10
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended January 28, 1995.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________ to
________________
Commission file number 1-5392
AMERICAN STORES COMPANY
(Exact name of registrant as specified in its charter)
Delaware 87-0207226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
709 East South Temple
Salt Lake City, Utah 84102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 539-0112
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock ($1 par value) Chicago Stock Exchange, Inc.
and New York Stock Exchange, Inc.
Preferred Share Purchase Rights Pacific Stock Exchange, Inc.
Registered on: Philadelphia Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by checkmark 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
AMERICAN STORES COMPANY
FORM 10-K
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
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 24, 1995:
Common Stock, $1 Par Value -- $3,114,981,653.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 24, 1995:
Common Stock, $1 Par Value -- 148,385,775.
Documents Incorporated by Reference:
Portions of the registrant's 1994 Annual Report to its shareholders for the
fiscal year ended January 28, 1995 (the "Annual Report"), to the extent
specifically incorporated herein, are incorporated by reference into Parts I, II
and IV.
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission relating to the registrant's Annual Meeting of Shareholders to be
held on June 21, 1995 (the "Proxy Statement"), to the extent specifically
incorporated herein, are incorporated by reference into Part III.
AMERICAN STORES COMPANY
FORM 10-K
TABLE OF CONTENTS
PART I
Page Number
Item 1 Business......................................................4
Item 2 Properties....................................................7
Item 3 Legal Proceedings.............................................10
Item 4 Submission of Matters to a Vote of Security Holders...........10
PART II
Item 5 Market for the Registrant's Common Equity and
Related Shareholder Matters................................10
Item 6 Selected Financial Data.......................................10
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................10
Item 8 Financial Statements and Supplementary Data...................10
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................10
PART III
Item 10 Directors and Executive Officers of the Registrant...........11
Item 11 Executive Compensation.......................................14
Item 12 Security Ownership of Certain Beneficial Owners
and Management...............................................14
Item 13 Certain Relationships and Related Transactions...............14
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................14
Signatures.......................................................19
AMERICAN STORES COMPANY
FORM 10-K
PART I
Item 1 Business
HISTORY
American Stores Company, a Delaware corporation (the "Company") traces
its roots to 1939 with the purchase of four drug stores in Utah, Idaho
and Montana and was incorporated in Delaware in 1965 under the name of
Skaggs Drug Centers, Inc. The Company grew initially through the
acquisition of additional drug stores and, from 1969 through 1977,
through a partnership with Albertson's that developed food and drug
combination stores. In 1979 the Company, in order to enhance its food
retailing capabilities, acquired American Stores Company, including Acme
Markets, and adopted the American Stores Company name. In 1984 Jewel
Companies, Inc. was acquired by the Company, adding Jewel Food Stores,
Star Market and the Osco and Sav-on drug stores. In 1988, the Company
acquired Lucky Stores, Inc. which currently operates stores in
California and Nevada.
After each acquisition mentioned above, the Company has reviewed the
consolidated group and disposed of selected stores and divisions to
reduce debt as well as to focus on growth opportunities available to the
remaining entities. Past major dispositions have included the Rea &
Derick drug chain, two groups of food stores in Arizona, Kash n' Karry,
Buttrey Food and Drug, Alpha Beta Company, 74 Jewel Osco combination
stores in Texas, Florida, Oklahoma and Arkansas, 51 Osco drug stores in
the intermountain region, the 33-store Star Market food division and 45
Acme Markets stores.
OPERATIONS
The Company is principally engaged in a single industry segment, the
retail sale of food and drug merchandise. The Company's principal food
operations are Lucky Stores Northern California Division and Southern
California Division, Super Saver and Jewel Osco - New Mexico (the
"western food operations") and Acme Markets and Jewel Food Stores (the
"eastern food operations"). American Stores Company's drug stores
operate under the Osco Drug and Sav-on names.
The Company is one of the nation's leading food and drug retailers.
American Stores Company operates stand-alone food and drug stores, plus
combination food/drug store units. The Company's operations are
generally located in major metropolitan markets where they hold leading
market positions (generally first or second in overall market share).
At year-end 1994, the Company operated 1,597 stores in 26 states
including 149 Jewel Osco combination stores which are jointly operated
by Osco Drug and Jewel Food Stores and are counted as two separate
stores.
The following is a summary of stores by state and operating company as of
January 28, 1995:
<TABLE>
Lucky Stores Lucky Stores Jewel
Northern CA Southern CA Super Jewel Osco- Acme Food Osco
State Division Division Saver New Mexico Markets Stores Drug Sav-on Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona 64 64
Arkansas 6 6
California 180 214 11 231 636
Delaware 16 16
Illinois 174 219 393
Indiana 6 65 71
Iowa 2 19 21
Kansas 24 24
Kentucky 1 1
Maine 1 1
Maryland 12 12
Massachusetts 40 40
Michigan 5 5 10
Minnesota 2 2
Missouri 28 28
Montana 8 8
Nebraska 12 12
Nevada 20 5 19 44
New Hampshire 15 15
New Jersey 81 81
New Mexico 11 11
North Dakota 6 6
Pennsylvania 84 84
South Dakota 3 3
Vermont 1 1
Wisconsin 7 7
Total Stores 180 234 11 11 193 187 531 250 1,597
</TABLE>
See "Item 2 Properties" for additional information concerning properties
of the registrant.
The Company tailors the merchandising and advertising of its stores to
the demographics in each area it serves. The merchandise sold by the
Company's retail food and combination food/drug stores includes most
food items and non-food items, such as prescription drugs, health and
beauty aids and sundry merchandise.
The combination stores and many of the food stores include specialty
departments such as delicatessens, bakeries, seafood departments and
pharmacies. The Company operates private label merchandising programs,
including such brands as "Lady Lee" at Lucky Stores, "Lancaster" meats
and "Acme" groceries at Acme, "Jewel" at Jewel stores and "Osco" at Osco
and Sav-on stores. "American Premier" has been introduced as a premium
brand in the drug stores while "Value Wise" is now the budget brand
across all of American Stores companies. The Company has the exclusive
right to sell "President's
Choice," premium grocery products, in the geographic markets where Acme,
Jewel and Lucky operate stores.
COMPETITION
In all areas in which the Company operates, the business is highly
competitive, with competition from local and national supermarket and
drug store chains as well as independent stores. Competition also
exists from such retailers as convenience stores, warehouse stores and
membership or club stores. Some of the Company's largest competitors in
various regions are Dominicks, Long's, Pathmark, Ralphs, Safeway,
Thriftway, Thrifty, Vons and Walgreens. Principal competitive factors
in the industry include store location, the price and quality of
products, breadth of selection, quality of service and store image,
including cleanliness and promotions.
The Company's business is characterized by narrow profit margins and,
accordingly, its successful financial performance depends primarily on
its ability to maintain relatively high sales volume and control
operating costs. The Company's geographic diversity allows it to reduce
the risk that competitive pressures in individual markets may have on
its overall operating results. The Company's food and drug stores
collectively operate in 9 of the 25 largest U.S. metropolitan areas
(Source: Bureau of the Census) and hold a leading market position in
each. These market areas include: Los Angeles-Long Beach, Chicago,
Philadelphia, Boston, Riverside-San Bernardino, San Diego, Orange
County, Phoenix and Oakland.
SEASONALITY
The Company is subject to effects of seasonality, with food and drug
store sales higher in the Company's fourth quarter than other quarters
in connection with the holiday season. The Company's drug store sales
also tend to be somewhat higher in the fourth quarter in connection with
the increase in cold and flu occurrences during this quarter.
EMPLOYEES
At year-end 1994, the Company had approximately 118,000 full and part-
time employees. Approximately 77% of the Company's employees are
covered by collective bargaining agreements negotiated with local unions
affiliated with one of seven different international unions. There are
approximately 120 such agreements, typically having three-year terms,
with some recently renewed contracts having terms up to five years.
Accordingly, the Company renegotiates a significant number of these
agreements every year.
INCORPORATION BY REFERENCE
The section entitled "Fiscal Year" in the Notes to Consolidated
Financial Statements on page 68, the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" on pages 58 through 61 and the section entitled
"Contingencies" on page 75 of the Annual Report are incorporated herein
by reference.
Item 2 Properties
The Company categorizes its retail stores into the following types:
grocery, expanded grocery, combination food/drug, drug stores, warehouse-
type stores and other. At year-end 1994, the Company operated 495
grocery stores, 118 expanded grocery stores, 338 combination stores, 626
drug stores, 11 warehouse-type stores and 9 stand-alone pharmacies. The
338 combination stores include 149 Jewel Osco combination stores which
are jointly operated by Jewel Food Stores and Osco Drug and are counted
as two separate stores.
Combination stores are stores with 40,000 or more square feet that
include a pharmacy department and have an expanded selection of food,
drug and general merchandise. Combination stores average approximately
55,200 square feet. Expanded grocery stores are stores in excess of
40,000 square feet that do not meet combination store criteria.
Expanded grocery stores average approximately 46,900 square feet.
Grocery stores average approximately 28,200 square feet. Stand-alone
drug stores average approximately 19,200 square feet. Warehouse-type
stores average approximately 43,000 square feet.
The Company owns approximately 22% of its retail locations; the
remaining retail locations are leased under capitalized or operating
leases. The Company also owns, or controls through long-term leases,
its distribution, warehouse and maintenance support facilities. At year-
end 1994, owned property, with a net book value of approximately $126.1
million, collateralized loans secured by real estate of approximately
$93.7 million. The Company currently finances new construction of owned
stores through internally generated funds and borrowings under existing
credit facilities.
Throughout the country, the Company leases and owns distribution
centers, fleet maintenance shops and warehouses for merchandise such as
dry grocery, produce, frozen foods and general merchandise. These
facilities support the Company's retail outlets and do not have
significant sales to unrelated third parties.
The Company also owns or leases office space, owns land for future
development and operates dairies, bakeries and other manufacturing or
processing facilities that supply its retail outlets with a variety of
private label merchandise. Manufacturing facilities operate at levels
of production required to meet the demands of customers at the Company's
retail locations.
At year-end 1994, the store counts by various types of stores and total
square footage were as follows:
<TABLE>
Store Count by Type of Stores
Expanded Warehouse-
Grocery Grocery Combination Drug Type Other Total
<S> <C> <C> <C> <C> <C> <C> <C>
Eastern Food Operations:
Acme Markets 164 8 21 193
Jewel Food Stores (1) 24 14 149 187
Total Eastern Operations 188 22 170 380
Western Food Operations:
Lucky Stores - North 155 23 2 180
Lucky Stores - South 152 73 9 234
Jewel Osco - New Mexico 8 3 11
Super Saver ___ ___ ___ ___ 11 11
Total Western Operations 307 96 19 3 11 436
Drug Store Operations:
Osco Drug (1) 149 373 9 531
Sav-on ___ ___ ___ 250 ___ 250
Total Drug Operations ___ ___ 149 623 9 781
Total 495 118 338 626 11 9 1,597
(1) The 338 combination stores include 149 Jewel Osco combination stores
which are jointly operated by Jewel Food Stores and Osco Drug and are
counted as two separate stores.
</TABLE>
<TABLE>
Total Square Feet
Retail Distribution, Warehouse
(In thousands) Locations and Maintenance Facilities
<S> <C> <C>
Eastern Food Operations:
Acme Markets 5,827 2,941
Jewel Food Stores 6,463 1,766
Total Eastern Operations 12,290 4,707
Western Food Operations:
Lucky Stores - North 5,723 1,655
Lucky Stores - South 8,565 3,231
Jewel Osco - New Mexico 565 0
Super Saver 473 0
Total Western Operations 15,326 4,886
Drug Store Operations:
Osco Drug 9,630 1,096
Sav-on 5,127 736
Total Drug Operations 14,757 1,832
Non-retail Operations 0 146
Total 42,373 11,571
</TABLE>
The Company operated 14 manufacturing or processing facilities at year-
end 1994 as follows:
Type of Facility Number of Plants and Locations
Bakery 4-Melrose Park, Illinois; San Leandro, California;
Buena Park, California; San Diego, California
Dairy 4-Sacramento, California; San Leandro, California;
Buena Park, California; Escondido, California
Photo Finishing 3-Braintree, Massachusetts; Elgin, Illinois;
Burbank, California
Ice Cream 1-Buena Park, California
Fixture Shop 1-Payson, Utah
Deli Packaging 1-San Leandro, California
See also Item 1, Business, for Additional Information on Properties of
the Registrant.
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 58 through 61 of the
Annual Report is incorporated herein by reference.
Item 3 Legal Proceedings
The section entitled "Legal Proceedings" on page 76 of the Annual Report
is incorporated herein by reference.
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company
for a vote during the quarter ended January 28, 1995.
PART II
Item 5 Market for the Registrant's Common Equity and Related Shareholder
Matters
The section entitled "Common Stock Market Prices and Dividends" on the
bottom of page 10 of the Annual Report is incorporated herein by
reference.
Item 6 Selected Financial Data
The section entitled "Selected Financial Data" on page 57 of the Annual
Report is incorporated herein by reference.
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 58 through 61 of the
Annual Report is incorporated herein by reference.
Item 8 Financial Statements and Supplementary Data
The Company's consolidated financial statements and related notes
thereto, together with the Report of Independent Auditors and the
selected quarterly financial data of the Company presented on pages 62
to 77 of the Annual Report are incorporated herein by reference.
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10 Directors and Executive Officers of the Registrant
There is hereby incorporated by reference the information under the
captions "Election of Directors", "Information Regarding the Nominees
Standing for Election in 1995" and "Information Regarding Directors who
are not Nominees for Election and Whose Terms Continue Beyond 1995" in
the Proxy Statement.
In addition to the information regarding Directors and Executive
Officers set forth above, the following represents information regarding
Executive Officers of the registrant as of March 21, 1995.
Officer Offices Held Age
David L. Maher Chief Operating Officer of the registrant 56
since March 1995; prior thereto Senior
Executive Vice President and Chief Operating
Officer-Drug from March 1993; Chairman of the
Board and Chief Executive Officer of American
Drug Stores, Inc. from September 1990 and
President from March 1990.
Kent T. Anderson Chief Strategy Officer of the registrant since 41
March 1995; prior thereto Executive Vice
President and General Manager - American Stores
Properties, Inc. from March 1993; prior thereto,
General Counsel of the registrant from February
1987 and Executive Vice President of the
registrant from February 1989.
Teresa Beck Chief Financial Officer of the registrant 40
since March 1995; prior thereto, Executive
Vice President and Chief Financial Officer
from June 1994; prior thereto, Executive Vice
President Finance from March 1994; prior
thereto, Executive Vice President Administration
from March 1992; prior thereto, Senior Vice
President Finance and Assistant Treasurer from
June 1989. Assistant Secretary of the registrant
from June 1989 until March 1995.
Officer Offices Held Age
William J. Bolton Chief Operating Officer - Markets of the 48
registrant since March 1995; prior thereto,
Executive Vice President and General Manager-
Jewel Foods from March 1993; prior thereto,
President of Jewel Food Stores, Inc. from
February 1992; prior thereto, Executive Vice
President Marketing of Jewel Food Stores, Inc.
from September 1990; prior thereto, Senior
Vice President Marketing of Jewel Food Stores,
Inc. from prior to January 1990.
James R. Clark Chief Planning Officer of the registrant since 51
March 1995; prior thereto, Senior Vice President
Strategy and Change Management from December 1993.
Senior Vice President Marketing and Planning,
Lucky Stores, Inc. from August 1991 to December
1993; Senior Vice President Sales and Merchan-
dising, Southern California Division of Lucky
Stores, Inc. from August 1989 to August 1991.
Robert P. Hermanns Chief Operating Officer Procurement & Logistics 51
of the registrant since March 1995; prior
thereto, Senior Executive Vice President and
Chief Operating Officer - Food from April,
1994; prior thereto, Executive Vice President
and General Manager - Southern Division of
Lucky Stores, Inc. from August 1991; prior
thereto, Senior Vice President Marketing of the
Northern Division of Lucky Stores, Inc. from
July 1987.
Stephen L. Mannschreck
Chief Human Resources Officer of the registrant 49
since March 1995; prior thereto, Executive
Vice President Human Resources from June, 1994;
prior thereto, Executive Vice President and
General Manager - Osco Drug from March 1993;
prior thereto, Executive Vice President and
Chief Operating Officer of the Osco Division
of American Drug Stores, Inc. from September
1990; prior thereto, Vice President Operations/
Chicagoland Region Osco Division of American
Drug Stores, Inc. from prior to January 1990.
Officer Offices Held Age
Martin A. Scholtens Chief Operating Officer - Retail of the 52
registrant since March 1995; prior thereto,
Executive Vice President and General Manager -
Lucky Southern California Division from March
1994; prior thereto, Executive Vice President
and General Manager - Acme from March 1993;
prior thereto, President of Acme Markets, Inc.
from April 1991; prior thereto, President of
the Star Market Division of Jewel Food Stores,
Inc. from prior to January 1990.
Kathleen E. McDermott
Executive Vice President, General Counsel and 45
Assistant Secretary of the registrant since
June 1993; partner of the law firm of Collier,
Shannon, Rill & Scott from prior to 1990 to
June 1993.
Francis J. Raucci Executive Vice President Chief Labor Counsel 58
of the registrant since June 1994. Senior
Vice President and Chief Labor Counsel from
December 1993 to June 1994. Senior Vice
President and Assistant General Counsel from
April 1989 to December 1993.
Jack Lunt Senior Vice President of the registrant since 50
March 1993; prior thereto, Vice President
from April 1989. Assistant General Counsel and
Secretary of the registrant since April 1989.
Neal J. Rider Senior Vice President and Treasurer of the 33
registrant since March 1994. Assistant
Secretary of the Registrant since March 1995.
Vice President and Controller from September
1992 to March 1994; Vice President and Assistant
Treasurer from May 1990 to September 1992.
Bradley M. Vierig Vice President and Controller, Corporate 37
Accounting of the registrant since March 1994.
Vice President and Assistant Treasurer from
August 1992 to March 1994; Vice President
Corporate Financial Planning from March 1990
to July 1992.
Item 11 Executive Compensation
There is hereby incorporated by reference the information under the
captions "Directors' Compensation", "Executive Compensation",
"Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Value", "Long-Term Incentive Plans-Awards in Last Fiscal
Year", "Compensation Committee Interlocks and Insider Participation" and
"Other Information Pertaining to Directors and Executive Officers" in
the Proxy Statement.
Item 12 Security Ownership of Certain Beneficial Owners and Management
There is hereby incorporated by reference the information under the
caption "Beneficial Ownership of Securities" in the Proxy Statement.
Item 13 Certain Relationships and Related Transactions
There is hereby incorporated by reference the information under the
captions "Information Regarding the Nominees Standing for Election in
1995", "Information Regarding Directors who are not Nominees for
Election and Whose Terms Continue Beyond 1995", "Compensation Committee
Interlocks and Insider Participation" and "Other Information Pertaining
to Directors and Executive Officers" in the Proxy Statement.
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a)(1) - Financial Statements
The following consolidated financial statements of the registrant and
its subsidiaries, included in the Annual Report, are incorporated by
reference in Item 8:
Consolidated Statements of Earnings for the fiscal years 1994, 1993 and
1992;
Consolidated Balance Sheets for the years ended 1994, 1993 and 1992;
Consolidated Statements of Cash Flows for the fiscal years 1994, 1993
and 1992;
Consolidated Statements of Shareholders' Equity for the fiscal years
1994, 1993 and 1992;
Notes to Consolidated Financial Statements.
Item 14(a)(2) - Supplementary Data and Financial Statement Schedules
The supplementary data entitled "Quarterly Results (unaudited)" on page
77 of the Annual Report is incorporated by reference in Item 8.
In response to Item 14(d), all schedules for which provision is made in
the applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
Item 14(a)(3) - Exhibits
In response to Item 14(c), the following exhibits are submitted as a separate
section of this report:
3.1 The restated Certificate of Incorporation of American Stores Company, as
amended, is incorporated herein by reference to the Registrant's Form 8-K
filed with the Commission on July 1, 1991 and the Form 10-Q filed with the
Commission on September 12, 1994.
3.2 The By-Laws of American Stores Company as amended are incorporated
by reference to the Registrant's Form 8-K filed with the Commission on
March 10, 1995.
4.1 The Rights Agreement dated March 8, 1988 between the Company and First
Chicago Trust Company of New York, formerly Morgan Shareholder Services
Trust Company, as Rights Agent, and the amendments thereto, are
incorporated by reference to the Registrant's Registrant Statement on Form
8-A as filed with the Commission on March 16, 1988, and Amendment Nos. 1, 2
and 3 to such Registration Statement filed on March 28, 1990, July 17, 1991
and May 16, 1994, respectively.
10.1 Credit Agreement dated as of June 28, 1994 among the Company, the
banks listed therein and Morgan Guaranty Trust Company of New York as
Agent, is incorporated herein by reference to Exhibit 4.3 to Amendment No.
1 to the Form S-3 Registration Statement (Registration No. 33-52331) filed
with the Commission on November 2, 1994.
10.2 Amended and Restated Retirement Plan for Non-Employee Directors. *
10.3 Non-Employee Directors' Deferred Fee Plan is incorporated herein by
reference to Exhibit 10.3 to Form 8 as filed with the Commission on July
12, 1991. *
________________________________________________
* Constitutes a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this report pursuant to Item 14(c) of
this report.
10.4 Supplemental Executive Retirement Plan as amended and restated on
June 24, 1994. *
10.5 1989 Stock Option and Stock Award Plan is incorporated herein by
reference to the Registrant's S-8 Registration Statement (Registration No.
33-32150) filed with the Commission on November 16, 1989. *
10.6 The 1985 Stock Option and Stock Award Plan is incorporated herein by
reference to the Registrant's S-8 Registration Statement (Registration No.
33-08801) filed with the Commission on September 22, 1986. *
10.7 The 1975 Employees' Stock Option Plan is incorporated herein by
reference to the Registrant's S-8 Registration Statement (Registration No.
