UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended ~~December~~January 283, ~~2013~~2015

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 Road
Pleasanton, California		94588-3229
(Address of principal executive offices)		(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value per share		New York Stock Exchange
None		None
7.45% Senior Debentures due 2027		New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

(Title of class)

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No .

(Cover continued on following page)

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SAFEWAY INC. AND SUBSIDIARIES

(Cover continued from previous page)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes No X.

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. Yes X 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) Yes X No .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K X.

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. (Check one):



Large accelerated filer X	Accelerated filer	Non-accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes No X.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 1514, ~~2013~~2014 was approximately $57.8 billion.

As of February 2025, ~~2014~~2015, ~~there~~one ~~were~~share ~~outstanding approximately 230.3 million shares~~ of the registrant’s common stock at a par value of $0.01 per share was outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following document is incorporated by reference to the extent specified herein:

Document Description		10-K Part
Portions of the definitive proxy statement for use in connection with the Annual Meeting of Stockholders (to be held May 14, 2014) to be filed within 120 days after the end of the fiscal year ended December 28, 2013		III
None		N/A

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Table of Contents

		Page
FORWARD-LOOKING STATEMENTS		4
INTRODUCTORY NOTE		4
FORWARD-LOOKING STATEMENTS		5
PART I
Item 1.	Business	67
Item 1A.	Risk Factors	1112
Item 1B.	Unresolved Staff Comments	1617
Item 2.	Properties	1617
Item 3.	Legal Proceedings	1617
Item 4.	Mine Safety Disclosures	1617
Executive Officers of the Registrant		1718
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1819
Item 6.	Selected Financial Data	2122
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3938
Item 8.	Financial Statements and Supplementary Data	4039
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	9596
Item 9A.	Controls and Procedures	9596
Item 9B.	Other Information	9596
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	9697
Item 11.	Executive Compensation	9699
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	96138
Item 13.	Certain Relationships and Related Transactions, and Director Independence	96139
Item 14.	Principal Accountant Fees and Services	97142
PART IV
Item 15.	Exhibits and Financial Statement Schedules	98144
SIGNATURES		~~103~~148

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INTRODUCTORY NOTE

As previously announced, on March 6, 2014, Safeway Inc. (“Safeway” or the "Company"), 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, entered into an Agreement and Plan of Merger, which was subsequently amended on April 7, 2014 pursuant to Amendment No. 1 and on June 13, 2014 pursuant to Amendment No. 2 (as amended, the “Merger Agreement”).

Pursuant to the Merger Agreement, on January 30, 2015, Merger Sub merged with and into Safeway with Safeway surviving as a wholly owned subsidiary of Albertsons Holdings (the “Merger”). Further, each share of common stock of Safeway issued and outstanding immediately prior to the effective time of the Merger was cancelled and converted automatically into the right to receive (i) $34.92 in cash (the “Per Share Cash Merger Consideration”) which consists of (x) $32.50 in initial cash consideration, (y) $2.412 in consideration relating to the sale of the assets of Safeway’s real-estate development subsidiary Property Development Centers, LLC (“PDC”) and (z) $0.008 in cash consideration relating to a dividend that Safeway received in December 2014 on its 49% interest in Mexico-based food and general merchandise retailer Casa Ley, S.A. de C.V. (“Casa Ley”), (ii) one contingent value right relating to Safeway’s interest in Casa Ley (a “Casa Ley CVR”) and (iii) one contingent value right relating to any deferred consideration relating to the sale of the PDC assets (a “PDC CVR,” and together with the Casa Ley CVR and the Per Share Cash Merger Consideration, the “Per Share Merger Consideration”).

In connection with the closing of the Merger and immediately prior to the effective time of the Merger, each outstanding, unexpired and unexercised option to purchase shares of Safeway common stock (each, a “Safeway Option”), that was granted under any equity incentive plan of Safeway, including the 1999 Amended and Restated Equity Participation Plan, the 2007 Equity and Incentive Award Plan and the 2011 Equity and Incentive Award Plan or any other plan, agreement or arrangement (collectively, the “Safeway Equity Incentive Plans”), whether or not then exercisable or vested, was accelerated, vested and cancelled and converted into the right to receive an amount in cash (subject to any applicable withholding taxes) equal to the product of (A) the total number of shares of Safeway common stock subject to such Safeway Option as of immediately prior to the effective time of the Merger and (B) the excess, if any, of the Per Share Cash Merger Consideration over the exercise price per share (the “Option Price”) of such Safeway Option (the “Option Payment”). In addition, each such Safeway Option that had an Option Price less than the Per Share Cash Merger Consideration received one Casa Ley CVR and one PDC CVR in respect of each share of Safeway common stock subject to such cancelled Safeway Option.

Immediately prior to the effective time of the Merger, each restricted share of Safeway common stock that was outstanding and that was granted pursuant to any Safeway Equity Incentive Plan, whether or not then exercisable or vested, automatically vested and all restrictions thereon lapsed, and all such restricted shares were cancelled and converted into the right to receive the Per Share Merger Consideration.

Immediately prior to the effective time of the Merger, each outstanding performance share award covering shares of Safeway common stock (each a “Performance Share Award”) that was granted under any Safeway Equity Incentive Plan vested at the target levels specified for each such award and was cancelled in exchange for (i) an amount in cash (subject to any applicable withholding taxes) equal to the product of (A) the number of vested shares of Safeway common stock subject to such Performance Share Award (after taking into account any vesting as a result of the Merger) and (B) the Per Share Cash Merger Consideration and (ii) one Casa Ley CVR and one PDC CVR in respect of each vested share of Safeway common stock subject to such Performance Share Award.

Immediately prior to the effective time of the Merger, each outstanding restricted stock unit covering shares of Safeway common stock (each a “Restricted Stock Unit”), that was granted under any Safeway Equity Incentive Plan, whether or not then vested, was accelerated, vested and cancelled in exchange for the right

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to receive (i) an amount in cash (subject to any applicable withholding taxes) equal to the product of (A) the number of vested shares of Safeway common stock subject to such Restricted Stock Unit and (B) the Per Share Cash Merger Consideration and (ii) one Casa Ley CVR and one PDC CVR in respect of each vested share of Safeway common stock subject to such Restricted Stock Unit.

The description of the Merger contained in this Introduction does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is incorporated herein by reference to Exhibit 2.1 of Safeway’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2014, Exhibit 2.1 of Safeway’s Current Report on Form 8-K filed with the SEC on April 8, 2014 and Exhibit 2.1 of Safeway’s Current Report on Form 8-K filed with the SEC on June 16, 2014.

As a result of the Merger, Safeway's common stock is no longer publicly traded. In connection with the Merger, Safeway also filed a Form 15 to deregister its common stock, 7.45% Senior Debentures due 2017 and Preferred Stock Purchase Rights. Upon such filing, Safeway's obligations to file with the SEC periodic and current reports under the Exchange Act were suspended. Safeway has not filed and does not intend to file reports on Form 8-K, 10-Q or 10-K voluntarily.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K ~~for Safeway Inc. (“Safeway,” the “Company,” “we” or “our”)~~ 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. ~~We also provide forward-looking statements in other materials which are released to the public, as well as oral forward-looking statements.~~ 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 “continuing,” “ongoing,” “expects,” “estimates,” “anticipates,” “believes,” “guidance” and similar words or phrases and the negative of such words or phrases.

This Annual Report on Form 10-K includes forward-looking statements relating to, among other things: ~~a potential transaction involving~~ the ~~sale of the Company; the distribution of the our shares of Blackhawk Network Holdings, Inc. ("Blackhawk") to our stockholders; the~~ potential monetization of our ownership interest in Casa Ley ~~S.A. de C.V. ("Casa Ley")~~; changes to the total closed store reserve; uses of cash; ability to borrow ~~under commercial paper program and/or bank credit facilities~~funds; sufficiency of liquidity; repayment of borrowings and debt reduction; interest expense; indemnification obligations; ~~dividend payments on common stock; cash capital expenditures;~~ outcomes of legal proceedings; the effect of new accounting standards; compliance with laws and regulations; amount of indebtedness; realization of deferred tax liability; expansion of proprietary private-label brands; ~~sale~~ability ofto ~~Dominick's~~reduce ~~locations~~unproductive capital expenditures and unproductive spending; multiemployer pension plan withdrawal liability; pension plan expense and contributions; obligations and contributions under benefit plans; the rate of return on pension assets; ~~amounts~~incremental toliability befrom ~~recognized~~distribution ~~as a component~~ of ~~net~~Blackhawk ~~periodic benefit cost~~shares; ~~results of shrink programs;~~ unrecognized tax benefits; and unrecognized compensation cost~~; and repurchases of common stock~~. 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 Company's ability to consummate a transaction involving the sale of the Company;

• The Company's ability to execute plans to distribute its Blackhawk stock to Safeway stockholders;

• The Company's ability to monetize its investment in Casa Ley;


•	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;


•	Failure to successfully integrate Safeway and Albertsons;


•	Failure to achieve anticipated synergies from the Merger;

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SAFEWAY INC. AND SUBSIDIARIES


•	Results of our programs to increase sales;

• Results of our continuing efforts to expand ~~corporate~~our private-label brands;

• Results of our programs to improve our ~~perishables~~fresh 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;

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•	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~~Company's ~~of the agreement to sell substantially all the net assets of Canada Safeway Limited to Sobeys Inc. including the~~ ability to ~~use~~monetize ~~proceeds~~its asinvestment ~~described~~ in ~~this~~Casa ~~Form 10-K and the ability to project the impact of the transaction on our ongoing operations~~Ley;

• The ~~outcome~~ability ofto ~~exiting~~achieve ~~the~~satisfactory ~~Chicago~~operating ~~market~~results in all geographic areas where we operate;

• 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~~, including our Blackhawk and Property Development Centers subsidiaries~~;

• 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 impact of the substantial leverage incurred to finance the Merger;


•	Restrictions in our debt financing that may limit our flexibility in operating our business;


•	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.

We undertake no obligation to update forward-looking statements to reflect new information, events or developments after the date hereof. For additional information regarding these risks and uncertainties, see ~~“Item 1A. Risk Factors.” These 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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“Item 1A. Risk Factors.” These 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.

PART I


Item 1.	Business

General The Company began operations in 1926. In July 1986, Safeway was incorporated in the state of Delaware as SSI Holdings Corporation and, thereafter, its name was changed to Safeway Stores, Incorporated. In February 1990, the Company changed its name to Safeway Inc.

On ~~February 19~~January 30, ~~2014~~2015, Safeway ~~announced~~was itacquired isby inAlbertson's, ~~discussions~~pursuant ~~concerning~~to ~~a possible transaction involving~~ the ~~sale~~Merger ~~of the Company~~Agreement. ~~Although~~See the ~~discussions~~Introductory ~~are~~Note ~~ongoing,~~to ~~the~~this ~~Company~~report ~~has~~and ~~not~~Note ~~reached~~V anto ~~agreement~~the onconsolidated afinancial ~~transaction,~~statements ~~and~~set ~~there~~forth ~~can~~in bePart noII, ~~assurance~~Item ~~that~~8 ~~these~~of ~~discussions~~this ~~will~~report ~~lead~~for toadditional ~~an agreement or a completed transaction~~information.

~~Separately,~~On ~~the~~December ~~Company~~23, ~~has~~2014, ~~decided~~Safeway toand ~~distribute~~PDC ~~the~~sold ~~remaining~~substantially ~~37.8~~all ~~million~~of ~~shares~~the itassets ~~owns~~ of ~~Blackhawk~~PDC ~~Network~~to ~~Holdings~~Terramar Retail Centers, ~~Inc.~~LLC ("~~Blackhawk~~Terramar") ~~(approximately~~pursuant ~~72.2% of the outstanding Blackhawk shares)~~ to ~~Safeway~~an ~~stockholders. Currently,~~Asset ~~the~~Purchase ~~plan~~Agreement isdated toas ~~make~~of ~~the~~December ~~distribution~~22, on2014. PDC's aassets ~~pro~~were ~~rata~~comprised ~~basis~~of toshopping ~~all~~centers ~~Safeway~~that ~~stockholders~~are incompleted aor ~~transaction~~under ~~intended~~development. toSee beNote ~~tax-free~~D to ~~Safeway~~the ~~and~~consolidated ~~its~~financial ~~stockholders. However,~~statements ifset ~~the~~forth ~~Company~~in ~~consummates~~Part aII, ~~sale~~Item ~~transaction,~~8 ~~the~~of ~~distribution~~this ~~may~~report befor ~~taxable.~~additional information.

InOn ~~addition~~March 24, 2014, Safeway's ~~owns~~Board ~~49%~~of Directors declared a special stock dividend to its stockholders of ~~Casa~~all ~~Ley~~of Sthe 37.A.8 demillion Cshares of Class B common stock of Blackhawk Network Holdings, Inc.V. ("~~Casa Ley~~Blackhawk")then owned by Safeway, representing approximately 94.2% of the ~~fifth~~total ~~largest~~outstanding ~~food~~shares of Blackhawk's Class B common stock and ~~general~~approximately ~~merchandise~~72% ~~retailer~~of inthe ~~Mexico~~total ~~based~~number onof ~~sales~~shares of Blackhawk common stock of all classes outstanding. ~~Based~~On onApril 14, ~~Casa~~2014, ~~Ley's~~Safeway ~~improving~~distributed ~~performance~~the special stock dividend to all Safeway stockholders of record as of April 3, 2014 (the ~~Company~~"Record ~~believes~~Date"). The itdistribution istook anplace ~~appropriate~~in ~~time~~the toform ~~explore~~of ~~alternatives~~a pro rata dividend of Blackhawk Class B common stock to ~~monetize~~each ~~its~~Safeway ~~investment~~stockholder inof ~~Casa~~record ~~Ley. While~~as of the ~~Company~~Record ~~has~~Date. Safeway ~~discussed~~stockholders ~~its~~received ~~desire~~0.164291 toof ~~monetize~~a ~~its~~share ~~investment~~of ~~with~~Blackhawk ~~the~~Class ~~majority~~B ~~owners~~common stock for every share of ~~Casa~~Safeway ~~Ley~~common stock held as of the Record Date, ~~there~~less ~~can~~any beshares nowithheld ~~assurance~~in asrespect toof ~~whether~~applicable ~~the~~withholding ~~Company~~taxes. No ~~will~~fractional beshares ~~able~~of toBlackhawk ~~sell~~stock ~~its~~were ~~interest~~distributed. Instead, Safeway stockholders received cash in ~~Casa~~lieu ~~Ley~~of atany fraction of a ~~price~~share ~~and~~of onBlackhawk ~~terms~~stock. See ~~that~~Note B to the ~~Company~~consolidated ~~finds~~financial ~~acceptable.~~statements set forth in Part II, Item 8 of this report for additional information.

On November 3, 2013, Safeway completed the sale of substantially all of the net assets of Canada Safeway Limited ("CSL" and now known as CSL IT Services ULC) to Sobeys Inc., a wholly-owned subsidiary of Empire Company Limited. See Note B to the consolidated financial statements set forth in Part II, Item 8 of this report for additional information.

During the fourth quarter of 2013, the Company exited the Chicago market, where it operated 72 Dominick's stores. See Note B to the consolidated financial statements set forth in Part II, Item 8 of this report for additional information.

~~The~~On ~~Company’s~~November ~~fiscal~~3, ~~year~~2013, ~~ends~~Safeway oncompleted the ~~Saturday~~sale ~~nearest~~of ~~December 31. The~~substantially ~~last~~all ~~three~~of ~~fiscal~~the ~~years~~net ~~consist~~assets of ~~the~~Canada ~~52-week~~Safeway ~~period~~Limited ~~ended~~("CSL" ~~December 28,~~and ~~2013~~now ~~(“fiscal~~known ~~2013”~~as orCSL ~~“2013”~~IT Services ULC) to Sobeys Inc., ~~the~~a ~~52-week~~wholly ~~period~~owned ~~ended~~subsidiary ~~December 29,~~of ~~2012~~Empire ~~(“fiscal~~Company ~~2012”~~Limited. See orNote ~~“2012”)~~B ~~and~~to the ~~52-week~~consolidated ~~period~~financial ~~ended~~statements ~~December 31~~set forth in Part II, ~~2011~~Item 8 ~~(“fiscal~~of ~~2011”~~this orreport ~~“2011”)~~for additional information.

Safeway ~~Inc.~~owns is49% ~~one~~ of Casa Ley, the fifth largest food and ~~drug~~general ~~retailers~~merchandise retailer in Mexico based on sales. Pursuant to the ~~United~~Merger ~~States,~~Agreement and the contingent value rights agreement with 1respect to the Casa Ley CVRs,~~335~~ ~~stores~~a atCasa ~~year-end~~Ley ~~2013. The~~CVR ~~Company’~~will entitle the holder to a pro rata share of the net proceeds from the sale of Safeway's Uinterest in Casa Ley, but there can be no assurance as to whether the Company will be able to sell its interest in Casa Ley.S. In ~~retail~~the ~~operations~~event ~~are~~that ~~located~~the ~~principally~~interest in ~~California,~~Casa ~~Hawaii,~~Ley ~~Oregon,~~is ~~Washington,~~not ~~Alaska~~sold prior to January 30, ~~Colorado~~2018, ~~Arizona~~holders of the Casa Ley CVRs will be entitled to receive their pro rata portion of the fair market value of such remaining interest minus certain fees, ~~Texas~~expenses and ~~the~~assumed ~~Mid-Atlantic~~taxes ~~region~~(based on a 39. In25% ~~support~~rate) that would have been deducted from the proceeds of ~~its~~a Usale of the Casa Ley interest.S. See ~~retail~~Note ~~operations,~~V to the ~~Company~~consolidated ~~has~~financial anstatements ~~extensive~~set ~~network~~forth ofin ~~distribution~~Part II, ~~manufacturing~~Item ~~and~~8 ~~food-processing~~of ~~facilities~~this report for additional information.

Safeway owns and operates GroceryWorks.com Operating Company, LLC (“GroceryWorks”), an online grocery channel doing business under the names Safeway.com and Vons.com (collectively “Safeway.com”).7

Blackhawk, a majority-owned subsidiary of Safeway, 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

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SAFEWAY INC. AND SUBSIDIARIES

~~reloadable~~The ~~("GPR") cards and Blackhawk~~Company’s ~~reload~~fiscal ~~network. In~~year ~~the~~ended ~~fourth~~on ~~quarter~~the ofSaturday ~~2013,~~nearest ~~Blackhawk~~December 31. The ~~acquired~~last ~~InteliSpend~~three ~~Prepaid~~fiscal ~~Solutions~~years ~~TM,~~consist aof ~~leader in~~ the ~~corporate~~53-week ~~incentives~~period ~~and~~ended ~~consumer~~January 3, ~~promotions~~2015 ~~marketplace,~~(“fiscal ~~and~~2014” ~~Retailo~~or AG“2014”), athe ~~leading third~~52-~~party~~week ~~gift~~period ~~card~~ended ~~distribution network in Germany~~December 28, ~~Austria~~2013 ~~and~~(“fiscal ~~Switzerland. See~~2013” ~~Note~~or C“2013”) toand the ~~consolidated~~52-week ~~financial~~period ~~statements~~ended ~~set forth in Part II~~December 29, ~~Item 8~~2012 of(“fiscal ~~this~~2012” ~~report~~or ~~for additional information~~“2012”).

~~Stores~~ Safeway’s ~~average~~Inc. ~~store size~~ is ~~approximately~~one ~~47,500~~of ~~square~~the ~~feet. The~~largest ~~Company~~food ~~determines~~and ~~the~~drug ~~size~~retailers ofin athe ~~new~~United ~~store~~States, ~~based~~with on1,326 astores ~~number~~at ofyear-end ~~considerations~~2014, ~~including~~located ~~the~~principally ~~needs~~in ofCalifornia, ~~the~~Hawaii, ~~community~~Oregon, ~~the~~Washington, ~~store~~Alaska, ~~serves~~Colorado, ~~the~~Arizona, ~~location~~Texas and ~~site plan and~~ the ~~estimated~~Mid-Atlantic ~~return~~region. In onsupport ~~capital~~of ~~invested~~its U. ~~Safeway’s~~S. ~~“Lifestyle”~~retail ~~store~~operations, ~~showcases~~ the Company’s ~~commitment~~has ~~to quality with~~ an ~~expanded~~extensive ~~perishables~~network ~~offering. It~~of ~~features~~distribution, anmanufacturing ~~earth~~and food-~~toned~~processing ~~décor~~facilities. In ~~package~~connection ~~that~~with isthe ~~warm~~Merger, ~~and~~we ~~inviting~~agreed ~~with special lighting~~ to ~~highlight~~divest ~~products~~57 ~~and~~stores ~~departments,~~for ~~custom~~antitrust ~~flooring~~clearance and ~~unique~~sold ~~display~~our ~~features. The~~Mid-Atlantic ~~Company~~stores ~~believes~~to ~~this~~New ~~warm~~Albertson's, ~~ambiance~~Inc., ~~significantly~~an ~~enhances~~affiliate ~~the~~of ~~shopping~~our ~~experience~~parent company.

Stores Safeway’s average store size is approximately 47,600 square feet. The Company determines the size of a new store based on a number of considerations, including the needs of the community the store serves, the location and site plan and the estimated return on capital invested. Safeway’s “Lifestyle” store showcases the Company’s commitment to quality with an expanded perishables offering. It features an earth-toned décor package that is warm and inviting with special lighting to highlight products and departments, custom flooring and unique display features. The Company believes this warm ambiance significantly enhances the shopping experience.

Safeway’s stores provide a full array of grocery items with a portion tailored to local preferences. Most stores offer a wide selection of food and general merchandise and feature a variety of specialty departments such as bakery, delicatessen, floral, seafood and pharmacy. In addition, the majority of stores offer Starbucks coffee shops, and some offer adjacent fuel centers.

Safeway continues to operate a number of smaller stores that also offer an extensive selection of food and general merchandise and that generally include one or more specialty departments. These stores remain an important part of the Company’s store network in smaller communities and certain other locations where larger stores may not be feasible because of space limitations and/or community needs or restrictions.

The following table summarizes Safeway’s stores by size at year-end ~~2013~~2014:

Square footage	Numberof stores	Percentof total
Less than 30,000	~~145~~142	10.97	%
30,000 to 50,000	~~541~~534	40.53
More than 50,000	~~649~~650	4849.60
Total stores	1,~~335~~326	100.0	%

Store Ownership At year-end ~~2013~~2014, Safeway owned 4647% of its stores and leased its remaining stores.

~~Private~~Decentralized ~~Label/Merchandise~~Operating Model ~~Safeway's~~We ~~operating~~intend ~~strategy~~to isimplement toprimarily ~~provide~~a ~~value~~decentralized toorganization, ~~its~~in ~~customers~~which bydivisions ~~maintaining~~determine ~~high~~product assortment, pricing, placement and promotional plans for all departments. Division and store-level ~~standards~~management teams will be accountable and incentivized through a ~~wide~~quarterly ~~selection~~bonus ofplan ~~high-quality~~for ~~products~~improving atsales, ~~competitive~~EBITDA ~~prices~~and free cash flow. To We ~~provide~~believe ~~one~~division-~~stop~~level ~~shopping~~management ~~for~~will ~~today's~~reduce ~~busy~~unproductive ~~shoppers,~~capital expenditures and unproductive spending. We will augment the ~~Company~~local ~~emphasizes~~division ~~high-quality~~teams ~~produce~~with ~~and~~national ~~meat~~corporate resources focused on leveraging scale, providing expertise and ~~offers~~sharing ~~many~~best ~~unique~~practices. The ~~items~~corporate teams will support the divisions through ~~its~~strategic ~~various~~guidance ~~specialty~~and ~~departments~~drive key areas of the business including pharmacy, general merchandise and private-label brands.

Safeway is focused on differentiating its offering with high-quality perishables. The Company believes it has developed a reputation for having the best produce in the market, through high-quality specifications and precise handling procedures, and the most tender and flavorful meat and poultry, through both the Company's Rancher's Reserve Tender Beef offering and Open Nature all natural beef, chicken and sausages. Safeway's deli/food service department has developed a variety of solutions for today's busy shoppers, including Signature Café sandwiches, soups and salads as well as Primo Taglio deli meats and cheeses. Many Safeway bakeries offer freshly made bread, and the floral department is recognized by its signature gazebo.8

Safeway has continued to develop its portfolio of Consumer Brands private label products. The Company has focused its brands into three areas: Health & Wellness, Premium and Core. The prices in each category are generally lower than those of comparable products from national brands.

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Private-Label/Merchandise Safeway's operating strategy is to provide value to its customers by maintaining high store standards and a wide selection of high-quality products at competitive prices. To provide one-stop shopping for today's busy shoppers, the Company emphasizes high-quality produce and meat and offers many unique items through its various specialty departments.

Safeway has continued to develop its portfolio of Consumer Brands private-label products. The Company has focused its brands into three areas: Health & Wellness, Premium and Core. The prices in each category are generally lower than those of comparable products from national brands.

The Health & Wellness portfolio includes the O Organics, Eating Right, Open Nature and Bright Green brands. These offerings address consumers' specific health needs or preferences. O Organics is an exclusively organic brand. Eating Right offers products created for specific eating needs such as high protein, gluten free, low calorie and general health maintenance. Open Nature is a line of products that are 100% natural. Bright Green is an environmentally friendly household product line.

The Premium portfolio includes the Safeway SELECT, Signature Café, Rancher's Reserve, Primo Taglio, waterfront BISTRO and Debi Lilly offerings. Safeway SELECT is a line of quality products that the Company believes are unique to the category. Waterfront BISTRO is a seafood brand designed to make preparing a restaurant-quality meal at home easy. Debi Lilly is a line of unique bouquets, candles, vases and gifts.

In the fourth quarter of 2013, Safeway announced a partnership with celebrity chef Marcella Valladolid, creating a proprietary brand for Safeway bearing her name. Initially launched with marinated meats, authentic tortillas and snacks, this line will continue to expand as Safeway looks to offer more products that appeal to Hispanics and all Hispanic food lovers.

In the Core portfolio are the Safeway brands Lucerne, Refreshe, the Snack Artist and Pantry Essentials. The Safeway brand is a family of four brands: Safeway Farms, Safeway Kitchens, Safeway Home and Safeway Care. The Lucerne brand has been producing quality dairy products for over 100 years. The Snack Artist offers high-quality and great value snacks in a variety of categories such as chips, snacking nuts and frozen categories in whimsical, resealable packaging, a unique feature in the category. Pantry Essentials was launched in 2011 as a value line, offering basic items across several categories, including dairy, meat, canned vegetables and paper goods.

During 2012, Safeway completed the roll out of the just for U™ personalized pricing and digital marketing program in U.S. markets. This program allows a customer to download personalized pricing and digital coupons to the Safeway Club Card.

Manufacturing and Wholesale The principal function of manufacturing operations is to manufacture and process private-label merchandise sold in stores operated by Safeway. As measured by sales dollars, 13% of Safeway’s private-label merchandise is manufactured in Company-owned plants, and the remainder is purchased from third parties.

~~Safeway operated the following manufacturing and processing facilities in the United States at year-end 2013:~~9

Milk plants		6
Bakery plants		6
Ice cream plants		2
Soft drink bottling plants		4
Fruit and vegetable processing plants		1
Cake commissary		1
Total		20

In addition, the Company operates laboratory facilities for quality assurance and research and development in certain plants and at its corporate offices.

Distribution Safeway has 13 distribution/warehousing centers in the United States, which collectively provide the majority of all products to Safeway’s retail operating areas. The distribution center in Maryland is operated by a third party.

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Safeway operated the following manufacturing and processing facilities in the United States at year-end 2014:



Milk plants		6
Bakery plants		5
Ice cream plants		2
Soft drink bottling plants		4
Fruit and vegetable processing plants		1
Cake commissary		1
Total		19

In addition, the Company operates laboratory facilities for quality assurance and research and development in certain plants and at its corporate offices.

Capital Expenditure Program A key component of the Company’s long-term growth strategy is its capital expenditure program. The Company’s capital expenditure program funds, among other things, new stores, remodels, retail shopping center development, manufacturing plants, distribution facilities and information technology. Safeway’s management has maintained a rigorous program to select and approve new capital investments.

As previously reported, Safeway completed the sale of the net assets of CSL to Sobeys Inc. on November 3, 2013. Additionally, in the fourth quarter of 2013, the Company exited the Chicago market where it operated 72 Dominick's stores. ~~CSL~~On ~~and~~April 14, 2014, Safeway completed the distribution of the remaining 37.8 million shares of Blackhawk stock that it owned to its stockholders. CSL, Dominick's and Blackhawk are reported as discontinued operations. All information in the table below excludes discontinued operations. It details changes in the Company’s store base and presents the Company’s cash capital expenditures over the last five years (dollars in millions):

	2013		2012		2011		2010		2009
	2014		2013		2012		2011		2010
Total stores at beginning of year	1,~~346~~335		1,~~377~~346		1,~~392~~377		1,~~422~~392		1,~~436~~422
Stores opened:
New	3		3		43		34		23
Replacement	45		54		185		918		49
	7		8		22		12		6
	8		7		8		22		12
Stores closed or sold	1817		3918		3739		4237		2042
Total stores at year end	1,~~335~~326		1,~~346~~335		1,~~377~~346		1,~~392~~377		1,~~422~~392
Number of fuel stations at year end	~~349~~354		~~340~~349		~~334~~340		~~326~~334		~~322~~326
Total retail square footage at year end (in millions)	63.41		63.84		6563.18		65.1		6665.01
Cash paid for property additions	~~767~~711.42		~~821~~738.2		~~992~~800.41		~~689~~959.62		~~721~~674.70
Cash paid for property additions as a percentage of sales and other revenue	2.10	%	2.31	%	2.83	%	2.18	%	2.20	%

InThe ~~2014,~~decline in the ~~Company~~store ~~expects~~count toover ~~spend~~the ~~approximately~~last ~~$800~~five ~~million~~years is due to ~~$900~~a ~~million~~focus ~~for~~on ~~capital~~completing ~~expenditures~~Lifestyle remodels rather than opening new stores while, at the same time, selling or closing underperforming stores. In 2012,

The decline in the store count over the last five years is due to a focus on completing Lifestyle remodels rather than opening new stores while, at the same time, selling or closing underperforming stores. In 2012, the Company disposed of 25 of its Genuardi's stores. See Note B to the consolidated financial statements set forth in Part II, Item 8 of this report.10

Financial Information about Segments, Geographic Areas and Sales Revenue by Type of Similar Product Note Q to the consolidated financial statements set forth in Part II, Item 8 of this report provides financial information about the Company’s segments, geographic areas and sales revenue by type of similar product.

Trade Names and Trademarks Safeway has invested significantly in the development and protection of “Safeway” both as a trade name and a trademark and considers it to be an important business asset. Safeway also owns more than 300 other trademarks registered and/or pending in the United States Patent and Trademark Office and other jurisdictions, including trademarks for its product and services such as Safeway, Safeway SELECT, Rancher’s Reserve, O Organics, Lucerne, Primo Taglio, Eating Right, mom to mom, waterfront BISTRO, Bright Green, Pantry Essentials, Open Nature, Refreshe, Snack Artist, Signature Café, Priority, just for U™, My Simple Nutrition, Ingredients for Life, and other trademarks such as Pak’N Save Foods, Vons, Pavilions, Randalls, Tom Thumb, and Carrs Quality Centers. Each trademark registration is for an initial period of 10 or 20 years, depending on the registration date, and may be renewed so long as it is in continued use in commerce.

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the Company disposed of 25 of its Genuardi's stores. See Note B to the consolidated financial statements set forth in Part II, Item 8 of this report.

In connection with the Merger, we agreed to divest 57 stores for antitrust clearance and sold our Mid-Atlantic stores to New Albertson's, Inc., an affiliate of our parent company.

Financial Information about Segments, Geographic Areas and Sales Revenue by Type of Similar Product Note R to the consolidated financial statements set forth in Part II, Item 8 of this report provides financial information about the Company’s segments, geographic areas and sales revenue by type of similar product.

Trade Names and Trademarks Safeway has invested significantly in the development and protection of “Safeway” both as a trade name and a trademark and considers it to be an important business asset. Safeway also owns more than 450 other trademarks registered and/or pending in the United States Patent and Trademark Office and other jurisdictions, including trademarks for its products and services such as Safeway, Safeway SELECT, Rancher’s Reserve, O Organics, Lucerne, Primo Taglio, Deli Counter, Eating Right, mom to mom, waterfront BISTRO, Bright Green, Pantry Essentials, Open Nature, Refreshe, Snack Artist, Signature Café, Priority, just for U™, My Simple Nutrition, Ingredients for Life, and other trademarks such as Pak’N Save Foods, Vons, Pavilions, Randalls, Tom Thumb, and Carrs Quality Centers. Each trademark registration is for an initial period of 10 or 20 years, depending on the registration date, and may be renewed so long as it is in continued use in commerce.

Safeway considers its trademarks to be of material importance to its business and actively defends and enforces its rights.

Working Capital At year-end ~~2013~~2014, working capital consisted of $8.5.6 billion in current assets and $52.98 billion in current liabilities. Normal operating fluctuations in these substantial balances can result in changes to cash flow from operations presented in the consolidated statements of cash flows that are not necessarily indicative of long-term operating trends. There are no unusual industry practices or requirements relating to working capital items. See Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption "Liquidity and Financial Resources" set forth in Part II, Item 7 of this report for a discussion of the effect of the Merger on Safeway's cash.

Seasonality ~~Blackhawk~~Safeway's ~~receives~~first athree ~~significant~~fiscal ~~portion~~quarters ofcontain ~~the~~12 ~~cash~~weeks. The ~~inflow~~fourth ~~from~~quarter ~~the sale~~ of ~~third-party~~2014 ~~prepaid~~contained ~~cards~~17 ~~late~~weeks. The ~~in the~~ fourth ~~quarter~~quarters of ~~the~~2013 ~~year~~ and ~~generally~~2012 ~~remits~~contained ~~the~~16 ~~cash,~~weeks. ~~less~~See ~~commissions,~~Note W to the ~~card~~consolidated ~~partners~~financial ~~early~~statements set forth in ~~the~~Part ~~first~~II, ~~quarter~~Item 8 of ~~the~~this ~~following year~~report.

Safeway's first three fiscal quarters contain 12 weeks. The fourth quarters of 2013, 2012 and 2011 contain 16 weeks. See Note V to the consolidated financial statements set forth in Part II, Item 8 of this report.

Competition Food retailing is very competitive. The principal competitive factors that affect the Company’s business are location, quality, price, service, selection and condition of assets.

We face intense competition from traditional grocery retailers, non-traditional competitors such as supercenters and club stores, as well as from specialty and niche supermarkets, drug stores, dollar stores, convenience stores and restaurants. Safeway and its competitors engage in price competition which, from time to time, has adversely affected operating margins in the Company’s markets.

Raw Materials Various agricultural commodities constitute the principal raw materials used by the Company in the manufacture of its food products. Management believes that raw materials for its products are not in short supply, and all are readily available from a wide variety of independent suppliers.

Compliance with Environmental Laws The Company’s compliance with federal, state, local and foreign laws and regulations that have been enacted or adopted regulating the discharge of materials into the environment or otherwise related to the protection of the environment has not had and is not expected to have a material adverse effect upon the Company’s financial position or results of operations.

