10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 22, 2014

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-00041

SAFEWAY INC.

(Exact name of registrant as specified in its charter)

Delaware	94-3019135
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5918 Stoneridge Mall Rd.
Pleasanton, California	94588-3229
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (925) 467-3000

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No.

As of April 23, 2014, there were issued and outstanding 230.3 million shares of the registrant’s common stock.

SAFEWAY INC. AND SUBSIDIARIES

Table of Contents

		Page
PART I–FINANCIAL INFORMATION (Unaudited)
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations for the 12 weeks ended March 22, 2014 and March 23, 2013	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the 12 weeks ended March 22, 2014 and March 23, 2013	4
	Condensed Consolidated Balance Sheets as of March 22, 2014 and December 28, 2013	5
	Condensed Consolidated Statements of Cash Flows for the 12 weeks ended March 22, 2014 and March 23, 2013	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II–OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 5.	Other Information	35
Item 6.	Exhibits	35

2

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

	12 Weeks Ended
	March 22, 2014			March 23, 2013
Sales and other revenue	$	8,260.9		$	8,176.9
Cost of goods sold	(6,100.7		)	(6,010.6		)
Gross profit	2,160.2			2,166.3
Operating and administrative expense	(2,105.5		)	(2,051.8		)
Operating profit	54.7			114.5
Interest expense	(51.2		)	(64.2		)
Loss on foreign currency translation	(153.1		)	—
Other income, net	13.8			6.3
(Loss) income before income taxes	(135.8		)	56.6
Income taxes	52.7			3.1
(Loss) income from continuing operations, net of tax	(83.1		)	59.7
(Loss) income from discontinued operations, net of tax	(15.5		)	59.1
Net (loss) income before allocation to noncontrolling interests	(98.6		)	118.8
Noncontrolling interests	1.0			0.1
Net (loss) income attributable to Safeway Inc.	$	(97.6	)	$	118.9
Basic (loss) earnings per common share:
Continuing operations	$	(0.36	)	$	0.25
Discontinued operations	(0.07		)	0.25
Total	$	(0.43	)	$	0.50
Diluted (loss) earnings per common share:
Continuing operations	$	(0.36	)	$	0.25
Discontinued operations	(0.07		)	0.24
Total	$	(0.43	)	$	0.49
Weighted average shares outstanding:
Basic	228.1			237.4
Diluted	228.1			238.6

See accompanying notes to condensed consolidated financial statements.

3

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In millions)

(Unaudited)

	12 Weeks Ended
	March 22, 2014			March 23, 2013
Net (loss) income before allocation to noncontrolling interests	$	(98.6	)	$	118.8
Other comprehensive income:
Translation adjustments, net of tax	1.6			(32.0		)
Recognition of pension and post-retirement benefits actuarial loss, net of tax	7.3			15.6
Other, net of tax	0.9			(0.1		)
Total comprehensive (loss) income including noncontrolling interests	(88.8		)	102.3
Comprehensive income attributable to noncontrolling interests	1.0			0.1
Comprehensive (loss) income attributable to Safeway Inc.	$	(87.8	)	$	102.4

See accompanying notes to condensed consolidated financial statements.

4

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

	March 22, 2014			December 28, 2013
ASSETS
Current assets:
Cash and equivalents	$	2,691.4		$	4,647.3
Receivables	605.5			1,211.4
Merchandise inventories	2,324.2			2,089.6
Prepaid expenses and other current assets	557.3			371.5
Assets held for sale	107.7			143.9
Total current assets	6,286.1			8,463.7
Property	17,912.5			17,722.7
Less accumulated depreciation and amortization	(10,428.5		)	(10,185.2		)
Property, net	7,484.0			7,537.5
Goodwill	464.6			464.5
Investment in unconsolidated affiliate	200.5			196.1
Other assets	588.5			557.7
Total assets	$	15,023.7		$	17,219.5

5

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(In millions, except per-share amounts)

(Unaudited)

	March 22, 2014			December 28, 2013
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of notes and debentures	$	652.8		$	252.9
Current obligations under capital leases	60.5			49.3
Accounts payable	2,299.8			3,376.4
Accrued salaries and wages	345.2			419.4
Income taxes payable	—			1,135.2
Other accrued liabilities	539.2			623.2
Total current liabilities	3,897.5			5,856.4
Long-term debt:
Notes and debentures	3,353.1			3,515.3
Obligations under capital leases	384.4			375.5
Total long-term debt	3,737.5			3,890.8
Pension and post-retirement benefit obligations	451.8			451.4
Accrued claims and other liabilities	1,172.6			1,145.8
Total liabilities	9,259.4			11,344.4
Commitments and contingencies
Stockholders’ equity:
Common stock: par value $0.01 per share;1,500 shares authorized; 244.7 and 244.2 shares issued	2.4			2.4
Additional paid-in capital	2,013.7			1,981.9
Treasury stock at cost: 14.4 and 14.1 shares	(489.4		)	(480.6		)
Accumulated other comprehensive loss	(261.3		)	(271.1		)
Retained earnings	4,443.0			4,586.9
Total Safeway Inc. equity	5,708.4			5,819.5
Noncontrolling interests	55.9			55.6
Total equity	5,764.3			5,875.1
Total liabilities and stockholders’ equity	$	15,023.7		$	17,219.5

See accompanying notes to condensed consolidated financial statements.

6

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	12 Weeks Ended
	March 22, 2014			March 23, 2013
OPERATING ACTIVITIES:
Net (loss) income before allocation to noncontrolling interests	$	(98.6	)	$	118.8
Loss (income) from discontinued operations, net of tax	15.5			(59.1		)
(Loss) income from continuing operations, net of tax	(83.1		)	59.7
Reconciliation to net cash flow (used) provided by operating activities:
Depreciation and amortization	209.9			215.9
Property impairment charges	7.5			11.6
Share-based employee compensation	12.6			13.2
Equity in earnings of unconsolidated affiliate	(4.5		)	(4.4		)
Net pension and post-retirement benefits expense	17.6			26.5
Contributions to pension and post-retirement benefit plans	(5.1		)	(23.3		)
Loss on property retirements and lease exit costs, net	0.3			0.8
Increase in accrued claims and other liabilities	2.9			2.4
Deferred income taxes	—			(17.2		)
Other	11.7			9.8
Changes in working capital items:
Receivables	38.2			28.1
Inventories at FIFO cost	(247.0		)	(305.2		)
Prepaid expenses and other current assets	(4.0		)	(19.9		)
Income taxes	(163.3		)	(59.2		)
Payables and accruals	(24.6		)	78.0
Payables related to third-party gift cards, net of receivables	(564.3		)	(600.3		)
Net cash flow used by operating activities–continuing operations	(795.2		)	(583.5		)
Net cash flow (used) provided by operating activities–discontinued operations	(1,191.4		)	28.2
Net cash flow used by operating activities	(1,986.6		)	(555.3		)
INVESTING ACTIVITIES:
Cash paid for property additions	(154.3		)	(129.9		)
Proceeds from sale of property	2.6			8.0
Proceeds from company-owned life insurance policies	—			68.7
Cash restricted by merger agreement for payment of mortgage	(40.0		)	—
Other	(8.7		)	(3.4		)
Net cash flow used by investing activities–continuing operations	(200.4		)	(56.6		)
Net cash flow provided (used) by investing activities–discontinued operations	73.2			(15.0		)
Net cash flow used by investing activities	(127.2		)	(71.6		)
See accompanying notes to condensed consolidated financial statements.

7

SAFEWAY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(In millions)
(Unaudited)
	12 Weeks Ended
	March 22, 2014			March 23, 2013
FINANCING ACTIVITIES:
Additions to long-term borrowings	238.4			614.9
Payments on long-term borrowings	(14.3		)	(7.8		)
Dividends paid	(46.0		)	(41.9		)
Net proceeds from exercise of stock options	15.8			14.5
Other	(3.5		)	(7.8		)
Net cash flow provided by financing activities–continuing operations	190.4			571.9
Net cash flow used by financing activities–discontinued operations	—			(0.8		)
Net cash flow provided by financing activities	190.4			571.1
Effect of changes in exchange rates on cash	(32.5		)	(1.5		)
Decrease in cash and equivalents	(1,955.9		)	(57.3		)
CASH AND EQUIVALENTS:
Beginning of period	4,647.3			352.2
End of period	$	2,691.4		$	294.9

See accompanying notes to condensed consolidated financial statements.

8

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE A–THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of Safeway Inc. and subsidiaries (“Safeway” or the “Company”) for the 12 weeks ended March 22, 2014 and March 23, 2013 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial position and results of operations for such periods. These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared on an accrual basis in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted, pursuant to SEC regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s 2013 Annual Report on Form 10-K, as amended. The results of operations for the 12 weeks ended March 22, 2014 are not necessarily indicative of the results expected for the full year or other future periods.

Recent Developments

On March 6, 2014, Safeway entered into an Agreement and Plan of Merger (the “Merger Agreement”), with AB Acquisition LLC (“AB Acquisition”), Albertson’s Holdings LLC (“Albertsons Holdings”), a subsidiary of AB Acquisition, Albertson’s LLC (“Albertson’s LLC”), a subsidiary of Albertsons Holdings, and Saturn Acquisition Merger Sub, Inc. (“Merger Sub” and together with AB Acquisition, Albertsons Holdings and Albertson’s LLC, “Albertsons”), a subsidiary of Albertsons Holdings, pursuant to which the parties agreed that, on the terms and subject to the conditions set forth in the Merger Agreement, Albertsons Holdings will acquire Safeway.

The Merger Agreement provides that, at the closing of the transactions contemplated thereby, Merger Sub will be merged with and into Safeway (the “Merger”), with Safeway continuing as the surviving corporation. Pursuant to the Merger, each outstanding share of common stock of Safeway will cease to be outstanding and will (other than excluded dissenting shares and shares held in treasury) be converted into the right to receive:

(i) $32.50 in cash,

(ii) pro-rata distributions of net proceeds with respect to certain sales of

(x) Safeway’s real-estate development subsidiary, Property Development Centers, LLC, and assets comprised of Safeway’s shopping center portfolio including certain related Safeway stores (“PDC”); and

(y) Safeway’s 49% interest (the “Casa Ley Interest”) in Casa Ley, S.A. de C.V., a Mexico-based food and general merchandise retailer (“Casa Ley”), and

(iii) if the closing of the Merger occurs after March 5, 2015, $0.005342 per day for each day from (and including) March 5, 2015 through (and including) the closing

((i), (ii) and (iii) together, the “ Per Share Merger Consideration”).

If the sales of PDC and/or the Casa Ley Interest are completed prior to the closing of the Merger, the net proceeds received by Safeway from these sales will be paid to Safeway stockholders at or before the closing. If the PDC sale and/or the sale of the Casa Ley Interest are not fully completed on or prior to the closing, Safeway stockholders will receive at the closing the applicable non-transferable contingent value rights ("CVR").

Each outstanding Safeway restricted stock award, restricted stock unit and performance share award covering shares of Safeway common stock shall vest and be cancelled in exchange for a right to receive the Per Share Merger Consideration with respect to the shares subject to the applicable award and, if necessary, a CVR.  Each outstanding option to purchase Safeway common stock will vest and be cancelled in exchange for the right to receive a payment equal to the excess, if any, of the cash portion of the Per Share Merger Consideration over the exercise price of the applicable option, and additionally, each Safeway option with an exercise price less than the cash portion of the Per Share Merger Consideration will receive the applicable non-transferable CVRs.

9

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Consummation of the Merger is subject to various customary conditions, including, among others, there not having been a “material adverse effect” on Safeway, compliance with covenants and accuracy of representations and warranties (in each case subject to materiality qualifiers), the adoption of the Merger Agreement by the requisite vote of Safeway’s stockholders and expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The parties have agreed to use their respective reasonable best efforts to obtain all necessary regulatory approvals for the Merger provided that Albertsons will not be obligated to agree to divestitures or other restrictions that would reasonably be expected to have a material adverse effect on the parties to the Merger Agreement and their respective subsidiaries, taken as a whole, after giving effect to the reasonably anticipated economic benefits of the Merger.

Safeway’s board of directors (the "Board") plans to, subject to limited exceptions, recommend to its stockholders that they vote to adopt the Merger Agreement. The Board may change its recommendation to its stockholders to adopt the Merger Agreement in the event that the Company receives an acquisition proposal submitted in accordance with the Merger Agreement that the Board determines constitutes a superior proposal or following the occurrence of one or more other intervening events that were not known or reasonably foreseeable on the date of the Merger Agreement, and in each case, the Board determines in good faith after consultation with its financial advisors and outside legal counsel that failure to make a change in its recommendation would be inconsistent with the directors' fiduciary duties under applicable law. Safeway may also terminate the Merger Agreement to accept a superior proposal in certain circumstances, including payment by Safeway to AB Acquisition of a break-up fee and subject to compliance with the terms of the Merger Agreement. AB Acquisition has the right to terminate the Merger Agreement if the Board changes its recommendation to Safeway’s stockholders to adopt the Merger Agreement in a manner adverse in any material respect to AB Acquisition.

Distribution of Blackhawk Shares

The Merger did not alter Safeway’s previously announced plan to distribute the remaining 37.8 million shares of Blackhawk stock that it owned to its stockholders, which was completed on April 14, 2014.  See Note N. Because Safeway did not distribute the Blackhawk shares until after the end of the first quarter of 2014, Blackhawk is still included in continuing operations until the second quarter of 2014 when it will be reclassified as a discontinued operation.

Restricted Cash

In accordance with the Merger Agreement, the Company is required to contribute $40.0 million cash to PDC. This cash will be held in a reserve account until the earlier to occur of (i) payment in full of the mortgage indebtedness currently encumbering a shopping center in Lahaina, Hawaii and (ii) the release of the Company from any guaranty obligations in connection with such indebtedness.  As of March 22, 2014, Safeway has classified the $40.0 million as restricted cash and recorded it as Other Assets in the condensed consolidated balance sheet. The mortgage is included in Mortgage Notes Payable in Note G.

Inventory

Net income reflects the LIFO method of valuing certain domestic inventories based upon estimated annual inflation. The LIFO method of inventory valuation is determined annually when actual LIFO inflation indices for the year are calculated during the fourth quarter based upon a statistical sampling of inventories; therefore, LIFO inventory costs for interim financial statements are estimated. Safeway recorded no LIFO expense during the first 12 weeks of 2014 or during the first 12 weeks of 2013.

Corporate-Owned Life Insurance ("COLI")

Safeway has COLI policies that have a cash surrender value. During 2013, Safeway borrowed against these policies. The Company has no current intention of repaying the loans prior to maturity or cancellation of the policies. Therefore, the Company offsets the cash surrender value by the related loans. At March 22, 2014, the cash surrender value of the policies was $58.7 million, and the balance of the policy loans was $41.3 million, for a net of $17.4 million.

New Accounting Pronouncements

On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. The Company is currently assessing the potential impact of ASU No. 2014-08 on its financial statements.

10

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE B–ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and liabilities held for sale at March 22, 2014 and December 28, 2013 were as follows (in millions):

			March 22, 2014		December 28, 2013
Assets held for sale:
	Dominick's property, net, held for sale		$	97.6	$	136.7
	Other United States real estate assets held for sale		10.1		7.2
	Total assets held for sale		$	107.7	$	143.9
Liabilities held for sale:
	Dominick's:
		Deferred gain on property dispositions	$	15.6	$	9.0
		Obligations under capital leases	—		5.2
		Deferred rent	0.2		2.6
		Other liabilities	0.2		1.4
	Total liabilities held for sale*		$	16.0	$	18.2

*Included in Other Accrued Liabilities on the consolidated balance sheet.

The notes to the consolidated financial statements exclude discontinued operations, unless otherwise noted. Historical financial information for Canada Safeway Limited ("CSL") and Dominick's presented in the consolidated income statements has been reclassified to discontinued operations to conform to current-year presentation.

The financial results of discontinued operations for the 12 weeks ended March 22, 2014 and March 23, 2013 were as follows (in millions):

		March 22, 2014			March 23, 2013
Sales and other revenue:
	CSL	$	—		$	1,493.2
	Dominick's	7.3			329.9
	Total	$	7.3		$	1,823.1
(Loss) income from discontinued operations, before income taxes:
	CSL	$	—		$	76.2
	Dominick's	(61.8		)	(11.3		)
	Total	$	(61.8	)	$	64.9
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes:
	CSL	(5.1		)	—
	Dominick's	42.1			—
	Total	$	37.0		$	—
Total (loss) income from discontinued operations before income taxes 1		$	(24.8	)	$	64.9
Income taxes on discontinued operations		9.3			(5.8		)
(Loss) income from discontinued operations, net of tax		$	(15.5	)	$	59.1

During the fourth quarter of 2013, the Company sold or closed all stores in the Dominick’s division. In 2013, cash proceeds on the sale of Dominick’s stores were $72.2 million, with a pre-tax loss of $493.1 million (including a $310.8 million charge described in the succeeding paragraph). In the first quarter of 2014, cash proceeds on the sale Dominick’s stores were $78.3 million, with a pre-tax gain of $42.1 million.

11

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As previously reported, Safeway participated in four multiemployer pension plans on which withdrawal liability is expected to be incurred due to the Dominick's closure. During the fourth quarter of 2013, the Company recorded expense of $310.8 million to discontinuedoperations, which represented the estimated multiemployer pension plan withdrawal liability. The withdrawal liability recorded during 2013 was based on information available to the Company at the time, without having yet received demand letters from the related multiemployer pension plans.  In April 2014, the Company received two demand letters, which resulted in the Company increasing the multiemployer pension plan withdrawal liability by $33.8 million ($21.1 million after tax) in the first quarter of 2014 (included in loss from discontinued operations in the condensed consolidated statement of operations). As of March 22, 2014, the estimated multi-employer pension plan withdrawal liability (included in Accrued Claims and Other Liabilities with a current portion in Other Accrued Liabilities in the condensed consolidated balance sheet) was $347.3 million, as compared to $310.8 million at December 28, 2013. Withdrawal liability is generally paid over time, and as such the Company expects to pay in the range of $10 million to $20 million per year, varying by year, for approximately 20 years. The final amount of the withdrawal liability due will be adjusted once final assessments have been received from the plans and the amount of the related payments are known. Such adjustment may be significantly greater than the amount recorded based on our actuarial estimate. Demand letters from the other two multiemployer pension plans may be received in 2014, or later.

NOTE C–SHARE-BASED EMPLOYEE COMPENSATION

The Company recognized share-based compensation expense of $12.6 million and $13.2 million in the first quarter of 2014 and 2013, respectively, as a component of operating and administrative expense.

The Company determines fair value of stock option awards using the Black-Scholes option pricing model. The weighted-average assumptions used to value Safeway’s grants of stock options through the first quarter, by year, are as follows:

	2014	2013
Expected life (in years)	6.25	6.25	-	6.50
Expected stock volatility	27.9%	33.0%
Risk-free interest rate	2.0%	1.3%
Expected dividend yield during the expected term	2.8%	3.8%

12

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE D–(LOSS) INCOME PER SHARE

The following tables provide reconciliations of net earnings and shares used in calculating (loss) income per basic common share to those used in calculating (loss) income per diluted common share (in millions, except per-share amounts):

	12 Weeks Ended
	March 22, 2014						March 23, 2013
	Diluted			Basic			Diluted			Basic
(Loss) income from continuing operations, net of tax	$	(83.1	)	$	(83.1	)	$	59.7		$	59.7
Noncontrolling interests	1.0			1.0			0.1			0.1
(Loss) income from continuing operations attributable to Safeway Inc.	(82.1		)	(82.1		)	59.8			59.8
Distributed and undistributed earnings allocated to participating securities	(0.4		)	(0.4		)	(0.6		)	(0.6		)
(Loss) income from continuing operations available to common stockholders	(82.5		)	(82.5		)	59.2			59.2
(Loss) income from discontinued operations, net of tax	(15.5		)	(15.5		)	59.1			59.1
Distributed and undistributed earnings allocated to participating securities	—			—			(0.6		)	(0.6		)
Income from discontinued operations available to common stockholders	(15.5		)	(15.5		)	58.5			58.5
Net (loss) income	$	(97.6	)	$	(97.6	)	$	118.9		$	118.9
Distributed and undistributed earnings allocated to participating securities	(0.4		)	(0.4		)	(1.2		)	(1.2		)
Net (loss) income available to common stockholders after earnings allocated to participating securities	$	(98.0	)	$	(98.0	)	$	117.7		$	117.7
Weighted average common shares outstanding	228.1			228.1			237.4			237.4
Common share equivalents	—						1.2
Weighted average shares outstanding	228.1						238.6
(Loss) earnings per common share:
Continuing operations	$	(0.36	)	$	(0.36	)	$	0.25		$	0.25
Discontinued operations	(0.07		)	(0.07		)	0.24			0.25
Total	$	(0.43	)	$	(0.43	)	$	0.49		$	0.50

Anti-dilutive shares totaling 3.9 million and 17.0 million have been excluded from diluted weighted average shares outstanding for the 12 weeks ended March 22, 2014 and March 23, 2013, respectively.

NOTE E–TAXES ON INCOME

In the first quarter of 2013, Safeway withdrew $68.7 million from the accumulated cash surrender value of COLI policies purchased in the early 1980s and determined that a majority of the remaining cash surrender value would be received in the future through tax-free death benefits. Consequently, Safeway reversed deferred taxes on that remaining cash surrender value and reduced tax expense by $17.2 million. In addition, income tax expense in the first quarter of 2013 was reduced by $5.0 million due to the resolution of federal income tax matters.

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE F–GOODWILL

A summary of changes in Safeway’s goodwill during the first 12 weeks of 2014 is as follows (in millions):

Balance – beginning of year:
Goodwill	$	4,455.8
Accumulated impairment charges	(3,991.3		)
	464.5
Activity during the quarter:
Other adjustments (1)	0.1
	0.1
Balance – end of quarter:
Goodwill	4,455.9
Accumulated impairment charges	(3,991.3		)
Balance – end of quarter	$	464.6

(1) Primarily purchase price adjustments for Blackhawk's acquisition of Retailo AG.

NOTE G–FINANCING

Notes and debentures were composed of the following at March 22, 2014 and December 28, 2013 (in millions):

	March 22, 2014			December 28, 2013
Commercial paper	$	238.4		$	—
Bank credit agreement, unsecured	—			—
Term credit agreement, unsecured	400.0			400.0
Mortgage notes payable, secured	46.4			46.8
5.625% Senior Notes due August 2014, unsecured	250.0			250.0
3.40% Senior Notes due 2016, unsecured	400.0			400.0
6.35% Senior Notes due 2017, unsecured	500.0			500.0
5.00% Senior Notes due 2019, unsecured	500.0			500.0
3.95% Senior Notes due 2020, unsecured	500.0			500.0
4.75% Senior Notes due 2021, unsecured	400.0			400.0
7.45% Senior Debentures due 2027, unsecured	150.0			150.0
7.25% Senior Debentures due 2031, unsecured	600.0			600.0
Other notes payable, unsecured	21.1			21.4
	$	4,005.9		$	3,768.2
Less current maturities	(652.8		)	(252.9		)
Long-term portion	$	3,353.1		$	3,515.3

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE H–PENSION AND POST-RETIREMENT PLANS

The following tables provide the components of net pension and post-retirement expense (in millions):

	12 Weeks Ended
	March 22, 2014					March 23, 2013
	Pension			Other Post- Retirement Benefits		Pension			Other Post- Retirement Benefits
Estimated return on assets	$	(27.5	)	$	—	$	(24.9	)	$	—
Service cost	9.8			0.2		9.7			0.1
Interest cost	22.2			0.8		19.7			0.7
Amortization of prior service cost (credit)	2.2			—		3.0			—
Amortization of unrecognized losses	9.8			0.1		18.0			0.2
Total	$	16.5		$	1.1	$	25.5		$	1.0

The Company contributed $5.1 million to its defined benefit pension plans and post-retirement benefit plans in the first 12 weeks of 2014 compared to $23.3 million in the first 12 weeks of 2013.  For the remainder of 2014, Safeway currently anticipates contributing an additional $8 million to these plans.

NOTE I–CONTINGENCIES

Legal Matters

The Company is subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits involving trade practices, lawsuits alleging violations of state and/or federal wage and hour laws (including alleged violations of meal and rest period laws and alleged misclassification issues), real estate disputes and other matters. Some of these suits purport or may be determined to be class actions and/or seek substantial damages.

It is management's opinion that although the amount of liability with respect to certain of the above matters cannot be ascertained at this time, any resulting liability of these and other matters, including any punitive damages, will not have a material adverse effect on the Company's financial statements taken as a whole.

Note P to the Company's consolidated financial statements in its 2013 Annual Report on Form 10-K, as amended, provides information on certain litigation in which the Company is involved under the caption "Legal Matters." Except as noted below, there have been no subsequent material developments to these matters.

