the 9.65% Senior Subordinated Debentures due 2004, the 9.875% Senior Subordinated Debentures due 2007, the 10% Senior Subordinated Notes due 2001, the 9.30% Senior Secured Debentures due 2007, and the 10% Senior Notes due 2002 (collectively, the "Notes and Debentures") does not purport to be complete and is subject to and qualified in its entirety by reference to the Bank Agreements and such indentures, which have been filed with the Commission. Capitalized terms used herein which are not otherwise defined shall have the meanings assigned to them in the definitive agreements and instruments governing such indebtedness. Negative covenants contained in the Bank Agreements prohibit the Company from paying cash dividends on its capital stock and restrict the ability of the Company and, in some cases, its subsidiaries, to, among other things: (i) incur debt, (ii) incur liens, (iii) make investments or enter into joint ventures, (iv) incur or create contingent obligations, (v) make distributions on or redemptions of its capital stock, (vi) make capital expenditures, (vii) prepay or repay subordinated indebtedness, including the Notes and the Debentures, (viii) make certain fundamental changes in corporate structure or business activities including certain mergers or consolidations, liquidations, dissolutions, or disposing of material amounts of assets other than in the ordinary course of business, (ix) incur obligations as lessee with respect to the lease of any property, (x) become liable in sale and leaseback transactions, (xi) sell or discount receivables, (xii) enter into certain transactions with shareholders and affiliates, (xiii) dispose of subsidiary equity securities, (xiv) engage in unrelated business activities, (xv) amend or modify the documents governing subordinated indebtedness, and (xvi) engage in transactions or fail to make payments which result in penalties under ERISA. In addition, the Bank Agreements require that the Company meet specific financial ratio tests, including a ratio of consolidated cash flow available for fixed charges to consolidated fixed charges and a ratio of consolidated total debt to consolidated capitalization. The indentures related to the Notes and Debentures restrict the ability of the Company, and in some cases, its subsidiaries, to, among other things: (i) pay cash dividends or make other distributions on or redemptions of its capital stock, (ii) incur debt, (iii) incur liens, (iv) enter into transactions with stockholders and affiliates, and (v) consolidate, merge or dispose of all or substantially all of its assets. In particular, the indentures limit the ability of the Company to incur debt in certain circumstances, unless the Company meets a specified consolidated fixed charge ratio. ITEM 3. LEGAL PROCEEDINGS Information about legal proceedings appearing under the caption "Legal Matters" as reported in Note H to the consolidated financial statements on page 32 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. In March 1995, Service District No. 1 of the Clackamas County, Oregon Department of Utilities (the "District") issued a Notice of Violation and Intent to Assess Civil Penalty ("NOV") alleging violations of a wastewater discharge permit at a Company facility. The violations relate to the Company's alleged failure to comply with discharge limitations for pH and reporting requirements under the permit. The NOV may result in the assessment of civil penalties and a compliance order, the amount and content of which will depend on a variety of factors, including mitigating factors presented to the District. Although the Company is unable to predict the amount of civil penalties, if any, that it will be required to pay with respect to the facility, the Company does not believe that the payment of any such amount will be significant. The Company intends to respond promptly to the NOV, and has had discussions with the District, in order to resolve this matter. 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 1994. 6 7 SAFEWAY INC. AND SUBSIDIARIES 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 and the Pacific Stock Exchange. Information as to quarterly sales prices for the Company's common stock appears in Note L to the consolidated financial statements on page 35 of the Company's 1994 Annual Report to Stockholders and is incorporated herein by this reference. There were 4,596 stockholders of record as of March 14, 1995; however, approximately 36% 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 was $35.00 as of the close of business on March 14, 1995. 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 and subject to the dividend restrictions in the Bank Agreements and the indentures relating to the Notes and Debentures. The Bank Agreements provide that the Company may not declare or pay any dividend or make any distribution with respect to its common stock (other than dividends or distributions payable in its common stock). Under the indentures relating to the Notes and Debentures, the Company may declare or pay dividends or make distributions with respect to its common stock (other than dividends or distributions payable in its common stock) if at the time of such payment or distribution (i) no default or event of default under such indentures shall have occurred and be continuing and (ii) certain aggregate payment limitations set forth in such indentures shall have been satisfied, provided that the foregoing is not violated by the payment of dividends up to 6% per annum of the net proceeds received by the Company from its initial public offering and from any subsequent public offerings of Common Stock. Net proceeds from the 1990 initial public offering and the 1991 public offering of Common Stock were approximately $120 million and $340 million, respectively. The Company has not paid dividends on common stock through 1994 and has no current plans for dividend payments. ITEM 6. SELECTED FINANCIAL DATA The "Five-Year Summary Financial Information" included on page 12 of the Company's 1994 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 included under Item 8, Consolidated Financial Statements and Supplementary Data. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information appearing under the caption "Financial Review" on pages 13 through 16 and under the caption "Capital Expenditure Program" on page 11 of the Company's 1994 Annual Report to Stockholders is incorporated herein by this reference. ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages 17 through 37 of the Company's 1994 Annual Report to Stockholders, which include the consolidated financial statements, Computation of Earnings Per Common Share and Common Share Equivalent listed as Exhibit 11.1 to Item 14(a)3, and the Independent Auditors' Report as listed in Item 14(a)1, are incorporated herein by this reference. 7 8 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Directors of the Company. Information on the nominees for election as Directors and the continuing Directors of the Company, which appears under the caption "Election of Directors" in the Company's 1995 Proxy Statement, is incorporated herein by this reference. Executive Officers of the Company. The names and ages of the current executive officers of the Company and their positions as of March 14, 1995, 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.
Name and all Positions with the Company Year First Elected Held at March 14, 1995 Age Officer Present Office - ---------------------- --- ------- -------------- Steven A. Burd (1) 45 1992 1992 President and Chief Executive Officer David T. Ching (2) 42 1994 1994 Senior Vice President and Chief Information Officer Frithjof J. Dale 50 1982 1991 Group Vice President Finance Julian C. Day (3) 42 1993 1993 Executive Vice President and Chief Financial Officer E. Richard Jones 50 1983 1988 Executive Vice President Supply Operations George D. Marshall 55 1979 1979 Vice President Labor Relations Kenneth W. Oder (4) 47 1993 1993 Executive Vice President Labor Relations, Human Resources, Law and Public Affairs Melissa C. Plaisance 35 1993 1995 Senior Vice President Finance and Public Affairs Larree M. Renda 36 1991 1994 Senior Vice President Corporate Retail Operations Michael C. Ross (4) 47 1993 1993 Senior Vice President Secretary and General Counsel
8 9 SAFEWAY INC. AND SUBSIDIARIES ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT (CONTINUED)
Year First Elected Name and all Positions with the Company ------------------------- Held at March 14, 1995 Age Officer Present Office - ---------------------- --- ------- -------------- Wilber L. Schinner 54 1984 1988 Senior Vice President and Director of Marketing Richard A. Wilson 61 1988 1988 Vice President Tax Donald P. Wright 42 1991 1991 Senior Vice President Real Estate and Engineering
- ------------------------------- (1) Previously the owner of Burd & Associates. (2) During 1994, Mr. Ching was the General Manager - North America for the British American Consulting Group. From 1979 to 1994, he was employed by Lucky Stores, Inc., where he was the Senior Vice President of Information Systems beginning in 1989. (3) Previously self-employed as an independent consultant. (4) Previously a partner at the law firm of Latham & Watkins. Compliance with Section 16(a) of the Exchange Act. Information appearing under the caption "Compliance with Section 16(a) of the Exchange Act" in the Company's 1995 Proxy Statement is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION Information appearing under the captions "Executive Compensation" and "Pension Plans" in the Company's 1995 Proxy Statement is incorporated herein by this reference. Information appearing under the captions "Report of the Compensation and Stock Option Committee" and "Stock Performance Graph" in the Company's 1995 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 1995 Proxy Statement is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Note J to the consolidated financial statements, included on pages 33 and 34 of the Company's 1994 Annual Report to Stockholders, and the captions "Certain Relationships and Transactions" and "Compensation Committee Interlocks and Insider Participation" in the Company's 1995 Proxy Statement contain information about certain relationships and related transactions and are incorporated herein by this reference. 9 10 SAFEWAY INC. AND SUBSIDIARIES PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT: 1. Consolidated Financial Statements of the Company are incorporated by reference in PART II, Item 8: Consolidated Statements of Income for fiscal 1994, 1993, and 1992. Consolidated Balance Sheets as of the end of fiscal 1994 and 1993. Consolidated Statements of Cash Flows for fiscal 1994, 1993, and 1992. Consolidated Statements of Stockholders' Equity for fiscal 1994, 1993, and 1992. 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 3.1 Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to Registration Statement No. 33-33388). Exhibit 3.2 Form of By-laws of the Company as amended (incorporated by reference to Exhibit 3.2 to Registration Statement No. 33-33388), and Amendment to the Company's By-laws effective March 8, 1993 (incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended January 2, 1993). Exhibit 4(i).1 Form of Warrant Agreement between the Company and The First National Bank of Boston as Warrant Agent relating to Warrants to purchase shares of common stock of the Company (incorporated by reference to Exhibit 4.5 to Registration Statement No. 33-9913) and Amendment to the Warrant Agreement between the Company and The First National Bank of Boston as Warrant Agent relating to Warrants to purchase shares of common stock of the Company (incorporated by reference to Exhibit 4(i).6 to Registrant's Form 10-K for the year ended December 30, 1989). Exhibit 4(i).2 Specimen Warrant (incorporated by reference to Exhibit 4(i).5 to Registration Statement No. 33-33388). Exhibit 4(i).3 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4(i).2 to Registration Statement No. 33-33388). 10 11 SAFEWAY INC. AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 4(i).4 Registration Rights Agreement dated November 25, 1986 between the Company and certain limited partnerships (incorporated by reference to Exhibit 4(i).4 to Registration Statement No. 33-33388). Exhibit 4(i).5 Indenture dated as of November 20, 1991 among the Company and The Bank of New York, as Trustee, relating to the Company's Senior Subordinated Debt Securities (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated November 13, 1991). Exhibit 4(i).6 Form of Officers' Certificate establishing the terms of the 10% Senior Subordinated Notes due December 1, 2001, including the form of Note (incorporated by reference to Exhibit 4.4 of Registrant's Form 8-K dated November 13, 1991). Exhibit 4(i).7 Form of Officers' Certificate establishing the terms of the 9.65% Senior Subordinated Debentures due January 15, 2004, including the form of Debenture (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated January 15, 1992). Exhibit 4(i).8 Indenture dated as of February 1, 1992 between the Company and The First National Bank of Chicago, as Trustee, relating to the Company's 9.30% Senior Secured Debentures due 2007, including the form of Debenture and the forms of Deed of Trust and Environmental Indemnity Agreement attached as exhibits thereto (incorporated by reference to Exhibit 4(i).14 of Registrant's Form 10-K for the year ended December 28, 1991). Exhibit 4(i).9 Indenture dated as of March 15, 1992 between the Company and Harris Trust and Savings Bank, as Trustee, relating to the Company's Senior Subordinated Debt Securities (incorporated by reference to Exhibit 4.1 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).10 Form of Officers' Certificate establishing the terms of the 9.35% Senior Subordinated Notes due March 15, 1999 and the 9.875% Senior Subordinated Debentures due March 15, 2007, including the form of Note and form of Debenture (incorporated by reference to Exhibit 4.2 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).11 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). Exhibit 4(i).12 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).13 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). 11 12 SAFEWAY INC. AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 4(i).14 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).15 Company Pledge Agreement, dated as of November 24, 1986 between the Company and Bankers Trust Company, as collateral agent, form of First Amendment thereto dated as of June 12, 1990, and form of the Second Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.5 of Registrant's Form 8-K dated November 13, 1991) and Third Amendment dated as of January 28, 1992, to Company Pledge Agreement between the Company and Bankers Trust Company, as collateral agent and interest rate exchanger (incorporated by reference to Exhibit 4.3 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).16 Trademark Security Agreement and Conditional Assignment, dated as of November 24, 1986 between the Company and Bankers Trust Company, as collateral agent, form of First Amendment thereto dated as of June 12, 1990, and form of the Second Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.6 of Registrant's Form 8-K dated November 13, 1991) and Third Amendment dated as of January 28, 1992 to Safeway Pledge Agreement between the Company and Bankers Trust Company, as collateral agent and interest rate exchanger (incorporated by reference to Exhibit 4.4 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).17 Pledge and Security Agreement dated as of November 26, 1986 between the Company and Bankers Trust Company, as collateral agent, form of First Amendment thereto dated as of June 12, 1990, and form of the Second Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.7 of Registrant's Form 8-K dated November 13, 1991) and Third Amendment dated as of January 28, 1992, to Company Pledge and Security Agreement (Inventory) between the Company and Bankers Trust Company, as collateral agent and interest rate exchanger (incorporated by reference to Exhibit 4.5 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).18 Intercreditor Agreement (Company Pledge) dated as of November 24, 1986 among the Company, Bankers Trust Company, as agent and collateral agent, Harris Trust and Savings Bank and Norwest Bank Minneapolis, N.A., and form of the First Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.8 of Registrant's Form 8-K dated November 13, 1991) and Second Amendment dated as of January 28, 1992 to Intercreditor Agreement (Company Pledge), among the Company, Bankers Trust Company, as agent, collateral agent and interest rate exchanger, Harris Trust and Savings Bank, Norwest Bank Minneapolis, N.A. and The Bank of New York (incorporated by reference to Exhibit 4.6 of Registrant's Form 8-K dated March 17, 1992). 12 13 SAFEWAY INC. AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 4(i).19 Intercreditor Agreement (Substitute Collateral) dated as of November 24, 1986 among the Company, Bankers Trust Company, as agent and collateral agent, Harris Trust and Savings Bank and Norwest Bank Minneapolis, N.A., and form of the First Amendment thereto dated as of November 8, 1991 (incorporated by reference to Exhibit 4.9 of Registrant's Form 8-K dated November 13, 1991) and Second Amendment dated as of January 28, 1992 to Intercreditor Agreement (Substitute Collateral) among the Company, Bankers Trust Company, as agent, collateral agent and interest rate exchanger, Harris Trust and Savings Bank, Norwest Bank Minneapolis, N.A. and The Bank of New York (incorporated by reference to Exhibit 4.7 of Registrant's Form 8-K dated March 17, 1992). Exhibit 4(i).20 Form of Second Amended and Restated Credit Agreement dated as of June 12, 1990, incorporating changes through the Third Amendment dated as of August 7, 1991, the Fourth Amendment dated November 8, 1991, the Fifth Amendment dated January 28, 1992, among the Company, the banks listed therein and Bankers Trust Company as Lead Manager and Agent (incorporated by reference to Exhibit 4(1).19 of Registrant's Form 10-K for the year ended January 2, 1993), the Extension Agreement and Sixth Amendment dated March 31, 1994 (incorporated by reference to Exhibit 4(i).20 of the Registrant's Form 10-Q for the quarterly period ended March 26, 1994), the Seventh Amendment dated August 19, 1994 (incorporated by reference to Exhibit 4(i).20 of the Registrant's Form 10-Q for the quarterly period ended September 10, 1994), and the Eighth Amendment and Limited Waiver dated January 13, 1995. Exhibit 4(i).21 Form of Second Amended and Restated Working Capital Credit Agreement dated as of June 14, 1990, incorporating changes through the Third Amendment dated as of August 7, 1991, the Fourth Amendment dated November 8, 1991, the Fifth Amendment dated January 28, 1992, among the Company, the Banks listed therein and Bankers Trust Company as Lead Manager and Agent (incorporated by reference to Exhibit 4(1).20 of Registrant's Form 10-K dated January 2, 1993), the Extension Agreement and Sixth Amendment dated March 31, 1994 (incorporated by reference to Exhibit 4(i).21 to the Registrant's Form 10-K for the year ended January 2, 1993), the Extension Agreement and Sixth Amendment dated March 31, 1994 (incorporated by reference to Exhibit 4(i).21 of the Registrant's Form 10-Q for the quarterly period ended March 26, 1994), the Seventh Amendment dated as of August 19, 1994 (incorporated by reference to Exhibit 4(i).21 of the Registrant's Form 10-Q for the quarterly period ended September 10, 1994), and the Eighth Amendment and Limited Waiver dated January 13, 1995. Exhibit 4(i).22 Form of Common Stock Purchase Warrants dated November 25, 1986 to purchase 13,928,000 shares of Safeway Common Stock (incorporated by reference to Exhibit 4.7 to Registration Statement No. 33-9254). 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 Registrant and all of its subsidiaries for which consolidated financial statements are required to be filed with the Securities and Exchange Commission. 13 14 SAFEWAY INC. AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 10(iii).1* Safeway Inc. Outside Director Equity Purchase Plan (incorporated by reference to Exhibit 4.1 to Registration Statement No. 33-36753), and First Amendment to the Safeway Inc. Outside Director Equity Purchase Plan dated as of July 5, 1994 (incorporated by reference to Exhibit 10(iii).1 to Registrant's Form 10-Q for the quarterly period ended September 10, 1994). Exhibit 10(iii).2* Share Appreciation Rights Plan of Canada Safeway Limited (incorporated by reference to Exhibit 10(iii).17 to Registrant's Form 10-K for the year ended December 29, 1990) and Amendment No. 1 thereto dated December 13, 1991 (incorporated by reference to Exhibit 10(iii).17 to Registrant's Form 10-K for the year ended December 28, 1991). Exhibit 10(iii).3* Share Appreciation Rights Plan of Lucerne Foods Ltd. (incorporated by reference to Exhibit 10(iii).18 to Registrant's Form 10-K for the year ended December 29, 1990) and Amendment No. 1 thereto dated December 13, 1991 (incorporated by reference to Exhibit 10(iii).18 to Registrant's Form 10-K for the year ended December 28, 1991). Exhibit 10(iii).4* Letter Agreement dated March 24, 1993 between the Company and Peter A. Magowan (incorporated by reference to Exhibit 10(iii).6 to Registrant's Form 10-Q for the quarterly period ending June 19, 1993). Exhibit 10(iii).5* Stock Option Plan for Consultants of Safeway Inc. (incorporated by reference to Exhibit 10(iii).7 to Registrant's Form 10-Q for the quarterly period ending June 19, 1993). Exhibit 10(iii).6* First Amendment to the Stock Option Plan for Consultants of Safeway Inc. (incorporated by reference to Exhibit 10(iii).7 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).7* 1994 Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc. (incorporated by reference to Exhibit 10(iii).8 to Registrant's Form 10-K for the year ended January 1, 1994) and First Amendment thereto dated March 1, 1995. Exhibit 10(iii).8* Operating Performance Bonus Plan for Executive Officers of Safeway Inc. (incorporated by reference to Exhibit 10(iii).9 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).9* Capital Performance Bonus Plan (incorporated by reference to Exhibit 10(iii).10 to Registrant's Form 10-K for the year ended January 1, 1994). Exhibit 10(iii).10* 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).11* Deferred Compensation Plan for Safeway Directors. - -------------- * Management contract, or compensatory plan or arrangement. 14 15 SAFEWAY INC. AND SUBSIDIARIES ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED) Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent (incorporated by reference to page 36 of the Company's 1994 Annual Report to Stockholders). Exhibit 13.1 Registrant's 1994 Annual Report to Stockholders (considered filed to the extent specified in Item 1, Item 2, Item 3, Item 5, Item 6, Item 7, Item 8, Item 13 and Exhibit 11.1 above). Exhibit 22.1 Subsidiaries of Registrant. Exhibit 23.1 Independent Auditors' Consent. Exhibit 27 Financial Data Schedule (electronic filing only). (B) REPORTS ON FORM 8-K: On November 14, 1994, the Company filed a Form 8-K listing under Item 7 (Exhibits) its Computation of Ratio of Earnings to Fixed Charges for the third quarter of 1994. 15 16 SAFEWAY INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By: /s/ Steven A. Burd Date: ------------------ SAFEWAY INC March 23, 1995 Steven A. Burd President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ Julian C. Day /s/ F. J. Dale - ----------------- ----------------- Julian C. Day F. J. Dale Executive Vice President and Group Vice President Chief Financial Officer Finance Date: March 23, 1995 Date: March 23, 1995 Director Date -------- ---- /s/Steven A. Burd March 23, 1995 - -------------------------- Steven A. Burd /s/ Sam Ginn March 23, 1995 - -------------------------- Sam Ginn /s/ James H. Greene, Jr March 23, 1995 - -------------------------- James H. Greene, Jr /s/ Paul Hazen March 23, 1995 - -------------------------- Paul Hazen /s/ Henry R. Kravis March 23, 1995 - -------------------------- Henry R. Kravis /s/ Robert I. MacDonnell March 23, 1995 - -------------------------- Robert I. MacDonnell /s/ Peter A. Magowan March 23, 1995 - -------------------------- Peter A. Magowan /s/ George R. Roberts March 23, 1995 - -------------------------- George R. Roberts /s/ Michael T. Tokarz March 23, 1995 - -------------------------- Michael T. Tokarz 16 17 EXHIBIT INDEX SAFEWAY INC. AND SUBSIDIARIES LIST OF EXHIBITS FILED WITH FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 (as required by Regulation S-T Item 102(d)) Exhibit 4(i).20 Eighth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement, dated as of January 13, 1995 Exhibit 4(i).21 Eighth Amendment and Limited Waiver to Second Amended and Restated Working Capital Credit Agreement, dated as of January 13, 1995 Exhibit 10(iii).7 First Amendment to the 1994 Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc., dated March 1, 1995 Exhibit 10(iii).11 Deferred Compensation Plan for Safeway Directors, dated December 24, 1994 Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent (incorporated by reference to page 36 of the Company's 1994 Annual Report to Stockholders) Exhibit 13.1 Registrant's 1994 Annual Report to Stockholders (considered filed to the extent specified in Item 1, Item 2, Item 3, Item 5, Item 6, Item 7, Item 8, Item 13 and Exhibit 11.1 above) Exhibit 22.1 Subsidiaries of Registrant Exhibit 23.1 Independent Auditors' Consent Exhibit 27 Financial Data Schedule (electronic filing only) EX-4.(1)20 2 RESTATED CREDIT AGREEMENT DATED AS OF 01/13/95 1 EXHIBIT 4(1).20 SAFEWAY INC. EIGHTH AMENDMENT AND LIMITED WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF JANUARY 13, 1995 This EIGHTH AMENDMENT AND LIMITED WAIVER TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 13, 1995 (this "Amendment") to the Second Amended and Restated Credit Agreement dated as of June 12, 1990, as amended by a First Amendment dated as of March 22, 1991, a Second Amendment dated as of June 7, 1991, a Third Amendment dated as of August 7, 1991, a Fourth Amendment and Consent to Documents dated as of November 8, 1991, a Fifth Amendment and Consent to Documents dated as of January 28, 1992 and an Extension Agreement, Sixth Amendment dated as of March 31, 1994 and a Seventh Amendment dated as of August 19, 1994 (as so amended, the "Credit Agreement"), is by and among Safeway Inc., a Delaware corporation ("Company"), the financial institutions named on the signature pages hereof ("Banks"), Bankers Trust Company ("Bankers"), as Lead Manager and Agent for Banks ("Agent"), the Managers named on the signature pages hereof ("Managers"), the Co-Managers named on the signature pages hereof ("Co- Managers"), the Guarantors named on the signature pages hereof ("Guarantors") and the Pledgors named on the signature pages hereof ("Pledgors"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company proposes to make certain borrowings under the Credit Agreement and apply the proceeds thereof, together with other funds, to purchase, directly or indirectly, limited partnership interests in a limited partnership, the principal assets of which are certain of Company's outstanding warrants to purchase Common Stock; WHEREAS, in connection with such borrowings and purchases, Company and Banks have agreed, subject to the terms and conditions of this Amendment, to consent to such purchase transactions and to make certain other modifications to the Credit Agreement as set forth herein; WHEREAS, Guarantors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the First Tier Guaranty, the Second Tier Guaranty, the Guaranty and Assumption Agreement and the Contribution Agreement; and 2 WHEREAS, Pledgors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the Company Pledge Agreement, the Safeway Pledge Agreement, the Inventory Pledge Agreement, the First Tier Pledge Agreements and the Second Tier Pledge Agreements. AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT. Subsection 6.6C of the Credit Agreement is hereby deleted and the following substituted therefor: " C. MAXIMUM LEVERAGE RATIO. Company will not permit the ratio of Consolidated Total Debt to Consolidated Capitalization as of the last day of each fiscal quarter of each fiscal year of Company indicated below to be more than the correlative ratio indicated for such fiscal year:
