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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 11, 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

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 pursuant to Section 12(b) of the Act:

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 (§232.405 of this chapter) 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.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes  ☒ No

As of October 18, 2021, the registrant had 467,124,900 shares of Class A common stock, par value $0.01 per share, outstanding.

Albertsons Companies, Inc. and Subsidiaries

PART I - FINANCIAL INFORMATION						Page
			Item 1 - Condensed Consolidated Financial Statements (unaudited)
			Condensed Consolidated Balance Sheets			3
			Condensed Consolidated Statements of Operations and Comprehensive Income			4
			Condensed Consolidated Statements of Cash Flows			5
			Condensed Consolidated Statements of Stockholders' Equity			6
			Notes to Condensed Consolidated Financial Statements			8
			Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations			20
			Item 3 - Quantitative and Qualitative Disclosures About Market Risk			39
			Item 4 - Controls and Procedures			39
PART II - OTHER INFORMATION
			Item 1 - Legal Proceedings			40
			Item 1A - Risk Factors			40
			Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			40
			Item 3 - Defaults Upon Senior Securities			40
			Item 4 - Mine Safety Disclosures			40
			Item 5 - Other Information			40
			Item 6 - Exhibits			41
SIGNATURES						42

PART I - FINANCIAL INFORMATION

Item 1 - Condensed Consolidated Financial Statements (unaudited)

Albertsons Companies, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions, except share data)

(unaudited)

						September 11, 2021						February 27, 2021
ASSETS
Current assets
			Cash and cash equivalents			$	2,849.8					$	1,717.0
			Receivables, net			544.7						550.9
			Inventories, net			4,179.1						4,301.3
			Other current assets			414.7						418.8
			Total current assets			7,988.3						6,988.0
Property and equipment, net						9,201.1						9,412.7
Operating lease right-of-use assets						5,861.3						6,015.6
Intangible assets, net						2,181.3						2,108.8
Goodwill						1,200.2						1,183.3
Other assets						912.1						889.6
TOTAL ASSETS						$	27,344.3					$	26,598.0
LIABILITIES
Current liabilities
			Accounts payable			$	3,554.2					$	3,487.3
			Accrued salaries and wages			1,492.3						1,474.7
			Current maturities of long-term debt and finance lease obligations			211.5						212.4
			Current maturities of operating lease obligations			621.7						605.3
			Other current liabilities			1,190.0						1,052.5
			Total current liabilities			7,069.7						6,832.2
Long-term debt and finance lease obligations						8,129.1						8,101.2
Long-term operating lease obligations						5,464.1						5,548.0
Deferred income taxes						598.3						533.7
Other long-term liabilities						2,524.1						2,659.5
Commitments and contingencies
Series A convertible preferred stock, $0.01 par value; 1,750,000 shares authorized, 924,000 shares issued and outstanding as of September 11, 2021 and February 27, 2021						844.3						844.3
Series A-1 convertible preferred stock, $0.01 par value; 1,410,000 shares authorized, 826,000 shares issued and outstanding as of September 11, 2021 and February 27, 2021						754.8						754.8
STOCKHOLDERS' EQUITY
			Undesignated preferred stock, $0.01 par value; 96,840,000 shares authorized, no shares issued as of September 11, 2021 and February 27, 2021			—						—
			Class A common stock, $0.01 par value; 1,000,000,000 shares authorized, 586,668,103 and 585,574,666 shares issued as of September 11, 2021 and February 27, 2021, respectively			5.9						5.9
			Class A-1 convertible common stock, $0.01 par value; 150,000,000 shares authorized, no shares issued as of September 11, 2021 and February 27, 2021			—						—
			Additional paid-in capital			1,936.1						1,898.9
			Treasury stock, at cost, 120,009,647 shares held as of September 11, 2021 and February 27, 2021			(1,907.0)						(1,907.0)
			Accumulated other comprehensive income			78.7						63.5
			Retained earnings			1,846.2						1,263.0
			Total stockholders' equity			1,959.9						1,324.3
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY						$	27,344.3					$	26,598.0

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Albertsons Companies, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

(in millions, except per share data)

(unaudited)

