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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended January 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19802
BUTTREY FOOD
AND DRUG STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 81-0466189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 6th Street, S.W.
Great Falls, Montana 59404
(Address of principal executive offices)
Registrant's telephone number, including area code: (406) 761-3401
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
par value $.01 per share
(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 Common Stock of the registrant held by
non-affiliates of the registrant on April 23, 1998, based on the closing price
of the Common Stock on the Nasdaq National Market on such date, was $56,064,566.
The number of shares of the registrant's Common Stock outstanding at April
23, 1998 was 8,644,631 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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BUTTREY FOOD AND DRUG STORES COMPANY
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended January 31, 1998
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Page
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PART I
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Item 1. Business.................................................................................. 1
Item 2. Properties................................................................................ 6
Item 3. Legal Proceedings......................................................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders.................................................................. 6
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters................................................... 7
Item 6. Selected Financial Information and Other Data............................................. 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................................................ 10
Item 8. Financial Statements and Supplementary Data............................................... 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................ 15
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 16
Item 11. Executive Compensation.................................................................... 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................................................. 25
Item 13. Certain Relationships and Related Transactions............................................ 27
PART IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K................................................ 28
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PART I
ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "Buttrey" refer to Buttrey
Food and Drug Stores Company, a Delaware corporation, its wholly-owned
subsidiary, Buttrey Food and Drug Company, a Delaware corporation, and its
predecessor companies. Unless otherwise indicated, as used in this Form 10-K
(i) all references to square feet are to gross square feet, rather than net
selling space, and (ii) all references to a year shall mean the fiscal year of
the Company which commences in such year (for example, the fiscal year
commencing February 2, 1997 and ending January 31, 1998 is referred to herein as
"fiscal 1997" or "1997").
GENERAL
Buttrey is a food and drug retailer in Montana and in the market areas it
serves in Wyoming and western North Dakota. Founded in Montana in 1896, the
Company currently operates 44 stores (including the recently opened replacement
store in Harlem, Montana and the recently opened new store in Great Falls,
Montana). The Company is the successor to the Buttrey Food and Drug division
(the "Predecessor Division") of Skaggs Alpha Beta, Inc. ("Skaggs"), an indirect,
wholly-owned subsidiary of American Stores Company ("ASC"). The Company
acquired certain assets and liabilities of the Predecessor Division in October
1990 in a transaction (the "Acquisition") organized by Freeman Spogli & Co.
Incorporated, a private investment firm ("FS&Co.").
The Company's executive offices are located at 601 6th Street, S.W., Great
Falls, Montana 59404, its telephone number is (406) 761-3401, and its mailing
address is P.O. Box 5008, Great Falls, Montana 59403.
PENDING PURCHASE BY ALBERTSON'S, INC.
On January 26, 1998, Albertson's Inc. ("Albertson's") made an offer to
purchase for cash all outstanding shares of the Company's Common Stock ("Common
Stock") at a purchase price of $15.50 per share (the "Offer"). The Offer was
made pursuant to the terms of a definitive agreement entered into by and between
Albertson's and the Company ("Acquisition Agreement"), and was set to expire at
midnight, New York time, on February 23, 1998. The Acquisition Agreement was
unanimously approved by the Boards of Directors of Albertson's and the Company,
and the Board of Directors of the Company, in the Company's Schedule 14D-9 filed
with the Securities and Exchange Commission (the "Commission") on January 26,
1998, recommended that the stockholders of the Company tender their shares
pursuant to the Offer.
In connection with the Acquisition Agreement, an affiliate of FS&Co., the
Company's largest stockholder, executed an agreement with Albertson's in which
it agreed to tender its 4,389,879 shares of Common Stock, which represented
50.8% of the Company's outstanding stock at the time of the Offer ("Majority
Holder Agreement").
The Acquisition Agreement provides for payment to Albertson's under certain
circumstances of a termination fee and reimbursement of expenses if the Board,
in the exercise of its fiduciary responsibilities, terminates the Acquisition
Agreement or withdraws or modifies its recommendation that the stockholders
tender their shares pursuant to the Offer.
The consummation of the Offer is subject to certain customary conditions,
including antitrust approval. Financing is not a condition to complete the
transaction.
On February 23, 1998, the Company was notified by Albertson's that the
Offer, previously set to expire at midnight, New York City time, on that same
day, would be extended to expire at midnight, New York City time, on April 30,
1998. Albertson's indicated that all other terms and conditions of its Offer,
including the purchase price of $15.50 per share, would remain unchanged. The
Company and Albertson's also signed an agreement to provide that the Offer would
be amended to accelerate its expiration date (and the date on which Albertson's
would purchase tendered shares) to a date that is not less than ten business
days following the date on which all conditions to the Offer are satisfied, if
such change would result in an earlier expiration date. Notice of such
amendment will be given promptly by press release and by a mailing to the
stockholders of the Company by Albertson's.
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In February 1998, the Company also received a request for additional
information from the Federal Trade Commission with regard to the Company's
Premerger Notification and Report Form previously filed in connection with the
proposed acquisition of the Company by Albertson's.
On April 30, 1998, the Company was notified by Albertson's that the Offer,
set to expire on that day, would be extended to expire at midnight, New York
City time, on July 15, 1998. Albertson's indicated that all other terms and
conditions of its Offer, including the purchase price of $15.50 per share and
the agreement to accelerate the expiration date of the Offer as described above,
would remain unchanged.
For more information related to the Offer, investors should review the
Company's Schedule 14D-9 previously filed with the Commission on January 27,
1998, as amended on March 3, 1998.
Except where otherwise indicated, the following discussion contained in
this Form 10-K does not give effect to the successful consummation of the Offer.
STORE FORMATS
Buttrey's 44 stores are comprised of nine Buttrey Big Fresh stores in
Montana and Wyoming; 26 Buttrey Food & Drug combination stores in Montana (16),
North Dakota (2), and Wyoming (8); and nine Buttrey Fresh Foods conventional
supermarkets in Montana and Wyoming. The Company's stores are located in market
areas ranging from rural towns of 2,500 people to cities of up to 100,000
people.
During 1995, the Company introduced the Buttrey Big Fresh format, which has
been designed to emphasize perishables excellence in expanded produce, meat,
deli, bakery, seafood and floral departments, while offering exceptional
selections of grocery and non-foods items at competitive prices. This format
also features a food court, the "Savings Stack" (an aisle of special offers on
grocery items), and expanded beer and wine departments. In addition, one of the
Company's Big Fresh stores includes the Company's first drive-through pharmacy.
The Company's nine Big Fresh stores average 51,300 square feet. Although this
average is higher than the average for the Company's other stores, square
footage it is not necessarily the determining factor in converting a store to
this format. The Company plans to undertake the construction of new future Big
Fresh stores and conversions based upon a review of a number of factors,
including the priority of capital investment, the competitive environment, and
the physical structure of existing stores.
The Company's combination stores are designed to serve larger market areas
and range in size up to approximately 48,000 square feet, with an average size
of approximately 39,300 square feet. In addition to a complete food
presentation, including grocery, dairy, frozen food, meat, produce, bakery and
deli departments, the Company's combination stores offer over-the-counter drugs,
pharmaceutical, health and beauty care, and general merchandise.
The Company's conventional supermarkets average approximately 15,000 square
feet and are niche stores serving smaller markets than those served by the
Company's combination stores. Accordingly, these stores have more limited
product offerings, particularly in general merchandise, over-the-counter drugs
and health and beauty care.
The Company's new store construction prototypes include Big Fresh,
combination stores and conventional supermarkets that range in size from 25,000
to 55,000 square feet. The selection of store size is influenced by a number of
factors including, but not limited to, the population size of the area in which
the store will be located, other local demographics within the market area that
the store will serve, and space availability. Additionally, the Company intends
to use smaller existing buildings for new stores should the location of such
buildings be deemed the most appropriate for the new store.
STORE REMODELING AND DEVELOPMENT
The Company is conducting an ongoing store development and remodeling
program. The Company's typical store remodel requires approximately three to
four months and generally does not result in an expansion of gross square
footage. A major remodel takes the form of either a conversion to the Big Fresh
format, as described above, or a more traditional remodel which may involve
painting, repairs, new lighting and fixtures, modernization of decor and other
general improvements to the store's appearance and operation. In addition, the
remodel of a store may involve the
2
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expansion of the store's perishables, frozen food and dairy, and beer and wine
departments, and may result in improved pharmacy, cosmetics, books and
magazines, video rental and greeting cards sales areas. During 1997, the Company
completed the conversion of three Billings, Montana stores to the Big Fresh
format, and remodeled its store in Conrad, Montana. Capital expenditures in 1997
related to remodels and for the ongoing maintenance of its existing store base
and support functions totaled approximately $10.8 million. In 1998, the Company
estimates that it will spend approximately $7.0 million for remodels and for
ongoing maintenance.
Management also has adopted a strategy for the construction of new stores
and has created separate real estate and construction departments dedicated to
store site selection, acquisition and construction supervision. During 1997,
the Company acquired one store in Cody, Wyoming. The purchase price for the new
Cody store was $2.4 million for fixtures and equipment and a non-compete
agreement, plus $0.4 million for inventory. The Company also entered into a
lease with the seller of the business for the real property on which the grocery
store was located. Also during 1997, the Company completed the construction of
a new store in Bozeman, Montana, which replaced its existing store with a larger
store under the Big Fresh format. This store opened and the old store closed in
February 1997. The Company spent approximately $5.8 million for leasehold
improvements and fixtures and equipment related to this new store. In February
1998, the Company completed the replacement of an older store with a Buttrey
Fresh Foods store in Harlem, Montana, and in March 1998, the Company opened its
ninth Buttrey Big Fresh store in Great Falls, Montana.
The average cost of fixturing and equipping a new store is approximately
$2.0 million to $2.4 million, depending on prototype size (excluding the cost of
any land purchased, building and construction costs as well as the costs of any
site improvements). In general, the development of new stores is subject to
site availability and financing, competition, zoning and other governmental
regulations, and general economic conditions. The Company also may expand the
number of stores that it operates through the selective acquisition of existing
food or drug stores that will complement the Company's operations.
MERCHANDISING AND MARKETING
Buttrey stores offer a complete food presentation, including grocery,
dairy, frozen food, meat and produce departments, as well as over-the-counter
drugs, health and beauty care and general merchandise. The Company maintains
high quality control standards for all perishable merchandise categories. All
Buttrey Big Fresh stores and all of the Company's 26 combination stores have
fully staffed pharmacies, and many stores contain specialty departments
including bakery, delicatessen, fresh seafood, pizza, floral, video rental and
wine. The Company focuses much of its attention on product variety throughout
the food departments and believes that this variety is an integral part of its
total marketing plan. In addition, the Big Fresh stores and most of the
combination stores offer extensive non-food product lines including film and
camera, a full-line of cosmetics, greeting cards and gift wrap supplies,
vitamins, seasonal merchandise, and over-the-counter drugs.
Customer services are also an important part of the Company's marketing
strategy. These services, which are available in most stores, include one-hour
or one-day photo processing, utility bill payment centers, postage stamp, money
order and Western Union services, Federal Express and United Parcel Service
pick-up, local event ticket sales, free notary public services, the sale of
various licenses, including hunting and fishing licenses, and in-store banking.
These expanded services are consistent with the one stop shopping concept,
particularly in smaller and more rural markets.
In May 1991, Buttrey implemented a new private label program within most
grocery categories to provide its customers with a choice relative to other
private label and national brands. These brands are positioned to create store
loyalty and to establish an ongoing franchise with Buttrey's customer base. The
"Shurfine(TM)," "Shurfresh(TM)" and "Buttrey(R)" brand names are used for the
Company's private label items. In August 1992, the Company implemented a private
label program in the drug and general merchandise categories which also utilized
the "Shurfine(TM)" and "Buttrey(R)" brand names. In 1997, the Company expanded
its private label offerings to include the "Buttrey Big Fresh(R)" label for
certain grocery and dairy products.
In addition to offering a broad product selection, the Company's
merchandising strategy emphasizes competitive pricing and service while
maintaining a reputation for high quality food, over-the-counter drug and
general merchandise products. In-store promotional activities include off-shelf
display programs, point-of-sales signing, freshness code dating, unit pricing,
food informational pamphlets, product samplings and demonstrations and refund
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offers. The Company publishes newspaper advertisements, separate multi-page,
full color weekly advertising circulars for grocery and over-the-counter drug
products, direct mail pieces and selected radio and television advertisements
which promote special prices on popular, high visibility products. Nationally
advertised, brand-name products are frequently included in the Company's
advertising in order to enhance its reputation for high quality products. The
Company's suppliers have the opportunity to participate in its cooperative
advertising program, which enables suppliers to promote their products on a
chain-wide basis using all of Buttrey's advertising media.
PURCHASING, DISTRIBUTION AND INVENTORY CONTROL
The Company's purchasing and distribution operations are centrally managed
at Buttrey's Great Falls, Montana headquarters utilizing computerized inventory
and warehouse management control systems. From time to time, the Company
engages in forward buy programs to take advantage of special prices or to delay
the impact of upcoming price increases by purchasing and warehousing larger
quantities of merchandise than immediately required.
The Company operates a full-line food distribution facility adjacent to its
Great Falls, Montana headquarters and a produce and floral distribution facility
in Salt Lake City, Utah. As a result of these warehouse facilities, the Company
is able to purchase many of its product requirements directly from the
manufacturer, enabling it to take advantage of volume purchase discounts and to
reduce freight costs.
The Great Falls facility is a 337,033 square foot office and full-line
grocery distribution facility which stocks dry grocery, dairy, meat, frozen
food, bakery, fresh deli and seafood products as well as store supplies, and
features a narrow-aisle, high-rise racking system with wire guided order
selection equipment.
The Salt Lake City facility is a 52,000 square foot produce and floral
distribution center which opened in October 1991. The geographic location of
the facility allows the Company to purchase from produce markets in the
southwestern United States, California and Mexico, as well as from local produce
markets.
Until April 1995, the Company also operated a 263,600 square foot over-the-
counter, pharmaceutical, health and beauty care and general merchandise
distribution facility in Payson, Utah (the "Payson Distribution Center"). On
April 17, 1995, the Company completed the sale of this facility, including all
inventory located there, to Associated Food Stores, Inc. of Salt Lake City, Utah
("Associated"). See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." In
conjunction with the sale of the Payson Distribution Center, the Company also
entered into a distribution agreement with Associated whereby the Company
continues to purchase from Associated certain products previously distributed
from the Payson Distribution Center.
Buttrey ships from the Great Falls distribution center using predominantly
its own fleet of trucks and drivers, supplemented as necessary by contract
carriers. The Company's fleet includes 34 tractors and 76 trailers, of which 70
are refrigerated. The Company has a full service maintenance shop for its
trucks and tractors at the Great Falls distribution center. Contract carriers
are used for shipping from the Salt Lake City distribution center.
Buttrey's data center is located at the Company's corporate offices in
Great Falls, Montana and includes an IBM ES-9000-150 mainframe computer. The
Company also utilizes two IBM AS-400 computers to provide systems support and
communication at the Salt Lake City produce and floral distribution center and
in the Company's human resources department for payroll and employee benefits
processing. Forty-three of Buttrey's stores have NCR point-of-sale hardware and
software, one store has SASI point of sale hardware and software, and the
Company utilizes an NCR Teradata Database computer to collect and analyze store
level scanning information.
COMPETITION
The food and drug retailing business is highly competitive. The Company's
competitors include multi-regional supermarket chains, smaller, independent
supermarket chains, drug stores, convenience stores, discount hardware stores
and large chain discount retailers (including but not limited to, discount
stores, club stores and those with supercenter formats). Some of these
competitors have substantially greater resources than the Company. The Company
expects competition from large chain discount retailers to further increase as
more stores are opened in market areas served by the Company.
4
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Principal competitive factors include convenience of store locations,
price, customer service, product selection and quality and store condition and
cleanliness. With respect to price, the Company does not seek to offer the
lowest price on all products (as is the practice of some large chain discount
retailers), but instead seeks to generally provide a combination of price,
quality and freshness, and service that gives the customer a high perceived
value, and to offer the lowest prices only on a limited number of high
visibility products.
EMPLOYEES
As of January 31, 1998, Buttrey employed approximately 2,700 persons,
approximately 1,453 of whom are full-time and 1,242 of whom are part-time.
Approximately 2,445 were employed in the Company's stores, 138 were employed in
transportation and the distribution centers, and 112 were employed in the
district offices and in the Company's corporate headquarters in Great Falls,
Montana.
Approximately 42% of the Company's employees are represented by unions.
These employees work under a large number of separate collective bargaining
agreements with various locals of the United Food and Commercial Workers Union,
the Bakery, Confectionery and Tobacco Workers Union, and the International
Brotherhood of Teamsters. These collective bargaining agreements have varying
renewal dates and typically have three year terms.
Pursuant to its collective bargaining agreements, Buttrey contributes to
various union-sponsored multi-employer pension plans. The Company also provides
a full range of benefits for its employees who are not covered by collective
bargaining agreements, including 401(k) plan contributions.
GOVERNMENTAL AND ENVIRONMENTAL REGULATION
The Company is subject to regulation by a variety of governmental
authorities, including federal, state and local agencies which regulate the
distribution and sale of alcoholic beverages, pharmaceutical products, milk and
other agricultural products, as well as various other food and drug items.
Trade practices, building standards, labor, health, safety and environmental
matters are also regulated. Management believes that the Company is in material
compliance with all applicable regulations.
Prior to the Acquisition, soil and groundwater contamination was discovered
at a shopping center owned by Skaggs located in Bozeman, Montana (the "Shopping
Center Property"). In connection with the Acquisition, the Company leased a
site at the Shopping Center Property, and Skaggs and ASC entered into an
environmental indemnity agreement for the benefit of Buttrey against any
liability relating to the existence and clean-up of hazardous materials at the
Shopping Center Property. In October 1991, the Department of Health and
Environmental Sciences of the State of Montana issued an interim order to
Skaggs, the owner of the site, and Jewel Companies, Inc., the site's previous
owners, requiring certain investigative and clean-up actions at the Shopping
Center Property, including removal of a septic tank and implementation of a
groundwater monitoring program. The Company has not been named as a responsible
party in this matter and has not been required to participate in the clean-up.
Management believes that Buttrey has not contributed to the contamination at the
Shopping Center Property and that the environmental indemnity agreement, among
other arrangements, will minimize the Company's liability, if any, with respect
to the Shopping Center Property.
TRADEMARKS
The Company owns rights in a number of trademarks, including the marks
"Buttrey(R)," "Big Fresh(R)," "Buttrey Big Fresh(R)" and "Buttrey Fresh
Foods(TM)." The Company considers the "Buttrey(R)," "Big Fresh(R)" and "Buttrey
Big Fresh(R)" marks to be important to its business and has registered these
marks with the United States Patent and Trademark Office. The marks
"Shurfine(TM)" and "Shurfresh(TM)" are trademarks held by the supplier of the
Company's private label food products.
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ITEM 2. PROPERTIES
The Company owns 21 of its stores, representing a total of 785,329 square
feet, and leases 23 stores, representing a total of 833,947 square feet. Store
leases have various expiration dates through 2018, and the average remaining
term of the Company's leases (including all renewal options) is approximately 25
years. Renewal options range up to 35 years.
