EX-99.A 2 a11-kswy401kfinancials.htm 11-K SWY 401(k) Financials








Safeway 401(k) Plan
Financial Statements as of and for the Years Ended December 31, 2011 and 2010,
Supplemental Schedule as of December 31, 2011, and Report of Independent
Registered Public Accounting Firm





Safeway 401(k) Plan
TABLE OF CONTENTS
NOTE:
All other schedules required by Section 2520.103-10 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Safeway Benefit Plans Committee and Participants of the Safeway 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits of the Safeway 401(k) Plan (the “Plan”) as of December 31, 2011 and 2010, and the related statements of changes in net assets available for benefits for the years then ended.  These financial statements are the responsibility of the Plan's management.  Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2011 and 2010, and the changes in net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplemental schedule of assets (held at end of year) as of December 31, 2011 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  This schedule is the responsibility of the Plan's management.  Such schedule has been subjected to the auditing procedures applied in our audit of the basic 2011 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP

San Francisco, California
June 27, 2012



2



SAFEWAY 401(k) PLAN
 
 
 
 
 
 
 
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
 
 
 
AS OF DECEMBER 31, 2011 AND 2010
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
2010
 
 
 
 
ASSETS:
 
 
 
  Investments at fair value —
 
 
 
    Plan's interest in investments of the Safeway Inc.
 
 
 
       Defined Contribution Plans Master Trust (Note 3)
$
1,454,884

 
$
1,362,894

   Other assets (liabilities) of the Safeway Inc. Defined Contribution Plans
 
 
 
       Master Trust:
 
 
 
           Due from broker for securities sold
3,370

 
—

           Due to broker for securities purchased
(312
)
 
—

              Total interest in net assets of the Safeway Inc. Defined
 
 
 
                 Contribution Plans Master Trust
1,457,942

 
1,362,894

  Receivables — Notes receivable from participants
46,879

 
44,584

 
 
 
 
           Total assets
1,504,821

 
1,407,478

 
 
 
 
LIABILITIES
2,762

 
2,487

 
 
 
 
NET ASSETS AVAILABLE FOR BENEFITS AT FAIR VALUE
1,502,059

 
1,404,991

 
 
 
 
ADJUSTMENT FROM FAIR VALUE TO CONTRACT VALUE FOR FULLY BENEFIT-RESPONSIVE INVESTMENT CONTRACTS
(10,370
)
 
(650
)
 
 
 
 
NET ASSETS AVAILABLE FOR BENEFITS
$
1,491,689

 
$
1,404,341

 
 
 
 
 
 
 
 
See notes to financial statements.
 
 
 


3



SAFEWAY 401(k) PLAN
 
 
 
 
 
 
 
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
 
 
 
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
2011
 
2010
 
 
 
 
ADDITIONS:
 
 
 
  Investment (loss) income — Plan’s interest in Safeway Inc. Defined
 
 
 
    Contribution Plans Master Trust investment income (Note 3)
$
(15,423
)
 
$
123,005

  Interest income on notes receivable from participants
2,122

 
2,244

  Participant contributions
99,549

 
98,083

  Rollover contributions
4,267

 
3,831

 
 
 
 
           Total additions
90,515

 
227,163

 
 
 
 
DEDUCTIONS:
 
 
 
  Benefits paid to participants
(109,056
)
 
(87,295
)
  Administrative expenses
(1,176
)
 
(1,604
)
 
 
 
 
           Total deductions
(110,232
)
 
(88,899
)
 
 
 
 
(DECREASE) INCREASE IN NET ASSETS BEFORE PLAN TRANSFERS
(19,717
)
 
138,264

 
 
 
 
PLAN TRANSFERS, NET (Note 1)
107,065

 
—

 
 
 
 
INCREASE IN NET ASSETS
87,348

 
138,264

 
 
 
 
NET ASSETS AVAILABLE FOR BENEFITS:
 
 
 
 
 
 
 
  Beginning of year
1,404,341

 
1,266,077

 
 
 
 
  End of year
$
1,491,689

 
$
1,404,341

 
 
 
 
 
 
 
 
See notes to financial statements.
 
 
 


4


SAFEWAY 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 AND 2010
1.
DESCRIPTION OF THE PLAN