2-54101) filed with the Commission on July 29, 1975. *
10.8 Consulting Agreement between the Company and Donald B. Holbrook. *
10.9 Agreement between Jewel Companies, Inc. and Michael T. Miller
incorporated herein by reference to Exhibit 10.k to Form 10-K filed with
the Commission on April 29, 1993. *
10.10 American Stores Company Key Executive Stock Purchase Incentive Plan
is incorporated herein by reference to Exhibit A to the Registrant's 1992
Proxy Statement filed with the Commission on May 7, 1992. *
10.11 American Stores Company Board of Directors Stock Purchase Incentive
Plan as Amended and Restated. *
10.12 Description of Key Management Annual Incentive Bonus Plan of American
Stores Company for fiscal 1995. *
10.13 Description of Key Management Long-Term Performance Incentive Plan
(for 1995 through 1997) of American Stores Company. *
10.14 Form of Employment Agreement together with Schedule of eighteen
officers who entered into Employment Agreements with Company. *
11. Calculation of earnings per share.
12. Computation of ratio of earnings to fixed charges.
13. Exhibit 13 consists of pages 57 to 77 and page 10 of American Stores
Company's 1994 Annual Report to Shareholders which are numbered as pages 1
to 26 of Exhibit 13. Such report, except to the extent incorporated hereby
by reference, has been sent to and furnished for the information of the
Securities and Exchange Commission only and is not to be deemed filed as
part of this Annual Report on Form 10-K. The references to the pages
incorporated by reference are to the printed Annual Report. The references
to the pages of Exhibit 13 are as follows: Item 1--pages 15, 3 through 8
and 24 and 25; Item 2--pages 3 through 8; Item 3--page 25; Item 5--page 1;
Item 6--page 2; Item 7--pages 3 through 8; and Item 8--pages 9 through 26;
Item 14--pages 10 through 26.
22. Subsidiaries of the Registrant.
24. Consent of independent auditors with regard to the financial statements
of the registrant for the year-ended 1994.
27. Financial Data Schedule.
All other exhibits for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instruction or are inapplicable, and therefore have been
omitted.
Item 14(b) - Reports on Form 8-K filed during the last quarter of 1994 -
None.
For the purposes of complying with the amendments to the rules governing
Form S-8 under the Securities Act of 1933, the Company hereby undertakes as
follows, which undertaking shall be incorporated by reference into the
Company's Registration Statements on Form S-8 Nos. 2-71032; 2-54101; 33-
25613; 2-94235; 33-48203; 33-48204; 33-08801; 33-32150; 2-51401 and on Forms
S-3 Nos. 33-41640, 33-41641 and 33-52331.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the Act) may be permitted to directors, officers and controlling
persons of the Company, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
AMERICAN STORES COMPANY
FORM 10-K
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.
(Registrant): American Stores Company
By (Signature and Title): /s/Kathleen McDermott April 26, 1995
Kathleen McDermott,
Executive Vice President, General
Counsel and Assistant Secretary
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 date indicated.
/s/Victor L. Lund Director, President and April 26, 1995
Victor L. Lund Chief Executive Officer
(Principal Executive Officer)
/s/Teresa Beck Chief Financial Officer April 26, 1995
Teresa Beck (Principal Financial Officer)
/s/Bradley M. Vierig Vice President and April 26, 1995
Bradley M. Vierig Controller, Corporate Accounting
(Principal Accounting Officer)
AMERICAN STORES COMPANY
FORM 10-K
Signatures
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 date indicated.
/s/L. S. Skaggs Director and April 26, 1995
L. S. Skaggs Chairman of the Board
/s/Henry I. Bryant Director April 26, 1995
Henry I. Bryant
/s/Louis H. Callister Director April 26, 1995
Louis H. Callister
/s/Arden B. Engebretsen Director April 26, 1995
Arden B. Engebretsen
/s/James B. Fisher Director April 26, 1995
James B. Fisher
/s/Fernando R. Gumucio Director April 26, 1995
Fernando R. Gumucio
/s/Leon G. Harmon Director April 26, 1995
Leon G. Harmon
/s/Donald B. Holbrook Director April 26, 1995
Donald B. Holbrook
/s/Victor L. Lund Director, President April 26, 1995
Victor L. Lund and Chief Executive
Officer
/s/John E. Masline Director April 26, 1995
John E. Masline
AMERICAN STORES COMPANY
FORM 10-K
Signatures (Continued)
/s/Michael T. Miller Director April 26, 1995
Michael T. Miller
/s/L. Tom Perry Director April 26, 1995
L. Tom Perry
/s/Barbara S. Preiskel Director April 26, 1995
Barbara S. Preiskel
/s/J. L. Scott Director April 26, 1995
J. L. Scott
/s/Don L. Skaggs Director April 26, 1995
Don L. Skaggs
/s/Arthur K. Smith Director April 26, 1995
Arthur K. Smith
AMERICAN STORES COMPANY
AMENDED AND RESTATED
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
1. Eligibility. Each member of the Board of Directors ("Board") of
American Stores Company ("Company") who becomes an Eligible Director (as
hereinafter defined) on or after February 1, 1989 shall be eligible to receive a
retirement benefit under the American Stores Company Retirement Plan for Non-
Employee Directors ("Plan") as hereinafter provided. For purposes of this Plan,
an "Eligible Director" is an individual who, at the time he or she retires (as
defined in Section 6(f)) (a) was not an employee of the Company or any of its
subsidiaries (i.e., was a "Non-Employee Director") and (b) has served as a Non-
Employee Director of the Company for ten full years. If a Non-Employee Director
fails to become an Eligible Director, he or she shall not be entitled to receive
any benefit hereunder.
2. Amount of Benefit.
(a) The annual retirement benefit to which an Eligible Director is
entitled is 50% of the annual retainer for Non-Employee Directors in effect at
the time of such Director's retirement ("Retirement Benefit").
(b) An Eligible Director who retires from the Board prior to age 65
shall receive, commencing upon attainment of age 65, the Retirement Benefit for
the period of time equal to the number of years and/or months such Director
served on the Board as a Non-Employee Director.
(c) An Eligible Director who retires from the Board at or after age
65, shall be entitled to receive the Retirement Benefit for the remainder of
such Director's lifetime.
3. Time of Payment. The Retirement Benefit shall be paid to an Eligible
Director in as nearly equal as possible quarterly installments at the same time
as retainers are paid to Non-Employee Directors serving on the Board at the time
of the payment. If retainers to current directors are paid more frequently than
quarterly, then amounts due under this Plan shall be paid on such more frequent
basis. An Eligible Director does not have the right to defer payment of
Retirement Benefits under the Plan. In the case of any Eligible Director
receiving Retirement Benefits pursuant to Section 2(b), the Company reserves the
right to accelerate payment of Retirement Benefits under this Plan at any time
without the consent of such Director.
4. Services and Title of Retired Director. A Retired Director (defined
in Section 6(f)) (a) shall have the title of "Director Emeritus," and shall be
invited to attend the Company's annual shareholders meetings and its Board of
Directors meetings held in conjunction with the annual shareholders meetings,
(b) shall be available at such reasonable times and places as the Company may
request to render consulting services and advice to the Company and (c) shall
not engage in any activity in competition with the Company's business (as
defined in Section 6(g)). If a Retired Director fails to render such services
and advice (unless physically unable to do so) or engages in such competition,
the Company shall be entitled, at its option after considering all the facts and
circumstances, to suspend or terminate Retirement Benefits to such director
under this Plan.
5. No Payments Made on or after Death of Eligible Director. In the event
of the death of an Eligible Director prior to such Director's retirement from
the Board, no payments shall be due under this Plan to any person. In the event
of the death of a Retired Director prior to receiving payments for the full
period contemplated by Section 2(b), no further payments of the Retirement
Benefit shall be due to any person. Except as set forth herein, nothing in this
Plan shall create any benefit, cause of action, right of sale, transfer,
assignment, pledge, encumbrance, or other such right in any heirs or the estate
of any Eligible or Retired Director.
6. Miscellaneous.
(a) The right to receive any payment under this Plan shall not be
transferable or assignable.
(b) The rights of a Director under this Plan are only those of a
general creditor. The Company shall not be required to set aside funds for the
payment of its obligations under this Plan.
(c) The Board may at any time amend or terminate this Plan, provided
that no amendment or termination shall impair or diminish the Vested Right of a
Non-Employee Director hereunder as of the effective date of such amendment or
termination. A Non-Employee Director's Vested Right shall, subject to Section
5, in the case of a Retired Director, be the right to receive any remaining
Retirement Benefit payments due under the terms of this Plan in effect prior to
the effective date of such amendment or termination, and, in the case of any
other Non-Employee Director, such Director's Vested Right shall be as follows:
(i) in the case of an Eligible Director who, as of the effective
date of the amendment or termination, has not attained age 65, the Retirement
Benefit set forth in Section 2(b), with the amount of the Benefit computed as
though such Director retired as of the effective date of the amendment or
termination.
(ii) in the case of an Eligible Director who, as of the effective
date of the amendment or termination, has attained age 65, the Retirement
Benefit set forth in Section 2(c), with the amount of the Retirement Benefit
computed as though such Director retired as of the effective date of the
amendment or termination.
(d) Nothing in this Plan shall be deemed to create any obligation on
the part of the Board to nominate any Director for reelection by the Company's
shareholders.
(e) Interpretation of this Plan, including any questions involving
entitlement to payments under this Plan, shall be by the Benefit Plans Committee
of American Stores Company or any successor thereto (the "Committee"). The
determination of the Committee shall be conclusive. The Committee may obtain
such advice or assistance as it deems appropriate from persons not serving on
the Committee.
(f) "Retirement from the Board" means any termination of service
(other than by death) of any Eligible Director, except any termination which the
Committee determines to have resulted from gross cause. "Gross cause" shall
include fraud, misappropriation of or intentional misconduct damaging to the
property or business of the Company or any of its subsidiaries, or commission of
a felony. An Eligible Director who has retired from the Board is a "Retired
Director."
(g) "Competition with the Company's business" means to own, manage,
operate, control, serve on the board of directors of, or otherwise engage in any
business which competes directly with any of the principal lines of business of
the Company or its subsidiaries. Ownership of less than five percent of the
voting stock of any publicly held corporation shall not be considered to be
"competition with the Company's business."
This Amended and Restated Retirement Plan for Non-Employee Directors is
effective as of March 21, 1995.
EXECUTION DRAFT
15
AMERICAN STORES COMPANY
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
1994 Restatement
AMERICAN STORES COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
1994 Restatement
The purpose of the American Stores Company Supplemental
Executive Retirement Plan is to permit select members of
management and highly compensated employees to defer current
compensation which could not be deferred and contributed to
the Company's Qualified Plan, to receive that portion of the
Company's contribution that would be made to the Qualified
Plan but for limitations imposed by the Internal Revenue Code
of 1986, as amended (the "Code") and to defer additional
compensation. SERP was originally adopted effective July 1,
1987 and was twice amended thereafter. SERP is hereby amended
and restated in its entirety, effective January 1, 1994.
AMERICAN STORES COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
ARTICLE PAGE
ARTICLE I
TITLE AND EFFECTIVE DATE
1.01 Title. This plan shall be known as the
American Stores Company Supplemental Executive Retirement Plan
(hereinafter referred to as "SERP"). It is intended to be an
unfunded plan of deferred compensation maintained for a select
group of management and highly compensated employees within
the meaning of Section 201(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
1.02 Effective Date. SERP was originally effective
as of July 1, 1987. It is hereby amended and restated in its
entirety, effective as of January 1, 1994.
ARTICLE II
DEFINITIONS AND CONSTRUCTION OF THE SERP DOCUMENT
All capitalized terms appearing in this Plan shall
have meanings set forth below. Other capitalized terms where
indicated shall have the meaning ascribed to them under the
Qualified Plan.
2.01 Beneficiary. "Beneficiary" shall mean the
person or persons or the estate of a Participant entitled to
receive any benefits under SERP.
2.02 Bookkeeping Account. "Bookkeeping Account"
shall mean the account established as a bookkeeping record for
each Participant who elects to defer compensation under SERP
and which may, at the discretion of the Committee, include one
or more sub-accounts to reflect amounts credited to a
Participant under the various terms of SERP.
2.03 Committee. "Committee" shall mean the
Compensation and Stock Option Committee of the Board of
Directors of American Stores Company which shall, except as
provided herein, manage and administer SERP.
2.04 Company. "Company" shall mean American Stores
Company, a Delaware corporation, and its affiliates.
2.05 Compensation.
(a) "Compensation" shall mean a Participant's
straight-time earnings, overtime, and any bonus or other
amounts paid by the Company by reason of services
performed by the Participant (including payments pursuant
to amounts previously deferred under this Plan or any
other nonqualified deferred compensation plan), and wage
replacement benefits under Company-sponsored programs for
either occupational or non-occupational disability
benefits, except as provided in (b)(iv) below, before
deductions are authorized by the Participant or required
by law to be withheld.
(b) Notwithstanding the foregoing, a Participant's
Compensation shall be determined without taking into
account any of the following:
(i) Contributions or payments by the Company
for or on account of an employee under any
employee benefit plan (other than payments
pursuant to a nonqualified deferred
compensation plan), including but not limited
to the Qualified Plan and any health or
welfare plan;
(ii) Compensation that is not subject to
employer income tax withholding under Code
Section 3402 (or any successor thereof),
except such Compensation as is provided in
paragraph (d) below;
(iii) Income caused by the exercise of stock
options and stock appreciation rights;
(iv) Income attributable to benefits received
under the long-term disability plan maintained
by the Company; and income attributable to
severance from Company employment;
(c) A Participant's Compensation for purposes of
this Plan shall be the Compensation paid to him/her
during the relevant portion of the Plan year,
irrespective of when such Compensation is actually
earned.
(d) Except as is expressly provided to the contrary
herein, a Participant's Compensation shall include
(i) his or her deferrals under Sections 4.01 and 4.03
hereof and (ii) his or her contributions and any amount
covering employee contributions from the pre-tax health
care premium payment arrangement under the American
Stores Company Before Tax Plan or any similar arrangement
sponsored by the Company pursuant to Code Section 125.
2.06 Deferral Agreement. "Deferral Agreement" shall
mean the written form which is submitted to the Named
Fiduciary before the relevant Election Date which includes
whether the Executive wishes to defer a portion of his
Compensation and indicates the portion of such Compensation to
be deferred and how and when such amounts, together with
earnings, are to be distributed. No Deferral Agreement shall
be effective until executed by the Company.
2.07 Election Date. The "Election Date" shall mean
the date established by SERP as the date before which an
Executive must submit a valid Deferral Agreement to the
Committee. The applicable Election Dates are as follows:
(a) 30 days after a newly eligible Executive is first notified
of his right to participate in SERP, or (b) December 15 of any
calendar year if (a) does not apply.
2.08 Executive. "Executive" shall mean any person
who is eligible to participate in the Company's Qualified
Plan.
2.09 Named Fiduciary. "Named Fiduciary," for
purposes of the submission and execution of Deferral
Agreements under Article III hereof and the claims procedure
set forth in Article X hereof, shall mean the Secretary of
American Stores Company or its delegate.
2.10 Participant. "Participant" shall mean an
Executive who has deferred a portion of Compensation pursuant
to the terms of SERP, and whose account balance has not yet
been distributed in full.
2.11 Plan Year. "Plan Year" shall mean the period
from July 1, 1987 through December 31, 1987 and each
successive calendar year.
2.12 Qualified Plan. "Qualified Plan" shall mean
the American Stores Retirement Estates, as amended from time
to time.
2.13 Separation from Service. "Separation from
Service" or similar expression shall mean the termination of
the Participant's employment as a regular employee of the
Company.
2.14 SERP. "SERP" shall mean the American Stores
Company Supplemental Executive Retirement Plan, as described
in this instrument, as amended from time to time.
2.15 Unless the context clearly indicates otherwise,
masculine pronouns shall include the feminine and singular
words shall include the plural.
2.16 Titles and hearings of the Articles and
Sections of SERP are included for ease of reference only and
are not to be used for the purpose of construing any portion
or provision of the SERP document.
ARTICLE III
ELIGIBILITY
3.01 Eligibility for participation in SERP shall be
determined by the Committee, in its sole discretion, on an
individual basis, but no Executive shall be selected for
participation in SERP unless he qualifies as a member of a
select group of management or as a highly-compensated employee
of the Company and is a participant in the Qualified Plan.
3.02 An Executive, after having been selected for
participation by the Committee, shall, as a condition to
participation, complete and return to the Named Fiduciary a
duly executed Deferral Agreement on or prior to the applicable
Election date and shall defer amounts from Compensation in any
Plan Year thereafter by completing and returning to the Named
Fiduciary a Deferral Agreement on or prior to the Election
Date preceding such Plan Year. The Named Fiduciary shall
execute Deferral Agreements on behalf of the Company. Each
Deferral Agreement shall also specify how and when the
deferred Compensation, corresponding Company contributions for
the Plan Year and earnings thereon shall be distributed. The
distribution designation may, but need not, vary from Plan
Year to Plan Year.
ARTICLE IV
DEFERRAL OF COMPENSATION
4.01 If the Committee has expressly authorized
deferrals for a Plan Year, each Participant in SERP may have a
percentage of his Compensation received during the Plan Year
deferred and credited to the Participant's Bookkeeping Account
in accordance with the terms and conditions of SERP. The
percentage of such salary to be so deferred under this
Section 4.01 shall equal 6% of Compensation for a calendar
year, less amounts permitted to be deferred and so deferred as
Tax-Deferred Contributions (as such term is defined in the
Qualified Plan) into the Qualified Plan.
4.02 With respect to amounts deferred under
Section 4.01, the Company, if the Committee has expressly
authorized Company contributions for a Plan Year, shall add
for crediting to the Participant's Bookkeeping Account an
amount equal to the excess of the amount described in
Section 4.02(a) over the amount described in Section 4.02(b)
as follows:
(a) The amount equal to the contribution the
Company would make to the Qualified Plan for the Plan
Year, without regard to any limitations imposed by the
Internal Revenue Code of 1986, as amended (the "Code"),
based on the Participant's Compensation for such Plan
Year and assuming the Participant made to the Qualified
Plan a contribution equal to the amount described in
Section 4.01 hereof.
(b) The amount equal to the Company's actual
contribution to the Qualified Plan for the Participant
for such Plan Year.
This contribution shall typically be actually determined or
credited in the Plan Year following the Plan Year to which it
corresponds.
4.03 If the Committee has expressly authorized
deferrals under Section 4.01 hereof, each Participant making
the maximum deferral under Section 4.01, may also defer up to
an additional 44% of his Compensation to be received in a
calendar year in excess of that deferred under Section 4.01.
4.04 Any amounts deferred by a Participant under
Section 4.03 shall not be eligible for any additional Company
contribution.
4.05 An eligible Executive desiring to participate
in SERP must submit his written Deferral Agreement to the
Named Fiduciary on or before the applicable Election Date.
Valid Deferral Agreements filed by the applicable Election
Date as provided in Section 2.07 (a) or (b) shall cause
Compensation and Company contributions to be deferred in the
Plan Year in respect of which such Agreement is made which
shall be the Plan Year in which the Compensation is paid.
Deferral Agreements entered into under the conditions of
2.07(b) shall cause Compensation and Company contributions to
be deferred beginning January 1 of the next Plan Year. It is
contemplated hereunder that the amount or percentage of
Compensation to be deferred under Sections 4.01 and 4.03 and
the amount of the Company's contribution under Section 4.02
shall, in the case of an Executive who becomes a Participant
during a Plan Year and completes a Deferral Agreement on or
prior to an Election Date described in Section 2.06(a) hereof,
be adjusted as necessary in application to the Compensation
received by a Participant during the Plan Year after the
applicable Election Date, so that the aggregate amounts
deferred and contributed equal the amounts that would be
deferred and contributed had the Executive commenced
participation at the beginning of the corresponding calendar
year and the provisions of Sections 4.01, 4.02 and 4.03 been
applied without adjustment.
4.06 A Participant who has not submitted a valid
Deferral Agreement to the Named Fiduciary before the
applicable Election Date may not defer any Compensation (or
receive the corresponding Company contribution) for the
applicable Plan Year under SERP.
4.07 Deferral Agreements remain in effect for the
Plan Year to which they apply. A Participant must file a new
Deferral Agreement for any subsequent Plan Year. The terms of
any Deferral Agreement may, but need not be, similar to the
terms of any prior Agreement.
ARTICLE V
DEFERRAL ACCOUNT AND CREDITING
5.01 Compensation deferred by a Participant under a
written Deferral Agreement and matching Company contributions
plus earnings thereon shall be credited in a dollar amount to
a separate Bookkeeping Account for each Participant.
5.02 The amount in the Participant's Bookkeeping
Account shall be credited each calendar quarter with earnings
at an interest rate equal to the prime rate of interest
charged by the Morgan Guaranty Trust Company of New York as of
the last business day of the preceding calendar quarter.
Earnings on deferred amounts shall be deemed to accrue as of
the date the amounts deferred are credited to the Bookkeeping
Account.
ARTICLE VI
DISTRIBUTIONS
6.01 Distribution of the value of a Participant's
Bookkeeping Account balance shall be made according to the
terms of SERP and as specified in the Participant's one or
more Deferral Agreements and in accordance with the rules of
this Section 6.01.
(a) A Participant or, after the Participant's
death, his or her Beneficiary may vary or modify the
terms of the distribution set forth in any Deferral
Agreement, but any such modification or variation shall
be made pursuant to a written instrument between the
Participant or Beneficiary, as the case may be, and the
Company executed no later than 12 months before the date
such modification or variation is to be effective.
(b) Each Deferral Agreement shall, in connection
with amounts deferred under Section 4.01 hereof and
Company contributions under Section 4.02 hereof, together
with earnings thereon, specify the commencement and term
of distributions in the event of death prior to
commencement of payment, long-term disability prior to
commencement of payment, Separation from Service, and
attainment of age 59-1/2 whether or not there has been a
Separation from Service.
(c) If the Participant does not wish the
designations under (b), above, to apply to deferrals
under Section 4.03 hereof, if any, and earnings thereon,
each Deferral Agreement shall also specify when the
distribution of such deferrals and earnings shall
commence and over what period, unless any of the events
mentioned under paragraph (b) occurs prior to the
commencement date specified under this paragraph (c) in
which case the designation under paragraph (b) shall
govern. A distribution pursuant to a designation made
under this paragraph (c) may commence not earlier than
the beginning of a calendar year which follows the year
in which the deferrals are made. Such designation must
apply to the entire amount deferred under Section 4.03
for such Plan Year and earnings thereon.
(d) All deferral elections shall be made on such
forms and in accordance with the specific terms
prescribed by the Committee relating to, among other
things, the available distribution periods and times of
commencement.
(e) In the event of the Participant's death after
distribution to him has already commenced, the
distribution to his Beneficiary shall continue pursuant
to the method by which distribution commenced to the
Participant.
6.02 The Participant shall at all times have a
nonforfeitable right to the value of his Bookkeeping Account
attributable to his contributions under Sections 4.01 and 4.03
hereof plus interest thereon.
6.03 The Participant shall have a nonforfeitable
interest in any Company contributions under Section 4.02 plus
interest thereon as provided under the terms of the Qualified
Plan. Company contributions to SERP shall be treated as
subject to vesting or not subject to vesting to the same
extent and in the same proportion that the Company
contribution under Section 4.02(b) hereof is treated as
subject to vesting or not subject to vesting under the terms
of the Qualified Plan.
6.04 All distributions of a Participant's
Bookkeeping Account shall be made in cash only.
