1
EXHIBIT 13
ALBERTSON'S, INC.
FINANCIAL REVIEW
Results of Operations
The Company has reported increased sales and earnings for 26 consecutive years.
Sales for 1995 were $12.6 billion compared to $11.9 billion in 1994 and $11.3
billion in 1993 (a 53-week year). Increases in sales are primarily attributable
to identical store sales increases (including inflation) and the continued
expansion of net retail square footage. Identical store sales, stores that have
been in operation for two full fiscal years, increased 0.8% in 1995, 2.3% (on a
comparable 52-week basis) in 1994 and 2.8% (on a comparable 53-week basis) in
1993. Identical store sales continued to increase through higher average ticket
sales per customer. Management estimates that inflation accounted for
approximately 0.6% of the 1995 identical store sales increase, compared to 0.7%
in 1994 and 0.6% in 1993. During 1995 the Company opened 58 stores (including 10
stores in the Company's new Houston, Texas market), remodeled 53 stores and
closed 14 stores for a net retail square footage increase of 2.6 million square
feet. Net retail square footage increased 7.6% in 1995, 7.7% in 1994 and 4.1% in
1993.
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
- ----------------------------------------------------------------------------------------------------------
1995 1994 1993
1995 1994 1993 vs. 1994 vs. 1993 vs. 1992
- ----------------------------------------------------------------------------------------------------------
Sales 100.00 100.00 100.00 5.8 5.4(1) 10.9(2)
Gross profit 25.61 25.33 24.74 7.0 7.9 13.8
Selling, general and
administrative expenses 19.19 19.08 19.07 6.5 5.4 9.5
Operating profit 6.41 6.25 5.66 8.6 16.3 31.2
Net interest expense 0.44 0.52 0.45 (10.5) 21.9 18.2
Earnings before income taxes
and cumulative effect
of accounting change 6.03 5.71 4.89 11.8 22.9 24.5
Net earnings 3.69 3.37 3.01 16.1 17.9 26.2
- ----------------------------------------------------------------------------------------------------------
(1) Increase is 7.4% when compared on a 52-week basis to 1993
(2) Increase is 8.8% when compared on a 53-week basis to 1992
Gross profit, as a percent to sales, increased due primarily to the expansion
and increased utilization of Company-owned distribution facilities. During 1995
and 1994, the Company's distribution system provided 77% of all products
purchased by retail stores, compared to 70% in 1993 and 66% in 1992. Utilization
of the Company's distribution system has enabled the Company to improve its
control over product costs and product distribution. Since March 1994, all of
the Company's retail stores have been serviced by Company-owned distribution
centers. The pre-tax LIFO adjustment, as a percent to sales, reduced gross
margin by 0.14% in 1995, 0.08% in 1994 and 0.06% in 1993.
The 1995 increase in selling, general and administrative (SG&A) expenses, as a
percent to sales, was due primarily to increased depreciation expense associated
with the Company's capital expansion program. The Company will focus on
increasing sales, implementing new technologies that increase productivity and
emphasizing cost containment programs in an effort to reduce SG&A expenses as a
percent to sales.
The 1995 reduction in net interest expense resulted from increased capitalized
interest associated with the Company's capital expenditure program and reduced
average outstanding debt balances. Net interest expense for 1993 included a
reduction of $9.7 million due to the successful resolution of a tax issue for
which interest expense had previously been accrued. Excluding this adjustment,
net interest expense for 1993, as a percent to sales, would have been 0.54% and
the 1993 percentage increase over 1992 would have been 40.6% due to additional
borrowings in 1993 and 1992.
1
2
ALBERTSON'S, INC.
Net earnings for 1994 were reduced by $17.0 million (0.14% to sales) for the
cumulative effect of the adoption of Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits." Net earnings for
1993 included a nonrecurring charge to cover the settlement of a lawsuit and a
decrease in interest expense due primarily to the successful resolution of a tax
issue. Net earnings excluding these adjustments would have been $417.4 million
(3.51% to sales) in 1994 and $352.1 million (3.12% to sales) in 1993.
The 1993 percentage increases over 1992 in operating profit and earnings were
impacted by the 1993 adjustments, costs recognized in 1992 associated with the
purchase of 74 Jewel Osco stores on April 13, 1992 and two accounting changes
adopted in 1992. Increases for 1993 over 1992 in operating profit and net
earnings excluding the 1993 and 1992 adjustments would have been 21.2% and
14.7%, respectively.
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 1995 was $793 million compared to $612 million in 1994 and
$587 million in 1993. These amounts have enabled the Company to fund its capital
expansion program, purchase and retire common stock and pay dividends. During
1995 the Company spent $656 million on capital expenditures, $78 million to
purchase and retire stock and $127 million for the payment of dividends (which
represents 27.2% of 1995 net earnings).
In 1995 the Company issued $200 million of 6.375% notes under a shelf
registration statement filed with the Securities and Exchange Commission in
1992. Proceeds from the issuance were used to reduce borrowings under the
Company's commercial paper program. All debt available for issuance under the
1992 shelf registration statement has been issued.
The Company utilizes its commercial paper program to supplement cash
requirements from seasonal fluctuations in working capital resulting from
operations and the Company's capital expenditure program. Accordingly,
commercial paper borrowings will fluctuate between the Company's quarterly
reporting periods. The Company had $209 million of commercial paper borrowings
outstanding at February 1, 1996, compared to $110 million at February 2, 1995
and $80 million at February 3, 1994. As of February 1, 1996, the Company had
committed lines of credit for $435 million, of which $400 million was reserved
as alternative funding for the Company's commercial paper program. The Company
also had one uncommitted line of credit for $10 million as of February 1, 1996.
On March 10, 1993, pursuant to a 1979 agreement, the Company purchased
21,976,320 shares of its common stock from the estate of J. A. Albertson, the
Company's founder, at a cost of $518 million or $23.55 per share. This purchase
was financed through the reissuance of 10,400,000 shares of treasury stock at
$26.25 per share, netting $265 million, and the issuance of $252 million in
medium-term notes. The effect of these transactions was to retire the remaining
11,576,320 treasury shares at a net cost to the Company of $21.85 per share.