Employees At year-end 2013, Safeway had more than 138,000 full- and part-time employees. Just over 75% of Safeway's employees are covered by collective bargaining agreements negotiated with union locals affiliated with one of seven different international unions. There are almost 400 such agreements, typically having three- to five-year terms. Accordingly, Safeway renegotiates a significant number of these agreements every year.11

During 2013, contracts covering approximately 28,000 employees were ratified, excluding Canadian operations and Dominick's. In particular, United Food and Commercial Workers International Union (“UFCW”) collective bargaining agreements which covered approximately 25,000 employees, primarily in stores in the Company's Northwest and Eastern divisions, were ratified.

Available Information Safeway’s investor Web site is located at www.safeway.com/investor_relations. You may access our Securities and Exchange Commission (“SEC”) filings free of charge at our corporate Web site promptly after such material is electronically filed with, or furnished to, the SEC. We also maintain certain corporate governance documents on our Web site, including the Company’s Corporate Governance Guidelines, our Director Independence Standards, the Code of Business Conduct and Ethics for the Company’s corporate directors, officers and employees, and the charters for our Audit, Nominating and Corporate Governance, and Executive Compensation committees. We will provide a copy of any such documents to any stockholder who requests it. We do not intend for information found on the Company’s Web site to be part of this document.

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Employees At year-end 2014, Safeway had more than 137,000 full- and part-time employees. Approximately 77% of Safeway's employees are covered by collective bargaining agreements negotiated with union locals affiliated with one of seven different international unions. There are almost 400 such agreements, typically having three- to five-year terms. Accordingly, Safeway renegotiates a significant number of these agreements every year.

During 2014, contracts covering approximately 35,000 employees were ratified, excluding Canadian operations and Dominick's. In particular, United Food and Commercial Workers International Union (“UFCW”) collective bargaining agreements which covered approximately 33,000 employees, primarily in stores in the Company's Vons and Phoenix divisions, were ratified.

Available Information Safeway’s investor Web site is located at https://investor.safeway.com. You may access our SEC filings free of charge at our corporate Web site promptly after such material is electronically filed with, or furnished to, the SEC. We do not intend for information found on the Company’s Web site to be part of this document.


Item 1A.	Risk Factors

We wish to caution you that there are risks and uncertainties that could affect our business. These risks and uncertainties include, but are not limited to, the risks described below and elsewhere in this report, particularly in “Forward-Looking Statements.” The following is not intended to be a complete discussion of all potential risks or uncertainties, as it is not possible to predict or identify all risk factors.

Competitive Industry Conditions We face strong competition from traditional grocery retailers, non-traditional competitors such as supercenters and club stores, as well as from specialty and niche supermarkets, drug stores, dollar stores, convenience stores and restaurants. Increased competition may have an adverse effect on profitability as the result of lower sales, lower gross profits and/or greater operating costs.

Our ability to attract customers is dependent, in large part, upon a combination of location, quality, price, service, selection and condition of assets. In each of these areas, traditional and non-traditional competitors compete with us and may successfully attract our customers to their stores by aggressively matching or exceeding what we offer. In recent years, many of our competitors have increased their presence in our markets. Our responses to competitive pressure, such as additional promotions and increased advertising, could adversely affect our profitability. We cannot guarantee that our actions will succeed in gaining or maintaining market share. Additionally, we cannot predict how our customers will react to the entrance of certain non-traditional competitors into the grocery retailing business.

Because we face intense competition, we need to anticipate and respond to changing consumer demands more effectively than our competitors. We strive to achieve and maintain favorable recognition of our unique private-label brands, effectively market our products to consumers, competitively price our products and maintain and enhance a perception of value for consumers. Finally, we need to source and market our merchandise efficiently and creatively. Failure to accomplish these objectives could impair our ability to compete successfully and adversely affect our growth and profitability.

Labor Relations A significant majority of our employees are unionized, and our relationship with unions, including labor disputes or work stoppages, could have an adverse impact on our financial results. We are a party to almost 400 collective bargaining agreements, of which 94125 are scheduled to expire in ~~2014~~2015. These expiring agreements cover approximately 5313% of our union-affiliated employees, primarily the United Food and Commercial Workers union contracts in ~~two of~~ our ~~largest~~Denver ~~divisions, Northern California and Vons~~division. In future negotiations with labor unions, we expect that health care, pension and wage costs, among other issues, will be important topics for negotiation. If, upon the expiration of such collective bargaining agreements, we are unable to negotiate acceptable contracts with labor unions, it could result in strikes by the affected workers and thereby significantly disrupt our operations. Further, if we are unable to control health care and pension costs provided ~~for in the collective bargaining agreements, we may experience increased operating costs and an adverse impact on future results of operations.~~

Profit Margins Profit margins in the grocery retail industry are narrow. In order to increase or maintain our profit margins, we develop strategies to increase revenues, reduce costs and increase gross margins, such as new marketing programs, new advertising campaigns, productivity improvements, shrink reduction, distribution center efficiencies, energy efficiency programs and other similar strategies. Our failure to achieve forecasted cost reductions, revenue growth or gross margin improvement across the Company could have a material adverse effect on our business. Changes in our product mix also may negatively affect certain financial measures.12

Opening and Remodeling Stores Failure to open and remodel stores as planned could have a material adverse effect on our results. If, as a result of labor relations issues, supply issues or environmental and real estate delays, or other reasons, these capital projects do not stay within the time and financial budgets we have forecasted, our future financial performance could be materially adversely affected. Furthermore, we cannot ensure that the new or remodeled stores will achieve anticipated same-store sales or profit levels.

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for in the collective bargaining agreements, we may experience increased operating costs and an adverse impact on future results of operations.

Food Safety, Quality and Health Concerns We could be adversely affected if consumers lose confidence in the safety and quality of certain food products. Adverse publicity about these types of concerns, whether valid or not, may discourage consumers from buying our products or cause production and delivery disruptions. The real or perceived sale of contaminated food products by us could result in product liability claims, a loss of consumer confidence and product recalls, which could have a material adverse effect on our sales and operations.

Current Economic Conditions Our operations and financial performance are affected by economic conditions. While economic conditions have recently improved, there is continued uncertainty about the strength of the economic recovery. If the current economic situation does not continue to improve or if it weakens, consumers may reduce spending, trade down to a less expensive mix of products or trade down to discounters for grocery items, all of which could impact our sales growth. ~~Higher fuel prices could also dampen overall consumer demand.~~ We are unable to predict with certainty if the economy of the United States will continue to improve or the rate at which it will improve. If the economy does not continue to improve or if it weakens, Safeway’s business, results of operations and financial condition could be adversely affected.

~~Future~~Albertsons ~~Growth~~Integration Albertsons' acquisition of ~~Blackhawk Blackhawk’s~~the Company is significant, and we may not be able to successfully integrate and combine the operations, management, personnel and technology of Albertsons with our operations. Because of the size and complexity of Albertsons' business, if integration is not managed successfully by our management, we may experience interruptions in our business activities, a deterioration in our employee and customer relationships, increased costs of integration and harm to our reputation with consumers, all of which could have a material adverse effect on our business, financial condition, prospects, results of operations and ~~prospects~~cash ~~are~~flow. ~~subject~~We tomay ~~certain~~also ~~risks~~experience difficulties in combining corporate cultures, maintaining employee morale and ~~uncertainties~~retaining key employees. ~~Consequently~~ In addition, ~~actual~~the ~~results~~integration ~~could~~with ~~differ~~Albertsons ~~materially~~will ~~from~~impose ~~Blackhawk’s~~substantial ~~targeted~~demands ~~earnings~~on ~~growth~~the management of the combined companies. There is no assurance that ~~Blackhawk~~the ~~will~~benefits ~~continue~~of toconsolidation ~~grow~~will atbe ~~the~~achieved ~~same rate~~ as ita ~~has~~result inof the ~~past. Some~~Merger ofor ~~the~~that ~~specific~~our ~~risks~~ and ~~uncertainties~~Albertsons' ~~include,~~businesses ~~but~~will ~~are~~be ~~not~~successfully ~~limited~~integrated ~~to,~~in ~~the~~a ~~following:~~timely manner.

•Integration ~~Blackhawk’s~~Costs We ~~operating~~expect ~~revenues~~to ~~may~~incur ~~decline~~a ifnumber itof ~~loses~~costs ~~one~~associated orwith ~~more~~completing the acquisition and integrating the operations of ~~its~~Albertsons ~~top~~and ~~distribution~~the ~~partners~~Company orto ~~fails~~achieve expected synergies. The substantial majority of these costs will be non-recurring expenses resulting from the Merger and will consist of transaction costs related to ~~attract~~the ~~new~~acquisition ~~distribution~~and ~~partners~~related financing, Albertsons' transition to ~~its~~our ~~network~~IT systems, consolidation costs and employment-related costs. Additional unanticipated costs may be incurred in the integration of our business and Albertsons'. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and Merger-related costs over time, this net benefit may not be achieved in the near term, or at all.

• Blackhawk relies on its content providers for its product and service offerings, and the loss of one or more of its top content providers or a decline in demand for their products, or Blackhawk’s failure to maintain existing exclusivity arrangements with content providers or to attract new content providers to its network, could have a material adverse effect on its business, results of operations and financial condition.13

• Blackhawk relies on relationships with card issuing banks for services related to products for which it acts as program manager, and its business, results of operations and financial condition could be materially and adversely affected if it fails to maintain these relationships or if it maintains them under new terms that are less favorable to Blackhawk.

• Blackhawk operates in a highly and increasingly regulated environment, and failure by Blackhawk or the businesses that participate in its distribution network to comply with applicable laws and regulations, including anti-money laundering, consumer protection, federal banking and state unclaimed property and tax laws and regulations, could have a material adverse effect on Blackhawk’s business, results of operations and financial condition.

• Due to seasonal fluctuations in Blackhawk’s business, adverse events that occur during the second or fourth fiscal quarter could have a disproportionate effect on its results of operations and financial condition.

• Changes in card association rules or standards set by Visa, MasterCard and others, or changes in card association and debit network fees or products or interchange rates, could materially and adversely affect Blackhawk’s business, financial condition and results of operations.

• Recent and future acquisitions or investments could disrupt Blackhawk’s business and harm its financial condition. 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.

We recently announced our decision to distribute the remaining 37.8 million shares of Blackhawk common stock that we own to our stockholders as discussed elsewhere in this report.

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New Business Initiatives and Strategies The introduction, implementation, success and timing of new business initiatives and strategies, including but not limited to, initiatives to increase revenue, ~~develop real estate~~ or enter into new areas of business may be less successful or may be different than anticipated, which could adversely affect our business.

Strategic Initiatives We ~~recently~~are ~~announced~~exploring ~~certain~~alternatives ~~strategic~~to ~~initiatives,~~monetize ~~including~~ our ~~decision~~investment toin ~~distribute~~Casa ~~the remaining 37~~Ley.8 There ~~million~~can ~~shares~~be ofno ~~Blackhawk~~assurance ~~common stock~~ that we ~~own~~will tobe ~~our~~able ~~stockholders and our intention~~ to ~~explore~~sell ~~alternatives to monetize~~ our ~~investment~~interest in Casa Ley. ~~The~~In ~~timing~~the ~~and~~event ~~details~~that of the ~~proposed~~interest ~~distribution~~in ofCasa ~~the~~Ley ~~Blackhawk~~is ~~shares~~not ~~will~~sold beprior ~~determined~~to inJanuary ~~the~~30, ~~near~~2018, ~~future. There~~holders ~~also~~of ~~can~~the beCasa noLey ~~assurance~~CVRs ~~whether we~~ will be ~~able~~entitled to ~~sell~~receive ~~our~~their ~~interest~~pro inrata ~~Casa~~portion ~~Ley~~of atthe afair ~~price~~market ~~and~~value onof ~~terms~~our ~~that~~interest weminus ~~find~~certain ~~acceptable. We~~fees, ~~also~~expenses ~~recently~~and ~~announced~~assumed ~~that~~taxes we(based ~~are~~on ~~in discussions concerning~~ a ~~possible transaction involving the sale of the Company~~39. ~~There~~25% ~~can~~rate) bethat nowould ~~assurance~~have ~~that~~been ~~these~~deducted ~~discussions~~from ~~will~~the ~~lead~~proceeds toof ana ~~agreement~~sale orof athe ~~completed~~Casa ~~transaction~~Ley interest.

Pension and Post-Retirement Benefit Plans We maintain defined benefit retirement plans for substantially all employees not participating in multiemployer pension plans. The funded status of these plans (the difference between the fair value of the plan assets and the projected benefit obligation) is a significant factor in determining annual pension expense and cash contributions to fund the plans. The decline in the financial markets during 2008 resulted in a substantial reduction in the fair value of the retirement plan assets. As a result, cash contributions to U.S. pension and post-retirement plans increased from $7.1 million in 2010 to $151.2 million in 2011. In recent years, cash contributions have declined due to improved market conditions and the impact of the Pension Funding Stabilization legislation, which increased the discount rate used to determine pension funding. However, in 2015, in connection with the Merger closing, Safeway contributed $260 million to its largest pension plan. If financial markets do not continue to improve or if financial markets decline, increased pension expense and cash contributions may have an adverse impact on our financial results.

In addition, we participate in various multiemployer pension plans for substantially all employees represented by unions. We are required to make contributions to these plans in amounts established under collective bargaining agreements. Under the Pension Protection Act of 2006 (“PPA”), contributions in addition to those made pursuant to a collective bargaining agreement may be required in limited circumstances in the form of a surcharge that is equal to 5% of the contributions due in the first year and 10% each year thereafter until the applicable bargaining agreement expires. If surcharges are required, many of our bargaining agreements provide for an offset against contribution amounts otherwise required under those agreements.

Pension expense for multiemployer pension plans is recognized as contributions are made. Benefits generally are based on a fixed amount for each year of service. We contributed $~~259~~277.21 million, $~~248~~259.72 million and $~~238~~248.27 million to these plans in ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, respectively, excluding Canadian operations and Dominick's. Based on the most recent information available to us, a number of these multiemployer plans are underfunded. As a result, contributions to these plans may increase. The amount of any increase or decrease in our required contributions to these multiemployer pension plans will depend upon the outcome of collective bargaining, actions taken by trustees who manage the plans, government regulations, the actual return on assets held in the plans and the potential payment of a withdrawal liability if we choose to exit a market, among other factors. Additionally, the benefit levels and related issues will continue to create collective bargaining challenges. Under current law, an employer that withdraws or partially withdraws from a multiemployer pension plan may incur withdrawal liability, which is related to the portion of the plan's underfunding, if any, that is allocable to the withdrawing employer under very complex actuarial and allocation rules. Multiemployer pension legislation passed in 2006, 2008, 2010 and ~~2010~~2014 will continue to apply to the funds in which we participate, which may have an impact on future pension contributions.

~~Substantial~~Dominick's ~~Indebtedness We~~multiemployer ~~currently~~pension ~~have~~withdrawal liabilities In 2013, ~~and~~we ~~expect~~sold toor ~~continue~~closed toall ~~have,~~stores ain ~~significant~~the ~~amount~~Dominick’s ofdivision. ~~debt~~As previously reported, Dominick’s participated in certain multiemployer pension plans on which ~~could~~withdrawal ~~adversely~~liabilities ~~affect~~have ~~our~~been ~~financial~~incurred ~~health. As~~due ofto ~~December 28,~~the ~~2013~~Dominick’s closure. Generally, wethe ~~had~~Company ~~approximately~~may ~~$4.2~~pay ~~billion~~such withdrawal liabilities in ~~total~~installment ~~consolidated~~payments. Withdrawal ~~debt~~liabilities ~~outstanding~~are generally subject to a 20-year payment cap, ~~including~~but ~~capital~~may ~~lease~~extend ~~obligations~~into perpetuity if a mass withdrawal from the plan occurs. ~~This~~During ~~substantial~~the ~~indebtedness~~fourth ~~could~~quarter ~~increase~~of ~~our~~2013, ~~vulnerability~~Safeway torecorded ~~general~~a ~~adverse~~liability ~~economic~~of ~~and~~$310.8 ~~industry~~million, ~~conditions. If~~which ~~debt~~represented the present

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~~markets~~value doof ~~not~~estimated ~~permit~~installment uspayments to ~~refinance certain maturing debt: (i) we may~~ be ~~required~~made to ~~dedicate~~the anplans ~~unplanned~~based ~~portion~~on ofthe ~~our~~best ~~cash~~information ~~flow~~available ~~from~~at ~~operations~~the ~~to payments on our indebtedness~~time, ~~thereby~~without ~~reducing~~having ~~the~~yet ~~availability~~received ofdemand ~~our~~letters ~~cash~~from ~~flow~~the tomultiemployer ~~fund~~pension ~~working~~plans. ~~capital,~~In ~~capital~~April ~~expenditures,~~2014 ~~dividends~~and onSeptember ~~common stock~~2014, ~~stock~~the ~~repurchases,~~Company ~~acquisitions,~~received ~~development~~demand ~~efforts~~letters ~~and~~from ~~other~~three ~~general~~of ~~corporate~~the ~~purposes;~~plans. These ~~(ii) our~~demand ~~flexibility~~letters incalled ~~planning~~ for, orinstallment ~~reacting~~payments ~~to,~~greater ~~changes~~than inSafeway’s ~~our~~original ~~business~~actuarial ~~may~~estimate bebased ~~limited;~~on ~~(iii) we~~calculations ~~might~~Safeway bedisputes. The ~~placed~~Company athas requested a ~~competitive~~review ~~disadvantage~~by ~~relative~~the toplans' ~~our~~trustees ~~competitors~~of ~~that~~the ~~have~~demands ~~less~~made ~~debt; and (iv) we may be limited~~ by the ~~financial~~three ~~and other restrictive covenants in the documents governing our indebtedness~~plans. ~~Changes~~As ina ~~our~~result ~~credit~~of ~~ratings~~the ~~may~~demand ~~have~~letters ~~an adverse impact on our financing costs~~ and ~~structure~~changes into ~~future~~interest ~~periods~~rates, ~~such~~during as2014, ~~higher~~the ~~interest~~Company ~~costs~~increased onthe ~~future~~liability ~~financings~~to ~~and~~$474.4 ~~our~~million. Pending ~~ability~~receipt toof ~~participate~~final indemand ~~the~~letters ~~commercial~~or ~~paper~~arbitration ~~market. Additionally~~decision, ~~interest~~any ~~expense~~negotiated ~~could~~lump besum ~~materially~~settlements ~~and~~or ~~adversely~~changes ~~affected by increases~~ in ~~interest~~the ~~rates~~discount rate, ~~increases in~~ the final amount of ~~outstanding~~the ~~debt,~~withdrawal ~~decisions~~liability tomay ~~incur~~be ~~premiums~~greater onthan ~~the~~or ~~early~~less ~~redemption~~than ofthe ~~debt~~amount recorded and ~~any~~this ~~other~~difference ~~factor~~could ~~that~~be ~~results in an increase in debt~~significant.

Substantial Indebtedness We currently have, and expect to continue to have, a significant amount of debt, which could adversely affect our financial health. As of January 3, 2015, we had approximately $3.0 billion in total consolidated debt outstanding, including capital lease obligations. We incurred substantial additional indebtedness in connection with the consummation of the Merger. See Note V to the consolidated financial statements set forth in Part II, Item 8 of this report. This substantial indebtedness could increase our vulnerability to general adverse economic and industry conditions. If debt markets do not permit us to refinance certain maturing debt: (i) we may be required to dedicate an unplanned portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, development efforts and other general corporate purposes; (ii) our flexibility in planning for, or reacting to, changes in our business may be limited; (iii) we might be placed at a competitive disadvantage relative to our competitors that have less debt; and (iv) we may be limited by the financial and other restrictive covenants in the documents governing our indebtedness. Changes in our credit ratings may have an adverse impact on our financing costs and structure in future periods, such as higher interest costs on future financings. Additionally, interest expense could be materially and adversely affected by increases in interest rates, increases in the amount of outstanding debt, decisions to incur premiums on the early redemption of debt and any other factor that results in an increase in debt.

Risk in Providing Pharmacy Services Pharmacies such as those operated in some of our stores are exposed to risks inherent in the packaging, distribution and disposal of pharmaceuticals and other health-care products, such as risks of liability for products which cause harm to consumers, as well as increased regulatory costs. Although we maintain insurance, we cannot guarantee that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will be able to maintain this insurance on acceptable terms in the future, or at all. Our results of operations, financial condition or cash flows may be materially adversely affected if in the future our insurance coverage proves to be inadequate or unavailable, or there is an increase in the liability for which we self-insure, or we suffer harm to our reputation as a result of an error or omission.

Each of our in-store pharmacies must be licensed by the state government. The licensing requirements vary from state to state. An additional registration certificate must be granted by the U.S. Drug Enforcement Administration (“DEA”), and, in some states, a separate controlled substance license must be obtained to dispense Class II drugs. In addition, pharmacies selling Class II drugs are required to maintain extensive records and often report information to state agencies. If we fail to comply with existing or future laws and regulations, we could suffer substantial civil or criminal penalties, including the loss of our licenses to operate pharmacies and our ability to participate in federal and state health-care programs. As a consequence of the severe penalties we could face, we must devote significant operational and managerial resources to complying with these laws and regulations. We have received subpoenas from the DEA concerning our record keeping, reporting and related practices associated with the loss or theft of controlled substances. We are cooperating with the DEA on these matters. Different interpretations and enforcement policies of these laws and regulations could subject our current practices to allegations of impropriety or illegality, or could require us to make significant changes to our operations. In addition, we cannot predict the impact of future legislation and regulatory changes on our pharmacy business or assure that we will be able to obtain or maintain the regulatory approvals required to operate our business.

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Unfavorable Changes in Government Regulation Our stores are subject to various federal, state, local and foreign laws, regulations and administrative practices that affect our business. We must comply with numerous provisions regulating health and sanitation standards, food labeling, energy, equal employment opportunity, minimum wages and licensing for the sale of food, drugs and alcoholic beverages. We cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional government regulations or administrative orders, when and if promulgated, or disparate federal, state, local and foreign regulatory schemes would have on our future business. They could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have an adverse effect on our results of operations and financial condition.

Legal Proceedings From time to time, we are a party to legal proceedings, including matters involving personnel and employment issues, personal injury, antitrust claims, intellectual property claims and other proceedings arising in the ordinary course of business. In addition, there is an increasing number of cases being filed against companies generally, which contain class-action allegations under federal and state wage and hour laws. We estimate our exposure to these legal proceedings and establish reserves for the estimated liabilities. Assessing and predicting the outcome of these matters involves substantial uncertainties. Although not currently anticipated by management, unexpected outcomes in these legal proceedings, or changes in management’s evaluations or predictions, could have a material adverse impact on our financial results.

Information Technology Risks We have large, complex information technology systems that are important to the successful operation of our business operations and marketing initiatives. If we were to experience difficulties accessing data stored in these systems, or in maintaining, expanding or upgrading existing systems or implementing new systems, we could incur significant losses due to disruptions in our systems and business.

Additionally, we gather and retain personal information that customers provide to us. We also receive and store personal information in connection with our human resources organization. Despite our considerable efforts to secure our computer network, security could be compromised, confidential information could be misappropriated or system disruptions could occur. This could cause significant damage to our reputation, affect our relationships with our customers and employees and lead to claims against us.

As a merchant who accepts debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standard (“PCI DSS”), issued by the PCI Council. PCI DSS contains compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing and transmission of individual cardholder data. By accepting debit cards for payment, we are also subject to compliance with American National Standards Institute data encryption standards, and payment network security operating guidelines. We currently comply with PCI DSS version 2.0~~; however, we are required to comply with the new PCI DSS version 3~~.~~0 by January 1, 2015.~~ Despite our compliance with these standards and other information security measures, we cannot be certain that all of our IT systems are able to prevent, contain or detect any cyber-attacks or security breaches from known malware or malware that may be developed in the future. To the extent that any disruption results in the loss, damage or misappropriation of information, we may be adversely affected by claims from customers, financial institutions, regulatory authorities, payment card associations and others. In addition, we are required to comply with the new PCI DSS version 3.0 for our 2015 assessment, and the cost of complying with stricter privacy and information security laws and standards, including PCI DSS version 3.0, could be significant to us.

14Insurance Plan Claims We use a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, automobile and general liability, property risk (including earthquake coverage), director and officers’ liability, employment practices liability, cyber risks, terrorism and employee health care benefits. We estimate the liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Among the causes of this variability are unpredictable

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~~developed~~external infactors ~~the~~affecting future~~. To~~ ~~the~~inflation ~~extent that any disruption results in the loss~~rates, ~~damage~~discount ~~or misappropriation of information~~rates, welitigation ~~may be adversely affected by claims from customers~~trends, ~~financial~~legal ~~institutions~~interpretations, ~~regulatory~~benefit ~~authorities,~~level ~~payment~~changes ~~card associations~~ and ~~others. In~~claim ~~addition,~~settlement ~~the cost of complying with stricter privacy and information security laws and standards, including PCI DSS version 3~~patterns.~~0 could be significant to us.~~

Insurance Plan Claims We use a combination of insurance and self-insurance to provide for potential liabilities for workers’ compensation, automobile and general liability, property risk (including earthquake coverage), director and officers’ liability, employment practices liability, cyber risks, terrorism and employee health care benefits. We estimate the liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions which, by their nature, are subject to a high degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.

The majority of our workers’ compensation liability is from claims occurring in California. California workers’ compensation has received intense scrutiny from the state’s politicians, insurers, employers and providers, as well as the public in general. Recent years have seen escalation in the number of legislative reforms, judicial rulings and social phenomena affecting our business. Some of the many sources of uncertainty in our reserve estimates include changes in benefit levels, medical fee schedules, medical utilization guidelines and apportionment. Reversals of reforms by legislation or judicial action could have a material adverse impact on our financial results.

~~Leadership~~Impairment ~~Development~~of ~~and~~Long-Lived ~~Succession Planning~~Assets ~~The~~Our ~~training and development of our future leaders is important to our~~ long-~~term~~lived ~~growth. We~~assets, ~~rely~~primarily ~~on the experience of our senior management~~stores, ~~who~~are ~~have~~subject ~~specific~~to ~~knowledge~~periodic oftesting ~~our~~for ~~business and industry that is difficult to replace~~impairment. If weFailure ~~are unable~~ to ~~attract~~achieve ~~and~~sufficient ~~retain~~levels ~~highly-qualified~~of ~~senior~~cash ~~management,~~flow ~~our~~at ~~business~~reporting ~~may~~units becould ~~adversely~~result ~~affected. Effective~~in ~~succession~~impairment ~~planning~~charges ison ~~also important to our~~ long-~~term~~lived ~~success~~assets. ~~Failure~~We tohave ~~ensure~~incurred ~~effective~~significant ~~transfer~~impairment ofcharges ~~knowledge~~to ~~and~~earnings ~~smooth~~in ~~transitions~~the ~~involving~~past, ~~key~~including ~~employees~~in ~~could~~fiscal ~~hinder~~2014, ~~our~~2013 ~~strategic planning~~ and ~~execution~~2012.

Stockholder Rights Plan In September 2013, we adopted a one-year stockholder rights plan. Under the plan, one preferred stock purchase right was distributed for each share of common stock held by stockholders of record on September 30, 2013. Under certain circumstances, the rights will become exercisable and each right will entitle stockholders to buy one one-thousandth of a share of our Series A Junior Participating Preferred Stock at an exercise price of $100. In general, the rights become exercisable at the close of business on the tenth business day following (i) public announcement that a person or group acquired 10% (15% in the case of a passive institutional investor) or more of our common stock or (ii) commencement or announcement of a tender offer for 10% (15% in the case of a passive institutional investor) or more of our common stock. Our Board of Directors is entitled to redeem the rights at $0.01 per right at any time before a person or group has acquired 10% or more (15% or more in the case of a passive institutional investor) of the outstanding common stock. The rights will expire on September 15, 2014, subject to our right to extend such date, unless earlier redeemed or exchanged by us or terminated.

The stockholder rights plan is designed to deter coercive takeover tactics and to prevent an acquirer from gaining control of the Company without offering a fair price to all of our stockholders. The plan is intended to accomplish these objectives by encouraging a potential acquirer to negotiate with our Board of Directors to have the rights redeemed or the plan amended prior to such party exceeding the ownership thresholds set forth in the plan. The existence of the stockholder rights plan and the rights of holders of any other shares of preferred stock that may be issued in the future, however, could have the effect of making it more difficult

for a third party to acquire a majority of our outstanding common stock, and thereby adversely affect the price of our common stock.

Canada Safeway Limited In the fourth quarter of 2013, the Company received cash proceeds of CAD5.8 billion from the sale of substantially all of the net assets of our Canadian operations. If the Company does

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not reach a definitive agreement related to the potential transaction involving the Company, it intends to pay down additional debt, buy back additional stock and invest in growth opportunities with the remainder of these proceeds. Stock market conditions, the market value of our common stock and other factors may affect our ability to continue to effect repurchases of our common stock, including the amount and timing of any such stock repurchases. Failure to find growth opportunities to use the proceeds from this sale of the net assets could adversely affect our financial results.

Additionally, this transaction increases our concentration of retail stores to certain geographic areas in the United States, which heightens our exposure to general economic conditions in these areas.

Dominick’s During the fourth quarter of 2013, we closed a number of Dominick’s store locations in the Chicago market. At December 28, 2013, certain of these closed locations were classified as Assets and Liabilities Held for Sale in our statement of financial position (see Note B to the consolidated financial statements). While the Company currently expects to sell these locations, the sale of these properties is dependent on local real estate market conditions, local and global economic factors, and the existence of prospective buyers. There can be no assurance that the Company will realize its expected proceeds from the sale of these locations, or that sales can be completed within a reasonable time, if at all.

Impairment of Long-Lived Assets Our long-lived assets, primarily stores, are subject to periodic testing for impairment. Failure to achieve sufficient levels of cash flow at reporting units could result in impairment charges on long-lived assets. We have incurred significant impairment charges to earnings in the past, including in fiscal 2013, 2012 and 2011.

Energy and Fuel Safeway’s operations are dependent upon the availability of a significant amount of energy and fuel to manufacture, store and transport products. Energy and fuel costs have experienced volatility over time. To reduce the impact of volatile energy costs, the Company has entered into contracts to purchase electricity and natural gas at fixed prices to satisfy a portion of its energy needs. This is discussed further in Part II, Item 7A of this report under the caption “Commodity Price Risk.”

Safeway also sells fuel. Significant increases in wholesale fuel costs could result in retail price increases and in lower gross profit on fuel sales. Additionally, consumer demand for fuel may decline if retail prices increase. Such volatility and the impact to our operations and financial results are difficult to predict with certainty.


Item 1B.	Unresolved Staff Comments

None.


Item 2.	Properties

The information required by this item is set forth in Part I, Item 1 of this report.


Item 3.	Legal Proceedings

Information about legal proceedings appears under the caption “Legal Matters” in Note PQ to the consolidated financial statements set forth in Part II, Item 8 of this report.


Item 4.	Mine Safety Disclosures

Not applicable.

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Executive Officers of the Registrant

The names and ages of the current executive officers of the Company and their positions as of February 2025, ~~2014~~2015 are set forth below. Unless otherwise indicated, each of the executive officers served in various managerial capacities with the Company over the past five years. None of the executive officers named below is related to any other executive officer or director by blood, marriage or adoption. Officers serve at the discretion of the Board of Directors.

Name and all positions with the Company		Year first elected
	Age	Officer	Present office
Robert L. Edwards (1) President and Chief Executive Officer	58	2004	2013
Robert L. Edwards (1)President and Chief Executive Officer	59	2004	2013
Peter J. Bocian (2) Executive Vice President and Chief Financial Officer	59	2013	2013
Peter J. Bocian (2)Executive Vice President and Chief Financial Officer	60	2013	2013
Diane M. Dietz Executive Vice President and Chief Marketing Officer	47	2008	2008
Robert A. Gordon (3)Executive Vice PresidentGeneral Counsel and Secretary	63	1999	2015
Kelly P. Griffith (3) Executive Vice President, Retail Operations	50	2013	2013
Kelly P. Griffith (4)Executive Vice President and Chief Operating Officer, North Region	51	2013	2015
Larree M. Renda Executive Vice President	55	1991	1999
David F. Bond Senior Vice President Finance and Control	60	1997	1997
Robert A. Gordon Senior Vice President Secretary and General Counsel Chief Governance Officer	62	1999	2000
Russell M. Jackson Senior Vice President Human Resources	56	2007	2007
Barry J. Libenson (4) Senior Vice PresidentChief Information Officer	53	2013	2013
Melissa C. Plaisance Senior Vice President Finance and Investor Relations	54	2004	2004
David R. Stern Senior Vice President Planning and Business Development	59	1994	2002
Jerry Tidwell Senior Vice President Supply Operations	62	2001	2003
Donald P. Wright Senior Vice President Real Estate and Engineering	61	1991	1991

17(1) Robert L. Edwards joined the Company as Executive Vice President and Chief Financial Officer in 2004. In April 2012, Mr. Edwards was named President. He continued as Chief Financial Officer until Peter J. Bocian joined the Company on February 19, 2013. In May 2013, Mr. Edwards was appointed Chief Executive Officer and continued as President of the Company.

⁽²⁾

Peter J. Bocian joined the Company as Executive Vice President and Chief Financial Officer effective February 19, 2013. Prior to that, Mr. Bocian served as Executive Vice President, Head of Corporate Services and Finance at JPMorgan Chase & Co. since 2011. From 2008 until 2011, he served as Executive Vice President and Chief Administrative Officer of Hewlett-Packard Company. Mr. Bocian intends to resign from his positions as an executive officer of the Company in March 2015.


⁽³⁾	Robert A. Gordon has been a Senior Vice President since May 1999 and General Counsel since June 2000. In September 2005, he also became Secretary. In January 2015, Mr. Gordon was appointed Executive Vice President, General Counsel and Secretary.


⁽⁴⁾	From 2013 until he was appointed to Executive Vice President and Chief Operating Officer, North Region in January 2015, Kelly P Griffith was Executive Vice President, Retail Operations. From 2010 to 2013, Mr. Griffith was President of Merchandising for Safeway. From 2008 until 2010, Mr. Griffith served as President, Perishables for the Company.

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(1) Robert L. Edwards joined the Company as Executive Vice President and Chief Financial Officer in 2004. In April 2012, Mr. Edwards was named President. He continued as Chief Financial Officer until Peter J. Bocian joined the Company on February 19, 2013. In May 2013, Mr. Edwards was appointed Chief Executive Officer and continued as President of the Company.

(2) Peter J. Bocian joined the Company as Executive Vice President and Chief Financial Officer effective February 19, 2013. Prior to that, Mr. Bocian served as Executive Vice President, Head of Corporate Services and Finance at JPMorgan Chase & Co. since 2011. From 2008 until 2011, he served as Executive Vice President and Chief Administrative Officer of Hewlett-Packard Company.

(3) From 2010 until his election to Executive Vice President, Retail Operations in 2013, Kelly P. Griffith was President of Merchandising for Safeway. From 2008 until 2010, Mr. Griffith served as President, Perishables for the Company.

(4) Barry J. Libenson joined Safeway in July 2013. Prior to Safeway, Mr. Libenson served as Senior Vice President, Chief Information Officer of Land O' Lakes, Inc. since 2010. Prior to that, Mr. Libenson was Vice President and Chief Information Officer at Ingersoll- Rand, Co. Ltd. Mr. Libenson joined Ingersoll-Rand as Vice President of e-Business in 2001.

