SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File Number 1-5392
A. Full title of the Plan and the address of the Plan, if different from
that of the issuer named below:
AMERICAN STORES RETIREMENT ESTATES
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
AMERICAN STORES COMPANY
299 South Main
Salt Lake City, UT 84111
F-1
The following financial statements of American Stores Retirement Estates
are submitted herewith:
INDEX
Report of Independent Auditors F-3
Statements of Net Assets Available for Benefits -
December 31, 1997 and 1996 F-4
Statements of Changes in Net Assets Available for Benefits -
Years ended December 31, 1997 and 1996 F-5
Notes to Financial Statements F-6 to F-16
The written consent of independent auditors required to be filed as an
exhibit to this report is included on page F-17.
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the members of the American Stores Benefit Plans Committee have duly
caused this annual report to be signed by the undersigned hereunto duly
authorized.
AMERICAN STORES RETIREMENT ESTATES
June 26, 1998 By /s/ Scott Bergeson
Scott Bergeson
Senior Vice President, Human
Resources and Chairman, Benefit
Plans Committee
F-2
Report of Independent Auditors
The Benefit Plans Committee
American Stores Retirement Estates
We have audited the accompanying statements of net assets available for benefits
of American Stores Retirement Estates as of December 31, 1997 and 1996, and the
related statements of changes in net assets available for benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1997 and 1996, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the 1997 financial
statements taken as a whole. The accompanying supplemental schedule of assets
held for investment as of December 31, 1997, is presented for purposes of
complying with the Department of Labor's Rules and Regulations for Reporting
Disclosure under the Employee Retirement Income Security Act of 1974, and is not
a required part of the basic financial statements. The supplemental schedule
has been subjected to the auditing procedures applied in our audit of the 1997
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the 1997 financial statements taken as a whole.
ERNST & YOUNG LLP
Salt Lake City, Utah
June 15, 1998
F-3
American Stores Retirement Estates
Statements of Net Assets Available for Benefits
DECEMBER 31,
1997 1996
(In Thousands)
ASSETS
Value of investments in the Master Trust:
American Stores Company Common Stock Fund $ 382,495 $ 302,206
Fixed Income Fund 295,262 311,921
Regular Fund 2,427,841 2,368,931
Short Maturity Fund 137,373 145,537
All Equity Fund 257,609 256,583
Loans to participants 128,601 120,725
3,629,181 3,505,903
Value of investments in Mutual Funds 385,271 121,248
Total value of investments 4,014,452 3,627,151
Receivable from American Stores Company 86,000 82,000
Interest and dividends receivable 1,716 1,268
Net assets available for benefits $4,102,168 $3,710,419
See notes to financial statements.
F-4
American Stores Retirement Estates
Statements of Changes in Net Assets Available for Benefits
YEAR ENDED
DECEMBER 31,
1997 1996
(In Thousands)
Additions:
Contributions:
Participants $ 90,354 $ 84,370
American Stores Company 86,000 82,000
Forfeitures 1,252 1,549
177,606 167,919
Income from investments in Master Trust:
American Stores Company
Common Stock Fund 6,729 110,721
Fixed Income Fund 22,747 18,923
Regular Fund 337,501 287,736
Short Maturity Fund 8,639 5,434
All Equity Fund 38,071 37,356
413,687 460,170
Income from investments in Mutual Funds 37,652 1,809
Transfers (to) from other plans (1,420) 1,273,885
Exchanges from other funds 3,118,408 623,267
3,154,640 1,898,961
Deductions:
Withdrawals 231,526 150,017
Administrative fees 4,250 3,081
Exchanges to other funds 3,118,408 623,267
3,354,184 776,365
Net additions 391,749 1,750,685
Net assets available for benefits at beginning of year 3,710,419 1,959,734
Net assets available for benefits at end of year $4,102,168 $3,710,419
See notes to financial statements.
F-5
American Stores Retirement Estates
Notes to Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN MASTER TRUST: Investments in the Master Trust Fund are stated
at fair value. The majority of investment values are ascertained from national
security exchanges. American Stores Company Common Stock, which is traded on
national securities exchanges, and other equity securities, are valued within
the Master Trust Fund at the last reported sales price on the last business day
of the Plan year. All government and corporate debentures are valued at the
last reported sales price on the last business day of the Plan year on a
national security exchange plus any accrued interest within the Master Trust
Fund. If there are no such sales or listings on a national security exchange,
alternative sources are used. Loans to participants are stated at cost which
approximates fair value.
