Safeway (SWY)

Operating and Administrative Expense

Operating and administrative expense increased 92 basis points to 25.26% of sales in the fourth quarter of 2009 from 24.34% of sales in the fourth quarter of 2008. Excluding the two basis point impact of lower fuel sales in the fourth quarter of 2009, operating and administrative expense margin increased 90 basis points. This increase was primarily the result of decreased sales leverage, increased charges from property impairments, lower gains from the sale of property and increased pension expense, partly offset by lower workers’ compensation expense and lower utility expenses.

Operating and Administrative Expense

Operating and administrative expense declined $13.3 million to $2,396.0 million in the third quarter of 2009 from $2,409.3 million in the third quarter of 2008. However, due to lower sales, operating and administrative expense margin increased 164 basis points to 25.33% of sales in the third quarter of 2009 from 23.69% of sales in the third quarter of 2008. Excluding the 75 basis point impact of lower fuel sales in the third quarter of 2009, operating and administrative expense margin increased 89 basis points. This increase was primarily the result of decreased sales leverage, increased charges from property impairments and retirements and increased pension expense.

Operating and Administrative Expense

Operating and administrative expense declined $39.7 million to $2,373.9 million in the second quarter of 2009 from $2,413.6 million in the second quarter of 2008. However, due to lower sales, operating and administrative expense increased 124 basis points to 25.09% of sales in the second quarter of 2009 from 23.85% of sales in the second quarter of 2008. Excluding the 89 basis point impact of lower fuel sales in the second quarter of 2009, operating and administrative expense increased 35 basis points. This increase was primarily the result of decreased sales leverage and increased pension expense.

Operating and Administrative Expense

Operating and administrative expense declined approximately $100 million to $2.4 billion in the first quarter of 2009 from $2.5 billion in the first quarter of 2008. However, due to lower sales in 2009, operating and administrative expense increased 90 basis points to 25.67% of sales in the first quarter of 2009 from 24.77% of sales in the first quarter of 2008. Excluding the 74 basis point impact of lower fuel sales in the first quarter of 2009, operating and administrative expense increased 16 basis points. This increase was primarily the result of decreased sales leverage (partially due to the shift in holiday sales), increased occupancy costs as a percentage of sales and increased pension expense, partly offset by reduced labor costs.

Operating and Administrative Expense

Operating and administrative expense increased 13 basis points to 24.34% of sales in the fourth quarter of 2008 from 24.21% of sales in the fourth quarter of 2007. Excluding the 40 basis point impact of lower fuel sales in the fourth quarter of 2008, operating and administrative expense declined 27 basis points. This improvement was the result of reduced employee costs, partly offset by currency exchange losses, higher workers’ compensation costs and higher occupancy costs.

Operating and Administrative Expense

Operating and administrative expense improved 82 basis points to 23.69% of sales in the third quarter of 2008 from 24.51% of sales in the third quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense margin by 49 basis points. The remaining 33 basis point improvement was the result of reduced employee costs, partly offset by higher energy and occupancy costs.

Operating and Administrative Expense

Operating and administrative expense improved 36 basis points to 23.85% of sales in the second quarter of 2008 from 24.21% of sales in the second quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense margin by 26 basis points. The remaining 10 basis point improvement was the result of reduced employee costs, partly offset by lower property gains and higher energy and occupancy costs.

Operating and Administrative Expense

Operating and administrative expense improved 65 basis points to 24.77% of sales in the first quarter of 2008 from 25.42% of sales in the first quarter of 2007. Higher fuel sales in 2008 reduced operating and administrative expense by 29 basis points. The remaining 36 basis point decline was the result of reduced employee costs, partly offset by a labor settlement in Alberta, Canada, and higher utility and occupancy costs.

Operating and Administrative Expense

Operating and administrative expense improved 55 basis points to 24.21% of sales in the fourth quarter of 2007 from 24.76% of sales in the fourth quarter of 2006. Higher fuel sales in 2007 reduced operating and administrative expense by 36 basis points. The remaining 19 basis point decline was the result of larger gains on disposal of property and reduced employee costs, partly offset by higher depreciation.

Operating and Administrative Expense

Operating and administrative expense was 24.51% of sales in the third quarter of 2007, down three basis points from 24.54% in the third quarter of 2006. This improvement is primarily due to increased sales, lower workers’ compensation expense, lower utility expense and store labor as a percentage of sales, partly offset by higher depreciation expense, lower gains on disposal of properties and higher debit and credit card fees.

Operating and Administrative Expense

Operating and administrative expense improved 37 basis points to 24.21% of sales in the second quarter of 2007 from 24.58% in the second quarter of 2006. This improvement is

primarily due to increased sales, lower workers’ compensation expense, net property gains and lower store labor as a percentage of sales, partly offset by higher occupancy costs.