Buttrey owns the 337,033 square foot food distribution center and office
facility located on approximately 14.3 acres in Great Falls, Montana. The
Company leases its 52,000 square foot produce and floral distribution facility
in Salt Lake City, Utah. The lease on this facility expires in September 1998,
subject to a five year renewal option.
ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed its examination of the
Company's income tax returns for the periods ended February 1, 1992 and February
2, 1991, the period of the Company's initial acquisition of assets.
During August 1997, the Company reached a proposed settlement with the IRS
with regard to adjustments associated with the Company's initial acquisition of
assets. The settlement was formally approved on September 17, 1997. Under the
terms of the settlement, the Company paid approximately $1,386,000 in federal
taxes plus approximately $1,086,000 in interest. Additionally, the Company will
have corresponding state tax liabilities of approximately $483,000 plus
approximately $188,000 in interest. The aggregate $2,092,000 in tax liability
has been recorded on the Company's balance sheet by adjusting deferred tax
assets and liabilities to reflect the revised tax basis of its assets, by
adjusting the current tax liability to reflect the prior year taxes due, and by
applying the effect of those adjustments to increase goodwill associated with
the Company's initial acquisition of assets. The aggregate interest of
$1,274,000 ($764,000 after-tax, or $0.09 per share), was recorded as an expense
in the fiscal quarter ended August 2, 1997.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotations System ("Nasdaq") National Market System
under the symbol BTRY. The quarterly high and low closing sale prices for the
Common Stock as reported on the Nasdaq National Market during 1996, 1997 and the
first quarter of 1998 are as follows:
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High Low
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1996
First quarter................................... $ 7.75 $ 6.88
Second quarter.................................. $ 8.25 $ 7.38
Third quarter................................... $ 8.25 $ 7.25
Fourth quarter.................................. $ 8.63 $ 8.00
1997
First quarter................................... $ 9.88 $ 7.88
Second quarter.................................. $10.63 $ 7.88
Third quarter................................... $11.88 $ 9.88
Fourth quarter.................................. $15.38 $ 9.75
1998
First quarter (through April 23, 1998).......... $15.66 $14.88
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As of April 23, 1998, the number of stockholders of record of the Company's
Common Stock was 93.
The Company has not declared or paid cash dividends to its stockholders.
The Company anticipates that all of its earnings in the near future will be
retained for the development and expansion of its business and, therefore, does
not anticipate paying dividends on its Common Stock in the foreseeable future.
Declaration of dividends on the Common Stock will depend, among other things,
upon levels of indebtedness, future earnings, the operating and financial
condition of the Company, its capital requirements and general business
conditions. The agreements governing the Company's indebtedness contain
provisions which prohibit the Company from paying dividends on its Common Stock.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
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ITEM 6. SELECTED FINANCIAL INFORMATION AND OTHER DATA.
The selected financial information and other data of the Company presented
below are qualified by and should be read in conjunction with the financial
statements and notes to financial statements included elsewhere in this Form 10-
K. The selected financial information presented below, as of and for the 53
weeks ended February 3, 1996, and as of and for the 52 weeks ended February 1,
1997 and January 31, 1998 have been derived from financial statements of the
Company audited by KPMG Peat Marwick LLP and included elsewhere in this Form 10-
K. The selected financial information presented below as of and for the 52
weeks ended January 29, 1994 and January 28, 1995 have been derived from
financial statements of the Company audited by KPMG Peat Marwick LLP not
included in this Form 10-K.
SELECTED FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND OPERATING DATA)
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FISCAL YEAR ENDED(1)
----------------------------------------------------------------------------------------------
JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29,
1998 1997 1996 1995 1994
(52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (52 WEEKS)
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OPERATING RESULTS:
Sales..................... $ 391,373 $ 371,302 $ 368,135 $ 382,123 $ 428,746
Cost of sales and related
occupancy expenses....... 294,368 284,134 280,242 290,670 323,842
-------------- -------------- --------------- --------------- ---------------
Gross profit.............. 97,005 87,168 87,893 91,453 104,904
Marketing, general and
administrative expenses.. 86,859 79,609 81,830 86,248 101,273
-------------- -------------- --------------- --------------- ---------------
Operating income.......... 10,146 7,559 6,063 5,205 3,631
Other income (expense):
Gain (loss) on disposal
of assets............... (95) (50) 251 3,984 1,088
Interest income.......... 131 132 320 419 170
Interest expense - tax
settlement(2)........... (1,274) -- -- -- --
Interest expense(3)...... (3,287) (2,909) (2,865) (3,917) (4,286)
-------------- -------------- --------------- --------------- ---------------
(4,525) (2,827) (2,294) 486 (3,028)
Income before income taxes
and extraordinary charge. 5,621 4,732 3,769 5,691 603
Income taxes.............. 2,108 1,139 1,419 2,161 700
-------------- -------------- --------------- --------------- ---------------
Net income (loss) before
extraordinary charge..... 3,513 3,593 2,350 3,530 (97)
Extraordinary charge (net
of tax benefit)(4)....... -- -- (51) (127) (137)
-------------- -------------- --------------- --------------- ---------------
Net income (loss)......... $ 3,513 $ 3,593 $ 2,299 $ 3,403 $ (234)
============== ============== =============== =============== ===============
OTHER DATA:
Depreciation and
amortization(5).......... $ 10,907 $ 9,055 $ 10,821 $ 11,826 $ 14,536
PER SHARE DATA:
Net income (loss) per
share:(6)
Basic.................... $0.41 $0.42 $0.27 $0.40 ($0.03)
Diluted.................. $0.40 $0.41 $0.27 $0.40 ($0.03)
Weighted average common
shares outstanding:
Basic.................... 8,641,771 8,639,056 8,639,056 8,586,044 8,476,956
Diluted.................. 8,825,920 8,690,443 8,664,994 8,599,710 8,519,115
OPERATING DATA:
Number of stores (at
beginning of period)..... 42 40 39 44 44
Number of stores opened/
closed during period..... 2/1 2/0 1/0 1/6 2/2
Number of stores (at end
of period)............... 43 42 40 39 44
"Comparable store" sales
increase (decrease)(7)... 0.3% 0.6% (1.0)% (4.0) (9.3)%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
BALANCE SHEET DATA: AT JANUARY 31, AT FEBRUARY 1, AT FEBRUARY 3, AT JANUARY 28, AT JANUARY 29,
1998 1997 1996 1995 1994
-------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Working capital................. $ 15,430 $ 17,110 $ 24,737 $ 34,144 $ 28,257
Total assets.................... 168,898 157,998 144,631 165,380 181,400
Long-term debt, excluding
current installments
and obligations retired(8)..... 20,456 18,569 13,510 16,271 35,081
Obligations retired(9).......... -- -- -- 10,889 --
Total outstanding
indebtedness(10)............... 42,157 34,082 25,499 43,903 52,939
Stockholders' equity............ 95,327 91,898 88,305 85,967 81,427
</TABLE>
_______________
(1) Unless otherwise indicated, references herein to a year or years are to the
Company's 52 week year, which ends on the Saturday closest to January 31 in
the following calendar year.
(2) Amount represents interest of $1,086 and $188 on federal and state taxes,
respectively, in conjunction with the Company's September 1997 settlement
with the IRS. See "Item 3. Legal Proceedings."
(3) Amount includes amortization of deferred debt issuance costs of $50, $50,
$35, $91 and $127 for 1997, 1996, 1995, 1994 and 1993, respectively.
(4) Extraordinary charges of $85 ($51, or $0.01 per share, on an after-tax
basis) for 1995, $212 ($127, or $0.01 per share, on an after-tax basis) for
1994 and $228 ($137, or $0.02 per share, on an after-tax basis) for 1993
were recorded as a result of the early retirement of debt.
(5) Represents aggregate depreciation and amortization included in cost of
sales and related occupancy expenses and in marketing, general and
administrative expenses. Amount includes aggregate amortization expense
associated with Acquisition related items, including amortization expense
included in cost of sales and related occupancy expenses and in marketing,
general and administrative expenses of $157, $91, $195, $232 and $2,982 for
1997, 1996, 1995, 1994 and 1993, respectively. Does not include amounts for
amortization of deferred debt issuance costs included in interest expense,
as described in footnote (3) above. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(6) SFAS No. 128, Earnings per Share, was issued in February 1997 and replaced
the presentation of primary earnings per share ("EPS") with a presentation
of basic and diluted EPS on the face of the income statement for all
entities with complex capital structures. SFAS No. 128 also requires a
reconciliation of the numerator and denominator of basic and diluted EPS
computation. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the equity.
The statement required restatement of all prior-period EPS data. Basic and
diluted net income per share as determined under this statement does not
materially differ from the amounts previously reported.
(7) The calculation of comparable store sales in 1996 and 1995 excludes sales
associated with the 53rd week in 1995. A store becomes a comparable store
in the monthly accounting period following the first year anniversary of
its opening. Expansions and remodels of existing stores are considered
comparable stores, whereas replacement stores are not considered to be
comparable stores.
(8) See Note 6 of Notes to Consolidated Financial Statements included elsewhere
in this Form 10-K for a description of items included in long-term debt.
(9) Amount represents debt which was outstanding at the end of the applicable
fiscal year and was repaid by the Company early in the following fiscal
year. In the first quarter of 1995, the Company repaid $10,889 under the
Amended and Restated Credit Agreement with the proceeds from the sale of
the Payson Distribution Center and other asset sales, and excess cash on
hand. This amount has been excluded from long-term debt and is classified
as obligations retired.
(10) Includes current and non-current portion of short-term debt, long-term bank
debt, senior subordinated notes, capital lease obligations, notes payable
and obligations retired.
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the financial
statements and related notes and "Selected Financial Information and Other Data"
included elsewhere in this Form 10-K. All per share amounts are based on shares
outstanding assuming dilution.
RESULTS OF OPERATIONS
The following table sets forth certain operating items expressed as a
percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
(52 WEEKS) (52 WEEKS) (53 WEEKS)
----------- ----------- ----------
<S> <C> <C> <C>
Sales.............................................. 100.0% 100.0% 100.0%
Cost of sales and related occupancy expenses....... 75.2 76.5 76.1
-------- ----- ---------
Gross profit....................................... 24.8 23.5 23.9
Marketing, general and administrative expenses..... 22.2 21.4 22.3
-------- ----- ---------
Operating income................................... 2.6 2.1 1.6
Other income (expense):
Gain on disposal of assets.................... 0.0 0.0 0.1
Interest income............................... 0.0 0.0 0.1
Interest expense - tax settlement............. (0.3) -- --
Interest expense.............................. (0.9) (0.8) (0.8)
-------- ----- ---------
(1.2) (0.8) (0.6)
-------- ----- ---------
Income before income taxes and extraordinary charge 1.4 1.3 1.0
Income taxes....................................... 0.5 0.3 0.4
-------- ----- ---------
Net income before extraordinary charge............. 0.9 1.0 0.6
Extraordinary charge (net of tax benefit).......... 0.0 0.0 0.0
-------- ----- ---------
Net income......................................... 0.9% 1.0% 0.6%
======== ===== =========
</TABLE>
52 Weeks Ended January 31, 1998 ("1997") Compared to 52 Weeks Ended
February 1, 1997 ("1996")
Sales increased $20.1 million, or 5.4%, from $371.3 million for 1996 to
$391.4 million for 1997. The increase in sales reflects the additional sales
from the Company's acquired stores in Cheyenne, Laramie and Cody, Wyoming that
the Company had acquired during the last two years, the replacement of the
Company's Bozeman, Montana store as a Buttrey Big Fresh, and an increase in
comparable store sales of 0.3%. The Company achieved an increase in comparable
store sales despite a more aggressive competitive environment (including the new
store expansion of existing and new competitors), the loss of sales during the
remodeling of three stores in Billings, Montana, promotions run during 1996
which were not duplicated in 1997, limited inflation (including deflation in
certain food categories), a reduction in Montana tourism during the summer of
1997, and a strike in the Company's Kalispell market. The Company is conducting
an ongoing store development and remodeling program, and believes that it will
continue to experience temporary disruptions and lost sales during store
remodelings in the future.
On a quarterly basis during the fiscal year, the Company reported the
following 1997 increases (decreases) in comparable store sales versus 1996:
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- -----------------------------------------------
<S> <C> <C> <C>
0.6% 1.1% (0.3%) (0.2%)
</TABLE>
Based in part on the anticipated impact of proposed and recent new store
openings and remodelings by competitors, management believes that market
conditions will remain highly competitive. In response to this highly
competitive environment, the Company introduced, in 1995, the Buttrey Big Fresh
format, which has been designed to emphasize perishables excellence in expanded
produce, meat, deli, bakery, seafood and floral departments, while offering
exceptional selections of grocery and non-foods items at competitive prices.
This format also features a food court, the "Savings Stack" (an aisle of special
offers on grocery items), expanded beer and wine departments and, depending upon
the store's physical structure and location, a drive-through pharmacy. The
Company continues to utilize electronic and print media combined with an
10
<PAGE>
extensive in-store merchandising program. The intent of this strategy is to
focus the customer on the Company's competitive prices, excellent perishables
and superior service. The in-store merchandising strategy is based on an
integrated store signing program designed to direct the customer to special
value items merchandised throughout the store and to reinforce the overall theme
of "Great Prices" in order to enhance sales to the Company's existing store
base. The Company's merchandising strategy also calls for passing lower prices
along to the customer from reductions in the Company's cost of goods as well as
from operating efficiencies. Finally, the Company continues the use of market
research in order to maintain a better understanding of customer behavior and
trends in certain markets.
Gross profit increased $9.8 million from $87.2 million, or 23.5% of sales,
in 1996 to $97.0 million, or 24.8% of sales, in 1997. The increase in gross
profit is attributable to a reduction in product procurement costs, enhanced
category management and a reduction in the Company's LIFO provision. The LIFO
provision decreased $0.3 million, from $0.4 million in 1996 to $0.1 million in
1997.
Marketing, general and administrative expenses ("MG&A") expenses increased
$7.3 million from $79.6 million, or 21.4% of sales, in 1996 to $86.9 million, or
22.2% of sales, in 1997. The increase in MG&A expenses is principally
attributable to the operating expenses of the new stores described above, an
increase in depreciation expense, an increase in store operating costs, an
increase in administration expense, pre-opening expenses during the first
quarter for both the Bozeman, Montana and the Cody, Wyoming stores, and the
expenses associated with the remodel of the three Billings, Montana stores. The
Company continues to review alternatives to reduce MG&A and cost of goods
expenses in order to provide opportunities to pass additional savings along to
its customers in the form of price reductions in certain categories.
Operating income increased $2.5 million from $7.6 million, or 2.1% of
sales, in 1996 to $10.1 million, or 2.6% of sales, in 1997. The increase in
operating income reflects the impact of the improvement in gross profit offset
by an increase in MG&A expenses.
Interest expense (net of interest income) increased $1.6 million from $2.8
million, or 0.8% of sales, in 1996 to $4.4 million, or 1.2% of sales, in 1997.
Interest expense for 1997 includes a one-time interest charge of $1.3 million
associated with the IRS tax settlement. See "Item 3. Legal Proceedings."
Excluding this one-time charge, interest expense (net of interest income)
increased $0.4 million from $2.8 million, or 0.8% of sales, in 1996 to $3.2
million, or 0.8% of sales, in 1997. The increase in net interest expense,
excluding the one-time charge, reflects additional long-term debt outstanding.
See "--Liquidity and Capital Resources".
Income taxes increased $1.0 million from $1.1 million, or 0.3% of sales, in
1996 to $2.1 million, or 0.5% of sales, in 1997. The increase is primarily
attributable to a reduction in the deferred tax valuation allowance of
approximately $0.6 million, or $0.07 per share in 1996.
Net income decreased $0.1 million from $3.6 million, or $0.41 per share, in
1996 to $3.5 million, or $0.40 per share, in 1997.
52 Weeks Ended February 1, 1997 ("1996") Compared to 53 Weeks Ended
February 3, 1996 ("1995")
Sales increased $3.2 million, or 0.9%, from $368.1 million for 1995 to
$371.3 million for 1996. Fiscal 1995 was a 53 week year for the Company.
Excluding the sales for the 53rd week in 1995, sales increased $9.5 million, or
2.6%, from $361.8 million for 1995 to $371.3 million for 1996. The increase in
sales reflects the additional sales from the Company's acquired stores in
Cheyenne and Laramie, Wyoming and an increase in comparable store sales of 0.6%.
The Company achieved an increase in comparable store sales despite a more
aggressive competitive environment, the loss of sales during the remodeling of
three stores, a reduction in Montana tourism, a shortened holiday selling
period, the severity of last year's winter weather and limited inflation.
On a quarterly basis during the fiscal year, the Company reported the
following 1996 increases in comparable store sales versus 1995 (excluding sales
associated with the 53rd week in 1995):
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------
<S> <C> <C> <C>
0.3% 1.1% 0.0% 1.1%
</TABLE>
11
<PAGE>
Gross profit decreased $0.7 million from $87.9 million, or 23.9% of sales,
in 1995 to $87.2 million, or 23.5% of sales, in 1996. The decrease in gross
profit is attributable to the Company's aggressive pricing strategies in
response to the increase in competitive activity, as well as an increase in the
Company's LIFO provision. The LIFO provision increased $0.1 million, from $0.3
million in 1995 to $0.4 million in 1996.
MG&A expenses decreased $2.2 million from $81.8 million, or 22.3% of sales,
in 1995 to $79.6 million, or 21.4% of sales, in 1996. The decrease in MG&A
expenses is primarily attributable to reductions in depreciation and
amortization expenses due to certain assets acquired from ASC becoming fully
depreciated at the end of the third quarter 1995, as well as to reductions in
employee benefit costs and store labor expenses.
Operating income increased $1.5 million from $6.1 million, or 1.6% of
sales, in 1995 to $7.6 million, or 2.1% of sales, in 1996. The increase in
operating income reflects the impact of the reduction in MG&A expenses offset by
the decline in gross profit.
Interest expense (net of interest income) increased $0.3 million from $2.5
million, or 0.7% of sales, in 1995 to $2.8 million, or 0.8% of sales, in 1996.
The increase reflects additional long-term debt outstanding. See "--Liquidity
and Capital Resources".
Income taxes decreased $0.3 million from $1.4 million, or 0.4% of sales, in
1995 to $1.1 million, or 0.3% of sales, in 1996. The decrease is attributable
to a reduction in the deferred tax valuation allowance of approximately $0.6
million, or $0.07 per share.
Net income before extraordinary charge increased $1.2 million from $2.4
million, or $0.28 per share, in 1995 to $3.6 million, or $0.41 per share, in
1996.
Extraordinary charges of $0.1 million ($0.1 million, or $0.01 per share, on
an after-tax basis) in 1995 were recorded as a result of the early retirement of
debt. After giving effect to these extraordinary charges, net income increased
$1.3 million from $2.3 million, or $0.27 per share, in 1995 to $3.6 million, or
$0.41 per share ($0.34 per share before giving effect to the change in deferred
tax valuation allowance), in 1996. See "--Liquidity and Capital Resources" and
Note 4 of Notes to Consolidated Financial Statements included elsewhere in this
Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from debt service on its
indebtedness and the funding of the Company's capital expenditure and working
capital requirements. The Company has financed its liquidity needs primarily
using cash flow from operations, lease and debt financing of capital
expenditures, cash provided by certain asset sales, temporary borrowings under
the Company's working capital facility. See Note 6 of Notes to Consolidated
Financial Statements included elsewhere in this Form 10-K.
