-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VCC7rq9280qLr/eZ9YdMcu19oYsPBDX/JUm2edMx8J0QbEvjCw9jbBrrpx1CdRta lAi9e2145Ytext20rhmrrg== 0000003333-00-000039.txt : 20001212 0000003333-00-000039.hdr.sgml : 20001212 ACCESSION NUMBER: 0000003333-00-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001102 FILED AS OF DATE: 20001211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALBERTSONS INC /DE/ CENTRAL INDEX KEY: 0000003333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 820184434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06187 FILM NUMBER: 786957 BUSINESS ADDRESS: STREET 1: 250 PARKCENTER BLVD STREET 2: P O BOX 20 CITY: BOISE STATE: ID ZIP: 83726 BUSINESS PHONE: 2083956200 MAIL ADDRESS: STREET 1: 250 PARKCENTER BLVD STREET 2: P O BOX 20 CITY: BOISE STATE: ID ZIP: 83726 10-Q 1 0001.txt ALBERTSON'S, INC. 3RD QUARTER 10-Q FORM 10-Q 18 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For 39 Weeks Ended: November 2, 2000 Commission File Number: 1-6187 ALBERTSON'S, INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 82-0184434 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho 83726 ----------------------------------------------- ---------- (Address) (Zip Code) Registrant's telephone number, including area code: (208) 395-6200 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of Registrant's $1.00 par value common shares outstanding at December 6, 2000: 409,294,951 Page 1 PART I. FINANCIAL INFORMATION ALBERTSON'S, INC. CONSOLIDATED EARNINGS (in millions except per share data) (unaudited)
13 WEEKS ENDED 39 WEEKS ENDED ---------------------------------- -------------------------------------- November 2, October 28, November 2, October 28, 2000 1999 2000 1999 ---------------- ----------------- ------------------ ------------------- Sales $8,991 $8,982 $27,218 $27,579 Cost of sales 6,438 6,517 19,514 20,056 ---------------- ----------------- ------------------ ------------------- Gross profit 2,553 2,465 7,704 7,523 Selling, general and administrative expenses 2,168 2,148 6,521 6,378 Merger-related expense (income) 1 (21) 2 409 Litigation Settlement 37 37 ---------------- ----------------- ------------------ ------------------- Operating profit 384 301 1,181 699 Other (expenses) income: Interest, net (99) (84) (281) (244) Other, net (1) 3 5 ---------------- ----------------- ------------------ ------------------- Earnings before income taxes and extra- ordinary item 284 217 903 460 Income taxes 112 87 358 297 ---------------- ----------------- ------------------ ------------------- Earnings before extraordinary item 172 130 545 163 Extraordinary loss on extinguishment of debt, net of tax benefit of $7 (23) ---------------- ----------------- ------------------ ------------------- NET EARNINGS $ 172 $ 130 $ 545 $ 140 ================ ================= ================== =================== BASIC EARNINGS PER SHARE: Earnings before extraordinary item $ 0.41 $ 0.31 $ 1.29 $ 0.39 Extraordinary item (0.06) ---------------- ----------------- ------------------ ------------------- Net earnings $ 0.41 $ 0.31 $ 1.29 $ 0.33 ================ ================= ================== =================== DILUTED EARNINGS PER SHARE: Earnings before extraordinary item $ 0.41 $ 0.31 $ 1.29 $ 0.39 Extraordinary item (0.06) ---------------- ----------------- ------------------ ------------------- Net earnings $ 0.41 $ 0.31 $ 1.29 $ 0.33 ================ ================= ================== =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 417 424 421 422 Diluted 417 424 421 423
See Notes to Consolidated Financial Statements. Page 2 ALBERTSON'S, INC. CONSOLIDATED BALANCE SHEETS (in millions)
November 2, 2000 February 3, (unaudited) 2000 ------------------- ------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 38 $ 231 Accounts and notes receivable 531 587 Inventories 3,527 3,481 Prepaid expenses 83 155 Property held for resale 82 100 Refundable income taxes 7 Deferred income taxes 30 29 ------------------- ------------------- TOTAL CURRENT ASSETS 4,298 4,583 OTHER ASSETS 427 456 GOODWILL AND INTANGIBLES, net 1,721 1,760 LAND, BUILDINGS AND EQUIPMENT (net of accumulated depreciation and amortization of $5,509 and $5,087, respectively) 9,467 8,911 ------------------- ------------------- $15,913 $15,710 =================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,486 $ 2,162 Salaries and related liabilities 512 555 Taxes other than income taxes 193 172 Income taxes 82 Self-insurance 180 187 Unearned income 118 110 Other current liabilities 129 115 Merger-related accruals 15 33 Current maturities of long-term debt 116 623 Current capitalized lease obligations 18 19 ------------------- ------------------- TOTAL CURRENT LIABILITIES 3,767 4,058 LONG-TERM DEBT 5,295 4,805 CAPITALIZED LEASE OBLIGATIONS 223 187 SELF-INSURANCE 229 222 DEFERRED INCOME TAXES 89 52 OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 660 684 STOCKHOLDERS' EQUITY: Preferred stock - $1.00 par value; authorized - 10 shares; issued - none Common stock - $1.00 par value; authorized - 1,200 shares; issued - 409 shares and 424 shares, respectively 409 424 Capital in excess of par value 46 145 Retained earnings 5,195 5,133 ------------------- ------------------- 5,650 5,702 ------------------- ------------------- $15,913 $15,710 =================== ===================
