1
EXHIBIT 13
Albertson's, Inc.
Financial Review
RESULTS OF OPERATIONS
The Company has reported increased sales and earnings for 27 consecutive
years. Sales for 1996 were $13.8 billion, compared to $12.6 billion in 1995 and
$11.9 billion in 1994. 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
1996 1995 1994
1996 1995 1994 VS. 1995 vs. 1994 vs. 1993
- ---------------------------------------------------------------------------------------------
Sales 100.00 100.00 100.00 9.5 5.8 5.4(1)
Gross profit 25.88 25.53 25.29 11.0 6.8 8.2
Selling, general and
administrative expenses 19.71 19.12 19.04 12.9 6.2 5.8
Operating profit 6.17 6.41 6.25 5.2 8.6 16.3
Net interest expense 0.47 0.44 0.52 16.1 (10.5) 21.9
Earnings before income taxes
and cumulative effect
of accounting change 5.77 6.03 5.71 4.8 11.8 22.9
Net earnings 3.58 3.69 3.37 6.2 16.1 17.9
(1) Increase is 7.4% when compared on a 52-week basis to 1993, a 53-week year
Increases in sales are primarily attributable to comparable store sales
increases (including inflation) and the continued expansion of net retail square
footage. Comparable store sales, stores (including replacement stores) that have
been in operation for two full fiscal years, increased 2.1% in 1996, 1.0% in
1995 and 2.6% (on a comparable 52-week basis to 1993, a 53-week year) in 1994.
Comparable store sales continued to increase through higher average ticket sales
per customer. Management estimates that inflation accounted for approximately
0.6% of the comparable store sales increase in 1996 and 1995, and 0.7% in 1994.
During 1996 the Company opened 70 stores, remodeled 42 stores and closed 8
stores for a net retail square footage increase of 3.5 million square feet. Net
retail square footage increased 9.6% in 1996, 7.6% in 1995 and 7.7% in 1994. In
addition to new store development, the Company plans to increase sales through
its continued investment in specific programs initiated in 1996. Such programs
include the Front End Manager program, the home meal solutions process called
"Quick Fixin' Ideas(SM)," expansion of the Company's pharmacy business and
increased emphasis on training programs utilizing Computer Guided Training. The
Company also began a new advertising campaign in February 1997, supported by the
largest investment in broadcast media in the Company's history.
Beginning with the first quarter of 1996, the Company has classified
advertising expenses as cost of sales. Previously, advertising expenses were
included in selling, general and administrative expenses. Reclassifications have
been made in prior periods to conform to this new presentation.
Financial Section 19
2
Albertson's, Inc.
Gross profit, as a percent to sales, increased due primarily to the
continued utilization and increased efficiencies of Company-owned distribution
facilities. The Company's distribution centers provided 77% of all products
purchased by retail stores during 1996, 1995 and 1994. Utilization of the
Company's distribution centers 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 0.11% in 1996, 0.14% in 1995 and 0.08% in 1994.
Selling, general and administrative (SG&A) expenses, as a percent to sales,
increased in 1996 due primarily to increased salary and related benefit costs
resulting from the Company's 1996 initiatives to increase sales; and increased
depreciation expense associated with the Company's expansion program. The 1995
increase was due primarily to increased depreciation expense associated with the
Company's expansion program. In addition to increasing sales, the Company will
continue to implement new technologies that increase productivity and emphasize
cost containment programs to control SG&A expenses as a percent to sales.
The 1996 increase in net interest expense resulted from additional
borrowings. 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. The 1994 increase in net interest
expense over 1993 resulted from adjustments taken in 1993.
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 excluding this adjustment would have been 3.51% to sales in 1994.
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 1996 was $657 million compared to $793 million in
1995 and $612 million in 1994. The 1996 decrease in cash provided by operating
activities was due primarily to changes in inventories and accounts payable.
During 1996 the Company spent $673 million on capital expenditures, $55 million
to purchase and retire stock and $146 million for the payment of dividends
(which represents 29.6% of 1996 net earnings).
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 $329 million of commercial paper borrowings
outstanding at January 30, 1997, compared to $209 million at February 1, 1996
and $110 million at February 2, 1995. As of January 30, 1997, the Company had a
revolving credit agreement for $600 million which was reserved as alternative
funding for the Company's commercial paper program. The Company also had bank
lines of credit for $45 million as of January 30, 1997.
In 1996 the Company issued $200 million of 30-year 7.75% debentures under a
shelf registration statement filed with the Securities and Exchange Commission
in May 1996. Proceeds from the issuance were used to reduce borrowings under the
Company's commercial paper program. Medium-term notes up to $300 million remain
available for issuance under the 1996 shelf registration statement.
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.
20 Financial Section
3
Albertson's, Inc.
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 on March
3, 1997, authorizes the Company to purchase and retire up to 7 million shares
from April 1, 1997 through March 31, 1998. Under these programs, 1.6 million
shares were purchased and retired in 1996, 2.6 million shares were purchased and
retired in 1995 and no shares were purchased in 1994.
