Item 1. Business - -----------------
General
The Registrant, 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. The Company is one of the largest retail food-drug chains in the United States. As of January 29, 1998, the Company operated 878 stores in 20 Western, Midwestern and Southern states. These stores consist of 768 combination food-drug stores, 72 conventional supermarkets and 38 warehouse stores. Retail operations are supported by 11 Company-owned distribution centers.
The Company's combination food-drug stores are super grocery/super drugstores under one roof and range in size from 35,000 to 82,000 square feet. Most of these stores offer prescription drugs and an expanded section of cosmetics and nonfoods in addition to specialty departments such as service seafood and meat, bakery, lobby/video, service delicatessen, liquor and floral. Some also offer meal centers, party pavilions, coffee bars and destination departments for beverages, snacks, pet care, paper products and baby care. Food and nonfood shopping areas are served by a common set of checkstands.
The Company's conventional supermarkets range in size from 15,000 to 35,000 square feet. These stores offer a full selection in the basic departments of grocery, meat, produce, dairy and limited non-food lines. Many locations have an in-store bakery and a service delicatessen.
The Company's warehouse stores are operated primarily under the name "Max Food and Drug." These no-frills stores range in size from 17,000 to 73,000 square feet and offer significant savings with special emphasis on discounted meat and produce.
In fiscal 1997 the Company opened its first fuel center. The Company plans to continue to add fuel centers near existing stores. These centers feature three to six fuel pumps and a small building, ranging in size from a pay-only kiosk to a small convenience store featuring such items as candy, soft drinks and snack foods.
The Company's retail operations are organized into regions with each region comprised of four or five divisions. A senior vice president who also serves as a regional manager directs the operating divisions in retail strategies, planning, marketing approaches and employee development. Each operating division is managed by a division vice president or manager. The division staff includes district sales managers who oversee the operations of 19 stores on average and merchandising specialists in areas such as grocery, produce, pharmacy, liquor, general merchandise, bakery, meat and service delicatessen. Merchandising specialists serve as advisors to help maintain adherence to overall division pricing and merchandising policies. Each store has a store director responsible for overall store operations and a front-end manager responsible for service levels and efficiencies in the stores' checkstand operations.
The Company's business is highly competitive. Competition is based primarily on price, product quality and variety, service and location. There is direct competition from many local, regional and national supermarket chains, supercenters, club stores, specialty retailers such as pet centers and toy stores and large-scale drug and pharmaceutical retailers. Increasing competition also exists from convenience stores, prepared food retailers, liquor and video stores, film developing outlets and Internet and mail-order retailers.
The Company has been able to efficiently supply its stores with merchandise through various means. Stores are provided with merchandise from the Company's distribution centers, outside suppliers or directly from manufacturers in an effort to obtain merchandise at the lowest possible cost. The Company services all of its retail stores from Company-owned distribution centers.
All of the Company's stores carry a broad range of national brands and offer "Albertson's Brands" products in many merchandise categories. The Company's stores provide consumer information such as: nutritional signing in the meat and produce departments, freshness code dating, unit pricing, meal ideas and food information pamphlets. The Company also offers a choice of recyclable paper or plastic bags and collection bins for plastic bag recycling.
As of January 29, 1998, the Company employed approximately 94,000 people, many of which are covered by collective bargaining agreements. The Company considers its present relations with employees to be good.
Albertson's stores are located in 20 Western, Midwestern and Southern areas of the United States. The following is a summary of the stores by state as of January 29, 1998:
Item 2.
Item 2. Properties - -------------------
The Company has actively pursued an expansion program of adding new retail stores, enlarging and remodeling existing stores and replacing smaller stores. During the past ten years, the Company has built or acquired 543 stores and approximately 95% of the Company's current retail square footage has been opened or remodeled during this period. The Company continues to follow the policy of closing stores that are obsolete or lack satisfactory profit potential.
Prior to 1984 the Company financed a major portion of its stores under sale and leaseback arrangements. The leases normally require the Company to pay for property taxes, insurance and general maintenance. Some of the leases provide for contingent rent in addition to minimum rent if sales exceed specified amounts. Typically all leases contain renewal options which allow the Company the right to extend the lease for varying additional periods.