Since 1987 the Board of Directors has continuously adopted or renewed programs
under which the Company is authorized, but not required, to purchase shares of
its common stock on the open market. The current program was adopted by the
Board on March 4, 1996, and authorizes the Company to purchase and immediately
retire up to 7 million shares from April 1, 1996 through March 31, 1997. Under
these programs, 2.6 million shares were purchased and retired in fiscal 1995 and
no shares were purchased in 1994 or 1993.
The following leverage ratios demonstrate the Company's levels of long-term
financing as of the indicated year end:
- ----------------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
Long-term debt (including capitalized lease obligations)
to equity 37.5% 30.4% 47.9%
Long-term debt (including capitalized lease obligations)
to total assets 17.7% 14.1% 20.2%
- ----------------------------------------------------------------------------------------------------------
2
3
ALBERTSON'S, INC.
During 1995 the Company opened 58 combination food-drug stores, of which 32 were
opened during the fourth quarter. The average size of these stores, 51,400
square feet, increased the Company's average store size to 47,600 square feet.
At February 1, 1996, 93% 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 1995 nine of the 53 remodeled stores were
expanded in size. The Company continues to retain ownership of real estate when
possible.
During the past three years, the Company has invested $238 million (excluding
inventory) in its distribution operations and has added 2.8 million square feet
of new or expanded facilities. A new 698,000 square foot full-line distribution
center in Katy, Texas, located near the Company's new Houston, Texas market,
began limited operations in February 1996 and became fully operational on March
18, 1996. The Company purchased an existing 818,000 square foot warehouse in
Plant City, Florida in February 1993. This center was remodeled and expanded to
954,000 square feet to add frozen and perishable storage areas. It began limited
operations in December 1993 and became fully operational in March 1994. A new
687,000 square foot full-line distribution center in Tolleson, Arizona, located
in the Phoenix metropolitan area, became fully operational in August 1993.
Capital expenditures for 1996 (excluding amounts anticipated to be financed by
operating leases) are expected to be approximately $630 million. New stores and
remodels will continue to be the most significant portion of planned capital
expenditures. The Company is committed to keeping its stores up to date. In the
last three years, the Company has opened and remodeled 293 stores representing
14.1 million square feet. The following summary of capital expenditures includes
capital leases, assets acquired with related debt and the estimated fair value
of property financed by operating leases (in thousands):
- -----------------------------------------------------------------------------------------
1996
(PROJECTED) 1995 1994 1993
- -----------------------------------------------------------------------------------------
New and acquired stores $400,000 $412,868 $320,479 $246,052
Remodels 95,000 120,709 86,381 82,409
Retail replacement equipment and
technological upgrades 60,000 15,692 36,464 20,804
Distribution facilities and equipment 40,000 98,731 38,490 100,936
Other 35,000 16,257 17,119 5,963
- -----------------------------------------------------------------------------------------
Total capital expenditures 630,000 664,257 498,933 456,164
Estimated fair value of property
financed by operating leases 29,000 30,000 18,000 32,000
- -----------------------------------------------------------------------------------------
$659,000 $694,257 $516,933 $488,164
-----------------------------------------------
- -----------------------------------------------------------------------------------------
The Company's strong financial position provides the flexibility for the Company
to grow through future acquisitions or to purchase and retire its common stock
if it so chooses. The Board of Directors at its March 1996 meeting increased the
annual dividend rate to $.60 per share.
New Accounting Standard
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This new
standard requires long-lived assets to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. This statement will be effective for the
Company's 1996 fiscal year. The Company's existing accounting policies are such
that this pronouncement is not expected to have a material effect on the
Company's financial position or results of operations.
3
4
ALBERTSON'S, INC.
CONSOLIDATED EARNINGS
- ------------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 53 Weeks
February 1, February 2, February 3,
(In thousands except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
SALES $12,585,034 $11,894,621 $11,283,678
Cost of sales 9,362,266 8,882,294 8,492,524
- ------------------------------------------------------------------------------------------------------------------
Gross profit 3,222,768 3,012,327 2,791,154
Selling, general and administrative expenses 2,415,552 2,269,189 2,152,145
- ------------------------------------------------------------------------------------------------------------------
Operating profit 807,216 743,138 639,009
Other (expenses) income:
Interest, net (55,633) (62,141) (50,984)
Other, net 6,918 (2,345) (5,910)
Nonrecurring charge (29,900)
- ------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of accounting change 758,501 678,652 552,215
Income taxes 293,540 261,281 212,534
- ------------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of accounting change 464,961 417,371 339,681
Cumulative effect of accounting change:
Postemployment benefits (17,006)
- ------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 464,961 $ 400,365 $ 339,681
---------------------------------------------------
Earnings per share before cumulative effect
of accounting change $ 1.84 $ 1.65 $ 1.34
Cumulative effect of accounting change:
Postemployment benefits (.07)
- ------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ 1.84 $ 1.58 $ 1.34
---------------------------------------------------
Average number of common shares outstanding 253,080 253,633 254,227
- ------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
4
5
ALBERTSON'S, INC.
CONSOLIDATED CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------
52 Weeks 52 Weeks 53 Weeks
February 1, February 2, February 3,
(In thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 464,961 $ 400,365 $ 339,681
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 251,450 226,467 196,427
Net deferred income taxes (590) (18,956) (12,016)
Cumulative effect of accounting change 17,006
Changes in operating assets and liabilities:
Receivables and prepaid expenses 7,386 (499) (24,194)
Inventories (81,685) (76,842) (41,633)
Accounts payable 73,412 (24,825) 84,601
Other current liabilities 18,482 3,999 26,374
Self-insurance 9,406 31,125 10,192
Unearned income 34,960 51,318 (609)
Other long-term liabilities 15,682 3,059 8,230
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 793,464 612,217 587,053
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (656,331) (470,589) (435,526)
Proceeds from disposals of land, buildings and equipment 23,267 42,094 20,874
Increase in other assets (32,646) (31,971) (3,719)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (665,710) (460,466) (418,371)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net line of credit activity (10,000) 5,000
Proceeds from long-term borrowings 200,000 252,075
Payments on long-term borrowings (208,938) (83,013) (32,158)
Net commercial paper activity 99,657 29,828 (30,090)
Proceeds from stock options exercised 4,902 5,697 1,945
Cash dividends paid (126,672) (106,502) (89,533)
Stock purchased and retired (77,814)
Purchase of treasury shares (517,526)
Net proceeds from issuance of treasury shares 264,527
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (108,865) (163,990) (145,760)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,889 (12,239) 22,922
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 50,224 62,463 39,541
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 69,113 $ 50,224 $ 62,463
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
5
6
ALBERTSON'S, INC.
