<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 33-52331
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 21, 1994)
[LOGO]
AMERICAN STORES COMPANY
$350,000,000
8% Debentures due June 1, 2026
Interest payable June 1 and December 1
ISSUE PRICE: 99.262%
The 8% Debentures due June 1, 2026 (the "Debentures") are being offered by
American Stores Company, a Delaware corporation. Interest on the Debentures is
payable semiannually on June 1 and December 1 of each year, commencing Decem-
ber 1, 1996. The Debentures will be unsecured obligations and will rank pari
passu with all other unsecured and unsubordinated debt. The Debentures are not
redeemable prior to maturity.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture 99.262% .875% 98.387%
- ------------------------------------------------------------------------------
Total $347,417,000 $3,062,500 $344,354,500
- ------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from June 10, 1996 to the date of delivery.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses payable by the Company estimated at $550,000.
The Debentures are offered severally by the Underwriters, as specified herein,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to approval of certain matters by counsel. It is
expected that delivery of the Debentures will be made against payment therefor
in immediately available funds on or about June 10, 1996 at the offices of
J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. As June 10,
1996 is the fourth business day following the date hereof, purchasers of the
Debentures should be aware that trading of the Debentures on the date hereof
may be affected by such four-day settlement.
J.P. MORGAN & CO.
LEHMAN BROTHERS
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
June 4, 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY OR OTHER SECURITIES OF THE COMPANY AT LEVELS ABOVE THOSE WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
----------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Company.............................................................. S-3
Recent Developments...................................................... S-4
Use of Proceeds.......................................................... S-5
Ratio of Earnings to Fixed Charges....................................... S-5
Capitalization........................................................... S-5
Selected Financial Data.................................................. S-6
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-7
Description of Debentures................................................ S-11
Underwriting............................................................. S-12
Legal Matters............................................................ S-12
Experts.................................................................. S-13
PROSPECTUS
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
The Company.............................................................. 4
Use of Proceeds.......................................................... 4
Ratio of Earnings to Fixed Charges....................................... 4
Description of Debt Securities........................................... 4
Plan of Distribution..................................................... 12
Legal Matters............................................................ 13
Experts.................................................................. 13
</TABLE>
S-2
<PAGE>
THE COMPANY
American Stores Company is one of the nation's leading food and drug
retailers operating stand-alone food and drug stores, and 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). The Company's principal food operations
are Acme Markets and Jewel Food Stores (the eastern food operations), Lucky
Stores Northern California Division and Southern California Division and Jewel
Osco Southwest (the western food operations). The Company's drug stores
operate under the Osco Drug and Sav-on names (the drug store operations). At
year-end 1995, the Company operated 1,650 stores in 26 states, including both
the food and drug sides of 153 Jewel Osco combination stores which are counted
as separate stores, and employed approximately 121,000 associates.
The Company's principal executive offices are located at 709 East South
Temple, Salt Lake City, Utah 84102 (telephone: 801-539-0112). References to
the "Company" in this Prospectus Supplement include American Stores Company
and its subsidiaries unless the context otherwise requires.
S-3
<PAGE>
RECENT DEVELOPMENTS
The following table sets forth summarized consolidated information on the
results of operations of the Company for the 13-week periods ended May 4, 1996
and April 29, 1995. The summary information is unaudited, but in the opinion
of management, all adjustments necessary for a fair presentation of the
results of operations for these periods (consisting only of normal recurring
adjustments) have been made. This summary information should be read in
conjunction with the financial statements incorporated by reference herein.
