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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549   FORM 10-Q   Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the 13 Weeks Ended: October 28, 2004         Commission File Number: 1-6187 ALBERTSONS, INC.    Delaware
    
    82-0184434(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)
 250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho
    
    83726(Address of principal executive offices)
    
    (Zip Code)
 (208) 395-6200 
  Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No
[  ] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [x] No
[  ] The number of shares of the registrants common stock, $1.00 par value,
outstanding at November 30, 2004 was 368,056,908. 1




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ALBERTSONS INC.
INDEX PART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Earnings Statements for the 13 weeks ended October 28, 2004 and October 30, 2003
    
    
    3Condensed Consolidated Earnings Statements for the 39 weeks ended October 28, 2004 and October 30, 2003
    
    
    4Condensed Consolidated Balance Sheets as of October 28, 2004 and January 29, 2004
    
    
    5Condensed Consolidated Cash Flow Statements for the 39 weeks ended October 28, 2004 and October 30, 2003
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Report of Independent Registered Public Accounting Firm
    
    
    18Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II OTHER INFORMATIONCautionary Statement
    
    
    24Item 1. Legal Proceedings
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26EXHIBIT 15EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements ALBERTSONS, INC. 
 CONDENSED CONSOLIDATED EARNINGS STATEMENTS
 (in millions, except per share data)
 (unaudited)
 13 weeks endedOctober 28,
    
    October 30,2004
    
    2003Sales
    
    $
    9,995
    
    
    $
    8,715Cost of sales
    
    
    7,203
    
    
    
    6,211Gross profit
    
    
    2,792
    
    
    
    2,504Selling, general and administrative expenses
    
    
    2,521
    
    
    
    2,247Restructuring (credits) charges
    
    
    (10
    )
    
    
    3Operating profit
    
    
    281
    
    
    
    254Other expenses (income):Interest, net
    
    
    125
    
    
    
    99Other, net
    
    
    (1
    )
    
    
    7Earnings from continuing operations before income taxes
    
    
    157
    
    
    
    148Income tax expense
    
    
    50
    
    
    
    57Earnings from continuing operations
    
    
    107
    
    
    
    91Discontinued operations:Operating income
    
    
    4
    
    
    
    1Income tax (expense) benefit
    
    
    (1
    )
    
    
    Income from discontinued operations
    
    
    3
    
    
    
    1Net earnings
    
    $
    110
    
    
    $
    92Earnings per share:BasicContinuing operations
    
    $
    0.29
    
    
    $
    0.25Discontinued operations
    
    
    0.01
    
    
    
    Net earnings
    
    $
    0.30
    
    
    $
    0.25DilutedContinuing operations
    
    $
    0.29
    
    
    $
    0.25Discontinued operations
    
    
    
    
    
    
    Net earnings
    
    $
    0.29
    
    
    $
    0.25Weighted average common shares outstanding:Basic
    
    
    369
    
    
    
    368Diluted
    
    
    373
    
    
    
    369
 See Notes to Condensed Consolidated Financial Statements 3




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ALBERTSONS, INC. 
 CONDENSED CONSOLIDATED EARNINGS STATEMENTS
 (in millions, except per share data)
 (unaudited)
 39 weeks endedOctober 28,
    
    October 30,2004
    
    2003Sales
    
    $
    28,819
    
    
    $
    26,541Cost of sales
    
    
    20,715
    
    
    
    18,878Gross profit
    
    
    8,104
    
    
    
    7,663Selling, general and administrative expenses
    
    
    7,310
    
    
    
    6,668Restructuring credits
    
    
    (11
    )
    
    
    (11
    )Operating profit
    
    
    805
    
    
    
    1,006Other expenses (income):Interest, net
    
    
    360
    
    
    
    307Other, net
    
    
    (1
    )
    
    
    6Earnings from continuing operations before income taxes
    
    
    446
    
    
    
    693Income tax expense
    
    
    158
    
    
    
    266Earnings from continuing operations
    
    
    288
    
    
    
    427Discontinued operations:Operating loss
    
    
    (7
    )
    
    
    (1
    )Loss on disposal
    
    
    (55
    )
    
    
    Income tax benefit
    
    
    23
    
    
    
    Loss from discontinued operations
    
    
    (39
    )
    
    
    (1
    )Net earnings
    
    $
    249
    
    
    $
    426Earnings (loss) per share:BasicContinuing operations
    
    $
    0.78
    
    
    $
    1.16Discontinued operations
    
    
    (0.11
    )
    
    
    Net earnings
    
    $
    0.67
    
    
    $
    1.16DilutedContinuing operations
    
    $
    0.78
    
    
    $
    1.16Discontinued operations
    
    
    (0.11
    )
    
    
    Net earnings
    
    $
    0.67
    
    
    $
    1.16Weighted average common shares outstanding:Basic
    
    
    369
    
    
    
    368Diluted
    
    
    372
    
    
    
    369
 See Notes to Condensed Consolidated Financial Statements 4




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ALBERTSONS, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in millions, except par value data)
 (unaudited)
 October 28,
    
    January 29,2004
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    208
    
    
    $
    561Accounts and notes receivable, net
    
    
    647
    
    
    
    625Inventories
    
    
    3,482
    
    
    
    3,035Assets held for sale
    
    
    64
    
    
    
    69Prepaid and other
    
    
    195
    
    
    
    343Total Current Assets
    
    
    4,596
    
    
    
    4,633Land,
buildings and equipment (net of accumulated depreciation andamortization of $7,421 and $6,845, respectively)
    
    
    10,486
    
    
    
    9,146Goodwill
    
    
    2,307
    
    
    
    1,400Intangibles, net
    
    
    899
    
    
    
    130Other assets
    
    
    424
    
    
    
    357Total Assets
    
    $
    18,712
    
    
    $
    15,666LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    2,605
    
    
    $
    2,045Salaries and related liabilities
    
    
    633
    
    
    
    659Self-insurance
    
    
    256
    
    
    
    209Current maturities of long-term debt and capital lease obligations
    
    
    238
    
    
    
    520Other current liabilities
    
    
    618
    
    
    
    470Total Current Liabilities
    
    
    4,350
    
    
    
    3,903Long-term debt
    
    
    6,068
    
    
    
    4,452Capital lease obligations
    
    
    834
    
    
    
    352Self-insurance
    
    
    639
    
    
    
    523Other long-term liabilities and deferred credits
    
    
    1,493
    
    
    
    1,055Commitments and contingencies
    
    
    
    
    
    
    Stockholders EquityPreferred
stock -  $1.00 par value; authorized - 10 shares;designated  3 shares
of Series A Junior Participating; issued  none
    
    
    
    
    
    
    Common stock
- $1.00 par value; authorized - 1,200 shares;issued
 368 shares
and 368 shares, respectively
    
    
    368
    
    
    
    368Capital in excess of par
    
    
    62
    
    
    
    155Accumulated other comprehensive loss
    
    
    (109
    )
    
    
    (109
    )Retained earnings
    
    
    5,007
    
    
    
    4,967Total Stockholders Equity
    
    
    5,328
    
    
    
    5,381Total Liabilities and Stockholders Equity
    
    $
    18,712
    
    
    $
    15,666
 See Notes to Condensed Consolidated Financial Statements 5




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ALBERTSONS, INC. 
 CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
 (in millions)
 (unaudited)
 39 weeks endedOctober 28,
    
    October 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings
    
    $
    249
    
    
    $
    426Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    806
    
    
    
    729Net deferred income taxes
    
    
    66
    
    
    
    (23
    )Discontinued operations non-cash charges
    
    
    66
    
    
    
    Other non-cash charges
    
    
    24
    
    
    
    36Stock-based compensation
    
    
    14
    
    
    
    19Net gain on asset disposals
    
    
    (17
    )
    
    
    (22
    )Restructuring credits
    
    
    (11
    )
    
    
    (11
    )Changes in operating assets and liabilities:Receivables and prepaid expenses
    
    
    149
    
    
    
    82Inventories
    
    
    (164
    )
    
    
    (218
    )Accounts payable
    
    
    307
    
    
    
    (39
    )Other current liabilities
    
    
    (8
    )
    
    
    23Self-insurance
    
    
    78
    
    
    
    79Unearned income
    
    
    (28
    )
    
    
    11Other long-term liabilities
    
    
    (70
    )
    
    
    6Net cash provided by operating activities
    
    
    1,461
    
    
    
    1,098CASH FLOWS FROM INVESTING ACTIVITIES:Business acquisitions, net of cash acquired
    
    
    (2,214
    )
    
    
    Capital expenditures
    
    
    (750
    )
    
    
    (892
    )Proceeds from disposal of land, buildings and equipment
    
    
    95
    
    
    
    56Proceeds from disposal of assets held for sale
    
    
    61
    
    
    
    98Other
    
    
    (22
    )
    
    
    9Net cash used in investing activities
    
    
    (2,830
    )
    
    
    (729
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from mandatory convertible security
    
    
    1,150
    
    
    
    Commercial paper borrowings, net
    
    
    621
    
    
    
    Payments on long-term borrowings
    
    
    (523
    )
    
    
    (115
    )Cash dividends paid
    
    
    (210
    )
    
    
    (210
    )Mandatory convertible security financing costs
    
    
    (33
    )
    
    
    Proceeds from stock options exercised
    
    
    11
    
    
    
    Stock purchases and retirements
    
    
    
    
    
    
    (108
    )Net cash provided by (used in) financing activities
    
    
    1,016
    
    
    
    (433
    )Net Decrease in Cash and Cash Equivalents
    
    
    (353
    )
    
    
    (64
    )Cash and Cash Equivalents at Beginning of Period
    
    
    561
    
    
    