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
(Dollars in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 69,113 $ 50,224 $ 62,463
Accounts and notes receivable 98,340 109,324 114,493
Inventories 1,030,246 948,561 871,719
Prepaid expenses 22,855 19,257 13,589
Deferred income taxes 62,448 62,223 59,967
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,283,002 1,189,589 1,122,231
OTHER ASSETS 155,427 122,781 90,810
LAND, BUILDINGS AND EQUIPMENT:
Land 611,588 527,125 467,392
Buildings 1,525,769 1,242,813 1,097,681
Fixtures and equipment 1,427,047 1,258,749 1,130,735
Leasehold improvements 315,658 287,544 257,566
Capitalized leases 183,316 180,026 155,798
- ---------------------------------------------------------------------------------------------------------
4,063,378 3,496,257 3,109,172
Less accumulated depreciation and amortization 1,365,896 1,186,898 1,027,318
- ---------------------------------------------------------------------------------------------------------
2,697,482 2,309,359 2,081,854
- ---------------------------------------------------------------------------------------------------------
$4,135,911 $3,621,729 $3,294,895
----------------------------------------------
- ---------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
6
7
ALBERTSON'S, INC.
- --------------------------------------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and notes payable $ 648,963 $ 575,551 $ 610,376
Salaries and related liabilities 134,096 114,906 101,443
Taxes other than income taxes 44,413 38,212 38,095
Income taxes 35,546 37,913 48,622
Self-insurance 68,899 63,905 58,436
Unearned income 32,208 22,092 19,927
Other 38,815 34,810 30,277
Current maturities of long-term debt 78,237 201,146 76,692
Current capitalized lease obligations 7,316 6,904 6,194
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,088,493 1,095,439 990,062
LONG-TERM DEBT 602,993 382,775 554,092
CAPITALIZED LEASE OBLIGATIONS 129,265 129,573 110,919
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS:
Deferred compensation 33,354 36,396 31,684
Deferred income taxes 1,652 2,017 28,766
Deferred rents payable 71,468 69,381 72,251
Self-insurance 113,925 109,513 83,857
Unearned income 84,822 59,978 10,825
Other 57,416 48,764 23,060
- --------------------------------------------------------------------------------------------------------------------------------
362,637 326,049 250,443
STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value; authorized - 10,000,000 shares;
issued - none
Common stock - $1.00 par value; authorized - 600,000,000 shares;
issued - 251,918,576 shares, 253,984,381 shares
and 253,406,983 shares, respectively 251,919 253,984 253,407
Capital in excess of par value 3,269 11,322 2,117
Retained earnings 1,697,335 1,422,587 1,133,855
- --------------------------------------------------------------------------------------------------------------------------------
1,952,523 1,687,893 1,389,379
- --------------------------------------------------------------------------------------------------------------------------------
$4,135,911 $3,621,729 $3,294,895
----------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
7
8
ALBERTSON'S, INC.
CONSOLIDATED STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------
Common Capital in
Stock $1.00 Excess of Retained Treasury
(In thousands except per share data) Par Value Par Value Earnings Stock Total
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 28, 1993 $132,330 $ 4,909 $1,251,189 $1,388,428
Exercise of stock options 245 1,700 1,945
Tax benefits related to stock options 2,538 2,538
Purchase treasury shares $(517,526) (517,526)
Issue treasury shares 19,615 244,912 264,527
Retire treasury shares (5,788) (25,010) (241,816) 272,614
Two-for-one stock split 126,620 (1,635) (124,985)
Other 953 953
Cash dividends, $.36 per share (91,167) (91,167)
Net earnings 339,681 339,681
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 3, 1994 253,407 2,117 1,133,855 1,389,379
Exercise of stock options 577 5,120 5,697
Tax benefits related to stock options 4,085 4,085
Cash dividends, $.44 per share (111,633) (111,633)
Net earnings 400,365 400,365
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 2, 1995 253,984 11,322 1,422,587 1,687,893
Exercise of stock options 515 4,387 4,902
Tax benefits related to stock options 4,064 4,064
Stock purchased and retired (2,580) (16,504) (58,730) (77,814)
Cash dividends, $.52 per share (131,483) (131,483)
Net earnings 464,961 464,961
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 1, 1996 $251,919 $ 3,269 $1,697,335 $1,952,523
----------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
8
9
ALBERTSON'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the fourth largest retail food-drug chain in the
United States with operations in 19 Western, Midwestern and Southern states. As
of February 1, 1996, the Company operated 764 stores. Retail operations are
supported by 12 Company-owned distribution centers, strategically located in the
Company's operating markets.
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.
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.
BUYING AND PROMOTIONAL ALLOWANCES Allowances and credits received from vendors
in connection with the Company's buying and merchandising activities are
recognized as earned.
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.
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.
9
10
ALBERTSON'S, INC.
STOCK OPTIONS Proceeds from the sale of newly issued stock under the Company's
stock option plans are credited to common stock to the extent of par value and
the excess to capital in excess of par value. With respect to nonqualified stock
options, the difference between the option exercise price and market value of
the stock at date of grant 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.
INCOME TAXES The Company provides for deferred income taxes resulting from
timing differences in reporting certain income and expense items for income tax
and financial accounting purposes. The major timing differences and their net
effect are shown in the "Income Taxes" note. Investment tax credits have been
deferred and are being amortized over the remaining useful life of the related
asset.
EARNINGS PER SHARE Earnings per share are computed by dividing consolidated net
earnings by the weighted average number of common shares outstanding. Equivalent
shares in the form of stock options are excluded from the calculation since they
are not materially dilutive.
STOCK SPLIT On August 30, 1993, the Board of Directors approved a two-for-one
stock split, effected in the form of a 100% stock dividend payable to common
stockholders of record at the close of business on September 17, 1993, and
distributed on October 4, 1993. All references in the financial statements to
the number of shares (except outstanding shares at year end), related prices and
per share amounts have been restated to reflect the split.
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.
Nonrecurring Charge
During the third quarter of 1993, a $29.9 million nonrecurring charge was
recorded to cover a $29.5 million settlement of a lawsuit. The nonrecurring
charge covers the full cost of the settlement including compliance with the
consent decree and plaintiffs' attorney fees, as well as all expenses associated
with its implementation.