Fiscal Maximum Leverage Year Ratio 1991 1.05:1.00 1992 1.05:1.00 1993 1.00:1.00 1994 .90:1.00 1995 .90:1.00 1996 .80:1.00 1997 .70:1.00 and thereafter"
SECTION 2. WAIVER. Company has requested that Banks waive its compliance with the provisions of subsection 6.3 (relating to Investments) of the Credit Agreement so as to permit Company or one of its Subsidiaries (the "Investor") to make Investments in an aggregate amount not exceeding $375,000,000 in limited partnership interests of a partnership the principal assets of which are certain of Company's outstanding warrants to purchase Common Stock (the "Warrant Partnership"). Such Investments are anticipated to be effected through the purchase of such limited partnership interests from Persons that are not Affiliates of Company. Company has also requested that Banks waive compliance with 2 3 (i) subsection 6.5 of the Credit Agreement (relating to Restricted Junior Payments) to the extent necessary to permit the Investor to make payments to effect such Investments in the Warrant Partnership in the event such payments are deemed Restricted Junior Payments, (ii) subsection 6.7 of the Credit Agreement (relating to fundamental changes) to the extent necessary to permit purchases of limited partnership interests in the Warrant Partnership even though, as a result of such purchases, Company may acquire, directly or indirectly, 50% or more of the beneficial interests in the Warrant Partnership, and (iii) subsection 6.12 of the Credit Agreement (relating to affiliate transactions) to the extent necessary to permit such Investments in the Warrant Partnership in the event the provisions of such subsection are deemed to apply to such Investments even though the Investor will purchase the limited partnership interests in the Warrant Partnership from Persons that are not Affiliates. Each Bank by its execution of a counterpart of this Amendment hereby waives the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the Credit Agreement to the extent, and only to the extent, necessary to permit the Investor to make Investments (and Restricted Junior Payments to effect such Investments) through the purchase of limited partnership interests in the Warrant Partnership from Persons that are not Affiliates of Company, provided that the aggregate amount of such Investments (and Restricted Junior Payments) does not exceed $375,000,000. SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Banks to enter into this Amendment, Company represents and warrants to each Bank that: A. No event would result from the execution of this Amendment and, after giving effect to this Amendment, no event has occurred or is continuing which constitutes an Event of Default or Potential Event of Default; B. After giving effect to this Amendment, the representations and warranties of Company contained in the Credit Agreement, as amended by this Amendment (the "Amended Credit Agreement") are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof, except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such 3 4 representations and warranties are based are required or permitted under the Credit Agreement; C. This Amendment, the Amended Credit Agreement, and the consummation of the transactions contemplated hereby or thereby do not and will not (i) violate any provisions of law applicable to Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of Company or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, or (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, the indentures pursuant to which any outstanding Subordinated Indebtedness (including, without limitation, the Senior Subordinated Debt) has been issued (the "Indentures") or any term of any other material agreement or instrument to which Company or any of its Subsidiaries is a party or by which any of their properties or assets are bound; D. If the Commitments were fully utilized as of the date hereof, all Indebtedness of Company with respect to the Loans under the Amended Credit Agreement would be within the definition of "Senior Indebtedness" contained in the Indentures, the definition of "Senior Secured Obligations" contained in the Company Pledge Agreement, the Inventory Pledge Agreement and the Safeway Pledge Agreement, the definition of "Secured Obligations" contained in the First Tier Pledge Agreements and the Second Tier Pledge Agreements and the definition of "Guarantied Obligations" contained in the First Tier Guaranty, the Second Tier Guaranty, the Guaranty and the Assumption Agreement and the Contribution Agreement; E. Each Loan Party has performed in all material respects all agreements and satisfied all conditions which the Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; F. The Guarantors mean and include Company and all of the First Tier Subsidiaries, the Second Tier Subsidiaries (including ICC Subsidiary but excluding the Canadian Second Tier Subsidiary) and the Domestic Third Tier Subsidiaries presently owned either directly or indirectly by Company; G. The Pledgors mean and include Company and all of the First Tier Subsidiaries and all of the Second Tier Subsidiaries (including ICC Subsidiary but excluding the Canadian Second Tier Subsidiary); 4 5 H. The execution, delivery and performance by Company of this Amendment are within the corporate power of Company and have been duly authorized by all necessary corporate action on the part of Company, and this Amendment and the Amended Credit Agreement constitute the valid and binding obligations of Company enforceable against Company in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally; and I. Each Loan Guaranty and the Contribution Agreement shall continue in full force and effect and remain the valid and binding obligations of the Guarantors party thereto enforceable against the Guarantors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. The Pledge Agreements shall continue in full force and effect and remain the valid and binding obligations of the Pledgors party thereto, enforceable against the Pledgors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. SECTION 4. EFFECTIVENESS. This Amendment shall become effective on the first date Agent, on behalf of Banks, shall have received all of the following, in form and substance satisfactory to Agent (the "Eighth Amendment Effective Date"): A. Resolutions of the Board of Directors of Company authorizing and approving the execution, delivery and performance of this Amendment and resolutions of the Board of Directors of each Guarantor and each Pledgor authorizing and approving the execution and delivery of this Amendment, in each case certified by the corporate secretary or an assistant secretary of Company, each Guarantor and each Pledgor, as the case may be, as of the Eighth Amendment Effective Date; B. A certificate of the corporate secretary or an assistant secretary of Company, each Guarantor and each Pledgor which shall certify, as of the Eighth Amendment Effective Date, the names and offices of the officers of Company, each 5 6 Guarantor and each Pledgor authorized to sign this Amendment; C. A counterpart hereof executed by a duly authorized officer of Company, Requisite Banks, Agent, each Guarantor and each Pledgor, or in the case of any Bank, telecopy or telephone confirmation from such Bank of its execution hereof;and D. Copies of an amendment to the Working Capital Credit Agreement executed by Canadian Borrowers and Banks (as defined therein) approving, among other things, the transactions contemplated by this Amendment. SECTION 5. THE GUARANTIES AND THE CONTRIBUTION AGREEMENT. In order to induce Banks to enter into this Amendment, each Guarantor represents and warrants to each Bank that the execution, delivery and performance by such Guarantor of this Amendment are within the corporate power of such Guarantor and have been duly authorized by all necessary corporate action on the part of such Guarantor and that this Amendment constitutes the valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. Each Guarantor agrees to and acknowledges the terms and provisions of this Amendment and confirms that each Loan Guaranty to which it is a party will, from and after the Eighth Amendment Effective Date, continue to guaranty to the fullest extent possible the payment and performance of the Guarantied Obligations (as that term is defined in each Loan Guaranty) and furthermore, that from and after the Eighth Amendment Effective Date, each such Loan Guaranty will also guaranty, to the fullest extent possible, the performance of all obligations (including, without limitation, due and punctual payment of all amounts) under, referred to in, or contemplated by this Amendment by Company and the Guarantied Obligations (as defined in each Loan Guaranty) shall include all such obligations of Company. Each Guarantor agrees and acknowledges that the Contribution Agreement will continue to establish the rights and obligations of contribution among Guarantors with respect to the payment and performance of all Guarantied Obligations (as that term is defined in the Contribution Agreement), including, without limitation, the payment and performance of all Obligations of Company now or hereafter 6 7 existing under or in respect of the Amended Credit Agreement. Without limiting the generality of the foregoing, each Guarantor hereby acknowledges and confirms the understanding and intent of such Guarantor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Obligations" contained in the Credit Agreement includes the obligations of Company set forth in the Amended Credit Agreement and that the obligations of Company guarantied under any Loan Guaranty shall include the obligations of Company under the Amended Credit Agreement. Each Guarantor agrees and acknowledges that each Loan Guaranty to which it is a party and the Contribution Agreement shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in this Amendment and the Loan Guaranty to which it is a party are true, correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. SECTION 6. THE PLEDGE AGREEMENTS. In order to induce Banks to enter into this Amendment, each Pledgor represents and warrants to each Bank that the execution, delivery and performance by each Pledgor of this Amendment are within the corporate power of such Pledgor and have been duly authorized by all necessary corporate action on the part of such Pledgor and that this Amendment constitutes the valid and binding obligation of such Pledgor, enforceable against such Pledgor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. Each Pledgor agrees to and acknowledges the terms and provisions of this Amendment and confirms that the Pledge Agreement(s) to which it is a party and the Pledged Collateral (as that term is defined in each such Pledge Agreement) will continue to secure to the fullest extent possible the payment and performance of all Senior Secured Obligations (as that term is defined in the Company Pledge Agreement, the Safeway Pledge Agreement and the Inventory Pledge Agreement) and all Secured Obligations (as that term is defined in each First Tier Pledge Agreement and each Second Tier Pledge Agreement), including, without 7 8 limitation, the payment and performance of all Obligations of Company now or hereafter existing under or in respect of the Amended Credit Agreement. Without limiting the generality of the foregoing, each Pledgor hereby acknowledges and confirms the understanding and intent of such Pledgor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Obligations" contained in the Credit Agreement includes the obligations of Company set forth in the Amended Credit Agreement. Each Pledgor agrees and acknowledges that the Pledge Agreements to which it is a party shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Pledgor represents and warrants that all representations and warranties contained in this Amendment and the Pledge Agreement to which it is a party are true, correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. SECTION 8. EFFECT OF AMENDMENT; LIMITATION OF WAIVER. Without limiting the generality of the provisions of subsection 9.7 of the Credit Agreement, the waiver set forth in Section 2 above shall be limited precisely as written and relates solely to the noncompliance with the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the Credit Agreement in the manner and to the extent described above, and nothing in this Waiver shall be deemed to: (a) constitute a waiver of compliance by Company with respect to (i) subsections 6.3, 6.5, 6.7 and 6.12 of the Credit Agreement in any other instance or (ii) any other term, provision or condition of the Credit Agreement or any other instrument or agreement referred to therein; or 8 9 (b) prejudice any right or remedy that Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this Waiver) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein. It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Credit Agreement, and all terms and conditions of the Credit Agreement are to remain in full force and effect unless otherwise specifically amended, waived or changed pursuant to the terms and conditions of this Amendment. SECTION 9. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. [Remainder of Page Intentionally Left Blank] 9 10 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written, by their respective officers thereunto duly authorized. SAFEWAY INC. By /s/ Melissa C. Plaisance ----------------------------------- Name: Melissa C. Plaisance Title: Vice President BANKERS TRUST COMPANY, individually and as Agent By /s/ Mary Jo Jolly ---------------------------------- Name: Mary Jo Jolly Title: Assistant Vice President CITICORP U.S.A, INC., individually and as Manager By /s/ Edward Lettieri ---------------------------------- Name: Edward Lettieri Title: Vice President THE CHASE MANHATTAN BANK, N.A. individually and as Manager By /s/ Ellen G ---------------------------------- Name: Ellen G Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, individually and as Manager By /s/ Steven F. Sterling ---------------------------------- Name: Steven F. Sterling Title: Vice President S-1 11 THE BANK OF NOVA SCOTIA, individually and as Manager By /s/ John Quik ---------------------------------- Name: John Quick Title: Officer BANK OF MONTREAL, individually and as Manager By /s/ J. Donald Higgins ---------------------------------- Name: J. Donald Higgins Title: Managing Director UNITED STATES NATIONAL BANK OF OREGON By /s/ Janet Jordan ---------------------------------- Name: Janet Jordan Title: CIBC INC. By /s/ Paul Mohme ---------------------------------- Name: Paul M. Mohme Title: Assistant Vice President THE BANK OF NEW YORK By /s/ Robert Louk ---------------------------------- Name: Robert Louk Title: Vice President BANK OF AMERICA ILLINOIS, N.A. By /s/ Steven F. Sterling ---------------------------------- Name: Steven F. Sterling Title: Vice President S-2 12 NATIONSBANK OF TEXAS, N.A. By /s/ M.M. S ---------------------------------- Name: M.M. S Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED By /s/ Genichi Imai ---------------------------------- Name: Genichi Imai Title: Joint General Manager THE FIRST NATIONAL BANK OF CHICAGO By /s/ L. Gene Beube ---------------------------------- Name: L. Gene Beube Title: Senior Vice President THE FUJI BANK, LIMITED By /s/ Keiichi Ozawa ---------------------------------- Name: Keiichi Ozawa Title: Joint General Manager UNION BANK By /s/ Cecelia M. Valente ---------------------------------- Name: Cecelia M. Valente Title: Vice President ROYAL BANK OF CANADA By /s/ D.J. Delliveali ---------------------------------- Name: D.J. Delliveali Title: Senior Manager S-3 13 SOCIETE GENERALE By /s/ J. Blaine Shaum ---------------------------------- Name: J. Blaine Shaum Title: Regional Manager CHEMICAL BANK By ---------------------------------- Name: Title: ARAB BANK, PLC By /s/ Peter Boyadjian ---------------------------------- Name: Peter Boyadjian Title: Senior Vice President THE TOKAI BANK LTD., LOS ANGELES AGENCY By /s/ Masahiko Saito ---------------------------------- Name: Masahiko Saito Title: Asst. General Manager THE DAI-ICHI KANGYO BANK, LIMITED (SAN FRANCISCO AGENCY) By /s/ Seigo Makino ---------------------------------- Name: Seigo Makino Title: Joint General Manager ROYAL BANK OF SCOTLAND By /s/ Derek Bonnar ---------------------------------- Name: Derek Bonnar Title: Vice President S-4 14 CREDIT LYONNAIS LOS ANGELES BRANCH By /s/ Thierry F. Vincent ------------------------------------- Name: Thierry F. Vincent Title: Vice President CREDIT LYONNAIS CAYMAN ISLAND BRANCH By /s/ Thierry F. Vincent ------------------------------------- Name: Thierry F. Vincent Title: Authorized Signatory THE YASUDA TRUST & BANKING CO., LTD. (Los Angeles Agency) By /s/ Nobuo Nishino ---------------------------------- Name: Nobuo Nishino Title: Joint General Manager FIRST HAWAIIAN BANK By /s/ Adolph F. Chang ---------------------------------- Name: Adolph F. Chang Title: Vice President BANK OF HAWAII By /s/ ---------------------------------- Name: Title: CREDIT SUISSE By /s/ Marilou Palenzuela ---------------------------------- Name: Marilou Palenzuela Title: Member of Senior Management By /s/ Maria N. Gaspara ---------------------------------- Name: Maria N. Gaspara Title: Associate S-5 15 THE NIPPON CREDIT BANK, LTD., (Los Angeles Agency) By /s/ Bernardo E. Correa-Henschke ---------------------------------- Name: Bernardo E. Correa-Henschke Title: Vice President & Manager BANQUE NATIONALE DE PARIS By /s/ Judith A. Dowling ---------------------------------- Name: Judith A. Dowling Title: Vice President By /s/ Katherine Wolfe ---------------------------------- Name: Katherine Wolfe Title: Vice President BANCA DI ROMA By /s/ Thomas C. Woodruff ---------------------------------- Name: Thomas C. Woodruff Title: Vice President By /s/ Richard G. Dietz ---------------------------------- Name: Richard G. Dietz Title: 97271 ABN AMRO BANK, N.V. By /s/ Dianne D. Waggoner ---------------------------------- Name: Dianne D. Waggoner Title: Group Vice President By /s/ Gina M. Brusatori ---------------------------------- Name: Gina M. Brusatori Title: Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH By /s/ S. Gattinelli ---------------------------------- Name: S. Gattinelli Title: Vice President By /s/ C.D. Rooney ---------------------------------- Name: C.D. Rooney Title: S-6 16 FIRST NATIONAL BANK OF MARYLAND By /s/ Carol A. Dalton ---------------------------------- Name: Carol A. Dalton Title: Vice President GIROZENTRALE VIENNA By /s/ John P. Redding ---------------------------------- Name: John P. Redding Title: Vice President By /s/ Dhuane G. Stephens ---------------------------------- Name: Dhuane G. Stephens Title: Vice President BANK HAPOALIM By /s/ Bruce E. Wetter ---------------------------------- Name: Bruce E. Wetter Title: Vice President By /s/ G.S. Jacobs ---------------------------------- Name: G.S. Jacobs Title: F. Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION, LOS ANGELES AGENCY By /s/ Takashi Sugita ---------------------------------- Name: Takashi Sugita Title: Sr. Vice President & Chief Manager S-7 17 THE MITSUI TRUST & BANKING CO., LTD., LOS ANGELES AGENCY By /s/ Ken Takahashi ---------------------------------- Name: Ken Takahashi Title: General Manager & Agent FIRST SECURITY BANK OF IDAHO, N.A. By /s/ Vicki V. Riga ---------------------------------- Name: Vicki V. Riga Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By /s/ Debra Zurka ---------------------------------- Name: Debra Zurka Title: Vice President PNC BANK, NATIONAL ASSOCIATION By /s/ J. Gregory Seibly ---------------------------------- Name: J. Gregory Seibly Title: Vice President THE SUMITOMO BANK, LIMITED By /s/ Kazuaki Kawakatsu ---------------------------------- Name: Kazuaki Kawakatsu Title: General Manager GUARANTORS AND PLEDGORS: SAFEWAY INC. By /s/ Harvey K. Naito ---------------------------------- Name: Title: S-8 18 GUARANTORS AND PLEDGORS: SAFEWAY INC. By /s/ Harvey K. Naito ---------------------------------- Name: Title: SAFEWAY AUSTRALIA HOLDINGS, INC. SAFEWAY CANADA HOLDINGS, INC. SAFEWAY U.S. HOLDINGS, INC. SAFEWAY WAREHOUSE, INC. By /s/ Harvey K. Naito ---------------------------------- As an authorized officer of each of the foregoing First Tier Subsidiaries SAFEWAY SOUTHERN CALIFORNIA, INC. SAFEWAY DENVER, INC. SAFEWAY RICHMOND, INC. SAFEWAY DALLAS, INC. (formerly named "SAFEWAY WASHINGTON, D.C., INC.") SAFEWAY SUPPLY, INC. SAFEWAY CORPORATE, INC. SAFEWAY TRUCKING, INC. By /s/ Harvey K. Naito ---------------------------------- As an authorized officer of each of the foregoing Domestic Second Tier Subsidiaries S-9 19 SAFEWAY STORES 18, INC. SAFEWAY STORES 72, INC. SAFEWAY STORES 26, INC. SAFEWAY STORES 73, INC. SAFEWAY STORES 28, INC. SAFEWAY STORES 74, INC. SAFEWAY STORES 31, INC. SAFEWAY STORES 75, INC. SAFEWAY STORES 42, INC. SAFEWAY STORES 76, INC. SAFEWAY STORES 43, INC. SAFEWAY STORES 77, INC. SAFEWAY STORES 44, INC. SAFEWAY STORES 78, INC. SAFEWAY STORES 45, INC. SAFEWAY STORES 79, INC. SAFEWAY STORES 46, INC. SAFEWAY STORES 80, INC. SAFEWAY STORES 47, INC. SAFEWAY STORES 81, INC. SAFEWAY STORES 48, INC. SAFEWAY STORES 82, INC. SAFEWAY STORES 49, INC. SAFEWAY STORES 85, INC. SAFEWAY STORES 50, INC. SAFEWAY STORES 86, INC. SAFEWAY STORES 58, INC. SAFEWAY STORES 87, INC. SAFEWAY STORES 59, INC. SAFEWAY STORES 88, INC. SAFEWAY STORES 64, INC. SAFEWAY STORES 89, INC. SAFEWAY STORES 67, INC. SAFEWAY STORES 90, INC. SAFEWAY STORES 68, INC. SAFEWAY STORES 91, INC. SAFEWAY STORES 69, INC. SAFEWAY STORES 92, INC. SAFEWAY STORES 70, INC. SAFEWAY STORES 96, INC. SAFEWAY STORES 71, INC. SAFEWAY STORES 97, INC. SAFEWAY STORES 98, INC. By /s/ Harvey K. Naito ----------------------------------- As an authorized officer of each of the foregoing Domestic Third Tier Subsidiaries S-10 EX-4.