The following description of the Safeway 401(k) Plan (the “Plan”) is provided for general information only. Participants should refer to the Summary Plan Description for more complete information about the Plan's provisions. The following description reflects all Plan amendments through December 31, 2011.
General - The Plan is a defined contribution plan which generally covers employees of Safeway Inc. (the “Company”) who are age 21 or older, excluding those employees who are eligible to participate in the Dominick's Finer Foods, LLC 401(k) Retirement Plan for Union Employees or the Vons Companies, Inc. Pharmacists' 401(k) Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). A portion of the Plan is designated as an employee stock ownership plan (ESOP). The ESOP portion of the Plan permits each participant who has an investment in Safeway Inc. common stock to elect to receive dividends paid as cash or reinvested in additional shares of Safeway Inc. common stock. The Safeway Benefit Plans Committee controls and manages the operation and administration of the Plan.
On January 1, 2011, the Groceryworks.com, Inc. 401(k) and Profit Sharing Plan (the "GroceryWorks Plan")merged into the Plan. Participant account activity ceased, the GroceryWorks Plan was liquidated and all assets totaling $727,000 were transferred from the Groceryworks Plan and merged into the Plan. The fair value of plan assets was allocated to the transferring participants by JPMorgan Retirement Plan Services.
On June 24, 2011 the Safeway 401(k) Savings Plan merged into the Plan. Assets totaling $112.8 million were transferred from the Safeway 401(k) Savings Plan and merged into the Plan. Investment options for the transferring participants remained the same.
On December 31, 2011, eligibility for the Plan was ceased for certain employees, and all assets totaling $6.5 million relating to those employees were transferred from the Plan to the new Blackhawk Network 401(k) Plan. The participant accounts in the Plan were liquidated at fair value and allocated to the Blackhawk Network 401(k) Plan.
Contributions - Participants may elect to contribute between 1% and 50% of their eligible pay, up to a maximum contribution of $16,500 for 2011 and 2010, according to the Internal Revenue Code (the “Code”) limitations. Participant contributions are not currently taxable to participants pursuant to Section 401(k) of the Code.
Participants age 50 or over by December 31, 2011, are eligible to contribute an additional $5,500 in catch-up contributions to their 401(k) account before the end of the Plan year.
Trustee and Recordkeeper - The trustee of the Plan is JPMorgan Chase Bank, N.A. and the recordkeeper is J.P. Morgan Retirement Plan Services.
Investment Options - Participants may direct their accounts in any one or combination of investment funds and Safeway Inc. common stock. The Plan's current investment offerings include mutual funds, Safeway Inc. common stock, common collective trusts and the Interest Income Fund (see Note 4). Participants may change their investment options on a daily basis.
Vesting - Participants are vested immediately in their contributions plus actual earnings thereon.
Participant Accounts - Individual accounts are maintained for each Plan participant. Each participant's

5


account is adjusted for participant's contributions, income or loss thereon and withdrawals. Payment for Plan administrative expenses is paid in part by the investment funds based on revenue sharing agreements between the Plan and the investment funds. In addition, participants are charged up to $4 per month for administrative expenses. The benefit to which a participant is entitled is the value of the participant's vested account.
Participant Loans - Participants may borrow a minimum of $1,000 up to a maximum of the lesser of $50,000 or 50% of their account balance. The loan term cannot exceed four years, except where the loan is issued to purchase a primary residence, in which case the loan period may extend to 15 years. Loans are secured by the balance in the participant's account. The interest rate charged on participant loans will be equal to the sum of 1% plus the prime rate published in The Wall Street Journal on the last business day of the preceding calendar month. Principal and interest payments are made through payroll deductions. Participants may make loan payments directly to the recordkeeper after termination of employment. Participants may only have one loan outstanding at a time and are charged a one-time loan origination fee of $50.00 and a $10.50 servicing fee each quarter for the term of the loan. At December 31, 2011 and 2010, there were 8,448 and 8,139 loans outstanding, respectively, with interest rates ranging from 4.25% to 10.5%.
Participant loans are held by the Plan outside of the Master Trust arrangement (see Note 3).
In-Service Withdrawals - An active or inactive participant may withdraw all or any portion of their rollover account at any time. An active or inactive participant may take a hardship withdrawal if there is an immediate and significant financial need.
Payment of Benefits - Upon termination of employment, a participant may elect (a) to leave the balance of his or her account in the Plan until April 1 of the year following the year in which the participant turns age 70 1/2, (b) to receive an immediate lump sum distribution as cash, as Safeway Inc. common stock (up to the amount invested in the Safeway Inc. common stock) or as a rollover to another qualified plan or Individual Retirement Account, (c) to receive a portion in an immediate lump sum and the remainder to be distributed later, or (d) to receive a series of payments over a period not to exceed the joint life expectancy of the participant and his or her beneficiary. If a participant's balance is $1,000 or less, and the participant does not elect a distribution of funds as a direct rollover or to be payable to the participant, the account will be distributed in accordance with plan provisions to be payable to the participant, subject to income tax withholding. If the participant's balance is $5,000 or less, but greater then $1,000, and the participant does not elect a distribution of funds as a direct rollover or to be payable to the participant, the account will be automatically rolled over into an IRA designated by the Plan Administrator in accordance with plan provisions.
Plan Termination - Although the Company has not expressed any intent to terminate the Plan, it may do so at any time, subject to the provisions set forth in ERISA. In the event of termination of the Plan, the assets of the Plan would be distributed to the participants in accordance with the value of their individual investment accounts.
2.
SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting - The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Investment Valuation and Income Recognition - The fair value of the Plan's interest in the Safeway Inc. Defined Contribution Plans Master Trust (the "Master Trust") is based on the beginning of year value of the Plan's interest in the Master Trust, plus actual contributions and allocated investment income, less actual distributions and allocated administrative expenses, plus or minus changes in unrealized gains and losses. The Master Trust's investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). See Note 3 for discussion of fair value measurements.