Supplemental Cash Flow Information
Selected cash payments and noncash activities were as follows (in thousands):
- -----------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
Cash payments for income taxes $284,383 $285,884 $202,472
Cash payments for interest,
net of amounts capitalized 45,131 51,103 36,311
Noncash investing and financing activities:
Capitalized lease obligations incurred 7,926 28,232 15,048
Capitalized lease obligations terminated 1,232 2,658 1,656
Liabilities assumed in connection with asset acquisitions 112 5,590
Tax benefits related to stock options 4,064 4,085 2,538
- -----------------------------------------------------------------------------------------------------
10
11
ALBERTSON'S, INC.
Accounts and Notes Receivable
Accounts and notes receivable consist of the following (in thousands):
- ---------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- ---------------------------------------------------------------------------------------
Trade and other accounts receivable $95,112 $108,080 $113,335
Current portion of notes receivable 4,478 2,606 2,191
Allowance for doubtful accounts (1,250) (1,362) (1,033)
- ---------------------------------------------------------------------------------------
$98,340 $109,324 $114,493
-------------------------------------
- ---------------------------------------------------------------------------------------
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 $217,831,000, $200,738,000 and $191,592,000 higher
at the end of 1995, 1994 and 1993, respectively. Net earnings would have been
higher by $10,478,000 ($.04 per share) in 1995, $5,625,000 ($.02 per share) in
1994 and $3,962,000 ($.02 per share) in 1993. The replacement cost of
inventories valued at LIFO approximates FIFO cost.
Indebtedness
Long-term debt includes the following (in thousands):
- -----------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
Commercial paper $209,395 $ 109,738 $ 79,910
Unsecured 6.375% notes due June 2000 200,000
Unsecured 6.375% notes due May 1995 150,000 150,000
Medium-term notes, unsecured:
Due March 2000 (6.14% interest) 89,650 89,650 89,650
Due March 1998 (5.68% interest) 85,425 85,425 85,425
Due March 1996 (4.86% interest) 77,000 77,000 77,000
Due May 1995 (6.15% interest) 50,000 50,000
Due May 1994 (5.49% interest) 75,000
Industrial revenue bonds 15,710 16,550 17,305
Mortgage notes and other unsecured notes payable 4,050 5,558 6,494
- -----------------------------------------------------------------------------------------------------
681,230 583,921 630,784
Less current maturities (78,237) (201,146) (76,692)
- -----------------------------------------------------------------------------------------------------
$602,993 $ 382,775 $554,092
-------------------------------------------
- -----------------------------------------------------------------------------------------------------
The Company has in place a $400 million commercial paper program. Interest on
the outstanding commercial paper borrowings as of February 1, 1996, ranges from
5.27% to 5.55% with an effective weighted average rate of 5.45%. The Company has
established the necessary credit facilities, through its revolving credit
agreement, to refinance the commercial paper 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.
11
12
ALBERTSON'S, INC.
In June 1995 the Company issued $200 million of 6.375% notes under a shelf
registration statement filed with the Securities and Exchange Commission in
1992. The notes are due June 1, 2000, and interest is paid semiannually.
Proceeds from the issuance were used to reduce borrowings under the Company's
commercial paper program. All debt available for issuance under the 1992 shelf
registration statement has been issued.
In connection with the Company's 1993 purchase of its common stock from the
estate of J.A. Albertson, the Company's founder, $252.1 million of medium-term
notes due from 1996 to 2000 were issued under a shelf registration statement
filed with the Securities and Exchange Commission in 1993. Interest on these
notes is paid semiannually.
In connection with the 1992 Jewel Osco Acquisition, $300 million of debt was
issued in the form of 6.375% notes and medium-term notes due from 1993 to 1995
with interest paid semiannually. This debt was issued under a $500 million shelf
registration statement filed with the Securities and Exchange Commission in
1992.
The industrial revenue bonds are payable in varying annual installments through
2011, with interest paid semiannually at 4.55% to 7.875%.
The Company has pledged real estate with a cost of $14,850,000 as collateral for
the mortgage notes, which are payable semiannually, including interest at 7.875%
to 16.5%. The notes mature from 1996 to 2011.
The scheduled maturities of long-term debt outstanding at February 1, 1996, are
summarized as follows: $78,237,000 in 1996, $985,000 in 1997, $86,509,000 in
1998, $1,119,000 in 1999, $500,321,000 in 2000 and $14,059,000 thereafter.
The Company has in place a revolving credit agreement with several banks,
whereby the Company may borrow principal amounts up to $400 million at varying
interest rates any time prior to October 25, 2000. 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 committed lines of credit from banks at prevailing interest rates
for $35 million and one uncommitted line of credit for $10 million at February
1, 1996. 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
February 1, 1996 and February 2, 1995. The weighted average interest rate on the
$10 million notes payable outstanding under the Company's lines of credit as of
February 3, 1994, was 3.32%.
Net interest expense was as follows (in thousands):
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
Debt $39,323 $42,780 $32,164
Capitalized leases 15,234 13,412 12,233
Capitalized interest (7,428) (3,974) (4,219)
- ------------------------------------------------------------------------------
Interest expense 47,129 52,218 40,178
Net bank service charges 8,504 9,923 10,806
- ------------------------------------------------------------------------------
$55,633 $62,141 $50,984
-----------------------------------
- ------------------------------------------------------------------------------
Net interest expense for 1993 included a reduction of $9.7 million due to the
successful resolution of a tax issue for which interest expense had previously
been accrued.
12
13
ALBERTSON'S, INC.
Capital Stock
On March 10, 1993, pursuant to a 1979 agreement, the Company purchased
21,976,320 shares of its common stock from the estate of J.A. Albertson, the
Company's founder, at a cost of $517.5 million or $23.55 per share. This
purchase was financed through the reissuance of 10,400,000 shares of treasury
stock at $26.25 per share, netting $264.5 million, and the issuance of $252.1
million in medium-term notes. The remaining 11,576,320 treasury shares were
retired.