    428Cash and Cash Equivalents at End of Period
    
    $
    208
    
    
    $
    364
 See Notes to Condensed Consolidated Financial Statements 6




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ALBERTSONS, INC. 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (dollars and shares in millions, except per share data)
 (unaudited)
 NOTE 1  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES Description of Business Albertsons, Inc. (Albertsons or the Company) is incorporated under the
laws of the State of Delaware and is the successor to a business founded by
J.A. Albertson in 1939. Based on sales, the Company is one of the largest
retail food and drug chains in the world. As of October 28, 2004, the Company, through its divisions and subsidiaries,
operated 2,507 stores in 37 states. The Company, through its divisions and
subsidiaries, also operated 234 fuel centers near existing stores. Retail
operations are supported by 20 major Company distribution operations,
strategically located in the Companys operating markets. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include
the results of operations, financial position and cash flows of the Company and
its subsidiaries. All material intercompany balances have been eliminated. In the opinion of management, the accompanying unaudited condensed consolidated
financial statements include all adjustments necessary to present fairly, in
all material respects, the results of operations of the Company for the periods
presented. These condensed consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and accompanying notes included in the Companys Annual
Report on Form 10-K for the fiscal year ended January 29, 2004 filed with the
Securities and Exchange Commission. The results of operations for the 13 and
39 weeks ended October 28, 2004 are not necessarily indicative of results for a
full year. The Companys Condensed Consolidated Balance Sheet as of January 29, 2004 has
been derived from the audited Consolidated Balance Sheet as of that date. Use of Estimates The preparation of the Companys consolidated financial statements, in
conformity with accounting principles generally accepted in the United States,
requires management to make estimates and assumptions. Some of these estimates
require difficult, subjective or complex judgments about matters that are
inherently uncertain. As a result, actual results could differ from these
estimates. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Inventories Net earnings reflect the application of the LIFO method of valuing certain
inventories. Quarterly inventory determinations under LIFO are based on
assumptions as to projected inventory levels at the end of the year and the
rate of inflation for the year. Albertsons recorded pre-tax LIFO expense of $3
and $4 for the 13 week periods ended October 28, 2004 and October 30, 2003,
respectively, and $11 and $12 for the 39 week periods ended October 28, 2004
and October 30, 2003, respectively. The amount of vendor funds reducing the Companys inventory (inventory
offset) as of October 28, 2004, including those resulting from the
acquisitions made during the 39 weeks ended October 28, 2004 (see Note 3 
Business Acquisitions to the Condensed Consolidated Financial Statements), was
$134, a decrease of $9 from the end of the second quarter of 2004 and a
decrease of $21 from the beginning of 2004. The vendor funds inventory offset
as of October 30, 2003 was $134, an increase of $3 from the end of the second
quarter of 2003 and a decrease of $18 from the beginning of 2003. The
inventory offset was determined by estimating the average inventory turnover
rates by product category for the Companys grocery, general merchandise and
lobby departments (these departments received over three-quarters of the
Companys vendor funds in 2003) and by estimating the average inventory
turnover rates by department for the Companys remaining inventory. 7




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NOTE 1  THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES  (CONT.) Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees and related interpretations.
Accordingly, expense associated with stock-based compensation is measured as
the excess, if any, of the quoted market price of the Companys stock at the
date of the grant over the option exercise price and is charged to operations
over the vesting period. Income tax benefits attributable to stock options
exercised are credited to capital in excess of par value. Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  An Amendment to Financial Accounting
Standards Board (FASB) Statement No. 123, encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. If the fair value-based accounting method was utilized
for stock-based compensation, the Companys pro forma net earnings and earnings
per share for the periods presented below would have been as follows: 13 weeks ended
    
    39 weeks endedOctober 28,
    
    October 30,
    
    October 28,
    
    October 30,2004
    
    2003
    
    2004
    
    2003Net Earnings as reported
    
    $
    110
    
    
    $
    92
    
    
    $
    249
    
    
    $
    426Add: Stock-based
compensation expense
included in reported net
earnings, net of related
tax effects
    
    
    2
    
    
    
    4
    
    
    
    9
    
    
    
    12Deduct: Total stock-based
compensation expense
determined under fair
value-based method for
all awards, net of
related tax effects
    
    
    (9
    )
    
    
    (11
    )
    
    
    (30
    )
    
    
    (34
    )Pro Forma Net Earnings
    
    $
    103
    
    
    $
    85
    
    
    $
    228
    
    
    $
    404Basic Earnings Per Share:As Reported
    
    $
    0.30
    
    
    $
    0.25
    
    
    $
    0.67
    
    
    $
    1.16Pro Forma
    
    
    0.28
    
    
    
    0.23
    
    
    
    0.62
    
    
    
    1.10Diluted Earnings Per Share:As Reported
    
    $
    0.29
    
    
    $
    0.25
    
    
    $
    0.67
    
    
    $
    1.16Pro Forma
    
    
    0.28
    
    
    
    0.23
    
    
    
    0.61
    
    
    
    1.10
 The pro forma net earnings resulted from reported net earnings less pro forma
after-tax compensation expense. The pro forma effect on net earnings is not
representative of the pro forma effect on net earnings in future years. To
calculate pro forma stock-based compensation expense under SFAS No. 123, the
Company estimated the fair value of each option grant on the date of grant,
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 2004 and 2003: risk-free interest rate
of 3.91% and 3.38%, respectively, expected dividend yield of 3.28% and 3.82%,
respectively, expected lives of 6.0 and 5.8 years, respectively, and expected
stock price volatility of 38.28% and 39.93%, respectively. Reclassifications The Companys banking arrangements allow the Company to fund outstanding checks
when presented to the financial institution for payment. This cash management
practice frequently results in total issued checks exceeding available cash
balances at a single financial institution. As of October 28, 2004, the
Company has recorded its cash disbursement accounts with a net cash book
overdraft position in accounts payable. The Company believes this presentation
of cash is preferable under generally accepted accounting principles.
Previously, the Company had reported these balances in cash and cash
equivalents. The condensed consolidated balance sheet and statement of cash
flows for the prior period have been adjusted to conform to this presentation.
Net earnings were not impacted by this change. At October 28, 2004 and January
29, 2004, the Company had book overdrafts of $555 and $272, respectively,
classified in accounts payable. Certain other reclassifications have been made in the prior periods financial
statements to conform to classifications used in the current year. 8




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NOTE 2  NEW AND RECENTLY ADOPTED ACCOUNTING STANDARDS In November 2003 the Emerging Issues Task Force (EITF) confirmed as a
consensus EITF Issue No. 03-10, Application of EITF Issue No. 02-16,
Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor, by Resellers to Sales Incentives Offered to Consumers
by Manufacturers (EITF 03-10). EITF 03-10 did not impact the Companys
existing accounting and reporting policies for manufacturers coupons that can
be presented at any retailer that accepts coupons. Under EITF 03-10, vendor
coupons that provide for direct reimbursement, are negotiated between the
retailer and the vendor and which can only be redeemed at a specific retailers
store are recorded as a reduction of cost of sales (instead of sales). This
modification to the Companys accounting and reporting policies, adopted in
Companys first quarter of 2004, did not have a material impact on sales or
cost of sales. In December 2003 the FASB issued SFAS No. 132 (Revised 2003), Employers
Disclosure about Pensions and Other Postretirement Benefits  An Amendment of
FASB Statements No. 87, 88 and 106 (SFAS
No. 132(R)). This statement
increases the existing disclosure requirements by requiring more details about
pension plan assets, benefit obligations, cash flows, benefit costs and related
information. The Company adopted SFAS No. 132(R) in January 2004. The newly
required quarterly disclosures are included in Note 6  Employee Benefit Plans
to the Condensed Consolidated Financial Statements. In May 2004 the FASB issued Staff Position No. FAS 106-2, Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 (SFAS No. 106-2). SFAS No. 106-2 supersedes
SFAS No. 106-1, Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 and provides
guidance on the accounting and disclosure related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (the Act), which was signed
into law in December 2003. SFAS No. 106-2 is effective beginning in the third
fiscal quarter of 2005. The Company is in the process of evaluating the
impact, if any, of the Act and SFAS No. 106-2 on the Company. In November 2004 the FASB issued SFAS No. 151, Inventory Costs, an amendment
of ARB No. 43, Chapter 4 (SFAS No. 151). SFAS No. 151 clarifies that
inventory costs that are abnormal are required to be charged to expense as
incurred as opposed to being capitalized into inventory as a product cost.
SFAS No. 151 provides examples of abnormal costs to include costs of idle
facilities, excess freight and handling costs, and wasted materials (spoilage).
SFAS No. 151 is effective for the Companys fiscal year beginning February 3,
2006. The Company is in the process of evaluating the impact, if any, of SFAS
No. 151 on the Companys consolidated financial statements. NOTE 3  BUSINESS ACQUISITIONS Shaws On April 30, 2004, the Company acquired all of the outstanding capital stock of
the entity which conducted J Sainsbury plcs U.S. retail grocery store business
(Shaws). The results of Shaws operations have been included in the
Companys consolidated financial statements since that date. The operations
acquired consist of 206 grocery stores in the New England area operated under
the banners of Shaws and Star Market. The Company acquired Shaws for a
variety of reasons, including attractive market share positions and real
estate, the opportunity to realize numerous synergies and strong historical
financial performance. The aggregate purchase price was $2,578, which included $2,134 of cash, $441 of
assumed debt and $3 of transaction costs. The Company used a combination of
cash-on-hand and the proceeds of the issuance of $1,603 of commercial paper to
finance the acquisition. The Company used the proceeds from a subsequent
mandatory convertible security offering (see Note 7  Indebtedness to the
Condensed Consolidated Financial Statements) to repay $1,117 of such commercial
paper. The remaining commercial paper outstanding is currently backed by the
Companys existing credit facilities. 9




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NOTE 3  BUSINESS ACQUISITIONS  (CONT.) The following table summarizes the preliminary estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition. These
preliminary purchase price allocations are based on a combination of
third-party valuations and internal analyses and may be adjusted during the
allocation period as defined in SFAS No. 141, Business Combinations. Adjustments:13 week period
    
    Adjusted:April 30,
    
    ended October
    
    April 30,2004
    
    28, 2004
    
    2004Current assets
    
    $
    444
    
    
    $
    
    
    
    $
    444Land, buildings and equipment
    
    
    1,378
    
    
    