6


In accordance with GAAP, the statements of net assets available for benefits present investment contracts at fair value, as well as an additional line item showing an adjustment of the fully benefit-responsive contracts from fair value to contract value. The statements of changes in net assets available for benefits are presented on a contract value basis.
Purchases and sales of securities are recorded on the trade date. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Management fees and operating expenses charged to the Plan for investments in mutual funds, Safeway Inc. common stock, common collective trusts and the Interest Income Fund are deducted from income earned on a daily basis and are not separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment returns for such investments.
Concentrations of Risk - The Master Trust investments at December 31, 2011, include a mutual fund with a year-end fair value of $64.9 million that the Master Trust has a 99.9% beneficial ownership of the outstanding institutional shares.
Payment of Benefits - Benefit payments to participants are recorded upon distribution. Amounts allocated to accounts of persons who have elected to withdraw from the Plan, but have not yet been paid, were $88,566 and $0 at December 31, 2011 and December 31, 2010, respectively.
Notes Receivable from Participants - Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are recorded as distributions based on the terms of the Summary Plan Description.
Excess Contributions Payable - The Plan is required to return contributions received during the Plan year in excess of the Code limits.
Administrative Expenses - The Plan's administrative expenses are primarily allocated to participant accounts.
Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of additions to and deductions from net assets available for benefits during the reporting period. Actual results could differ from these estimates.
The estimated fair value of traditional guaranteed investment contracts presented in Note 3 and Note 4 are based on assumptions about the market for such investments because quoted market prices are unavailable. Such estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions could have a material effect on the estimated fair values. Additionally, the fair values were estimated as of year-end, and current estimates may differ from the amounts presented.
Risks and Uncertainties - The Plan invests in the Master Trust which utilizes various investment instruments, including common stock, mutual funds and investment contracts. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the financial statements.
New Accounting Standard Not Yet Effective - In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends ASC 820, Fair Value Measurement. ASU 2011-04 also requires the categorization by level for items that are only required to be disclosed at fair value and information about transfers between

7


Level 1 and Level 2. In addition, the ASU provides guidance on measuring the fair value of financial instruments managed within a portfolio and the application of premiums and discounts on fair value measurements. The ASU requires additional disclosure for Level 3 measurements regarding the sensitivity of fair value to changes in unobservable inputs and any interrelationships between those inputs. The new guidance is effective for reporting periods beginning after December 15, 2011. The adoption is not expected to have a material effect on the statement of net assets available for benefits and statement of changes in net assets available for benefits. Plan management has not determined the impact on the disclosures in the financial statements.
3.
MASTER TRUST FINANCIAL INFORMATION

The Plan participates in a master trust arrangement with the Master Trust. The Trustee holds the Master Trust's investment assets, provides administrative functions for each of the Plans participating in the Master Trust, and executes investment transactions as directed by participants.
Use of the Master Trust permits the commingling of Plan assets with the assets of the Safeway 401(k) Savings Plan (prior to June 24, 2011 when this plan was merged into the Plan), the Dominick's Finer Foods, LLC 401(k) Retirement Plan for Union Employees and The Vons Companies, Inc. Pharmacists' 401(k) Plan. Although assets of each of the plans are commingled in the Master Trust, the Trustee maintains supporting records for each participating plan. The net investment income of the investment assets is allocated daily by the Trustee to each participating plan based on the relationship of the interest in each plan to the total of the interests of all four participating plans.
The following presents the investment securities of the Master Trust, and the Plan's share of investment securities, as of December 31, 2011 and 2010 (in thousands):
 
2011
 
2010
Investments at fair value:
 
 
 
  Safeway Inc. common stock
$
152,609

 
$
155,884

  Mutual Funds (outside of Interest Income Fund)
561,943

 
602,072

  Common/collective trusts (outside of Interest Income Fund)
406,932

 
402,068

  Interest Income Fund (see Note 4):
 
 
 
    Synthetic guaranteed investment contracts (“GICs”):
 
 
 
      Underlying investments
362,773

 
347,034

      Wrapper contracts
30

 
278

    Traditional guaranteed investment contracts
33,569

 
47,786

    Stable Asset Fund
98,490

 
100,295

    Mutual Fund
23,861

 
6,620

 
 
 
 
Investment securities in Trust at fair value
$
1,640,207

 
$
1,662,037

Other net assets
3,099

 
—

Total net assets of Master Trust
1,643,306

 
1,662,037

 
 
 
 
Plan’s interest in investment securities in Trust, at fair value
$
1,454,884

 
$
1,362,894

 
 
 
 
Plan’s percentage interest in investment securities
 
 
 
  in Trust, at fair value
88.7
%
 
82.0
%


8





The following presents the (decrease) increase in the Master Trust's assets, and the Plan's share of the (decrease) increase in the Master Trust's assets, for the years ended December 31, 2011 and 2010 (in thousands):
 
2011
 
2010
Investment income:
 
 
 
