SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1999 Commission file number 1-6187
ALBERTSON'S, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 82-0184434
- ------------------------ --------------------------------
(State of Incorporation) (Employer Identification Number)
250 Parkcenter Boulevard, P.O. Box 20, Boise, Idaho 83726
(208) 395-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------------------------------ -----------------------
Common Stock, $1.00 par value, 245,820,750 New York Stock Exchange
shares outstanding on March 26, 1999 Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (17 CFR section 405) is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. (x)
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, computed by reference to the price at which the stock was sold as of
the close of business on March 26, 1999: $10,339,370,895.
Documents Incorporated by Reference
-----------------------------------
Listed hereunder are the documents, any portions of which are incorporated by
reference, and the Parts of this Form 10-K into which such portions are
incorporated:
1. The Registrant's Annual Report to Stockholders for the fiscal year ended
January 28, 1999, portions of which are incorporated by reference into
Part I, Part II and Part IV of this Form 10-K; and
2. The Registrant's definitive proxy statement for use in connection with the
Annual Meeting of Stockholders to be held on May 28, 1999,(the "Proxy
Statement") to be filed within 120 days after the Registrant's fiscal year
ended January 28, 1999, portions of which are incorporated by reference
into Part III of this Form 10-K.
Page 1
<PAGE>
<TABLE>
Documents Incorporated by Reference
-----------------------------------
<CAPTION>
Part I
- ------
<S> <C> <C>
Item 3 - Legal Proceedings Page 43 of the Annual Report
to stockholders for the year ended
January 28, 1999
Part II
- -------
Item 5 - Market for the Registrant's Page 50 of the Annual Report
Common Equity and Related to Stockholders for the year ended
Stockholder Matters January 28, 1999
Item 6 - Selected Financial Data Page 46 of the Annual Report to
Stockholders for the year ended
January 28, 1999
Item 7 - Management's Discussion and Pages 19 to 23 of the Annual
Analysis of Financial Report to Stockholders for the
Condition and Results of year ended January 28, 1999
Operations
Item 7A - Quantitative and Qualitative Page 22 of the Annual Report to
Disclosures about Market Stockholders for the year ended
Risk January 28, 1999
Item 8 - Financial Statements and Pages 24 to 45 and page 47 of the
Supplementary Data Annual Report to Stockholders for
the year ended January 28, 1999
Part III
- --------
Item 10 - Directors and Executive The material contained under the
Officers of the Registrant heading "Election of Directors" in
the Proxy Statement
Item 11 - Executive Compensation The material contained under the
headings "Summary Compensation
Table," "Aggregated Option
Exercises in Last Fiscal Year and
Fiscal Year-End Option Values" and
"Retirement Benefits" in the Proxy
Statement
Item 12 - Security Ownership of The material contained under the
Certain Beneficial Owners heading "Voting Securities and
and Management Principal Holders Thereof" in the
Proxy Statement
Item 13 - Certain Relationships and The material contained under the
Related Transactions heading "Certain Transactions" in
the Proxy Statement
Part IV
- -------
Item 14 - Exhibits, Financial Pages 24 to 45 and page 47 of the
Statement Schedules and Annual Report to Stockholders for
Reports on Form 8-K the year ended January 28, 1999
</TABLE>
Page 2
<PAGE>
<TABLE>
ALBERTSON'S, INC.
FORM 10-K
TABLE OF CONTENTS
<CAPTION>
Item Page
- ---- ----
PART I
<S> <C> <C>
Business Combination 4
Cautionary Statement 4
1. Business 5
2. Properties 6
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
7A. Quantitative and Qualitative Disclosures about
Market Risk 9
8. Financial Statements and Supplementary Data 9
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 10
PART III
10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 11
12. Security Ownership of Certain Beneficial Owners
and Management 11
13. Certain Relationships and Related Transactions 11
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 12
</TABLE>
Page 3
<PAGE>
PART I
Business Combination
- --------------------
On August 2, 1998, the Company entered into a definitive merger agreement
with American Stores Company (ASC) which was approved by the stockholders of
Albertson's and ASC on November 12, 1998. The agreement provides for a business
combination between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company (the Merger). Under the terms of the agreement, the
holders of ASC common stock will be issued 0.63 shares of Albertson's, Inc.,
common stock in exchange for each share of ASC common stock, with cash being
paid in lieu of fractional shares, in a transaction intended to qualify as a
pooling of interests for accounting purposes and as a tax-free reorganization
for federal income tax purposes. The transaction is subject to certain
regulatory clearance and is expected to close during the latter part of the
Company's first fiscal quarter or early in the second fiscal quarter of 1999.
The Merger will result in a charge to operations of approximately $65
million for transaction fees and costs incident to the Merger. These costs
consist primarily of investment banking, legal, accounting, printing and
regulatory filing fees. Costs of integrating the two companies will result in
additional significant non-recurring charges to the results of operations of the
combined company; however, the actual amount of such charges cannot be
determined until the transition plan relating to the integration of operations
is completed. It is expected that such charges will have a material effect on
the combined company's results of operations for the quarter in which the Merger
is consummated and additional significant charges relating to the Merger may
also be recognized in subsequent quarters.
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 about the ability of the Company and ASC to obtain the
necessary regulatory approvals and satisfy other conditions to the closing of
the merger transaction and with respect to the 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, the ability of the Company and ASC to obtain the required
regulatory approvals on terms acceptable to them, adverse changes in the
business or financial condition of the Company or ASC prior to the closing of
the merger transaction and the Company's ability to integrate the operations of
ASC.
Page 4
<PAGE>
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.
Item 1. Business
- -----------------
General
The Registrant, Albertson's, Inc. (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. The Company is one of the largest retail food-drug chains
in the United States. As of January 28, 1999, the Company operated 983 stores in
25 Western, Midwestern and Southern states. These stores consist of 866
combination food-drug stores, 86 conventional supermarkets and 31 warehouse
stores. Retail operations are supported by 11 Company-owned distribution
centers. The Company's distribution centers provide product exclusively to the
Company's retail stores.
The Company's combination food-drug stores are super grocery/super drugstores
under one roof and range in size from 35,000 to 82,000 square feet. Most of
these stores offer prescription drugs and an expanded section of cosmetics and
nonfoods in addition to specialty departments such as service seafood and meat,
bakery, lobby/video, service delicatessen, liquor and floral. Many also offer
meal centers, party supply centers, coffee bars, in- store banks, photo
processing and, destination categories for beverages, snacks, pet care products,
paper products and baby care merchandise. Food and nonfood shopping areas are
served by a common set of checkstands.
The Company's conventional supermarkets range in size from 8,000 to 35,000
square feet. These stores offer a full selection in the basic departments of
grocery, meat, produce, dairy and limited non-food lines. Many locations have an
in-store bakery and a service delicatessen.
The Company's warehouse stores are operated primarily under the name "Max
Food and Drug." These no-frills stores range in size from 17,000 to 73,000
square feet and offer significant savings with special emphasis on discounted
meat and produce.
As of January 28, 1999, the Company operated 17 fuel centers which are
located near existing stores. These centers feature three to six fuel pumps and
a small building, ranging in size from a pay-only kiosk to a small convenience
store, featuring such items as candy, soft drinks and snack foods.
The Company's retail operations are organized into regions with each region
comprised of four or five divisions. A regional president directs the operating
divisions in retail strategies, planning, marketing approaches and employee
development. Each operating division is managed by a division vice president or
manager. The division staff includes district sales managers who oversee the
operations of 16 stores on average and merchandising specialists in areas such
as grocery, produce, pharmacy, liquor, general merchandise, bakery, meat and
service delicatessen. Merchandising specialists serve as advisors to help
maintain adherence to overall division pricing and merchandising policies. Each
store has a store director responsible for overall store operations, department
managers and a front-end manager.
Page 5
<PAGE>
The Company's business is highly competitive. Competition is based primarily
on price, product quality and variety, service and location. There is direct
competition from many local, regional and national supermarket chains,
supercenters, club stores, specialty retailers such as pet centers and toy
stores and large-scale drug and pharmaceutical retailers. Increasing competition
also exists from convenience stores, prepared food retailers, liquor and video
stores, film developing outlets and Internet and mail-order retailers.
The Company has been able to efficiently supply its stores with merchandise
through various means. Stores are provided with merchandise from the Company's
distribution centers, outside suppliers or directly from manufacturers in an
effort to obtain merchandise at the lowest possible cost. The Company services
all of its retail stores from Company-owned distribution centers.
All of the Company's stores carry a broad range of national brands and offer
"Albertson's Brands" products in many merchandise categories. The Company's
stores provide consumer information such as: nutritional signing in the meat and
produce departments, freshness code dating, unit pricing, meal ideas and food
information pamphlets. The Company also offers a choice of recyclable paper or
plastic bags and collection bins for plastic bag recycling.
As of January 28, 1999, the Company employed approximately 100,000 people,
many of whom are covered by collective bargaining agreements. The Company
considers its present relations with employees to be good.
Albertson's stores are located in 25 Western, Midwestern and Southern areas
of the United States. The following is a summary of the stores by state as of
January 28, 1999:
<TABLE>
<CAPTION>
Albertson's Retail Stores
--------------------------
<S> <C>
Arizona 41
Arkansas 2
California 177
Colorado 50
Florida 104
Georgia 1
Idaho 35
Iowa 3
Kansas 6
Louisiana 23
Mississippi 6
Missouri 10
Montana 34
Nebraska 10
Nevada 31
New Mexico 22
North Dakota 2
Oklahoma 25
Oregon 50
South Dakota 1
Tennessee 21
Texas 197
Utah 43
Washington 77
Wyoming 12
---
983
===
</TABLE>
Item 2. Properties
- -------------------
The Company has actively pursued an expansion program of adding new retail
stores, enlarging and remodeling existing stores and replacing smaller stores.
During the past ten years, the Company has built or acquired 631 stores and
approximately 93% of the Company's current retail square footage has been opened
or remodeled during this period. The Company continues to follow the policy of
closing stores that are obsolete or lack satisfactory profit potential.
Page 6
<PAGE>
Prior to 1984 the Company financed a major portion of its stores under sale
and leaseback arrangements. The leases normally require the Company to pay for
property taxes, insurance and general maintenance. Some of the leases provide
for contingent rent in addition to minimum rent if sales exceed specified
amounts. Typically all leases contain renewal options which allow the Company
the right to extend the lease for varying additional periods.
Since 1984 the Company has financed most retail store construction
internally, rather than through sale and leaseback arrangements, thus retaining
ownership of its land and buildings. The Company's future expansion plans are
expected to be financed primarily from cash provided by operating activities.
The Company will continue to finance a portion of its new stores through lease
transactions when it does not have the option to own the property.
As of January 28, 1999, the Company operated 983 stores in the states
discussed in Item 1. An analysis of stores listed by division is as follows:
<TABLE>
<CAPTION>
Number
of Stores
---------
<S> <C>
Idaho (Southern Idaho (32), Northern Nevada (11),
Eastern Oregon (1) and Wyoming (1)) 45
Inland Empire (Eastern Washington (18),
Oregon (3) and Northern Idaho (3)) 24
Utah (Utah (43) and Wyoming (1)) 44
Western Washington 54
Oregon (Western Oregon (46) and Washington (5)) 51
Southern California (California (128) and
Southern Nevada (20)) 148
Northern California 48
Rocky Mountain (Colorado (50), Wyoming (10),
New Mexico (1) and South Dakota (1)) 62
Southwest (Arizona (41), New Mexico (21), Texas (3)
and California (1)) 66
Big Sky (Montana (34) and North Dakota (2)) 36
Midwest (Oklahoma (25), Nebraska (10), Kansas (6)
and Iowa (3)) 44
Missouri 10
Houston (Texas (35) and Louisiana (19)) 54
San Antonio (Texas (47)) 47
Dallas/Ft. Worth (Texas (112), Louisiana (4) and
Arkansas (1)) 117
Tennessee (Tennessee (21), Mississippi (6),
Georgia (1) and Arkansas (1)) 29
Florida 104
---
983
===
</TABLE>
The following is a summary of stores, by classification, as of the indicated
fiscal year end:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Combination Food-Drug 866 768 715 646 588
Conventional Stores 86 72 72 78 88
Warehouse Stores 31 38 39 40 44
--- --- --- --- ---
983 878 826 764 720
=== === === === ===
</TABLE>
Page 7
<PAGE>
The following table summarizes the Company's retail square footage by store
type as of the indicated fiscal year end (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Combination Food-Drug 44,601 38,904 35,886 32,217 29,217
Conventional Stores 2,369 2,105 2,113 2,261 2,524
Warehouse Stores 1,432 1,792 1,841 1,881 2,037
------ ------ ------ ------ ------
48,402 42,801 39,840 36,359 33,778
====== ====== ====== ====== ======
</TABLE>
The Company has expanded and improved its distribution facilities when
opportunities exist to improve service to the retail stores and generate an
adequate return on investment. During 1998 approximately 75% of the merchandise
purchased for resale in Company retail stores was received from Company-owned
distribution centers.
Albertson's distribution system consists of 11 Company-owned centers located
strategically throughout the Company's operating markets. The following is a
summary of the Company's distribution and manufacturing facilities as of January
28, 1999:
<TABLE>
<CAPTION>
Location Square Footage
-------- --------------
<S> <C>
Fort Worth, Texas
Groceries, Frozen Food, Produce, Meat and Deli 1,100,000
Brea, California
Groceries, Frozen Food, Produce, Liquor,
Meat and Deli 1,018,000
Central Bakery 41,000
Plant City, Florida
Groceries, Frozen Food, Produce, Liquor, Meat,
Deli and high-volume Health and Beauty Care 979,000
Portland, Oregon
Groceries, Frozen Food, Produce, Meat and Deli 790,000
Houston, Texas
Groceries, Frozen Food, Produce, Meat and Deli 747,000
Phoenix, Arizona
Groceries, Frozen Food, Produce, Liquor, Meat,
Deli and high-volume Health and Beauty Care 687,000
Salt Lake City, Utah
Groceries, Frozen Food, Produce, Meat and Deli 680,000
Ponca City, Oklahoma
Health and Beauty Care, General Merchandise
and Pharmaceuticals 422,000
Sacramento, California
Groceries, Frozen Food, Produce, Liquor, Meat
and Deli 421,000
Denver, Colorado
Groceries, Frozen Food, Produce, Meat and Deli 372,000
Boise, Idaho
Health and Beauty Care and General Merchandise 238,000
Ice Cream Plant 11,000
Memphis, Tennessee:
Central Bakery 29,000
Central Kitchen 7,000
---------
7,542,000
=========
</TABLE>
As of January 28, 1999, the Company held title to the land and buildings of
53% of the Company's stores and held title to the buildings on leased land of an
additional 10% of the Company's stores. The Company also holds title to the land
and buildings of the Company's corporate headquarters in Boise, Idaho, 8
division offices and all of the distribution facilities.
Page 8
<PAGE>
Item 3. Legal Proceedings
- --------------------------
The information required under this item is included under the caption "Legal
Proceedings" on page 43 of the Company's 1998 Annual Report to Stockholders.
This information is incorporated herein by this reference thereto.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Information regarding the Company's Special Meeting of Stockholders held on
November 12, 1998, was included under Item 4 of the Company's Form 10-Q for the
quarter ended October 29, 1998.
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related
- ---------------------------------------------------------------
Stockholder Matters
- -------------------
The principal markets in which the Company's common stock is traded and the
related security holder matters are set forth under the captions "Stockholders
of Record" and "Company Stock Information" on page 50 of the Company's 1998
Annual Report to Stockholders. This information is incorporated herein by this
reference thereto. The market value of the Company's common stock on March 26,
1999, was $55.1875 per share.
Item 6. Selected Financial Data
- --------------------------------
Selected financial data of the Company for the fiscal years 1994 through
1998 is included under the caption "Five Year Summary of Selected Financial
Data" on page 46 of the Company's 1998 Annual Report to Stockholders. This
information is incorporated herein by this reference thereto.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------------------------------------------------------------------------
Results of Operations
- ---------------------
The information required under this item is included under the caption
"Financial Review" on pages 19 to 23 of the Company's 1998 Annual Report to
Stockholders. This information is incorporated herein by this reference thereto.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
The information required under this item is included under the caption
"Quantitative and Qualitative Disclosures about Market Risk" on page 22 of the
Company's 1998 Annual Report to Stockholders. This information is incorporated
herein by this reference thereto.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Company's consolidated financial statements and related notes thereto,
together with the Independent Auditors' Report and the selected quarterly
financial data of the Company are presented on pages 24 to 45 and page 47 of the
Company's 1998 Annual Report to Stockholders and are incorporated herein by this
reference thereto.
Page 9
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
There have been no reports on Form 8-K filed within 24 months prior to the
date of the most recent financial statements reporting a change of accountants
or reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure or auditing scope or procedure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant Directors
- ----------------------------------------------------------------------
The information regarding directors and nominees for directors of the Company
is presented under the heading "Election of Directors" in the Company's
definitive proxy statement for use in connection with the 1999 Annual Meeting of
Stockholders (the "Proxy Statement") to be filed within 120 days after the
Company's fiscal year ended January 28, 1999, and is incorporated herein by this
reference thereto.
<TABLE>
Executive Officers
- ------------------
<CAPTION>
Age Date First Appointed
as of as an Executive
Name 3/26/99 Position Officer
---- ------- -------- --------------------
<S> <C> <C> <C>
Gary G. Michael 58 Chairman of the Board and 12/02/74
Chief Executive Officer
Richard L. King 49 President and Chief Operating 01/01/94
Officer
Thomas E. Brother 57 Executive Vice President, 07/30/89
Distribution
A. Craig Olson 47 Executive Vice President 12/22/86
and Chief Financial Officer
Carl W. Pennington 61 Executive Vice President, 08/02/87
Marketing
Michael F. Reuling 52 Executive Vice President, 12/30/79
Development
Thomas R. Saldin 52 Executive Vice President 12/26/83
and General Counsel
David G. Simonson 52 Executive Vice President, 02/02/96
Operations
Patrick S. Steele 49 Executive Vice President, 06/10/90
Information Systems and
Technology
Steven D. Young 50 Executive Vice President, 12/02/91
Human Resources
</TABLE>
Gary G. Michael has served as Chairman of the Board and Chief Executive
Officer since 1991.
Page 10
<PAGE>
Richard L. King was promoted to President and Chief Operating Officer on
February 2, 1996. Previously he served as Senior Vice President and Regional
Manager from November 1994; Group Vice President, Merchandising from January
1994; and Vice President, Rocky Mountain Division from 1992.
Thomas E. Brother was promoted to Executive Vice President, Distribution on
January 29, 1999. Previously he served as Senior Vice President, Distribution
from 1991.
A. Craig Olson was promoted to Executive Vice President and Chief Financial
Officer on January 29, 1999. Previously he served as Senior Vice President,
Finance and Chief Financial Officer from 1991.
Carl W. Pennington was promoted to Executive Vice President, Marketing on
January 29, 1999. Previously he served as Executive Vice President, Corporate
Merchandising from 1996; Senior Vice President, Corporate Merchandising from
1994; and Senior Vice President and Regional Manager from 1988.
Michael F. Reuling was promoted to Executive Vice President, Development on
January 29, 1999. Previously he served as Executive Vice President, Store
Development since 1986.