Since the announcement of the Merger, 12 purported class action complaints were filed by alleged stockholders of the Company against the Company, the individual directors of the Company, and against Cerberus Capital Management, L.P., AB Acquisition, Albertsons Holdings, Albertson’s LLC and/or Merger Sub.  Seven lawsuits were filed in the Delaware Court of Chancery, captioned Barnhard v. Safeway Inc., et al., C.A. No. 9445-VCL (March 13, 2014); Morales v. Safeway Inc., et al., C.A. No. 9455-VCL (March 18, 2014); Ogurkiewicz v. Safeway Inc., et al., C.A. No. 9454-VCL (March 18, 2014); Pipefitters Local 636 Defined Benefit Fund and Oklahoma Firefighters Pension and Retirement System v. Safeway Inc., et al., C.A. No. 9461-VCL (March 20, 2014); Cleveland Bakers and Teamsters Pension and Health & Welfare Funds v. Safeway Inc., et al., C.A. No. 9466-VCL (March 24, 2014); KBC Asset Management NV, Erste-Sparinvest Kapitalanlagegesellschaft m.b.H., Louisiana Municipal Police Employees’ Retirement System, and Bristol County Retirement System v. Safeway Inc., et al., C.A. No. 9492-VCL (March 31, 2014); and The City of Atlanta Firefighters’ Pension Fund v. Safeway Inc., et al., C.A. No. 9495-VCL (April 1, 2014), which have been consolidated by order of the Court as In Re Safeway Inc. Stockholders Litigation, Consol. C.A. 9445-VCL.

Four other lawsuits were filed in the Superior Court of the State of California, County of Alameda, and are captioned Lopez v. Safeway Inc., et al., Case No. HG14716651 (March 7, 2014); Groen v. Safeway Inc., et al., Case No. RG14716641 (March 7, 2014); Ettinger v. Safeway Inc., et al., Case No. RG14716842 (March 11, 2014); and Brockton Ret. Board v. Edwards, et. al., Case No. RG 14720450 (April 7, 2014). One lawsuit was filed in the United States District Court for the Northern District of California, and is captioned Steamfitters Local 449 Pensions Fund v. Safeway Inc., et al., Case No. 4:14-cv-01670 (April 10, 2014).

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Each of the cases is purportedly brought on behalf of the Company stockholder class.  Collectively, the actions generally allege that the members of the Board breached their fiduciary duties in connection with the Merger because, among other things, the Merger involves an unfair price, a flawed sales process and preclusive deal protection devices.  The actions allege that the Company and various combinations of the Albertsons entities aided and abetted those alleged breaches of fiduciary duty.  Among other remedies, the lawsuits seek to enjoin the Merger, or in the event that an injunction is not entered and the Merger closes, rescission of the Merger or unspecified money damages, costs and attorneys’ and experts’ fees.  The Company believes these claims are entirely without merit, and intends to vigorously defend these actions.

Guarantees

Note S to the Company’s consolidated financial statements, under the caption “Guarantees” of the 2013 Annual Report on Form 10-K, as amended, provides information on guarantees.

NOTE J–STOCKHOLDERS’ EQUITY

Cash Dividends Declared on Common Stock The following table presents information regarding cash dividends declared on Safeway’s common stock for the first 12 weeks of fiscal 2014 and 2013.

(in millions, except per-share amounts)	Date Declared	Record Date	Per-Share Amounts		Total
2014
Quarter 1	03/12/14	03/24/14	$	0.200	$	46.2
2013
Quarter 1	03/14/13	03/25/13	$	0.175	$	42.2

Cash Dividends Paid on Common Stock The following table presents information regarding cash dividends paid on Safeway’s common stock through the first 12 weeks of fiscal 2014 and 2013.

(in millions, except per-share amounts)	Date Paid	Record Date	Per-Share Amounts		Total
2014
Quarter 1	01/09/14	12/19/13	$	0.200	$	46.0
2013
Quarter 1	12/31/12	12/17/12	$	0.175	$	41.9

NOTE K–FAIR VALUE MEASUREMENTS

The accounting guidance for fair value measurements prioritizes the inputs used in 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.

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents assets and liabilities which are measured at fair value on a recurring basis at March 22, 2014 (in millions):

	Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
Term deposits	$	891.3	$	—	$	891.3	$	—
Money market	11.0		11.0		—		—
Bankers' acceptances	205.3		—		205.3		—
Repurchase agreements	110.3		—		110.3		—
Commercial paper	514.4		—		514.4		—
Other	0.1		—		0.1		—
Short-term investments 1	90.6		54.0		36.6		—
Non-current investments 2	40.8		—		40.8		—
Total	$	1,863.8	$	65.0	$	1,798.8	$	—
Liabilities:
Contingent consideration 3	$	2.8	$	—	$	—	$	2.8
Total	$	2.8	$	—	$	—	$	2.8

(1) Included in Prepaid Expenses and Other Current Assets on the balance sheet.

(2) Included in Other Assets on the balance sheet.

(3) Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

The following table presents assets and liabilities which are measured at fair value on a recurring basis at year-end 2013 (in millions):

	Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
Term deposits	$	2,818.0	$	—	$	2,818.0	$	—
Money market	449.0		449.0		—		—
Bankers' acceptances	309.6		—		309.6		—
Commercial paper	274.0		—		274.0		—
Short-term investments 1	81.0		42.0		39.0		—
Non-current investments 2	38.0		—		38.0		—
Total	$	3,969.6	$	491.0	$	3,478.6	$	—
Liabilities:
Contingent consideration 3	$	2.9	$	—	$	—	$	2.9
Total	$	2.9	$	—	$	—	$	2.9

(1) Included in Prepaid Expenses and Other Current Assets on the balance sheet.

(2) Included in Other Assets on the balance sheet.

(3) Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A reconciliation of the beginning and ending balances for Level 3 liabilities for the first 12 weeks of 2014 follows (in millions):

	Contingent consideration
Balance at December 28, 2013	$	2.9
Settlements	(0.1		)
Balance at March 22, 2014	$	2.8

In determining the fair value, the Company maximizes the use of quoted market prices and minimizes the use of unobservable inputs. The Level 1 fair values are based on quoted market values for identical assets. The fair values of Level 2 are determined using prices from pricing agencies and financial institutions that develop values based on observable inputs in active markets. Level 3 fair values are determined from industry valuation models based on externally developed inputs.

Long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows (including rental expense for leased properties, sublease rental income, common area maintenance costs and real estate taxes) and discounting them using a risk-adjusted rate of interest. Safeway estimates future cash flows based on its experience and knowledge of the market in which the store is located and, when necessary, uses real estate brokers.

During the first quarter of 2014, long-lived assets from continuing operations with a carrying value of $9.6 million, primarily store assets, were written down to their fair value of $2.1 million, resulting in an impairment charge of $7.5 million. During the first quarter of 2013, long-lived assets with a carrying value of $20.0 million, primarily store assets, were written down to their fair value of $8.4 million, resulting in an impairment charge of $11.6 million.

NOTE L–SEGMENTS

Safeway’s retail business operates in the United States. Safeway is organized into seven geographic retail operating segments (Denver, Eastern, Northern California, Phoenix, Northwest, Texas and Southern California). Across all seven retail operating segments, the Company operates primarily one store format, where each store offers the same general mix of products with similar pricing to similar categories of customers. Safeway does not operate supercenters, warehouse formats, combination clothing/grocery stores or discount stores.

The seven operating segments have been aggregated into one reportable segment called Safeway, because, in the Company’s judgment, the operating segments have similar historical economic characteristics and are expected to have similar economic characteristics and similar long-term financial performance in the future. The principal measures and factors the Company considered in determining whether the economic characteristics are similar are gross margin percentage, operating profit margin, sales growth, capital expenditures, competitive risks, operational risks and challenges, retail store sales, costs of goods sold and employees. In addition, each operating segment has similar products, similar production processes, similar types of customers, similar methods of distribution and a similar regulatory environment. The Company believes that disaggregating its operating segments would not provide material or meaningful additional information.

As a result of the Blackhawk initial public offering of its Class A common stock in 2013, the Company presents Blackhawk as a separate reportable segment. Because Safeway did not distribute the Blackhawk shares until after the end of the first quarter of 2014, Blackhawk is still included as a separate reportable segment in continuing operations until the second quarter of 2014 when it will be reclassified as a discontinued operation. Blackhawk is a leading prepaid payment network utilizing proprietary technology to offer a broad range of gift cards, other prepaid products and payment services. Blackhawk’s payment network supports its three primary constituents: consumers who purchase the products and services Blackhawk offers, content providers who offer branded products that are redeemable for goods and services, and distribution partners who sell those products. Blackhawk’s product offerings include gift cards, prepaid telecom products and prepaid financial services products, including general purpose reloadable ("GPR") cards and Blackhawk’s reload network. In the fourth quarter of 2013, Blackhawk acquired InteliSpend Prepaid Solutions TM, a leader in the corporate incentives and consumer promotions marketplace, and Retailo AG, a leading third-party gift card distribution network in Germany, Austria and Switzerland.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables present information about the Company by segment (in millions):

	12 Weeks Ended
	March 22, 2014			March 23, 2013
Safeway
Sales and other revenue	$	8,029.5		$	7,993.4
Operating profit	60.6			114.2
(Loss) income before income taxes	(130.0		)	56.0
Blackhawk*
Sales and other revenue	$	231.4		$	183.5
Operating (loss) profit	(5.9		)	0.3
(Loss) income before income taxes	(5.8		)	0.6
Total
Sales and other revenue	$	8,260.9		$	8,176.9
Operating profit	54.7			114.5
(Loss) income before income taxes	(135.8		)	56.6
*Does not reflect noncontrolling interests in Blackhawk

The following tables presents sales revenue by type of similar product (dollars in millions):

	12 Weeks Ended
	March 22, 2014				March 23, 2013
Non-perishables (1)	$	3,392.0	41.1	%	$	3,378.0	41.3	%
Perishables (2)	3,000.2		36.3		2,910.1		35.6
Fuel	877.4		10.6		959.0		11.7
Pharmacy	617.1		7.5		617.6		7.6
Blackhawk	231.4		2.8		183.5		2.2
Other (3)	142.8		1.7		128.7		1.6
Total sales and other revenue	$	8,260.9	100.0	%	$	8,176.9	100.0	%

(1) Consists primarily of general merchandise, grocery, meal ingredients, soft drinks and other beverages, snacks and frozen foods.

(2) Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

(3) Consists primarily of wholesale sales and other revenue.

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE M–OTHER COMPREHENSIVE INCOME OR LOSS

Total comprehensive earnings are defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders. Generally, for Safeway, total comprehensive earnings equals net earnings plus or minus adjustments for pension and other post-retirement liabilities and foreign currency translation adjustments. Total comprehensive earnings represent the activity for a period, net of tax and were a loss of $87.8 million in the first 12 weeks of 2014 and income of $102.4 million in the first 12 weeks of 2013.

While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss ("AOCI") represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For Safeway, AOCI is primarily the cumulative balance related to pension and other post-retirement benefit adjustments and foreign currency translation adjustments. Changes in the AOCI balance by component are shown below (in millions):

	12 Weeks Ended March 22, 2014
	Pension and Post-Retirement Benefit Plan Items			Foreign Currency Items			Other			Total Comprehensive (Loss) Income Including Noncontrolling Interests
Beginning balance	$	(130.7	)	$	(138.8	)	$	(1.6	)	$	(271.1	)
Other comprehensive income before reclassifications	—			1.6			1.2			2.8
Amounts reclassified from accumulated other comprehensive income	12.1			—			—			12.1
Tax expense	(4.8		)	—			(0.3		)	(5.1		)
Net current-period other comprehensive income	7.3			1.6			0.9			9.8
Ending balance	$	(123.4	)	$	(137.2	)	$	(0.7	)	$	(261.3	)

	12 Weeks Ended March 23, 2013
	Pension and Post-Retirement Benefit Plan Items			Foreign Currency Items			Other			Total Comprehensive (Loss) Income Including Noncontrolling Interests
Beginning balance	$	(472.3	)	$	399.0		$	(0.5	)	$	(73.8	)
Other comprehensive (loss) income before reclassifications	—			(32.0		)	0.1			(31.9		)
Amounts reclassified from accumulated other comprehensive income	24.7			—			—			24.7
Tax expense	(9.1		)	—			(0.2		)	(9.3		)
Net current-period other comprehensive income (loss)	15.6			(32.0		)	(0.1		)	(16.5		)
Ending balance	$	(456.7	)	$	367.0		$	(0.6	)	$	(90.3	)

20

SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE N–SUBSEQUENT EVENT

Distribution of Blackhawk Shares On March 24, 2014, Safeway's Board of Directors declared a special stock dividend to its stockholders of all of the 37.8 million shares of Class B common stock of Blackhawk owned by Safeway, representing approximately 94.2% of the total outstanding shares of Blackhawk's Class B common stock and approximately 72.0% of the total number of shares of Blackhawk common stock of all classes outstanding.  On April 14, 2014, Safeway distributed the special stock dividend to all Safeway stockholders of record on April 3, 2014 (the "Record Date").  The distribution took place in the form of a pro rata dividend of Blackhawk Class B common stock to each Safeway stockholder of record on the Record Date.  Safeway stockholders received 0.164291 of a share of Blackhawk Class B common stock for every share of Safeway common stock held as of the Record Date, less any shares withheld in respect of applicable withholding taxes.  No fractional shares of Blackhawk stock were distributed.  Instead, Safeway stockholders received cash in lieu of any fraction of a share of Blackhawk stock.

Assuming the acquisition by AB Acquisition is completed as contemplated by the Merger Agreement (see Note A), it is expected that Safeway’s distribution of Blackhawk shares will be taxable to Safeway and Safeway’s stockholders. Based on Safeway’s preliminary estimates and after the application of tax payments previously made in connection with Safeway's sale of shares in the initial public offering of Blackhawk's Class A common stock in April 2013, Safeway expects that the distribution of Blackhawk shares will result in an incremental tax to Safeway of approximately $360 million.

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SAFEWAY INC. AND SUBSIDIARIES

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains 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 (“Exchange Act”). Forward-looking statements contain information about our future operating or financial performance. Forward-looking statements are based on our current expectations and involve risks and uncertainties, which may be beyond our control, as well as assumptions. If assumptions prove to be incorrect or if known or unknown risks and uncertainties materialize into actual events or circumstances, actual results could differ materially from those included in or contemplated or implied by these statements. Forward-looking statements do not strictly relate to historic or current facts. Forward-looking statements are indicated by words or phrases such as “will,” “may,” “continuing,” “ongoing,” “expects,” “estimates,” “anticipates,” “believes,” “guidance” and similar words or phrases and the negative of such words or phrases.

This Quarterly Report on Form 10-Q includes forward-looking statements, including but not limited to forward-looking statements relating to pension and post-retirement benefit plan contributions; repayment of borrowings; sufficiency of liquidity for the foreseeable future; the timing of converting substantially all of the Company's Canadian cash and equivalents into U.S. dollars; the total amount of multiemployer pension plan withdrawal liability related to Dominick's; the annual amount of multiemployer pension plan withdrawal liability expected to be paid for Dominick's and the number of years expected to make those payments; the timing of the receipt of the demand letters from the remaining multiemployer pension plans related to Dominick's; debt financing contemplated in connection with the Merger; and plans for Safeway’s outstanding notes and debentures in connection with the Merger. The following are among the principal factors that could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements:

• The occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

• The possibility that various closing conditions for the Merger (including the stockholder approval) may not be satisfied or waived;

• The possibility of a failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory or other approvals;

• The failure to obtain sufficient funds to close the Merger;

• The failure of the Merger to close for any other reason;

• The amount of fees and expenses related to the Merger;

• The diversion of the Board’s attention from ongoing business concerns;

• The effect of the announcement of the Merger on our business relationships, operating results and business generally, including our ability to retain key employees;

• The Merger Agreement’s contractual restrictions on the conduct of our business prior to the closing of the Merger;

• The possible adverse effect on our business and the price of our common stock if the Merger is not completed in a timely matter or at all;

• The outcome of, or delays caused by, any legal proceedings, regulatory proceedings or enforcement matters that have been or may be instituted against us and others relating to the Merger;

• 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;

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SAFEWAY INC. AND SUBSIDIARIES

• Results of our programs to improve our perishables and center of store departments;

• The impact of generic drugs on pharmacy sales and identical-store sales;

• 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 outcome of the sale of substantially all the net assets of Canada Safeway Limited to Sobeys Inc. including the ability to project the impact of the transaction on our ongoing operations;

•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;

• Potential costs and risks associated with actual or potential cyber attacks;

• Data security or other information technology issues that may arise;

• Failure to fully realize or delay in realizing growth prospects for existing or new business ventures;

• Legislative, regulatory, tax, accounting or judicial developments;

• 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 key members of senior management;

• 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 retail stores.

In addition, there is no assurance that any payments will be made with respect to the sales of the Casa Ley Interest and/or PDC, including with respect to the CVRs after the closing of the Merger. The right to receive any future payments with respect to the sales of the Casa Ley Interest and/or PDC, including with respect to the CVRs after the closing of the Merger, will be contingent on a number of factors, including our ability to sell all or a portion of the Casa Ley Interest and/or PDC, and the amount of net proceeds realized. There can be no assurance as to the value of the Casa Ley Interest and/or PDC or that stockholders will receive net proceeds in the amount of the value estimated in the joint press release previously issued by Safeway, or any other amount.

We undertake no obligation to update forward-looking statements to reflect new information, events or developments after the date hereof including without limitation the value of the Casa Ley Interest and/or PDC. Please refer to our most recent Annual Report on Form 10-K, as amended, Item 1A of this report and subsequent Current Reports on Form 8-K for more information regarding these risks and uncertainties. These reports are not intended to be a discussion of all potential risks or uncertainties, as it is not possible to predict or identify all risk factors.

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SAFEWAY INC. AND SUBSIDIARIES

Additional Information and Where to Find It

This filing does not constitute a solicitation of any vote or approval in respect of the proposed Merger transaction involving Safeway or otherwise. In connection with the Merger, a special stockholder meeting will be announced soon to obtain stockholder approval. In connection with the Merger, Safeway filed a preliminary proxy statement with the Securities and Exchange Commission (the "SEC") on April 17, 2014 and intends to file relevant materials, including a definitive proxy statement, with the SEC. Investors and security holders of Safeway are urged to read the definitive proxy statement and other relevant materials when they become available because they will contain important information about the Company, Albertsons and the proposed transaction. The proxy statement and other relevant materials (when they become available), and any other documents filed by Safeway with the Securities and Exchange Commission, may be obtained free of charge at the SEC’s website at www.sec.gov, at Safeway’s website at www.Safeway.com or by sending a written request to Safeway at 5918 Stoneridge Mall Road, Pleasanton, California 94588, Attention: Investor Relations.

Participants in the Solicitation

Safeway and its directors, executive officers and certain other members of management and employees may be deemed to be participants in soliciting proxies from the stockholders of Safeway in favor of the Merger. Information regarding the persons who may, under the rules of the SEC, be considered to be participants in the solicitation of Safeway’s stockholders in connection with the proposed transaction and their ownership of Safeway’s common stock will be set forth in Safeway’s proxy statement for its special meeting. Investors can find more information about Safeway’s executive officers and directors in its Annual Report on Form 10-K for the fiscal year ended December 28, 2013, as amended, and in its definitive proxy statement filed with the SEC on Schedule 14A on April 1, 2013.

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SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

MANAGEMENT OVERVIEW The Company’s results of operations can be affected by economic conditions such as macroeconomic conditions, credit market conditions and the level of consumer confidence. The Company believes that recently consumer confidence has improved modestly, but remains cautious. The Company is responding to this challenging environment with new marketing programs, such as just for U™, and a continuing focus on cost control.

RECENT DEVELOPMENTS

Definitive Merger Agreement

On March 6, 2014, Safeway and Albertsons announced the Merger Agreement. The Merger Agreement was unanimously approved by the Board of Directors of Safeway. See Note A to the condensed consolidated financial statements set forth in Part I, Item 1 of this report.

Distribution of Blackhawk Shares

The Merger did not alter Safeway’s previously announced plan to distribute the remaining 37.8 million shares of Blackhawk stock that it owned to its stockholders, which was completed on April 14, 2014. See Note N to the condensed consolidated financial statements set forth in Part I, Item 1 of this report.

DISCONTINUED OPERATIONS Historical financial information for Canada Safeway Limited ("CSL" ) and Dominick's presented in the consolidated income statements has been reclassified to discontinued operations to conform to current-year presentation. The disclosures in this Management's Discussion and Analysis focus on continuing operations, unless otherwise noted. The financial results of discontinued operations for the 12 weeks ended March 22, 2014 and March 23, 2013 were as follows (in millions):

		March 22, 2014			March 23, 2013
Sales and other revenue:
	CSL	$	—		$	1,493.2
	Dominick's	7.3			329.9
	Total	$	7.3		$	1,823.1
(Loss) income from discontinued operations, before income taxes:
	CSL	$	—		$	76.2
	Dominick's	(61.8		)	(11.3		)
	Total	$	(61.8	)	$	64.9
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes:
	CSL	$	(5.1	)	$	—
	Dominick's	42.1			—
	Total	$	37.0		$	—
Total (loss) income from discontinued operations before income taxes		$	(24.8	)	$	64.9
Income taxes on discontinued operations		9.3			(5.8		)
(Loss) income from discontinued operations, net of tax		$	(15.5	)	$	59.1

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SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As previously reported, Safeway participated in four multiemployer pension plans on which withdrawal liability is expected to be incurred due to the Dominick's closure.  In April 2014, the Company received two demand letters, which resulted in the Company increasing the multiemployer pension plan withdrawal liability by $33.8 million ($21.1 million after tax) in the first quarter of 2014 (included in loss from discontinued operations in the condensed consolidated statement of operations). This resulted in a reduction in the earnings from discontinued operations of $33.8 million ($21.1 million after tax) from the amount reported in the earnings release dated April 23, 2014. For more information on the withdrawal liability, see Note B to the condensed consolidated financial statements set forth in Part I, Item 1 of this report.

INCOME BEFORE INCOME TAXES Safeway’s loss before income taxes was $135.8 million in the first quarter of 2014 compared to income before income taxes of $56.6 million in the first quarter of 2013. This decline was primarily the result of a loss on foreign currency translation of $153.1 million in 2014 and lower operating profit.

(LOSS) INCOME FROM CONTINUING OPERATIONS Loss from continuing operations, net of tax, was $83.1 million ($0.36 per diluted share) for the first quarter of 2014 and included a loss on foreign currency translation of $153.1 million ($93.4 million, net of tax, or $0.41 per diluted share).

In the first quarter of 2013, income from continuing operation, net of tax, was $59.7 million ($0.25 per diluted share) and included a $17.2 million ($0.07 per diluted share) reduction of income tax expense on corporate-owned life insurance ("COLI") policies and a $5.0 million ($0.02 per diluted share) reduction of tax expense due to the resolution of federal income tax matters.

SALES AND OTHER REVENUE Total sales increased to $8.3 billion in the first quarter of 2014 from $8.2 billion in the first quarter of 2013 due primarily to $125 million of higher identical-store sales and $44 million of higher other revenue, partially offset by $82 million of lower fuel sales. Fuel sales decreased primarily because the gallons sold decreased 4.7%, and the average retail price per gallon of fuel decreased 4.0%.

Identical-Store Sales*

	12 Weeks Ended
	March 22, 2014	March 23, 2013
As reported	0.5%	0.9%
Excluding fuel sales	1.8%	1.9%

* Identical-store sales (ID Sales) are defined as stores operating in the same period in both the current year and the prior year, comparing sales on a daily basis. Stores that are open during remodeling are included in ID Sales. Internet sales are included in ID Sales if the store fulfilling the orders is included in the ID Sales calculation. Excludes replacement stores and discontinued operations.

Identical-store sales, excluding fuel, increased 1.8%. Average transaction size and transaction counts increased during the quarter.

GROSS PROFIT Gross profit represents the portion of sales revenue remaining after deducting the cost of goods sold during the period, including purchase and distribution costs. These costs include inbound freight charges, purchasing and receiving costs, warehouse inspection costs, warehousing costs and other costs of Safeway’s distribution network. Advertising and promotional expenses and vendor allowances are also components of cost of goods sold.

Gross profit decreased 34 basis points to 26.15% of sales in the first quarter of 2014 compared to 26.49% of sales in the first quarter of 2013. Gross profit increased 30 basis points due to lower fuel sales. The offsetting 64 basis-point decline was largely due to strong cost inflation in produce, meat and pharmacy that have not been fully passed on to consumers.

Vendor allowances totaled $570.2 million in the first quarter of 2014 and $538.1 million in the first quarter of 2013. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances and contract allowances.

Promotional allowances make up nearly 95% of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular or a preferred location in the store. The promotions are typically one to two weeks long.

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SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Slotting allowances are a small portion of total allowances (approximately 3% of all allowances). With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.

Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.

Slotting and promotional allowances are accounted for as a reduction in the cost of purchased inventory and recognized when the related inventory is sold. Contract allowances are recognized as a reduction in the cost of goods sold as volume thresholds are achieved or through the passage of time.

OPERATING AND ADMINISTRATIVE EXPENSE Operating and administrative expense increased 40 basis points to 25.49% of sales in the first quarter of 2014 from 25.09% of sales in the first quarter of 2013 for the following reasons:

	Basis-point increase (decrease)
Impact of fuel sales	27
Increased administrative expense	15
Increased store occupancy costs	10
Merger-related expenses	6
Lower depreciation expense	(14	)
Lower loss on property dispositions and impairment charges	(8	)
Other individually immaterial items	4
	40

INTEREST EXPENSE Interest expense declined to $51.2 million in the first quarter of 2014 from $64.2 million in the first quarter of 2013 because of a decline in average borrowings, partly offset by an increase in the average interest rate. Average borrowings declined $1,622 million to $4,313 million in the first quarter of 2014 compared to $5,935 million in the first quarter of 2013. The average interest rate increased 45 basis points to 5.14% in the first quarter of 2014 from 4.69% in the first quarter of 2013.

