EXHIBIT 13
Albertson's, Inc.
Financial Review
Business Combinations
On August 2, 1998, the Company entered into a definitive merger agreement
with American Stores Company (ASC) which was approved by the stockholders of
Albertson's and ASC on November 12, 1998. The agreement provides for a business
combination between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company. Under the terms of the agreement, the holders of ASC
common stock will be issued 0.63 shares of Albertson's, Inc., common stock in
exchange for each share of ASC common stock, with cash being paid in lieu of
fractional shares, in a transaction intended to qualify as a pooling of
interests for accounting purposes and as a tax-free reorganization for federal
income tax purposes. The transaction is subject to certain regulatory clearance
and is expected to close during the latter part of the Company's first fiscal
quarter or early in the second fiscal quarter of 1999.
During 1998 the Company acquired Seessel Holdings, Inc. (Seessel's),
Smitty's Super Markets, Inc. (Smitty's), Buttrey Food and Drug Stores Company
(Buttrey) and the assets of 15 Bruno's, Inc., stores in transactions accounted
for using the purchase method of accounting. Seessel's, acquired on January 30,
1998, included 10 grocery stores in Memphis, Tennessee, and a central bakery and
central kitchen, which manufacture fresh bakery and prepared foods for
distribution to the Seessel's stores. Smitty's, acquired on April 20, 1998,
included 10 combination stores and 3 fuel centers with convenience stores in
southwest Missouri. Buttrey, acquired on October 1, 1998, included 44 stores in
Montana, North Dakota and Wyoming. In accordance with an agreement with the
Federal Trade Commission, 9 Buttrey stores and 6 Albertson's stores were
divested. The assets of the 15 Bruno's, Inc., stores, acquired on August 24,
1998, included 14 operating stores and 1 store under construction located in the
metropolitan areas of Nashville and Chattanooga, Tennessee, as well as 1 store
in northern Georgia.
Results of Operations
The Company has reported increased sales and earnings for 29 consecutive
years. Sales for 1998 were $16.0 billion, compared to $14.7 billion in 1997 and
$13.8 billion in 1996. 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:
Percent to Sales Percentage Change
---------------- -----------------
1998 1997 1996
1998 1997 1996 vs. 1997 vs. 1996 vs. 1995
- ---------------------------------------------------------------------------------------------------------------------------
Sales 100.00 100.00 100.00 9.0 6.6 9.5
Gross profit 27.39 26.43 25.88 12.9 8.9 11.0
Selling, general and administrative expenses 21.15 20.36 19.71 13.2 10.1 12.9
Impairment - store closures 0.15
Operating profit 6.08 6.07 6.17 9.1 5.0 5.2
Net interest expense 0.67 0.56 0.47 29.7 27.9 16.1
Earnings before income taxes 5.59 5.63 5.77 8.2 4.0 4.8
Net earnings 3.54 3.52 3.58 9.7 4.7 6.2
Increases in sales are primarily attributable to the continued expansion of
net retail square footage, and identical and comparable store sales increases.
During 1998 the Company opened 132 stores, remodeled 27 stores, completed 30
strategic retrofits and closed 27 stores for a net retail square footage
increase of 5.6 million square feet. Included in store openings are 74 acquired
stores (net of 9 Buttrey stores divested) and included in store closings are 6
Albertson's stores divested in connection with the Buttrey acquisition. Net
retail square footage increased 13.1% in 1998, 7.4% in 1997 and 9.6% in 1996.
Identical store sales, stores that have been in operation for two full fiscal
years, increased 0.3% in 1998 and 1997, and 2.0% in 1996. Comparable store
sales, which include replacement stores, increased 0.5% in 1998, 0.4% in 1997
and 2.1% in 1996. Identical and comparable store sales continued to increase
through higher average ticket sales per customer. Management estimates that
there was overall deflation in products the Company sells of approximately 0.4%
in 1998 compared to inflation of approximately 0.3% in 1997 and 0.6% in 1996.
Page 1
In addition to new store development, the Company plans to increase sales
through its continued investment in programs initiated in recent years which are
designed to provide solutions to customer needs. These programs include the
Front End Manager program; home meal solutions called "Quick Fixin' Ideas";
special destination departments such as Albertson's Better Care pharmacies, baby
care, pet care and snack and beverage centers; and increased emphasis on
training programs utilizing Computer Guided Training. To provide additional
solutions to customer needs, the Company has added new gourmet-quality bakery
products and organic grocery and produce items. Other solutions include
neighborhood marketing, targeted advertising and destination departments in new
and remodeled stores.
Gross profit, as a percent to sales, increased primarily as a result of
continued improvements made in retail stores, including substantial improvements
in underperforming stores and improved sales mix of partially prepared,
value-added products. Gross profit improvements were also realized through the
continued utilization of Company-owned distribution facilities and increased
buying efficiencies. All of the Company's retail stores are serviced by
Company-owned distribution centers, which provide approximately 75% of all
products purchased by Albertson's retail stores. The Company's distribution
facilities provide product exclusively to the Company's retail stores.
Utilization of the Company's distribution centers has enabled the Company to
improve its control over product costs and product distribution. The pre-tax
LIFO adjustment, as a percent to sales, reduced gross margin by 0.05% in 1998,
0.06% in 1997 and 0.11% in 1996.
Selling, general and administrative (SG&A) expenses, as a percent to sales,
increased primarily due to increased salary and related benefit costs resulting
from the Company's initiatives to increase sales, increased depreciation expense
associated with the Company's expansion program and integration costs associated
with the various acquisitions in 1998. In addition to increasing sales, the
Company continued to implement new technology designed to increase productivity,
and emphasize cost containment programs to control SG&A expenses.
The Company recorded a charge to earnings (Impairment - store closures) in
1998 related to management's decision to close 16 underperforming stores in 8
states. The charge included impaired real estate and equipment, as well as the
present value of remaining liabilities under leases, net of expected sublease
recoveries. As of January 28, 1999, 13 of these stores had been closed and
management believes the 1998 charge and remaining reserve are adequate.
Increases in net interest expense resulted from higher average outstanding
debt. The average outstanding debt has increased as a result of the Company's
continued investment in new and acquired stores.
The Company's effective income tax rate for 1998 was 36.6%, as compared to
37.5% for 1997 and 37.9% for 1996. The reduction is primarily due to the effect
of increases in the cash surrender value of Company-owned life insurance, which
is a non-taxable item.
Liquidity and Capital Resources
The Company's operating results continue to enhance its financial position
and ability to continue its planned expansion program. Cash provided by
operating activities during 1998 was $825 million, compared to $868 million in
1997 and $650 million in 1996. During 1998 the Company invested $834 million for
capital expenditures and $260 million for business acquisitions. The Company's
financing activities for 1998 included new long-term borrowings of $317 million,
a net increase of commercial paper borrowings of $46 million, bank line
borrowings of $171 million, $165 million for the payment of dividends (which
represents 29.0% of 1998 net earnings) and $17 million to purchase and retire
stock.
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 the Company's quarterly reporting
periods. The Company had $500 million of commercial paper and bank line
borrowings outstanding at January 28, 1999, compared to $283 million at January
29, 1998, and $329 million at January 30, 1997. As of January 28, 1999, the
Company had a revolving credit agreement for $600 million (which was reserved as
alternative funding for the Company's commercial paper program) and bank lines
of credit for $635 million (of which $175 million was drawn as of January 28,
1999). The revolving credit agreement contains certain covenants, the most
restrictive of which requires the Company to maintain consolidated tangible net
worth, as defined, of at least $750 million.
During 1998 the Company issued a total of $317 million in medium-term notes
under a $500 million shelf registration statement filed with the Securities and
Exchange Commission (SEC) in December 1997. Under a shelf registration statement
filed with the SEC in May 1996, the Company issued $200 million of medium-term
notes in 1997 and $200 million of 30-year 7.75% debentures in 1996. Proceeds
from these issuances were used to reduce borrowings under the Company's
commercial paper program.
The Company filed a shelf registration statement with the SEC, which became
effective in February 1999, to authorize the issuance of up to $2.5 billion in
debt securities. The remaining authorization of $183 million under the 1997
shelf registration statement was rolled into the 1999 shelf registration
statement. The Company intends to use the net proceeds of any securities sold
pursuant to the 1999 shelf registration statement for general corporate
purposes, including retirement of debt, working capital, acquisitions and other
business opportunities.
