-----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, CABvyzTM/n0IjjiGk3dEuQmYal0LdXCUkK6tjvDYthL3RKmE4kq2gT01ztIpCThX NBvl1PUrm4eROXN6S6vZsg== 0000003333-03-000013.txt : 20030424 0000003333-03-000013.hdr.sgml : 20030424 20030424153531 ACCESSION NUMBER: 0000003333-03-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20030130 FILED AS OF DATE: 20030424 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: 03662310 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 abs10k.txt ALBERTSON'S, INC. FORM 10-K FOR FYE 1-30-03 UNITED STATES 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 30, 2003 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: Title of each class Name of each exchange on which registered - ----------------------------------- ----------------------------------------- Common Stock, $1.00 par value New York Stock Exchange 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) Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ----- ----- State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of August 1, 2002 was approximately $10.5 billion. The number of shares of the registrant's common stock, $1.00 par value, outstanding as of April 18, 2003 was 366.8 million. 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 definitive proxy statement for use in connection with the Annual Meeting of Shareholders to be held on June 6, 2003, (the "Proxy Statement") to be filed within 120 days after the Registrant's year ended January 30, 2003, 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 8 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 9 6. Selected Financial Data 10 7. Management's Discussion and Analysis of Financial Condition and Results of 10 Operations 7A. Quantitative and Qualitative Disclosures about Market Risk 23 8. Consolidated Financial Statements and Supplementary Data 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 52 - ------------------------------------------------------------------------------------------------------------- PART III - ------------------------------------------------------------------------------------------------------------- 10. Directors and Executive Officers of the Registrant 53 11. Executive Compensation 55 12. Security Ownership of Certain Beneficial Owners and Management and Related 55 Stockholders Matters 13. Certain Relationships and Related Transactions 55 14. Controls and Procedures 55 PART IV - ------------------------------------------------------------------------------------------------------------- 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 55
SIGNATURES CERTIFICATIONS 2 PART I Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995 All statements other than statements of historical fact contained in this and other documents disseminated by the Company, including statements regarding the Company's expected financial performance, are forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. In reviewing such information about the future performance of the Company, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information since predictions regarding future results of operations and other future events are subject to inherent uncertainties. These statements may relate to, among other things: investing to increase sales; changes in cash flow; increases in insurance and employee benefit costs; attainment of cost reduction goals; achieving sales increases and increases in identical sales; opening and remodeling stores; and the Company's five strategic imperatives; and are indicated by words or phrases such as "expects," "plans," "believes," "estimate," and "goal." In reviewing such information about the future performance of the Company, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. 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 new or existing competitors (including nontraditional competitors), particularly those intended to improve their market share (such as pricing and promotional activities); 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; the Company's ability to develop new stores or complete remodels as rapidly as planned; the Company's ability to implement new technology successfully; 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 projected or suggested 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 predictions, assumptions, estimates or changes in other factors affecting such forward-looking information. Item 1. Business General Albertson's, Inc. ("Albertsons" 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. The Company's general offices are located at 250 Parkcenter Boulevard, Boise, Idaho 83726, and its telephone number is (208) 395-6200. Information about the Company is available on the internet at www.albertsons.com. Based on sales, the Company is one of the largest retail food and drug chains in the world. As of January 30, 2003, the Company operated 2,287 retail stores in 31 states. These retail stores consist of 1,313 combination food-drug stores, 708 stand-alone drugstores, and 266 conventional and warehouse stores. Retail operations are supported by 17 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 30, 2003, the Company's stores operated under the banners Albertsons, Albertsons-Osco, Albertsons-Sav-on, Jewel-Osco, Acme, Sav-on Drugs, Osco Drug, Max Foods, and Super Saver Foods. The Company's fiscal year ends on the Thursday nearest to January 31. As a result, the Company's fiscal year includes a 53rd week every 5 to 6 years. Fiscal years 2002, 2001, and 2000 each contained 52 weeks and ended on January 30, 2003, January 31, 2002, and February 1, 2001. The Company continues to be focused on its five strategic imperatives that serve as a guide and a filter for the Company's initiatives and actions. These five imperatives are: 1) Aggressive cost and process control, 2) Maximize return on invested capital, 3) Customer-focused approach to growth, 4) Company-wide focus on technology and 5) Energized associates. With these imperatives in mind, the Company announced on July 18, 2001 the initial restructuring plan of divesting 165 underperforming retail stores and consolidation and elimination of 3 four division offices. The Company announced on March 13, 2002 the second phase of restructuring which included exiting four underperforming markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas, which involved divesting 95 stores, two distribution centers and included the reduction of division offices from 15 to 11. All dollar amounts in this report are in millions, except per share data. Retail Formats As of January 30, 2003, the Company's retail operations were organized into 11 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 unique neighborhoods that the Company serves. The Company's combination food-drug stores are super grocery and drug stores 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. Albertsons' strategic advantage in today's marketplace comes from the Company's unique heritage in two market formats - food stores and drugstores. Albertsons has decades of experience in serving customers in both market formats. 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 Albertsons-Sav-on stores in the Reno, Nevada market and Albertsons-Osco stores in the Tucson, Arizona market. In 2002, the Company rolled out the dual brand combo concept in the Phoenix, Arizona and the Omaha, Nebraska markets. The Company is studying consumer preferences related to these programs and will develop future roll-out plans based on this research. 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. 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 30, 2003, the Company operated 199 fuel centers in 20 states, which are generally located in the parking lots of the Company's 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 Albertsons introduced its own grocery delivery Web site when Albertsons.com entered the Seattle, Washington market. The Company expanded the service to the San Diego area in October 2001, the Los Angeles area in February 2002, the San Francisco area and Oregon in March 2002 and the Las Vegas area in November 2002. By using its brick-and-mortar stores, Albertsons has evolved its online model to take advantage of its retail grocery expertise, brand recognition and existing infrastructure. With more than three years of 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, Albertsons 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 Albertsons 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. 4 Merchandising The Company supplies its stores with merchandise through its distribution centers and 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. Management believes that retail stores offering a broad array of products and time-saving services are perceived by customers as part of a solution to today's lifestyle demands. Accordingly, a principal component of the Company's merchandising strategy is to design stores that offer these solutions. In the Company's prototype stores, in-store bakeries and delicatessens, prepared foods sections, and gourmet coffee service are available. A selection of prepared foods and home meal replacements are featured throughout the store. In the meat department, customers are provided easy meal alternatives. Many stores offer daily selections of home meal replacement items, such as rotisserie chicken, chicken cordon blue, tamales, meat loaf and other dinner entrees, sandwiches, pre-packaged salads and prepared fresh vegetables. The bakery offers an expanded selection of baked goods and self-service selections. Albertsons offers bread baked daily, cakes made to order in various sizes, donuts, and other pastries. Employees As of January 30, 2003, the Company employed approximately 202,000 people, many of whom are covered by collective bargaining agreements. The Company considers its present relations with employees to be good. The Company values its employees and believes that employee loyalty and enthusiasm are key elements of its operating performance. 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 properties). The Company conducts an ongoing program for the inspection and evaluation of potential new sites 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 believed to be remote. Although the ultimate outcome and expense of environmental remediation is uncertain, the Company believes that the costs of required remediation and continuing compliance with environmental laws, in excess of current reserves, will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. Charges against earnings for environmental remediation were not material in 2002, 2001 or 2000. Government Regulation The Company is subject to regulation by a variety of governmental agencies, including, but not limited to, the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the Occupational Health and Safety Administration and other federal, state and local agencies. The Company's stores are also subject to local laws regarding zoning, land use and the sale of alcoholic beverages. The Company believes that its locations are in material compliance with such laws and regulations. Competition Food, drug and general merchandise retailing involves intense competition with numerous competitors. Competition is based primarily on price, product quality and variety, service and location. The Company faces direct competition from many local, regional and national supermarket chains, supercenters, club stores, specialty retailers (such as pet centers and toy stores) and large-scale drug and pharmaceutical retailers. Increasing competition also exists from convenience stores, prepared food retailers, liquor and video stores, film developing outlets, and Internet and mail-order retailers. The Company is subject to effects of seasonality. Sales have historically been higher in the Company's fourth quarter than other quarters due to the holiday season and the increase in cold and flu occurrences. Available Information The Company will make available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act free of charge through the Company's internet website at http://www.albertsons.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission. 5 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 1,871 stores and approximately 84% 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 fail to provide adequate return on invested capital. Albertsons stores are located in 31 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 30, 2003:
Combination Food-Drug Stand-Alone Other Fuel Stores Drugstores Stores TOTAL Centers (a) - --------------------- ---------------- ---------------- --------------- -------------- ---------------- Arizona 50 82 - 132 13 Arkansas 1 - - 1 - California 309 310 141 760 7 Colorado 49 - 10 59 8 Delaware 9 - 3 12 1 Florida 120 - - 120 15 Idaho 30 - 7 37 15 Illinois 163 93 14 270 16 Indiana 6 46 - 52 1 Iowa 1 13 - 14 - Kansas - 22 - 22 - Louisiana 31 - - 31 11 Maryland 2 - 6 8 - Michigan - 1 - 1 - Minnesota - 1 - 1 - Missouri - 34 - 34 - Montana 18 8 14 40 4 Nebraska 12 13 - 25 3 Nevada 48 46 3 97 11 New Jersey 34 - 27 61 - New Mexico 22 4 1 27 3 North Dakota 2 6 - 8 - Oklahoma 28 - - 28 13 Oregon 44 - 10 54 13 Pennsylvania 39 - 16 55 - South Dakota 1 2 - 3 - Texas 152 - - 152 42 Utah 44 - 2 46 6 Washington 73 - 11 84 14 Wisconsin 16 27 - 43 1 Wyoming 9 - 1 10 2 ---------------- ---------------- --------------- -------------- ---------------- Total 1,313 708 266 2,287 199 ================ ================ =============== ============== ================ Retail Square Footage by Store Type (000's) 71,277,950 13,196,146 7,658,121 92,132,217 (a) ================ ================ =============== ============== ================
(a) All fuel centers are located adjacent to retail stores, therefore the Company does not count fuel centers as separate stores. The square footage of fuel centers is included with the square footage of adjacent stores. 6 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 2002 approximately 77% of the merchandise purchased for resale in Company retail stores was received from Company distribution centers. Albertsons distribution system consists of 17 major distribution facilities located strategically throughout the Company's operating markets. The table below is a summary of the Company's distribution facilities as of January 30, 2003:
High Ice Volume Frozen Meat & Cream Health Health General Square Major Distribution Facilities Grocery Food Liquor Produce Deli Plant & Beauty & Beauty Merch. Pharmaceuticals Footage ----------------------------- ------- ------ ------ ------- ------ ----- -------- -------- ------- --------------- ---------- Melrose Park, Illinois X X X X 1,467,000 Lancaster, Pennsylvania X X X X X 1,412,700 Brea, California X X X 1,295,000 La Habra, California X X X X X 1,203,100 Fort Worth, Texas X X X X 1,130,500 Plant City, Florida X X X X X X 1,010,900 Irvine, California X X 996,900 Elk Grove, Illinois X X X X 933,000 Vacaville, California X 854,000 Portland, Oregon X X X X 834,300 Phoenix, Arizona X X X X X 734,300 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 441,600 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 14,621,800 ===============
7 The Company currently prefers to finance most new retail store and distribution facilities internally, thus retaining ownership of its land and buildings. The Company's internal 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 30, 2003, the Company held title to both the land and buildings of 41% of the Company's stores and held title to the buildings on leased land of an additional 10% of the Company's stores. The Company also holds title to the land and buildings of most of its administrative offices and distribution facilities. Item 3. Legal Proceedings The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In March 2000 a class action complaint was filed against Albertsons 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 (Gardner, et al. v. Albertson's, Inc., et al.) by bonus-eligible managers seeking recovery of additional bonus compensation based upon plaintiffs' allegation that the calculation of profits on which their bonuses were based improperly included expenses for workers' compensation costs, cash shortages, premises liability and "shrink" losses in violation of California law. In October 2001 the court granted summary judgment against Sav-on Drug Stores, finding one of its bonus plans unlawful under plaintiffs' liability theory. In August 2001 a class action complaint with very similar claims, also involving bonus-eligible managers, was filed against Albertson's, Inc., Lucky Stores, Inc. and American Stores Company, wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Petersen, et al. v. Lucky Stores, Inc., et al.). In June 2002 the cases were consolidated and in August 2002 a class action with respect to the consolidated case was certified by the court. 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 that the ultimate resolution of this action will have a material adverse effect on the Company's financial condition, results of operations or cash flows. In April 2000 a class action complaint was filed against Albertsons 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 (Gardner, et al. v. American Stores Company, et al.) by assistant managers seeking recovery of overtime pay based upon plaintiffs' allegation that they were improperly classified as exempt under California law. In May 2001 a class action with respect to Sav-on Drug Stores assistant managers was certified by the court. A case with very similar claims, involving the Sav-on Drug Stores assistant managers and operating managers, was also filed in April 2000 against the Company's subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the County of Los Angeles, California (Rocher, Dahlin, et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. In April 2002 the Court of Appeal of the State of California Second Appellate District reversed the Rocher class certification, leaving only two plaintiffs. The California Supreme Court has accepted plaintiffs' request for review of this class decertification. The Gardner case is on hold pending the review by the California Supreme Court. 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 that the ultimate resolution of these lawsuits will have a material adverse effect on the Company's financial condition, results of operations or cash flows. In August 2000 a class action complaint was filed against Jewel Food Stores, Inc., a 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 and seeking compensatory, punitive, and injunctive relief. In July 2002 a class was certified, consisting of all people residing in the Chicagoland area who bought milk at retail from either or both of the defendants between August 23, 1996 and August 23, 2000. On February 25, 2003, the trial judge granted Jewel's and Dominick's motion to dismiss after presentation of plaintiffs' case, and the case was dismissed with prejudice. The plaintiffs have filed a notice of intent to appeal the decision issued in favor of the defendants. 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, and 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 met eligibility criteria have been allowed to present their off-the-clock work claims to a settlement administrator. Additionally, current and former grocery managers employed in the State of California have been allowed to present their exempt status claims to a settlement administrator. The 8 Company mailed notices of the settlement and claims forms to approximately 80,000 associates and former associates. Approximately 6,000 claim forms were returned, of which approximately 5,000 were deemed by the settlement administrator to be incapable of valuation, presumed untimely, or both. The court will consider the status and handling of these 5,000 claims. The claims administrator was able to assign a value to approximately 1,000 claims, which amount to a total of approximately $13.5, although the value of many of those claims is still subject to challenge by the Company. The Company is presently unable to determine the number of individuals who may ultimately submit valid claims or the amounts that it may ultimately be required to pay with respect to such claims. Based on the information presently available to it, management does not expect that the satisfaction of valid claims submitted pursuant to the settlement will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is also involved in routine legal proceedings incidental to its operations. The Company utilizes various methods of alternative dispute resolution, including settlement discussions, to manage the costs and uncertainties inherent in the litigation process. Management does not expect that the ultimate resolution of these legal proceedings will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The statements above reflect management's current expectations based on the information presently available to the Company. However, predicting the outcomes of claims and litigation and estimating related costs and exposures involve substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. In addition, the Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures. It is possible that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company's financial condition, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted during the fourth quarter of 2002 to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The Company's common stock is traded on both the New York Stock Exchange and the Pacific Stock Exchange under the symbol ABS. As of March 28, 2003, there were approximately 31,241 holders of record. The following table sets forth the reported high and low stock prices by quarter:
Common Stock Market Price ------------------------- Dividends 2002 High Low Declared ----------------------- ---- --- -------- Fourth Quarter $24.60 $18.85 $0.19 Third Quarter 28.66 22.14 0.19 Second Quarter 35.49 26.51 0.19 First Quarter 35.49 26.88 0.19 2001 ----------------------- Fourth Quarter 35.59 28.26 0.19 Third Quarter 36.99 29.25 0.19 Second Quarter 33.72 27.30 0.19 First Quarter 34.05 27.00 0.19
Dividends The Company has paid cash dividends on its Common Stock for the past forty-three fiscal years. The Company pays these dividends at the discretion of the Board of Directors. The continuation of these payments, the amount of such dividends, and the form in which the dividends are paid (cash or stock) depend upon many factors, including the results of operations and the financial condition of the Company. 9 Item 6. Selected Financial Data The following data have been derived from the consolidated financial statements of the Company and should be read in conjunction with those statements, which are included in this report.