			12 weeks ended												28 weeks ended
			September 11, 2021						September 12, 2020						September 11, 2021						September 12, 2020
Net sales and other revenue			$	16,505.7					$	15,757.6					$	37,775.1					$	38,509.2
Cost of sales			11,788.7						11,182.7						26,867.1						27,162.8
Gross profit			4,717.0						4,574.9						10,908.0						11,346.4
Selling and administrative expenses			4,231.3						4,031.2						9,734.9						9,800.6
(Gain) loss on property dispositions and impairment losses, net			(0.2)						(18.3)						0.1						12.0
Operating income			485.9						562.0						1,173.0						1,533.8
Interest expense, net			109.3						128.6						262.6						309.2
Loss on debt extinguishment			—						49.1						—						49.1
Other income, net			(18.9)						(11.4)						(62.4)						(8.3)
Income before income taxes			395.5						395.7						972.8						1,183.8
Income tax expense			100.3						111.2						232.8						313.1
Net income			$	295.2					$	284.5					$	740.0					$	870.7
Other comprehensive income, net of tax
Recognition of pension gain			15.1						10.1						15.2						10.9
Other			—						0.3						—						1.2
Other comprehensive income			$	15.1					$	10.4					$	15.2					$	12.1
Comprehensive income			$	310.3					$	294.9					$	755.2					$	882.8
Net income per Class A common share
Basic net income per Class A common share			$	0.55					$	0.52					$	1.27					$	1.57
Diluted net income per Class A common share			0.52						0.49						1.26						1.49
Weighted average Class A common shares outstanding
Basic			465.3						477.3						465.2						529.2
Diluted			573.0						582.9						470.6						583.3

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Albertsons Companies, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)

			28 weeks ended
			September 11, 2021						September 12, 2020
Cash flows from operating activities:
Net income			$	740.0					$	870.7
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on property dispositions and impairment losses, net			0.1						12.0
Depreciation and amortization			883.2						808.8
Operating lease right-of-use assets amortization			333.0						309.3
LIFO expense			29.1						23.2
Deferred income tax			43.0						2.8
Contributions to pension and post-retirement benefit plans, net of (income) expense			(47.5)						(68.9)
(Gain) loss on interest rate swaps and commodity hedges, net			(7.5)						25.9
Amortization and write-off of deferred financing costs			11.1						11.2
Loss on debt extinguishment			—						49.1
Equity-based compensation expense			49.0						28.3
Other			(21.2)						(28.7)
Changes in operating assets and liabilities:
Receivables, net			(6.4)						(21.7)
Inventories, net			93.0						62.2
Accounts payable, accrued salaries and wages and other accrued liabilities			229.2						585.4
Operating lease liabilities			(249.3)						(228.4)
Self-insurance assets and liabilities			36.3						24.2
Other operating assets and liabilities			22.6						255.4
Net cash provided by operating activities			2,137.7						2,720.8
Cash flows from investing activities:
Business acquisitions, net of cash acquired			(23.5)						—
Payments for property, equipment and intangibles, including payments for lease buyouts			(822.5)						(702.9)
Proceeds from sale of long-lived assets			24.6						20.6
Other investing activities			30.9						(4.8)
Net cash used in investing activities			(790.5)						(687.1)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			—						3,500.0
Payments on long-term borrowings			(0.5)						(3,388.5)
Payments of obligations under finance leases			(32.2)						(32.9)
Payment of redemption premium on debt extinguishment			—						(41.4)
Payments for debt financing costs			—						(15.6)
Dividends paid on common stock			(93.0)						—
Dividends paid on convertible preferred stock			(59.1)						—
Proceeds from convertible preferred stock			—						1,680.0
Third party issuance costs on convertible preferred stock			—						(80.9)
Treasury stock purchase, at cost			—						(1,680.0)
Employee tax withholding on vesting of restricted stock units			(11.8)						(6.7)
Other financing activities			(17.8)						(14.7)
Net cash used in financing activities			(214.4)						(80.7)
Net increase in cash and cash equivalents and restricted cash			1,132.8						1,953.0
Cash and cash equivalents and restricted cash at beginning of period			1,767.6						478.9
Cash and cash equivalents and restricted cash at end of period			$	2,900.4					$	2,431.9

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Albertsons Companies, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in millions, except share data)

(unaudited)