Thomas R. Saldin was promoted to Executive Vice President and General Counsel
on January 29, 1999. Previously he served as Executive Vice President,
Administration and General Counsel from 1991.
David G. Simonson was promoted to Executive Vice President, Operations on
January 29, 1999. Previously he served as Senior Vice President and Regional
Manager from 1996; and Vice President, Southern California Division from 1991.
Patrick S. Steele was promoted to Executive Vice President, Information
Systems and Technology on January 29, 1999. Previously he served as Senior Vice
President, Information Systems and Technology from 1993; and Group Vice
President, Management Information Systems from 1990.
Steven D. Young was promoted to Executive Vice President, Human Resources on
January 29, 1999. Previously he served as Senior Vice President, Human Resources
from 1993; and Group Vice President, Human Resources from 1991.
Item 11. Executive Compensation
- --------------------------------
Information concerning executive compensation is presented under the headings
"Summary Compensation Table," "Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values" and "Retirement Benefits" in the Proxy
Statement. This information is incorporated herein by this reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information with respect to security ownership of certain beneficial owners
and management is set forth under the heading "Voting Securities and Principal
Holders Thereof" in the Proxy Statement. This information is incorporated herein
by this reference thereto.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information concerning related transactions is presented under the heading
"Certain Transactions" in the Proxy Statement. This information is incorporated
herein by this reference thereto.
Page 11
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a)1 Financial Statements:
The Independent Auditors' Report, together with the Consolidated
Financial Statements and the related notes thereto, are listed below
and are incorporated herein by this reference thereto from pages 24 to
45 of the Company's Annual Report to Stockholders for the year ended
January 28, 1999:
Consolidated Earnings -- years ended January 28, 1999; January 29,
1998; January 30, 1997.
Consolidated Balance Sheets -- January 28, 1999; January 29, 1998;
January 30, 1997.
Consolidated Cash Flows -- years ended January 28, 1999; January
29, 1998; January 30, 1997.
Consolidated Stockholders' Equity -- years ended January 28, 1999;
January 29, 1998; January 30, 1997.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
Quarterly Financial Data:
Quarterly Financial Data for the years ended January 28, 1999 and
January 29, 1998 is set forth on page 47 of the Annual Report to
Stockholders for the year ended January 28, 1999, and is incorporated
herein by this reference thereto.
(a)2 Schedules:
All schedules are omitted because they are not required or because
the required information is included in the consolidated financial
statements or notes thereto.
(a)3 Exhibits:
A list of the exhibits required to be filed as part of this report
is set forth in the Index to Exhibits on page 15 hereof.
Page 12
<PAGE>
(b) The following reports on Form 8-K were filed:
Current Report on Form 8-K dated November 3, 1998, regarding the
Company's sales trend release for the four-week and thirteen-week
periods ended October 29, 1998.
Current Report on Form 8-K dated November 19, 1998, regarding the
Company's Special Meeting of Stockholders and the press release
issued in connection with that meeting.
Current Report on Form 8-K dated January 11, 1999, regarding the
Albertson's, Inc. and American Stores Company Joint Proxy
Statement and Prospectus dated October 9, 1998.
Current Report on Form 8-K dated April 5, 1999, regarding the
Company's Credit Agreement dated as of March 30, 1999.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the Company
hereby undertakes as follows, which undertaking shall be incorporated by
reference into Company's Registration Statements on Form S-8 Nos. 2-80776,
33-2139, 33-7901, 33-15062, 33-43635, 33-62799 and 33-59803.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the Act) may be permitted to directors, officers and controlling
persons of the Company, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Albertson's, Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALBERTSON'S, INC.
By /s/ GARY G. MICHAEL
---------------------------
Gary G. Michael
(Chairman of the Board and
Chief Executive Officer)
Page 13
<PAGE>
Date: April 8, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of April 8, 1999.
<TABLE>
<S> <C>
GARY G. MICHAEL RICHARD L. KING
- --------------------------------- -------------------------------
Gary G. Michael Richard L. King
(Chairman of the Board and (President and Chief
Chief Executive Officer and Operating Officer and
Director) Director)
A. CRAIG OLSON RICHARD J. NAVARRO
- --------------------------------- -------------------------------
A. Craig Olson Richard J. Navarro
(Executive Vice President (Senior Vice President
and Chief Financial Officer) and Controller)
A. GARY AMES CECIL D. ANDRUS
- --------------------------------- -------------------------------
A. Gary Ames Cecil D. Andrus
(Director) (Director)
JOHN B. CARLEY PAUL I. CORDDRY
- --------------------------------- -------------------------------
John B. Carley Paul I. Corddry
(Director) (Director)
JOHN B. FERY CLARK A. JOHNSON
- -------------------------------- -------------------------------
John B. Fery Clark A. Johnson
(Director) (Director)
CHARLES D. LEIN BEATRIZ RIVERA
- --------------------------------- -------------------------------
Charles D. Lein Beatriz Rivera
(Director) (Director)
J.B. SCOTT THOMAS L. STEVENS, JR.
- --------------------------------- -------------------------------
J.B. Scott Thomas L. Stevens, Jr.
(Director) (Director)
WILL M. STOREY STEVEN D. SYMMS
- --------------------------------- -------------------------------
Will M. Storey Steven D. Symms
(Director) (Director)
</TABLE>
Page 14
<PAGE>
<TABLE>
Index to Exhibits
Filed with the Annual Report
on Form 10-K for the
Year Ended January 28, 1999
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2 Agreement and Plan of Merger, dated as of August 2, 1998,
among Albertson's, Inc., Abacus Holdings, Inc. and American
Stores Company (1)
2.1 Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc. and American Stores Company (American
Stores Company as Issuer) (1)
2.2 Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc. and American Stores Company (Albertson's,
Inc. as Issuer) (1)
3.1 Restated Certificate of Incorporation (as amended) (2)
3.1.1 Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock (3)
3.1.2 Amendment to Certificate of Designation, Preferences and
Rights of Series A Junior Participating Preferred Stock
3.2 By-Laws dated March 1, 1999
4.1 Stockholder Rights Plan Agreement (4)
4.1.1 Amendment No. One to Stockholder Rights Plan Agreement
(dated August 2, 1998) (5)
4.1.2 Amendment No. Two to Stockholder Rights Plan Agreement
(dated March 16, 1999) (6)
4.2 Indenture, dated as of May 1, 1992, between Albertson's,
Inc. and Morgan Guaranty Trust Company of New York as
Trustee (7)
9 Inapplicable
10.1 J. A. and Kathryn Albertson Foundation Inc. Stock Agreement
(dated May 21, 1997) (8)*
10.1.1 Waiver regarding Alscott Limited Partnership #1 Stock
Agreement (dated May 21, 1997) (8)*
10.1.2 Waiver regarding Kathryn Albertson Stock Agreement (dated
May 21, 1997)(8)*
10.5 Form of Beneficiary Agreement for Key Executive Life
Insurance (9)*
10.6 Executive Deferred Compensation Plan (amended and restated
February 1, 1989) (10)*
10.6.1 Amendment to Executive Deferred Compensation Plan (dated
December 4, 1989) (11)*
10.7 Senior Operations Executive Officer Bonus Plan (3)*
10.9 Description of Bonus Incentive Plans (amended December 3
1984)(12)*
</TABLE>
Page 15
<PAGE>
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10.10 Agreement Among Albertson's, Inc., Theo Albrecht Stiftung
And Theo Albrecht dated as of February 15, 1980 (13)
10.10.1 Letter Amendment of October 13, 1982, regarding Exhibit
10.10 (14)
10.10.2 First Amendment dated April 11, 1984, to Agreement among
Albertson's, Inc., Theo Albrecht Stiftung and
Theo Albrecht (15)
10.10.3 Second Amendment dated September 25, 1989 to Agreement among
Albertson's, Inc., Markus Stiftung and Theo Albrecht (11)
10.10.4 Third Amendment dated December 5, 1994 to Agreement among
Albertson's, Inc., Markus Stiftung and Theo Albrecht (16)
10.11 1982 Incentive Stock Option Plan (amended
March 4, 1991)(17)*
10.12 Form of 1982 Incentive Stock Option Agreement (amended
November 30, 1987) (18)*
10.12.1 Form of 1982 Incentive Stock Option Agreement (used in
Connection with certain options granted pursuant to the 1982
Incentive Stock Option Plan on or after September 5, 1989)
(19)*
10.13 Executive Pension Makeup Plan (amended and restated
February 1, 1989) (10)*
10.13.1 First Amendment to Executive Pension Makeup Plan (dated
June 8, 1989) (20)*
10.13.2 Second Amendment to Executive Pension Makeup Plan (dated
January 12, 1990) (21)*
10.13.3 Third Amendment to Executive Pension Makeup Plan (dated
January 31, 1990) (22)*
10.13.4 Fourth Amendment to Executive Pension Makeup Plan (effective
January 1, 1995) (16)*
10.13.5 Amendment to Executive Pension Makeup Plan (retroactive to
January 1, 1990) (23)*
10.14 Credit Agreement (dated October 5, 1994) (24)
10.14.1 Amendment No. 1 to Credit Agreement (dated
October 25, 1995) (25)
10.14.2 Amended and Restated Credit Agreement (dated
December 17, 1996) (3)
10.15 Senior Executive Deferred Compensation Plan (amended and
restated February 1, 1989) (10)*
10.15.1 Amendment to Senior Executive Deferred Compensation Plan
(dated December 4, 1989) (11)*
10.16 1986 Nonqualified Stock Option Plan (amended
March 4, 1991) (17)*
</TABLE>
Page 16
<PAGE>
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
10.17 Form of 1986 Nonqualified Stock Option Plan Stock Option
Agreement (amended November 30, 1987) (18)
10.18 Executive Pension Makeup Trust (dated
February 1, 1989) (10)*
10.18.1 Amendment to Executive Pension Makeup Trust (dated December 1,
1998) (26)*
10.19 Executive Deferred Compensation Trust (dated
February 1, 1989) (10)*
10.19.1 Amendment to Executive Deferred Compensation Trust (dated
December 1, 1998) (26)*
10.20 1990 Deferred Compensation Plan (17)*
10.20.1 Amendment to 1990 Deferred Compensation Plan (dated
April 12, 1994) (27)*
10.20.2 Amendment to 1990 Deferred Compensation Plan (dated
November 5, 1997) (28)*
10.20.3 Amendment to 1990 Deferred Compensation Plan (dated
November 1, 1998) (26)*
10.21 Non-Employee Directors' Deferred Compensation Plan (17)*
10.22 1990 Deferred Compensation Trust (dated
November 20, 1990) (17)*
10.22.1 Amendment to 1990 Deferred Compensation Trust (dated
December 1, 1998) (26)*
10.23 Letter Agreement with John B. Carley (dated
December 4, 1995) (23)*
10.24 1995 Stock-Based Incentive Plan (dated May 26, 1995) (29)*
10.24.1 Form of 1995 Stock-Based Incentive Plan Stock Option
Agreement (dated December 4, 1995) (23)*
10.25 1995 Stock Option Plan for Non-Employee Directors (dated
May 26, 1995) (29)*
10.25.1 Form of 1995 Stock Option Plan for Non-Employee Directors
Agreement (dated May 30, 1995) (29)*
10.26 Amended and Restated 1995 Stock-Based Incentive Plan (dated
November 12, 1998) (26)*
10.27 Termination and Consulting Agreement by and among American
Stores Company, Albertson's, Inc. and Victor L. Lund*
10.28 Credit Agreement (dated March 30, 1999) (30)
11 Inapplicable
12 Inapplicable
</TABLE>
Page 17
<PAGE>
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
13 Exhibit 13 consists of pages 19 to 50 of Albertson's, Inc.
1998 Annual Report to Stockholders which are numbered as
pages 1 to 31 of Exhibit 13. Such report, except to the
extent incorporated herein by reference, has been
sent to and furnished for the information of the
Securities and Exchange Commission only and is not to be
deemed filed as part of this Annual Report on Form 10-K.
The references to the pages incorporated by reference are
to the printed Annual Report. The references to the
pages of Exhibit 13 are as follows: Item 3--page 24;
Item 5--pages 30 and 31; Item 6-page 28; Item 7-pages 1
through 5; item 7A-page 3; and Items 8 and 14--pages 6
through 27 and page 29.
16 Inapplicable
18 Inapplicable
21 Inapplicable
22 Inapplicable
23 Independent Auditors' Consent
24 Inapplicable
27 Financial Data Schedule - Fiscal Year 1998
</TABLE>
* Identifies management contracts or compensatory plans or arrangements
required to be filed as an exhibit hereto.
(1) Exhibits 2, 2.1 and 2.2 are incorporated herein by reference to Exhibit 2,
2.1 and 2.2 of Form 10-Q for the quarter ended July 30, 1998.
(2) Exhibit 3.1 is incorporated herein by reference to Exhibit 3.1 of Form 10-Q
for the quarter ended April 30, 1998.
(3) Exhibits 3.1.1, 10.7 and 10.14.2 are incorporated herein by reference to
Exhibits 3.1.1, 10.7 and 10.14.2, respectively, of Form 10-K for the year
ended January 30, 1997.
(4) Exhibit 4.1 is incorporated herein by reference to Exhibit 1 of Form 8-A
Registration Statement filed with the Commission on March 4, 1997.
(5) Exhibit 4.1.1 is incorporated herein by reference to Exhibit 1 of Amendment
to Form 8-A Registration Statement filed with the Commission on August 6,
1998.
(6) Exhibit 4.1.2 is incorporated herein by reference to Exhibit 1 of Amendment
to Form 8-A Registration Statement filed with the Commission on March 25,
1999.
Page 18
<PAGE>
(7) Exhibit 4.2 is incorporated herein by reference to Exhibit 4.1 of Form S-3
Registration Statement 333-41793 filed with the Commission on December 9,
1997. In reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K, various
other instruments defining the rights of holders of long-term debt of the
Registrant and its subsidiaries are not being filed herewith, because the
total amount of securities authorized under each such instrument does not
exceed 10% of the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant hereby agrees to furnish a copy of any
such instrument to the Commission upon request.
(8) Exhibits 10.1, 10.1.1 and 10.1.2 are incorporated herein by reference to
Exhibits 10.1, 10.1.1 and 10.1.2, respectively, of Form 10-Q for the
quarter ended May 1, 1997.
(9) Exhibit 10.5 is incorporated herein by reference to Exhibit 10.5.1 of Form
10-K for the year ended January 30, 1986.
(10) Exhibits 10.6, 10.13, 10.15, 10.18 and 10.19 are incorporated herein by
reference to Exhibits 10.6, 10.13, 10.15, 10.18 and 10.19, respectively, of
Form 10-K for the year ended February 2, 1989.
(11) Exhibits 10.6.1, 10.10.3 and 10.15.1 are incorporated herein by reference
to Exhibits 10.6.1, 10.10.3 and 10.15.1, respectively, of Form 10-Q for the
quarter ended November 2, 1989.
(12) Exhibit 10.9 is incorporated herein by reference to Exhibit 10.9 of Form
10-K for the year ended January 31, 1985.
(13) Exhibit 10.10 is incorporated herein by reference to Exhibit 10.10 of Form
10-K for the year ended January 29, 1981.
(14) Exhibit 10.10.1 is incorporated herein by reference to Exhibit 10.10.1 of
Form 10-K for the year ended February 3, 1983.
(15) Exhibit 10.10.2 is incorporated herein by reference to Exhibit 10.10.2 of
Form 10-Q for the quarter ended May 3, 1994.
(16) Exhibits 10.10.4 and 10.13.4 are incorporated herein by reference To
Exhibits 10.10.4 and 10.13.4 of Form 10-K for the year ended February 2,
1995.
(17) Exhibits 10.11, 10.16, 10.20, 10.21 and 10.22 are incorporated herein by
reference to Exhibits 10.11, 10.16, 10.20, 10.21 and 10.22, respectively,
of Form 10-K for the year ended January 31, 1991. Exhibit 10.11 expired by
its terms in 1992 and Exhibit 10.16 expired by its terms in 1996.
Notwithstanding such expiration, certain agreements for the options granted
under these option plans remain outstanding.
(18) Exhibits 10.12 and 10.17 are incorporated herein by reference to Exhibits
10.12 and 10.17, respectively, of Form 10-Q for the quarter ended October
29, 1987.
(19) Exhibit 10.12.1 is incorporated herein by reference to Exhibit 10.12.1 of
Form 10-Q for the quarter ended August 3, 1989.
(20) Exhibit 10.13.1 is incorporated herein by reference to Exhibit 10.13.1 of
Form 10-Q for the quarter ended May 4, 1989.
(21) Exhibit 10.13.2 is incorporated herein by reference to Exhibit 10.13.2 of
Form 10-K for the year ended February 1, 1990.
Page 19
<PAGE>
(22) Exhibit 10.13.3 is incorporated herein by reference to Exhibit 10.13.3 of
Form 10-Q for the quarter ended August 2, 1990.
(23) Exhibits 10.13.5, 10.23 and 10.24.1 are incorporated herein by reference to
Exhibits 10.13.5, 10.23 and 10.24.1, respectively, of Form 10-K for the
year ended February 1, 1996.
(24) Exhibit 10.14 is incorporated herein by reference to Exhibit 10.14 of Form
10-Q for the quarter ended November 3, 1994.
(25) Exhibit 10.14.1 is incorporated herein by reference to Exhibit 10.14.1 of
Form 10-Q for the quarter ended November 2, 1995.
(26) Exhibits 10.18.1, 10.19.1, 10.20.3, 10.22.1 and 10.26 are incorporated
herein by reference to Exhibits 10.18.1, 10.19.1, 10.20.3, 10.22.1 and
10.26 of Form 10-Q for the quarter ended October 29, 1998.
(27) Exhibit 10.20.1 is incorporated herein by reference to Exhibit 10.20.1 of
Form 10-Q for the quarter ended August 4, 1994.
(28) Exhibit 10.20.2 is incorporated herein by reference to Exhibit 10.20.2 of
Form 10-K for the year ended January 29, 1998.
(29) Exhibits 10.24, 10.25 and 10.25.1 are incorporated herein by reference to
Exhibits 10.24, 10.25 and 10.25.1, respectively, of Form 10-Q for the
quarter ended May 4, 1995.
(30) Exhibit 10.28 is incorporated herein by reference to Exhibit 10.28 of Form
8-K dated April 5, 1999.
Page 20
EXHIBIT 3.1.2
AMENDMENT TO
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR
PARTICIPATING STOCK
OF
ALBERTSON'S, INC.
THOMAS R. SALDIN, Executive Vice President and General Counsel, and
KAYE L. O'RIORDAN, Vice President and Corporate Secretary, of Albertson's, Inc.,
a Delaware corporation ("Corporation"), do hereby certify under the seal of the
Corporation as follows:
1. That no shares of Series A Junior Participating Preferred Stock, par
value $1.00 per share, have been issued.
2. That, pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Restated Certificate of Incorporation of the
Corporation and in accordance with Section 151(g) of the General Corporation Law
of Delaware, the Board of Directors of the Corporation on March 1, 1999 adopted
the following resolution amending the preferences of the Series A Junior
Participating Preferred Stock:
RESOLVED, that the Certificate of Designation, Preferences and Rights
of Series A Junior Participating Preferred Stock of Albertson's, Inc. (the
"Certificate of Designation") hereby be, and it is, amended as follows:
(a) In section 2(A)(a) and Section 2(B) of the Certificate, the
amount "$25.00" shall be replaced with "$250.00."