The following leverage ratios demonstrate the Company's levels of long-term
financing as of the indicated year end:
JANUARY 30, February 1, February 2,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Long-term debt (including capitalized lease obligations) to capital(1) 31.9% 27.3% 23.3%
Long-term debt (including capitalized lease obligations) to total assets 22.3 17.7 14.1
(1) Capital includes long-term debt, capitalized leases and stockholders' equity
The average size of stores opened in 1996, 52,300 square feet, increased
the Company's average store size to 48,200 square feet. At January 30, 1997, 94%
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 1996, six of the 42 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 $172 million
(excluding inventory) in its distribution operations and has added 1.4 million
square feet of new or expanded facilities. A new 698,000-square-foot full-line
distribution center in the Company's 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.
Capital expenditures for 1997 (excluding amounts anticipated to be financed
by operating leases) are expected to be approximately $615 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 324 stores representing
40% of the Company's retail square footage as of January 30, 1997. 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):
1997
(PROJECTED) 1996 1995 1994
- ---------------------------------------------------------------------------------------
New and acquired stores $410,000 $460,188 $412,868 $320,479
Remodels 95,000 117,358 120,709 86,381
Retail replacement equipment and
technological upgrades 65,000 52,478 15,692 36,464
Distribution facilities and equipment 25,000 34,812 98,731 38,490
Other 20,000 21,171 16,257 17,119
- ---------------------------------------------------------------------------------------
Total capital expenditures 615,000 686,007 664,257 498,933
Estimated fair value of property
financed by operating leases 35,000 47,000 30,000 18,000
- ---------------------------------------------------------------------------------------
$650,000 $733,007 $694,257 $516,933
--------------------------------------------
Financial Section 21
4
Albertson's Inc.
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 1997 meeting
increased the regular quarterly cash dividend to $.16 per share, for an annual
rate of $.64 per share.
NEW ACCOUNTING STANDARD
In March 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This new standard
requires dual presentation of basic and diluted earnings per share (EPS) on the
face of the earnings statement and requires a reconciliation of the numerators
and denominators of the basic and diluted EPS calculations. This statement will
be effective for the Company's 1997 fiscal year. The Company's current EPS
calculation conforms to basic EPS. Diluted EPS will not be materially different
from basic EPS since potential common shares in the form of stock options are
not materially dilutive.
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.
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, labor negotiations,
ability to recruit and develop employees, ability to develop new stores or
complete remodels as rapidly as planned and stability of product costs.
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.
22 Financial Section
5
Albertson's, Inc.
Consolidated Earnings
52 WEEKS 52 Weeks 52 Weeks
JANUARY 30, February 1, February 2,
(In thousands except per share data) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
SALES $13,776,678 $12,585,034 $11,894,621
Cost of sales 10,211,348 9,371,736 8,886,727
- ---------------------------------------------------------------------------------------------------------------
Gross profit 3,565,330 3,213,298 3,007,894
Selling, general and administrative expenses 2,715,776 2,406,082 2,264,756
- ---------------------------------------------------------------------------------------------------------------
Operating profit 849,554 807,216 743,138
Other (expenses) income:
Interest, net (64,569) (55,633) (62,141)
Other, net 9,862 6,918 (2,345)
- ---------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
of accounting change 794,847 758,501 678,652
Income taxes 301,068 293,540 261,281
- ---------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of accounting change 493,779 464,961 417,371
Cumulative effect of accounting change:
Postemployment benefits (17,006)
- ---------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 493,779 $ 464,961 $ 400,365
Earnings per share before cumulative effect
of accounting change $ 1.96 $ 1.84 $ 1.65
Cumulative effect of accounting change:
Postemployment benefits (.07)
- ---------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ 1.96 $ 1.84 $ 1.58
-----------------------------------------------------
Average number of common shares outstanding 251,710 253,080 253,633
See Notes to Consolidated Financial Statements.
Financial Section 23
6
Albertson's, Inc.
Consolidated Balance Sheets
JANUARY 30, February 1, February 2,
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 90,865 $ 69,113 $ 50,224
Accounts and notes receivable 98,364 98,340 109,324
Inventories 1,201,067 1,030,246 948,561
Prepaid expenses 42,823 22,855 19,257
Deferred income taxes 42,804 62,448 62,223
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,475,923 1,283,002 1,189,589
OTHER ASSETS 184,070 155,427 122,781
LAND, BUILDINGS AND EQUIPMENT, NET 3,054,640 2,697,482 2,309,359
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $4,714,633 $4,135,911 $3,621,729
----------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 682,305 $ 648,963 $ 575,551
Salaries and related liabilities 135,681 134,096 114,906
Taxes other than income taxes 67,086 44,413 38,212
Income taxes 14,409 35,546 37,913
Self-insurance 63,999 68,899 63,905
Unearned income 36,539 32,208 22,092
Other 46,161 38,815 34,810
Current maturities of long-term debt 975 78,237 201,146
Current capitalized lease obligations 7,938 7,316 6,904
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,055,093 1,088,493 1,095,439
LONG-TERM DEBT 921,704 602,993 382,775
CAPITALIZED LEASE OBLIGATIONS 130,050 129,265 129,573
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 360,768 362,637 326,049
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 - 600,000,000
shares; issued - 250,690,105 shares, 251,918,576 shares
and 253,984,381 shares, respectively 250,690 251,919 253,984
Capital in excess of par value 92 3,269 11,322
Retained earnings 1,996,236 1,697,335 1,422,587
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,247,018 1,952,523 1,687,893
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,714,633 $4,135,911 $3,621,729
----------------------------------------------
See Notes to Consolidated Financial Statements.