Beginning in the first quarter of 1996, the Company is classifying advertising
expense as cost of sales. Previously, advertising expense was included in
operating expenses. The financial information presented for the 13-week period
ended April 29, 1995 has been reclassified to conform to the new presentation
of advertising expenses.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------------
MAY 4, 1996 APRIL 29, 1995
----------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS
Sales........................................... $ 4,580,028 $ 4,362,237
Cost of sales................................... (3,376,852) (3,232,368)
LIFO provision.................................. (8,000) (9,000)
----------- -----------
Gross profit.................................... 1,195,176 1,120,869
26.1% 25.7%
Operating expenses.............................. (1,038,362) (986,293)
(22.7)% (22.6)%
----------- -----------
Operating profit................................ 156,814 134,576
3.4% 3.1%
Interest expense.............................. (39,733) (39,688)
Other......................................... (5,747) (852)
----------- -----------
Earnings before income taxes...................... 111,334 94,036
Federal and state income taxes.................... (47,094) (40,153)
----------- -----------
Net earnings...................................... $ 64,240 $ 53,883
=========== ===========
Average shares outstanding........................ 146,326 146,181
Earnings per share................................ $ 0.44 $ 0.37
=========== ===========
Dividends per share............................... $ 0.16 $ 0.14
=========== ===========
WITHOUT ADVERTISING RECLASSIFICATION:
Gross profit...................................... $ 1,228,756 $ 1,160,445
26.8% 26.6%
Operating expenses................................ ($1,071,942) ($1,025,869)
(23.4)% (23.5)%
</TABLE>
S-4
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Debentures will be used to refinance
approximately $100 million aggregate principal amount of the Company's long-
term indebtedness, having a weighted average interest rate of approximately
8.2%. The balance will be used to refinance additional short-term variable
rate borrowings under the Company's principal bank credit agreement (the
"Credit Agreement"). The amount of outstanding debt borrowed directly under
the Credit Agreement, at a weighted average interest rate of 5.63%, was $792
million at May 30, 1996, of which $60 million was owed to Morgan Guaranty
Trust Company of New York, the agent bank under the Credit Agreement. Morgan
Guaranty Trust Company of New York, a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated, is an affiliate of J.P. Morgan Securities Inc., the lead
manager of the offering. See "Underwriting."
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for the Company for the fiscal years
ended February 3, 1996 and January 28, 1995 was 3.09 and 3.27, respectively.
The ratio of earnings to fixed charges for the Company for the thirteen weeks
ended May 4, 1996 and April 29, 1995 was 2.73 and 2.44, respectively. See
"Ratio of Earnings to Fixed Charges" in the Prospectus.
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company
as of May 4, 1996, and such capitalization as adjusted to give effect to the
issuance of the Debentures and the application of the net proceeds therefrom.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
---------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current maturities of long-term debt................. $ 170 $ 120
Current obligations under capital leases............. 10 10
Long-term debt, less current maturities:
Credit Agreement and bank lines of credit(1)....... 1,000 750
Debentures......................................... -- 350
Other unsecured senior debt........................ 1,065 1,015
Debt secured by real estate........................ 76 76
Capital leases..................................... 64 64
---------- ----------
Total................................................ 2,385 2,385
Shareholders' equity:
Common Stock of $1.00 par value; Authorized
325,000,000 shares;
Issued 149,889,236 shares......................... 150 150
Additional paid-in capital......................... 352 352
Retained earnings.................................. 1,984 1,984
Less cost of treasury stock (4,013,965 shares)..... (105) (105)
---------- ----------
Total shareholders' equity........................... 2,381 2,381
---------- ----------
Total capitalization................................. $ 4,766 $ 4,766
========== ==========
</TABLE>
- --------
(1) At May 4, 1996, the Credit Agreement consisted of a $1 billion revolving
credit facility, of which $793 million was drawn down, which is used for
direct borrowings and as backup support for commercial paper. At May 4,
1996, the Company also had an additional $120 million and $170 million
outstanding under committed and uncommitted bank lines, respectively, of
which $207 million is included in this line item and $83 million is
included in the line captioned "Current maturities of long-term debt."
S-5
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information in the following table (other than the
information under "Other Data") for each of the five years in the period ended
February 3, 1996 has been derived from the Company's consolidated financial
statements which have been audited by Ernst & Young LLP, independent auditors.
