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 May 4, 1996
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 May 31, 1996: Common Stock, Par Value $1.00 - 145,878,807
shares.
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Earnings
(unaudited)
(In thousands, except per share data)
Thirteen Weeks Ended
May 4, April 29,
1996 1995
<S> <C> <C>
Sales $4,580,028 $4,362,237
Cost of merchandise sold, including
warehousing and transportation expenses 3,384,852 3,241,368
Gross profit 1,195,176 1,120,869
Operating expenses 1,038,362 986,293
Operating profit 156,814 134,576
Other income (expense):
Interest expense (39,733) (39,688)
Other (5,747) (852)
Net other income (expense) (45,480) (40,540)
Earnings before income taxes 111,334 94,036
Federal and state income taxes 47,094 40,153
Net earnings $ 64,240 $ 53,883
Net earnings per share $ 0.44 $ 0.37
Average shares outstanding 146,326 146,181
Dividends per share $0.16 $0.14
______________________________________________________________________________
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Balance Sheets
(unaudited)
(In thousands of dollars)
May 4, February 3,
1996 1996
Current Assets:
Cash and cash equivalents $ 84,744 $ 102,422
Inventories 1,517,713 1,572,242
Other current assets 418,473 409,303
Total current assets 2,020,930 2,083,967
Property, plant and equipment, less
accumulated depreciation and amortization
of $2,191,784 on May 4, 1996 and
$2,126,550 on February 3, 1996 3,273,711 3,205,900
Goodwill 1,709,534 1,722,892
Other assets 332,069 350,205
Assets $7,336,244 $7,362,964
Current Liabilities:
Current maturities of long-term debt and
capital lease obligations $ 179,345 $ 135,152
Accounts payable 920,433 996,354
Other current liabilities 754,823 856,197
Total current liabilities 1,854,601 1,987,703
Long-term debt and obligations under capital
leases, less current maturities 2,205,445 2,105,016
Other liabilities 895,299 915,749
Shareholders' Equity - shares outstanding of
145,875,271 on May 4, 1996 and
146,447,785 on February 3, 1996 2,380,899 2,354,496
Liabilities and Shareholders' Equity $7,336,244 $7,362,964
______________________________________________________________________________
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Cash Flows
(unaudited)
(In thousands of dollars)
Thirteen Weeks Ended
May 4, April 29,
1996 1995
Cash Flows from Operating Activities:
Net earnings $ 64,240 $ 53,883
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 107,700 98,911
Net loss on asset sales 3,541 412
Changes in operating assets and liabilities (143,193) (103,718)
Total adjustments (31,952) (4,395)
Net cash provided by operating
activities 32,288 49,488
Cash Flows from Investing Activities:
Expended for property, plant and equipment (169,553) (137,539)
Proceeds from sale of other assets 12,802 4,893
Net cash used in investing activities (156,751) (132,646)
Cash Flows from Financing Activities:
Net increase (decrease) in borrowings 144,622 (997)
Other changes in equity 9,507 6,003
Repurchase of Common Stock (23,916)
Cash dividends (23,428) (20,784)
Net cash provided by (used in) financing
activities 106,785 (15,778)
Net decrease in cash and cash equivalents (17,678) (98,936)
Cash and cash equivalents:
Beginning of year 102,422 195,689
End of quarter $ 84,744 $ 96,753
Supplementary Information - Statements of Cash Flows:
Cash paid during the quarter for:
Interest (net of amounts capitalized) $43,632 $ 51,941
Income taxes, net of refunds $22,122 $ 22,486
Noncash investing and financing activities:
Conversion of convertible notes to equity $120,311
</TABLE>
______________________________________________________________________________
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Notes to Consolidated Condensed Financial Statements
(unaudited)
May 4, 1996
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 May 4, 1996 and February 3, 1996 and the results of its
operations and cash flows for the thirteen weeks ended May 4, 1996 and April 29,
1995. 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 February 3, 1996.
Advertising Reclassification
Beginning in the first quarter of 1996, the Company is classifying advertising
expense as a cost of merchandise sold. Previously theses expenses were
classified as operating expenses. Prior years have been reclassified to conform
to the current year presentation.
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.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (ESPP) allows eligible employees the right to
purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. During the
quarter, 127,046 shares were issued under the plan at $22.90 per share. As of
May 4, 1996, 6,872,954 shares remained authorized for issuance under the ESPP.
Repurchase of Common Stock
During the first quarter, the Company repurchased 726,600 shares of its common
stock at an average price of $32.91 per share in accordance with its existing
stock repurchase program. Since June of 1995, 3,249,100 shares have been
purchased at an average price of $29.82 per share. At the end of the first
quarter, an additional 750,900 shares remained authorized for repurchase under
the program.
