FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For 26 Weeks Ended: July 29, 1999 Commission File Number: 1-6187
ALBERTSON'S, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 82-0184434
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho 83726
- ----------------------------------------------- ----------
(Address) (Zip Code)
Registrant's telephone number, including area code: (208) 395-6200
--------------
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
----- -----
Number of Registrant's $1.00 par value
common shares outstanding at August 26, 1999: 423,549,592
1
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ALBERTSON'S, INC.
CONSOLIDATED EARNINGS
(in thousands except per share data)
(unaudited)
13 WEEKS ENDED 26 WEEKS ENDED
---------------------------------- --------------------------------------
July 29, July 30, July 29, July 30,
1999 1998 1999 1998
---------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Sales $9,381,341 $8,945,068 $18,596,628 $17,666,007
Cost of sales 6,825,931 6,550,025 13,538,614 12,973,227
---------------- ----------------- ------------------ -------------------
Gross profit 2,555,410 2,395,043 5,058,014 4,692,780
Selling, general and
administrative expenses 2,172,341 1,952,051 4,230,489 3,854,659
Merger related and exit costs 457,768 428,904
Impairment - store closures 29,423
---------------- ----------------- ------------------ -------------------
Operating (loss) profit (74,699) 442,992 398,621 808,698
Other (expenses) income:
Interest, net (77,829) (85,708) (159,860) (168,380)
Other, net 513 2,576 4,813 11,851
---------------- ----------------- ------------------ -------------------
(Loss) earnings before
income taxes and extra-
ordinary item (152,015) 359,860 243,574 652,169
Income taxes 52,828 143,282 209,926 259,129
---------------- ----------------- ------------------ -------------------
(Loss) earnings before
extraordinary item (204,843) 216,578 33,648 393,040
Extraordinary loss on
extinguishment of debt, net
of tax benefit of $7,388 (23,272) (23,272)
---------------- ----------------- ------------------ -------------------
NET (LOSS) EARNINGS $ (228,115) $ 216,578 $ 10,376 $ 393,040
================ ================= ================== ===================
BASIC (LOSS) EARNINGS PER SHARE:
(Loss) earnings before $(0.49) $0.52
extraordinary item $ 0.08 $0.94
Extraordinary item (0.06) (0.06)
---------------- ----------------- ------------------ -------------------
Net (loss) earnings $(0.54) $0.52 $ 0.02 $0.94
================ ================= ================== ===================
DILUTED (LOSS)EARNINGS PER SHARE:
(Loss) earnings before $(0.49) $0.52
extraordinary item $ 0.08 $0.93
Extraordinary item (0.06) (0.06)
---------------- ----------------- ------------------ -------------------
Net (loss) earnings $(0.54) $0.52 $ 0.02 $0.93
================ ================= ================== ===================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 421,619 418,518 420,953 418,455
Diluted 421,619 420,488 422,317 420,522
</TABLE>
See Notes to Consolidated Financial Statements.
2
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<TABLE>
<CAPTION>
ALBERTSON'S, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
July 29, 1999 January 28,
(unaudited) 1999
-------------------- -------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 35,848 $ 116,139
Accounts and notes receivable 530,021 581,625
Inventories 3,113,215 3,249,179
Prepaid expenses 113,622 106,800
Refundable income taxes 101,364
Assets held for sale 570,461
Deferred income taxes 86,897 132,565
-------------------- -------------------
TOTAL CURRENT ASSETS 4,551,428 4,186,308
OTHER ASSETS 574,062 663,301
GOODWILL (net of accumulated amortization of
$573,854 and $581,851, respectively) 1,611,002 1,737,936
LAND, BUILDINGS AND EQUIPMENT (net of
accumulated depreciation and amortization
of $4,655,868 and $4,774,030, respectively) 8,385,943 8,543,722
-------------------- -------------------
$15,122,435 $15,131,267
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,158,492 $ 2,186,505
Salaries and related liabilities 471,421 512,165
Taxes other than income taxes 184,779 168,920
Income taxes 62,534
Self-insurance 142,023 172,709
Unearned income 88,299 101,251
Other current liabilities 256,189 91,713
Merger related accruals 58,628
Current maturities of long-term debt 340,121 49,871
Current capitalized lease obligations 19,483 18,118
-------------------- -------------------
TOTAL CURRENT LIABILITIES 3,719,435 3,363,786
LONG-TERM DEBT 4,838,264 4,905,392
CAPITALIZED LEASE OBLIGATIONS 200,989 202,171
SELF-INSURANCE 375,677 315,180
DEFERRED INCOME TAXES 79,609 207,833
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 448,782 615,255
STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value; authorized - 10,000,000 shares; issued -
none
Common stock - $1.00 par value; authorized - 1,200,000,000 shares; issued -
423,466,327
shares and 434,557,800 shares, respectively 423,466 434,557
Capital in excess of par value 144,487 579,403
Treasury stock - 0 and 14,554,669 shares,
respectively (519,051)
Retained earnings 4,891,726 5,026,741
-------------------- -------------------
5,459,679 5,521,650
-------------------- -------------------
$15,122,435 $15,131,267
==================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
ALBERTSON'S, INC.
CONSOLIDATED CASH FLOWS
(in thousands)
(unaudited)
26 WEEKS ENDED
-----------------------------------------------
July 29, July 30,
1999 1998
-------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,376 $ 393,040
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 418,383 396,058
Goodwill amortization 29,687 28,109
Merger related noncash charges 303,545
Impairment - store closures 29,423
Net gain on asset sales (1,726) (1,741)
Net deferred income taxes (82,556) (13,359)
Increase in cash surrender value of
Company-owned life insurance (4,813) (11,282)
Changes in operating assets and
liabilities:
Receivables and prepaid expenses 154,043 2,856
Inventories 5,964 194,601
Accounts payable (28,013) (164,283)
Other current liabilities 5,278 (44,659)
Self-insurance 29,811 (55,388)
Unearned income (9,520) (3,031)
Other long-term liabilities (168,022) 15,467
-------------------- --------------------
Net cash provided by operating activities 662,437 765,811
CASH FLOWS FROM INVESTING ACTIVITIES:
Net capital expenditures excluding
noncash activities (837,445) (671,123)
Business acquisitions, net of cash acquired (121,348)
Increase in other assets (18,746) (72,297)
-------------------- --------------------
Net cash used in investing activities (856,191) (864,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 1,800,000 462,000
Payments on long-term borrowings (838,495) (176,767)
Net commercial paper and bank line activity (755,874) (130,128)
Proceeds from stock options exercised 20,110 19,749
Cash dividends (112,278) (130,414)
Stock purchased and retired (16,518)
-------------------- --------------------
Net cash provided by financing activities 113,463 27,922
-------------------- --------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (80,291) (71,035)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 116,139 155,877
-------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 35,848 $ 84,842
==================== ====================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
ALBERTSON'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Business Combination
On August 2, 1998, Albertson's Inc. ("Albertson's" or the "Company") and
American Stores Company ("ASC") entered into a definitive merger agreement
("Merger Agreement") whereby Albertson's would acquire ASC by exchanging 0.63
share of Albertson's common stock for each outstanding share of ASC common
stock, with cash being paid in lieu of fractional shares (the "Merger") and ASC
would be merged into a wholly-owned subsidiary of Albertson's. In addition,
outstanding rights to receive ASC common stock under ASC stock option plans
would be converted into rights to receive equivalent Albertson's common stock.
