8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

February 23, 2012

SAFEWAY INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	1-00041	94-3019135
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

5918 Stoneridge Mall Road, Pleasanton, California	94588-3229
(Address of Principal Executive Offices)	(Zip Code)

(925) 467-3000

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

The information in this Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of Safeway Inc., whether made before or after the date hereof, regardless of any general incorporation language in such filing.

On February 23, 2012, we issued our earnings press release for the fourth fiscal quarter and full year 2011. A copy of our press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

In the press release and our other public statements in connection with the press release, we use the following financial measures that are not measures of financial performance under U.S. generally accepted accounting principles (non-GAAP financial measures):

• “Adjusted EBITDA” which is defined by our bank credit agreement as EBITDA (earnings before interest, income taxes, depreciation and amortization), excluding the following:

• LIFO expense;

• Share-based employee compensation;

• Property impairment charges;

• Equity in earnings of unconsolidated affiliate; and

• Dividend from unconsolidated affiliate.

• “Adjusted Debt” which is defined by our bank credit agreement as total debt less cash and equivalents in excess of $75.0 million.

• “Adjusted EBITDA as a multiple of interest expense” which is calculated by dividing Adjusted EBITDA by interest expense.

• “Adjusted Debt to Adjusted EBITDA” which is calculated by dividing Adjusted Debt by Adjusted EBITDA.

• “free cash flow” which is calculated as net cash flow from operating activities, as adjusted to exclude payables related to third-party gift cards, net of receivables, less net cash flow used by investing activities, as adjusted to exclude cash used by investments and business acquisitions. Cash from the sale of third-party gift cards is held for a short period of time and then remitted, less our commission, to card partners. Because this cash flow is temporary, it is not available for other uses, and it is therefore excluded from our calculation of free cash flow. We add back cash used by investments and business acquisitions to our calculation of free cash flow in order to provide a more accurate indication of our capacity to apply our available free cash flow to its intended uses.

• “gross profit basis point decrease, excluding impact from fuel sales, gross presentation of gift card commissions and LIFO expense” which is defined as basis point decrease in gross profit, as reported, excluding the impact from fuel sales, the impact from the gross presentation of gift card commissions and the impact from LIFO expense.

• “operating and administrative expense basis point decrease, excluding impact from fuel sales, gross presentation of gift card commissions and LIFO expense” which is defined as basis point decrease in operating and administrative expense, as reported, excluding the impact from fuel sales, the impact from the gross presentation of gift card commissions and the impact from LIFO expense.

• "diluted earnings per share, excluding the tax charge on Canadian dividend" which is defined as diluted earnings per share, as reported, excluding the tax charge on the dividend paid to us by our Canadian subsidiary.

Reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures – net income and net cash flow from operating activities – are provided in the press release. Reconciliations of “free cash flow” to GAAP cash flow for fiscal 2011 and fiscal 2010 are also provided in the press release. Reconciliations of gross profit and operating and administrative expense basis point decrease, excluding impact from fuels sales, gross presentation of gift card commissions and LIFO expense, to GAAP gross profit and operating and administrative expense are also provided in the press release, as is a reconciliation of diluted earnings per share, excluding the tax charge on the Canadian dividend, to GAAP diluted earnings per share. Each of these non-GAAP financial measures provides information regarding various aspects of the cash that our business generates, which management believes is useful to understanding our business.

Management believes that “Adjusted EBITDA,” “Adjusted Debt” and the related ratios are useful measures of operating performance that facilitate management’s evaluation of our ability to service debt and our capability to incur more debt to generate the cash needed to grow the business (including at times when interest rates fluctuate). Omitting interest, taxes and the other enumerated items provides a financial measure that is useful to management in assessing operating performance because the cash our business operations generate enables us to incur debt and thus to grow.

Management believes that “Adjusted EBITDA” and the related ratios also facilitate comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness, tax structures, impairment charges, methodologies in calculating LIFO expense and unconsolidated affiliates that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because, in management’s experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance.

Management also believes that investors, analysts and other interested parties view our ability to generate “Adjusted EBITDA” as an important measure of our operating performance and that of other companies in our industry.

“Adjusted EBITDA,” “Adjusted Debt,” “free cash flow” and the related ratios are useful indicators of Safeway’s ability to service debt, fund share repurchases and pay dividends that management believes will enhance stockholder value. Adjusted EBITDA also is a useful indicator of cash available for investing activities.

