##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  
 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended February 3, 2005
    
    Commission file number 1-6187
 ALBERTSONS, INC. 
  Delaware
    
    82-0184434(State or other jurisdiction
    
    (I.R.S. Employer Identification Number)of incorporation or organization)250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho
    
    83726(Address of principal executive offices)
    
    (Zip Code)
 (208) 395-6200
(Registrants telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class
    
    Name of each exchange on which registeredCommon Stock, $1.00 par value
    
    New York Stock ExchangePacific Stock ExchangeMandatory Convertible Security
    
    New York Stock Exchange
 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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
þ      
No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(17 CFR section 405) is not contained herein and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ( ) Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act). Yes þ      No o The aggregate market value of the voting stock held by non-affiliates of the Registrant as of July
29, 2004 (the last business day of the Registrants most recently completed second fiscal quarter)
was approximately $8.9 billion. The number of shares of the Registrants common stock, $1.00 par value, outstanding as of March 24,
2005 was 368,292,618. Documents Incorporated by Reference Listed hereunder are the documents, any portions of which are incorporated by reference and the
Parts of this Form 10-K into which such portions are incorporated:  1.
    The Registrants definitive proxy statement for use in connection with the Annual Meeting of
Shareholders to be held on June 2, 2005 to be filed within 120 days after the Registrants
year ended February 3, 2005, portions of which are incorporated by reference into Part III of
this Form 10-K.




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ALBERTSONS, INC.
FORM 10-K
TABLE OF CONTENTS Item
    
    PagePART ICautionary Statement
    
    
    31. Business
    
    
    32. Properties
    
    
    63. Legal Proceedings
    
    
    83A. Executive Officers of the Registrant
    
    
    104. Submission of Matters to a Vote of Security Holders
    
    
    11PART II5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    116. Selected Financial Data
    
    
    127. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    137A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    258. Financial Statements and Supplementary Data
    
    
    279. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    599A. Controls and Procedures
    
    
    599B. Other Information
    
    
    59PART III10. Directors and Executive Officers of the Registrant
    
    
    6011. Executive Compensation
    
    
    6012. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    6013. Certain Relationships and Related Transactions
    
    
    6014. Principal Accountant Fees and Services
    
    
    60PART IV15. Exhibits and Financial Statement Schedules
    
    
    61SIGNATURES
 2




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PART I 
 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 Companys results of operations had the labor
dispute in Southern California not occurred; 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 acquisitions of J Sainsbury plcs U.S. retail
grocery business (Shaws) and the Southern California gourmet and specialty food retailer 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. Important assumptions and other important factors that could cause actual results to differ
materially from those set forth in the forward-looking information include actions taken by new or
existing competitors (including nontraditional competitors), particularly those intended to improve
their market share (such as pricing and promotional activities); changes in consumer spending;
labor negotiations; adverse determinations with respect to, or the need to increase reserves for,
litigation, taxes 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. 
 Item 1. Business. General 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. The Companys
general offices are located at 250 Parkcenter Boulevard, Boise, Idaho 83706 and its telephone
number is (208) 395-6200. Information about the Company is available on the internet at
www.albertsons.com. Based on sales, the Company is one of the largest retail food and drug chains in the world. As of
February 3, 2005, the Companys divisions and subsidiaries operated 2,503 retail stores in 37
states. The Companys operations are within a single operating segment, the retail sale of food and drug
merchandise. The Companys operations are within the United States. As of February 3, 2005, the
Companys divisions and subsidiaries operated stores under the banners Albertsons, Acme, Bristol
Farms, Grocery Warehouse, Jewel, Jewel-Osco, Max Foods, Osco Drug, Sav-on Drugs, Shaws, Star
Market and Super Saver. The Company has invested in these brands, their development and their
protection and considers them important assets. The Companys fiscal year ends on the Thursday nearest to January 31st. As a result, the Companys
fiscal year includes a 53rd week every five to six years. The Companys fiscal year 2004 contained
53 weeks and ended on February 3, 2005. Fiscal years 2003 and 2002 each contained 52 weeks and
ended on January 29, 2004 and January 30, 2003, respectively. The Companys net sales, earnings
from continuing operations and total assets for the past five fiscal years are set forth on page 12
of this Annual Report on Form 10-K. All dollar amounts in this report are in millions, except per share data. Retail Formats As of February 3, 2005, the Companys retail operations were organized into seven divisions, based
primarily on geographic boundaries, and two independently managed subsidiaries. Division and
subsidiary staff are responsible for day-to-day operations and for executing marketing and
merchandising programs. This structure allows the division and subsidiary level employees, who are
closest to the customer, to implement strategies tailored to each of the neighborhoods that the
Company serves. Historically, the Company has identified each of the stores operated by its divisions as a
combination food-drug store, a conventional store, a stand-alone drugstore or a warehouse store.
The Companys ongoing dual-branding initiative and investment in new formats has made these
identifiers less meaningful. The Company now identifies its stores as one of the following:
combination food-drug store, conventional store (which includes non-Extreme Inc. warehouse stores),
stand-alone drugstore, 3




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Bristol Farms store or Extreme Inc. store. The Company also operates fuel centers near
existing stores and online grocery and drugstore Web sites. The Companys combination food-drug stores combine grocery and drug stores under one roof. Most of
these stores include a complete grocery offering, prescription drugs and an expanded section of
cosmetics and general merchandise in addition to specialty departments such as service seafood and
meat, bakery, lobby/video, service delicatessen, liquor and floral. Many also offer meal centers,
party supply centers, coffee bars, in-store banks, photo processing and destination categories for
beverages, snacks, pet care products, paper products and baby care merchandise. These services and
product offerings are provided for easy, one-stop shopping. Combination food-drug stores are
typically located in neighborhood shopping centers and range in size from 35,000 to 60,000 square
feet. As of February 3, 2005, the Companys divisions operated 1,521 combination food-drug stores. Conventional food stores are less than 35,000 square feet and focus their product and service
offerings primarily on food departments. Conventional stores do offer many of the same product and
service offerings as combination food-drug stores, but on a limited basis. As of February 3, 2005,
the Companys divisions operated 265 conventional stores. The Companys stand-alone drugstores offer convenient shopping and prescription pickup as well as a
wide assortment of general merchandise, health and beauty care products, over-the-counter
medication, greeting cards and photo processing. Many newer stores have expanded their product
offerings to include limited grocery and convenience items requiring freezing or refrigeration.
The Companys stand-alone drugstores are typically located on corners and in shopping centers and
many offer a drive-thru pharmacy. As of February 3, 2005, the Companys divisions operated 695
stand-alone drugstores. During 2004, the Company began an intense focus on format differentiation with the introduction of
Extreme Inc. and the acquisition of Bristol Farms. Extreme Inc. is an independently managed
subsidiary which operates price impact stores. These low-price, limited-service stores feature an
innovative new store design coupled with a unique merchandising format tailored to the demands of
customers in their neighborhoods. As of February 3, 2005, Extreme Inc. operated 11 stores under
the Super Saver banner. In September 2004 the Company acquired Bristol Farms, a gourmet and specialty food retailer. As
of February 3, 2005, Bristol Farms operated 11 stores in Southern California. Bristol Farms stores
offer a gourmet and natural product assortment in stores that range in size from 7,200 to 29,700 square feet. In addition, Bristol Farms offers premium catering services and
several stores offer in-store dining. As of February 3, 2005, the Company operated 234 fuel centers in 22 states. Fuel centers are
generally located in the parking lots of stores operated by the Companys divisions and
subsidiaries. Fuel centers feature three to six fuel pumps and a small building, ranging in size
from a pay-only kiosk to a convenience store. In November 1999 Albertsons introduced its own grocery delivery Web site when Albertsons.com
entered the Seattle, Washington market. Since the launch of Albertsons.com, the Company has
continued to introduce this service to more areas. As of February 3, 2005, Albertsons.com operated
in and around Phoenix, Arizona; Los Angeles, Oakland, Palm Springs, Sacramento, San Diego, San
Jose, San Francisco and Santa Barbara, California; Boise, Idaho; Las Vegas, Nevada; New Jersey;
Pennsylvania; Portland, Oregon; Dallas/Fort Worth, Texas; Salt Lake City, Utah; and Seattle and
Vancouver, Washington. By using its brick-and-mortar stores, Albertsons has evolved its online
model to take advantage of its retail grocery expertise, brand recognition and existing
infrastructure. With more than five years of experience, Albertsons.com offers a reliable and
proven online grocery service that delivers products direct from the store to the customers
location. Savon.com, Albertsons online drugstore, serves the Companys customers nationwide.
Savon.com has a nationwide online pharmacy service that offers sundry items, new and refill
prescriptions and consumer health information. The Web site allows customers across the country
the freedom to have new or refilled prescriptions ready for pickup at any pharmacy operated by the
Companys divisions, or mailed to their location of preference. Distribution Centers and Suppliers The Companys retail operations are supported by 19 major Company distribution centers. These
distribution centers provide product to the stores operated by the Companys divisions and
subsidiaries. In an effort to obtain merchandise at the lowest possible cost, the Company also supplies stores
through outside suppliers and directly from manufacturers. The Company believes that it is not
dependent on any one supplier and considers its relations with its suppliers to be satisfactory. Marketing and Merchandising The Companys brand promise is Working Hard to Make Life Easier for Our Customers. This is reinforced to
customers through associate education and print and media advertising. With the Companys brand promise in mind, the Company strives to merchandise stores that cater to
the neighborhoods served. For example, some stores offer a variety of products in categories such
as Asian, Hispanic and kosher foods. In addition, a principal component of the Companys merchandising strategy is to offer a broad
array of products and time-saving services that are a part of a solution to todays lifestyle
demands. The Companys dual branding initiative is designed to serve this merchandising strategy.
One of Albertsons strategic advantages in todays marketplace comes from the Companys unique
expertise in operating food stores and drugstores. Albertsons has decades of experience in
operating these two formats. This unique position in the marketplace has enabled the Company to
bring together separate retail brands, creating dual branded
stores that leverage the Companys separate food and drug expertise and brand equity and make life
easier for customers by providing 4




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one-stop shopping for food and drug needs. The Company began
expanding the dual branding concept in 2001 and continued to roll-out the dual branding concept
through 2004. The Company expects to continue to dual brand stores in nearly every market in 2005.
As of February 3, 2005, 677 of the stores operated by the Companys divisions were dual branded. The Company continues to test additional ways to further the Companys brand promise by adding to
its stores natural and organic sections, international food sections, in-store bakeries and
delicatessens, prepared foods sections and gourmet coffee service. Some stores also feature a
selection of prepared foods and daily selections of home meal replacement items, such as rotisserie
chicken, fried chicken, tamales, meat loaf and other dinner entrees, sandwiches, pre-packaged
salads and prepared fresh vegetables. The Company is also expanding the bakery in some stores,
offering an expanded selection of baked goods and self-service selections. Finally, the Company
has joined forces with other retailers (including Toys R Us® and Starbucks®)
to provide a wider selection of quality merchandise to its customers. All of the Companys stores carry a broad range of national brands and offer Our Own Brands (or
private label) products in many merchandise categories. During 2003, the Company launched its
premium own brand, essensiaTM products. As of February 3, 2005, the Company offered 198 products
under the essensiaTM brand. In 2004, the Company launched equalineTM and
HomeLifeTM, its own brand products in the health and beauty and general merchandise
categories. The Companys stores provide consumer information such as nutritional signing in the
meat and produce departments, freshness code dating, unit pricing, meal ideas and food information
pamphlets. Associates As of February 3, 2005, the Company employed approximately 241,000 associates, of which
approximately 55% were covered by collective bargaining agreements, primarily with the United Food
and Commercial Workers and International Brotherhood of Teamsters. Labor agreements covering
approximately 37,000 associates expire during 2005. Negotiations with respect to some of these
contracts have commenced. There can be no assurances that the Company will be able to successfully
renegotiate its union contracts without work stoppages or on acceptable terms. The Company considers its present relations with associates to be satisfactory. The Company values
its associates and believes that loyalty, enthusiasm and commitment are key elements of its
operating performance. Environmental The Company has identified environmental contamination sites related primarily to underground
petroleum storage tanks and groundwater contamination at various store, warehouse, office and
manufacturing facilities (related to current operations as well as previously disposed of
properties). The Company conducts an ongoing program for the inspection and evaluation of
potential new sites and the remediation and monitoring of contamination at existing and previously
owned sites. Although the ultimate outcome and expense of environmental remediation is uncertain,
the Company believes that the costs of required remediation and continuing compliance with
environmental laws, in excess of current reserves, will not have a material adverse effect on the
financial condition, results of operations or cash flows of the Company. Environmental remediation
costs were not material in 2004, 2003 or 2002. Government Regulation The Company is subject to regulation by a variety of governmental agencies, including, but not
limited to, the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the
Occupational Safety and Health Administration, the Environmental Protection Agency and other
federal, state and local agencies. The Companys stores are also subject to local laws regarding
zoning, land use, the sale of restricted products including tobacco, alcohol and pseudoephedrines,
food preparation and sanitation. In recent years, an increasing number of legislative proposals
have been introduced and passed in Congress and in some state legislatures that could result in
major changes in health care coverage, delivery and reimbursement, both nationally and at the state
level. For example, Congress passed the Medicare Prescription Drug Improvement and Modernization
Act of 2003, which includes new prescription drug benefits for Medicare participants. Also, in
recent years, both federal and state authorities have proposed or passed new legislation that
imposes on healthcare providers, including pharmacies, significant additional obligations
concerning the protection of confidential patient medical records and information. The Health
Insurance Portability and Accountability Act of 1996, or HIPAA, imposes certain requirements,
including the protection of confidential patient medical records and other information. Compliance
with these regulations, particularly HIPAA, requires that we implement complex changes to our
systems and processes. The Company believes that its locations comply, in material respects, with
such laws and regulations. Competition Food, drug and general merchandise retailing involves intense competition with numerous
competitors. Direct competition comes from a variety of sources, including supermarket chains,
independent and specialty grocers, specialty retailers and large-scale drug retailers. Increasing
competition also exists from convenience stores, prepared food retailers and Internet and mail
order retailers. The biggest competitive impact on the food retailing industry, however, has been
the growth of low-price retailers, primarily supercenters and discount stores. The rapid growth of
the low-price format has shown that while convenience, quality, product assortment and customer
service remain important factors in creating a competitive advantage, price is increasingly a
significant driver of consumer choice in the food retailing industry. Seasonality The Company is subject to effects of seasonality. Sales have historically been higher in the
Companys fourth quarter than other quarters due to the holiday season and the increase in cold and
flu occurrences. 5




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Available Information The Company makes available its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 free of charge through the Companys Web site
at http://www.albertsons.com as soon as reasonably practicable after the Company electronically
files such material with, or furnishes it to, the Securities and Exchange Commission (SEC). 
 Item 2. Properties. During the past ten fiscal years, the Company has built or acquired 2,198 stores. Approximately
90% of the Companys retail square footage has been opened, acquired or remodeled during this
period. Albertsons stores are located in 37 states with concentration in the Northeast, Western, Midwest
and Southern areas of the United States. The table below is a summary of the stores by state and
classification as of February 3, 2005: CombinationFood-Drug
    
    
    Stand-Alone
    
    
    Conventional Food
    
    
    OtherStores
    
    
    Drugstores
    
    
    Stores
    
    
    Stores (a)
    
    
    TOTAL
    
    
    Fuel Centers (b)Arizona
    
    
    61
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    18Arkansas
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    California
    
    
    320
    
    
    
    331
    
    
    
    124
    
    
    
    11
    
    
    
    786
    
    
    
    8Colorado
    
    
    52
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    61
    
    
    
    12Connecticut
    
    
    24
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    26
    
    
    
    Delaware
    
    
    10
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    12
    
    
    
    1Florida
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    16Idaho
    
    
    30
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    34
    
    
    
    16Illinois
    
    
    166
    
    
    
    86
    
    
    
    15
    
    
    
    
    
    
    
    267
    
    
    
    23Indiana
    
    
    6
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    1Iowa
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    Kansas
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    Louisiana
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    24
    
    
    
    11Maine
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    Maryland
    
    
    3
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    8
    
    
    
    1Massachusetts
    
    
    80
    
    
    
    
    
    
    
    14
    
    
    
    
    
    
    
    94
    
    
    
    Michigan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Minnesota
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Missouri
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    Montana
    
    
    18
    
    
    
    8
    
    
    
    14
    
    
    
    
    
    
    
    40
    
    
    
    5Nebraska
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    1Nevada
    
    
    49
    
    
    
    42
    
    
    
    2
    
    
    
    
    
    
    
    93
    
    
    
    11New Hampshire
    
    
    29
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    35
    
    
    
    New Jersey
    
    
    37
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    61
    
    
    
    New Mexico
    
    
    21
    
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    27
    
    
    
    4North Dakota
    
    
    2
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    Oklahoma
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    16Oregon
    
    
    46
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    55
    
    
    
    13Pennsylvania
    
    
    44
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    56
    
    
    
    1Rhode Island
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    South Dakota
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Texas
    
    
    148
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    157
    
    
    
    47Utah
    
    
    48
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    49
    
    
    
    9Vermont
    
    
    7
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    18
    
    
    
    Washington
    
    
    76
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    85
    
    
    
    16Wisconsin
    
    
    15
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    1Wyoming
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    3Total
    
    
    1,521
    
    
    
    695
    
    
    
    265
    
    
    
    22
    
    
    
    2,503
    
    
    
    234Retail Square
Footage by
Store
Type (000s)
    
    
    83,131
    
    
    
    12,798
    
    
    
    7,433
    
    
    
    862
    
    
    
    104,229
    
    
    
    (b
    )
   (a) Includes 11 Bristol Farms stores and 11 Extreme Inc. stores. (b) All fuel centers are located adjacent to retail stores, therefore the Company does not
count fuel centers as separate stores. The square footage of fuel centers is included with
the square footage of adjacent stores. The Company has expanded and improved its distribution facilities when opportunities exist to
improve service to the retail stores and generate an adequate return on invested capital. It also
examines opportunities to consolidate distribution facilities when 6




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appropriate. During 2004, approximately 79% of the merchandise purchased for resale in the retail stores operated by the
Companys divisions and subsidiaries was received from Company distribution centers. Albertsons distribution system consists of 19 major distribution facilities located strategically
throughout the Companys operating markets and four smaller distribution facilities. The table
below is a summary of the Companys distribution facilities and the product categories they
support, as of February 3, 2005: General
    
    
    
    
    
    
    
    
    
    
    Square FootageMajor Distribution Facilities
    
    Grocery
    
    
    Frozen Food
    
    
    Liquor
    
    
    Produce
    
    
    Meat & Deli
    
    
    Health & Beauty
    
    
    Merchandise
    
    
    Pharmaceuticals
    
    
    (000s)Melrose Park, Illinois
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,662Lancaster, Pennsylvania
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    1,413Brea, California
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,331La Habra, California
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    1,203Fort Worth, Texas
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,131Plant City, Florida
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,011Irvine, California
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,009Elk Grove, Illinois
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    933Vacaville, California
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    854Portland, Oregon
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    834Phoenix, Arizona
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    734Salt Lake City, Utah
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    660Wells, Maine
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536San Leandro, California
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480Sacramento, California
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442Ponca City, Oklahoma
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    420Denver, Colorado
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388Boise, Idaho
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    302Methuen, Massachusetts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    291Other Distribution FacilitiesNorthborough, Massachusetts
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    93Carson, California
    
    
    X
    
    
    
    
    
    
    
    X
    
    
    
    X
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Las Vegas, Nevada
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Indianapolis, Indiana
    
    
    
    
    
    
    
    
    
    
    X
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22TOTAL SQUARE FOOTAGE All Distribution Facilities(000s)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,819
 The Company currently prefers to finance the construction of most new retail store and distribution
facilities internally, thus retaining ownership of its land and buildings. During 2005, the
Companys internal expansion plans are expected to be financed primarily from cash provided by
operating activities. The Company has and expects to continue to finance a portion of its new
stores through lease transactions when it does not have the opportunity to own the property. 7




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##### Table of Contents



As of February 3, 2005, the Company held title to both the land and buildings of 40% of the
Companys stores and held title to the buildings on leased land of an additional 10% of the
Companys stores. The Company also holds title to the land and buildings of most of its
administrative offices and distribution facilities. 
 Item 3. Legal Proceedings. 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 October 2001
the court granted summary judgment against Sav-on Drug Stores, finding one of its bonus plans
unlawful under plaintiffs liability theory. 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 December 20,
2004, the court granted final approval to a settlement reached by the parties. 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 April 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. American Stores Company, et al.) by assistant managers seeking recovery of
overtime pay based upon plaintiffs allegation that they were improperly classified as exempt under
California law. In May 2001 a class action with respect to Sav-on Drug Stores assistant managers
was certified by the court. A case with very similar claims, involving the Sav-on Drug Stores
assistant managers and operating managers, was also filed in April 2000 against the Companys
subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the County of Los Angeles, California
(Rocher, Dahlin, et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. In
April 2002 the Court of Appeal of the State of California Second Appellate District reversed the
Rocher class certification, leaving only two plaintiffs. However, on August 26, 2004, the
California Supreme Court reversed this decision and remanded the case to the trial court. The
Company continues to believe it has strong defenses against these lawsuits and is vigorously
defending them. Although these lawsuits are subject to the uncertainties inherent in the
litigation process, based on the information presently available to the Company, management does
not expect that the ultimate resolution of these lawsuits will have a material adverse effect on
the Companys financial condition, results of operations or cash flows. In August 2000 a class action complaint was filed against Jewel Food Stores, Inc., an indirect
wholly owned subsidiary of the Company and Dominicks Finer Foods, Inc. in the Circuit Court of
Cook County, Illinois alleging milk price fixing (Maureen Baker et al. v. Jewel Food Stores, Inc.
and Dominicks Finer Foods, Inc., Case No. 00L 009664). In February 2003 the trial court found in
favor of the defendants and dismissed the case with prejudice. The plaintiffs appealed, but on
January 12, 2005, the Illinois Appellate Court upheld the trial courts dismissal of the case.
Plaintiffs have now appealed to the Illinois Supreme Court. Although this lawsuit is subject to the
uncertainties inherent in the litigation process, based on the information presently available to
the Company, management does not expect that the ultimate resolution of this action 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 were returned, of which approximately 5,000 were deemed by the settlement administrator to be
incapable of valuation, presumed untimely, or both (the Unvalued Claims). The claims
administrator was able to assign a value to approximately 1,080 claims, which amount to a total of
approximately $14, although the value of many of those claims is still subject to challenge by
either party. Two other claims processes occurred during fiscal 2004. First, there was a
supplemental mailing and in-store posting directed toward a narrow-subset of current and former
associates. This process resulted in approximately 260 individuals submitting claims documents.
These documents are being assessed. Second, in response to the Courts instruction to plaintiffs
counsel to submit supplemental and/or corrected information for the Unvalued Claims, plaintiffs
counsel submitted such information for approximately 4,700 of the Unvalued Claims. This
information is being assessed. The Company is presently unable to determine the amounts that it
may ultimately be required to pay with respect to all claims properly submitted. 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. On October 13, 2000, a complaint was filed in Los Angeles County Superior Court (Joanne Kay Ward et
al. v. Albertsons, Inc. et al.) alleging that Albertsons, Lucky Stores and Sav-on Drug Stores paid
terminating employees their final paychecks in an untimely manner. The lawsuit seeks statutory
penalties. On January 4, 2005, the case was certified as a class action. The Company believes
that it has strong defenses against this lawsuit and is vigorously defending it. Although this
lawsuit is subject to the uncertainties inherent in the litigation process, based on the
information presently available to the Company, management does not expect that 8




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##### Table of Contents



the ultimate resolution of this lawsuit will have a material adverse effect on the Companys financial
condition, results of operations or cash flows. On November 1, 2001, the Environmental Protection Agency (EPA) notified Jewel Food Stores, Inc.,
an indirect wholly owned subsidiary of the Company, of alleged violations of the Clean Air Act. No
notice of violation was issued, but following discussions between the Company and the EPA, the
Company and the EPA entered a consent decree establishing technical protocols for the refrigerant
management program, setting a penalty of $0.1, and requiring Jewel to substitute non-ozone
depleting refrigerant for existing refrigerant in some stores sooner than the industry-wide
deadline. On February 2, 2004, the Attorney General for the State of California filed an action in Los
Angeles federal court (California, ex rel Lockyer v. Safeway, Inc. dba Vons, a Safeway Company;
Albertsons, Inc. and Ralphs Grocery Company, a division of The Kroger Co., United States District
Court Central District of California, Case No. CV04-0687) claiming that certain provisions of the
agreements (the Labor Dispute Agreements) between the Company, The Kroger Co. and Safeway Inc.
(the Retailers) which provided for lock-outs in the event that any Retailer was struck at any
or all of its Southern California facilities during the 2003-2004 labor dispute in Southern
California when the other Retailers were not and contained a provision designed to prevent the
union from placing disproportionate pressure on one or more Retailer by picketing such Retailer(s)
but not the other Retailer(s) during the labor dispute violate section 1 of the Sherman Act. The
lawsuit seeks declarative and injunctive relief. The Company filed its answer on February 24,
2004. The Company continues to believe it has strong defenses against this lawsuit and is
vigorously defending it. Although this lawsuit is subject to uncertainties inherent in the
litigation process, based on the information presently available to the Company, management does
not expect that the ultimate resolution of this action will have a material adverse effect on the
Companys financial condition, results of operations or cash flows. In March 2004 a lawsuit seeking class action status was filed against Albertsons in the Superior
Court of the State of California in and for the County of Alameda, California (Dunbar v.
Albertsons, Inc.) by a grocery manager seeking recovery including overtime pay based upon
plaintiffs allegation that he and other grocery managers were improperly classified as exempt
under California law. The Dunbar case is currently in discovery, and a class certification hearing
is scheduled for June 2005. The Company continues to believe it has strong defenses against this
lawsuit and is vigorously defending it. Although this lawsuit is subject to the uncertainties
inherent in the litigation process, based on the information presently available to the Company,
management does not expect that the ultimate resolution of this lawsuit will have a material
adverse effect on the Companys financial condition, results of operations or cash flows. In July 2004, a case similar to Dunbar involving salaried drug/merchandise managers was filed in
the same court (Victoria A. Moore, et al. v. Albertsons, Inc.). In March 2005, the parties
reached a tentative settlement, which remains subject to court approval. Based on information
presently available to the Company, management does not expect that payments under this settlement,
if approved in the present form, 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 these 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 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. 9




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##### Table of Contents



Item 3A. Executive Officers of the Registrant. Age as of
    
    
    
    Date First AppointedName
    
    3/31/05
    
    Position
    
    as an Executive OfficerLawrence R. Johnston
    
    
    56
    
    
    Chairman of the Board, Chief Executive Officer
and President
    
    04/23/01Robert C. Butler
    
    
    56
    
    
    Executive Vice President, Food Operations and
President, Intermountain West Division
    
    03/21/00Romeo R. Cefalo
    
    
    55
    
    
    Executive Vice President, Real Estate,
Construction, Store Development and New Formats
    
    03/21/00Robert J. Dunst, Jr.
    