			Class A Common Stock												Additional paid in capital						Treasury Stock												Accumulated other comprehensive income						Retained earnings						Total stockholders' equity
			Shares						Amount												Shares						Amount
Balance as of February 27, 2021			585,574,666						$	5.9					$	1,898.9					120,009,647						$	(1,907.0)					$	63.5					$	1,263.0					$	1,324.3
Equity-based compensation			—						—						22.2						—						—						—						—						22.2
Shares issued and employee tax withholding on vesting of restricted stock units			945,942						—						(10.0)						—						—						—						—						(10.0)
Cash dividends declared on common stock			—						—						—						—						—						—						(46.5)						(46.5)
Dividends accrued on convertible preferred stock			—						—						—						—						—						—						(36.4)						(36.4)
Net income			—						—						—						—						—						—						444.8						444.8
Other comprehensive income, net of tax			—						—						—						—						—						0.1						—						0.1
Other activity			—						—						—						—						—						—						(0.1)						(0.1)
Balance as of June 19, 2021			586,520,608						$	5.9					$	1,911.1					120,009,647						$	(1,907.0)					$	63.6					$	1,624.8					$	1,698.4
Equity-based compensation			—						—						26.8						—						—						—						—						26.8
Shares issued and employee tax withholding on vesting of restricted stock units			147,495						—						(1.8)						—						—						—						—						(1.8)
Cash dividends declared on common stock			—						—						—						—						—						—						(46.5)						(46.5)
Dividends accrued on convertible preferred stock			—						—						—						—						—						—						(27.3)						(27.3)
Net income			—						—						—						—						—						—						295.2						295.2
Other comprehensive income, net of tax			—						—						—						—						—						15.1						—						15.1
Balance as of September 11, 2021			586,668,103						$	5.9					$	1,936.1					120,009,647						$	(1,907.0)					$	78.7					$	1,846.2					$	1,959.9

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Albertsons Companies, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

(in millions, except share data)

(unaudited)

			Class A Common Stock												Additional paid in capital						Treasury Stock												Accumulated other comprehensive loss						Retained earnings						Total stockholders' equity
			Shares						Amount												Shares						Amount
Balance as of February 29, 2020			582,997,251						$	5.8					$	1,824.3					3,671,621						$	(25.8)					$	(118.5)					$	592.3					$	2,278.1
Issuance of common stock to Company's parents			1,312,859						—						—						—						—						—						—						—
Equity-based compensation			—						—						19.0						—						—						—						—						19.0
Employee tax withholding on vesting of restricted stock units			—						—						(6.2)						—						—						—						—						(6.2)
Repurchase of common stock			—						—						—						101,611,736						(1,680.0)						—						—						(1,680.0)
Dividends accrued on convertible preferred stock			—						—						—						—						—						—						(3.9)						(3.9)
Net income			—						—						—						—						—						—						586.2						586.2
Other comprehensive income, net of tax			—						—						—						—						—						1.7						—						1.7
Balance as of June 20, 2020			584,310,110						$	5.8					$	1,837.1					105,283,357						$	(1,705.8)					$	(116.8)					$	1,174.6					$	1,194.9
Equity-based compensation			—						—						9.3						—						—						—						—						9.3
Shares issued and employee tax withholding on vesting of restricted stock units			22,101						—						(0.5)						—						—						—						—						(0.5)
Equity reclassification			—						—						30.0						—						—						—						—						30.0
Dividends accrued on convertible preferred stock			—						—						—						—						—						—						(26.9)						(26.9)
Net income			—						—						—						—						—						—						284.5						284.5
Other comprehensive loss, net of tax			—						—						—						—						—						10.4						—						10.4
Other activity			—						—						(0.1)						—						—						—						—						(0.1)
Balance as of September 12, 2020			584,332,211						$	5.8					$	1,875.8					105,283,357						$	(1,705.8)					$	(106.4)					$	1,432.2					$	1,501.6

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

Notes to Condensed Consolidated Financial Statements

(unaudited)

NOTE 1 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim Condensed Consolidated Financial Statements include the accounts of Albertsons Companies, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions were eliminated. The Condensed Consolidated Balance Sheet as of February 27, 2021 is derived from the Company's annual audited Consolidated Financial Statements, which should be read in conjunction with these Condensed Consolidated Financial Statements and which are included in the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 2021, filed with the Securities and Exchange Commission (the "SEC") on April 28, 2021. Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for the year. The Company's results of operations are for the 12 and 28 weeks ended September 11, 2021 and September 12, 2020.

Significant Accounting Policies

Restricted cash: Restricted cash is included in Other current assets or Other assets depending on the remaining term of the restriction and primarily relates to funds held in escrow. The Company had $50.6 million of restricted cash as of September 11, 2021 and February 27, 2021.