On September 7, 1995, the Company entered into a new credit facility with
The CIT Group/Business Credit, Inc. ("CITBC") and The CIT Group/Equipment
Financing, Inc. ("CEF") which provides available credit of up to $42.8 million
(the "Financing Agreement"). The new facility includes a $30.0 million
revolving credit facility (with a $10.0 million sublimit for letters of credit)
and includes variable rate term loans totaling $12.8 million, which the Company
used to refinance existing equipment financing loans, resulting in lower
interest rates and extended maturities. The borrowing base under which the
revolving credit facility can be utilized is equal to 65% of Eligible Inventory
(essentially non-perishable inventory). The approximate borrowing base as of
January 31, 1998 was $25.6 million. During the third quarter of 1996, the
Financing Agreement was amended to provide for a third term loan in the amount
of up to $5.0 million ("Term Loan III") which the Company used to finance a
substantial portion of the purchase price related to its June 1996 acquisition
of the Cheyenne, Wyoming store, to increase the flexibility of the covenants
relating to capital expenditures contained therein, and to make other technical
changes. Under the Financing Agreement, interest is determined, at the
Company's option, at a defined prime rate or at the London Interbank Offered
Rate ("LIBOR") for each applicable loan as follows:
12
<PAGE>
<TABLE>
<S> <C>
$30.0 million Revolving Credit Facility prime rate plus 0.50% or LIBOR plus 2.00%
$8.1 million Term Loan I prime rate plus 1.00% or LIBOR plus 2.25%
$4.7 million Term Loan II prime rate plus 1.50% or LIBOR plus 2.65%
$5.0 million Term Loan III prime rate plus 1.50% or LIBOR plus 2.25%
</TABLE>
The Financing Agreement matures five years from inception; however, the
principal portion of Term Loans I and II are amortized on a straight-line basis
over 84 months, and the principal portion of Term Loan III is amortized on a
straight-line basis over 60 months. In the event that the Financing Agreement
is not extended at the end of five years, all three term loans will become due
and payable. The Financing Agreement also provides that the maturity date of
all balances shall become accelerated upon a specified change in control or
ownership in the Company.
Borrowings under the Financing Agreement are secured by the Great Falls
Distribution Center, a retail store location in Butte, Montana, and all of the
personal property of the Company. The Financing Agreement contains certain
financial and operating covenants, including limitations on the amount of the
Company's capital expenditures, its ability to pay dividends, and its ability to
incur additional debt. The Financing Agreement also requires the maintenance of
certain financial ratios and the satisfaction of certain tests which require
escalating levels of performance over time. The Company is currently in
compliance with all such financial ratios and tests. The principal financial
covenants defined in the Financing Agreement, compared to the Company's actual
results for the 52 weeks ended January 31, 1998, are as follows:
<TABLE>
<CAPTION>
ACTUAL TEST
--------------------------------------
<S> <C> <C>
Minimum Net Worth $95.3 Million $80.0 Million
Maximum Capital Expenditures $15.4 Million $19.0 Million
Maximum Net Capital Expenditures $ 6.8 Million $13.0 Million
Minimum Interest Coverage Ratio 6.77 4.70
</TABLE>
As of January 31, 1998, the Company had borrowings outstanding under the
revolving credit facility of $6.4 million and letter of credit commitments of
$2.6 million. The outstanding balance under Term Loan I was $5.3 million (of
which $1.2 million is classified as current), under Term Loan II was $3.1
million (of which $1.0 million is classified as current), and under Term Loan
III was $3.5 million (of which $1.0 million is classified as current). The
Company's borrowing requirements for working capital are somewhat seasonal,
reflecting increases in inventory in the fourth calendar quarter due to holiday
purchases and, historically, the Company's funding of employee benefit program
contributions in the first calendar quarter of each year. In February 1996, 1997
and 1998, the Company's Board of Directors authorized the Company to contribute
in cash to the Buttrey Company Retirement Estates, the Company's employee
retirement plan (the "Retirement Plan"), a total of $1.0 million as the
Company's annual contribution to the Retirement Plan for each of 1995, 1996 and
1997. The Company also uses working capital to fund tax payments. The Company
has made estimated tax payments and tax payments associated with the IRS
settlement in the aggregate of $3.3 million.
The Company has utilized equipment financing from time to time in order to
finance purchases of store equipment and vehicles. The proceeds from each of
Term Loan I and Term Loan II were used by the Company to repay the remaining
outstanding obligations of all prior equipment financing loans. In addition to
these loans, on September 1, 1995, the Company completed a $1.2 million
financing of new store equipment for the Company's new store in Butte, Montana.
The loan bears interest at LIBOR plus 2.65%, and is payable in equal monthly
installments over four years. On July 26, 1996, the Company completed a $4.0
million loan transaction with NationsBanc Leasing Corporation ("NationsBanc") in
order to finance the purchase of new equipment related to the remodel of two
stores in Great Falls, Montana and to upgrade the Company's transportation
fleet. Approximately $2.3 million of this loan bears interest at a fixed rate
of 8.03%, while the remaining $0.3 million bears interest at LIBOR plus 2.35%.
The loan is payable in monthly installments over 48 months. On November 4,
1996, the Company completed an additional loan transaction with NationsBanc in
an amount of approximately $1.6 million, which proceeds were used by the Company
to finance the Lewistown, Montana remodel and to further upgrade the Company's
transportation fleet. The new loan is payable in monthly installments over 48
months and bears interest at LIBOR plus 2.35%. On December 15, 1997, the Company
completed a loan transaction with NationsBanc in an amount of approximately $1.0
million, which proceeds were used by the Company to further upgrade the
Company's transportation fleet. The new loan is
13
<PAGE>
payable in monthly installments over 48 months and bears interest at LIBOR plus
2.35%. As of January 31, 1998, the outstanding obligation under these equipment
loans aggregated $5.3 million (of which $1.9 million is classified as current).
The Company has also entered into a commitment to finance capital
expenditures with General Electric Capital Corporation ("GE Capital") to finance
up to $10.0 million of new store equipment. During the second quarter of 1997,
the Company completed a $2.4 million loan transaction with GE Capital for the
financing of the fixtures and equipment at the Company's new Bozeman, Montana
store. The new loan is payable in monthly installments over 60 months and bears
interest at the 30-day commercial paper rate plus 2.18%. On December 19, 1997,
the Company completed a $5.3 million loan transaction with GE Capital primarily
for the financing of the fixtures and equipment associated with the Company's
three remodeled stores in Billings, Montana. The new loan is payable in monthly
installments over 60 months and bears interest at the 30-day commercial paper
rate plus 2.18%. As of January 31, 1998, the outstanding obligation under these
equipment loans aggregated $7.2 million (of which $1.5 million is classified as
current).
The Company has entered into a number of capital lease obligations for
store facilities. The Company's total outstanding capital lease obligation as
of January 31, 1998 was $9.0 million (of which $0.5 million is classified as
current). See Note 5 of Notes to Consolidated Financial Statements included
elsewhere in this Form 10-K.
On April 1, 1997, the Company completed the acquisition of a conventional
store in Cody, Wyoming. The purchase price was $2.4 million for fixtures and
equipment, and a non-compete agreement, plus $0.4 million for inventory. The
Company also entered into a lease with the seller of the business for the real
property on which the grocery store was previously located.
During the 52 weeks ended January 31, 1998, net cash provided by operating
activities was $10.4 million, as compared with $14.5 million for the 52 weeks
ended February 1, 1997. The increase in net cash provided by operating
activities was primarily attributable to a $2.5 million increase in net income
before depreciation, amortization, deferred taxes and disposal of owned
property, and a $6.6 million decrease for net changes in operating assets and
liabilities.
The Company spent an aggregate of $15.4 million, $22.9 million and $10.0
million on capital expenditures (primarily for acquisitions, store remodelings
and the ongoing maintenance of its existing store base and support functions),
during 1997, 1996 and 1995, respectively. Of these amounts, the Company has
funded approximately $8.6 million,$10.6 million and $1.2 million through
equipment and real estate financings in 1997, 1996 and 1995, respectively. The
Company plans to continue its store remodeling and development program. In
April 1997, the Company completed the acquisition of a conventional store in
Cody, Wyoming, the Company's first store in this market. During February 1998,
the Company completed the replacement of an older store with a Buttrey Fresh
Foods store in Harlem, Montana, and in March 1998, the Company opened its ninth
Buttrey Big Fresh store in Great Falls, Montana. For 1998, capital expenditures
by the Company, including the foregoing, are estimated to be approximately $17.0
million. Additionally, the Company may expand the number of stores it operates
through the selective acquisition of existing food or drug stores that will
complement the Company's operations.
Based upon the foregoing, and considering current and projected operating
results as well as the current budgeted capital expenditures described above,
the Company believes that it will have sufficient cash available, including
amounts available under the Financing Agreement and cash generated from
operations, and amounts available from lease and mortgage financings, to meet
its liquidity needs for debt service, its capital expenditure program, working
capital and general corporate purposes for the foreseeable future.
COMPUTERIZED OPERATIONS AND THE YEAR 2000
During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. The Company has evaluated the significance of the change
from the year 1999 to the year 2000 on its existing computer systems and has
taken steps designed to ensure that its computer systems will not be adversely
affected thereby. The financial impact of such steps is not anticipated to be
material. In addition, the Company's systems rely in part on computer-based
systems of other companies. As a result, if any such company failed to become
year 2000 compliant, the Company could be adversely affected.
14
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This statement requires
that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Management expects that adoption will not
have a material effect on the consolidated financial position or results of
operations of the Company.
In June 1997, FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This statement requires public business
enterprises to disclose selected information about operating segments including
segment income, revenues and asset data. Operating segments, as defined in SFAS
No. 131, would include those components for which financial information is
available and evaluated regularly by the chief operating decision maker in
assessing performance and making resource allocation determinations for
operating components such as those which contribute ten percent or more of
combined revenue, income or assets. SFAS No. 131 is effective for financial
statements for periods beginning after December 31, 1997. Management expects
that adoption will not have a material impact on the Company's consolidated
financial statements.
On April 3, 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities" (SOP
98-5). SOP 98-5 requires that costs of start-up activities, including
organization costs, be expensed as incurred. Costs of start-up activities may
have been referred to as preopening costs, preoperating costs, start-up costs,
organization costs, or other terms. In other cases, costs of start-up
activities may have been included as a component of the cost of tangible or
intangible assets. Regardless of what these costs have been called or how these
costs have been classified in the past, the SOP applies to all costs of start-up
activities, including organization costs.
SOP 98-5 is effective for financial statements for fiscal years beginning
after December 15, 1998. Earlier application is encouraged in fiscal years for
which financial statements have not been issued. Restatement of previously
issued financial statements is not permitted. Initial application of the SOP
should be as of the beginning of the fiscal year in which the SOP is first
adopted and should be reported as the cumulative effect of a change in
accounting principle as described in APB Opinion No. 20, "Accounting Changes".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index included at "Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS AND DIRECTORS
Set forth in the table below are the names, ages and current offices held
by all directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
----------------------- -------- ----------------------------------------------
<S> <C> <C>
Joseph H. Fernandez 45 Chairman of the Board, President and Chief
Executive Officer
Joseph M. Livorsi 51 Senior Vice President - Sales and
Merchandising
Wayne S. Peterson 40 Senior Vice President, Chief Financial Officer
and Secretary
Louis J. Rizzo 52 Senior Vice President - Retail Operations and
Store Development
John E. Sullivan 45 Vice President - Human Resources
Craig A. Wright 34 Vice President - Non-Perishables
Merchandising
Matt L. Figel + 38 Director
Robert P. Gannon * 53 Director
Michael P. Malone + 58 Director
J. Frederick Simmons * 43 Director
Peter J. Sodini * 57 Director
Ronald P. Spogli * 50 Director
William M. Wardlaw 51 Director
Thomas C. Young + 48 Director
Wayne S. Peterson 40 Director
</TABLE>
________________
* Member of the Compensation Committee.
+ Member of the Audit Committee.
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. No arrangement exists between any
director or executive officer and any other person or persons pursuant to which
any director or executive officer was or is to be selected as an executive
officer, other than as provided for Mr. Fernandez in his employment agreement
with the Company. See "--Compensation--Employment and Severance Agreements."
None of the directors or executive officers has any family relationship to any
other director or to any other executive officer of the Company.
Mr. Fernandez became the President, Chief Operating Officer and a Director
of the Company in March 1993, became the Chief Executive Officer in September
1993, and was elected as Chairman of the Board in August 1996. From April 1991
to February 1993, Mr. Fernandez served as Executive Vice President and Chief
Operating Officer for Kings Super Markets, Inc.
Mr. Livorsi became Senior Vice President, Sales and Merchandising of the
Company in October 1996. From July 1995 until July 1996, Mr. Livorsi was Senior
Vice President, Sales and Merchandising for Price Chopper Supermarkets in
Schenectady, New York. From July 1986 to July 1995, Mr. Livorsi held senior
marketing and merchandising positions with Randall's Food Markets in Houston,
Texas.
16
<PAGE>
Mr. Peterson became a Director of the Company in May 1995, Senior Vice
President of the Company in April 1995, Vice President and Chief Financial
Officer in June 1991, and Secretary in November 1991. From October 1990 until
June 1991, Mr. Peterson served as Vice President and Controller of the Company.
Mr. Rizzo became Senior Vice President-Merchandising and Store Operations
of the Company in April 1995, and Senior Vice President - Retail Operations and
Store Development in October 1996. From February 1994 until April 1995, Mr.
Rizzo served as Vice President-Sales and Merchandising of the Company. From
June 1991 until October 1993, Mr. Rizzo served as Vice President and Director of
Marketing for the eastern division of Safeway Stores, Inc.
Mr. Sullivan has served as Vice President-Human Resources of the Company
since October 1990.
Mr. Wright became Vice President-Support Services of the Company in April
1995, and Vice President - Non-Perishables Merchandising in October 1996. From
January 1995 to April 1995, Mr. Wright served as Director-Support Services.
From June 1993 to January 1995, Mr. Wright served as Director-Information
Technology, and from October 1990 to June 1993 he served as Manager-Store
Systems/Front-End Operations.
Mr. Figel founded Doramar Capital, a private investment firm, in January
1997. From October 1986 to December 1996, Mr. Figel was employed by FS&Co. (or
its affiliates). FS&Co. is a private investment company that was founded in
1983. Mr. Figel became a Director of the Company in October 1990. Mr. Figel is
also a member of the Boards of Directors of Calmar Inc. and AFC Enterprises,
Inc.
Mr. Gannon became a Director of the Company in May 1992. Since June 1997,
Mr. Gannon has served as Chief Executive Officer of Montana Power Company, and
since January 1998 has also served as Chairman of the Board. Mr. Gannon has
also served as President of Montana Power Company since January 1990. Mr.
Gannon also served as Chief Operating Officer of Montana Power Company from June
1992 until January 1996 and as Vice Chairman from January 1996 until January
1998.
Mr. Malone became a Director of the Company in August 1992. Since January
1991, Mr. Malone has served as the President of Montana State University.
Mr. Simmons joined FS&Co. in 1986 and became a general partner in January
1991. Mr. Simmons became a Director of the Company in October 1990. Mr.
Simmons is also a member of the Board of Directors of EnviroSource, Inc.
Mr. Sodini became a Director of the Company in October 1990 and, from
October 1990 until March 1993, served as the Company's Chairman of the Board.
Since March 1996, Mr. Sodini has served as the Chief Executive Officer and
Chairman of the Board of The Pantry, Inc. From November 1995 to February 1996,
Mr. Sodini worked as an independent consultant. From December 1991 to October
1995, Mr. Sodini served as Chief Executive Officer and a Director of Purity
Supreme, Inc. ("Purity") and, from March 1993 to October 1995, also served as
the Chairman of the Board of Purity. Mr. Sodini also served as President of
Purity from December 1991 until August 1994. Mr. Sodini is also a member of the
Boards of Directors of The Pantry, Inc. and Pamida Holding Corporation.
Mr. Spogli is a founding partner of FS&Co. Mr. Spogli became a Director of
the Company in October 1990. Mr. Spogli is the Chairman of the Board and a
Director of EnviroSource, Inc. and also serves on the Boards of Directors of
Calmar Inc. and AFC Enterprises, Inc.
Mr. Wardlaw joined FS&Co. in March 1988 and became a general partner in
January 1991. Mr. Wardlaw became a Director of the Company in October 1990.
Mr. Wardlaw is also a member of the Boards of Directors of Calmar Inc. and AFC
Enterprises, Inc.
Mr. Young became a Director of the Company in August 1992. Since December
1994, Mr. Young has served as a Director of the Portland branch of the Federal
Reserve Bank of San Francisco. Since October 1984, he has served as President,
Chief Executive Officer and Chairman of the Board of Northwest National Bank and
Chairman of the Board of Northwest Bancshares, Inc. Mr. Young has also served
as President of Admiralty Leasing, Inc. since October 1984.
17
<PAGE>
COMMITTEES
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee, which presently consists
of Messrs. Malone, Young and Figel, met once during the fiscal year ended
January 31, 1998 ("1997"). The Compensation Committee, which presently consists
of Messrs. Gannon, Simmons, Sodini and Spogli, met once during 1997, and took
various actions by unanimous written consent.
The Audit Committee recommends to the Board of Directors the engagement or
discharge of the Company's independent auditors; reviews with the independent
auditors the scope, timing and plan for the annual audit, any non-audit services
and the fees for audit and other services; reviews outstanding accounting and
auditing issues with the independent auditors; and supervises or conducts such
additional projects as may be relevant to its duties. The Audit Committee is
also responsible for reviewing and making recommendations with respect to the
Company's financial condition, its financial controls and accounting practices
and procedures.
The Compensation Committee recommends to the Board of Directors
compensation policies and guidelines for the Company's executives and oversees
the granting of incentive compensation, if any, to such persons. The
Compensation Committee also administers the Company's bonus and stock option
plans.
MEETINGS AND REMUNERATION
During 1997, the Board of Directors held five meetings and took various
actions by unanimous written consent. Each director other than Messrs. Wardlaw
and Sodini attended at least 75% of the aggregate of (i) the total number of
meetings held by the Board of Directors during 1997 and (ii) the total number of
meetings held by all committees of the Board of Directors on which he served
during that period.
Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified.
Except for non-employee directors of the Company who are not affiliated with
FS&Co. (each, an "Outside Director"), directors do not receive compensation for
services on the Board of Directors or on any Committees of the Board of
Directors. All directors are reimbursed for their out-of-pocket expenses in
serving on the Board of Directors and on any Committees. In 1997, Messrs.
Gannon, Sodini, Figel and Young each received compensation for their services of
$1,500 for each Board meeting attended, and Mr. Malone received $1,500 for the
Board's November 1997 and January 1998 meetings. In addition, Mr. Malone
received an annual retainer of $1,250 and, at their election and in lieu of
their normal $5,000 annual retainer, Messrs. Gannon, Sodini, Figel and Young
each received an option to purchase 2,381 shares of Buttrey Common Stock at an
exercise price of $8.40 per share pursuant to the Company's 1996 Directors Plan
(as defined below). Upon consummation of Albertson's purchase of the Company,
the vesting of these options would be accelerated. See "Item 11. Executive
Compensation--Stock Options--1996 Directors Plan" and "Item 11. Transactions in
Connection with Proposed Purchase by Albertson's".
