《艾伯森公司(ALBERTSONS)2022年10-K年度报告(英文版)(163页).pdf》由会员分享,可在线阅读,更多相关《艾伯森公司(ALBERTSONS)2022年10-K年度报告(英文版)(163页).pdf(163页珍藏版)》请在三个皮匠报告上搜索。
1、 UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended February 25,2023OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the
2、 transition period from _ to _Commission File Number:001-39350Albertsons Companies,Inc.(Exact name of registrant as specified in its charter)Delaware 47-4376911(State or other jurisdiction of incorporation or organization)(I.R.S.Employer Identification No.)250 Parkcenter Blvd.Boise,Idaho,83706(Addre
3、ss of principal executive offices and zip code)(208)395-6200(Registrants telephone number,including area code)Securities registered under Section 12(b)of the Exchange Act:Title of each classTrading Symbol(s)Name of each exchange on which registeredClass A common stock,$0.01 par valueACINew York Stoc
4、k ExchangeSecurities registered under Section 12(g)of the Exchange Act:None Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
5、Section 15(d)of the Act.Yes No Indicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12months(or for such shorter period that the registrant was required to file such reports),and(2
6、)has been subject to such filing requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T duringthe preceding 12 months(or for such shorter period th
7、at the registrant was required to submit such files).Yes No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growthcompany.See the definitions of large accelerated filer,accelerated file
8、r,smaller reporting company,and emerging growth company in Rule 12b-2 of the Exchange Act.Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth companyIf an emerging growth company,indicate by check mark if the registrant has elected not to use the ext
9、ended transition period for complying with any new or revised financialaccounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal con
10、trol over financialreporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of the
11、 registrant included in the filing reflect thecorrection of an error to previously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of theregistrants executive
12、officers during the relevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes No As of September 9,2022,the last business day of the registrants most recently completed second fiscal quarter,th
13、e aggregate market value of the registrants common stock heldby non-affiliates was approximately$4.8 billion.As of April 21,2023,the registrant had 573,952,687 shares of Class A common stock,par value$0.01 per share,outstanding.DOCUMENTS INCORPORATED BY REFERENCEItems 10,11,12,13 and 14 of Part III
14、incorporate information by reference from the registrants definitive proxy statement related to its 2023 Annual Meeting of Stockholders,tobe filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year ended February 25,2023(the Proxy Statement).Albertsons Compa
15、nies,Inc.and Subsidiaries PagePART I4Item 1-Business8Item 1A-Risk Factors15Item 1B-Unresolved Staff Comments34Item 2-Properties35Item 3-Legal Proceedings35Item 4-Mine Safety Disclosures36PART II37Item 5-Market for Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity S
16、ecurities37Item 6-Reserved39Item 7-Managements Discussion and Analysis of Financial Condition and Results of Operations40Item 7A-Quantitative and Qualitative Disclosures About Market Risk54Item 8-Financial Statements and Supplementary Data56Item 9-Changes in and Disagreements with Accountants on Acc
17、ounting and Financial Disclosure108Item 9A-Controls and Procedures109Item 9B-Other Information109Item 9C-Disclosure Regarding Foreign Jurisdictions that Prevent Inspections109PART III110Item 10-Directors,Executive Officers and Corporate Governance110Item 11-Executive Compensation110Item 12-Security
18、Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters110Item 13-Certain Relationships and Related Transactions,and Director Independence110Item 14-Principal Accountant Fees and Services110PART IV111Item 15-Exhibits,Financial Statement Schedules111Item 16-Summary116SIG
19、NATURES117Table of ContentsAs used in this Annual Report on Form 10-K,unless the context otherwise requires,references to Albertsons,the Company,ACI,we,us and our refer to Albertsons Companies,Inc.and,where appropriate,its consolidated subsidiaries.Our last three fiscal years consisted ofthe 52 week
20、s ended February 25,2023(fiscal 2022),the 52 weeks ended February 26,2022(fiscal 2021)and the 52 weeks ended February27,2021(fiscal 2020).Our next three fiscal years consist of the 52 weeks ending February 24,2024(fiscal 2023)and February 22,2025(fiscal 2024),and the 53 weeks ending February 28,2026
21、(fiscal 2025).PART ISPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K includes forward-looking statements within the meaning of the federal securities laws.The forward-looking statements include our current expectations,assumptions,estimates and projections about our b
22、usiness,our industry and the outcome ofthe Merger.They include statements relating to our future operating or financial performance which the Company believes to be reasonable atthis time.You can identify forward-looking statements by the use of words such as outlook,may,should,could,estimates,predi
23、cts,potential,continue,anticipates,believes,plans,expects,future and intends and similar expressions which are intended toidentify forward-looking statements.These statements are not guarantees of future performance and are subject to numerous risks and uncertainties which are beyond our control and
24、difficult to predict and could cause actual results to differ materially from the results expressed or implied by the statements.Risks anduncertainties that could cause actual results to differ materially from such statements include:changes in macroeconomic conditions and uncertainty regarding the
25、geopolitical environment;rates of food price inflation or deflation,as well as fuel and commodity prices;change in market interest rates and wage rates;changes in retail consumer behavior,including in the digital space;ability to attract and retain qualified associates and negotiate acceptable contr
26、acts with labor unions;failure to achieve productivity initiatives,unexpected changes in our objectives and plans,inability to implement our strategies,plans,programs and initiatives,or enter into strategic transactions,investments or partnerships in the future on terms acceptable to us,or at all;un
27、certainties related to the Merger,including our ability to close the transactions contemplated by the Merger Agreement,and the impactof the costs related to the Merger;erosion of consumer confidence as a result of the Merger Agreement;litigation related to the transactions contemplated by the Merger
28、 Agreement;restrictions on our ability to operate as a result of the Merger Agreement;challenges in attracting,retaining and motivating our employees until the closing of the Merger;availability and cost of goods used in our food products;challenges with our supply chain;operational and financial ef
29、fects resulting from cyber incidents,including outages in the cloud environment and the effectiveness ofbusiness continuity plans during a ransomware or other cyber incident;andhealth epidemics and pandemics including the continued impact of the COVID-19 pandemic,about which there are still many unk
30、nownsand the extent of their impact on our business and the communities we serve including a significant reduction in the current levels ofrevenue from administering vaccines and providing test kits.4Table of ContentsAll forward-looking statements attributable to us or persons acting on our behalf a
31、re expressly qualified in their entirety by these cautionarystatements and risk factors.Forward-looking statements contained in this Annual Report on Form 10-K reflect our view only as of the date ofthis Annual Report.We undertake no obligation,other than as required by law,to update or revise any f
32、orward-looking statements,whether as aresult of new information,future events or otherwise.In evaluating our financial results and forward-looking statements,you should carefully consider the risks and uncertainties more fully describedin the section of this Annual Report on Form 10-K entitled Risk
33、Factors.Consequently,all of the forward-looking statements we make in thisAnnual Report on Form 10-K are qualified by the information contained in this section and the information discussed under Part IItem 1A.Risk Factors.SUMMARY RISK FACTORSThe following is a summary of the principal factors that
34、create risk in investing in our securities:Risks Related to Our Business and OperationsRisks related to:general economic conditions affecting the food and drug retail industry and various operating factors;strains related to COVID-19 or future pandemics;availability of energy to manufacture,store,tr
35、ansport and sell products;failure to realize anticipated benefits from our productivity initiatives;andimpact of environmental,social and governance matters,including inability to meet goals and commitments established in relation tosuch matters.Risks Related to the MergerRisks related to:the Merger
36、 Agreement and the pendency of the Merger;the ability to complete the Merger;restrictions on our business activities while the Merger Agreement is in effect;litigation related to the Merger;andsignificant delay or the failure to complete the Merger.Risks Related to Our IndustryRisks related to:inten
37、sity of the competition in our industry;our ability to timely identify or effectively respond to consumer trends;consolidation in the healthcare industry;andthe adequacy of our insurance to cover any claims against us.5Table of ContentsRisks Related to Our Supply ChainRisks related to:product and ra
38、w material supply disruptions,especially those to fresh products,including from severe weather,natural disasters andclimate changes;threats or potential threats to security of food and drug safety,including the occurrence of a widespread health epidemic and/orpandemic,and loss of confidence in the s
39、upply chain;andavailability and increased prices of fuel or commodities.Risks Related to Our WorkforceRisks related to:our relationship with unions,including labor disputes or work stoppages,and increased pension expenses,contributions and surcharges;increases to the minimum wage and changes to wage
40、 regulations;andthe failure to attract and retain qualified associates.Legal and Regulatory RisksRisks related to:unfavorable changes in government regulation and environmental laws;unfavorable changes in the tax code;legal or other proceedings;andour use of insurance and self-insurance to address p
41、otential liabilities.Risks Related to Information Security,Cybersecurity and Data PrivacyRisks related to:our dependence on IT systems;andimproper activities by third parties and the loss of confidence from a data security incident involving our customers,employees orvendors.Risks Related to Our Ind
42、ebtednessRisks related to:our level of indebtedness and our ability to generate cash;our debt instruments limiting our flexibility in operating our business;increases in interest rates,a downgrade of our credit ratings and/or instability in the credit market;andliability under certain operating leas
43、es that were assigned to third parties.Risks Related to Owning Our Common StockRisks related to:the volatility of the price of our common stock and the possibility of a decline regardless of our operating performance;our largest stockholder may have conflicts of interest with other stockholders in t
44、he future;6Table of Contentsprovisions in our charter documents and certain other agreements that could delay or prevent a change of control;the limit on our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors,officers or otheremployees;our ability to pay
45、dividends to our stockholders;andthe dilution to our stockholders by the future issuance of additional common stock in connection with our equity incentive plans,acquisitions or otherwise.See Part IItem 1A.Risk Factors for a more complete discussion of the material risks facing our business.NON-GAAP
46、 FINANCIAL MEASURESWe define EBITDA as generally accepted accounting principles(GAAP)earnings(net loss)before interest,income taxes,depreciation andamortization.We define Adjusted EBITDA as earnings(net loss)before interest,income taxes,depreciation and amortization,further adjusted toeliminate the
