Safeway (SWY)

Note B:  Goodwill

A summary of changes in Safeway’s goodwill during 2008 and 2007 by geographic area is as follows (in millions):

We test goodwill for impairment annually (on the first day of the fourth quarter), or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, by initially comparing the fair value of each of our reporting units to their related carrying values. If the fair value of the reporting unit is less than its carrying value, we perform an additional step to determine the implied fair value of goodwill associated with that reporting unit. If the carrying value of goodwill exceeds the implied fair value of goodwill, such excess represents the amount of goodwill impairment. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of all reporting units to our total market capitalization. Therefore, a significant and sustained decline in our stock price could result in goodwill impairment charges. During times of financial market volatility, significant judgment is given to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. The estimate of fair value of each of our reporting units is based on our projection of sales, gross profit, operating profit and cash flows considering historical and estimated future results, general economic and market conditions as well as the impact of planned business and operational strategies. We base our fair value estimates on assumptions we believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. The valuations employ present value techniques to measure fair value and consider market factors. Based upon the results of our 2008, 2007 and 2006 analyses, no impairment of goodwill was indicated.

Note
B:  Goodwill

A summary of changes in Safeway’s goodwill during 2008 and 2007 by geographic area is as follows (in millions):

Note B:  Goodwill

A summary of changes in Safeway’s goodwill during 2007 and 2006 by geographic area is as follows (in millions):

Safeway completed its annual impairment tests in the fourth quarters of 2007, 2006 and 2005. Fair value was determined based primarily on the discounted cash flow and guideline company methods. As a result of these annual reviews, Safeway concluded that no impairment charge was required.

Note B:  Goodwill

A summary of changes in Safeway’s goodwill during 2006 and 2005 by geographic area is as follows (in millions):

Safeway completed its annual impairment tests in the fourth quarters of 2006, 2005 and 2004. Fair value was determined based on a valuation study which primarily considered the discounted cash flow and guideline company method. As a result of these annual reviews, Safeway concluded that no impairment charge was required.

NOTE D - GOODWILL

A summary of changes in Safeway’s goodwill during the first 12 weeks of 2006 by geographic area is as follows (in millions):

Note B: Goodwill

A summary of changes in Safeway’s goodwill during 2005 and 2004 by geographic area is as follows (in millions):

The Company accounts for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” In November 2002, Safeway announced the decision to sell Dominick’s and exit the Chicago market

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Notes to Consolidated Financial Statements

due to labor issues. In the first 36 weeks of 2003, Safeway reduced the carrying value of Dominick’s in part by writing down $256.5 million of goodwill, based on indications of value received during the sale process. In November 2003, Safeway announced that it was taking Dominick’s off the market. As a result, in the fourth quarter of 2003, Safeway incurred an additional goodwill impairment charge of $24.9 million relating to Dominick’s.

Also in the fourth quarter of 2003, Safeway performed its annual review of goodwill. Fair value was determined based on a valuation study performed by an independent third party which primarily considered the discounted cash flow and guideline company method. As a result of this annual review, Safeway recorded an impairment charge for Randall’s goodwill of $447.7 million. The additional charges reflect declining multiples in the retail grocery industry and operating performance. There was no remaining goodwill for Dominick’s or Randall’s on Safeway’s consolidated balance sheet at year-end 2003.

Safeway completed its annual impairment tests in the fourth quarters of 2004 and 2005. Fair value was determined based on a valuation study performed by an independent third party which primarily considered the discounted cash flow and guideline company method. As a result of these annual reviews, Safeway concluded that no impairment charge was required.

NOTE D - GOODWILL

A summary of changes in Safeway’s goodwill during the first 36 weeks of 2005 by geographic area is as follows (in millions):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE D - GOODWILL

A summary of changes in Safeway’s goodwill during the first 24 weeks of 2005 by geographic area is as follows (in millions):

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SAFEWAY INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)