    29
    
    
    
    1,407Goodwill
    
    
    840
    
    
    
    (11
    )
    
    
    829Intangible assets
    
    
    766
    
    
    
    
    
    
    
    766Other assets
    
    
    23
    
    
    
    
    
    
    
    23Total assets acquired
    
    
    3,451
    
    
    
    18
    
    
    
    3,469Current liabilities
    
    
    417
    
    
    
    10
    
    
    
    427Long-term debt
    
    
    441
    
    
    
    
    
    
    
    441Other liabilities
    
    
    456
    
    
    
    8
    
    
    
    464Total liabilities assumed
    
    
    1,314
    
    
    
    18
    
    
    
    1,332Net assets acquired
    
    $
    2,137
    
    
    $
    
    
    
    $
    2,137
 Acquired intangible assets include $399 assigned to trade names not subject to
amortization, $325 assigned to favorable operating leases (13-year weighted
average useful life), $36 assigned to a customer loyalty program (7-year useful
life), $5 assigned to pharmacy prescriptions (7-year useful life), and other
assets of $1 (18-year useful life). With the exception of trade names, the
remaining intangible assets are amortized on a straight-line basis over their
expected useful lives. As part of the purchase price allocation, the fair values of operating leases
were calculated, a portion of which represents favorable operating leases
compared with current market conditions and a portion of which represents
unfavorable operating leases compared with current market conditions. The
favorable leases totaled $325 and are included in Intangible assets. The
unfavorable leases totaled $246, have an estimated weighted average life of 18
years and are included in Other liabilities. The excess of the purchase price over the fair value of assets acquired and
liabilities assumed was allocated to goodwill. Of the $829 recorded in
goodwill, $95 is expected to be deductible for tax purposes. Bristol Farms On September 21, 2004, the Company acquired New Bristol Farms, Inc. (Bristol
Farms) for $137 in cash. Bristol Farms operates 11 gourmet retail stores in
southern California. This transaction was accounted for using the purchase
method and, accordingly, the purchase price has been allocated on a preliminary
basis to the fair value of the tangible and identifiable intangible assets
acquired as determined by third-party valuations and internal analyses. The
purchase price was allocated as follows: $44 in assets, $7 in liabilities, $21
in trade names not subject to amortization and $79 in goodwill. 10




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NOTE 3  BUSINESS ACQUISITIONS  (CONT.) The following unaudited pro forma financial information presents the combined
results of operations of the Company, Shaws and Bristol Farms as if the
acquisitions had occurred on January 30, 2004 and January 31, 2003,
respectively. Shaws fiscal year ended on February 28, 2004, and Bristol
Farms fiscal year ended on May 2, 2004. The unaudited pro forma financial
information uses Shaws and Bristol Farms data for the periods corresponding
to the Companys fiscal year. This unaudited pro forma financial information
is not intended to represent or be indicative of what would have occurred if
the transactions had taken place on the dates presented and should not be taken
as representative of the Companys future consolidated results of operations or
financial position. The pro forma information does not reflect any potential
synergies or integration costs. 13 weeks ended
    
    39 weeks endedOctober 28,
    
    October 30,
    
    October 28,
    
    October 30,2004
    
    2003
    
    2004
    
    2003Sales
    
    $
    10,019
    
    
    $
    9,881
    
    
    $
    30,054
    
    
    $
    30,010Net earnings
    
    
    110
    
    
    
    115
    
    
    
    274
    
    
    
    496Earnings per share:Basic
    
    $
    0.30
    
    
    $
    0.31
    
    
    $
    0.74
    
    
    $
    1.35Diluted
    
    
    0.29
    
    
    
    0.31
    
    
    
    0.74
    
    
    
    1.35
 4. DISCONTINUED OPERATIONS, RESTRUCTURING ACTIVITIES AND CLOSED STORES The Company has a process to review its asset portfolio in an attempt to
maximize returns on its invested capital. As a result of these reviews, in
recent years the Company has closed and disposed of a number of properties
through market exits, restructuring activities and on-going store closures.
The Company recognizes lease liability reserves and impairment charges
associated with these transactions. Summarized below are the significant
transactions the Company has undertaken and the related lease accrual activity. Discontinued Operations In June 2004 the Company announced its plan to sell, close or otherwise dispose
of its operations in the Omaha, Nebraska market, which consisted of 21
operating stores. Results of operations for those stores have been
reclassified and presented as discontinued operations for the 13 and 39 week
periods ended October 28, 2004 and October 30, 2003. As of October 28, 2004,
the Company had disposed of 12 properties, resulting in nine properties with a
value of $3 classified as Assets Held for Sale in the Condensed Consolidated
Balance Sheet. In April 2004 the Company announced its plan to sell, close or otherwise
dispose of its operations in the New Orleans, Louisiana market, which consisted
of seven operating stores and three non-operating properties. Results of
operations for those stores and properties have been reclassified and presented
as discontinued operations for the 13 and 39 week periods ended October 28,
2004 and October 30, 2003. As of October 28, 2004, the Company had disposed of
four properties, resulting in six properties with a value of $15 classified as
Assets Held for Sale in the Condensed Consolidated Balance Sheet. In 2002 the Company announced its plan to sell, close or otherwise dispose of
its operations in four underperforming markets: Memphis, Tennessee; Nashville,
Tennessee; Houston, Texas; and San Antonio, Texas. This involved the sale or
closure of 95 stores and two distribution centers. As of October 28, 2004, the
Company had disposed of 78 properties, resulting in 17 properties with a value
of $4 classified as Assets Held for Sale in the Condensed Consolidated Balance
Sheet. Discontinued operations stores generated sales of $15 and $80 for the 13 week
periods ended October 28, 2004 and October 30, 2003, respectively, and $154 and
$245 for the 39 week periods ended October 28, 2004 and October 30, 2003,
respectively. The income from discontinued operations of $3 for the 13 week
period ended October 28, 2004 consisted of income from operations of $4, a
write down of fixed assets and lease settlements of $3, gain on disposal of $3
and an income tax expense of $1. The loss from discontinued operations of $39
for the 39 week period ended October 28, 2004 consisted of a loss from
operations of $7, a write down of fixed assets and lease settlements of $63,
gain on disposal of $8 and an income tax benefit of $23. Restructuring Activities In 2001 the Company committed to a plan to restructure its operations by 1)
closing 165 underperforming stores, 2) closing four division offices, 3)
centralizing processing functions to its corporate offices, and 4) reducing
overall store support center headcount. As of October 28, 2004, the Company
had disposed of 119 properties, resulting in 46 properties with a value of $7
classified as Assets Held for Sale in the Condensed Consolidated Balance Sheet. 11




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##### Table of Contents



4. DISCONTINUED OPERATIONS, RESTRUCTURING ACTIVITIES AND CLOSED STORES  (CONT.) The following table summarizes the accrual activity for future lease
obligations related to discontinued operations, restructuring activities and
closed stores: Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJuly 29,
    
    
    
    
    
    
    
    
    
    
    
    
    
    October 28,2004
    
    Additions
    
    Payments
    
    Adjustments
    
    20042004 Discontinued Operations
    
    $
    7
    
    
    $
    1
    
    
    $
    
    
    
    $
    1
    
    
    $
    92002 Discontinued Operations
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    62001 Restructuring Activities
    
    
    18
    
    
    
    
    
    
    
    (1
    )
    
    
    (4
    )
    
    
    13Closed Stores
    
    
    25
    
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    22$
    56
    
    
    $
    1
    
    
    $
    (3
    )
    
    $
    (4
    )
    
    $
    50
 Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 29,
    
    
    
    
    
    
    
    
    
    
    
    
    
    October 28,2004
    
    Additions
    
    Payments
    
    Adjustments
    
    20042004 Discontinued Operations
    
    $
    
    
    
    $
    8
    
    
    $
    
    
    
    $
    1
    
    
    $
    92002 Discontinued Operations
    
    
    8
    
    
    
    
    
    
    
    (3
    )
    
    
    1
    
    
    
    62001 Restructuring Activities
    
    
    19
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )
    
    
    13Closed Stores
    
    
    20
    
    
    
    6
    
    
    
    (5
    )
    
    
    1
    
    
    
    22$
    47
    
    
    $
    14
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    50
 NOTE 5  INTANGIBLES The carrying amount of intangibles was as follows: October 28,
    
    January 29,2004
    
    2004Amortizing:Favorable acquired operating leases
    
    $
    536
    
    
    $
    221Customer lists, loyalty cards and
other contracts
    
    
    69
    
    
    
    56605
    
    
    
    277Accumulated amortization
    
    
    (166
    )
    
    
    (186
    )439
    
    
    
    91Non-Amortizing:Trade names
    
    
    420
    
    
    
    Liquor licenses
    
    
    40
    
    
    
    39460
    
    
    
    39$
    899
    
    
    $
    130
 Amortizing intangible assets have remaining useful lives from 2 to 38 years.
Projected amortization expense for existing intangible assets is $38, $38, $32,
$32 and $31 for 2004, 2005, 2006, 2007 and 2008, respectively. 12




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NOTE 6  EMPLOYEE BENEFIT PLANS The following represents the components of net periodic pension and
postretirement benefit costs in accordance with SFAS
No. 132(R) (see Note 2 
New and Recently Adopted Accounting Standards to the Condensed Consolidated
Financial Statements): Pension Benefits
    
    Other Benefits13 weeks ended
    
    13 weeks endedOctober 28,
    
    October 30,
    
    October 28,
    
    October 30,2004
    
    2003
    
    2004
    
    2003Service cost  benefits
earned during the period
    
    $
    8
    
    
    $
    3
    
    
    $
    
    
    
    $
    1Interest cost on projected
benefit obligations
    
    
    15
    
    
    
    10
    
    
    
    
    
    
    
    1Expected return on assets
    
    
    (15
    )
    
    
    (8
    )
    
    
    
    
    
    
    Amortization of prior
service cost (credit)
    
    
    (2
    )
    
    
    (2
    )
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit expense
    
    $
    10
    
    
    $
    9
    
    
    $
    
    
    
