UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended January 30, 2003 Commission file number 1-6187
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ALBERTSON'S, INC.
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(Exact name of Registrant as specified in its Charter)
Delaware 82-0184434
- --------------------------------- --------------------------------
(State of Incorporation) (Employer Identification Number)
250 Parkcenter Boulevard, P.O. Box 20, Boise, Idaho 83726
(208) 395-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- ----------------------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (17 CFR section 405) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (x)
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes x No
----- -----
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter. The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of August 1, 2002 was approximately $10.5
billion.
The number of shares of the registrant's common stock, $1.00 par value,
outstanding as of April 18, 2003 was 366.8 million.
Documents Incorporated by Reference
Listed hereunder are the documents, any portions of which are incorporated
by reference, and the Parts of this Form 10-K into which such portions are
incorporated:
1. The Registrant's definitive proxy statement for use in connection with the
Annual Meeting of Shareholders to be held on June 6, 2003, (the "Proxy
Statement") to be filed within 120 days after the Registrant's year ended
January 30, 2003, portions of which are incorporated by reference into
Part III of this Form 10-K.
1
ALBERTSON'S, INC.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
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Cautionary Statement 3
1. Business 3
2. Properties 6
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
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PART II
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5. Market for the Registrant's Common Equity and Related Stockholder Matters 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
7A. Quantitative and Qualitative Disclosures about Market Risk 23
8. Consolidated Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 52
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PART III
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10. Directors and Executive Officers of the Registrant 53
11. Executive Compensation 55
12. Security Ownership of Certain Beneficial Owners and Management and Related 55
Stockholders Matters
13. Certain Relationships and Related Transactions 55
14. Controls and Procedures 55
PART IV
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15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 55
SIGNATURES
CERTIFICATIONS
2
PART I
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995
All statements other than statements of historical fact contained in this
and other documents disseminated by the Company, including statements regarding
the Company's expected financial performance, are forward-looking information as
defined in the Private Securities Litigation Reform Act of 1995. In reviewing
such information about the future performance of the Company, it should be kept
in mind that actual results may differ materially from those projected or
suggested in such forward-looking information since predictions regarding future
results of operations and other future events are subject to inherent
uncertainties.
These statements may relate to, among other things: investing to increase
sales; changes in cash flow; increases in insurance and employee benefit costs;
attainment of cost reduction goals; achieving sales increases and increases in
identical sales; opening and remodeling stores; and the Company's five strategic
imperatives; and are indicated by words or phrases such as "expects," "plans,"
"believes," "estimate," and "goal." In reviewing such information about the
future performance of the Company, it should be kept in mind that actual results
may differ materially from those projected or suggested in such forward-looking
information.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include changes in the general economy; changes in interest rates;
changes in consumer spending; actions taken by new or existing competitors
(including nontraditional competitors), particularly those intended to improve
their market share (such as pricing and promotional activities); and other
factors affecting the Company's business in or beyond the Company's control.
These factors include changes in the rate of inflation; changes in state or
federal legislation or regulation; adverse determinations with respect to
litigation or other claims (including environmental matters); labor
negotiations; the cost and stability of energy sources; the Company's ability to
recruit, retain and develop employees; the Company's ability to develop new
stores or complete remodels as rapidly as planned; the Company's ability to
implement new technology successfully; stability of product costs; the Company's
ability to integrate the operations of acquired or merged companies; the
Company's ability to execute its restructuring plans; and the Company's ability
to achieve its five strategic imperatives.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those projected or suggested in the
forward-looking information. The Company does not undertake to update
forward-looking information contained herein or elsewhere to reflect actual
results, changes in predictions, assumptions, estimates or changes in other
factors affecting such forward-looking information.
Item 1. Business
General
Albertson's, Inc. ("Albertsons" or the "Company") is incorporated under the
laws of the State of Delaware and is the successor to a business founded by
J. A. Albertson in 1939. The Company's general offices are located at
250 Parkcenter Boulevard, Boise, Idaho 83726, and its telephone number is
(208) 395-6200. Information about the Company is available on the internet
at www.albertsons.com.
Based on sales, the Company is one of the largest retail food and drug
chains in the world. As of January 30, 2003, the Company operated 2,287 retail
stores in 31 states. These retail stores consist of 1,313 combination food-drug
stores, 708 stand-alone drugstores, and 266 conventional and warehouse stores.
Retail operations are supported by 17 major Company distribution centers. These
distribution centers provide product exclusively to the Company's retail stores.
The Company's operations are within a single operating segment, the retail
sale of food and drug merchandise. All the Company's operations are within the
United States. As of January 30, 2003, the Company's stores operated under the
banners Albertsons, Albertsons-Osco, Albertsons-Sav-on, Jewel-Osco, Acme, Sav-on
Drugs, Osco Drug, Max Foods, and Super Saver Foods.
The Company's fiscal year ends on the Thursday nearest to January 31. As a
result, the Company's fiscal year includes a 53rd week every 5 to 6 years.
Fiscal years 2002, 2001, and 2000 each contained 52 weeks and ended on
January 30, 2003, January 31, 2002, and February 1, 2001.
The Company continues to be focused on its five strategic imperatives that
serve as a guide and a filter for the Company's initiatives and actions. These
five imperatives are: 1) Aggressive cost and process control, 2) Maximize return
on invested capital, 3) Customer-focused approach to growth, 4) Company-wide
focus on technology and 5) Energized associates. With these imperatives in mind,
the Company announced on July 18, 2001 the initial restructuring plan of
divesting 165 underperforming retail stores and consolidation and elimination of
3
four division offices. The Company announced on March 13, 2002 the second phase
of restructuring which included exiting four underperforming markets: Memphis,
Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas, which
involved divesting 95 stores, two distribution centers and included the
reduction of division offices from 15 to 11.
All dollar amounts in this report are in millions, except per share data.
Retail Formats
As of January 30, 2003, the Company's retail operations were organized into
11 divisions, based primarily on geographic boundaries. The division staff is
responsible for day-to-day operations and for executing marketing and
merchandising programs. This structure allows the division level employees, who
are closest to the customer, to implement strategies tailored to each of the
unique neighborhoods that the Company serves.
The Company's combination food-drug stores are super grocery and drug stores
under one roof and range in size from 35,000 to 107,000 square feet. Most of
these stores offer prescription drugs and an expanded section of cosmetics and
general merchandise in addition to specialty departments such as service seafood
and meat, bakery, lobby/video, service delicatessen, liquor and floral. Many
also offer meal centers, party supply centers, coffee bars, in-store banks, dry
cleaning, photo processing and destination categories for beverages, snacks, pet
care products, paper products and baby care merchandise. All shopping areas are
served by a common set of checkstands.
Albertsons' strategic advantage in today's marketplace comes from the
Company's unique heritage in two market formats - food stores and drugstores.
Albertsons has decades of experience in serving customers in both market
formats. This unique position in the marketplace has enabled the Company to
bring together separate retail brands, creating the dual brand combination
stores that leverage the Company's separate food and drug experience and brand
equity. The Company began expanding the dual brand combo concept in 2001 by
rolling out Albertsons-Sav-on stores in the Reno, Nevada market and
Albertsons-Osco stores in the Tucson, Arizona market. In 2002, the Company
rolled out the dual brand combo concept in the Phoenix, Arizona and the Omaha,
Nebraska markets. The Company is studying consumer preferences related to these
programs and will develop future roll-out plans based on this research.
The Company's stand-alone drugstores average 18,600 square feet. These
stores offer convenient shopping and prescription pickup as well as a wide
assortment of general merchandise, health and beauty care products,
over-the-counter medication, greeting cards and photo processing. The Company's
new drugstores are typically located on corners and many offer a drive-thru
pharmacy.
The Company's other store formats include conventional supermarkets and
warehouse stores. These stores offer a full selection in the basic departments
of grocery, meat, produce, dairy and limited general merchandise. Many locations
have a pharmacy, in-store bakery and service delicatessen.
As of January 30, 2003, the Company operated 199 fuel centers in 20 states,
which are generally located in the parking lots of the Company's stores. These
centers feature three to six fuel pumps and a small building, ranging in size
from a pay-only kiosk to a convenience store, featuring such items as candy,
soft drinks and snack foods.
In November 1999 Albertsons introduced its own grocery delivery Web site
when Albertsons.com entered the Seattle, Washington market. The Company expanded
the service to the San Diego area in October 2001, the Los Angeles area in
February 2002, the San Francisco area and Oregon in March 2002 and the Las Vegas
area in November 2002. By using its brick-and-mortar stores, Albertsons has
evolved its online model to take advantage of its retail grocery expertise,
brand recognition and existing infrastructure. With more than three years of
experience, Albertsons.com offers a reliable and proven online grocery service
customers trust to deliver high-quality, fresh products direct from the store to
their home.
Savon.com, Albertsons online drugstore, serves the Company's customers
nationwide. On December 7, 2000, Savon.com opened the "doors" to a nationwide
online pharmacy service. The site offers a full range of sundry items, new and
refill prescriptions and consumer health information. The Web site allows
customers across the country the freedom to have new or refilled prescriptions
ready for pickup at any local Albertsons food or drug store, or have their
prescriptions mailed to their doorsteps.
All of the Company's stores carry a broad range of national brands and offer
private label brand products in many merchandise categories. The Company's
stores provide consumer information such as: nutritional signing in the meat and
produce departments, freshness code dating, unit pricing, meal ideas and food
information pamphlets. The Company also offers a choice of recyclable paper or
plastic bags and collection bins for plastic bag recycling.
4
Merchandising
The Company supplies its stores with merchandise through its distribution
centers and outside suppliers, or directly from manufacturers, in an effort to
obtain merchandise at the lowest possible cost. The Company believes that it is
not dependent on any one supplier, and considers its relations with its
suppliers to be satisfactory.
Management believes that retail stores offering a broad array of products
and time-saving services are perceived by customers as part of a solution to
today's lifestyle demands. Accordingly, a principal component of the Company's
merchandising strategy is to design stores that offer these solutions. In the
Company's prototype stores, in-store bakeries and delicatessens, prepared foods
sections, and gourmet coffee service are available. A selection of prepared
foods and home meal replacements are featured throughout the store. In the meat
department, customers are provided easy meal alternatives. Many stores offer
daily selections of home meal replacement items, such as rotisserie chicken,
chicken cordon blue, tamales, meat loaf and other dinner entrees, sandwiches,
pre-packaged salads and prepared fresh vegetables. The bakery offers an expanded
selection of baked goods and self-service selections. Albertsons offers bread
baked daily, cakes made to order in various sizes, donuts, and other pastries.
Employees
As of January 30, 2003, the Company employed approximately 202,000 people,
many of whom are covered by collective bargaining agreements. The Company
considers its present relations with employees to be good. The Company values
its employees and believes that employee loyalty and enthusiasm are key elements
of its operating performance.
Environmental
The Company has identified environmental contamination sites related
primarily to underground petroleum storage tanks and groundwater contamination
at various store, warehouse, office and manufacturing facilities (related to
current operations as well as previously disposed of properties). The Company
conducts an ongoing program for the inspection and evaluation of potential new
sites and the remediation/monitoring of contamination at existing and previously
owned sites. Undiscounted reserves have been established for each environmental
contamination site unless an unfavorable outcome is believed to be remote.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that the costs of required remediation and
continuing compliance with environmental laws, in excess of current reserves,
will not have a material adverse effect on the financial condition, results of
operations or cash flows of the Company. Charges against earnings for
environmental remediation were not material in 2002, 2001 or 2000.
Government Regulation
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the U.S. Food and Drug Administration, the U.S.
Department of Agriculture, the Occupational Health and Safety Administration and
other federal, state and local agencies. The Company's stores are also subject
to local laws regarding zoning, land use and the sale of alcoholic beverages.
The Company believes that its locations are in material compliance with such
laws and regulations.
Competition
Food, drug and general merchandise retailing involves intense competition
with numerous competitors. Competition is based primarily on price, product
quality and variety, service and location. The Company faces direct competition
from many local, regional and national supermarket chains, supercenters, club
stores, specialty retailers (such as pet centers and toy stores) and large-scale
drug and pharmaceutical retailers. Increasing competition also exists from
convenience stores, prepared food retailers, liquor and video stores, film
developing outlets, and Internet and mail-order retailers.
The Company is subject to effects of seasonality. Sales have historically
been higher in the Company's fourth quarter than other quarters due to the
holiday season and the increase in cold and flu occurrences.
Available Information
The Company will make available its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act free of charge through the Company's internet website at
http://www.albertsons.com as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the Securities and
Exchange Commission.
5
Item 2. Properties
The Company has actively pursued an expansion program of adding new retail
stores, enlarging and remodeling existing stores and replacing smaller stores.
During the past ten years, the Company has built or acquired 1,871 stores and
approximately 84% of the Company's current retail square footage has been opened
or remodeled during this period. The Company continues to follow the policy of
closing stores that are obsolete or fail to provide adequate return on invested
capital.
Albertsons stores are located in 31 Northeastern, Western, Midwestern and
Southern areas of the United States. The table below is a summary of the stores
by state and classification as of January 30, 2003:
Combination
Food-Drug Stand-Alone Other Fuel
Stores Drugstores Stores TOTAL Centers (a)
- --------------------- ---------------- ---------------- --------------- -------------- ----------------
Arizona 50 82 - 132 13
Arkansas 1 - - 1 -
California 309 310 141 760 7
Colorado 49 - 10 59 8
Delaware 9 - 3 12 1
Florida 120 - - 120 15
Idaho 30 - 7 37 15
Illinois 163 93 14 270 16
Indiana 6 46 - 52 1
Iowa 1 13 - 14 -
Kansas - 22 - 22 -
Louisiana 31 - - 31 11
Maryland 2 - 6 8 -
Michigan - 1 - 1 -
Minnesota - 1 - 1 -
Missouri - 34 - 34 -
Montana 18 8 14 40 4
Nebraska 12 13 - 25 3
Nevada 48 46 3 97 11
New Jersey 34 - 27 61 -
New Mexico 22 4 1 27 3
North Dakota 2 6 - 8 -
Oklahoma 28 - - 28 13
Oregon 44 - 10 54 13
Pennsylvania 39 - 16 55 -
South Dakota 1 2 - 3 -
Texas 152 - - 152 42
Utah 44 - 2 46 6
Washington 73 - 11 84 14
Wisconsin 16 27 - 43 1
Wyoming 9 - 1 10 2
---------------- ---------------- --------------- -------------- ----------------
Total 1,313 708 266 2,287 199
================ ================ =============== ============== ================
Retail Square
Footage by Store
Type (000's) 71,277,950 13,196,146 7,658,121 92,132,217 (a)
================ ================ =============== ============== ================
(a) All fuel centers are located adjacent to retail stores, therefore the
Company does not count fuel centers as separate stores. The square
footage of fuel centers is included with the square footage of adjacent
stores.
6
The Company has expanded and improved its distribution facilities when
opportunities exist to improve service to the retail stores and generate an
adequate return on investment. During 2002 approximately 77% of the merchandise
purchased for resale in Company retail stores was received from Company
distribution centers.
Albertsons distribution system consists of 17 major distribution facilities
located strategically throughout the Company's operating markets. The table
below is a summary of the Company's distribution facilities as of January 30,
2003:
High
Ice Volume
Frozen Meat & Cream Health Health General Square
Major Distribution Facilities Grocery Food Liquor Produce Deli Plant & Beauty & Beauty Merch. Pharmaceuticals Footage
----------------------------- ------- ------ ------ ------- ------ ----- -------- -------- ------- --------------- ----------
Melrose Park, Illinois X X X X 1,467,000
Lancaster, Pennsylvania X X X X X 1,412,700
Brea, California X X X 1,295,000
La Habra, California X X X X X 1,203,100
Fort Worth, Texas X X X X 1,130,500
Plant City, Florida X X X X X X 1,010,900
Irvine, California X X 996,900
Elk Grove, Illinois X X X X 933,000
Vacaville, California X 854,000
Portland, Oregon X X X X 834,300
Phoenix, Arizona X X X X X 734,300
Salt Lake City, Utah X X X X 659,600
San Leandro, California X X X 475,200
Sacramento, California X X X X X 441,600
Ponca City, Oklahoma X X X 420,000
Denver, Colorado X X X X 388,400
Boise, Idaho X X 302,300
Other Distribution Facilities
-----------------------------
Las Vegas, Nevada X 30,000
Indianapolis, Indiana X 22,000
Boise, Idaho X 11,000
---------------
TOTAL SQUARE FOOTAGE -
All Distribution Facilities 14,621,800
===============
7
The Company currently prefers to finance most new retail store and
distribution facilities internally, thus retaining ownership of its land and
buildings. The Company's internal expansion plans are expected to be financed
primarily from cash provided by operating activities. The Company has and will
continue to finance a portion of its new stores through lease transactions when
it does not have the opportunity to own the property.
As of January 30, 2003, the Company held title to both the land and
buildings of 41% of the Company's stores and held title to the buildings on
leased land of an additional 10% of the Company's stores. The Company also holds
title to the land and buildings of most of its administrative offices and
distribution facilities.
Item 3. Legal Proceedings
The Company is subject to various lawsuits, claims and other legal matters
that arise in the ordinary course of conducting business.
In March 2000 a class action complaint was filed against Albertsons as well
as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc.
and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Gardner, et al. v.
Albertson's, Inc., et al.) by bonus-eligible managers seeking recovery of
additional bonus compensation based upon plaintiffs' allegation that the
calculation of profits on which their bonuses were based improperly included
expenses for workers' compensation costs, cash shortages, premises liability and
"shrink" losses in violation of California law. In October 2001 the court
granted summary judgment against Sav-on Drug Stores, finding one of its bonus
plans unlawful under plaintiffs' liability theory. In August 2001 a class action
complaint with very similar claims, also involving bonus-eligible managers, was
filed against Albertson's, Inc., Lucky Stores, Inc. and American Stores Company,
wholly-owned subsidiaries of the Company, in the Superior Court for the County
of Los Angeles, California (Petersen, et al. v. Lucky Stores, Inc., et al.). In
June 2002 the cases were consolidated and in August 2002 a class action with
respect to the consolidated case was certified by the court. The Company has
strong defenses against this lawsuit, and is vigorously defending it. Although
this lawsuit is subject to the uncertainties inherent in the litigation process,
based on the information presently available to the Company, management does not
expect that the ultimate resolution of this action will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
In April 2000 a class action complaint was filed against Albertsons as well
as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc.
and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Gardner, et al. v.
American Stores Company, et al.) by assistant managers seeking recovery of
overtime pay based upon plaintiffs' allegation that they were improperly
classified as exempt under California law. In May 2001 a class action with
respect to Sav-on Drug Stores assistant managers was certified by the court. A
case with very similar claims, involving the Sav-on Drug Stores assistant
managers and operating managers, was also filed in April 2000 against the
Company's subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the
County of Los Angeles, California (Rocher, Dahlin, et al. v. Sav-on Drug Stores,
Inc.) and was also certified as a class action. In April 2002 the Court of
Appeal of the State of California Second Appellate District reversed the Rocher
class certification, leaving only two plaintiffs. The California Supreme Court
has accepted plaintiffs' request for review of this class decertification. The
Gardner case is on hold pending the review by the California Supreme Court. The
Company has strong defenses against these lawsuits, and is vigorously defending
them. Although these lawsuits are subject to the uncertainties inherent in the
litigation process, based on the information presently available to the Company,
management does not expect that the ultimate resolution of these lawsuits will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
In August 2000 a class action complaint was filed against Jewel Food Stores,
Inc., a wholly-owned subsidiary of the Company, in the Circuit Court of Cook
County, Illinois (Maureen Baker, et al., v. Jewel Food Stores, Inc. and
Dominick's Supermarkets, Inc., Case No. 00L 009664) alleging milk price fixing
and seeking compensatory, punitive, and injunctive relief. In July 2002 a class
was certified, consisting of all people residing in the Chicagoland area who
bought milk at retail from either or both of the defendants between August 23,
1996 and August 23, 2000. On February 25, 2003, the trial judge granted Jewel's
and Dominick's motion to dismiss after presentation of plaintiffs' case, and the
case was dismissed with prejudice. The plaintiffs have filed a notice of intent
to appeal the decision issued in favor of the defendants.
An agreement has been reached, and court approval granted, to settle eight
purported class and/or collective actions which were consolidated in the United
States District Court in Boise, Idaho, and which raised various issues including
"off-the-clock" work allegations and allegations regarding certain salaried
grocery managers' exempt status. Under the settlement agreement, current and
former employees who met eligibility criteria have been allowed to present their
off-the-clock work claims to a settlement administrator. Additionally, current
and former grocery managers employed in the State of California have been
allowed to present their exempt status claims to a settlement administrator. The
8
Company mailed notices of the settlement and claims forms to approximately
80,000 associates and former associates. Approximately 6,000 claim forms were
returned, of which approximately 5,000 were deemed by the settlement
administrator to be incapable of valuation, presumed untimely, or both. The
court will consider the status and handling of these 5,000 claims. The claims
administrator was able to assign a value to approximately 1,000 claims, which
amount to a total of approximately $13.5, although the value of many of those
claims is still subject to challenge by the Company. The Company is presently
unable to determine the number of individuals who may ultimately submit valid
claims or the amounts that it may ultimately be required to pay with respect to
such claims. Based on the information presently available to it, management does
not expect that the satisfaction of valid claims submitted pursuant to the
settlement will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
The Company is also involved in routine legal proceedings incidental to its
operations. The Company utilizes various methods of alternative dispute
resolution, including settlement discussions, to manage the costs and
uncertainties inherent in the litigation process. Management does not expect
that the ultimate resolution of these legal proceedings will have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
The statements above reflect management's current expectations based on the
information presently available to the Company. However, predicting the outcomes
of claims and litigation and estimating related costs and exposures involve
substantial uncertainties that could cause actual outcomes, costs and exposures
to vary materially from current expectations. In addition, the Company regularly
monitors its exposure to the loss contingencies associated with these matters
and may from time to time change its predictions with respect to outcomes and
its estimates with respect to related costs and exposures. It is possible that
material differences in actual outcomes, costs and exposures relative to current
predictions and estimates, or material changes in such predictions or estimates,
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of 2002 to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common stock is traded on both the New York Stock Exchange and
the Pacific Stock Exchange under the symbol ABS. As of March 28, 2003, there
were approximately 31,241 holders of record. The following table sets forth the
reported high and low stock prices by quarter:
Common Stock Market Price
-------------------------
Dividends
2002 High Low Declared
----------------------- ---- --- --------
Fourth Quarter $24.60 $18.85 $0.19
Third Quarter 28.66 22.14 0.19
Second Quarter 35.49 26.51 0.19
First Quarter 35.49 26.88 0.19
2001
-----------------------
Fourth Quarter 35.59 28.26 0.19
Third Quarter 36.99 29.25 0.19
Second Quarter 33.72 27.30 0.19
First Quarter 34.05 27.00 0.19
Dividends
The Company has paid cash dividends on its Common Stock for the past
forty-three fiscal years. The Company pays these dividends at the discretion of
the Board of Directors. The continuation of these payments, the amount of such
dividends, and the form in which the dividends are paid (cash or stock) depend
upon many factors, including the results of operations and the financial
condition of the Company.
