Safeway to Make Expense Adjustment Related to Accounting for Leases

PLEASANTON, Calif. -- Safeway Inc. will incur a non-cash lease expense adjustment of $6.5 million, after tax ($0.014 per diluted share) in its fourth quarter of 2004.

This adjustment will conform the retailer's lease accounting policies to views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission on February 7, 2005. Safeway said it has decided not to restate prior financial statements because the impact on prior periods is immaterial.

After reviewing its lease accounting practices related to rent holidays, depreciable lives of leasehold improvements, and tenant improvement allowances, Safeway recorded the $6.5 million adjustment related to rent holidays. Historically, Safeway recorded lease expense when the store opened and it began making lease payments. However, the company frequently takes possession of leased properties prior to opening, for construction purposes.

The adjustment reflects commencement of lease expense at the earlier of the first rent payment or the date of possession of the leased property. This change in accounting does not affect the timing of lease payments or cash flow, and is not expected to have a material effect on future results of operations.
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