  Income from Safeway Inc. common stock:
 
 
 
    Dividends on Safeway Inc. common stock
$
3,715

 
$
3,013

    Net (loss) gain in market value of Safeway Inc. common stock
(8,383
)
 
8,288

  Income from mutual funds:
 
 
 
    Dividend income
14,309

 
16,380

    Net investment (loss) gain
(35,435
)
 
57,783

  Income from common/collective trusts (outside of Interest
 
 
 
    Income Fund) — net investment gain
3,161

 
50,921

  Income from Interest Income Fund:
 
 
 
    Interest income
9,803

 
11,730

    Net investment loss
(1,252
)
 
(2,149
)
 
 
 
 
(Decrease) increase in trust assets derived from investment activities
$
(14,082
)
 
$
145,966

 
 
 
 
Plan’s interest in Trust investment activities
$
(15,423
)
 
$
123,005

 
 
 
 

9


The Plan's interest in the Master Trust's investments that represent five percent or more of the Plan's net assets available for benefits at year-end 2011 and 2010, are as follows (in thousands):
SSgA S&P 500 Fund
$
252,451

$
238,864

PIMCO Total Return Fund
168,973

153,876

Safeway Inc. common stock
150,297

138,257

Monumental MDA #01046TR
95,779

85,304

RS Partners Fund
86,363

91,629

SEI Stable Asset Fund #190-783
83,872

76,618

State Street Bank #97044
81,506

72,580

CDC-IXIS WR-1027-01
80,545

71,735

American EuroPacific Growth Fund
78,841

93,066


Fair Value Measurements - The accounting guidance for fair value measurements defines fair value, established a framework for measuring fair value, and requires disclosures about fair value measurements. The guidance prioritizes the inputs for measuring fair value into the following hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3 - Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
The level within the fair value hierarchy is based on the lowest level of any input which is deemed significant to the fair value measurement. The Plan's policy is to recognize significant transfers between levels at the beginning of the reporting period.
In accordance with the accounting guidance for fair value measurements, the table below includes the major categorization for debt and equity securities on the basis of nature and risk.












10


Assets measured at fair value on a recurring basis consisted of the following as of December 31, 2011 (in thousands):
 
 
 
Master Trust Fair Value Measurements
 
 
 
 
 
Quoted
 
 
 
 
 
 
 
 
 
Prices in
 
 
 
 
 
 
 
 
 
Active
 
 
 
 
 
 
 
 
 
Markets
 
Significant
 
Significant
 
 
 
 
 
for Identical
 
Observable
 
Unobservable
 
 
 
 
 
Assets
 
Inputs
 
Inputs
 
Asset Category
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
*
Safeway Inc. common stock
 
$
152,609

 
$
152,609

 
$
—

 
$
—

 
Mutual funds (outside of
 
 
 
 
 
 
 
 
 
  Interest Income Fund):
 
 
 
 
 
 
 
 
 
  Bond fund
 
187,969

 
187,969

 
—

 
—

 
  Domestic stock funds
 
286,156

 
286,156

 
—

 
—

 
  International stock fund
 
87,818

 
87,818

 
—

 
—

**
Common/collective trusts
 
 
 
 
 
 
 
 
 
  (outside of Interest Income
 
 
 
 
 
 
 
 
 
  Fund)
 
406,932

 
—

 
406,932

 
—

 
Interest Income Fund:
 
 
 
 
 
 
 
 
 
  Synthetic GICs — underlying
 
 
 
 
 
 
 
 
 
    investments:
 
 
 
 
 
 
 
 
*
     Mutual Fund
 
13,032

 
13,032

 
—

 
—

***
     Commercial trust
 
29,803

 
—

 
29,803

 
—

 
     Mortgage-and other-
 
 
 
 
 
 
 
 
 
       asset backed securities
 
127,283

 
—

 
127,283

 
—

 
     U.S. government securities
 
150,433

 
—

 
150,433

 
—

 
    Other securities
 
42,222

 
—

 
42,222

 
—

 
    Wrapper contracts
 
30

 
—

 
—

 
30

 
  Traditional GICs
 
33,569

 
—

 
33,569

 
—

****
  Stable Asset Fund
 
98,490

 
—

 
98,490

 
—

*
  Mutual Fund
 
23,861

 
23,861

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Investment Securities
 
$
1,640,207

 
$
751,445

 
$
888,732

 
$
30

 
Other Net Assets
 
3,099

 
 
 
 
 
 
 
Total Trust Assets
 
$
1,643,306

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
*
Represents a party-in-interest transaction (see Note 6)
**
Contains 9 common/collective trusts totaling $199.9 million that represents party-in-interest transactions (see Note 6)
***
Contains 17 securities totaling $454 thousand that represents party-in-interest transactions (see Note 6)
****
Contains 8 securities totaling $2.6 million that represents party-in-interest transactions (see Note 6)
 
 
 
For the year ended December 31, 2011, there were no significant transfers in or out of Levels 1, 2 or 3, except for certain U.S. Treasury Securities transferring from Level 1 to Level 2. The Plan's policy is to record transfers at the end of the Plan year.