Since 1987 the Board of Directors has continuously adopted or renewed
programs under which the Company was authorized, but not required, to purchase
and retire shares of its common stock. The remaining authorization under the
program adopted by the Board on March 2, 1998, which authorized the Company to
purchase and retire up to 5 million shares through March 31, 1999, was rescinded
in connection with the pending merger with American Stores Company. Under these
programs, the Company purchased and retired 0.3 million shares in 1998, 5.4
million shares in 1997 and 1.6 million shares in 1996.
Page 2
The following leverage ratios demonstrate the Company's levels of long-term
financing as of the indicated year end:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt and capitalized lease obligations to capital(1) 37.5% 31.8% 31.9%
Long-term debt and capitalized lease obligations to total assets 27.0 21.7 22.3
(1) Capital includes long-term debt, capitalized lease obligations and
stockholders' equity
The average size of stores opened in 1998, 50,400 square feet, increased
the Company's average store size to 49,200 square feet. At January 28, 1999, 95%
of the Company's retail square footage consisted of stores over 35,000 square
feet. Retail square footage has also increased due to the Company's remodel
program. In 1998, 9 of the 27 remodeled stores were expanded in size. The
Company continues to retain ownership of real estate when possible. As of
January 28, 1999, the Company held title to the land and buildings of 53% 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 the Company's corporate headquarters in Boise, Idaho, 8 division
offices and all of the distribution facilities.
During the past three years, the Company has invested $130 million
(excluding inventory) in its distribution operations and has added 412,000
square feet of new or expanded facilities. During 1998 the Company began
construction of a new 730,000-square-foot distribution center in Tulsa,
Oklahoma. This new center is scheduled to begin operations in August 1999.
The Company is committed to keeping its stores up to date. In the last
three years, the Company has opened or remodeled 370 stores representing 40% of
the Company's retail square footage as of January 28, 1999. 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 (in
thousands):
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
New and acquired stores $ 746,576 $ 515,773 $ 460,188
Remodels 139,739 96,973 117,358
Retail replacement equipment and technological upgrades 59,004 41,628 52,478
Distribution facilities and equipment 67,170 28,399 34,812
Other 30,328 13,658 21,171
- ---------------------------------------------------------------------------------------------------------------------------
Total capital expenditures 1,042,817 696,431 686,007
Estimated fair value of property financed by operating leases 95,000 44,000 47,000
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,137,817 $ 740,431 $ 733,007
- ---------------------------------------------------------------------------------------------------------------------------
The Company's strong financial position provides the flexibility for the
Company to grow through its store development program and future acquisitions.
The Board of Directors at its March 1999 meeting increased the regular quarterly
cash dividend to $0.18 per share, for an annual rate of $0.72 per share.
Recent Accounting Standards
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This new standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This standard is effective for the Company's 2000 fiscal year. The Company has
not yet completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.
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. Although the Company currently utilizes no
material derivative financial instruments which expose the Company to
significant market risk, the Company is exposed to cash flow and fair value risk
due to changes in interest rates with respect to its long-term debt borrowings.
Page 3
The Company is subject to interest rate risk on its long-term fixed
interest rate debt and bank line borrowings. Commercial paper borrowings do not
give rise to significant interest rate risk because these borrowings have
maturities of less than three months. All things being equal, 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,
commercial paper and bank line borrowings.
The table below presents principal cash flows and related weighted average
interest rates of the Company's long-term debt and bank line borrowings
(excluding commercial paper) at January 28, 1999, by expected maturity dates (in
millions):
1999 2000 2001 2002 2003 Thereafter Total Fair Value
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 180.8 $ 295.3 $ 1.5 $ 1.7 $ 1.9 $ 726.8 $ 1,208.0 $ 1,284.9
Weighted average interest rate 5.48% 6.33% 9.04% 9.29% 9.49% 6.94% 6.58%
Year 2000 Compliance
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. As the year 2000
approaches, systems using such programs may be unable to accurately process
certain date-based information. To the extent that the Company's software
applications contain source code that is unable to interpret appropriately the
upcoming calendar year 2000 and beyond, some level of modification or
replacement of such applications will be necessary to avoid system failures and
the temporary inability to process transactions or engage in other normal
business activities.
In September 1995 the Company formed a project team to assess the impact of
the Year 2000 issue on the software and hardware utilized in the Company's
internal operations. The project team is staffed primarily with representatives
of the Company's Information Systems and Technology department and reports on a
regular basis to senior management and the Company's Board of Directors.
The initial phase of the Year 2000 project was assessment and planning.
This phase is substantially complete and included an assessment of all computer
hardware, software, systems and processes ("IT Systems") and non-information
technology systems such as telephones, clocks, scales, refrigeration controllers
and other equipment containing embedded microprocessor technology ("Non-IT
Systems"). The completion of upgrades, validation and forward date testing for
all systems is scheduled for early 1999 although many systems have been
completed. The Company expects to successfully implement the remediation of the
IT Systems and Non-IT Systems.
In addition to the remediation of the IT systems and Non-IT systems, the
Company has identified relationships with third parties, including vendors,
suppliers and service providers, which the Company believes are critical to its
business operations. The Company is in the process of communicating with these
third parties through questionnaires, letters and interviews in an effort to
determine the extent to which they are addressing their Year 2000 compliance
issues. The Company will continue to communicate with, assess and monitor the
progress of these third parties in resolving Year 2000 issues.
The total costs to address the Company's Year 2000 issues are estimated to
be approximately $14 million, of which approximately $4 million has been or will
be expensed and approximately $10 million has been or will be capitalized. These
costs include expenditures accelerated for Year 2000 compliance. To date, the
Company has spent approximately 90% of the estimated costs. These costs have
been funded through operating cash flow and represent an immaterial portion of
the Company's IT budget.
The Company is dependent on the proper operation of its internal computer
systems and software for several key aspects of its business operations,
including store operations, merchandise purchasing, inventory management,
pricing, sales, warehousing, transportation, financial reporting and
administrative functions. The Company is also dependent on the proper operation
of the computer systems and software of third parties providing critical goods
and services to the Company, including vendors, utilities, financial
institutions, government entities and others. The Company believes that its
efforts will result in Year 2000 compliance. However, the failure or malfunction
of internal or external systems could impair the Company's ability to operate
its business in the ordinary course and could have a material adverse effect on
its results of operations.
The Company is currently developing its contingency plans and intends to
formalize these plans with respect to its most critical applications during the
first half of 1999. Contingency plans may include manual workarounds, increased
inventories and extra staffing.
Page 4
Cautionary Statement for Purposes of "Safe Harbor Provisions"
of the Private Securities Litigation Reform Act of 1995
From time to time, information provided by the Company, including written
or oral statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of 1995,
including statements about the ability of the Company and ASC to obtain the
necessary regulatory approvals and satisfy other conditions to the closing of
the merger transaction and with respect to the future performance of the
combined companies. All statements, other than statements of historical facts,
which address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as expansion
and growth of the Company's business, future capital expenditures and the
Company's business strategy, contain forward-looking information. In reviewing
such information it should be kept in mind that actual results may differ
materially from those projected or suggested in such forward-looking
information. This forward-looking information is based on various factors and
was derived utilizing numerous assumptions. Many of these factors have
previously been identified in filings or statements made by or on behalf of the
Company.
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 consumer
spending, competitive factors 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, adverse effects of failure to
achieve Year 2000 compliance, the Company's ability to recruit and develop
employees, its ability to develop new stores or complete remodels as rapidly as
planned, its ability to implement new technology successfully, stability of
product costs, the ability of the Company and ASC to obtain the required
regulatory approvals on terms acceptable to them, adverse changes in the
business or financial condition of the Company or ASC prior to the closing of
the merger transaction and the Company's ability to integrate the operations of
ASC.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth 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
assumptions or changes in other factors affecting such forward-looking
information.