See Notes to Consolidated Financial Statements. Page 3 ALBERTSON'S, INC. CONSOLIDATED CASH FLOWS (in millions) (unaudited)
39 WEEKS ENDED ----------------------------------------------- November 2, October 28, 2000 1999 -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 545 $ 140 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 695 637 Goodwill amortization 42 44 Noncash merger-related expense 6 283 Net loss on asset sales 1 6 Net deferred income taxes 26 (22) Increase in cash surrender value of Company-owned life insurance (3) (5) Changes in operating assets and liabilities: Receivables and prepaid expenses 113 134 Inventories (46) (277) Accounts payable 324 200 Other current liabilities (117) 13 Self-insurance (1) (58) Unearned income 14 (34) Other long-term liabilities (31) (62) -------------------- -------------------- Net cash provided by operating activities 1,568 999 CASH FLOWS FROM INVESTING ACTIVITIES: Net capital expenditures excluding noncash activities (1,167) (1,298) Proceeds from divestitures 359 Decrease (increase) in other assets 19 (157) -------------------- -------------------- Net cash used in investing activities (1,148) (1,096) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 527 1,817 Payments on long-term borrowings (371) (947) Net commercial paper and bank line activity (187) (498) Proceeds from stock options exercised 5 30 Cash dividends paid (237) (188) Stock purchased and retired (350) Tax payments for options exercised (14) -------------------- -------------------- Net cash (used in) provided by financing activities (613) 200 -------------------- -------------------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (193) 103 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 231 116 -------------------- -------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38 $ 219 ==================== ====================
See Notes to Consolidated Financial Statements. Page 4 ALBERTSON'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per share data) (unaudited) Business Combination On June 23, 1999, Albertson's, Inc. ("Albertson's" or the "Company") and American Stores Company ("ASC") consummated a merger with the issuance of approximately 177 million shares of Albertson's common stock (the "Merger"). The Merger constituted a tax-free reorganization and has been accounted for as a pooling-of-interests for accounting and financial reporting purposes. Basis of Presentation The accompanying unaudited consolidated financial statements include the results of operations, account balances and cash flows of the Company and its subsidiaries. All material intercompany balances have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the results of operations of the Company for the periods presented. Such adjustments consisted only of normal recurring items. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's 1999 Annual Report. The balance sheet at February 3, 2000, has been taken from the audited consolidated financial statements at that date. The preparation of the Company's consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, 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. Historical operating results are not necessarily indicative of future results. Goodwill Goodwill resulting from business acquisitions represents the excess of cost over fair value of net assets acquired and is being amortized over 40 years using the straight-line method. Accumulated amortization amounted to $645 and $603 at November 2, 2000, and February 3, 2000, respectively. Reclassifications Certain reclassifications have been made in prior year's financial statements to conform to classifications used in the current year. Page 5 Reporting Periods The Company's quarterly reporting periods are generally 13 weeks and periodically consist of 14 weeks because the fiscal year ends on the Thursday nearest to January 31 each year. Merger-related and Exit Costs Results of operations for the 39 weeks ended November 2, 2000, include $109 of merger-related costs ($68 after tax). The following table presents the pre-tax costs incurred by category of expenditure and merger-related accruals included in the Company's Consolidated Balance Sheets:
------------------- ------------------ ------------------ ------------------- Exit Merger Period Costs Charge Costs Total ------------------- ------------------ ------------------ ------------------- Merger-related accruals at February 3, 2000 $ 26 $3 $4 $ 33 Severance costs (1) (1) 6 4 Write-down of assets to net realizable value 3 21 24 Integration and other costs 81 81 ------------------- ------------------ ------------------ ------------------- Total costs (1) 2 108 109 Cash expenditures (13) (4) (110) (127) ------------------- ------------------ ------------------ ------------------- Merger-related accruals at November 2, 2000 $ 12 $1 $2 $ 15 =================== ================== ================== ===================