(b) In section 2(A)(b) of the Certificate, the words "100 times"
shall be replaced with the words "1,000 times" in both locations
where such words appear.
(c) In the first sentence of Section 6(A) of the Certificate, the
amount "$16,000.00" shall be replaced with "$160,000.00."
(d) In section 6(A)(ii), the amount "100" shall be replaced with
"1,000."
(e) In the first sentence of Section 7, the amount "100" shall be
replaced with "1,000."
Page 1
<PAGE>
In witness whereof, we have signed this Amendment to Certificate of
Designation and caused the corporate seal of the corporation to be hereunto
affixed this 16th day of March, 1999.
/s/ Thomas R. Saldin
THOMAS R. SALDIN
Executive Vice President and
General Counsel
Attest:
/s/ Kaye L. O'Riordan
KAYE L. O'RIORDAN
Vice President and Corporate Secretary
Page 2
EXHIBIT 3.2
ALBERTSON'S, INC.
BY-LAWS
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Section 1.1 Registered Office.......................................... 1
Section 1.2 Other Offices.............................................. 1
ARTICLE II
MEETINGS OF THE STOCKHOLDERS
Section 2.1 Place of Meetings.......................................... 1
Section 2.2 Annual Meetings............................................ 1
Section 2.3 Notice of Annual Meeting................................... 1
Section 2.4 List of Stockholders Entitled to Vote...................... 1
Section 2.5 Special Meetings........................................... 2
Section 2.6 Notice of Special Meeting.................................. 2
Section 2.7 Quorum..................................................... 2
Section 2.8 Voting..................................................... 2
Section 2.9 Proxies.................................................... 3
Section 2.10 Nature of Business at Meetings of Stockholders............. 3
A Limitation........................................ 3
B. Notice Requirement................................ 4
C. Timeliness of Notice.............................. 4
D. Form of Notice.................................... 4
E. Business Brought Improperly....................... 4
Section 2.11 Stock Ledger............................................... 4
Section 2.12 Record Date in General..................................... 5
Section 2.13 Record Date for Stockholder Action by Written Consent...... 5
Section 2.14 Inspectors of Election..................................... 6
ARTICLE III
DIRECTORS
Section 3.1 Number and Election of Directors........................... 6
Section 3.2 Nomination of Directors.................................... 6
A. Limitation........................................ 6
B. Notice Requirement................................ 7
C. Timeliness of Notice.............................. 7
D. Form of Notice.................................... 7
E. Defective Nomination.............................. 8
i
<PAGE>
Section 3.3 Vacancies.................................................. 8
Section 3.4 Resignations and Removals of Directors..................... 8
Section 3.5 Duties and Powers.......................................... 8
Section 3.6 Indemnification............................................ 9
A. Power to Indemnify in Actions, Suits or
Proceedings Other than Those by or in the
Right of the Corporation.......................... 9
B. Power to Indemnify in Actions, Suits or
Proceedings by or in the Right of the Corporation. 9
C. Authorization of Indemnification.................. 9
D. Good Faith Defined................................ 10
E. Indemnification by a Court........................ 10
F. Expenses Payable in Advance....................... 11
G. Nonexclusivity of Indemnification and Advancement
of Expenses....................................... 11
H. Insurance......................................... 11
I. Certain Definitions............................... 11
J. Survival of Indemnification and Advancement
of Expenses....................................... 12
K. Limitation on Indemnification..................... 12
L. Indemnification of Employees and Agents........... 12
Section 3.7 Retirement Age............................................. 12
Section 3.8 Meetings................................................... 12
Section 3.9 Quorum..................................................... 12
Section 3.10 Actions of Board........................................... 13
Section 3.11 Meetings by Means of Conference Telephone.................. 13
Section 3.12 Committees................................................. 13
Section 3.13 Compensation............................................... 13
Section 3.14 Interested Directors....................................... 13
ARTICLE IV
NOTICES
Section 4.1 Notices.................................................... 14
Section 4.2 Waiver of Notice........................................... 14
ii
<PAGE>
ARTICLE V
OFFICERS
Section 5.1 Officers Chosen by the Board............................... 14
Section 5.2 Officers Chosen by the Chief Executive Officer............. 15
Section 5.3 Qualification.............................................. 15
Section 5.4 Voting Securities Owned by the Corporation................. 15
Section 5.5 Chairman of the Board...................................... 15
Section 5.6 Chairman of the Executive Committee........................ 16
Section 5.7 Chief Operating Officer.................................... 16
Section 5.8 Vice Chairman of the Board................................. 16
Section 5.9 President.................................................. 16
Section 5.10 Chief Executive Officer.................................... 16
Section 5.11 Vice Presidents............................................ 16
Section 5.12 Secretary.................................................. 17
Section 5.13 Assistant Secretaries...................................... 17
Section 5.14 Treasurer.................................................. 17
Section 5.15 Assistant Treasurers....................................... 17
ARTICLE VI
STOCK
Section 6.1 Form of Certificates....................................... 18
Section 6.2 Signatures................................................. 18
Section 6.3 Lost, Destroyed, Stolen or Mutilated Certificates.......... 18
Section 6.4 Transfers.................................................. 18
Section 6.5 Transfer and Registry Agents............................... 19
Section 6.6 Registered Stockholders.................................... 19
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 Dividends.................................................. 19
Section 7.2 Disbursements.............................................. 19
Section 7.3 Fiscal Year................................................ 19
Section 7.4 Corporate Seal............................................. 19
Section 7.5 Election Not to Be Subject to Idaho Business
Combination Law............................................ 19
Section 7.6 Election Not to Be Subject to Idaho Control Share
Acquisition Law............................................ 20
Section 7.7 Entire Board of Directors.................................. 20
iii
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments................................................. 20
iv
<PAGE>
ALBERTSON'S, INC.
BY-LAWS
ARTICLE I
OFFICES
Section 1.1 Registered Office. The registered office of Albertson's, Inc.
(the "Corporation") shall be in the City of Wilmington, County of New Castle,
State of Delaware.
Section 1.2 Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF THE STOCKHOLDERS
Section 2.1 Place of Meetings. All meetings of the stockholders for the
election of directors shall be held in the City of Boise, State of Idaho, at
such place as may be fixed from time to time by the Board of Directors, or at
such other place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting. Meetings of the stockholders for any other purpose may be held
at such time and place, within or without the State of Delaware, as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2.2 Annual Meetings. Annual meetings of stockholders shall be held
on the fourth Friday of May, if not a legal holiday and, if a legal holiday,
then on the next day following that is not a legal holiday, at 10:00 o'clock
A.M., or at such other date and time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which the
stockholders shall elect by written ballot a Board of Directors, and transact
such other business as may be properly brought before the meeting.
Section 2.3 Notice of Annual Meeting. Written notice of the annual meeting,
stating the place, date and hour of the meeting, shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 2.4 List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, or shall
cause to be prepared and made, at least ten days before every meeting of
stockholders a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Page 1
<PAGE>
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present; provided, however, the failure to do so shall not offset the validity
of any meeting.
Section 2.5 Special Meetings. Unless otherwise prescribed by statute or by
the certificate of incorporation of the Corporation, as amended and restated
from time to time or by one or more certificates of designation filed on behalf
of the Corporation pursuant to Section 151(f) of the Delaware General
Corporation Law (such certificate of incorporation and such certificate or
certificates of designation being collectively referred to herein as the
"Certificate of Incorporation"), special meetings of the stockholders, for any
purpose or purposes, may be called only by the chairman or vice chairman of the
Board of Directors or president of the Corporation and shall be called by the
chairman or vice chairman of the Board of Directors or president or secretary of
the Corporation at the request in writing of a majority of the Board of
Directors. Such request shall state the purpose or purposes of the proposed
meeting. At a special meeting of the stockholders, only such business shall be
conducted as shall be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors.
Section 2.6 Notice of Special Meeting. Written notice of a special meeting,
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days before the date of
the meeting.
Section 2.7 Quorum. The holders of a majority of the shares of common stock
of the Corporation (the "Common Stock") issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by law or by the Certificate of Incorporation. A
quorum, once established, shall not be broken by the withdrawal of enough votes
to leave less than a quorum. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting not less than ten nor more than sixty days before the date
of the meeting.
Section 2.8 Voting. At all meetings of the stockholders at which a quorum
is present, except as otherwise required by law, the Certificate of
Incorporation or these by-laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of shares
present in person or represented by proxy who properly cast a majority of the
votes on such question. Each holder of Common Stock shall be entitled to cast
one vote for each share of Common Stock standing in his or her name on the books
of the Corporation, and each holder of preferred stock shall be entitled to cast
such number of votes as is provided in the Certificate of Incorporation, voting
separately from or together with the holders of Common Stock as provided in the
Certificate of Incorporation. The Board of Directors, in its discretion, or the
officer of the Corporation presiding at a meeting of stockholders, in his or her
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
Page 2
<PAGE>
Section 2.9 Proxies. Any stockholder entitled to vote may do so in person
or by his or her proxy appointed by an instrument in writing subscribed by such
stockholder or by his or her attorney thereunto authorized, delivered to the
secretary of the meeting; provided, however, that no proxy shall be voted or
acted upon after three years from its date, unless said proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for him or her as proxy, either of the
following shall constitute a valid means by which a stockholder may grant such
authority: (a) a stockholder may execute a writing authorizing another person or
persons to act for him or her as proxy. Execution may be accomplished by the
stockholder or his or her authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means, including, but not limited to, by facsimile
signature; or (b) a stockholder may authorize another person or persons to act
for him or her as proxy by transmitting or authorizing the transmission of a
telegram or other means of electronic transmission to the person who will be the
holder of the proxy or to a proxy solicitation firm, proxy support service
organization or like agent duly authorized by the person who will be the holder
of the proxy to receive such transmission; provided, however, that any such
telegram or other means of electronic transmission must either set forth or be
submitted with information from which it can be determined that the telegram or
other electronic transmission was authorized by the stockholder. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission authorizing another person or persons to act as proxy for a
stockholder may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Section 2.10 Nature of Business at Meetings of Stockholders.
A. Limitation. Except as otherwise provided by law or the Certificate of
Incorporation, no business may be transacted at an annual meeting of
stockholders, other than business that is (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any holder of Common Stock (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 2.10 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 2.10.
B. Notice Requirement. In addition to any other applicable requirements,
for business to be properly brought before an annual meeting by a stockholder,
such stockholder must have given timely notice thereof to the secretary of the
Corporation in accordance with subsection C of this Section 2.10 in proper
written form in accordance with subsection D of this Section 2.10.
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C. Timeliness of Notice. To be timely, a stockholder's notice to the
secretary of the Corporation of business to be brought before an annual meeting
(commencing with the annual meeting after the 1999 annual meeting) must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 120 days nor more than 150 days prior to the first
anniversary of the date of the Corporation's proxy statement provided to
stockholders in connection with the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty days before or after such
anniversary, in order to be timely, notice by the stockholder must be so
received not later than the close of business on the tenth day following the day
on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was made, whichever occurs first.
D. Form of Notice. To be in proper written form, a stockholder's notice to
the secretary of the Corporation of business to be brought before an annual
meeting must set forth as to each matter such stockholder proposes to bring
before the annual meeting (a) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and record address of such stockholder, (c)
the class or series and number of shares of stock of the Corporation that are
owned beneficially or of record by such stockholder, (d) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest such stockholder has in such
business and (e) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
E. Business Brought Improperly. No business shall be conducted at the
annual meeting of stockholders except business brought before the annual meeting
in accordance with the procedures set forth in this Section 2.10; provided,
however, that, once business has been properly brought before the annual meeting
in accordance with such procedures, nothing in this Section 2.10 shall be deemed
to preclude discussion by any stockholder of any such business. If the chairman
of an annual meeting determines that business was not properly brought before
the annual meeting in accordance with the foregoing procedures, such chairman
shall declare to the meeting that the business was not properly brought before
the meeting, and such business shall not be transacted.
Section 2.11 Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled (a) to examine the stock
ledger, the list required by Section 2.4 of these by-laws or the books of the
Corporation or (b) to vote in person or by proxy at any meeting of stockholders.
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Section 2.12 Record Date in General. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action (other than an action to be taken
by written consent without a meeting), the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors and which record
date: (a) in the case of determination of stockholders entitled to vote at any
meeting of stockholders or adjournment thereof, shall not be more than sixty nor
less than ten days before the date of such meeting; and (b) in the case of any
other action (other than an action to be taken by written consent without a
meeting), shall not be more than sixty days prior to such other action. If no
record date is fixed: (a) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held; and (b) the record date for determining stockholders
for any other purpose (other than an action to be taken by written consent
without a meeting) shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 2.13 Record Date for Stockholder Action by Written Consent. In
order that the Corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or take
corporate action by written consent shall, by written notice to the secretary of
the Corporation, request the Board of Directors to fix a record date. The Board
of Directors shall promptly, but in all events within ten days after the date on
which such a request is received, adopt a resolution fixing the record date. If
no record date has been fixed by the Board of Directors within ten days of the
date on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by
applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of stockholders meetings are recorded,
to the attention of the secretary of the Corporation. Delivery shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action. No consent to
corporate action in writing without a meeting shall be effective unless
delivered to the Corporation within sixty days following the record date
relating thereto fixed pursuant to this Section 2.13.
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Section 2.14 Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors by resolution or the chairman or vice
chairman of the Board of Directors or president or secretary of the Corporation
shall appoint one or more inspectors of election to act at the meeting and make
a written report thereof. One or more other persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is present, ready and willing to act at a meeting of stockholders,
the chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers, employees
or agents of the Corporation. Each inspector, before entering upon the discharge
of his or her duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his or
her ability. The inspector shall have the duties prescribed by law, shall take
charge of the polls and, when the vote is completed, shall make a certificate of
the result of the vote taken and of such other facts as may be required by law.
ARTICLE III
DIRECTORS
Section 3.1 Number and Election of Directors. The number of directors which
shall constitute the whole Board shall be not less than three nor more than
twenty-one. Within the limits above specified, the number of directors shall be
determined by resolution of the Board or by the vote at the annual meeting of
the holders of at least three-fourths of the outstanding shares of stock then
entitled to vote in elections of directors. The Board shall be divided into
three classes. Any increase or decrease in the number of directors shall be
apportioned among the classes so as to make all classes as nearly equal in
number as possible. No decrease in the authorized number of directors shall
shorten the term of any incumbent director. Unless and until otherwise
determined, the first and third classes shall each consist of five directors,
and the second class shall consist of four directors. A separate election shall
be held for each class of directors at the 1980 annual meeting of stockholders.
At the 1980 annual meeting of stockholders the directors elected to the first
class shall hold office for a term of one year and until their respective
successors are elected and qualified; the directors elected to the second class
shall hold office for a term of two years and until their respective successors
are elected and qualified, and the directors elected to the third class shall
hold office for a term of three years and until their respective successors are
elected and qualified. At each annual meeting thereafter the successors to the
class of directors whose term is then expiring shall be elected to hold office
for a term of three years and until their respective successors are elected.
Directors need not be stockholders.
Section 3.2 Nomination of Directors.
A. Limitation. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors of the
Corporation, except as may be otherwise provided in the Certificate of
Incorporation. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any holder of Common Stock (i) who is a stockholder of record on the
date of the giving of the notice provided for in this Section 3.2 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 3.2.
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B. Notice Requirement. In addition to any other applicable requirements,
for a nomination of a director to be made by a stockholder, such stockholder
must have given timely notice thereof to the secretary of the Corporation in
accordance with subsection C of this Section 3.2 in proper written form in
accordance with subsection D of this Section 3.2.
C. Timeliness of Notice. To be timely, a stockholder's notice to the
secretary of the Corporation of a nomination of a director must be delivered to
or mailed and received at the principal executive offices of the Corporation (a)
in the case of an annual meeting (commencing with the annual meeting after the
1999 annual meeting), not less than 120 days nor more than 150 days prior to the
first anniversary of the date of the Corporation's proxy statement provided to
stockholders in connection with the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty days before or after such
anniversary, in order to be timely, notice by the stockholder must be so
received not later than the close of business on the tenth day following the day
on which notice of the date of the annual meeting was mailed or public
disclosure of the date of the annual meeting was made, whichever occurs first;
and (b) in the case of a special meeting of stockholders called for the purpose
of electing directors, not later than the close of business on the tenth day
following the day on which notice of the date of the special meeting was mailed
or public disclosure of the date of the special meeting was made, whichever
occurs first.
D. Form of Notice. To be in proper written form, a stockholder's notice to
the secretary of the Corporation of a nomination of a director must set forth
(a) as to each person whom the stockholder proposes to nominate for election as
a director (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class or series and number of shares of stock of the Corporation that are owned
beneficially or of record by the person and (iv) any other information relating
to the person that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder; and (b) as to the stockholder giving the notice (i) the
name and record address of such stockholder, (ii) the class or series and number
of shares of stock of the Corporation that are owned beneficially or of record
by such stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in its
notice and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
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E. Defective Nomination. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth in this Section 3.2. If the chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedures, the
chairman shall declare to the meeting that the nomination was defective, and
such defective nomination shall be disregarded.
Section 3.3 Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. Any director so chosen shall hold office until the next
election of the class for which such director has been chosen, and until his or
her successor has been elected, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute. If at the time of filling any vacancy or any newly created
directorship the directors then in office shall constitute less than a majority
of the entire Board of Directors (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent of the total number of shares at the
time outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
Section 3.4 Resignations and Removals of Directors. Any director of the
Corporation may resign at any time, by giving written notice to the chairman or
vice chairman of the Board of Directors, the president or the secretary of the
Corporation. Such resignation shall take effect at the time therein specified
or, if no time is specified, immediately; and, unless otherwise specified in
such notice, the acceptance of such resignation shall not be necessary to make
it effective. Except as otherwise required by law and subject to the rights, if
any, of the holders of shares of preferred stock then outstanding, any director
or the entire Board of Directors may be removed from office at any time, but
only for cause, and only by the affirmative vote of the holders of at least a
majority in voting power of the issued and outstanding stock of the Corporation
entitled to vote in the election of directors. As used in this Section 3.4, the
term "cause" shall mean (a) conviction of a crime involving moral turpitude, (b)
administrative agency determination of conduct involving moral turpitude or (c)
a determination in good faith, by a majority in voting power of the issued and
outstanding stock of the Corporation entitled to vote in the election of
directors after a hearing before at minimum such a majority in voting power, of
conduct involving moral turpitude materially adverse to the interests of the
Corporation.
Section 3.5 Duties and Powers. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these by-laws
directed or required to be exercised or done by the stockholders.
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Section 3.6 Indemnification.