24 Financial Section
7
Albertson's, Inc.
Consolidated Cash Flows
52 WEEKS 52 Weeks 52 Weeks
JANUARY 30, February 1, February 2,
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 493,779 $ 464,961 $ 400,365
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 294,341 251,450 226,467
Net deferred income taxes 33,868 (590) (18,956)
Cumulative effect of accounting change 17,006
Changes in operating assets and liabilities:
Receivables and prepaid expenses (19,992) 7,386 (499)
Inventories (170,821) (81,685) (76,842)
Accounts payable 33,342 73,412 (24,825)
Other current liabilities 14,716 18,482 3,999
Self-insurance (11,234) 9,406 31,125
Unearned income (10,735) 34,960 51,318
Other long-term liabilities (313) 15,682 3,059
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 656,951 793,464 612,217
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (673,310) (656,331) (470,589)
Proceeds from disposals of land, buildings and equipment 31,095 23,267 42,094
Increase in other assets (28,643) (32,646) (31,971)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (670,858) (665,710) (460,466)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net line of credit activity (10,000)
Proceeds from long-term borrowings 202,000 202,525 3,960
Payments on long-term borrowings (88,202) (211,463) (86,973)
Net commercial paper activity 119,601 99,657 29,828
Proceeds from stock options exercised 3,328 4,902 5,697
Cash dividends paid (146,060) (126,672) (106,502)
Stock purchased and retired (55,008) (77,814)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 35,659 (108,865) (163,990)
- ----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,752 18,889 (12,239)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 69,113 50,224 62,463
- ----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 90,865 $ 69,113 $ 50,224
---------------------------------------------
See Notes to Consolidated Financial Statements.
Financial Section 25
8
Albertson's, Inc.
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 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
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, $.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
-------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
26 Financial Section
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 one of the largest retail food - drug
chains in the United States, with operations in 20 Western, Midwestern and
Southern states. As of January 30, 1997, the Company operated 826 stores. Retail
operations are supported by 11 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.
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.
BUYING AND PROMOTIONAL ALLOWANCES Allowances and credits received from vendors
in connection with the Company's buying and merchandising activities are
recognized as earned.
Financial Section 27
10
Albertson's, Inc.
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.
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.
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.
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.
SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as follows (in
thousands):
1996 1995 1994
- -----------------------------------------------------------------------------------------------
Cash payments for income taxes $288,590 $284,383 $285,884
Cash payments for interest,
net of amounts capitalized 59,284 45,131 51,103
Noncash investing and financing activities:
Capitalized lease obligations incurred 12,005 7,926 28,232
Capitalized lease obligations terminated 3,240 1,232 2,658
Tax benefits related to stock options 3,310 4,064 4,085
Liabilities assumed in connection with asset acquisitions 692 112
28 Financial Section
11
Albertson's, Inc.
ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following (in thousands):
JANUARY 30, February 1, February 2,
1997 1996 1995
- ----------------------------------------------------------------------------------------------
Trade and other accounts receivable $ 97,186 $ 95,112 $ 108,080
Current portion of notes receivable 2,178 4,478 2,606
Allowance for doubtful accounts (1,000) (1,250) (1,362)
- ----------------------------------------------------------------------------------------------
$ 98,364 $ 98,340 $ 109,324
-----------------------------------------------
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 $232,849,000, $217,831,000 and
$200,738,000 higher at the end of 1996, 1995 and 1994, respectively. Net
earnings would have been higher by $9,329,000 ($.04 per share) in 1996,
$10,478,000 ($.04 per share) in 1995 and $5,625,000 ($.02 per share) in 1994.
The replacement cost of inventories valued at LIFO approximates FIFO cost.
LAND, BUILDINGS AND EQUIPMENT
Land, buildings and equipment consist of the following (in thousands):
JANUARY 30, February 1, February 2,
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Land $ 700,208 $ 611,588 $ 527,125
Buildings 1,799,976 1,525,769 1,242,813
Fixtures and equipment 1,607,454 1,427,047 1,258,749
Leasehold improvements 328,249 315,658 287,544
Capitalized leases 186,768 183,316 180,026
- -----------------------------------------------------------------------------------------------------------
4,622,655 4,063,378 3,496,257
Less accumulated depreciation and amortization 1,568,015 1,365,896 1,186,898
- -----------------------------------------------------------------------------------------------------------
$ 3,054,640 $ 2,697,482 $ 2,309,359
---------------------------------------------------
Financial Section 39
12
Albertson's, Inc.