The selected information should be read in conjunction with the Company's
consolidated financial statements and notes thereto incorporated by reference
in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30, FEBRUARY 1,
1996(1) 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND "OTHER DATA")
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT
Sales.................. $18,308,894 $18,355,126 $18,763,439 $19,051,180 $20,822,956
Cost of merchandise
sold, including
warehousing and
transportation
expenses(2)........... 13,390,353 13,436,699 13,815,607 14,075,787 15,615,734
----------- ----------- ----------- ----------- -----------
Gross profit........... 4,918,541 4,918,427 4,947,832 4,975,393 5,207,222
Operating and
administrative
expenses(2)........... 4,211,718 4,268,359 4,305,950 4,352,079 4,605,234
----------- ----------- ----------- ----------- -----------
Operating profit....... 706,823 650,068 641,882 623,314 601,988
Other income (expense):
Interest income....... 8,747 6,789 4,568 4,477 2,861
Interest expense...... (159,545) (170,703) (189,773) (214,394) (265,098)
Other................. (5,109) 120,109 24,128 (35,116) 98,717
----------- ----------- ----------- ----------- -----------
Total other income
(expense)............. (155,907) (43,805) (161,077) (245,033) (163,520)
----------- ----------- ----------- ----------- -----------
Earnings before income
taxes, extraordinary
item and before
cumulative effect of
changes in accounting
principles............ 550,916 606,263 480,805 378,281 438,468
Federal and state
income taxes.......... (234,107) (261,079) (218,715) (170,815) (198,452)
----------- ----------- ----------- ----------- -----------
Earnings before
extraordinary item and
cumulative effect of
changes in accounting
principles............ 316,809 345,184 262,090 207,466 240,016
Extraordinary item --
early retirement of
debt, net of taxes.... (15,000)
Cumulative effect of
changes in accounting
principles --
Postretirement health
care benefits......... (40,734)
----------- ----------- ----------- ----------- -----------
Net earnings........... $ 316,809 $ 345,184 $ 247,090 $ 207,466 $ 199,282
=========== =========== =========== =========== ===========
Average common shares
outstanding(3)........ 146,943 142,767 142,202 140,314 138,364
Earnings per common
share before
extraordinary item and
cumulative effect of
changes in accounting
principles(3)......... $ 2.16 $ 2.42 $ 1.85 $ 1.48 $ 1.73
Extraordinary item(3).. (0.11)
Cumulative effect of
changes in accounting
principles --
Postretirement health
care benefits(3)...... (0.29)
=========== =========== =========== =========== ===========
Net earnings per common
share(3).............. $ 2.16 $ 2.42 $ 1.74 $ 1.48 $ 1.44
=========== =========== =========== =========== ===========
Fully diluted earnings
per share(3).......... $ 2.16 $ 2.33 $ 1.69 $ 1.44 $ 1.41
=========== =========== =========== =========== ===========
FINANCIAL STATISTICS
Gross profit margin.... 26.9% 26.8% 26.4% 26.1% 25.0%
Operating profit
margin................ 3.9% 3.5% 3.4% 3.3% 2.9%
Capital
expenditures(4)....... 801,371 565,313 652,928 476,617 378,593
Depreciation and
amortization.......... 404,562 407,286 384,307 370,439 386,916
Total assets........... 7,362,964 7,031,566 6,927,434 6,763,793 7,198,050
Total debt............. 2,240,168 2,205,291 2,167,999 2,248,316 2,798,578
Shareholders' equity... 2,354,496 2,050,921 1,742,285 1,544,014 1,366,430
Cash dividends per
common share(3)....... $ .56 $ .48 $ 0.40 $ 0.36 $ 0.32
OTHER DATA
Comparable store sales
increase (decrease)... 1.4% 0.5% (0.7)% (0.5)% 0.1%
Total stores at year
end(5)................ 1,650 1,597 1,695 1,672 1,631
Total retail square
footage at year end
(in thousands)........ 32,523 31,179 32,727 32,320 34,428
</TABLE>
- -------
(1) Fifty-three week year.
(2) Subsequent to fiscal 1995, the Company has reclassified advertising
expense as cost of merchandise sold rather than operating expense. The
above amounts have not been restated for this reclassification.