Page 5
Consolidated Earnings
52 Weeks 52 Weeks 52 Weeks
January 28, January 29, January 30,
(In thousands except per share data) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Sales $ 16,005,115 $ 14,689,511 $ 13,776,678
Cost of sales 11,622,026 10,807,687 10,211,348
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 4,383,089 3,881,824 3,565,330
Selling, general and administrative expenses 3,385,531 2,990,172 2,715,776
Impairment - store closures 24,407
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit 973,151 891,652 849,554
Other (expenses) income:
Interest, net (107,074) (82,563) (64,569)
Other, net 28,768 17,814 9,862
- ---------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 894,845 826,903 794,847
Income taxes 327,692 310,089 301,068
- ---------------------------------------------------------------------------------------------------------------------------
Net Earnings $ 567,153 $ 516,814 $ 493,779
- ---------------------------------------------------------------------------------------------------------------------------
Earnings Per Share:
Basic $ 2.31 $ 2.09 $ 1.96
Diluted 2.30 2.08 1.95
Weighted average common shares outstanding:
Basic 245,637 247,735 251,710
Diluted 246,808 248,497 252,730
See Notes to Consolidated Financial Statements
Page 6
Consolidated Balance Sheets
January 28, January 29, January 30,
(Dollars in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 80,646 $ 108,083 $ 90,865
Accounts and notes receivable 153,714 121,023 98,364
Inventories 1,503,164 1,308,578 1,201,067
Prepaid expenses 38,871 44,426 42,823
Deferred income taxes 57,510 45,747 42,804
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets 1,833,905 1,627,857 1,475,923
Other Assets 277,728 207,360 184,070
Goodwill, net 148,322
Land, Buildings and Equipment, net 3,974,013 3,383,373 3,054,640
- ---------------------------------------------------------------------------------------------------------------------------
Total Assets $ 6,233,968 $ 5,218,590 $ 4,714,633
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 873,956 $ 742,557 $ 682,305
Salaries and related liabilities 171,706 149,898 135,681
Taxes other than income taxes 76,923 80,842 67,086
Income taxes 47,142 37,657 14,409
Self-insurance 73,066 69,982 63,999
Unearned income 64,418 46,069 36,539
Other 53,282 52,395 46,161
Current maturities of long-term debt 6,991 86,511 975
Current portion of capitalized lease obligations 11,347 9,608 7,938
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,378,831 1,275,519 1,055,093
Long-Term Debt 1,527,432 989,650 921,704
Capitalized Lease Obligations 157,102 140,957 130,050
Other Long-Term Liabilities and Deferred Credits 360,149 393,008 360,768
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - $1.00 par value; authorized - 10,000,000
shares; designated - 3,000,000 shares of Series A Junior
Participating; issued - none
Common stock - $1.00 par value; authorized - 1,200,000,000
shares; issued - 245,697,363 shares, 245,735,633 shares
and 250,690,105 shares, respectively 245,697 245,736 250,690
Capital in excess of par value 5,239 4,271 92
Retained earnings 2,559,518 2,169,449 1,996,236
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 2,810,454 2,419,456 2,247,018
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 6,233,968 $ 5,218,590 $ 4,714,633
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
Page 7
Consolidated Cash Flows
52 Weeks 52 Weeks 52 Weeks
January 28, January 29, January 30,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings $ 567,153 $ 516,814 $ 493,779
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 375,395 328,795 294,341
Net deferred income taxes (27,968) (1,299) 33,868
Increase in cash surrender value of Company-owned life insurance (22,670) (14,113) (9,021)
Impairment - store closures 24,407
Changes in operating assets and liabilities,
net of business acquisitions:
Receivables and prepaid expenses (54,251) (19,180) (18,072)
Inventories (144,719) (107,511) (170,821)
Accounts payable 100,563 60,252 33,342
Other current liabilities 17,112 57,984 14,514
Self-insurance (1,808) 12,619 (11,234)
Unearned income (16,797) 21,705 (10,735)
Other long-term liabilities 9,029 12,081 (313)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 825,446 868,147 649,648
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Capital expenditures (834,373) (674,053) (673,310)
Proceeds from disposals of land, buildings and equipment 47,632 37,098 31,095
Business acquisitions, net of cash acquired (259,672)
Increase in other assets (9,274) (14,258) (21,542)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,055,687) (651,213) (663,757)
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from long-term borrowings 317,000 200,000 202,000
Payments on long-term borrowings (154,692) (8,995) (88,202)
Net commercial paper activity 46,259 (45,692) 119,601
Proceeds from bank line borrowings 170,695
Proceeds from stock options exercised 4,644 5,206 3,530
Cash dividends paid (164,584) (156,261) (146,060)
Stock purchased and retired (16,518) (193,974) (55,008)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 202,804 (199,716) 35,861
- ---------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (27,437) 17,218 21,752
Cash and Cash Equivalents at Beginning of Year 108,083 90,865 69,113
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 80,646 $ 108,083 $ 90,865
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
Page 8
Consolidated Stockholders' Equity
Common Capital in
Stock $1.00 Excess of Retained
(In thousands except per share data) Par Value Par Value Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance at February 1, 1996 $ 251,919 $ 3,269 $ 1,697,335 $ 1,952,523
Exercise of stock options 351 2,977 3,328
Tax benefits related to stock options 3,310 3,310
Stock purchased and retired (1,580) (9,464) (43,964) (55,008)
Cash dividends, $0.60 per share (150,914) (150,914)
Net earnings 493,779 493,779
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 30, 1997 250,690 92 1,996,236 2,247,018
Exercise of stock options 414 3,186 3,600
Tax benefits related to stock options 3,974 3,974
Stock purchased and retired (5,368) (2,981) (185,625) (193,974)
Cash dividends, $0.64 per share (157,976) (157,976)
Net earnings 516,814 516,814
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 29, 1998 245,736 4,271 2,169,449 2,419,456
Exercise of stock options 310 2,537 2,847
Tax benefits related to stock options 4,550 4,550
Stock purchased and retired (349) (6,119) (10,050) (16,518)
Cash dividends, $0.68 per share (167,034) (167,034)
Net earnings 567,153 567,153
- ---------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 1999 $ 245,697 $ 5,239 $ 2,559,518 $ 2,810,454
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
Page 9
Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)
The Company
Albertson's, Inc. (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. Based on sales, the Company is one of the largest retail food-drug
chains in the United States. As of January 28, 1999, the Company operated 983
stores in 25 Western, Midwestern and Southern states. Retail operations are
supported by 11 Company-owned distribution centers, strategically located in the
Company's operating markets. The Company's distribution centers provide product
exclusively to the Company's retail stores.
Summary of Significant Accounting Policies
FISCAL YEAR END: The Company's fiscal year is generally 52 weeks and
periodically consists of 53 weeks because the fiscal year ends on the Thursday
nearest to January 31 each year. Unless the context otherwise indicates,
reference to a fiscal year of the Company refers to the calendar year in which
such fiscal year commences.
CONSOLIDATION: The consolidated financial statements include the results of
operations, account balances and cash flows of the Company and its wholly owned
subsidiaries. All material intercompany balances have been eliminated.
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. Investments, which consist of government-backed money
market funds and repurchase agreements backed by government securities, are
recorded at cost which approximates market value.
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.
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; leasehold improvements--10 to 15 years; and capitalized
leases--25 to 30 years. Long-lived assets are reviewed for impairment whenever
events or changes in business circumstances indicate the carrying value of the
assets may not be recoverable.
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. Capital leases are recorded at the lower of the
fair market value of the asset or the present value of future minimum lease
payments. These leases 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 are amortized over the lease term using the
straight-line method. Lease liabilities are amortized over the lease term using
the interest method.
Upon disposal of fixed assets, the appropriate property accounts are
reduced by the related costs and accumulated depreciation and amortization. The
resulting gains and losses are reflected in consolidated earnings.
GOODWILL: Goodwill resulting from business acquisitions represents the
excess of purchase price over fair value of net assets acquired and is being
amortized over 40 years using the straight-line method. Accumulated amortization
amounted to $2.7 million as of January 28, 1999. Periodically, the Company
re-evaluates goodwill and other intangibles based on undiscounted operating cash
flows whenever significant events or changes occur which might impair recovery
of recorded asset costs.
SELF-INSURANCE: The Company is primarily self-insured for property loss,
workers' compensation and general liability costs. Self-insurance liabilities
are based on claims filed and estimates for claims incurred but not reported.
These liabilities are not discounted.
UNEARNED INCOME: Unearned income consists primarily of buying and
promotional allowances received from vendors in connection with the Company's
buying and merchandising activities. These funds are recognized as revenue when
earned by purchasing specified amounts of product or promoting certain products.
STORE OPENING AND CLOSING COSTS: Noncapital expenditures incurred in
opening new stores or remodeling existing stores are expensed in the year in
which they are incurred. When a store is closed, the remaining investment in
fixed assets, net of expected recovery value, is expensed. For properties under
operating lease agreements, the present value of any remaining liability under
the lease, net of expected sublease recovery, is also expensed.