The Merger was consummated on June 23, 1999, with the issuance of approximately
177 million shares of Albertson's common stock. The Merger constituted a
tax-free reorganization and has been accounted for as a pooling of interests for
accounting and financial reporting purposes. The pooling of interests method of
accounting is intended to present as a single interest, two or more common
stockholders' interests that were previously independent; accordingly, these
consolidated financial statements restate the historical financial statements as
though the companies had always been combined. The restated financial statements
are adjusted to conform the accounting policies and financial statement
presentations.
Basis of Presentation
In the opinion of management, the accompanying unaudited 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.
Such adjustments consisted only of normal recurring items except for the merger
related charges discussed under "Merger Related and Exit Costs" and the 1998
impairment charge discussed under "Impairment - Store Closures". The 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 generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. It is suggested that these consolidated financial
statements be read in conjunction with the supplemental consolidated financial
statements for each of the three years in the period ended January 28, 1999, as
included in the Company's Form 8-K filed with the Securities and Exchange
Commission on July 16, 1999 ("July 1999 8-K"). The balance sheet at January 28,
1999, has been taken from the audited supplemental consolidated balance sheet
included in the Company's July 1999 8-K.
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions. 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. Actual results
could differ from these estimates.
Historical operating results are not necessarily indicative of future results.
Reclassifications and Conformity Adjustments
Certain reclassifications and adjustments have been made to the consolidated
supplemental financial statements for conformity purposes.
Reporting Periods
The Company's quarterly reporting periods are generally 13 weeks and
periodically consist of 14 weeks because the fiscal year ends on the Thursday
nearest to January 31 each year (the Saturday nearest to January 31 for ASC).
5
<PAGE>
The consolidated financial information includes the results of operations for a
full 13 week and 26 week period with Albertson's period ending July 29, 1999,
and ASC's period ending July 31, 1999.
Merger Related and Exit Costs
Results of operations for the 13 weeks ended July 29, 1999, include $576 million
of merger related and exit costs ($464 million after tax). The following table
presents the pre-tax costs incurred by category of expenditure and merger
related accruals included in the Company's consolidated balance sheet (in
millions):
<TABLE>
<CAPTION>
Exit Merger Extraordinary Period
Costs Charge Loss Costs Total
------------- ------------ ---------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Severance costs $ 93 $ 8 $ 2 $ 103
Write-down of assets
to net realizable
value and other 272 1 273
Transaction and
financing costs $ 31 73 104
Integration costs 9 11 20
Stock option charge 76 76
------------- ------------ ---------------------- ------------ ------------
Total costs 365 93 31 87 576
Cash expenditures (72) (7) (22) (84) (185)
Write-down of assets
to net realizable
value (256) (256)
Stock option charge (76) (76)
============= ============ ====================== ============ ============
Merger related accruals
at July 29, 1999 $ 37 $ 10 $ 9 $ 3 $ 59
============= ============ ====================== ============ ============
</TABLE>
Employee severance costs consist of severance for employees who were terminated
or were notified of termination. Approximately 600 employees will be severed as
a result of the Merger of which 181 were terminated as of July 29, 1999.
The write-down of assets to net realizable value includes the expected loss on
disposal of stores required to be divested (discussed below) and duplicate and
abandoned facilities, including administrative offices, intangibles and
information technology equipment which were abandoned by the Company or are
being held for sale. The estimated fair values of assets held for sale were
determined using negotiated sales prices or independent appraisals.
Transaction and financing costs consist primarily of professional fees paid for
investment banking, legal, accounting, printing and regulatory filing fees.
Financing costs also include the extraordinary loss on extinguishment of debt
discussed under "Indebtedness" below.
Integration costs consist primarily of incremental transition and integration
costs associated with integrating the operations of Albertson's and ASC and were
expensed as incurred.
As a result of the Merger, stock options and certain shares of restricted stock
granted under Albertson's and ASC's stock option and stock award plans
automatically vested upon the change of control as defined separately in the
plans. In addition to the conversion of ASC options into rights to acquire
shares of Company common stock, option holders had the right (limited stock
appreciation right or LSAR), during an exercise period of up to 60 days after
the occurrence of a change of control (but prior to consummation of the Merger),
to elect to surrender all or part of their options in exchange for shares of
Albertson's common stock having a value equal to the excess of the change of
control price over the exercise price (which shares were deliverable upon the
Merger).
6
<PAGE>
Approval of the Merger Agreement on November 12, 1998, by ASC's stockholders
accelerated the vesting of 6.4 million equivalent stock options granted under
Pre-1997 ASC Plans (approximately 60% of ASC's outstanding stock options) and
permitted the holders of these options to exercise LSARs. The exercisability of
6.4 million LSARs resulted in ASC recognizing a $195.3 million merger related
stock option charge (pre-tax) during the fourth fiscal quarter of 1998. This
charge was recorded based on the difference between the average equivalent
option exercise price of $30.40 and the average market price at measurement date
of $60.78. Of the 6.4 million equivalent options, 3.9 million were exercised
using the LSAR feature, 1.1 million were exercised without using the LSAR, and
at expiration of the LSAR on January 10, 1999, 1.4 million equivalent options
reverted back to fixed price options at an average equivalent exercise price of
$32.00.
In the first quarter of 1999 a market price adjustment of $28.9 million was
recorded as a reduction of merger related and exit costs to reflect a decline in
the relevant stock price at the end of the first fiscal quarter relative to the
3.9 million exercised LSARs. The actual change of control price used to measure
the value of these exercised LSARs became determinable at the date the Merger
was consummated and resulted in no further adjustments. Upon Merger
consummation, the change of control price was $53.77 per share, resulting in the
issuance of approximately 1.7 million Company shares.
LSARs relating to approximately 4.0 million equivalent stock options became
exercisable upon regulatory approval of the Merger, which resulted in
recognition of an additional noncash charge of $76.5 million in the second
quarter of fiscal 1999, which is included with the merger related and exit
costs. This charge was based upon an average equivalent exercise price of $37.65
and a change of control price of $56.96 which includes an adjustment factor for
the early termination of the LSAR feature. A total of 0.8 million Company shares
were issued in satisfaction of those options for which the LSAR feature was
elected and the remaining options were converted into options to acquire
approximately 1.2 million Company shares at an average exercise price of $37.65.
In connection with the Merger, the Company entered into agreements with the
Attorneys General of California, Nevada and New Mexico and the Federal Trade
Commission to enable the Merger to proceed under applicable antitrust,
competition and trade regulation law. The agreements require the Company to
divest a total of 117 stores in California, 19 stores in Nevada and 9 stores in
New Mexico. Of the stores required to be divested, 40 are ASC locations operated
primarily under the Lucky name, and 105 are Albertson's stores operated
primarily under the Albertson's name. In addition, the Company will divest four
supermarket real estate sites as required by the agreements. The stores
identified for disposition had sales of $2.3 billion in fiscal 1998. The Company
expects the divestitures to be substantially completed by the end of the third
quarter of 1999.