6.05 Notwithstanding any other provision of SERP to
the contrary, if the Committee determines that any
distribution or portion thereof to a Participant or
Beneficiary would not be deductible for Federal income tax
purposes solely by reason of the limitation imposed by Code
Section 162(m) (or any successor provision thereto), then the
Committee may defer all or any portion of such distribution to
the extent necessary to ensure the total deductibility of such
payment. All amounts so deferred shall remain in the
Participant's Bookkeeping Account and be credited with
interest pursuant to Article V hereof. Amounts so deferred
and interest thereon shall be distributed to the Participant
(or his Beneficiary) at the earliest possible date, as
determined by the Committee in its sole discretion, on which
the deductibility of such amounts is not limited by Code
Section 162(m).
ARTICLE VII
HARDSHIP DISTRIBUTIONS
7.01 At the request of a Participant before or after
the Participant's Separation from Service, or at the request
of any of the Participant's Beneficiaries after the
Participant's death, the Committee may, in its sole
discretion, accelerate and pay all or part of the vested value
of a Participant's Bookkeeping Account due under SERP.
Accelerated distributions at the request of the Participant or
a Participant's Beneficiaries may be allowed only in the event
of a financial emergency beyond the Participant's or
Beneficiary's control due to unforeseeable circumstances and
only if disallowance of a distribution would create a severe
hardship for the Participant or Beneficiary. An accelerated
distribution must be limited to only that amount necessary to
relieve the financial emergency.
ARTICLE VIII
BENEFICIARY
8.01 A Participant shall designate his Beneficiary
to receive the remainder of the Participant's Account Balance
under SERP in the event of the Participant's death prior to
the complete distribution of his Account Balance, by
completing the appropriate space in the Deferral Agreement.
It more than one Beneficiary is named, the shares and/or
precedence of each Beneficiary shall be indicated. A
Participant shall have the right to change the Beneficiary by
submitting to the Named Fiduciary a Change of Beneficiary
form. However, no change of beneficiary shall be effective
until executed by the Named Fiduciary on behalf of the
Company.
8.02 If the Committee has any doubt as to the proper
Beneficiary to receive payments hereunder, the Committee shall
have the right to direct the Company to withhold such payments
until the matter is finally adjudicated. However, any payment
made by the Company, in good faith and in accordance with SERP
and the directions of the Committee, shall fully discharge the
Company and Committee from all further obligations with
respect to that payment.
8.03 In making any payments to or for the benefit of
any minor or an incompetent Beneficiary, the Committee, in its
sole and absolute discretion, may direct the Company to make a
distribution to a legal or natural guardian or other relative
of a minor or court appointed committee of such incompetent.
Alternatively, the Committee may direct the Company to make a
payment to any adult with whom the minor or incompetent
temporarily or permanently resides. The receipt by a
guardian, committee, relative or other person shall be a
complete discharge to the Company and Committee. Neither the
Committee nor the Company shall have any responsibility to see
to the proper application of any payments so made.
ARTICLE IX
ADMINISTRATION OF SERP
9.01 All resolutions or other actions taken by the
Committee shall be by vote of a majority of those present at a
meeting at which a majority of the members are present, or in
writing by a majority of all the members at the time in office
if they act without a meeting.
9.02 Subject to the terms of SERP, the Committee
shall, from time to time, establish rules, forms and
procedures for the administration of SERP. Except as herein
otherwise expressly provided, the Committee shall have the
exclusive right to interpret SERP and to decide any and all
matters arising thereunder or in connection with the
administration of SERP and it shall endeavor to act, whether
by general rules or by particular decisions so as not to
discriminate in favor of or against any person.
Notwithstanding the foregoing, the Committee may appoint one
or more delegates to carry out its responsibilities under the
preceding sentences. Such delegates may, but need not,
consist of individuals who are participants or who are
eligible to participate in SERP. The decisions, actions and
records of the Committee (including its delegates) shall be
conclusive and binding upon the Company and all persons having
or claiming to have any right to interest in and under SERP.
9.03 The members of the Committee and the officers
and directors of the Company shall be entitled to rely on all
certificates and reports made by any duly appointed
accountants, and on all opinions given by any duly appointed
legal counsel, which legal counsel may be counsel for the
Company.
9.04 The Company shall indemnify and save harmless
each member of the Committee against any and all expenses and
liabilities arising out of his membership on the Committee.
Expenses against which a member of the Committee shall be
indemnified hereunder shall include, without limitation, the
amount of any settlement or judgment, costs, counsel fees, and
related charges reasonably incurred in connection with a claim
asserted, or a proceeding brought or settlement thereof. The
foregoing right of indemnification shall be in addition to any
other rights to which any such member of the Committee may be
entitled as a matter of law.
ARTICLE X
CLAIMS PROCEDURE
10.01 Benefits shall be paid in accordance with the
provisions of this instrument. The Participant, or a
Beneficiary or any other person claiming through the
Participant shall make a written request for benefits under
this agreement. This written claim shall be mailed or
delivered to the Named Fiduciary. Such claim shall be
reviewed by the Named Fiduciary.
10.02 If the claim is denied, in full or in part,
the Named Fiduciary shall provide a written notice within
ninety (90) days setting forth the specific reasons for
denial, and any additional material or information necessary
to perfect the claim, and an explanation of why such material
or information is necessary, an appropriate information and
explanation of the steps to be taken if a review of the denial
is desired.
10.03 If the claim is denied and a review by the
Committee is desired, the Participant (or Beneficiary) shall
notify the Named Fiduciary in writing within sixty (60) days
(a claim shall be deemed denied if the Named Fiduciary does
not take any action within the aforesaid ninety (90) day
period) after receipt of the written notice of denial. In
requesting a review, the Participant or his Beneficiary may
request a review of the SERP document or other pertinent
documents with regard to the employee benefit plan created
under this agreement, may submit any written issues and
comments, may request an extension of time for such written
submission of issues and comments, and may request that a
hearing be held, but the decision to hold a hearing shall be
within the sole discretion of the Committee.
10.04 The decision on the review of the denial claim
shall be rendered by the Committee within sixty (60) days
after receipt of the request for review (if a hearing is held)
or within sixty (60) days after the hearing if one is held.
The decision shall be written and shall state the specific
reasons for the decision including reference to specific
provisions of SERP on which the decision is based.
ARTICLE XI
NATURE OF COMPANY'S OBLIGATION
11.01 The Company's obligation under SERP shall in
every case be an unfunded and unsecured promise to pay. The
Company shall not be obligated under any circumstances to fund
its financial obligations under SERP.
11.02 Any assets which the Company may acquire or
set aside to help cover its financial liabilities are and must
remain general assets of the Company subject to the claims of
its creditors. Neither the Company nor SERP gives the
Participant any beneficial ownership interest in any asset of
the Company. All rights of ownership in any such assets are
and remain in the Company.
ARTICLE XII
MISCELLANEOUS
12.01 Any notice which shall be or may be given
under SERP or a Deferral Agreement shall be in writing and
shall be mailed by United States mail, postage prepaid. If
notice is to be given to the Company, such notice shall be
addressed to the Company at 709 East South Temple, Salt Lake
City, Utah 84102, marked for the attention of the Secretary of
American Stores Company or if notice to an Executive,
addressed to the address shown on such Executive's Deferral
Agreement or the last known address on the Company's personnel
records.
12.02 Any party may, from time to time, change the
address to which notices shall be mailed by giving written
notice of such new address.
12.03 SERP shall be binding upon the Company, it
assigns, and any successor company which shall succeed to
substantially all of its assets and business through merger,
acquisition or consolidation, and upon an Executive, his
Beneficiary, assigns, heirs, executors and administrators.
12.04 The Committee retains the sole right to
terminate SERP or to make any modifications or amendments to
SERP at any time by approving a written instrument of
termination, amendment or modification, as the case may be,
which instrument shall be executed by an officer of the
Company. Amendments or modifications may be retroactive.
However, no action hereunder shall reduce the Bookkeeping
Account of any Participant or his Beneficiary, as of the date
of such amendment, modification, or termination.
12.05 Except insofar as prohibited by applicable
law, no sale, transfer, alienation, assignment, pledge,
collateralization or attachment of any benefits under SERP
shall be valid or recognized by the Company. Neither the
Participant, his spouse, or designated Beneficiary shall have
any power to hypothecate, mortgage, commute, modify or
otherwise encumber in advance of any of the benefits payable
hereunder, nor shall any of said benefits be subject to
seizure for the payment of any debts, judgments, alimony
maintenance, owed by the Participant or his Beneficiary, or be
transferable by operation of law in the event of bankruptcy,
insolvency, or otherwise. To the extent permitted by law, the
Company may withhold payment of all or part of any amount due
hereunder and apply it to the payment of debts or other
amounts owed to the Company including but not limited to
losses arising from theft or other acts of dishonesty.
12.06 All reasonable attorney's or other legal fees
incurred by any Participant (or former Participant) to enforce
successfully his valid rights under SERP shall be paid by the
Company in addition to sums due under SERP.
12.07 The Committee reserves the right to accelerate
the payment of any benefits payable under SERP at any time
without the consent of the Participant, his estate, his
Beneficiary or any other person claiming through the
Participant.
12.08 The Company, at the discretion of the
Committee, may make payment or take such other action as it
deems appropriate in response to any court order directed to
the Company or SERP in respect of any person's interest in
SERP. Notwithstanding the foregoing, any court order in the
context of a domestic relations or child support proceeding
must specify the amount to be paid, the identity of the payee
or payees, and the commencement time and manner of payment.
Any change to the manner of payment specified in the court
order will require a subsequent court order.
12.09 SERP shall be governed by the laws of the
State of Utah.
IN WITNESS WHEREOF, this amended and restated
instrument setting forth the terms and conditions of the
AMERICAN STORES COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
is executed this _____ day of _________________, 1994.
AMERICAN STORES COMPANY
By: ___________________________
CONSULTING AGREEMENT
THIS AGREEMENT made this 30th day of November, 1994, between AMERICAN STORES
COMPANY, a corporation organized and existing under the laws of the State of
Delaware, with its principal place of business at 709 E. South Temple, Salt Lake
City, Utah 84102, hereinafter referred to as "American", and DONALD B.
HOLBROOK, of 170 South Main Street, Suite 1500, Salt Lake City, Utah 84101,
hereinafter referred to as "Consultant."
WITNESSETH:
WHEREAS, American is the owner of several drug store chains and in the
conducting of the store business hires numerous pharmacists; and
WHEREAS, there is not uniformity nationwide in the requirements for pharmacist
degrees; and
WHEREAS, there is an effort nationwide to cause the 6-year Pharm.D. degree to be
the sole accredited entry level degree for all accredited schools of pharmacy
throughout the United States, hereinafter called "the Pharm.D. Project;" and
WHEREAS, American desires to engage Consultant to oppose the Pharm.D. Project,
and encourage better ways, including continuing education projects, to achieve
desirable quality in the practice of pharmacy.
NOW, THEREFORE, in consideration of mutual promises herein contained and other
good and valuable consideration the receipt of which is hereby acknowledged, the
parties agree as follows:
1. NATURE OF WORK. Consultant will perform consulting and advisory services on
behalf of American with respect to all matters relating to or affecting the
Pharm.D. Project as more fully described in Exhibit "A" attached hereto.
2. PLACE OF WORK. It is understood that Consultant's services will be
rendered largely outside of American's offices, but will on request meet at
American's offices in Sale Lake City or such other places as designated by
American with representatives of American and others involved in the Pharm.D.
Project.
3. TIME DEVOTED TO WORK. In the performance of the services, the days and
times Consultant is to work on any given aspect of the project will be entirely
with Consultant's control and American will rely upon Consultant to put in such
number of hours as is reasonably necessary to fulfill the spirit and purpose of
this Agreement, in consultation with American. Consultant shall record his time
spent in fulfillment of this Agreement to assist the parties in evaluating the
fairness of the fees paid hereunder.
4. PAYMENT OF FEES. American will pay to Consultant fees in the sum of a
maximum of fifty-thousand Dollars ($50,000.00) for one (1) year, payable in
equal quarterly installments of $12,500.00 in advance commencing December 1,
1994; provided that adjustments will be made in the fourth quarter if it appears
that the total hours spent by Consultant on this project multiplied by his
hourly rate will not reach $50,000.00. In addition, Consultant shall be
reimbursed for all traveling and other expenses while away from the Salt Lake
City area, consistent with American's standard policy on such expenses, as set
forth at Exhibit "B." In the event Consultant procures the services of others
as described in paragraph 7 hereof, their fees and costs shall be reimbursed
directly by American.
5. DURATION. The parties hereto contemplate that this Agreement will run for
one (1) year. Either party hereto may at any time notify the other that the
arrangement is not to continue beyond a specified date. In the absence of any
such notification this Agreement shall run for one (1) year but may be renewed
for additional periods upon the mutual consent of the parties.
6. STATUS OF CONSULTANT. This Agreement calls for the performance of services
of the Consultant as an independent contractor and Consultant will not be
considered an employee of American for any purpose.
7. SERVICES OF OTHERS. It is understood that Consultant may need to engage the
services of third parties which may include those providing legal services.
Consultant shall have the right to engage such third parties upon prior written
approval of the Senior Executive Vice President (Drugs) and the General Counsel.
8. REPORTING. Consultant shall have the responsibility to report on a monthly
basis to a person designated by American. In the event American does not
designate such person, reports shall be given to the Senior Executive Vice
President (Drugs) with copies to the General Counsel.
9. ASSIGNMENT. It is understood that this Agreement may best be carried out
under the auspices of the National Association of Chain Drug Stores (NACDS).
The parties hereby consent to such assignment upon such time as NACDS agrees to
assume the rights and responsibilities of American hereunder and to hold
American harmless from any liability hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
AMERICAN STORES COMPANY
By________________________________________
Title_______________________________________
___________________________________________
Donald B. Holbrook
EXHIBIT A
OUTLINE
PHARM.D. PROJECTS - SCOPE OF UNDERTAKING
1. Continuing Education Programs
a. Work with Kevin Tripp (ASC), Ken Kirk (NACDS), Texas Higher Education
Coordinating Board
i. Pilot Program
ii. Revise ASDI Grid
b. Raymond Gosselin - Consultant
i. Gary Walters - Consultant, Ohio Board of Regents
ii. Evaluate CE, using ASDI grid
c. Letter to Board Members of AACP - Kirk Evaluation
i. Encourage Reconsideration of Pharm.D.
ii. Evaluate CE - See Swartz
iii. David Maher advice and input
d. Consult with C. C. Foxley, Commissioner of Higher Education for Utah
i. Consider presentation to the Secretary of Education
ii. See letter from Tennessee Education
iii. Utah Coalition - Regent Ian Cumming
e. Form an Alliance
i. ASC - (David, Kevin, Don)
ii. NACDS - (Ken Kirk)
iii. FMI
iv. Kroger - Etc. - Merk, see letter
f. Consult with Chicago Dean, Jack Kessinger
i. CE
ii. Antitrust
iii. Separate Accrediting
g. Prepare a list of Regents - letter re Texas Coordinating Board
h. Publicity re Texas decision
i. Consult with Dean Swartz - letter 8/23/94
i. "Talking with wrong people"
ii. Letter encouraging further dialogue
j. Check other academic alliances
i. Monahan, Trustee in Massachusetts
ii. Check letters of response to Maher letter
iii. Circulate Texas findings to interested parties with a cover letter from
David Maher
k. Call an "alliance" conference
i. Invite all those who support our positions
ii. Get publicity
iii. Prepare agenda
iv. Include Secretary of Education approach
v. CE programs
vi. Organize opposition at the academic level
vii. Help to show the ACPE mandate is not "accepted" by many boards, educators
and employers of Pharmacists
l. Series of regional meetings with Regents, Commissioners, Licensing Boards,
Members of the academic community to be arranged by local District Managers of
chains
i. Show NACDS tape
ii. Presentations, including outlines used at the ACPE Open Hearing and the
meeting with AACP
2. Secretary of Education
a. Show the ACPE mandate is "unacceptable"
b. Consider a separate accrediting agency for community pharmacists
c. All members of society are being prejudiced by ACPE policies
d. "Alliance" conference, supra
e. Joint letter - businesses and academic interests
f. Assistance of Senator Hatch
g. C/R Ted Bell letter
h. Consider a meeting in Washington
i. Oversight hearing C/R Hatch
3. Coordinating Committee
a. ASC
b. NACDS
c. FMI
d. Kroger
4. Senator Hatch
a. Staff Member Patricia Knight shows a lack of interest
i. Involve David Lee
ii. DBH personal contacts
b. Response to Hatch letter
i. Even though this response was from only half of recipients of the Hatch
letter, the chains did review the problem and treat the issues
c. Oversight Hearings
i. The findings of ABT never been refuted--focus on health care reform
ii. ACPE only represents academic side
iii. Practicing pharmacists ignored
iv. Industry ignored
v. Community pharmacists ignored
vi. Cross-reference "Alliance Conference," item l.k. above.
d. Senator Hatch meeting in Washington, D.C.
i. Hatch acts as Chairman
ii. Invite people who are supportive
iii. Speech for Hatch on floor of Senate
iv. In connection with Health Care Reform, use Pharm.D. as an example of
professional self-help through continuing education, saving millions
B-1
AMERICAN STORES COMPANY
BOARD OF DIRECTORS STOCK PURCHASE INCENTIVE PLAN
AS AMENDED AND RESTATED MARCH 21, 1995
1. PURPOSE. The AMERICAN STORES COMPANY BOARD OF DIRECTORS STOCK PURCHASE
INCENTIVE PLAN (the "Plan") is intended to promote the long-term growth and
financial success of AMERICAN STORES COMPANY (the "Company") in the interests of
the Company and its shareholders and to strengthen the link between members of
the Company's Board of Directors and the Company's shareholders. The Plan
provides non-employee directors of the Company with an opportunity to
significantly increase their ownership of Common Stock of the Company, coupled
with incentive awards based in part on the performance of the Common Stock
relative to comparable companies in the Company's industry, while placing such
non-employee directors at risk in the event of poor Company performance and
encouraging the retention of such non-employee directors by requiring the
forfeiture of certain incentive awards under the Plan if their service is
terminated.
2. DEFINITIONS. For purposes of the Plan, the following words and phrases
shall have the respective meanings set forth below:
(a) Agreement shall mean the written agreement entered into between the Company
and a Participant to carry out the Plan with respect to the Participant in
accordance with the Plan's terms and conditions.
(b) Board of Directors or Board shall mean the Board of Directors of American
Stores Company.
(c) Commission shall mean the Securities and Exchange Commission.
(d) Common Stock shall mean the Common Stock, $1.00 par value per share, of the
Company.
(e) Comparison Stock shall mean the common equity of a member of the Peer
Group.
(f) Deferred Award shall mean the opportunity to receive deferred cash
incentive payments pursuant to Section 7.
(g) Designated Loan Amount shall mean, on any date, the original principal
amount of the Purchase Loan plus accrued interest at the Interest Rate less
the amount of interest payable pursuant to Section 6(b), compounded
annually.
(h) Disability shall mean the inability of the Participant to perform his or
her normal duties as a director as a result of incapacity due to mental or
physical illness which is determined to be total and permanent in a written
opinion from a physician selected by the Company or the Company's insurers
and reasonably acceptable to the Participant or the Participant's legal
representative.
(i) Effective Date shall mean the date the Plan is approved by the shareholders
of the Company.
(j) Interest Rate shall mean the Applicable Federal Rate for eight-year loans
with interest compounded annually, as determined by Section 1274(d) of the
Internal Revenue Code of 1986, as amended, in effect on the Purchase Date,
compounded annually.
(k) Market Index shall mean the Standard & Poor's 400 Index (with dividends
reinvested) or, in the event such index is no longer available, the Dow
Jones Industrial Average (with dividends reinvested).
(l) Market Price of any security shall mean, for any date (or in the event such
date is not a day on which such security is publicly traded, on the last
trading day for such security prior to such date), the average of the high
and low sales prices of such security on such date, as reported on the New
York Stock Exchange Composite Tape or, if such security is not listed on
such exchange, on the principal national securities exchange or national
automated stock quotation system on which such security is traded or
quoted.
(m) 1934 Act shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
(n) Participant shall mean a member of the Company's Board of Directors who is
not an officer or employee of the Company or a spouse of an officer or
employee of the Company and who would be less than 69 years of age on the
Purchase Date.
(o) Peer Group shall mean initially the group of nine publicly-traded retail
food and/or drug companies listed on Schedule A hereto against which the
Total Shareholder Return of the Company will be compared for purposes of
determining the Performance Cash Award earned in accordance with Section
7(c). If the Comparison Stock of any member of the Peer Group shall cease
to be publicly quoted or traded, then the Peer Group shall be adjusted by
eliminating such member of the Peer Group for purposes of all calculations
under Section 7(c) except for payments already made; provided, that if
there would be fewer than seven members in the Peer Group, in lieu of
eliminating such member for purposes of all calculations, the calculation
of Total Shareholder Return of such member shall be adjusted in the manner
described in Section 2(cc).
(p) Percentile Ranking shall mean the Company's relative performance ranking in
Total Shareholder Return over a particular Performance Cycle (or shorter
period as provided in the Plan) compared to the Peer Group. Such ranking
shall be determined in accordance with Schedule B of the Plan.
(q) Performance Cash Award shall mean the amount of cash, if any, payable to
the Participant calculated pursuant to the performance-based portion of the
Deferred Award set forth in Section 7(c).
(r) Performance Cycle shall mean, for each Participant, the period of time
beginning on the Purchase Date and ending on the day prior to the fifth
annual meeting of shareholders of the Company after the Purchase Date.
(s) Purchase Award shall mean an award to a Participant permitting such
Participant to purchase shares of Common Stock pursuant to Section 5 at the
average of the high and low sales prices of the Common Stock on the
Purchase Date as reported on the New York Stock Exchange or, if the Common
Stock is not listed on such exchange, on the principal national securities
exchange or national automated stock quotation system on which the Common
Stock is traded or quoted, together with related Purchase Loan and Deferred
Award rights upon exercise of the Purchase Award.
(t) Purchase Date shall mean the date a Participant purchases shares of Common
Stock pursuant to a Purchase Award.
(u) Purchase Loan shall mean an extension of credit to the Participant by the
Company evidenced by the Purchase Note.
(v) Purchase Note shall mean a full recourse promissory note including the
terms set forth in Section 6(a).
(w) Retirement shall mean a voluntary Termination of Service by a Participant
after reaching the mandatory retirement age for members of the Board of
Directors or after having served as a member of the Board of Directors for
a period (not necessarily consecutive) of at least ten years.
(x) Security shall mean the Common Stock or any Comparison Stock.
(y) Service shall mean service as a director of the Company.
(z) Service Cash Award shall mean the amount of cash, if any, payable to the
Participant pursuant to the service-based portion of the Deferred Award set
forth in Section 7(b).