On March 2, 1987, the Board of Directors adopted a stockholder rights plan,
which was amended on August 31, 1987, November 28, 1988, September 6, 1989 and
September 6, 1994. Under the plan, stockholders of record on March 23, 1987,
received a dividend distribution of one nonvoting right for each share of common
stock. Subject to certain exceptions, one right has been or will be issued with
each share of common stock issued after March 23, 1987. The rights are attached
to all common stock certificates and no separate rights certificates will be
distributed. Each right entitles the holder to purchase one share of the
Company's common stock at a price of $60.00. The rights are exercisable for
shares of common stock upon the earlier of the tenth business day following (i)
the public announcement that a person or group has acquired, or has obtained the
right to acquire, beneficial ownership of 20% or more of the outstanding common
stock, or (ii) the commencement of, or public announcement of an intention to
make, a tender offer or exchange offer if, upon consummation, such person or
group would be the beneficial owner of 20% or more of the then outstanding
common stock.
Additionally, if any person or group becomes the beneficial owner of more than
20% of the outstanding common stock, each right will entitle its holder, other
than such person or group, upon payment of the $60.00 exercise price, to
purchase common stock with a deemed market value of twice the exercise price.
The purchase rights for common stock will not be exercisable if the 20%
acquisition is made pursuant to a tender or exchange offer for all outstanding
common stock which a majority of certain directors of the Company deem to be in
the best interests of the Company and its stockholders. If there is a merger
with an acquirer of 20% or more of the Company's common stock and the Company is
not the surviving corporation, or more than 50% of the Company's assets or
earning power is transferred or sold, each right will entitle its holder, other
than the acquirer, to purchase, or in certain instances to receive the cash
value of, the acquiring company's common stock with a deemed market value of
twice the exercise price.
All of the rights may be redeemed by the Board of Directors, and under certain
circumstances, with the approval of a majority of the continuing directors (as
defined in the plan), at a price of $.00625 per right until the earlier of (i)
ten business days after the public announcement that a person or group has
acquired beneficial ownership of 20% or more of the outstanding common stock or
(ii) the date the stockholder rights plan expires. The rights, which are not
entitled to dividends, expire on March 23, 1997.
Since 1987, the Board of Directors has continuously adopted or renewed programs
under which the Company is authorized, but not required, to purchase shares of
its common stock on the open market. The current program was adopted by the
Board on March 4, 1996, and authorizes the Company to purchase and immediately
retire up to 7 million shares through March 31, 1997. The Company has purchased
and retired an equivalent of 15 million shares of its common stock for $234
million under these programs.
13
14
ALBERTSON'S, INC.
Income Taxes
Deferred tax assets and liabilities consist of the following (in thousands):
- --------------------------------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax assets (no valuation allowances considered necessary):
Nondeductible accruals for:
Self-insurance $ 70,669 $ 66,884 $ 54,811
Lease accounting 20,601 20,689 21,626
Vacations 19,917 18,386 17,129
Deferred compensation 15,832 6,504 5,742
Postemployment benefits 13,224 10,447
Property valuation 10,300 8,867 8,828
Pension costs 2,930 2,485 2,133
Litigation 177 9,508 11,968
Other 7,237 6,219 5,955
Income unearned for financial reporting purposes 44,355 31,374 11,846
Costs capitalized for tax purposes 9,999 11,156 10,803
- --------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 215,241 192,519 150,841
Deferred tax liabilities:
Accelerated depreciation for tax purposes (116,267) (110,330) (103,219)
Pension costs expensed for tax purposes (23,803) (18,040) (13,312)
Inventory valuation (7,676) (778) (1,040)
Deferred gains (4,929) (3,146) (2,069)
Other (1,770) (19)
- --------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (154,445) (132,313) (119,640)
- --------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 60,796 $ 60,206 $ 31,201
---------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Income tax expense on continuing operations consists of the following (in
thousands):
- ---------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
Current:
Federal $252,587 $239,937 $191,343
State 41,729 40,508 33,580
- ---------------------------------------------------------------------------------------------------
294,316 280,445 224,923
Deferred:
Federal (506) (16,218) (10,222)
State (84) (2,738) (1,794)
- ---------------------------------------------------------------------------------------------------
(590) (18,956) (12,016)
Amortization of deferred investment tax credits (186) (208) (373)
- ---------------------------------------------------------------------------------------------------
$293,540 $261,281 $212,534
------------------------------------------
- ---------------------------------------------------------------------------------------------------
14
15
ALBERTSON'S, INC.
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Deferred taxes resulted from:
Income unearned for financial reporting purposes $(12,981) $(19,528) $ (107)
Accelerated depreciation for tax purposes 5,937 7,111 16,778
Self-insurance (3,785) (12,073) (5,365)
Litigation 9,331 2,460 (11,968)
Inventory valuation 6,898 (262) (410)
Costs capitalized for tax purposes 1,157 (353) (4,994)
Deferred compensation (9,328) (762) (735)
Property valuation (1,433) (39) (3,631)
Pension costs expensed for tax purposes 5,763 4,728 3,312
Other (2,149) (238) (4,896)
- ---------------------------------------------------------------------------------------------------------
$ (590) $(18,956) $(12,016)
----------------------------------------
- ---------------------------------------------------------------------------------------------------------
Total tax expense for 1994 was $250,635,000 consisting of taxes on continuing
operations of $261,281,000 and tax benefits of $10,646,000 for the cumulative
effect of a change in accounting for postemployment benefits.
The reconciliations between the federal statutory tax rate and the Company's
effective tax rates are as follows (in thousands):
- -------------------------------------------------------------------------------------------------------------------
1995 Percent 1994 Percent 1993 Percent
- -------------------------------------------------------------------------------------------------------------------
Taxes computed at statutory rate $265,476 35.0 $237,528 35.0 $193,275 35.0
State income taxes net of federal
income tax benefit 26,656 3.5 24,530 3.6 20,612 3.8
Amortization of deferred
investment tax credits (186) (208) (373) (0.1)
Other 1,594 0.2 (569) (0.1) (980) (0.2)
- -------------------------------------------------------------------------------------------------------------------
$293,540 38.7 $261,281 38.5 $212,534 38.5
- -------------------------------------------------------------------------------------------------------------------
Stock Options
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This new standard defines a fair value based method of accounting
for an employee stock option or similar equity instrument. This statement gives
entities a choice of recognizing related compensation expense by adopting the
new fair value method or to continue to measure compensation using the intrinsic
value approach under Accounting Principles Board (APB) Opinion No. 25, the
former standard. If the former standard for measurement is elected, SFAS No. 123
requires supplemental disclosure to show the effects of using the new
measurement criteria. This statement will be effective for the Company's 1996
fiscal year. The Company intends to continue using the measurement prescribed by
APB Opinion No. 25, and accordingly, this pronouncement will not affect the
Company's financial position or results of operations.