Severance costs consist of obligations to employees who were terminated or were notified of termination under a plan authorized by senior management. Total merger-related terminations were 663 employees as of November 2, 2000, and no further terminations are expected to be made under this plan. The write-down of assets to net realizable value includes the loss on disposal of redundant facilities and information technology equipment abandoned by the Company. Integration and other costs consist primarily of incremental transition and integration costs associated with integrating the operations of Albertson's and ASC and are being expensed as incurred. These costs include such costs as advertising, labor associated with system conversions and training and relocation costs. One-Time Charge During the quarter ended May 4, 2000, a one-time charge of $20 was incurred and included in selling, general and administrative expenses to reflect liabilities related to certain previously assigned leases and subleases to tenants who are in bankruptcy. Income Taxes The effective income tax rate for 2000 has decreased from 1999 as a result of the effect during 1999 of certain merger-related and exit costs for which there were not corresponding tax benefits. Page 6 Indebtedness The Company has two revolving credit agreements which provide for borrowings up to $1,900. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth, as defined, of at least $2,100. As of November 2, 2000, no amounts were outstanding under these agreements. On May 9, 2000, the Company issued $500 of term notes under a shelf registration statement filed with the Securities and Exchange Commission in February 1999 (the "1999 Registration Statement"). The notes are comprised of $275 of principal bearing interest at 8.35% due May 2010 and $225 of principal bearing interest at 8.70% due May 2030. Proceeds were used to repay amounts outstanding under the Company's commercial paper program. Additional securities up to $700 remain available for issuance under the Company's 1999 Registration Statement. In conjunction with the debt issuance, on April 26, 2000, and May 3, 2000, the Company entered into a 10-year treasury hedge for $250 and a 30-year treasury hedge for $125. The hedges were settled on May 9, 2000, the date of the issuance of the $500 debt, resulting in gains of $6. The gains are being amortized over the term of the related 10-year and 30-year debt. Supplemental Cash Flow Information Selected cash payments and noncash activities were as follows:
39 Weeks Ended 39 Weeks Ended November 2, 2000 October 28, 1999 ------------------------ ------------------------ Cash payments for: Income taxes $414 $377 Interest, net of amounts capitalized 254 223 Noncash transactions: Capitalized leases incurred 50 11 Capitalized leases terminated 2 14 Tax effects related to stock options (11) 8 Liabilities assumed in connection with asset acquisition 7
Capital Stock The Board of Directors, on April 25, 2000, adopted a stock purchase program that authorizes, but does not require, the Company to purchase and retire up to $500 of the Company's common stock during the period beginning April 25, 2000, and ending April 30, 2001. As of November 2, 2000, 14,563,000 shares of the Company's common stock, at a total cost of $350, has been purchased and retired under this authorization. This authorization has been increased to $1,500 and its term has been extended to December 6, 2001. Refer to the "Subsequent Event" note. Page 7 Recent Accounting Standards In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." This SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. This SAB, as amended by SAB No. 101A and No. 101B, is effective for the Company's fourth quarter of fiscal year 2000. The SAB is not expected to have a significant impact on the Company's accounting and reporting requirements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This standard, as amended by SFAS No. 137 and No. 138, is effective for the Company's 2001 fiscal year. The Company has not yet completed its evaluation of this standard or its impact on the Company's accounting and reporting requirements. Legal Proceedings On August 23, 2000, a class action complaint was filed against Jewel Food Stores, Inc., an indirect wholly-owned subsidiary of the Company, in the Circuit Court of Cook County, Illinois (Maureen Baker, et al., v. Jewel Food Stores, Inc. and Dominick's Supermarkets, Inc., Case No. 00L 009664) alleging milk price fixing. The Company has strong defenses against this lawsuit, and is vigorously defending it. Although this