INDEBTEDNESS
Long-term debt includes the following (in thousands):
JANUARY 30, February 1, February 2,
1997 1996 1995
- --------------------------------------------------------------------------------------------------
Commercial paper $ 328,996 $ 209,395 $ 109,738
Unsecured 7.75% debentures due June 2026 200,000
Unsecured 6.375% notes due June 2000 200,000 200,000
Unsecured 6.375% notes due May 1995 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
Due May 1995 (6.15% interest) 50,000
Industrial revenue bonds 14,860 15,710 16,550
Mortgage notes and other unsecured notes payable 3,748 4,050 5,558
- --------------------------------------------------------------------------------------------------
922,679 681,230 583,921
Less current maturities (975) (78,237) (201,146)
- --------------------------------------------------------------------------------------------------
$ 921,704 $ 602,993 $ 382,775
----------------------------------------------
The Company has in place a $600 million commercial paper program. Interest
rates on the outstanding commercial paper borrowings as of January 30, 1997,
ranged from 5.36% to 5.57% with an effective weighted average rate of 5.39%. 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.
In June 1996 the Company issued $200 million of 7.75% debentures under a
shelf registration statement filed with the Securities and Exchange Commission
in May 1996. The debentures are due June 15, 2026. Proceeds from the issuance
were used to repay borrowings under the Company's commercial paper program.
Medium-term notes up to $300 million remain available for issuance under the
1996 shelf registration statement.
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. 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.
Interest on the debentures and notes is paid semiannually.
The industrial revenue bonds are payable in varying annual installments
through 2011, with interest paid semiannually at rates ranging from 4.10% to
6.95%.
The Company has pledged real estate with a cost of $14,875,000 as
collateral for the mortgage notes, which are payable semiannually, including
interest at rates ranging from 7.875% to 16.5%. The notes mature from 1997 to
2011.
The scheduled maturities of long-term debt outstanding at January 30, 1997,
are summarized as follows: $975,000 in 1997, $86,499,000 in 1998, $1,109,000 in
1999, $290,911,000 in 2000, $330,423,000 in 2001 and $212,762,000 thereafter.
30 Financial Section
13
Albertson's, Inc.
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 $45
million at January 30, 1997. 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 30, 1997, February 1, 1996 or February 2, 1995.
Net interest expense was as follows (in thousands):
1996 1995 1994
- --------------------------------------------------------------
Debt $ 48,534 $ 39,323 $ 42,780
Capitalized leases 15,168 15,234 13,412
Capitalized interest (6,378) (7,428) (3,974)
- --------------------------------------------------------------
Interest expense 57,324 47,129 52,218
Net bank service charges 7,245 8,504 9,923
- --------------------------------------------------------------
$ 64,569 $ 55,633 $ 62,141
----------------------------------
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS
Other long-term liabilities and deferred credits consist of the following
(in thousands):
JANUARY 30, February 1, February 2,
1997 1996 1995
- ------------------------------------------------------------------------------
Deferred compensation $ 37,905 $ 33,354 $ 36,396
Deferred income taxes 15,876 1,652 2,017
Deferred rents payable 69,305 71,468 69,381
Self-insurance 107,591 113,925 109,513
Unearned income 69,756 84,822 59,978
Other 60,335 57,416 48,764
- ------------------------------------------------------------------------------
$360,768 $362,637 $326,049
--------------------------------------------
CAPITAL STOCK
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,
Financial Section 31
14
Albertson's, Inc.
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) 10 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.
On December 2, 1996, the Board of Directors adopted a stockholder rights
plan, under which all stockholders of record on March 21, 1997 receive a
dividend distribution of one nonvoting right for each share of common stock
held. Subject to certain exceptions, one right will also be issued with each
share of common stock issued after March 21, 1997. Each right will entitle the
holder to purchase, under certain circumstances, one one-hundredth 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 $160.00. 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.
Subject to certain exceptions, if any person or group becomes the
beneficial owner of 15% or more of the outstanding common stock, each right then
will entitle its holder, other than such person or group, upon payment of the
$160.00 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. However, the rights are not exercisable until such time as
the rights are no longer redeemable by the Company as set forth below.
All of the rights may be redeemed by the Board of Directors at a price of
$.001 per right until the earlier of (i) 10 days following the acquisition by
any person or group of 15% or more of the outstanding common stock or (ii) the
date the stockholder rights plan expires. Notwithstanding the foregoing, the
rights generally may not be redeemed for one hundred eighty (180) days following
a change in a majority of the Board of Directors as a result of a proxy contest
or consent solicitation. The rights, which are not entitled to dividends, will
expire at the close of business on March 21, 2007 unless earlier redeemed or
extended by the Company.
32 Financial Section
15
Albertson's, Inc.
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 on March
3, 1997, authorizes the Company to purchase and retire up to 7 million shares
through March 31, 1998. The Company has purchased and retired an equivalent of
16.6 million shares of its common stock for $289 million under these programs,
at an average price of $17.41 per share.