Since 1984 the Company has financed most retail store construction internally, rather than through sale and leaseback arrangements, thus retaining ownership of its land and buildings. The Company's future expansion plans are expected to be financed primarily from cash provided by operating activities. The Company will continue to finance a portion of its new stores through lease transactions when it does not have the option to own the property.
As of January 29, 1998, the Company operated 878 stores in the states discussed in Item 1. An analysis of stores listed by division is as follows:
The following is a summary of stores, by classification, as of the indicated fiscal year end:
The following table summarizes the Company's retail square footage by store type as of the indicated fiscal year end (in thousands):
The Company has expanded and improved its distribution facilities when opportunities exist to improve service to the retail stores and generate an adequate return on investment. During 1997 approximately 77% of the merchandise purchased for resale in Company retail stores was received from Company-owned distribution centers.
Albertson's distribution system consists of 11 Company-owned centers located strategically throughout the Company's operating markets. The following is a summary of the Company's distribution and manufacturing facilities as of January 29, 1998:
As of January 29, 1998, the Company held title to the land and buildings of 52% of the Company's stores and held title to the buildings on leased land of an additional 10% of the Company's stores. The Company also holds title to the land and buildings of the Company's corporate headquarters in Boise, Idaho, 8 division offices and all of the distribution facilities.
Item 3.
Item 3. Legal Proceedings - --------------------------
Three civil lawsuits filed in September 1996 as purported statewide class actions in Washington, California and Florida and two civil lawsuits filed in April 1997 in federal court in Boise, Idaho, as purported multi-state class actions (including the remaining states in which the Company operated at the time) have been brought against the Company raising various issues that include: (i) allegations that the Company has a widespread practice of permitting its employees to work "off-the-clock" without being paid for their work and (ii) allegations that the Company's bonus and workers' compensation plans are unlawful. Four of these suits are being sponsored and financed by the United Food and Commercial Workers (UFCW) International Union. The five suits have been consolidated in Boise, Idaho. In addition, three other similar suits have been filed as purported class actions in Colorado, New Mexico and Nevada which, in effect, duplicate the coverage of the UFCW-sponsored suits. These cases may ultimately be transferred to, or consolidated with, the pending Boise litigation.
The Company is committed to full compliance with all applicable laws. Consistent with this commitment, the Company has firm and long-standing policies in place prohibiting off-the-clock work and has structured its bonus and workers' compensation plans to comply with applicable law. The Company believes that the UFCW-sponsored suits are part of a broader and continuing effort by the UFCW and some of its locals to pressure the Company to unionize employees who have not expressed a desire to be represented by a union. The Company intends to vigorously defend against all of these lawsuits, and, at this stage of the litigation, the Company believes that it has strong defenses against them.
Although these lawsuits are subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of these actions to have a material adverse effect on the Company's financial condition, results of operations or cash flows.
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, results of operations or cash flows.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------
No matters were submitted during the fourth quarter of 1997 to a vote of security holders through the solicitation of proxies or otherwise.
PART II -------
Item 5.
Item 5. Market for the Registrant's Common Equity and Related - --------------------------------------------------------------- Stockholder Matters - -------------------
The principal markets in which the Company's common stock is traded and the related security holder matters are set forth under the captions "Company Stock Information" and "Stockholders of Record" on the inside back cover of the Company's 1997 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. The market value of the Company's common stock on March 27, 1998, was $51.0625 per share.
Item 6.
Item 6. Selected Financial Data - --------------------------------
Selected financial data of the Company for the fiscal years 1993 through 1997 is included under the caption "Five Year Summary of Selected Financial Data" on page 44 of the Company's 1997 Annual Report to Stockholders. This information is incorporated herein by this reference thereto.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations - ---------------------
The information required under this item is included under the caption "Financial Review" on pages 19 to 22 of the Company's 1997 Annual Report to Stockholders. This information is incorporated herein by this reference thereto.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk - -------------------------------------------------------------------
The Company is exposed to certain market risks which are inherent in the Company's financial instruments which arise from transactions entered into in the normal course of business. Although the Company currently utilizes no material derivative financial instruments which expose the Company to significant market risk, the Company is exposed to cash flow and fair value risk due to changes in interest rates with respect to its long-term debt borrowings.
