Albertsons 2014 Annual Report Download - page 21

The financial condition of these pension plans may also negatively impact the Company’s debt ratings, which
may increase the cost of borrowing, adversely affect the Company’s ability to access one or more financial
markets or result in a default under the Company’s debt instruments.
Changes in the Company’s continuing relationships with NAI and Albertson’s LLC could adversely
impact the Company’s results of operations.
In connection with the NAI Banner Sale, the Company entered into Transition Services Agreements with each of
NAI and Albertson’s LLC to support the divested NAI Banners and the continuing operations of Albertson’s LLC,
each with an initial term that expires September 21, 2015. The Transition Services Agreements may be renewed
annually provided that notice of renewal is given at least 12 months prior to the expiration. NAI and Albertson’s
LLC may also cancel services on 10 weeks’ notice at any of its stores or distribution centers for any reason,
including closure, and the removal of stores or distribution centers would reduce the variable fee the Company
receives under the Transition Services Agreements. NAI and Albertson’s LLC have and may continue to notify the
Company of stores and distribution centers that are removed from the Transition Services Agreements. Continued
reductions in the number of stores or distribution centers covered by the Transition Services Agreements, with or
without reductions in the scope of services, could adversely impact the Company’s results of operations.
It is the Company’s understanding that NAI and Albertson’s LLC intend to continue to receive services from the
Company under the Transition Services Agreements for at least the remainder of the initial term. For several
reasons, including the recent announcement of a definitive agreement for the acquisition of Safeway Inc. by AB
Acquisition LLC, the parent company to each of NAI and Albertson’s LLC, the Company cannot be certain as to
the length or scope of services to be provided by the Company under the Transition Services Agreements. The
Company also cannot be certain whether any such transaction would increase the number of stores or distribution
centers that NAI and/or Albertson’s LLC would remove from the Transition Services Agreements or make it
more likely that only one or both Transition Services Agreement would be extended beyond the initial term. This
uncertainty creates challenges for the Company in managing its corporate resources and increases the risk that
the Company will be required to provide the same scope of services under the Transition Services Agreements
but for less revenue based on a lower store and distribution center count and/or termination of one Transition
Services Agreement. The impact of the Transition Services Agreements on the Company’s results of operations
depends on the revenue being received by the Company and the Company’s ability to manage the costs of
providing the required level of services. Any decrease in the revenue received by the Company under the
Transition Services Agreements could adversely impact the Company’s results of operations, including if the
Company is not able to manage its cost structure and overhead to appropriately correspond to the loss in revenue.
The Company’s ability to continue to perform services under the Transition Services Agreements at the applicable
service level will depend partly on its ability to attract and retain qualified personnel. Retaining such personnel may
be more difficult in connection with an actual or perceived wind down of the Transition Services Agreements. A
shortage of qualified employees who devote time to services under the Transition Services Agreements could
increase the Company’s costs and decrease the Company’s ability to effectively serve its customers under the
Transition Services Agreements. While the Company has limited its indemnification obligations for these services,
the Company could face claims for disruptions or other impacts to the businesses of Albertson’s LLC and NAI.
The Company also entered into an Operating and Supply Agreement with NAI under which the Company
operates a warehouse/distribution center owned by NAI. The Company provides wholesale distribution of
products to certain NAI banners and to certain of the Company’s independent retail customers from this
warehouse/distribution center. This agreement may be terminated by either party on 24 months’ notice.
Disruptions to the Company’s information technology systems, including cyber-attacks and security
breaches, and the costs of maintaining secure and effective information technology systems could
negatively affect the Company’s business and results of operations.
The efficient operation of the Company’s businesses is highly dependent on computer hardware and software
systems, including customized information technology systems. Information systems are vulnerable to security
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