Albertsons 2006 Annual Report Download - page 10

have its attention diverted while trying to integrate the acquired businesses. If these factors limit our ability to
integrate the operations of the acquired business successfully or on a timely basis, our expectations of future
results of operations, including certain cost savings and synergies expected to result from the Proposed
Transaction, may not be met. In addition, our growth and operating strategies for the acquired businesses may be
different from the strategies that Albertsons currently is pursuing. If such difficulties are encountered or if such
synergies, business opportunities and growth prospects are not realized, it could have a material adverse effect on
our business, financial condition and results of operations. In addition, there can be no assurance that the
Proposed Transaction will be completed.
We will incur substantial additional indebtedness to finance the Proposed Transaction, which will decrease
our business flexibility and increase our borrowing costs.
Upon completion of the Proposed Transaction, we will have consolidated indebtedness that will be
substantially greater than our indebtedness prior to that completion. The increased indebtedness and higher
debt-to-equity ratio of our company, as compared to that which has existed on a historical basis, will have the
effect, among other things, of reducing our flexibility to respond to changing business and economic conditions
and increasing borrowing costs. We have received guidance from ratings agencies to the effect that, after the
completion of the Proposed Transaction, our debt will no longer have an investment-grade rating, and on
April 13, 2006 Moody’s Investor Service changed the rating of our long-term unsecured debt from Baa3 to Ba3.
Escalating costs of providing employee benefits and other labor relations issues may lead to labor disputes
and disruption of our businesses.
Potential work disruptions from labor disputes may affect sales at our stores as well as our ability to
distribute products. We contribute to various multiemployer healthcare and pension plans covering certain union-
represented employees in both our retail and distribution operations. A significant number of our employees (as
well as a significant number of employees that we expect to acquire as part of the Proposed Transaction) are
subject to collective bargaining agreements, and a majority of those employees (as well as a majority of the
employees that we expect to acquire as part of the Proposed Transaction) are participants in multiemployer
pension plans. The costs of providing benefits through such plans have escalated rapidly in recent years. Based
upon information available to us, we believe that certain of these multiemployer plans are underfunded. The
decline in the value of assets supporting these plans, in addition to the high level of benefits generally provided,
has led to the underfunding. As a result, contributions to these plans will continue to increase and the benefit
levels and other issues will continue to create collective bargaining challenges, which could increase our costs
and materially affect our financial condition and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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