52 WEEKS 52 WEEKS 52 WEEKS 53 WEEKS 52 WEEKS (DOLLARS IN MILLIONS, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, EXCEPT PER SHARE DATA) 2003 2002 2001 2000 1999 - ---------------------------------- ---------------- -------------- --------------- -------------- ------------- Operating Results: Sales $ 35,626 $ 36,605 $ 35,501 $ 36,326 $ 34,915 Earnings from continuing operations 865 496 746 395 779 Net earnings 485 501 765 404 801 Net earnings as a percent to 1.38% 1.38% 2.15% 1.12% 2.28% sales Common Stock Data: Earnings from continuing operations: Basic $ 2.18 $ 1.22 $ 1.78 $ 0.93 $ 1.86 Diluted 2.17 1.22 1.78 0.92 1.85 Net earnings per share: Basic 1.22 1.23 1.83 0.96 1.91 Diluted 1.22 1.23 1.83 0.95 1.90 Cash dividends per share: Albertsons 0.76 0.76 0.76 0.72 0.68 American Stores Company equivalent - - - 0.14 0.57 Financial Position: Total assets $ 15,211 $ 15,981 $ 16,094 $ 15,719 $ 15,131 Long-term debt and capitalized lease obligations 5,257 5,336 5,942 4,990 5,108 Other Year End Statistics: Number of stores 2,287 2,421 2,512 2,492 2,564
The operating results include two significant restructuring initiatives that were implemented in 2001 and 2002 (refer to "Note F - Restructuring" and "Note E - Discontinued Operations/Market Exits" in the notes to the accompanying consolidated financial statements). Although these decisions were similar, the adoption of Statement of Financial Accounting Standard (SFAS) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" on February 1, 2002 caused the financial statement presentation of these actions to be dissimilar (SFAS No. 144 does not allow for the retroactive application of its provisions). The Company's financial statements have been restated to classify the results of operations for the 95 stores, two distribution centers and the reduction of division offices from 15 to 11, as discontinued operations for all periods. The operating results of the 165 stores are included in continuing operations of the Company's financial statements for the periods prior to their sale or closure. The Company adopted SFAS 142 in 2002 (refer to "Note M - Goodwill and Other Intangible Assets" in the notes to the accompanying consolidated financial statements). On June 23, 1999, Albertsons and American Stores Company consummated a merger, which has been accounted for as a pooling of interests. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The New Albertsons The Company's leadership team has identified many actions and programs with which to drive the Company's future competitiveness, profitability and return on invested capital. The Company continues to be focused on its five strategic imperatives that serve as a guide and a filter for all the Company's initiatives. 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. By the end of 2002, the Company had achieved $446 of the $500 10 mid-2003 annual cost reduction goal. The Company is committed to achieve cost reductions of $750 by the end of 2004. In the third quarter of 2002, the Company expanded its existing strategic sourcing program to realize additional cost reductions by engaging A.T. Kearney to leverage their sourcing expertise to assist with this program. 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. This process involves thorough review at both the individual asset or store level and at the market area level. As a result of the review initiated in 2001, the Company closed or disposed of 162 underperforming stores in 2001 and 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 this initial restructuring, the Company reduced its divisions from 19 to 15. o During the fourth quarter of 2001, the Company sold 80 non-core New England Osco drugstores. o In the first quarter of 2002, the Company announced the second phase of its asset rationalization process. The Company exited four underperforming markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas. These market exits occurred through a combination of store closures and store sales and involved a total of 95 stores. In connection with this action, the Company reduced its divisions from 15 to 11 and the Tulsa, Oklahoma and Houston, Texas distribution facilities were sold. 3) Customer-focused Approach to Growth. The Company intends to invest many of the savings from the expense and process control programs back into the marketplace in order to drive sales and earnings growth. The Company'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. The "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 2001 and was rolled out to the Phoenix, Arizona and Omaha, Nebraska markets during 2002. During the fourth quarter of 2001, the Company expanded its loyalty card program to the Dallas/Fort Worth, Texas area. During 2002 the loyalty card program was rolled out to the following areas: Northern California, Northwest, Intermountain, and the Florida divisions. The loyalty card program was introduced in the Rocky Mountain division in March 2003, and the Company continues to evaluate additional markets for expansion of the preferred savings card program. 4) Company-wide Focus on Technology. Albertsons use of technology is designed to better serve customers and improve operating efficiencies. In 2002 Albertsons established an information technology plan, which calls for the replacement or upgrade of over three-quarters of the Company's current systems within the next five years. The Company initiated a project that will standardize all front-end point-of-sale systems; built a new data center resulting in the consolidation of two previous data centers; and started the process of implementing a new financial applications system that will lay the foundation for significant future improvements. Technology has been deployed in approximately 60 stores in "self-checkout" lanes, providing customers with the option to complete their shopping trips electronically. 5) Energized Associates. The Albertsons leadership team is charged with creating an uplifting atmosphere for associates everyday, and to inspire positive attitudes throughout the Company. To ensure that our 202,000 associates are energized and motivated to do their best work everyday, the Company realigned processes and programs to provide new opportunities for associates to achieve their professional career goals. The Company changed compensation programs to reward performance that delivers results, improved communications so associates are better informed, streamlined education programs to meet the needs of the business, and revised benefits plans to reduce costs. We are convinced that a team of energized associates who share a positive attitude will achieve Albertsons goal of becoming the best food and drug retailer in the world. 11 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. The preparation of these financial statements requires the Company to make estimates and judgments 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, vendor funds, 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 judgments 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 to its judgments and estimates where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described above. 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. VENDOR FUNDS The Company receives funds from the many vendors whose products the Company buys for resale in its stores. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of the vendor's products in the Company's advertising; placement of the vendor's products in prominent locations in the Company's stores; introduction of new products into the Company's distribution system and retail stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at retail stores. The Company also receives vendor funds for buying activities, such as volume commitment rebates and forward buy credits. Accounting for vendor funds is discussed in Emerging Issues Task Force "EITF" Issue 02-16: Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (EITF 02-16), in which the EITF reached consensus on two issues in November 2002 and provided transition rules on those issues in January 2003 and March 2003. As a result of this new guidance, the Company adopted a new method for recognizing the vendor funds for merchandising activities. As of the beginning of 2002, the Company recognizes vendor funds for merchandising activities when the related products are sold. Under the previous accounting method for merchandising vendor funds, these credits were recognized as an offset to cost of sales when the merchandising activity was performed in accordance with the underlying agreements. In connection with the implementation of this new accounting method, the Company recorded a charge in 2002 of $94, net of tax benefit of $60. The vendor fund inventory offset recorded as of January 30, 2003 was $152, which is a $6 decrease from the balance as of the beginning of 2002. The inventory offset was determined by estimating the average inventory turnover rates by product category for the Company's grocery, general merchandise and lobby departments (these departments received over three-quarters of the Company's vendor funds in 2002) and by average inventory turnover rates by department for the Company's remaining inventory. LONG-LIVED ASSET IMPAIRMENTS The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset group may not be recoverable. The asset impairment review assesses the fair value of the assets based on the future cash flows the assets are expected to generate. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset (if any) are less than the related asset's carrying amount. Impairment losses are measured as the amount by which the carrying amounts of the assets exceed their fair values. The net proceeds expected from the disposition of the asset are determined by independent quotes or expected sales prices developed by internal specialists. Estimates of future cash flows and expected sales prices are judgments based on the Company's experience and knowledge of local operations. 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. (Beginning on January 1, 2003, "expected sublease recovery" has been replaced by "estimated sublease rentals that could be 12 reasonably obtained for the property.") The value of any equipment and leasehold improvements related to a closed store is reduced to reflect net recoverable values. Internal specialists estimate the subtenant income, future cash flows and asset recovery values based on their historical experience and knowledge of (1) the market in which the store to be closed is located, (2) the results of its previous efforts to dispose of similar assets and (3) the current economic conditions. The actual cost of disposition for these leases and related assets is affected by specific real estate markets, the economic environment and inflation. 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 state 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. LEGAL CONTINGENCIES The Company records reserves for legal contingencies when the information available to the Company indicates that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Predicting the outcomes of claims and litigation and estimating related costs and exposures involve substantial uncertainties that could cause actual costs to vary materially from estimates. In addition, the Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures. It is possible that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company's financial condition, results of operations or cash flows. PENSION COSTS Pension benefit obligations and the related effects on operations are dependent on the Company's selection of actuarial assumptions, including the discount rate and the expected long-term rate of return on plan assets. Actual returns on plan assets exceeded return assumptions over an extended period in the past, which 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. Actual results that differ from the Company's assumptions are accumulated and amortized over future periods and, therefore, generally affect the Company's recognized expense and recorded obligation in such future periods. Recently Adopted Accounting Standards The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets" effective February 1, 2002. Under this new statement, goodwill and certain other intangible assets with indefinite lives are no longer amortized, but are subject to annual testing, or more frequently if impairment indicators arise, using fair value methodology. Intangible assets with finite, measurable lives continue to be amortized over their respective useful lives until they reach their estimated residual values, and are reviewed for impairment in accordance with SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." When SFAS No. 142 was adopted, the aggregate of the goodwill allocated to the stores in each reporting unit became the reporting units' goodwill balance. In order to determine if a reporting unit's goodwill was impaired, a combination of internal analysis, focusing on each reporting unit's implied EBITDA multiple, and estimates of fair value from valuation specialists were used. Based on these analyses, there was no impairment of goodwill at the adoption date. Subsequently, during the fourth quarter of 2002, the Company completed its annual impairment review based on November 1, 2002 balances and determined that there was no impairment as of that date. The fair value estimates could change in the future depending on internal and external factors. The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," effective February 1, 2002. This statement replaces SFAS No. 121 regarding impairment losses on long-lived assets to be held and used or to be disposed of. The adoption of this statement did not have a material impact on the company's impairment policy. However, the statement broadens the definition of what constitutes a discontinued operation and how the results of a 13 discontinued operation are to be measured and presented. As a result, stores associated with the company's exit from a particular market are classified as discontinued operations in the Company's Consolidated Earnings Statements. Therefore, activity associated with the Company's market exit plan approved by the Company's Board of Directors in March 2002, involving the sale or closure of 95 stores, two distribution centers and the reduction of division offices from 15 to 11, has been presented as discontinued operations. Results of Operations Sales for 2002 were $35,626 compared to $36,605 in 2001 and $35,501 in 2000. 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:
PERCENTAGE CHANGE PERCENT TO SALES OF DOLLAR AMOUNTS - ----------------------------------------- -------------------------------- ------------------------------ 2002 2001 2000 2002 VS. 2001 2001 VS. 2000 - ----------------------------------------- ---------- ---------- ---------- --------------- -------------- Sales 100.00 100.00 100.00 (2.7) 3.1 Gross profit 29.15 28.48 28.43 (0.4) 3.3 Selling, general and administrative expenses 24.15 23.85 23.79 (1.4) 3.4 Restructuring (credits) charges and 1.28 - n.m. n.m. other (0.10) Gain on sale of New England Osco drugstores - (0.15) - n.m. n.m. Interest expense, net 1.11 1.16 1.06 (6.8) 12.4 Earnings from continuing operations before income taxes 3.95 2.36 3.50 62.8 (30.6) Net earnings from continuing operations 2.44 1.36 2.10 74.4 (33.5) Net (loss) gain from discontinued operations (0.80) 0.02 0.05 n.m. (73.7) Cumulative effect of change in accounting principle (net) (0.26) - - n.m. n.m. Net earnings 1.38 1.38 2.15 3.2 (34.5) n.m. - not meaningful
Sales for 2001 and 2000 have been restated from previously reported amounts to exclude sales associated with discontinued operations which represent sales of the 95 stores included in the second phase of the Company's market exit plan. The decrease in reported sales is primarily attributable to the Company's restructuring plan initiated in July 2001, which included the sale or closure of 165 stores, and the sale of 80 New England Osco drugstores in the fourth quarter of 2001. (These stores' sales are included in the 2000, 2001 and 2002 periods until their closure.) The sales decrease was offset in part by the Company's capital expansion program. Sales were also impacted by declining consumer confidence (as measured by The Conference Board Index: 78.8 in January 2003 vs. 97.8 in January 2002) and escalating competitive activity. Identical store sales, stores that have been in operation for two full fiscal years, decreased 0.9% in 2002 and increased 0.8% in 2001 and 0.3% in 2000. Comparable store sales, which uses the same store base as the Identical store sales computation except it includes replacement stores, decreased 0.4% in 2002 and increased 1.3% in 2001 and 0.6% in 2000. During 2002 the Company opened 92 stores, remodeled 207 stores and closed or sold 226 stores, 177 of which are part of the Company's restructuring plans. Net retail square footage at continuing operations was 92.1 million square feet at the end of 2002 and 92.8 million square feet and 92.9 million square feet at the end of 2001 and 2000, respectively. Management estimates that overall deflation in products the Company sells was 0.1% in 2002, 0.3% in 2001 and 0.4% in 2000. Gross profit, as a percent to sales, increased in 2002 vs. 2001 as a result of improved Company-wide procurement practices and increased generic substitution in the pharmacy department. Gross profit, as a percent to sales, remained relatively flat between 2001 and 2000. The pre-tax LIFO adjustment, (as a percent to sales), increased gross profit by $2 (0.01%) in 2002, decreased gross profit by $5 (0.01%) in 2001, and increased gross profit by $23 (0.06%) in 2000. 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. Cost of sales includes merchandise, advertising, warehousing and transportation costs, offset by vendor funds and advertising expense related to the Company's buying and merchandising activities. Advertising expense (excluding advertising allowances) totaled $527 in 2002, $537 in 2001, and $550 in 2000. 14 Selling, general and administrative (SG&A) expenses as a percent to sales increased in 2002, primarily due to the reduction in the Company's sales base, increase in employee benefits and rising insurance costs. The impact of the elimination of goodwill amortization in 2002 due to the adoption of SFAS 142 and a ten basis point reduction in labor costs as a percentage of sales was offset by increased depreciation and rent expense associated with the Company's capital expenditure programs. The increase in 2001 over 2000 was 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. Other income, for the year ended January 31, 2002, includes $16 of charges for a decrease in company-owned life insurance assets, offset by $8 of credits for stock received from the demutualization of two insurance companies. The Company's effective income tax rate from continuing operations for 2002 was 38.4%, as compared to 42.6% for 2001 and 40.0% for 2000. The decrease resulted from the elimination of goodwill amortization and updated estimates of federal and state taxes which were lower than amounts previously estimated. The increase for 2001 over 2000 was due to lower earnings before income taxes, non-deductible restructuring expenses and increased non-deductible company-owned life insurance costs. Restructuring and Other Non-Routine Items The financial statement presentation includes the results of two significant restructuring initiatives that were implemented in 2001 and 2002. On July 18, 2001, the Company's Board of Directors approved a restructuring plan that included the closure of 165 underperforming retail stores, reduction of administrative and corporate overhead and consolidation and elimination of four division offices (refer to "Note F - Restructuring" in the notes to the accompanying consolidated financial statements). On March 13, 2002, the Company's Board of Directors approved the second phase of the restructuring plan which included the complete exit of four underperforming markets resulting in the sale or closure of 95 stores, two distribution centers, and reduction of division offices from 15 to 11 (refer to "Note E - Discontinued Operations/Market Exits" in the notes to the accompanying consolidated financial statements). Although these decisions were similar, the adoption of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" on February 1, 2002 caused the financial statement presentation of these actions to be dissimilar (SFAS No. 144 does not allow for the retroactive application of its provisions). The Company's 2001 and 2000 financial statements have been restated to classify the results of operations for the 95 stores and two distribution centers as discontinued operations. The operating results of the 165 stores are included in continuing operations of the Company's financial statements for the periods prior to their sale or closure. Discontinued Operations/Market Exits On March 13, 2002, the Company's Board of Directors approved the second phase of the Company's restructuring plan designed to improve future financial results and to drive future competitiveness. This phase of the plan included the complete exit of four underperforming markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas. This involved the sale or closure of 95 stores and two distribution centers, and reduction of division offices from 15 to 11. These sales and closures were evaluated for lease liability or asset impairment, including goodwill, in accordance with the Company's policy. The operating results and gains and losses related to these market exits have been included in discontinued operations in the Company's Consolidated Earnings Statements. The prior years' operating activities for these 95 stores, two distribution centers, and reduction of division offices from 15 to 11 have been reclassified to discontinued operations: "Operating (loss) income" in the accompanying earnings statement. 15 The discontinued operations generated sales of $290, $1,326, and $1,261 in 2002, 2001 and 2000, respectively, an operating loss of $429 in 2002, and operating profit of $10 and $31 in 2001 and 2000, respectively. The discontinued operations operating loss of $429 consisted of a loss from operations of $50 and asset impairments, lease settlements and other costs of $379 as described in the following table:
NONCASH TOTAL CHARGES CHARGES ACCRUALS (CREDITS) ------------------ ------------------- ------------------ Asset impairments $ 401 $ - $ 401 Lease settlements - 26 26 Severance and outplacement - 23 23 Other - 2 2 Gain on asset sales (63) - (63) Favorable lease settlements - (10) (10) ------------------ Loss on disposal $ 379 ================== Cash payments during 2002 (30) ------------------- Reserve balance at January 30, 2003 $ 11 ===================
The reserve balance of $11 as of January 30, 2003 is included with the restructuring reserves in the "other current liabilities" line on the Company's Consolidated Balance Sheet. Asset impairment adjustments resulted from the Company realizing sales proceeds in excess of amounts originally estimated on stores disposed of and increases to net realizable values for stores under contract for sale. Lease liability adjustments represent more favorable negotiated settlements than had been originally estimated. Assets related to discontinued operations are recorded at their estimated net realizable value of $25 as of January 30, 2003, and are reported as Assets held for sale in the Company's Consolidated Balance Sheet. These assets include land, buildings, equipment and leasehold improvements and are being actively marketed. As of January 30, 2003, all 95 stores and both distribution centers were closed. In addition, the Company had either sold or terminated the leases related to 82 of the 95 stores and both distribution centers as of January 30, 2003. Other costs consist of amounts paid in connection with notification regulations and negotiated contract terminations. Restructuring In the first half of 2001, the Company initiated a profitability review of all of its retail stores, utilizing a methodology based on return on invested capital. The Company also evaluated its division management structure and the efficiency of its transaction processing departments. Based on these reviews, in July 2001 the Company committed to the following restructuring activities: 1) close and dispose of 165 underperforming stores in 25 states; 2) eliminate four of the existing 19 division offices; 3) sell a store fixture manufacturing operation; 4) centralize certain transaction processing functions in Boise, Idaho; and 5) reduce general office head count. These restructuring activities called for the elimination of 1,341 managerial and administrative positions (excluding store level terminations). The restructuring charge recorded in 2001 included the following: employee severance and outplacement costs of $44, asset impairments of $361; lease termination costs of $57; and other costs of $6. In 2001 and 2002, 80 and 82 stores were closed or sold and 995 and 297 managerial and administrative employees were terminated, respectively. In 2002, management revised the planned restructuring activities as follows: the store fixture manufacturing operation's performance was re-evaluated and determined to be more cost-effective than purchasing like-fixtures from external sources in the future, so it will be held and used; one store's operating performance improved due to local market conditions, so it too will be held and used; and one part of the transaction processing consolidation was halted due to a decision to replace the Company's human resource information systems (HRIS) over the next two to three years, which resulted in the reversal of the elimination of 50 positions. The remaining two stores in this restructuring plan will be closed in 2003. 16 The following table presents the pre-tax restructuring credits and charges and the related restructuring reserves included in the Company's Consolidated Balance Sheets:
NONCASH TOTAL CHARGES CHARGES ACCRUALS (CREDITS) ------------------ ------------------- ------------------ 2001 Activity Asset impairments $ 361 $ - $ 361 Lease settlements - 57 57 Severance and outplacement - 44 44 Other - 6 6 ------------------ Restructuring (credits) charges $ 468 ================== Cash payments during 2001 (46) ------------------- Reserve balance at January 31, 2002 61 2002 Activity Retain store fixtures operation (3) (2) $ (5) Halt part of consolidation - HRIS - (2) (2) Gain on asset sales (17) - (17) Favorable lease settlements - (14) (14) Severance and outplacement - 2 2 Other - (1) (1) ------------------ Restructuring (credits) charges $ (37) ================== Cash payments during 2002 (16) ------------------- Reserve balance at January 30, 2003 $ 28 ===================
The reserve balances of $28 at January 30, 2003 and $61 at January 31, 2002 are included in the "Other Current Liabilities" line on the Company's Consolidated Balance Sheets. Merger-Related Charges (Credits) On June 23, 1999, the Company and American Stores Company consummated a merger (the "Merger"), which has been accounted for as a pooling-of-interests. Merger-related (credits) charges for 2001 represents a credit of $15 associated with the sale of an asset for an amount that was greater than originally estimated. Merger-related (credits) charges for 2000 represents $24 related to one-time asset impairment and severance charges. In the future any restructuring activity will be accounted for under the guidance of SFAS No. 146, which will primarily effect the timing of restructuring reserves. Other Non-Routine Items The Company recorded a $54 pre-tax 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 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 charge during the first quarter of 2000, which is included in selling, general and administrative expenses to reflect liabilities related to certain previously assigned leases and subleases to tenants who were in bankruptcy. 17 Summary of Other Non-Routine Items In the past three years, the Company's earnings from continuing operations have included certain non-routine items, including costs associated with restructuring activities and the 1999 merger of Albertsons and American Stores Company, and the cessation of goodwill amortization following the adoption of SFAS 142. The following table summarizes the non-routine items that management excludes when it analyzes the Company's operating trends over the past three years. Management also considers the restructuring (credits) charges and other, merger-related credits, gain on sale of New England Osco drugstores, and discontinued operations to be non-routine items.
