SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 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)
801-539-0112
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes____ No____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 25, 1995: Common Stock, Par Value $1.00 -
146,368,067 shares.
Part I. Financial Information
Item 1. Financial Statements
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Earnings
(unaudited)
(In thousands, except per share data)
Thirteen Weeks Ended
October 28, October 29,
1995 1994
Sales $4,361,183 $4,431,863
Cost of merchandise sold, including
warehousing and transportation expenses 3,179,249 3,248,697
Gross profit 1,181,934 1,183,166
Operating expenses 1,027,302 1,062,184
Operating profit 154,632 120,982
Other income (expense):
Interest expense (38,362) (39,595)
Gain on asset sales, other 1,435 89,767
Net other income (expense) (36,927) 50,172
Earnings before income taxes 117,705 171,154
Federal and state income taxes 50,260 73,220
Net earnings $ 67,445 $ 97,934
Net earnings per share:
Primary $0.46 $0.69
Fully diluted $0.46 $0.66
Average shares outstanding 147,002 142,810
Dividends per share $0.14 $0.12
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Earnings
(unaudited)
(In thousands, except per share data)
Thirty-Nine Weeks Ended
October 28, October 29,
1995 1994
Sales $13,218,310 $13,708,533
Cost of merchandise sold, including
warehousing and transportation expenses 9,681,940 10,073,063
Gross profit 3,536,370 3,635,470
Operating expenses 3,081,885 3,212,902
Operating profit 454,485 422,568
Other income (expense):
Interest expense (117,480) (129,229)
Gain on asset sales, other 3,771 88,621
Net other income (expense) (113,709) (40,608)
Earnings before income taxes 340,776 381,960
Federal and state income taxes 145,511 167,029
Net earnings $ 195,265 $ 214,931
Net earnings per share:
Pimary $1.33 $1.51
Fully diluted $1.33 $1.46
Average shares outstanding 147,142 142,725
Dividends per share $0.42 $0.36
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Balance Sheets
(unaudited)
(In thousands of dollars)
October 28, January 28,
1995 1995
Current Assets:
Cash and cash equivalents $ 3,091 $ 195,689
Inventories 1,645,346 1,526,770
Other current assets 411,393 409,636
Total current assets 2,059,830 2,132,095
Property, plant and equipment, less
accumulated depreciation and amortization
of $2,093,584 on October 28, 1995 and
$1,904,474 on January 28, 1995 3,081,814 2,851,128
Goodwill 1,732,449 1,771,121
Other assets 300,480 277,222
Assets $7,174,573 $7,031,566
Current Liabilities:
Current maturities of long-term debt and
capital lease obligations $ 116,231 $ 141,214
Accounts payable 985,276 883,329
Other current liabilities 849,949 906,888
Total current liabilities 1,951,456 1,931,431
Long-term debt and obligations under capital
leases, less current maturities 2,074,174 2,064,077
Other liabilities 902,212 985,137
Shareholders' Equity - shares outstanding of
146,366,109 on October 28, 1995 and
142,971,062 on January 28, 1995 2,246,731 2,050,921
Liabilities and Shareholders' Equity $7,174,573 $7,031,566
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Cash Flows
(unaudited)
(In thousands of dollars)
Thirty-Nine Weeks Ended
October 28, October 29,
1995 1994
Cash Flows from Operating Activities:
Net earnings $ 195,265 $ 214,931
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 302,305 303,110
Net (gain) on asset sales (1,869) (117,118)
Changes in operating assets and liabilities (193,708) (312,170)
Total adjustments 106,728 (126,178)
Net cash provided by operating activities 301,993 88,753
Cash Flows from Investing Activities:
Expended for property, plant and equipment (519,302) (312,649)
Proceeds from disposition of division,
net of cash 0 287,990
Proceeds from sale of other assets 39,052 4,268
Net cash (used in) investing activitie s (480,250) (20,391)
Cash Flows from Financing Activities:
Proceeds from long-term borrowing 275,000 530,000
Payment of long-term borrowing (138,120) (737,278)
Net (decrease) increase in existing credit
facilities (31,455) 184,091
Other changes in equity 12,768 11,247
Repurchase of common stock (70,420) 0
Cash dividends (62,114) (51,394)
Net cash (used in) financing activities (14,341) (63,334)
Net (decrease) increase in cash and
cash equivalents (192,598) 5,028
Cash and cash equivalents:
Beginning of year 95,689 59,580
End of quarter $ 3,091 $ 64,608
Supplementary information - Statement of Cash Flows:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 129,739 $ 145,238