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

~~The~~Prior to the closing of the Merger on January 30, 2015, the Company’s common stock, $0.01 par value, iswas listed on the New York Stock Exchange. As ~~Information~~a onresult ~~dividends~~of ~~declared~~the ~~per~~Merger, the common ~~share~~stock isof ~~set~~the ~~forth~~Company inis ~~Part~~now ~~II,~~privately ~~Item 7~~held ofby ~~this~~Albertson's ~~report. The~~Holdings ~~following~~LLC ~~table~~and ~~presents~~is ~~quarterly~~no ~~high~~longer ~~and~~traded ~~low~~on ~~sales~~The ~~prices~~New ~~for~~York ~~the~~Stock ~~Company’s~~Exchange ~~common~~or any other stock exchange or public market.

2013	Low		High
Quarter 4 (16 weeks)	$	25.85	$	36.90
Quarter 3 (12 weeks)	22.35		26.89
Quarter 2 (12 weeks)	22.26		28.42
Quarter 1 (12 weeks)	17.08		25.92
2012
Quarter 4 (16 weeks)	$	15.00	$	19.36
Quarter 3 (12 weeks)	14.73		18.31
Quarter 2 (12 weeks)	17.53		22.21
Quarter 1 (12 weeks)	20.20		23.16

The following table presents quarterly high and low sales prices for the Company’s common stock:

There were 13,037 stockholders of record as of February 20, 2014; however, approximately 98% of the Company’s outstanding stock is held in “street name” by depositories or nominees on behalf of beneficial holders. The closing price per share of common stock, as reported on the New York Stock Exchange Composite Tape, was $35.32 at the close of business on February 20, 2014.



2014	Low		High
Quarter 4 (17 weeks)	$	32.85	$	35.25
Quarter 3 (12 weeks)	33.89		34.99
Quarter 2 (12 weeks)	33.69		38.19
Quarter 1 (12 weeks)	29.82		40.25

2013
Quarter 4 (16 weeks)	$	25.85	$	36.90
Quarter 3 (12 weeks)	22.35		26.89
Quarter 2 (12 weeks)	22.26		28.42
Quarter 1 (12 weeks)	17.08		25.92

~~Although~~Information ~~the~~on ~~Company expects to continue to pay quarterly~~ dividends ondeclared ~~its~~per common ~~stock,~~share ~~the payment of future dividends~~ is atset ~~the~~forth ~~discretion~~in ofPart ~~the~~II, ~~Board~~Item 7 of ~~Directors~~this ~~and will depend upon the Company’s earnings, capital requirements, financial condition and other factors~~report.

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Issuer Purchases of Equity Securities

Fiscal period	Total number of shares purchased (1)	Average price paid per share ~~(2)~~		Total number of sharespurchased as part ofpublicly announcedplans or programs	Approximate dollarvalue of shares that may yet bepurchased under the plans or programs(in millions) (32)
September 8, 2013 - October 5, 2013	5,846	$	31.66	—	$	827.0
September 7, 2014 - October 4, 2014	6,133	$	34.20	—	$	2,163.3
October 6, 2013 - November 2, 2013	3,005	33.36		—	2,827.0
October 5, 2014 - November 1, 2014	599	34.26		—	2,163.3
November 3, 2013 - November 30, 2013	9,767,629	33.96		9,765,000	2,495.2
November 2, 2014 - November 29, 2014	5,760	34.87		—	2,163.3
December 1, 2013 - December 28, 2013	9,786,099	33.90		9,784,000	2,163.3
November 30, 2014 - January 3, 2015	2,250	34.75		—	2,163.3
Total	1914,~~562,579~~742	$	3334.9355	~~19,549,000~~—	$	2,163.3

(1) ~~Includes~~Shares ~~13,579 shares~~ withheld at the election of certain holders of restricted stock by the Company from the vested portion of restricted stock awards and restricted stock units with a market value ~~approximating~~equal to the ~~amount~~minimum ofstatutory ~~the~~ withholding taxes due from such restricted stockholders.

(2) ~~Average~~The ~~purchase~~Company's ~~price~~stock ~~excludes~~repurchase ~~commissions~~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. As a result of the Merger, the stock repurchase program is no longer in effect.

(3) 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 timing and volume of future repurchases will depend on several factors, including market conditions. The repurchase program has no expiration date but may be terminated by the Board of Directors. Additional information on the Company's stock repurchase program is set forth in Part II, Item 7 of this report.20

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Stock Performance Graph

The following graph compares the yearly percentage change in the Company’s cumulative total stockholder return on its common stock for the period from the end of its ~~2008~~2009 fiscal year to the end of its ~~2013~~2014 fiscal year to that of the Standard & Poor’s (“S&P”) 500 and a group of peer companies(*) in the retail grocery industry and assumes reinvestment of dividends. ~~The~~ As a result of the Merger on January 30, 2015, the common stock ~~price~~of ~~performance~~the ~~shown~~Company ~~below~~is now privately held by Albertson's Holdings LLC and is ~~not~~no ~~necessarily~~longer ~~indicative~~traded ofon ~~future~~The ~~performance~~New York Stock Exchange or any other stock exchange or public market.



(*)	The peer group consists of Delhaize Group, The Kroger Co., Loblaw Companies Limited, SUPERVALU INC., and Whole Foods Market, Inc.

The performance graph above is being furnished solely to accompany this annual report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is 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.

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Item 6.	Selected Financial Data

As previously reported, Safeway completed the sale of the net assets of Canada Safeway Limited ("CSL" now known as CSL IT Services ULC) to Sobeys Inc. on November 3, 2013. Additionally, in the fourth quarter of 2013, the Company exited the Chicago market where it operated 72 Dominick's stores. ~~All~~On ~~information~~April 14, in2014, Safeway completed the ~~two~~distribution ~~tables~~of ~~which~~the ~~follow~~remaining ~~exclude~~37.8 ~~Canadian~~million ~~operations~~shares ~~and~~of Blackhawk stock that it owned to its stockholders. CSL, Dominick's, ~~except~~and ~~for~~Blackhawk ~~balance~~are ~~sheet~~included in discontinued operations in the income statement information aspresented ~~noted~~in ~~below~~the following two tables.

(Dollars in millions, except per-share amounts)	5253 Weeks ~~2013~~2014			52 Weeks ~~2012~~2013			52 Weeks ~~2011~~2012			52 Weeks ~~2010~~2011			5352 Weeks ~~2009~~2010
Results of Operations
Sales and other revenue	$	36,~~139~~330.12		$	3635,~~068~~064.39		$	35,~~356~~161.75		$	3334,~~228~~655.37		$	33,~~361~~011.3
Gross profit	9,~~494~~682.0			9,~~462~~231.45			9,~~468~~229.81			9,~~399~~277.7			9,~~564~~261.41
Operating & administrative expense	(89,~~858~~147.65		)	(8,~~753~~680.10		)	(8,~~760~~593.07		)	(8,~~606~~628.18		)	(8,~~562~~508.34		)
Goodwill impairment charge	—			—			—			—			(1,974.2		)
Operating profit	534.5			551.5			635.4			648.9			752.7
Operating profit (loss)	635.4			709.3			708.8			793.6			(972.1		)
Interest expense	(198.9		)	(273.0		)	(300.6		)	(268.1		)	(295.0		)
Interest expense	(273.0		)	(300.7		)	(268.1		)	(294.9		)	(327.8		)
Loss on extinguishment of debt	(84.4		)	(10.1		)	—			—			—
Loss on foreign currency translation	(57131.42		)	—(57.4		)	—			—			—
Other income, net	3145.0			2740.86			1727.74			17.2			617.70
Income (loss) before income taxes	336.0			436.4			458.4			515.9			(1,293.2		)
Income before income taxes	165.0			251.6			362.2			398.0			474.7
Income taxes	(8961.78		)	(~~141~~34.85		)	(91113.20		)	(~~182~~68.15		)	(~~108~~162.7		)
Income (loss) from continuing operations, net of tax	246.3			294.6			367.2			333.8			(1,401.9		)
Income from continuing operations, net of tax	103.2			217.1			249.2			329.5			312.0
Income from discontinued operations, net of tax (Note B)	3,275.9			303.5			151.0			256.8			304.4
Income from discontinued operations, net of tax	9.3			3,305.1			348.9			188.7			278.6
Net income (loss) before allocation to noncontrolling interests	3,522.2			598.1			518.2			590.6			(1,097.5		)
Net income before allocation to noncontrolling interests	112.5			3,522.2			598.1			518.2			590.6
Noncontrolling interests	~~(14~~0.79		)	(114.67		)	(1.56		)	(01.85		)	—(0.8		)
Net income (loss) attributable to Safeway Inc.	$	3,507.5		$	596.5		$	516.7		$	589.8		$	(1,097.5	)
Net income attributable to Safeway Inc.	$	113.4		$	3,507.5		$	596.5		$	516.7		$	589.8
Basic earnings (loss) per common share:
Basic earnings per common share:
Continuing operations	$	0.9644		$	10.1890		$	1.0601		$	0.8895		$	(30.4082	)
Discontinued operations	$	130.5704		$	113.2363		$	01.4340		$	0.6854		$	0.74
Total	$	140.5348		$	214.4153		$	12.4941		$	1.5649		$	(21.6656	)
Diluted earnings (loss) per common share:
Diluted earnings per common share:
Continuing operations	$	0.9544		$	10.1889		$	1.0600		$	0.8895		$	(30.4082	)
Discontinued operations	$	130.4304		$	113.2249		$	01.4340		$	0.6754		$	0.7473
Total	$	140.3848		$	214.4038		$	12.4940		$	1.5549		$	(21.6655	)
Weighted average shares outstanding (in millions):
Basic	~~239~~228.18			~~245~~239.61			~~343~~245.46			~~378~~343.34			~~412~~378.93
Diluted	~~241~~230.57			~~245~~241.95			~~343~~245.89			~~379~~343.68			~~412~~379.96
Cash dividends declared per common share	$	0.~~7750~~8900		$	0.~~6700~~7750		$	0.~~5550~~6700		$	0.~~4600~~5550		$	0.~~3828~~4600

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Item 6.	Selected Financial Data (continued)

(Dollars in millions, except per-share amounts)	5253 Weeks ~~2013~~2014			52 Weeks ~~2012~~2013			52 Weeks ~~2011~~2012			52 Weeks ~~2010~~2011			5352 Weeks ~~2009~~2010
Financial Statistics
Identical-store sales increases (decreases)(1)	0.2		%	1.6		%	4.9		%	—		%	(5.7		)%
Identical-store sales increases(1)	1.7		%	0.2		%	1.6		%	4.9		%	—		%
Identical-store sales increases(decreases) without fuel(1)	1.7		%	0.8		%	1.1		%	(1.7		)%	(3.0		)%
Identical-store sales increases (decreases) without fuel(1)	2.8		%	1.7		%	0.8		%	1.1		%	(1.7		)%
Gross profit margin	26.2765		%	26.2333		%	26.7825		%	2826.2977		%	28.6705		%
Operating & administrative expense as a percentage of sales(2)	2425.5118		%	24.2775		%	24.7844		%	2524.90		%	25.6777		%
Operating profit (loss) as a percentage of sales(3)	1.76		%	1.97		%	2.00		%	2.39		%	(2.91		)%
Operating profit as a percentage of sales(2)	1.47		%	1.57		%	1.81		%	1.87		%	2.28		%
Cash paid for property additions	$	~~767~~711.42		$	~~821~~738.2		$	~~992~~800.41		$	~~689~~959.62		$	~~721~~674.70
Depreciation expense	$	~~943~~921.95		$	~~970~~922.2		$	~~973~~952.08		$	~~984~~958.85		$	~~999~~973.38
Total assets(3,6)	$	17,219.5		$	14,657.0		$	15,073.6		$	15,148.1		$	14,963.6
Total assets(4)	$	13,377.0		$	17,219.5		$	14,657.0		$	15,073.6		$	15,148.1
Total debt (6)	$	4,193.0		$	5,573.7		$	5,410.2		$	4,836.3		$	4,901.7
Total debt (4)	$	2,999.9		$	4,193.0		$	5,573.7		$	5,410.2		$	4,836.3
Total equity(3,4,6)	$	5,875.1		$	2,909.2		$	3,691.1		$	4,999.7		$	4,948.4
Total equity(4)	$	5,450.4		$	5,875.1		$	2,909.2		$	3,691.1		$	4,999.7
Other Statistics
Stores opened during the year	78			87			228			1222			612
Stores closed during the year(5)	18			39			37			42			20
Stores closed during the year(3)	17			18			39			37			42
Total stores at year end	1,~~335~~326			1,~~346~~335			1,~~377~~346			1,~~392~~377			1,~~422~~392
Total retail square footage at year end (in millions)	63.41			63.84			6563.18			65.1			6665.01

(1) Defined as stores operating the same period in both the current year and the prior year, comparing sales on a daily basis. 2014 is based on the same 53-week period in both years. Stores that are open during remodeling are included in identical-store sales (ID Sales). Internet sales are included in ID Sales if the store fulfilling the orders is included in the ID Sales calculation. The 57 stores which were announced to be divested in order to secure Federal Trade Commission clearance of the Merger are excluded from the ID Sales calculation beginning on December 19, 2014, the date of announcement of the proposed sales.


⁽²⁾	Management believes this ratio is relevant because it assists investors in evaluating Safeway’s ability to control costs.

(3) ~~2009~~In ~~includes~~2012, athe ~~pretax~~Company ~~goodwill~~disposed ~~impairment~~of ~~charge~~25 of ~~$1,974.2~~its ~~million,~~Genuardi's ~~($1,818~~stores.2 ~~million~~See Note B to the consolidated financial statements set forth in Part II, ~~after-tax)~~Item 8 of this report.

(4) ~~Total~~Includes ~~equity~~Canada and Dominick's in ~~2009~~2010 through 2012 ~~has been decreased $24~~.2 ~~million~~Includes ~~due~~Blackhawk ~~to a correction~~ in ~~the~~2010 ~~accounting~~through ~~for the accrual of multiemployer health and welfare benefits~~2013. ~~See Note A, under the caption "Correction to Previously Reported Financial Statements."~~

~~(5) In 2012, the Company disposed of 25 of its Genuardi's stores. See Note B.~~23

(6) Includes Canada and Dominick's in 2009 through 2012.

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Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The last three fiscal years consist of the 5253-week period ended ~~December~~January 283, ~~2013~~2015 (“fiscal ~~2013~~2014” or “~~2013~~2014”), the 52-week period ended December 2928, ~~2012~~2013 (“fiscal ~~2012~~2013” or “~~2012~~2013”) and the 52-week period ended December 3129, ~~2011~~2012 (“fiscal ~~2011~~2012” or “~~2011~~2012”).

Management Overview

OnPursuant ~~February~~to ~~19,~~the ~~2014~~Merger Agreement, ~~Safeway~~on ~~announced~~January it30, is2015, inMerger ~~discussions~~Sub ~~concerning~~merged awith ~~possible~~and ~~transaction~~into ~~involving~~Safeway ~~the~~with ~~sale~~Safeway ofsurviving the ~~Company. Although~~merger ~~the~~as ~~discussions~~a ~~are~~wholly ~~ongoing,~~owned ~~the~~subsidiary ~~Company~~of ~~has~~Albertsons ~~not~~Holdings. ~~reached~~See anthe ~~agreement~~Introductory onNote ato ~~transaction,~~this report and ~~there~~Note ~~can~~V beto nothe ~~assurance~~consolidated ~~that~~financial ~~these~~statements ~~discussions~~set ~~will~~forth ~~lead~~in toPart anII, ~~agreement~~Item or8 aof ~~completed~~this ~~transaction~~report for additional information.

~~Safeway~~On ~~also~~December 23, ~~announced~~2014, ~~that~~Safeway itand ~~has~~its ~~decided~~wholly toowned ~~distribute~~real ~~the~~estate ~~remaining~~development ~~37.8~~subsidiary, ~~million~~PDC, ~~shares~~sold itsubstantially ~~owns~~all of ~~Blackhawk~~the ~~(approximately~~net ~~72.2%~~assets of ~~the~~PDC ~~outstanding~~to ~~Blackhawk~~Terramar, ~~shares)~~an tounrelated ~~Safeway stockholders~~party. ~~Currently,~~ ~~the~~PDC’s ~~plan~~assets iswere tocomprised ~~make~~of ~~the~~shopping ~~distribution~~centers onthat aare ~~pro~~completed ~~rata~~or ~~basis~~under todevelopment. ~~all~~Most ~~Safeway~~of ~~stockholders~~these incenters included a ~~transaction~~grocery ~~intended~~store tothat bewas ~~tax-free~~leased back to Safeway. The ~~and~~sale ~~its~~was ~~stockholders. However,~~consummated ifpursuant ~~Safeway~~to ~~consummates~~an aAsset ~~sale~~Purchase ~~transaction~~Agreement dated as of December 22, ~~the~~2014 ~~distribution~~by ~~may~~and beamong ~~taxable. The~~Safeway, ~~timing~~PDC and ~~details~~Terramar. ofSee Note D to the ~~distribution~~consolidated ~~will~~financial bestatements ~~determined~~set forth in ~~the~~Part ~~near~~II, ~~future~~Item 8 of this report for additional information.

Additionally, Safeway announced that it is exploring alternatives to monetize its investment in its equity affiliate, Casa Ley. While Safeway has discussed its desire to monetize its investment with the majority owners of Casa Ley, there can be no assurance that Safeway will be able to sell its interest in Casa Ley at a price and on terms that Safeway finds acceptable. 24

Discontinued Operations

Sale of Canadian Operations On November 3, 2013, Safeway completed the Sale of Canadian Operations to Sobeys for CAD5.8 billion (USD5.6 billion) in cash plus the assumption of certain liabilities.

Dominick's During the fourth quarter of 2013, Safeway sold or closed all Dominick's stores. In 2013, cash proceeds on the sale of these stores were $72.2 million, with a pre-tax loss of $493.1 million. Included in the loss is a $310.8 million charge which represents the estimated multiemployer pension plan withdrawal liability. See Note N.

Genuardi's In January 2012, Safeway announced the planned sale or closure of its Genuardi’s stores, located in the Eastern United States. These transactions were completed during 2012 with cash proceeds of $107.0 million and a pre-tax gain of $52.4 million ($31.9 million after tax).

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SAFEWAY INC. AND SUBSIDIARIES

Discontinued Operations

Financial information for discontinued operations is shown below (in millions):

		2013			2012			2011
		2014			2013			2012
Sales and other revenue:
	CSL (1)	$	~~5,447.9~~—		$	65,~~695~~447.89		$	6,~~726~~695.98
	Dominick's	~~1,394~~7.83			1,~~465~~394.28			1,~~568~~465.62
	Total	$	6,842.7		$	8,161.0		$	8,295.5
	Blackhawk (1)	305.6			1,074.2			906.8
Income (loss) from discontinued operations, before income taxes:
	Total	$	312.9		$	7,916.9		$	9,067.8
	CSL (1)	$	286.2		$	442.3		$	462.3
(Loss) income from discontinued operations, before income taxes:
	Dominick's	(92.0		)	(50.4		)	(38.7		)
	CSL (1)	$	—		$	286.2		$	442.3
	Total	$	194.2		$	391.9		$	423.6
	Dominick's (2)	(186.8		)	(92.0		)	(50.4		)
Gain (loss) on sale or disposal of operations, net of lease exit costs, before income taxes:
	Blackhawk	(4.4		)	84.4			74.2
	CSL (2)	$	4,783.1		$	—		$	—
	Total	$	(191.2	)	$	278.6		$	466.1
	Dominick's	(493.1		)	—			—
Gain on sale or disposal of operations, net of lease exit costs and transaction costs, before income taxes:
	Genuardi's	—			52.4			—
	CSL (3)	$	(6.8	)	$	4,783.1		$	—
	Total	$	4,290.0		$	52.4		$	—
	Dominick's (4)	140.9			(493.1		)	—
Total income from discontinued operations before income taxes		$	4,484.2		$	444.3		$	423.6
	Blackhawk	(5.9		)	—			—
Income taxes on discontinued operations		(1,208.3		)	(140.8		)	(272.6		)
	Genuardi's	—			—			52.4
Income from discontinued operations, net of tax		$	3,275.9		$	303.5		$	151.0
	Total	$	128.2		$	4,290.0		$	52.4
(1) For CSL, 2013 reflects 44 weeks of activity compared to 52 weeks in 2012 and 2011.
Total (loss) income from discontinued operations, before income taxes		$	(63.0	)	$	4,568.6		$	518.5
(2) In accordance with ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," the Company transferred the cumulative translation adjustment relating to Canadian operations from Accumulated Other Comprehensive Loss on the balance sheet to gain on the Sale of Canadian Operations.
Income taxes on discontinued operations		72.3			(1,263.5		)	(169.6		)
Income from discontinued operations, net of tax		$	9.3		$	3,305.1		$	348.9

~~Historical~~(1) ~~financial~~For ~~information for~~ CSL, ~~and~~2013 ~~Dominick's~~reflects ~~presented~~44 inweeks ~~the~~of ~~consolidated~~activity ~~income~~compared ~~statements has been reclassified~~ to ~~discontinued~~52 ~~operations~~weeks toin ~~conform~~2012. toFor ~~current-year~~Blackhawk, ~~presentation. The~~2014 ~~historical~~reflects ~~operating~~15 ~~results~~weeks of ~~Genuardi's~~activity ~~stores~~compared ~~have not been reflected in discontinued operations because the historical financial operating results were not material~~ to ~~the~~52 ~~Company's~~weeks ~~consolidated financial statements for all periods presented. The disclosures~~ in ~~this~~2013 ~~Management's Discussion~~ and ~~Analysis focus on continuing operations, unless otherwise noted~~2012. ~~See Note B to the consolidated financial statements set forth in Part II, Item 8 of this report for additional information on Discontinued Operations.~~

~~Initial Public Offering~~ (~~"IPO"~~2) 2014 includes charges of ~~Blackhawk~~$159.4 million to increase the multiemployer pension withdrawal liability.

On(3) ~~April 24,~~In ~~2013,~~accordance ~~Blackhawk,~~with aASU ~~Safeway subsidiary, completed its initial public offering of 11~~No.5 ~~million shares of its Class A common stock at $23.00 per share on the NASDAQ Global Select Market~~2013-05, ~~which~~"Parent's ~~included~~Accounting ~~the exercise by the underwriters~~ for the ~~offering~~Cumulative ofTranslation anAdjustment ~~option~~upon toDerecognition ~~purchase 1.5 million shares~~ of ~~Class~~Certain ASubsidiaries ~~common~~or ~~stock. The~~Groups ~~offering consisted solely~~ of ~~shares~~Assets ~~offered~~within bya ~~existing~~Foreign ~~stockholders,~~Entity ~~including~~or ~~Safeway. As part~~ of ~~the~~an ~~IPO,~~Investment ~~Safeway~~in ~~sold~~a ~~11.3~~Foreign ~~million~~Entity," ~~shares~~the ofCompany ~~Class~~transferred Athe ~~common~~cumulative ~~stock~~translation ofadjustment ~~Blackhawk~~relating ~~for~~to ~~proceeds~~Canadian ofoperations ~~$243.6~~from ~~million~~Accumulated ~~($238.0~~Other ~~million,~~Comprehensive ~~net~~Loss ofon ~~professional service fees), reducing~~ the ~~Company's~~balance ~~ownership~~sheet ~~from approximately 95%~~ to ~~approximately~~gain ~~73%~~on ofthe ~~Blackhawk's~~Sale ~~total outstanding shares~~ of ~~common~~Canadian ~~stock. As~~Operations ofin ~~December 28,~~ 2013~~, Safeway owned 37~~.~~8 million shares, or approximately 72.2%, of Blackhawk, which the Company plans to distribute to its stockholders.~~

24(4) 2013 includes a charge of $310.8 million for the estimated multiemployer pension plan withdrawal liability.

Blackhawk On April 14, 2014, Safeway completed the distribution of 37.8 million shares of Blackhawk stock that it owned to its stockholders.

Sale of Canadian Operations On November 3, 2013, Safeway completed the sale of its Canadian operations to Sobeys for CAD5.8 billion (USD5.6 billion) in cash plus the assumption of certain liabilities.

Dominick's During the fourth quarter of 2013, Safeway sold or closed all Dominick's stores. Cash proceeds on the sale of these stores sold in fiscal 2013 were $72.2 million. Stores closed in 2013 but sold in fiscal 2014 had cash proceeds of $246.3 million.

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SAFEWAY INC. AND SUBSIDIARIES

Historical financial information for CSL, Dominick's and Blackhawk presented in the consolidated income statements has been reclassified to discontinued operations to conform to current-year presentation. The historical operating results of Genuardi's stores have not been reflected in discontinued operations because the historical financial operating results were not material to the Company's consolidated financial statements for all periods presented. The disclosures in this Management's Discussion and Analysis focus on continuing operations, unless otherwise noted. See Note B to the consolidated financial statements set forth in Part II, Item 8 of this report for additional information on Discontinued Operations.

Reduction of Debt

~~During~~In ~~2013~~2014, ~~the~~Safeway ~~Company~~ reduced debt by $1.42 billion with ~~a combination of~~ net proceeds from the sale of its Canadian operations, and free cash flow. In August 2014, Safeway paid $802.7 million to redeem $320.0 million of the 3.40% Senior Notes due 2016 and ~~net~~$400.0 ~~proceeds~~million of the 6.35% Senior Notes due 2017. In accordance with the Merger Agreement, the Company contributed $40.0 million in cash to PDC in the second quarter of 2014. This cash was to be held in a reserve account until the earlier to occur of (i) payment in full of the mortgage indebtedness encumbering a shopping center in Lahaina, Hawaii and (ii) the release of the Company from any guaranty obligations in connection with such indebtedness. During the ~~IPO~~third quarter of ~~Blackhawk~~2014, the Company deposited $40.0 million with a trustee and achieved a full legal defeasance of the mortgage indebtedness and was released from the guaranty obligations associated with such indebtedness. Therefore, during the third quarter of 2014, the Company extinguished the $40.8 million mortgage from the condensed consolidated balance sheet. In addition, the Company repaid the $400 million outstanding under its term credit agreement during 2014.

During 2013, the Company reduced debt by $1.4 billion with a combination of net proceeds from the sale of its Canadian operations, free cash flow and net proceeds from the IPO of Blackhawk . The Company repaid its $250.0 million Floating Rate Senior ~~Note~~Notes on the December 12, 2013 maturity date and redeemed $500.0 million of 6.25% Senior Notes due March 15, 2014. Additionally, in the fourth quarter of 2013, the Company deposited CAD304.5 million in an account with the Trustee under the indenture governing the CAD300.0 million, 3.00% Second Series Notes due March 31, 2014. Safeway met the conditions for satisfaction and discharge of the Company's obligations under the indenture and, as a result, extinguished the $287.9 million notes and $292.2 million cash from the consolidated balance sheet. In addition, the Company reduced borrowings under its term credit agreement by $300 million.

~~Repurchase~~Effect of the ~~Company's~~Merger ~~Common~~on ~~Stock~~Liquidity

~~During~~In ~~2013,~~connection with the ~~Company~~Merger, ~~repurchased~~on ~~19.5~~January ~~million~~30, ~~shares~~2015, ofSafeway ~~common~~became ~~stock~~party atto (i) an ~~average~~asset-based ~~cost~~revolving credit agreement with borrowing capacity of up to $~~33.93~~3 ~~per~~billion, ~~share~~$980 million of which was drawn on January 30, 2015 and (ii) a ~~total~~term ~~cost~~loan agreement with a principal amount equal to $6.3 billion (which may, in certain circumstances, be increased). In addition, pursuant to the Merger, Safeway is an obligor and its domestic subsidiaries are guarantors of $~~663~~609.7 million in principal amount of 7.75% senior secured notes (~~including~~after ~~commissions~~repayment of some of those notes on February 9, 2015). The proceeds of this indebtedness, together with approximately $650 million of cash on hand, were used to pay a portion of ~~proceeds~~the ~~from~~Merger ~~the~~consideration ~~sale~~and related fees and expenses of ~~Safeway's~~the ~~Canadian~~Merger ~~operations~~and to provide working capital.

~~Economic Conditions~~26

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™, a continuing focus on cost control and new business initiatives.

Results of Operations

Income from Continuing Operations Income from continuing operations was $246.3 million ($0.95 per diluted share) in 2013, $294.6 million ($1.18 per diluted share) in 2012 and $367.2 million ($1.06 per diluted share) in 2011. Fiscal 2013 included a $57.4 million loss on foreign currency translation, a $30.0 million loss from the impairment of notes receivable and a $9.7 million gain from the reduction of contingent consideration related to Blackhawk's acquisition of Cardpool. Fiscal 2012 included a $46.5 million gain from legal settlements. Income tax expense in 2011 was reduced by $53.8 million due to a change in policy regarding the repatriation of earnings in Casa Ley.

Sales and Other Revenue Identical-store sales increases for the past three fiscal years were as follows:

	2013		2012		2011
Including fuel	0.2	%	1.6	%	4.9	%
Excluding fuel	1.7	%	0.8	%	1.1	%

Sales increased 0.2% to $36,139.1 million in 2013 from $36,068.3 million in 2012. Identical-store sales, excluding fuel, increased 1.7%, or $506 million, due to inflation and better merchandising. Other revenue, primarily from gift and prepaid card sales increased $186 million. Warehouse and supply sales increased $35 million. Fuel sales decreased $426 million in 2013, as a result of the average retail price per gallon of fuel decreasing 4.1% and gallons sold decreasing 5.4%. Sales declined $233 million due to the disposition of Genuardi's stores in 2012. Store closures, net of new stores, decreased sales $39 million. Average transaction size and transaction counts increased during fiscal 2013.

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SAFEWAY INC. AND SUBSIDIARIES

~~Sales~~Results ~~increased 2.0% to $36,068.3 million in 2012 from $35,356.7 million in 2011. Fuel sales increased $363.8 million in 2012, as a result~~ of the average retail price per gallon of fuel increasing 2.3% and gallons sold increasing 5.8%. Identical-store sales, excluding fuel, increased 0.8%, or $236 million, primarily due to inflation. Other revenue, primarily from gift and prepaid card sales increased $201 million. New stores, net of store closures, increased sales by $205 million. Sales declined $254 million due to the disposition of Genuardi's stores. Average transaction size increased during fiscal 2012, and transaction counts decreased. Operations

Income from Continuing Operations Income from continuing operations was $103.2 million ($0.44 per diluted share) in 2014, $217.1 million ($0.89 per diluted share) in 2013 and $249.2 million ($1.00 per diluted share) in 2012. Fiscal 2014 included a loss on foreign currency translation of $131.2 million, a loss on extinguishment of debt of $84.4 million, and merger- and integration-related expenses of $48.8 million. Fiscal 2013 included a $57.4 million loss on foreign currency translation and a $30.0 million loss from the impairment of notes receivable. Fiscal 2012 included a $46.5 million gain from legal settlements.

Sales and Other Revenue Identical-store sales ⁽¹⁾ increases for the past three fiscal years were as follows:



	2014		2013		2012
Including fuel	1.7	%	0.2	%	1.6	%
Excluding fuel	2.8	%	1.7	%	0.8	%

(1)

Defined as stores operating the same period in both the current year and the prior year, comparing sales on a daily basis. 2014 is based on the same 53-week period in both years. Stores that are open during remodeling are included in identical-store sales (ID Sales). Internet sales are included in ID Sales if the store fulfilling the orders is included in the ID Sales calculation. The 57 stores which were announced to be divested in order to secure Federal Trade Commission clearance of the Merger are excluded from the ID Sales calculation beginning on December 19, 2014, the announcement date.

Sales increased 3.6% to $36,330.2 million in 2014 from $35,064.9 million in 2013. Identical-store sales, excluding fuel, increased 2.8%, or $865 million due to inflation and better merchandising. Average transaction size and transaction counts increased during fiscal 2014. The additional week in fiscal 2014 contributed $573 million in sales. Fuel sales decreased $206 million in 2014, as a result of the average retail price per gallon of fuel decreasing 2.9% and gallons sold decreasing 2.1%.

Sales decreased 0.3% to $35,064.9 million in 2013 from $35,161.5 million in 2012. Identical-store sales, excluding fuel, increased 1.7%, or $511 million, due to inflation and better merchandising. Warehouse and supply sales increased $35 million. Other revenue, primarily from gift and prepaid card sales increased $13 million. Fuel sales declined $425.8 million in 2013, as a result of the average retail price per gallon of fuel decreasing 4.1% and gallons sold decreasing 5.4%. Sales declined $233 million due to the disposition of Genuardi's stores in 2012. Store closures, net of new stores, decreased sales $39 million. Average transaction size and transaction counts increased during fiscal 2013.

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 associated with Safeway’s distribution network. Advertising and promotional expenses are also a component of cost of goods sold. Additionally, all vendor allowances are classified as an element of cost of goods sold.

Gross profit margin was 26.2765% of sales in ~~2013~~2014, 26.2333% of sales in ~~2012~~2013 and 26.7825% in ~~2011~~2012.

The gross profit margin increased ~~four~~32 basis points to 26.2765% of sales in ~~2013~~2014 from 26.2333% of sales in ~~2012~~2013 primarily for the following reasons:

	Basis-point increase (decrease)
Impact of fuel sales	35
Lower advertising expense	16
Changes in product mix	6
Increased LIFO income	5
Fuel partner discounts	(15	)
Investments in price	(18	)
Higher Blackhawk revenue (which has a lower gross margin than grocery sales)	(8	)
Higher shrink expense	(19	)
Other individually immaterial items	2
	4

The gross profit margin decreased 55 basis points to 26.23% of sales in 2012 from 26.78% of sales in 2011 primarily for the following reasons:

	Basis-point (decrease) increase
Impact of fuel sales	(35	)
Investments in price	(21	)
Higher shrink expense	(13	)
Costs incurred to launch just for U™	(9	)
Lower LIFO expense	14
Other individually immaterial items	9
	(55	)

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Shrink expense increased 19 basis points in 2013 and 13 basis point in 2012. In the second half of 2013, Safeway implemented a new strategy which focuses more on increasing sales with less emphasis on controlling shrink. While Safeway anticipated some additional shrink in 2013, the transition to the new strategy resulted in an unplanned level of shrink in the third quarter of 2013. We believe this initial unplanned level for shrink was eliminated in the fourth quarter of 2013 and that shrink expense should be flat in 2014. Safeway's long-term programs to control shrink expense include improved buying practices to prevent overstocking of inventory and increased security to reduce theft.



	Basis-point increase (decrease)
Impact of fuel sales	53
Lower advertising expense	19
Investments in price	(25	)
Higher shrink expense	(15	)
	32

~~Vendor~~The ~~allowances~~gross ~~totaled~~profit ~~$2.4~~margin ~~billion~~increased ineight ~~2013,~~basis ~~$2.3~~points ~~billion~~to in26.33% ~~2012~~of ~~and~~sales ~~$2.2~~in ~~billion~~2013 infrom ~~2011~~26. ~~Vendor~~25% ~~allowances~~of ~~can~~sales bein ~~grouped~~2012 ~~into~~primarily for the following ~~broad categories~~reasons: ~~promotional allowances, slotting allowances and contract allowances.~~



	Basis-point increase (decrease)
Impact of fuel sales	35
Lower advertising expense	16
Changes in product mix	6
Increased LIFO income	5
Fuel partner discounts	(15	)
Investments in price	(18	)
Higher shrink expense	(19	)
Other individually immaterial items	(2	)
	8

Shrink expense increased 15 basis points in 2014 and 19 basis points in 2013. In the second half of 2013, Safeway implemented a new strategy which focuses more on increasing sales with less emphasis on controlling shrink which has led to higher shrink expense in 2014 and 2013.

