Edgar Filing: SAFEWAY INC

SAFEWAY INC.

(Registrant)

Date: February 22, 2007

/s/ Robert A. Gordon

Robert A. Gordon

Senior Vice President,

Secretary & General Counsel

Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

February 22, 2007

SAFEWAY INC.

(Exact name of registrant as specified in its charter)

Delaware

1-00041

94-3019135

(State or other jurisdiction

of incorporation)

(Commission File Number)

(IRS Employer

Identification No.)


5918 Stoneridge Mall Road, Pleasanton, California		94588-3229
(Address of principal executive offices)		(Zip Code)

(925) 467-3000

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report.)

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

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

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

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

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

Item 2.02.

Results of Operations and Financial Condition.

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

On February 22, 2007, we issued our earnings press release for the fourth quarter of fiscal 2006. A copy of our press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

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

•

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

•

LIFO (income) expense;

•

Stock option expense;

•

Property impairment charges; and

•

Equity in earnings of unconsolidated affiliates, net.

•

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

•

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

•

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

•

“free cash flow” which is calculated as net cash flow from operating activities less net cash flow used by investing activities. With respect to fiscal 2006, “free cash flow” also (i) excludes $62.6 million of interest earned on the favorable income tax settlement, net of tax, reported in the Company’s Current Report on Form 8-K furnished to the Securities and Exchange Commission (the “SEC”) on April 10, 2006 and Quarterly Report on Form 10-Q filed with the SEC on October 13, 2006 and (ii) includes $49.5 million in cash used to acquire businesses and/or stores, net of tax benefits. With respect to the forecasted range for fiscal 2007, “free cash flow” also excludes cash flow from payables related to third-party gift cards, net of receivables.

•

“Adjusted earnings per share” for fiscal 2006 and the fourth quarters of fiscal 2006 and 2005, which is defined as reported diluted earnings per share, excluding the following:

•

Texas store exit activities (in 2005);

•

Employee buyout (in 2005); and

•

Various favorable tax benefits (in 2006 and 2005).

Reconciliations of Adjusted EBITDA to the most directly comparable GAAP financial measures – net income and net cash flow from operating activities – are provided in the press release. Reconciliations of “free cash flow” to GAAP cash flow for fiscal 2006 and 2005 and to the forecasted range for fiscal 2007 are also provided in the press release. Reconciliations of adjusted earnings per share to GAAP diluted earnings per share for fiscal 2006 and the fourth quarters of fiscal 2006 and 2005 are provided in the table below. Each of these non-GAAP financial measures provides information regarding various aspects of the cash that our business generates, which management believes is useful to understanding our business.

The exclusions included in “adjusted earnings per share” relate to store exit activities at our Texas stores, employee buyouts primarily in Dominick’s and Northern California and various tax benefits. Management believes that excluding these items provides a useful financial measure that will facilitate comparisons of our operating results before, during and after such expenses or benefits are incurred, as well as facilitating comparisons of our performance with that of other companies that might not have the store exit costs, employee buyouts and tax benefits that we have experienced. Management also believes that investors, analysts and other interested parties view our “adjusted earnings per share” as an indicator of our ongoing operating performance.

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

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

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

“Adjusted EBITDA,” “Adjusted Debt,” “free cash flow” and the related ratios are useful indicators of Safeway’s ability to service debt and fund share repurchases that management believes will enhance stockholder value. Adjusted EBITDA also is a useful indicator of cash available for investing activities. A portion of the free cash flow that the Company generates in fiscal 2007 is expected to be spent on mandatory debt service requirements or other non-discretionary expenditures. Management is unable to estimate the effect that cash flow from payables related to third-party gift cards, net of receivables, will have on guidance for 2007 free cash flow, and therefore is not able to provide any reconciliation of 2007 free cash flow with respect to cash flow from payables related to third party gift cards, net of receivables.

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

Additional limitations include:

•

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

•

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

•

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

•

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

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

RECONCILIATION OF GAAP DILUTED EARNINGS PER SHARE TO ADJUSTED EARNINGS PER SHARE

(Dollars in millions)


	Year Ended 2006			Fourth Quarter 2006			Fourth Quarter 2005
Diluted earnings per share	$	1.94		$	0.69		$	0.39
Texas store exit activities								0.07
Employee buyout								0.05
Tax benefits		(0.22	)		(0.08	)		(0.02	)

Adjusted earnings per share	$	1.72		$	0.61		$	0.49

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits.


99.1		Press Release dated February 22, 2007 of Safeway Inc.

SIGNATURES

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

EXHIBIT INDEX


Exhibit No.
99.1		Press Release dated February 22, 2007 of Safeway Inc.