9
Item 6. Selected Financial Data
The following data have been derived from the consolidated financial
statements of the Company and should be read in conjunction with those
statements, which are included in this report.
52 WEEKS 52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS
(DOLLARS IN MILLIONS, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
EXCEPT PER SHARE DATA) 2003 2002 2001 2000 1999
- ---------------------------------- ---------------- -------------- --------------- -------------- -------------
Operating Results:
Sales $ 35,626 $ 36,605 $ 35,501 $ 36,326 $ 34,915
Earnings from continuing operations 865 496 746 395 779
Net earnings 485 501 765 404 801
Net earnings as a percent to 1.38% 1.38% 2.15% 1.12% 2.28%
sales
Common Stock Data:
Earnings from continuing operations:
Basic $ 2.18 $ 1.22 $ 1.78 $ 0.93 $ 1.86
Diluted 2.17 1.22 1.78 0.92 1.85
Net earnings per share:
Basic 1.22 1.23 1.83 0.96 1.91
Diluted 1.22 1.23 1.83 0.95 1.90
Cash dividends per share:
Albertsons 0.76 0.76 0.76 0.72 0.68
American Stores Company
equivalent - - - 0.14 0.57
Financial Position:
Total assets $ 15,211 $ 15,981 $ 16,094 $ 15,719 $ 15,131
Long-term debt and capitalized
lease obligations 5,257 5,336 5,942 4,990 5,108
Other Year End Statistics:
Number of stores 2,287 2,421 2,512 2,492 2,564
The operating results include two significant restructuring initiatives that
were implemented in 2001 and 2002 (refer to "Note F - Restructuring" and
"Note E - Discontinued Operations/Market Exits" in the notes to the accompanying
consolidated financial statements). Although these decisions were similar, the
adoption of Statement of Financial Accounting Standard (SFAS) No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" on February 1,
2002 caused the financial statement presentation of these actions to be
dissimilar (SFAS No. 144 does not allow for the retroactive application of its
provisions). The Company's financial statements have been restated to classify
the results of operations for the 95 stores, two distribution centers and the
reduction of division offices from 15 to 11, as discontinued operations for all
periods. The operating results of the 165 stores are included in continuing
operations of the Company's financial statements for the periods prior to their
sale or closure.
The Company adopted SFAS 142 in 2002 (refer to "Note M - Goodwill and Other
Intangible Assets" in the notes to the accompanying consolidated financial
statements).
On June 23, 1999, Albertsons and American Stores Company consummated a
merger, which has been accounted for as a pooling of interests.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The New Albertsons
The Company's leadership team has identified many actions and programs with
which to drive the Company's future competitiveness, profitability and return on
invested capital. The Company continues to be focused on its five strategic
imperatives that serve as a guide and a filter for all the Company's
initiatives. These five imperatives, together with the major actions taken to
date, follow:
1) Aggressive Cost and Process Control. Each main category of expense,
including labor, is rigorously monitored by a member of executive
management. By the end of 2002, the Company had achieved $446 of the $500
10
mid-2003 annual cost reduction goal. The Company is committed to achieve
cost reductions of $750 by the end of 2004. In the third quarter of 2002,
the Company expanded its existing strategic sourcing program to realize
additional cost reductions by engaging A.T. Kearney to leverage their
sourcing expertise to assist with this program.
2) Maximize Return on Invested Capital. The Company has implemented a formal
process to review and measure all significant investments in corporate
assets. The goal of the Company is to hold a number 1 or 2 market share in
an area, or have a plan of action which provides a reasonable expectation
of achieving this goal in order to continue to maintain an investment in
that area. This process involves thorough review at both the individual
asset or store level and at the market area level.
As a result of the review initiated in 2001, the Company closed or disposed
of 162 underperforming stores in 2001 and 2002. In addition, the Company
formulated plans to accelerate the disposal of surplus property through an
auction process for owned properties and aggressive lease termination
negotiations for leased properties. As a result of this initial
restructuring, the Company reduced its divisions from 19 to 15.
o During the fourth quarter of 2001, the Company sold 80 non-core New
England Osco drugstores.
o In the first quarter of 2002, the Company announced the second phase of
its asset rationalization process. The Company exited four
underperforming markets: Memphis, Tennessee; Nashville, Tennessee;
Houston, Texas; and San Antonio, Texas. These market exits occurred
through a combination of store closures and store sales and involved a
total of 95 stores. In connection with this action, the Company reduced
its divisions from 15 to 11 and the Tulsa, Oklahoma and Houston, Texas
distribution facilities were sold.
3) Customer-focused Approach to Growth. The Company intends to invest many of
the savings from the expense and process control programs back into the
marketplace in order to drive sales and earnings growth. The Company's
focus is on the following programs that are intended to drive customer
loyalty and profitable sales growth. A company-wide "Service First, Second
to None" program is reinvigorating the employees' focus on customer
service. The "Focus on Fresh" initiative is improving the delivery of fresh
foods throughout the Company's fresh departments. The Company's Jewel-Osco
stores in Chicago, Illinois have a decade of experience operating a unique
dual brand food and drugstore format. This unique format was rolled out to
the Tucson, Arizona and Reno, Nevada markets during 2001 and was rolled out
to the Phoenix, Arizona and Omaha, Nebraska markets during 2002. During the
fourth quarter of 2001, the Company expanded its loyalty card program to
the Dallas/Fort Worth, Texas area. During 2002 the loyalty card program was
rolled out to the following areas: Northern California, Northwest,
Intermountain, and the Florida divisions. The loyalty card program was
introduced in the Rocky Mountain division in March 2003, and the Company
continues to evaluate additional markets for expansion of the preferred
savings card program.
4) Company-wide Focus on Technology. Albertsons use of technology is designed
to better serve customers and improve operating efficiencies. In 2002
Albertsons established an information technology plan, which calls for the
replacement or upgrade of over three-quarters of the Company's current
systems within the next five years. The Company initiated a project that
will standardize all front-end point-of-sale systems; built a new data
center resulting in the consolidation of two previous data centers; and
started the process of implementing a new financial applications system
that will lay the foundation for significant future improvements.
Technology has been deployed in approximately 60 stores in "self-checkout"
lanes, providing customers with the option to complete their shopping trips
electronically.
5) Energized Associates. The Albertsons leadership team is charged with
creating an uplifting atmosphere for associates everyday, and to inspire
positive attitudes throughout the Company. To ensure that our
202,000 associates are energized and motivated to do their best work
everyday, the Company realigned processes and programs to provide new
opportunities for associates to achieve their professional career goals.
The Company changed compensation programs to reward performance that
delivers results, improved communications so associates are better
informed, streamlined education programs to meet the needs of the business,
and revised benefits plans to reduce costs. We are convinced that a team
of energized associates who share a positive attitude will achieve
Albertsons goal of becoming the best food and drug retailer in the world.
11
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, the Company evaluates
its estimates, including those related to bad debts, inventories, vendor funds,
intangible assets, income taxes, assets held for sale, impairment of long-lived
assets, self-insurance, restructuring, benefit costs, contingencies, litigation
and unearned income. The Company bases its estimates on historical experience
and on various other assumptions and factors that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. The Company, based on its ongoing review,
will make adjustments to its judgments and estimates where facts and
circumstances dictate. Historically, actual results have not significantly
deviated from those determined using the estimates described above.
The Company believes the following critical accounting policies are
important to the portrayal of the Company's financial condition and results and
require management's most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.
VENDOR FUNDS The Company receives funds from the many vendors whose products
the Company buys for resale in its stores. These vendor funds are provided to
increase the sell-through of the related products. The Company receives funds
for a variety of merchandising activities: placement of the vendor's products in
the Company's advertising; placement of the vendor's products in prominent
locations in the Company's stores; introduction of new products into the
Company's distribution system and retail stores; exclusivity rights in certain
categories that have slower-turning products; and to compensate for temporary
price reductions offered to customers on products held for sale at retail
stores. The Company also receives vendor funds for buying activities, such as
volume commitment rebates and forward buy credits.
Accounting for vendor funds is discussed in Emerging Issues Task Force
"EITF" Issue 02-16: Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor (EITF 02-16), in which the EITF reached
consensus on two issues in November 2002 and provided transition rules on those
issues in January 2003 and March 2003. As a result of this new guidance, the
Company adopted a new method for recognizing the vendor funds for merchandising
activities. As of the beginning of 2002, the Company recognizes vendor funds for
merchandising activities when the related products are sold. Under the previous
accounting method for merchandising vendor funds, these credits were recognized
as an offset to cost of sales when the merchandising activity was performed in
accordance with the underlying agreements. In connection with the implementation
of this new accounting method, the Company recorded a charge in 2002 of $94, net
of tax benefit of $60.
The vendor fund inventory offset recorded as of January 30, 2003 was $152,
which is a $6 decrease from the balance as of the beginning of 2002. The
inventory offset was determined by estimating the average inventory turnover
rates by product category for the Company's grocery, general merchandise and
lobby departments (these departments received over three-quarters of the
Company's vendor funds in 2002) and by average inventory turnover rates by
department for the Company's remaining inventory.
LONG-LIVED ASSET IMPAIRMENTS The Company assesses the impairment of long-lived
assets when events or changes in circumstances indicate that the carrying value
of the assets or the asset group may not be recoverable. The asset impairment
review assesses the fair value of the assets based on the future cash flows the
assets are expected to generate. An impairment loss is recognized when estimated
undiscounted future cash flows expected to result from the use of the asset plus
net proceeds expected from the disposition of the asset (if any) are less than
the related asset's carrying amount. Impairment losses are measured as the
amount by which the carrying amounts of the assets exceed their fair values. The
net proceeds expected from the disposition of the asset are determined by
independent quotes or expected sales prices developed by internal specialists.
Estimates of future cash flows and expected sales prices are judgments based on
the Company's experience and knowledge of local operations. These estimates can
be significantly impacted by changes in real estate market conditions, the
economic environment, capital spending decisions and inflation.
For properties to be closed that are under long-term lease agreements, the
present value of any remaining liability under the lease, discounted using
risk-free rates and net of expected sublease recovery, is recognized as a
liability and expensed. (Beginning on January 1, 2003, "expected sublease
recovery" has been replaced by "estimated sublease rentals that could be
12
reasonably obtained for the property.") The value of any equipment and leasehold
improvements related to a closed store is reduced to reflect net recoverable
values. Internal specialists estimate the subtenant income, future cash flows
and asset recovery values based on their historical experience and knowledge of
(1) the market in which the store to be closed is located, (2) the results of
its previous efforts to dispose of similar assets and (3) the current economic
conditions. The actual cost of disposition for these leases and related assets
is affected by specific real estate markets, the economic environment and
inflation.
SELF-INSURANCE The Company is primarily self-insured for workers' compensation,
automobile and general liability costs. The Company records its self-insurance
liability, determined actuarially, based on claims filed and an estimate of
claims incurred but not yet reported. Any actuarial projection of ultimate
losses is subject to a high degree of variability. Sources of this variability
are numerous and include, but are not limited to, future economic conditions,
court decisions and legislative actions. The Company's workers' compensation
future funding estimates anticipate no change in the benefit structure.
Statutory changes could have a significant impact on future claim costs.
The Company's workers' compensation liabilities are from claims occurring in
various states. Individual state workers' compensation regulations have received
a tremendous amount of attention from state politicians, insurers, employers and
providers, as well as the public in general. Recent years have seen an
escalation in the number of legislative reforms, judicial rulings and social
phenomena affecting this business. The changes in a state's political and
economic environment increase the variability in the unpaid claim liabilities.
LEGAL CONTINGENCIES The Company records reserves for legal contingencies when
the information available to the Company indicates that it is probable that a
liability has been incurred and the amount of the loss can be reasonably
estimated. Predicting the outcomes of claims and litigation and estimating
related costs and exposures involve substantial uncertainties that could cause
actual costs to vary materially from estimates. In addition, the Company
regularly monitors its exposure to the loss contingencies associated with these
matters and may from time to time change its predictions with respect to
outcomes and its estimates with respect to related costs and exposures. It is
possible that material differences in actual outcomes, costs and exposures
relative to current predictions and estimates, or material changes in such
predictions or estimates, could have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
PENSION COSTS Pension benefit obligations and the related effects on operations
are dependent on the Company's selection of actuarial assumptions, including the
discount rate and the expected long-term rate of return on plan assets. Actual
returns on plan assets exceeded return assumptions over an extended period in
the past, which kept pension expense and cash contributions to the plans at
modest levels. Recent weaker market performance may significantly increase
pension expense and cash contributions in the future unless asset returns again
exceed the assumptions used. Changes in the interest rates used to determine the
discount rate may also cause volatility in pension expense and cash
contributions. Actual results that differ from the Company's assumptions are
accumulated and amortized over future periods and, therefore, generally affect
the Company's recognized expense and recorded obligation in such future periods.
Recently Adopted Accounting Standards
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 142, "Goodwill and Other Intangible Assets" effective February 1, 2002.
Under this new statement, goodwill and certain other intangible assets with
indefinite lives are no longer amortized, but are subject to annual testing,
or more frequently if impairment indicators arise, using fair value methodology.
Intangible assets with finite, measurable lives continue to be amortized over
their respective useful lives until they reach their estimated residual values,
and are reviewed for impairment in accordance with SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets."
When SFAS No. 142 was adopted, the aggregate of the goodwill allocated to
the stores in each reporting unit became the reporting units' goodwill balance.
In order to determine if a reporting unit's goodwill was impaired, a combination
of internal analysis, focusing on each reporting unit's implied EBITDA multiple,
and estimates of fair value from valuation specialists were used. Based on these
analyses, there was no impairment of goodwill at the adoption date.
Subsequently, during the fourth quarter of 2002, the Company completed its
annual impairment review based on November 1, 2002 balances and determined that
there was no impairment as of that date. The fair value estimates could change
in the future depending on internal and external factors.
The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," effective February 1, 2002. This statement replaces SFAS
No. 121 regarding impairment losses on long-lived assets to be held and used or
to be disposed of. The adoption of this statement did not have a material impact
on the company's impairment policy. However, the statement broadens the
definition of what constitutes a discontinued operation and how the results of a
13
discontinued operation are to be measured and presented. As a result, stores
associated with the company's exit from a particular market are classified as
discontinued operations in the Company's Consolidated Earnings Statements.
Therefore, activity associated with the Company's market exit plan approved by
the Company's Board of Directors in March 2002, involving the sale or closure of
95 stores, two distribution centers and the reduction of division offices from
15 to 11, has been presented as discontinued operations.
Results of Operations
Sales for 2002 were $35,626 compared to $36,605 in 2001 and $35,501 in 2000.
The following table sets forth certain income statement components expressed as
a percent to sales, and the year-to-year percentage changes in the amounts of
such components:
PERCENTAGE CHANGE
PERCENT TO SALES OF DOLLAR AMOUNTS
- ----------------------------------------- -------------------------------- ------------------------------
2002 2001 2000 2002 VS. 2001 2001 VS. 2000
- ----------------------------------------- ---------- ---------- ---------- --------------- --------------
Sales 100.00 100.00 100.00 (2.7) 3.1
Gross profit 29.15 28.48 28.43 (0.4) 3.3
Selling, general and administrative
expenses 24.15 23.85 23.79 (1.4) 3.4
Restructuring (credits) charges and 1.28 - n.m. n.m.
other (0.10)
Gain on sale of New England Osco
drugstores - (0.15) - n.m. n.m.
Interest expense, net 1.11 1.16 1.06 (6.8) 12.4
Earnings from continuing operations
before income taxes 3.95 2.36 3.50 62.8 (30.6)
Net earnings from continuing operations 2.44 1.36 2.10 74.4 (33.5)
Net (loss) gain from discontinued
operations (0.80) 0.02 0.05 n.m. (73.7)
Cumulative effect of change in
accounting principle (net) (0.26) - - n.m. n.m.
Net earnings 1.38 1.38 2.15 3.2 (34.5)
n.m. - not meaningful
Sales for 2001 and 2000 have been restated from previously reported amounts
to exclude sales associated with discontinued operations which represent sales
of the 95 stores included in the second phase of the Company's market exit plan.
The decrease in reported sales is primarily attributable to the Company's
restructuring plan initiated in July 2001, which included the sale or closure of
165 stores, and the sale of 80 New England Osco drugstores in the fourth quarter
of 2001. (These stores' sales are included in the 2000, 2001 and 2002 periods
until their closure.) The sales decrease was offset in part by the Company's
capital expansion program. Sales were also impacted by declining consumer
confidence (as measured by The Conference Board Index: 78.8 in January 2003 vs.
97.8 in January 2002) and escalating competitive activity. Identical store
sales, stores that have been in operation for two full fiscal years, decreased
0.9% in 2002 and increased 0.8% in 2001 and 0.3% in 2000. Comparable store
sales, which uses the same store base as the Identical store sales computation
except it includes replacement stores, decreased 0.4% in 2002 and increased 1.3%
in 2001 and 0.6% in 2000. During 2002 the Company opened 92 stores, remodeled
207 stores and closed or sold 226 stores, 177 of which are part of the Company's
restructuring plans. Net retail square footage at continuing operations was
92.1 million square feet at the end of 2002 and 92.8 million square feet and
92.9 million square feet at the end of 2001 and 2000, respectively. Management
estimates that overall deflation in products the Company sells was 0.1% in 2002,
0.3% in 2001 and 0.4% in 2000.
Gross profit, as a percent to sales, increased in 2002 vs. 2001 as a result
of improved Company-wide procurement practices and increased generic
substitution in the pharmacy department. Gross profit, as a percent to sales,
remained relatively flat between 2001 and 2000. The pre-tax LIFO adjustment, (as
a percent to sales), increased gross profit by $2 (0.01%) in 2002, decreased
gross profit by $5 (0.01%) in 2001, and increased gross profit by $23 (0.06%) in
2000. The net pre-tax LIFO charge for 2001 was $5, comprised of $10 of charges
recorded in cost of sales, $3 of credits recorded with gain on sale of
New England Osco drugstores and $2 of credits recorded with restructuring and
other.
Cost of sales includes merchandise, advertising, warehousing and
transportation costs, offset by vendor funds and advertising expense related to
the Company's buying and merchandising activities. Advertising expense
(excluding advertising allowances) totaled $527 in 2002, $537 in 2001, and $550
in 2000.
14
Selling, general and administrative (SG&A) expenses as a percent to sales
increased in 2002, primarily due to the reduction in the Company's sales base,
increase in employee benefits and rising insurance costs. The impact of the
elimination of goodwill amortization in 2002 due to the adoption of SFAS 142 and
a ten basis point reduction in labor costs as a percentage of sales was offset
by increased depreciation and rent expense associated with the Company's capital
expenditure programs. The increase in 2001 over 2000 was primarily due to
workers' compensation costs and benefit expenses caused by sharply higher health
care costs. The 2001 increase in SG&A expenses was partially offset by
reductions in direct labor costs.
Other income, for the year ended January 31, 2002, includes $16 of charges
for a decrease in company-owned life insurance assets, offset by $8 of credits
for stock received from the demutualization of two insurance companies.
The Company's effective income tax rate from continuing operations for 2002
was 38.4%, as compared to 42.6% for 2001 and 40.0% for 2000. The decrease
resulted from the elimination of goodwill amortization and updated estimates of
federal and state taxes which were lower than amounts previously estimated. The
increase for 2001 over 2000 was due to lower earnings before income taxes,
non-deductible restructuring expenses and increased non-deductible company-owned
life insurance costs.
Restructuring and Other Non-Routine Items
The financial statement presentation includes the results of two significant
restructuring initiatives that were implemented in 2001 and 2002. On July 18,
2001, the Company's Board of Directors approved a restructuring plan that
included the closure of 165 underperforming retail stores, reduction of
administrative and corporate overhead and consolidation and elimination of four
division offices (refer to "Note F - Restructuring" in the notes to the
accompanying consolidated financial statements). On March 13, 2002, the
Company's Board of Directors approved the second phase of the restructuring plan
which included the complete exit of four underperforming markets resulting in
the sale or closure of 95 stores, two distribution centers, and reduction of
division offices from 15 to 11 (refer to "Note E - Discontinued
Operations/Market Exits" in the notes to the accompanying consolidated financial
statements). Although these decisions were similar, the adoption of SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" on February 1,
2002 caused the financial statement presentation of these actions to be
dissimilar (SFAS No. 144 does not allow for the retroactive application of its
provisions). The Company's 2001 and 2000 financial statements have been restated
to classify the results of operations for the 95 stores and two distribution
centers as discontinued operations. The operating results of the 165 stores are
included in continuing operations of the Company's financial statements for the
periods prior to their sale or closure.
Discontinued Operations/Market Exits
On March 13, 2002, the Company's Board of Directors approved the second
phase of the Company's restructuring plan designed to improve future financial
results and to drive future competitiveness. This phase of the plan included the
complete exit of four underperforming markets: Memphis, Tennessee; Nashville,
Tennessee; Houston, Texas; and San Antonio, Texas. This involved the sale or
closure of 95 stores and two distribution centers, and reduction of division
offices from 15 to 11. These sales and closures were evaluated for lease
liability or asset impairment, including goodwill, in accordance with the
Company's policy. The operating results and gains and losses related to these
market exits have been included in discontinued operations in the Company's
Consolidated Earnings Statements. The prior years' operating activities for
these 95 stores, two distribution centers, and reduction of division offices
from 15 to 11 have been reclassified to discontinued operations: "Operating
(loss) income" in the accompanying earnings statement.
15
The discontinued operations generated sales of $290, $1,326, and $1,261 in
2002, 2001 and 2000, respectively, an operating loss of $429 in 2002, and
operating profit of $10 and $31 in 2001 and 2000, respectively. The discontinued
operations operating loss of $429 consisted of a loss from operations of $50 and
asset impairments, lease settlements and other costs of $379 as described in the
following table:
NONCASH TOTAL CHARGES
CHARGES ACCRUALS (CREDITS)
------------------ ------------------- ------------------
Asset impairments $ 401 $ - $ 401
Lease settlements - 26 26
Severance and outplacement - 23 23
Other - 2 2
Gain on asset sales (63) - (63)
Favorable lease settlements - (10) (10)
------------------
Loss on disposal $ 379
==================
Cash payments during 2002 (30)
-------------------
Reserve balance at January 30, 2003 $ 11
===================
The reserve balance of $11 as of January 30, 2003 is included with the
restructuring reserves in the "other current liabilities" line on the Company's
Consolidated Balance Sheet.
