-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXGBsbkM6Z4mP8FtdyR7FfA699LYQh//W8LKJbj4kcsM+piVvcNjdEQQPyUfXcGB 7QWzpV+UBCeybTjmZBOGnw== 0000950149-96-001593.txt : 19961018 0000950149-96-001593.hdr.sgml : 19961018 ACCESSION NUMBER: 0000950149-96-001593 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960907 FILED AS OF DATE: 19961017 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00041 FILM NUMBER: 96644712 BUSINESS ADDRESS: STREET 1: FOURTH & JACKSON ST CITY: OAKLAND STATE: CA ZIP: 94660 BUSINESS PHONE: 5108913000 MAIL ADDRESS: STREET 1: FOURTH & JACKSON ST CITY: OAKLAND STATE: CA ZIP: 94660 FORMER COMPANY: FORMER CONFORMED NAME: SAFEWAY STORES INC DATE OF NAME CHANGE: 19900226 10-Q 1 SAFEWAY 10-Q FOR THE PERIOD ENDED 9/7/96 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 7, 1996 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) 5918 Stoneridge Mall Road Pleasanton, California 94588-3229 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (510) 467-3000
Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO . As of October 11, 1996, there were issued and outstanding 220.2 million shares of the registrant's common stock. 2 SAFEWAY INC. AND SUBSIDIARIES INDEX PART I FINANCIAL INFORMATION (UNAUDITED) Page ------ --------------------------------- ---- ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets as of September 7, 1996 and 3 December 30, 1995 Condensed Consolidated Statements of Income for the 12 and 36 weeks ended 5 September 7, 1996 and September 9, 1995 Condensed Consolidated Statements of Cash Flows for the 36 weeks ended 6 September 7, 1996 and September 9, 1995 Notes to the Condensed Consolidated Financial Statements 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 10 OF OPERATIONS PART II OTHER INFORMATION ------- ----------------- ITEM 1. LEGAL PROCEEDINGS 12 ITEM 6. EXHIBITS 13
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN MILLIONS) (UNAUDITED)
September 7, December 30, 1996 1995 ---- ---- ASSETS - ------ Current assets: Cash and equivalents $ 25.5 $ 74.8 Receivables 173.5 152.7 Merchandise inventories 1,172.6 1,191.8 Prepaid expenses and other current assets 153.8 95.5 ---------- ---------- Total current assets 1,525.4 1,514.8 ---------- ---------- Property 4,891.7 4,687.2 Less accumulated depreciation and amortization (2,261.9) (2,094.3) ---------- ---------- Property, net 2,629.8 2,592.9 Goodwill, net of accumulated amortization of $113.2 and $106.3 315.7 323.8 Prepaid pension costs 326.1 322.4 Investments in unconsolidated affiliates 354.2 336.0 Other assets 121.1 104.4 ---------- ---------- Total assets $ 5,272.3 $ 5,194.3
========== ========== (Continued) 3 4 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED)
September 7, December 30, 1996 1995 ---- ---- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of notes and debentures $ 228.5 $ 221.4 Current obligations under capital leases 19.7 19.0 Accounts payable 1,013.2 1,040.0 Accrued salaries and wages 210.4 234.6 Other accrued liabilities 562.5 424.0 ---------- ---------- Total current liabilities 2,034.3 1,939.0 ---------- ---------- Long-term debt: Notes and debentures 1,420.1 1,783.6 Obligations under capital leases 160.5 166.2 ---------- ---------- Total long-term debt 1,580.6 1,949.8 Deferred income taxes 108.0 108.5 Accrued claims and other liabilities 413.1 401.5 ---------- ---------- Total liabilities 4,136.0 4,398.8 ---------- ---------- Contingencies Stockholders' equity: Common stock: par value $0.01 per share; 750 shares authorized; 218.6 and 213.7 shares outstanding 2.2 2.1 Additional paid-in capital 719.0 684.9 Unexercised warrants purchased (196.2) (196.2) Cumulative translation adjustments 17.9 20.3 Retained earnings 593.4 284.4 ---------- ---------- Total stockholders' equity 1,136.3 795.5 ---------- ---------- Total liabilities and stockholders' equity $ 5,272.3 $ 5,194.3 ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 5 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED)