Management believes that “basis point decrease in gross profit and operating and administrative expense, excluding impact from fuel sales, gross presentation of gift card commissions and LIFO expense” provides a useful financial measure that will facilitate comparisons of our performance with that of other companies that might not have the business ventures that we have and that might have different methodologies for calculating LIFO expense.

Management also believes that excluding fuel sales from gross profit and operating and administrative expense provides more useful measures because volatility in fuel prices and the resulting fluctuations in our sales and cost of sales may distort investors', analysts' and other interested parties' perception of our operating performance. Management also believes that investors, analysts and other interested parties view basis point decrease in gross profit and operating and administrative expense, excluding impact from fuel sales and gross presentation of gift card commissions as indicators of our ongoing operating performance.

The exclusion from diluted earnings per share relates to the tax charge on the dividend paid to us by our Canadian subsidiary during 2011. Management believes that excluding this item provides a useful financial measure that will facilitate comparisons of our operating results before, during and after such charge was incurred, as well as facilitating comparisons of our performance with that of other companies that might not have the organizational structure that we have. Management also believes that investors, analysts and other interested parties view our diluted earnings per share, as adjusted, as an indicator of our ongoing operating performance.

These non-GAAP financial measures should not be considered as an alternative to net cash from operating activities or other increases and decreases in cash as shown on our Consolidated Statements of Cash Flows as a measure of liquidity. These measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Other companies in our industry may calculate “Adjusted EBITDA,” “Adjusted Debt” and “free cash flow” differently than we do, limiting their usefulness as comparative measures.

Additional limitations include:

• “Adjusted EBITDA” does not reflect our cash expenditures, or future requirements for capital expenditures, or contractual commitments;

• “Adjusted EBITDA” does not reflect changes in, or cash requirements for, our working capital needs;

• “Adjusted EBITDA” does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

• Non-cash compensation is and will remain a key element of our overall long-term incentive compensation package, although we exclude it as an expense when evaluating our ongoing operating performance for a particular period;

• “Adjusted EBITDA” does not reflect cash requirements for income taxes paid; and

• Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and “Adjusted EBITDA” does not reflect any cash requirements for such replacements.

Because of these and other limitations, our non-GAAP financial measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these and other limitations by relying primarily on our GAAP results and use our non-GAAP financial measures supplementally.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press Release dated February 23, 2012 of Safeway Inc.

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 hereunto duly authorized.

	SAFEWAY INC.
	(Registrant)
February 23, 2012	By:	/s/ Robert A. Gordon
	Name:	Robert A. Gordon
	Title:	Senior Vice President,
		Secretary & General Counsel

EXHIBIT INDEX

Exhibit No.
99.1	Press Release dated February 23, 2012 of Safeway Inc.

EX-99.1

FOR IMMEDIATE RELEASE

SAFEWAY INC. ANNOUNCES

FOURTH QUARTER

2011 RESULTS

Earnings per Diluted Share increases 8%

Contact: Melissa Plaisance (925) 467-3636

Christiane Pelz (925) 467-3832

Pleasanton, CA - February 23, 2012

Results From Operations

Safeway Inc. today reported net income of $215.6 million ($0.67 per diluted share) for the fourth quarter of 2011. In the fourth quarter of 2010, Safeway reported net income of $229.6 million ($0.62 per diluted share).

"Our business continued to grow," said Steve Burd, Chairman, President and CEO. "With ID sales growth remaining steady and costs well-controlled, we increased earnings per share 8%. As we move into 2012, our personalized marketing efforts and innovation in private label brands should contribute to our growth."

Sales and Other Revenue

Total sales increased 6.2% to $13.6 billion in the fourth quarter of 2011 from $12.8 billion in the fourth quarter of 2010 due primarily to higher fuel sales, the impact of reporting Blackhawk commissions on a gross basis¹ and a 1.5% increase in identical-store sales (excluding fuel).

Gross Profit

Gross profit declined 137 basis points to 26.71% of sales in the fourth quarter of 2011 compared to 28.08% of sales in the fourth quarter of 2010. Excluding the 48 basis-point impact from fuel sales and the 48 basis-point impact from the change in reporting gift card commissions, gross profit declined 41 basis points due primarily to increased LIFO expense.

^{_____________________________} 

¹Prior to 2011, Safeway recorded Blackhawk Network distribution commissions on the sale of certain gift cards net of the commissions shared with other retailers. In the first quarter of 2011, Safeway determined that these commissions should be reported on a gross basis. This change increased both revenue and cost of goods sold in 2011, but had no impact on identical-store sales, gross profit dollars or net income. Previously reported results are not adjusted because the impact is immaterial.