(aa) Tax Rate shall mean, at the time of determination, the maximum marginal
effective combined federal and state tax rates on ordinary income or
capital gains, as the case may be, to which such individual is subject.
(bb) Termination of Service refers to a Participant's termination of membership
from the Company's Board of Directors for any reason whatsoever.
(cc) Total Shareholder Return of the Company or any member of the Peer Group
shall be calculated by (i) assuming that one share of Common Stock (or
Comparison Stock of such member, as the case may be) is purchased on the
Purchase Date by a Participant at a price equal to the Market Price of such
Security on the Purchase Date; (ii) assuming that additional shares (or
fractions of shares) of such Security are purchased upon the payment of
dividends or other distributions to holders of such Security on the initial
share of such Security and on shares accumulated through the assumed
reinvestment of dividends and other distributions at a price equal to the
Market Price of such Security on the date such dividends or distributions
are paid; (iii) calculating the number of shares (including fractions of
shares) of such Security that would be accumulated over the Performance
Cycle (or such shorter period as provided in the Plan), adjusting, as
necessary, for any stock splits or similar events; (iv) multiplying the
number of shares of such Security (including fractions of shares)
determined in clause (iii) by the average of the daily Market Price of such
Security for the thirty (30) trading days immediately prior to the end of
the Performance Cycle (or shorter period as provided in the Plan); and (v)
determining the annual compound rate of growth between the value determined
in clause (i) and the value determined in clause (iv) for such Security.
To the extent any non-cash dividend or distribution is made to holders of a
Security, the fair market value of such dividend or distribution
(determined by an investment banker selected by the Company) shall be
assumed to be reinvested in the manner provided in clause (ii) above. If
the Comparison Stock of any member of the Peer Group ceases to be publicly
quoted or traded, then, to the extent required by Section 2(o), a "blended"
Total Shareholder Return shall be calculated based upon (x) the Total
Shareholder Return of such member of the Peer Group through the date it
ceased to be publicly traded and (y) the Total Shareholder Return of the
Market Index from such date through the end of the Performance Cycle (or
such shorter period as provided in the Plan), assuming that an amount equal
to the Market Price of the number of shares (including fractions thereof)
of Comparison Stock for the former member of the Peer Group that were
accumulated through the date it ceased to be a member was reinvested in the
Market Index on such date.
3. SHARES SUBJECT TO THE PLAN. The aggregate number of shares of Common Stock
that may be issued under the Plan shall not exceed 180,000 shares; provided,
however, that in the event that at any time after the Effective Date the
outstanding shares of Common Stock are changed into or exchanged for a different
number or kind of shares or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split, stock dividend,
combination of shares or the like, the aggregate number and class of securities
available under the Plan shall be appropriately adjusted. Shares of Common
Stock that have been included in a Purchase Award but not exercised by a
Participant on the Purchase Date may again be awarded under the Plan.
4. TERM OF THE PLAN. The Plan shall become effective upon the approval by the
shareholders of the Company. The Plan shall be terminated on March 21, 1995;
provided, that Deferred Awards and Purchase Loans outstanding as of such date
shall not be affected or impaired by the termination of the Plan. Any grants of
Purchase Awards prior to the Effective Date shall be subject to the occurrence
of the Effective Date not later than the date of the Company's 1992 Annual
Meeting of Shareholders.
5. STOCK PURCHASE.
(a) Eligibility; Timing of Purchase Award. On June 1, 1992, each member of the
Company's Board of Directors who is eligible to be a Participant shall be
granted a Purchase Award to purchase 10,000 shares of Common Stock under
the Plan on the Effective Date (which shall be the Purchase Date for such
individuals). Individuals eligible to be a Participant who first become
members of the Board of Directors after June 1, 1992 shall be granted a
Purchase Award upon election to the Board of Directors to purchase 10,000
shares of Common Stock (subject to adjustment for any stock splits, stock
dividends or combination of shares after the Effective Date) on the tenth
trading day after the date they are elected (such tenth trading day to be
the Purchase Date for such individuals). Purchase Awards may be exercised
in whole or in part in the manner provided in Section 5(b).
(b) Exercise of Purchase Award. A Participant shall exercise a Purchase Award
by delivering to the Company on or prior to the Purchase Date (i) a notice
stating the number of shares (but not more than the maximum number of
shares available under the Purchase Award) such Participant elects to
purchase on the Purchase Date, and (ii) an executed Agreement, Purchase
Note and any other documents required pursuant to the Plan, or in lieu of a
Purchase Note, a Participant may deliver cash in the amount of the purchase
price for the shares of Common Stock purchased pursuant to the Purchase
Award in which case the Designated Loan Amount for purposes of Section 7
shall be deemed to be such purchase price. Any Participant who does not
elect to purchase any shares under the Purchase Award on or prior to the
Purchase Date shall forfeit any rights under the Plan with respect to a
Purchase Award including, without limitation, any right to receive a
Purchase Loan or Deferred Award related to such Purchase Award.
(c) Closing Time. The exercise of the Purchase Award, the delivery of the
Purchase Note and the issuance by the Company of the Common Stock purchased
pursuant to the Purchase Award shall be effective at 5:00 p.m., Salt Lake
City time, on the Purchase Date (the "Closing Time"). After the Closing
Time, such Participant shall be deemed a shareholder of the Company and
shall be entitled (i) to dividends and distributions on Common Stock
purchased pursuant to the Purchase Award, (ii) to exercise all voting
rights with respect to the Common Stock, and (iii) subject to the terms of
the Plan, to transfer the Common Stock.
6. LOAN PROVISIONS.
(a) General. The Company shall extend a Purchase Loan to a Participant upon
exercise of a Purchase Award subject to the terms and conditions set forth
in this Section 6. The original principal amount of the Purchase Loan
shall be equal to the purchase price of the Common Stock purchased under
the Purchase Award by such Participant. Such Purchase Loan shall be
evidenced by the Purchase Note with full recourse against the maker. The
obligations of each Participant under a Purchase Note shall be
unconditional and absolute and, without limiting the generality of the
foregoing, shall not be released, discharged or otherwise affected by any
change in the existence, structure or ownership of the Company, or any
insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Company or its assets or the market value of the Common Stock
or any resulting release or discharge of any obligation of the Company or
the existence of any claim, set-off or other rights which any Participant
may have at any time against the Company or any other person, whether in
connection with the Plan or with any unrelated transactions, provided that
nothing herein shall prevent the assertion of any such claim by separate
suit or counterclaim.
Notwithstanding anything to the contrary in this Section 6, the Company
shall not be required to make any Purchase Loan to a Participant if the
making of such Purchase Loan will (i) cause the Company to violate any
covenant or similar provision in any indenture, loan agreement or other
agreement, or (ii) violate any applicable federal, state or local law;
provided, that the failure to make such Purchase Loan shall be deemed to
revoke the exercise of the related Purchase Award unless otherwise
specified by the Participant.
(b) Interest. Interest on the principal balance of the Purchase Loan will
accrue annually, in arrears, at the Interest Rate and shall be paid in cash
during the Performance Cycle to the extent of two percent (2%) per annum on
the initial principal amount of the Purchase Loan. Except as provided in
this subsection (b) and in subsections (d) and (e) of this Section 6, (i)
accrued interest shall not be payable during the Performance Cycle but
shall be added to the principal balance of the Purchase Loan and (ii)
interest that accrues after the end of the Performance Cycle shall be paid
annually in arrears.
(c) Term. The Purchase Loan shall have an eight-year term subject to
prepayment as provided in subsections (d) and (e) of this Section 6. The
principal balance of the Purchase Loan (including accrued but unpaid
interest) outstanding after the prepayment pursuant to Section 6(d)(i)
following the end of the Performance Cycle, if any (the "Remaining
Balance"), shall be payable in three equal annual installments on the
sixth, seventh and eighth anniversaries of the Purchase Date with the
interest on the unpaid remaining balance payable annually, in arrears, on
each such anniversary.
(d) Pre-payment Obligations Other than Termination of Service.
(i) Deferred Cash Incentive. To the extent the Participant receives any
Service Cash Award or Performance Cash Award under Section 7 prior to
the earlier of (i) Termination of Service due to death or Disability
or (ii) the end of the Performance Cycle, the Participant shall
immediately prepay the Purchase Loan by the full pre-tax amount of
such award upon receipt thereof. In the event the Participant
receives any Service Cash Award or Performance Cash Award under
Section 7 after the earlier of (i) Termination of Service due to death
or Disability or (ii) the end of the Performance Cycle, the
Participant shall immediately prepay the Purchase Loan by the full
after-tax amount of such award upon receipt thereof, based upon the
Tax Rate.
(ii) Optional Prepayments. The Participant may prepay all or any portion
of the Purchase Loan at any time.
(iii) Application of Prepayments. All prepayments made to the Company
pursuant to this Section 6(d) shall first be applied to pay accrued
interest on the Purchase Loan and then to reduce the principal balance
due on the Purchase Loan. Any prepayment of the Remaining Balance
shall be applied to the principal payments due thereon in
chronological order of maturity.
(e) Termination of Service During the Performance Cycle. In the event of a
Participant's Termination of Service for any reason except Retirement prior
to the end of the Performance Cycle, any outstanding balance (including
accrued and unpaid interest) of the Purchase Loan shall be due and payable
on the 120th day following such Termination of Service; provided, that if
the sale of Common Stock purchased under the Plan would subject the
Participant to liability under the federal securities laws, including
Section 16 of the 1934 Act, the full amount of the Purchase Loan (including
accrued and unpaid interest) shall be due and payable on the 90th day
following the date on which the Participant may sell such Common Stock
without incurring such liability (limited, in the case of Section 16, to
liability relating to purchases or sales of Common Stock or any derivative
security occurring prior to the Termination of Service).
Upon Retirement prior to the end of the Performance Cycle, any outstanding
balance (including accrued and unpaid interest) of the Purchase Loan
(subject to any prepayments pursuant to Section 6(d)) shall become due and
payable in three equal annual installments on the first, second and third
anniversaries of the date of such Retirement. Interest on the unpaid
principal balance of such Purchase Loan during such three-year period after
Retirement shall accrue at the Interest Rate and shall be payable annually,
in arrears, on each such anniversary.
7. DEFERRED AWARD; PAYMENTS OF SERVICE CASH AWARD AND PERFORMANCE CASH AWARD.
(a) Deferred Award. The Company shall extend a Deferred Award to a Participant
upon exercise of a Purchase Award subject to the terms and conditions set
forth in this Section 7. The maximum amount payable to any Participant
pursuant to a Deferred Award, consisting of a Service Cash Award and a
Performance Cash Award, shall equal the Designated Loan Amount at the time
such cash award payments are made, except as provided in Section 7(f)(ii).
(b) Service Cash Award. The Service Cash Award with respect to any Purchase
Loan, which shall not be in excess of fifty percent (50%) of the Designated
Loan Amount, will be based on the Participant's length of Service during
the Performance Cycle. Except as set forth in Section 7(f), for each full
year that a Participant remains in Service during the Performance Cycle,
with respect to a particular Purchase Award, the Participant will vest in
the right to receive a Service Cash Award equal to the percentage specified
below in Table A of the balance of the Designated Loan Amount at the time
such Service Cash Award is made pursuant to Sections 7(d) or 7(e):
TABLE A
SERVICE CASH AWARD VESTING SCHEDULE
FULL YEARS OF CUMULATIVE VESTED SERVICE
SERVICE DURING CASH AWARD AS A PERCENT
PERFORMANCE CYCLE OF DESIGNATED LOAN AMOUNT
1 7.5%
2 15.0%
3 22.5%
4 30.0%
5 50.0%
Note: The first year of Service shall be deemed to begin on the Purchase
Date and end on the date of the first annual meeting of shareholders
of the Company after the Purchase Date, and each successive year of
Service shall be deemed to end on the date of the next annual
meeting of shareholders, with the fifth year ending at the end of
the Performance Cycle.
(c) Performance Cash Award. The Performance Cash Award with respect to a
particular Purchase Award, which shall not be in excess of fifty percent
(50%) of the Designated Loan Amount, will be based on the Company's Total
Shareholder Return over the Performance Cycle relative to the Total
Shareholder Return for the members of the Peer Group. The portion of the
Performance Cash Award earned as a percentage of the Designated Loan Amount
at the time such Performance Cash Award is made pursuant to Section 7(e)
will vary depending upon the Company's level of performance in accordance
with Table B that follows:
TABLE B
PERFORMANCE CASH AWARD SCHEDULE
PERCENTILE RANKING PERFORMANCE CASH
OF COMPANY'S AWARD AS A PERCENT OF
TOTAL SHAREHOLDER RETURN DESIGNATED LOAN AMOUNT
Below 50th 0%
50th %ile 12.5%
60th %ile 25%
70th %ile 37.5%
80th %ile and Above 50%
Note: Payments for performance between the listed percentiles will be
interpolated on a straight-line basis (e.g., Total Shareholder
Return at the 55th percentile will result in a Performance Cash
Award equal to 18.75% of the Designated Loan Amount at the time of
such payment). Schedule B illustrates the calculation of the
Percentile Ranking.
(d) Forfeiture Upon Premature Sale of Stock. The sale of any shares of Common
Stock acquired under a Purchase Award prior to the earlier of (i) a
Participant's Termination of Service or (ii) the end of the Performance
Cycle shall cause the forfeiture of such Participant's Deferred Award and
all rights under this Section 7 other than the right to receive the vested
portion of the Service Cash Award which shall be paid by the Company to the
Participant within thirty (30) days following the earlier of the end of the
Performance Cycle or a Termination of Service; provided, however, that such
payment shall be applied to prepay the Purchase Loan in accordance with
Section 6(d)(i). A transfer of a Participant's shares of Common Stock to a
revocable trust as to which the Participant retains voting and investment
power (which powers of revocation, voting and investment may be shared with
the Participant's spouse) or a transfer to joint ownership with such
Participant's spouse shall not be deemed a sale for purposes of this
Section 7(d) and, solely for the purposes of this Plan, such shares of
Common Stock shall be deemed to be owned by the Participant.
(e) Timing of Payment. Payment of any Service Cash Award and/or Performance
Cash Award shall be made as soon as practicable, but in any event within
thirty (30) days, following the earlier of the end of the Performance Cycle
or a Termination of Service; provided, however, that any payment of a
Service Cash Award or Performance Cash Award shall be applied to prepay the
Purchase Loan in accordance with Section 6(d)(i).
(f) Treatment of a Termination of Service.
(i) Upon a Termination of Service prior to the end of the Performance
Cycle for any reason except death, Disability or Retirement, the right
to any unvested portion of the Service Cash Award and the right to the
entire Performance Cash Award will be forfeited.
(ii) Upon a Termination of Service due to death or Disability prior to the
end of the Performance Cycle, the Service Cash Award will, in lieu of
the vesting schedule set forth in Section 7(b), immediately vest and
become payable in an amount equal to ten percent (10%) per year of
Service from the Purchase Date (with full credit for the year of
Service in which such termination occurred) multiplied by the
Designated Loan Amount at such time up to a maximum of fifty percent
(50%) of the then outstanding balance. In addition, the Participant
will be entitled to a potential payment under the Participant's
Performance Cash Award based on the Company's Percentile Ranking in
Total Shareholder Return from the beginning of the Performance Cycle
through the date of the Participant's Termination of Service, prorated
according to the number of full months that the Participant was a
member of the Board of Directors during the Performance Cycle. If a
Participant's Termination of Service is due to death or Disability and
the aggregate Market Price on the sixtieth day after the Participant's
Termination of Service of the shares of Common Stock purchased
pursuant to a Purchase Award and still owned by the Participant on
such date (together with the fair market value of any non-cash
distributions made to the Participant with respect to shares of Common
Stock acquired on the Purchase Date) is less than the outstanding
balance of the Purchase Loan (including accrued and unpaid interest)
on such date (assuming, solely for the purposes of this calculation,
that the pre-tax proceeds of any sale of the Common Stock purchased
pursuant to a Purchase Award (which sales must have been made in open-
market transactions) sold after the date of Termination of Service,
and prior to the sixtieth day after such date, had been applied to
prepay the Purchase Loan pursuant to Section 6(d)(ii)), then the
Company will pay to the Participant an amount in cash equal to such
shortfall (together with an amount necessary for the reimbursement of
any taxes payable by the Participant as a result of any such
additional payments to the Participant). In the event a Participant
exercises a Purchase Award but either does not enter into a Purchase
Loan or subsequently prepays the entire Purchase Loan pursuant to
Section 6(d)(ii) prior to any Termination of Service, the amount of
any payment by the Company pursuant to the preceding sentence shall be
based upon the excess, if any, of (i) the purchase price paid for the
shares of Common Stock on the Purchase Date over (ii) the sum of (x)
the aggregate Market Price on the sixtieth day after the Participant's
Termination of Service of the shares of Common Stock purchased
pursuant to a Purchase Award and still owned by the Participant on
such date (together with the fair market value of any non-cash
distributions made to the Participant with respect to shares of Common
Stock acquired on the Purchase Date), (y) the proceeds of any sales of
shares of Common Stock acquired on the Purchase Date (which sales must
have been made in open-market transactions) sold after the date of
Termination of Service and prior to such sixtieth day, and (z) the
after-tax amount of any Performance Cash Award and Service Cash Award
paid to the Participant based on the Tax Rate.
(iii) Upon a Termination of Service due to Retirement prior to the end
of the Performance Cycle, any unvested portion of the Service Cash
Award will be forfeited but the Participant will be entitled to a
potential prorated Performance Cash Award. Such payment, if any, will
be based on the Company's Percentile Ranking in Total Shareholder
Return from the beginning of the Performance Cycle through the date of
the Participant's Retirement, prorated according to the number of full
months that the Participant was a member of the Board of Directors
during the Performance Cycle. Notwithstanding the foregoing, if a
Participant under the Plan completes four years of Service during the
Performance Cycle as a member of the Board of Directors and is unable
to be reelected to the Board due to the Board's mandatory retirement
age established pursuant to a resolution of the Board, then upon a
Termination of Service due to Retirement prior to the end of the
Performance Cycle any unvested portion of the Service Cash Award shall
become fully vested and the Participant shall vest in the right to
receive a potential Performance Cash Award without any proration.
Such Performance Cash Award will be based upon the Company's
Percentile Ranking in Total Shareholder Return from the beginning of
the Performance Cycle and ending on the date of Termination of Service
due to Retirement.
(g) Extraordinary Transaction. In the event of any merger, consolidation or
similar business combination transaction in which the shares of Common
Stock become exchangeable into the right to receive securities, cash or
other property, any unvested portion of the Service Cash Award will be
forfeited. However, the Participant shall fully vest in the right to
receive a potential Performance Cash Award. Such Performance Cash Award
will be based upon the Company's Percentile Ranking from the beginning of
the Performance Cycle and ending on the tenth trading day for the Common
Stock prior to the consummation of such business combination and shall be
paid within thirty (30) days following the earlier of the end of the
Performance Cycle or a Termination of Service.
8. MISCELLANEOUS PROVISIONS.
(a) Unsecured Status of Claim. Participants and their beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests
or claims in any specific property or assets of the Company. No assets of
the Company shall be held under any trust for the benefit of Participants,
their beneficiaries, heirs, successors or assigns, or held in any way as
collateral security for the fulfillment of the Company's obligations under
the Plan.
Any and all of the Company's assets shall be, and shall remain, the general
unpledged and unrestricted assets of the Company. The Company's
obligations under the Plan shall be merely that of an unfunded and
unsecured promise of the Company to pay benefits in the future.
(b) Right to Be Nominated a Director Not Guaranteed. Nothing contained in the
Plan nor any related Agreement shall be construed as giving a Participant
any right to be nominated to continue as a member of the Board of Directors
of the Company.
(c) Nonassignability. No person shall have any right to commute, sell, assign,
transfer, pledge, anticipate, mortgage or otherwise encumber, hypothecate
or convey in advance of actual receipt the deferred cash incentive, if any,
payable under the Plan, or any part thereof, or any interest therein, which
are, and all rights to which are, expressly declared to be unassignable and
non-transferable. No portion of the amounts payable shall, prior to actual
payment, be subject to seizure, attachment, lien or sequestration for the
payment of any debts, judgments, alimony or separate maintenance owed by a
Participant or any other person, nor be transferable by operation of law in
the event of the Participant's or any other person's bankruptcy or
insolvency. Any such transfer or attempted transfer in violation of the
preceding provisions shall be considered null and void. In addition, no
derivative security (as defined in Rule 16a-1(c), as promulgated by the
Commission under the 1934 Act, or any successor definition adopted by the
Commission) issued under the Plan shall be transferable by a Participant
(to the extent transferable under the Plan) other than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code of 1986, as amended, or Title
I of the Employee Retirement Securities Act or the rules thereunder.
(d) Separability; Validity. This Plan is intended to qualify under Rule 16b-3
of the 1934 Act. If any of the terms or provisions of this Plan conflict
with the requirements of Rule 16b-3, then such terms and provisions shall
be deemed inoperative to the extent they so conflict with such
requirements. In the event that any provision of the Plan or any related
Agreement is held to be invalid, void or unenforceable, the same shall not
affect, in any respect whatsoever, the validity of any other provision of
the Plan or any related Agreement.
(e) Withholding Tax. The Company shall withhold from all benefits due under
the Plan an amount sufficient to satisfy any federal, state and local tax
withholding requirements.
(f) Applicable Law. The Plan and any related Agreements shall be governed in
accordance with the laws of the State of Delaware without regard to the
application of the conflicts of law provisions thereof. The obligation of
the Company with respect to the grant and exercise of Purchase Awards shall
be subject to all applicable laws, rules and regulations and such approvals
by any governmental agencies as may be required, including, without
limitation, the effectiveness of any registration statement required under
the Securities Act of 1933, as amended, and the rules and regulations of
any securities exchange on which the Common Stock may be listed.
(g) Inurement of Rights and Obligations. The rights and obligations under the
Plan and any related Agreements shall inure to the benefit of, and shall be
binding upon the Company, its successors and assigns, and the Participants
and their beneficiaries.
(h) Amendment. Sections 2, 3, 4, 5, 6, 7, and 8(h), and Schedules A and B of
the Plan shall not be amended more than once every six months, other than
to comport with changes in the Internal Revenue Code of 1986, as amended,
the Employment Retirement Income Security Act, or the rules thereunder. No
amendment, suspension or termination of the Plan may cause the Plan to fail
to meet the requirements of Rule 16b-3 promulgated under the 1934 Act, or
such successor rule as may hereinafter be in effect or may, without the
consent of the Participant, adversely affect such Participant's rights
under the Plan in any material respect. In addition, no such amendment
shall be made without the approval of the Company's shareholders to the
extent such approval is required by law or agreement.