Income taxes, net of refunds $ 117,893 $ 241,029
Sale of division:
Proceeds from the disposition, net of cash $ 0 $ 287,990
Basis in assets disposed of and liabilities
retained by the Company 0 (166,990)
Gain on disposition $ 0 $ 121,000
Noncash investing and financing activities:
Conversion of convertible notes to equity $ 120,311 $ 0
AMERICAN STORES COMPANY
Notes to Consolidated Condensed Financial Statements
(unaudited)
October 28, 1995
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all normal recurring adjustments
necessary to present fairly the financial position of American Stores Company
and its subsidiaries as of October 28, 1995 and January 28, 1995 and the
results of its operations for the thirteen weeks ended October 28, 1995 and
October 29, 1994 and results of operations and cash flows for the thirty-nine
weeks ended October 28, 1995 and October 29, 1994. The operating results for
the interim periods are not necessarily indicative of results for a full
year. For a further discussion of the Company's accounting policies, please
refer to the Company's Form 10-K for the fiscal year ended January 28, 1995.
Net Earnings Per Share
Earnings per share are determined by dividing the year-to-date weighted
average number of shares outstanding into net earnings. Common share
equivalents in the form of stock options are excluded from the calculation of
primary earnings per share since they have no 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.
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.
Acquisition of Stores
On February 15, 1995, the Company acquired seventeen stores operated by Clark
Drugs for $39.0 million. The transaction involved the transfer of $25.0
million of real property plus inventory and other items for fourteen owned
properties and three leased properties.
Conversion of Debt
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.
Part I - Financial Information (continued)
Long-Term Debt Issuance
On May 15, 1995, the Company issued $200 million of 7.40% debentures due May
15, 2005, at 99.542 percent to yield 7.47%. The net proceeds of the offering
were used to refinance a portion of the Company's long-term indebtedness that
was repaid or redeemed over the last twelve months. The refinancing of this
long-term debt had been temporarily funded through short-term, variable-rate
borrowings under the Company's principal bank credit agreement.
On August 7, 1995, the Company entered into a $75 million, 6.6%, note payable
due August 8, 2000. The proceeds from the note were used to pay off an
existing $75 million, 8.9%, note due August 7, 1995.
Repurchase of Common Stock
The Company repurchased 1.1 million shares of its common stock during the
quarter ended October 28, 1995 at an average price of $29.62 per share, and
2.4 million shares year-to-date, at an average price of $29.03 per share in
accordance with its existing stock repurchase program. As of October 28,
1995 there remained an additional 1.6 million shares authorized for
repurchase under the program.
Joint Venture
On June 1, 1995, the Company entered into a joint venture agreement with
Geneva Pharmaceuticals, Inc. (Geneva) designed to provide cost effective
generic pharmaceutical solutions.
The agreement took effect September 30, 1995 whereby the Company contributed
the assets and liabilities of its pharmacy benefits management and mail order
pharmacy business in exchange for a 50% share of the venture. Geneva
contributed a note receivable for the remaining 50% ownership of the venture.
New Accounting Standard
In October 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation. Under this standard, the FASB encourages companies to
recognize compensation cost for all stock based compensation arrangements at
the date of grant using a fair value based method of accounting but will
allow companies to continue to follow APB Opinion No. 25, Accounting for
Stock Issued to Employees, using the intrinsic value based method of
accounting. However, if APB Opinion No. 25 is selected, FASB requires the
company to disclose the pro forma effects on income and earnings per share
that otherwise would have occurred had the new expense recognition provisions
been adopted. The Company has elected to measure compensation costs for its
plans using the intrinsic value method, APB Opinion No. 25, and provide the
required footnote disclosures. The Standard becomes effective for calendar
1996 financial statements.
