-----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, LA4ZY+xrnYRhN2Ir7GpL9PUGAyb4t1CLovnDhO0e5euDMetUszJn+uh6EpqwwfAK UCawPkFi40Dh2NHHFFAw7A== 0000003333-02-000004.txt : 20020418 0000003333-02-000004.hdr.sgml : 20020418 ACCESSION NUMBER: 0000003333-02-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20020131 FILED AS OF DATE: 20020418 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06187 FILM NUMBER: 02613985 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-K 1 abs10k2001.txt FOR YEAR ENDED 12-31-02 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 2002 Commission file number 1-6187 ALBERTSON'S, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its Charter) Delaware 82-0184434 - ------------------------ -------------------------------- (State of Incorporation) (Employer Identification Number) 250 Parkcenter Boulevard, P.O. Box 20, Boise, Idaho 83726 (208) 395-6200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange Title of each class on which registered ------------------------------------------ ----------------------- Common Stock, $1.00 par value, 406,677,228 New York Stock Exchange shares outstanding on March 25, 2002 Pacific Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (17 CFR section 405) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (x) The aggregate market value of the voting stock held by nonaffiliates of the Registrant, computed by reference to the price at which the stock was sold as of the close of business on March 25, 2002: $12,244,122,742. Documents Incorporated by Reference ----------------------------------- Listed hereunder are the documents, any portions of which are incorporated by reference, and the Parts of this Form 10-K into which such portions are incorporated: 1. The Registrant's Annual Report to Stockholders for the year ended January 31, 2002, portions of which are incorporated by reference into Part I, Part II and Part IV of this Form 10-K; and 2. The Registrant's definitive proxy statement for use in connection with the Annual Meeting of Stockholders to be held on June 6, 2002,(the "Proxy Statement") to be filed within 120 days after the Registrant's year ended January 31, 2002, portions of which are incorporated by reference into Part III of this Form 10-K. 1 ALBERTSON'S, INC. FORM 10-K TABLE OF CONTENTS Item Page PART I ------ Cautionary Statement 3 1. Business 3 2. Properties 6 3. Legal Proceedings 9 4. Submission of Matters to a Vote of Security Holders 9 PART II ------- 5. Market for the Registrant's Common Equity and Related Stockholder Matters 10 6. Selected Financial Data 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 7A. Quantitative and Qualitative Disclosures about Market Risk 10 8. Financial Statements and Supplementary Data 10 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10 PART III -------- 10. Directors and Executive Officers of the Registrant 11 11. Executive Compensation 13 12. Security Ownership of Certain Beneficial Owners and Management 13 13. Certain Relationships and Related Transactions 13 PART IV ------- 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14 2 PART I 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 using various 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 interest rates, changes in consumer spending, actions taken by competitors, particularly those intended to improve their market share, 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 cost and stability of energy sources, the Company's ability to recruit, retain and develop employees, its ability to develop new stores or complete remodels as rapidly as planned, its ability to implement new technology successfully, the stability of product costs, the Company's ability to integrate the operations of acquired or merged companies, the Company's ability to execute its restructuring plans, and the Company's ability to achieve its five strategic imperatives. 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. Item 1. Business - ----------------- General The Registrant, Albertson's, Inc. ("Albertson's" or 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. On June 23, 1999, Albertson's, Inc. and American Stores ("ASC") consummated a merger with the issuance of 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. 3 The Company is one of the largest retail food and drug chains in the World. As of January 31, 2002, the Company operated 2,421 stores in 33 Northeastern, Western, Midwestern and Southern states. These stores consist of 1,395 combination food-drug stores, 731 stand-alone drugstores, and 295 conventional and warehouse stores. Retail operations are supported by 19 major Company distribution centers. These distribution centers provide product exclusively to the Company's retail stores. The Company's operations are within a single operating segment, the retail sale of food and drug merchandise. All the Company's operations are within the United States. As of January 31, 2002, the Company's stores operated under the banners Albertson's, Albertson's-Osco, Albertson's Sav-on, Jewel-Osco, Acme, Sav-on Drugs, Osco Drug, Max Foods, Super Saver, and Seessel's by Albertson's. A new leadership team has been assembled to take Albertson's into the future. This team has identified many actions and programs with which to drive the Company's future competitiveness, profitability and return on invested capital. One of the first actions taken was to identify and communicate internally and externally five strategic imperatives that serve as a guide and a filter for all future actions. The five strategic imperatives are: 1) Aggressive Cost and Process Control; 2) Maximize Returns on Invested Capital; 3) Customer-Focused Approach to Growth; 4) Companywide Focus on Technology; and 5) Energized Associates. A more detailed description of these imperatives and actions taken by the Company can be found on pages 49 and 50 of the Company's 2001 Annual Report to Stockholders. Retail Formats As of January 31, 2002, the Company's retail operations were organized into 15 divisions, based primarily on geographic boundaries. The division staff is responsible for day-to-day operations and for executing marketing and merchandising programs. This structure allows the division level employees, who are closest to the customer, to implement strategies tailored to each of the Company's unique neighborhoods. The Company's combination food-drug stores are super grocery/drugstores under one roof and range in size from 35,000 to 107,000 square feet. Most of these stores offer prescription drugs and an expanded section of cosmetics and general merchandise in addition to specialty departments such as service seafood and meat, bakery, lobby/video, service delicatessen, liquor and floral. Many also offer meal centers, party supply centers, coffee bars, in-store banks, dry cleaning, photo processing and destination categories for beverages, snacks, pet care products, paper products and baby care merchandise. All shopping areas are served by a common set of checkstands. The Company's stand-alone drugstores average 18,600 square feet. These stores offer convenient shopping and prescription pickup as well as a wide assortment of general merchandise, health and beauty care products, over-the-counter medication, greeting cards and photo processing. The Company's new drugstores are typically located on corners and many offer a drive-thru pharmacy. 4 Albertson's strategic advantage in today's marketplace comes from the Company's unique heritage in two independent market places - food stores and drugstores. Albertson's is a leader with decades of experience serving customers in both industries. This unique position in the marketplace has enabled the Company to bring together separate retail brands, creating the dual brand combination stores that leverage the Company's separate food and drug experience and brand equity. The Company began expanding the dual brand combo concept in 2001 by rolling out Albertson's-Sav-on stores in the fast growing Reno, Nevada market, and Albertson's-Osco stores in Tucson, Arizona. This dual brand concept will continue to be introduced to additional markets during 2002. The Company's other store formats include conventional supermarkets and warehouse stores. These stores offer a full selection in the basic departments of grocery, meat, produce, dairy and limited general merchandise. Many locations have a pharmacy, in-store bakery and service delicatessen. As of January 31, 2002, the Company operated 203 fuel centers, in 22 states, which are generally located in the parking lot of stores. These centers feature three to six fuel pumps and a small building, ranging in size from a pay-only kiosk to a convenience store, featuring such items as candy, soft drinks and snack foods. In November 1999, Albertson's, Inc. introduced its own grocery delivery Web site when Albertsons.com entered the Seattle, Washington market. The Company expanded the service to San Diego County, California in October 2001, added the Los Angeles, California area in February 2002, and expanded into San Francisco, California and Oregon in March 2002. By using its brick-and-mortar stores, Albertson's has evolved its online model to take advantage of its retail grocery expertise, brand recognition and existing infrastructure. With more than two years experience, Albertsons.com offers a reliable and proven online grocery service customers trust to deliver high-quality, fresh products direct from the store to their home. Savon.com, Albertson's online drugstore, serves the Company's customers nationwide. On December 7, 2000, Savon.com opened the "doors" to a nationwide online pharmacy service. The site offers a full range of sundry items, new and refill prescriptions and consumer health information. The Web site allows customers across the country the freedom to have new or refilled prescriptions ready for pickup at any local Albertson's food or drug store, or have their prescriptions mailed to their doorsteps. All of the Company's stores carry a broad range of national brands and offer private label brand 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. Competition 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. 5 The Company is subject to effects of seasonality. Sales are higher in the Company's fourth quarter than other quarters due to the holiday season and the increase in cold and flu occurrences. Merchandising & Manufacturing The Company has been able to efficiently supply its stores with merchandise through its distribution centers, outside suppliers or directly from manufacturers in an effort to obtain merchandise at the lowest possible cost. The Company believes that it is not dependent on any one supplier, and considers its relations with its suppliers to be satisfactory. The Company has historically serviced all of its retail stores from Company distribution centers (refer to "Subsequent Events"). Employees As of January 31, 2002, the Company employed approximately 220,000 people, many of whom are covered by collective bargaining agreements. The Company considers its present relations with employees to be good. Subsequent Events On March 13, 2002, the Company announced the second phase in its restructuring process. The Company intends to completely exit four under-performing markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas. The market exits involves 95 stores that will be closed or sold. In connection with the market exits, Albertson's recently announced the sale of its Tulsa, Oklahoma distribution facility to Fleming Companies, Inc. This sales agreement also includes a long-term supply arrangement under which Fleming will provide procurement and distribution services for Albertson's Oklahoma and Nebraska stores. In addition, the Company also announced plans to close its Houston, Texas distribution facility and reduce the number of division offices from 15 to 11. Once complete, the number of major distribution facilities will be reduced from 19 to 17. 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 1,228 stores and approximately 88% 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 adequate return on invested capital. 6 Albertson's stores are located in 33 Northeastern, Western, Midwestern and Southern areas of the United States. The table below is a summary of the stores by state and classification as of January 31, 2002:
Combination Stand-Alone Other Fuel Food-Drug Stores Drugstores Stores TOTAL Centers - ------------------------ ------------------ --------------- --------------- --------------- --------------- Arizona 48 89 137 11 Arkansas 2 2 California 302 300 150 752 3 Colorado 47 10 57 6 Delaware 9 4 13 1 Florida 115 115 11 Idaho 29 7 36 12 Illinois 159 95 15 269 9 Indiana 6 49 55 Iowa 1 28 29 Kansas 5 27 32 Louisiana 31 31 11 Maryland 2 9 11 Michigan 1 1 Minnesota 1 1 Mississippi 7 7 4 Missouri 10 34 44 5 Montana 18 9 14 41 4 Nebraska 11 14 25 2 Nevada 46 44 3 93 10 New Jersey 32 30 62 New Mexico 22 4 2 28 3 North Dakota 2 6 8 Oklahoma 28 28 12 Oregon 42 11 53 7 Pennsylvania 38 20 58 South Dakota 1 2 3 Tennessee 24 1 25 6 Texas 219 3 222 66 Utah 43 3 46 6 Washington 72 11 83 11 Wisconsin 15 28 43 1 Wyoming 9 2 11 2 ------------------ --------------- --------------- --------------- --------------- Total 1,395 731 295 2,421 203 ================== =============== =============== =============== =============== Retail Square Footage by Store Type (000's) 76,018 13,591 8,493 98,102 * ================== =============== =============== =============== ===============
* The square footage of fuel centers is included with the square footage of its adjacent store. As part of the Company's first phase of its restructuring plan, announced on July 18, 2001, the Company identified and committed to close and dispose 165 under-performing stores. The Company closed 80 of these stores as of January 31, 2002. In addition, the Company announced on March 13, 2002, the complete exit of four under-performing markets (Refer to "Subsequent Events" in Item 1). 7 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 2001 approximately 78% of the merchandise purchased for resale in Company retail stores was received from Company distribution centers. Albertson's distribution system consists of 19 major Company centers located strategically throughout the Company's operating markets. The table below is a summary of the Company's distribution facilities as of January 31, 2002:
High Ice Volume Frozen Meat & Cream Health Health General Square Major Distribution Facilities Grocery Food Liquor Produce Deli Plant & Beauty & Beauty Merch. Pharmaceuticals Footage ----------------------------- ------- ------ ------ ------- ------ ----- -------- -------- ------- --------------- ---------- Lancaster, Pennsylvania X X X X X 1,412,700 Melrose Park, Illinois X X X X 1,330,000 La Habra, California X X X X 1,203,100 Brea, California X X X 1,197,400 Fort Worth, Texas X X X X 1,131,200 Plant City, Florida X X X X X X 1,010,900 Irvine, California X X 996,900 Elk Grove, Illinois X X X 968,000 Portland, Oregon X X X X 862,500 Vacaville, California X 854,000 Tulsa, Oklahoma (1) X X X X 780,500 Phoenix, Arizona X X X X X 765,700 Houston, Texas (1) X X X X 759,400 Salt Lake City, Utah X X X X 659,600 San Leandro, California X X X 475,200 Sacramento, California X X X X X 440,900 Ponca City, Oklahoma X X X 420,000 Denver, Colorado X X X X 388,400 Boise, Idaho X X 302,300 Other Distribution Facilities ----------------------------- Las Vegas, Nevada X 30,000 Indianapolis, Indiana X 22,000 Boise, Idaho X 11,000 ------------ TOTAL SQUARE FOOTAGE - All Distribution Facilities 16,021,700 ============
(1) The Company intends to sell or close this facility (refer to "Subsequent Events" in Item 1). 8 The Company currently finances most retail store and distribution facilities internally, 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 has and will continue to finance a portion of its new stores through lease transactions when it does not have the opportunity to own the property. As of January 31, 2002, the Company held title to the land and buildings of 42% of the Company's stores and held title to the buildings on leased land of an additional 9% of the Company's stores. The Company also holds title to the land and buildings of most of its administrative offices and distribution facilities. Item 3. Legal Proceedings - -------------------------- The information required under this item is included under the caption "Legal Proceedings" on page 83 of the Company's 2001 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ No matters were submitted during the fourth quarter of 2001 to a vote of security holders through the solicitation of proxies or otherwise. 9 PART II 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 caption "Company Stock Information" on the inside back cover of the Company's 2001 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. The market value of the Company's common stock at the close of business on March 25, 2002, was $32.27 per share. There were approximately 30,400 stockholders of record on March 25, 2002. Item 6. Selected Financial Data - -------------------------------- Selected financial data of the Company for the fiscal years 1997 through 2001 is included under the caption "Five-Year Summary of Selected Financial Data" on page 88 of the Company's 2001 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations - --------------------- The information required under this item is included on pages 49 to 62 of the Company's 2001 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. Item 7A. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------- The information required under this item is included under the caption "Quantitative and Qualitative Disclosures about Market Risk" on page 60 of the Company's 2001 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. 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 63 to 87 and page 89 of the Company's 2001 Annual Report to Stockholders and are incorporated herein by this reference thereto. 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. 10 PART III 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 heading "Election of Directors" in the Company's definitive proxy statement for use in connection with the 2002 Annual Meeting of Stockholders (the "Proxy Statement") to be filed within 120 days after the Company's fiscal year ended January 31, 2002, and is incorporated herein by this reference thereto. Executive and Reporting Officers
Age Date First Appointed as of as an Executive or Name 3/25/02 Position Reporting Officer ---- ------- -------- -------------------- Lawrence R. Johnston 53 Chairman of the Board and Chief Executive 04/23/01 Officer Peter L. Lynch 50 President and Chief Operating Officer 06/23/99 Robert K. Banks 52 Executive Vice President, Development 06/20/00 Thomas E. Brother 60 Executive Vice President, Distribution 07/30/89 Robert C. Butler 53 Executive Vice President, Operations 03/21/00 Romeo R. Cefalo 52 Executive Vice President, Operations 03/21/00 Robert J. Dunst, Jr. 41 Executive Vice President and Chief 11/19/01 Technology Officer Kathy J. Herbert 48 Executive Vice President, Human Resources 09/17/01 John R. Sims 52 Executive Vice President and 03/25/02 General Counsel Lawrence A. Stablein 44 Executive Vice President, Marketing and 10/30/00 Merchandising Felicia D. Thornton 38 Executive Vice President and Chief Financial 08/22/01 Officer Kevin H. Tripp 47 Executive Vice President, Drug and General 12/11/00 Merchandise Steven D. Young 53 Executive Vice President, Labor Relations 12/02/91 and Employment Law Ertharin Cousin 44 Senior Vice President, Public Affairs 03/15/02 Richard J. Navarro 49 Senior Vice President and Controller 12/22/86
11 Lawrence R. Johnston has served as Chairman of the Board and Chief Executive Officer since April 23, 2001. Previously he served as President and Chief Executive Officer, General Electric Appliances Division from November 1999; President and Chief Executive Officer, General Electric Medical Systems-Europe, Middle East and Africa from 1997; Chairman of General Electric Company's European Corporate Executive Council from 1998 to 1999 and Vice President, Sales and Distribution of GE Appliances Division from 1989 to 1997. Peter L. Lynch became President and Chief Operating Officer on March 21, 2000 and was appointed to the Board of Directors in July 2001. Previously he served as Executive Vice President, Operations from June 23, 1999; Executive Vice President and General Manager of the Acme Division of American Stores Company from 1998 and Senior Vice President, Store Operations of the Jewel-Osco Division of American Stores Company from December 1995. Robert K. Banks was promoted to Executive Vice President, Development on June 20, 2000. Previously he served as Senior Vice President, Real Estate from January 31, 1999; Group Vice President, Real Estate from December 2, 1996 and Vice President, Real Estate from December 24, 1990. Thomas E. Brother was promoted to Executive Vice President, Distribution on January 29, 1999. Previously he served as Senior Vice President, Distribution from 1991. Robert C. Butler was promoted to Executive Vice President, Operations on March 21, 2000. Previously he served as Senior Vice President, Merchandising from June 23, 1999 and Vice President, Southern California Division from 1996. Romeo R. Cefalo was promoted to Executive Vice President, Operations on March 21, 2000. Previously he served as President, Southern California Region from June 23, 1999; Executive Vice President and General Manager of the Lucky South Division of American Stores Company from 1997 and Senior Vice President and General Manager of the same division from 1995. Robert J. Dunst, Jr. became Executive Vice President and Chief Technology Officer on November 19, 2001. Previously he served as Vice President, Applications Development, Safeway, Inc. and Director, Systems Architecture and Infrastructure, Safeway, Inc. from 1995. Kathy J. Herbert became Executive Vice President, Human Resources on September 17, 2001. Previously she served as Vice President, Human Resources, Jewel-Osco Division, American Stores Company and subsequently Albertson's Inc. from April 1998 and Director, Personnel Training, for Jewel-Osco Division, American Stores Company from 1996 to 1998. John R. Sims became Executive Vice President and General Counsel on March 25, 2002. Previously, he was Vice President and Deputy General Counsel with Federated Department Stores, Inc. from 1990. Lawrence A. Stablein was promoted to Executive Vice President, Marketing and Merchandising on October 30, 2000. Previously he served as Senior Vice President, Marketing for Jewel-Osco from 1997 and Senior Vice President of Marketing and Formats in American Stores Properties, Inc. group in Salt Lake City from October 1995. Felicia D. Thornton became Executive Vice President and Chief Financial Officer on August 22, 2001. Previously she was a business consultant for HASC from January 2001; Group Vice President, Kroger Co. from February 1999 and Group Vice President, Corporate Planning and Accounting, Kroger Co. from February 1996. 12 Kevin H. Tripp was promoted to Executive Vice President, Drug and General Merchandise on December 11, 2000. Previously he served as President, Drug Region from June 1999; Executive Vice President and General Manager, American Drug Stores from November 1997 and Senior Vice President, Pharmacy Sales and Operations from January 1995. Steven D. Young became Executive Vice President, Labor Relations and Employment Law on September 17, 2001. Previously he served as Executive Vice President, Human Resources from January 1999 and Senior Vice President, Human Resources from 1993. Ertharin Cousin became an Executive Officer on March 15, 2002. She was promoted to Senior Vice President, Public Affairs on June 1, 2001. Previously she served as Group Vice President, Public Affairs from 2000 and Vice President, Government and Community Affairs of the Jewel-Osco Division of American Stores Company and subsequently Albertson's Inc. from 1997. Richard J. Navarro was promoted to Senior Vice President and Controller on January 29, 1999. Previously he served as Group Vice President and Controller from 1993. Item 11. Executive Compensation - -------------------------------- Information concerning executive compensation is presented under the headings "Summary Compensation Table," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Option Grants In Last Fiscal Year," and "Retirement Benefits" in the Proxy Statement. This information is incorporated herein by this reference thereto. 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. 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. 13 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - ------------------------------------------------------------------------- (a)1 Financial Statements: The Independent Auditors' Reports, together with the Consolidated Financial Statements and the related notes thereto, are listed below and are incorporated herein by this reference thereto from pages 63 to 87 of the Company's Annual Report to Stockholders for the year ended January 31, 2002: Consolidated Earnings - years ended January 31, 2002; February 1, 2001; February 3, 2000. Consolidated Balance Sheets -- January 31, 2002; February 1, 2001. Consolidated Cash Flows - years ended January 31, 2002; February 1, 2001; February 3, 2000. Consolidated Stockholders' Equity -- years ended January 31, 2002; February 1, 2001; February 3, 2000. Notes to Consolidated Financial Statements. Independent Auditors' Report. Quarterly Financial Data: Quarterly Financial Data for the years ended January 31, 2002, and February 1, 2001,is set forth on page 89 of the Annual Report to Stockholders for the year ended January 31, 2002, 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 16 hereof. (b) Their were no reports on Form 8-K filed during the quarter ended January 31, 2002. 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 the Company's Registration Statements on Form S-8 Nos. 2-80776, 33-2139, 33-7901, 33-15062, 33-43635, 33-62799, 33-59803, 333-82157, 333-82161, 333-87773, and 333-73194. 14 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. 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 LAWRENCE R. JOHNSTON --------------------------------------------- Lawrence R. Johnston (Chairman of the Board and Chief Executive Officer) Date: April 18, 2002 15 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 18, 2002. LAWRENCE R. JOHNSTON PETER L. LYNCH - -------------------------------------- -------------------------------------- Lawrence R. Johnston Peter L. Lynch (Chairman of the Board and (President and Chief Operating Chief Executive Officer and Officer and Director) Director) FELICIA D. THORNTON RICHARD J. NAVARRO - -------------------------------------- -------------------------------------- Felicia D. Thornton Richard J. Navarro (Executive Vice President (Senior Vice President and Chief Financial Officer) and Controller) A. GARY AMES CECIL D. ANDRUS - -------------------------------------- -------------------------------------- A. Gary Ames Cecil D. Andrus (Director) (Director) PAMELA G. BAILEY TERESA BECK - -------------------------------------- -------------------------------------- Pamela G. Bailey Teresa Beck (Director) (Director) HENRY I. BRYANT PAUL I. CORDDRY - -------------------------------------- -------------------------------------- Henry I. Bryant Paul I. Corddry (Director) (Director) BONNIE G. HILL CLARK A. JOHNSON - -------------------------------------- -------------------------------------- Bonnie G. Hill Clark A. Johnson (Director) (Director) VICTOR L. LUND BEATRIZ RIVERA - -------------------------------------- -------------------------------------- Victor L. Lund Beatriz Rivera (Director) (Director) J.B. SCOTT WILL M. STOREY - -------------------------------------- -------------------------------------- J.B. Scott Will M. Storey (Director) (Director)
