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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4 Months Ended
Jun. 20, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation

The accompanying interim Condensed Consolidated Financial Statements include the accounts of Albertsons Companies, Inc. and its subsidiaries (the "Company"). All significant intercompany balances and transactions were eliminated. The Condensed Consolidated Balance Sheet as of February 29, 2020 is derived from the Company's annual audited Consolidated Financial Statements for the fiscal year ended February 29, 2020, which should be read in conjunction with these Condensed Consolidated Financial Statements and which are included in the Company's Prospectus dated June 25, 2020 filed with the Securities and Exchange Commission ("SEC") pursuant to Rule 424(b) of the Securities Act of 1933, as amended, relating to the Company's Registration Statement on Form S-1 (File No. 333-236956). Certain information in footnote disclosures normally included in annual financial statements was condensed or omitted for the interim periods presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"). In the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for the year. The Company's results of operations are for the 16 weeks ended June 20, 2020 and June 15, 2019.
Significant Accounting Policies
Restricted cash: Restricted cash is included in Other current assets or Other assets depending on the remaining term of the restriction and primarily relates to funds held in escrow. The Company had $42.3 million and $8.2 million of restricted cash as of June 20, 2020 and February 29, 2020, respectively.
Inventories, net: Substantially all of the Company's inventories consist of finished goods valued at the lower of cost or market and net of vendor allowances. The Company uses either item-cost or the retail inventory method to value inventory at the lower of cost or market before application of any last-in, first-out ("LIFO") reserve. Interim LIFO inventory costs are based on management's estimates of expected year-end inventory levels and inflation rates. The Company recorded LIFO expense of $13.1 million and $10.5 million for the 16 weeks ended June 20, 2020 and June 15, 2019, respectively.
Equity-based compensation: The Company maintains the Albertsons Companies, Inc. Restricted Stock Unit Plan (the "Restricted Stock Unit Plan"), which was previously named the "Albertsons Companies, Inc. Phantom Unit Plan" (the "Phantom Unit Plan"). Prior to being amended and restated on June 9, 2020, the Phantom Unit Plan provided for grants of "Phantom Units" to certain employees, directors and consultants. Each Phantom Unit provided a participant with a contractual right to receive, upon vesting, one management incentive unit in each of the Company's parents, Albertsons Investor Holdings LLC ("Albertsons Investor") and KIM ACI, LLC ("KIM ACI"). Upon the amendment and restatement of the Phantom Unit Plan as the Restricted Stock Unit Plan, all outstanding Phantom Units were converted into 11.3 million restricted stock units of the Company ("Restricted Stock Units" or "RSUs"), including 1.9 million performance-based RSUs that are not deemed granted for accounting purposes, under the Restricted Stock Unit Plan, subject to substantially identical terms and conditions as applied prior to the conversion. No changes to vesting conditions or the fair value of the award occurred as a result of the conversion. Upon vesting, an award of Restricted Stock Units will be settled in shares of the Company's common stock. The fair value of the Phantom Units was determined using an option pricing model, adjusted for lack of marketability and using an expected term or time to liquidity based on judgments made by management. For the 16 weeks ended June 20, 2020 and June 15, 2019, equity-based compensation expense recognized by the Company related to these awards was $17.8 million and $9.9 million, respectively. For the 16 weeks ended June 20, 2020 and June 15, 2019, the Company recorded an income tax benefit of $4.6 million and $2.6 million, respectively. On May 14, 2020, the Company issued 1.0 million Phantom Units, which were converted into 4.3 million RSUs upon the amendment and restatement of the Phantom Unit Plan, to employees and directors. On a converted basis, this issuance included 3.2 million time-based vesting RSUs that were deemed granted and 0.4 million performance-based vesting RSUs that were deemed granted. The remaining 0.7 million RSUs will only be deemed granted upon the establishment of the annual performance target for fiscal 2021
and fiscal 2022, as applicable. The 3.6 million RSUs deemed granted have an aggregate grant date value of $57.8 million. As of June 20, 2020, there was $87.9 million of unrecognized costs related to 9.4 million unvested RSUs deemed granted for accounting purposes. That cost is expected to be recognized over a weighted average period of 2.03 years.

On April 25, 2019, upon the commencement of employment, the Company's President and Chief Executive Officer was granted direct equity interests in each of the Company's parents, Albertsons Investor and KIM ACI. These equity interests generally vest over five years, with 50% based solely on a service period and 50% upon a service period and achievement of certain performance-based thresholds. Equity-based compensation expense recognized by the Company related to these equity interests was $1.2 million for both the 16 weeks ended June 20, 2020 and June 15, 2019. As of June 20, 2020, there was $8.8 million of unrecognized costs related to the equity interests deemed granted. That cost is expected to be recognized over a weighted average period of 3.14 years. On June 30, 2020, upon consummation of the Company's initial public offering ("IPO"), the unvested direct equity interests in each of the Company's parents converted into 1.7 million shares of restricted common stock of the Company, including 0.6 million performance-based restricted common stock awards that are not deemed granted for accounting purposes. No changes to vesting conditions or the fair value of the award occurred as a result of the conversion.