The Company has issued stock under various stock option plans. The Company
granted stock options under plans approved in 1995 and 1986 which authorize the
granting of options with respect to 18,400,000 shares of
the Company's common stock.
15
16
ALBERTSON'S, INC.
The following is a summary of stock option activity and number of shares
reserved for outstanding options:
- ------------------------------------------------------------------------------------
Option Number
Price Per Share of Shares
- ------------------------------------------------------------------------------------
Balance at January 28, 1993 $1.88 to $24.31 4,049,800
Granted 25.13 to 25.13 479,000
Exercised 1.88 to 8.69 (327,947)
Forfeited 2.95 to 24.31 (145,200)
Canceled 24.31 to 24.31 (4,000)
- ------------------------------------------------------------------------------------
Balance at February 3, 1994 1.88 to 25.13 4,051,653
Granted 28.63 to 28.63 141,000
Exercised 1.88 to 16.88 (593,700)
Forfeited 6.25 to 25.13 (131,000)
- ------------------------------------------------------------------------------------
Balance at February 2, 1995 2.92 to 28.63 3,467,953
Granted 25.13 to 31.88 1,044,000
Exercised 2.92 to 27.88 (539,850)
Forfeited 16.56 to 28.63 (148,000)
- ------------------------------------------------------------------------------------
Balance at February 1, 1996 $2.92 to $31.88 3,824,103
---------------------------------
- ------------------------------------------------------------------------------------
Options on 213,103 shares were exercisable at February 1, 1996. In addition,
there were 13,422,000 shares of common stock reserved for the granting of
additional options.
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 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 amounts deductible for federal income tax purposes.
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 pension cost for Company plans was as follows (in thousands):
- --------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 16,172 $ 19,523 $ 12,726
Interest cost on projected benefit obligations 16,149 15,097 12,687
Actual return on assets (62,603) (145) (27,696)
Net amortization and deferral 39,972 (19,860) 11,515
- --------------------------------------------------------------------------------------------------------
$ 9,690 $ 14,615 $ 9,232
------------------------------------------
- --------------------------------------------------------------------------------------------------------
16
17
ALBERTSON'S, INC.
The following table sets forth the funded status of Albertson's Salaried
Employees Pension Plan and Albertson's Employees Corporate Pension Plan and the
amounts included in other assets in the Company's consolidated balance
sheets (in thousands):
- ------------------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Plan assets at fair value $321,758 $240,534 $218,284
Actuarial present value of:
Vested benefits 180,077 138,322 155,087
Nonvested benefits 17,639 13,460 15,797
- -------------------------------------------------------------------------------------------------
Accumulated benefit obligation 197,716 151,782 170,884
Effect of projected future salary increases 60,926 27,529 38,508
- -------------------------------------------------------------------------------------------------
Projected benefit obligation 258,642 179,311 209,392
- -------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 63,116 61,223 8,892
Unrecognized net (gain) loss (5,870) (19,535) 19,713
Unrecognized prior service cost 5,425 6,274 7,123
Unrecognized net transition assets (796) (983) (1,171)
- -------------------------------------------------------------------------------------------------
Prepaid pension cost $ 61,875 $ 46,979 $ 34,557
----------------------------------
- -------------------------------------------------------------------------------------------------
Assets of the two funded Company plans are invested in directed trusts. Assets
in the directed trusts are invested in common stocks (including $38,859,000,
$33,071,000 and $28,937,000 of the Company's common stock at February 1, 1996,
February 2, 1995 and February 3, 1994, respectively), U.S. Government
obligations, corporate bonds, international equity funds, real estate and money
market funds.
The following table sets forth the status of the unfunded Executive Pension
Makeup Plan and the amounts included in other long-term liabilities in the
Company's consolidated balance sheets (in thousands):
- ---------------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefits $ 9,216 $ 6,734 $ 6,493
Nonvested benefits 5 23 9
- ---------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 9,221 6,757 6,502
Effect of projected future salary increases 1,782 1,408 1,861
- ---------------------------------------------------------------------------------------------------------
Projected benefit obligation 11,003 8,165 8,363
- ---------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (11,003) (8,165) (8,363)
Unrecognized net (gain) loss 1,115 (869) (7)
Unrecognized prior service cost 946 1,041 1,136
Unrecognized net transition liability 1,326 1,507 1,688
Additional minimum liability (1,605) (271) (956)
- ---------------------------------------------------------------------------------------------------------
Accrued pension cost $ (9,221) $(6,757) $(6,502)
-----------------------------------------
- ---------------------------------------------------------------------------------------------------------
17
18
ALBERTSON'S, INC.
Net periodic pension 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 plans were as follows:
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Weighted-average discount rate 7.25% 8.50% 7.00%
Annual salary increases 4.50-5.00% 4.50-5.00% 4.50-4.70%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
- ---------------------------------------------------------------------------------------------------------
The Company also contributes to various plans under industrywide collective
bargaining agreements, primarily for defined benefit pension plans. Total
contributions to these plans were $23,777,000 for 1995, $17,354,000 for 1994 and
$16,025,000 for 1993. The Company's relative positions in these plans with
respect to the actuarial present value of the accumulated benefit obligation and
the projected benefit obligation, net assets available for benefits and the
assumed rates of return used by the plans are not readily available.
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. Net periodic postretirement benefit cost was as
follows (in thousands):
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Service cost $ 979 $ 812 $ 574
Interest cost 889 669 605
- --------------------------------------------------------------------------------
$1,868 $1,481 $1,179
----------------------------------
- --------------------------------------------------------------------------------
The following table sets forth the actuarial present value of the accumulated
postretirement benefit obligation (APBO) and related liabilities included in
other long-term liabilities in the Company's consolidated balance sheets (in
thousands):
- ---------------------------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Existing retired employees $ 2,176 $1,706 $1,613
Active employees fully eligible 3,402 1,871 1,800
Other active employees 6,908 4,639 5,645
- ---------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 12,486 8,216 9,058
Unrecognized net gain (loss) and effects
of changes in assumptions (1,503) 1,402 (963)
- ---------------------------------------------------------------------------------------------------
Accrued postretirement benefit liabilities $10,983 $9,618 $8,095
---------------------------------------
Assumed discount rate 7.25% 8.50% 7.00%
- ---------------------------------------------------------------------------------------------------
Annual rates of increases in health care costs are not applicable in the
calculation of the APBO because the Company's contribution is a fixed amount.