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. Cooperative
advertising income from vendors is recorded in the period in which the related
expense is incurred. Net advertising expenses of $48.7 million, $44.0 million
and $34.7 million were included with cost of sales in the Company's Consolidated
Earnings for 1998, 1997 and 1996, respectively.
Page 10
STOCK OPTIONS: Statement of Financial Accounting Standards 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 No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost of stock
options 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.
COMPANY-OWNED LIFE INSURANCE: The Company has purchased life insurance
policies to cover its obligations under 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 income (expense) in the Company's Consolidated Earnings.
INCOME TAXES: The Company provides for deferred income taxes resulting from
temporary differences in reporting certain income and expense items for income
tax and financial accounting purposes. The major temporary differences and their
net effect are shown in the "Income Taxes" note.
EARNINGS PER SHARE: Earnings per share (EPS) are computed in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings per Share."
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 potential common shares
outstanding. Potential common shares consist solely of outstanding options under
the Company's stock option plans. There were no outstanding options excluded
from the computation of potential common shares (option price exceeded the
average market price during the period) in 1998. Outstanding options excluded in
1997 and 1996 amounted to 1,520,000 shares and 24,000 shares, respectively.
RECLASSIFICATIONS: Certain reclassifications have been made in prior years'
financial statements to conform to classifications used in the current year.
USE OF ESTIMATES: The preparation of the Company's consolidated financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions. 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. Actual results could differ from these estimates.
Impairment - Store Closures
The Company recorded a charge to earnings in 1998 related to management's
decision to close 16 underperforming stores in 8 states. The charge included
impaired real estate and equipment, as well as the present value of remaining
liabilities under leases, net of expected sublease recoveries. As of January 28,
1999, 13 of these stores had been closed and management believes the 1998 charge
and remaining reserve are adequate.
Supplemental Cash Flow Information
Selected cash payments and noncash activities were as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash payments for income taxes $ 341,334 $ 284,030 $ 288,590
Cash payments for interest, net of amounts capitalized 95,553 65,930 59,284
Noncash investing and financing activities:
Tax benefits related to stock options 4,550 3,974 3,310
Fair market value of stock exchanged for option price 1,460 2,021 768
Fair market value of stock exchanged for tax withholdings 1,796 1,606 202
Capitalized lease obligations incurred 24,857 22,228 12,005
Capitalized lease obligations terminated 5,509 1,632 3,240
Acquisition note payable 8,000
Liabilities assumed in connection with asset acquisitions 1,840 150 692
Business Combinations
On January 30, 1998, the Company acquired Seessel Holdings, Inc., a wholly
owned subsidiary of Bruno's, Inc. for cash consideration of approximately $88
million. This acquisition included 10 grocery stores in the Memphis, Tennessee,
area, and a central bakery and central kitchen, which manufacture fresh bakery
and prepared foods for distribution to the Seessel's stores. The Company
operates these stores under the Seessel's banner.
Page 11
On April 20, 1998, the Company acquired Smitty's Super Markets, Inc., for
cash consideration of approximately $36 million plus an $8 million unsecured
note payable. This acquisition included 10 combination stores and 3 fuel centers
with convenience stores in the Springfield and Joplin, Missouri, areas.
On August 24, 1998, the Company purchased the assets of 15 Bruno's, Inc.,
stores for approximately $36 million. This acquisition included 14 operating
stores and 1 store under construction which, when completed, will replace a
store currently operating. The stores are located in the Nashville and
Chattanooga, Tennessee, metropolitan areas. The Chattanooga area stores include
a store in northern Georgia. The Company operates these stores under the
Albertson's banner.
On October 1, 1998, the Company acquired Buttrey Food and Drug Stores
Company for cash consideration of approximately $142 million. This acquisition
included 44 stores in Montana, North Dakota and Wyoming. In accordance with an
agreement with the Federal Trade Commission, 9 Buttrey stores and 6 Albertson's
stores were simultaneously divested with the purchase. The Company operates the
acquired Buttrey stores under the Albertson's banner.
All acquisitions were accounted for using the purchase method of
accounting. The results of operations of the acquired businesses have been
included in the consolidated financial statements from their date of
acquisition. Pro forma results of operations have not been presented due to the
immaterial effects of these acquisitions on the Company's consolidated
operations. For each of these acquisitions, the excess of the purchase price
over the fair market value of net assets acquired, of $151 million, was
allocated to goodwill which is being amortized over 40 years. The Company has
not finalized its purchase price allocation relative to all of the acquisitions;
however, the final purchase price allocations should not differ significantly
from the preliminary purchase price allocations recorded as of January 28, 1999.
On August 2, 1998, the Company entered into a definitive merger agreement
with American Stores Company (ASC) which was approved by the stockholders of
Albertson's and ASC on November 12, 1998. The agreement provides for a business
combination between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company. Under the terms of the agreement, the holders of ASC
common stock will be issued 0.63 shares of Albertson's, Inc., common stock in
exchange for each share of ASC common stock, with cash being paid in lieu of
fractional shares, in a transaction intended to qualify as a pooling of
interests for accounting purposes and as a tax-free reorganization for federal
income tax purposes. Based on the number of common shares outstanding as of
Albertson's and ASC's respective 1998 fiscal year ends, consummation of the
merger would result in former stockholders of ASC holding approximately 42% of
the outstanding Albertson's common stock (assuming no conversion of outstanding
options). The transaction is subject to certain regulatory clearance and is
expected to close during the latter part of the Company's first fiscal quarter
or early in the second fiscal quarter of 1999.
Accounts and Notes Receivable
Accounts and notes receivable consisted of the following:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Trade and other accounts receivable $ 152,226 $ 119,856 $ 97,186
Current portion of notes receivable 2,688 2,367 2,178
Allowance for doubtful accounts (1,200) (1,200) (1,000)
- ---------------------------------------------------------------------------------------------------------------------------
$ 153,714 $ 121,023 $ 98,364
- ---------------------------------------------------------------------------------------------------------------------------
Inventories
Approximately 96% 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 $250.3 million, $242.0 million and $232.8 million
higher at the end of 1998, 1997 and 1996, respectively. Net earnings (basic and
diluted earnings per share) would have been higher by $5.3 million ($0.02) in
1998, $5.7 million ($0.02) in 1997 and $9.3 million ($0.04) in 1996. The
replacement cost of inventories valued at LIFO approximates FIFO cost.
Page 12
Land, Buildings and Equipment
Land, buildings and equipment consisted of the following:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Land $ 950,946 $ 795,246 $ 700,208
Buildings 2,419,971 2,055,276 1,799,976
Fixtures and equipment 2,087,977 1,779,469 1,607,454
Leasehold improvements 418,833 372,428 328,249
Capitalized leases 225,162 203,217 186,768
- ---------------------------------------------------------------------------------------------------------------------------
6,102,889 5,205,636 4,622,655
Accumulated depreciation and amortization (2,128,876) (1,822,263) (1,568,015)
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,974,013 $ 3,383,373 $ 3,054,640
- ---------------------------------------------------------------------------------------------------------------------------
Indebtedness
Long-term debt consisted of the following:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Commercial paper $ 326,425 $ 283,304 $ 328,996
Bank line 173,834
Unsecured medium-term notes issued in 1998 317,000
Unsecured medium-term notes issued in 1997 200,000 200,000
Unsecured 7.75% debentures due June 2026 200,000 200,000 200,000
Unsecured 6.375% notes due June 2000 200,000 200,000 200,000
Unsecured medium-term notes issued in 1993 89,650 175,075 175,075
Industrial revenue bonds 13,515 14,230 14,860
Mortgage notes and other unsecured notes payable 13,999 3,552 3,748
- ---------------------------------------------------------------------------------------------------------------------------
1,534,423 1,076,161 922,679
Current maturities (6,991) (86,511) (975)
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,527,432 $ 989,650 $ 921,704
- ---------------------------------------------------------------------------------------------------------------------------
The Company has in place a $600 million commercial paper program. Interest
rates on the outstanding commercial paper borrowings as of January 28, 1999,
ranged from 4.82% to 4.93% with an effective weighted average rate of 4.86%.
Interest rates on amounts drawn against bank line borrowings outstanding as of
January 28, 1999, ranged from 5.38% to 5.41% with an effective weighted average
rate of 5.40%. The Company has established the necessary credit facilities,
through its revolving credit agreement, to refinance the commercial paper and
bank line borrowings on a long-term basis. These borrowings have been classified
as noncurrent because it is the Company's intent to refinance these obligations
on a long-term basis.