(i) Notice. All notices and other communications required or permitted to be
given under this Plan shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed first class, postage prepaid,
as follows: (A) if to the Company -- at its principal business address to
the attention of the Secretary; (B) if to any Participant -- at the last
address of the Participant known to the sender at the time the notice or
other communication is sent.
(j) Exclusion from Pension and Profit-Sharing Computation. By exercise of a
Purchase Award, each Participant shall be deemed to have agreed that such
Purchase Award and any Service Cash Award and Performance Cash Award
payable under Section 7 hereof, as applicable, is special incentive
compensation that will not be taken into account, in any manner, as salary,
compensation or bonus in determining the amount of any payment under any
pension, retirement or other employee benefit plan of the Company or any of
its subsidiaries. In addition, each beneficiary of a deceased Participant
shall be deemed to have agreed that such Purchase Award and any Service
Cash Award and Performance Cash Award, as applicable, will not affect the
amount of any life insurance coverage, if any, provided by the Company on
the life of the Participant which is payable to such beneficiary under any
life insurance plan covering employees of the Company or any of its
subsidiaries.
SCHEDULE A
MEMBERS OF PEER GROUP
The Great Atlantic & Pacific Tea Company, Inc.
Albertson's, Inc.
The Kroger Co.
Longs Drug Stores Corporation
Safeway Inc.
Smith's Food & Drug Centers, Inc.
The Vons Companies, Inc.
Walgreen Co.
Winn-Dixie Stores, Inc.
SCHEDULE B
PERCENTILE RANKING
The percentage used to calculate the Performance Cash Award based on the
Company's Percentile Ranking in Total Shareholder Return relative to the Peer
Group when the number of companies in the Peer Group - plus the Company - at end
of the Performance Cycle (or such earlier time as provided in the Plan) is:
10 COMPANIES
Performance
Cash Award as a
Percentage of
Percentile Ranking Designated Loan Amount
1st 50.000%
2nd 50.000%
3rd 47.250%
4th 33.375%
5th 19.500%
6th-10th 0.000%
9 COMPANIES
Performance
Cash Award as a
Percentage of
Percentile Ranking Designated Loan Amount
1st 50.000%
2nd 50.000%
3rd 43.750%
4th 28.125%
5th 12.500%
6th-9th 0.000%
8 COMPANIES
Performance
Cash Award as a
Percentage of
Percentile Ranking Designated Loan Amount
1st 50.000%
2nd 50.000%
3rd 39.250%
4th 21.375%
5th 0.000%
6th-8th 0.000%
AMERICAN STORES COMPANY
KEY MANAGEMENT ANNUAL INCENTIVE PLAN
I am pleased to inform you that you have been selected to participate in the
American Stores Company Key Management Annual Incentive Plan ("Plan") for the
fiscal year 1995. The basic objective of this incentive plan is to achieve an
improvement in earnings. Earnings is a key element for measuring the success of
the Company and provides a fair method to measure the performance of all who
share in the Plan.
OVERVIEW
The Plan has been designed to provide an incentive to focus on achieving and
exceeding the annual earnings target. The maximum payout as a percent of base
salary will be equal to your bonus percentage participation level times 250%.
Each participant will have an expected incentive award equal to a specified
percentage of his or her average annual salary during the fiscal year. For this
purpose, average annual salary is defined as the base pay an individual received
during the fiscal year of January 29, 1995 through February 3, 1996. Each
participant will be informed of his or her bonus percentage participation level
which is determined by each individual's job classification and
responsibilities.
(The payout relationships indicated in this document are for a bonus participant
whose bonus level is at 30% of base salary; participants at different bonus
levels are prorated from this level. Exhibit I will assist you in estimating
your bonus payout amount.)
COMPUTATION OF BONUS AWARD
Participants in the Plan will be awarded an incentive payment based on the
increase in adjusted earnings in the current fiscal year over the earnings
target. Adjusted earnings equal consolidated earnings before taxes, adjusted
for gains or losses and any one-time non-recurring events. The LIFO amount to
be used for bonus purposes will not vary from the budgeted amount. The earnings
target for fiscal 1995 is $ . The point at which the bonus will
begin to be earned is $ or 77% of $ .
The following describes the relationship of earnings achievement to bonus
payouts. (The notation "for each 1%" refers to the number of percentage points
above 77% and above 100%)
% of Earnings % of Base
Target Salary Earned
77% - 99.99% 1.304348% for each 1%
100% - 123% 1.956521% for each 1%
AMERICAN STORES COMPANY
KEY MANAGEMENT ANNUAL INCENTIVE PLAN (cont.)
ADMINISTRATION
Key Management employees transferred to other operating companies or transferred
to other incentive plans will share in this Plan based on their salary received
while a participant in this Plan.
Being a participant in this Plan is not to be construed as a contract for
employment, nor an agreement on the part of management of the Company for such
employment. Termination of employment of a participant for any reason except
retirement, death or disability prior to the end of the fiscal year shall,
except at the approval of the President and CEO of American Stores Company, be
cause for cancellation of all rights to a bonus award for that year.
In the case of death, disability as determined under the American Stores Long-
Term Disability Plan, or retirement at or after age 57, generally a pro rata
award will be made based on the participant's salary received while a
participant in this Plan. Payment will be made at the regular time (i.e., after
the final financial results of American Stores Company have been approved by the
Compensation and Stock Option Committee). A pro rata award will not be made to
individuals retiring at or after age 57 who begin competing with the company
within 1 year of leaving employment. For purposes of this paragraph the word
"competing" shall mean working or consulting for a retail establishment in the
food or drug business in direct competition with a business operated by the
Company or its subsidiaries as a supermarket store, a drug store, a warehouse
store, a club store or any combination thereof, or that primarily sells the
products which constitute at least ten percent (10%) of the products sold in any
of the stores described above.
Employees who are on sick leave in excess of one month will forfeit their share
of bonus accrued during their illness unless the bonus award is otherwise
approved by the President and CEO of American Stores Company.
For those bonus payments made after the calendar year in which the employee
either dies or retires at or after age 57, an additional payment will be made at
the same time the bonus payment is made. The calculation for this payment will
be:
Bonus payment multiplied by the latest available American Stores Retirement
Estates (ASRE) company contribution on pay factor
Plus
Bonus payment multiplied by 6% and this result multiplied by the latest
available ASRE company match on personal deposits factor.
Incentive compensation shall be computed on the financial results for the full
fiscal year January 29, 1995 through February 3, 1996 as adjusted. The
determination of adjusted earnings will be made by the Compensation and Stock
Option Committee of American Stores Company and will be conclusive with respect
to all incentive awards to be paid. With this in mind, it is the intention of
the Company that all incentive payments for fiscal year 1995 will be paid in
April 1996.
EXHIBIT I
Steps to estimate your bonus payout:
1. Locate on the attached table the value that is next to the expected
earnings achievement for fiscal year 1995.
Example: If you expect that earnings will be 103% of target,
the value is 119.57% which is the percentage of your bonus that
you will earn.
2. Use the value determined above in the formula below.
Fiscal salary X Bonus percentage X Value = Estimated
participation level from Bonus
(as indicated on #1 above Payment
your cover letter)
EXAMPLE: Fiscal salary Feb. 95-Jan. 96 = $50,000
Bonus Level = 30%
Earnings as % of Target = 103%
50,000 X 30% X 119.57% = $17,935.50
AMERICAN STORES COMPANY
KEY MANAGEMENT
LONG-TERM PERFORMANCE INCENTIVE PLAN
1995 - 1996 - 1997
PLAN PURPOSE
The purposes of the American Stores Company Long-Term Performance Incentive Plan
("Plan") are to:
focus executive's attention prospectively on long-term results
and balance the effect of the short-term incentive plan;
direct attention to overall corporate performance and reward
achievement of the Company's long-term financial goals; and
maintain the competitiveness of the American Stores' compensation
program, and assist in retaining executives.
ELIGIBILITY
Participation in the American Stores Company Long-Term Performance Incentive
Plan is limited to key executives who have a significant impact on the long-term
results of the Company. Participation will be on a selected basis, reflecting
position responsibilities and impact on long-term results.
PERFORMANCE CYCLES
Performance cycles will be three years in length, with a new cycle starting
every year. Cash payments, if warranted by Corporate performance, will be made
at the end of the three-year cycle. Thus, assuming performance goals continue
to be met, payments will be made annually once the first cycle has been
completed, based on results over the previous three years.
TARGETED AWARDS
Long-term performance award opportunities are designed to balance the effect of
the Company's short-term incentive awards, to provide meaningful long-term
incentive compensation and to result in competitive total direct compensation
levels. The degree of attainment of the Corporation's long-term performance
goals determines the actual size of the participant's awards. Target awards are
20% of the participants' average annual base salary over the three-year
performance cycle based on achieving 100% of target earnings per share (E.P.S.).
The award is increased for each 1% above the target E.P.S. (see Exhibit I). The
maximum award attainable is 70% of the participant's average annual base salary
over the three-year performance cycle.
PERFORMANCE MEASUREMENT
The 95-96-97 Plan will be based on total earnings performance based on E.P.S.
At or before the beginning of each performance cycle, the specific performance
criteria will be set by the Compensation and Stock Option Committee.
DETERMINATION OF INDIVIDUAL AWARDS
The award schedule is shown in Exhibit I. Exhibit II provides an example of the
performance award calculation.
The E.P.S. award is based upon how the Company's total E.P.S. over the three-
year cycle compares to the preset goal, as set by the Compensation and Stock
Option Committee. As an example, if American Stores' total three year E.P.S. is
100% of target, the E.P.S. award would be 20% of the participant's average
annual base salary over the three-year performance cycle.
ADMINISTRATION OF PLAN
The following are administrative guidelines for the American Stores Company
Long-Term Performance Incentive Plan:
* The Compensation and Stock Option Committee of The Board of Directors
has final approval of the Plan. Determination of attainment of the
performance measure will be
made by the Compensation and Stock Option Committee.
* Awards will be made in April following each performance cycle after
the final financial results of American Stores Company have been
approved.
* All awards will be made in cash.
* In the case of death, disability as determined under the American
Stores Long-Term Disability Plan, or retirement at or after age 57,
generally a pro rata award will be made based upon the number of months
of service completed during the award cycle (s) and the participant's
average annual base salary. Payment will be made at the regular time at
the end of the performance cycle (s) (i.e., after the final financial
results of American Stores Company have been approved). A pro rata award
will not be made to individuals retiring at or after age 57 who begin
competing with the company within 1 year of leaving employment. For
purposes of this paragraph the word "competing" shall mean working or
consulting for a retail establishment in the food or drug business in
direct competition with a business operated by the Company or its
subsidiaries as a supermarket store, a drug store, a warehouse store, a
club store or any combination thereof, or that primarily sells the
products which constitute at least ten percent (10%) of the products sold
in any of the stores described above.
* Individuals who are selected to participate in the Plan during a
cycle will receive an award prorated based on the salary received during
the period they were participants in the Plan.
* In the event your position responsibilities change (other than
termination) to the extent that it is determined that you are no longer
eligible to participate in the Plan, you will be paid at the end of the
cycle an award prorated on the basis of time you were a participant.
* Unless otherwise approved in writing by the Chairman of the Board,
any participant who resigns or is terminated during a performance cycle
forfeits all rights to any awards.
* The Compensation and Stock Option Committee has authority to
interpret the Plan and make all determinations required to administer the
Plan.
* For those bonus payments made after the calendar year in which the
employee either dies or retirees at or after age 57, an additional
payment will be made at the same time the bonus payment is made. The
calculation for this payment will be:
Bonus payment multiplied by the latest available American
Store Retirement Estates (ASRE) company contribution on pay factor.
Plus
Bonus payment multiplied by 6% and this result multiplied by the
latest available ASRE company match on personal deposits factor.
EXHIBIT I
AMERICAN STORES COMPANY
95-96-97 LONG-TERM INCENTIVE PLAN
E.P.S. AWARD SCHEDULE
Total Three Year Performance Award As A
E.P.S. As Percent Percent of Average Annual
of Target Base Salary For the Cycle * Ratio
120% 70% = Maximum Award
3:1
110% 40%
2:1
100% 20%
1:1
90% 10%
1:1
80% 0%
* Performance award is paid at the end of each performance cycle (one
cycle ending every three years), and is calculated using average annual
base salary over the three-year performance cycle times the percentage
performance award earned.
EARNINGS PER SHARE FOR 1995 - 1996 - 1997 PLAN
THREE YEAR TARGET E.P.S. IS $
The three year target E. P. S. OF $ is based on the current number of
outstanding common shares which is approximately 142,900,000. In the event that
the amount of common shares outstanding is increased through stock dividends or
stock splits or conversion of convertible debt the target earnings per share
will be adjusted.
EXHIBIT II
AMERICAN STORES COMPANY
PERFORMANCE AWARD CALCULATIONS
1995-1996-1997
To calculate your bonus determine the actual E.P.S. as a percentage of target
and convert this into the "performance award" as a percent of average annual
base salary.
For example, if total 3 year E.P.S. as a percent of target is 105%, the
performance award is 30% of your average annual base salary:
20% at target plus 2% for each 1% above 100% of target ( 5 x 2% = 10%)
for a total of 30%
"Average annual base salary" is calculated by totaling salary while a
participant and dividing by 3
Example #1: Year Salary
95 95,000 Participant for full cycle
96 100,000 "average annual base
97 105,000 salary" is 100,000
Average annual base salary x performance award as a percent of average annual
base salary = LTIP Bonus Award
100,000 X 30% = LTIP Bonus of $30,000
Example #2: Year Salary Participant for last 30
months of cycle
95 47,500 "average annual base
96 100,000 salary" is 84,167
97 105,000
Average annual base salary x performance award as a percent of average annual
base salary = LTIP Bonus Award
84,167 X 30% = LTIP Bonus of $25,250
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the ____ day of _____________, ____,
by AMERICAN STORES COMPANY, a Delaware corporation (Company), and
______________________________ (Executive). The Company and Executive are
collectively referred to as the Parties, and individually as a Party.
The Parties represent that:
A. Executive is presently employed as an "employee at-will" with the
Company; and
B. The Parties desire to enter into this Employment Agreement to specify
more fully each Party's rights and obligations under the employment
relationship.
In consideration of their mutual promises and covenants in this Agreement,
the sufficiency of which they acknowledge, the Parties agree as follows:
I.
RELEASE
I-A. To the extent permitted by law, Executive, after the required
statutory time and opportunity to review this Agreement, releases and discharges
the Company and its subsidiaries and their respective officers, directors and
employees, from all claims and demands arising from or relating to Executive's
employment at-will relationship that existed with the Company prior to the
execution of this Agreement including, but not limited to demands based on
federal, state or local laws, common law, and claims based on express or implied
contract, covenants of good faith and of fair dealing, intentional or negligent
infliction of emotional distress, the Age Discrimination In Employment Act and
Title VII of the Civil Rights Act of 1964. Executive does not waive any claims
accrued or which may accrue under workers' compensation laws, existing stock
options, employee stock benefit plans, ASRE and other employee benefit plans.
II.
TERM
II-A. The term of this Agreement is ________ years, commencing on
___________, _____, and for subsequent _________-year terms until terminated by
written notice given by the Company at least one year prior to the end of the
then effective __________-year term, or until terminated as described below.
II-B If this Agreement is terminated following notice of termination
of the agreement given pursuant to Section II-A, but the Company continues to
employ Executive, the Parties' employment relationship shall become one of
employment at-will, in which either Party may terminate the employment
relationship, with or without cause and without notice, and all benefits
specified in this Agreement shall thereupon terminate, except that Executive
shall be entitled to such benefits as shall then have accrued to Executive
(e.g., existing stock options, ASRE benefits and SLRRP) and shall otherwise be
entitled only to such benefits as are then available to similarly situated at-
will executives of the Company. The Company, at its sole discretion, may
continue to provide some or all of the benefits and compensation enumerated in
this Agreement as determined in writing by the Company from time to time,
executed by the signer of this Agreement or his successor.
III.
EXECUTIVE'S DUTIES
III-A. Executive shall perform services of an executive nature that are
the same as, or generally consistent with, the services that he or she has been
performing and equal to those services in status, dignity and responsibility.
III-B. Executive shall act in the Company's best interests and shall make
every reasonable effort to discharge assigned duties efficiently and to comply
with the Company's policies and procedures. Executive shall devote his or her
full and exclusive time to the Company's business and refrain from engaging in
any other activity for others as an employee or independent contractor, officer,
director or agent for monetary gain, except that where approved in writing by
the Board of Directors of the Company. The Executive may serve, or continue to
serve on the Board of Directors or hold any other offices or positions in,
companies or organizations which, in the Board's judgment, will not present any
conflict of interest with the Company or any of its subsidiaries or materially
affect the performance of Executive's duties pursuant to this Agreement. Any
services Executive renders as an officer or director of the Company shall be
without additional compensation unless the Company's or its subsidiaries' Board
of Directors directs otherwise.
III-C. The Company may change Executive's duties from time to time, but
Executive shall remain an officer of the Company or one of its subsidiaries, and
the Company shall have Executive perform duties of an executive nature that are
equal to Executive's previous title and duties in status, dignity and
responsibility, and failure of the Company to do so shall constitute a material
breach of this Agreement.
IV.
EXECUTIVE'S COMPENSATION
IV-A. Company shall pay Executive a base salary of $________________ plus
target bonuses (as achieved) at the target rate of 50% (30% Annual Bonus and 20%
Long Term Incentive Plan) (TCO), provided, that TCO is subject to change in the
event of increases or pursuant to Section IV-C below.
IV-B. Executive shall also be eligible to receive bonuses pursuant to the
Company's bonus programs. The Company, in its sole discretion, may alter its
bonus programs' terms and conditions including, but not limited to, altering the
criteria, extending or reducing the performance period, or eliminating the bonus
programs.
IV-C. Notwithstanding Section IV-B, during the term of this Agreement, the
Company shall not make a reduction in the sum of Executive's salary plus target
bonus (TCO) of more than twenty percent (20%), other than a reduction which is
part of a general cost reduction affecting at least ninety percent (90%) of the
officers of the Company.
IV-D. The Company shall reimburse Executive for reasonably incurred
expenses related to the Company's business in accordance with the Company's
policies on reimbursement, as they may be changed from time to time.
V.
RELOCATION
V-A. The Company, at its sole discretion, may require Executive to work in
another location that would reasonably require Executive to relocate his or her
primary residence. The Company shall give Executive at least 90 days notice
prior to requiring Executive to relocate.
V-B. If the Company requires Executive to relocate, the Company shall
reimburse Executive for any reasonable relocation expenses that are in
accordance with its relocation policy and, to the extent permitted by the
relocation policy, as it may be changed from time to time, the Company may
purchase Executive's primary residence. From time to time, the Company may
change its policy concerning reimbursement for relocation expenses but the
Company shall not abolish or amend its relocation policy so that its executives,
including Executive, do not receive in substance what they are eligible to
receive as of the date first mentioned above or of the date of any renewal of
this Agreement, whichever is the last to occur.
VI.
BENEFITS
VI-A. On the same basis as other Company executives who are actively
employed, Executive shall be entitled to participate in all of the Company's
benefit plans, including retirement and profit-sharing, long-term disability,
accidental death and dismemberment, health and insurance plans, including
officer fiduciary and liability insurance, and vacations. At its sole
discretion, the Company may change or terminate these benefit plans.
VI-B. The Company and Executive acknowledge that the Executive plays a key
managerial role with the Company and that it is in the Company's best interest
to provide Executive with a special long-range retirement plan (SLRRP) reserved
to key executives, and SLRRP is an additional substantial consideration not
present in the "employee at-will" status of Executive prior to entering into
this Agreement. SLRRP is designed to encourage such key executives to remain
with the Company on an extended basis, have undivided loyalty to the Company,
and not develop conflicts of interest by affiliating with the Company's
competitors, which could undercut Executive's availability to serve as a
possible consultant, advisor, witness, or source of information to the Company.
Accordingly, Company shall pay to Executive an annual payment as provided below
based on Executive's average TCO for two years prior to the termination of
Executive's employment under the Agreement, with all rights, including vested
rights, to participate in any future benefits under SLRRP terminating at once
when and if Executive enters into or joins a business endeavor anywhere in the
United States competing, as defined in Section VIII-B4 hereof, with the Company
or any of its subsidiaries, as an individual, partner, joint venture,
independent contractor, officer or director, unless waived in writing by the
Board of Directors of the Company. The benefits available under SLRRP are:
1. annual payment shall extend over a period of 20 years, beginning
at the time Executive reaches the age of 57 years or at the time
Executive's employment with the Company terminates, whichever is
the last to occur;
2. entitlement to benefits will vest based on full years of service
with the Company under this Agreement or any extensions or
renewals thereof, as follows:
SERVICE TABLE
Completed Years Retirement Benefit As A
Under Contract Percent of Ending
Average 2-Year TCO
A B
1 0% (0%)
2 0% (0%)
3 9% (12%)
4 12% (16%)
5 15% (20%)
6 18% (24%)
7 21% (28%)
8 24% (32%)
9 27% (36%)
10 Fully Vested 30% (40%)
3. if Executive dies, or becomes disabled pursuant to Section VII-B
and Section VII-C herein, vesting shall cease, but straight line
vesting under SLRRP will be deemed to have occured, with full
credit for any partial year completed, the amount vested and
unpaid shall immediately be paid over in a lump sum to Executive,
to a beneficiary designated in writing by Executive, or to his
estate if no such designation has been made. The amount paid
will be discounted to present value at the rate of 8% per annum.
4. if Executive is terminated for cause or voluntarily terminates
his employment with the Company other than because of Company's
breach of a material provision of this Agreement, the amounts
vested at that time will be paid on an annual basis beginning at
the age of 57 or at the time of termination, whichever is the
last to occur; provided, Executive is not and has not been
competing with the Company or its affiliates as defined in
Section VIII-B when any such annual payment is due.
5. if Executive is terminated from employment by the
Company without cause, excluding disability and death pursuant to
Section VII hereof, or Executive terminates employment because of
Company's breach of a material provision of this Agreement,
service under the contract would be deemed to be 10 years for
purposes of calculating the amounts due under SLRRP.
VI-C. The Company intends to establish an irrevocable grantor trust (the
"Rabbi Trust"), the assets of which, subject to the claims of the Company's
creditors in the event of insolvency, will be used to provide benefits under
SLRRP. The Executive will have no security or other rights to, or interest in,
the assets of the Rabbi Trust, other than the right to be paid benefits under
SLRRP in accordance with the terms of SLRRP, this Agreement and the Rabbi Trust.
Contribution to the Rabbi Trust shall be made upon the termination of employment
of Executive.
VII.
DISABILITY AND DEATH
VII-A. If Executive dies, Company's obligations, including retirement
rights, under this Agreement shall terminate immediately except with respect to
Executive's accrued base salary and bonus, which shall be prorated to
Executive's death, and except with respect to the Company's obligations, if any,
to Executive or Executive's heirs or beneficiaries under the Company's benefit
plans and other benefits which have accrued to Executive, including the benefits
set forth in Section VI above.
