2. Safe Harbor Language
This presentation may contain forward-looking statements. Such statements may
relate to topics such as sales, margins, earnings growth, earnings estimates,
guidance, free cash flow, operating profit, operating improvements, capital
spending, total debt and debt reduction, Lifestyle stores, and other related
subjects.
These statements are based on Safeway’s current plans and expectations and
are subject to risks and uncertainties that could cause actual events and results
to vary significantly from those implied by such statements. We ask you to refer
to Safeway’s reports and filings with the SEC for a further discussion of these
risks and uncertainties.
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3. Reconciliation of Net Income to Adjusted
EBITDA (Interest Coverage)
$ Millions
2007 2006 2005 2004 2003
Net income (loss) $888.4 $870.6 $561.1 $560.2 $(169.8)
Add (subtract):
Income taxes 515.2 369.4 287.9 233.7 310.9
Interest expense 388.9 396.1 402.6 411.2 442.4
Depreciation 1,071.2 991.4 932.7 894.6 863.6
LIFO expense (income) 13.9 1.2 (0.2) (15.2) (1.3)
Stock option expense 48.4 51.2 59.7 - -
Property impairment charges 27.1 39.2 78.9 39.4 344.9
Miscellaneous equity investment impairment charge - - - - 10.6
Goodwill impairment charges - - - - 729.1
Equity in (earnings) losses of unconsolidated affiliates (8.7) (21.1) (15.8) (12.6) 7.1
Dividend received from unconsolidated affiliate 8.9 9.0 - - -
Total Adjusted EBITDA $2,953.3 $2,707.0 $2,306.9 $2,111.3 $2,537.5
Adjusted EBITDA as a multiple of interest expense 7.6x 6.8x 5.7x 5.1x 5.7x
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4. Reconciliation of Net Cash Flow from Operating Activities
to Adjusted EBITDA
$Millions
2006 2005 2004 2003
2007
Net cash flow from operating activities $2,190.5 $2,175.0 $1,881.0 $2,226.4 $1,609.6
Add (subtract):
Income taxes 515.2 369.4 287.9 233.7 310.9
Interest expense 388.9 396.1 402.6 411.2 442.4
Amortization of deferred finance cost (5.3) - - - -
Excess tax benefit from exercise of
stock options 38.3 - - - -
Deferred income taxes (130.8) (1.1) 215.9 29.2 77.9
Net pension expense (72.1) (83.1) (115.6) (112.9) (130.9)
Contribution to pension plans 33.0 29.2 18.1 15.1 12.1
Accrued claims and other liabilities 5.8 (10.8) (44.1) (118.1) (52.7)
Gain (loss) on property retirements
and lease exit activities, net 42.3 17.8 (13.6) (20.6) 13.4
Changes in working capital items (45.6) (181.4) (310.9) (538.2) 263.0
Other (6.9) (4.1) (14.4) (14.5) (8.2)
Total adjusted EBITDA $2,953.3 $2,707.0 $2,306.9 $2,111.3 $2,537.5
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5. Reconciliation of Net Income to Adjusted
EBITDA (Interest Coverage)
$ Millions
(A+B-C)
Rolling A B C
Four Quarters Year Ended 36 Weeks Ended 36 Weeks Ended
Sept 6, 2008 Dec 29, 2007 Sept 6, 2008 Sept 8, 2007
Net income $928.6 $888.4 $627.4 $587.2
Add (subtract):
Income taxes 552.6 515.2 373.5 336.1
Interest expense 366.6 388.9 246.2 268.5
Depreciation and amortization 1,114.0 1,071.2 770.8 728.0
LIFO expense 30.2 13.9 23.2 6.9
Stock-based employee compensation 55.6 48.4 42.4 35.2
Property impairment charges 37.7 27.1 31.5 20.9
Equity in loss (earnings) of
3.1 (8.7) 1.3 (10.5)
unconsolidated affiliate
Dividend received from unconsolidated
- 8.9 - 8.9
affiliate
$3,088.4 $2,953.3 $2,116.3 $1,981.2
Adjusted EBITDA
Adjusted EBITDA as a multiple of interest
8.4x
expense
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Reconciliation_InvestorConferences_Dec08
6. Reconciliation of Net Cash Flow from Operating
Activities to Adjusted EBITDA
$ Millions
(A+B-C)
Rolling A B C
Four Quarters Year Ended 36 Weeks Ended 36 Weeks Ended
Sept 6, 2008 Dec 29, 2007 Sept 6, 2008 Sept 8, 2007
Net cash flow from operating activities $2,227.3 $2,190.5 $1,284.8 $1,248.0
Add (subtract):
Income taxes 552.6 515.2 373.5 336.1
Interest expense 366.6 388.9 246.2 268.5
Amortization of deferred finance costs (5.0) (5.3) (3.5) (3.8)
Excess tax benefit from exercise of stock
options 5.2 38.3 1.4 34.5
Deferred income taxes (137.2) (130.8) (6.4) -
Net pension expense (80.2) (72.1) (58.2) (50.1)
Contributions to pension plans 35.0 33.0 25.5 23.5
Accrued claims and other liabilities (10.9) 5.8 (16.1) 0.6
Gain (loss) on property retirements and lease
21.3 42.3 (1.6) 19.4
exit costs, net
118.7 (45.6) 273.9 109.6
Changes in working capital items
Other (5.0) (6.9) (3.2) (5.1)
Adjusted EBITDA $3,088.4 $2,953.3 $2,116.3 $1,981.2
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8. Reconciliation of Gross Margin BP Change
Excluding Fuel
Basis point (decrease) increase over prior year:
36 Weeks
Ended
Sept. 6, 2008
Basis point change in gross margin (57)
Fuel 46
Basis point change in gross margin, excluding fuel
(11)
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Reconciliation_InvestorConferences_Dec08
9. Reconciliation of Operating &
Administrative Expense BP Change
Excluding Fuel and Unusual Items
Basis point (decrease) increase over prior year:
36 Weeks
Ended
Sept. 6, 2008 2007 2006 2005 2004 2003
Basis point change in operating and
(60) (29) (93) (53) (7) 128
administrative expense
Unusual items:
Texas store closures - - 29 (29) - -
Impairment charges (incl.
