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):

March 3, 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 exhibits, 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. (the “Company”), whether made before or after the date hereof, regardless of any general incorporation language in such filing.

On March 3, 2010, we will hold our annual investor conference, at which slides regarding our recent performance and 2010 earnings guidance will be presented. Copies of certain of the slides are attached hereto as Exhibit 99.2 and incorporated herein by reference.

In the investor conference presentation, the press release announcing the investor conference and our other public statements in connection with the presentation and 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 for 2003 through 2009, which is defined by our bank credit agreement as EBITDA (earnings before interest, income taxes, depreciation and amortization), excluding the following:

• LIFO (income) expense;

• Stock option expense;

• Property impairment charges;

• Goodwill impairment charges;

• Equity in (earnings) losses of unconsolidated affiliate; and

• Dividend received from unconsolidated affiliate.

An additional item was excluded in 2003 as described in the attached slides.

• Adjusted EBITDA as a multiple of interest expense for 2003 through 2009, which is calculated by dividing Adjusted EBITDA by interest expense.

• Adjusted Earnings Per Diluted Share for 2009, which is defined as reported earnings per diluted share, excluding a goodwill impairment charge per diluted share, net of tax benefit per diluted share, as described in the attached slides and in this Form 8-K.

• Adjusted Basis Point Change in Operating Profit Margin, Excluding Fuel and Unusual Items for 2004 through 2009 and for the forecasted ranges for 2009 and 2010, which is defined as reported basis point increase or decrease in operating profit margin over the prior year or forecasted range of basis point increase in operating profit margin over the prior year, as applicable, excluding fuel and certain unusual items, as described in the attached slides and in this Form 8-K.

2

• Adjusted Basis Point Change in Operating and Administrative Expense, Excluding Fuel and Unusual Items for 2004 through 2009, which is defined as reported basis point increase or decrease in operating and administrative expense over the prior year, excluding fuel and certain unusual items, as described in the attached slides and in this Form 8-K.

• Adjusted Basis Point Change in Gross Margin, Excluding Fuel for 2006 through 2009 and on a quarterly basis for 2008 and 2009, which is defined as reported basis point increase or decrease in gross margin over the prior year or prior quarter, as applicable, excluding fuel.

• “Free Cash Flow” for 2000 through 2009, the original and revised forecasted ranges of free cash flow for 2009 and the forecasted ranges of free cash flow for 2010 through 2014, which is calculated as net cash flow from operating activities, as adjusted to exclude payables related to third-party gift cards, net of receivables (in the years 2005 through 2009), 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.

Additional items were included in 2001 and 2006 as described in the attached slides.

Reconciliations of each of the above non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the attached slides, which are also available on our website at http://www.safeway.com/investor_relations under Reconciliations.

The exclusion included in Adjusted Earnings Per Diluted Share consists of a non-cash impairment charge, net of the tax benefit. 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 facilitate comparisons of our performance with that of other companies that might not have the impairment charges that we have experienced. Management also believes that investors, analysts and other interested parties view our Adjusted Earnings Per Diluted Share as an indicator of our ongoing operating performance.

Management believes that Adjusted Basis Point Change in Operating Profit Margin, Excluding Fuel and Unusual Items provides a useful financial measure that will facilitate comparisons of our adjusted operating profit margins before, during and after the unusual or unpredictable expenses are incurred, as well as facilitate comparisons of our performance with that of other companies that might not have the non-cash charges, store closures, health and welfare benefit contributions, employee buyout, stock option expense and strike charges that we have experienced.

Management believes that Adjusted Basis Point Change in Operating and Administrative Expense, Excluding Fuel and Unusual Items provides a useful financial measure that will facilitate comparisons of our adjusted operating and administrative expense before, during and after the unusual or unpredictable expenses are incurred, as well as facilitate comparisons of our performance with that of other companies that might not have the non-cash charges, store closures, health and welfare benefit contributions, employee buyout, stock option expense and strike charges that we have experienced.