12 Weeks Ended 36 Weeks Ended ------------------------- --------------------------- Sept. 7, Sept. 9, Sept. 7, Sept. 9, 1996 1995 1996 1995 ---- ---- ---- ---- Sales $ 3,954.0 $ 3,845.5 $ 11,782.1 $ 11,231.2 Cost of goods sold (2,867.4) (2,787.1) (8,500.9) (8,152.6) ----------- ----------- ------------ ------------ Gross profit 1,086.6 1,058.4 3,281.2 3,078.6 Operating and administrative expense (882.8) (882.0) (2,673.2) (2,583.1) ------------ ----------- ------------ ------------ Operating profit 203.8 176.4 608.0 495.5 Interest expense (39.8) (44.6) (126.3) (141.3) Equity in earnings of unconsolidated affiliates 13.1 9.4 34.3 17.2 Other income, net 1.0 0.4 3.4 1.5 ----------- ----------- ------------ ------------ Income before income taxes 178.1 141.6 519.4 372.9 Income taxes (72.2) (57.9) (210.4) (158.5) ----------- ----------- ------------ ------------ Net income $ 105.9 $ 83.7 $ 309.0 $ 214.4 ----------- ----------- ------------ ------------ Earnings per common share and common share equivalent: Primary $ 0.44 $ 0.35 $ 1.29 $ 0.89 ------------ ----------- ------------ ------------ Fully diluted $ 0.44 $ 0.35 $ 1.29 $ 0.88 ------------ ----------- ------------ ------------ Weighted average common shares and common share equivalents: Primary 240.3 241.0 239.5 241.1 ------------ ----------- ------------ ------------ Fully diluted 240.5 241.6 240.1 242.4 ------------ ----------- ------------ ------------
See accompanying notes to condensed consolidated financial statements. 5 6 SAFEWAY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) (UNAUDITED)
36 Weeks Ended ------------------------- September 7, September 9, 1996 1995 ------------ ----------- CASH FLOW FROM OPERATING ACTIVITIES Net income $ 309.0 $ 214.4 Reconciliation to net cash flow from operating activities: Depreciation and amortization 233.5 227.7 LIFO expense 6.9 6.9 Equity in undistributed earnings of unconsolidated affiliates (34.3) (17.2) Other (5.5) 40.6 Changes in working capital items: Receivables and prepaid expenses (79.5) (31.9) Inventories at FIFO cost 9.2 34.1 Payables and accruals 107.6 (17.5) -------- -------- Net cash flow provided by operating activities 546.9 457.1 -------- -------- CASH FLOW FROM INVESTING ACTIVITIES Cash paid for property additions (286.9) (253.2) Proceeds from sale of property 46.1 25.2 Other (5.3) (19.8) -------- -------- Net cash flow used by investing activities (246.1) (247.8) -------- -------- CASH FLOW FROM FINANCING ACTIVITIES Additions to short-term borrowings 121.7 98.2 Payments on short-term borrowings (205.5) (112.3) Additions to long-term borrowings 148.4 558.9 Payments on long-term borrowings (432.7) (660.5) Net proceeds from exercise of warrants and stock options 14.0 8.2 Purchase of unexercised warrants -- (113.2) Other 4.0 (0.6) -------- -------- Net cash flow used by financing activities (350.1) (221.3) -------- -------- Decrease in cash and equivalents (49.3) (12.0) CASH AND EQUIVALENTS Beginning of period 74.8 60.7 -------- -------- End of period $ 25.5 $ 48.7 ======== ========
See accompanying notes to condensed consolidated financial statements. 6 7 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying condensed consolidated financial statements of Safeway Inc. and subsidiaries ("Safeway" or the "Company") for the 12 and 36 weeks ended September 7, 1996 and September 9, 1995 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial position and results of operations for such periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company's 1995 Annual Report to Stockholders. The results of operations for the 12 and 36 weeks ended September 7, 1996 and September 9, 1995 are not necessarily indicative of the results expected for the full year. INVENTORY Net income reflects the application of the LIFO method of valuing certain domestic inventories, based upon estimated annual inflation ("LIFO Indices"). LIFO expense was $2.3 million in the third quarters of both 1996 and 1995, and was $6.9 million for the first 36 weeks of both years. Actual LIFO Indices are calculated during the fourth quarter of the year based upon a statistical sampling of inventories. NOTE B - FINANCING Notes and debentures were composed of the following at September 7, 1996 and December 30, 1995 (in millions):