Part I - Financial Information (continued)
Subsequent Event
On June 10, 1996, the Company issued $350 million principal amount of 8.0%
debentures due June 1, 2026 at 99.262% to yield 8.066%. The Company received net
proceeds of approximately $344 million which will be used to refinance a portion
of the Company's long-term indebtedness and to refinance additional short-term
variable rate borrowings under the Company's principal bank credit agreement.
Part I - Financial Information (continued)
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 first
quarter of 1996 and 1995 are presented in the table below. Sales in the eastern
and western food operations increased primarily due to improved marketing and
merchandising strategies and increased capital spending over the past few years.
Strong performances by the combination stores in the eastern food operations in
1996 and lower sales in the western food operations in 1995 as a result of the
nine-day labor dispute in northern California also contributed to the
comparative increase in first quarter 1996 sales. Sales at the drug store
operations increased due to higher pharmacy sales and increased spending on new
stores.
<TABLE>
13 Weeks Ended
Comparable Store May 4, April 29,
% Change 1996 1995
<S> <C> <C> <C>
Sales:
Eastern food operations 3.7% $1,510,930 $1,462,233
Western food operations 3.8% 1,810,828 1,708,312
Drug store operations 5.1% 1,252,266 1,189,481
Other 6,004 2,211
Total sales 4.1% $4,580,028 $4,362,237
Eastern food operations include Acme Markets and Jewel Food Stores.
Western food operations include Lucky Northern California Division, Lucky
Southern California Division and Jewel Osco Southwest.
Drug store operations include Osco Drug and Sav-on.
</TABLE>
Beginning in the first quarter of 1996, the Company is classifying advertising
expense as a cost of merchandise sold. Previously theses expenses were
classified as operating expenses. Prior years have been reclassified to conform
to the current year presentation.
After reclassifying advertising expense, gross profit as a percent of sales
increased to 26.1% in the first quarter of 1996, compared to 25.7% in the first
quarter of 1995. Without the reclassification, gross profit as percentage of
sales would have been 26.8% and 26.6% in the first quarter of 1996 and 1995,
respectively. All three operating divisions showed improvements in gross profit
percentage. The eastern food operations gross profit percentage increased
primarily due to improvements in shrink control and distribution costs, slightly
offset by increased promotional spending. Western food operations gross profit
percentage increased primarily due to a nine-day labor dispute in 1995 and
improved performances by the Super Saver stores. Drug store operations gross
profit percentage increased primarily due to decreased promotional spending,
offset by lower pharmacy gross margins caused by a shift from cash customers to
third-party customers.
Part I - Financial Information (continued)
After reclassifying advertising expense, operating expense as a percent of sales
increased slightly to 22.7% in the first quarter of 1996, compared to 22.6% in
1995. Before giving effect to the reclassification, operating expenses would
have been 23.4% and 23.5% in the first quarter of 1996 and 1995, respectively.
Operating expenses remained flat in the eastern food operations and decreased in
the western food operations due to the absence of labor dispute related expenses
in 1996. This decrease was offset by expenses related to the 71 new drug stores
opened in 1995 and the three new drug stores opened in the first quarter of
1996.
Total operating profit for the first quarter of 1996 and 1995 are presented in
the table below. Operating profit was 3.4% of sales in 1996 and 3.1% of sales
in 1995 reflecting higher operating profit percentages for the Company's eastern
and western food operations due to improved marketing and merchandising programs
and better cost controls. These increases were slightly offset by a decrease in
the drug store operating profit as a percentage of sales due to lower gross
margins on increased third-party pharmacy sales and costs associated with the
increased number of new stores.
<TABLE>
13 Weeks Ended
May 4, April 29,
1996 1995
<S> <C> <C>
Operating Profit:
Eastern food operations $62,985 $ 56,476
Western food operations 68,216 51,999
Drug store operations 52,960 52,777
LIFO (8,000) (9,000)
Purchase accounting amortization (19,421) (19,258)
Other 74 1,582
Total operating profit $156,814 $134,576
"Other" includes real estate operations in both 1996 and 1995.
</TABLE>
Interest expense was flat in the first quarter of 1996 compared to the first
quarter of 1995. Average outstanding debt was higher during the first quarter
of 1996 but was offset by lower average borrowing rates.
The Company's effective income tax rates were 42.3% in the first quarter of 1996
compared to 42.7% in the prior year. The current year effective tax rates are
down due to higher earnings in the current year and lower state tax rates.
Net earnings per share amounted to $0.44 per share in the first quarter of 1996
and $0.37 per share in the same quarter of the prior year.
Part I - Financial Information (continued)
Liquidity and Capital Resources
Cash provided by operating activities decreased by $17.9 million in the first
thirteen weeks of 1996 compared to the same period of 1995. Cash flows from
operating assets and liabilities decreased by $39.5 million due primarily to an
increase in property held for investment of $18.7 million over the same quarter
of the prior year. The balance of the change is due to changes in the
components of working capital and is not indicative of long-term trends.