18
19
ALBERTSON'S, INC.
At the beginning of 1994, the Company adopted the provisions of SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." This statement requires
employers to recognize an obligation for benefits provided to former or inactive
employees after employment but before retirement. The Company is self-insured
for its employees' short-term and long-term disability plans which are the
primary benefits paid to inactive employees prior to retirement. In prior years,
expenses for disability benefits were charged to earnings under the
pay-as-you-go method. The total cumulative effect of this accounting change (net
of $10.6 million in tax benefits) was to decrease net earnings by $17.0 million
or $.07 per share. The impact of this change on 1994 operations was not
material. As of February 1, 1996, $30.0 million of the obligation for
postemployment benefits was included with other long-term liabilities and $4.4
million was included with current salaries and related liabilities in the
Company's consolidated balance sheets. As of February 2, 1995, $25.8 million of
the obligation for postemployment benefits was included with other long-term
liabilities and $3.0 million was included with current salaries and related
liabilities in the Company's consolidated balance sheets.
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 $84,709,000 for
1995, $106,439,000 for 1994 and $90,613,000 for 1993. The Company's relative
positions in these plans with respect to any accumulated benefit obligations are
not readily available.
The Company has bonus plans for store management personnel and other key
management personnel. Amounts charged to earnings under all bonus plans were
$58,782,000 for 1995, $58,406,000 for 1994 and $53,907,000 for 1993.
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.
Capitalized leases are calculated using interest rates appropriate at the
inception of each lease. Contingent rents associated with capitalized leases
were $1,948,000 in 1995, $2,141,000 in 1994 and $2,716,000 in 1993. Following is
an analysis of the Company's capitalized leases (in thousands):
- -------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- -------------------------------------------------------------------------------
Real estate $183,183 $179,893 $154,157
Equipment 133 133 1,641
- -------------------------------------------------------------------------------
$183,316 $180,026 $155,798
----------------------------------------
- -------------------------------------------------------------------------------
Accumulated amortization $ 81,938 $ 78,183 $ 73,074
- -------------------------------------------------------------------------------
19
20
ALBERTSON'S, INC.
Future minimum lease payments for capitalized lease obligations at February 1,
1996, are as follows (in thousands):
- --------------------------------------------------------------------------------------------
Real Estate Equipment Total
- --------------------------------------------------------------------------------------------
1996 $ 22,160 $ 36 $ 22,196
1997 22,262 36 22,298
1998 21,787 12 21,799
1999 21,085 21,085
2000 21,849 21,849
Remainder 184,289 184,289
- --------------------------------------------------------------------------------------------
Total minimum obligations 293,432 84 293,516
Less interest (156,919) (16) (156,935)
- --------------------------------------------------------------------------------------------
Present value of net minimum obligations 136,513 68 136,581
Less current portion (7,290) (26) (7,316)
- --------------------------------------------------------------------------------------------
Long-term obligations at February 1, 1996 $ 129,223 $ 42 $ 129,265
----------------------------------------
- --------------------------------------------------------------------------------------------
Minimum obligations have not been reduced by minimum capitalized sublease
rentals of $4,200,000 receivable in the future under noncancelable capitalized
subleases.
Rent expense under operating leases was as follows (in thousands):
- ------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------
Minimum rent $ 68,528 $ 65,566 $ 66,506
Contingent rent 4,088 4,634 4,641
- ------------------------------------------------------------------------
72,616 70,200 71,147
Less sublease rent (19,573) (19,055) (17,232)
- ------------------------------------------------------------------------
$ 53,043 $ 51,145 $ 53,915
------------------------------------------
- ------------------------------------------------------------------------
Future minimum lease payments for all noncancelable operating leases and related
subleases having a remaining term in excess of one year at February 1, 1996, are
as follows (in thousands):
- ----------------------------------------------------------------------------------------
Minimum Sublease
Lease Payment Rental Income Net
- ----------------------------------------------------------------------------------------
1996 $ 68,429 $(11,848) $ 56,581
1997 70,665 (11,908) 58,757
1998 73,000 (11,245) 61,755
1999 74,056 (8,660) 65,396
2000 71,739 (5,774) 65,965
Remainder 634,586 (26,479) 608,107
- ----------------------------------------------------------------------------------------
Total minimum obligations (receivables) $992,475 $(75,914) $916,561
-----------------------------------------
- ----------------------------------------------------------------------------------------
The present value of minimum lease payments under operating leases using an
assumed interest rate of 9.5% was approximately $485 million at February 1,
1996.
20
21
ALBERTSON'S, INC.
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 $5.3 million in
1996 and aggregate $57.2 million for the remaining lease terms, which expire at
various dates through 2020. 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 any one 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 amount. The estimated fair values and carrying amounts of
long-term debt borrowings (excluding commercial paper) were as follows (in
millions):
- -------------------------------------------------------------------------------
February 1, February 2, February 3,
1996 1995 1994
- -------------------------------------------------------------------------------
Fair value $483.9 $463.0 $565.4
Carrying amount 471.8 474.2 550.9
- -------------------------------------------------------------------------------
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.
New Accounting Standard
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This new
standard requires long-lived assets to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. This statement will be effective for the Company's
1996 fiscal year. The Company's existing accounting policies are such that this
pronouncement is not expected to have a material effect on the Company's
financial position or results of operations.
Legal Proceedings
The Company is 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 or
results of operations.
21
22
ALBERTSON'S, INC.
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 Senior Vice President, Finance and
Chief Executive Officer Chief Financial Officer
22
23
ALBERTSON'S, INC.
INDEPENDENT AUDITORS' REPORT
[DELOITTE & TOUCHE LLP LOGO]
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 February 1, 1996, February 2, 1995 and February 3,
1994, 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 February 1, 1996, February 2, 1995 and February 3, 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in the Notes to Consolidated Financial Statements, in fiscal year
1994 the Company changed its method of accounting for postemployment benefits to
conform with Statement of Financial Accounting Standards No. 112.
