ITEM 1. BUSINESS AND ITEM 2.
ITEM 3. LEGAL PROCEEDINGS
Information about legal proceedings appearing under the caption "Legal Matters" as reported in Note K to the consolidated financial statements on page 35 of the Company's 1996 Annual Report to Stockholders is incorporated herein by this reference.
ITEM 4.
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 1996.
EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the current executive officers of the Company and their positions as of March 18, 1997, 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.
SAFEWAY INC. AND SUBSIDIARIES
ITEM 4. EXECUTIVE OFFICERS OF THE COMPANY (CONTINUED)
- ------------------------------- (1) Previously the owner of Burd & Associates, a management consulting firm.
(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.
Section 16(a) Beneficial Ownership. Information appearing under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 1997 Proxy Statement is incorporated herein by this reference.
PART II
ITEM 5.
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 M to the consolidated financial statements on page 37 of the Company's 1996 Annual Report to Stockholders and is incorporated herein by this reference. There were 7,674 stockholders of record as of March 14, 1997; however, approximately 49% of the Company's outstanding stock is held in "street name" by depositories or nominees on behalf of beneficial holders. The price per share of common stock, as reported on the New York Stock Exchange Composite Tape, was $49 3/4 at the close of business on March 14, 1997.
Safeway intends to delist from the Pacific Stock Exchange in early April, 1997.
SAFEWAY INC. AND SUBSIDIARIES
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (CONTINUED)
Holders of common stock are entitled to receive dividends if, as, and when declared by the Board of Directors out of funds legally available therefor, subject to the dividend and liquidation rights of any preferred stock that may be issued and subject to the dividend restrictions in the Credit Agreement and the indentures relating to the Notes and Debentures. Information as to dividend restrictions is included in the first paragraph under the caption "Restrictive Covenants" in Note C to the consolidated financial statements on page 28 of the Company's 1996 Annual Report to Stockholders and is incorporated herein by this reference. The Company has not paid dividends on common stock through 1996 and has no current plans for dividend payments.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The "Five-Year Summary Financial Information" included on page 15 of the Company's 1996 Annual Report to Stockholders is incorporated herein by this reference. The Five-Year Summary should be read in conjunction with the Company's consolidated financial statements and accompanying notes incorporated by reference in Item 8, Consolidated Financial Statements and Supplementary Data.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Information appearing under the caption "Financial Review" on pages 16 through 18 and under the caption "Capital Expenditure Program" on page 14 of the Company's 1996 Annual Report to Stockholders is incorporated herein by this reference.
Information regarding the terms of outstanding indebtedness appearing in Note C to the consolidated financial statements on pages 27 through 29 of the Company's 1996 Annual Report to Stockholders is incorporated herein by this reference.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996, Safeway adopted the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 121 establishes recognition and measurement criteria for impairment losses when the Company no longer expects to recover the carrying value of a long-lived asset. Safeway's existing policy for long-lived assets complies with SFAS No. 121. Therefore, the adoption of SFAS No. 121 did not have a material effect on the Company's Consolidated Financial Statements. Upon the decision to close a store or other facility, 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. As of year-end 1996, Safeway had an accrued liability of $27.6 million for the anticipated future closure of 35 stores and $19.8 million for the anticipated future closure of other facilities.
STOCK-BASED COMPENSATION
Safeway accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." Safeway elected to adopt the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," in 1996.
LABOR RELATIONS
Of Safeway's approximately 107,000 unionized employees, approximately 7,000 in four operating areas are covered by labor contracts which are scheduled to expire in 1997. While Safeway believes that its relationship with its employees is good, there can be no assurance that contracts covering such 7,000 employees, or that labor contracts which come up for renewal after 1997, will be renewed. Failure to renew contracts covering a significant number of employees leading to work stoppages could have an adverse effect on Safeway's results of operations.
In addition, labor contracts covering approximately 10,000 employees in 74 stores in the Alberta, Canada operating area expired in March 1996. Representatives of the Company and the unions have held negotiations for a contract renewal periodically since June 1996, but have not agreed on a new contract. A government appointed mediator was engaged on Saturday, March 1, 1997. On March 4, 1997, talks broke off. After a government mandated cooling off period which expired March 18, union members at 73 stores gave a strike authorization vote to the union leadership. The Company presented a final offer to the union leadership on March 24. In spite of a request by the Company to vote the offer prior to a strike, the unions took strike action at 12:01 a.m. on Wednesday March 26, 1997. The union has agreed to vote the offer on March 31 through April 2. The Company intends to operate the stores with replacement workers for the duration of the strike. Although Safeway is unable to determine the financial impact of the strike at this time, sales and operating results are expected to be adversely affected for as long as the strike continues.
SAFEWAY INC. AND SUBSIDIARIES
ITEM 8.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 19 through 39 of the Company's 1996 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.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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 1997 Proxy Statement, is incorporated herein by this reference.
Executive Officers of the Company. See PART I under the caption "Executive Officers of the Company".
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the captions "Executive Compensation" and "Pension Plans" in the Company's 1997 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 1997 Proxy Statement is not incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information appearing under the caption "Beneficial Ownership of Securities" in the Company's 1997 Proxy Statement is incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Note J to the consolidated financial statements, included on pages 34 and 35 of the Company's 1996 Annual Report to Stockholders, and the captions "Certain Relationships and Transactions" and "Compensation Committee Interlocks and Insider Participation" in the Company's 1997 Proxy Statement contain information about certain relationships and related transactions and are incorporated herein by this reference.
SAFEWAY INC. AND SUBSIDIARIES
PART IV
ITEM 14.