11



Assets measured at fair value on a recurring basis consisted of the following as of December 31, 2010 (in thousands):
 
 
 
Master Trust Fair Value Measurements
 
 
 
 
 
Quoted
 
 
 
 
 
 
 
 
 
Prices in
 
 
 
 
 
 
 
 
 
Active
 
 
 
 
 
 
 
 
 
Markets
 
Significant
 
Significant
 
 
 
 
 
for Identical
 
Observable
 
Unobservable
 
 
 
 
 
Assets
 
Inputs
 
Inputs
 
Asset Category
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
 
 
 
 
 
 
 
 
 
*
Safeway Inc. common stock
 
$
155,884

 
$
155,884

 
$
—

 
$
—

 
Mutual funds (outside of
 
 
 
 
 
 
 
 
 
  Interest Income Fund):
 
 
 
 
 
 
 
 
 
  Bond fund
 
186,681

 
186,681

 
—

 
—

 
  Domestic stock funds
 
305,134

 
305,134

 
—

 
—

 
  International stock fund
 
110,257

 
110,257

 
—

 
—

 
Common/collective trusts
 
 
 
 
 
 
 
 
 
  (outside of Interest Income
 
 
 
 
 
 
 
 
 
  Fund)
 
402,068

 
—

 
402,068

 
—

 
Interest Income Fund:
 
 
 
 
 
 
 
 
 
  Synthetic GICs — underlying
 
 
 
 
 
 
 
 
 
    investments:
 
 
 
 
 
 
 
 
*
     Mutual Fund
 
15,836

 
15,836

 
—

 
—

 
     Mortgage-and other-
 
 
 
 
 
 
 
 
 
       asset backed securities
 
130,231

 
—

 
130,231

 
—

 
     U.S. government securities
 
167,670

 
88,954

 
78,716

 
—

 
     Other securities
 
33,297

 
—

 
33,297

 
—

 
     Wrapper contracts
 
278

 
—

 
—

 
278

 
  Traditional GICs
 
47,786

 
—

 
47,786

 
—

**
  Stable Asset Fund
 
100,295

 
—

 
100,295

 
—

*
  Mutual Fund
 
6,620

 
6,620

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Total Trust Assets
 
$
1,662,037

 
$
869,366

 
$
792,393

 
$
278

 
 
 
 
 
 
 
 
 
 
*
Represents a party-in-interest transaction (see Note 6)
**
Contains 13 securities totaling $57.8 million that represents party-in-interest transactions (see Note 6)
 
 
 
 
 
 
 
 
 
 
 
For the year ended December 31, 2010, there were no significant transfers in or out of Levels 1, 2 or 3. The Plan's policy is to record transfers at the end of the Plan year.




12



A reconciliation of the beginning and ending balances for Level 3 assets for the year ended December 31, 2011 and 2010, follows (in thousands):
 
2011
 
2010
 
 
 
 
Balance as of January 1
$
278

 
$
188

Additions
—

 
—

Settlements
(84
)
 
(97
)
Unrealized (losses) gains
(164
)
 
187

 
 
 
 
Balance as of December 31
$
30

 
$
278


Below is a description of the valuation methodologies used for the fair value measurements.
Safeway Inc. Common Stock - Safeway Inc. common stock is valued at the closing price as reported on the New York Stock Exchange Composite Tape.
Mutual Funds - These investments are publicly traded investments which are valued using the Net Asset Value ("NAV"). The NAV of the mutual funds is a quoted price in an active market. The NAV is determined once a day after the closing of the exchange based upon the underlying assets in the fund, less the fund's liabilities, expressed on a per-share basis.
Common/Collective Trusts (Outside of Interest Income Fund) - Common/collective trusts invest primarily in a pool of investments, including contracts that are issued by insurance companies and commercial banks and in contracts that are backed by high quality bonds, bond trusts and bond mutual funds. The overall fair value of the common/collective trusts are based on observable inputs.
Investment Contracts - The fair value of traditional GICs is calculated by discounting the related cash flows based on current yields of similar instruments with comparable durations. Synthetic GICs include underlying investments that are stated at fair value. Fair value of the underlying investments is determined based on quoted market prices or yields currently available on comparable securities of issuers with similar credit ratings. Synthetic GICs also include wrapper contracts which guarantee that there will be no loss of principal or accrued interest. Fair market value of the wrapper contracts is estimated by converting the basis points assigned to the wrap fees into dollars and comparing cost to replacement value.
Stable Asset Fund - This fund is valued based on the NAV of the underlying investments. The beneficial interest of each participant is represented by units. Units are issued and redeemed daily at a constant NAV of $1 per unit.
4.
INTEREST INCOME FUND

The Master Trust maintains an Interest Income Fund (the “Fund”) that invests in a mutual fund, a stable asset fund, traditional GICs and synthetic GICs, as described below. The GICs and common collective trust are fully-benefit responsive and are recorded in the financial statements at fair value and then adjusted to contract value.
Mutual Fund - The Fund invests in the JPM U.S. Treasury Plus Money Market Fund. The Fund seeks current income with liquidity and stability of principal. The Fund invests exclusively in U.S. Treasury bills, notes and