    $
    2
 Pension Benefits
    
    Other Benefits39 Weeks ended
    
    39 weeks endedOctober 28,
    
    October 30,
    
    October 28,
    
    October 30,2004
    
    2003
    
    2004
    
    2003Service cost  benefits
earned during the period
    
    $
    19
    
    
    $
    10
    
    
    $
    
    
    
    $
    2Interest cost on projected
benefit obligations
    
    
    41
    
    
    
    30
    
    
    
    1
    
    
    
    3Expected return on assets
    
    
    (41
    )
    
    
    (24
    )
    
    
    
    
    
    
    Amortization of prior
service cost (credit)
    
    
    (5
    )
    
    
    (5
    )
    
    
    
    
    
    
    (1
    )Recognized net actuarial loss
    
    
    13
    
    
    
    17
    
    
    
    
    
    
    
    Curtailment gain
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    Net periodic benefit expense
    
    $
    27
    
    
    $
    21
    
    
    $
    1
    
    
    $
    4
 In April 2004 the President of the United States signed new pension relief
legislation that allows companies to use a corporate bond index rate specified
by the U.S. Treasury Department for purposes of calculating required minimum
contributions. Under the new legislation, the Companys estimated required
minimum contributions for 2004 remained unchanged from January 29, 2004.
During the third quarter of 2004, the Company funded $85 to its defined benefit
plans, including benefit plans acquired through the Shaws acquisition. NOTE 7  INDEBTEDNESS Revolving Credit Facilities At October 28, 2004, the Company had three revolving credit facilities totaling
$1,400. The first agreement, a 364-Day revolving credit facility with total
availability of $400, will expire in June 2005. The second agreement, a
five-year facility for $900, will expire in June 2009. The third agreement, a
five-year facility for $100, will expire in July 2009. The 364-Day credit
agreement contains an option which would allow the Company, upon due notice, to
convert any outstanding amount at the expiration date to a term loan. The
Companys commercial paper program is backed by these credit facilities. All
of the agreements contain two financial covenants: 1) a minimum fixed charge
coverage ratio and 2) a maximum consolidated leverage ratio, each as defined in
the credit facilities. Under these facilities, the fixed charge coverage ratio
shall not be less than 2.5 to 1 through April 30, 2005, 2.6 to 1
through April 30, 2006 and 2.7 to 1 thereafter and the consolidated leverage ratio shall not
exceed 4.5 to 1 through April 30, 2006, 4.25 to 1 through April 30, 2007 and
4.0 to 1 thereafter. As of October 28, 2004, the Company was in compliance
with these requirements. The Company had $621 in commercial paper borrowings
outstanding at October 28, 2004, and no outstanding commercial paper borrowings
outstanding at January 29, 2004. 13




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##### Table of Contents



NOTE 7  INDEBTEDNESS  (CONT.) Mandatory Convertible Security Offering In May 2004 the Company completed a public offering of 40,000,000 of 7.25%
mandatory convertible securities (Corporate Units), yielding net proceeds of
$971. In June 2004 the underwriters purchased an additional 6,000,000
Corporate Units pursuant to an overallotment option, yielding net proceeds of
$146. Each Corporate Unit consists of a purchase contract and, initially, a
2.5% ownership interest in one of the Companys senior notes with a principal
amount of one thousand dollars, which corresponds to a twenty-five dollar
principal amount of the Companys senior notes. The ownership interest in the
senior notes is initially pledged to secure the Corporate Unit holders
obligation to purchase Company common stock under the related purchase
contract. The senior notes are scheduled to mature in February 2007 (subject
to the remarketing described below) and bear interest at a rate of 3.75% per
year. The purchase contracts yield 3.5% per year on the stated amount of
twenty-five dollars. Each purchase contract obligates the holder to purchase, and the Company to
sell, at a purchase price of twenty-five dollars in cash, shares of the
Companys common stock on or before May 16, 2007 (the Purchase Contract
Settlement Date). Generally, the number of shares each holder of the
Corporate Units is obligated to purchase depends on the average closing price
per share of Companys common stock over a 20-day trading period ending on the
third trading day immediately preceding the Purchase Contract Settlement Date
(the Trading Period), subject to anti-dilution adjustments. If the average
closing price for the Trading Period is equal to or greater than $28.82 per
share, the settlement rate will be 0.8675 shares of common stock. If the
average closing price for the Trading Period is less than $28.82 per share but
greater than $23.06 per share, the settlement rate is equal to twenty-five
dollars divided by the average closing price of the Companys common stock for
the Trading Period. If the average closing for the Trading Period price is
less than or equal to $23.06 per share, the settlement rate will be 1.0841
shares of common stock. The holders of Corporate Units have the option to
settle their obligations under the purchase contracts at any time on or prior
to the fifth business day immediately preceding the Purchase Contract
Settlement Date. Prior to the Purchase Contract Settlement Date, the senior
notes will be remarketed. If the remarketing is successful, the interest rate
on the senior notes will change to a rate selected by the remarketing agent,
and the maturity of the senior notes will be extended to a date selected by the
Company that is either two or three years from the date such interest rate is
changed. If the remarketing of the senior notes is not successful, the
maturity and interest rate of the senior notes will not change and holders of
the Corporate Units will have the option of putting their senior notes to the
Company to satisfy their obligations under the purchase contracts. The purchase contracts are forward transactions in the Companys common stock.
Upon issuance, a liability for the present value of the purchase contract
adjustment payments of $114 was recorded as a reduction (charge) to
stockholders equity, with an offsetting increase (credit) to other long-term
liabilities and current liabilities. Subsequent contract adjustment payments
will reduce this liability. Upon settlement of each purchase contract, the
Company will receive the stated amount of twenty-five dollars on the purchase
contract and will issue the requisite number of shares of common stock. The
stated amount received will be recorded as an increase (credit) to
stockholders equity. Before the issuance of common stock upon settlement of the purchase contracts,
the Corporate Units will be reflected in diluted earnings per share
calculations using the treasury stock method as defined by SFAS No. 128,
Earnings Per Share. Under this method, the number of shares of common stock
used in calculating diluted earnings per share (based on the settlement formula
applied at the end of the reporting period) is deemed to be increased by the
excess, if any, of the number of shares that would be issued upon settlement of
the purchase contracts less the number of shares that could be purchased by the
Company in the market at the average market price during the period using the
proceeds to be received upon settlement. Therefore, dilution will occur for
periods when the average market price of the Companys common stock for the
reporting period is above $28.82, and will potentially occur when the average
price of the Companys common stock for the 20-day trading period preceding the
end of the reporting period is lower than the average price of the Companys
common stock for the full reporting period. Dilution in the quarter ended
October 28, 2004 was not material. Both the FASB and the EITF continue to study the accounting for financial
instruments and derivative instruments, including instruments such as the
Corporate Units. It is possible that the Companys accounting for the Corporate
Units could be affected by new accounting rules that might be issued by these
groups. Accordingly, there can be no assurance that the method in which the
Corporate Units are reflected in the Companys diluted earnings per share will
not change in the future if accounting rules or interpretations evolve. 14




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NOTE 8  CONTINGENCIES The Company is subject to various lawsuits, claims and other legal matters that
arise in the ordinary course of conducting business. In March 2000 a class action complaint was filed against Albertsons as well as
American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc.
and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Gardner, et al. v.
Albertsons, Inc., et al.) by bonus-eligible managers seeking recovery of
additional bonus compensation based upon plaintiffs allegation that the
calculation of profits on which their bonuses were based improperly included
expenses for workers compensation costs, cash shortages, premises liability
and shrink losses in violation of California law. In August 2001 a class
action complaint with very similar claims, also involving bonus-eligible
managers, was filed against Albertsons as well as Lucky Stores, Inc. and
American Stores Company, wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Petersen, et al. v.
Lucky Stores, Inc., et al.). In June 2002 the cases were consolidated
(Gardner/Petersen case) and in August 2002 a class action with respect to the
consolidated case was certified by the court. On September 17, 2004,
Albertsons and the plaintiffs entered into a definitive agreement to settle the
consolidated Gardner/Petersen case. The settlement agreement remains subject
to the final approval of the court, which the Company expects to receive in the
fourth quarter of fiscal 2004. Based on the information presently available to
the Company, management does not expect that the payments under this settlement
will have a material adverse effect on the Companys financial condition,
results of operations or cash flows. In September 2000 an agreement was reached and court approval granted to settle
eight purported class and/or collective actions which were consolidated in the
United States District Court in Boise, Idaho and which raised various issues
including off-the-clock work allegations and allegations regarding certain
salaried grocery managers exempt status. Under the settlement agreement,
current and former employees who met eligibility criteria have been allowed to
present their off-the-clock work claims to a settlement administrator.
Additionally, current and former grocery managers employed in the State of
California have been allowed to present their exempt status claims to a
settlement administrator. The Company mailed notices of the settlement and
claims forms to approximately 70,500 associates and former associates.
Approximately 6,000 claim forms had been returned, of which approximately 5,000
were deemed by the settlement administrator to be incapable of valuation,
presumed untimely, or both. The claims administrator was able to assign a value
to approximately 1,000 claims, which amount to a total of approximately $14,
although the value of many of those claims is still subject to challenge by the
Company. During the quarter ended July 29, 2004, there was a supplemental
mailing and in-store posting directed toward a narrow subset of current and
former associates. The Company has been advised by the settlement
administrator that approximately 200 of these individuals submitted the
necessary claims documents. Distinct from this supplemental claims process, a
second claim process was ordered by the Court, but the Company is still waiting
for final instructions from the Court. The Company is presently unable to
determine the number of individuals whose claim forms will be deemed valid or
the amounts that it may ultimately be required to pay with respect to such
claims. Based on the information presently available to it, management does not
expect that the satisfaction of valid claims submitted pursuant to the
settlement will have a material adverse effect on the Companys financial
condition, results of operations or cash flows. The Company has outstanding workers compensation and general liability claims
with a former insurance carrier that is experiencing financial difficulties.
If the insurer fails to pay any covered claims that exceed deductible limits,
creating excess claims, the Company may have the ability to present these
excess claims to guarantee funds in certain states in which the claims
originated. As of October 28, 2004, the insurance carrier continues to pay the
Companys claims. The Company currently cannot estimate the amount of the
covered claims in excess of deductible limits which will not be paid by the
insurance carrier or otherwise. Although the Company currently believes that
it may recover at least some of these excess claim amounts, the unrecoverable
amount could be material. The Company is in discussions with the carrier
regarding transfer of primary claim responsibility back to the Company in
exchange for a payment, which payment may be less than the projected claim
liability. The Company is presently unable to determine the outcome of these
discussions. The Company is also involved in routine legal proceedings incidental to its
operations. Some of these routine proceedings involve class allegations, many
of which are ultimately dismissed. Management does not expect that the
ultimate resolution of its routine legal proceedings will have a material
adverse effect on the Companys financial condition, results of operations or
cash flows. The statements above reflect managements current expectations based on the
information presently available to the Company. However, predicting the
outcomes of claims and litigation, especially claims and litigation involving
class allegations, and estimating related costs and exposures involve
substantial uncertainties that could cause actual outcomes, costs and exposures
to vary materially from current expectations. In addition, the Company
regularly monitors its exposure to the loss contingencies associated with these
matters and may from time to time change its predictions with respect to
outcomes and its estimates with respect to related costs and exposures. It is
possible that material differences in actual outcomes, costs and exposures
relative to current predictions and estimates, or material changes in such
predictions or estimates, could have a material adverse effect on the Companys
financial condition, results of operations or cash flows. 15