lawsuit is subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of this action to have a material adverse effect on the Company's financial condition. An agreement has been reached, and court approval granted, to settle eight purported multi-state cases combined in the United States District Court in Boise, Idaho, which raise various issues including "off the clock" work allegations. Under the settlement agreement, current and former employees who meet eligibility criteria may present their claims to a settlement administrator. While the Company cannot specify the exact number of individuals who are likely to submit claims and the exact amount of their claims, the $37 pre-tax ($22 after-tax) one-time charge recorded by the Company in 1999 is the Company's current estimate of the total monetary liability, including attorney fees, for all eight cases. The Company is also involved in routine litigation incidental to operations. The Company utilizes various methods of alternative dispute resolution, including settlement discussions, to manage the costs and uncertainties inherent in the litigation process. In the opinion of management, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company's financial condition. Page 8 Subsequent Event The Board of Directors on December 6, 2000, increased the current $500 stock purchase program by an additional $1,000, for a total of $1,500 authorized for the purchase of Company common stock. The revised stock purchase program authorizes, but does not require, the Company to purchase and retire up to $1,500 of the Company's common stock during the period beginning April 25, 2000, and ending December 6, 2001. Page 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in millions, except per share data) Results of Operations - Third Quarter 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 13 weeks ended Percentage 11-2-00 10-28-99 Increase ---------------- ----------------- ------------------ Sales 100.00% 100.00% 0.1% Gross profit 28.40 27.45 3.6 Selling, general and administrative expenses 24.11 23.91 0.9 Merger-related expense (income) 0.01 (0.23) n.m. Operating profit 4.28 3.35 27.8 Interest expense, net 1.11 0.94 18.2 Earnings before income taxes 3.16 2.41 31.2 Net earnings 1.91 1.45 32.3 n.m. - not meaningful
Sales for the quarter ended November 2, 2000, increased 0.1% in total, and increased by 2.9% when excluding sales from stores required to be divested, over the same quarter of the prior year. Identical store sales decreased 0.5% and comparable store sales, which include replacement stores, decreased 0.2%. Increases in sales are primarily attributable to the continued development of new stores. During the quarter the Company opened 13 combination food and drug stores and 6 stand alone drugstores, while closing 8 supermarkets and 6 drugstores. Net retail square footage increased by 4.0% from the prior year. Management estimates that there was overall inflation in products the Company sells of approximately 0.3% (annualized). As part of its efforts to increase sales, the Company continues to implement best practices across the Company and make investments in programs to fine tune pricing, increase promotions, and provide solutions to customer needs. These programs include the Front End Manager program; the home meal solutions process called "Quick Fixin' Ideas;" special destination categories; and increased emphasis on training programs utilizing Computer Guided Training. To provide additional solutions to customer needs, the Company has added new gourmet-quality bakery products and organic grocery and produce items. Other solutions include neighborhood marketing, targeted advertising and exciting new and remodeled stores. Page 10 Gross profit, as a percent to sales, increased primarily as a result of the Merger creating buying synergies, and margin improvements from the implementation of best practices across the Company. The shifting of the sales mix towards higher margin departments such as Service Deli, Pharmacy and Bakery is also contributing to the increase in gross profit percentage. Gross profit improvements were also realized through the continued utilization of Company-owned distribution facilities and increased buying efficiencies. The pre-tax LIFO charge reduced gross profit by $8 (0.08% to sales) for the 13 weeks ended November 2, 2000, as compared to $9 (0.10% to sales) for the 13 weeks ended October 28, 1999. Selling, general and administrative expenses, as a percent to sales, increased due to integration costs associated with the Merger, higher labor costs and related benefits associated with the Company's sales initiatives, and the sales mix shifting towards the higher customer service oriented sales departments and depreciation expense as a result of the Company's expansion program. Net interest expense for the 13 weeks ended November 2, 2000, increased primarily due to a higher weighted average interest rate on the outstanding debt during the 13 weeks ended November 2, 2000, as compared to the 13 weeks ended October 28, 1999. Merger-Related and Exit Costs Results of operations for the 13 weeks ended November 2, 2000, include $26 of merger-related and exit costs ($15 after tax). The following table presents the pre-tax costs incurred by category of expenditure:
------------- ------------- ------------- Merger Period Charge Costs Total ------------- ------------- ------------- Severance costs $(2) $ 1 $(1) Write-down of assets to net realizable value 3 5 8 Integration and other costs 19 19 ------------- ------------- ------------- Total costs $ 1 $25 $26 ============= ============= =============
Severance costs consist of obligations to employees who were terminated or were notified of termination under a plan authorized by senior management. There were no merger-related terminations during the quarter ended November 2, 2000, and no further terminations are expected under this plan. The write-down of assets to net realizable value includes the estimated loss on disposal of redundant facilities and information technology equipment abandoned by the Company. Integration and other costs consist primarily of incremental transition and integration costs associated with integrating the operations of Albertson's and ASC and are being expensed as incurred. These costs include such costs as advertising, labor associated with system conversions and training and relocation costs. Page 11 The Company expects to incur additional after-tax merger-related and exit costs of approximately $90 over the next two years which consist primarily of expected integration costs and costs associated with other consolidation activities for which plans have not yet been finalized. Due to the significance of the merger-related and other one-time costs and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these costs:
------------------------------------------------- ------------------------------------------------- 13 Weeks Ended November 2, 2000 13 Weeks Ended October 28, 1999 ------------------------------------------------- ------------------------------------------------- W/O Percent W/O Percent As One- One- To As One- One- To Reported Time Time Sales Reported Time Time Sales ------------ ---------- ------------ ------------ ------------ ---------- ----------- ------------- Sales $8,991 $8,991 100.00% $8,982 $8,982 100.00% Cost of sales 6,438 $ (7) 6,431 71.52 6,517 $ (17) 6,500 72.36 ------------ ---------- ------------ ------------ ------------ ---------- ----------- ------------- Gross profit 2,553 7 2,560 28.48 2,465 17 2,482 27.64 Selling, general and administrative expenses 2,168 (18) 2,150 23.91 2,148 (59) 2,089 23.26 Merger-related expense (income) 1 (1) (21) 21 Litigation settlement 37 (37) ------------ ---------- ------------ ------------ ------------ ---------- ----------- ------------- Operating profit 384 26 410 4.57 301 92 393 4.38 Interest expense, net (99) (99) (1.11) (84) (84) (0.94) Other expense, net (1) (1) (0.01) ------------ ---------- ------------ ------------ ------------ ---------- ----------- ------------- Earnings before income taxes 284 26 310 3.45 217 92 309 3.44 Income taxes 112 11 123 1.36 87 37 124 1.38 ------------ ---------- ------------ ------------ ------------ ---------- ----------- ------------- Net Earnings $172 $15 $187 2.09% $130 $55 $185 2.06% ============ ========== ============ ============ ============ ========== =========== =============
Page 12 Results of Operations - Year-to-Date 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 39 weeks ended Increase 11-2-00 10-28-99 (Decrease) ---------------- ----------------- ------------------ Sales 100.00% 100.00% (1.3)% Gross profit 28.30 27.28 2.4 Selling, general and administrative expenses 23.96 23.13 2.2 Merger-related expense 0.01 1.48 n.m. Operating profit 4.34 2.54 68.9 Interest expense, net 1.03 0.88 1.5 Earnings before income taxes 3.32 1.67 96.3 Net earnings 2.00 0.51 288.3 n.m. - not meaningful
Sales for the 39 weeks ended November 2, 2000, decreased by 1.3% in total, and increased by 3.9% when excluding sales from stores required to be divested, over the same period of the prior year. Identical store sales increased 0.3% and comparable store sales, which include replacement stores, increased 0.6%. Increases in sales are primarily attributable to the continued development of new stores and identical and comparable store sales increases. During the 39 weeks ended November 2, 2000, the Company opened 45 combination food and drug stores, 1 conventional store, 1 warehouse store and 18 stand alone drugstores, while closing 35 supermarkets and 15 drugstores. The new stores include 6 stores that were acquired in two separate transactions during second quarter. Net retail square footage increased by 4.0% from the prior year. Management estimates that there was overall inflation in products the Company sells of approximately 0.3% (annualized). As