47、effects of items management does not consider in assessing our ongoing core performance.We define Adjusted net income asGAAP net income adjusted to eliminate the effects of items management does not consider in assessing our ongoing core performance.Wedefine Adjusted net income per Class A common sh
48、are as Adjusted net income divided by the weighted average diluted Class A common sharesoutstanding,as adjusted to reflect all restricted stock units and awards outstanding for the period,as well as the conversion of ConvertiblePreferred Stock when it is antidilutive for GAAP.See Part IIItem 7.Manag
49、ements Discussion and Analysis of Financial Condition andResults of Operations for further discussion and a reconciliation of Adjusted EBITDA,Adjusted net income and Adjusted net income per ClassA common share.EBITDA,Adjusted EBITDA,Adjusted net income and Adjusted net income per Class A common shar
50、e(collectively,the Non-GAAPMeasures)are performance measures that provide supplemental information we believe is useful to analysts and investors to evaluate ourongoing results of operations,when considered alongside other GAAP measures such as net income,operating income,gross margin and netincome
51、per Class A common share.These Non-GAAP Measures exclude the financial impact of items management does not consider inassessing our ongoing core operating performance,and thereby provide useful measures to analysts and investors of our operating performanceon a period-to-period basis.Other companies
52、 may have different definitions of Non-GAAP Measures and provide for different adjustments,andcomparability to our results of operations may be impacted by such differences.We also use Adjusted EBITDA for board of director and bankcompliance reporting.Our presentation of Non-GAAP Measures should not
53、 be construed as an inference that our future results will be unaffectedby unusual or non-recurring items.Non-GAAP Measures should not be considered as measures of discretionary cash available to us to invest in the growth of our business.Wecompensate for these limitations by relying primarily on ou
54、r GAAP results and using Non-GAAP Measures only for supplemental purposes.7Table of ContentsItem 1-BusinessOverviewAlbertsons is one of the largest food and drug retailers in the United States,with both strong local presence and national scale.We alsomanufacture and process some of the food for sale
55、 in our stores.We maintain a website(www.A)that includesadditional information about the Company.We make available through our website,free of charge,our annual reports on Form 10-K,ourquarterly reports on Form 10-Q,our current reports on Form 8-K and our interactive data files,including amendments
56、to those reports.Theseforms are available as soon as reasonably practicable after we have filed them with,or furnished them electronically to,the Securities andExchange Commission(SEC).Additionally,all of our filings with the SEC can be accessed on the SECs website at www.sec.gov.Retail OperationsAs
57、 of February 25,2023,we operated 2,271 stores across 34 states and the District of Columbia under 24 banners including Albertsons,Safeway,Vons,Pavilions,Randalls,Tom Thumb,Carrs,Jewel-Osco,Acme,Shaws,Star Market,United Supermarkets,Market Street,Haggen,KingsFood Markets and Balduccis Food Lovers Mar
58、ket.Additionally,as of February 25,2023,we operated 1,722 pharmacies,1,328 in-store brandedcoffee shops,401 adjacent fuel centers,22 dedicated distribution centers,19 manufacturing facilities and various digital platforms.Our storesoperate in First-and-Main retail locations and have leading market s
59、hare within attractive and growing geographies.We hold a#1 or#2 positionby market share in 69%of the 121 metropolitan statistical areas(MSAs)in which we operate.Our portfolio of well-located,full-service storesprovides the foundation of our omnichannel platform,and we have continued to enhance our c
60、apabilities to meet customer demand forconvenience and flexibility.Our Drive Up&Go curbside pickup service is offered in nearly 2,200 locations and we offer delivery servicesacross more than 2,000 of our stores.In our delivery service,we have expanded the number of stores with in-house delivery serv
61、ices,and in ourthird-party services we have continued to partner with Instacart,DoorDash and Uber to engage with customers on the platform of their choice.Infiscal 2022,we rolled out our Customers for Life transformation strategy,which is anchored on placing the customer at the center of everythingw
62、e do,with the ultimate goal of supporting them every day,every week,and for a lifetime.We seek to tailor our offerings to local demographicsand preferences of the markets in which we operate.Our Locally Great,Nationally Strong operating structure empowers decision making at thelocal level,which we b
63、elieve better serves our customers and communities,while also providing the technology platforms,systems,analyticsand buying power afforded by an organization with national scale.SegmentsWe are engaged in the operation of food and drug retail stores that offer grocery products,general merchandise,he
64、alth and beauty care products,pharmacy,fuel and other items and services in our stores or through digital channels.Our retail operating divisions are geographically based,have similar economic characteristics and similar expected long-term financial performance.Our operating segments and reporting u
65、nits aremade up of 12 divisions,which are reported in one reportable segment.Each reporting unit constitutes a business for which discrete financialinformation is available and for which management regularly reviews the operating results.Across all operating segments,the Company operatesprimarily on
66、e store format.Each division offers,through its stores and digital channels,the same general mix of products with similar pricing tosimilar categories of customers,has similar distribution methods,operates in similar regulatory environments and purchases merchandise fromsimilar or the same vendors.8
67、Table of ContentsProductsOur stores offer grocery products,general merchandise,health and beauty care products,pharmacy,fuel and other items and services.We are notdependent on any individual supplier;only one third-party supplier represented more than 5%of our sales for fiscal 2022.Merchandising an
68、d ManufacturingOur Own Brands portfolio provides high-quality products to our customers at a great value,offering nearly 14,000 unique items.The OwnBrands portfolio includes but is not limited to the registered trademarks Signature SELECT,O Organics,Open Nature,Signature Caf,Lucerne,Waterfront BISTR
69、O,Primo Taglio,Signature Care,Signature Reserve and Value Corner.Our Own Brands productsresonate well with our shoppers,as evidenced by Own Brands sales of over$16.5 billion in fiscal 2022.Own Brands continues to deliver oninnovation with 375 new items launched in fiscal 2022.As measured by units fo
70、r fiscal 2022,10.2%of our Own Brands products were manufactured in Company-owned facilities,and the remainderwas purchased from third parties.We closely monitor make-versus-buy decisions on internally sourced products to optimize their quality andprofitability.In addition,we believe that our scale w
71、ill provide opportunities to leverage our fixed manufacturing costs in order to driveinnovation across our Own Brands portfolio.As of February 25,2023,we operated 19 food production plants.These plants consisted of sevenmilk plants,three soft drink bottling plants,three bakery plants,two ice cream p
72、roduct plants,two grocery/prepared food plants,one ice plantand one soup plant.Intellectual PropertyOur banners,brand image and Own Brands portfolio are significant to our business strategy.We own numerous registered trademarks andservice marks and seek to obtain and preserve intellectual property p
73、rotection of our marks and to ensure that any third party uses are properlylicensed.DistributionAs of February 25,2023,we operated 22 strategically located distribution centers,approximately 36%of which are owned or ground-leased.Our distribution centers collectively provide approximately 66%of all
74、products to our retail operating areas.Marketing and AdvertisingOur marketing efforts involve collaboration between our national marketing and merchandising team and local divisions and stores.We augmentthe local division teams with corporate resources and are focused on providing expertise,sharing
75、best practices and leveraging scale inpartnership with leading consumer packaged goods vendors.Our corporate teams support divisions by providing strategic guidance in order todrive key areas of our business,including pharmacy,general merchandise and our Own Brands.Our local marketing teams set bran
76、d strategyand communicate brand messages through our integrated digital and physical marketing and advertising channels.We devote significant resources to differentiating our banners in the local markets where we operate and invest in loyalty programs to drivetraffic.Our local merchandising teams sp
77、end considerable time working with store directors to make sure we are satisfying consumerpreferences.We also strive to achieve and maintain favorable recognition of our Own Brands offerings by marketing these offerings toconsumers and enhancing value for consumers,particularly in respect of branded
78、 products.9Table of ContentsWe maintain price competitiveness through systematic,selective and thoughtful price investment to drive customer traffic and basket size.Wealso use our loyalty program to target promotional activity and improve our customers experience.This includes leveraging customer an
79、dtransaction information with data driven analytics to provide both personalized deals and digital coupons,as well as gas and grocery rewards.Wehave more than 34 million members currently enrolled in our loyalty program.We have achieved significant success with active participants inour loyalty prog
80、ram,which drives higher sales and customer retention.We have recently deployed and are continuing to refine cloud-basedenterprise solutions to quickly process proprietary customer,product and transaction data and efficiently provide our local managers withtargeted marketing strategies for customers
81、in their communities.In addition,we use data analytics to optimize shelf assortment and space in ourstores by continually and systematically reviewing the performance of each product.In digital,we capitalize on our rich and proprietary data under Albertsons Media Collective(AMC).AMC offers new and e
82、xisting businesspartners a robust digital marketing platform that reaches our extensive customer network and leverages our strong market share,especially in the69%of markets where we hold a#1 or#2 share position.We believe AMC will be a contributor to our growth and profit driver in the future.Raw M
83、aterialsVarious agricultural commodities constitute the principal raw materials used by us in the manufacture of our food products.Although historicallyraw materials for our products have not been in short supply and have been readily available,see Part IItem 1A.Risk Factors regarding thepotential a
84、dverse impact on our results of operations due to the lack of,or reduced availability of,raw materials.EnvironmentalOur operations are subject to regulation under environmental laws,including those relating to waste management,air emissions and undergroundstorage tanks.In addition,as an owner and op
85、erator of commercial real estate,we may be subject to liability under applicable environmentallaws for clean-up of contamination at our facilities.Compliance with,and clean-up liability under,these laws has not had and is not expected tohave a material adverse effect upon our business,financial cond
86、ition,liquidity or operating results.We work hard to maintain the highest standards of environmental stewardship(including procuring and offering sustainably sourced products).During fiscal 2022,we recycled more than 850 million pounds of cardboard and 27 million pounds of plastic bags and film from
87、 our operationsand completed over 1,100 energy efficiency projects.Moreover,100%of our Own Brands Waterfront BISTRO and Open Nature seafood issourced to meet our Responsible Seafood Policy.Human CapitalServing 34.7 million customers per week,our associates are a key component of our success.As one o