A. Power to Indemnify in Actions, Suits or Proceedings Other than Those by
or in the Right of the Corporation. Subject to subsection C of this Section 3.6,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director or officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that such person did not
act in good faith and in a manner which such person reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
B. Power to Indemnify in Actions, Suits or Proceedings by or in the Right
of the Corporation. Subject to subsection C of this Section 3.6, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
C. Authorization of Indemnification . Any indemnification under this
Section 3.6 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because such person has met
the applicable standard of conduct set forth in subsection A or subsection B of
this Section 3.6, as the case may be. Such determination shall be made (a) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (b) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion or (c) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
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D. Good Faith Defined . For purposes of any determination under subsection
C of this Section 3.6, a person shall be deemed to have acted in good faith and
in a manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his or her conduct was
unlawful, if such person's action is based on the records or books of account of
the Corporation or another enterprise, or on information supplied to such person
by the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another enterprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this subsection D
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this subsection D shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in subsection A or subsection B of this
Section 3.6, as the case may be.
E. Indemnification by a Court. Notwithstanding any contrary determination
in the specific case under subsection C of this Section 3.6, and notwithstanding
the absence of any determination thereunder, any director or officer may apply
to the Court of Chancery of the State of Delaware or any other court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under subsection A and subsection B of this Section
3.6. The basis of such indemnification by a court shall be a determination by
such court that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standards of conduct
set forth in subsection A or subsection B of this Section 3.6, as the case may
be. Neither a contrary determination in the specific case under subsection C of
this Section 3.6 nor the absence of any determination thereunder shall be a
defense to such application or create a presumption that the director or officer
seeking indemnification has not met any applicable standard of conduct. Notice
of any application for indemnification pursuant to this subsection E shall be
given to the Corporation promptly upon the filing of such application. If
successful, in whole or in part, the director or officer seeking indemnification
shall also be entitled to be paid the expense of prosecuting such application.
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F. Expenses Payable in Advance. Expenses incurred by a director or officer
in defending or investigating a threatened or pending action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the Corporation
as authorized in this Section 3.6.
G. Nonexclusivity of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by or granted pursuant to
this Section 3.6 shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
the Certificate of Incorporation or any by-law, agreement, contract, vote of
stockholders or disinterested directors or pursuant to the direction (howsoever
embodied) of any court of competent jurisdiction or otherwise, both as to action
in such person's official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in subsection A and subsection B of this Section 3.6
shall be made to the fullest extent permitted by law. The provisions of this
Section 3.6 shall not be deemed to preclude the indemnification of any person
who is not specified in subsection A or subsection B of this Section 3.6 but
whom the Corporation has the power or obligation to indemnify under the
provisions of the General Corporation Law of the State of Delaware (the "GCL"),
or otherwise.
H. Insurance . The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the Corporation would have the power or the obligation to indemnify such
person against such liability under the provisions of this Section 3.6.
I. Certain Definitions. For purposes of this Section 3.6, references to
"the Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger that, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers, so that any
person who is or was a director or officer of such constituent corporation, or
is or was a director or officer of such constituent corporation serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same position under the
provisions of this Section 3.6 with respect to the resulting or surviving
corporation as such person would have stood with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Section 3.6, references to "fines" shall include any excise taxes assessed on a
person with respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Section 3.6.
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J. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Section 3.6 shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
K. Limitation on Indemnification. Notwithstanding anything contained in
this Section 3.6 to the contrary, except for proceedings to enforce rights to
indemnification (which shall be governed by subsection E hereof), the
Corporation shall not be obligated to indemnify any director or officer (or his
or her heirs, executors or personal or legal representatives) or advance
expenses in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
L. Indemnification of Employees and Agents. The Corporation may, to the
extent authorized from time to time by the Board of Directors, provide rights to
indemnification and to the advancement of expenses to employees and agents of
the Corporation similar to those conferred in this Section 3.6 to directors and
officers of the Corporation.
Section 3.7 Retirement Age. No director after having attained the age of 70
years shall be allowed to run for re-election or reappointment to the Board of
Directors, excepting, however, that such retirement age shall not apply to
directors over the age of 65 years who were serving on such board on September
9, 1974.
Section 3.8 Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may be from time to time determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the
chairman, vice chairman or president or a majority of the directors then in
office. Notice thereof stating the place, date and hour of the meeting shall be
given to each director either by mail not less than forty-eight hours before the
date of the meeting, by telephone, facsimile, telegram or other electronic means
on twenty-four hours' notice, or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the circumstances.
Section 3.9 Quorum. Except as may be otherwise required by law, the
Certificate of Incorporation or these by-laws, at all meetings of the Board of
Directors, a majority of the entire Board of Directors shall constitute a quorum
for the transaction of business and the vote of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
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Section 3.10 Actions of Board. Unless otherwise restricted by the
Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 3.11 Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these by-laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 3.11 shall constitute
presence in person at such meeting.
Section 3.12 Committees. The Board of Directors may designate one or more
committees, each committee to consist of two or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of such committee. In the absence or disqualification of a
member of a committee, the member or members present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in one or more resolutions adopted by of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
GCL to be submitted to stockholders for approval or (ii) adopting, amending or
repealing any by-law of the Corporation. Each committee shall keep regular
minutes and report to the Board of Directors when required.
Section 3.13 Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors and/or a
stated salary, or such other emoluments as the Board of Directors shall from
time to time determine. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
Section 3.14 Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because such person's or their votes are
counted for such purpose if (a) the material facts as to such person's or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (b) the material facts as to
such person's or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or (c) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified by the
Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee that authorizes the contract
or transaction.
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ARTICLE IV
NOTICES
Section 4.1 Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these by-laws to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile or other electronic means.
Section 4.2 Waiver of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these by-laws to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting, present by person or represented by proxy, shall constitute a waiver
of notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of stockholders, directors or members of a committee of directors need
be specified in any written waiver of notice except to the extent required by
law, the Certificate of Incorporation or these by-laws.
ARTICLE V
OFFICERS
Section 5.1 Officers Chosen by the Board. The following officers of the
Corporation shall be chosen by the Board of Directors at its first meeting after
each annual meeting of stockholders: a chairman of the Board of Directors (who
must be a director), a vice chairman of the Board of Directors (who must be a
director) and a president. The Board of Directors shall designate the chairman
of the Board of Directors as the chief executive officer and the president of
the Corporation as the chief operating officer. Effective as of January 29,
1999, the Board of Directors may also choose a chairman of the executive
committee, who shall serve for such term as the Board of Directors shall
designate, and, if no one is chosen to fill this officer position, then the
chairman of the executive committee shall be an outside director pursuant to
Section 3.12 of these by-laws. The Board of Directors may also choose such other
officers as it deems necessary or appropriate. The officers of the Corporation
chosen by the Board of Directors shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors. Any officer chosen or appointed by the
Board of Directors may be removed from office at any time by the affirmative
vote of a majority of the Board of Directors. Any vacancy occurring in any of
such offices shall be filled by the Board of Directors. The salaries of the
officers of the Corporation chosen by the Board of Directors shall be fixed by
the Board of Directors.
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Section 5.2 Officers Chosen by the Chief Executive Officer. The chief
executive officer may appoint any vice presidents (including executive vice
presidents, senior vice presidents and group vice presidents) the secretary, any
assistant secretaries, the treasurer, any assistant treasurers, and such other
officers and agents as he or she may deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the chief executive officer, who may
remove any such officers from office at any time.
Section 5.3 Qualification. Any number of offices may be held by the same
person, unless otherwise prohibited by law, the Certificate of Incorporation or
these by-laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the chairman and vice chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 5.4 Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the chairman or vice chairman of the Board of
Directors or the president of the Corporation, and any such officer may, in the
name of and on behalf of the Corporation, take all such action as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities that the Corporation, as the
owner thereof, might have exercised and possessed if present. The Board of
Directors may from time to time confer, by resolution, like powers upon any
other person or persons.
Section 5.5 Chairman of the Board. The chairman of the Board of Directors
shall preside at all meetings of the Board of Directors and shall possess the
power to sign on behalf of the Corporation all certificates, contracts and other
instruments the execution of which may be authorized by the Board of Directors.
The chairman of the Board of Directors shall also perform such other duties and
may exercise such other powers as from time to time may be assigned to him or
her by these by-laws or by the Board of Directors.
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Section 5.6 Chairman of the Executive Committee. The chairman of the
executive committee shall preside at all meetings of the executive committee of
the Board of Directors, shall be available for advice and consultation as to
operations and administrative matters of significance and shall perform such
other duties and may exercise such other powers as from time to time may be
assigned to him or her by these by-laws or by the Board of Directors.
Section 5.7 Chief Operating Officer. The chief operating officer shall have
responsibility for the operations of the Corporation as authorized by the Board
of Directors and shall perform such other duties and may exercise such other
powers as from time to time may be assigned to him or her by these by-laws or by
the Board of Directors.
Section 5.8 Vice Chairman of the Board. The vice chairman of the Board of
Directors shall, in the absence of the chairman of the Board of Directors,
preside at meetings of the Board of Directors and shall possess the power to
sign on behalf of the Corporation all certificates, contracts and other
instruments the execution of which may be authorized by the Board of Directors.
The vice chairman of the Board of Directors shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to him
or her by these by-laws or by the Board of Directors.
Section 5.9 President. The president shall possess the power to sign on
behalf of the Corporation all certificates, contracts and other instruments the
execution of which may be authorized by the Board of Directors and shall perform
such other duties and may exercise such other powers as from time to time may be
assigned to him or her by these by-laws or by the Board of Directors.
Section 5.10 Chief Executive Officer. The chief executive officer shall
preside at, or shall designate such other officer of the Corporation to preside
at, meetings of stockholders. The chief executive officer shall have general and
active management of the business affairs of the Corporation, including the
right to appoint such officers as provided for in Section 5.2 of these by-laws,
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The chief executive officer shall also perform such other
duties and may exercise such other powers as from time to time may be assigned
to him or her by these by-laws or by the Board of Directors.
Section 5.11 Vice Presidents. The executive vice president, senior vice
president or group vice president designated by the Board of Directors shall be
vested with all powers and shall perform all the duties of the president in the
absence or the disability of the president. Each vice president shall be vested
with such powers and shall perform such duties granted or imposed upon him or
her by the Board of Directors or by the chief executive officer at the time of
his or her appointment to office or as from time to time may be assigned to him
or her by these by-laws, by the chief executive officer or by the Board of
Directors.
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Section 5.12 Secretary. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose and shall
perform like duties for the standing committees when requested. The secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the chief executive officer,
under whose supervision the secretary shall be. If the secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no assistant
secretary, then either the Board of Directors or the chief executive officer may
choose another officer to cause such notice to be given. The secretary shall
have custody of the corporate seal of the Corporation, and the secretary or any
assistant secretary, if there be one, shall have authority to affix the same to
any instrument requiring it and, when so affixed, it may be attested by the
signature of the secretary or by the signature of any such assistant secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by his or her signature.
The secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 5.13 Assistant Secretaries. Assistant secretaries, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the chief executive officer or the
secretary, and in the absence of the secretary or in the event of his or her
disability or refusal to act, shall perform the duties of the secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the secretary.
Section 5.14 Treasurer. The treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the chief executive officer and the Board of Directors at its regular meetings,
or when the Board of Directors so requires, an account of all of his or her
transactions as treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, the treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of treasurer and for the restoration to the Corporation, in case of the
treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the treasurer's
possession or under control of the treasurer belonging to the Corporation.
Section 5.15 Assistant Treasurers. Assistant treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the chief executive officer or the
treasurer, and in the absence of the treasurer or in the event of the
treasurer's disability or refusal to act, shall perform the duties of the
treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the treasurer. If required by the Board of Directors,
an assistant treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of the office of assistant treasurer and
for the restoration to the Corporation, in case of the assistant treasurer's
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the assistant treasurer's
possession or under control of the assistant treasurer belonging to the
Corporation.
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ARTICLE VI
STOCK
Section 6.1 Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed in the name of the Corporation,
by (a) the chairman or the vice chairman of the Board of Directors or the
president or an executive vice president of the Corporation and (b) the
treasurer or an assistant treasurer or the secretary or an assistant secretary
of the Corporation certifying the number of shares of stock of the Corporation
owned by such holder.
Section 6.2 Signatures. Where a certificate is countersigned (a) by a
transfer agent other than the Corporation or its employee or (b) by a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 6.3 Lost, Destroyed, Stolen or Mutilated Certificates. The Board of
Directors may direct a new certificate or certificates to be issued in place of
any certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that fact
by the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such person's legal representative, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 6.4 Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these by-laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, properly endorsed for transfer and
payment of all necessary transfer taxes; provided, however, that such surrender
and endorsement or payment of taxes shall not be required in any case in which
the officers of the Corporation shall determine to waive such requirement. Every
certificate exchanged, returned or surrendered to the Corporation shall be
marked "Canceled," with the date of cancellation, by the secretary or assistant
secretary of the Corporation or the transfer agent thereof. No transfer of stock
shall be valid as against the Corporation for any purpose until it shall have
been entered in the stock records of the Corporation by an entry showing from
and to whom transferred.
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Section 6.5 Transfer and Registry Agents. The Corporation may from time to
time maintain one or more transfer offices or agencies and registry offices or
agencies at such place or places as may be determined from time to time by the
Board of Directors.
Section 6.6 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner a person registered on
it books as the owner of shares, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 Dividends. Subject to the requirements of the GCL and the
provisions of the Certificate of Incorporation, dividends upon the stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors, and may be paid in cash, in property or in
shares of the Corporation's stock. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
may deem proper as a reserve or reserves for any purpose, and the Board of
Directors may modify or abolish any such reserve.
Section 7.2 Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 7.3 Fiscal Year. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 7.4 Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or fixed or
reproduced or otherwise.
Section 7.5 Election Not to Be Subject to Idaho Business Combination Law.
The Corporation expressly elects not to be subject to the provisions of the
Idaho Business Combination Law, codified as Chapter 17 of Title 30 of the Idaho
Code.
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Section 7.6 Election Not to Be Subject to Idaho Control Share Acquisition
Law. The Corporation expressly elects not to be subject to the provisions of the
Idaho Control Share Acquisition Law, codified as Chapter 16 of Title 30 of the
Idaho Code.
Section 7.7 Entire Board of Directors. As used in these by-laws, the term
"entire Board of Directors" means the total number of directors that the
Corporation would have if there were no vacancies.
ARTICLE VIII
AMENDMENTS
Section 8.1 Amendments. These by-laws may be altered, amended or repealed,
in whole or in part, or new by-laws may be adopted by the Board of Directors or
by the stockholders as provided in the Certificate of Incorporation.
I, Kaye L. O'Riordan, do hereby certify that the foregoing are the By-Laws
of the Corporation as of March 1, 1999.
/s/ Kaye L. O'Riordan
Kaye L. O'Riordan
Vice President and Corporate Secretary
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EXHIBIT 10.27
TERMINATION AND CONSULTING AGREEMENT
This Termination and Consulting Agreement by and among American Stores
Company, a Delaware corporation (the "Company"), Albertson's, Inc., a Delaware
corporation ("Parent") and Victor L. Lund (the "Executive") is dated as of the
second day of August, 1998.
WHEREAS, the Company, Parent and Abacus Holdings, Inc. ("Sub") have entered
into an Agreement and Plan of Merger dated as of the second day of August, 1998
(the "Merger Agreement"), pursuant to which the Company will merge with Sub (the
"Merger"), becoming a wholly owned subsidiary of Parent; and
WHEREAS, the Executive and the Company are parties to an Amended and
Restated Employment Agreement dated as of December 9, 1997 (the "Employment
Agreement") and an Employment Agreement dated as of July 25, 1996, as amended as
of December 9, 1997 (the "Change of Control Agreement"), as well as to various
award agreements pursuant to the Company's 1997 Stock Option and Stock Award
Plan, 1989 Stock Option and Stock Award Plan, 1985 Stock Option and Stock Award
Plan and Employee Stock Purchase Plan (the "Stock Award Agreements"), and the
Executive is entitled to various benefits under employee benefit plans, programs
and policies of the Company (collectively, the "Employee Benefits"), including
without limitation the Supplemental Executive Retirement Plan (the "SERP"); and
WHEREAS, it is acknowledged by the parties hereto that as a result of the
consummation of the Merger and the other transactions contemplated by the Merger
Agreement, as of the Effective Time (as defined in the Merger Agreement), the
Change of Control Agreement shall have become effective and the Executive will
have "Good Reason" to terminate his employment pursuant to the Change of Control
Agreement; and
WHEREAS, the Company and Parent have determined that it is in the best
interests of their respective shareholders to set forth, and the Executive has
agreed to set forth, their mutual agreement as to the rights and entitlements of
the Executive under the Employment Agreement, the Change of Control Agreement
and the Employee Benefits from and after the Effective Time and to provide for
the continuing availability to the Company and Parent of the Executive's
services and expertise following the Effective Time, all on the terms and
conditions set forth below;
NOW, THEREFORE, it is hereby agreed as follows:
1. Termination of Employment. (a) The Executive agrees not to terminate his
employment before the day after the Closing Date (as defined in the Merger
Agreement). Any termination of the Executive's employment after the Effective
Time shall be deemed to be a termination of his employment for "Good Reason"
under the Change of Control Agreement, with the result that the Executive shall
be entitled to the payments and benefits set forth below in this Section 1. The
date of such termination of employment is hereinafter referred to as the "Date
of Termination."
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(b) The Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
(i) the sum of (1) the Executive's Annual Base Salary (as defined
below) through the Effective Time to the extent not theretofore
paid, and (2) the product of (x) the higher of (I) the Recent
Annual Bonus (as defined below) and (II) the Annual Bonus (as
defined below) paid or payable, including any bonus or portion
thereof which has been earned but deferred (and annualized for
any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full
months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to
as the "Highest Annual Bonus") and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through
the Effective Time, and the denominator of which is 365; and
(ii) the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
(iii)the amount of the Executive's Special Long-Range Retirement Plan
"(SLRPP") benefit as required by Section VI-B of the Employment
Agreement, it being acknowledged that such benefit will become
100% vested upon the consummation of the Merger and that such
benefit will be payable in a lump sum in accordance with clause
6. of said Section VI-B.
(c) For three years after the Date of Termination, or such longer period as
may be provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue to provide the Executive and/or the
Executive's family with "Welfare Benefits" (as defined below); provided,
however, that the benefits provided pursuant to this Section 1(c) shall not
duplicate any benefits required by Section 3(e) below.
(d) To the extent not theretofore paid or provided, or otherwise specified
in this Agreement, the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided or which the Executive
is eligible to receive under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies, including without
limitation the SERP, in accordance with the terms thereof.
2. Stock Awards. The Executive's Stock Awards shall be treated as provided
in the Merger Agreement, and in accordance with the terms of the Stock Awards
and the plans under which they were granted.
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3. Post-Merger Services. (a) Parent shall cause the Executive to be
nominated to its Board of Directors (the "Board") for a term or terms extending
until the third annual meeting of Parent following the Effective Time. While the
Executive is a member of the Board, he shall serve as Vice Chairman thereof.
(b) From the Date of Termination through the first anniversary thereof or
such shorter period as may be provided pursuant to Section 3(g) or (h) below
(the "Consulting Term"), in consideration for the compensation and benefits
provided for below, the Executive shall render one thousand hours of service as
follows: (i) the Executive shall make himself available to Parent and the
Company, at mutually convenient times and places, for such consulting services
as may be requested by the Board or the Chief Executive Officer of Parent, in
connection with long-range planning, strategic direction, real estate strategy
and integration and rationalization matters; and (ii) the Executive shall serve
as the industry representative of Parent and the Company to the National
Association of Chain Drug Stores and CIES-The Food Business Forum.