Inventories, net: Substantially all of the Company's inventories consist of finished goods valued at the lower of cost or market and net of vendor allowances. The Company uses either item-cost or the retail inventory method to value inventory before application of any last-in, first-out ("LIFO") reserve. Interim LIFO inventory costs are based on management's estimates of expected year-end inventory levels and inflation rates. The Company recorded LIFO expense of $14.6 million and $10.1 million for the 12 weeks ended September 11, 2021 and September 12, 2020, respectively, and $29.1 million and $23.2 million for the 28 weeks ended September 11, 2021 and September 12, 2020, respectively.

Equity-based compensation: Equity-based compensation expense recognized in the Condensed Consolidated Statements of Operations (in millions):

As of September 11, 2021, there was $126.2 million of unrecognized costs related to 11.5 million unvested granted restricted stock units ("RSUs"). That cost is expected to be recognized over a weighted average period of 1.8 years. As of September 11, 2021, there was $7.3 million of unrecognized costs related to 1.0 million unvested granted restricted common stock ("RSAs"). That cost is expected to be recognized over a weighted average period of 1.9 years.

Income taxes: Income tax expense was $100.3 million, representing a 25.4% effective tax rate, for the 12 weeks ended September 11, 2021. Income tax expense was $111.2 million, representing a 28.1% effective tax rate, for the

12 weeks ended September 12, 2020. The decrease in the effective tax rate was primarily driven by nondeductible transaction-related costs incurred during the 12 weeks ended September 12, 2020.

Income tax expense was $232.8 million, representing a 23.9% effective tax rate, for the 28 weeks ended September 11, 2021. Income tax expense was $313.1 million, representing a 26.4% effective tax rate, for the 28 weeks ended September 12, 2020. The decrease in the effective income tax rate was primarily driven by the recognition of discrete state income tax benefits during the 28 weeks ended September 11, 2021 and certain nondeductible transaction-related costs incurred during the 28 weeks ended September 12, 2020.

Segments: The Company and its subsidiaries offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel and other items and services in its stores or through digital channels. The Company's operating divisions are geographically based, have similar economic characteristics and similar expected long-term financial performance. The Company's operating segments and reporting units are its 12 operating 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, has similar distribution methods, operates in similar regulatory environments and purchases merchandise from similar or the same vendors.

Revenue Recognition: Revenues from the retail sale of products are recognized at the point of sale or delivery to the customer, net of returns and sales tax. Pharmacy sales are recorded upon the customer receiving the prescription. Third-party receivables from pharmacy sales were $236.0 million and $262.5 million as of September 11, 2021 and February 27, 2021, respectively, and are recorded in Receivables, net. For digital related sales, which primarily include home delivery and Drive Up & Go curbside pickup, revenues are recognized upon either pickup in store or delivery to the customer and may include revenue for separately charged delivery services. The Company records a contract liability when rewards are earned by customers in connection with the Company's loyalty programs. As rewards are redeemed or expire, the Company reduces the contract liability and recognizes revenue. The contract liability balance was immaterial as of September 11, 2021 and February 27, 2021.

The Company records a contract liability when it sells its own proprietary gift cards. The Company records a sale when the customer redeems the gift card. The Company's gift cards do not expire. The Company reduces the contract liability and records revenue for the unused portion of gift cards ("breakage") in proportion to its customers' pattern of redemption, which the Company determined to be the historical redemption rate. The Company's contract liability related to gift cards was $76.2 million as of September 11, 2021 and $98.1 million as of February 27, 2021. Breakage amounts were immaterial for the 12 and 28 weeks ended September 11, 2021 and September 12, 2020, respectively.

(1) Digital related sales are included in the categories to which the revenue pertains.

(2) Consists primarily of general merchandise, grocery and frozen foods.

(3) Consists primarily of produce, dairy, meat, deli, floral and seafood.

(4) Consists primarily of wholesale revenue to third parties, commissions and other miscellaneous revenue.

Recently issued accounting standards: In June 2020, the FASB issued ASU 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU 2020-06"). ASU 2020-06 simplifies the accounting for certain convertible instruments, amends guidance on derivative scope exceptions for contracts in an entity's own equity and modifies the guidance on diluted earnings per share calculations as a result of these changes. ASU 2020-06 will take effect for public entities for annual reporting periods beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this standard on its Consolidated Financial Statements.

NOTE 2 - FAIR VALUE MEASUREMENTS

The accounting guidance for fair value established a framework for measuring fair value and established a three-level valuation hierarchy for disclosure of fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability at the measurement date. The three levels are defined as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and

Level 3 - Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions that market participants would use to value the asset or liability.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The following table presents assets and liabilities which were measured at fair value on a recurring basis as of September 11, 2021 (in millions):

(1) Primarily relates to Mutual Funds (Level 1) and Certificates of Deposit (Level 2). Included in Other current assets.