    
    44
    
    
    Executive Vice President and Chief Technology
Officer
    
    11/19/01Clarence J. Gabriel
    
    
    51
    
    
    Executive Vice President, Supply Chain and
Asset Management
    
    01/13/03Paul T. Gannon
    
    
    52
    
    
    Executive Vice President and Chief Marketing
Officer
    
    09/13/04Kathy J. Herbert
    
    
    51
    
    
    Executive Vice President, Human Resources
    
    09/17/01Duncan C. Mac Naughton
    
    
    42
    
    
    Senior Vice President, Merchandising
    
    02/04/05John R. Sims
    
    
    55
    
    
    Executive Vice President and
General Counsel
    
    03/25/02Felicia D. Thornton
    
    
    41
    
    
    Executive Vice President and Chief Financial
Officer
    
    08/22/01Kevin H. Tripp
    
    
    50
    
    
    Executive Vice President, Drugstore Operations
and President, Drug Division
    
    12/11/00
 Lawrence R. Johnston has served as President since July 24, 2003 and Chairman of the Board and
Chief Executive Officer since April 23, 2001. Previously, he served as President and Chief
Executive Officer, General Electric Appliances Division (maker of major household appliances and a
division of General Electric Company, a diversified industrial corporation) from November 1999;
President and Chief Executive Officer, General Electric Medical Systems-Europe, Middle East and
Africa from 1997 and Chairman of General Electric Companys European Corporate Executive Council
from 1998 to 1999. Robert C. Butler became Executive Vice President, Food Operations and President, Intermountain West
Division on February 20, 2004. Previously, he served as Executive Vice President, Operations from
March 21, 2000. Romeo R. Cefalo became Executive Vice President, Real Estate, Construction, Store Development and
New Formats on February 20, 2004. Previously, he served as Executive Vice President, Operations
from March 21, 2000. Robert J. Dunst, Jr. became Executive Vice President and Chief Technology Officer on November 19,
2001. Previously, he served as Vice President, Applications Development, Safeway, Inc. (food and
drug retailing) and Director, Systems Architecture and Infrastructure, Safeway, Inc. from 1995. Clarence J. Gabriel became Executive Vice President, Supply Chain and Asset Management on February
4, 2005. Previously, he served as Executive Vice President, Merchandising and Supply Chain from
January 8, 2004; Executive Vice President, Supply Chain from January 13, 2003; President, Chief
Executive Officer and Chairman of the Board, Newgistics, Inc. (returns management solutions for
direct retailers) from June 2000 and Division President, Corporate Express (business-to-business
supplier of office and computer products and services) from November 1997. Paul T. Gannon became Executive Vice President and Chief Marketing Officer on September 13, 2004.
Previously, he served as President and Chief Executive Officer, Shaws Division from April 2004.
Prior to the Companys acquisition of Shaws in April 2004, Mr. Gannon served as the President and
Chief Executive Officer of Shaws Supermarkets, Inc. (food and drug retailing) from November 2002;
President and Chief Operating Officer of Shaws Supermarkets, Inc. from May 2002, Chief Operating
Officer of Shaws Supermarkets, Inc. from February 2001, and Executive Vice President, Real Estate
and Marketing of Shaws Supermarkets, Inc. from September 1999. 10




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##### Table of Contents



Kathy J. Herbert became Executive Vice President, Human Resources on September 17, 2001.
Previously, she served as Vice President, Human Resources, Jewel-Osco Division, American Stores
Company (food and drug retailing) and subsequently Albertsons from April 1998. Duncan C. Mac Naughton became an executive officer on February 4, 2005, and has served as Senior
Vice President, Merchandising since June 18, 2004. Previously, he served as Group Vice President,
Grocery Merchandising from November 2003 and Group Vice President, Grocery Merchandising and Own
Brand, HEB Grocery Company (food retailing) from 1998. John R. Sims became Executive Vice President and General Counsel on March 25, 2002. Previously, he
was Vice President and Deputy General Counsel with Federated Department Stores, Inc. (department
store retailing) from 1990. Felicia D. Thornton became Executive Vice President and Chief Financial Officer on August 22, 2001.
Previously, she was a business consultant for HASC (private real estate holdings) from January 2001
and Group Vice President, The Kroger Co. (food and drug retailing) from February 1999. Kevin H. Tripp became Executive Vice President, Drugstore Operations and President, Drug Division
on April 1, 2004. Previously, he served as Executive Vice President, Operations and Pharmacy from
June 1, 2002, Executive Vice President, Drug and General Merchandise from December 11, 2000 and
President, Drug Region from June 23, 1999. 
 Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted during the fourth quarter of 2004 to a vote of security holders through
the solicitation of proxies or otherwise. 
 PART II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities. The Companys common stock is traded on both the New York Stock Exchange and the Pacific Stock
Exchange under the symbol ABS. As of March 24, 2005, there were approximately 26,358 holders of
record. The following table sets forth the reported high and low stock prices by quarter as
reported by the NYSE and dividends declared: Common Stock Market PriceDividendsHigh
    
    
    Low
    
    
    Declared2004Fourth Quarter
    
    $
    25.93
    
    
    $
    22.35
    
    
    $
    0.19Third Quarter
    
    
    25.80
    
    
    
    22.30
    
    
    
    0.19Second Quarter
    
    
    27.75
    
    
    
    22.43
    
    
    
    0.19First Quarter
    
    
    25.33
    
    
    
    21.57
    
    
    
    0.192003Fourth Quarter
    
    $
    24.19
    
    
    $
    19.50
    
    
    $
    0.19Third Quarter
    
    
    23.65
    
    
    
    18.40
    
    
    
    0.19Second Quarter
    
    
    21.91
    
    
    
    17.91
    
    
    
    0.19First Quarter
    
    
    21.71
    
    
    
    17.76
    
    
    
    0.19
 The Company has paid cash dividends on its common stock since 1959. The Company pays these
dividends at the discretion of the Board of Directors. The continuation of these payments, the
amount of such dividends and the form in which the dividends are paid (cash or stock) depend upon
many factors, including the results of operations and the financial condition of the Company. 11




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##### Table of Contents



Information concerning the Companys stock repurchases during each month in the 14 weeks ended
February 3, 2005 (dollars in millions except per share data): Issuer Purchases of Equity Securities (c)
    
    
    (d)Total Number Of
    
    
    Maximum Number (OrShares (Or Units)
    
    
    Approximate DollarPurchased As Part
    
    
    Value) Of Shares(a)
    
    
    
    
    
    
    Of Publicly
    
    
    (Or Units) That MayTotal Number of
    
    
    (b)
    
    
    Announced Plans Or
    
    
    Yet Be PurchasedShares (Or Units)
    
    
    Average Price Paid
    
    
    Programs
    
    
    Under The Plans OrPeriod
    
    Purchased
    
    
    Per Share (Or Unit)
    
    

(1)
    
    
    ProgramsOctober 29  November 30, 2004
    
    
    
    
    
    $     
    
    
    
    
    
    
    
    $500December 1  December 31, 2004
    
    60,880
    (2)
    
    
    23.28
    
    
    
    
    
    
    
    500January 1  February 3, 2005
    
    19,712
    (2)
    
    
    23.33
    
    
    
    
    
    
    
    500
   (1)
    During 2004, the Company did not repurchase any shares of common stock under a Board
authorized repurchase program. On December 16, 2004, the Board of Directors reauthorized
management, at its discretion, to purchase and retire up to $500 of the Companys common stock
through December 31, 2005.(2)
    Represents shares surrendered or deemed surrendered to the Company to satisfy tax
withholding obligations in connection with the distribution of shares of stock under employee
stock based compensation plans. 
 Item 6. Selected Financial Data. The following data have been derived from the consolidated financial statements of the Company and
should be read in conjunction with those statements. 53 Weeks
    
    
    52 Weeks
    
    
    52 Weeks
    
    
    52 Weeks
    
    
    52 Weeks(Dollars in millions,
    
    February 3,
    
    
    January 29,
    
    
    January 30,
    
    
    January 31,
    
    
    February 1,except per share data)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Operating Results:Sales
    
    $
    39,897
    
    
    $
    35,107
    
    
    $
    35,316
    
    
    $
    36,294
    
    
    $
    35,221Earnings from continuing operations
    
    
    474
    
    
    
    556
    
    
    
    866
    
    
    
    487
    
    
    
    733Net earnings
    
    
    444
    
    
    
    556
    
    
    
    485
    
    
    
    501
    
    
    
    765Net earnings as a percent to sales
    
    
    1.11
    %
    
    
    1.58
    %
    
    
    1.38
    %
    
    
    1.38
    %
    
    
    2.17
    %Common Stock Data:Earnings per share from continuing operations:Basic
    
    $
    1.29
    
    
    $
    1.51
    
    
    $
    2.18
    
    
    $
    1.20
    
    
    $
    1.75Diluted
    
    
    1.28
    
    
    
    1.51
    
    
    
    2.17
    
    
    
    1.19
    
    
    
    1.75Net earnings per share:Basic
    
    $
    1.20
    
    
    $
    1.51
    
    
    $
    1.22
    
    
    $
    1.23
    
    
    $
    1.83Diluted
    
    
    1.19
    
    
    
    1.51
    
    
    
    1.22
    
    
    
    1.23
    
    
    
    1.83Cash dividends per share
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76
    
    
    $
    0.76Financial Position:Total assets
    
    $
    18,311
    
    
    $
    15,666
    
    
    $
    15,477
    
    
    $
    16,323
    
    
    $
    16,392Long-term debt and capitalized
lease obligations
    
    
    6,649
    
    
    
    4,804
    
    
    
    5,257
    
    
    
    5,336
    
    
    
    5,942Other Year End Statistics:Number of stores
    
    
    2,503
    
    
    
    2,305
    
    
    
    2,287
    
    
    
    2,421
    
    
    
    2,512
 The operating results include restructuring initiatives that were implemented in 2001, 2002
and 2004 (refer to Note 6 Discontinued Operations, Restructuring Activities and Closed Stores in
the notes to the accompanying consolidated financial statements). Although these initiatives were
similar, the adoption of Statement of Financial Accounting Standard (SFAS) No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets on February 1, 2002 required the financial
statement presentation of these actions to be dissimilar. The Companys financial statements were
restated to classify the results of operations for the 2004 restructuring that resulted in the
divestiture of 28 stores and three non-operating properties and the 2002
restructuring that resulted in the divestiture of 95 stores and two distribution centers and the
elimination of four division offices, as discontinued operations for all periods. The operating
results of the 165 stores divested under the 2001 restructuring are included in continuing
operations of the Companys financial statements for the periods prior to their sale or closure. 12




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. Managements Overview All dollar amounts in this report are in millions, except per share data. Albertsons is one of the largest retail food and drug chains in the world, based on sales. As of
February 3, 2005, Albertsons, through its subsidiaries and divisions, operated 2,503 retail stores
in 37 states. These stores operate under banners including Albertsons, Acme, Bristol Farms,
Grocery Warehouse, Jewel, Jewel-Osco, Max Foods, Osco Drug, Sav-on Drugs, Shaws, Star Market and
Super Saver. As of February 3, 2005, the Company employed a diverse workforce of approximately
241,000 associates. The Companys operations are within a single operating segment, the retail
sale of food and drug merchandise. The Companys results of operations, financial position and sources and uses of cash in the current
and future periods reflect managements focus on five strategic imperatives: Aggressive Cost and Process Control. Each main category of expense, including labor, is
monitored by a member of executive management. The Company committed to achieve annual cost
reductions and cost avoidance of $1,000 by the end of fiscal 2005. Through February 3, 2005, one
year ahead of schedule, the Company successfully met this goal by eliminating $1,002 of cost. The
Company has now committed to reducing costs by an additional $250 by the end of fiscal 2006. The
Company believes that continued focus on its consumer demand chain
initiative, the multiple interlocking processes of marketing, merchandising and supply chain, coupled with savings generated through its recently launched Six Sigma
program will play a key role in achieving these additional savings. Maximize Return on Invested Capital. The Company has a formal process to review and
measure all significant investments in corporate assets. The Companys goal is to hold a number
one or two market share position in each market it operates, or have a plan of action which
provides a reasonable expectation of achieving this goal in order to continue to maintain an
investment in that market. This process involves a thorough review at the individual asset or store
level and at the market level. As a result of this process, the Company has taken the following
actions:  

    In 2002, exited four underperforming markets, resulting in the sale or closure of 95
stores, two distribution centers and the elimination of four division offices.
    In 2003, closed 61 underperforming stores.
    In 2004, exited two underperforming markets, resulting in the sale or closure of 28
stores and three non-operating properties, and implemented a new organizational
structure in its Intermountain West and Dallas/Ft. Worth Divisions intended to eliminate
layers of management and streamline operations. More importantly, however, the Company
began an intense focus on format differentiation in 2004 and made investments in Bristol
Farms, a premier fresh and specialty retailer in Southern California, and Extreme Inc.,
price impact stores being operated, as of February 3, 2005, in Dallas, Texas and Baton
Rouge, Louisiana. During 2005, the Company intends to continue to examine both its asset portfolio and opportunities
to expand its format differentiation program. Customer-focused Approach to Growth. The Company intends to invest many of the savings from
its expense and process control programs back into the marketplace in order to drive sales and
earnings growth over time, although potentially at the expense of gross margin in the near term.
The Companys focus is on the following programs:  
    Target investments in Southern California to enhance customer loyalty and increase
profitability.
    Expand the Check the Price program launched in September 2004, under which the
Company is lowering everyday prices on selected products.
    Increase Our Own Brands product penetration through continued introductions in
essensiaTM, the Companys premium line, equalineTM, the Companys new brand for health and
beauty products, HomeLifeTM, the Companys new line of general merchandise products and
the Companys other banner product lines.
    Continue rollout of the new Renaissance drug store format, which provides an
expanded product selection in several key categories and an enhanced shopping experience
with the revitalized look and feel of the store compared to a traditional drugstore. Company-wide Focus on Technology. Albertsons utilizes technology to better serve
customers, connect with consumers and to improve operating efficiencies. In 2002, Albertsons
established an information technology plan, which called for the replacement or upgrade of over
three-quarters of the Companys current systems by 2007. As the five-year strategy continues to
be executed, the Company is leveraging technology as a strategic asset throughout the Company, from
supply chain, merchandising and customer service to human resources. The Company believes that its
investment in technology systems and processes will help to create an industry leadership position
and a competitive advantage. A robust governance council manages the strategic roadmap, ensuring
that projects are on track and on time. 13




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##### Table of Contents



Energized Associates. The Albertsons leadership team is charged with creating an uplifting
atmosphere for associates and inspiring positive attitudes throughout the Company. Albertsons
believes that a team of energized associates who share a positive attitude will help to create a
competitive advantage for the Company. Associates are energized by a culture of lifelong learning,
the ability to participate in career development and advancement opportunities, diversity networks
and affinity groups and a performance management process that requires goal setting, tracking and
measuring. The Company has successfully established a pay for performance environment that
rewards associates who consistently achieve or exceed targets and deliver results. Competitive
compensation programs are reviewed on a regular basis to ensure they are meeting the needs of
associates and the Company. Consistent, frequent communication from leaders is well established
through a series of weekly and monthly satellite broadcasts, a weekly online message from the CEO,
and regularly scheduled town hall meetings. The Companys focus on these five strategic imperatives is designed to address the intense
competitive landscape of the retail food and drug industry. Today, direct competition comes from a
variety of sources, including supermarket chains, independent and specialty grocers, specialty
retailers and large-scale drug retailers. Increasing competition also exists from convenience
stores, prepared food retailers, Internet and mail-order retailers. The biggest competitive impact
on the food retailing industry, however, has been the growth of low price retailers, primarily
supercenters and discount stores. The rapid growth of this format has shown that while convenience,
quality, product assortment and customer service remain important factors in creating a competitive
advantage, price is increasingly a significant driver of consumer choice in the food retailing
industry. Rapid growth of the supercenter format has been most evident in markets such as the
Northwest and Southwest portions of the United States. Competition from discount formats is now
increasing in other geographic areas. Also impacting the retail food and drug industry is the overall economy of the United States.
While most key economic indicators impact the Companys operations to some degree, there are higher
correlations to food inflation, fuel prices and consumer confidence. As the low price retail
format continues to grow, the ability of the Company to pass along price increases in times of food
inflation is challenging, which negatively impacts gross margin. Similarly, when fuel prices
increase and consumer confidence remains low, the price sensitivity of the already price-conscious
consumer increases. Notwithstanding these competitive and economic forces, the Company believes that its relentless
focus on its five strategic imperatives will enable it to eventually achieve its vision  becoming
the worlds number one food and drug retailer in the areas of market value, scale and
profitability. Certain amounts in the Companys Consolidated Balance Sheet as of February 3, 2005 included herein
differ from those amounts reported in the Companys preliminary unaudited balance sheet included in
the earnings release dated March 15, 2005. These differences arose from a change in tax balances
and goodwill related to the Companys acquisition of Shaws, specifically in Prepaid and other
current assets, Goodwill, Other current liabilities and Other long-term liabilities and deferred
credits. The Company believes that these revised amounts are not materially different from those
reported in the earnings release. Significant Events Southern California Labor Dispute
Results of operations for the years ended February 3, 2005 and January 29, 2004 were unfavorably
impacted by the labor dispute with the Companys retail union associates in Southern California
that began on October 12, 2003 and lasted into the first quarter of 2004 (the Labor Dispute).
The Labor Dispute resulted in decreased sales in the Companys Southern California combination
food-drug and conventional food stores and decreased gross margin as a result of decreased volume,
increased inventory shrink, sales mix changes and increased distribution costs. Sales in Southern
California did rebound to pre-Labor Dispute levels by the third quarter of 2004, but through the fourth
quarter of 2004, earnings had not yet returned as expected. Additional costs incurred in
connection with the terms of new collective bargaining agreements resulting from the dispute
included funding a one-time contribution to the union health and welfare fund of $36 and strike
ratification bonus payments of $10. These amounts were charged to earnings in 2004. The Company, The Kroger Co. and Safeway Inc. (the Retailers) engaged in multi-employer bargaining
with the United Food and Commercial Workers (UFCW) in connection with the Labor Dispute and, as a
result, the Retailers entered into agreements (Labor Dispute Agreements) that, 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 $46
in 2003 and $17 in 2004. Amounts earned were recorded as a reduction to selling, general and
administrative expenses in the respective years and all amounts were collected in 2004. Acquisition of Shaws
On April 30, 2004, the Company acquired 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 consisted 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 capital
lease obligations and 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 net proceeds from a subsequent mandatory convertible security
offering (refer to Note 11 Indebtedness in the notes to the accompanying consolidated financial
statements) to repay $1,117 of such commercial paper. The outstanding commercial paper is backed
by the Companys credit facilities. 14




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##### Table of Contents



Acquisition of Bristol Farms
On September 21, 2004, the Company acquired Bristol Farms for $137 in cash. Bristol Farms operates
11 specialty food retail stores in Southern California. Southeastern United States Hurricanes
The 2004 results of operations were unfavorably impacted by the hurricanes that struck the
Southeastern United States and the Companys Florida operations during the third quarter of 2004.
The Company has a combination of self-insured and purchased insurance coverage for natural
disasters and incurred approximately $28 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. Lease Accounting Correction
On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission
issued a letter to the American Institute of Certified Public Accountants expressing its views
regarding certain operating lease-related accounting issues and their application under generally
accepted accounting principles in the United States (GAAP). In light of this letter, the
Companys management initiated a review of its lease accounting and determined that its
then-current method of accounting for rent holidays was not in accordance with GAAP. Historically,
the Company did not commence recognizing rent expense until the start of the primary lease term.
The Company now recognizes rent expense when it takes possession and control of the property,
regardless of when the lease term begins. This period typically includes pre-opening construction
or fixturing activity. As a result of this change, the Company incurred a pre-tax charge resulting
in an increase to rent expense of $8 in 2004. See Note 2 Summary of Significant Accounting
Policies in the notes to the accompanying consolidated financial statements for a discussion of
the Companys accounting policy for leases. The accompanying discussion of the Companys results of
operations and financial position includes the effect of the correction. Results of Operations
Sales for 2004 (53 week year) were $39,897 compared to $35,107 in 2003 and $35,316 in 2002. The
following table sets forth certain components of the Consolidated Earnings Statements expressed as
a percent to sales and the year-to-year percentage changes in the amounts of such components: Percentage ChangePercent To Sales
    
    
    Of Dollar Amounts2004
    
    
    2003
    
    
    2002
    
    
    2004 vs. 2003
    
    
    2003 vs. 2002Sales
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    13.6
    
    
    
    (0.6
    )Gross profit
    
    
    28.04
    
    
    
    28.62
    
    
    
    29.16
    
    
    
    11.4
    
    
    
    (2.5
    )Selling, general and
administrative expenses
    
    
    24.99
    
    
    
    24.89
    
    
    
    24.13
    
    
    
    14.1
    
    
    
    2.6Restructuring credits
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.11
    
    
    
    (5.3
    )
    
    
    (72.2
    )Interest, net
    
    
    1.25
    
    
    
    1.17
    
    
    
    1.12
    
    
    
    22.0
    
    
    
    3.3Earnings from continuing
operations before income taxes
    
    
    1.83
    
    
    
    2.58
    
    
    
    3.98
    
    
    
    (19.5
    )
    
    
    (35.5
    )Earnings from continuing operations
    
    
    1.19
    
    
    
    1.58
    
    
    
    2.45
    
    
    
    (14.7
    )
    
    
    (35.8
    )Loss from discontinued operations
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.81
    )
    
    
    n.m.
    
    
    
    n.m.Cumulative effect of change in
accounting principle, net
    
    
    
    
    
    
    
    
    
    
    (0.27
    )
    
    
    n.m.
    
    
    
    n.m.Net earnings
    
    
    1.11
    
    
    
    1.58
    
    
    
    1.38
    
    
    
    (20.2
    )
    
    
    14.5
 n.m.  not meaningful Fiscal Year 2004 Compared to Fiscal Year 2003
Sales for the 53 weeks ended February 3, 2005 (2004) increased $4,790 or 13.6% as compared to the
52 weeks ended January 29, 2004 (2003). This increase was primarily due to the addition of 206
stores as a result of the Shaws transaction on April 30, 2004 and 11 stores acquired in the
Bristol Farms transaction on September 21, 2004, lower than normal sales in 2003 as a result of the
Labor Dispute and an extra week in 2004 as compared to 2003. By the fourth quarter of 2004, the
Company had recaptured its 2002 pre-Labor Dispute market share and sales in its Southern California
area. However, sales were unfavorably impacted by competitive pressures in other markets such as
Dallas/Ft. Worth and in certain markets where the Company does not have a number one or number two
market share position. Identical store sales, calculated on a 53 week basis for both 2004 and 2003, decreased 0.3% and
comparable store sales, also calculated on a 53 week basis for both 2004 and 2003, increased 0.2%
as compared to 2003.  The first week of 2004 has been used as the
53rd week of 2003. Identical stores are defined as stores that have been in operation for both
full fiscal periods. Comparable store sales use the same store base as the identical stores except
it includes replacement stores. The 206 acquired Shaws stores and the 11 acquired Bristol Farms
stores are not included
in the identical or comparable store sales annual computations and will not be included in the
annual computation until fiscal year 2006, however the Shaws stores will be included in the
quarterly calculation beginning in the second quarter of 2005 and Bristol Farms stores will be
included in the quarterly calculation beginning in the fourth quarter of 2005. Declines in
identical store sales and the slight increase in comparable store sales during 2004 are a result of
the soft economy, increased competition from low-priced retailers such as supercenters, club stores
and large-scale drugstore retailers and heavy promotional activity by traditional competitors.
During 2005, the Company expects to continue to invest in pricing, promotion and advertising to
capture market share and increase sales in key geographic markets. 15




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##### Table of Contents



Management estimates that overall inflation in products the Company sells was 0.8% in the 12 months
ended February 3, 2005 as compared to 0.5% in the 12 months ended January 29, 2004. During 2004 the Company acquired 172 combination food-drug stores, 34 conventional food stores and
11 specialty retail stores as part of the Shaws and Bristol Farms acquisitions. The Company also
opened 43 combination food-drug stores, 15 stand-alone drugstores, one conventional food store, 11
Extreme Inc. price impact stores and 13 fuel centers. The Company closed or sold 47 combination
food-drug stores, 15 conventional food stores and 27 stand-alone drugstores. The Company also
remodeled 186 stores. Net retail square footage of continuing operations was 104.2 million square
feet at the end of 2004 as compared to 94.0 million square feet in 2003. Gross profit, as a percent to sales, decreased in 2004 as compared to 2003 due to continued planned
investments in pricing, promotion and advertising to drive sales growth and market share. These
investments occurred throughout the Company, especially in Southern California, in an effort to
recapture market share following the resolution of the Labor Dispute. The factors causing a
decline in gross profit, as a percentage of sales, were partially offset by savings generated from
strategic sourcing and consumer demand chain 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 the Companys Own Brands. Selling, general and administrative (SG&A) expenses as a percent to sales increased slightly in
2004 as compared to 2003. This increase was primarily attributable to higher employee benefit
costs, additional legal expense associated with pending and settled litigation, and higher
professional expenses related to information technology infrastructure improvements and the
Companys consumer demand chain initiatives. The increase was also attributable to the unplanned
and self-insured costs associated with the Southeastern United States hurricanes, ratification
bonuses of $16 associated with the terms of the new collective bargaining labor agreements in
California and Nevada, increased credit and debit card transaction fees and increased rent expense.
In addition, SG&A as a percent to sales in 2003 was favorably impacted by $46 earned under the
Labor Dispute Agreements. Partially offsetting these factors, SG&A as a percent to sales benefited
in 2004 from lower wages and benefits related to a decrease in bonus expense, increased sales
leverage from the acquisition of Shaws, gains recognized on the disposal of property, a reduction
in business taxes as a result of favorable state audit settlements and a reduction in incremental
Labor Dispute costs recognized in the prior year. The increase in employee benefit costs referenced above was a result of a one-time contribution to
a union health and welfare fund of $36 associated with the terms of the new collective bargaining
labor agreement in Southern California and unanticipated payments to two Northern California UFCW
multi-employer health and welfare plans for funding deficits in 2004. Additionally, there was a
$36 gain recognized in 2003 associated with the curtailment of postretirement medical benefits.
The impact of these factors was partially offset by lower Company-sponsored health and welfare
costs in 2004 due to the restructuring of the Companys benefit plans in June 2004.
Payments to multi-employer health and welfare plans
represent mandatory contributions which are based on reserve
requirements set forth in the related collective bargaining agreements. Some of the collective
bargaining agreements up for renewal in the next several years contain reserve requirements that may
trigger unanticipated contributions resulting in increased health care expenses. If these health care
provisions cannot be renegotiated in a manner that reduces the
prospective health care cost as the Company intends, the Companys selling, general and administrative
expenses could continue to increase, possibly significantly, in the future. Interest, net, during 2004 totaled $500 as compared with $409 in 2003. This increase was
attributable to interest costs on the issuance of the $1,150 mandatory convertible security used to
repay commercial paper that was used to finance the acquisition of Shaws (refer to Note 11
Indebtedness in the notes to the accompanying consolidated financial statements) and an increase
in interest on capital lease obligations resulting from the acquisition of Shaws. The Companys effective income tax rate from continuing operations for 2004 was 34.9%, as compared
to 38.6% for 2003. This decrease was due primarily to a tax benefit arising from the resolution of
prior year tax issues with the Internal Revenue Service and the implementation and effects of the
Companys tax savings initiatives which had a favorable impact on the current tax rate and also
resulted in a favorable adjustment upon completion of the prior year tax returns. Earnings from continuing operations were $474 in 2004 compared to $556 for 2003. This decrease was
due to lower gross margins as a result of increased investments in pricing and promotion, higher
employee benefit expenses as a result of a one-time contribution to the union health and welfare
fund of $36 made under new collective bargaining labor agreements, and $46 earned in 2003 under the
Labor Dispute Agreements compared to $17 earned in 2004. The decrease was also attributable to
increased legal expense associated with pending and settled litigation, higher professional
expenses for technology services, increased interest expense, unplanned and self-insured hurricane
costs, increased credit and debit card transaction fees and increased rent expense. Although
sales and market share in Southern California had returned to 2002 pre-Labor Dispute levels by the
fourth quarter of 2004, earnings had not recovered to pre-Labor Dispute levels as a result of
increased investment in pricing and promotion to grow sales and capture market share. The Company experienced earnings pressure in
Northern California and Dallas/Ft. Worth due to intense competition, which also resulted in higher
than anticipated pricing and promotional investment during 2004, and in certain other markets where
the Company does not have a number one or number two market share position. The decline in
earnings was partially offset by earnings from Shaws operations that were acquired in 2004, a
reduction in wages and benefits, gains on the disposal of property and a reduction in the
effective tax rate. Net loss from discontinued operations was $30 in 2004 as compared to $0 in 2003. This loss
resulted primarily from the Companys decision, announced in June 2004, to sell, close or otherwise
dispose of 21 operating stores in Omaha, Nebraska and 16