Vendor allowances totaled $2.5 billion in 2014, $2.4 billion in 2013 and $2.3 billion in 2012. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances and contract allowances.

Promotional allowances make up the vast majority 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.

Slotting allowances are a very small portion of total 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 a 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.

Promotional and slotting allowances are accounted for as a reduction in the cost of purchased inventory and are 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 consists primarily of store occupancy costs and backstage expenses, which, in turn, consist primarily of wages, employee benefits, rent, depreciation and utilities.

Operating and administrative expense was 24.51% of sales in 2013 compared to 24.27% of sales in 2012 and 24.78% in 2011.

Operating and administrative expense margin increased 24 basis points to 24.51% of sales in 2013 from 24.27% of sales in 2012 primarily for the following reasons:

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	Basis-point increase (decrease)
Impact of fuel sales	33
$46.5 million gain from legal settlements in 2012	15
Write-off of $30 million of notes receivable	9
Decline in self-insurance expense	(16	)
Higher revenue from Blackhawk	(12	)
Lower depreciation expense	(11	)
Lower pension expense	(5	)
Other individually immaterial items	11
	24

Self-insurance expense declined $50.6 million to $98.6 million in 2013 from $149.2 million in 2012. A 100 basis-point increase in the discount rate used to measure the present value of the self-insurance liability accounted for approximately $24 million of the decline in expense. The remaining decline was due primarily to Company programs to reduce workers' compensation expense.

Operating and administrative expense margin decreased 51 basis points to 24.27% of sales in 2012 from 24.78% of sales in 2011 primarily for the following reasons:

	Basis-point decrease (increase)
Impact of fuel sales	(17	)
$46.5 million gain from legal settlements in 2012	(15	)
Lower labor	(12	)
Reduced store occupancy	(10	)
Higher revenue from Blackhawk	(9	)
Higher pension expense	10
Other individually immaterial items	2
	(51	)

Gain on Property Dispositions Operating and administrative expense included a net gain on property dispositions of $51.2 million in 2013, a net gain of $48.3 million in 2012 and a net gain of $16.2 million in 2011.

Interest Expense Interest expense was $273.0 million in 2013, compared to $300.7 million in 2012 and $268.1 million in 2011. The decrease in interest expense in 2013 was due to lower average borrowing in 2013 compared to 2012, partly offset by slightly higher interest rates. The increase in 2012 was due to higher average borrowings, partly offset by lower average interest rates.

Average borrowings from continuing operations were $5,623.9 million, $6,378.9 million and $5,037.1 million in 2013, 2012 and 2011, respectively. Average interest rates were 4.92%, 4.71% and 5.32% in 2013, 2012 and 2011, respectively.

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~~Loss~~Operating onand ~~Foreign~~Administrative ~~Currency~~Expense Operating ~~Translation After~~and ~~the~~administrative ~~sale~~expense ofconsists ~~the~~primarily ~~Company's~~of ~~Canadian~~store ~~operations,~~occupancy ~~the~~costs ~~adjustments resulting from translation of assets~~ and ~~liabilities~~backstage ~~denominated~~expenses, inwhich, ~~Canadian dollars are included~~ in ~~the~~turn, ~~statement~~consist primarily of ~~income~~wages, asemployee abenefits, ~~foreign~~rent, ~~currency~~depreciation ~~gain~~and ~~or loss~~utilities. ~~Foreign currency loss was $57.4 million in fiscal 2013.~~

~~Other~~Operating Income, Net In fiscal 2013, Other income, net consists of interest income of $14.8 million, equity in earnings of unconsolidated affiliate of $17.6 million, gain on the sale of investments of $8.6 million and ~~loss~~administrative onexpense ~~extinguishment~~was ~~of debt of $10~~25.118% ~~million. In fiscal 2012, Other income, net consists primarily~~ of ~~interest~~sales ~~income of $9.9 million and equity~~ in ~~earnings~~2014 ~~from~~compared ~~Safeway’s~~to ~~unconsolidated affiliate of $17~~24.575% ~~million. In 2011, Other income, net consists primarily~~ of ~~interest~~sales ~~income~~in of2013 ~~$4.8 million~~ and ~~equity~~24.44% in ~~earnings of unconsolidated affiliate of $13~~2012.~~0 million.~~

~~Income~~Operating Taxes Income tax expense was $89.7 million, or 26.7% of pre-tax income in 2013. In 2013 Safeway withdrew $68.7 million from the accumulated cash surrender value of corporate-owned life insurance ("COLI") policies and ~~determined~~administrative 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 2013 income tax expense bymargin ~~$17.2~~increased ~~million. In~~43 ~~2012,~~basis ~~Safeway~~points ~~had~~to ~~income tax expense of $141~~25.~~8 million, or 32.5~~18% of ~~pre-tax~~sales ~~income. In~~in ~~2011,~~2014 ~~income~~from ~~tax expense was $91~~24.~~2 million, or 19.9~~75%, of ~~pre-tax~~sales ~~income. Income tax expense~~ in ~~2011~~2013 ~~was~~primarily ~~reduced~~for ~~by $53.8 million due to a change in policy regarding~~ the ~~repatriation~~following ofreasons: ~~earnings in Casa Ley.~~



	Basis-point increase (decrease)
Impact of fuel sales	22
Store occupancy costs	(20	)
Write-off of $30 million of notes receivable in 2013	(10	)
Lower pension expense	(14	)
Store labor	(12	)
Higher bonus expense	18
Merger- and integration-related expenses	16
Higher self insurance expense	15
Lower property gains	8
Higher legal expenses	8
Other	12
	43

Self-insurance expense increased $55.3 million to $153.9 million in 2014 from $98.6 million in 2013. A 25 basis-point decline in the discount rate used to measure the present value of the self-insurance liability in 2014 increased self-insurance expense by approximately $6 million. In 2013, a 100 basis-point increase in the discount rate reduced 2013 expense by approximately $24 million. The remaining increase was due primarily to adverse claim development.

Operating and administrative expense margin increased 31 basis points to 24.75% of sales in 2013 from 24.44% of sales in 2012 primarily for the following reasons:



	Basis-point increase (decrease)
Impact of fuel sales	33
$46.5 million gain from legal settlements in 2012	15
Write-off of $30 million of notes receivable	9
Decline in self-insurance expense	(16	)
Lower depreciation expense	(11	)
Lower pension expense	(5	)
Other individually immaterial items	6
	31

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~~Blackhawk~~Gain ~~Financial~~on ~~Results Blackhawk~~Property ~~revenue~~Dispositions Operating ~~(excluding~~and ~~intercompany~~administrative ~~revenue~~expense toincluded ~~Safeway~~a ~~Inc.)~~net ~~was~~gain ~~$1,128.5~~on ~~million~~property ~~for~~dispositions ~~fiscal~~of ~~2013, up 19.0% from~~ $~~948~~38.58 million in ~~fiscal 2012. This increase was primarily due to an increase in the load value of gift cards~~2014, ~~an increase in marketing revenue, an increase in fees from VISA gift cards, increase in sales from Cardpool and an increase in card production sales. In 2013, Blackhawk recorded~~ a net gain of $1351.52 million ~~from the reduction of contingent consideration related to the acquisition of Cardpool. Also~~ in 2013, ~~Blackhawk~~and ~~incurred~~ a ~~$6.0~~net ~~million~~gain ~~mark-to-market charge for accelerating the expense~~ of ~~a partner equity instrument at the time of its IPO. Income before taxes from Blackhawk was~~ $8448.53 million in ~~2013 compared to $75.0 million in fiscal~~ 2012.

~~Blackhawk~~Interest ~~revenue~~Expense Interest ~~(excluding~~expense ~~intercompany revenue to Safeway Inc.)~~ was $~~948~~198.59 million ~~for~~in ~~fiscal 2012~~2014, upcompared ~~27.6%~~to ~~from~~ $~~743~~273.30 million in ~~fiscal~~2013 ~~2011~~and $300. ~~This~~6 ~~increase~~million ~~was~~in ~~primarily~~2012. The ~~due~~decrease ~~to an increase~~ in ~~the~~2014 ~~load~~was ~~value~~due ofto ~~gift~~lower ~~cards,~~average ~~an increase in marketing revenue~~borrowings, anpartly ~~increase~~offset inby ~~sales~~increased ~~from~~average ~~Cardpool~~interest ~~and~~rates. The andecrease ~~increase~~ in ~~telecom~~interest ~~handset~~expense ~~sales. Income~~in ~~before~~2013 ~~taxes~~was ~~from~~due ~~Blackhawk~~to ~~was~~lower ~~$75.0~~average ~~million~~borrowing in ~~2012~~2013 compared to ~~$60.7~~2012, ~~million~~partly inoffset ~~fiscal~~by ~~2011~~slightly higher interest rates.

Average borrowings from continuing operations were $3,680.5 million, $5,623.9 million and $6,378.9 million in 2014, 2013 and 2012, respectively. Average interest rates were 5.42%, 4.85% and 4.71% in 2014, 2013 and 2012, respectively.

Loss on Extinguishment of Debt The Company incurred a loss on extinguishment of debt of $84.4 million and $10.1 million in fiscal 2014 and 2013, respectively. For more information, see Note G to the condensed consolidated financial statements set forth in Part II, Item 8 of this report.

Loss on Foreign Currency Translation After the sale of the Company's Canadian operations, the adjustments resulting from translation of assets and liabilities denominated in Canadian dollars are included in the statement of income as a foreign currency gain or loss. Foreign currency loss was $131.2 million in fiscal 2014 and $57.4 million in fiscal 2013.

Other Income, Net In fiscal 2014, Other income, net consists of interest income of $22.5 million, equity in earnings of unconsolidated affiliate of $16.2 million and gain on the sale of investments of $6.3 million. In fiscal 2013, Other income, net consists primarily of interest income of $14.8 million, equity in earnings from Safeway’s unconsolidated affiliate of $17.6 million and gain on the sale of investments of $8.6 million. In fiscal 2012, Other income, net consists primarily of interest income of $9.9 million and equity in earnings of unconsolidated affiliate of $17.5 million.

Income Taxes Income tax expense was $61.8 million, or 37.5% of pre-tax income in 2014. In 2013, Safeway had income tax expense of $34.5 million, or 13.7% of pre-tax income. In 2013, Safeway withdrew $68.7 million from the accumulated cash surrender value of corporate-owned life insurance ("COLI") policies 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 2013 income tax expense by $17.2 million. In 2012, income tax expense was $113.0 million, or 31.2%, of pre-tax income.

Critical Accounting Policies and Estimates

Critical accounting policies are those accounting policies that management believes are important to the portrayal of Safeway’s financial condition and results of operations 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.

Workers’ Compensation The Company is primarily self-insured for workers’ compensation, automobile and general liability costs. It is the Company’s policy to record its self-insurance liability as determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported.

Self-insurance reserves are actuarially determined primarily by applying historical paid loss and incurred loss development trends to current cash and incurred expected losses in order to estimate total losses. The Company then discounts total expected losses to their present value using a risk-free rate of return.

Any actuarial projection of self-insured losses is subject to a high degree of variability. Litigation trends, legal interpretations, benefit level changes, claim settlement patterns and similar factors influenced historical development trends that were used to determine the current-year expense and therefore contributed to the variability in annual expense. However, these factors are not direct inputs into the actuarial projection, and thus their individual impact cannot be quantified.

The discount rate is a significant factor that has led to variability in self-insured expenses. Since the discount rate is a direct input into the estimation process, the Company is able to quantify its impact. The discount rate, which is based on the United States Treasury Note rates for the estimated average claim life of five years, was 1.75% in 2013, 0.75% in 2012 and 0.75% in 2011. A 25-basis-point change in the discount rate affects the self-insured liability by approximately $6 million.

The majority of the Company’s workers’ compensation liability is from claims occurring in California. California workers’ compensation has received intense scrutiny from the state’s politicians, insurers, employers and providers, as well as the public in general. Recent years have seen escalation in the number of legislative reforms, judicial rulings and social phenomena affecting this business. Some of the many sources of uncertainty in the Company’s reserve estimates include changes in benefit levels, medical fee schedules, medical utilization guidelines, vocation rehabilitation and apportionment.

Store Lease Exit Costs and Impairment Charges Safeway assesses store impairment indicators quarterly. Safeway’s policy is to recognize losses relating to the impairment of long-lived assets when

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~~expected~~development ~~net~~trends ~~future cash flows are less than the assets’ carrying values. When stores~~ that ~~are~~were ~~under~~used ~~long-term~~to ~~leases~~determine ~~close, Safeway records a liability for~~ the future minimum lease payments and related ancillary costs, net of estimated cost recoveries. In both cases, fair value is determined by estimating net future cash flows and discounting them using a riskcurrent-~~adjusted~~year ~~rate~~expense ~~of interest. The Company estimates future cash flows based on its experience~~ and ~~knowledge~~therefore ofcontributed to the ~~market~~variability in ~~which~~annual ~~the closed store is located and, when necessary, uses real estate brokers~~expense. However, these ~~estimates~~factors ~~project~~are ~~future~~not ~~cash~~direct ~~flows~~inputs ~~several years~~ into the ~~future~~actuarial projection, and ~~are~~thus ~~affected~~their byindividual ~~factors~~impact ~~such~~cannot asbe ~~inflation, real estate markets and economic conditions~~quantified.

The discount rate is a significant factor that has led to variability in self-insured expenses. Since the discount rate is a direct input into the estimation process, the Company is able to quantify its impact. The discount rate, which is based on the United States Treasury Note rates for the estimated average claim life of five years, was 1.50% in 2014, 1.75% in 2013 and 0.75% in 2012. A 25-basis-point change in the discount rate affects the self-insured liability by approximately $6 million.

Store Lease Exit Costs and Impairment Charges Safeway assesses store impairment indicators quarterly. Safeway’s policy is to recognize losses relating to the impairment of long-lived assets when expected net future cash flows are less than the assets’ carrying values. When stores that are under long-term leases close, Safeway records a liability for the future minimum lease payments and related ancillary costs, net of estimated cost recoveries. In both cases, fair value is determined by estimating net future cash flows and discounting them using a risk-adjusted rate of interest. The Company estimates future cash flows based on its experience and knowledge of the market in which the closed store is located and, when necessary, uses real estate brokers. However, these estimates project future cash flows several years into the future and are affected by factors such as inflation, real estate markets and economic conditions.

At any one time, Safeway has a portfolio of closed stores which is widely dispersed over several markets. While individual closed store reserves are likely to be adjusted up or down in the future to reflect changes in assumptions, the change to the total closed store reserve has not been nor is expected to be material.

Employee Benefit Plans The Company recognizes in its balance sheet a liability for the underfunded status of its employee benefit plans. The Company measures plan assets and obligations that determine the funded status as of fiscal year end. Additional disclosures are provided in Note MN to the consolidated financial statements, set forth in Part II, Item 8 of this report.

The determination of Safeway’s obligation and expense for pension benefits is dependent, in part, on the Company’s selection of certain assumptions used by its actuaries in calculating these amounts. These assumptions are disclosed in Note MN to the consolidated financial statements and include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rate of compensation increases. Actual results in any given year will often differ from actuarial assumptions because of economic and other factors. In accordance with generally accepted accounting principles (“GAAP”), the amount by which actual results differ from the actuarial assumptions is accumulated and amortized over future periods and, therefore, affects recognized expense in such future periods. While Safeway believes its assumptions are appropriate, significant differences in actual results or significant changes in the Company’s assumptions may materially affect Safeway’s pension and other postretirement obligations and its future expense.

Safeway bases the discount rate on current investment yields on high-quality fixed-income investments. The discount rate assumption used to determine the year-end projected benefit obligation is increased or decreased to be consistent with the change in yield rates for high-quality fixed-income investments for the expected period to maturity of the pension benefits. The discount rate used to determine ~~2013~~2014 pension expense was 4.29%. A lower discount rate increases the present value of benefit obligations and increases pension expense. Expected return on pension plan assets is based on historical experience of the Company’s portfolio and the review of projected returns by asset class on broad, publicly traded equity and fixed-income indices, as well as target asset allocation. Safeway’s target asset allocation mix is designed to meet the Company’s long-term pension requirements. For 2013, the Company’s assumed rate of return was 7.50% on U.S. pension assets. Over the 10-year period ended December 28, 2013, the average rate of return was approximately 6% for U.S. pension assets, slightly below the Company's assumed rate of return. A poor global financial market during 2008 led to a substantial reduction in the 10-year average rate of return on Safeway's pension assets. We expect that the markets will eventually recover to our assumed long-term rate of return.

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portfolio and the review of projected returns by asset class on broad, publicly traded equity and fixed-income indices, as well as target asset allocation. Safeway’s target asset allocation mix is designed to meet the Company’s long-term pension requirements. For 2014, the Company’s assumed rate of return was 7.50% on U.S. pension assets. Over the 5-year period ended January 3, 2015, the average rate of return was approximately 10% for U.S. pension assets and 8.7% since plan inception.

The following table summarizes actual allocations for Safeway’s plans at year-end:

			Plan assets (1)
			Plan assets
Asset category	Target		~~2013~~2014		~~2012~~2013
Equity	65	%	6665.48	%	6466.34	%
Fixed income	35		3132.9		3331.09
Cash and other	—		1.73		21.7
Total	100	%	100.0	%	100.0	%

(1) Plan assets for 2013 are for continuing operations. Plan assets for 2012 include continuing and discontinued operations.

The investment policy with regard to Safeway’s pension plans also emphasizes the following key objectives: (1) maintain a diversified portfolio among asset classes and investment styles; (2) maintain an acceptable level of risk in pursuit of long-term economic benefit; (3) maximize the opportunity for value-added returns from active investment management while establishing investment guidelines and monitoring procedures for each investment manager to ensure the characteristics of the portfolio are consistent with the original investment mandate; and (4) maintain adequate controls over administrative costs.

Sensitivity to changes in the major assumptions for Safeway's pension plans are as follows (in millions):

		United States
	Percentagepointchange	Projected benefitobligationdecrease(increase)			Expensedecrease(increase)
Expected return on assets	+1 pt	$	—		$	1415.39
	-1 pt	$	—		$	(1415.39	)
Discount rate	+1 pt	$	~~251~~273.78		$	2841.98
	-1 pt	$	(~~315~~347.70	)	$	(3534.97	)

~~Cash~~In ~~contributions~~2014, toSafeway adopted the ~~Company’s~~Society ~~pension~~of ~~and~~Actuaries' ~~post-retirement~~2014 ~~benefit~~mortality ~~plans~~rate ~~are expected to total approximately $13~~table.1 This ~~million~~had inthe ~~2014~~effect ~~and~~of ~~totaled~~increasing ~~$56.3~~the ~~million~~Company's inprojected ~~2013,~~benefit ~~$110.3~~obligation ~~million~~by ~~in 2012 and~~ $~~151.2~~168 million ~~in 2011~~.

~~Income~~In ~~Tax~~February ~~Contingencies The Company is subject to periodic audits by the Internal Revenue Service and other foreign~~2015, ~~state~~Safeway ~~and~~contributed ~~local~~$260 ~~taxing~~million ~~authorities. These audits may challenge certain of the Company’s tax positions such as the timing and amount of income and deductions and the allocation of taxable income~~ to ~~various tax jurisdictions. The Company evaluates~~ its ~~tax~~largest ~~positions~~pension ~~and~~plan ~~establishes~~under ~~liabilities~~a insettlement ~~accordance~~ with the ~~applicable~~Pension ~~accounting~~Benefit ~~guidance~~Guaranty onCorporation ~~uncertainty~~("PBGC") in ~~income~~connection ~~taxes. These~~with ~~tax~~the ~~uncertainties~~Merger ~~are~~closing, ~~reviewed as facts~~ and ~~circumstances~~the ~~change~~Company ~~and~~expects ~~are~~to ~~adjusted~~make ~~accordingly. This~~$8 ~~requires~~million ~~significant~~of ~~management~~additional ~~judgment~~contributions in ~~estimating~~2015 ~~final~~to ~~outcomes~~its plans. ~~Actual~~Cash ~~results~~contributions ~~could~~to ~~materially differ from these estimates and could significantly affect~~ the Company’s ~~effective~~pension ~~tax rate~~ and ~~cash~~post-retirement ~~flows~~benefit inplans ~~future~~totaled ~~years~~$13. ~~Note~~3 Lmillion ~~to the consolidated financial statements set forth~~ in ~~Part II~~2014, ~~Item 8~~$56.3 ofmillion ~~this~~in ~~report~~2013 ~~provides~~and ~~additional~~$110.3 ~~information~~million onin ~~income taxes~~2012.

~~Liquidity~~Multiemployer ~~and~~Pension ~~Financial~~Withdrawal ~~Resources~~Liability During 2013, the Company sold or closed all the stores in the Dominick's division. Dominick's participated in certain multiemployer pension plans on which withdrawal liabilities have been or are expected to be incurred due to the Dominick's closure. During 2014, the Company received demand letters from three of the plans. These demand letters called for installment payments greater than Safeway's original actuarial estimates based on calculations Safeway disputes. The Company has requested a review by the plans' trustees of the demands made by the three plans. The Company recorded the present value of the estimated installment payments in accordance with ASC 450

Net cash flow provided by operating activities was $1,045.8 million in 2013, $1,288.9 million in 2012 and $1,570.0 million in 2011. The decrease in net cash flow provided by operating activities in 2013 from 2012 was due primarily to income taxes paid. Net cash flow from operating activities declined in 2012 compared to 2011 primarily due to a greater use of cash flow for working capital which was largely calendar driven.

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SAFEWAY INC. AND SUBSIDIARIES

~~Blackhawk~~"Contingencies." Additional ~~receives~~disclosures ~~significant~~are ~~cash~~provided ~~inflow from the sale of third-party gift cards late~~ in ~~the~~Note ~~fourth~~O ~~quarter~~to of the ~~year~~consolidated ~~and~~financial ~~remits the majority of the cash~~statements, ~~less~~set ~~commissions,~~forth ~~to the card partners early~~ in ~~the~~Part ~~first quarter of the following year. Changes in payables related to third-party gift cards~~II, ~~net~~Item 8 of ~~receivables,~~this ~~was a use of cash of $27~~report.~~6 million in 2013 compared to a source of cash of $26.4 million in 2012.~~

~~Cash~~The ~~contributions~~Company towill ~~pension~~evaluate ~~and~~its ~~post-retirement~~recorded ~~plans~~withdrawal ~~were~~liability ~~$56.3~~as ~~million~~facts inand ~~2013~~circumstances change, ~~$110.3~~which ~~million~~will inrequire ~~2012~~significant ~~and~~management ~~$151~~judgment.~~2 million in 2011.~~ ~~Cash~~The ~~contributions~~estimated ~~are~~liability ~~expected~~is tohighly ~~decline~~sensitive to ~~approximately~~changes ~~$13.1 million~~ in ~~2014~~the ~~due~~discount ~~primarily~~rate, towhich ~~increased~~is ~~return~~based on ~~plan~~Treasury ~~assets~~bill ~~and~~rates. In ~~the~~2014, ~~impact~~a ofdecline ~~the~~in ~~Pension Funding Stabilization legislation which increased~~ the ~~discount~~weighted-average rate used to ~~determine~~calculate ~~pension~~the ~~funding~~estimated ~~(but~~liability ~~which~~of ~~had~~141 nobasis ~~effect~~points onincreased ~~pension~~the ~~expense)~~estimated liability by $121.1 million.

~~Net~~Income ~~cash~~Tax ~~flow~~Contingencies The ~~used~~Company is subject to periodic audits by ~~investing~~the ~~activities~~Internal Revenue Service and other foreign, ~~which~~state ~~consists~~and ~~principally~~local taxing authorities. These audits may challenge certain of ~~cash~~the ~~paid~~Company’s ~~for~~tax ~~property~~positions ~~additions,~~such ~~was~~as ~~$621.3~~the ~~million~~timing inand ~~2013,~~amount ~~$614.3~~of ~~million~~income inand ~~2012~~deductions and ~~$923.2~~the ~~million~~allocation inof ~~2011~~taxable income to various tax jurisdictions. ~~Net~~The ~~cash~~Company ~~flow~~evaluates ~~used~~its bytax ~~investing~~positions ~~activities~~and ~~increased~~establishes liabilities in ~~2013~~accordance ~~compared~~with tothe ~~2012~~applicable ~~primarily~~accounting asguidance aon ~~result~~uncertainty ofin ~~cash~~income ~~used~~taxes. These intax ~~2013~~uncertainties ~~for~~are ~~business~~reviewed ~~acquisitions~~as byfacts ~~Blackhawk,~~and ~~partly~~circumstances ~~offset~~change byand ~~lower~~are ~~capital~~adjusted ~~expenditures~~accordingly. ~~Net~~ This ~~cash~~requires ~~flow~~significant ~~used~~management byjudgment ~~investing~~in ~~activities~~estimating ~~declined~~final inoutcomes. Actual ~~2012~~results ~~compared~~could tomaterially ~~2011~~differ ~~primarily~~from asthese aestimates ~~result~~and ofcould ~~lower~~significantly ~~capital~~affect ~~expenditures~~the Company’s effective tax rate and ~~higher~~ ~~proceeds~~cash ~~from~~flows in future years. Note M to the ~~sale~~consolidated offinancial ~~property~~statements set forth in ~~2012.~~Part II, Item 8 of this report provides additional information on income taxes.

~~Cash~~Liquidity ~~paid for property additions was $767.4 million in 2013, $821.2 million in 2012~~ and ~~$992.4~~Financial ~~million in 2011. Capital expenditures by major category of spending were as follows:~~Resources

	Fiscal Year
(in millions)	2013		2012		2011
Remodels	$	227.9	$	227.8	$	250.7
Information technology	117.0		96.1		126.8
New stores	111.7		157.2		308.2
Property Development Centers	105.0		177.2		92.3
Supply chain	91.1		59.3		91.0
Other	114.7		103.6		123.4
Cash paid for property additions	$	767.4	$	821.2	$	992.4

Net cash flow provided by operating activities was $1,387.7 million in 2014, $1,071.4 million in 2013 and $1,226.5 million in 2012. Net cash flow from operating activities increased in 2014 compared to 2013 primarily due to higher income taxes paid in 2013. The decrease in net cash flow provided by operating activities in 2013 from 2012 was due primarily to income taxes paid from continuing operations.

InCash ~~2014,~~contributions to the Company’s ~~expects~~pension and post-retirement benefit plans are expected to ~~spend~~be ~~approximately~~268.0 million in 2015 and totaled $~~800~~13.3 million toin 2014, $~~900~~56.3 million in ~~cash~~2013 ~~capital~~and ~~expenditures~~$110.3 million in 2012.

Net cash flow used by ~~financing~~investing activities, ~~was~~which ~~1,842.4~~consists ~~million~~principally inof ~~2013,~~cash ~~$1,329.1~~paid ~~million~~for inproperty ~~2012~~additions, ~~and~~was $~~1,413~~115.76 million in ~~2011. In 2013~~2014, ~~net cash payments on debt were~~ $~~1,386~~442.~~0 million. The Company also repurchased $663.~~7 million ofin ~~common~~2013 ~~stock~~ and ~~paid~~ $~~181~~593.42 million in ~~dividends~~2012. InNet ~~2012,~~cash ~~Safeway~~flow ~~had~~used ~~net~~by ~~cash~~investing ~~additions~~activities todeclined ~~debt~~in of2014 ~~$117.5~~compared ~~million,~~to ~~repurchased~~2013 ~~$1,274.5~~primarily ~~million~~as a result of ~~common~~proceeds ~~stock~~from ~~and~~the ~~paid~~sale ~~$163.9~~of ~~million~~PDC in ~~dividends~~2014. InNet ~~2011,~~cash ~~net~~flow ~~cash~~used ~~payments~~by oninvesting ~~debt~~activities ~~were~~declined ~~$270.7~~in ~~million. Additionally,~~2013 ~~the~~compared ~~Company~~to ~~repurchased~~2012 ~~$1,554.0~~primarily ~~million~~as a result of ~~common~~lower ~~stock~~capital expenditures and ~~paid~~higher ~~$188.0~~proceeds ~~million~~from company-owned life insurance policies in ~~dividends~~2013.

~~Initial~~Cash ~~Public~~paid ~~Offering~~for ofproperty ~~Blackhawk On~~additions ~~April 24,~~was ~~2013, Blackhawk, a Safeway subsidiary, completed its initial public offering of 11.5 million shares of its Class A common stock at~~ $23711.002 ~~per share on the NASDAQ Global Select Market, which included the exercise by the underwriters for the offering of an option to purchase 1.5~~ million ~~shares~~in ~~of Class A common stock. The offering consisted solely of shares offered by existing stockholders~~2014, ~~including Safeway~~$738. As2 ~~part of the IPO, Safeway sold 11.3~~ million ~~shares~~in of2013 ~~Class~~and ~~A common stock of Blackhawk for proceeds of~~ $~~243~~800.61 million ~~($238.0~~in ~~million, net of professional service fees), reducing the Company's ownership from approximately 95% to approximately 73% of Blackhawk's total outstanding shares of common stock~~2012. InCapital ~~2014,~~expenditures ~~Safeway~~by ~~announced~~major ~~plans~~category ~~to distribute all~~ of ~~its~~spending ~~shares~~were ofas ~~Blackhawk stock to Safeway shareholders (See Note U).~~follows:



	Fiscal Year
(in millions)	2014		2013		2012
Remodels	$	121.8	$	227.9	$	227.8
Information technology	123.3		117.0		96.1
New stores	96.0		111.7		157.2
Property Development Centers	107.3		105.0		177.2
Supply chain	138.8		91.1		59.3
Other	124.0		85.5		82.5
Cash paid for property additions	$	711.2	$	738.2	$	800.1

Net cash flow used by financing activities was $1,672.1 million in 2014, $2,003.9 million in 2013 and $1,329.1 million in 2012. In 2014, net cash payments on debt were $1,371.8 million. The Company paid $82.0 million to extinguish certain debt and paid $251.8 million in dividends. In 2013, net cash payments on debt were

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SAFEWAY INC. AND SUBSIDIARIES

~~Based upon the current level of operations~~$1,386.0 million. Safeway ~~believes~~also ~~that~~repurchased ~~net~~$663.7 ~~cash~~million ~~flow from operating activities and other sources~~ of ~~liquidity~~common stock, ~~including~~paid ~~potential~~$181.4 ~~proceeds~~million ~~from the monetization of the Company's investment~~ in ~~Casa~~dividends ~~Ley~~ and ~~potential~~received ~~borrowing~~net ~~under~~proceeds ~~Safeway’s~~of ~~commercial~~$240.1 ~~paper~~million ~~program,~~from ~~its~~the ~~credit~~exercise ~~agreement~~of ~~and~~stock ~~debt~~options. In ~~offerings~~2012, ~~will~~net becash ~~adequate~~additions to ~~meet~~debt ~~anticipated~~were ~~requirements~~$117.5 ~~for working capital, capital expenditures, interest payments, dividend payments, stock repurchases, if any, and scheduled principal payments for the foreseeable future~~million. ~~There can be no assurance~~Additionally, ~~however, that Safeway’s business will continue to generate cash flow at or above current levels or that~~ the Company ~~will~~repurchased ~~maintain~~$1,274.5 ~~its~~million ~~ability~~of tocommon ~~borrow~~stock ~~under~~and ~~its~~paid ~~commercial~~$163.9 ~~paper~~million ~~program~~in ~~and credit agreement~~dividends.

~~Free~~Discontinued ~~Cash Flow on Continuing~~ Operations ~~Free~~ ~~cash~~Net ~~flow is calculated as (1) net~~ cash flow ~~from~~used by operating activities ~~adjusted~~was ~~to exclude payables related to third-party gift cards~~$2,008.9 ~~net~~million ofin ~~receivables,~~2014 ~~less~~compared ~~(2)~~to net cash flow ~~used~~provided by ~~investing~~operating activities ~~adjusted~~of to$230.1 ~~exclude~~million ~~cash~~in ~~used by investments and business acquisitions~~2013. ~~Cash~~During ~~from~~2014, ~~the~~Safeway ~~sale~~paid ofincome ~~third-party~~taxes ~~gift~~of ~~cards~~$963.3 ismillion, ~~held~~most ~~for a short period~~ of ~~time~~which ~~and~~related ~~then~~to ~~remitted,~~the ~~less~~income ~~our~~taxes ~~commission,~~on tothe ~~card~~gain ~~partners. Because~~on ~~this~~the ~~cash~~sale ~~flow~~of issubstantially ~~temporary,~~all itof isthe ~~not~~net ~~available~~assets ~~for~~of ~~other~~Canada ~~uses~~Safeway Limited, ~~and~~which itclosed isin ~~therefore~~the ~~excluded~~fourth ~~from~~quarter ~~our~~of ~~calculation~~2013. ofSafeway ~~free~~also ~~cash~~paid ~~flow~~$355. We3 ~~add~~million ~~back~~of ~~cash~~taxes ~~used~~on bythe ~~investments~~distribution ~~and~~of ~~business~~Blackhawk. ~~acquisitions~~Additionally, toBlackhawk ~~our~~payables ~~calculation~~related ofto ~~free~~third-party ~~cash~~gift ~~flow~~cards, innet ~~order~~of toreceivables, ~~provide~~was a ~~more~~use ~~accurate~~of ~~indication~~cash of ~~our~~$519.7 ~~capacity~~million toin ~~apply~~2014 ~~our~~compared ~~available free cash flow~~ to ~~its~~$27.6 ~~intended~~million ~~uses~~in 2013.

	Fiscal Year
(in millions)	2013			2012			2011
Net cash flow from operating activities	$	1,045.8		$	1,288.9		$	1,570.0
Decrease (increase) in payables related to third-party gift cards, net of receivables	27.6			(26.4		)	(293.6		)
Net cash flow from operating activities, as adjusted	1,073.4			1,262.5			1,276.4
Net cash flow used by investing activities	(621.3		)	(614.3		)	(923.2		)
Business acquisitions, net of cash acquired	149.4			—			35.9
Net cash flow used by investing activities, as adjusted	(471.9		)	(614.3		)	(887.3		)
Free cash flow	$	601.5		$	648.2		$	389.1

Net cash flow provided by investing activities was $226.1 million in 2014 compared to $5,352.3 million in 2013. During 2014, Safeway received net proceeds of $246.3 million from the sale of certain Dominick's stores and paid approximately $6.9 million of expenses related to the sale of its Canadian operations. During 2013, Safeway received CAD5.8 billion (USD5.6 billion) in cash from the sale of substantially all of the net assets of Canada Safeway Limited.

~~Free~~Net cash flow ~~provides~~used ~~information~~by ~~regarding~~financing activities was $54.9 million in 2014. At the ~~cash~~date ~~that~~of the ~~Company’s~~distribution ~~business~~of ~~generates~~Blackhawk (see Note B to the consolidated financial statements set forth in Part II, ~~which~~Item 8 ~~management~~of ~~believes~~this isreport), ~~useful~~$229.3 tomillion ~~understanding~~of ~~the~~Blackhawk ~~Company’~~cash and cash equivalents was removed from Safeway's ~~business~~balance sheet. This decrease was partly offset by additional Blackhawk debt of $175.0 million. ~~Free~~Net cash flow isprovided ~~also~~by afinancing ~~useful~~activities ~~indicator~~ of ~~Safeway’s~~$157.7 ~~ability~~million toin ~~service~~2013 ~~debt~~included ~~and~~net ~~fund~~proceeds ~~share~~of ~~repurchases~~$238.0 ~~that~~million ~~management~~from ~~believes~~the ~~will~~sale ~~enhance~~of ~~stockholder~~Blackhawk ~~value~~common stock.