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED JANUARY 30, 2003 JANUARY 31, 2002 FEBRUARY 1, 2001 ------------------------ ------------------------- ------------------------- As As As Reported Adjustments Reported Adjustments Reported Adjustments ----------- ------------ ------------ ------------ ------------ ------------ Sales $35,626 $ - $36,605 $ - $35,501 $ - Cost of sales 25,242 (1) (a) 26,179 (35) (c) 25,409 (37) (f) Selling, general and administrative expenses 8,604 (8) (b) 8,731 (40) (d) 8,444 (110) (g) (56) (e) (57) (e) Income tax expense 540 (11) (h) 367 181 (h) 497 66 (h)
(a) In connection with the market exits classified as discontinued operations in 2002, the Company's distribution center in Fort Worth, Texas recorded inventory write-down costs and incremental labor and transportation costs of $1. (b) The Company incurred professional fees of $4, asset impairments of $2 and other costs of $2 in connection with the 2002 market exits. (c) In the 2001 restructuring activities, inventory losses due primarily to closeout price reductions and damage or spoilage at stores slated for closure were incurred. The estimated losses incurred were $35. (d) In 2001, the Company recorded asset impairments of $52 with respect to land and buildings held for sale, amended its long-term disability program resulting in a gain of $36, recorded merger and integration costs of $12, incurred sign-on bonus charges of $8, and paid for legal and professional services of $4 associated with the 2001 restructuring activities. (e) The Company recorded $56 and $57 of goodwill amortization in 2001 and 2000, respectively. With the adoption of SFAS 142 as of the beginning of 2002, the Company no longer recognizes a charge for goodwill (See Critical Accounting Policies above). (f) Following the June 1999 merger between Albertsons and American Stores Company, the Company incurred $37 of incremental advertising costs related to the conversion of the Lucky banner in California to the Albertsons banner. (g) The Company incurred significant costs in 2000 in connection with the integration of Albertsons and American Stores Company. Direct costs incurred included salaries of $27, legal and professional services of $10, travel and moving expenses of $10, facilities and equipment costs of $12, asset impairment costs of $9 associated with stores divested in connection with the 1999 merger and information technology equipment that was abandoned by the Company and other costs of $22. In addition, the Company recorded a charge of $20 due to the bankruptcy of a retailer that subleased certain of the Company's former retail stores. (h) Represents, for each of the years presented, the income tax effect of the other adjustments presented for such year. 18 Liquidity and Capital Resources Cash provided by operating activities during 2002 was $2,063, compared to $2,009 in 2001 and $1,771 in 2000. Cash provided by operating activities in 2002 was primarily impacted by increased earnings before change in cumulative effect of accounting principle. Cash provided by operating activities in 2001 was primarily impacted by noncash restructuring charges when compared to 2000. The Company's financing activities for 2002 included payments on long-term borrowings of $143, stock purchased and retired of $862, and dividend payments of $306. The Board of Directors, at its March 2003 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 30, 2003 or January 31, 2002. The Company had three credit facilities totaling $1,400 during 2002. The first agreement for $100 expired in February 2003 and was renewed for an additional year to expire in February 2004. The second agreement for $350 expired in March 2003 and was renewed for an additional year to expire in March 2004. 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 $3,000 and a fixed charge coverage, as defined, of no less than 2.7 times. As of January 30, 2003, the Company was in compliance with these requirements. No borrowings were outstanding under the credit facilities as of January 30, 2003 or January 31, 2002. Albertsons filed a shelf registration statement with the Securities and Exchange Commission ("SEC"), which became effective on February 13, 2001 ("2001 Shelf Registration") 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 Shelf Registration. 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. During 2002, no securities were issued under the 2001 Registration Statement. As of January 30, 2003, $2,400 of debt securities remain available for issuance under the 2001 Registration Statement. 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 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. No shares were purchased during 2001. 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. On September 5, 2002, the Board of Directors authorized an increase of $500 to this program for a total of $1,000 of the Company's common stock that could be purchased and retired by the Company through December 31, 2002. The Board of Directors adopted a stock buyback program on December 9, 2002, authorizing, at management's discretion, the Company to purchase and retire up to $500 of the Company's common stock beginning January 1, 2003 and ending December 31, 2003. During 2002, the Company purchased and retired 35.1 million shares for $862 at an average price of $24.54 per share under these programs. The Company may continue or, from time to time suspend, purchasing shares under its stock purchase program without notice, depending on prevailing market conditions, alternate uses of capital and other factors. The Company's operating results continue to enhance its financial position and ability to continue its internal expansion program. Cash flows from operations and available borrowings are adequate to support currently planned business operations, stock repurchases, acquisitions and capital expenditures. The Company has short-term financing capacity in the form of commercial paper or bank line borrowings up to $1,400 and long-term capacity under the 2001 Registration Statement of $2,400. 19 As of January 30, 2003, the Company's credit ratings were as follows:
S & P MOODY'S FITCH ----------------------------------- ----------------- ----------------- ----------------- Long-term debt BBB+ Baa1 BBB+ Short-term debt A2 P2 F2
There are no payment acceleration provisions in the Company's fixed-term debt portfolio related to a downgrade in the Company's credit ratings. Similarly, a downgrade in the Company's credit ratings would not affect the Company's ability to borrow amounts under the revolving credit facilities. However, 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. Contractual Obligations and Commercial Commitments Albertsons 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 30, 2003:
AFTER YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL - --------------------------------------- ------------------ ------------ ------------ ------------ ---------- Long-term debt $ 105 $ 704 $ 14 $ 4,232 $ 5,055 Capital lease obligations (1) 47 88 79 531 745 Operating leases (1) 330 637 545 2,275 3,787 Contracts for purchase of property and construction of buildings 176 - - - 176 Other (2) 96 136 6 - 238 - --------------------------------------- ------------------ ---------- ------------- ------------ ---------- Total contractual cash obligations $ 754 $1,565 $ 644 $ 7,038 $10,001 ======================================= ================== ========== ============= ============ ==========
(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) Includes transportation contracts with third parties. Also, 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 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 parties fail to perform under the agreements. Albertsons commercial commitments as of January 30, 2003, representing possible commitments triggered by potential future events, are as follows:
AFTER YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL - --------------------------------------- ---------- ------------- --------------- ----------- ----------- Available lines of credit $450 $950 $ - $ - $1,400 Letters of credit - standby 95 - - - 95 Letters of credit - commercial 13 - - - 13 - --------------------------------------- ---------- ------------- --------------- ----------- ----------- Potential commercial commitments $558 $950 $ - $ - $1,508 ======================================= ========== ============= =============== =========== ===========
Letters of Credit The Company had outstanding Letters of Credit of $108 as of January 30, 2003, all of which were issued under separate bilateral agreements with multiple financial institutions. Of the $108 outstanding at year end, $95 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 0.70% of the outstanding balance of the letter of credit. 20 Off Balance Sheet Arrangements The Company has no significant investments that are accounted for under the equity method in accordance with accounting principles generally accepted in the United States. Investments that are accounted for under the equity method have no liabilities associated with them that would be considered material to Albertsons. Capital Expenditures The Company continues to retain ownership of real estate when possible. As of January 30, 2003, the Company held title to the land and buildings of 41% of the Company's stores and held title to the buildings on leased land of an additional 10% of the Company's stores. The Company also holds title to the land and buildings of 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 527 stores representing 25% of the Company's retail square footage as of January 30, 2003. 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:
2002 2001 2000 - ---------------------------------------------------------------- ------------ ------------ ----------- New and acquired stores $ 688 $ 875 $ 1,066 Remodels 455 348 423 Retail replacement equipment, technology and other 221 247 170 Distribution facilities and equipment 70 64 174 - ---------------------------------------------------------------- ------------ ------------ ----------- Total capital expenditures 1,434 1,534 1,833 Estimated fair value of property financed by operating leases 150 153 99 - ---------------------------------------------------------------- ------------ ------------ ----------- $ 1,584 $ 1,687 $ 1,932 ================================================================ ============ ============ ===========
Total capital expenditures include capitalized lease obligations incurred of $75 in 2002, $79 in 2001 and $62 in 2000. The Company's strong financial position provides the flexibility for the Company to grow through its store development program and future acquisitions. The Company's capital expenditure budget for 2003 is approximately $1,400 and approximately $100 in new lease obligations. Related Party Transactions Transactions with related parties were not considered material. See "Note U - Related Party Transactions" in the Notes to Consolidated Financial Statements. Recent Accounting Standards In July 2001 the Financial Accounting Standard Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become effective for Albertsons 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 impact that this standard will have on its financial statements, but believes it will not have a material impact on the Company's consolidated financial statements. In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses from extinguishment of debt will no longer be aggregated and classified as an extraordinary item, net of related income tax effect, on the statement of earnings. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier application encouraged. The provisions of SFAS No. 145 will be effective for fiscal year beginning January 31, 2003. The adoption of SFAS No. 145 will not have a material impact on the Company's consolidated financial statements. In June 2002 the SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued. This statement nullifies existing guidance related to the accounting and reporting for costs associated with exit or disposal activities and requires that the fair value of a liability associated with an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, certain exit costs were permitted to be accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of this statement are required to be adopted for all exit or disposal activities initiated after December 31, 2002. 21 This statement will not impact any liabilities recorded prior to adoption. As required the Company will adopt SFAS No. 146 effective in 2003. The Company does not expect that the adoption of this statement will have a material impact on the Company's consolidated financial statements. In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The accompanying Note Q - Stock Options and Stock Awards - satisfies the disclosure requirements of SFAS No. 148. In November 2002 the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for guarantees issued after December 31, 2002, while the disclosure requirements were effective for financial statements for periods ending after December 15, 2002. At January 30, 2003, the Company had not entered into any material arrangement that would be subject to the disclosure requirements of FIN 45. In addition, the Company does not believe that the adoption of FIN 45 will have a material impact on the Company's consolidated financial statements. In January 2003 the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the impact that the adoption of FIN 46 will have on the Company's consolidated financial statements. 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 properties). The Company conducts an ongoing program for the inspection and evaluation of potential new sites 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 believed to be remote. Although the ultimate outcome and expense of environmental remediation is uncertain, the Company believes that the costs of required remediation and continuing compliance with environmental laws, in excess of current reserves, will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. Charges against earnings for environmental remediation were not material in 2002, 2001 or 2000. 22 Item 7A. 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 generally 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. As of January 30, 2003, the Company had no foreign exchange exposure and 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:
THERE- FAIR 2003 2004 2005 2006 2007 AFTER TOTAL VALUE - --------------------- -------- -------- -------- -------- -------- ---------- ----------- ----------- Fixed rate debt obligations $ 105 $ 502 $ 202 $ 2 $ 12 $ 4,232 $ 5,055 $ 5,675 Weighted average interest rate 7.1% 6.6% 7.4% 8.1% 6.9% 7.5% 7.4% -
23 Item 8. Consolidated Financial Statements and Supplementary Data Albertsons Index to Consolidated Financial Statements
Page Number Independent Auditors' Report 25 Consolidated Earnings for the fiscal years ended January 30, 2003, January 31, 2002 and February 1, 2001 26 Consolidated Balance Sheets at January 30, 2003 and January 31, 2002 27 Consolidated Cash Flows for the fiscal years ended January 30, 2003, January 31, 2002 and February 1, 2001 28 Consolidated Stockholders' Equity for the fiscal years ended January 30, 2003, January 31, 2002 and February 1, 2001 29 Notes to Consolidated Financial Statements 30
24 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Albertson's, Inc.: We have audited the accompanying consolidated balance sheets of Albertson's, Inc., and subsidiaries as of January 30, 2003 and January 31, 2002, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended January 30, 2003. 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 30, 2003 and January 31, 2002, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 2003, in conformity with accounting principles generally accepted in the United States of America. As discussed in the notes to the consolidated financial statements, during the year ended January 30, 2003, the Company changed its methods of accounting for goodwill (Notes B and M) and for closed stores (Note E) to conform to Statements of Financial Accounting Standards No. 142 and 144. Also during the year ended January 30, 2003, the Company changed its method of accounting for vendor funds (Notes B and C) to conform to Emerging Issues Task Force Issue No. 02-16. \S\ Deloitte & Touche LLP Deloitte & Touche LLP Boise, Idaho March 20, 2003 25 ALBERTSON'S, INC. CONSOLIDATED EARNINGS
FOR THE 52 WEEKS ENDED JANUARY 30, JANUARY 31, FEBRUARY 1, (IN MILLIONS, EXCEPT PER SHARE DATA) 2003 2002 2001 - ---------------------------------------------------------- ----------------- ------------------ ------------------ Sales $ 35,626 $ 36,605 $ 35,501 Cost of sales 25,242 26,179 25,409 - ---------------------------------------------------------- ----------------- ------------------ ------------------ Gross profit 10,384 10,426 10,092 Selling, general and administrative expenses 8,604 8,731 8,444 Restructuring (credits) charges and other (37) 468 - Gain on sale of New England Osco drugstores - (54) - Merger-related (credits) charges - (15) 24 - ---------------------------------------------------------- ----------------- ------------------ ------------------ Operating profit 1,817 1,296 1,624 Other expenses: Interest, net (396) (425) (378) Other, net (16) (8) (3) - ---------------------------------------------------------- ----------------- ------------------ ------------------ Earnings from continuing operations before taxes 1,405 863 1,243 Income tax expense 540 367 497 - ---------------------------------------------------------- ----------------- ------------------ ------------------ Earnings from continuing operations 865 496 746 Discontinued operations: Operating (loss) income (50) 10 31 Loss on disposition (379) - - Tax (benefit) expense (143) 5 12 - ---------------------------------------------------------- ----------------- ------------------ ------------------ Net (loss) earnings from discontinued operations (286) 5 19 Earnings before cumulative effect of change in accounting principle 579 501 765 - ---------------------------------------------------------- ----------------- ------------------ ------------------ Cumulative effect of change in accounting principle (net of tax of $60) (94) - - - ---------------------------------------------------------- ----------------- ------------------ ------------------ Net Earnings $ 485 $ 501 $ 765 ========================================================== ================= ================== ================== Basic Earnings Per Share: Continuing operations $ 2.18 $ 1.22 $ 1.78 Discontinued operations (0.72) 0.01 0.05 Cumulative effect of change in accounting principle (net of tax of $0.15) (0.24) - - - ---------------------------------------------------------- ----------------- ------------------ ------------------ Net Earnings $ 1.22 $ 1.23 $ 1.83 ========================================================== ================= ================== ================== Diluted Earnings Per Share: Continuing operations $ 2.17 $ 1.22 $ 1.78 Discontinued operations (0.72) 0.01 0.05 Cumulative effect of change in accounting principle (net of tax of $0.15) (0.23) - - - ---------------------------------------------------------- ----------------- ------------------ ------------------ Net Earnings $ 1.22 $ 1.23 $ 1.83 ========================================================== ================= ================== ================== Weighted Average Common Shares Outstanding: Basic 397 406 418 Diluted 399 408 418
See Notes to Consolidated Financial Statements 26 ALBERTSON'S, INC. CONSOLIDATED BALANCE SHEETS
JANUARY 30, JANUARY 31, (IN MILLIONS, EXCEPT PAR VALUE DATA) 2003 2002 - -------------------------------------------------------------------------- ------------------- ------------------ ASSETS Current Assets: Cash and cash equivalents $ 162 $ 61 Accounts and notes receivable, net 647 696 Inventories 2,973 3,196 Assets held for sale 120 326 Prepaid and other 366 344 - -------------------------------------------------------------------------- ------------------- ------------------ Total Current Assets 4,268 4,623 Land, Buildings and Equipment, net 9,029 9,282 Goodwill, net 1,399 1,468 Intangibles, net 214 210 Other Assets 301 398 - -------------------------------------------------------------------------- ------------------- ------------------ Total Assets $ 15,211 $ 15,981 ========================================================================== =================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,009 $ 2,107 Salaries and related liabilities 599 584 Self-insurance 244 198 Current maturities of long-term debt and capital lease obligations 119 137 Other current liabilities 477 570 - -------------------------------------------------------------------------- ------------------- ------------------ Total Current Liabilities 3,448 3,596 Long-Term Debt 4,950 5,060 Capitalized Lease Obligations 307 276 Self-Insurance 367 307 Other Long-Term Liabilities and Deferred Credits 942 827 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 - 372 shares and 407 shares, respectively 372 407 Capital in excess of par 128 94 Accumulated other comprehensive loss (96) (19) Retained earnings 4,793 5,433 - -------------------------------------------------------------------------- ------------------- ------------------ Total Stockholders' Equity 5,197 5,915 - -------------------------------------------------------------------------- ------------------- ------------------ Total Liabilities and Stockholders' Equity $ 15,211 $ 15,981 ========================================================================== =================== ==================
See Notes to Consolidated Financial Statements 27 ALBERTSON'S, INC. CONSOLIDATED CASH FLOWS