(c) Parent shall pay the Executive a fee (the "Fee") of $70,834 per month,
payable monthly in advance, during the Consulting Term. In addition, during the
Consulting Term, the Executive shall be entitled to such other perquisites
(including expense reimbursement and transportation) as are made available to
senior executive officers of the Company in accordance with the Company's
policies and practices prevailing as of the date of this Agreement. Without
limiting the generality of the foregoing: (i) Parent shall reimburse the
Executive for all expenses incurred by him in the performance of services
hereunder, within thirty days of receipt by Parent of invoices setting forth a
description of the items for which reimbursement is sought together with the
cost or fair market value of such items and copies of invoices, receipts, credit
card statements and other supporting documentation; (ii) during the Consulting
Term, the Company's corporate aircraft N718R shall remain based in Salt Lake
City, and shall be available for the use of the Executive and that of Company
executives on a basis consistent with the Company's practice on the date of this
Agreement; and (iii) when the Executive travels in the course of performing
services hereunder, he and Mrs. Lund shall be entitled to use such corporate
aircraft or to first-class travel by commercial airliner.
(d) As of the Date of Termination, the Company shall transfer to the
Executive title to the Company-owned vehicle that he currently uses.
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(e) The Company shall purchase medical, dental, vision and prescription
drug coverage for the Executive and his spouse, Linda Lund, at least comparable
to the coverage under the plans and programs in effect for active employees of
the Company in which the Executive participates as of the date hereof. The
premiums for such coverage shall be payable by the Company for the lifetime of
the Executive and for Mrs. Lund's lifetime. To the extent any such premiums are
considered taxable income to the Executive or to Mrs. Lund, the Company shall
make a gross-up payment to the Executive or Mrs. Lund, as applicable, to make
him or her whole on an after-tax basis. The Executive shall have the opportunity
afforded to all terminating employees of the Company to convert, to the extent
permitted, any group life or accident coverage to an individual policy or
program following the Effective Time.
(f) From the Date of Termination through October 31, 2012 (or the date of
the Executive's death, if earlier), the Company shall (i) pay the Executive
$39,000 per year, increased as of each anniversary of the Date of Termination to
reflect increases in the Consumer Price Index since the Date of Termination or
the last such anniversary, as applicable, in lieu of providing him with an
office and related occupancy expenses, as provided for in Section VI-D of the
Employment Agreement, and (ii) shall employ, and shall provide the Executive
with the full-time services of, Amy Stitt, his current executive assistant or,
if Ms. Stitt voluntarily ceases to be an employee of the Company, with (at the
Executive's election) the full-time services of another executive secretary of
comparable qualifications employed by Parent and loaned to the Executive, or
with reimbursement, on a net after-tax basis, of the direct and indirect costs
(including without limitation for benefits) incurred by the Executive in hiring
another executive secretary to render such services. During her employment with
the Company pursuant to the preceding sentence, Ms. Stitt shall receive an
annual salary at least equal to $55,000, increased as of each anniversary of the
Date of Termination to reflect increases in the Consumer Price Index since the
Date of Termination or the last such anniversary, as applicable, or, if greater,
as necessary to provide her with increases at least equal, on a percentage
basis, to the increases provided to similarly situated executive secretaries of
Parent.
(g) If the Executive should die or become permanently disabled before the
first anniversary of the Date of Termination, the Consulting Term shall end on
the date of such death or permanent disability, Parent shall pay to the
Executive's estate or to the Executive or his legal guardian, as applicable, any
portion of the Fee and any expense reimbursements pursuant to Section 3(c) above
that remain unpaid, and the provisions of this Section 3 shall have no further
force or effect.
(h) Parent may terminate the Consulting Term for Cause, in which event the
Executive shall not be required to render any further services and no further
monthly payments of the Fee shall be made. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties under this Section 3 (other
than any such failure resulting from incapacity due to physical
or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the
Chief Executive Officer of Parent which specifically identifies
the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Parent or the Company.
Page 4
<PAGE>
For purposes of this Section 3(h), no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of Parent and the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer of Parent or based upon the advice of counsel for Parent or
the Company shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of Parent and the Company.
The Consulting Term shall not be terminated for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
(i) The Executive's status during the Consulting Term shall be that
of an independent contractor and not, for any purpose, that of an
employee or agent with authority to bind the Company in any
respect. All payments and other consideration made or provided to
the Executive under this Section 3 shall be made or provided
without withholding or deduction of any kind, and the Executive
shall assume sole responsibility for discharging, and he hereby
agrees to indemnify and defend Parent and the Company against,
all tax or other obligations associated therewith.
4. Confidentiality. The Executive shall hold in a fiduciary capacity for
the benefit of Parent and the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies, and all such information, knowledge or data relating to Parent or any
of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's service as a consultant
hereunder, and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Consulting Term, the Executive shall not,
without the prior written consent of Parent or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge or
data to anyone other than Parent and those designated by it. In no event shall
an asserted violation of the provisions of this Section4 constitute a basis for
deferring or withholding any amounts otherwise payable to the Executive under
this Agreement.
Page 5
<PAGE>
5. Noncompetition. During the Consulting Term and thereafter while he is a
member of the Board, without the consent of the Board, the Executive shall not
serve as an employee, officer, director (or in any other position of comparable
function) of, or consultant to any other business or entity engaged in the
retail grocery or drug store business which is in competition with Parent, the
Company, or their respective subsidiaries; provided, that the foregoing shall
not prevent the Executive from continuing to serve as a member of the Boards of
Directors on which he currently serves. In no event shall an asserted violation
of the provisions of this Section 5 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this Agreement.
6. Indemnification. Parent and the Company agree to indemnify, protect,
defend and hold the Executive and his estate, heirs, and personal
representatives, harmless from and against any actual or threatened action,
suitor proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), and all losses, liabilities, damages and expenses,
including reasonable attorney's fees incurred by counsel reasonably designated
or approved by him, in connection with this Agreement or his services hereunder,
provided that any consulting services giving rise to such indemnification shall
have been performed by the Executive in good faith and, to the best of his
knowledge, in a lawful manner.
7. Certain Additional Payments. (a) Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by Parent, the Company or its
affiliates to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing
provisions of this Section 7(a), if it shall be determined that the Executive is
entitled to a Gross-Up Payment, but that the Payments do not exceed110% of the
greatest amount (the "Reduced Amount") that could be paid to the Executive such
that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
Page 6
<PAGE>
(b) Subject to the provisions of Section 7(c), all determinations required
to be made under this Section 7, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Ernst & Young LLP
or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations to Parent, the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by Parent or the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by Parent and the Company. Any Gross-Up Payment, as determined pursuant
to this Section 7, shall be paid by Parent or the Company to the Executive
within five days of the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon Parent, the Company
and the Executive. As a result of the uncertainty in the application of
Section4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by Parent or the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that Parent exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by Parent or the Company to or for the
benefit of the Executive.
(c) The Executive shall notify Parent in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment of the
Gross-Up Payment. Such notification shall be given as soon as practicable but no
later than ten business days after the Executive is informed in writing of such
claim and shall apprise Parent of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay such claim prior
to the expiration of the 30-day period following the date on which it gives such
notice to Parent (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If Parent notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give Parent any information reasonably requested by Parent
relating to such claim,
(ii) take such action in connection with contesting such claim as
Parent shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
Parent,
(iii)cooperate with Parent in good faith in order effectively to
contest such claim, and
(iv) permit Parent to participate in any proceedings relating to such
claim;
Page 7
<PAGE>
provided, however, that Parent shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), Parent shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as Parent shall determine;
provided, however, that if Parent directs the Executive to pay such claim and
sue for a refund, Parent shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with respect to such advance
or with respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, Parent's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by Parent
pursuant to Section 7(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to Parent's complying
with the requirements of Section 7(c)) promptly pay to Parent the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by Parent pursuant to Section 7(c), a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
Parent does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such determination,
then such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
8. Parent Guaranty. Parent hereby irrevocably, absolutely and
unconditionally guarantees the payment by the Company of all compensation and
benefits (the "Payments") that the Company is obligated to provided to the
Executive under this Agreement. This obligation of Parent is the primary
obligation of Parent, and the Executive may enforce this guarantee against
Parent without any prior enforcement of the obligation to make the Payments
against the Company.
9. Definitions. As used in this Agreement, the following terms shall have
the meanings indicated below:
Page 8
<PAGE>
(a) "Annual Base Salary" shall mean the Executive's annual base salary paid
by the Company and its affiliated companies (including any base salary which was
earned but deferred), at the highest rate in effect in respect of the
twelve-month period immediately preceding the month in which the Effective Time
occurs, but in no event less than $850,000.
(b) "Recent Annual Bonus" shall mean the Executive's target bonus in effect
for the year in which the Effective Time occurs under the Company's incentive
plans (both annual and long-term), but in no event less than $595,000.
(c) "Welfare Benefits" shall mean all welfare benefit plans, practices,
policies and programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental, disability,
employee life, group life, accidental death and travel accident insurance plans
and programs) to the extent applicable generally to other peer executives of the
Company and its affiliated companies, which such plans, practices, policies and
programs provide the Executive with benefits shall be not less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other peer
executives who remain active employees of Parent, the Company or any of their
respective subsidiaries; provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility.
10. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of Parent shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
Parent, the Company and their respective successors and assigns.
(c) Parent and the Company shall each require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of their respective businesses and/or assets to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that Parent or the Company (as applicable) would be required to perform
it if no such succession had taken place. As used in this Agreement, "Parent"
and the "Company" shall mean Parent and the Company, respectively, as
hereinbefore defined and any successor to their respective businesses and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
Page 9
<PAGE>
11. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
IF TO THE EXECUTIVE:
Victor L. Lund
P.O. Box 58739
Salt Lake City, UT 84158
IF TO PARENT:
Thomas R. Saldin
250 Park Center Blvd.
Boise, Idaho 83726
IF TO THE COMPANY:
299 South Main Street
Salt Lake City, UT 84111
Attention: General Counsel or Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision (or portion
thereof) of this Agreement shall not affect the validity or enforceability of
any other provision (or portion thereof) of this Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) From and after the Date of Termination, this Agreement shall supersede
any other agreement between the parties with respect to the subject matter
hereof, including without limitation the Employment Agreement and the Change of
Control Agreement.
Page 10
<PAGE>
(f) This Agreement may be executed in several counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one and
the same instrument.
(g) This Agreement shall be null and void, ab initio, and of no further
effect if the Merger Agreement is terminated before the Effective Time.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from their respective Boards of Directors,
Parent and the Company have each caused these presents to be executed in its
name on its behalf, all as of the day and year first above written.
/s/ Victor L. Lund
Victor L. Lund
AMERICAN STORES COMPANY
By: /s/ Kathleen E. McDermott
ALBERTSON'S, INC.
By: /s/ Michael F. Reuling
Page 11
EXHIBIT 13
Albertson's, Inc.
Financial Review
Business Combinations
On August 2, 1998, the Company entered into a definitive merger agreement
with American Stores Company (ASC) which was approved by the stockholders of
Albertson's and ASC on November 12, 1998. The agreement provides for a business
combination between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company. Under the terms of the agreement, the holders of ASC
common stock will be issued 0.63 shares of Albertson's, Inc., common stock in
exchange for each share of ASC common stock, with cash being paid in lieu of
fractional shares, in a transaction intended to qualify as a pooling of
interests for accounting purposes and as a tax-free reorganization for federal
income tax purposes. The transaction is subject to certain regulatory clearance
and is expected to close during the latter part of the Company's first fiscal
quarter or early in the second fiscal quarter of 1999.
During 1998 the Company acquired Seessel Holdings, Inc. (Seessel's),
Smitty's Super Markets, Inc. (Smitty's), Buttrey Food and Drug Stores Company
(Buttrey) and the assets of 15 Bruno's, Inc., stores in transactions accounted
for using the purchase method of accounting. Seessel's, acquired on January 30,
1998, included 10 grocery stores in Memphis, Tennessee, and a central bakery and
central kitchen, which manufacture fresh bakery and prepared foods for
distribution to the Seessel's stores. Smitty's, acquired on April 20, 1998,
included 10 combination stores and 3 fuel centers with convenience stores in
southwest Missouri. Buttrey, acquired on October 1, 1998, included 44 stores in
Montana, North Dakota and Wyoming. In accordance with an agreement with the
Federal Trade Commission, 9 Buttrey stores and 6 Albertson's stores were
divested. The assets of the 15 Bruno's, Inc., stores, acquired on August 24,
1998, included 14 operating stores and 1 store under construction located in the
metropolitan areas of Nashville and Chattanooga, Tennessee, as well as 1 store
in northern Georgia.
Results of Operations
The Company has reported increased sales and earnings for 29 consecutive
years. Sales for 1998 were $16.0 billion, compared to $14.7 billion in 1997 and
$13.8 billion in 1996. The following table sets forth certain income statement
components expressed as a percent to sales and the year-to-year percentage
changes in the amounts of such components:
<TABLE>
<CAPTION>
Percent to Sales Percentage Change
---------------- -----------------
1998 1997 1996
1998 1997 1996 vs. 1997 vs. 1996 vs. 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales 100.00 100.00 100.00 9.0 6.6 9.5
Gross profit 27.39 26.43 25.88 12.9 8.9 11.0
Selling, general and administrative expenses 21.15 20.36 19.71 13.2 10.1 12.9
Impairment - store closures 0.15
Operating profit 6.08 6.07 6.17 9.1 5.0 5.2
Net interest expense 0.67 0.56 0.47 29.7 27.9 16.1
Earnings before income taxes 5.59 5.63 5.77 8.2 4.0 4.8
Net earnings 3.54 3.52 3.58 9.7 4.7 6.2
</TABLE>
Increases in sales are primarily attributable to the continued expansion of
net retail square footage, and identical and comparable store sales increases.
During 1998 the Company opened 132 stores, remodeled 27 stores, completed 30
strategic retrofits and closed 27 stores for a net retail square footage
increase of 5.6 million square feet. Included in store openings are 74 acquired
stores (net of 9 Buttrey stores divested) and included in store closings are 6
Albertson's stores divested in connection with the Buttrey acquisition. Net
retail square footage increased 13.1% in 1998, 7.4% in 1997 and 9.6% in 1996.
Identical store sales, stores that have been in operation for two full fiscal
years, increased 0.3% in 1998 and 1997, and 2.0% in 1996. Comparable store
sales, which include replacement stores, increased 0.5% in 1998, 0.4% in 1997
and 2.1% in 1996. Identical and comparable store sales continued to increase
through higher average ticket sales per customer. Management estimates that
there was overall deflation in products the Company sells of approximately 0.4%
in 1998 compared to inflation of approximately 0.3% in 1997 and 0.6% in 1996.
Page 1
<PAGE>
In addition to new store development, the Company plans to increase sales
through its continued investment in programs initiated in recent years which are
designed to provide solutions to customer needs. These programs include the
Front End Manager program; home meal solutions called "Quick Fixin' Ideas";
special destination departments such as Albertson's Better Care pharmacies, baby
care, pet care and snack and beverage centers; 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 destination departments in new
and remodeled stores.
Gross profit, as a percent to sales, increased primarily as a result of
continued improvements made in retail stores, including substantial 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. All of the Company's retail stores are serviced by
Company-owned distribution centers, which provide approximately 75% of all
products purchased by Albertson's retail stores. The Company's distribution
facilities provide product exclusively to the Company's retail stores.
Utilization of the Company's distribution centers has enabled the Company to
improve its control over product costs and product distribution. The pre-tax
LIFO adjustment, as a percent to sales, reduced gross margin by 0.05% in 1998,
0.06% in 1997 and 0.11% in 1996.
Selling, general and administrative (SG&A) expenses, as a percent to sales,
increased primarily due to increased salary and related benefit costs resulting
from the Company's initiatives to increase sales, increased depreciation expense
associated with the Company's expansion program and integration costs associated
with the various acquisitions in 1998. In addition to increasing sales, the
Company continued to implement new technology designed to increase productivity,
and emphasize cost containment programs to control SG&A expenses.
The Company recorded a charge to earnings (Impairment - store closures) in
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. As of January 28, 1999, 13 of these stores had been closed and
management believes the 1998 charge and remaining reserve are adequate.
Increases in net interest expense resulted from higher average outstanding
debt. The average outstanding debt has increased as a result of the Company's
continued investment in new and acquired stores.
The Company's effective income tax rate for 1998 was 36.6%, as compared to
37.5% for 1997 and 37.9% for 1996. The reduction is primarily due to the effect
of increases in the cash surrender value of Company-owned life insurance, which
is a non-taxable item.
Liquidity and Capital Resources
The Company's operating results continue to enhance its financial position
and ability to continue its planned expansion program. Cash provided by
operating activities during 1998 was $825 million, compared to $868 million in
1997 and $650 million in 1996. During 1998 the Company invested $834 million for
capital expenditures and $260 million for business acquisitions. The Company's
financing activities for 1998 included new long-term borrowings of $317 million,
a net increase of commercial paper borrowings of $46 million, bank line
borrowings of $171 million, $165 million for the payment of dividends (which
represents 29.0% of 1998 net earnings) and $17 million to purchase and retire
stock.
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 the Company's quarterly reporting
periods. The Company had $500 million of commercial paper and bank line
borrowings outstanding at January 28, 1999, compared to $283 million at January
29, 1998, and $329 million at January 30, 1997. As of January 28, 1999, the
Company had a revolving credit agreement for $600 million (which was reserved as
alternative funding for the Company's commercial paper program) and bank lines
of credit for $635 million (of which $175 million was drawn as of January 28,
1999). The revolving credit agreement contains certain covenants, the most
restrictive of which requires the Company to maintain consolidated tangible net
worth, as defined, of at least $750 million.
During 1998 the Company issued a total of $317 million in medium-term notes
under a $500 million shelf registration statement filed with the Securities and
Exchange Commission (SEC) in December 1997. Under a shelf registration statement
filed with the SEC in May 1996, the Company issued $200 million of medium-term
notes in 1997 and $200 million of 30-year 7.75% debentures in 1996. Proceeds
from these issuances were used to reduce borrowings under the Company's
commercial paper program.
The Company filed a shelf registration statement with the SEC, which became
effective in February 1999, to authorize the issuance of up to $2.5 billion in
debt securities. The remaining authorization of $183 million under the 1997
shelf registration statement was rolled into the 1999 shelf registration
statement. The Company intends to use the net proceeds of any securities sold
pursuant to the 1999 shelf registration statement for general corporate
purposes, including retirement of debt, working capital, acquisitions and other
business opportunities.
Since 1987 the Board of Directors has continuously adopted or renewed
programs under which the Company was authorized, but not required, to purchase
and retire shares of its common stock. The remaining authorization under the
program adopted by the Board on March 2, 1998, which authorized the Company to
purchase and retire up to 5 million shares through March 31, 1999, was rescinded
in connection with the pending merger with American Stores Company. Under these
programs, the Company purchased and retired 0.3 million shares in 1998, 5.4
million shares in 1997 and 1.6 million shares in 1996.