(2) Primarily relates to investments in publicly traded stock (Level 1) and U.S. Treasury Notes and Corporate Bonds (Level 2). Included in Other assets.

(3) Primarily relates to derivative contracts. Included in Other assets.

(4) Primarily relates to interest rate swaps. Included in Other current liabilities.

The following table presents assets and liabilities which were measured at fair value on a recurring basis as of February 27, 2021 (in millions):

(1) Primarily relates to Mutual Funds (Level 1) and Certificates of Deposit (Level 2). Included in Other current assets.

(2) Primarily relates to investments in publicly traded stock (Level 1) and U.S. Treasury Notes and Corporate Bonds (Level 2). Included in Other assets.

(3) Primarily relates to interest rate swaps. Included in Other current liabilities.

The estimated fair value of the Company's debt, including current maturities, was based on Level 2 inputs, being market quotes or values for similar instruments, and interest rates currently available to the Company for the issuance of debt with similar terms and remaining maturities as a discount rate for the remaining principal payments. As of September 11, 2021, the fair value of total debt was $8,325.6 million compared to the carrying value of $7,815.0 million, excluding debt discounts and deferred financing costs. As of February 27, 2021, the fair value of total debt was $8,150.7 million compared to the carrying value of $7,815.5 million, excluding debt discounts and deferred financing costs.

Assets Measured at Fair Value on a Non-Recurring Basis

The Company measures certain assets at fair value on a non-recurring basis, including long-lived assets and goodwill, which are evaluated for impairment. Long-lived assets include store-related assets such as property and equipment and certain intangible assets. The inputs used to determine the fair value of long-lived assets and a reporting unit are considered Level 3 measurements due to their subjective nature.

Senior Unsecured Notes

On October 1, 2021, subsequent to the end of the 12 weeks ended September 11, 2021, the Company provided notice to the holders and trustee, of its election to redeem all of the $200.0 million aggregate principal amount currently outstanding of the Company's 5.750% Senior Unsecured Notes due 2025 (the "2025 Notes"). The 2025 Notes will be redeemed on November 1, 2021 (the "Redemption Date"), using cash on hand, at a redemption price of 101.438% of the principal amount thereof plus accrued and unpaid interest on the 2025 Notes to, but excluding, the Redemption Date.

ABL Facility

As of September 11, 2021 and February 27, 2021, there were no amounts outstanding under the Company's asset-based loan facility ("ABL Facility"), and letters of credit ("LOC") issued under the LOC sub-facility were $323.8 million and $354.6 million, respectively.

The Company contributed $9.2 million and $11.2 million to its defined pension plans and post-retirement benefit plans during the 12 and 28 weeks ended September 11, 2021, respectively. For the 12 and 28 weeks ended September 12, 2020, the Company contributed $1.7 million and $56.3 million, respectively. At the Company's discretion, additional funds may be contributed to the defined benefit pension plans that are determined to be beneficial to the Company. The Company currently anticipates contributing an additional $26.1 million to these plans for the remainder of fiscal 2021.

During the 12 and 28 weeks ended September 11, 2021, the Company purchased a group annuity policy and transferred $203.5 million of pension plan assets to an insurance company, thereby reducing the Company's defined benefit pension obligations by $205.4 million. As a result of the annuity purchase, the Company recorded a settlement gain of $11.1 million during the 12 and 28 weeks ended September 11, 2021.

Defined Contribution Plans and Supplemental Retirement Plans

Total contributions expensed for defined contribution plans (401(k) plans) were $26.4 million and $16.3 million for the 12 weeks ended September 11, 2021 and September 12, 2020, respectively. For the 28 weeks ended September 11, 2021 and September 12, 2020, total contributions expensed were $42.6 million and $38.1 million, respectively.

Multiemployer Pension Plans

ARP Act: The American Rescue Plan Act ("ARP Act") was signed into law on March 11, 2021. The ARP Act establishes a special financial assistance program for financially troubled multiemployer pension plans. Under the ARP Act, eligible multiemployer plans can apply to receive a one-time cash payment in the amount projected by the Pension Benefit Guaranty Corporation ("PBGC") to pay pension benefits through the plan year ending 2051. On July 9, 2021, the PBGC issued its interim final rule with respect to the special financial assistance program. The PBGC interim final rule provides direction on the application requirements, identifies which plans will have priority, eligibility requirements, the determination of the amount of financial assistance to be provided and establishes conditions and restrictions that apply to plans that receive the assistance. The Company is evaluating the interim final rule and has submitted comments during the 30-day comment period. The Company's evaluation includes any potential impact to the Company's Excess Plan as defined in and further described in "Part II—Item 8. Financial Statements and Supplemental Data—Note 12" of the Company's Annual Report on Form 10-K for the fiscal year ended February 27, 2021.