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##### Table of Contents



the Companys decision, announced in April 2004, to sell, close or otherwise dispose of seven operating stores and three non-operating
properties in New Orleans, Louisiana. Fiscal Year 2003 Compared to Fiscal Year 2002
Sales decreased $209 in 2003 as compared to the 52 weeks ended January 30, 2003 (2002) primarily
due to the Labor Dispute. The Labor Dispute resulted in decreased sales in the Companys Southern
California combination food-drug and conventional food stores. These decreases were partially
offset by an increased number of operating stores in 2003 as compared to 2002. In 2003, identical
store sales decreased 2.8% as compared to 2002 and comparable store sales decreased 2.4% in 2003 as
compared to 2002. This decrease in identical and comparable store sales was a direct result of the
Labor Dispute. Excluding food stores in the Companys Southern California area for the last 110
days of 2003 and 2002, identical store sales decreased 0.5% and comparable store sales decreased
0.1% in 2003 as compared to 2002. The following table reconciles actual identical store sales and comparable store sales to adjusted
identical store sales and comparable store sales as presented herein. The Company presents these
non-GAAP financial measures because it believes a comparison of actual to adjusted store sales data
is useful to investors to communicate managements belief of the impact of the Labor Dispute on
trends in sales experienced during the last 110 days of 2003. Actual
    
    
    Labor
    
    
    AdjustedIdentical
    
    
    Dispute
    
    
    IdenticalStore Sales
    
    
    Adjustment
    
    
    Store Sales52 weeks ended January 29, 2004
    
    $
    33,142
    
    
    $
    (718
    ) (1)
    
    $
    32,42452 weeks ended January 30, 2003
    
    
    34,104
    
    
    
    (1,520
    ) (2)
    
    
    32,584Year to year change
    
    
    (962
    )
    
    
    
    
    
    
    (160
    )52 weeks ended January 30, 2003
    
    
    34,104
    
    
    
    
    
    
    
    32,584Identical store sales percentage change
    
    
    (2.8
    )%
    
    
    
    
    
    
    (0.5
    )%
 Actual
    
    
    Labor
    
    
    AdjustedComparable
    
    
    Dispute
    
    
    ComparableStore Sales
    
    
    Adjustment
    
    
    Store Sales52 weeks ended January 29, 2004
    
    $
    33,705
    
    
    $
    (727
    ) (3)
    
    $
    32,97852 weeks ended January 30, 2003
    
    
    34,547
    
    
    
    (1,534
    ) (4)
    
    
    33,013Year to year change
    
    
    (842
    )
    
    
    
    
    
    
    (35
    )52 weeks ended January 30, 2003
    
    
    34,547
    
    
    
    
    
    
    
    33,013Comparable store sales percentage change
    
    
    (2.4
    )%
    
    
    
    
    
    
    (0.1
    )%
   (1)
    
    Represents the identical Southern California food store sales in 2003 during the last 110 days of the fiscal year ended
January 29, 2004.(2)
    
    Represents the identical Southern California food store sales in 2002 during the last 110 days of the fiscal year ended
January 30, 2003.(3)
    
    Represents the comparable Southern California food store sales in 2003 during the last 110 days of the fiscal year ended
January 29, 2004.(4)
    
    Represents the comparable Southern California food store sales in 2002 during the last 110 days of the fiscal year ended
January 30, 2003. Management estimates that overall inflation in products the Company sells was 0.5% in the 12
months ended January 29, 2004 as compared to an overall deflation of 0.1% in the 12 months ended
January 30, 2003. During 2003 the Company opened 50 combination food-drug stores, 27 stand-alone drugstores, two
conventional food stores and 29 fuel centers. The Company closed or sold 15 combination food-drug
stores, 18 conventional food stores and 28 stand-alone drugstores. The Company also remodeled 192
stores. Net retail square footage of continuing operations was 94.0 million square feet at the end
of 2003 as compared to 92.1 million square feet in 2002. Gross profit, as a percent to sales, decreased in 2003 as compared to 2002 due to decreased sales
leverage as a result of the Labor Dispute and continued, planned investments in pricing and
promotion in key markets and categories 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 Our Own Brands sales growth. SG&A expenses as a percent to sales increased in 2003 as compared to 2002. This increase was
attributable to the lack of sales leverage due to the Labor Dispute as well as higher depreciation
costs associated with the Companys continued investment in information technology and store
development; increased compensation costs; increased workers compensation costs, primarily due to
actual costs of prior years claims exceeding prior years estimated costs; increased employee
benefit costs, primarily due to increases in Company and union sponsored health and welfare plans
and increased pension charges, partially offset by a $36 gain associated with the curtailment of
postretirement medical benefits for employees retiring after June 1, 2004; and contingent lease
charges. The increased employee benefit costs experienced during the year were due, in part, to
increases in mandatory contributions to multi-employer health care and pension plans to which the
Company contributes. 17




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##### Table of Contents



Interest, net, during 2003 totaled $409 as compared with $396 in 2002. This increase was
attributable to less interest being capitalized on construction projects during 2003. The decrease
in capitalized interest was due to an overall reduction in capital expenditures, particularly for
new stores. Earnings from continuing operations were $556 in 2003 compared to $866 in 2002. This decrease was
due to lost sales and earnings associated with the Labor Dispute, decreased gross margin associated
with planned investments in pricing and promotion and an increase in depreciation, compensation
costs, workers compensation costs and employee benefits costs. Net earnings in 2003 were $556 or $1.51 per diluted share as compared to $485 or $1.22 per diluted
share. The improvement in 2003 was a result of a charge of $379 in 2002 related to a strategic
decision to exit underperforming markets and a charge of $94 in 2002 related to the adoption of a
new accounting principle for the recognition of vendor funds, partially offset by the reduction in
earnings from continuing operations in 2003 as a result of the Labor Dispute. Discontinued Operations and Restructuring Activities
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 2004, 2003 and
2002. As of February 3, 2005 the Company had disposed of 14 properties, resulting in seven
remaining properties with a value of $2 classified as Assets Held for Sale in the 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 2004, 2003 and 2002. As of February 3,
2005, the Company had disposed of six properties, resulting in four remaining properties with a
value of $15 classified as Assets Held for Sale in the 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 operating stores and two distribution
centers and the elimination of four division offices. As of February 3, 2005 the Company had
disposed of 82 properties, resulting in 13 remaining properties with a value of $2 classified as
Assets Held for Sale in the Consolidated Balance Sheet. Discontinued operations stores generated sales of $155, $329 and $600 for 2004, 2003 and 2002,
respectively. The loss from discontinued operations of $30 for 2004 consisted of a loss from
operations of $3, a write down of fixed assets and lease settlements of $63, gain on disposal of
$18 and an income tax benefit of $18. The income from discontinued operations was not material to
2003 Consolidated Earnings. The loss from discontinued operations was $287 in 2002 and consisted
of a loss from operations of $49, a write down of fixed assets, lease settlements and other costs
of $379 and an income tax benefit of $141. 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 store support centers, and 4) reducing overall store support center headcount. As of February
3, 2005, the Company had disposed of 136 properties, resulting in 29 remaining properties with a
value of $2 classified as Assets Held for Sale in the Consolidated Balance Sheet. 18




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##### Table of Contents



The following table summarizes the accrual activity for future lease obligations related to
discontinued operations, restructuring activities and closed stores: Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 29,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 3,2004
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    20052004 Discontinued Operations
    
    $
    
    
    
    $
    8
    
    
    $
    (7
    )
    
    $
    1
    
    
    $
    22002 Discontinued Operations
    
    
    8
    
    
    
    
    
    
    
    (3
    )
    
    
    1
    
    
    
    62001 Restructuring Activities
    
    
    19
    
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )
    
    
    12Closed Stores
    
    
    20
    
    
    
    7
    
    
    
    (7
    )
    
    
    2
    
    
    
    22$
    47
    
    
    $
    15
    
    
    $
    (22
    )
    
    $
    2
    
    
    $
    42
 Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 30,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 29,2003
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    20042002 Discontinued Operations
    
    $
    11
    
    
    $
    
    
    
    $
    (4
    )
    
    $
    1
    
    
    $
    82001 Restructuring Activities
    
    
    28
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    19Closed Stores
    
    
    30
    
    
    
    5
    
    
    
    (9
    )
    
    
    (6
    )
    
    
    20$
    69
    
    
    $
    5
    
    
    $
    (22
    )
    
    $
    (5
    )
    
    $
    47
 Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 30,2002
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    20032002 Discontinued Operations
    
    $
    
    
    
    $
    26
    
    
    $
    (30
    )
    
    $
    15
    
    
    $
    112001 Restructuring Activities
    
    
    61
    
    
    
    6
    
    
    
    (16
    )
    
    
    (23
    )
    
    
    28Closed Stores
    
    
    39
    
    
    
    8
    
    
    
    (16
    )
    
    
    (1
    )
    
    
    30$
    100
    
    
    $
    40
    
    
    $
    (62
    )
    
    $
    (9
    )
    
    $
    69
 Liquidity and Capital Resources
Cash provided by operating activities during 2004 was $2,100, compared to $1,526 in 2003 and $1,984
in 2002. The increase in cash provided by operating activities in 2004 as compared to 2003 was due
primarily to the implementation of strategic initiatives to lower inventories, increases in
accounts payable as a result of lower payable balances in the prior year due to the Labor Dispute,
collections of amounts earned under the Labor Dispute Agreements and return of a deposit from a
third-party service provider. The increase in cash provided by operating activities in 2004 as
compared to 2003 was also attributable to increased non-cash charges including depreciation and
amortization and charges related to discontinued operations. The increase in depreciation and
amortization was due to the Shaws acquisition and a higher mix of information technology
expenditures which have a shorter useful life compared to store investments. These sources of
operating cash were partially offset by lower earnings from continuing operations, gains on
disposal of assets and the cost of funding the Companys pension plans. The decrease in cash provided by operating activities in 2003 as compared to 2002 was primarily due
to lower earnings before interest, taxes, depreciation and amortization from continuing operations,
a reduction in accounts payable due to lower inventory purchases and inventory turns in the
Southern California area directly related to the Labor Dispute and increased inventory levels as a
result of increased store count. These uses of cash were partially offset by a reduction in the
Companys income tax payable as a result of implementation of tax planning initiatives in 2003. Cash flow used in investing activities for 2004 increased to $3,054 compared to $901 and $662 in
2003 and 2002, respectively. The increase in cash flow used in investing activities for 2004 as
compared to 2003 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 capital
expenditures in 2004 that were flat versus 2003 and lower than 2002. The increase in cash used in
investing activities in 2003 as compared to 2002 was due primarily to proceeds from the sale of
assets (primarily associated with the 2001 restructuring activities and the 2002 market exits) that
were $488 greater than asset sale proceeds received in 2003, partially offset by lower capital
expenditures in 2003. Cash provided by financing activities in 2004 was $666 as compared to cash used in financing
activities of $492 and $1,297 in 2003 and 2002, respectively. The primary difference in financing
activity cash flows in 2004 as compared to 2003 was the receipt of proceeds from the mandatory
convertible security offering and commercial paper borrowings used to acquire Shaws and Bristol
Farms. These sources of cash were partially offset by cash used for payment on long-term
borrowings in 2004. The decrease in cash provided by financing activities in 2003 as compared to
2002 was primarily due to the Companys decision to purchase fewer shares of its common stock in
2003. In 2002, the Company purchased $862 of its common stock as compared to $108 in 2003. The Board of Directors, at its March 2005 meeting, declared a quarterly cash dividend of $0.19 per
share. 19




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##### Table of Contents



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 expenditures and
to a lesser extent acquisitions. Accordingly, commercial paper and bank line borrowings will
fluctuate between reporting periods. The Company had three revolving credit facilities totaling $1,400 during 2004. 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 with total availability of $900, will expire in
June 2009. The third agreement, a five-year facility with total availability of $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 all three of 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 February 3, 2005, the Company was in compliance with these requirements. The Company had
$349 in commercial paper borrowings outstanding and backed by these credit facilities at February
3, 2005 and no commercial paper or bank line borrowings outstanding at January 29, 2004. In May 2004 the Company completed a public offering registered with the Securities and Exchange
Commission 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 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 bear an annual interest rate of 3.75%. In
the first half of 2007 the aggregate principal amount of the senior notes will be remarketed, which may result in a
change in the interest rate and maturity date of the senior notes.
Proceeds from a successful remarketing
would be used to satisfy in full each Corporate Unit holders obligation to purchase common stock
under the related purchase contract. If the senior notes are not successfully remarketed, the
holders will have the right to put their senior notes to the Company to satisfy their obligations under
the purchase contract. The purchase contracts yield 3.5% per year on the stated amount of
twenty-five dollars. The Company filed a shelf registration statement with the Securities and Exchange Commission, which
became effective on February 13, 2001 (2001 Shelf Registration) to authorize the issuance of up
to $3,000 in debt securities. In May 2001 the Company issued $600 of term notes under the 2001
Shelf Registration. The term notes are composed of $200 of principal bearing interest at 7.25% due May
1, 2013 and $400 of principal bearing interest at 8.0% due May 1, 2031. Proceeds were used
primarily to repay borrowings under the Companys commercial paper program. During 2002, 2003 and
2004, no securities were issued under the 2001 Registration Statement. As of February 3, 2005,
$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. There were no purchases of
the Companys stock during 2004. During 2003, the Company
purchased and retired 5.3
million shares of its common stock for a total expenditure of $108 at an average price of $20.26
per share. During 2002, the Company purchased and retired 35.1 million shares of its common stock
for $862, at an average price of $24.54 per share. In December 2004, the Board of Directors
reauthorized a program authorizing management, at their discretion, to purchase and retire up to
$500 of the Companys common stock through December 31, 2005. The Company may continue or, from
time to time suspend, purchasing shares under its stock purchase program without notice, depending
on prevailing market conditions, alternate uses of capital and other factors. At February 3, 2005, cash flows from operations and available borrowings were adequate to support
planned business operations, stock purchases and capital expenditures. The Company has short-term
financing capacity in the form of commercial paper or bank line borrowings up to $1,400 and
long-term capacity under the 2001 Registration Statement of $2,400. As of February 3, 2005, the Companys credit ratings were as follows: S & P
    
    Moodys
    
    FitchLong-term debt
    
    BBB
    
    Baa2
    
    BBBShort-term debt
    
    A2
    
    P2
    
    F2
 On March 16, 2005, Standard & Poors Rating Services (S&P) announced that it had placed the
ratings of the Company, The Kroger Co., and Safeway, Inc. on credit watch with negative
implications. S&P also announced that they expected any downgrade to be limited to one notch with
ratings not expected to fall below investment grade. The Company does not have any credit rating
downgrade triggers that would accelerate repayment in the Companys fixed-term debt portfolio were
a downgrade in the Companys credit ratings to occur. Similarly, a downgrade in the Companys
credit ratings would not affect the Companys ability to borrow amounts under the revolving credit
facilities. However, any adverse changes to the Companys credit ratings would increase the cost
of borrowings under the Companys credit facilities. In addition, a downgrade could limit the
Companys ability to issue commercial paper. Should this occur the Company might seek alternative
sources of funding, including the issuance of notes under the 2001 Registration Statement. In
addition, up to $1,400 could be drawn upon from the Companys senior unsecured credit facilities. 20




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##### Table of Contents



Contractual Obligations, Commercial Commitments and Guarantees Contractual Obligations
The Company enters into a variety of legally binding obligations and commitments in the normal
course of its business. The table below presents, as of February 3, 2005, the Companys long-term
contractual obligations and commitments which are considered to represent known future cash
payments that the Company will be required to make under existing contractual arrangements. Some
amounts are based on managements estimates and assumptions and amounts actually paid may vary from
those reflected in the table. Contractual Obligation
    
    Payments Due By Period2010 andTotal
    
    
    2005
    
    
    2006 - 2007
    
    
    2008 - 2009
    
    
    ThereafterLong-term debt, including current
portion (1)

    
    $
    6,006
    
    
    $
    214
    
    
    $
    384
    
    
    $
    1,654
    
    
    $
    3,754Interest on long-term debt(2)
    
    
    4,857
    
    
    
    378
    
    
    
    731
    
    
    
    722
    
    
    
    3,026Capital lease obligations (3)
    
    
    2,015
    
    
    
    114
    
    
    
    223
    
    
    
    223
    
    
    
    1,455Operating leases (3)
    
    
    4,725
    
    
    
    374
    
    
    
    697
    
    
    
    632
    
    
    
    3,022Purchase obligations (4)Utilities (5)
    
    
    118
    
    
    
    109
    
    
    
    9
    
    
    
    
    
    
    
    Contracts for purchase of property
and construction of buildings
    
    
    40
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    Transportation contracts
    
    
    4,065
    
    
    
    962
    
    
    
    1,773
    
    
    
    1,156
    
    
    
    174OtherSelf insurance liability
    
    
    895
    
    
    
    263
    
    
    
    323
    
    
    
    142
    
    
    
    167Compensation and benefits
    
    
    649
    
    
    
    65
    
    
    
    58
    
    
    
    46
    
    
    
    480Other long-term liabilities
    
    
    4
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    23,374
    
    
    $
    2,522
    
    
    $
    4,199
    
    
    $
    4,575
    
    
    $
    12,078
   (1) The Company has medium-term notes and debentures that contain put options
that would require the Company to repay borrowed amounts prior to maturity. Medium-term
notes of $30 and $50 mature in July 2027 and April 2028, respectively, and have put options
exercisable in July 2007 and April 2008, respectively. Debentures in the amount of $200
mature in May 2037 and have a put option exercisable in May 2009. For the purpose of the
table above, payments of these obligations are assumed to occur at maturity.(2) Amounts include contractual interest payments using the interest rate as of
February 3, 2005 applicable to the Companys commercial paper and stated fixed interest
rates for all other debt instruments.(3) Represents the minimum rents payable under capital leases and includes operating
leases associated with closed stores accrued for under the Companys restructuring and
closed store reserves. Amounts are offset by expected sublease income.(4) In addition to the contracts noted in this table, the Company enters into supply
contracts to purchase products for resale in the ordinary course of business. This
category of contracts covers a broad spectrum of products and sometimes includes specific
merchandising obligations relative to those products. These supply contracts typically
include either a volume commitment or a fixed expiration date; pricing terms based on the
vendors published list price; termination provisions; and other standard contractual
considerations. Although there are a significant number of these contracts, they are
typically cancelable upon return of unearned allowances and therefore no amounts have been
included above.(5) The Company has entered into supply contracts to purchase specified quantities of
electricity and natural gas that have terms through 2006. The amounts included in the
table reflect projected purchases based on historical usage and contracted rates. Commercial Commitments  Guarantees  The Company is contingently liable for certain operating leases that were assigned to third parties
in connection with various store closures and dispositions. If any of these third parties fails to
perform its obligations under the lease, the Company could be responsible for the lease
obligations. In 2003 the Company was notified that certain of these third parties had become
insolvent and were seeking bankruptcy protection. At January 29, 2004, approximately 26 store
leases for which the Company was contingently liable were subject to the bankruptcy proceedings of
such third parties and 22 of those had been rejected by the
applicable third party. The Company recorded pre-tax charges of $20 in 2003, which represents the
remaining minimum lease 21




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##### Table of Contents



payments and other payment obligations under the 22 rejected leases, less
estimated sublease income and discounted at the Companys credit-adjusted risk-free interest rate.
As of February 3, 2005, approximately 17 store leases remained for which the Company is
contingently liable. Terminations and payments made on these leases in 2004 resulted in a
reduction of the Companys contingent liability of $16. As of February 3, 2005, the Company had
remaining guarantees on approximately 208 stores with leases extending through 2026. Assuming that
each respective purchaser became insolvent, an event the Company believes to be remote because of
the wide dispersion among third parties and the variety of remedies available, the minimum future
undiscounted payments, exclusive of any potential sublease income, are $371. The Company enters into a wide range of indemnification arrangements in the ordinary course of
business. These include tort indemnities, tax indemnities, indemnities against third party claims
arising out of arrangements to provide services to the Company, indemnities in merger and
acquisition agreements and indemnities in agreements related to the sale of Company securities.
Also, governance documents of the Company and substantially all of its subsidiaries provide for the
indemnification of individuals made party to any suit or proceeding by reason of the fact that the
individual was acting as an officer, director or agent of the relevant company or as a fiduciary of
a company-sponsored welfare benefit plan. The Company also provides guarantees and
indemnifications for the benefit of many of its wholly owned subsidiaries for the satisfaction of
performance obligations, including workers compensation obligations. It is difficult to quantify
the maximum potential liability under these indemnifications; however at February 3, 2005 the
Company was not aware of any material liabilities arising from these indemnification arrangements. Off Balance Sheet Arrangements  Capital Expenditures
The Company is committed to keeping its stores up to date. In the last three years, the Company has
opened or remodeled 679 stores, representing 29% of the Companys retail square footage as of
February 3, 2005. The following summary of historical capital expenditures includes capital
leases, excluding the Shaws and Bristol Farms acquisitions: 2004
    
    
    2003
    
    
    2002New and acquired stores
    
    $
    491
    
    
    $
    371
    
    
    $
    688Remodels
    
    
    213
    
    
    
    345
    
    
    
    455Retail replacement equipment, technology and other
    
    
    409
    
    
    
    387
    
    
    
    221Distribution facilities and equipment
    
    
    48
    
    
    
    53
    
    
    
    70Total capital expenditures
    
    $
    1,161
    
    
    $
    1,156
    
    
    $
    1,434
 Total capital expenditures include capitalized lease obligations incurred of $111 in 2004, $62 in
2003 and $75 in 2002. The Companys financial position provides the flexibility for the Company to grow through its store
development program and future acquisitions. The Companys capital expenditure budget for 2005 is
estimated between $1,300 to $1,400 and includes new capital and operating lease obligations. Related Party Transactions
Transactions with related parties were not considered material. See Note 18 Related Party
Transactions in the notes to the accompanying consolidated financial statements. Insurance Contingencies
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 February 3, 2005, the insurance carrier continued 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. Environmental
The Company has identified environmental contamination sites related primarily to underground
petroleum storage tanks and groundwater contamination at various store, warehouse, office and
manufacturing facilities (related to current operations as well as previously disposed of
properties). The Company conducts an ongoing program for the inspection and evaluation of
potential new sites and the remediation and monitoring of contamination at existing and previously
owned sites. Although the ultimate outcome and expense of environmental remediation is uncertain,
the Company believes that the costs of required remediation and continuing compliance with
environmental laws, in excess of current reserves, will not have a material adverse effect on the
financial condition, results of operations or cash flows of the Company. Environmental remediation
costs were not material in 2004, 2003 or 2002. 22




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##### Table of Contents



Critical Accounting Policies
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys consolidated financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States. The preparation of these
financial statements requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related
to bad debts, inventories, vendor funds, intangible assets, income taxes, assets held for sale,
impairment of long-lived assets, self-insurance, restructuring, benefit costs, contingencies,
litigation and unearned income. The Company bases its estimates on historical experience and on
various other assumptions and factors that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The Company, based on its ongoing
review, will make adjustments to its judgments and estimates where facts and circumstances dictate.
Historically, actual results have not significantly deviated from those determined using the
estimates described above. The Company believes the following critical accounting policies are important to understand the
Companys financial condition and results of operations and require managements most difficult,
subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Vendor Funds
The Company receives funds from many of the vendors whose products the Company buys for resale in
its stores. These vendor funds are provided to increase the sell-through of the related products.
The Company receives funds for a variety of merchandising activities: placement of the vendors
products in the Companys advertising; display of the vendors products in prominent locations in
the Companys stores; introduction of new products into the Companys distribution system and
retail stores; exclusivity rights in certain categories that have slower-turning products; and to
compensate for temporary price reductions offered to customers on products held for sale at retail
stores. The Company also receives vendor funds for buying activities, such as volume commitment
rebates and credits for purchasing products in advance of their need. As of February 3, 2005, the
terms of the Companys vendor funds arrangements varied in length from short-term arrangements that
are to be completed within a quarter to long-term arrangements that are expected to be completed
within eight years. Accounting for vendor funds is discussed in Emerging Issues Task Force EITF Issue 02-16:
Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor
(EITF 02-16), which the Company adopted as of the beginning of 2002. As a result of this
guidance, the Company began recognizing the vendor funds for merchandising activities as a
reduction of cost of sales when the related products are sold as opposed to the previous method of
recognizing these credits as a reduction of cost of sales when the merchandising activity was
performed in accordance with the underlying agreements. Vendor funds that have been earned as a
result of completing the required performance under the terms of the underlying agreements but for
which the product has not yet been sold are recognized as reductions of inventory. The amount of
vendor funds remaining in ending inventory requires management judgment and estimates. Management
estimates these amounts based on the average inventory turnover rates by product category for the
Companys grocery, general merchandise and lobby departments and by average inventory turnover
rates by department for the Companys remaining inventory. The amount of vendor funds reducing the
Companys inventory (inventory offset) as of February 3, 2005, including those resulting from the
acquisitions made during fiscal 2004 (refer to Note 5 Business Acquisitions in the notes to the
accompanying consolidated financial statements) was $126, a decrease of $29 from the beginning of
fiscal 2004. The vendor funds inventory offset as of January 29, 2004 was $155, an increase of $3
from the beginning of fiscal 2003. Long-Lived Asset Impairments
The Company regularly reviews long-lived assets for indicators of impairment. Managements
judgments regarding the existence of impairment indicators are based on operational performance.
Future events could cause management to conclude that impairment indicators exist and that the
value of long-lived assets is impaired. When events or changes in circumstances indicate that the
carrying value of an asset or an asset group is not recoverable, the fair value of the asset is
compared to its carrying value. Impairment losses are measured as the amount by which the carrying
value of the asset exceeds its estimated fair value. The estimated fair value of the assets is
determined by internal real estate specialists or by independent valuations from subject matter
experts. These estimates can be significantly impacted by factors such as changes in real estate
market conditions, the economic environment and inflation. For properties that have closed and are under long-term operating lease agreements, the present
value of any remaining liability under the lease, discounted using credit risk-free rates and net
of estimated sublease rentals that could be reasonably obtained for the property, is recognized as
a liability and charged to operations. The value of any equipment and leasehold improvements
related to a closed store is reduced to reflect net recoverable values. Internal real estate
specialists estimate the subtenant income and asset recovery values based on their historical
experience and knowledge of (1) the market in which the store to be closed is located, (2) the
results of the Companys previous efforts to dispose of similar assets and (3) the current economic
conditions. The actual cost of disposition for these leases and related assets is affected by
factors such as specific real estate markets, the economic environment and inflation. Goodwill
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, in 2002. Upon adoption,
the aggregate of the goodwill allocated to the stores in each reporting unit became the reporting
units goodwill balance. In order to determine if a reporting units goodwill was impaired, a
combination of internal analyses and estimates of fair value from independent valuation specialists
were used. Based on these analyses, there was no impairment of goodwill at the adoption date.
Subsequently, during
the fourth quarter of 2002, 2003 and 2004, the Company completed its annual impairment review and
determined that there was no 23




