Safeway 2005 Annual Report Download - page 30

SAFEWAY INC. AND SUBSIDIARIES
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Opening and Remodeling of Stores Our inability to open and remodel stores as planned could have a material adverse
effect on our results. Our business plans include the opening and remodeling of a significant number of stores. In 2006, we
anticipate opening approximately 20 to 25 Lifestyle stores while completing approximately 280 Lifestyle remodels. If, as a
result of labor relations issues, supply issues, environmental and real estate delays, these capital projects do not stay within
the time and financial budgets that we have forecast, our future financial performance could be materially adversely
affected. Further, we cannot ensure that the new or remodeled stores will achieve anticipated same-store sales or profit
levels.
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 or not valid, 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 and a loss of consumer confidence, which could
have a material adverse effect on our sales and operations.
Economic Conditions that Impact Consumer Spending Our results of operations are sensitive to changes in overall
economic conditions that impact consumer spending, including discretionary spending. Future economic conditions such as
employment levels, business conditions, interest rates, energy costs and tax rates could reduce consumer spending or change
consumer purchasing habits. A general reduction in the level of consumer spending or our inability to respond to shifting
consumer attitudes regarding products, store location and other factors could adversely affect our growth and profitability.
Unfavorable Changes in Government Regulation Our stores are subject to various federal, state, local and foreign laws,
regulations and administrative practices affecting our business. We must comply with numerous provisions regulating health
and sanitation standards, food labeling, equal employment opportunity, minimum wages and licensing for the sale of food,
drugs and alcoholic beverages. We cannot predict the nature of future laws, regulations, interpretations or applications, or
determine what 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.
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 December 31, 2005, we had approximately $6.4 billion in total consolidated debt
outstanding. 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, we may be required to: dedicate a
substantial 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; limit our flexibility in planning for, or reacting to, changes in our business; place ourselves at a competitive
disadvantage relative to our competitors that have less debt; and limit, along with the financial and other restrictive
covenants in the documents governing our indebtedness, among other things, our ability to borrow additional funds.
Changes in our credit ratings may have an adverse impact on our financing costs and structure in future periods, such as the
ability to participate in the commercial paper market and higher interest costs on future financings. Additionally, interest
expense could be materially and adversely affected by changes in the interest rate environment, changes in our credit rating,
fluctuations 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.
Retirement Plans We maintain defined benefit retirement plans for substantially all employees not participating in multi-
employer pension plans. Expenses from defined benefit pension plans may be significantly affected by changes in the actual
return on plan assets and actuarial assumptions.
In addition, we participate in various multi-employer 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. Pension
expense for these plans is recognized as contributions are funded. Benefits generally are based on a fixed amount for each