Albertsons 2016 Annual Report Download - page 100

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additional five year terms and certain termination rights for each of the Company and NAI. The Company has exercised its first
extension option, subject to such termination rights.
On April 16, 2015, the Company entered into a letter agreement pursuant to which the Company is providing services to NAI
and Albertson’s LLC as needed to transition and wind down the TSA. In exchange for these transition and wind down services,
the Company is entitled to receive eight payments of approximately $6 every six months for aggregate fees of $50. These
payments are separate from and incremental to the fixed and variable fees the Company receives under the TSA. The Company
estimates that the complete transition and wind down of the TSA could take approximately two to three more years.
On May 28, 2015, the Company entered into a letter agreement with NAI and Albertson's LLC pursuant to which the Company
received certain additional rights and benefits, and the Company and NAI and Albertson's LLC (and certain of their affiliates,
including Safeway, with respect to provisions of the letter agreement applicable to them) agreed to resolve several issues.
Among other matters resolved, NAI, Albertson's LLC and AB Acquisition agreed to no longer challenge, and waive all rights
relating to, the Company's filing with the IRS in fiscal 2015 for a change in accounting method for NAI and its subsidiaries
pursuant to the tangible property repair regulations. In consideration for the granting of the additional rights and benefits to the
Company and the resolution of the various matters under the letter agreement, the Company paid $35 to AB Acquisition, the
parent entity of NAI and Albertson's LLC.
Haggen
The Company entered into a transition services agreement with Haggen in December 2014 (the “Haggen TSA”) to provide
certain services to 164 stores owned and being acquired by Haggen in five states. The Company also entered into a supply
agreement with Haggen to supply goods and products to Haggen stores in Washington and Oregon. On September 8, 2015,
Haggen filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Through the bankruptcy
process, Haggen has now closed, sold or agreed to sell all 164 stores. The Company estimates that a complete transition and
wind down of the Haggen TSA and supply agreement will occur in the second quarter of fiscal 2017. The Company has filed
for approximately $2 of administrative 503(b)(9) priority claims and for approximately $8 of other claims with the bankruptcy
court. The Company could be exposed to claims from third parties from which the Company sourced products, services,
licenses and similar benefits on behalf of Haggen. The Company has reserved for probable losses related to a portion of these
claims and receivables. It is reasonably possible that the Company could experience losses in excess of the amount of such
reserves; however, at this time the Company cannot reasonably estimate a range of such excess losses because of the factual
and legal issues related to whether the Company would have liability for any such third-party claims, if such third-party claims
were asserted against the Company.
Information Technology Intrusions
Computer Network Intrusions - In fiscal 2015, the Company announced it had experienced two separate criminal intrusions
into the portion of its computer network that processes payment card transactions for some of its owned and franchised retail
stores, including some of its associated stand-alone liquor stores. An investigation of those intrusions supported by third-party
data forensics experts is ongoing. Given the continuing nature of the investigation, it is possible that it will be determined that
information was stolen from the Company during one or both of these intrusions or that new or different time frames, locations,
at-risk data, and/or other facts will be identified in the future.
Some stores owned and operated by Albertson’s LLC and NAI experienced related criminal intrusions. The Company provides
information technology services to these Albertson’s LLC and NAI stores pursuant to the TSA, and the Company has been
working together with Albertson’s LLC and NAI to respond to the intrusions into their stores. The Company believes that any
losses incurred by Albertson’s LLC or NAI as a result of the intrusions affecting their stores would not be the Company’s
responsibility.
Investigations and Proceedings - As a result of the criminal intrusions, the payment card brands are conducting investigations
and, although the Company’s network has previously been found to be compliant with applicable data security standards, the
forensic investigator working on behalf of the payment card brands has concluded that the Company was not in compliance at
the time of the intrusions and that the alleged non-compliance caused at least some portion of the compromise of payment card
data that allegedly occurred during the intrusions. As a result, the Company expects the payment card brands to allege that the
Company was not compliant with the applicable data security standards at the time of the intrusions and that such alleged non-
compliance caused the compromise of payment card data during the intrusions. The Company believes the payment card brands
will make claims against the Company for non-ordinary course operating expenses and incremental counterfeit fraud losses
allegedly incurred by them or their issuers by reason of the intrusions and the Company expects to dispute those claims. While
the Company does not believe that a loss is probable by reason of these as yet unasserted claims, the Company believes that a
loss in connection with these claims, should they be asserted, is reasonably possible; however, at this time the Company cannot