INVESTMENTS IN MUTUAL FUNDS: Investments in Mutual Funds represents the fair
value of the accumulated assets of 132 mutual fund options. The values of the
Mutual Funds are ascertained from independently published sources. The
investment amount in each individual mutual fund is less than 5% of net assets
available for benefits and have been aggregated in the financial statements.
The income from investments in Mutual Funds is also aggregated and is not
indicative of the results of any individual fund.
EXCHANGES: Exchanges between investment fund options by participants are
recorded based upon the specific proceeds and cost of the investment at the date
of withdrawal or exchange.
RECLASSIFICATION OF PRIOR YEAR INFORMATION: Certain prior year information has
been reclassified to conform with current year presentation.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-6
American Stores Retirement Estates
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN
American Stores Retirement Estates (the Plan) was authorized by the Board of
Directors of American Stores Company and was effective January 1, 1985 for the
benefit of certain employees of American Stores Company and its subsidiaries
(the Company). The Plan is a defined contribution profit sharing plan
maintained primarily for the purpose of providing retirement income for
participants and is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
Effective July 1, 1995, employees became eligible to participate in the Plan
upon completion of one year of service. Employees represented by labor
organizations are not eligible to participate in the Plan unless the Company and
the labor organization specifically agree to participation.
Plan participants may make personal deposits to the Plan on either or both a tax
deferred and an after-tax basis. Company contributions to the Plan are set each
year at the discretion of the Company's Board of Directors for the prior Plan
year and are irrevocable. The Company contributions and forfeitures are first
used to restore the previously forfeited accounts of rehired participants
pursuant to Plan provisions. The remainder of such contributions and
forfeitures are then allocated to Plan participants, as described below: one
quarter is allocated among participants who made personal deposits to the Plan,
pro rata, based upon the amounts of their deposits of up to 6% of compensation.
Three quarters are allocated among participants as follows: (i) each
participant who has received compensation in excess of the Social Security wage
base for the year is allocated an amount equal to such excess times the maximum
amount allowable under Code Section 401(1); and (ii) any amount remaining is
allocated among all participants in proportion to the total compensation of each
for the year. Allocations to collective bargaining unit employees are offset by
obligations of the Company to contribute to a collective bargaining unit plan. A
participant's compensation in excess of $150,000 (adjusted periodically) is
excluded in determining the amount of Company contribution and forfeitures
allocated to the participant.
F-7
American Stores Retirement Estates
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN (CONTINUED)
Company contributions made on behalf of participants that are not based upon
deposits made by such participants vest on a graduated schedule. For all
participants who perform at least one hour of service in any year beginning on
or after January 1, 1989, the schedule commences with 30% at three years of
service and increases annually to full vesting at seven years of service (the 7-
Year Vesting Schedule). Personal deposits of participants and Company
contribution allocations based upon personal deposits of participants fully vest
immediately.
The Plan presently maintains five custom investment fund options within the
Master Trust in which participants may invest. The custom investment fund
options are as follows: (i) Company Stock Fund - consisting solely of American
Stores Company Common Stock. This fund provides a high degree of risk because
of the volatility generally associated with a single stock investment; (ii)
Fixed Income Fund - provides a low to moderate level of risk because of the
diversity of interest bearing government and corporate securities in the fund.
This fund contains both domestic and international investments; (iii) Regular
Fund - provides moderate risk because of the balance between stocks and fixed
income investments. The fund is diversified across industry sectors and types
of equity and fixed income securities and contains both domestic and
international investments; (iv) Short Maturity Fund - provides a very low level
of risk because of the high-quality, short-maturity fixed income investments
included in the fund; (v) All Equity Fund - provides a moderate to high level of
risk. The All Equity fund is diversified across industry sectors and contains
both domestic and international equity investments. On October 1, 1996, the
plan began offering a broad range of Mutual Funds. The Mutual Funds are managed
by a variety of fund managers. The investment objectives are stated by each
fund and vary from fund to fund. The investment objectives of each fund have
been communicated to each plan participant. As of December 31, 1997, the plan
offered 132 Mutual Fund options from 14 investment companies, all of which had
activity during the year.
Participants may apportion their deposits between more than one investment fund
option and can change their current deposit investment mix as often as desired.
Existing participant account balances can be exchanged between investment fund
options once per day, except for the American Stores Common Stock Fund. For the
American Stores Common Stock Fund, participants may make investment fund
exchanges once a day, as long as those exchanges are in the same direction,
i.e., into or out of the fund. However, exchanges in the opposite direction
cannot be made until 30 days from the last exchange.