(3) Restated as necessary to reflect the July 1991 and April 1994 two-for-one
common stock splits.
(4) Amount includes capitalized leases and the net present value of property,
plant and equipment leased under operating leases.
(5) Includes both the food and drug sides of Jewel Osco combination stores
which are counted as separate stores.
S-6
<PAGE>
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 1995
53-week fiscal year, and the 1994 and 1993 52-week 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 and the 45 Acme Markets stores in the fourth quarter of 1994 (disposed
of operations). Sales from continuing operations increased 4.5% in 1995, and
decreased 0.3% in 1994 and 0.2% in 1993. The increase in sales from continuing
operations in 1995 is primarily a result of improved performance at all three
operating divisions and the extra week of operations. Comparable store sales
(sales from stores that have been open at least one year, including
replacement stores) increased 1.4% in 1995, 0.5% in 1994 and decreased 0.7% in
1993. The improvement in comparable store sales is primarily the result of
successful marketing of the combination stores in the eastern food operations,
increased pharmacy and third-party sales in the drug store operations and
aggressive pricing programs offset slightly by the impact of a nine-day labor
dispute in the first quarter of 1995 in the western food operations. The Super
Saver warehouse-type stores have been reorganized under the Lucky operations
in 1996 to leverage our support functions.
TOTAL SALES
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
1995 1994 1993
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Eastern food operations........................... $ 6,147 $ 5,957 $ 6,052
Western food operations........................... 7,155 7,002 7,183
Drug store operations............................. 4,995 4,544 4,322
Other............................................. 12 12 12
------- ------- -------
Continuing operations............................. 18,309 17,515 17,569
Disposed of operations............................ 840 1,194
------- ------- -------
TOTAL SALES....................................... $18,309 $18,355 $18,763
======= ======= =======
</TABLE>
COMPARABLE STORE SALES
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
1995 1994 1993
-------- -------- --------
(PERCENTAGE CHANGE)
<S> <C> <C> <C>
Eastern food operations........................... 1.5 % 0.7 % (1.5)%
Western food operations........................... (0.8)% (1.8)% (1.9)%
Drug store operations............................. 4.8 % 4.2 % 2.6 %
---- ---- ----
TOTAL CHANGE...................................... 1.4 % 0.5 % (0.7)%
==== ==== ====
</TABLE>
Gross profit as a percent of sales increased to 26.9% in 1995, compared to
26.8% in 1994 and 26.4% in 1993. The increase in gross profit in 1995 over
1994 is primarily the result of the disposed of operations, which produced
lower margins than the continuing operations, and improvements in the eastern
food operations due to improved product mix and promotional strategies. These
increases were offset by decreases in competitive drug store pharmacy gross
margins and the impact of a nine-day labor dispute in the first quarter of
1995 in the western food operations. The 1994 gross profit percentage
increased from 1993 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. The annual pre-tax LIFO charge to
earnings amounted to $12.8 million in 1995, $8.2 million in 1994 and $7.2
million in 1993. Changes in the mix of inventory have influenced the LIFO
charge.
S-7
<PAGE>
Operating expense as a percent of sales decreased to 23.0% in 1995, compared
to 23.3% in 1994 and 23.0% in 1993. Operating expense in the western food
operations benefited in 1995 from the renegotiation of a labor contract with
the United Food and Commercial Workers International. The new contract will
expire in 1999, and replaces a contract scheduled to expire in 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 old contract, were
immediately recognized in the third quarter of 1995. Operating expense in the
western food operations also decreased due to lower self-insurance costs and
productivity improvements, which were partially offset by the impact of the
nine-day labor dispute. In addition, improved sales, lower insurance costs and
better overall cost control in the eastern food and drug store operations
helped lower operating expense as a percentage of sales. Operating expense in
1994 included charges of $23.9 million ($0.10 per share) for centralization of
administrative functions, including information technology and accounting. As
of third quarter 1995, the entire reserve had been utilized without
significant adjustments to the original amount. Operating expense in 1994 also
included expenses for the consolidation of the computer data centers and a
voluntary severance program initiated at Acme Markets, totaling $11.2 million
($0.05 per share). Operating expense in 1993 included $7.6 million ($0.04 per
share) for the settlement of meat products litigation in California and
severance programs stemming from the Company's expense reduction programs.