/s/ Deloitte & Touche LLP
Boise, Idaho
March 20, 1996
23
24
ALBERTSON'S, INC.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------
52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS
FEBRUARY 1, FEBRUARY 2, FEBRUARY 3, JANUARY 28, JANUARY 30,
(Dollars in thousands except per share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
Sales $12,585,034 $11,894,621 $11,283,678 $10,173,676 $8,680,467
Gross profit 3,222,768 3,012,327 2,791,154 2,452,852 2,081,517
Interest expense:
Debt 31,895 38,806 27,945 22,245 5,863
Capitalized lease obligations 15,234 13,412 12,233 11,560 12,278
Earnings before income taxes and
cumulative effects of
accounting changes 758,501 678,652 552,215 443,721 406,394
Income taxes 293,540 261,281 212,534 167,646 148,600
Earnings before cumulative effects
of accounting changes 464,961 417,371 339,681 276,075 257,794
Cumulative effects of
accounting changes (17,006) (6,858)
Net earnings 464,961 400,365 339,681 269,217 257,794
Net earnings as a percent to sales 3.69% 3.37% 3.01% 2.65% 2.97%
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
Earnings per share before cumulative
effects of accounting changes $ 1.84 $ 1.65 $ 1.34 $ 1.04 $ .97
Cumulative effects of
accounting changes (.07) (.02)
Earnings per share 1.84 1.58 1.34 1.02 .97
Cash dividends per share .52 .44 .36 .32 .28
Book value per share 7.75 6.65 5.48 5.25 4.54
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Total assets $ 4,135,911 $ 3,621,729 $ 3,294,895 $ 2,945,573 $2,216,247
Working capital 194,509 94,150 132,169 200,483 99,039
Long-term debt 602,993 382,775 554,092 404,476 52,510
Capitalized lease obligations 129,265 129,573 110,919 103,764 99,159
Stockholders' equity 1,952,523 1,687,893 1,389,379 1,388,428 1,199,452
- ------------------------------------------------------------------------------------------------------------------------------
OTHER YEAR END STATISTICS:
Number of stores 764 720 676 656 562
Number of employees:
Total 80,000 76,000 75,000 71,000 60,000
Full-time equivalents 66,000 60,000 58,000 54,000 45,000
- ------------------------------------------------------------------------------------------------------------------------------
- - Refer to the "Employee Benefit Plans" note in Notes to Consolidated Financial
Statements regarding the 1994 adoption of Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits."
- - Refer to the "Nonrecurring Charge" and "Indebtedness" notes in Notes to
Consolidated Financial Statements regarding the 1993 charge to cover the
settlement of a lawsuit and the reduction of interest expense due to the
successful resolution of a tax issue for which interest expense had previously
been accrued.
- - In fiscal 1992 the Company adopted two Statements of Financial Accounting
Standards, SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" and SFAS No. 109, "Accounting for Income Taxes."
- - On April 13, 1992, the Company purchased 74 Jewel Osco combination food-drug
stores, a general merchandise warehouse and related assets, including
potential store locations, from American Stores Company.
24
25
ALBERTSON'S, INC.
QUARTERLY FINANCIAL DATA
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands except
per share data - Unaudited) First Second Third Fourth Year
- -----------------------------------------------------------------------------------------------------------------
1995
Sales $3,083,424 $3,119,216 $3,103,578 $3,278,816 $12,585,034
Gross profit 775,215 795,796 796,785 854,972 3,222,768
Net earnings 99,274 106,229 105,350 154,108 464,961
Earnings per share .39 .42 .42 .61 1.84
- -----------------------------------------------------------------------------------------------------------------
1994
Sales $2,909,808 $2,987,680 $2,928,012 $3,069,121 $11,894,621
Gross profit 722,755 750,912 740,410 798,250 3,012,327
Earnings before cumulative effect
of accounting change 85,157 93,677 94,326 144,211 417,371
Net earnings 68,151 93,677 94,326 144,211 400,365
Earnings per share before
cumulative effect of
accounting change .34 .37 .37 .57 1.65
Earnings per share .27 .37 .37 .57 1.58
- -----------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------
1995
Net earnings $(6,804) $(6,804) $(2,513) $5,643 $(10,478)
Earnings per share (.03) (.03) (.01) .03 (.04)
- ----------------------------------------------------------------------------------------------------
1994
Net earnings $(7,380) $(5,966) $(1,660) $9,381 $ (5,625)
Earnings per share (.03) (.02) (.01) .04 (.02)
- ----------------------------------------------------------------------------------------------------
- - In 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." Refer to the "Employee Benefit Plans" note in Notes to Consolidated
Financial Statements.
25
26
Company Stock Information
The Company's stock is traded on the New York and Pacific Stock Exchanges under
the symbol ABS. An analysis of high and low stock prices by quarter is as
follows:
- --------------------------------------------------------------------------------------------------------------
First Second Third Fourth Year
- --------------------------------------------------------------------------------------------------------------
High Low High Low High Low High Low High Low
- --------------------------------------------------------------------------------------------------------------
1995 32 1/2 29 7/8 31 5/8 27 1/4 34 5/8 28 5/8 35 5/8 30 3/8 35 5/8 27 1/4
1994 30 7/8 25 1/8 28 3/4 25 3/4 30 1/4 26 1/8 30 5/8 27 5/8 30 7/8 25 1/8
1993 29 23 3/8 29 3/4 25 1/4 29 1/4 24 1/8 28 23 3/8 29 3/4 23 3/8
- --------------------------------------------------------------------------------------------------------------
Cash dividends per share were:
- -------------------------------------------------------------------------------
First Second Third Fourth Year
- -------------------------------------------------------------------------------
1995 $.13 $.13 $.13 $.13 $.52
1994 .11 .11 .11 .11 .44
1993 .09 .09 .09 .09 .36
- -------------------------------------------------------------------------------
- - Stock prices and dividend information have been adjusted to reflect the
two-for-one stock split distributed October 4, 1993.
- - In March 1996, the Board of Directors increased dividends to an annual rate of
$.60 per share, an increase of 15.4% over 1995. The new quarterly rate of $.15
per share will be paid on May 25, 1996, to stockholders of record on May 3,
1996.
This annual report is printed on recycled paper.
26