September 7, 1996 December 30, 1995 ----------------- ----------------- Long-term Current Long-term Current --------- ------- --------- ------- Credit Agreement, unsecured $ 212.8 $ 395.0 9.30% Senior Secured Debentures due 2007 70.7 70.7 Mortgage notes payable, secured 155.3 $172.1 322.3 $ 67.0 10% Senior Notes due 2002, unsecured 59.1 - 59.1 - Medium-term notes, unsecured 65.5 - 65.5 14.5 Other notes payable, unsecured 115.6 4.1 118.9 3.8 Short-term bank borrowings, unsecured - 52.3 - 136.1 9.35% Senior Subordinated Notes due 1999, unsecured 161.5 - 172.5 - 10% Senior Subordinated Notes due 2001, unsecured 241.4 - 241.4 - 9.65% Senior Subordinated Debentures due 2004, unsecured 228.2 - 228.2 - 9.875% Senior Subordinated Debentures due 2007, unsecured 110.0 - 110.0 - -------- ------ -------- ------ $1,420.1 $228.5 $1,783.6 $221.4 ======== ===== ======== ======
Note B to the Company's consolidated financial statements on pages 27 through 29 of the 1995 Annual Report to Stockholders describes all of the material restrictive covenants of the Credit Agreement, the 9.30% Senior Secured Debentures, and the Subordinated Securities. 7 8 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE C - INVESTMENTS IN AFFILIATES Investments in affiliates consists of a 35% interest in The Vons Companies, Inc. ("Vons") which operates 325 supermarkets located mostly in southern California, and a 49% interest in Casa Ley, S.A. de C.V. which operates 71 stores in western Mexico. Safeway records income from its equity investments on a one-quarter delay basis. Safeway's share of Casa Ley's earnings for the quarter was $4.4 million in 1996 compared to $4.6 million in 1995, and $12.5 million year-to-date in 1996 compared to $5.0 million in 1995. Although Mexico suffered from high interest rates and inflation throughout 1995, these factors have moderated and Casa Ley's financial results have gradually improved since early 1995. Safeway's recorded investment in Vons at September 7, 1996 was $277.0 million, including unamortized goodwill of $44.7 million that is being amortized over a 40-year life. Safeway's share of Vons' earnings increased to $8.7 million in the third quarter of 1996 from $4.8 million in 1995, and to $21.8 million in the first 36 weeks of 1996 from $12.2 million in 1995. Based on the September 6, 1996 closing price for Vons common stock as quoted on the New York Stock Exchange, the Company's 15.1 million shares of Vons common stock had an aggregate market value of $641.0 million. Summarized financial information derived from Vons' financial reports to the Securities and Exchange Commission is as follows (in millions):
June 16, December 31, FINANCIAL POSITION 1996 1995 - ------------------ ---- ---- Current assets $ 417.3 $ 452.3 Property and equipment, net 1,188.7 1,192.5 Other assets 536.1 541.7 --------- -------- Total assets $ 2,142.1 $ 2,186.5 ======== ======== Current liabilities $ 603.1 $ 593.4 Long-term liabilities 869.3 969.8 Shareholders' equity 669.7 623.3 --------- -------- Total liabilities and shareholders' equity $ 2,142.1 $ 2,186.5 ========= ========
12 Weeks Ended 36 Weeks Ended -------------- -------------- June 16, June 18, June 16, June 18, RESULTS OF OPERATIONS 1996 1995 1996 1995 - --------------------- ---- ---- ---- ---- Sales $ 1,261.0 $ 1,139.5 $ 3,690.0 $ 3,458.2 Cost of sales and other expenses (1,238.3) (1,125.0) (3,628.7) (3,420.6) -------- -------- -------- -------- Net income $ 22.7 $ 14.5 $ 61.3 $ 37.6 ========= ========= ========= =========
8 9 SAFEWAY INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE D - CONTINGENCIES LEGAL MATTERS Note J to the Company's consolidated financial statements, under the caption "Legal Matters" on pages 35 and 36 of the 1995 Annual Report to Stockholders, provides information on certain claims and litigation in which the Company is involved. On March 8, 1996, a purported class action was filed on behalf of persons allegedly injured as a result of the July 1988 fire at the Company's dry grocery warehouse in Richmond, California. The complaint generally alleges that the Company fraudulently (i) obtained settlements of certain claims arising out of the fire and (ii) made statements that induced claimants not to file actions within the time period allowed under the statute of limitations. The