Albertsons 2006 Annual Report Download - page 24

the company’s common stock on the New York Stock Exchange for twenty of the last thirty trading days of any
fiscal quarter exceeds certain levels, at $39.75 per share for the quarter ending June 17, 2006, and rising to
$113.29 per share at September 6, 2031, if the rating assigned to the debentures by Standard & Poor’s rating
service or Moody’s rating service, are “BB” or lower, or Ba3 or lower, respectively, if the notes are called for
redemption, or if certain specified corporate actions occur. See Subsequent Events note. In the event of
conversion, 9.6434 shares of the company’s common stock will be issued per $1,000 debenture or approximately
7.8 million shares should all debentures be converted. The debentures have an initial yield to maturity of 4.5
percent, which is being accreted over the life of the debentures using the effective interest method. The company
will pay contingent cash interest for the six-month period commencing November 3, 2006 and for any six-month
period thereafter if the average market price of the debentures for a five trading day measurement period
preceding the applicable six-month period equals 120 percent or more of the sum of the issue price and accrued
original issue discount for the debentures. The debentures are classified as long-term debt based on the
company’s intent, subject to the Proposed Transaction, to settle with equity shares upon conversion.
The debt agreements contain various financial covenants including ratios for interest coverage and debt
leverage as defined in the company’s debt agreements. The company has met the financial covenants under the
debt agreements as of February 25, 2006.
The company is party to a synthetic leasing program for one of its major warehouses. The lease expires
April 2008, may be renewed with the lessor’s consent through April 2013 and has a purchase option of
approximately $60 million.
In connection with the Proposed Transaction, the Royal Bank of Scotland plc has committed to provide the
company with senior credit facilities in the amount of $4 billion (the “Facilities”). These Facilities, which will
replace the $750 million credit facility described above, consist of a $2 billion five year Revolving Credit
Facility, a $1.25 billion five year Term Loan A and a $750 million six year Term Loan B. Rates on the Facilities
are tied to LIBOR plus 0.50 to 1.875 percent and with facility fees ranging from 0.10 to 0.50 percent, both based
on the company’s credit rating. The Facilities are guaranteed by certain material subsidiaries of the company and
the stock of such subsidiaries is pledged as security for such guarantees. The Facilities also include various
covenants and restrictions customary for senior secured credit facilities, including ratios for interest coverage and
debt leverage. The company expects to have approximately $2 billion drawn on the Facilities simultaneous with
the closing of the Proposed Transaction.
Management expects that the company will continue to replenish operating assets with internally generated
funds. There can be no assurance, however, that the company’s business will continue to generate cash flow at
current levels. The company will continue to obtain short-term financing from its revolving credit agreement
with various financial institutions, as well as through its accounts receivable securitization program. Long-term
financing will be maintained through existing and new debt issuances. The company’s short-term and long-term
financing abilities are believed to be adequate as a supplement to internally generated cash flows to fund its
capital expenditures and acquisitions as opportunities arise. Maturities of debt issued will depend on
management’s views with respect to the relative attractiveness of interest rates at the time of issuance and other
debt maturities.
The company repurchases shares of the company’s common stock under programs authorized by the Board
of Directors, for re-issuance upon the exercise of employee stock options and for other compensation programs
utilizing the company’s stock. The company repurchased 0.9 million, 2.0 million and 0.6 million shares of
common stock at an average cost per share of $32.19, $28.30 and $23.80 during fiscal 2006, 2005 and 2004,
respectively. As of February 25, 2006, approximately 3.7 million shares remained available for purchase under
the 5.0 million share repurchase program authorized by the Board of Directors in May 2004.
SFAS No. 87, “Employers’ Accounting for Pension,” requires that a prepaid pension asset or minimum
pension liability, based on the current market value of plan assets and the accumulated benefit obligation of the
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