8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

February 25, 2010

SAFEWAY INC.

(Exact Name of Registrant as Specified in Charter)

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

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

(925) 467-3000

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

Item 2.02. Results of Operations and Financial Condition.

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

On February 25, 2010, we issued our earnings press release for the fourth fiscal quarter and full year 2009. 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 income;

• Stock option expense;

• Property impairment charges;

• Goodwill impairment charge;

• Equity in losses of unconsolidated affiliates.

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

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

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

• “free cash flow” which is calculated as net cash flow from operating activities, as adjusted to exclude payables related to third-party gift cards, net of receivables, less net cash flow used by investing activities. 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.

• “net income excluding goodwill impairment charge” for fiscal 2009 and the fourth quarter of fiscal 2009, which is defined as net loss, as reported, excluding the goodwill impairment charge we incurred in the fourth quarter of fiscal 2009, as well as the associated tax benefit.

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• “diluted earnings per share excluding goodwill impairment charge” for fiscal 2009 and the fourth quarter of fiscal 2009, which is defined as diluted loss per share, as reported, excluding the goodwill impairment charge we incurred in the fourth quarter of fiscal 2009 as well as the associated tax benefit, on a per share basis.

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. A reconciliation of “free cash flow” to GAAP cash flow for fiscal 2009 and 2008 is also provided in the press release. Reconciliations of net income excluding goodwill impairment charge to GAAP net loss and diluted earnings per share excluding goodwill impairment charge to diluted loss per share for fiscal 2009 and the fourth quarter of fiscal 2009 are also provided in the press release. Each of these non-GAAP financial measures provides information regarding various aspects of the cash that our business generates, which management believes is useful to understanding our business.

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

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

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

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

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The exclusion included in “net income, excluding goodwill impairment charge” and “diluted earnings per share, excluding goodwill impairment charge” relate to the effects of the non-cash goodwill impairment charge that we incurred in the fourth quarter of fiscal 2009. Management believes that excluding this item provides a useful financial measure that will facilitate comparisons of our operating results before, during and after such charge was incurred, as well as facilitating comparisons of our performance with that of other companies that might not have the goodwill impairment charge that we have experienced. Management also believes that investors, analysts and other interested parties view our “net income excluding goodwill impairment charge” and “diluted earnings per share, excluding goodwill impairment charge” as indicators of our ongoing operating performance.

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

Additional limitations include:

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

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

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

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

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

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

Because of these 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.

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Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press Release dated February 25, 2010 of Safeway Inc.

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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: February 25, 2010	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 February 25, 2010 of Safeway Inc.

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

SAFEWAY INC. ANNOUNCES

FOURTH QUARTER

2009 RESULTS

Annual Free Cash Flow of $1.5 Billion Highest Ever

Company Repurchases $443 Million of Stock in the Fourth Quarter

Contact: Melissa Plaisance (925) 467-3136

Christiane Pelz (925) 467-3832

Pleasanton, CA – February 25, 2010

Results From Operations

Safeway Inc. today reported a net loss of $1,609.1 million ($4.06 per diluted share) for the 16-week fourth quarter of 2009. Excluding a non-cash goodwill impairment charge of $1,818.2 million, net of tax ($4.59 per diluted share), net income would have been $209.1 million ($0.53 per diluted share). Net income was $338.0 million ($0.79 per diluted share) for the 17-week fourth quarter of 2008.

“Excluding the non-cash goodwill impairment charge, our results were in line with our expectations,” said Steve Burd, Chairman, President and CEO. “Despite very challenging economic conditions, Safeway generated free cash flow of $1.5 billion in 2009. This exceeded our expectations and is the highest annual free cash flow ever achieved by Safeway.”

In the fourth quarter of 2009, Safeway recorded a non-cash goodwill impairment charge of $1,974.2 million ($1,818.2 million, net of tax). The impairment was due primarily to Safeway’s reduced market capitalization and a weak economy. The divisions affected were primarily Vons and Eastern. The goodwill originated from previous acquisitions.

Sales and Other Revenue

Total sales declined 8.1% to $12.7 billion in the fourth quarter of 2009 compared to $13.8 billion in the fourth quarter of 2008. This decline was the result of an additional week in 2008 and a 4.1% decline in identical-store sales, excluding fuel, for the quarter.