Item 2. 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 third
quarter and first thirty-nine weeks of 1995 and 1994 are presented in the
table below. The decrease in third quarter and year-to-date 1995 total sales
from the prior year is primarily attributable to the disposition of the 33-
store Star Market food division in the third quarter of 1994, and the
disposition of 45 Acme Markets stores in the fourth quarter of 1994 (the
disposed of operations). The increase in third quarter and year-to-date 1995
sales from continuing operations is primarily a result of increases in Drug
store operations due to higher pharmacy sales and the acquisition of
seventeen Clark Drug stores on February 15, 1995. Third quarter sales from
continuing operations for Drug store and Eastern food operations also
benefited from the effective use of joint (Jewel/Osco combination)
advertising and promotional campaigns. Comparable sales increased during the
third quarter and year-to-date due to increased Drug store sales, offset by
decreased comparable sales due to competitive activity and the impact of a
nine-day labor dispute in the first quarter of 1995 in the Western food
operations.
<TABLE>
13 Weeks Ended 39 Weeks Ended
Comparable Store October 28, October 29, Comparable Store October 28, October 29,
% Change 1995 1994 % Change 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Sales:
Eastern food operations 0.54% $1,460,938 $1,445,967 0.09% $ 4,436,473 $ 4,432,125
Western food operations -1.43% 1,746,334 1,730,068 -1.09% 5,221,927 5,221,950
Drug store operations 4.52% 1,150,858 1,080,094 5.07% 3,551,819 3,278,700
Other 3,053 2,938 8,091 9,487
Continuing operations 4,361,183 4,259,067 13,218,310 12,942,262
Disposed of operations 0 172,796 0 766,271
Total sales 0.74% $4,361,183 $4,431,863 0.87% $13,218,310 $13,708,533
</TABLE>
Eastern food operations include Acme Markets and Jewel Food Stores.
Western food operations include Lucky Northern California Division, Lucky
Southern California Division, Jewel Osco Southwest and Super Saver.
Drug store operations include Osco Drug and Sav-on.
Comparable store sales include stores open one year or more and replacement
stores.
Gross profit as a percent of sales increased to 27.1% in the third quarter and
26.8% in the first thirty-nine weeks of 1995, compared to 26.7% and 26.5% in the
same periods of 1994, respectively, as a result of higher gross margins on
promotional items in the Eastern and Western food operations, and the disposed
of operations which netted lower gross margins in the prior year, partially
offset by the Drug store operations decrease in pharmacy gross margins caused by
a shift from cash customers to lower-margin third-party customers.
Additionally, year-to-date margins as a percent of sales were impacted by the
nine-day labor dispute in the Western food operations in the first quarter of
1995.
Part I - Financial Information (continued)
Operating expense as a percent of sales decreased to 23.6% in the third quarter
of 1995, compared to 24.0% in 1994. Operating expense as a percent of sales for
the first thirty-nine weeks of 1995 decreased slightly to 23.3% compared to
23.4% in 1994. Western food operations benefited in the third quarter and year-
to-date 1995 from the renegotiation of a labor contract with the United Food and
Commercial Workers International. The new contract will expire in October 1999,
and replaces a contract that was scheduled to expire in October 1996. As a
result of the early termination of the contract, certain health and welfare
savings, which were being recognized over the life of the contract, were
immediately recognized in the current quarter. Drug store operating expenses as
a percentage of sales decreased in the third quarter and year-to-date 1995 from
the same periods of 1994 primarily due to better cost control and improved
sales. The decreases in Western food and Drug store operating expenses as a
percentage of sales were offset by increased expenses related to capital
expenditures in the Eastern food operations for new stores, remodeling of
existing stores and the implementation of a new warehouse system.
Total operating profit for the third quarter and first thirty-nine weeks of 1995
and 1994 is presented in the table below. Operating profit was 3.6% of sales in
the third quarter of 1995 and 2.7% of sales in the third quarter of 1994.