During 1998 the Company issued a total of $317 million in medium-term notes
under a $500 million shelf registration statement filed with the Securities and
Exchange Commission (SEC) in December 1997. Medium-term notes of $84 million
issued in February 1998 mature at various dates between February 2013 and
February 2028, with interest paid semiannually at rates ranging from 6.34% and
6.57%. Medium-term notes of $77 million issued in April 1998 mature in April
2028, with interest paid semiannually at rates ranging from 6.10% to 6.53%.
Medium-term notes of $156 million issued in June 1998 mature in June 2028, with
interest paid semiannually at a rate of 6.63%. The weighted average interest
rate on these notes outstanding at January 28, 1999, was 6.49%.
Page 13
In July 1997 the Company issued $200 million of medium-term notes under a
shelf registration statement filed with the SEC in May 1996. The notes mature at
various dates between July 2007 and July 2027. Interest is paid semiannually at
rates ranging from 6.56% to 7.15%. The weighted average interest rate on these
notes outstanding at January 28, 1999, was 6.81%.
In June 1996 the Company issued $200 million of 7.75% debentures under a
shelf registration statement filed with the SEC in May 1996. Interest is paid
semiannually.
In June 1995 the Company issued $200 million of 6.375% notes under a shelf
registration statement filed with the SEC in 1992. Interest is paid
semiannually.
The medium-term notes issued in 1993 mature in March 2000. Interest is paid
semiannually at rates ranging from 6.03% to 6.28%. The weighted average interest
rate on these notes outstanding at January 28, 1999, was 6.14%.
The industrial revenue bonds are payable in varying annual installments
through 2011, with interest paid semiannually at rates ranging from 4.60% to
6.95%. The weighted average interest rate on these amounts outstanding at
January 28, 1999, was 6.00%.
The Company has pledged real estate with a cost of $10.8 million as
collateral for a mortgage note which is payable semiannually, including interest
at a rate of 16.5%. The note is payable from 1999 to 2013.
The scheduled maturities of long-term debt outstanding at January 28, 1999,
are summarized as follows: $7.0 million in 1999, $295.3 million in 2000, $501.7
million in 2001, $1.7 million in 2002, $1.9 million in 2003 and $726.8 million
thereafter. Medium-term notes of $30 million 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 million 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 Company has in place a revolving credit agreement with several banks,
whereby the Company may borrow principal amounts up to $600 million at varying
interest rates any time prior to December 17, 2001. The agreement contains
certain covenants, the most restrictive of which requires the Company to
maintain consolidated tangible net worth, as defined, of at least $750 million.
In addition to amounts available under the revolving credit agreement, the
Company had lines of credit from banks at prevailing interest rates for $635
million at January 28, 1999 (of which $175 million was drawn). The cash balances
maintained at these banks are not legally restricted. There were no amounts
outstanding under the Company's lines of credit as of January 29, 1998, or
January 30, 1997.
The Company filed a shelf registration statement with the SEC, which became
effective in February 1999, to authorize the issuance of up to $2.5 billion in
debt securities. The remaining authorization of $183 million under the 1997
shelf registration statement was rolled into the 1999 shelf registration
statement. The Company intends to use the net proceeds of any securities sold
pursuant to the 1999 shelf registration statement for general corporate
purposes, including retirement of debt, working capital, acquisitions and other
business opportunities.
Net interest expense was as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Debt $ 87,946 $ 66,418 $ 48,534
Capitalized leases 18,132 16,629 15,168
Capitalized interest (9,142) (8,683) (6,378)
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense 96,936 74,364 57,324
Net bank service charges 10,138 8,199 7,245
- ---------------------------------------------------------------------------------------------------------------------------
$ 107,074 $ 82,563 $ 64,569
- ---------------------------------------------------------------------------------------------------------------------------
Page 14
Other Long-Term Liabilities and Deferred Credits
Other long-term liabilities and deferred credits consisted of the following:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Deferred compensation $ 48,899 $ 43,014 $ 37,905
Deferred income taxes 7,267 17,520 15,876
Deferred rents payable 59,806 64,674 69,305
Self-insurance 114,232 114,227 107,591
Unearned income 46,885 81,931 69,756
Other, primarily postemployment and postretirement benefit liabilities 83,060 71,642 60,335
- ---------------------------------------------------------------------------------------------------------------------------
$ 360,149 $ 393,008 $ 360,768
- ---------------------------------------------------------------------------------------------------------------------------
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. 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
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, other than
such person or group, upon payment of the $160 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.
Since 1987, the Board of Directors has continuously adopted or renewed
programs under which the Company is authorized, but not required, to purchase
and retire shares of its common stock. The program adopted by the Board of
Directors on March 2, 1998, authorized the Company to purchase and retire up to
5 million shares through March 31, 1999. On August 2, 1998, the Board of
Directors rescinded the remaining authorization in connection with the pending
merger with American Stores Company. The Company has purchased and retired an
equivalent of 22.3 million shares of its common stock for $500 million under
these programs, at an average price of $22.40 per share.
Page 15
Income Taxes
Deferred tax assets and liabilities consisted of the following:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax assets (no valuation allowances considered necessary):
Nondeductible accruals for:
Self-insurance $ 72,426 $ 71,243 $ 67,547
Leases 19,073 19,517 20,238
Compensated absences 26,289 18,200 17,057
Deferred compensation 19,600 17,358 15,406
Postemployment benefits 18,598 15,407 13,721
Property valuation 13,637 8,845 8,339
Postretirement benefits 7,219 6,042 5,057
Pension costs 4,535 3,854 3,387
Other 10,886 4,495 3,996
Income unearned for financial reporting purposes 30,742 29,136 30,741
Costs capitalized for tax purposes 15,553 4,724 5,615
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 238,558 198,821 191,104
- ---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Land, buildings and equipment (143,981) (130,344) (127,078)
Pension costs expensed for tax purposes (24,450) (18,215) (20,264)
Inventory valuation (15,194) (12,155) (8,863)
Funded benefits (3,540) (9,014) (7,778)
Other (1,150) (866) (193)
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (188,315) (170,594) (164,176)
- ---------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 50,243 $ 28,227 $ 26,928
- ---------------------------------------------------------------------------------------------------------------------------
As a result of an acquisition that occurred during 1998, the Company has
succeeded to federal and state net operating loss carryforwards of $21.6 million
and $13.9 million, respectively, that will expire in various years through 2010.
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; therefore, no valuation allowance is considered necessary.
Page 16
Income tax expense was as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Current:
Federal $ 303,073 $ 273,896 $ 229,006
State 46,807 37,664 38,367
- ---------------------------------------------------------------------------------------------------------------------------
349,880 311,560 267,373
- ---------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (19,070) (1,142) 29,008
State (2,946) (157) 4,860
- ---------------------------------------------------------------------------------------------------------------------------
(22,016) (1,299) 33,868
- ---------------------------------------------------------------------------------------------------------------------------
Amortization of deferred investment tax credits (172) (172) (173)
- ---------------------------------------------------------------------------------------------------------------------------
$ 327,692 $ 310,089 $ 301,068
- ---------------------------------------------------------------------------------------------------------------------------
The reconciliations between the federal statutory tax rate and the
Company's effective tax rates were as follows:
1998 Percent 1997 Percent 1996 Percent
- ---------------------------------------------------------------------------------------------------------------------------
Taxes computed at statutory rate $ 313,196 35.0 $ 289,416 35.0 $ 278,196 35.0
State income taxes net of
federal income tax benefit 29,155 3.3 24,268 2.9 28,345 3.6
Amortization of deferred
investment tax credits (172) (172) (173)
Other (14,487) (1.7) (3,423) (0.4) (5,300) (0.7)
- ---------------------------------------------------------------------------------------------------------------------------
$ 327,692 36.6 $ 310,089 37.5 $ 301,068 37.9
- ---------------------------------------------------------------------------------------------------------------------------
Stock Options
The Company has two stock option plans currently in effect under which
grants may be made with respect to 10,400,000 shares of the Company's common
stock. Under these plans, approved by the stockholders in 1995, options may be
granted to officers and key employees, and to directors, respectively, to
purchase the Company's common stock. Generally, options are granted with an
exercise price at not less than 100% of the closing market price on the date of
the grant, become exercisable in installments of 20% per year on each of the
fifth through ninth anniversaries of the grant date and have a maximum term of
10 years. Upon consummation of the pending merger with American Stores Company,
all outstanding options will become exercisable in accordance with the change of
control provisions of the stock option plans.