Gross Profit

Gross profit declined 14 basis points to 28.64% of sales in the fourth quarter of 2009 compared to 28.78% of sales in the fourth quarter of 2008. Excluding the two basis point impact from fuel sales, gross profit declined 16 basis points. This decline was largely the result of investments in everyday price and increased advertising, partly offset by lower LIFO expense and increased gift card sales.

Operating and Administrative Expense

Operating and administrative expense increased 92 basis points to 25.26% of sales in the fourth quarter of 2009 from 24.34% of sales in the fourth quarter of 2008. Excluding the two basis point impact of lower fuel sales in the fourth quarter of 2009, operating and administrative expense margin increased 90 basis points. This increase was primarily the result of decreased sales leverage, increased charges from property impairments, lower gains from the sale of property and increased pension expense, partly offset by lower workers’ compensation expense and lower utility expenses.

Interest Expense

Interest expense declined to $98.0 million in the fourth quarter of 2009 from $112.5 million in the fourth quarter of 2008 due to lower average borrowings and lower average interest rates.

Income Taxes

As a result of the goodwill impairment charge, the company recognized an income tax benefit of $33.7 million in the fourth quarter of 2009. Excluding the impairment charge, income tax expense was 36.9% of pre-tax income in the fourth quarter of 2009 compared to 32.9% in the fourth quarter of 2008. The income tax rate in 2008 was lower due to a reduction in a reserve on charitable contribution carryforwards and the favorable resolution of other tax items.

Annual Results

Net loss for the 52-week year 2009 was $1,097.5 million ($2.66 per diluted share). Excluding the goodwill impairment charge of $1,818.2 million, net of tax ($4.40 per diluted share), net income would have been $720.7 million ($1.74 per diluted share). This compares to net income of $965.3 million ($2.21 per diluted share) in the 53-week year 2008.

The gross profit margin was 28.62% in 2009 compared to 28.38% in 2008. Operating and administrative expense margin was 25.33% in 2009 compared to 24.17% in 2008.

Stock Repurchases

During the fourth quarter of 2009, Safeway purchased 19.4 million shares of its common stock at an average cost of $22.82 per share and a total cost of $443.1 million (including commissions). For the full year, Safeway purchased 42.5 million shares of its common stock at an average cost of $20.80 per share and a total cost of $884.9 million (including commissions). The remaining board authorization for stock repurchases at year-end was approximately $1.3 billion.

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Capital Expenditures

Safeway invested $248.8 million in capital expenditures in the fourth quarter of 2009. The company opened one new Lifestyle store, completed 20 Lifestyle remodels and closed six stores. For the year, Safeway invested $851.6 million in capital expenditures, opened eight new Lifestyle stores, completed 82 Lifestyle remodels and closed 22 stores. At year-end 2009, 79% of our stores were Lifestyle stores.

Cash Flow

Net cash flow provided by operating activities was $2,549.7 million in the year 2009 compared to $2,250.9 million in the year 2008. Certain tax items increased cash flow from operating activities in 2009 by approximately $396 million.

Net cash flow used by investing activities declined to $889.0 million in the year 2009 from $1,546.0 million in 2008 because of reduced capital expenditures, partly offset by lower proceeds from the sales of property.

Net cash flow used by financing activities increased to $1,600.3 million in the year 2009 from $594.3 million in 2008 due primarily to a net reduction in borrowings and increased stock repurchases.

Guidance

Safeway’s investor conference will be held on Wednesday, March 3, 2010. At that time, Safeway will issue a press release announcing earnings guidance for 2010.

About Safeway

Safeway Inc. is a Fortune 50 company and one of the largest food and drug retailers in North America based on sales. The company operates 1,725 stores in the United States and Canada. The company’s common stock is traded on the New York Stock Exchange under the symbol SWY.

Safeway Conference Call

Safeway’s investor conference call discussing fourth-quarter results will be broadcast live at www.safeway.com/investor_relations at 8:00 a.m. PT on February 25, 2010. Click on Webcast Events to access the call. A replay will be available via webcast for approximately one week following the conference call.