~~This~~Bank ~~non-U.S.~~Credit ~~GAAP~~Agreement ~~financial~~Information ~~measure~~about ~~should~~the ~~not~~Company’s bebank ~~considered~~credit asagreement anappears ~~alternative to net cash flow from operating activities or other increases and decreases~~ in ~~cash~~Note asG ~~shown~~to onthe ~~our~~consolidated ~~Consolidated Statements of Cash Flows as a measure of liquidity. Non-U.S. GAAP~~ financial ~~measures~~statements ~~have~~set ~~limitations~~forth asin ~~analytical~~Part ~~tools~~II, ~~and~~Item 8 ~~they should not be considered in isolation or as substitutes for analysis~~ of ~~the~~this ~~Company’s results as reported under U~~report.S. At ~~GAAP. Other companies in~~ the ~~Company’s~~closing ~~industry may calculate free cash flow differently, limiting its usefulness as a comparative measure. Because~~ of ~~these~~the ~~limitations~~Merger, ~~free~~Safeway's ~~cash~~credit ~~flow~~agreement ~~should~~was ~~not be considered as a measure of discretionary cash available to us to invest in the growth of our business~~terminated.

~~Bank~~Commercial ~~Credit~~Paper ~~Agreement~~Program Due ~~and~~to ~~Term~~the ~~Loan~~downgrade ~~Agreement Information~~of ~~about the Company’~~Safeway's ~~bank~~long-term credit ~~agreement~~ratings ~~and~~to ~~term~~below ~~loan~~the ~~agreement~~Triple ~~appear~~B-minus in(or ~~Note~~equivalent) Flevel toand the ~~consolidated~~withdrawal ~~financial~~of ~~statements~~its ~~set~~short-term ~~forth~~credit ratings in ~~Part~~January II2015, ~~Item 8~~the ofCompany ~~this~~no ~~report~~longer has the ability to borrow under its commercial paper program.

~~Adjusted~~New ~~EBITDA~~Bonds In ~~from~~connection ~~Continuing~~with ~~Operations Management~~the ~~believes~~Merger, ~~that~~Safeway ~~“Adjusted~~is ~~EBITDA~~an ~~from~~obligor ~~Continuing~~and ~~Operations~~its domestic subsidiaries are guarantors of $609.7 million in principal amount of 7.75% Senior Secured Notes due 2022 (the “2022 Notes”), isafter arepayment ~~useful~~of ~~measure~~some of ~~operating~~the ~~performance~~2022 ~~that~~Notes ~~facilitates~~on ~~management's~~February 9, ~~evaluation~~2015. As a result of the ~~Company's~~issuance ~~ability~~of these notes and pursuant to ~~service~~Safeway’s ~~debt~~existing indenture, our Senior Notes due 2016, Senior Notes due 2017 and ~~capability~~Senior toNotes ~~incur~~due ~~more~~2019 ~~debt~~were guaranteed by Albertson’s Holdings LLC and its domestic subsidiaries, including Safeway’s domestic subsidiaries, and are ratably and equally secured by the assets, subject to ~~generate~~certain limited exceptions, of Albertson’s Holdings LLC and its subsidiaries that are co-issuers or guarantors of the ~~cash~~2022 Notes, including Safeway and its subsidiaries. Our Senior Notes due 2020, Senior Notes due 2021, Senior Notes due 2027 and Senior Notes due 2031 are equally and ratably secured by the assets (other than accounts receivable, merchandise inventory, equipment or intellectual property) of Safeway and its domestic subsidiaries, but are not guaranteed by Albertson’s Holdings LLC or any of its subsidiaries, including the Safeway subsidiaries.

ABL Agreement On March 21, 2013, our parent company, Albertson’s Holdings LLC, entered into an asset-based revolving credit agreement among Albertson’s Holdings LLC, Albertson’s LLC, the guarantors from time to time party thereto, the lenders from time to time party thereto and Bank of America N.A., as administrative and collateral agent. This agreement was amended on January 30, 2015 (as amended, the “ABL Agreement”) in connection with the Merger, whereby Albertson’s LLC, Safeway and certain of their affiliates became the borrowers thereunder (the “ABL Borrowers”).

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SAFEWAY INC. AND SUBSIDIARIES

~~needed~~The toABL ~~grow~~Agreement ~~the~~provides ~~business~~for a $3 billion revolving credit facility (~~including~~with atsubfacilities ~~times~~for ~~when~~letters ~~interest~~of ~~rates~~credit ~~fluctuate~~and swingline loans) (the “New ABL Facility”). ~~Omitting~~ ~~interest~~On January 30, ~~taxes~~2015, ~~and~~$980 million of the ~~other~~New ~~enumerated~~ABL ~~items~~Facility ~~provides~~was aused ~~financial~~to ~~measure~~repay ~~that~~all isdebt ~~useful~~outstanding under Albertson's LLC's existing credit facility, to ~~management~~pay ina ~~assessing~~portion ~~operating~~of ~~performance~~the ~~because~~Merger consideration and fees and expenses, and to provide working capital to the ~~cash~~borrowers. After ~~Safeway's~~January ~~business~~30, ~~operations~~2015, ~~generate~~the ~~enables~~New usABL Facility may be utilized to ~~incur~~fund ~~debt~~working capital and ~~thus~~general tocorporate ~~grow~~purposes, including permitted acquisitions and other investments.

~~Management~~The ~~believes~~New ~~that~~ABL ~~“Adjusted~~Facility ~~EBITDA~~matures ~~from~~on ~~Continuing~~the ~~Operations”~~earlier ~~also~~to ~~facilitates~~occur ~~comparisons~~ of ~~Safeway's~~(a) ~~results of operations with those of companies having different capital structures. Since~~ the ~~levels~~date ofthat ~~indebtedness,~~is ~~tax~~five ~~structures,~~years ~~discontinued~~from ~~operations,~~January ~~property impairment charges~~30, ~~methodologies~~2015 ~~in calculating LIFO expense~~ and ~~unconsolidated~~(b) ~~affiliates that other companies have are different from~~ the ~~Company's,~~date wethat ~~omit~~is ~~these~~91 ~~amounts~~days toprior ~~facilitate investors' ability~~ to ~~make~~the ~~these~~final ~~comparisons. Similarly,~~maturity weof ~~omit~~certain ~~depreciation~~material ~~and~~indebtedness ~~amortization~~(if ~~because~~such other ~~companies~~indebtedness ~~may~~has ~~employ~~not abeen ~~greater~~repaid or ~~lesser~~extended ~~amount~~prior ~~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~~91st ~~makes to operating performance~~day).

~~Management~~Based ~~also~~upon the current level of operations, Safeway believes that ~~investors,~~net ~~analysts~~cash flow from operating activities and other ~~interested~~sources ~~parties~~of ~~view~~liquidity, ~~our~~including ~~ability~~borrowing tounder ~~generate~~its ~~“Adjusted~~ABL ~~EBITDA~~Agreement, ~~from~~will ~~Continuing~~be ~~Operations”~~adequate asto anmeet ~~important~~anticipated ~~measure~~requirements offor ~~our~~working ~~operating~~capital, ~~performance~~capital expenditures, interest payments and ~~that~~scheduled ofprincipal ~~other~~payments ~~companies~~for inthe ~~our~~foreseeable ~~industry~~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 its credit agreement.

~~“Adjusted~~Dividends ~~EBITDA~~Declared ~~from~~on ~~Continuing~~Common ~~Operations”~~Stock The isfollowing atable ~~useful~~presents ~~indicator~~information ofregarding ~~Safeway's ability to service debt, fund share repurchases and pay~~ dividends ~~that~~declared ~~management~~on ~~believes~~Safeway’s ~~will~~common ~~enhance~~stock ~~stockholder~~during ~~value. “Adjusted~~fiscal ~~EBITDA~~2014, ~~from~~2013 ~~Continuing~~and ~~Operations” is also a useful indicator of cash available for investing activities~~2012.

The computation of Adjusted EBITDA from Continuing Operations is provided below. Adjusted EBITDA from Continuing Operations should not be considered as an alternative to income from continuing operations, net of tax, or cash flow from operating activities (which are determined in accordance with U.S. GAAP). Other companies may define Adjusted EBITDA differently and, as a result, such measures may not be comparable to Safeway’s Adjusted EBITDA from Continuing Operations (dollars in millions).



(in millions, except per-share amounts)	Date Declared	Record Date	Per-Share Amounts		Total		Year-to-date Total
2014
Quarter 4	12/12/14	12/26/14	$	0.2300	$	53.3	$	205.8
Quarter 3	08/21/14	09/18/14	0.2300		53.2		152.5
Quarter 2	05/14/14	06/19/14	0.2300		53.1		99.3
Quarter 1	03/12/14	03/24/14	0.2000		46.2		46.2
2013
Quarter 4	12/05/13	12/19/13	$	0.2000	$	46.0	$	185.5
Quarter 3	08/22/13	09/19/13	0.2000		49.1		139.5
Quarter 2	05/14/13	06/20/13	0.2000		48.2		90.4
Quarter 1	03/14/13	03/25/13	0.1750		42.2		42.2
2012
Quarter 4	12/05/12	12/17/12	$	0.1750	$	41.9	$	162.0
Quarter 3	08/22/12	09/20/12	0.1750		41.9		120.1
Quarter 2	05/15/12	06/21/12	0.1750		41.9		78.2
Quarter 1	03/16/12	03/29/12	0.1450		36.3		36.3

	52 Weeks 2013
Adjusted EBITDA from Continuing Operations:
Income from continuing operations, net of tax	$	246.3
Add (subtract):
Noncontrolling interests	(14.7		)
Income taxes	89.7
Interest expense	273.0
Depreciation expense	943.9
LIFO income	(14.3		)
Share-based employee compensation	59.1
Property impairment charges	35.6
Equity in earnings of unconsolidated affiliate	(17.6		)
Dividend from unconsolidated affiliate	3.8
Impairment of notes receivable	30.0
Total Adjusted EBITDA from Continuing Operations	$	1,634.8

Shelf Registration On October 24, 2011, the Company filed a shelf registration statement (the “Shelf”) with the SEC which permits Safeway to issue an unlimited amount of debt securities and/or common stock. The Shelf expires on October 24, 2014. The Safeway Board of Directors has authorized the issuance of up to

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SAFEWAY INC. AND SUBSIDIARIES

~~$3.0~~Dividends ~~billion~~Paid ofon ~~securities~~Common ~~under~~Stock The ~~the~~following ~~Shelf. As~~table ofpresents ~~December 28,~~information ~~2013,~~regarding ~~$1.95~~dividends ~~billion~~paid ofon ~~securities~~Safeway’s ~~were~~common ~~available~~stock ~~for~~during ~~issuance~~fiscal ~~under~~2014, ~~the~~2013 ~~board’s~~and ~~authorization~~2012.

Commercial Paper Information about the Company's commercial paper borrowings appear in Note F to the consolidated financial statements set forth in Part II, Item 8 of this report.



(in millions, except per-share amounts)	Date Paid	Record Date	Per-Share Amounts		Total		Year-to-date Total
2014
Quarter 4	01/02/15	12/26/14	$	0.2300	$	53.3	$	251.8
Quarter 4	10/09/14	09/18/14	0.2300		53.2		198.5
Quarter 3	07/10/14	06/19/14	0.2300		53.1		145.3
Quarter 2	04/10/14	03/24/14	0.2000		46.2		92.2
Quarter 1	01/09/14	12/19/13	0.2000		46.0		46.0
2013
Quarter 4	10/10/13	09/19/13	$	0.2000	$	49.1	$	181.4
Quarter 3	07/11/13	06/20/13	0.2000		48.2		132.3
Quarter 2	04/11/13	03/25/13	0.1750		42.2		84.1
Quarter 1	12/31/12	12/17/12	0.1750		41.9		41.9
2012
Quarter 4	10/11/12	09/20/12	$	0.1750	$	41.9	$	163.9
Quarter 3	07/12/12	06/21/12	0.1750		41.9		122.0
Quarter 2	04/12/12	03/29/12	0.1450		36.3		80.1
Quarter 1	01/12/12	12/22/11	0.1450		43.8		43.8

~~Dividends~~Stock ~~Declared~~Repurchase onProgram From ~~Common~~the ~~Stock The~~initiation ~~following~~of ~~table~~the ~~presents~~Company’s ~~information~~stock ~~regarding~~repurchase ~~dividends~~program ~~declared~~in on1999 ~~Safeway’s~~through the end of fiscal 2014, the aggregate cost of shares of common stock ~~during~~repurchased by the Company, including commissions, was approximately $8.8 billion, leaving an authorized amount for repurchases of approximately $2.2 billion. During fiscal 2014, the Company did not repurchase any shares of its common stock under the repurchase program. During fiscal 2013, ~~2012~~Safeway ~~and~~repurchased ~~2011~~approximately 19.5 million shares of its common stock under the repurchase program at an aggregate price, including commissions, of $663.7 million. The average price per share, excluding commissions, was $33.93. As a result of the Merger, the stock repurchase program is no longer in effect.

(in millions, except per-share amounts)	DateDeclared	RecordDate	Per-ShareAmounts		Total		Year-to-dateTotal
2013
Quarter 4	12/05/13	12/19/13	$	0.2000	$	46.0	$	185.5
Quarter 3	08/22/13	09/19/13	0.2000		49.1		139.5
Quarter 2	05/14/13	06/20/13	0.2000		48.2		90.4
Quarter 1	03/14/13	03/25/13	0.1750		42.2		42.2
2012
Quarter 4	12/05/12	12/17/12	$	0.1750	$	41.9	$	162.0
Quarter 3	08/22/12	09/20/12	0.1750		41.9		120.1
Quarter 2	05/15/12	06/21/12	0.1750		41.9		78.2
Quarter 1	03/16/12	03/29/12	0.1450		36.3		36.3
2011
Quarter 4	12/07/11	12/22/11	$	0.1450	$	43.8	$	187.6
Quarter 3	08/24/11	09/22/11	0.1450		49.3		143.8
Quarter 2	05/19/11	06/23/11	0.1450		50.7		94.5
Quarter 1	03/15/11	03/24/11	0.1200		43.8		43.8

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SAFEWAY INC. AND SUBSIDIARIES

~~Dividends~~Contractual ~~Paid on Common Stock~~Obligations The ~~following~~ table below presents ~~information~~significant ~~regarding~~contractual ~~dividends~~obligations ~~paid~~of onthe ~~Safeway’s~~Company ~~common~~at ~~stock~~year-end ~~during~~2014 ~~fiscal~~(in ~~2013,~~millions) ~~2012 and 2011.~~(1):

(in millions, except per-share amounts)		Date Paid	RecordDate		Per-ShareAmounts			Total			Year-to-dateTotal
	2015		2016			2017		2018		2019			Thereafter		Total
2013
Long-term debt (2)	$	3.2	$	84.6		$	105.0	$	6.8	$	505.1		$	1,771.4	$	2,476.1
Quarter 4		10/10/13	09/19/13		$	0.2000		$	49.1		$	181.4
Estimated interest on long-term debt (2)	127.9		127.8			125.0		118.6		118.5			647.4		1,265.2
Quarter 3		07/11/13	06/20/13		0.2000			48.2			132.3
Capital lease obligations (2),(3)	94.7		85.7			72.3		47.1		39.9			184.1		523.8
Quarter 2		04/11/13	03/25/13		0.1750			42.2			84.1
Interest on capital leases (2)	34.2		32.3			26.2		23.0		19.8			75.6		211.1
Quarter 1		12/31/12	12/17/12		0.1750			41.9			41.9
Self-insurance liability, net of insurance receivables	106.7		80.7			54.7		36.3		25.3			131.7		435.4
2012
Interest on self-insurance liability	0.8		1.8			2.1		1.9		1.8			33.7		42.1
Quarter 4		10/11/12	09/20/12		$	0.1750		$	41.9		$	163.9
Operating leases (3)	450.7		424.8			380.3		328.7		279.4			1,878.5		3,742.4
Quarter 3		07/12/12	06/21/12		0.1750			41.9			122.0
Contracts for purchase of property, equipment and construction of buildings	87.4		—			—		—		—			—		87.4
Quarter 2		04/12/12	03/29/12		0.1450			36.3			80.1
Fixed-price energy contracts (4)	62.2		20.7			1.5		1.5		1.6			14.4		101.9
Quarter 1		01/12/12	12/22/11		0.1450			43.8			43.8
Other purchase obligations	68.5		—			—		—		—			—		68.5
2011
Total	$	1,036.3	$	858.4		$	767.1	$	563.9	$	991.4		$	4,736.8	$	8,953.9
Quarter 4		10/13/11	09/22/11		$	0.1450		$	49.3		$	188.0
Quarter 3		07/14/11	06/23/11		0.1450			50.7			138.7
Quarter 2		04/14/11	03/24/11		0.1200			43.8			88.0
Quarter 1		01/13/11	12/23/10		0.1200			44.2			44.2

~~Stock~~(1) ~~Repurchase~~Excludes ~~Program From~~funding ~~the initiation~~ of ~~the~~pension ~~Company’s~~and ~~stock~~post-retirement ~~repurchase~~benefit ~~program~~obligations inwhich ~~1999~~were ~~through~~$13.3 ~~the~~million ~~end~~in of2014 ~~fiscal~~and ~~2013,~~$260 ~~the~~million ~~aggregate~~in ~~cost~~January of2015. ~~shares~~Also ofexcludes ~~common~~contributions ~~stock~~under ~~repurchased~~various bymultiemployer ~~the~~pension ~~Company~~plans, ~~including~~which ~~commissions,~~totaled ~~was approximately~~ $8277.81 ~~billion,~~million ~~leaving~~in an2014, ~~authorized~~excluding ~~amount~~Canadian ~~for~~operations ~~repurchases~~and ~~of approximately $2~~Dominick's.2 ~~billion. During~~Also ~~fiscal~~excludes ~~2013,~~the ~~Safeway~~estimated ~~repurchased approximately 19~~$474.54 million ~~shares~~ of ~~its~~multiemployer ~~common~~pension ~~stock~~plan ~~under~~withdrawal ~~the~~liability ~~repurchase~~resulting ~~program~~from atthe anclosure ~~aggregate price, including commissions,~~ of ~~$663~~Dominick's.7 ~~million. The~~Additionally, ~~average~~the ~~price~~amount ~~per~~of ~~share,~~unrecognized ~~excluding~~tax ~~commissions,~~benefits ~~was~~ ($33262.~~93. The~~7 ~~timing~~million ~~and~~at ~~volume~~January of3, ~~future~~2015) ~~repurchases~~has ~~will~~been ~~depend~~excluded onfrom ~~factors~~the ~~such~~contractual asobligations ~~Safeway's~~table ~~day-to-day~~because ~~business~~a ~~needs~~reasonably asreliable ~~well~~estimate asof ~~its~~the ~~stock~~timing ~~price~~of ~~and~~future ~~economic~~tax ~~and~~settlements ~~market~~cannot ~~conditions. Stock repurchases may~~ be ~~affected~~determined. ~~from~~Purchase ~~time~~orders tofor ~~time~~inventory ~~through~~are ~~open~~not ~~market~~included ~~purchases~~in orthe ~~pursuant~~above totable aas ~~Rule~~they ~~10b5-1~~are ~~plan. The~~cancelable ~~stock~~by ~~repurchase~~their ~~program may be accelerated, suspended, delayed or discontinued at any time~~terms.

37(2) Long-term debt and capital lease obligations include required principal payments as of year-end 2014. It does not consider changes to long-term debt, capital lease obligations or related interest payments in 2015 as a result of the Merger. See Note V to the consolidated financial statements set forth in Part II, Item 8 of this report.

~~Table~~(3) ofExcludes ~~Contents~~common area maintenance, insurance or tax payments for which the Company is also obligated. In fiscal 2014, these charges totaled approximately $182.0 million.

SAFEWAY INC. AND SUBSIDIARIES

Contractual Obligations The table below presents significant contractual obligations of the Company at year-end 2013 (in millions) (1):

	2014		2015		2016		2017		2018		Thereafter		Total
Long-term debt (2)	$	252.9	$	442.2	$	402.0	$	501.9	$	3.4	$	2,165.8	$	3,768.2
Estimated interest on long-term debt	186.1		166.8		164.1		150.4		118.6		765.9		1,551.9
Capital lease obligations (2),(3)	49.3		49.9		45.8		39.3		32.9		207.6		424.8
Interest on capital leases	34.4		30.9		27.9		25.1		22.2		90.7		231.2
Self-insurance liability	108.6		82.0		55.2		37.1		25.4		124.4		432.7
Interest on self-insurance liability	0.9		2.2		2.4		2.3		2.1		34.6		44.5
Operating leases (3)	470.3		430.3		397.3		351.1		299.5		1,781.5		3,730.0
Marketing development funds	59.6		47.3		32.5		15.5		8.7		3.6		167.2
Contracts for purchase of property, equipment and construction of buildings	276.0		—		—		—		—		—		276.0
Fixed-price energy contracts (4)	39.2		14.4		1.2		1.3		1.3		11.4		68.8
Other purchase obligations	55.8		0.2		—		—		—		—		56.0
Total	$	1,533.1	$	1,266.2	$	1,128.4	$	1,124.0	$	514.1	$	5,185.5	$	10,751.3

(1) Excludes funding of pension and post-retirement benefit obligations which were $56.3 million in 2013. The Company currently expects to contribute approximately $13.1 million to its pension and post-retirement benefit plans in 2014. Also excludes contributions under various multiemployer pension plans, which totaled $259.2 million in 2013, excluding Canadian operations and Dominick's. Also excludes the estimated $310.8 million of multiemployer pension plan withdrawal liability with the closure of Dominick's. Additionally, the amount of unrecognized tax benefits ($137.5 million at December 28, 2013) has been excluded from the contractual obligations table because a reasonably reliable estimate of the timing of future tax settlements cannot be determined. Purchase orders for inventory are not included in the above table as they are cancelable by their terms.

(2) Required principal payments only.

(3) Excludes common area maintenance, insurance or tax payments for which the Company is also obligated. In fiscal 2013, these charges totaled approximately $164.3 million.


⁽⁴⁾	See Part II, Item 7A to this report under the caption “Commodity Price Risk.”

Off-Balance Sheet Arrangements

Guarantees The Company is party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters. These contracts primarily relate to the Company’s commercial contracts, operating leases and other real estate contracts, trademarks, intellectual property, financial agreements and various other agreements. Under these agreements, the Company may provide certain routine indemnifications relating to representations and warranties (for example, ownership of assets, environmental or tax indemnifications) or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. The Company believes that if it were to incur a loss in any of these matters, the loss would not have a material effect on the Company’s financial statements.

Letters of Credit The Company had letters of credit of $44.7 million outstanding at year-end 2013. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of 37

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SAFEWAY INC. AND SUBSIDIARIES

Letters of Credit The Company had letters of credit of $27.8 million outstanding at year-end 2014. The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company pays commissions ranging from 01.1500% to 1.1028% on the face amount of the letters of credit.

New Accounting Pronouncements Not Yet Adopted

See Part II, Item 8, Note A to the consolidated financial statements to this report for new accounting pronouncements which have not yet been adopted by the Company.


Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

Safeway is exposed to market risk from changes in interest rates, foreign currency exchange rates and commodity prices. The Company has, from time to time, selectively used derivative financial instruments to reduce these market risks. The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments.

Safeway’s market risk exposures related to interest rates, foreign currency and commodity prices are discussed below and have not materially changed from the prior fiscal year.

Interest Rate Risk Safeway manages interest rate risk through the use of fixed- and variable-interest rate debt and, from time to time, interest rate swaps. At year-end ~~2013~~2014, the Company had no interest rate swaps.

Foreign Currency Exchange Risk Safeway is exposed to foreign currency risk, as approximately $~~4,032~~178.59 million (~~CAD4,294~~CAD210.04 million) of assets and approximately $~~841~~31.7 million (~~CAD896~~CAD37.3 million) of liabilities, retained by Safeway after the disposition of CSL in 2013, are denominated in Canadian dollars. These net assets are exposed to economic losses in the event of adverse changes in the currency exchange rate. ~~During~~The ~~fiscal 2013, the~~ Company recorded a loss of $131.2 million in fiscal 2014 and $ 57.4 million on currency exchange in fiscal 2013 in continuing operations. As of year-end ~~2013~~2014, Safeway had no derivative financial instruments to offset the risk of foreign currency.

Commodity Price Risk Safeway has entered into fixed-priced contracts to purchase electricity and natural gas for a portion of its energy needs. Safeway expects to take delivery of these commitments in the normal course of business, and as a result, these commitments qualify as normal purchases. See Part II, Item 7, under the caption “Contractual Obligations” for the Company’s obligations related to fixed-price energy contracts as of year-end ~~2013~~2014.

Long-Term Debt The table below presents principal amounts and related weighted-average rates by year of maturity for the Company’s debt obligations at year-end ~~2013~~2014 (dollars in millions):

	2014			2015			2016			2017			2018			Thereafter			Total			Fair value
	2015			2016			2017			2018			2019			Thereafter			Total			Fair value
Long-term debt: (1)
Principal	$	~~252~~3.92		$	~~442~~84.26		$	~~402~~105.0		$	~~501~~6.98		$	3505.41		$	21,~~165~~771.84		$	32,~~768~~476.21		$	32,~~949~~525.73
Weighted average interest rate	57.6332		%	13.7961		%	36.4239		%	67.3545		%	75.6002		%	5.5276		%	45.9857		%

(1) ~~Primarily~~It ~~fixed~~does not consider changes to long-~~rate~~term debt in 2015 as a result of the Merger. See Note V to the consolidated financial statements set forth in Part II, Item 8 of this report.

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Item 8.	Financial Statements and Supplementary Data

	Page
Management’s Annual Report on Internal Control over Financial Reporting	4140
Report of Independent Registered Public Accounting Firm	4241
Consolidated Statements of Income for fiscal 2013, 2012 and 2011	44
Consolidated Statements of Income for fiscal 2014, 2013 and 2012	43
Consolidated Statements of Comprehensive Income for fiscal 2013, 2012 and 2011	45
Consolidated Statements of Comprehensive (Loss) Income for fiscal 2014, 2013 and 2012	44
Consolidated Balance Sheets as of the end of fiscal 2013 and 2012	46
Consolidated Balance Sheets as of the end of fiscal 2014 and 2013	45
Consolidated Statements of Cash Flows for fiscal 2013, 2012 and 2011	48
Consolidated Statements of Cash Flows for fiscal 2014, 2013 and 2012	47
Consolidated Statements of Stockholders’ Equity for fiscal 2013, 2012 and 2011	50
Consolidated Statements of Stockholders’ Equity for fiscal 2014, 2013 and 2012	49
Notes to Consolidated Financial Statements	5251

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Management’s Annual Report on Internal Control over Financial Reporting

Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal controls were designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management of the Company has conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in Internal Control - Integrated Framework (~~1992~~2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Management's assessment of and conclusion on the effectiveness of internal control over financial reporting as of December 28, 2013 did not include the internal controls of Retailo AG and Intelispend, both acquired by the Company's consolidated subsidiary, Blackhawk, in November 2013. The financial statements of Retailo AG and Intelispend constitute, in aggregate, less than 1% of net and total assets, and comprise in aggregate less than 1% of revenues and of net income of Safeway Inc.'s consolidated financial statement amounts as of and for the fiscal year ended December 28, 2013. Through this evaluation, management did not identify any material weakness in the Company’s internal control. There are inherent limitations in the effectiveness of any system of internal control over financial reporting; however, based on the evaluation, management has concluded the Company’s internal control over financial reporting was effective as of ~~December~~January 283, ~~2013~~2015.

The Company’s independent registered public accounting firm has audited the accompanying consolidated financial statements and the Company’s internal control over financial reporting. The report of the independent registered public accounting firm is included in this Annual Report on Form 10-K and begins on the following page.

/s/ Robert L. Edwards		/s/ Peter J. Bocian
ROBERT L. EDWARDS		PETER J. BOCIAN
President and Chief Executive Officer		Executive Vice President, ~~and~~ Chief Financial Officer and Principal Accounting Officer
February 25, 2014		February 25, 2014
March 3, 2015		March 3, 2015

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Safeway Inc.:

We have audited the ~~accompanying~~internal ~~consolidated~~control ~~balance~~over ~~sheets~~financial reporting of Safeway Inc. ~~and subsidiaries~~ (the "“Company"”) as of ~~December~~January 283, ~~2013 and December 29~~2015, 2012, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December 28, 2013. We also have audited the Company's internal control over financial reporting as of December 28, 2013, based on criteria established in Internal Control - Integrated Framework (~~1992~~2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. AsThe described in “Management’s Annual Report on Internal Control over Financial Reporting”, Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting as of December 28, 2013 did not include the internal controls of Retalio AG and Intelispend, both acquired by the Company’s consolidated subsidiary, Blackhawk, in November 2013. The financial statements of Retailo AG and Intelispend constitute less than 1% of net and total assets, and comprise in aggregate less than 1% of revenues and of net income of Safeway Inc.’s consolidated financial statement amounts as of and for the year ended December 28, 2013. Accordingly, our audit did not include the internal control over financial reporting at Retailo AG and InteliSpend. The Company's management is responsible for ~~the consolidated financial statements of Safeway Inc., for~~ maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on ~~these consolidated financial statements and an opinion on~~ the Company'’s internal control over financial reporting based on our ~~audits~~audit.

We conducted our ~~audits~~audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether ~~the financial statements are free of material misstatement and whether~~ effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit ~~of internal control over financial reporting~~ included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, ~~and~~ testing and evaluating the design and operating effectiveness of internal control based on the assessed risk., ~~Our~~and ~~audits also included~~ performing such other procedures as we considered necessary in the circumstances. We believe that our ~~audits~~audit ~~provide~~provides a reasonable basis for our ~~opinions~~opinion.

A company'’s internal control over financial reporting is a process designed by, or under the supervision of, the company'’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company'’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

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accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Safeway Inc. and subsidiaries as of December 28, 2013 and December 29, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of ~~December~~January 283, ~~2013~~2015, based on the criteria established in Internal Control - Integrated Framework (~~1992~~2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 3, 2015 of the Company and our report dated March 3, 2015 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

~~February~~March 253, ~~2014~~ 2015

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Safeway Inc.:

We have audited the accompanying consolidated balance sheets of Safeway Inc. and subsidiaries (the “Company”) as of January 3, 2015 and December 28, 2013, and the related consolidated statements of income, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended January 3, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Safeway Inc. and subsidiaries as of January 3, 2015 and December 28, 2013, and the results of their operations and their cash flows for each of the three years in the period ended January 3, 2015, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 3, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 3, 2015 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

San Francisco, CA

March 3, 2015

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SAFEWAY INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In millions, except per-share amounts)

	52 Weeks 2013			52 Weeks 2012			52 Weeks 2011
	53 Weeks 2014			52 Weeks 2013			52 Weeks 2012
Sales and other revenue	$	36,~~139~~330.12		$	3635,~~068~~064.39		$	35,~~356~~161.75
Cost of goods sold	(26,~~645~~648.12		)	(2625,~~605~~833.94		)	(25,~~887~~932.94		)
Gross profit	9,~~494~~682.0			9,~~462~~231.45			9,~~468~~229.81
Operating and administrative expense	(89,~~858~~147.65		)	(8,~~753~~680.10		)	(8,~~760~~593.07		)
Operating profit	~~635~~534.45			~~709~~551.35			~~708~~635.84
Interest expense	(~~273~~198.09		)	(~~300~~273.70		)	(~~268~~300.16		)
Loss on foreign currency translation	(57.4		)	—			—
Loss on extinguishment of debt	(84.4		)	(10.1		)	—
Other income, net	31.0			27.8			17.7
Loss on foreign currency translation	(131.2		)	(57.4		)	—
Income before income taxes	336.0			436.4			458.4
Other income, net	45.0			40.6			27.4
Income taxes	(89.7		)	(141.8		)	(91.2		)
Income before income taxes	165.0			251.6			362.2
Income from continuing operations, net of tax	246.3			294.6			367.2
Income taxes	(61.8		)	(34.5		)	(113.0		)
Income from discontinued operations, net of tax	3,275.9			303.5			151.0
Income from continuing operations, net of tax	103.2			217.1			249.2
Net income before allocation to noncontrolling interests	3,522.2			598.1			518.2
Income from discontinued operations, net of tax	9.3			3,305.1			348.9
Less noncontrolling interests	(14.7		)	(1.6		)	(1.5		)
Net income before allocation to noncontrolling interests	112.5			3,522.2			598.1
Net income attributable to Safeway Inc.	$	3,507.5		$	596.5		$	516.7
Less noncontrolling interests	0.9			(14.7		)	(1.6		)
Net income attributable to Safeway Inc.	$	113.4		$	3,507.5		$	596.5
Basic earnings per share:
Continuing operations	$	0.9644		$	10.1890		$	1.0601
Discontinued operations	$	130.5704		$	113.2363		$	01.4340
Total	$	140.5348		$	214.4153		$	12.4941
Diluted earnings per share:
Continuing operations	$	0.9544		$	10.1889		$	1.0600
Discontinued operations	$	130.4304		$	113.2249		$	01.4340
Total	$	140.3848		$	214.4038		$	12.4940
Weighted average shares outstanding – basic	~~239~~228.18			~~245~~239.61			~~343~~245.46
Weighted average shares outstanding – diluted	~~241~~230.57			~~245~~241.95			~~343~~245.89

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Comprehensive (Loss) Income

(In millions)

	52 Weeks 2013			52 Weeks 2012			52 Weeks 2011
	53 Weeks 2014			52 Weeks 2013			52 Weeks 2012
Net income before allocation to noncontrolling interests	$	~~3,522~~112.25		$	~~598~~3,522.12		$	~~518~~598.21
Other comprehensive (loss) income:
Other comprehensive income (loss):
Translation adjustments, net of tax	~~(65.~~0.2		)	(365.10		)	8(3.81		)
Pension and post-retirement benefits adjustment to funded status, net of tax	~~179~~(185.50		)	~~(79~~179.75		)	(~~210~~79.37		)
Recognition of pension and post-retirement benefits actuarial loss, net of tax	6631.38			6966.53			5169.05
Other, net of tax	(10.12		)	(1.01		)	1.0
Total other comprehensive income (loss)	179.7			(12.3		)	(149.5		)
Total other comprehensive (loss) income	(152.8		)	179.7			(12.3		)
Comprehensive income including noncontrolling interests	3,701.9			585.8			368.7
Comprehensive (loss) income including noncontrolling interests	(40.3		)	3,701.9			585.8
Comprehensive income attributable to noncontrolling interests	(14.7		)	(1.6		)	(1.5		)
Comprehensive income (loss) attributable to noncontrolling interests	0.9			(14.7		)	(1.6		)
Comprehensive income attributable to Safeway Inc.	$	3,687.2		$	584.2		$	367.2
Comprehensive (loss) income attributable to Safeway Inc.	$	(39.4	)	$	3,687.2		$	584.2

See accompanying notes to consolidated financial statements.

