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 August 2, 1997
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 August 29, 1997: Common Stock, Par Value $1.00 - 273,022,770
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
August 2, August 3,
1997 1996
Sales $4,763,174 $4,625,066
Cost of merchandise sold, including
warehousing and transportation expenses 3,476,725 3,398,738
Gross profit 1,286,449 1,226,328
Operating expenses 1,074,017 1,038,674
Operating profit 212,432 187,654
Other income (expense):
Interest expense (56,709) (42,421)
Other 2,097 (1,163)
Net other income (expense) (54,612) (43,584)
Earnings before income taxes 157,820 144,070
Federal and state income taxes 67,863 60,941
Net earnings $ 89,957 $ 83,129
Net earnings per share $0.33 $0.28
Average shares outstanding 272,539 291,429
Dividends per share $0.09 $0.08
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Earnings
(unaudited)
(In thousands, except per share data)
Twenty-Six Weeks Ended
August 2, August 3,
1997 1996
Sales $9,510,818 $9,205,094
Cost of merchandise sold, including
warehousing and transportation expenses 6,973,564 6,783,590
Gross profit 2,537,254 2,421,504
Operating expenses 2,138,664 2,077,036
Operating profit 398,590 344,468
Other income (expense):
Interest expense (107,505) (82,154)
Other (49,699) (6,910)
Net other income (expense) (157,204) (89,064)
Earnings before income taxes 241,386 255,404
Federal and state income taxes 117,204 108,035
Net earnings $ 124,182 $ 147,369
Net earnings per share $0.45 $0.50
Average shares outstanding 279,388 292,041
Dividends per share $0.17 $0.16
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Balance Sheets
(unaudited)
(In thousands of dollars)
August 2, February 1,
1997 1997
Assets
Current Assets:
Cash and cash equivalents $ 31,101 $ 37,467
Inventories 1,560,445 1,725,542
Other current assets 439,801 403,487
Total current assets 2,031,347 2,166,496
Property, plant and equipment, less
accumulated depreciation and amortization
of $2,483,454 on August 2, 1997 and
$2,361,255 on February 1, 1997 3,897,211 3,653,713
Goodwill 1,638,527 1,665,242
Other assets 360,839 395,954
Assets $7,927,924 $7,881,405
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 951,480 $ 851,285
Other current liabilities 777,252 884,393
Current maturities of long-term debt and
capital lease obligations 96,112 66,003
Total current liabilities 1,824,844 1,801,681
Other liabilities 927,447 931,153
Long-term debt and obligations under capital
leases, less current maturities 2,988,888 2,613,144
Shareholders' Equity - shares outstanding of
273,021,920 on August 2, 1997 and
291,829,282 on February 1, 1997 2,186,745 2,535,427
Liabilities and Shareholders' Equity $7,927,924 $7,881,405
See accompanying notes to consolidated condensed financial statements.
AMERICAN STORES COMPANY
Consolidated Condensed Statements of Cash Flows
(unaudited)
(In thousands of dollars)
Twenty-Six Weeks Ended
August 2, August 3,
1997 1996
Cash Flows from Operating Activities:
Net earnings $ 124,182 $ 147,369
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 228,059 219,156
Net (gain) loss on asset sales (3,820) 3,861
Changes in operating assets and liabilities 146,742 (61,246)
Total adjustments 370,981 161,771
Net cash (used in) provided by operating
activities 495,163 309,140
Cash Flows from Investing Activities:
Expended for property, plant and equipment (453,519) (395,889)
Proceeds from sale of other assets 23,658 13,428
Net cash (used in) investing activities (429,861) (382,461)
Cash Flows from Financing Activities:
Issuance of new debt 500,000 350,000
Payments on long-term borrowings (183,000) (100,000)
Net Increase (decrease) in borrowings 84,196 (97,210)
Other changes in equity 29,090 15,541
Repurchase of common stock from major stockholder (550,000)
Issuance of common stock for overallotments 95,914
Repurchase of common stock (37,798)
Cash dividends (47,868) (46,713)
Net cash (used in) provided by
financing activities (71,668) 83,820
Net (decrease) increase in cash and
cash equivalents (6,366) 10,499
Cash and cash equivalents:
Beginning of year 37,467 102,422
End of quarter $ 31,101 $ 112,921
Supplementary Information - Statements of Cash Flows:
Cash paid during the year for:
Interest (net of amounts capitalized) $ 100,700 $ 80,564
Income taxes, net of refunds $ 95,276 $ 98,197
AMERICAN STORES COMPANY
Notes to Consolidated Condensed Financial Statements
(unaudited)
August 2, 1997
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 August 2, 1997 and February 1, 1997 and the results of its
operations for the thirteen weeks ended August 2, 1997 and August 3, 1996 and
results of operations and cash flows for the twenty-six weeks ended August 2,
1997 and August 3, 1996. 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 1, 1997.