The Company is subject to interest rate risk on its long-term fixed interest rate debt borrowings. Commercial paper borrowings do not give rise to significant interest rate risk because these borrowings have maturities of less than three months. All things being equal, the fair value of debt with a fixed interest rate will increase as interest rates fall, and the fair value will decrease as interest rates rise. The Company manages its exposure to interest rate risk by utilizing a combination of fixed rate borrowings and commercial paper borrowings.
The table below presents principal cash flows and related weighted average interest rates of the Company's long-term debt borrowings (excluding commercial paper) at January 29, 1998 by expected maturity dates (in millions):
Item 8.
Item 8. Financial Statements and Supplementary Data - ----------------------------------------------------
The Company's consolidated financial statements and related notes thereto, together with the Independent Auditors' Report and the selected quarterly financial data of the Company are presented on pages 23 to 43 and page 45 of the Company's 1997 Annual Report to Stockholders and are incorporated herein by this reference thereto.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure - --------------------
There have been no reports on Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants or reporting disagreements on any matter of accounting principle, practice, financial statement disclosure or auditing scope or procedure.
PART III --------
Item 10.
Item 10. Directors and Executive Officers of the Registrant - ------------------------------------------------------------
Directors - ---------
The information regarding directors and nominees for directors of the Company is presented under the headings "Election of Directors," "Nominees for Election as Class III Directors," "Continuing Class I Directors," "Continuing Class II Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for use in connection with the 1998 Annual Meeting of Stockholders (the "Proxy Statement") to be filed within 120 days after the Company's fiscal year ended January 29, 1998, and is incorporated herein by this reference thereto.
Executive Officers - ------------------
Gary G. Michael has served as Chairman of the Board and Chief Executive Officer since 1991.
John B. Carley became Chairman of the Executive Committee of the Board on February 2, 1996. Previously he served as President and Chief Operating Officer from 1991.
Richard L. King was promoted to President and Chief Operating Officer on February 2, 1996. Previously he served as Senior Vice President and Regional Manager from November 1994; Group Vice President, Merchandising from January 1994; and Vice President, Rocky Mountain Division from 1992.
Carl W. Pennington was promoted to Executive Vice President, Corporate Merchandising on February 2, 1996. Previously he served as Senior Vice President, Corporate Merchandising from 1994 and Senior Vice President and Regional Manager from 1988.
Michael F. Reuling has served as Executive Vice President, Store Development since 1986.
Thomas R. Saldin has served as Executive Vice President, Administration and General Counsel since 1991.
Ronald D. Walk was promoted to Executive Vice President, Retail Operations on February 2, 1996. Previously he served as Senior Vice President and Regional Manager from 1984.
Thomas E. Brother has served as Senior Vice President, Distribution since 1991.
William H. Emmons was promoted to Senior Vice President and Regional Manager on February 2, 1996. Previously he served as Vice President, North Texas Division from 1993 and Vice President, Texas Division from 1988.
Dennis C. Lucas was promoted to Senior Vice President and Regional Manager on February 2, 1996. Previously he served as Vice President, Oregon Division from 1995; Vice President, Midwest Division from 1993; Division Manager, Midwest Division from July 1992; and Director of Operations, Southern California Division from February 1992.
A. Craig Olson has served as Senior Vice President, Finance and Chief Financial Officer since 1991.
David G. Simonson was promoted to Senior Vice President and Regional Manager on February 2, 1996. Previously he served as Vice President, Southern California Division from 1991.
Patrick S. Steele was promoted to Senior Vice President, Information Systems and Technology in 1993. Previously he served as Group Vice President, Management Information Systems from 1990.
Steven D. Young was promoted to Senior Vice President, Human Resources in 1993. Previously he served as Group Vice President, Human Resources from 1991.
Robert K. Banks was promoted to Group Vice President, Real Estate on December 2, 1996. Previously he served as Vice President, Real Estate from 1990.