-o0o-

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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. Forward-looking statements are indicated by words or phrases such as “guidance,” “believes,” “expects,” “anticipates,” “estimates,” “plans,” “continuing,” “ongoing,” and similar words or phrases and the negative of such words and phrases. Forward-looking statements are based on our current plans and expectations and involve risks and uncertainties which are, in many instances, beyond our control, and which could cause actual results to differ materially from those included in or contemplated or implied by the forward-looking statements. Such risks and uncertainties include the following: general business and economic conditions in our operating regions, including the rate of inflation or deflation, consumer spending levels, currency valuations, population, employment and job growth and/or losses in our markets; pricing pressures and competitive factors, which could include pricing strategies, store openings, remodels or acquisitions by our competitors; results of our programs to control or reduce costs, improve buying practices and control shrink; results of our programs to increase sales; results of our continuing efforts to expand corporate brands; results of our 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, accounting or judicial developments, including with respect to Blackhawk; the cost and stability of fuel, energy and other power sources; the impact of the cost of fuel on gross margin and identical-store sales; discount rates used in actuarial calculations for pension obligations and self-insurance reserves; the rate of return on our pension assets; the availability and terms of financing, including interest rates and our ability to issue commercial paper or public debt or to borrow under our lines of credit as a result of current financial market conditions; adverse developments with regard to food and drug safety and quality issues or concerns that may arise; loss of a key member of senior management; data security or other information technology issues that may arise; unanticipated events or changes in real estate matters, including acquisitions, dispositions and impairments; adverse weather conditions and effects from natural disasters; performance in new business ventures or other opportunities that we pursue, including Blackhawk; and the capital investment in and financial results from our Lifestyle stores. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so. Please refer to our reports and filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and subsequent Current Reports on Form 8-K, for a further discussion of these risks and uncertainties.

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SAFEWAY INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per-share amounts)

(Unaudited)

	16 Weeks Ended January 2, 2010			17 Weeks Ended January 3, 2009			52 Weeks Ended January 2, 2010			53 Weeks Ended January 3, 2009
Sales and other revenue	$	12,693.9		$	13,815.9		$	40,850.7		$	44,104.0
Cost of goods sold		(9,058.9	)		(9,840.1	)		(29,157.2	)		(31,589.2	)
Gross profit		3,635.0			3,975.8			11,693.5			12,514.8
Operating and administrative expense		(3,206.7	)		(3,362.8	)		(10,348.0	)		(10,662.1	)
Goodwill impairment charge		(1,974.2	)		—			(1,974.2	)		—
Operating (loss) profit		(1,545.9	)		613.0			(628.7	)		1,852.7
Interest expense		(98.0	)		(112.5	)		(331.7	)		(358.7	)
Other income, net		1.1			3.3			7.1			10.6
(Loss) income before income taxes		(1,642.8	)		503.8			(953.3	)		1,504.6
Income tax benefit (expense)		33.7			(165.8	)		(144.2	)		(539.3	)
Net (loss) income	$	(1,609.1	)	$	338.0		$	(1,097.5	)	$	965.3
Basic (loss) earnings per share	$	(4.06	)	$	0.79		$	(2.66	)	$	2.23
Diluted (loss) earnings per share	$	(4.06	)	$	0.79		$	(2.66	)	$	2.21
Weighted average shares outstanding:
Basic		396.7			428.7			412.9			433.8
Diluted		396.7			430.0			412.9			436.3

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SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per-share amounts)

(Unaudited)