Operating and Administrative Expense

Operating and administrative expense decreased 98 basis points to 23.84% of sales in the fourth quarter of 2011 from 24.82% of sales in the fourth quarter of 2010. Excluding the 49 basis-point impact of higher fuel sales and the 42 basis-point impact from the change in reporting gift card commissions, operating and administrative expense margin decreased seven basis points. This decrease was primarily the result of higher property gains, partly offset by higher expense to drive future growth at Blackhawk and higher IT expenses to support Safeway marketing programs.

Interest Expense

Interest expense declined to $84.3 million in the fourth quarter of 2011 from $90.2 million in the fourth quarter of 2010 due to lower average interest rates, partly offset by higher average borrowings.

Income Taxes

Income tax expense was 30.0% of pre-tax income in the fourth quarter of 2011 compared to 31.5% in the fourth quarter of 2010. The fourth quarter income tax rate was lower in 2011 due to benefits from several individually immaterial items.

Annual Results

Net income for the fiscal year 2011 declined to $516.7 million ($1.49 per diluted share) from net income for 2010 of $589.8 million ($1.55 per diluted share), due primarily to the $98.9 million tax charge from the Canadian dividend paid in the first half of 2011. Excluding the $0.29 per diluted share tax charge, diluted earnings per share would have been $1.78 in fiscal 2011.

The gross profit margin declined 125 basis points to 27.03% in 2011 from 28.28% in 2010. Excluding the 80 basis-point impact from fuel sales and the 32 basis-point impact from the change in reporting gift card commissions, gross profit declined 13 basis points, primarily due to increased LIFO expense. Operating and administrative expense decreased 102 basis points to 24.43% in 2011 from 25.45% in 2010. Excluding the 69 basis-point impact from fuel sales and the 28 basis-point impact from the change in reporting gift card commissions, operating and administrative expense decreased five basis points. Income tax expense increased to 41.3% of pre-tax income in 2011 from 33.0% in 2010 primarily due to a tax charge resulting from the repatriation of $1.1 billion of earnings from Safeway's wholly-owned Canadian subsidiary.

Cash Flow

Net cash flow provided by operating activities increased to $2,023.6 million in the year 2011 from $1,849.7 million in the year 2010. This increase was due primarily to greater cash flow from working capital, partly offset by increased contributions to pension plans and lower net income.

Net cash flow used by investing activities increased to $1,014.5 million in the year 2011 from $798.8 million in 2010 primarily due to higher capital expenditures, partly offset by increased proceeds from the sale of property in 2011.

Net cash flow used by financing activities increased to $1,077.3 million in the year 2011 from $768.1 million in 2010 due primarily to a higher level of stock repurchases in 2011 compared to 2010, partly offset by net proceeds from increased borrowing in 2011.

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Capital Expenditures

Safeway invested $412.2 million in capital expenditures in the fourth quarter of 2011. The company opened eleven new Lifestyle stores, completed 10 Lifestyle remodels and closed 14 stores. For the year, Safeway invested $1,094.7 million in capital expenditures, opened 25 new Lifestyle stores, completed 29 Lifestyle remodels and closed 41 stores.

Stock Repurchases

During the fourth quarter of 2011, Safeway purchased 43.3 million shares of its common stock at an average cost of $19.79 per share and a total cost of $858.6 million (including commissions). For the full year, Safeway purchased 76.1 million shares of its common stock at an average cost of $20.85 per share and a total cost of approximately $1.6 billion (including commissions). During the fourth quarter of 2011, Safeway's board of directors increased the authorization for stock repurchases by $1.0 billion. The remaining board authorization for stock repurchases at year-end was approximately $1.1 billion.

Safeway has continued to purchase shares of its common stock in 2012. From year-end 2011 through February 22, 2012, Safeway has purchased 28.7 million shares of its common stock at an average cost of $21.83 per share and a total cost of $626.2 million (including commissions).

Guidance

Safeway will issue a press release announcing earnings guidance for 2012 at 5:00 AM PT, Tuesday, March 6, 2012 in conjunction with our annual investor conference.

About Safeway

Safeway Inc. is a Fortune 100 company and one of the largest food and drug retailers in

North America based on sales. The company operates 1,678 stores in the United States and Canada. The company's common stock is traded on the New York Stock Exchange under the symbol SWY.

Safeway Conference Call

Safeway's investor conference call discussing fourth-quarter results will be broadcast live over the internet at www.safeway.com/investor_relations at 8:00 a.m. PT on February 23, 2012. Click on Upcoming Events to access the call. A replay will be available via webcast for approximately one week following the conference call.