During 1998 the stockholders approved Albertson's, Inc., Amended and
Restated 1995 Stock-Based Incentive Plan. The amendment increased the number of
shares available for issuance from 10 million to 30 million shares and will
become effective upon the consummation of the pending American Stores merger.
Page 17
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 28, 1999 January 29, 1998 January 30, 1997
---------------- ---------------- ----------------
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 5,018 $ 32.58 4,056 $ 25.29 3,824 $ 21.51
Granted 24 45.94 1,524 45.48 790 35.14
Exercised (370) 16.52 (507) 14.09 (376) 10.91
Forfeited (128) 32.44 (55) 23.12 (182) 18.35
- ------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 4,544 $ 33.96 5,018 $ 32.58 4,056 $ 25.29
- ------------------------------------------------------------------------------------------------------------------------------
As of January 28, 1999, there were 7,123,000 shares of common stock
reserved for the granting of additional options.
The following table summarizes options outstanding and options exercisable
as of January 28, 1999, 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
- ---------------------------------------------------------------------------------------------------------------------------
$ 8.69 to $ 13.56 84 0.9 $ 13.28 52 $ 13.54
16.56 to 24.31 702 3.0 19.09 233 18.40
25.13 to 35.00 2,247 6.6 31.54 99 27.96
39.75 to 45.94 1,511 8.1 45.61 67 43.91
- ---------------------------------------------------------------------------------------------------------------------------
$ 8.69 to $ 45.94 4,544 6.5 $ 33.96 451 $ 23.73
- ---------------------------------------------------------------------------------------------------------------------------
The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $17.14, $15.26 and $10.74 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:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Expected life (years) 8.0 6.5 7.0
Risk-free interest rate 5.74% 5.92% 6.24%
Volatility 26.70 26.53 22.06
Dividend yield 1.48 1.41 1.70
Page 18
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock options granted in the prior three years. Had compensation cost been
determined based on the fair value at the grant date consistent with the
provisions of this statement, the Company's pro forma net earnings and earnings
per share would have been as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings:
As reported $ 567,153 $ 516,814 $ 493,779
Pro forma 563,035 514,602 492,558
Basic earnings per share:
As reported 2.31 2.09 1.96
Pro forma 2.29 2.08 1.96
Diluted earnings per share:
As reported 2.30 2.08 1.95
Pro forma 2.28 2.07 1.95
The pro forma effect on historical net earnings is not representative of
the pro forma effect on net earnings in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.
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. The Company sponsors two funded plans,
Albertson's Salaried Employees Pension Plan and Albertson's Employees Corporate
Pension Plan, which are qualified, defined benefit, noncontributory plans for
eligible 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 larger of the amount required to fully fund the Plan's
current liability or the amount necessary to meet the funding requirements as
defined by the Internal Revenue Code.
The Company also sponsors an unfunded Executive Pension Makeup Plan. This
plan is nonqualified and provides certain key employees defined pension benefits
which supplement those provided by the Company's other retirement plans.
Net periodic benefit cost is determined using assumptions as of the
beginning of each year. The projected benefit obligation and related funded
status is determined using assumptions as of the end of each year. Assumptions
used at the end of each year for all Company-sponsored pension and
postretirement benefit plans were as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Weighted-average discount rate 6.25% 6.60% 7.50%
Annual salary increases 4.50-4.95 4.50-5.00 4.50-5.00
Expected long-term rate of return on assets 9.50 9.50 9.50
Page 19
Net periodic benefit cost for Company-sponsored pension plans was as
follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 41,627 $ 26,776 $ 24,138
Interest cost on projected benefit obligations 30,164 23,174 20,095
Expected return on assets (42,263) (34,118) (30,600)
Amortization of transition asset (6) (6) (6)
Amortization of prior service cost 944 944 944
Recognized net actuarial loss (gain) 2,605 (145) 39
- ---------------------------------------------------------------------------------------------------------------------------
$ 33,071 $ 16,625 $ 14,610
- ---------------------------------------------------------------------------------------------------------------------------
The following table sets forth the funded status of the Company-sponsored
pension plans:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Change in projected benefit obligation:
Beginning of year benefit obligation $ 411,983 $ 293,842 $ 269,645
Service cost 41,627 26,776 24,138
Interest cost 30,164 23,174 20,095
Actuarial loss (gain) 72,195 75,565 (12,716)
Benefits paid (9,419) (7,374) (7,320)
- ---------------------------------------------------------------------------------------------------------------------------
End of year benefit obligation 546,550 411,983 293,842
- ---------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Plan assets at fair value at beginning of year 414,532 354,806 321,758
Actual return on plan assets 96,200 56,700 36,295
Employer contributions 47,570 10,400 4,073
Benefit payments (9,419) (7,374) (7,320)
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value at end of year 548,883 414,532 354,806
- ---------------------------------------------------------------------------------------------------------------------------
Funded status 2,333 2,549 60,964
Unrecognized net loss (gain) 45,560 29,922 (23,205)
Unrecognized prior service cost 3,539 4,483 5,427
Unrecognized net transition liability 548 542 536
Additional minimum liability (3,747) (2,612) (1,080)
- ---------------------------------------------------------------------------------------------------------------------------
Net prepaid pension cost $ 48,233 $ 34,884 $ 42,642
- ---------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost included with other assets $ 63,822 $ 47,559 $ 52,497
Accrued pension cost included with other long-term liabilities (15,589) (12,675) (9,855)
- ---------------------------------------------------------------------------------------------------------------------------
Net prepaid pension cost $ 48,233 $ 34,884 $ 42,642
- ---------------------------------------------------------------------------------------------------------------------------
Page 20
The following table summarizes the Company-sponsored pension plans which
have projected benefit obligations in excess of plan assets and the accumulated
benefit obligation of the unfunded makeup plan in which the accumulated benefit
obligation exceeds plan assets:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets:
Projected benefit obligation $ 18,950 $ 240,869 $ 11,761
Fair value of plan assets 217,743
Accumulated benefit obligation in excess of plan assets:
Accumulated benefit obligation 15,589 12,675 9,855
Assets of the two funded Company plans are invested in directed trusts.
Assets in the directed trusts are invested in common stocks (including $68.0
million, $52.4 million and $38.4 million of the Company's common stock at
January 28, 1999, January 29, 1998, and January 30, 1997, 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 $23.5 million for 1998, $22.5 million for 1997
and $24.9 million for 1996.
The Company sponsors a tax-deferred savings plan which is a salary deferral
plan pursuant to Section 401(k) of the Internal Revenue Code. Employees eligible
to participate are those who are at least 21 years of age with one or more years
of service and (with certain exceptions) are not covered by collective
bargaining agreements. All contributions are determined and made by the
employees and the Company incurs no material costs in connection with this plan.
Most retired employees of the Company are eligible to remain in its health
and life insurance plans. Retirees who elect to remain in the Company-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 net periodic post-retirement benefit cost was as
follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Service cost $ 1,898 $ 1,483 $ 1,304
Interest cost 1,290 1,138 989
Amortization of unrecognized loss 27 22
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,215 $ 2,621 $ 2,315
- ---------------------------------------------------------------------------------------------------------------------------
Page 21
The following table sets forth the funded status of the Company-sponsored
postretirement health and life insurance benefit plan:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Change in accumulated benefit obligation:
Beginning of year benefit obligation $ 17,547 $ 14,153 $ 12,486
Service cost 1,898 1,483 1,304
Interest cost 1,290 1,138 989
Plan participants' contributions 1,692 1,396 1,237
Actuarial loss (gain) 737 721 (428)
Benefits paid (1,832) (1,344) (1,435)
- ---------------------------------------------------------------------------------------------------------------------------
End of year benefit obligation 21,332 17,547 14,153
- ---------------------------------------------------------------------------------------------------------------------------
Plan assets activity:
Employer contributions (excess) 140 (52) 198
Plan participants' contributions 1,692 1,396 1,237
Benefit payments (1,832) (1,344) (1,435)
- ---------------------------------------------------------------------------------------------------------------------------
Funded status (21,332) (17,547) (14,153)
Unrecognized net loss 2,483 1,773 1,052
- ---------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligations included with other
long-term liabilities $ (18,849) $ (15,774) $ (13,101)
- ---------------------------------------------------------------------------------------------------------------------------
Annual rates of increases in health care costs are not applicable in the
calculation of the benefit obligation because the Company's contribution is a
fixed amount.
