8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

April 24, 2008

SAFEWAY INC.

(Exact Name of Registrant as Specified in Charter)

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

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

(925) 467-3000

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

Item 2.02. Results of Operations and Financial Condition.

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

On April 24, 2008, we issued our earnings press release for the first quarter of fiscal 2008. A copy of our press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

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

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

• LIFO expense;

• Stock option expense;

• Property impairment charges;

• Equity in (earnings) loss of unconsolidated affiliates; and

• Dividend received from unconsolidated affiliate.

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

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

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

• “free cash flow” which is calculated as net cash flow (used) provided by operating activities, as 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.

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Reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures – net income and net cash flow from operating activities – are provided in the press release. Reconciliations of “free cash flow” to GAAP cash flow for the 12 weeks ended March 22, 2008 and March 24, 2007 and to the forecasted range for fiscal 2008 are also provided in the press release. Given the rapid growth in the third-party gift card business and the highly seasonal nature of that business, with a significant portion of sales of third-party gift cards occurring in late December each year, management is unable to provide a meaningful estimate for payables related to third-party gift cards for 2008, and therefore is not able to provide a reconciliation of 2008 free cash flow to net cash flow from operating activities. Each of these non-GAAP financial measures provides information regarding various aspects of the cash that our business generates, which management believes is useful to understanding our business.

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

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

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

“Adjusted EBITDA,” “Adjusted Debt,” “free cash flow” and the related ratios are useful indicators of Safeway’s ability to service debt and fund share repurchases that management believes will enhance stockholder value. Adjusted EBITDA also is a useful indicator of cash available for investing activities. A portion of the free cash flow that we generate in fiscal 2008 is expected to be spent on mandatory debt service requirements or other non-discretionary expenditures.

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

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Additional limitations include:

• “Adjusted EBITDA” does not reflect our cash expenditures for capital expenditures;

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

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

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

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

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press Release dated April 24, 2008 of Safeway Inc.

4

SIGNATURES

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

		SAFEWAY INC.
		(Registrant)
Date: April 24, 2008	By:	/s/ Robert A. Gordon
		Name:	Robert A. Gordon
		Title:	Senior Vice President,
			Secretary & General Counsel

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EXHIBIT INDEX

Exhibit No.
99.1	Press Release dated April 24, 2008 of Safeway Inc.

6

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

SAFEWAY INC. ANNOUNCES

FIRST-QUARTER 2008 EARNINGS

Contacts: Melissa Plaisance (925) 467-3136

Julie Hong (925) 467-3832

Pleasanton, CA – April 24, 2008

Results From Operations

Safeway Inc. today reported net income of $193.4 million ($0.44 per diluted share) for the first quarter of 2008 compared to net income of $174.4 million ($0.39 per diluted share) in the first quarter of 2007.

Sales and Other Revenue

Total sales increased 7.3% to $10.0 billion in the first quarter of 2008 compared to $9.3 billion in the first quarter of 2007. Contributions from Lifestyle stores, an increase in the Canadian dollar exchange rate and higher fuel sales drove this increase. Identical-store sales increased 4.5% in the first quarter of 2008. Excluding fuel, identical-store sales increased 2.9%. Easter holiday sales occurred in the first quarter of this year compared to the second quarter of last year. When adjusted for the estimated impact of the Easter holiday shift, non-fuel, identical-store sales increased 2.0%.

“We are pleased with our earnings performance in the first quarter of 2008,” said Steve Burd, Chairman, President and CEO. “Our earnings per share grew by 13% compared to the first quarter of 2007. Part of this growth was due to the shift in the Easter holiday. In addition, our efforts to reduce and control costs contributed to operating margin improvement. At the same time, we invested in lower prices to improve our competitiveness and enhance our consumer offering. We remain confident in our ability to deliver earnings per share growth in the 13-18% range for this 53-week year.”

Gross Profit

Gross profit declined 50 basis points to 28.79% of sales in the first quarter of 2008 compared to 29.29% of sales in the first quarter of 2007. Higher fuel sales (which have a lower gross margin) reduced gross profit by 38 basis points. The remaining 12 basis- point decline is the result of investments in price, partly offset by improved shrink and lower advertising expense.

Operating and Administrative Expense

Operating and administrative expense improved 65 basis points to 24.77% of sales in the first quarter of 2008 from 25.42% of sales in the first quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense by 29 basis points. The remaining 36 basis point decline was the result of reduced employee costs, partly offset by a labor settlement in Alberta, Canada, and higher utility and occupancy costs.

Interest Expense

Interest expense declined slightly to $84.5 million in the first quarter of 2008 from $89.6 million in the first quarter of 2007 due to a combination of lower interest rates and lower average borrowings.