-o0o-

This press release and related conference call contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements relate to, among other things, sales growth. Forward-looking statements are indicated by words or phrases such as “guidance,” “believes,” “expects,” “anticipates,” “estimates,” “plans,” “continuing,” “ongoing,” and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: general business and economic conditions in our operating regions, including the rate of inflation or deflation, consumer spending levels, currency valuations, population, employment and job growth and/or losses in our markets; sales volume levels and price per item trends; pricing pressures and competitive factors, which could include pricing strategies, store openings, remodels or acquisitions by our competitors; results of our programs to control or reduce costs, improve buying practices and control shrink; results of our programs to increase sales; results of our continuing efforts to expand corporate brands; results of our

3

programs to improve our perishables departments; results of our promotional programs; results of our capital program; results of our efforts to improve working capital; results of any ongoing litigation in which we are involved or any litigation in which we may become involved; the resolution of uncertain tax positions; the ability to achieve satisfactory operating results in all geographic areas where we operate; changes in the financial performance of our equity investments; labor costs, including benefit plan costs and severance payments, or labor disputes that may arise from time to time and work stoppages that could occur in areas where certain collective bargaining agreements have expired or are on indefinite extensions or are scheduled to expire in the near future; failure to fully realize or delay in realizing growth prospects for existing or new business ventures, including our Blackhawk and Property Development Centers subsidiaries; legislative, regulatory, tax, accounting or judicial developments, including with respect to Blackhawk; the cost and stability of fuel, energy and other power sources; the impact of the cost of fuel on gross margin and identical-store sales; discount rates used in actuarial calculations for pension obligations and self-insurance reserves; the rate of return on our pension assets; the availability and terms of financing, including interest rates; adverse developments with regard to food and drug safety and quality issues or concerns that may arise; loss of a key member of senior management; data security or other information technology issues that may arise; unanticipated events or changes in real estate matters, including acquisitions, dispositions and impairments; adverse weather conditions and effects from natural disasters; performance in new business ventures or other opportunities that we pursue; and the capital investment in and financial results from our Lifestyle stores. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so. Please refer to our reports and filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, as amended, subsequent Quarterly Reports on Form 10-Q, and subsequent Current Reports on Form 8-K, for a further discussion of these risks and uncertainties.

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SAFEWAY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
	16 Weeks Ended						52 Weeks Ended
	December 31, 2011			January 1, 2011			December 31, 2011			January 1, 2011
Sales and other revenue	$	13,597.6		$	12,803.7		$	43,630.2		$	41,050.0
Cost of goods sold	(9,965.2		)	(9,208.2		)	(31,836.5		)	(29,442.5		)
Gross profit	3,632.4			3,595.5			11,793.7			11,607.5
Operating and administrative expense	(3,242.3		)	(3,178.4		)	(10,659.1		)	(10,448.1		)
Operating profit	390.1			417.1			1,134.6			1,159.4
Interest expense	(84.3		)	(90.2		)	(272.2		)	(298.5		)
Other income, net	3.9			9.9			19.7			20.3
Income before income taxes	309.7			336.8			882.1			881.2
Income taxes	(92.9		)	(106.1		)	(363.9		)	(290.6		)
Net income before allocation to noncontrolling interests	216.8			230.7			518.2			590.6
Noncontrolling interests	(1.2		)	(1.1		)	(1.5		)	(0.8		)
Net income attributable to Safeway Inc.	$	215.6		$	229.6		$	516.7		$	589.8
Income per common share attributable to Safeway Inc.:
Basic	$	0.67		$	0.62		$	1.49		$	1.56
Diluted	$	0.67		$	0.62		$	1.49		$	1.55
Weighted average shares outstanding:
Basic	321.6			368.9			343.4			378.3
Diluted	321.6			370.0			343.8			379.6