88、f the largest food and drug retailers in theU.S.,we recognize that our ability to delight our customers lies in the engagement of our associates.To attract,develop and retain associates,weare committed to fostering a diverse and inclusive culture,investing in talent development and supporting the pe
89、rsonal health and well-being ofassociates and their families.10Table of ContentsEmployeesAs of February 25,2023,we employed approximately 290,000 associates,of which approximately 63%were part-time and approximately200,000 associates were covered by collective bargaining agreements.We take pride in
90、the long tenure of a significant number of our associatesand during fiscal 2022,more than 63,000 of our associates celebrated at least 15 years of service,and more than 44,000 of them celebrated over20 years of service.Our commitment to our purpose and values continues to shape our approach to attra
91、cting,retaining,engaging and developing a highly skilledand ethical workforce,who set us apart and bring these values to life on a daily basis.ACI Purpose and ValuesIn 2022,we cemented our Companys purpose:To bring people together around the joys of food and to inspire well-being.This ties to ourCom
92、panys ambition to earn customers for life.To fulfill our purpose and achieve our ambition,we are guided by our Companys values,which are set in our commitment to care.One of these values We Put People First grounds us in our belief that our associates are theconnection to our customers and communiti
93、es.We care for their well-being and invest in their personal and professional growth.We believe thata diverse and inclusive workforce is built on a foundation of courtesy,dignity and respect.Our people passionately serve our customers andcommunities and are the heart and soul of our Company.We value
94、 and invest in them as individuals,associates,and also as the connection thatdrives our business.By putting people first,we build a more meaningful,less transactional relationship with our associates,and dedicate ourresources and energy to their professional growth.Starting in mid-2022,we began a co
95、mpany-wide effort to enroll each associate in Living Our Purpose.Through leader-led sessions,ourassociates are committing to live by our values better.Recognition programs have been aligned to our values,and team meetings and town hallevents feature panel discussions about living our values.In addit
96、ion,initiatives have been positioned with objectives tied to our ambition andpurpose.Diversity,Equity and InclusionDuring fiscal 2022,we continued to put people first and have remained committed to creating a workplace where inclusion thrives throughdiverse representation across all levels of our wo
97、rkforce.We strive to reflect the rich diversity of communities we serve and foster a culture ofbelonging that embraces differences.Our commitment to diversity,equity and inclusion(DE&I)is a core element of our philosophy and we strive to embed it in our peoplepractices.We believe in a diverse and in
98、clusive workplace that fosters personal growth,develops talent and offers career opportunities.To enablean inclusive and welcoming culture among our associates,we support our associate resource groups(ARGs).The ARGs,collectivelycomprising over 5,000 members,are based on employee interests and are op
99、en to all associates in the corporate and division offices,and fieldleadership in our retail stores and supply chain facilities.During fiscal 2022,we added our newest ARG-diverseABILITY-an ARG focused on driving disability inclusion for people with diverseabilities,their caretakers,and allies,to our
100、 existing ARGs,which include the Womens Inspiration and Inclusion Network(WIIN),the HispanicLeadership Network,the Asian Network,the African American Leadership Council,the Pride Alliance,Green Team,and the Veterans AssociateResource Group.We also have the Albertsons ARG Mentorship Program which is
101、designed to support the talent development objective of ourDE&I strategic framework and create a space that allows associates to form a valuable partnership based on commitment to growth anddevelopment.We are proud to be one of the first national grocery chains to join the Business Coalition for the
102、 Equality Act,a group of leading U.S.employersthat support the federal Equality Act.11Table of ContentsWe are also a signatory to the CEO Action for Diversity&Inclusion.This CEO pledge is an external commitment to remain focused oncultivating a workplace that supports open dialogue on complex and so
103、metimes difficult discussions,which we hope to accomplish throughexisting conversation forums.We are also committed to facilitating the exchange of actions and do so through our participation in various ChiefDiversity Officer roundtable forums.As part of our ongoing commitment,we have integrated DE&
104、I goals into the performance plans of our top leaders and during fiscal 2022 wehave trained over 15,000 leaders through our Leading with Inclusion sessions.We continue to expand opportunities for our associates to learnmore about DE&I,including facilitated discussions of leaders on how to be more in
105、clusive,and bi-annual store and supply chain huddles tofurther embed DE&I into our frontline,complemented by online modules that are shared monthly.We have formed a National Diversity Councilthat is chaired by our CEO,to advance DE&I within our Company.In addition,each of our 12 operating divisions
106、have Diversity Councils andwe have individual councils for our Technology&Engineering,Digital&Consumer and Supply Chain departments.Talent,Learning&Development and EngagementWe are proud to offer our associates a myriad of opportunities to grow and advance their careers.We have a talent management p
107、rocess that isdesigned to enable us to identify and assess talent across the organization and provide equal and consistent opportunities for employees todevelop their skills.Several levels of associates participate in our annual performance management process that includes goal setting,feedbackand d
108、evelopment in order to support their personal growth and development.We actively engage associates across the organization to provideregular input.This includes focus groups,working directly with associates in our stores,ad hoc surveys and our annual associate experiencesurvey that is available to a
109、ll associates.We also offer formal and informal learning and development opportunities to all associates through synchronous,asynchronous and hybridexperiences.These offerings include eLearning and on-demand content,virtual and in-person classes,on-the-job training,virtual reality,mentoring programs
110、 and more.By offering differentiated learning solutions,we meet our associates where they are in their development toprovide the support they need to perform in their current roles and prepare for future opportunities.During fiscal 2022,our in-store and officeassociates together completed more than
111、four million courses through various platforms.We also launched two enterprise-wide programs thatfocus on enhancing the capabilities of our leaders.First,our Assistant Store Directors Training program is a 10-week immersive program thatprepares high potential frontline supervisors for the next step
112、in their career through business and industry-specific experiential learning.Second,our Foundational Leadership Skills curriculum was designed for all people leaders to develop their leadership skills through self-study andinstructor-led workshops.We have also partnered with industry associations to
113、 provide access to relevant continuing retail education opportunities through colleges aroundthe country.We value engagement and hold regular Town Hall meetings where any employee can ask questions of executives and make their voice heard.Leaders recognize individuals and teams through programs spec
114、ific to their area of the Company such as spot award cards that include storecredits for future purchases,quarterly programs like our Pharmacy teams Elevate awards,and recognition of milestone anniversaries andcompletion of certifications and continuing education courses all rooted in recognizing ou
115、tstanding team members who are living our purposeand values.Corporate teams feature recognition recipients during town halls,and our weekly newsletter for associates includes stories aboutassociates doing great things for each other,our customers and our communities.12Table of ContentsWell-BeingIn a
116、ddition to our efforts to create a vibrant work environment grounded in DE&I,we are continually evaluating and developing ourcompensation and benefits programs to offer competitive wages and job-appropriate compensation.Our benefits are designed to attract andretain our employees and vary from locat
117、ion,seniority and employment status.In addition to comprehensive,accessible and affordablehealthcare coverage,we offer paid time off,flexible work schedules,family leave,associate assistance programs and a 401(k)-retirement savingsand investment plan with Company matching.Additionally,we seek to man
118、age our collective bargaining agreements through active negotiationswith union officials to best provide our employees fair wages,comprehensive retirement packages and other benefits.We have also launched a series of programs and initiatives to provide support to our associates and their families ou
119、tside of work,including adigital platform designed to provide associates with support for anxiety,depression and stress,a program to support parents and caregivers ofchildren with developmental disabilities,and a program to support associates and eligible family members in the event of a cancer diag
120、nosis.The health and safety of our associates remains at the forefront of our business,and we remain committed to the prevention of injury and illnessthrough strong health and safety management,employee empowerment and accountability,and strict compliance with health and safetyregulations.We are als
121、o focused on fostering a safe,open and accountable work environment and we provide a hotline for all associates to reportworkplace concerns and violations.In addition to caring for the well-being of our associates,we seek to support the communities we serve.During fiscal 2022,along with theAlbertson
122、s Companies Foundation,we contributed more than$200 million in food and financial support,including more than$40 millionthrough our Nourishing Neighbors program to ensure those living in our communities and those impacted by disasters have enough to eat.SeasonalityOur business is generally not seaso
123、nal in nature,but a larger share of annual revenues may be generated in November and December due to themajor holidays.Competitive EnvironmentThe food and drug retail industry is highly competitive.The principal competitive factors that affect our business are location,price,quality,service,selectio
124、n,convenience and condition of assets such as our stores.The operating environment for the food and drug retailing industrycontinues to be characterized by intense competition,aggressive expansion,increasing specialization of retail and digital formats,entry of non-traditional competitors and consol
125、idation.We face intense competition from supercenters,other food and/or drug retailers,club stores,online retailers,specialty and niche supermarkets,limited assortment stores,drug stores,general merchandisers,wholesale stores,dollar and discount stores,convenience stores,natural foodstores,farmers m
126、arkets,local chains and stand-alone stores that cater to the individual cultural preferences of specific neighborhoods,restaurants and a growing number of internet-based home delivery and meal solution companies.We and our competitors engage in price andnon-price competition which,from time to time,
127、has adversely affected our operating margins.13Table of ContentsExecutive Officers of the RegistrantThe following table sets forth information regarding our executive officers as of April 25,2023:NameAgePositionVivek Sankaran60Chief Executive Officer and DirectorSharon McCollam60President and Chief
128、Financial OfficerAnuj Dhanda60Executive Vice President and Chief Information OfficerOmer Gajial49Executive Vice President of Health and Chief Digital OfficerSusan Morris54Executive Vice President and Chief Operations OfficerKelly Griffith59Executive Vice President of Retail Operations,West RegionMic