LOSS ON FOREIGN CURRENCY TRANSLATION Loss on foreign currency translation was $153.1 million ($0.41 per diluted share) in the first quarter of 2014. This loss was primarily the result of translating investments denominated in Canadian currency into U.S. currency for financial reporting purposes. At the end of the first quarter of 2014, Safeway had CAD2,985.4 million (USD2,667.5 million) of cash and equivalents denominated in Canadian dollars which came from the sale of substantially all of the net assets of Canada Safeway Limited in the fourth quarter of 2013. Safeway intends to convert substantially all of its Canadian cash and equivalents into U.S. dollars in the second quarter of 2014. The Canadian exchange rate has improved from 0.8935 at the end of the first quarter to 0.9068 as of April 28, 2014.

OTHER INCOME Other income increased to $13.8 million in the first quarter of 2014 from $6.3 million in the first quarter of 2013 primarily due to a $7.7 million increase in interest income.

INCOME TAXES Income taxes on continuing operations was a benefit of 38.8% of pre-tax loss in the first quarter of 2014 compared to a tax benefit of 5.5% on pre-tax income in the first quarter of 2013. The income tax benefit in the first quarter of 2013 included a $17.2 million reduction of tax expense on COLI policies and a $5.0 million reduction of tax expense due to the resolution of federal income tax matters.

BLACKHAWK FINANCIAL RESULTS

12 Weeks Ended March 22, 2014 Compared With 12 Weeks Ended March 23, 2013 Blackhawk revenue (excluding intercompany revenue to Safeway Inc.) was $231.4 million in the first quarter of 2014, up 26.1% from $183.5 million in the first quarter of 2013. This increase was primarily due to a 23% increase in commissions and fees driven by increases in world-wide closed loop gift card sales, a 46% increase in program, interchange, marketing and other fees due to strong open loop gift card sales in the U.S. and the acquisition of InteliSpend in late 2013, and a 19% increase in product sales. A net loss before taxes from Blackhawk of $5.8 million in the first quarter of 2014 was mainly due to an increase of $4.3 million in intangible

27

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

asset amortization expense related to the InteliSpend and Retailo acquisitions. Income before taxes was $0.6 million in the first quarter of 2013.

Critical Accounting Policies

Critical accounting policies are those accounting policies that management believes are important to the portrayal of Safeway’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company’s 2013 Annual Report on Form 10-K, as amended, includes a description of certain critical accounting policies, including those with respect to workers’ compensation, store lease exit costs and impairment charges, employee benefit plans and income tax contingencies.

Liquidity and Financial Resources

Net cash flow used by operating activities was $795.2 million in the first 12 weeks of 2014 compared to $583.5 million in the first 12 weeks of 2013. This change was largely due to the loss on foreign currency translation and higher tax payments in 2014.

Net cash flow used by investing activities increased to $200.4 million in the first 12 weeks of 2014 from $56.6 million in the first 12 weeks of 2013 primarily due to proceeds from COLI policies in the first quarter of 2013, an increase in restricted cash in 2014 and increased capital expenditures in 2014.

Net cash flow provided by financing activities was $190.4 million in the first 12 weeks of 2014 compared to $571.9 million in the first 12 weeks of 2013. This change was due primarily to lower additions to debt in 2014.

Due to the potential Merger, each of the major U.S. rating agencies have placed Safeway on negative watch.  If Safeway’s credit ratings are downgraded to below the Triple B (or equivalent) level, Safeway will not have the ability to borrow under its commercial paper program. However, Safeway expects to continue to have access to borrowings under the Credit Agreement referred to below.  Management believes that current levels of cash on hand, net cash flow from operating activities and potential borrowing under Safeway’s Credit Agreement will be adequate to meet anticipated requirements for working capital, capital expenditures, interest payments, dividend payments and scheduled principal payments for the foreseeable future. There can be no assurance, however, that Safeway’s business will continue to generate cash flow at or above current levels or that the Company will maintain its ability to borrow under the Credit Agreement.

FREE CASH FLOWON CONTINUING OPERATIONS Free cash flow is calculated as net cash flow from operating activities (adjusted to exclude payables related to third-party gift cards, net of receivables) less net cash flow used by investing activities. 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.

	12 Weeks Ended
(in millions)	March 22, 2014			March 23, 2013
Net cash flow used by operating activities, as reported	$	(795.2	)	$	(583.5	)
Decrease in payables related to third-party gift cards, net of receivables	564.3			600.3
Net cash flow (used) provided by operating activities, as adjusted	(230.9		)	16.8
Net cash flow used by investing activities	(200.4		)	(56.6		)
Free cash flow	$	(431.3	)	$	(39.8	)

Free cash flow provides information regarding the cash that the Company’s business generates, which management believes is useful to understanding the Company’s business. Free cash flow is also a useful indicator of Safeway’s ability to service debt and pay dividends that management believes will enhance stockholder value.

This non-U.S. GAAP financial measure should not be considered as an alternative to net cash flow from operating activities or other increases and decreases in cash as shown on our Consolidated Statements of Cash Flows as a measure of liquidity. Non-U.S. GAAP financial measures have limitations as analytical tools, and they should not be considered in isolation or as

28

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

substitutes for analysis of the Company’s results as reported under U.S. GAAP. Other companies in the Company’s industry may calculate free cash flow differently, limiting its usefulness as a comparative measure.

DISCONTINUED OPERATIONS

Net cash flow used by operating activities was $1,191.4 million in the first 12 weeks of 2014 compared to net cash flow provided by operating activities of $28.2 million in the first 12 weeks of 2013. During the first quarter of 2014, Safeway paid income taxes of $1.1 billion, most of which related to the income taxes on the gain on the sale of substantially all of the net assets of Canada Safeway Limited, which closed in the fourth quarter of 2013.

Net cash flow provided by investing activities was $73.2 million in the first 12 weeks of 2014 compared to net cash flow used by investing activities of $15.0 million in the first 12 weeks of 2013. During 2014, Safeway received net proceeds of $78.3 million from the sale of certain Dominick's stores and paid approximately $5.1 million of expenses related to the sale of substantially all of the net assets of Canada Safeway Limited.

CREDIT AGREEMENT The Company has a $1.5 billion credit agreement (the “Credit Agreement”) with a syndicate of banks that terminates on June 1, 2015. The Credit Agreement provides (i) to Safeway, a four-year revolving domestic credit facility of up to $1,250.0 million for U.S. dollar advances, (ii) to Safeway and CSL, a four-year revolving Canadian credit facility of up to $250.0 million for U.S. dollar and Canadian dollar advances and (iii) to Safeway, a $400.0 million subfacility of the domestic facility for issuance of standby and commercial letters of credit. The Credit Agreement also provides for an increase in the domestic or Canadian credit facility commitments up to an additional $500.0 million, subject to the satisfaction of certain conditions. Safeway will guarantee the obligations of CSL under the Credit Agreement. The Credit Agreement contains various covenants that restrict, among other things and subject to certain exceptions, the ability of Safeway, CSL and their respective subsidiaries to incur certain liens, make certain asset sales, enter into certain mergers or amalgamations, engage in certain transactions with shareholders and affiliates and alter the character of its business from that conducted on the closing date. The Credit Agreement also contains two financial maintenance covenants: (i) an interest coverage ratio that requires Safeway not to permit the ratio of consolidated Adjusted EBITDA, as defined in the Credit Agreement, to consolidated interest expense to be less than 2.00:1.00, and (ii) a leverage ratio that requires Safeway not to permit the ratio of consolidated total debt, less unrestricted cash in excess of $75.0 million, to consolidated Adjusted EBITDA, to exceed 3.50:1.00. As of March 22, 2014, the Company was in compliance with these covenant requirements. At March 22, 2014, there were no borrowings outstanding and $35.6 million in letters of credit under the Credit Agreement. Total unused borrowing capacity under the Credit Agreement was $1,464.4 million on March 22, 2014.

TERM CREDIT AGREEMENTSafeway has a $700.0 million term credit agreement with a syndicate of banks which matures on March 19, 2015. The term credit agreement provides an up to $700.0 million three-year and three-month senior term credit facility available to Safeway. Loans under the term credit agreement carry interest, at Safeway’s option, at either a Base Rate (as defined in the Term Credit Agreement) plus a pricing margin or a Eurodollar Rate (as defined in the Term Credit Agreement) plus a pricing margin. The Term Credit Agreement covenants are substantially similar to the covenants contained in Safeway's existing bank credit agreement dated as of June 1, 2011, as previously disclosed under the caption "Credit Agreement." As of March 22, 2014, the Company was in compliance with these covenant requirements. At March 22, 2014, there were $400.0 million of outstanding borrowings under the Term Credit Agreement.

SHELF REGISTRATIONThe Company has a shelf registration statement (the “Shelf”) with the SEC which permits Safeway to issue an unlimited amount of debt securities and/or common stock that expires on October 24, 2014. At March 22, 2014, $1.95 billion of securities were available for issuance under the Safeway board of directors' authorization.

DIVIDENDS ON COMMON STOCK Dividends paid on common stock totaled $46.0 million and $41.9 million for the first quarters of 2014 and 2013, respectively. Note J to the Company’s condensed consolidated financial statements in this report provides additional information on dividends declared and dividends paid on Safeway common stock.

The Merger Agreement allows Safeway to pay its regular quarterly dividends over the next 12 months, prior to closing, and to increase the dividend within certain limits, assuming the Merger Agreement is closed during that time period. If the Merger Agreement is not closed within 12 months, Albertsons can extend the Merger Agreement by an additional three months under certain circumstances. During the extended time, Safeway would not be permitted to pay a dividend to its stockholders, but stockholders would receive additional cash consideration equal to 6% per annum on the $32.50 per share cash price for the number of days that pass during the three-month extension until closing.

STOCK REPURCHASE PROGRAM Safeway did not repurchase any shares of its common stock during the first 12 weeks of 2014 under its previously announced share repurchase program. The remaining board authorization for stock repurchases at

29

SAFEWAY INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

March 22, 2014 was approximately $2.2 billion. The repurchase program has no expiration date but may be terminated by the board of directors.The Merger Agreement does not allow the Company to repurchase its common stock under the Company’s stock repurchase program.  The Merger Agreement does permit the Company to repurchase its common stock from holders of options, restricted stock or performance shares in payment of the exercise price or any applicable taxes.

Capital Expenditure Program

For the first 12 weeks of 2014, Safeway invested $154.3 million in capital expenditures compared to $129.9 million for the first 12 weeks of 2013.

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SAFEWAY INC. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes regarding the Company’s market risk position from the information provided under Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company’s 2013 Annual Report on Form 10-K, as amended.

Item 4. Controls and Procedures

The Company maintains “disclosure controls and procedures,” as such term is defined under Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, the Company’s management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company’s disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives. The Company also has investments in certain unconsolidated entities, including Casa Ley, S.A. de C. V. As the Company does not control or manage these entities, its disclosure controls and procedures with respect to such entities are necessarily more limited than those it maintains with respect to its consolidated subsidiaries.

The Company has carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer, along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon the foregoing, as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s President and Chief Executive Officer, along with the Company’s Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. There has been no change during the Company’s fiscal quarter ended March 22, 2014 in the Company’s internal control over financial reporting that was identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) which has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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SAFEWAY INC. AND SUBSIDIARIES

PART II–OTHER INFORMATION

Item 1. Legal Proceedings

Legal Matters

Information about legal proceedings appears under the caption "Legal Matters" in Note I to the condensed consolidated financial statements set forth in Part I, Item 1 of this report.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Part I, Item 1A, in the Company’s 2013 Annual Report on Form 10-K, except as noted below.

On March 6, 2014, Safeway and Albertsons entered into the Merger Agreement, as described under the caption “Recent Developments” in Note A to the condensed consolidated financial statements in this report.

The Merger is subject to a number of conditions to Albertsons’ and our obligations, which, if not fulfilled, may result in termination of the Merger Agreement.

The Merger Agreement contains a number of customary conditions to consummation of the Merger, including there not having been a “material adverse effect” on Safeway, each of Safeway's and Albertsons' compliance with covenants and the accuracy of each of Safeway's and Albertsons' representations and warranties, the approval and adoption of the Merger Agreement by the requisite vote of Safeway’s stockholders, the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the absence of any temporary restraining orders, preliminary or permanent injunctions or other orders by any governmental entity making illegal, restraining or enjoining the Merger. Many of the conditions to consummation of the Merger are not within either Albertsons’ or our control, and neither party can predict when or if these conditions will be satisfied. The Merger Agreement provides for the ability of Albertsons or Safeway to terminate the Merger Agreement under certain circumstances, including the right of either party to terminate the Merger Agreement if the Merger is not consummated by March 5, 2015 (the “Initial End Date,” unless the Initial End Date is extended by Albertsons (in its sole discretion) in certain circumstances to June 5, 2015).

Before the Merger can be completed, applicable waiting periods must expire or terminate under antitrust laws, and various approvals, consents or clearances must be obtained from certain regulatory entities. In deciding whether to grant antitrust or regulatory clearances, the relevant antitrust authorities will consider the effect of the Merger within their relevant jurisdictions. The terms and conditions of approvals that are granted may impose requirements, limitations, costs or restrictions on us and Albertsons. There can be no assurance that regulators will not impose terms, conditions, requirements, limitations, costs or restrictions that would delay completion of the Merger. In addition, we cannot provide any assurance that any such terms, conditions, requirements, limitations, costs or restrictions will not result in the abandonment of the Merger.

The Merger is subject to approval from Safeway’s stockholders. Failure to obtain stockholder approval would prevent the consummation of the Merger.

Before the Merger can be completed, Safeway’s stockholders must approve and adopt the Merger Agreement. There can be no assurance that Safeway’s stockholders will approve the Merger. Failure to obtain this approval within the expected time frame, or having to make significant changes to the structure, terms or conditions of the Merger to obtain such approval, may result in a material delay in, or the abandonment of, the Merger. In addition, if Safeway’s stockholders do not vote to approve and adopt the Merger Agreement, then in certain circumstances we may be required to pay a termination fee to Albertsons of up to $250 million or may be required to reimburse up to $50 million of Albertsons’ documented out-of-pocket expenses in connection with the Merger Agreement, with any such expense reimbursement netted against any termination fee that may become payable.

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SAFEWAY INC. AND SUBSIDIARIES

Failure to complete the Merger could have a negative impact on our stock price and our future business and financial results.

If the Merger is not completed, our ongoing business, financial condition and results of operations may be adversely affected, and we will be subject to several risks, including the following:

• we may be required to pay a termination fee to Albertsons of up to $250 million or may be required to reimburse up to $50 million of Albertsons’ documented out-of-pocket expenses in connection with the Merger Agreement, with any such expense reimbursement netted against any termination fee that may become payable;

• unless and until it is terminated, we will be prohibited by the Merger Agreement from seeking certain strategic alternatives, such as transactions with third parties other than Albertsons, and could therefore miss attractive alternatives to the Merger;

• prior to any termination of the Merger Agreement, our operations will be restricted by the terms of the Merger Agreement, which may cause us to forego otherwise attractive business opportunities;

• we will be required to pay certain costs relating to the Merger, whether or not it is consummated, such as legal, accounting, financial adviser and printing fees, which costs could be substantial; and

• matters relating to the Merger have required and will continue to require our management to devote substantial commitments of time and resources to the Merger instead of on pursuing other opportunities that could have been beneficial to us.

If the Merger is not completed, we cannot assure you that these risks will not materialize and will not materially and adversely affect our business, financial results and stock price.

Additionally, if the Merger is not completed, the market price of Safeway common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Merger will be consummated, and we may experience negative reactions from the financial markets, our customers and/or our employees. Depending on the circumstances, we also could be subject to litigation related to any failure to complete the Merger or to enforcement proceedings commenced against us to attempt to force us to perform our obligations under the Merger Agreement.

The Merger Agreement contains customary restrictions on our ability to seek other strategic alternatives.

The Merger Agreement contains “no shop” provisions that restrict our ability to initiate, solicit, knowingly encourage or facilitate competing third-party proposals for any business combination transaction involving a merger of us with another entity or the acquisition of a significant portion of our stock or assets, although we may consider competing, unsolicited proposals and enter into discussions or negotiations regarding such proposals if our board of directors determines that any such acquisition proposal constitutes, or is reasonably likely to lead to, a superior proposal and that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the board of directors to us and our stockholders under applicable law. If we were to terminate the Merger Agreement to accept a superior proposal, we could be required to pay a termination fee of $250 million to Albertsons.

These provisions, although customary for these types of transactions, could discourage a potential third-party acquirer that might have an interest in acquiring all or a significant portion of our company from proposing any such acquisition, even if the potential third-party acquirer were prepared to pay consideration with a higher cash or market value than the market value proposed to be received or realized in the Merger or might result in a potential third-party acquirer proposing to pay a lower consideration to our stockholders than it might otherwise have proposed to pay because of the added expense of the $250 million termination fee that could become payable in connection with the termination of the Merger Agreement by us.

The pendency of the Merger could materially and adversely affect our operations and the future of our business or result in a loss of employees.

In connection with the pending Merger, it is possible that some customers, suppliers and other persons with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with us, which could negatively impact our revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the Merger is completed. Similarly, current and prospective employees may

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SAFEWAY INC. AND SUBSIDIARIES

experience uncertainty about their future roles with us following completion of the Merger, which may materially and adversely affect our ability to attract and retain key employees.

The Per Share Merger Consideration will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, or in the event of any change in our stock price.

The Per Share Merger Consideration (other than the portion relating to any sale of the Casa Ley Interest and PDC) will not be adjusted for changes in our business, assets, liabilities, prospects, outlook, financial condition or results of operations, or changes in the market price of, analyst estimates of, or projections relating to, our common stock. For example, if we experienced an improvement in our business, assets, liabilities, prospects, outlook, financial condition or results of operations prior to the consummation of the Merger, there would be no adjustment to the amount of the Per Share Merger Consideration (other than, potentially, the portion relating to any sale of the Casa Ley Interest and PDC to the extent that such improvement affected Casa Ley or PDC).

Additionally, although the holders of our common stock are entitled to receive any net proceeds received by us from any sale of any portion of PDC or the Casa Ley Interest (whether prior to the closing of the Merger or after the closing of the Merger but during the applicable period under the Casa Ley CVR or the PDC CVR), there is no guarantee that any sale of any portion of the Casa Ley Interest or PDC will occur or that there will be any net proceeds from any such sale, whether prior to the Merger or afterwards during any applicable periods under the Casa Ley CVR or PDC CVR.

Dominick's multiemployer pension withdrawal liabilities may be significantly greater than what we have recorded.

In 2013, we sold or closed all stores in the Dominick’s division. We participated in four multiemployer pension plans for which withdrawal liability is expected to be incurred due to the Dominick's closure. We recorded expense of $310.8 million to discontinued operations in the fourth quarter 2013, which represented the estimated multiemployer pension plan withdrawal liability. The final amount of the withdrawal liability due will be adjusted once demand letters are received from the plans, and may be significantly greater than the amount we have recorded as the liability is dependent upon actuarial assumptions used by the plan trustee. Demand letters from two of the related multiemployer pension plans were received in April 2014, and the withdrawal liability demand was $33.8 million higher than what was recorded, based on our actuarial estimate, in the fourth quarter of 2013. Demand letters from the other related multiemployer pension plans may be received in 2014, or later.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table contains information for shares repurchased during the first quarter of 2014.

Fiscal period	Total number of shares purchased 1	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) 2
December 29, 2013 - January 25, 2014	—	$	—	—	$	2,163.3
January 26, 2014 - February 22, 2014	—	—		—	2,163.3
February 23, 2014 - March 22, 2014	229,023	38.61		—	2,163.3
TOTAL	229,023	$	38.61	—	$	2,163.3

(1) Shares of stock withheld, at the election of certain holders of stock, by the Company from the vested portion of stock awards with a market value approximating the amount of the withholding taxes due from such stockholders.

(2) The Company's stock repurchase program was initiated in 1999.  In October 2013, the Company’s board of directors increased the authorized level of the Company’s stock repurchase program from $9.0 billion to $11.0 billion. The repurchase program has no expiration date but may be terminated by the board of directors.The Merger Agreement does not allow the Company to repurchase its common stock under the Company’s stock repurchase program.  The Merger Agreement does permit the Company to repurchase its common stock from holders of options, restricted stock or performance shares in payment of the exercise price or any applicable taxes.

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SAFEWAY INC. AND SUBSIDIARIES

Payment of Dividends

The Merger Agreement allows Safeway to pay its regular quarterly dividends over the next 12 months, prior to closing, and to increase the dividend within certain limits, assuming the Merger Agreement is closed during that time period. If the Merger Agreement is not closed within 12 months, Albertsons can extend the Merger Agreement by an additional three months under certain circumstances. During the extended time, Safeway would not be permitted to pay a dividend to its stockholders but stockholders would receive additional cash consideration equal to 6% per annum on the $32.50 per share cash price for the number of days that pass during the three-month extension until closing.

Item 5.    Other Information

Safeway's Outstanding Notes and Debentures

In connection with the Merger Agreement, Albertson's LLC has informed Safeway of the following with respect to its plans for Safeway’s outstanding notes and debentures: 

• the debt commitment letter, as amended, that Albertson’s Holdings LLC entered into in connection with the Merger Agreement does not require the repayment of up to $80.0 million in principal amount of Safeway’s 3.40% Senior Notes due 2016 (the “2016 Notes”) or up to $100.0 million in principal amount of Safeway’s 6.35% Senior Notes due 2017 (the “2017 Notes”), and Albertson’s Holdings LLC may determine not to repay such indebtedness in connection with closing the Merger; and

• any of Safeway’s 2016 Notes, 2017 Notes, 5.00% Senior Notes due 2019, 3.95% Notes due 2020, 4.75% Senior Notes due 2021, 7.45% Debentures due 2027 and 7.25% Debentures due 2031 that remain outstanding following completion of the Merger are expected to be equally and ratably secured by the assets of Safeway and its subsidiaries that will secure the $1,625,000,000 of senior secured notes to be issued by Albertson’s Holdings LLC, and, if applicable, senior bridge loans extended in lieu of the senior secured notes, but are not expected to be secured by any other assets of Albertson’s Holdings LLC or any of its other subsidiaries that will secure such senior secured notes or senior bridge loans.  The liens on Safeway’s and its subsidiaries’ assets that will secure Safeway’s notes and debentures that remain outstanding following the closing of the Merger are also expected to be junior in priority to the liens on Safeway’s and its subsidiaries’ assets that secure the $6,700,000,000 term loan facility and $2,750,000,000 asset-based revolving loan facility to be entered into by Albertson’s Holdings LLC, certain of its subsidiaries and Safeway, as borrowers, in connection with the closing of the Merger.

For more information on the Albertson’s Holdings LLC debt commitment letter and the debt financing contemplated in connection with the Merger, please read “Proposal 1-The Merger-Financing the Merger-Debt Financing” in Safeway’s preliminary proxy statement on Schedule 14A with respect to the Merger, filed with the SEC on April 17, 2014, as amended.

Rule 14a-8 Stockholder Proposal Deadline

The Company expects to hold its 2014 Annual Meeting of Stockholders (the “2014 Annual Meeting”) at a date, time and location to be announced, which will be more than 30 days after the anniversary date of the 2013 annual meeting of stockholders.

As a result, in accordance with Rule 14a-8 under the Securities Exchange Act of 1934 (“Rule 14a-8”), the Company has set a revised deadline for receipt of stockholder proposals for inclusion in the Company’s proxy materials for the 2014 Annual Meeting.  The new deadline for delivering stockholder proposals to the Company for inclusion in the proxy materials is the close of business on May 16, 2014. Any stockholder proposal requested to be included in the proxy materials must (i) be received by Safeway Inc., 5918 Stoneridge Mall Road, Pleasanton, California 94588-3229, Attn: Corporate Secretary, on or before May 16, 2014; and (ii) satisfy all of the requirements of, and not otherwise be permitted to be excluded under, Rule 14a-8.

35

SAFEWAY INC. AND SUBSIDIARIES

Item 6. Exhibits

Exhibit 2.1	Agreement and Plan of Merger, dated as of March 6, 2014, by and among AB Acquisition LLC, Albertson's Holdings LLC, Saturn Acquisition Merger Sub, Inc. and Safeway Inc. (incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated March 6, 2014).
Exhibit 2.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of April 7, 2014, by and among AB Acquisition LLC, Albertson's Holdings LLC, Albertson's LLC, Saturn Acquisition Merger Sub, Inc. and Safeway Inc. (incorporated by reference to Exhibit 2.1 to the registrant's Current Report on Form 8-K dated April 7, 2014).
Exhibit 10(iii).1*	Safeway Retention Bonus Plan, effective as of March 6, 2014.
Exhibit 10(iii).2*	Safeway Inc. Executive Severance Plan and Summary Plan Description effective February 19, 2014.
Exhibit 10.3	Amended and Restated Tax Sharing Agreement, dated as of April 11, 2014, by and among Safeway Inc., Blackhawk Network Holdings, Inc. and certain affiliates (incorporated by reference to Exhibit 10.1 to the registrant's Current Report on Form 8-K dated April 11, 2014).
Exhibit 31.1	Rule 13(a)-14(a)/15d-14(a) Certification.
Exhibit 31.2	Rule 13(a)-14(a)/15d-14(a) Certification.
Exhibit 32	Section 1350 Certifications.
Exhibit 101	The following materials from the Safeway Inc. Quarterly Report on Form 10-Q for the quarter ended March 22, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (iv) related notes.

