Albertsons Companies Annual Report 2021

Form 10-K (NYSE:ACI)

Published: April 28th, 2021

PDF generated by stocklight.com 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 27, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____

Commission File Number: 001-39350 aci-20210227_g1.jpg

Albertsons Companies, Inc. (Exact name of registrant as specified in its charter) Delaware 47-4376911 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

250 Parkcenter Blvd. Boise, Idaho, 83706 (Address of principal executive offices and zip code)

(208) 395-6200 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report)

Securities registered under Section 12(b) of the Exchange Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered Class A common stock, $0.01 par value ACI New York Stock Exchange

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐N o ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐N o ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 11, 2020, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the registrant's common stock held by non-affiliates was approximately $1.4 billion.

As of April 27, 2021, the registrant had 466,514,113 shares of Class A common stock, par value $0.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the registrant's definitive proxy statement related to its 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year ended February 27, 2021 (the "Proxy Statement"). Except as expressly incorporated by reference, the Proxy Statement shall not be deemed to be part of this Annual Report on Form 10-K. Albertsons Companies, Inc. and Subsidiaries

Page PART I 4 Item 1 - Business 8 Item 1A - Risk Factors 15 Item 1B - Unresolved Staff Comments 39 Item 2 - Properties 40 Item 3 - Legal Proceedings 40 Item 4 - Mine Safety 41

PART II 42 Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 42 Item 6 - Selected Financial Data 44 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 45 Item 7A - Quantitative and Qualitative Disclosures About Market Risk 62 Item 8 - Financial Statements and Supplementary Data 64 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 119 Item 9A - Controls and Procedures 120 Item 9B - Other Information 120

PART III 121 Item 10 - Directors, Executive Officers and Corporate Governance 121 Item 11 - Executive Compensation 121 Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 121 Item 13 - Certain Relationships and Related Transactions, and Director Independence 121 Item 14 - Principal Accountant Fees and Services 121

PART IV 122 Item 15 - Exhibits, Financial Statement Schedules 122 Item 16 - Summary 127

SIGNATURES 128 As used in this Form 10-K, unless the context otherwise requires, references to "Albertsons," the "Company," "ACI," "we," "us" and "our" refer to Albertsons Companies, Inc. and, where appropriate, its subsidiaries. Our last three fiscal years consisted of the 52 weeks ended February 27, 2021 ("fiscal 2020"), the 53 weeks ended February 29, 2020 ("fiscal 2019") and the 52 weeks ended February 23, 2019 ("fiscal 2018"). Our next three fiscal years consist of the 52 weeks ending February 26, 2022 ("fiscal 2021"), February 25, 2023 ("fiscal 2022") and February 24, 2024 ("fiscal 2023").

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The information contained in this Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our future operating results and financial position, business strategy, and plans and objectives of management for future operations, are forward-looking statements. Words such as "believes," "plans," "anticipates," "estimates," "expects," "intends," "aims," "potential," "will," "would," "could," "considered," "likely," "estimate" and the negatives or variations of these words and similar future or conditional expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

Statements regarding productivity initiatives and revenue opportunities (and in each case, the components, amounts and/or percentages thereof) are forward-looking statements. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur. These risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements include those related to the COVID-19 pandemic, about which there are still many unknowns, including the duration of the pandemic and the extent of its impact. These factors include, but are not limited to, risks and uncertainties discussed in the section of this Annual Report on Form 10-K entitled "Risk Factors." Consequently, all of the forward-looking statements we make in this Annual Report on Form 10-K are qualified by the information contained in this section and the information discussed under "Part I—Item 1A. Risk Factors."

Persons reading this Annual Report on Form 10-K are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and only to events as of the date of this Annual Report on Form 10-K. We are not under any obligation, and we expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

SUMMARY RISK FACTORS

The following is a summary of the principal factors that create risk in investing in our securities: Risks Related to Our Business and Operations

Risks related to: • various operating factors and economic conditions affecting the food retail industry that may affect our business and operating results; • the impact of the COVID-19 pandemic; and • the prices and availability of energy and fuel to manufacture, store, transport and sell products.

Risks Related to Our Future Initiatives

Risks related to: • being unable to consummate acquisitions in the future on acceptable terms; and • failing to realize anticipated benefits from our productivity initiatives.

Risks Related to Our Industry

Risks related to: • the intensity of the competition in our industry; • our ability to timely identify or effectively respond to consumer trends; • consolidation in the healthcare industry; and • the adequacy of our insurance to cover any claims against us.

Risks Related to Our Supply Chain

Risks related to: • product supply disruptions, especially those to perishable products, including from severe weather and natural disasters; • threats or potential threats to security of food and drug safety, including the occurrence of a widespread health epidemic and/or pandemic, and loss of confidence in the supply chain; and • increases in fuel or commodity prices.

Risks Related to Our Workforce

Risks related to: • our relationship with unions, including labor disputes or work stoppages, and increased pension expenses, contributions and surcharges; • increases to the minimum wage; and • the failure to attract and retain qualified associates and key personnel.