NOTE 6 - COMMITMENTS AND CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS

Guarantees

California Department of Industrial Relations: On January 21, 2014, the Company entered into a Collateral Substitution Agreement with the California Self-Insurers' Security Fund to provide collateral related to certain California self-insured workers' compensation obligations pursuant to applicable regulations. The collateral not covered by the California Self-Insurers' Security Fund is covered by surety bonds for the benefit of the State of California Office of Self-Insurance Plans. A portion of the surety bonds is covered by irrevocable LOCs. The collateral requirements are adjusted annually based on semi-annual filings of an actuarial study reflecting liabilities as of December 31 of each year reduced by claim closures and settlements. The related LOC was $22.6 million as of September 11, 2021 and $40.1 million as of February 27, 2021, respectively.

Lease Guarantees: The Company may have liability under certain operating leases that were assigned to third parties. If any of these third parties fail to perform their obligations under the leases, the Company could be responsible for the lease obligation, including as a result of the economic dislocation caused by the response to the COVID-19 pandemic. Because of the wide dispersion among third parties and the variety of remedies available, the Company believes that if an assignee became insolvent, it would not have a material effect on the Company's financial condition, results of operations or cash flows.

The Company also provides guarantees, indemnifications and assurances pursuant to contractual obligations in the ordinary course of its business.

Legal Proceedings

The Company is subject from time to time to various claims and lawsuits arising in the ordinary course of business, including lawsuits involving trade practices, lawsuits alleging violations of state and/or federal wage and hour laws (including alleged violations of meal and rest period laws and alleged misclassification issues), real estate disputes as well as other matters. Some of these claims or suits purport or may be determined to be class actions and/or seek substantial damages. It is the opinion of the Company's management that although the amount of liability with

respect to certain of the matters described herein cannot be ascertained at this time, any resulting liability of these and other matters, including any punitive damages, will not have a material adverse effect on the Company's business or financial condition.

The Company continually evaluates its exposure to loss contingencies arising from pending or threatened litigation and believes it has made provisions where the loss contingency is probable and can be reasonably estimated. Nonetheless, assessing and predicting the outcomes of these matters involves substantial uncertainties. Management currently believes that the aggregate range of reasonably possible loss for the Company's exposure in excess of the amount accrued is expected to be immaterial to the Company. It remains possible that despite management's current belief, material differences in actual outcomes or changes in management's evaluation or predictions could arise that could have a material effect on the Company's financial condition, results of operations or cash flows.

ERISA Litigation: Two lawsuits were brought against Safeway Inc. ("Safeway") and the Safeway Benefits Plan Committee (the "Benefit Plans Committee," and together with Safeway, the "Safeway Benefits Plans Defendants") and other third parties alleging breaches of fiduciary duty under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") with respect to Safeway's 401(k) Plan (the "Safeway 401(k) Plan"). On July 14, 2016, a complaint was filed in the United States District Court for the Northern District of California by a participant in the Safeway 401(k) Plan individually and on behalf of the Safeway 401(k) Plan. An amended complaint was filed on November 18, 2016. On August 25, 2016, a second complaint was filed in the United States District Court for the Northern District of California by another participant in the Safeway 401(k) Plan individually and on behalf of all others similarly situated against the Safeway Benefits Plans Defendants and against the Safeway 401(k) Plan's former record-keepers. An amended complaint was filed on September 16, 2016, and a second amended complaint was filed on November 21, 2016. In general, both lawsuits alleged that the Safeway Benefits Plans Defendants breached their fiduciary duties under ERISA regarding the selection of investments offered under the Safeway 401(k) Plan and the fees and expenses related to those investments. All parties filed summary judgment motions which were heard and taken under submission on August 16, 2018. Plaintiffs' motions were denied, and defendants' motions were granted in part and denied in part. Bench trials for both matters were set for May 6, 2019. A settlement in principle was reached before trial. On September 13, 2019, settlement papers were filed with the Court along with a motion for preliminary approval of the settlement. A hearing for preliminary approval was set for November 20, 2019, but the Court vacated the hearing. The Court issued an order on March 30, 2020 requesting some minor changes to the notice procedures, and plaintiffs submitted an amended motion for preliminary approval. On September 8, 2020, the Court granted plaintiffs' amended motion, and a final approval hearing was held on April 26, 2021, at which time the Court took the matter under submission. On July 19, 2021, the Court issued a final order approving the settlement. In August 2021, a settlement fund was established with funds from insurers. A settlement administrator is now managing the calculation and payment of settlement provisions to class members.