* Management contract, or compensatory plan or arrangement.

36

SAFEWAY INC. AND SUBSIDIARIES

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SAFEWAY INC.
Date:	April 30, 2014	/s/ Robert L. Edwards
		Robert L. Edwards
		President and Chief Executive Officer
Date:	April 30, 2014	/s/ Peter J. Bocian
		Peter J. Bocian
		Executive Vice President and Chief Financial Officer

37

SAFEWAY INC. AND SUBSIDIARIES

Exhibit Index

LIST OF EXHIBITS FILED WITH FORM 10-Q FOR THE PERIOD

ENDED MARCH 22, 2014

Exhibit 10(iii).1*	Safeway Retention Bonus Plan, effective as of March 6, 2014.
Exhibit 10(iii).2*	Safeway Inc. Executive Severance Plan and Summary Plan Description effective February 19, 2014.
Exhibit 31.1	Rule 13(a)-14(a)/15d-14(a) Certification.
Exhibit 31.2	Rule 13(a)-14(a)/15d-14(a) Certification.
Exhibit 32	Section 1350 Certifications.
Exhibit 101	The following materials from the Safeway Inc. Quarterly Report on Form 10-Q for the quarter ended March 22, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (iv) related notes.

* Management contract, or compensatory plan or arrangement.

38

EX-10.1

SAFEWAY INC.

RETENTION BONUS PLAN

Effective as of March 6, 2014

     1. Introduction and Purpose.

This Safeway Inc. Retention Bonus Plan (this “Plan”) has been adopted in connection with the transaction contemplated under that certain Agreement and Plan of Merger (the “Merger Agreement”) dated as of March 6, 2014 by and among Safeway Inc. (the “Company”), AB Acquisition LLC, a Delaware limited liability company (“Ultimate Parent”), Albertson’s Holdings LLC, a Delaware limited liability company and a wholly-owned subsidiary of Ultimate Parent (“Parent”), Albertson’s LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent,and Saturn Acquisition Merger Sub, a Delaware corporation and a wholly-owned subsidiary of Parent, pursuant to which, among other matters and on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into the Company (the “Transaction”), with the Company continuing as the surviving corporation. Both the Company and Parent believe that the value of the Company will be enhanced by the continued employment of certain of the Company’s key employees through the consummation of the Merger (the “Closing”), and the Company has established this Plan to create an incentive for such employees to continue their employment with the Company, through the grant of retention bonuses.

    2. Retention Bonuses.

(a) The key employees and other service providers of the Company eligible to participate in the Plan (collectively, the “Participants”) are set forth on Exhibit A hereto. EachParticipant shall be eligible for a retention bonus (a “Retention Bonus”) equal to the percentage of such Participant’s Base Salary, as set forth opposite such Participant’s name on Exhibit A, on each Retention Date subject to such Participant’s continued employment or service relationship with the Company through such Retention Date.

(b) Each Retention Bonus earned pursuant to Section 2(a) above shall be paid as a cash lump sum as soon as practicable after the applicable Retention Date (and in no event later than 30 days after the applicable Retention Date) and shall be subject to reduction for all applicable income and employment withholding taxes and other regular payroll deductions.

(c) If a Participant’s employment or service relationship with the Company terminates prior to a Retention Date, other than in the case of any Involuntary Termination, such Participant shall immediately forfeit any right to receive the applicable Retention Bonus under this Plan and shall have no further rights with respect thereto.  Notwithstanding Section 2(a), if a Participant’s employment with the Company is terminated in any Involuntary Termination prior to a Retention Date, such Participant shall be entitled to the Retention Bonus(es) on the same basis as if such Participant had remained employed through each Retention Date; provided, that such Retention Bonus(es) shall be paid to such Participant as a cash lump sum as soon as practicable after the

date of such Involuntary Termination (and in no event later than 30 days after the date of such Involuntary Termination).

     3. Definitions.

(a) Base Salary. For purposes hereof, “Base Salary” means the annual base salary in effect immediately prior to the effective date of the Plan.

(b) Involuntary Termination. For purposes hereof, “Involuntary Termination” with respect to a Participant means (i) termination of such Participant’s employment without Cause or (ii) such Participant’s voluntary termination for Good Reason.

(c) Cause. For purposes hereof, “Cause” shall have the meaning ascribed to such term in any written employment agreement between or among Participant and the Company and/or any of its subsidiaries and, if no such written employment agreement shall be in force or effect, shall mean (a) conviction of, or the entry of a plea of guilty or no contest to, a felony or any other crime that causes the Company public disgrace or disrepute, or adversely affects the Company’s operations, financial performance, or relationship with its customers; (b) misappropriation of funds or other property of the Company or its affiliates; (c) refusal to perform the lawful and reasonable directives of Participant’s supervisor, the Company’s Chief Executive Officer or the Board; (d) Participant’s failure to perform the duties of his or her employment with the Company or any of its subsidiaries which continues for a period of fourteen (14) days (other than by reason of illness or injury); or (e) material breach of any agreement with or duty owed to the Company or any of its affiliates. However, none of the foregoing events or conditions will constitute Cause unless the Company provides Participant with written notice of the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.

(d) Good Reason. For purposes hereof, “Good Reason” shall have the meaning ascribed to such term in any written employment agreement between or among Participant and the Company and/or any of its subsidiaries and, if no such written employment agreement shall be in force or effect, shall mean the occurrence of any of the following, without Participant’s prior consent: (a) a material, adverse change in Participant’s responsibilities, authority or duties (including as a result of the assignment of duties materially inconsistent with Participant’s position); (b) a material reduction in Participant’s base salary; (c) a material transfer of Participant’s principal place of employment to a location more than fifty (50) miles away from Participant’s principal place of employment immediately prior to the Transaction; or (d) the Company’s material breach of this Agreement. However, none of the foregoing events or conditions will constitute Good Reason unless: (x) Participant provides the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof; (y) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection; and (z) Participant resigns his or her employment within thirty (30) days following the expiration of that cure period.

(e) Retention Date. For purposes hereof, the “First Retention Date” shall be March 6, 2015 and the “Second Retention Date” shall be March 6, 2016. The First Retention Date, together with the Second Retention Date shall be referred to as the “Retention Dates.”

     4. Section 280G.

Notwithstanding any provision of this Plan to the contrary, if any payments or benefits a Participant would receive from the Company under this Plan or otherwise in connection with the Transaction (the “Total Payments”) (a) constitute “parachute payments” within the meaning of Section 280G of the Code and (b) but for this Section 4, would be subject to the excise tax imposed by Section 4999 of the Code, then such Participant will be entitled to receive either (i) the full amount of the Total Payments or (ii) a portion of the Total Payments having a value equal to one dollar ($1) less than three (3) times such individual’s “base amount” (as such term is defined in Section 280G(b)(3)(A) of the Code), whichever of (i) and (ii), after taking into account applicable federal, state, and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by such Participant on an after-tax basis, of the greatest portion of the Total Payments. Any determination required under this Section 4 shall be made in writing by the independent public accountant of the Company immediately prior to the Retention Date (the “Accountants”), whose determination shall be conclusive and binding for all purposes upon the Company and the applicable Participant. For purposes of making the calculations required by this Section 4, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good-faith interpretations concerning the application of Sections 280G and 4999 of the Code. If there is a reduction pursuant to this Section 4 of the Total Payments to be delivered to the applicable Participant, such reduction shall first be applied to any cash amounts to be delivered to the applicable Participant under this Plan and thereafter to any other severance benefits or payments otherwise owing to such applicable Participant.

     5. Section 409A.

To the extent applicable, this Plan shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the adoption of this Plan. Notwithstanding any provision of this Plan to the contrary, in the event that the Company determines that any amounts payable hereunder will be immediately taxable to a Participant under Section 409A of the Code and related Department of Treasury guidance, to the extent permitted under Section 409A of the Code, the Company may, to the extent permitted under Section 409A of the Code (a) cooperate in good faith to adopt such amendments to this Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that they determine necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Plan or preserve the economic benefits of this Plan and/or (b) take such other actions as mutually determined necessary or appropriate to exempt the amounts payable hereunder from Section 409A of the Code or to comply with the requirements of Section 409A of the Code and thereby avoid the application of penalty taxes under such section. To the extent

applicable, each of the exceptions to Code Section 409A’s prohibition on acceleration of payments of Deferred Compensation provided under Treasury Regulation 1.409A-3(j)(4) shall be permitted under this Plan.

     6. Plan Administration.

(a) This Plan shall be administered by the Board of Directors of the Company (the “Board”) or a duly authorized committee thereof (the “Plan Administrator”). Subject to the express provisions of this Plan, the Plan Administrator shall have sole authority to interpret this Plan (including any vague or ambiguous provisions) and to make all other determinations deemed necessary or advisable for the administration of this Plan. Decisions of the Plan Administrator shall be made by a majority of its members attending a meeting at which a quorum is present (which meeting may be held telephonically), or by written action in accordance with applicable law. All determinations and interpretations of the Plan Administrator shall be final, binding, and conclusive as to all persons.

(b) Neither the Plan Administrator nor any employee, officer, agent, or director of the Company shall be personally liable by reason of any action taken with respect to this Plan for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each employee, officer, agent, or director of the Company, including the Plan Administrator, to whom any duty or power relating to the administration or interpretation of this Plan may be allocated or delegated, against any reasonable cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Plan Administrator) arising out of any act or omission to act in connection with this Plan unless arising out of such person’s own fraud, bad faith, or gross negligence.

(c) The Plan Administrator may delegate any and all of its powers and responsibilities hereunder to other persons and such persons shall have the full authority to exercise the duties so delegated.

(d) The Plan Administrator shall maintain such accounts and records regarding the fiscal and other transactions of this Plan and such other data as may be required to carry out its functions under this Plan and to comply with all applicable laws.

     7. Right to Amend or Terminate Plan.

The Company reserves the right to amend, in whole or in part, any or all of the provisions of this Plan by action of the Plan Administrator at any time prior to either Retention Date for any reason, provided that in no event shall any amendment adversely impact a Participant’s rights hereunder without the express written consent of such affected Participant. Notwithstanding anything herein to the contrary, this Plan shall be effective as of the date it is approved by the Board and shall terminate upon the payment of all amounts payable hereunder.

     8. No Guarantee of Employment.

This Plan is not a guarantee of continued employment for any employee of the Company, including any employee potentially eligible for benefits hereunder. An employee’s employment remains terminable at any time with or without cause by either the employee or the Company.

     9. Applicable Law.

This Plan and all action taken under it shall be governed as to validity, construction, interpretation, and administration by the laws of the State of Delaware (without regard to the choice of law principles thereof) and any applicable U.S. federal law.

     10.  Successors.

For purposes of this Plan, the Company shall include any and all successors and assignees, whether direct or indirect, by purchase, merger, consolidation, or otherwise, to all or substantially all of the business or assets of the Company, and such successors and assignees shall perform the Company’s obligations under this Plan, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place. In such event, the term “Company,” as used in this Plan, shall mean the Company, as herein before defined and any successor, parent corporation or assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Plan.

     11. General Provisions.

(a) Nothing contained herein shall give an employee any right to any employee benefit upon termination of employment with the Company, except as specifically provided herein.

(b) No person having a benefit under this Plan may assign, transfer, or in any other way alienate any benefit hereunder, nor shall any benefit under this Plan be subject to garnishment, attachment, execution, or levy of any kind.

(c) Neither the establishment of this Plan, nor any modification thereof, nor the payment of any benefits hereunder, shall be construed as giving to any Participant or other person any legal or equitable right against the Company or the Plan Administrator, or any fiduciary, employee, or agent of the Company.

(d) The Company shall have the right to make such provisions as it deems necessary or appropriate to satisfy any obligations it reasonably believes it may have to withhold for federal, state, or local income or other taxes incurred by reason of payments pursuant to this Plan. In lieu thereof, the Company shall have the right to withhold the amounts of such taxes from any other sums due or to become due from the Company to a Participant upon such terms and conditions as the Plan Administrator may prescribe.

(e) Should any provision of this Plan be deemed or held to be unlawful or invalid for any reason, such fact shall not adversely affect the other provisions of this Plan unless such determination shall render impossible or impracticable the functioning of this Plan, and in such case, an appropriate provision or provisions shall be adopted so that this Plan may continue to function properly.

(f) Any benefits payable under this Plan shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which he or she may be entitled under any pension plan or other arrangement of the Company maintained for the benefit of its employees, unless such plan or arrangement provides otherwise.

(g) In the event that the Plan Administrator finds that a Participant is unable to care for his or her affairs because of illness or accident, then benefits payable hereunder, unless claim has been made therefor by a duly appointed guardian, committee, or other legal representative, may be paid in such manner as the Plan Administrator shall determine, and the application thereof shall be a complete discharge of all liability for any payments or benefits to which such Participant was or would have been otherwise entitled under this Plan.

(h) All announcements, notices, and other communications regarding this Plan will be made by the Company in writing (whether in electronic form or otherwise). Except for written amendments to this Plan or official written communications issued by the Company in connection with this Plan, Participants in this Plan may not rely on any representation or statement made by the Company or its affiliates or any of its or their officers, directors, employees, or agents, whether written or oral, regarding such Participants’ participation in this Plan and any rights thereunder.

* * * *

The Safeway Inc. Retention Bonus Plan is adopted by the Board of the Company on March 6, 2014.

SAFEWAY INC.

By: /s/ Robert A. Gordon

Print Name: Robert A. Gordon

Title: Senior Vice President

EX-10.2

SAFEWAY INC.

EXECUTIVE SEVERANCE PLAN

(AND SUMMARY PLAN DESCRIPTION)

EFFECTIVE FEBRUARY 19, 2014

This Safeway Inc. Executive Severance Plan (this “Plan”) was established effective as of February 19, 2014 (the “Effective Date”). The purpose of this Plan is to provide for severance benefits to certain eligible employees of Safeway Inc. (the “Company”) whose employment with the Company is terminated under certain circumstances. The Plan is intended to replace each existing offer letter, employment agreement and severance agreement between the Company and Covered Employees (as defined below) regarding severance or Change in Control (as defined below) benefits.

This Plan is an employee welfare benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). This Plan document is also the summary plan description of this Plan. References in this Plan to “You” or “Your” are references to an employee of the Company.

1.General Eligibility. The eligible employees in this Plan are employees of the Company who are employed at the level of Vice President or above (such eligible employees, the “Covered Employees”). Employees with the designation of “Assistant Vice President” are not considered to be “Vice Presidents” and are not considered to be “Covered Employees” under this Plan. Covered Employees remain eligible for this Plan in the case of sick leave, military leave or any other leave of absence approved pursuant to the regular leave policy of the Company.

2.Severance Benefits. If you are a Covered Employee and if, outside of a Change in Control Period (as defined below), the Company involuntarily terminates your employment with the Company without Cause or you terminate employment with the Company for Good Reason, then subject to you delivering to the Company a general release of all claims against the Company and its affiliates in a form acceptable to the Company (a “Release”) that becomes effective and irrevocable within sixty (60) days following the date of such termination, in addition to any accrued but unpaid salary, wages, vacation and other amounts required by applicable law, you will receive the following severance payments and benefits based upon your position or designation:

a.Continued Base Salary. You will receive the continued payment of your Base Salary during the Severance Period (as defined below) in accordance with the Company’s standard payroll procedures; provided, however, that the first payment under this section shall be made on the first payroll date following the date your Release is no longer subject to revocation and with the first such payment to include any installments not made due to your Release not yet being effective and irrevocable; provided, further, that, if the sixty (60) day period in which your Release can become effective and irrevocable spans more than one taxable year, then the first payment shall not be made until the later taxable year. Notwithstanding the foregoing, if any Covered Employee is offered and accepts an offer of employment with the Company or any of its subsidiaries after his or her termination but before the conclusion of the Severance Period, his or her Base Salary continuation payments will cease upon such employee’s rehire date.

b.Pro Rata Bonus Payment. Upon attainment of the performance criteria with respect to your annual cash bonus for the bonus plan year in which the termination occurs, you will receive a pro-rated portion of the annual bonus based upon the actual number of days you were employed by the Company during the fiscal year. The pro-rata bonus payment will be paid in accordance with the applicable bonus plan administrative rules, in a cash lump sum, at the same time bonuses are paid to the Company’s executives generally (but in no event later than two and one-half months following the end of the bonus plan year).

c.COBRA Premium Payment.  Subject to the requirements of the Internal Revenue Code of 1986, as amended (the “Code”), if you validly elect health care continuation coverage under either (i) the Company’s group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or (ii) the Safeway Inc. Welfare Benefits Plan for Retirees, as amended from time to time (the “Early Retiree Plan”), to the extent that you are eligible to do so, then the Company shall directly pay or, at its election, reimburse you for the COBRA premiums, in the case of an election to continue coverage under the Company’s group health plans pursuant to COBRA, or your required participant contributions, in the case of an election to continue coverage under the Early Retiree Plan, for you and your covered dependents until the earlier of the end of the month during which your Severance Period ends or the date you become eligible for healthcare under a subsequent employer’s health plan; provided, however, that if the Company is unable to continue to cover you under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act), then an amount equal to each remaining Company subsidy shall thereafter be paid to you in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

3.Change in Control Severance Benefits. If you are a Covered Employee and if the Company involuntarily terminates your employment with the Company without Cause or you terminate employment with the Company for Good Reason during the twenty-four (24) month period following a Change in Control (the “Change in Control Period”), then subject to you delivering to the Company a Release that becomes effective and irrevocable within sixty (60) days following such termination of employment, in addition to any accrued but unpaid salary, wages, vacation and other amounts required by applicable law, and in lieu of benefits set forth in Section 2 above, you will be eligible to receive the following severance payments and benefits based upon your position or designation:

a.Base Salary Severance. You will receive a severance payment equal to your Base Salary for that number of months in the Severance Period, payable in a single lump sum, less applicable withholding obligations, within ten (10) days following the date your Release is no longer subject to revocation.

b.Bonus Payment. You will receive additional severance amount equal to your target cash bonus opportunity for the fiscal year of your termination to be paid to you in a cash lump sum, less applicable withholding obligations, within ten (10) days following the date your Release is no longer subject to revocation.

c.COBRA Premium Payment.  Subject to the requirements of the Code, if you validly elect health care continuation coverage under either (i) the Company’s group health plans pursuant to COBRA or (ii) the Early Retiree Plan, to the extent that you are eligible to do so, then the Company shall directly pay or, at its election, reimburse you for the COBRA premiums, in the case of an election to continue coverage under the Company’s group health plans pursuant to COBRA, or your required participant contributions, in the case of an election to continue coverage under the Early Retiree Plan, for you and your covered dependents until the earlier of the end of the month during which your Severance Period ends or the date you become eligible for healthcare under a subsequent employer’s health plan; provided, however, that if the Company is unable to continue to cover you under its group health plans without incurring penalties (including without limitation, pursuant to Section 2716 of the Public Health Service Act), then an amount equal to each remaining Company subsidy shall thereafter be paid to you in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof).

4.Definitions. For the purposes of this Plan, the following terms shall have the following meanings:

2

a.“Base Salary” means the monthly base salary rate in effect immediately prior to your termination.

b.“Cause” shall have the meaning ascribed to such term in any written employment agreement between or among you and the Company and/or any of its subsidiaries and, if no such written employment agreement shall be in force or effect, shall mean (a) conviction of, or the entry of a plea of guilty or no contest to, a felony or any other crime that causes the Company public disgrace or disrepute, or adversely affects the Company’s operations, financial performance, or relationship with its customers; (b) misappropriation of funds or other property of the Company or its affiliates; (c) refusal to perform the lawful and reasonable directives of your supervisor, the Company’s Chief Executive Officer or the Board; (d) your failure to perform the duties of your employment with the Company or any of its subsidiaries which continues for a period of fourteen (14) days (other than by reason of illness or injury); or (e) material breach of any agreement with or duty owed to the Company or any of its affiliates. However, none of the foregoing events or conditions will constitute Cause unless the Company provides you with written notice of the event or condition and thirty (30) days to cure such event or condition (if curable) and the event or condition is not cured within such 30-day period.

c. “Change in Control” means the occurrence of any of the following events:

(1)any “person” (as defined below) or “group” (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules thereunder), together with all affiliates of such person or group, shall become the “beneficial owner” (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities entitled to vote generally in the election of directors (“voting securities”) of the Company that represent 25% or more of the combined voting power of the Company’s then outstanding voting securities, other than an Exempt Person (as defined below); provided, however, that, notwithstanding the foregoing, a Change in Control shall not occur under this subsection (1) by reason of a person or group (together with the affiliates thereof) becoming the beneficial owner of 25% or more of the outstanding voting securities of the Company solely as a result of an acquisition of voting securities by the Company which, by reducing the number of voting securities outstanding, increases the proportionate number of voting securities beneficially owned by such person or group (together with the affiliates thereof) to 25% or more of the voting securities of the Company then outstanding; and, provided, further, that if a person or group (together with the affiliates thereof) shall become the beneficial owner of 25% or more of the voting securities of the Company then outstanding solely as a result of an acquisition of voting securities by the Company and shall, after such acquisition by the Company, become the beneficial owner of additional voting securities of the Company (other than pursuant to a dividend or distribution paid or made by the Company in voting securities or pursuant to a split or subdivision of the outstanding voting securities), then a Change in Control shall occur under this subsection (1) unless, upon becoming the beneficial owner of such additional voting securities, such person or group (together with the affiliates thereof) does not beneficially own 25% or more of the voting securities then outstanding;

(2)during any 12-month period beginning on or after the Effective Date, individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director during such 12-month period whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual

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or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board;

(3)the consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of: (x) a merger, consolidation, reorganization, or business combination or (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case, if, as a result of the transaction, the Company’s voting securities outstanding immediately before the transaction (or the securities into which such voting securities are converted as a result of the transaction) fail to represent, directly or indirectly, more than 50% of the combined voting power of the outstanding voting securities of the Company (or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “Successor Entity”)) immediately after the transaction; and

(4)the Company’s stockholders approve a liquidation or dissolution of the Company.

For purposes of subsection (1) above, the calculation of voting power shall be made as if the date on which the ownership of such person or group is measured were a record date for a vote of the Company’s stockholders, and for purposes of subsection (3) above, the calculation of voting power shall be made as if the date of the consummation of the transaction were a record date for a vote of the Company’s stockholders. For all purposes of this Plan, any calculation of the number of securities outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding voting securities of which any person or group is the beneficial owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. For purposes of this definition of “Change in Control,” “person” means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, association or other entity. For purposes of this definition of “Change in Control,” “Exempt Person” means any of the following: (a) a trustee or other fiduciary holding securities under any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company or by any employee benefit plan (or related trust) sponsored or maintained by the Company or any person controlled by the Company, (b) the Company or a subsidiary, and (c) a person that is owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their beneficial ownership of the voting securities of the Company; provided that no person who is an officer, director or employee of an Exempt Person shall be deemed, solely by reason of such person’s status or authority as such, to be the beneficial owner of any securities that are beneficially owned, including, without limitation, in a fiduciary capacity, by an Exempt Person or by any other such officer, director or employee of an Exempt Person.

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any payment under this Plan that is subject to Section 409A of the Code, the transaction or event described in subsection (1), (2), (3) or (4) with respect to such payment (or portion thereof) must also constitute a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5) to the extent required by Section 409A.

d. “Good Reason” shall have the meaning ascribed to such term in any written employment agreement between or among you and the Company and/or any of its subsidiaries and, if no such written employment agreement shall be in force or effect, shall mean the occurrence of any of the following, without your prior consent: (a) a material, adverse change in your responsibilities, authority or duties (including as a result of the assignment of duties materially inconsistent with your position); (b) a

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material reduction in your base salary; (c) a material transfer of your principal place of employment to a location more than fifty (50) miles away from your principal place of employment immediately prior to the Change in Control; or (d) the Company’s material breach of this Agreement. However, none of the foregoing events or conditions will constitute Good Reason unless: (x) you provide the Company with written objection to the event or condition within ninety (90) days following the occurrence thereof; (y) the Company does not reverse or otherwise cure the event or condition within thirty (30) days of receiving that written objection; and (z) you resign your employment within thirty (30) days following the expiration of that cure period.

e.“Plan Administrator” means the Board of Directors of the Company (the “Board”) or any committee designated by the Board to administer the Plan.

f.“Severance Period” shall mean that period of time commencing upon a Covered Employee’s termination of employment and ending upon:

(1)With respect to Covered Employees at the level of Chief Executive Officer, the second anniversary of the Covered Employee’s termination of employment;

(2)With respect to Covered Employees at the level of Executive Vice President, the eighteen (18) month anniversary of the Covered Employee’s termination of employment;

(3)With respect to Covered Employees at the level of Senior Vice President, the first anniversary of the Covered Employee’s termination of employment; and

(4)With respect to Covered Employees at the level of Vice President, the six (6) month anniversary of the Covered Employee’s termination of employment.

5.Taxes. All payments to be made under this Plan, including premium reimbursements, will be subject to appropriate tax withholding and other deductions.