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##### Table of Contents



impairment. The fair value estimates could change in the future
depending on internal and external factors, including the success of strategic sourcing
initiatives, labor cost controls and competitive activity. Self-Insurance
The Company is primarily self-insured for property loss, workers compensation, automobile
liability costs and general liability costs. The Company records its self-insurance liability,
determined actuarially, based on claims filed and an estimate of claims incurred but not yet
reported. Any actuarial projection of ultimate losses is subject to a high degree of variability.
Sources of this variability are numerous and include, but are not limited to, future development of
previous claims, future economic conditions, court decisions and legislative actions. For example,
workers compensation costs were $372, $361 and $282 in 2004, 2003 and 2002 respectively.
Excluding the results of Shaws and Bristol Farms, workers compensation expense remained flat in
2004 as compared with 2003. The increase in costs from 2002 to 2003 was primarily attributable to
development of prior year claims that were higher than previously estimated while the annual number
of workers compensation claims had decreased year to year. The Companys workers compensation liabilities are from claims occurring in various states.
Individual state workers compensation regulations have received a tremendous amount of attention
from state politicians, insurers, employers and providers, as well as the public in general.
Recent years have seen an escalation in the number of legislative reforms, judicial rulings and
social phenomena affecting workers compensation. The changes in a states political and economic
environment increase the variability in the unpaid claim liabilities. The Companys workers
compensation reserves do not contemplate any of these potential developments. Legal Contingencies
The Company records reserves for legal contingencies, in accordance with SFAS No. 5, Accounting
for Contingencies, when the information available to the Company indicates that it is probable
that a liability has been incurred and the amount of the loss can be reasonably estimated.
Predicting the outcomes of claims and litigation and estimating related costs and exposures involve
substantial uncertainties that could cause actual costs to vary materially from estimates. 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. Pension Costs
Pension benefit obligations and the related effects on operations are dependent on the Companys
selection of actuarial assumptions, including the discount rate and the expected long-term rate of
return on plan assets. Actual returns on plan assets exceeded return assumptions over an extended
period in the past, which kept pension expense and cash contributions to the plans at modest
levels. Weaker market performance may significantly increase pension expense and cash
contributions in the future. Changes in the interest rates used to determine the discount rate may
also cause volatility in pension expense and cash contributions. Actual results that differ from
the Companys assumptions are accumulated and amortized over future periods and, therefore,
generally affect the Companys recognized expense and recorded obligation in such future periods. For example, in 2004 the Company maintained the existing Albertsons defined benefit and defined
contribution plans for Albertsons associates and, following the acquisition of Shaws, assumed the
obligations of the Shaws retirement plans. In 2004, the discount rate assumption for the
Albertsons plans was 5.80% and its long-term asset return assumption was 8.0%. Using these
assumptions, the Companys 2004 pension expense for the Albertsons plans was $25, following expense
of $30 in 2003 and $12 in 2002. If the Company had decreased its estimated discount rate to 5.55%
and its expected return on plan assets to 7.5%, the Companys 2004 pension expense for the
Albertsons plans would have been $33 and net earnings would have decreased approximately $5. If the
Company had increased its discount rate assumption to 6.05% and its expected return on plan assets
to 8.5%, 2004 pension expense for the Albertsons plans would have been $18 and net earnings would
have increased approximately $4. For the Shaws plans, the Companys 2004 pension expense was $12
using a discount rate assumption of 6.15% and a long-term asset return assumption of 8.0%. If the
Company had decreased its estimated discount rate to 5.90% and its expected return on plan assets
to 7.5% for the Shaws plans, 2004 pension expense would have been $14 and net earnings would have
decreased approximately $1. If the Company had increased its discount rate assumption to 6.40% and
its expected return on plan assets to 8.5% for the Shaws plans, 2004 pension expense would have
been $11 and net earnings would have increased approximately $1. Recently Issued and Adopted Accounting Standards
In July 2001 the FASB issued SFAS No. 143, Accounting for
Asset Retirement Obligations (SFAS No. 143). This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 became effective for the Company on January 31,
2003 and did not have a material effect on the Companys consolidated financial statements. In November 2002 the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures
by a guarantor in its interim and annual financial statements about the obligations associated with
guarantees issued. The recognition provisions of FIN 45 are effective for guarantees issued after
December 31, 2002, while the disclosure requirements were effective for financial statements for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on
the Companys consolidated financial statements. In January 2003 the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the 24




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##### Table of Contents



entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 was effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 were required to be applied for the first
interim or annual period beginning after June 15, 2003. In December 2003 the FASB issued
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 (FIN 46(R)). FIN
46(R) provides additional guidance related to
identifying variable interest entities and determining whether such entities should be
consolidated. Neither the adoption of FIN 46 or FIN 46(R) had a material effect on the Companys
consolidated financial statements. In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity (SFAS No. 150). SFAS No. 150 requires that
certain financial instruments, which under previous guidance could be accounted for as equity, be
classified as liabilities in statements of financial position. SFAS No. 150 was effective for
financial instruments entered into or modified after May 31, 2003 and was effective for the Company
in the third quarter of 2003. The adoption of SFAS No. 150 did not have a material effect on the
Companys consolidated financial statements. In November 2003 the 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 the Companys first quarter of 2004, did not have a material effect
on the Companys financial statements. 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 required disclosure regarding 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 disclosures are included in Note 15 Employee Benefit
Plans and Collective Bargaining Agreements. 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 Medicare Act), which was signed into law in December 2003. SFAS
No. 106-2 is effective beginning in the third fiscal quarter of 2005. The impact of the Medicare
Act and SFAS No. 106-2 is not expected to have a material effect on the Companys consolidated
financial statements. 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 impact of SFAS No. 151 is
not expected to have a material effect on the Companys consolidated financial statements. In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS
123(R)). SFAS 123(R) addresses the accounting for share-based payments to employees, including
grants of employee stock options. Under the new standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic value method in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees. Instead, companies will be
required to account for such transactions using a fair-value method and recognize the expense in
the consolidated earnings statements. SFAS 123(R) will be effective for periods beginning after
June 15, 2005 and allows, but does not require, companies to restate the full fiscal year of 2005
to reflect the impact of expensing share-based payments under SFAS 123(R). The Company intends to
adopt SFAS 123(R) using the modified prospective transition method beginning with its third
quarter of 2005. Under this method, awards that are granted, modified, or settled after June 15,
2005, will be measured and accounted for in accordance with SFAS 123(R). In addition, in the
Companys third quarter of 2005, expense must be recognized in the earnings statement for unvested
awards that were granted prior to the start of the Companys third quarter of 2005. The expense
will be based on the fair value determined at grant date under SFAS 123, Accounting for
Stock-Based Compensation. The Company estimates that earnings per share in the second half of
2005 will be reduced by approximately $0.04 per diluted share as a result of implementing SFAS
123(R). However, the calculation of compensation cost for share-based payment transactions after
the effective date of SFAS 123(R) may be different from the calculation of compensation cost under
SFAS 123, but such differences have not yet been quantified. 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company is exposed to certain market risks that are inherent in the Companys financial
instruments, which arise from transactions entered into in the normal course of business. From
time to time, the Company enters into certain derivative transactions, however the Company does not
enter into derivative financial instruments for trading purposes. The Company uses derivatives
primarily as cash flow hedges to set interest rates for forecasted debt issuances, such as interest
rate locks. 25




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##### Table of Contents



The Company is subject to interest rate risk on its fixed and variable interest rate debt
obligations. Generally, the fair value of debt with a fixed interest rate will increase as
interest rates fall and the fair value will decrease as interest rates rise. Commercial paper
borrowings are subject to rollover risk because these borrowings generally have maturities of less
than three months. The Company manages its exposure to interest rate risk by utilizing a
combination of fixed rate borrowings and commercial paper borrowings. As of February 3, 2005, the Company had no foreign exchange exposure and no outstanding derivative
transactions. There have been no material changes in the primary risk exposures or management of
the risks since the prior year. The Company expects to continue to manage risks in accordance with
the current policy. The table below provides information, as of February 3, 2005, about the Companys debt obligations
that are sensitive to changes in interest rates. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected maturity dates: 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    There-after
    
    
    Total
    
    
    Fair ValueFixed rate debt
obligations
    
    $
    214
    
    
    $
    22
    
    
    $
    13
    
    
    $
    79
    
    
    $
    1,575
    
    
    $
    3,754
    
    
    $
    5,657
    
    
    $
    6,418Weighted average
interest rate
    
    
    7.1
    %
    
    
    4.9
    %
    
    
    6.8
    %
    
    
    6.3
    %
    
    
    4.6
    %
    
    
    7.6
    %
    
    
    6.7
    %
    
    
    Commercial Paper
    
    $
    
    
    
    $
    349
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    349
    
    
    $
    349Weighted average
interest rate 1
    
    
    
    
    
    
    2.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.6
    %
    
    
    
   1
    
    The weighted average interest rate for commercial paper is as of February 3,
2005. Weighted average commercial paper interest rates are subject to rollover risk and may
increase or decrease in the future. 26




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data. Albertsons, Inc.Index to Consolidated Financial Statements PageNumberManagements Annual Report on Internal Control Over Financial Reporting
    
    
    28Report of Independent Registered Public Accounting Firm on Managements
Annual Report on Internal Control Over Financial Reporting
    
    
    29Report of Independent Registered Public Accounting Firm
    
    
    30Consolidated Earnings Statements for the fiscal years ended February 3, 2005,
January 29, 2004 and January 30, 2003
    
    
    31Consolidated Balance Sheets as of February 3, 2005 and January 29, 2004
    
    
    32Consolidated Cash Flow Statements for the fiscal years ended February 3, 2005,
January 29, 2004 and January 30, 2003
    
    
    33Consolidated Stockholders Equity Statements for the fiscal years ended
February 3, 2005, January 29, 2004 and January 30, 2003
    
    
    34Notes to Consolidated Financial Statements
    
    
    35
 27




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##### Table of Contents



Managements Annual Report on Internal Control Over Financial Reporting The financial statements, financial analyses and all other information included in this Annual
Report on Form 10-K were prepared by the Companys management, which is responsible for
establishing and maintaining adequate internal control over financial reporting. The Companys internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. The Companys
internal control over financial reporting includes those policies and procedures that: i. pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the Company; ii. provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and iii. provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the financial statements. There are inherent limitations in the effectiveness of any internal control, including the
possibility of human error and the circumvention or overriding of controls. Accordingly, even
effective internal controls can provide only reasonable assurances with respect to financial
statement preparation. Further, because of changes in conditions, the effectiveness of internal
controls may vary over time. Management assessed the design and effectiveness of the Companys internal control over financial
reporting as of February 3, 2005. In making this assessment, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control 
Integrated Framework. Based on managements assessment using this framework, it believes that, as
of February 3, 2005, the Companys internal control over financial reporting is effective. Managements assessment of the effectiveness of the Companys internal control over financial
reporting as of February 3, 2005 has been audited by Deloitte and Touche LLP, an independent
registered public accounting firm. Their report expresses an unqualified opinion on managements
assessment and on the effectiveness of the Companys internal control over financial reporting as
of February 3, 2005. March 31, 2005 28




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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.: We have audited managements assessment, included in the accompanying Managements Annual Report on
Internal Control Over Financial Reporting, that Albertsons, Inc. and subsidiaries (the Company)
maintained effective internal control over financial reporting as of February 3, 2005, based on
criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an opinion on
managements assessment and an opinion on the effectiveness of the Companys internal control over
financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinions. A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of February 3, 2005, is fairly stated, in all material respects, based on
the criteria established in Internal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of February 3,
2005, based on the criteria established in Internal ControlIntegrated Frameworkissued by the
Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for the year ended February
3, 2005 of the Company and our report dated March 31, 2005 expressed an unqualified opinion and
included an explanatory paragraph relating to changes in methods of accounting for goodwill, closed
stores and vendor funds on those financial statements. Deloitte & Touche LLP
Boise, Idaho
March 31, 2005 29




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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.: We have audited the accompanying consolidated balance sheets of Albertsons, Inc. and subsidiaries
(the Company) as of February 3, 2005 and January 29, 2004, and the related consolidated
statements of earnings, stockholders equity, and cash flows for each of the three years in the
period ended February 3, 2005. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of Albertsons, Inc. and subsidiaries at February 3, 2005 and January 29,
2004, and the results of their operations and their cash flows for each of the three years in the
period ended February 3, 2005, in conformity with accounting principles generally accepted in the
United States of America. As discussed in the notes to the consolidated financial statements, during the year ended January
30, 2003, the Company changed its methods of accounting for goodwill (Notes 2 and 10) and for
closed stores (Notes 2 and 6) to conform to Statements of Financial Accounting Standards No. 142
and 144. Also during the year ended January 30, 2003, the Company changed its method of accounting
for vendor funds (Notes 2 and 3) to conform to Emerging Issues Task Force Issue No. 02-16. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of February 3, 2005, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report
dated March 31, 2005 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion
on the effectiveness of the Companys internal control over financial reporting. Deloitte & Touche LLP
Boise, Idaho
March 31, 2005 30




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##### Table of Contents



ALBERTSONS, INC. 
 CONSOLIDATED EARNINGS STATEMENTS
 For the 53 weeks ended February 3, 2005 and the52 weeks ended January 29, 2004 and January 30, 2003
    
    February 3,
    
    
    January 29,
    
    
    January 30,(In millions, except per share data)
    
    2005
    
    
    2004
    
    
    2003Sales
    
    $
    39,897
    
    
    $
    35,107
    
    
    $
    35,316Cost of sales
    
    
    28,711
    
    
    
    25,061
    
    
    
    25,016Gross profit
    
    
    11,186
    
    
    
    10,046
    
    
    
    10,300Selling, general and administrative expenses
    
    
    9,969
    
    
    
    8,738
    
    
    
    8,521Restructuring credits
    
    
    (10
    )
    
    
    (10
    )
    
    
    (37
    )Operating profit
    
    
    1,227
    
    
    
    1,318
    
    
    
    1,816Interest, net
    
    
    500
    
    
    
    409
    
    
    
    396Other (income) expense, net
    
    
    (1
    )
    
    
    3
    
    
    
    16Earnings from continuing operations before income
taxes
    
    
    728
    
    
    
    906
    
    
    
    1,404Income tax expense
    
    
    254
    
    
    
    350
    
    
    
    538Earnings from continuing operations
    
    
    474
    
    
    
    556
    
    
    
    866Discontinued operations:Operating loss
    
    
    (3
    )
    
    
    
    
    
    
    (49
    )Loss on disposal
    
    
    (45
    )
    
    
    
    
    
    
    (379
    )Income tax benefit
    
    
    18
    
    
    
    
    
    
    
    141Loss from discontinued operations
    
    
    (30
    )
    
    
    
    
    
    
    (287
    )Earnings before cumulative effect of change in
accounting principle
    
    
    444
    
    
    
    556
    
    
    
    579Cumulative effect of change in accounting principle
(net of tax of $60)
    
    
    
    
    
    
    
    
    
    
    (94
    )Net earnings
    
    $
    444
    
    
    $
    556
    
    
    $
    485Earnings (loss) per share:BasicContinuing operations
    
    $
    1.29
    
    
    $
    1.51
    
    
    $
    2.18Discontinued operations
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.72
    )Cumulative effect of change in accounting
principle (net of tax of $0.15)
    
    
    
    
    
    
    
    
    
    
    (0.24
    )Net earnings
    
    
    1.20
    
    
    
    1.51
    
    
    
    1.22DilutedContinuing operations
    
    $
    1.28
    
    
    $
    1.51
    
    
    $
    2.17Discontinued operations
    
    
    (0.08
    )
    
    
    
    
    
    
    (0.72
    )Cumulative effect of change in accounting
principle (net of tax of $0.15)
    
    
    
    
    
    
    
    
    
    
    (0.23
    )Net earnings
    
    
    1.19
    
    
    
    1.51
    
    
    
    1.22Weighted average common shares outstanding:Basic
    
    
    369
    
    
    
    368
    
    
    
    397Diluted
    
    
    372
    
    
    
    368
    
    
    
    399
 See Notes to Consolidated Financial Statements 31




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##### Table of Contents



ALBERTSONS, INC. CONSOLIDATED BALANCE SHEETS
 
 February 3,
    
    
    January 29,(In millions, except par value data)
    
    2005
    
    
    2004ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    273
    
    
    $
    561Accounts and notes receivable, net
    
    
    675
    
    
    
    625Inventories
    
    
    3,119
    
    
    
    3,035Assets held for sale
    
    
    43
    
    
    
    69Prepaid and other
    
    
    185
    
    
    
    343Total Current Assets
    
    
    4,295
    
    
    
    4,633Land, buildings and equipment, net
    
    
    10,472
    
    
    
    9,146Goodwill
    
    
    2,284
    
    
    
    1,400Intangibles, net
    
    
    868
    
    
    
    130Other assets
    
    
    392
    
    
    
    357Total Assets
    
    $
    18,311
    
    
    $
    15,666LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    2,250
    
    
    $
    2,045Salaries and related liabilities
    
    
    739
    
    
    
    659Self-insurance
    
    
    263
    
    
    
    209Current maturities of long-term debt and capital lease obligations
    
    
    238
    
    
    
    520Other current liabilities
    
    
    595
    
    
    
    470Total Current Liabilities
    
    
    4,085
    
    
    
    3,903Long-term debt
    
    
    5,792
    
    
    
    4,452Capital lease obligations
    
    
    857
    
    
    
    352Self-insurance
    
    
    632
    
    
    
    523Other long-term liabilities and deferred credits
    
    
    1,524
    
    
    
    1,055Commitments and contingencies
    
    
    
    
    
    
    Stockholders Equity:Preferred 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
    
    
    66
    
    
    
    155Accumulated other comprehensive loss
    
    
    (145
    )
    
    
    (109
    )Retained earnings
    
    
    5,132
    
    
    
    4,967Total Stockholders Equity
    
    
    5,421
    
    
    
    5,381Total Liabilities and Stockholders Equity
    
    $
    18,311
    
    
    $
    15,666
 See Notes to Consolidated Financial Statements 32




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##### Table of Contents



ALBERTSONS, INC. 
 CONSOLIDATED CASH FLOW STATEMENTS
 For the 53 weeks ended February 3, 2005 and the 52weeks ended January 29, 2004 and January 30, 2003
    
    February 3,
    
    
    January 29,
    
    
    January 30,(In millions)
    
    2005
    
    
    2004
    
    
    2003Cash Flows From Operating Activities:Net earnings
    
    $
    444
    
    
    $
    556
    
    
    $
    485Adjustments to reconcile net earnings to net cash
provided by operating activities:Depreciation and amortization
    
    
    1,101
    
    
    
    969
    
    
    
    943Net deferred income taxes
    
    
    85
    
    
    
    147
    
    
    
    100Other noncash charges
    
    
    44
    
    
    
    48
    
    
    
    21Stock-based compensation
    
    
    19
    
    
    
    25
    
    
    
    19Gain on curtailment of postretirement benefits
    
    
    
    
    
    
    (36
    )
    
    
    Net gain on asset sales
    
    
    (48
    )
    
    
    (24
    )
    
    
    (9
    )Restructuring credits
    
    
    (9
    )
    
    
    (8
    )
    
    
    (16
    )Discontinued operations noncash charges
    
    
    71
    
    
    
    
    
    
    
    365Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    94Changes in operating assets and liabilities, net of
the effects of acquisitions:Receivables and prepaid expenses
    
    
    159
    
    
    
    (38
    )
    
    
    21Inventories
    
    
    204
    
    
    
    (62
    )
    
    
    112Accounts payable
    
    
    (48
    )
    
    
    (236
    )
    
    
    (176
    )Other current liabilities
    
    
    42
    
    
    
    29
    
    
    
    (88
    )Self-insurance
    
    
    111
    
    
    
    120
    
    
    
    106Unearned income
    
    
    10
    
    
    
    25
    
    
    
    32Other long-term liabilities
    
    
    (85
    )
    
    
    11
    
    
    
    (25
    )Net cash provided by operating activities
    
    
    2,100
    
    
    
    1,526
    
    
    
    1,984Cash Flows From Investing Activities:Business acquisitions, net of cash acquired
    
    
    (2,214
    )
    
    
    
    
    
    
    Capital expenditures
    
    
    (1,050
    )
    
    
    (1,094
    )
    
    
    (1,359
    )Proceeds from disposal of land, buildings and
equipment
    
    
    137
    
    
    
    72
    
    
    
    101Proceeds from disposal of assets held for sale
    
    
    95
    
    
    
    119
    
    
    
    578Other
    
    
    (22
    )
    
    
    2
    
    
    
    18Net cash used in investing activities
    
    
    (3,054
    )
    
    
    (901
    )
    
    
    (662
    )Cash Flows From Financing Activities:Proceeds from Mandatory Convertible Security
    
    
    1,150
    
    
    
    
    
    
    
    Dividends paid
    
    
    (279
    )
    
    
    (279
    )
    
    
    (306
    )Payments on long-term borrowings
    
    
    (532
    )
    
    
    (120
    )
    
    
    (143
    )Stock purchases and retirements
    
    
    
    
    
    
    (108
    )
    
    
    (862
    )Mandatory Convertible Security financing costs
    
    
    (33
    )
    
    
    
    
    
    
    Proceeds from long-term borrowings
    
    
    
    
    
    
    9
    
    
    
    Proceeds from stock options exercised
    
    
    11
    
    
    
    6
    
    
    
    14Net commercial paper activity
    
    
    349
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    666
    
    
    
    (492
    )
    
    
    (1,297
    )Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (288
    )
    
    
    133
    
    
    
    25Cash and Cash Equivalents at Beginning of Year
    
    
    561
    
    
    
    428
    
    
    
    403Cash and Cash Equivalents at End of Year
    
    $
    273
    
    
    $
    561
    
    
    $
    428Supplemental Cash Flow Information:Cash payments for income taxes, net of refunds
    
    $
    15
    
    
    $
    231
    
    
    $
    376Cash payments for interest, net of amounts capitalized
    
    
    509
    
    
    
    401
    
    
    
    390Noncash investing and financing activities:Capitalized lease obligations incurred
    
    
    111
    
    
    
    62
    
    
    
    75
 See Notes to Consolidated Financial Statements 33




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##### Table of Contents



ALBERTSONS, INC. 
 CONSOLIDATED
STOCKHOLDERS EQUITY STATEMENTS
 Common
    
    
    Capital
    
    
    AccumulatedStock
    
    
    In Excess
    
    
    Other
    
    
    
    
    
    
    Total$1.00 Par
    
    
    Of Par
    
    
    Comprehensive
    
    
    Retained
    
    
    Stockholders
    
    
    Comprehensive(Dollars in millions)
    
    Value
    
    
    Value
    
    
    (Loss) Income
    
    
    Earnings
    
    
    Equity
    
    
    IncomeBalance at January 31, 2002
    
    $
    407
    
    
    $
    94
    
    
    $
    (19
    )
    
    $
    5,433
    
    
    $
    5,915
    
    
    $
    482Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    485
    
    
    
    485
    
    
    
    485Exercise of stock options,
including tax benefits
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    Stock purchases and
retirements - 35,129,397
shares
    
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    (827
    )
    
    
    (862
    )
    
    
    Deferred stock unit plan
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    Directors stock plan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (298
    )
    
    
    (298
    )
    
    
    Minimum pension liability
adjustment (net of tax of $49)
    
    
    
    
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    (77
    )
    
    
    (77
    )Balance at January 30, 2003
    
    
    372
    
    
    
    128
    
    
    
    (96
    )
    
    
    4,793
    
    
    
    5,197
    
    
    
    408Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    556
    
    
    
    556
    
    
    
    556Exercise of stock options,
including tax benefits
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Stock purchases and
retirements  5,314,700 shares
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (103
    )
    
    
    (108
    )
    
    
    Deferred stock unit plan
    
    
    1
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    Directors stock plan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (279
    )
    
    
    (279
    )
    
    
    Minimum pension liability
adjustment (net of tax of $8)
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )Balance at January 29, 2004
    
    
    368
    
    
    
    155
    
    
    
    (109
    )
    
    
    4,967
    
    
    
    5,381
    
    
    
    543Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    444
    
    
    
    444Exercise of stock options,
including tax benefits
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    Deferred stock unit plan
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    Directors stock plan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (279
    )
    
    
    (279
    )
    
    
    Minimum pension liability
adjustment (net of tax of $21)
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )Forward purchase liability
    
    
    
    
    
    
    (114
    )
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    Deferred tax adjustment
related to stock options
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    Balance at February 3, 2005
    
    $
    368
    
    
    $
    66
    
    
    $
    (145
    )
    
    $
    5,132
    
    
    $
    5,421
    
    
    $
    408
 See Notes to Consolidated Financial Statements 34




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##### Table of Contents



ALBERTSONS, INC. 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1. Business Description and Basis of Presentation 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 February 3, 2005 the Company, through its divisions and subsidiaries, operated 2,503 stores
in 37 states. The Company, through its divisions and subsidiaries, also operated 234 fuel centers
near existing stores. Retail operations are supported by 19 major Company distribution operations,
strategically located in the Companys operating markets. The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and include all entities over which the Company has
control, including its majority-owned subsidiaries. All material intercompany transactions and
balances have been eliminated. 2. Summary of Significant Accounting Policies Fiscal Year End:The Companys fiscal year ends on the Thursday nearest to January 31. As a
result, the Companys fiscal year includes a 53rd week every five to six years. The Companys
fiscal year 2004 contained 53 weeks and ended on February 3, 2005. Fiscal years 2003 and 2002 each
contained 52 weeks and ended on January 29, 2004 and January 30, 2003, respectively. 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. Segment Information: The Company operates retail food and drug stores. These operations are
within a single operating segment and are located within the United States. Derivatives:From time to time, the Company enters into certain derivative transactions, however
the Company does not enter into derivative financial instruments for trading purposes. The Company
uses derivatives primarily as cash flow hedges to set interest rates for forecasted debt issuances,
such as interest rate locks. These contracts are with major financial institutions and are very
short-term in nature. The gain or loss on interest rate locks is deferred in accumulated other
comprehensive income and recognized as an adjustment to interest expense over the life of the
related debt instrument. Cash and Cash Equivalents:The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. 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 a net cash book
overdraft position, which occurs when total issued checks exceed available cash balances at a
single financial institution. The Company has recorded its cash disbursement accounts with a net
cash book overdraft position in accounts payable. At February 3, 2005 and January 29, 2004, the
Company had net cash book overdrafts of $294 and $272, respectively, classified in accounts
payable. Inventories:The Company values inventories at the lower of cost or market. Cost of substantially
all inventories is determined on a last-in, first-out (LIFO) basis. Vendor Funds: The Company receives funds from many of the vendors whose products the Company buys
for resale in its stores. These vendor funds are provided to increase the sell-through of the
related products. The Company receives funds for a variety of merchandising activities: placement
of the vendors products in the Companys advertising; display of the vendors products in
prominent locations in the Companys stores; introduction of new products into the Companys
distribution system and retail stores; exclusivity rights in certain categories that have
slower-turning products; and to compensate for temporary price reductions offered to customers on
products held for sale at retail stores. The Company also receives vendor funds for buying
activities, such as volume commitment rebates and credits for purchasing products in advance of
their need. As of February 3, 2005, the terms of the Companys vendor funds arrangements varied in
length from short-term arrangements that are to be completed within a quarter to long-term
arrangements that are expected to be completed within eight years. 35