Asset impairment adjustments resulted from the Company realizing sales
proceeds in excess of amounts originally estimated on stores disposed of and
increases to net realizable values for stores under contract for sale. Lease
liability adjustments represent more favorable negotiated settlements than had
been originally estimated.
Assets related to discontinued operations are recorded at their estimated
net realizable value of $25 as of January 30, 2003, and are reported as Assets
held for sale in the Company's Consolidated Balance Sheet. These assets include
land, buildings, equipment and leasehold improvements and are being actively
marketed. As of January 30, 2003, all 95 stores and both distribution centers
were closed. In addition, the Company had either sold or terminated the leases
related to 82 of the 95 stores and both distribution centers as of January 30,
2003.
Other costs consist of amounts paid in connection with notification
regulations and negotiated contract terminations.
Restructuring
In the first half of 2001, the Company initiated a profitability review of
all of its retail stores, utilizing a methodology based on return on invested
capital. The Company also evaluated its division management structure and the
efficiency of its transaction processing departments. Based on these reviews, in
July 2001 the Company committed to the following restructuring activities:
1) close and dispose of 165 underperforming stores in 25 states; 2) eliminate
four of the existing 19 division offices; 3) sell a store fixture manufacturing
operation; 4) centralize certain transaction processing functions in Boise,
Idaho; and 5) reduce general office head count.
These restructuring activities called for the elimination of
1,341 managerial and administrative positions (excluding store level
terminations). The restructuring charge recorded in 2001 included the following:
employee severance and outplacement costs of $44, asset impairments of $361;
lease termination costs of $57; and other costs of $6.
In 2001 and 2002, 80 and 82 stores were closed or sold and 995 and
297 managerial and administrative employees were terminated, respectively. In
2002, management revised the planned restructuring activities as follows: the
store fixture manufacturing operation's performance was re-evaluated and
determined to be more cost-effective than purchasing like-fixtures from external
sources in the future, so it will be held and used; one store's operating
performance improved due to local market conditions, so it too will be held and
used; and one part of the transaction processing consolidation was halted
due to a decision to replace the Company's human resource information systems
(HRIS) over the next two to three years, which resulted in the reversal of the
elimination of 50 positions. The remaining two stores in this restructuring
plan will be closed in 2003.
16
The following table presents the pre-tax restructuring credits and charges
and the related restructuring reserves included in the Company's Consolidated
Balance Sheets:
NONCASH TOTAL CHARGES
CHARGES ACCRUALS (CREDITS)
------------------ ------------------- ------------------
2001 Activity
Asset impairments $ 361 $ - $ 361
Lease settlements - 57 57
Severance and outplacement - 44 44
Other - 6 6
------------------
Restructuring (credits) charges $ 468
==================
Cash payments during 2001 (46)
-------------------
Reserve balance at January 31, 2002 61
2002 Activity
Retain store fixtures operation (3) (2) $ (5)
Halt part of consolidation - HRIS - (2) (2)
Gain on asset sales (17) - (17)
Favorable lease settlements - (14) (14)
Severance and outplacement - 2 2
Other - (1) (1)
------------------
Restructuring (credits) charges $ (37)
==================
Cash payments during 2002 (16)
-------------------
Reserve balance at January 30, 2003 $ 28
===================
The reserve balances of $28 at January 30, 2003 and $61 at January 31, 2002
are included in the "Other Current Liabilities" line on the Company's
Consolidated Balance Sheets.
Merger-Related Charges (Credits)
On June 23, 1999, the Company and American Stores Company consummated a
merger (the "Merger"), which has been accounted for as a pooling-of-interests.
Merger-related (credits) charges for 2001 represents a credit of $15
associated with the sale of an asset for an amount that was greater than
originally estimated.
Merger-related (credits) charges for 2000 represents $24 related to one-time
asset impairment and severance charges.
In the future any restructuring activity will be accounted for under the
guidance of SFAS No. 146, which will primarily effect the timing of
restructuring reserves.
Other Non-Routine Items
The Company recorded a $54 pre-tax gain during the fourth quarter of 2001
resulting from the sale of 80 New England Osco drugstores.
The Company recorded, in selling, general and administrative expenses, a $36
pre-tax gain during the fourth quarter of 2001 resulting from an amendment to
the Company's long-term disability plan. The amendment changed the salary
continuation feature from a cumulative benefit based on years of service, to a
set percentage of salary benefit.
The Company recorded a $20 pre-tax charge during the first quarter of 2000,
which is included in selling, general and administrative expenses to reflect
liabilities related to certain previously assigned leases and subleases to
tenants who were in bankruptcy.
17
Summary of Other Non-Routine Items
In the past three years, the Company's earnings from continuing operations
have included certain non-routine items, including costs associated with
restructuring activities and the 1999 merger of Albertsons and American Stores
Company, and the cessation of goodwill amortization following the adoption of
SFAS 142. The following table summarizes the non-routine items that management
excludes when it analyzes the Company's operating trends over the past three
years. Management also considers the restructuring (credits) charges and other,
merger-related credits, gain on sale of New England Osco drugstores, and
discontinued operations to be non-routine items.
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 30, 2003 JANUARY 31, 2002 FEBRUARY 1, 2001
------------------------ ------------------------- -------------------------
As As As
Reported Adjustments Reported Adjustments Reported Adjustments
----------- ------------ ------------ ------------ ------------ ------------
Sales $35,626 $ - $36,605 $ - $35,501 $ -
Cost of sales 25,242 (1) (a) 26,179 (35) (c) 25,409 (37) (f)
Selling, general and
administrative expenses 8,604 (8) (b) 8,731 (40) (d) 8,444 (110) (g)
(56) (e) (57) (e)
Income tax expense 540 (11) (h) 367 181 (h) 497 66 (h)
(a) In connection with the market exits classified as discontinued operations
in 2002, the Company's distribution center in Fort Worth, Texas recorded
inventory write-down costs and incremental labor and transportation costs
of $1.
(b) The Company incurred professional fees of $4, asset impairments of $2 and
other costs of $2 in connection with the 2002 market exits.
(c) In the 2001 restructuring activities, inventory losses due primarily to
closeout price reductions and damage or spoilage at stores slated for
closure were incurred. The estimated losses incurred were $35.
(d) In 2001, the Company recorded asset impairments of $52 with respect to land
and buildings held for sale, amended its long-term disability program
resulting in a gain of $36, recorded merger and integration costs of $12,
incurred sign-on bonus charges of $8, and paid for legal and professional
services of $4 associated with the 2001 restructuring activities.
(e) The Company recorded $56 and $57 of goodwill amortization in 2001 and 2000,
respectively. With the adoption of SFAS 142 as of the beginning of 2002,
the Company no longer recognizes a charge for goodwill (See Critical
Accounting Policies above).
(f) Following the June 1999 merger between Albertsons and American Stores
Company, the Company incurred $37 of incremental advertising costs related
to the conversion of the Lucky banner in California to the Albertsons
banner.
(g) The Company incurred significant costs in 2000 in connection with the
integration of Albertsons and American Stores Company. Direct costs
incurred included salaries of $27, legal and professional services of $10,
travel and moving expenses of $10, facilities and equipment costs of $12,
asset impairment costs of $9 associated with stores divested in connection
with the 1999 merger and information technology equipment that was
abandoned by the Company and other costs of $22. In addition, the Company
recorded a charge of $20 due to the bankruptcy of a retailer that subleased
certain of the Company's former retail stores.
(h) Represents, for each of the years presented, the income tax effect of the
other adjustments presented for such year.
18
Liquidity and Capital Resources
Cash provided by operating activities during 2002 was $2,063, compared to
$2,009 in 2001 and $1,771 in 2000. Cash provided by operating activities in 2002
was primarily impacted by increased earnings before change in cumulative effect
of accounting principle. Cash provided by operating activities in 2001 was
primarily impacted by noncash restructuring charges when compared to 2000.
The Company's financing activities for 2002 included payments on long-term
borrowings of $143, stock purchased and retired of $862, and dividend payments
of $306. The Board of Directors, at its March 2003 meeting, maintained the
regular quarterly cash dividend of $0.19 per share, for an effective annual rate
of $0.76 per share.
The Company utilizes its commercial paper and bank line programs primarily
to supplement cash requirements for seasonal fluctuations in working capital and
to fund its capital expenditure program. Accordingly, commercial paper and bank
line borrowings will fluctuate between reporting periods. The Company had no
commercial paper or bank line borrowings outstanding at January 30, 2003 or
January 31, 2002.
The Company had three credit facilities totaling $1,400 during 2002. The
first agreement for $100 expired in February 2003 and was renewed for an
additional year to expire in February 2004. The second agreement for $350
expired in March 2003 and was renewed for an additional year to expire in March
2004. The third agreement for $950 expires in March 2005. All of the credit
agreements contain an option which would allow the Company, upon due notice, to
convert any outstanding amounts at the expiration dates to term loans. The
agreements in place at year end also contain certain covenants, the most
restrictive of which requires the Company to maintain consolidated tangible net
worth, as defined, of at least $3,000 and a fixed charge coverage, as defined,
of no less than 2.7 times. As of January 30, 2003, the Company was in compliance
with these requirements. No borrowings were outstanding under the credit
facilities as of January 30, 2003 or January 31, 2002.
Albertsons filed a shelf registration statement with the Securities and
Exchange Commission ("SEC"), which became effective on February 13, 2001 ("2001
Shelf Registration") to authorize the issuance of up to $3,000 in debt
securities. In May 2001 the Company issued $600 of term Notes under the 2001
Shelf Registration. The Notes are composed of $200 of principal bearing interest
at 7.25% due May 1, 2013 and $400 of principal bearing interest at 8.0% due
May 1, 2031. Proceeds were used primarily to repay borrowings under the
Company's commercial paper program.
During 2002, no securities were issued under the 2001 Registration
Statement. As of January 30, 2003, $2,400 of debt securities remain available
for issuance under the 2001 Registration Statement.
The Board of Directors adopted a program on April 25, 2000, authorizing, but
not requiring, the Company to purchase and retire up to $500 of the Company's
common stock. This program was increased by an additional $1,000 by the Board of
Directors on December 6, 2000, for a total of $1,500. The revised program
enabled the Company to purchase stock from April 25, 2000 through December 6,
2001. During 2000, the Company purchased and retired 18.7 million shares at a
total cost of $451 or an average price of $24.15 per share. No shares were
purchased during 2001. The Board of Directors adopted a program on December 3,
2001, authorizing, at management's discretion, the Company to purchase and
retire up to $500 of the Company's common stock beginning December 6, 2001
through December 31, 2002. On September 5, 2002, the Board of Directors
authorized an increase of $500 to this program for a total of $1,000 of the
Company's common stock that could be purchased and retired by the Company
through December 31, 2002. The Board of Directors adopted a stock buyback
program on December 9, 2002, authorizing, at management's discretion, the
Company to purchase and retire up to $500 of the Company's common stock
beginning January 1, 2003 and ending December 31, 2003. During 2002, the Company
purchased and retired 35.1 million shares for $862 at an average price of $24.54
per share under these programs. The Company may continue or, from time to time
suspend, purchasing shares under its stock purchase program without notice,
depending on prevailing market conditions, alternate uses of capital and other
factors.
The Company's operating results continue to enhance its financial position
and ability to continue its internal expansion program. Cash flows from
operations and available borrowings are adequate to support currently planned
business operations, stock repurchases, acquisitions and capital expenditures.
The Company has short-term financing capacity in the form of commercial paper or
bank line borrowings up to $1,400 and long-term capacity under the 2001
Registration Statement of $2,400.
19
As of January 30, 2003, the Company's credit ratings were as follows:
S & P MOODY'S FITCH
----------------------------------- ----------------- ----------------- -----------------
Long-term debt BBB+ Baa1 BBB+
Short-term debt A2 P2 F2
There are no payment acceleration provisions in the Company's fixed-term
debt portfolio related to a downgrade in the Company's credit ratings.
Similarly, a downgrade in the Company's credit ratings would not affect the
Company's ability to borrow amounts under the revolving credit facilities.
However, any adverse changes to the Company's credit ratings could limit the
Company's access to the commercial paper market and increase the cost of debt.
Contractual Obligations and Commercial Commitments
Albertsons has assumed various financial obligations and commitments in the
normal course of its operations and financing activities. Financial obligations
are considered to represent known future cash payments that the Company is
required to make under existing contractual arrangements, such as debt and lease
agreements. The following table represents the scheduled maturities of the
Company's long-term contractual obligations as of January 30, 2003:
AFTER
YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL
- --------------------------------------- ------------------ ------------ ------------ ------------ ----------
Long-term debt $ 105 $ 704 $ 14 $ 4,232 $ 5,055
Capital lease obligations (1) 47 88 79 531 745
Operating leases (1) 330 637 545 2,275 3,787
Contracts for purchase of property
and construction of buildings 176 - - - 176
Other (2) 96 136 6 - 238
- --------------------------------------- ------------------ ---------- ------------- ------------ ----------
Total contractual cash obligations $ 754 $1,565 $ 644 $ 7,038 $10,001
======================================= ================== ========== ============= ============ ==========
(1) Represents the minimum rents payable and includes leases associated
with closed stores accrued for under the Company's restructuring and
closed store reserves. Amounts are not offset by expected sublease
income.
(2) Includes transportation contracts with third parties. Also, the
Company has entered into energy supply agreements which have terms
through 2006. These agreements include certain provisions that could
potentially require the Company to pay additional amounts if the
actual usage is less than the minimum usage per the contract documents
or if the contracts were terminated. This number is difficult to
estimate due to the uncertainty of future energy usage and change in
the market value of energy, therefore no amounts have been included
above.
The Company is contingently liable as a guarantor of certain leases that
were assigned to third parties in connection with various store closures and
dispositions. The Company believes the likelihood of a significant loss from
these agreements is remote because of the wide dispersion among third parties
and remedies available to the Company should the primary parties fail to perform
under the agreements.
Albertsons commercial commitments as of January 30, 2003, representing
possible commitments triggered by potential future events, are as follows:
AFTER
YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL
- --------------------------------------- ---------- ------------- --------------- ----------- -----------
Available lines of credit $450 $950 $ - $ - $1,400
Letters of credit - standby 95 - - - 95
Letters of credit - commercial 13 - - - 13
- --------------------------------------- ---------- ------------- --------------- ----------- -----------
Potential commercial commitments $558 $950 $ - $ - $1,508
======================================= ========== ============= =============== =========== ===========
Letters of Credit
The Company had outstanding Letters of Credit of $108 as of January 30,
2003, all of which were issued under separate bilateral agreements with multiple
financial institutions. Of the $108 outstanding at year end, $95 were standby
letters of credit covering primarily workers' compensation or performance
obligations. The remaining $13 were commercial letters of credit supporting the
Company's merchandise import program. The Company paid issuance fees that
varied, depending on type, up to 0.70% of the outstanding balance of the letter
of credit.
20
Off Balance Sheet Arrangements
The Company has no significant investments that are accounted for under the
equity method in accordance with accounting principles generally accepted in the
United States. Investments that are accounted for under the equity method have
no liabilities associated with them that would be considered material to
Albertsons.
Capital Expenditures
The Company continues to retain ownership of real estate when possible. As
of January 30, 2003, the Company held title to the land and buildings of 41% of
the Company's stores and held title to the buildings on leased land of an
additional 10% of the Company's stores. The Company also holds title to the land
and buildings of most of its administrative offices and distribution facilities.
The Company is committed to keeping its stores up to date. In the last three
years, the Company has opened or remodeled 527 stores representing 25% of the
Company's retail square footage as of January 30, 2003. The following summary of
historical capital expenditures includes capital leases, stores acquired in
business and asset acquisitions, assets acquired with related debt and the
estimated fair value of property financed by operating leases:
2002 2001 2000
- ---------------------------------------------------------------- ------------ ------------ -----------
New and acquired stores $ 688 $ 875 $ 1,066
Remodels 455 348 423
Retail replacement equipment, technology and other 221 247 170
Distribution facilities and equipment 70 64 174
- ---------------------------------------------------------------- ------------ ------------ -----------
Total capital expenditures 1,434 1,534 1,833
Estimated fair value of property financed by operating leases 150 153 99
- ---------------------------------------------------------------- ------------ ------------ -----------
$ 1,584 $ 1,687 $ 1,932
================================================================ ============ ============ ===========
Total capital expenditures include capitalized lease obligations incurred of
$75 in 2002, $79 in 2001 and $62 in 2000.
The Company's strong financial position provides the flexibility for the
Company to grow through its store development program and future acquisitions.
The Company's capital expenditure budget for 2003 is approximately $1,400 and
approximately $100 in new lease obligations.
Related Party Transactions
Transactions with related parties were not considered material. See
"Note U - Related Party Transactions" in the Notes to Consolidated Financial
Statements.
Recent Accounting Standards
In July 2001 the Financial Accounting Standard Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become
effective for Albertsons on January 31, 2003. This statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company is currently analyzing the impact that this standard will have on its
financial statements, but believes it will not have a material impact on the
Company's consolidated financial statements.
In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and an amendment of that statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." As a
result, gains and losses from extinguishment of debt will no longer be
aggregated and classified as an extraordinary item, net of related income tax
effect, on the statement of earnings. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with earlier application encouraged. The
provisions of SFAS No. 145 will be effective for fiscal year beginning
January 31, 2003. The adoption of SFAS No. 145 will not have a material impact
on the Company's consolidated financial statements.
In June 2002 the SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This statement nullifies existing guidance
related to the accounting and reporting for costs associated with exit or
disposal activities and requires that the fair value of a liability associated
with an exit or disposal activity be recognized when the liability is incurred.
Under previous guidance, certain exit costs were permitted to be accrued upon
management's commitment to an exit plan, which is generally before an actual
liability has been incurred. The provisions of this statement are required to be
adopted for all exit or disposal activities initiated after December 31, 2002.
21
This statement will not impact any liabilities recorded prior to adoption. As
required the Company will adopt SFAS No. 146 effective in 2003. The Company does
not expect that the adoption of this statement will have a material impact on
the Company's consolidated financial statements.
In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The accompanying Note Q -
Stock Options and Stock Awards - satisfies the disclosure requirements of SFAS
No. 148.
In November 2002 the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for guarantees issued after
December 31, 2002, while the disclosure requirements were effective for
financial statements for periods ending after December 15, 2002. At January 30,
2003, the Company had not entered into any material arrangement that would be
subject to the disclosure requirements of FIN 45. In addition, the Company does
not believe that the adoption of FIN 45 will have a material impact on the
Company's consolidated financial statements.
In January 2003 the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company is currently
evaluating the impact that the adoption of FIN 46 will have on the Company's
consolidated financial statements.
Environmental
The Company has identified environmental contamination sites related
primarily to underground petroleum storage tanks and groundwater contamination
at various store, warehouse, office and manufacturing facilities (related to
current operations as well as previously disposed of properties). The Company
conducts an ongoing program for the inspection and evaluation of potential new
sites and the remediation/monitoring of contamination at existing and previously
owned sites. Undiscounted reserves have been established for each environmental
contamination site unless an unfavorable outcome is believed to be remote.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that the costs of required remediation and
continuing compliance with environmental laws, in excess of current reserves,
will not have a material adverse effect on the financial condition, results of
operations or cash flows of the Company. Charges against earnings for
environmental remediation were not material in 2002, 2001 or 2000.
22
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to certain market risks that are inherent in the
Company's financial instruments, which arise from transactions entered into in
the normal course of business. From time to time, the Company enters into
certain derivative transactions allowed by the Company's risk management policy.
The Company does not enter into derivative financial instruments for trading
purposes. The Company uses derivatives primarily as cash flow hedges to set
interest rates for forecasted debt issuances, such as interest rate locks.
The Company is subject to interest rate risk on its fixed interest rate debt
obligations. Commercial paper borrowings do not give rise to significant
interest rate risk because these borrowings generally have maturities of less
than three months. Generally, the fair value of debt with a fixed interest rate
will increase as interest rates fall, and the fair value will decrease as
interest rates rise. The Company manages its exposure to interest rate risk by
utilizing a combination of fixed rate borrowings and commercial paper
borrowings.
As of January 30, 2003, the Company had no foreign exchange exposure and no
outstanding derivative transactions. There have been no material changes in the
primary risk exposures or management of the risks since the prior year. The
Company expects to continue to manage risks in accordance with the current
policy.
The table below provides information about the Company's debt obligations
that are sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates:
THERE- FAIR
2003 2004 2005 2006 2007 AFTER TOTAL VALUE
- --------------------- -------- -------- -------- -------- -------- ---------- ----------- -----------
Fixed rate debt
obligations $ 105 $ 502 $ 202 $ 2 $ 12 $ 4,232 $ 5,055 $ 5,675
Weighted average
interest rate 7.1% 6.6% 7.4% 8.1% 6.9% 7.5% 7.4% -
23
Item 8. Consolidated Financial Statements and Supplementary Data
Albertsons
Index to Consolidated Financial Statements
Page
Number
Independent Auditors' Report 25
Consolidated Earnings for the fiscal years ended January 30, 2003, January 31, 2002 and
February 1, 2001 26
Consolidated Balance Sheets at January 30, 2003 and January 31, 2002 27
Consolidated Cash Flows for the fiscal years ended January 30, 2003, January 31, 2002 and
February 1, 2001 28
Consolidated Stockholders' Equity for the fiscal years ended January 30, 2003,
January 31, 2002 and February 1, 2001 29
Notes to Consolidated Financial Statements 30
24
INDEPENDENT
AUDITORS' REPORT
To the Board of Directors and Stockholders of Albertson's, Inc.:
We have audited the accompanying consolidated balance sheets of Albertson's,
Inc., and subsidiaries as of January 30, 2003 and January 31, 2002, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended January 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Albertson's, Inc., and
subsidiaries at January 30, 2003 and January 31, 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
January 30, 2003, in conformity with accounting principles generally accepted in
the United States of America.
As discussed in the notes to the consolidated financial statements, during
the year ended January 30, 2003, the Company changed its methods of accounting
for goodwill (Notes B and M) and for closed stores (Note E) to conform to
Statements of Financial Accounting Standards No. 142 and 144. Also during the
year ended January 30, 2003, the Company changed its method of accounting for
vendor funds (Notes B and C) to conform to Emerging Issues Task Force Issue
No. 02-16.