Impairment - Store Closures
The Company recorded a charge to earnings in the first quarter of 1998 related
to management's decision to close 16 underperforming stores in 8 states. The
charge included impaired real estate and equipment, as well as the present value
of remaining liabilities under leases, net of expected sublease recoveries.
Substantially all of these stores have been closed and management believes the
1998 charge and remaining reserves are adequate.
Income Taxes
The effective income tax rate for 1999 increased as a result of the effect of
certain merger related and exit costs for which there were not corresponding tax
benefits.
7
<PAGE>
Earnings Per Share
As a result of the second quarter net loss, 1,319,262 shares were anti-dilutive
and, accordingly, were not included in the diluted earnings per share
calculation for the 13 weeks ended July 29, 1999.
Indebtedness
On March 30, 1999, the Company entered into a revolving credit agreement with a
syndicate of commercial banks whereby the Company may borrow principal amounts
up to $1.5 billion at varying interest rates at any time prior to March 28,
2000. The agreement has a one-year term out option which allows the Company to
convert any loans outstanding on the expiration date of the agreement into
one-year term loans. The agreement contains certain covenants, the most
restrictive of which requires the Company to maintain consolidated tangible net
worth, as defined, of at least $2.1 billion. In addition to the new revolving
credit agreement, the Company has an existing $600 million revolving credit
agreement, whereby the Company may borrow principal amounts at varying interest
rates any time prior to December 17, 2001. The combination of the two revolving
credit agreements allows the Company to borrow principal amounts up to $2.1
billion and serves as backup financing for the Company's commercial paper
borrowings. There were no amounts outstanding under either revolving credit
agreement as of July 29, 1999.
Following the Merger the Company has consolidated several of the commercial
paper, bank lines and other financing arrangements. The consolidation of debt
included the repayment of outstanding amounts under ASC's revolving credit
facilities and other debt containing change of control provisions and the tender
for, or open market purchases of, certain higher coupon debt. As a result, the
following debt was extinguished (in millions):
<TABLE>
<CAPTION>
Amount
Debt Description Reason for Repayment Extinguished
- --------------------------------------------------- --------------------------------- --------------------------
<S> <C> <C>
Revolving Credit Facility Change of control $ 500.0
Bank borrowing due 2000 Change of control 75.0
10.6% Note due in 2004 Change of control 93.4
9.125% Notes due 2002 Tender offer 170.1
8.0% Debentures due 2026 Open market purchases 78.3
7.9% Debentures due 2017 Open market purchases 4.5
</TABLE>
In July 1999 the Company issued $500 million of floating rate notes. The notes
are due July 2000 and bear interest based on LIBOR commercial paper rates that
reset monthly. As of July 29, 1999, the interest rate was 5.16% on the
outstanding notes. These notes were issued under the Company's commercial paper
program.
In July 1999 the Company issued $1.3 billion of term notes under a shelf
registration statement filed with the Securities and Exchange Commission in
February 1999. The notes are comprised of: $300 million of principal bearing
interest at 6.55% due August 1, 2004; $350 million of principal bearing interest
at 6.95% due August 1, 2009; and $650 million of principal bearing interest at
7.45% due August 1, 2029. Interest is paid semiannually. Proceeds were used
primarily to repay borrowings under the Company's commercial paper program.
Additional securities up to $1.2 billion remain available for issuance under the
Company's 1999 registration statement.
On May 14, 1999, ASC terminated its $300 million LIBOR basket swap at a cost of
$0.8 million. The five-year swap agreement had been entered into in 1997 and
diversified the indices used to determine the interest rate on a portion of the
Company's variable rate debt by providing for payments based on foreign LIBOR
indices which were reset every three months. The fair value of the agreement
based on market quotes at fiscal year-end 1998 was a loss of $5.3 million.
8
<PAGE>
In July 1999 the Company negotiated an amendment to a $200 million term loan
agreement between ASC and a group of commercial banks. The original agreement
contained a change of control provision. The amended agreement has revised
representations, warranties and covenants which substantially mirror the
Company's $1.5 billion revolving credit agreement as well as a guarantee by
Albertson's, Inc. The amended fixed rate loans carry interest based upon a
pricing schedule (which averages 6.75%) dependent upon the Company's long-term
debt rating, and mature July 3, 2004.
Supplemental Cash Flow Information
Selected cash payments and noncash activities were as follows (in thousands):
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
July 29, 1999 July 30, 1998
----------------------- -----------------------
<S> <C> <C>
Cash payments for:
Income taxes $ 373,676 $ 288,475
Interest, net of amounts
capitalized 169,585 155,821
Noncash activities:
Capitalized leases incurred 11,344 8,049
Capitalized leases terminated 646 5,509
Tax benefits related to stock
options 5,438 1,450
Liabilities assumed in connection
with asset acquisition 6,976 90
Increase in cash surrender value
of Company-owned life insurance 4,813 11,282
Fair market value of stock
exchanged for option price and
tax withholdings 1,091
Noncash merger charges:
Write-down of assets to net realizable
value 255,948
Stock option charge 47,597
Impairment loss - store closures 29,423
Note payable related to
business acquisition 8,000
</TABLE>
Recent Accounting Standards
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This new standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This standard is effective for the Company's 2001 fiscal year. The Company has
not yet completed its evaluation of this standard or its impact, if any, on the
Company's reporting requirements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Combination
On August 2, 1998, Albertson's Inc. ("Albertson's" or the "Company") and
American Stores Company ("ASC") entered into a definitive merger agreement
("Merger Agreement") whereby Albertson's would acquire ASC by exchanging 0.63
share of Albertson's common stock for each outstanding share of ASC common
stock, with cash being paid in lieu of fractional shares (the "Merger") and ASC
would be merged into a wholly-owned subsidiary of Albertson's.
9
<PAGE>
The Merger was consummated on June 23, 1999, with the issuance of approximately
177 million shares of Albertson's common stock. The Merger constituted a
tax-free reorganization and has been accounted for as a pooling of interests for
accounting and financial reporting purposes. The pooling of interests method of
accounting is intended to present as a single interest, two or more common
stockholders' interests that were previously independent; accordingly, these
consolidated financial statements restate the historical financial statements as
though the companies had always been combined. The restated financial statements
are adjusted to conform the accounting policies and financial statement
presentations.
Results of Operations - Second Quarter
Sales for the 13 weeks ended July 29, 1999, increased 4.9% primarily as a result
of the continued expansion of net retail square footage. Identical store sales
increased 1.1% and comparable store sales (which include replacement stores)
increased 1.5%. Management estimates that there was deflation in the price of
products the Company sells of approximately 0.6% (annualized). During the second
quarter the Company opened 21 combination food and drug stores, 14 drug stores
and 7 fuel centers. The Company closed 16 conventional and combination food and
drug stores, 3 of which were required divestitures and 6 of which were replaced
with newer stores. The Company also closed 12 drug stores, 5 of which were
replaced with newer stores. Sixteen stores were remodeled during the second
quarter. Construction of a new distribution center in Tulsa, Oklahoma was
completed August 1, 1999, and shipments to the Company's stores in the Midwest
began on August 16, 1999. Retail square footage increased to 98.9 million square
feet, a net increase of 6.0% from July 30, 1998.