(1)21 3 RESTATED WORKING CAPITAL CREDIT AGREEMENT 1 EXHIBIT 4(1).21 SAFEWAY INC. CANADA SAFEWAY LIMITED LUCERNE FOODS LTD. EIGHTH AMENDMENT AND LIMITED WAIVER TO SECOND AMENDED AND RESTATED WORKING CAPITAL CREDIT AGREEMENT This EIGHTH AMENDMENT AND LIMITED WAIVER dated as of January 13, 1995 (this "Amendment") to the Second Amended and Restated Working Capital Credit Agreement dated as of June 14, 1990, as amended by a First Amendment and Consent dated as of March 22, 1991, a Second Amendment and Consent dated as of June 7, 1991, a Third Amendment and Consent dated as of August 7, 1991, a Fourth Amendment and Consent dated as of November 8, 1991, a Fifth Amendment and Consent dated as of January 28, 1992 and an Extension Agreement, Sixth Amendment and Consent dated as of March 31, 1994 and Seventh Amendment and Consent dated as of August 19, 1994 (as so amended, "Working Capital Credit Agreement") is by and among Safeway Inc., a Delaware corporation ("Company"), Canada Safeway Limited, an Alberta corporation ("Safeway Canada"), Lucerne Foods Ltd., an Alberta corporation ("Lucerne"), the financial institutions named on the signature pages hereof ("Banks"), The Bank of Nova Scotia, as paying agent with respect to the Canadian Loans and Bankers' Acceptance Facility ("Canadian Paying Agent"), BT Bank of Canada, as administrative agent with respect to the Canadian Loans and Bankers' Acceptance Facility ("Canadian Administrative Agent"), Bankers Trust Company, as Lead Manager and Agent for the Banks ("Agent"), the Guarantors named on the signature pages hereof ("Guarantors") and the Pledgors named on the signature pages hereof ("Pledgors"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Working Capital Credit Agreement. RECITALS WHEREAS, Company proposes to make certain borrowings under the Acquisition Credit Agreement and apply the proceeds thereof, together with other funds, to purchase, directly or indirectly, limited partnership interests in a limited partnership, the principal assets of which are certain of Company's outstanding warrants to purchase Common Stock; WHEREAS, in connection with such borrowings and purchases, Company and Banks have agreed, subject to the terms and conditions of this Amendment, to consent to such purchase transactions and to make certain other 2 modifications to the Working Capital Credit Agreement as set forth herein; WHEREAS, Company proposes to amend the Acquisition Credit Agreement and has requested that Banks consent to the amendments to the Acquisition Credit Agreement (as amended prior to the date hereof) to be effected by that certain Eighth Amendment and Limited Waiver to Second Amended and Restated Credit Agreement dated as of January __, 1995 (the "Eighth ACA Amendment") by and among Company, the Acquisition Banks, the managers party thereto, the co-managers party thereto, the Acquisition Agent, the guarantors party thereto and the pledgors party thereto; WHEREAS, subject to the terms and conditions of this Amendment, Banks, Canadian Paying Agent, Canadian Administrative Agent and Agent are willing to agree to such amendments, it being understood that, pursuant to the definition of Requisite Banks under the Working Capital Credit Agreement, each Domestic Bank having a Canadian Bank Affiliate under the Working Capital Credit Agreement is entitled to execute this Amendment on behalf of its Canadian Bank Affiliate; WHEREAS, Guarantors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the First Tier Guaranty, the Second Tier Guaranty, the Safeway Guaranty, the Safeway New Canada Guaranty, the Safeway Canada Guaranty, the Lucerne Guaranty and the Contribution Agreement; and WHEREAS, Pledgors desire expressly to consent to this Amendment and to reaffirm the effectiveness of the Company Pledge Agreement, the Safeway Pledge Agreement, the Inventory Pledge Agreement, the First Tier Pledge Agreements, the Second Tier Pledge Agreements, the Safeway Canada Pledge Agreement and the Safeway New Canada Pledge Agreement (collectively, the "Pledge Agreements"); AGREEMENT NOW, THEREFORE, in consideration of the terms and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 3 SECTION 1. INCORPORATION BY REFERENCE FROM ACQUISITION CREDIT AGREEMENT OF THE EIGHTH ACA AMENDMENT. Banks hereby agree and consent to the Eighth ACA Amendment, substantially in the form attached hereto as Annex A, and to all of the amendments and modifications to the Acquisition Credit Agreement effected by the Eighth ACA Amendment. It is hereby agreed that all definitions, representations, warranties, covenants and other provisions contained in the Acquisition Credit Agreement which are incorporated in the Working Capital Credit Agreement by reference (the "Incorporated Provisions") are so incorporated in the form in which such Incorporated Provisions exist in the Acquisition Credit Agreement, as amended by the Eighth ACA Amendment, subject to the proviso set forth in subsection 1.5 of the Amended Working Capital Credit Agreement. SECTION 2. WAIVER. Company has requested that the Banks waive its compliance with the provisions of subsection 6.3 (relating to Investments) of the Acquisition Credit Agreement so as to permit Company or one of its Subsidiaries (the "Investor") to make Investments in an aggregate amount not exceeding $375,000,000 in limited partnership interests of a partnership the principal assets of which are certain of Company's outstanding warrants to purchase Common Stock (the "Warrant Partnership"). Such Investments are anticipated to be effected through the purchase of such limited partnership interests from Persons that are not Affiliates of Company. Company has also requested that the Banks waive compliance with (i) subsection 6.5 of the Acquisition Credit Agreement (relating to Restricted Junior Payments) to the extent necessary to permit the Investor to make payments to effect such Investments in the Warrant Partnership in the event such payments are deemed Restricted Junior Payments, (ii) subsection 6.7 of the Acquisition Credit Agreement (relating to fundamental changes) to the extent necessary to permit purchases of limited partnership interests in the Warrant Partnership even though, as a result of such purchases, Company may acquire, directly or indirectly, 50% or more of the beneficial interests in the Warrant Partnership, and (iii) subsection 6.12 of the Acquisition Credit Agreement (relating to affiliate transactions) to the extent necessary to permit such Investments in the Warrant Partnership in the event the provisions of such subsection are deemed to apply to such Investments even though the Investor will purchase the limited partnership interests in the Warrant Partnership from Persons that are not Affiliates. 3 4 Each Bank by its execution of a counterpart of this Amendment hereby waives the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the Acquisition Credit Agreement to the extent, and only to the extent, necessary to permit the Investor to make Investments (and Restricted Junior Payments to effect such Investments) through the purchase of limited partnership interests in the Warrant Partnership from Persons that are not Affiliates of Company, provided that the aggregate amount of such Investments (and Restricted Junior Payments) does not exceed $375,000,000. SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Banks to enter into this Amendment, Company, Safeway Canada, and Lucerne each represent and warrant (which representations and warranties in the case of Safeway Canada and Lucerne, as the case may be, shall be limited to Safeway Canada and its Subsidiaries and Lucerne and its Subsidiaries, respectively, and other facts and circumstances known to Safeway Canada and its Subsidiaries, or Lucerne and its Subsidiaries, as the case may be) to each Bank that: A. No event would result from the execution of this Amendment and, after giving effect to this Amendment, no event has occurred or is continuing which constitutes an Event of Default or Potential Event of Default; B. The representations and warranties of Company contained in the Working Capital Credit Agreement, as amended by this Amendment (the "Amended Working Capital Credit Agreement") are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of the date hereof except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under the Amended Working Capital Credit Agreement; C. This Amendment, the Amended Working Capital Credit Agreement, and the consummation of the transactions contemplated hereby or thereby do not and will not (i) violate any provisions of law applicable to Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of Company or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, or (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under, the indentures pursuant to which any outstanding 4 5 Subordinated Indebtedness (including, without limitation, the Senior Subordinated Indebtedness) has been issued (the "Indentures") or any term of any other material agreement or instrument to which Company or any of its Subsidiaries is a party or by which any of their properties or assets are bound; D. If the Working Capital Commitments were fully utilized as of the date hereof, all indebtedness of Company with respect to the Loans under the Amended Working Capital Credit Agreement and all indebtedness of Company under the Company Guaranty with respect to (i) monies borrowed by the Canadian Borrowers under the Amended Working Capital Credit Agreement and (ii) amounts owed by Safeway Canada with respect to repayment of Drafts, Bankers' Acceptances and Bankers' Acceptance Equivalent Notes issued under the Amended Working Capital Credit Agreement would be within the definition of "Senior Indebtedness" contained in the Indentures; E. All monetary obligations of Company, Safeway Canada and Lucerne now or hereafter existing under or in respect of the Amended Working Capital Credit Agreement, whether for principal, interest, fees or otherwise, are within the definition of "Guarantied Obligations" contained in the Contribution Agreement, the First Tier Guaranty, the Second Tier Guaranty and the Safeway Guaranty and all such monetary obligations of Company are within the definition of "Senior Secured Obligations" contained in the Company Pledge Agreement and the Inventory Pledge Agreement and the Collateral Agent is entitled to the benefit of the Liens created pursuant to the Collateral Documents referred to in this sentence with respect to all such obligations of Company. The obligations of each First Tier Subsidiary and each Domestic Second Tier Subsidiary under the First Tier Guaranty and the Second Tier Guaranty, respectively, are within the definition of "Secured Obligations" contained in the First Tier Pledge Agreements and the Second Tier Pledge Agreements and the Collateral Agent is entitled to the benefit of the Liens created pursuant to the Collateral Documents referred to in this sentence to which such First Tier Subsidiary or Domestic Second Tier Subsidiary is a party with respect to all such obligations of such Subsidiary; F. All monetary obligations of Safeway Canada or Lucerne now or hereafter existing under or in respect of the Amended Working Capital Credit Agreement, whether for principal, interest, fees or otherwise, are within the definition of "Guarantied Obligations" contained in the Safeway Canada Guaranty and the 5 6 Lucerne Guaranty, as applicable, and, with the exception of the aforementioned obligations of Lucerne, are within the definition of "Secured Obligations" contained in the Safeway Canada Pledge Agreement and the Canadian Administrative Agent is entitled to the benefit of the Liens created pursuant to the Collateral Documents referred to in this sentence with respect to all such obligations of Safeway Canada or Lucerne; G. Each Loan Party has performed in all material respects all agreements and satisfied all conditions which the Working Capital Credit Agreement and this Amendment provide shall be performed by it on or before the date hereof; H. The Guarantors mean and include Company, Safeway New Canada, Safeway Canada, Lucerne and all of the First Tier Subsidiaries, Safeway Warehouse, Inc., all of the Second Tier Subsidiaries (including ICC Subsidiary) and all of the Domestic Third Tier Subsidiaries presently owned either directly or indirectly by Company; I. The Pledgors mean and include Company, Safeway New Canada, Safeway Canada and all of the First Tier Subsidiaries and all of the Second Tier Subsidiaries (including ICC Subsidiary); J. The execution, delivery and performance by Company of this Amendment are within the corporate power of Company and have been duly authorized by all necessary corporate action on the part of Company, and this Amendment and the Amended Working Capital Credit Agreement constitute the valid and binding obligations of Company enforceable against Company in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally; and K. Each Working Capital Guaranty and the Contribution Agreement shall continue in full force and effect and remain the valid and binding obligations of the Guarantors party thereto enforceable against the Guarantors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. The Pledge Agreements shall continue in full force and effect and remain the valid and binding obligations of the Pledgors party thereto, enforceable against the Pledgors party thereto in accordance with their respective terms, subject to the effect of any applicable bankruptcy, insolvency, 6 7 reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. SECTION 4. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective as of the first date Agent, on behalf of Banks, shall have received all of the following in form and substance satisfactory to Agent (the "Eighth Amendment Effective Date"): A. Resolutions of the Board of Directors of Company, Safeway Canada and Lucerne authorizing and approving the execution, delivery and performance of this Amendment and resolutions of the Board of Directors of each Guarantor and each Pledgor authorizing and approving the execution and delivery of this Amendment, in each case certified by the corporate secretary or an assistant secretary of Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor, as the case may be, as of the Eighth Amendment Effective Date; B. A certificate of the corporate secretary or an assistant secretary of Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor which shall certify, as of the Eighth Amendment Effective Date, the names and offices of the officers of Company, Safeway Canada, Lucerne, each Guarantor and each Pledgor authorized to sign this Amendment; C. A counterpart hereof executed by a duly authorized officer of Company, Requisite Banks, Canadian Paying Agent, Canadian Administrative Agent and Agent, each Guarantor and each Pledgor or in the case of any Bank, telecopy or telephone confirmation from such Bank of its execution hereof; and D. The Eighth ACA Amendment, which shall have become effective in accordance with its terms. SECTION 5. THE WORKING CAPITAL GUARANTIES AND THE CONTRIBUTION AGREEMENT. In order to induce Banks to enter into this Amendment, each Guarantor represents and warrants to each Bank that the execution, delivery and performance by such Guarantor of this Amendment are within the corporate power of such Guarantor and have been duly authorized by all necessary corporate action on the part of such Guarantor and that this Amendment constitutes the valid and binding obligation of such Guarantor, enforceable against such Guarantor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorgani- 7 8 zation or other laws relating to or affecting the enforcement of creditors' rights generally. Each Guarantor agrees to and acknowledges the terms and provisions of this Amendment and acknowledges and confirms that each Working Capital Guaranty to which it is a party will, from and after the Eighth Amendment Effective Date, continue to guaranty to the fullest extent possible the payment and performance of the Guarantied Obligations (as that term is defined in each Working Capital Guaranty) and, furthermore, that from and after the Eighth Amendment Effective Date, each such Working Capital Guaranty will also guaranty, to the fullest extent possible, the performance of all obligations (including, without limitation, due and punctual payment of all amounts) under, referred to in, or contemplated by this Amendment by the principal debtor(s) whose obligations are guaranteed by the particular Guarantor and the Guarantied Obligations (as defined in each Working Capital Guaranty) shall include all such obligations of the principal debtor(s). Each Guarantor (other than Safeway Canada and Lucerne) agrees and acknowledges that the Contribution Agreement will continue to establish the rights and obligations of contribution among Guarantors with respect to the payment and performance of all Guarantied Obligations (as that term is defined in the Contribution Agreement). Without limiting the generality of the foregoing, each Guarantor hereby acknowledges and confirms the understanding and intent of such Guarantor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Working Capital Obligations" contained in the Working Capital Credit Agreement includes the obligations of Borrowers set forth in the Amended Working Capital Credit Agreement and that the obligations of any Borrower guarantied under any Working Capital Guaranty shall include the obligations of such Borrower under the Amended Working Capital Credit Agreement. Each Guarantor agrees and acknowledges that each Working Capital Guaranty to which it is a party and, to the extent that such Guarantor is also a party thereto, the Contribution Agreement shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Guarantor represents and warrants that all representations and warranties contained in this Amendment and the Working Capital Guaranty to which it is a party are true, correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. 8 9 SECTION 6. THE PLEDGE AGREEMENTS. In order to induce Banks to enter into this Amendment, each Pledgor represents and warrants to each Bank that the execution, delivery and performance by each Pledgor of this Amendment are within the corporate power of such Pledgor and have been duly authorized by all necessary corporate action on the part of such Pledgor and that this Amendment constitutes the valid and binding obligation of such Pledgor, enforceable against such Pledgor in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, reorganization or other laws relating to or affecting the enforcement of creditors' rights generally. Each Pledgor agrees to and acknowledges the terms and provisions of this Amendment and confirms that the Pledge Agreements to which it is a party and the Pledged Collateral (as that term is defined in each such Pledge Agreement) will continue to secure to the fullest extent possible the payment and performance of all Senior Secured Obligations (as that term is defined in the Company Pledge Agreement, the Safeway Pledge Agreement and the Inventory Pledge Agreement) and all Secured Obligations (as that term is defined in the Safeway Canada Pledge Agreement, the Safeway New Canada Pledge Agreement, each First Tier Pledge Agreement and each Second Tier Pledge Agreement), and furthermore, that from and after the Eighth Amendment Effective Date, each such Pledge Agreement will also secure, to the fullest extent possible, the performance of all obligations (including, without limitation, due and punctual payment of all amounts) under, referred to in, or contemplated by this Amendment of each Borrower or Pledgor whose Working Capital Obligations are secured by any such Pledge Agreement. Without limiting the generality of the foregoing, each Pledgor hereby acknowledges and confirms the understanding and intent of such Pledgor that, upon the effectiveness of this Amendment, as a result of this Amendment, the definition of "Working Capital Obligations" contained in the Working Capital Credit Agreement includes the obligations of Borrowers set forth in the Amended Working Capital Credit Agreement and that the obligations of any Borrower secured under any Pledge Agreement shall include the obligations of such Borrower under the Amended Working Capital Credit Agreement. Each Pledgor agrees and acknowledges that the Pledge Agreement to which it is a party shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or affected by the execution of this Amendment. Each Pledgor represents and warrants that all representations and warranties contained in this Amendment and the Pledge Agreement to which it is a party are true, 9 10 correct and complete as of the date hereof to the same extent as though made on such date except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under such agreements. SECTION 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. SECTION 8. EFFECT OF AMENDMENT; LIMITATION OF WAIVER. Without limiting the generality of the provisions of subsection 9.7 of the Working Capital Credit Agreement, the waiver set forth in Section 2 above shall be limited precisely as written and relates solely to the noncompliance with the provisions of subsections 6.3, 6.5, 6.7 and 6.12 of the Acquisition Credit Agreement in the manner and to the extent described above, and nothing in this Waiver shall be deemed to: (a) constitute a waiver of compliance by Company with respect to (i) subsections 6.3, 6.5, 6.7 and 6.12 of the Acquisition Credit Agreement in any other instance or (ii) any other term, provision or condition of the Working Capital Credit Agreement or the Acquisition Credit Agreement or any other instrument or agreement referred to therein; or (b) prejudice any right or remedy that Agent or any Lender may now have (except to the extent such right or remedy was based upon existing defaults that will not exist after giving effect to this Waiver) or may have in the future under or in connection with the Working Capital Credit Agreement or any other instrument or agreement referred to therein. It is hereby agreed that, except as specifically provided herein, this Amendment does not in any way affect or impair the terms and conditions of the Working Capital Credit Agreement, and all terms and conditions of the Working Capital Credit Agreement are to remain in full force and effect unless otherwise specifically amended, waived or changed pursuant to the terms and conditions of this Amendment. 10 11 SECTION 9. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO AND ALL OTHER ASPECTS HEREOF SHALL BE DEEMED TO BE MADE UNDER, SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. [Remainder of Page Intentionally Left Blank] 11 12 WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. SAFEWAY INC., (as a Borrower, Guarantor and Pledgor) By /s/ Melissa C. Plaisance ------------------------------- Name: Melissa C. Plaisance Title: Vice President CANADA SAFEWAY LIMITED, (as a Borrower, Guarantor and Pledgor) By /s/ Harvey K. Naito ------------------------------- Name: Harvey K. Naito Title: LUCERNE FOODS LTD., (as a Borrower and Guarantor) By /s/ Harvey K. Naito ------------------------------ Name: Harvey K. Naito Title: BANKERS TRUST COMPANY, individually as a Domestic Bank and as Agent and on behalf of its Canadian Bank Affiliate By /s/ Mary Jo Jolly ------------------------------- Name: Mary Jo Jolly Title: Assistant Vice President BT BANK OF CANADA, individually as a Canadian Bank and as Canadian Administrative Agent By /s/ Ted Hirst ------------------------------- Name: Ted Hirst Title: Vice President S-1 13 THE BANK OF NOVA SCOTIA, individually as a Domestic Bank and Canadian Bank and as Canadian Paying Agent By /s/ John York ------------------------------- Name: John York Title: Controller BANK OF MONTREAL, as a Domestic Bank and a Canadian Bank By /s/ J. Donald Higgins ------------------------------- Name: J. Donald Higgins Title: Managing Director CHEMICAL BANK, as a Domestic Bank By ------------------------------- Name: Title: CHEMICAL BANK OF CANADA, as a Canadian Bank By ------------------------------- Name: Title: By ------------------------------- Name: Title: ROYAL BANK OF CANADA, as a Domestic and Canadian Bank By /s/ B. J. Belliveau ------------------------------- Name: B. J. Belliveau Title: Senior Manager S-2 14 THE CHASE MANHATTAN BANK, N.A., as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ Ellen Gutrey ------------------------------- Name: Ellen Gutrey Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ Steven F. Sterling ------------------------------- Name: Steven F. Sterling Title: Vice President CITICORP USA, INC., as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ Edward Lettern ------------------------------- Name: Edward Lettern Title: Vice President THE BANK OF TOKYO - SAN FRANCISCO AGENCY, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ George K. Negoro ------------------------------- Name: George K. Negoro Title: Vice President THE MITSUI TRUST & BANKING CO., LTD., as a Domestic Bank and a Canadian Bank By /s/ Ken Takahashi ------------------------------- Name: Ken Takahashi Title: General Manager & Agent S-3 15 THE SUMITOMO BANK, LIMITED, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ Kazuaki Kawakatsu ------------------------------- Name: Kazuaki Kawakatsu Title: General Manager CREDIT LYONNAIS LOS ANGELES BRANCH, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ Thierry F. Vincent -------------------------------- Name: Thierry F. Vincent Title: Vice President ABN AMRO N.V., as a Domestic Bank and on behalf of its Canadian Bank Affiliate By /s/ Dianne D. Waggoner ------------------------------- Name: Diane D. Waggoner Title: Group Vice President By /s/ Gina M. Brausazori ------------------------------- Name: Gina M. Brausazori Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LTD., as a Domestic Bank By /s/ Makoto Masuda ------------------------------- Name: Makoto Masuda Title: Deputy General Manager THE INDUSTRIAL BANK OF JAPAN (CANADA), as a Canadian Bank By /s/ Akira Haruna ------------------------------- Name: Akira Haruna Title: Executive Vice President & General Manager S-4 16 BANQUE NATIONALE DE PARIS, as a Domestic Bank and on behalf of its Canadian Bank Affiliate By ------------------------------- Name: Title: By ------------------------------- Name: Title: BANQUE NATIONALE DE PARIS (CANADA), as a Canadian Bank By /s/ B. Gunrots ------------------------------- Name: B. Gunrots Title: Vice President, Operations By /s/ S. Pular ------------------------------- Name: S. Pular Title: CM Manager CIBC INC., as a Domestic Bank and Canadian Bank By /s/ Paul M. Mohme ------------------------------- Name: Paul M. Mohme Title: Assistant Vice President BANK HAPOALIM, as a Domestic Bank By /s/ Dave E. Whettin ------------------------------- Name: Dave E. Whettin Title: By /s/ G. S. Jacobs ------------------------------- Name: G. S. Jacobs Title: FVP S-5 17 BANK HAPOALIM (CANADA), as a Canadian Bank By ------------------------------- Name: Title: By ------------------------------- Name: Title: THE SAKURA BANK, LIMITED, as a Domestic Bank By /s/ Ken-ichi Sato ------------------------------- Name: Ken-ichi Sato Title: General Manager SAKURA BANK (CANADA), as a Canadian Bank By /s/ Kenjiro Shinohe ------------------------------- Name: Kenjiro Shinohe Title: Executive Vice President S-6 18 GUARANTORS AND PLEDGORS: SAFEWAY NEW CANADA, INC. By /s/ Harvey K. Naito ------------------------------- Name: Harvey K. Naito Title: FIRST TIER SUBSIDIARIES: SAFEWAY AUSTRALIA HOLDINGS, INC. SAFEWAY CANADA HOLDINGS, INC. SAFEWAY U.S. HOLDINGS, INC. SAFEWAY WAREHOUSE, INC. By /s/ Harvey K. Naito -------------------------------- As an authorized officer of each of the foregoing First Tier Subsidiaries DOMESTIC SECOND TIER SUBSIDIARIES: SAFEWAY SOUTHERN CALIFORNIA, INC. SAFEWAY DENVER, INC. SAFEWAY RICHMOND, INC. SAFEWAY DALLAS, INC. (formerly named "SAFEWAY WASHINGTON, D.C., INC.") SAFEWAY SUPPLY, INC. SAFEWAY CORPORATE, INC. SAFEWAY TRUCKING, INC. By /s/ Harvey K. Naito ------------------------------- As an authorized officer of each of the foregoing Domestic Second Tier Subsidiaries S-7 19 DOMESTIC THIRD TIER SUBSIDIARIES: SAFEWAY STORES 18, INC. SAFEWAY STORES 72, INC. SAFEWAY STORES 26, INC. SAFEWAY STORES 73, INC. SAFEWAY STORES 28, INC. SAFEWAY STORES 74, INC. SAFEWAY STORES 31, INC. SAFEWAY STORES 75, INC. SAFEWAY STORES 42, INC. SAFEWAY STORES 76, INC. SAFEWAY STORES 43, INC. SAFEWAY STORES 77, INC. SAFEWAY STORES 44, INC. SAFEWAY STORES 78, INC. SAFEWAY STORES 45, INC. SAFEWAY STORES 79, INC. SAFEWAY STORES 46, INC. SAFEWAY STORES 80, INC. SAFEWAY STORES 47, INC. SAFEWAY STORES 81, INC. SAFEWAY STORES 48, INC. SAFEWAY STORES 82, INC. SAFEWAY STORES 49, INC. SAFEWAY STORES 85, INC. SAFEWAY STORES 50, INC. SAFEWAY STORES 86, INC. SAFEWAY STORES 58, INC. SAFEWAY STORES 87, INC. SAFEWAY STORES 59, INC. SAFEWAY STORES 88, INC. SAFEWAY STORES 64, INC. SAFEWAY STORES 89, INC. SAFEWAY STORES 67, INC. SAFEWAY STORES 90, INC. SAFEWAY STORES 68, INC. SAFEWAY STORES 91, INC. SAFEWAY STORES 69, INC. SAFEWAY STORES 92, INC. SAFEWAY STORES 70, INC. SAFEWAY STORES 96, INC. SAFEWAY STORES 71, INC. SAFEWAY STORES 97, INC. SAFEWAY STORES 98, INC.
By /s/ Harvey K. Naito ----------------------------------- As an authorized officer of each of the foregoing Domestic Third Tier Subsidiaries S-8 EX-10.(III)7 4 STOCK OPTION & INCENTIVE PLAN FOR KEY EMPLOYEES 1 EXHIBIT 10(iii).7 FIRST AMENDMENT TO THE 1994 AMENDED AND RESTATED STOCK OPTION AND INCENTIVE PLAN FOR KEY EMPLOYEES OF SAFEWAY INC. Safeway Inc. (the "Company"), a corporation organized under the laws of the State of Delaware, by resolution of its Board of Directors has adopted this First Amendment to the 1994 Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc. (the "Plan") pursuant to Section 9.2 of the Plan, effective as of March 1, 1995. 1. Section 2.1(a) of the Plan is hereby amended to read in its entirety as follows: "Section 2.1 - Shares Subject to Plan (a) The shares of stock subject to Options and awarded as Bonus Stock shall be shares of the Company's Common Stock. The aggregate number of such shares which may be issued upon exercise of Options or as Bonus Stock shall not exceed 21,500,000 (8,000,000 of which were authorized under the original Plan (prior to the first amendment and restatement of the Plan on July 18, 1990), 6,000,000 of which were authorized by the first amendment and restatement of the Plan on July 18, 1990, 4,000,000 of which were authorized by the Plan as amended on October 10, 1991, and 3,500,000 of which were authorized by the Plan as amended on March 1, 1995." 2. Section 4.4(a) of the Plan is hereby amended to read in its entirety as follows: "Section 4.4 - Expiration of Options (a) No Option may be exercised to any extent by anyone after the first to occur of the following events: (i) In the case of an Incentive Stock Option, (1) the expiration of ten years from the date the Option was granted or (2) in the case of an Optionee owning (within the meaning of Section 424(d) of the Code), at the time the Incentive Stock Option was granted, more than 10% of the total combined voting power of all classes of stock of the Company, any Subsidiary or any Parent Corporation, the expiration of five years from the date the Incentive Stock Option was granted: or (ii) In the case of a Non-Qualified Option, the expiration of fifteen years and one day from the date the Option was granted; or 2 (iii) The expiration of three months from the date of the Optionee's Termination of Employment for any reason other than such Optionee's death, Disability, or retirement on or after age 55 in accordance with the Company's retirement policies, as then in effect; or (iv) The engagement by the Employee in willful misconduct with injures the Company, any Parent Corporation or any of its Subsidiaries." * * * * * I hereby certify that the foregoing First Amendment to the Plan was duly adopted by the Board of Directors of Safeway Inc. as of March 1, 1995. Executed on this ___ day of ________, 1995. ------------------------------- Secretary * * * * I hereby certify that the foregoing First Amendment to the Plan was duly approved by the stockholders of Safeway Inc. on _______________, 1995. Executed on this ___ day of ________, 1995. ------------------------------- Secretary 3 EXHIBIT 10(iii).11 DEFERRED COMPENSATION PLAN FOR SAFEWAY DIRECTORS ARTICLE I 1.1 Name and Purpose. The name of this plan is the "Deferred Compensation Plan for Safeway Directors" (the "Plan"). Its purpose is to provide non-employee Directors of the Company with increased flexibility in timing the receipt of board service fees and to assist the Company in attracting and retaining qualified individuals to serve as Directors. 1.2 Definitions. Whenever used in this Plan, the following terms shall have the meaning set forth below: (a) "Closing Price" means the closing price of the Company's Common Stock as reported in The Wall Street Journal. (b) "Common Stock" means the Common Stock, par value $.01 per share, of Safeway Inc. (c) "Company" means Safeway Inc. and each Participating Company. (d) "Compensation" means all remuneration paid to a Director for services as a Director other than reimbursement for expenses and shall include, but not be limited to, monthly fees for service and fees for attendance at meetings. (e) "Director" means any individual serving on the Board of Directors of the Company who is not an employee of the Company or any of its subsidiaries. (f) "Participant" means a Director who has filed an election to participate under Section 3.1 with regard to any Plan Year. (g) "Participating Company" means any corporation which is a direct or indirect subsidiary of Safeway Inc. which has, by action of its board of directors, adopted the Plan and consented to being a Participating Company in the Plan. (h) "Plan Administrator" means a committee consisting of one or more senior executives of the Company designated by the Chief Executive Officer of the Company. (i) "Plan Year" means the calendar year. 1 4 ARTICLE II 2.1 Participation in the Plan. Any individual who is a Director as defined in Section 1.2(e) may participate in the Plan. ARTICLE III 3.1 Election to Participate. Each Director may elect annually to have payment of all or any portion of his or her Compensation for that Plan Year deferred. An election to defer may also provide that the Compensation deferred will be paid in January of a specified year in the future; provided, however, that if the Participant ceases to be a Director prior to such specified year, the Participant's account will be paid as soon as practicable following the date on which the Participant ceases to be a Director. No election to defer under this Plan may be made after December 31 of the year preceding the Plan Year during which Compensation would otherwise be paid. An election to defer any Compensation shall be in writing and shall be delivered to the Plan Administrator. An election to defer shall be irrevocable by the Director and shall be effective for the Plan Year or Plan Years immediately following the date on which it was filed as set forth in the notice of election. In the absence of a written election to defer filed by a Director with the Plan Administrator, any Compensation will be paid directly to the Director. Notwithstanding the foregoing, a Director may make an election to defer under this Plan with respect to all or any specified part of any unpaid Compensation within one month after the date on which this Plan is initially adopted or, if later, within thirty days after the date a Director becomes a Director. 3.2 Mode of Deferral. Payment of a Participant's Compensation may be deferred by means of a cash credit, a stock credit or a combination of the two as the Participant shall elect in writing at the same time as the election provided for in Section 3.1. If a Participant fails to make an election as to mode of deferral, he or she shall be deemed to have elected deferral by means of a cash credit. Cash credits and stock credits shall be recorded in accounts established in Participants' names on the books of the Company. (a) Cash Credits. If the deferral is wholly or partly by means of a cash credit, the Participant's cash credit account shall be credited, as of the last day of the calendar quarter, with the dollar amount of Compensation deferred during the quarter by means of a cash credit. As of the last day of each calendar quarter, the Participant's cash credit account shall also be credited with interest equivalent in an amount determined by applying to the balance in the account as of the first day of the quarter (less any distributions during the quarter) an interest rate for such quarter which, when annualized, shall be the prime rate of Bankers Trust Company or such other rate as the Plan Administrator may designate, as of the first business day of the quarter. Interest shall be calculated on the actual number of days in the quarter based upon a 360-day year. (b) Stock Credits. If deferral is wholly or partly by means of a stock credit, the Participant's stock credit account shall be credited, as of the last day of the calendar quarter, with a 2 5 Common Stock equivalent equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at the average of the Closing Price of Common Stock on each business day during the last month of the calendar quarter with the amount of the Compensation deferred during the quarter by means of a stock credit. As of the date any dividend is paid to holders of Common Stock, the Participant's stock credit account shall also be credited with an additional Common Stock equivalent equal to the number of shares of Common Stock (including fractions of a share) that could have been purchased at the Closing Price of Common Stock on such date with the dividend paid on the number of shares of Common Stock to which the Participant's stock credit account is then equivalent. In case of dividends paid in property, the dividend shall be deemed to be the fair market value of the property at the time of distribution of the dividend, as determined by the Plan Administrator. 3.3 Distribution of Credits. (a) If a Participant has elected payment in a specified year under Section 3.1, distribution of his or her accounts will only be made in a single sum payment. Otherwise, unless a Participant has elected to receive installment payments as provided below, payment of a Participant's accounts shall be made in one lump sum as soon as practicable following the date on which the Participant ceases to be a Director. (b) At the election of the Participant made in writing and delivered to the Plan Administrator at any time on or before December 1 of the year of termination of the Participant's service as a Director, distribution of all of his or her accounts, commencing as soon as practicable following the end of the Plan Year in which the Participant ceases to be a Director, shall be made in any number of annual installments not exceeding ten. Any such election, unless made irrevocable by its terms, may be changed by written notice to the Plan Administrator at any time prior to December 1 of the Plan Year of a Participant's termination of service as a Director. (c) Distribution of a Participant's cash credit and stock credit accounts shall be made in cash. The amount of the distribution for stock credit accounts shall be determined by multiplying the number of shares of Common Stock attributable to the installment by the average of the Closing Price of Common Stock on each business day in the month of December immediately prior to the Plan Year in which the installment is to be paid. 3.4 Adjustment. If at any time the number of outstanding shares of Common Stock shall be increased as the result of any stock dividend, subdivision or reclassification of shares, the number of shares of Common Stock to which each Participant's stock credit account is equivalent shall be increased in the same proportion as the outstanding number of shares of Common Stock is increased, or if the number of outstanding shares of Common Stock shall at any time be decreased as the result of any combination or reclassification of shares, the number of shares of Common Stock to which each Participant's stock credit account is equivalent shall be decreased in the same proportion as the outstanding number of shares of Common Stock is decreased. In the event the Company shall at any time be consolidated with or merged into any other corporation and holders of the Company's Common Stock receive common shares of the resulting or surviving corporation, there shall be credited to each Participant's stock credit account, in place of the shares then credited 3 6 thereto, a stock equivalent determined by multiplying the number of common shares of stock given in exchange for a share of Common Stock upon such consolidation or merger, by the number of shares of Common Stock to which the Participant's account is then equivalent. If in such a consolidation or merger, holders of the Company's Common Stock shall receive any consideration other than common shares of the resulting or surviving corporation, the Plan Administrator, in its sole discretion, shall determine the appropriate change in Participants' stock credit accounts. 3.5 Installment Amount. In the event a Participant has elected to receive distribution of his or her accounts in more than one installment, the amount of each installment shall be determined by multiplying the current balance (denominated in cash units for the portion elected to be deferred as cash credits and denominated in stock units for the portion elected to be deferred in stock credits) in the accounts as determined under Section 3.2, by a fraction, the numerator of which is one, and the denominator of which is the number of installments yet to be paid. With respect to cash credits, interest shall continue to be credited in accordance with Section 3.2 during the payment period. 3.6 Distribution upon Death. In the event of the death of a Participant, whether before or after ceasing to serve as a Director, any cash credit account and stock credit account to which he or she was entitled, shall be converted to cash and distributed in a lump sum to such person or persons or the survivors thereof, including corporations, unincorporated associations or trusts, as the Participant may have designated. All such designations shall be made in writing signed by the Participant and delivered to the Plan Administrator. A Participant may from time to time revoke or change any such designation by written notice to the Plan Administrator. If there is no unrevoked designation on file with the Plan Administrator at the time of the Participant's death, or if the person or persons designated therein shall have all predeceased the Participant or otherwise ceased to exist, such distributions shall be made in accordance with the Participant's will or in the absence of a will, to the administrator of the Participant's estate. Any distribution under this Section 3.6 shall be made as soon as practicable following the end of the fiscal quarter in which the Plan Administrator is notified of the Participant's death. In this case, a Participant's stock credit account shall be converted to cash by multiplying the number of whole and fractional shares of Common Stock to which the Participant's stock credit account is equivalent by the average of the Closing Price of Common Stock on each business day during the last month of the calendar quarter prior to the date of death. 3.7 Withholding Taxes. The Company shall deduct from all distributions under the Plan any taxes required to be withheld by federal, state or local governments. ARTICLE IV 4.1 Plan Administrator. The Plan Administrator shall have full power and authority to administer the Plan including the power to promulgate forms to be used with regard to the Plan, the power to promulgate rules of Plan administration, the power to settle any disputes as to rights or 4 7 benefits arising from the Plan, and the power to make such decisions or take such actions as the Plan Administrator, in its sole discretion, deems necessary or advisable to aid in the proper maintenance of the Plan. ARTICLE V 5.1 Funding. No promise hereunder shall be secured by any specific assets of the Company, nor shall any assets of the Company be designated as attributable or allocated to the satisfaction of such promises. ARTICLE VI 6.1 Non-alienation of Benefits. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge; and any attempt to do so shall be void. No such benefit shall, prior to receipt thereof by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant. ARTICLE VII 7.1 Delegation of Administrative Duties. Administrative duties imposed by this Plan may be delegated by the Plan Administrator or the individual charged with such duties. 7.2 Governing Law. This Plan shall be governed by the laws of the State of Delaware. 7.3 Amendment, Modification and Termination of the Plan. The Plan Administrator at any time may terminate and in any respect, amend or modify the Plan. IN WITNESS WHEREOF, the Board has caused this Plan to be executed by a duly authorized officer of the Company this 21st day of December 1994. SAFEWAY INC. By Michael J. Boylan ----------------------- Its: Vice-President Attest: Meredith Parry - ----------------------------- Assistant Secretary 5 EX-13.1 5 1994 ANNUAL REPORT TO SHAREHOLDERS 1 EXHIBIT 13.1 COMPANY IN REVIEW Safeway Inc. ("Safeway" or the "Company") was founded in 1926 and is one of the world's largest food retailers, operating 1,062 stores in the United States and Canada. U.S. retail operations are located in northern California, Oregon, Washington, and the Rocky Mountain, Southwest, and Mid-Atlantic regions. Canadian retail operations are located principally in British Columbia, Alberta, Saskatchewan, and Manitoba. Safeway believes that it is among the market share leaders in each of its nine operating areas. Management of the retail operations is largely decentralized to encourage local autonomy in responding to consumer demands within the Company's diverse markets. In support of these operations, Safeway has an extensive network of distribution, manufacturing, and food processing facilities. In addition to stores operated under the Safeway name, the Company has ownership interests in two other retail companies. Safeway holds a 35% interest in The Vons Companies, Inc. ("Vons"), which operates 336 grocery stores located mostly in southern California, and a 49% interest in a privately held company, Casa Ley, S.A. de C.V. ("Casa Ley"), which operates 70 stores in western Mexico. RETAIL OPERATIONS Stores To accommodate changing consumer needs and to obtain certain operating efficiencies, Safeway emphasizes the development of larger stores. These stores offer a wide selection of both food and general merchandise, and feature a variety of specialty departments which historically have enhanced operating margins. In most of Safeway's larger stores, specialty departments are showcased in each corner and along the perimeter walls of the store to create a pleasant shopping atmosphere. Safeway continues to operate a number of smaller stores which offer an extensive selection of food and general merchandise, and generally include one or more specialty departments. These stores remain an important part of the Company's store network in smaller communities and certain other locations where larger stores may not be appropriate. Stores opened in 1994 averaged 54,000 square feet. The following table summarizes by size Safeway's stores at year-end 1994:
- -------------------------------------------------------- Number of Percent of Stores Total - -------------------------------------------------------- Less than 30,000 square feet 324 31% 30,000 to 50,000 584 55 More than 50,000 154 14 ---------------- Total stores 1,062 100% ================
Store Ownership At year-end 1994, Safeway owned one-third and leased two-thirds of its 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 merchandising strategy is to provide maximum value to its customers by maintaining high store standards and offering high quality products at competitive prices. - - The Company has intensified its efforts to elevate store standards and provide friendly, helpful customer service. Safeway has reallocated time and resources to improve in-stock conditions, enhance the presentation of perishable merchandise, and provide faster, more efficient checkout. Debit/credit card and check authorization systems have been installed for customer convenience and to speed up checkout. Specialty departments and special services, including video tape rentals, photo processing counters, in-store automatic teller machines, and bank branches provide one-stop shopping for today's busy shopper. - - During the last two years, Safeway introduced a line of approximately 350 new premium private label products under the banner, "Safeway SELECT." These new products include soft drinks, pastas and pasta sauces, salsa, pet foods, whole bean coffee, cookies, and ice cream. In addition, the new Safeway SELECT Enlighten brand offers items such as no-fat salad dressings and low sodium, single-serving, quick lunches. Safeway SELECT offers today's value-conscious consumers premium quality products at prices lower than comparable national brands. The Company plans to introduce many more Safeway SELECT items over the next few years. - - Safeway offers high quality perishables in the produce, meat, dairy, seafood, bakery, and delicatessen departments. There is an effort to tailor merchandise selection to the neighborhood served by each store. The Company continually refines its merchandising strategies to identify and accommodate changing demographics, lifestyles, and product preferences of its customers. - - The Company offers competitive prices for today's value-conscious consumers, and features a line of Valu Pack merchandise which includes more than 100 of the large-size products most frequently purchased at membership club stores. 10 2 MANUFACTURING AND WHOLESALE OPERATIONS The principal function of manufacturing operations is to purchase, manufacture, and process private label merchandise sold in Safeway stores under such well-known and respected brand names as Lucerne, Mrs. Wright's, and the Safeway SELECT line of products. During 1994, Safeway began a review to identify manufacturing operations which do not provide acceptable returns. This review resulted in the closure of six plants during 1994 and a reorganization of the manufacturing division administrative office. The ongoing review of all remaining manufacturing operations is expected to result in additional plant closures. Safeway's Canadian subsidiary has a wholesale operation which 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 1994:
- -------------------------------------------------------- U.S. Canada - -------------------------------------------------------- Milk plants 7 3 Bread baking plants 5 2 Ice cream plants 4 3 Cheese packaging plants 2 1 Soft drink bottling plants 4 -- Fruit and vegetable processing plants 2 4 Other food processing plants 6 4 Pet food plant 1 -- ----------- Total 31 17 ===========
In addition, the Company operates laboratory facilities for quality assurance and research and development in certain of its plants and at its U.S. manufacturing headquarters in Walnut Creek, California. CAPITAL EXPENDITURE PROGRAM A key component of the Company's long-term strategy is its capital expenditure program. In the last several years, Safeway management has significantly strengthened its program to select and approve new capital investments. This program requires that proposed projects meet targeted pre-tax internal rates of return ("IRR") which measure the incremental cash flows of proposed projects. To be accepted, new stores and remodels must generally project an IRR in excess of 25%. To date, the aggregate results of projects accepted under this program have met expectations. The table below reconciles cash paid for property additions reflected in the Consolidated Statements of Cash Flows to a broader definition of capital expenditures (dollars in millions):
- ---------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------- Cash paid for property additions $339.9 $245.3 $483.6 Less: Purchases of previously leased properties (54.5) (21.4) (9.9) Plus: Present value of all lease obligations incurred 55.5 58.8 79.3 Mortgage notes assumed in property acquisitions 11.3 7.5 0.4 -------------------------- Total capital expenditures $352.2 $290.2 $553.4 ========================== Capital expenditures as a percent of sales 2.3% 1.9% 3.7% ========================== New stores opened 20 14 35 ========================== Stores closed or sold* 36 39 49 ========================== Remodels 71 45 63 ========================== Total retail square footage (in millions) 39.5 39.4 39.7 ==========================
* Includes 15 stores sold to Farm Fresh, Inc. in 1993 Safeway scaled back its capital expenditure program in 1993 in order to focus on near-term operating challenges, as well as to develop ways to enhance the quality and lower the costs of projects. During 1994, improved operations and lower project costs improved the quality of capital projects and allowed Safeway to increase capital expenditures to $352 million from $290 million in 1993. During 1994, Safeway opened 20 new stores and completed 71 remodels. The Company plans to invest in excess of $400 million for capital expenditures in 1995 while opening 25 to 30 new stores and completing 90 to 100 remodels. Safeway expects to increase its level of capital expenditures gradually over time. Management regularly reviews the performance of individual stores on the basis of a variety of economic factors. Upon the decision to close a store, the Company accrues estimated future losses, if any, which may include lease payments or other costs of holding the facility, net of estimated future income. At year-end 1994, Safeway had an accrued liability of $26.9 million for the anticipated future closure of 57 stores and $20.8 million for the anticipated future closure of manufacturing and administrative facilities. PERFORMANCE-BASED COMPENSATION The Company has performance-based compensation plans which cover approximately 7,000 employees. Incentive compensation plans set overall bonus levels based upon both operating results and working capital management. Individual bonuses are based on job performance. Certain employees are covered by capital investment bonus plans which measure the performance of capital projects based on operating performance over several years. 11 3 FIVE-YEAR SUMMARY FINANCIAL INFORMATION Safeway Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------ 52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS (Dollars in millions, except per-share amounts) 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------ Results of Operations Sales .......................................... $ 15,626.6 $ 15,214.5 $ 15,151.9 $ 15,119.2 $ 14,873.6 ================================================================== Gross profit 4,250.0 4,083.4 4,106.4 4,059.1 3,903.0 Operating and administrative expenses (3,637.9) (3,641.9) (3,664.8) (3,510.8) (3,367.7) AppleTree charge................................. -- -- -- (115.0) -- ------------------------------------------------------------------ Operating profit 612.1 441.5 441.6 433.3 535.3 Interest expense (221.7) (265.5) (290.4) (355.4) (384.1) Equity in earnings of unconsolidated affiliates 27.3 33.5 39.1 45.8 25.5 Gain on common stock offering by unconsolidated affiliate -- -- -- 27.4 -- Other income, net ............................... 6.4 6.8 7.1 15.1 18.0 ------------------------------------------------------------------ Income before income taxes, extraordinary loss and cumulative effect of accounting changes 424.1 216.3 197.4 166.2 194.7 Income taxes .................................... (173.9) (93.0) (99.0) (87.2) (107.6) ------------------------------------------------------------------ Income before extraordinary loss and cumulative effect of accounting changes 250.2 123.3 98.4 79.0 87.1 Extraordinary loss, net of tax benefit of $6.7, $17.1 and $14.9 (10.5) -- (27.8) (24.1) -- Cumulative effect of accounting changes, net of tax benefit of $12.0 .................. -- -- (27.1) -- -- ------------------------------------------------------------------ Net income ...................................... $ 239.7 $ 123.3 $ 43.5 $ 54.9 $ 87.1 ================================================================== Earnings per common share and common share equivalent (fully diluted): Income before extraordinary loss and cumulative effect of accounting changes $ 2.02 $ 1.00 $ 0.83 $ 0.69 $ 0.91 Extraordinary loss (0.08) -- (0.23) (0.21) -- Cumulative effect of accounting changes .... -- -- (0.23) -- -- ------------------------------------------------------------------ Net income ................................. $ 1.94 $ 1.00 $ 0.37 $ 0.48 $ 0.91 ================================================================== Financial Statistics Gross profit margin 27.2% 26.8% 27.1% 26.8% 26.2% Operating and administrative expenses as a percent of sales 23.28% 23.94% 24.19% 23.22% 22.64% Operating profit margin 3.9% 2.9% 2.9% 2.9% 3.6% Capital expenditures $ 352.2 $ 290.2 $ 553.4 $ 635.0 $ 489.6 Depreciation and amortization 326.4 330.2 320.3 295.9 276.2 Total assets 5,022.1 5,074.7 5,225.8 5,170.7 4,739.1 Total debt 2,196.1 2,689.2 3,048.6 3,066.0 3,083.6 Stockholders' equity (deficit) 643.8 382.9 243.1 214.4 (183.4) Common shares outstanding at year-end (in millions) 104.8 101.5 98.8 97.7 79.3 Stockholders' equity (deficit) per common share outstanding at year-end $ 6.14 $ 3.77 $ 2.46 $ 2.19 $ (2.31) Weighted average common shares and common share equivalents (fully diluted) (in millions) 123.6 123.4 119.0 115.2 96.0 Other Statistics Employees at year-end 110,000 105,900 104,900 110,100 114,500 Stores opened during the year 20 14 35 33 30 Stores closed or sold during the year 36 39 49 37 26 Total stores at year-end 1,062 1,078 1,103 1,117 1,121 Total retail square footage at year-end (in millions) 39.5 39.4 39.7 38.9 38.2
12 4 FINANCIAL REVIEW RESULTS OF OPERATIONS Safeway's net income was $239.7 million ($1.94 per share) in 1994, $123.3 million ($1.00 per share) in 1993, and $43.5 million ($0.37 per share) in 1992. In 1994 and 1992, income before extraordinary items and the cumulative effect of accounting changes was $250.2 million ($2.02 per share) and $98.4 million ($0.83 per share). In 1993, severance paid for a voluntary employee buyout in Alberta, Canada reduced 1993 operating profit by $54.9 million and net income by $30.2 million ($0.24 per share). Sales Sales were $15.6 billion in 1994 (a 52-week year), and $15.2 billion in both 1993 (a 52-week year) and 1992 (a 53-week year). Safeway's same-store sales increased 4.4% in 1994 and 2.1% in 1993. In spite of low food price inflation, Safeway achieved sales growth in 1994 and 1993. The Company has simplified work methods in the stores, streamlined backstage operations, improved inventory management and achieved labor cost parity through competitive labor contracts signed in Alberta. Safeway continues to reinvest these fundamental cost savings into improved service and more competitive pricing. 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. In 1994, Safeway began classifying advertising expenses as cost of goods sold. Previously, advertising expenses were included in operating and administrative expenses. All prior periods have been reclassified to conform to the 1994 presentation. After reclassifying advertising expenses, gross profit was 27.2% of sales in 1994, compared to 26.8% in 1993 and 27.1% in 1992. The improvement in 1994 was primarily due to decreased advertising expense, the price recovery in Alberta following the 1993 price war, the disposal of stores with low gross margins in Richmond, Virginia, and company-wide improvements to bakery operations. The decline in 1993 primarily reflects the effect of the price war in Alberta. 1994 PORTIONS OF THE SALES DOLLAR [CHART] Operating and Administrative Expenses After reclassifying advertising expenses, operating and administrative expenses were 23.28% of sales in 1994, compared to 23.94% in 1993 (23.58% excluding the Alberta buyout) and 24.19% in 1992 (24.04% excluding a restructuring charge). Operating and administrative expenses as a percentage of sales have declined since 1992 as a result of increased sales and efforts to reduce or control expenses. The principal efforts included reorganizing the administrative support functions, centralizing information technology operations, improving labor costs in Alberta, Canada, and simplifying work methods in the stores. OPERATING AND ADMINISTRATIVE EXPENSES (% OF SALES) [CHART] During the first half of 1993, Safeway recorded a charge for the Alberta buyout, reducing operating profit by $54.9 million and net income by $30.2 million ($0.24 per share). The new contract approved by retail employees in Alberta reduced wages, established a gain-sharing plan, and provided for a voluntary buyout program, while significantly reducing a competitive wage disparity in that area. Safeway began realizing savings from the new contract during the second quarter of 1993, which were offset through the third quarter of 1993 by the increased training costs and reduced productivity associated with new employees. Productivity improved during the fourth quarter of 1993 and returned to normal levels in 1994. Safeway believes that the combination of lower prices and the new labor contract has positioned Alberta for long-term growth. Savings from the labor contract are being invested in pricing and service, and as a result, estimated annual savings of $45 million have not directly affected operating profit or cash flow in Alberta. In 1992, the Company recorded a restructuring charge for the anticipated costs associated with downsizing its corporate administrative staff and closing its distribution center in Sacramento, California. The Sacramento 13 5 facility, which was leased following the 1988 fire that destroyed the Richmond, California distribution center, was consolidated into the Company's distribution center in Tracy, California. The charge reduced 1992 operating profit by $22.3 million and net income by $13.8 million ($0.12 per share). Approximately one-half of this charge was for severance payments. All employee terminations associated with this restructuring were completed in 1993. Annual savings from these restructurings are between $15 million and $20 million. Interest Expense Interest expense fell to $221.7 million in 1994 from $265.5 million in 1993 and $290.4 million in 1992. The decrease in 1994 was primarily due to overall debt reductions resulting from Safeway's strong cash flow from operations, and the replacement of high interest rate long-term debt with short-term floating rate debt. The decrease in 1993 reflects reduced borrowings, lower short-term interest rates, and the refinancing of high interest rate debt during 1992. INTEREST EXPENSE (IN MILLIONS) [CHART] Equity in Earnings of Unconsolidated Affiliates Equity in earnings of unconsolidated affiliates, recorded on a one-quarter delay basis, fell to $27.3 million in 1994, compared to $33.5 million in 1993 and $39.1 million in 1992. Safeway holds a 35% interest in Vons, which operates 336 grocery stores located mostly in southern California, and a 49% interest in Casa Ley, which operates 70 stores in western Mexico. Income from Safeway's equity investment in Vons was $11.6 million in 1994, compared to $12.9 million in 1993 and $18.6 million in 1992. According to Vons' financial reports to the Securities and Exchange Commission, Vons' same-store sales declined 1.6% and 3.2% for the 16 and 40 weeks ended October 9, 1994. In addition to lower operating income, Vons reported restructuring charges which decreased Safeway's equity in Vons' earnings by $3.9 million in 1994 and $11.7 million in 1993. According to Vons, these restructuring charges included anticipated expenses associated with a program to close under-performing stores and reduce work force. In 1992, Vons adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." Safeway's share of Vons' accounting changes is included in the 1992 cumulative effect of accounting changes in the Company's Consolidated Statements of Income. Income from Safeway's equity investment in Casa Ley fell to $15.7 million in 1994 from $20.6 million in 1993 and $20.5 million in 1992 due to changes in the competitive environment in Mexico. The recent devaluation of the peso will have an adverse impact on Safeway's income from Casa Ley beginning in 1995 but is not expected to be material to Safeway's net income. Income Taxes Income taxes declined to 41.0% of pre-tax income in 1994 from 43.0% in 1993 and 50.2% in 1992. In August 1993, the maximum statutory federal income tax rate increased from 34% to 35%. Despite the increased federal income tax rate, Safeway's effective rate declined in 1993 primarily due to the tax benefit of a loss in Canada, where the statutory rate is higher than in the United States. The loss in Canada resulted principally from the employee buyout charge and the price war in Alberta. The tax effect of permanently investing certain foreign earnings which were previously not permanently invested also contributed to the tax rate decline in 1993. 14 6 Extraordinary Loss Safeway's net income was reduced by extraordinary losses of $10.5 million ($0.08 per share) in 1994 and $27.8 million ($0.23 per share) in 1992 for the early retirement of debt. The extraordinary losses represent the payment of premiums on retired debt and the write-off of deferred finance costs, net of the related tax benefits. Acquisition of Interest in Warrants to Purchase Safeway Stock In January 1995, the Company acquired 31.8% of the partnership interests in SSI Equity Associates, L.P. for $113 million with proceeds from bank borrowings. SSI Equity Associates, L.P., a related party, is a limited partnership whose sole asset consists of warrants to purchase 13.9 million shares of Safeway common stock at $2.00 per share. The acquisition of the partnership interests will reduce common stock equivalents by about 4.16 million shares which, in turn, will have a favorable effect on earnings per share beginning in 1995. The favorable effect on earnings per share from reducing common stock equivalents will be partially offset by interest expense on the bank borrowings. Accounting Changes In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual of the expected cost of such benefits during employee service periods, and SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual of the expected cost of benefits provided to former or inactive employees after employment but before retirement. Prior to 1992, the Company recognized the cost of providing these benefits as claims were paid. In addition, during 1992 Vons adopted SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 106. The cumulative effect of accounting changes recognized on Safeway's Consolidated Statement of Income in 1992 was as follows (in millions): Postretirement benefits, net tax benefit of $6.4 $10.5 Postemployment benefits, net of tax benefit of $1.1 1.8 Vons' income taxes, net of tax benefit of $3.2 10.6 Vons' postretirement benefits, net of tax benefit of $1.3 4.2 ----- $27.1 =====
Except for the cumulative effect of adoption, the impact of these accounting changes on Safeway's 1992 net income was not material. LIQUIDITY AND FINANCIAL RESOURCES Operating cash flow, as presented below, was $947.6 million in 1994 compared to $777.0 million in 1993 and $768.6 million in 1992. Operating cash flow provides a measure of the Company's ability to generate cash to pay interest and fixed charges, and facilitates the comparison of Safeway's results of operations with those of companies having different capital structures. Safeway's computation of operating cash flow is as follows (dollars in millions):
- ---------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting changes $424.1 $216.3 $197.4 LIFO expense (income) 2.7 (1.5) (0.4) Interest expense 221.7 265.5 290.4 Depreciation and amortization 326.4 330.2 320.3 Equity in earnings of unconsolidated affiliates (27.3) (33.5) (39.1) -------------------------- Operating cash flow $947.6 $777.0 $768.6 =========================== As a percent of sales 6.06% 5.11% 5.07% =========================== As a multiple of interest expense 4.27x 2.93x 2.65x ===========================
In 1994, the Bank Credit Agreement and the Working Capital Credit Agreement (together the "Bank Agreements") were amended to (i) permit the purchase of up to $500 million of senior subordinated debt over the life of the Bank Agreements, (ii) extend bank borrowing maturities one year to 1998, (iii) voluntarily reduce bank borrowing capacity by $250 million, and (iv) reduce commitment fees and borrowing costs on bank borrowings. Management expects operating cash flow, supplemented by credit available under the Bank Agreements, to be Safeway's primary sources of liquidity over the next five years. Management believes that these sources will be adequate to meet the Company's requirements. At year-end 1994, the Company had total borrowing capacity under the Bank Agreements of $1.15 billion, of which $694.2 million was unused. During 1994, Safeway retired $44.2 million of senior debt and $247.9 million of senior subordinated debt. Safeway purchased the long-term debt primarily with proceeds from floating rate bank borrowings. These redemptions will result in estimated annual interest expense savings of approximately $8 million, subject to fluctuations in short-term interest rates. Depending on market conditions, Safeway may continue to purchase and retire long-term debt. 15 7 During 1992, the Company issued $300 million of 9.65% Senior Subordinated Debentures due 2004, $150 million of 9.875% Senior Subordinated Debentures due 2007, and $250 million of 9.35% Senior Subordinated Notes due 1999, and used the proceeds to redeem $700 million of high interest rate debt. In 1992, the Company also issued $100 million of 9.30% Senior Secured Debentures due 2007 and used the proceeds to repay borrowings incurred under the Bank Agreements to acquire, construct, and equip a new distribution center in Tracy, California. In 1992, Safeway filed with the Securities and Exchange Commission a shelf registration statement relating to public offerings of up to $240 million of debt securities. Pursuant to this shelf registration, the Company issued $160 million of medium-term notes during 1993 and 1992. The Company used the proceeds from these notes to finance capital expenditures. Annual debt maturities over the next five years are set forth in Note B of the Company's 1994 consolidated financial statements. During 1994, Safeway significantly increased cash flow from operations through improved working capital management. At year-end 1994, the working capital deficit was composed of $1.4 billion of current assets and $1.8 billion of current liabilities. Normal operating fluctuations in these substantial balances can result in changes to the cash flow from operations presented in the Consolidated Statement 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. As of year-end 1994, the Company had effectively converted $208.3 million of its $475.9 million of floating rate debt to fixed interest rate debt through the use of interest rate swap agreements. The significant terms of such agreements outstanding at year-end 1994 are described in Note D to the Company's 1994 consolidated financial statements. Interest rate swap and collar agreements increased interest expense by $4.4 million in 1994, $8.3 million in 1993, and $7.7 million in 1992. 16 8 CONSOLIDATED STATEMENTS OF INCOME Safeway Inc. and Subsidiaries
- ----------------------------------------------------------------------------------------------------------------------- 52 WEEKS 52 WEEKS 53 WEEKS (In millions, except per-share amounts) 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------- Sales $ 15,626.6 $ 15,214.5 $ 15,151.9 Cost of goods sold ....................................................... (11,376.6) (11,131.1) (11,045.5) ---------------------------------------- Gross profit 4,250.0 4,083.4 4,106.4 Operating and administrative expenses .................................... (3,637.9) (3,641.9) (3,664.8) ---------------------------------------- Operating profit 612.1 441.5 441.6 Interest expense (221.7) (265.5) (290.4) Equity in earnings of unconsolidated affiliates 27.3 33.5 39.1 Other income, net ........................................................ 6.4 6.8 7.1 ---------------------------------------- Income before income taxes, extraordinary loss and cumulative effect of accounting changes 424.1 216.3 197.4 Income taxes ............................................................. (173.9) (93.0) (99.0) ---------------------------------------- Income before extraordinary loss and cumulative effect of accounting changes 250.2 123.3 98.4 Extraordinary loss related to early retirement of debt, net of income tax benefit of $6.7 and $17.1 (10.5) -- (27.8) Cumulative effect of accounting changes, net of income tax benefit of $12.0 ........................................... -- -- (27.1) ---------------------------------------- Net income .......................................................... $ 239.7 $ 123.3 $ 43.5 ======================================== Earnings per common share and common share equivalent: Primary Income before extraordinary loss and cumulative effect of accounting changes $ 2.05 $ 1.02 $ 0.83 Extraordinary loss (0.09) -- (0.23) Cumulative effect of accounting changes.............................. -- -- (0.23) ---------------------------------------- Net income ........................................................ $ 1.96 $ 1.02 $ 0.37 ======================================== Fully diluted Income before extraordinary loss and cumulative effect of accounting changes $ 2.02 $ 1.00 $ 0.83 Extraordinary loss (0.08) -- (0.23) Cumulative effect of accounting changes ............................. -- -- (0.23) ---------------------------------------- Net income ........................................................ $ 1.94 $ 1.00 $ 0.37 ======================================== Weighted average common shares and common share equivalents: Primary 122.0 121.0 119.0 Fully diluted 123.6 123.4 119.0
See accompanying notes to consolidated financial statements. 17 9 CONSOLIDATED BALANCE SHEETS Safeway Inc. and Subsidiaries