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##### Table of Contents



Accounting for vendor funds is discussed in Emerging Issues Task Force EITF Issue 02-16:
Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor
(EITF 02-16), which the Company adopted as of the beginning of 2002. As a result of this
guidance, the Company began recognizing the vendor funds for merchandising activities as a
reduction of cost of sales when the related products are sold as opposed to the previous method of
recognizing these credits as a reduction to cost of sales when the merchandising activity was
performed in accordance with the underlying agreements. In connection with the implementation of
this new accounting method, the Company recorded a charge in 2002 of $94, net of tax benefit of
$60. The amount of vendor funds reducing the Companys inventory (inventory offset) as of February 3,
2005, including those resulting from the acquisitions made during fiscal 2004 (see Note 5 Business
Acquisitions), was $126, a decrease of $29 from the beginning of 2004. The vendor funds inventory
offset as of January 29, 2004 was $155, an increase of $3 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 2004) and by average inventory
turnover rates by department for the Companys remaining inventory. Capitalization, Depreciation and Amortization:Land, buildings and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated useful life of the asset.
Estimated useful lives are generally as follows: buildings and improvements-10 to 35 years;
leasehold improvements-10 to 25 years; assets held under capitalized leases-20 to 30 years;
fixtures and equipment-3 to 8 years; software-3 to 5 years; and intangibles-3 to 10 years. The costs of major remodeling and improvements on leased stores are capitalized as leasehold
improvements and amortized on the straight-line method over the shorter of the life of the
applicable lease or the useful life of the asset. Assets under capital leases are recorded at the
lower of the fair market value of the asset or the present value of future minimum lease payments
and amortized on the straight-line method over the lease term. Beneficial lease rights and lease liabilities are recorded on purchased leases based on differences
between contractual rents under the respective lease agreements and prevailing market rents at the
lease acquisition date. Favorable beneficial lease rights are classified as Intangible assets in
the Consolidated Balance Sheet and amortized on a straight-line basis over the greater of the lease
term or 15 years. Unfavorable lease liabilities are amortized over the lease term using the
straight-line method. Goodwill:Goodwill results from business acquisitions and represents the excess of purchase price
over the fair value of assets acquired and liabilities assumed. Goodwill is not amortized but
instead tested annually for impairment, or more frequently if circumstances indicate a
potential impairment. Deferred Charges: Costs incurred to obtain long-term financing are capitalized and amortized as a
component of interest expense on a straight-line basis over the term of the related debt or credit
facility. As of February 3, 2005 and January 29, 2004 the Company has $38 and $32 of net deferred
charges, respectively, classified as Other assets in the accompanying Consolidated Balance Sheets. Company Owned Life Insurance:The Company has purchased life insurance policies to fund its
obligations under certain deferred compensation plans for officers, key employees and directors.
Cash surrender values of these policies are adjusted for fluctuations in the market value of
underlying investments. The cash surrender value is adjusted each reporting period and any gain or
loss is included with Other income and expense in the Companys Consolidated Earnings Statement. Impairment of Long Lived Assets and Closed Store Reserves:The Company assesses long-lived assets
for indicators of impairment based on operational performance. When events or changes in
circumstances indicate that the carrying value of an asset or an asset group may not be
recoverable, the assets fair value is compared to its carrying value. Impairment losses are
recognized as the amount by which the carrying amounts of the assets exceed their fair values.
Asset fair values are determined by internal real estate specialists or by independent valuations
by subject matter experts. These estimates can be significantly impacted by factors such as
changes in real estate market conditions, the economic environment and inflation. For properties that have closed and are under long-term lease agreements, the present value of any
remaining liability under the lease, discounted using credit risk-free rates and net of estimated
sublease recovery, is recognized as a liability and charged to operations. The value of any
equipment and leasehold improvements related to a closed store is reduced to reflect net
recoverable values. Internal real estate specialists estimate the subtenant income, future cash
flows and asset recovery values based on their historical experience and knowledge of (1) the
market in which the store to be closed is located, (2) the results of the Companys previous
efforts to dispose of similar assets and (3) the current economic conditions. The actual cost of
disposition for these leases and related assets is affected by specific factors such as real estate
markets, the economic environment and inflation. 36




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##### Table of Contents



Self-Insurance:The Company is primarily self-insured for property loss, workers compensation,
automobile liability costs and general liability costs. Self-insurance liabilities are not
discounted and are determined actuarially based on claims filed and estimates for claims incurred
but not yet reported. Deferred Rent:The Company recognizes rent holidays, including the period of time the Company has
access prior to taking possession of the property, which typically includes construction and
fixturing activity, and rent escalations on a straight-line basis over the term of the lease. The
deferred rent amount is included in Other current liabilities and Other long-term liabilities and
deferred credits on the Companys Consolidated Balance Sheets. Pension Costs:Pension benefit obligations and the related effects on operations are dependent on
the Companys selection of actuarial assumptions, including the discount rate and the expected
long-term rate of return on plan assets. These assumptions are disclosed in Note 15 Employee
Benefit Plans and Collective Bargaining Agreements. Actual results that differ from the Companys
assumptions are accumulated and amortized over future periods and, therefore, generally affect the
Companys recognized expense and recorded obligation in such future periods. The Company also participates in various multi-employer plans for substantially all union
employees. Pension expense for these plans is recognized as contributions are funded. Legal
Contingencies:The Company records reserves for legal
contingencies, in accordance with Statement of Financial Accounting
Standards (SFAS)
No. 5, Accounting for Contingencies, when the information available to the Company indicates that
it is probable that a liability has been incurred and the amount of the loss can be reasonably
estimated. Predicting the outcomes of claims and litigation and estimating related costs and
exposures involve substantial uncertainties that could cause actual costs to vary materially from
estimates. Revenue Recognition:Revenue is recognized at the point of sale for retail sales. The discount
earned by customers using their preferred loyalty card is recorded by the Company as a reduction to
sales. Procurement, Distribution and Merchandising Costs: Cost of sales include, among other things,
purchasing, inbound freight costs, product quality testing costs, warehousing costs, internal
transfer costs, advertising, private label program and strategic sourcing program costs. Selling,
general and administrative expenses include, among other things, merchandise planning and
management costs, store-based purchasing and receiving costs and inventory management costs. Store Opening Costs:Noncapital expenditures incurred in opening new stores or remodeling existing
stores are expensed in the period in which they are incurred. Advertising:Advertising costs are expensed when incurred. Cooperative advertising funds are
accounted for as vendor funds as described above. Gross advertising expenses of $579, $472 and
$527, excluding cooperative advertising money received from vendors, were included with cost of
sales in the Companys Consolidated Earnings for 2004, 2003 and 2002, respectively. 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. SFAS No. 123, Accounting for Stock-Based
Compensation as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure  An Amendment of 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: 2004
    
    
    2003
    
    
    2002Net Earnings as reported
    
    $
    444
    
    
    $
    556
    
    
    $
    485Add: Stock-based compensation
expense included in reported net
earnings, net of related tax
effects
    
    
    12
    
    
    
    16
    
    
    
    12Deduct: Total stock-based
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (39
    )
    
    
    (45
    )
    
    
    (44
    )Pro Forma Net Earnings
    
    $
    417
    
    
    $
    527
    
    
    $
    453Basic Earnings Per Share:As Reported
    
    $
    1.20
    
    
    $
    1.51
    
    
    $
    1.22Pro Forma
    
    
    1.13
    
    
    
    1.43
    
    
    
    1.14Diluted Earnings Per Share:As Reported
    
    $
    1.19
    
    
    $
    1.51
    
    
    $
    1.22Pro Forma
    
    
    1.12
    
    
    
    1.43
    
    
    
    1.14
 The pro forma effect on net earnings for the years presented above are not representative of the
pro forma effect on net earnings in future years. For more information on the method and
assumptions used in determining the fair value of stock-based compensation, see Note 14 Stock
Options and Stock Awards. 37




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##### Table of Contents



Income Taxes:Income taxes are accounted for under the asset and liability method. Deferred
income taxes represent future net tax effects resulting from temporary differences between the
financial statement and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to be settled or realized. A valuation allowance is
recorded for deferred tax assets considered not likely to be realized. The major temporary
differences and their net effect are shown in Note 13 Income Taxes. Comprehensive Income:Comprehensive income refers to revenues, expenses, gains and losses that are
not included in net earnings but rather are recorded directly in stockholders equity. Items of
comprehensive income other than net earnings were primarily related to the minimum pension
liability of $57 ($36 net of tax), $21 ($13 net of tax) and $126 ($77 net of tax) for 2004, 2003
and 2002, 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 that exceed available cash balances at a single financial
institution. Beginning in the third quarter of 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 consolidated
balance sheet and statement of cash flows for the prior years have been adjusted to conform to this
presentation. Net earnings were not impacted by this change. Certain other reclassifications have been made in the prior year financial statements to conform to
classifications used in the current year. 3.
Cumulative Effect of Change in Accounting Principle

As discussed in Note 2 Summary of Significant Accounting Policies, in 2002 the Company
adopted a new method for recognizing vendor funds related to merchandising activities. The pro
forma amounts shown below reflect the retroactive application of the new method as if it had been
in effect for 2002. 2002Net earnings
    
    $
    579Earnings per share  basic
    
    $
    1.46Earnings per share  diluted
    
    $
    1.45
 4. New and Recently Adopted Accounting Standards In July 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for
Asset Retirement Obligations (SFAS No. 143). This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS No. 143 became effective for the Company on January 31,
2003 and did not have a material effect on the Companys consolidated financial statements. In November 2002 the FASB issued FASB Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures
by a guarantor in its interim and annual financial statements about the obligations associated with
guarantees issued. The recognition provisions of FIN 45 are effective for guarantees issued after
December 31, 2002, while the disclosure requirements were effective for financial statements for
periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on
the Companys consolidated financial statements. In January 2003 the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 requires certain variable interest
entities to be consolidated by the primary beneficiary of the entity if the equity investors in the
entity do not have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without additional subordinated
financial support from other parties. FIN 46 was effective for all new variable interest entities
created or acquired after January 31, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 were required to be applied for the first
interim or annual period beginning after June 15, 2003. In December 2003 the FASB issued
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51 (FIN 46 (R)). FIN 46 (R) provides additional guidance related to
identifying variable interest entities and determining whether such entities should be
consolidated. Neither the adoption of FIN 46 or FIN 46 (R) had a material effect on the Companys
consolidated financial statements. In May 2003 the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity (SFAS No. 150). SFAS No. 150 requires that
certain financial instruments, which under previous guidance could be accounted for as equity, be
classified as liabilities in statements of financial position. SFAS No. 150 was effective for
financial instruments entered into or modified after May 31, 2003, and was effective for the
Company in the third quarter of 2003. The adoption of SFAS No. 150 did not have a material effect
on the Companys consolidated financial statements. In November 2003 the 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 will 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 38




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##### Table of Contents



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 the Companys first
quarter of 2004, did not have a material effect on the Companys financial statements. 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 required disclosure regarding 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 disclosures are included in Note 15 Employee Benefit
Plans and Collective Bargaining Agreements. 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 Medicare Act), which was signed into law in December 2003. SFAS
No. 106-2 is effective beginning in the third fiscal quarter of 2005. The impact of the Medicare
Act and SFAS No. 106-2 is not expected to have a material effect on the Companys consolidated
financial statements. 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 impact of SFAS No. 151 is
not expected to have a material effect on the Companys consolidated financial statements. In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (SFAS
123 (R)). SFAS 123 (R) addresses the accounting for share-based payments to employees, including
grants of employee stock options. Under the new standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic value method in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees. Instead, companies will be
required to account for such transactions using a fair-value method and recognize the expense in
the consolidated earnings statements. SFAS 123 (R) will be effective for periods beginning after
June 15, 2005 and allows, but does not require, companies to restate the full fiscal year of 2005
to reflect the impact of expensing share-based payments under SFAS 123 (R). The Company intends to
adopt SFAS 123 (R) using the modified prospective transition method beginning with its third
quarter of 2005. Under this method, awards that are granted, modified, or settled after June 15,
2005, will be measured and accounted for in accordance with SFAS 123 (R). In addition, in the
Companys third quarter of 2005, expense must be recognized in the earnings statement for unvested
awards that were granted prior to the start of the Companys third quarter of 2005. The expense
will be based on the fair value determined at grant date under SFAS 123, Accounting for
Stock-Based Compensation. The Company estimates that earnings per share in the second half of
2005 will be reduced by approximately $0.04 per diluted share as a result of implementing SFAS
123 (R). However, the calculation of compensation cost for share-based payment transactions after
the effective date of SFAS 123 (R) may be different from the calculation of compensation cost under
SFAS 123, but such differences have not yet been quantified. 5. 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 capital
lease obligations and 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 11 Indebtedness) to repay $1,117 of such commercial paper. 39




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##### Table of Contents



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 further adjusted
during the allocation period as defined in SFAS No. 141, Business Combinations. RevisedInitial Purchase
    
    
    Purchase Price
    
    
    Purchase PricePrice Allocation
    
    
    Adjustments
    
    
    AllocationCurrent assets
    
    $
    444
    
    
    $
    28
    
    
    $
    472Land, buildings and equipment
    
    
    1,378
    
    
    
    (6
    )
    
    
    1,372Goodwill
    
    
    840
    
    
    
    (36
    )
    
    
    804Intangible assets
    
    
    766
    
    
    
    (17
    )
    
    
    749Other assets
    
    
    23
    
    
    
    
    
    
    
    23Total assets acquired
    
    
    3,451
    
    
    
    (31
    )
    
    
    3,420Current liabilities
    
    
    417
    
    
    
    6
    
    
    
    423Long-term debt
    
    
    441
    
    
    
    
    
    
    
    441Other liabilities
    
    
    456
    
    
    
    (37
    )
    
    
    419Total liabilities assumed
    
    
    1,314
    
    
    
    (31
    )
    
    
    1,283Net assets acquired
    
    $
    2,137
    
    
    $
    
    
    
    $
    2,137
 Acquired intangible assets include $399 assigned to trade names not subject to amortization, $308
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
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 $308 and are included in Intangible assets. The unfavorable leases
totaled $192, have an estimated weighted average life of 18 years and are included in Other
long-term liabilities and deferred credits. The excess of the purchase price over the fair value of assets acquired and liabilities assumed was
allocated to goodwill. Of the $804 recorded in goodwill, $95 is expected to be deductible for tax
purposes over the next 14 years. 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: $53 in assets, $17 in liabilities, $21 in trade names not subject to
amortization and $80 in goodwill. 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. 40




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##### Table of Contents



53 weeks ended
    
    
    52 weeks endedFebruary 3,
    
    
    January 29,2005
    
    
    2004Sales
    
    $
    41,132
    
    
    $
    39,812Net earnings
    
    
    468
    
    
    
    658Earnings per share:Basic
    
    $
    1.27
    
    
    $
    1.79Diluted
    
    
    1.26
    
    
    
    1.79
 6. 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 2004, 2003 and
2002. As of February 3, 2005 the Company had disposed of 14 properties, resulting in seven
properties with a value of $2 classified as Assets Held for Sale in the 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 2004, 2003 and 2002. As of February 3,
2005, the Company had disposed of six properties, resulting in four remaining properties with a
value of $15 classified as Assets Held for Sale in the 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 operating stores and two distribution
centers and the elimination of four division offices. As of February 3, 2005 the Company had
disposed of 82 properties, resulting in 13 remaining properties with a value of $2 classified as
Assets Held for Sale in the Consolidated Balance Sheet. Discontinued operations stores generated sales of $155, $329 and $600 for 2004, 2003 and 2002,
respectively. The loss from discontinued operations of $30 for 2004 consisted of a loss from
operations of $3, a write down of fixed assets and lease settlements of $63, gain on disposal of
$18 and an income tax expense of $18. The income from discontinued operations was not material to
the 2003 Consolidated Earnings. The loss from discontinued operations was $287 in 2002 and
consisted of a loss from operations of $49, a write down of fixed assets, lease settlements and
other costs of $379 and an income tax benefit of $141. 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 store support centers, and 4) reducing overall store support center headcount. As of February
3, 2005, the Company had disposed of 136 properties, resulting in 29 remaining properties with a
value of $2 classified as Assets Held for Sale in the Consolidated Balance Sheet. The following table summarizes the accrual activity for future lease obligations related to
discontinued operations, restructuring activities and closed stores: Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 29,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 3,2004
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    20052004 Discontinued Operations
    
    $
    
    
    
    $
    8
    
    
    $
    (7
    )
    
    $
    1
    
    
    $
    22002 Discontinued Operations
    
    
    8
    
    
    
    
    
    
    
    (3
    )
    
    
    1
    
    
    
    62001 Restructuring Activities
    
    
    19
    
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )
    
    
    12Closed Stores
    
    
    20
    
    
    
    7
    
    
    
    (7
    )
    
    
    2
    
    
    
    22$
    47
    
    
    $
    15
    
    
    $
    (22
    )
    
    $
    2
    
    
    $
    42
 41




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##### Table of Contents



Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 30,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 29,2003
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    20042002 Discontinued Operations
    
    $
    11
    
    
    $
    
    
    
    $
    (4
    )
    
    $
    1
    
    
    $
    82001 Restructuring Activities
    
    
    28
    
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    19Closed Stores
    
    
    30
    
    
    
    5
    
    
    
    (9
    )
    
    
    (6
    )
    
    
    20$
    69
    
    
    $
    5
    
    
    $
    (22
    )
    
    $
    (5
    )
    
    $
    47
 Balance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BalanceJanuary 31,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    January 30,2002
    
    
    Additions
    
    
    Payments
    
    
    Adjustments
    
    
    20032002 Discontinued Operations
    
    $
    
    
    
    $
    26
    
    
    $
    (30
    )
    
    $
    15
    
    
    $
    112001 Restructuring Activities
    
    
    61
    
    
    
    6
    
    
    
    (16
    )
    
    
    (23
    )
    
    
    28Closed Stores
    
    
    39
    
    
    
    8
    
    
    
    (16
    )
    
    
    (1
    )
    
    
    30$
    100
    
    
    $
    40
    
    
    $
    (62
    )
    
    $
    (9
    )
    
    $
    69
 The reserve balances as of February 3, 2005 and January 29, 2004 are included in Other current
liabilities and Other long-term liabilities and deferred credits in the Companys Consolidated
Balance Sheets. 7. Accounts and Notes Receivable Accounts and notes receivable, net, consisted of the following: February 3,
    
    
    January 29,2005
    
    
    2004Trade and other accounts receivable
    
    $
    677
    
    
    $
    630Current portion of notes receivable
    
    
    17
    
    
    
    13Allowance for doubtful accounts
    
    
    (19
    )
    
    
    (18
    )$
    675
    
    
    $
    625
 8. Inventories Approximately 95% of the Companys inventories are valued using the last-in, first-out (LIFO)
method. If the first-in, first-out (FIFO) method had been used, inventories would have been $584
and $576 higher at the end of 2004 and 2003, respectively. Net earnings (basic and diluted
earnings per share) would have been higher by $5 ($0.01 per share) in 2004, lower by $8 ($0.02 per
share) in 2003 and lower by $2 ($0.01 per share) in 2002. The replacement cost of inventories
valued at LIFO approximates FIFO cost. During 2004 and 2003, inventory quantities in certain LIFO layers were reduced. These reductions
resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior
years as compared with the cost of 2004 and 2003 purchases. For 2004 the adjustment was not
material to the Companys consolidated earnings. For 2003 and 2002, cost of sales decreased by $3
and $4, respectively. This increased net earnings (basic and diluted earnings per share) by $2
($0.01 per share) in 2003 and by $2 ($0.01 per share) in 2002. 9. Land, Buildings and Equipment Land, buildings and equipment, net, consisted of the following: February 3,
    
    
    January 29,2005
    
    
    2004Land
    
    $
    2,012
    
    
    $
    1,937Buildings
    
    
    6,203
    
    
    
    5,978Fixtures and equipment
    
    
    6,583
    
    
    
    5,928Leasehold improvements
    
    
    2,422
    
    
    
    1,728Capitalized leases
    
    
    910
    
    
    
    42018,130
    
    
    
    15,991Accumulated depreciation
    
    
    (7,514
    )
    
    
    (6,735
    )Accumulated amortization on capital leases
    
    
    (144
    )
    
    
    (110
    )$
    10,472
    
    
    $
    9,146
 Depreciation expense was $1,035, $931 and $901 for 2004, 2003 and 2002. Amortization expense of
capital leases was $38, $18 and $18 for 2004, 2003 and 2002, respectively. 42




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##### Table of Contents



10. Goodwill and Other Intangible Assets The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, in 2002. As a
result, the Company did not incur any expense for the amortization of goodwill in 2004, 2003 or
2002. Upon adoption, the aggregate of the goodwill allocated to the stores in each reporting unit
became the reporting units goodwill balance. In order to determine if a reporting units goodwill
was impaired, a combination of internal analyses and estimates of fair value from independent
valuation specialists were used. Based on these analyses, there was no impairment of goodwill at
the adoption date. Subsequently, during the fourth quarter of 2002, 2003 and 2004, the Company
completed its annual impairment review and determined that there was no impairment. The fair value
estimates could change in the future depending on internal and external factors, including the
success of strategic sourcing initiatives, labor cost controls and competitive activity. In 2004 the Company recorded $884 in goodwill as a result of the Shaws and Bristol Farms
acquisitions, as discussed in Note 5 Business Acquisitions. In connection with the 2002 market
exit discussed in Note 6 Discontinued Operations, Restructuring Activities and Closed Stores, the
Company wrote off $68 of goodwill that arose from the original acquisition of the operating assets
in those markets. The carrying amount of intangible assets was as follows: February 3, 2005
    
    
    January 29, 2004Amortizing:Favorable acquired operating leases
    
    $
    500
    
    
    $
    221Customer lists and other contracts
    
    
    30
    
    
    
    56Loyalty card and other
    
    
    37
    
    
    
    567
    
    
    
    277Accumulated amortization
    
    
    (158
    )
    
    
    (186
    )409
    
    
    
    91Non-Amortizing:Trade names
    
    
    420
    
    
    
    Liquor licenses
    
    
    39
    
    
    
    39459
    
    
    
    39$
    868
    
    
    $
    130
 Straight line amortization expense for intangibles was $28, $20 and $24 in 2004, 2003 and 2002,
respectively. Amortizing intangible assets have remaining useful lives from less than one year to
37 years. Projected amortization expense for existing intangible assets is: $26, $21, $22, $21
and $20, for 2005, 2006, 2007, 2008 and 2009, respectively. 43




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##### Table of Contents



11. Indebtedness Long-term debt consisted of the following (borrowings are unsecured unless indicated): February 3,
    
    
    January 29,2005
    
    
    2004Commercial Paper, average interest rate of 2.6%
    
    $
    349
    
    
    $
    3.75% Senior Notes due May 16, 2009
    
    
    1,150
    
    
    
    8.0% Debentures due May 1, 2031
    
    
    400
    
    
    
    4007.25% Notes due May 1, 2013
    
    
    200
    
    
    
    2007.5% Notes due February 15, 2011
    
    
    700
    
    
    
    7008.35% Notes due May 1, 2010
    
    
    275
    
    
    
    2758.7% Debentures due May 1, 2030
    
    
    225
    
    
    
    2257.45% Debentures due August 1, 2029
    
    
    650
    
    
    
    6506.95% Notes due August 1, 2009
    
    
    350
    
    
    
    3506.55% Notes due August 1, 2004
    
    
    
    
    
    
    300Medium-term Notes, due 2013 through 2028, average
interest rate of 6.5%
    
    
    317
    
    
    
    317Medium-term Notes, due 2007 through 2027, average
interest rate of 6.8%
    
    
    200
    
    
    
    2007.75% Debentures due June 15, 2026
    
    
    200
    
    
    
    2007.5% Debentures due May 1, 2037
    
    
    200
    
    
    
    2008.0% Debentures due June 1, 2026
    
    
    272
    
    
    
    2727.9% Debentures due May 1, 2017
    
    
    95
    
    
    
    957.4% Notes due May 15, 2005
    
    
    200
    
    
    
    200Medium-term Notes, due 2008 through 2028, average
interest rate of 6.9%
    
    
    145
    
    
    
    145Notes due July 3, 2004, average interest rate of 6.95%
    
    
    
    
    
    
    200Industrial revenue bonds, average interest
rate of 5.9% and 5.9%, respectively due October 1, 2005
through December 15, 2011
    
    
    5
    
    
    
    5Secured mortgage notes and other notes payable, average
interest
rate of 5.8% and 6.9%, respectively due
2005 through 2019
    
    
    73
    
    
    
    246,006
    
    
    
    4,958Current maturities
    
    
    (214
    )
    
    
    (506
    )$
    5,792
    
    
    $
    4,452
 At February 3, 2005, 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 with total availability of $900, will expire in
June 2009. The third agreement, a five-year facility with total availability of $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 all three of 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 February 3, 2005, the Company was in compliance with these requirements. No borrowings were
outstanding under the credit facilities as of February 3, 2005 or January 29, 2004. The Company
had $349 in commercial paper borrowings outstanding and backed by these credit facilities at
February 3, 2005 and no outstanding commercial paper borrowings outstanding at January 29, 2004. Mandatory Convertible Security Offering In May 2004 the Company completed a public offering registered with the Securities and Exchange
Commission 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 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 bear an annual interest
rate of 3.75%. In the first half of 2007 the aggregate principal amount of the senior notes will be remarketed, which may result in a
change in the interest rate and maturity date of the senior notes.
Proceeds from a successful remarketing
would be used to satisfy in full each Corporate Unit holders obligation to purchase common stock
under the related purchase contract. If the senior notes are not successfully remarketed, the
holders will have the right to put their senior notes to the Company to satisfy their obligations under
the purchase contract. 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 the 44




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##### Table of Contents



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 of the Companys common stock 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
price for the Trading Period 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. 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. 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. Shelf Registration The Company filed a shelf registration statement with the Securities and Exchange Commission, which
became effective on February 13, 2001 (2001 Shelf Registration) to authorize the issuance of up
to $3,000 in debt securities. In May 2001 the Company issued $600 of term notes under the 2001
Shelf Registration. The term notes are composed of $200 of principal bearing interest at 7.25% due May
1, 2013 and $400 of principal bearing interest at 8.0% due May 1, 2031. Proceeds were used
primarily to repay borrowings under the Companys commercial paper program. Other Indebtedness The Company has pledged real estate with a cost of $97 as collateral for mortgage notes which are
payable on various schedules including interest at rates ranging from 4.9% to 10.7%. The notes
mature from 2006 to 2014. Medium-term notes of $30 due July 2027 contain a put option that would require the Company to repay
the notes in July 2007 if the holder of the note so elects by giving the Company a 60-day notice.
Medium-term notes of $50 due April 2028 contain a put option which would require the Company to
repay the notes in April 2008 if the holder of the note so elects by giving the Company a 60-day
notice. The $200 of 7.5% debentures due 2037 contains a put option that would require the Company
to repay the note in 2009 if the holder of the notes so elects by giving the Company a 60-day
notice. Net interest expense was as follows: 2004
    
    
    2003
    
    
    2002Long-term debt
    
    $
    416
    
    
    $
    374
    
    
    $
    377Capitalized leases
    
    
    77
    
    
    
    36
    
    
    
    35Capitalized interest
    
    
    (11
    )
    
    
    (16
    )
    
    
    (27
    )Interest expense
    
    
    482
    
    
    
    394
    
    
    
    385Bank service charges, net of interest income
    
    
    18
    
    
    
    15
    
    
    
    11$
    500
    
    
    $
    409
    
    
    $
    396
 The scheduled aggregate maturities of long-term debt outstanding at February 3, 2005, are
summarized as follows: $214 in 2005, $371 in 2006, $13 in 2007, $79 in 2008, $1,575 in 2009 and
$3,754 thereafter. These amounts do not include the potential accelerations due to put options. 12. Capital Stock On December 2, 1996, the Board of Directors adopted a stockholder rights plan, which was
amended on August 2, 1998, March 16, 1999 and September 26, 2003 under which all stockholders
receive one right for each share of common stock held. Each right will entitle the holder to
purchase, under certain circumstances, one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company (the preferred stock) at
a price of $160 per one one- 45