16 Index to Exhibits Filed with the Annual Report on Form 10-K for the Year Ended January 31, 2002 Number Description 3.1 Restated Certificate of Incorporation (as amended) is incorporated herein by reference to Exhibit 3.1 of Form 10-Q for the quarter ended April 30, 1998. 3.1.1 Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock is incorporated herein by reference to Exhibit 3.1.1 of Form 10-K for the year ended January 30, 1997. 3.1.2 Amendment to Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock is incorporated herein by reference to Exhibit 3.1.2 of Form 10-K for the year ended January 28, 1999. 3.2 By-Laws dated March 15, 2001 are incorporated herein by reference to Exhibit 3.2 of Form 10-K for the year ended February 1, 2001. 4.1 Stockholder Rights Plan Agreement is incorporated herein by reference to Exhibit 1 of Form 8-A Registration Statement filed with the Commission on March 4, 1997. 4.1.1 Amendment No. One to Stockholder Rights Plan Agreement (dated August 2, 1998) is incorporated herein by reference to Exhibit 1 of Amendment to Form 8-A Registration Statement filed with the Commission on August 6, 1998. 4.1.2 Amendment No. Two to Stockholder Rights Plan Agreement (dated March 16, 1999) is incorporated herein by reference to Exhibit 1 of Amendment to Form 8-A Registration Statement filed with the Commission on March 25, 1999. 4.2 Indenture, dated as of May 1, 1992, between Albertson's, Inc. and Morgan Guaranty Trust Company of New York as Trustee 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.(1) 4.3 Senior Indenture dated May 1, 1995, between American Stores Company and the First National Bank of Chicago, as Trustee, is incorporated herein by reference to Exhibit 4.1 of Form 10-Q filed by American Stores Company (Commission File Number 1-5392) on June 12, 1995.(1) 9 Inapplicable 10.1 J. A. and Kathryn Albertson Foundation Inc. Stock Agreement (dated May 21, 1997) is incorporated herein by reference to Exhibit 10.1 of Form 10-Q for the quarter ended May 1, 1997.* 17 Number Description 10.1.1 Waiver regarding Alscott Limited Partnership #1 Stock Agreement (dated May 21, 1997) is incorporated herein by reference to Exhibit 10.1.1 of Form 10-Q for the quarter ended May 1, 1997.* 10.1.2 Waiver regarding Kathryn Albertson Stock Agreement (dated May 21, 1997) is incorporated herein by reference to Exhibit 10.1.2 of Form 10-Q for the quarter ended May 1, 1997.* 10.2 Agreement between the Company and Gary G. Michael dated December 22, 2000 is incorporated herein by reference to Exhibit 10.2 of Form 10-K for the year ended February 1, 2001.* 10.3 Form of Award of Deferred Stock Units is incorporated herein by reference to Exhibit 10.3 of Form 10-K for the year ended February 1, 2001.* 10.4 Employment Agreement between the Company and Lawrence R. Johnston dated April 23, 2001 is incorporated herein by reference to Exhibit 10.4 of Form 8-K filed on April 26, 2001.* 10.4.1 Amendment to Employment Agreement between the Company and Lawrence R. Johnston dated July 19, 2001.* 10.5 Form of Beneficiary Agreement for Key Executive Life Insurance is incorporated herein by reference to Exhibit 10.5.1 of Form 10-K for the year ended January 30, 1986.* 10.6 Executive Deferred Compensation Plan (amended and restated February 1, 1989) is incorporated herein by reference to Exhibit 10.6 of Form 10-K for the year ended February 2, 1989.* 10.6.1 Amendment to Executive Deferred Compensation Plan (dated December 4, 1989) is incorporated herein by reference to Exhibit 10.6.1 of Form 10-Q for the quarter ended November 2, 1989.* 10.6.2 Amendment to Executive Deferred Compensation Plan (dated December 15, 1998) is incorporated herein by reference to Exhibit 10.6.2 of Form 10-K for the year ended February 3, 2000.* 10.6.3 Amendment to Executive Deferred Compensation Plan (dated March 15, 2001) is incorporated herein by reference to Exhibit 10.6.3 of Form 10-K for the year ended February 1, 2001.* 10.7 Senior Operations Executive Officer Bonus Plan is incorporated herein by reference to Exhibit 10.7 of Form 10-K for the year ended January 30, 1997.* 18 Number Description 10.8 Form of Consulting Agreement with Special Advisors to the Board of Directors dated as of March 15, 2001 is incorporated herein by reference to Exhibit 10.8 of Form 10-K for the year ended February 1, 2001.* 10.9 Description of Bonus Incentive Plans (amended December 3, 1984) is incorporated herein by reference to Exhibit 10.9 of Form 10-K for the year ended January 31, 1985.* 10.10 2000 Deferred Compensation Plan (dated January 1, 2000) is incorporated by reference to Exhibit 10.10 of Form 10-K for the year ended February 3, 2000.* 10.11 Employment Agreement between the Company and John R. Sims effective April 3, 2002.* 10.12 Employment Agreement between the Company and Robert J. Dunst, Jr. dated November 16, 2001 is incorporated herein by reference to Exhibit 10.42 to Form 10-Q for the quarter ended November 1, 2001.* 10.13 Executive Pension Makeup Plan (amended and restated February 1, 1989) is incorporated herein by reference to Exhibit 10.13 of Form 10-K for the year ended February 2, 1989.* 10.13.1 First Amendment to Executive Pension Makeup Plan (dated June 8, 1989) is incorporated herein by reference to Exhibit 10.13.1 of Form 10-Q for the quarter ended May 4, 1989.* 10.13.2 Second Amendment to Executive Pension Makeup Plan (dated January 12, 1990) is incorporated herein by reference to Exhibit 10.13.2 of Form 10-K for the year ended February 1, 1990.* 10.13.3 Third Amendment to Executive Pension Makeup Plan (dated January 31, 1990) is incorporated herein by reference to Exhibit 10.13.3 of Form 10-Q for the quarter ended August 2, 1990.* 10.13.4 Fourth Amendment to Executive Pension Makeup Plan (effective January 1, 1995) is incorporated herein by reference to Exhibit 10.13.4 of Form 10-K for the year ended February 2, 1995.* 10.13.5 Amendment to Executive Pension Makeup Plan (retroactive to January 1, 1990) is incorporated herein by reference to Exhibit 10.13.5 of Form 10-K for the year ended February 1, 1996.* 10.13.6 Amendment to Executive Pension Makeup Plan (retroactive to October 1, 1999) is incorporated herein by reference to Exhibit 10.13.6 of Form 10-K for the year ended February 3, 2000.* 19 Number Description 10.14 Executive ASRE Makeup Plan (dated September 26, 1999) is incorporated herein by reference to Exhibit 10.14 of Form 10-K for the year ended February 3, 2000.* 10.15 Senior Executive Deferred Compensation Plan (amended and restated February 1, 1989) is incorporated herein by reference to Exhibit 10.15 of Form 10-K for the year ended February 2, 1989.* 10.15.1 Amendment to Senior Executive Deferred Compensation Plan (dated December 4, 1989) is incorporated herein by reference to Exhibit 10.15.1 of Form 10-Q for quarter ended November 2, 1989.* 10.15.2 Amendment to Senior Executive Deferred Compensation Plan (dated December 15, 1998) is incorporated herein by reference to Exhibit 10.7.1 of Form 10-K for the year ended February 3, 2000.* 10.16 1986 Nonqualified Stock Option Plan (amended March 4, 1991) is incorporated herein by reference to Exhibit 10.16 of Form 10-K for the year ended January 31, 1991. Exhibit 10.16 expired by its terms in 1996. Notwithstanding such expiration, certain agreements for the options granted under these option plans remain outstanding.* 10.17 Form of 1986 Nonqualified Stock Option Plan Stock Option Agreement (amended November 30, 1987) is incorporated herein by reference to Exhibit 10.17 of Form 10-Q for the quarter ended October 29, 1987.* 10.18 Executive Pension Makeup Trust (dated February 1, 1989) is incorporated herein by reference to Exhibit 10.18 of Form 10-K for the year ended February 2, 1989.* 10.18.1 Amendment to Executive Pension Makeup Trust (dated July 24, 1998) is incorporated herein by reference to Exhibit 10.18.1 of Form 10-K for the year ended February 3, 2000.* 10.18.2 Amendment to Executive Pension Makeup Trust (dated December 1, 1998) is incorporated herein by reference to Exhibit 10.18.1 of Form 10-Q for quarter ended October 29, 1998.* 10.18.3 Amendment to Executive Pension Makeup Trust (dated December 1, 1999) is incorporated herein by reference to Exhibit 10.18.3 of Form 10-K for year ended February 3, 2000.* 10.18.4 Amendment to Executive Pension Makeup Trust (dated March 31, 2000) is incorporated herein by reference to Exhibit 10.18.4 of Form 10-K for year ended February 1, 2001.* 20 Number Description 10.19 Executive Deferred Compensation Trust (dated February 1, 1989) is incorporated herein by reference to Exhibit 10.19 of Form 10-K for year ended February 2, 1989.* 10.19.1 Amendment to Executive Deferred Compensation Trust (dated July 24, 1998) is incorporated herein by reference to Exhibit 10.19.1 of Form 10-K for year ended February 3, 2000.* 10.19.2 Amendment to Executive Deferred Compensation Trust (dated December 1, 1998) is incorporated herein by reference to Exhibit 10.19.1 of Form 10-Q for quarter ended October 29, 1998.* 10.19.3 Amendment to Executive Deferred Compensation Trust (dated December 1, 1999) is incorporated herein by reference to Exhibit 10.19.3 of Form 10-K for year ended February 3, 2000.* 10.19.4 Amendment to Executive Deferred Compensation Trust (dated March 31, 2000) is incorporated herein by reference to Exhibit 10.19.4 of Form 10-K for year ended February 1, 2001.* 10.20 1990 Deferred Compensation Plan is incorporated herein by reference to Exhibit 10.20 of Form 10-K for year ended January 31, 1991.* 10.20.1 Amendment to 1990 Deferred Compensation Plan (dated April 12, 1994) is incorporated herein by reference to Exhibit 10.20.1 of Form 10-Q for the quarter ended August 4, 1994.* 10.20.2 Amendment to 1990 Deferred Compensation Plan (dated November 5, 1997) is incorporated herein by reference to Exhibit 10.20.2 of Form 10-K for the year ended January 29, 1998.* 10.20.3 Amendment to 1990 Deferred Compensation Plan (dated November 1, 1998) is incorporated herein by reference to Exhibit 10.20.3 of Form 10-Q for the quarter ended October 29, 1998.* 10.21 Non-Employee Directors' Deferred Compensation Plan is incorporated herein by reference to Exhibit 10.21 of Form 10-K for the year ended January 31, 1991.* 10.21.1 Amendment to Non-Employee Directors' Deferred Compensation Plan (dated December 15, 1998) is incorporated herein by reference to Exhibit 10.21.1 of Form 10-K for year ended February 3, 2000.* 10.21.2 Amendment to Non-Employee Directors' Deferred Compensation Plan (dated March 15, 2001) is incorporated herein by reference to Exhibit 10.21.2 of Form 10-K for the year ended February 1, 2001.* 21 Number Description 10.22 1990 Deferred Compensation Trust (dated November 20, 1990) is incorporated herein by reference to Exhibit 10.22 of Form 10-K for year ended January 31, 1991.* 10.22.1 Amendment to 1990 Deferred Compensation Trust (dated July 24, 1998) is incorporated herein by reference to Exhibit 10.22.1 of Form 10-K for year ended February 3, 2000.* 10.22.2 Amendment to 1990 Deferred Compensation Trust (dated December 1, 1998) is incorporated herein by reference to Exhibit 10.22.1 of Form 10-Q for quarter ended October 29, 1998.* 10.22.3 Amendment to 1990 Deferred Compensation Trust (dated December 1, 1999) is incorporated herein by reference to Exhibit 10.22.3 of Form 10-K for year ended February 3, 2000.* 10.22.4 Amendment to 1990 Deferred Compensation Trust (dated March 31, 2000) is incorporated herein by reference to Exhibit 10.22.4 of Form 10-K for year ended February 1, 2001.* 10.23 2000 Deferred Compensation Trust (dated January 1, 2000) is incorporated herein by reference to Exhibit 10.23 of Form 10-K for year ended February 3, 2000.* 10.23.1 Amendment to the 2000 Deferred Compensation Trust (dated March 31, 2000) is incorporated herein by reference to Exhibit 10.23.1 of Form 10-K for year ended February 1, 2001.* 10.24 1995 Stock-Based Incentive Plan (dated May 26, 1995) is incorporated herein by reference to Exhibit 10.24 of Form 10-Q for the quarter ended May 4, 1995.* 10.24.1 Form of 1995 Stock-Based Incentive Plan Stock Option Agreement (dated December 4, 1995) is incorporated herein by reference to Exhibit 10.24.1 of Form 10-K for the year ended February 1, 1996.* 10.25 1995 Stock Option Plan for Non-Employee Directors (dated May 26, 1995) is incorporated herein by reference to Exhibit 10.25 of Form 10-Q for the quarter ended May 4, 1995.* 10.25.1 Form of 1995 Stock Option Plan for Non-Employee Directors Agreement (dated May 30, 1995) is incorporated herein by reference to Exhibit 10.25.1 of Form 10-Q for the quarter ended May 4, 1995.* 10.25.2 Amendment to 1995 Stock Option Plan for Non-Employee Directors (dated March 15, 2001) is incorporate herein by reference to Exhibit 10.25.2 of Form 10-K for the year ended February 1, 2001.* 22 Number Description 10.26 Amended and Restated 1995 Stock-Based Incentive Plan (dated November 12, 1998) is incorporated herein by reference to Exhibit 10.26 of Form 10-Q for the quarter ended October 29, 1998.* 10.26.1 Amendment to Amended and Restated 1995 Stock-Based Incentive Plan (dated March 15, 2001) is incorporate herein by reference to Exhibit 10.26.1 of Form 10-K for the year ended February 1, 2001.* 10.27 Termination and Consulting Agreement by and among American Stores Company, Albertson's, Inc. and Victor L. Lund is incorporated herein by reference to Exhibit 10.27 of Form 10-K for the year ended January 28, 1999.* 10.28 Credit Agreement (5-year) (dated March 22, 2000) is incorporated herein by reference to Exhibit 10.28 of Form 10-K for the year ended February 3, 2000. 10.28.1 Amendment to Credit Agreement (5-year) (dated March 15, 2001) is incorporated by reference to Exhibit 10.28.1 of Form 10-K for the year ended February 1, 2001. 10.29 Amended and Restated Credit Agreement (364-day) (dated March 13, 2002). 10.30 American Stores Company Supplemental Executive Retirement Plan 1998 Restatement is incorporated herein by reference to Exhibit 4.1 of Form S-8 filed by American Stores Company (Commission File Number 1-5392) on July 13, 1998.* 10.30.1 Amendment to American Stores Company Supplemental Executive Retirement Plan 1998 Restatement, dated as of September 15, 1998, is incorporated herein by reference to Exhibit 10.4 of Form 10-Q filed by American Stores Company (Commission File Number 1-5392) on December 11, 1998.* 10.31 American Stores Company 1997 Stock Option and Stock Award Plan is incorporated herein by reference to Exhibit B of the 1997 Proxy Statement filed by American Stores Company (Commission File Number 1-5392) on May 2, 1997.* 10.31.1 Amendment to American Stores Company 1997 Stock Option and Stock Award Plan, dated as of October 8, 1998, is incorporated herein by reference to Exhibit 10.1 of Form 10-Q filed by American Stores Company (Commission File Number 1-5392) on December 11, 1998.* 10.31.2 Amendment to American Stores Company 1997 Stock Plan for Non-Employee Directors (dated March 15, 2001) is incorporated by reference to Exhibit 10.31.2 of Form 10-K for the year ended February 1, 2001.* 23 Number Description 10.32 American Stores Company 1997A Stock Option and Stock Award Plan, dated as of March 27, 1997, is incorporated herein by reference to Exhibit 4.11 of the S-8 Registration Statement (Registration No. 333-82157) filed by Albertson's, Inc. on July 2, 1999.* 10.33 American Stores Company 1997 Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit C of the 1997 Proxy Statement filed by American Stores Company (Commission File Number 1-5392) on May 2, 1997.* 10.34 American Stores Company Amended and Restated 1989 Stock Option and Stock Award Plan is incorporated herein by reference to Exhibit 4.13 of the S-8 Registration Statement (Registration No. 333-82157) filed by Albertson's, Inc. on July 2, 1999.* 10.35 American Stores Company Amended and Restated 1985 Stock Option and Stock Award Plan is incorporated herein by reference to Exhibit 4.14 of the S-8 Registration Statement (Registration No. 333-82157) filed by Albertson's, Inc. on July 2, 1999.* 10.36 Employment Agreement between the Company and Peter L. Lynch dated January 26, 2001 is incorporated herein by reference to Exhibit 10.36 to Form 10-Q for the quarter ended August 2, 2001.* 10.36.1 Amendment to Employment Agreement between the Company and Peter L. Lynch dated April 23, 2001 is incorporated herein by reference to Exhibit 10.36.1 to Form 10-Q for the quarter ended August 2, 2001.* 10.37 Agreement between the Company and Peter L. Lynch dated June 18, 1999 is incorporated herein by reference to Exhibit 10.37 to Form 10-Q for the quarter ended August 2, 2001.* 10.38 Albertson's Voluntary Separation Plan for officers effective July 18, 2001 is incorporated herein by reference to Exhibit 10.38 to Form 10-Q for the quarter ended August 2, 2001.* 10.39 Albertson's Severance Plan for Officers effective July 18, 2001 is incorporated herein by reference to Exhibit 10.39 to Form 10-Q for the quarter ended August 2, 2001.* 10.40 Employment Agreement between the Company and Felicia D. Thornton dated August 6, 2002 is incorporated herein by reference to Exhibit 10.40 to Form 10-Q for the quarter ended August 2, 2001.* 10.41 Albertson's Amended and Restated 1995 Stock-Based Incentive Plan is incorporate herein by reference to Exhibit 10.41 to Form 10-Q for the quarter ended November 1, 2001.* 24 Number Description 10.41.1 Form of 1995 Amended and Restated Stock-Based Incentive Plan Stock Option Agreement is incorporated herein by reference to Exhibit 10.41.1 to Form 10-Q for the quarter ended November 1, 2001.* 11 Inapplicable 12 Inapplicable 13 Exhibit 13 consists of pages 49 to 89 and the inside back cover of Albertson's, Inc. 2001 Annual Report to Stockholders which are numbered as pages 1 to 42 of Exhibit 13. Such report, except to the extent incorporated herein by reference, has been sent to and furnished for the information of the Securities and Exchange Commission only and is not to be deemed filed as part of this Annual Report on Form 10-K. The references to the pages incorporated by reference are to the printed Annual Report. The references to the pages of Exhibit 13 are as follows: Item 3--page 35; Item 5-page 42; Item 6-page 40; Item 7-pages 1 through 14; Item 7A-page 12; and Items 8 and 14--pages 15 through 39 and page 41. 16 Inapplicable 18 Inapplicable 21 Subsidiaries of the Registrant 22 Inapplicable 23 Independent Auditors' Consent - Deloitte & Touche LLP 24 Inapplicable * Identifies management contracts or compensatory plans or arrangements required to be filed as an exhibit hereto. (1) 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. 25 EX-10 3 abs10k2001exhibit10-41.txt 10.4.1 - AMENDED EMPLOYEE AGREEMENT AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT to the Employment Agreement by and between Lawrence R. Johnston (the "Executive") and Albertson's, Inc. (the "Company") is entered into as of July 19, 2001. WHEREAS, the Executive and the Company entered into that certain Employment Agreement dated April 23, 2001 ("Agreement"); and WHEREAS, the parties hereto wish to amend the Agreement to delete the provisions relating to the Executive's right to require the Company to purchase the Executive's Louisville, Kentucky residence and to add a requirement for the Company to purchase the Executive's Boise, Idaho residence in the event the Executive relocates from Boise, Idaho or in the event of a termination of the Executive's employment for any reason during the Term of the Agreement. NOW, THEREFORE, in consideration of the agreements set forth herein, the parties agree as follows: 1. Capitalized terms used herein (including in the recitals) and not otherwise specifically defined herein shall have the same meaning given to such terms in the Agreement. 2. Paragraph 3 of Schedule 1 (Relocation Policy) of the Agreement pertaining to the right of the Executive to require the Company to purchase the Executive's current residence in Louisville, Kentucky (the address of which is 3609 Glenview Avenue, Glenview, Kentucky) is hereby deleted in its entirety and replaced with the following: "3. Purchase of Executive's Boise, Idaho Residence in Certain Circumstances. The Executive shall be entitled to require the Company to purchase the Executive's primary residence in Boise, Idaho upon the terms and conditions set forth in Section 6(h) of the Agreement." 3. Section 6 (Termination) of the Agreement is hereby amended by adding the following as clause (h) to the end of said Section 6 to provide the Executive with the right to require the Company to purchase the Executive's primary residence in Boise, Idaho, if, during the Term of the Agreement, the Executive relocates from Boise, Idaho to another location outside the State of Idaho or the Executive's employment with the Company is terminated for any reason: "(h) PURCHASE OF EXECUTIVE'S BOISE, IDAHO RESIDENCE UPON EXECUTIVE'S RELOCATION OR TERMINATION. (i) If, during the Term of the Agreement, (i) the Executive relocates from Boise, Idaho to another location outside the State of Idaho (subject to the Company permitting such relocation pursuant to Section 4 hereof) or (ii) the Executive's employment with the Company is terminated for any reason, the Executive may, upon written notice to the Company, cause the Company to purchase the Executive's then primary residence in Boise, Idaho ("Boise Residence"), provided the Executive is unable, notwithstanding his reasonable efforts, to sell the Boise Residence on his own. "Reasonable efforts" shall include listing the Boise Residence for at least six (6) months with a qualified real estate broker. In the event the company purchases the Boise Residence from the Executive pursuant to this clause (h), the purchase price shall be the Executive's initial investment in the Boise Residence, plus the cost of any improvement made thereto. The Executive shall provide documentation reasonably satisfactory to the Company evidencing his initial investment in and the cost of improvements to the Boise Residence. In addition to the purchase price, the Company shall pay all reasonable closing costs, including real estate commissions, if any. (ii) All amounts payable by the Company to the Executive under this Section 6(h) shall be in addition to all other amounts payable to the Executive upon relocation or termination set forth herein." 