False Claims Act: The Company has received a civil investigative demand dated February 28, 2020 from the United States Attorney for the Southern District of New York in connection with a False Claims Act ("FCA") investigation relating to the Company's dispensing practices regarding insulin pen products. The investigation seeks documents regarding the Company's policies, practices and procedures, as well as dispensing data, among other things. The Company has cooperated with the U.S. Attorney in the investigation. The Company is currently unable to determine the probability of the outcome of this matter or the range of possible loss, if any.

Two qui tam actions alleging violations of the FCA have also been filed against the Company and its subsidiaries. Violations of the FCA are subject to treble damages and penalties of up to a specified dollar amount per false claim.

 

In United States ex rel. Proctor v. Safeway, filed in the United States District Court for the Central District of Illinois, the relator alleges that Safeway overcharged federal government healthcare programs by not providing the federal government, as part of its usual and customary prices, the benefit of discounts given to customers in pharmacy membership discount and price-matching programs. The relator filed his complaint under seal on November 11, 2011, and the complaint was unsealed on August 26, 2015. The relator amended the complaint on

March 31, 2016. On June 12, 2020, the Court granted Safeway's motion for summary judgment, holding that the relator could not prove that Safeway acted with the intent required under the FCA, and judgment was issued on June 15, 2020. On July 10, 2020, the relator filed a motion to alter or amend the judgment and to supplement the record, which Safeway opposed. On November 13, 2020, the Court denied relator's motion, and on December 11, 2020, relator filed a notice of appeal. The appeal is now pending in the Seventh Circuit Court of Appeals. Oral argument took place September 9, 2021.

 

In United States ex rel. Schutte and Yarberry v. SuperValu, New Albertson's, Inc., et al., also filed in the Central District of Illinois, the relators allege that defendants (including various subsidiaries of the Company) overcharged federal government healthcare programs by not providing the federal government, as a part of usual and customary prices, the benefit of discounts given to customers who requested that defendants match competitor prices. The complaint was originally filed under seal and amended on November 30, 2015. On August 5, 2019, the Court granted relators' motion for partial summary judgment, holding that price-matched prices are the usual and customary prices for those drugs. On July 1, 2020, the Court granted the defendants' motions for summary judgment and dismissed the case, holding that the relator could not prove that defendants acted with the intent required under the FCA. Judgment was issued on July 2, 2020. On July 9, 2020, the relators filed a notice of appeal. Oral argument was held on January 19, 2021. On August 12, 2021, the Court of Appeals for the Seventh Circuit affirmed the grant of summary judgment in the Company's favor. On September 23, 2021, the relators filed a petition for rehearing en banc with the Seventh Circuit. The Company's response to the petition for rehearing is due by November 9, 2021.

 

In both of the above cases, the federal government previously investigated the relators' allegations and declined to intervene. The relators elected to pursue their respective cases on their own and in each case have alleged FCA damages in excess of $100 million before trebling and excluding penalties. The Company is vigorously defending each of these matters and believes each of these cases is without merit. The Company has recorded an estimated liability for these matters.

Opioid Litigation: The Company is one of dozens of companies that have been named in various lawsuits alleging that defendants contributed to the national opioid epidemic. At present, the Company is named in over 80 suits pending in various state courts as well as in the United States District Court for the Northern District of Ohio, where over 2,000 cases have been consolidated as Multi-District Litigation ("MDL") pursuant to 28 U.S.C. §1407. Most of these cases have been stayed pending bellwether trials. At present, the most active case is a matter in New Mexico state court where we have been in active discovery and where a September 2022 trial date has been set. The MDL Court and a state court in Utah are currently considering position statements from the parties in connection with scheduling bellwether trials and it is likely that the Company may be included in one or more of those anticipated bellwether trials. The Company is vigorously defending these matters and believes that these cases are without merit. At this stage in the proceedings, the Company is unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any.