In addition to store development, the Company plans to increase sales through
its investment in programs initiated in recent years which are designed to
provide solutions to customer needs. These programs include the Front End
Manager program; the home meal solutions process called "Quick Fixin' Ideas(R)";
special destination categories; pharmacy and health initiatives; and increased
emphasis on training programs utilizing Computer Guided Training. To provide
additional solutions to customer needs, the Company has added new
gourmet-quality bakery products and organic grocery and produce items. Other
solutions include neighborhood marketing, targeted advertising and exciting new
and remodeled stores. Future growth will be affected by the required
divestitures of 145 stores in connection with the Merger. The Company expects
the divestitures to be substantially completed by the end of the third quarter
of 1999.
For the 13 weeks ended July 29, 1999, the Company reported a net loss of $228
million, or $0.54 per basic and diluted share as compared to net income of $217
million or $0.52 per basic and diluted share for the 13 weeks ended July 30,
1998. The net loss for 1999 is attributable to merger related and exit costs
associated with the Merger as discussed below.
Results of operations for the 13 weeks ended July 29, 1999, include $576 million
of merger related and exit costs ($464 million after tax). The following table
presents the pre-tax costs incurred by category of expenditure (in millions):
<TABLE>
<CAPTION>
Exit Merger Extraordinary Period
Costs Charge Loss Costs Total
------------ ------------ ---------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Severance costs $93 $8 $2 $ 103
Write-down of assets
to net realizable
value and other 272 1 273
Transaction and
financing costs $31 73 104
Integration costs 9 11 20
Stock option charge 76 76
============ ============ ====================== ============ ============
Total costs $ 365 $ 93 $31 $ 87 $ 576
============ ============ ====================== ============ ============
</TABLE>
10
<PAGE>
Employee severance costs consist of severance for employees who were terminated
or were notified of termination. Approximately 600 employees will be severed as
a result of the Merger of which 181 were terminated as of July 29, 1999.
The write-down of assets to net realizable value includes the expected loss on
disposal of stores required to be divested (discussed under "Divestitures") and
duplicate and abandoned facilities, including administrative offices,
intangibles and information technology equipment which were abandoned by the
Company or are being held for sale. The estimated fair values of assets held for
sale were determined using negotiated sales prices or independent appraisals.
Transaction and financing costs consist primarily of professional fees paid for
investment banking, legal, accounting, printing and regulatory filing fees.
Financing costs also include the extraordinary loss on extinguishment of debt.
Integration costs consist primarily of incremental transition and integration
costs associated with integrating the operations of Albertson's and ASC and were
expensed as incurred.
As a result of the Merger, stock option compensation cost was recognized
pursuant to the limited stock appreciation rights discussed under "Merger
Related and Exit Costs" in the Notes to Consolidated Financial Statements.
The Company expects to incur additional after-tax merger related and exit costs
of approximately $236 million over the next two years which consist primarily of
expected integration costs and costs associated with other consolidation
activities for which plans have not yet been finalized.
Due to the significance of the merger related and exit costs and the effect on
operating results, the following table and discussion that follows is presented
to aid in the comparison of income statement components without the effects of
merger related and exit costs (in thousands).
<TABLE>
<CAPTION>
13 Weeks Ended July 29, 1999 13 Weeks Ended
July 30, 1998
------------------------------------------------------------
As Reported Adjustments Adjusted
---------------- --------------- ---------------- ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $9,381,341 $9,381,341 100.00% $8,945,068 100.00%
Cost of sales 6,825,931 $ (3,794) 6,822,137 72.72 6,550,025 73.22
---------------- --------------- ---------------- ---------- -------------- ----------
Gross profit 2,555,410 3,794 2,559,204 27.28 2,395,043 26.78
Selling, general and
administrative expenses 2,172,341 (82,851) 2,089,490 22.27 1,952,051 21.82
Merger related and exit
costs 457,768 (457,768)
---------------- --------------- ---------------- ---------- -------------- ----------
Operating (loss) profit (74,699) 544,413 469,714 5.01 442,992 4.95
Interest expense, net (77,829) 850 (76,979) (0.82) (85,708) (0.96)
Other income, net 513 513 0.01 2,576 0.03
---------------- --------------- ---------------- ---------- -------------- ----------
(Loss) earnings before
income taxes and
extraordinary item (152,015) 545,263 393,248 4.19 359,860 4.02
Income taxes 52,828 104,471 157,299 1.68 143,282 1.60
---------------- --------------- ---------------- ---------- -------------- ----------
(Loss) earnings before
extraordinary item (204,843) 440,792 235,949 2.52 216,578 2.42
Extraordinary loss on
extinguishment of debt,
net of tax benefit of
$7,388 (23,272) 23,272
---------------- --------------- ---------------- ---------- -------------- ----------
NET (LOSS) EARNINGS $ (228,115) $ 464,064 $ 235,949 2.52% $ 216,578 2.42%
================ =============== ================ ========== ============== ==========
</TABLE>
11
<PAGE>
Gross profit, as a percent to sales, increased primarily as a result of
continued improvements made in retail stores, including improvements in
underperforming stores and improved sales mix of partially prepared, value-added
products. Gross profit improvements were also realized through the continued
utilization of Company-owned distribution facilities and increased buying
efficiencies. The pre-tax LIFO charge reduced gross profit by $9.0 million
(0.10% to sales) in the second quarter of 1999 as compared to $8.2 million
(0.09% to sales) in the second quarter of 1998.
Selling, general and administrative expenses excluding merger related and exit
costs, as a percent to sales, increased primarily due to increased salary and
related benefit costs resulting from the Company's initiatives to increase sales
and increased depreciation expense associated with the Company's expansion
program.
Results of Operations - Year-To-Date
Sales for the 26 weeks ended July 29, 1999, increased 5.3% primarily as a result
of the continued expansion of net retail square footage. Identical store sales
increased 1.3% and comparable store sales (which include replacement stores)
increased 1.7%. Management estimates that there was deflation in the price of
products the Company sells of approximately 0.6% (annualized). During the 26
weeks ended July 29, 1999, the Company opened 33 combination food and drug
stores, 28 drug stores and 16 fuel centers. The Company closed 26 conventional
and combination food and drug stores, 3 of which were required divestitures and
8 of which were replaced with newer stores. The Company also closed 13 drug
stores, 5 of which were replaced with newer stores. Twenty-eight stores were
remodeled during the 26 weeks. Construction of a new distribution center in
Tulsa, Oklahoma was completed August 1, 1999, and shipments to the Company's
stores in the Midwest began on August 16, 1999. Retail square footage increased
to 98.9 million square feet, a net increase of 6.0% from July 30, 1998.
In addition to store development, the Company plans to increase sales through
its investment in programs initiated in recent years which are designed to
provide solutions to customer needs. These programs include the Front End
Manager program; the home meal solutions process called "Quick Fixin' Ideas(R)";
special destination categories; pharmacy and health initiatives; and increased
emphasis on training programs utilizing Computer Guided Training. To provide
additional solutions to customer needs, the Company has added new
gourmet-quality bakery products and organic grocery and produce items. Other
solutions include neighborhood marketing, targeted advertising and exciting new
and remodeled stores. Future growth will be affected by the required
divestitures of 145 stores in connection with the Merger. The Company expects
the divestitures to be substantially completed by the end of the third quarter
of 1999.