Other (Loss) Income, Net

Other income declined to a loss of $0.4 million in the first quarter of 2008 from $6.8 million income in the first quarter of 2007 due primarily to lower results at Casa Ley, Safeway’s unconsolidated affiliate.

Income Tax Expense

Income tax expense was $123.6 million, or 39.0% of pre-tax income in the first quarter of 2008. Income tax expense in the first quarter of 2007 was $103.8 million, or 37.3% of pre-tax income.

Stock Repurchases

During the first quarter of 2008, Safeway purchased 2.5 million shares of its common stock at an average price of $29.70 per share and a total cost of $74.1 million (including commissions). The remaining board authorization for stock repurchases at quarter-end was $447.0 million.

Capital Expenditures

Safeway invested $373.1 million in capital expenditures in the first quarter of 2008. The company opened one new Lifestyle store, completed 22 Lifestyle remodels and closed four stores. For the year, the company expects to spend $1.70 to $1.75 billion in capital expenditures, open 20 to 25 new Lifestyle stores and complete 250 to 255 Lifestyle remodels.

Cash Flow

Net cash flow used by operating activities was $41.2 million in the first quarter of 2008 compared to net cash flow from operating activities of $19.1 million in the first quarter of 2007.

Net cash flow used by investing activities was $370.7 million in the first quarter of 2008 compared to $391.7 million in the first quarter of 2007.

Net cash flow provided by financing activities was $352.9 million in the first quarter of 2008 compared to $305.7 million in the first quarter of 2007 primarily due to increased borrowings, partly offset by stock repurchases.

Guidance

Safeway confirmed guidance for 2008 (a 53-week year) of $2.25 to $2.35 diluted earnings per share and free cash flow of $500 million to $700 million. Safeway revised guidance for identical-store sales growth, excluding fuel, from a range of 3.0% to 3.2% to a range of 2.0% to 2.3%.

About Safeway

Safeway Inc. is a Fortune 100 company and one of the largest food and drug retailers in North America based on sales. The company operates 1,740 stores in the United States and Canada. The company’s common stock is traded on the New York Stock Exchange under the symbol SWY.

Safeway Conference Call

Safeway’s investor conference call discussing first-quarter results will be broadcast live over the Internet at www.safeway.com/investor_relations at 8:00 AM PDT April 24, 2008. Click on Webcast Events to access the live call. An on-demand webcast of the conference call will also be available for approximately one week following the live call.

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This press release 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. Such statements relate to, among other things, earnings per share growth, estimates of diluted earnings per share, identical-store sales, capital expenditures, free cash flow, financial and operating results, and Lifestyle stores. Forward-looking statements are indicated by words or phrases such as “guidance,” “believes,” “expects,” “anticipates,” “estimates,” “plans,” “confident,” “continuing,” “ongoing,” and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: general business and economic conditions in our operating regions, including the rate of inflation, consumer spending levels, currency valuations, population, employment and job growth in our markets; 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 improve corporate brands; results of our programs to improve our perishables departments; results of our promotional programs; results of our capital program; results of our efforts to improve working capital; results of any ongoing litigation in which we are involved or any litigation in which we may become involved; the resolution of uncertain tax positions; the ability to achieve satisfactory operating results in all geographic areas where we operate; changes in the financial performance of our equity investments; labor costs, including benefit plan costs and severance payments, or labor disputes

that may arise from time to time and work stoppages that could occur in areas where certain collective bargaining agreements have expired or are on indefinite extensions or are scheduled to expire in the near future; failure to fully realize or delay in realizing growth prospects for new business ventures including Blackhawk Network Holdings, Inc. (“Blackhawk”); legislative, regulatory, tax or judicial developments, including with respect to Blackhawk; the cost and stability of fuel, energy and other power sources; unanticipated events or changes in real estate matters, including acquisitions, dispositions and impairments; adverse weather conditions; performance in new business ventures or other opportunities that we pursue, including Blackhawk; the capital investment in and financial results from our Lifestyle stores; the rate of return on our pension assets; and the availability and terms of financing. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so. Please refer to our reports and filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and subsequent Current Reports on Form 8-K, for a further discussion of these risks and uncertainties.