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##### Table of Contents



thousandth share. Subject to certain exceptions, the rights will become exercisable for shares of
preferred stock upon the earlier of (1) 10 days following a public announcement that a person or
group of affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of common stock and (2) 10 business
days (or such later date as may be determined by the Board of Directors) following the commencement
of a tender offer or exchange offer that would result in a person or group beneficially owning 15%
or more of the outstanding shares of common stock (collectively, the persons or groups referenced
in (1) and (2) are referred to as an Acquiring Person). Under the plan, subject to certain exceptions, if any person becomes an Acquiring Person, each
right will then entitle its holder as defined by the plan, other than such Acquiring Person, upon
payment of the $160 per one one-thousandth share exercise price, to purchase common stock (or, in
certain circumstances, cash, property or other securities of the Company) with a value equal to
twice the exercise price. The rights may be redeemed by the Board of Directors at a price of
$0.001 per right under certain circumstances. The rights, which do not vote and are not entitled
to dividends, will expire at the close of business on March 21, 2007, unless earlier redeemed or
extended by the Board of Directors of the Company. During 2002, the Company purchased and retired 35.1 million shares of the Companys common stock
for $862, at an average price of $24.54 per share. During 2003, the Company purchased and retired
5.3 million shares for $108, at an average price of $20.26 per share. During 2004, the Company did
not purchase any shares of common stock under a Board authorized purchase program. On December
16, 2004, the Board of Directors reauthorized management, at its discretion, to purchase and retire
up to $500 of the Companys common stock through December 31, 2005. The Company may continue or,
from time to time suspend, purchasing shares under its stock purchase program without notice,
depending on prevailing market conditions, alternate uses of capital and other factors. 13. Income Taxes Deferred tax assets and liabilities consist of the following: February 3,
    
    
    January 29,2005
    
    
    2004Deferred tax assets:Compensation and benefits
    
    $
    375
    
    
    $
    301Self-insurance
    
    
    179
    
    
    
    149Basis in fixed assets
    
    
    192
    
    
    
    157Unearned income
    
    
    53
    
    
    
    33Net operating losses
    
    
    38
    
    
    
    Intangibles
    
    
    25
    
    
    
    Other, net
    
    
    68
    
    
    
    62Total deferred tax assets
    
    
    930
    
    
    
    702Deferred tax liabilities:Basis in fixed assets and capitalized leases
    
    
    (681
    )
    
    
    (602
    )Inventories
    
    
    (132
    )
    
    
    (83
    )Compensation and benefits
    
    
    (25
    )
    
    
    (23
    )Self-insurance
    
    
    (129
    )
    
    
    (14
    )Intangibles
    
    
    (228
    )
    
    
    Other, net
    
    
    (29
    )
    
    
    (37
    )Total deferred tax liabilities
    
    
    (1,224
    )
    
    
    (759
    )Net deferred tax liabilities
    
    $
    (294
    )
    
    $
    (57
    )
 The change in net deferred tax liabilities includes total adjustments of $16 for the year ended
February 3, 2005 related to stock units of $3 and other comprehensive income of $13. The Company has federal and state net operating loss carryforwards of $92 and $96, respectively,
which will expire in years 2005 through 2023. The Company establishes valuation allowances when necessary to reduce deferred tax assets to
amounts expected to be realized. The valuation allowance relates to certain state operating loss
carryforwards, which may expire and not be utilized. The valuation allowance was $3 as of February
3, 2005 and January 29, 2004. Annual tax provisions include amounts considered sufficient to pay assessments that may result from
examination of prior year tax returns; however, the amount ultimately paid upon resolution of
issues raised may differ materially from the amount accrued. These accrued amounts are classified
in either Other current liabilities or in Other long-term liabilities and deferred credits based on
expected settlement dates. 46




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##### Table of Contents



Income tax expense related to continuing operations consists of the following: 2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    135
    
    
    $
    159
    
    
    $
    446State
    
    
    19
    
    
    
    19
    
    
    
    52154
    
    
    
    178
    
    
    
    498Deferred:Federal
    
    
    87
    
    
    
    154
    
    
    
    36State
    
    
    13
    
    
    
    18
    
    
    
    4100
    
    
    
    172
    
    
    
    40$
    254
    
    
    $
    350
    
    
    $
    538
 The reconciliations between the federal statutory tax rate and the Companys effective tax rates
are as follows: 2004
    
    
    Percent
    
    
    2003
    
    
    Percent
    
    
    2002
    
    
    PercentTaxes computed at statutory rate
    
    $
    255
    
    
    
    35.0
    
    
    $
    317
    
    
    
    35.0
    
    
    $
    491
    
    
    
    35.0State income taxes net of federal
income tax benefit
    
    
    32
    
    
    
    4.4
    
    
    
    36
    
    
    
    4.0
    
    
    
    56
    
    
    
    4.0Audit settlements
    
    
    (18
    )
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (15
    )
    
    
    (2.0
    )
    
    
    (3
    )
    
    
    (0.4
    )
    
    
    (9
    )
    
    
    (0.7
    )$
    254
    
    
    
    34.9
    
    
    $
    350
    
    
    
    38.6
    
    
    $
    538
    
    
    
    38.3
 14. Stock Options and Stock Awards At February 3, 2005, Albertsons had two stock-based incentive plans in effect under which
grants could be made with respect to 66 million shares of the Companys common stock (Albertsons,
Inc. 1995 Amended and Restated Stock-Based Incentive Plan (the 1995 Plan) and Albertsons, Inc.
2004 Equity and Performance Incentive Plan (the 2004 Plan)). Under the 1995 and 2004 Plans,
options to purchase the Companys common stock, stock-based awards and other performance based
awards may be granted to officers, key employees, special advisors (as defined in the 1995 Plan and
2004 Plan) and non-employee members of the Board of Directors. During 2001, the 1995 Plan was
amended to, among other things, increase the number of shares allowed by the plan from 30 million
to 50 million. Generally, options are granted with an exercise price at not less than 100% of the
closing market price on the date of the grant. The Companys options generally become exercisable
in installments of 20% per year on each of the first through fifth anniversaries of the grant date
or vest 100% on the third anniversary of the grant date and have a maximum term of 7 to 10 years. Deferrable and Deferred Stock Units:From time to time, deferred and deferrable stock units with
dividend equivalents paid in cash quarterly are awarded under the 1995 Plan and 2004 Plan to key
employees of the Company. Deferred stock units are also awarded to non-employee members of the
Board of Directors. Grants of 1,023,530 units were made during 2004 to key employees and non-employee directors of the
Company, of which 635,081 units will vest at a rate of 20% per year and will be distributed in a
manner elected by the participant on a date after the participant ceases to be an associate of the
Company; 4,358 units will fully vest at the first anniversary of the grant date and will be
distributed in a manner elected by the participant; 63,438 units will vest at a rate of 50% per
year and will be distributed in a manner elected by the participant; 301,207 units will vest at a
rate of 20% per year and will be distributed in stock at each vesting date unless otherwise
deferred at the option of the participant; and 19,446 units were fully vested at their grant date
and will be distributed in a manner elected by the participant. The weighted average fair value at
date of grant for units granted during 2004 was $23.48 per unit. Grants of 1,672,398 units were made during 2003 to key employees and non-employee directors of the
Company, of which 1,046,548 and 356,885 units will vest at a rate of 33% per year after the first
two years and 20% per year, respectively, and be distributed in a manner elected by the participant
on a date after the participant ceases to be an associate of the Company; 253,500 units will vest
at a rate of 20% per year and be distributed in stock at each vesting date unless otherwise
deferred; and 15,465 units were fully vested at their grant date and will be distributed in a manner
elected by the participant. The weighted average fair value at date of grant for units granted
during 2003 was $19.58 per unit. Grants of 1,080,441 units were made during 2002 to key employees and non-employee directors of the
Company, of which 432,841 units will vest at a rate of 20% per year and be distributed in a manner
elected by the participant on a date after the participant ceases to be an associate of the
Company; 638,540 units will vest at a rate of 20% per year and be distributed in stock at each
vesting date unless otherwise deferred; and 9,060 units were fully vested at their grant date and
will be distributed in a manner elected by the participant. The weighted average fair value at
date of grant for units granted during 2002 was $23.58 per unit. Compensation expense for deferred stock units of $19, $25 and $19 was recorded in selling, general
and administrative expenses in 2004, 2003 and 2002, respectively. 47




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##### Table of Contents



Stock Options:A summary of shares reserved for outstanding options as of the fiscal year end,
changes during the year and related weighted average exercise price is presented below (shares in
thousands): February 3, 2005
    
    
    January 29, 2004
    
    
    January 30, 2003Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    35,164
    
    
    $
    29.20
    
    
    
    30,245
    
    
    $
    31.41
    
    
    
    28,045
    
    
    $
    33.06Granted
    
    
    7,119
    
    
    
    23.44
    
    
    
    7,169
    
    
    
    20.35
    
    
    
    5,312
    
    
    
    23.06Exercised
    
    
    (530
    )
    
    
    21.71
    
    
    
    (295
    )
    
    
    21.72
    
    
    
    (722
    )
    
    
    23.99Forfeited
    
    
    (3,265
    )
    
    
    30.06
    
    
    
    (1,955
    )
    
    
    32.14
    
    
    
    (2,390
    )
    
    
    34.43Outstanding at end of year
    
    
    38,488
    
    
    $
    28.16
    
    
    
    35,164
    
    
    $
    29.20
    
    
    
    30,245
    
    
    $
    31.41Options exercisable at end of year
    
    
    20,117
    
    
    $
    32.80
    
    
    
    16,626
    
    
    $
    34.08
    
    
    
    13,523
    
    
    $
    35.04
 As of February 3, 2005, 20 million shares of the Companys common stock were reserved for
future grants of stock options and stock awards. The following table summarizes options outstanding and options exercisable as of February 3, 2005
and the related weighted average remaining contractual life (years) and weighted average exercise
price (shares in thousands): Options Outstanding
    
    
    Options ExercisableShares
    
    
    Remaining
    
    
    Average
    
    
    Shares
    
    
    AverageOption Price Per Share
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$19.10  -  $22.52
    
    
    15,311
    
    
    
    7.3
    
    
    $
    21.16
    
    
    
    5,890
    
    
    $
    21.5022.88  -  34.87
    
    
    17,825
    
    
    
    7.1
    
    
    
    28.34
    
    
    
    8,880
    
    
    
    31.3635.00  -  45.94
    
    
    1,685
    
    
    
    1.9
    
    
    
    39.99
    
    
    
    1,680
    
    
    
    40.0047.00  -  51.19
    
    
    3,667
    
    
    
    4.4
    
    
    
    51.14
    
    
    
    3,667
    
    
    
    51.14$19.10  -  $51.19
    
    
    38,488
    
    
    
    6.7
    
    
    $
    28.16
    
    
    
    20,117
    
    
    $
    32.80
 The weighted average fair value at date of grant for Albertsons options granted during 2004,
2003 and 2002 was $6.85, $6.44 and $6.80 per option, respectively. The fair value of options at
date of grant was estimated using the Black-Scholes model with the following weighted average
assumptions: 2004
    
    
    2003
    
    
    2002Expected life (years)
    
    
    5.7
    
    
    
    5.7
    
    
    
    5.7Risk-free interest rate
    
    
    3.80
    %
    
    
    3.56
    %
    
    
    3.15
    %Volatility
    
    
    37.3
    %
    
    
    39.4
    %
    
    
    38.0
    %Dividend yield
    
    
    3.24
    %
    
    
    3.74
    %
    
    
    3.38
    %
 15. Employee Benefit Plans and Collective Bargaining Agreements Employee Benefit Plans:Substantially all employees working over 20 hours per week are
covered by retirement plans. Union employees participate in multi-employer retirement plans under
collective bargaining agreements unless the collective bargaining agreement provides for
participation in Company-sponsored plans. The Company sponsors both defined benefit and defined
contribution plans. In connection with the Shaws acquisition in 2004, the Company assumed the obligations of Shaws
retirement plans. The actuarial assumptions for the existing Shaws retirement plans are
comparable to those for the existing plans of the Company. Shaws retirement plans have been
combined with Albertsons for financial statement presentation. The Albertsons Salaried Employees Pension Plan was merged with the Albertsons Employees Corporate
Pension Plan as of December 31, 2004. The combined Albertsons Employees Corporate Pension plan is
a funded, qualified, defined benefit, noncontributory plan for eligible Albertsons employees who
are at least 21 years of age with one or more years of service and (with certain exceptions) are
not covered by collective bargaining agreements. Benefits paid to retirees are based upon age at
retirement, years of credited service and average compensation. In 1999, in conjunction with the
authorization of ASRE (described later), the Company-sponsored defined benefit plans were amended
to close the plans to future new entrants, with the exception of certain union employees based on
current contracts. Future accruals for participants in the defined benefit plans are offset by the
value of Company profit sharing contributions to the new defined contribution plan. The Companys
funding policy for the defined benefit plans is to contribute the minimum contribution allowed
under the Employee Retirement Income Security Act (ERISA), with consideration given to
contributing larger amounts in order to be exempt from Pension Benefit Guaranty Corporation
(PBGC) variable rate premiums and/or participant notices of under-funding. The Company will
recognize contributions in accordance with applicable regulations, with consideration given to
recognition for the earliest plan year permitted. The Shaws Retirement Account Plan and the Shaws Pension Plan for Union Employees are funded,
qualified, defined benefit, noncontributory plans. The Company also sponsors an unfunded Executive Pension Makeup Plan, an unfunded Executive ASRE
Makeup Plan, and Shaws unfunded Supplemental Executive Retirement Plan. These are nonqualified
plans which provide certain key employees retirement benefits that supplement those provided by the
Companys other retirement plans. 48




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##### Table of Contents



The Company offers health and life insurance to retirees under multiple programs. The terms of
these plans vary based on employment history and date of retirement. For certain pre-1991
retirees, the Company provides coverage at little or no cost to the retirees. For other current
retirees, the Company provides a fixed dollar contribution and retirees pay contributions to fund
the remaining cost. On December 5, 2003, the Board of Directors approved a curtailment of
retirement medical benefits for all non-retired employees. For retirees after June 1, 2004 the
fixed dollar employer contribution was eliminated and retiree contributions fund the entire
benefit. The Company uses its fiscal year-end date as the measurement date for its Company-sponsored defined
benefit pension plans and postretirement benefit plans. The following table sets forth the obligations and funded status of the Company-sponsored defined
benefit pension plans and postretirement health and life insurance benefit plans: Pension Benefits
    
    
    Other BenefitsFebruary 3,
    
    
    January 29,
    
    
    February 3,
    
    
    January 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Change in benefit obligation:Benefit obligation at beginning of
year
    
    $
    733
    
    
    $
    656
    
    
    $
    29
    
    
    $
    69Shaws benefit obligation at
acquisition April 30, 2004
    
    
    341
    
    
    
    
    
    
    
    3
    
    
    
    Service cost
    
    
    27
    
    
    
    13
    
    
    
    
    
    
    
    2Interest cost
    
    
    58
    
    
    
    40
    
    
    
    1
    
    
    
    4Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36
    )Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Actuarial loss (gain)
    
    
    102
    
    
    
    42
    
    
    
    9
    
    
    
    (6
    )Benefits paid
    
    
    (27
    )
    
    
    (18
    )
    
    
    (16
    )
    
    
    (16
    )End of year benefit obligation
    
    
    1,234
    
    
    
    733
    
    
    
    38
    
    
    
    29Change in plan assets:Fair value of plan assets at
beginning of year
    
    
    505
    
    
    
    398
    
    
    
    
    
    
    
    Shaws fair value of plan assets
at acquisition April 30, 2004
    
    
    253
    
    
    
    
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    76
    
    
    
    104
    
    
    
    
    
    
    
    Employer contributions
    
    
    86
    
    
    
    21
    
    
    
    4
    
    
    
    4Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Benefits paid
    
    
    (27
    )
    
    
    (18
    )
    
    
    (16
    )
    
    
    (16
    )Fair value of plan assets at end of
year
    
    
    893
    
    
    
    505
    
    
    
    
    
    
    
    Funded status
    
    
    (341
    )
    
    
    (228
    )
    
    
    (38
    )
    
    
    (29
    )Unrecognized net actuarial loss (gain)
    
    
    319
    
    
    
    252
    
    
    
    (9
    )
    
    
    (18
    )Unrecognized prior service benefit
    
    
    (44
    )
    
    
    (51
    )
    
    
    
    
    
    
    Net amount recognized
    
    $
    (66
    )
    
    $
    (27
    )
    
    $
    (47
    )
    
    $
    (47
    )
 Amounts recognized in the statement of financial position consist of: Pension Benefits
    
    
    Other BenefitsFebruary 3,
    
    
    January 29,
    
    
    February 3,
    
    
    January 29,2005
    
    
    2004
    
    
    2005
    
    
    2004Accrued benefit liability
    
    $
    (308
    )
    
    $
    (212
    )
    
    $
    (47
    )
    
    $
    (47
    )Accumulated other
comprehensive income,
net of taxes
    
    
    148
    
    
    
    112
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    94
    
    
    
    73
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    (66
    )
    
    $
    (27
    )
    
    $
    (47
    )
    
    $
    (47
    )
 The accumulated benefit obligation for all defined benefit pension plans was $1,201 and $717
at February 3, 2005 and January 29, 2004. At February 3, 2005, the accumulated benefit obligation exceeded the fair value of the plans
assets in the Albertsons Employees Corporate Pension Plan, the Executive Pension Makeup Plan,
Shaws Retirement Account Plan, Shaws Pension Plan for Union Employees, and Shaws Supplemental
Executive Retirement Plan. The provisions of SFAS No. 87, Employers Accounting for Pensions,
require recognition in the balance sheet of an additional minimum liability and other comprehensive
income, which is reflected in stockholders equity, net of related tax benefit. The following table summarizes the projected benefit obligation, accumulated benefit obligation and
plan assets of the individual plans that have a projected benefit obligation in excess of plan
assets: 49




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##### Table of Contents



February 3,
    
    
    January 29,2005
    
    
    2004Projected benefit obligation:Albertsons Employees Corporate Pension Plan
    
    $
    801
    
    
    $
    432Albertsons Salaried Employees Pension Plan
    
    
    
    
    
    
    280Executive Pension Makeup Plan
    
    
    21
    
    
    
    21Shaws Retirement Account Plan
    
    
    235
    
    
    
    Shaws Pension Plan for Union Employees
    
    
    164
    
    
    
    Shaws Supplemental Executive Retirement Plan
    
    
    13
    
    
    
    Accumulated benefit obligation:Albertsons Employees Corporate Pension Plan
    
    
    780
    
    
    
    429Albertsons Salaried Employees Pension Plan
    
    
    
    
    
    
    267Executive Pension Makeup Plan
    
    
    21
    
    
    
    21Shaws Retirement Account Plan
    
    
    224
    
    
    
    Shaws Pension Plan for Union Employees
    
    
    164
    
    
    
    Shaws Supplemental Executive Retirement Plan
    
    
    12
    
    
    
    Plan assets (fair market value):Albertsons Employees Corporate Pension Plan
    
    
    595
    
    
    
    279Albertsons Salaried Employees Pension Plan
    
    
    
    
    
    
    226Shaws Retirement Account Plan
    
    
    190
    
    
    
    Shaws Pension Plan for Union Employees
    
    
    108
    
    
    
    
 Net periodic benefit expense for Company-sponsored defined benefit pension plans was as
follows: 2004
    
    
    2003
    
    
    2002Service cost - benefits earned during the period
    
    $
    27
    
    
    $
    13
    
    
    $
    12Interest cost on projected benefit obligations
    
    
    58
    
    
    
    40
    
    
    
    37Expected return on assets
    
    
    (57
    )
    
    
    (32
    )
    
    
    (39
    )Amortization of prior service cost
    
    
    (6
    )
    
    
    (6
    )
    
    
    (7
    )Recognized net actuarial loss
    
    
    16
    
    
    
    22
    
    
    
    9Curtailment gain
    
    
    
    
    
    
    (7
    )
    
    
    Net periodic benefit expense
    
    $
    38
    
    
    $
    30
    
    
    $
    12
 The net periodic postretirement benefit cost was as follows: 2004
    
    
    2003
    
    
    2002Service cost
    
    $
    
    
    
    $
    2
    
    
    $
    3Interest cost
    
    
    1
    
    
    

    4
    
    
    
    4Amortization of unrecognized gain
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Net periodic postretirement benefit cost
    
    $
    1
    
    
    $
    5
    
    
    $
    6
 Net periodic benefit expense for defined benefit plans is determined using assumptions as of
the beginning of each year. The projected benefit obligation and related funded status are
determined using assumptions as of the end of each year. Weighted average assumptions used for the
Company-sponsored defined benefit pension plans were as follows: 2004
    
    
    2003
    
    
    2002Weighted average assumptions
used to determine benefit
obligations:Discount rate
    
    
    5.40-5.45
    %
    
    
    5.80
    %
    
    
    6.15
    %Rate of compensation increase
    
    
    3.00-3.75
    %
    
    
    3.45-4.50
    %
    
    
    3.40-4.50
    %Weighted average assumptions
used to determine net periodic
benefit cost:Discount rate
    
    
    5.80-6.15
    %
    
    
    6.15
    %
    
    
    6.75
    %Rate of compensation increase
    
    
    3.00-3.75
    %
    
    
    3.45-4.50
    %
    
    
    3.40-4.50
    %Expected long-term return on
plan assets
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    8.50
    %
 The
discount rate used to determine the Companys obligation with
respect to Company-sponsored postretirement health and life insurance
benefit plans was 4.00%-4.10%, 3.55% and 6.10% as of the end of 2004,
2003 and 2002, respectively. As a result of a plan curtailment in
fiscal year 2003, there are no expected employer paid benefit
payments for any employees who retire after June 1, 2004.
Therefore, the duration of the expected employer paid benefit
payments was reduced. Discount rates are based on the expected timing
and amounts of the expected employer paid benefits. The expected employer benefit payments for certain pre-1991 retirees were measured using an annual
medical trend in the age-specific per capita cost of covered health care benefits of 6% for years
2002 and 2003. For 2004, the medical trend for non-prescription claims is 6% and the trend for
prescription claims is 17%, reducing 2% per year to an ultimate trend of 6%. Medical trend does
not affect the expected employer benefit payments for other retirees. 50




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##### Table of Contents



With the exception of the plans covering certain grandfathered retirees, all postretirement
plans are contributory, with participants contributions adjusted periodically. The accounting for
the health care plans anticipates that the Company will not increase its contribution for health
care benefits for non-grandfathered retirees in future years. Since the subsidy levels for the Albertsons and the former defined dollar plans are fixed and the
number of certain grandfathered retirees is small, a 1% health care cost trend increase or decrease
has no material impact on the accumulated postretirement benefit obligation or the postretirement
benefit expense. Expected long-term return on plan assets is estimated by asset class and is generally based on
historical returns, volatilities and risk premiums. Based upon the plans asset allocation,
composite return percentiles are developed upon which the plans expected long-term return is
based. Albertsons Defined Benefit Pension Plan Assets of the Albertsons defined benefit pension plan are invested in a directed trust. Assets in
the directed trust are invested as follows: February 3, 2005
    
    
    January 29, 2004Domestic equity
    
    
    57
    %
    
    
    53
    %Fixed income
    
    
    24
    %
    
    
    27
    %International equity
    
    
    18
    %
    
    
    18
    %Cash equivalents
    
    
    1
    %
    
    
    2
    %100
    %
    
    
    100
    %
 Investments in the pension trust are overseen by the Investment Management Subcommittee which
is made up of officers of the Company and outside experts. The overall investment strategy and policy has been developed based on the need to satisfy the
long-term liabilities of the Companys pension plans. Risk management is accomplished through
diversification across asset classes, multiple investment manager portfolios and both general and
portfolio-specific investment guidelines. The asset allocation guidelines are as follows: Minimum Exposure
    
    
    Target
    
    
    Maximum ExposureDomestic EquitiesLarge
    
    
    40
    %
    
    
    50
    %
    
    
    60
    %Small
    
    
    5
    
    
    
    10
    
    
    
    15Fixed Income
    
    
    20
    
    
    
    25
    
    
    
    30Non-U.S. Equities
    
    
    10
    
    
    
    15
    
    
    
    20
 Managers are expected to generate a total return consistent with their philosophy, offer protection
in down markets and outperform both their respective peer group medians and an appropriate
benchmark, net of expenses, over a three-to-five year period. The investment guidelines contain the following:  -
    Categorical restrictions such as no commodities, no short sales, and no margin
purchases;-
    Portfolio restrictions that address such things as proxy voting, brokerage
arrangements and restrictions on the purchase of Company securities;-
    Asset class restrictions that address such things as single security or sector
concentration, capitalization limits and minimum quality standards; and-
    A provision for specific exemptions from the above guidelines upon approval by
the Investment Management Subcommittee. Futures and options must be used for hedging purposes only and not for speculative purposes. Long
futures positions may be used in place of cash market securities (e.g., treasury futures purchased
in place of buying long treasury bonds). 51




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Shaws Defined Benefit Pension Plans Assets of the two funded Shaws defined benefit pension plans are invested in a directed trust.
Assets in the directed trust are invested as follows: February 3,2005Domestic equity
    
    
    44
    %Fixed income
    
    
    33
    %International equity
    
    
    14
    %Real Estate
    
    
    9
    %100
    %
 Investments in the pension trust are overseen by the Investment Management Subcommittee which
is made up of officers of the Company and outside experts. The overall investment strategy and policy has been developed based on the need to satisfy the
long-term liabilities of the Shaws pension plans. Risk management is accomplished through
diversification across asset classes, investment manager portfolios, commingled pools and
investment guidelines. The asset allocation guidelines are as follows: Minimum Exposure
    
    
    Target
    
    
    Maximum ExposureDomestic EquitiesLarge
    
    
    22
    %
    
    
    24
    %
    
    
    29
    %Small
    
    
    18
    
    
    
    19
    
    
    
    22Domestic Fixed Income
    
    
    24
    
    
    
    28
    
    
    
    33Non-U.S. Equities
    
    
    8
    
    
    
    11
    
    
    
    14Real Estate
    
    
    8
    
    
    
    8
    
    
    
    9Fixed Income
    
    
    8
    
    
    
    10
    
    
    
    11
 The investment return objectives are to meet or exceed the actuarial return target over the long
term and to minimize the potential for investment losses in order to maintain plan funding levels.
The trust will invest in a broad range of investment options over the long term in order to fund
the future retirement income needs of plan participants and beneficiaries. The Company expects to contribute $14 to its pension plans in 2005. The following benefit
payments, which reflect expected future service, as appropriate, are expected to be paid by the
Companys defined benefit pension plans: Pension Benefits2005
    