INCOME TAXES
Deferred tax assets and liabilities consist of the following (in
thousands):
JANUARY 30, February 1, February 2,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets (no valuation allowances considered necessary):
Nondeductible accruals for:
Self-insurance $ 67,547 $ 70,669 $ 66,884
Lease accounting 20,238 20,601 20,689
Vacations 17,057 19,917 18,386
Deferred compensation 15,406 15,832 6,504
Postemployment benefits 13,721 13,224 10,447
Property valuation 8,339 10,300 8,867
Pension costs 3,387 2,930 2,485
Litigation 22 177 9,508
Other 9,031 7,237 6,219
Income unearned for financial reporting purposes 30,741 44,355 31,374
Costs capitalized for tax purposes 5,615 9,999 11,156
- --------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 191,104 215,241 192,519
Deferred tax liabilities:
Accelerated depreciation for tax purposes (120,975) (116,267) (110,330)
Pension costs expensed for tax purposes (20,264) (23,803) (18,040)
Inventory valuation (8,863) (7,676) (778)
Funded benefits (7,778) (1,647)
Deferred gains (6,103) (4,929) (3,146)
Other (193) (123) (19)
- --------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (164,176) (154,445) (132,313)
- --------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $ 26,928 $ 60,796 $ 60,206
---------------------------------------------------
Financial Section 33
16
Albertson's, Inc.
Income tax expense on continuing operations consists of the following (in
thousands):
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Current:
Federal $ 229,006 $ 252,587 $ 239,937
State 38,367 41,729 40,508
- -------------------------------------------------------------------------------------------------------------
267,373 294,316 280,445
Deferred:
Federal 29,008 (506) (16,218)
State 4,860 (84) (2,738)
- -------------------------------------------------------------------------------------------------------------
33,868 (590) (18,956)
Amortization of deferred investment tax credits (173) (186) (208)
- -------------------------------------------------------------------------------------------------------------
$ 301,068 $ 293,540 $ 261,281
-------------------------------------------------
Deferred taxes resulted from:
Income unearned for financial reporting purposes $ 13,614 $ (12,981) $ (19,528)
Accelerated depreciation for tax purposes 4,708 5,937 7,111
Self-insurance 3,122 (3,785) (12,073)
Litigation 155 9,331 2,460
Inventory valuation 1,187 6,898 (262)
Costs capitalized for tax purposes 4,384 1,157 (353)
Deferred compensation 426 (9,328) (762)
Property valuation 1,961 (1,433) (39)
Pension costs expensed for tax purposes (3,539) 5,763 4,728
Funded benefits 6,131 1,647
Other 1,719 (3,796) (238)
- -------------------------------------------------------------------------------------------------------------
$ 33,868 $ (590) $ (18,956)
-------------------------------------------------
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):
1996 PERCENT 1995 Percent 1994 Percent
- --------------------------------------------------------------------------------------------------------------
Taxes computed at statutory rate $ 278,196 35.0 $ 265,476 35.0 $ 237,528 35.0
State income taxes net of federal
income tax benefit 28,345 3.6 26,656 3.5 24,530 3.6
Amortization of deferred
investment tax credits (173) (186) (208)
Other (5,300) (0.7) 1,594 0.2 (569) (0.1)
- --------------------------------------------------------------------------------------------------------------
$ 301,068 37.9 $ 293,540 38.7 $ 261,281 38.5
-------------------------------------------------------------------------
34 Financial Section
17
Albertson's, Inc.
STOCK OPTIONS
The Company has two stock option plans currently in effect under which
grants may be issued with respect to 10,400,000 shares of the Company's common
stock. Under these plans, approved by the shareholders 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.
A summary of shares reserved for outstanding options as of the fiscal year
end, changes during the year and related weighted average exercise price is
presented below (shares in thousands):
JANUARY 30, 1997 February 1, 1996 February 2, 1995
SHARES PRICE Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,824 $21.51 3,468 $16.50 4,052 $15.17
Granted 790 35.14 1,044 31.76 141 28.63
Exercised (376) 10.91 (540) 9.84 (594) 10.21
Forfeited (182) 18.35 (148) 19.05 (131) 16.77
- ---------------------------------------------------------------------------------------------------------------
Outstanding at end of year 4,056 $25.29 3,824 $21.51 3,468 $16.50
-----------------------------------------------------------------------
As of January 30, 1997, there were 8,585,000 shares of common stock
reserved for the granting of additional options.
The following table summarizes options outstanding and options exercisable
as of January 30, 1997, 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
- --------------------------------------------------------------------------------------------------
$ 6.25 to $ 8.69 230 1.6 $ 8.39 101 $ 8.01
13.44 to 16.88 1,133 4.1 15.97 199 16.14
22.63 to 31.88 1,903 7.6 28.79 21 26.94
35.00 to 39.75 790 9.8 35.14 24 39.75
- --------------------------------------------------------------------------------------------------
$ 6.25 to $39.75 4,056 6.7 $25.29 345 $16.07
--------------------------------------------------------------
The weighted average fair value at date of grant for options granted during
1996, 1995 and 1994 was $10.74, $9.39 and $10.50 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:
1996 1995 1994
- -------------------------------------------------------
Expected life (years) 7.0 6.9 7.0
Risk-free interest rate 6.24% 5.74% 7.84%
Volatility 22.06 22.26 22.74
Dividend yield 1.70 1.64 1.54
Financial Section 35
18
Albertson's, Inc.