complaint seeks compensatory and punitive damages. The Company has received notice from its insurance carrier that, pending completion of its investigation of its defenses relating to Safeway's insurance policy and the purported class action, the insurance carrier has reached a preliminary view that there may be no coverage under the policy for this action. Safeway disagrees with the insurance carrier's preliminary view and continues to believe that its coverage 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 ("Morgan Lewis") and financed principally by the Prudential Insurance Company of America ("Prudential") and its affiliate, PruCo Insurance Company ("PruCo"). 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 damages of $78 million (the alleged difference between the value of the division and the purchase price), and consequential damages of approximately $696 million, plus interest, and $100 million in punitive damages. In April 1995, the Company filed motions to dismiss, and for summary judgment on, Food Barn's claims, and in August 1995 the Bankruptcy Court denied the motions. In September 1995, the Company filed its answer and counterclaims, denying the operative allegations of the complaint, asserting numerous defenses, and alleging that any losses sustained by Food Barn were the result of actions and omissions of Morgan Lewis and its principals, Prudential and PruCo. Safeway believes that it has numerous meritorious defenses, and intends to defend itself vigorously, in this case. 9 10 SAFEWAY INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Safeway's net income for the third quarter ended September 7, 1996 was $105.9 million ($0.44 per share) compared to $83.7 million ($0.35 per share) for the third quarter of 1995. For the first 36 weeks of the year, net income was $309.0 million ($1.29 per share) in 1996, compared to $214.4 million ($0.88 per share) in 1995. Each year was affected by labor disputes as discussed below. During the second and third quarters of 1996, Safeway was engaged in a labor dispute affecting 86 stores in British Columbia which lasted the final 16 days of the second quarter and the first 24 days of the third quarter of 1996. Under Provincial law, replacement workers could not be hired, and therefore all the affected stores were closed throughout the strike-lockout. Separately, the Company was engaged in a strike-lockout in the Denver operating area which lasted the final 33 days of the second quarter and the first 11 days of the third quarter of 1996. All of the Denver stores operated during the strike-lockout, largely with replacement workers. Safeway estimates that the combined impact of both disputes reduced 1996 earnings by approximately $0.05 per share in the second quarter and $0.07 per share in the third quarter. Any lingering effect of the strike on fourth-quarter results is not expected to be material. A nine-day strike during the second quarter of 1995 affected 208 stores in northern California. The Company estimates that the dispute reduced earnings for the first 36 weeks of 1995 by an estimated $0.025 per share. Sales were $4.0 billion for the third quarter of 1996 compared to $3.8 billion for the third quarter of 1995. For the first 36 weeks of the year, sales increased to $11.8 billion in 1996 compared to $11.2 billion in 1995. Same-store sales (sales of stores operating the entire measurement period in both 1996 and 1995, including stores that remained open during strikes or lockouts) increased 4.5% for the quarter and 5.3% for the first 36 weeks of 1996. These same-store sales increases exclude stores in British Columbia which were closed during the strike-lockout. Gross profit was 27.48% of sales in the third quarter of 1996, essentially flat compared to 27.52% in 1995. Improvements in buying practices and product mix were offset by the impact of the labor disputes in Denver and British Columbia. For the first three quarters of the year, gross profit rose to 27.85% of sales in 1996 from 27.41% in 1995. Operating and administrative expense fell 0.61 percentage points to 22.33% of sales in the third quarter of 1996 from 22.94% in the third quarter of 1995. For the