- ------------------------------------------------------------------------------------------------- YEAR-END YEAR-END (In millions, except per-share amounts) 1994 1993 - ------------------------------------------------------------------------------------------------- Assets Current assets: Cash and equivalents $ 60.7 $ 118.4 Receivables 147.9 119.5 Merchandise inventories, net of LIFO reserve of $64.8 and $62.1 1,136.0 1,128.1 Prepaid expenses and other current assets.................... 93.0 98.0 ------------------------ Total current assets......................................... 1,437.6 1,464.0 ------------------------ Property: Land 408.9 384.7 Buildings 1,095.0 1,009.6 Leasehold improvements 814.5 791.5 Fixtures and equipment 1,765.2 1,711.1 Property under capital leases ................................ 291.7 310.4 ------------------------- 4,375.3 4,207.3 Less accumulated depreciation and amortization ............... 1,868.9 1,647.2 ------------------------ Total property, net 2,506.4 2,560.1 Goodwill, net of accumulated amortization of $95.0 and $86.2 331.1 347.6 Prepaid pension costs 319.6 307.1 Investments in unconsolidated affiliates 329.3 303.4 Other assets ................................................... 98.1 92.5 ------------------------ Total assets ................................................... $ 5,022.1 $5,074.7 ========================
18 10
- ------------------------------------------------------------------------------------------------- YEAR-END YEAR-END (In millions, except per-share amounts) 1994 1993 - ------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities: Current maturities of notes and debentures $ 152.5 $ 188.6 Current obligations under capital leases 19.3 19.3 Accounts payable 1,012.1 880.5 Accrued salaries and wages 223.6 216.3 Other accrued liabilities .................................... 416.1 369.1 ------------------------ Total current liabilities .................................... 1,823.6 1,673.8 ------------------------ Long-term debt: Notes and debentures 1,849.5 2,287.7 Obligations under capital leases ............................. 174.8 193.6 ------------------------ Total long-term debt 2,024.3 2,481.3 Deferred income taxes 128.3 145.5 Accrued claims and other liabilities ........................... 402.1 391.2 ------------------------ Total liabilities .............................................. 4,378.3 4,691.8 ------------------------ Commitments and contingencies Stockholders' equity: Common stock: par value $.01 per share; 300 shares authorized; 104.8 and 101.5 shares outstanding 1.0 1.0 Additional paid-in capital 655.6 624.5 Cumulative translation adjustments 29.1 39.0 Accumulated deficit .......................................... (41.9) (281.6) ------------------------ Total stockholders' equity ................................... 643.8 382.9 ------------------------ Total liabilities and stockholders' equity ..................... $ 5,022.1 $5,074.7 ========================
See accompanying notes to consolidated financial statements. 19 11 CONSOLIDATED STATEMENTS OF CASH FLOWS Safeway Inc. and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------- 52 WEEKS 52 WEEKS 53 WEEKS (In millions) 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------- Cash Flow From Operations Net income $ 239.7 $ 123.3 $ 43.5 Reconciliation to net cash flow from operations: Extraordinary loss related to early retirement of debt, before income tax benefit 17.2 -- 44.9 Cumulative effect of accounting changes, before income tax benefit -- -- 39.1 Depreciation and amortization 326.4 330.2 320.3 Amortization of deferred finance costs 3.0 3.8 4.0 Deferred income taxes (12.9) (35.8) 17.5 LIFO expense (income) 2.7 (1.5) (0.4) Equity in earnings of unconsolidated affiliates (27.3) (33.5) (39.1) Net pension (income) expense (1.4) 0.4 (4.6) Pension contributions (11.5) (1.2) -- Increase (decrease) in accrued claims and other liabilities (5.7) 29.3 8.2 Loss (gain) on property retirements 56.3 (2.9) 48.9 Changes in working capital items: Receivables (24.5) 15.4 9.3 Inventories at FIFO cost (31.8) 61.6 10.2 Prepaid expenses and other current assets 3.6 (9.4) (12.5) Payables and accruals 165.2 95.6 21.0 Income taxes ........................................................ 54.3 24.1 (1.8) ------------------------------------- Net cash flow from operations...................................... 753.3 599.4 508.5 ------------------------------------- Cash Flow From Investing Activities Cash paid for property additions (339.9) (245.3) (483.6) Proceeds from sale of property 36.3 66.7 26.3 Other ................................................................... (28.0) (49.3) (26.9) ------------------------------------- Net cash flow used by investing activities............................. (331.6) (227.9) (484.2) -------------------------------------
20 12
- -------------------------------------------------------------------------------------------------------------------- 52 WEEKS 52 WEEKS 53 WEEKS 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------- Cash Flow From Financing Activities Additions to short-term borrowings $ 157.9 $ 60.0 $ 237.4 Payments on short-term borrowings (108.0) (44.9) (280.5) Additions to long-term borrowings 455.7 352.1 1,888.4 Payments on long-term borrowings (986.2) (732.7) (1,774.1) Net proceeds from exercise of warrants and stock options 14.6 10.4 3.5 Premiums paid on early retirement of debt (13.2) -- (35.1) Other .................................................................. 0.7 1.2 (13.9) ------------------------------------- Net cash flow from (used by) financing activities..................... (478.5) (353.9) 25.7 ------------------------------------- Effect of changes in exchange rates on cash.............................. (0.9) 4.2 (7.6) ------------------------------------- Increase (decrease) in cash and equivalents (57.7) 21.8 42.4 Cash and Equivalents Beginning of year........................................................ 118.4 96.6 54.2 ------------------------------------- End of year.............................................................. $ 60.7 $ 118.4 $ 96.6 ===================================== Other Cash Flow Information Cash payments during the year for: Interest $ 230.1 $ 270.2 $ 293.5 Income taxes, net of refunds 126.0 100.6 56.4 Noncash Investing And Financing Activities Tax benefit from stock options exercised $ 15.6 $ 9.6 Mortgage notes assumed in property acquisitions 11.3 7.5 $ 0.4 Capital lease obligations entered into 4.5 20.3 5.7 Capital lease assets retired, net of accumulated amortization 2.5 3.1 1.7 Capital lease obligations retired 0.8 2.5 0.6
See accompanying notes to consolidated financial statements. 21 13 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Safeway Inc. and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------------------- Common Stock Additional Cumulative Total (In millions) -------------------- Paid-in Translation Accumulated Stockholders' Shares Amount Capital Adjustments Deficit Equity - -------------------------------------------------------------------------------------------------------------------------------- Balance, year-end 1991 97.7 $ 1.0 $ 601.0 $ 60.8 $ (448.4) $ 214.4 Options and warrants exercised 1.1 -- 3.4 -- -- 3.4 Cash received on subscriptions receivable -- -- 0.1 -- -- 0.1 Net income -- -- -- -- 43.5 43.5 Translation adjustments................. -- -- -- (18.3) -- (18.3) ------------------------------------------------------------------------------ Balance, year-end 1992 98.8 1.0 604.5 42.5 (404.9) 243.1 Options and warrants exercised 2.7 -- 19.3 -- -- 19.3 Cash received on subscriptions receivable -- -- 0.7 -- -- 0.7 Net income -- -- -- -- 123.3 123.3 Translation adjustments ................ -- -- -- (3.5) -- (3.5) ------------------------------------------------------------------------------ Balance, year-end 1993 101.5 1.0 624.5 39.0 (281.6) 382.9 Options and warrants exercised 3.3 -- 30.2 -- -- 30.2 Stock bonuses -- -- 0.9 -- -- 0.9 Net income -- -- -- -- 239.7 239.7 Translation adjustments ................ -- -- -- (9.9) -- (9.9) ------------------------------------------------------------------------------ Balance, year-end 1994 ................. 104.8 $ 1.0 $ 655.6 $ 29.1 $ (41.9) $ 643.8 ==============================================================================
See accompanying notes to consolidated financial statements. 22 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include Safeway Inc., a Delaware corporation, and all majority owned subsidiaries ("Safeway" or the "Company"). All significant intercompany transactions and balances have been eliminated in consolidation. Investments in affiliates which are not majority owned are reported using the equity method. Fiscal Year The Company's fiscal year ends on the Saturday nearest December 31. The last three fiscal years consist of the 52-week period ended December 31, 1994, the 52-week period ended January 1, 1994, and the 53-week period ended January 2, 1993. Translation of Foreign Currencies Assets and liabilities of the Company's Canadian subsidiaries and Mexican unconsolidated affiliate are translated into U.S. dollars at year-end rates of exchange, and income and expenses are translated at average rates during the year. Cumulative translation adjustments reflecting the effect of the movement in exchange rates during the year are shown net of applicable income taxes as a separate component of stockholders' equity. Merchandise Inventories At year-end 1994 and 1993, merchandise inventory of $660 million and $634 million 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 $724 million and $696 million at year-end 1994 and 1993. The remaining inventory is valued at the lower of cost on a first-in, first-out ("FIFO") basis or market value. FIFO cost of inventory approximates replacement or current cost. Inventory on a FIFO basis includes meat and produce in the United States, inventory of U.S. manufacturing operations, and all inventories of the Canadian subsidiaries. Application of the LIFO method resulted in a $2.7 million increase in cost of goods sold in 1994, compared to decreases of $1.5 million in 1993 and $0.4 million in 1992. Liquidations of LIFO layers during the three years reported did not have a significant effect on the results of operations. Property and Depreciation Property is stated at cost. Depreciation expense on buildings and equipment is computed on the straight-line method using the following lives: Stores and other buildings 10 - 30 years Fixtures and equipment 3 - 15 years
Property under capital leases is amortized on a straight-line basis over the remaining terms of the leases. Leasehold improvements include buildings constructed on leased land and improvements to leased buildings. Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining terms of the lease or the estimated useful lives of the assets. Goodwill Goodwill is amortized on a straight-line basis over 40 years. Goodwill amortization was $10.4 million in 1994, $10.6 million in 1993, and $12.7 million in 1992. Closed Store Expense Upon the decision to close a store, the Company accrues estimated future losses, if any, which may include lease payments or other costs of holding the facility, net of estimated future income. Self-insurance The Company is primarily self-insured for workers' compensation, automobile, and general liability costs. The self-insurance claim liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. The present value of such claims was accrued using discount rates of 6.5% in 1994 and 5% in 1993. The current portion of the self-insurance claim liability ($77 million and $78 million at year-end 1994 and 1993) is included in other accrued liabilities in the consolidated balance sheets. The noncurrent portion of $186 million and $176 million at year-end 1994 and 1993 is included in accrued claims and other liabilities. Claims payments were $75.3 million in 1994, $83.0 million in 1993 and $85.7 million in 1992. The total undiscounted liability was $304 million and $289 million at year-end 1994 and 1993. 23 15 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. Earnings per Common Share and Common Share Equivalent Earnings per common share and common share equivalent is calculated by dividing net income by the weighted average number of common shares outstanding during the period plus the dilutive effect of stock options and warrants, as determined by the treasury stock method. Statement of Cash Flows Short-term investments with original maturities of less than three months are considered to be cash equivalents. Borrowings with original maturities of less than three months are presented net of related repayments. Off-Balance Sheet Financial Instruments The Company has entered into interest rate swap agreements to limit the exposure of its floating interest rate debt to changes in market interest rates. These 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. Fair Value of Financial Instruments Generally accepted accounting principles require the disclosure of the fair value of certain financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Safeway estimated the fair values presented below using appropriate valuation methodologies and market information available as of year-end. Considerable judgment is required to develop estimates of fair value, and the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair values. Additionally, these fair values were estimated as of 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 1994 and 1993, the carrying value of long-term debt approximated fair value. Interest rate swap agreements: The fair value of interest rate swap agreements is the amount at which they could be settled based on estimates obtained from dealers. At year-end 1994, net unrealized gains on interest rate swap agreements were $5.4 million. Since the Company intends to hold these agreements as hedges for the term of the agreements, the market risk associated with changes in interest rates should not be significant. Reclassifications Certain amounts for prior years have been reclassified to conform to the 1994 presentation. Accounting Changes In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual of the expected cost of such benefits during employee service periods, and SFAS No. 112, "Employers' Accounting for Postemployment Benefits," which requires accrual of the expected cost of benefits provided to former or inactive employees after employment but before retirement. Prior to 1992, the Company recognized the cost of providing these benefits as claims were paid. In addition, in 1992 The Vons Companies, Inc. ("Vons"), an unconsolidated affiliate of Safeway, adopted SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 106. The cumulative effect of accounting changes recognized in Safeway's 24 16 consolidated statements of income as of the beginning of fiscal 1992 was as follows (in millions): Postretirement benefits, net of tax benefit of $6.4 $10.5 Postemployment benefits, net of tax benefit of $1.1 1.8 Vons' income taxes, net of tax benefit of $3.2 10.6 Vons' postretirement benefits, net of tax benefit of $1.3 4.2 ----- $27.1 =====
Except for the cumulative effect of adoption, the impact of these accounting changes on Safeway's 1992 net income was not material. B. FINANCING Notes and debentures were composed of the following at year-end (in millions):
- -------------------------------------------------------------- 1994 1993 - -------------------------------------------------------------- Bank Credit Agreement, secured $ 135.0 $ 35.0 Working Capital Credit Agreement, secured 196.8 340.3 9.30% Senior Secured Debentures due 2007 70.7 100.0 10% Senior Notes due 2002, unsecured 59.1 74.0 10% Senior Subordinated Notes due 2001, secured 241.4 300.0 9.875% Senior Subordinated Debentures due 2007, secured 110.0 150.0 9.65% Senior Subordinated Debentures due 2004, secured 228.2 300.0 9.35% Senior Subordinated Notes due 1999, secured 172.5 250.0 Mortgage notes payable, secured 478.0 567.3 Other notes payable, unsecured 222.4 313.9 Other bank borrowings, unsecured 87.9 45.8 --------------------- 2,002.0 2,476.3 Less current maturities 152.5 188.6 --------------------- Long-term portion $1,849.5 $2,287.7 =====================
Bank Credit Agreement and Working Capital Credit Agreement In 1994, the Bank Credit Agreement and the Working Capital Credit Agreement (together the "Bank Agreements") were amended to (i) permit the purchase of up to $500 million of senior subordinated debt over the life of the Bank Agreements, (ii) extend bank borrowing maturities one year to 1998, (iii) voluntarily reduce bank borrowing capacity by $250 million, and (iv) reduce commitment fees and borrowing costs on bank borrowings. At year-end 1994, the Company had total borrowing capacity under the Bank Agreements of $1.15 billion, of which $694.2 million was unused. At year-end 1994, domestic borrowings under the Bank Agreements carried interest at one of the following rates selected by the Company: (i) the prime rate, (ii) a rate based on certificates of deposit rates plus 1%, (iii) the rate at which Eurodollar deposits are offered to first-class banks in the Eurodollar market by the Banks plus 0.50%, or (iv) rates quoted at the discretion of the Banks. Canadian borrowings denominated in U.S. dollars under the Working Capital Credit Agreement carried interest at one of the following rates selected by the Company: (i) the Canadian base rate or (ii) the Canadian Eurodollar rate plus 0.50%. Canadian borrowings denominated in Canadian dollars carried interest at (i) the Canadian Bankers' Acceptance rate plus 0.50% or (ii) the Canadian prime rate. The Company paid an annual commitment fee of 0.20% on the unused portion of borrowings available under the Bank Agreements. The weighted average interest rate on borrowings under the Bank Credit Agreement was 5.0% during 1994, 4.7% during 1993, and 5.3% during 1992. At year-end 1994, the weighted average interest rate on borrowings under the Bank Credit Agreement was 6.6%. The weighted average interest rate on borrowings under the Working Capital Credit Agreement was 6.0% during 1994, 5.6% during 1993, and 7.4% during 1992. At year-end 1994, the weighted average interest rate on borrowings under the Working Capital Credit Agreement was 6.8%. Amounts due under the Working Capital Credit Agreement consist of Canadian borrowings. Indebtedness under the Bank Agreements is secured by the pledge of certain assets of the Company and certain assets and stock of certain subsidiaries, and is also guaranteed by certain subsidiaries. Such subsidiaries own approximately 30% of the Company's stores and approximately 70% of the Company's manufacturing facilities. Senior Secured Indebtedness The 9.30% Senior Secured Debentures due 2007 are secured by a Deed of Trust which created a lien on the land, buildings, and equipment owned by Safeway at its distribution center in Tracy, California. 25 17 Senior Unsecured Indebtedness In 1992, the Company filed with the Securities and Exchange Commission a shelf registration statement relating to public offerings of up to $240 million of debt securities. Pursuant to this shelf registration, the Company issued $160 million of medium-term notes during 1993 and 1992. The Company used the proceeds from these notes to finance capital expenditures. Subordinated Indebtedness The 10% Senior Subordinated Notes due 2001, 9.875% Senior Subordinated Debentures due 2007, 9.65% Senior Subordinated Debentures due 2004, and 9.35% Senior Subordinated Notes due 1999 (collectively the "Subordinated Securities") are subordinated in right of payment to, among other things, the Company's borrowings under the Bank Agreements, the 9.30% Senior Secured Debentures, the Company's senior unsecured debt, the Company's other secured debt, and mortgage notes payable. The Subordinated Securities are secured by the pledge of certain assets of the Company and stock of certain subsidiaries. Redemptions During 1994, Safeway retired $44.2 million of senior debt and $247.9 million of senior subordinated debt. Safeway purchased the long-term debt primarily with proceeds from floating rate bank borrowings. These redemptions will result in estimated annual interest expense savings of approximately $8 million, subject to fluctuations in short-term interest rates. During 1992, the Company redeemed $700 million of high interest rate debt using cash from operations and proceeds from issuing the Subordinated Securities. These redemptions resulted in extraordinary losses of $10.5 million ($0.08 per share) in 1994 and $27.8 million ($0.23 per share) in 1992. The extraordinary losses represent the payment of redemption premiums and the write-off of deferred finance costs, net of the related tax benefits. Depending on market conditions, Safeway may continue to purchase and retire long-term debt. Restrictive Covenants The Bank Agreements prohibit payments by the Company of dividends on any class of stock (other than dividends paid through issuance of additional shares of that class of stock) and restrict, among other things, payments by the Company (i) to acquire shares of any class of stock of the Company, (ii) to retire or repurchase any debt which is subordinate to the Bank Agreements, and (iii) to acquire certain outstanding warrants or any options or other rights to acquire shares of any class of stock of the Company, other than those held by certain Company officers. Other provisions of the Bank Agreements limit certain acts of the Company, including the creation of liens, incurring obligations under leases in excess of specified levels, incurring capital expenditures in excess of specified amounts, and entering into certain business activities, investments and guarantees. The Bank Agreements also limit the amount of indebtedness that the Company can incur. The Company is also required to meet certain financial tests which pertain to its ratio of debt to equity and its ability to generate adequate cash to meet required payments. The Indentures pursuant to which the 9.30% Senior Secured Debentures, the 10% Senior Notes and the Subordinated Securities were issued restrict, among other things, payments by the Company (i) of dividends on any capital stock (other than dividends paid through issuance of additional shares of that capital stock) and (ii) to acquire shares of any capital stock of the Company (including outstanding warrants, options or other rights to acquire shares of any capital stock of the Company), other than those held by certain Company officers. The Indentures also contain provisions which limit the amount of additional debt that the Company may incur. Mortgage Notes Payable Mortgage notes payable at year-end 1994 are secured by properties with a net book value of approximately $550 million, have remaining terms ranging from one to 15 years, and have a weighted average interest rate of 10.0%. Other Notes Payable Other notes payable at year-end 1994 have remaining terms ranging from one to 17 years and a weighted average interest rate of 7.9%. Annual Debt Maturities As of year-end 1994, annual debt maturities were as follows (in millions): 1995 $ 152.5 1996 87.0 1997 159.0 1998 398.9 1999 218.0 Thereafter 986.6 -------- $2,002.0 ========
26 18 Letters of Credit The Company had letters of credit of $335.2 million outstanding at year-end 1994 of which $124.0 million were issued under the Bank Credit Agreement. The letters of credit are maintained primarily to back the Company's self-insurance program and to support performance, payment, deposit, or surety obligations of the Company. The Company pays commitment fees ranging from 0.625% to 0.875% on the outstanding portion of the letters of credit. C. LEASE OBLIGATIONS A majority of the premises that the Company occupies are leased. The Company had approximately 1,080 leases at year-end 1994, including approximately 210 which are capitalized for financial reporting purposes. Most leases have renewal options, some with terms and conditions similar to the original lease, others with reduced rental rates during the option periods. Certain of these leases contain options to purchase the property at amounts that approximate fair market value. As of year-end 1994, 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 - ---------------------------------------------------------- 1995 $ 40.9 $ 130.1 1996 39.0 127.3 1997 35.4 123.6 1998 32.1 119.8 1999 28.6 114.3 Thereafter 188.5 943.9 --------------------- Total minimum lease payments 364.5 $1,559.0 ======== Less amounts representing interest 170.4 ------- Present value of net minimum lease payments 194.1 Less current obligations 19.3 ------ Long-term obligations $174.8 ======
Future minimum lease payments under non-cancelable capital and operating lease agreements have not been reduced by minimum sublease rental income of $139.3 million. Amortization expense for property under capital leases was $20.6 million in 1994, $22.3 million in 1993 and $23.2 million in 1992. Accumulated amortization of property under capital leases was $150.1 million and $148.1 million at year-end 1994 and 1993. 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.