\S\ Deloitte & Touche LLP
Deloitte & Touche LLP
Boise, Idaho
March 20, 2003
25
ALBERTSON'S, INC.
CONSOLIDATED EARNINGS
FOR THE 52 WEEKS ENDED JANUARY 30, JANUARY 31, FEBRUARY 1,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2003 2002 2001
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Sales $ 35,626 $ 36,605 $ 35,501
Cost of sales 25,242 26,179 25,409
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Gross profit 10,384 10,426 10,092
Selling, general and administrative expenses 8,604 8,731 8,444
Restructuring (credits) charges and other (37) 468 -
Gain on sale of New England Osco drugstores - (54) -
Merger-related (credits) charges - (15) 24
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Operating profit 1,817 1,296 1,624
Other expenses:
Interest, net (396) (425) (378)
Other, net (16) (8) (3)
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Earnings from continuing operations before taxes 1,405 863 1,243
Income tax expense 540 367 497
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Earnings from continuing operations 865 496 746
Discontinued operations:
Operating (loss) income (50) 10 31
Loss on disposition (379) - -
Tax (benefit) expense (143) 5 12
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Net (loss) earnings from discontinued operations (286) 5 19
Earnings before cumulative effect of change in
accounting principle 579 501 765
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Cumulative effect of change in accounting principle (net
of tax of $60) (94) - -
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Net Earnings $ 485 $ 501 $ 765
========================================================== ================= ================== ==================
Basic Earnings Per Share:
Continuing operations $ 2.18 $ 1.22 $ 1.78
Discontinued operations (0.72) 0.01 0.05
Cumulative effect of change in accounting principle
(net of tax of $0.15) (0.24) - -
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Net Earnings $ 1.22 $ 1.23 $ 1.83
========================================================== ================= ================== ==================
Diluted Earnings Per Share:
Continuing operations $ 2.17 $ 1.22 $ 1.78
Discontinued operations (0.72) 0.01 0.05
Cumulative effect of change in accounting principle
(net of tax of $0.15) (0.23) - -
- ---------------------------------------------------------- ----------------- ------------------ ------------------
Net Earnings $ 1.22 $ 1.23 $ 1.83
========================================================== ================= ================== ==================
Weighted Average Common Shares Outstanding:
Basic 397 406 418
Diluted 399 408 418
See Notes to Consolidated Financial Statements
26
ALBERTSON'S, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 30, JANUARY 31,
(IN MILLIONS, EXCEPT PAR VALUE DATA) 2003 2002
- -------------------------------------------------------------------------- ------------------- ------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 162 $ 61
Accounts and notes receivable, net 647 696
Inventories 2,973 3,196
Assets held for sale 120 326
Prepaid and other 366 344
- -------------------------------------------------------------------------- ------------------- ------------------
Total Current Assets 4,268 4,623
Land, Buildings and Equipment, net 9,029 9,282
Goodwill, net 1,399 1,468
Intangibles, net 214 210
Other Assets 301 398
- -------------------------------------------------------------------------- ------------------- ------------------
Total Assets $ 15,211 $ 15,981
========================================================================== =================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,009 $ 2,107
Salaries and related liabilities 599 584
Self-insurance 244 198
Current maturities of long-term debt and capital lease obligations 119 137
Other current liabilities 477 570
- -------------------------------------------------------------------------- ------------------- ------------------
Total Current Liabilities 3,448 3,596
Long-Term Debt 4,950 5,060
Capitalized Lease Obligations 307 276
Self-Insurance 367 307
Other Long-Term Liabilities and Deferred Credits 942 827
Commitments and Contingencies - -
Stockholders' Equity:
Preferred stock - $1.00 par value; authorized - 10 shares; designated -
3 shares of Series A Junior Participating; issued - none
Common stock - $1.00 par value; authorized - 1,200 shares; issued -
372 shares and 407 shares, respectively 372 407
Capital in excess of par 128 94
Accumulated other comprehensive loss (96) (19)
Retained earnings 4,793 5,433
- -------------------------------------------------------------------------- ------------------- ------------------
Total Stockholders' Equity 5,197 5,915
- -------------------------------------------------------------------------- ------------------- ------------------
Total Liabilities and Stockholders' Equity $ 15,211 $ 15,981
========================================================================== =================== ==================
See Notes to Consolidated Financial Statements
27
ALBERTSON'S, INC.
CONSOLIDATED CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 30, JANUARY 31, FEBRUARY 1,
(IN MILLIONS) 2003 2002 2001
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Cash Flows From Operating Activities:
Net earnings $ 485 $ 501 $ 765
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 966 970 944
Goodwill amortization - 56 57
Discontinued operations noncash charges 338 - -
Restructuring and other noncash (credits) charges (10) 442 -
Gain on sale of New England Osco drugstores - (54) -
Cumulative effect of change in accounting principle 94 - -
Net deferred income taxes and other 124 (106) 14
Changes in operating assets and liabilities:
Receivables and prepaid expenses 21 (110) (29)
Inventories 111 40 118
Accounts payable (99) (68) -
Other current liabilities (89) 287 (175)
Self-insurance 106 71 24
Unearned income 32 3 19
Other long-term liabilities (16) (23) 34
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Net cash provided by operating activities 2,063 2,009 1,771
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Cash Flows From Investing Activities:
Capital expenditures (1,359) (1,455) (1,771)
Proceeds from disposal of land, buildings and
equipment 101 288 189
Proceeds from disposal of assets held for sale 578 118 -
Decrease (increase) in other assets 15 (31) 33
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Net cash used in investing activities (665) (1,080) (1,549)
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Cash Flows From Financing Activities:
Stock purchases and retirements (862) - (451)
Cash dividends paid (306) (309) (315)
Payments on long-term borrowings (143) (89) (417)
Proceeds from stock options exercised 14 23 6
Net commercial paper activity and bank borrowings - (1,153) (475)
Proceeds from long-term borrowings - 623 1,222
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Net cash used in financing activities (1,297) (905) (430)
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Net Increase (Decrease) in Cash and Cash Equivalents 101 24 (208)
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Cash and Cash Equivalents at Beginning of Year 61 37 245
- ----------------------------------------------------------- ----------------- ------------------ ------------------
Cash and Cash Equivalents at End of Year $ 162 $ 61 $ 37
=========================================================== ================= ================== ==================
See Notes to Consolidated Financial Statements
28
ALBERTSON'S, INC.
CONSOLIDATED STOCKHOLDERS' EQUITY
COMMON CAPITAL ACCUMULATED
STOCK IN EXCESS OTHER TOTAL
$1.00 PAR OF PAR COMPREHENSIVE RETAINED STOCKHOLDERS' COMPREHENSIVE
(DOLLARS IN MILLIONS) VALUE VALUE (LOSS) INCOME EARNINGS EQUITY INCOME
- -----------------------------------------------------------------------------------------------------------------
Balance at February 3, 2000 $424 $145 - $ 5,133 $ 5,702 $404
====
Net earnings - - - 765 765 $765
Deferred tax adjustment
related to stock options - (12) - - (12) -
Exercise of stock options - 6 - - 6 -
Stock purchases and
retirements -
18,659,200 shares (19) (92) - (340) (451) -
Deferred stock unit plan - 1 - - 1 -
Dividends - - - (317) (317) -
- -----------------------------------------------------------------------------------------------------------------
Balance at February 1, 2001 405 48 - 5,241 5,694 $765
====
Net earnings - - - 501 501 $501
Exercise of stock options,
including tax benefits 2 26 - - 28 -
Deferred stock unit plan - 19 - - 19 -
Directors' stock plan - 1 - - 1 -
Dividends - - - (309) (309) -
Minimum pension liability
adjustment (net of tax of
$16) - - $(23) - (23) (23)
Interest rate locks:
Cumulative effect of
adoption of new accounting
principle (net of tax of $3) - - 5 - 5 5
Loss on settled contracts
(net of tax of $1) - - (1) - (1) (1)
- -----------------------------------------------------------------------------------------------------------------
Balance at January 31, 2002 407 94 (19) 5,433 5,915 $482
====
Net earnings - - - 485 485 $485
Exercise of stock options,
including tax benefits - 15 - - 15 -
Stock purchases and
retirements - 35,129,397
shares (35) - - (827) (862) -
Deferred stock unit plan - 18 - - 18 -
Directors' stock plan - 1 - - 1 -
Dividends - - - (298) (298) -
Minimum pension liability
adjustment (net of tax of
$49) - - (77) - (77) (77)
- -----------------------------------------------------------------------------------------------------------------
Balance at January 30, 2003 $372 $128 $(96) $ 4,793 $ 5,197 $408
=================================================================================================================
See Notes to Consolidated Financial Statements
29
ALBERTSON'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data)
Note A - Business Description and Basis of Presentation
Albertson's, Inc. ("Albertsons" or the "Company") is incorporated under the
laws of the State of Delaware and is the successor to a business founded by J.A.
Albertson in 1939. On June 23, 1999, Albertsons and American Stores Company
("ASC") consummated a merger, which has been accounted for as a
pooling-of-interests. Based on sales, the Company is one of the largest retail
food and drug chains in the world. As of January 30, 2003 the Company operated
2,287 stores in 31 states. Retail operations are supported by 17 major Company
distribution operations, strategically located in the Company's operating
markets.
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include all
entities in which the Company has control, including its majority-owned
subsidiaries. All material intercompany transactions and balances have been
eliminated.
Note B - Summary of Significant Accounting Policies
Fiscal Year End: The Company's fiscal year ends on the Thursday nearest to
January 31. As a result, the Company's fiscal year includes a 53rd week every 5
to 6 years. Fiscal years 2002, 2001, and 2000 each contained 52 weeks and ended
on January 30, 2003, January 31, 2002, and February 1, 2001.
Use Of Estimates: The preparation of the Company's consolidated financial
statements, in conformity with accounting principles generally accepted in the
United States, requires management to make estimates and assumptions. Some of
these estimates require difficult, subjective or complex judgments about matters
that are inherently uncertain. As a result, actual results could differ from
these estimates. These estimates and assumptions affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period.
Segment Information: The Company operates retail food and drug stores. These
operations are within a single operating segment and all are within the United
States.
Derivatives: From time to time, the Company enters into certain derivative
transactions allowed by the Company's risk management policy. The Company does
not enter into derivative financial instruments for trading purposes. The
Company uses derivatives primarily as cash flow hedges to set interest rates for
forecasted debt issuances, such as interest rate locks. These contracts are with
major financial institutions and are very short-term in nature. The gain or loss
on interest rate locks is deferred in other comprehensive income and recognized
over the life of the related debt instrument as an adjustment to interest
expense.
Cash and Cash Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be cash
equivalents.
Inventories: The Company values inventories at the lower of cost or market. Cost
of substantially all inventories is determined on a last-in, first-out (LIFO)
basis.
Vendor Funds: The Company receives funds from many of the vendors whose products
the Company buys for resale in its stores. These vendor funds are provided to
increase the sell-through of the related products. The Company receives funds
for a variety of merchandising activities: placement of the vendor's products in
the Company's advertising; placement of the vendor's products in prominent
locations in the Company's stores; introduction of new products into the
Company's distribution system and retail stores; exclusivity rights in certain
categories that have slower-turning products; and to compensate for temporary
price reductions offered to customers on products held for sale at retail
stores. The Company also receives vendor funds for buying activities, such as
volume commitment rebates and forward buy credits.
Accounting for vendor funds is discussed in Emerging Issues Task Force
"EITF" Issue 02-16: Accounting by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor (EITF 02-16), in which the EITF reached
consensus on two issues in November 2002 and provided transition rules on those
issues in January 2003 and March 2003. As a result of this new guidance, the
Company adopted a new method for recognizing the vendor funds for merchandising
activities. As of the beginning of 2002, the Company recognizes vendor funds for
merchandising activities when the related products are sold. Under the previous
accounting method for merchandising vendor funds, these credits were recognized
as an offset to cost of sales when the merchandising activity was performed in
accordance with the underlying agreements. In connection with the implementation
of this new accounting method, the Company recorded a charge in 2002 of $94, net
of tax benefit of $60.
30
The vendor fund inventory offset recorded as of January 30, 2003 was $152,
which is a $6 decrease from the balance as of the beginning of 2002. The
inventory offset was determined by estimating the average inventory turnover
rates by product category for the Company's grocery, general merchandise and
lobby departments, and by average inventory turnover rates by department for the
Company's remaining inventory.
Capitalization, Depreciation and Amortization: Land, buildings and equipment are
recorded at cost. Depreciation is provided on the straight-line method over the
estimated useful life of the asset. Estimated useful lives are generally as
follows: buildings and improvements-10 to 35 years; fixtures and equipment-3 to
8 years; software-3 to 5 years; leasehold improvements-10 to 25 years;
intangibles-3 to 10 years; and assets held under capitalized leases-20 to 30
years.
The costs of major remodeling and improvements on leased stores are
capitalized as leasehold improvements. Leasehold improvements are amortized on
the straight-line method over the shorter of the life of the applicable lease or
the useful life of the asset. Assets under capital leases are recorded at the
lower of the fair market value of the asset or the present value of future
minimum lease payments, and they are amortized on the straight-line method over
their primary term.
Beneficial lease rights and lease liabilities are recorded on purchased
leases based on differences between contractual rents under the respective lease
agreements and prevailing market rents at the date of the acquisition of the
lease. Beneficial lease rights and lease liabilities are amortized over the
lease term using the straight-line method.
Goodwill: Goodwill resulting from business acquisitions represents the excess of
cost over fair value of net assets acquired. Beginning in 2002 with the adoption
of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and
Other Intangible Assets, goodwill is no longer amortized, but instead tested for
impairment at least annually, or more frequently if circumstances indicate
potential impairment, through a comparison of fair value to its carrying amount.
Prior to 2002, goodwill was amortized using the straight-line method over its
estimated period of benefit, 40 years.
Company Owned Life Insurance: The Company has purchased life insurance policies
to fund its obligations under certain deferred compensation plans for officers,
key employees and directors. Cash surrender values of these policies are
adjusted for fluctuations in the market value of underlying investments. The
cash surrender value is adjusted each reporting period and any gain or loss is
included with other, net (expense) income in the Company's Consolidated
Earnings.
Impairment of Long Lived Assets and Closed Store Reserves: The Company assesses
the impairment of long-lived assets when events or changes in circumstances
indicate that the carrying value of the assets or the asset group may not be
recoverable. The asset impairment review assesses the fair value of the assets
based on the future cash flows the assets are expected to generate. An
impairment loss is recognized when estimated undiscounted future cash flows
expected to result from the use of the asset plus net proceeds expected from the
disposition of the asset (if any) are less than the related asset's carrying
amount. Impairment losses are measured as the amount by which the carrying
amounts of the assets exceed their fair values. The net proceeds expected from
the disposition of the asset are determined by independent quotes or expected
sales prices developed by internal specialists. Estimates of future cash flows
and expected sales prices are judgments based on the Company's experience and
knowledge of local operations. These estimates can be significantly impacted by
changes in real estate market conditions, the economic environment, capital
spending decisions and inflation.
For properties to be closed that are under long-term lease agreements, the
present value of any remaining liability under the lease, discounted using
risk-free rates and net of expected sublease recovery, is recognized as a
liability and expensed. (Beginning on January 1, 2003, "expected sublease
recovery" has been replaced by "estimated sublease rentals that could be
reasonably obtained for the property.") The value of any equipment and leasehold
improvements related to a closed store is reduced to reflect net recoverable
values. Internal specialists estimate the subtenant income, future cash flows
and asset recovery values based on their historical experience and knowledge of
(1) the market in which the store to be closed is located, (2) the results of
its previous efforts to dispose of similar assets and (3) the current economic
conditions. The actual cost of disposition for these leases and related assets
is affected by specific real estate markets, the economic environment and
inflation.
Self-Insurance: The Company is primarily self-insured for property loss,
workers' compensation, automobile and general liability costs. Self-insurance
liabilities are determined actuarially based on claims filed and estimates for
claims incurred but not reported. The majority of these liabilities are not
discounted.
31
Deferred Rent: The Company recognizes rent holidays and rent escalations on a
straight-line basis over the term of the lease. The deferred rent amount is
included in other long-term liabilities and deferred credits on the Company's
Consolidated Balance Sheets.
Revenue Recognition: Revenue is recognized at the point of sale for retail
sales. The discount earned by customers by using their preferred loyalty card is
recorded by the Company as a reduction to sales price. The only income
recognized from any in-store rental arrangement is the lease amount received
based on space occupied.
Store Opening Costs: Noncapital expenditures incurred in opening new stores or
remodeling existing stores are expensed in the year in which they are incurred.
Advertising: Advertising costs incurred to produce media advertising for major
new campaigns are expensed in the year in which the advertising first takes
place. Other advertising costs are expensed when incurred. In 2001 and 2000,
cooperative advertising funds from vendors were recorded in the period which the
related expense was incurred. In 2002 vendor funds were considered as described
above. Gross advertising expenses of $527, $537 and $550, excluding cooperative
advertising money received from vendors, were included with cost of sales in the
Company's Consolidated Earnings for 2002, 2001 and 2000, respectively.
Stock Based Compensation: SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost of stock-based compensation is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the option exercise price and is charged to operations over the
vesting period. Income tax benefits attributable to stock options exercised are
credited to capital in excess of par value.
If the fair value-based accounting method was utilized for stock-based
compensation, the Company's pro forma net earnings and earnings per share would
have been as follows:
2002 2001 2000
------------------------------------------------------- -------------- ------------ -----------
Net Earnings as reported $ 485 $ 501 $ 765
Add: Stock based compensation expense included in
reported net earnings, net of related tax effects 12 11 1
--------------------------------------------------------- ------------ ------------ -----------
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of related tax effects (44) (41) (27)
--------------------------------------------------------- ------------ ------------ -----------
Pro Forma Net Earnings $ 453 $ 471 $ 739
========================================================= ============ ============ ===========
Basic Earnings Per Share:
As Reported $ 1.22 $ 1.23 $ 1.83
Pro Forma 1.14 1.16 1.77
========================================================= ============ ============ ===========
Diluted Earnings Per Share:
As Reported $ 1.22 $ 1.23 $ 1.83
Pro Forma 1.14 1.15 1.77
========================================================= ============ ============ ===========
The 2002, 2001 and 2000 pro forma net earnings resulted from reported net
earnings less pro forma after-tax compensation expense. The pro forma effect on
net earnings is not representative of the pro forma effect on net earnings in
future years.
Income Taxes: Income taxes are accounted for under the asset and liability
method. Deferred income taxes represent future net tax effects resulting from
temporary differences between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to be settled or realized. The major temporary
differences and their net effect are shown in the "Income Taxes" Note to the
Consolidated Financial Statements.
Earnings Per Share (EPS): Basic EPS is computed by dividing consolidated net
earnings by the weighted average number of common shares outstanding. Diluted
EPS is computed by dividing consolidated net earnings by the sum of the weighted
average number of common shares outstanding and the weighted average number of
32
potential common shares outstanding. Potential common shares consist primarily
of outstanding in-the-money options under the Company's stock option plans.
Comprehensive Income: The Company reports comprehensive income in accordance
with SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income refers
to revenues, expenses, gains and losses that are not included in net earnings
but rather are recorded directly in stockholders' equity. Items of comprehensive
income other than net earnings were primarily related to minimum pension
liability of $126 ($77 net of tax) and $39 ($23 net of tax) for 2002 and 2001,
respectively.
Reclassifications: Certain reclassifications have been made in prior years'
financial statements to conform to classifications used in the current year.
Note C - Cumulative Effect of Change in Accounting Principle
As discussed in Note B - Summary of Significant Accounting Policies, in
2002, the Company adopted a new method for recognizing vendor funds related to
merchandising activities. The pro forma amounts shown below reflect the
retroactive application of the new method as if it had been in effect for 2002,
2001 and 2000.
2002 2001 2000
- ---------------------------------------------------------------------- ------------- ------------- --------------
Net earnings $ 579 $ 497 $ 770
Earnings per share - basic $1.46 $1.22 $1.84
Earnings per share - diluted $1.45 $1.22 $1.84
Note D - New Accounting Standards
In July 2001 the Financial Accounting Standard Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become
effective for Albertsons on January 31, 2003. This statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company is currently analyzing the impact that this standard will have on its
consolidated financial statements, but believes it will not have a material
impact on the Company's consolidated financial statements.
In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The statement rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," and an amendment of that statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." As a
result, gains and losses from extinguishment of debt will no longer be
aggregated and classified as an extraordinary item, net of related income tax
effect, on the statement of earnings. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, with earlier application encouraged. The
provisions of SFAS No. 145 will be effective for fiscal year beginning
January 31, 2003. The adoption of SFAS No. 145 will not have a material impact
on the Company's consolidated financial statements.
In June 2002 the SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This statement nullifies existing guidance
related to the accounting and reporting for costs associated with exit or
disposal activities and requires that the fair value of a liability associated
with an exit or disposal activity be recognized when the liability is incurred.
Under previous guidance, certain exit costs were permitted to be accrued upon
management's commitment to an exit plan, which is generally before an actual
liability has been incurred. The provisions of this statement are required to be
adopted for all exit or disposal activities initiated after December 31, 2002.
This statement will not impact any liabilities recorded prior to adoption. As
required the Company will adopt SFAS No. 146 effective in 2003. The Company does
not expect that the adoption of this statement will have a material impact on
the Company's consolidated financial statements.
In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation, Transition and Disclosure." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. The accompanying Note Q -
Stock Options and Stock Awards - satisfies the disclosure requirements of SFAS
No. 148.
In November 2002 the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
33
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for guarantees issued after
December 31, 2002, while the disclosure requirements were effective for
financial statements for periods ending after December 15, 2002. At January 30,
2003, the Company had not entered into any material arrangement that would be
subject to the disclosure requirements of FIN 45. In addition, the Company does
not believe that the adoption of FIN 45 will have a material impact on the
Company's consolidated financial statements.
In January 2003 the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51."
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The Company is currently
evaluating the effect that the adoption of FIN 46 will have on the Company's
consolidated financial statements.
Note E - Discontinued Operations/Market Exits
On March 13, 2002, the Company's Board of Directors approved the second
phase of the Company's restructuring plan designed to improve future financial
results and to drive future competitiveness. This phase of the plan included the
complete exit of four underperforming markets: Memphis, Tennessee; Nashville,
Tennessee; Houston, Texas; and San Antonio, Texas. This involved the sale or
closure of 95 stores and two distribution centers, and reduction of division
offices from 15 to 11. These sales and closures were evaluated for lease
liability or asset impairment, including goodwill, in accordance with the
Company's policy. The prior years' operating activities for these 95 stores and
two distribution centers, and reduction of division offices from 15 to 11 have
been reclassified to discontinued operations: "Operating (loss) income" in the
accompanying earnings statement.