Operating and Administrative Expense

Operating and administrative expense improved 11 basis points to 25.42% of sales in the first quarter of 2007 from 25.53% in the first quarter of 2006. This improvement is primarily due to increased sales and lower costs as a percentage of sales from store labor and workers’ compensation.

Operating and Administrative Expense

Operating and administrative expense improved 122 basis points to 24.76% of sales in the fourth quarter of 2006 from 25.98% of sales in the fourth quarter of 2005. In the fourth quarter of 2005, Safeway incurred pre-tax charges of $55.5 million for store exit activities related to the closure of 26 Texas stores and $37.5 million for employee buyouts ($0.12 per diluted share). Adjusting for these charges, operating and administrative expense improved 45 basis points in 2006. This improvement is primarily due to increased sales and reduced costs as a percentage of sales from workers’ compensation and store labor.

Operating and Administrative Expense

Operating and administrative expense declined to 24.54% of sales in the third quarter of 2006 from 25.90% in 2005.

Operating and administrative expense in 2005 included a $54.7 million pre-tax impairment charge in Texas and a $21.9 million pre-tax employee buyout charge. Excluding these items, operating and administrative expense in 2006 improved 50 basis points. This improvement is primarily due to increased sales and lower employee costs as a percentage of sales.

Operating and Administrative Expense

Operating and administrative expense improved 72 basis points to 24.58% of sales in the second quarter of 2006 from 25.30% in the second quarter of 2005. This improvement is primarily due to increased sales and lower employee costs as a percentage of sales.

Operating and Administrative Expense

Operating and administrative expense declined 27 basis points to 25.53% of sales in the first quarter of 2006 from 25.80% in the first quarter of 2005. This decline is primarily due to increased sales and lower employee costs, partly offset by higher energy costs and employee buyouts.

Operating and Administrative Expense

Operating and administrative expense increased 8 basis points to 25.98% of sales in the fourth quarter of 2005 from 25.90% of sales in the fourth quarter of 2004. In the fourth quarter of 2005, Safeway incurred previously announced pretax charges of $55.5 million for store exit activities related to the closure of 26 Texas stores and $37.5 million for employee buyouts. Adjusting for these charges and other unusual and pro forma charges in 2004 as outlined in Table 7 of this release, operating and administrative expense improved 69 basis points.

This improvement in operating and administrative expense is primarily the result of increased sales (including fuel sales), restructured labor agreements and reduced workers’ compensation costs, partly offset by labor costs associated with the grand opening of Lifestyle stores and higher energy costs. Higher energy costs increased operating and administrative expense by 6 basis points in the fourth quarter of 2005.

Operating and Administrative Expense

Operating and administrative expense declined to 25.90% of sales in the third quarter of 2005 compared to 26.03% in 2004.

Operating and administrative expense in 2005 included a $54.7 million pre-tax Texas impairment charge, a $21.9 million pre-tax employee buyout charge and a $14.6 million pre-tax expense for stock options. Operating and administrative expense in 2004 includes a pre-tax $19.7 million health and welfare contribution. Excluding these items operating and administrative expense improved 91 basis points. This improvement is primarily due to restructured labor agreements, increased sales from fuel and reduced workers’ compensation costs, partly offset by labor costs associated with the grand opening of Lifestyle stores and higher energy costs.

Operating and Administrative Expense

Operating and administrative expense improved 9 basis points to 25.30% of sales in the second quarter of 2005 from 25.39% in the second quarter of 2004. This improvement is primarily due to the ongoing recovery from the strike at Vons, increased sales from fuel and restructured labor agreements, offset by stock option expense, labor costs associated with the grand opening of Lifestyle stores, higher retail bonus accruals and other store operating costs.

In 2005, Safeway early adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment, which requires that stock options be expensed. The noncash expense for stock options was $17.7 million ($0.02 per diluted share) in the second quarter of 2005.

Operating and Administrative Expense

Operating and administrative expense declined 239 basis points to 25.80% of sales in the first quarter of 2005 from 28.19% in the first quarter of 2004. This decline is primarily due to the ongoing recovery from the strike at Vons, lower wages and benefits in 2005 and impairment charges in 2004 from Dominick’s store closures that did not reoccur in 2005.

In 2005, Safeway early adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment, which requires that stock options be expensed. The noncash expense for stock options was $10.6 million ($0.01 per diluted share) in the first quarter of 2005.

Operating and Administrative Expense

Operating and administrative expense declined 216 basis points to 25.90% of sales in the fourth quarter of 2004 from 28.06% in the fourth quarter of 2003. This decline consisted primarily of 186 basis points due to lower impairment charges, an estimated 83 basis points from the strike recovery and 13 basis points from higher fuel sales, offset by 9 basis points from the accrual for rent holidays and 57 basis points primarily from higher wages, benefits and occupancy expense.

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