For the 26 weeks ended July 29, 1999, the Company reported net income of $10
million, or $0.02 per basic and diluted share as compared to $393 million or
$0.94 per basic and $0.93 per diluted share for the 26 weeks ended July 30,
1998. The decrease from the prior year is attributable to merger related and
exit costs associated with the Merger as discussed below.
Results of operations for the 26 weeks ended July 29, 1999, include $551 million
of merger related and exit costs ($449 million after tax). The following table
presents the pre-tax costs incurred by category of expenditure (in millions):
12
<PAGE>
<TABLE>
<CAPTION>
Exit Merger Extraordinary Period
Costs Charge Loss Costs Total
------------ ------------ ---------------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Severance costs $93 $8 $2 $ 103
Write-down of assets
to net realizable
value and other 272 1 273
Transaction and
financing costs $31 73 104
Integration costs 9 15 24
Stock option charge 47 47
------------ ------------ ---------------------- ------------ ------------
Total costs $ 365 $ 64 $31 $ 91 $ 551
============ ============ ====================== ============ ============
</TABLE>
Employee severance costs consist of severance for employees who were terminated
or were notified of termination. Approximately 600 employees will be severed as
a result of the Merger of which 181 were terminated as of July 29, 1999.
The write-down of assets to net realizable value includes the expected loss on
disposal of stores required to be divested (discussed under "Divestitures") and
duplicate and abandoned facilities, including administrative offices,
intangibles and information technology equipment which were abandoned by the
Company or are being held for sale. The estimated fair values of assets held for
sale were determined using negotiated sales prices or independent appraisals.
Transaction and financing costs consist primarily of professional fees paid for
investment banking, legal, accounting, printing and regulatory filing fees.
Financing costs also include the extraordinary loss on extinguishment of debt.
Integration costs consist primarily of incremental transition and integration
costs associated with integrating the operations of Albertson's and ASC and were
expensed as incurred.
As a result of the Merger, stock option compensation cost was recognized
pursuant to the limited stock appreciation rights discussed under "Merger
Related and Exit Costs" in the Notes to Consolidated Financial Statements.
The Company expects to incur additional after-tax merger related and exit costs
of approximately $236 million over the next two years which consist primarily of
expected integration costs and costs associated with other consolidation
activities for which plans have not yet been finalized.
Due to the significance of the merger related and exit costs and the effect on
operating results, the following table and discussion that follows is presented
to aid in the comparison of income statement components without the effects of
merger related and exit costs (in thousands).
13
<PAGE>
<TABLE>
<CAPTION>
26 Weeks Ended July 29, 1999 26 Weeks Ended
July 30, 1998
------------------------------------------------------------
As Reported Adjustments Adjusted
---------------- --------------- ---------------- ---------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $18,596,628 $18,596,628 100.00% $17,666,007 100.00%
Cost of sales 13,538,614 $ (3,794) 13,534,820 72.78 12,973,227 73.44
---------------- --------------- ---------------- ---------- -------------- ----------
Gross profit 5,058,014 3,794 5,061,808 27.22 4,692,780 26.56
Selling, general and
administrative expenses 4,230,489 (87,151) 4,143,338 22.28 3,854,659 21.82
Merger related and exit
costs 428,904 (428,904)
Impairment - store
closures 29,423 0.17
---------------- --------------- ---------------- ---------- -------------- ----------
Operating profit 398,621 519,849 918,470 4.94 808,698 4.58
Interest expense, net (159,860) 850 (159,010) (0.86) (168,380) (0.95)
Other income, net 4,813 4,813 0.03 11,851 0.07
---------------- --------------- ---------------- ---------- -------------- ----------
Earnings before income 652,169 3.69
taxes and extraordinary
item 243,574 520,699 764,273 4.11
Income taxes 209,926 94,559 304,485 1.64 259,129 1.47
---------------- --------------- ---------------- ---------- -------------- ----------
Earnings before
extraordinary item 33,648 426,140 459,788 2.47 393,040 2.22
Extraordinary loss on
extinguishment of debt,
net of tax benefit of
$7,388 (23,272) 23,272
---------------- --------------- ---------------- ---------- -------------- ----------
NET EARNINGS $ 10,376 $ 449,412 $ 459,788 2.47% $ 393,040 2.22%
================ =============== ================ ========== ============== ==========
</TABLE>
Gross profit, as a percent to sales, increased primarily as a result of
continued improvements made in retail stores, including improvements in
underperforming stores and improved sales mix of partially prepared, value-added
products. Gross profit improvements were also realized through the continued
utilization of Company-owned distribution facilities and increased buying
efficiencies. The pre-tax LIFO charge reduced gross profit by $18.0 million
(0.10% to sales) in the 26 weeks ended July 29, 1999, as compared to $21.2
million (0.12% to sales) for the 26 weeks ended July 30, 1998.
Selling, general and administrative expenses excluding merger related and exit
costs, as a percent to sales, increased primarily due to increased salary and
related benefit costs resulting from the Company's initiatives to increase sales
and increased depreciation expense associated with the Company's expansion
program.
The Company recorded a $29.4 million pre-tax ($18.4 million after tax) charge to
earnings (Impairment - Store Closures) in the first quarter of 1998 related to
management's decision to close 16 underperforming stores in 8 states during the
fiscal year. The charge includes impaired real estate and equipment, as well as
the present value of remaining liabilities under leases, net of expected
sublease recoveries. Substantially all of these stores have been closed.
Other income for the 26 weeks ended July 29, 1999, included noncash income of
$4.8 million for the increase in cash surrender value of Company-owned life
insurance as compared to income of $11.3 million for the 26 weeks ended July 30,
1998.
Liquidity and Capital Resources
The Company's operating results continue to enhance its financial position and
ability to continue its planned expansion program. Cash flows from operations
and available borrowings are sufficient for the future operating needs of the
Company.
Cash provided by operating activities during the 26 weeks ended July 29, 1999
was $662 million as compared to $766 million during the same period of 1998.
14
<PAGE>
During the 26 weeks ended July 29, 1999, the Company invested $837 million for
net capital expenditures. The Company's financing activities during the 26 weeks
ended July 29, 1999, included net new borrowings of $206 million and $112
million for the payment of dividends.
The Company utilizes its commercial paper and bank line programs primarily to
supplement cash requirements for seasonal fluctuations in working capital and to
fund its capital expenditure program. Accordingly, commercial paper and bank
line borrowings will fluctuate between quarterly reporting periods. Following
the Merger the Company has consolidated several of the commercial paper, bank
lines and other financing arrangements. The consolidation of debt included the
repayment of ASC debt containing change of control provisions and the tender
for, or open market purchases of, certain higher coupon debt.