3

Management also believes that excluding fuel sales from operating profit margin, operating and administrative expense and gross margin provides more useful measures because volatility in fuel prices and the resulting fluctuations in our sales and cost of sales may distort investors’, analysts’ and other interested parties’ perception of our operating performance. Management also believes that investors, analysts and other interested parties view Adjusted Basis Point Change in Operating Profit Margin, Excluding Fuel and Unusual Items, Adjusted Basis Point Change in Operating and Administrative Expense, Excluding Fuel and Unusual Items and Adjusted Basis Point Change in Gross Margin, Excluding Fuel as indicators of our ongoing operating performance.

Reconciliations of Free Cash Flow to GAAP cash flow are provided in the attached slides. The reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures – net income and net cash flow from operating activities – also are provided in the attached slides. 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 and Adjusted EBITDA as a Multiple of Interest Expense 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 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 Adjusted EBITDA as a Multiple of Interest Expense 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 (income) 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 such store makes to operating performance.

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

4

Free Cash Flow, Adjusted EBITDA and Adjusted EBITDA as a Multiple of Interest Expense 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 the Company generates in 2010 through 2014 is expected to be spent on mandatory debt service requirements or other non-discretionary expenditures. Our estimate of the range of Free Cash Flow for 2010 (without giving effect to cash flow related to Blackhawk Network’s gift card payables and receivables) is used by management as a baseline for estimating our 2010 Free Cash Flow. At the time management provided its original and revised guidance ranges for Free Cash Flow for 2009, it was unable to estimate the effect that Blackhawk Network’s gift card payables and receivables would have on Free Cash Flow for 2009, and therefore was not able to provide any reconciliation of such amounts to the most directly comparable GAAP financial measure. Likewise, management is unable to estimate the effect that Blackhawk Network’s gift card payables and receivables will have on Free Cash Flow for 2010 through 2014, and therefore is not able to provide any reconciliation of such amounts to the most directly comparable GAAP financial measure.

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 Safeway’s 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 Free Cash Flow and Adjusted EBITDA 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.

5

Item 8.01. Other Events.

On March 3, 2010, Safeway issued a press release, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1	Press Release dated March 3, 2010 of Safeway Inc.
99.2	Reconciliations and Certain Slides Presented at March 3, 2010 Investor Conference

Forward Looking Statements

This Current Report on Form 8-K 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, sales, margins, earnings growth, earnings estimates, guidance, free cash flow, operating profit, operating improvements, capital spending and Lifestyle stores. 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

6

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.

7

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: March 3, 2010	By:	/s/ Robert A. Gordon
	Name:	Robert A. Gordon
	Title:	Senior Vice President,
		Secretary & General Counsel

8

EXHIBIT INDEX

Exhibit No.
99.1	Press Release dated March 3, 2010 of Safeway Inc.
99.2	Reconciliations and Certain Slides Presented at March 3, 2010 Investor Conference

EX-99.1

Exhibit 99.1

Safeway Inc. Holds 2010 Investor Conference

Provides 2010 Earnings Guidance and Announces 2010 Capital Expenditure Plans and Cash Flow Expectations

PLEASANTON, CA - March 3, 2010 - Safeway Inc. (NYSE:SWY) will hold a conference today for analysts and institutional investors beginning at 8:00 AM PST. Management will review Safeway’s recent performance and establish its 2010 financial guidance.

For the year 2010, the company is initiating earnings per share guidance of $1.65 - $1.85 per diluted share. This guidance contemplates non fuel ID sales growth in a range of 0% - 1% in 2010, operating profit margin change of negative 10 to positive 5 basis points, cash capital expenditures of approximately $0.9 - $1.0 billion and free cash flow in a range of $0.9 - $1.1 billion.

“With the accomplishments we achieved in a difficult 2009, we are confident we have laid the foundation to grow our business,” said Steve Burd, Chairman, President & CEO. “We invested in lowering our prices on everyday items, and we also continued to invest in transforming our store base. With 79% of our store base remodeled into Lifestyle stores, we believe we have the freshest asset base in the supermarket industry, and combined with our differentiated offering and lower pricing, we believe we are very well positioned for future growth.”

Safeway Inc. is a Fortune 50 company and one of the largest food and drug retailers in North America. The company operates 1,725 stores in the United States and Canada and had sales of $40.9 billion in 2009. The company’s common stock is traded on the New York Stock Exchange under the symbol SWY.