VII-B. If Executive becomes "totally disabled," as defined in the
Company's Long Term Disability Pay Plan (Plan), as that Plan may be amended or
replaced from time to time, unless the Board of Directors of the Company
otherwise determines, Executive shall be placed on "inactive status" pursuant to
the Company's then effective policy and Company's obligations under this
Agreement shall terminate as of the date Executive became "totally disabled,"
except with respect to Company's obligations, if any, under the Plan or other
benefit plans and other benefits which have accrued to Executive, including the
benefits set forth in Section VI above.
VII-C. If Executive is not "totally disabled" as described in Section VII-
B, but is not performing the duties of his or her job for at least ninety days
in a consecutive twelve-month period, due to physical or mental impairment,
illness or injury, the Company may terminate Executive's employment based on a
resolution to that effect adopted by a majority of Company's Board of Directors,
and upon 30 days prior written notice to Executive, and the Company's
obligations to Executive under this Agreement shall terminate except with
respect to the Company's obligations, if any, under the Company's Plan or other
benefit plans and other benefits which have accrued to Executive, including the
benefits set forth in Section VI above.
VIII
CONFIDENTIAL INFORMATION
AND
RESTRICTIVE COVENANT
VIII-A. Executive recognizes and acknowledges as follows: that the
Company has legitimate business interests to protect, including its relationship
with its customers, confidential information and trade secrets; that the Company
has files, records, reports and other information that it deems to be
proprietary and confidential including, but not limited to, information
concerning finance, real estate, business strategy and plans, employee
compensation, bonus and benefit plans, management information systems and
computer programs, private labels, and trade secrets; and that Executive has
gained and will continue to gain knowledge of this information during the course
of employment. During the course of employment and after employment has
terminated, Executive shall not and will use his or her best efforts to ensure
that agents or others under his control do not, disclose the Company's
proprietary and confidential information to any person or entity for any purpose
other than in the ordinary course of performance of his duties to the Company,
or use the information for Executive's own benefit, unless the information has
been made public or has been made generally available otherwise than by
Executive's breach of his or her duties under this Agreement or is otherwise no
longer confidential or proprietary.
VIII-B. The parties recognize and acknowledge that American Stores Company
is one of the nation's leading food and drug retailers and must protect its
legitimate business interests. The Company operates stand-alone food and drug
stores, price impact food stores, plus combination food/drug store units. As of
the date hereof, the Company's operations include Lucky Stores, Jewel Food
Stores, Acme Markets, Jewel Osco, Osco Drug and Sav-on and a price impact food
chain. At year-end 1993, the Company operated 1,695 stores in 27 states.
Executives of the Company are often transferred to other states and other
subsidiaries of the Company. Their responsibilities and duties are Companywide,
even though they may be assigned, at a point in time, to a particular subsidiary
of the Company. The Company has expended considerable money, effort, and time
to train, build or acquire certain key "assets" -- defined to include its
employees and its relationships with customers, suppliers or vendors, lending
institutions, lessors and land owners, and governmental entities, among others,
and that Executive has gained and will continue to gain knowledge of those
assets during the course of employment.
During the term of this Agreement and any renewal thereof, and for one year
thereafter, provided Executive's termination occurs during the term of the
Agreement, Executive shall not:
1. seek to hire or directly or indirectly solicit any employee to
terminate employee's employment with the Company or its
subsidiaries or assist any other person or entity in attempting
to hire or hiring any employee of the Company or its
subsidiaries; or
2. interfere with or impede Company's relationships with customers,
suppliers or vendors, lending institutions, lessors and land
owners and governmental entities; or
3. enter into or join a competing business endeavor as an
individual, partner, joint venturer, independent contractor,
officer or director that would directly or indirectly compete
with the Company, or its subsidiaries, anywhere in the United
States where covenants not to compete are enforceable under the
laws of that state. The competition must be substantial in
nature if it occurs following termination of employment and be in
an area where the Company or its subsidiaries engage in business
activity and where the customers are located. However, if the
Company discharges Executive without cause, as defined in Section
IX or breaches this Agreement as defined in Section III-C, this
Subsection VIII-B3 shall only be effective if Company so elects
in writing and agrees to continue paying Executive's established
TCO during the one year that Executive is precluded from
competing.
4. For purposes of this paragraph and Section VI above, the words
"compete" or "competing" as used herein shall be interpreted to
mean a retail establishment in the food or drug business in
direct competition with a business operated by the Company or its
subsidiaries in an industry engaged in the business as a
supermarket store, a drug store, a warehouse store, a club store,
or any combination thereof, or that primarily sells the products
which constitute at least ten percent (10%) of the products sold
in any of the stores described above.
5. In connection with the foregoing provisions of Section VIII-B3,
Executive represents that his or her economic means and
circumstances are such that such provisions will not prevent him
or her from providing for himself or herself and his or her
family on a basis satisfactory to him or her. It is understood
and agreed that the covenants made by Executive in Section VIII
hereof and Section VI hereof are material to, and are being
relied upon by the Company in entering into this Agreement.
In the event of litigation of any breach of this agreement by Executive,
the one year time period shall be tolled, except that if following termination,
Executive does not engage in the activities set forth in Section VIII-B 1 to 5
inclusive, no such tolling shall occur.
VIII-C. Upon termination of employment, Executive shall deliver to Company
all records, data, memoranda, manuals, policies, and notes in his or her
possession that are of a proprietary and confidential nature.
IX.
TERMINATION
IX-A. Upon thirty days prior written notice, the Company may terminate
Executive's employment for cause as follows:
1. Executive is convicted of or enters a plea of guilty or nolo
contendre to a felony; or
2. If Company, in good faith, after reasonable investigation,
believes that Executive has committed a fraud, misappropriation
or embezzlement, or other gross and willful misconduct inimical
to the Company's business; or
3. Executive willfully breaches a material provision of this
Agreement, and does not cure or cannot cure the breach after
notice; or
4. Executive habitually and grossly neglects his or her duties.
In addition to terminating Executive in the above instances, the Company may
also seek injunctive relief or sue for damages caused by Executive's actions.
During the thirty day period after Company gives Executive notice of
termination, an Executive in good standing may exercise any stock options that
vest prior to the date that termination is effective.
IX-B. While this Agreement is still in effect, if Executive terminates the
Parties' employment relationship for any reason other than Company's breach of a
material provision of this Agreement, Executive shall no longer be entitled to
receive any compensation or benefits under this Agreement, except with respect
to the Company's obligations, if any, under the Company's benefit plans and
other benefits which have accrued to Executive, including benefits set forth
under Section VI above. The Company shall have no cause of action against
Executive unless Executive has breached Section VIII or committed any of the
acts outlined in Section IX-A.
IX-C. If Company terminates Executive's employment without cause or
Executive terminates employment because of Company's breach of a material
provision of this Agreement, Executive shall receive, to the effective date of
termination, his or her base salary and the prorated portion of Executive's
bonus that has been earned (despite any contrary provision in the then-existing
bonus plan), and a lump sum payment equal to the value of premiums for COBRA
coverage that is available to Executive and the value of unpaid salary and
target bonuses that would have been paid under the remaining life of the
contract had the breach and termination not occurred and severance payments in
accordance with the American Stores Termination Allowance Plan (or whatever
successor ERISA plan is in effect). If prior to the date of termination under
this Section IX-C the Company had relocated Executive within twelve (12) months
prior to such termination, Company will relocate Executive within the
continental United States pursuant to the Company's relocation policy; provided
that Executive's relocation move is completed within twelve (12) months from the
date of termination. Benefits under SLRRP would be calculated as though the
employee completed ten (10) years of service and all other provisions of Section
VI-B of the Contract would continue to have full force and effect. If the
Company terminates under this Section IX-C, the provisions of Section VIII-B3
(the covenant not to compete for one year following termination of employment)
shall thereupon have no force or effect, but notwithstanding all of the
provisions of Sections VI and VII hereof shall remain effective.
IX-D. Regardless of the reason that Executive's employment with the
Company terminates, upon the expiration of Executive's right to continue
participation in the Company's benefits plans as an active or inactive employee,
the Company shall provide Executive the same opportunities as it generally
provides to employees who have terminated to elect COBRA coverage, as well as
any other conversion or extension rights or other benefits that are then
available.
IX-E. Executive expressly waives any other or additional remedy available
at law, by statute or equity arising from the termination of this Agreement or
the termination of Executive's employment.
X.
REMEDIES
X-A. The Company and Executive recognize that the services to be rendered
under this Agreement by Executive are special, unique and of extraordinary
character, and that in the event of the breach by Executive of the terms and
conditions of this Agreement to be performed by him or her in the event
Executive shall, without the written consent of the Company, leave its
employment in a manner not permitted by this Agreement and perform, in the
future, services for any person, firm or corporation in violation of the
provisions of Section VIII hereof, then the Company shall be entitled, if it so
elects, to institute and prosecute proceedings in any court of competent
jurisdiction, either in law or in equity, to obtain damages for any breach of
this Agreement, or to enforce the specific performance thereof by Executive or
to enjoin Executive from performing services for any such other person, firm or
corporation, if such performance would be in violation of the provisions hereof,
but nothing herein contained shall be construed to prevent the election or
invocation by the Company of any other remedy for the breach of this Agreement
by Executive, as the Company may elect or invoke.
XI.
CLAIMS AND ARBITRATION
XI-A. Prior to any arbitration, Executive shall have the right to request
that the Compensation Committee of the Company's Board of Directors consider
Executive's claims. The Committee is not obligated to consider Executive's
claims and, if it does so, its recommendations and decisions do not bind either
Party.
XI-B. If Executive's claim is denied, the Committee may provide a written
notice within 90 days or may decline to take any action in which case the claim
is deemed denied. If Executive desires a review of the claim, he or she must
notify the Committee within 60 days of the date of the denial or deemed denial.
The decision on review of the denied claim shall be rendered by the Committee
within 60 days after receipt of the request for review.
XI-C. Except for the Company's right to seek injunctive relief and damages
as described above and Executive's right to request Committee review, all
disputes that arise under this Agreement shall be settled by arbitration, using
a single arbitrator, in accordance with the American Arbitration Association's
rules and procedures, and the Parties shall be bound by the arbitrator's
decision. Reinstatement of Executive's employment shall not be a remedy
available to the arbitrator.
XI-D. The Company shall pay the cost of arbitration and each Party shall
pay its own attorneys' fees. However, if the arbitrator decides that the
Company acted in bad faith, the Company shall pay Executive's attorneys' fees.
XII.
ASSIGNMENT
XII-A. Because this Agreement is for personal services, Executive shall
not assign this Agreement. Company may assign this Agreement to any successor,
successor in interest to all or part of the Company's assets, or any affiliated
company without Executive's consent, and Company may assign this Agreement to
any other entity with Executive's consent, which shall not be unreasonably
withheld. If the assignee to this Agreement succeeds to less than substantially
all of the Company's business or assets, the Company may only assign this
Agreement without Executive's prior consent if: (1) the Company's Board of
Directors determines in good faith that the assignee is organized for bona fide
purposes other than to avoid or reduce Company's obligations under this
Agreement and has adequate financial reserves to meet all of Company's payment
obligations under this Agreement, or (2) Company unconditionally guarantees all
payment obligations to Executive under this Agreement from and after the
assignment becomes effective.
XIII.
MISCELLANEOUS
XIII-A. This Agreement may not be modified or discharged unless by written
agreement, signed by both Parties.
XIII-B. No waiver or waivers by either Party of the other Party's breach
of, or failure to comply with, this Agreement shall be deemed a waiver of any
other breach or failure to comply.
XIII-C. If any part of this Agreement is declared by a court to be
invalid, this Agreement shall still remain valid and shall be construed as if
the invalid portion were not a part of the Agreement except that if the
provisions of Section VI (SLRRP), relating to non-competition with the Company
as a condition to payment of SLRRP retirement compensation, are declared invalid
or unenforceable as to Executive, and Executive competes with the Company or any
of its subsidiaries, then all of the provisions of such Section VI, including
the right to receive SLRRP retirement payments, shall terminate and be
unenforceable.
XIII-D. The Parties have made no implied or expressed representations or
covenants that are not expressly set forth in this Agreement, and this is the
entire Agreement between the Parties.
XIII-E. This Agreement is made in and is governed by the laws of the state
of Utah.
XIII-F. The provisions concerning confidentiality shall survive this
Agreement.
XIII-G. This Agreement shall be binding upon and inure to the benefit of
the Parties hereto and the Company's successors and assigns, whether by merger,
consolidation or otherwise.
XIII-H. The Board of Directors shall have the discretionary authority to
construe and interpret any disputed, doubtful or uncertain terms of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
COMPANY:
AMERICAN STORES COMPANY
By
Print Name:
Its:
EXECUTIVE:
Print Name:
Its:
<TABLE>
Exhibit 11
AMERICAN STORES COMPANY
CALCULATION OF EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
1994 1993 1992
<S> <C> <C> <C>
Primary Earnings Per Share
Primary earnings applicable to shareholders before
extraordinary item $345,184 $262,090 $207,466
Extraordinary item 0 (15,000) 0
Primary earnings applicable to shareholders $345,184 $247,090 $207,466
Earnings per share before extraordinary item $2.42 $1.85 $1.48
Extraordinary item 0 (0.11) 0
Primary earnings per share $2.42 $1.74 $1.48
Average shares outstanding 142,767 142,202 140,314
Fully Diluted Earnings Per Share
Earnings applicable to shareholders before extra-
ordinary item $345,184 $262,090 $207,466
Plus interest on convertible debentures 7,612 7,612 7,612
Fully diluted earnings applicable to shareholders
before extraordinary item 352,796 269,702 215,078
Extraordinary item 0 (15,000) 0
Fully diluted earnings applicable to shareholders $352,796 $254,702 $215,078
Earnings per share before extraordinary item $2.33 $1.79 $1.44
Extraordinary item 0 (0.10) 0
Fully diluted earnings per share $2.33 $1.69 (1) $1.44 (1)
Fully diluted average shares outstanding 151,211 151,020 149,694
Calculation of Fully Diluted Average Shares Outstanding
Effect of assumed exercise of stock options:
Proceeds from assumed exercise $13,773 $23,557 $33,451
Shares under options outstanding 1,213 2,139 3,176
Shares assumed acquired with proceeds under the
treasury stock method (547) (1,099) (1,574)
Incremental shares due to assumed exercise
of stock options 666 1,040 1,602
Fully diluted average shares outstanding:
Average shares outstanding 142,767 142,202 140,314
Assumed exercise of stock options 666 1,040 1,602
Assumed conversion of debentures 7,778 7,778 7,778
Total 151,211 151,020 149,694
</TABLE>
(1) Dilution is less than 3%.
AMERICAN STORES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
In the computation of the ratio of earnings to fixed charges for the Company,
earnings consist of pre-tax income from continuing operations before the impact
of an extraordinary item, plus fixed charges (adjusted for capitalized
interest). Fixed charges consist of interest, whether expensed or capitalized
(including the amortization of debt expense), plus the amount of rental expense
which is representative of the interest factor in the particular case.
(In thousands) 1994 1993 1992
Earnings before income taxes and an extra-
extraordinary item $606,263 $480,805 $378,281
Fixed charges (detail below) 265,529 284,834 311,937
Adjusted for:
Capitalized interest (3,900) (3,416 ) (1,966)
Previously capitalized interest
amortized during the period 1,269 1,246 1,288
Earnings $869,161 $763,469 $689,540
Interest expense $170,703 $189,773 $214,394
Capitalized interest 3,900 3,416 1,966
Interest factor for rental expense
of operating leases 90,926 91,645 95,577
Fixed charges $265,529 $284,834 $311,937
Ratio of earnings to fixed charges 3.27 to 1 2.68 to 1 2.21 to 1
AMERICAN STORES COMPANY
PRINCIPAL SUBSIDIARIES,
YEAR END 1994
State of
Subsidiary Incorporation
Jewel Companies, Inc. DE
Acme Markets, Inc. PA
Jewel Food Stores, Inc. NY
American Drug Stores, Inc., dba IL
Osco Drug
Sav-on
American Food and Drug, Inc. DE
Jewel Osco Southwest, Inc. IL
Lucky Stores, Inc. DE
American Stores Properties, Inc. DE
American Stores Realty Corp. PA
Skaggs Telecommunications Service, Inc. UT
Super Saver, Inc. DE
National Procurement and Logistics Company DE
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Form 10-K of American
Stores Company and subsidiaries of our report dated March 16, 1995, included in
the American Stores Company 1994 Annual Report to Shareholders.
Our audits also included the consolidated financial statement schedules of
American Stores Company and subsidiaries listed in Item 14(a). These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 2-71032, No. 2-54101, No. 33-25613, No. 2-94235, No. 33-48203,
No. 33-48204, No. 33-08801, No. 33-32150, No. 2-51401 and S-3 Nos. 33-41640, 33-
41641 and 33-52331) of our report dated March 16, 1994, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedules included in this Form 10-K of American Stores Company.
ERNST & YOUNG LLP
Salt Lake City, Utah
April 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statements for the Fifty-two week period ended Jan 28, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 195,689<F1>
<SECURITIES> 0
<RECEIVABLES> 291,760
<ALLOWANCES> 0
<INVENTORY> 1,526,770
<CURRENT-ASSETS> 2,132,095
<PP&E> 4,567,152
<DEPRECIATION> 1,800,714
<TOTAL-ASSETS> 7,031,566
<CURRENT-LIABILITIES> 1,931,431
<BONDS> 2,064,077
<COMMON> 144,542
0
0
<OTHER-SE> 1,906,379
<TOTAL-LIABILITY-AND-EQUITY> 7,031,566
<SALES> 18,355,126
<TOTAL-REVENUES> 18,355,126
<CGS> 13,436,699
<TOTAL-COSTS> 13,436,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 170,703
<INCOME-PRETAX> 606,263
<INCOME-TAX> 261,079
<INCOME-CONTINUING> 345,184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345,184
<EPS-PRIMARY> $2.42
<EPS-DILUTED> $2.33
<FN>
<F1>All numbers except EPS are in (000's).
</FN>
</TABLE>
Exhibit 13
<TABLE>
Common Stock Market Prices and Dividends
1994 1993 1992
Market Price Market Price Market Price
Cash Cash Cash
Dividend Dividend Dividend
High Low Declared High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $27 3/16 $20 7/8 $.12 $22 3/16 $18 1/8 $.10 $18 5/16 $16 $.088
Second Quarter 26 1/8 23 1/4 .12 23 3/16 20 3/16 .10 18 5/8 15 1/4 .088
Third Quarter 27 1/8 23 3/4 .12 24 5/8 19 7/8 .10 21 1/4 17 9/16 .088
Fourth Quarter 27 3/4 24 .12 22 1/4 19 7/8 .10 23 1/2 20 1/8 .10
Annual Dividend $.48 $.40 $.36
</TABLE>
The market price range on the New York Stock Exchange and the dividends
declared on the Company's stock are set forth in the table above. The common
shares of the Company are listed on the New York, Philadelphia, Chicago and
Pacific stock exchanges under the trading symbol "ASC". The number of
shareholders of record of the Company's common stock at March 24, 1995, was
18,814.
Selected Financial Data
The following consolidated selected financial data of the Company for the last
five years should be read in conjunction with the consolidated financial
statements and related notes appearing on pages 63 to 76.
Comparisons of the results of operations between fiscal years 1990 to 1994 are
rendered difficult due to the Company's disposition of stores. These include
the disposition of 45 Acme Markets stores in the fourth quarter of 1994, the 33-
store Star Market food division in the third quarter of 1994, 74 Jewel Osco
combination food and drug stores in the first quarter of 1992, 145 Alpha Beta
Company stores and 59 Osco Drug stores in the second and third quarters of 1991
and the 44-store Buttrey Food and Drug division in the third quarter of 1990.
These disposed of stores generated sales in the amounts of $0.8 billion, $1.2
billion, $1.4 billion, $3.4 billion and $5.1 billion in 1994, 1993, 1992, 1991
and 1990, respectively.
<TABLE>
(In thousands of dollars, except per share data) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C>
Sales $18,355,126 $18,763,439 $19,051,180 $20,822,956 $22,155,530
Earnings before extraordinary item
and cumulative effect of a change
in accounting principle $345,184 $262,090 $207,466 $240,016 $190,068
Extraordinary item - early retire-
ment of debt - net of taxes (15,000)
Cumulative effect of a change in
accounting principle -
Postretirement health care benefits
- net of taxes (40,734) ________
Net earnings $345,184 $247,090 $207,466 $199,282 $190,068
Average shares outstanding 142,767 142,202 140,314 138,364 138,044
Earnings per share before extra-
ordinary item and cumulative
effect of a change in accounting
principle $2.42 $1.85 $1.48 $1.73 $1.38
Extraordinary item (.11)
Cumulative effect of a change in
accounting principle-
Postretirement health care benefits
- net of taxes (.29) _________
Net earnings per share $2.42 $1.74 $1.48 $1.44 $1.38
Fully diluted earnings per share $2.33 $1.69 $1.44 $1.41 N/A
Cash dividends declared per share $.48 $.40 $.36 $.32 $.28
Total assets at year-end $7,031,566 $6,927,434 $6,763,793 $7,198,050 $7,511,771
Total debt and obligations under
capital leases at year-end $2,205,291 $2,167,999 $2,248,316 $2,798,578 $3,193,707
Total capital expenditures (1) $565,313 $652,928 $476,617 $378,593 $374,007
Store count (2) 1,597 1,695 1,672 1,631 1,848
Selling area square footage (3) 31,179 32,727 32,320 34,428 38,055
(1) Includes present value of new leases.
(2) Includes both the food and drug sides of Jewel Osco combination stores
which are counted as separate
stores.
(3) Selling area square footage (in thousands) was 74% of total retail square
footage in 1994.
NOTE: The fiscal year of the Company ends on the Saturday nearest to January
31. All references herein to "1994", "1993", "1992", "1991" and "1990"
represent the fiscal years ended January 28, 1995, January 29, 1994, January 30,
1993, February 1, 1992 and February 2, 1991, respectively.
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Total sales and the percentage change in comparable store sales for the 1994,
1993 and 1992 fiscal years are set forth in the tables below. The decrease in
total sales is primarily attributable to the disposition of the 33-store Star
Market food division in the third quarter of 1994, 45 Acme Markets stores in
the fourth quarter of 1994 and 74 Jewel Osco combination food and drug stores
in the first quarter of 1992. Sales from continuing operations decreased 0.3%
in 1994, 0.2% in 1993 and increased 0.8% in 1992. Sales at comparable stores
(stores that have been open at least one year, including replacement stores and
excluding Super Saver, the Company's new warehouse-type operation) increased
0.5% in 1994 and decreased 0.7% in 1993 and 0.5% in 1992.