The discontinued operations generated sales of $290, $1,326, and $1,261, in
2002, 2001, and 2000, respectively, and an operating loss of $429, operating
profit of $10 and operating profit of $31, respectively. The discontinued
operations operating loss of $429 in 2002 consisted of a loss from operations of
$50 and asset impairments, lease settlements and other costs of $379 as
described in the following table:
NONCASH TOTAL CHARGES
CHARGES ACCRUALS (CREDITS)
------------------- ------------------- ------------------
Asset impairments $ 401 $ - $ 401
Lease settlements - 26 26
Severance and outplacement - 23 23
Other - 2 2
Gain on asset sales (63) - (63)
Favorable lease settlements - (10) (10)
------------------
Loss on disposal $ 379
==================
Cash payments during 2002 (30)
-------------------
Reserve balance at January 30, 2003 $ 11
===================
The reserve balance of $11 as of January 30, 2003 is included with "Other
current liabilities" in the Company's Consolidated Balance Sheet.
Asset impairment adjustments resulted from the Company realizing sales
proceeds in excess of amounts originally estimated on stores disposed of and
increases to net realizable values for stores under contract for sale. Lease
liability adjustments represent more favorable negotiated settlements than had
been originally estimated.
Assets related to discontinued operations are recorded at their estimated
net realizable value of $25 as of January 30, 2003 and are reported as Assets
held for sale in the Company's Consolidated Balance Sheet. These assets include
land, buildings, equipment and leasehold improvements and are being actively
marketed. As of January 30, 2003, all 95 stores and both distribution centers
were closed. In addition, the Company had either sold or terminated the leases
related to 82 of the 95 stores and both distribution centers as of January 30,
2003.
34
Other costs consist of amounts paid in connection with notification
regulations and negotiated contract terminations.
Note F - Restructuring
In the first half of 2001, the Company initiated a profitability review of
all of its retail stores, utilizing a methodology based on return on invested
capital. The Company also evaluated its division management structure and the
efficiency of its transaction processing departments. Based on these reviews, in
July 2001 the Company committed to the following restructuring activities:
1) close and dispose of 165 underperforming stores in 25 states; 2) eliminate
four of the existing 19 division offices; 3) sell a store fixture
manufacturing operation; 4) centralize certain transaction processing functions
in Boise, Idaho; and 5) reduce general office head count.
These restructuring activities called for the elimination of 1,341
managerial and administrative positions (excluding store level terminations).
The restructuring charge recorded in 2001 included the following: employee
severance and outplacement costs of $44, asset impairments of $361; lease
termination costs of $57; and other costs of $6.
In 2001 and 2002, 80 and 82 stores were closed or sold and 995 and 297
managerial and administrative employees were terminated, respectively. In 2002,
management revised the planned restructuring activities as follows: the store
fixture manufacturing operation's performance was re-evaluated and determined to
be more cost-effective than purchasing like-fixtures from external sources in
the future, so it will be held and used; one store's operating performance
improved due to local market conditions, so it too will be held and used; and
one part of the transaction processing consolidation was halted due to a
decision to replace the Company's human resource information systems (HRIS) over
the next two to three years. The remaining two stores in this restructuring plan
will be closed in 2003.
The following table presents the pre-tax restructuring credits and charges
and the related restructuring reserves included in the Company's Consolidated
Balance Sheets:
NONCASH TOTAL CHARGES
CHARGES ACCRUALS (CREDITS)
------------------- ------------------- ------------------
2001 Activity
Asset impairments $ 361 $ - $ 361
Lease settlements - 57 57
Severance and outplacement - 44 44
Other - 6 6
------------------
Restructuring (credits) charges $ 468
==================
Cash payments during 2001 (46)
-------------------
Reserve balance at January 31, 2002 61
2002 Activity
Retain store fixtures operation (3) (2) $ (5)
Halt part of consolidation - HRIS - (2) (2)
Gains on asset sales (17) - (17)
Favorable lease settlements - (14) (14)
Severance and outplacement - 2 2
Other - (1) (1)
------------------
Restructuring (credits) charges $ (37)
==================
Cash payments during 2002 (16)
-------------------
Reserve balance at January 30, 2003 $ 28
===================
The reserve balances of $28 at January 30, 2003 and $61 at January 31, 2002
are included in the "Other current liabilities" line on the Company's
Consolidated Balance Sheets.
35
Note G - Closed Store Reserves
The following table shows the pre-tax expense, and related reserves, for
closed stores and other surplus property:
NONCASH TOTAL CHARGES
CHARGES ACCRUALS (CREDITS)
------------------ ------------------- ------------------
Reserve balance at February 3, 2000 $ 25
2000 Activity
Asset impairments $ 40 - $ 40
Lease terminations - 7 7
Favorable lease termination - (2) (2)
------------------
Closed store (credits) charges $ 45
==================
Cash payments during 2000 (8)
-------------------
Reserve balance at February 1, 2001 22
2001 Activity
Asset impairments 44 - $ 44
Lease terminations - 27 27
Favorable lease termination - (2) (2)
Gains on disposition (2) - (2)
------------------
Closed store (credits) charges $ 67
==================
Cash payments during 2001 (8)
-------------------
Reserve balance at January 31, 2002 39
2002 Activity
Asset impairments 23 - $ 23
Lease terminations - 8 8
Favorable lease termination - (1) (1)
Loss on disposition 5 - 5
------------------
Closed store (credits) charges $ 35
==================
Cash payments during 2002 (16)
-------------------
Reserve balance at January 30, 2003 $ 30
===================
- -
As of January 30, 2003, $25 of the reserve balance was included with
accounts payable and the remaining $5 was included with other long-term
liabilities and deferred credits in the Company's Consolidated Balance Sheet.
During fiscal 2001, the restructuring plan (discussed in "Note F -
Restructuring") included actions to accelerate the disposal of surplus property
that included terminating leases through negotiated buyouts and selling owned
properties through auctions. The $51 pre-tax restructuring adjustments are the
additional charges expected to be incurred as a result of these actions. These
charges are included in selling, general and administrative expenses in the
Company's Consolidated Earnings. $30 of the reserve balance as of January 31,
2002 is included with accounts payable and the remaining $9 is included with
other liabilities and deferred credits in the Company's Consolidated Balance
Sheets. For the period ended February 1, 2001, $5 of the reserve balance was
included with accounts payable with the remaining $17 included with other
liabilities and deferred credits. The related assets are recorded at their
estimated fair value of $35 as of January 30, 2003, less selling costs, and
reported as assets held for sale in the Company's Consolidated Balance Sheets.
In January 2002 the Company sold a total of 80 Osco drugstores in Maine,
Massachusetts and New Hampshire for $235 which resulted in a $54 pre-tax gain.
Note H - Merger, Divestitures and Related Costs
Merger-related (credits) charges for 2001 represent a credit of $15
associated with the sale of an asset for an amount that was greater than
originally estimated.
36
Merger-related (credits) charges for 2000 represent $24 related to one-time
asset impairment and severance charges.
In the future any restructuring activity will be accounted for under the
guidance of SFAS No. 146, which will primarily effect the timing of
restructuring reserve.
Note I - Supplemental Cash Flow Information
Selected cash payments and noncash activities were as follows:
2002 2001 2000
- ---------------------------------------------------------------------- ------------- ------------- --------------
Cash payments for income taxes $ 376 $ 403 $ 549
Cash payments for interest, net of amounts capitalized 390 299 375
Noncash investing and financing activities:
Capitalized lease obligations incurred 75 79 62
Capitalized lease obligations terminated 46 19 6
Deferred stock units 19 19 1
Tax benefits related to stock options 2 4 1
Deferred tax adjustment - related to stock options 2 3 12
Note J - Accounts and Notes Receivable
Accounts and notes receivable, net, consisted of the following:
JANUARY 30, JANUARY 31,
2003 2002
- -------------------------------------------------------------------- ----------------- ------------------
Trade and other accounts receivable $ 664 $ 696
Current portion of notes receivable 6 40
Allowance for doubtful accounts (23) (40)
- -------------------------------------------------------------------- ----------------- ------------------
$ 647 $ 696
==================================================================== ================= ==================
Note K - Inventories
Approximately 97% of the Company's inventories are valued using the last-in,
first-out (LIFO) method. If the first-in, first-out (FIFO) method had been used,
inventories would have been $589 and $597 higher at the end of 2002 and 2001,
respectively. Net earnings (basic and diluted earnings per share) would have
been lower by $2 ($0.01) in 2002, higher by $3 ($0.01) in 2001, and lower by $14
($0.03) in 2000. The replacement cost of inventories valued at LIFO approximates
FIFO cost.
During 2002 and 2001, inventory quantities were reduced. These reductions
resulted in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the cost of 2002 and 2001 purchases.
As a result, cost of sales was decreased by $4 in 2002, $10 in 2001, and $26 in
2000. This increased net earnings (basic and diluted earnings per share) by $2
($0.01) in 2002, by $6 ($0.01) in 2001 and by $15 ($0.04) in 2000.
Note L - Land, Buildings and Equipment
Land, buildings and equipment, net, consisted of the following:
JANUARY 30, JANUARY 31,
2003 2002
- ---------------------------------------------------------- --------------------- ---------------------
Land $ 1,939 $ 2,105
Buildings 5,713 5,598
Fixtures and equipment 5,561 5,471
Leasehold improvements 1,619 1,535
Capitalized leases 355 326
- ---------------------------------------------------------- --------------------- ---------------------
15,187 15,035
Accumulated depreciation (6,060) (5,641)
Accumulated amortization on capital leases (98) (112)
- ---------------------------------------------------------- --------------------- ---------------------
$ 9,029 $ 9,282
========================================================== ===================== =====================
Depreciation expense was $924, $926 and $904 for 2002, 2001 and 2000.
Amortization expense of capital leases was $18, $19 and $17 for 2002, 2001 and
2000.
Note M - Goodwill and Other Intangible Assets
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on
February 1, 2002. Under these new rules, goodwill and certain other intangibles
with indefinite lives are no longer amortized, but are subject to annual
testing, or more frequently if impairment indicators arise, using fair value
methodology. Intangible assets with finite, measurable lives continue to be
37
amortized over their respective useful lives until they reach their estimated
residual values, and are reviewed for impairment in accordance with SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As a
result, the Company did not incur any expense for the amortization of goodwill
in 2002. The pretax expense for the amortization of goodwill, included in
continuing operations, was $56 and $57 in 2001 and 2000, respectively.
The Company completed its transitional impairment review of its goodwill as
of February 1, 2002. The review was performed based on the Company's reporting
units which have been defined as the Company's 11 current operating divisions.
When this statement was adopted, the aggregate of the goodwill allocated to the
stores in each reporting unit became the reporting unit's goodwill balance. In
order to determine if a reporting unit's goodwill was impaired, a combination of
internal analysis, focusing on each reporting unit's implied EBITDA multiple,
and estimates of fair value from independent valuation specialists were used.
Based on these analyses, there was no impairment of goodwill at the adoption
date. Subsequently, during the fourth quarter of 2002, the Company completed its
annual impairment review based on November 1, 2002 balances and determined that
there was no impairment as of that date. However, changes in the assumptions
used in the analysis could have changed the resulting outcome. For example, to
estimate the fair value of the Company's reporting units, management made
estimates and judgments about future cash flows based on the Company's 2003
forecast and current long-range plans used to manage the business. These
long-range estimates could change in the future depending on internal and
external factors. Future changes in estimates could possibly result in a noncash
goodwill impairment that could have a material adverse impact on the Company's
financial condition and results of operations.
The following table reflects the impact of the adoption of SFAS No. 142:
JANUARY 30, JANUARY 31, FEBRUARY 1,
2003 2002 2001
---------------- ---------------- ----------------
Net earnings, as reported $ 485 $ 501 $ 765
Add back goodwill amortization, net of tax - 56 56
---------------- ---------------- ----------------
Adjusted net earnings $ 485 $ 557 $ 821
================ ================ ================
Basic EPS $1.22 $1.23 $1.83
Add back goodwill amortization, net of tax - 0.14 0.13
---------------- ---------------- ----------------
Adjusted Basic EPS $1.22 $1.37 $1.96
================ ================ ================
Diluted EPS $1.22 $1.23 $1.83
Add back goodwill amortization, net of tax - 0.14 0.13
---------------- ---------------- ----------------
Adjusted Diluted EPS $1.22 $1.37 $1.96
================ ================ ================
Changes in the net carrying amount of goodwill were as follows:
Goodwill as of January 31, 2002 $1,467
Write-off due to market exits (68)
----------------
Goodwill as of January 30, 2003 $1,399
================
In connection with the complete exit of certain markets discussed above, the
Company wrote off $68 of goodwill, net for the quarter ended May 2, 2002. The
goodwill written off arose from the original acquisition of the operating assets
in those markets.
The carrying amount of intangible assets was as follows:
JANUARY 30, JANUARY 31,
2003 2002
- ---------------------------------------------------------------- --------------- --------------
Amortizing:
FMV of operating leases $ 231 $ 256
Customer lists and other contracts 53 55
- ---------------------------------------------------------------- --------------- --------------
284 311
Accumulated amortization (173) (169)
- ---------------------------------------------------------------- --------------- --------------
111 142
Non-Amortizing:
Liquor licenses 39 39
Pension related intangible assets 64 29
- ---------------------------------------------------------------- --------------- --------------
103 68
- ---------------------------------------------------------------- --------------- --------------
$ 214 $ 210
================================================================ =============== ==============
38
Straight line amortization expense for intangibles was $24, $25 and $23 in
2002, 2001 and 2000, respectively. Amortizing intangible assets have remaining
useful lives from 2 to 38 years. Projected amortization expense for existing
intangible assets is: $21, $18, $12, $7 and $6, for 2003, 2004, 2005, 2006 and
2007, respectively.
Note N - Indebtedness
Long-term debt consisted of the following (borrowings are unsecured unless
indicated):
JANUARY 30, JANUARY 31,
2003 2002
- ----------------------------------------------------------------------------- --------------- --------------
2001 Shelf Registration:
8.0% Debentures due May 1, 2031 $ 400 $ 400
7.25% Notes due May 1, 2013 200 200
7.5% Notes due February 15, 2011 700 700
8.35% Notes due May 1, 2010 275 275
8.7% Debentures due May 1, 2030 225 225
7.45% Debentures due August 1, 2029 650 650
6.95% Notes due August 1, 2009 350 350
6.55% Notes due August 1, 2004 300 300
Medium-term Notes, due 2013 through 2028, average interest rate of 6.5% 317 317
Medium-term Notes, due 2007 through 2027, average interest rate of 6.8% 200 200
7.75% Debentures due June 15, 2026 200 200
7.5% Debentures due May 1, 2037 200 200
8.0% Debentures due June 1, 2026 272 272
7.9% Debentures due May 1, 2017 95 95
7.4% Notes due May 15, 2005 200 200
Medium-term Notes, due 2003 through 2028, average interest rate of 7.0% 245 245
9.125% Notes due April 1, 2002 - 80
Notes due July 3, 2004, average interest rate of 6.7% 200 200
Industrial revenue bonds, average interest rate of 5.9% and 6.1%,
respectively due February 1, 2003 through December 15, 2011 8 11
Secured mortgage notes and other notes payable, average interest rates of
9.1% and 10.9%, respectively due 2003 through 2019 18 63
- ----------------------------------------------------------------------------- --------------- --------------
5,055 5,183
Current maturities (105) (123)
- ----------------------------------------------------------------------------- --------------- --------------
$4,950 $5,060
============================================================================= =============== ==============
The Company had three credit facilities totaling $1,400 during 2002. The
first agreement for $100 expired in February 2003 and was renewed for an
additional year to expire in February 2004. The second agreement for $350
expired in March 2003 and was renewed for an additional year to expire in March
2004. The third agreement for $950 expires in March 2005. All of the credit
agreements contain an option which would allow the Company, upon due notice, to
convert any outstanding amounts at the expiration dates to term loans. The
agreements in place at year end also contain certain covenants, the most
restrictive of which requires the Company to maintain consolidated tangible net
worth, as defined, of at least $3,000 and a fixed charge coverage, as defined,
of no less than 2.7 times. As of January 30, 2003, the Company was in compliance
with these requirements. No borrowings were outstanding under the credit
facilities as of January 30, 2003 or January 31, 2002.
The Company filed a shelf registration statement with the Securities and
Exchange Commission (SEC), which became effective on February 13, 2001 ("2001
Shelf Registration") to authorize the issuance of up to $3,000 in debt
securities. In May 2001 the Company issued $600 of term notes under the 2001
Shelf Registration. The notes are composed of $200 of principal bearing interest
at 7.25% due May 1, 2013 and $400 of principal bearing interest at 8.0% due
May 1, 2031. Proceeds were used primarily to repay borrowings under the
Company's commercial paper program.
The $200 term loan agreement due July 3, 2004 involves a pricing schedule
(which averages 6.7%) that is dependent upon the Company's long-term debt
rating.
The Company has pledged real estate with a cost of $40 as collateral for
mortgage notes which are payable on various schedules, including interest at
rates ranging from 6.8% to 10.7%. The notes mature from 2003 to 2014.
39
Medium-term notes of $30 due July 2027 contain a put option which would
require the Company to repay the notes in July 2007 if the holder of the note so
elects by giving the Company a 60-day notice. Medium-term notes of $50 due April
2028 contain a put option which would require the Company to repay the notes in
April 2008 if the holder of the note so elects by giving the Company a 60-day
notice.
The $200 of 7.5% debentures due 2037 contain a put option which will require
the Company to repay the note in 2009 if the holder of the notes so elects by
giving the Company a 60-day notice.
Net interest expense was as follows:
2002 2001 2000
----------------------------------------------------------- ------------ ------------ -------------
Long-term debt $ 378 $ 401 $ 366
Capitalized leases 35 30 27
Capitalized interest (27) (23) (21)
----------------------------------------------------------- ------------ ------------ -------------
Interest expense 386 408 372
Bank service charges, net of interest income 11 17 13
----------------------------------------------------------- ------------ ------------ -------------
$ 397 $ 425 $ 385
=========================================================== ============ ============ =============
The scheduled aggregate maturities of long-term debt outstanding at
January 30, 2003, are summarized as follows: $105 in 2003, $502 in 2004, $202
in 2005, $2 in 2006, $12 in 2007 and $4,232 thereafter. These figures do not
include the accelerations due to put options.
Note O - Capital Stock
On December 2, 1996, the Board of Directors adopted a stockholder rights
plan, which was amended on August 2, 1998, and March 16, 1999, under which all
stockholders receive one right for each share of common stock held. Each right
will entitle the holder to purchase, under certain circumstances, one
one-thousandth of a share of Series A Junior Participating Preferred Stock, par
value $1.00 per share, of the Company (the "preferred stock") at a price of
160 dollars. Subject to certain exceptions, the rights will become exercisable
for shares of preferred stock 10 business days (or such later date as may be
determined by the Board of Directors) following the commencement of a tender
offer or exchange offer that would result in a person or group beneficially
owning 15% or more of the outstanding shares of common stock.
Under the plan, subject to certain exceptions, if any person or group as
defined by the plan becomes the beneficial owner of 15% or more of the
outstanding common stock or takes certain other actions, each right will then
entitle its holder as defined by the plan, other than such person or group, upon
payment of the 160 dollars exercise price, to purchase common stock (or, in
certain circumstances, cash, property or other securities of the Company) with a
value equal to twice the exercise price. The rights may be redeemed by the Board
of Directors at a price of $0.001 per right under certain circumstances. The
rights, which do not vote and are not entitled to dividends, will expire at the
close of business on March 21, 2007, unless earlier redeemed or extended by the
Board of Directors of the Company.
During 2000 the Company purchased and retired 18.7 million shares at a total
cost of $451, or an average price of $24.15 per share. No shares were purchased
during 2001. During 2002, the Company purchased and retired 35.1 million shares
for $862, at an average price of $24.54 per share. The Board of Directors
adopted a stock buyback program on December 9, 2002, authorizing, at
management's discretion, the Company to purchase and retire up to $500 of the
Company's common stock beginning January 1, 2003 and ending December 31, 2003.
As of January 30, 2003, $78 of this authorization had been utilized.
40
Note P - Income Taxes
Deferred tax assets and liabilities consist of the following:
JANUARY 30, JANUARY 31,
2003 2002
- ----------------------------------------------------------------------- --------------- ----------------
Deferred tax assets (no valuation allowance considered necessary):
Compensation and benefits $ 317 $ 264
Self-insurance 216 188
Basis in fixed assets 184 264
Unearned income 17 18
Other, net 69 91
- ----------------------------------------------------------------------- --------------- ----------------
Total deferred tax assets 803 825
- ----------------------------------------------------------------------- --------------- ----------------
Deferred tax liabilities:
Basis in fixed assets and capitalized leases (537) (515)
Inventories (82) (126)
Compensation and benefits (51) (59)
Other, net (25) (24)
- ----------------------------------------------------------------------- --------------- ----------------
Total deferred tax liabilities (695) (724)
- ----------------------------------------------------------------------- --------------- ----------------
Net deferred tax assets $ 108 $ 101
======================================================================= =============== ================
The change in net deferred tax assets includes total adjustments of $47 for
the year ended January 30, 2003 related to stock options of $(2) and other
comprehensive income of $49.
The Company has federal and state net operating loss carryforwards of $4 and
$75, respectively, that will expire in years 2005 through 2021. Based on
management's assessment, it is more likely than not that all of the deferred tax
assets associated with the net operating loss carryforwards will be realized.
Annual tax provisions include amounts considered sufficient to pay
assessments that may result from examination of prior year tax returns; however,
the amount ultimately paid upon resolution of issues raised may differ
materially from the amount accrued.