129、helle Larson46Executive Vice President of Retail Operations,East RegionJuliette Pryor58Executive Vice President,General Counsel and SecretaryEvan Rainwater60Executive Vice President,Supply Chain and ManufacturingJennifer Saenz45Executive Vice President and Chief Merchandising OfficerMichael Theilman
130、n59Executive Vice President and Chief Human Resources OfficerVivek Sankaran has served as our Chief Executive Officer and Director since September 2021,and our Chief Executive Officer,President andDirector since April 2019.Prior to joining the Company,since 2009 Mr.Sankaran served in various leaders
131、hip and executive positions atPepsiCo,Inc.(PepsiCo),a multinational food,snack,and beverage corporation.From January to March 2019,he served as Chief ExecutiveOfficer of PepsiCo Foods North America,a business unit within PepsiCo,where he led PepsiCos snack and convenient foods business.Prior tothat
132、position,Mr.Sankaran served as President and Chief Operating Officer of Frito-Lay North America,a subsidiary of PepsiCo,from April2016 to December 2018,its Chief Operating Officer from February to April 2016 and Chief Commercial Officer,North America,of PepsiCofrom 2014 to February 2016,where he led
133、 PepsiCos cross-divisional performance across its North American customers.Prior to joining PepsiCoin 2009,Mr.Sankaran was a partner at McKinsey and Company,where he served various Fortune 100 companies,bringing a strong focus onstrategy and operations.Sharon McCollam has served as our President and
134、 Chief Financial Officer since September 2021.Ms.McCollam previously served as ExecutiveVice President,Chief Administrative and Chief Financial Officer at Best Buy Co.Inc.(Best Buy),a multinational consumer electronicsretailer,from 2012 to 2016.Prior to Best Buy,Ms.McCollam held several transformati
135、onal leadership positions at Williams-Sonoma,Inc.,aconsumer retail company,from 2000 to 2012,including Chief Operating and Chief Financial Officer from 2006 to 2012.Anuj Dhanda has served as our Executive Vice President and Chief Information Officer since December 2015.Prior to joining the Company,M
136、r.Dhanda served as Senior Vice President of Digital Commerce of the Giant Eagle supermarket chain from March to December 2015,and as itsChief Information Officer from September 2013.Prior to Giant Eagle,from March 2008 to August 2013,Mr.Dhanda served as ChiefInformation Officer of PNC Financial Serv
137、ices,a bank holding company and financial services corporation.Omer Gajial has served as our Executive Vice President of Health and Chief Digital Officer since August 2022,as our Executive Vice Presidentof Pharmacy and Health since February 2022 and as our Senior Vice President,Rx Health and Wellnes
138、s since September 2020.Prior to joiningthe Company,from January 2016 until August 2020,Mr.Gajial was the General Manager for Amazon Marketplace business,an e-commerceplatform owned and operated by Amazon,across Hardlines,Softlines,and Consumables categories for the U.S.,Canada,and Mexico.AtAmazon Mr
139、.Gajial led sales,business development,product,program,and fulfillment teams to launch strategic sellers into North America.Priorto Amazon,from July 2000 until December 2015,Mr.Gajial held several14Table of Contentspositions of increasing responsibility at PepsiCo in Dubai and New York,before being
140、named VP Global Strategy,Category Management&Insights for PepsiCos Walmart Customer team.Susan Morris has served as our Executive Vice President and Chief Operations Officer since January 2018.Ms.Morris has served in variousexecutive positions at the Company since 2010 including serving as our Execu
141、tive Vice President,Retail Operations,West Region from April2017 to January 2018 and Executive Vice President,Retail Operations,East Region from April 2016 to April 2017.Prior to joining theCompany,Ms.Morris served as Senior Vice President of Sales and Merchandising and Vice President of Customer Sa
142、tisfaction at SuperValu.Kelly Griffith has served as our Executive Vice President of Retail Operations,West Region since March 2022 and previously as Executive VicePresident of Operations from January 2015 to April 2016.Mr.Griffith also served in various executive positions at Safeway prior to its m
143、ergerwith the Company in 2015 and various other roles dating back to 1980.Michelle Larson has served as our Executive Vice President of Retail Operations,East Region since March 2023 and our Southwest and ShawsDivision President since 2018.Ms.Larson first joined the Company in 2016 as Senior Vice Pr
144、esident of Merchandising,Southwest.Juliette Pryor has served as our Executive Vice President and General Counsel since June 2020.Prior to joining the Company,since October2016,Ms.Pryor served as senior vice president,general counsel and corporate secretary for Cox Enterprises,Inc.(COX),a leadingcomm
145、unications and automotive services company.Prior to COX,from February 2009 to October 2016,Ms.Pryor served as executive vicepresident,general counsel and chief compliance officer for US Foods,Inc.,a leading U.S.foodservice distributor.Evan Rainwater has served as our Executive Vice President,Supply
146、Chain and Manufacturing since March 2020 and our Senior Vice President,Supply Manufacturing since May 2019.Mr.Rainwater joined the Company in May 2005 as Vice President,Manufacturing.Jennifer Saenz has served as our Chief Merchandising Officer since July 2021.Prior to joining the Company,since 2006,
147、Ms.Saenz served inseveral executive positions at PepsiCo.From October 2019 until July 2021,Ms.Saenz served as Global Chief Marketing Officer for PepsiCo,and President,Global Foods,responsible for overseeing the marketing function across foods and beverages and growing the PepsiCo Foodsportfolio acro
148、ss all global markets.From January 2016 to October 2019 Ms.Saenz served as Senior Vice President&Chief Marketing Officer ofPepsiCo Foods North America where she managed the business units snacking portfolio.Michael Theilmann has served as our Executive Vice President and Chief Human Resources Office
149、r since August 2019.Prior to joining theCompany,Mr.Theilmann served as Global Practice Managing Partner,Human Resources Officers Practice,from February 2018 to August 2019,and as Partner,Consumer Markets Practice,from June 2017 to January 2018,of Heidrick&Struggles International Incorporated,a world
150、wideexecutive search firm.Item 1A-Risk FactorsThere are risks and uncertainties that can affect our business.The most significant risk factors are discussed below.The following informationshould be read together with Part IIItem 7.Managements Discussion and Analysis of Financial Condition and Result
151、s of Operations of thisForm 10-K,which includes forward-looking statements and factors that could cause us not to realize our goals or meet our expectations.15Table of ContentsRisks Related to Our Business and OperationsGeneral economic conditions affecting the food and drug retail industry and vari
152、ous operating factors may affect our business and mayadversely affect our business and operating results.Our operations and financial performance are affected by economic conditions such as macroeconomic factors,credit market conditions and thelevel of consumer confidence.Both inflation and deflatio
153、n affect our business.Food deflation could reduce sales growth and earnings,whilefood inflation could reduce gross margin rates and consumer spending.We have observed increased inflation during the past year with varyingimpacts on our business.We are unable to predict the direction of the economy or
154、 if inflation will increase materially or revert to deflation.Thecontinued increase in energy costs,including fuel,could also have an effect on consumer spending and on our costs of producing and procuringproducts that we sell.If the economy weakens,energy costs continue to increase or inflationary
155、trends continue,our business and operatingresults could be adversely affected.We may also experience materially adverse impacts to our business as a result of consumers perceptions ofthe economy,and a decrease in their personal financial condition could hurt overall consumer confidence and reduce de
156、mand for many of ourproduct offerings.Consumers may reduce spending on non-essential items,purchase value-oriented products or increasingly rely on fooddiscounters in an effort to secure the food and drug products that they need,all of which could impact our sales and profit.We compete within our in
157、dustry not only for customers,but also for management and hourly employees.Since the beginning of the COVID-19pandemic,we have faced a competitive labor market due to labor shortages and turnover.Our inability to keep pace with technological changesmay adversely impact our business initiatives and a
158、ffect our financial performance.Our success is also dependent in large part upon our abilityto maintain and enhance the goodwill and reputation of our banners,our customers connection to our banners,and a positive relationship withthe communities in which we serve.Additionally,acts of violence at,or
159、 threatened against,our stores,including active shooter situations,may,in addition to other operational impact,result in damage and restricted access to our stores and/or store closures for short or extended periods oftime,all of which could materially adversely affect our financial performance.Stra
160、ins related to COVID-19 or future pandemics may have an adverse effect on our business,financial condition and results of operations.Spread of variants related to COVID-19 or future pandemics and the measures taken in response could adversely impact our business,financialcondition and results of ope
161、rations and heighten many of the other risks described throughout this report,including but not limited to thoserelating to our growth strategy,supply chain,increased food and labor costs,availability of labor,disruption in operations,loss of keyemployees,our indebtedness,and general economic condit
162、ions.We may also experience a negative impact from government mandatedrestrictions and community response measures which may disrupt our business and thus negatively impact our financial results.Our operations are dependent upon the availability of a significant amount of energy and fuel to manufact
163、ure,store,transport and sellproducts.Our operations are dependent upon the availability of a significant amount of energy and fuel to manufacture,store,transport and sell products.Energy and fuel costs are influenced by domestic and international political and economic circumstances and have experie
164、nced volatility bothrecently and over time.To reduce the impact of volatile energy costs,we have entered into contracts to purchase electricity and natural gas atfixed prices to satisfy a portion of our future energy needs.We also manage our exposure to changes in energy prices utilized in the shipp
165、ingprocess through the use of short-term diesel fuel derivative contracts.Volatility in fuel and energy costs that exceeds offsetting contractualarrangements could adversely affect our results of operations.16Table of ContentsFailure to realize anticipated benefits from our productivity initiatives
166、could adversely affect our financial performance and competitiveposition.Although we have identified and are still implementing a broad range of specific productivity initiatives to help offset cost inflation,fuel growthand drive earnings,there can be no assurance that all of our initiatives will be
167、 successful or that we will realize the estimated benefits in thecurrently anticipated amounts or timeframe,if at all.Certain of these initiatives involve significant changes in our operating processes andsystems that could result in disruptions in our operations.The savings from these planned produ
168、ctivity initiatives represent managementsestimates and remain subject to risks and uncertainties.The actual benefits of our productivity initiatives,if achieved,may be lower than weexpect and may take longer than anticipated.We may be adversely impacted by environmental,social and governance matters
169、,including inability to meet goals and commitments that weestablish in relation to such matters.In recent years,there has been an increased focus from investors,governmental and nongovernmental entities,and the public on environmental,social and governance(ESG)matters,including greenhouse gas emissi