David G. Dean has served as Group Vice President, Procurement since 1991.
Peggy Jo Jones was promoted to Group Vice President, Employee Development and Communications in November 1993. Previously she served as Vice President, Employee Development and Communications from September 1993; and Vice President, Retail Accounting from 1992.
Richard J. Navarro was promoted to Group Vice President and Controller in 1993. Previously he served as Vice President and Controller from 1989.
Item 11.
Item 11. Executive Compensation - --------------------------------
Information concerning executive compensation is presented under the headings "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values" and "Retirement Benefits" in the Proxy Statement. This information is incorporated herein by this reference thereto.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------
Information with respect to security ownership of certain beneficial owners and management is set forth under the heading "Voting Securities and Principal Holders Thereof" in the Proxy Statement. This information is incorporated herein by this reference thereto.
Item 13.
Item 13. Certain Relationships and Related Transactions - --------------------------------------------------------
Information concerning related transactions is presented under the heading "Certain Transactions" in the Proxy Statement. This information is incorporated herein by this reference thereto.
PART IV -------
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------
(a)1 Financial Statements:
The Independent Auditors' Report, together with the Consolidated Financial Statements and the related notes thereto, are listed below and are incorporated herein by this reference thereto from pages 23 to 43 of the Company's Annual Report to Stockholders for the year ended January 29, 1998:
Consolidated Earnings -- years ended January 29, 1998; January 30, 1997; February 1, 1996.
Consolidated Balance Sheets -- January 29, 1998; January 30, 1997; February 1, 1996.
Consolidated Cash Flows -- years ended January 29, 1998; January 30, 1997; February 1, 1996.
Consolidated Stockholders' Equity -- years ended January 29, 1998; January 30, 1997; February 1, 1996.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
Quarterly Financial Data:
Quarterly Financial Data for the years ended January 29, 1998 and January 30, 1997 is set forth on page 45 of the Annual Report to Stockholders for the year ended January 29, 1998, and is incorporated herein by this reference thereto.
(a)2 Schedules:
All schedules are omitted because they are not required or because the required information is included in the consolidated financial statements or notes thereto.
(a)3 Exhibits:
A list of the exhibits required to be filed as part of this report is set forth in the Index to Exhibits on page 17 hereof.
(b) Reports on Form 8-K:
There were no reports on Form 8-K during the quarter ended January 29, 1998.
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the Company hereby undertakes as follows, which undertaking shall be incorporated by reference into Company's Registration Statements on Form S-8 Nos. 2-80776, 33-2139, 33-7901, 33-15062, 33-43635, 33-62799 and 33-59803.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the Act) may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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 (including environmental matters), labor negotiations, adverse effects of failure to achieve Year 2000 compliance, the Company's ability to recruit and develop employees, its ability to develop new stores or complete remodels as rapidly as planned, its ability to successfully implement new technology 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. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information.
Signatures ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Albertson's, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALBERTSON'S, INC.
By GARY G. MICHAEL --------------------------- Gary G. Michael (Chairman of the Board and Chief Executive Officer)
Date: April 9, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of April 9, 1998.
Index to Exhibits Filed with the Annual Report on Form 10-K for the Year Ended January 29, 1998
* Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto.
(1) Exhibit 3.1 is incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended May 2, 1991.
(2) Exhibits 3.1.1, 10.7 and 10.14.2 are incorporated herein by reference to Exhibits 3.1.1, 10.7 and 10.14.2, respectively, of Form 10-K for the year ended January 30, 1997.
(3) Exhibit 3.2 is incorporated herein by reference to Exhibit 3.2 of Form 10-Q for the quarter ended October 31, 1996.
(4) Exhibit 4.1 is incorporated herein by reference to Exhibit 1 of Form 8-A Registration Statement filed with the Commission on March 4, 1997.
(5) Exhibit 4.2 is incorporated herein by reference to Exhibit 4.1 of Form S-3 Registration Statement 333-41793 filed with the Commission on December 9, 1997. In reliance upon Item 601(b)(4)(iii)(A) of Regulation S-K, various other instruments defining the rights of holders of long-term debt of the Registrant and its subsidiaries are not being filed herewith, because the total amount of securities authorized under each such instrument does not exceed 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis. The Registrant hereby agrees to furnish a copy of any such instrument to the Commission upon request.