Statement of Financial Accounting Standards 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 under its employees' short-term and
long-term disability plans which are the primary benefits paid to inactive
employees prior to retirement. Following is a summary of the obligation for
postemployment benefits included in the Company's consolidated balance sheets:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Included with salaries and related liabilities $ 7,014 $ 6,661 $ 4,620
Included with other long-term liabilities 41,546 33,567 30,927
- ---------------------------------------------------------------------------------------------------------------------------
$ 48,560 $ 40,228 $ 35,547
- ---------------------------------------------------------------------------------------------------------------------------
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 $93.1 million
for 1998, $96.5 million for 1997 and $100.0 million for 1996.
The Company has bonus plans for store management personnel and other key
management personnel. Amounts charged to earnings under all bonus plans were
$86.7 million for 1998, $67.0 million for 1997 and $66.1 million for 1996.
Leases
The Company leases a portion of its real estate. The typical lease period
is 25 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.
Page 22
Capitalized leases are calculated using interest rates appropriate at the
inception of each lease. Contingent rents associated with capitalized leases
were $1.1 million in 1998, $1.4 million in 1997 and $1.8 million in 1996.
Following is an analysis of the Company's capitalized leases:
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Real estate and equipment $ 225,162 $ 203,217 $ 186,768
Accumulated amortization (91,025) (87,204) (83,208)
- ---------------------------------------------------------------------------------------------------------------------------
$ 134,137 $ 116,013 $ 103,560
- ---------------------------------------------------------------------------------------------------------------------------
Future minimum lease payments for noncancelable operating leases, related
subleases and capital leases at January 28, 1999, were as follows:
Operating Capital
Leases Subleases Leases
- ---------------------------------------------------------------------------------------------------------------------------
1999 $ 90,820 $ (13,463) $ 29,820
2000 90,460 (13,186) 29,684
2001 88,657 (11,138) 29,048
2002 83,886 (8,230) 21,252
2003 81,760 (6,253) 19,918
Remainder 668,028 (20,756) 243,253
- ---------------------------------------------------------------------------------------------------------------------------
Total minimum obligations (receivables) $ 1,103,611 $ (73,026) 372,975
- ---------------------------------------------------------------------------------------------------------------------------
Interest (204,526)
- ---------------------------------------------------------------------------------------------------------------------------
Present value of net minimum obligations 168,449
Current portion of capitalized lease obligations (11,347)
- ---------------------------------------------------------------------------------------------------------------------------
Long-term capitalized lease obligations at January 28, 1999 $ 157,102
- ---------------------------------------------------------------------------------------------------------------------------
The present value of minimum lease payments under operating leases using an
assumed discount rate of 8.0% was approximately $576 million at January 28,
1999.
Rent expense under operating leases was as follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Minimum rent $ 93,094 $ 81,402 $ 77,214
Contingent rent 3,605 3,469 4,155
- ---------------------------------------------------------------------------------------------------------------------------
96,699 84,871 81,369
Sublease rent (39,214) (31,120) (23,498)
- ---------------------------------------------------------------------------------------------------------------------------
$ 57,485 $ 53,751 $ 57,871
- ---------------------------------------------------------------------------------------------------------------------------
Page 23
Financial Instruments
Financial instruments with off-balance-sheet risk to the Company include
lease guarantees whereby the Company is contingently liable as a guarantor of
certain leases that were assigned to third parties in connection with various
store closures. Minimum rentals guaranteed under assigned leases are $6.1
million in fiscal 1999 and aggregate $44.9 million for the remaining lease
terms, which expire at various dates through 2028. 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.
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 commercial paper borrowings
approximate their carrying amounts. The estimated fair values and carrying
amounts of long-term debt borrowings (excluding commercial paper) were as
follows (in millions):
January 28, January 29, January 30,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
Fair value $ 1,284.9 $ 833.8 $ 606.3
Carrying amount 1,208.0 792.9 593.7
Substantially all of these fair values were determined from quoted market
prices. The Company has not determined the fair value of lease guarantees due to
the inherent difficulty in evaluating the credit worthiness of each tenant.
Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This new standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This standard is effective for the Company's 2000 fiscal year. The Company has
not yet completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.
Legal Proceedings
Three civil lawsuits filed in September 1996 as purported statewide class
actions in Washington, California and Florida and two civil lawsuits filed in
April 1997 in federal court in Boise, Idaho, as purported multi-state class
actions covering the remaining states in which the Company operated at the time
have been brought against the Company raising various issues that include: (i)
allegations that the Company has a widespread practice of permitting its
employees to work "off-the-clock" without being paid for their work and (ii)
allegations that the Company's bonus and workers' compensation plans are
unlawful. Four of these suits are being sponsored and financed by the United
Food and Commercial Workers (UFCW) International Union. The five suits have been
consolidated in Boise, Idaho. The consolidated complaint for these suits further
alleges claims under the Employee Retirement Income Security Act. In addition,
three other similar suits have been filed as purported class actions in
Colorado, New Mexico and Nevada which, in effect, duplicate the coverage of the
UFCW-sponsored suits under state law. These three cases have been transferred to
the federal court in Boise, Idaho, for consolidation or coordination with the
pending Boise litigation.
The Company is committed to full compliance with all applicable laws.
Consistent with this commitment, the Company has firm and long-standing policies
in place prohibiting off-the-clock work and has structured its bonus and
workers' compensation plans to comply with applicable law. The Company believes
that the UFCW-sponsored suits are part of a broader and continuing effort by the
UFCW and some of its locals to pressure the Company to unionize employees who
have not expressed a desire to be represented by a union. The Company intends to
vigorously defend against all of these lawsuits, and, at this stage of the
litigation, the Company believes that it has strong defenses against 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 the ultimate resolution of these actions to have a
material adverse effect on the Company's financial condition.
The Company is also involved in routine litigation incidental to
operations. In the opinion of management, the ultimate resolution of these legal
proceedings will not have a material adverse effect on the Company's financial
condition.
Page 24
Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas
and major customers. The Company has analyzed the reporting requirements of the
new standard and has determined that its operations are within one reportable
segment.
Page 25
Responsibility for Financial Reporting
The management of Albertson's, Inc., is responsible for the preparation and
integrity of the consolidated financial statements of the Company. The
accompanying consolidated financial statements have been prepared by the
management of the Company, in accordance with generally accepted accounting
principles, using management's best estimates and judgment where necessary.
Financial information appearing throughout this Annual Report is consistent with
that in the consolidated financial statements.
To help fulfill its responsibility, management maintains a system of
internal controls designed to provide reasonable assurance that assets are
safeguarded against loss or unauthorized use and that transactions are executed
in accordance with management's authorizations and are reflected accurately in
the Company's records. The concept of reasonable assurance is based on the
recognition that the cost of maintaining a system of internal accounting
controls should not exceed benefits expected to be derived from the system. The
Company believes that its long-standing emphasis on the highest standards of
conduct and ethics, set forth in comprehensive written policies, serves to
reinforce its system of internal controls.
Deloitte & Touche LLP, independent auditors, audited the consolidated
financial statements in accordance with generally accepted auditing standards to
independently assess the fair presentation of the Company's financial position,
results of operations and cash flows.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, oversees the fulfillment by management of its responsibilities over
financial controls and the preparation of financial statements. The Audit
Committee meets with internal and external auditors four times per year to
review audit plans and audit results. This provides internal and external
auditors direct access to the Board of Directors.
Management recognizes its responsibility to conduct the business of
Albertson's, Inc., in accordance with high ethical standards. This
responsibility is reflected in key policy statements that, among other things,
address potentially conflicting outside business interests of Company employees
and specify proper conduct of business activities. Ongoing communications and
review programs are designed to help ensure compliance with these policies.