- ------------------------------------------------------------ 1994 1993 1992 - ------------------------------------------------------------ Property leases: Minimum rentals $126.4 $129.6 $130.9 Contingent rentals 9.8 10.3 10.3 Less rentals from subleases (13.7) (15.1) (11.1) -------------------------- 122.5 124.8 130.1 Equipment leases 20.9 24.0 26.7 -------------------------- $143.4 $148.8 $156.8 ==========================
D. INTEREST EXPENSE Interest expense consisted of the following (in millions):
- ------------------------------------------------------------ 1994 1993 1992 - ------------------------------------------------------------ Bank Agreements $ 20.5 $ 31.9 $ 51.5 9.30% Senior Secured Debentures 8.0 9.3 8.2 10% Senior Notes 6.5 7.4 1.2 10% Senior Subordinated Notes 26.6 30.0 30.0 9.875% Senior Subordinated Debentures 12.1 14.8 11.4 9.65% Senior Subordinated Debentures 24.5 29.0 27.3 9.35% Senior Subordinated Notes 19.6 23.4 18.1 11.75% Senior Subordinated Notes -- -- 9.7 12% Subordinated Debentures -- -- 9.1 Mortgage notes payable 50.2 58.6 63.9 Other notes payable 24.0 28.4 29.7 Other bank borrowings 3.0 0.9 1.6 Obligations under capital leases 22.2 23.9 25.0 Amortization of deferred finance costs 3.0 3.8 4.0 Interest rate swap and collar agreements 4.4 8.3 7.7 Capitalized interest (2.9) (4.2) (8.0) ------------------------- $221.7 $265.5 $290.4 =========================
27 19 As of year-end 1994, the Company had effectively converted $208.3 million of its $475.9 million of floating rate debt to fixed interest rate debt through the use of interest rate swap agreements. The significant terms of such agreements outstanding at year-end 1994 were as follows (dollars in millions):
- ------------------------------------------------------------------------------------- U.S. Fixed Canada Fixed Variable Interest Interest Interest Rates Notional Rates Rates to be Origination Expiration Principal Paid Paid Received Date Date - ------------------------------------------------------------------------------------- $ 50.0 5.1% 6.3% 1991 1995 10.0 5.8 6.4 1992 1997 6.0 5.4 6.9 1992 1995 35.6 8.7% 6.1 1991 1996 35.6 8.7 5.8 1992 1997 35.6 6.0 7.0 1993 1998 35.5 9.0 5.4 1993 1995 ------ $208.3 ======
Variable interest rates received on U.S. swaps are based on LIBOR rates. Variable interest rates received on Canadian swaps are based on the average of Bankers' Acceptance rates quoted by Canadian banks. The notional principal amounts do not represent cash flows and therefore are not subject to credit risk. The Company is subject to risk from nonperformance of the counterparties to the 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. At year-end 1994, net unrealized gains on the interest rate swap agreements were $5.4 million. Since the Company intends to hold these agreements as hedges for the term of the agreements, the market risk associated with changes in interest rates should not be significant. E. CAPITAL STOCK Shares Authorized and Issued Authorized preferred stock consists of 10 million shares of which none was outstanding during 1994, 1993, or 1992. Authorized common stock consists of 300 million shares of $0.01 par value. Common stock outstanding at year-end 1994 and 1993 was 104.8 million and 101.5 million shares. Two limited partnerships formed by Kohlberg Kravis Roberts & Co. ("KKR") own 65 million shares of Safeway's common stock. Common stock issued to certain Company officers is restricted as to transferability. Generally, this restriction gives the Company the option to purchase, at market price, any such stock offered for sale. Options and Warrants to Purchase Common Stock Under Safeway's stock option plans, the Company may grant incentive and non-qualified options to purchase up to 19.5 million shares of common stock at an exercise price equal to or greater than the fair market value at the date of grant, as determined by the Compensation and Stock Option Committee of the Board of Directors. Vested options are exercisable in part or in full at any time prior to the expiration date of 10 to 15 years from the date of the grant. The stock option plans prohibit the transfer of options. Activity in the stock option plans for the three-year period ended December 31, 1994 was as follows:
- -------------------------------------------------------------- Option Options Price - -------------------------------------------------------------- Outstanding, year-end 1991 12,937,188 $2.00-19.125 1992 Activity: Granted 1,952,792 10.00-18.50 Canceled (326,297) 10.00-19.125 Exercised (508,922) 2.00-13.875 ---------- Outstanding, year-end 1992 14,054,761 2.00-19.125 1993 Activity: Granted 1,579,025 11.50-21.00 Canceled (550,286) 10.00-19.125 Exercised (1,539,880) 2.00-18.50 ---------- Outstanding, year-end 1993 13,543,620 2.00-21.00 1994 Activity: Granted 1,854,625 20.50-30.50 Canceled (577,084) 10.00-25.75 Exercised (2,164,649) 2.00-19.125 ---------- Outstanding, year-end 1994 12,656,512 2.00-30.50 ========== Exercisable, year-end 1993 7,412,840 2.00-19.125 ========== Exercisable, year-end 1994 6,443,049 2.00-21.00 ==========
28 20 Of the options exercisable at year-end 1994, 3,320,928 were exercisable at $2.00 per share. There were 1,980,193 options available for grant at year-end 1994. At year-end 1994, there were 4.1 million warrants to purchase common stock outstanding, which represented 1.1 million shares of common stock. Each warrant represents the right to purchase 0.279 shares of the Company's common stock for $1.052 per warrant. In order to purchase a whole share of common stock, a holder must exercise 3.584 warrants and pay an aggregate exercise price of $3.7691. During 1994, 4.1 million warrants representing 1.1 million shares of common stock were exercised. During 1993, 3.8 million warrants representing 1.1 million shares of common stock were exercised. The warrants expire on November 24, 1996. Warrants (the "SSI Warrants") to purchase 13.9 million shares of the Company's common stock at $2.00 per share are held by SSI Equity Associates, L.P., a limited partnership (the "SSI Partnership"), whose sole asset consists of the SSI Warrants. The SSI Warrants are exercisable through November 15, 2001. SSI Partners, L.P., an affiliate of KKR, is the general partner of the SSI Partnership. In January 1995, the Company acquired 31.8% of the limited partnership interests in the SSI Partnership for $113 million with proceeds from bank borrowings. Outstanding common stock and the effect of options and warrants at year-end 1994, after giving effect to the January 1995 acquisition of the interests in the SSI Partnership, are summarized as follows (in millions):
- ------------------------------------------------------------ Potential Proceeds Shares from Exercise - ------------------------------------------------------------ Common stock outstanding 104.8 Options to purchase common stock 12.7 $154.2 Warrants 1.1 4.3 SSI Warrants 9.5 19.0 ------------------------ 128.1 $177.5 ========================
F. TAXES ON INCOME The components of income tax expense were as follows (in millions):
- ----------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------- Current: Federal $112.6 $ 80.2 $34.2 State 23.1 10.7 7.6 Foreign 51.4 37.9 39.7 ------------------------- 187.1 128.8 81.5 ------------------------- Deferred: Federal (0.6) 20.3 23.9 State 1.9 6.2 3.0 Foreign (14.5) (62.3) (9.4) ------------------------- (13.2) (35.8) 17.5 ------------------------- Total $173.9 $ 93.0 $99.0 =========================
Extraordinary losses and the cumulative effect of accounting changes are presented net of related tax benefits. Therefore, 1994 income tax expense excludes a tax benefit of $6.7 million on an extraordinary loss. The 1992 tax provision excludes tax benefits of $17.1 million on an extraordinary loss, and $12.0 million on the cumulative effect of accounting changes. In 1994 and 1993, tax benefits from the exercise of employee stock options of $15.6 million and $9.6 million 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):
- --------------------------------------------------------------- 1994 1993 1992 - --------------------------------------------------------------- Statutory rate 35% 35% 34% Income tax expense using federal statutory rate $148.4 $75.7 $67.1 State taxes on income less federal benefit 16.3 11.0 7.0 Taxes provided on equity earnings of affiliates at rates below the statutory rate (6.9) (8.3) (3.2) Taxes on foreign earnings not permanently reinvested 6.6 8.3 10.0 Withholding tax on Canadian earnings not permanently reinvested 4.4 (2.1) 4.1 Nondeductible amortization 3.3 3.9 3.3 Difference between statutory rate and foreign effective rate 2.2 (9.7) 5.8 Deferred tax adjustment due to 1993 federal rate increase -- 3.4 -- Other accruals -- 9.2 3.9 Other (0.4) 1.6 1.0 ------------------------ Income taxes $173.9 $93.0 $99.0 ========================
29 21 Significant components of the Company's net deferred tax liability at year-end were as follows (in millions):
- ------------------------------------------------------------------ 1994 1993 - ------------------------------------------------------------------ Deferred tax assets: Workers' compensation and other claims $ 104.9 $ 100.4 Reserves not currently deductible 65.2 50.0 Accrued claims and other liabilities 40.4 54.9 Employee benefits 35.3 25.3 Canadian operating loss carryforward 51.5 42.8 Foreign tax credit carryforwards -- 118.8 Valuation allowance -- (118.8) Other assets 3.2 22.3 ------------------ 300.5 295.7 ------------------ Deferred tax liabilities: Property (138.0) (163.9) Prepaid pension costs (139.2) (135.0) LIFO inventory reserves (51.2) (49.7) Investments in unconsolidated affiliates (34.6) (30.7) Cumulative translation adjustments (20.3) (27.0) Other liabilities (45.5) (34.9) ------------------ (428.8) (441.2) ------------------ Net deferred tax liability $(128.3) $(145.5) ==================
G. EMPLOYEE PENSION AND BENEFIT PLANS U.S. and Canadian Retirement Plans (the "Plans") The Company maintains defined benefit, non-contributory pension plans for substantially all of its U.S. and Canadian employees not participating in multi-employer pension plans. Benefits are generally based upon years of service, age at retirement date, and employee compensation during the last years of employment. The Company's funding policy is to contribute annually the amount necessary to satisfy the statutory funding standards. Through year-end 1994, the assets of the U.S. Plan have exceeded its actuarially determined liabilities by such amounts that the U.S. Plan was considered fully funded for purposes of contribution requirements. Accordingly, no Company contributions were made to the U.S. Plan during the last three years. In 1994 and 1993, the Company contributed $11.5 million and $1.2 million to the Canadian Plan. No contributions were made to the Canadian Plan in 1992. Assets of the Plans are primarily composed of equity and interest-bearing securities. Actuarial assumptions used to determine year-end plan status were as follows:
- ----------------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------------- Weighted average assumed discount rate used to determine the projected benefit obligation: U.S. Plan 8.0% 7.0% 8.5% Canadian Plan 8.0 7.5 8.5 Combined weighted average rate 8.0 7.1 8.5 Long-term rate of return on plan assets: U.S. Plan 9.0 9.0 9.0 Canadian Plan 8.0 9.0 9.0 Assumed rate of compensation increase 5.5 5.5 6.0
Net pension plan income (expense) consisted of the following (in millions):
- ---------------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------------- Return on plan assets: Actual return, (loss) gain $ (26.9) $ 198.9 $ 41.2 Deferred loss (gain) 123.6 (114.4) 44.0 --------------------------------- Actuarial assumed return 96.7 84.5 85.2 Service cost (41.2) (36.8) (32.6) Interest cost on projected benefit obligations (44.9) (45.9) (44.7) Net amortization (9.2) (2.2) (3.3) --------------------------------- Net pension plan income (expense) recognized in consolidated statements of income $ 1.4 $ (0.4) $ 4.6 =================================
30 22 The funded status of the Plans at year-end was as follows (in millions):
- ---------------------------------------------------------------------- 1994 1993 - ---------------------------------------------------------------------- Fair value of assets at year-end $1,040.3 $1,139.4 --------------------- Actuarially determined present value of: Vested benefit obligations 545.1 612.4 Nonvested benefit obligations 7.8 9.0 --------------------- Accumulated benefit obligations 552.9 621.4 Additional amounts related to projected compensation increases 84.3 100.0 --------------------- Projected benefit obligations 637.2 721.4 --------------------- Fair value of assets in excess of projected benefit obligations 403.1 418.0 Adjustment for difference in book and tax basis of assets (165.1) (167.1) Unamortized prior service costs resulting from improved Plan benefits 71.0 61.8 Net loss (gain) from actuarial experience which has not been recognized in the consolidated financial statements 10.6 (5.6) --------------------- Prepaid pension costs $ 319.6 $ 307.1 =====================
Multi-Employer Pension Plans Safeway participates in various multi-employer pension plans, covering virtually all Company employees not covered under the Company's non-contributory pension plans, pursuant to agreements between the Company and employee bargaining units which are members of such plans. These plans are generally defined benefit plans; however, in many cases, specific benefit levels are not negotiated with or known by the employer-contributors. Contributions of $70 million in both 1994 and 1993, and $100 million in 1992 were made and charged to income. Under U.S. legislation regarding such pension plans, a company is required to continue funding its proportionate share of a plan's unfunded vested benefits in the event of withdrawal (as defined by the legislation) from a plan or plan termination. Safeway participates in a number of these pension plans, and the potential obligation as a participant in these plans may be significant. The information required to determine the total amount of this contingent obligation, as well as the total amount of accumulated benefits and net assets of such plans, is not readily available. During 1988 and 1987, the Company sold certain operations. In most cases the party acquiring an operation agreed to continue making contributions to the plans. Safeway is relieved of the obligations related to these sold operations to the extent the acquiring parties continue to make contributions. Whether such sales could result in withdrawal under ERISA and, if so, whether such withdrawals could result in liability to the Company, is not determinable at this time. In 1993, Safeway settled a claim by the Central States, Southeast and Southwest Pension Fund in connection with an alleged withdrawal related to sold operations. This settlement did not have a significant impact on the consolidated financial statements. Retirement Restoration Plan The Retirement Restoration Plan (the successor to the Senior Executive Supplemental Benefit Plan) provides death benefits and supplemental income payments after retirement for senior executives. The Company recognized expense of $1.7 million in 1994, $7.8 million in 1993, and $6.4 million in 1992. The aggregate projected benefit obligation of the Retirement Restoration Plan was approximately $38.4 million at year-end 1994 and $45.4 million at year-end 1993. Postretirement Benefits Other Than Pensions In addition to pension and the Retirement Restoration Plan benefits, the Company sponsors postretirement plans that provide medical and life insurance benefits to certain salaried employees. Retirees share a portion of the cost of the postretirement medical plans. Safeway pays all of the cost of the life insurance plans. The plans are not funded. In 1992, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires accrual of the expected cost of such postretirement benefits during employee service periods. The cumulative effect of adoption was $10.5 million ($0.09 per share). At year-end 1994 and 1993, the Company's accumulated postretirement benefit obligation ("APBO") was $25.5 million and $26.9 million. The APBO represents the actuarial present value of benefits expected to be paid after retirement. Postretirement expense was $2.9 million in 1994 and $2.8 million in both 1993 and 1992. 31 23 The significant assumptions used to determine the periodic postretirement benefit expense and the APBO were as follows:
- ----------------------------------------------------- 1994 1993 - ----------------------------------------------------- Discount rate 8.0% 7.0% Rate of salary increase 5.5 5.5
A 13% annual rate of increase in the per capita cost of postretirement medical benefits was assumed for 1994. The rate was assumed to decrease gradually to 6% for 2006 and remain at that level thereafter. If the health care cost trend rate assumptions were increased by 1% in each year, the APBO as of year-end 1994 would increase $1.0 million, and the net periodic postretirement benefit expense for 1994 would increase $0.2 million. Retiree contributions have historically been adjusted when plan costs increase. The APBO for the medical plans anticipates future cost-sharing changes to the written plan that are consistent with the Company's past practice. H. COMMITMENTS AND CONTINGENCIES Legal Matters In July 1988, there was a major fire at the Company's dry grocery warehouse in Richmond, California. Through January 27, 1995, approximately 125,000 claims for personal injury and property damage arising from the fire had been settled for an aggregate amount of approximately $119 million. The Company's loss as a result of the fire damage to its property and settlement of the above claims was substantially covered by insurance. As of January 27, 1995, there were still pending approximately 2,600 claims against the Company for personal injury (including punitive damages) and approximately 2,500 separate claims against the Company 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. Although no persons died or were injured in the fire itself, the claims include wrongful death actions based on the grounds that pre-existing health conditions were aggravated by smoke, ash or embers from the fire. 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. The Company's excess insurance carrier asserted that its liability policy does not cover third-party claims against the Company arising from the fire because of the policy's pollution exclusion and notice provisions in the exclusion. In 1994, a panel of arbitrators in London rendered a decision in Safeway's favor, ruling that Safeway is entitled to be indemnified by the carrier under the policy. Safeway believes that coverage under the policy will be sufficient and available for resolution of all remaining third-party claims arising out of the fire. In February 1988, the Company sold its Kansas City Division to a company formed by Morgan, Lewis, Githen & Ahn Fund I and financed principally by the Prudential Insurance Company of America. In January 1993, the buyer (Food Barn Stores, Inc.) filed a voluntary petition under Chapter 11 of the U. S. Bankruptcy Code, and the plan of reorganization was confirmed in July 1994. In January 1995, Food Barn filed suit against the Company and others in the U. S. Bankruptcy Court for the Western District of Missouri. In its complaint, Food Barn alleges that (i) the 1988 transaction was a fraudulent conveyance under New York law and (ii) the Company defrauded Food Barn and fraudulently induced it to enter into the February 1988 transaction. Food Barn seeks compensatory damages estimated to approximate $216 million plus interest, and $100 million in punitive damages. Safeway believes that it has numerous meritorious defenses, and intends to defend itself vigorously, in this case. There are also pending against the Company various claims and lawsuits arising in the normal course of business, some of which seek damages and other relief which, if granted, would require very large expenditures. It is management's opinion that although the amount of liability with respect to all of the above matters cannot be ascertained at this time, any resulting liability, including any punitive damages, will not have a material adverse effect on the Company's consolidated financial position. 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 $25 million at year-end 1994. 32 24 I. INVESTMENTS IN AFFILIATES Investments in affiliates consists of a 35% interest in Vons, which operates 336 grocery stores located mostly in southern California, and a 49% interest in Casa Ley, which operates 70 stores in western Mexico. At year-end 1994, the Company owned 15.1 million common shares, or 35% of total Vons shares outstanding. The Company's recorded investment in Vons was $236.9 million (including goodwill of $46.9 million) at year-end 1994 and $225.3 million (including goodwill of $48.3 million) at year-end 1993. Goodwill is being amortized over 40 years. At year-end 1994, the aggregate market value quoted on the New York Stock Exchange of Safeway's shares of Vons stock was $272.3 million. Summarized financial information derived from Vons' financial reports to the Securities and Exchange Commission was as follows (in millions):