Total Sales
(In millions of dollars) 1994 1993 1992
Eastern Food Operations $ 5,957 $ 6,052 $ 6,200
Western Food Operations 7,002 7,183 7,135
Drug Store Operations 4,544 4,322 4,002
Other 12 12 270
Continuing operations 17,515 17,569 17,607
Disposed of operations 840 1,194 1,444
Total sales $18,355 $18,763 $19,051
Comparable Store Sales
(Percent change) 1994 1993 1992
Eastern Food Operations 0.7% (1.5)% (0.7)%
Western Food Operations (1.8) (1.9) (2.3)
Drug Store Operations 4.2 2.6 3.0
Total 0.5% (0.7)% (0.5)%
Gross profit as a percent of sales increased to 26.8% in 1994, compared to
26.4% in 1993 and 26.1% in 1992. In 1994 the gross profit percentage increased
in the eastern food, western food and drug store operations, primarily due to
improvements in the mix of products sold, promotional strategies and shrink
control. These increases are net of the lower gross profit realized by Super
Saver. Warehouse-type operations like Super Saver generate lower gross profit
as a percent of sales than traditional food and drug store formats. The
increase in 1993 over 1992 was the result of slight improvements in the eastern
and western food operations. These increases more than offset the decreases in
gross profit percentage in the drug store operations primarily within the
prescription drug category and third-party payor plans. The annual pre-tax
LIFO charge to earnings amounted to $8.2 million in 1994, $7.2 million in 1993
and $16.5 million in 1992. Lower inflation, particularly in the drug stores,
and changes in the mix of inventory have influenced the LIFO calculation over
the past three years.
Operating expense as a percent of sales increased to 23.3% in 1994, compared to
23.0% in 1993 and 22.8% in 1992. Operating expense in 1994 included charges of
$23.9 million for centralization of administrative functions, including
information technology and accounting. Operating expenses in 1994 were also
impacted by expenses for the consolidation of the computer data centers and a
voluntary severance program initiated at Acme Markets, totaling $11.2 million.
Operating expense in 1993 included $7.6 million for the settlement of meat
products litigation in California and severance programs stemming from the
Company's expense reduction programs ($3.4 million eastern food, $3.5 million
western food, $0.7 million drug stores). In addition, operating expenses in
1992 included $17.1 million in costs related to consolidation of administrative
functions at the Company's eastern food operations.
Total operating profit for the last three fiscal years is set forth in the
table below. Operating profit was 3.5% of sales in 1994, 3.4% of sales in 1993
and 3.3% of sales in 1992. Operating profit from continuing operations
increased 4.4% in 1994, 0.8% in 1993 and 5.4% in 1992. The 1994 operating
profit in the western food operations was negatively impacted by losses
incurred by Super Saver. As the Company continues to develop and build its new
warehouse-type operation, it expects to continue to generate losses in 1995.
As the stores mature, the financial results are expected to improve.
Operating Profit
(In millions of dollars) 1994 1993 1992
Eastern Food Operations $258.2 $231.2 $231.4
Western Food Operations 245.9 248.7 256.7
Drug Store Operations 228.5 197.0 205.0
LIFO charge (8.2) (7.2) (16.5)
Purchase accounting amortization (78.6) (79.2) (79.5)
Other (14.1) 14.7 3.0
Continuing operations 631.7 605.2 600.1
Disposed of operations 18.4 36.7 23.2
Total operating profit $650.1 $641.9 $623.3
Interest expense decreased in 1994 and 1993 due to lower average debt levels
and lower average interest rates resulting from the refinancing of high coupon
borrowings at lower rates. The caption "Other" in 1994 included non-recurring
gains of $121.0 million on the sale of the Star Market food division, $41.2
million on the sale of the 45 Acme Markets stores and a charge of $31.3 million
for closed store costs. "Other" in 1993 of $24.1 million included $45.7
million of income from the resolution of the "Rule of 80" litigation, which
concerned the Company's termination of the early retirement feature of an
employee retirement plan. This was offset by approximately $17.2 million of
various charges, including costs associated with store closings, integrating
acquired stores into existing operations and costs associated with the
earthquake in southern California. "Other" was $35.1 million in 1992,
primarily from the sale of 74 Jewel Osco combination food and drug stores.
The Company's effective income tax rates were 43.1% in 1994, 45.5% in 1993 and
45.2% in 1992. The Omnibus Budget Reconciliation Act of 1993 increased the
Company's annual effective federal tax rate by one percent effective January 1,
1993. The increase in pre-tax earnings in 1994 compared to 1993 and 1992
resulted in a lower income tax rate due to the leverage effect that higher pre-
tax earnings have on the fixed goodwill amortization that is not deductible for
income tax purposes.
Earnings for 1993 were impacted by charges incurred in the early retirement of
debt which were accounted for as an extraordinary item. In connection with the
debt restructuring, the Company extinguished $146.0 million of debt and
expensed the related costs of prepaying such debt and related derivatives. The
restructuring resulted in an extraordinary pre-tax loss of $25 million ($15
million, net of tax).
Net earnings per share amounted to $2.42 in 1994, $1.74 in 1993 and $1.48 in
1992. Comparable earnings per share, which exclude non-recurring items, were
$2.03, $1.80 and $1.58 for 1994, 1993 and 1992, respectively, and are described
below:
1994 Comparable Earnings per Share
Net earnings per share $2.42
Gain on sale of Star Market food division (.50)
Gain on sale of 45 Acme Markets stores (.17)
Centralization of administrative functions .10
Consolidation of computer data centers .03
Acme Markets' voluntary severance program .02
Closed store costs .13
Comparable earnings per share $2.03
1993
Net earnings per share $1.74
Legal settlement, severance programs, earthquake
and store closings .11
Resolution of the "Rule of 80" litigation (.20)
Cumulative adjustment for increase in tax rate .04
Extraordinary item, early retirement of debt .11
Comparable earnings per share $1.80
1992
Net earnings per share $1.48
Loss on sale of 74 Jewel Osco combo stores .10
Comparable earnings per share $1.58
Liquidity and Capital Resources
Cash provided by operating activities decreased by $416.3 million from 1993 to
1994. Tax payments were $152.8 million higher in 1994 than in 1993 as a result
of taxable gains from asset dispositions and normal timing of estimated tax
payments. The timing of the Stender litigation insurance proceeds, payments
for damages, and payments for attorneys' fees caused a decrease in cash of $106
million between 1993 and 1994. The balance of the change is due to changes in
the components of working capital and is not indicative of long-term trends.
The dispositions of the Star Market food division and the 45 Acme Markets
stores during 1994 and 74 Jewel Osco combination food and drug stores during
1992 render the comparison between years more difficult.
Cash capital expenditures amounted to $538.0 million in 1994, $593.8 million in
1993 and $386.1 million in 1992. Additional capital expenditures represented
by the net present value of leases amounted to $27.3 million in 1994, $59.1
million in 1993 and $90.5 million in 1992. The increase in capital
expenditures in 1994 and 1993 compared to 1992 reflects the effects of the
Company's expanded capital expenditure program announced in 1992. The Company
opened 49, 39 and 36 new stores in 1994, 1993 and 1992, respectively, and
remodeled 166, 233 and 113 stores in 1994, 1993 and 1992, respectively. During
1993 the Company acquired 55 Reliable drug stores and 4 Thrifty drug stores.
During 1992 the Company acquired 63 CVS drug stores and the rights to operate
22 CVS health and beauty aid stores and acquired 30 Thrifty and Rx Plus drug
stores in Arizona and Nevada. Capital expenditures for fiscal 1995, including
the net present value of leases, are expected to approximate $700 million and
will be funded through cash flow from operations and existing credit
facilities. The Company currently plans to open 75 new stores and remodel an
additional 150 stores in 1995.
Proceeds from the disposition of operations consist primarily of the proceeds
from the sale of the Star Market food division and the 45 Acme Markets stores
of $377.6 million in 1994 and from the sale of 74 Jewel Osco combination food
and drug stores of $430.0 million in 1992.
In 1994, the Company entered into a $1.0 billion revolving credit facility
expiring in 1999 which replaced an existing $800 million credit facility that
would have expired in 1996. The Company repaid $480 million under the prior
credit facility and borrowed $480 million under the new facility. The facility
is the Company's principal bank credit agreement and is used for direct
borrowings and as back-up support for commercial paper and overnight bank
borrowings. The new $1.0 billion credit facility has reduced the Company's
mandatory debt payments making more of the Company's cash flow available for
working capital and capital expenditures. In addition, the Company prepaid a
$139 million (9.7%) loan, retired $100 million (9.8%) Eurobonds and borrowed
$50 million (6.4%) due in 1996.
The Company has $490 million in uncommitted lines of credit that are used for
overnight and short-term bank borrowings. At year-end 1994, the Company had
$855 million of debt supported by the credit facility and uncommitted credit
facilities, leaving unused committed borrowing capacity of $145 million. The
Company believes that its cash flow from operations, supplemented by credit
available under the credit facility and uncommitted credit facilities, as well
as its ability to refinance debt, will be adequate to meet its presently
identifiable cash requirements.
The Company uses derivative financial instruments to manage interest and
currency risks on two foreign loans. The Company is exposed to credit losses
in the event of nonperformance by the counterparties. Such counterparties are
highly rated financial institutions and the Company anticipates they will be
able to satisfy their obligations under the contracts. See Debt footnote for a
complete description.
Working capital amounted to $200.7 million at year-end 1994 compared to a
negative $58.3 million at year-end 1993 and positive $101.2 million at year-end
1992. Fluctuations in the components of working capital are customary.
The Company's ratio of total debt (debt plus obligations under capital leases)
to total capitalization (total debt plus shareholders' equity) amounted to
51.8%, 55.4% and 59.3% at year-end 1994, 1993 and 1992, respectively.
Contingencies
The Company has identified environmental contamination sites related primarily
to underground petroleum storage tanks at various store, warehouse, office and
manufacturing facilities (related to current operations as well as previously
disposed of businesses). Although the ultimate outcome and expense of
environmental remediation is uncertain, the Company believes that the required
costs of remediation and continuing compliance with environmental laws will not
have a material adverse effect on the financial condition or operating results
of the Company.
The Company, from time to time, has disposed of leased properties and may
retain certain contingent lease liabilities, either by contract or law.
Although the Company is unaware of any material assertions against it from such
dispositions, such claims may arise in the future. If such claims were
asserted, the expense to the Company would consist of unpaid lease obligations,
such as rents, which may be offset by subletting the property, negotiating
favorable lease terminations, operating the facilities or applying existing
reserves.
Inflation
In recent years, the impact of inflation on the Company's results of operations
has been moderate. As operating expenses and inventory costs have increased,
the Company, to the extent permitted by competition, has recovered these
increases in costs by increasing prices over time.
The Company uses the LIFO (last-in, first-out) method of accounting for the
majority of its inventories. Under this method, the cost of merchandise sold
reported in the financial statements approximates current costs and thus
reduces the distortion in reported earnings due to increasing costs.
The historical costs of property, plant and equipment recorded by the Company
were incurred over a period of many years. The cost of replacing property,
plant and equipment is generally greater than the cost on the books of the
Company as a result of inflation that has occurred over the years since the
property, plant and equipment were placed in service.
Organizational Changes
The Company is currently implementing changes that it believes will enhance its
organizational effectiveness. Included among these organizational changes is
the centralization of certain administrative functions, including the
information technology, accounting, real estate and construction functions.
The Company believes these organizational changes will ultimately reduce its
operating expenses and enhance its future operating results, although no
assurances can be given that such results will be achieved. The Company
recorded a charge to operating expenses of $23.9 million in 1994 for
centralization of these functions.
The Company is also currently engaged in an effort to re-engineer its supply
chain process. This involves streamlining the Company's buying, warehousing,
distribution and merchandising activities. Major components of this effort
include the development of new software to support these activities, as well as
centralized management of certain buying and warehousing activities. The goal
is to reduce overall supply chain costs. The re-engineering efforts will
continue over the next several years and while the Company believes this effort
will ultimately reduce its operating expenses and enhance its future operating
results, the beneficial impact cannot presently be quantified.
Recent Developments
On March 9, 1995, the Company completed the redemption of its $175 million
7-1/4% Convertible Subordinated Notes due 2001. The Company issued 5.3 million
shares of common stock upon the conversion of $120.3 million principal amount
of Notes and the balance of approximately $54.7 million principal amount of
Notes was redeemed for cash.
Report of Independent Auditors
Shareholders and Board of Directors
American Stores Company
We have audited the accompanying consolidated balance sheets of American Stores
Company and subsidiaries as of January 28, 1995, January 29, 1994 and January
30, 1993, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
January 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Stores
Company and subsidiaries at January 28, 1995, January 29, 1994 and January 30,
1993, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended January 28, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
March 16, 1995
Salt Lake City, Utah
<TABLE>
Consolidated Statements of Earnings
(In thousands, except per share data) 1994 1993 1992
<S> <C> <C> <C>
Sales $18,355,126 $18,763,439 $19,051,180
Cost of merchandise sold, including ware-
housing and transportation expenses 13,436,699 13,815,607 14,075,787
Gross profit 4,918,427 4,947,832 4,975,393
Operating and administrative expenses 4,268,359 4,305,950 4,352,079
Operating profit 650,068 641,882 623,314
Other income (expense):
Interest income 6,789 4,568 4,477
Interest expense (170,703) (189,773) (214,394)
Other 120,109 24,128 (35,116)
Total other income (expense) (43,805) (161,077) (245,033)
Earnings before income taxes and extra-
ordinary item 606,263 480,805 378,281
Federal and state income taxes (261,079) (218,715) (170,815)
Earnings before extraordinary item 345,184 262,090 207,466
Extraordinary item - early retirement
of debt - net of taxes (15,000)
Net earnings $ 345,184 $ 247,090 $ 207,466
Average shares outstanding 142,767 142,202 140,314
Earnings per share before extraordinary
item $2.42 $1.85 $1.48
Extraordinary item (.11)
Net earnings per share $2.42 $1.74 $1.48
Fully diluted earnings per share $2.33 $1.69 $1.44
See notes to consolidated financial statements
Consolidated Balance Sheets
Year-end
(In thousands of dollars, except per share data) 1994 1993 1992
ASSETS
Current Assets
Cash and cash equivalents $ 195,689 $ 59,580 $ 54,048
Receivables 291,760 282,124 285,187
Inventories 1,526,770 1,539,610 1,576,499
Prepaid expenses 48,711 43,265 44,523
Deferred income tax benefits 69,165 71,230 55,664
Total current assets 2,132,095 1,995,809 2,015,921
Property, Plant and Equipment, at cost
Land 522,014 541,396 496,594
Buildings 1,221,871 1,109,737 1,017,665
Fixtures and equipment 2,168,826 2,092,934 1,887,063
Leasehold improvements 654,441 654,123 546,108
4,567,152 4,398,190 3,947,430
Less accumulated depreciation and
amortization 1,800,714 1,694,150 1,505,857
Net property, plant and equipment 2,766,438 2,704,040 2,441,573
Property Under Capital Leases, less
accumulated amortization of $103,760
in 1994, $108,394 in 1993 and $99,689
in 1992 84,690 97,127 108,623
Goodwill, less accumulated amortization
of $365,271 in 1994, $311,823 in 1993
and $258,336 in 1992 1,771,121 1,827,334 1,880,821
Other Assets 277,222 303,124 316,855
$7,031,566 $6,927,434 $6,763,793
Consolidated Balance Sheets (concluded)
Year-end
(In thousands of dollars, except per share data) 1994 1993 1992
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 132,019 $ 66,830 $ 54,699
Current obligations under capital leases 9,195 9,708 9,569
Accounts payable 883,329 958,272 958,083
Accrued payroll and benefits 350,637 303,160 301,653
Current portion of self-insurance reserves 179,595 212,891 202,445
Income taxes payable 46,170 118,279 32,072
Other current liabilities 330,486 384,959 356,185
Total current liabilities 1,931,431 2,054,099 1,914,706
Long-term Debt,
less current maturities 1,988,710 2,003,866 2,086,464
Obligations Under Capital Leases,
less current obligations 75,367 87,595 97,584
Self-insurance Reserves, less current portion 464,119 464,451 466,700
Deferred Income Taxes 320,814 345,760 399,482
Other Liabilities 200,204 229,378 254,843
Shareholders' Equity
Common stock of $1.00 par value, authorized
325,000,000 shares; issued 144,542,156
shares 144,542 144,542 72,271
Additional paid-in capital 216,418 190,173 262,746
Retained earnings 1,708,672 1,432,032 1,241,847
Less cost of treasury stock; 1,571,094 shares
in 1994, 2,038,454 shares in 1993 and
2,682,214 shares in 1992 (18,711) (24,462) (32,850)
Total shareholders' equity 2,050,921 1,742,285 1,544,014
$7,031,566 $6,927,434 $6,763,793
See notes to consolidated financial statements
Consolidated Statements of Cash Flows
(In thousands of dollars) 1994 1993 1992
Cash flows from operating activities:
Net earnings $345,184 $247,090 $207,466
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 407,286 384,307 370,439
Net (gain) loss on asset sales (158,448) 16,060 34,227
Deferred income taxes (23,247) (53,722) (38,766)
Self-insurance reserves and other (94,404) (45,610) (37,114)
(Increase) decrease in current assets:
Receivables (26,037) 3,063 (21,792)
Inventories (46,149) 36,889 (3,864)
Prepaid expenses (10,347) (14,308) 24,372
(Decrease) increase in current liabilities:
Accounts payable (44,369) 189 (3,869)
Other current liabilities (49,866) 28,774 (67,466)
Accrued payroll and benefits 41,108 1,507 (6,231)
Income taxes payable (66,611) 86,207 13,380
Total adjustments (71,084) 443,356 263,316
Net cash provided by operating activities 274,100 690,446 470,782
Cash flows from investing activities:
Expended for property, plant and equipment (538,033) (593,785) (386,106)
Proceeds from disposition of operations 377,618 429,952
Proceeds from sale of assets 21,680 38,007 48,271
Net cash (used in) provided by
investing activities (138,735) (555,778) 92,117
Cash flows from financing activities:
Proceeds from long-term borrowing 530,000 100,000 401,602
Reduction of long-term debt (479,967) (170,467) (935,128)
Principal payments for obligations under
capital leases (12,741) (9,850) (16,735)
Proceeds from exercise of stock options 7,888 7,532 14,553
Other changes in equity 24,108 554 6,572
Cash dividends (68,544) (56,905) (51,007)
Net cash provided by (used in) financing
activities 744 (129,136) (580,143)
Net increase (decrease) in cash and cash
equivalents 136,109 5,532 (17,244)
Cash and cash equivalents:
Beginning of year 59,580 54,048 71,292
End of year $195,689 $ 59,580 $ 54,048
See notes to consolidated financial statements
</TABLE>
<TABLE>
Consolidated Statements of Shareholders' Equity
Additional
(In thousands of dollars, Common Paid-In Retained Treasury
except per share data) Stock Capital Earnings Stock Total
<S> <C> <C> <C> <C> <C>
Balances at beginning of 1992 $ 72,271 $292,026 $1,085,388 $(83,255) $1,366,430
Net earnings -- 1992 207,466 207,466
Issuance of 1,097,770 shares of
stock for stock options and awards 29 14,524 14,553
Dividends ($.36 per share) (51,007) (51,007)
Stock Purchase Incentive Plans
including issuance of 2,273,000
shares (34,845) 35,892 1,047
Purchase of 626 shares for treasury (11) (11)
Other 5,536 5,536
Balances at year-end 1992 72,271 262,746 1,241,847 (32,850) 1,544,014
Net earnings -- 1993 247,090 247,090
Issuance of 524,258 shares of
stock for stock options and awards 579 6,953 7,532
Dividends ($.40 per share) (56,905) (56,905)
Stock Purchase Incentive Plans including
issuance of 120,000 shares (3,389) 1,446 (1,943)
Declaration of 72,271,078 shares of
stock to effect a 2-for-1 stock
split 72,271 (72,271) 0
Purchase of 498 shares for treasury (11) (11)
Other 2,508 2,508
Balances at year-end 1993 144,542 190,173 1,432,032 (24,462) 1,742,285
Net earnings -- 1994 345,184 345,184
Issuance of 427,512 shares of
stock for stock options and awards 2,629 5,259 7,888
Dividends ($.48 per share) (68,544) (68,544)
Stock Purchase Incentive Plans including
issuance of 40,000 shares 21,245 496 21,741
Purchase of 152 shares for treasury (4) (4)
Other 2,371 2,371
Balances at year-end 1994 $144,542 $216,418 $1,708,672 $(18,711) $2,050,921
See notes to consolidated financial statements
</TABLE>
Notes to Consolidated Financial Statements
Significant Accounting Policies
Fiscal Year. The fiscal year of the Company ends on the Saturday nearest to
January 31. All references herein to "1994", "1993" and "1992" represent the
52-week fiscal years ended January 28, 1995, January 29, 1994 and January 30,
1993, respectively.
Basis of Consolidation. The consolidated financial statements include the
accounts of American Stores Company and all subsidiaries. Accordingly, all
references herein to "American Stores Company" include the consolidated results
of its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company operates in a single
industry segment, the retail sale of food and drug merchandise.
Cash and Cash Equivalents. The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate those assets' fair value. Cash and cash equivalents
are higher at year-end 1994 due to proceeds from the sale of the Star Market
food division and the 45 Acme Markets stores.
Depreciation and Amortization. Depreciation and amortization is provided on a
straight-line basis over the estimated useful lives of owned assets. Leasehold
improvements and properties under capital leases are amortized over the
estimated useful life of the property or over the term of the lease, whichever
is shorter.
Goodwill. Goodwill, principally from the acquisition of Lucky Stores, Inc. in
1988, represents the excess of cost over fair value of net assets acquired and
is being amortized over 40 years using the straight-line method.
Costs of Opening and Closing Stores. The costs of opening new stores are
charged against earnings as incurred. When operations are discontinued and a
store is closed, the remaining investment, net of salvage value, is charged
against earnings and, for leased stores, a provision is made for the remaining
lease liability, net of expected sublease income.
Income Taxes. The Company provides for deferred income taxes or credits as
temporary differences arise in recording income and expenses between financial
reporting and tax reporting. Amortization of goodwill is not deductible for
purposes of calculating income tax provisions.
Net Earnings Per Share. Net earnings per share are determined by dividing the
weighted average number of shares outstanding during the year into net
earnings. Common share equivalents in the form of stock options are excluded
from the calculation of net earnings per share since they have not had a
material dilutive effect on per share figures. Fully diluted earnings per
share includes the assumed conversion of subordinated convertible debt and
stock options into common stock.