Stock Split
On June 17, 1997, the Board of Directors of the Company declared a two-for-one
split of the Company's common stock. The split was payable July 16, 1997 to
shareholders of record on July 1, 1997. All share and per share information has
been restated to reflect the July 1, 1997 stock split.
Preferred Share Purchase Rights
In conjunction with the stock split, each Preferred Share Purchase Right issued
pursuant to the Rights Agreement dated March 8, 1988, as amended, was amended to
entitle holders to purchase, under certain circumstances, one eight-hundredth of
a share of the Company's Series A Junior Participating Preferred Stock at a
price of $31.25.
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.
In February 1997 a new statement, "Earnings per Share" (FAS 128), was issued
effective for interim and annual periods ending after December 15, 1997. This
statement supersedes Opinion 15 and specifies the computation, presentation and
disclosure requirements for earnings per share. The changes required by this
statement will not materially affect the Company's earnings per share.
Employee Stock Purchase Plan (ESPP)
During the quarter, 221,898 shares were issued under the ESPP at $18.49 per
share and 460,060 shares were issued year-to-date at an average price of $17.88.
As of August 2, 1997, 0.9 million shares have been issued under the ESPP and 6.1
million shares remained authorized for issuance.
Long-Term Debt Issuance
On May 2, 1997, the Company issued $300 million of debentures consisting of $100
million of 7.9% debentures due May 1, 2017 at 99.961% to yield 7.904% and $200
million of 7.5% debentures due May 1, 2037 at 99.712% to yield 7.537%. The $200
million, 40-year debentures are redeemable at the option of each of the
registered holders on May 1, 2009. Net proceeds were used to refinance short-
term variable rate borrowings and for general corporate purposes.
On July 3, 1997, the Company entered into a $200 million term loan agreement.
The note bears interest at an average rate of 6.25% and matures July 1, 2004.
Net proceeds were used to refinance short-term variable rate borrowings and for
general corporate purposes.
Repurchase of Common Stock
On April 8, 1997, the Company (i) repurchased 24.4 million shares of its common
stock from the family of L.S. Skaggs and certain Skaggs family and charitable
trusts (the Selling Stockholders) for an aggregate price of $550 million and
(ii) sold 4.6 million shares of common stock for net proceeds of $95.9 million
pursuant to the exercise of an overallotment option by the underwriters in
connection with a public offering of 30.8 million shares by the Selling
Stockholders. On April 8, 1997 the Company also recorded non-recurring charges
totaling $33.9 million, or $0.11 per share, related to expenses incurred by the
Selling Stockholders which were reimbursed by the Company.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129 "Disclosure of Information about Capital
Structure." The Company has determined that this statement will not require any
changes in the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income" and No.
131 "Disclosure about Segments of and Enterprise and Related Information." The
statements are effective for fiscal years beginning after December 15, 1997.
The Company has not yet determined what effect, if any, these statements will
have.