FOR THE 52 WEEKS ENDED JANUARY 30, JANUARY 31, FEBRUARY 1, (IN MILLIONS) 2003 2002 2001 - ----------------------------------------------------------- ----------------- ------------------ ------------------ Cash Flows From Operating Activities: Net earnings $ 485 $ 501 $ 765 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 966 970 944 Goodwill amortization - 56 57 Discontinued operations noncash charges 338 - - Restructuring and other noncash (credits) charges (10) 442 - Gain on sale of New England Osco drugstores - (54) - Cumulative effect of change in accounting principle 94 - - Net deferred income taxes and other 124 (106) 14 Changes in operating assets and liabilities: Receivables and prepaid expenses 21 (110) (29) Inventories 111 40 118 Accounts payable (99) (68) - Other current liabilities (89) 287 (175) Self-insurance 106 71 24 Unearned income 32 3 19 Other long-term liabilities (16) (23) 34 - ----------------------------------------------------------- ----------------- ------------------ ------------------ Net cash provided by operating activities 2,063 2,009 1,771 - ----------------------------------------------------------- ----------------- ------------------ ------------------ Cash Flows From Investing Activities: Capital expenditures (1,359) (1,455) (1,771) Proceeds from disposal of land, buildings and equipment 101 288 189 Proceeds from disposal of assets held for sale 578 118 - Decrease (increase) in other assets 15 (31) 33 - ----------------------------------------------------------- ----------------- ------------------ ------------------ Net cash used in investing activities (665) (1,080) (1,549) - ----------------------------------------------------------- ----------------- ------------------ ------------------ Cash Flows From Financing Activities: Stock purchases and retirements (862) - (451) Cash dividends paid (306) (309) (315) Payments on long-term borrowings (143) (89) (417) Proceeds from stock options exercised 14 23 6 Net commercial paper activity and bank borrowings - (1,153) (475) Proceeds from long-term borrowings - 623 1,222 - ----------------------------------------------------------- ----------------- ------------------ ------------------ Net cash used in financing activities (1,297) (905) (430) - ----------------------------------------------------------- ----------------- ------------------ ------------------ Net Increase (Decrease) in Cash and Cash Equivalents 101 24 (208) - ----------------------------------------------------------- ----------------- ------------------ ------------------ Cash and Cash Equivalents at Beginning of Year 61 37 245 - ----------------------------------------------------------- ----------------- ------------------ ------------------ Cash and Cash Equivalents at End of Year $ 162 $ 61 $ 37 =========================================================== ================= ================== ==================
See Notes to Consolidated Financial Statements 28 ALBERTSON'S, INC. CONSOLIDATED STOCKHOLDERS' EQUITY
COMMON CAPITAL ACCUMULATED STOCK IN EXCESS OTHER TOTAL $1.00 PAR OF PAR COMPREHENSIVE RETAINED STOCKHOLDERS' COMPREHENSIVE (DOLLARS IN MILLIONS) VALUE VALUE (LOSS) INCOME EARNINGS EQUITY INCOME - ----------------------------------------------------------------------------------------------------------------- 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 - 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 ==== Net earnings - - - 485 485 $485 Exercise of stock options, including tax benefits - 15 - - 15 - Stock purchases and retirements - 35,129,397 shares (35) - - (827) (862) - Deferred stock unit plan - 18 - - 18 - Directors' stock plan - 1 - - 1 - Dividends - - - (298) (298) - Minimum pension liability adjustment (net of tax of $49) - - (77) - (77) (77) - ----------------------------------------------------------------------------------------------------------------- Balance at January 30, 2003 $372 $128 $(96) $ 4,793 $ 5,197 $408 =================================================================================================================
See Notes to Consolidated Financial Statements 29 ALBERTSON'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per share data) Note A - Business Description and Basis of Presentation Albertson's, Inc. ("Albertsons" 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, Albertsons and American Stores Company ("ASC") consummated a merger, which has been accounted for as a pooling-of-interests. Based on sales, the Company is one of the largest retail food and drug chains in the world. As of January 30, 2003 the Company operated 2,287 stores in 31 states. Retail operations are supported by 17 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 and include all entities in which the Company has control, including its majority-owned subsidiaries. All material intercompany transactions and balances have been eliminated. Note B - Summary of Significant Accounting Policies Fiscal Year End: The Company's fiscal year ends on the Thursday nearest to January 31. As a result, the Company's fiscal year includes a 53rd week every 5 to 6 years. Fiscal years 2002, 2001, and 2000 each contained 52 weeks and ended on January 30, 2003, January 31, 2002, and February 1, 2001. Use Of Estimates: The preparation of the Company's consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions. Some of these estimates require difficult, subjective or complex judgments about matters that are inherently uncertain. 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. 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. Vendor Funds: The Company receives funds from many of the vendors whose products the Company buys for resale in its stores. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of the vendor's products in the Company's advertising; placement of the vendor's products in prominent locations in the Company's stores; introduction of new products into the Company's distribution system and retail stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at retail stores. The Company also receives vendor funds for buying activities, such as volume commitment rebates and forward buy credits. Accounting for vendor funds is discussed in Emerging Issues Task Force "EITF" Issue 02-16: Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor (EITF 02-16), in which the EITF reached consensus on two issues in November 2002 and provided transition rules on those issues in January 2003 and March 2003. As a result of this new guidance, the Company adopted a new method for recognizing the vendor funds for merchandising activities. As of the beginning of 2002, the Company recognizes vendor funds for merchandising activities when the related products are sold. Under the previous accounting method for merchandising vendor funds, these credits were recognized as an offset to cost of sales when the merchandising activity was performed in accordance with the underlying agreements. In connection with the implementation of this new accounting method, the Company recorded a charge in 2002 of $94, net of tax benefit of $60. 30 The vendor fund inventory offset recorded as of January 30, 2003 was $152, which is a $6 decrease from the balance as of the beginning of 2002. The inventory offset was determined by estimating the average inventory turnover rates by product category for the Company's grocery, general merchandise and lobby departments, and by average inventory turnover rates by department for the Company's remaining inventory. Capitalization, Depreciation and Amortization: Land, buildings and equipment are recorded at cost. Depreciation is provided on the straight-line method over the estimated useful life of the asset. Estimated useful lives are generally as follows: buildings and improvements-10 to 35 years; fixtures and equipment-3 to 8 years; software-3 to 5 years; leasehold improvements-10 to 25 years; intangibles-3 to 10 years; and assets held under 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, and they 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. Beginning in 2002 with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, goodwill is no longer amortized, but instead tested for impairment at least annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Prior to 2002, goodwill was amortized using the straight-line method over its estimated period of benefit, 40 years. Company Owned Life Insurance: The Company has purchased life insurance policies to fund 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, net (expense) income in the Company's Consolidated Earnings. Impairment of Long Lived Assets and Closed Store Reserves: The Company assesses the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset group may not be recoverable. The asset impairment review assesses the fair value of the assets based on the future cash flows the assets are expected to generate. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from the disposition of the asset (if any) are less than the related asset's carrying amount. Impairment losses are measured as the amount by which the carrying amounts of the assets exceed their fair values. The net proceeds expected from the disposition of the asset are determined by independent quotes or expected sales prices developed by internal specialists. Estimates of future cash flows and expected sales prices are judgments based on the Company's experience and knowledge of local operations. 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. (Beginning on January 1, 2003, "expected sublease recovery" has been replaced by "estimated sublease rentals that could be reasonably obtained for the property.") The value of any equipment and leasehold improvements related to a closed store is reduced to reflect net recoverable values. Internal specialists estimate the subtenant income, future cash flows and asset recovery values based on their historical experience and knowledge of (1) the market in which the store to be closed is located, (2) the results of its previous efforts to dispose of similar assets and (3) the current economic conditions. The actual cost of disposition for these leases and related assets is affected by specific real estate markets, the economic environment and inflation. Self-Insurance: The Company is primarily self-insured for property loss, workers' compensation, automobile 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. 31 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. 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. 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. In 2001 and 2000, cooperative advertising funds from vendors were recorded in the period which the related expense was incurred. In 2002 vendor funds were considered as described above. Gross advertising expenses of $527, $537 and $550, excluding cooperative advertising money received from vendors, were included with cost of sales in the Company's Consolidated Earnings for 2002, 2001 and 2000, 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. If the fair value-based accounting method was utilized for stock-based compensation, the Company's pro forma net earnings and earnings per share would have been as follows:
2002 2001 2000 ------------------------------------------------------- -------------- ------------ ----------- Net Earnings as reported $ 485 $ 501 $ 765 Add: Stock based compensation expense included in reported net earnings, net of related tax effects 12 11 1 --------------------------------------------------------- ------------ ------------ ----------- Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (44) (41) (27) --------------------------------------------------------- ------------ ------------ ----------- Pro Forma Net Earnings $ 453 $ 471 $ 739 ========================================================= ============ ============ =========== Basic Earnings Per Share: As Reported $ 1.22 $ 1.23 $ 1.83 Pro Forma 1.14 1.16 1.77 ========================================================= ============ ============ =========== Diluted Earnings Per Share: As Reported $ 1.22 $ 1.23 $ 1.83 Pro Forma 1.14 1.15 1.77 ========================================================= ============ ============ ===========
The 2002, 2001 and 2000 pro forma net earnings resulted from reported net earnings less pro forma after-tax compensation expense. The pro forma effect on net earnings is not representative of the pro forma effect on net earnings in future years. Income Taxes: Income taxes are accounted for under the asset and liability method. 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 32 potential common shares outstanding. Potential common shares consist primarily of outstanding in-the-money 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 primarily related to minimum pension liability of $126 ($77 net of tax) and $39 ($23 net of tax) for 2002 and 2001, respectively. Reclassifications: Certain reclassifications have been made in prior years' financial statements to conform to classifications used in the current year. Note C - Cumulative Effect of Change in Accounting Principle As discussed in Note B - Summary of Significant Accounting Policies, in 2002, the Company adopted a new method for recognizing vendor funds related to merchandising activities. The pro forma amounts shown below reflect the retroactive application of the new method as if it had been in effect for 2002, 2001 and 2000.
2002 2001 2000 - ---------------------------------------------------------------------- ------------- ------------- -------------- Net earnings $ 579 $ 497 $ 770 Earnings per share - basic $1.46 $1.22 $1.84 Earnings per share - diluted $1.45 $1.22 $1.84
Note D - New Accounting Standards In July 2001 the Financial Accounting Standard Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become effective for Albertsons 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 impact that this standard will have on its consolidated financial statements, but believes it will not have a material impact on the Company's consolidated financial statements. In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses from extinguishment of debt will no longer be aggregated and classified as an extraordinary item, net of related income tax effect, on the statement of earnings. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier application encouraged. The provisions of SFAS No. 145 will be effective for fiscal year beginning January 31, 2003. The adoption of SFAS No. 145 will not have a material impact on the Company's consolidated financial statements. In June 2002 the SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" was issued. This statement nullifies existing guidance related to the accounting and reporting for costs associated with exit or disposal activities and requires that the fair value of a liability associated with an exit or disposal activity be recognized when the liability is incurred. Under previous guidance, certain exit costs were permitted to be accrued upon management's commitment to an exit plan, which is generally before an actual liability has been incurred. The provisions of this statement are required to be adopted for all exit or disposal activities initiated after December 31, 2002. This statement will not impact any liabilities recorded prior to adoption. As required the Company will adopt SFAS No. 146 effective in 2003. The Company does not expect that the adoption of this statement will have a material impact on the Company's consolidated financial statements. In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The accompanying Note Q - Stock Options and Stock Awards - satisfies the disclosure requirements of SFAS No. 148. In November 2002 the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires 33 additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 are effective for guarantees issued after December 31, 2002, while the disclosure requirements were effective for financial statements for periods ending after December 15, 2002. At January 30, 2003, the Company had not entered into any material arrangement that would be subject to the disclosure requirements of FIN 45. In addition, the Company does not believe that the adoption of FIN 45 will have a material impact on the Company's consolidated financial statements. In January 2003 the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of FIN 46 will have on the Company's consolidated financial statements. Note E - Discontinued Operations/Market Exits On March 13, 2002, the Company's Board of Directors approved the second phase of the Company's restructuring plan designed to improve future financial results and to drive future competitiveness. This phase of the plan included the complete exit of four underperforming markets: Memphis, Tennessee; Nashville, Tennessee; Houston, Texas; and San Antonio, Texas. This involved the sale or closure of 95 stores and two distribution centers, and reduction of division offices from 15 to 11. These sales and closures were evaluated for lease liability or asset impairment, including goodwill, in accordance with the Company's policy. The prior years' operating activities for these 95 stores and two distribution centers, and reduction of division offices from 15 to 11 have been reclassified to discontinued operations: "Operating (loss) income" in the accompanying earnings statement. The discontinued operations generated sales of $290, $1,326, and $1,261, in 2002, 2001, and 2000, respectively, and an operating loss of $429, operating profit of $10 and operating profit of $31, respectively. The discontinued operations operating loss of $429 in 2002 consisted of a loss from operations of $50 and asset impairments, lease settlements and other costs of $379 as described in the following table:
NONCASH TOTAL CHARGES CHARGES ACCRUALS (CREDITS) ------------------- ------------------- ------------------ Asset impairments $ 401 $ - $ 401 Lease settlements - 26 26 Severance and outplacement - 23 23 Other - 2 2 Gain on asset sales (63) - (63) Favorable lease settlements - (10) (10) ------------------ Loss on disposal $ 379 ================== Cash payments during 2002 (30) ------------------- Reserve balance at January 30, 2003 $ 11 ===================
The reserve balance of $11 as of January 30, 2003 is included with "Other current liabilities" in the Company's Consolidated Balance Sheet. Asset impairment adjustments resulted from the Company realizing sales proceeds in excess of amounts originally estimated on stores disposed of and increases to net realizable values for stores under contract for sale. Lease liability adjustments represent more favorable negotiated settlements than had been originally estimated. Assets related to discontinued operations are recorded at their estimated net realizable value of $25 as of January 30, 2003 and are reported as Assets held for sale in the Company's Consolidated Balance Sheet. These assets include land, buildings, equipment and leasehold improvements and are being actively marketed. As of January 30, 2003, all 95 stores and both distribution centers were closed. In addition, the Company had either sold or terminated the leases related to 82 of the 95 stores and both distribution centers as of January 30, 2003. 34 Other costs consist of amounts paid in connection with notification regulations and negotiated contract terminations. Note F - Restructuring In the first half of 2001, the Company initiated a profitability review of all of its retail stores, utilizing a methodology based on return on invested capital. The Company also evaluated its division management structure and the efficiency of its transaction processing departments. Based on these reviews, in July 2001 the Company committed to the following restructuring activities: 1) close and dispose of 165 underperforming stores in 25 states; 2) eliminate four of the existing 19 division offices; 3) sell a store fixture manufacturing operation; 4) centralize certain transaction processing functions in Boise, Idaho; and 5) reduce general office head count. These restructuring activities called for the elimination of 1,341 managerial and administrative positions (excluding store level terminations). The restructuring charge recorded in 2001 included the following: employee severance and outplacement costs of $44, asset impairments of $361; lease termination costs of $57; and other costs of $6. In 2001 and 2002, 80 and 82 stores were closed or sold and 995 and 297 managerial and administrative employees were terminated, respectively. In 2002, management revised the planned restructuring activities as follows: the store fixture manufacturing operation's performance was re-evaluated and determined to be more cost-effective than purchasing like-fixtures from external sources in the future, so it will be held and used; one store's operating performance improved due to local market conditions, so it too will be held and used; and one part of the transaction processing consolidation was halted due to a decision to replace the Company's human resource information systems (HRIS) over the next two to three years. The remaining two stores in this restructuring plan will be closed in 2003. The following table presents the pre-tax restructuring credits and charges and the related restructuring reserves included in the Company's Consolidated Balance Sheets:
NONCASH TOTAL CHARGES CHARGES ACCRUALS (CREDITS) ------------------- ------------------- ------------------ 2001 Activity Asset impairments $ 361 $ - $ 361 Lease settlements - 57 57 Severance and outplacement - 44 44 Other - 6 6 ------------------ Restructuring (credits) charges $ 468 ================== Cash payments during 2001 (46) ------------------- Reserve balance at January 31, 2002 61 2002 Activity Retain store fixtures operation (3) (2) $ (5) Halt part of consolidation - HRIS - (2) (2) Gains on asset sales (17) - (17) Favorable lease settlements - (14) (14) Severance and outplacement - 2 2 Other - (1) (1) ------------------ Restructuring (credits) charges $ (37) ================== Cash payments during 2002 (16) ------------------- Reserve balance at January 30, 2003 $ 28 ===================