SAFEWAY INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per-share amounts)

(Unaudited)

	12 Weeks Ended March 22, 2008			12 Weeks Ended March 24, 2007
Sales and other revenue	$	9,998.8		$	9,321.8
Cost of goods sold		(7,120.5	)		(6,591.2	)
Gross profit		2,878.3			2,730.6
Operating and administrative expense		(2,476.4	)		(2,369.6	)
Operating profit		401.9			361.0
Interest expense		(84.5	)		(89.6	)
Other (loss) income, net		(0.4	)		6.8
Income before income taxes		317.0			278.2
Income taxes		(123.6	)		(103.8	)
Net income	$	193.4		$	174.4
Basic earnings per share	$	0.44		$	0.40
Diluted earnings per share	$	0.44		$	0.39
Weighted average shares outstanding:
Basic		439.4			440.3
Diluted		442.9			446.4

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per-share amounts)

(Unaudited)

	March 22, 2008			Year-end 2007
ASSETS
Current assets:
Cash and equivalents	$	216.9		$	277.8
Receivables		427.9			577.9
Merchandise inventories		2,714.7			2,797.8
Prepaid expense and other current assets		320.5			354.0
Total current assets		3,680.0			4,007.5
Total property, net		10,570.4			10,622.0
Goodwill		2,404.3			2,406.3
Prepaid pension costs		66.3			73.2
Investment in unconsolidated affiliate		213.2			216.0
Other assets		322.9			326.0
Total assets	$	17,257.1		$	17,651.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of notes and debentures	$	1,248.2		$	954.9
Current obligations under capital leases		44.2			42.5
Accounts payable		2,085.2			2,825.4
Accrued salaries and wages		408.2			506.7
Deferred income taxes		88.0			88.0
Other accrued liabilities		634.9			718.9
Total current liabilities		4,508.7			5,136.4
Long-term debt:
Notes and debentures		4,248.8			4,093.5
Obligations under capital leases		553.5			564.2
Total long-term debt		4,802.3			4,657.7
Deferred income taxes		261.6			254.7
Pension and postretirement benefit obligations		226.4			236.7
Accrued claims and other liabilities		665.3			663.7
Total liabilities		10,464.3			10,949.2
Stockholders’ equity
Common stock: par value $0.01 per share;
1,500 shares authorized; 589.6 and 589.3 shares issued		5.9			5.9
Additional paid-in capital		4,061.5			4,038.2
Treasury stock at cost; 151.7 and 149.2 shares		(4,492.3	)		(4,418.0	)
Accumulated other comprehensive income		225.0			246.2
Retained earnings		6,992.7			6,829.5
Total stockholders’ equity		6,792.8			6,701.8
Total liabilities and stockholders’ equity	$	17,257.1		$	17,651.0

SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	12 Weeks Ended
	March 22, 2008			March 24, 2007
OPERATING ACTIVITIES
Net income	$	193.4		$	174.4
Reconciliation to net cash flow from operating activities:
Depreciation and amortization		251.9			235.7
Property impairment charges		12.9			6.0
Stock-based employee compensation		14.0			11.1
Excess tax benefit from exercise of stock options		(0.4	)		(3.2	)
LIFO expense		5.4			2.3
Equity in loss (earnings) of unconsolidated affiliate		2.8			(4.4	)
Net pension expense		19.2			16.3
Contributions to pension plans		(14.4	)		(11.6	)
(Gain) loss on property retirements and lease exit costs, net		(0.5	)		3.8
Increase in accrued claims and other liabilities		10.0			4.1
Amortization of deferred finance costs		1.2			1.3
Deferred income taxes		6.4			—
Other		(0.8	)		2.2
Changes in working capital items:
Receivables		13.6			11.7
Inventories at FIFO cost		68.4			(34.2	)
Prepaid expenses and other current assets		(43.4	)		(38.4	)
Income taxes		76.9			104.6
Payables and accruals		(449.9	)		(320.7	)
Payables related to third-party gift cards, net of receivables		(207.9	)		(141.9	)
Net cash flow (used) provided by operating activities		(41.2	)		19.1
INVESTING ACTIVITIES
Cash paid for property additions		(373.1	)		(385.9	)
Proceeds from sale of property		13.0			10.1
Other		(10.6	)		(15.9	)
Net cash flow used by investing activities		(370.7	)		(391.7	)
FINANCING ACTIVITIES
Additions to short-term borrowings		130.0			—
Payments on short-term borrowings		(85.0	)		—
Additions to long-term borrowings		449.0			402.8
Payments on long-term borrowings		(47.0	)		(105.9	)
Purchase of treasury stock		(74.1	)		—
Dividends paid		(30.4	)		(25.3	)
Net proceeds from exercise of stock options		7.3			26.4
Excess tax benefit from exercise of stock options		0.4			3.2
Income tax refund related to prior years’ debt financing		2.8			4.5
Other		(0.1	)		—
Net cash flow provided by financing activities		352.9			305.7
Effect of changes in exchange rate on cash		(1.9	)		—
Decrease in cash and equivalents		(60.9	)		(66.9	)
CASH AND EQUIVALENTS
Beginning of period		277.8			216.6
End of period	$	216.9		$	149.7