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 second
quarter and year-to-date 1997 and 1996 are presented in the table below. Total
sales increased 3.0% during the second quarter and 3.3% year-to-date 1997 due in
part to increased capital spending and higher drug store sales. Capital
spending for new, replacement and enlargement stores has increased net retail
square footage by 4.2% compared to a year ago. Sales at the drug store
operations increased due to higher pharmacy sales, including increased name-
brand drug and third-party prescription sales. Comparable store sales in the
drug store operations increased primarily due to pharmacy inflation and
increased general merchandise sales. Food store operations comparable sales
decreased due to food price deflation, increased competitive new store openings
and competitive promotional activity.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 26 Weeks Ended
Total Sales Total Sales
Comparable Store August 2, August 3, Comparable Store August 2, August 3,
Sales % Change 1997 1996 Sales % Change 1997 1996
Sales:
Food store operations (0.9)% $3,358,569 $3,354,756 (0.5)% $6,700,549 $6,676,514
Drug store operations 5.4% 1,396,092 1,262,522 6.1% 2,792,397 2,514,788
Other 8,513 7,788 17,872 13,792
Total sales 0.9% $4,763,174 $4,625,066 1.3% $9,510,818 $9,205,094
Food store operations include Acme Markets, Jewel Food Stores, Lucky Northern
California Division, Lucky Southern California Division and Jewel Osco
Southwest
Drug store operations include Osco Drug and Sav-on
Comparable store sales include stores open one year or more and replacement
stores
</TABLE>
Gross profit as a percent of sales increased to 27.0% in the second quarter and
26.7% year-to-date 1997, compared to 26.5% and 26.3% in the same periods of
1996. Gross profit in the food store operations for the second quarter and
year-to-date increased as a percent of sales over the prior year primarily due
to lower cost of goods resulting from centralized buying and a more profitable
product mix from better promotional efforts. Gross profit in the drug store
operations for the second quarter and year-to-date decreased due to an increase
in name-brand drugs and third-party prescriptions, both of which yield lower
margins.
Operating expense as a percent of sales was 22.5% in the second quarter of 1997
compared to 22.4% in 1996 and 22.5% year-to-date 1997 compared to 22.6% in 1996.
Second quarter operating expense as a percent of sales increased primarily as a
result of higher fixed costs due to the increased number of newer stores offset
by improved expense control, lower insurance costs and improved labor
efficiency.
Total operating profit for the second quarter and year-to-date 1997 and 1996 is
presented in the table below. Operating profit was 4.5% of sales in the second
quarter of 1997 compared to 4.1% of sales in the second quarter of
1996. Operating profit year-to-date 1997 was 4.2% of sales compared to 3.7% of
sales for the same period of 1996. Second quarter operating profit increased
13.2% and year-to-date operating profit increased 15.7% over the prior year
primarily reflecting higher operating profit percentages for the Company's food
store operations due to improved buying and promotional programs and better cost
controls in both the food and drug store operations. These increases were
slightly offset by decreases in the drug store operations due to lower pharmacy
department gross margins and additional costs incurred in opening 16 more new
stores within the last four quarters.
<TABLE>
<S> <C> <C> <C> <C>
13 Weeks Ended 26 Weeks Ended
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
Operating Profit:
Food store operations $169,934 $ 148,368 $323,154 $279,569
Drug store operations 66,808 63,743 126,441 116,703
LIFO (6,000) (8,000) (14,000) (16,000)
Purchase accounting amortization (19,338) (19,723) (38,678) (39,144)
Other 1,028 3,266 1,673 3,340
Total operating profit $212,432 $187,654 $398,590 $344,468
</TABLE>
Interest expense increased in the second quarter and year-to-date 1997 over the
same periods in 1996. Outstanding debt levels were higher during the second
quarter of 1997 due primarily to the financing of the stock repurchase from the
Skaggs' interests, as discussed below.
Year-to-date other non-operating expenses includes a $47.3 million ($.14 per
share) one-time expense including $33.9 million, pre-tax, or $.11 per share,
after tax, related to the Company's reimbursement of underwriting fees, legal
fees and other expenses incurred by the Selling Shareholders in connection with
the secondary stock offering to the public of shares owned by the family of
former chairman L.S. Skaggs and certain family and charitable trusts. The
remaining charges of $13.4 million, pre-tax, or $.03 per share, after tax, were
non-recurring charges related to the sale of the Company's communications
subsidiary.
The Company's year-to-date effective income tax rates were 48.6% in 1997
compared to 42.3% in the prior year. The current year effective tax rates are
higher due to the tax impact of the one-time expenses. The year-to-date
effective tax rate in 1997 excluding one-time items was 43.0%.