13


other obligations issued or guaranteed by the U.S. Treasury, and repurchase agreements collateralized by such obligations.
Stable Asset Fund - The Fund invests in a Stable Asset Fund, a common collective trust. The beneficial interest of each participant is represented by units which are issued and redeemed daily at the constant NAV of $1 per unit. Distribution to the unit holders are declared daily from the net investment income and automatically reinvested in the Stable Asset Fund on a monthly basis, when paid. Although it is not guaranteed, best efforts are used to maintain a constant NAV of $1 per unit.
Participants ordinarily may direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract value represents contributions made to the Stable Asset Fund, plus earnings, less participant withdrawals and administrative expenses. Plan management believes that the occurrence of events that would cause the Stable Asset Fund to transact at less than contract value is not probable.
Redemption Restrictions of The Stable Asset Fund - The Stable Asset Fund had redemption restrictions for participant-directed transfers to competing investment options, permitted participant withdrawals and transfers, and plan sponsor-directed withdrawals or liquidations.
•
Permitted participant withdrawals and transfers are typically processed daily, the fund trustee may request such evidence as it deems appropriate of entitlement to such withdrawal pursuant to certain procedures and may deny any application for withdrawal if satisfactory evidence is not provided.
•
Plan Sponsor directed withdrawals or liquidations require a 12 month advance written notice.

Traditional GICs - Traditional GICs are backed by the general account of the issuer. The Fund deposits a lump sum with the issuer and receives a guaranteed interest rate for a specified time. Interest is accrued on either a simple interest or fully compounded basis and paid either periodically or at the end of the contract term. The issuer guarantees that all qualified participant withdrawals will occur at contract value (principal plus accrued interest). The traditional GICs in the Fund provide a fixed rate of interest over the term to maturity of the contract; therefore, crediting rates do not reset.
Synthetic GICs - A synthetic GIC is an investment contract (otherwise known as a wrap contract) issued by an insurance company or bank, backed by a portfolio of bonds that are owned by the Fund. The Fund has five synthetic GICs, as of December 31, 2011, with four having a pro-rata share of one wrapped portfolio and one having its own wrap. The assets underlying the synthetic GICs are maintained separate from the contract issuer's general assets, usually by a third party custodian. These contracts typically provide that realized and unrealized gains and losses on the underlying assets are not reflected immediately in the net assets of the Fund, but rather are amortized, usually over time to maturity or the duration of the underlying investments, through adjustments to the future interest crediting rate. The issuer guarantees that all qualified participant withdrawals will occur at contract value. Crediting rates of synthetic GICs can be impacted by variables which include the current yield of the assets within the wrap contract, the duration of the assets covered by the wrap contract and the existing difference between the market value and contract value of the assets within the wrap contract. For synthetic contracts, the Fund uses crediting rate calculations which adjust the current yield of the bonds by a portion of the current gain or loss that is built into the wrap contracts at the measurement date. These crediting rates are reset quarterly and cannot be less than zero. The crediting rate of synthetic contracts will track current market yields on a trailing basis. The rate reset allows the contract value of the portfolio to converge to the market value over time, assuming the market value continues to earn the current portfolio yield for a period of time equal to the current portfolio duration.
With regards to both traditional and synthetic GICs, certain potential events could limit the ability of the Fund to transact at contract value with the issuer. Such events include the following: (i) amendments to the Plan documents; (ii) changes to Fund's prohibition on competing investment options by participating plans or deletion of equity wash provisions; (iii) complete or partial termination of the Fund or its merger with another fund; (iv) the failure of the Plan to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA; (v) unless made in accordance with the withdrawal provisions of the