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<PAGE>
The following leverage ratios demonstrate the Company's levels of long-term
financing as of the indicated year end:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt and capitalized lease obligations to capital(1) 37.5% 31.8% 31.9%
Long-term debt and capitalized lease obligations to total assets 27.0 21.7 22.3
</TABLE>
(1) Capital includes long-term debt, capitalized lease obligations and
stockholders' equity
The average size of stores opened in 1998, 50,400 square feet, increased
the Company's average store size to 49,200 square feet. At January 28, 1999, 95%
of the Company's retail square footage consisted of stores over 35,000 square
feet. Retail square footage has also increased due to the Company's remodel
program. In 1998, 9 of the 27 remodeled stores were expanded in size. The
Company continues to retain ownership of real estate when possible. As of
January 28, 1999, the Company held title to the land and buildings of 53% of the
Company's stores and held title to the buildings on leased land of an additional
10% of the Company's stores. The Company also holds title to the land and
buildings of the Company's corporate headquarters in Boise, Idaho, 8 division
offices and all of the distribution facilities.
During the past three years, the Company has invested $130 million
(excluding inventory) in its distribution operations and has added 412,000
square feet of new or expanded facilities. During 1998 the Company began
construction of a new 730,000-square-foot distribution center in Tulsa,
Oklahoma. This new center is scheduled to begin operations in August 1999.
The Company is committed to keeping its stores up to date. In the last
three years, the Company has opened or remodeled 370 stores representing 40% of
the Company's retail square footage as of January 28, 1999. The following
summary of historical capital expenditures includes capital leases, stores
acquired in business and asset acquisitions, assets acquired with related debt
and the estimated fair value of property financed by operating leases (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New and acquired stores $ 746,576 $ 515,773 $ 460,188
Remodels 139,739 96,973 117,358
Retail replacement equipment and technological upgrades 59,004 41,628 52,478
Distribution facilities and equipment 67,170 28,399 34,812
Other 30,328 13,658 21,171
- ---------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 1,042,817 696,431 686,007
Estimated fair value of property financed by operating leases 95,000 44,000 47,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,137,817 $ 740,431 $ 733,007
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's strong financial position provides the flexibility for the
Company to grow through its store development program and future acquisitions.
The Board of Directors at its March 1999 meeting increased the regular quarterly
cash dividend to $0.18 per share, for an annual rate of $0.72 per share.
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 2000 fiscal year. The Company has
not yet completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.
Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to certain market risks that are inherent in the
Company's financial instruments which arise from transactions entered into in
the normal course of business. Although the Company currently utilizes no
material derivative financial instruments which expose the Company to
significant market risk, the Company is exposed to cash flow and fair value risk
due to changes in interest rates with respect to its long-term debt borrowings.
Page 3
<PAGE>
The Company is subject to interest rate risk on its long-term fixed
interest rate debt and bank line borrowings. Commercial paper borrowings do not
give rise to significant interest rate risk because these borrowings have
maturities of less than three months. All things being equal, the fair value of
debt with a fixed interest rate will increase as interest rates fall, and the
fair value will decrease as interest rates rise. The Company manages its
exposure to interest rate risk by utilizing a combination of fixed rate,
commercial paper and bank line borrowings.
The table below presents principal cash flows and related weighted average
interest rates of the Company's long-term debt and bank line borrowings
(excluding commercial paper) at January 28, 1999, by expected maturity dates (in
millions):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt $ 180.8 $ 295.3 $ 1.5 $ 1.7 $ 1.9 $ 726.8 $ 1,208.0 $ 1,284.9
Weighted average interest rate 5.48% 6.33% 9.04% 9.29% 9.49% 6.94% 6.58%
</TABLE>
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.
In September 1995 the Company formed a project team to assess the impact of
the Year 2000 issue on the software and hardware utilized in the Company's
internal operations. The project team is staffed primarily with representatives
of the Company's Information Systems and Technology department and reports 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 early 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 is in the process of 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 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 $14 million, of which approximately $4 million has been or will
be expensed and approximately $10 million has been or will be capitalized. These
costs include expenditures accelerated for Year 2000 compliance. To date, the
Company has spent approximately 90% of the estimated costs. These costs have
been funded through operating cash flow and represent an immaterial 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
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
first half of 1999. Contingency plans may include manual workarounds, increased
inventories and extra staffing.
Page 4
<PAGE>
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 about the ability of the Company and ASC to obtain the
necessary regulatory approvals and satisfy other conditions to the closing of
the merger transaction and with respect to the 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, the ability of the Company and ASC to obtain the required
regulatory approvals on terms acceptable to them, adverse changes in the
business or financial condition of the Company or ASC prior to the closing of
the merger transaction 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.
Page 5
<PAGE>
<TABLE>
Consolidated Earnings
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
January 28, January 29, January 30,
(In thousands except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 16,005,115 $ 14,689,511 $ 13,776,678
Cost of sales 11,622,026 10,807,687 10,211,348
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 4,383,089 3,881,824 3,565,330
Selling, general and administrative expenses 3,385,531 2,990,172 2,715,776
Impairment - store closures 24,407
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit 973,151 891,652 849,554
Other (expenses) income:
Interest, net (107,074) (82,563) (64,569)
Other, net 28,768 17,814 9,862
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 894,845 826,903 794,847
Income taxes 327,692 310,089 301,068
- ---------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 567,153 $ 516,814 $ 493,779
- ---------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Basic $ 2.31 $ 2.09 $ 1.96
Diluted 2.30 2.08 1.95
Weighted average common shares outstanding:
Basic 245,637 247,735 251,710
Diluted 246,808 248,497 252,730
</TABLE>
See Notes to Consolidated Financial Statements
Page 6
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
January 28, January 29, January 30,
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 80,646 $ 108,083 $ 90,865
Accounts and notes receivable 153,714 121,023 98,364
Inventories 1,503,164 1,308,578 1,201,067
Prepaid expenses 38,871 44,426 42,823
Deferred income taxes 57,510 45,747 42,804
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,833,905 1,627,857 1,475,923
Other Assets 277,728 207,360 184,070
Goodwill, net 148,322
Land, Buildings and Equipment, net 3,974,013 3,383,373 3,054,640
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 6,233,968 $ 5,218,590 $ 4,714,633
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 873,956 $ 742,557 $ 682,305
Salaries and related liabilities 171,706 149,898 135,681
Taxes other than income taxes 76,923 80,842 67,086
Income taxes 47,142 37,657 14,409
Self-insurance 73,066 69,982 63,999
Unearned income 64,418 46,069 36,539
Other 53,282 52,395 46,161
Current maturities of long-term debt 6,991 86,511 975
Current portion of capitalized lease obligations 11,347 9,608 7,938
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,378,831 1,275,519 1,055,093
Long-Term Debt 1,527,432 989,650 921,704
Capitalized Lease Obligations 157,102 140,957 130,050
Other Long-Term Liabilities and Deferred Credits 360,149 393,008 360,768
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - $1.00 par value; authorized - 10,000,000
shares; designated - 3,000,000 shares of Series A Junior
Participating; issued - none
Common stock - $1.00 par value; authorized - 1,200,000,000
shares; issued - 245,697,363 shares, 245,735,633 shares
and 250,690,105 shares, respectively 245,697 245,736 250,690
Capital in excess of par value 5,239 4,271 92
Retained earnings 2,559,518 2,169,449 1,996,236
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,810,454 2,419,456 2,247,018
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,233,968 $ 5,218,590 $ 4,714,633
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 7
<PAGE>
<TABLE>
Consolidated Cash Flows
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
January 28, January 29, January 30,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 567,153 $ 516,814 $ 493,779
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 375,395 328,795 294,341
Net deferred income taxes (27,968) (1,299) 33,868
Increase in cash surrender value of Company-owned life insurance (22,670) (14,113) (9,021)
Impairment - store closures 24,407
Changes in operating assets and liabilities,
net of business acquisitions:
Receivables and prepaid expenses (54,251) (19,180) (18,072)
Inventories (144,719) (107,511) (170,821)
Accounts payable 100,563 60,252 33,342
Other current liabilities 17,112 57,984 14,514
Self-insurance (1,808) 12,619 (11,234)
Unearned income (16,797) 21,705 (10,735)
Other long-term liabilities 9,029 12,081 (313)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 825,446 868,147 649,648
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (834,373) (674,053) (673,310)
Proceeds from disposals of land, buildings and equipment 47,632 37,098 31,095
Business acquisitions, net of cash acquired (259,672)
Increase in other assets (9,274) (14,258) (21,542)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,055,687) (651,213) (663,757)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from long-term borrowings 317,000 200,000 202,000
Payments on long-term borrowings (154,692) (8,995) (88,202)
Net commercial paper activity 46,259 (45,692) 119,601
Proceeds from bank line borrowings 170,695
Proceeds from stock options exercised 4,644 5,206 3,530
Cash dividends paid (164,584) (156,261) (146,060)
Stock purchased and retired (16,518) (193,974) (55,008)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 202,804 (199,716) 35,861
- ---------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (27,437) 17,218 21,752
Cash and Cash Equivalents at Beginning of Year 108,083 90,865 69,113
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 80,646 $ 108,083 $ 90,865
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 8
<PAGE>
<TABLE>
Consolidated Stockholders' Equity
<CAPTION>
Common Capital in
Stock $1.00 Excess of Retained
(In thousands except per share data) Par Value Par Value Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at February 1, 1996 $ 251,919 $ 3,269 $ 1,697,335 $ 1,952,523
Exercise of stock options 351 2,977 3,328
Tax benefits related to stock options 3,310 3,310
Stock purchased and retired (1,580) (9,464) (43,964) (55,008)
Cash dividends, $0.60 per share (150,914) (150,914)
Net earnings 493,779 493,779
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 30, 1997 250,690 92 1,996,236 2,247,018
Exercise of stock options 414 3,186 3,600
Tax benefits related to stock options 3,974 3,974
Stock purchased and retired (5,368) (2,981) (185,625) (193,974)
Cash dividends, $0.64 per share (157,976) (157,976)
Net earnings 516,814 516,814
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 29, 1998 245,736 4,271 2,169,449 2,419,456
Exercise of stock options 310 2,537 2,847
Tax benefits related to stock options 4,550 4,550
Stock purchased and retired (349) (6,119) (10,050) (16,518)
Cash dividends, $0.68 per share (167,034) (167,034)
Net earnings 567,153 567,153
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 1999 $ 245,697 $ 5,239 $ 2,559,518 $ 2,810,454
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
Page 9
<PAGE>
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
The Company
Albertson's, Inc. (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-drug
chains in the United States. As of January 28, 1999, the Company operated 983
stores in 25 Western, Midwestern and Southern states. Retail operations are
supported by 11 Company-owned distribution centers, strategically located in the
Company's operating markets. The Company's distribution centers provide product
exclusively to the Company's retail stores.
Summary of Significant Accounting Policies
FISCAL YEAR END: The Company's fiscal year is generally 52 weeks and
periodically consists of 53 weeks because the fiscal year ends on the Thursday
nearest to January 31 each year. Unless the context otherwise indicates,
reference to a fiscal year of the Company refers to the calendar year in which
such fiscal year commences.
CONSOLIDATION: The consolidated financial statements include the results of
operations, account balances and cash flows of the Company and its wholly owned
subsidiaries. All material intercompany balances have been eliminated.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with a maturity of three months or less at the time of purchase to
be cash equivalents. Investments, which consist of government-backed money
market funds and repurchase agreements backed by government securities, are
recorded at cost which approximates market value.
INVENTORIES: The Company values inventories at the lower of cost or market.
Cost of substantially all inventories is determined on a last-in, first-out
(LIFO) basis.
CAPITALIZATION, DEPRECIATION AND AMORTIZATION: Land, buildings and
equipment are recorded at cost. Depreciation is provided on the straight-line
method over the estimated useful life of the asset. Estimated useful lives are
generally as follows: buildings and improvements--10 to 35 years; fixtures and
equipment--3 to 8 years; leasehold improvements--10 to 15 years; and capitalized
leases--25 to 30 years. Long-lived assets are reviewed for impairment whenever
events or changes in business circumstances indicate the carrying value of the
assets may not be recoverable.
The costs of major remodeling and improvements on leased stores are
capitalized as leasehold improvements. Leasehold improvements are amortized on
the straight-line method over the shorter of the life of the applicable lease or
the useful life of the asset. Capital leases are recorded at the lower of the
fair market value of the asset or the present value of future minimum lease
payments. These leases are amortized on the straight-line method over their
primary term.
Beneficial lease rights and lease liabilities are recorded on purchased
leases based on differences between contractual rents under the respective lease
agreements and prevailing market rents at the date of the acquisition of the
lease. Beneficial lease rights are amortized over the lease term using the
straight-line method. Lease liabilities are amortized over the lease term using
the interest method.
Upon disposal of fixed assets, the appropriate property accounts are
reduced by the related costs and accumulated depreciation and amortization. The
resulting gains and losses are reflected in consolidated earnings.
GOODWILL: Goodwill resulting from business acquisitions represents the
excess of purchase price over fair value of net assets acquired and is being
amortized over 40 years using the straight-line method. Accumulated amortization
amounted to $2.7 million as of January 28, 1999. Periodically, the Company
re-evaluates goodwill and other intangibles based on undiscounted operating cash
flows whenever significant events or changes occur which might impair recovery
of recorded asset costs.
SELF-INSURANCE: The Company is primarily self-insured for property loss,
workers' compensation and general liability costs. Self-insurance liabilities
are based on claims filed and estimates for claims incurred but not reported.
These liabilities are not discounted.
UNEARNED INCOME: Unearned income consists primarily of buying and
promotional allowances received from vendors in connection with the Company's
buying and merchandising activities. These funds are recognized as revenue when
earned by purchasing specified amounts of product or promoting certain products.
STORE OPENING AND CLOSING COSTS: Noncapital expenditures incurred in
opening new stores or remodeling existing stores are expensed in the year in
which they are incurred. When a store is closed, the remaining investment in
fixed assets, net of expected recovery value, is expensed. For properties under
operating lease agreements, the present value of any remaining liability under
the lease, net of expected sublease recovery, is also expensed.
ADVERTISING: Advertising costs incurred to produce media advertising for
major new campaigns are expensed in the year in which the advertising first
takes place. Other advertising costs are expensed when incurred. Cooperative
advertising income from vendors is recorded in the period in which the related
expense is incurred. Net advertising expenses of $48.7 million, $44.0 million
and $34.7 million were included with cost of sales in the Company's Consolidated
Earnings for 1998, 1997 and 1996, respectively.
Page 10
<PAGE>
STOCK OPTIONS: Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost of stock
options 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.
COMPANY-OWNED LIFE INSURANCE: The Company has purchased life insurance
policies to cover its obligations under deferred compensation plans for
officers, key employees and directors. Cash surrender values of these policies
are adjusted for fluctuations in the market value of underlying investments. The
cash surrender value is adjusted each reporting period and any gain or loss is
included with other income (expense) in the Company's Consolidated Earnings.
INCOME TAXES: The Company provides for deferred income taxes resulting from
temporary differences in reporting certain income and expense items for income
tax and financial accounting purposes. The major temporary differences and their
net effect are shown in the "Income Taxes" note.
EARNINGS PER SHARE: Earnings per share (EPS) are computed in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share."
Basic EPS is computed by dividing consolidated net earnings by the weighted
average number of common shares outstanding. Diluted EPS is computed by dividing
consolidated net earnings by the sum of the weighted average number of common
shares outstanding and the weighted average number of potential common shares
outstanding. Potential common shares consist solely of outstanding options under
the Company's stock option plans. There were no outstanding options excluded
from the computation of potential common shares (option price exceeded the
average market price during the period) in 1998. Outstanding options excluded in
1997 and 1996 amounted to 1,520,000 shares and 24,000 shares, respectively.
RECLASSIFICATIONS: Certain reclassifications have been made in prior years'
financial statements to conform to classifications used in the current year.
USE OF ESTIMATES: 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.
Impairment - Store Closures
The Company recorded a charge to earnings in 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. As of January 28,
1999, 13 of these stores had been closed and management believes the 1998 charge
and remaining reserve are adequate.
Supplemental Cash Flow Information
Selected cash payments and noncash activities were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash payments for income taxes $ 341,334 $ 284,030 $ 288,590
Cash payments for interest, net of amounts capitalized 95,553 65,930 59,284
Noncash investing and financing activities:
Tax benefits related to stock options 4,550 3,974 3,310
Fair market value of stock exchanged for option price 1,460 2,021 768
Fair market value of stock exchanged for tax withholdings 1,796 1,606 202
Capitalized lease obligations incurred 24,857 22,228 12,005
Capitalized lease obligations terminated 5,509 1,632 3,240
Acquisition note payable 8,000
Liabilities assumed in connection with asset acquisitions 1,840 150 692
</TABLE>
Business Combinations
On January 30, 1998, the Company acquired Seessel Holdings, Inc., a wholly
owned subsidiary of Bruno's, Inc. for cash consideration of approximately $88
million. This acquisition included 10 grocery stores in the Memphis, Tennessee,
area, and a central bakery and central kitchen, which manufacture fresh bakery
and prepared foods for distribution to the Seessel's stores. The Company
operates these stores under the Seessel's banner.
Page 11
<PAGE>
On April 20, 1998, the Company acquired Smitty's Super Markets, Inc., for
cash consideration of approximately $36 million plus an $8 million unsecured
note payable. This acquisition included 10 combination stores and 3 fuel centers
with convenience stores in the Springfield and Joplin, Missouri, areas.
On August 24, 1998, the Company purchased the assets of 15 Bruno's, Inc.,
stores for approximately $36 million. This acquisition included 14 operating
stores and 1 store under construction which, when completed, will replace a
store currently operating. The stores are located in the Nashville and
Chattanooga, Tennessee, metropolitan areas. The Chattanooga area stores include
a store in northern Georgia. The Company operates these stores under the
Albertson's banner.
On October 1, 1998, the Company acquired Buttrey Food and Drug Stores
Company for cash consideration of approximately $142 million. This acquisition
included 44 stores in Montana, North Dakota and Wyoming. In accordance with an
agreement with the Federal Trade Commission, 9 Buttrey stores and 6 Albertson's
stores were simultaneously divested with the purchase. The Company operates the
acquired Buttrey stores under the Albertson's banner.
All acquisitions were accounted for using the purchase method of
accounting. The results of operations of the acquired businesses have been
included in the consolidated financial statements from their date of
acquisition. Pro forma results of operations have not been presented due to the
immaterial effects of these acquisitions on the Company's consolidated
operations. For each of these acquisitions, the excess of the purchase price
over the fair market value of net assets acquired, of $151 million, was
allocated to goodwill which is being amortized over 40 years. The Company has
not finalized its purchase price allocation relative to all of the acquisitions;
however, the final purchase price allocations should not differ significantly
from the preliminary purchase price allocations recorded as of January 28, 1999.
On August 2, 1998, the Company entered into a definitive merger agreement
with American Stores Company (ASC) which was approved by the stockholders of
Albertson's and ASC on November 12, 1998. The agreement provides for a business
combination between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company. Under the terms of the agreement, the holders of ASC
common stock will be issued 0.63 shares of Albertson's, Inc., common stock in
exchange for each share of ASC common stock, with cash being paid in lieu of
fractional shares, in a transaction intended to qualify as a pooling of
interests for accounting purposes and as a tax-free reorganization for federal
income tax purposes. Based on the number of common shares outstanding as of
Albertson's and ASC's respective 1998 fiscal year ends, consummation of the
merger would result in former stockholders of ASC holding approximately 42% of
the outstanding Albertson's common stock (assuming no conversion of outstanding
options). The transaction is subject to certain regulatory clearance and is
expected to close during the latter part of the Company's first fiscal quarter
or early in the second fiscal quarter of 1999.