Net earnings per share amounted to $0.33 per share in the second quarter of 1997
compared to $0.28 per share in the same quarter of the prior year and $0.45 per
share year-to-date 1997 compared to $0.50 per share for the same period of 1996.
The Company recorded special charges aggregating approximately $100.0 million,
before taxes, or $0.21 per share, during 1996 related primarily to its Delta
self-consolidation and re-engineering program initiatives. Total cash
expenditures related to the charge are expected to be $40.0 million. As of the
second quarter of 1997, the Company charged $41.8 million against the reserve,
of which $12.9 million related to asset impairment, $8.0 million related to
termination benefits paid, and $20.9 million related to costs of warehouse and
office consolidation and other miscellaneous charges. Cash expenditures paid to
date total $12.0 million.
Termination benefits paid during the thirteen week period ended August 2, 1997
totaled $0.1 million. There have been 8 people terminated out of the 445 people
that were estimated to be terminated over the course of the restructuring. The
majority of the terminations will occur in the third and fourth quarters of
1997. The consolidation of administrative, buying and warehouse functions and
the disposal of the related impaired assets are expected to be complete in 1997.
Liquidity and Capital Resources
Cash provided by operating activities increased to $495.2 million year-to-date
1997 compared to $309.1 million in the same period of 1996. The improvement in
cash provided by operating activities is the result of working capital
initiatives implemented during 1997.
Cash capital expenditures year-to-date 1997 and 1996 amounted to $453.5 million
and $395.9 million, respectively. Total capital expenditures, including the net
present value of leases, amounted to $496.6 million in 1997, compared to $437.5
million in 1996. For the first half of 1997, store count activity was as
follows:
Gross Combination Net
Store Count Stores(1) Store Count
Stores opened 23 4 19
Stores closed 29 1 28
Stores remodeled 18 5 13
(1) Jointly operated combination stores are counted in both the food and drug
store operations.
Capital expenditures for fiscal 1997 are expected to approximate $1.0 billion
and will be funded from cash flows from operations and existing credit
facilities. The Company currently plans to open 100 new stores and remodel 90
stores in 1997, including 19 new combination stores and 16 remodeled combination
stores that are jointly operated and are each counted as two separate stores.
On April 8, 1997, the Company (i) repurchased 24.4 million shares of its common
stock from the family of L.S. Skaggs and certain Skaggs family and charitable
trusts (the Selling Stockholders) for an aggregate price of $550
million and (ii) sold 4.6 million shares of common stock for net proceeds of
$95.9 million pursuant to the exercise of an overallotment option by the
underwriters in connection with a public offering of 30.8 million shares by the
Selling Stockholders. On April 8, 1997 the Company also recorded non-recurring
charges totaling $33.9 million, or $0.11 per share, related to expenses incurred
by the Selling Stockholders which were reimbursed by the Company.
On March 28, 1997, the Company increased the capacity of its revolving credit
facility from $1 billion to $2 billion, which includes a $1.5 billion five-year
revolving credit facility and a $500 million 364-day revolving credit facility,
in order to finance the $550 million repurchase from the Selling Stockholders
and for other corporate purposes.
On May 2, 1997, the Company issued $300 million of debentures consisting of $100
million of 7.9% debentures due May 1, 2017 at 99.961% to yield 7.904% and $200
million of 7.5% debentures due May 1, 2037 at 99.712% to yield 7.537%. The $200
million, 40-year debentures are redeemable at the option of each of the
registered holders on May 1, 2009. Net proceeds were used to refinance short-
term variable rate borrowings and for general corporate purposes.
On July 3, 1997, the Company entered in to a $200 million term loan agreement.
The note bears interest at an average rate of 6.25% and matures July 1, 2004.
Net proceeds were used to refinance short-term variable rate borrowings and for
general corporate purposes.
The net increase in debt of $401.2 million in the first half of 1997 is compared
to a net increase of $152.8 million for the same period of 1996.
The increase in 1997 is primarily due to the repurchase of common stock from the
Selling Stockholders.
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.
Stock Split
On June 17, 1997, the Board of Directors of the Company declared a two-for-one
stock split of the Company's common stock. The split was payable July 16, 1997
to shareholders of record on July 1, 1997. All share and per share information
has been restated to reflect the July 1, 1997 stock split.