On March 30, 1999, the Company entered into a revolving credit agreement with a
syndicate of commercial banks whereby the Company may borrow principal amounts
up to $1.5 billion at varying interest rates at any time prior to March 28,
2000. The agreement has a one-year term out option which allows the Company to
convert any loans outstanding on the expiration date of the agreement into
one-year term loans. The agreement contains certain covenants, the most
restrictive of which requires the Company to maintain consolidated tangible net
worth, as defined, of at least $2.1 billion. In addition to the new revolving
credit agreement, the Company has an existing $600 million revolving credit
agreement, whereby the Company may borrow principal amounts at varying interest
rates any time prior to December 17, 2001. The combination of the two revolving
credit agreements allows the Company to borrow principal amounts up to $2.1
billion and serves as backup financing for the Company's commercial paper
borrowings. There were no amounts outstanding under either revolving credit
agreement as of July 29, 1999.
In July 1999 the Company issued $500 million of floating rate notes. The notes
are due July 2000 and bear interest based on LIBOR commercial paper rates that
reset monthly. As of July 29, 1999, the interest rate was 5.16% on the
outstanding notes. These notes were issued under the Company's commercial paper
program.
In July 1999 the Company issued $1.3 billion of term notes under a shelf
registration statement filed with the Securities and Exchange Commission in
February 1999. The notes are comprised of: $300 million of principal bearing
interest at 6.55% due August 1, 2004; $350 million of principal bearing interest
at 6.95% due August 1, 2009; and $650 million of principal bearing interest at
7.45% due August 1, 2029. Interest is paid semiannually. Proceeds were used
primarily to repay borrowings under the Company's commercial paper program.
Additional securities up to $1.2 billion remain available for issuance under the
Company's 1999 registration statement.
Divestitures
In connection with the Merger, the Company entered into agreements with the
Attorneys General of California, Nevada and New Mexico and the Federal Trade
Commission to enable the Merger to proceed under applicable antitrust,
competition and trade regulation law. The agreements require the Company to
divest a total of 117 stores in California, 19 stores in Nevada and 9 stores in
New Mexico. Of the stores required to be divested, 40 are ASC locations operated
primarily under the Lucky name, and 105 are Albertson's stores operated
primarily under the Albertson's name. In addition, the Company will divest four
supermarket real estate sites as required by the agreements. The stores
identified for disposition had sales of $2.3 billion in fiscal 1998. The Company
expects the divestitures to be substantially completed by the end of the third
quarter of 1999.
Recent Accounting Standards
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
15
<PAGE>
and Hedging Activities." This new standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This standard is effective for the Company's 2001 fiscal year. The Company has
not yet completed its evaluation of this standard or its impact, if any, on the
Company's reporting requirements.
Year 2000 Compliance
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. As the year 2000
approaches, systems using such programs may be unable to accurately process
certain date-based information. To the extent that the Company's software
applications contain source code that is unable to interpret appropriately the
upcoming calendar year 2000 and beyond, some level of modification or
replacement of such applications will be necessary to avoid system failures and
the temporary inability to process transactions or engage in other normal
business activities.
Beginning in 1995 the Company formed project teams to assess the impact of the
Year 2000 issue on the software and hardware utilized in the Company's internal
operations. The project teams are staffed primarily with representatives of the
Company's Information Systems and Technology departments and report on a regular
basis to senior management and the Company's Board of Directors.
The initial phase of the Year 2000 project was assessment and planning. This
phase is substantially complete and included an assessment of all computer
hardware, software, systems and processes ("IT Systems") and non-information
technology systems such as telephones, clocks, scales, refrigeration controllers
and other equipment containing embedded microprocessor technology ("Non-IT
Systems"). The completion of upgrades, validation and forward date testing for
all systems is scheduled for third quarter of 1999 although many systems have
been completed. The Company expects to successfully implement the remediation of
the IT Systems and Non-IT Systems.
In addition to the remediation of the IT systems and Non-IT systems, the Company
has identified relationships with third parties, including vendors, suppliers
and service providers, which the Company believes are critical to its business
operations. The Company has been communicating with these third parties through
questionnaires, letters and interviews in an effort to determine the extent to
which they are addressing their Year 2000 compliance issues. The Company will
continue to communicate with, assess the progress of, and monitor the progress
of these third parties in resolving Year 2000 issues.
The total costs to address the Company's Year 2000 issues are estimated to be
approximately $43 million, of which approximately $28 million has been or will
be expensed and approximately $15 million has been or will be capitalized. These
costs include expenditures accelerated for Year 2000 compliance. As of July 29,
1999, the Company has spent approximately 95% of the estimated costs. These
costs have been funded through operating cash flow and represent a small portion
of the Company's IT budget.
The Company is dependent on the proper operation of its internal computer
systems and software for several key aspects of its business operations,
including store operations, merchandise purchasing, inventory management,
pricing, sales, warehousing, transportation, financial reporting and
administrative functions. The Company is also dependent on the proper operation
of the computer systems and software of third parties providing critical goods
and services to the Company, including vendors, utilities, financial
institutions, government entities and others. The Company believes that its
efforts will result in Year 2000 compliance. However, the failure or malfunction
16
<PAGE>
of internal or external systems could impair the Company's ability to operate
its business in the ordinary course and could have a material adverse effect on
its results of operations.
The Company is currently developing its contingency plans and intends to
formalize these plans with respect to its most critical applications during the
third quarter of 1999. Contingency plans may include manual workarounds,
increased inventories and extra staffing.
Environmental
The Company has identified environmental contamination at certain of its stores,
warehouse, office and manufacturing facilities (related to current operations as
well as previously disposed of businesses) which are primarily related to
underground petroleum storage tanks (USTs) and ground water contamination. The
Company conducts an on-going program for the inspection and evaluation of new
sites proposed to be acquired by the Company and the remediation/monitoring of
contamination at existing and previously owned sites. Although the ultimate
outcome and expense of environmental remediation is uncertain, the Company
believes that the required costs of remediation, UST upgrades and continuing
compliance with environmental laws will not have a material adverse effect on
the financial condition of the Company.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995 From time to time, information provided
by the Company, including written or oral statements made by its
representatives, may contain forward-looking information as defined in the
Private Securities Litigation Reform Act of 1995, including statements with
respect to the Merger and future performance of the combined companies. All
statements, other than statements of historical facts, which address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as expansion and growth of the Company's
business, future capital expenditures and the Company's business strategy,
contain forward-looking information. In reviewing such information it should be
kept in mind that actual results may differ materially from those projected or
suggested in such forward-looking information. This forward-looking information
is based on various factors and was derived utilizing numerous assumptions. Many
of these factors have previously been identified in filings or statements made
by or on behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy, changes in consumer
spending, competitive factors and other factors affecting the Company's business
in or beyond the Company's control. These factors include changes in the rate of
inflation, changes in state or federal legislation or regulation, adverse
determinations with respect to litigation or other claims (including
environmental matters), labor negotiations, adverse effects of failure to
achieve Year 2000 compliance, the Company's ability to recruit and develop
employees, its ability to develop new stores or complete remodels as rapidly as
planned, its ability to implement new technology successfully, stability of
product costs and the Company's ability to integrate the operations of ASC.