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SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except per-share amounts)
(Unaudited)
	Year-end 2011			Year-end 2010
ASSETS
Current assets:
Cash and equivalents	$	729.4		$	778.8
Receivables	652.1			557.4
Merchandise inventories	2,469.6			2,623.4
Prepaid expense and other current assets	335.7			273.4
Total current assets	4,186.8			4,233.0
Total property, net	9,637.6			9,910.2
Goodwill	469.8			430.9
Investment in unconsolidated affiliate	196.8			187.2
Other assets	582.6			386.8
Total assets	$	15,073.6		$	15,148.1
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes and debentures	$	811.3		$	505.6
Current obligations under capital leases	29.2			30.7
Accounts payable	2,917.0			2,533.4
Accrued salaries and wages	500.9			468.9
Deferred income taxes	61.2			96.3
Other accrued liabilities	718.7			679.3
Total current liabilities	5,038.3			4,314.2
Long-term debt:
Notes and debentures	4,165.0			3,843.8
Obligations under capital leases	404.7			456.2
Total long-term debt	4,569.7			4,300.0
Deferred income taxes	141.9			153.5
Pension and post-retirement benefit obligations	904.5			727.9
Accrued claims and other liabilities	730.1			654.8
Total liabilities	11,384.5			10,150.4
Stockholders' equity:
Common stock: par value $0.01 per share; 1,500 shares authorized; 604.5 and 599.8 shares issued	6.0			6.0
Additional paid-in capital	4,463.9			4,363.1
Treasury stock at cost: 307.9 and 231.8 shares	(7,874.4		)	(6,283.8		)
Accumulated other comprehensive (loss) income	(61.5		)	88.0
Retained earnings	7,149.1			6,820.0
Total Safeway Inc. equity	3,683.1			4,993.3
Noncontrolling interests	6.0			4.4
Total equity	3,689.1			4,997.7
Total liabilities and stockholders' equity	$	15,073.6		$	15,148.1

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SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions, unaudited)
	52 Weeks 2011			52 Weeks 2010
OPERATING ACTIVITIES:
Net income before allocation to noncontrolling interest	$	518.2		$	590.6
Reconciliation to net cash flow from operating activities:
Depreciation expense	1,148.8			1,162.4
Property impairment charges	44.7			71.7
Share-based employee compensation	50.0			55.5
Excess tax benefit from share-based employee compensation	(1.8		)	(1.6		)
LIFO expense (income)	35.1			(28.0		)
Equity in earnings of unconsolidated affiliate	(13.0		)	(15.3		)
Net pension and post-retirement benefits expense	114.3			125.2
Contributions to pension and post-retirement benefit plans	(176.2		)	(17.7		)
Gain on property dispositions and lease exit costs, net	(65.6		)	(27.5		)
Increase in accrued claims and other liabilities	23.2			36.2
Deferred income taxes	(63.7		)	(31.3		)
Amortization of deferred finance costs	5.4			4.8
Other	19.9			(6.6		)
Changes in working capital items:
Receivables	(2.1		)	14.6
Inventories at FIFO cost	95.0			(64.4		)
Prepaid expenses and other current assets	(13.1		)	(15.3		)
Income taxes	91.4			(3.7		)
Payables and accruals	(80.5		)	7.0
Payables related to third-party gift cards, net of receivables	293.6			(6.9		)
Net cash flow from operating activities	2,023.6			1,849.7
INVESTING ACTIVITIES
Cash paid for property additions	(1,094.7		)	(837.5		)
Proceeds from sale of property	188.0			84.5
Investments and business acquisitions	(35.9		)	—
Other	(71.9		)	(45.8		)
Net cash used by investing activities	(1,014.5		)	(798.8		)
FINANCING ACTIVITIES
(Payments on) additions to short-term borrowings, net	(0.8		)	0.2
Additions to long-term borrowings	3,697.5			1,627.4
Payments on long-term borrowings	(3,087.6		)	(1,712.4		)
Purchase of treasury stock	(1,554.0		)	(621.1		)
Dividends paid	(188.0		)	(168.1		)
Net proceeds from exercise of stock options	73.4			117.1
Excess tax benefit from share-based employee compensation	1.8			1.6
Payment of debt issuance costs	(14.0		)	(6.0		)
Other	(5.6		)	(6.8		)
Net cash flow used by financing activities	(1,077.3		)	(768.1		)
Effect of changes in exchange rates on cash	18.8			24.5
(Decrease) increase in cash and equivalents	(49.4		)	307.3
CASH AND EQUIVALENTS
Beginning of year	778.8			471.5
End of year	$	729.4		$	778.8