SAFEWAY INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars in millions)

(Unaudited)

TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA

	12 Weeks Ended
	March 22, 2008		March 24, 2007
Cash capital expenditures	$	373.1	$	385.9
Stores opened		1		1
Stores closed		4		7
Lifestyle remodels completed		22		23
Stores at end of period		1,740		1,755
Square footage (in millions)		80.2		80.6
Fuel sales	$	836.6	$	650.6
Number of fuel stations at end of period		365		347

TABLE 2: RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA

	(A+B-C) Rolling Four Quarters March 22, 2008			A Year Ended December 29, 2007			B 12 Weeks Ended March 22, 2008		C 12 Weeks Ended March 24, 2007
Net income	$	907.4		$	888.4		$	193.4	$	174.4
Add (subtract):
Income taxes		535.0			515.2			123.6		103.8
Interest expense		383.8			388.9			84.5		89.6
Depreciation		1,087.4			1,071.2			251.9		235.7
LIFO expense		17.0			13.9			5.4		2.3
Stock option expense		51.3			48.4			14.0		11.1
Property impairment charges		34.0			27.1			12.9		6.0
Equity in (earnings) loss of unconsolidated affiliates		(1.5	)		(8.7	)		2.8		(4.4	)
Dividend received from unconsolidated affiliate		8.9			8.9			—		—
Adjusted EBITDA	$	3,023.3		$	2,953.3		$	688.5	$	618.5
Total debt at March 22, 2008	$	6,094.7
Less cash and equivalents in excess of $75.0 at March 22, 2008		141.9
Adjusted Debt	$	5,952.8
Adjusted EBITDA as a multiple of interest expense		7.88 x
Minimum Adjusted EBITDA as a multiple of interest expense under bank credit agreement		2.00 x
Adjusted Debt to Adjusted EBITDA		1.97 x
Maximum Adjusted Debt to Adjusted
EBITDA under bank credit agreement		3.50 x

SAFEWAY INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars in millions)

(Unaudited)

TABLE 3: RECONCILIATION OF NET CASH FLOW FROM OPERATING ACTIVITIES TO ADJUSTED EBITDA

	(A+B-C) Rolling Four Quarters March 22, 2008			A Year Ended December 29, 2007			B 12 Weeks Ended March 22, 2008			C 12 Weeks Ended March 24, 2007
Net cash flow provided (used) by operating activities	$	2,130.2		$	2,190.5		$	(41.2	)	$	19.1
Add (subtract):
Income taxes		535.0			515.2			123.6			103.8
Interest expense		383.8			388.9			84.5			89.6
Amortization of deferred finance costs		(5.2	)		(5.3	)		(1.2	)		(1.3	)
Excess tax benefit from exercise of stock options		35.5			38.3			0.4			3.2
Deferred income taxes		(137.2	)		(130.8	)		(6.4	)		—
Net pension expense		(75.0	)		(72.1	)		(19.2	)		(16.3	)
Contributions to pension plans		35.8			33.0			14.4			11.6
Accrued claims and other liabilities		(0.1	)		5.8			(10.0	)		(4.1	)
Gain (loss) on property retirements and lease exit costs		46.6			42.3			0.5			(3.8	)
Changes in working capital items		77.8			(45.6	)		542.3			418.9
Other		(3.9	)		(6.9	)		0.8			(2.2	)
Adjusted EBITDA	$	3,023.3		$	2,953.3		$	688.5		$	618.5

TABLE 4: RECONCILIATION OF GAAP CASH FLOW MEASURE TO FREE CASH FLOW*

	12 Weeks Ended						Forecasted Range Fiscal 2008
	March 22, 2008			March 24, 2007
Net cash flow (used) provided by operating activities as reported	$	(41.2	)	$	19.1
Decrease in payables related to third party gift cards, net of receivables		207.9			141.9
Net cash flow from operating activities, as adjusted		166.7			161.0		$	2,220.0		$	2,350.0
Net cash flow used by investing activities		(370.7	)		(391.7	)		(1,720.0	)		(1,650.0	)
Free cash flow	$	(204.0	)	$	(230.7	)	$	500.0		$	700.0

* Excludes cash flow from payables related to third-party gift cards, net of receivables. Cash from the sale of third-party gift cards is held for a short period of time and then remitted, less Safeway’s commission, to card partners. Because this cash flow is temporary it is not available for other uses, and is therefore excluded from the company’s calculation of free cash flow.

TABLE 5: SAME-STORE SALES INCREASES

	First Quarter 2008
	Comparable- Store Sales Increases		Identical- Store Sales Increases*
As reported	4.7	%	4.5	%
Excluding fuel sales	3.1	%	2.9	%

* Excludes replacement stores.