(6) Exhibits 10.1, 10.1.1 and 10.1.2 are incorporated herein by reference to Exhibits 10.1, 10.1.1 and 10.1.2, respectively, of Form 10-Q for the quarter ended May 1, 1997.
(7) Exhibit 10.5 is incorporated herein by reference to Exhibit 10.5.1 of Form 10-K for the year ended January 30, 1986.
(8) Exhibits 10.6, 10.13, 10.15, 10.18 and 10.19 are incorporated herein by reference to Exhibits 10.6, 10.13, 10.15, 10.18 and 10.19, respectively, of Form 10-K for the year ended February 2, 1989.
(9) Exhibits 10.6.1, 10.10.3 and 10.15.1 are incorporated herein by reference to Exhibits 10.6.1, 10.10.3 and 10.15.1, respectively, of Form 10-Q for the quarter ended November 2, 1989.
(10) Exhibit 10.9 is incorporated herein by reference to Exhibit 10.9 of Form 10-K for the year ended January 31, 1985.
(11) Exhibit 10.10 is incorporated herein by reference to exhibit 10.10 of Form 10-K for the year ended January 29, 1981.
(12) Exhibit 10.10.1 is incorporated herein by reference to Exhibit 10.10.1 of the Form 10-K for the year ended February 3, 1983.
(13) Exhibit 10.10.2 is incorporated herein by reference to Exhibit 10.10.2 of Form 10-Q for the quarter ended May 3, 1994.
(14) Exhibits 10.10.4 and 10.13.4 are incorporated herein by reference to Exhibits 10.10.4 and 10.13.4 of Form 10-K for the year ended February 2, 1995.
(15) Exhibits 10.11, 10.16, 10.20, 10.21 and 10.22 are incorporated herein by reference to Exhibits 10.11, 10.16, 10.20, 10.21 and 10.22, respectively, of Form 10-K for the year ended January 31, 1991. Exhibit 10.11 expired by its terms February 29, 1992. Notwithstanding such expiration, certain agreements for the options granted under this option plan remain outstanding.
(16) Exhibits 10.12 and 10.17 are incorporated herein by reference to Exhibits 10.12 and 10.17, respectively, of Form 10-Q for the quarter ended October 29, 1987.
(17) Exhibit 10.12.1 is incorporated herein by reference to Exhibit 10.12.1 of Form 10-Q for the quarter ended August 3, 1989.
(18) Exhibit 10.13.1 is incorporated herein by reference to Exhibit 10.13.1 of Form 10-Q for the quarter ended May 4, 1989.
(19) Exhibit 10.13.2 is incorporated herein by reference to Exhibit 10.13.2 of Form 10-K for the year ended February 1, 1990.
(20) Exhibit 10.13.3 is incorporated herein by reference to Exhibit 10.13.3 of Form 10-Q for the quarter ended August 2, 1990.
(21) Exhibits 10.13.5, 10.23 and 10.24.1 are incorporated herein by reference to Exhibits 10.13.5, 10.23 and 10.24.1, respectively, of Form 10-K for the year ended February 1, 1996.
(22) Exhibit 10.14 is incorporated herein by reference to Exhibit 10.14 of Form 10-Q for the quarter ended November 3, 1994.
(23) Exhibit 10.14.1 is incorporated herein by reference to Exhibit 10.14.1 of Form 10-Q for the quarter ended November 2, 1995.
(24) Exhibit 10.20.1 is incorporated herein by reference to Exhibit 10.20.1 of Form 10-Q for the quarter ended August 4, 1994.
(25) Exhibits 10.24, 10.25 and 10.25.1 are incorporated herein by reference to Exhibits 10.24, 10.25 and 10.25.1, respectively, of Form 10-Q for the quarter ended May 4, 1995.
(26) Exhibits 99.1 and 99.2 are incorporated herein by reference to Exhibits 99.1 and 99.2, respectively, of the Company's Tender Offer Statement on Schedule 14D-1 dated January 26, 1998.