Income tax expense related to continuing operations consists of the
following:
2002 2001 2000
- ---------------------------------------------------------------- ------------ ------------- -----------
Current:
Federal $ 448 $ 454 $ 434
State 52 50 52
- ---------------------------------------------------------------- ------------ ------------- -----------
500 504 486
Deferred:
Federal 36 (124) 10
State 4 (13) 1
- ---------------------------------------------------------------- ------------ ------------- -----------
40 (137) 11
- ---------------------------------------------------------------- ------------ ------------- -----------
$ 540 $ 367 $ 497
================================================================ ============ ============= ===========
The reconciliations between the federal statutory tax rate and the Company's
effective tax rates are as follows:
2002 PERCENT 2001 PERCENT 2000 PERCENT
- ----------------------------------- ----------- ------------- ---------- ------------- ---------- -------------
Taxes computed at statutory rate $ 492 35.0 $ 302 35.0 $ 435 35.0
State income taxes net of federal
income tax benefit 56 4.0 37 4.2 53 4.3
Goodwill amortization - - 27 3.1 21 1.7
Merger-related charges - - - - 2 0.2
Other (8) (0.6) 1 0.3 (14) (1.2)
- ----------------------------------- ----------- ------------- ---------- ------------- ---------- -------------
$ 540 38.4 $ 367 42.6 $ 497 40.0
=================================== =========== ============= ========== ============= ========== =============
Note Q - Stock Options and Stock Awards
The Company's stock option and stock award plan (Albertson's, Inc. 1995
Amended and Restated Stock-Based Incentive Plan) (the "1995 Plan") provide for
the grant of options to purchase shares of common stock and stock awards. At
January 31, 2002, Albertsons had one stock-based incentive plan in effect under
which grants could be made with respect to 50 million shares of the Company's
common stock. Under this plan, approved by the stockholders most recently in
2001, options and stock awards may be granted to officers, key employees and
non-employee members of the Board of Directors to purchase the Company's common
41
stock. During 2001, the Company's stock-based incentive plan was amended to,
among other things, increase the number of shares allowed by the plan from
30 million to 50 million. Generally, options are granted with an exercise price
at not less than 100% of the closing market price on the date of the grant. The
Company's options generally become exercisable in installments of 20% per year
on each of the first through fifth anniversaries of the grant date or vest 100%
on the third anniversary of the grant date and have a maximum term of 7 to
10 years.
DEFERRABLE OR DEFERRED STOCK UNITS From time to time, deferrable or deferred
stock units with dividend equivalents paid in cash quarterly are awarded under
the 1995 Plan to key officers of the Company. Deferred stock units are also
awarded to non-employee members of the Board of Directors.
Grants of 1,080,441 units were made during 2002 to key officers and
non-employee directors of the Company, of which 392,841 units will vest at a
rate of 20% per year for the first five years and be distributed in a manner
elected by the participant on a date after the participant ceases to be an
officer of the Company, 678,540 units will vest at a rate of 20% per year for
the first five years and be distributed in stock at each vesting date unless
otherwise deferred, and 9,060 units were fully vested at their grant date.
Grants of 1,089,104 units were made during 2001 to key officers and
non-employee directors of the Company of which 788,670 units will vest over time
and be distributed in a manner elected by the participant on a date after the
participant ceases to be an officer of the Company, 186,217 units will vest at a
rate of 20% per year for the first five years and be distributed in stock at
each vesting date unless otherwise deferred, and 14,217 were fully vested at
their grant date. 100,000 of the units will be distributed in stock on
December 5, 2003, unless otherwise deferred.
Grants of 738,705 units were made during 2000 to key officers and
non-employee directors of the Company of which 730,100 units will be distributed
in stock on December 5, 2003, if the applicable officers are still employed as
an officer of the Company on that date, unless otherwise deferred by those
officers, and 8,605 were fully vested at their grant date. The Company is
recognizing this expense over the three-year service period.
Compensation expense for deferred stock units of $19, $19 and $2 was
recorded in selling, general and administrative expenses in 2002, 2001 and 2000,
respectively.
STOCK OPTIONS A summary of shares reserved for outstanding options as of the
fiscal year end, changes during the year and related weighted average exercise
price is presented below (shares in thousands):
JANUARY 30, 2003 JANUARY 31, 2002 FEBRUARY 1, 2001
----------------------- ----------------------- -----------------------
SHARES PRICE SHARES PRICE SHARES PRICE
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Outstanding at beginning of year 28,045 $ 33.06 25,290 $ 32.79 18,015 $ 38.34
Granted 5,312 23.06 6,406 32.64 8,683 21.78
Exercised (722) 23.99 (1,303) 22.71 (287) 21.54
Forfeited (2,390) 34.43 (2,348) 34.70 (1,121) 39.58
- ---------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
Outstanding at end of year 30,245 $ 31.41 28,045 $ 33.06 25,290 $ 32.79
================================== =========== =========== =========== =========== =========== ===========
Options exercisable at end of year 13,523 $ 35.04 11,414 $ 35.67 7,251 $ 37.14
================================== =========== =========== =========== =========== =========== ===========
As of January 30, 2003, 16 million shares of the Company's common stock were
reserved for future grants of stock options and stock awards.
The following table summarizes options outstanding and options exercisable
as of January 30, 2003, and the related weighted average remaining contractual
life (years) and weighted average exercise price (shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ---------------------------
SHARES REMAINING SHARES
OPTION PRICE PER SHARE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------------------- --------------- ------------- --------- ---------------- ----------
$ 20.23 - $ 22.52 10,757 8.7 $ 21.82 2,565 $ 21.69
23.52 - 34.87 13,105 7.6 31.50 5,864 30.93
35.00 - 45.94 2,140 3.9 40.01 2,124 40.03
47.00 - 51.19 4,243 6.4 51.14 2,969 51.12
----------------------------- --------------- ------------- --------- ---------------- ----------
$ 20.23 - $ 51.19 30,245 7.6 $ 31.41 13,522 $ 35.04
============================= =============== ============= ========= ================ ==========
42
The weighted average fair value at date of grant for Albertsons' options
granted during 2002, 2001, and 2000 was $6.80, $10.16, and $6.34 per option,
respectively. The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
2002 2001 2000
------------------------------------------------------- --------------- ---------------- -------------
Expected life (years) 5.7 5.8 6.0
Risk-free interest rate 3.15% 3.62% 5.46%
Volatility 38.0% 34.8% 32.5%
Dividend yield 3.38% 2.33% 3.49%
Note R - Employee Benefit Plans
Substantially all employees working over 20 hours per week are covered by
retirement plans. Union employees participate in multi-employer retirement plans
under collective bargaining agreements unless the collective bargaining
agreement provides for participation in Company-sponsored plans. The Company
sponsors both defined benefit and defined contribution plans.
The Albertson's Salaried Employees Pension Plan and Albertson's Employees
Corporate Pension Plan are funded, qualified, defined benefit, noncontributory
plans for eligible Albertson's employees who are 21 years of age with one or
more years of service and (with certain exceptions) are not covered by
collective bargaining agreements. Benefits paid to retirees are based upon age
at retirement, years of credited service and average compensation. The Company's
funding policy for these plans is to contribute the amount necessary to meet the
funding requirements, as defined by the Internal Revenue Code.
Net periodic benefit expense (income) for defined benefit plans is
determined using assumptions as of the beginning of each year. The projected
benefit obligation and related funded status are determined using assumptions as
of the end of each year. Assumptions used at the end of each year for the
company-sponsored defined benefit pension plans were as follows:
2002 2001 2000
- -------------------------------------------------------- ----------------- ---------------- ----------------
Weighted-average discount rate 6.15% 6.75% 7.15%
Annual salary increases 3.40-4.50% 3.70-4.50% 3.70-4.50%
Expected long-term rate of return on assets 8.50% 9.00% 9.50%
Net periodic benefit expense (income) for company-sponsored defined benefit
pension plans was as follows:
2002 2001 2000
- --------------------------------------------------------- ---------------- ----------------- -------------
Service cost - benefits earned during the period $ 12 $ 11 $ 14
Interest cost on projected benefit obligations 37 35 32
Expected return on assets (39) (48) (55)
Amortization of prior service cost (7) (7) 5
Recognized net actuarial loss (gain) 9 - (4)
- --------------------------------------------------------- ---------------- ----------------- -------------
Net periodic expense (income) $ 12 $ (9) $ (8)
========================================================= ================ ================= =============
The Company also sponsors the Albertson's Savings and Retirement Estates
("ASRE") Plan (formerly the American Stores Retirement Estates Plan) which is a
defined contribution retirement plan. ASRE was originally authorized by the ASC
Board of Directors for the purpose of providing retirement benefits for
employees of ASC and its subsidiaries. During 1999, ASRE was authorized by
Albertson's Board of Directors to provide retirement benefits for all qualified
employees of the Company and its subsidiaries. In conjunction with the
authorization of ASRE, the company-sponsored defined benefit plans were amended
to close the plans to future new entrants. Future accruals for participants in
the defined benefit plans are offset by the value of Company profit sharing
contributions to the new defined contribution plan.
The Company sponsors a tax-deferred savings plan which is a salary deferral
plan pursuant to Section 401(k) of the Internal Revenue Code. The plan covers
employees meeting age and service eligibility requirements, except those
represented by a labor union, unless the collective bargaining agreement
provides for participation. In addition, the Company provides a matching
contribution based on the amount of eligible compensation contributed by the
employee.
All Company contributions to ASRE and the company-sponsored 401(k) plan are
made at the discretion of the Board of Directors. The total amount contributed
by the Company is included with the ASRE defined contribution plan expense.
43
The Company also sponsors an unfunded Executive Pension Makeup Plan and an
Executive ASRE Makeup Plan. These plans are nonqualified and provide certain key
employees retirement benefits which supplement those provided by the Company's
other retirement plans.
The following table sets forth the funded status of the company-sponsored
defined benefit pension plans:
JANUARY 30, JANUARY 31,
2003 2002
- -------------------------------------------------------------------- ----------------- ------------------
Change in projected benefit obligation:
Beginning of year benefit obligation $ 567 $ 495
Service cost 12 11
Interest cost 37 35
Actuarial loss 59 41
Benefits paid (19) (15)
- -------------------------------------------------------------------- ----------------- ------------------
End of year benefit obligation 656 567
- -------------------------------------------------------------------- ----------------- ------------------
Change in plan assets:
Plan assets at fair value at beginning of year 466 537
Actual return on plan assets (51) (57)
Employer contributions 2 1
Benefit payments (19) (15)
- -------------------------------------------------------------------- ----------------- ------------------
Plan assets at fair value at end of year 398 466
- -------------------------------------------------------------------- ----------------- ------------------
Funded status (258) (101)
Unrecognized net loss 304 165
Unrecognized prior service cost (64) (71)
Additional minimum liability (228) (67)
- -------------------------------------------------------------------- ----------------- ------------------
Net accrued pension cost $(246) $ (74)
- -------------------------------------------------------------------- ----------------- ------------------
Accrued prepaid pension cost included with other assets - 25
Accrued pension cost included with other long-term liabilities (246) (99)
- -------------------------------------------------------------------- ----------------- ------------------
Net accrued pension cost $(246) $ (74)
==================================================================== ================= ==================
At January 30, 2003, the accumulated benefit obligation exceeded the fair
value of the plans' assets in the Albertson's Employees Corporate Pension Plan,
Albertson's Salaried Employees Pension Plan, and the Executive Pension Makeup
Plan. The provisions of SFAS No. 87, "Employers' Accounting for Pensions,"
require recognition in the balance sheet of an additional minimum liability and
related intangible asset for pension plans with accumulated benefits in excess
of plan assets; any portion of such additional liability which is in excess of
the plan's prior service cost is a component of other comprehensive income and
is reflected in stockholders' equity, net of related tax benefit. Accordingly,
at January 30, 2003: a liability of $137 was included in other long-term
liabilities; an intangible asset equal to the prior service cost of $36 was
included in other assets; and a charge of $77 net of taxes of $49 was reflected
as a minimum pension liability adjustment in other comprehensive income.
At January 31, 2002: a liability of $67 was included in other long-term
liabilities; an intangible asset equal to prior service cost of $28 was included
in other assets; and a charge of $23 net of taxes of $16 was reflected as a
minimum pension liability adjustment in other comprehensive income.
44
The following table summarizes the projected benefit obligation, accumulated
benefit obligation, and plan assets of the individual plans that have a
projected benefit obligation in excess of plan assets:
JANUARY 30, JANUARY 31,
2003 2002
- -------------------------------------------------------------------- ---------------- ------------------
Projected benefit obligation:
Albertson's Employees Corporate Pension Plan $ 383 $ 331
Albertson's Salaried Employees Pension Plan 253 216
Executive Pension Makeup Plan 20 20
Accumulated benefit obligation:
Albertson's Employees Corporate Pension Plan 381 330
Albertson's Salaried Employees Pension Plan 243 209
Executive Pension Makeup Plan 19 20
Plan assets (fair market value):
Albertson's Employees Corporate Pension Plan 216 250
Albertson's Salaried Employees Pension Plan 181 216
Assets of the two funded Company defined benefit pension plans are invested
in directed trusts. Assets in the directed trusts are invested in common stocks
(including $38 and $52 of the Company's common stock at January 30, 2003 and
January 31, 2002, respectively), U.S. government obligations, corporate bonds,
international equity funds, real estate and money market funds.
The Company also contributes to various plans under industrywide collective
bargaining agreements, primarily for defined benefit pension plans. Total
contributions to these plans were $80 for 2002, $49 for 2001, and $58 for 2000.
Retirement plans expense was as follows:
2002 2001 2000
------------------------------------------------------------- ------------ ------------- ------------
Defined benefit pension plans $ 12 $ (9) $ (8)
ASRE defined contribution plan 152 154 155
Multi-employer plans 80 49 58
------------------------------------------------------------- ------------ ------------- ------------
$ 244 $ 194 $ 205
============================================================= ============ ============= ============
Most retired employees of the Company are eligible to remain in its health
and life insurance plans. Retirees who elect to remain in the
Albertson's-sponsored plans are charged a premium which is equal to the
difference between the estimated costs of the benefits for the retiree group and
a fixed contribution amount made by the Company. The Company also provides
certain health care benefits to eligible ASC retirees of certain defined
employee groups under two unfunded plans, a defined dollar and a full coverage
plan. The net periodic postretirement benefit cost was as follows:
2002 2001 2000
--------------------------------------------------------------- ------------ ----------- ------------
Service cost $ 3 $ 3 $ 3
Interest cost 4 4 4
Amortization of unrecognized gain (1) (1) (1)
--------------------------------------------------------------- ------------ ----------- ------------
$ 6 $ 6 $ 6
=============================================================== ============ =========== ============
45
The following table sets forth the funded status of the company-sponsored
postretirement health and life insurance benefit plans:
JANUARY 30, JANUARY 31,
2003 2002
-------------------------------------------------------------------- ---------------- -----------------
Change in accumulated benefit obligation:
Beginning of year benefit obligation $ 71 $ 66
Service cost 3 3
Interest cost 4 4
Curtailment gain (6) -
Plan participants' contributions 12 12
Actuarial (gain) loss (1) 2
Benefits paid (14) (16)
-------------------------------------------------------------------- ---------------- -----------------
End of year benefit obligation 69 71
-------------------------------------------------------------------- ---------------- -----------------
Plan assets activity:
Employer contributions 2 5
Plan participants' contributions 12 12
Benefit payments (14) (17)
-------------------------------------------------------------------- ---------------- -----------------
Funded status (69) (71)
Unrecognized net gain (13) (10)
-------------------------------------------------------------------- ---------------- -----------------
Accrued postretirement benefit obligations included with other
long-term liabilities $(82) $(81)
==================================================================== ================ =================
Discount rates as of end of year 6.10% 6.75%
-------------------------------------------------------------------- ---------------- -----------------
For measurement purposes, a 6% annual rate of increase in the per capita
cost of covered health care benefits was assumed for plans covering ASC retirees
for 2002 and 2001 and is expected to remain at that level thereafter. For the
ASC defined dollar plan, no future increases in the subsidy level were assumed.
Annual rates of increases in health care costs are not applicable in the
calculation of the Albertson's benefit obligation because Albertson's
contribution is a fixed amount per participant.
With the exception of the plans covering ASC grandfathered retirees, all
postretirement plans are contributory, with participants' contributions adjusted
annually. The accounting for the health care plans anticipates that the Company
will not increase its contribution for health care benefits for
non-grandfathered retirees in future years.
Since the subsidy levels for the Albertson's and the ASC defined dollar
plans are fixed and the proportion of grandfathered ASC retirees is small, a
health care cost trend increase or decrease has no material impact on the
accumulated postretirement benefit obligation or the postretirement benefit
expense.
SFAS No. 112, "Employers' Accounting for Postemployment Benefits" requires
employers to recognize an obligation for benefits provided to former or inactive
employees after employment but before retirement. The Company is self-insured
for certain of its employees' short-term and long-term disability plans which
are the primary benefits paid to inactive employees prior to retirement.
During 2001, a plan amendment made to the Company's long-term disability
plan changed the salary continuation feature from a cumulative benefit based on
years of service to a set percentage of salary benefit. This amendment resulted
in a reduction of the obligation by $36, which was recognized immediately in
accordance with the Company's policy for plan amendments. Following is a summary
of the obligation for postemployment benefits included in the Company's
Consolidated Balance Sheets:
JANUARY 30, JANUARY 31,
2003 2002
-------------------------------------------------------------------- ------------------ -----------------
Included with salaries and related liabilities $ 25 $ 12
Included with other long-term liabilities 67 54
-------------------------------------------------------------------- ------------------ -----------------
$ 92 $ 66
==================================================================== ================== =================
The Company also contributes to various plans under industrywide collective
bargaining agreements which provide for health care benefits to both active
employees and retirees. Total contributions to these plans were $408 for 2002,
$362 for 2001, and $286 for 2000.
46
Note S - Employment Contracts and Change in Control Agreements
The Company has entered into employment contracts with certain executives
for periods up to three years (and ten years for the Chairman of the Board and
Chief Executive Officer). The agreements include specified amounts for signing
bonus, base salary, annual bonus payments, stock option awards and deferrable or
deferred stock unit awards. In the event of termination of employment without
cause, the executive would be entitled to certain guaranteed payments and the
vesting of stock awards.
The Company has entered into change-in-control ("CIC") agreements with
certain executives to provide them with stated severance compensation should
their employment with the Company be terminated under certain defined
circumstances following a CIC. The CIC agreements have varying terms and
provisions depending upon the executive's level within the organization and
other considerations, including up to three times current base salary and
current target bonus, payable in lump sum, and, for senior executives, a tax
gross-up payment to make the executive whole for any excise taxes incurred due
to Section 280G of the Internal Revenue Code.
The CIC agreements have a term of approximately three years and three
months, with each agreement expiring on December 31, 2005. However, beginning on
January 1, 2004 and each January 1st thereafter, the term of the agreement will
automatically be extended for an additional year unless the Company or the
executive gives notice by September 30 of the preceding year that it does not
wish to extend the agreement. In the event that a CIC occurs during the term of
the agreement, the agreement provides for a two-year protection period (referred
to as the severance period) during which the executive is protected from an
involuntary termination (other than for cause) or termination for Good Reason as
defined in the agreements.
The agreements are considered to be "double trigger" arrangements wherein
the payment of severance compensation is predicated upon the occurrence of two
triggering events: (1) the occurrence of a CIC as defined in the agreements; and
(2) the involuntary termination of the executive (other than for cause) or the
executive's termination of employment with the Company for Good Reason as
defined in the agreements.
In consideration for the severance protection afforded by such agreements,
the senior executives have agreed to non-compete provisions for the term of the
agreements and for one year following the date of termination, and all of the
executives covered by the CIC program described above have agreed to
non-solicitation provisions for the term of the agreements and for one year
following the date of termination.
Note T - Leases
The Company leases a portion of its real estate. The typical lease period is
20 to 30 years and most leases contain renewal options. Exercise of such options
is dependent on the level of business conducted at the location. In addition,
the Company leases certain equipment. Some leases contain contingent rental
provisions based on sales volume at retail stores or miles traveled for trucks.
Capitalized leases are calculated using interest rates appropriate at the
inception of each lease. Following is a summary of the Company's assets under
capitalized leases, $2 of real estate and equipment is included in assets held
for sale at January 30, 2003:
JANUARY 30, JANUARY 31,
2003 2002
-------------------------------------------------------------- ------------------ -------------------
Real estate and equipment $ 355 $ 338
Accumulated amortization (98) (112)
-------------------------------------------------------------- ------------------ -------------------
$ 257 $ 226
============================================================== ================== ===================
47
Future minimum lease payments for noncancelable operating leases (which
exclude the amortization of acquisition-related fair value adjustments), related
subleases and capital leases at January 30, 2003, are as follows:
OPERATING CAPITAL
LEASES SUBLEASES LEASES
--------------------------------------------------- ----------------- --------------- -----------------
2003 $ 330 $ (27) $ 47
2004 330 (27) 46
2005 307 (22) 42
2006 282 (19) 40
2007 263 (16) 39
Thereafter 2,275 (58) 531
-------------------------------------------------- ----------------- --------------- -----------------
Total minimum obligations (receivables) $ 3,787 $ (169) 745
=================================================== ================= ===============
Interest (424)
--------------------------------------------------- ----------------- --------------- -----------------
Present value of net minimum obligations 321
Current portion (14)
--------------------------------------------------- ----------------- --------------- -----------------
Long-term obligations at January 30, 2003 $ 307
=================================================== ================= =============== =================
The Company is contingently liable as a guarantor of certain leases that
were assigned to third parties in connection with various store closures and
dispositions. If any of the purchasers were to become insolvent, the Company
could be required to assume the lease obligation. As of January 30, 2003, the
Company had guarantees remaining on approximately 103 stores with leases
extending through 2026. Assuming that each respective purchaser became
insolvent, an event the Company believes to be highly remote because of the wide
dispersion among third parties and remedies available, the minimum future
undiscounted payments are $188.
Rent expense under operating leases, excluding the amortization of
acquisition-related fair value adjustments of $13 in 2002, $13 in 2001, and $14
in 2000, was as follows:
2002 2001 2000
---------------------------------------------------- ------------------ ------------------ --------------
Minimum rent $ 389 $ 375 $ 369
Contingent rent 26 28 30
---------------------------------------------------- ------------------ ------------------ --------------
415 403 399
Sublease rent (92) (94) (97)
---------------------------------------------------- ------------------ ------------------ --------------
$ 323 $ 309 $ 302
==================================================== ================== ================== ==============
Note U - Related Party Transactions
In the last three years, the Company has leased between seven and nine
stores and two office locations ($3, $3 and $3 of rent paid during 2002, 2001
and 2000, respectively), purchased a piece of land ($2 during 2001), and
obtained consulting services (insignificant) from entities that have a
relationship with certain members of the Company's Board of Directors.
Note V - Financial Instruments
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of cash equivalents and receivables. The
Company limits the amount of credit exposure to each individual financial
institution and places its temporary cash into investments of high credit
quality. Concentrations of credit risk with respect to receivables are limited
due to their dispersion across various companies and geographies.