18
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company paid or accrued
by the Company for each of the fiscal years ended February 3, 1996 ("1995"),
February 1, 1997 ("1996") and January 31, 1998 ("1997"), for (i) the Company's
Chief Executive Officer, and (ii) each of the other four most highly compensated
executive officers of the Company who were serving as executive officers at
January 31, 1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------------ --------------
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS(1)($) COMPENSATION(2)($) OPTIONS(#) COMPENSATION($)
- ------------------------- ---- -------- ----------- ------------------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Fernandez 1997 350,000 115,668 0 0 12,282(3)
Chairman of the Board, 1996 300,417 0 0 130,000(4) 11,658
President and Chief 1995 247,500 200,561 0 30,000(5) 8,923
Executive Officer
Joseph M. Livorsi 1997 160,000 41,396 0 0 4,500(6)
Senior Vice President, 1996 (7) 67,742 0 0 15,000(4) 1,230
Sales and Merchandising 1995 -- -- - -- --
Louis J. Rizzo 1997 150,000 29,433 0 0 11,854(8)
Senior Vice President- 1996 145,000 0 0 12,000(4) 11,585
Retail Operations and 1995 140,000 40,518 0 12,000(5) 9,338
Store Development
Wayne S. Peterson 1997 132,500 26,000 0 0 10,722(9)
Senior Vice President, 1996 125,100 0 0 12,000(4) 11,388
Chief Financial Officer 1995 117,500 69,006 0 12,000(5) 11,285
and Secretary
John E. Sullivan 1997 107,000 20,996 0 0 9,251(10)
Vice President - Human 1996 104,500 0 0 8,000(4) 9,873
Resources 1995 100,000 28,942 0 8,000(5) 7,737
</TABLE>
__________________
(1) Represent payments made to executive officers in March of each year for the
prior fiscal year pursuant to the Buttrey Food and Drug Company Key
Management Incentive Plan. See "Bonus Plan" below. Amount paid to Mr.
Fernandez in 1995 also includes $25,000 payment made pursuant to the terms
of his employment agreement. See "Employment and Severance Agreements"
below. In addition, amounts paid to Mr. Fernandez and Mr. Peterson in 1995
include cash bonuses of $70,000 and $35,000, respectively, as consideration
for additional contributions made by them on behalf of the Company.
(2) Other than the limited special rights attached to certain of the shares
covered by options as described in "Stock Options" below, during each of
1995, 1996 and 1997, no executive officer named above received perquisites
and other personal benefits, securities or property in an aggregate amount
in excess of the lesser of $50,000 or 10% of the total of such officer's
salary and bonus, nor did any such officer receive any restricted stock
award, stock appreciation right or payment under any long term incentive
plan.
(3) Of this amount, (i) $7,831 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Fernandez;
(ii) $845 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $656 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr.
Fernandez towards the Company's own long-term disability program; and (iv)
$2,950 represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Fernandez towards the Company's own medical
plan.
(4) Consists of options to purchase shares of Common Stock granted in 1996
pursuant to the Company's 1995 Option Plan (as defined below). See "--
Stock Options."
19
<PAGE>
(5) Consists of options to purchase shares of Common Stock granted in 1995
pursuant to the Company's 1995 Option Plan. See "--Stock Options."
(6) Of this amount, (i) $907 represents the amount of insurance premiums paid
by the Company with respect to life insurance; (ii) $642 represents the
imputed amount of insurance premiums set aside by the Company for the
benefit of Mr. Livorsi towards the Company's own long-term disability
program; and (iii) $2,950 represents the imputed amount of insurance
premiums set aside by the Company for the benefit of Mr. Livorsi towards
the Company's own medical plan.
(7) Mr. Livorsi jointed the Company in October 1996.
(8) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Rizzo; (ii)
$846 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $599 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Rizzo
towards the Company's own long-term disability program; and (iv) $2,950
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Rizzo towards the Company's own medical
plan.
(9) Of this amount, (i) $6,499 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Peterson;
(ii) $746 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $527 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Peterson
towards the Company's own long-term disability program; and (iv) $2,950
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Peterson towards the Company's own medical
plan.
(10) Of this amount, (i) $5,268 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Sullivan;
(ii) $605 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $427 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Sullivan
towards the Company's own long-term disability program; and (iv) $2,950
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Sullivan towards the Company's own medical
plan.
Bonus Plan. The Company has adopted the Buttrey Food and Drug Company
Key Management Incentive Plan (as amended, the "Bonus Plan") pursuant to which
the Compensation Committee annually establishes guidelines for incentive
compensation to be paid to the Company's officers and key employees. The amount
of an individual's bonus award is based on the attainment of specified Company
performance objectives, such as the achievement of target sales and cash flow
objectives, and is determined as a percentage of the recipient's base salary.
Retirement Plan. The Company maintains the Buttrey Company Retirement
Estates (the "BCRE"), a retirement plan that is intended to qualify under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Employees become eligible to participate in the BCRE upon the later of the
attainment of age 21 or the completion of one year of service. The BCRE
provides for contributions by participants and by the Company. Participants can
make pre-tax contributions up to the maximum amount permitted under Section
401(k) of the Code. The Company also makes annual contributions (in the form of
cash or Buttrey Common Stock) to the BCRE, the amount of which is determined by
the Board of Directors in its discretion each year. Seventy-five percent of the
Company's contribution is allocated to participants as a percentage of their
compensation ("Profit Sharing Contributions"), and the remaining 25% is
allocated in proportion to the amount of contributions made by each participant
("Matching Contributions"). In March 1998, the Board of Directors of the
Company authorized the Company to contribute a total of $1.0 million in cash to
the BCRE as the Company's contribution for 1997.
Participants' interests in their own contributions and in the Matching
Contributions on their behalf are fully vested. Participants become vested in
the Profit Sharing Contributions made on their behalf by the Company depending
on their years of service with the Company, and in general begin vesting after
three years of service and are fully vested after seven years of service. In
addition, Participants become fully vested in the Profit Sharing Contributions
made on their behalf upon death, disability, or attainment of age 57 while
employed by the Company.
20
<PAGE>
Participants may borrow funds from the BCRE, and provided certain conditions are
satisfied, may receive a distribution of their contributions prior to
termination of employment. Participants may elect that benefits payable
following termination of employment be paid in the form of a lump sum
distribution or in installments over a period of years.
Employment and Severance Agreements. In March 1993, the Company entered
into a three-year employment agreement with Mr. Fernandez. As amended, the
employment agreement currently provides for a base salary of $350,000 and for an
incentive bonus to be paid pursuant to the terms of the Company's Bonus Plan.
See "Bonus Plan." In addition, the employment agreement with Mr. Fernandez
provided for a bonus of $75,000 payable in three annual installments of $25,000
each beginning in March 1993. The employment agreement provides for Mr.
Fernandez to be employed by the Company as Chairman of the Board, President and
Chief Executive Officer until the earlier of March 1, 2001 or the date that such
employment shall have been terminated as provided therein. In addition, the
employment agreement provides that, so long as Mr. Fernandez remains an employee
of the Company, the Company will include Mr. Fernandez in the Company's slate of
nominees for directors at each such election of directors. Pursuant to the terms
of the employment agreement, in the event Mr. Fernandez is terminated without
cause or resigns for good reason (as such terms are defined in the employment
agreement), or in the event that Mr. Fernandez should die or become permanently
disabled, the Company is required to pay Mr. Fernandez's base salary for a
period of twenty-four consecutive months from the date of such event. Mr.
Fernandez' employment agreement provides that, in the event that Mr. Fernandez
is terminated by the Company for cause or Mr. Fernandez otherwise terminates his
employment under certain circumstances, then, subject to certain exceptions, Mr.
Fernandez will not compete with the Company for a period of 12 months after such
termination.
In March 1993, the Company also entered into a separate agreement with Mr.
Fernandez pursuant to which he will be entitled to receive severance payments of
up to six months' salary upon an involuntary termination of his employment,
other than for cause (as defined therein), upon a resignation for good reason
(as defined therein), or in the event that Mr. Fernandez should die or become
permanently disabled, in each case at any time after the expiration of his term
of employment as specified in his employment agreement (or any subsequent
employment agreement with the Company).
The Company has entered into agreements with Messrs. Peterson, Rizzo and
Sullivan pursuant to which these individuals will be entitled to receive
severance payments of up to six months' salary either upon an involuntary
termination of employment, other than for cause (as defined therein), or upon a
resignation for good reason (as defined therein).
STOCK OPTIONS
1990 Option Plan. The Company has adopted its 1990 Nonqualified
Performance Stock Option Plan (as amended, the "1990 Option Plan"), which
provides for the granting of non-qualified stock options to officers, key
employees and consultants of the Company, including Directors who are also
employees. As of January 31, 1998, an aggregate of 451,500 shares of Common
Stock have been reserved for issuance under the 1990 Option Plan.
The 1990 Option Plan is administered by the Compensation Committee.
Options terminate at the earlier of (i) 90 days after the participant's
termination of employment by the Company (unless such termination results from
the participant's death or disability, or the participant dies within 90 days
after such termination of employment, in which case the option terminates 180
days after the date of the participant's termination of employment), (ii) ten
years from the date of grant, or (iii) on the effective date of certain
dissolutions, liquidations or sales of all of the business, properties and
assets of the Company or upon certain reorganizations, mergers or
consolidations.
All options granted under the 1990 Option Plan currently will vest and
become exercisable in full upon a determination by the Compensation Committee
that the Company, on a consolidated basis, has achieved 100% of the amount of a
specified operating cash flow and total net cash flow from operations for any
one of the four fiscal years of the Company beginning with the fiscal year ended
January 1997 and ending with the fiscal year ended January 2000. Upon a
determination by the Compensation Committee that the Company has not achieved
the required levels of operating cash flow and total net cash flow from
operations by January 29, 2000, the options which remain unvested shall
nevertheless vest and become exercisable as of October 5, 2000. The
Compensation Committee periodically reviews the 1990 Option Plan and may, in
good faith, adjust the specified cash flow levels to reflect unanticipated major
events such as catastrophic occurrences and mergers and acquisitions. The
Compensation Committee may, in its sole discretion, elect to accelerate the
vesting of all or any portion of any option.
21
<PAGE>
The holders of options granted under the 1990 Option Plan (other than Mr.
Fernandez) have been granted limited special rights (the "Limited Rights") with
respect to all of the shares of Common Stock covered by such options (the
"Related Options"). The Limited Rights become exercisable in circumstances
where the Company has accelerated the Related Options in connection with a
business combination or sale of all or substantially all of the assets or
capital stock of the Company, in each case in which the holders of the Company's
Common Stock receive all cash consideration (an "Extraordinary Corporate
Event"). Upon the exercise of a Limited Right, the Related Option ceases to be
exercisable to the extent of the shares with respect to which the Limited Right
is exercised, and an optionee would receive, for each share of underlying Common
Stock, a cash payment equal to the excess of (i) the cash per share of Common
Stock received by the holders of Common Stock in connection with the
Extraordinary Corporate Event, over (ii) the option price per share of Common
Stock underlying the Related Option.
1995 Option Plan. The Company has adopted its 1995 Stock Option Plan (the
"1995 Option Plan") which provides for the granting of either non-qualified or
incentive stock options to officers and key employees of the Company, including
directors who are also employees. Notwithstanding the foregoing, only officers
and key employees who do not own capital stock possessing more than 10% of the
total combined voting power or value of all classes of capital stock of the
Company or the Subsidiary shall be eligible to receive grants of options. As of
January 31, 1998, an aggregate of 500,000 shares of Common Stock have been
reserved for issuance under the 1995 Option Plan.
The 1995 Option Plan is administered by the Compensation Committee.
Options terminate as determined by the Compensation Committee and specified in
each Option Agreement; provided, that such termination date shall be not later
than ten years from the date such option is granted, subject to earlier
termination upon an optionee's termination of employment, in connection with
certain extraordinary corporate transactions, or as otherwise set forth in each
particular Option Agreement.
The purchase price per share of the shares of Common Stock underlying each
option and the vesting schedule for each option will be determined by the
Compensation Committee; provided, that the option price of any incentive stock
option shall not be less than the fair market value of the underlying shares at
the time the incentive stock option is granted, as determined by the
Compensation Committee in accordance with the formula specified in the 1995
Option Plan.
1996 Directors Plan. The Company has adopted its 1996 Non-Employee
Directors Stock Option Plan (the "1996 Directors Plan") which provides for the
granting of non-qualified stock options to Outside Directors of the Company.
The 1996 Directors Plan permits each Outside Director to elect, on the date of
each annual meeting at which he or she is elected or reelected, to receive an
option to purchase shares of the Company's Common Stock in lieu of being paid
that part of the director's fee that is not dependent upon attendance at
meetings or services as a chairperson for the ensuing year (the "Retainer Fee").
If the Outside Director make such an election, on the six-month anniversary of
the date of the election (the "Date of Grant"), such Outside Director will be
granted an option exercisable for a number of shares of the Company's Common
Stock equal to the amount of the Outside Director's Retainer Fee divided by 20%
of the fair market value of a share of Common Stock at the close of business on
the Date of Grant. The exercise price for any such option will be 80% of the
fair market value of the Company's Common Stock on the Date of Grant. These
options vest and are exercisable on the date of the annual meeting of
stockholders following the Date of Grant. All options granted under the 1996
Directors Plan expire on the earlier of the tenth anniversary of the Date of
Grant or six months after the recipient of the option ceases to be a Director.
As of January 31, 1998, an aggregate of 75,000 shares of Common Stock have been
reserved for issuance under the 1996 Directors Plan.
The Company did not grant any stock options to its Named Executive Officers
during 1997.
22
<PAGE>
The following table sets forth information concerning the aggregate number
of options exercised during 1996 by each of the Named Executive Officers, and
outstanding options held by each such officer at January 31, 1998.
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
JANUARY 31, 1998 (#) JANUARY 31, 1998 ($)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------ ----------------- ---------------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Joseph H. Fernandez -- -- 107,456 / 146,140 838,210 / 1,140,608
Joseph M. Livorsi -- -- 6,000 / 9,000 45,750 / 68,625
Louis J. Rizzo -- -- 12,000 / 12,000 93,375 / 97,125
Wayne S. Peterson -- -- 12,000 / 20,334 93,375 / 169,672
John E. Sullivan -- -- 8,000 / 27,666 62,250 / 235,943
</TABLE>
___________________
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market as of January 31, 1998 was $15.375 per share.
As of January 31, 1998, options for the purchase of 64,666 shares of Common
Stock, at a purchase price of $6.67 per share, and options for the purchase of
56,140 shares of Common Stock, at a purchase price of $7.125 per share, were
outstanding under the 1990 Option Plan, and options for the purchase of 330,694
shares remained available for issuance. Also as of January 31, 1998, options
for the purchase of 107,000 shares of Common Stock, at a purchase price of $7.75
per share, options for the purchase of 110,900 shares of Common Stock, at a
purchase price of $7.125 per share, options for the purchase of 300 shares of
Common Stock, at a purchase price of $7.375 per share, options for the purchase
of 2,000 shares of Common Stock, at a purchase price of $8.125 per share,
options for the purchase of 100,000 shares of Common Stock, at a purchase price
of $8.131 per share, options for the purchase of 15,900 shares of Common Stock,
at a purchase price of $9.375 per share, and options for the purchase of 9,000
shares of Common Stock, at a purchase price of $8.625 per share, were
outstanding under the 1995 Option Plan, and options for the purchase of 149,325
shares remained available for issuance. In addition, as of January 31, 1998,
options for the purchase of 6,250 shares of Common Stock, at a purchase price of
$6.40 per share, and options for the purchase of 9,524 shares of Common Stock,
at a purchase price of $8.40 per share, were outstanding under the 1996
Directors Plan. As of January 31, 1998, options for the purchase of 22,456
shares of Common Stock, at a purchase price of $7.125 per share, and options for
the purchase of 15,000 shares of Common Stock, at a purchase price of $6.725 per
share, were outstanding outside of the Company's option plans.
TRANSACTIONS IN CONNECTION WITH PROPOSED PURCHASE BY ALBERTSON'S
Option Payment Agreements. In connection with the Offer, the Company
intends to enter into separate option payment agreements (collectively, the
"Payment Agreements") with holders of outstanding options to purchase Shares
("Options") under the 1993 Special Option Plan, the 1995 Option Plan and the
1996 Option Plan (collectively, the "Stock Option Plans") and intends to enter
into an option payment agreement with Joseph H. Fernandez, with respect to
56,140 shares subject to an option (the "Performance Option") under the
Company's 1990 Option Plan. The Payment Agreements will describe, as
applicable, the various termination and acceleration provisions of the Stock
Option Plans that are triggered by the Offer and will provide for the surrender
to the Company of all Options, following consummation of the Offer, for an
amount in cash equal to the excess of the Offer Price over the applicable
exercise price per share of the Options and less all taxes required to be
withheld from such payment (the "Option Consideration"). The Payment Agreement
with Mr. Fernandez will describe the decision of the Board to accelerate the
vesting of the Performance Option with respect to 28,070 of the Shares covered
thereby to the time of acceptance of Shares for payment and purchase pursuant to
the Offer and provide for payment of the Option Consideration with respect to
such Shares following consummation of the Offer. The Payment Agreements for
Outside Directors will also describe the Board's decision to accelerate to the
time of acceptance of Shares for payment and purchase pursuant to the Offer the
vesting of options to purchase an aggregate of 9,524 Shares granted under the
1996 Option Plan. The
23
<PAGE>
Payment Agreements will further provide that payment of the Option Consideration
is subject to and contingent upon both the acceptance of the Shares for payment
and purchase pursuant to the Offer and the surrender by the optionholder of the
Options.
Severance and Other Arrangements. Pursuant to a letter agreement dated as
of January 19, 1998 (the "Letter Agreement"), Albertson's has agreed to provide
certain severance and retention benefits to certain employees of the Company,
including the Company's officers, upon consummation of the Offer. Under the
severance program, an employee, including any officer, who is terminated, other
than for cause, within six months of the closing of the purchase of the Company
will receive a cash severance payment of 1-1/2 weeks of pay for each full year
of service with the Company, with a minimum payment of $3,000 for employees with
at least one full year of service and $1,500 for employees with less than one
full year of service. Executive officers with current employment or severance
agreements may elect to receive the payment specified above or the payment
provided for in such agreement, but not both. In addition, the COBRA premiums
for medical benefits will be paid for three months following the last day of
employment.
As authorized by the Board at its January 19, 1998 meeting, the Company
will enter into certain retention agreements (the "Retention Agreements") with
all executive officers other than Mr. Fernandez and with certain employees of
the Company. These Retention Agreements, which were approved by Albertson's in
the Letter Agreement, will provide that each of these officers and employees
will receive a specified retention incentive bonus ranging from $20,000 to
$120,000 if such officer or employee remains employed with the Company until 60
days after consummation of the Offer. Further, such bonuses will be paid if
employment is involuntarily terminated prior to the expiration of such 60 day
period, unless such termination is "for cause," and shall also be paid if
employment is terminated by such employee with "good reason," prior to the
expiration of such 60 day period, with "for cause" and "good reason" customarily
defined. The retention incentive bonuses will also be paid in the event that
such officer or employee dies or is permanently disabled prior to the expiration
of such 60 day period.