	Year-end 2009			Year-end 2008
ASSETS
Current assets:
Cash and equivalents	$	471.5		$	382.8
Receivables		522.4			515.1
Merchandise inventories		2,508.9			2,591.4
Prepaid expenses and other current assets		322.5			486.9
Total current assets		3,825.3			3,976.2
Total property, net		10,282.7			10,643.1
Goodwill		426.6			2,390.2
Investment in unconsolidated affiliate		169.9			207.1
Other assets		259.1			268.1
Total assets	$	14,963.6		$	17,484.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of notes and debentures	$	509.2		$	758.4
Current obligations under capital leases		31.6			40.6
Accounts payable		2,458.9			2,448.5
Accrued salaries and wages		426.8			450.3
Deferred income taxes		103.1			107.2
Other accrued liabilities		708.2			694.2
Total current liabilities		4,237.8			4,499.2
Long-term debt:
Notes and debentures		3,874.3			4,184.2
Obligations under capital leases		486.6			516.6
Total long-term debt		4,360.9			4,700.8
Deferred income taxes		150.5			249.6
Pension and postretirement benefit obligations		635.4			597.2
Accrued claims and other liabilities		632.6			651.7
Total liabilities		10,017.2			10,698.5
Stockholders’ equity
Common stock: par value $0.01 per share; 1,500 shares authorized; 592.6 and 590.7 shares outstanding		5.9			5.9
Additional paid-in capital		4,212.4			4,128.3
Treasury stock at cost; 204.3 and 161.8 shares		(5,661.8	)		(4,776.8	)
Accumulated other comprehensive loss		(13.8	)		(228.7	)
Retained earnings		6,403.7			7,657.5
Total stockholders’ equity		4,946.4			6,786.2
Total liabilities and stockholders’ equity	$	14,963.6		$	17,484.7

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SAFEWAY INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

	52 Weeks Ended January 2, 2010			53 Weeks Ended January 3, 2009
OPERATING ACTIVITIES
Net (loss) income	$	(1,097.5	)	$	965.3
Reconciliation to net cash flow from operating activities:
Goodwill impairment charge		1,974.2			—
Depreciation expense		1,171.2			1,141.1
Property impairment charges		73.7			40.3
Stock option expense		57.4			62.3
Excess tax benefit from exercise of stock options		(0.1	)		(1.5	)
LIFO (income) expense		(35.2	)		34.9
Equity in (earnings) losses of unconsolidated affiliate		(8.5	)		2.5
Net pension expense		130.2			84.6
Contributions to pension plans		(16.7	)		(33.8	)
Loss (gain) on property retirements and lease exit costs, net		12.7			(19.0	)
(Decrease) increase in accrued claims and other liabilities		(32.1	)		24.4
Deferred income taxes		(142.1	)		171.7
Amortization of deferred finance cost		4.8			5.1
Other		31.0			(1.5	)
Changes in working capital items:
Receivables		26.0			11.7
Inventories at FIFO cost		173.5			95.2
Prepaid expenses and other current assets		(30.4	)		13.7
Income taxes		188.6			(96.8	)
Payables and accruals		(101.4	)		(273.2	)
Payables related to third-party gift cards, net of receivables		170.4			23.9
Net cash flow from operating activities		2,549.7			2,250.9
INVESTING ACTIVITIES
Cash paid for property additions		(851.6	)		(1,595.7	)
Proceeds from sales of property		22.9			97.8
Other		(60.3	)		(48.1	)
Net cash flow used by investing activities		(889.0	)		(1,546.0	)
FINANCING ACTIVITIES
Payments on short-term borrowings, net		(1.3	)		(95.0	)
Payments on long-term borrowings, net		(598.2	)		(35.0	)
Purchase of treasury stock		(884.9	)		(359.5	)
Dividends paid on common stock		(153.1	)		(132.1	)
Net proceeds from exercise of stock options		28.6			29.0
Excess tax benefit from exercise of stock options		0.1			1.5
Income tax refund related to prior years’ debt financing		16.8			2.8
Other		(8.3	)		(6.0	)
Net cash flow used by financing activities		(1,600.3	)		(594.3	)
Effect of changes in exchange rate on cash		28.3			(5.6	)
Increase in cash and equivalents		88.7			105.0
CASH AND EQUIVALENTS
Beginning of period		382.8			277.8
End of period	$	471.5		$	382.8

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SAFEWAY INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars in millions)

(Unaudited)

TABLE 1: CAPITAL EXPENDITURES AND OTHER STATISTICAL DATA

	Fourth Quarter Ended					Year Ended
	January 2, 2010		January 3, 2009			January 2, 2010			January 3, 2009
Cash paid for property additions	$	248.8	$	588.5		$	851.6		$	1,595.7
Stores opened		1		12			8			20
Stores closed		6		11			22			24
Lifestyle remodels completed		20		113			82			232
Stores at end of period		1,725		1,739
Square footage (in millions)		80.1		80.4
Fuel sales	$	851.1	$	945.2		$	2,688.7		$	3,885.2
Number of fuel stations at end of period		388		382
Increase (decrease) in sales from change in Canadian exchange rate	$	186.2	$	(354.8	)	$	(407.1	)	$	33.5