The estimated fair values of cash and cash equivalents, accounts receivable,
accounts payable, short-term debt and bank line borrowings approximate their
carrying amounts. Substantially all of the fair values were estimated using
quoted market prices. The estimated fair values and carrying amounts of
outstanding debt (excluding bank line borrowings) were as follows:
JANUARY 30, JANUARY 31,
2003 2002
---------------------------------------------------------------- ---------------- ------------------
Fair value $ 5,675 $ 5,516
Carrying amount 5,055 5,183
48
Note W - Environmental
The Company has identified environmental contamination sites related
primarily to underground petroleum storage tanks and groundwater contamination
at various store, warehouse, office and manufacturing facilities (related to
current operations as well as previously disposed of properties). The Company
conducts an ongoing program for the inspection and evaluation of potential new
sites and the remediation/monitoring of contamination at existing and previously
owned sites. Undiscounted reserves have been established for each environmental
contamination site unless an unfavorable outcome is believed to be remote.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that the costs of required remediation and
continuing compliance with environmental laws, in excess of current reserves,
will not have a material adverse effect on the financial condition, results of
operations or cash flows of the Company. Charges against earnings for
environmental remediation were not material in 2002, 2001 or 2000.
Note X - Legal Proceedings
The Company is subject to various lawsuits, claims and other legal matters
that arise in the ordinary course of conducting business.
In March 2000 a class action complaint was filed against Albertsons as well
as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc.
and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Gardner, et al. v.
Albertson's, Inc., et al.) by bonus-eligible managers seeking recovery of
additional bonus compensation based upon plaintiffs' allegation that the
calculation of profits on which their bonuses were based improperly included
expenses for workers' compensation costs, cash shortages, premises liability and
"shrink" losses in violation of California law. In October 2001 the court
granted summary judgment against Sav-on Drug Stores, finding one of its bonus
plans unlawful under plaintiffs' liability theory. In August 2001 a class action
complaint with very similar claims, also involving bonus-eligible managers, was
filed against Albertson's, Inc., Lucky Stores, Inc. and American Stores Company,
wholly-owned subsidiaries of the Company, in the Superior Court for the County
of Los Angeles, California (Petersen, et al. v. Lucky Stores, Inc., et al.). In
June 2002 the cases were consolidated and in August 2002 a class action with
respect to the consolidated case was certified by the court. The Company has
strong defenses against this lawsuit, and is vigorously defending it. Although
this lawsuit is subject to the uncertainties inherent in the litigation process,
based on the information presently available to the Company, management does not
expect that the ultimate resolution of this action will have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
In April 2000 a class action complaint was filed against Albertsons as well
as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc.
and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the
Superior Court for the County of Los Angeles, California (Gardner, et al. v.
American Stores Company, et al.) by assistant managers seeking recovery of
overtime pay based upon plaintiffs' allegation that they were improperly
classified as exempt under California law. In May 2001 a class action with
respect to Sav-on Drug Stores assistant managers was certified by the court. A
case with very similar claims, involving the Sav-on Drug Stores assistant
managers and operating managers, was also filed in April 2000 against the
Company's subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the
County of Los Angeles, California (Rocher, Dahlin, et al. v. Sav-on Drug Stores,
Inc.) and was also certified as a class action. In April 2002 the Court of
Appeal of the State of California Second Appellate District reversed the Rocher
class certification, leaving only two plaintiffs. The California Supreme Court
has accepted plaintiffs' request for review of this class decertification. The
Gardner case is on hold pending the result in the California Supreme Court. The
Company has strong defenses against these lawsuits, and is vigorously defending
them. Although these lawsuits are subject to the uncertainties inherent in the
litigation process, based on the information presently available to the Company,
management does not expect that the ultimate resolution of these lawsuits will
have a material adverse effect on the Company's financial condition, results of
operations or cash flows.
In August 2000 a class action complaint was filed against Jewel Food Stores,
Inc., a wholly-owned subsidiary of the Company, in the Circuit Court of Cook
County, Illinois (Maureen Baker, et al., v. Jewel Food Stores, Inc. and
Dominick's Supermarkets, Inc., Case No. 00L 009664) alleging milk price fixing.
In July 2002 a class was certified, consisting of all people residing in the
Chicagoland area who bought milk at retail from either or both of the defendants
between August 23, 1996 and August 23, 2000. On February 25, 2003, the trial
judge granted Jewel's and Dominick's motion to dismiss after presentation of
plaintiffs' case, and the case was dismissed with prejudice. The plaintiffs have
filed a notice of intent to appeal the decision issued in favor of the
defendants.
An agreement has been reached, and court approval granted, to settle eight
purported class and/or collective actions which were consolidated in the United
States District Court in Boise, Idaho, and which raised various issues including
"off-the-clock" work allegations and allegations regarding certain salaried
grocery managers' exempt status. Under the settlement agreement, current and
former employees who met eligibility criteria have been allowed to present their
off-the-clock work claims to a settlement administrator. Additionally, current
49
and former grocery managers employed in the State of California have been
allowed to present their exempt status claims to a settlement administrator. The
Company mailed notices of the settlement and claims forms to approximately
80,000 associates and former associates. Approximately 6,000 claim forms were
returned, of which approximately 5,000 were deemed by the settlement
administrator to be incapable of valuation, presumed untimely, or both. The
court will consider the status and handling of these 5,000 claims. The claims
administrator was able to assign a value to approximately 1,000 claims, which
amount to a total of approximately $13.5, although the value of many of those
claims is still subject to challenge by the Company. The Company is presently
unable to determine the number of individuals who may ultimately submit valid
claims or the amounts that it may ultimately be required to pay with respect to
such claims. Based on the information presently available to it, management does
not expect that the satisfaction of valid claims submitted pursuant to the
settlement will have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
The Company is also involved in routine legal proceedings incidental to its
operations. The Company utilizes various methods of alternative dispute
resolution, including settlement discussions, to manage the costs and
uncertainties inherent in the litigation process. Management does not expect
that the ultimate resolution of these legal proceedings will have a material
adverse effect on the Company's financial condition, results of operations or
cash flows.
The statements above reflect management's current expectations based on the
information presently available to the Company. However, predicting the outcomes
of claims and litigation and estimating related costs and exposures involve
substantial uncertainties that could cause actual outcomes, costs and exposures
to vary materially from current expectations. In addition, the Company regularly
monitors its exposure to the loss contingencies associated with these matters
and may from time to time change its predictions with respect to outcomes and
its estimates with respect to related costs and exposures. It is possible that
material differences in actual outcomes, costs and exposures relative to current
predictions and estimates, or material changes in such predictions or estimates,
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
Note Y - Contractual Obligations and Commitments
Albertsons has assumed various financial obligations and commitments in the
normal course of its operations and financing activities. Financial obligations
are considered to represent known future cash payments that the Company is
required to make under existing contractual arrangements, such as debt and lease
agreements. The following table represents the scheduled maturities of the
Company's long-term contractual obligations as of January 30, 2003:
AFTER
YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL
- --------------------------------------- --------------- ------------ ------------ ------------ ----------
Long-term debt $ 105 $ 704 $ 14 $ 4,232 $ 5,055
Capital lease obligations (1) 47 88 79 531 745
Operating leases (1) 330 637 545 2,275 3,787
Contracts for purchase of property
and construction of buildings 176 - - - 176
Other (2) 96 136 6 - 238
- --------------------------------------- --------------- ------------ ------------ ------------ ----------
Total contractual cash obligations $ 754 $1,565 $ 644 $ 7,038 $10,001
======================================= =============== ============ ============ ============ ==========
(1) Represents the minimum rents payable and includes leases associated
with closed stores accrued for under the Company's restructuring and
closed store reserves. Amounts are not offset by expected sublease
income.
(2) Other includes transportation contracts with third parties. The Company
has entered into energy supply agreements which have terms through
2006. These agreements include certain provisions that could
potentially require the Company to pay additional amounts if the actual
usage is less than the minimum usage per the contract documents or if
the contracts were terminated. This number is difficult to estimate due
to the uncertainty of future energy usage and change in the market
value of energy, therefore no amounts have been included above.
50
The Company is contingently liable as a guarantor of certain leases that
were assigned to third parties in connection with various store closures and
dispositions. The Company believes the likelihood of a significant loss from
these agreements is remote because of the wide dispersion among third parties
and remedies available to the Company should the primary party fail to perform
under the agreements.
Albertsons commercial commitments as of January 30, 2003, representing
possible commitments triggered by potential future events, are as follows:
AFTER
YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL
- --------------------------------------- ---------- ------------- --------------- ----------- -----------
Available lines of credit $ 450 $ 950 $ - $ - $ 1,400
Letters of credit - standby 95 - - - 95
Letters of credit - commercial 13 - - - 13
- --------------------------------------- ---------- ------------- --------------- ----------- -----------
Potential commercial commitments $ 558 $ 950 $ - $ - $ 1,508
======================================= ========== ============= =============== =========== ===========
The Company had outstanding Letters of Credit of $108 as of January 30,
2003, all of which were issued under separate bilateral agreements with multiple
financial institutions. Of the $108 outstanding at year end, $95 were standby
letters of credit covering primarily workers' compensation or performance
obligations. The remaining $13 were commercial letters of credit supporting the
Company's merchandise import program. The Company paid issuance fees that
varied, depending on type, up to 0.70% of the outstanding balance of the letter
of credit.
Note Z - Computation of Earnings Per Share
2002 2001 2000
- ---------------------------------------------- ---------------------- ----------------------- ---------------------
DILUTED BASIC DILUTED BASIC DILUTED BASIC
------------ --------- ----------- ----------- ----------- ---------
Net earnings $ 485 $ 485 $ 501 $ 501 $ 765 $ 765
===== ===== ===== ===== ===== =====
Weighted average common shares outstanding 397 397 406 406 418 418
===== ===== =====
Common share equivalents 2 2 -
----- ----- -----
Weighted average shares outstanding 399 408 418
===== ===== =====
Earnings per common share and common share
equivalent: $1.22 $1.22 $1.23 $1.23 $1.83 $1.83
===== ===== ===== ===== ===== =====
Calculation Of Common Share Equivalents:
Options and awards to purchase common
shares 10 17 2
Common shares assumed purchased with
potential proceeds (8) (15) (2)
----- ----- -----
Common share equivalents 2 2 -
===== ===== =====
Calculation Of Common Shares Assumed
Purchased With Potential Proceeds:
Potential proceeds from exercise of options
and awards to purchase common shares $ 227 $ 455 $ 52
Common stock price used under the treasury
stock method $27.77 $31.12 $27.99
Common shares assumed purchased with
potential proceeds 8 15 2
Outstanding options excluded in 2002, 2001, and 2000 (option price exceeded
the average market price during the period) amounted to 20.2 million shares,
9.4 million shares, and 16.6 million shares, respectively.
51
QUARTERLY FINANCIAL DATA
(Dollars in Millions, Except Per Share Data - Unaudited) FIRST SECOND THIRD FOURTH YEAR
- -------------------------------------------------------- ---------- ----------- ----------- ------------ -----------
2002
Sales $ 8,921 $ 8,941 $ 8,657 $ 9,107 $ 35,626
Gross profit 2,623 2,631 2,530 2,600 10,384
Operating profit 487 520 385 425 1,817
(Loss) earnings from discontinued operations (303) 13 (2) 6 (286)
(Loss) earnings before cumulative effect of
accounting change (71) 257 188 205 579
Cumulative effect of accounting change (94) - - - (94)
Net (loss) earnings (165) 257 188 205 485
(Loss) earnings per share:
Basic (0.41) 0.63 0.47 0.54 1.22
Diluted (0.40) 0.63 0.47 0.54 1.22
- -------------------------------------------------------- ---------- ----------- ----------- ------------ -----------
2001
Sales $ 8,994 $ 9,235 $ 9,036 $ 9,340 $ 36,605
Gross profit 2,571 2,587 2,570 2,698 10,426
Operating profit (loss) 431 (143) 417 591 1,296
Earnings (loss) from discontinued operations 2 3 (1) 1 5
Net earnings (loss) 186 (151) 176 290 501
Earnings (loss) per share:
Basic 0.46 (0.37) 0.43 0.71 1.23
Diluted 0.46 (0.37) 0.43 0.71 1.23
- -------------------------------------------------------- ---------- ----------- ----------- ------------ -----------
The 2002 quarterly financial information presented above includes the impact
of the change in the Company's method of accounting for vendor funds; this new
accounting method was adopted in the fourth quarter of 2002, retroactive to the
first quarter of 2002 (see "Note C - Cumulative Effect of Change in Accounting
Principle" in the accompanying notes to the Consolidated Financial Statements).
The Company's operating results presented above differ from the previously
reported results due to the accounting method change. As compared to the
operating results previously reported, gross profit increased by $16 and $7, for
the first and second quarters and decreased by $7 in the third quarter; net
earnings increased by $10 ($0.02 per diluted share), and $4 ($0.01 per diluted
share) in the first and second quarters and decreased by $4 ($0.01 per diluted
share) in the third quarter. Earnings per share on earnings before cumulative
effect of accounting change was ($0.23) per diluted share for the first quarter.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
52
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The information regarding directors and nominees for directors of the
Company is presented under the heading "Election of Directors" in the Company's
definitive proxy statement for use in connection with the 2003 Annual Meeting of
Shareholders (the "Proxy Statement") to be filed within 120 days after the
Company's fiscal year ended January 30, 2003, and is incorporated herein by this
reference thereto.
Executive and Reporting Officers
Date First Appointed
Age as of as an Executive or
Name 3/28/03 Position Reporting Officer
---- ------- -------- --------------------
Lawrence R. Johnston 54 Chairman of the Board and Chief Executive 04/23/01
Officer
Peter L. Lynch 51 President and Chief Operating Officer 06/23/99
Robert K. Banks 53 Executive Vice President, Development 06/20/00
Robert C. Butler 54 Executive Vice President, Operations 03/21/00
Romeo R. Cefalo 53 Executive Vice President, Operations 03/21/00
Robert J. Dunst, Jr. 42 Executive Vice President and Chief 11/19/01
Technology Officer
Clarence J. Gabriel 49 Executive Vice President, Supply Chain 01/13/03
Kathy J. Herbert 49 Executive Vice President, Human Resources 09/17/01
John R. Sims 53 Executive Vice President and 03/25/02
General Counsel
Lawrence A. Stablein 45 Executive Vice President, Marketing and 10/30/00
Merchandising
Felicia D. Thornton 39 Executive Vice President and Chief 08/22/01
Financial Officer
Kevin H. Tripp 48 Executive Vice President, Operations and 12/11/00
Pharmacy
Ertharin Cousin 45 Senior Vice President, Public Affairs 03/15/02
Eric J. Cremers 39 Senior Vice President, Corporate Strategy 07/15/02
and Business Development
Peter F. Collins 38 Group Vice President and Controller 01/15/03
Lawrence R. Johnston has served as Chairman of the Board and Chief Executive
Officer since April 23, 2001. Previously he served as President and Chief
Executive Officer, General Electric Appliances Division from November 1999;
President and Chief Executive Officer, General Electric Medical Systems-Europe,
Middle East and Africa from 1997; Chairman of General Electric Company's
European Corporate Executive Council from 1998 to 1999 and Vice President, Sales
and Distribution of GE Appliances Division from 1989 to 1997.
Peter L. Lynch became President and Chief Operating Officer on March 21,
2000 and was appointed to the Board of Directors in July 2001. Previously he
served as Executive Vice President, Operations from June 23, 1999; Executive
Vice President and General Manager of the Acme Division of American Stores
53
Company from 1998 and Senior Vice President, Store Operations of the Jewel-Osco
Division of American Stores Company from December 1995.
Robert K. Banks was promoted to Executive Vice President, Development on
June 20, 2000. Previously he served as Senior Vice President, Real Estate from
January 31, 1999; Group Vice President, Real Estate from December 2, 1996 and
Vice President, Real Estate from December 24, 1990.
Robert C. Butler was promoted to Executive Vice President, Operations on
March 21, 2000. Previously he served as Senior Vice President, Merchandising
from June 23, 1999 and Vice President, Southern California Division from 1996.
Romeo R. Cefalo was promoted to Executive Vice President, Operations on
March 21, 2000. Previously he served as President, Southern California Region
from June 23, 1999; Executive Vice President and General Manager of the Lucky
South Division of American Stores Company from 1997 and Senior Vice President
and General Manager of the same division from 1995.
Robert J. Dunst, Jr. became Executive Vice President and Chief Technology
Officer on November 19, 2001. Previously he served as Vice President,
Applications Development, Safeway, Inc. and Director, Systems Architecture and
Infrastructure, Safeway, Inc. from 1995.
Clarence J. Gabriel became Executive Vice President, Supply Chain on
January 13, 2003. Previously he served as President, Chief Executive Officer and
Chairman of the Board, Newgistics, Inc. from June 2000 and Division President,
Corporate Express from November 1997.
Kathy J. Herbert became Executive Vice President, Human Resources on
September 17, 2001. Previously she served as Vice President, Human Resources,
Jewel-Osco Division, American Stores Company and subsequently Albertson's Inc.
from April 1998 and Director, Personnel Training, for Jewel-Osco Division,
American Stores Company from 1996 to 1998.
John R. Sims became Executive Vice President and General Counsel on
March 25, 2002. Previously, he was Vice President and Deputy General Counsel
with Federated Department Stores, Inc. from 1990.
Lawrence A. Stablein was promoted to Executive Vice President, Marketing and
Merchandising on October 30, 2000. Previously he served as Senior Vice
President, Marketing for Jewel-Osco from 1997 and Senior Vice President of
Marketing and Formats in American Stores Properties, Inc. group in Salt Lake
City from October 1995.
Felicia D. Thornton became Executive Vice President and Chief Financial
Officer on August 22, 2001. Previously she was a business consultant for HASC
from January 2001; Group Vice President, Kroger Co. from February 1999 and Group
Vice President, Corporate Planning and Accounting, Kroger Co. from February
1996.
Kevin H. Tripp became Executive Vice President, Operations and Pharmacy on
May 19, 2002. Previously he served as Executive Vice President, Drug and General
Merchandise from December 2000; President, Drug Region from June 1999; Executive
Vice President and General Manager, American Drug Stores from November 1997 and
Senior Vice President, Pharmacy Sales and Operations from January 1995.
Ertharin Cousin became an Executive Officer on March 15, 2002. She was
promoted to Senior Vice President, Public Affairs on June 1, 2001. Previously
she served as Group Vice President, Public Affairs from 2000 and Vice President,
Government and Community Affairs of the Jewel-Osco Division of American Stores
Company and subsequently Albertson's Inc., from 1997.
Eric Cremers became Senior Vice President, Corporate Strategy and Business
Development on July 15, 2002. Previously he served as Managing Director,
Investment Banking, U.S. Bancorp Piper Jaffrey from 1999 and Vice President,
Strategy and Corporate Development, Pillsbury Co. from 1996.
Peter F. Collins was promoted to Group Vice President and Controller on
January 15, 2003. Previously he served as Group Vice President, Corporate
Accounting and Reporting from July 2002; Partner, Arthur Andersen LLP from
September 1998; and Senior Manager, Arthur Andersen LLP from September 1995.
54
Item 11. Executive Compensation
Information concerning executive compensation is presented under the
headings "Summary Compensation Table," "Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values," "Option Grants In Last Fiscal
Year," and "Retirement Benefits" in the Proxy Statement. This information is
incorporated herein by this reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information with respect to security ownership of certain beneficial owners
and management is set forth under the heading "Voting Securities and Principal
Holders Thereof" in the Proxy Statement. Information with respect to equity
compensation plans is set forth under the heading "Equity Compensation Plan
Information" in the Proxy Statement. This information is incorporated herein by
this reference thereto.
Item 13. Certain Relationships and Related Transactions
Information concerning related transactions is presented under the heading
"Certain Transactions" in the Proxy Statement. This information is incorporated
herein by this reference thereto.
Item 14. Controls & Procedures
Albertson's management, including the Chief Executive Officer and Chief
Financial Officer, have evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as
of a date within 90 days prior to the filing of this report. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by the Company in
the reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission's rules and forms. Subsequent to the date of
this evaluation, there have not been any significant changes in the Company's
internal controls or, to management's knowledge, in other factors that could
significantly affect the Company's internal controls.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1) Consolidated Financial Statements: See Index to Consolidated
Financial Statements at Item 8 on page 24 of this report.
2) Financial Statement Schedules: No schedules are required.
3) Exhibits are incorporated herein by reference or are filed with
this report as set forth in the Index to Exhibits on pages 61
through 68 hereof.
(b) On February 25, 2003, the Company filed a current report on Form 8-K in
connection with the announcement regarding the dismissal of the class
action lawsuit Maureen Baker, et al., v. Jewel Food Stores, Inc. and
Dominick's Supermarkets, Inc.
On March 20, 2003, the Company filed a current report on Form 8-K in
connection with the announcement of fourth quarter earnings.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the Company
hereby undertakes as follows, which undertaking shall be incorporated by
reference into the Company's Registration Statements on Form S-8 Nos. 2-80776,
33-2139, 33-7901, 33-15062, 33-43635, 33-62799, 33-59803, 333-82157, 333-82161,
333-87773, and 333-73194.
55
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the Act) may be permitted to directors, officers and controlling
persons of the Company, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
56
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Albertson's, Inc. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ALBERTSON'S, INC.
By: \S\ Lawrence R. Johnston
----------------------------------------
Lawrence R. Johnston
(Chairman of the Board and
Chief Executive Officer)
Date: April 23, 2003
57
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of April 23, 2003.
\S\ Lawrence R. Johnston \S\ Peter L. Lynch
- -------------------------------------- ------------------------------------
Lawrence R. Johnston Peter L. Lynch
(Chairman of the Board and (President and Chief Operating
Chief Executive Officer and Officer and Director)
Director)
\S\ Felicia D. Thornton \S\ Peter F. Collins
- -------------------------------------- ------------------------------------
Felicia D. Thornton Peter F. Collins
(Executive Vice President (Group Vice President
and Chief Financial Officer) and Controller)
\S\ A. Gary Ames \S\ Cecil D. Andrus
- -------------------------------------- ------------------------------------
A. Gary Ames Cecil D. Andrus
(Director) (Director)
\S\ Pamela G. Bailey \S\ Teresa Beck
- -------------------------------------- ------------------------------------
Pamela G. Bailey Teresa Beck
(Director) (Director)
\S\ Henry I. Bryant \S\ Paul I. Corddry
- -------------------------------------- ------------------------------------
Henry I. Bryant Paul I. Corddry
(Director) (Director)
\S\ Bonnie G. Hill \S\ Jon C. Madonna
- -------------------------------------- ------------------------------------
Bonnie G. Hill Jon C. Madonna
(Director) (Director)
\S\ Beatriz Rivera \S\ J. B. Scott
- -------------------------------------- ------------------------------------
Beatriz Rivera J. B. Scott
(Director) (Director)
\S\ Will M. Storey
- --------------------------------------
Will M. Storey
(Director)
58
ALBERTSON'S, INC.