Total operating profit for the last three fiscal years is set forth in the
following table. Operating profit from continuing operations increased 11.9%
in 1995, 4.4% in 1994 and 0.8% in 1993. Total operating profit was 3.9% of
sales in 1995, 3.5% of sales in 1994 and 3.4% of sales in 1993. The increase
in operating profit and operating profit as a percentage of sales is primarily
due to strong performances from the Company's core operations and the extra
week of operations included in 1995. In addition, eastern food operations
improved due to successful joint marketing of the combination stores, western
food operations improved due to lower health and welfare costs associated with
the renegotiated labor contract and drug store operations improved due to
lower insurance costs and better cost control, slightly offset by the start-up
costs of 71 new stores, including 17 acquired Clark drug stores.
OPERATING PROFIT
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS
1995 1994 1993
-------- -------- --------
(IN MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Eastern food operations........................... $271.7 $258.2 $231.2
Western food operations........................... 271.2 245.9 248.7
Drug store operations............................. 245.4 228.5 197.0
LIFO charge....................................... (12.8) (8.2) (7.2)
Purchase accounting amortization.................. (76.8) (78.6) (79.2)
Other............................................. 8.1 (14.1) 14.7
Continuing operations............................. 706.8 631.7 605.2
Disposed of operations............................ 18.4 36.7
------ ------ ------
Total Operating Profit............................ $706.8 $650.1 $641.9
====== ====== ======
</TABLE>
Interest expense decreased in 1995, 1994 and 1993 due to lower average
interest rates resulting from the refinancing of high coupon borrowings at
lower rates. In addition, the Company experienced lower average debt levels
for each of the last three years. Interest expense also benefited from the
conversion of a portion of the convertible notes from debt to equity in the
first quarter of 1995. The caption "Other" in 1994 of $120.1 million included
non-recurring gains of $121.0 million on the sale of the Star Market food
division, $41.2 million on the sale of 45 Acme Markets stores and a charge of
$31.3 million for closed store costs (totaling $0.54 per share). "Other" in
1993 of $24.1 million included $45.7 million ($0.20 per share) 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 ($0.07 per share) of various
charges, including costs associated with store closings, integrating acquired
stores into existing operations and costs associated with the earthquake in
southern California.
S-8
<PAGE>
The Company's effective income tax rates were 42.5% in 1995, 43.1% in 1994
and 45.5% in 1993. The disposition of assets during 1995 and 1994 in states
with higher tax rates has resulted in lower effective income tax rates.
Earnings for 1993 were affected by charges incurred in the early retirement
of debt totaling $0.11 per share, which were accounted for as an extraordinary
item. Net earnings per share amounted to $2.16 in 1995, $2.42 in 1994 and
$1.74 in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities increased by $313.3 million from 1994
to 1995 primarily due to higher earnings after adjusting for the gain on
disposed of operations. In addition, the disposed of operations in 1994 render
the comparison between years more difficult. Cash and cash equivalents at the
beginning of 1995 were higher than the beginning of 1994 and 1993 due to
proceeds held from the sale of the disposed of operations.
Cash capital expenditures amounted to $750.9 million in 1995, $538.0 million
in 1994 and $593.8 million in 1993. Additional capital expenditures
represented by the net present value of leases amounted to $50.5 million in
1995, $27.3 million in 1994 and $59.1 million in 1993. The increase in capital
expenditures in 1995 reflects the Company's commitment to its expanded capital
expenditure program announced in 1992. The Company opened 92 new stores in
1995 including 17 acquired Clark drug stores. The Company opened 49 and 39 new
stores in 1994 and 1993, respectively. There were 223, 166 and 233 stores
remodeled in 1995, 1994 and 1993, respectively. During 1993 the Company
acquired 55 Reliable drug stores and four Thrifty drug stores. Capital
expenditures for fiscal 1996, including the net present value of leases, are
expected to approximate $900 million and will be funded through cash flow from
operations, existing credit facilities and other long-term borrowings. The
Company currently plans to open 100 new stores and remodel 72 stores in 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 with cash.