first three quarters of the year, operating and administrative expense fell to 22.69% of sales in 1996 from 23.00% in 1995. Higher sales and efforts to reduce or control expenses continue to improve operating and administrative expense as a percentage of sales. Due primarily to reduced debt levels, interest expense fell to $39.8 million in the third quarter of 1996 from $44.6 million in 1995. For the first three quarters of the year, interest expense decreased to $126.3 million in 1996 from $141.3 million in 1995 due to a combination of lower interest rates and reduced debt levels. Equity in earnings of unconsolidated affiliates, recorded on a one-quarter delay basis, was $13.1 million in the third quarter of 1996, up from $9.4 million in 1995. For the first three quarters of the year, equity in earnings from unconsolidated affiliates rose to $34.3 million in 1996 from $17.2 million in 1995. Safeway's share of Casa Ley's earnings for the quarter was $4.4 million in 1996 compared to $4.6 million in 1995, and $12.5 million year-to-date in 1996 compared to $5.0 million in 1995. Although Mexico suffered from high interest rates and inflation throughout 1995, these factors have moderated and Casa Ley's financial results have gradually improved since early 1995. Safeway's share of Vons' earnings increased to $8.7 million in the third quarter of 1996 from $4.8 million in 1995, and to $21.8 million in the first 36 weeks of 1996 from $12.2 million in 1995. 10 11 SAFEWAY INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND FINANCIAL RESOURCES Operating cash flow, as presented below, 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):
12 Weeks Ended 36 Weeks Ended -------------- -------------- Sept. 7, Sept. 9, Sept. 7, Sept. 9, 1996 1995 1996 1995 ---- ---- ---- ---- Income before income taxes $178.1 $141.6 $519.4 $372.9 LIFO expense 2.3 2.3 6.9 6.9 Interest expense 39.8 44.6 126.3 141.3 Depreciation and amortization 79.7 76.8 233.5 227.7 Equity in earnings of unconsolidated affiliates (13.1) (9.4) (34.3) (17.2) ------ ------ ------ ------ Operating cash flow $286.8 $255.9 $851.8 $731.6 ====== ====== ====== ====== As a percentage of sales 7.25% 6.65% 7.23% 6.51% ====== ====== ====== ====== As a multiple of interest expense 7.21x 5.74x 6.74x 5.18x ====== ====== ====== ======
Management expects operating cash flow, supplemented by credit available under the Credit Agreement, to be Safeway's primary sources of long-term liquidity. Management believes that these sources will be adequate to meet the Company's requirements. At September 7, 1996, the Company had total borrowing capacity under the Credit Agreement of $1.15 billion, of which $799.4 million was unused. CAPITAL EXPENDITURE PROGRAM A key component of the Company's long-term strategy is its capital expenditure program. During the first three quarters of 1996, Safeway invested $324 million in capital expenditures and opened 11 new stores. The Company expects to invest over $600 million for capital expenditures in 1996 and expects to open 30 to 35 new stores and complete more than 125 remodels. In 1997, Safeway plans to invest approximately $700 million in capital expenditures, open 35 new stores and complete 150 remodels. 11 12 SAFEWAY INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Note J to the Company's consolidated financial statements, under the caption "Legal Matters" on pages 35 and 36 of the 1995 Annual Report to Stockholders, provides information on certain claims and litigation in which the Company is involved. On March 8, 1996, a purported class action was filed on behalf of persons allegedly injured as a result of the July 1988 fire at the Company's dry grocery warehouse in Richmond, California. The complaint generally alleges that the Company fraudulently (i) obtained settlements of certain claims arising out of the fire and (ii) made statements that induced claimants not to file actions within the time period allowed under the statute of limitations. The complaint seeks compensatory and punitive damages. The Company has received notice from its insurance carrier that, pending completion of its investigation of its defenses relating to Safeway's insurance policy and the purported class action, the insurance carrier has reached a preliminary view that there may be no coverage under the policy for this action. Safeway disagrees with the insurance carrier's preliminary view and continues to believe that its coverage 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 ("Morgan Lewis") and financed principally by the Prudential Insurance Company of America ("Prudential") and its affiliate, PruCo Insurance Company ("PruCo"). 