Legal and Regulatory Risks

Risks related to: • unfavorable changes in government regulation and environmental laws; • unfavorable changes in the tax code; • legal or other proceedings that could have a material adverse effect on us; and • our use of insurance and self-insurance to address potential liabilities. Risks Related to Information Security, Cybersecurity and Data Privacy

Risks related to: • our dependence on IT systems; and • improper activities by third parties and the loss of confidence from a data security breach involving our customers or employees. Risks Related to Our Indebtedness

Risks related to: • our substantial level of indebtedness and our ability to generate cash; • our debt instruments limiting our flexibility in operating our business; • increases in interest rates and/or a downgrade of our credit ratings; and • liability under certain operating leases that were assigned to third parties.

Risks Related to Owning Our Common Stock

Risks related to: • the volatility of the price of our common stock and the possibility of a decline regardless of our operating performance; • our being controlled by our Sponsors (as defined below) who may have conflicts of interest with other stockholders in the future; • our status as a "controlled company" within the meaning of New York Stock Exchange ("NYSE") rules; • provisions in our charter documents and certain other agreements that could delay or prevent a change of control; • the limit on our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees; • our ability to pay dividends to our stockholders; and • our Convertible Preferred Stock (as defined below) adversely affecting the market price of our common stock and the rights of our stockholders.

See "Part I—Item 1A. Risk Factors" for a more complete discussion of the material risks facing our business.

NON-GAAP FINANCIAL MEASURES

We define EBITDA as generally accepted accounting principles ("GAAP") earnings (net loss) before interest, income taxes, depreciation and amortization. We define Adjusted EBITDA as earnings (net loss) before interest, income taxes, depreciation and amortization, further adjusted to eliminate the effects of items management does not consider in assessing our ongoing core performance. We define Adjusted Net Income as GAAP net income adjusted to eliminate the effects of items management does not consider in assessing our ongoing core performance. We define Adjusted Net Income Per Class A Common Share as Adjusted Net Income divided by the weighted average diluted Class A common shares outstanding, as adjusted to reflect all restricted stock units and awards outstanding at the end of the period. We define Adjusted Free Cash Flow as Adjusted EBITDA less capital expenditures. We define Net Debt as total debt (which includes finance lease obligations and is net of deferred financing costs and original issue discount) minus unrestricted cash and cash equivalents and we define Net Debt Ratio as the ratio of Net Debt to Adjusted EBITDA for the rolling 52 or 53 week period. See "Part II—Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion and a reconciliation of Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Class A Common Share and Adjusted Free Cash Flow.

EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Class A Common Share, Adjusted Free Cash Flow and Net Debt Ratio (collectively, the "Non-GAAP Measures") are performance measures that provide supplemental information we believe is useful to analysts and investors to evaluate our ongoing results of operations, when considered alongside other GAAP measures such as net income, operating income, gross profit, net income per Class A common share and cash provided by operating activities. These Non-GAAP Measures exclude the financial impact of items management does not consider in assessing our ongoing core operating performance, and thereby facilitate review of our operating performance on a period-to-period basis. Other companies may have different capital structures or different lease terms, and comparability to our results of operations may be impacted by the effects of acquisition accounting on our depreciation and amortization. As a result of the effects of these factors and factors specific to other companies, we believe EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income Per Class A Common Share, Adjusted Free Cash Flow and Net Debt Ratio provide helpful information to analysts and investors to facilitate a comparison of our operating performance to that of other companies. We also use Adjusted EBITDA, as further adjusted for additional items defined in our debt instruments, for board of director and bank compliance reporting. Our presentation of Non-GAAP Measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Non-GAAP Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using Non-GAAP Measures only for supplemental purposes.

7 Item 1 - Business

Overview

Albertsons is one of the largest food and drug retailers in the United States, with both strong local presence and national scale. We also manufacture and process some of the food for sale in our stores. We maintain a website (www.AlbertsonsCompanies.com) that includes additional information about the Company. We make available through our website, free of charge, our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and our interactive data files, including amendments. These forms are available as soon as reasonably practicable after we have filed them with, or furnished them electronically to, the Securities and Exchange Commission ("SEC").