Other factors and assumptions not identified above could also cause the actual
results to differ materially from those set forth in the forward-looking
information. The Company does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Three civil lawsuits filed in September 1996 as purported statewide class
actions in Washington, California and Florida and two civil lawsuits filed in
April 1997 in federal court in Boise, Idaho, as purported multi-state class
actions covering the remaining states in which the Company operated at the time
have been brought against the Company raising various issues that include: (i)
allegations that the Company has a widespread practice of permitting its
employees to work "off-the-clock" without being paid for their work and (ii)
allegations that the Company's bonus and workers' compensation plans are
unlawful. Four of these suits are being sponsored and financed by the United
Food and Commercial Workers (UFCW) International Union. The five suits have been
consolidated in Boise, Idaho. The consolidated complaint for these suits further
alleges claims under the Employee Retirement Income Security Act. In addition,
three other similar suits have been filed as purported class actions in
Colorado, New Mexico and Nevada which, in effect, duplicate the coverage of the
UFCW-sponsored suits under state law. These three cases have been transferred to
the federal court in Boise, Idaho.
The Company is committed to full compliance with all applicable laws. Consistent
with this commitment, the Company has firm and long-standing policies in place
prohibiting off-the-clock work and has structured its bonus and workers'
compensation plans to comply with applicable law. The Company believes that the
UFCW-sponsored suits are part of a broader and continuing effort by the UFCW and
some of its locals to pressure the Company to unionize employees who have not
expressed a desire to be represented by a union. The Company intends to
vigorously defend against all of these lawsuits, and, at this stage of the
litigation, the Company believes that it has strong defenses against them.
On September 13, 1996, a class action lawsuit captioned McCampbell, et. al. v.
Ralphs Grocery Company, et. al. was filed in the San Diego Superior Court of the
State of California against ASC (Lucky) and two other grocery chains operating
in southern California. The complaint alleged, among other things, that ASC
(Lucky) and others conspired to fix the retail price of eggs in southern
California. On September 2, 1999, a jury verdict was rendered in favor of ASC
(Lucky) and the two other grocery chains.
Although these lawsuits are subject to the uncertainties inherent in the
litigation process, based on the information presently available to the Company,
management does not expect the ultimate resolution of these actions to have a
material adverse effect on the Company's financial condition.
The Company is also involved in routine litigation incidental to operations. In
the opinion of management, the ultimate resolution of these legal proceedings
will not have a material adverse effect on the Company's financial condition.
Item 2. Changes in Securities
In accordance with the Company's $1.5 billion revolving credit agreement and the
amended $200 million term loan agreement between ASC and a group of commercial
banks, the Company's consolidated tangible net worth, as defined, shall not be
less than $2.1 billion.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Information regarding the Company's Annual meeting of Stockholders held on May
28, 1999, was included under Item 4 of the Company's Form 10-Q for the quarter
ended April 29, 1999.
18
<PAGE>
Item 5. Other Information
Effective with the Merger consummation on June 23, 1999, the following
individuals were appointed to the Company's Board of Directors:
Teresa Beck Class I
Victor L. Lund Class I
Fernando R. Gumucio Class II
Arthur K. Smith Class II
Pamela G. Bailey Class III
Henry I. Bryant Class III
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Number Description
27 Financial data schedule for the 26 weeks ended July 29, 1999.
27.1 Restated financial data schedule for the quarter ended April 29,
1999.
27.2 Restated financial data schedules for the years ended January 28,
1999, January 29, 1998, and January 30, 1997.
27.3 Restated financial data schedules for the quarters ended October
29, 1998, July 30, 1998, and April 30, 1998.
27.4 Restated financial data schedules for the quarters ended October
30, 1997, July 31, 1997, and May 1, 1997.
b. The following reports on Form 8-K were filed during the quarter ended July
29, 1999:
Current Report on Form 8-K dated July 2, 1999, regarding the June 23, 1999,
consummation of the merger between Albertson's, Inc. and American Stores
Company.
Current Report on Form 8-K dated July 16, 1999, containing the following:
1) Audited financial statements of American Stores Company as of January
30, 1999, January 31, 1998, and February 1, 1997, and for each of the three
years ended January 30, 1999; 2) Audited supplemental consolidated
financial statements as of January 28, 1999, January 29, 1998, and January
30, 1997, and for each of the three years ended January 28, 1999, which
have been restated as if Albertson's and ASC had been combined for all
periods presented; 3) Unaudited interim supplemental consolidated financial
statements as of April 29, 1999, and for the 13 week periods ended April
29, 1999, and April 30, 1998, which have been restated as if Albertson's
and ASC had been combined for all periods presented; and, 4) Unaudited pro
forma combined financial data as of April 29, 1999, for the year ended
January 28, 1999, and for the 13 weeks ended April 29, 1999.
Current Report on Form 8-K/A dated August 27, 1999, regarding a correction
to a statement made in the Current Report on Form 8-K filed on July 16,
1999.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBERTSON'S, INC.
---------------------------------
(Registrant)
Date: September 8, 1999 /S/ A. Craig Olson
--------------------- ---------------------------------
A. Craig Olson
Executive Vice President
and Chief Financial Officer
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM ALBERTSON'S
QUARTERLY REPORT TO STOCKHOLDERS FOR THE 26 WEEKS ENDED JULY 29, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-03-2000
<PERIOD-START> JAN-29-1999
<PERIOD-END> JUL-29-1999
