SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

ALBERTSON’S, INC.

     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 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [  ]

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [x] No [  ]

     The number of shares of the registrant’s common stock, $1.00 par value, outstanding at August 30, 2004 was 368,022,608.

ALBERTSON’S INC.
INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALBERTSON’S, INC.

See Notes to Condensed Consolidated Financial Statements

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ALBERTSON’S, INC.

See Notes to Condensed Consolidated Financial Statements

4

ALBERTSON’S, INC.

See Notes to Condensed Consolidated Financial Statements

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ALBERTSON’S, INC.

See Notes to Condensed Consolidated Financial Statements

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ALBERTSON’S, INC.

NOTE 1 – THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Albertson’s, Inc. (“Albertsons” or the “Company”) is incorporated under the laws of the State of Delaware and is the successor to a business founded by J.A. Albertson in 1939. Based on sales, the Company is one of the largest retail food and drug chains in the world.

As of July 29, 2004, the Company operated 2,516 stores in 37 states. The Company also operated 236 fuel centers near existing stores. Retail operations are supported by 20 major Company distribution operations, strategically located in the Company’s operating markets.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the results of operations, financial position and cash flows of the Company and its subsidiaries. All material intercompany balances have been eliminated.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the results of operations of the Company for the periods presented. These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2004 filed with the Securities and Exchange Commission. The results of operations for the 13 and 26 weeks ended July 29, 2004 are not necessarily indicative of results for a full year.

The Company’s Condensed Consolidated Balance Sheet as of January 29, 2004 has been derived from the audited Consolidated Balance Sheet as of that date.

Use of Estimates

The preparation of the Company’s consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions. Some of these estimates require difficult, subjective or complex judgments about matters that are inherently uncertain. As a result, actual results could differ from these estimates. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Inventories

Net earnings reflect the application of the LIFO method of valuing certain inventories. Quarterly inventory determinations under LIFO are based on assumptions as to projected inventory levels at the end of the year and the rate of inflation for the year. Albertsons recorded pre-tax LIFO expense of $1 and $4 for the 13 week periods ended July 29, 2004 and July 31, 2003, respectively, and $7 and $8 for the 26 week periods ended July 29, 2004 and July 31, 2003, respectively.

The amount of vendor funds reducing the Company’s inventory (“inventory offset”) as of July 29, 2004, including those resulting from the Shaw’s acquisition (see Note 3 to the Condensed Consolidated Financial Statements – Shaw’s Acquisition) was $143, an increase of $13 from the end of the first quarter of 2004 and a decrease of $12 from the beginning of 2004. The vendor funds inventory offset as of July 31, 2003 was $131, a decrease of $15 from the end of the first quarter of 2003 and a decrease of $21 from the beginning of 2003. The inventory offset was determined by estimating the average inventory turnover rates by product category for the Company’s grocery, general merchandise and lobby departments (these departments received over three-quarters of the Company’s vendor funds in 2003) and by average inventory turnover rates by department for the Company’s remaining inventory.

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Stock-Based Compensation

The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related Interpretations. Accordingly, expense associated with stock-based compensation is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of the grant over the option exercise price and is charged to operations over the vesting period. Income tax benefits attributable to stock options exercised are credited to capital in excess of par value. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure – An Amendment to FASB Statement No. 123”, encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. If the fair value-based accounting method was utilized for stock-based compensation, the Company’s pro forma net earnings and earnings per share for the periods presented below would have been as follows:

The pro forma net earnings resulted from reported net earnings less pro forma after-tax compensation expense. The pro forma effect on net earnings is not representative of the pro forma effect on net earnings in future years. To calculate pro forma stock-based compensation expense under SFAS No. 123, the Company estimated the fair value of each option grant on the date of grant, using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2004 and 2003: risk-free interest rate of 3.93% and 2.27%, respectively, expected dividend yield of 3.29% and 3.92%, respectively, expected lives of 6.0 and 5.0 years, respectively, and expected stock price volatility of 38.33% and 40.07%, respectively.

Reclassifications

Certain reclassifications have been made in prior periods’ financial statements to conform to classifications used in the current year.