4. Except as amended herein, the Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the Executive has signed this Amendment and the Company has caused this Amendment to be executed by its duly authorized officers as of the effective date first above written. ALBERTSON'S, INC. a Delaware corporation By: /s/ Thomas R. Saldin ------------------------------ Thomas R. Saldin Executive Vice President and General Counsel Executive by: /s/ Lawrence R. Johnston ------------------------------ Lawrence R. Johnston EX-10 4 abs10k2001exhibit10-11.txt 10.11 - EMPLOYMENT AGREEMENT April 3, 2002 John Sims 9310 Old Indian Hill Road Cincinnati, OH 45243 Dear John: I am pleased to confirm my verbal offer of employment for the position of Executive Vice President and General Counsel for Albertson's, Inc. (the "Company"). In this assignment, you will report directly to Larry Johnston, our CEO. Your employment with the Company will commence on March 25, 2002 (the "Effective Date"). Your initial base salary ("Base Salary") will be $400,000 per annum, payable in accordance with the Company's policies relating to salaried employees. Your Base Salary may be changed by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") in its sole discretion. Commencing with the fiscal year of the Company ("Fiscal Year") in which the Effective Date occurs, you will have the opportunity to earn an incentive for each Fiscal Year as recommended by the Compensation Committee in accordance with the Company's annual incentive plan applicable to the Company's senior officers (the "Annual Incentive Compensation Plan"). The amount of each annual incentive shall be set by the Compensation Committee and is currently equal to seventy percent (70%) of Base Salary for the fiscal year if the applicable "target" performance goals (as defined in the Annual Bonus Plan for such period) are met (the "Target Award"), except that the award cannot exceed one hundred fifty percent (150%) of Target Award. The criteria for determining the amount of any Target Award and the bases upon which such Target Award shall be payable shall be no less favorable to you than those used for other senior executives of the Company, such criteria and bases to be determined in the sole discretion of the Compensation Committee. As of the Effective Date, you will receive a $100,000 sign-on bonus. As of the Effective Date, you will be granted 40,000 shares of deferrable restricted stock units of the Company ("Restricted Stock Unit Award") in accordance with the form of grant used by the Company for grants made to its senior executive officers. Such grants shall vest at twenty percent (20%) per Mr. John Sims March 22, 2002 Page 2 year on the first, second, third, fourth, and fifth anniversaries of the Effective Date; provided in each case that you have been continuously employed as a senior executive with the Company from the Effective Date through the applicable vesting date, except as otherwise provided in this letter agreement and in such deferrable restricted stock unit agreement. To the extent that dividends are paid on Company common stock after the Effective Date and prior to the date that the Company common stock that is subject to a Restricted Stock Unit Award is issued to you, you shall be entitled to receive a cash payment in an amount equal to the dividends you would have been entitled to receive had you been the owner of such unissued shares on the date such dividends are paid. Such cash payment shall be made at the same time payment of dividends are made to other shareholders of Company common stock. As of the Effective Date, you will be granted an option ("Initial Option") to purchase an amount equal in value to three million dollars ($3,000,000) of common stock of the Company at a per share exercise price equal to the fair market value of the common stock of the Company on the Effective Date in accordance with the form of grant used by the Company for grants made to its senior executive officers; provided that the provisions of such grant shall not be inconsistent with, or provide for additional obligations upon you beyond, the terms of this letter agreement, and shall be subject to reasonable review by your counsel. Such grant will vest and become exercisable in annual installments at the rate of 20% of the total shares granted on each of the first, second, third, fourth, and fifth anniversaries of the Effective Date (each such installment, an "Initial Option Installment"); provided in each case that you have been continuously employed as a senior executive with the Company from the Effective Date through the applicable vesting date, except as otherwise provided in this letter agreement and in such stock option grant agreement. You will be eligible to receive additional grants of stock options to purchase shares of common stock of the Company from time to time as recommended by the Compensation Committee in its sole discretion in accordance with the Company's usual form of grant. The average option for an Executive Vice President is an amount equal in value to three million dollars ($3,000,000), the number of shares of which shall be equal to three million dollars ($3,000,000) divided by the closing New York Stock Exchange price of the Company's stock on the date of such grant (which would be approximately 100,000 shares based on a stock price of $30), and vesting at the rate of twenty percent (20%) of the total shares granted on each of the first, second, third, fourth, and fifth anniversaries of the date of such grant. Subsequent annual option awards otherwise shall be subject to the terms and conditions as generally apply to stock options granted to other senior executive officers who participate in the Company's equity incentive plans. The Company will maintain, for your benefit, officer liability insurance in a form it maintains for its other senior executive officers. You will be indemnified by the Company against liability as an officer of the Company and any subsidiary or affiliate of the Company to the same extent as the Company's Mr. John Sims March 22, 2002 Page 3 other senior officers. Your rights to such indemnification and insurance will continue so long as you may be subject to liability, whether or not your employment may have terminated prior thereto. You will be provided with four (4) weeks of paid vacation per year beginning with the 2002 calendar year and sick leave and paid holidays in accordance with the Company's standard policy regarding these benefits for senior executive officers of the Company. You will also be eligible to participate in each fringe, welfare, retirement and incentive programs adopted from time to time by the Company for the benefit of, and which generally apply to, its highest level of senior executive officers from time to time, including the Company's 401(k) and profit sharing plans, in accordance with the terms of such plans and programs. The Company will waive any otherwise applicable waiting periods for its medical benefits and life insurance plans. The Company will reimburse you in accordance with the Company's relocation policy provided under its "Full Service Move Program for Senior Executive Officers" (the "Relocation Program"), a copy of which has been provided to you previously, in connection with your relocation to Boise, Idaho. Pursuant to the Relocation Program, you will be entitled to a "gross-up" payment with respect to those reimbursement payments described in the Relocation Program in an amount such that, after payment of all applicable taxes on such reimbursement payments and "gross-up" payment, you retain an amount equal to the amount of such reimbursement payments. In the event of your termination of employment by the Company within two (2) years of the Effective Date for any reason other than cause, you shall be entitled to receive: (a) Any earned, but unpaid, Base Salary; (b) Any earned, but unpaid, bonus for any Fiscal Year that ended prior to the Fiscal Year in which the date of termination occurs; (c) The cash equivalent of any accrued, but unused, vacation; and (d) Any accrued employee benefits, subject to the terms of the applicable employee benefit plans. The Company will provide a severance program that will be effective for the first two (2) years of your employment. If your employment is terminated during the two years for any reason other than for cause, you will be eligible to receive a lump sum severance payment equal to $680,000 (commencement base salary plus target award). Mr. John Sims March 22, 2002 Page 4 Please understand that this offer is subject to the Company having completed to its satisfaction any background or reference checks, as it may deem appropriate. Further, this letter shall not be construed to create an employment contract of any kind, express or implied, and your employment status shall be and remain "employment at will"; provided, however, that upon termination you shall be entitled to the benefits as set forth in this letter. As a condition to receipt of any severance payments or continued benefits under this letter upon your termination for any reason, you will execute a release agreement reasonably satisfactory to the Company releasing any and all claims arising out of your employment with the Company. In the event of any conflict between the terms of this letter agreement and the terms of any other agreement, award or arrangement contemplated hereby, the terms of this letter agreement shall control. If the terms outlined above reflect your understanding of our offer and you accept employment based on these terms, please indicate your acceptance by signing the two original letters provided. Please keep one letter for your records and return the other to me. We are extremely pleased to have you join the Albertson's team, and I look forward to our association with you in this important role at Albertson's. Sincerely, /s/ Kathy Herbert Kathy Herbert Executive Vice President Human Resources Accepted and agreed to this 4th day of April, 2002 /s/ John R. Sims - --------------------------- John R. Sims EX-10 5 abs10k2001exhibit10-29.txt 10.29 - AMENDED AND RESTATED CREDIT AGREEMENT [364-Day Agreement] EXECUTION VERSION ================================================================================ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of March 13, 2002 among ALBERTSON'S, INC., BANK OF AMERICA, N.A. as Administrative Agent, BANK ONE, N.A., as Syndication Agent, UNION BANK OF CALIFORNIA, N.A. and WELLS FARGO BANK, N.A., as Documentation Agents and THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO Arranged by Banc of America Securities LLC, Sole Lead Arranger and Sole Book Manager ================================================================================ SFRLIBI\MMK\6146301.06 364-Day Credit Agreement AMENDED AND RESTATED CREDIT AGREEMENT This AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is entered into as of March 13, 2002, among Albertson's, Inc., a Delaware corporation (the "Company"), the several financial institutions from time to time party to this Agreement (individually, a "Bank" and, collectively, the "Banks"), Bank One, N.A., as syndication agent (in such capacity, the "Syndication Agent"), Union Bank of California, N.A. and Wells Fargo Bank, N.A., as documentation agents (in such capacity, the "Documentation Agents") and Bank of America, N.A., as administrative agent for itself and the Banks (in such capacity, the "Agent"). WHEREAS, the Company, the Banks party thereto and the Agent entered into a Credit Agreement dated as of March 22, 2000, as amended and restated as of March 15, 2001 (as in effect as of the date of this Agreement, the "Original Agreement") providing for a 364-day revolving credit facility; and WHEREAS, the parties hereto desire to amend the Original Agreement as set forth herein and to restate the Original Agreement in its entirety to read as set forth in the Original Agreement with the amendments specified below, subject to the terms and conditions of this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions; References; Interpretation. (a) Unless otherwise specifically defined herein, each term used herein (including in the Recitals hereof) which is defined in the Original Agreement shall have the meaning assigned to such term in the Original Agreement. (b) Each reference to "this Agreement", "hereof", "hereunder", "herein" and "hereby" and each other similar reference contained in the Original Agreement, and each reference to "the Credit Agreement" and each other similar reference in the other Loan Documents, shall from and after the Effective Date (as defined in subsection 2) refer to the Original Agreement as amended and restated hereby. (c) The rules of interpretation set forth in Section 1.02 of the Original Agreement shall be applicable to this Agreement. 2. Amendments to Original Agreement. Subject to the terms and conditions hereof, the Original Agreement is amended as follows, effective as of the date of satisfaction of the conditions set forth in Section 4 (the "Effective Date"): (a) Syndication Agent and Documentation Agents. References in the Original Agreement to the Syndication Agent, the Documentation Agent, the Senior Managing Agents and the Managing Agents shall be deemed to be references to the Syndication Agent and the Documentation Agents named herein. (b) Amendments to Article I of the Original Agreement. SFRLIB1\MMK\6146301.06 2. 364-Day Credit Agreement (1) The term "Notes" defined in the Original Agreement shall include from and after the Effective Date the Notes delivered under this Agreement. (2) The definition of "Closing Date" is amended in its entirety to provide as follows: "Closing Date" means the date occurring on or before March 13, 2002 on which all conditions precedent set forth in Section 4.01 are satisfied or waived by all Banks (or, in the case of subsection 4.01(e), waived by the Person entitled to receive such payment). (3) The definition of "Revolving Termination Date" is amended in its entirety to provide as follows: "Revolving Termination Date" means the earlier to occur of: a. March 12, 2003 as the same may be extended from time to time pursuant to Section 2.16; and b. The date on which the Commitments terminate in accordance with the provisions of this Agreement. (4) The defined term, "Company's 1998 Form 10-K" shall be deleted, and a new defined term, "Company's 2000 Form 10K" shall be added as follows: "Company's 2000 Form 10-K" means the Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2001, as filed with the SEC pursuant to the Exchange Act. Accordingly, each reference to "Company's 1998 Form 10-K" in the Original Agreement shall be deemed to refer to "Company's 2000 Form 10-K," and each reference to February 3, 2000 in Sections 1.01, 4.02 and 5.10 of the Original Agreement shall be deemed to refer to February 1, 2001. (5) The following new defined terms shall be added: "Consolidated Interest Expense" means as of any date of determination, for the Company and its Subsidiaries on a consolidated basis, all interest, premium payments, fees, charges and related expenses of the Company and its Subsidiaries in connection with borrowed money or in connection with the deferred purchase price of assets, to the extent treated as interest and net of interest income in accordance with GAAP, and the portion of rent expense with respect to capitalized lease obligations that is treated as interest in accordance with GAAP, but excluding amortization of discount and deferred debt expense as determined in accordance with GAAP. "Consolidated Rental Expense" means as of any date of determination, for the Company and its Subsidiaries on a consolidated basis the aggregate SFRLIB1\MMK\6146301.06 3. 364-Day Credit Agreement rental expense (including any contingent or percentage rental expense and any rent offsets, as applicable) of the Company and its Subsidiaries on a consolidated basis for such period in respect of all rent obligations under all operating leases for real or personal property minus any rental income of the Company and its Subsidiaries on a consolidated basis for such period (including licensee related income from licensees operating on the store premises of Company and its Subsidiaries). "EBITDAR" means, for any period, for the Company and its Subsidiaries on a consolidated basis, an amount equal to (i) the sum of (a) net earnings before One Time Charges for such period, (b) all income taxes for such period, (c) Consolidated Interest Expense for such period, (d) depreciation and amortization expense for such period, and (e) Consolidated Rental Expense for such period, minus (ii) cash One Time Charges for such period. "Fixed Charge Coverage Ratio" means, as of any date of determination, for the Company and its Subsidiaries on a consolidated basis, the ratio of (a) EBITDAR for the period of four fiscal quarters ending on such date to (b) Total Fixed Charges for the period of four fiscal quarters ending on such date. "Initial Closing Date" means March 30, 1999. "One Time Charges" means unusual material charges or credits against earnings which the Company separately discloses in the discussion of the "Results of Operations" (including but not limited to merger related charges, restructuring charges, gains or losses from the disposition of assets and accounting changes). "Total Fixed Charges" means, for any period, for the Company and its Subsidiaries on a consolidated basis, (a) Consolidated Interest Expense for such period and (b) Consolidated Rental Expense for such period. (c) Amendments to Article II of the Original Agreement. (1) The agreement of the Bid Loan Banks to accept requests for Bid Loans from the Company pursuant to Sections 2.05 and 2.06 of the Original Agreement shall be terminated effective as of the Closing Date. (2) The reference to "$1,250,000,000" in Section 2.17(a)(G) of the Original Agreement shall be deleted and "$625,000,000" shall be inserted in its place. (d) Amendments to Article V of the Original Agreement. (1) The two references to October 29, 1999 in Section 5.10(b) of the Original Agreement shall be deleted and replaced by "November 1, 2001" for each such reference. (2) Section 5.15 shall be deleted. (e) Amendments to Article VII of the Original Agreement. SFRLIB1\MMK\6146301.06 4. 364-Day Credit Agreement (1) The reference to "Closing Date" in Section 7.03(e) of the Original Agreement shall be deleted and "Initial Closing Date" shall be inserted in its place. (2) The Minimum Consolidated Tangible Net Worth amount of $2,100,000,000 set forth in Section 7.05 of the Original Agreement shall be deleted and the amount "$3,000,000,000" shall be inserted in its place. (3) A new Section 7.06 shall be added as follows: 7.06 Fixed Charge Coverage Ratio. The Company shall not permit its Fixed Charge Coverage Ratio as determined as of the last day of any fiscal quarter to be less than 2.70 to 1.00. (f) Amendment to Article VIII of the Original Agreement. Subsection 8.01(c) of the Original Agreement is amended in its entirety to provide as follows: (c) Specific Defaults. The Company shall fail to observe or perform any covenant contained in Sections 7.01 through 7.06, inclusive; or (g) Amendment to Schedule 2.01 of the Original Agreement. Schedule 2.01 of the Original Agreement is replaced in its entirety by Schedule 2.01 (Amended) of this Agreement. (h) Amendment to Schedule 10.02 of the Original Agreement. Schedule 10.02 of the Original Agreement is replaced in its entirety by Schedule 10.02 (Amended) of this Agreement. (i) Amendment to Exhibit C of the Original Agreement. Exhibit C of the Original Agreement is replaced in its entirety by Exhibit C (Amended) of this Agreement. 3. Representations and Warranties. The Company hereby represents and warrants to the Agent and the Banks as follows: (a) No Default or Event of Default has occurred and is continuing (or would result from the amendment of the Original Agreement contemplated hereby). (b) The execution, delivery and performance by the Company of this Agreement and the Original Agreement (as amended and restated by this Agreement) have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, or notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. (c) This Agreement, each Note delivered hereunder and the Original Agreement (as amended and restated by this Agreement) constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms. (d) All representations and warranties of the Company contained in the Original Agreement are true and correct (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date and except that this SFRLIB1\MMK\6146301.06 5. 364-Day Credit Agreement subsection (d) shall be deemed instead to refer to (x) the last day of the most recent quarter and year for which financial statements have then been delivered; (y) to the most recent Form 10-K and Forms 10-Q filed subsequently thereto by the Company with the SEC, in respect of the representations and warranties made in Section 5.05 of the Original Agreement; and (z) to the most recent Form 10-K filed by the Company with the SEC, in respect of the representations and warranties made in Section 5.10(a) of the Original Agreement). (e) There has occurred since February 1, 2001 (except as disclosed in any public filings since such date), no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect. (f) The Company is entering into this Agreement on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. (g) The Company's obligations under the Original Agreement and under the other Loan Documents are not subject to any defense, counterclaim, set-off, right of recoupment, abatement or other claim. 4. Conditions of Effectiveness. (a) The effectiveness of Section 2 of this Agreement shall be subject to the satisfaction of each of the following conditions precedent: (1) The Agent shall have received from the Company and each of the Banks (i) a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Agreement; and (ii) if requested by any Bank, a Note (or replacement Note) substantially in the form of Exhibit I to the Original Agreement. (2) The Agent shall have received evidence of payment by the Company of all fees, costs and expenses due and payable as of the Effective Date hereunder and under the Original Agreement, including any costs and expenses payable under Section 7(g) of this Agreement (including the Agent's Attorney Costs, to the extent invoiced on or prior to the Effective Date). (3) The Agent shall have received from the Company a copy of the resolutions passed by the board of directors of the Company, certified as of the Effective Date by the Secretary or an Assistant Secretary of such Person, authorizing the execution, delivery and performance of this Agreement, the Notes to be delivered hereunder and the Original Agreement (as amended and restated by this Agreement). (4) The Agent shall have received an opinion of Paul Rowan, Group Vice President, Business Law, and Acting General Counsel to the Company, dated the Effective Date and addressed to the Agent and the Banks, in substantially the form of Exhibit D to the Original Agreement. (5) The Agent shall have received a favorable opinion of Brobeck, Phleger & Harrison LLP, special counsel to the Agent, in substantially the form of the opinion delivered in connection with the Original Agreement, dated as of the Effective Date. SFRLIB1\MMK\6146301.06 6. 364-Day Credit Agreement (6) The Agent shall have received all other documents it or any Bank may reasonably request relating to any matters relevant hereto, all in form and substance satisfactory to the Agent and each Bank. (7) The representations and warranties in Section 3 of this Agreement shall be true and correct on and as of the Effective Date with the same effect as if made on and as of the Effective Date. (b) For purposes of determining compliance with the conditions specified in Section 4(a), each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document or other matter either sent, or made available for inspection, by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to such Bank. (c) From and after the Effective Date, the Original Agreement is amended as set forth herein and is restated in its entirety to read as set forth in the Original Agreement with the amendments specified herein, and all outstanding Notes under the Original Agreement shall be superseded and replaced by the Notes delivered under this Agreement. All such previously outstanding Notes will be deemed cancelled upon the occurrence of the Effective Date. The Original Agreement (as amended and restated by this Agreement) is hereby ratified and confirmed in all respects. (d) The Agent will notify the Company and the Banks of the occurrence of the Effective Date. 5. Fees. At Closing, the Company shall pay to the Agent for itself the fees set forth in the Fee Letter dated as of February 15, 2002 by and between the Company, the Lead Arranger and the Agent. 6. Certain Transitional Matters. On the Effective Date, the Banks party to the Original Agreement, as amended and restated hereby, shall be the Banks listed on the signature pages hereof and shall have the respective Commitments in the amounts set forth in Schedule 2.01 (Amended) of this Agreement. Without limiting the generality of the foregoing, on the Effective Date, any Banks party to the Original Agreement not listed on the signature pages hereof shall cease to be parties to the Original Agreement, and each new Bank listed on the signature pages hereof not previously party to the Original Agreement shall be and become a party to the Original Agreement and shall have all of the rights and be obligated to perform all of the obligations of a Bank thereunder with a Commitment in the amount set forth opposite such Bank's name in Schedule 2.01 (Amended) of this Agreement. 7. Miscellaneous. (a) The Company acknowledges and agrees that the execution and delivery by the Agent and the Banks of this Agreement shall not be deemed to create a course of dealing or an obligation to execute similar amendments or provide any waivers or other amendments under the same or similar circumstances in the future. SFRLIB1\MMK\6146301.06 7. 364-Day Credit Agreement (b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. (c) This Agreement shall be governed by and construed in accordance with the law of the State of New York provided that the Agent and the Banks shall retain all rights arising under Federal law. (d) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. (e) This Agreement contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein. This Agreement supersedes all prior drafts and communications with respect hereto. This Agreement may not be amended except in accordance with the provisions of Section 10.01 of the Original Agreement. (f) If any term or provision of this Agreement shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Agreement, the Original Agreement or the Loan Documents. (g) The Company agrees to pay or reimburse BofA (including in its capacity as Agent), upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred by BofA (including in its capacity as Agent) in connection with the development, preparation, negotiation, execution and delivery of this Agreement. [Signature pages follow] SFRLIB1\MMK\6146301.06 8. 364-Day Credit Agreement IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. ALBERTSON'S, INC. By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-1 364-Day Credit Agreement BANK OF AMERICA, N.A., as Administrative Agent and as a Bank By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-2 364-Day Credit Agreement BANK ONE, N.A. as Syndication Agent and as a Bank By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-3 364-Day Credit Agreement UNION BANK OF CALIFORNIA, N.A. as Documentation Agent and as a Bank By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-4 364-Day Credit Agreement WELLS FARGO BANK, N.A. as Documentation Agent and as a Bank By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-5 364-Day Credit Agreement BANK OF OKLAHOMA, N.A. By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-6 364-Day Credit Agreement FIRST UNION NATIONAL BANK By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-7 364-Day Credit Agreement KEYBANK NATIONAL ASSOCIATION By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-8 364-Day Credit Agreement MERRILL LYNCH BANK USA By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-9 364-Day Credit Agreement THE NORTHERN TRUST COMPANY By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-10 364-Day Credit Agreement TCF NATIONAL BANK By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-11 364-Day Credit Agreement UMB BANK, N.A. By: -------------------------------- Name: -------------------------------- Title: -------------------------------- S-12 364-Day Credit Agreement SCHEDULE 2.01 (AMENDED) COMMITMENTS ----------- AND PRO RATA SHARES -------------------
BANK COMMITMENT PRO RATA SHARE - ---------------------------------- --------------- --------------- BANK OF AMERICA, N.A. $ 70,000,000.00 20.000000000%* BANK ONE, N.A. 60,000,000.00 17.142857143%* UNION BANK OF CALIFORNIA, N.A. 50,000,000.00 14.285714286%* WELLS FARGO BANK, N.A. 50,000,000.00 14.285714286%* KEYBANK NATIONAL ASSOCIATION 25,000,000.00 7.142857143%* MERRILL LYNCH BANK USA 25,000,000.00 7.142857143%* THE NORTHERN TRUST COMPANY 25,000,000.00 7.142857143%* TCF NATIONAL BANK 15,000,000.00 4.285714286%* BANK OF OKLAHOMA, N.A. 10,000,000.00 2.857142857%* FIRST UNION NATIONAL BANK 10,000,000.00 2.857142857%* UMB BANK, N.A. 10,000,000.00 2.857142857%* --------------- --------------- TOTAL $350,000,000.00 100.000000000%*