F-8
American Stores Retirement Estates
Notes to Financial Statements (continued)
2. DESCRIPTION OF PLAN (CONTINUED)
Each participant's share of the Company contribution and forfeitures is
automatically invested according to their current deposit investment mix.
Participants not making personal deposits may specify an investment option for
the Company contribution. If a specification is not made, the Company
contribution will be invested in the Short Maturity Fund (Fixed Income Fund
prior to October 1, 1996).
Usual and customary investment manager fees, trustee fees, and all outside
administrative costs are paid by the Plan.
The number of participants investing in each custom fund option and in Mutual
Funds (a participant can invest in more than one fund option and in more than
one mutual fund) at December 31, 1997 was:
Investment Fund Option Employees
American Stores Company Common Stock Fund 17,431
Fixed Income Fund 30,050
Regular Fund 39,336
Short Maturity Fund 12,551
All Equity Fund 13,133
Mutual Funds 20,234
Upon separation from service, participants can elect to withdraw balances either
in a lump sum or in installments, or the balances can be left in the Plan.
Individuals who transferred amounts to the Plan which are attributable to the
former American Stores Company Retirement Plan may receive their entire Plan
account balance as a deferred annuity. Active employees may withdraw after-tax
personal deposits at any time, but may only withdraw tax deferred personal
deposits upon the occurrence of an extreme financial hardship. Participants may
also obtain loans from the Plan within certain limits.
3. INVESTMENTS
All of the Plan's assets are held by Fidelity Management Trust Company, the
Trustee of the Plan, which executes all transactions therein under the direction
of the Benefit Plans Committee. The majority of the Plan's assets are held in a
Master Trust (90% as of December 31, 1997). The remaining assets are invested
in Mutual Funds.
F-9
American Stores Retirement Estates
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The assets held in the Master Trust are commingled with assets of another
benefit plan. The Company's benefit plans participating in the Master Trust
collectively own, through the Master Trust, the assets based upon investment
percentages. Participant transaction activity is designated to specific plans.
Accordingly, each plan's investment percentage in the Master Trust changes
regularly. Income earned by the Master Trust is allocated to the plans based
upon the investment percentage on the day the income is earned.
ASRE's investment percentages of each fund in the Master Trust at December 31,
are:
1997 1996
American Stores Company
Common Stock Fund 11% 9%
Fixed Income Fund 8% 9%
Regular Fund 67% 68%
Short Maturity Fund 4% 4%
All Equity Fund 7% 7%
Participant Loans 3% 3%
The total assets, liabilities and results of operations of the Master Trust
are as follows:
DECEMBER 31,
1997 1996
(In Thousands)
Assets $ 3,638,128 $ 3,511,617
Liabilities 7,435 4,039
Net Assets in Master Trust $ 3,630,693 $ 3,507,578
Change in Net Assets $ 123,115 $ 341,948
F-10
American Stores Retirement Estates
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The cost of investments for ASRE at December 31, 1997 and 1996 are as follows:
Number of Shares Cost of Investments
1997 1996 1997 1996
(In Thousands) (In Thousands)
American Stores Company
Common Stock Fund 18,525 14,904 $ 288,467 $ 191,394
Fixed Income Fund 235,525 259,005
Regular Fund 1,689,183 1,861,339
Short Maturity Fund 123,586 128,783
All Equity Fund 186,897 188,666
Mutual Funds 379,346 123,112
$2,903,004 $2,752,299
The net unrealized appreciation (depreciation) for ASRE in the aggregate from
cost to fair value of investments are as follows:
(In Thousands)
Net unrealized appreciation at December 31, 1995 $428,429
Net 1996 unrealized appreciation 330,030
Net unrealized appreciation at December 31, 1996 758,459
Net 1997 unrealized appreciation 226,104
Net unrealized appreciation at December 31, 1997 $984,563
Unrealized appreciation (depreciation) for the year is the difference between
the fair values at the beginning and the end of the year.