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 1996 or 1995. 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 (in thousands, except per share data):
1996 1995
- -----------------------------------------------------------------------------
Net earnings - as reported $493,779 $464,961
Net earnings - pro forma 492,558 464,687
Earnings per share - as reported 1.96 1.84
Earnings per share - pro forma 1.96 1.84
The pro forma effect on net earnings for 1996 and 1995 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 pension cost for Company-sponsored pension plans was as
follows (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 24,138 $ 16,172 $ 19,523
Interest cost on projected benefit obligations 20,095 16,149 15,097
Actual return on assets (36,309) (62,603) (145)
Net amortization and deferral 6,686 39,972 (19,860)
- --------------------------------------------------------------------------------------
$ 14,610 $ 9,690 $ 14,615
----------------------------------
36 Financial Section
19
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):
---------------------------------------------
JANUARY 30, February 1, February 2,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Plan assets at fair value $ 354,806 $ 321,758 $ 240,534
Actuarial present value of:
Vested benefits 215,263 180,077 138,322
Nonvested benefits 23,861 17,639 13,460
- --------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 239,124 197,716 151,782
Effect of projected future salary increases 42,957 60,926 27,529
- --------------------------------------------------------------------------------------------------------
Projected benefit obligation 282,081 258,642 179,311
- --------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 72,725 63,116 61,223
Unrecognized net gain (24,195) (5,870) (19,535)
Unrecognized prior service cost 4,576 5,425 6,274
Unrecognized net transition assets (609) (796) (983)
- --------------------------------------------------------------------------------------------------------
Prepaid pension cost $ 52,497 $ 61,875 $ 46,979
---------------------------------------------
Assets of the two funded Company plans are invested in directed trusts.
Assets in the directed trusts are invested in common stocks (including
$38,445,000, $38,859,000 and $33,071,000 of the Company's common stock at
January 30, 1997, February 1, 1996 and February 2, 1995, 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):
-------------------------------------------
JANUARY 30, February 1, February 2,
1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Actuarial present value of:
Vested benefits $ 9,849 $ 9,216 $ 6,734
Nonvested benefits 6 5 23
- ------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 9,855 9,221 6,757
Effect of projected future salary increases 1,906 1,782 1,408
- ------------------------------------------------------------------------------------------------------
Projected benefit obligation 11,761 11,003 8,165
- ------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (11,761) (11,003) (8,165)
Unrecognized net (gain) loss 990 1,115 (869)
Unrecognized prior service cost 851 946 1,041
Unrecognized net transition liability 1,145 1,326 1,507
Additional minimum liability (1,080) (1,605) (271)
- ------------------------------------------------------------------------------------------------------
Accrued pension cost $ (9,855) $ (9,221) $(6,757)
-------------------------------------------
Financial Section 37
20
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:
--------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------
Weighted-average discount rate 7.50% 7.25% 8.50%
Annual salary increases 4.50 - 5.00 4.50 - 5.00 4.50 - 5.00
Expected long-term rate of return on assets 9.50 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 $24,884,000 for 1996, $23,777,000 for 1995
and $17,354,000 for 1994. 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):
-----------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
Service cost $ 1,304 $ 979 $ 812
Interest cost 989 889 669
Net amortization 22
- ------------------------------------------------------------------------------
$ 2,315 $ 1,868 $1,481
-----------------------------
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):
--------------------------------------------
JANUARY 30, February 1, February 2,
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Existing retired employees $ 2,391 $ 2,176 $1,706
Active employees fully eligible 3,247 3,402 1,871
Other active employees 8,515 6,908 4,639
- --------------------------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 14,153 12,486 8,216
Unrecognized net gain (loss) and effects of changes in assumptions (1,052) (1,503) 1,402
- --------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit liabilities $ 13,101 $ 10,983 $9,618
--------------------------------------------
Assumed discount rate 7.50% 7.25% 8.50%
38 Financial Section
21
Albertson's, Inc.
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.
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 under its employees' short-term and long-term disability plans
which are the primary benefits paid to inactive employees prior to retirement.
The total cumulative effect of this accounting change (net of $10.6 million in
tax benefits) decreased net earnings by $17.0 million or $.07 per share. The
impact of this change on 1994 operations was not material.
Following is a summary of the obligation for postemployment benefits
included in the Company's consolidated balance sheets (in thousands):
----------------------------------------
JANUARY 30, February 1, February 2,
1997 1996 1995
- -------------------------------------------------------------------------------------------
Included with salaries and related liabilities $ 4,620 $ 4,427 $ 2,956
Included with other long-term liabilities 30,927 29,949 25,801
- -------------------------------------------------------------------------------------------
$35,547 $34,376 $28,757
----------------------------------------
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 $100,043,000
for 1996, $84,709,000 for 1995 and $106,439,000 for 1994. 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
$66,142,000 for 1996, $58,782,000 for 1995 and $58,406,000 for 1994.
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 $1,781,000 in 1996, $1,948,000 in 1995 and $2,141,000 in 1994. Following
is an analysis of the Company's capitalized leases (in thousands):
---------------------------------------------
JANUARY 30, February 1, February 2,
1997 1996 1995
- -----------------------------------------------------------------------------
Real estate and equipment $ 186,768 $ 183,316 $ 180,026
Accumulated amortization (83,208) (81,938) (78,183)
- -----------------------------------------------------------------------------
$ 103,560 $ 101,378 $ 101,843
---------------------------------------------
Financial Section 39
22
Albertson's, Inc.