Accounts and Notes Receivable
Accounts and notes receivable consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trade and other accounts receivable $ 152,226 $ 119,856 $ 97,186
Current portion of notes receivable 2,688 2,367 2,178
Allowance for doubtful accounts (1,200) (1,200) (1,000)
- ---------------------------------------------------------------------------------------------------------------------------
$ 153,714 $ 121,023 $ 98,364
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventories
Approximately 96% of the Company's inventories are valued using the last-in,
first-out (LIFO) method. If the first-in, first-out (FIFO) method had been used,
inventories would have been $250.3 million, $242.0 million and $232.8 million
higher at the end of 1998, 1997 and 1996, respectively. Net earnings (basic and
diluted earnings per share) would have been higher by $5.3 million ($0.02) in
1998, $5.7 million ($0.02) in 1997 and $9.3 million ($0.04) in 1996. The
replacement cost of inventories valued at LIFO approximates FIFO cost.
Page 12
<PAGE>
Land, Buildings and Equipment
Land, buildings and equipment consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 950,946 $ 795,246 $ 700,208
Buildings 2,419,971 2,055,276 1,799,976
Fixtures and equipment 2,087,977 1,779,469 1,607,454
Leasehold improvements 418,833 372,428 328,249
Capitalized leases 225,162 203,217 186,768
- ---------------------------------------------------------------------------------------------------------------------------
6,102,889 5,205,636 4,622,655
Accumulated depreciation and amortization (2,128,876) (1,822,263) (1,568,015)
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,974,013 $ 3,383,373 $ 3,054,640
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Indebtedness
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial paper $ 326,425 $ 283,304 $ 328,996
Bank line 173,834
Unsecured medium-term notes issued in 1998 317,000
Unsecured medium-term notes issued in 1997 200,000 200,000
Unsecured 7.75% debentures due June 2026 200,000 200,000 200,000
Unsecured 6.375% notes due June 2000 200,000 200,000 200,000
Unsecured medium-term notes issued in 1993 89,650 175,075 175,075
Industrial revenue bonds 13,515 14,230 14,860
Mortgage notes and other unsecured notes payable 13,999 3,552 3,748
- ---------------------------------------------------------------------------------------------------------------------------
1,534,423 1,076,161 922,679
Current maturities (6,991) (86,511) (975)
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,527,432 $ 989,650 $ 921,704
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has in place a $600 million commercial paper program. Interest
rates on the outstanding commercial paper borrowings as of January 28, 1999,
ranged from 4.82% to 4.93% with an effective weighted average rate of 4.86%.
Interest rates on amounts drawn against bank line borrowings outstanding as of
January 28, 1999, ranged from 5.38% to 5.41% with an effective weighted average
rate of 5.40%. The Company has established the necessary credit facilities,
through its revolving credit agreement, to refinance the commercial paper and
bank line borrowings on a long-term basis. These borrowings have been classified
as noncurrent because it is the Company's intent to refinance these obligations
on a long-term basis.
During 1998 the Company issued a total of $317 million in medium-term notes
under a $500 million shelf registration statement filed with the Securities and
Exchange Commission (SEC) in December 1997. Medium-term notes of $84 million
issued in February 1998 mature at various dates between February 2013 and
February 2028, with interest paid semiannually at rates ranging from 6.34% and
6.57%. Medium-term notes of $77 million issued in April 1998 mature in April
2028, with interest paid semiannually at rates ranging from 6.10% to 6.53%.
Medium-term notes of $156 million issued in June 1998 mature in June 2028, with
interest paid semiannually at a rate of 6.63%. The weighted average interest
rate on these notes outstanding at January 28, 1999, was 6.49%.
Page 13
<PAGE>
In July 1997 the Company issued $200 million of medium-term notes under a
shelf registration statement filed with the SEC in May 1996. The notes mature at
various dates between July 2007 and July 2027. Interest is paid semiannually at
rates ranging from 6.56% to 7.15%. The weighted average interest rate on these
notes outstanding at January 28, 1999, was 6.81%.
In June 1996 the Company issued $200 million of 7.75% debentures under a
shelf registration statement filed with the SEC in May 1996. Interest is paid
semiannually.
In June 1995 the Company issued $200 million of 6.375% notes under a shelf
registration statement filed with the SEC in 1992. Interest is paid
semiannually.
The medium-term notes issued in 1993 mature in March 2000. Interest is paid
semiannually at rates ranging from 6.03% to 6.28%. The weighted average interest
rate on these notes outstanding at January 28, 1999, was 6.14%.
The industrial revenue bonds are payable in varying annual installments
through 2011, with interest paid semiannually at rates ranging from 4.60% to
6.95%. The weighted average interest rate on these amounts outstanding at
January 28, 1999, was 6.00%.
The Company has pledged real estate with a cost of $10.8 million as
collateral for a mortgage note which is payable semiannually, including interest
at a rate of 16.5%. The note is payable from 1999 to 2013.
The scheduled maturities of long-term debt outstanding at January 28, 1999,
are summarized as follows: $7.0 million in 1999, $295.3 million in 2000, $501.7
million in 2001, $1.7 million in 2002, $1.9 million in 2003 and $726.8 million
thereafter. Medium-term notes of $30 million due July 2027 contain a put option
which would require the Company to repay the notes in July 2007 if the holder of
the note so elects by giving the Company a 60-day notice. Medium-term notes of
$50 million due April 2028 contain a put option which would require the Company
to repay the notes in April 2008 if the holder of the note so elects by giving
the Company a 60-day notice.
The Company has in place a revolving credit agreement with several banks,
whereby the Company may borrow principal amounts up to $600 million at varying
interest rates any time prior to December 17, 2001. The agreement contains
certain covenants, the most restrictive of which requires the Company to
maintain consolidated tangible net worth, as defined, of at least $750 million.
In addition to amounts available under the revolving credit agreement, the
Company had lines of credit from banks at prevailing interest rates for $635
million at January 28, 1999 (of which $175 million was drawn). The cash balances
maintained at these banks are not legally restricted. There were no amounts
outstanding under the Company's lines of credit as of January 29, 1998, or
January 30, 1997.
The Company filed a shelf registration statement with the SEC, which became
effective in February 1999, to authorize the issuance of up to $2.5 billion in
debt securities. The remaining authorization of $183 million under the 1997
shelf registration statement was rolled into the 1999 shelf registration
statement. The Company intends to use the net proceeds of any securities sold
pursuant to the 1999 shelf registration statement for general corporate
purposes, including retirement of debt, working capital, acquisitions and other
business opportunities.
Net interest expense was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt $ 87,946 $ 66,418 $ 48,534
Capitalized leases 18,132 16,629 15,168
Capitalized interest (9,142) (8,683) (6,378)
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense 96,936 74,364 57,324
Net bank service charges 10,138 8,199 7,245
- ---------------------------------------------------------------------------------------------------------------------------
$ 107,074 $ 82,563 $ 64,569
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 14
<PAGE>
Other Long-Term Liabilities and Deferred Credits
Other long-term liabilities and deferred credits consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred compensation $ 48,899 $ 43,014 $ 37,905
Deferred income taxes 7,267 17,520 15,876
Deferred rents payable 59,806 64,674 69,305
Self-insurance 114,232 114,227 107,591
Unearned income 46,885 81,931 69,756
Other, primarily postemployment and postretirement benefit liabilities 83,060 71,642 60,335
- ---------------------------------------------------------------------------------------------------------------------------
$ 360,149 $ 393,008 $ 360,768
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Capital Stock
On December 2, 1996, the Board of Directors adopted a stockholder rights
plan, which was amended on August 2, 1998 and March 16, 1999, under which all
stockholders receive one right for each share of common stock held. Each right
will entitle the holder to purchase, under certain circumstances, one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, of the Company (the "preferred stock") at a price of
$160. Subject to certain exceptions, the rights will become exercisable for
shares of preferred stock 10 business days (or such later date as may be
determined by the Board of Directors) following the commencement of a tender
offer or exchange offer that would result in a person or group beneficially
owning 15% or more of the outstanding shares of common stock.
Under the plan, subject to certain exceptions, if any person or group
becomes the beneficial owner of 15% or more of the outstanding common stock or
takes certain other actions, each right will then entitle its holder, other than
such person or group, upon payment of the $160 exercise price, to purchase
common stock (or, in certain circumstances, cash, property or other securities
of the Company) with a value equal to twice the exercise price. The rights may
be redeemed by the Board of Directors at a price of $0.001 per right under
certain circumstances. The rights, which do not vote and are not entitled to
dividends, will expire at the close of business on March 21, 2007, unless
earlier redeemed or extended by the Board of Directors of the Company.
Since 1987, the Board of Directors has continuously adopted or renewed
programs under which the Company is authorized, but not required, to purchase
and retire shares of its common stock. The program adopted by the Board of
Directors on March 2, 1998, authorized the Company to purchase and retire up to
5 million shares through March 31, 1999. On August 2, 1998, the Board of
Directors rescinded the remaining authorization in connection with the pending
merger with American Stores Company. The Company has purchased and retired an
equivalent of 22.3 million shares of its common stock for $500 million under
these programs, at an average price of $22.40 per share.
Page 15
<PAGE>
Income Taxes
Deferred tax assets and liabilities consisted of the following:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets (no valuation allowances considered necessary):
Nondeductible accruals for:
Self-insurance $ 72,426 $ 71,243 $ 67,547
Leases 19,073 19,517 20,238
Compensated absences 26,289 18,200 17,057
Deferred compensation 19,600 17,358 15,406
Postemployment benefits 18,598 15,407 13,721
Property valuation 13,637 8,845 8,339
Postretirement benefits 7,219 6,042 5,057
Pension costs 4,535 3,854 3,387
Other 10,886 4,495 3,996
Income unearned for financial reporting purposes 30,742 29,136 30,741
Costs capitalized for tax purposes 15,553 4,724 5,615
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 238,558 198,821 191,104
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Land, buildings and equipment (143,981) (130,344) (127,078)
Pension costs expensed for tax purposes (24,450) (18,215) (20,264)
Inventory valuation (15,194) (12,155) (8,863)
Funded benefits (3,540) (9,014) (7,778)
Other (1,150) (866) (193)
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (188,315) (170,594) (164,176)
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 50,243 $ 28,227 $ 26,928
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
As a result of an acquisition that occurred during 1998, the Company has
succeeded to federal and state net operating loss carryforwards of $21.6 million
and $13.9 million, respectively, that will expire in various years through 2010.
Based on management's assessment, it is more likely than not that all of the
deferred tax assets associated with the net operating loss carryforwards will be
realized; therefore, no valuation allowance is considered necessary.
Page 16
<PAGE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 303,073 $ 273,896 $ 229,006
State 46,807 37,664 38,367
- ---------------------------------------------------------------------------------------------------------------------------
349,880 311,560 267,373
- ---------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (19,070) (1,142) 29,008
State (2,946) (157) 4,860
- ---------------------------------------------------------------------------------------------------------------------------
(22,016) (1,299) 33,868
- ---------------------------------------------------------------------------------------------------------------------------
Amortization of deferred investment tax credits (172) (172) (173)
- ---------------------------------------------------------------------------------------------------------------------------
$ 327,692 $ 310,089 $ 301,068
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The reconciliations between the federal statutory tax rate and the
Company's effective tax rates were as follows:
<TABLE>
<CAPTION>
1998 Percent 1997 Percent 1996 Percent
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Taxes computed at statutory rate $ 313,196 35.0 $ 289,416 35.0 $ 278,196 35.0
State income taxes net of
federal income tax benefit 29,155 3.3 24,268 2.9 28,345 3.6
Amortization of deferred
investment tax credits (172) (172) (173)
Other (14,487) (1.7) (3,423) (0.4) (5,300) (0.7)
- ---------------------------------------------------------------------------------------------------------------------------
$ 327,692 36.6 $ 310,089 37.5 $ 301,068 37.9
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Options
The Company has two stock option plans currently in effect under which
grants may be made with respect to 10,400,000 shares of the Company's common
stock. Under these plans, approved by the stockholders in 1995, options may be
granted to officers and key employees, and to directors, respectively, to
purchase the Company's common stock. Generally, options are granted with an
exercise price at not less than 100% of the closing market price on the date of
the grant, become exercisable in installments of 20% per year on each of the
fifth through ninth anniversaries of the grant date and have a maximum term of
10 years. Upon consummation of the pending merger with American Stores Company,
all outstanding options will become exercisable in accordance with the change of
control provisions of the stock option plans.
During 1998 the stockholders approved Albertson's, Inc., Amended and
Restated 1995 Stock-Based Incentive Plan. The amendment increased the number of
shares available for issuance from 10 million to 30 million shares and will
become effective upon the consummation of the pending American Stores merger.
Page 17
<PAGE>
A summary of shares reserved for outstanding options as of the fiscal year
end, changes during the year and related weighted average exercise price is
presented below (shares in thousands):
<TABLE>
<CAPTION>
January 28, 1999 January 29, 1998 January 30, 1997
---------------- ---------------- ----------------
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 5,018 $ 32.58 4,056 $ 25.29 3,824 $ 21.51
Granted 24 45.94 1,524 45.48 790 35.14
Exercised (370) 16.52 (507) 14.09 (376) 10.91
Forfeited (128) 32.44 (55) 23.12 (182) 18.35
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 4,544 $ 33.96 5,018 $ 32.58 4,056 $ 25.29
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of January 28, 1999, there were 7,123,000 shares of common stock
reserved for the granting of additional options.
The following table summarizes options outstanding and options exercisable
as of January 28, 1999, and the related weighted average remaining contractual
life (years) and weighted average exercise price (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------- -------------------------------
Shares Remaining Shares
Option Price per Share Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 8.69 to $ 13.56 84 0.9 $ 13.28 52 $ 13.54
16.56 to 24.31 702 3.0 19.09 233 18.40
25.13 to 35.00 2,247 6.6 31.54 99 27.96
39.75 to 45.94 1,511 8.1 45.61 67 43.91
- ---------------------------------------------------------------------------------------------------------------------------
$ 8.69 to $ 45.94 4,544 6.5 $ 33.96 451 $ 23.73
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $17.14, $15.26 and $10.74 per option, respectively. The
fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 8.0 6.5 7.0
Risk-free interest rate 5.74% 5.92% 6.24%
Volatility 26.70 26.53 22.06
Dividend yield 1.48 1.41 1.70
</TABLE>
Page 18
<PAGE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options granted in the prior three years. Had compensation cost been
determined based on the fair value at the grant date consistent with the
provisions of this statement, the Company's pro forma net earnings and earnings
per share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings:
As reported $ 567,153 $ 516,814 $ 493,779
Pro forma 563,035 514,602 492,558
Basic earnings per share:
As reported 2.31 2.09 1.96
Pro forma 2.29 2.08 1.96
Diluted earnings per share:
As reported 2.30 2.08 1.95
Pro forma 2.28 2.07 1.95
</TABLE>
The pro forma effect on historical net earnings is not representative of
the pro forma effect on net earnings in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
Employee Benefit Plans
Substantially all employees working over 20 hours per week are covered by
retirement plans. Union employees participate in multi-employer retirement plans
under collective bargaining agreements. The Company sponsors two funded plans,
Albertson's Salaried Employees Pension Plan and Albertson's Employees Corporate
Pension Plan, which are qualified, defined benefit, noncontributory plans for
eligible employees who are 21 years of age with one or more years of service and
(with certain exceptions) are not covered by collective bargaining agreements.
Benefits paid to retirees are based upon age at retirement, years of credited
service and average compensation. The Company's funding policy for these plans
is to contribute the larger of the amount required to fully fund the Plan's
current liability or the amount necessary to meet the funding requirements as
defined by the Internal Revenue Code.
The Company also sponsors an unfunded Executive Pension Makeup Plan. This
plan is nonqualified and provides certain key employees defined pension benefits
which supplement those provided by the Company's other retirement plans.
Net periodic benefit cost is determined using assumptions as of the
beginning of each year. The projected benefit obligation and related funded
status is determined using assumptions as of the end of each year. Assumptions
used at the end of each year for all Company-sponsored pension and
postretirement benefit plans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 6.25% 6.60% 7.50%
Annual salary increases 4.50-4.95 4.50-5.00 4.50-5.00
Expected long-term rate of return on assets 9.50 9.50 9.50
</TABLE>
Page 19
<PAGE>
Net periodic benefit cost for Company-sponsored pension plans was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 41,627 $ 26,776 $ 24,138
Interest cost on projected benefit obligations 30,164 23,174 20,095
Expected return on assets (42,263) (34,118) (30,600)
Amortization of transition asset (6) (6) (6)
Amortization of prior service cost 944 944 944
Recognized net actuarial loss (gain) 2,605 (145) 39
- ---------------------------------------------------------------------------------------------------------------------------
$ 33,071 $ 16,625 $ 14,610
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status of the Company-sponsored
pension plans:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in projected benefit obligation:
Beginning of year benefit obligation $ 411,983 $ 293,842 $ 269,645
Service cost 41,627 26,776 24,138
Interest cost 30,164 23,174 20,095
Actuarial loss (gain) 72,195 75,565 (12,716)
Benefits paid (9,419) (7,374) (7,320)
- ---------------------------------------------------------------------------------------------------------------------------
End of year benefit obligation 546,550 411,983 293,842
- ---------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Plan assets at fair value at beginning of year 414,532 354,806 321,758
Actual return on plan assets 96,200 56,700 36,295
Employer contributions 47,570 10,400 4,073
Benefit payments (9,419) (7,374) (7,320)
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value at end of year 548,883 414,532 354,806
- ---------------------------------------------------------------------------------------------------------------------------
Funded status 2,333 2,549 60,964
Unrecognized net loss (gain) 45,560 29,922 (23,205)
Unrecognized prior service cost 3,539 4,483 5,427
Unrecognized net transition liability 548 542 536
Additional minimum liability (3,747) (2,612) (1,080)
- ---------------------------------------------------------------------------------------------------------------------------
Net prepaid pension cost $ 48,233 $ 34,884 $ 42,642
- ---------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost included with other assets $ 63,822 $ 47,559 $ 52,497
Accrued pension cost included with other long-term liabilities (15,589) (12,675) (9,855)
- ---------------------------------------------------------------------------------------------------------------------------
Net prepaid pension cost $ 48,233 $ 34,884 $ 42,642
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 20
<PAGE>
The following table summarizes the Company-sponsored pension plans which
have projected benefit obligations in excess of plan assets and the accumulated
benefit obligation of the unfunded makeup plan in which the accumulated benefit
obligation exceeds plan assets:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Projected benefit obligation in excess of plan assets:
Projected benefit obligation $ 18,950 $ 240,869 $ 11,761
Fair value of plan assets 217,743
Accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation 15,589 12,675 9,855
</TABLE>
Assets of the two funded Company plans are invested in directed trusts.