Retail Operations

As of February 27, 2021, we operated 2,277 stores across 34 states and the District of Columbia under more than 20 well known banners including Albertsons, Safeway, Vons, Pavilions, Randalls, Tom Thumb, Carrs, Jewel-Osco, Acme, Shaw's, Star Market, United Supermarkets, Market Street, Haggen, Kings Food Markets and Balducci's Food Lovers Market. Additionally, as of February 27, 2021, we operated 1,727 pharmacies, 1,313 in-store branded coffee shops, 400 adjacent fuel centers, 22 dedicated distribution centers, 20 manufacturing facilities and various digital platforms. Our stores operate in First-and-Main retail locations and have leading market share within attractive and growing geographies. We hold a #1 or #2 position by market share in 67% of the 121 metropolitan statistical areas ("MSAs") in which we operate. Our portfolio of well-located, full-service stores provides the foundation of our omni-channel platform, and we have continued to enhance our capabilities to meet customer demand for convenience and flexibility. Our rapidly growing Drive Up & Go curbside pickup service is currently available in approximately 1,420 locations. In addition to our long-established home delivery network, we also collaborate with third parties, including Instacart for rush delivery as well as DoorDash for delivery of our prepared and ready-to-eat offerings. We now offer home delivery services across more than 2,000 of our stores and 12 of the country's top 15 MSAs by population. We seek to tailor our offerings to local demographics and preferences of the markets in which we operate. Our Locally Great, Nationally Strong operating structure empowers decision making at the local level, which we believe better serves our customers and communities, while also providing the systems, analytics and buying power afforded by an organization with national scale.

Segments

We are engaged in the operation of food and drug retail stores that offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel and other items and services. Our retail operating divisions are geographically based, have similar economic characteristics and similar expected long-term financial performance. Our operating segments and reporting units are made up of 12 divisions, which are reported in one reportable segment. Each reporting unit constitutes a business for which discrete financial information is available and for which management regularly reviews the operating results. Across all operating segments, the Company operates primarily one store format. Each division offers, through its stores and digital channels, the same general mix of products with similar pricing to similar categories of customers, have similar distribution methods, operate in similar regulatory environments and purchase merchandise from similar or the same vendors.

Products

Our stores offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel and other items and services. We are not dependent on any individual supplier; only one third-party supplier represented more than 5% of our sales for fiscal 2020. Merchandising and Manufacturing

We offer more than 13,000 high-quality products under our Own Brands portfolio. Our Own Brands products resonate well with our shoppers, as evidenced by Own Brands sales of over $14.8 billion in fiscal 2020, an increase of over 13% compared to fiscal 2019.

Own Brands continues to deliver on innovation with more than 1,200 new items launched in fiscal 2020 and plans to launch approximately 800 new Own Brands items annually over the next few years. For example, innovation in the fourth quarter of fiscal 2020 included the launch of new items ranging from pickles in Open Nature, herbs and spices in O Organics, family packs in frozen fruits and vegetables helping to stretch the family budget, and specialty olives in Signature Reserve. Our plant based portfolio expanded to 56 items with $37.6 million in sales in fiscal 2020. We are excited about our O Organics and Open Nature brands, which posted a combined 15.1% growth in sales year-over-year, with over 2,000 items, and we plan to introduce approximately 100 new items for these brands in fiscal 2021. In addition to new item innovation and brand development, Own Brands continues to focus on package redesign to refresh shelf presence and comply with new regulatory nutrition guideline changes.

As measured by units for fiscal 2020, 10.4% of our Own Brands merchandise was manufactured in Company-owned facilities, and the remainder of our Own Brands merchandise was purchased from third parties. We closely monitor make-versus-buy decisions on internally sourced products to optimize their quality and profitability. In addition, we believe that our scale will provide opportunities to leverage our fixed manufacturing costs in order to drive innovation across our Own Brands portfolio. As of February 27, 2021, we operated 20 food production plants. These plants consisted of seven milk plants, four soft drink bottling plants, three bakery plants, two ice cream product plants, two grocery/prepared food plants, one ice plant and one soup plant.

Distribution

As of February 27, 2021, we operated 22 strategically located distribution centers, approximately 36% of which are owned or ground- leased. Our distribution centers collectively provide approximately 66% of all products to our retail operating areas.

Marketing and Advertising

Our marketing efforts involve collaboration between our national marketing and merchandising team and local divisions and stores. We augment the local division teams with corporate resources and are focused on providing expertise, sharing best practices and leveraging scale in partnership with leading consumer packaged goods vendors. Our corporate teams support divisions by providing strategic guidance in order to drive key areas of our business, including pharmacy, general merchandise and our Own Brands. Our local marketing teams set brand strategy and communicate brand messages through our integrated digital and physical marketing and advertising channels. We operate in 121 MSAs and are ranked #1 or #2 by market share in 67% of these markets. We maintain price competitiveness through systematic, selective and thoughtful price investment to drive customer traffic and basket size. We also use our just for U loyalty program, including both personalized deals and digital coupons, as well as gas and grocery rewards, to target promotional activity and improve our customers' experience. We have 25.4 million households currently enrolled in our loyalty program. We have achieved significant success with active participants in our just for U program, which drives higher sales and customer retention. We have recently deployed and are continuing to refine cloud-based enterprise solutions to quickly process proprietary customer, product and transaction data and efficiently provide our local managers with targeted marketing strategies for customers in their communities. By leveraging customer and transaction information with data driven analytics, our "personalized deal engine" is able to select, out of the thousands of different promotions offered by our suppliers, the offers that we expect will be most compelling to each of our more than 30 million weekly customers. In addition, we use data analytics to optimize shelf assortment and space in our stores by continually and systematically reviewing the performance of each product.

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