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##### Table of Contents



NOTE 9  INCOME TAXES The Companys effective tax rate from continuing operations for the 13 week
period ended October 28, 2004 was 31.7% as compared to 38.4% for the 13 week
period ended October 30, 2003. The Companys effective tax rate from
continuing operations for the 39 week period ended October 28, 2004 was 35.5%
as compared to 38.4% for the 39 week period ended October 30, 2003. These
decreases in the 13 and 39 week periods were due primarily to a tax benefit
arising from the resolution of prior year tax issues with the Internal Revenue
Service in the third quarter of 2004 and the result of the Companys
implementation of tax saving initiatives that resulted in lower estimated
federal and state income tax. NOTE 10  COMPUTATION OF EARNINGS PER SHARE 13 weeks endedOctober 28, 2004
    
    October 30, 2003Basic
    
    Diluted
    
    Basic
    
    DilutedEarnings from:Continuing operations
    
    $
    107
    
    
    $
    107
    
    
    $
    91
    
    
    $
    91Discontinued operations
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    1Net earnings
    
    $
    110
    
    
    $
    110
    
    
    $
    92
    
    
    $
    92Weighted average common shares outstanding
    
    
    369
    
    
    
    369
    
    
    
    368
    
    
    
    368Potential common share equivalents
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    1Weighted average shares outstanding
    
    
    
    
    
    
    373
    
    
    
    
    
    
    
    369Earnings per common share and common
share equivalents:Continuing operations
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.25
    
    
    $
    0.25Discontinued operations
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    Net earnings
    
    $
    0.30
    
    
    $
    0.29
    
    
    $
    0.25
    
    
    $
    0.25Calculation of potential common share
equivalents:Potential common shares assumed issued from
exercise of the Corporate Units
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    Options to purchase potential common shares
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    3Potential common shares assumed purchased
with potential proceeds
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    (2
    )Potential common share equivalents
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    1Calculation of potential common shares
assumed purchased with potential proceeds:Potential proceeds from assumed
exercise of
the Corporate Units
    
    
    
    
    
    $
    1,150
    
    
    
    
    
    
$
Potential proceeds from exercise of
options
to purchase common shares
    
    
    
    
    
    
    393
    
    
    
    
    
    
    
    43Total assumed proceeds from exercise
    
    
    
    
    
    $
    1,543
    
    
    
    
    
    
    $
    43Common stock price used under treasury
stock method
    
    
    
    
    
    $
    24.18
    
    
    
    
    
    
    $
    20.54Potential common shares assumed
purchased with potential proceeds
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    2
 16




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##### Table of Contents



NOTE 10  COMPUTATION OF EARNINGS PER SHARE  (CONT.) 39 weeks endedOctober 28, 2004
    
    October 30, 2003Basic
    
    Diluted
    
    Basic
    
    DilutedEarnings (loss) from:Continuing operations
    
    $
    288
    
    
    $
    288
    
    
    $
    427
    
    
    $
    427Discontinued operations
    
    
    (39
    )
    
    
    (39
    )
    
    
    (1
    )
    
    
    (1
    )Net earnings
    
    $
    249
    
    
    $
    249
    
    
    $
    426
    
    
    $
    426Weighted average common shares outstanding
    
    
    369
    
    
    
    369
    
    
    
    368
    
    
    
    368Potential common share equivalents
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    1Weighted average shares outstanding
    
    
    
    
    
    
    372
    
    
    
    
    
    
    
    369Earnings (loss) per common share and common
share equivalents:Continuing operations
    
    $
    0.78
    
    
    $
    0.78
    
    
    $
    1.16
    
    
    $
    1.16Discontinued operations
    
    
    (0.11
    )
    
    
    (0.11
    )
    
    
    
    
    
    
    Net earnings
    
    $
    0.67
    
    
    $
    0.67
    
    
    $
    1.16
    
    
    $
    1.16Calculation of potential common share
equivalents:Potential common shares assumed issued from
exercise of the Corporate Units
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    Options to purchase potential common shares
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    3Potential common shares assumed purchased
with potential proceeds
    
    
    
    
    
    
    (33
    )
    
    
    
    
    
    
    (2
    )Potential common share equivalents
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    1Calculation of potential common sharesAssumed purchased with potential proceeds:Potential proceeds from assumed
exercise of
the Corporate Units
    
    
    
    
    
    $
    383
    
    
    
    
    
    
    $
    Potential proceeds from exercise of
options
to purchase common shares
    
    
    
    
    
    
    411
    
    
    
    
    
    
    
    48Total assumed proceeds from exercise
    
    
    
    
    
    $
    794
    
    
    
    
    
    
    $
    48Common stock price used under treasury
stock method
    
    
    
    
    
    $
    23.89
    
    
    
    
    
    
    $
    19.90Potential common shares assumed
purchased with potential proceeds
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    2
 Outstanding options excluded for the 13 week periods ended October 28, 2004 and
October 30, 2003, because the option price exceeded the average market price
during the period, amounted to 16.7 million shares and 29.2 million shares,
respectively. Outstanding options excluded for the 39 week periods ended
October 28, 2004 and October 30, 2003, because the option price exceeded the
average market price during the period, amounted to 17.3 million shares and
29.7 million shares, respectively. 17




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Albertsons, Inc.
Boise, Idaho We have reviewed the accompanying condensed consolidated balance sheet of
Albertsons, Inc. and subsidiaries (Albertsons) as of October 28, 2004, and
the related condensed consolidated earnings statements and cash flow statements
for the thirteen and thirty-nine week periods ended October 28, 2004 and
October 30, 2003. These interim financial statements are the responsibility of
Albertsons management. We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States) (PCAOB). A review of interim
financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with standards of the PCAOB, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America. We have previously audited, in accordance with standards of the PCAOB, the
consolidated balance sheet of Albertsons as of January 29, 2004, and the
related consolidated statements of earnings, stockholders equity, and cash
flow for the year then ended (not presented herein); and in our report dated
March 25, 2004, we expressed an unqualified opinion and included explanatory
paragraphs related to changes in the methods of accounting for goodwill, closed
stores and vendor funds, and to the agreement to purchase all of the
outstanding capital stock of JS USA Holdings Inc. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of January 29, 2004, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived. /S/ DELOITTE & TOUCHE LLP  Boise, Idaho
December 2, 2004 18




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ALBERTSONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in millions, except per share data) 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Overview Results of operations for the 13 and 39 week periods ended October 28, 2004
were favorably impacted when compared to the corresponding periods in the prior
year due to the acquisition of J Sainsbury plcs U.S. retail grocery store
business (Shaws) on April 30, 2004 and, to a lesser extent, the acquisition
of New Bristol Farms, Inc. (Bristol Farms) on September 21, 2004. Sales for
the 13 and 39 week periods ended October 28, 2004 increased due to the addition
of 217 stores acquired through these transactions. Results of operations for
the 13 and 39 week periods ended October 28, 2004 were also favorably impacted
by reduced labor expenses in the stores affected by the labor dispute in
southern California (Labor Dispute) that occurred from October 19, 2003
through February 28, 2004. Benefits from certain multi-employer bargaining
agreements (discussed below) also favorably impacted the current 39 week
period. Results of operations for the 13 and 39 week periods ended October 28, 2004
were unfavorably impacted by the continuing effect of the Labor Dispute.
Although the Labor Dispute ended with the ratification of new collective
bargaining agreements on February 28, 2004, the impact on operating results
extended into the third quarter of 2004 and continues to impact operating
results. The Company incurred additional costs during the 39 week period ended
October 28, 2004 as part of the Labor Dispute settlement. The Company
continued to make significant investments during the 13 and 39 week periods in
the form of pricing, promotions and advertising to win back and acquire new
customers in southern California. Results of operations for the 13 and 39 week periods ended October 28, 2004
were also unfavorably impacted by the hurricanes that struck Florida during the
Companys third quarter of 2004. The Company has a combination of self-insured
and purchased insurance coverage for natural disasters and incurred
approximately $23 in unplanned costs on a pre-tax basis. Costs incurred
primarily related to inventory spoilage, building and equipment repair costs,
employee and community relief efforts and increased payroll. These costs were
partially offset by a favorable pre-tax earnings impact estimated at $6 as
residents purchased merchandise in advance of and shortly after the hurricanes.
The Company expects that it will incur a modest amount of additional costs
related to these hurricanes in fourth quarter of 2004. Shaws Acquisition On April 30, 2004, the Company acquired all of the outstanding capital stock of
Shaws. The operations acquired consist of 206 grocery stores in the New
England area operated under the banners of Shaws and Star Market. The Company
acquired Shaws for a variety of reasons, including attractive market share
positions and real estate, the opportunity to realize numerous synergies and
strong historical financial performance. The aggregate purchase price was $2,578, which included $2,134 of cash, $441 of
assumed debt and $3 of transaction costs. The Company used a combination of
cash-on-hand and the proceeds of the issuance of $1,603 of commercial paper to
finance the acquisition. The Company used the proceeds from a subsequent
mandatory convertible security offering (see Note 7  Indebtedness to the
Condensed Consolidated Financial Statements) to repay $1,117 of such commercial
paper. The outstanding commercial paper continues to be backed by the
Companys existing credit facilities. Bristol Farms Acquisition On September 21, 2004, the Company acquired Bristol Farms for $137 in cash.
Bristol Farms operates 11 gourmet retail stores in southern California. Southern California Labor Dispute As previously disclosed, with the decision of the Company, The Kroger Co. and
Safeway Inc. (the Retailers) to engage in multi-employer bargaining with the
United Food and Commercial Workers (UFCW) in connection with the Labor
Dispute, the Retailers entered into agreements (Labor Dispute Agreements)
which, among other things, were designed to prevent the union from placing
disproportionate pressure on one or more Retailer. The Labor Dispute
Agreements provided for payments from any of the Retailers who gained from such
disproportionate pressure to any of the Retailers who suffered from such
disproportionate pressure. Amounts earned by the Company under the terms of
the Labor Dispute Agreements totaled $17, $43 and $3 in the 13 week periods
ended April 29, 2004, January 29, 2004 and October 30, 2003, respectively.
Amounts earned were recorded as a reduction to selling, general and
administrative costs in each of the respective periods and all amounts were
collected during the 13 week period ended July 29, 2004. 19