170、ons,renewable energy,packaging and waste,practices related tosustainable supply chain,energy and water use,diversity,equity and inclusion,human rights and social commitment.A variety of organizationsevaluate,and measure the performance of,companies on such ESG matters,and the results of these assess
171、ments can be widely publicized.Givenour commitment to ESG,we have established and publicly announced certain goals,commitments,and targets which we may refine or evenexpand further in the future.Execution of our ESG strategies to achieve these goals,commitments,and targets are subject to risks andun
172、certainties,many of which may be outside of our control and prove to be more costly than we anticipate.These risks and uncertainties include,but are not limited to,our ability to achieve our goals,commitments,and targets within the currently projected costs and the expectedtimeframes;unforeseen oper
173、ational and technological difficulties;the outcome of research efforts and future technology developments;and thesuccess of our collaborations with third parties.Any failure,or perceived failure,to achieve our ESG goals,commitments,and targets,the settingor publication of certain targets or the inte
174、nsity of our commitment to ESG initiatives could damage our reputation and customer,investor andother stakeholder relationships,and may even result in regulatory enforcement action.Such conditions could have an adverse effect on ourbusiness,results of operations and financial condition.Risks Related
175、 to the MergerThe Merger Agreement and the pendency of the Merger could have a material adverse effect on our business,results of operations,financialcondition and stock price.On October 13,2022 the Company,The Kroger Co.(Kroger or Parent)and Kettle Merger Sub,Inc.,a wholly owned subsidiary of Paren
176、t(Merger Sub),entered into an Agreement and Plan of Merger(the Merger Agreement),pursuant to which Merger Sub will be merged withand into the Company(the Merger),with the Company surviving the Merger as the surviving corporation and a direct,wholly ownedsubsidiary of Parent.The Merger Agreement cont
177、ains customary representations and warranties of the parties and is subject to the satisfaction ofvarious covenants and agreements,including,among others the expiration of the applicable waiting period under the Hart-Scott-Rodino AntitrustImprovements Act of 1976,as amended(HSR Act)and certain other
178、 approvals and clearances.During the period between the date of signing of the Merger Agreement and the closing of the Merger(the Closing),our business is exposed tocertain inherent risks due to the effect of the announcement or pendency of the Merger and the transactions contemplated by the Merger,
179、including the separation and establishment of SpinCo(as defined in Part IIItem 8.Financial Statements and Supplementary DataNOTE2),which may impact our business relationships,financial condition and operating results.Some of these risk factors include:17Table of Contentsdifficulties maintaining rela
180、tionships with customers,distributors,vendors,suppliers,service providers and other business partners,whomay defer decision about working with us,move to our competitors,seek to delay or change existing business relationships with us;uncertainties caused by negative sentiment in the marketplace with
181、 respect to the Merger,which could adversely impact investorconfidence in the Company;distraction of our current employees as a result of the announced Merger Agreement which could result in a decline in their productivityor cause distractions in the workplace;our inability to attract new employees
182、or retain current employees may be exacerbated due to uncertainties related to the Merger;the impact of litigation in respect of the Merger Agreement and the Merger;diversion of significant management time and resources towards the completion of the Merger and transactions related to the Merger;impa
183、ct of costs related to completion of the Merger and transactions related to the Merger,including any costs related to any divestituresfor which we are required to obtain regulatory approvals;our inability to solicit other acquisition proposals,pursue alternative business opportunities,make strategic
184、 changes to our business andother restrictions on our ability to conduct our business pursuant to the Merger Agreement;andother developments beyond our control,including,but not limited to,changes in domestic or global economic conditions that may affectthe timing or success of the Merger.The abilit
185、y to complete the Merger is subject to the receipt of consents and approvals from government entities,which may impose conditionsthat could cause us or Kroger to abandon the Merger.Completion of the Merger is conditioned upon,among other things,the expiration or termination of the required waiting p
186、eriod(and anyextension thereof)applicable to the Merger under the HSR Act,and any voluntary agreement with the United States Federal Trade Commission(FTC),or the Department of Justice Antitrust Division(DOJ).In deciding whether to grant antitrust approvals,the FTC or DOJ,and otherstate regulatory ag
187、encies will consider the effect of the Merger on competition and will likely condition their approval of the Merger on ourand/or Krogers agreement to various requirements,limitations,divestitures or impose restrictions on the conduct of the combined entitysbusiness following the Merger.We cannot pro
188、vide any assurance that we or Kroger will obtain the necessary approvals to complete the Merger.In addition,these requirements,limitations,divestitures,or restrictions may result in the delay or abandonment of the Merger.At any time before or after completion of the Merger,notwithstanding the termin
189、ation or expiration of the waiting period under the HSR Act,theFTC or DOJ or any other state regulatory agency could take such action under the antitrust laws as it deems necessary or desirable in the publicinterest,including seeking to enjoin the completion of the Merger,seeking divestiture of subs
190、tantial assets of us and/or Kroger,or requiring us orKroger to agree to other remedies or requirements.We cannot be certain that a legal challenge to the Merger will not be made or that,if a legalchallenge is made,we or Kroger will prevail.Failure to prevail in any legal challenge to the Merger may
191、result in the delay or abandonment ofthe Merger.While the Merger Agreement is in effect,we are subject to restrictions on our business activities.While the Merger Agreement is in effect,we are generally required to conduct our business in the ordinary course consistent with past practicesbut are res
192、tricted from taking certain actions without Krogers prior consent,which is not to be unreasonably withheld,conditioned or delayed.These limitations include,among other things,certain restrictions on our ability to amend our organizational documents,acquire other businessesand assets,dispose of our a
193、ssets,make investments,repurchase,reclassify or issue securities,make loans,pay dividends,incur indebtedness,make capital expenditures,enter into,amend or terminate certain contracts,change accounting18Table of Contentspolicies or procedures,initiate or settle certain litigation,change tax classific
194、ations and elections,or take certain actions relating to intellectualproperty.These restrictions could prevent us from pursuing strategic business opportunities and taking extraordinary actions with respect to ourbusiness during this period.Litigation related to the Merger could prevent or delay com
195、pletion of the Merger or otherwise negatively affect our businesses andoperations.Putative stockholder complaints,including stockholder class action complaints,demands for books and records and other complaints or actionsmay be filed against us,our board of directors,Kroger,Krogers board of director
196、s,and others in connection with the transactions contemplatedby the Merger Agreement.The outcome of litigation is uncertain,and we may not be successful in defending against any such future claims.Lawsuits that may be filed against us,our board of directors,Kroger,or Krogers board of directors could
197、 delay or prevent the Merger andotherwise adversely affect our business,results of operations,and financial condition.The Merger may not be completed within the expected timeframe,or at all,and significant delay or the failure to complete the Merger couldadversely affect our business.We cannot assur
198、e that our business,our relationships or our financial condition will not be adversely affected if the Merger is not consummatedwithin the expected timeframe,or at all.Failure to complete the Merger within the expected timeframe,or at all,could adversely affect ourbusiness and the market price of ou
199、r common stock in several ways,including the following:to the extent that the current market price of our common stock reflects an assumption that the Merger will be completed,it may benegatively impacted because of a failure to complete the Merger within the expected timeframe or at all;investor an
200、d consumer confidence in our business could decline,litigation could be brought against us,relationships with vendors,service providers,investors and other business partners may be adversely impacted,and we may be unable to retain key personnel;we have incurred,and will continue to incur,significant
201、 costs,expenses and fees for professional services and other costs in connectionwith the Merger and the transactions contemplated by the Merger,for which we may receive little or no benefit if the Merger and thetransactions contemplated by the Merger are not completed.Many of these fees and costs wi
202、ll be payable by us even if the Merger andthe transactions contemplated by the Merger are not completed and may relate to activities that we would not have undertaken other thanto complete the Merger;andfailure to complete the Merger,may result in negative publicity and a negative impression of us i
203、n the investment community.The occurrence of any of these events individually or in combination could materially and adversely affect our business,results of operations,financial condition,and our stock price.If the Merger is not completed,there can be no assurance that these risks will not material
204、ize and willnot materially adversely affect our stock price,business,financial conditions,results of operations or cash flows.Risks Related to Our IndustryCompetition in our industry is intense,and our failure to compete successfully may adversely affect our profitability and operating results.The f
205、ood and drug retail industry is large and dynamic,characterized by intense competition among a collection of local,regional and nationalparticipants.In addition to new entrants to the market,we face strong competition from existing supercenters,other brick and mortar food and/ordrug retailers,club s
206、tores,dollar and discount stores,online retailers,specialty and niche supermarkets,drug stores,general merchandisers,wholesale stores,19Table of Contentsconvenience stores,natural food stores,farmers markets,local chains and stand-alone stores that cater to the individual cultural preferences ofspec
207、ific neighborhoods,restaurants,catering companies and home delivery and meal solution companies.Shifts in the competitive landscape,consumer preference or market share may have an adverse effect on our profitability and results of operations.As a result of consumers growing desire to shop online,we
208、also face increasing competition from both our existing competitors that haveincorporated the internet as a direct-to-consumer channel and online providers that sell grocery products.In addition,we face increasingcompetition from online distributors of pharmaceutical products.Although we have accele
209、rated the expansion of our digital business to offer ourcustomers the ability to shop online for both home delivery through a variety of delivery providers and Drive Up&Go curbside pickup,there isno assurance that these online initiatives will continue to be successful.In addition,these initiatives
210、may have an adverse impact on ourprofitability as a result of lower gross margins or greater operating costs to compete.Our ability to attract customers is dependent,in large part,upon a combination of channel preference,location,store conditions,quality,price,service,convenience and selection.In ea