F-11
American Stores Retirement Estates
Notes to Financial Statements (continued)
4. ASSET TRANSFERS
American Stores Company was plan sponsor for JCRE (Jewel Companies Retirement
Estates), a frozen retirement plan which was maintained for members of JCRE who
had balances in the plan when American Stores Company merged with Jewel
Companies, Inc. in 1984. ASRE was established January 1, 1985, and since that
time no employee or employer contributions were made to JCRE for plan years
subsequent to 1984. Of the approximately 14,300 JCRE participants, over 12,000
also had ASRE accounts. In May and June of 1996, members of JCRE were balloted
to determine their desire to merge JCRE with ASRE. The voting effort was
completed June 15, 1996 with a large majority of JCRE members voting in favor of
the merger. Based on that outcome, JCRE was merged with ASRE effective July 31,
1996. Assets of $1,263,389,169 were transferred to ASRE on that date. Plan
features did not change as a result of the merger.
5. FINANCIAL INSTRUMENTS
Certain Plan investment managers invest in derivative foreign exchange forward
contracts for purposes of hedging or moderating the currency risks associated
with holding investments denominated in foreign currencies. Foreign exchange
forward contracts represent agreements to exchange the currency of one country
for the currency of another country at an agreed-upon price, on an agreed-upon
settlement date. Contracts are generally taken for periods ranging from 30 to
90 days, then renewed, generally, if the Plan continues to hold the underlying
foreign investment. Each investment manager's usage of such derivative
financial instruments is limited by the Plan's contractual investment guidelines
which prohibit the speculative or leveraged use of derivatives.
Foreign exchange forward contracts are stated at fair value, under the heading
of 'Value of Investments in the Master Trust' in the Statements of Net Assets
Available for Benefits, which represents the amounts that the Plan would be
required to pay, at December 31, 1997 and 1996, to cancel the contracts or
transfer them to other parties.
The notional or contract amounts of foreign exchange forward contracts are not
recorded as assets or liabilities on the Statements of Net Assets Available for
Benefits and do not represent the potential gain or loss associated with such
transactions.
F-12
American Stores Retirement Estates
Notes to Financial Statements (continued)
5. FINANCIAL INSTRUMENTS (CONTINUED)
At December 31, 1997, the Plan had the following open foreign exchange forward
contracts:
FORWARD CONTRACTS TO SELL FOREIGN CURRENCIES AND BUY U.S. DOLLARS
Notional Amount Fair Value
(In Thousands)
Fixed Income Fund $ 56,917 $ 1,018
Regular Fund 197,404 3,839
All Equity Fund 5,983 246
$ 260,304 $ 5,103
FORWARD CONTRACTS TO BUY FOREIGN CURRENCIES AND SELL U.S. DOLLARS
Notional Amount Fair Value
(In Thousands)
Fixed Income Fund $ 55,656 $ (919)
Regular Fund 183,400 (3,159)
All Equity Fund 1,496 (84)
$ 240,552 $(4,162)
Credit risk represents the Plan's potential loss on foreign exchange forward
contracts if all counterparties to such contracts fail to perform according to
the terms of the contract. Credit risk is calculated using year-end currency
exchange rates. Historically, there have not been any losses associated with
counterparty non-performance on foreign exchange forward contracts. Exposure
to loss on these contracts will increase or decrease over the lives of the
contracts as currency exchange rates fluctuate. The Plan does not require
collateral to support these financial instruments.
F-13
American Stores Retirement Estates
Notes to Financial Statements (continued)
5. FINANCIAL INSTRUMENTS (CONTINUED)
At December 31, 1997, credit risk related to these contracts was as follows:
(In Thousands)
Fixed Income Fund $ 1,034
Regular Fund 3,878
All Equity Fund 247
$ 5,159
6. ALLOCATION OF PLAN ASSETS TO INVESTMENT FUND OPTIONS
<TABLE>
RECEIVABLE
FROM INTEREST NET ASSETS
INVESTMENT AMERICAN STORES AND DIVIDENDS AVAILABLE FOR
FUND OPTION INVESTMENTS COMPANY* RECEIVABLE PLAN BENEFITS
(In Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1997
ASC Common
Stock Fund $ 382,495 $ $1,716 $ 384,211
Fixed Income Fund 295,262 295,262
Regular Fund 2,427,841 2,427,841
Short Maturity Fund 137,373 137,373
All Equity Fund 257,609 257,609
Mutual Funds 385,271 385,271
Company Contribution 86,000 86,000
Loans to Participants 128,601 128,601
Total $4,014,452 $86,000 $1,716 $4,102,168
As of December 31, 1996
ASC Common
Stock Fund $ 302,206 $ 9,264 $1,268 $ 312,738
Fixed Income Fund 311,921 8,695 320,616
Regular Fund 2,368,931 41,399 2,410,330
Short Maturity Fund 145,537 6,283 151,820
All Equity Fund 256,583 11,465 268,048
Mutual Funds 121,248 4,894 126,142
Loans to Participants 120,725 120,725
Total $3,627,151 $82,000 $1,268 $3,710,419
</TABLE>
* Balances reclassified to reflect actual allocations for 1996.