The reserve balances of $28 at January 30, 2003 and $61 at January 31, 2002 are included in the "Other current liabilities" line on the Company's Consolidated Balance Sheets. 35 Note G - Closed Store Reserves The following table shows the pre-tax expense, and related reserves, for closed stores and other surplus property:
NONCASH TOTAL CHARGES CHARGES ACCRUALS (CREDITS) ------------------ ------------------- ------------------ Reserve balance at February 3, 2000 $ 25 2000 Activity Asset impairments $ 40 - $ 40 Lease terminations - 7 7 Favorable lease termination - (2) (2) ------------------ Closed store (credits) charges $ 45 ================== Cash payments during 2000 (8) ------------------- Reserve balance at February 1, 2001 22 2001 Activity Asset impairments 44 - $ 44 Lease terminations - 27 27 Favorable lease termination - (2) (2) Gains on disposition (2) - (2) ------------------ Closed store (credits) charges $ 67 ================== Cash payments during 2001 (8) ------------------- Reserve balance at January 31, 2002 39 2002 Activity Asset impairments 23 - $ 23 Lease terminations - 8 8 Favorable lease termination - (1) (1) Loss on disposition 5 - 5 ------------------ Closed store (credits) charges $ 35 ================== Cash payments during 2002 (16) ------------------- Reserve balance at January 30, 2003 $ 30 ===================
- - As of January 30, 2003, $25 of the reserve balance was included with accounts payable and the remaining $5 was included with other long-term liabilities and deferred credits in the Company's Consolidated Balance Sheet. During fiscal 2001, the restructuring plan (discussed in "Note F - Restructuring") 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 of $35 as of January 30, 2003, less selling costs, and reported as assets held for sale in the Company's Consolidated Balance Sheets. In January 2002 the Company sold a total of 80 Osco drugstores in Maine, Massachusetts and New Hampshire for $235 which resulted in a $54 pre-tax gain. Note H - Merger, Divestitures and Related Costs Merger-related (credits) charges for 2001 represent a credit of $15 associated with the sale of an asset for an amount that was greater than originally estimated. 36 Merger-related (credits) charges for 2000 represent $24 related to one-time asset impairment and severance charges. In the future any restructuring activity will be accounted for under the guidance of SFAS No. 146, which will primarily effect the timing of restructuring reserve. Note I - Supplemental Cash Flow Information Selected cash payments and noncash activities were as follows:
2002 2001 2000 - ---------------------------------------------------------------------- ------------- ------------- -------------- Cash payments for income taxes $ 376 $ 403 $ 549 Cash payments for interest, net of amounts capitalized 390 299 375 Noncash investing and financing activities: Capitalized lease obligations incurred 75 79 62 Capitalized lease obligations terminated 46 19 6 Deferred stock units 19 19 1 Tax benefits related to stock options 2 4 1 Deferred tax adjustment - related to stock options 2 3 12
Note J - Accounts and Notes Receivable Accounts and notes receivable, net, consisted of the following:
JANUARY 30, JANUARY 31, 2003 2002 - -------------------------------------------------------------------- ----------------- ------------------ Trade and other accounts receivable $ 664 $ 696 Current portion of notes receivable 6 40 Allowance for doubtful accounts (23) (40) - -------------------------------------------------------------------- ----------------- ------------------ $ 647 $ 696 ==================================================================== ================= ==================
Note K - 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 $589 and $597 higher at the end of 2002 and 2001, respectively. Net earnings (basic and diluted earnings per share) would have been lower by $2 ($0.01) in 2002, higher by $3 ($0.01) in 2001, and lower by $14 ($0.03) in 2000. The replacement cost of inventories valued at LIFO approximates FIFO cost. During 2002 and 2001, 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 2002 and 2001 purchases. As a result, cost of sales was decreased by $4 in 2002, $10 in 2001, and $26 in 2000. This increased net earnings (basic and diluted earnings per share) by $2 ($0.01) in 2002, by $6 ($0.01) in 2001 and by $15 ($0.04) in 2000. Note L - Land, Buildings and Equipment Land, buildings and equipment, net, consisted of the following:
JANUARY 30, JANUARY 31, 2003 2002 - ---------------------------------------------------------- --------------------- --------------------- Land $ 1,939 $ 2,105 Buildings 5,713 5,598 Fixtures and equipment 5,561 5,471 Leasehold improvements 1,619 1,535 Capitalized leases 355 326 - ---------------------------------------------------------- --------------------- --------------------- 15,187 15,035 Accumulated depreciation (6,060) (5,641) Accumulated amortization on capital leases (98) (112) - ---------------------------------------------------------- --------------------- --------------------- $ 9,029 $ 9,282 ========================================================== ===================== =====================
Depreciation expense was $924, $926 and $904 for 2002, 2001 and 2000. Amortization expense of capital leases was $18, $19 and $17 for 2002, 2001 and 2000. Note M - Goodwill and Other Intangible Assets The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets," on February 1, 2002. Under these new rules, goodwill and certain other intangibles with indefinite lives are no longer amortized, but are subject to annual testing, or more frequently if impairment indicators arise, using fair value methodology. Intangible assets with finite, measurable lives continue to be 37 amortized over their respective useful lives until they reach their estimated residual values, and are reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." As a result, the Company did not incur any expense for the amortization of goodwill in 2002. The pretax expense for the amortization of goodwill, included in continuing operations, was $56 and $57 in 2001 and 2000, respectively. The Company completed its transitional impairment review of its goodwill as of February 1, 2002. The review was performed based on the Company's reporting units which have been defined as the Company's 11 current operating divisions. When this statement was adopted, the aggregate of the goodwill allocated to the stores in each reporting unit became the reporting unit's goodwill balance. In order to determine if a reporting unit's goodwill was impaired, a combination of internal analysis, focusing on each reporting unit's implied EBITDA multiple, and estimates of fair value from independent valuation specialists were used. Based on these analyses, there was no impairment of goodwill at the adoption date. Subsequently, during the fourth quarter of 2002, the Company completed its annual impairment review based on November 1, 2002 balances and determined that there was no impairment as of that date. However, changes in the assumptions used in the analysis could have changed the resulting outcome. For example, to estimate the fair value of the Company's reporting units, management made estimates and judgments about future cash flows based on the Company's 2003 forecast and current long-range plans used to manage the business. These long-range estimates could change in the future depending on internal and external factors. Future changes in estimates could possibly result in a noncash goodwill impairment that could have a material adverse impact on the Company's financial condition and results of operations. The following table reflects the impact of the adoption of SFAS No. 142:
JANUARY 30, JANUARY 31, FEBRUARY 1, 2003 2002 2001 ---------------- ---------------- ---------------- Net earnings, as reported $ 485 $ 501 $ 765 Add back goodwill amortization, net of tax - 56 56 ---------------- ---------------- ---------------- Adjusted net earnings $ 485 $ 557 $ 821 ================ ================ ================ Basic EPS $1.22 $1.23 $1.83 Add back goodwill amortization, net of tax - 0.14 0.13 ---------------- ---------------- ---------------- Adjusted Basic EPS $1.22 $1.37 $1.96 ================ ================ ================ Diluted EPS $1.22 $1.23 $1.83 Add back goodwill amortization, net of tax - 0.14 0.13 ---------------- ---------------- ---------------- Adjusted Diluted EPS $1.22 $1.37 $1.96 ================ ================ ================
Changes in the net carrying amount of goodwill were as follows: Goodwill as of January 31, 2002 $1,467 Write-off due to market exits (68) ---------------- Goodwill as of January 30, 2003 $1,399 ================
In connection with the complete exit of certain markets discussed above, the Company wrote off $68 of goodwill, net for the quarter ended May 2, 2002. The goodwill written off arose from the original acquisition of the operating assets in those markets. The carrying amount of intangible assets was as follows:
JANUARY 30, JANUARY 31, 2003 2002 - ---------------------------------------------------------------- --------------- -------------- Amortizing: FMV of operating leases $ 231 $ 256 Customer lists and other contracts 53 55 - ---------------------------------------------------------------- --------------- -------------- 284 311 Accumulated amortization (173) (169) - ---------------------------------------------------------------- --------------- -------------- 111 142 Non-Amortizing: Liquor licenses 39 39 Pension related intangible assets 64 29 - ---------------------------------------------------------------- --------------- -------------- 103 68 - ---------------------------------------------------------------- --------------- -------------- $ 214 $ 210 ================================================================ =============== ==============
38 Straight line amortization expense for intangibles was $24, $25 and $23 in 2002, 2001 and 2000, respectively. Amortizing intangible assets have remaining useful lives from 2 to 38 years. Projected amortization expense for existing intangible assets is: $21, $18, $12, $7 and $6, for 2003, 2004, 2005, 2006 and 2007, respectively. Note N - Indebtedness Long-term debt consisted of the following (borrowings are unsecured unless indicated):
JANUARY 30, JANUARY 31, 2003 2002 - ----------------------------------------------------------------------------- --------------- -------------- 2001 Shelf Registration: 8.0% Debentures due May 1, 2031 $ 400 $ 400 7.25% Notes due May 1, 2013 200 200 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 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 Notes due July 3, 2004, average interest rate of 6.7% 200 200 Industrial revenue bonds, average interest rate of 5.9% and 6.1%, respectively due February 1, 2003 through December 15, 2011 8 11 Secured mortgage notes and other notes payable, average interest rates of 9.1% and 10.9%, respectively due 2003 through 2019 18 63 - ----------------------------------------------------------------------------- --------------- -------------- 5,055 5,183 Current maturities (105) (123) - ----------------------------------------------------------------------------- --------------- -------------- $4,950 $5,060 ============================================================================= =============== ==============
The Company had three credit facilities totaling $1,400 during 2002. The first agreement for $100 expired in February 2003 and was renewed for an additional year to expire in February 2004. The second agreement for $350 expired in March 2003 and was renewed for an additional year to expire in March 2004. 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 $3,000 and a fixed charge coverage, as defined, of no less than 2.7 times. As of January 30, 2003, the Company was in compliance with these requirements. No borrowings were outstanding under the credit facilities as of January 30, 2003 or January 31, 2002. The Company filed a shelf registration statement with the Securities and Exchange Commission (SEC), which became effective on February 13, 2001 ("2001 Shelf Registration") 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 Shelf Registration. 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. The $200 term loan agreement due July 3, 2004 involves a pricing schedule (which averages 6.7%) that is dependent upon the Company's long-term debt rating. The Company has pledged real estate with a cost of $40 as collateral for mortgage notes which are payable on various schedules, including interest at rates ranging from 6.8% to 10.7%. The notes mature from 2003 to 2014. 39 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. Net interest expense was as follows:
2002 2001 2000 ----------------------------------------------------------- ------------ ------------ ------------- Long-term debt $ 378 $ 401 $ 366 Capitalized leases 35 30 27 Capitalized interest (27) (23) (21) ----------------------------------------------------------- ------------ ------------ ------------- Interest expense 386 408 372 Bank service charges, net of interest income 11 17 13 ----------------------------------------------------------- ------------ ------------ ------------- $ 397 $ 425 $ 385 =========================================================== ============ ============ =============
The scheduled aggregate maturities of long-term debt outstanding at January 30, 2003, are summarized as follows: $105 in 2003, $502 in 2004, $202 in 2005, $2 in 2006, $12 in 2007 and $4,232 thereafter. These figures do not include the accelerations due to put options. Note O - 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. 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. During 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. No shares were purchased during 2001. During 2002, the Company purchased and retired 35.1 million shares for $862, at an average price of $24.54 per share. The Board of Directors adopted a stock buyback program on December 9, 2002, authorizing, at management's discretion, the Company to purchase and retire up to $500 of the Company's common stock beginning January 1, 2003 and ending December 31, 2003. As of January 30, 2003, $78 of this authorization had been utilized. 40 Note P - Income Taxes Deferred tax assets and liabilities consist of the following:
JANUARY 30, JANUARY 31, 2003 2002 - ----------------------------------------------------------------------- --------------- ---------------- Deferred tax assets (no valuation allowance considered necessary): Compensation and benefits $ 317 $ 264 Self-insurance 216 188 Basis in fixed assets 184 264 Unearned income 17 18 Other, net 69 91 - ----------------------------------------------------------------------- --------------- ---------------- Total deferred tax assets 803 825 - ----------------------------------------------------------------------- --------------- ---------------- Deferred tax liabilities: Basis in fixed assets and capitalized leases (537) (515) Inventories (82) (126) Compensation and benefits (51) (59) Other, net (25) (24) - ----------------------------------------------------------------------- --------------- ---------------- Total deferred tax liabilities (695) (724) - ----------------------------------------------------------------------- --------------- ---------------- Net deferred tax assets $ 108 $ 101 ======================================================================= =============== ================
The change in net deferred tax assets includes total adjustments of $47 for the year ended January 30, 2003 related to stock options of $(2) and other comprehensive income of $49. The Company has federal and state net operating loss carryforwards of $4 and $75, 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. Annual tax provisions include amounts considered sufficient to pay assessments that may result from examination of prior year tax returns; however, the amount ultimately paid upon resolution of issues raised may differ materially from the amount accrued. Income tax expense related to continuing operations consists of the following:
2002 2001 2000 - ---------------------------------------------------------------- ------------ ------------- ----------- Current: Federal $ 448 $ 454 $ 434 State 52 50 52 - ---------------------------------------------------------------- ------------ ------------- ----------- 500 504 486 Deferred: Federal 36 (124) 10 State 4 (13) 1 - ---------------------------------------------------------------- ------------ ------------- ----------- 40 (137) 11 - ---------------------------------------------------------------- ------------ ------------- ----------- $ 540 $ 367 $ 497 ================================================================ ============ ============= ===========
The reconciliations between the federal statutory tax rate and the Company's effective tax rates are as follows:
2002 PERCENT 2001 PERCENT 2000 PERCENT - ----------------------------------- ----------- ------------- ---------- ------------- ---------- ------------- Taxes computed at statutory rate $ 492 35.0 $ 302 35.0 $ 435 35.0 State income taxes net of federal income tax benefit 56 4.0 37 4.2 53 4.3 Goodwill amortization - - 27 3.1 21 1.7 Merger-related charges - - - - 2 0.2 Other (8) (0.6) 1 0.3 (14) (1.2) - ----------------------------------- ----------- ------------- ---------- ------------- ---------- ------------- $ 540 38.4 $ 367 42.6 $ 497 40.0 =================================== =========== ============= ========== ============= ========== =============
Note Q - Stock Options and Stock Awards The Company's stock option and stock award plan (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, Albertsons 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, key employees and non-employee members of the Board of Directors to purchase the Company's common 41 stock. 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. DEFERRABLE OR DEFERRED STOCK UNITS From time to time, deferrable or deferred stock units with dividend equivalents paid in cash quarterly are awarded under the 1995 Plan to key officers of the Company. Deferred stock units are also awarded to non-employee members of the Board of Directors. Grants of 1,080,441 units were made during 2002 to key officers and non-employee directors of the Company, of which 392,841 units will vest at a rate of 20% per year for the first five years and be distributed in a manner elected by the participant on a date after the participant ceases to be an officer of the Company, 678,540 units will vest at a rate of 20% per year for the first five years and be distributed in stock at each vesting date unless otherwise deferred, and 9,060 units were fully vested at their grant date. Grants of 1,089,104 units were made during 2001 to key officers and non-employee directors of the Company of which 788,670 units will vest over time and be distributed in a manner elected by the participant on a date after the participant ceases to be an officer of the Company, 186,217 units will vest at a rate of 20% per year for the first five years and be distributed in stock at each vesting date unless otherwise deferred, and 14,217 were fully vested at their grant date. 100,000 of the units will be distributed in stock on December 5, 2003, unless otherwise deferred. Grants of 738,705 units were made during 2000 to key officers and non-employee directors of the Company of which 730,100 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, and 8,605 were fully vested at their grant date. The Company is recognizing this expense over the three-year service period. Compensation expense for deferred stock units of $19, $19 and $2 was recorded in selling, general and administrative expenses in 2002, 2001 and 2000, respectively. 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 30, 2003 JANUARY 31, 2002 FEBRUARY 1, 2001 ----------------------- ----------------------- ----------------------- SHARES PRICE SHARES PRICE SHARES PRICE - ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- Outstanding at beginning of year 28,045 $ 33.06 25,290 $ 32.79 18,015 $ 38.34 Granted 5,312 23.06 6,406 32.64 8,683 21.78 Exercised (722) 23.99 (1,303) 22.71 (287) 21.54 Forfeited (2,390) 34.43 (2,348) 34.70 (1,121) 39.58 - ---------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- Outstanding at end of year 30,245 $ 31.41 28,045 $ 33.06 25,290 $ 32.79 ================================== =========== =========== =========== =========== =========== =========== Options exercisable at end of year 13,523 $ 35.04 11,414 $ 35.67 7,251 $ 37.14 ================================== =========== =========== =========== =========== =========== ===========
As of January 30, 2003, 16 million shares of the Company's common stock were reserved for future grants of stock options and stock awards. The following table summarizes options outstanding and options exercisable as of January 30, 2003, 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 ----------------------------- --------------- ------------- --------- ---------------- ---------- $ 20.23 - $ 22.52 10,757 8.7 $ 21.82 2,565 $ 21.69 23.52 - 34.87 13,105 7.6 31.50 5,864 30.93 35.00 - 45.94 2,140 3.9 40.01 2,124 40.03 47.00 - 51.19 4,243 6.4 51.14 2,969 51.12 ----------------------------- --------------- ------------- --------- ---------------- ---------- $ 20.23 - $ 51.19 30,245 7.6 $ 31.41 13,522 $ 35.04 ============================= =============== ============= ========= ================ ==========
42 The weighted average fair value at date of grant for Albertsons' options granted during 2002, 2001, and 2000 was $6.80, $10.16, and $6.34 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:
2002 2001 2000 ------------------------------------------------------- --------------- ---------------- ------------- Expected life (years) 5.7 5.8 6.0 Risk-free interest rate 3.15% 3.62% 5.46% Volatility 38.0% 34.8% 32.5% Dividend yield 3.38% 2.33% 3.49%
Note R - 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 unless the collective bargaining agreement provides for participation in Company-sponsored plans. 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. Net periodic benefit expense (income) 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:
2002 2001 2000 - -------------------------------------------------------- ----------------- ---------------- ---------------- Weighted-average discount rate 6.15% 6.75% 7.15% Annual salary increases 3.40-4.50% 3.70-4.50% 3.70-4.50% Expected long-term rate of return on assets 8.50% 9.00% 9.50%
Net periodic benefit expense (income) for company-sponsored defined benefit pension plans was as follows:
2002 2001 2000 - --------------------------------------------------------- ---------------- ----------------- ------------- Service cost - benefits earned during the period $ 12 $ 11 $ 14 Interest cost on projected benefit obligations 37 35 32 Expected return on assets (39) (48) (55) Amortization of prior service cost (7) (7) 5 Recognized net actuarial loss (gain) 9 - (4) - --------------------------------------------------------- ---------------- ----------------- ------------- Net periodic expense (income) $ 12 $ (9) $ (8) ========================================================= ================ ================= =============
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. 43 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. The following table sets forth the funded status of the company-sponsored defined benefit pension plans:
JANUARY 30, JANUARY 31, 2003 2002 - -------------------------------------------------------------------- ----------------- ------------------ Change in projected benefit obligation: Beginning of year benefit obligation $ 567 $ 495 Service cost 12 11 Interest cost 37 35 Actuarial loss 59 41 Benefits paid (19) (15) - -------------------------------------------------------------------- ----------------- ------------------ End of year benefit obligation 656 567 - -------------------------------------------------------------------- ----------------- ------------------ Change in plan assets: Plan assets at fair value at beginning of year 466 537 Actual return on plan assets (51) (57) Employer contributions 2 1 Benefit payments (19) (15) - -------------------------------------------------------------------- ----------------- ------------------ Plan assets at fair value at end of year 398 466 - -------------------------------------------------------------------- ----------------- ------------------ Funded status (258) (101) Unrecognized net loss 304 165 Unrecognized prior service cost (64) (71) Additional minimum liability (228) (67) - -------------------------------------------------------------------- ----------------- ------------------ Net accrued pension cost $(246) $ (74) - -------------------------------------------------------------------- ----------------- ------------------ Accrued prepaid pension cost included with other assets - 25 Accrued pension cost included with other long-term liabilities (246) (99) - -------------------------------------------------------------------- ----------------- ------------------ Net accrued pension cost $(246) $ (74) ==================================================================== ================= ==================
At January 30, 2003, the accumulated benefit obligation exceeded the fair value of the plans' assets in the Albertson's Employees Corporate Pension Plan, Albertson's Salaried Employees 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 30, 2003: a liability of $137 was included in other long-term liabilities; an intangible asset equal to the prior service cost of $36 was included in other assets; and a charge of $77 net of taxes of $49 was reflected as a minimum pension liability adjustment in other comprehensive income. At January 31, 2002: a liability of $67 was included in other long-term liabilities; an intangible asset equal to prior service cost of $28 was included in other assets; and a charge of $23 net of taxes of $16 was reflected as a minimum pension liability adjustment in other comprehensive income. 44 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 30, JANUARY 31, 2003 2002 - -------------------------------------------------------------------- ---------------- ------------------ Projected benefit obligation: Albertson's Employees Corporate Pension Plan $ 383 $ 331 Albertson's Salaried Employees Pension Plan 253 216 Executive Pension Makeup Plan 20 20 Accumulated benefit obligation: Albertson's Employees Corporate Pension Plan 381 330 Albertson's Salaried Employees Pension Plan 243 209 Executive Pension Makeup Plan 19 20 Plan assets (fair market value): Albertson's Employees Corporate Pension Plan 216 250 Albertson's Salaried Employees Pension Plan 181 216
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 $38 and $52 of the Company's common stock at January 30, 2003 and January 31, 2002, respectively), U.S. government obligations, corporate bonds, international equity funds, real estate and money market funds. The Company also contributes to various plans under industrywide collective bargaining agreements, primarily for defined benefit pension plans. Total contributions to these plans were $80 for 2002, $49 for 2001, and $58 for 2000. Retirement plans expense was as follows:
2002 2001 2000 ------------------------------------------------------------- ------------ ------------- ------------ Defined benefit pension plans $ 12 $ (9) $ (8) ASRE defined contribution plan 152 154 155 Multi-employer plans 80 49 58 ------------------------------------------------------------- ------------ ------------- ------------ $ 244 $ 194 $ 205 ============================================================= ============ ============= ============
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:
2002 2001 2000 --------------------------------------------------------------- ------------ ----------- ------------ Service cost $ 3 $ 3 $ 3 Interest cost 4 4 4 Amortization of unrecognized gain (1) (1) (1) --------------------------------------------------------------- ------------ ----------- ------------ $ 6 $ 6 $ 6 =============================================================== ============ =========== ============
45 The following table sets forth the funded status of the company-sponsored postretirement health and life insurance benefit plans:
JANUARY 30, JANUARY 31, 2003 2002 -------------------------------------------------------------------- ---------------- ----------------- Change in accumulated benefit obligation: Beginning of year benefit obligation $ 71 $ 66 Service cost 3 3 Interest cost 4 4 Curtailment gain (6) - Plan participants' contributions 12 12 Actuarial (gain) loss (1) 2 Benefits paid (14) (16) -------------------------------------------------------------------- ---------------- ----------------- End of year benefit obligation 69 71 -------------------------------------------------------------------- ---------------- ----------------- Plan assets activity: Employer contributions 2 5 Plan participants' contributions 12 12 Benefit payments (14) (17) -------------------------------------------------------------------- ---------------- ----------------- Funded status (69) (71) Unrecognized net gain (13) (10) -------------------------------------------------------------------- ---------------- ----------------- Accrued postretirement benefit obligations included with other long-term liabilities $(82) $(81) ==================================================================== ================ ================= Discount rates as of end of year 6.10% 6.75% -------------------------------------------------------------------- ---------------- -----------------
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 2002 and 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. 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 30, JANUARY 31, 2003 2002 -------------------------------------------------------------------- ------------------ ----------------- Included with salaries and related liabilities $ 25 $ 12 Included with other long-term liabilities 67 54 -------------------------------------------------------------------- ------------------ ----------------- $ 92 $ 66 ==================================================================== ================== =================
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 $408 for 2002, $362 for 2001, and $286 for 2000. 46 Note S - Employment Contracts and Change in Control Agreements 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 deferrable or 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. The Company has entered into change-in-control ("CIC") agreements with certain executives to provide them with stated severance compensation should their employment with the Company be terminated under certain defined circumstances following a CIC. The CIC agreements have varying terms and provisions depending upon the executive's level within the organization and other considerations, including up to three times current base salary and current target bonus, payable in lump sum, and, for senior executives, a tax gross-up payment to make the executive whole for any excise taxes incurred due to Section 280G of the Internal Revenue Code. The CIC agreements have a term of approximately three years and three months, with each agreement expiring on December 31, 2005. However, beginning on January 1, 2004 and each January 1st thereafter, the term of the agreement will automatically be extended for an additional year unless the Company or the executive gives notice by September 30 of the preceding year that it does not wish to extend the agreement. In the event that a CIC occurs during the term of the agreement, the agreement provides for a two-year protection period (referred to as the severance period) during which the executive is protected from an involuntary termination (other than for cause) or termination for Good Reason as defined in the agreements. The agreements are considered to be "double trigger" arrangements wherein the payment of severance compensation is predicated upon the occurrence of two triggering events: (1) the occurrence of a CIC as defined in the agreements; and (2) the involuntary termination of the executive (other than for cause) or the executive's termination of employment with the Company for Good Reason as defined in the agreements. In consideration for the severance protection afforded by such agreements, the senior executives have agreed to non-compete provisions for the term of the agreements and for one year following the date of termination, and all of the executives covered by the CIC program described above have agreed to non-solicitation provisions for the term of the agreements and for one year following the date of termination. Note T - 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 a summary of the Company's assets under capitalized leases, $2 of real estate and equipment is included in assets held for sale at January 30, 2003:
JANUARY 30, JANUARY 31, 2003 2002 -------------------------------------------------------------- ------------------ ------------------- Real estate and equipment $ 355 $ 338 Accumulated amortization (98) (112) -------------------------------------------------------------- ------------------ ------------------- $ 257 $ 226 ============================================================== ================== ===================
47 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 30, 2003, are as follows:
OPERATING CAPITAL LEASES SUBLEASES LEASES --------------------------------------------------- ----------------- --------------- ----------------- 2003 $ 330 $ (27) $ 47 2004 330 (27) 46 2005 307 (22) 42 2006 282 (19) 40 2007 263 (16) 39 Thereafter 2,275 (58) 531 -------------------------------------------------- ----------------- --------------- ----------------- Total minimum obligations (receivables) $ 3,787 $ (169) 745 =================================================== ================= =============== Interest (424) --------------------------------------------------- ----------------- --------------- ----------------- Present value of net minimum obligations 321 Current portion (14) --------------------------------------------------- ----------------- --------------- ----------------- Long-term obligations at January 30, 2003 $ 307 =================================================== ================= =============== =================
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. If any of the purchasers were to become insolvent, the Company could be required to assume the lease obligation. As of January 30, 2003, the Company had guarantees remaining on approximately 103 stores with leases extending through 2026. Assuming that each respective purchaser became insolvent, an event the Company believes to be highly remote because of the wide dispersion among third parties and remedies available, the minimum future undiscounted payments are $188. Rent expense under operating leases, excluding the amortization of acquisition-related fair value adjustments of $13 in 2002, $13 in 2001, and $14 in 2000, was as follows:
2002 2001 2000 ---------------------------------------------------- ------------------ ------------------ -------------- Minimum rent $ 389 $ 375 $ 369 Contingent rent 26 28 30 ---------------------------------------------------- ------------------ ------------------ -------------- 415 403 399 Sublease rent (92) (94) (97) ---------------------------------------------------- ------------------ ------------------ -------------- $ 323 $ 309 $ 302 ==================================================== ================== ================== ==============
Note U - Related Party Transactions In the last three years, the Company has leased between seven and nine stores and two office locations ($3, $3 and $3 of rent paid during 2002, 2001 and 2000, respectively), purchased a piece of land ($2 during 2001), and obtained consulting services (insignificant) from entities that have a relationship with certain members of the Company's Board of Directors. Note V - 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 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 bank line borrowings) were as follows:
JANUARY 30, JANUARY 31, 2003 2002 ---------------------------------------------------------------- ---------------- ------------------ Fair value $ 5,675 $ 5,516 Carrying amount 5,055 5,183
48 Note W - 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 properties). The Company conducts an ongoing program for the inspection and evaluation of potential new sites 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 believed to be remote. Although the ultimate outcome and expense of environmental remediation is uncertain, the Company believes that the costs of required remediation and continuing compliance with environmental laws, in excess of current reserves, will not have a material adverse effect on the financial condition, results of operations or cash flows of the Company. Charges against earnings for environmental remediation were not material in 2002, 2001 or 2000. Note X - Legal Proceedings The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In March 2000 a class action complaint was filed against Albertsons 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 (Gardner, et al. v. Albertson's, Inc., et al.) by bonus-eligible managers seeking recovery of additional bonus compensation based upon plaintiffs' allegation that the calculation of profits on which their bonuses were based improperly included expenses for workers' compensation costs, cash shortages, premises liability and "shrink" losses in violation of California law. In October 2001 the court granted summary judgment against Sav-on Drug Stores, finding one of its bonus plans unlawful under plaintiffs' liability theory. In August 2001 a class action complaint with very similar claims, also involving bonus-eligible managers, was filed against Albertson's, Inc., Lucky Stores, Inc. and American Stores Company, wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Petersen, et al. v. Lucky Stores, Inc., et al.). In June 2002 the cases were consolidated and in August 2002 a class action with respect to the consolidated case was certified by the court. 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 that the ultimate resolution of this action will have a material adverse effect on the Company's financial condition, results of operations or cash flows. In April 2000 a class action complaint was filed against Albertsons 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 (Gardner, et al. v. American Stores Company, et al.) by assistant managers seeking recovery of overtime pay based upon plaintiffs' allegation that they were improperly classified as exempt under California law. In May 2001 a class action with respect to Sav-on Drug Stores assistant managers was certified by the court. A case with very similar claims, involving the Sav-on Drug Stores assistant managers and operating managers, was also filed in April 2000 against the Company's subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the County of Los Angeles, California (Rocher, Dahlin, et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. In April 2002 the Court of Appeal of the State of California Second Appellate District reversed the Rocher class certification, leaving only two plaintiffs. The California Supreme Court has accepted plaintiffs' request for review of this class decertification. The Gardner case is on hold pending the result in the California Supreme Court. 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 that the ultimate resolution of these lawsuits will have a material adverse effect on the Company's financial condition, results of operations or cash flows. In August 2000 a class action complaint was filed against Jewel Food Stores, Inc., a 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. In July 2002 a class was certified, consisting of all people residing in the Chicagoland area who bought milk at retail from either or both of the defendants between August 23, 1996 and August 23, 2000. On February 25, 2003, the trial judge granted Jewel's and Dominick's motion to dismiss after presentation of plaintiffs' case, and the case was dismissed with prejudice. The plaintiffs have filed a notice of intent to appeal the decision issued in favor of the defendants. 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, and 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 met eligibility criteria have been allowed to present their off-the-clock work claims to a settlement administrator. Additionally, current 49 and former grocery managers employed in the State of California have been allowed to present their exempt status claims to a settlement administrator. The Company mailed notices of the settlement and claims forms to approximately 80,000 associates and former associates. Approximately 6,000 claim forms were returned, of which approximately 5,000 were deemed by the settlement administrator to be incapable of valuation, presumed untimely, or both. The court will consider the status and handling of these 5,000 claims. The claims administrator was able to assign a value to approximately 1,000 claims, which amount to a total of approximately $13.5, although the value of many of those claims is still subject to challenge by the Company. The Company is presently unable to determine the number of individuals who may ultimately submit valid claims or the amounts that it may ultimately be required to pay with respect to such claims. Based on the information presently available to it, management does not expect that the satisfaction of valid claims submitted pursuant to the settlement will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is also involved in routine legal proceedings incidental to its operations. The Company utilizes various methods of alternative dispute resolution, including settlement discussions, to manage the costs and uncertainties inherent in the litigation process. Management does not expect that the ultimate resolution of these legal proceedings will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The statements above reflect management's current expectations based on the information presently available to the Company. However, predicting the outcomes of claims and litigation and estimating related costs and exposures involve substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. In addition, the Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures. It is possible that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company's financial condition, results of operations or cash flows. Note Y - Contractual Obligations and Commitments Albertsons 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 30, 2003:
AFTER YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL - --------------------------------------- --------------- ------------ ------------ ------------ ---------- Long-term debt $ 105 $ 704 $ 14 $ 4,232 $ 5,055 Capital lease obligations (1) 47 88 79 531 745 Operating leases (1) 330 637 545 2,275 3,787 Contracts for purchase of property and construction of buildings 176 - - - 176 Other (2) 96 136 6 - 238 - --------------------------------------- --------------- ------------ ------------ ------------ ---------- Total contractual cash obligations $ 754 $1,565 $ 644 $ 7,038 $10,001 ======================================= =============== ============ ============ ============ ==========