211、ch of these areas,traditional and non-traditional competitors compete with us and may successfullyattract our customers by matching or exceeding what we offer or by providing greater shopping convenience.In recent years,many of ourcompetitors have aggressively added locations and adopted a multi-cha
212、nnel approach to marketing and advertising.Our responses to competitivepressures,such as additional promotions,increased advertising,additional capital investment including for development of our digital offeringsand retail media network,could adversely affect our profitability and cash flow.We cann
213、ot guarantee that our competitive response will succeedin increasing or maintaining our share of retail food sales.An increasingly competitive industry and,inflation and deflation in the prices of certain foods have made it difficult for food retailers to achievepositive identical sales growth on a
214、consistent basis.We and our competitors have attempted to maintain or grow our respective share of retailfood sales through capital and price investment,increased promotional activity and new and remodeled stores,creating a more difficultenvironment to consistently increase year-over-year sales.Some
215、 of our primary competitors are larger than us or have greater financial resourcesavailable to them and,therefore,may be able to devote greater resources to grow their share of retail food sales.Price investment by ourcompetitors has also,from time to time,adversely affected our operating margins.Ou
216、r continued success to effectively compete in the food retail industry is dependent upon our ability to control operating expenses,includingmanaging product and labor costs in an increasingly competitive labor market and health care and pension costs stipulated by our collectivebargaining agreements
217、.Several of our primary competitors are larger than we are,or are not subject to collective bargaining agreements,allowing them to more effectively leverage their fixed costs or more easily reduce operating expenses.Finally,we need to source,market andmerchandise efficiently.Changes in our product m
218、ix also may negatively affect our profitability.Failure to accomplish our objectives couldimpair our ability to compete successfully and adversely affect our profitability.Profit margins in the food retail industry are low.In order toincrease or maintain our profit margins,we develop operating strat
219、egies to increase revenues,increase gross margins and reduce costs,such asnew marketing programs,new advertising campaigns,productivity improvements,shrink-reduction initiatives,distribution center efficiencies,manufacturing efficiencies,energy efficiency programs and other similar strategies.Our fa
220、ilure to achieve forecasted revenue growth,grossmargin improvement or cost reductions could have a material adverse effect on our profitability and operating results.We may not timely identify or effectively respond to consumer trends,which could negatively affect our relationship with our customers
221、,thedemand for our products and services and our market share.Because we face intense competition,we need to effectively anticipate and respond to changing consumer preferences and demands.It isdifficult to predict consistently and successfully the products and services our customers will demand ove
222、r time.Our success depends,in part,onour ability to identify and respond to evolving20Table of Contentstrends in demographics and preferences.Failure to timely identify or effectively respond to changing consumer tastes,preferences(includingthose relating to sourcing or sustainability of product sou
223、rces or the packaging of such products)and spending patterns could lead us to offer ourcustomers a mix of products or a level of pricing that they do not find attractive.This could negatively affect our relationship with our customers,leading them to reduce their visits to our stores and the amount
224、they spend.Further,while we have significantly expanded our digital capabilitiesand grown our loyalty programs over the last several years,as technology advances,and as the way our customers interact with technologychanges,we will need to continue to develop and offer digital,loyalty and media solut
225、ions that are both cost effective and compelling to ourcustomers.Our failure to anticipate or respond to customer expectations for products,services,digital and loyalty programs would adverselyaffect the demand for our products and services and our market share and could have an adverse effect on ou
226、r financial performance,marginsand operating income.Consolidation in the healthcare industry could adversely affect our business and financial condition.Many organizations in the healthcare industry have consolidated to create larger healthcare enterprises with greater market power,which hasresulted
227、 in increased pricing pressures.If this consolidation trend continues,it could give the resulting enterprises even greater bargaining power,which may lead to further pressure on the prices for our pharmacy products and services.If these pressures result in reductions in our prices,wewill become less
228、 profitable unless we are able to achieve corresponding reductions in costs or develop profitable new revenue streams.Weexpect that market demand,government regulation,third-party reimbursement policies,government contracting requirements,litigation andsocietal pressures will continue to cause the h
229、ealthcare industry to evolve,potentially resulting in further business consolidations and alliancesamong the industry participants we engage with,which may adversely impact our business,financial condition and results of operations.Certain risks are inherent in providing pharmacy products and servic
230、es,and our insurance may not be adequate to cover any claims againstus.We currently operate 1,722 pharmacies.As a result,we are exposed to risks inherent in the packaging,dispensing,display,distribution anddisposal of pharmaceuticals and other healthcare products,including risks of liability for pro
231、ducts such as opioids.Although we maintaininsurance against such liabilities,we cannot guarantee that the coverage limits under our insurance programs will be adequate to protect usagainst future claims,or that we will be able to maintain this insurance on acceptable terms in the future,or at all fo
232、r healthcare andpharmaceutical liabilities.Our results of operations,financial condition or cash flows may be materially adversely affected if in the future ourinsurance coverage proves to be inadequate or unavailable,or there is an increase in the liability for which we self-insure,or we suffer har
233、m toour reputation as a result of an error or omission.Also,our business operations and operating results could be materially adversely impacted bylegislative,enforcement,regulatory,judicial and public policy changes.We are subject to numerous federal and state regulations.Each of our in-store pharm
234、acies must be licensed by the respective state government.The licensing requirements vary from state to state.An additional registration certificate must be granted by the U.S.Drug EnforcementAdministration,and,in some states,a separate controlled substance license must be obtained to dispense contr
235、olled substances.In addition,pharmacies selling controlled substances are required to maintain extensive records and often report information to state and federal agencies.Ifwe fail to comply with existing or future laws and regulations,we could suffer substantial civil or criminal penalties,includi
236、ng the loss of ourlicenses to operate pharmacies and our ability to participate in federal and state healthcare programs.As a consequence of the severe penalties wecould face,we must devote significant operational and managerial resources to complying with these laws and regulations.Application of f
237、ederal and state laws and regulations could subject our current practices to allegations of impropriety or illegality,or couldrequire us to make significant changes to our operations.In addition,we cannot21Table of Contentspredict the impact of future legislation and regulatory changes on our pharma
238、cy operations or assure that we will be able to obtain or maintainthe regulatory approvals required to operate our business.Risks Related to Our Supply ChainProduct and raw material supply disruptions,especially those related to fresh products,may have an adverse effect on our profitability andopera
239、ting results.Reflecting consumer preferences,we have a significant focus on fresh products.We rely on various suppliers and vendors to provide and deliverour fresh and other product inventory on a continuous basis and to supply the raw materials to manufacture certain of our Own Brands products.We c
240、ould suffer significant fresh and other product inventory losses and significant lost revenue in the event of the loss or a shutdown of a majorsupplier or vendor,disruption of our distribution network,extended power outages,natural disasters,foreign conflicts or other catastrophic orunexpected occur
241、rences such as a pandemic similar to COVID-19.As examples,in the past,we have observed that the supply of meat productswas impacted by the shutdown of certain key production facilities due to workforce illness.Also,labor and transportation issues,stemming fromCOVID-19,continue to be felt along our s
242、upply chain.Severe weather,natural disasters and other climate changes may adversely affect our business.Severe weather conditions such as hurricanes,earthquakes,floods,wildfires,mudslides,winter storms,tornadoes,as well as other naturaldisasters in areas in which we have stores or distribution cent
243、ers have caused and may cause physical damage to our properties,closure of one ormore of our stores,manufacturing facilities or distribution centers,lack of an adequate work force,disruption in the manufacture and supply ofproducts,disruption and delays in transportation and delivery of goods,reduct
244、ion in customer traffic and generally a reduction in the availabilityof products in our stores.In addition,adverse climate conditions,weather patterns and the impact of such conditions and patterns such as drought,flood,wildfires,mudslides and rising ambient temperatures adversely impact product cul
245、tivation conditions for farmers,ranchers and fishermen,including bydisrupting ecosystems and severely altering the growing conditions,nutrient levels,soil moisture,and water availability necessary for the growthand cultivation of crops and raising of animals.As extreme shifts in climate conditions m
246、ake it more difficult to raise and produce crops,livestock,and seafood,there may be a decrease in the product quality and the yield quantity of food products.Consequently,such a decreasedfood supply may adversely affect the availability or cost of certain products within the grocery supply chain,whi
247、ch could lead to shortages orreduced gross profit margins as such products become more expensive.At the global level,the impact of climate change on food supply is morelikely to lead to food insecurity in countries which,unlike the United States,have climates insufficient to sustain diverse food pro
248、duction.Thus,there may be increased demand for agricultural exports from regions that experience production difficulties yet have sufficient wealth topurchase imports.This may impact the availability of products for us to purchase.In addition,future legislative and regulatory efforts to combat clima
249、te change or other environmental issues could result in new or more stringentforms of oversight and mandatory or voluntary reporting,diligence and disclosure,which could increase costs,result in additional taxes andother expenses,and further impact our business,results of operations and financial co
250、ndition.Threats or potential threats to security of food and drug safety,the occurrence of a widespread health epidemic and/or pandemic orregulatory concerns in our supply chain may adversely affect our business.Acts or threats,whether perceived or real,of war or terror or other criminal activity di
251、rected at the food and drug industry or the transportationindustry,whether or not directly involving our stores,could increase our operating costs and operations,or impact general consumer behaviorand consumer spending.Other events that give rise to22Table of Contentsactual or potential food contami