Operating profit for the first thirty-nine weeks of 1995 was 3.4% of sales
compared to 3.1% of sales for the same period 1994. Third quarter and year-to-
date 1995 operating profit from continuing operations increased 30.0% and 12.2%
respectively over the prior year reflecting lower health and welfare costs in
1995 associated with recent renegotiations of a labor contract and one-time
centralization costs which reduced the 1994 third quarter operating profit by
$23.9 million or $0.10 per share.
<TABLE>
13 Weeks Ended 39 Weeks Ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating Profit:
Eastern food operations $ 56,630 $ 58,864 $179,579 $174,115
Western food operations 78,589 62,340 194,923 183,018
Drug store operations 43,595 42,842 157,774 149,943
LIFO (6,000) (6,000) (24,000) (26,000)
Purchase accounting amortization (19,400) (19,677) (57,885) (59,194)
Other 1,218 (19,441) 4,094 (16,960)
Continuing operations 154,632 118,928 454,485 404,922
Disposed of operations 0 2,054 0 17,646
Total operating profit $154,632 $120,982 $454,485 $422,568
</TABLE>
"Other" includes real estate operations in both 1995 and 1994.
"Other" for 1994 also includes a third quarter 1994 charge of $23.9 million
for centralization costs.
Part I - Financial Information (continued)
Interest expense decreased in the third quarter and first thirty-nine weeks of
1995 over the same periods in 1994 due to a lower average borrowing rate and
lower average outstanding debt.
The Company's effective income tax rates were 42.7% in 1995 compared to 43.7%
in the prior year. The current year effective tax rates are down due to the
higher current year earnings and dispositions of assets in states with higher
tax rates in the prior year.
Net earnings per share amounted to $0.46 per share, primary and fully diluted,
in the third quarter of 1995 compared to $0.69 per share, primary and $0.66
per share, fully diluted, in the same quarter of the prior year. Net earnings
per share amounted to $1.33 per share, primary and fully diluted, in the first
thirty-nine weeks of 1995 compared to $1.51 per share, primary, and $1.46 per
share, fully diluted, for the same period of 1994.
Liquidity and Capital Resources
Cash provided by operating activities increased to $302.0 million from $88.8
million in the first thirty-nine weeks of 1995 compared to the same period of
1994. The increase in operating cash flows over the prior year is mainly due
to the $140 million purchase of short-term investments in the third quarter
1994 with proceeds from the Star sale. Other changes in operating assets and
liabilities are due to immaterial changes in the components of working capital
and are not indicative of long-term trends. Cash and cash equivalents at the
beginning of 1995 were higher than the beginning of 1994 due to proceeds held
in short-term investments from the sale of disposed of operations.
Cash capital expenditures for the first thirty-nine weeks of 1995 and 1994
amounted to $519.3 million and $312.6 million, respectively. Total capital
expenditures, including the net present value of leases, amounted to $557.6
million in 1995, compared to $315.9 million in 1994. During the first three
quarters of 1995, 33 new stores were opened, 22 stores were closed and 151
stores were remodeled. The Company also acquired 17 Clark Drugs stores in
California in the first quarter of 1995. Capital expenditures are expected to
total approximately $750 million by year-end 1995 and are expected to be
higher in fiscal 1996.
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.
On May 15, 1995, the Company issued $200 million of 7.40% debentures due May
15, 2005, at 99.542 percent to yield 7.47%. On August 7, 1995, the Company
entered into a $75 million, 6.6%, note payable due August 8, 2000. The
proceeds from the note were used to pay off an existing $75 million, 8.9%,
note due August 7, 1995. Proceeds from the sale of 45 Acme Markets in the
Part I - Financial Information (continued)
fourth quarter 1995 were used to pay down outstanding debt in the first
quarter of 1995. The net increase in debt of $105.4 million in 1995 is
compared to a net decrease in debt of $23.2 million in 1994. The 1994
decrease is due to a $153 million paydown of debt with proceeds received from
the sale of Star Markets.
The ratio of total debt (debt plus obligations under capital leases) to total
capitalization (total debt plus common shareholders' equity) amounted to 49.4%
at October 28, 1995 and 51.8% at January 28, 1995.
During the first thirty-nine weeks of 1995, the Company repurchased 2.4
million shares of its common stock at an average market price of $29.03 under
its existing stock repurchase program.