FSEP II, the majority stockholder of the Company, will also enter into
agreements with each of Wayne S. Peterson, Senior Vice President, Chief
Financial Officer and Secretary, and Louis J. Rizzo, Senior Vice President --
Retail Operations and Store Development, providing that each of these executive
officers will receive a closing bonus of $40,000 and $20,000, respectively, from
the Major Stockholder if such officer remains employed with the Company until
the consummation of the Offer. These bonuses will also be paid if employment is
involuntarily terminated prior to the consummation of the Offer, unless such
termination is "for cause" and shall also be paid if employment is terminated
prior to the consummation of the Offer by the officer for "good reason," with
"for cause" and "good reason" customarily defined. The closing bonus will also
be paid upon the death or permanent disability of such officer. Notwithstanding
the foregoing, neither officer shall be entitled to receive the closing bonus if
the Offer is not consummated for any reason.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1997, the Compensation Committee was comprised of Messrs. Gannon,
Simmons, Sodini and Spogli, each an independent non-employee director of the
Company. During 1997, none of the members of the Company's Compensation
Committee had any interlocking relationships as defined by the Commission.
24
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16") requires the Company's
directors and certain of its officers, and persons who own more than 10 percent
of a registered class of the Company's equity securities (collectively,
"Insiders") to file reports of ownership and changes in ownership with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16 forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5s were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16 filing requirements for 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 23, 1998 by (i) each person who is
known by the Company to be the beneficial owner of more than 5% of the Common
Stock, (ii) each director and Named Executive Officer of the Company,
individually, and (iii) all current directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNERSHIP OUTSTANDING
BENEFICIAL OWNER(1) OF COMMON STOCK COMMON STOCK
------------------ --------------------- ------------
<S> <C> <C>
Freeman Spogli & Co. (2).................. 4,389,879 50.8%
J. Frederick Simmons...................
Ronald P. Spogli.......................
William M. Wardlaw.....................
Merrill Lynch & Co., Inc. (3)............. 416,900 4.8
Franklin Resources, Inc. (4).............. 656,000 7.6
Pioneering Management Corporation (5)..... 546,500 6.3
Joseph H. Fernandez (6)................... 345,292 2.6
Robert P. Gannon (7)...................... 6,206 *
Michael P. Malone......................... 1,100 *
Peter J. Sodini (8)....................... 47,381 *
Matt L. Figel (8)......................... 2,381 *
Thomas C. Young (7)....................... 6,506 *
Joseph M. Livorsi (9)..................... 15,000 *
Wayne S. Peterson (10).................... 38,084 *
Louis J. Rizzo (11)....................... 44,000 *
John E. Sullivan (12)..................... 56,127 *
All directors and executive
officers as a group (14 persons)........ 4,968,266(13) 55.3%
</TABLE>
______________
* Less than 1%.
(1) Except as otherwise indicated in this table and the notes thereto, the
persons named have sole voting power and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) All shares indicated are owned of record by FS Equity Partners II, L.P.
("FSEP"), of which Freeman Spogli & Co. ("FS&Co.") is the general partner.
As general partner, FS&Co. has the sole power to vote and dispose of such
shares. Messrs. Simmons, Spogli and Wardlaw (all of whom are directors of
the Company), Mr. Bradford M. Freeman and Mr. John M. Roth are general
partners of FS&Co., and as such may be deemed to be the beneficial owners
of the shares of Common Stock indicated as beneficially owned by FS&Co.
The business address of FS&Co., its general partners and FSEP is 11100
Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025.
25
<PAGE>
(3) As reported in a Schedule 13G dated January 30, 1998 filed jointly with the
Securities and Exchange Commission (the "Commission") by Merrill Lynch &
Co., Inc. ("Merrill Lynch"), Merrill Lynch Group, Inc. ("ML Group"),
Princeton Services, Inc. ("PSI"), Merrill Lynch Asset Management, L.P.
("MLAM") and Merrill Lynch Global Allocation Fund, Inc. ("Merrill Fund"),
Merrill Lynch, ML Group, PSI, MLAM and Merrill Fund have claimed shared
voting and dispositive power with respect to all such shares. Merrill
Lynch, ML Group and PSI are parent holding companies and have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G; MLAM is an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940 (the "Advisers Act"); and Merrill Fund
is an investment company registered under Section 8 of the Investment
Company Act of 1940.
(4) As reported in a Schedule 13G dated February 12, 1997 filed jointly with
the Commission by Franklin Resources, Inc. ("FRI"), Charles B. Johnson,
Rupert H. Johnson, Jr. and Franklin Advisory Services, Inc. ("FAS"), FAS
has claimed sole voting and dispositive power with respect to all such
shares. The securities of the Company reported in the Schedule 13G are
beneficially owned by one or more open or closed-end investment companies
or other managed accounts which are advised by direct and indirect
investment advisory subsidiaries (the "Advisor Subsidiaries") of FRI, the
principal shareholders of which are Messrs. Johnson and Johnson
(collectively, the "Principal Shareholders"). FRI, the Principal
Shareholders and each of the Advisor Subsidiaries have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G. The business address of FRI, Charles B. Johnson and Rupert
H. Johnson, Jr. is 777 Mariners Island Boulevard, San Mateo, California
94404. The business address for FAS is One Parker Plaza, Sixteenth Floor,
Ft. Lee, New Jersey 07024.
(5) As reported in a Schedule 13G dated January 5, 1998 filed with the
Commission by Pioneering Management Corporation ("Pioneering"), Pioneering
has claimed sole voting and dispositive power with respect to all such
shares. Pioneering is an investment adviser registered under Section 203
of the Advisers Act. The business address of Pioneering is 60 State
Street, Boston, Massachusetts 02109.
(6) Amount includes 150,526 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1998 and an additional 75,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 7,486 shares held by the Buttrey Company Retirement Estates,
the Company's retirement plan (the "BCRE") for the account of Mr.
Fernandez, based on a plan statement of the BCRE dated December 31, 1997.
(7) Amount includes 5,506 shares issuable upon exercise of options which will
become fully exercisable as of, or will become exercisable within 60 days
of, April 23, 1998.
(8) Amount includes 2,381 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1998.
(9) Amount includes 6,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1998 and an additional 9,000 shares issuable upon exercise of options which
will become fully exercisable if the Offer is consummated.
(10) Amount includes 18,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1998 and an additional 6,000 shares issuable upon exercise of options which
will become fully exercisable if the Offer is consummated. Amount also
includes 818 shares held by the BCRE for the account of Mr. Peterson, based
on a plan statement of the BCRE dated December 31, 1997.
(11) Amount includes 18,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1998 and an additional 6,000 shares issuable upon exercise of options which
will become fully exercisable if the Offer is consummated.
(12) Amount includes 12,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1998, and an additional 4,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 794 shares held by the BCRE for the account of Mr. Sullivan,
based on a plan statement of the BCRE dated December 31, 1997.
(13) Amount includes an aggregate of 224,413 shares issuable upon exercise of
options which are exercisable as of, or will become exercisable within 60
days of, April 23, 1998, and an additional 104,000 shares issuable upon
exercise of options which will become fully exercisable if the Offer is
consummated. Amount also includes an aggregate of 9,408 shares held by the
BCRE for the accounts of Messrs. Fernandez, Peterson, Rizzo, Sullivan and
Wright, based on a plan statement of the BCRE dated December 31, 1997.
26
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 1993, Mr. Fernandez purchased 112,280 shares of Common Stock at a
price of $7.125 pursuant to a Stock Subscription Agreement. Of the purchase
price for these shares, $400,000 was paid using a full recourse promissory note,
bearing interest at 7% per annum, payable quarterly, and secured by a pledge to
the Company of the 112,280 shares of Common Stock. In February 1994, Mr.
Fernandez executed a full recourse unsecured promissory note in the amount of
$40,000 in favor of the Company, bearing interest at 7% per annum, and payable
quarterly. As amended, these two promissory notes were due and payable in full
on March 1, 1998.
In April 1997, Mr. Fernandez executed two additional full recourse
promissory notes in favor of the Company, one in the amount of $125,000 which is
secured by a pledge to the Company of the 112,280 shares of Common Stock
purchased by Mr. Fernandez in March 1993, and one in the amount of $75,000 which
is unsecured. Each of these promissory notes bears interest at 9.25% per annum,
payable quarterly, and becomes due and payable in full on March 1, 2001.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a)(1) INDEX TO FINANCIAL STATEMENTS:
PAGE
NUMBER
------
<S> <C>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
Independent Auditors' Report........................................................................ F-1
Consolidated Balance Sheets - January 31, 1998, February 1, 1997 and February 3, 1996............... F-2
Consolidated Statements of Operations - For the Fiscal years ended January 31, 1998,
February 1, 1997 and February 3, 1996............................................................... F-3
Consolidated Statements of Stockholders' Equity - For the Fiscal years ended January 31,
1998, February 1, 1997 and February 3, 1996......................................................... F-4
Consolidated Statements of Cash Flows - For the Fiscal years ended January 31, 1998,
February 1, 1997 and February 3, 1996............................................................... F-5
Notes to Consolidated Financial Statements.......................................................... F-6
</TABLE>
(a)(1) INDEX TO FINANCIAL STATEMENT SCHEDULES:
None.
<TABLE>
<CAPTION>
(a)(2) EXHIBITS
EXHIBIT
-------
NUMBER DESCRIPTION
------ -----------
<S> <C>
3.1++ Certificate of Incorporation of the Company, as amended and currently in effect.
3.2+ Bylaws of the Company, as amended to date.
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
<S> <C>
10.1+ 1990 Employee Stock Subscription Plan of the Company, dated as of October 17, 1990
("Subscription Plan").
10.2+ Form of Stock Subscription Agreement by and among the Company, FSEP and three
management investors who purchased Common Stock under the Subscription Plan, dated
as of October 17, 1990 (with forms of Secured Promissory Note and Stock Pledge
Agreement attached as exhibits thereto).
10.3+ Form of Stock Subscription Agreement by and among the Company, FSEP and
management investors who purchased Common Stock under the Subscription Plan with
cash and promissory note, dated as of October 17, 1990 (with forms of Secured
Promissory Note and Stock Pledge Agreement attached as exhibits thereto).
10.4+ Form of Stock Subscription Agreement by and among the Company, FSEP and
management investors who purchased Common Stock under the Subscription Plan with
cash only, dated as of October 17, 1990 (with form of Stock Pledge Agreement attached
as an exhibit thereto).
10.5+ 1990 Nonqualified Performance Stock Option Plan of the Company, dated as of
October 17, 1990 ("Option Plan").
10.6+ Form of Nonqualified Performance Stock Option Agreement by and between the
Company and certain Participants under the Option Plan, dated as of November 8, 1990.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.7+ Form of Indemnity Agreement dated as of October 31, 1990 made by and between the
Company and Buttrey Food and Drug Company ("BFDC"), on the one hand, and each of
the members of the Board of Directors of the Company and of BFDC, on the other hand.
10.8+ Stock Subscription Agreement made and entered into as of October 17, 1990 by and
among the Company, FSEP and Peter J. Sodini.
10.9+ Employment Agreement dated as of October 31, 1990 entered into among the Company,
BFDC and Edward C. Agnew.
10.10+ Letter Agreement dated as of October 17, 1990 by and between the Company and
Edward C. Agnew.
10.11+ Form of Severance Agreement dated as of October 31, 1990 entered into among the
Company, BFDC and certain executives of the Company.
10.12+ Consulting Agreement made and entered into as of July 1, 1991 by and between BFDC
and Peter J. Sodini ("Sodini Consulting Agreement").
10.13+++ 1990 Nonqualified Performance Stock Option Plan of the Company, as amended and
restated as of July 21, 1992 ("Option Plan").
10.14+++ Form of Amendment to Nonqualified Performance Stock Option Agreement by and
between the Company and certain participants under the Option Plan.
10.15***** Extension and Modification to Consulting Agreement dated April 29, 1993 by and
between the Company and Peter J. Sodini.
10.16* Employment Agreement dated as of March 1, 1993 entered into among the Company,
BFDC and Joseph H. Fernandez ("Fernandez Employment Agreement").
10.17* Nonqualified Stock Option Agreement entered into as of March 1, 1993 by and between
the Company and Joseph H. Fernandez.
10.18* Letter Agreement dated March 1, 1993 by and between BFDC and Joseph H. Fernandez.
10.19*** Forms of Letter Amendment to Stock Subscription Agreements in connection with
refinancing of Secured Promissory Notes by and between the Company and certain
participants under the Subscription Plan.
10.20*** Form of Letter Agreement regarding Execution of New Promissory Notes in connection
with refinancing of Secured Promissory Notes by and between the Company and certain
participants under the Subscription Plan.
10.21***** Extension to Sodini Consulting Agreement dated October 28, 1993.
10.22***** Continuing Employment and Severance Agreement dated January 28, 1994 by and
between the Company and Edward C. Agnew.
10.23***** Nonqualified Stock Option Agreement entered into as of February 23, 1994 by and
between the Company and Joseph H. Fernandez.
10.24++++++++ 1995 Option Plan of the Company, dated as of April 24, 1995 ("1995 Option Plan").
10.25++++++++ Form of Nonqualified Stock Option Agreement entered into by and between the
Company and certain Participants under the 1995 Option Plan, dated as of April 25,
1995.
10.26++++++++ Form of Incentive Stock Option Agreement for certain Participants under the 1995
Option Plan.
10.27++++++++ Amendment dated March 10, 1995 to Fernandez Employment Agreement.
10.28** Extension to Sodini Consulting Agreement dated November 20, 1995.
10.29** Consulting Agreement and Release dated May 23, 1995 by and between the Company
and H.N. Dusenberry.
10.30***** Amendment dated April 24, 1995 to Fernandez Employment Agreement.
10.31***** Amendment dated August 29, 1996 to Fernandez Employment Agreement.
10.32***** Letter Agreement dated April 7, 1997 by and among the Company, FSEP and Joseph H.
Fernandez.
10.33***** Secured Promissory Note made by Joseph H. Fernandez in favor of the Company dated
April 7, 1997.
10.34***** Promissory Note made by Joseph H. Fernandez in favor of the Company dated April 7,
1997.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.35***** Extension and Modification to Sodini Consulting Agreement dated November 25, 1996.
10.36***** 1996 Non-Employee Directors Stock Option Plan of the Company, dated as of April 26,
1996 (the "1996 Directors Plan").
10.37***** Form of Nonqualified Stock Option Agreement entered into by and between the
Company and certain directors under the 1996 Directors Plan.
OTHER MATERIAL CONTRACTS
------------------------
10.38+ Asset Purchase Agreement made as of the 15th day of August 1990 by and between
Skaggs Alpha Beta, Inc.
10.39+ Noncompetition Agreement made as of October 31, 1990 by and between BFDC,
American Stores Company ("ASC") and Skaggs.
10.40+ Supply Agreement made as of the 31st day of October, 1990 by and between ASC and
BFDC.
10.41++++ Amended and Restated Credit Agreement dated as of April 28, 1992 by and among the
Company, BFDC, Bankers Trust Company as Agent, and the various Lenders listed
therein.
10.42+ Company Security Agreement dated as of October 31, 1990 made by BFDC to Bankers
Trust Company.
10.43+ Environmental Indemnity entered into as of October 31, 1990 by ASC and Skaggs to and
for the benefit of the Company and BFDC.
10.44+ Loan Commitment made as of the 31st day of October, 1990 by Skaggs in favor of
BFDC.
10.45+ Promissory Note executed by BFDC in favor of Skaggs, in the amount of $2,800,000,
dated as of October 31, 1991.
10.46+ Securities Purchase Agreement dated as of October 31, 1990 among the Company,
BFDC and each of the Purchasers listed therein.
10.47+ Form of Common Stock Purchase Warrant, dated as of October 31, 1990, issued to each
of the Purchasers pursuant to the Securities Purchase Agreement.
10.48+ Equity Rights Agreement dated as of October 31, 1990 among the Company, FSEP and
the Purchasers.
10.49+ Environmental Indemnity entered into as of October 31, 1990 by BFDC to and for the
benefit of the Purchasers.
10.50+ Stock Subscription Agreement made and entered into as of October 31, 1990 by and
among the Company, FSEP and Bankers Trust New York Corporation.
10.51+ Stock Subscription Agreement made and entered into as of October 31, 1990 by and
among the Company, FSEP and Morgan Capital Corporation.
10.52+ Stock Subscription Agreement made and entered into as of October 31, 1990 by and
among the Company, FSEP and Buttrey Investors L.P.
10.53+ Loan and Security Agreement dated as of August 23, 1991 entered into by and between
BFDC and The CIT Group/Equipment Financing, Inc.
10.54+++ First Amendment to Loan and Security Agreement entered into by and between the
Company and the CIT Group/Equipment Financing, Inc. dated as of August 6, 1992.
10.55** Second Amendment dated as of May 10, 1993 to Loan and Security Agreement dated as
of August 23, 1991 by and between the Company and the CIT Group/Equipment
Financing, Inc.
10.56**** First Amendment dated as of August 27, 1993 to Amended and Restated Credit
Agreement dated as of April 28, 1992 by and among the Company, Bankers Trust
Company as Agent and the various Lenders listed therein.
10.57***** Letter dated as of December 3, 1993 relating to Loan and Security Agreement dated as
of August 23, 1991 and amended as of May 10, 1993 by and between the Company and The
CIT Group/Equipment Financing, Inc.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
-------
NUMBER DESCRIPTION
------ -----------
<S> <C>
10.58***** Second Amendment dated as of April 22, 1994 to Amended and Restated Credit
Agreement dated as of April 28, 1992 by and among the Company, Bankers Trust
Company as Agent and the various Lenders listed therein.
10.59++ Loan Agreement made the 5th day of July, 1994 by and between BFDC and TriCon
Capital.
10.60++ Security Agreement made the 5th day of July, 1994 by and between BFDC and TriCon
Capital.
10.61++ Guaranty dated July 5, 1994 made by BFDC, as Guarantor, in favor of TriCon Capital.
10.62++++ Asset Purchase Agreement dated August 15, 1995 by and among the Company, BFDC,
Thrifty Foods of Eastern Washington, Inc. ("Thrifty") and Associated Grocers,
Incorporated ("AGI").
10.63++++ Asset Purchase Agreement dated August 15, 1994 by and among the Company, BFDC
and AGI.
10.64++++ Real Estate Purchase and Sale Agreement dated August 15, 1994 by and among BFDC,
Supermarket Development Corporation ("SDC") and AGI, concerning real property
located in Richland, Washington.
10.65++++ Real Estate Purchase and Sale Agreement dated August 15, 1994 by and among BFDC,
SDC and AGI, concerning real property located in Kennewick, Washington.
10.66++++++ Wholesale Supply Agreement made and entered into as of November 15, 1994 by and
between Associated Food Stores, Inc. and BFDC.
10.67++++++ Agreement of Purchase and Sale made and entered into as of November 15, 1994 by and
between BFDC and Associated Food Stores, Inc.