California Air Resources Board: Upon the inspection by the California Air Resources Board ("CARB") of several of the Company's stores in California, it was determined that the Company failed certain paperwork and other administrative requirements. As a result of the inspections, the Company proactively undertook a broad evaluation of the record keeping and administrative practices at all of its stores in California. In connection with this evaluation, the Company retained a third party to conduct an audit and correct deficiencies identified across its California store base. The Company is working with CARB to resolve these compliance issues and comply with governing regulations, and that work is ongoing. CARB has made an opening demand regarding potential fines and penalties. On July 7, 2021, the parties entered into a settlement agreement for which the Company has recorded an estimated liability.

FACTA: On May 31, 2019, a putative class action complaint entitled Martin v. Safeway was filed in the California Superior Court for the County of Alameda, alleging the Company failed to comply with the Fair and Accurate Credit Transactions Act ("FACTA") by printing receipts that failed to adequately mask payment card numbers as

required by FACTA. The plaintiff claims the violation was "willful" and exposes the Company to statutory damages provided for in FACTA. The Company has answered the complaint and is vigorously defending the matter. On January 8, 2020, the Company commenced mediation discussions with plaintiff's counsel and reached a settlement in principle on February 24, 2020. The parties will seek court approval of the settlement. The Company has recorded an estimated liability for this matter.

Other Commitments

In the ordinary course of business, the Company enters into various supply contracts to purchase products for resale and purchase and service contracts for fixed asset and information technology commitments. These contracts typically include volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations.

NOTE 7 - OTHER COMPREHENSIVE INCOME OR LOSS

Total comprehensive earnings are defined as all changes in stockholders' equity during a period, other than those from investments by or distributions to the stockholders. Generally, for the Company, total comprehensive income or loss equals net income plus or minus adjustments for pension and other post-retirement liabilities. Total comprehensive earnings represent the activity for a period net of tax.

While total comprehensive earnings are the activity in a period and are largely driven by net earnings in that period, accumulated other comprehensive income or loss ("AOCI") represents the cumulative balance of other comprehensive income, net of tax, as of the balance sheet date. Changes in the AOCI balance by component are shown below (in millions):

NOTE 8 - NET INCOME PER CLASS A COMMON SHARE

The Company calculates basic and diluted net income per Class A common share using the two-class method. The two-class method is an allocation formula that determines net income per Class A common share for each share of Class A common stock and the Company's Series A-1 convertible preferred stock ("Series A-1 preferred stock") and Series A convertible preferred stock ("Series A preferred stock" and together with the Series A-1 preferred stock, the "Convertible Preferred Stock"), a participating security, according to dividends declared and participation rights in undistributed earnings. Under this method, all earnings (distributed and undistributed) are allocated to Class A common shares and Convertible Preferred Stock based on their respective rights to receive dividends. The holders of Convertible Preferred Stock participate in cash dividends that the Company pays on its common stock to the extent that such cash dividends exceed $206.25 million per fiscal year. In applying the two-class method to interim periods, the Company allocates income to its quarterly periods independently and discretely from its year-to-date and annual periods. Basic net income per Class A common share is computed by dividing net income allocated to Class A common stockholders by the weighted average number of Class A common shares outstanding for the period, including Class A common shares to be issued with no prior remaining contingencies prior to issuance. Diluted net income per Class A common share is computed based on the weighted average number of shares of Class A common stock outstanding during each period, plus potential Class A common shares considered outstanding during the period, as long as the inclusion of such awards is not antidilutive. Potential Class A common shares consist of unvested RSUs and RSAs and Convertible Preferred Stock, using the more dilutive of either the two-class method or as-converted stock method. Performance-based RSUs are considered dilutive when the related performance criterion has been met.

The components of basic and diluted net income per Class A common share were as follows (in millions, except per share data):

(1) There were 0.3 million Class A common shares remaining to be issued for the 12 and 28 weeks ended September 11, 2021 compared to 0.4 million Class A common shares remaining to be issued for the 12 and 28 weeks ended September 12, 2020.

(2) Reflects the number of shares of Convertible Preferred Stock issued, if converted into common stock for the period outstanding. For the 28 weeks ended September 11, 2021, 101.6 million potential common shares outstanding related to Convertible Preferred Stock were antidilutive.

(3) There were no potential Class A common shares outstanding related to RSUs and RSAs that were antidilutive for the 12 and 28 weeks ended September 11, 2021. There were no potential Class A common shares outstanding related to RSUs and RSAs that were antidilutive for the 12 and 28 weeks ended September 12, 2020.