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 damages of $78 million (the alleged difference between the value of the division and the purchase price), and consequential damages of approximately $696 million, plus interest, and $100 million in punitive damages. In April 1995, the Company filed motions to dismiss, and for summary judgment on, Food Barn's claims, and in August 1995 the Bankruptcy Court denied the motions. In September 1995, the Company filed its answer and counterclaims, denying the operative allegations of the complaint, asserting numerous defenses, and alleging that any losses sustained by Food Barn were the result of actions and omissions of Morgan Lewis and its principals, Prudential and PruCo. Safeway believes that it has numerous meritorious defenses, and intends to defend itself vigorously, in this case. 12 13 SAFEWAY INC. AND SUBSIDIARIES ITEM 6(a). EXHIBITS Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent. Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges. Exhibit 27.1 Financial Data Schedule (electronic filing only). 13 14 SAFEWAY INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements 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. Date: October 17, 1996 \s\ Steven A. Burd --------------------- ------------------ Steven A. Burd President and Chief Executive Officer Date: October 17, 1996 \s\ Julian C. Day --------------------- ----------------- Julian C. Day Executive Vice President and Chief Financial Officer
14 15 SAFEWAY INC. AND SUBSIDIARIES EXHIBIT INDEX LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 7, 1996 Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges Exhibit 27.1 Financial Data Schedule (electronic filing only) 15 EX-11.1 2 COMPUTATION OF EARNINGS PER COMMON SHARE 1 EXHIBIT 11.1 SAFEWAY INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED)
12 Weeks Ended -------------------------------------------- Sept. 7, 1996 Sept. 9, 1995 ------------------- ------------------- Fully Fully Diluted Primary Diluted Primary ------- ------- ------- ------- Net income $ 105.9 $ 105.9 $ 83.7 $ 83.7 --------- --------- --------- --------- Weighted average common shares outstanding 218.1 218.1 212.7 212.3 Common share equivalents 22.4 22.2 28.9 28.7 --------- --------- --------- --------- Weighted average common shares and common share equivalents 240.5 240.3 241.6 241.0 --------- --------- --------- --------- Earnings per common share and common share equivalent $ 0.44 $ 0.44 $ 0.35 $ 0.35 --------- --------- --------- --------- Calculation of common share equivalents: Options and warrants to purchase common shares 33.6 33.6 43.7 44.1 Common shares assumed purchased with potential proceeds (11.2) (11.4) (14.8) (15.4) --------- ---------- ---------- ---------- Common share equivalents 22.4 22.2 28.9 28.7 --------- --------- --------- --------- Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares $ 425.5 $ 404.7 $ 298.1 $ 290.4 Common stock price used under the treasury stock method $ 37.87 $ 35.35 $ 20.19 $ 18.92 Common shares assumed purchased with potential proceeds 11.2 11.4 14.8 15.4
(Continued) 16 2 EXHIBIT 11.1 SAFEWAY INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT (CONTINUED) (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) (UNAUDITED)