On May 18, 1995, the Company issued $200 million, 7.4% debentures due May
15, 2005, at 99.5% to yield 7.5% under an $800 million shelf registration
statement filed on February 18, 1994. On August 7, 1995, the Company entered
into a $75 million, 6.6%, note payable due August 7, 2000. The proceeds from
the note were used to pay off an existing $75 million, 8.9% note due August 7,
1995. On November 29, 1995, the Company paid off a $50 million, 10.9% note
payable.
The net increase in debt was $43.3 million and $50.0 million in 1995 and
1994, respectively. The increases are due to increased capital spending in
each year. In addition, debt increased in 1995 due to the repurchase of 2.5
million shares of the Company's common stock at an average market price of
$28.93 under an existing stock repurchase program. As of February 3, 1996,
there remained an additional 1.5 million shares authorized for repurchase
under the program.
The Company's principal bank credit agreement is a $1.0 billion revolving
credit facility, which expires in 1999 and is used for direct borrowings and
as backup support for commercial paper. The Company also has $150 million of
364-day committed bank lines and $360 million of uncommitted bank lines, which
are used for overnight and short-term bank borrowings. At year-end 1995, the
Company had $865 million of debt supported by the credit facility and $69
million outstanding under bank lines, leaving unused committed borrowing
capacity of $216 million.
Working capital amounted to $96.3 million at year-end 1995 compared to
$200.7 million at year-end 1994 and a negative $58.3 million at year-end 1993.
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 common shareholders' equity)
amounted to 48.8%, 51.8% and 55.4% at year-end 1995, 1994 and 1993,
respectively.
S-9
<PAGE>
The Company believes that its cash flow from operations, supplemented by
credit available under the Company's existing credit facility, committed and
uncommitted credit facilities, other long-term borrowings, 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 that had an outstanding principal balance
of $210 million at year-end 1995. The Company is exposed to credit losses in
the event of nonperformance by the counterparties to its swap agreements. Such
counterparties are highly rated financial institutions and the Company
anticipates they will be able to satisfy their obligations under the
contracts.
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 in excess of current reserves 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.
SUPPLY CHAIN RE-ENGINEERING
The Company is currently engaged in an effort to re-engineer its supply
chain business processes. This involves streamlining the Company's buying,
warehousing, distribution and merchandising activities. Major components of
this effort include the development of new processes and implementation of new
software to support these activities, as well as centralized management of
certain procurement and logistics processes. The goal is to provide better
products and services to customers through more cost-effective processes. In
1996, the Company plans to launch the centralization of the grocery
procurement functions in Salt Lake City and implement its first set of
integrated supply chain systems for liquor, wine and tobacco. The re-
engineering efforts will continue over the next few 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 or assured. However, the Company anticipates that the costs will
exceed the benefits of such efforts during the 1996 fiscal year.
S-10
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
As further explained in the notes to the Company's financial statements
(which are incorporated by reference in the Prospectus), the Company adopted
the recently issued accounting standard relating to long-lived assets in 1995,
and its adoption did not have a material impact on the Company's financial
statements.
The Company does not intend to change its method of recognizing expense in
connection with stock-based compensation arrangements as permitted by the
recently issued related standard and thus, its issuance will not have a
material impact on the Company's financial statements.
DESCRIPTION OF DEBENTURES
The following description of the particular terms of the Debentures offered
hereby (referred to in the Prospectus as the "Offered Debt Securities")
supplements the description of the general terms and provisions of Debt
Securities set forth in the Prospectus, to which description reference is
hereby made. Capitalized terms used but not defined herein shall have the
meanings given to them in the Prospectus.