Assets in the directed trusts are invested in common stocks (including $68.0
million, $52.4 million and $38.4 million of the Company's common stock at
January 28, 1999, January 29, 1998, and January 30, 1997, respectively), U.S.
Government obligations, corporate bonds, international equity funds, real estate
and money market funds.
The Company also contributes to various plans under industrywide collective
bargaining agreements, primarily for defined benefit pension plans. Total
contributions to these plans were $23.5 million for 1998, $22.5 million for 1997
and $24.9 million for 1996.
The Company sponsors a tax-deferred savings plan which is a salary deferral
plan pursuant to Section 401(k) of the Internal Revenue Code. Employees eligible
to participate are those who are at least 21 years of age with one or more years
of service and (with certain exceptions) are not covered by collective
bargaining agreements. All contributions are determined and made by the
employees and the Company incurs no material costs in connection with this plan.
Most retired employees of the Company are eligible to remain in its health
and life insurance plans. Retirees who elect to remain in the Company-sponsored
plans are charged a premium which is equal to the difference between the
estimated costs of the benefits for the retiree group and a fixed contribution
amount made by the Company. The net periodic post-retirement benefit cost was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 1,898 $ 1,483 $ 1,304
Interest cost 1,290 1,138 989
Amortization of unrecognized loss 27 22
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,215 $ 2,621 $ 2,315
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 21
<PAGE>
The following table sets forth the funded status of the Company-sponsored
postretirement health and life insurance benefit plan:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Change in accumulated benefit obligation:
Beginning of year benefit obligation $ 17,547 $ 14,153 $ 12,486
Service cost 1,898 1,483 1,304
Interest cost 1,290 1,138 989
Plan participants' contributions 1,692 1,396 1,237
Actuarial loss (gain) 737 721 (428)
Benefits paid (1,832) (1,344) (1,435)
- ---------------------------------------------------------------------------------------------------------------------------
End of year benefit obligation 21,332 17,547 14,153
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets activity:
Employer contributions (excess) 140 (52) 198
Plan participants' contributions 1,692 1,396 1,237
Benefit payments (1,832) (1,344) (1,435)
- ---------------------------------------------------------------------------------------------------------------------------
Funded status (21,332) (17,547) (14,153)
Unrecognized net loss 2,483 1,773 1,052
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligations included with other
long-term liabilities $ (18,849) $ (15,774) $ (13,101)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual rates of increases in health care costs are not applicable in the
calculation of the benefit obligation because the Company's contribution is a
fixed amount.
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" requires employers to recognize an obligation for
benefits provided to former or inactive employees after employment but before
retirement. The Company is self-insured under its employees' short-term and
long-term disability plans which are the primary benefits paid to inactive
employees prior to retirement. Following is a summary of the obligation for
postemployment benefits included in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Included with salaries and related liabilities $ 7,014 $ 6,661 $ 4,620
Included with other long-term liabilities 41,546 33,567 30,927
- ---------------------------------------------------------------------------------------------------------------------------
$ 48,560 $ 40,228 $ 35,547
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company also contributes to various plans under industrywide collective
bargaining agreements which provide for health care benefits to both active
employees and retirees. Total contributions to these plans were $93.1 million
for 1998, $96.5 million for 1997 and $100.0 million for 1996.
The Company has bonus plans for store management personnel and other key
management personnel. Amounts charged to earnings under all bonus plans were
$86.7 million for 1998, $67.0 million for 1997 and $66.1 million for 1996.
Leases
The Company leases a portion of its real estate. The typical lease period
is 25 to 30 years and most leases contain renewal options. Exercise of such
options is dependent on the level of business conducted at the location. In
addition, the Company leases certain equipment. Some leases contain contingent
rental provisions based on sales volume at retail stores or miles traveled for
trucks.
Page 22
<PAGE>
Capitalized leases are calculated using interest rates appropriate at the
inception of each lease. Contingent rents associated with capitalized leases
were $1.1 million in 1998, $1.4 million in 1997 and $1.8 million in 1996.
Following is an analysis of the Company's capitalized leases:
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate and equipment $ 225,162 $ 203,217 $ 186,768
Accumulated amortization (91,025) (87,204) (83,208)
- ---------------------------------------------------------------------------------------------------------------------------
$ 134,137 $ 116,013 $ 103,560
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Future minimum lease payments for noncancelable operating leases, related
subleases and capital leases at January 28, 1999, were as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Subleases Leases
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ 90,820 $ (13,463) $ 29,820
2000 90,460 (13,186) 29,684
2001 88,657 (11,138) 29,048
2002 83,886 (8,230) 21,252
2003 81,760 (6,253) 19,918
Remainder 668,028 (20,756) 243,253
- ---------------------------------------------------------------------------------------------------------------------------
Total minimum obligations (receivables) $ 1,103,611 $ (73,026) 372,975
- ---------------------------------------------------------------------------------------------------------------------------
Interest (204,526)
- ---------------------------------------------------------------------------------------------------------------------------
Present value of net minimum obligations 168,449
Current portion of capitalized lease obligations (11,347)
- ---------------------------------------------------------------------------------------------------------------------------
Long-term capitalized lease obligations at January 28, 1999 $ 157,102
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The present value of minimum lease payments under operating leases using an
assumed discount rate of 8.0% was approximately $576 million at January 28,
1999.
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rent $ 93,094 $ 81,402 $ 77,214
Contingent rent 3,605 3,469 4,155
- ---------------------------------------------------------------------------------------------------------------------------
96,699 84,871 81,369
Sublease rent (39,214) (31,120) (23,498)
- ---------------------------------------------------------------------------------------------------------------------------
$ 57,485 $ 53,751 $ 57,871
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 23
<PAGE>
Financial Instruments
Financial instruments with off-balance-sheet risk to the Company include
lease guarantees whereby the Company is contingently liable as a guarantor of
certain leases that were assigned to third parties in connection with various
store closures. Minimum rentals guaranteed under assigned leases are $6.1
million in fiscal 1999 and aggregate $44.9 million for the remaining lease
terms, which expire at various dates through 2028. The Company believes the
likelihood of a significant loss from these agreements is remote because of the
wide dispersion among third parties and remedies available to the Company should
the primary party fail to perform under the agreements.
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash equivalents and
receivables. The Company limits the amount of credit exposure to each individual
financial institution and places its temporary cash into investments of high
credit quality. Concentrations of credit risk with respect to receivables are
limited due to their dispersion across various companies and geographies.
The estimated fair values of cash and cash equivalents, accounts
receivable, accounts payable, short-term debt and commercial paper borrowings
approximate their carrying amounts. The estimated fair values and carrying
amounts of long-term debt borrowings (excluding commercial paper) were as
follows (in millions):
<TABLE>
<CAPTION>
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value $ 1,284.9 $ 833.8 $ 606.3
Carrying amount 1,208.0 792.9 593.7
</TABLE>
Substantially all of these fair values were determined from quoted market
prices. The Company has not determined the fair value of lease guarantees due to
the inherent difficulty in evaluating the credit worthiness of each tenant.
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 2000 fiscal year. The Company has
not yet completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.
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, for consolidation or coordination with the
pending Boise litigation.
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.
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.
Page 24
<PAGE>
Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas
and major customers. The Company has analyzed the reporting requirements of the
new standard and has determined that its operations are within one reportable
segment.
Page 25
<PAGE>
Responsibility for Financial Reporting
The management of Albertson's, Inc., is responsible for the preparation and
integrity of the consolidated financial statements of the Company. The
accompanying consolidated financial statements have been prepared by the
management of the Company, in accordance with generally accepted accounting
principles, using management's best estimates and judgment where necessary.
Financial information appearing throughout this Annual Report is consistent with
that in the consolidated financial statements.
To help fulfill its responsibility, management maintains a system of
internal controls designed to provide reasonable assurance that assets are
safeguarded against loss or unauthorized use and that transactions are executed
in accordance with management's authorizations and are reflected accurately in
the Company's records. The concept of reasonable assurance is based on the
recognition that the cost of maintaining a system of internal accounting
controls should not exceed benefits expected to be derived from the system. The
Company believes that its long-standing emphasis on the highest standards of
conduct and ethics, set forth in comprehensive written policies, serves to
reinforce its system of internal controls.
Deloitte & Touche LLP, independent auditors, audited the consolidated
financial statements in accordance with generally accepted auditing standards to
independently assess the fair presentation of the Company's financial position,
results of operations and cash flows.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, oversees the fulfillment by management of its responsibilities over
financial controls and the preparation of financial statements. The Audit
Committee meets with internal and external auditors four times per year to
review audit plans and audit results. This provides internal and external
auditors direct access to the Board of Directors.
Management recognizes its responsibility to conduct the business of
Albertson's, Inc., in accordance with high ethical standards. This
responsibility is reflected in key policy statements that, among other things,
address potentially conflicting outside business interests of Company employees
and specify proper conduct of business activities. Ongoing communications and
review programs are designed to help ensure compliance with these policies.
/s/ Gary G. Michael /s/ A. Craig Olson
Gary G. Michael A. Craig Olson
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Page 26
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders of Albertson's, Inc.:
We have audited the accompanying consolidated balance sheets of
Albertson's, Inc., and subsidiaries as of January 28, 1999, January 29, 1998,
and January 30, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Albertson's, Inc., and
subsidiaries at January 28, 1999, January 29, 1998, and January 30, 1997, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte and Touche LLP
Boise, Idaho
March 17, 1999
Page 27
<PAGE>
<TABLE>
Five-Year Summary of Selected Financial Data
<CAPTION>
52 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
(Dollars in thousands January 28, January 29, January 30, February 1, February 2,
except per share data) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results:
Sales $ 16,005,115 $ 14,689,511 $ 13,776,678 $ 12,585,034 $ 11,894,621
Gross profit 4,383,089 3,881,824 3,565,330 3,213,298 3,007,894
Interest expense:
Debt 78,804 57,735 42,156 31,895 38,806
Capitalized lease obligations 18,132 16,629 15,168 15,234 13,412
Earnings before income taxes
and cumulative effect of
accounting change 894,845 826,903 794,847 758,501 678,652
Income taxes 327,692 310,089 301,068 293,540 261,281
Earnings before cumulative effect
of accounting change 567,153 516,814 493,779 464,961 417,371
Cumulative effect of accounting
change (17,006)
Net earnings 567,153 516,814 493,779 464,961 400,365
Net earnings as a percent to sales 3.54% 3.52% 3.58% 3.69% 3.37%
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Data:
Earnings per share before cumulative
effect of accounting change:
Basic $ 2.31 $ 2.09 $ 1.96 $ 1.84 $ 1.65
Diluted 2.30 2.08 1.95 1.83 1.64
Cumulative effect of accounting change (.07)
Earnings per share:
Basic 2.31 2.09 1.96 1.84 1.58
Diluted 2.30 2.08 1.95 1.83 1.57
Cash dividends per share 0.68 0.64 0.60 0.52 0.44
Book value per share 11.44 9.85 8.96 7.75 6.65
- ---------------------------------------------------------------------------------------------------------------------------
Financial Position:
Total assets $ 6,233,968 $ 5,218,590 $ 4,714,633 $ 4,135,911 $ 3,621,729
Working capital 455,074 352,338 420,830 194,509 94,150
Long-term debt 1,527,432 989,650 921,704 602,993 382,775
Capitalized lease obligations 157,102 140,957 130,050 129,265 129,573
Stockholders' equity 2,810,454 2,419,456 2,247,018 1,952,523 1,687,893
- ---------------------------------------------------------------------------------------------------------------------------
Other Year End Statistics:
Number of stores 983 878 826 764 720
Number of employees:
Total 100,000 94,000 88,000 80,000 76,000
Full-time equivalents 80,000 76,000 71,000 66,000 60,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
o In fiscal 1998 a $24.4 million pre-tax charge was recorded related to
management's decision to close 16 underperforming stores.
o In fiscal 1994 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The total cumulative effect of this accounting change (net of
$10.6 million in tax benefits) decreased net earnings by $17.0 million or
$0.07 per basic and diluted share.
Page 28
<PAGE>
<TABLE>
Quarterly Financial Data
<CAPTION>
(Dollars in thousands except
per share data - Unaudited) First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Sales $ 3,848,253 $ 3,995,052 $ 3,990,459 $ 4,171,351 $ 16,005,115
Gross profit 1,024,470 1,069,344 1,105,156 1,184,119 4,383,089
Net earnings 110,601 128,418 137,746 190,388 567,153
Earnings per share:
Basic 0.45 0.52 0.56 0.78 2.31
Diluted 0.45 0.52 0.56 0.77 2.30
- ---------------------------------------------------------------------------------------------------------------------------
1997
Sales $ 3,607,541 $ 3,680,509 $ 3,612,032 $ 3,789,429 $ 14,689,511
Gross profit 928,706 931,960 974,080 1,047,078 3,881,824
Net earnings 109,266 109,440 123,405 174,703 516,814
Earnings per share:
Basic 0.44 0.44 0.50 0.71 2.09
Diluted 0.43 0.44 0.50 0.71 2.08
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
o A $24.4 million pre-tax charge was recorded in fiscal 1998 related to
management's decision to close 16 underperforming stores. An initial pre-tax
charge of $29.4 million was recorded in the first quarter and a pre-tax
adjustment of $5.0 million was recorded in the fourth quarter.
The Company estimates the quarterly LIFO reserves which cannot be
accurately determined until year end. The LIFO method of valuing inventories
increased (decreased) net earnings and earnings per share as follows:
<TABLE>
<CAPTION>
(Dollars in thousands except
per share data - Unaudited) First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Net earnings $ (5,000) $ (3,250) $ (3,250) $ 6,249 $ (5,251)
Basic and diluted earnings per share (0.02) (0.01) (0.01) 0.03 (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
1997
Net earnings $ (6,726) $ (6,800) $ (2,326) $ 10,120 $ (5,732)
Basic and diluted earnings per share (0.03) (0.03) (0.01) 0.04 (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
o Due to rounding and different periods used to compute weighted average
outstanding shares, the sum of the quarterly earnings per share does not
equal the annual earnings per share.
Page 29
<PAGE>
Stockholders' Information
ADDRESS INFORMATION CONTACT
Albertson's, Inc. Information on individual accounts
General Offices or on procedures necessary to make
250 Parkcenter Boulevard changes in an account is provided
P.O. Box 20 by ChaseMellon at (800)356-2017
Boise, Idaho 83726 between the hours of 9:00 a.m. and
Telephone: (208) 395-6200 7:00 p.m., Eastern Time, after a
stockholder identifies his or her
Internet Address account by providing a taxpayer
Major press releases and other identification number,
corporate data are available on the registration name on the
Albertson's Web site: securities and the address of
www.albertsons.com record. When directing
correspondence to ChaseMellon at
AUDITORS the address shown, stockholders
Deloitte & Touche LLP are reminded to include a
Boise, Idaho reference to Albertson's, Inc.
STOCK TRANSFER AGENT AND REGISTRAR COMPANY PROFILE AVAILABLE
ChaseMellon Shareholder Services, L.L.C. A copy of the Company Profile,
Shareholder Relations Department which contains a discussion of our
P.O. Box 3315 core values, including equal
South Hackensack, New Jersey 07606 opportunity, environmental quality
or and community support, as well as
ChaseMellon Shareholder Services, L.L.C. statistical information about the
Shareholder Relations Department Overpeck Company, is available to
Centre, 85 Challenger Road stockholders, without charge, upon
Ridgefield Park, NJ 07660 request to the Corporate Secretary
of Albertson's, Inc.
Telephone: (800) 356-2017
Internet address: www.chasemellon.com FORM 10-K AVAILABLE
A coy of Form 10-K Annual Report
STOCKHOLDERS OF RECORD filed with the Securities and
There were 18,000 stockholders of record Exchange Commission for
at March 17, 1999. Albertson's, Inc., fiscal year
ended January 28, 1999, is
ANNUAL MEETING available to stockholders,
The 1999 Annual Meeting of Stockholders without charge, upon request to
will be held at 10:00 a.m. Mountain the Corporate Secretary of
Daylight Time on Friday, May 28, 1999, Albertson's, Inc.
in the Eyries Room, Boise Centre on the
Grove, 850 Front Street, Boise, Idaho.
DIVIDEND INVESTMENT PLAN
The Company's Dividend Investment Plan
allows stockholders owning at least
15 shares of record to invest the
quarterly dividends automatically
and to purchase additional shares
under the Plan with voluntary cash
payments. More information may be
obtained from ChaseMellon at
(800) 982-7649 or from the Corporate
Secretary of Albertson's, Inc.
Page 30
<PAGE>
Company Stock Information
The Company's stock is traded on the New York and Pacific stock exchanges
under the symbol ABS. The high and low stock prices by quarter were as follows:
<TABLE>
<CAPTION>
First Second Third Fourth Year
High Low High Low High Low High Low High Low
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 54 15/16 46 5/16 53 11/16 44 58 1/8 44 1/2 67 1/8 53 3/8 67 1/8 44
1997 37 30 1/2 38 11/16 31 7/8 37 3/4 32 3/4 48 5/8 36 5/16 48 5/8 30 1/2
1996 39 3/8 33 3/4 42 3/4 36 1/8 43 3/4 33 3/4 38 33 3/4 43 3/4 33 3/4
</TABLE>
Cash dividends declared per share were:
<TABLE>
<CAPTION>
First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.68
1997 0.16 0.16 0.16 0.16 0.64
1996 0.15 0.15 0.15 0.15 0.60
</TABLE>
o In March 1999 the Board of Directors increased the regular quarterly cash
dividend 5.9% to $0.18 per share from $0.17 per share, for an annual rate of
$0.72 per share. The new quarterly rate will be paid on April 30, 1999, to
stockholders of record on April 15, 1999.
Page 31
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in Registration Statement
Nos. 2-80776, 33-2139, 33-7901, 33-15062, 33-43635, 33-62799 and 33-59803 on
Form S-8 and Registration Statement No. 333-70967 on Form S-3 of Albertson's,
Inc. and subsidiaries of our report dated March 17, 1999, incorporated by
reference in the Annual Report on Form 10-K of Albertson's, Inc. and
subsidiaries for the year ended January 28, 1999.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boise, Idaho
April 8, 1999
Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALBERTSON'S
ANNUAL REPORT TO STOCKHOLDERS FOR THE 52 WEEKS ENDED JANUARY 28, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1999
<PERIOD-START> JAN-30-1998
<PERIOD-END> JAN-28-1999
<CASH> 80,646
<SECURITIES> 0
<RECEIVABLES> 154,914
<ALLOWANCES> 1,200
<INVENTORY> 1,503,164
<CURRENT-ASSETS> 1,833,905
<PP&E> 6,102,889
<DEPRECIATION> 2,128,876
<TOTAL-ASSETS> 6,233,968
<CURRENT-LIABILITIES> 1,378,831
<BONDS> 1,684,534
0
0
<COMMON> 245,697
<OTHER-SE> 2,564,757
<TOTAL-LIABILITY-AND-EQUITY> 6,233,968
<SALES> 16,005,115
<TOTAL-REVENUES> 16,005,115
<CGS> 11,622,026
<TOTAL-COSTS> 11,622,026
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,074
<INCOME-PRETAX> 894,845
<INCOME-TAX> 327,692
<INCOME-CONTINUING> 567,153
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 567,153
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 2.30
</TABLE>