part of its efforts to increase sales, the Company continues to implement best practices across the Company and make investments in programs to fine tune pricing, increase promotions, and provide solutions to customer needs. These programs include the Front End Manager program; the home meal solutions process called "Quick Fixin' Ideas;" special destination categories; and increased emphasis on training programs utilizing Computer Guided Training. To provide additional solutions to customer needs, the Company has added new gourmet-quality bakery products and organic grocery and produce items. Other solutions include neighborhood marketing, targeted advertising and exciting new and remodeled stores. Gross profit, as a percent to sales, increased primarily as a result of the Merger creating buying synergies and margin improvements from the implementation of best practices across the Company. The shifting of the sales mix towards the higher margin departments such as Service Deli, Pharmacy and Bakery is also contributing to the increase in gross profit percentage. Gross profit improvements were also realized through the continued utilization of Company-owned distribution facilities and increased buying efficiencies. The pre-tax LIFO charge reduced gross profit by $20 (0.07% to sales) for the 39 weeks ended November 2, 2000, as compared to $27 (0.10% to sales) for the 39 weeks ended October 28, 1999. Page 13 Selling, general and administrative expenses, as a percent to sales, increased due to the impact of a one-time charge of $20 to reflect liabilities related to certain previously assigned leases and subleases to tenants who are in bankruptcy. Expense increases have also been driven by integration costs associated with the Merger, higher labor costs and related benefits associated with the Company's sales initiatives and the sales mix shifting towards the higher customer service oriented sales departments and depreciation expense as a result of the Company's expansion program. Net interest expense for the 39 weeks ended November 2, 2000, included a $16 interest expense reversal due primarily to a favorable income tax settlement. The increase in net interest expense, as adjusted by the interest expense reversal, resulted primarily from higher weighted average interest rates during the 39 weeks ended November 2, 2000, as compared to the 39 weeks ended October 28, 1999. Merger-Related and Exit Costs Results of operations for the 39 weeks ended November 2, 2000, include $109 of merger-related and exit costs ($68 after tax). The following table presents the pre-tax costs incurred by category of expenditure:
------------- ------------- ------------- ------------- Exit Merger Period Costs Charge Costs Total ------------- ------------- ------------- ------------- Severance costs $ (1) $ (1) $6 $4 Write-down of assets to net realizable value 3 21 24 Integration and other costs 81 81 ------------- ------------- ------------- ------------- Total costs $ (1) $2 $108 $109 ============= ============= ============= =============
Severance costs consist of obligations to employees who were terminated or were notified of termination under a plan authorized by senior management. Total merger-related terminations were 663 employees as of November 2, 2000, and no further terminations are expected under this plan. The write-down of assets to net realizable value includes the loss on disposal of stores divested as required and redundant facilities, and information technology equipment abandoned by the Company. Integration and other costs consist primarily of incremental transition and integration costs associated with integrating the operations of Albertson's and ASC and are being expensed as incurred. These costs include such costs as advertising, labor associated with system conversions and training and relocation costs. The Company expects to incur additional after-tax merger-related and exit costs of approximately $90 over the next two years which consist primarily of expected integration costs and costs associated with other consolidation activities for which plans have not yet been finalized. Page 14 Due to the significance of the merger-related costs and other one-time expenses and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these costs and expenses:
------------------------------------------------- ------------------------------------------------- 39 Weeks Ended November 2, 2000 39 Weeks Ended October 28, 1999 ------------------------------------------------- ------------------------------------------------- W/O Percent W/O Percent As One- One- To As One- One- To Reported Time Time Sales Reported Time Time Sales ------------- --------- ------------ ------------ ------------ ---------- ----------- ------------- Sales $27,218 $27,218 100.00% $27,579 $27,579 100.00% Cost of sales 19,514 $(30) 19,484 71.58 20,056 $ (21) 20,035 72.65 ------------- --------- ------------ ------------ ------------ ---------- ----------- ------------- Gross profit 7,704 30 7,734 28.42 7,523 21 7,544 27.35 Selling, general and administrative expenses 6,521 (97) 6,424 23.60 6,378 (146) 6,232 22.60 Merger-related expense 2 (2) 409 (409) Litigation settlement 37 (37) ------------- --------- ------------ ------------ ------------ ---------- ----------- ------------- Operating profit 1,181 129 1,310 4.81 699 613 1,312 4.76 Interest expense, net (281) (281) (1.03) (244) (244) (0.88) Other income, net 3 3 0.01 5 5 0.02 ------------- --------- ------------ ------------ ------------ ---------- ----------- ------------- Earnings before income taxes and extraordinary item 903 129 1,032 3.79 460 613 1,073 3.89 Income taxes 358 50 408 1.50 297 131 428 1.55 ------------- --------- ------------ ------------ ------------ ---------- ----------- ------------- Earnings before extraordinary item 545 79 624 2.29 163 482 645 2.34 Extraordinary loss on extinguishment of debt, net of tax benefit of $7 (23) 23 ------------- --------- ------------ ------------ ------------ ---------- ----------- ------------- Net Earnings $ 545 $ 79 $ 624 2.29% $ 140 $ 505 $ 645 2.34% ============= ========= ============ ============ ============ ========== =========== =============
Liquidity and Capital Resources Cash provided by operating activities during the 39 weeks ended November 2, 2000, increased to $1,568, compared to $999 in the prior year. The positive effects of higher earnings, increased inventory turns at distribution centers and stronger accounts payable leverage were the primary drivers of this change. The Company has implemented several initiatives designed to enhance working capital which include reducing inventory and accounts receivable levels and increasing accounts payable leverage. These improvements are expected to further reduce the cash requirements of the business. The Company's financing activities during the 39 weeks ended November 2, 2000, include the net reduction of debt of $31 and the payment of dividends of $237. Pursuant to the stock buyback program approved by Albertson's Board of Directors on April 25, 2000, the Company purchased and retired 14,563,000 shares of its common stock during the 39 weeks ended November 2, 2000, at a total cost of $350. Page 15 The Company utilizes its commercial paper and bank line programs primarily to supplement cash requirements for seasonal fluctuations in working capital and to fund its capital expenditure program. Accordingly, commercial paper and bank line borrowings will fluctuate between reporting periods. The Company had $1,416 of commercial paper borrowings outstanding at November 2, 2000, compared to $1,628 outstanding as of February 3, 2000. The Company has two revolving credit agreements which provide for borrowings up to $1,900. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth, as defined, of at least $2,100. In addition, the Company has uncommitted bank lines of credit totaling $345. As of November 2, 2000, $25 was outstanding under the bank lines. On May 9, 2000, the Company issued $500 of term notes under a shelf registration statement filed with the Securities and Exchange Commission in February 1999 (the "1999 Registration Statement"). The notes are comprised of $275 of principal bearing interest at 8.35% due May 2010 and $225 of principal bearing interest at 8.70% due May 1, 2030. Proceeds were used to repay amounts outstanding under the Company's commercial paper program. Additional securities up to $700 remain available for issuance under the Company's 1999 Registration Statement. In conjunction with the debt issuance, on April 26, 2000, and May 3, 2000, the Company entered into a 10-year treasury hedge for $250 and a 30-year treasury hedge for $125. The hedges were settled on May 9, 2000, the date of the issuance of the $500 debt, resulting in gains of $6. The gains are being amortized over the term of the related 10-year and 30-year debt. Recent Accounting Standards In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." This SAB summarizes certain of the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. This SAB, as amended by SAB No. 101A and No. 101B, is effective for the Company's fourth quarter of fiscal year 2000. The SAB is not expected to have a significant impact on the Company's accounting and reporting requirements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." This new standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This standard, as amended by SFAS No. 137 and No. 138, is effective for the Company's 2001 fiscal year. The Company has not yet completed its evaluation of this standard or its impact on the Company's accounting and reporting requirements. Page 16 Environmental The Company has identified environmental contamination sites related primarily to underground petroleum storage tanks and ground water contamination at various store, warehouse, office and manufacturing facilities (related to current operations as well as