10.68++++++++ Third Amendment dated as of December 12, 1994 to Loan and Security Agreement
dated as of August 23, 1991 and amended as of May 10, 1993 by and between the
Company and The CIT Group/ Equipment Financing, Inc.
10.69* Note and Security Agreement made the 8th day of August, 1995 by and between BFDC
and NationsBanc Leasing Corporation.
10.70* Guaranty dated August 14, 1995 made by BFDC, as Guarantor, in favor of NationsBanc
Leasing Corporation.
10.71* Financing Agreement made the 7th day of September, 1995 by and between BFDC and
The CIT Group/Business Credit, Inc. and The CIT Group/Equipment Financing, Inc.
10.72* Guaranty dated September 7, 1995 made by the Company, as Guarantor, in favor of The
CIT Group/Business Credit, Inc. as Agent.
10.73*** Letter Amendment dated August 5, 1996 to Financing Agreement dated September 7,
1995 by and among the Company, CITBC and CEF.
10.74**** Letter Amendment dated August 1, 1997 to Financing Agreement dated September 7,
1995 by and among the Company, CITBC and CEF.
10.75****** Agreement and Plan of Merger, dated as of January 19, 1998, by and among the
Company, Purchaser and Parent.
10.76****** Tender and Option Agreement, dated as of January 19, 1998, by and among Purchaser,
Parent, the Company and the Major Stockholder.
10.77****** Press release issued by the Company on January 20, 1998.
10.78****** Fairness Opinion of Morgan Stanley, dated as of January 19, 1998.
10.79****** Letter to Stockholders, dated as of January 26, 1998, from Joseph H. Fernandez,
Chairman of the Board, President and Chief Executive Officer of the Company.
10.80****** Confidentiality Agreement, dated as of December 22, 1997, between FS&Co., on behalf
of the Company, and Parent.
10.81******* Press Release of the Company dated, February 23, 1998.
10.82******* Extension, Early Termination and Waiver Agreement, dated as of February 23, 1998, by
and among Parent, Purchaser and the Company.
22.1+ Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedules.
</TABLE>
31
<PAGE>
<TABLE>
________________
<S> <C>
+ Filed as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-44646)
on December 20, 1991.
++ Filed as an exhibit to the Company's Registration Statement on Form 8-A (File No. 0-19802) on
January 16, 1992.
+++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
August 1, 1992 (File No. 0-19802) on September 15, 1992.
* Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended January 30,
1993 (File No. 0-19802) on April 30, 1993.
** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1,
1993 (File No. 0-19802) on June 15, 1993.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31,
1993 (File No. 0-19802) on September 14, 1993.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 30, 1993 (File No. 0-19802) on December 14, 1993.
***** Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended January 29,
1994 (File No. 0-19802) on April 29, 1994.
++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 30,
1994 (File No. 0-19802) on September 12, 1994.
++++ Filed as an exhibit to the Company's Current Report on Form 8-K (File No. 0- 19802) on August 30, 1994.
++++++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 29, 1994 (File No. 0-19802) on December 12, 1994. Certain portions of Exhibit 10.58 have been
omitted from the copies filed as part of the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 29, 1994 and are the subject of an order granting confidential treatment with
respect thereto.
++++++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended January 28,
1995 (File No. 0-19802) on April 28, 1995.
* Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 29,
1995 (File No. 0-19802) on September 12, 1995.
** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996 (File No. 0-19802) on May 3, 1996.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August 3,
1996 (File No. 0-19802) on September 17, 1996.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended August
2, 1997 (File No. 0-19802) on September 16, 1997.
***** Filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended February 1,
1997 (File No. 0-19802) on May 1, 1997.
****** Filed as an exhibit to the Company's Form 14D-9 dated January 26, 1998.
******* Filed as an exhibit to the amendment to the Company's Form 14D-9 dated March 2, 1998.
</TABLE>
(b) REPORTS ON FORM 8-K
None.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 30, 1998 Buttrey Food and Drug Stores Company
By: /s/ Joseph H. Fernandez
-----------------------------------
Joseph H. Fernandez
Chairman of the Board, President
and Chief Executive Officer
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 and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Joseph H. Fernandez Chairman of the Board, President April 30, 1998
----------------------------- and Chief Executive Officer
Joseph H. Fernandez (Principal Executive Officer)
/s/ Wayne S. Peterson Senior Vice President, Chief April 30, 1998
- ----------------------------- Financial Officer and Secretary (Principal
Wayne S. Peterson Financial Accounting Officer)
/s/ Matt L. Figel
- --------------------------- Director April 30, 1998
Matt L. Figel
/s/ Robert P. Gannon
- --------------------------- Director April 30, 1998
Robert P. Gannon
/s/ Michael P. Malone
- --------------------------- Director April 30, 1998
Michael P. Malone
/s/ J. Frederick Simmons
- -------------------------- Director April 30, 1998
J. Frederick Simmons
- -------------------------- Director April , 1998
Peter J. Sodini
/s/ Ronald P. Spogli
- --------------------------- Director April 30, 1998
Ronald P. Spogli
/s/ William M. Wardlaw
- --------------------------- Director April 30, 1998
William M. Wardlaw
Director April , 1998
- ---------------------------
Thomas C. Young
</TABLE>
33
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Board of Directors and Stockholders
Buttrey Food and Drug Stores Company:
We have audited the accompanying consolidated balance sheets of Buttrey Food and
Drug Stores Company and subsidiary as of January 31, 1998, February 1, 1997 and
February 3, 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the fiscal years in the three-
year period ended January 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Buttrey Food and
Drug Stores Company and subsidiary at January 31, 1998, February 1, 1997 and
February 3, 1996, and the results of their operations and their cash flows for
each of the fiscal years in the three-year period ended January 31, 1998, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Billings, Montana
April 10, 1998
F-1
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(Amounts in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year end, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,173 5,075 6,140
Accounts receivable 5,671 4,905 4,488
Inventories 45,230 42,741 43,304
Prepaid expenses 1,352 1,514 1,230
Deferred tax asset 694 544 1,271
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 58,120 54,779 56,433
Property and equipment, at cost 167,758 152,900 130,174
Less accumulated depreciation 64,312 54,417 45,765
- ---------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 103,446 98,483 84,409
Intangible assets, net 6,573 4,145 3,259
Other assets 759 591 530
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $168,898 157,998 144,631
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 12,743 6,128 2,205
Current obligations under capital leases 483 428 379
Accounts payable 17,773 18,561 16,345
Accrued payroll and benefits 8,031 7,552 7,530
Accrued expenses and reserves 3,491 4,869 5,106
Accrued interest payable 169 131 111
Notes payable - - 20
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 42,690 37,669 31,696
Long-term debt 20,456 18,569 13,510
Obligations under capital leases 8,475 8,957 9,385
Deferred tax liability 1,950 905 1,735
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 73,571 66,100 56,326
Commitments and contingencies
Stockholders' equity:
Preferred stock $.01 par value, authorized 1,000,000 shares - - -
Common stock $.01 par value, authorized 15,000,000 shares;
issued and outstanding 8,644,631 shares at the end of
fiscal 1997 and 8,639,056 shares at the end of fiscal
years 1996 and 1995 86 86 86
Paid-in capital 79,174 79,133 79,133
Retained earnings 16,592 13,079 9,486
- ---------------------------------------------------------------------------------------------------------
95,852 92,298 88,705
Less stock subscriptions receivable 525 400 400
- ---------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 95,327 91,898 88,305
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $168,898 157,998 144,631
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $391,373 371,302 368,135
Cost of sales and related occupancy expenses 294,368 284,134 280,242
- --------------------------------------------------------------------------------------------
GROSS PROFIT 97,005 87,168 87,893
Marketing, general and administrative expenses 86,859 79,609 81,830
- --------------------------------------------------------------------------------------------
OPERATING INCOME 10,146 7,559 6,063
Other income (expense):
Gain (loss) on disposal of assets (95) (50) 251
Interest income 131 132 320
Interest expense (3,287) (2,909) (2,865)
Interest expense - income tax settlement (1,274) - -
- --------------------------------------------------------------------------------------------
(4,525) (2,827) (2,294)
- --------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY CHARGE 5,621 4,732 3,769
Income tax expense 2,108 1,139 1,419
- --------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY CHARGE 3,513 3,593 2,350
Extraordinary charge, net of income tax benefit - - (51)
- --------------------------------------------------------------------------------------------
NET INCOME $ 3,513 3,593 2,299
============================================================================================
Net income per share:
Basic $ .41 .42 .27
Diluted .40 .41 .27
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(Amounts in Thousands, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK
COMMON PAID-IN RETAINED SUBSCRIPTIONS STOCKHOLDERS'
STOCK CAPITAL EARNINGS RECEIVABLE EQUITY
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 28, 1995 $ 86 79,133 7,187 (438) 85,968
Payments on stock subscriptions - - - 38 38
Net income - - 2,299 - 2,299
- -----------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 3, 1996 86 79,133 9,486 (400) 88,305
- -----------------------------------------------------------------------------------------------------------
Net income - - 3,593 - 3,593
- -----------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 1, 1997 86 79,133 13,079 (400) 91,898
- -----------------------------------------------------------------------------------------------------------
Stock options exercised - 41 - - 41
Stock subscriptions issued - - - (125) (125)
Net income - - 3,513 - 3,513
- -----------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 31, 1998 $86 79,174 16,592 (525) 95,327
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
(Amounts In Thousands)
- ---------------------------------------------------------------------------------------------------------
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,513 3,593 2,299
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 10,326 8,755 10,532
Amortization 581 300 289
Deferred income taxes 672 (103) (32)
Extraordinary charge on debt retirement - - 85
Loss (gain) on sale of property and equipment 96 50 (251)
Changes in operating assets and liabilities:
Accounts receivable (766) (417) (915)
Inventories (2,489) 563 5,406
Prepaid expenses 162 (284) 130
Accounts payable (788) 2,216 (3,230)
Accrued payroll and benefits 479 22 411
Accrued expenses and reserves (1,378) (237) 220
Accrued interest payable 38 20 (349)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,446 14,478 14,595
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of property and equipment (15,389) (22,929) (10,072)
Proceeds from sales of property and equipment, net 4 50 3,490
Increase in intangible and other assets (2,954) (1,247) (272)
- ---------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (18,339) (24,126) (6,854)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Stock subscriptions collected (issued) (125) - 38
Stock options exercised 41 - -
Payments on long-term debt (43,614) (3,201) (32,034)
Proceeds from issuance of long-term debt 52,116 12,183 14,024
Payments on capital lease obligations (427) (379) (336)
Payments on notes payable - (20) (58)
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,991 8,583 (18,366)
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 98 (1,065) (10,625)
Cash and cash equivalents at beginning of period 5,075 6,140 16,765
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,173 5,075 6,140
=========================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,404 2,720 3,235
Income taxes 3,265 1,971 1,479
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND ORGANIZATION. Buttrey Food and Drug Stores
Company (the "Company"), through its wholly-owned subsidiary Buttrey Food
and Drug Company, commenced operations October 31, 1990 after the purchase
of substantially all of the assets of the Buttrey division ("Predecessor
Division") of Skaggs Alpha Beta, Inc. ("SAB"), an indirect wholly-owned
subsidiary of American Stores Company ("ASC").
As of January 31, 1998, the Company operated 43 retail food and drug stores
in three states in the northwest United States. Thirty-two of these stores
are located in 21 communities throughout the state of Montana.
FISCAL YEAR END. The Company's fiscal year ends on the Saturday nearest to
January 31 in each year. Unless otherwise noted, reference to a fiscal year
refers to the calendar year in which such fiscal year commences. Fiscal year
1997 and 1996 include 52 weeks whereas fiscal 1995 includes 53 weeks.
CASH EQUIVALENTS. For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with original maturities of
three months or less to be cash equivalents.
INVENTORIES. Inventories are stated at the lower of cost or market. Cost is
determined using the last-in, first-out method for substantially all
inventories.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost. Property
and equipment under capital leases are recorded at the present value of
minimum lease payments at the inception of the lease.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Property and equipment
held under capital leases and leasehold improvements are amortized straight-
line over the shorter of the lease term or estimated useful life of the
asset. The depreciable lives are primarily 25 to 40 years for buildings, 4
to 10 years for machinery, equipment and fixtures and generally 5 to 30
years for leasehold improvements and property under capital leases,
depending on the term of the lease. Amortization of assets under capital
leases is included with depreciation expense.
REVENUE. The Company's revenue is received primarily from merchandise sold
through its Company-owned retail stores. The costs of distribution center
operations are included in cost of sales and related occupancy expenses.
INCOME TAXES. Deferred tax assets and liabilities are recognized for the
estimated future consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. The current and noncurrent portions of these deferred
tax assets and liabilities are classified in the balance sheet based on the
respective classification of the assets and liabilities which give rise to
such deferred taxes. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
STORE OPENING AND CLOSING COSTS. Noncapital expenditures incurred in opening
new stores or remodeling existing stores are expensed in the year in which
the stores are opened. When the Company commits to a formal plan to close a
store, the remaining investment in fixtures and leasehold improvements, net
of expected salvage, is expensed. The Company also expenses the present
value of any remaining liability for a closed store lease, net of expected
sublease recoveries.
AMORTIZATION. The excess of acquisition cost over net assets acquired
("Goodwill") is being amortized on a straight-line basis over forty years.
The costs of all other intangible assets are amortized on a straight-line
basis over their respective estimated economic lives ranging from three to
five years.
DEBT ISSUANCE COSTS. Debt issuance costs are being amortized using
the interest method over the life of the related debt as a component of
interest expense.
F-6
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments
consist primarily of cash equivalents and short-term trade receivables and
payables which carrying amounts approximate fair value. See Note 6 for fair
value disclosures of long-term debt.
ADVERTISING. The Company expenses the production costs of advertising the
first time the advertising takes place. Advertising expense, net of
reimbursements, was $2,017, $1,608 and $1,222 for fiscal 1997, 1996 and
1995, respectively.
SELF-INSURANCE ACCRUALS. The Company is self-insured with respect to non-
union employee medical and disability claims up to specified limits per
claim. The expenses associated with self-insured claims are provided based
on estimated amounts required to cover incurred claims. An accrual
aggregating $462 is included in "accrued payroll and benefits" to provide
for unsettled and estimated incurred but unreported claims.
The Company also maintains insurance coverage with respect to workers
compensation risks under contractual arrangements which retroactively
adjust insurance premiums for claims paid subject to specified limitations.
PER SHARE DATA. Basic earnings per share is computed by dividing earnings
by the weighted average number of common shares outstanding. Diluted
earnings per share includes the dilutive effect of options and warrants
outstanding determined using the treasury stock method.
USE OF ESTIMATES. Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived tangible and intangible assets
are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Impairment of these assets is determined by a comparison of the carrying
amount of an asset to its undiscounted future net cash flows. If such
assets are determined to be impaired, an impairment loss is recognized to
the extent the carrying amount of the assets exceeds the fair value of the
assets.
STOCK BASED COMPENSATION. The Company accounts for stock based compensation
issued to employees in accordance with the provisions of Accounting
Principles Board ("APB") Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense for
stock options is recorded over the related service period if the current
market price of the underlying stock exceeds the option exercise price at
the date of grant.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1996 and
1995 amounts to conform to the 1997 presentation.
(2) INVENTORIES
Substantially all of the Company's inventories are valued using the last-
in, first-out method ("LIFO"). If the first-in, first-out method had been
used, inventories would have been $1,280 lower at January 31, 1998. This
difference results from the higher costs of inventory in place at the
acquisition date (versus the lower costs of inventory acquired direct from
suppliers) less the effects of increasing prices thereafter. The Company
recorded a net LIFO provision of $69, $362 and $320 for fiscal 1997, 1996
and 1995, respectively. During the fiscal years 1996 and 1995, the Company
liquidated certain LIFO inventories that were carried at the higher
acquisition cost. The effect of these liquidations was to decrease
operating income by $47, or $.01 per share in fiscal 1996 and $112, or $.01
per share in fiscal 1995. Gain on sale of assets in fiscal 1995 includes a
reduction of $565 for the effects of such liquidations related to
inventories included in asset sales.
F-7
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
(Amounts In Thousands, Except Share and Per Share Data)
- --------------------------------------------------------------------------------
(3) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following:
January 31, February 1, February 3,
Fiscal year end, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 13,246 13,244 12,400
Buildings and improvements 50,412 48,353 39,337
Assets under capital leases 11,133 11,133 11,133
Furniture and equipment 77,912 68,115 59,424
Leasehold improvements 12,049 5,876 5,499
Construction in progress 3,006 6,179 2,381
- ---------------------------------------------------------------------------------------------------------
Property and equipment, at cost $167,758 152,900 130,174
=========================================================================================================
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year end, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt issuance costs $ 129 178 228
Goodwill 5,320 2,968 2,950
Non-compete agreements 1,083 936 -
Other 41 63 81
- ---------------------------------------------------------------------------------------------------------
Intangible assets, net $ 6,573 4,145 3,259
=========================================================================================================
</TABLE>
As a result of the income tax settlement (see note 12), an adjustment to
increase goodwill in the amount of $2,092 was recorded in 1997.
Accumulated amortization on intangible assets not fully amortized was $1,387,
$806 and $505 at fiscal year end 1997, 1996 and 1995, respectively.
As a result of early retirements of debt, the Company recorded an extraordinary
charge of $85 ($51 on an after-tax basis) during fiscal 1995 for the write-off
of unamortized debt issuance costs and redemption premiums incurred.