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Results of Operations 13 Week Period Ended
October 28, 2004 Sales were $9,995 and $8,715 for the 13 week periods ended October 28, 2004 and
October 30, 2003, respectively. The increase in sales was primarily due to
sales from the 206 stores acquired in the Shaws transaction on April 30, 2004
and the 11 stores acquired from Bristol Farms on September 21, 2004. In
addition, the Company experienced increased sales as compared to the prior year
in its Southern California Division as a result of the Labor Disputes negative
impact on sales in the third quarter of 2003. Management estimates that
overall inflation in the cost of the products the Company sells was
approximately 1.1% in the 12 months ended October 28, 2004. Identical store sales increased 0.1% for the 13 week period ended October 28,
2004 compared to the 13 week period ended October 30, 2003. Identical stores
are defined as stores that have been in operation for both full fiscal periods.
Comparable store sales, which use the same store base as the identical store
sales computation but includes sales at replacement stores, increased 0.3% for
the 13 week period ended October 28, 2004. Increases in both identical and
comparable store sales for the 13 week period ended October 28, 2004 were due
to the Labor Disputes negative impact on sales during the prior year.
Excluding the food stores in the Companys Southern California Division that
were impacted by the Labor Dispute, identical and comparable store sales were
slightly negative for the 13 week period ended October 28, 2004. The 206
acquired Shaws stores and the 11 acquired Bristol Farms stores are not
included in the Companys identical or comparable store sales computations, as
defined above, and will not be included until the second and fourth quarters of
2005, respectively. During the 13 week period ended October 28, 2004, the Company acquired 11
conventional stores as part of the Bristol Farms acquisition. The Company,
through its divisions and subsidiaries, also opened four combination food and
drug stores, five stand-alone drugstores, and two fuel centers, while closing
12 combination food and drug stores, one conventional store, one warehouse
store, 15 stand-alone drugstores and four fuel centers. Gross profit, as a percentage of sales, for the 13 week period ended October
28, 2004 decreased to 27.9% from 28.7% for the 13 week period ended October 30,
2003. This was a result of continued investments in pricing, promotion and
advertising in key markets, especially in southern California, to drive sales
growth and market share. These investments were partially offset by savings
generated from strategic sourcing initiatives, increased pharmacy gross margins
as a result of benefits from a supply contract and increased Company-sourced
generic drugs and increased sales growth in Our Own Brands (formerly called
private label). Selling, general and administrative expenses, as a percent of sales, decreased
to 25.2% for the 13 week period ended October 28, 2004, as compared to 25.8%
for the 13 week period ended October 30, 2003. This decrease was primarily
attributable to reductions in employee benefit and compensation costs, gains
from the disposal of property, increased sales leverage as a result of the
Shaws acquisition and lower workers compensation costs. Declines in employee
benefit costs were the result of a reduction in Company-sponsored health and
welfare costs due to the restructuring of the Companys benefit plans in June
2004 allowing employees the ability to customize their benefit packages.
Declines in workers compensation costs over the prior year were a result of
Company managed initiatives to lower accident frequencies. These decreases
were partially offset by increased legal and professional costs primarily due
to increased costs for pending and settled litigation, increased consulting
costs related to improvements to the Companys information technology
infrastructure and unplanned and self-insured hurricane costs. Restructuring credits for the 13 weeks ended October 28, 2004 were $10 as
compared to a charge of $3 for the 13 weeks ended October 30, 2003. This
increase was a result of gains recognized on the disposal of properties
associated with the Companys 2001 restructuring activities as compared to
losses on property disposed in the prior year. Interest expense, net increased to $125 for the 13 week period ended October
28, 2004 as compared to $99 for the 13 week period ended October 30, 2003.
This increase is due to interest on the issuance of the $1,150 mandatory
convertible security (see Note 7  Indebtedness to the Condensed Consolidated
Financial Statements) and additional commercial paper borrowings used to
finance the Shaws acquisition. The Companys effective tax rate from continuing operations for the 13 week
period ended October 28, 2004 was 31.7% as compared to 38.4% for the 13 week
period ended October 30, 2003. This decrease was due primarily to a tax
benefit arising from the resolution of prior year tax issues with the Internal
Revenue Service in the third quarter of 2004, which benefited the tax
rate by 580 basis points, and the result of the Companys
implementation of tax saving initiatives that resulted in lower estimated
federal and state income tax. 20




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Earnings from continuing operations were $107, or $0.29 per diluted share, for
the 13 week period ended October 28, 2004 compared to $91, or $0.25 per diluted
share, for the 13 week period ended October 30, 2003. This increase was
primarily due to inclusion of Shaws operating results in the Companys third
quarter of 2004, gains and restructuring credits on the disposal of property,
reductions in employee benefit and compensation costs, and a lower effective
tax rate. The impact of these factors was partially offset by reduced margins
as a result of continued investments in pricing, promotion and advertising,
self-insured costs associated with the hurricanes in Florida, increased legal
costs for pending and settled litigation and increased consulting costs due to
information technology infrastructure improvements. 39 Week Period Ended
October 28, 2004 Results of operations for the 39 week period ended October 28, 2004 were
favorably impacted by the Shaws and Bristol Farms acquisitions and unfavorably
impacted by the continued effects of the Labor Dispute. Sales for the 39 week
period ended October 28, 2004 increased due to the addition of
206 stores
acquired from Shaws and 11 stores acquired from Bristol Farms on April 30,
2004 and September 21, 2004, respectively. However, the residual effects of
the recent Labor Dispute resulted in decreased sales in the Companys southern
California combination food and drug and conventional stores as well as
decreased gross margin as a result of lower volume, increased investment in
pricing, promotion and advertising, increased inventory shrink, sales mix
changes and increased distribution costs. The 39 week period ended October 28,
2004 was also negatively impacted by additional costs incurred in connection
with the ratification of new collective bargaining agreements in southern
California. These costs included funding a one-time contribution to a union
health and welfare fund of $36 and strike ratification bonus payments of $10.
These amounts were charged to earnings in the 13 week period ended April 29,
2004. Sales were $28,819 and $26,541 for the 39 week periods ended October 28, 2004
and October 30, 2003, respectively. The increase in sales was due to the
Shaws acquisition, partially offset by decreased sales in southern California
as a result of the Labor Dispute, which continued into the first quarter of
fiscal 2004 but impacted only the first 19 days of the 39 week period ended
October 30, 2003. Management estimates that overall inflation in the cost of
the products the Company sells was approximately 1.1% in the 12 months ended
October 28, 2004. Identical store sales decreased 2.0% for the 39 week period ended October 28,
2004 compared to the 39 week period ended October 30, 2003. Comparable store
sales decreased 1.7%. The decline in both identical and comparable store sales
was primarily due to the impact of the Labor Dispute as described above.
Excluding the food stores in the Companys Southern California Division that
were impacted by the Labor Dispute for the 39 weeks ended October 28, 2004 and
October 30, 2003, identical store sales were slightly negative and comparable
store sales were flat for the year. The Company expects its identical and
comparable store sales to benefit in the fourth quarter of 2004 from the
absence of the Labor Dispute in the current year period. The 206 acquired
Shaws stores and the 11 acquired Bristol Farms stores are not included in the
year-to-date identical or comparable store sales computations and will not be
included in the annual computation until fiscal year 2006. During the 39 week period ended October 28, 2004, the Company acquired 172
combination food and drug stores, 44 conventional stores and one warehouse
store as part of the Shaws and Bristol Farms acquisitions. The Company,
through its divisions and subsidiaries, also opened 36 combination food and
drug stores, 13 stand-alone drugstores, one conventional store and 12 fuel
centers, while closing 28 combination food and drug stores, 11 conventional
stores, 23 stand-alone drug stores, three warehouse stores and six fuel
centers. Gross profit, as a percentage of sales, for the 39 week period ended October
28, 2004 decreased to 28.1% from 28.9% for the 39 week period ended October 30,
2003. This decline was a result of decreased sales leverage in the 39 week
period ended October 28, 2004 as a result of the Labor Dispute and planned
investments in pricing, promotion and advertising to drive sales growth and
market share. The factors causing a decline in gross profit, as a percentage
of sales, were partially offset by savings generated from strategic sourcing
initiatives, increased pharmacy gross margins as a result of benefits from a
supply contract and increased Company-sourced generic drugs and increased sales
growth in Our Own Brands (formerly called private label). Selling, general and administrative expenses, as a percent of sales, increased
to 25.4% for the 39 week period ended October 28, 2004, as compared to 25.1%
for the 39 week period ended October 30, 2003. This increase was primarily
attributable to higher legal expenses associated with pending and settled
litigation; increased consulting fees due to information technology
infrastructure improvements; higher depreciation costs associated with
continued investment in infrastructure, particularly in information technology;
unplanned and self-insured hurricane costs; increased credit and debit card
transaction fees and increased employee benefits costs. The increase in
employee benefit costs were a result of a one-time contribution to a union
health and welfare fund of $36 and strike ratification bonus payments of $10
paid in the first quarter of 2004 under the terms of the new collective
bargaining agreements in southern California and unanticipated payments to two
northern California UFCW multi-employer health and welfare plans for funding
deficits paid in the second quarter of 2004. These costs were partially offset
by lower Company-sponsored health and welfare costs due to the restructuring of
the Companys benefit plans in June 2004 and amounts earned under the Labor
Dispute Agreements that were recognized in the first quarter of 2004. Selling,
general and administrative expenses, as a percent of sales, were benefited from
sales leverage from the acquisition of Shaws. 21