Cash capital expenditures for the first thirteen weeks of 1996 and 1995 amounted
to $169.6 million and $137.5 million, respectively. Total capital expenditures
including the net present value of leases amounted to $181.3 million in 1996,
compared to $175.8 million in 1995. For the first quarter of 1996, 10 new
stores were opened, 24 stores were closed and 8 stores were remodeled. Capital
expenditures for fiscal 1996 are expected to approximate $900 million and will
be funded from cash flows from operations and existing credit facilities. The
Company currently plans to open 100 new stores and remodel 72 stores in 1996.
The net increase in debt of $144.6 million in the first quarter of 1996 is
compared to a net reduction of $1.0 million in the same quarter of 1995. The
increase in 1996 is primarily due to the increased capital spending program and
the repurchase of common stock. During the first quarter, the Company
repurchased 726,600 shares of its common stock at an average price of $32.91 per
share in accordance with its existing stock repurchase program. Since June of
1995, 3,249,100 shares have been purchased at an average price of $29.82 per
share. At the end of the first quarter, an additional 750,900 shares remained
authorized for repurchase under the program. Debt in 1995 decreased due
primarily to the conversion of the Company's Convertible Subordinated Notes to
common stock.
The ratio of total debt (debt plus obligations under capital leases) to total
capitalization (total debt plus common shareholders' equity) amounted to 50.0%
at May 4, 1996 and 48.8% at February 3, 1996.
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.
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
Part I - Financial Information (continued)
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.
Subsequent Event
On June 10, 1996, the Company issued $350 million principal amount of 8.0%
debentures due June 1, 2026 at 99.262% to yield 8.066%. The Company received net
proceeds of approximately $344 million which will be used to refinance a portion
of the Company's long-term indebtedness and to refinance additional short-term
variable rate borrowings under the Company's principal bank credit agreement.
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 February 3, 1996.
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 --
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 June 18, 1996 /s/ Teresa Beck
Teresa Beck
Chief Financial Officer
(Principal Financial Officer)
Dated June 18, 1996 /s/ Kathleen E. McDermott
Kathleen E. McDermott
Chief Legal Officer and Assistant Secretary
Dated June 18, 1996 /s/ Bradley M. Vierig
Bradley M. Vierig
Senior Vice President and Controller
(Chief Accounting Officer)
<TABLE>
Exhibit 11.1
AMERICAN STORES COMPANY
Calculation of Earnings Per Share
(unaudited)
(In thousands, except per share data)
Thirteen Weeks Ended
May 4, April 29,
1996 1995
<S> <C> <C>
Primary Earnings Per Share
Primary earnings applicable to shareholders $ 64,240 $ 53,883
Primary earnings per share $0.44 $0.37
Average shares outstanding 146,326 146,181
Fully Diluted Earnings Per Share
Fully diluted earnings applicable to shareholders $ 64,240 $ 53,883
Fully diluted earnings per share $0.44 (1) $0.37 (1)
Fully diluted average shares outstanding 146,847 146,742
Calculation of Fully Diluted Average Shares Outstanding
Effect of assumed exercise of stock options:
Proceeds from assumed exercise $ 41,190 $ 27,952
Shares under options outstanding 1,779 1,652
Shares assumed acquired with proceeds
under the treasury stock method (1,258) (1,091)
Incremental shares due to assumed
exercise of stock options 521 561
Fully diluted average shares outstanding:
Average shares outstanding 146,326 146,181
Assumed exercise of stock options 521 561
Assumed conversion of debentures 0 0
Total 146,847 146,742
</TABLE>
(1) Dilution is less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statements for the thirteen week period ended May 4, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-1-1997
<PERIOD-END> MAY-4-1996
<CASH> 84,744<F1>
<SECURITIES> 0
<RECEIVABLES> 308,466
<ALLOWANCES> 0
<INVENTORY> 1,517,713
<CURRENT-ASSETS> 2,020,930
<PP&E> 5,285,811
<DEPRECIATION> 2,085,865
<TOTAL-ASSETS> 7,336,244
<CURRENT-LIABILITIES> 1,854,601
<BONDS> 2,205,445
0
0
<COMMON> 149,889
<OTHER-SE> 2,231,010
<TOTAL-LIABILITY-AND-EQUITY> 7,336,244
<SALES> 4,580,028
<TOTAL-REVENUES> 4,580,028
<CGS> 3,384,852
<TOTAL-COSTS> 3,384,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,733
<INCOME-PRETAX> 111,334
<INCOME-TAX> 47,094
<INCOME-CONTINUING> 64,240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,240
<EPS-PRIMARY> $0.44
<EPS-DILUTED> $0.44
<FN>All numbers except EPS are in (000's).
</FN>
</TABLE>