The investor conference will be broadcast live from 8:00 AM (PST) to approximately 12:00 PM (PST) at http://www.safeway.com/investor_relations. Click on Webcast Events to access the event. The audio replay will be available in an archived format for approximately two weeks after the meeting.

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, guidance, earnings per diluted share, identical-store sales growth, operating profit margins, capital expenditures and free cash flow. 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.

CONTACT:

Christiane Pelz, 925-467-3832

Melissa Plaisance, 925-467-3136

SOURCE: Safeway Inc.

EX-99.2

Reconciliations and Financial Slides

from the Safeway Investor Conference

March 3, 2010

Exhibit 99.2

2

This presentation may contain forward-looking statements. Such statements may

relate to topics such as sales, margins, earnings growth, earnings estimates,

guidance, free cash flow, operating profit, operating improvements, capital

spending, Lifestyle stores and other related subjects.

These statements are based on Safeway’s current plans and expectations and

are subject to risks and uncertainties that could cause actual events and results

to

vary

significantly

from

those

implied

by

such

statements.

We

ask

you

to

refer

to Safeway’s reports and filings with the SEC for a further discussion of these

risks and uncertainties.

Safe Harbor Language

3

$ Millions

2009

2008

2007

2006

2005

2004

2003

Net (loss) income

($1,097.5)

$965.3

$888.4

$870.6

$561.1

$560.2

($169.8)

Add (subtract):

Income taxes

144.2

539.3

515.2

369.4

287.9

233.7

310.9

Interest expense

331.7

358.7

388.9

396.1

402.6

411.2

442.4

Depreciation

1,171.2

1,141.1

1,071.2

991.4

932.7

894.6

863.6

LIFO (income) expense

(35.2)

34.9

13.9

1.2

(0.2)

(15.2)

(1.3)

Stock option expense

57.4

62.3

48.4

51.2

59.7

-

-

Property impairment charges

73.7

40.3

27.1

39.2

78.9

39.4

344.9

Miscellaneous equity investment impairment charge

-

-

-

-

-

-

10.6

Goodwill impairment charges

1,974.2

-

-

-

-

-

729.1

Equity in (earnings) losses of unconsolidated affiliate

(8.5)

2.5

(8.7)

(21.1)

(15.8)

(12.6)

7.1

Dividend received from unconsolidated affiliate

5.8

-

8.9

9.0

-

-

-

Total Adjusted EBITDA

$2,617.0

$3,144.4

$2,953.3

$2,707.0

$2,306.9

$2,111.3

$2,537.5

Adjusted EBITDA as a multiple of interest expense

7.9x

8.8x

7.6x

6.8x

5.7x

5.1x

5.7x

Reconciliation of Net (Loss) Income to Adjusted            

EBITDA (Interest Coverage)

4

Reconciliation of Net Cash Flow from Operating Activities

to Adjusted EBITDA

$ Millions

2009

2008

2007

2006

2005

2004

2003

Net cash flow from operating activities

$2,549.7

$2,250.9

$2,190.5

$2,175.0

$1,881.0

$2,226.4

$1,609.6

Add (subtract):

Income taxes

144.2

539.3

515.2

369.4

287.9

233.7

310.9

Interest expense

331.7

358.7

388.9

396.1

402.6

411.2

442.4

Amortization of deferred finance cost

(4.8)

(5.1)

(5.3)

-

-

-

-

Excess tax benefit from exercise of                     

stock options

0.1

1.5

38.3

-

-

-

-

Deferred income taxes  

142.1

(171.7)

(130.8)

(1.1)

215.9

29.2

77.9

Net pension expense

(130.2)

(84.6)

(72.1)

(83.1)

(115.6)

(112.9)

(130.9)

Contribution to pension plans

16.7

33.8

33.0

29.2

18.1

15.1

12.1

Accrued claims and other liabilities

32.1

(24.4)

5.8

(10.8)

(44.1)

(118.1)

(52.7)

(Loss) gain on property retirements  

and lease exit activities, net

(12.7)

19.0

42.3

17.8

(13.6)

(20.6)

13.4

Changes in working capital items

(426.7)