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Lawrence R. Johnston, certify that:
1. I have reviewed this annual report on Form 10-K of Albertson's, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 23, 2003 \S\ Lawrence R. Johnston
-----------------------------------------
Lawrence R. Johnston
Chairman of the Board and
Chief Executive Officer
59
ALBERTSON'S, INC.
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
CERTIFICATION
I, Felicia D. Thornton, certify that:
1. I have reviewed this annual report on Form 10-K of Albertson's, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 23, 2003 \S\ Felicia D. Thornton
-----------------------------------------
Felicia D. Thornton
Executive Vice President
and Chief Financial Officer
60
Index to Exhibits
Filed with the Annual Report
on Form 10-K for the
Year Ended January 30, 2003
Number Description
3.1 Restated Certificate of Incorporation (as amended) is incorporated
herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended
April 30, 1998.
3.1.1 Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock is incorporated herein by reference to
Exhibit 3.1.1 of Form 10-K for the year ended January 30, 1997.
3.1.2 Amendment to Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock is incorporated herein
by reference to Exhibit 3.1.2 of Form 10-K for the year ended
January 28, 1999.
3.2 By-Laws dated March 15, 2001 are incorporated herein by reference to
Exhibit 3.2 of Form 10-K for the year ended February 1, 2001.
4.1 Stockholder Rights Plan Agreement is incorporated herein by reference
to Exhibit 1 of Form 8-A Registration Statement filed with the
Commission on March 4, 1997.
4.1.1 Amendment No. One to Stockholder Rights Plan Agreement (dated
August 2, 1998) is incorporated herein by reference to Exhibit 1 of
Amendment to Form 8-A Registration Statement filed with the Commission
on August 6, 1998.
4.1.2 Amendment No. Two to Stockholder Rights Plan Agreement (dated
March 16, 1999) is incorporated herein by reference to Exhibit 1 of
Amendment to Form 8-A Registration Statement filed with the Commission
on March 25, 1999.
4.2 Indenture, dated as of May 1, 1992, between Albertson's, Inc. and
Morgan Guaranty Trust Company of New York as Trustee is incorporated
herein by reference to Exhibit 4.1 of Form S-3 Registration Statement
333-41793 filed with the Commission on December 9, 1997.(1)
4.3 Senior Indenture dated May 1, 1995, between American Stores Company
and the First National Bank of Chicago, as Trustee, is incorporated
herein by reference to Exhibit 4.1 of Form 10-Q filed by American
Stores Company (Commission File Number 1-5392) on June 12, 1995.(1)
10.1 J. A. and Kathryn Albertson Foundation Inc. Stock Agreement (dated
May 21, 1997) is incorporated herein by reference to Exhibit 10.1 of
Form 10-Q for the quarter ended May 1, 1997.*
10.1.1 Waiver regarding Alscott Limited Partnership #1 Stock Agreement (dated
May 21, 1997) is incorporated herein by reference to Exhibit 10.1.1 of
Form 10-Q for the quarter ended May 1, 1997.*
10.1.2 Waiver regarding Kathryn Albertson Stock Agreement (dated May 21,
1997) is incorporated herein by reference to Exhibit 10.1.2 of
Form 10-Q for the quarter ended May 1, 1997.*
10.2 Agreement between the Company and Gary G. Michael dated December 22,
2000 is incorporated herein by reference to Exhibit 10.2 of Form 10-K
for the year ended February 1, 2001.*
61
Number Description
10.3 Form of Award of Deferred Stock Units is incorporated herein by
reference to Exhibit 10.3 of Form 10-K for the year ended February 1,
2001.*
10.4 Employment Agreement between the Company and Lawrence R. Johnston
dated April 23, 2001 is incorporated herein by reference to
Exhibit 10.4 of Form 8-K filed on April 26, 2001.*
10.4.1 Amendment to Employment Agreement between the Company and Lawrence R.
Johnston dated July 19, 2001 is incorporated herein by reference to
Exhibit 10.4.1 of Form 10-K for the year ended January 31, 2002.*
10.5 Form of Beneficiary Agreement for Key Executive Life Insurance is
incorporated herein by reference to Exhibit 10.5.1 of Form 10-K for
the year ended January 30, 1986.*
10.6 Executive Deferred Compensation Plan (amended and restated February 1,
1989) is incorporated herein by reference to Exhibit 10.6 of Form 10-K
for the year ended February 2, 1989.*
10.6.1 Amendment to Executive Deferred Compensation Plan (dated December 4,
1989) is incorporated herein by reference to Exhibit 10.6.1 of
Form 10-Q for the quarter ended November 2, 1989.*
10.6.2 Amendment to Executive Deferred Compensation Plan (dated December 15,
1998) is incorporated herein by reference to Exhibit 10.6.2 of
Form 10-K for the year ended February 3, 2000.*
10.6.3 Amendment to Executive Deferred Compensation Plan (dated March 15,
2001) is incorporated herein by reference to Exhibit 10.6.3 of
Form 10-K for the year ended February 1, 2001.*
10.6.4 Amendment to Executive Deferred Compensation Plan (dated May 1,
2001).*
10.7 Senior Operations Executive Officer Bonus Plan is incorporated herein
by reference to Exhibit 10.7 of Form 10-K for the year ended
January 30, 1997.*
10.8 Form of Consulting Agreement with Special Advisors to the Board of
Directors dated as of March 15, 2001 is incorporated herein by
reference to Exhibit 10.8 of Form 10-K for the year ended February 1,
2001.*
10.9 Albertson's, Inc. Executive Officers' Annual Incentive Compensation
Plan is incorporated herein by reference to Exhibit 10.42 of Form 10-Q
for the quarter ended May 2, 2002.*
10.10 2000 Deferred Compensation Plan (dated January 1, 2000) is
incorporated by reference to Exhibit 10.10 of Form 10-K for the year
ended February 3, 2000.*
10.10.1 First Amendment to the 2000 Deferred Compensation Plan (dated May 25,
2001).*
10.10.2 Second Amendment to the 2000 Deferred Compensation Plan (dated
July 18, 2001).*
10.10.3 Third Amendment to the 2000 Deferred Compensation Plan (dated
December 31, 2001).*
10.11 Employment Agreement between the Company and John R. Sims effective
April 3, 2002 is incorporated by reference to Exhibit 10.11 of
Form 10-K for the year ended January 31, 2002.*
62
Number Description
10.12 Employment Agreement between the Company and Robert J. Dunst, Jr.
dated November 16, 2001 is incorporated herein by reference to
Exhibit 10.42 to Form 10-Q for the quarter ended November 1, 2001.*
10.13 Executive Pension Makeup Plan (amended and restated February 1, 1989)
is incorporated herein by reference to Exhibit 10.13 of Form 10-K for
the year ended February 2, 1989.*
10.13.1 First Amendment to Executive Pension Makeup Plan (dated June 8, 1989)
is incorporated herein by reference to Exhibit 10.13.1 of Form 10-Q
for the quarter ended May 4, 1989.*
10.13.2 Second Amendment to Executive Pension Makeup Plan (dated January 12,
1990) is incorporated herein by reference to Exhibit 10.13.2 of
Form 10-K for the year ended February 1, 1990.*
10.13.3 Third Amendment to Executive Pension Makeup Plan (dated January 31,
1990) is incorporated herein by reference to Exhibit 10.13.3 of
Form 10-Q for the quarter ended August 2, 1990.*
10.13.4 Fourth Amendment to Executive Pension Makeup Plan (effective
January 1, 1995) is incorporated herein by reference to
Exhibit 10.13.4 of Form 10-K for the year ended February 2, 1995.*
10.13.5 Amendment to Executive Pension Makeup Plan (retroactive to January 1,
1990) is incorporated herein by reference to Exhibit 10.13.5 of
Form 10-K for the year ended February 1, 1996.*
10.13.6 Amendment to Executive Pension Makeup Plan (retroactive to October 1,
1999) is incorporated herein by reference to Exhibit 10.13.6 of
Form 10-K for the year ended February 3, 2000.*
10.13.7 Amendment to Executive Pension Makeup Plan (dated June 1, 2001).*
10.14 Executive ASRE Makeup Plan (dated September 26, 1999) is incorporated
herein by reference to Exhibit 10.14 of Form 10-K for the year ended
February 3, 2000.*
10.14.1 First Amendment to the Executive ASRE Makeup Plan (dated May 25,
2001).*
10.14.2 Second Amendment to the Executive ASRE Makeup Plan (dated December 31,
2001).*
10.15 Senior Executive Deferred Compensation Plan (amended and restated
February 1, 1989) is incorporated herein by reference to Exhibit 10.15
of Form 10-K for the year ended February 2, 1989.*
10.15.1 Amendment to Senior Executive Deferred Compensation Plan (dated
December 4, 1989) is incorporated herein by reference to
Exhibit 10.15.1 of Form 10-Q for quarter ended November 2, 1989.*
10.15.2 Amendment to Senior Executive Deferred Compensation Plan (dated
December 15, 1998) is incorporated herein by reference to
Exhibit 10.7.1 of Form 10-K for the year ended February 3, 2000.*
10.15.3 Amendment to Senior Executive Deferred Compensation Plan (dated May 1,
2001).*
10.16 1986 Nonqualified Stock Option Plan (amended March 4, 1991) is
incorporated herein by reference to Exhibit 10.16 of Form 10-K for the
year ended January 31, 1991. Exhibit 10.16 expired by its terms in
1996. Notwithstanding such expiration, certain agreements for the
options granted under these option plans remain outstanding.*
63
Number Description
10.17 Form of 1986 Nonqualified Stock Option Plan Stock Option Agreement
(amended November 30, 1987) is incorporated herein by reference to
Exhibit 10.17 of Form 10-Q for the quarter ended October 29, 1987.*
10.18 Executive Pension Makeup Trust (dated February 1, 1989) is
incorporated herein by reference to Exhibit 10.18 of Form 10-K for the
year ended February 2, 1989.*
10.18.1 Amendment to Executive Pension Makeup Trust (dated July 24, 1998) is
incorporated herein by reference to Exhibit 10.18.1 of Form 10-K for
the year ended February 3, 2000.*
10.18.2 Amendment to Executive Pension Makeup Trust (dated December 1, 1998)
is incorporated herein by reference to Exhibit 10.18.1 of Form 10-Q
for quarter ended October 29, 1998.*
10.18.3 Amendment to Executive Pension Makeup Trust (dated December 1, 1999)
is incorporated herein by reference to Exhibit 10.18.3 of Form 10-K
for year ended February 3, 2000.*
10.18.4 Amendment to Executive Pension Makeup Trust (dated March 31, 2000) is
incorporated herein by reference to Exhibit 10.18.4 of Form 10-K for
year ended February 1, 2001.*
10.19 Executive Deferred Compensation Trust (dated February 1, 1989) is
incorporated herein by reference to Exhibit 10.19 of Form 10-K for
year ended February 2, 1989.*
10.19.1 Amendment to Executive Deferred Compensation Trust (dated July 24,
1998) is incorporated herein by reference to Exhibit 10.19.1 of
Form 10-K for year ended February 3, 2000.*
10.19.2 Amendment to Executive Deferred Compensation Trust (dated December 1,
1998) is incorporated herein by reference to Exhibit 10.19.1 of
Form 10-Q for quarter ended October 29, 1998.*
10.19.3 Amendment to Executive Deferred Compensation Trust (dated December 1,
1999) is incorporated herein by reference to Exhibit 10.19.3 of
Form 10-K for year ended February 3, 2000.*
10.19.4 Amendment to Executive Deferred Compensation Trust (dated March 31,
2000) is incorporated herein by reference to Exhibit 10.19.4 of
Form 10-K for year ended February 1, 2001.*
10.20 1990 Deferred Compensation Plan is incorporated herein by reference to
Exhibit 10.20 of Form 10-K for year ended January 31, 1991.*
10.20.1 Amendment to 1990 Deferred Compensation Plan (dated April 12, 1994) is
incorporated herein by reference to Exhibit 10.20.1 of Form 10-Q for
the quarter ended August 4, 1994.*
10.20.2 Amendment to 1990 Deferred Compensation Plan (dated November 5, 1997)
is incorporated herein by reference to Exhibit 10.20.2 of Form 10-K
for the year ended January 29, 1998.*
10.20.3 Amendment to 1990 Deferred Compensation Plan (dated November 1, 1998)
is incorporated herein by reference to Exhibit 10.20.3 of Form 10-Q
for the quarter ended October 29, 1998.*
10.20.4 Termination of 1990 Deferred Compensation Plan (dated December 31,
1999).*
10.20.5 Amendment to 1990 Deferred Compensation Plan (dated May 1, 2001).*
64
Number Description
10.20.6 Amendment to 1990 Deferred Compensation Plan (dated December 31, 2001
to be effective May 1, 2001).*
10.21 Non-Employee Directors' Deferred Compensation Plan is incorporated
herein by reference to Exhibit 10.21 of Form 10-K for the year ended
January 31, 1991.*
10.21.1 Amendment to Non-Employee Directors' Deferred Compensation Plan (dated
December 15, 1998) is incorporated herein by reference to
Exhibit 10.21.1 of Form 10-K for year ended February 3, 2000.*
10.21.2 Amendment to Non-Employee Directors' Deferred Compensation Plan (dated
March 15, 2001) is incorporated herein by reference to Exhibit 10.21.2
of Form 10-K for the year ended February 1, 2001.*
10.21.3 Amendment to Non-Employee Directors' Deferred Compensation Plan (dated
May 1, 2001).*
10.22 1990 Deferred Compensation Trust (dated November 20, 1990) is
incorporated herein by reference to Exhibit 10.22 of Form 10-K for
year ended January 31, 1991.*
10.22.1 Amendment to 1990 Deferred Compensation Trust (dated July 24, 1998) is
incorporated herein by reference to Exhibit 10.22.1 of Form 10-K for
year ended February 3, 2000.*
10.22.2 Amendment to 1990 Deferred Compensation Trust (dated December 1, 1998)
is incorporated herein by reference to Exhibit 10.22.1 of Form 10-Q
for quarter ended October 29, 1998.*
10.22.3 Amendment to 1990 Deferred Compensation Trust (dated December 1, 1999)
is incorporated herein by reference to Exhibit 10.22.3 of Form 10-K
for year ended February 3, 2000.*
10.22.4 Amendment to 1990 Deferred Compensation Trust (dated March 31, 2000)
is incorporated herein by reference to Exhibit 10.22.4 of Form 10-K
for year ended February 1, 2001.*
10.23 2000 Deferred Compensation Trust (dated January 1, 2000) is
incorporated herein by reference to Exhibit 10.23 of Form 10-K for
year ended February 3, 2000.*
10.23.1 Amendment to the 2000 Deferred Compensation Trust (dated March 31,
2000) is incorporated herein by reference to Exhibit 10.23.1 of
Form 10-K for year ended February 1, 2001.*
10.24 1995 Stock-Based Incentive Plan (dated May 26, 1995) is incorporated
herein by reference to Exhibit 10.24 of Form 10-Q for the quarter
ended May 4, 1995.*
10.24.1 Form of 1995 Stock-Based Incentive Plan Stock Option Agreement (dated
December 4, 1995) is incorporated herein by reference to
Exhibit 10.24.1 of Form 10-K for the year ended February 1, 1996.*
10.25 1995 Stock Option Plan for Non-Employee Directors (dated May 26, 1995)
is incorporated herein by reference to Exhibit 10.25 of Form 10-Q for
the quarter ended May 4, 1995.*
10.25.1 Form of 1995 Stock Option Plan for Non-Employee Directors Agreement
(dated May 30, 1995) is incorporated herein by reference to
Exhibit 10.25.1 of Form 10-Q for the quarter ended May 4, 1995.*
65
Number Description
10.25.2 Amendment to 1995 Stock Option Plan for Non-Employee Directors (dated
March 15, 2001) is incorporated herein by reference to Exhibit 10.25.2
of Form 10-K for the year ended February 1, 2001.*
10.26.1 Amendment to Amended and Restated 1995 Stock-Based Incentive Plan
(dated March 15, 2001) is incorporated herein by reference to
Exhibit 10.26.1 of Form 10-K for the year ended February 1, 2001.*
10.27 Termination and Consulting Agreement by and among American Stores
Company, Albertson's, Inc. and Victor L. Lund is incorporated herein
by reference to Exhibit 10.27 of Form 10-K for the year ended
January 28, 1999.*
10.28 Credit Agreement (5-year) (dated March 22, 2000) is incorporated
herein by reference to Exhibit 10.28 of Form 10-K for the year ended
February 3, 2000.
10.28.1 Amendment to Credit Agreement (5-year) (dated March 15, 2001) is
incorporated by reference to Exhibit 10.28.1 of Form 10-K for the year
ended February 1, 2001.
10.29 Amended and Restated Credit Agreement (364-day) (dated March 13,
2002).
10.30 American Stores Company Supplemental Executive Retirement Plan 1998
Restatement is incorporated herein by reference to Exhibit 4.1 of
Form S-8 filed by American Stores Company (Commission File Number
1-5392) on July 13, 1998.*
10.30.1 Amendment to American Stores Company Supplemental Executive Retirement
Plan 1998 Restatement, dated as of September 15, 1998, is incorporated
herein by reference to Exhibit 10.4 of Form 10-Q filed by American
Stores Company (Commission File Number 1-5392) on December 11, 1998.*
10.31 American Stores Company 1997 Stock Option and Stock Award Plan is
incorporated herein by reference to Exhibit B of the 1997 Proxy
Statement filed by American Stores Company (Commission File
Number 1-5392) on May 2, 1997.*
10.31.1 Amendment to American Stores Company 1997 Stock Option and Stock Award
Plan, dated as of October 8, 1998, is incorporated herein by reference
to Exhibit 10.1 of Form 10-Q filed by American Stores Company
(Commission File Number 1-5392) on December 11, 1998.*
10.31.2 Amendment to American Stores Company 1997 Stock Plan for Non-Employee
Directors (dated March 15, 2001) is incorporated by reference to
Exhibit 10.31.2 of Form 10-K for the year ended February 1, 2001.*
10.32 American Stores Company 1997A Stock Option and Stock Award Plan, dated
as of March 27, 1997, is incorporated herein by reference to
Exhibit 4.11 of the S-8 Registration Statement (Registration
No. 333-82157) filed by Albertson's, Inc. on July 2, 1999.*
10.33 American Stores Company 1997 Stock Plan for Non-Employee Directors is
incorporated herein by reference to Exhibit C of the 1997 Proxy
Statement filed by American Stores Company (Commission File
Number 1-5392) on May 2, 1997.*
10.34 American Stores Company Amended and Restated 1989 Stock Option and
Stock Award Plan is incorporated herein by reference to Exhibit 4.13
of the S-8 Registration Statement (Registration No. 333-82157) filed
by Albertson's, Inc. on July 2, 1999.*
10.35 American Stores Company Amended and Restated 1985 Stock Option and
Stock Award Plan is incorporated herein by reference to Exhibit 4.14
of the S-8 Registration Statement (Registration No. 333-82157) filed
by Albertson's, Inc. on July 2, 1999.*
66
Number Description
10.36 Employment Agreement between the Company and Peter L. Lynch dated
January 26, 2001 is incorporated herein by reference to Exhibit 10.36
to Form 10-Q for the quarter ended August 2, 2001.*
10.36.1 Amendment to Employment Agreement between the Company and Peter L.
Lynch dated April 23, 2001 is incorporated herein by reference to
Exhibit 10.36.1 to Form 10-Q for the quarter ended August 2, 2001.*
10.37 Agreement between the Company and Peter L. Lynch dated June 18, 1999
is incorporated herein by reference to Exhibit 10.37 to Form 10-Q for
the quarter ended August 2, 2001.*
10.38 Albertson's Voluntary Separation Plan for officers effective July 18,
2001 is incorporated herein by reference to Exhibit 10.38 to Form 10-Q
for the quarter ended August 2, 2001.*
10.39 Albertson's Severance Plan for Officers effective July 18, 2001 is
incorporated herein by reference to Exhibit 10.39 to Form 10-Q for the
quarter ended August 2, 2001.*
10.40 Employment Agreement between the Company and Felicia D. Thornton dated
August 6, 2001 is incorporated herein by reference to Exhibit 10.40 to
Form 10-Q for the quarter ended August 2, 2001.*
10.41 Albertson's Amended and Restated 1995 Stock-Based Incentive Plan is
incorporated herein by reference to Exhibit 10.41 to Form 10-Q for the
quarter ended November 1, 2001.*
10.41.1 Form of 1995 Amended and Restated Stock-Based Incentive Plan Stock
Option Agreement is incorporated herein by reference to
Exhibit 10.41.1 to Form 10-Q for the quarter ended November 1, 2001.*
10.42 Albertsons Severance Plan for Officers effective October 1, 2002 is
incorporated by reference to Exhibit 10.42 of Form 10-Q for the
quarter ended October 31, 2002.*
10.43 Albertsons Change of Control Severance Agreement for Chief Operating
Officer and Executive Vice President effective November 1, 2002 is
incorporated by reference to Exhibit 10.43 of Form 10-Q for the
quarter ended October 31, 2002.*
10.44 Albertsons Change of Control Severance Agreement for Senior Vice
Presidents and Group Vice Presidents effective November 1, 2002 is
incorporated by reference to Exhibit 10.44 of Form 10-Q for the
quarter ended October 31, 2002.*
10.45 Albertsons Change of Control Severance Agreement for Vice Presidents
effective November 1, 2002 is incorporated by reference to
Exhibit 10.45 of Form 10-Q for the quarter ended October 31, 2002.*
10.46 Albertsons Amended and Restated 1995 Stock-Based Incentive Plan as
amended effective December 9, 2002 is incorporated by reference to
Exhibit 10.46 of Form 10-Q for the quarter ended October 31, 2002.*
10.46.1 Form of Award of Stock Option is incorporated by reference to
Exhibit 10.46.1 of Form 10-Q for the quarter ended October 31, 2002.*
10.46.2 Form of Award of Deferred Stock Units is incorporated by reference to
Exhibit 10.46.2 of Form 10-Q for the quarter ended October 31, 2002.*
67
Number Description
21 Subsidiaries of the Registrant
23 Independent Auditors' Consent - Deloitte & Touche LLP
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
* Identifies management contracts or compensatory plans or arrangements
required to be filed as an exhibit hereto.
(1) In reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K, various other
instruments defining the rights of holders of long-term debt of the
Registrant and its subsidiaries are not being filed herewith, because the
total amount of securities authorized under each such instrument does not
exceed 10% of the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant hereby agrees to furnish a copy of any
such instrument to the Commission upon request.
68