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Consolidated Balance Sheets

(In millions, except per-share amounts)

	Year-end2013			Year-end2012
	Year-end2014			Year-end2013
Assets
Current assets:
Cash and equivalents	$	42,~~647~~255.31		$	~~352~~4,647.23
Receivables	~~1,211~~373.4			~~909~~1,211.04
Merchandise inventories, net of LIFO reserve of $58.1 and $70.5	2,089.6			2,562.0
Merchandise inventories, net of LIFO reserve of $53.1 and $58.1	2,187.9			2,089.6
Prepaid expenses and other current assets	371.5			344.7
Income tax receivable	476.1			—
Assets held for sale	143.9			—
Prepaid expenses and other current assets	277.1			371.5
Total current assets	8,463.7			4,167.9
Assets held for sale	39.5			143.9
Total current assets	5,609.1			8,463.7
Property:
Land	1,~~583~~376.28			1,~~881~~583.42
Buildings	5,~~774~~666.07			65,~~812~~774.60
Leasehold improvements	2,~~836~~804.21			32,~~485~~836.52
Fixtures and equipment	6,~~979~~517.19			76,~~958~~979.51
Property under capital leases	~~550~~708.23			~~612~~550.12
	17,722.7			20,750.1
	17,073.8			17,722.7
Less accumulated depreciation and amortization	(10,~~185~~297.23		)	(1110,~~525~~185.52		)
Total property, net	76,~~537~~776.5			97,~~224~~537.65
Goodwill	~~464~~330.59			~~471~~464.5
Investment in unconsolidated affiliate	~~196~~205.18			~~191~~196.71
Other assets	~~557~~454.7			~~601~~557.37
Total assets	$	1713,~~219~~377.50		$	1417,~~657~~219.05

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Consolidated Balance Sheets

(In millions, except per-share amounts)

	Year-end2013			Year-end2012
	Year-end2014			Year-end2013
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of notes and debentures	$	~~252~~3.92		$	~~294~~252.09
Current obligations under capital leases	4994.37			3649.23
Accounts payable	31,~~376~~609.46			3,~~125~~376.04
Accrued salaries and wages	~~419~~449.48			~~460~~419.94
Deferred income taxes	—29.4			~~30.4~~—
Income taxes payable	~~1,135.2~~—			—1,135.2
Other accrued liabilities	~~623~~566.28			~~683~~623.32
Total current liabilities	52,~~856~~753.45			45,~~629~~856.84
Long-term debt:
Notes and debentures	32,~~515~~472.39			43,~~831~~515.93
Obligations under capital leases	~~375~~429.51			~~411~~375.65
Total long-term debt	32,~~890~~902.80			53,~~243~~890.58
Deferred income taxes	—			178.5
Dominick's multiemployer pension plan withdrawal liability	455.0			294.8
Pension and post-retirement benefit obligations	~~451~~765.40			~~914~~451.54
Accrued claims and other liabilities	1,~~145~~051.81			~~781~~851.50
Total liabilities	117,~~344~~926.46			11,~~747~~344.84
Commitments and contingencies
Stockholders’ equity:
Common stock: par value $0.01 per share; 1,500 shares authorized; 244.2 and 605.3 shares issued	2.4			6.1
Common stock: par value $0.01 per share; 1,500 shares authorized; 245.8 and 244.2 shares issued	2.5			2.4
Additional paid-in capital	12,~~981~~051.93			41,~~505~~981.69
Treasury stock at cost: 14.1 and 365.8 shares	(480.6		)	(9,119.8		)
Treasury stock at cost: 14.4 and 14.1 shares	(491.8		)	(480.6		)
Accumulated other comprehensive loss	(~~271~~421.17		)	(73271.81		)
Retained earnings	4,~~586~~310.91			74,~~585~~586.69
Total Safeway Inc. equity	5,~~819~~450.54			25,~~903~~819.75
Noncontrolling interest	~~55.6~~—			555.56
Total equity	5,~~875~~450.14			25,~~909~~875.21
Total liabilities and stockholders’ equity	$	1713,~~219~~377.50		$	1417,~~657~~219.05

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

(In millions)

	52 Weeks 2013			52 Weeks 2012			52 Weeks 2011
	53 Weeks 2014			52 Weeks 2013			52 Weeks 2012
Operating Activities:
Net income before allocation to noncontrolling interest	$	~~3,522~~112.25		$	~~598~~3,522.12		$	~~518~~598.21
Income from discontinued operations, net of tax	(~~3,275.~~9.3		)	(~~303~~3,305.51		)	(~~151~~348.09		)
Income from continuing operations, net of tax	~~246~~103.32			~~294~~217.61			~~367~~249.2
Reconciliation to net cash flow from operating activities:
Depreciation expense	~~943~~921.95			~~970~~922.2			~~973~~952.08
Property impairment charges	35.6			33.6			33.1
Loss on foreign currency	131.2			57.4			—
Share-based employee compensation	59.1			53.6			48.5
Property impairment charges	56.1			35.6			33.6
LIFO (income) expense	(14.3		)	0.7			35.1
Share-based employee compensation	24.7			50.4			48.4
Equity in earnings of unconsolidated affiliate	(17.6		)	(17.5		)	(13.0		)
LIFO (income) expense	(5.0		)	(14.3		)	0.7
Net pension and post-retirement benefits expense	114.8			129.0			98.9
Equity in earnings of unconsolidated affiliate	(16.2		)	(17.6		)	(17.5		)
Contributions to pension and post-retirement benefit plans	(56.3		)	(110.3		)	(151.2		)
Net pension and post-retirement benefits expense	76.2			114.8			129.0
Gain on property dispositions and lease exit costs, net	(51.2		)	(48.3		)	(16.2		)
Contributions to pension and post-retirement benefit plans	(13.3		)	(56.3		)	(110.3		)
Loss on extinguishment of debt	10.1			—			—
Gain on sale of PDC	(22.0		)	—			—
(Decrease) increase in accrued claims and other liabilities	(29.5		)	53.9			21.9
Gain on property dispositions and lease exit costs, net	(38.8		)	(51.2		)	(48.3		)
Deferred income taxes	(267.7		)	(40.7		)	(57.0		)
Loss on extinguishment of debt	84.4			10.1			—
Other	(0.4		)	11.5			21.4
Increase in accrued claims and other liabilities	26.2			9.2			60.5
Deferred income taxes	89.6			(276.6		)	(36.1		)
Other	20.8			36.9			20.2
Changes in working capital items:
Receivables	~~(51~~16.5		)	(732.90		)	720.03
Inventories at FIFO cost	(77128.91		)	(~~107~~76.35		)	65(107.74		)
Prepaid expenses and other current assets	~~(57~~63.4		)	(2649.05		)	(1420.5		)
Income taxes	82(90.16		)	~~(52~~71.70		)	40(54.03		)
Payables and accruals	~~205~~87.39			~~126~~120.17			~~(183~~106.52		)
Payables related to third-party gift cards, net of receivables	(27.6		)	26.4			293.6
Net cash flow from operating activities - continuing operations	1,387.7			1,071.4			1,226.5
Net cash flow from operating activities - continuing operations	1,045.8			1,288.9			1,570.0
Net cash flow (used by) from operating activities - discontinued operations	(2,008.9		)	230.1			343.2
Net cash flow from operating activities - discontinued operations	198.3			280.8			453.6
Net cash flow (used by) from operating activities	(621.2		)	1,301.5			1,569.7
Net cash flow from operating activities	1,244.1			1,569.7			2,023.6
Investing Activities:
Cash paid for property additions	(~~767~~711.42		)	(~~821~~738.2		)	(~~992~~800.41		)
Proceeds from sale of property	220.3			263.0			164.9
Proceeds from sale of PDC	637.2			—			—
Proceeds from company-owned life insurance policies	68.7			—			—
Proceeds from sale of property	99.2			220.3			263.0
Business acquisitions, net of cash acquired	(149.4		)	—			(35.9		)
Proceeds from company-owned life insurance policies	—			68.7			—
Other	6.5			(56.1		)	(59.8		)
Restricted cash proceeds from the sale of PDC	(61.9		)	—			—
Net cash flow used by investing activities - continuing operations	(621.3		)	(614.3		)	(923.2		)
Increase in restricted cash	(40.0		)	—			—
Net cash flow from (used by) investing activities - discontinued operations	5,530.9			42.3			(91.3		)
Release of restricted cash for payment of mortgage	40.0			—			—
Net cash flow from (used by) investing activities	4,909.6			(572.0		)	(1,014.5		)
Advances to Blackhawk	(27.7		)	—			—
Other	(51.2		)	6.5			(56.1		)
Net cash flow used by investing activities - continuing operations	(115.6		)	(442.7		)	(593.2		)
Net cash flow from investing activities - discontinued operations	226.1			5,352.3			21.2
Net cash flow from (used by) investing activities	110.5			4,909.6			(572.0		)

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SAFEWAY INC. AND SUBSIDIARIESConsolidated Statements of Cash Flows(In millions)
	52 Weeks 2013			52 Weeks 2012			52 Weeks 2011
	53 Weeks 2014			52 Weeks 2013			52 Weeks 2012
Financing Activities:
Additions to long-term borrowings	~~785.5~~$	239.8		~~3,508.1~~$	785.5		~~3,177.9~~$	3,508.1
Payments on long-term borrowings	(2,171.5		)	(3,390.6		)	(2,907.2		)
Proceeds from PDC sale for development properties recorded (See Note D)	120.1			—			—
Payments of debt extinguishment costs	(11.0		)	—			—
Principal payments on long-term borrowings	(1,731.7		)	(2,171.5		)	(3,390.6		)
Net proceeds from the sale of Blackhawk common stock	161.5			—			—
Payments of debt extinguishment costs	(82.0		)	(11.0		)	—
Purchase of treasury stock	~~(663.7~~—		)	(~~1,274~~663.57		)	(1,~~554~~274.05		)
Dividends paid	(~~181~~251.48		)	(~~163~~181.94		)	(~~188~~163.09		)
Net proceeds from exercise of stock options	~~240~~29.17			3240.81			733.48
Excess tax benefit from share-based employee compensation	615.74			16.37			1.83
Other	(811.6		)	(138.36		)	(1713.63		)
Net cash flow used by financing activities - continuing operations	(1,~~842~~672.41		)	(12,~~329~~003.19		)	(1,~~413~~329.71		)
Net cash flow (used) provided by financing activities - discontinued operations	(3.8		)	(44.7		)	336.4
Net cash flow (used by) from financing activities - discontinued operations	(54.9		)	157.7			(44.7		)
Net cash flow used by financing activities	(1,~~846~~727.20		)	(1,~~373~~846.82		)	(1,~~077~~373.38		)
Effect of changes in exchange rates on cash	(12154.45		)	(169.18		)	18(1.81		)
Increase (decrease) in cash and equivalents	4,295.1			(377.2		)	(49.4		)
(Decrease) increase in cash and equivalents	(2,392.2		)	4,295.1			(377.2		)
Cash and Equivalents:
Beginning of year	~~352~~4,647.23			~~729~~352.42			~~778~~729.84
End of year	$	42,~~647~~255.31		$	~~352~~4,647.23		$	~~729~~352.42
Other Cash Information - Continuing and Discontinued Operations:
Cash payments during the year for:
Interest	$	~~289~~218.25		$	~~322~~289.32		$	~~302~~322.63
Income taxes, net of refunds	~~497~~1,397.27			~~380~~497.92			~~336~~380.29
Non-Cash Investing and Financing Activities - Continuing and Discontinued Operations:
Capital lease obligations entered into	$	78180.0		$	4878.10		$	148.1
Purchases of property, plant and equipment included in accounts payable	~~128~~71.38			~~107~~128.83			~~198~~107.8
Notes received in the sale of real estate	—			—			97.3
Mortgage notes assumed in property additions	—			—			42.9
Mortgage notes assumed in property additions	—			42.9			3.7

See accompanying notes to consolidated financial statements.

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SAFEWAY INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(In millions, except per-share amounts)

	52 Weeks 2013			52 Weeks 2012			52 Weeks 2011
	53 Weeks 2014			52 Weeks 2013			52 Weeks 2012
Common Stock:
Balance, beginning of year	$	62.14		$	6.01		$	6.0
Options exercised	—0.1			~~0.1~~—			—0.1
Retirement of treasury stock (1)	~~(3.7~~—		)	—(3.7		)	—
Balance, end of year	2.45			62.14			6.01
Additional Paid-In Capital:
Balance, beginning of year	41,~~505~~981.69			4,~~463~~505.96			4,~~363~~463.19
Share-based employee compensation	5927.17			5559.1			5055.01
Options exercised/cancelled, net	~~210~~40.64			~~(11~~210.96		)	53(11.79		)
Initial public offering of Blackhawk, net	~~161.5~~—			—161.5			—
Retirement of treasury stock (1)	~~(2,989.0~~—		)	—(2,989.0		)	—
Other (2)	~~34.~~1.3			(134.51		)	(21.95		)
Balance, end of year	12,~~981~~051.93			41,~~505~~981.69			4,~~463~~505.96
Treasury Stock:
Balance, beginning of year	(~~9,119~~480.86		)	(79,~~874~~119.48		)	(67,~~283~~874.84		)
Purchase of treasury stock	~~(663.7~~—		)	(~~1,240~~663.37		)	(1,~~588~~240.23		)
Retirement of treasury stock (1)	~~9,313.4~~—			—9,313.4			—
Other	(1011.52		)	(510.15		)	(25.41		)
Balance, end of year	(~~480~~491.68		)	(~~9,119~~480.86		)	(79,~~874~~119.48		)
Retained Earnings:
Balance, beginning of year	74,~~585~~586.69			7,~~151~~585.16			67,~~846~~151.21
Prior period adjustment (3)							(24.2		)
Net income attributable to Safeway Inc.	113.4			3,507.5			596.5
Balance, beginning of year, as corrected							6,822.0
Cash dividends declared ($0.890, $0.775 and $0.670 per share)	(205.8		)	(185.5		)	(162.0		)
Net income attributable to Safeway Inc.	3,507.5			596.5			516.7
Distribution of Blackhawk (3)	(184.4		)	—			—
Cash dividends declared ($0.775, $0.670 and $0.555 per share)	(185.5		)	(162.0		)	(187.6		)
Retirement of treasury stock (1)	—			(6,320.7		)	—
Retirement of treasury stock (1)	(6,320.7		)	—			—
Balance, end of year	4,310.1			4,586.9			7,585.6
Balance, end of year	4,586.9			7,585.6			7,151.1
Accumulated Other Comprehensive Loss:
Balance, beginning of year	(73271.81		)	(6173.58		)	88(61.05		)
Translation adjustments	~~(65.~~0.2		)	(365.10		)	8(3.81		)
Pension and post-retirement benefits adjustment to funded status (net of tax of $87.1, $45.5 and $113.3)	179.5			(79.7		)	(210.3		)
Pension and post-retirement benefits adjustment to funded status (net of tax of $118.5, $87.1 and $45.5)	(185.0		)	179.5			(79.7		)
Recognition of pension and post-retirement benefits actuarial loss (net of tax of $38.7, $40.5 and $31.0)	66.3			69.5			51.0
Recognition of pension and post-retirement benefits actuarial loss (net of tax of $20.5, $38.7 and $40.5)	31.8			66.3			69.5
Sale of Canada Safeway Limited (4)	(377.0		)	—			—
Distribution of Blackhawk (3)	2.2			—			—
Other (net of tax of $0.6, $0.5 and $0.1)	(1.1		)	1.0			1.0
Sale of Canada Safeway Limited (4)	—			(377.0		)	—
Balance, end of year	(271.1		)	(73.8		)	(61.5		)
Other (net of tax of $0.2, $0.6 and $0.5)	0.2			(1.1		)	1.0
Balance, end of year	(421.7		)	(271.1		)	(73.8		)

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SAFEWAY INC. AND SUBSIDIARIESConsolidated Statements of Stockholders’ Equity(In millions)
	52 Weeks 2013			52 Weeks 2012			52 Weeks 2011
	53 Weeks 2014			52 Weeks 2013			52 Weeks 2012
Noncontrolling Interests:
Balance, beginning of year	~~5.5~~$	55.6		~~6.0~~$	5.5		~~4.4~~$	6.0
Noncontrolling interests acquired through Retailo acquisition	6.9			—			—
Noncontrolling interests acquired through Blackhawk's acquisition of Retailo	—			6.9			—
Net earnings attributable to noncontrolling interests, net of tax	14(0.79		)	114.67			1.56
Other (2)	28.5			(2.1		)	0.1
Distribution of Blackhawk (3)	(56.3		)	—			—
Balance, end of year	55.6			5.5			6.0
Other (2)	1.6			28.5			(2.1		)
Total Equity	$	5,875.1		$	2,909.2		$	3,691.1
Balance, end of year	—			55.6			5.5
Total Equity	$	5,450.4		$	5,875.1		$	2,909.2

	Number of Shares Issued
Common Stock:
Balance, beginning of year	~~605~~244.32		~~604~~605.53		~~599~~604.85
Options exercised	91.67		09.16		30.21
Restricted stock grants, net of forfeitures	(0.51	)	0.75		10.57
Performance share awards	~~0.4~~—		—0.4		—
Retirement of treasury stock (1)	~~(371.6~~—	)	—(371.6	)	—
Balance, end of year	~~244~~245.28		~~605~~244.32		~~604~~605.53
	Number of Shares
Treasury Stock:
Balance, beginning of year	(~~365~~14.81	)	(~~307~~365.98	)	(~~231~~307.89	)
Purchase of treasury stock	~~(19.5~~—	)	(5719.65	)	(7657.16	)
Retirement of treasury stock (1)	~~371.6~~—		—371.6		—
Other	(0.43	)	(0.34	)	—(0.3	)
Balance, end of year	(14.14	)	(~~365~~14.81	)	(~~307~~365.98	)

(1) Safeway retired 371.6 million ~~treasury~~ shares in 2013. See Note KL under the caption "~~Shares~~Retirement ~~Repurchased~~of Treasury Stock."

(2) ~~Primarily~~Fiscal 2013 primarily results from Blackhawk IPO.

(3) ~~2012~~ Safeway ~~and~~distributed ~~2011~~its ~~have~~remaining ~~been~~shares ~~corrected~~of ~~for~~Blackhawk ~~the~~to ~~prior~~Safeway ~~period~~stockholders ~~adjustment discussed~~ in ~~Note A under the caption~~2014. ~~"Corrections~~See toNote ~~Previously Reported Financial Statements~~B."

(4) Safeway completed the sale of CSL in 2013. See Note ~~A under the caption "The Company~~B."

See accompanying notes to consolidated financial statements.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note A: The Company and Significant Accounting Policies

The Company Safeway Inc. (“Safeway” or the “Company”) is one of the largest food and drug retailers in the United States, with 1,~~335~~326 stores as of year-end ~~2013~~2014. Safeway’s U.S. retail operations are located principally in California, Hawaii, Oregon, Washington, Alaska, Colorado, Arizona, Texas, and the Mid-Atlantic region. In support of its retail operations, the Company has an extensive network of distribution, manufacturing and food processing facilities. The Company also owns and operates GroceryWorks.com Operating Company, LLC, an online grocery channel, doing business under the names Safeway.com and Vons.com (collectively “Safeway.com”).

On January 30, 2015, Safeway was acquired by AB Acquisition LLC (“AB Acquisition”) pursuant to an Agreement and Plan of Merger (as amended on April 7, 2014 and on June 13, 2014, the “Merger Agreement”), with AB Acquisition LLC , 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, in a transaction hereinafter referred to as the "Merger." See Note V to the consolidated financial statements for additional information. Unless otherwise noted, these consolidated financial statements and accompanying notes do not give effect to the Merger.

On December 23, 2014, Safeway and its wholly-owned real-estate development subsidiary, Property Development Centers, LLC (“PDC”), sold substantially all of the net assets of PDC to Terramar Retail Centers, LLC (“Terramar”). Due to leasing back certain properties, Safeway will have significant continuing involvement with a number of the properties subsequent to the sale of PDC. Therefore, the operating results are not reported in discontinued operations in the consolidated statements of income. See Note D to the consolidated financial statements for additional information.

Blackhawk Network Holdings, Inc. (“Blackhawk”) was a majority-owned subsidiary of Safeway until Safeway completed the distribution of 37.8 million shares of Blackhawk stock that it owned to its stockholders on April 14, 2014. The operating results of Blackhawk are reported as discontinued operations in the consolidated statements of income for all periods presented. See Note B to the consolidated financial statements for additional information.

During the fourth quarter of 2013, the Company exited the Chicago market, where it operated 72 Dominick's stores. The operating results of Dominick's are reported as discontinued operations in the consolidated statements of income for all periods presented. In addition, certain assets and liabilities associated with Dominick's are reported as assets and liabilities held for sale at December 28, 2013 and some Dominick's properties continued to be classified as held for sale at January 3, 2015. See Note B to the consolidated financial statements for additional information.

On November 3, 2013, Safeway completed the sale of substantially all of the net assets of Canada Safeway Limited ("CSL" now known as CSL IT Services ULC) to Sobeys Inc. ("Sobeys"), a wholly-owned subsidiary of Empire Company Limited. As a result, the operating results of CSL are reported as discontinued operations in the consolidated statements of income for all periods presented. See Note B to the consolidated financial statements for additional information.

During the fourth quarter of 2013, the Company exited the Chicago market, where it operated 72 Dominick's stores. The operating results of Dominick's are reported as discontinued operations in the consolidated statements of income for all periods presented. In addition, certain assets and liabilities associated with Dominick's are reported as assets and liabilities held for sale in the December 28, 2013 consolidated balance sheet. See Note B to the consolidated financial statements for additional information.

Unless otherwise indicated, the notes accompanying the consolidated financial statements reflect the Company's continuing operations.

~~Blackhawk~~The ~~Network~~Company ~~Holdings,~~also ~~Inc.~~has ~~(“Blackhawk”),~~ a ~~majority-owned~~49% ~~subsidiary~~ownership ofinterest ~~Safeway,~~in isCasa ~~a leading prepaid payment network utilizing proprietary technology to offer a broad range of gift cards~~Ley, ~~other prepaid products and payment services~~S. ~~Blackhawk’s~~A. ~~payment~~de 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 productsC.V. ~~Blackhawk’s product offerings include gift cards, prepaid telecom products and prepaid financial services products, including general purpose reloadable~~ (~~"GPR")~~“Casa ~~cards and Blackhawk’s reload network. In the fourth quarter of 2013~~Ley”), ~~Blackhawk~~which ~~acquired~~operates ~~InteliSpend~~206 ~~Prepaid~~food ~~Solutions TM, a leader in the corporate incentives~~ and ~~consumer~~general ~~promotions~~merchandise ~~marketplace,~~stores ~~and Retailo AG, a leading third-party gift card distribution network~~ in ~~Germany,~~Western ~~Austria and Switzerland~~Mexico. See Note ~~C to the consolidated financial statements set forth in Part II, Item 8 of this report for additional information~~V.

~~The~~Basis ~~Company~~of ~~also~~Presentation The ~~has~~consolidated afinancial ~~49%~~statements ~~ownership~~include ~~interest~~Safeway inInc., ~~Casa~~a ~~Ley~~Delaware corporation, ~~S.A.~~and deall ~~C.V.~~majority-owned ~~(“Casa~~subsidiaries ~~Ley”),~~and ~~which~~have ~~operates~~been ~~200~~prepared ~~food~~in ~~and~~accordance ~~general~~with ~~merchandise~~accounting ~~stores~~principles generally accepted in ~~Western~~the ~~Mexico~~United States of America. Intercompany transactions and balances have been

Basis of Presentation The consolidated financial statements include Safeway Inc., a Delaware corporation, and all majority-owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States of America. Intercompany transactions and balances have been eliminated in consolidation. The Company’s investment in Casa Ley is reported using the equity method. Safeway's equity in earnings of Casa Ley is based on financial information prepared in accordance with accounting principles generally accepted in the United States and is recorded on a one-month delay basis because financial information for the latest month is not available from Casa Ley in time to be included in Safeway’s consolidated results until the following reporting period.51

Fiscal Year The Company’s fiscal year ends on the Saturday nearest December 31. The last three fiscal years consist of the 52-week period ended December 28, 2013 (“fiscal 2013” or “2013”), the 52-week period ended December 29, 2012 (“fiscal 2012” or “2012”) and the 52-week period ended December 31, 2011 (“fiscal 2011” or “2011”).

Table of Contents

SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

~~Corrections~~eliminated toin ~~Previously Reported Financial Statements~~consolidation. ~~Subsequent~~The toCompany’s ~~the~~investment ~~issuance~~in ofCasa ~~the~~Ley ~~fiscal~~is ~~2012~~reported ~~consolidated~~using ~~financial statements,~~ the ~~Company~~equity ~~determined that the accrual for multiemployer health and welfare benefits was understated by $39~~method.~~5 million as of December 29, 2012 due to certain labor contracts not accounted for on an accrual basis. This understatement originated many years ago.~~ Safeway's ~~assessed~~equity ~~the~~in ~~materiality~~earnings of ~~this~~Casa ~~item~~Ley onis ~~previously~~based ~~issued~~on financial ~~statements~~information prepared in accordance with ~~the~~accounting ~~SEC’s~~principles ~~Staff~~generally ~~Accounting~~accepted ~~Bulletin~~in ~~(“SAB”)~~the ~~No.~~United 99States and ~~concluded~~is ~~that~~recorded ~~the~~on ~~correction~~a ~~was~~one-month ~~not~~delay ~~material~~basis tobecause ~~any~~financial ofinformation ~~the~~for ~~individual annual or interim periods. Safeway has corrected~~ the ~~accompanying~~latest ~~consolidated~~month ~~financial~~is ~~statements~~not byavailable ~~decreasing~~from ~~2011~~Casa ~~Retained~~Ley ~~Earnings~~in bytime ~~$24.2~~to ~~million,~~be ~~and~~included in ~~the~~Safeway’s 2012 balance sheet, decreasing Current Deferred Income Taxes by $15.3 million and increasing the multiemployer health and welfare accrual within Other Accrued Liabilities by $39.5 million. The effect on the 2012 and 2011 consolidated ~~statement of operations is insignificant. This correction~~ results inuntil ~~no other changes to~~ the ~~consolidated~~following ~~financial~~reporting ~~statements~~period.

Fiscal Year The Company’s fiscal year ends on the Saturday nearest December 31. The last three fiscal years consist of the 53-week period ended January 3, 2015 (“fiscal 2014” or “2014”), the 52-week period ended December 28, 2013 (“fiscal 2013” or “2013”) and the 52-week period ended December 29, 2012 (“fiscal 2012” or “2012”).

Correction to Cash Flow Classification Subsequent to the issuance of the fiscal 2013 consolidated financial statements, the Company determined that the $57.4 million loss on foreign currency translation within the 2013 consolidated statement of cash flows was reflected as a reduction in net cash flow from operating activities, and should not have reduced operating cash flow for U.S. GAAP purposes. As a result, the 2013 presentation has been corrected to increase cash flows from operating activities - continuing operations by $57.4 million with an offset to the line item Effect of changes in exchange rates on cash. Safeway assessed the materiality of this adjustment on previously issued financial statements in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and concluded that the correction was not material. This correction results in no other changes to the consolidated financial statements and had no effect on the change in cash or ending cash.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Translation of Foreign Currencies Assets and liabilities of the Company's foreign subsidiaries and Casa Ley are translated into U.S. dollars at year-end rates of exchange, and income and expenses are translated at average rates during the year. Adjustments resulting from translating financial statements into U.S. dollars, net of applicable income taxes, are included as a separate component in the statement of comprehensive income, within accumulated other comprehensive income in the consolidated balance sheets and within the consolidated statements of stockholders' equity.

After the net asset sale of Canadian operations ("Sale of Canadian Operations"), the adjustments resulting from translation of retained assets and liabilities denominated in Canadian dollars are included in the statement of income as a foreign currency gain or loss. Foreign currency loss was $131.2 million in fiscal 2014 and $57.4 million in fiscal 2013. The Company made a reclassification on the 2013 consolidated statement of cash flows to correct the classification of the loss on foreign currency.

Revenue Recognition Retail store sales are recognized at the point of sale. Sales tax is excluded from revenue. Internet sales are recognized when the merchandise is delivered to the customer. Discounts provided to customers in connection with loyalty cards are accounted for as a reduction of sales.

Safeway records a deferred revenue liability when it sells Safeway gift cards. Safeway records a sale when a customer redeems the gift card. Safeway gift cards do not expire. The Company reduces the liability and increases other revenue for the unused portion of gift cards (“breakage”) after two years, the period at which redemption is considered remote. Breakage amounts were $111.68 million, $91.09 million and $81.98 million in ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, respectively.

The Company, through its Blackhawk subsidiary, also sells third-party gift cards through Safeway retail operations and through other grocery and convenience store retailers. Safeway earns a commission which is recorded as other revenue when the third-party gift card is sold to the end consumer. The liability for redemption and potential income for breakage remains with the third-party merchant; therefore, Safeway does not record redemption or breakage of these gift cards. 52

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Notes to Consolidated Financial Statements

Cost of Goods Sold Cost of goods sold includes cost of inventory 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. All vendor allowances are recorded as a reduction of cost of goods when earned. Advertising and promotional expenses are also included as a component of cost of goods sold. Such costs are expensed in the period the advertisement occurs. Advertising and promotional expenses totaled $~~372~~325.65 million in ~~2013~~2014, $~~416~~371.76 million in ~~2012~~2013 and $~~408~~415.69 million in ~~2011~~2012.

Cash and Equivalents Cash and equivalents include short-term investments with original maturities of less than three months and credit and debit card sales transactions which settle within a few business days of year end.

~~Book~~There were no book overdrafts included in accounts payable at year-end 2014. At year-end 2013, ~~and~~book ~~2012~~overdrafts of $84.5 million ~~and~~were ~~$25.8 million, respectively, are~~ included in accounts payable.

Receivables Receivables include pharmacy, ~~gift card receivables~~ and miscellaneous trade receivables.

Merchandise Inventories Merchandise inventory of $1,~~643~~755.23 million at year-end ~~2013~~2014 and $1,~~608~~643.42 million at year-end ~~2012~~2013 is valued at the lower of cost on a last-in, first-out (“LIFO”) basis or market value. Such LIFO inventory had a replacement or current cost of $1,~~701~~808.34 million at year-end ~~2013~~2014 and $1,~~678~~701.93 million at year-end ~~2012~~2013. Liquidations of LIFO layers during the three years reported did not have a material effect on the results of operations. The remaining inventory consists primarily of perishables, pharmacy and fuel inventory. Perishables are counted every four weeks and are carried at the last purchased cost or the last four-week average cost, which approximates first-in, first out ("FIFO") cost. Pharmacy and fuel inventories are carried at the last purchased cost, which approximates FIFO cost. The Company records an inventory shrink adjustment upon physical counts and also provides for estimated inventory shrink adjustments for the period between the last physical inventory and each balance sheet date.

Property and Depreciation Property is stated at cost. Depreciation expense on buildings and equipment is computed on the straight-line method using the following lives:



Stores and other buildings	7 to 40 years
Fixtures and equipment	3 to 15 years

Safeway capitalizes eligible costs to acquire or develop internal-use software that are incurred during the application development stage as part of fixtures and equipment. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated useful lives of the assets.

Property under capital leases and leasehold improvements is amortized on a straight-line basis over the shorter of the remaining terms of the leases or the estimated useful lives of the assets.

Company-Owned Life Insurance Policies Safeway has company-owned life insurance 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, we offset the cash surrender value by the related loans. At ~~December~~January 283, ~~2013~~2015, the cash surrender value of the policies was $5857.51 million, and the balance of the policy loans was $40.97 million, resulting in a net cash surrender value of $1716.64 million. At December 2928, ~~2012~~2013, the cash surrender value of the policies was $8958.05 million, and nothe balance of the policy loans ~~were~~was ~~outstanding~~$40.9 million, resulting in a net cash surrender value of $17.6 million.

Employee Benefit Plans The Company recognizes in its ~~statement~~consolidated ofbalance ~~financial~~sheet ~~position~~ an asset for its employee benefit plan's overfunded status or a liability for underfunded status. The Company measures plan assets and obligations that determine the funded status as of fiscal year end. See Note MN.

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Notes to Consolidated Financial Statements

Self-Insurance The Company is primarily self-insured for workers’ compensation, automobile and general liability costs. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported, and is discounted using a risk-free rate of interest. The present value of such claims was calculated using a discount rate of 1.7550% in ~~2013~~2014, 01.75% in ~~2012~~2013 and 0.75% in ~~2011~~2012.

A summary of changes in Safeway’s self-insurance liability is as follows (in millions):

	2013			2012			2011
	2014			2013			2012
Beginning balance	$	~~480~~432.17		$	~~470~~480.91		$	~~468~~470.59
Expense, including the effect of discount rate	98153.69			~~151~~98.6			151.16
Claim payments	(~~137~~151.2		)	(~~142~~137.52		)	(~~148~~142.65		)
Disposal of discontinued operations	~~(8.8~~—		)	—(8.8		)	—
Currency translation	—			~~0.1~~—			(0.1		)
Ending balance	432.7			480.1			470.9
Reclass insurance recoveries to receivable	25.2			—			—
Less current portion	(108.6		)	(137.4		)	(129.4		)
Ending balance	460.6			432.7			480.1
Long-term portion	$	324.1		$	342.7		$	341.5
Less current portion	(113.3		)	(108.6		)	(137.4		)
Long-term portion	$	347.3		$	324.1		$	342.7

~~The~~Beginning ~~current portion of the self-insurance liability is included~~ in ~~other accrued liabilities~~2014, ~~and~~ the ~~long-term~~Company ~~portion~~has isrecorded ~~included~~estimated ininsurance ~~accrued~~recoveries ~~claims~~as ~~and~~a ~~other~~receivable, ~~liabilities~~rather inthan netting the ~~consolidated~~recoveries ~~balance~~against ~~sheets. The~~the ~~total undiscounted~~ liability ~~was $477~~.~~2 million at year-end 2013 and $496.2 million at year-end 2012.~~

The current portion of the self-insurance liability is included in other accrued liabilities, and the long-term portion is included in accrued claims and other liabilities in the consolidated balance sheets. The total undiscounted liability, net of insurance receivables, was $477.4 million at year-end 2014 and $477.2 million at year-end 2013.

Deferred Rent

Rent Escalations. The Company recognizes escalating rent provisions on a straight-line basis over the lease term.

Rent Holidays. Certain of the Company’s operating leases contain rent holidays. For these leases, Safeway recognizes the related rent expense on a straight-line basis starting at the earlier of the first rent payment or the date of possession of the leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease incentives and amortized over the lease term.

Income Taxes Income tax expense or benefit reflects the amount of taxes payable or refundable for the current year, the impact of deferred tax liabilities and deferred tax assets, accrued interest on tax deficiencies and refunds and accrued penalties on tax deficiencies. Deferred income taxes represent future net tax effects resulting from temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

A valuation allowance is established for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain. Periodically, the valuation allowance is reviewed and adjusted based on management's assessments of realizable deferred tax assets.

Tax positions are recognized when they are more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is more likely than not of being realized upon settlement. The Company is subject to periodic audits by the Internal Revenue Service and other foreign, state and local taxing authorities. These audits may challenge certain of the Company’s tax positions such as the timing and amount of income and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management 54

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Notes to Consolidated Financial Statements

Financial Instruments

Interest rate swaps. The Company has, from time to time, entered into interest rate swap agreements to change its portfolio mix of fixed- and floating-rate debt to more desirable levels. Interest rate swap agreements involve the exchange with a counterparty of fixed- and floating-rate interest payments periodically over the life of the agreements without exchange of the underlying notional principal amounts. The differential to be paid or received is recognized over the life of the agreements as an adjustment to interest expense. The Company’s counterparties have been major financial institutions.