- - - 13 77 (30)
Dominick’s)
Vons strike - - - - (22) (29)
Labor buyout and health and welfare
- - 15 (7) - (9)
contributions
Stock option expense - - - (15) - -
Fuel 34 16 13 32 39 38
Basis point change in operating and
administrative expense, excluding
(26) (13) (36) (59) 87 98
fuel and unusual items
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10. Reconciliation of GAAP Cash Flow
Measure to Free Cash Flow*
$ Millions
36 Weeks
2013F 2012F 2011F 2010F 2009G 2008G Ended
Low High Low High Low High Low High Low High Low High Sept 6. 2008 2007 2006 2005
Net cash flow from operating activities $3,000.0 $3,150.0 $2,800.0 $2,950.0 $2,600.0 $2,750.0 $2,400.0 $2,550.0 $2,200.0 $2,350.0 $2,100.0 $2,250.0 $1,284.8 $2,190.5 $2,175.0 $1,881.0
Decrease in payables related to third party
gift cards, net of receivables 194.6 (84.1) (71.1)
Interest earned on favorable income tax
settlement, net of tax (62.6)
Net cash flow from operating activities,
as adjusted 3,000.0 3,150.0 2,800.0 2,950.0 2,600.0 2,750.0 2,400.0 2,550.0 2,200.0 2,350.0 2,100.0 2,250.0 1,479.4 2,106.4 2,041.3 1,881.0
Net cash flow used by investing activities (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,600.0) (1,550.0) (980.1) (1,686.4) (1,734.7) (1,313.5)
Cash used to acquire businesses/stores,
net of tax benefits 49.5
Net cash flow used by investing activities,
as adjusted (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,200.0) (1,150.0) (1,600.0) (1,550.0) (980.1) (1,686.4) (1,685.2) (1,313.5)
Free cash flow $1,800.0 $2,000.0 $1,600.0 $1,800.0 $1,400.0 $1,600.0 $1,200.0 $1,400.0 $1,000.0 $1,200.0 $500.0 $700.0 $499.3 $420.0 $356.1 $567.5
*Excludes cash flow from payables related to third-party gift cards, net of receivables. Cash from the sale of third-party gift cards is held for a short period of time and then remitted, less
Safeway's commission, to card partners. Because this cash flow is temporary, it is not available for other uses and therefore is excluded from the company's calculation of free cash flow.
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16. Current ID Results for Lifestyle Stores
Lifestyle Sales Change by Year
Store Count Indexed
100
65%
41
35
35% 27
13
Lifestyle
Non-Lifestyle 1st Yr 2nd Yr 3rd Yr 4th Yr Non-
LS
Adj. for competitive openings
Yr 1 sales vs. Proforma Base, Yr 2 - Yr 4 Prior Year
Yr 2 - Yr 4 excluding Grand opening Promo Period
Data Incl thru week 44, 2008
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Reconciliation_InvestorConferences_Dec08
17. Free Cash Flow
$ Billions
1.6 - 1.8
1.4 - 1.6
1.2 - 1.4
1.0 - 1.2
0.5 - 0.7
0.6
0.4
0.4
2005 2006 2007 2008G 2009G 2010F 2011F 2012F
1.4 1.7 1.7 1.6 1.2 1.2 1.2 1.2
Capital Spending
Excludes Blackhawk Gift Card payables, net of receivables
See website for reconciliation
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Reconciliation_InvestorConferences_Dec08
