Albertsons 2016 Annual Report Download - page 99

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NOTE 14—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Potential Separation of Save-A-Lot Business
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that
process it had begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company.
On January 7, 2016, Save-A-Lot, Inc. filed a Form 10 with the Securities and Exchange Commission (the “SEC”) as part of the
potential separation from the Company. No specific timetable for a separation has been set and there can be no assurance that a
separation will be completed or that any other change in the Company’s overall structure or business model will occur.
Guarantees and Contingent Liabilities
The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various
retailers as of February 27, 2016. These guarantees were generally made to support the business growth of independent retail
customers. The guarantees are generally for the entire terms of the leases or other debt obligations with remaining terms that
range from less than one year to 14 years, with a weighted average remaining term of approximately eight years. For each
guarantee issued, if the independent retail customer defaults on a payment, the Company would be required to make payments
under its guarantee. Generally, the guarantees are secured by indemnification agreements or personal guarantees of the
independent retail customer.
The Company reviews performance risk related to its guarantees of independent retail customer obligations based on internal
measures of credit performance. As of February 27, 2016, the maximum amount of undiscounted payments the Company
would be required to make in the event of default of all guarantees was $67 and represented $43 on a discounted basis. Based
on the indemnification agreements, personal guarantees and results of the reviews of performance risk, the Company believes
the likelihood that it will be required to assume a material amount of these obligations is remote. Accordingly, no amount has
been recorded in the Consolidated Balance Sheets for these contingent obligations under the Company’s guarantee
arrangements.
The Company is contingently liable for leases that have been assigned to various third parties in connection with facility
closings and dispositions. The Company could be required to satisfy the obligations under the leases if any of the assignees are
unable to fulfill their lease obligations. Due to the wide distribution of the Company’s assignments among third parties, and
various other remedies available, the Company believes the likelihood that it will be required to assume a material amount of
these obligations is remote.
The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for
certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These
agreements primarily relate to the Company’s commercial contracts, the TSA (as defined below), contracts entered into for the
purchase and sale of stock or assets, operating leases and other real estate contracts, financial agreements, agreements to
provide services to the Company and agreements to indemnify officers, directors and employees in the performance of their
work. While the Company’s aggregate indemnification obligation could result in a material liability, the Company is not aware
of any matters that are expected to result in a material liability.
Following the sale of NAI, the Company remains contingently liable with respect to certain self-insurance commitments and
other guarantees as a result of parental guarantees issued by SUPERVALU INC. with respect to the obligations of NAI that
were incurred while NAI was a subsidiary of the Company. As of February 27, 2016, using actuarial estimates as of December
31, 2015, the total undiscounted amount of all such guarantees was estimated at $167 ($150 on a discounted basis). Based on
the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such
contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with
letters of credit and surety bonds to numerous states. Because NAI remains a primary obligor on these self-insurance and other
obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable,
the Company believes that the likelihood that it will be required to assume a material amount of these obligations is remote.
Accordingly, no amount has been recorded in the Consolidated Balance Sheets for these guarantees.
Agreements with AB Acquisition LLC and Affiliates
In connection with the sale of NAI on March 21, 2013, the Company entered into various agreements with AB Acquisition
LLC and its affiliates related to on-going operations, including a Transition Services Agreement with each of NAI and
Albertson’s LLC (collectively, the “TSA”) and operating and supply agreements. At the time of the sale of NAI, these
arrangements had initial terms ranging from 12 months to five years, and are generally subject to renewal upon mutual
agreement by the parties thereto and also include termination provisions that can be exercised by each party. The Company
operates a distribution center owned by NAI for an initial term of five years, subject to renewal at the Company's option for two