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SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
	16 Weeks Ended						52 Weeks Ended
TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA	December 31, 2011				January 1, 2011		December 31, 2011		January 1, 2011
Cash paid for capital expenditures	$	412.2			$	282.0	$	1,094.7	$	837.5
Stores opened	11				7		25		14
Stores closed	14				15		41		45
Lifestyle remodels completed	10				25		29		60
Stores at end of period	1,678				1,694
Square footage (in millions)	79.2				79.2
Fuel sales	$	1,393.2			$	1,049.2	$	4,596.6	$	3,187.9
Number of fuel stations at end of period	400				393
(Decrease) increase in sales from change in Canadian exchange rate	$	(12.7	)		$	81.2	$	240.0	$	588.1
TABLE 2: RECONCILIATION OF NET INCOME ATTRIBUTABLE TO SAFEWAY INC. TO ADJUSTED EBITDA
	Fiscal Year
	2011
Net income attributable to Safeway Inc.	$	516.7
Add (subtract):
Income taxes	363.9
Interest expense	272.2
Depreciation expense	1,148.8
LIFO expense	35.1
Share-based employee compensation	50.0
Property impairment charges	44.7
Equity in earnings of unconsolidated affiliate	(13.0		)
Dividend from unconsolidated affiliate	6.1
Adjusted EBITDA	$	2,424.5
Total debt at December 31, 2011	$	5,410.2
Less cash and equivalents in excess of $75.0 at December 31, 2011	654.4
Adjusted Debt, as defined by bank credit agreement	$	4,755.8
Adjusted EBITDA as a multiple of interest expense	8.91			x
Minimum Adjusted EBITDA as a multiple of interest expense under bank credit agreement	2.00			x
Adjusted Debt to Adjusted EBITDA	1.96			x
Maximum Adjusted Debt to Adjusted EBITDA under bank credit agreement	3.50			x

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SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Dollars in millions)
(Unaudited)
TABLE 3: RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO ADJUSTED EBITDA
				Fiscal Year
				2011
Net cash flow provided by operating activities				$	2,023.6
Add (subtract):
Income taxes				363.9
Interest expense				272.2
Amortization of deferred finance costs				(5.4		)
Excess tax benefit from share-based employee compensation				1.8
Deferred income taxes				63.7
Net pension and post-retirement benefits expense				(114.3		)
Contributions to pension and post-retirement benefit plans				176.2
Increase in accrued claims and other liabilities				(23.2		)
Gain on property dispositions and lease exit costs, net				65.6
Changes in working capital items				(385.8		)
Other				(13.8		)
Adjusted EBITDA				$	2,424.5
TABLE 4: RECONCILIATION OF GAAP CASH FLOW MEASURE TO FREE CASH FLOW
	Fiscal Year
	2011			2010
Net cash flow from operating activities, as reported	$	2,023.6		$	1,849.7
(Increase) decrease in payables related to third-party gift cards, net of receivables	(293.6		)	6.9
Net cash flow from operating activities, as adjusted	1,730.0			1,856.6
Net cash flow used by investing activities, as reported	(1,014.5		)	(798.8		)
Investments and business acquisitions	35.9			—
Net cash flow used by investing activities, as adjusted	(978.6		)	(798.8		)
Free cash flow	$	751.4		$	1,057.8

9

SAFEWAY INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Unaudited)
TABLE 5: IDENTICAL-STORE SALES*
	Fourth		Fiscal
	Quarter		Year
	2011		2011
As reported	4.0	%	4.4	%
Excluding fuel sales	1.5	%	1.0	%
* Excludes replacement stores
TABLE 6: RECONCILIATION OF GROSS PROFIT AND OPERATING AND ADMINISTRATIVE
EXPENSE BASIS-POINT CHANGE EXCLUDING FUEL SALES, GROSS PRESENTATION OF
GIFT CARD COMMISSIONS AND LIFO EXPENSE
			Fourth Quarter 2011						Fiscal 2011
						Operating					Operating
						and						and
			Gross		Administrative				Gross		Administrative
			Profit			Expense			Profit			Expense
Basis-point decrease, as reported			(137	)		(98		)	(125	)		(102	)
Impact from fuel sales			48			49			80			69
Impact from gross presentation of gift card commissions			48			42			32			28
Basis-point decrease, excluding impact from fuel sales and gross presentation of gift card commissions			(41	)		(7		)	(13	)		(5	)
Impact from LIFO expense			35			—			16			—
Basis-point decrease, excluding impact from fuel sales, gross presentation of gift card commissions and LIFO expense			(6	)		(7		)	3			(5	)
TABLE 7: RECONCILIATION OF DILUTED EARNINGS PER SHARE AS REPORTED TO DILUTED
EARNINGS PER SHARE EXCLUDING THE TAX CHARGE ON CANADIAN DIVIDEND
						Fiscal Year
						2011
						Diluted EPS
As reported						$	1.49
Tax charge on Canadian dividend						0.29
Excluding tax charge on Canadian dividend						$	1.78

10