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 1996, 1995, and 1994. Consolidated Balance Sheets as of the end of fiscal 1996 and 1995. Consolidated Statements of Cash Flows for fiscal 1996, 1995, and 1994. Consolidated Statements of Stockholders' Equity for fiscal 1996, 1995, and 1994. Notes to Consolidated Financial Statements. Independent Auditors' Report.
2. Consolidated Financial Statement Schedules:
None required
3. The following exhibits are filed as part of this report:
Exhibit 2.1 Agreement and Plan of Merger dated as of December 15, 1996, by and among Safeway Inc., SSCI Merger Sub, Inc. and The Vons Companies, Inc., as amended on January 8, 1997 (incorporated by reference to Exhibit 2.1 to Safeway Inc. Form S-4 dated March 5, 1997).
Exhibit 2.2 Amended and Restated Stock Repurchase Agreement, dated as of January 8, 1997 by and between Safeway Inc. and SSI Associates, L.P. (incorporated by reference to Exhibit 2.1 to Safeway Inc.'s Current Report on Form 8-K dated January 8, 1997.
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 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4(i).2 to Registration Statement No. 33-33388).
Exhibit 4(i).2 Registration Rights Agreement dated November 25, 1986 between the Company and certain limited partnerships (incorporated by reference to Exhibit 4(i).4 to Registration Statement No. 33-33388).
Exhibit 4(i).3 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).
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit 4(i). 4 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).5 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).6 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).7 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).8 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).9 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).10 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).11 Form of Officers' Certificate establishing the terms of a separate series of Safeway Inc.'s Medium-Term Notes entitled 10% Senior Notes due November 1, 2002, including the form of Note (incorporated by reference to Exhibits 4.1 and 4.2 of Registrant's Form 8-K dated November 5, 1992).
Exhibit 4(i).12 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).
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED)
Exhibit 4(i).13 Common Stock Purchase Warrants to purchase 23,405,953 shares of Safeway Inc. common stock
Exhibit 4(i).14 Credit Agreement dated as of May 24, 1995 among Safeway Inc., Canada Safeway Limited, and Lucerne Foods Ltd., as Borrowers, Bankers Trust Company, as Administrative Agent, The Bank of Nova Scotia, as Documentation Agent, The Chase Manhattan Bank, N.A., Chemical Bank, and Citicorp USA, Inc., as Co-Agents, the Lead Managers listed therein, as Lead Managers, and the lenders listed therein, as Lenders (incorporated by reference to Exhibit 4(i).16 of the Registrant's Form 10-Q for the quarterly period ended June 17, 1995).
Exhibit 4(i).15 Commitment Letter from Bankers Trust Company dated February 10, 1997 (incorporated by reference to Exhibit 4.14 to Registration Statement No. 333-22837).
Exhibit 4(i).16 Commitment Letter from The Chase Manhattan Bank dated February 11, 1997 (incorporated by reference to Exhibit 4.15 to Registration Statement No. 333-22837).
Exhibit 4(i).17 Commitment Letter from the Bank of Nova Scotia dated February 19, 1997 (incorporated by reference to Exhibit 4.16 to Registration Statement No. 333-22837).
Exhibit 4(i).18 Commitment Letter from Bank of America dated February 21, 1997 (incorporated by reference to Exhibit 4.17 to Registration Statement No. 333-22837).
Exhibit 4(iii) Registrant agrees to provide the Securities and Exchange Commission, upon request, with copies of instruments defining the rights of holders of long-term debt of the Registrant and all of its subsidiaries for which consolidated financial statements are required to be filed with the Securities and Exchange Commission.
Exhibit 10(iii).1* 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).
* Management contract, or compensatory plan or arrangement.
SAFEWAY INC. AND SUBSIDIARIES
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (CONTINUED)
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 (incorporated by reference to Exhibit 10(iii).7 of Registrant's Form 10-K/A for the year ended December 31, 1994).
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) and First Amendment to the Operating Performance Bonus Plan for Executive Officers of Safeway Inc. dated January 1, 1997.
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 (incorporated by reference to Exhibit 10(iii).11 of Registrant's Form 10-K for the year ended December 31, 1994).
Exhibit 10(iii).12* Form of stock option agreement for former directors of The Vons Companies, Inc.
Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent (incorporated by reference to page 38 of the Company's 1996 Annual Report to Stockholders).
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges.
Exhibit 13.1 Registrant's 1996 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).
- -------------- * Management contract, or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K:
On December 17, 1996, the Company filed a Current Report on Form 8-K stating under "Item 5. Other Events" that on December 15, 1996 it had entered into a merger agreement with The Vons Companies, Inc.
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 26, 1997 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 26, 1997 Date: March 26, 1997
SAFEWAY INC. AND SUBSIDIARIES
Exhibit Index
LIST OF EXHIBITS FILED WITH FORM 10-K FOR THE PERIOD
ENDED DECEMBER 28, 1996
Exhibit 4(i).13 Company Stock Purchase Warrants to purchase 23,405,953 shares of Safeway Inc. common stock.
Exhibit 10(iii).8 First Amendment to the Operating Performance Bonus Plan for Executive Officers of Safeway Inc. dated January 1, 1997.
Exhibit 10(iii).12 Form of stock option agreement for former directors of The Vons Companies, Inc.
Exhibit 11.1 Computation of Earnings Per Common Share and Common Share Equivalent (incorporated by reference to page 38 of the Company's 1996 Annual Report to Stockholders).
Exhibit 12.1 Computation of Ratio of Earnings to Fixed Charges
Exhibit 13.1 Registrant's 1996 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)