225.5

(45.6)

(181.4)

(310.9)

(538.2)

263.0

Other

(25.2)

1.5

(6.9)

(4.1)

(14.4)

(14.5)

(8.2)

Total Adjusted EBITDA

$2,617.0

$3,144.4

$2,953.3

$2,707.0

$2,306.9

$2,111.3

$2,537.5

5

Reconciliation of Gross Margin BP Change

Excluding Fuel

Basis point (decrease) increase over prior year:

2009

2008

2007

2006

Basis point change in gross margin

24

(36)

(8)

(11)

Fuel

(59)

10

20

28

Basis point change in gross margin, excluding fuel

(35)

(26)

12

17

6

Reconciliation of Gross Margin BP Change

Excluding Fuel

2009

Basis point (decrease) increase over prior quarter:

Q1

Q2

Q3

Q4

Basis point change in gross margin

(7)

56

78

(14)

Fuel

(79)

(99)

(84)

(2)

Basis point change in gross margin, excluding fuel

(86)

(43)

(6)

(16)

2008

Q1

Q2

Q3

Q4

Basis point change in gross margin

(50)

(20)

(102)

9

Fuel

38

46

55

(67)

Basis point change in gross margin, excluding fuel

(12)

26

(47)

(58)

7

Excluding Fuel and Unusual Items

2009

2008

2007

2006

2005

2004

Basis point change in operating and administrative

expense

116

(38)

(29)

(93)

(53)

(7)

Unusual items:

Texas store closures

-

-

-

29

(29)

-

Impairment charges (incl. Dominick’s)

-

-

-

-

13

77

Vons strike

-

-

-

-

-

(22)

Labor buyout and health and welfare

contributions

-

-

-

15

(7)

-

Stock option expense

-

-

-

-

(15)

-

Fuel impact

(56)

11

16

13

32

39

Basis point change in operating and 

administrative expense, excluding

fuel and unusual items

60

(27)

(13)

(36)

(59)

87

Reconciliation of Operating &                         

Administrative Expense BP Change

Basis point (decrease) increase over prior year:

8

$ Millions

Reconciliation of GAAP Cash Flow

Measure to Free Cash Flow

Low

High

Low

High

Low

High

Low

High

Low

High

Low

High

Net cash flow from operating activities

2,450

$   

2,550

$   

2,350

$   

2,450

$   

2,150

$   

2,250

$   

2,050

$    

2,150

$    

1,950

$   

2,050

$    

2,200

$   

2,350

$    

2009

Original Guidance

2014F

2010G

2011F

2012F

2013F

Low

High

2,100

$   

2,250

$    

2009

Revised Guidance

Net cash flow used by investing activities

(1,150)

(1,050)

(1,150)

(1,050)

(1,050)

(950)

(1,050)

(950)

(1,050)

(950)

(1,200)

(1,150)

Free cash flow

1,300

$   

1,500

$   

1,200

$   

1,400

$   

1,100

$   

1,300

$   

1,000

$    

1,200

$    

900

$      

1,100

$    

1,000

$   

1,200

$    

(1,000)

(950)

1,100

$   

1,300

$    

9

$ Millions

Reconciliation of GAAP Cash Flow

Measure to Free Cash Flow*

*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.

Net cash flow from operating activities

Increase in payables related to third party

gift cards, net of receivables

Interest earned on favorable income tax

settlement, net of tax

Net cash flow from operating activities,

as adjusted

Net cash flow used by investing activities

Cash used to acquire businesses/stores,

net of tax benefits

Net cash flow used by investing activities,

as adjusted

Free cash flow

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

2,549

$        

2,251

$        

2,190

$   

2,175

$   

1,881

$   

2,226

$   

1,609

$   

2,035

$   

2,232

$   

1,901

$   

(170)

(24)

(84)

(71)

(48)

-

-

-

-

-

-

-

-

(63)

-

-

-

-

-

-

2,379

2,227

2,106

2,041

1,833

2,226

1,609

2,035

2,232

1,901

(889)

(1,546)

(1,686)

(1,735)

(1,314)

(1,070)

(795)

(1,396)

(2,242)

(1,481)