In conjunction with the stock split, each Preferred Share Purchase Right issued
pursuant to the Rights Agreement dated March 8, 1988 was amended to
entitle holders to purchase, under certain circumstances, one eight-hundredth of
a share of the Company's Series A Junior Participating Preferred Stock at a
price of $31.25.
New Accounting Standards
In February 1997 a new statement, "Earnings per Share" (FAS 128), was issued
effective for interim and annual periods ending after December 15, 1997. This
statement supersedes Opinion 15 and specifies the computation, presentation and
disclosure requirements for earnings per share. The changes required by this
statement will not materially affect the Company's earnings per share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129 "Disclosure of Information about
Capital Structure." The Company has determined that this statement will not
require any changes in the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130 "Reporting Comprehensive Income" and No.
131 "Disclosure about Segments of and Enterprise and Related Information." The
statements are effective for fiscal years beginning after December 15, 1997.
The Company has not yet determined what effect, if any, these statements will
have.
Environmental
The Company has identified environmental contamination at certain of its store,
warehouse, office and manufacturing facilities (related to current operations as
well as previously disposed of businesses) which are primarily related to
underground petroleum storage tanks (USTs). The Company has an on-going program
for the removal, replacement or upgrade of non-complying USTs in accordance with
standards established by the Environmental Protection Agency and anticipates
that all such USTs will be in compliance 1998 UST upgrade requirements.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that the required costs of remediation, UST
upgrades and continuing compliance with environmental laws will not have a
material adverse effect on the financial condition or operating results of the
Company.
Cautionary Note
This report contains certain forward-looking statements about the future
performance of the Company which are based on management's assumptions and
beliefs in light of the information currently available to it. These forward-
looking statements are subject to uncertainties and other factors that could
cause actual results to differ materially from such statements including, but
not limited to: competitive practices and pricing in the food and drug
industries generally and particularly in the Company's principal markets; the
ability of the Company to implement the Company's Delta initiatives in
accordance with the currently contemplated schedule and budget; changes in the
financial markets which may affect the Company's cost of capital and the ability
of the Company to access the public debt and equity markets to refinance
indebtedness and fund the Company's capital expenditure program on satisfactory
terms; supply or quality control problems with the Company's vendors; and
changes in economic conditions which affect the buying patterns of the Company's
customers.
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 1, 1997.
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 -- The Annual
Meeting of the Company's Shareholders was held June 17, 1997 at which
time the shareholders voted on the following matters:
1. Election of Directors:
Nominee In Favor Withheld
Pamela G. Bailey 119,358,638 582,909
Henry I. Bryant 119,421,975 519,572
Arden B. Engebretsen 119,427,637 513,910
James B. Fisher 119,320,371 621,176
Fernando R. Gumucio 119,455,090 486,457
Leon. G Harmon 119,405,327 536,220
Victor L. Lund 119,408,117 533,430
John E. Masline 119,422,343 519,204
Barbara Scott Prieskel 119,352,525 589,022
J.L. Scott 119,506,629 434,918
Arthur K. Smith 119,392,025 549,522
2. Amend Article THIRD of the Company's Restated Certificate of
Incorporation to permit the Company to engage in any lawful business:
For Against Abstain
116,274,380 3,346,144 321,023
3. Amend Article FOURTH of the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of the
Company's Common Stock from 325,000,000 to 700,000,000:
For Against Abstain
100,741,270 18,829,063 371,214
4. Approval of the American Stores Company 1997 Key Management Annual
Incentive Plan:
For Against Abstain
117,153,475 2,226,167 561,905
5. Approval of the American Stores Company 1997 Stock Option and Stock
Award Plan:
For Against Abstain
90,045,964 29,344,266 551,317
6. Approval of the American Stores Company 1997 Stock Plan for Non-
Employee Directors:
For Against Abstain
109,900,648 9,445,388 595,511
7. Approval of Ernst & Young as independent certified public
accountants to audit the accounts and records of the Company for fiscal
year 1997:
For Against Abstain
119,375,805 306,433 259,309
Item 5.Other Information -- None
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Calculations of earnings per share
10.1 Second Amendment to Employment Agreement between the
Company and Victor L. Lund dated as of July 29, 1997
27.1 Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter -- The Company filed
a report on Form 8-K dated July 10, 1997 reporting the Certificate
of Amendment to the Company's Restated Certificate of Incorporation,
as amended June 17, 1997, the two-for-one stock split of the
Company's common stock effective July 16, 1997 to shareholders of
record on July 1, 1997 and, in conjunction with the stock split, the
amendment of the Rights Agreement dated March 8, 1988.