(5) LEASES
The Company is obligated under capital leases for certain retail stores that
expire at various dates from 1998 to 2017. The gross amount of property and
related accumulated amortization recorded under capital leases are as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year end, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings and improvements $11,133 11,133 11,133
Less accumulated amortization 4,264 3,597 2,931
- ---------------------------------------------------------------------------------------------------------
Assets under capital leases, net $6,869 7,536 8,202
=========================================================================================================
</TABLE>
F-8
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The Company also has several noncancelable operating leases, primarily for
retail stores, that expire over the next ten years. These leases generally
contain multiple renewal periods ranging from five to twenty years and
require the Company to pay all executory costs such as maintenance and
insurance. Rent expense for operating leases consists of the following:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $2,102 1,863 1,734
Contingent rentals 293 267 271
- ---------------------------------------------------------------------------------------
Sublease rentals (840) (877) (741)
Rent expense for operating leases, net $ 1,555 1,253 1,264
=======================================================================================
</TABLE>
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) and the present
value of future minimum capital lease payments as of January 31, 1998 are as
follows:
<TABLE>
Operating Capital
leases leases
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Fiscal year:
1998 $ 1,966 1,421
1999 1,888 1,278
2000 1,531 1,266
2001 1,379 1,266
2002 973 842
Later years, through 2018 4,226 13,089
- -----------------------------------------------------------------------------------------------
Total minimum lease payments $11,963 19,162
- -----------------------------------------------------------------------------------------------
Less amount representing interest (at rates from 9.5% to 14.5%) 10,204
- -----------------------------------------------------------------------------------------------
Present value of net minimum capital lease payments 8,958
Less current installments of obligations under capital leases 483
- -----------------------------------------------------------------------------------------------
Obligations under capital leases, excluding current installments $ 8,475
===============================================================================================
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year end, 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowings under Financing Agreement:
Equipment note; monthly payments of $96 plus
interest at either Chemical Bank prime plus
1.0% or the London interbank offered rate
("LIBOR") plus 2.25% $ 5,304 6,460 7,618
Equipment note; monthly payments of $56 plus
interest at either Chemical Bank prime plus
1.5% or LIBOR plus 2.65% 3,077 3,749 4,420
</TABLE>
F-9
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year end, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equipment note; monthly payments of $83 plus
interest at either Chemical Bank prime plus
1.5% or LIBOR plus 2.25% 3,500 4,500 -
Revolving credit facility, monthly interest payments
at either Chemical Bank prime plus .5% or
LIBOR plus 2% 6,350 1,600 -
10.05% seller financing, semi-annual payments of $164,
including interest, maturing October 2001 2,433 2,510 2,580
Equipment note, monthly payments of $26 plus interest
at LIBOR plus 2.65%, maturing August 1999 510 791 1,097
8.03% equipment note, monthly payments of $84,
including interest, maturing June 2000 2,290 3,086 -
Equipment note, variable monthly payments plus interest
at LIBOR plus 2.35%, maturing June 2000 331 446 -
Equipment note, monthly payments of $34 plus interest
at LIBOR plus 2.35%, maturing October 2000 1,158 1,555 -
Equipment notes, monthly payments of $127 plus interest
at the 30-day commercial paper rate plus 2.18% 7,204 - -
Equipment note, monthly payments of $20 plus interest at
LIBOR plus 2.35%, maturing November 2001 973 - -
6.38% seller financing, monthly payments of $1 including
interest, maturing April 2005 69 - -
- ---------------------------------------------------------------------------------------------------------------
33,199 24,697 15,715
Less current installments 12,743 6,128 2,205
- ---------------------------------------------------------------------------------------------------------------
Long-term debt, excluding current installments $20,456 18,569 13,510
===============================================================================================================
</TABLE>
In September 1995, the Company entered into a five-year credit facility which,
as amended, currently provides credit of up to $47.8 million (the "Financing
Agreement"). The Financing Agreement includes a $30.0 million revolving credit
facility and variable rate term loans totaling $17.8 million which were used to
refinance existing equipment notes. The revolving credit facility includes a $10
million letter of credit sub-facility. The maximum borrowing base under the
revolving credit facility is equal to 65% of eligible inventory (essentially
non-perishable inventory). The borrowing base as of January 31, 1998 is
approximately $25.6 million.
The revolving credit facility requires an annual commitment fee of .0375% on the
undrawn amount. The letter of credit sub-facility requires a 1.25% fee on the
notional amount of letters of credit issued. For all borrowings under the
Financing Agreement, the Company may elect at various dates to accrue interest
at either floating Chemical Bank prime or a LIBOR based fixed rate for periods
up to six months. At January 31, 1998, the applicable 30-day commercial paper,
Chemical Bank prime and 30-day LIBOR interest rates are 5.47%, 8.50% and 5.63%,
respectively.
F-10
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
Unless the Financing Agreement is extended, all related borrowings mature
September 2000. The variable rate term loans are subject to mandatory
prepayment provisions which are based on surplus cash balances as defined.
In addition, the maturity date of all Financing Agreement borrowings is
accelerated upon a specified change in control or ownership. Borrowings
under the Financing Agreement are secured by the Company's principal
distribution center, a retail store location in Butte, Montana and all of
the personal property of the Company.
The Financing Agreement also allows the financing of a specified amount of
store premises and equipment under separate third-party borrowing
facilities. At January 31, 1998, the Company has additional borrowings of
$12,466 from lenders that were used to finance store equipment.
There were borrowings of $6,350, $1,600 and $0 on the revolving credit
facility as of January 31, 1998, February 1, 1997 and February 3, 1996,
respectively. The weighted-average revolving credit amount outstanding for
fiscal 1997, 1996 and 1995 was $1,520, $858 and $343, respectively. Letters
of credit outstanding under the sub-facility were $2,600, $2,600 and $3,150
at January 31, 1998, February 1, 1997 and February 3, 1996, respectively.
In October 1991, the Company borrowed $2,800 from ASC under an acquisition
related arrangement. The borrowing is secured by the Company's lease of a
property owned by SAB which is currently pending remediation of certain
environmental issues (see Note 13).
The various credit agreements contain certain restrictive financial
covenants regarding the maintenance of specified levels of cash flow and
net worth which levels increase over time, and among other restrictions,
limit additional borrowings and capital expenditures, and requires the
consent of lenders prior to payment of dividends to stockholders.
The aggregate contractual maturities of long-term debt for periods
subsequent to January 31, 1998 are as follows:
Fiscal year:
- -------------------------------------------------------------------------------
1998 $12,743
1999 6,422
2000 5,648
2001 6,201
2002 2,161
Thereafter 24
- -------------------------------------------------------------------------------
$33,199
===============================================================================
Based on borrowing rates currently available to the Company for borrowings
with similar terms and average maturities, the carrying value of long-term
debt at fiscal year end 1997, 1996 and 1995 approximates fair value.
F-11
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
(7) STOCKHOLDERS' EQUITY
On January 19, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") providing for the acquisition of the
Company by Albertson's, Inc. In accordance with the Merger Agreement,
Albertson's has commenced a cash tender offer (the "Offer") for all of the
Company's outstanding shares of common stock at $15.50 per share. The
Merger Agreement contemplates that the Offer will be followed by the merger
of the Company with a subsidiary of Albertson's (the "Merger"), upon which
each share of the Company's common stock not acquired in the Offer will be
converted into the right to receive $15.50 per share in cash, without
interest. In connection with the Offer, the Company intends to enter into
various option payment agreements to address the termination and
acceleration provisions of the various stock options outstanding. In
addition, various other agreements have been entered into related to
severance and retention benefits. These agreements are subject to
consummation of the Offer, which itself, is subject to certain conditions.
These conditions include obtaining the stipulation of certain regulatory
authorities that the Offer may be consummated without the imposition of
material limitations or conditions as defined under the Merger Agreement.
It is not possible, at this time, to determine whether or not the Offer
will be consummated.
The Company has warrants outstanding which allow holders to acquire 53,151
shares of common stock for $6.60 per share. The warrants were issued on
October 31, 1990 and expire on October 31, 2000.
(8) EARNINGS PER SHARE
A reconciliation of the weighted average shares used to calculate basic and
diluted earnings per share follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic shares 8,641,771 8,639,056 8,639,056
Effect of dilutive warrants and options 184,149 51,387 25,938
- ----------------------------------------------------------------------------------
Diluted shares 8,825,920 8,690,443 8,664,994
==================================================================================
</TABLE>
Earnings used for basic and diluted earnings per share calculations are the
same for all periods presented. The earnings per share impact of the $51
extraordinary charge in fiscal 1995 was not significant.
(9) STOCK OPTIONS
Effective November 1, 1990, the Company adopted its 1990 Nonqualified
Performance Stock Option Plan ("1990 Option Plan") which, as amended,
provides for options to acquire up to 451,500 shares of common stock. As
amended, all options granted under the 1990 Option Plan vest and become
exercisable, either in full or in specified percentage increments (as set
forth in the 1990 Option Plan), upon the determination by the Compensation
Committee that the aggregate operating cash flow and the total net cash
flow from operations of the Company reach specified levels. However, even
if the minimum specified levels are not met, the options will automatically
vest and become exercisable as of October 5, 2000. At January 31, 1998,
there are options outstanding to acquire 120,806 shares of common stock at
a weighted-average exercise price of $6.88 under this plan. The
Compensation Committee may, in its sole discretion, elect to accelerate the
vesting of all or any portion of any option.
During 1993, the Company adopted the 1993 Special Stock Option Plan
("Special Plan"), and granted options which allow holders to acquire up to
22,456 shares of common stock. During 1994, the Company granted additional
options under the Special Plan for holders to acquire up to 15,000 shares
of common stock. All Special Plan options are granted with an exercise
price equal to the fair market value of the Company's common stock at the
date of grant and vest and became exercisable in equal installments through
February 1996.
F-12
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
Effective April 25, 1995, the Company adopted its 1995 Stock Option Plan
("1995 Option Plan") which provides for the issuance of either non-qualified
or incentive stock options allowing holders to acquire up to 500,000 shares
of common stock. All options granted under the 1995 Option Plan vest and
become exercisable as determined by the Compensation Committee. The options
are granted with an exercise price equal to the fair market value of the
Company's common stock at the grant date. Substantially all options granted
under the 1995 Option Plan in fiscal 1995 are non-qualified and vest 25% on
the date of grant and the remaining 75% in three equal annual installments.
Substantially all options granted under the 1995 Option Plan in fiscal years
1997 and 1996 are non-qualified and vest in four equal annual installments
beginning one year after grant date.
During 1996, the Company adopted the 1996 Non-Employee Directors Stock Option
Plan ("Directors Plan") which provides for the issuance of nonqualified stock
options to purchase up to 75,000 shares of common stock to Outside Directors
(as defined) of the Company. All options granted under the Directors Plan
vest and become exercisable on the Annual Meeting of Stockholders following
the grant date if the optionee has continued to serve as a director. The
number of shares subject to each option granted pursuant to the Directors
Plan will in each case be equal to the amount of the Outside Director's
Retainer Fee (as defined) divided by 20% of the fair market value of a share
of common stock at the close of business on the grant date. The options are
granted with an exercise price equal to 80% of the fair market value of the
Company's common stock at the grant date.
Information with respect to the Company's stock options are as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 573,984 7.12 342,535 $7.02 283,017 $6.71
Granted 35,924 8.93 254,050 7.25 118,000 7.75
Exercised (5,575) 7.34 - - - -
Canceled (85,197) 6.81 (22,601) 6.98 (58,482) 6.97
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of period 519,136 7.49 573,984 $7.12 342,535 $7.02
====================================================================================================================================
Exercisable, end of period 187,006 7.54 86,456 $7.41 47,970 $7.28
====================================================================================================================================
Unissued, end of period 539,245 489,972 646,421
====================================================================================================================================
<CAPTION>
Option data at January 31, 1998: Outstanding Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Range of Fiscal Average Average
Exercise Year Exercise Exercise
Prices Expires Shares Price Shares Price
------ ------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
$ 6.67 2000 64,666 $6.67 - $ -
7.13 2000 56,140 7.13 - -
7.13 2003 22,456 7.13 22,456 7.13
6.73 2004 15,000 6.73 15,000 6.73
7.75 2005 92,000 7.75 69,000 7.75
7.13 - 8.13 2006 228,200 7.62 74,300 7.72
6.40 2006 6,250 6.40 6,250 6.40
8.63 - 9.38 2007 24,900 9.10 - -
8.40 2007 9,524 8.40 - -
- ------------------------------------------------------------------------------------------------------------------------------------
519,136 $7.49 187,006 $7.54
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The per share weighted-average fair value of stock options granted during
fiscal 1997, 1996 and 1995 was $5.93, $5.67 and $5.99, respectively. These
estimates of fair value were determined using a Black-Scholes option-
pricing model with the following weighted-average assumptions; fiscal
1997-expected dividend yield of 0%, risk-free interest rate of 6%,
volatility of 44%, and an expected life of 10 years; fiscal 1996 - expected
dividend yield of 0%, risk-free interest rate of 6.30%, volatility of 42%,
and an expected life of 10 years; and fiscal 1995 - expected dividend yield
of 0%, risk-free interest rate of 5.65%, volatility of 45%, and an expected
life of 10 years.
Had the Company determined compensation cost based on the fair value of its
stock options determined at the date of grant, the Company's net income and
income per share would be as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $3,513 3,593 2,299
Pro forma 3,252 3,404 2,160
Net income per share:
As reported basic .41 .42 .27
Pro forma basic .38 .39 .25
As reported diluted .40 .41 .27
Pro forma diluted .37 .39 .25
</TABLE>
Pro forma net income reflects only options granted after January 29, 1995.
Therefore, the full impact of the difference between the intrinsic and fair
value method of calculating compensation cost for stock options is not
reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the respective option's vesting period
and compensation cost for options vesting in reported periods but granted
prior to January 29, 1995 is not considered.
(10) EMPLOYEE STOCK SUBSCRIPTION PLAN
The Company has a stock subscription plan (the "Subscription Plan"),
pursuant to which 880,000 shares of common stock were designated for
members of management and certain other key employees of the Company to
purchase shares of the Company's common stock. Pursuant to the terms of the
Subscription Plan, participants who chose not to pay the entire purchase
price in cash could elect to pay a portion of the purchase price through
the delivery of five-year, full recourse promissory notes bearing interest,
at the participant's election, at either a fixed rate or a designated
variable rate, as adjusted from time to time. Accrued interest on the
promissory notes is payable quarterly, and the principal balance, including
all accrued and unpaid interest, is payable in full at maturity and is
secured by any shares acquired. In fiscal 1997, the Company advanced an
additional $125 on existing shares previously issued under the Subscription
Plan. As of January 31, 1998, there were two promissory notes outstanding
under the Subscription Plan related to the purchase of 112,280 shares.
(11) EMPLOYEE BENEFIT PLANS
The Company contributes to a number of union administered multi-employer
defined benefit pension plan for employees covered by collective bargaining
agreements. The pension contribution under these plans was $1,041, $1,145
and $994 for fiscal 1997, 1996 and 1995, respectively.
The Company also has a defined contribution profit-sharing plan for all
employees who meet certain minimum service requirements (Retirement Plan).
Employees become eligible to participate in the Retirement Plan upon the
later of the attainment of age 21 or the completion of one year of service.
The Retirement Plan provides for contributions by participants up to the
maximum amount permitted under Section 401(k) of the Internal Revenue Code.
F-14
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The Company also makes annual contributions to the Retirement Plan in cash
or Company common stock, the amount and form of which is determined by the
Board of Directors in its discretion at the end of each year. Seventy-five
percent of the Company's contribution ("Profit Sharing Contribution") is
allocated to participants as a percentage of their compensation, and the
remaining 25% is allocated in proportion to the amount of contributions
made by each participant. The individual Profit Sharing Contributions are
reduced by any amounts paid under union defined benefit plans. The total
Profit Sharing Contribution was $1,000, $1,000 and $1,000 for fiscal 1997,
1996 and 1995, respectively.
(12) INCOME TAXES
Income tax expense on income before extraordinary items consists of the
following:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal - regular tax $1,726 1,065 1,260
Federal - alternative minimum tax (benefit) (613) (92) (102)
State 323 269 293
- ---------------------------------------------------------------------------------------------------
1,436 1,242 1,451
Deferred:
Federal 761 (156) (144)
State (89) 53 112
- ---------------------------------------------------------------------------------------------------
672 (103) (32)
- ---------------------------------------------------------------------------------------------------
$2,108 1,139 1,419
===================================================================================================
</TABLE>
The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
("AMT"). Under the Act, the Company's tax liability is the greater of its
regular tax or the AMT. The Company is subject to the AMT primarily due to
depreciation limitations for AMT purposes. The AMT actually paid is allowed as a
credit against regular tax in the future to the extent future regular tax
expense exceeds AMT.
The provision for income taxes differs from the amount which would be provided
by applying the Federal statutory rate of 34% to earnings before income taxes
and extraordinary charge as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected tax expense $1,911 1,609 1,281
State income taxes, net of Federal income tax benefit 154 213 272
Amortization of non-deductible Goodwill 43 30 30
Change in valuation allowance for deferred tax assets - (626) (138)
General business credits - (21) (7)
Other - (66) (19)
- ---------------------------------------------------------------------------------------------------
$2,108 1,139 1,419
===================================================================================================
</TABLE>
F-15
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The significant components of deferred income tax expense attributable to
income before extraordinary items are as follows:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense; exclusive of items listed below $ (487) 229 7
Decrease in valuation allowance for deferred tax assets - (626) (138)
AMT and general business credits 1,081 263 95
Contribution carryforwards 78 31 4
---------------------------------------------------------------------------------------------------
$ 672 (103) (32)
===================================================================================================
</TABLE>
The tax effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
Fiscal year ended, 1998 1997 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued vacation $ 689 733 758
Self-insurance accruals 775 922 681
Deferred revenues 296 94 225
Other 187 71 -
General business credit carryforwards - - 171
AMT credit carryforwards 1,777 2,858 2,950
Contribution carryforwards - 313 344
---------------------------------------------------------------------------------------------------
Gross deferred tax assets 3,724 4,991 5,129
Less valuation allowance - - (626)
---------------------------------------------------------------------------------------------------
Net deferred tax assets 3,724 4,991 4,503
Deferred tax liabilities:
Fixed assets, principally depreciation (3,575) (3,965) (3,506)
Other (152) (112) (168)
Inventory (1,253) (1,275) (1,293)
---------------------------------------------------------------------------------------------------
Net deferred tax liabilities (4,980) (5,352) (4,967)
---------------------------------------------------------------------------------------------------
Net deferred income tax liability $(1,256) (361) (464)
===================================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will be realized. At fiscal year end 1995, management had not
recorded the full benefit of these deferred tax assets due to the uncertainty
related to these deductible differences. The ultimate realization of deferred
tax assets is dependent upon the existence of, or generation of, taxable
income in the periods in which those temporary differences are deductible.
Management considers the scheduled reversal of deferred tax liabilities,
taxes paid in carryback years, projected future taxable income, and tax
planning strategies in making this assessment. In the fourth quarter of
fiscal 1996, based on its historical and expected levels of taxable income
and the now reversing impact of AMT depreciation associated with the
acquisition of property and equipment from the Predecessor Division,
management concluded that it was more likely than not that the deferred tax
assets would be realized and reversed the valuation allowance.
The net operating loss carryforwards for income tax purposes expire beginning
in 2006 and through 2008. AMT credits may be carried forward indefinitely.
F-16
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
The allocation of the purchase price of the Predecessor Division included
certain accrued expenses and reserves which will result in deductions for
income tax purposes when paid, but will never be deducted for financial
reporting purposes. Any future reduction in income taxes payable as a
result of utilization of these deductions will be recorded as a reduction
of the excess purchase price paid. During fiscal 1995, the Company reduced
Goodwill by $110 for reductions in state income taxes payable. At January
31, 1998, the Company has approximately $1,036 of additional AMT credits
for income tax purposes (not included above) which will reduce Goodwill and
federal income taxes payable when realized.
During 1997, the Company reached a settlement with the Internal Revenue
Service ("IRS") with regard to adjustments associated with the Company's
allocation of purchase price to the net assets acquired from the
Predecessor Division. Under the terms of the settlement, the Company paid
approximately $1,386 in federal taxes plus approximately $1,086 in
interest. Additionally, the Company has estimated the corresponding state
tax liabilities at approximately $483 plus approximately $188 in interest.
In addition to current income taxes, the settlement adjustments resulted in
an increase in deferred taxes payable of $223. The aggregate increase in
tax liabilities has been recorded on the Company's balance sheet by
applying the effect of those adjustments to increase Goodwill associated
with the Company's initial acquisition of assets. The aggregate interest to
be paid of $1,274 ($764 after-tax, or $0.09 per share), however, has been
recorded as interest expense in fiscal 1997.
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in various routine litigation incidental to
operations. Due to the preliminary stages of certain of these actions,
however, it is not possible at this time to determine what effect, if any,
resolution of these matters will have on the consolidated financial
position, results of operations or liquidity of the Company.