-

-

-

50

-

-

-

-

523

-

(889)

(1,546)

(1,686)

(1,685)

(1,314)

(1,070)

(795)

(1,396)

(1,719)

(1,481)

1,490

$        

681

$           

420

$      

356

$      

519

$      

1,156

$   

814

$      

639

$      

513

$      

420

$      

10

2010G

2009G

Basis point (decrease) increase over prior year

Low

High

Low

High

2009

2008

2007

2006

2005

2004

Basis point change in operating profit margin

(5)

10

(5)

10

(574)

1

21

82

(11)

167

Unusual items:

Texas store closures

-

-

-

-

-

-

-

(29)

29

-

Goodwill impairment charges

-

-

-

-

483

-

-

-

-

(204)

Impairment charges (including Dominick’s)

-

-

-

-

-

-

-

-

(13)

(77)

Vons strike

-

-

-

-

-

-

-

-

-

63

Labor buyout and health and  

welfare contributions

-

-

-

-

-

-

-

(15)

7

-

Stock option expense

-

-

-

-

-

-

-

-

15

-

Fuel impact

(5)

(5)

10

10

(4)

-

4

15

6

1

Basis point change in operating profit margin,

excluding fuel and unusual items

(10)

5

5

20

(95)

1

25

53

33

(50)

Reconciliation of Operating Profit Margin Basis Point

Change Excluding Fuel & Unusual Items

11

X-Fuel ID Sales

2.0% -

3.0%

(1.0)% -

(1.7)%

(2.5)%

Operating Profit Margin

5 -

20 bps

NG

(95)

Improvement (X-Fuel)

Cash Capital

~ $1.2B

~ $1.0B

$0.9B

Expenditures

Free

Cash

Flow

1

$1.0 -

$1.2B

$1.1 -

$1.3B

$1.5B

Earnings Per Share

$2.34 -

$2.44

$1.70 -

$1.90

$1.74

2

2009 Guidance

Original

Revised

Actual

1

Excludes Blackhawk gift card payables, net of receivables

2

Adjusted to exclude goodwill impairment charge

See website for reconciliation

12

2010 Guidance

Earnings per Share

$1.65 –

$1.85

ID

Sales

1

0.0% –

1.0%

Operating

Profit

Margin

Chg

1

(10) –

5 bps

Cash Capital Expenditures

$0.9 –

$1.0B

Free

Cash

Flow

2

$0.9 –

$1.1B

1

X-Fuel

2

See website for reconciliation

13

2010 EPS Growth Over Adjusted 2009

2009 reported earnings

$(2.66)

Add goodwill impairment charge

4.40

Adjusted 2009 earnings

$1.74

Remove tax benefit

(0.18)

$1.56

Earnings guidance increase

$1.65 -

$1.85

+6 -

19%

$0.09

-

$0.29

14

Approaching Completion of Lifestyle Rollout

19

92

293

82

80

32

21

276

232

253

20

8

20

20

17

1

2003

2004

2005

2006

2007

2008

2009

2010

New

Remodels

Store

Base

20

1%

8%

26%

43%

59%

73%

79%

85%

124

314

293

273

252

90

85% Complete at YE 2010

100

15

Capital spending levels will remain below

3% of sales for six years

% Sales

3.4%

3.6%

4.2%

4.2%

3.6%

2.1%

2.4%

2.3%

2.3%

2.4%

2.4%

2.3%

'04

'05

'06

'07

'08

'09

'10F

'11F

'12F

'13F

'14F

'09-

'14

$1.2

$1.4

$1.7

$1.8

$1.6

$0.9

$1.0

$1.0

$1.0

$1.1

$1.1

$ Million

11 year average = 3.0%

16

0.5

0.4

0.4

0.7

1.5

0.9 - 1.1

1.3 - 1.5

1.2 - 1.4

1.1 - 1.3

1.0 - 1.2

2005

2006

2007

2008

2009

2010F

2011F

2012F

2013F

2014F

Free Cash Flow

$ Billions

1.4

1.7

1.7

1.6

0.9

1.0

1.0

1.0

1.1

1.1

Capital Spending

See website for reconciliation

Excludes Blackhawk gift card payables, net of receivables