F-14
American Stores Retirement Estates
Notes to Financial Statements (continued)
7. ALLOCATION OF PLAN INCOME AND CHANGES IN PLAN ASSETS TO INVESTMENT FUND
OPTIONS
<TABLE>
Income from
Participant Company Investment in Transfer Withdrawls Exchange of Admin- Net
Year Ended Contri- Contri- Master Trust (to) from less For- Participant Holdings istrative Additions
December 31, 1997 butions butions* & Mutual Funds Other Plans feitures Additions Deductions Fees (Deductions)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASC Common Stock
Fund $11,888 $ $ 6,729 $ (71) $ (15,496) $ 850,722 $ (779,515) $ (673) $ 73,584
Fixed Income Fund 8,897 22,747 (603) (26,012) 74,206 (103,299) (441) (24,505)
Regular Fund 44,049 337,501 (418) (142,926) 296,637 (507,074) (2,585) 25,184
Short Maturity Fund 3,023 8,639 (32) (16,187) 530,774 (540,392) (152) (14,327)
All Equity Fund 13,239 38,071 (269) (13,763) 181,404 (227,952) (399) (9,669)
Mutual Funds 9,258 37,652 (27) (11,038) 1,184,665 (960,176) 260,334
Company
Contributions 86,000 86,000
Loan Defaults (4,852) (4,852)
Total $90,354 $86,000 $451,339 $ (1,420) $(230,274) $3,118,408 $(3,118,408) $(4,250) $ 391,749
Year Ended
December 31, 1996
ASC Common Stock
Fund $ 9,385 $ 9,264 $110,721 $ (72) $ (14,992) $ 136,912 $ (156,761) $ (450) $ 94,007
Fixed Income Fund 9,988 8,695 18,923 77,327 (19,598) 30,795 (57,181) (412) 68,537
Regular Fund 48,487 41,399 287,736 1,081,029 (88,344) 105,800 (202,029) (1,798) 1,272,280
Short Maturity Fund 1,672 6,283 5,434 61,621 (11,793) 96,862 (82,754) (115) 77,210
All Equity Fund 14,044 11,465 37,356 42,341 (9,549) 93,893 (84,334) (306) 104,910
Mutual Funds 794 4,894 1,809 (230) 159,005 (40,208) 126,064
Loan Defaults 11,639 (3,962) 7,677
Total $84,370 $82,000 $461,979 $1,273,885 $(148,468) $ 623,267 $ (623,267) $(3,081) $1,750,685
</TABLE>
* BALANCES RECLASSIFIED TO REFLECT ACTUAL ALLOCATIONS FOR 1996
8. INCOME TAX STATUS
The Internal Revenue Service ruled on May 9, 1995, that the Plan qualifies under
Section 401(a) of the Internal Revenue Code (IRC) and, therefore, the underlying
trust is not subject to tax under IRC Section 501(a). Once qualified, the Plan
is required to operate in conformity with the IRC to maintain its qualification.
The Plan administrator is not aware of any course of action or series of events
that have occurred that might adversely affect the Plan's qualified status.
9. TRANSACTIONS WITH PARTIES-IN-INTEREST
During 1997 and 1996, the ASC Stock Fund received $5,380,059 and $4,597,006,
respectively, in common stock dividends from American Stores Company.
F-15
American Stores Retirement Estates
Notes to Financial Statements (continued)
10. YEAR 2000 ISSUE (UNAUDITED)
The Company has initiated a project to modify the Plan's information
technology to be ready for the year 2000 and has begun converting critical
data processing systems. The project also includes determining whether third
party service providers to the Plan have reasonable plans in place to become
year 2000 compliant. The Company currently expects to achieve year 2000
compliance through a combination of modification or replacement of some
existing programs and systems; however, no assurance can be given that the
Company's efforts nor those of its third party service providers will be
successful. The Company does not expect this project to have a significant
effect on plan operations.
F-16
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-25613) pertaining to American Stores Retirement Estates of
our report dated June 15, 1998, with respect to the financial statements of
American Stores Retirement Estates included in this Annual Report (Form 11-K)
for the year ended December 31, 1997.
ERNST & YOUNG LLP
Salt Lake City, Utah
June 26, 1998
F-17