Treasury stock: On June 9, 2020, the Company used $1,680.0 million, an amount equal to the proceeds from the sale and issuance of the Company's Series A-1 convertible preferred stock ("Series A-1 preferred stock") and Series A convertible preferred stock ("Series A preferred stock" and together with the Series A-1 preferred stock, the "Convertible Preferred Stock"), to repurchase 101,611,736 shares of common stock from the Company's parents (the "Repurchase"). The shares are classified as treasury stock on the Condensed Consolidated Balance Sheets. The proceeds received by the Company's parents from the Repurchase were distributed to their members, which include the Company's sponsors and current and former members of management.

Income taxes: Income tax expense was $201.9 million, representing a 25.6% effective tax rate, for the 16 weeks ended June 20, 2020. Income tax expense was $15.7 million, representing a 24.3% effective tax rate, for the 16 weeks ended June 15, 2019. The Company's effective tax rate for the 16 weeks ended June 20, 2020 differs from the federal income tax statutory rate of 21% primarily due to state income taxes, partially offset by income tax credits.

Segments: The Company and its subsidiaries offer grocery products, general merchandise, health and beauty care products, pharmacy, fuel and other items and services in its stores or through eCommerce channels. The Company's operating divisions are geographically based, have similar economic characteristics and similar expected long-term financial performance. The Company's operating segments and reporting units are its 13 operating divisions, which are reported in one reportable segment. Each reporting unit constitutes a business for which discrete financial information is available and for which management regularly reviews the operating results. Across all operating segments, the Company operates primarily one store format. Each division offers through its stores and eCommerce channels the same general mix of products with similar pricing to similar categories of customers, has similar distribution methods, operates in similar regulatory environments and purchases merchandise from similar or the same vendors.

Revenue Recognition: Revenues from the retail sale of products are recognized at the point of sale or delivery to the customer, net of returns and sales tax. Pharmacy sales are recorded upon the customer receiving the prescription. Third-party receivables from pharmacy sales were $246.1 million and $218.5 million as of June 20, 2020 and February 29, 2020, respectively, and are recorded in Receivables, net. For eCommerce related sales, which primarily include home delivery and Drive Up & Go curbside pickup, revenues are recognized upon either pickup in store or delivery to the customer and may include revenue for separately charged delivery services. Discounts provided to customers by the Company at the time of sale are recognized as a reduction in sales as the products are sold. Discounts provided to customers by vendors, usually in the form of coupons, are not recognized as a reduction in sales, provided the coupons are redeemable at any retailer that accepts coupons. The Company recognizes revenue and records a corresponding receivable from the vendor for the difference between the sales prices and the cash received from the customer. The Company records a contract liability when rewards are earned by customers in connection with the Company's loyalty
programs. As rewards are redeemed or expire, the Company reduces the contract liability and recognizes revenue. The contract liability balance was immaterial as of June 20, 2020 and February 29, 2020.

The Company records a contract liability when it sells its own proprietary gift cards. The Company records a sale when the customer redeems the gift card. The Company's gift cards do not expire. The Company reduces the contract liability and records revenue for the unused portion of gift cards ("breakage") in proportion to its customers' pattern of redemption, which the Company determined to be the historical redemption rate. The Company's contract liability related to gift cards was $62.2 million as of June 20, 2020 and $52.2 million as of February 29, 2020. Breakage amounts were immaterial for the 16 weeks ended June 20, 2020 and June 15, 2019, respectively.

Disaggregated Revenues

The following table represents sales revenue by type of similar product (dollars in millions):
 
 
16 weeks ended
 
 
June 20,
2020
 
June 15,
2019
 
 
Amount (1)
 
% of Total
 
Amount (1)
 
% of Total
Non-perishables (2)
 
$
10,783.8

 
47.4
%
 
$
8,022.2

 
42.8
%
Perishables (3)
 
9,555.6

 
42.0

 
7,811.6

 
41.7

Pharmacy
 
1,554.9

 
6.8

 
1,573.2

 
8.4

Fuel
 
589.2

 
2.6

 
1,076.5

 
5.7

Other (4)
 
268.1

 
1.2

 
254.9

 
1.4

Net sales and other revenue
 
$
22,751.6

 
100.0
%
 
$
18,738.4

 
100.0
%

(1) eCommerce related sales are included in the categories to which the revenue pertains.
(2) Consists primarily of general merchandise, grocery and frozen foods.
(3) Consists primarily of produce, dairy, meat, deli, floral and seafood.
(4) Consists primarily of wholesale revenue to third parties, commissions and other miscellaneous revenue.

Recently issued accounting standards: In December 2019, the Financial Accounting Standards Board issued ASU 2019-12, "Simplifying the Accounting for Income Taxes." This ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This ASU also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The ASU will take effect for public entities for annual reporting periods beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect of this standard on its Consolidated Financial Statements.