(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 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. 50 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. Albertsons commercial commitments as of January 30, 2003, representing possible commitments triggered by potential future events, are as follows:
AFTER YEAR 1 YEARS 2-3 YEARS 4-5 5 YEARS TOTAL - --------------------------------------- ---------- ------------- --------------- ----------- ----------- Available lines of credit $ 450 $ 950 $ - $ - $ 1,400 Letters of credit - standby 95 - - - 95 Letters of credit - commercial 13 - - - 13 - --------------------------------------- ---------- ------------- --------------- ----------- ----------- Potential commercial commitments $ 558 $ 950 $ - $ - $ 1,508 ======================================= ========== ============= =============== =========== ===========
The Company had outstanding Letters of Credit of $108 as of January 30, 2003, all of which were issued under separate bilateral agreements with multiple financial institutions. Of the $108 outstanding at year end, $95 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 0.70% of the outstanding balance of the letter of credit. Note Z - Computation of Earnings Per Share
2002 2001 2000 - ---------------------------------------------- ---------------------- ----------------------- --------------------- DILUTED BASIC DILUTED BASIC DILUTED BASIC ------------ --------- ----------- ----------- ----------- --------- Net earnings $ 485 $ 485 $ 501 $ 501 $ 765 $ 765 ===== ===== ===== ===== ===== ===== Weighted average common shares outstanding 397 397 406 406 418 418 ===== ===== ===== Common share equivalents 2 2 - ----- ----- ----- Weighted average shares outstanding 399 408 418 ===== ===== ===== Earnings per common share and common share equivalent: $1.22 $1.22 $1.23 $1.23 $1.83 $1.83 ===== ===== ===== ===== ===== ===== Calculation Of Common Share Equivalents: Options and awards to purchase common shares 10 17 2 Common shares assumed purchased with potential proceeds (8) (15) (2) ----- ----- ----- Common share equivalents 2 2 - ===== ===== ===== Calculation Of Common Shares Assumed Purchased With Potential Proceeds: Potential proceeds from exercise of options and awards to purchase common shares $ 227 $ 455 $ 52 Common stock price used under the treasury stock method $27.77 $31.12 $27.99 Common shares assumed purchased with potential proceeds 8 15 2
Outstanding options excluded in 2002, 2001, and 2000 (option price exceeded the average market price during the period) amounted to 20.2 million shares, 9.4 million shares, and 16.6 million shares, respectively. 51 QUARTERLY FINANCIAL DATA
(Dollars in Millions, Except Per Share Data - Unaudited) FIRST SECOND THIRD FOURTH YEAR - -------------------------------------------------------- ---------- ----------- ----------- ------------ ----------- 2002 Sales $ 8,921 $ 8,941 $ 8,657 $ 9,107 $ 35,626 Gross profit 2,623 2,631 2,530 2,600 10,384 Operating profit 487 520 385 425 1,817 (Loss) earnings from discontinued operations (303) 13 (2) 6 (286) (Loss) earnings before cumulative effect of accounting change (71) 257 188 205 579 Cumulative effect of accounting change (94) - - - (94) Net (loss) earnings (165) 257 188 205 485 (Loss) earnings per share: Basic (0.41) 0.63 0.47 0.54 1.22 Diluted (0.40) 0.63 0.47 0.54 1.22 - -------------------------------------------------------- ---------- ----------- ----------- ------------ ----------- 2001 Sales $ 8,994 $ 9,235 $ 9,036 $ 9,340 $ 36,605 Gross profit 2,571 2,587 2,570 2,698 10,426 Operating profit (loss) 431 (143) 417 591 1,296 Earnings (loss) from discontinued operations 2 3 (1) 1 5 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 - -------------------------------------------------------- ---------- ----------- ----------- ------------ -----------
The 2002 quarterly financial information presented above includes the impact of the change in the Company's method of accounting for vendor funds; this new accounting method was adopted in the fourth quarter of 2002, retroactive to the first quarter of 2002 (see "Note C - Cumulative Effect of Change in Accounting Principle" in the accompanying notes to the Consolidated Financial Statements). The Company's operating results presented above differ from the previously reported results due to the accounting method change. As compared to the operating results previously reported, gross profit increased by $16 and $7, for the first and second quarters and decreased by $7 in the third quarter; net earnings increased by $10 ($0.02 per diluted share), and $4 ($0.01 per diluted share) in the first and second quarters and decreased by $4 ($0.01 per diluted share) in the third quarter. Earnings per share on earnings before cumulative effect of accounting change was ($0.23) per diluted share for the first quarter. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 52 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 2003 Annual Meeting of Shareholders (the "Proxy Statement") to be filed within 120 days after the Company's fiscal year ended January 30, 2003, and is incorporated herein by this reference thereto. Executive and Reporting Officers
Date First Appointed Age as of as an Executive or Name 3/28/03 Position Reporting Officer ---- ------- -------- -------------------- Lawrence R. Johnston 54 Chairman of the Board and Chief Executive 04/23/01 Officer Peter L. Lynch 51 President and Chief Operating Officer 06/23/99 Robert K. Banks 53 Executive Vice President, Development 06/20/00 Robert C. Butler 54 Executive Vice President, Operations 03/21/00 Romeo R. Cefalo 53 Executive Vice President, Operations 03/21/00 Robert J. Dunst, Jr. 42 Executive Vice President and Chief 11/19/01 Technology Officer Clarence J. Gabriel 49 Executive Vice President, Supply Chain 01/13/03 Kathy J. Herbert 49 Executive Vice President, Human Resources 09/17/01 John R. Sims 53 Executive Vice President and 03/25/02 General Counsel Lawrence A. Stablein 45 Executive Vice President, Marketing and 10/30/00 Merchandising Felicia D. Thornton 39 Executive Vice President and Chief 08/22/01 Financial Officer Kevin H. Tripp 48 Executive Vice President, Operations and 12/11/00 Pharmacy Ertharin Cousin 45 Senior Vice President, Public Affairs 03/15/02 Eric J. Cremers 39 Senior Vice President, Corporate Strategy 07/15/02 and Business Development Peter F. Collins 38 Group Vice President and Controller 01/15/03
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 53 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. 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. Clarence J. Gabriel became Executive Vice President, Supply Chain on January 13, 2003. Previously he served as President, Chief Executive Officer and Chairman of the Board, Newgistics, Inc. from June 2000 and Division President, Corporate Express from November 1997. 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. Kevin H. Tripp became Executive Vice President, Operations and Pharmacy on May 19, 2002. Previously he served as Executive Vice President, Drug and General Merchandise from December 2000; 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. 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. Eric Cremers became Senior Vice President, Corporate Strategy and Business Development on July 15, 2002. Previously he served as Managing Director, Investment Banking, U.S. Bancorp Piper Jaffrey from 1999 and Vice President, Strategy and Corporate Development, Pillsbury Co. from 1996. Peter F. Collins was promoted to Group Vice President and Controller on January 15, 2003. Previously he served as Group Vice President, Corporate Accounting and Reporting from July 2002; Partner, Arthur Andersen LLP from September 1998; and Senior Manager, Arthur Andersen LLP from September 1995. 54 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 and Related Stockholder Matters 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. Information with respect to equity compensation plans is set forth under the heading "Equity Compensation Plan Information" 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. Item 14. Controls & Procedures Albertson's management, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within 90 days prior to the filing of this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. Subsequent to the date of this evaluation, there have not been any significant changes in the Company's internal controls or, to management's knowledge, in other factors that could significantly affect the Company's internal controls. PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: 1) Consolidated Financial Statements: See Index to Consolidated Financial Statements at Item 8 on page 24 of this report. 2) Financial Statement Schedules: No schedules are required. 3) Exhibits are incorporated herein by reference or are filed with this report as set forth in the Index to Exhibits on pages 61 through 68 hereof. (b) On February 25, 2003, the Company filed a current report on Form 8-K in connection with the announcement regarding the dismissal of the class action lawsuit Maureen Baker, et al., v. Jewel Food Stores, Inc. and Dominick's Supermarkets, Inc. On March 20, 2003, the Company filed a current report on Form 8-K in connection with the announcement of fourth quarter earnings. 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. 55 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. 56 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: \S\ Lawrence R. Johnston ---------------------------------------- Lawrence R. Johnston (Chairman of the Board and Chief Executive Officer) Date: April 23, 2003 57 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 23, 2003. \S\ Lawrence R. Johnston \S\ 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) \S\ Felicia D. Thornton \S\ Peter F. Collins - -------------------------------------- ------------------------------------ Felicia D. Thornton Peter F. Collins (Executive Vice President (Group Vice President and Chief Financial Officer) and Controller) \S\ A. Gary Ames \S\ Cecil D. Andrus - -------------------------------------- ------------------------------------ A. Gary Ames Cecil D. Andrus (Director) (Director) \S\ Pamela G. Bailey \S\ Teresa Beck - -------------------------------------- ------------------------------------ Pamela G. Bailey Teresa Beck (Director) (Director) \S\ Henry I. Bryant \S\ Paul I. Corddry - -------------------------------------- ------------------------------------ Henry I. Bryant Paul I. Corddry (Director) (Director) \S\ Bonnie G. Hill \S\ Jon C. Madonna - -------------------------------------- ------------------------------------ Bonnie G. Hill Jon C. Madonna (Director) (Director) \S\ Beatriz Rivera \S\ J. B. Scott - -------------------------------------- ------------------------------------ Beatriz Rivera J. B. Scott (Director) (Director) \S\ Will M. Storey - -------------------------------------- Will M. Storey (Director)
58 ALBERTSON'S, INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Lawrence R. Johnston, certify that: 1. I have reviewed this annual report on Form 10-K of Albertson's, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 23, 2003 \S\ Lawrence R. Johnston ----------------------------------------- Lawrence R. Johnston Chairman of the Board and Chief Executive Officer 59 ALBERTSON'S, INC. CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION I, Felicia D. Thornton, certify that: 1. I have reviewed this annual report on Form 10-K of Albertson's, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 23, 2003 \S\ Felicia D. Thornton ----------------------------------------- Felicia D. Thornton Executive Vice President and Chief Financial Officer 60 Index to Exhibits Filed with the Annual Report on Form 10-K for the Year Ended January 30, 2003 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) 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.* 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.* 61 Number Description 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 is incorporated herein by reference to Exhibit 10.4.1 of Form 10-K for the year ended January 31, 2002.* 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.* 10.6.4 Amendment to Executive Deferred Compensation Plan (dated May 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.* 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 Albertson's, Inc. Executive Officers' Annual Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.42 of Form 10-Q for the quarter ended May 2, 2002.* 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.* 10.10.1 First Amendment to the 2000 Deferred Compensation Plan (dated May 25, 2001).* 10.10.2 Second Amendment to the 2000 Deferred Compensation Plan (dated July 18, 2001).* 10.10.3 Third Amendment to the 2000 Deferred Compensation Plan (dated December 31, 2001).* 10.11 Employment Agreement between the Company and John R. Sims effective April 3, 2002 is incorporated by reference to Exhibit 10.11 of Form 10-K for the year ended January 31, 2002.* 62 Number Description 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.* 10.13.7 Amendment to Executive Pension Makeup Plan (dated June 1, 2001).* 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.* 10.14.1 First Amendment to the Executive ASRE Makeup Plan (dated May 25, 2001).* 10.14.2 Second Amendment to the Executive ASRE Makeup Plan (dated December 31, 2001).* 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.* 10.15.3 Amendment to Senior Executive Deferred Compensation Plan (dated May 1, 2001).* 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.* 63 Number Description 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.* 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.* 10.20.4 Termination of 1990 Deferred Compensation Plan (dated December 31, 1999).* 10.20.5 Amendment to 1990 Deferred Compensation Plan (dated May 1, 2001).* 64 Number Description 10.20.6 Amendment to 1990 Deferred Compensation Plan (dated December 31, 2001 to be effective May 1, 2001).* 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.* 10.21.3 Amendment to Non-Employee Directors' Deferred Compensation Plan (dated May 1, 2001).* 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.* 65 Number Description 10.25.2 Amendment to 1995 Stock Option Plan for Non-Employee Directors (dated March 15, 2001) is incorporated herein by reference to Exhibit 10.25.2 of Form 10-K for the year ended February 1, 2001.* 10.26.1 Amendment to Amended and Restated 1995 Stock-Based Incentive Plan (dated March 15, 2001) is incorporated 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.* 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.* 66 Number Description 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, 2001 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 incorporated herein by reference to Exhibit 10.41 to Form 10-Q for the quarter ended November 1, 2001.* 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.* 10.42 Albertsons Severance Plan for Officers effective October 1, 2002 is incorporated by reference to Exhibit 10.42 of Form 10-Q for the quarter ended October 31, 2002.* 10.43 Albertsons Change of Control Severance Agreement for Chief Operating Officer and Executive Vice President effective November 1, 2002 is incorporated by reference to Exhibit 10.43 of Form 10-Q for the quarter ended October 31, 2002.* 10.44 Albertsons Change of Control Severance Agreement for Senior Vice Presidents and Group Vice Presidents effective November 1, 2002 is incorporated by reference to Exhibit 10.44 of Form 10-Q for the quarter ended October 31, 2002.* 10.45 Albertsons Change of Control Severance Agreement for Vice Presidents effective November 1, 2002 is incorporated by reference to Exhibit 10.45 of Form 10-Q for the quarter ended October 31, 2002.* 10.46 Albertsons Amended and Restated 1995 Stock-Based Incentive Plan as amended effective December 9, 2002 is incorporated by reference to Exhibit 10.46 of Form 10-Q for the quarter ended October 31, 2002.* 10.46.1 Form of Award of Stock Option is incorporated by reference to Exhibit 10.46.1 of Form 10-Q for the quarter ended October 31, 2002.* 10.46.2 Form of Award of Deferred Stock Units is incorporated by reference to Exhibit 10.46.2 of Form 10-Q for the quarter ended October 31, 2002.* 67 Number Description 21 Subsidiaries of the Registrant 23 Independent Auditors' Consent - Deloitte & Touche LLP 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * 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. 68 EX-10 3 abs10kexhib10-64.txt AMENDMENT TO EXECUTIVE DEFERRED COMPENSATION PLAN Exhibit 10.6.4 AMENDMENT TO THE ALBERTSON'S, INC. EXECUTIVE DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. Executive Deferred Compensation Plan effective December 5, 1983 (the "Plan"); Whereas, the Corporation, pursuant to Section 8.01 of the Plan, retained the right to amend the Plan and Section 8.01 provides that the Plan may be amended without approval by the Board of Directors of Albertson's, Inc. ("Board"), provided that the amendments do not materially alter benefits and are non-monetary in their effect; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth. AMENDMENT Now therefore be it resolved that the Plan is amended, as of May 1, 2001, in the following respects: 1. Section 6.04(d) shall be amended to read as follows: The Participant may modify the form of the distribution of all or part of the Participant's Deferred Benefit Account, provided that such modification is made on a validly executed and filed election form at least twelve (12) months prior to the date on which the modification is to be effective. Notwithstanding the foregoing, distribution of the Participant's entire Deferred Benefit Account must be completed no later than the fifteenth year following the year in which distributions commence. 2. Section 7.02 shall be deleted in its entirety: 3. Section 7.03 shall be amended to read as follows: If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be the person or persons surviving him in the first of the following classes in which there is a survivor, share and share alike: (a) The surviving Spouse; (b) The Participant's natural or legally adopted children except that if any of the children predecease the Participant but leave issue surviving, then such issue shall take by right of representation the share their parent would have taken if living; or (c) The Participant's personal representative (executor or administrator). IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 25 day of May, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------------------- Thomas R. Saldin Executive Vice President Administration and General Counsel F:\nancy\gen\execdefcompamd.doc 2 EX-10 4 abs10kexhib10-101.txt 1ST AMENDMENT TO 2000 DEFERRED COMPENSATION PLAN Exhibit 10.10.1 FIRST AMENDMENT TO THE ALBERTSON'S, INC. 2000 DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. 2000 Deferred Compensation Plan effective January 1, 2000 (the "Plan"); Whereas, the Corporation, pursuant to Section 9.1 of the Plan, retained the right to amend the Plan and Section 9.1 provides that the Plan may be amended by the Grantor Trust Committee ("Committee") appointed by the Board of Directors of Albertson's, Inc. ("Board"), and the Board has granted the authority to amend the Plan to the Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth. AMENDMENT Now therefore be it resolved that the Plan is amended, as of May 1, 2001, in the following respects: 1. Section 1.5 of the Plan is amended for clarification to read as follows: "Bonus" means, with respect to each Participant, a cash bonus (i.e., excluding options and other noncash awards and taxable fringe benefits) paid by the Company with respect to the Fiscal Year or Fiscal Quarter or any part thereof beginning in the respective Plan Year. 2. Section 1.30 of the Plan shall be amended to read as follows: "Total Disability" means the complete inability of the Eligible Employee to perform any and every duty of his or her regular occupation, as determined by the Committee in its sole and absolute discretion. 3. Section 3.1 shall be renumbered as Section 3.1(a) and a new Section 3.1(b) shall be added to read as follows: (b) Notwithstanding the foregoing, the Committee shall permit an Eligible Employee who is hired during the Plan Year in a position of Group Vice President or higher to elect to defer with respect to compensation not yet earned for the remainder of the Plan Year in which the Eligible Employee was hired by filing a completed and executed Deferral Agreement with the Committee within 60 days of becoming an Eligible Employee. 4. Section 3.2 shall be amended to read as follows: For each Fiscal Year, the Compensation Committee shall determine if an Eligible Employee who is also a "covered employee" as that term is defined in Section 162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)") would receive total remuneration, including bonus, for that Fiscal Year in excess of the maximum amount allowed as a deduction by the Company from income taxes pursuant to the provisions of Section 162(m) and shall (notwithstanding the limitation on deferrals set forth in Section 4.2(a)), except as otherwise provided in a written employment agreement, defer to the Account of such Eligible Employee that portion of the bonus which would otherwise be paid to the Eligible Employee which, in the judgment of the Compensation Committee, would not be deductible by the Company pursuant to the provisions of Section 162(m). The Compensation Committee shall designate one of its members to file with the Committee a Deferral Agreement for the portion of bonus to be deferred. 