    $
    282006
    
    
    322007
    
    
    352008
    
    
    402009
    
    
    45Years 2010-2014
    
    
    310
 The Company also sponsors the Albertsons Savings and Retirement Estates (ASRE) Plan which is
a defined contribution retirement plan. ASRE is a profit sharing plan with a salary deferral
feature pursuant to Section 401(k) of the Internal Revenue Code. Most participants in ASRE are
eligible to receive a profit sharing contribution (Company contribution based on employee
compensation). In addition, the Company provides a matching contribution based on the amount of
eligible compensation contributed by the associate. The Company sponsored a tax-deferred savings plan that was also a salary deferral plan pursuant to
Section 401(k) of the Internal Revenue Code, which was merged with ASRE during 2004. In addition,
the Company sponsors the Shaws 401(k) Plan. The plan covers non-union employees as well as
certain employees represented by a labor union, who meet age and service eligibility requirements. All Company contributions to ASRE are made at the discretion of the Board of Directors. The total
amount contributed by the Company is included with the ASRE defined contribution plan expense. The Company also contributes to various plans under industry wide collective bargaining agreements,
primarily for defined benefit pension plans. Total contributions to these plans were $115 for
2004, $92 for 2003 and $80 for 2002. The Company also contributes to various plans under industry
wide collective bargaining agreements which provide for health care benefits to both active
employees and retirees. Total contributions to these plans were $520 for 2004, $416 for 2003 and
$408 for 2002. 52




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##### Table of Contents



Retirement plans expense was as follows: 2004
    
    
    2003
    
    
    2002Defined benefit pension plans
    
    $
    38
    
    
    $
    30
    
    
    $
    12ASRE defined contribution plan
    
    
    156
    
    
    
    143
    
    
    
    153Multi-employer plans
    
    
    115
    
    
    
    92
    
    
    
    80$
    309
    
    
    $
    265
    
    
    $
    245
 SFAS No. 112, Employers Accounting for Postemployment Benefits requires employers to
recognize an obligation for benefits provided to former or inactive employees after employment but
before retirement. The Company is self-insured for certain of its employees short-term and
long-term disability plans, which are the primary benefits paid to inactive employees prior to
retirement. Following is a summary of the obligation for postemployment benefits included in the Companys
Consolidated Balance Sheets: February 3,
    
    
    January 29,2005
    
    
    2004Included with salaries and related liabilities
    
    $
    35
    
    
    $
    37Included with other long-term liabilities
    
    
    69
    
    
    
    63$
    104
    
    
    $
    100
 On December 8, 2003 the Medicare Act was signed into law. The Medicare Act introduces a
prescription drug benefit under Medicare Part D as well as a federal subsidy to sponsors of retiree
health benefit plans that provide a benefit that is at least actuarially equivalent to Medicare
Part D. The Company has determined that a group of retirees are likely eligible for the federal employer
subsidy. The majority of Albertsons retirees, including all new retirees, are not eligible for
the federal employer subsidy. Other options are under consideration which may reduce the plan
cost. These options may require plan changes. Since other options are under consideration, the
effect of the employer subsidy has not been recognized. Neither the federal employer subsidy nor
the other options are expected to have a material impact on the Companys annual retiree medical
plan expense for 2005. Collective Bargaining Agreements:As of February 3, 2005, the Company employed approximately
241,000 associates, of which approximately 55% were covered by collective bargaining agreements, primarily with the United Food and Commercial Workers
and International Brotherhood of Teamsters. Labor agreements covering approximately 37,000
associates expire during 2005. 16. Employment Contracts and Change in Control Agreements The Company has entered into a ten-year employment agreement with its Chairman of the Board,
Chief Executive Officer and President (the CEO Agreement), which provides this executive with a
minimum base salary, the opportunity to receive annual bonus payments and stock awards, a
supplemental retirement benefit, certain fringe benefits, the right to certain guaranteed payments
and vesting of stock awards upon his termination or departure from the Company and other benefits.
The Company has also entered into a three-year employment agreement with its Executive Vice
President and Chief Marketing Officer (the CMO Agreement). The CMO Agreement provides the
executive with a minimum base salary, certain fringe benefits and the right to certain guaranteed
payments upon his termination or departure from the Company. The Company also has agreements with
other executive officers which provide the executive with a minimum base salary and, upon
termination or departure from the Company without cause, certain guaranteed payments and the
vesting of stock awards. The Company has entered into change-in-control (CIC) agreements with certain executives to
provide them with stated severance compensation should their employment with the Company be
terminated under certain defined circumstances prior to or following a CIC. The CIC agreements
have varying terms and provisions depending upon the executives level within the organization and
other considerations, including up to three times base salary and current target bonus, payable in
lump sum for the most senior executives and, for these executives, a tax gross-up payment to make
the executive whole for any excise taxes incurred due to Section 280G of the Internal Revenue Code
(a tax gross up). The Company does not have a separate CIC agreement with the CEO. Rather, the
CEO Agreement contains CIC termination provisions applicable during the CEO Agreements full term
that are comparable to those provided to the Companys other most senior executives, including a
tax gross up. Unlike the CIC agreements, however, the CEO Agreement provides the CEO with the
ability to terminate his employment for any reason during the seventh month following a CIC and
receive the stated CIC severance benefits. The CIC agreements expire on December 31, 2005. However, beginning on January 1, 2004 and each
January 1st thereafter, the term of the agreement will automatically be extended for an additional
year unless the Company or the executive gives notice by September 30th of the preceding year that
the Company or the executive does not wish to extend the agreement. In the event that a CIC occurs
during the term of the agreements, the agreements provide for a two-year protection period
(referred to as the severance period) during which time the executive will receive the stated
benefits upon an involuntary termination (other than for Cause) or resignation for Good Reason (as
defined in the agreements). The CIC agreements are considered to be double trigger arrangements wherein the payment of
severance compensation following a CIC is predicated upon the occurrence of two triggering events:
(1) the occurrence of a CIC as defined in the agreements; and (2) the involuntary termination of
the executive (other than for Cause) or the executives termination of employment with the Company
for Good Reason (as defined in the agreements). 53




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##### Table of Contents



In consideration for the severance protection afforded by such agreements, the senior executives
have agreed to non-compete provisions for the term of the agreements and for one year following the
date of termination and all of the executives covered by the CIC program described above have
agreed to non-solicitation provisions for the term of the agreements and for one year following the
date of termination. 17. Leases The Company leases a portion of its real estate. The typical lease period is 20 to 30 years
and most leases contain renewal options. Exercise of such options is dependent on a variety of
factors, including the level of business conducted at the location. In addition, the Company
leases certain equipment. Some leases contain contingent rental provisions based on sales volume
at retail stores or miles traveled for trucks. Capitalized leases are calculated using interest
rates appropriate at the inception of each lease. Following is a summary of the Companys assets under capitalized leases; $0 and $2 of real estate
and equipment is included in assets held for sale at February 3, 2005 and January 29, 2004,
respectively: February 3,
    
    
    January 29,2005
    
    
    2004Real estate and equipment
    
    $
    910
    
    
    $
    420Accumulated amortization
    
    
    (144
    )
    
    
    (110
    )$
    766
    
    
    $
    310
 Future minimum lease payments for noncancelable operating leases (which exclude the
amortization of acquisition-related fair value adjustments), related subleases and capital leases
at February 3, 2005, are as follows: Operating
    
    
    
    
    
    
    CapitalLeases
    
    
    Subleases
    
    
    Leases2005
    
    $
    429
    
    
    $
    (55
    )
    
    $
    1142006
    
    
    409
    
    
    
    (52
    )
    
    
    1122007
    
    
    388
    
    
    
    (48
    )
    
    
    1112008
    
    
    357
    
    
    
    (34
    )
    
    
    1112009
    
    
    330
    
    
    
    (21
    )
    
    
    112Thereafter
    
    
    3,088
    
    
    
    (66
    )
    
    
    1,455Total minimum obligations (receivables)
    
    $
    5,001
    
    
    $
    (276
    )
    
    
    2,015Interest
    
    
    
    
    
    
    
    
    
    
    (1,134
    )Present value of net minimum obligations
    
    
    
    
    
    
    
    
    
    
    881Current portion
    
    
    
    
    
    
    
    
    
    
    (24
    )Long-term obligations at February 3, 2005
    
    
    
    
    
    
    
    
    
    $
    857
 Rent expense under operating leases was as follows: 2004
    
    
    2003
    
    
    2002Minimum rent
    
    $
    447
    
    
    $
    396
    
    
    $
    389Contingent rent
    
    
    18
    
    
    
    18
    
    
    
    26465
    
    
    
    414
    
    
    
    415Sublease rent
    
    
    (117
    )
    
    
    (94
    )
    
    
    (92
    )$
    348
    
    
    $
    320
    
    
    $
    323
 18. Related Party Transactions In 2004, the Company leased one store and one office location ($0.9 of rent, common area
maintenance fees and taxes paid) and leased an aircraft for one business-related flight
(insignificant) from entities that have a relationship with an individual who was a member of the
Board of Directors during a portion of 2004. The Company leased one store and two office locations
($1 of rent, common area maintenance fees and taxes paid) in 2003 and leased nine stores and two
office locations and paid common area maintenance fees for eight other stores ($3 of rent, common
area maintenance fees and taxes paid) in 2002 from entities that have or at the time had a
relationship with an individual who was a member of the Board of Directors during 2002 and 2003.
Also in 2002, the Company obtained consulting services (insignificant) from an entity that has or,
at the time had, a relationship with an individual who was at the time a member of the Board of
Directors. As of February 3, 2005, none of the referenced individuals was a member of the Board. 19. Financial Instruments Financial instruments which potentially subject the Company to concentration of credit risk
consist principally of cash equivalents and receivables. The Company limits the amount of credit
exposure to each individual financial institution and places its temporary cash into investments of
high credit quality. Concentrations of credit risk with respect to receivables are limited due to
their dispersion across various companies and geographies. The estimated fair values of cash and cash equivalents, accounts receivable, accounts payable,
short-term debt and bank line borrowings approximate their carrying amounts. Substantially all of
the fair values were estimated using quoted market prices. The estimated fair values and carrying
amounts of outstanding debt (excluding bank line borrowings) were as follows: 54




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##### Table of Contents



February 3,
    
    
    January 29,2005
    
    
    2004Fair value
    
    $
    6,767
    
    
    $
    5,491Carrying amount
    
    
    6,006
    
    
    
    4,958
 20. Legal Proceedings 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 October 2001
the court granted summary judgment against Sav-on Drug Stores, finding one of its bonus plans
unlawful under plaintiffs liability theory. 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 December 20,
2004, the court granted final approval to a settlement reached by the parties. 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 April 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. American Stores Company, et al.) by assistant managers seeking recovery of
overtime pay based upon plaintiffs allegation that they were improperly classified as exempt under
California law. In May 2001 a class action with respect to Sav-on Drug Stores assistant managers
was certified by the court. A case with very similar claims, involving the Sav-on Drug Stores
assistant managers and operating managers, was also filed in April 2000 against the Companys
subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the County of Los Angeles, California
(Rocher, Dahlin, et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. In
April 2002 the Court of Appeal of the State of California Second Appellate District reversed the
Rocher class certification, leaving only two plaintiffs. However, on August 26, 2004, the
California Supreme Court reversed this decision and remanded the case to the trial court. The
Company continues to believe it has strong defenses against these lawsuits and is vigorously
defending them. Although these lawsuits are subject to the uncertainties inherent in the
litigation process, based on the information presently available to the Company, management does
not expect that the ultimate resolution of these lawsuits will have a material adverse effect on
the Companys financial condition, results of operations or cash flows. In August 2000 a class action complaint was filed against Jewel Food Stores, Inc., an indirect
wholly owned subsidiary of the Company and Dominicks Finer Foods, Inc. in the Circuit Court of
Cook County, Illinois alleging milk price fixing (Maureen Baker et al. v. Jewel Food Stores, Inc.
and Dominicks Finer Foods, Inc., Case No. 00L 009664). In February 2003, the trial court found in
favor of the defendants and dismissed the case with prejudice. The plaintiffs appealed, but on
January 12, 2005, the Illinois Appellate Court upheld the trial courts dismissal of the case.
Plaintiffs have now appealed to the Illinois Supreme Court. Although this lawsuit is subject to the
uncertainties inherent in the litigation process, based on the information presently available to
the Company, management does not expect that the ultimate resolution of this action 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 were returned, of which approximately 5,000 were deemed by the settlement administrator to be
incapable of valuation, presumed untimely, or both (the Unvalued Claims). The claims
administrator was able to assign a value to approximately 1,080 claims, which amount to a total of
approximately $14, although the value of many of those claims is still subject to challenge by
either party. Two other claims processes occurred during fiscal 2004. First, there was a
supplemental mailing and in-store posting directed toward a narrow-subset of current and former
associates. This process resulted in approximately 260 individuals submitting claims documents.
These documents are being assessed. Second, in response to the Courts instruction to plaintiffs
counsel to submit supplemental and/or corrected information for the Unvalued Claims, plaintiffs
counsel submitted such information for approximately 4,700 of the Unvalued Claims. This
information is being assessed. The Company is presently unable to determine the amounts that it
may ultimately be required to pay with respect to all claims properly submitted. 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. On October 13, 2000, a complaint was filed in Los Angeles County Superior Court (Joanne Kay Ward et
al v. Albertsons, Inc. et al) alleging that Albertsons, Lucky Stores and Sav-on Drug Stores paid
terminating employees their final paychecks in an untimely manner. The lawsuit seeks statutory
penalties. On January 4, 2005, the case was certified as a class action. The Company believes
that it has strong defenses against this lawsuit and is vigorously defending it. Although this
lawsuit is subject to the uncertainties 55




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inherent in the litigation process, based on the information presently available to the Company,
management does not expect that the ultimate resolution of this lawsuit will have a material
adverse effect on the Companys financial condition, results of operations or cash flows. On February 2, 2004, the Attorney General for the State of California filed an action in Los
Angeles federal court (California, ex rel Lockyer v. Safeway, Inc. dba Vons, a Safeway Company;
Albertsons, Inc. and Ralphs Grocery Company, a division of The Kroger Co., United States District
Court Central District of California, Case No. CV04-0687) claiming that certain provisions of the
agreements (the Labor Dispute Agreements) between the Company, The Kroger Co. and Safeway Inc.
(the Retailers) which provided for lock-outs in the event that any Retailer was struck at any
or all of its Southern California facilities during the 2003-2004 labor dispute in Southern
California when the other Retailers were not and contained a provision designed to prevent the
union from placing disproportionate pressure on one or more Retailer by picketing such Retailer(s)
but not the other Retailer(s) during the labor dispute violate section 1 of the Sherman Act. The
lawsuit seeks declarative and injunctive relief. The Company filed its answer on February 24,
2004. The Company continues to believe it has strong defenses against this lawsuit and is
vigorously defending it. Although this lawsuit is subject to uncertainties inherent in the
litigation process, based on the information presently available to the Company, management does
not expect that the ultimate resolution of this action will have a material adverse effect on the
Companys financial condition, results of operations or cash flows. In March 2004 a lawsuit seeking class action status was filed against Albertsons in the Superior
Court of the State of California in and for the County of Alameda, California (Dunbar v.
Albertsons, Inc.) by a grocery manager seeking recovery including overtime pay based upon
plaintiffs allegation that he and other grocery managers were improperly classified as exempt
under California law. The Dunbar case is currently in discovery, and a class certification hearing
is scheduled for June 2005. The Company continues to believe it has strong defenses against this
lawsuit and is vigorously defending it. Although this lawsuit is subject to the uncertainties
inherent in the litigation process, based on the information presently available to the Company,
management does not expect that the ultimate resolution of this lawsuit will have a material
adverse effect on the Companys financial condition, results of operations or cash flows. In July 2004, a case similar to Dunbar involving salaried drug/merchandise managers was filed in
the same court (Victoria A. Moore, et al. v. Albertsons, Inc.). In March 2005, the parties
reached a tentative settlement, which remains subject to court approval. Based on information
presently available to the Company, management does not expect that payments under this settlement,
if approved in the present form, 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 February 3, 2005, the insurance carrier continued 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 these 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 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. 21. Commercial Commitments and Guarantees Commercial Commitments The Company had outstanding letters of credit of $124 as of February 3, 2005, 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 $124 outstanding at year end, $97 were
standby letters of credit covering primarily workers compensation or performance obligations. The
remaining $27 were commercial letters of credit supporting the Companys merchandise import
program. The Company paid issuance fees on letters of credit outstanding as of February 3, 2005,
that varied, depending on type, up to 0.75% of the outstanding balance of the letter of credit. Guarantees The Company provides guarantees, indemnifications and assurances to others in the ordinary course
of its business. The Company has evaluated its agreements that contain guarantees and
indemnification clauses in accordance with the guidance of FASB 56




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Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. The Company is contingently liable for certain operating leases that were assigned to third parties
in connection with various store closures and dispositions. If any of these third parties fails to
perform its obligations under the lease, the Company could be responsible for the lease
obligations. In 2003 the Company was notified that certain of these third parties had become
insolvent and were seeking bankruptcy protection. At January 29, 2004, approximately 26 store
leases for which the Company was contingently liable were subject to the bankruptcy proceedings of
such third parties and 22 of those had been rejected by the applicable third party. The Company
recorded pre-tax charges of $20 in 2003, which represents the remaining minimum lease payments and
other payment obligations under the 22 rejected leases, less estimated sublease income and
discounted at the Companys credit-adjusted risk-free interest rate. As of February 3, 2005,
approximately 17 store leases remained for which the Company is contingently liable. Terminations
and payments made on these leases in 2004 resulted in a reduction of the Companys contingent
liability of $16. As of February 3, 2005, the Company had remaining guarantees on approximately
208 stores with leases extending through 2026. Assuming that each respective purchaser became
insolvent, an event the Company believes to be remote because of the wide dispersion among third
parties and the variety of remedies available, the minimum future undiscounted payments, exclusive
of any potential sublease income, are $371. The Company enters into a wide range of indemnification arrangements in the ordinary course of
business. These include tort indemnities, tax indemnities, indemnities against third party claims
arising out of arrangements to provide services to the Company, indemnities in merger and
acquisition agreements and indemnities in agreements related to the sale of Company securities.
Also, governance documents of the Company and substantially all of its subsidiaries provide for the
indemnification of individuals made party to any suit or proceeding by reason of the fact that the
individual was acting as an officer, director or agent of the relevant company or as a fiduciary of
a company-sponsored welfare benefit plan. The Company also provides guarantees and
indemnifications for the benefit of many of its wholly owned subsidiaries for the satisfaction of
performance obligations, including workers compensation obligations. It is difficult to quantify
the maximum potential liability under these indemnifications; however at February 3, 2005 the
Company was not aware of any material liabilities arising from these indemnification arrangements. 57




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22. Computation of Earnings Per Share 2004
    
    
    2003
    
    
    2002Diluted
    
    
    Basic
    
    
    Diluted
    
    
    Basic
    
    
    Diluted
    
    
    BasicEarnings (loss) from:Continuing operations
    
    $
    474
    
    
    $
    474
    
    
    $
    556
    
    
    $
    556
    
    
    $
    866
    
    
    $
    866Discontinued operations
    
    
    (30
    )
    
    
    (30
    )
    
    
    
    
    
    
    
    
    
    
    (287
    )
    
    
    (287
    )Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (94
    )
    
    
    (94
    )Net earnings
    
    $
    444
    
    
    $
    444
    
    
    $
    556
    
    
    $
    556
    
    
    $
    485
    
    
    $
    485Weighted average common shares
outstanding
    
    
    369
    
    
    
    369
    
    
    
    368
    
    
    
    368
    
    
    
    397
    
    
    
    397Potential common share equivalents
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Weighted average shares outstanding
    
    
    372
    
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    399Earnings (loss) per common share and
common share equivalents:Continuing operations
    
    $
    1.28
    
    
    $
    1.29
    
    
    $
    1.51
    
    
    $
    1.51
    
    
    $
    2.17
    
    
    $
    2.18Discontinued operations
    
    
    (0.08
    )
    
    
    (0.08
    )
    
    
    
    
    
    
    
    
    
    
    (0.72
    )
    
    
    (0.72
    )Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.23
    )
    
    
    (0.24
    )Net earnings
    
    
    1.19
    
    
    
    1.20
    
    
    
    1.51
    
    
    
    1.51
    
    
    
    1.22
    
    
    
    1.22Calculation of potential common share
equivalents:Potential common shares assumed
issued from exercise of the
Corporate Units
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Options to purchase potential
common shares
    
    
    28
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    10Potential common shares assumed
purchased with potential proceeds
    
    
    (49
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (8
    )Potential common share equivalents
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Calculation of potential common shares
assumed purchased with potential
proceeds:Potential proceeds from assumed
exercise of the Corporate Units
    
    $
    572
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Potential proceeds from exercise of
options to purchase common shares
    
    
    605
    
    
    
    
    
    
    
    221
    
    
    
    
    
    
    
    227Total assumed proceeds from exercise
    
    $
    1,177
    
    
    
    
    
    
    $
    221
    
    
    
    
    
    
    $
    227Common stock price used under
treasury stock method
    
    $
    23.86
    
    
    
    
    
    
    $
    20.33
    
    
    
    
    
    
    $
    27.77Potential common shares assumed
purchased with potential proceeds
    
    
    49
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    8
 Outstanding options excluded in 2004, 2003 and 2002 (option price exceeded the average market
price during the period) amounted to 17.0 million shares, 29.4 million shares and 20.2 million
shares, respectively. 58




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23. Quarterly Financial Data (Unaudited) (Dollars in millions, except per share data)
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year2004Sales
    
    $
    8,633
    
    
    $
    10,191
    
    
    $
    9,995
    
    
    $
    11,078
    
    
    $
    39,897Gross profit
    
    
    2,434
    
    
    
    2,879
    
    
    
    2,792
    
    
    
    3,081
    
    
    
    11,186Operating profit
    
    
    192
    
    
    
    332
    
    
    
    281
    
    
    
    422
    
    
    
    1,227Earnings
from continuing operations
    
    
    56
    
    
    
    125
    
    
    
    107
    
    
    
    186
    
    
    
    474Earnings (loss) from discontinued operations
    
    
    (20
    )
    
    
    (21
    )
    
    
    3
    
    
    
    8
    
    
    
    (30
    )Net earnings
    
    
    36
    
    
    
    104
    
    
    
    110
    
    
    
    194
    
    
    
    444Earnings per share:Basic
    
    
    0.10
    
    
    
    0.28
    
    
    
    0.30
    
    
    
    0.52
    
    
    
    1.20Diluted
    
    
    0.10
    
    
    
    0.28
    
    
    
    0.29
    
    
    
    0.52
    
    
    
    1.192003Sales
    
    $
    8,854
    
    
    $
    8,971
    
    
    $
    8,715
    
    
    $
    8,567
    
    
    $
    35,107Gross profit
    
    
    2,525
    
    
    
    2,634
    
    
    
    2,504
    
    
    
    2,383
    
    
    
    10,046Operating profit
    
    
    383
    
    
    
    369
    
    
    
    254
    
    
    
    312
    
    
    
    1,318Earnings
from continuing operations
    
    
    173
    
    
    
    162
    
    
    
    91
    
    
    
    130
    
    
    
    556Earnings (loss) from discontinued operations
    
    
    (1
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Net earnings
    
    
    172
    
    
    
    162
    
    
    
    92
    
    
    
    130
    
    
    
    556Earnings per share:Basic
    
    
    0.47
    
    
    
    0.44
    
    
    
    0.25
    
    
    
    0.35
    
    
    
    1.51Diluted
    
    
    0.47
    
    
    
    0.44
    
    
    
    0.25
    
    
    
    0.35
    
    
    
    1.51
 Amounts for all quarters presented prior to third quarter of 2004 have been restated to
separately present discontinued operations that occurred in 2004. See Note 6 Discontinued
Operations, Restructuring Activities and Closed Stores. 
 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure. None. 
 Item 9A. Controls and Procedures. Management of the Company, including the Chief Executive Officer and 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 February 3, 2005. 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 SEC s rules and forms. In November 2004, the Company began the implementation of the PeopleSoft Human Capital Management
system. Implementation was completed at the corporate store support center and one division during
2004, and the Company plans to continue the roll-out through fiscal 2006. Based on managements
evaluation, the necessary steps have been taken to monitor and maintain appropriate internal
controls during this period of change. Managements annual report on internal control over financial reporting and the attestation report
of the Companys registered public accounting firm are set forth on pages 28 and 29 of this Annual
Report on Form 10-K and are incorporated herein by reference. Other than as described above, 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. 
 Item 9B. Other Information. None. 59




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##### Table of Contents



PART III 
 Item 10. Directors and Executive Officers of the Registrant. The information regarding directors and nominees for directors of the Company, including
identification of the audit committee and audit committee financial expert, is presented under the
headings Board of Directors  Corporate Governance, Election of Directors and Section 16
Beneficial Ownership Reporting Compliance in the Companys definitive proxy statement for use in
connection with the 2005 Annual Meeting of Shareholders (the Proxy Statement) to be filed within
120 days after the Companys fiscal year ended February 3, 2005. The information contained under
these headings is incorporated herein by reference. Information regarding the executive officers
of the Company is included in this Annual Report on Form 10-K as Item 3A of Part I as permitted by
Instruction 3 to Item 401(b) of Regulation S-K. The Company has adopted a code of ethics that applies to its Chief Executive Officer, Chief
Financial Officer and Controller. This code of ethics is available on the Companys Web site at
www.albertsons.com. If the Company makes any amendments to this code other than technical,
administrative or other non-substantive amendments, or grants any waivers, including implicit
waivers, from a provision of this code to the Companys Chief Executive Officer, Chief Financial
Officer or Controller, the Company will disclose the nature of the amendment or waiver, its
effective date and to whom it applies in a report on Form 8-K filed with the SEC. 
 Item 11. Executive Compensation. Information concerning executive compensation is presented under the headings Compensation of
Executive Officers  Summary Compensation Table, Compensation of Executive Officers  Option
Grants In Last Fiscal Year, Compensation of Executive Officers  Aggregated Option Exercises in
Last Fiscal Year and Fiscal Year-End Option Values, Compensation of Executive Officers -
Retirement Benefits and Compensation of Executive Officers  Agreements with Named Executive
Officers in the Proxy Statement. Information concerning director compensation is presented under
the heading Election of Directors  Compensation of Directors in the Proxy Statement. The
information contained under these headings is incorporated herein by reference. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. Information with respect to security ownership of certain beneficial owners and management is set
forth under the heading Voting Securities and Principal Holders Thereof in the Proxy Statement.
Information with respect to equity compensation plans is set forth under the heading Compensation
of Executive Officers  Equity Compensation Plan Information in the Proxy Statement. The
information contained under these headings is incorporated herein by reference. 
 Item 13. Certain Relationships and Related Transactions. Information concerning related transactions is presented under the heading Certain Transactions
in the Proxy Statement. The information contained under this heading is incorporated herein by
reference. 
 Item 14. Principal Accountant Fees and Services. Information concerning principal accountant fees and services is presented under the heading
Principal Accountant Fees and Services in the Proxy Statement. The information contained under
this heading is incorporated herein by reference. 60




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##### Table of Contents



PART IV 
 Item 15. Exhibits and Financial Statement Schedules.  (a)
    The following documents are filed as part of this report:  1)
    Consolidated Financial Statements: See Index to Consolidated
Financial Statements at Item 8 on page 27 of this report.2)
    Financial Statement Schedules: No schedules are required.3)
    Exhibits are incorporated herein by reference or are filed with
this report as set forth in the Index to Exhibits on pages 64
through 72 hereof. 61




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##### Table of Contents



Signatures Pursuant to the requirements of Section 13 or 15(d) 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.By: \S\ Felicia D. ThorntonFelicia D. Thornton(Executive Vice Presidentand Chief Financial Officer)
 Date: March 31, 2005 62




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##### Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities indicated as of
March 31, 2005. \S\ Lawrence R. Johnston
    
    \S\ Felicia D. ThorntonLawrence R. Johnston
    
    Felicia D. Thornton(Chairman of the Board, Chief
    
    (Executive Vice PresidentExecutive Officer, President and
    
    and Chief Financial Officer)Director)
    
    (Principal Accounting Officer)\S\ A. Gary Ames
    
    \S\ Pamela G. BaileyA. Gary Ames
    
    Pamela G. Bailey(Director)
    