36 Weeks Ended ------------------------------------------- Sept. 7, 1996 Sept. 9, 1995 ------------------- -------------------- Fully Fully Diluted Primary Diluted Primary ------- ------- ------- ------- Net income $ 309.0 $ 309.0 $ 214.4 $ 214.4 --------- --------- --------- --------- Weighted average common shares outstanding 217.0 217.0 212.7 211.4 Common share equivalents 23.1 22.5 29.7 29.7 --------- --------- --------- --------- Weighted average common shares and common share equivalents 240.1 239.5 242.4 241.1 --------- --------- --------- --------- Earnings per common share and common share equivalent $ 1.29 $ 1.29 $ 0.88 $ 0.89 --------- --------- --------- --------- Calculation of common share equivalents: Options and warrants to purchase common shares 34.6 34.6 44.4 45.7 Common shares assumed purchased with potential proceeds (11.5) (12.1) (14.7) (16.0) --------- --------- --------- --------- Common share equivalents 23.1 22.5 29.7 29.7 --------- --------- --------- --------- Calculation of common shares assumed purchased with potential proceeds: Potential proceeds from exercise of options and warrants to purchase common shares $ 434.1 $ 377.5 $ 297.2 $ 286.7 Common stock price used under the treasury stock method $ 37.80 $ 31.32 $ 20.19 $ 17.89 Common shares assumed purchased with potential proceeds 11.5 12.1 14.7 16.0
17 EX-12.1 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12.1 SAFEWAY INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
36 Weeks Fiscal Year ----------------------- -------------------------------------------------- Sept. 7, Sept. 9, 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- Income before income taxes, extraordinary loss and cumulative effect of accounting changes $ 519.4 $ 372.9 $ 556.5 $ 424.1 $ 216.3 $ 197.4 $ 166.2 Add interest expense 126.3 141.3 199.8 221.7 265.5 290.4 355.4 Add interest on rental expense (a) 62.3 60.0 87.5 86.6 88.0 88.0 83.0 Less equity in earnings of unconsolidated affiliates (34.3) (17.2) (26.9) (27.3) (33.5) (39.1) (45.8) Less gain on common stock offering by unconsolidated affiliate -- -- -- -- -- -- (27.4) Add minority interest in subsidiary 2.1 2.6 3.9 3.0 3.5 1.7 1.3 --------- --------- --------- --------- -------- --------- -------- Earnings $ 675.8 $ 559.6 $ 820.8 $ 708.1 $ 539.8 $ 538.4 $ 532.7 ========= ========= ========= ========= ======== ========= ======== Interest expense $ 126.3 $ 141.3 $ 199.8 $ 221.7 $ 265.5 $ 290.4 $ 355.4 Add capitalized interest 2.6 3.1 4.6 2.9 4.2 8.0 10.6 Add interest on rental expense (a) 62.3 60.0 87.5 86.6 88.0 88.0 83.0 --------- --------- --------- --------- -------- --------- -------- Fixed charges $ 191.2 $ 204.4 $ 291.9 $ 311.2 $ 357.7 $ 386.4 $ 449.0 ========= ========= ========= ========= ======== ========= ======== Ratio of earnings to fixed charges 3.53 2.74 2.81 2.28 1.51(b) 1.39 1.19(c) ========= ========= ========= ========= ======== ========= ========
(a) Based on a 10% discount factor on the estimated present value of future operating lease payments. (b) Safeway's ratio of earnings to fixed charges during 1993 was adversely affected by a $54.9 million charge to operating and administrative expense for severance payments made to retail employees in the Alberta, Canada division as part of a voluntary employee buyout. Excluding this charge, the ratio of earnings to fixed charges for 1993 would have been 1.66. (c) Safeway's ratio of earnings to fixed charges for 1991 was adversely affected by a $115 million charge to operating profit in connection with the bankruptcy of AppleTree Markets, Inc. ("AppleTree"). The $115 million charge was an estimate of the eventual net lease and related cash payments which Safeway expected to make over a period of up to 16 years in connection with any liability Safeway may have on the leases assigned to AppleTree as part of the sale of the Company's former Houston division. Excluding this charge, the ratio of earnings to fixed charges for 1991 would have been 1.44. 18 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) the condensed consolidated balance sheets and the condensed consolidated statements of income on pages 3 through 5 of the Company's Form 10-Q for the quarterly period ended September 7, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH(B) financial statements. 1,000 3-MOS DEC-28-1996 DEC-31-1995 SEP-07-1996 25,500 0 173,500 0 1,172,600 1,525,400 4,891,700 (2,261,900) 5,272,300 2,034,300 1,580,600 0 0 2,200 1,134,100 5,272,300 3,954,000 3,954,000 2,867,400 2,867,400 0 0 39,800 178,100 72,200 105,900 0 0 0 105,900 .44 .44
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