- -------------------------------------------------------- OCTOBER 9, October 10, Financial Position 1994 1993 - -------------------------------------------------------- Current assets $ 445.5 $ 477.6 Property and equipment, net 1,224.1 1,149.1 Other assets 557.8 561.3 ----------------------- Total assets $2,227.4 $2,188.0 ======================= Current liabilities $ 535.3 $ 496.6 Long-term obligations 1,148.7 1,185.4 Shareholders' equity 543.4 506.0 ----------------------- Total liabilities and shareholders' equity $2,227.4 $2,188.0 =======================
- --------------------------------------------------------------------------------- 52 WEEKS ENDED 53 Weeks Ended 52 Weeks Ended OCTOBER 9, October 10, October 4, Results of Operations 1994 1993 1992 - --------------------------------------------------------------------------------- Sales $ 4,990.9 $ 5,263.6 $ 5,475.5 Cost of sales and other expenses (4,954.5) (5,221.9) (5,402.4) ---------------------------------------------- Income before extraordinary item and effect of accounting changes 36.4 41.7 73.1 Extraordinary item -- (1.5) (16.1) ---------------------------------------------- Income before effect of accounting changes $ 36.4 $ 40.2 $ 57.0 ==============================================
Safeway's equity in Vons' income before the effect of accounting changes was $11.6 million in 1994, $12.9 million in 1993, and $18.6 million in 1992. The Company records its equity in Vons' net income on a one-quarter delay basis. In addition to lower operating income, Vons reported restructuring charges which decreased Safeway's equity in Vons' earnings by $3.9 million in 1994 and $11.7 million in 1993. According to Vons, these restructuring charges included anticipated expenses associated with a program to close under-performing stores and reduce work force. In 1992, Vons adopted SFAS No. 109, "Accounting for Income Taxes," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions." The $55.1 million effect of these accounting changes is not reflected in the summarized financial information presented above. Safeway's share of Vons' accounting changes is included in the cumulative effect of accounting changes in the Company's Consolidated Statements of Income (Note A). Income from Safeway's equity investment in Casa Ley fell to $15.7 million in 1994 from $20.6 million in 1993 and $20.5 million in 1992 due to changes in the competitive environment in Mexico. Casa Ley had total assets of $448.4 million and $365.5 million as of September 30, 1994 and 1993 based on financial information provided by Casa Ley. Sales were $1,052.4 million and net income was $32.0 million for the 12 months ended September 30, 1994. Sales were $925.8 million and net income was $39.5 million for the 12 months ended September 30, 1993. Sales were $752.7 million and net income was $33.8 million for the 12 months ended September 30, 1992. J. RELATED PARTY TRANSACTIONS KKR provides management, consulting and financial services to the Company for an annual fee. Such services include, but are not necessarily limited to, advice and assistance concerning any and all aspects of the operation, planning and financing of the Company. Payments for management fees, special services and reimbursement of expenses were $980,000 in 1994, $907,000 in 1993 and $826,000 in 1992. 33 25 The Company holds an 80% interest in Property Development Associates ("PDA"), a partnership formed in 1987 with a company controlled by an affiliate of KKR, to purchase, manage and dispose of certain Safeway facilities which are no longer used in the retail grocery business. The financial statements of PDA are consolidated with those of the Company, and a minority interest of $23.0 million and $19.3 million at year-end 1994 and 1993 is included in accrued claims and other liabilities in the accompanying consolidated balance sheet. During 1994, the Company contributed to PDA nine properties no longer used in its retail grocery business which had an aggregate net book value of $9.7 million. In 1993, the Company contributed seven such properties having a net book value of $2.5 million to PDA. No gains or losses were recognized on these transactions. The minority partner contributed cash in an amount sufficient to maintain its 20% ownership. Safeway paid PDA $1.1 million in 1994, $2.0 million in 1993 and $1.5 million in 1992 for reimbursement of expenses related to management and real estate services provided by PDA. During 1994, Safeway began selling products to Vons for resale under their private label. Sales to Vons in 1994 were $19.5 million, and cost of sales was $18.5 million. K. FINANCIAL INFORMATION BY GEOGRAPHIC AREA
- --------------------------------------------------------------------------------------------------------- (In millions) United States Canada Total - --------------------------------------------------------------------------------------------------------- 1994: SALES $12,240.1 $3,386.5 $15,626.6 GROSS PROFIT 3,409.7 840.3 4,250.0 OPERATING PROFIT 490.9 121.2 612.1 INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 337.7 86.4 424.1 NET WORKING CAPITAL (DEFICIT) (372.5) (13.5) (386.0) TOTAL ASSETS 4,171.3 850.8 5,022.1 NET ASSETS 386.6 257.2 643.8 1993: Sales $11,756.0 $3,458.5 $15,214.5 Gross profit 3,269.0 814.4 4,083.4 Operating profit 436.3 5.2 441.5 Income (loss) before income taxes 252.3 (36.0) 216.3 Net working capital (deficit) (276.3) 66.5 (209.8) Total assets 4,084.0 990.7 5,074.7 Net assets 169.1 213.8 382.9 1992: Sales $11,547.1 $3,604.8 $15,151.9 Gross profit 3,164.6 941.8 4,106.4 Operating profit 330.1 111.5 441.6 Income before income taxes, extraordinary loss and cumulative effect of accounting changes 137.3 60.1 197.4 Net working capital (deficit) (67.2) 126.9 59.7 Total assets 4,177.5 1,048.3 5,225.8 Net assets 12.8 230.3 243.1
34 26 L. QUARTERLY INFORMATION (UNAUDITED) The summarized quarterly financial data presented below reflect all adjustments which, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented. In 1994, Safeway began classifying advertising expenses as cost of goods sold. Advertising expenses were previously included in operating and administrative expenses. All prior periods have been reclassified to conform to the 1994 presentation. - ------------------------------------------------------------------------------------------------------------------- (In millions, except per-share amounts) Last Third Second First Year 16 Weeks 12 Weeks 12 Weeks 12 Weeks - ------------------------------------------------------------------------------------------------------------------- 1994 SALES $15,626.6 $4,890.3 $3,631.8 $3,612.7 $3,491.8 GROSS PROFIT 4,250.0 1,335.2(1) 991.1 983.2 940.5 OPERATING PROFIT 612.1 199.5 148.5 146.7 117.4 INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 424.1 140.4 106.8 103.4 73.5 EXTRAORDINARY LOSS RELATED TO EARLY RETIREMENT OF DEBT (10.5) (0.4) (2.7) (7.4) -- NET INCOME 239.7 85.3 61.0 51.5 41.9 INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT: PRIMARY INCOME BEFORE EXTRAORDINARY LOSS $ 2.05 $ 0.69 $ 0.52 $ 0.48 $ 0.34 EXTRAORDINARY LOSS (0.09) -- (0.02) (0.06) -- --------------------------------------------------------------------- NET INCOME $ 1.96 $ 0.69 $ 0.50 $ 0.42 $ 0.34 ===================================================================== FULLY DILUTED INCOME BEFORE EXTRAORDINARY LOSS $ 2.02 $ 0.69 $ 0.52 $ 0.48 $ 0.34 EXTRAORDINARY LOSS (0.08) -- (0.02) (0.06) -- --------------------------------------------------------------------- NET INCOME $ 1.94 $ 0.69 $ 0.50 $ 0.42 $ 0.34 ===================================================================== PRICE RANGE, NEW YORK STOCK EXCHANGE $ 19-1/2 $ 26-5/8 $ 23-3/8 $ 21-7/8 $ 19-1/2 to 31-7/8 to 31-7/8 to 27-7/8 to 26-1/4 to 26-7/8
- ------------------------------------------------------------------------------------------------------------------- (In millions, except per-share amounts) Last Third Second First Year 16 Weeks 12 Weeks 12 Weeks 12 Weeks - ------------------------------------------------------------------------------------------------------------------- 1993 Sales $15,214.5 $4,701.6 $3,558.9 $3,549.4 $3,404.6 Gross profit 4,083.4 1,263.2(1) 957.0 949.6 913.6 Operating profit 441.5 161.3 121.1 116.8(2) 42.3(2) Income (loss) before income taxes 216.3 82.2 74.0 63.2 (3.1) Net income (loss) 123.3 46.9(3) 42.1 36.0(2) (1.7)(2) Income (loss) per common share and common share equivalent: Primary $ 1.02 $ 0.38 $ 0.35 $ 0.30 $ (0.02) Fully diluted 1.00 0.38 0.34 0.30 (0.02) Price range, New York Stock Exchange $ 11-3/8 $ 18-1/8 $ 14-7/8 $ 13-1/2 $ 11-3/8 to 22-1/2 to 22-1/2 to 19-1/8 to 16-3/8 to 14-1/8
Note 1. The LIFO charge to cost of goods sold for the first 36 weeks of each year is based upon estimated annual inflation ("LIFO Indices"). Actual LIFO Indices are calculated during the fourth quarter of the year based upon a statistical sampling of inventories. Accordingly, fourth quarter pre-tax earnings were increased by $4.2 million in 1994 and $9.2 million in 1993. Note 2. Severance paid for a voluntary employee buyout in Alberta, Canada reduced operating profit and net income by $50.0 million and $27.5 million for the first quarter of 1993 and by $4.9 million and $2.7 million for the second quarter of 1993. Note 3. Restructuring charges recorded by Vons reduced Safeway's net income in the fourth quarter of 1993 by $8.7 million. 35 27 COMPUTATION OF EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT (UNAUDITED) Safeway Inc. and Subsidiaries
- -------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 ------------------- ------------------ ------------------- (In millions, except per-share amounts) FULLY Fully Fully DILUTED PRIMARY Diluted Primary Diluted Primary - -------------------------------------------------------------------------------------------------------------------- Income before extraordinary loss and cumulative effect of accounting changes $ 250.2 $ 250.2 $ 123.3 $ 123.3 $ 98.4 $ 98.4 Extraordinary loss (10.5) (10.5) -- -- (27.8) (27.8) Cumulative effect of accounting changes -- -- -- -- (27.1) (27.1) ------------------------------------------------------------------- Net income $ 239.7 $ 239.7 $ 123.3 $ 123.3 $ 43.5 $ 43.5 =================================================================== Weighted average common shares outstanding 104.9 102.9 101.5 99.6 98.8 98.6 Common share equivalents 18.7 19.1 21.9 21.4 20.2 20.4 Weighted average common shares and ------------------------------------------------------------------- common share equivalents 123.6 122.0 123.4 121.0 119.0 119.0 =================================================================== Earnings per common share and common share equivalent: Income before extraordinary loss and cumulative effect of accounting changes $ 2.02 $ 2.05 $ 1.00 $ 1.02 $ 0.83 $ 0.83 Extraordinary loss (0.08) (0.09) -- -- (0.23) (0.23) Cumulative effect of accounting changes -- -- -- -- (0.23) (0.23) ------------------------------------------------------------------- Net income $ 1.94 $ 1.96 $ 1.00 $ 1.02 $ 0.37 $ 0.37 =================================================================== Calculation of common share equivalents: Options and warrants to purchase common shares 26.9 28.2 29.4 30.2 28.0 28.2 Common shares assumed purchased with potential proceeds (8.2) (9.1) (7.5) (8.8) (7.8) (7.8) ------------------------------------------------------------------- Common share equivalents 18.7 19.1 21.9 21.4 20.2 20.4 =================================================================== Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares $ 262.9 $ 237.5 $ 157.2 $ 146.5 $ 110.6 $ 111.5 Common stock price used under the treasury stock method $ 31.88 $ 25.96 $ 21.25 $ 16.60 $ 14.26 $ 14.26 Common shares assumed purchased with potential proceeds 8.2 9.1 7.5 8.8 7.8 7.8
36 28 MANAGEMENT'S REPORT Financial Statements. Safeway Inc. is responsible for the preparation, integrity and fair presentation of its published financial statements. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts that are based on judgments and estimates made by management. Safeway also prepared the other information included in this annual report and is responsible for its accuracy and consistency with the financial statements. The financial statements have been audited by Deloitte & Touche LLP, independent auditors, which was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the Board of Directors, and committees of the Board. Safeway believes that all representations made to the independent auditors during their audit were valid and appropriate. The report of Deloitte & Touche LLP is presented below. Internal Control System. Safeway maintains a system of internal control over financial reporting, which is designed to provide reasonable assurance to management and the Board of Directors regarding the preparation of reliable published financial statements. The system includes a documented organizational structure and division of responsibility, established policies and procedures including a code of conduct to foster a strong ethical climate, which are communicated throughout Safeway, and the careful selection, training and development of employees. Internal auditors monitor the operation of the internal control system and report findings and recommendations to management and the Board, and corrective actions are taken to address control deficiencies and other opportunities for improving the system as they are identified. The Board, operating through its Audit Committee, which is composed entirely of outside directors, provides oversight to the financial reporting process. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Furthermore, the effectiveness of an internal control system can change with circumstances. As of December 31, 1994, Safeway believes its system of internal controls over financial reporting was effective for providing reliable financial statements. /s/ Steven A. Burd /s/ Julian C. Day - ---------------------- -------------------- Steven A. Burd Julian C. Day President and Executive Vice President and Chief Executive Officer Chief Financial Officer INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of Safeway Inc.: We have audited the accompanying consolidated balance sheets of Safeway Inc. and subsidiaries as of December 31, 1994 and January 1, 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Safeway Inc. and subsidiaries at December 31, 1994 and January 1, 1994, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, during the fiscal year ended January 2, 1993, the Company changed its methods of accounting for postretirement and postemployment benefits, and an unconsolidated equity method affiliate of the Company changed its methods of accounting for postretirement benefits and income taxes. /s/ DELOITTE & TOUCHE LLP - ---------------------------- Oakland, California February 20, 1995 29 APPENDIX TO EXHIBIT 13.1 GRAPHIC PRESENTATION OF MATERIAL The following graphs in the Company's 1994 Annual Report to Stockholders are incorporated by reference in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations: On page 13 under the section "Financial Review" is a pie graph entitled "1994 Portions of the Sales Dollar" depicting the following : Cost of Goods Sold 72.8% Operating and Administrative Expenses 23.3% Operating Profit 3.9% This graph accompanies the subsection entitled "Gross Profit." On page 13 under the section "Financial Review" is a bar graph entitled "Operating & Administrative Expenses (% of Sales) which shows operating and administrative expenses as a percentage of sales as follows: 1992 24.19% 1993 23.94% 1994 23.28% The graph has an initial value of 20% and accompanies the subsection entitled "Operating and Administrative Expenses." On page 14 under the section "Financial Review" is a bar graph entitled "Interest Expense" which shows interest expense (in millions) as follows: 1992 $290.4 1993 265.5 1994 221.7 The graph has an initial value of zero, and accompanies the subsection entitled "Interest Expense" EX-22.1 6 SCHEDULE OF SUBSIDIARIES AS OF 12/31/94. 1 Exhibit 22.1 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 31, 1994 Registrant: Safeway Inc. Subsidiaries of Registrant (Tier I subsidiaries): Safeway U.S. Holdings, Inc. Safeway Canada Holdings, Inc. Safeway Australia Holdings, Inc. Safeway Netherlands Antilles Finance Corp. Salvage, Inc. Oakland Property Brokerage, Inc. Glencourt, Inc. Safeway International DISC, Inc. Safeway Foreign Sales, Inc. Milford Insurance Ltd. Pak 'N Save, Inc. SUBSIDIARIES OF TIER I SUBSIDIARIES (Tier II subsidiaries): Subsidiaries of Safeway U.S. Holdings, Inc.: Safeway Trucking, Inc. Photo Acquisition I, Inc. Photo Acquisition II, Inc. Safeway Southern California, Inc. Safeway Denver, Inc. Safeway Richmond, Inc. Safeway Dallas, Inc. Safeway Supply, Inc. Safeway Corporate, Inc. Safeway Stores 42, Inc. Safeway Stores 43, Inc. Safeway Stores 64, Inc. Safeway Claim Services, Inc. Safeway Stores, Incorporated Safeway Warehouse, Inc. Subsidiaries of Safeway Canada Holdings, Inc.: Safeway New Canada, Inc. (Continued) 2 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 31, 1994 SUBSIDIARIES OF TIER II SUBSIDIARIES (Tier III subsidiaries): Subsidiaries of Safeway Southern California, Inc. Safeway Stores 18, Inc. Safeway Stores 26, Inc. Safeway Stores 28, Inc. Safeway Stores 31, 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. Southern Missouri Charcoal Company (Continued) 3 SAFEWAY INC. SCHEDULE OF SUBSIDIARIES As of December 31, 1994 Subsidiaries of Safeway Dallas, Inc. Safeway Stores 78, Inc. Safeway Stores 79, Inc. Safeway Stores 80, Inc. Safeway Stores 81, Inc. Safeway Stores 82, Inc. Safeway Stores 85, Inc. Safeway Stores 86, Inc. Safeway Stores 87, Inc. Safeway Stores 88, Inc. Safeway Stores 89, Inc. Safeway Stores 90, Inc. Safeway Stores 91, Inc. Safeway Stores 92, Inc. Safeway Stores 96, Inc. Safeway Stores 97, Inc. Safeway Stores 98, Inc. Subsidiaries of Photo Acquisition I, Inc. Everett Realty Advisors, Inc. SUBSIDIARIES OF TIER II SUBSIDIARIES (Non-tier Subsidiaries): Subsidiary of Safeway New Canada, Inc.: Canada Safeway Limited and its subsidiaries: Safeway International Finance Corp. of Canada Ltd. Lucerne Foods Ltd. SUBSIDIARIES OF TIER III SUBSIDIARIES (Tier IV Subsidiaries): Subsidiary of Safeway Stores 58, Inc.: Safelease, Inc. Ten companies are not listed as they are maintained solely for the purpose of holding licenses. EX-23.1 7 INDEPENDENT AUDITORS' CONSENT 1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference of our report dated February 20, 1995, incorporated by reference in this Annual Report on Form 10-K of Safeway Inc. for the fiscal year ended December 31, 1994, in the following Registration Statements of Safeway Inc.: o No. 33-33388 on Form S-3 regarding Warrants to Purchase Common Stock, o No. 33-36753 on Form S-8 regarding the Safeway Inc. Outside Director Equity Purchase Plan, o No. 33-37207 on Form S-8 regarding the Profit Sharing Plan of Safeway Inc. and its United States Subsidiaries, o No. 33-42232 on Forms S-3 and S-8 regarding the Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc., o No. 33-48884 on Form S-8 regarding the Amended and Restated Stock Option and Incentive Plan for Key Employees of Safeway Inc., o No. 33-51552 on Form S-3 regarding Debt Securities, o No. 33-51119 on Form S-8 regarding the Stock Option Plan for Consultants of Safeway Inc., and o No. 33-54581 on Form S-8 regarding the Employee Stock Purchase Plan of Safeway Inc. Deloitte & Touche LLP Oakland, California March 17, 1995 EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME ON PAGES 17 THROUGH 19 OF THE COMPANY'S 1994 ANNUAL REPORT TO STOCKHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1000 12-MOS DEC-31-1994 JAN-2-1994 DEC-31-1994 60,700 0 147,900 0 1,136,000 1,437,600 4,375,300 (1,868,900) 5,022,100 1,823,600 2,024,300 1,000 0 0 642,800 5,022,100 15,626,600 15,626,600 (11,376,600) 0 0 0 (221,700) 424,100 (173,900) 250,200 0 (10,500) 0 239,700 1.96 1.94
-----END PRIVACY-ENHANCED MESSAGE-----