/s/ Gary G. Michael /s/ A. Craig Olson
Gary G. Michael A. Craig Olson
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Page 26
Independent Auditors' Report
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 28, 1999, January 29, 1998,
and January 30, 1997, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Albertson's, Inc., and
subsidiaries at January 28, 1999, January 29, 1998, and January 30, 1997, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte and Touche LLP
Boise, Idaho
March 17, 1999
Page 27
Five-Year Summary of Selected Financial Data
52 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
(Dollars in thousands January 28, January 29, January 30, February 1, February 2,
except per share data) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Operating Results:
Sales $ 16,005,115 $ 14,689,511 $ 13,776,678 $ 12,585,034 $ 11,894,621
Gross profit 4,383,089 3,881,824 3,565,330 3,213,298 3,007,894
Interest expense:
Debt 78,804 57,735 42,156 31,895 38,806
Capitalized lease obligations 18,132 16,629 15,168 15,234 13,412
Earnings before income taxes
and cumulative effect of
accounting change 894,845 826,903 794,847 758,501 678,652
Income taxes 327,692 310,089 301,068 293,540 261,281
Earnings before cumulative effect
of accounting change 567,153 516,814 493,779 464,961 417,371
Cumulative effect of accounting
change (17,006)
Net earnings 567,153 516,814 493,779 464,961 400,365
Net earnings as a percent to sales 3.54% 3.52% 3.58% 3.69% 3.37%
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Data:
Earnings per share before cumulative
effect of accounting change:
Basic $ 2.31 $ 2.09 $ 1.96 $ 1.84 $ 1.65
Diluted 2.30 2.08 1.95 1.83 1.64
Cumulative effect of accounting change (.07)
Earnings per share:
Basic 2.31 2.09 1.96 1.84 1.58
Diluted 2.30 2.08 1.95 1.83 1.57
Cash dividends per share 0.68 0.64 0.60 0.52 0.44
Book value per share 11.44 9.85 8.96 7.75 6.65
- ---------------------------------------------------------------------------------------------------------------------------
Financial Position:
Total assets $ 6,233,968 $ 5,218,590 $ 4,714,633 $ 4,135,911 $ 3,621,729
Working capital 455,074 352,338 420,830 194,509 94,150
Long-term debt 1,527,432 989,650 921,704 602,993 382,775
Capitalized lease obligations 157,102 140,957 130,050 129,265 129,573
Stockholders' equity 2,810,454 2,419,456 2,247,018 1,952,523 1,687,893
- ---------------------------------------------------------------------------------------------------------------------------
Other Year End Statistics:
Number of stores 983 878 826 764 720
Number of employees:
Total 100,000 94,000 88,000 80,000 76,000
Full-time equivalents 80,000 76,000 71,000 66,000 60,000
- ---------------------------------------------------------------------------------------------------------------------------
o In fiscal 1998 a $24.4 million pre-tax charge was recorded related to
management's decision to close 16 underperforming stores.
o In fiscal 1994 the Company adopted the provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The total cumulative effect of this accounting change (net of
$10.6 million in tax benefits) decreased net earnings by $17.0 million or
$0.07 per basic and diluted share.
Page 28
Quarterly Financial Data
(Dollars in thousands except
per share data - Unaudited) First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
1998
Sales $ 3,848,253 $ 3,995,052 $ 3,990,459 $ 4,171,351 $ 16,005,115
Gross profit 1,024,470 1,069,344 1,105,156 1,184,119 4,383,089
Net earnings 110,601 128,418 137,746 190,388 567,153
Earnings per share:
Basic 0.45 0.52 0.56 0.78 2.31
Diluted 0.45 0.52 0.56 0.77 2.30
- ---------------------------------------------------------------------------------------------------------------------------
1997
Sales $ 3,607,541 $ 3,680,509 $ 3,612,032 $ 3,789,429 $ 14,689,511
Gross profit 928,706 931,960 974,080 1,047,078 3,881,824
Net earnings 109,266 109,440 123,405 174,703 516,814
Earnings per share:
Basic 0.44 0.44 0.50 0.71 2.09
Diluted 0.43 0.44 0.50 0.71 2.08
- ---------------------------------------------------------------------------------------------------------------------------
o A $24.4 million pre-tax charge was recorded in fiscal 1998 related to
management's decision to close 16 underperforming stores. An initial pre-tax
charge of $29.4 million was recorded in the first quarter and a pre-tax
adjustment of $5.0 million was recorded in the fourth quarter.
The Company estimates the quarterly LIFO reserves which cannot be
accurately determined until year end. The LIFO method of valuing inventories
increased (decreased) net earnings and earnings per share as follows:
(Dollars in thousands except
per share data - Unaudited) First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
1998
Net earnings $ (5,000) $ (3,250) $ (3,250) $ 6,249 $ (5,251)
Basic and diluted earnings per share (0.02) (0.01) (0.01) 0.03 (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
1997
Net earnings $ (6,726) $ (6,800) $ (2,326) $ 10,120 $ (5,732)
Basic and diluted earnings per share (0.03) (0.03) (0.01) 0.04 (0.02)
- ---------------------------------------------------------------------------------------------------------------------------
o Due to rounding and different periods used to compute weighted average
outstanding shares, the sum of the quarterly earnings per share does not
equal the annual earnings per share.
Page 29
Stockholders' Information
ADDRESS INFORMATION CONTACT
Albertson's, Inc. Information on individual accounts
General Offices or on procedures necessary to make
250 Parkcenter Boulevard changes in an account is provided
P.O. Box 20 by ChaseMellon at (800)356-2017
Boise, Idaho 83726 between the hours of 9:00 a.m. and
Telephone: (208) 395-6200 7:00 p.m., Eastern Time, after a
stockholder identifies his or her
Internet Address account by providing a taxpayer
Major press releases and other identification number,
corporate data are available on the registration name on the
Albertson's Web site: securities and the address of
www.albertsons.com record. When directing
correspondence to ChaseMellon at
AUDITORS the address shown, stockholders
Deloitte & Touche LLP are reminded to include a
Boise, Idaho reference to Albertson's, Inc.
STOCK TRANSFER AGENT AND REGISTRAR COMPANY PROFILE AVAILABLE
ChaseMellon Shareholder Services, L.L.C. A copy of the Company Profile,
Shareholder Relations Department which contains a discussion of our
P.O. Box 3315 core values, including equal
South Hackensack, New Jersey 07606 opportunity, environmental quality
or and community support, as well as
ChaseMellon Shareholder Services, L.L.C. statistical information about the
Shareholder Relations Department Overpeck Company, is available to
Centre, 85 Challenger Road stockholders, without charge, upon
Ridgefield Park, NJ 07660 request to the Corporate Secretary
of Albertson's, Inc.
Telephone: (800) 356-2017
Internet address: www.chasemellon.com FORM 10-K AVAILABLE
A coy of Form 10-K Annual Report
STOCKHOLDERS OF RECORD filed with the Securities and
There were 18,000 stockholders of record Exchange Commission for
at March 17, 1999. Albertson's, Inc., fiscal year
ended January 28, 1999, is
ANNUAL MEETING available to stockholders,
The 1999 Annual Meeting of Stockholders without charge, upon request to
will be held at 10:00 a.m. Mountain the Corporate Secretary of
Daylight Time on Friday, May 28, 1999, Albertson's, Inc.
in the Eyries Room, Boise Centre on the
Grove, 850 Front Street, Boise, Idaho.
DIVIDEND INVESTMENT PLAN
The Company's Dividend Investment Plan
allows stockholders owning at least
15 shares of record to invest the
quarterly dividends automatically
and to purchase additional shares
under the Plan with voluntary cash
payments. More information may be
obtained from ChaseMellon at
(800) 982-7649 or from the Corporate
Secretary of Albertson's, Inc.
Page 30
Company Stock Information
The Company's stock is traded on the New York and Pacific stock exchanges
under the symbol ABS. The high and low stock prices by quarter were as follows:
First Second Third Fourth Year
High Low High Low High Low High Low High Low
- ---------------------------------------------------------------------------------------------------------------------------
1998 54 15/16 46 5/16 53 11/16 44 58 1/8 44 1/2 67 1/8 53 3/8 67 1/8 44
1997 37 30 1/2 38 11/16 31 7/8 37 3/4 32 3/4 48 5/8 36 5/16 48 5/8 30 1/2
1996 39 3/8 33 3/4 42 3/4 36 1/8 43 3/4 33 3/4 38 33 3/4 43 3/4 33 3/4
Cash dividends declared per share were:
First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------
1998 $ 0.17 $ 0.17 $ 0.17 $ 0.17 $ 0.68
1997 0.16 0.16 0.16 0.16 0.64
1996 0.15 0.15 0.15 0.15 0.60
o In March 1999 the Board of Directors increased the regular quarterly cash
dividend 5.9% to $0.18 per share from $0.17 per share, for an annual rate of
$0.72 per share. The new quarterly rate will be paid on April 30, 1999, to
stockholders of record on April 15, 1999.
Page 31