The Debentures will mature on June 1, 2026 and are unsecured obligations of
the Company. The Debentures will be issued under the Senior Debt Indenture and
will rank pari passu with all other unsecured and unsubordinated debt of the
Company. Each Debenture will bear interest at the rate of 8% per annum from
the date of issue, payable semiannually on June 1 and December 1 of each year,
commencing December 1, 1996, to the person in whose name the Debenture (or any
predecessor Debenture) is registered at the close of business on the May 15 or
November 15 next preceding such interest payment date. The Debentures will be
issued only in fully registered form in denominations of $1,000 or any
integral multiple thereof.
The Debentures are not subject to redemption prior to maturity and are not
subject to any mandatory sinking fund provisions.
Holders of the Debentures may present their Debentures for payment of
interest and principal, or for exchange or transfer of the Debentures, at the
office of the Trustee maintained at First Chicago Trust Company of New York
located at 14 Wall Street, 8th Floor, Window 2, New York, New York 10005.
Settlement by the purchasers of Debentures will be made in immediately
available funds. The Debentures will be issued in the form of one or more
fully registered securities, representing the aggregate principal amount of
the Debentures, that will be deposited with, or on behalf of, The Depository
Trust Company (the "DTC"), and registered in the name of CEDE & Co., the
nominee of DTC. All payments by the Company to DTC of principal and interest
will be made in immediately available funds.
As of February 3, 1996, the Company's subsidiaries had approximately $3,633
million of debt and other obligations. See "Description of Debt Securities--
General" in the Prospectus.
The Company has previously issued $200 million 7.40% Debentures due May 15,
2005 under the Senior Debt Indenture.
S-11
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated June 4, 1996 (the "Underwriting Agreement"), the Company has agreed to
sell to each of the underwriters named below (the "Underwriters"), and each of
the Underwriters has severally agreed to purchase, the principal amount of
Debentures set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER DEBENTURES
- ----------- ------------
<S> <C>
J.P. Morgan Securities Inc........................................ $ 87,500,000
Lehman Brothers Inc............................................... 87,500,000
Morgan Stanley & Co. Incorporated................................. 87,500,000
Salomon Brothers Inc.............................................. 87,500,000
------------
Total......................................................... $350,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Debentures, if any are
taken.
The Underwriters propose to offer the Debentures in part directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus Supplement and in part to certain securities dealers at such
price less a concession not to exceed .50% of the principal amount of the
Debentures. The Underwriters may allow, and such dealers may reallow, a
concession not to exceed .25% of the principal amount of the Debentures to
certain brokers and dealers. After the Debentures are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Underwriters.
The Debentures are a new issue of securities with no established trading
market. The Underwriters have advised the Company that they intend to make a
market in the Debentures but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to
liquidity of the trading market for the Debentures.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
The net proceeds from the sale of the Debentures are expected to be used in
part to reduce outstanding borrowings under a Credit Agreement under which an
affiliate of J.P. Morgan Securities Inc. is the agent bank and a lender. See
"Use of Proceeds". Henry I. Bryant, a Managing Director of J.P. Morgan & Co.
Incorporated, the parent of J.P. Morgan Securities Inc., is a director of the
Company.
In the ordinary course of their respective businesses, affiliates of the
Underwriters have engaged, and may in the future engage, in other commercial
banking and investment banking transactions with the Company and its
affiliates.
LEGAL MATTERS
The legality of the Debentures is being passed upon for the Company by
Wachtell, Lipton, Rosen & Katz, New York, New York. Certain legal matters in
connection with the Debentures are being passed upon for the Underwriters by
Davis Polk & Wardwell, New York, New York.
S-12
<PAGE>
EXPERTS
The consolidated financial statements of American Stores Company
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended February 3, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are, and
audited financial statements to be included in subsequently filed documents
will be, incorporated herein in reliance upon the reports of Ernst & Young LLP
pertaining to such financial statements (to the extent covered by consents
filed with the Commission) given upon the authority of such firm as experts in
accounting and auditing.
S-13