    (Director)\S\ Teresa Beck
    
    \S\ Henry I. BryantTeresa Beck
    
    Henry I. Bryant(Director)
    
    (Director)\S\ Paul I. Corddry
    
    \S\ Bonnie G. HillPaul I. Corddry
    
    Bonnie G. Hill(Director)
    
    (Director)\S\ Jon C. Madonna
    
    \S\ Beth M. PritchardJon C. Madonna
    
    Beth M. Pritchard(Director)
    
    (Director)\S\ Beatriz Rivera
    
    \S\ Kathi P. SeifertBeatriz Rivera
    
    Kathi P. Seifert(Director)
    
    (Director)
 63




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##### Table of Contents



Index to Exhibits
Filed with the Annual Report
on Form 10-K for the
Year Ended February 3, 2005 Number
    
    Description3.1
    
    Restated Certificate of Incorporation (as amended) is incorporated
herein by reference to Exhibit 3.1 of Form 10-Q for the quarter
ended April 30, 1998.3.1.1
    
    Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock is incorporated herein by
reference to Exhibit 3.1.1 of Form 10-K for the year ended January
30, 1997.3.1.2
    
    Amendment to Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock is incorporated
herein by reference to Exhibit 3.1.2 of Form 10-K for the year
ended January 28, 1999.3.2
    
    By-Laws amended on March 15, 2001 and December 5, 2003 is
incorporated herein by reference to Exhibit 3.2 of Form 10-K for
the year ended January 29, 2004.4.1
    
    Stockholder Rights Plan Agreement is incorporated herein by
reference to Exhibit 1 of Form 8-A Registration Statement filed
with the SEC on March 4, 1997.4.1.1
    
    Amendment No. One to Stockholder Rights Plan Agreement (dated
August 2, 1998) is incorporated herein by reference to Exhibit
4.1(b) of Amendment to Form 8-A Registration Statement filed with
the SEC on August 6, 1998.4.1.2
    
    Amendment No. Two to Stockholder Rights Plan Agreement (dated March
16, 1999) is incorporated herein by reference to Exhibit 3 of
Amendment to Form 8-A Registration Statement filed with the SEC on
March 25, 1999.4.1.3
    
    Amendment No. Three to Stockholder Rights Plan Agreement (dated
September 26, 2003) is incorporated herein by reference to Exhibit
6 of Amendment to Form 8-A Registration Statement filed with the
SEC on September 30, 2003.4.2
    
    Indenture, dated as of May 1, 1992, between Albertsons, Inc. and
Morgan Guaranty Trust Company of New York as Trustee is
incorporated herein by reference to Exhibit 4.1 of Form S-3 (Reg.
No. 333-41793) filed with the SEC on December 9,
1997.(1)4.3
    
    Senior Indenture dated May 1, 1995, between American Stores Company
and the First National Bank of Chicago, as Trustee, is incorporated
herein by reference to Exhibit 4.1 of Form 10-Q filed by American
Stores Company (Commission File Number 1-5392) on June 12,
1995.(1)4.4
    
    Form of Corporate Unit is incorporated herein by reference to
Exhibit 4.3 of Registration Statement on Form S-3/A (Reg. No.
333-113995) filed with the SEC on April 28, 2004.4.5
    
    Form of Treasury Unit is incorporated herein by reference to
Exhibit 4.4 of Registration Statement on Form S-3/A (Reg. No.
333-113995) filed with the SEC on April 28, 2004.4.6
    
    Form of Senior Note is incorporated herein by reference to Exhibit
4.5 of Registration Statement on Form S-3/A (Reg. No. 333-113995)
filed with the SEC on April 28, 2004.4.7
    
    Form of Supplemental Indenture is incorporated herein by reference
to Exhibit 4.6 of Registration Statement on Form S-3/A (Reg. No.
333-113995) filed with the SEC on April 28, 2004.4.8
    
    Form of Purchase Contract Agreement is incorporated herein by
reference to Exhibit 4.7 of Registration Statement on Form S-3/A
(Reg. No. 333-113995) filed with the SEC on April 28, 2004.
 64




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##### Table of Contents



Number
    
    Description4.9
    
    Form of Pledge Agreement is incorporated herein by reference to
Exhibit 4.8 of Registration Statement on Form S-3/A (Reg. No.
333-113995) filed with the SEC on April 28, 2004.4.10
    
    Form of Remarketing Agreement is incorporated herein by reference
to Exhibit 4.9 of Registration Statement on Form S-3/A (Reg. No.
333-113995) filed with the SEC on April 28, 2004.10.1
    
    J. A. and Kathryn Albertson Foundation Inc. Stock Agreement (dated
May 21, 1997) is incorporated herein by reference to Exhibit 10.1
of Form 10-Q for the quarter ended May 1, 1997.*10.1.1
    
    Waiver regarding Alscott Limited Partnership #1 Stock Agreement
(dated May 21, 1997) is incorporated herein by reference to Exhibit
10.1.1 of Form 10-Q for the quarter ended May 1, 1997.*10.1.2
    
    Waiver regarding Kathryn Albertson Stock Agreement (dated May 21,
1997) is incorporated herein by reference to Exhibit 10.1.2 of Form
10-Q for the quarter ended May 1, 1997.*10.2
    
    Agreement between the Company and Gary G. Michael dated December
22, 2000 is incorporated herein by reference to Exhibit 10.2 of
Form 10-K for the year ended February 1, 2001.*10.3
    
    Form of Award of Deferred Stock Units is incorporated herein by
reference to Exhibit 10.3 of Form 10-K for the year ended February
1, 2001.*10.4
    
    Employment Agreement between the Company and Lawrence R. Johnston
dated April 23, 2001 is incorporated herein by reference to Exhibit
10.4 of Form 8-K filed on April 26, 2001.*10.4.1
    
    Amendment to Employment Agreement between the Company and Lawrence
R. Johnston dated July 19, 2001 is incorporated herein by reference
to Exhibit 10.4.1 of Form 10-K for the year ended January 31,
2002.*10.5
    
    Form of Beneficiary Agreement for Key Executive Life Insurance is
incorporated herein by reference to Exhibit 10.5.1 of Form 10-K for
the year ended January 30, 1986.*10.6
    
    Executive Deferred Compensation Plan (amended and restated February
1, 1989) is incorporated herein by reference to Exhibit 10.6 of
Form 10-K for the year ended February 2, 1989.*10.6.1
    
    Amendment to Executive Deferred Compensation Plan (dated December
4, 1989) is incorporated herein by reference to Exhibit 10.6.1 of
Form 10-Q for the quarter ended November 2, 1989.*10.6.2
    
    Amendment to Executive Deferred Compensation Plan (dated December
15, 1998) is incorporated herein by reference to Exhibit 10.6.2 of
Form 10-K for the year ended February 3, 2000.*10.6.3
    
    Amendment to Executive Deferred Compensation Plan (dated March 15,
2001) is incorporated herein by reference to Exhibit 10.6.3 of Form
10-K for the year ended February 1, 2001.*10.6.4
    
    Amendment to Executive Deferred Compensation Plan (dated May 1,
2001) is incorporated herein by reference to Exhibit 10.6.4 of Form
10-K for the year ended January 30, 2003.*10.7
    
    [Intentionally left blank]10.8
    
    Form of Consulting Agreement with Special Advisors to the Board of
Directors dated as of March 15, 2001 is incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the year ended February
1, 2001.*
 65




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##### Table of Contents



Number
    
    Description10.9
    
    Albertsons, Inc. Executive Officers Annual Incentive
Compensation Plan is incorporated herein by reference to Exhibit
10.42 of Form 10-Q for the quarter ended May 2, 2002.*10.10
    
    2000 Deferred Compensation Plan (dated January 1, 2000) is
incorporated by reference to Exhibit 10.10 of Form 10-K for the
year ended February 3, 2000.*10.10.1
    
    First Amendment to the 2000 Deferred Compensation Plan (dated May
25, 2001) is incorporated herein by reference to Exhibit 10.10.1

of Form 10-K for the year ended January 30, 2003.*10.10.2
    
    Second Amendment to the 2000 Deferred Compensation Plan (dated
July 18, 2001) is incorporated herein by reference to Exhibit
10.10.2 of Form 10-K for the year ended January 30, 2003.*10.10.3
    
    Third Amendment to the 2000 Deferred Compensation Plan (dated
December 31, 2001) is incorporated herein by reference to Exhibit
10.10.3 of Form 10-K for the year ended January 30, 2003.*10.10.4
    
    Fourth Amendment to Deferred Compensation Plan (dated December 22,
2003) is incorporated herein by reference to Exhibit 10.10.4 of
Form 10-K for the year ended January 29, 2004.*10.11
    
    Letter Agreement between the Company and Clarence R. Gabriel
effective January 13, 2003 (filed herewith).*10.12
    
    [Intentionally left blank]10.13
    
    Executive Pension Makeup Plan (amended and restated February 1,
1989) is incorporated herein by reference to Exhibit 10.13 of Form
10-K for the year ended February 2, 1989.*10.13.1
    
    First Amendment to Executive Pension Makeup Plan (dated June 8,
1989) is incorporated herein by reference to Exhibit 10.13.1 of
Form 10-Q for the quarter ended May 4, 1989.*10.13.2
    
    Second Amendment to Executive Pension Makeup Plan (dated January
12, 1990) is incorporated herein by reference to Exhibit 10.13.2
of Form 10-K for the year ended February 1, 1990.*10.13.3
    
    Third Amendment to Executive Pension Makeup Plan (dated January
31, 1990) is incorporated herein by reference to Exhibit 10.13.3
of Form 10-Q for the quarter ended August 2, 1990.*10.13.4
    
    Fourth Amendment to Executive Pension Makeup Plan (effective
January 1, 1995) is incorporated herein by reference to Exhibit
10.13.4 of Form 10-K for the year ended February 2, 1995.*10.13.5
    
    Amendment to Executive Pension Makeup Plan (retroactive to January
1, 1990) is incorporated herein by reference to Exhibit 10.13.5 of
Form 10-K for the year ended February 1, 1996.*10.13.6
    
    Amendment to Executive Pension Makeup Plan (retroactive to October
1, 1999) is incorporated herein by reference to Exhibit 10.13.6 of
Form 10-K for the year ended February 3, 2000.*10.13.7
    
    Amendment to Executive Pension Makeup Plan (dated June 1, 2001) is
incorporated herein by reference to Exhibit 10.13.7 of Form 10-K
for the year ended January 30, 2003.*10.14
    
    Executive ASRE Makeup Plan (dated September 26, 1999) is
incorporated herein by reference to Exhibit 10.14 of Form 10-K for
the year ended February 3, 2000.*10.14.1
    
    First Amendment to the Executive ASRE Makeup Plan (dated May 25,
2001) is incorporated herein by reference to Exhibit 10.14.1 of
Form 10-K for the year ended January 30, 2003.*
 66




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##### Table of Contents



Number
    
    Description10.14.2
    
    Second Amendment to the Executive ASRE Makeup Plan (dated December
31, 2001) is incorporated herein by reference to Exhibit 10.14.2
of Form 10-K for the year ended January 30, 2003.*10.15
    
    Senior Executive Deferred Compensation Plan (amended and restated
February 1, 1989) is incorporated herein by reference to Exhibit
10.15 of Form 10-K for the year ended February 2, 1989.*10.15.1
    
    Amendment to Senior Executive Deferred Compensation Plan (dated
December 4, 1989) is incorporated herein by reference to Exhibit
10.15.1 of Form 10-Q for quarter ended November 2, 1989.*10.15.2
    
    Amendment to Senior Executive Deferred Compensation Plan (dated
December 15, 1998) is incorporated herein by reference to Exhibit
10.7.1 of Form 10-K for the year ended February 3, 2000.*10.15.3
    
    Amendment to Senior Executive Deferred Compensation Plan (dated
May 1, 2001) is incorporated herein by reference to Exhibit
10.15.3 of Form 10-K for the year ended January 30, 2003.*10.16
    
    [Intentionally left blank]10.17
    
    [Intentionally left blank]10.18
    
    Executive Pension Makeup Trust (dated February 1, 1989) is
incorporated herein by reference to Exhibit 10.18 of Form 10-K for
the year ended February 2, 1989.*10.18.1
    
    Amendment to Executive Pension Makeup Trust (dated July 24, 1998)
is incorporated herein by reference to Exhibit 10.18.1 of Form
10-K for the year ended February 3, 2000.*10.18.2
    
    Amendment to Executive Pension Makeup Trust (dated December 1,
1998) is incorporated herein by reference to Exhibit 10.18.1 of
Form 10-Q for quarter ended October 29, 1998.*10.18.3
    
    Amendment to Executive Pension Makeup Trust (dated December 1,
1999) is incorporated herein by reference to Exhibit 10.18.3 of
Form 10-K for year ended February 3, 2000.*10.18.4
    
    Amendment to Executive Pension Makeup Trust (dated March 31, 2000)
is incorporated herein by reference to Exhibit 10.18.4 of Form
10-K for year ended February 1, 2001.*10.19
    
    Executive Deferred Compensation Trust (dated February 1, 1989) is
incorporated herein by reference to Exhibit 10.19 of Form 10-K for
year ended February 2, 1989.*10.19.1
    
    Amendment to Executive Deferred Compensation Trust (dated July 24,
1998) is incorporated herein by reference to Exhibit 10.19.1 of
Form 10-K for year ended February 3, 2000.*10.19.2
    
    Amendment to Executive Deferred Compensation Trust (dated December
1, 1998) is incorporated herein by reference to Exhibit 10.19.1 of
Form 10-Q for quarter ended October 29, 1998.*10.19.3
    
    Amendment to Executive Deferred Compensation Trust (dated December
1, 1999) is incorporated herein by reference to Exhibit 10.19.3 of
Form 10-K for year ended February 3, 2000.*
 67




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##### Table of Contents



Number
    
    Description10.19.4
    
    Amendment to Executive Deferred Compensation Trust (dated March
31, 2000) is incorporated herein by reference to Exhibit 10.19.4
of Form 10-K for year ended February 1, 2001.*10.20
    
    1990 Deferred Compensation Plan is incorporated herein by
reference to Exhibit 10.20 of Form 10-K for year ended January 31,
1991.*10.20.1
    
    Amendment to 1990 Deferred Compensation Plan (dated April 12,
1994) is incorporated herein by reference to Exhibit 10.20.1 of
Form 10-Q for the quarter ended August 4, 1994.*10.20.2
    
    Amendment to 1990 Deferred Compensation Plan (dated November 5,
1997) is incorporated herein by reference to Exhibit 10.20.2 of
Form 10-K for the year ended January 29, 1998.*10.20.3
    
    Amendment to 1990 Deferred Compensation Plan (dated November 1,
1998) is incorporated herein by reference to Exhibit 10.20.3 of
Form 10-Q for the quarter ended October 29, 1998.*10.20.4
    
    Termination of 1990 Deferred Compensation Plan (dated December 31,
1999) is incorporated herein by reference to Exhibit 10.20.4 of
Form 10-K for the year ended January 30, 2003.*10.20.5
    
    Amendment to 1990 Deferred Compensation Plan (dated May 1, 2001)
is incorporated herein by reference to Exhibit 10.20.5 of Form
10-K for the year ended January 30, 2003.*10.20.6
    
    Amendment to 1990 Deferred Compensation Plan (dated December 31,
2001 to be effective May 1, 2001) is incorporated herein by
reference to Exhibit 10.20.6 of Form 10-K for the year ended
January 30, 2003.*10.21
    
    Non-Employee Directors Deferred Compensation Plan is incorporated
herein by reference to Exhibit 10.21 of Form 10-K for the year
ended January 31, 1991.*10.21.1
    
    Amendment to Non-Employee Directors Deferred Compensation Plan
(dated December 15, 1998) is incorporated herein by reference to
Exhibit 10.21.1 of Form 10-K for year ended February 3, 2000.*10.21.2
    
    Amendment to Non-Employee Directors Deferred Compensation Plan
(dated March 15, 2001) is incorporated herein by reference to
Exhibit 10.21.2 of Form 10-K for the year ended February 1, 2001.*10.21.3
    
    Amendment to Non-Employee Directors Deferred Compensation Plan
(dated May 1, 2001) is incorporated herein by reference to Exhibit
10.21.3 of Form 10-K for the year ended January 30, 2003.*10.21.4
    
    Amendment to Non-Employee Directors Deferred Compensation Plan
(dated December 22, 2003) is incorporated herein by reference to
Exhibit 10.21.4 of Form 10-K for the year ended January 29, 2004.*10.22
    
    1990 Deferred Compensation Trust (dated November 20, 1990) is
incorporated herein by reference to Exhibit 10.22 of Form 10-K for
year ended January 31, 1991.*10.22.1
    
    Amendment to 1990 Deferred Compensation Trust (dated July 24,
1998) is incorporated herein by reference to Exhibit 10.22.1 of
Form 10-K for year ended February 3, 2000.*10.22.2
    
    Amendment to 1990 Deferred Compensation Trust (dated December 1,
1998) is incorporated herein by reference to Exhibit 10.22.1 of
Form 10-Q for quarter ended October 29, 1998.*10.22.3
    
    Amendment to 1990 Deferred Compensation Trust (dated December 1,
1999) is incorporated herein by reference to Exhibit 10.22.3 of
Form 10-K for year ended February 3, 2000.*
 68




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##### Table of Contents



Number
    
    Description10.22.4
    
    Amendment to 1990 Deferred Compensation Trust (dated March 31,
2000) is incorporated herein by reference to Exhibit 10.22.4 of
Form 10-K for year ended February 1, 2001.*10.23
    
    2000 Deferred Compensation Trust (dated January 1, 2000) is
incorporated herein by reference to Exhibit 10.23 of Form 10-K for
year ended February 3, 2000.*10.23.1
    
    Amendment to the 2000 Deferred Compensation Trust (dated March 31,
2000) is incorporated herein by reference to Exhibit 10.23.1 of
Form 10-K for year ended February 1, 2001.*10.24
    
    1995 Stock-Based Incentive Plan (dated May 26, 1995) is
incorporated herein by reference to Exhibit 10.24 of Form 10-Q for
the quarter ended May 4, 1995.*10.24.1
    
    Form of 1995 Stock-Based Incentive Plan Stock Option Agreement is
incorporated herein by reference to Exhibit 10.24.1 of Form 10-K
for the year ended February 1, 1996.*10.25
    
    1995 Stock Option Plan for Non-Employee Directors is incorporated
herein by reference to Exhibit 10.25 of Form 10-Q for the quarter
ended May 4, 1995.*10.25.1
    
    Form of 1995 Stock Option Plan for Non-Employee Directors
Agreement is incorporated herein by reference
to Exhibit 10.25.1 of Form 10-Q for the quarter ended May 4,
1995.*10.25.2
    
    Amendment to 1995 Stock Option Plan for Non-Employee Directors
(dated March 15, 2001) is incorporated herein by reference to
Exhibit 10.25.2 of Form 10-K for the year ended February 1, 2001.*10.26
    
    Amendment to Amended and Restated 1995 Stock-Based Incentive Plan
(dated March 15, 2001) is incorporated herein by reference to
Exhibit 10.26.1 of Form 10-K for the year ended February 1, 2001.*10.27
    
    [Intentionally left blank]10.28
    
    [Intentionally left blank]10.29
    
    [Intentionally left blank]10.30
    
    American Stores Company Supplemental Executive Retirement Plan
1998 Restatement is incorporated herein by reference to Exhibit
4.1 of Form S-8 filed by American Stores Company (Commission File
Number 1-5392) on July 13, 1998.*10.30.1
    
    Amendment to American Stores Company Supplemental Executive
Retirement Plan 1998 Restatement, dated as of September 15, 1998,
is incorporated herein by reference to Exhibit 10.4 of Form 10-Q
filed by American Stores Company (Commission File Number 1-5392)
on December 11, 1998.*10.31
    
    American Stores Company 1997 Stock Option and Stock Award Plan is
incorporated herein by reference to Exhibit B of the 1997 Proxy
Statement filed by American Stores Company (Commission File Number
1-5392) on May 2, 1997.*10.31.1
    
    Amendment to American Stores Company 1997 Stock Option and Stock
Award Plan, dated as of October 8, 1998, is incorporated herein by
reference to Exhibit 10.1 of Form 10-Q filed by American Stores
Company (Commission File Number 1-5392) on December 11, 1998.*
 69




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##### Table of Contents



Number
    
    Description10.31.2
    
    Amendment to American Stores Company 1997 Stock Plan for
Non-Employee Directors (dated March 15, 2001) is incorporated by
reference to Exhibit 10.31.2 of Form 10-K for the year ended
February 1, 2001.*10.32
    
    American Stores Company 1997A Stock Option and Stock Award Plan,
dated as of March 27, 1997, is incorporated herein by reference to
Exhibit 4.11 of the S-8 Registration Statement (Reg. No.
333-82157) filed by Albertsons, Inc. on July 2, 1999.*10.33
    
    American Stores Company 1997 Stock Plan for Non-Employee Directors
is incorporated herein by reference to Exhibit C of the 1997 Proxy
Statement filed by American Stores Company (Commission File Number
1-5392) on May 2, 1997.*10.34
    
    American Stores Company Amended and Restated 1989 Stock Option and
Stock Award Plan is incorporated herein by reference to Exhibit
4.13 of the S-8 Registration Statement (Reg. No. 333-82157) filed
by Albertsons, Inc. on July 2, 1999.*10.35
    
    American Stores Company Amended and Restated 1985 Stock Option and
Stock Award Plan is incorporated herein by reference to Exhibit
4.14 of the S-8 Registration Statement (Reg. No. 333-82157) filed
by Albertsons, Inc. on July 2, 1999.*10.36
    
    Agreement between the Company and Peter L. Lynch dated June 18,
1999 is incorporated herein by reference to Exhibit 10.37 to Form
10-Q for the quarter ended August 2, 2001.*10.36.1
    
    Letter Agreement between the Company and Peter L. Lynch dated
January 26, 2001 is incorporated herein by reference to Exhibit
10.36 to Form 10-Q for the quarter ended August 2, 2001.*10.36.2
    
    Amendment to Employment Agreement between the Company and Peter L.
Lynch dated April 23, 2001 is incorporated herein by reference to
Exhibit 10.36.1 to Form 10-Q for the quarter ended August 2,
2001.*10.36.3
    
    Letter Agreement between the Company and Peter L. Lynch dated July
24, 2003 is incorporated herein by reference to Exhibit 10.36.2 of
Form 10-Q for the quarter ended July 31, 2003.*10.37
    
    [Intentionally left blank]10.38
    
    Albertsons Voluntary Separation Plan for officers effective July
18, 2001 is incorporated herein by reference to Exhibit 10.38 to
Form 10-Q for the quarter ended August 2, 2001.*10.39
    
    Albertsons Severance Plan for Officers effective July 18, 2001 is
incorporated herein by reference to Exhibit 10.39 to Form 10-Q for
the quarter ended August 2, 2001.*10.40
    
    Letter Agreement between the Company and Felicia D. Thornton
dated August 6, 2001 is incorporated herein by reference to
Exhibit 10.40 to Form 10-Q for the quarter ended August 2, 2001.*10.41
    
    Albertsons Amended and Restated 1995 Stock-Based Incentive Plan
is incorporated herein by reference to Exhibit 10.41 to Form 10-Q
for the quarter ended November 1, 2001.*10.41.1
    
    Form of 1995 Amended and Restated Stock-Based Incentive Plan Stock
Option Agreement is incorporated herein by reference to Exhibit
10.41.1 to Form 10-Q for the quarter ended November 1, 2001.*10.42
    
    Albertsons Severance Plan for Officers effective October 1, 2002
is incorporated by reference to Exhibit 10.42 of Form 10-Q for
the quarter ended October 31, 2002.*10.43
    
    Albertsons Change of Control Severance Agreement for Chief
Operating Officer and Executive Vice Presidents effective November
1, 2002 is incorporated by reference to Exhibit 10.43 of Form
10-Q for the quarter ended October 31, 2002.*10.44
    
    Albertsons Change of Control Severance Agreement for Senior Vice
Presidents and Group Vice Presidents effective November 1, 2002 is
incorporated by reference to Exhibit 10.44 of Form 10-Q for the
quarter ended October 31, 2002.*
 70




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##### Table of Contents



Number
    
    Description10.45
    
    Albertsons Change of Control Severance Agreement for Vice Presidents effective
November 1, 2002 is incorporated by reference to Exhibit 10.45 of Form 10-Q for
the quarter ended October 31, 2002.*10.46
    
    Albertsons Amended and Restated 1995 Stock-Based Incentive Plan as amended
effective December 9, 2002 is incorporated by reference to Exhibit 10.46 of
Form 10-Q for the quarter ended October 31, 2002.*10.46.1
    
    Form of Award of Stock Option (Amended and Restated 1995 Stock-Based Plan) is
incorporated by reference to Exhibit 10.46.1 of Form 10-Q for the quarter ended
October 31, 2002.*10.46.2
    
    Form of Award of Deferred Stock Units (Amended and Restated 1995 Stock-Based
Plan) is incorporated by reference to Exhibit 10.46.2 of Form 10-Q for the
quarter ended October 31, 2002.*10.47
    
    Long-term Incentive Plan (effective as of February 1, 2003) is incorporated by
reference to Exhibit 10.47 of Form 10-Q for the quarter ended May 1, 2003.*10.48
    
    Form of Director Indemnification Agreement is incorporated herein by reference
to Exhibit 10.47 of Form 10-Q for the quarter ended October 30, 2003.*10.49
    
    [Intentionally left blank]10.50
    
    Albertsons, Inc. 2004 Equity and Performance Incentive Plan is incorporated
herein by reference to Exhibit 10.50 of Form 10-Q for the quarter ended July 29,
2004.*10.51
    
    Credit Agreement (364-day) (dated June 17, 2004) is incorporated herein by
reference to Exhibit 10.51 of Form 10-Q for the quarter ended July 29, 2004.10.52
    
    Credit Agreement (5-year) (dated June 17, 2004) is incorporated herein by
reference to Exhibit 10.52 of Form 10-Q for the quarter ended July 29, 2004.10.53
    
    Credit Agreement (5-year) (dated July 8, 2004) is incorporated herein by
reference to Exhibit 10.53 of Form 10-Q for the quarter ended July 29, 2004.10.54
    
    Employment Agreement between Albertsons, Inc. and Paul Gannon, dated as of
December 15, 2004 is incorporated herein by reference to Exhibit 10.54 of Form
8-K filed with the SEC on December 20, 2004.*10.55
    
    Form of Award of Deferred Restricted Stock Units (Amended and Restated 1995
Stock-Based Plan) is incorporated herein by reference to Exhibit 10.57 to Form
8-K filed with the SEC on December 20, 2004.*10.56
    
    Form of Award of Deferred Restricted Stock Units (2004 Equity and Performance
Incentive Plan) is incorporated herein by reference to Exhibit 10.58 to
Form 8-K filed with the SEC on December 20, 2004.*10.57
    
    Form of Award of Deferrable Restricted Stock Units (Amended and Restated 1995
Stock-Based Plan) is incorporated herein by reference to Exhibit 10.59 to Form
8-K filed with the SEC on December 20, 2004.*21
    
    Subsidiaries of the Registrant.23
    
    Consent of Independent Registered Public Accounting Firm  Deloitte & Touche LLP.31.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 71




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##### Table of Contents



*
    
    Identifies management contracts or compensatory plans or
arrangements required to be filed as an exhibit hereto.(1)
    
    In reliance upon Item 601(b)(4)(iii)(A) of Regulation
S-K, various other instruments defining the rights of
holders of long-term debt of the Registrant and its
subsidiaries are not being filed herewith, because the
total amount of securities authorized under each such
instrument does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
The Registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request. 72