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Restructuring credits during the 39 week period ended October 28, 2004 and
October 30, 2003 were $11 and $11, respectively. These amounts are primarily
related to gains on disposition of property in both 2004 and 2003 and an
adjustment for a pension curtailment in 2003 related to the Companys 2001
restructuring activities. Interest expense, net increased to $360 for the 39 week period ended October
28, 2004 as compared to $307 for the 39 week period ended October 30, 2003.
This increase is due to interest on the issuance of the $1,150 mandatory
convertible security (see Note 7  Indebtedness to the Condensed Consolidated
Financial Statements) and additional commercial paper borrowings used to
finance the Shaws acquisition. The Companys effective tax rate from continuing operations for the 39 week
period ended October 28, 2004 was 35.5% as compared to 38.4% for the 39 week
period ended October 30, 2003. This decrease was due primarily to a tax
benefit arising from the resolution of prior year tax issues with the Internal
Revenue Service in the third quarter of 2004, which benefited the tax
rate by 200 basis points, and the result of the Companys
implementation of tax saving initiatives that resulted in lower estimated
federal and state income tax. Earnings from continuing operations were $288 for the 39 week period ended
October 28, 2004 compared to $427 for the 39 week period ended October 30,
2003. This decrease was primarily due to lower identical store sales and a
decrease in gross margin, both a result of the Labor Dispute, higher
depreciation, unplanned and self-insured costs associated with the hurricanes
in Florida during the third quarter of 2004, increased employee benefits costs
primarily as the result of the one-time contribution to the union health and
welfare fund of $36 and strike ratification bonus payments, described above,
increased legal costs on pending and settled litigation and increased
consulting fees for information technology infrastructure improvements. Net loss from discontinued operations was $39 for the 39 week period ended
October 28, 2004. This loss resulted from the Companys decision announced in
June 2004 and April 2004 to sell, close or otherwise dispose of 28 operating
stores and three non-operating properties in the Omaha, Nebraska and New
Orleans, Louisiana markets. The loss from discontinued operations of $39 for
the 39 week period ended October 28, 2004 consisted of a loss from operations
of $7, a write down of fixed assets and lease settlements of $63, and a gain on
disposal of $8, net of an income tax benefit of $23. Net earnings were $249, or $0.67 per diluted share, for the 39 week period
ended October 28, 2004, compared to net earnings of $426, or $1.16 per diluted
share, for the 39 week period ended October 30, 2003. This decline was the
result of the decrease in earnings from continuing operations and the loss from
discontinued operations as a result of the Companys decision to exit the New
Orleans and Omaha markets. Critical Accounting Policies The preparation of financial statements requires management to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosure of contingent assets and liabilities. The
accompanying condensed consolidated financial statements are prepared using the
same critical accounting policies discussed in the Companys Annual Report on
Form 10-K for the fiscal year ended January 29, 2004. Liquidity and Capital Resources Net cash provided by operating activities during the 39 week period ended
October 28, 2004 was $1,461, compared to $1,098 for the same period in the
prior year. The increase in cash provided by operations was due primarily to
higher levels of accounts payable from seasonal purchases during the third
quarter of 2004 as compared to lower seasonal purchases as a result of the
Labor Dispute for the same period in the prior year. The increase in cash
provided by operations during the 39 weeks ended October 28, 2004 as compared
to same period in the prior year was also attributable to implementation of
strategic initiatives to lower inventories, collection of amounts earned under
the Labor Dispute Agreements and a reduction in the Companys tax accounts due
to lower earnings and implementation of tax planning initiatives in 2003 and
2004. Net cash used in investing
activities during the 39 week period ended October 28, 2004 increased to $2,830 compared to cash flows used in investing
activities of $729 for the 39 week period ended October 30, 2003. This
increase was primarily the result of the $2,080 paid, net of cash
acquired, to purchase Shaws and $134
paid, net of cash acquired, to purchase Bristol Farms, partially offset by
lower capital expenditures in 2004. The Company is continuing to implement its
2004 capital expenditure plan, which includes outlays for new stores, store
remodels and information technology. The Company expects capital expenditures
for the year to be approximately $1,400 which includes cash capital
expenditures and capital and operating leases. This estimate represents a $200
reduction from prior guidance of $1,600, which included Shaws. This reduction
is primarily attributable to more efficient capital deployment in technology
and store development and a reduction of total capital spending. Net cash provided by financing activities during the 39 week period ended
October 28, 2004 was $1,016 as compared to net cash used in financing
activities of $433 during the 39 week period ended October 30, 2003. The
change was due to the receipt of proceeds from the mandatory convertible
security offering and commercial paper borrowings during the 39 week period
ended October 28, 2004 used to acquire Shaws and Bristol Farms. These sources
of cash were partially offset by cash used for payments on long-term borrowings
during the 39 week period 22




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##### Table of Contents



ended October 28, 2004 and cash used in the 39 week period ended October 30,
2003 for the purchase and retirement of the Companys common stock. The Company utilizes its commercial paper and bank line programs primarily to
supplement cash requirements for seasonal fluctuations in working capital and
to fund its capital expenditure program. Accordingly, commercial paper and
bank line borrowings will fluctuate between reporting periods. At October 28,
2004, the Company had three revolving credit facilities totaling $1,400. The
first agreement, a 364-Day revolving credit facility with total availability of
$400, will expire in June 2005. The second agreement, a five-year facility for
$900, expires in June 2009. The third agreement, a five-year facility for
$100, expires in July 2009. The 364-Day credit agreement contains an option
which would allow the Company, upon due notice, to convert any outstanding
amount at the expiration date to a term loan. The Companys commercial paper
program is backed by these credit facilities. All of the agreements contain
two financial covenants: 1) a minimum fixed charge coverage ratio and 2) a
maximum consolidated leverage ratio, each as defined in the credit facilities.
Under these facilities, the fixed charge coverage ratio shall not be less than
2.5 to 1 through April 30, 2005, 2.6 to 1 through April 30, 2006 and 2.7 to 1
thereafter and the consolidated leverage ratio shall not exceed 4.5 to 1
through April 30, 2006, 4.25 to 1 through April 30, 2007 and 4.0 to 1
thereafter. As of October 28, 2004, the Company was in compliance with these
requirements. The Company had $621 in commercial paper borrowings outstanding
at October 28, 2004, and no outstanding commercial paper borrowings outstanding
at January 29, 2004. The Company filed a shelf registration statement with the Securities and
Exchange Commission, which became effective on February 13, 2001 (2001
Registration Statement), to authorize the issuance of up to $3,000 in debt
securities. The Company intends to use the net proceeds of any securities sold
pursuant to the 2001 Registration Statement for retirement of debt and general
corporate purposes, including the potential purchase of outstanding shares of
the Companys common stock. As of October 28, 2004, $2,400 of debt securities
remain available for issuance under the 2001 Registration Statement; however
there can be no assurance that the Company will be able to issue debt
securities under this registration statement at terms acceptable to the
Company. On May 7, 2004, the Company issued $1,000 of mandatory convertible securities
(see Note 7  Indebtedness to the Condensed Consolidated Financial Statements)
under a 2004 Registration Statement and used the net proceeds of $971 to reduce
a portion of the outstanding commercial paper borrowings incurred in connection
with the Shaws acquisition. On June 2, 2004, the underwriters purchased an
additional $150 of mandatory convertible securities, pursuant to an
overallotment option, yielding net proceeds of $146, which were used to further
reduce outstanding commercial paper borrowings. In the first quarter of 2003, the Company repurchased 5.3 million shares of its
common stock for a total expenditure of $108 at an average price of $20.26 per
share. On December 5, 2003, the Board of Directors reauthorized a program
authorizing management, at its discretion, to purchase and retire up to $500 of
the Companys common stock through December 31, 2004. No shares of common
stock were repurchased during the 39 weeks ended October 28, 2004. The Company
may continue, or from time to time suspend, purchasing shares under its stock
purchase program. The Company has outstanding workers compensation and general liability claims
with a former insurance carrier that is experiencing financial difficulties.
If the insurer fails to pay any covered claims that exceed deductible limits,
creating excess claims, the Company may have the ability to present these
excess claims to guarantee funds in certain states in which the claims
originated. As of October 28, 2004, the insurance carrier continues to pay the
Companys claims. The Company currently cannot estimate the amount of the
covered claims in excess of deductible limits which will not be paid by the
insurance carrier or otherwise. Although the Company currently believes that
it may recover at least some of these excess claim amounts, the unrecoverable
amount could be material. The Company is in discussions with the carrier
regarding transfer of primary claim responsibility back to the Company in
exchange for a payment, which payment may be less than the projected claim
liability. The Company is presently unable to determine the outcome of these
discussions. Contractual Obligations and Guarantees For information on contractual obligations and guarantees, see the Companys
Quarterly Report on Form 10-Q as of July 29, 2004. At October 28, 2004, there
have been no material changes regarding the Companys contractual obligations
outside the ordinary course of business or material changes to guarantees from
the information disclosed in the Companys Quarterly Report on Form 10-Q as of
July 29, 2004. Commercial Commitments The Company had outstanding letters of credit of $126 as of October 28, 2004,
all of which were issued under separate agreements with multiple financial
institutions. These agreements are not associated with the Companys credit
facilities. Of the $126 outstanding at October 28, 2004, $107 were standby
letters of credit covering primarily workers compensation or performance
obligations. The remaining $19 were commercial letters of credit supporting
the Companys merchandise import program. The Company paid issuance fees that
varied, depending on type, up to 0.75% of the outstanding balance of the letter
of credit. 23




