Safeway 2010 Annual Report Download - page 26

SAFEWAY INC. AND SUBSIDIARIES
Opening and Remodeling Stores Our inability 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.
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 The United States and, to a lesser extent, Canadian economies and financial markets
have declined and experienced volatility due to uncertainties related to unemployment rates, energy prices, availability of
credit, difficulties in the banking and financial services sectors, the decline in the housing market and falling consumer
confidence. As a result, consumers are more cautious. This has led to reduced consumer spending, to consumers trading
down to a less expensive mix of products and to consumers trading down to discounters for grocery items, all of which
has affected Safeway’s sales growth. If these conditions continue or worsen, it could further impact Safeway’s sales
growth. In 2010, Safeway experienced overall deflation. In this uncertain economy, it is difficult to forecast with certainty
whether 2011 will be a period of inflation or deflation. Food deflation could reduce sales growth and earnings, while
food inflation, combined with reduced consumer spending, could reduce gross profit margins. Challenging economic
conditions may also impact consumer spending for our products. We are unable to predict with certainty if the economies
of the United States and Canada will continue to improve or the rate at which they will improve. If these economies do
not improve, Safeway’s business, results of operations and financial condition could be adversely affected.
Future Growth of Blackhawk Blackhawk’s business, financial condition, results of operations and prospects are
subject to certain risks and uncertainties. Consequently, actual results could differ materially from Blackhawk’s targeted
earnings growth. There is no assurance that Blackhawk will continue to grow at the same rate as it has in the past. Some
of the specific risks and uncertainties include, but are not limited to, the following:
• Blackhawk faces competition from other companies that offer similar products. This could limit Blackhawk’s
future growth;
• Blackhawk is substantially dependent on the continuous operation and security of its information technology
applications and infrastructure;
• A significant portion of Blackhawk’s revenues and net earnings is realized during the last several weeks of the
calendar year and is related to consumer gift purchases. A reduction in consumer spending for gifts, operational
issues that result in limitations on gift cards available for sale in Blackhawk’s distribution channels, or other
factors that contribute to a shortfall in sales during this period could have an adverse effect on the Company’s
consolidated results of operations and financial condition;
• Blackhawk’s business depends on its ability to negotiate contract renewals with its key partners;
• Blackhawk has operations in several international locations, and it may find a different business or competitive
environment in markets outside the U.S. that could adversely affect its profitability; and
• Blackhawk’s prospects could be adversely affected as a result of regulatory changes affecting the sales of gift
cards or other products that Blackhawk sells or plans to sell in the future.
Pension and Post-Retirement Plans We maintain defined benefit retirement plans for substantially all employees not
participating in multi-employer 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 as well
as cash contributions to fund the plans. Historically, Safeway’s retirement plans have been well funded, and cash
contributions to the plans have been relatively small.
The decline in the financial markets during 2008 resulted in a substantial reduction in the fair value of the retirement plan
assets. In 2009 and 2010, the financial markets improved. Despite the improvement, the projected benefit obligation
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