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 September 16, 1997 /s/ Teresa Beck
Teresa Beck
Chief Financial Officer
(Principal Financial Officer)
Dated September 16, 1997 /s/ Kathleen E. McDermott
Kathleen E. McDermott
Chief Legal Officer and
Assistant Secretary
Dated September 16, 1997 /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>
<S> <C> <C> <C> <C>
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
Primary Earnings Per Share
Primary earnings applicable to
shareholders $ 89,957 $ 83,129 $ 124,182 $ 147,369
Primary earnings per share $0.33 $0.28 $0.45 $0.50
Average shares outstanding 272,539 291,429 279,388 292,041
Fully Diluted Earnings Per Share
Fully diluted earnings applicable to
shareholders $ 89,957 $ 83,129 $ 124,182 $ 147,369
Fully diluted earnings per share $0.33 (1) $0.28 (1) $0.45 (1) $0.50 (1)
Fully diluted average shares outstanding 275,679 292,882 282,365 293,472
Calculation of Fully Diluted Average Shares Outstanding
Effect of assumed exercise of stock options:
Proceeds from assumed exercise $ 303,211 $ 64,454 $ 229,533 $ 52,833
Shares under options outstanding 15,314 4,818 12,193 4,189
Shares assumed acquired with proceeds
under the treasury stock method (12,174) (3,365) (9,216) (2,758)
Incremental shares due to assumed
exercise of stock options 3,140 1,453 2,977 1,431
Fully diluted average shares outstanding:
Average shares outstanding 272,539 291,429 279,388 292,041
Assumed exercise of stock options 3,140 1,453 2,977 1,431
Total 275,679 292,882 282,365 293,472
(1) Dilution is less than 3%.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and income statements for the twenty-six weeks ended August 2, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> AUG-02-1997
<CASH> 31,101
<SECURITIES> 0
<RECEIVABLES> 319,176
<ALLOWANCES> 0
<INVENTORY> 1,560,445
<CURRENT-ASSETS> 2,031,347
<PP&E> 6,201,545
<DEPRECIATION> 2,371,114
<TOTAL-ASSETS> 7,927,924
<CURRENT-LIABILITIES> 1,824,844
<BONDS> 2,988,888
0
0
<COMMON> 149,889
<OTHER-SE> 2,036,856
<TOTAL-LIABILITY-AND-EQUITY> 7,927,924
<SALES> 9,510,818
<TOTAL-REVENUES> 9,510,818
<CGS> 6,973,564
<TOTAL-COSTS> 6,973,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,505
<INCOME-PRETAX> 241,386
<INCOME-TAX> 117,204
<INCOME-CONTINUING> 124,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124,182
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
Exhibit 10.1
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
Second Amendment dated as of July 29, 1997 ("Second Amendment") to
Employment Agreement dated as of November 1, 1994, as amended by Amendment dated
as of September 17, 1996 ("Employment Agreement") between American Stores
Company, a Delaware corporation ("Company"), and Victor L. Lund ("Executive").
The Company and Executive are collectively referred to as the "Parties," and
individually as a "Party." All capitalized terms not defined herein shall have
the meanings ascribed in the Employment Agreement.
WHEREAS, the Parties desire to amend certain provisions of the
Employment Agreement;
NOW THEREFORE, in consideration of the premises and their mutual
agreements hereinafter set forth, the Parties hereto agree as follows:
1. Section II-A of the Employment Agreement is hereby amended to
read as follows:
"II-A. The term of this Agreement shall expire on October 31, 2002,
provided, that the terms shall be automatically extended for subsequent two-year
terms until terminated by written notice given by the Company at least three
years prior to the end of the term, or until terminated as described below."