252、nation,drug contamination or food-borne illnesses,or a widespread regional,national or global health epidemicand/or pandemic could have an adverse effect on our operating results or disrupt production and delivery of the products we sell,our ability toappropriately and safely staff our stores and ca
253、use customers to avoid public gathering places or otherwise change their shopping behaviors.We source our products from vendors and suppliers and related networks across the globe who may be subject to regulatory actions or facecriticism due to actual or perceived social injustices,including human t
254、rafficking,non-sustainable practices,child labor or environmental,healthand safety violations.A disruption in our supply chain due to any regulatory action or social injustice could have an adverse impact on oursupply chain and ultimately our business,including potential harm to our reputation.We co
255、uld be affected if consumers lose confidence in the food supply chain or the quality and safety of our products.We could be adversely affected if consumers lose confidence in the safety and quality of certain food products.Adverse publicity about thesetypes of concerns,whether valid or not,may disco
256、urage consumers from buying our products or cause production and delivery disruptions.Tothe extent that a pathogen is food-borne,or perceived to be food-borne,future outbreaks may adversely affect the price and availability of certainfood products and cause our customers to eat less of such products
257、.In addition,recalls or withdrawals of food products,and in particular thefood products we manufacture or are sold under any of our Own Brands product names,may involve costs to us or reputational harm to us.Thereal or perceived sale of contaminated food products by us could result in product liabil
258、ity claims,a loss of consumer confidence and productrecalls,which could have a material adverse effect on our business.Fuel prices and availability may adversely affect our results of operations.We currently operate 401 fuel centers that are adjacent to many of our store locations.As a result,we sel
259、l a significant amount of gasoline.Increased regulation or significant increases in wholesale fuel costs could result in lower gross margins on fuel sales,and demand could beaffected by retail price increases as well as by concerns about the effect of emissions on the environment.We are unable to pr
260、edict futureregulations,environmental effects,political unrest,geopolitical tensions,hostilities or boycotts,acts of terrorism,the actions of major oilproducing countries to regulate oil production and other matters that may affect the cost and availability of fuel,and how our customers willreact,wh
261、ich could adversely affect our results of operations.Increased commodity prices may adversely impact our profitability.We make in-store pricing decisions based on the competitive landscape.We also set our pricing based on the cost of doing business on a regionalbasis,as a result of occupancy and lab
262、or costs that vary by region.At the same time,we frequently discuss ways to lower our costs with ourconsumer packaged goods partners based upon our scale and sales momentum.Many of our own and sourced products include ingredients suchas wheat,corn,oils,milk,sugar,proteins,cocoa and other commodities
263、.Commodity prices can be volatile and commodities such as wheat andcorn have been impacted by the armed conflict between Russia and Ukraine.Any increase in commodity prices may cause an increase in ourinput costs or the prices our vendors seek from us.Although we typically are able to pass on modest
264、 commodity price increases or mitigatevendor efforts to increase our costs,we may be unable to continue to do so,either in whole or in part,if commodity prices increase materially orthere is significant inflationary pressures as in the current macroeconomic environment.Suppliers,like us,are incurrin
265、g additional costs and mayseek to pass those costs through to us.If we are forced to increase prices,our customers may reduce their purchases at our stores or trade downto less profitable products.Both may adversely impact our profitability as a result of reduced revenue or reduced margins.23Table o
266、f ContentsRisks Related to Our WorkforceA significant majority of our employees are unionized,and our relationship with unions,including labor disputes or work stoppages,couldhave an adverse impact on our operations and financial results.As of February 25,2023,approximately 200,000 of our employees
267、were covered by collective bargaining agreements.During fiscal 2022,collective bargaining agreements covering approximately 115,000 employees expired and were successfully renegotiated.In fiscal 2023collective bargaining agreements covering approximately 28,000 employees are scheduled to expire.In f
268、uture negotiations with labor unions,weexpect that health care,pension costs and/or contributions and wage costs,among other issues,will be important topics for negotiation.If,uponthe expiration of such collective bargaining agreements,we are unable to negotiate acceptable contracts with labor union
269、s,it could result instrikes by the affected workers and thereby significantly disrupt our operations.As part of our collective bargaining agreements,we may need tofund additional pension contributions,which would negatively impact our operating costs.Further,if we are unable to control health care a
270、ndpension costs provided for in the collective bargaining agreements,we may experience increased operating costs and an adverse impact on ourfinancial results.Increased pension expenses,contributions and surcharges may have an adverse impact on our financial results.We currently contribute to 27 mul
271、tiemployer pension plans for a substantial majority of employees represented by unions pursuant to collectivebargaining agreements that require us to contribute to these plans.Under the Employee Retirement Income Security Act of 1974,as amended(ERISA),the Pension Benefit Guaranty Corporation(the PBG
272、C)has the authority to petition a court to terminate an underfunded pensionplan in limited circumstances.In the event that our defined benefit pension plans are terminated for any reason,we could be liable for the entireamount of the underfunding,as calculated by the PBGC based on its own assumption
273、s(which would result in a larger obligation than that basedon the actuarial assumptions used to fund such plans).Under ERISA and the Internal Revenue Code,as amended(the Code),the liability underthese defined benefit plans is joint and several with all members of our control group,such that each mem
274、ber of our control group is potentiallyliable for the defined benefit plans of each other member of the control group.We continue to monitor any potential exposure to underfundedmultiemployer plans.Based on an assessment of the most recent information available,we believe that most of the multiemplo
275、yer plans to which we contribute areunderfunded,which is the amount by which the actuarial determined plan liabilities exceed the value of the plan assets.We are only one of anumber of employers contributing to these plans and the underfunding of any of these plans to which we contribute are not our
276、 liability.Thoughwe are not obligated nor the guarantor for any of the underfunding of multiemployer plans to which we contribute,as of December 31,2022,weattempted to estimate our allocable share of the underfunding of multiemployer plans to which we contribute,based on the ratio of ourcontribution
277、s to the total of all contributions to these plans in a year.Our estimate of the Companys allocable share of the underfunding ofmultiemployer plans to which we contribute was$5.1 billion.Our estimate is based on the most current information available to us includingactuarial evaluations and other da
278、ta(that includes the estimates of others),and such information may be outdated or otherwise unreliable.Ourestimate could also change based on the amount contributed to the plans,investment returns on the assets held in the plans,actions taken bytrustees who manage the plans benefit payments,interest
279、 rates,the amount of withdrawal liability payments made to the plans,if the employerscurrently contributing to these plans cease participation,and requirements under the Pension Protection Act of 2006,the Multiemployer PensionReform Act of 2014 and applicable provisions of the Code.The American Resc
280、ue Plan Act(ARP Act),which was signed into law on March 11,2021,establishes a special financial assistance programfor financially troubled multiemployer pension plans.Under the ARP Act,eligible multiemployer plans can apply to receive a one-time cashpayment in the amount needed to pay pension benefi
281、ts through the plan year ending 2051.We participate in 18 multiemployer plans that may beeligible for the special24Table of Contentsfinancial assistance.Under the PBGC guidance,these multiemployer plans can apply for assistance based on a priority designation set by thePBGC starting in March 2023 th
282、rough March 2024.In the event we were to exit certain markets or otherwise cease contributing to these plans,we could trigger a substantial withdrawal liability.Any accrual for withdrawal liability will be recorded when a withdrawal is probable and can be reasonably estimated,in accordance with GAAP
283、.All trades or businesses in the employers control group are jointly and severally liable for the employers withdrawal liability.We are also the sponsors of defined benefit retirement plans for certain employees.We recognize a liability for the underfunded status of oursponsored employer defined ben
284、efit plans as a component of pension and post-retirement benefit obligations.The funded status of these plans isa significant factor in determining annual pension expense and cash contributions to fund the plans.Unfavorable investment performance,increased pension expense and cash contributions may
285、have an adverse impact on our financial results.See Part IIItem 7.Managements Discussion and Analysis of Financial Condition and Results of Operations and Part IIItem 8.FinancialStatements and Supplementary DataNote 12 for more information relating to these pension plans.The minimum wage continues t
286、o increase and is subject to factors outside of our control.Changes to wage regulations could have an impacton our future results of operations.A considerable number of our employees are paid at rates related to the federal minimum wage.Additionally,many of our stores are located instates,including
287、California,where the minimum wage is greater than the federal minimum wage and where a considerable number of employeesreceive compensation equal to the states minimum wage which are also slated to increase over the next few years.As examples,in Californiaand Massachusetts,where we employed 73,500 a
288、nd 11,500 associates,respectively,as of February 25,2023,the current minimum wage wasincreased to$15.50 per hour and$15.00 per hour,respectively,effective January 1,2023.Moreover,municipalities may set minimum wagesabove the applicable state standards.Increases in the federal minimum wage or the ena
289、ctment of additional state or local minimum wageincreases could increase our labor costs,which may adversely affect our results of operations and financial condition.The food retail industry is labor intensive.Our ability to meet our labor needs,while controlling wage and labor-related costs,is subj
290、ect tonumerous external factors,including the availability of qualified persons in the workforce in the local markets in which we are located,unemployment levels within those markets,prevailing wage rates,changing demographics,attitudes toward employment in the food and drugretail industry,the perce
291、ption of our corporate values and business strategy,health and other insurance costs,the impact of the Merger andchanges in employment and labor laws.Such laws related to employee hours,wages,job classification and benefits could significantly increaseour operating costs.In the event of increasing w
292、age rates,if we fail to increase our wages competitively,the quality of our workforce coulddecline,causing our customer service to suffer,while increasing wages for our employees could cause our gross margins to decrease.If we areunable to hire and retain employees capable of meeting our business ne