14


Fund, the redemption of all or a portion of the interests in the Fund held by a participating plan at the direction of the participating plan sponsor, including withdrawals due to the removal of a specifically identifiable group of employees from coverage under the participating plan (such as a group layoff or early retirement incentive program), or the closing or sale of a subsidiary, employing unit or affiliate, the bankruptcy or insolvency of a plan sponsor, the merger of the Plan with another plan, or the Plan sponsor's establishment of another tax-qualified defined contribution plan; (vi) any change in law, regulation, ruling, administrative or judicial position or accounting requirement, in any case applicable to the Fund or participating plans, and (vii) the delivery of any communication to Plan participants designed to influence a participant not to invest in the Fund. The Plan Administrator does not believe that the occurrence of any such market value event which would limit the Fund's ability to transact at contract value with participants is probable.
Guaranteed investment contracts in the Fund do not permit issuers to terminate the agreement prior to the scheduled maturity date. The wrap contracts are evergreen contracts that contain termination provisions. Wrap agreements permit the Fund's investment manager or issuer to terminate upon notice at any time at market value and provide for automatic termination of the wrap contract if the book value or the market value of the contract equals zero. The issuer is not excused from paying the excess contract value when the market value equals zero. Wrap contracts that permit the issuer to terminate at market value generally provide that the Fund may elect to convert such termination to an Amortization Election as described below. In addition, if the Fund defaults in its obligations under the agreement (including the issuer's determination that the agreement constitutes a nonexempt prohibited transaction as defined under ERISA) and such default is not cured within the time permitted by any cure period, then the wrap contract may be terminated by the issuer and the Fund will receive the market value as of the date of termination. Also, wrap contracts permit the issuer or investment manager to elect at any time to convert the wrapped portfolio to a declining duration strategy whereby the contract would terminate at a date which corresponds to the duration of the underlying fixed-income portfolio on the date of the amortization election (“Amortization Election”). After the effective date of an Amortization Election, the fixed-income portfolio must conform to the guidelines agreed upon by the wrap issuer and the investment manager for the Amortization Election period. Such guidelines are intended to result in contract value equaling market value of the wrapped portfolio by such termination date.
The average yield on guaranteed investment contracts was computed by dividing the annualized one-day actual earnings of the contract on the last day of the Plan year by the fair value of the investments on the same date. For 2011 and 2010, the average yield for the Master Trust was 1.20% and 1.96%, respectively.
The average crediting interest rate was computed by dividing the annualized one-day earnings credited to participants on the last day of the Plan year by the fair value of the investments on the same date. The average crediting interest rate for the Master Trust was 1.90% and 2.21% at December 31, 2011 and 2010, respectively.










15




The portfolio holdings of the Interest Income Fund in the Master Trust at December 31, 2011, is shown below (in thousands):
 
As of December 31, 2011
 
 
 
 
 
Wrapper
 
 
 
Rating
 
Investments
 
Contracts
 
Adjustment to
 
S&P/
 
at
 
at Fair
 
Contract
 
Moody’s
 
Fair Value
 
Value
 
Value
 
 
 
 
 
 
 
 
Mutual Fund — JPM U.S. Treasury
 
 
 
 
 
 
 
  Plus Money Market Fund
  AAA/Aaa
 
$
23,861

 
 
 
$
—

Traditional Guaranteed Investment
 
 
 
 
 
 
 
  Contracts:
 
 
 
 
 
 
 
  Metropolitan Life GAC 32173
  AA-/Aa3
 
6,633

 
 
 
(250
)
  Metropolitan Life GAC 32333
  AA-/Aa3
 
5,168

 
 
 
(66
)
  Metropolitan Life GAC 29850
  AA-/Aa3
 
6,166

 
 
 
(127
)
  Monumental SV-04728-Q
  AA-/Aa3
 
4,628

 
 
 
(141
)
  Monumental SV-04747-Q
  AA-/Aa3
 
6,394

 
 
 
(414
)
  Prudential GA 62069-212
  AA-/Aa3
 
4,580

 
 
 
(90
)
Common/Collective Trust — SEI Stable
 
 
 
 
 
 
 
  Asset Fund #190-783
  AA+/Aa1
 
98,490

 
 
 
455

Synthetic Guaranteed Investment
 
 
 
 
 
 
 
  Contracts:
 
 
 
 
 
 
 
   Prudential #GA-62379
  AA/Aa2
 
29,803

 
 
 
(799
)
  CDC-IXIS #WR-1027-01
  AA+/Aa1
 
98,205

 
 
 
(3,185
)
  Monumental MDA #01046TR
  AA+/Aa1
 
116,780

 
 
 
(3,789
)
    Wrapper
 
 
 
 
$
30

 
—

  State Street Bank #97044
  AA+/Aa1
 
99,377

 
 
 
(3,224
)
  State Street Bank #99002
  AA+/Aa1
 
18,608

 
 
 
(604
)
Total
 
 
$
518,693

 
$
30

 
$
(12,234
)









16


The portfolio holdings of the Interest Income Fund in the Master Trust at December 31, 2010, is shown below (in thousands):
 
As of December 31, 2010
 
 
 
 
 
Wrapper
 
 
 
Rating
 
Investments
 
Contracts
 
Adjustment to
 
S&P/
 
at
 
at Fair
 
Contract
 
Moody’s
 
Fair Value
 
Value
 
Value
 
 
 
 
 
 
 
 
Mutual Fund — JPM U.S. Treasury
 
 
 
 
 
 
 
  Plus Money Market Fund
  AAA/Aaa
 
$
6,620

 
 
 
$
—

Traditional Guaranteed Investment
 
 
 
 
 
 
 
  Contracts:
 
 
 
 
 
 
 
  Metropolitan Life GAC 32173
  AA-/Aa3
 
6,525

 
 
 
(335
)
  Metropolitan Life GAC 32333
  AA-/Aa3
 
5,086

 
 
 
(65
)
  Metropolitan Life GAC 29850
  AA-/Aa3
 
6,130

 
 
 
(367
)
  Monumental SV-04728-Q
  AA-/Aa3
 
4,602

 
 
 
(356
)
  Monumental SV-04747-Q
  AA-/Aa3
 
6,289

 
 