Future minimum lease payments for noncancelable operating leases, related
subleases and capital leases at January 30, 1997, are as follows (in
thousands):
-----------------------------------------------
Operating Leases Subleases Capital Leases
- ---------------------------------------------------------------------------------------------
1997 $ 75,079 $(14,043) $ 23,046
1998 80,821 (13,860) 22,753
1999 81,258 (11,152) 22,070
2000 78,759 (7,998) 22,835
2001 77,037 (6,335) 23,825
Remainder 682,704 (22,998) 182,894
- ---------------------------------------------------------------------------------------------
Total minimum obligations (receivables) $1,075,658 $(76,386) 297,423
-----------------------------
Less interest (159,435)
- ---------------------------------------------------------------------------------------------
Present value of net minimum obligations 137,988
Less current portion (7,938)
- ---------------------------------------------------------------------------------------------
Long-term obligations at January 30, 1997 $ 130,050
--------------
The present value of minimum lease payments under operating leases using an
assumed discount rate of 9.5% was approximately $528 million at January 30,
1997.
Rent expense under operating leases was as follows (in thousands):
----------------------------------------
1996 1995 1994
- -----------------------------------------------------------------
Minimum rent $ 77,214 $ 68,528 $ 65,566
Contingent rent 4,155 4,088 4,634
- -----------------------------------------------------------------
81,369 72,616 70,200
Less sublease rent (23,498) (19,573) (19,055)
- -----------------------------------------------------------------
$ 57,871 $ 53,043 $ 51,145
----------------------------------------
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 $5.9
million in 1997 and aggregate $51.9 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.
40 Financial Section
23
Albertson's, Inc.
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 30, February 1, February 2,
1997 1996 1995
- -------------------------------------------------------------
Fair value $ 606.3 $ 483.9 $ 463.0
Carrying amount 593.7 471.8 474.2
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 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." This new standard
requires dual presentation of basic and diluted earnings per share (EPS) on the
face of the earnings statement and requires a reconciliation of the numerators
and denominators of the basic and diluted EPS calculations. This statement will
be effective for the Company's 1997 fiscal year. The Company's current EPS
calculation conforms to basic EPS. Diluted EPS will not be materially different
from basic EPS since potential common shares in the form of stock options are
not materially dilutive.
LEGAL PROCEEDINGS
Three civil lawsuits, covering the States of California, Florida and
Washington and each filed as a purported class action, have been brought
against the Company alleging that the Company permits its hourly-paid employees
to work "off-the-clock" without being paid for their work. Choate v.
Albertson's, Inc. was filed on September 11, 1996 in Washington state court
(Superior Court of King County, Washington); Gloege v. Albertson's, Inc. was
filed on September 17, 1996 in federal court in California (United States
District Court for the Northern District of California); and Mitchell v.
Albertson's, Inc. was filed on September 19, 1996 in federal court in Florida
(United States District Court for the Southern District of Florida).
The Company has firm and long-standing policies in place prohibiting
off-the-clock work. Although these lawsuits are still in their preliminary
stages, the Company believes it has strong defenses and intends to vigorously
defend against these lawsuits. The Company further believes that these lawsuits
are part of a broader and continuing effort by the United Food & Commercial
Workers, International Union and some of its locals to pressure the Company to
unionize employees who have not expressed a desire to be represented by a
union.
In the opinion of management, the ultimate resolution of these actions will
not have a material adverse effect on the Company's financial condition or
results of operations.
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 or results of operations.
Financial Section 41
24
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
42 Financial Section
25
Albertson's, Inc.
Independent Auditors' Report
[DELOITTE & TOUCHE 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 January 30, 1997, February 1, 1996 and
February 2, 1995, 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 30, 1997, February 1, 1996 and February 2, 1995, 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 19, 1997
Financial Section 43
26
Albertson's, Inc.
Five-Year Summary of Selected Financial Data
-----------------------------------------------------------------------------
52 WEEKS 52 Weeks 52 Weeks 53 Weeks 52 Weeks
JANUARY 30, February 1, February 2, February 3, January 28,
(Dollars in thousands except per share data) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
Sales $ 13,776,678 $ 12,585,034 $11,894,621 $11,283,678 $10,173,676
Gross profit 3,565,330 3,213,298 3,007,894 2,779,671 2,416,247
Interest expense:
Debt 42,156 31,895 38,806 27,945 22,245
Capitalized lease obligations 15,168 15,234 13,412 12,233 11,560
Earnings before income taxes
and cumulative effects of
accounting changes 794,847 758,501 678,652 552,215 443,721
Income taxes 301,068 293,540 261,281 212,534 167,646
Earnings before cumulative
effects of accounting changes 493,779 464,961 417,371 339,681 276,075
Cumulative effects of
accounting changes (17,006) (6,858)
Net earnings 493,779 464,961 400,365 339,681 269,217
Net earnings as a percent to sales 3.58% 3.69% 3.37% 3.01% 2.65%
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
Earnings per share before cumulative
effects of accounting changes $ 1.96 $ 1.84 $ 1.65 $ 1.34 $ 1.04
Cumulative effects of
accounting changes (.07) (.02)
Earnings per share 1.96 1.84 1.58 1.34 1.02
Cash dividends per share .60 .52 .44 .36 .32
Book value per share 8.96 7.75 6.65 5.48 5.25
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Total assets $ 4,714,633 $ 4,135,911 $ 3,621,729 $ 3,294,895 $ 2,945,573
Working capital 420,830 194,509 94,150 132,169 200,483
Long-term debt 921,704 602,993 382,775 554,092 404,476
Capitalized lease obligations 130,050 129,265 129,573 110,919 103,764
Stockholders' equity 2,247,018 1,952,523 1,687,893 1,389,379 1,388,428
- ------------------------------------------------------------------------------------------------------------------------------
OTHER YEAR END STATISTICS:
Number of stores 826 764 720 676 656
Number of employees:
Total 88,000 80,000 76,000 75,000 71,000
Full-time equivalents 71,000 66,000 60,000 58,000 54,000
- ------------------------------------------------------------------------------------------------------------------------------
- - 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."