* [9 DECIMAL PTS.] SFRLIB1\MMK\6146301.06 S-2.01 (Amended) -1 364-Day Credit Agreement SCHEDULE 10.02 (AMENDED) PAYMENT OFFICES; ADDRESSES FOR NOTICES; LENDING OFFICES ------------------------------------------------------- COMPANY - ------- Address for Notices: Albertson's, Inc. 250 Parkcenter Blvd. Box 20 Boise, Idaho 83726 Attention: Finance Department Telephone: (208) 395-6534 Facsimile: (208) 395-6631 BANK OF AMERICA, N.A., as Agent - --------------------- Notices for Borrowing, Conversions/Continuations, and Payments: Bank of America, N.A. Mail Code: CA4-706-05-09 Agency Services #5596 1850 Gateway Boulevard, 5th Floor Concord, California 94520 Attention: Jeff Khamsivone Telephone: (925) 675-8432 Facsimile: (888) 969-2451 Other Notices: Bank of America, N.A. Mail Code: CA5-701-05-19 Agency Services #5596 1455 Market Street, 5th Floor San Francisco, CA 94103-1339 Attention: Annie Cuenco Telephone: (415) 436-4008 Facsimile: (415) 503-5007 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -1 364-Day Credit Agreement with a copy to: Bank of America, N.A. Portfolio Management - Retail Group Mail Code: TX1-492-66-01 901 Main Street, 66th Floor Dallas, TX 75202 Attention: Daniel M. Killian, Managing Director Telephone: (214) 209-0978 Facsimile: (415) 209-0905 Agent's Payment Office: Bank of America, N.A. ABA No. 111000012 Attention: Agency Administrative Services Unit #5596 Reference: Albertson's, Inc. For credit to Acct. No. 37508-36479 BANK OF AMERICA, N.A., as a Bank - --------------------- Domestic and Offshore Lending Office: (Borrowing Notices, Notices of Conversion/Continuation and Payments) Bank of America, N.A. Mail Code: CA4-706-05-09 Agency Services #5596 1850 Gateway Boulevard, 5th Floor Concord, California 94520 Attention: Jeff Khamsivone Telephone: (925) 675-8432 Facsimile: (888) 969-2451 All other Notices: Bank of America, N.A. Portfolio Management - Retail Group Mail Code: TX1-492-66-01 901 Main Street, 66th Floor Dallas, TX 75202 Attention: Daniel M. Killian, Managing Director Telephone: (214) 209-0978 Facsimile: (415) 209-0905 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -2 364-Day Credit Agreement BANK ONE, N.A., as Syndication Agent and as a Bank - -------------- Domestic and Offshore Lending Office: Bank One, NA 1 Bank One Plaza IL1-0088 Chicago, Illinois 60670 Attention: April Yebd Telephone: (312) 732-4823 Facsimile: (312) 732-2715 Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Bank One, NA 1 Bank One Plaza IL1-0086 Chicago, Illinois 60670 Attention: Paul E. Rigby, Senior Vice President Telephone: (312) 732-6132 Facsimile: (312) 732-2715 UNION BANK OF CALIFORNIA, N.A., as Documentation Agent and as a Bank - ------------------------------ Domestic and Offshore Lending Office: Union Bank of California, N.A. Commercial Customer Service Unit 1980 Saturn Street Monterey Park, California 91755 Attention: Ruby Gonzales Telephone: (323) 720-7055 Facsimile: (323) 724-6198 Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Union Bank of California, N.A. 350 California Street, 6th Floor San Francisco, California 94104 Attention: Timothy P. Streb, Vice President Telephone: (415) 705-7021 Facsimile: (415) 705-5093 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -3 364-Day Credit Agreement WELLS FARGO BANK, N.A., as Documentation Agent and as a Bank - ---------------------- Domestic and Offshore Lending Office: Wells Fargo Bank, N.A. 201 Third Street MAC A0187-081 San Francisco, California 94103 Attention: Ginnie Padgett Telephone: (415) 477-5374 Facsimile: (415) 512-1943 Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Wells Fargo Bank, N.A. 999 Third Avenue, 11th Floor MAC P6540-11E Seattle, Washington 98104 Attention: Steven J. Andersen Telephone: (206) 292-3666 Facsimile: (206) 292-3595 Secondary Contact: Wells Fargo Bank, N.A. 1300 SW 5th Ave., 7th Floor MAC P6101-076 Portland, OR 97201 Attention: Meggie A. Chichioco Telephone: (503) 886-2215 Facsimile: (503) 886-2211 BANK OF OKLAHOMA, N.A. - ---------------------- Domestic and Offshore Lending Office: Bank of Oklahoma, N.A. One Williams Center 84 Tulsa, Oklahoma 74172 Attention: Sharon Shannon Telephone: (918) 588-6335 Facsimile: (918) 280-3368 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -4 364-Day Credit Agreement Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Bank of Oklahoma, N.A. P.O. Box 2300 Tulsa, Oklahoma 74192 Attention: Jane Faulkenberry, Senior Vice President Telephone: (918) 588-6272 Facsimile: (918) 280-3368 FIRST UNION NATIONAL BANK - ------------------------- Domestic and Offshore Lending Office: First Union National Bank 201 So. College St. CP-17 Charlotte, NC 28288 Attention: Todd Tucker Telephone: (704) 383-0905 Facsimile: (704) 383-7999 Notices (other than Borrowing Notice and Notices of Conversion/Continuation): First Union National Bank 1339 Chestnut Street Philadelphia, PA 19107 Attention: Anthony Braxton, Director Telephone: (267) 321-6606 Facsimile: (267) 321-6700 KEYBANK NATIONAL ASSOCIATION - ---------------------------- Domestic and Offshore Lending Office: KeyBank National Association 431 E. Parkcenter Blvd. Boise, ID 83706 Attention: Western Loan Services, Specialty Services Telephone: (800) 297-5518 Facsimile: (800) 297-5495 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -5 364-Day Credit Agreement Notices (other than Borrowing Notices and Notices of Conversion/Continuation): KeyBank National Association 601 108th Avenue, N.E., 5th Floor Mailstop: WA-31-18-0512 Bellevue, WA 98004 Attention: Keven D. Smith, Portfolio Manager Telephone: (425) 709-4579 Facsimile: (425) 709-4587 MERRILL LYNCH BANK USA - ---------------------- Domestic and Offshore Lending Office: Merrill Lynch Bank USA 15 W. South Temple Suite 300 Salt Lake City, UT 84101 Attention: Frank Stepan Telephone: (801) 526-8316 Facsimile: (801) 359-4667 Notices (other than Borrowing Notices and Notices of Conversion/Continuation): Merrill Lynch Bank USA 15 W. South Temple, Suite 300 Salt Lake City, UT 84101 Attention: Butch Alder, VP - Corp. Lending Officer Telephone: (801) 526-8324 Facsimile: (801) 531-7470 THE NORTHERN TRUST COMPANY - -------------------------- Domestic and Offshore Lending Office: The Northern Trust Company 50 South LaSalle Chicago, Illinois 60675 Attention: Linda Honda Telephone: (312) 444-3532 Facsimile: (312) 630-1566 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -6 364-Day Credit Agreement Notices (other than Borrowing Notices and Notices of Conversion/Continuation): The Northern Trust Company 50 South LaSalle Chicago, Illinois 60675 Attention: David J. Mitchell Telephone: (312) 444-5033 Facsimile: (312) 444-5055 TCF NATIONAL BANK - ----------------- Domestic and Offshore Lending Office: TCF National Bank 500 W. Brown Deer Road P.O. Box 170995 Milwaukee, WI 53217-8096 Attention: Sue Binder Telephone: (414) 351-8657 Facsimile: (414) 351-8694 Notices (other than Borrowing Notices and Notices of Conversion/Continuation): TCF National Bank 500 W. Brown Deer Road P.O. Box 170995 Milwaukee, WI 53217-8096 Attention: Russell P. McMinn, Senior Vice President Telephone: (414) 351-8383 Facsimile: (414) 351-8680 UMB BANK, N.A. - -------------- Domestic and Offshore Lending Office: UMB Bank, N.A. 928 Grand Boulevard Kansas City, Missouri 64106 Attention: Vaughnda Ritchie Telephone: (816) 860-7019 Facsimile: (816) 860-7796 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -7 364-Day Credit Agreement Notices (other than Borrowing Notices and Notices of Conversion/Continuation): UMB Bank, N.A. 1010 Grand Boulevard Kansas City, Missouri 64106 Attention: David A. Proffitt, Senior Vice President Telephone: (816) 860-7935 Facsimile: (816) 860-7143 SFRLIB1\MMK\6146301.06 S-10.02 (Amended) -8 364-Day Credit Agreement EXHIBIT C (AMENDED) FORM OF COMPLIANCE CERTIFICATE ------------------------------ ALBERTSON'S, INC. Financial Statements Date: ______________ Reference is made to that certain Amended and Restated Credit Agreement dated as of March 13, 2002 (as extended, renewed, amended or restated from time to time, the "364-Day Credit Agreement"), among Albertson's, Inc. (the "Company"), the several financial institutions from time to time party thereto (the "Banks") and Bank of America, N.A., as Agent (in such capacity, the "Agent"). Unless otherwise defined herein, capitalized terms used herein have the respective meanings assigned to them in the 364-Day Credit Agreement. The undersigned Responsible Officer of the Company hereby certifies as of the date hereof that he/she is the [_______________] of the Company, and that, as such, he/she is authorized to execute and deliver this Certificate to the Banks and the Agent on the behalf of the Company and its consolidated Subsidiaries, and that: [Use the following paragraph if this Certificate is delivered in connection with the financial statements required by subsection 6.01(a) of the 364-Day Credit Agreement.] 1. Attached hereto are true and correct copies of the audited consolidated balance sheet of the Company and its Consolidated Subsidiaries as at the end of the fiscal year ended _______________ and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the SEC, accompanied by the unqualified opinion of the Independent Auditor, which opinion (a) shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years and (b) is not qualified as to (i) going concern, or (ii) any limitation in the scope of audit. or [Use the following paragraph if this Certificate is delivered in connection with the financial statements required by subsection 6.01(b) of the 364-Day Credit Agreement.] 1. Attached hereto are true and correct copies of the unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of the fiscal quarter ended _________ and the related consolidated SFRLIB1\MMK\6146301.06 C-1 364-Day Credit Agreement statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, which are complete and accurate in all material respects and fairly present, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position, the results of operations and the cash flows of the Company and the Consolidated Subsidiaries. 2. The undersigned has reviewed and is familiar with the terms of the 364-Day Credit Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Company and its Subsidiaries during the accounting period covered by the attached financial statements. 3. The Company and its Subsidiaries, during such period, have observed, performed or satisfied all of the covenants and other agreements, and satisfied every condition in the 364-Day Credit Agreement to be observed, performed or satisfied by the Company and its Subsidiaries, and the undersigned has no knowledge of any Default or Event of Default. 4. The financial covenant analyses and information set forth on Schedule 1 attached hereto are true and accurate on and as of the date of this Certificate. IN WITNESS WHEREOF, the undersigned has executed this Certificate as the ____________ of the Company as of ______________, _______. ALBERTSON'S, INC. By: ------------------------------------- Title: ---------------------------------- SFRLIB1\MMK\6146301.06 C-2 364-Day Credit Agreement SCHEDULE 1 to the Compliance Certificate ALBERTSON'S, INC. 364-DAY CREDIT AGREEMENT DATED AS OF MARCH 13, 2002 Dated _________________ For the fiscal quarter ended __________ (in thousands) Consolidated Tangible Net Worth Calculation: - ------------------------------------------- Common stock $___________ Capital in excess ___________ Retained earnings ___________ Stockholders' equity ___________ Plus: Deferred investment tax credits ___________ Minus: Intangible assets: (specify) ___________ Plus: CTNW Adjustments, if any: (specify) ___________ Consolidated Tangible Net Worth $___________ Section 7.05: Consolidated Tangible Net Worth shall be not less than $3.0 billion $___________
SFRLIB1\MMK\6146301.06 C-1 364-Day Credit Agreement Fixed Charge Coverage Ratio Calculation: - --------------------------------------- Net Earnings before One Time Charges $___________ Income Taxes ___________ Consolidated Interest Expense ___________ Depreciation & Amortization ___________ Consolidated Rental Expense ___________ Minus: Cash One Time Charges $___________ EBITDAR $___________ Consolidated Interest Expense $___________ Consolidated Rental Expense ___________ Total Fixed Charges $___________ Fixed Charge Coverage ___________ Section 7.06: Fixed Charge Coverage Ratio shall be not less than 2.70 to 1.00. ___________
SFRLIB1\MMK\6146301.06 C-2 364-Day Credit Agreement EX-13 6 abs10k2001exhibit13.txt ANNUAL REPORT FOR YEAR ENDED 12-31-02 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in millions, except per share data) The New Albertson's A new leadership team has been assembled to take Albertson's into the future. This team has identified many actions and programs with which to drive the Company's future competitiveness, profitability and return on invested capital. One of the first actions taken was to identify and communicate internally and externally five strategic imperatives that serve as a guide and a filter for all future actions. These five imperatives, together with the major actions taken to date, follow: 1) Aggressive Cost and Process Control. Each main category of expense, including labor is rigorously monitored by a member of executive management. A Board approved restructuring plan that included a Voluntary Separation Plan and Involuntary Severance Plan resulted in a 20 percent reduction in corporate and administrative staff above store level. Through the continued focus on expenses, overhead and store processes the Company expects to achieve $250 in annualized expense reductions by the second quarter of Fiscal 2002 and an additional $250 by mid 2003 for a total of $500 in targeted annualized cost reductions. 2) Maximize Return on Invested Capital. The Company has implemented a formal process to review and measure all significant investments in corporate assets. The goal of the Company is to hold a number 1 or 2 market share in an area, or have a plan of action which provides a reasonable expectation of achieving this goal in order to continue to maintain an investment in that area. A thorough review was completed at both the individual asset or store level and at the market area level. As a result of the review, the Company identified 165 underperforming stores and on July 18, 2001, announced its commitment to close and dispose the identified stores. The Company closed 80 of these stores as of January 31, 2002, and expects to sell or close the remaining 85 stores by mid 2002. In addition, the Company formulated plans to accelerate the disposal of surplus property through an auction process for owned properties and aggressive lease termination negotiations for leased properties. As a result of the initial restructuring, the number of division offices was reduced from 19 to 15. During the fourth quarter of 2001, Albertson's sold 80 New England Osco drugstores. Additionally, the Company also made the decision to exit Miami, Florida and the Springfield/Joplin, Missouri markets. On March 13, 2002, the Company announced a second phase in the asset rationalization process. As a result, the Company will completely exit four underperforming markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas. These market exits will occur through a combination of store closures and store sales and involve a total of 95 stores. In connection with this action, the number of division offices will be further reduced from 15 to 11 and the Tulsa, Oklahoma and Houston, Texas distribution facilities will be sold or closed. The Company recently announced the sale of its Tulsa, Oklahoma distribution facility to Fleming Companies, Inc. This sales agreement also includes a long-term supply arrangement under which Fleming will provide procurement and distribution services for Albertson's Oklahoma and Nebraska stores. Albertson's, Inc. 2001 Annual Report 1 The 2002 capital expenditure program will shift to more remodels and replacement stores. Also, investments in the Company's technology infrastructure both in the stores and in the back office will be a strong focus of the 2002 capital spending program. 3) Customer-focused Approach to Growth. The Company intends to re-direct non-value added dollars saved from the expense and process control programs back into the marketplace in order to impact customers and drive growth. Albertson's focus is on the following programs that are intended to drive customer loyalty and profitable sales growth. A company-wide "Service First, Second to None" program is reinvigorating the employees' focus on customer service. A "Focus on Fresh" initiative is improving the delivery of fresh foods throughout the Company's fresh departments. The Company's Jewel-Osco stores in Chicago, Illinois have a decade of experience operating a unique dual brand food and drugstore format. This unique format was rolled out to the Tucson, Arizona and Reno, Nevada markets during Fiscal 2001 and will continue to be introduced to additional markets during Fiscal 2002. During the fourth quarter of 2001, the Company expanded its loyalty card program to the Dallas/Fort Worth, Texas area. Albertson's plans to roll out loyalty card programs to additional markets during Fiscal 2002. Albertson's private label product program will be enhanced during 2002, with a goal of developing a premier program and increasing its sales penetration in this category. 4) Company-wide Focus on Technology. The Company has embraced a company-wide focus on technology with the goal of becoming an industry leader. The Company plans to commit a greater share of its capital expenditures to information and process technology over the next three to five years to serve customers and improve operating efficiencies. The Company has recently rolled out its Albertsons.com on-line shopping service to additional markets. With these expansions, Albertsons.com is now available to more than 700 zip codes in California, Oregon and Washington. 5) Energized Associates. Albertson's will strive to become the employer of choice in the food and drugstore industry. The Company plans to reduce bureaucracy and layers of management, build stronger communication systems, improve training programs and implement new performance-based reward programs. To instill a sense of ownership at the store level, the Company announced that as of November 1, 2001, all store directors and pharmacy managers are now eligible for stock options. 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 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. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, income taxes, assets held for sale, impairment of long-lived assets, self-insurance, restructuring, benefit costs, contingencies, litigation and unearned income. The Company bases its estimates on historical experience and on various other assumptions and factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company, based on its ongoing review, will make adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described above. Albertson's, Inc. 2001 Annual Report 2 The Company believes the following critical accounting policies are important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. SELF-INSURANCE The Company is primarily self-insured for workers' compensation, automobile and general liability costs. The Company records its self-insurance liability, determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Any actuarial projection of ultimate losses is subject to a high degree of variability. Sources of this variability are numerous and include, but are not limited to, future economic conditions, court decisions and legislative actions. The Company's workers' compensation future funding estimates anticipate no change in the benefit structure. Statutory changes could have a significant impact on future claim costs. The Company's workers' compensation liabilities are from claims occurring in various states. Individual state workers' compensation regulations have received a tremendous amount of attention from the state's politicians, insurers, employers and providers, as well as the public in general. Recent years have seen an escalation in the number of legislative reforms, judicial rulings and social phenomena affecting this business. The changes in a state's political and economic environment increase the variability in the unpaid claim liabilities. ASSET IMPAIRMENTS The Company accounted for the impairment of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121 and, beginning in 2002, will account for it in accordance with SFAS No. 144. For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal specialists. Estimates of future cash flows and expected sales prices are judgments based upon the Company's experience and knowledge of local operations and cash flows that are projected for several years into the future. These estimates can be significantly impacted by changes in real estate market conditions, the economic environment, capital spending decisions and inflation. For properties to be closed that are under long-term lease agreements, the present value of any remaining liability under the lease, discounted using risk-free rates and net of expected sublease recovery, is recognized as a liability and expensed. If the real estate and leasing markets change, the assumptions regarding sublease recovery could significantly impact the Company's recorded liability. RESTRUCTURING The Company records restructuring charge liabilities in accordance with Emerging Issues Task Force (EITF) Issue No. 94-3. The estimates of future liabilities may change, requiring the recording of additional closure costs or the reduction of liabilities already recorded. Changes in estimates occur when exit costs are more or less costly than originally estimated. PENSION COSTS Many of the Company's associates are covered by noncontributory defined benefit pension plans. The Company accounts for these costs in accordance with SFAS No. 87. That statement requires the Company to calculate pension expense and liabilities using actuarial assumptions, including a discount rate and long-term returns on assets. Actual returns on plan assets in excess of return assumptions have, in past years, kept pension expense and cash contributions to the plans at modest levels. Recent weaker market performance may significantly increase pension expense and cash contributions in the future unless asset returns again exceed the assumptions used. Changes in the interest rates used to determine the discount rate may also cause volatility in pension expense and cash contributions. Albertson's, Inc. 2001 Annual Report 3 Results of Operations Sales for 2001 were $37,931 compared to $36,762 in 2000 and $37,478 in 1999 (a 53-week year). 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 - ------------------------------------------------------ -------------------------------- ------------------------------- 2001 2000 1999 2001 VS. 2000 2000 VS. 1999 - ------------------------------------------------------ ---------- ---------- ---------- --------------- --------------- Sales 100.00 100.00 100.00 3.2 (1.9) Gross profit 28.41 28.38 27.52 3.3 1.2 Selling, general and administrative expenses 23.90 23.79 23.06 3.6 1.2 Restructuring charges and other 1.23 - - n.m. n.m. Gain on sale of New England Osco drugstores (0.14) - - n.m. n.m. Merger-related (credits) charges (0.04) 0.07 1.06 n.m. n.m. Litigation settlement charge - - 0.10 n.m. n.m. Operating profit 3.46 4.52 3.31 (21.0) 34.0 Interest expense, net 1.14 1.05 0.94 12.1 9.2 Earnings before income taxes and extraordinary item 2.30 3.46 2.40 (31.5) 41.6 Net earnings 1.32 2.08 1.08 (34.4) 89.2 n.m. - not meaningful
Increases in sales are primarily attributable to the continued development of new stores and identical and comparable store sales increases. During 2001 the Company opened or acquired 144 stores, remodeled 103 stores and closed or sold 235 stores (including the sale of 80 New England Osco drugstores and the closure of 80 stores due to the Company's restructuring plan). Net retail square footage was 98.1 million square feet as of the end of Fiscal 2001 and 2002. Adjusting for the effect of the sale of 80 New England Osco drugstores and 80 restructuring closures, net retail square footage would have increased by 4.0% during 2001. During 2000, net retail square footage increased by 2.5%. Identical store sales, stores that have been in operation for two full fiscal years, increased 0.8% in 2001 and 0.3% in 2000. Comparable store sales, which include replacement stores, increased 1.3% in 2001 and 0.6% in 2000. Identical and comparable store sales continued to increase through higher average ticket sales per customer. Management estimates that overall inflation in products the Company sells was flat in 2001, there was overall deflation of 0.4% in 2000 and overall inflation of 0.2% in 1999. In addition to store development, the Company has increased sales through its continued implementation of best practices across the Company and its customer-focused approach to growth. These programs include: the "Focus on Fresh" initiative; a renewed focus on customer service through the "Service First, Second to None" program; implementation of the preferred loyalty card program; dual branded combination stores; and expansion of the on-line shopping service. Other solutions include neighborhood marketing, targeted advertising and exciting new and remodeled stores. Gross profit, as a percent to sales, remained relatively flat between 2001 and 2000. The increase in 2000 over 1999 resulted primarily from an improved sales mix of partially prepared, value-added products. Gross profit improvements in 2000 were also realized through the continued utilization of the Company's distribution facilities and increased buying efficiencies. The Merger has created buying synergies and margin improvements from the implementation of best practices across the Company. The pre-tax LIFO adjustment, (as a percent to sales), decreased gross profit by $10 (0.03%) in 2001, increased gross profit by $23 (0.06%) in 2000 and decreased gross profit by $30 (0.08%) in 1999. The net pre-tax LIFO charge for 2001 was $5, comprised of $10 of charges recorded in cost of sales, $3 of credits recorded with gain on sale of New England Osco drugstores and $2 of credits recorded with restructuring and other. Albertson's, Inc. 2001 Annual Report 4 Cost of sales include vendor allowances and advertising expense related to the Company's buying and merchandising activities. Vendor allowances consist primarily of promotional allowances, advertising allowances and, to a lesser extent, slotting allowances. The Company utilizes vendor allowances to fund pricing promotions, advertising expense and slotting expense. Gross advertising expense (excluding advertising allowances) totaled $537 in 2001, $550 in 2000 and $654 in 1999. Selling, general and administrative (SG&A) expenses as a percent to sales increased in 2001, primarily due to workers' compensation costs and benefit expenses caused by sharply higher health care costs. The 2001 increase in SG&A expenses was partially offset by reductions in direct labor costs. The increase in 2000 over 1999 was primarily due to increased salary and related benefit costs resulting from the Company's initiatives to increase sales, increased depreciation expense associated with the Company's expansion program and larger losses from asset impairment and dispositions. Other income, for the year ended January 31, 2002, includes $16 of charges for a decrease in company-owned life insurance, and $8 of credits for stock received from the demutualization of two insurance companies. The Company's effective income tax rate from continuing operations for 2001 was 42.6%, as compared to 40.0% for 2000 and 52.5% for 1999. The increase for 2001 over 2000, is due to lower earnings before income taxes, non-deductible restructuring expenses and company-owned life insurance. The effective income tax rate for 1999 was impacted by the non-deductible portion of merger-related costs. Restructuring and Other Non-Routine Items Restructuring On July 17, 2001, the Company's Board of Directors approved a restructuring plan designed to improve future financial results and to drive future competitiveness. The plan includes certain exit costs and employee termination benefits, as described below, that will be incurred within approximately one year of the Board approval date.