NOTE 2 – NEW AND RECENTLY ADOPTED ACCOUNTING STANDARDS

In November 2003 the Emerging Issues Task Force (“EITF”) confirmed as a consensus EITF Issue No. 03-10, “Application of EITF Issue No. 02-16, ‘Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,’ by Resellers to Sales Incentives Offered to Consumers by Manufacturers” (“EITF 03-10”). EITF 03-10 did not impact the Company’s existing accounting and reporting policies for manufacturers’ coupons that can be presented at any retailer that accepts coupons. Under EITF 03-10, vendor coupons that provide for direct reimbursement, are negotiated between the retailer and the vendor and which can only be redeemed at a specific retailer’s store are recorded as a reduction of cost of sales (instead of sales). This modification to the Company’s accounting and reporting policies, adopted in Company’s first quarter of 2004, did not have a material impact on sales or cost of sales.

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In December 2003 the Financial Accounting Standards Board (“FASB”) issued SFAS No. 132 (Revised 2003), “Employers’ Disclosure about Pensions and Other Postretirement Benefits – An Amendment of FASB Statements No. 87, 88 and 106” (“SFAS No. 132(R)”). This statement increases the existing disclosure requirements by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. The Company adopted SFAS No. 132(R) in January 2004. The newly required quarterly disclosures are included in Note 7 to the Condensed Consolidated Financial Statements — Employee Benefit Plans.

In May 2004 the FASB issued Staff Position No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“SFAS No. 106-2”). SFAS No. 106-2 supersedes SFAS No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” and provides guidance on the accounting and disclosure related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which was signed into law in December 2003. SFAS No. 106-2 is effective beginning in the third fiscal quarter of 2005. The Company is in the process of evaluating the impact, if any, of the Act and SFAS No. 106-2 on the Company.

NOTE 3 – SHAW’S ACQUISITION

On April 30, 2004, the Company acquired all of the outstanding capital stock of the entity which conducted J Sainsbury plc’s U.S. retail grocery store business (“Shaw’s”). The results of Shaw’s operations have been included in the Company’s consolidated financial statements since that date. The operations acquired consist of 206 grocery stores in the New England area operated under the banners of Shaw’s and Star Market. The Company acquired Shaw’s for a variety of reasons, including attractive market share positions, attractive real estate, the opportunity to realize numerous synergies and strong historical financial performance.

The aggregate purchase price was $2,578, which included $2,134 of cash, $441 of assumed debt and $3 of transaction costs. The Company used a combination of cash-on-hand and the proceeds of the issuance of $1,603 of commercial paper to finance the acquisition. The Company used the proceeds from a subsequent HITS offering (see Note 8 to the Condensed Consolidated Financial Statements - Indebtedness) to repay $1,117 of such commercial paper. The remaining commercial paper outstanding is currently backed by the Company’s existing credit facilities.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. These preliminary purchase price allocations are based on a combination of third party valuations and internal analysis and may be adjusted during the allocation period as defined in SFAS No. 141, “Business Combinations”.

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Acquired intangible assets include $399 assigned to trade names not subject to amortization, $325 assigned to favorable operating leases (13-year weighted average useful life), $36 assigned to a customer loyalty program (7-year useful life), $5 assigned to pharmacy prescriptions (7-year useful life), and other assets of $1 (18-year useful life). With the exception of trade names, the remaining intangible assets are amortized on a straight-line basis over their expected useful lives.

As part of the purchase price allocation, the fair values of operating leases were calculated, a portion of which represents favorable operating leases compared with current market conditions and a portion of which represent unfavorable operating leases compared with current market conditions. The favorable leases totaled $325 and are included in Intangible assets. The unfavorable leases totaled $246, have an estimated weighted average life of 18 years and are included in Other liabilities.

The excess of the purchase price over the fair value of assets acquired and liabilities assumed was allocated to goodwill. Of the $840 recorded in goodwill, $95 is expected to be deductible for tax purposes.