In connection with the acquisition of the Predecessor Division, SAB and ASC
entered into an environmental indemnity agreement for the benefit of the
Company against any liability relating to the remediation of hazardous
materials at a shopping center leased by the Company (the "Shopping Center
Property"). The Department of Environmental Quality of the State of Montana
has issued an interim order to SAB, the owner of the site, requiring
certain investigative and clean-up actions at the Shopping Center Property
in connection with the discovery of soil and groundwater contamination at
the site. The Company has not been required to participate in the clean-up
effort. Management believes that the Company has not contributed to the
contamination at the Shopping Center Property and because of the
environmental indemnity agreement and other arrangements, the environmental
remediation will not have a material effect on the Company's consolidated
results of operations or financial position.
In conjunction with the sale of the Payson, Utah distribution center in
1995, the Company entered into a five-year distribution agreement with the
purchaser whereby the Company purchases products previously distributed
from the distribution center. The agreement requires the Company to
purchase a specified volume of inventory at agreed upon pricing. The
Company may terminate the agreement, among other reasons, upon the payment
of a specified termination fee. Payments under the agreement are secured by
a $0.8 million letter of credit.
The Company entered into a new five-year pharmaceutical inventory
distribution agreement in 1997. The terms of the agreement limit the
percentage of the Company's pharmaceutical purchases from other vendors.
The purchase cost of inventory under these two distribution agreements is
based on the supplier's current vendor invoice cost plus a specified
margin. The Company believes that such prices are comparable to prices
available from third parties.
The Company has entered into severance compensation agreements with certain
of its executives. Such agreements provide for the payment of six to 24
months of annual compensation under certain circumstances.
F-17
<PAGE>
BUTTREY FOOD AND DRUG STORES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
- -------------------------------------------------------------------------------
(Amounts in Thousands, Except Share and Per Share Data)
- -------------------------------------------------------------------------------
(14) RELATED PARTY TRANSACTIONS
During fiscal 1996 and 1995, the Company had a renewable one-year
consulting agreement with a member of the Board of Directors. The
agreement, which as amended, most recently provided for an annual
consulting fee of $75 per year, expired and was not renewed in December
1996.
(15) ACQUISITIONS AND EXPANSION
In May 1996, the Company acquired a grocery store from Dan's Supermarket,
Inc. in Cheyenne, Wyoming. The total purchase price of $5.5 million
included $4.8 million for property and equipment, $300 for inventory and a
non-compete agreement valued at $400.
In September 1996, the Company acquired a grocery store and pharmacy
business in Laramie, Wyoming from Ideal Foods. The $1.4 million purchase
price included $125 for store fixtures and equipment, $600 for inventory
and a non-compete agreement valued at $675.
In April 1997, the Company purchased the assets of an existing grocery
store in Cody, Wyoming from Steck's Inc. The $2.8 million purchase price
included $1.9 million for store fixtures and equipment, $400 for inventory
and a non-compete agreement valued at $500.
All transactions were accounted for as purchases and, accordingly, the
consolidated statements of operations only include results of operations
for the respective acquisitions since the date of the purchase.
F-18
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------ ------------ ----
<S> <C> <C>
3.1++ Certificate of Incorporation of the Company, as amended and currently in effect.
3.2+ Bylaws of the Company, as amended to date.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
- ---------------------------------------------
10.1+ 1990 Employee Stock Subscription Plan of the Company, dated as of October 17,
1990 ("Subscription Plan").
10.2+ Form of Stock Subscription Agreement by and among the Company, FSEP and
three management investors who purchased Common Stock under the Subscription
Plan, dated as of October 17, 1990 (with forms of Secured Promissory Note and
Stock Pledge Agreement attached as exhibits thereto).
10.3+ Form of Stock Subscription Agreement by and among the Company, FSEP and
management investors who purchased Common Stock under the Subscription Plan
with cash and promissory note, dated as of October 17, 1990 (with forms of
Secured Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.4+ Form of Stock Subscription Agreement by and among the Company, FSEP and
management investors who purchased Common Stock under the Subscription Plan
with cash only, dated as of October 17, 1990 (with form of Stock Pledge
Agreement attached as an exhibit thereto).
10.5+ 1990 Nonqualified Performance Stock Option Plan of the Company, dated as of
October 17, 1990 ("Option Plan").
10.6+ Form of Nonqualified Performance Stock Option Agreement by and between the
Company and certain Participants under the Option Plan, dated as of November 8,
1990.
10.7+ Form of Indemnity Agreement dated as of October 31, 1990 made by and between
the Company and Buttrey Food and Drug Company ("BFDC"), on the one hand,
and each of the members of the Board of Directors of the Company and of BFDC,
on the other hand.
10.8+ Stock Subscription Agreement made and entered into as of October 17, 1990 by
and among the Company, FSEP and Peter J. Sodini.
10.9+ Employment Agreement dated as of October 31, 1990 entered into among the
Company, BFDC and Edward C. Agnew.
10.10+ Letter Agreement dated as of October 17, 1990 by and between the Company and
Edward C. Agnew.
10.11+ Form of Severance Agreement dated as of October 31, 1990 entered into among
the Company, BFDC and certain executives of the Company.
10.12+ Consulting Agreement made and entered into as of July 1, 1991 by and between
BFDC and Peter J. Sodini ("Sodini Consulting Agreement").
10.13+++ 1990 Nonqualified Performance Stock Option Plan of the Company, as amended
and restated as of July 21, 1992 ("Option Plan").
10.14+++ Form of Amendment to Nonqualified Performance Stock Option Agreement by
and between the Company and certain participants under the Option Plan.
10.15***** Extension and Modification to Consulting Agreement dated April 29, 1993 by and
between the Company and Peter J. Sodini.
10.16* Employment Agreement dated as of March 1, 1993 entered into among the
Company, BFDC and Joseph H. Fernandez ("Fernandez Employment
Agreement").
10.17* Nonqualified Stock Option Agreement entered into as of March 1, 1993 by and
between the Company and Joseph H. Fernandez.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------ ------------ ----
<S> <C> <C>
10.18* Letter Agreement dated March 1, 1993 by and between BFDC and Joseph H.
Fernandez.
10.19*** Forms of Letter Amendment to Stock Subscription Agreements in connection with
refinancing of Secured Promissory Notes by and between the Company and certain
participants under the Subscription Plan.
10.20*** Form of Letter Agreement regarding Execution of New Promissory Notes in
connection with refinancing of Secured Promissory Notes by and between the
Company and certain participants under the Subscription Plan.
10.21***** Extension to Sodini Consulting Agreement dated October 28, 1993.
10.22***** Continuing Employment and Severance Agreement dated January 28, 1994 by and
between the Company and Edward C. Agnew.
10.23***** Nonqualified Stock Option Agreement entered into as of February 23, 1994 by and
between the Company and Joseph H. Fernandez.
10.24++++++++ 1995 Option Plan of the Company, dated as of April 24, 1995 ("1995 Option
Plan").
10.25++++++++ Form of Nonqualified Stock Option Agreement entered into by and between the
Company and certain Participants under the 1995 Option Plan, dated as of
April 25, 1995.
10.26++++++++ Form of Incentive Stock Option Agreement for certain Participants under the
1995 Option Plan.
10.27++++++++ Amendment dated March 10, 1995 to Fernandez Employment Agreement.
10.28** Extension to Sodini Consulting Agreement dated November 20, 1995.
10.29** Consulting Agreement and Release dated May 23, 1995 by and between the
Company and H.N. Dusenberry.
10.30***** Amendment dated April 24, 1995 to Fernandez Employment Agreement.
10.31***** Amendment dated August 29, 1996 to Fernandez Employment Agreement.
10.32***** Letter Agreement dated April 7, 1997 by and among the Company, FSEP and
Joseph H. Fernandez.
10.33***** Secured Promissory Note made by Joseph H. Fernandez in favor of the Company
dated April 7, 1997.
10.34***** Promissory Note made by Joseph H. Fernandez in favor of the Company dated
April 7, 1997.
10.35***** Extension and Modification to Sodini Consulting Agreement dated November 25,
1996.
10.36***** 1996 Non-Employee Directors Stock Option Plan of the Company, dated as of
April 26, 1996 (the "1996 Directors Plan").
10.37***** Form of Nonqualified Stock Option Agreement entered into by and between the
Company and certain directors under the 1996 Directors Plan.
OTHER MATERIAL CONTRACTS
- ------------------------
10.38+ Asset Purchase Agreement made as of the 15th day of August 1990 by and between
10.39+ Noncompetition Agreement made as of October 31, 1990 by and between BFDC,
American Stores Company ("ASC") and Skaggs.
10.40+ Supply Agreement made as of the 31st day of October, 1990 by and between ASC
and BFDC.
10.41++++ Amended and Restated Credit Agreement dated as of April 28, 1992 by and among
the Company, BFDC, Bankers Trust Company as Agent, and the various Lenders
listed therein.
10.42+ Company Security Agreement dated as of October 31, 1990 made by BFDC to
Bankers Trust Company.
10.43+ Environmental Indemnity entered into as of October 31, 1990 by ASC and Skaggs
to and for the benefit of the Company and BFDC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------ ------------ ----
<S> <C> <C>
10.44+ Loan Commitment made as of the 31st day of October, 1990 by Skaggs in favor of
BFDC.
10.45+ Promissory Note executed by BFDC in favor of Skaggs, in the amount of
$2,800,000, dated as of October 31, 1991.
10.46+ Securities Purchase Agreement dated as of October 31, 1990 among the Company,
BFDC and each of the Purchasers listed therein.
10.47+ Form of Common Stock Purchase Warrant, dated as of October 31, 1990, issued to
each of the Purchasers pursuant to the Securities Purchase Agreement.
10.48+ Equity Rights Agreement dated as of October 31, 1990 among the Company, FSEP
and the Purchasers.
10.49+ Environmental Indemnity entered into as of October 31, 1990 by BFDC to and for
the benefit of the Purchasers.
10.50+ Stock Subscription Agreement made and entered into as of October 31, 1990 by
and among the Company, FSEP and Bankers Trust New York Corporation.
10.51+ Stock Subscription Agreement made and entered into as of October 31, 1990 by
and among the Company, FSEP and Morgan Capital Corporation.
10.52+ Stock Subscription Agreement made and entered into as of October 31, 1990 by
and among the Company, FSEP and Buttrey Investors L.P.
10.53+ Loan and Security Agreement dated as of August 23, 1991 entered into by and
between BFDC and The CIT Group/Equipment Financing, Inc.
10.54+++ First Amendment to Loan and Security Agreement entered into by and between the
Company and the CIT Group/Equipment Financing, Inc. dated as of August 6,
1992.
10.55** Second Amendment dated as of May 10, 1993 to Loan and Security Agreement
dated as of August 23, 1991 by and between the Company and the CIT
Group/Equipment Financing, Inc.
10.56**** First Amendment dated as of August 27, 1993 to Amended and Restated Credit
Agreement dated as of April 28, 1992 by and among the Company, Bankers Trust
Company as Agent and the various Lenders listed therein.
10.57***** Letter dated as of December 3, 1993 relating to Loan and Security Agreement
dated as of August 23, 1991 and amended as of May 10, 1993 by and between the
Company and The CIT Group/Equipment Financing, Inc.
10.58***** Second Amendment dated as of April 22, 1994 to Amended and Restated Credit
Agreement dated as of April 28, 1992 by and among the Company, Bankers Trust
Company as Agent and the various Lenders listed therein.
10.59++ Loan Agreement made the 5th day of July, 1994 by and between BFDC and
TriCon Capital.
10.60++ Security Agreement made the 5th day of July, 1994 by and between BFDC and
TriCon Capital.
10.61++ Guaranty dated July 5, 1994 made by BFDC, as Guarantor, in favor of TriCon
Capital.
10.62++++ Asset Purchase Agreement dated August 15, 1995 by and among the Company,
BFDC, Thrifty Foods of Eastern Washington, Inc. ("Thrifty") and Associated
Grocers, Incorporated ("AGI").
10.63++++ Asset Purchase Agreement dated August 15, 1994 by and among the Company,
BFDC and AGI.
10.64++++ Real Estate Purchase and Sale Agreement dated August 15, 1994 by and among
BFDC, Supermarket Development Corporation ("SDC") and AGI, concerning real
property located in Richland, Washington.
10.65++++ Real Estate Purchase and Sale Agreement dated August 15, 1994 by and among
BFDC, SDC and AGI, concerning real property located in Kennewick,
Washington.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ------ ------------ ----
<S> <C> <C>
10.66++++++ Wholesale Supply Agreement made and entered into as of November 15, 1994 by
and between Associated Food Stores, Inc. and BFDC.
10.67++++++ Agreement of Purchase and Sale made and entered into as of November 15, 1994
by and between BFDC and Associated Food Stores, Inc.
10.68++++++++ Third Amendment dated as of December 12, 1994 to Loan and Security Agreement
dated as of August 23, 1991 and amended as of May 10, 1993 by and between the
Company and The CIT Group/ Equipment Financing, Inc.
10.69* Note and Security Agreement made the 8th day of August, 1995 by and between
BFDC and NationsBanc Leasing Corporation.
10.70* Guaranty dated August 14, 1995 made by BFDC, as Guarantor, in favor of
NationsBanc Leasing Corporation.
10.71* Financing Agreement made the 7th day of September, 1995 by and between BFDC
and The CIT Group/Business Credit, Inc. and The CIT Group/Equipment
Financing, Inc.
10.72* Guaranty dated September 7, 1995 made by the Company, as Guarantor, in favor
of The CIT Group/Business Credit, Inc. as Agent.
10.73*** Letter Amendment dated August 5, 1996 to Financing Agreement dated September
7, 1995 by and among the Company, CITBC and CEF.
10.74**** Letter Amendment dated August 1, 1997 to Financing Agreement dated September
7, 1995 by and among the Company, CITBC and CEF.
10.75****** Agreement and Plan of Merger, dated as of January 19, 1998, by and among the
Company, Purchaser and Parent.
10.76****** Tender and Option Agreement, dated as of January 19, 1998, by and among
Purchaser, Parent, the Company and the Major Stockholder.
10.77****** Press release issued by the Company on January 20, 1998.
10.78****** Fairness Opinion of Morgan Stanley, dated as of January 19, 1998.
10.79****** Letter to Stockholders, dated as of January 26, 1998, from Joseph H. Fernandez,
Chairman of the Board, President and Chief Executive Officer of the Company.
10.80****** Confidentiality Agreement, dated as of December 22, 1997, between FS&Co., on
behalf of the Company, and Parent.
10.81******* Press Release of the Company dated, February 23, 1998.
10.82******* Extension, Early Termination and Waiver Agreement, dated as of February 23,
1998, by and among Parent, Purchaser and the Company.
22.1+ Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedules.
</TABLE>
________________
+ Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-44646) on December 20, 1991.
++ Filed as an exhibit to the Company's Registration Statement on Form
8-A (File No. 0-19802) on January 16, 1992.
+++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 1, 1992 (File No. 0-19802) on September
15, 1992.
++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1992 (File No. 0-19802) on May 18, 1992.
* Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1993 (File No. 0-19802) on April 30,
1993.
** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended May 1, 1993 (File No. 0-19802) on June 15,
1993.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 31, 1993 (File No. 0-19802) on September
14, 1993.
<PAGE>
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 30, 1993 (File No. 0-19802) on
December 14, 1993.
***** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1994 (File No. 0-19802) on April 29,
1994.
++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 30, 1994 (File No. 0-19802) on September
12, 1994.
++++ Filed as an exhibit to the Company's Current Report on Form 8-K (File
No. 0-19802) on August 30, 1994.
++++++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended October 29, 1994 (File No. 0-19802) on
December 12, 1994. Certain portions of Exhibit 10.58 have been omitted
from the copies filed as part of the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1994 and are the subject
of an order granting confidential treatment with respect thereto.
++++++++ Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995 (File No. 0-19802) on April 28,
1995.
* Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended July 29, 1995 (File No. 0-19802) on September
12, 1995.
** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended February 3, 1996 (File No. 0-19802) on May 3, 1996.
*** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 3, 1996 (File No. 0-19802) on September
17, 1996.
**** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended August 2, 1997 (File No. 0-19802) on September
16, 1997.
***** Filed as an exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended February 1, 1997 (File No. 0-19802) on May 1, 1997.
****** Filed as an exhibit to the Company's Form 14D-9 dated January 26, 1998.
******* Filed as an exhibit to the Company's Form 14D-9 dated March 2, 1998.
<PAGE>
EXHIBIT 23.1
Independent Accountant's Consent
--------------------------------
Board of Directors
Buttrey Food and Drug Stores Company:
We consent to incorporation by reference in the Registration Statements on Form
S-8 (Nos. 333-27815, 33-59236, 33-70750, and 33-94590) and Form S-3 (No.
33-80688) of Buttrey Food and Drug Stores Company of our report dated April 10,
1998 relating to the consolidated balance sheets of Buttrey Food and Drug Stores
Company and subsidiary as of January 31, 1998, February 1, 1997 and February 3,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the fiscal years in the three-year period
ended January 31, 1998, which report appears in the Annual Report on Form 10-K
of Buttrey Food and Drug Stores Company for the fiscal year ended January 31,
1998.
KPMG Peat Marwick LLP
Billings, Montana
April 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-START> NOV-02-1997 FEB-02-1997
<PERIOD-END> JAN-31-1998 JAN-31-1998
<CASH> 5,173 0
<SECURITIES> 0 0
<RECEIVABLES> 5,671 0
<ALLOWANCES> 0 0
<INVENTORY> 45,230 0
<CURRENT-ASSETS> 58,120 0
<PP&E> 167,758 0
<DEPRECIATION> 64,312 0
<TOTAL-ASSETS> 168,898 0
<CURRENT-LIABILITIES> 42,690 0
<BONDS> 28,931 0
0 0
0 0
<COMMON> 78,735 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 168,898 0
<SALES> 99,023 391,373
<TOTAL-REVENUES> 99,023 391,373
<CGS> 74,667 294,368
<TOTAL-COSTS> 74,667 294,368
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 921 4,430
<INCOME-PRETAX> 891 5,621
<INCOME-TAX> 216 2,108
<INCOME-CONTINUING> 675 3,513
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 675 3,513
<EPS-PRIMARY> 0.08 0.41
<EPS-DILUTED> 0.08 0.40
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-01-1997
<PERIOD-START> NOV-03-1996 FEB-04-1996
<PERIOD-END> FEB-01-1997 FEB-01-1997
<CASH> 5,075 0
<SECURITIES> 0 0
<RECEIVABLES> 4,905 0
<ALLOWANCES> 0 0
<INVENTORY> 42,741 0
<CURRENT-ASSETS> 54,779 0
<PP&E> 152,900 0
<DEPRECIATION> 54,417 0
<TOTAL-ASSETS> 157,998 0
<CURRENT-LIABILITIES> 37,669 0
<BONDS> 27,526 0
0 0
0 0
<COMMON> 78,819 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 157,998 0
<SALES> 96,243 371,302
<TOTAL-REVENUES> 96,243 371,302
<CGS> 74,039 284,134
<TOTAL-COSTS> 74,039 284,134
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 800 2,777
<INCOME-PRETAX> 573 4,732
<INCOME-TAX> (518) 1,139
<INCOME-CONTINUING> 1,091 3,593
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,091 3,593
<EPS-PRIMARY> 0.13 0.42
<EPS-DILUTED> 0.13 0.41
</TABLE>