The Company believes that its cash flow from operations, supplemented by
credit available under the Company's existing credit facility, as well as its
ability to refinance debt, will be adequate to meet its presently identifiable
cash requirements.
Restructuring Charges
The Company recorded a charge to operating expenses of $23.9 million in 1994
for centralization of information technology, accounting, real estate and
construction functions. This charge included $5.6 million related to
termination benefits, with $1.7 million paid in the thirteen week period ended
October 28, 1995 and $4.0 million being paid in the thirty-nine week period
ended October 28, 1995. There were 511 people terminated over the course of
the restructuring compared to the Company's estimate of 570 people. As of
October 28, 1995, the entire reserve had been utilized.
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.
Part II - Other Information
Item 1.Legal Proceedings -- For a description of legal proceedings, please
refer to the footnote entitled "Legal Proceedings" contained in the
Notes to Consolidated Financial Statements section of the Company's
Form 10-K for the fiscal year ended January 28, 1995.
The Company is also involved in various claims, administrative
proceedings and other legal proceedings which arise from time to time
in connection with the ordinary conduct of the Company's business.
Item 2. Changes in Securities -- None
Item 3. Defaults upon Senior Securities -- None
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 5. Other Information -- None
Item 6. Exhibits and Reports on Form 8-K --
(a) Exhibits --
10.1 Consulting agreement with L.S. Skaggs
11.1 Calculations of earnings per share.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K filed during the quarter -- None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
American Stores Company
(Registrant)
Dated December 11, 1995 /s/ Teresa Beck
Teresa Beck
Chief Financial Officer
(Principal Financial Officer)
Dated December 11, 1995 /s/ Kathleen E. McDermott
Kathleen E. McDermott
Chief Legal Officer and Assistant Secretary
Dated December 11, 1995 /s/ Bradley M. Vierig
Bradley M. Vierig
Senior Vice President and Controller
(Chief Accounting Officer)
Exhibit 11.1
AMERICAN STORES COMPANY
Calculation of Earnings Per Share
(unaudited)
(In thousands of dollars, except per share data)
<TABLE>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Primary earnings applicable to
shareholders $ 67,445 $ 97,934 $ 195,265 $ 214,931
Primary earnings per share $0.46 $0.69 $1.33 $1.51
Average shares outstanding 147,002 142,810 147,142 142,725
Fully Diluted Earnings Per Share
Earnings applicable to shareholders $ 67,445 $ 97,934 $ 195,265 $ 214,931
Plus interest on convertible debentures 0 1,903 0 5,709
Fully diluted earnings applicable to
shareholders $ 67,445 $ 99,837 $ 195,265 $ 220,640
Fully diluted earnings per share $0.46(1) $0.66 $1.33(1) $1.46
Fully diluted average shares outstanding 147,565 151,254 147,804 151,234
Calculation of Fully Diluted Average Shares Outstanding
Effect of assumed exercise of stock options:
Proceeds from assumed exercise $ 45,013 $ 13,388 $ 39,554 $ 14,652
Shares under options outstanding 2,073 1,166 1,989 1,279
Shares assumed acquired with proceeds
under the treasury stock method (1,510) (500) (1,326) (548)
Incremental shares due to assumed
exercise of stock options 563 666 663 731
Fully diluted average shares outstanding:
Average shares outstanding 147,002 142,810 147,142 142,725
Assumed exercise of stock options 563 666 663 731
Assumed conversion of debentures 0 7,778 0 7,778
Total 147,565 151,254 147,805 151,234
</TABLE>
(1) Dilution is less than 3%.
Mr. L. S. Skaggs
P.O. Box 2526
Salt Lake City, UT 84110
Re: Consulting Agreement
Dear Mr. Skaggs:
The purpose of this letter is to set forth our agreement with respect to
the consulting and advisory services which you are to render to American
Stores Company (the "Company") commencing on August 1, 1995, subject to
ratification of this agreement by the Company's Board of Directors. Those
services, and the terms and conditions upon which they will be performed, are
as follows:
1. DUTIES/REPORTING. At the request of the Board of Directors (the
"Board") or the Chief Executive Officer of the Company (the "CEO"), you will
provide consulting and advisory services consisting of advice and consultation
to the Board and/or the CEO on strategic planning, acquisitions and
divestitures, organization and marketing, relationships with major
shareholders and financial institutions, and such other similar services as
may reasonably be requested from time to time by the Board or CEO.