previously disposed of businesses). The Company conducts an ongoing program for the inspection and evaluation of new sites proposed to be acquired by the Company and the remediation/ monitoring of contamination at existing and previously owned sites. Undiscounted reserves have been established for each environmental contamination site unless an unfavorable outcome is remote. Although the ultimate outcome and expense of environmental remediation is uncertain, the Company believes that required remediation and continuing compliance with environmental laws, in excess of current reserves, will not have a material adverse effect on the financial condition of the Company. Charges against earnings for environmental remediation were not material for the 39 weeks ended November 2, 2000, or the 39 weeks ended October 28, 1999. 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 integration of the operations of acquired or merged companies, 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, the Company's ability to recruit and develop employees, its ability to develop new stores or complete remodels as rapidly as planned, its ability to implement new technology successfully, stability of product costs and the Company's ability to integrate the operations of ASC. Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking information. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. Page 17 Quantitative and Qualitative Disclosures About Market Risk There have been no material changes regarding the Company's market risk position from the information provided under the caption "Quantitative and Qualitative Disclosures About Market Risk" on page 27 of the Company's 1999 Annual Report to Stockholders. PART II. OTHER INFORMATION Item 1. Legal Proceedings On August 23, 2000, a class action complaint was filed against Jewel Food Stores, Inc., an indirect wholly-owned subsidiary of the Company, in the Circuit Court of Cook County, Illinois (Maureen Baker, et al., v. Jewel Food Stores, Inc. and Dominick's Supermarkets, Inc., Case No. 00L 009664) alleging milk price fixing. The Company has strong defenses against this lawsuit, and is vigorously defending it. Although this lawsuit is subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of this action to have a material adverse effect on the Company's financial condition. An agreement has been reached, and court approval granted, to settle eight purported multi-state cases combined in the United States District Court in Boise, Idaho, which raise various issues including "off the clock" work allegations. Under the settlement agreement, current and former employees who meet eligibility criteria may present their claims to a settlement administrator. While the Company cannot specify the exact number of individuals who are likely to submit claims and the exact amount of their claims, the $37 pre-tax ($22 after-tax) one-time charge recorded by the Company in 1999 is the Company's current estimate of the total monetary liability, including attorney fees, for all eight cases. The Company is also involved in routine litigation incidental to operations. The Company utilizes various methods of alternative dispute resolution, including settlement discussions, to manage the costs and uncertainties inherent in the litigation process. 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. Item 2. Changes in Securities In accordance with the Company's $1,900 revolving credit agreement, the Company's consolidated tangible net worth, as defined, shall not be less than $2,100. Item 3. Defaults upon Senior Securities Not applicable. Page 18 Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information On December 7, 2000, Gary G. Michael, chairman of the board and chief executive officer of Albertson's, Inc. announced his intention to retire at the time of the Company's next annual meeting, June of 2001. Albertson's Board of Directors has formed a search committee to review internal and external candidates for Mr. Michael's successor. Item 6. Exhibits and Reports on Form 8-K a. Exhibits Number Description 27 Financial data schedule for the 39 weeks ended November 2, 2000. b. The following reports on Form 8-K were filed during the quarter ended November 2, 2000: None SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALBERTSON'S, INC. --------------------------------- (Registrant) Date: December 11, 2000 /S/ A. Craig Olson --------------------- --------------------------------- A. Craig Olson Executive Vice President and Chief Financial Officer Page 19 EX-27.1 2 0002.txt FDS
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM ALBERTSON'S FORM 10 Q FOR THE 39 WEEKS ENDED NOVEMBER 2, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS FEB-01-2001 FEB-04-2000 NOV-02-2000 38 0 571 40 3,527 4,298 14,976 5,509 15,913 3,767 5,518 0 0 409 5,241 15,913 27,218 27,218 19,514 19,514 0 0 281 903 358 545 0 0 0 545 1.29 1.29
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