6.Best Pay Provision.

a.Notwithstanding any other provisions of this Plan, in the event that any payment or benefit received or to be received by the Covered Employee (whether pursuant to the terms of this Plan or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Sections 2 and 3 of this Plan, being hereinafter referred to as the “Total Payments”) would be subject (in whole or part), to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the Total Payments shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax but only if (i) the net amount of such Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments) is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which the Covered Employee would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).  The Total Payments shall be reduced in the following order: (A) reduction of any cash severance payments otherwise payable to the Covered Employee that are exempt from Section 409A of the Code, (B) reduction of any other cash payments or benefits otherwise payable to the Covered Employee that are exempt from Section 409A of the Code, but excluding any payment attributable to the

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acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company common stock that are exempt from Section 409A of the Code, (C) reduction of any other payments or benefits otherwise payable to the Covered Employee on a pro-rata basis or such other manner that complies with Section 409A of the Code, but excluding any payment attributable to the acceleration of vesting and payment with respect to any stock option or other equity award with respect to the Company common stock that are exempt from Section 409A of the Code, and (D) reduction of any payments attributable to the acceleration of vesting or payment with respect to any stock option or other equity award with respect to the Company common stock that are exempt from Section 409A of the Code.  The foregoing reductions shall be made in a manner that results in the maximum economic benefit to the Covered Employee and, to the extent economically equivalent, in a pro rata manner.

b.For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which the Covered Employee shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of an accounting firm or compensation consulting firm with nationally recognized standing and substantial expertise and experience on Section 280G matters (the “280G Firm”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the 280G Firm, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the 280G Firm in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

c.The 280G Firm will be directed to submit its determination and detailed supporting calculations to both the Covered Employee and the Company within fifteen (15) days after notification from either the Company or the Covered Employee that the Covered Employee may receive payments which may be “parachute payments.”  The Covered Employee and the Company will each provide the 280G Firm access to and copies of any books, records and documents in their possession as may be reasonably requested by the 280G Firm, and otherwise cooperate with the 280G Firm in connection with the preparation and issuance of the determinations and calculations contemplated by this Section 6(c).  The fees and expenses of the 280G Firm for its services in connection with the determinations and calculations contemplated by this Section 6(c) will be borne by the Company.

7.Amendment of Plan. Prior to the consummation of a Change in Control, the Plan Administrator shall have the power to amend or terminate this Plan from time to time in its discretion and for any reason (or no reason); provided that no such amendment or termination shall be effective with respect to a termination of employment that occurred prior to the amendment or termination. Notwithstanding the foregoing, during a Change in Control Period, no amendment or termination of the Plan shall impair any rights or obligations to any Covered Employee under this Plan unless such Covered Employee expressly consents to such amendment or termination.

8.Claims Procedures.

a.Normally, you do not need to present a formal claim to receive benefits payable under this Plan.

b.If any person (the “Claimant”) believes that benefits are being denied improperly, that this Plan is not being operated properly, that fiduciaries of this Plan have breached their duties, or that

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the Claimant’s legal rights are being violated with respect to this Plan, the Claimant must file a formal claim, in writing, with the Plan Administrator. This requirement applies to all claims that any Claimant has with respect to this Plan, including claims against fiduciaries and former fiduciaries, except to the extent the Plan Administrator determines, in its sole discretion that it does not have the power to grant all relief reasonably being sought by the Claimant.

c.A formal claim must be filed within ninety (90) days after the date the Claimant first knew or should have known of the facts on which the claim is based, unless the Plan Administrator in writing consents otherwise. The Plan Administrator shall provide a Claimant, on request, with a copy of the claims procedures established under subsection (d).

d.The Plan Administrator has adopted procedures for considering claims (which are set forth in Appendix A), which it may amend from time to time, as it sees fit. These procedures shall comply with all applicable legal requirements. These procedures may provide that final and binding arbitration shall be the ultimate means of contesting a denied claim (even if the Plan Administrator or its delegates have failed to follow the prescribed procedures with respect to the claim). The right to receive benefits under this Plan is contingent on a Claimant using the prescribed claims and arbitration procedures to resolve any claim.

9.Plan Administration.

a.The Plan Administrator is responsible for the general administration and management of this Plan and shall have all powers and duties necessary to fulfill its responsibilities, including, but not limited to, the discretion to interpret and apply this Plan and to determine all questions relating to eligibility for benefits. This Plan shall be interpreted in accordance with its terms and their intended meanings. However, the Plan Administrator and all Plan fiduciaries shall have the discretion to interpret or construe ambiguous, unclear or implied (but omitted) terms in any fashion they deem to be appropriate in their sole discretion, and to make any findings of fact needed in the administration of this Plan. The validity of any such interpretation, construction, decision or finding of fact shall not be given de novo review if challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly arbitrary or capricious.

b.All actions taken and all determinations made in good faith by the Plan Administrator or by Plan fiduciaries will be final and binding on all persons claiming any interest in or under this Plan. To the extent the Plan Administrator or any Plan fiduciary has been granted discretionary authority under this Plan, the Plan Administrator’s or Plan fiduciary’s prior exercise of such authority shall not obligate it to exercise its authority in a like fashion thereafter.

c.If, due to errors in drafting, any Plan provision does not accurately reflect its intended meaning, as demonstrated by consistent interpretations or other evidence of intent, or as determined by the Plan Administrator in its sole discretion, the provision shall be considered ambiguous and shall be interpreted by the Plan Administrator and all Plan fiduciaries in a fashion consistent with its intent, as determined in the sole discretion of the Plan Administrator. The Plan Administrator shall amend this Plan retroactively to cure any such ambiguity.

d.No Plan fiduciary shall have the authority to answer questions about any pending or final business decision of the Company or any affiliate that has not been officially announced, to make disclosures about such matters, or even to discuss them, and no person shall rely on any unauthorized, unofficial disclosure. Thus, before a decision is officially announced, no fiduciary is authorized to tell any employee, for example, that the employee will or will not be laid off or that the Company will or will not offer exit incentives in the future. Nothing in this subsection shall preclude any fiduciary from fully participating in the consideration, making or official announcement of any business decision.

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e.This Section may not be invoked by any person to require this Plan to be interpreted in a manner inconsistent with its interpretation by the Plan Administrator or other Plan fiduciaries.

10.Funding and Payment of Benefits.This Plan shall be maintained in a manner to be considered “unfunded” for purposes of ERISA. The Company shall be required to make payments only as benefits become due and payable. No person shall have any right, other than the right of an unsecured general creditor against the Company, with respect to the benefits payable hereunder, or which may be payable hereunder, to any Covered Employee, surviving spouse or beneficiary hereunder. If the Company, acting in its sole discretion, establishes a reserve or other fund associated with this Plan, no person shall have any right to or interest in any specific amount or asset of such reserve or fund by reason of amounts which may be payable to such person under this Plan, nor shall such person have any right to receive any payment under this Plan except as and to the extent expressly provided in this Plan. The assets in any such reserve or fund shall be part of the general assets of the Company, subject to the control of the Company.

11.Plan Application. This Plan shall be the only plan, agreement or arrangement with respect to which cash severance benefits may be provided to a Covered Employee upon a termination of a Covered Employee’s employment and supersedes all prior agreements, arrangements or related communications of the Company relating to cash separation benefits for the Covered Employees, whether formal or informal, or written or unwritten. However, if a prior plan or agreement requires the consent of the employee in order for such prior plan or agreement to be modified or amended or superseded by this Plan, such consent must be obtained from such employee in order for this Plan to supersede such prior plan or agreement. Subject to the foregoing, any benefits under this Plan will be provided to Covered Employees in lieu of benefits under any other separation plan or agreement.

12.Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations under this Plan and agree expressly to perform any of the Company’s obligations under this Plan. For all purposes under this Plan, the term “Company” shall include any successor to the Company’s business and/or assets which executes and delivers an assumption agreement or which becomes bound by the terms of the Plan by operation of law. All of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

13.Limitation On Employee Rights; At-Will Employment.This Plan shall not give any employee the right to be retained in the service of the Company or interfere with or restrict the right of the Company to discharge or retire the employee. All employees of the Company are employed at will.

14.No Third-Party Beneficiaries.This Plan shall not give any rights or remedies to any person other than Covered Employees and the Company.

15.Governing Law.This Plan is a welfare plan subject to ERISA and it shall be interpreted, administered, and enforced in accordance with that law. To the extent that state law is applicable, the statutes and common law of the jurisdiction in which the Covered Employee resides shall apply, excluding any that mandate the use of another jurisdiction’s laws.

16.No Assignment of Benefits.The rights of any person to payments or benefits under this Plan shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this subsection shall be void.

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17.Miscellaneous.Where the context so indicates, the singular will include the plural and vice versa. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Plan. Unless the context clearly indicates to the contrary, a reference to a statute or document shall be construed as referring to any subsequently enacted, adopted or executed counterpart.

18.Section 409A.

a.Separation from Service. Notwithstanding anything in this Plan to the contrary, any compensation or benefits payable under this Plan that constitutes “nonqualified deferred compensation” (“Deferred Compensation”) within the meaning of Section 409A of the Code, and which is designated under this Plan as payable upon your termination of employment shall be payable only upon your “separation from service” with the Company within the meaning of Section 409A of the Code (a “Separation from Service”) and, except as provided under Section 18(b) of this Plan, any such compensation or benefits shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following your Separation from Service. Any installment payments that would have been made to you during the sixty (60) day period immediately following your Separation from Service but for the preceding sentence shall be paid to you on the sixtieth (60th) day following your Separation from Service and the remaining payments shall be made as provided in this Plan.

b.Specified Employees. Notwithstanding any provision herein to the contrary, if you are deemed by the Company at the time of your Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which you are entitled under this Plan is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of your benefits shall not be provided to you prior to the earlier of (i) the expiration of the six-month period measured from the date of your Separation from Service or (ii) the date of your death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2)(B)(i) period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to you (or your estate or beneficiaries), and any remaining payments due to you under this Plan shall be paid as otherwise provided herein.

c.Installments. Your right to receive any installment payments under this Plan shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).

d.General. To the extent applicable, this Plan shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the adoption of this Plan. Notwithstanding any provision of this Plan to the contrary, in the event that the Company determines that any amounts payable hereunder will be immediately taxable to you under Section 409A of the Code and related Department of Treasury guidance, to the extent permitted under Section 409A of the Code, the Company may, to the extent permitted under Section 409A of the Code (i) cooperate in good faith to adopt such amendments to this Plan and appropriate policies and procedures, including amendments and policies with retroactive effect, that they determine necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Plan, preserve the economic benefits of this Plan and/or (ii) take such other actions as mutually determined necessary or appropriate to exempt the amounts payable hereunder from Section 409A of the Code or to comply with the requirements of Section 409A of the Code and thereby avoid the application of penalty taxes under such section. To the extent applicable, each of the exceptions to Code Section 409A’s prohibition on acceleration of payments of Deferred Compensation provided under Treasury Regulation 1.409A-3(j)(4) shall be permitted under the Agreement.

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APPENDIX A

Detailed Claims and Arbitration Procedures

1.Claims Procedure

Initial Claims

All claims shall be presented to the Plan Administrator in writing. Within ninety (90) days after receiving a claim, a claims official appointed by the Plan Administrator shall consider the claim and issue his or her determination thereon in writing. If the Plan Administrator or claims official determines that an extension of time is necessary, the claims official may extend the determination period for up to an additional ninety (90) days by giving the Claimant written notice indicating the special circumstances requiring the extension of time prior to the termination of the initial ninety (90) day period. Any claims that the Claimant does not pursue in good faith through the initial claims stage shall be treated as having been irrevocably waived.

Claims Decisions

If the claim is granted, the benefits or relief the Claimant seeks shall be provided. If the claim is wholly or partially denied, the claims official shall, within ninety (90) days (or a longer period, as described above), provide the Claimant with written notice of the denial, setting forth, in a manner calculated to be understood by the Claimant: (1) the specific reason or reasons for the denial; (2) specific references to the provisions on which the denial is based; (3) a description of any additional material or information necessary for the Claimant to perfect the claim, together with an explanation of why the material or information is necessary; and (4) an explanation of the procedures for appealing denied claims. If the Claimant can establish that the claims official has failed to respond to the claim in a timely manner, the Claimant may treat the claim as having been denied by the claims official.

Appeals of Denied Claims

Each Claimant shall have the opportunity to appeal the claims official’s denial of a claim in writing to an appeals official appointed by the Plan Administrator (which may be a person, committee, or other entity). A Claimant must appeal a denied claim within sixty (60) days after receipt of written notice of denial of the claim, or within sixty (60) days after it was due if the Claimant did not receive it by its due date. The Claimant shall have the opportunity to submit written comments, documents, records and other information relating to the Claimant’s claim. The Claimant (or the Claimant’s duly authorized representative) shall be provided upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimant’s claim. The appeals official shall take into account during its review all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefits review. Any claims that the Claimant does not pursue in good faith through the appeals stage, such as by failing to file a timely appeal request, shall be treated as having been irrevocably waived.

Appeals Decisions

The decision by the appeals official shall be made not later than sixty (60) days after the written appeal is received by the Plan Administrator, however, if the appeals official determines that an extension of time is necessary, the appeals official may extend the determination period for up to an additional

Appendix A-1

sixty (60) days by giving the Claimant written notice indicating the special circumstances requiring the extension of time prior to the termination of the initial sixty (60) day period. The appeal decision shall be in writing, shall be set forth in a manner calculated to be understood by the Claimant and shall include the following: (1) the specific reason or reasons for the denial; (2) specific references to the provisions on which the denial is based; (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimant’s claim. If a Claimant does not receive the appeal decision by the date it is due, the Claimant may deem the appeal to have been denied.

Procedures

The Plan Administrator shall adopt procedures by which initial claims shall be considered and appeals shall be resolved; different procedures may be established for different claims. All procedures shall be designed to afford a Claimant full and fair consideration of his or her claim.

Arbitration of Rejected Appeals

If a Claimant has pursued a claim through the appeal stage of these claims procedures, the Claimant may contest the actual or deemed denial of that claim through arbitration, as described below. In no event shall any denied claim be subject to resolution by any means (such as in a court of law) other than arbitration in accordance with the following provisions.

2.Arbitration Procedure

Request for Arbitration

A Claimant must submit a request for arbitration to the Plan Administrator within sixty (60) days after receipt of the written denial of an appeal (or within sixty (60) days after he or she should have received the determination). The Claimant or the Plan Administrator may bring an action in any court of appropriate jurisdiction to compel arbitration in accordance with these procedures.

Applicable Arbitration Rules

If the Claimant has entered into a valid arbitration agreement with the Company, the arbitration shall be conducted in accordance with that agreement. If not, the rules set forth in the balance of this Appendix shall apply: The arbitration shall be held under the auspices of the Judicial Arbitration and Mediation Service (“JAMS”). Except as provided below, the arbitration shall be in accordance with JAMS’ then-current employment dispute resolution rules. The Arbitrator shall apply the Federal Rules of Evidence and shall have the authority to entertain a motion to dismiss or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. The Federal Arbitration Act shall govern all arbitrations that take place under these Detailed Claims and Arbitration Procedures (or that are required to take place under them), and shall govern the interpretation or enforcement of these Procedures or any arbitration award. To the extent that the Federal Arbitration Act is inapplicable, California law pertaining to arbitration agreements shall apply.

Arbitrator

The arbitrator (the “Arbitrator”) shall be an attorney familiar with employee benefit matters who is licensed to practice law in the state in which the arbitration is convened. The Arbitrator shall be selected in the following manner from a list of eleven arbitrators drawn by the sponsoring organization under

Appendix A-2

whose auspices the arbitration is being conducted and taken from its panel of labor and employment arbitrators. Each party shall designate all arbitrators on the list whom they find acceptable; the parties shall then alternately strike arbitrators from the list of arbitrators acceptable to both parties, with the party who did not initiate the arbitration striking first. If only one arbitrator is acceptable to both parties, he or she will be the Arbitrator. If none of the arbitrators is acceptable to both parties, a new panel of arbitrators shall be obtained from the sponsoring organization and the selection process shall be repeated.

Location

The arbitration will take place in or near the city in which the Claimant is or was last employed by the Company or in which the Plan is principally administered, whichever is specified by the Plan Administrator, or in such other location as may be acceptable to both the Claimant and the Plan Administrator.

Authority of Arbitrator

The Arbitrator shall have the authority to resolve any factual or legal claim relating to the Plan or relating to the interpretation, applicability or enforceability of these arbitration procedures, including, but not limited to, any claim that these procedures are void or voidable. The Arbitrator may grant a Claimant’s claim only if the Arbitrator determines that it is justified because: (1) the appeals official erred on an issue of law; or (2) the appeals official’s findings of fact, if applicable, were not supported by substantial evidence. The arbitration shall be final and binding on all parties.

Limitation on Scope of Arbitration

The Claimant may not present any evidence, facts, arguments or theories at the arbitration that the Claimant did not pursue in his or her appeal, except in response to new evidence, facts, arguments or theories presented on behalf of the other parties to the arbitration. However, an arbitrator may permit a Claimant to present additional evidence or theories if the Arbitrator determines that the Claimant was precluded from presenting them during the claim and appeal procedures due to procedural errors of the Plan Administrator or its delegates.

Administrative Record

The Plan Administrator shall submit to the Arbitrator a certified copy of the record on which the appeals official’s decision was made.

Experts, Depositions, and Discovery

Except as otherwise permitted by the Arbitrator on a showing of substantial need, either party may: (1) designate one expert witness; (2) take the deposition of one individual and the other party’s expert witness; (3) propound requests for production of documents; and (4) subpoena witnesses and documents relating to the discovery permitted in this paragraph.

Pre-Hearing Procedures

At least thirty (30) days before the arbitration hearing, the parties must exchange lists of witnesses, including any expert witnesses, and copies of all exhibits intended to be used at the hearing. The Arbitrator shall have jurisdiction to hear and rule on pre-hearing disputes and is authorized to hold pre-hearing conferences by telephone or in person, as the Arbitrator deems necessary.

Appendix A-3

Transcripts

Either party may arrange for a court reporter to provide a stenographic record of the proceedings at the party’s own cost.

Post-Hearing Procedures

Either party, on request at the close of the hearing, may be given leave to file a post-hearing brief within the time limits established by the Arbitrator.

Costs and Attorneys’ Fees

The Claimant and the Company shall equally share the fees and costs of the Arbitrator, except that the Claimant shall not be required to pay any of the Arbitrator’s fees and costs if such a requirement would make mandatory arbitration under these procedures unenforceable. On a showing of material hardship, the Company, in its discretion, may advance all or part of the Claimant’s share of the fees and costs, in which case the Claimant shall reimburse the Company out of the proceeds of the arbitration award, if any, that the Claimant receives. Each party shall pay its own costs and attorneys’ fees, except as required by applicable law.

Procedure for Collecting Costs from Claimant

Before the arbitration commences, the Claimant must deposit with the Plan Administrator his or her share of the anticipated fees and costs of the Arbitrator, as reasonably determined by the Plan Administrator. At least two (2) weeks before delivering his or her decision, the Arbitrator shall send his or her final bill for fees and costs to the Plan Administrator for payment. The Plan Administrator shall apply the amount deposited by the Claimant to pay the Claimant’s share of the Arbitrator’s fees and costs and return any surplus deposit. If the Claimant’s deposit is insufficient, the Claimant will be billed for any remaining amount due. Failure to pay any amount within ten (10) days after it is billed shall constitute the Claimant’s irrevocable election to withdraw his or her arbitration request and abandon his or her claim.

Arbitration Award

The Arbitrator shall render an award and opinion in the form typically rendered in labor arbitrations. Within twenty (20) days after issuance of the Arbitrator’s award and opinion, either party may file with the Arbitrator a motion to reconsider, which shall be accompanied by a supporting brief. If such a motion is filed, the other party shall have twenty (20) days from the date of the motion to respond, after which the Arbitrator shall reconsider the issues raised by the motion and either promptly confirm or promptly change his or her decision. The decision shall then be final and conclusive on the parties. Arbitrator fees and other costs of a motion for reconsideration shall be borne by the losing party, unless the Arbitrator orders otherwise. Either party may bring an action in any court of appropriate jurisdiction to enforce an arbitration award. A party opposing enforcement of an arbitration award may not do so in an enforcement proceeding, but must bring a separate action in a court of competent jurisdiction to set aside the award. In any such action, the standard of review shall be the same as that applied by an appellate court reviewing the decision of a trial court in a nonjury trial.

Severability

The invalidity or unenforceability of any part of these arbitration procedures shall not affect the validity of the rest of the procedures.

Appendix A-4

APPENDIX B

ADDITIONAL INFORMATION

RIGHTS UNDER ERISA

As a participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all Plan participants will be entitled to:

Receive Information About Your Plan and Benefits

1.Examine, without charge, at the Company’s headquarters, all documents governing the Plan including collective bargaining agreements, if any, and annual reports and Plan descriptions.

2.Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including collective bargaining agreements, if any, and copies of the latest annual report (Form 5500 Series) and summary plan description. The Plan Administrator may make a reasonable charge for the copies.

3.Receive a summary of the Plan’s annual financial report, if any. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

Prudent Actions by Plan Fiduciaries

In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including the Company, your union or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your right under ERISA.

Enforce Your Rights

If your claim for a welfare benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of plan documents or the latest annual report from the Plan and do not receive them within thirty (30) days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits, which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. In addition, if you disagree with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical child support order, you may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.

Appendix B-1

Assistance with Your Questions

If you have any questions about your Plan, you should contact the Plan Administrator. If you should have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N. W., Washington, D. C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

ADMINISTRATIVE INFORMATION
Name of Plan:	Safeway Inc. Executive Severance Plan
Plan Administrator and Sponsor:	Board of Directors Safeway Inc. 5918 Stoneridge Mall Road Pleasanton, CA 94588-3229 Tel: (925) 467-3000 Fax: (925) 467-3214
Type of Administration:	Self-Administered
Type of Plan:	Severance Pay Employee Welfare Benefit Plan
Employer Identification Number:	94-3019135
Direct Questions Regarding the Plan to:	Board of Directors Safeway Inc. 5918 Stoneridge Mall Road Pleasanton, CA 94588-3229 Tel: (925) 467-3000 Fax: (925) 467-3214
Agent for Service of Legal Process:	SecretarySafeway Inc. 5918 Stoneridge Mall Road Pleasanton, CA 94588-3229 Tel: (925) 467-3000 Fax: (925) 467-3214Service of Legal Process may also be made upon the Plan Administrator.
Plan Year End:	December 31

Appendix B-2

EX-31.1

Exhibit 31.1

Certification

I, Robert L. Edwards, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Safeway Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	April 30, 2014	/s/ Robert L. Edwards
		Robert L. Edwards
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Peter J. Bocian, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Safeway Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	April 30, 2014	/s/ Peter J. Bocian
		Peter J. Bocian
		Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Safeway Inc. (the “Company”) hereby certifies that:

(i)the quarterly report on Form 10-Q of the Company for the quarterly period ended March 22, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	April 30, 2014	/s/ Robert L. Edwards
		Robert L. Edwards
		Chief Executive Officer

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Safeway Inc. (the “Company”) hereby certifies that:

(i)the quarterly report on Form 10-Q of the Company for the quarterly period ended March 22, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	April 30, 2014	/s/ Peter J. Bocian
		Peter J. Bocian
		Chief Financial Officer

The foregoing certifications are being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

A signed original of this written statement as required by Section 906 has been provided to Safeway Inc., and will be retained by Safeway Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

(Loss) Income Per Share (Narrative) (Details) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Earnings Per Share [Abstract]
Antidilutive shares excluded from diluted weighted-average shares outstanding	3.9	17.0

XML

Other Comprehensive Income or Loss (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Other Comprehensive Income or Loss [Abstract]
Comprehensive earnings	$ (87.8)	$ 102.4

XML

Stockholders' Equity (Dividends Paid On Common Stock) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Dividends Payable [Line Items]
Date Paid	Jan. 09, 2014	Dec. 31, 2012
Per-Share Amounts	$ 0.20	$ 0.175
Total	$ 46.0	$ 41.9
Dividends Paid On Common Stock
Dividends Payable [Line Items]
Record Date	Dec. 19, 2013	Dec. 17, 2012

XML

Other Comprehensive Income or Loss (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	$ (271.1)	$ (73.8)
Other comprehensive income before reclassifications	2.8	(31.9)
Amounts reclassified from accumulated other comprehensive income	12.1	24.7
Tax expense	(5.1)	(9.3)
Total comprehensive income including noncontrolling interests	9.8	(16.5)
Ending balance	(261.3)	(90.3)
Pension and Post-Retirement Benefit Plan Items
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(130.7)	(472.3)
Other comprehensive income before reclassifications	0	0
Amounts reclassified from accumulated other comprehensive income	12.1	24.7
Tax expense	(4.8)	(9.1)
Total comprehensive income including noncontrolling interests	7.3	15.6
Ending balance	(123.4)	(456.7)
Foreign Currency Items
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(138.8)	399.0
Other comprehensive income before reclassifications	1.6	(32.0)
Amounts reclassified from accumulated other comprehensive income	0	0
Tax expense	0	0
Total comprehensive income including noncontrolling interests	1.6	(32.0)
Ending balance	(137.2)	367.0
Other
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(1.6)	(0.5)
Other comprehensive income before reclassifications	1.2	0.1
Amounts reclassified from accumulated other comprehensive income	0	0
Tax expense	(0.3)	(0.2)
Total comprehensive income including noncontrolling interests	0.9	(0.1)
Ending balance	$ (0.7)	$ (0.6)

XML

Contingencies (Details)	3 Months Ended
	Mar. 22, 2014 lawsuit complaint
In Re Safeway Inc. Stockholders Litigation [Member]
Loss Contingencies [Line Items]
Number of class action complaints filed	12
Number of lawsuits filed	7
County of Alameda Litigation Cases [Member]
Loss Contingencies [Line Items]
Number of lawsuits filed	4
Northern District of California Cases [Member]
Loss Contingencies [Line Items]
Number of lawsuits filed	1

XML

Assets and Liabilities Held for Sale and Discontinued Operations (Assets and Liabilities Held for Sale) (Details) (USD $) In Millions, unless otherwise specified	Mar. 22, 2014		Dec. 28, 2013
Assets held for sale:
Other United States real estate assets held for sale	$ 10.1		$ 7.2
Total assets held for sale	107.7		143.9
Dominick's Stores [Member]
Assets held for sale:
Dominick's property, net, held for sale	97.6		136.7
Liabilities held for sale:
Deferred gain on property dispositions	15.6		9.0
Obligations under capital leases	0		5.2
Deferred rent	0.2		2.6
Other liabilities	0.2		1.4
Total liabilities held for sale	$ 16.0	[1]	$ 18.2	[1]

[1] Included in Other Accrued Liabilities on the consolidated balance sheet.