293、eds and expectations,our business and brand image may be impaired.Any failure to meet our staffing needs or any material increase in turnover rates of our employees may adversely affect our business,results ofoperations and financial condition.Failure to attract and retain qualified associates could
294、 materially adversely affect our financial performance and our ability to successfullyexecute our business strategy.Our ability to continue to conduct and expand our operations depends on our ability to attract and retain a large and growing number of qualifiedassociates.Our ability to meet our labo
295、r needs,including our ability to find qualified personnel to fill positions that become vacant at ourexisting stores and distribution centers,while controlling our associate wage and related labor costs,is generally subject to numerous externalfactors,including the availability of25Table of Contents
296、a sufficient number of qualified persons in the work force of the markets in which we operate,unemployment levels within those markets,prevailing wage rates,changing demographics,attitudes toward employment in the food and drug retail industry,the perception of our corporatevalues and business strat
297、egy,health and other insurance costs,the impact of the Merger and adoption of new or revised employment and laborlaws and regulations.If we are unable to locate,to attract or to retain qualified personnel,the quality of service we provide to our customers maydecrease and our financial performance ma
298、y be adversely affected.The continued successful implementation of our business strategy depends in large part upon the ability and experience of members of our seniormanagement.In addition,our financial performance is dependent on our ability to identify,hire,train,motivate and retain qualified man
299、agement,technical,sales and marketing and retail personnel.If we lose the services of members of our senior management or are unable to continue toattract and retain the necessary personnel,we may not be able to successfully execute our business strategy,which could have an adverse effecton our busi
300、ness.Legal and Regulatory RisksUnfavorable changes in government regulation may have a material adverse effect on our business.We must comply with various federal,state,local and foreign laws,regulations and administrative practices such as those regulating health andsanitation standards,food labeli
301、ng,energy,environmental,equal employment opportunity,minimum wages,pension,health insurance and otherwelfare plans and licensing for the sale of food,drugs and alcoholic beverages.We cannot predict either the nature of future laws,regulations,interpretations or applications,or their effect on our fu
302、ture business.In addition,governmental or regulatory changes could require the reformulation of certain products to meet new standards,the recall or discontinuance ofcertain products,additional record keeping,expanded documentation of the properties of certain products,expanded or different labeling
303、 and/orscientific substantiation or a decrease in government assistance programs such as the Supplemental Nutrition Assistance Program(SNAP)thatour customers use to purchase products.For example,the temporary boost to SNAP benefits put in place during the COVID-19 pandemic,known as emergency allotme
304、nts,ended nationwide in February 2023.Any or all of such requirements could have an adverse effect on ourbusiness.Tax matters could adversely affect our results of operations and financial conditions.We may be affected by higher rates of federal,state,or local tax imposed as a result of political de
305、velopments or economic conditions,whichcould affect our effective tax rate.Our effective tax rate and future tax liability could be adversely affected by regulatory and legal changes,theresults of tax audits and examinations,and changes in accounting principles and interpretations relating to tax ma
306、tters,all of which couldnegatively impact our business.In addition,changes in tax rates,tax laws,and regulations that impact our customers or the economy generallymay also impact our financial condition and results of operations.Unfavorable changes in,failure to comply with or increased costs to com
307、ply with environmental laws and regulations could adversely affectus.The storage and sale of petroleum products could cause disruptions and expose us to potentially significant liabilities.Our operations,including our 401 fuel centers,are subject to various laws and regulations relating to the prote
308、ction of the environment,including those governing the storage,management,disposal and cleanup of hazardous materials.Some environmental laws,such as theComprehensive Environmental Response,Compensation and Liability Act and similar state statutes,impose strict,and under certaincircumstances joint a
309、nd several,liability for costs to remediate a contaminated site,and also impose liability for damages to natural resources.26Table of ContentsThird-party claims in connection with releases of or exposure to hazardous materials relating to our current or former properties or third-partywaste disposal
310、 sites can also arise.In addition,the presence of contamination at any of our properties could impair our ability to sell or lease thecontaminated properties or to borrow money using any of these properties as collateral.The costs and liabilities associated with any suchcontamination could be substa
311、ntial and could have a material adverse effect on our business.Under current environmental laws,we may be heldresponsible for the remediation of environmental conditions regardless of whether we lease,sublease or own the stores or other facilities andregardless of whether such environmental conditio
312、ns were created by us or a prior owner or tenant.In addition,the increased focus on climatechange,waste management and other environmental issues may result in new environmental laws or regulations that negatively affect us directlyor indirectly through increased costs on our suppliers.There can be
313、no assurance that environmental contamination relating to prior,existing orfuture sites or other environmental changes will not adversely affect us through,for example,business interruption,cost of remediation oradverse publicity.We are subject to,and may in the future be subject to,legal or other p
314、roceedings that could have a material adverse effect on us.From time to time,we are a party to legal proceedings,including matters involving personnel and employment issues,personal injury,antitrustclaims based on both federal and state law,packaging or product claims,claims related to the sale of d
315、rug or pharmacy products,such as opioids,claims invoking consumer-protection statutes,intellectual property claims and other proceedings arising in or outside of the ordinary course ofbusiness.In addition,there are a steady number of cases being filed against companies generally,including class-acti
316、on allegations under federaland state wage and hour laws,especially in California.We estimate our exposure to these legal proceedings and establish reserves for theestimated liabilities.Assessing and predicting the outcome of these matters involves substantial uncertainties.Although not currently an
317、ticipatedby management,unexpected outcomes in these legal proceedings or changes in managements forecast assumptions or predictions could have amaterial adverse impact on our results of operations.We use a combination of insurance and self-insurance to address potential liabilities for workers compe
318、nsation,automobile and generalliability,property risk(including earthquake and flood coverage),director and officers liability,employment practices liability,pharmacyliability,employee health care benefits and cyber and terrorism risks.We use a combination of insurance and self-insurance to address
319、potential liabilities for workers compensation,automobile and general liability,property risk(including earthquake and flood coverage),director and officers liability,employment practices liability,pharmacy liability,employee health care benefits and cyber and terrorism risks.We estimate the liabili
320、ties associated with the risks retained by us,in part,byconsidering historical claims experience,demographic and severity factors and other actuarial assumptions which,by their nature,are subject toa high degree of variability.Among the causes of this variability are unpredictable external factors a
321、ffecting future inflation rates,discount rates,litigation trends,legal interpretations,benefit level changes and claim settlement patterns.The majority of our workers compensation liability isfrom claims occurring in California,where workers compensation has received intense scrutiny from the states
322、 politicians,insurers,employersand providers,as well as the public in general.If other states adopt workers compensation programs similar to Californias,then our workerscompensation liability may increase which could have a material adverse impact on our results of operations.27Table of ContentsRisk
323、s Related to Information Security,Cybersecurity and Data PrivacyWe may be adversely affected by risks related to our dependence on IT systems.Any future changes to or intrusion into these IT systems,even if we are compliant with industry security standards,could materially adversely affect our reput
324、ation,financial condition and operatingresults.We have complex information technology systems that are important to the success of our business operations,financial reporting and marketinginitiatives.Our information systems are subject to outages,unplanned downtime,program transitions,breakdowns,ran
325、somware attacks,viruses,malicious programs and other cyber incidents.If we fail to timely or successfully mitigate such adverse events affecting these systems,orexperience difficulties accessing the proprietary business data stored in these systems,or in maintaining,expanding or upgrading existingsy
326、stems or implementing new systems,we could incur significant losses to our business and operations.These risks may be further exacerbatedby the deployment and continued refinement of cloud-based enterprise solutions.In a cloud computing environment,we could be subject tooutages by third-party servic
327、e providers and security breaches to their systems,which we may have little control over.Unauthorized parties haveobtained in the past,and may in the future obtain access to cloud-based platforms used by many retailers.Improper activities by third parties,exploitation of encryption technology,new da
328、ta-hacking tools and discoveries and other events ordevelopments may result in future intrusions into or compromise of our networks,payment card terminals or other payment systems.We regularly defend against and respond to data security incidents.While we are vigilant in monitoring the security of o
329、ur informationtechnology systems,we may not be able to prevent all unauthorized access or remediate the impact of such unauthorized access.The techniquesused by cyber criminals change frequently and often cannot be recognized until launched against a target;accordingly,we may not be able toanticipat
330、e these frequently changing techniques,implement adequate preventive measures for all of them or remediate any unauthorized accesson a timely basis.In addition,the recent geopolitical conflict in Ukraine may increase the risk of cyberattacks which could impact ouroperations.Any unauthorized access i
331、nto our customers sensitive information,data belonging to us or our vendors or employee data,even if weare compliant with industry security standards,could put us at a competitive disadvantage,result in deterioration of our customers,vendors andemployees confidence in us and subject us to investigat
332、ions,required notifications,potential litigation,liability,fines and penalties and consentdecrees,resulting in a possible material adverse impact on our brand,reputation,financial condition and results of operations.As a merchant that accepts debit and credit cards for payment,we are subject to the
333、Payment Card Industry(PCI)Data Security Standard(PCI DSS),issued by the PCI Council.PCI DSS contains compliance guidelines and standards with regard to security surrounding the physicaladministrative and technical storage,processing and transmission of individual cardholder data.By accepting debit cards for payment,we arealso subject to compliance with American National Standards Institute(ANSI)da