2. Section VI-B of the Employment Agreement is hereby amended to
read as follows:
"The Company and Executive acknowledge that the Executive plays a
key managerial role with the Company and that it is in the Company's best
interest to provide Executive with a special long-range retirement plan (SLRRP)
reserved to key executives, and SLRRP is an additional substantial consideration
not present in the "employee at-will" status of the Executive prior to entering
into this Agreement. SLRRP is designed to encourage such key executives to
remain with the Company on an extended basis, have undivided loyalty to the Com-
pany, and not develop conflicts of interest by affiliating with the Company's
competitors, which could undercut Executive's availability to serve as a
possible consultant, advisor, witness, or source of information to the Company.
Accordingly, Company shall pay to Executive (or his spouse, Linda Lund, as
provided below) an annual payment as provided below (except as provided in
Section VI-B6 below) with all rights, including vested rights, to participate in
any future benefits under SLRRP terminating at once when and if Executive enters
into or joins as an individual, partner, joint venturer, independent contractor,
officer or director of a business endeavor anywhere competing, as defined in
Section VIII-B4 hereof, with the Company or any of its subsidiaries, unless
waived in writing by the Board of Directors of the Company. The benefits
available under SLRRP are:
1. except as provided in Section VI-B6 below, annual payments shall be
made to Executive until his death and thereafter to Linda Lund, his
spouse, if she is married to Executive at the time of his death and
survives him, until her death, beginning at the later of October 31,
2002 or at the time Executive's employment with the Company
terminates;
2. entitlement to benefits will vest based on full years of service with
the Company under this Agreement or any extensions or renewals
thereof, as follows:
SERVICE TABLE
Completed Years Vesting
Under Contract Schedule
1 (10/31/95) 0%
2 (10/31/96) 0%
3 (10/31/97) 20%
4 (10/31/98) 36%
5 (10/31/99) 52%
6 (10/31/00) 68%
7 (10/31/01) 84%
8 (10/31/02) 100%
3. the fully vested annual benefit shall be equal to $700,000, as
increased on October 31 of each year, beginning October 31, 1998,
until the termination of Executive's employment, by the annual
percentage increase in the Consumer Price Index -- All Urban Consumers
("CPI") for the twelve months ended the immediately preceding
September 30;
4. if Executive's employment is terminated (i) by death, (ii) by
disability pursuant to Section VII-B and Section VII-C herein, (iii)
by Company without cause or (iv) by Executive because of Company's
breach of a material provision of this Agreement, Executive shall be
fully vested in the SLRRP benefits without regard to Executive's years
of service under this contract;
5. if Executive is terminated for cause or voluntarily terminates his
employment with the Company other than because of Company's breach of
a material provision of this Agreement, the amounts vested at that
time will be paid on an annual basis beginning on October 31, 2002 or
at the time of termination, whichever is the last to occur; provided,
Executive is not competing and has not competed with the Company or
its affiliates as defined in Section VIII-B on or prior to the time
any such annual payment is due;
6. in the event that either (i) there is a "Change in Control"(as defined
in the Company's 1997 Stock Option and Stock Award Plan as in effect
on the date of the Second Amendment) or (ii) (A) the Executive is no
longer Chairman of the Board or Chief Executive Officer of the Company
and (B) the closing price on the New York Stock Exchange (or if the
Company's common stock is not then listed on the New York Stock Ex-
change, on the national securities exchange or in the over-the-counter
market in which the common stock is then principally traded) of a
share of common stock of the Company falls below $10 (adjusted ap-
propriately (x) for any stock split, stock dividend, reverse stock
split, share combination, reclassification, or similar transaction
occurring after July 21, 1997 and (y) for any decline in Standard &
Poors 500 Index after July 21, 1997 (but in no event shall such price
be adjusted below $5 per share as a result of such decline)) and
remains below such level for 20 consecutive trading days, the Company
shall promptly pay the Executive (or his spouse, Linda Lund, if Ex-
ecutive is deceased), in lieu of any further obligation to make
payments under this Section VI-B, an amount equal to the present value
of the remaining unpaid vested after-tax benefits, together with an
additional amount sufficient to gross-up such payment on an after-tax
basis for U.S. Federal, State and local income taxes payable with re-
spect to such lump sum payment. For purposes of the foregoing, (i)
present value of the remaining unpaid vested after-tax benefits shall
be calculated using a discount rate equal to the product of (x) the
prime rate as it appears in the Wall Street Journal under the heading
Money Rates and (y) the difference between 1 and the Executive's tax
rate expressed as a percentage, (ii) it shall be assumed that all
payments would be taxed at the highest marginal federal and applicable
state and local income tax rates in effect for Executive or his
spouse, as the case may be, at the time of the payment hereunder based
upon his or her principal residence and taking into account the
deductibility of state and local income taxes for federal income tax
purposes and (iii) actuarial assumptions shall be made by a certified
actuary selected by the Company. The amount payable under this
Section VI-B6 shall be set forth as promptly as practicable after such
event in a certificate signed by the Company's chief financial officer
which certificate, together with reasonable supporting documentation,
shall be delivered to the Executive or his spouse, as the case may be.