XML

Goodwill (Tables)

3 Months Ended

Mar. 22, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Summary of changes in goodwill by geographic area

A summary of changes in Safeway’s goodwill during the first 12 weeks of 2014 is as follows (in millions):

Balance – beginning of year:
Goodwill	$	4,455.8
Accumulated impairment charges	(3,991.3		)
	464.5
Activity during the quarter:
Other adjustments (1)	0.1
	0.1
Balance – end of quarter:
Goodwill	4,455.9
Accumulated impairment charges	(3,991.3		)
Balance – end of quarter	$	464.6

(1) Primarily purchase price adjustments for Blackhawk's acquisition of Retailo AG.

XML

Fair Value Measurements (Reconciliaiton of the Beginning and Ending Balances for Level 3 Liabilities) (Details) (Contingent Consideration [Member], Significant Unobservable Inputs (Level 3) [Member], Fair Value, Measurements, Recurring [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014
Contingent Consideration [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fair Value, Measurements, Recurring [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at December 28, 2013	$ 2.9
Settlements	(0.1)
Balance at March 22, 2014	$ 2.8

XML

Financing (Textuals) (Details)	Mar. 22, 2014
Senior notes [Member] | 5.625% Senior Notes due August 2014, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	5.625%
Senior notes [Member] | 3.40% Senior Notes due 2016, unsecured
Debt Instrument [Line Items]
Fixed interest rate of debt	3.40%
Senior notes [Member] | 6.35% Senior Notes due 2017, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	6.35%
Senior notes [Member] | 5.00% Senior Notes due 2019, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	5.00%
Senior notes [Member] | 3.95% Senior Notes due 2020, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	3.95%
Senior notes [Member] | 4.75% Senior Notes due 2021, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	4.75%
Senior Debentures [Member] | 7.45% Senior Debentures due 2027, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	7.45%
Senior Debentures [Member] | 7.25% Senior Debentures due 2031, unsecured [Member]
Debt Instrument [Line Items]
Fixed interest rate of debt	7.25%

XML

Share-Based Employee Compensation (Weighted-average Assumptions Used to Value Grants) (Details)	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (in years)	6 years 3 months
Expected stock volatility, minimum	27.90%	33.00%
Risk-free interest rate, minimum	2.00%	1.30%
Expected dividend yield during the expected term	2.80%	3.80%
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (in years)		6 years 3 months
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected life (in years)		6 years 6 months

XML

Segments (Schedule of Segment Information) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014 segment		Mar. 23, 2013
Segment Reporting Information [Line Items]
Operating segments	7
Reportable segments	2
Sales and other revenue	$ 8,260.9		$ 8,176.9
Operating profit	54.7		114.5
Income (loss) before income taxes	(135.8)		56.6
Safeway [Member]
Segment Reporting Information [Line Items]
Sales and other revenue	8,029.5		7,993.4
Operating profit	60.6		114.2
Income (loss) before income taxes	(130.0)		56.0
Blackhawk [Member]
Segment Reporting Information [Line Items]
Sales and other revenue	231.4	[1]	183.5	[1]
Operating profit	(5.9)	[1]	0.3	[1]
Income (loss) before income taxes	$ (5.8)	[1]	$ 0.6	[1]

[1] Does not reflect noncontrolling interests in Blackhawk

XML

Stockholders' Equity (Dividends Declared on Common Stock) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Dividends Payable [Line Items]
Date Declared	Mar. 12, 2014	Mar. 14, 2013
Per-Share Amounts	$ 0.20	$ 0.175
Total	$ 46.2	$ 42.2
Dividends Declared On Common Stock
Dividends Payable [Line Items]
Record Date	Mar. 24, 2014	Mar. 25, 2013

XML

Share-Based Employee Compensation

3 Months Ended

Mar. 22, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Employee Compensation

SHARE-BASED EMPLOYEE COMPENSATION

The Company recognized share-based compensation expense of $12.6 million and $13.2 million in the first quarter of 2014 and 2013, respectively, as a component of operating and administrative expense.

The Company determines fair value of stock option awards using the Black-Scholes option pricing model. The weighted-average assumptions used to value Safeway’s grants of stock options through the first quarter, by year, are as follows:

	2014	2013
Expected life (in years)	6.25	6.25	-	6.50
Expected stock volatility	27.9%	33.0%
Risk-free interest rate	2.0%	1.3%
Expected dividend yield during the expected term	2.8%	3.8%

XML

Financing (Notes and Debentures) (Details) (USD $) In Millions, unless otherwise specified	Mar. 22, 2014	Dec. 28, 2013
Debt Instrument [Line Items]
Commercial paper	$ 238.4	$ 0
Bank credit agreement, unsecured	0	0
Term credit agreement, unsecured	400.0	400.0
Other notes payable, unsecured	21.1	21.4
Long-term debt, total	4,005.9	3,768.2
Less current maturities	(652.8)	(252.9)
Long-term portion	3,353.1	3,515.3
Mortgages [Member]
Debt Instrument [Line Items]
Mortgage notes payable, secured	46.4	46.8
Senior notes [Member] | 5.625% Senior Notes due August 2014, unsecured [Member]
Debt Instrument [Line Items]
Senior Notes	250.0	250.0
Senior notes [Member] | 3.40% Senior Notes due 2016, unsecured
Debt Instrument [Line Items]
Senior Notes	400.0	400.0
Senior notes [Member] | 6.35% Senior Notes due 2017, unsecured [Member]
Debt Instrument [Line Items]
Senior Notes	500.0	500.0
Senior notes [Member] | 5.00% Senior Notes due 2019, unsecured [Member]
Debt Instrument [Line Items]
Senior Notes	500.0	500.0
Senior notes [Member] | 3.95% Senior Notes due 2020, unsecured [Member]
Debt Instrument [Line Items]
Senior Notes	500.0	500.0
Senior notes [Member] | 4.75% Senior Notes due 2021, unsecured [Member]
Debt Instrument [Line Items]
Senior Notes	400.0	400.0
Senior Debentures [Member] | 7.45% Senior Debentures due 2027, unsecured [Member]
Debt Instrument [Line Items]
Senior Debentures	150.0	150.0
Senior Debentures [Member] | 7.25% Senior Debentures due 2031, unsecured [Member]
Debt Instrument [Line Items]
Senior Debentures	$ 600.0	$ 600.0

XML

Fair Value Measurements (Tables)

3 Months Ended

Mar. 22, 2014

Fair Value Disclosures [Abstract]

Fair value measurement on recurring basis

The following table presents assets and liabilities which are measured at fair value on a recurring basis at March 22, 2014 (in millions):

	Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
Term deposits	$	891.3	$	—	$	891.3	$	—
Money market	11.0		11.0		—		—
Bankers' acceptances	205.3		—		205.3		—
Repurchase agreements	110.3		—		110.3		—
Commercial paper	514.4		—		514.4		—
Other	0.1		—		0.1		—
Short-term investments 1	90.6		54.0		36.6		—
Non-current investments 2	40.8		—		40.8		—
Total	$	1,863.8	$	65.0	$	1,798.8	$	—
Liabilities:
Contingent consideration 3	$	2.8	$	—	$	—	$	2.8
Total	$	2.8	$	—	$	—	$	2.8

(1) Included in Prepaid Expenses and Other Current Assets on the balance sheet.

(2) Included in Other Assets on the balance sheet.

(3) Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

The following table presents assets and liabilities which are measured at fair value on a recurring basis at year-end 2013 (in millions):

	Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
Term deposits	$	2,818.0	$	—	$	2,818.0	$	—
Money market	449.0		449.0		—		—
Bankers' acceptances	309.6		—		309.6		—
Commercial paper	274.0		—		274.0		—
Short-term investments 1	81.0		42.0		39.0		—
Non-current investments 2	38.0		—		38.0		—
Total	$	3,969.6	$	491.0	$	3,478.6	$	—
Liabilities:
Contingent consideration 3	$	2.9	$	—	$	—	$	2.9
Total	$	2.9	$	—	$	—	$	2.9

(1) Included in Prepaid Expenses and Other Current Assets on the balance sheet.

(2) Included in Other Assets on the balance sheet.

(3) Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

Reconciliation of the beginning and ending balances for Level 3 liabilities

A reconciliation of the beginning and ending balances for Level 3 liabilities for the first 12 weeks of 2014 follows (in millions):

	Contingent consideration
Balance at December 28, 2013	$	2.9
Settlements	(0.1		)
Balance at March 22, 2014	$	2.8

XML

Stockholders' Equity (Tables)

3 Months Ended

Mar. 22, 2014

Equity [Abstract]

Dividends Declared on Common Stock

The following table presents information regarding cash dividends declared on Safeway’s common stock for the first 12 weeks of fiscal 2014 and 2013.

(in millions, except per-share amounts)	Date Declared	Record Date	Per-Share Amounts		Total
2014
Quarter 1	03/12/14	03/24/14	$	0.200	$	46.2
2013
Quarter 1	03/14/13	03/25/13	$	0.175	$	42.2

Dividends Paid on Common Stock

The following table presents information regarding cash dividends paid on Safeway’s common stock through the first 12 weeks of fiscal 2014 and 2013.

(in millions, except per-share amounts)	Date Paid	Record Date	Per-Share Amounts		Total
2014
Quarter 1	01/09/14	12/19/13	$	0.200	$	46.0
2013
Quarter 1	12/31/12	12/17/12	$	0.175	$	41.9

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Subsequent Event (Details) (Subsequent Event [Member], USD $) In Millions, unless otherwise specified	0 Months Ended
	Apr. 14, 2014	Mar. 24, 2014
Blackhawk Network Holdings, Inc. [Member]
Subsequent Event [Line Items]
Percent of total outstanding shares of Blackhawk common stock, all classes, owned		72.00%
Blackhawk Network Holdings, Inc. [Member] | Common Class B [Member]
Subsequent Event [Line Items]
Subsidiary shares owned		37.8
Percent of total outstanding shares of Blackhawk Class B common stock owned		94.20%
Common stock dividend, share of Blackhawk Class B received	0.164291
Forecast [Member]
Subsequent Event [Line Items]
Tax from distribution of Blackhawk shares	$ 360

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Pension and Post-Retirement Plans (Components of Net Pension Expense and Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Pension [Member]
Components of net pension expense:
Estimated return on assets	$ (27.5)	$ (24.9)
Service cost	9.8	9.7
Interest cost	22.2	19.7
Amortization of prior service cost (credit)	2.2	3.0
Amortization of unrecognized losses	9.8	18.0
Total	16.5	25.5
Other Post-Retirement Benefits [Member]
Components of net pension expense:
Estimated return on assets	0	0
Service cost	0.2	0.1
Interest cost	0.8	0.7
Amortization of prior service cost (credit)	0	0
Amortization of unrecognized losses	0.1	0.2
Total	$ 1.1	$ 1.0

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Segments (Tables)

3 Months Ended

Mar. 22, 2014

Segment Reporting [Abstract]

Schedule of segment information by segment

The following tables present information about the Company by segment (in millions):

	12 Weeks Ended
	March 22, 2014			March 23, 2013
Safeway
Sales and other revenue	$	8,029.5		$	7,993.4
Operating profit	60.6			114.2
(Loss) income before income taxes	(130.0		)	56.0
Blackhawk*
Sales and other revenue	$	231.4		$	183.5
Operating (loss) profit	(5.9		)	0.3
(Loss) income before income taxes	(5.8		)	0.6
Total
Sales and other revenue	$	8,260.9		$	8,176.9
Operating profit	54.7			114.5
(Loss) income before income taxes	(135.8		)	56.6
*Does not reflect noncontrolling interests in Blackhawk

Schedule of sales revenue by type of similar product

The following tables presents sales revenue by type of similar product (dollars in millions):

	12 Weeks Ended
	March 22, 2014				March 23, 2013
Non-perishables (1)	$	3,392.0	41.1	%	$	3,378.0	41.3	%
Perishables (2)	3,000.2		36.3		2,910.1		35.6
Fuel	877.4		10.6		959.0		11.7
Pharmacy	617.1		7.5		617.6		7.6
Blackhawk	231.4		2.8		183.5		2.2
Other (3)	142.8		1.7		128.7		1.6
Total sales and other revenue	$	8,260.9	100.0	%	$	8,176.9	100.0	%

(1) Consists primarily of general merchandise, grocery, meal ingredients, soft drinks and other beverages, snacks and frozen foods.

(2) Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

(3) Consists primarily of wholesale sales and other revenue.

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Other Comprehensive Income or Loss (Tables)

3 Months Ended

Mar. 22, 2014

Other Comprehensive Income or Loss [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

Changes in the AOCI balance by component are shown below (in millions):

	12 Weeks Ended March 22, 2014
	Pension and Post-Retirement Benefit Plan Items			Foreign Currency Items			Other			Total Comprehensive (Loss) Income Including Noncontrolling Interests
Beginning balance	$	(130.7	)	$	(138.8	)	$	(1.6	)	$	(271.1	)
Other comprehensive income before reclassifications	—			1.6			1.2			2.8
Amounts reclassified from accumulated other comprehensive income	12.1			—			—			12.1
Tax expense	(4.8		)	—			(0.3		)	(5.1		)
Net current-period other comprehensive income	7.3			1.6			0.9			9.8
Ending balance	$	(123.4	)	$	(137.2	)	$	(0.7	)	$	(261.3	)

	12 Weeks Ended March 23, 2013
	Pension and Post-Retirement Benefit Plan Items			Foreign Currency Items			Other			Total Comprehensive (Loss) Income Including Noncontrolling Interests
Beginning balance	$	(472.3	)	$	399.0		$	(0.5	)	$	(73.8	)
Other comprehensive (loss) income before reclassifications	—			(32.0		)	0.1			(31.9		)
Amounts reclassified from accumulated other comprehensive income	24.7			—			—			24.7
Tax expense	(9.1		)	—			(0.2		)	(9.3		)
Net current-period other comprehensive income (loss)	15.6			(32.0		)	(0.1		)	(16.5		)
Ending balance	$	(456.7	)	$	367.0		$	(0.6	)	$	(90.3	)

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Assets and Liabilities Held for Sale and Discontinued Operations

3 Months Ended

Mar. 22, 2014

Discontinued Operations and Disposal Groups [Abstract]

Assets and Liabilities Held for Sale and Discontinued Operations

ASSETS AND LIABILITIES HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets and liabilities held for sale at March 22, 2014 and December 28, 2013 were as follows (in millions):

			March 22, 2014		December 28, 2013
Assets held for sale:
	Dominick's property, net, held for sale		$	97.6	$	136.7
	Other United States real estate assets held for sale		10.1		7.2
	Total assets held for sale		$	107.7	$	143.9
Liabilities held for sale:
	Dominick's:
		Deferred gain on property dispositions	$	15.6	$	9.0
		Obligations under capital leases	—		5.2
		Deferred rent	0.2		2.6
		Other liabilities	0.2		1.4
	Total liabilities held for sale*		$	16.0	$	18.2

*Included in Other Accrued Liabilities on the consolidated balance sheet.

The notes to the consolidated financial statements exclude discontinued operations, unless otherwise noted. Historical financial information for Canada Safeway Limited ("CSL") and Dominick's presented in the consolidated income statements has been reclassified to discontinued operations to conform to current-year presentation.

The financial results of discontinued operations for the 12 weeks ended March 22, 2014 and March 23, 2013 were as follows (in millions):

		March 22, 2014			March 23, 2013
Sales and other revenue:
	CSL	$	—		$	1,493.2
	Dominick's	7.3			329.9
	Total	$	7.3		$	1,823.1
(Loss) income from discontinued operations, before income taxes:
	CSL	$	—		$	76.2
	Dominick's	(61.8		)	(11.3		)
	Total	$	(61.8	)	$	64.9
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes:
	CSL	(5.1		)	—
	Dominick's	42.1			—
	Total	$	37.0		$	—
Total (loss) income from discontinued operations before income taxes 1		$	(24.8	)	$	64.9
Income taxes on discontinued operations		9.3			(5.8		)
(Loss) income from discontinued operations, net of tax		$	(15.5	)	$	59.1

During the fourth quarter of 2013, the Company sold or closed all stores in the Dominick’s division. In 2013, cash proceeds on the sale of Dominick’s stores were $72.2 million, with a pre-tax loss of $493.1 million (including a $310.8 million charge described in the succeeding paragraph). In the first quarter of 2014, cash proceeds on the sale Dominick’s stores were $78.3 million, with a pre-tax gain of $42.1 million.

As previously reported, Safeway participated in four multiemployer pension plans on which withdrawal liability is expected to be incurred due to the Dominick's closure. During the fourth quarter of 2013, the Company recorded expense of $310.8 million to discontinuedoperations, which represented the estimated multiemployer pension plan withdrawal liability. The withdrawal liability recorded during 2013 was based on information available to the Company at the time, without having yet received demand letters from the related multiemployer pension plans.  In April 2014, the Company received two demand letters, which resulted in the Company increasing the multiemployer pension plan withdrawal liability by $33.8 million ($21.1 million after tax) in the first quarter of 2014 (included in loss from discontinued operations in the condensed consolidated statement of operations). As of March 22, 2014, the estimated multi-employer pension plan withdrawal liability (included in Accrued Claims and Other Liabilities with a current portion in Other Accrued Liabilities in the condensed consolidated balance sheet) was $347.3 million, as compared to $310.8 million at December 28, 2013. Withdrawal liability is generally paid over time, and as such the Company expects to pay in the range of $10 million to $20 million per year, varying by year, for approximately 20 years. The final amount of the withdrawal liability due will be adjusted once final assessments have been received from the plans and the amount of the related payments are known. Such adjustment may be significantly greater than the amount recorded based on our actuarial estimate. Demand letters from the other two multiemployer pension plans may be received in 2014, or later.

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The Company and Significant Accounting Policies (Narrative) (Details) (USD $) Share data in Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013	Mar. 22, 2014 Casa Ley [Member]	Mar. 06, 2014 Albertsons [Member] Safeway [Member]	Mar. 24, 2014 Common Class B [Member] Subsequent Event [Member] Blackhawk Network Holdings, Inc. [Member]
Business Acquisition [Line Items]
Stockholders' right to receive cash per share of outstanding Safeway stock				$ 32.50
Ownership interest			49.00%
Increase per day of stockholders' right to receive cash per share of outstanding Safeway stock				$ 0.005342
Subsidiary shares owned					37.8
Restricted cash	$ 40,000,000
LIFO expense	0	0
Cash surrender value of life insurance policy	58,700,000
Policy loan balance	41,300,000
Net cash surrender value of life insurance policy	$ 17,400,000

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Taxes on Income Taxes on Income (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Income Tax Disclosure [Abstract]
Proceeds from company-owned life insurance policies	$ 0	$ 68.7
Reduction in income tax expense due to reversal of deferred tax liability		17.2
Reduction in income tax expense due to resolution of federal tax matters		$ 5.0

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Segments (Summary of Sales Revenue By Similar Product Type) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014		Mar. 23, 2013
Revenue from External Customer [Line Items]
Sales and other revenue	$ 8,260.9		$ 8,176.9
Non-Perishables [Member]
Revenue from External Customer [Line Items]
Sales and other revenue	3,392.0	[1]	3,378.0	[1]
Perishables [Member]
Revenue from External Customer [Line Items]
Sales and other revenue	3,000.2	[2]	2,910.1	[2]
Fuel [Member]
Revenue from External Customer [Line Items]
Sales and other revenue	877.4		959.0
Pharmacy [Member]
Revenue from External Customer [Line Items]
Sales and other revenue	617.1		617.6
Blackhawk [Member]
Revenue from External Customer [Line Items]
Sales and other revenue	231.4		183.5
Other [Member]
Revenue from External Customer [Line Items]
Sales and other revenue	$ 142.8	[3]	$ 128.7	[3]
Sales [Member] | Product Concentration Risk [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	100.00%		100.00%
Sales [Member] | Product Concentration Risk [Member] | Non-Perishables [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	41.10%	[1]	41.30%	[1]
Sales [Member] | Product Concentration Risk [Member] | Perishables [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	36.30%	[2]	35.60%	[2]
Sales [Member] | Product Concentration Risk [Member] | Fuel [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	10.60%		11.70%
Sales [Member] | Product Concentration Risk [Member] | Pharmacy [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	7.50%		7.60%
Sales [Member] | Product Concentration Risk [Member] | Blackhawk [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	2.80%		2.20%
Sales [Member] | Product Concentration Risk [Member] | Other [Member]
Revenue from External Customer [Line Items]
Percentage of total sales and other revenue	1.70%	[3]	1.60%	[3]

[1] Consists primarily of general merchandise, grocery, meal ingredients, soft drinks and other beverages, snacks and frozen foods.

[2] Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

[3] Consists primarily of wholesale sales and other revenue.