The following unaudited pro forma financial information presents the combined results of operations of the Company and Shaw’s as if the acquisition had occurred on January 30, 2004 and January 31, 2003. Shaw’s fiscal year ended on the Saturday closest to February 28. The unaudited pro forma financial information uses Shaw’s data for the periods corresponding to the Company’s fiscal year end. This unaudited pro forma financial information is not intended to represent or be indicative of what would have occurred if the transaction had taken place on the dates presented and should not be taken as representative of the Company’s future consolidated results of operations or financial position. The pro forma information does not reflect any potential synergies expected from the combined operations or potential integration costs.

NOTE 4 – DISCONTINUED OPERATIONS

In April 2004 the Company announced its plan to sell, close or otherwise dispose of its operations in the New Orleans, Louisiana market, which consisted of seven operating stores and three non-operating properties. Results of operations for those stores and properties have been reclassified and presented as discontinued operations for the 13 and 26 week periods ended July 29, 2004 and July 31, 2003.

In June 2004 the Company announced its plan to sell, close or otherwise dispose of its operations in the Omaha, Nebraska market, which consisted of 21 stores. Results of operations for those stores have been reclassified and presented as discontinued operations for the 13 and 26 week periods ended July 29, 2004 and July 31, 2003.

The discontinued operations stores generated sales of $56 and $79 for the 13 week periods ended July 29, 2004 and July 31, 2003, respectively, and $131 and $158 for the 26 week periods ended July 29, 2004 and July 31, 2003, respectively. The loss from discontinued operations of $21 for the 13 week period ended July 29, 2004 consisted of a loss from operations of $9, a write down of fixed assets and lease settlements of $30, gain on disposal of $5 and an income tax benefit of $13. The loss from discontinued operations of $41 for the 26 week period ended July 29, 2004 consisted of a loss from operations of $10, a write down of fixed assets and lease settlements of $60, gain on disposal of $5 and an income tax benefit of $24. The loss from discontinued operations of $1 for the 26 week period ended July 31, 2003 consisted of a loss from operations of $2 and an income tax benefit of $1. A reserve balance of $8 as of July 29, 2004 is included in “Other current liabilities” in the accompanying Condensed Consolidated Balance Sheet related to lease liability adjustments.

Assets related to discontinued operations are recorded at their estimated fair value, less selling costs, of $44 as of July 29, 2004 and are reported in “Assets held for sale” in the accompanying Condensed Consolidated Balance Sheet. These assets include 11 operating properties and one non-operating property for which definitive agreements for sale have been entered into and thirteen operating properties and two non-operating properties that are being actively marketed.

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NOTE 5 – RESERVES FOR 2001 RESTRUCTURING ACTIVITIES, 2002 MARKET EXITS AND CLOSED STORES

In 2001 the Company recorded a pre-tax charge to earnings of $107 primarily for lease settlements and severance costs in connection with the closure of 165 stores and the reduction of overhead functions. As of January 29, 2004, an accrual of $19 remained for these settlements and costs. During the 13 and 26 week periods ended July 29, 2004, the Company paid $1 and $2, respectively, leaving a balance of $17 as of July 29, 2004.

In 2002 the Company recorded a pre-tax charge to earnings of $51 primarily for lease settlements and severance costs in connection with the exit from four underperforming markets. As of January 29, 2004, an accrual of $8 remained for these settlements and costs. During the 13 and 26 week periods ended July 29, 2004, the Company recorded additional reserves of $1 and $1 and paid $0 and $2, respectively, leaving a balance of $7 as of July 29, 2004.

As of January 29, 2004, the Company had an accrual of $20 for closed store lease termination costs. During the 13 and 26 week periods ended July 29, 2004, the Company recorded additional reserves of $2 and $6, had favorable lease termination settlements of $0 and $3 and paid $2 and $3, respectively, leaving a balance of $20 as of July 29, 2004.

NOTE 6 – INTANGIBLES

The carrying amount of intangibles was as follows:

Amortizing intangible assets have remaining useful lives from 2 to 38 years. Projected amortization expense for existing intangible assets is $38, $38, $32, $31, and $31 for 2004, 2005, 2006, 2007, and 2008, respectively.

NOTE 7 – EMPLOYEE BENEFIT PLANS

The following represents the components of net periodic pension and postretirement benefit costs in accordance with SFAS No. 132(R) (see Note 2 to the Condensed Consolidated Financial Statements – New and Recently Adopted Accounting Standards):