<CASH> 35,848
<SECURITIES> 0
<RECEIVABLES> 551,900
<ALLOWANCES> 21,879
<INVENTORY> 3,113,215
<CURRENT-ASSETS> 4,551,428
<PP&E> 13,454,819
<DEPRECIATION> 4,655,868
<TOTAL-ASSETS> 15,122,435
<CURRENT-LIABILITIES> 3,719,435
<BONDS> 5,039,253
0
0
<COMMON> 423,466
<OTHER-SE> 5,036,213
<TOTAL-LIABILITY-AND-EQUITY> 15,122,435
<SALES> 18,596,628
<TOTAL-REVENUES> 18,596,628
<CGS> 13,538,614
<TOTAL-COSTS> 13,538,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,860
<INCOME-PRETAX> 243,574
<INCOME-TAX> 209,926
<INCOME-CONTINUING> 33,648
<DISCONTINUED> 0
<EXTRAORDINARY> 23,272
<CHANGES> 0
<NET-INCOME> 10,376
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS FOR THE 13 WEEKS ENDED APRIL 29,
1999, AS INCLUDED IN ALBERTSON'S FORM 8-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON JULY 16, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-2000
<PERIOD-START> JAN-29-1999
<PERIOD-END> APR-29-1999
<CASH> 116,123
<SECURITIES> 0
<RECEIVABLES> 570,080
<ALLOWANCES> 21,510
<INVENTORY> 3,189,143
<CURRENT-ASSETS> 4,125,490
<PP&E> 13,656,156
<DEPRECIATION> 4,946,243
<TOTAL-ASSETS> 15,180,933
<CURRENT-LIABILITIES> 3,390,244
<BONDS> 5,027,115
0
0
<COMMON> 434,703
<OTHER-SE> 5,235,805
<TOTAL-LIABILITY-AND-EQUITY> 15,180,933
<SALES> 9,215,287
<TOTAL-REVENUES> 9,215,287
<CGS> 6,712,683
<TOTAL-COSTS> 6,712,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,031
<INCOME-PRETAX> 395,589
<INCOME-TAX> 157,098
<INCOME-CONTINUING> 238,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238,491
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED FINANCIAL INFORMATION EXTRACTED FROM THE
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS FOR EACH OF THE THREE YEARS ENDED
JANUARY 28, 1999, AS INCLUDED IN ALBERTSON'S FORM 8-K FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION ON JULY 16, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> JAN-28-1999 JAN-29-1998 JAN-30-1997
<PERIOD-START> JAN-30-1998 JAN-31-1997 FEB-02-1996
<PERIOD-END> JAN-28-1999 JAN-29-1998 JAN-30-1997
<CASH> 116,139 155,877 128,332
<SECURITIES> 0 0 0
<RECEIVABLES> 600,794 535,158 430,991
<ALLOWANCES> 19,169 14,816 13,749
<INVENTORY> 3,249,179 3,042,807 2,946,609
<CURRENT-ASSETS> 4,186,308 3,901,637 3,654,419
<PP&E> 13,317,752 12,042,454 10,693,439
<DEPRECIATION> 4,774,030 4,346,547 3,906,982
<TOTAL-ASSETS> 15,131,267 13,766,605 12,608,038
<CURRENT-LIABILITIES> 3,350,886 3,380,953 2,842,474
<BONDS> 5,107,563 4,332,577 3,664,898
0 0 0
0 0 0
<COMMON> 434,557 434,596 439,550
<OTHER-SE> 5,087,093 4,305,942 4,354,895
<TOTAL-LIABILITY-AND-EQUITY> 15,131,267 13,766,605 12,608,038
<SALES> 35,871,840 33,828,391 32,454,807
<TOTAL-REVENUES> 35,871,840 33,828,391 32,454,807
<CGS> 26,156,013 24,820,767 23,901,570
<TOTAL-COSTS> 26,156,013 24,820,767 23,901,570
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 336,389 293,626 227,657
<INCOME-PRETAX> 1,338,300 1,350,568 1,299,399
<INCOME-TAX> 537,403 553,134 518,399
<INCOME-CONTINUING> 800,897 797,434 781,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 800,897 797,434 781,000
<EPS-BASIC> 1.91 1.89 1.79
<EPS-DILUTED> 1.90 1.88 1.79
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED FINANCIAL INFORMATION FOR THE QUARTER ENDED
OCTOBER 29, 1998, QUARTER ENDED JULY 30, 1998, AND QUARTER ENDED APRIL 30, 1998,
AND GIVES EFFECT TO THE MERGER IN WHICH AMERICAN STORES COMPANY BECAME A
WHOLLY-OWNED SUBSIDIARY OF ALBERTSON'S, INC. WHICH WAS ACCOUNTED FOR AS A
POOLING OF INTERESTS FOR ACCOUNTING AND FINANCIAL REPORTING PURPOSES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-28-1999 JAN-28-1999 JAN-28-1999
<PERIOD-START> JAN-30-1998 JAN-30-1998 JAN-30-1998
<PERIOD-END> OCT-29-1998 JUL-30-1998 APR-30-1998
<CASH> 98,114 84,842 110,622
<SECURITIES> 0 0 0
<RECEIVABLES> 528,228 502,344 542,209
<ALLOWANCES> 18,595 20,702 16,605
<INVENTORY> 3,222,505 2,865,621 2,948,748
<CURRENT-ASSETS> 4,008,660 3,627,921 3,806,305
<PP&E> 12,597,353 12,547,687 12,179,822
<DEPRECIATION> 4,401,495 4,523,878 4,444,671
<TOTAL-ASSETS> 14,729,268 13,984,445 13,912,860
<CURRENT-LIABILITIES> 3,346,036 3,137,078 3,122,816
<BONDS> 4,964,943 4,671,803 4,613,229
0 0 0
0 0 0
<COMMON> 434,416 418,455 434,657
<OTHER-SE> 4,731,685 4,586,972 4,426,941
<TOTAL-LIABILITY-AND-EQUITY> 14,729,268 13,984,445 13,912,860
<SALES> 26,504,222 17,666,007 8,720,939
<TOTAL-REVENUES> 26,504,222 17,666,007 8,720,939
<CGS> 19,399,807 12,973,227 6,423,202
<TOTAL-COSTS> 19,399,807 12,973,227 6,423,202
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 251,705 168,380 82,672
<INCOME-PRETAX> 1,013,972 652,169 292,308
<INCOME-TAX> 402,442 259,129 115,847
<INCOME-CONTINUING> 611,530 393,040 176,461
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 611,530 393,040 176,461
<EPS-BASIC> 1.46 0.94 0.42
<EPS-DILUTED> 1.45 0.93 0.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED FINANCIAL INFORMATION FOR THE QUARTER ENDED
OCTOBER 30, 1997, QUARTER ENDED JULY 31, 1997, AND QUARTER ENDED MAY 1, 1997,
AND GIVES EFFECT TO THE MERGER IN WHICH AMERICAN STORES COMPANY BECAME A
WHOLLY-OWNED SUBSIDIARY OF ALBERTSON'S, INC. WHICH WAS ACCOUNTED FOR AS A
POOLING OF INTERESTS FOR ACCOUNTING AND FINANCIAL REPORTING PURPOSES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> JAN-29-1998 JAN-29-1998 JAN-29-1998
<PERIOD-START> JAN-31-1997 JAN-31-1997 JAN-31-1997
<PERIOD-END> OCT-30-1997 JUL-31-1997 MAY-01-1997
<CASH> 134,120 47,257 173,353
<SECURITIES> 0 0 0
<RECEIVABLES> 414,162 435,854 411,896
<ALLOWANCES> 13,710 13,613 13,505
<INVENTORY> 3,063,886 2,732,365 2,829,245
<CURRENT-ASSETS> 3,779,148 3,391,049 3,562,706
<PP&E> 11,580,469 11,205,828 10,926,851
<DEPRECIATION> 4,239,463 4,150,657 4,046,698
<TOTAL-ASSETS> 13,364,710 12,686,111 12,641,763
<CURRENT-LIABILITIES> 3,414,269 2,980,804 2,962,163
<BONDS> 4,143,626 4,004,174 3,981,546
0 0 0
0 0 0
<COMMON> 545,352 545,739 549,911
<OTHER-SE> 3,975,467 3,865,476 3,856,098
<TOTAL-LIABILITY-AND-EQUITY> 13,364,710 12,686,111 12,641,763
<SALES> 25,058,365 16,798,868 8,355,185
<TOTAL-REVENUES> 25,058,365 16,798,868 8,355,185
<CGS> 18,445,120 12,394,402 6,169,128
<TOTAL-COSTS> 18,445,120 12,394,402 6,169,128
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 223,180 146,360 70,110
<INCOME-PRETAX> 901,114 593,910 260,659
<INCOME-TAX> 374,546 251,022 117,168
<INCOME-CONTINUING> 526,568 342,888 143,491
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 526,568 342,888 143,491
<EPS-BASIC> 1.24 0.81 0.33
<EPS-DILUTED> 1.24 0.80 0.33
</TABLE>