ACTION STATUS ------ ------ Reduction in administrative and corporate overhead Substantially complete Closing of 165 underperforming retail stores 80 closed as of year end Consolidation and elimination of four division offices Completed Process streamlining Ongoing
As a result of the restructuring plan, the Company recorded pre-tax charges of $509 ($314 after tax or $0.77 per diluted share) made up of $468 restructuring and other, and $41 of period costs (including $35 of inventory write-down recorded in cost of sales) for the 52 weeks ended January 31, 2002. The following table presents the pre-tax charges, incurred by category of expenditure, and related restructuring reserves included in the Company's Consolidated Balance Sheets:
EMPLOYEE LEASE SEVERAMCE ASSET TERMINATION COSTS IMPAIRMENTS COSTS OTHER TOTAL ------------ -------------- -------------- ---------- ---------- Additions $ 44 $396 $ 57 $ 12 $509 Utilization 33 396 7 12 448 ------------ -------------- -------------- ---------- ---------- Balance at January 31, 2002 $ 11 $ - $ 50 $ - $ 61 ============ ============== ============== ========== ==========
Employee severance costs consist of severance pay, health care continuation costs and outplacement service costs for employees who participated in the Company's Voluntary Separation Plan and for employees who were terminated or notified of termination under the Company's Involuntary Severance Plan. In accordance with the restructuring plan, 1,341 managerial and administrative positions above store level have been identified for termination. As of January 31, 2002, 995 positions have been terminated. The remaining terminations will occur as originally planned. Albertson's, Inc. 2001 Annual Report 5 As part of the Company's restructuring plan, all stores were reviewed utilizing a methodology based on return on invested capital. Based on this review, the Company identified and committed to close and dispose 165 underperforming stores in 25 states. All stores identified for closure were evaluated for asset impairment by comparing the fair value, less selling cost, to the recorded book value. Fair value used in the impairment calculation was based on third party offers or market value for comparable properties. For stores under operating lease agreements, the present values of any remaining liability under the lease, net of sublease recoveries, or lease termination costs were expensed. As of January 31, 2002, 80 stores have been closed. Assets to be disposed of include land, buildings, equipment, leasehold improvements, and inventory for stores and division offices that were included in the restructuring discussed above. These assets are reported as assets held for sale in the Company's Consolidated Balance Sheets. Other costs include various expenses related to the Company's decision to exit certain insignificant businesses and the consolidation of the division offices. The restructuring plan also included actions to accelerate the disposal of surplus property which included terminating leases through negotiated buyouts and selling properties through auctions. During 2001, a $51 pre-tax adjustment was recorded in selling, general and administrative expenses and included in the closed store reserves for the additional charges expected to be incurred as a result of these actions. Merger-Related Charges (Credits) Results of operations include $6 of merger-related credits ($4 after tax) for fiscal year 2001, $151 of merger-related charges ($93 after tax) for fiscal year 2000, and $683 of merger-related charges ($529 after tax) for fiscal year 1999. The following table presents the pre-tax charges (credits) incurred by category of expenditure and merger-related accruals included in the Company's Consolidated Balance Sheets:
ASSET INTEGRATION IMPAIRMENTS SEVERANCE AND OTHER TOTAL ----------------- -------------- ---------------- -------------- Additions $ 264 $ 124 $ 343 $ 731 Adjustments (22) (7) (19) (48) Utilization (242) (93) (315) (650) ----------------- -------------- ---------------- -------------- Balance at February 3, 2000 - 24 9 33 Additions 36 21 97 154 Adjustments (3) (3) Utilization (36) (35) (100) (171) ----------------- -------------- ---------------- -------------- Balance at February 1, 2001 - 7 6 13 Additions 8 2 5 15 Adjustments (20) (1) (1) (22) Utilization 12 (3) (10) (1) ----------------- -------------- ---------------- -------------- Balance at January 31, 2002 $ - $ 5 $ - $ 5 ================= ============== ================ ==============
Albertson's, Inc. 2001 Annual Report 6 Asset impairments include the loss on disposal of duplicate and abandoned facilities, including administrative offices, intangibles and information technology equipment which were abandoned by the Company. Operations for the year ended January 31, 2002, included $15 of pre-tax credits associated with the reversal of previous impairment charges related to the sale of the American Stores' Tower in Salt Lake City, Utah. The Company closed on the sale of this property on May 15, 2001, thus completing the asset dispositions resulting from the Merger. Severance consists of retention costs for certain individuals and termination benefit liabilities for 633 individuals who have already been terminated. 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 include such costs as advertising, labor associated with system conversions and training and relocation costs. Also included are transaction and financing costs which consist primarily of professional fees paid for investment banking, legal, accounting, printing and regulatory filing fees. Financing costs also include the extraordinary loss on extinguishment of debt. In connection with the Merger, the Company recorded net pre-tax charges through the first two quarters of 1999 of $47 related to Limited Stock Appreciation Rights. This is included in the Integration and Other category above. Other Non-Routine Items The Company recorded a $54 pre-tax one-time gain during the fourth quarter of 2001 resulting from the sale of 80 New England Osco drugstores. The Company recorded, in selling, general and administrative expenses, a $36 pre-tax one-time gain during the fourth quarter of 2001 resulting from an amendment to the Company's long-term disability plan. The amendment changed the salary continuation feature from a cumulative benefit based on years of service, to a set percentage of salary benefit. The Company recorded a $20 pre-tax one-time charge during first quarter of 2000 and included it in selling, general and administrative expenses to reflect liabilities related to certain previously assigned leases and subleases to tenants who are in bankruptcy. The Company recorded a $37 pre-tax one-time charge during the third quarter of 1999 resulting from an agreement reached to settle eight multi-state cases combined in the United States District Court in Boise, Idaho, which raised various issues including "off-the-clock" work allegations. Under the 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 one-time charge is the Company's current estimate of the total monetary liability, including attorney fees, for all eight cases. Albertson's, Inc. 2001 Annual Report 7 Summary of Restructuring and Other Non-Routine Items Due to the significance of the restructuring charges, merger-related charges (credits), and other non-routine items and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these charges and credits:
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED JANUARY 31, 2002 FEBRUARY 1, 2001 FEBRUARY 3, 2000 - ----------------------------- ----------------------------------------------- --------------------- ---------------------- AS REPORTED ONE-TIME W/O ONE-TIME W/O ONE-TIME W/O ONE-TIME - ----------------------------- ------------ ------------ --------------------- --------------------- ----------------------- Sales $37,931 $37,931 100.00% $36,762 100.00% $37,478 100.00% Cost of sales 27,155 $ (35) 27,120 71.50 26,292 71.52 27,122 72.37 - ----------------------------- ------------ ------------ ------------ -------- ------------ -------- ------------ -------- Gross profit 10,776 35 10,811 28.50 10,470 28.48 10,356 27.63 Selling, general and administrative expenses 9,064 (40) 9,024 23.79 8,637 23.49 8,427 22.49 Restructuring charges and other 468 (468) Gain on sale of New England Osco drugstores (54) 54 Merger-related credits (15) 15 - ----------------------------- ------------ ------------ ------------ -------- ------------ -------- ------------ -------- Operating profit 1,313 474 1,787 4.71 1,833 4.99 1,929 5.15 Interest expense, net (432) (432) (1.14) (385) (1.05) (352) (0.94) Other (expense) income, net (8) (8) (.02) (3) (0.01) 12 0.03 - ----------------------------- ------------ ------------ ------------ -------- ------------ -------- ------------ -------- Earnings before income taxes 873 474 1,347 3.55 1,445 3.93 1,589 4.24 Income taxes 372 180 552 1.46 575 1.56 634 1.69 - ----------------------------- ------------ ------------ ------------ -------- ------------ -------- ------------ -------- Net earnings $ 501 $ 294 $ 795 2.09% $ 870 2.37% $ 955 2.55% ============================= ============ ============ ============ ======== ============ ======== ============ ========
The costs of the Company's restructuring plan and integrating Albertson's and ASC have resulted in significant nonrecurring charges and incremental expenses. These costs had significant effects on the results of operations of the Company for the past three years. During 2001, the Company recognized $560 ($345 after tax) of charges ($442 noncash) associated with the restructuring plan announced on July 18, 2001. In connection with the restructuring plan announced on March 13, 2002, the Company expects to incur nonrecurring pre-tax charges of approximately $580, of which, $510 will be noncash. Nonrecurring charges and expenses of implementing integration actions, related to the Merger, were originally estimated to total $700 after income tax benefits. On an after-tax basis, and subsequent to the first quarter 1999, the Company has incurred $634 of merger-related costs and does not expect to exceed its original estimate. Liquidity and Capital Resources Cash provided by operating activities during 2001 was $2,092, compared to $1,791 in 2000 and $1,418 in 1999. Cash provided by operating activities in Fiscal 2001 was primarily impacted by noncash restructuring charges when compared to Fiscal 2000. Cash provided by operating activities in Fiscal 2000 was primarily impacted by higher earnings when compared to Fiscal 1999. Also, driving the change is the decrease in inventories offset by the decrease in other current liabilities, mostly tax related. The Company's financing activities for 2001 included new long-term borrowings of $623, a net decrease of commercial paper and bank line borrowing of $1,153, and dividend payments of $309 (which represents 38.8% of 2001 net earnings without restructuring and other non-routine items). The Board of Directors, at its March 2002 meeting, maintained the regular quarterly cash dividend of $0.19 per share, for an effective annual rate of $0.76 per share. 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 no commercial paper or bank line borrowings outstanding at January 31, 2002, as compared to $1,153 outstanding as of February 1, 2001. Albertson's, Inc. 2001 Annual Report 8 In support of the Company's commercial paper program, the Company had three credit facilities totaling $1,750 during Fiscal 2001. The first agreement for $100 expired in February 2002 and was renewed for an additional year to expire in February 2003. The second agreement for $700 expired in March 2002 and was replaced, based on the Company's revised liquidity requirements, by a $350, 364-day credit agreement. The third agreement for $950 expires in March 2005. All of the credit agreements contain an option which would allow the Company, upon due notice, to convert any outstanding amounts at the expiration dates to term loans. The agreements in place at year end also 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 January 31, 2002, the Company's consolidated tangible net worth, as defined, was approximately $4,200. Upon the execution of the $350, 364-day credit agreement, the consolidated tangible net worth threshold increased to $3,000, and an additional covenant was added requiring a fixed charge coverage of at least 2.7 times. As defined in the new agreement, the fixed charge coverage ratio based on 2001 results was 4.2 times. No borrowings were outstanding under the credit facilities as of January 31, 2002, or February 1, 2001. The Company filed a shelf registration statement with the Securities and Exchange Commission (SEC), which became effective in February 2001 (the "2001 Registration Statement"), to authorize the issuance of up to $3,000 in debt securities. The Company intends to use the net proceeds of any securities sold pursuant to the 2001 Registration Statement for retirement of debt and general corporate purposes, including the potential purchase of outstanding shares of Albertson's common stock. During Fiscal 2001, the Company issued $600 of term notes under the 2001 Registration Statement. Proceeds were used primarily to repay borrowings under the Company's commercial paper program. As of January 31, 2002, $2,400 of debt securities remain available for issuance under the 2001 Registration Statement. During Fiscal 2000 and Fiscal 1999, the Company issued $1,200 and $1,300, respectively of term notes under a prior shelf registration statement filed with the SEC in 1999. Proceeds were used primarily to repay borrowings under the Company's commercial paper program. Following the Merger, the Company consolidated several of the commercial paper, bank lines and other financing arrangements. The consolidation of debt included the repayment of outstanding amounts under ASC's revolving credit facilities and other debt containing change of control provisions and the tender for, or open market purchases of, certain higher coupon debt. As a result, certain debt was extinguished during 1999. The Board of Directors adopted a program on December 3, 2001, authorizing, at management's discretion, the Company to purchase and retire up to $500 of the Company's common stock beginning December 6, 2001 through December 31, 2002. No purchases were made during Fiscal 2001. During Fiscal 2000, the Company purchased and retired 18.7 million shares of its common stock at a total cost of $451, or an average price of $24.15 per share, under a Board authorization which expired on December 6, 2001. The Company's operating results continue to enhance its financial position and ability to continue its planned expansion program. Cash flows from operations and available borrowings are adequate to support currently planned business operations, acquisitions and capital expenditures. Free cash flow (defined as cash generated by the business after capital expenditures - net of proceeds from disposals, and dividend payments but before acquisitions, divestitures and share purchases) was $584 and $(106) in 2001 and 2000, respectively. The Company has short-term financing capacity in the form of commercial paper up to $1,400 and long-term capacity under the 2001 Registration Statement of $2,400. Albertson's, Inc. 2001 Annual Report 9 As of January 31, 2002, the Company's credit ratings were as follows:
S & P MOODY'S FITCH - -------------------- ----------------- ----------------- ----------------- Long-term debt BBB+ Baa1 -- Short-term debt A2 P2 F2
The Company believes that a downgrade in the Company's current credit ratings will have no material effect on the fixed-term debt portfolio. There are no payment acceleration provisions in the Company's fixed-term debt portfolio related to a downgrade in the Company's credit ratings. The Company also believes that a downgrade in the Company's credit ratings would not adversely affect its ability to refinance any current maturities of fixed-term debt. Any adverse changes to the Company's credit ratings could limit the Company's access to the commercial paper market and increase the cost of debt, but would not affect the Company's ability to borrow funds under the Company's credit facilities. Contractual Obligations and Commercial Commitments Albertson's has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements, such as debt and lease agreements. The following table represents the scheduled maturities of the Company's long-term contractual obligations as of January 31, 2002:
LESS THAN 1 YEAR YEARS 1-3 YEARS 4-5 AFTER 5 YEARS TOTAL ------------------- ------------- ------------- ----------------- ------------ Long-term debt $ 123 $ 610 $ 205 $ 4,245 $ 5,183 Capital lease obligations (1) 45 82 74 467 668 Operating leases (1) 333 650 559 2,264 3,806 Contracts for purchase of property and construction of buildings 233 233 Other (2) 6 3 1 10 - ----------------------------------------- ------------------- ------------- ------------- ----------------- ------------ Total contractual cash obligations $ 740 $1,345 $ 839 $ 6,976 $ 9,900 ========================================= =================== ============= ============= ================= ============
(1) Represents the minimum rents payable and includes leases associated with closed stores accrued for under the Company's restructuring and closed store reserves. Amounts are not offset by expected sublease income. (2) Other includes transportation contracts with third parties. The Company has entered into energy supply agreements which have terms through 2006. These agreements include certain provisions that could potentially require the Company to pay additional amounts if the actual usage is less than the minimum usage per the contract documents or if the contracts were terminated. This number is extremely difficult to estimate due to the uncertainty of future energy usage and change in the market value of energy, therefore no amounts have been included above. The Company is contingently liable as a guarantor of certain leases that were assigned to third parties in connection with various store closures and dispositions. 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. Albertson's commercial commitments as of January 31, 2002, representing possible commitments triggered by potential future events, are as follows:
TOTAL YEAR 1 YEARS 2-3 YEARS 4-5 AFTER 5 YEARS ----------- ----------- ------------ ------------ -------------- Available lines of credit $1,750 $ 800 $ - $ 950 $ - Letters of credit - standby 40 40 Letters of credit - commercial 13 13 - ----------------------------------------- ----------- ----------- ------------ ------------ -------------- Potential commercial commitments $1,803 $ 853 $ - $ 950 $ - ========================================= =========== =========== ============ ============ ==============
Albertson's, Inc. 2001 Annual Report 10 The following leverage ratios demonstrate the Company's levels of long-term financing as of the indicated year end:
JANUARY 31, 2002 FEBRUARY 1, 2001 - ------------------------------------------------------------------- ------------------ ------------------ Long-term debt and capitalized lease obligations to capital (1) 47.5% 51.1% Long-term debt and capitalized lease obligations to total assets 33.5 37.0 (1) Capital includes long-term debt, capitalized lease obligations and stockholders' equity
Letters of Credit The Company had outstanding Letters of Credit of $53 as of January 31, 2002, all of which were issued under separate bilateral agreements with multiple financial institutions. Of the $53 outstanding at year end, $40 were standby letters of credit covering primarily workers' compensation or performance obligations. The remaining $13 were commercial letters of credit supporting the Company's merchandise import program. The Company paid issuance fees that varied, depending on type, up to 0.50% of the outstanding balance of the letter of credit. Off Balance Sheet Arrangements Albertson's, Inc. has no significant investments that are accounted for under the equity method in accordance with accounting principles generally accepted in the United States of America. Investments that are accounted for under the equity method have no liabilities associated with them that would be considered material to Albertson's. Capital Expenditures The Company continues to retain ownership of real estate when possible. As of January 31, 2002, the Company held title to the land and buildings of 42% of the Company's stores and held title to the buildings on leased land of an additional 9% of the Company's stores. The Company also holds title to the land and buildings of most of its administrative offices and distribution facilities. The Company is committed to keeping its stores up to date. In the last three years, the Company has opened or remodeled 630 stores representing 28% of the Company's retail square footage as of January 31, 2002. The following summary of historical capital expenditures includes capital leases, stores acquired in business and asset acquisitions, assets acquired with related debt and the estimated fair value of property financed by operating leases:
2001 2000 1999 - -------------------------------------------------------------------- ----------------- ----------------- ----------------- New and acquired stores $ 874 $ 1,066 $ 1,126 Remodels 348 423 296 Retail replacement equipment, technology and other 247 170 248 Distribution facilities and equipment 64 174 198 - -------------------------------------------------------------------- ----------------- ----------------- ----------------- Total capital expenditures 1,533 1,833 1,868 Estimated fair value of property financed by operating leases 153 99 230 - -------------------------------------------------------------------- ----------------- ----------------- ----------------- $ 1,686 $ 1,932 $ 2,098 ==================================================================== ================= ================= =================
The Company's strong financial position provides the flexibility for the Company to grow through its store development program and future acquisitions. Albertson's, Inc. 2001 Annual Report 11 Quantitative and Qualitative Disclosures about Market Risk The Company is exposed to certain market risks that are inherent in the Company's financial instruments, which arise from transactions entered into in the normal course of business. From time to time, the Company enters into certain derivative transactions allowed by the Company's risk management policy. The Company does not enter into derivative financial instruments for trading purposes. The Company uses derivatives primarily as cash flow hedges to set interest rates for forecasted debt issuances, such as interest rate locks. The Company is subject to interest rate risk on its fixed interest rate debt obligations. Commercial paper borrowings do not give rise to significant interest rate risk because these borrowings have maturities of less than three months. Generally, 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 Company has no foreign exchange exposure and as of January 31, 2002, has no outstanding derivative transactions. There have been no material changes in the primary risk exposures or management of the risks since the prior year. The Company expects to continue to manage risks in accordance with the current policy. The table below provides information about the Company's debt obligations that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates:
2002 2003 2004 2005 2006 THERE-AFTER TOTAL FAIR VALUE - ---------------------------- ----------- ----------- ----------- ----------- ---------- ------------- ----------- ------------ Fixed rate debt obligations $ 123 $ 106 $ 504 $ 202 $ 3 $ 4,245 $ 5,183 $ 5,516 Weighted average interest rate 9.8% 7.2% 6.6% 7.4% 7.8% 7.5% 7.5%
Related Party Transactions Albertson's 2001, 2000, and 1999 transactions with related parties are not considered material. See "Related Party Transactions" in the Notes to Consolidated Financial Statements. Recent Accounting Standards Effective February 2, 2001, the Company adopted SFAS No. 133 as amended, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivative financial instruments to be recognized as either assets or liabilities in the Consolidated Balance Sheet and measured at fair value. The cumulative effect of adoption of SFAS No. 133 as it relates to interest rate locks was a $5 gain (net of taxes). Losses on contracts settled during 2001 amounted to $1 (net of taxes). These amounts are reported in other comprehensive income in the accompanying Consolidated Stockholders' Equity. The amounts reclassified from other comprehensive income to interest expense for 2001 and the expected reclassifications for 2002 are insignificant. Albertson's, Inc. 2001 Annual Report 12 In June 2001 the Financial Accounting Standards Board (FASB) issued two new pronouncements SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which is effective for acquisitions initiated after June 30, 2001, prohibits the use of the pooling-of-interest method for business combinations and establishes the accounting and financial reporting requirements for business combinations accounted for by the purchase method. Adoption of this standard had no effect on the financial statements of the Company. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. SFAS No. 142 became effective for Albertson's on February 1, 2002. In accordance with the provisions of SFAS No. 142, the Company will complete the analysis of goodwill and other intangible assets for impairment no later than August 1, 2002, and will record any required impairment by the end of 2002. The Company is currently evaluating the impact of the new accounting standard on existing goodwill and other intangible assets. The ultimate impact of the new accounting standard has yet to be determined. The net book value of goodwill was $1,468 and $1,560 as of January 31, 2002 and February 1, 2001, respectively. Goodwill amortization expense of $56, $57, and $58 was recorded in 2001, 2000, and 1999, respectively, and will no longer be recorded in subsequent fiscal years. In July 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become effective for Albertson's on January 31, 2003. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is currently analyzing the effect that this standard will have on its financial statements, but believes it will not have a significant effect on the financial statements of the Company. In August 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 which replaces SFAS No. 121 and APB No. 30, became effective for Albertson's on February 1, 2002. This Statement retains the requirements to (i) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (ii) measure an impairment loss as the difference between the carrying amount and fair value of the asset. This Statement removes goodwill from its scope, eliminating the requirement to allocate goodwill to long-lived assets to be tested for impairment. This Statement requires that a long-lived asset to be abandoned, exchanged for a similar productive asset or distributed to owners in a spin-off, be considered held and used until it is disposed of. This Statement requires the accounting model for long-lived assets to be disposed of by sale, be used for all long-lived assets, whether previously held and used or newly acquired. Discontinued operations are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. This Statement broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The Company is currently analyzing the effect that this standard will have on its financial statements and believes it will require additional disclosures but will not have a significant effect on the operating results of the Company. EITF Issue Nos. 00-14, "Accounting for Certain Sales Incentives;" 00-22, "Accounting for Points and Other Time-Based or Volume-Based Sales and Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future;" and 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" address the appropriate accounting for certain vendor contracts and loyalty programs. The Company's accounting procedures are in compliance with the accounting requirements called for by these Issues. Albertson's, Inc. 2001 Annual Report 13 Environmental The Company has identified environmental contamination sites related primarily to underground petroleum storage tanks and groundwater 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 in 2001, 2000 or 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 using various 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 interest rates, changes in consumer spending, actions taken by competitors, particularly those intended to improve their market share, 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 cost and stability of energy sources, the Company's ability to recruit, retain and develop employees, its ability to develop new stores or complete remodels as rapidly as planned, its ability to implement new technology successfully, the stability of product costs, the Company's ability to integrate the operations of acquired or merged companies, the Company's ability to execute its restructuring plans, and the Company's ability to achieve its five strategic imperatives. 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. Albertson's, Inc. 2001 Annual Report 14 CONSOLIDATED EARNINGS