 
(585
)
  Pacific Life G-27325.01
  A+/A1
 
5,821

 
 
 
(116
)
  Prudential GA 62069-211
  AA-/Aa3
 
8,782

 
 
 
(272
)
  Prudential GA 62069-212
  AA-/Aa3
 
4,551

 
 
 
(303
)
Common/Collective Trust — SEI Stable
 
 
 
 
 
 
 
  Asset Fund #190-783
  AAA/Aaa
 
100,295

 
 
 
4,869

Synthetic Guaranteed Investment
 
 
 
 
 
 
 
  Contracts:
 
 
 
 
 
 
 
  Bank of America 002-126
  AAA/Aaa
 
28,664

 
 
 
(274
)
    Wrapper
 
 
 
 
$
84

 
—

  CDC-IXIS WR-1027-01
  AAA/Aaa
 
93,903

 
 
 
(898
)
    Wrapper
 
 
 
 
28

 
—

  Monumental MDA #01046TR
  AAA/Aaa
 
111,666

 
 
 
(1,068
)
  State Street Bank #97044
  AAA/Aaa
 
95,010

 
 
 
(909
)
    Wrapper
 
 
 
 
140

 
—

  State Street Bank #99002
  AAA/Aaa
 
17,791

 
 
 
(170
)
    Wrapper
 
 
 
 
26

 
—

Total
 
 
$
501,735

 
$
278

 
$
(849
)
















17


5.
COMMON/ COLLECTIVE TRUSTS (OUTSIDE OF INTEREST INCOME FUND)

The Fund invests in the JPMCB SmartRetirement Passive Blend Funds and the SSgA S&P 500 Index NL-A Fund which are common collective trusts. Fair value of these investments has been estimated using the NAV per share of the investment. Plan participants had the ability to redeem these investments with the investee at NAV per share at December 31, 2011 and 2010.
There were no unfunded commitments, normal course of business redemption restrictions, or other redemption restrictions on these funds at December 31, 2011 or 2010.
6.
PARTY-IN-INTEREST TRANSACTIONS

The Plan's investments include Safeway Inc. common stock, which qualify as exempt party-in-interest transactions. At December 31, 2011 and 2010, the Plan held 7,133,179 and 6,147,309 shares, respectively, of Safeway Inc. common stock, with a cost basis of $187,260,812 and $168,379,541, respectively. During 2011 and 2010, the Plan received $3,493,562 and $2,664,320, respectively, of dividend income on Safeway Inc. common stock.
Certain Plan investments are managed or significantly influenced by J.P. Morgan Chase Bank N.A., trustee of the Plan. As J.P. Morgan Retirement Plan Services provides recordkeeping services to the Plan, these transactions qualify as party-in-interest transactions. Administrative fees paid to J.P. Morgan Retirement Plan Services for recordkeeping were $1,290,702 in 2011 and $1,503,359 in 2010.
7.
INCOME TAXES

The Internal Revenue Service ("IRS") issued a Determination Letter dated March 24, 2004, stating that the Plan and related trust, as then designed, qualified under the Code. Subsequent to this determination by the IRS, the Plan was amended and restated in its entirety, effective January 1, 2005. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. In 2010, the Plan applied for an updated Determination Letter. In January 2011, the IRS confirmed receipt of the application, and it is currently being processed by the IRS. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended and restated, is qualified and the related trust is tax exempt as of the financial statement date. Therefore, no provision for income taxes has been included in the Plan's financial statements.
GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 2005.







18


8.
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500

The following is a reconciliation of the Statement of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for Benefits per the financial statements to the Form 5500 (in thousands):
 
 
 
 
 
December 31, 2011
 
December 31, 2010
 
 
 
 
Net assets available for benefits per the financial statements
$
1,491,689

 
$
1,404,341

Adjustment from contract to fair value for fully
 
 
 
  benefit-responsive investment contracts
10,370

 
650

Net assets available for benefits per the Form 5500
$
1,502,059

 
$
1,404,991

 
 
 
 
 
 
 
 
 
December 31, 2011
 
December 31, 2010
 
 
 
 
(Decrease) increase in net assets before plan transfers per
 
 
 
  the financial statements
$
(19,717
)
 
$
138,264

Adjustment from contract to fair value for fully
 
 
 
  benefit-responsive investment contracts
9,720

 
6,418

Net (loss) income per Form 5500
$
(9,997
)
 
$
144,682




19



SAFEWAY 401(k) PLAN
 
 
 
FORM 5500, SCHEDULE H, PART IV, LINE 4i — SCHEDULE OF ASSETS
 
(HELD AT END OF YEAR)
 
DECEMBER 31, 2011
 
(In thousands)
 
 
 
 
 
 
Current
Asset Name and Description
Value
 
 
* Notes receivable from participants, maturing in 2012–2026 (8,448 loans, interest rates
 
     ranging from 4.25% to 10.50%)
$
46,879

 
 
TOTAL
$
46,879

 
 
* Represents a party-in-interest transaction
 
 
 
 
 
 
 


20