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Condensed Consolidated Statements of Operations (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Income Statement [Abstract]
Sales and other revenue	$ 8,260.9	$ 8,176.9
Cost of goods sold	(6,100.7)	(6,010.6)
Gross profit	2,160.2	2,166.3
Operating and administrative expense	(2,105.5)	(2,051.8)
Operating profit	54.7	114.5
Interest expense	(51.2)	(64.2)
Loss on foreign currency translation	(153.1)	0
Other income, net	13.8	6.3
(Loss) income before income taxes	(135.8)	56.6
Income taxes	52.7	3.1
(Loss) income from continuing operations, net of tax	(83.1)	59.7
(Loss) income from discontinued operations, net of tax	(15.5)	59.1
Net (loss) income before allocation to noncontrolling interests	(98.6)	118.8
Noncontrolling interests	1.0	0.1
Net (loss) income attributable to Safeway Inc.	$ (97.6)	$ 118.9
Basic (loss) earnings per common share:
Basic (loss) earnings per common share: Continuing operations (dollars per share)	$ (0.36)	$ 0.25
Basic (loss) earnings per common share: Discontinued operations (dollars per share)	$ (0.07)	$ 0.25
Basic earnings per common share: Total (dollars per share)	$ (0.43)	$ 0.50
Diluted (loss) earnings per common share:
Diluted (loss) earnings per common share: Continuing operations (dollars per share)	$ (0.36)	$ 0.25
Diluted (loss) earnings per common share: Discontinued operations (dollars per share)	$ (0.07)	$ 0.24
Diluted earnings per common share: Total (dollars per share)	$ (0.43)	$ 0.49
Weighted average shares outstanding - Basic (shares)	228.1	237.4
Weighted average shares outstanding - Diluted (shares)	228.1	238.6

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Pension and Post-Retirement Plans (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Pension and Other Postretirement Benefit Expense [Abstract]
Contributions to its defined benefit pension plans and post-retirement benefit plans	$ 5.1	$ 23.3
Estimated plan contributions for remainder of the year	$ 8

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Condensed Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
OPERATING ACTIVITIES:
Net (loss) income before allocation to noncontrolling interests	$ (98.6)	$ 118.8
Loss (income) from discontinued operations, net of tax	15.5	(59.1)
(Loss) income from continuing operations, net of tax	(83.1)	59.7
Reconciliation to net cash flow (used) provided by operating activities:
Depreciation and amortization	209.9	215.9
Property impairment charges	7.5	11.6
Share-based employee compensation	12.6	13.2
Equity in earnings of unconsolidated affiliate	(4.5)	(4.4)
Net pension and post-retirement benefits expense	17.6	26.5
Contributions to pension and post-retirement benefit plans	(5.1)	(23.3)
Loss on property retirements and lease exit costs, net	0.3	0.8
Increase in accrued claims and other liabilities	2.9	2.4
Deferred income taxes	0	(17.2)
Other	11.7	9.8
Changes in working capital items:
Receivables	38.2	28.1
Inventories at FIFO cost	(247.0)	(305.2)
Prepaid expenses and other current assets	(4.0)	(19.9)
Income taxes	(163.3)	(59.2)
Payables and accruals	(24.6)	78.0
Payables related to third-party gift cards, net of receivables	(564.3)	(600.3)
Net cash flow used by operating activities–continuing operations	(795.2)	(583.5)
Net cash flow (used) provided by operating activities–discontinued operations	(1,191.4)	28.2
Net cash flow used by operating activities	(1,986.6)	(555.3)
INVESTING ACTIVITIES:
Cash paid for property additions	(154.3)	(129.9)
Proceeds from sale of property	2.6	8.0
Proceeds from company-owned life insurance policies	0	68.7
Cash restricted by merger agreement for payment of mortgage	(40.0)	0
Other	(8.7)	(3.4)
Net cash flow used by investing activities–continuing operations	(200.4)	(56.6)
Net cash flow provided (used) by investing activities–discontinued operations	73.2	(15.0)
Net cash flow used by investing activities	(127.2)	(71.6)
FINANCING ACTIVITIES:
Additions to long-term borrowings	238.4	614.9
Payments on long-term borrowings	(14.3)	(7.8)
Dividends paid	(46.0)	(41.9)
Net proceeds from exercise of stock options	15.8	14.5
Other	(3.5)	(7.8)
Net cash flow provided by financing activities–continuing operations	190.4	571.9
Net cash flow used by financing activities–discontinued operations	0	(0.8)
Net cash flow provided by financing activities	190.4	571.1
Effect of changes in exchange rates on cash	(32.5)	(1.5)
Decrease in cash and equivalents	(1,955.9)	(57.3)
CASH AND EQUIVALENTS:
Beginning of period	4,647.3	352.2
End of period	$ 2,691.4	$ 294.9

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Assets and Liabilities Held for Sale and Discontinued Operations - Additional Disclosures (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		4 Months Ended	3 Months Ended					1 Months Ended
	Mar. 22, 2014 plan	Mar. 23, 2013	Dec. 28, 2013	Mar. 22, 2014 Dominick's Stores [Member]	Mar. 23, 2013 Dominick's Stores [Member]	Dec. 28, 2013 Dominick's Stores [Member] plan	Mar. 22, 2014 Minimum [Member]	Mar. 22, 2014 Maximum [Member]	Apr. 30, 2013 Subsequent Event [Member] letter
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Cash proceeds from sale of stores			$ 72.2	$ 78.3
Pre-tax gain (loss) from sale of stores	37.0	0	(493.1)	42.1	0
Multi-employer pension plan withdrawal liability	347.3		310.8
Demand letters received									2
Number of multiemployer pension plans						4
Increase in multi-employer pension plan withdrawal liability	33.8
Reduction in earnings from discontinued operations from increase in multi-employer pension plan withdrawal liability, net of tax	21.1
Multiemployer pension plan, withdrawal obligation annual installment							$ 10	$ 20
Multiemployer pension plan, withdrawal obligation payment period	20 years
Number of multiemployer pension plans that may send demand letters in 2014 or later	2

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Assets and Liabilities Held for Sale and Discontinued Operations (Tables)

3 Months Ended

Mar. 22, 2014

Discontinued Operations and Disposal Groups [Abstract]

Schedule of Assets and Liabilities Held for Sale and Financial Results of Discontinued Operations

Assets and liabilities held for sale at March 22, 2014 and December 28, 2013 were as follows (in millions):

			March 22, 2014		December 28, 2013
Assets held for sale:
	Dominick's property, net, held for sale		$	97.6	$	136.7
	Other United States real estate assets held for sale		10.1		7.2
	Total assets held for sale		$	107.7	$	143.9
Liabilities held for sale:
	Dominick's:
		Deferred gain on property dispositions	$	15.6	$	9.0
		Obligations under capital leases	—		5.2
		Deferred rent	0.2		2.6
		Other liabilities	0.2		1.4
	Total liabilities held for sale*		$	16.0	$	18.2

The financial results of discontinued operations for the 12 weeks ended March 22, 2014 and March 23, 2013 were as follows (in millions):

		March 22, 2014			March 23, 2013
Sales and other revenue:
	CSL	$	—		$	1,493.2
	Dominick's	7.3			329.9
	Total	$	7.3		$	1,823.1
(Loss) income from discontinued operations, before income taxes:
	CSL	$	—		$	76.2
	Dominick's	(61.8		)	(11.3		)
	Total	$	(61.8	)	$	64.9
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes:
	CSL	(5.1		)	—
	Dominick's	42.1			—
	Total	$	37.0		$	—
Total (loss) income from discontinued operations before income taxes 1		$	(24.8	)	$	64.9
Income taxes on discontinued operations		9.3			(5.8		)
(Loss) income from discontinued operations, net of tax		$	(15.5	)	$	59.1

During the fourth quarter of 2013, the Company sold or closed all stores in the Dominick’s division. In 2013, cash proceeds on the sale of Dominick’s stores were $72.2 million, with a pre-tax loss of $493.1 million (including a $310.8 million charge described in the succeeding paragraph). In the first quarter of 2014, cash proceeds on the sale Dominick’s stores were $78.3 million, with a pre-tax gain of $42.1 million.

As previously reported, Safeway participated in four multiemployer pension plans on which withdrawal liability is expected to be incurred due to the Dominick's closure. During the fourth quarter of 2013, the Company recorded expense of $310.8 million to discontinuedoperations, which represented the estimated multiemployer pension plan withdrawal liability. The withdrawal liability recorded during 2013 was based on information available to the Company at the time, without having yet received demand letters from the related multiemployer pension plans.  In April 2014, the Company received two demand letters, which resulted in the Company increasing the multiemployer pension plan withdrawal liability by $33.8 million ($21.1 million after tax) in the first quarter of 2014 (included in loss from discontinued operations in the condensed consolidated statement of operations). As of March 22, 2014, the estimated multi-employer pension plan withdrawal liability (included in Accrued Claims and Other Liabilities with a current portion in Other Accrued Liabilities in the condensed consolidated balance sheet) was $347.3 million, as compared to $310.8 million at December 28, 2013. Withdrawal liability is generally paid over time, and as such the Company expects to pay in the range of $10 million to $20 million per year, varying by year, for approximately 20 years. The final amount of the withdrawal liability due will be adjusted once final assessments have been received from the plans and the amount of the related payments are known. Such adjustment may be significantly greater than the amount recorded based on our actuarial estimate. Demand letters from the other two multiemployer pension plans may be received in 2014, or later.

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Share-based Employee Compensation (Performance Awards) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Share-based employee compensation	$ 12.6	$ 13.2

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(Loss) Income Per Share (Tables)

3 Months Ended

Mar. 22, 2014

Earnings Per Share [Abstract]

Basic and diluted earnings per common share

The following tables provide reconciliations of net earnings and shares used in calculating (loss) income per basic common share to those used in calculating (loss) income per diluted common share (in millions, except per-share amounts):

	12 Weeks Ended
	March 22, 2014						March 23, 2013
	Diluted			Basic			Diluted			Basic
(Loss) income from continuing operations, net of tax	$	(83.1	)	$	(83.1	)	$	59.7		$	59.7
Noncontrolling interests	1.0			1.0			0.1			0.1
(Loss) income from continuing operations attributable to Safeway Inc.	(82.1		)	(82.1		)	59.8			59.8
Distributed and undistributed earnings allocated to participating securities	(0.4		)	(0.4		)	(0.6		)	(0.6		)
(Loss) income from continuing operations available to common stockholders	(82.5		)	(82.5		)	59.2			59.2
(Loss) income from discontinued operations, net of tax	(15.5		)	(15.5		)	59.1			59.1
Distributed and undistributed earnings allocated to participating securities	—			—			(0.6		)	(0.6		)
Income from discontinued operations available to common stockholders	(15.5		)	(15.5		)	58.5			58.5
Net (loss) income	$	(97.6	)	$	(97.6	)	$	118.9		$	118.9
Distributed and undistributed earnings allocated to participating securities	(0.4		)	(0.4		)	(1.2		)	(1.2		)
Net (loss) income available to common stockholders after earnings allocated to participating securities	$	(98.0	)	$	(98.0	)	$	117.7		$	117.7
Weighted average common shares outstanding	228.1			228.1			237.4			237.4
Common share equivalents	—						1.2
Weighted average shares outstanding	228.1						238.6
(Loss) earnings per common share:
Continuing operations	$	(0.36	)	$	(0.36	)	$	0.25		$	0.25
Discontinued operations	(0.07		)	(0.07		)	0.24			0.25
Total	$	(0.43	)	$	(0.43	)	$	0.49		$	0.50

Anti-dilutive shares totaling 3.9 million and 17.0 million have been excluded from diluted weighted average shares outstanding for the 12 weeks ended March 22, 2014 and March 23, 2013, respectively.

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The Company and Significant Accounting Policies

3 Months Ended

Mar. 22, 2014

The Company and Significant Accounting Policies [Abstract]

The Company and Significant Accounting Policies

THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements of Safeway Inc. and subsidiaries (“Safeway” or the “Company”) for the 12 weeks ended March 22, 2014 and March 23, 2013 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial position and results of operations for such periods. These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared on an accrual basis in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted, pursuant to SEC regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s 2013 Annual Report on Form 10-K, as amended. The results of operations for the 12 weeks ended March 22, 2014 are not necessarily indicative of the results expected for the full year or other future periods.

Recent Developments

On March 6, 2014, Safeway entered into an Agreement and Plan of Merger (the “Merger Agreement”), with AB Acquisition LLC (“AB Acquisition”), Albertson’s Holdings LLC (“Albertsons Holdings”), a subsidiary of AB Acquisition, Albertson’s LLC (“Albertson’s LLC”), a subsidiary of Albertsons Holdings, and Saturn Acquisition Merger Sub, Inc. (“Merger Sub” and together with AB Acquisition, Albertsons Holdings and Albertson’s LLC, “Albertsons”), a subsidiary of Albertsons Holdings, pursuant to which the parties agreed that, on the terms and subject to the conditions set forth in the Merger Agreement, Albertsons Holdings will acquire Safeway.

The Merger Agreement provides that, at the closing of the transactions contemplated thereby, Merger Sub will be merged with and into Safeway (the “Merger”), with Safeway continuing as the surviving corporation. Pursuant to the Merger, each outstanding share of common stock of Safeway will cease to be outstanding and will (other than excluded dissenting shares and shares held in treasury) be converted into the right to receive:

(i) $32.50 in cash,

(ii) pro-rata distributions of net proceeds with respect to certain sales of

(x) Safeway’s real-estate development subsidiary, Property Development Centers, LLC, and assets comprised of Safeway’s shopping center portfolio including certain related Safeway stores (“PDC”); and

(y) Safeway’s 49% interest (the “Casa Ley Interest”) in Casa Ley, S.A. de C.V., a Mexico-based food and general merchandise retailer (“Casa Ley”), and

(iii) if the closing of the Merger occurs after March 5, 2015, $0.005342 per day for each day from (and including) March 5, 2015 through (and including) the closing

((i), (ii) and (iii) together, the “ Per Share Merger Consideration”).

If the sales of PDC and/or the Casa Ley Interest are completed prior to the closing of the Merger, the net proceeds received by Safeway from these sales will be paid to Safeway stockholders at or before the closing. If the PDC sale and/or the sale of the Casa Ley Interest are not fully completed on or prior to the closing, Safeway stockholders will receive at the closing the applicable non-transferable contingent value rights ("CVR").

Each outstanding Safeway restricted stock award, restricted stock unit and performance share award covering shares of Safeway common stock shall vest and be cancelled in exchange for a right to receive the Per Share Merger Consideration with respect to the shares subject to the applicable award and, if necessary, a CVR.  Each outstanding option to purchase Safeway common stock will vest and be cancelled in exchange for the right to receive a payment equal to the excess, if any, of the cash portion of the Per Share Merger Consideration over the exercise price of the applicable option, and additionally, each Safeway option with an exercise price less than the cash portion of the Per Share Merger Consideration will receive the applicable non-transferable CVRs.

Consummation of the Merger is subject to various customary conditions, including, among others, there not having been a “material adverse effect” on Safeway, compliance with covenants and accuracy of representations and warranties (in each case subject to materiality qualifiers), the adoption of the Merger Agreement by the requisite vote of Safeway’s stockholders and expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The parties have agreed to use their respective reasonable best efforts to obtain all necessary regulatory approvals for the Merger provided that Albertsons will not be obligated to agree to divestitures or other restrictions that would reasonably be expected to have a material adverse effect on the parties to the Merger Agreement and their respective subsidiaries, taken as a whole, after giving effect to the reasonably anticipated economic benefits of the Merger.

Safeway’s board of directors (the "Board") plans to, subject to limited exceptions, recommend to its stockholders that they vote to adopt the Merger Agreement. The Board may change its recommendation to its stockholders to adopt the Merger Agreement in the event that the Company receives an acquisition proposal submitted in accordance with the Merger Agreement that the Board determines constitutes a superior proposal or following the occurrence of one or more other intervening events that were not known or reasonably foreseeable on the date of the Merger Agreement, and in each case, the Board determines in good faith after consultation with its financial advisors and outside legal counsel that failure to make a change in its recommendation would be inconsistent with the directors' fiduciary duties under applicable law. Safeway may also terminate the Merger Agreement to accept a superior proposal in certain circumstances, including payment by Safeway to AB Acquisition of a break-up fee and subject to compliance with the terms of the Merger Agreement. AB Acquisition has the right to terminate the Merger Agreement if the Board changes its recommendation to Safeway’s stockholders to adopt the Merger Agreement in a manner adverse in any material respect to AB Acquisition.

Distribution of Blackhawk Shares

The Merger did not alter Safeway’s previously announced plan to distribute the remaining 37.8 million shares of Blackhawk stock that it owned to its stockholders, which was completed on April 14, 2014.  See Note N. Because Safeway did not distribute the Blackhawk shares until after the end of the first quarter of 2014, Blackhawk is still included in continuing operations until the second quarter of 2014 when it will be reclassified as a discontinued operation.

Restricted Cash

In accordance with the Merger Agreement, the Company is required to contribute $40.0 million cash to PDC. This cash will be held in a reserve account until the earlier to occur of (i) payment in full of the mortgage indebtedness currently encumbering a shopping center in Lahaina, Hawaii and (ii) the release of the Company from any guaranty obligations in connection with such indebtedness.  As of March 22, 2014, Safeway has classified the $40.0 million as restricted cash and recorded it as Other Assets in the condensed consolidated balance sheet. The mortgage is included in Mortgage Notes Payable in Note G.

Inventory

Net income reflects the LIFO method of valuing certain domestic inventories based upon estimated annual inflation. The LIFO method of inventory valuation is determined annually when actual LIFO inflation indices for the year are calculated during the fourth quarter based upon a statistical sampling of inventories; therefore, LIFO inventory costs for interim financial statements are estimated. Safeway recorded no LIFO expense during the first 12 weeks of 2014 or during the first 12 weeks of 2013.

Corporate-Owned Life Insurance ("COLI")

Safeway has COLI policies that have a cash surrender value. During 2013, Safeway borrowed against these policies. The Company has no current intention of repaying the loans prior to maturity or cancellation of the policies. Therefore, the Company offsets the cash surrender value by the related loans. At March 22, 2014, the cash surrender value of the policies was $58.7 million, and the balance of the policy loans was $41.3 million, for a net of $17.4 million.

New Accounting Pronouncements

On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. The Company is currently assessing the potential impact of ASU No. 2014-08 on its financial statements.

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Condensed Consolidated Statements of Comprehensive (Loss) Income (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]
Net (loss) income before allocation to noncontrolling interests	$ (98.6)	$ 118.8
Other comprehensive income:
Translation adjustments, net of tax	1.6	(32.0)
Recognition of pension and post-retirement benefits actuarial loss, net of tax	7.3	15.6
Other, net of tax	0.9	(0.1)
Total comprehensive (loss) income including noncontrolling interests	(88.8)	102.3
Comprehensive income attributable to noncontrolling interests	1.0	0.1
Comprehensive (loss) income attributable to Safeway Inc.	$ (87.8)	$ 102.4

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Fair Value Measurements

3 Months Ended

Mar. 22, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The accounting guidance for fair value measurements prioritizes the inputs used in 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 following table presents assets and liabilities which are measured at fair value on a recurring basis at March 22, 2014 (in millions):

	Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
Term deposits	$	891.3	$	—	$	891.3	$	—
Money market	11.0		11.0		—		—
Bankers' acceptances	205.3		—		205.3		—
Repurchase agreements	110.3		—		110.3		—
Commercial paper	514.4		—		514.4		—
Other	0.1		—		0.1		—
Short-term investments 1	90.6		54.0		36.6		—
Non-current investments 2	40.8		—		40.8		—
Total	$	1,863.8	$	65.0	$	1,798.8	$	—
Liabilities:
Contingent consideration 3	$	2.8	$	—	$	—	$	2.8
Total	$	2.8	$	—	$	—	$	2.8

(1) Included in Prepaid Expenses and Other Current Assets on the balance sheet.

(2) Included in Other Assets on the balance sheet.

(3) Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

The following table presents assets and liabilities which are measured at fair value on a recurring basis at year-end 2013 (in millions):

	Fair Value Measurements
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash equivalents
Term deposits	$	2,818.0	$	—	$	2,818.0	$	—
Money market	449.0		449.0		—		—
Bankers' acceptances	309.6		—		309.6		—
Commercial paper	274.0		—		274.0		—
Short-term investments 1	81.0		42.0		39.0		—
Non-current investments 2	38.0		—		38.0		—
Total	$	3,969.6	$	491.0	$	3,478.6	$	—
Liabilities:
Contingent consideration 3	$	2.9	$	—	$	—	$	2.9
Total	$	2.9	$	—	$	—	$	2.9

(1) Included in Prepaid Expenses and Other Current Assets on the balance sheet.

(2) Included in Other Assets on the balance sheet.

(3) Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

A reconciliation of the beginning and ending balances for Level 3 liabilities for the first 12 weeks of 2014 follows (in millions):

	Contingent consideration
Balance at December 28, 2013	$	2.9
Settlements	(0.1		)
Balance at March 22, 2014	$	2.8

In determining the fair value, the Company maximizes the use of quoted market prices and minimizes the use of unobservable inputs. The Level 1 fair values are based on quoted market values for identical assets. The fair values of Level 2 are determined using prices from pricing agencies and financial institutions that develop values based on observable inputs in active markets. Level 3 fair values are determined from industry valuation models based on externally developed inputs.

Long-lived assets were measured at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. Fair value of long-lived assets is determined by estimating the amount and timing of net future cash flows (including rental expense for leased properties, sublease rental income, common area maintenance costs and real estate taxes) and discounting them using a risk-adjusted rate of interest. Safeway estimates future cash flows based on its experience and knowledge of the market in which the store is located and, when necessary, uses real estate brokers.

During the first quarter of 2014, long-lived assets from continuing operations with a carrying value of $9.6 million, primarily store assets, were written down to their fair value of $2.1 million, resulting in an impairment charge of $7.5 million. During the first quarter of 2013, long-lived assets with a carrying value of $20.0 million, primarily store assets, were written down to their fair value of $8.4 million, resulting in an impairment charge of $11.6 million.

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Document and Entity Information In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Apr. 23, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	SAFEWAY INC
Entity Central Index Key	0000086144
Current Fiscal Year End Date	--01-03
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 22, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		230.3

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Segments

3 Months Ended

Mar. 22, 2014

Segment Reporting [Abstract]

Segments

SEGMENTS

Safeway’s retail business operates in the United States. Safeway is organized into seven geographic retail operating segments (Denver, Eastern, Northern California, Phoenix, Northwest, Texas and Southern California). Across all seven retail operating segments, the Company operates primarily one store format, where each store offers the same general mix of products with similar pricing to similar categories of customers. Safeway does not operate supercenters, warehouse formats, combination clothing/grocery stores or discount stores.

The seven operating segments have been aggregated into one reportable segment called Safeway, because, in the Company’s judgment, the operating segments have similar historical economic characteristics and are expected to have similar economic characteristics and similar long-term financial performance in the future. The principal measures and factors the Company considered in determining whether the economic characteristics are similar are gross margin percentage, operating profit margin, sales growth, capital expenditures, competitive risks, operational risks and challenges, retail store sales, costs of goods sold and employees. In addition, each operating segment has similar products, similar production processes, similar types of customers, similar methods of distribution and a similar regulatory environment. The Company believes that disaggregating its operating segments would not provide material or meaningful additional information.

As a result of the Blackhawk initial public offering of its Class A common stock in 2013, the Company presents Blackhawk as a separate reportable segment. Because Safeway did not distribute the Blackhawk shares until after the end of the first quarter of 2014, Blackhawk is still included as a separate reportable segment in continuing operations until the second quarter of 2014 when it will be reclassified as a discontinued operation. Blackhawk is a leading prepaid payment network utilizing proprietary technology to offer a broad range of gift cards, other prepaid products and payment services. Blackhawk’s payment network supports its three primary constituents: consumers who purchase the products and services Blackhawk offers, content providers who offer branded products that are redeemable for goods and services, and distribution partners who sell those products. Blackhawk’s product offerings include gift cards, prepaid telecom products and prepaid financial services products, including general purpose reloadable ("GPR") cards and Blackhawk’s reload network. In the fourth quarter of 2013, Blackhawk acquired InteliSpend Prepaid Solutions TM, a leader in the corporate incentives and consumer promotions marketplace, and Retailo AG, a leading third-party gift card distribution network in Germany, Austria and Switzerland.

The following tables present information about the Company by segment (in millions):

	12 Weeks Ended
	March 22, 2014			March 23, 2013
Safeway
Sales and other revenue	$	8,029.5		$	7,993.4
Operating profit	60.6			114.2
(Loss) income before income taxes	(130.0		)	56.0
Blackhawk*
Sales and other revenue	$	231.4		$	183.5
Operating (loss) profit	(5.9		)	0.3
(Loss) income before income taxes	(5.8		)	0.6
Total
Sales and other revenue	$	8,260.9		$	8,176.9
Operating profit	54.7			114.5
(Loss) income before income taxes	(135.8		)	56.6
*Does not reflect noncontrolling interests in Blackhawk

The following tables presents sales revenue by type of similar product (dollars in millions):

	12 Weeks Ended
	March 22, 2014				March 23, 2013
Non-perishables (1)	$	3,392.0	41.1	%	$	3,378.0	41.3	%
Perishables (2)	3,000.2		36.3		2,910.1		35.6
Fuel	877.4		10.6		959.0		11.7
Pharmacy	617.1		7.5		617.6		7.6
Blackhawk	231.4		2.8		183.5		2.2
Other (3)	142.8		1.7		128.7		1.6
Total sales and other revenue	$	8,260.9	100.0	%	$	8,176.9	100.0	%

(1) Consists primarily of general merchandise, grocery, meal ingredients, soft drinks and other beverages, snacks and frozen foods.

(2) Consists primarily of produce, dairy, meat, bakery, deli, floral and seafood.

(3) Consists primarily of wholesale sales and other revenue.

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Condensed Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Mar. 22, 2014	Dec. 28, 2013
Current assets:
Cash and equivalents	$ 2,691.4	$ 4,647.3
Receivables	605.5	1,211.4
Merchandise inventories	2,324.2	2,089.6
Prepaid expenses and other current assets	557.3	371.5
Assets held for sale	107.7	143.9
Total current assets	6,286.1	8,463.7
Property:
Property	17,912.5	17,722.7
Less accumulated depreciation and amortization	(10,428.5)	(10,185.2)
Property, net	7,484.0	7,537.5
Goodwill	464.6	464.5
Investment in unconsolidated affiliate	200.5	196.1
Other assets	588.5	557.7
Total assets	15,023.7	17,219.5
Current liabilities:
Current maturities of notes and debentures	652.8	252.9
Current obligations under capital leases	60.5	49.3
Accounts payable	2,299.8	3,376.4
Accrued salaries and wages	345.2	419.4
Income taxes payable	0	1,135.2
Other accrued liabilities	539.2	623.2
Total current liabilities	3,897.5	5,856.4
Long-term debt:
Notes and debentures	3,353.1	3,515.3
Obligations under capital leases	384.4	375.5
Total long-term debt	3,737.5	3,890.8
Pension and post-retirement benefit obligations	451.8	451.4
Accrued claims and other liabilities	1,172.6	1,145.8
Total liabilities	9,259.4	11,344.4
Commitments and contingencies
Stockholders’ equity:
Common stock: par value $0.01 per share;1,500 shares authorized; 244.7 and 244.2 shares issued	2.4	2.4
Additional paid-in capital	2,013.7	1,981.9
Treasury stock at cost: 14.4 and 14.1 shares	(489.4)	(480.6)
Accumulated other comprehensive loss	(261.3)	(271.1)
Retained earnings	4,443.0	4,586.9
Total Safeway Inc. equity	5,708.4	5,819.5
Noncontrolling interests	55.9	55.6
Total equity	5,764.3	5,875.1
Total liabilities and stockholders’ equity	$ 15,023.7	$ 17,219.5

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Goodwill

3 Months Ended

Mar. 22, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

GOODWILL

A summary of changes in Safeway’s goodwill during the first 12 weeks of 2014 is as follows (in millions):

Balance – beginning of year:
Goodwill	$	4,455.8
Accumulated impairment charges	(3,991.3		)
	464.5
Activity during the quarter:
Other adjustments (1)	0.1
	0.1
Balance – end of quarter:
Goodwill	4,455.9
Accumulated impairment charges	(3,991.3		)
Balance – end of quarter	$	464.6

(1) Primarily purchase price adjustments for Blackhawk's acquisition of Retailo AG.