52 WEEKS 52 WEEKS 53 WEEKS JANUARY 31, FEBRUARY 1, FEBRUARY 3, (IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2000 - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Sales $37,931 $ 36,762 $ 37,478 Cost of sales 27,155 26,329 27,164 - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Gross profit 10,776 10,433 10,314 Selling, general and administrative expenses 9,064 8,747 8,641 Restructuring charges and other 468 Gain on sale of New England Osco drugstores (54) Merger-related (credits) charges (15) 24 396 Litigation settlement charge 37 - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Operating profit 1,313 1,662 1,240 Other (expenses) income: Interest, net (432) (385) (353) Other, net (8) (3) 12 - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Earnings before income taxes and extraordinary item 873 1,274 899 Income taxes 372 509 472 - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Earnings before extraordinary item 501 765 427 Extraordinary loss on extinguishment of debt, net of tax benefit of $7 (23) - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Net Earnings $501 $ 765 $ 404 ======================================================================== =============== ================ ================== Basic Earnings Per Share: Earnings before extraordinary item $1.23 $ 1.83 $ 1.01 Extraordinary item (.05) - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Net Earnings $1.23 $ 1.83 $ 0.96 ======================================================================== =============== ================ ================== Diluted Earnings Per Share: Earnings before extraordinary item $ 1.23 $ 1.83 $ 1.00 Extraordinary item (.05) - ------------------------------------------------------------------------ --------------- ---------------- ------------------ Net Earnings $ 1.23 $ 1.83 $ 0.95 ======================================================================== =============== ================ ================== Weighted Average Common Shares Outstanding: Basic 406 418 422 Diluted 408 418 423 See Notes to Consolidated Financial Statements
Albertson's, Inc. 2001 Annual Report 15 CONSOLIDATED BALANCE SHEETS
JANUARY 31, FEBRUARY 1, (IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 - ------------------------------------------------------------------------------------ ------------------ ----------------- ASSETS Current Assets: Cash and cash equivalents $ 85 $ 57 Accounts and notes receivable, net 681 547 Inventories 3,196 3,364 Prepaid expenses 149 154 Assets held for sale 326 114 Deferred income taxes 172 70 Refundable income taxes 36 - ------------------------------------------------------------------------------------ ------------------ ----------------- Total Current Assets 4,609 4,342 Land, Buildings and Equipment, net 9,282 9,558 Goodwill and Intangibles, net 1,639 1,727 Other Assets 437 451 - ------------------------------------------------------------------------------------ ------------------ ----------------- Total Assets $ 15,967 $ 16,078 ==================================================================================== ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,093 $ 2,163 Salaries and related liabilities 584 561 Taxes other than income taxes 153 141 Income taxes 51 Self-insurance 198 218 Unearned income 88 112 Restructuring reserves 61 Merger-related reserves 5 13 Current portion of capitalized lease obligations 14 20 Current maturities of long-term debt 123 62 Other 212 105 - ------------------------------------------------------------------------------------ ------------------ ----------------- Total Current Liabilities 3,582 3,395 Long-Term Debt 5,060 5,715 Capitalized Lease Obligations 276 227 Self-Insurance 307 216 Deferred Income Taxes 71 116 Other Long-Term Liabilities and Deferred Credits 756 715 Commitments and Contingencies Stockholders' Equity: Preferred stock - $1.00 par value; authorized - 10 shares; designated - 3 shares of Series A Junior Participating; issued - none Common stock - $1.00 par value; authorized - 1,200 shares; issued - 407 shares and 405 shares, respectively 407 405 Capital in excess of par 94 48 Accumulated other comprehensive loss (19) Retained earnings 5,433 5,241 - ------------------------------------------------------------------------------------ ------------------ ----------------- Total Stockholders' Equity 5,915 5,694 - ------------------------------------------------------------------------------------ ------------------ ----------------- Total Liabilities and Stockholders' Equity $ 15,967 $ 16,078 ==================================================================================== ================== ================= See Notes to Consolidated Financial Statements
Albertson's, Inc. 2001 Annual Report 16 CONSOLIDATED CASH FLOWS
52 WEEKS 52 WEEKS 53 WEEKS JANUARY 31, FEBRUARY 1, FEBRUARY 3, (IN MILLIONS) 2002 2001 2000 - ------------------------------------------------------------------------ --------------- ---------------- --------------- Cash Flows From Operating Activities: Net earnings $ 501 $ 765 $ 404 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 970 944 853 Goodwill amortization 56 57 58 Noncash merger-related (credits) charges (13) 21 272 Restructuring and other noncash charges 442 Gain on sale of New England Osco drugstores (54) Loss (gain) on asset sales 22 (4) (2) Net deferred income taxes and other (106) 14 (53) Decrease (increase) in cash surrender value of company-owned life insurance 17 4 (12) Changes in operating assets and liabilities: Receivables and prepaid expenses (104) 3 46 Inventories 119 118 (233) Accounts payable (70) (12) (9) Other current liabilities 287 (175) 108 Self-insurance 71 24 (79) Unearned income 3 19 76 Other long-term liabilities (49) 13 (11) - ------------------------------------------------------------------------ --------------- ---------------- --------------- Net cash provided by operating activities 2,092 1,791 1,418 - ------------------------------------------------------------------------ --------------- ---------------- --------------- Cash Flows From Investing Activities: Capital expenditures (1,487) (1,771) (1,837) Proceeds from disposal of land, buildings and equipment 288 189 83 Decrease (increase) in other assets 40 33 (122) Proceeds from divestitures and duplicate assets 393 - ------------------------------------------------------------------------ --------------- ---------------- --------------- Net cash used in investing activities (1,159) (1,549) (1,483) - ------------------------------------------------------------------------ --------------- ---------------- --------------- Cash Flows From Financing Activities: Proceeds from long-term borrowings 623 1,222 1,841 Payments on long-term borrowings (89) (417) (970) Net commercial paper activity and bank borrowings (1,153) (475) (430) Proceeds from stock options exercised 23 6 32 Cash dividends paid (309) (315) (265) Stock purchases and retirements (451) Tax payments for options exercised (14) - ------------------------------------------------------------------------ --------------- ---------------- --------------- Net cash (used in) provided by financing activities (905) (430) 194 - ------------------------------------------------------------------------ --------------- ---------------- --------------- Net Increase (Decrease) in Cash and Cash Equivalents 28 (188) 129 - ------------------------------------------------------------------------ --------------- ---------------- --------------- Cash and Cash Equivalents at Beginning of Year 57 245 116 - ------------------------------------------------------------------------ --------------- ---------------- --------------- Cash and Cash Equivalents at End of Year $ 85 $ 57 $ 245 ======================================================================== =============== ================ =============== See Notes to Consolidated Financial Statements
Albertson's, Inc. 2001 Annual Report 17 CONSOLIDATED STOCKHOLDERS' EQUITY
ACCUMULATED CAPITAL IN OTHER TOTAL COMMON STOCK EXCESS COMPREHENSIVE RETAINED TREASURY STOCKHOLDER'S COMPREHENSIVE (DOLLARS IN MILLIONS) $1.00 PAR VALUE OF PAR VALUE (LOSS) INCOME EARNINGS STOCK EQUITY INCOME - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 28, 1999 $ 435 $ 579 $ - $ 5,027 $(519) $ 5,522 $801 ==== Net earnings 404 404 $404 Issuance of 131,099 shares of stock for stock options and awards (1) 4 3 Merger-related stock option charge 47 47 Exercise of stock options, including tax benefits 1 30 31 Treasury and fractional share retirements (14) (496) 510 - Shares issued for limited stock appreciation rights 2 (16) (14) Stock purchase incentive plan 2 5 7 Dividends (298) (298) - ----------------------------------- --------------- ------------ ---------------- ---------- ---------- ------------- -------------- Balance at February 3, 2000 424 145 - 5,133 - 5,702 $404 ==== Net earnings 765 765 $765 Deferred tax adjustment related to stock options (12) (12) Exercise of stock options, including tax benefits 6 6 Stock purchases and retirements - 18,659,200 shares (19) (92) (340) (451) Deferred stock unit plan 1 1 Dividends (317) (317) - ----------------------------------- --------------- ------------ ---------------- ---------- ---------- ------------- -------------- Balance at February 1, 2001 405 48 - 5,241 - 5,694 $765 ==== Net earnings 501 501 $501 Exercise of stock options, including tax benefits 2 26 28 Deferred stock unit plan 19 19 Directors' stock plan 1 1 Dividends (309) (309) Minimum pension liability, adjustment (net of tax of $16) (23) (23) (23) Interest rate locks: Cumulative effect of adoption of new accounting principle (net of tax of $3) 5 5 5 Loss on settled contracts (net of tax of $1) (1) (1) (1) - ----------------------------------- --------------- ------------ ---------------- ---------- ---------- ------------- -------------- Balance at January 31, 2002 $ 407 $ 94 $(19) $ 5,433 $ - $ 5,915 $482 =================================== =============== ============ ================ ========== ========== ============= ============== See Notes to Consolidated Financial Statements
Albertson's, Inc. 2001 Annual Report 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per share data) Business Description and Basis of Presentation 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. On June 23, 1999, Albertson's, Inc. ("Albertson's" or the "Company") and American Stores Company ("ASC") consummated a merger. Based on sales, the Company is one of the largest retail food and drug chains in the world. As of January 31, 2002, the Company operated 2,421 stores in 33 Western, Midwestern, Eastern and Southern states. Retail operations are supported by 19 major Company distribution operations, strategically located in the Company's operating markets. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include all entities in which the Company has control, including its majority-owned subsidiaries. All material intercompany transactions and balances have been eliminated. 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. Unless the context otherwise indicates, reference to a fiscal year of the Company refers to the calendar year in which such fiscal year commences. USE OF ESTIMATES 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. Some of these estimates require difficult, subjective and/or complex judgments about matters that are inherently uncertain, and as a result, actual results could differ from these estimates. 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. SEGMENT INFORMATION The Company operates retail food and drug stores. These operations are within a single operating segment and all are within the United States. DERIVATIVES From time to time, the Company enters into certain derivative transactions allowed by the Company's risk management policy. The Company does not enter into derivative financial instruments for trading purposes. The Company uses derivatives primarily as cash flow hedges to set interest rates for forecasted debt issuances, such as interest rate locks. These contracts are with major financial institutions and are very short-term in nature. The gain or loss on interest rate locks is deferred in other comprehensive income and recognized over the life of the related debt instrument as an adjustment to interest expense. RECLASSIFICATIONS Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year. 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. 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. Albertson's, Inc. 2001 Annual Report 19 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 10 years; software-3 to 5 years; leasehold improvements-10 to 25 years; intangibles-3 to 10 years; and capitalized leases-20 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. Assets under 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 and lease liabilities are amortized over the lease term using the straight-line method. 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. The practice of amortizing goodwill will be discontinued in Fiscal 2002 with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 (see "Recent Accounting Standards"). Goodwill is principally from the acquisition of Lucky Stores, Inc. in 1988. Accumulated amortization amounted to $708 and $660 in 2001 and 2000, respectively. COMPANY-OWNED LIFE INSURANCE The Company has purchased life insurance policies to cover its obligations under certain deferred compensation plans for officers, key employees and directors. Cash surrender values of these policies are adjusted for fluctuations in the market value of underlying investments. The cash surrender value is adjusted each reporting period and any gain or loss is included with other income (expense) in the Company's Consolidated Earnings. IMPAIRMENT OF LONG-LIVED ASSETS AND CLOSED STORE RESERVES The Company accounted for the impairment of long-lived assets in accordance with SFAS No. 121 and, beginning in 2002, will account for it in accordance with SFAS No. 144. For assets to be held and used, the Company tests for impairment using undiscounted cash flows and calculates the amount of impairment using discounted cash flows. For assets held for sale, impairment is recognized based on the excess of remaining book value over expected recovery value. The recovery value is the fair value as determined by independent quotes or expected sales prices developed by internal specialists. For properties to be closed that are under long-term lease agreements, the present value of any remaining liability under the lease, discounted using risk-free rates and net of expected sublease recovery, is recognized as a liability and expensed. SELF-INSURANCE The Company is primarily self-insured for property loss, workers' compensation and general liability costs. Self-insurance liabilities are determined actuarially based on claims filed and estimates for claims incurred but not reported. The majority of these liabilities are not discounted. DEFERRED RENT The Company recognizes rent holidays and rent escalations on a straight-line basis over the term of the lease. The deferred rent amount is included in other long-term liabilities and deferred credits on the Company's Consolidated Balance Sheets. REVENUE RECOGNITION Revenue is recognized at the point of sale for retail sales. Vendor allowances and credits that relate to the Company's buying and merchandising activities are recorded in cost of sales and are recognized as earned according to the underlying agreement. Two forms of agreement exist, one based on volume and the other based on time. Vendor allowances consist primarily of promotional allowances, advertising allowances and, to a lesser extent, slotting allowances. The Company utilizes vendor allowances to fund pricing promotions, advertising expense and slotting expense. The discount earned by customers by using their preferred loyalty card is recorded by the Company as a reduction to sales price. The only income recognized from any in-store rental arrangement is the lease amount received based on space occupied. STORE OPENING COSTS Noncapital expenditures incurred in opening new stores or remodeling existing stores are expensed in the year in which they are incurred. Albertson's, Inc. 2001 Annual Report 20 ADVERTISING Advertising costs incurred to produce media advertising for major new campaigns are expensed in the year in which the advertising first takes place. Other advertising costs are expensed when incurred. Cooperative advertising credits from vendors are recorded in the period in which the related expense is incurred. Gross advertising expenses of $537, $550 and $654, excluding cooperative advertising money received from vendors, were included with cost of sales in the Company's Consolidated Earnings for 2001, 2000 and 1999, respectively. STOCK-BASED COMPENSATION SFAS 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 ("APB") No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost of stock-based compensation 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 during the year in accordance with SFAS No. 109. Deferred income taxes represent future net tax effects resulting from temporary differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to be settled or realized. The major temporary differences and their net effect are shown in the "Income Taxes" note to the Consolidated Financial Statements. EARNINGS PER SHARE (EPS) Basic EPS is computed by dividing consolidated net earnings by the weighted average number of common shares outstanding. Diluted EPS is computed by dividing consolidated net earnings by the sum of the weighted average number of common shares outstanding and the weighted average number of potential common shares outstanding. Potential common shares consist primarily of outstanding options under the Company's stock option plans. COMPREHENSIVE INCOME The Company reports comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income refers to revenues, expenses, gains and losses that are not included in net earnings but rather are recorded directly in stockholders' equity. Items of comprehensive income other than net earnings were insignificant in 2000 and 1999. Closed Store Reserves When executive management approves and commits to closing or relocating a store, the transaction is accounted for in accordance with the Company's policy (see "Summary of Significant Accounting Policies"). The following table shows the pre-tax expense, and related reserves, for closed stores and other surplus property:
LEASE ASSET LIABILITIES IMPAIRMENTS TOTAL - --------------------------------------------- ------------------ ------------------ ----------------- Balance at January 29, 1999 $ 23 $ - $ 23 - --------------------------------------------- ------------------ ------------------ ----------------- Additions 5 6 11 Adjustments 1 (2) (1) Utilization (4) (4) (8) - --------------------------------------------- ------------------ ------------------ ----------------- Balance at February 3, 2000 25 - 25 - --------------------------------------------- ------------------ ------------------ ----------------- Additions 7 40 47 Adjustments (2) (2) Utilization (8) (40) (48) - --------------------------------------------- ------------------ ------------------ ----------------- Balance at February 1, 2001 22 - 22 - --------------------------------------------- ------------------ ------------------ ----------------- Additions 4 16 20 Adjustments (2) (2) (4) Adjustments - Restructuring 23 28 51 Utilization (8) (42) (50) - --------------------------------------------- ------------------ ------------------ ----------------- Balance at January 31, 2002 $ 39 $ - $ 39 ============================================= ================== ================== =================
Albertson's, Inc. 2001 Annual Report 21 The restructuring plan (discussed in "Restructuring Plan") included actions to accelerate the disposal of surplus property that included terminating leases through negotiated buyouts and selling owned properties through auctions. The $51 pre-tax restructuring adjustments are the additional charges expected to be incurred as a result of these actions. These charges are included in selling, general and administrative expenses in the Company's Consolidated Earnings. $30 of the reserve balance as of January 31, 2002 is included with accounts payable and the remaining $9 is included with other liabilities and deferred credits in the Company's Consolidated Balance Sheets. For the period ended February 1, 2001, $5 of the reserve balance was included with accounts payable with the remaining $17 included with other liabilities and deferred credits. The related assets are recorded at their estimated fair value, less selling costs, and reported as assets held for sale in the Company's Consolidated Balance Sheets. Restructuring Plan On July 17, 2001, the Company's Board of Directors approved a restructuring plan designed to improve future financial results and to drive future competitiveness. The plan includes certain exit costs and employee termination benefits, as described below, that will be incurred within approximately one year of the Board approval date.
ACTION STATUS ------ ------ Reduction in administrative and corporate overhead Substantially complete Closing of 165 underperforming retail stores 80 closed as of year end Consolidation and elimination of four division offices Completed Process streamlining Ongoing
As a result of the restructuring plan, the Company recorded pre-tax charges of $509 ($314 after tax or $0.77 per diluted share) made up of $468 restructuring and other and $41 of period costs (including $35 of inventory write-down recorded in cost of sales) for the 52 weeks ended January 31, 2002. The following table presents the pre-tax charges, incurred by category of expenditure, and related restructuring reserve accruals included in the Company's Consolidated Balance Sheets:
EMPLOYEE LEASE SEVERANCE ASSET TERMINATION COSTS IMPAIRMENTS COSTS OTHER TOTAL ------------ -------------- -------------- ---------- ---------- Additions $ 44 $ 396 $ 57 $ 12 $509 Utilization 33 396 7 12 448 ------------ -------------- -------------- ---------- ---------- Balance at January 31, 2002 $ 11 $ - $ 50 $ - $ 61 ============ ============== ============== ========== ==========
Employee severance costs consist of severance pay, health care continuation costs, and outplacement service costs for employees who participated in the Company's Voluntary Separation Plan and for employees who were terminated or notified of termination under the Company's Involuntary Severance Plan. In accordance with the restructuring plan, 1,341 managerial and administrative positions above store level have been identified for termination. As of January 31, 2002, 995 positions have been terminated. As part of the Company's restructuring plan, all stores were reviewed utilizing a methodology based on return on invested capital. Based on this review, the Company identified and committed to close and dispose 165 underperforming stores in 25 states. All stores identified for closure were evaluated for lease liability or asset impairment, including goodwill, in accordance with the Company's policy (see "Summary of Significant Accounting Policies"). As of January 31, 2002, 80 stores have been closed. Assets to be disposed of include land, buildings, equipment, leasehold improvements and inventory for stores and division offices that were included in the restructuring discussed above. These assets are recorded at their estimated fair value, less selling costs, and reported as assets held for sale in the Company's Consolidated Balance Sheets. Other costs include various expenses related to the Company's decision to exit certain insignificant businesses and the consolidation of the division offices. Merger, Divestitures and Related Costs On June 23, 1999, Albertson's, Inc. and American Stores Company consummated a merger with the issuance of 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. Albertson's, Inc. 2001 Annual Report 22 Results of operations include $6 of merger-related credits ($4 after tax) for fiscal year 2001, $151 of merger-related charges ($93 after tax) for fiscal year 2000, and $683 of merger-related charges ($529 after tax) for fiscal year 1999. The following table presents the pre-tax charges (credits) incurred by category of expenditure and merger-related accruals included in the Company's Consolidated Balance Sheets:
ASSET INTEGRATION IMPAIRMENTS SEVERANCE AND OTHER TOTAL ----------------- -------------- ---------------- -------------- Additions $ 264 $ 124 $ 343 $ 731 Adjustments (22) (7) (19) (48) Utilization (242) (93) (315) (650) ----------------- -------------- ---------------- -------------- Balance at February 3, 2000 - 24 9 33 Additions 36 21 97 154 Adjustments (3) (3) Utilization (36) (35) (100) (171) ----------------- -------------- ---------------- -------------- Balance at February 1, 2001 - 7 6 13 Additions 8 2 5 15 Adjustments (20) (1) (1) (22) Utilization 12 (3) (10) (1) ----------------- -------------- ---------------- -------------- Balance at January 31, 2002 $ - $ 5 $ - $ 5 ================= ============== ================ ==============
Asset impairments include the loss on disposal of duplicate and abandoned facilities, including administrative offices, intangibles and information technology equipment which were abandoned by the Company. Operations for the year ended January 31, 2002, included $15 of pre-tax credits associated with the reversal of previous impairment charges related to the sale of the American Stores' Tower in Salt Lake City, Utah. The Company closed on the sale of this property on May 15, 2001, thus completing the asset dispositions resulting from the Merger. Severance consists of retention costs for certain individuals and termination benefit liabilities for 633 individuals who have already been terminated. 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 include such costs as advertising, labor associated with system conversions and training and relocation costs. Also included are transaction and financing costs which consist primarily of professional fees paid for investment banking, legal, accounting, printing and regulatory filing fees. Financing costs also include the extraordinary loss on extinguishment of debt. As discussed in the "Stock Options and Stock Awards" note, the Company recorded net pre-tax charges through the first two quarters of 1999 of $47 related to Limited Stock Appreciation Rights ("LSARs"). These charges are included in the integration and other category above. The actual change of control price used to measure the value of these exercised LSARs became determinable at the date the Merger was consummated. The costs of integrating the two companies have resulted in significant nonrecurring charges and incremental expenses. These costs had a significant effect on both 2000 and 1999 results of operations of the Company. Nonrecurring charges and expenses of implementing integration actions were originally estimated to total $700, after income tax benefits. On an after-tax basis, and subsequent to first quarter 1999, the Company has incurred $634 of merger-related costs and does not expect to exceed its original estimate. Supplemental Cash Flow Information Selected cash payments and noncash activities were as follows:
2001 2000 1999 - -------------------------------------------------------------------- ------------- -------------- ------------ Cash payments for income taxes $ 403 $ 549 $ 520 Cash payments for interest, net of amounts capitalized 296 373 413 Noncash investing and financing activities: Capitalized lease obligations incurred 79 62 24 Capitalized lease obligations terminated 19 6 14 Deferred stock units 19 1 Tax benefits related to stock options 4 1 11 Deferred tax adjustment - related to stock options 3 12 Liabilities assumed in connection with asset acquisitions 7
Albertson's, Inc. 2001 Annual Report 23 Store Dispositions During January 2002 the Company sold 80 New England Osco drugstores for $235 million in a transaction that resulted in a $54 pre-tax one-time gain. Accounts and Notes Receivable Accounts and notes receivable, net, consisted of the following:
JANUARY 31, FEBRUARY 1, 2002 2001 - ----------------------------------------------------------------- -------------- --------------- Trade and other accounts receivable $ 685 $ 578 Current portion of notes receivable 40 7 Allowance for doubtful accounts (44) (38) - ----------------------------------------------------------------- -------------- --------------- $ 681 $ 547 ================================================================= ============== ===============
Inventories Approximately 97% 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 $597 and $591 higher at the end of 2001 and 2000, respectively. Net earnings (basic and diluted earnings per share) would have been higher by $3 ($0.01) in 2001, lower by $14 ($0.03) in 2000, and higher by $18 ($0.04) in 1999. The replacement cost of inventories valued at LIFO approximates FIFO cost. During 2001 and 2000, inventory quantities were reduced. These reductions resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2001 and 2000 purchases. As a result, cost of sales was decreased by $10 in 2001 and $26 in 2000. This increased net earnings (basic and diluted earnings per share) by $6 ($0.01) in 2001 and $15 ($0.04) in 2000. Land, Buildings and Equipment Land, buildings and equipment, net, consisted of the following:
JANUARY 31, FEBRUARY 1, 2002 2001 - ----------------------------------------------------------------- -------------- --------------- Land $ 2,105 $ 2,169 Buildings 5,598 5,418 Fixtures and equipment 5,471 5,491 Leasehold improvements 1,535 1,548 Capitalized leases 326 314 - ----------------------------------------------------------------- -------------- --------------- 15,035 14,940 Accumulated depreciation and amortization (5,753) (5,382) - ----------------------------------------------------------------- -------------- --------------- $ 9,282 $ 9,558 ================================================================= ============== ===============
Goodwill and Intangibles Goodwill and intangibles, net, consisted of the following:
JANUARY 31, FEBRUARY 1, 2002 2001 - ----------------------------------------------------------------- -------------- --------------- Goodwill $ 2,176 $ 2,220 Intangible assets 346 320 - ----------------------------------------------------------------- -------------- --------------- 2,522 2,540 Accumulated amortization (883) (813) - ----------------------------------------------------------------- -------------- --------------- $ 1,639 $ 1,727 ================================================================= ============== ===============
Albertson's, Inc. 2001 Annual Report 24 Indebtedness Long-term debt consisted of the following (borrowings are unsecured unless indicated):
JANUARY 31, FEBRUARY 1, 2002 2001 - -------------------------------------------------------------------------------------- -------------- --------------- 2001 Shelf Registration: 8.0% Debentures due May 1, 2031 $ 400 7.25% Notes due May 1, 2013 200 1999 Shelf Registration: 7.5% Notes due February 15, 2011 700 $ 700 8.35% Notes due May 1, 2010 275 275 8.7% Debentures due May 1, 2030 225 225 7.45% Debentures due August 1, 2029 650 650 6.95% Notes due August 1, 2009 350 350 6.55% Notes due August 1, 2004 300 300 Prior Authorizations: Medium-term notes, due 2013 through 2028, average interest rate of 6.5% 317 317 Medium-term notes, due 2007 through 2027, average interest rate of 6.8% 200 200 7.75% Debentures due June 15, 2026 200 200 7.5% Debentures due May 1, 2037 200 200 8.0% Debentures due June 1, 2026 272 272 7.9% Debentures due May 1, 2017 95 95 7.4% Notes due May 15, 2005 200 200 Medium-term notes, due 2003 through 2028, average interest rate of 7.0% 245 245 9.125% Notes due April 1, 2002 80 80 Other Long-Term Debt: Notes due July 3, 2004, average interest rates of 6.7% and 6.5%, respectively 200 200 Industrial revenue bonds, average interest rate of 6.1% 11 11 Secured mortgage notes and other notes payable, average interest rates of 11.0% and 9.4%, respectively 63 104 Commercial paper and bank lines of credit 1,153 - -------------------------------------------------------------------------------------- -------------- --------------- 5,183 5,777 Current maturities (123) (62) - -------------------------------------------------------------------------------------- -------------- --------------- $5,060 $5,715 ====================================================================================== ============== ===============
As of January 31, 2002, there were no outstanding commercial paper borrowings. The Company has established the necessary credit facilities, through its revolving credit agreements, to refinance outstanding commercial paper and bank line borrowings on a long-term basis. Outstanding borrowings are classified as noncurrent because it is the Company's intent to refinance these obligations on a long-term basis. The effective interest rate for these borrowings during the fiscal year ended January 31, 2002 was 5.04%. In support of the Company's commercial paper program, the Company had three credit facilities totaling $1,750 during Fiscal 2001. The first agreement for $100 expired in February 2002 and was renewed for an additional year to expire in February 2003. The second agreement for $700 expired in March 2002 and was replaced, based on the Company's revised liquidity requirements, by a $350, 364-day credit agreement. The third agreement for $950 expires in March 2005. All of the credit agreements contain an option which would allow the Company, upon due notice, to convert any outstanding amounts at the expiration dates to term loans. The agreements in place at year end also 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 January 31, 2002, the Company's consolidated tangible net worth, as defined, was approximately $4,200. Upon the execution of the $350, 364-day credit agreement, the consolidated tangible net worth threshold increased to $3,000, and an additional covenant was added requiring a fixed charge coverage of at least 2.7 times. As defined in the new agreement, the fixed charge coverage ratio based on 2001 results was 4.2 times. No borrowings were outstanding under the credit facilities as of January 31, 2002, or February 1, 2001. Albertson's filed a shelf registration statement with the Securities and Exchange Commission (SEC), which became effective on February 13, 2001 ("2001 Registration Statement") to authorize the issuance of up to $3,000 in debt securities. In May 2001 the Company issued $600 of term notes under the 2001 Registration Statement. The notes are composed of $200 of principal bearing interest at 7.25% due May 1, 2013 and $400 of principal bearing interest at 8.0% due May 1, 2031. Proceeds were used primarily to repay borrowings under the Company's commercial paper program. Albertson's, Inc. 2001 Annual Report 25 Albertson's filed a shelf registration statement with the SEC, which became effective in February 1999 (the "1999 Registration Statement"), to authorize the issuance of up to $2,500 in debt securities. In January 2001 the Company issued the remaining $700 of term notes available under the 1999 Registration Statement. The $700 principal bears interest at 7.5% and matures February 15, 2011. In May 2000 the Company issued $500 of term notes under the 1999 Registration Statement. The notes are composed of $275 of principal bearing interest at 8.35% due May 1, 2010, and $225 of principal bearing interest at 8.7% due May 1, 2030. In July 1999 the Company issued $1,300 of term notes under the 1999 Registration Statement. The notes are composed of $300 of principal bearing interest at 6.55% due August 1, 2004; $350 of principal bearing interest at 6.95% due August 1, 2009; and $650 of principal bearing interest at 7.45% due August 1, 2029. For all issues, proceeds were used primarily to repay borrowings under the Company's commercial paper program. In July 1999 the Company negotiated an amendment to a $200 term loan agreement between ASC and a group of commercial banks. The amended loans carry interest based upon a pricing schedule (which averages 6.70%) dependent upon the Company's long-term debt rating, and mature July 3, 2004. The Company has pledged real estate with a cost of $151 as collateral for mortgage notes which are payable on various schedules, including interest at rates ranging from 6.8% to 16.5%. The notes mature from 2002 to 2019. Medium-term notes of $30 due July 2027 contain a put option which would require the Company to repay the notes in July 2007 if the holder of the note so elects by giving the Company a 60-day notice. Medium-term notes of $50 due April 2028 contain a put option which would require the Company to repay the notes in April 2008 if the holder of the note so elects by giving the Company a 60-day notice. The $200 of 7.5% debentures due 2037 contain a put option which will require the Company to repay the note in 2009 if the holder of the notes so elects by giving the Company a 60-day notice. Following the merger with ASC the Company consolidated several of the commercial paper, bank lines and other financing arrangements. The consolidation of debt included the repayment of outstanding amounts under ASC's revolving credit facilities and other debt containing change of control provisions and the tender for, or open market purchases of, certain higher coupon debt. As a result, certain debt was extinguished during 1999. Net interest expense was as follows:
2001 2000 1999 - ----------------------------------------------------- ------------ ------------ ------------- Debt $ 408 $ 366 $ 350 Capitalized leases 30 27 27 Capitalized interest (23) (21) (26) - ----------------------------------------------------- ------------ ------------ ------------- Interest expense 415 372 351 Bank service charges, net of interest income 17 13 2 - ----------------------------------------------------- ------------ ------------ ------------- $ 432 $ 385 $ 353 ===================================================== ============ ============ =============
The scheduled aggregate maturities of debt outstanding at January 31, 2002, are summarized as follows: $123 in 2002, $106 in 2003, $504 in 2004, $202 in 2005, $3 in 2006 and $4,245 thereafter. Capital Stock On December 2, 1996, the Board of Directors adopted a stockholder rights plan, which was amended on August 2, 1998, and March 16, 1999, under which all stockholders receive one right for each share of common stock held. Each right will entitle the holder to purchase, under certain circumstances, one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $1.00 per share, of the Company (the "preferred stock") at a price of 160 dollars. 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. Albertson's, Inc. 2001 Annual Report 26 Under the plan, subject to certain exceptions, if any person or group as defined by the plan becomes the beneficial owner of 15% or more of the outstanding common stock or takes certain other actions, each right will then entitle its holder as defined by the plan, other than such person or group, upon payment of the 160 dollars exercise price, to purchase common stock (or, in certain circumstances, cash, property or other securities of the Company) with a value equal to twice the exercise price. The rights may be redeemed by the Board of Directors at a price of $0.001 per right under certain circumstances. The rights, which do not vote and are not entitled to dividends, will expire at the close of business on March 21, 2007, unless earlier redeemed or extended by the Board of Directors of the Company. In connection with the Merger, no person or group became the beneficial owner of 15% or more of the common stock. The Board of Directors adopted a program on April 25, 2000, authorizing, but not requiring, the Company to purchase and retire up to $500 of the Company's common stock. This program was increased by an additional $1,000 by the Board of Directors on December 6, 2000, for a total of $1,500. The revised program enabled the Company to purchase stock from April 25, 2000 through December 6, 2001. During Fiscal 2000 the Company purchased and retired 18.7 million shares at a total cost of $451 or an average price of $24.15 per share. On December 3, 2001, the Board of Directors adopted a program authorizing, but not requiring, the Company to purchase and retire up to $500 of the Company's common stock from December 6, 2001 through December 31, 2002. No shares were purchased during Fiscal 2001. Income Taxes Deferred tax assets and liabilities consist of the following:
JANUARY 31, FEBRUARY 1, 2002 2001 - -------------------------------------------------------------------- -------------- --------------- Deferred tax assets (no valuation allowance considered necessary): Basis in fixed assets $ 264 $157 Self-insurance 188 162 Compensation and benefits 264 238 Unearned income 18 22 Other, net 91 128 - -------------------------------------------------------------------- -------------- --------------- Total deferred tax assets 825 707 - -------------------------------------------------------------------- -------------- --------------- Deferred tax liabilities: Basis in fixed assets and capitalized leases (515) (584) Inventories (126) (104) Compensation and benefits (59) (36) Other, net (24) (29) - -------------------------------------------------------------------- -------------- --------------- Total deferred tax liabilities (724) (753) - -------------------------------------------------------------------- -------------- --------------- Net deferred tax assets (liabilities) $101 $(46) ==================================================================== ============== ===============
The change in net deferred tax assets includes total adjustments of $10 for the year ended January 31, 2002, related to stock options of $(3) and other comprehensive income of $13. The Company has federal and state net operating loss carryforwards of $7 and $32, respectively, that will expire in years 2005 through 2021. Based on management's assessment, it is more likely than not that all of the deferred tax assets associated with the net operating loss carryforwards will be realized; therefore, no valuation allowance is considered necessary. Income tax expense on continuing operations consists of the following:
2001 2000 1999 - ---------------------------------- ------------ ------------ ------------ Current: Federal $ 462 $ 458 $ 476 State 47 40 48 - ---------------------------------- ------------ ------------ ------------ 509 498 524 Deferred: Federal (124) 10 (47) State (13) 1 (5) - ---------------------------------- ------------ ------------ ------------ (137) 11 (52) - ---------------------------------- ------------ ------------ ------------ $ 372 $ 509 $ 472 ================================== ============ ============ ============
Albertson's, Inc. 2001 Annual Report 27 The reconciliations between the federal statutory tax rate and the Company's effective tax rates are as follows:
2001 PERCENT 2000 PERCENT 1999 PERCENT - ---------------------------------------------- ------------ ------------ ------------ ------------ ------------ ----------- Taxes computed at statutory rate $306 35.0 $446 35.0 $315 35.0 State income taxes net of federal income tax benefit 37 4.2 54 4.3 38 4.2 Goodwill amortization 27 3.1 21 1.6 22 2.5 Merger-related charges 2 0.2 115 12.8 Other 2 0.3 (14) (1.1) (18) (2.0) - ---------------------------------------------- ------------ ------------ ------------ ------------ ------------ ----------- $372 42.6 $509 40.0 $472 52.5 ============================================== ============ ============ ============ ============ ============ ===========
Stock Options and Stock Awards The Company's stock option and stock award plans (Albertson's, Inc. 1995 Amended and Restated Stock-Based Incentive Plan) (the "1995 Plan") provide for the grant of options to purchase shares of common stock and stock awards. At January 31, 2002, Albertson's had one stock-based incentive plan in effect under which grants could be made with respect to 50 million shares of the Company's common stock. Under this plan, approved by the stockholders most recently in 2001, options and stock awards may be granted to officers and key employees to purchase the Company's common stock. During 1999, the Company's stock-based incentive plan was amended to, among other things, include the grant of options and other awards to non-employee members of the Board of Directors. During 2001, the Company's stock-based incentive plan was amended to, among other things, increase the number of shares allowed by the plan from 30 million to 50 million. Generally, options are granted with an exercise price at not less than 100% of the closing market price on the date of the grant. The Company's options generally become exercisable in installments of 20% per year on each of the first through fifth anniversaries of the grant date or vest 100% on the third anniversary of the grant date and have a maximum term of 7 to 10 years. DEFERRED STOCK UNITS The Board of Directors adopted a program effective December 6, 2000, which authorized the award of deferred stock units with dividend equivalents paid in cash quarterly under the 1995 Plan to key officers of the Company. Under this program, 900,800 of the units will be distributed in stock on December 5, 2003, if the applicable officers are still employed as an officer of the Company on that date, unless otherwise deferred by those officers. The Company is recognizing this expense over the three-year service period. Additional grants were made during Fiscal 2001 to key officers of the Company of which 788,670 of the units will be distributed in a manner elected by the participant on a date after said participant ceases to be an officer of the Company. 8,000 of the units will be distributed in stock on September 17, 2002 and on each September 17th for the next four years, unless otherwise deferred. 8,000 of the units will be distributed in stock on November 19, 2002 and on each November 19th for the next four years, unless otherwise deferred. 21,243 of the units will be distributed in stock on December 3, 2002 and on each December 3rd for the next three years and 21,245 of the units will be distributed in stock on December 3, 2006, unless otherwise deferred. VARIABLE ACCOUNTING TREATMENT FOR OPTION PLANS In the first quarter of 1999, a market price adjustment of $29 was recorded as a reduction of pre-tax merger-related costs to reflect a decline in the relevant stock price at the end of the first fiscal quarter relative to LSARs. The actual change of control price used to measure the value of these exercised LSARs became determinable at the date the Merger was consummated and resulted in no further adjustments. Upon Merger consummation, the change of control price was $53.77 per share, resulting in the issuance of approximately 1.7 million Albertson's shares. LSARs relating to approximately 4.0 million equivalent stock options became exercisable upon regulatory approval of the merger with ASC, which resulted in recognition of an additional pre-tax charge of $76 in the second quarter of Fiscal 1999. This charge was based upon a change of control price of $56.96 per share, which included an adjustment factor for the early termination of the LSAR feature. A total of 0.8 million Albertson's shares were issued in satisfaction of those options for which the LSAR feature was elected and the remaining options were converted into options to acquire approximately 1.2 million Albertson's shares. Albertson's, Inc. 2001 Annual Report 28 STOCK OPTIONS - 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 31, 2002 FEBRUARY 1, 2001 FEBRUARY 3, 2000 ---------------------------- ------------------------- ------------------------- SHARES PRICE SHARES PRICE SHARES PRICE - ----------------------------------------- --------------- ------------ ------------ ------------ ------------ ------------ Outstanding at beginning of year 25,290 $ 32.79 18,015 $ 38.34 9,989 $ 35.01 Granted 6,406 32.64 8,683 21.78 12,536 39.76 Exercised (1,303) 22.71 (287) 21.54 (3,907) 33.00 Forfeited (2,348) 34.70 (1,121) 39.58 (603) 39.43 - ----------------------------------------- --------------- ------------ ------------ ------------ ------------ ------------ Outstanding at end of year 28,045 $ 33.06 25,290 $ 32.79 18,015 $ 38.34 ========================================= =============== ============ ============ ============ ============ ============ Options exercisable at end of year 11,414 $ 35.67 7,251 $ 37.14 5,640 $ 35.44 ========================================= =============== ============ ============ ============ ============ ============
As of January 31, 2002, there were 20 million shares of Company common stock reserved for the granting of additional options and stock awards. The following table summarizes options outstanding and options exercisable as of January 31, 2002, 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 - ------------------------------ ---------------- ------------- ----------- --------------- ----------- $ 16.87 - $ 22.63 7,139 8.8 $ 21.66 1,821 $ 21.59 24.31 - 34.87 13,629 8.3 31.42 4,541 30.24 35.00 - 45.94 2,601 4.7 40.43 2,601 40.43 47.00 - 51.19 4,676 7.4 51.15 2,451 51.11 - ------------------------------ ---------------- ------------- ----------- --------------- ----------- $ 16.87 - $ 51.19 28,045 7.9 $ 33.06 11,414 $ 35.67 ============================== ================ ============= =========== =============== ===========
The weighted average fair value at date of grant for Albertson's options granted during 2001, 2000, and 1999 was $6.61, $7.35, and $10.42 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:
2001 2000 1999 - ----------------------------------- ----------------- ------------ ------------ Expected life (years) 3.0 3.0 3.0 Risk-free interest rate 3.62% 5.46% 5.96% Volatility 30.09 54.83 37.03 Dividend yield 2.33 3.49 1.81
The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." 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:
2001 2000 1999 - ------------------------------------ ------------ ------------ ------------ Net earnings: As reported $ 501 $ 765 $ 404 Pro forma 472 738 375 Basic earnings per share: As reported 1.23 1.83 0.96 Pro forma 1.16 1.77 0.89 Diluted earnings per share: As reported 1.23 1.83 0.95 Pro forma 1.16 1.76 0.89
The 2001 and 2000 pro forma net earnings resulted from reported net earnings less pro forma after-tax compensation expense. The 1999 pro forma earnings of $375 resulted from reported net earnings of $404, less the 1999 pro forma after-tax compensation expense of $67 ($49 of which related to an adjustment for the acceleration of unamortized compensation expense for the stock options granted prior to 1999 which vested in connection with the merger with ASC) and the elimination of net merger-related after-tax stock option charges of $38 included with as-reported net earnings. The pro forma effect on net earnings is not representative of the pro forma effect on net earnings in future years. Albertson's, Inc. 2001 Annual Report 29 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 both defined benefit and defined contribution plans. The Albertson's Salaried Employees Pension Plan and Albertson's Employees Corporate Pension Plan are funded, qualified, defined benefit, noncontributory plans for eligible Albertson's 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 amount necessary to meet the funding requirements as defined by the Internal Revenue Code. The Company also sponsors the Albertson's Savings and Retirement Estates ("ASRE") Plan (formerly the American Stores Retirement Estates Plan) which is a defined contribution retirement plan. ASRE was originally authorized by the ASC Board of Directors for the purpose of providing retirement benefits for employees of ASC and its subsidiaries. During 1999, ASRE was authorized by Albertson's Board of Directors to provide retirement benefits for all qualified employees of the Company and its subsidiaries. In conjunction with the authorization of ASRE, the company-sponsored defined benefit plans were amended to close the plans to future new entrants. Future accruals for participants in the defined benefit plans are offset by the value of Company profit sharing contributions to the new defined contribution plan. The Company sponsors a tax-deferred savings plan which is a salary deferral plan pursuant to Section 401(k) of the Internal Revenue Code. The plan covers employees meeting age and service eligibility requirements, except those represented by a labor union, unless the collective bargaining agreement provides for participation. In addition, the Company provides a matching contribution based on the amount of eligible compensation contributed by the employee. All Company contributions to ASRE and the company-sponsored 401(k) plan are made at the discretion of the Board of Directors. The total amount contributed by the Company is included with the ASRE defined contribution plan expense. The Company also sponsors an unfunded Executive Pension Makeup Plan and an Executive ASRE Makeup Plan. These plans are nonqualified and provide certain key employees retirement benefits which supplement those provided by the Company's other retirement plans. Net periodic benefit (income) expense for defined benefit plans is determined using assumptions as of the beginning of each year. The projected benefit obligation and related funded status are determined using assumptions as of the end of each year. Assumptions used at the end of each year for the company-sponsored defined benefit pension plans were as follows:
2001 2000 1999 - ---------------------------------------------------- ------------ ------------ ------------ Weighted-average discount rate 6.75% 7.15% 7.50% Annual salary increases 3.70-4.50 3.70-4.50 4.35-4.50 Expected long-term rate of return on assets 9.00 9.50 9.50
Net periodic benefit (income) expense for company-sponsored defined benefit pension plans was as follows:
2001 2000 1999 - ---------------------------------------------------- ------------ ------------ ------------ Service cost - benefits earned during the period $ 11 $ 14 $ 45 Interest cost on projected benefit obligations 35 32 34 Expected return on assets (48) (55) (49) Amortization of prior service cost (7) 5 Recognized net actuarial (gain) loss (4) 1 - ---------------------------------------------------- ------------ ------------ ------------ $ (9) $ (8) $ 31 ==================================================== ============ ============ ============
Albertson's, Inc. 2001 Annual Report 30 The following table sets forth the funded status of the company-sponsored defined benefit pension plans:
JANUARY 31, FEBRUARY 1, 2002 2001 - ------------------------------------------------------------------ --------------- ---------------- Change in projected benefit obligation: Beginning of year benefit obligation $ 495 $ 423 Service cost 11 14 Interest cost 35 32 Actuarial loss 41 29 Amendments 11 Benefits paid (15) (14) - ------------------------------------------------------------------ --------------- ---------------- End of year benefit obligation 567 495 - ------------------------------------------------------------------ --------------- ---------------- Change in plan assets: Plan assets at fair value at beginning of year 537 582 Actual return on plan assets (57) (32) Employer contributions 1 1 Benefit payments (15) (14) - ------------------------------------------------------------------ --------------- ---------------- Plan assets at fair value at end of year 466 537 - ------------------------------------------------------------------ --------------- ---------------- Funded status (101) 42 Unrecognized net loss 165 19 Unrecognized prior service cost (71) (79) Additional minimum liability (67) (1) - ------------------------------------------------------------------ --------------- ---------------- Net accrued pension cost $ (74) $ (19) - ------------------------------------------------------------------ --------------- ---------------- Prepaid pension cost included with other assets $ 25 $ 16 Accrued pension cost included with other long-term liabilities (99) (35) - ------------------------------------------------------------------ --------------- ---------------- Net accrued pension cost $ (74) $ (19) ================================================================== =============== ================
At January 31, 2002, the accumulated benefit obligation exceeded the fair value of the plans' assets in the Albertson's Employees Corporate Pension Plan and the Executive Pension Makeup Plan. The provisions of SFAS No. 87, "Employers' Accounting for Pensions," require recognition in the balance sheet of an additional minimum liability and related intangible asset for pension plans with accumulated benefits in excess of plan assets; any portion of such additional liability which is in excess of the plan's prior service cost is a component of other comprehensive income and is reflected in stockholders' equity, net of related tax benefit. Accordingly, at January 31, 2002, a liability of $67 was included in other long-term liabilities, an intangible asset equal to the prior service cost of $28 was included in other assets, and a charge of $23 net of deferred taxes of $16 was reflected as a minimum pension liability adjustment in other comprehensive income under stockholders' equity in the Company's Consolidated Balance Sheets. The following table summarizes the projected benefit obligation, accumulated benefit obligation, and plan assets of the individual plans that have a projected benefit obligation in excess of plan assets:
JANUARY 31, FEBRUARY 1, 2002 2001 - ---------------------------------------------------- --------------- ---------------- Projected benefit obligation: Albertson's Employees Corporate Pension Plan $331 $289 Executive Pension Makeup Plan 20 18 Accumulated benefit obligation: Albertson's Employees Corporate Pension Plan 330 288 Executive Pension Makeup Plan 20 16 Plan assets (fair market value): Albertson's Employees Corporate Pension Plan 250 285
Assets of the two funded Company defined benefit pension plans are invested in directed trusts. Assets in the directed trusts are invested in common stocks (including $52 of the Company's common stock at January 31, 2002 and February 1, 2001), U.S. government obligations, corporate bonds, international equity funds, real estate and money market funds. Albertson's, Inc. 2001 Annual Report 31 The Company also contributes to various plans under industrywide collective bargaining agreements, primarily for defined benefit pension plans. Total contributions to these plans were $49 for 2001, $58 for 2000, and $98 for 1999. Retirement plans expense was as follows:
2001 2000 1999 - ------------------------------------------ ------------ ------------ ------------ Defined benefit pension plans $ ( 9) $ (8) $ 31 ASRE defined contribution plan 154 155 110 Multi-employer plans 49 58 98 - ------------------------------------------ ------------ ------------ ------------ $ 194 $ 205 $ 239 ========================================== ============ ============ ============
Most retired employees of the Company are eligible to remain in its health and life insurance plans. Retirees who elect to remain in the Albertson's-sponsored plans are charged a premium which is equal to the difference between the estimated costs of the benefits for the retiree group and a fixed contribution amount made by the Company. The Company also provides certain health care benefits to eligible ASC retirees of certain defined employee groups under two unfunded plans, a defined dollar and a full coverage plan. The net periodic postretirement benefit cost was as follows:
2001 2000 1999 - ------------------------------------------ ------------ ------------ ------------ Service cost $ 3 $ 3 $ 3 Interest cost 4 4 4 Amortization of unrecognized gain (1) (1) (1) - ------------------------------------------ ------------ ------------ ------------ $ 6 $ 6 $ 6 ========================================== ============ ============ ============
The following table sets forth the funded status of the company-sponsored postretirement health and life insurance benefit plans:
JANUARY 31, FEBRUARY 1, 2002 2001 - ------------------------------------------------------------------------------------------- -------------- -------------- Change in accumulated benefit obligation: Beginning of year benefit obligation $ 66 $ 62 Service cost 3 3 Interest cost 4 4 Plan participants' contributions 12 10 Actuarial loss 2 2 Benefits paid (16) (15) - -------------------------------------------------------------------------------------------- -------------- -------------- End of year benefit obligation 71 66 - -------------------------------------------------------------------------------------------- -------------- -------------- Plan assets activity: Employer contributions 5 5 Plan participants' contributions 12 10 Benefit payments (17) (15) - -------------------------------------------------------------------------------------------- -------------- -------------- Funded status (71) (66) Unrecognized net gain (10) (16) - -------------------------------------------------------------------------------------------- -------------- -------------- Accrued postretirement benefit obligations included with other long-term liabilities $ (81) $ (82) ============================================================================================ ============== ============== Discount rates as of end of year 6.75% 7.15% - -------------------------------------------------------------------------------------------- -------------- --------------
For measurement purposes, a 6% annual rate of increase in the per capita cost of covered health care benefits was assumed for plans covering ASC retirees for 2001 and is expected to remain at that level thereafter. For the ASC defined dollar plan, no future increases in the subsidy level were assumed. Annual rates of increases in health care costs are not applicable in the calculation of the Albertson's benefit obligation because Albertson's contribution is a fixed amount per participant. With the exception of the plans covering ASC grandfathered retirees, all postretirement plans are contributory, with participants' contributions adjusted annually. The accounting for the health care plans anticipates that the Company will not increase its contribution for health care benefits for non-grandfathered retirees in future years. Albertson's, Inc. 2001 Annual Report 32 Since the subsidy levels for the Albertson's and the ASC defined dollar plans are fixed and the proportion of grandfathered ASC retirees is small, a health care cost trend increase or decrease has no material impact on the accumulated postretirement benefit obligation or the postretirement benefit expense. SFAS No. 112, "Employers' Accounting for Postemployment Benefits" requires employers to recognize an obligation for benefits provided to former or inactive employees after employment but before retirement. The Company is self-insured for certain of its employees' short-term and long-term disability plans which are the primary benefits paid to inactive employees prior to retirement. During 2001, a plan amendment made to the Company's long-term disability plan changed the salary continuation feature from a cumulative benefit based on years of service to a set percentage of salary benefit. This amendment resulted in a reduction of the obligation by $36, which was recognized immediately in accordance with the Company's policy for plan amendments. Following is a summary of the obligation for postemployment benefits included in the Company's Consolidated Balance Sheets:
JANUARY 31, FEBRUARY 1, 2002 2001 - ------------------------------------------------- -------------- -------------- Included with salaries and related liabilities $ 12 $ 12 Included with other long-term liabilities 54 74 - ------------------------------------------------- -------------- -------------- $ 66 $ 86 ================================================= ============== ==============
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 $362 for 2001, $286 for 2000, and $316 for 1999. Employment Contracts The Company has entered into employment contracts with certain executives for periods up to three years (and ten years for the Chairman of the Board and Chief Executive Officer). The agreements include specified amounts for signing bonus, base salary, annual bonus payments, stock option awards and deferred stock unit awards. In the event of termination of employment without cause, the executive would be entitled to certain guaranteed payments and the vesting of stock awards. In addition, as part of the merger with ASC, the Company has entered into retention agreements with certain executives under which they are paid an annual retention bonus if they continue to be employed by the Company through June 2002. Leases The Company leases a portion of its real estate. The typical lease period is 20 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. Following is an analysis of the Company's assets under capitalized leases, $12 of real estate and equipment is included in assets held for sale at January 31, 2002:
JANUARY 31, FEBRUARY 1, 2002 2001 - ----------------------------------------------- -------------- -------------- Real estate and equipment $338 $314 Accumulated amortization (112) (132) - ----------------------------------------------- -------------- -------------- $226 $182 =============================================== ============== ==============
Albertson's, Inc. 2001 Annual Report 33 Future minimum lease payments for noncancelable operating leases (which exclude the amortization of acquisition-related fair value adjustments), related subleases and capital leases at January 31, 2002, are as follows:
OPERATING CAPITAL LEASES SUBLEASES LEASES - ----------------------------------------------- ------------ ------------ ------------ 2002 $ 333 $ (43) $ 45 2003 332 (36) 42 2004 318 (29) 40 2005 292 (19) 37 2006 267 (15) 37 Remainder 2,264 (61) 467 - ----------------------------------------------- ------------ ------------ ------------ Total minimum obligations (receivables) $3,806 $(203) 668 =============================================== ============ ============ Interest (378) - ----------------------------------------------- ------------ ------------ ------------ Present value of net minimum obligations 290 Current portion (14) - ----------------------------------------------- ------------ ------------ ------------ Long-term obligations at January 31, 2002 $ 276 =============================================== ============ ============ ============
The Company is contingently liable as a guarantor of certain leases that were assigned to third parties in connection with various store closures and dispositions. 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. Rent expense under operating leases, excluding the amortization of acquisition-related fair value adjustments of $13 in 2001, and $14 in 2000 and 1999, was as follows:
2001 2000 1999 - -------------------------------------- ------------ ------------ ------------ Minimum rent $ 375 $ 369 $ 330 Contingent rent 28 30 29 - -------------------------------------- ------------ ------------ ------------ 403 399 359 Sublease rent (94) (97) (58) - -------------------------------------- ------------ ------------ ------------ $ 309 $ 302 $ 301 ====================================== ============ ============ ============
Related Party Transactions In the normal course of business, Albertson's has entered into leases for 9 stores and 2 office locations ($3 of rent paid during Fiscal 2001), purchased a piece of land ($2 during Fiscal 2001), purchased inventory for resale ($82 during Fiscal 2001), and engaged consulting services (insignificant) from entities that have a relationship with certain members of the Company's Board of Directors. All of the foregoing transactions were conducted at competitive rates. The Company has made loans to certain executive officers in connection with their relocation. As of January 31, 2002, the amounts outstanding were insignificant. Financial Instruments Financial instruments which potentially subject the Company to concentration of credit risk consist principally of cash equivalents and receivables. The Company limits the amount of credit exposure to each individual financial institution and places its temporary cash into investments of high credit quality. Concentrations of credit risk with respect to receivables are limited due to their dispersion across various companies and geographies. The estimated fair values of cash and cash equivalents, accounts receivable, accounts payable, short-term debt, commercial paper and bank line borrowings approximate their carrying amounts. Substantially all of the fair values were estimated using quoted market prices. The estimated fair values and carrying amounts of outstanding debt (excluding commercial paper and bank line borrowings) were as follows:
JANUARY 31, FEBRUARY 1, 2002 2001 - ------------------------------------------------- -------------- -------------- Fair value $ 5,516 $ 4,470 Carrying amount 5,183 4,624
Albertson's, Inc. 2001 Annual Report 34 Environmental The Company has identified environmental contamination sites related primarily to underground petroleum storage tanks and groundwater 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 in 2001, 2000 or 1999. Legal Proceedings In April 2000 a class action complaint was filed against Albertson's as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Mario Gardner, et al. v. American Stores Company, Albertson's, Inc., American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc.) seeking recovery of overtime due to plaintiffs' allegation that they were improperly classified as exempt under California law. A class action with respect to Sav-on Drug assistant managers was certified by the court. A case with very similar claims, also involving the assistant drug managers and operating managers, was filed against the Company's subsidiary Sav-on Drug Stores, Inc. in Los Angeles Superior Court (Rocher, Dahlin et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. Subsequent to year end, the Court of Appeal of the State of California, Second Appellate District reversed the Rocher class certification, leaving only two plaintiffs. The Company will now seek decertification of the Gardner class. The Company has strong defenses against these lawsuits, and is vigorously defending 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. In August 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. On December 21, 2001, the Company's motion for summary judgment was denied, and the Company has appealed this denial. 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 class and/or collective actions which were consolidated in the United States District Court in Boise, Idaho, which raised various issues including "off the clock" work allegations and allegations regarding certain salaried grocery managers' exempt status. Under the settlement agreement, current and former employees who meet eligibility criteria may present their claims to a settlement administrator. Additionally, current and former grocery managers employed in the state of California may present their exempt status 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) 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. During the first quarter of 2001 this liability was reduced by an $18 cash payment for legal expenses. 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. Albertson's, Inc. 2001 Annual Report 35 Recent Accounting Standards Effective February 2, 2001, the Company adopted SFAS No. 133 as amended, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires all derivative financial instruments to be recognized as either assets or liabilities in the Consolidated Balance Sheet and measured at fair value. The cumulative effect of adoption of SFAS No. 133 as it relates to interest rate locks was a $5 gain (net of taxes). Losses on contracts settled during 2001 amounted to $1 (net of taxes). These amounts are reported in other comprehensive income in the accompanying Consolidated Stockholders' Equity. The amounts reclassified from other comprehensive income to interest expense for 2001 and the expected reclassifications for 2002 are insignificant. In June 2001 the Financial Accounting Standards Board (FASB) issued two new pronouncements SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which is effective for acquisitions initiated after June 30, 2001, prohibits the use of the pooling-of-interest method for business combinations and establishes the accounting and financial reporting requirements for business combinations accounted for by the purchase method. Adoption of this standard had no effect on the financial statements of the Company. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. SFAS No. 142 became effective for Albertson's on February 1, 2002. In accordance with the provisions of SFAS No. 142, the Company will complete the analysis of goodwill and other intangible assets for impairment no later than August 1, 2002, and will record any required impairment by the end of 2002. The Company is currently evaluating the impact of the new accounting standard on existing goodwill and other intangible assets. The ultimate impact of the new accounting standard has yet to be determined. The net book value of goodwill was $1,468 and $1,560 as of January 31, 2002 and February 1, 2001, respectively. Goodwill amortization expense of $56, $57, and $58 was recorded in 2001, 2000, and 1999, respectively, and will no longer be recorded in subsequent fiscal years. In July 2001 the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become effective for Albertson's on January 31, 2003. This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is currently analyzing the effect that this standard will have on its financial statements, but believes it will not have a significant effect on the financial statements of the Company. In August 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 which replaces SFAS No. 121 and APB No. 30, became effective for Albertson's on February 1, 2002. This Statement retains the requirements to (i) recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and (ii) measure an impairment loss as the difference between the carrying amount and fair value of the asset. This Statement removes goodwill from its scope, eliminating the requirement to allocate goodwill to long-lived assets to be tested for impairment. This Statement requires that a long-lived asset to be abandoned, exchanged for a similar productive asset or distributed to owners in a spin-off, be considered held and used until it is disposed of. This Statement requires the accounting model for long-lived assets to be disposed of by sale, be used for all long-lived assets, whether previously held and used or newly acquired. Discontinued operations are no longer measured on a net realizable value basis, and future operating losses are no longer recognized before they occur. This Statement broadens the presentation of discontinued operations in the income statement to include a component of an entity (rather than a segment of a business). A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. The Company is currently analyzing the effect that this standard will have on its financial statements and believes it will require additional disclosures but will not have a significant effect on the operating results of the Company. Emerging Issues Task Force ("EITF") Issue Nos. 00-14, "Accounting for Certain Sales Incentives;" 00-22, "Accounting for Points and Other Time-Based or Volume-Based Sales and Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future;" and 00-25, "Vendor Income Statement Characterization of Consideration from a Vendor to a Retailer" address the appropriate accounting for certain vendor contracts and loyalty programs. The Company's accounting procedures are in compliance with the accounting requirements called for by these Issues. Albertson's, Inc. 2001 Annual Report 36
Computation of Earnings Per Share 2001 2000 1999 - --------------------------------------------------- ----------------------- ---------------------- ----------------------- DILUTED BASIC DILUTED BASIC DILUTED BASIC ----------- ----------- ---------- ----------- ----------- ----------- Net earnings $501 $501 $765 $765 $404 $404 ==== ==== ==== ==== ==== ==== Weighted average common shares outstanding 406 406 418 418 422 422 === === === Common share equivalents 2 - 1 ---- ---- ---- Weighted average shares outstanding 408 418 423 ==== ==== ==== Earnings per common share and common share equivalent: $1.23 $1.23 $1.83 $1.83 $0.95 $0.96 ===== ===== ===== ===== ===== ===== Calculation Of Common Share Equivalents: Options to purchase common shares 17 2 6 Common shares assumed purchased with potential proceeds (15) (2) (5) --- --- --- Common share equivalents 2 - 1 === === === Calculation Of Common Shares Assumed Purchased With Potential Proceeds: Potential proceeds from exercise of options to purchase common shares $455 $ 52 $242 Common stock price used under the treasury stock method $31.12 $27.99 $46.18 Common shares assumed purchased with potential proceeds 15 2 5
Outstanding options excluded in 2001, 2000 and 1999 (option price exceeded the average market price during the period) amounted to 9.4 million shares, 16.6 million shares, and 3.5 million shares, respectively. Subsequent Event On March 13, 2002, the Company announced a second phase in its restructuring process. The Company intends to completely exit four underperforming markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas. These market exits will occur through a combination of store closures and store sales and involve a total of 95 stores. In connection with this action, the number of division offices will be reduced from 15 to 11 and the Tulsa, Oklahoma and Houston, Texas distribution facilities will be sold or closed. Albertson's expects to record nonrecurring pre-tax charges of approximately $580, primarily related to asset impairments in this restructuring plan. This $580 total includes approximately $510 in noncash charges. The disposition of all the assets related to this restructuring plan should generate net positive pre-tax cash flow of about $180. Albertson's recently announced the sale of the Tulsa, Oklahoma distribution facility, as mentioned above, to Fleming Companies, Inc. This sales agreement also includes a long-term supply arrangement under which Fleming will provide procurement and distribution services for Albertson's Oklahoma and Nebraska stores. Albertson's, Inc. 2001 Annual Report 37 INDEPENDENT AUDITORS' REPORT Deloitte & Touche 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 31, 2002 and February 1, 2001, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 2002. 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 auditing standards generally accepted in the United States of America. 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 31, 2002 and February 1, 2001, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2002, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Boise, Idaho March 15, 2002 Albertson's, Inc. 2001 Annual Report 38 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 accounting principles generally accepted in the United States of America, 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, including an internal audit department, 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. This system is continually reviewed, improved, and modified in response to changing conditions and operations, and to recommendations made by the independent auditors and internal auditors. 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 auditing standards generally accepted in the United States of America to independently assess the fair presentation of the Company's financial position, results of operations and cash flows. The Audit/Finance 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/Finance Committee meets with internal and external auditors at least 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. Larry Johnston Felicia Thornton Chairman of the Board & Executive Vice President & Chief Executive Officer Chief Financial Officer Albertson's, Inc. 2001 Annual Report 39 FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 2002 2001 2000 1999 1998 - ------------------------------------------------- --------------- ---------------- ---------------- ---------------- --------------- Operating Results: Sales $ 37,931 $ 36,762 $ 37,478 $ 35,872 $ 33,828 Earnings before extraordinary item 501 765 427 801 797 Extraordinary item (23) Net earnings 501 765 404 801 797 Net earnings as a percent to sales 1.32% 2.08% 1.08% 2.23% 2.36% Common Stock Data: Earnings per share before extraordinary item: Basic $ 1.23 $ 1.83 $ 1.01 $ 1.91 $ 1.89 Diluted 1.23 1.83 1.00 1.90 1.88 Extraordinary item: Basic (0.05) Diluted (0.05) Earnings per share: Basic 1.23 1.83 0.96 1.91 1.89 Diluted 1.23 1.83 0.95 1.90 1.88 Cash dividends per share: Albertson's, Inc. 0.76 0.76 0.72 0.68 0.64 American Stores Company equivalent 0.14 0.57 0.56 Financial Position: Total assets $ 15,967 $ 16,078 $ 15,719 $ 15,131 $ 13,767 Long-term debt and capitalized lease obligations 5,336 5,942 4,990 5,108 4,333 Other Year End Statistics: Number of stores 2,421 2,512 2,492 2,564 2,435
All fiscal years consist of 52 weeks, except for 1999 which is a 53-week year. 2001 operating results included pre-tax restructuring charges of $560 ($345 after tax or $0.85 per share), pre-tax gain of $54 ($32 after tax or $0.08 per share) on sale of New England Osco drugstores, pre-tax credit for amendment to benefit plans of $36 ($21 after tax or $0.05 per share), pre-tax charge for management changes of $9 ($6 after tax or $0.01 per share), and pre-tax merger-related credits of $6 ($4 after tax or $0.01 per share). Restructuring charges included severance, the write-down of assets to net realizable value and lease termination costs. Merger-related credits included a credit for a reversal of a prior impairment charge as well as charges for severance, the write-down of other assets to net realizable value and integration costs. 2000 operating results included pre-tax merger-related charges of $151 ($93 after tax or $0.22 per share), and a pre-tax charge of $20 ($12 after tax or $0.03 per share) for an impairment - lease contingency. Merger-related charges included severance, the write-down of assets to net realizable value and integration costs. 1999 operating results included pre-tax merger-related charges of $683 ($529 after tax or $1.25 per share), and a pre-tax charge of $37 ($22 after tax or $0.05 per share) for a litigation settlement. Merger-related charges included severance, the write-down of assets to net realizable value, transaction and financing costs, integration costs and stock option charges. During 1999 American Stores Company paid only one quarterly dividend due to the consummation of the Merger. 1998 operating results included a pre-tax merger-related stock option charge of $195 ($132 after tax or $0.31 per share) related to the exercisability of 6 million equivalent limited stock appreciation rights due to the approval by ASC's stockholders of the Merger Agreement and a $24 pre-tax charge ($16 after tax or $0.04 per share) related to management's decision to close 16 underperforming stores. 1997 operating results included pre-tax charges of $34 related to the sale of stock by a major stockholder and pre-tax charges of $13 related to the sale of a division of ASC's communications subsidiary (total of $41 after tax or $0.10 per share). Albertson's, Inc. 2001 Annual Report 40
QUARTERLY FINANCIAL DATA (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA - UNAUDITED) FIRST SECOND THIRD FOURTH YEAR - ---------------------------------------------------------- ------------ ------------ ------------ ------------ ------------- 2001 Sales $ 9,331 $ 9,577 $ 9,363 $ 9,660 $ 37,931 Gross profit 2,658 2,680 2,655 2,783 10,776 Operating profit (loss) 435 (135) 417 596 1,313 Net earnings (loss) 186 (151) 176 290 501 Earnings (loss) per share: Basic 0.46 (0.37) 0.43 0.71 1.23 Diluted 0.46 (0.37) 0.43 0.71 1.23 - ---------------------------------------------------------- ------------ ------------ ------------ ------------ ------------- 2000 Sales $ 9,013 $ 9,214 $ 8,991 $ 9,544 $ 36,762 Gross profit 2,516 2,642 2,553 2,722 10,433 Operating profit 376 421 384 481 1,662 Net earnings 179 194 172 220 765 Earnings per share: Basic 0.42 0.46 0.41 0.54 1.83 Diluted 0.42 0.46 0.41 0.54 1.83 - ---------------------------------------------------------- ------------ ------------ ------------ ------------ -------------
During 2001, operating results of quarters two, three, and four were affected by pre-tax restructuring charges totaling $560 ($345 after tax). Restructuring charges included severance, the write-down of assets to net realizable value and lease termination costs. First quarter 2001 included a pre-tax one-time charge of $9 ($6 after tax) for management changes. Fourth quarter 2001 included a pre-tax gain of $54 ($32 after tax) for the sale of New England Osco drugstores and a pre-tax credit of $36 ($21 after tax) for an amendment in the Company's disability benefit plans. During 2001 and 2000 all quarters' operating results were affected by merger-related charges and credits. Net pre-tax merger-related credits totaling $6 ($4 after tax) were recorded during 2001 and net pre-tax charges of $151 ($93 after tax) were recorded in 2000. Merger-related charges included severance, the write-down of assets to net realizable value and integration costs. First quarter 2000 included a pre-tax charge of $20 ($12 after tax) for an impairment - lease contingency. The following table reflects the net earnings (loss) and earnings per share (EPS) effect of these items.
FIRST SECOND THIRD FOURTH ANNUAL ------------------- -------------------- -------------------- ------------------- -------------------- NET EPS NET EPS NET EPS NET EPS NET EPS EARNINGS (LOSS) E(L) EFFECT E(L) EFFECT E(L) EFFECT E(L) EFFECT E(L) EFFECT - --------------------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------- ---------- 2001 Restructuring $(334) $(0.82) $ (3) $ (0.01) $ (8) $(0.02) $(345) $(0.85) Management change $ (6) $(0.01) (6) (0.01) New England Osco drugstores sale 32 0.08 32 0.08 Benefit Plan amendment 21 0.05 21 0.05 Merger-related 6 0.01 (1) (0.00) (1) (0.00) 4 0.01 - --------------------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------- ---------- 2000 Merger-related $(35) $(0.08) $ (17) $(0.04) $(16) $ (0.04) $(25) $(0.06) $ (93) $(0.22) Impairment - Lease contingency (12) (0.03) (12) (0.03) - --------------------- -------- ---------- --------- ---------- --------- ---------- -------- ---------- --------- ----------
The Company estimates the quarterly LIFO reserves, which cannot be accurately determined until year end. The LIFO method of valuing inventories (decreased) increased net earnings and EPS as follows:
FIRST SECOND THIRD FOURTH YEAR - --------------------------------- ------------ ------------ ------------ ------------ ------------ 2001 Net earnings $ (4) $ (4) $ (5) $ 10 $ (3) Basic and diluted EPS (0.01) (0.01) (0.01) 0.02 (0.01) - --------------------------------- ------------ ------------ ------------ ------------ ------------ 2000 Net earnings $ (3) $ (3) $ (5) $ 25 $ 14 Basic and diluted EPS (0.01) (0.01) (0.01) 0.06 0.03 - --------------------------------- ------------ ------------ ------------ ------------ ------------
Due to rounding and different periods used to compute weighted average outstanding shares, the sum of the quarterly EPS may not equal the annual EPS. Albertson's, Inc. 2001 Annual Report 41 OTHER INFORMATION The Company's stock is traded on the New York and Pacific stock exchanges under the symbol ABS. The high and low stock prices by quarter were as follows:
FIRST SECOND THIRD FOURTH YEAR HIGH LOW HIGH LOW HIGH LOW HIGH LOW HIGH LOW - ------------------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- --------- 2001 $ 34.05 $ 27.00 $ 33.72 $ 27.30 $ 36.99 $ 29.25 $ 35.59 $ 28.26 $ 36.99 $ 27.00 2000 34.94 23.06 39.25 30.00 31.50 20.06 28.88 21.00 39.25 20.06 1999 61.94 49.06 56.94 48.56 52.25 37.00 38.31 29.00 61.94 29.00
Cash dividends declared per share were:
FIRST SECOND THIRD FOURTH YEAR - ----------------------- ---------------- -------------------- -------------------- --------------------- -------------------- 2001 $0.19 $0.19 $0.19 $0.19 $0.76 2000 0.19 0.19 0.19 0.19 0.76 1999 0.18 0.18 0.18 0.18 0.72
In March 2002 the Board of Directors maintained the regular quarterly cash dividend of $0.19 per share, for an effective annual rate of $0.76 per share. The quarterly rate will be paid on May 10, 2002, to stockholders of record on April 15, 2002. Albertson's, Inc. 2001 Annual Report 42 EX-23 7 abs10k2001exhibit23.txt INDEPENDENT AUDITORS' CONSENT EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 333-54998 on Form S-3 and Registration Statement Nos. 2-80776, 33-2139, 33-7901, 33-15062, 33-43635, 33-62799, 33-59803, 333-82157, 333-82161, 333-87773 and 333-73194 on Form S-8 of Albertson's, Inc. and subsidiaries of our report dated March 15, 2002, incorporated by reference in this Annual Report on Form 10-K from the Annual Report to Stockholders of Albertson's, Inc. and subsidiaries for the year ended January 31, 2002. Deloitte & Touche LLP Boise, Idaho April 18, 2002 -----END PRIVACY-ENHANCED MESSAGE-----