- - In fiscal 1993 a $29.9 million nonrecurring charge was recorded to cover
the settlement of a lawsuit and interest expense included a reduction of
$9.7 million 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.
44 Financial Section
27
Albertson's, Inc.
Quarterly Financial Data
(Dollars in thousands except per -------------------------------------------------------------------------------
share data - Unaudited) First Second Third Fourth Year
- -------------------------------------------------------------------------------------------------------------------
1996
Sales $3,343,941 $3,481,131 $3,375,771 $3,575,835 $13,776,678
Gross profit 858,615 900,966 868,337 937,412 3,565,330
Net earnings 112,377 120,712 106,424 154,266 493,779
Earnings per share .45 .48 .42 .61 1.96
- -------------------------------------------------------------------------------------------------------------------
1995
Sales $3,083,424 $3,119,216 $3,103,578 $3,278,816 $12,585,034
Gross profit 770,987 793,253 794,284 854,774 3,213,298
Net earnings 99,274 106,229 105,350 154,108 464,961
Earnings per share .39 .42 .42 .61 1.84
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
1996
Net earnings $ (7,651) $ (7,651) $ (3,331) $ 9,304 $ (9,329)
Earnings per share (.03) (.03) (.01) .03 (.04)
- -------------------------------------------------------------------------------------------------------------------
1995
Net earnings $ (6,804) $ (6,804) $ (2,513) $ 5,643 $ (10,478)
Earnings per share (.03) (.03) (.01) .03 (.04)
- -------------------------------------------------------------------------------------------------------------------
Financial Section 45
28
Stockholders' Information
ADDRESS
ALBERTSON'S, INC.
General Offices
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Telephone: (208) 395-6200
AUDITORS
Deloitte & Touche LLP
Boise, Idaho
STOCK TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder
Services, L.L.C.
Shareholder Relations Department
P.O. Box 469
Washington Bridge Station
New York, NY 10033
Telephone: (800) 356-2017
CO-TRANSFER AGENT AND REGISTRAR
U.S. Bank of Idaho
Boise, Idaho
STOCKHOLDERS OF RECORD
There were 18,000 stockholders of record at March 19, 1997.
ANNUAL MEETING
The 1997 Annual Meeting of Stockholders will be held at 10:00 a.m. Mountain
Daylight Time on Friday, May 23, 1997, 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 automatically invest the quarterly dividends or 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.
INFORMATION CONTACT
Information on individual accounts or on procedures necessary to make changes
in an account is provided by ChaseMellon at (800) 356-2017 between the hours of
8:00 a.m. and 8:00 p.m., Eastern Time, after a stockholder identifies his or
her account by providing a taxpayer identification number, the registration
name on the securities and the address of record.
When directing correspondence to ChaseMellon at the address shown,
stockholders are reminded to include a reference to Albertson's, Inc.
COMPANY PROFILE AVAILABLE
A copy of the Company Profile, which contains a discussion of our core
values, including equal opportunity, environmental quality and community
support, as well as statistical information about the Company, is available to
stockholders, without charge, upon request to the Corporate Secretary of
Albertson's, Inc.
FORM 10-K AVAILABLE
A copy of Form 10-K Annual Report filed with the Securities and Exchange
Commission for Albertson's, Inc. fiscal year ended January 30, 1997, is
available to stockholders, without charge, upon request to the Corporate
Secretary of Albertson's, Inc.
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
- ---------------------------------------------------------------------------------------------------------
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
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
- ---------------------------------------------------------------------------------------------------------
Cash dividends declared per share:
---------------------------------------------
First Second Third Fourth Year
- ------------------------------------------------------------------------------
1996 $ .15 $ .15 $ .15 $ .15 $ .60
1995 .13 .13 .13 .13 .52
1994 .11 .11 .11 .11 .44
- ------------------------------------------------------------------------------
- - In March 1997, the Board of Directors increased the regular quarterly cash
dividend 6.7% to $.16 per share from $.15 per share, for an annual rate of
$.64 per share. The new quarterly rate will be paid on May 25, 1997, to
stockholders of record on May 2, 1997.