The consulting and advisory services to be provided by you hereunder
shall be provided during normal business hours at such times and locations as
are mutually convenient to you and the Company, provided, however, that you
shall not be required to devote in excess of fifty percent (50%) of your time
during normal hours to such services.
2. CONSIDERATION. For your consulting and advisory services you will
be paid $750,000 per year, payable in equal monthly installments. You will be
entitled to receive this compensation regardless of whether requests for your
consulting and advisory services result in devotion of less than fifty percent
(50%) of your time, and regardless of whether you continue to serve as a
member of the Company's Board.
During the term of this Agreement you will not be entitled to any fees,
compensation or benefits in respect of any service by you on the Board or on
any Board Committee, other than reimbursement of expenses and non-monetary
benefits available to non-employee members of the Company's Board to the
extent not otherwise provided for herein.
3. SUPPORT STAFF AND SERVICES. During the term of this Agreement, the
Company will reimburse you for all reasonable costs and expenses incurred by
you in connection with (i) the maintenance and operation of an office,
including fair rental value, utilities, furniture, furnishings and equipment
of a similar standard to those furnished to you by the Company in the past,
telephone, office supplies, salary and benefits for an executive secretary of
your choosing; (ii) travel expenses in connection with your rendering services
hereunder; (iii) a driver; and (iv) any other costs and expenses reasonably
and necessarily incurred by you in connection with the performance of your
duties hereunder. In addition, you shall be entitled to such other
perquisites made available to senior executive officers of the Company in
accordance with the Company's policies and practices prevailing during the
1994 fiscal year and as such policies and practices may be modified in the
future to provide additional or increased benefits. Reimbursement shall be
made by the Company within thirty days of receipt of invoices setting forth a
description of the items for which reimbursement is sought together with the
cost or fair market value of such items and copies of invoices, receipts,
credit card statements and other supporting documentation.
4. TERM. This Agreement shall commence as of August 1, 1995 and shall
continue in effect until the earlier of: (a) July 31, 2000; (b) your death, or
any physical or mental incapacity resulting in your inability to perform the
services contemplated herein for a continuous period of one (1) year; or (c)
the effective date of any written notice of termination from you (which right
of termination may be exercised by you at any time, and which if given in the
event of any failure by the Company to perform any of its obligations
hereunder, shall not prejudice any legal or equitable remedies available to
you). Notwithstanding the termination of this Agreement, the covenants and
agreements provided for in paragraphs 6 and 7 shall survive such termination
in accordance with their terms, and the indemnification and other provisions
of paragraph 8 shall survive such termination.
In the event that this Agreement shall terminate, you or your estate
shall be entitled to receive all amounts due and owing hereunder to the date
of such termination, including unreimbursed expenses; additionally, should
this Agreement terminate because of your death, the Company will reimburse
your estate for actual services used and support staff related to your office
for up to one year following your death for the purpose of winding up your
affairs as they relate to this Agreement.
5. INDEPENDENT CONTRACTOR. Your status, in connection with the
performance of consulting and advisory services hereunder, will be that of an
independent contractor and not, for any purpose, that of an employee or agent
with authority to bind the Company in any respect. Accordingly, among other
things, you will not be entitled to participate in any compensation or benefit
plans, programs or policies maintained by the Company solely for its
employees. All payments and other consideration made or provided to you
hereunder will be made or provided without withholding or deduction of any
kind and you will assume sole responsibility for discharging, and you hereby
agree to indemnify and defend the Company against all tax or other obligations
associated therewith.
As of your retirement as an officer and employee of the Company, you are
entitled to all compensation and benefits accrued, payable or distributable to
you pursuant to the provisions of any Company qualified or non-qualified
retirement, welfare benefits, and other compensation plans or programs, in
each case in accordance with the terms and provisions of such plans and
programs. Moreover, you will be regarded by the Company as a retired employee
for purposes of the Company's benefit plans and programs.
