Safeway 2011 Annual Report Download - page 29

SAFEWAY INC. AND SUBSIDIARIES
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 may have led to reduced consumer spending, to some
consumers trading down to a less expensive mix of products and to some consumers trading down to discounters for
grocery items, all of which impacts Safeway’s sales growth. If these conditions continue or worsen, it could further impact
Safeway’s sales growth. In 2010, Safeway experienced overall deflation, and in 2011, Safeway experienced overall
inflation. In this uncertain economy, it is difficult to forecast with certainty the rate of inflation or deflation for 2012. 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. Higher fuel prices could also dampen overall consumer demand. 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:
• 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 faces competition from other companies that offer similar products. This could limit Blackhawk’s
future growth;
• Blackhawk’s business depends on its ability to negotiate contract renewals with its key partners and on the
active and effective promotion of Blackhawk’s products and services by its distribution partners;
• Blackhawk’s prospects could be adversely affected as a result of legal or regulatory changes affecting the sales
of prepaid products or other products that Blackhawk sells or plans to sell in the future or as a result of
Blackhawk’s failure to comply with applicable laws and regulations;
• Blackhawk is substantially dependent on the continuous operation and security of its information technology
applications and infrastructure;
• Blackhawk’s prospects could be adversely affected as a result of 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; and
• 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.
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 Safeway’s
business.
Pension and Post-Retirement 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 as well
as cash contributions to fund the plans. Historically, Safeway’s retirement plans have been well funded, and prior to
2011, cash contributions to the plans have been relatively small.
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