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Taxes on Income

3 Months Ended

Mar. 22, 2014

Income Tax Disclosure [Abstract]

Taxes on Income

TAXES ON INCOME

In the first quarter of 2013, Safeway withdrew $68.7 million from the accumulated cash surrender value of COLI policies purchased in the early 1980s and determined that a majority of the remaining cash surrender value would be received in the future through tax-free death benefits. Consequently, Safeway reversed deferred taxes on that remaining cash surrender value and reduced tax expense by $17.2 million. In addition, income tax expense in the first quarter of 2013 was reduced by $5.0 million due to the resolution of federal income tax matters.

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Share-Based Employee Compensation (Tables)

3 Months Ended

Mar. 22, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of weighted-average assumptions used to value grants, by year

The weighted-average assumptions used to value Safeway’s grants of stock options through the first quarter, by year, are as follows:

	2014	2013
Expected life (in years)	6.25	6.25	-	6.50
Expected stock volatility	27.9%	33.0%
Risk-free interest rate	2.0%	1.3%
Expected dividend yield during the expected term	2.8%	3.8%

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Other Comprehensive Income or Loss

3 Months Ended

Mar. 22, 2014

Other Comprehensive Income or Loss [Abstract]

Other Comprehensive Income or Loss

OTHER COMPREHENSIVE INCOME OR LOSS

Total comprehensive earnings are defined as all changes in stockholders' equity during a period, other than those resulting from investments by and distributions to stockholders. Generally, for Safeway, total comprehensive earnings equals net earnings plus or minus adjustments for pension and other post-retirement liabilities and foreign currency translation adjustments. Total comprehensive earnings represent the activity for a period, net of tax and were a loss of $87.8 million in the first 12 weeks of 2014 and income of $102.4 million in the first 12 weeks of 2013.

While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive income or loss ("AOCI") represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. For Safeway, AOCI is primarily the cumulative balance related to pension and other post-retirement benefit adjustments and foreign currency translation adjustments. Changes in the AOCI balance by component are shown below (in millions):

	12 Weeks Ended March 22, 2014
	Pension and Post-Retirement Benefit Plan Items			Foreign Currency Items			Other			Total Comprehensive (Loss) Income Including Noncontrolling Interests
Beginning balance	$	(130.7	)	$	(138.8	)	$	(1.6	)	$	(271.1	)
Other comprehensive income before reclassifications	—			1.6			1.2			2.8
Amounts reclassified from accumulated other comprehensive income	12.1			—			—			12.1
Tax expense	(4.8		)	—			(0.3		)	(5.1		)
Net current-period other comprehensive income	7.3			1.6			0.9			9.8
Ending balance	$	(123.4	)	$	(137.2	)	$	(0.7	)	$	(261.3	)

	12 Weeks Ended March 23, 2013
	Pension and Post-Retirement Benefit Plan Items			Foreign Currency Items			Other			Total Comprehensive (Loss) Income Including Noncontrolling Interests
Beginning balance	$	(472.3	)	$	399.0		$	(0.5	)	$	(73.8	)
Other comprehensive (loss) income before reclassifications	—			(32.0		)	0.1			(31.9		)
Amounts reclassified from accumulated other comprehensive income	24.7			—			—			24.7
Tax expense	(9.1		)	—			(0.2		)	(9.3		)
Net current-period other comprehensive income (loss)	15.6			(32.0		)	(0.1		)	(16.5		)
Ending balance	$	(456.7	)	$	367.0		$	(0.6	)	$	(90.3	)

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Contingencies

3 Months Ended

Mar. 22, 2014

Commitments and Contingencies Disclosure [Abstract]

Contingencies

CONTINGENCIES

Legal Matters

The Company is subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits involving trade practices, lawsuits alleging violations of state and/or federal wage and hour laws (including alleged violations of meal and rest period laws and alleged misclassification issues), real estate disputes and other matters. Some of these suits purport or may be determined to be class actions and/or seek substantial damages.

It is management's opinion that although the amount of liability with respect to certain of the above matters cannot be ascertained at this time, any resulting liability of these and other matters, including any punitive damages, will not have a material adverse effect on the Company's financial statements taken as a whole.

Note P to the Company's consolidated financial statements in its 2013 Annual Report on Form 10-K, as amended, provides information on certain litigation in which the Company is involved under the caption "Legal Matters." Except as noted below, there have been no subsequent material developments to these matters.

Since the announcement of the Merger, 12 purported class action complaints were filed by alleged stockholders of the Company against the Company, the individual directors of the Company, and against Cerberus Capital Management, L.P., AB Acquisition, Albertsons Holdings, Albertson’s LLC and/or Merger Sub.  Seven lawsuits were filed in the Delaware Court of Chancery, captioned Barnhard v. Safeway Inc., et al., C.A. No. 9445-VCL (March 13, 2014); Morales v. Safeway Inc., et al., C.A. No. 9455-VCL (March 18, 2014); Ogurkiewicz v. Safeway Inc., et al., C.A. No. 9454-VCL (March 18, 2014); Pipefitters Local 636 Defined Benefit Fund and Oklahoma Firefighters Pension and Retirement System v. Safeway Inc., et al., C.A. No. 9461-VCL (March 20, 2014); Cleveland Bakers and Teamsters Pension and Health & Welfare Funds v. Safeway Inc., et al., C.A. No. 9466-VCL (March 24, 2014); KBC Asset Management NV, Erste-Sparinvest Kapitalanlagegesellschaft m.b.H., Louisiana Municipal Police Employees’ Retirement System, and Bristol County Retirement System v. Safeway Inc., et al., C.A. No. 9492-VCL (March 31, 2014); and The City of Atlanta Firefighters’ Pension Fund v. Safeway Inc., et al., C.A. No. 9495-VCL (April 1, 2014), which have been consolidated by order of the Court as In Re Safeway Inc. Stockholders Litigation, Consol. C.A. 9445-VCL.

Four other lawsuits were filed in the Superior Court of the State of California, County of Alameda, and are captioned Lopez v. Safeway Inc., et al., Case No. HG14716651 (March 7, 2014); Groen v. Safeway Inc., et al., Case No. RG14716641 (March 7, 2014); Ettinger v. Safeway Inc., et al., Case No. RG14716842 (March 11, 2014); and Brockton Ret. Board v. Edwards, et. al., Case No. RG 14720450 (April 7, 2014). One lawsuit was filed in the United States District Court for the Northern District of California, and is captioned Steamfitters Local 449 Pensions Fund v. Safeway Inc., et al., Case No. 4:14-cv-01670 (April 10, 2014).

Each of the cases is purportedly brought on behalf of the Company stockholder class.  Collectively, the actions generally allege that the members of the Board breached their fiduciary duties in connection with the Merger because, among other things, the Merger involves an unfair price, a flawed sales process and preclusive deal protection devices.  The actions allege that the Company and various combinations of the Albertsons entities aided and abetted those alleged breaches of fiduciary duty.  Among other remedies, the lawsuits seek to enjoin the Merger, or in the event that an injunction is not entered and the Merger closes, rescission of the Merger or unspecified money damages, costs and attorneys’ and experts’ fees.  The Company believes these claims are entirely without merit, and intends to vigorously defend these actions.

Guarantees

Note S to the Company’s consolidated financial statements, under the caption “Guarantees” of the 2013 Annual Report on Form 10-K, as amended, provides information on guarantees.

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Financing

3 Months Ended

Mar. 22, 2014

Debt Disclosure [Abstract]

Financing

FINANCING

Notes and debentures were composed of the following at March 22, 2014 and December 28, 2013 (in millions):

	March 22, 2014			December 28, 2013
Commercial paper	$	238.4		$	—
Bank credit agreement, unsecured	—			—
Term credit agreement, unsecured	400.0			400.0
Mortgage notes payable, secured	46.4			46.8
5.625% Senior Notes due August 2014, unsecured	250.0			250.0
3.40% Senior Notes due 2016, unsecured	400.0			400.0
6.35% Senior Notes due 2017, unsecured	500.0			500.0
5.00% Senior Notes due 2019, unsecured	500.0			500.0
3.95% Senior Notes due 2020, unsecured	500.0			500.0
4.75% Senior Notes due 2021, unsecured	400.0			400.0
7.45% Senior Debentures due 2027, unsecured	150.0			150.0
7.25% Senior Debentures due 2031, unsecured	600.0			600.0
Other notes payable, unsecured	21.1			21.4
	$	4,005.9		$	3,768.2
Less current maturities	(652.8		)	(252.9		)
Long-term portion	$	3,353.1		$	3,515.3

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Pension and Post-Retirement Plans

3 Months Ended

Mar. 22, 2014

Pension and Other Postretirement Benefit Expense [Abstract]

Pension and Post-Retirement Plans

PENSION AND POST-RETIREMENT PLANS

The following tables provide the components of net pension and post-retirement expense (in millions):

	12 Weeks Ended
	March 22, 2014					March 23, 2013
	Pension			Other Post- Retirement Benefits		Pension			Other Post- Retirement Benefits
Estimated return on assets	$	(27.5	)	$	—	$	(24.9	)	$	—
Service cost	9.8			0.2		9.7			0.1
Interest cost	22.2			0.8		19.7			0.7
Amortization of prior service cost (credit)	2.2			—		3.0			—
Amortization of unrecognized losses	9.8			0.1		18.0			0.2
Total	$	16.5		$	1.1	$	25.5		$	1.0

The Company contributed $5.1 million to its defined benefit pension plans and post-retirement benefit plans in the first 12 weeks of 2014 compared to $23.3 million in the first 12 weeks of 2013.  For the remainder of 2014, Safeway currently anticipates contributing an additional $8 million to these plans.

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Stockholders' Equity

3 Months Ended

Mar. 22, 2014

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS’ EQUITY

Cash Dividends Declared on Common Stock The following table presents information regarding cash dividends declared on Safeway’s common stock for the first 12 weeks of fiscal 2014 and 2013.

(in millions, except per-share amounts)	Date Declared	Record Date	Per-Share Amounts		Total
2014
Quarter 1	03/12/14	03/24/14	$	0.200	$	46.2
2013
Quarter 1	03/14/13	03/25/13	$	0.175	$	42.2

Cash Dividends Paid on Common Stock The following table presents information regarding cash dividends paid on Safeway’s common stock through the first 12 weeks of fiscal 2014 and 2013.

(in millions, except per-share amounts)	Date Paid	Record Date	Per-Share Amounts		Total
2014
Quarter 1	01/09/14	12/19/13	$	0.200	$	46.0
2013
Quarter 1	12/31/12	12/17/12	$	0.175	$	41.9

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Assets and Liabilities Held for Sale and Discontinued Operations (Financial Results of Discontinued Operations) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		4 Months Ended
	Mar. 22, 2014	Mar. 23, 2013	Dec. 28, 2013
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Sales and other revenue	$ 7.3	$ 1,823.1
(Loss) income from discontinued operations, before income taxes	(61.8)	64.9
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes	37.0	0	(493.1)
Total (loss) income from discontinued operations before income taxes	(24.8)	64.9
Income taxes on discontinued operations	9.3	(5.8)
(Loss) income from discontinued operations, net of tax	(15.5)	59.1
Canada Safeway Limited [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Sales and other revenue	0	1,493.2
(Loss) income from discontinued operations, before income taxes	0	76.2
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes	(5.1)	0
Dominick's Stores [Member]
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Sales and other revenue	7.3	329.9
(Loss) income from discontinued operations, before income taxes	(61.8)	(11.3)
(Loss) gain on sale or disposal of operations, net of lease exit costs, before income taxes	$ 42.1	$ 0

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Fair Value Measurements (Narrative) (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Carrying value of long-lived assets which were impaired during the period	$ 9.6	$ 20.0
Impairment charge	7.5	11.6
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of long-lived assets which were impaired during the period	$ 2.1	$ 8.4

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The Company and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 22, 2014

The Company and Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements of Safeway Inc. and subsidiaries (“Safeway” or the “Company”) for the 12 weeks ended March 22, 2014 and March 23, 2013 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial position and results of operations for such periods. These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared on an accrual basis in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted, pursuant to SEC regulations. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s 2013 Annual Report on Form 10-K, as amended. The results of operations for the 12 weeks ended March 22, 2014 are not necessarily indicative of the results expected for the full year or other future periods.

Restricted Cash

Restricted Cash

In accordance with the Merger Agreement, the Company is required to contribute $40.0 million cash to PDC. This cash will be held in a reserve account until the earlier to occur of (i) payment in full of the mortgage indebtedness currently encumbering a shopping center in Lahaina, Hawaii and (ii) the release of the Company from any guaranty obligations in connection with such indebtedness.  As of March 22, 2014, Safeway has classified the $40.0 million as restricted cash and recorded it as Other Assets in the condensed consolidated balance sheet.

Inventory

Inventory

Net income reflects the LIFO method of valuing certain domestic inventories based upon estimated annual inflation. The LIFO method of inventory valuation is determined annually when actual LIFO inflation indices for the year are calculated during the fourth quarter based upon a statistical sampling of inventories; therefore, LIFO inventory costs for interim financial statements are estimated.

Corporate-Owned Life Insurance (COLI)

Corporate-Owned Life Insurance ("COLI")

Safeway has COLI policies that have a cash surrender value. During 2013, Safeway borrowed against these policies. The Company has no current intention of repaying the loans prior to maturity or cancellation of the policies. Therefore, the Company offsets the cash surrender value by the related loans.

New Accounting Pronouncements

New Accounting Pronouncements

On April 10, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2014-08 “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” ASU No. 2014-08 changes the criteria for reporting discontinued operations and modifies related disclosure requirements. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2014, and interim periods within annual periods beginning on or after December 15, 2015. The Company is currently assessing the potential impact of ASU No. 2014-08 on its financial statements.

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Financing (Tables)

3 Months Ended

Mar. 22, 2014

Debt Disclosure [Abstract]

Notes and debentures

Notes and debentures were composed of the following at March 22, 2014 and December 28, 2013 (in millions):

	March 22, 2014			December 28, 2013
Commercial paper	$	238.4		$	—
Bank credit agreement, unsecured	—			—
Term credit agreement, unsecured	400.0			400.0
Mortgage notes payable, secured	46.4			46.8
5.625% Senior Notes due August 2014, unsecured	250.0			250.0
3.40% Senior Notes due 2016, unsecured	400.0			400.0
6.35% Senior Notes due 2017, unsecured	500.0			500.0
5.00% Senior Notes due 2019, unsecured	500.0			500.0
3.95% Senior Notes due 2020, unsecured	500.0			500.0
4.75% Senior Notes due 2021, unsecured	400.0			400.0
7.45% Senior Debentures due 2027, unsecured	150.0			150.0
7.25% Senior Debentures due 2031, unsecured	600.0			600.0
Other notes payable, unsecured	21.1			21.4
	$	4,005.9		$	3,768.2
Less current maturities	(652.8		)	(252.9		)
Long-term portion	$	3,353.1		$	3,515.3

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Fair Value Measurements (Assets and Liabilities at Fair Value on Recurring Basis) (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Millions, unless otherwise specified	Mar. 22, 2014		Dec. 28, 2013
Total [Member]
Assets:
Total	$ 1,863.8		$ 3,969.6
Liabilities:
Total	2.8		2.9
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Total	65.0		491.0
Liabilities:
Total	0		0
Significant Observable Inputs (Level 2) [Member]
Assets:
Total	1,798.8		3,478.6
Liabilities:
Total	0		0
Significant Unobservable Inputs (Level 3) [Member]
Assets:
Total	0		0
Liabilities:
Total	2.8		2.9
Prepaid Expenses and Other Current Assets [Member] | Total [Member]
Assets:
Investments	90.6	[1]	81.0	[1]
Prepaid Expenses and Other Current Assets [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Investments	54.0	[1]	42.0	[1]
Prepaid Expenses and Other Current Assets [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Investments	36.6	[1]	39.0	[1]
Prepaid Expenses and Other Current Assets [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Investments	0	[1]	0	[1]
Other Assets [Member] | Total [Member]
Assets:
Investments	40.8	[2]	38.0	[2]
Other Assets [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Investments	0	[2]	0	[2]
Other Assets [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Investments	40.8	[2]	38.0	[2]
Other Assets [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Investments	0	[2]	0	[2]
Other Accrued Liabilities, Accrued Claims and Other Liabilities [Member] | Total [Member]
Liabilities:
Contingent consideration	2.8	[3]	2.9	[3]
Other Accrued Liabilities, Accrued Claims and Other Liabilities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Liabilities:
Contingent consideration	0	[3]	0	[3]
Other Accrued Liabilities, Accrued Claims and Other Liabilities [Member] | Significant Observable Inputs (Level 2) [Member]
Liabilities:
Contingent consideration	0	[3]	0	[3]
Other Accrued Liabilities, Accrued Claims and Other Liabilities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Liabilities:
Contingent consideration	2.8	[3]	2.9	[3]
Term deposits [Member] | Total [Member]
Assets:
Cash equivalents	891.3		2,818.0
Term deposits [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash equivalents	0		0
Term deposits [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	891.3		2,818.0
Term deposits [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents	0		0
Money market [Member] | Total [Member]
Assets:
Cash equivalents	11.0		449.0
Money market [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash equivalents	11.0		449.0
Money market [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	0		0
Money market [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents	0		0
Bankers' acceptances [Member] | Total [Member]
Assets:
Cash equivalents	205.3		309.6
Bankers' acceptances [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash equivalents	0		0
Bankers' acceptances [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	205.3		309.6
Bankers' acceptances [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents	0		0
Repurchase agreements [Member] | Total [Member]
Assets:
Cash equivalents	110.3
Repurchase agreements [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash equivalents	0
Repurchase agreements [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	110.3
Repurchase agreements [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents	0
Commercial paper [Member] | Total [Member]
Assets:
Cash equivalents	514.4		274.0
Commercial paper [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash equivalents	0		0
Commercial paper [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	514.4		274.0
Commercial paper [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents	0		0
Other [Member] | Total [Member]
Assets:
Cash equivalents	0.1
Other [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Cash equivalents	0
Other [Member] | Significant Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	0.1
Other [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents	$ 0

[1] Included in Prepaid Expenses and Other Current Assets on the balance sheet.

[2] Included in Other Assets on the balance sheet.

[3] Included in Other Accrued Liabilities and Accrued Claims and Other Liabilities on the balance sheet.

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Goodwill (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 22, 2014
Goodwill [Roll Forward]
Goodwill, beginning balance, gross	$ 4,455.8
Accumulated impairment charges	(3,991.3)
Goodwill, ending balance, net	464.5
Other adjustments	0.1	[1]
Activity during the quarter	0.1
Goodwill, beginning balance, gross	4,455.9
Accumulated impairment charges	(3,991.3)
Goodwill, ending balance, net	$ 464.6

[1] Primarily purchase price adjustments for Blackhawk's acquisition of Retailo AG.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	Mar. 22, 2014	Dec. 28, 2013
Statement of Financial Position [Abstract]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	1,500	1,500
Common stock, shares issued	244.7	244.2
Treasury stock, shares	14.4	14.1

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(Loss) Income Per Share

3 Months Ended

Mar. 22, 2014

Earnings Per Share [Abstract]

(Loss) Income Per Share

INCOME PER SHARE

The following tables provide reconciliations of net earnings and shares used in calculating (loss) income per basic common share to those used in calculating (loss) income per diluted common share (in millions, except per-share amounts):

	12 Weeks Ended
	March 22, 2014						March 23, 2013
	Diluted			Basic			Diluted			Basic
(Loss) income from continuing operations, net of tax	$	(83.1	)	$	(83.1	)	$	59.7		$	59.7
Noncontrolling interests	1.0			1.0			0.1			0.1
(Loss) income from continuing operations attributable to Safeway Inc.	(82.1		)	(82.1		)	59.8			59.8
Distributed and undistributed earnings allocated to participating securities	(0.4		)	(0.4		)	(0.6		)	(0.6		)
(Loss) income from continuing operations available to common stockholders	(82.5		)	(82.5		)	59.2			59.2
(Loss) income from discontinued operations, net of tax	(15.5		)	(15.5		)	59.1			59.1
Distributed and undistributed earnings allocated to participating securities	—			—			(0.6		)	(0.6		)
Income from discontinued operations available to common stockholders	(15.5		)	(15.5		)	58.5			58.5
Net (loss) income	$	(97.6	)	$	(97.6	)	$	118.9		$	118.9
Distributed and undistributed earnings allocated to participating securities	(0.4		)	(0.4		)	(1.2		)	(1.2		)
Net (loss) income available to common stockholders after earnings allocated to participating securities	$	(98.0	)	$	(98.0	)	$	117.7		$	117.7
Weighted average common shares outstanding	228.1			228.1			237.4			237.4
Common share equivalents	—						1.2
Weighted average shares outstanding	228.1						238.6
(Loss) earnings per common share:
Continuing operations	$	(0.36	)	$	(0.36	)	$	0.25		$	0.25
Discontinued operations	(0.07		)	(0.07		)	0.24			0.25
Total	$	(0.43	)	$	(0.43	)	$	0.49		$	0.50

Anti-dilutive shares totaling 3.9 million and 17.0 million have been excluded from diluted weighted average shares outstanding for the 12 weeks ended March 22, 2014 and March 23, 2013, respectively.

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Pension and Post-Retirement Plans (Tables)

3 Months Ended

Mar. 22, 2014

Pension and Other Postretirement Benefit Expense [Abstract]

Schedule of components of net pension expense and changes in plan assets and benefit obligations recognized in other comprehensive income

The following tables provide the components of net pension and post-retirement expense (in millions):

	12 Weeks Ended
	March 22, 2014					March 23, 2013
	Pension			Other Post- Retirement Benefits		Pension			Other Post- Retirement Benefits
Estimated return on assets	$	(27.5	)	$	—	$	(24.9	)	$	—
Service cost	9.8			0.2		9.7			0.1
Interest cost	22.2			0.8		19.7			0.7
Amortization of prior service cost (credit)	2.2			—		3.0			—
Amortization of unrecognized losses	9.8			0.1		18.0			0.2
Total	$	16.5		$	1.1	$	25.5		$	1.0

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(Loss) Income Per Share (Basic and Diluted Earnings Per Common Share) (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 22, 2014	Mar. 23, 2013
Earnings Per Share [Abstract]
(Loss) income from continuing operations, net of tax	$ (83.1)	$ 59.7
Noncontrolling interests	1.0	0.1
(Loss) income from continuing operations attributable to Safeway Inc.	(82.1)	59.8
Distributed and undistributed earnings allocated to participating securities	(0.4)	(0.6)
(Loss) income from continuing operations available to common stockholders, Diluted	(82.5)	59.2
(Loss) income from continuing operations available to common stockholders, Basic	(82.5)	59.2
(Loss) income from discontinued operations, net of tax	(15.5)	59.1
Distributed and undistributed earnings allocated to participating securities	0	(0.6)
Income from discontinued operations available to common stockholders, Diluted	(15.5)	58.5
Income from discontinued operations available to common stockholders, Basic	(15.5)	58.5
Net (loss) income	(97.6)	118.9
Distributed and undistributed earnings allocated to participating securities	(0.4)	(1.2)
Net (loss) income available to common stockholders after earnings allocated to participating securities, Diluted	(98.0)	117.7
Net (loss) income available to common stockholders after earnings allocated to participating securities, Basic	$ (98.0)	$ 117.7
Weighted average common shares outstanding	228.1	237.4
Common share equivalents	0	1.2
Weighted average shares outstanding	228.1	238.6
Earnings per common share: from Continuing operations, Diluted (dollars per share)	$ (0.36)	$ 0.25
Earnings per common share: from Continuing operations, Basic (dollars per share)	$ (0.36)	$ 0.25
Earnings per common share: from Discontinued operations, Diluted (dollars per share)	$ (0.07)	$ 0.24
Earnings per common share: from Discontinued operations, Basic (dollars per share)	$ (0.07)	$ 0.25
Earnings per common share: Total, Diluted (dollars per share)	$ (0.43)	$ 0.49
Earnings per common share: Total, Basic (dollars per share)	$ (0.43)	$ 0.50

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Subsequent Event

3 Months Ended

Mar. 22, 2014

Subsequent Events [Abstract]

Subsequent Event

SUBSEQUENT EVENT

Distribution of Blackhawk Shares On March 24, 2014, Safeway's Board of Directors declared a special stock dividend to its stockholders of all of the 37.8 million shares of Class B common stock of Blackhawk owned by Safeway, representing approximately 94.2% of the total outstanding shares of Blackhawk's Class B common stock and approximately 72.0% of the total number of shares of Blackhawk common stock of all classes outstanding.  On April 14, 2014, Safeway distributed the special stock dividend to all Safeway stockholders of record on April 3, 2014 (the "Record Date").  The distribution took place in the form of a pro rata dividend of Blackhawk Class B common stock to each Safeway stockholder of record on the Record Date.  Safeway stockholders received 0.164291 of a share of Blackhawk Class B common stock for every share of Safeway common stock held as of the Record Date, less any shares withheld in respect of applicable withholding taxes.  No fractional shares of Blackhawk stock were distributed.  Instead, Safeway stockholders received cash in lieu of any fraction of a share of Blackhawk stock.

Assuming the acquisition by AB Acquisition is completed as contemplated by the Merger Agreement (see Note A), it is expected that Safeway’s distribution of Blackhawk shares will be taxable to Safeway and Safeway’s stockholders. Based on Safeway’s preliminary estimates and after the application of tax payments previously made in connection with Safeway's sale of shares in the initial public offering of Blackhawk's Class A common stock in April 2013, Safeway expects that the distribution of Blackhawk shares will result in an incremental tax to Safeway of approximately $360 million.