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##### Table of Contents



Off-Balance Sheet Arrangements At October 28, 2004, the Company had no significant investments that were
accounted for under the equity method in accordance with accounting principles
generally accepted in the United States. Investments that were accounted for
under the equity method at October 28, 2004, had no liabilities associated with
them that were guaranteed by or that would be considered material to the
Company. Accordingly, the Company does not have any off-balance sheet
arrangements with unconsolidated entities. Related Party Transactions There were no material related party transactions during the 13 or 39 week
periods ended October 28, 2004. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes regarding the Companys market risk
position from the information provided under the caption Quantitative and
Qualitative Disclosures About Market Risk in the Companys Annual Report on
Form 10-K for the fiscal year ended January 29, 2004. 
 Item 4. Controls and Procedures Management of the Company, including the Chief Executive Officer and the Chief
Financial Officer of the Company, have evaluated the effectiveness of the
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934) as of October 28, 2004. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commissions rules and forms. There were no changes in the Companys internal control over financial
reporting that occurred during the Companys most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Companys internal control over financial reporting. 
 PART II. OTHER INFORMATION 
 Cautionary Statement for Purposes of Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 All statements other than statements of historical fact contained in this and
other documents disseminated by the Company, including statements regarding the
Companys expected financial performance, are forward-looking information as
defined in the Private Securities Litigation Reform Act of 1995. In reviewing
such information about the future performance of the Company, it should be kept
in mind that actual results may differ materially from those projected or
suggested in such forward-looking information since predictions regarding
future results of operations and other future events are subject to inherent
uncertainties. These statements may relate to, among other things:
statements of expectation regarding the results of operations for the Companys
fourth quarter of 2004; investing to increase sales; changes in cash flow;
increases in general liability costs, workers compensation costs and employee
benefit costs; attainment of cost reduction goals; impacts of the Labor
Dispute; impacts of the Florida hurricanes; impacts of the completion of the
acquisitions of Shaws and Bristol Farms; achieving sales increases and
increases in comparable and identical sales; opening and remodeling stores; and
the Companys five strategic imperatives. These statements are indicated by
words or phrases such as expects, plans, believes, estimate, and
goal. In reviewing such information about the future performance of the
Company, it should be kept in mind that actual results may differ materially
from those projected or suggested in such forward-looking information. Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in consumer spending; actions taken by new or
existing competitors (including nontraditional competitors), particularly those
intended to improve their market share (such as pricing and promotional
activities); labor negotiations; adverse determinations with respect to
litigation or other claims (including environmental matters); financial
difficulties experienced by third-party insurance providers; employee benefit
costs; the Companys ability to recruit, retain and develop employees; the
Companys ability to develop new stores or complete remodels as rapidly as
planned; the Companys ability to implement new technology successfully;
stability of product costs; the Companys ability to integrate the operations
of and realize synergies from acquired or merged companies, including Shaws;
the Companys ability to execute its restructuring plans; the Companys ability
to achieve its five strategic imperatives; and other factors affecting the
Companys business in or beyond the Companys control. These other factors
include changes in the rate of inflation; changes in state or federal
legislation or regulation; the cost and stability of energy sources; the
continued safety of the products the Company sells; changes in the general
economy; changes in interest rates; and the occurrence of natural disasters. Other factors and assumptions not identified above could also cause the actual
results to differ materially from those projected or suggested in the
forward-looking information. The Company does not undertake to update
forward-looking information contained herein or elsewhere to reflect actual
results, changes in predictions, assumptions, estimates or changes in other
factors affecting such forward-looking information. 24




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Item 1. Legal Proceedings The Company is subject to various lawsuits, claims and other legal matters that
arise in the ordinary course of conducting business. The following significant
matters, each of which was previously reported in the Companys Annual Report
on Form 10-K for the fiscal year ended January 29, 2004, saw developments
during the third quarter of 2004. In March 2000 a class action complaint was filed against Albertsons as well as
American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc.
and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Gardner, et al. v.
Albertsons, Inc., et al.) by bonus-eligible managers seeking recovery of
additional bonus compensation based upon plaintiffs allegation that the
calculation of profits on which their bonuses were based improperly included
expenses for workers compensation costs, cash shortages, premises liability
and shrink losses in violation of California law. In August 2001 a class
action complaint with very similar claims, also involving bonus-eligible
managers, was filed against Albertsons as well as Lucky Stores, Inc. and
American Stores Company, wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Petersen, et al. v.
Lucky Stores, Inc., et al.). In June 2002 the cases were consolidated
(Gardner/Petersen case) and in August 2002 a class action with respect to the
consolidated case was certified by the court. On September 17, 2004 Albertsons
and the plaintiffs entered into a definitive agreement to settle the
consolidated Gardner/Petersen case. The settlement agreement remains subject
to the final approval of the court, which the Company expects to receive in the
fourth quarter of fiscal 2004. Based on the information presently available to
the Company, management does not expect that the payments under this settlement
will have a material adverse effect on the Companys financial condition,
results of operations or cash flows. In September 2000 an agreement was reached and court approval granted to settle
eight purported class and/or collective actions which were consolidated in the
United States District Court in Boise, Idaho and which raised various issues
including off-the-clock work allegations and allegations regarding certain
salaried grocery managers exempt status. Under the settlement agreement,
current and former employees who met eligibility criteria have been allowed to
present their off-the-clock work claims to a settlement administrator.
Additionally, current and former grocery managers employed in the State of
California have been allowed to present their exempt status claims to a
settlement administrator. The Company mailed notices of the settlement and
claims forms to approximately 70,500 associates and former associates.
Approximately 6,000 claim forms had been returned, of which approximately 5,000
were deemed by the settlement administrator to be incapable of valuation,
presumed untimely, or both. The claims administrator was able to assign a value
to approximately 1,000 claims, which amount to a total of approximately $14,
although the value of many of those claims is still subject to challenge by the
Company. During the quarter ended July 29, 2004, there was a supplemental
mailing and in-store posting directed toward a narrow subset of current and
former associates. The Company has been advised by the settlement
administrator that approximately 200 of these individuals submitted the
necessary claims documents. Distinct from this supplemental claims process, a
second claim process was ordered by the Court, but the Company is still waiting
for final instructions from the Court. The Company is presently unable to
determine the number of individuals whose claim forms will be deemed valid or
the amounts that it may ultimately be required to pay with respect to such
claims. Based on the information presently available to it, management does not
expect that the satisfaction of valid claims submitted pursuant to the
settlement will have a material adverse effect on the Companys financial
condition, results of operations or cash flows. The Company is also involved in routine legal proceedings incidental to its
operations. Some of these routine proceedings involve class allegations, many
of which are ultimately dismissed. Management does not expect that the
ultimate resolution of its routine legal proceedings will have a material
adverse effect on the Companys financial condition, results of operations or
cash flows. The statements above reflect managements current expectations based on the
information presently available to the Company. However, predicting the
outcomes of claims and litigation, especially claims and litigation involving
class allegations, and estimating related costs and exposures involve
substantial uncertainties that could cause actual outcomes, costs and exposures
to vary materially from current expectations. In addition, the Company
regularly monitors its exposure to the loss contingencies associated with these
matters and may from time to time change its predictions with respect to
outcomes and its estimates with respect to related costs and exposures. It is
possible that material differences in actual outcomes, costs and exposures
relative to current predictions and estimates, or material changes in such
predictions or estimates, could have a material adverse effect on the Companys
financial condition, results of operations or cash flows. 25




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Information concerning our stock repurchases during the 13 weeks ended October
28, 2004 (dollars in millions except per share data): Issuer Purchases of Equity Securities (d)(c)
    
    Maximum NumberTotal Number Of
    
    (Or ApproximateShares (Or
    
    Dollar Value) Of(a)
    
    
    
    
    
    Units) Purchased
    
    Shares (Or Units)Total Number
    
    (b)
    
    As Part Of
    
    That May Yet Beof Shares (Or
    
    Average Price
    
    Publicly
    
    Purchased UnderUnits)
    
    Paid Per Share
    
    Announced Plans
    
    The Plans OrPeriod
    
    Purchased
    
    (Or Unit)
    
    Or Programs (1)
    
    ProgramsJuly 30  August 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500September 1  September 30,
2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500October 1  October 28, 2004
    
    
    134
    (2)
    
$
    24.49
    
    
    
    
    
    
    
    500
   (1)
    
    On December 5, 2003, the Board of Directors reauthorized a program
authorizing management, at its discretion, to purchase and retire up to
$500 of the Companys common stock through December 31, 2004. No shares
of common stock have been repurchased through October 28, 2004 under this
program.(2)
    
    Represents shares surrendered or deemed surrendered to the Company to
satisfy tax withholding obligations in connection with the vesting of
stock units under employee stock based compensation plans. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 
 Item 5. Other Information None. 
 Item 6. Exhibits 15
    
    Letter re: Unaudited Interim Financial Statements31.1
    
    Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 26




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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. ALBERTSONS, INC.
(Registrant)Date: December 3, 2004
    /S/ Felicia D. ThorntonFelicia D. ThorntonExecutive Vice President and Chief Financial Officer 27