6. CONFIDENTIALITY. Unless you believe in good faith that you are
required by law (including but not limited to the rules and regulations of the
Securities and Exchange Commission), you agree not to disclose the Company's
propriety and confidential information acquired during the term of this
Agreement pursuant to your duties hereunder to any person or entity for any
purpose other than in the ordinary course of the performance of your duties
hereunder, or use the information for your own benefit, unless the information
has been made public or has been made generally available otherwise than by
your breach of your duties under this Agreement or it otherwise ceases to be
confidential or proprietary. The foregoing shall not be construed to limit
any obligation you may have as a present or former officer or director of the
Company concerning disclosure of proprietary and confidential information.
7. NON-COMPETE. During the term of this Agreement, and for a period of
one year following termination of this Agreement, without the consent of the
Board, you will not serve as an employee, officer, director (or in any other
position of comparable function) of, or consultant to any other business or
entity engaged in the retail grocery or drug store business which is in
competition with the Company.
8. INDEMNIFICATION. The Company agrees to indemnify, protect, defend
and hold you and your estate, heirs, and personal representatives, harmless
from and against any actual or threatened action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
and all losses, liabilities, damages and expenses, including reasonable
attorney's fees incurred by counsel reasonably designated or approved by you,
in connection with this Agreement or your performance hereunder, provided that
any consulting services giving rise to such indemnification shall have been
performed by you in good faith and, to the best of your knowledge, in a lawful
manner.
9. MISCELLANEOUS. This Agreement shall be binding on and inure to the
benefit of you, the Company, and you and the Company's respective heirs,
personal representatives, successors and assigns; provided, however, neither
you nor the Company shall assign this Agreement or any rights, duties or
obligations hereunder without the prior written consent of the other party.
Any merger with or into another corporation or consolidation with another
corporation or a sale of all or substantially all of the Company's assets
shall not be construed for purposes of this Agreement to be an assignment. If
any term or provision of this Agreement shall be invalid or unenforceable to
any extent, the remainder of this Agreement shall not be affected by such
invalidity or unenforceability and each remaining provision shall be valid and
enforceable to the fullest extent permitted by law. This Agreement
constitutes the entire agreement between the Company and you concerning the
subject matter hereof and supersedes and cancels any and all other written or
oral agreements or understandings with respect to the subject matter hereof.
Paragraph headings are for convenience only and do not define, limit or
construe their contents. No modification, amendment or waiver of any term or
provision of this Agreement shall be effective unless in writing and signed by
you and on behalf of the Company.
If the above terms and conditions are acceptable to you, please sign the
enclosed copy of this letter where indicated and return it to my attention.
Very truly yours,
AMERICAN STORES COMPANY
By /s/ Victor L. Lund
Victor L. Lund
Chairman and Chief Executive Officer
ACCEPTED AND AGREED TO
this 1st day of August, 1995
By /s/ L. S. Skaggs
L. S. Skaggs
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statements for the thirty-nine week period ended October 28,
1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-3-1996
<PERIOD-END> OCT-28-1995
<CASH> 3,091<F1>
<SECURITIES> 0
<RECEIVABLES> 293,306
<ALLOWANCES> 0
<INVENTORY> 1,645,346
<CURRENT-ASSETS> 2,059,830
<PP&E> 4,988,133
<DEPRECIATION> 1,983,691
<TOTAL-ASSETS> 7,174,573
<CURRENT-LIABILITIES> 1,951,456
<BONDS> 2,074,174
<COMMON> 149,889
0
0
<OTHER-SE> 2,096,842
<TOTAL-LIABILITY-AND-EQUITY> 7,174,573
<SALES> 13,218,310
<TOTAL-REVENUES> 13,218,310
<CGS> 9,681,940
<TOTAL-COSTS> 9,681,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,480
<INCOME-PRETAX> 340,776
<INCOME-TAX> 145,511
<INCOME-CONTINUING> 195,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 195,265
<EPS-PRIMARY> $1.33
<EPS-DILUTED> $1.33
<FN>
<F1>All numbers except EPS are in (000's)
</FN>
</TABLE>