3. Section VI-C of the Employment Agreement is hereby amended to
read as follows:
"VI-C. The Company shall, within 90 days after the date of the Second
Amendment, establish an irrevocable grantor trust (the "SLRRP Rabbi Trust"), the
assets of which, subject to the claims of the Company's creditors in the event
of insolvency, will be used to provide benefits under SLRRP. The Executive will
have no security or other rights to, or interest in, the assets of the SLRRP
Rabbi Trust, other than the right to be paid benefits under SLRRP in accordance
with the terms of SLRRP, this Agreement and the SLRRP Rabbi Trust."
4. The Employment Agreement is hereby amended by adding the
following Section VI-D:
"VI-D. Following termination of the Executive's employment (other than in
circumstances described in Section VI-B5), the Company shall provide the
Executive with an office, related occupancy expenses and reasonable secretarial
services until the earlier of Executive's death or October 31, 2012. Such
office (which shall include furnishings and equipment comparable to those
currently provided Executive) and service shall be provided in a city in which
the Company has its principal executive offices or at such other place as the
Executive designates (provided that the Company shall not be required to incur
rental and other occupancy expenses in excess of $24,000 per annum, adjusted for
changes in the CPI). The Company shall bear all operating expenses of such
office not to exceed $15,000 per annum (exclusive of rent and other occupancy
costs and secretarial service), adjusted for changes in the CPI.
Following termination of the Executive's employment (other than in
circumstances described in Section VI-B5), the Company will purchase medical
coverage for the Executive and his spouse, Linda Lund, at least comparable to
the coverage under the American Stores Company Retiree Medical Plan. The
premiums for this coverage shall be payable by the Company for their lifetimes.
To the extent any premiums paid by the Company are considered taxable income to
the Executive or his spouse, the Company shall make a gross-up payment to such
persons to make them whole on an after-tax basis.
The Executive will have the opportunity afforded to all terminating
employees to convert, to the extent permitted, any group life or accident
insurance coverage to an individual policy or program. Premiums for such
coverage will not be paid by the Company."
5. Section VIII-B4 of the Employment Agreement is hereby amended to
read as follows:
"For purposes of this paragraph and Section VI above, the term "competing
business" shall refer to an entity that directly or indirectly operates or has
an interest in any establishment (1) that directly competes with operations of
the Company or its subsidiaries, as a supermarket, a drug store, a mail order
pharmacy, a warehouse store, a home medical equipment store, a club store, a
pharmacy benefit manager, a wholesale grocery distributor, or any variation
thereof, or (2) that primarily sells the products which constitute 10% or more
of the products sold by the Company or its subsidiaries in any one or
combination of such stores or businesses."
6. The Employment Agreement, as amended by this Second Amendment,
constitutes the entire agreement of the subject matter hereof and may not be
amended unless by a written agreement signed by the Parties.
7. This Second Amendment is made in and is governed by the laws of
the State of Utah.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of
the date first above written.
AMERICAN STORES COMPANY
BY: /s/ Kathleen McDermott
Name: Kathleen McDermott
Title: Chief Legal Officer
EXECUTIVE
Victor L. Lund