TABLE 2: RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

	Year Ended January 2, 2010
Net loss	$	(1,097.5	)
Add (subtract):
Income taxes		144.2
Interest expense		331.7
Depreciation expense		1,171.2
LIFO income		(35.2	)
Stock option expense		57.4
Property impairment charges		73.7
Goodwill impairment charge		1,974.2
Equity in earnings of unconsolidated affiliate		(8.5	)
Adjusted EBITDA	$	2,611.2
Total debt at January 2, 2010	$	4,901.7
Less cash and equivalents in excess of $75.0 at January 2, 2010		396.5
Adjusted Debt	$	4,505.2
Adjusted EBITDA as a multiple of interest expense		7.87	x
Minimum Adjusted EBITDA as a multiple of interest expense under bank credit agreement		2.00	x
Adjusted Debt to Adjusted EBITDA		1.73	x
Maximum Adjusted Debt to Adjusted EBITDA under bank credit agreement		3.50	x

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SAFEWAY INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars in millions)

(Unaudited)

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

	Year Ended January 2, 2010
Net cash flow from operating activities	$	2,549.7
Add (subtract):
Income taxes		144.2
Interest expense		331.7
Amortization of deferred finance cost		(4.8	)
Excess tax benefit from exercise of stock options		0.1
Deferred income taxes		142.1
Net pension expense		(130.2	)
Contributions to pension plans		16.7
Accrued claims and other liabilities		32.1
Loss on property retirements and lease exit costs		(12.7	)
Changes in working capital items		(426.7	)
Other		(31.0	)
Adjusted EBITDA	$	2,611.2

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

	Fiscal Year
	2009			2008
Net cash flow from operating activities	$	2,549.7		$	2,250.9
Increase in payables related to third-party gift cards, net of receivables		(170.4	)		(23.9	)
Net cash flow from operating activities as adjusted		2,379.3			2,227.0
Net cash flow used by investing activities		(889.0	)		(1,546.0	)
Free cash flow	$	1,490.3		$	681.0

* 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 therefore is excluded from the company’s calculation of free cash flow.

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SAFEWAY INC. AND SUBSIDIARIES

SUPPLEMENTAL INFORMATION

(Dollars in millions)

(Unaudited)

TABLE 5: SAME-STORE SALES

	Fourth Quarter 2009				Fiscal Year 2009
	Comparable- Store Sales Decreases		Identical- Store Sales Decreases*		Comparable- Store Sales Decreases		Identical- Store Sales Decreases*
As reported	-4.0	%	-4.0	%	-4.9	%	-5.0	%
Excluding fuel sales	-4.1	%	-4.1	%	-2.5	%	-2.5	%

* Excludes replacement stores.

TABLE 6: RECONCILIATION OF GAAP NET LOSS TO NET INCOME EXCLUDING GOODWILL

IMPAIRMENT CHARGE

	Fourth Quarter 2009			Fiscal 2009
Net loss, as reported	$	(1,609.1	)	$	(1,097.5	)
Add goodwill impairment charge		1,974.2			1,974.2
Less tax benefit from goodwill impairment charge*		(156.0	)		(156.0	)
Net income, excluding goodwill impairment charge	$	209.1		$	720.7
Diluted loss per share, as reported	$	(4.06	)	$	(2.66	)
Less goodwill impairment charge per diluted share		4.59			4.40
Diluted earnings per share, excluding goodwill impairment charge	$	0.53		$	1.74
Weighted shares outstanding used for diluted loss per share, as reported		396.7			412.9
Add common share equivalents		1.5			1.2
Weighted average shares outstanding used for diluted earnings per share, excluding goodwill impairment charge		398.2			414.1

* Represents the tax deduction from the impairment of goodwill that arose from taxable asset acquisitions, tax-affected at Safeway’s incremental rate of 38.6%.

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