Environmental Remediation Costs. Costs incurred to investigate and remediate
contaminated sites, caused primarily by defective underground petroleum storage
tanks are accrued when identified and estimable. The related costs are expensed
unless the remediation extends the economic useful life of the assets employed
at the site.
Self-insurance. The Company is self-insured for property loss, workers'
compensation, general liability and automotive liability, subject to specific
retention levels. The Company is also self-insured for health care claims for
eligible active and retired associates. Consulting actuaries assist the
Company in determining its liability for self-insured claims. The Company is
required in certain cases to obtain letters of credit to support its self-
insured status. At year-end 1994, the Company's self-insured liabilities were
supported by approximately $278 million of undrawn letters of credit. Self-
insured liabilities, with the exception of postretirement health care benefits,
are not discounted.
Inventories
Approximately 93% of inventories are accounted for using the LIFO (last-in,
first-out) method of inventory valuation. If the FIFO and average cost methods
had been used, inventories would have been $300.3 million, $303.3 million and
$296.1 million higher at year-end 1994, 1993 and 1992, respectively. The LIFO
charge to earnings was $8.2 million in 1994, $7.2 million in 1993 and $16.5
million in 1992. Under this method, the cost of merchandise sold reported in
the financial statements approximates current costs and thus reduces the
distortion in reported earnings due to increasing costs.
Advertising Expense
Total advertising expense amounted to $167.2 million, $169.5 million and $174.6
million in 1994, 1993 and 1992, respectively. The decrease in advertising
expense from 1992 to 1994 is primarily due to the disposition of stores.
Reclassification
The 1992 and 1993 financial statements have been restated to conform to the
current year presentation.
Disposition of Operations
On September 8, 1994, the Company sold its 33-store Star Market food division
with a basis of $167.0 million for $288.0 million and the assumption of
substantially all of its outstanding liabilities. On January 19, 1995, the
Company sold 45 of its Acme Markets stores with a basis of $48.4 million for
$89.6 million. In April 1992, the Company sold 74 Jewel Osco combination
stores and related support facilities located in Texas, Arkansas, Oklahoma and
Florida, with a basis of $454.2 million, for $430.0 million in cash. The
assets sold consisted primarily of property, plant, equipment and inventories.
Debt
During 1994, the Company entered into a $1.0 billion revolving credit facility
expiring in 1999 that replaced an existing $800 million credit facility that
would have expired in 1996. Interest rates for borrowings under the facility
are established at the time of borrowing, through four different pricing
options. Terms of the revolving credit facility provide for borrowings from
participating banks or borrowing through issuance of commercial paper that is
supported by the facility. At year-end 1994, the Company also had uncommitted
lines of credit with various banks which allow it to borrow up to $490 million.
The outstanding debt under the credit facilities and short-term bank borrowings
described above has been classified as long-term debt since the total amount
outstanding did not exceed the amount of bank commitments extending beyond one
year.
On February 18, 1994, the Company filed a shelf registration statement with the
Securities and Exchange Commission to issue up to $800 million in debt
securities for the retirement of debt and other general corporate purposes. To
date, no securities have been issued under the registration statement.
The Company capitalized interest costs associated with construction projects of
$3.9 million, $3.4 million and $2.0 million in 1994, 1993 and 1992,
respectively. The Company made cash payments for interest (net of amounts
capitalized) of $172.0 million, $175.2 million and $192.7 million in 1994, 1993
and 1992, respectively.
The aggregate amounts of debt maturing in each of the next five fiscal years
are listed below:
(In thousands of dollars)
1995 $ 132,019
1996 57,621
1997 57,779
1998 73,773
1999 1,088,992
Thereafter 710,545
$2,120,729
The Company's various loans secured by real estate are collateralized by
properties with a net book value of $126.1 million at year-end 1994.
<TABLE>
A summary of debt is as follows:
(In thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Public Debt (unsecured):
Medium Term Notes--fixed interest rates due
1997 through 2003--average interest rate 7.9% $ 250,000 $ 250,000 $ 150,000
9-1/8% Notes due 2002 248,966 248,868 248,779
7-1/4% Convertible Subordinated Notes due 2001 174,997 174,997 174,997
9-3/4% Eurobond Notes due 1994 100,000 100,000
Bank Borrowings (unsecured):
Term loan--average interest rates
3.8% in 1993 and 5.1% in 1992 100,000
Revolving credit facility--variable
interest rates, effectively due 1999--
average interest rates 4.8% in 1994, 3.6%
in 1993 and 4.2% in 1992 645,000 450,000 300,000
Lines of credit and commercial paper--
variable interest rates, effectively
due 1999--average interest rates 4.7%
in 1994, 3.4% in 1993 and 4.0% in 1992 210,000 128,000 259,000
Other borrowings--due 1995 through 1996--
average interest rates 8.8% in 1994,
9.5% in 1993 and 9.4% in 1992 175,000 140,000 155,000
9.7% due 1996 138,803 138,803
Other Unsecured Debt:
9.8% due 1999 (1) 210,000 210,000 210,000
10.6% due 2004 108,893 108,893 108,893
Other--due through 2001 4,211 8,353 10,802
Debt Secured by Real Estate:
Fixed interest rates--due through 2014--
average interest rate 13.4% in 1994,
13.7% in 1993 and 12.4% in 1992 93,662 112,782 184,889
Outstanding debt 2,120,729 2,070,696 2,141,163
Less current maturities 132,019 66,830 54,699
Long-term debt $1,988,710 $2,003,866 $2,086,464
(1) See following paragraph concerning yen loans.
</TABLE>
The Company uses derivative financial instruments to manage interest and
currency risks on two foreign borrowings totaling 29.1 billion yen at an
average yen interest rate of 6.0%. At the time the loans originated, the
Company entered into interest rate and currency exchange swap agreements
(swaps) that match the interest and principal payments of the yen loans. Under
these swaps, the Company makes fixed rate interest payments of 9.8% and
principal payments totaling $210 million and receives payments equal to the
underlying yen loan obligations. The proceeds, in yen, from these swaps are
used to satisfy the yen-based interest and principal payments. As of year-end
1994, the estimated fair value of the swaps, based on market quotes, was
approximately $93 million and equaled the loss on the yen loans due to currency
and interest rate movements, resulting in an aggregate fair value of zero. The
Company is exposed to credit losses in the event of nonperformance by the
counterparties to its swaps. Such counterparties are highly rated financial
institutions and the Company anticipates they will be able to satisfy their
obligations under the contracts.
The carrying amounts of the Company's bank borrowings with variable interest
rates approximate fair value. The fair value of the Company's borrowings with
fixed interest rates is estimated using discounted cash flow analyses, based on
current market rates where available, or on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The fair value of
outstanding debt as of year-end 1994 was $2.2 billion compared to the carrying
value of $2.1 billion.
Leases
The Company leases retail stores, offices, warehouses and distribution
facilities. Initial lease terms generally range from 20 to 25 years, plus
renewal options, and may provide for contingent rent based on sales volume in
excess of specified levels.
The summary below shows the aggregate future minimum rent commitments at year-
end 1994 for both capital and operating leases. Operating leases are shown net
of an aggregate $66.2 million of minimum rent income receivable under non-
cancellable subleases. Operating leases also exclude the amortization of
acquisition-related fair value adjustments.
<TABLE>
Operating Capital
(In thousands of dollars) Leases Leases
<S> <C> <C>
1995 $ 147,892 $ 18,051
1996 141,004 17,203
1997 132,451 15,501
1998 125,112 14,013
1999 114,593 10,396
Thereafter 810,201 66,312
Total minimum rent commitments $1,471,253 141,476
Less executory costs (such as taxes, insurance
and maintenance) included in capital leases 1,867
Net minimum lease payments 139,609
Less amount representing interest 55,047
Obligations under capital leases, including $9.2
million due within one year $ 84,562
</TABLE>
Rent expense, excluding the amortization of acquisition-related fair value
adjustments of $14.5 million in 1994, $14.9 million in 1993 and $15.0 million
in 1992, was as follows:
<TABLE>
Minimum Sublease Contingent Total
(In thousands of dollars) Rent Rent Net Rent Rent
<S> <C> <C> <C> <C> <C>
1994 $184,116 $ 9,064 $175,052 $26,508 $201,560
1993 173,910 9,133 164,777 29,809 194,586
1992 163,070 10,705 152,365 32,174 184,539
</TABLE>
Income Taxes
Federal and state income taxes charged to earnings before extraordinary item are
summarized below:
<TABLE>
(In thousands of dollars) 1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $208,032 $200,845 $152,887
State 55,926 51,932 41,773
Deferred:
Federal (2,241) (26,510) (18,426)
State (638) (7,552) (5,419)
Federal and state income taxes $261,079 $218,715 $170,815
</TABLE>
Cash payments of income taxes were $354.6 million, $201.8 million and $199.2
million in 1994, 1993 and 1992, respectively.
The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
(Percent of earnings before income taxes) 1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
State income tax rate, net of federal
income tax effect 5.7 5.5 5.6
Goodwill amortization 3.6 4.5 5.6
Tax credits (0.6) (0.3) (0.8)
Other (0.6) 0.8 0.8
Effective income tax rate 43.1% 45.5% 45.2%
</TABLE>
Deferred tax benefits and liabilities as of year-end 1994 related to the
following temporary differences:
<TABLE>
(In thousands of dollars) Benefits Liabilities Total
<S> <C> <C> <C>
Basis in fixed assets $ 34,692 $(264,539) $(229,847)
Self-insurance reserves 240,835 240,835
Purchase accounting valuation 50,877 (376,423) (325,546)
Compensation and benefits 44,251 (23,128) 21,123
Other, net 41,811 (25) 41,786
Deferred tax benefits and liabilities $412,466 $(664,115) $(251,649)
No valuation allowances have been considered necessary in the calculation of
deferred tax benefits.
</TABLE>
Stock Option Plans
The Company's 1989 Stock Option and Stock Award Plan ("1989 Plan") provides for
the grant of options to purchase shares of common stock, the grant of stock
appreciation rights and the issuance of restricted stock awards for an
aggregate of up to 4.8 million shares of common stock, subject to certain
antidilution adjustments. At year-end 1994, there were 4.2 million shares
reserved for future grants under the 1989 Plan.
The Company's 1985 Stock Option and Stock Award Plan ("1985 Plan") provides for
the grant of options to purchase shares of common stock, the grant of stock
appreciation rights and the issuance of restricted stock awards for an
aggregate of up to 4.0 million shares of common stock, subject to certain
antidilution adjustments. At year-end 1994, there were 0.3 million shares
reserved for future grants under the 1985 Plan.
At year-end 1994, there were 166,100 shares under stock options outstanding
under the 1989 Plan, 1,096,224 shares under stock options outstanding under the
1985 Plan and 98,132 shares under stock options outstanding under an expired
plan.
Compensation relating to stock option and award plans decreased pre-tax
earnings by $2.9 million in 1994, $3.1 million in 1993 and $7.6 million in
1992. The average exercise price of stock options exercised during 1994 was
$12.14 per share. The average exercise price per share for outstanding options
was $11.24, $11.20 and $10.98 in 1994, 1993 and 1992, respectively.
A summary of stock options is as follows:
(In thousands of shares) 1994 1993 1992
Outstanding at beginning of year 2,183 3,008 3,695
Granted 835
Exercised (610) (715) (1,345)
Forfeited (213) (110) (177)
Outstanding at end of year 1,360 2,183 3,008
Exercisable at end of year 457 1,067 1,098
Reserved for future grants 4,503 4,298 4,217
Stock Purchase Incentive Plans
In 1992, the Company's shareholders approved both the American Stores Company
Key Executive Stock Purchase Incentive Plan and the American Stores Company
Board of Directors Stock Purchase Incentive Plan ("Plans"). The Plans are
intended to promote the long-term growth and financial success of the Company,
and to strengthen the link between management and shareholders.
During 1994, 1993 and 1992, the Company awarded to certain directors and key
executive officers the right to purchase a specified number of shares of the
Company's stock and extended to such directors and officers full recourse
interest bearing purchase loans to acquire the stock. The stock purchased by
the directors and officers with the purchase loans was issued from treasury
shares. The purchase loans have an eight-year term and accrue interest at
rates ranging from 5.3% to 7.0%. The acquisition price of the stock was the
average of the high and low value on the day acquired, as reported on the New
York Stock Exchange. Shares held by the executives and directors pursuant to
the Plans were 2,063,000, 2,393,000 and 2,273,000 for 1994, 1993 and 1992,
respectively, with corresponding loan balances of $40.3 million, $45.8 million
and $39.7 million. The aggregate principal of these notes outstanding is
recorded as a reduction of additional paid-in capital in the balance sheet.
Participants purchasing stock under the Plans are eligible for a deferred cash
incentive award which is generally payable at the end of a five-year
performance cycle. One-half of the deferred award will be based on the
continuation of service with the Company ("Service Component"), and the other
half will be based on the Company's relative stock price performance versus a
selected group of companies in the retail food and drug industry ("Performance
Component"). The maximum combined Performance Component and Service Component
payable to participants will not exceed the original principal amount of the
purchase loan plus accrued but unpaid interest. The estimated deferred cash
incentive award earned to date is recognized as a credit to the note balances
in additional paid-in capital in the balance sheet.
Preferred Share Purchase Rights
During March 1988, the Board of Directors of the Company declared a
distribution of one Preferred Share Purchase Right (the "Right") for each
outstanding share of the Company's common stock.
Each Right entitles shareholders to purchase one four-hundredth of a share of a
new series of preferred stock at an exercise price of $62.50. The Rights will
be exercisable only if a person or group acquires 20% or more of the Company's
common stock or announces a tender offer, the consummation of which would
result in ownership by a person or group of 20% or more of the Company's common
stock. The Rights will not apply to a 20% or greater position held by Mr. L.
S. Skaggs, the Company's Chairman, or certain other related parties. The
Company will be entitled to redeem the Rights at one-quarter cent per Right any
time before a 20% or greater position has been acquired. Additionally, the
Company may lower the 20% threshold to not less than the greater of (i) any
percentage greater than the largest percentage of common stock known by the
Company to be owned by any person (other than L. S. Skaggs) and (ii) 10%.
If the Company is acquired in a merger or other business combination
transaction, each Right will "flip over" and entitle its holder to purchase, at
the Right's then current exercise price, a number of the acquiring company's
common shares having a market value at that time of twice the Right's exercise
price.
In addition, if a person or group acquired 20% or more of the outstanding
Company common stock, each Right will "flip in" and entitle all other holders
to purchase, at the Right's then current exercise price, a number of shares of
the Company's common stock having a market value of twice the Right's exercise
price. Further, at any time after a person or group acquires 20% or more of
the outstanding Company common stock but prior to the acquisition of 50% of
such stock, the Board of Directors may, at its option, exchange part or all of
the Rights (other than rights held by the acquiring person or group) for shares
of the Company's common stock at an exchange rate of one share of common stock
for each Right.
Postretirement Health Care Benefits
The Company provides certain health care benefits to eligible retirees of
certain defined employee groups under two unfunded plans, a defined dollar and
a full coverage benefit plan.
The following schedule sets forth the postretirement benefit liability included
in the Company's balance sheet:
(In thousands of dollars) 1994 1993 1992
Current retirees $35,787 $45,389 $46,766
Current active employees 13,521 20,893 19,100
Unrecognized gain 16,819 1,612 1,191
Accumulated postretirement
benefit obligation ("APBO") 66,127 67,894 67,057
Plan assets at fair value
APBO in excess of plan assets $66,127 $67,894 $67,057
The expense for postretirement health care benefits was approximately $4.1
million in 1994, $5.9 million in 1993 and $5.2 million in 1992, including
adjustment of the accumulated postretirement benefit obligation.
The net postretirement health care benefit expense for each year included the
following components:
(In thousands of dollars) 1994 1993 1992
Service cost $1,013 $1,027 $1,083
Interest cost 3,730 4,827 5,197
Adjustment of APBO (598) (1,032)
Net postretirement health care benefit expense $4,145 $5,854 $5,248
The Company assumed no increase in the cost of the defined dollar benefit plan
and a 12% annual rate of increase for health care costs for the full coverage
plan for 1994. The rate for 1995 is 11%, decreasing to 6% by the year 2002. A
discount rate of 8.5% was used to determine the APBO.
Increasing the assumed health care cost trend rates for both plans by one
percentage point in each year would have resulted in no increase in the APBO at
year-end 1994 for the defined dollar plan and a $1.8 million increase for the
full coverage plan. The aggregate of the service cost and interest cost
components of the net postretirement health care benefit expense for 1994 would
have experienced no increase for the defined dollar benefit plan and a $0.1
million increase for the full coverage plan.
Retirement Plans
The Company sponsors and contributes to a defined contribution retirement plan,
American Stores Retirement Estates ("ASRE"). This plan was authorized by the
Board of Directors for the purpose of providing retirement benefits for
associates of American Stores Company and its subsidiaries. The plan covers
associates meeting age and service eligibility requirements, except those
represented by a labor union, unless the collective bargaining agreement
provides for participation. Contributions to ASRE are made at the discretion
of the Board of Directors.
The Company also contributes to multi-employer defined benefit retirement plans
in accordance with the provisions of the various labor contracts that govern
the plans. The multi-employer plan contributions are generally based on the
number of hours worked. Information about these plans as to vested and non-
vested accumulated benefits and net assets available for benefits is not
available.
Retirement plans expense in each year was as follows:
(In thousands of dollars) 1994 1993 1992
Company sponsored plans $ 84,149 $ 79,626 $ 75,118
Multi-employer plans 67,391 62,859 65,126
Retirement plans expense $151,540 $142,485 $140,244
During 1994 the Company entered into Employment Agreements ("Agreements") with
seventeen of the Company's key executive officers. The Agreements are for a
term of three or five years, may be renewed by the Company for subsequent three-
year or five-year terms, contain usual and customary terms of employment
agreements and provide the officers with a special long-range retirement plan.
Under the retirement plan, the executives are entitled to receive an annual
payment for a period of 20 years beginning at age 57 or upon termination of
employment, whichever occurs later. The retirement benefit is a percentage
amount (ranging from 9% to 30% or 40%) that is based on each executive's
average target compensation objective for the two years prior to the
termination of employment under the Agreement. The retirement benefit will be
forfeited if the executive enters into competition with the Company.
Contingencies
The Company, from time to time, has disposed of leased properties and may
retain certain contingent lease liabilities, either by contract or law.
Although the Company is unaware of any material assertions against it from such
dispositions, such claims may arise in the future. If such claims were
asserted, the expense to the Company would consist of unpaid lease obligations,
such as rents, which may be offset by subletting the property, negotiating
favorable lease terminations, operating the facilities or applying existing
reserves.
The Company has identified environmental contamination sites related primarily
to underground petroleum storage tanks at various store, warehouse, office and
manufacturing facilities (related to current operations as well as previously
disposed of businesses). At most of these locations, remediation is either
underway or completed. Reserves have been established for each environmental
contamination site unless an unfavorable outcome is remote. Although the
ultimate outcome and expense of environmental remediation is uncertain, the
Company believes that required costs of remediation and continuing compliance
with environmental laws will not have a material adverse effect on the
financial condition or operating results of the Company. Charges against
earnings for environmental remediation were not material in 1994, 1993 or 1992.
Legal Proceedings
The Company is involved in various claims, administrative proceedings and other
legal proceedings which arise from time to time in connection with the conduct
of the Company's business. In the opinion of management, such proceedings will
not have a material adverse effect on the Company's financial condition or
results of operations.
Organizational Changes
The Company recorded a charge to operating expenses of $23.9 million in 1994
for centralization of certain administrative functions. This charge included
$5.6 million related to termination benefits of which $1.6 million was paid in
1994. It is estimated by the Company that 570 people will be terminated over
the course of the restructuring and 255 employees were terminated during fiscal
1994. There have been no revisions to the original estimates. The
expenditures for the restructuring are expected to be funded by the benefits of
such organizational changes.
Subsequent Events
On February 22, 1995, the Board of Directors expressed its intent, subject to
the exercise of its fiduciary duties, to allow the Rights Agreement pertaining
to the Company's preferred share purchase rights, dated March 18, 1988, as
amended, to expire in accordance with its terms on March 18, 1998, without
renewal or extension.
On March 9, 1995, the Company completed the redemption of its $175 million
7-1/4% Convertible Subordinated Notes due 2001. The Company issued 5.3 million
shares of common stock upon the conversion of $120.3 million principal amount
of Notes and the balance of approximately $54.7 million principal amount of
Notes was redeemed for cash.
Quarterly Results (unaudited)
In the opinion of management, all adjustments necessary for a fair presentation
have been included:
<TABLE>
(In thousands of dollars, First Second Third Fourth Fiscal
except per share data) Quarter Quarter Quarter Quarter(1) Year
<S> <C> <C> <C> <C> <C>
1994
Sales $4,607,652 $4,669,018 $4,431,863 $4,646,593 $18,355,126
Gross profit 1,219,801 1,232,503 1,183,166 1,282,957 4,918,427
Operating profit 131,756 169,830 120,982 227,500 650,068
Other (1,623) (1,900) 87,785 35,847 120,109
Net earnings 47,963 69,034 97,934 130,253 345,184
Net earnings per share $.34 $.48 $.69 $.91 $2.42
Fully diluted earnings per share .33 .47 .66 .87 2.33
1993
Sales $4,668,105 $4,693,057 $4,531,715 $4,870,562 $18,763,439
Gross profit 1,201,785 1,224,186 1,195,398 1,326,463 4,947,832
Operating profit 118,108 153,695 136,994 233,085 641,882
Other 31,665 (2,544) 699 (5,692) 24,128
Earnings before extraordinary item 56,507 58,501 45,408 101,674 262,090
Extraordinary item - early retirement of
debt - net of taxes (15,000) (15,000)
Net earnings 41,507 58,501 45,408 101,674 247,090
Earnings per share before
extraordinary item $.40 $.41 $.32 $.72 $1.85
Extraordinary item (.11) (.11)
Net earnings per share .29 .41 .32 .72 1.74
Fully diluted earnings per share .29 .40 .31 .69 1.69
1992
Sales $4,924,074 $4,702,547 $4,574,284 $4,850,275 $19,051,180
Gross profit 1,230,335 1,226,293 1,203,575 1,315,190 4,975,393
Operating profit 120,337 150,108 132,593 220,276 623,314
Other (28,381) (3,633) (2,016) (1,086) (35,116)
Net earnings 18,268 51,231 43,222 94,745 207,466
Net earnings per share $.13 $.37 $.31 $.67 $1.48
Fully diluted earnings per share N/A .36 .30 .64 1.44
(1)Operating profit in the fourth quarter has exceeded the prior three quarters
in each of the three
years presented due to the seasonality of the food and drug retail business.
The holiday season
in the fourth quarter benefits the food and drug retail business. Increased
cold and flu occurrences
during this quarter also benefit the drug store operations.
</TABLE>