Energy contracts. The Company has entered into contracts to purchase electricity and natural gas at fixed prices for a portion of its energy needs. Safeway expects to take delivery of the electricity and natural gas in the normal course of business. Contracts that qualify for the normal purchase exception under derivatives and hedging accounting guidance are not marked to market. Energy purchased under these contracts is expensed as delivered.

Warrants. Blackhawk issued warrants to third parties to purchase shares of Blackhawk common stock. Blackhawk recorded substantially all of the these warrants in additional paid-in-capital with an offset to intangible assets and is amortizing the assets over the term of the related marketing and distribution services agreements of approximately five years. The value of these warrants was calculated using the Black-Scholes model. Since there is no active market for these warrants, the valuation model used unobservable pricing inputs and management estimates.

Fair Value of Financial Instruments Disclosures of the fair value of certain financial instruments are required, whether or not recognized in the balance sheet. The Company estimated the fair values presented below using appropriate valuation methodologies and market information available as of year end. Considerable judgment is required to develop estimates of fair value, and the estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair values. Additionally, the fair values were estimated at year end, and current estimates of fair value may differ significantly from the amounts presented.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash and equivalents, accounts receivable, accounts payable. The carrying amount of these items approximates fair value.

Short-term investments. These investments are readily convertible to cash, and the carrying amount of these items approximates fair value.

Notes receivables. The Company's notes receivables, included in other assets, isare comprised primarily of notes receivable resulting from the sale of real estate. The fair value of note receivables is estimated by discounting expected future cash flows using interest rates, adjusted for credit risk, at which similar loans could be made under current market conditions. The carrying value of notes receivables, which approximates fair value, was $108.0 million at January 3, 2015 and $101.0 million at December 28, 2013. ~~and~~Approximately $~~130~~27.67 million of the notes receivables at ~~December~~January 293, ~~2012~~2015 were Safeway advances to Blackhawk. These advances funded Blackhawk's estimated tax payments on the distribution of Blackhawk shares which are explained in Note B under the caption "Blackhawk". With the closing of the Merger on January 30, 2015, Blackhawk is not required to repay these advances.

Long-term debt, including current maturities. Market values quoted in public markets are used to estimate the fair value of publicly traded debt. To estimate the fair value of debt issues that are not quoted in public markets, the Company uses those interest rates that are currently available to it for issuance of debt with similar terms and remaining maturities as a discount rate for the remaining principal payments.55

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Notes to Consolidated Financial Statements

Store Lease Exit Costs and Impairment Charges Safeway regularly reviews its stores’ operating performance and assesses the Company’s plans for certain store and plant closures. Losses related to the impairment of long-lived assets are recognized when expected future cash flows are less than the asset’s carrying value. The Company evaluates the carrying value of the assets in relation to its expected future cash flows. If the carrying value is greater than the future cash flows, a provision is made for the impairment of the assets to write the assets down to estimated fair value. Fair value is determined by estimating net future cash flows, discounted using a risk-adjusted rate of return. The Company calculates impairment on a store-by-store basis. These provisions are recorded as a component of operating and administrative expense.

When stores that are under long-term leases close, the Company records a liability for the future minimum lease payments and related ancillary costs, net of estimated cost recoveries that may be achieved through subletting properties or through favorable lease terminations, discounted using a risk-adjusted rate of interest. This liability is recorded at the time the store is closed. Activity included in the reserve for store lease exit costs is disclosed in Note E.

Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, net of applicable taxes, consisted of the following at year-end (in millions):

	2013			2012			2011
	2014			2013			2012
Translation adjustments	$	(~~139~~136.04	)	$	~~399~~(139.0	)	$	~~402~~399.10
Pension and post-retirement benefits adjustment to funded status	(~~403~~588.0		)	(~~737~~403.80		)	(~~658~~737.18		)
Recognition of pension and post-retirement benefits actuarial loss	~~272~~304.51			~~265~~272.5			~~196~~265.05
Other	(1.64		)	(01.56		)	(10.5		)
Total	$	(~~271~~421.17	)	$	(73271.81	)	$	(6173.58	)

At the closing of the Sale of Canadian Operations, the Company recorded the related balance of cumulative translation adjustment, pension and post-retirement benefit adjustment to funded status and recognition of pension and post-retirement benefits actuarial loss which related to CSL as part of the gain on the sale. See Note B.

Stock-Based Employee Compensation Safeway accounts for all share-based payments to employees, including grants of employee stock options, as compensation cost based on the fair value on the date of grant. The Company determines fair value of such awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates certain assumptions, such as risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate.

New Accounting Pronouncements

In ~~February~~May ~~2013~~2014, the Financial Accounting Standards Board ("“FASB"”) issued Accounting Standards ~~Updated~~Update ("ASU") No. ~~2013~~2014-0209, ~~"Comprehensive~~“Revenue ~~Income~~from ~~(Topic~~Contracts ~~220)~~with ~~Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income"~~Customers,” towhich ~~improve~~provides ~~the~~guidance ~~reporting~~for ofrevenue ~~reclassifications out of accumulated other comprehensive income~~recognition. ~~ASU~~The ~~No.~~standard’s ~~2013-02~~core ~~requires~~principle anis ~~entity~~that toa ~~report~~company ~~the~~will ~~effect~~recognize ofrevenue ~~significant~~when ~~reclassifications~~it ~~out~~transfers ofpromised ~~accumulated~~goods ~~other~~or ~~comprehensive~~services ~~income~~to oncustomers ~~the respective line items~~ in ~~net~~an ~~income if the~~ amount ~~being~~that ~~reclassified~~reflects isthe ~~required~~consideration ~~under U.S. GAAP~~ to bewhich ~~reclassified~~the incompany ~~its~~expects ~~entirety~~ to ~~net income. For other amounts that are not required under U.S. GAAP to~~ be ~~reclassified~~entitled in ~~their~~exchange ~~entirety~~for ~~from~~those ~~accumulated~~goods ~~other~~or ~~comprehensive~~services. ~~income~~The tonew ~~net~~guidance ~~income~~is ineffective ~~the~~for ~~same~~annual reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. Safeway adopted these disclosure amendments in the quarter ended March 23, 2013. The implementation

5756

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Notes to Consolidated Financial Statements

ofperiods ~~this~~beginning ~~update~~after ~~did~~December ~~not~~15, ~~impact~~2016, ~~Safeway's~~including ~~financial~~interim ~~position,~~periods ~~results~~within ofthat ~~operations~~reporting orperiod. Early ~~cash~~application ~~flows~~is asnot itpermitted. The ~~was~~Company ~~disclosure~~is currently assessing the potential impact of ASU No. 2014-~~only~~09 inon ~~nature~~its financial statements.

InOn ~~March~~April ~~2013~~10, 2014, the FASB issued ASU No. ~~2013~~2014-~~05,~~08 “~~Parent's~~Reporting ~~Accounting~~Discontinued ~~for~~Operations ~~the~~and ~~Cumulative~~Disclosures ~~Translation Adjustment upon Derecognition~~ of ~~Certain~~Disposals ~~Subsidiaries or Groups~~ of ~~Assets~~Components ~~within a Foreign Entity or~~ of an ~~Investment in a Foreign~~ Entity.” ~~The~~ ASU ~~clarifies~~No. ~~that~~2014-08 ~~when~~changes athe ~~parent~~criteria ~~entity~~for ~~ceases~~reporting todiscontinued ~~have~~operations aand ~~controlling~~modifies ~~financial~~related ~~interest~~disclosure inrequirements. aThe ~~subsidiary~~new orguidance ~~group of assets that~~ is aeffective ~~nonprofit~~on ~~activity or~~ a ~~business~~prospective ~~(other~~basis ~~than~~for afiscal ~~sale~~years ofbeginning inafter ~~substance~~December ~~real~~15, ~~estate~~2014, ~~or conveyance of oil~~ and ~~gas~~interim ~~mineral~~periods ~~rights)~~ within aannual ~~foreign~~periods ~~entity,~~beginning ~~the~~on ~~parent~~or isafter ~~required~~December to15, ~~apply the guidance in Accounting Standards Codification 830-30 to release any related cumulative translation adjustment into net income~~2015. The ~~ASU~~Company ~~provides~~is ~~that~~currently ~~the~~assessing ~~cumulative translation adjustment should be released into net income only if~~ the ~~sale~~future orimpact ~~transfer results in the complete or substantially complete liquidation~~ of ~~the foreign entity in which the subsidiary or group of assets had resided. The Company early adopted~~ ASU No. ~~2013~~2014-0508 ~~and the effect is included in the gain~~ on ~~the~~its ~~sale~~financial ~~of CSL in Note B~~statements.

Note B: Assets and Liabilities Held for Sale and Discontinued Operations

Assets and Liabilities Held for Sale In the fourth quarter of 2013, the Company announced its intention to exit the Chicago market, where it operated 72 Dominick's stores. During the fourth quarter of 2013, the Company sold or closed its Dominick's stores. Certain Dominick's properties were classified as held for sale at ~~year~~December 28, ~~end~~2013, and some Dominick's properties continued to be classified as held for sale at January 3, 2015. Additionally, the Company had other real estate assets held for sale ~~at December 28, 2013~~. Assets and liabilities held for sale at January 3, 2015 and December 28, 2013 were as follows (in millions):

		December 28, 2013
		January 3, 2015		December 28, 2013
Assets held for sale:
	Dominick's property, net, held for sale	$	~~136~~5.76	$	136.7
	Other United States real estate assets held for sale	733.29		7.2
	Total assets held for sale	$	~~143~~39.95	$	143.9

			December 28, 2013
			January 3, 2015		December 28, 2013
Liabilities held for sale:
	Dominick's
		Deferred gain on property dispositions	$	~~9.0~~—	$	9.0
		Obligations under capital leases	~~5.2~~—		5.2
		Deferred rent	~~2.6~~—		2.6
		Other liabilities	~~1.4~~—		1.4
		Total liabilities held for sale (1)	$	~~18.2~~—	$	18.2

⁽¹⁾Included in Other Accrued Liabilities on the consolidated balance sheet.

~~Discontinued Operations~~ 57

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Notes to Consolidated Financial Statements

Discontinued Operations The notes to the consolidated financial statements exclude discontinued operations, unless otherwise noted. Historical financial information for CSL, Dominick's and Blackhawk presented in the consolidated income statements has been reclassified to discontinued operations to conform to current-year presentation. The historical operating results of Genuardi's stores have not been reflected in discontinued operations because the historical financial operating results were not material to the Company's consolidated financial statements for all periods presented. Financial information for discontinued operations is shown below (in millions):



		2014			2013			2012
Sales and other revenue:
	CSL ⁽¹⁾	$	—		$	5,447.9		$	6,695.8
	Dominick's	7.3			1,394.8			1,465.2
	Blackhawk ⁽¹⁾	305.6			1,074.2			906.8
	Total	$	312.9		$	7,916.9		$	9,067.8

(Loss) income from discontinued operations, before income taxes:
	CSL ⁽¹⁾	$	—		$	286.2		$	442.3
	Dominick's ⁽²⁾	(186.8		)	(92.0		)	(50.4		)
	Blackhawk ⁽¹⁾	(4.4		)	84.4			74.2
	Total	$	(191.2	)	$	278.6		$	466.1

Gain (loss) on sale or disposal of operations, net of lease exit costs and transaction costs, before income taxes:
	CSL ⁽³⁾	$	(6.8	)	$	4,783.1		$	—
	Dominick's ⁽⁴⁾	140.9			(493.1		)	—
	Blackhawk	(5.9		)	—			—
	Genuardi's	—			—			52.4
	Total	$	128.2		$	4,290.0		$	52.4

Total (loss) income from discontinued operations, before income taxes		$	(63.0	)	$	4,568.6		$	518.5
Income taxes on discontinued operations		72.3			(1,263.5		)	(169.6		)
Income from discontinued operations, net of tax		$	9.3		$	3,305.1		$	348.9

⁽¹⁾ For CSL, 2013 reflects 44 weeks of activity compared to 52 weeks in 2012.For Blackhawk, 2014 reflects 15 weeks of activity compared to 52 weeks in the prior years.

⁽²⁾2014 includes charges of $159.4 million to increase the multiemployer pension withdrawal liability.

⁽³⁾In accordance with ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," the Company transferred the cumulative translation adjustment relating to Canadian operations from Accumulated Other Comprehensive Loss on the balance sheet to gain on the Sale of Canadian Operations.

(4) 2013 includes a charge of $310.8 million for the estimated multiemployer pension plan withdrawal liability.

Sale of Canadian Operations On November 3, 2013, Safeway completed the Sale of Canadian Operations to Sobeys for CAD5.8 billion (USD5.6 billion) in cash plus the assumption of certain liabilities.

Dominick's During the fourth quarter of 2013, Safeway sold or closed all Dominick's stores. InCash ~~2013, cash~~ proceeds on the sale of these stores sold in fiscal 2013 were $72.2 million,. Stores ~~with~~closed in 2013 but sold in fiscal 2014 had cash proceeds of $246.3 million. The sale of these stores resulted in a a pre-tax gain of $140.9 million in fiscal 2014 and a pre-tax loss of $493.1 million~~. Included~~ in fiscal 2013, which includes a charge of $310.8

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

million for the ~~loss~~estimated ismultiemployer apension ~~$310.8~~plan ~~million~~withdrawal liability. ~~charge~~During ~~which~~fiscal ~~represents~~2014, the Company increased the estimated multiemployer pension plan withdrawal liability by $159.4 million, which is included in loss from discontinued operations in the following table. See Note NO for a discussion and reconciliation of this withdrawal liability.

Blackhawk 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% 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 as of 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 as of the Record Date.

With the completion of the Merger subsequent to year-end, Safeway’s distribution of Blackhawk shares is taxable. Based on Safeway’s preliminary estimates and after the application of $82 million in 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 liability of approximately $360 million, which Safeway is required to fund. In accordance with generally accepted accounting principles, Safeway did not consider the probability of the Merger occurring and, therefore, has not recorded a liability for its obligation to fund Blackhawk’s tax obligation. During 2014, Safeway paid approximately $355 million of the incremental tax liability.

In addition, during 2014, Blackhawk made certain estimated tax payments to certain state tax jurisdictions. Safeway advanced approximately $27.7 million to Blackhawk to fund these estimated tax payments. Safeway recorded these advances as receivables on the condensed consolidated balance sheet because, in accordance with generally accepted accounting principles, Safeway did not consider the probability of the Merger occurring. In the event the Merger did not occur, Blackhawk would have been required to repay these advances to Safeway.

~~The~~Note notes to the consolidated financial statements exclude discontinued operations, unless otherwise noted. Historical financial information for CSL and Dominick's presented in the consolidated income statements has been reclassified to discontinued operations to conform to current-year presentation. The historical operating results of Genuardi's stores have not been reflected in discontinued operations because the historical financial operating results were not material to the Company's consolidated financial statements for all periods presented. Financial information for discontinued operations is shown below (in millions)C: Blackhawk

		2013			2012			2011
Sales and other revenue:
	CSL (1)	$	5,447.9		$	6,695.8		$	6,726.9
	Dominick's	1,394.8			1,465.2			1,568.6
	Total	$	6,842.7		$	8,161.0		$	8,295.5
Income (loss) from discontinued operations, before income taxes:
	CSL (1)	$	286.2		$	442.3		$	462.3
	Dominick's	(92.0		)	(50.4		)	(38.7		)
	Total	$	194.2		$	391.9		$	423.6
Gain (loss) on sale or disposal of operations, net of lease exit costs, before income taxes:
	CSL (2)	$	4,783.1		$	—		$	—
	Dominick's	(493.1		)	—			—
	Genuardi's	—			52.4			—
	Total	$	4,290.0		$	52.4		$	—
Total income from discontinued operations before income taxes		$	4,484.2		$	444.3		$	423.6
Income taxes on discontinued operations		(1,208.3		)	(140.8		)	(272.6		)
Income from discontinued operations, net of tax		$	3,275.9		$	303.5		$	151.0
(1) For CSL, 2013 reflects 44 weeks of activity compared to 52 weeks in 2012 and 2011.
(2) In accordance with ASU No. 2013-05, "Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," the Company transferred the cumulative translation adjustment relating to Canadian operations from Accumulated Other Comprehensive Loss on the balance sheet to gain on the Sale of Canadian Operations.

Initial Public Offering of Blackhawk On April 24, 2013, Blackhawk, a former Safeway subsidiary, completed its initial public offering of 11.5 million shares of its Class A common stock at $23.00 per share on the NASDAQ Global Select Market, which included the exercise by the underwriters for the offering of an option to purchase 1.5 million shares of Class A common stock. The offering consisted solely of shares offered by existing stockholders, including Safeway. As part of the IPO, Safeway sold 11.3 million shares of Class A common stock of Blackhawk for proceeds of $243.6 million ($238.0 million, net of professional service fees), reducing the Company's ownership from approximately 95% to approximately 73% of Blackhawk's total outstanding shares of common stock. Safeway recorded these net proceeds as an increase to Additional Paid-In Capital and used these net proceeds to reduce debt. Additionally, the Company recorded a $76.5 million tax liability on the sale of these shares as a reduction to Additional Paid-In Capital and $5.8 million as an increase to tax expense. The taxes were paid in the fourth quarter of 2013. Additionally, Safeway incurred a $17.9 million deferred tax expense related to the retained shares in Blackhawk.

Distribution of Blackhawk Safeway owned 37.8 million shares, or approximately 72%, of Blackhawk, which the Company distributed to its stockholders on April 14, 2014. See Note B.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

~~Note~~Acquisitions On C: November 29, 2013, Blackhawk acquired 100% of the outstanding common stock of Retailo, a German privately-held company which is a third-party gift card distribution network in Germany, Austria and Switzerland. Blackhawk acquired Retailo for total purchase consideration of $70.2 million. The following table summarizes the purchase price allocation which was based upon the estimated fair value of each asset and liability (in millions):

Initial Public Offering of Blackhawk On April 24, 2013, Blackhawk, a Safeway subsidiary, completed its initial public offering of 11.5 million shares of its Class A common stock at $23.00 per share on the NASDAQ Global Select Market, which included the exercise by the underwriters for the offering of an option to purchase 1.5 million shares of Class A common stock. The offering consisted solely of shares offered by existing stockholders, including Safeway. As part of the IPO, Safeway sold 11.3 million shares of Class A common stock of Blackhawk for proceeds of $243.6 million ($238.0 million, net of professional service fees), reducing the Company's ownership from approximately 95% to approximately 73% of Blackhawk's total outstanding shares of common stock. Safeway recorded these net proceeds as an increase to Additional Paid-In Capital and used these net proceeds to reduce debt. Additionally, the Company recorded a $76.5 million tax liability on the sale of these shares as a reduction to Additional Paid-In Capital and $5.8 million as an increase to tax expense. The taxes were paid in the fourth quarter of 2013. Additionally, Safeway incurred a $17.9 million deferred tax expense related to the retained shares in Blackhawk.

As of December 28, 2013, Safeway owned 37.8 million shares, or approximately 72.2%, of Blackhawk, which the Company plans to distribute to its stockholders. See Note U.

Acquisitions On November 29, 2013, Blackhawk acquired 100% of the outstanding common stock of Retailo, a German privately-held company which is a third-party gift card distribution network in Germany, Austria and Switzerland. Blackhawk acquired Retailo for total purchase consideration of $70.2 million. The following table summarizes the purchase price allocation which was based upon the estimated fair value of each asset and liability (in millions).



Settlement receivables	$	18.1
Settlement payables	(14.8		)
Other liabilities, net	(0.7		)
Deferred income taxes, net	(7.4		)
Identifiable technology and intangible assets	45.7
Noncontrolling interests	(6.9		)
Goodwill ⁽¹⁾	36.2
Total consideration	$	70.2


⁽¹⁾	See Note D.

Noncontrolling interests result from third-party ownership interests in certain subsidiaries of Retailo.

~~The~~On ~~following~~November ~~table~~12, ~~summarizes~~2013, ~~the~~Blackhawk ~~components~~acquired substantially all of the ~~identifiable~~net ~~technology~~assets ~~and~~of ~~intangible~~InteliSpend ~~assets~~from Maritz Holdings Inc., a privately-held company, for total purchase consideration of ~~Retailo~~$97.5 million. InteliSpend delivers intelligent prepaid solutions for business needs: employee rewards, wellness, sales incentives, expense management and ~~their~~promotional ~~estimated~~programs. The ~~useful~~following ~~lives~~table atsummarizes the ~~acquisition~~purchase ~~date~~price ~~(dollars~~allocation which was based upon the estimated fair value of each asset and liability (in millions). :

	Fair Value			Useful life
Cash and cash equivalents	$	15.0
Distribution partner relationships	$	38.0		15 years
Trading securities	29.4
Customer relationships	5.5			8 years	-	10 years
Accounts receivable	7.9
Technology	1.9			3 years
Cardholder liabilities	(31.4		)
Trade name	0.3			3 years
Customer deposits	(12.5		)
	$	45.7
Other tangible assets, net	(4.0		)
Deferred taxes	(0.3		)
Identifiable technology and intangible assets	39.2
Goodwill (1)	54.2
Total consideration	$	97.5


⁽¹⁾	See Note D.

Blackhawk sold the trading securities for cash on the day after closing, and this sale is presented as an inflow from investing activities in the accompanying consolidated statements of cash flows.

Note D: Property Development Centers

On December 23, 2014, Safeway and its wholly owned real estate development subsidiary, PDC, sold substantially all of the net assets of PDC to Terramar. PDC’s assets were comprised of shopping centers that are completed or under development. Most of these centers included a grocery store that was leased back to Safeway. The sale was consummated pursuant to an Asset Purchase Agreement dated as of December 22, 2014 by and among Safeway, PDC and Terramar.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

On November 12, 2013, Blackhawk acquired substantially all of the net assets of InteliSpend from Maritz Holdings Inc., a privately-held company, for total purchase consideration of $97.5 million. InteliSpend delivers intelligent prepaid solutions for business needs: employee rewards, wellness, sales incentives, expense management and promotional programs. The following table summarizes the ~~purchase~~gain ~~price~~on ~~allocation~~this ~~which~~transaction ~~was based upon the estimated fair value of each asset and liability~~ (in millions).

Cash and cash equivalents			$	15.0
Total cash proceeds	$	759.0
Trading securities			29.4
Less proceeds for development properties recorded as Other Notes Payable	(120.1		)
Accounts receivable			7.9
Less cash paid for prorates	(1.7		)
Cardholder liabilities			(31.4		)
Total cash proceeds classified as investing activities	637.2
Customer deposits			(12.5		)
Net book value	(464.9		)
Other tangible assets, net			(4.0		)
Total gain on sale of PDC	172.3
Deferred taxes			(0.3		)
Less gain deferred on sale leasebacks (1)	(150.3		)
Identifiable technology and intangible assets			39.2
Gain on sale of PDC	$	22.0
Goodwill (1)			54.2
Total consideration			$	97.5

(1) ~~See~~Current ~~Note~~portion Dof $25.3 million is included in other accrued liabilities, and the long-term portion of $125.0 million is included in accrued claims and other liabilities in the consolidated balance sheet at year-end 2014.

~~Blackhawk~~Due ~~sold~~to leasing back certain of these properties, Safeway has significant continuing involvement with a number of the ~~trading~~properties ~~securities~~subsequent ~~for~~to ~~cash~~the sale. As a result, Safeway deferred the gain on the ~~day~~sale ~~after~~of ~~closing~~those ~~and~~properties. ~~presents~~Under ~~this~~GAAP, ~~sale~~Safeway asis anstill ~~inflow~~considered ~~from~~the ~~investing~~owner ~~activities~~of incertain properties consisting primarily of the ~~accompanying~~properties ~~consolidated~~under ~~statements~~development. Consequently, proceeds of $120.1 million received for those properties have been recorded as Other Notes Payable and classified as a cash ~~flows~~inflow from financing activities.

~~The~~Safeway ~~following~~undertook ~~table summarizes~~ the ~~components~~sale of ~~the~~PDC ~~identifiable~~in ~~technology~~connection ~~and~~with ~~intangible assets of InteliSpend and their estimated useful lives at~~ the ~~acquisition~~Merger. ~~date~~See ~~(dollars~~Note ~~in millions)~~V.

	Fair Value		Useful life
Customer relationships	$	23.9	7 years	-	14 years
Back-log	9.3		1 year	-	3 years
Patent	3.3		5 years
Technology	2.4		5 years
Trade name	0.3		4 years
	$	39.2

Note E: Goodwill

Note D: Goodwill

Goodwill represents the excess of cost of an acquired business over the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed in a business combination. Goodwill is not subject to amortization but must be evaluated for impairment.

Safeway tests goodwill for impairment annually (on the first day of the fourth quarter) or whenever events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below its carrying value.

The impairment test is a two-step process. In the first step, the Company determines if the fair value of the reporting units is less than the book value. Under generally accepted accounting principles, a reporting unit is either the equivalent to, or one level below, an operating segment. Each reporting unit constitutes a business for which discrete financial information is available and for which management regularly reviews the operating results. Safeway's operating segments are our retail divisions. Safeway's reporting units are generally consistent with its operating segments.

Companies are allowed perform the first step of the two-step impairment process by assessing qualitative factors to determine whether events or circumstances exist which lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. After assessing the totality of events and circumstances, we conclude that it is more likely than not that the fair value of our reporting units with goodwill is greater than the book value and, therefore, that there is no goodwill impairment.

If Safeway concludes that fair value is greater than the book value, Safeway does not have to proceed to step two, and Safeway can conclude there is no goodwill impairment. If the Company concludes that the fair value of a reporting unit is less than book value, the Company must perform step two, in which it calculates the implied fair value of goodwill and compares it to carrying value. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimated fair value of each reporting unit is based on an average of the guideline company method and the discounted cash flow method. These methods are based on historical and forecasted amounts specific to each reporting unit and consider sales, gross profit, operating ~~results~~profit and cash flows and general economic and market conditions, as well as the impact of planned business and operational strategies. Safeway's ~~operating~~bases ~~segments~~its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are ~~our~~subject ~~retail~~to ~~divisions~~inherent uncertainty. ~~Safeway's~~Measuring the fair value of reporting units ~~are~~would ~~generally~~constitute ~~consistent~~a ~~with~~Level ~~its~~3 ~~operating~~measurement ~~segments~~under the fair value hierarchy. See Note I for a discussion of levels.

IfBased ~~Safeway~~upon ~~concludes~~the ~~that~~results ~~fair~~of ~~value~~our ~~is greater than the book value~~2014, ~~Safeway~~2013 ~~does~~and ~~not~~2012 ~~have to proceed to step two~~analyses, ~~and Safeway can conclude there is~~ no ~~goodwill~~ impairment~~. If~~ ~~the Company concludes that the fair value~~ of agoodwill ~~reporting~~was ~~unit~~indicated ~~is less than book value, the Company must perform step two,~~ in ~~which it calculates the implied fair value of goodwill and compares it to carrying value. If the carrying value of goodwill exceeds the implied fair value of goodwill~~2014, ~~such~~2013 ~~excess~~or ~~represents the amount of goodwill impairment~~2012.

~~Determining~~A ~~the~~summary ~~fair value~~ of achanges ~~reporting~~in ~~unit~~Safeway’s ~~involves~~goodwill ~~the use of significant estimates and assumptions. The estimated fair value of each reporting unit~~ is based on an average of the guideline company method and the discounted cash flow method. These methods are based on historical and forecasted amounts specific to each reporting unit and consider sales, gross profit, operating profit and cash flows and general economic and market conditions, as ~~well~~follows as(in the impact of planned business and operational strategies. Safeway bases its fair value estimates on assumptions it believes to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Measuring the fair value of reporting units would constitute a Level 3 measurement under the fair value hierarchy. See Note H for a discussion of levels.millions):

Based upon the results of our 2013, 2012 and 2011 analyses, no impairment of goodwill was indicated in 2013, 2012 or 2011.



	2014						2013
	U.S.			U.S.			Canada			Total
Balance – beginning of year:
Goodwill	$	4,455.8		$	4,364.9		$	97.9		$	4,462.8
Accumulated impairment charges	(3,991.3		)	(3,991.3		)	—			(3,991.3		)
	464.5			373.6			97.9			471.5
Activity during the year:
Distribution of Blackhawk Stock ⁽²⁾	(133.6		)	—			—			—
Disposal of CSL goodwill ⁽¹⁾	—			—			(97.9		)	(97.9		)
Blackhawk acquisition of Retailo ⁽²⁾	—			36.2			—			36.2
Blackhawk acquisition of InteliSpend ⁽²⁾	—			54.2			—			54.2
Translation adjustments	—			0.5			—			0.5
	(133.6		)	90.9			(97.9		)	(7.0		)
Balance – end of year:
Goodwill	4,322.2			4,455.8			—			4,455.8
Accumulated impairment charges	(3,991.3		)	(3,991.3		)	—			(3,991.3		)
	$	330.9		$	464.5		$	—		$	464.5

A summary of changes in Safeway’s goodwill by geographic area is as follows (in millions):

				2013										2012
	U.S.			Canada				Total			U.S.			Canada		Total
Balance – beginning of year:
Goodwill	$	4,364.9		$	97.9			$	4,462.8		$	4,364.9		$	96.2	$	4,461.1
Accumulated impairment charges	(3,991.3		)	—				(3,991.3		)	(3,991.3		)	—		(3,991.3		)
	373.6			97.9				471.5			373.6			96.2		469.8
Activity during the year:
Disposal of CSL goodwill	—			(97.9		)	(1)	(97.9		)	—			—		—
Blackhawk acquisition of Retailo (2)	36.2			—				36.2			—			—		—
Blackhawk acquisition of InteliSpend (2)	54.2			—				54.2			—			—		—
Other adjustments (3)	0.5			—				0.5			—			1.7		1.7
	90.9			(97.9		)		(7.0		)	—			1.7		1.7
Balance – end of year (4):
Goodwill	4,455.8			—				4,455.8			4,364.9			97.9		4,462.8
Accumulated impairment charges	(3,991.3		)	—				(3,991.3		)	(3,991.3		)	—		(3,991.3		)
	$	464.5		$	—			$	464.5		$	373.6		$	97.9	$	471.5


⁽¹⁾	See Note B.


⁽²⁾	See Note C.

~~(3)~~Note ~~Represents~~F: Store ~~foreign~~Lease ~~currency~~Exit ~~translation.~~Costs and Impairment Charges

~~(4)~~Impairment ~~Blackhawk~~Write-Downs Safeway ~~goodwill~~recognized ~~was~~impairment charges on the write-down of long-lived assets of $~~133~~56.51 million atin ~~year-end~~2014, $35.6 million in 2013 and $4233.76 million atin ~~year-end~~ 2012. These charges are included as a component of operating and administrative expense.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

~~Note E:~~ Store Lease Exit Costs The reserve for store lease exit costs includes the following activity for 2014, 2013 and ~~Impairment~~2012 ~~Charges~~(in millions):

Impairment Write-Downs Safeway recognized impairment charges on the write-down of long-lived assets of $35.6 million in 2013, $33.6 million in 2012 and $33.1 million in 2011. These charges are included as a component of operating and administrative expense.



	2014			2013			2012
Beginning balance	$	181.0		$	76.5		$	77.0
Provision for estimated net future cash flows of additional closed stores ⁽¹⁾	1.2			6.1			19.4
Provision for estimated net future cash flows of Dominick's closed stores ⁽²⁾	—			113.6			—
Net cash flows, interest accretion, changes in estimates of net future cash flows ⁽³⁾	(37.1		)	(15.2		)	(19.9		)
Net cash flows, interest accretion, changes in estimates of net future cash flows for Dominick's disposed stores ⁽⁴⁾	(15.9		)	—			—
Ending balance	$	129.2		$	181.0		$	76.5

Store Lease Exit Costs The reserve for store lease exit costs includes the following activity for 2013, 2012 and 2011 (in millions):

	2013			2012			2011
Beginning balance	$	76.5		$	77.0		$	94.0
Provision for estimated net future cash flows of additional closed stores (1)	6.1			19.4			2.8
Provision for estimated net future cash flows of Dominick's closed stores (2)	113.6			—			—
Net cash flows, interest accretion, changes in estimates of net future cash flows	(15.2		)	(19.9		)	(19.8		)
Ending balance	$	181.0		$	76.5		$	77.0


⁽¹⁾	Estimated net future cash flows represents future minimum lease payments and related ancillary costs from the date of closure to the end of the remaining lease term, net of estimated cost recoveries that may be achieved through subletting properties or through favorable lease terminations.


⁽²⁾	Estimated net future cash flows for Dominick's stores closed during the fourth quarter of 2013.


⁽³⁾	Net cash flows, interest accretion, changes in estimates of net future cash flows for all stores other than Dominick's stores disposed of in 2014.


⁽⁴⁾	Net cash flows, interest accretion, changes in estimates of net future cash flows for Dominick's stores disposed of in 2014.

Store lease exit costs are included as a component of operating and administrative expense, with the exception of Dominick's locations closed in the fourth quarter of 2013 which are included in the loss on disposal of operations. For all stores, the liability is included in accrued claims and other liabilities.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note FG: Financing

Notes and debentures were composed of the following at year end (in millions):

	2013			2012
	2014			2013
Commercial paper	$	—		$	—
Term credit agreement, unsecured	$	—		$	400.0
Bank credit agreement, unsecured	—			—
Mortgage notes payable, secured	4.7			46.8
Term credit agreement, unsecured	400.0			700.0
5.625% Senior Notes due 2014, unsecured	—			250.0
Other bank borrowings, unsecured	—			2.8
3.40% Senior Notes due 2016, unsecured	80.0			400.0
Mortgage notes payable, secured	46.8			48.3
6.35% Senior Notes due 2017, unsecured	100.0			500.0
Floating Rate Senior Notes due 2013, unsecured	—			250.0
3.00% Second Series Notes due 2014, unsecured 1	—			302.2
6.25% Senior Notes due 2014, unsecured	—			500.0
5.625% Senior Notes due 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	21141.4			2221.64
	3,768.2			5,125.9
	2,476.1			3,768.2
Less current maturities	(~~252~~3.92		)	(~~294~~252.09		)
Long-term portion	$	32,~~515~~472.39		$	43,~~831~~515.93

~~(1)~~Commercial ~~See~~Paper During 2014, the ~~caption~~average ~~"Satisfaction~~commercial paper borrowing was $28.5 million and ~~Discharge~~had a weighted-average interest rate of ~~Indenture"~~0.63%. During ~~later~~2013, inthe ~~this~~average ~~note~~commercial paper borrowing was $43.9 million which had a weighted-average interest rate of 0.68%.

~~Commercial~~Bank ~~Paper~~Credit Agreement ~~The~~At ~~amount~~January 3, 2015, the Company had a $1,500.0 million credit agreement (the “Credit Agreement”) with a syndicate of ~~commercial~~banks ~~paper~~that ~~borrowings~~was isscheduled ~~limited~~to terminate on June 1, 2015. The Credit Agreement provided to ~~the~~Safeway ~~unused~~(i) a ~~borrowing~~four-year ~~capacity~~revolving ~~under~~domestic credit facility of up to $1,250.0 million for U.S. dollar advances and (ii) a $400.0 million subfacility of the ~~bank~~domestic facility for issuance of standby and commercial letters of credit. The ~~agreement,~~Credit ~~described~~Agreement also provided for an increase in the ~~following~~credit ~~paragraph~~facility commitments up to an additional $500. ~~Safeway~~0 ~~classifies~~million, ~~commercial~~subject ~~paper~~to asthe ~~long~~satisfaction ~~term~~of ~~because~~certain conditions. On June 30, 2014, the Company ~~intends~~terminated toa $250.0 million Canadian credit facility. The Credit Agreement contained various covenants that restricted, among other things and ~~has~~subject to certain exceptions, the ability toof ~~refinance~~Safeway ~~these~~and ~~borrowings~~its onsubsidiaries ato ~~long-term~~incur ~~basis~~certain ~~through~~liens, ~~either~~make ~~continued~~certain ~~commercial~~asset ~~paper~~sales, ~~borrowings~~enter into certain mergers or ~~utilization~~amalgamations, engage in certain transactions with stockholders and affiliates and alter the character of its business from that conducted on the ~~bank~~closing ~~credit~~date. The ~~agreement~~Credit Agreement also contained two financial maintenance covenants: (i) an interest coverage ratio that required Safeway not to permit the ratio of consolidated Adjusted EBITDA, ~~which~~as ~~matures~~defined in ~~2015. During~~the ~~2013~~Credit Agreement, to consolidated interest expense to be less than 2.0:1.0, and (ii) a leverage ratio that required Safeway not to permit the ~~average~~ratio ~~commercial~~of ~~paper~~consolidated ~~borrowing~~total ~~was~~debt, less unrestricted cash in excess of $4375.90 million, ~~and~~to ~~had~~consolidated aAdjusted ~~weighted-average~~EBITDA, ~~interest~~to ~~rate~~exceed 3.5:1.0. As of 0January 3, 2015, the Company was in compliance with these covenant requirements.~~68%.~~ ~~During~~As ~~2012~~of January 3, ~~the~~2015, ~~average~~there ~~commercial~~were ~~paper~~no ~~borrowing~~borrowings, ~~was~~and letters of credit totaled $~~681~~27.72 million ~~which~~under ~~had~~the aCredit ~~weighted-average~~Agreement. ~~interest~~Total ~~rate~~unused borrowing capacity under the credit agreement was $1,472.8 million as of 0January 3, 2015.~~86%.~~

~~Bank~~U.S. ~~Credit~~borrowings ~~Agreement The~~under ~~Company~~the ~~has a $1,500.0 million~~ credit agreement ~~with~~carried ainterest ~~syndicate~~at ~~of banks which has a termination date of June 1, 2015 and provides for two additional~~ one~~-year~~ ~~extensions~~ of the ~~termination~~following ~~date. The~~rates ~~credit~~selected ~~agreement~~by ~~provides~~the Company: (i1) ~~to Safeway a $1,250.0 million revolving credit facility (~~the ~~“Domestic~~prime ~~Facility”),~~rate; (ii2) ~~to Safeway and CSL~~ a ~~Canadian~~rate ~~facility~~based ofon uprates toat ~~$250.0~~which ~~million~~Eurodollar ~~for~~deposits ~~U.S. Dollar~~are ~~and~~offered ~~Canadian Dollar advances and (iii)~~ to ~~Safeway a $400.0 million sub~~first-~~facility~~class ofbanks ~~the~~by ~~Domestic Facility for issuance of standby and commercial letters of credit. The credit agreement also provides for an increase in~~ the ~~credit facility commitments up to an additional $500.0 million, at the option of the~~ lenders ~~and~~in ~~subject to~~ the ~~satisfaction~~bank ~~of certain conditions. The restrictive covenants of the~~ credit agreement ~~limit~~plus ~~Safeway~~a ~~with~~pricing ~~respect~~margin ~~to,~~based ~~among~~on ~~other~~the ~~things,~~Company’s ~~creating~~debt ~~liens~~rating ~~upon~~or ~~its~~interest ~~assets~~coverage ~~and~~ratio ~~disposing~~(the of“Pricing ~~material~~Margin”); ~~amounts~~or of(3) rates ~~assets~~quoted ~~other~~at ~~than in~~ the ~~ordinary~~discretion ~~course~~ of ~~business. Additionally,~~ the ~~Company is required to maintain a minimum Adjusted EBITDA, as defined in the credit agreement, to interest expense ratio of 2~~lenders.0 ~~to 1 and is required~~

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

toDuring ~~not~~2014, ~~exceed~~the anCompany ~~Adjusted~~paid ~~Debt~~facility ~~(total~~fees ~~consolidated~~ranging ~~debt~~from ~~less cash and cash equivalents in excess of $75.~~0 ~~million) to Adjusted EBITDA ratio of 3~~.515% to 10. As225% ofon ~~December 28, 2013,~~ the ~~Company~~total ~~was~~amount ~~in compliance with these covenant requirements. As~~ of ~~December 28, 2013, there were no borrowings, and letters of credit totaled $43.4 million under~~ the ~~Credit Agreement. Total unused borrowing capacity under the~~ credit ~~agreement was $1,456~~facility.~~6 million as of December 28, 2013.~~

~~The~~Issuances ~~Sale~~ of ~~Canadian~~Senior ~~Operations~~Unsecured ~~was permitted under the terms of the Credit Agreement.~~ Indebtedness The Company ~~has~~did ~~the~~not ~~option~~issue toany ~~permanently~~senior ~~reduce~~unsecured ordebt ~~terminate~~in ~~the~~2014 ~~$250.0~~or ~~million Canadian credit facility~~2013.

~~U.S.~~Redemption ~~borrowings under the credit agreement carry interest at one~~ of the following rates selected by the Company: (1) the prime rate; (2) a rate based on rates at which Eurodollar deposits are offered to first-class banks by the lenders in the bank credit agreement plus a pricing margin based on the Company’s debt rating or interest coverage ratio (the “Pricing Margin”); or (3) rates quoted at the discretion of the lenders. Canadian borrowings denominated in U.S. dollars carry interest at one of the following rates selected by the Company: (a) the Canadian base rate; or (b) the Canadian Eurodollar rate plus the Pricing Margin.Notes Canadian borrowings denominated in Canadian dollars carry interest at one of the following rates selected by the Company: (1) the Canadian prime rate; or (2) the rate for Canadian bankers acceptances plus the Pricing Margin.

~~During~~Fiscal ~~2013,~~2014 In ~~the~~August ~~Company~~2014, Safeway paid ~~facility~~$802.7 ~~fees~~million ofto redeem $320.0 million of the 3.1540% onSenior ~~the~~Notes ~~total~~due ~~amount~~2016 and $400.0 million of the ~~credit~~6.35% ~~facility~~Senior Notes due 2017. The $802.7 million included principal payments of $720.0 million, make-whole premiums of $80.2 million and accrued interest of $2.5 million. Unamortized deferred finance fees of $2.2 million were also expensed.

~~Term~~In ~~Credit~~accordance with the Merger Agreement ~~Safeway~~, ~~has~~the aCompany contributed $~~700~~40.0 million ~~term~~in ~~credit~~cash ~~agreement~~to ~~with~~PDC ain ~~syndicate~~the ofsecond ~~banks~~quarter ~~which~~of ~~matures on March 19, 2015~~2014. ~~The~~ ~~term~~This ~~credit~~cash ~~agreement~~was ~~provided an up~~ to ~~$700.0~~be ~~million~~held ~~three-year~~in ~~and~~a ~~three-month~~reserve ~~senior~~account ~~term~~until ~~credit~~the ~~facility~~earlier ~~available~~ to ~~Safeway. Loans~~occur ~~under~~of ~~the~~(i) ~~term~~payment ~~credit~~in ~~agreement~~full ~~carry~~of ~~interest,~~the atmortgage ~~Safeway’s~~indebtedness ~~option,~~encumbering ~~at either~~ a ~~Base~~shopping ~~Rate~~center ~~(as defined~~ in ~~the~~Lahaina, ~~Term~~Hawaii ~~Credit~~and ~~Agreement~~(ii) ~~plus~~the arelease ~~pricing~~of ~~margin~~the orCompany afrom ~~Eurodollar~~any ~~Rate~~guaranty ~~(as~~obligations ~~defined~~ in ~~the~~connection ~~Term~~with ~~Credit~~such ~~Agreement)~~indebtedness. ~~plus~~During athe ~~pricing~~third ~~margin. The~~quarter ~~Term~~of ~~Credit~~2014, ~~Agreement~~the ~~covenants~~Company ~~are~~deposited ~~substantially~~$40.0 ~~similar~~million towith ~~the~~a ~~covenants~~trustee ~~contained~~and inachieved ~~Safeway's~~a ~~existing~~full ~~bank~~legal ~~credit~~defeasance ~~agreement~~of ~~dated~~the asmortgage ofindebtedness ~~June 1,~~and ~~2011,~~was asreleased ~~previously~~from ~~disclosed~~the ~~under~~guaranty ~~the~~obligations ~~caption~~associated ~~"Bank~~with ~~Credit~~such ~~Agreement~~indebtedness.~~" As~~ ~~of December 28~~Therefore, ~~2013,~~during the ~~Company~~third ~~was~~quarter ~~in compliance with these covenant requirements. As~~ of ~~December 28~~2014, ~~2013,~~the ~~there~~Company ~~were~~extinguished the $~~400~~40.08 million ofmortgage ~~outstanding~~from ~~borrowings under~~ the ~~Term~~condensed ~~Credit~~consolidated ~~Agreement~~balance sheet.

~~Shelf~~These ~~Registration On~~transactions ~~October 24,~~resulted ~~2011,~~in ~~the~~a ~~Company~~loss ~~filed~~on aextinguishment ~~shelf~~of ~~registration~~debt ~~statement~~of ~~(the~~$84.4 ~~“Shelf”)~~million ~~with~~in ~~the~~2014, ~~SEC~~ which ~~enables~~consisted ~~Safeway to issue an unlimited amount~~ of ~~debt~~$80.2 ~~securities~~million ~~and/or~~in ~~common~~make-whole ~~stock. The~~premiums ~~Shelf~~on ~~expires~~the onSenior ~~October 24~~Notes, ~~2014. The~~the ~~Safeway~~write-off ~~Board~~ of ~~Directors authorized issuance of up to~~ $32.04 ~~billion~~million of ~~securities~~unamortized ~~under~~deferred ~~the~~finance ~~Shelf. As~~fees ofand ~~December 28, 2013,~~ $1.958 ~~billion~~million of ~~securities~~third-party ~~were~~costs ~~available~~associated ~~for~~with ~~issuance~~the ~~under~~defeasance of the ~~board’s~~Lahaina ~~authorization~~mortgage.

~~Issuances~~Fiscal 2013 In the fourth quarter of ~~Senior~~2013, ~~Unsecured~~the ~~Indebtedness Safeway~~Company ~~issued~~redeemed $~~250~~500.0 million of ~~Floating~~6.25% ~~Rate~~ Senior Notes ondue ~~June~~March 1415, ~~2012, which matured on December 12, 2013~~2014. ~~The~~This ~~Company~~redemption ~~did~~resulted ~~not~~in ~~issue~~a ~~any~~make-whole ~~senior~~premium ~~unsecured~~of ~~debt~~$6.7 inmillion, ~~2013~~before tax.

~~Redemption of Notes~~ In the fourth quarter of 2013, the Company ~~redeemed~~deposited ~~$500~~CAD304.5 million (USD292.2 million) in an account with the Trustee under the indenture governing the CAD300.0 million of(USD287.9 6million), 3.2500% ~~Senior~~Second Series Notes due March 15 31, 2014. ~~This~~Safeway ~~redemption~~met ~~resulted~~the inconditions afor ~~make-whole~~satisfaction ~~premium~~and discharge of ~~$6.7~~the ~~million~~Company's obligations under the indenture and, ~~before~~as ~~tax~~a result, ~~which~~extinguished isthe ~~classified~~CAD300.0 inmillion ~~Other~~(USD287.9 ~~Income~~million) onnotes and CAD304.5 million (USD292.2 million) cash from the consolidated ~~income~~balance ~~statement~~sheet.

~~Satisfaction~~These ~~and~~transactions ~~Discharge~~resulted ofin ~~Indenture In~~a ~~the~~loss ~~fourth~~on ~~quarter~~extinguishment of ~~2013,~~debt ~~the~~of ~~Company deposited CAD304~~$10.51 million ~~(USD292.2 million)~~ in ~~an account with the Trustee under the indenture governing the CAD300.0 million (USD287.9 million)~~2013, ~~3.00%~~which ~~Second~~consisted ~~Series~~of ~~Notes~~make-whole ~~due~~premiums ~~March 31, 2014. Safeway met the conditions for satisfaction and discharge~~ of ~~the Company's obligations under the indenture and as a result, extinguished the CAD300~~$6.07 million ~~(USD287.9~~and ~~million)~~prepaid ~~notes~~interest ~~and~~of ~~CAD304~~$3.54 million ~~(USD292~~.~~2 million) cash from the consolidated balance sheet.~~

Mortgage Notes Payable Mortgage notes payable at year-end 2014 have remaining terms ranging from less than four years to approximately seven years, had a weighted-average interest rate during 2014 of 8.10% and are secured by properties with a net book value of approximately $30.1 million.

Other Notes Payable Other notes payable at year-end 2014 have remaining terms ranging from one year to 21 years and had a weighted average interest rate of 7.16% during 2014. At year-end 2014, Other Notes Payable includes $120.1 million of proceeds for PDC properties where Safeway is still considered the owner under GAAP. See Note D.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

~~Mortgage~~Annual ~~Notes~~Debt ~~Payable~~Maturities ~~Mortgage~~As ~~notes~~of ~~payable at~~ year-end ~~2013~~2014, ~~have~~annual ~~remaining~~debt ~~terms~~maturities ~~ranging~~(principal ~~from~~payments ~~less~~only) ~~than~~were ~~two~~as ~~years~~follows to(in ~~eight~~millions). Many ~~years, had a weighted-average interest rate during 2013~~ of ~~5.57%~~the ~~and~~notes ~~are~~payable ~~secured~~include bymake-whole ~~properties with a net book value of approximately $89.6 million.~~provisions:

Other Notes Payable Other notes payable at year-end 2013 have remaining terms ranging from one year to 22 years and had a weighted average interest rate of 6.73% during 2013.



2015	$	3.2
2016	84.6
2017	105.0
2018	6.8
2019	505.1
Thereafter	1,771.4
	$	2,476.1

~~Annual~~Letters ~~Debt~~of ~~Maturities~~Credit AsThe Company had letters of credit of $27.8 million outstanding at year-end ~~2013~~2014, ~~annual~~of ~~debt~~which ~~maturities~~$27.2 ~~(principal~~million ~~payments only)~~ were asissued ~~follows~~under ~~(in~~the ~~millions)~~credit agreement. ~~Many~~The letters of credit are maintained primarily to support performance, payment, deposit or surety obligations of the ~~notes~~Company. The ~~payable~~Company ~~include~~pays ~~make-whole~~commissions ~~provisions:~~ranging from 1.00% to 1.28% on the face amount of the letters of credit.

2014	$	252.9
2015	442.2
2016	402.0
2017	501.9
2018	3.4
Thereafter	2,165.8
	$	3,768.2

Fair Value At year-end 2014 and year-end 2013, the estimated fair value of debt, including current maturities, was $2,525.3 million and $3,949.7 million, respectively.

~~Letters~~See ofNote ~~Credit The~~V ~~Company had letters of credit of $44.7 million outstanding at year-end 2013, of which $43.4 million were issued~~ under the ~~credit~~caption ~~agreement. The~~"Effect ~~letters~~ of ~~credit~~Merger ~~are maintained primarily to support performance, payment, deposit or surety obligations of the Company. The Company pays commissions ranging from 0.15% to 1.10%~~ on ~~the~~Debt" ~~face~~for ~~amount~~additional ~~of the letters of credit~~information.

~~Fair~~Note ~~Value At~~H: Financial ~~year-end 2013 and year-end 2012, the estimated fair value of debt, including current maturities, was $3,949.7 million and $5,408.2 million, respectively.~~Instruments

~~Note~~Safeway G:manages interest rate risk through the strategic use of fixed- and variable-interest rate debt and, from time to time, interest rate swaps. ~~Financial~~The ~~Instruments~~Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments. At year-end 2014, the Company had no interest rate swaps outstanding.

~~Safeway~~Note ~~manages~~I: Fair ~~interest~~Value rate risk through the strategic use of fixed- and variable-interest rate debt and, from time to time, interest rate swaps. The Company does not utilize financial instruments for trading or other speculative purposes, nor does it utilize leveraged financial instruments. At year-end 2013, the Company had no interest rate swaps outstanding.Measurements

Note H: 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 Consolidated Financial Statements

The following table presents assets and liabilities which are measured at fair value on a recurring basis at ~~December~~January 283, ~~2013~~2015 (in millions):

	Fair Value Measurements
Assets:	Total		Quoted prices in active marketsfor identicalassets(Level 1)		Significantobservableinputs(Level 2)		Significantunobservableinputs(Level 3)
Cash equivalents:
Term deposits	$	2,818.0	$	—	$	2,818.0	$	—
Money market	$	1,884.0	$	1,884.0	$	—	$	—
Money market	449.0		449.0		—		—
Commercial paper	124.2		—		124.2		—
Bankers' acceptances	309.6		—		309.6		—
Short-term investments (1)	24.4		16.8		7.6		—
Commercial paper	274.0		—		274.0		—
Non-current investments (2)	46.5		—		46.5		—
Short-term investments (1)	81.0		42.0		39.0		—
Total	$	2,079.1	$	1,900.8	$	178.3	$	—
Non-current investments (2)	38.0		—		38.0		—
Total	$	3,969.6	$	491.0	$	3,478.6	$	—
Liabilities:
Contingent consideration (3)	$	2.96	$	—	$	—	$	2.96
Total	$	2.96	$	—	$	—	$	2.96


⁽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 year ended ~~December~~January 283, ~~2013~~2015 follows (in millions):

	Contingent consideration
Balance, beginning of year	$	212.89
Settlements	(40.23		)
Gains	(14.7		)
Balance, end of year	$	2.6
Balance, end of year	$	2.9

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The following table presents assets and liabilities which are measured at fair value on a recurring basis at December 2928, ~~2012~~2013 (in millions):

	Fair Value Measurements
Assets:	Total		Quoted prices in active marketsfor identicalassets(Level 1)		Significantobservableinputs(Level 2)		Significantunobservableinputs(Level 3)
Cash equivalents	$	~~96.5~~	$	~~91.0~~	$	~~5.5~~	$	—
Short-term investments (1)	44.2		14.5		29.7		—
Term deposits	$	2,818.0	$	—	$	2,818.0	$	—
Non-current investments (2)	33.9		—		33.9		—
Money market	449.0		449.0		—		—
Total	$	174.6	$	105.5	$	69.1	$	—
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)	$	212.89	$	—	$	—	$	212.89
Total	$	212.89	$	—	$	—	$	212.89


⁽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 Accrued Claims and Other Liabilities on the balance sheet.

A reconciliation of the beginning and ending balances for Level 3 liabilities for the year ended December 2928, ~~2012~~2013 follows (in millions):

	Contingent consideration
Balance, beginning of year	$	2621.38
Settlements	(14.52		)
Unrealized gains	(3.0		)
Gains	(14.7		)
Balance, end of year	$	212.89

In determining the fair value of assets and liabilities, 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 assets and liabilities 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.

In connection with the Company’s evaluation of long-lived assets for impairment, certain 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~~may ~~necessary,~~use ~~uses~~ real estate brokers. During fiscal ~~2013~~2014, long-lived assets with a carrying value of $63117.50 million were written down to their estimated fair value of $27.9 million, resulting in an impairment charge of $35.6 million. During fiscal 2012, long-lived assets with a carrying value of $51.8 million were written down to their estimated fair value of $18.2 million, resulting in an impairment charge of $33.6 million.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

~~Note~~down I:to their estimated fair value of $60.9 million, resulting in an impairment charge of $56.1 million. ~~Lease~~During ~~Obligations~~fiscal 2013, long-lived assets with a carrying value of $63.5 million were written down to their estimated fair value of $27.9 million, resulting in an impairment charge of $35.6 million.

AtNote ~~year-end 2013, Safeway leased approximately 54% of its stores.~~J: ~~Most~~Lease leases have renewal options, typically with increased rental rates during the option period. Certain of these leases contain options to purchase the property at amounts that approximate fair market value.Obligations

AsAt of year-end ~~2013~~2014, ~~future~~Safeway ~~minimum~~leased ~~rental~~approximately ~~payments~~53% ~~applicable~~of toits ~~non-cancelable~~stores. Most ~~capital~~leases ~~and~~have ~~operating~~renewal ~~leases~~options, typically with ~~remaining~~increased ~~terms~~rental inrates ~~excess~~during the option period. Certain of ~~one~~these ~~year~~leases ~~were~~contain asoptions ~~follows~~to ~~(in~~purchase ~~millions):~~the property at amounts that approximate fair market value.

	Capitalleases			Operatingleases
2014	$	83.7		$	470.3
2015	80.8			430.3
2016	73.7			397.3
2017	64.3			351.1
2018	55.1			299.5
Thereafter	298.4			1,781.5
Total minimum lease payments	656.0			$	3,730.0
Less amounts representing interest	(231.2		)
Present value of net minimum lease payments	424.8
Less current obligations	(49.3		)
Long-term obligations	$	375.5

As of year-end 2014, future minimum rental payments applicable to non-cancelable capital and operating leases with remaining terms in excess of one year were as follows (in millions):

Future minimum lease payments under non-cancelable capital and operating lease agreements have not been reduced by future minimum sublease rental income of $173.6 million.



	Capital leases			Operating leases
2015	$	128.9		$	450.7
2016	118.0			424.8
2017	98.5			380.3
2018	70.1			328.7
2019	59.7			279.4
Thereafter	259.7			1,878.5
Total minimum lease payments	734.9			$	3,742.4
Less amounts representing interest	(211.1		)
Present value of net minimum lease payments	523.8
Less current obligations	(94.7		)
Long-term obligations	$	429.1

~~Amortization~~Future ~~expense~~minimum ~~for~~lease ~~property~~payments under non-cancelable capital ~~leases~~and ~~was~~operating ~~$46.1~~lease ~~million~~agreements inhave ~~2013,~~not ~~$26.3~~been ~~million~~reduced inby ~~2012~~future ~~and~~minimum ~~$24.6~~sublease ~~million~~rental inincome ~~2011. Accumulated amortization~~ of ~~property under capital leases was~~ $~~251~~145.9 million ~~at year-end 2013 and $223~~.~~1 million at year-end 2012.~~

Amortization expense for property under capital leases was $73.7 million in 2014, $46.1 million in 2013 and $26.3 million in 2012. Accumulated amortization of property under capital leases was $324.2 million at year-end 2014 and $251.9 million at year-end 2013.

The following schedule shows the composition of total rental expense for all operating leases (in millions):

	2013			2012			2011
	2014			2013			2012
Property leases:
Minimum rentals	$	~~372~~379.1		$	~~371~~365.05		$	~~366~~365.67
Contingent rentals (1)	78.38			7.73			7.67
Less rentals from subleases	(11.15		)	(911.41		)	(89.04		)
	368.3			369.3			366.2
	376.4			361.7			364.0
Equipment leases	2011.48			20.4			20.14
	$	388.72		$	~~389~~382.71		$	~~386~~384.34


⁽¹⁾	In general, contingent rentals are based on individual store sales.

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SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note JK: Interest Expense

Interest expense consisted of the following (in millions):

	2013			2012			2011
	2014			2013			2012
Commercial paper	$	30.2		$	63.02		$	1.6.0
Bank credit agreement	12.97			1.79			1.67
Term credit agreement	72.3			8.7.3			—8.7
Mortgage notes payable	21.7			12.87			01.68
6.50% Senior Notes due 2011	—			—			5.3
5.80% Senior Notes due 2012	—			—			29.1
5.80% Senior Notes due 2012	—			29.1			46.4
Floating Rate Senior Notes due 2013	—			4.3			2.7
Floating Rate Senior Notes due 2013	4.3			2.7			—
3.00% Second Series Notes due 2014	—			7.4			9.0
3.00% Second Series Notes due 2014	7.4			9.0			6.8
6.25% Senior Notes due 2014	—			29.9			31.3
6.25% Senior Notes due 2014	29.9			31.3			31.3
5.625% Senior Notes due 2014	8.7			14.1			14.1
5.625% Senior Notes due 2014	14.1			14.1			14.1
3.40% Senior Notes due 2016	9.4			13.6			13.6
3.40% Senior Notes due 2016	13.6			13.6			1.0
6.35% Senior Notes due 2017	22.3			31.8			31.8
6.35% Senior Notes due 2017	31.8			31.8			31.8
5.00% Senior Notes due 2019	25.0			25.0			25.0
3.95% Senior Notes due 2020	19.7			19.7			19.7
4.75% Senior Notes due 2021	19.0			19.0			119.40
7.45% Senior Debentures due 2027	11.2			11.2			11.2
7.25% Senior Debentures due 2031	43.5			43.5			43.5
Other notes payable	1.86			1.8			2.1.7
Obligations under capital leases	3833.08			3938.70			4339.7
Amortization of deferred finance costs	7.4.0			67.94			46.9
Interest rate swap agreements	—			~~(5.0~~—		)	(95.90		)
Capitalized interest	(86.82		)	(108.98		)	(1410.09		)
	$	~~273~~198.09		$	~~300~~273.70		$	~~268~~300.16

Table of Contents

SAFEWAY INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note KL: Capital Stock

Shares Authorized and Issued Authorized preferred stock consists of 25.0 million shares, of which none were outstanding during ~~2013~~2014, ~~2012~~2013 or ~~2011~~2012. Authorized common stock consists of 1.5 billion shares at $0.01 par value per share. Common stock outstanding at year-end ~~2013~~2014 was ~~230~~231.14 million shares (net of 14.14 million shares of treasury stock) and ~~239~~230.51 million shares at year-end ~~2012~~2013 (net of ~~365~~14.81 million shares of treasury stock).

Shares Repurchased ~~Safeway~~The ~~repurchased~~Company ~~19.5~~did ~~million~~not ~~shares~~repurchase ofany common stock atduring an2014 ~~average~~under ~~cost~~its ~~of $33.93~~stock ~~per~~repurchase ~~share and a total cost of $663~~program.7 Safeway ~~million~~repurchased ~~(including commissions) during 2013, 57~~19.65 million shares at an average cost of $2133.5193 and a total cost of $~~1,240~~663.37 million (including commissions) during ~~2012~~2013 and 7657.16 million shares at an average cost of $2021.8551 and a total cost of $1,~~588~~240.23 million (including commissions) during ~~2011~~2012.

Retirement of Treasury Stock In 2014, the Company did not retire any shares of its repurchased common stock. In 2013, the Company retired 371.6 million shares of its repurchased common stock. The par value of the repurchased shares was charged to common stock, with the excess purchase price over par value allocated between paid-in capital and retained earnings. In 2012, the Company did not retire any shares of its repurchased common stock.

Stockholder Rights Plan In September 2013, Safeway adopted a one-year stockholder rights plan. Under the plan, one preferred stock purchase right was distributed for each share of common stock held by stockholders of record on September 30, 2013. Under certain circumstances, the rights will become exercisable and each right will entitle stockholders to buy one one-thousandth of a share of Series A Junior Participating Preferred Stock of the Company at an exercise price of $100. In general, the rights become exercisable at the close of business on the tenth business day following (i) public announcement that a person or group acquired 10% (15% in the case of a passive institutional investor) or more of our common stock or (ii) commencement or announcement of a tender offer for 10% (15% in the case of a passive institutional investor) or more of our common stock. The Company's Board of Directors is entitled to redeem the rights at $0.01 per right at any time before a person or group has acquired 10% or more (15% or more in the case of a passive institutional investor) of the outstanding common stock. The rights will expire on September 15, 2014, subject to the Company's right to extend such date, unless earlier redeemed or exchanged by the Company or terminated.

Subject to limited exceptions, if a person or group acquires 10% or more of the outstanding common stock (15% or more in the case of a passive institutional investor) of the Company (including in the form of synthetic ownership through derivative positions), each right (other than those held by that person or group) will become exercisable and entitle its holder to purchase, at the right's then-current exercise price, a number of shares of common stock having a market value at that time of twice the right's exercise price. If the Company is acquired in a merger or other business combination transaction that has not been approved by the Board of Directors after the rights become exercisable, each right will entitle its holder to purchase, at the right's then-current exercise price, a number of shares of the acquiring company's common stock having a market value at that time of twice the right's exercise price.

Stock Option Plans Under Safeway’s stock option plans, the Company may grant incentive and non-qualified options to purchase common stock at an exercise price equal to or greater than the fair market value at the grant date. Options generally vest over four or five years. Vested options are exercisable in part or in full at any time prior to the expiration date of six to 10 years from the date of the grant.

1999 Amended and Restated Equity Participation Plan Under the 1999 Amended and Restated Equity Participation Plan (the “1999 Plan”), options generally vest over four, five or seven years. Although the 1999 Plan remains in full force and effect, there will be no more grants under this plan. Vested options are exercisable in part or in full at any time prior to the expiration date of six to 10 years from the date of the grant. Shares issued as a result of stock option exercises will be funded with the issuance of new shares. The 2007 Equity and Incentive Award Plan (the “2007 Plan”) and the 2011 Equity and Incentive Award Plan (the "2011 Plan"), discussed below, succeed the 1999 Plan. See Note V for additional information.

2007 Equity and Incentive Award Plan In May 2007, the stockholders of Safeway approved the 2007 Plan. Under the 2007 Plan, Safeway may grant or issue stock options, stock appreciation rights, restricted stock units, deferred stock, dividend equivalents, performance awards and stock payments, or any combination thereof. Safeway may grant incentive and non-qualified options to purchase common stock at an exercise price equal to or greater than the fair market value at the grant date. Options to purchase 78.61 million shares were available for grant at ~~December~~January 283, ~~2013~~2015 under this plan. Shares issued as a result of the 2007 Plan may be treasury shares, authorized but unissued shares or shares purchased in the open market. See Note V for additional information.

2011 Equity and Incentive Award Plan In May 2011, the stockholders of Safeway approved the 2011 Plan. Under the 2011 Plan, Safeway may grant or issue stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock, dividend equivalents, performance awards and stock payments, or any combination thereof to participants other than Safeway's Chief Executive Officer. Safeway may grant incentive and non-qualified options to purchase common stock at an exercise price equal to or greater than the fair market value at the grant date. At ~~December~~January 283, ~~2013~~2015, 86.70 million shares of common stock were available for issuance under this plan. Shares issued as a result of the 2011 Plan may be treasury shares, authorized but unissued shares or shares purchased in the open market. See Note V for additional information.

Restricted Stock Awards and Restricted Stock Units The Company awarded ~~747~~748,~~708~~611 shares, ~~695~~747,~~816~~708 shares and 1695,~~470,625~~816 shares of restricted stock in ~~2013~~2014, ~~2012~~2013 and ~~2011~~2012, respectively, to certain officers and key employees. These shares ~~vest~~vested over a period of between three to five years and ~~are~~were subject to certain transfer restrictions and forfeiture prior to vesting. Deferred stock compensation, representing the fair value of the stock at the measurement date of the award, is amortized to compensation expense over the vesting period. The amortization of restricted stock resulted in compensation expense for continuing operations of $1525.85 million in ~~2013~~2014, $1315.18 million in ~~2012~~2013 and $1013.51 million in ~~2011~~2012. See Note V for additional information.

Performance Share Awards In 2014, 2013 and 2012, Safeway granted performance share awards to certain executives. These performance share awards, covering a target of approximately 1.2 ~~million shares in 2013 and 1~~.17 million shares ~~in 2012~~, ~~will~~vested ~~vest~~ over three years. ~~and~~The ~~are~~2014 performance share awards were subject to the achievement of ~~earnings~~specified ~~per~~levels ~~share~~of ~~goals~~revenue ~~determined~~growth onand areturn ~~compound~~on ~~annual~~invested ~~growth~~capital, ~~rate~~as ~~basis~~modified ~~relative~~based toon the ~~S&P~~Company's ~~500. If~~total ~~these~~stockholder ~~goals~~return. ~~are~~The ~~achieved~~2013 ~~above a certain level~~ and ~~Safeway~~2012 ~~meets~~performance ~~certain~~share ~~Total~~awards ~~Shareholder~~were ~~Return~~subject ~~criteria,~~to ~~certain~~the ~~executives~~achievement ~~may~~of ~~receive~~earnings ~~additional~~per ~~shares~~share ofgoals ~~stock~~determined ~~above~~on ~~the~~a ~~target~~compound ~~number~~annual ofgrowth ~~performance~~rate ~~shares,~~basis ~~subject~~relative to athe ~~specified~~S&P ~~maximum~~500. ~~Likewise,~~ ~~executives~~Safeway ~~may~~recorded ~~earn~~expense ~~less~~of ~~than~~$3.5 ~~the~~million ~~target~~in ~~number~~2014 ofrelated ~~performance~~to ~~shares~~the 2014 awards. The Company recorded expense of $14.9 million in ~~expense in~~ 2013 and $9.8 million in ~~expense in~~ 2012 related to ~~these~~the 2013 and 2012 awards based on the then expected achievement of the performance ~~target~~targets. ~~The~~ ~~payouts~~In the second quarter of 2014, the Company determined that it no longer believed that achievement of the performance targets related to ~~all~~the ~~active~~2013 and 2012 awards, ifwas ~~earned~~probable. Accordingly, ~~will~~in bethe ~~settled~~second inquarter of 2014, the Company’s ~~common~~reversed ~~stock~~$18.8 ~~after~~million ~~the~~of ~~end~~previously ofrecorded ~~each~~expense on unvested performance ~~period~~shares.

~~Activity~~Pursuant into the ~~Company’s~~terms ~~stock~~of ~~option~~the ~~plans~~Merger ~~for~~Agreement, all of the ~~year~~performance ~~ended~~shares ~~December 28~~vested upon closing of the Merger. However, ~~2013~~in ~~was~~accordance aswith ~~follows:~~generally accepted accounting principles, Safeway did not consider the probability of the Merger occurring in recording stock-based compensation expense.

	Options		Weighted-averageexercise price		Aggregateintrinsicvalue(in millions)
Outstanding, beginning of year	24,097,393		$	25.92	$	0.9
2013 Activity:
Granted	2,334,583		24.68
Canceled	(9,087,473	)	30.03
Exercised	(9,615,848	)	25.02
Outstanding, end of year	7,728,655		$	21.85	$	82.3
Exercisable, end of year (1)	3,168,122		$	21.57	$	34.6
Vested and expected to vest, end of year (2)	6,424,628		$	21.69	$	69.5

On January 30, 2015, subsequent to the fiscal 2014 year end and in connection with the Merger, all outstanding stock option awards, performance shares, restricted stock units and restricted stock awards issued pursuant to various stockholder-approved plans and a stockholder-authorized employee stock purchase plan were automatically canceled in exchange for the right to receive certain cash consideration.

~~(1)~~ Activity ~~The~~in ~~remaining~~the ~~weighted-average~~Company’s ~~contractual~~stock ~~life~~option ofplans ~~these~~for ~~options~~the isyear ~~4.7~~ended ~~years.~~January 3, 2015 was as follows:

(2) The remaining weighted-average contractual life of these options is 6.1 years.



	Options		Weighted- average exercise price		Aggregate intrinsic value (in millions)
Outstanding, beginning of year	7,728,655		$	21.85	$	82.3
2014 Activity:
Granted	773,347		38.02
Canceled	(433,808	)	22.29
Exercised	(1,913,866	)	18.42
Outstanding, end of year	6,154,328		$	19.95	$	93.4
Exercisable, end of year⁽¹⁾

Filing Compare · SAFEWAY INC