5. Section 6.4(a) shall be amended to read as follows: (i) Except as otherwise provided in this Section 6.4, the entire amount credited to a Participant's Account shall be paid in one or more of the following forms: (A) a single lump sum, (B) a 5-year payout in 60 approximately equal monthly installments or 5 (five) equal annual installments, but not both, (C) a 10-year payout in 120 approximately equal monthly installments or 10 (ten) equal annual installments, but not both, or (D) a 15-year payout in 180 approximately equal monthly installments or 15 equal annual installments, but not both, or a combination of the foregoing to the extent administratively practicable, as the Participant shall elect in any Deferral Agreement; provided, however, that in the absence of such election in any Deferral Agreement, the respective amounts credited to the Participant's Account shall be payable in 120 approximately equal monthly installments. If installment payments are elected, the Account shall be amortized with an assumed Rate of Return of six percent (6%) unless the Participant selects, and the Committee approves, an alternative assumed Rate of Return. As of each January 1, the amount to be distributed in installment payments for that year shall be determined by amortizing the Participant's Account balance as of the preceding December 31 over the remainder of the installment period, using the assumed Rate of Return which was fixed under the preceding sentence at the time installment payments were elected. The Participant shall not be entitled to select a different form of distribution with respect to the amounts credited to the Participant's Account in each Plan Year. Instead, the distribution form(s) F:\nancy\gen\2000defcompplanamd2.doc 2 selected by the Participant shall apply to the entire balance of the Participant's Account. (ii) The Participant may modify the form of distribution or time of commencement provided that such modification is made on a validly executed and timely filed Deferral Agreement at least 12 months prior to the date on which the modification is to be effective. Notwithstanding the foregoing, distribution of the Participant's entire Account balance must be completed no later than the fifteenth year following the year in which distributions commence. 6. Section 7.1 shall be amended to read as follows: The Participant may, at any time, designate a Beneficiary or Beneficiaries to receive the benefits payable in the event of his or her death and may designate a successor Beneficiary or Beneficiaries to receive any benefits payable in the event of the death of any other Beneficiary. Each Beneficiary designation shall become effective only when filed in writing with the Committee during the Participant's lifetime on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If no Beneficiary shall be designated by the Participant, or if the designated Beneficiary or Beneficiaries shall not survive the Participant, payment of the Participant's Account shall be made to the Participant's estate in a single lump sum payment. Notwithstanding any provision of this Plan to the contrary, any Beneficiary designation may be changed by a Participant by the written filing of such change on a form prescribed by the Committee. IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 25th day of May, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------------------- Thomas R. Saldin Executive Vice President Administration and General Counsel F:\nancy\gen\2000defcompplanamd2.doc 3 EX-10 5 abs10kexhib10-102.txt 2ND AMENDMENT TO 2000 DEFERRED COMPENSATION PLAN Exhibit 10.10.2 SECOND AMENDMENT TO ALBERTSON'S, INC. 2000 DEFERRED COMPENSATION PLAN WHEREAS, the Albertson's, Inc. Deferred Compensation Plan (the "Plan") was established effective January 1, 2000, and has previously been amended; WHEREAS, Albertson's, Inc. desires to further amend the Plan; NOW, THEREFORE, Section 6.4(b) of the Plan is amended and restated, effective July 1, 2001, to read in its entirety as follows: (b) Except for a Participant who is eligible for and elects to participate in the Albertson's Voluntary Separation Plan for Officers or the Albertson's Voluntary Separation Plan for Salaried and Hourly Associates, if the amounts credited to the Participant's Account become payable pursuant to Section 6.3 prior to a Change in Control, such amounts shall be distributed in 60 approximately equal monthly installments without regard to paragraph (a) of this Section 6.4. IN WITNESS WHEREOF, the Employer has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 18th day of July, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin --------------------------------------------- Name: Thomas R. Saldin Its: Executive Vice President and General Counsel ATTEST: /s/ Dean J. Snow - ----------------------- 2000defcompamdt 7-2001.doc EX-10 6 abs10kexhib10-103.txt 3RD AMENDMENT TO 2000 DEFERRED COMPENSATION PLAN Exhibit 10.10.3 THIRD AMENDMENT TO THE ALBERTSON'S, INC. 2000 DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. 2000 Deferred Compensation Plan effective January 1, 2000 (the "Plan"); Whereas, the Corporation, pursuant to Section 9.1 of the Plan, retained the right to amend the Plan and pursuant to Section 9.1 the Plan may be amended by the Administrative Committee of the Compensation Committee ("Committee") appointed by the Board of Directors of Albertson's, Inc. ("Board"), and the Board has granted the authority to amend the Plan to the Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth. Now therefore be it resolved that the Plan is amended, as of October 1, 2001, in the following respects: AMENDMENT 1. Section 6.4(a) shall be amended to read as follows: (i) Except as otherwise provided in this Section 6.4, the entire amount credited to a Participant's Account shall be paid in one or more of the following forms: (A) a single lump sum, (B) a 5-year payout in 60 approximately equal monthly installments or 5 (five) equal annual installments, but not both, (C) a 10-year payout in 120 approximately equal monthly installments or 10 (ten) equal annual installments, but not both, or (D) a 15-year payout in 180 approximately equal monthly installments or 15 equal annual installments, but not both, or a combination of the foregoing to the extent administratively practicable, as the Participant shall elect in any Deferral Agreement; provided, however, that in the absence of such election in any Deferral Agreement, the respective amounts credited to the Participant's Account shall be payable in 120 approximately equal monthly installments. If installment payments are elected, the Account shall be amortized with an assumed Rate of Return of either six percent (6%) or, if the Participant is eligible for and selected Moody's Rate as the Rate of Return then the Moody's rate shall be used, unless the Participant selects, and the Committee approves, an alternative assumed Rate of Return. As of each January 1, the amount to be distributed in installment payments for that year shall be determined by amortizing the Participant's Account balance as of the preceding December 31 over the remainder of the installment period, using the assumed Rate of Return which was fixed under the preceding sentence at the time installment payments were elected. The Participant shall not be entitled to select a different form of distribution with respect to the amounts credited to the Participant's Account in each Plan Year. Instead, the distribution form(s) selected by the Participant shall apply to the entire balance of the Participant's Account. IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 31st day of December, 2001. ALBERTSON'S, INC. By: /s/ Paul G. Rowan ---------------------- Paul G. Rowan Group Vice President & Acting General Counsel 2 F:\nancy\gen\2000defcompplanamd3(final 12-31-01).doc EX-10 7 abs10kexhib10-137.txt 3RD AMENDMENT TO EXECUTIVE PENSION MAKEUP PLAN Exhibit 10.13.7 THIRD AMENDMENT TO ALBERTSON'S, INC. EXECUTIVE PENSION MAKEUP PLAN WHEREAS, the Albertson's, Inc. Executive Pension Makeup Plan (the "Plan") was amended and restated, effective January 1, 1995, and has been amended from time to time; WHEREAS, Albertson's, Inc. desires to further amend the Plan; NOW, THEREFORE, the following amendments to the Plan are hereby adopted, effective June 1, 2001. 1. Article I of the Plan is amended to add definitions for the terms "Actuarial Equivalent," "Joint and Survivor Annuity," "Period-Certain and Life Annuity" and "Single-Life Annuity" to read in their entirety as follows: "Actuarial Equivalent" means equality in value of the aggregate amount expected to received under different forms of payment, based on the Table of Actuarial Adjustments and assumptions set forth in Exhibit "A". ... "Joint and Survivor Annuity" means an annuity for the life of the Participant with a survivor annuity for the life of his Beneficiary payable following the death of the Participant, which survivor annuity is equal to a specified percentage of the amount of the annuity payable during the life of the Participant, and which is the Actuarial Equivalent of the Participant's Retirement Benefit. ... "Period-Certain and Life annuity" means the payment of a reduced monthly benefit to the Participant for his or her life, and if the Participant dies within a period of 60 or 120 months (whichever is elected by the Participant) after benefit payments commence, payment of such reduced benefit will be continued in the same amount to the Beneficiary designated by the Participant for the balance of the 60 or 120 months, as applicable. Such benefit shall be the Actuarial Equivalent of the Participant's Retirement Benefit. ... "Single-Life Annuity" means an annuity for the life of the Participant with no survivor benefits which is the Actuarial Equivalent of the Participant's Retirement Benefit. .... Unless specifically provided otherwise in the Plan, all capitalized terms shall have the same meaning as set forth in the Salaried Pension Plan. 2. Section 3.01(a)(iii), (iv) and (v) and Section 3.01(b) are amended and restated to read in their entirety as follows: 3.01 Amount of Accrued Benefit. (a) An Officer Participant's Accrued Benefit shall be a monthly retirement benefit equal to an amount calculated pursuant to Section 4.1 (as amended from time to time), or any successor provision thereto, of the Salaried Pension Plan with the following modifications: ... (iii) Annual compensation shall include (A) compensation otherwise payable by the Employer to the Officer Participant which the Officer Participant elects to defer under either of the Deferred Compensation Plans, the 1990 Plan, the 2000 Plan or ASRE Makeup Plan for the year in which the compensation is deferred, but only those components of deferred compensation which, if not deferred, would be taken into account in determining benefits under the Salaried Pension Plan; (B) compensation deferred under certain deferred compensation arrangements relating to phantom stock, which arrangements have been superseded by Employer contributions to Albertson's, Inc. Senior Executive Deferred Compensation Plan; and (C) Employer contributions to Albertson's, Inc. Senior Executive Deferred Compensation Plan; (iv) All years of credited service of the Officer Participant under the Corporate Pension Plan and all years of credited service of the Officer Participant under the Salaried Pension Plan, shall be taken into account; and (v) Such Officer Participant's Accrued Benefit shall be reduced by the sum of (A) the Officer Participant's accrued benefit under the Salaried Pension Plan, (B) the Officer Participant's accrued benefit, if any, under the Corporate Pension Plan, and (C) the Actuarial Equivalent of the WORD491137v3 2 Officer Participant's vested account balance in the Company Contributions on Pay Accounts under ASRE II and ASRE Makeup Plan. ... (b) A Non-Officer Participant's Accrued Benefit shall be a monthly retirement benefit equal to an amount calculated pursuant to Section 4.1 (as amended from time to time), or any successor provision thereto, of the Salaried Pension Plan with the following modifications: (i) Annual compensation shall include compensation otherwise payable by the Employer to the Non-Officer Participant which the Non-Officer Participant elects to defer under the 1990 Plan, 2000 Plan or ASRE Makeup Plan for the year in which the compensation is deferred, but only those components of deferred compensation which, if not deferred, would be taken into account in determining benefits under the Salaried Pension Plan; and (ii) Such Non-officer Participant's Accrued Benefit shall be reduced by the sum of (A) the Non-Officer Participant's accrued benefit under the Salaried Pension Plan (excluding any accrued benefit transferred from the Corporate Pension Plan) and (B) by the Actuarial Equivalent of the Non-officer Participant's vested account balances in the Company Contribution on Pay Accounts (including the Actuarial Equivalent of prior distributions from those accounts) under ASRE II and ASRE Makeup Plan. If a Non-Officer Participant ceases to be in the eligible class of employees under Section 2.01 without retiring or terminating employment with the Employer, the Participant's benefit shall continue to accrue and be calculated pursuant to this Section 3.01(b). 3. Section 4.02 of the Plan is amended and restated to read in its entirety as follows: 4.02 Form of Benefit Payments. Benefit payments shall be paid in one of the following forms selected by the Participant on his or her distribution form filed with the Administrator: (i) Single-Life Annuity; (ii) 50%, 66-2/3% or 100% Joint and Survivor Annuity; (iii) 60 or 120 month Period-Certain and Life Annuity; or (iv) single, lump sum. If a Participant does not file a distribution form with the Administrator, benefit payments shall be paid as a 120 month Period-Certain and Life Annuity. Such benefit payments, under whichever form selected, shall be the Actuarial Equivalent of the Participant's Retirement Benefit payable as a Single-Life Annuity. Notwithstanding the foregoing, if the single, lump sum amount which is WORD491137v3 3 the Actuarial Equivalent of the Participant's Retirement Benefit is $5,000 or less, such amount shall immediately be distributed in a single, lump sum payment. Prior to the commencement of benefits, the Participant may change (but not revoke) the form of payment previously selected; provided, however, such change shall not become effective until 12 months after a validly executed distribution form is filed with the Administrator. Notwithstanding the foregoing, until August 1, 2001, a Participant (but not Beneficiary) to whom benefit payments have commenced, may select any of the available forms of benefit payment, provided that, if a new form of payment is selected, the new form of benefit will not become effective until August 1, 2002. 4. Article IV is amended to add a new Section 4.03 to read in its entirety as follows: 4.03 Suspension of Benefits During Certain Periods of Employment. Benefits payable under the Plan shall be suspended pursuant to the terms of Section 4.6 of the Salaried Pension Plan, as amended from time to time, or any successor provision thereto. 5. Section 7.04 of the Plan is amended and restated to read in its entirety as follows: 7.04 Assignment of Benefits. To the extent permitted by law, no interest in this Plan shall be subject to assignment, alienation, transfer or anticipation, either by voluntary or involuntary act of any Participant or Beneficiary or by operation of law, nor shall payment or right of interest be subject to the demands or claims of any creditor of such person, nor be liable in any way for such person's debts, obligations or liabilities. If a domestic relations order is determined by the Administrator to create an interest under this Plan for an alternate payee, no distribution of benefits shall be made to such alternate payee until the Participant whose benefit is subject to the domestic relations order would be eligible to receive benefits under the Plan. IN WITNESS WHEREOF, the Employer has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 18th day of July, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin --------------------------- Name: Thomas R. Saldin Its: Executive Vice President and General Counsel ATTEST: /S/ Dean J. Snow - ------------------- WORD491137v3 4 EXHIBIT "A" Table of Actuarial Adjustments Albertson's, Inc. Executive Pension Makeup Plan 1. For an election made by a Participant at least 12 months prior to the commencement of benefits, the following factors represent the percentage of the Participant's Single-Life Annuity payable to the Participant under the alternative form of benefit indicated: (a) Joint and Survivor Annuity with the survivor's annuity percentage as indicated:
======================================================== ================= ================ =============== 66-2/3% 100% 50% Survivor Survivor Survivor Age Benefit Benefit Benefit ======================================================== ================= ================ =============== - -------------------------------------------------------- ----------------- ---------------- --------------- Participant and Spouse less than 5 years apart in age 90.0 86.7 81.3 - -------------------------------------------------------- ----------------- ---------------- --------------- Participant younger than Spouse by (1) at least 5, but less than 10 years 93.1 91.0 87.1 (2) at least 10, but less than 15 years 95.2 93.7 90.8 (3) 15 years or more 97.3 96.4 94.7 - -------------------------------------------------------- ----------------- ---------------- --------------- Participant older than Spouse by: (1) at least 5, but less than 10 years 86.9 83.3 76.8 (2) at least 10, but less than 15 years 84.8 80.7 73.6 (3) 15 years or more 82.4 77.7 70.1 ======================================================== ================= ================ ===============
(b) Period Certain and Life Annuity (120 months): 95 (c) Period Certain and Life Annuity (60 months): 98.5 (d) Single, lump sum (i) For an involuntary single, lump sum cashout pursuant to Section 4.02, the lump sum factor shall be the "applicable mortality table" as defined in Section 417(e)(3)(A)(ii) of the Code (currently the 1983 GAM Mortality Table (50% male/50% female)) at the annual rate of interest on 30-year U.S. Treasury securities for the month of December immediately preceding the first day of the Plan Year in which the lump sum distribution is made. WORD491137v3 5 (ii) For all other single, lump sums, the lump sum factor shall be based on the following: Interest: Moody's Rate where "Moody's Rate" means the "corporate bond yield average" with respect to "average corporations" for the month of December which precedes the first day of Plan Year prior to the Plan Year in which the lump sum distribution is to be made (i.e., the rate for December 2000 applies to the Plan Year beginning February 1, 2002), as determined from the Moody's Bond Record published by Moody's Investor Services, Inc. Participant mortality: unisex rates based upon 90% of the Male 1971 Group Mortality Table and 10% of the Female 1971 Group Mortality Table. Beneficiary and alternate payee mortality: unisex rates based upon 10% of the Male 1971 Group Mortality Table and 90% of the Female 1971 Group Mortality Table. 2. For an election change made by a Participant prior to (but within 12 months of) the commencement of benefits, the Participant's benefit on the effective date of the change in form of benefit shall be converted to an actuarially equivalent Single-Life Annuity as provided in this paragraph and the amount under the available alternative forms of benefit shall be determined by applying paragraph 1 above. (a) Joint and Survivor Annuity with the survivor's annuity percentage as indicated:
======================================================== ================ ============== =============== 66-2/3% 100% Age 50% Survivor Survivor Survivor Benefit Benefit Benefit ======================================================== ================ ============== =============== - -------------------------------------------------------- ---------------- -------------- --------------- Participant and Spouse less than 5 years apart in age 1.0 1.33 1.87 - -------------------------------------------------------- ---------------- -------------- --------------- Participant younger than Spouse by: (1) at least 5, but less than 10 years .69 .90 1.29 (2) at least 10, but less than 15 years .48 .63 .92 (3) 15 years or more .27 .36 .53 - -------------------------------------------------------- ---------------- -------------- --------------- Participant older than Spouse by: (1) at least 5, but less than 10 years 1.31 1.67 2.32 (2) at least 10, but less than 15 years 1.52 1.93 2.64 (3) 15 years or more 1.76 2.23 2.99 ======================================================== ================ ============== ===============
WORD491137v3 6 (b) Period Certain and Life Annuity (120 months): .50 (c) Period Certain and Life Annuity (60 months): .30 (d) The appropriate factor from the tables above for the form of benefit prior to change shall be multiplied by the lesser of: (i) The number of years (rounded up for fractional years) that payments had been made under the form of benefit prior to the change. (ii) Five (5) for the 60 months Period Certain and Life Annuity and ten (10) for all other forms. (e) The result from subparagraph 2(d) shall be added to the appropriate factor from paragraph 1 above. (f) The Participant's actuarially equivalent Single-Life Annuity benefit is equal to the Participant's benefit prior to the change in form divided by the result from subparagraph 2(e). 3. For an election to change the form of benefit made by a Participant after the commencement of benefits, the Participant's benefit on the effective date of the change in form of benefit shall be converted to an actuarially equivalent Single-Life Annuity by applying paragraph 2 above, with the amount under the single, lump sum option determined by applying subparagraph 1(d) above and the amount under all other available alternative forms of benefit, if any, determined by applying paragraph 7 below. 4. In determining the Actuarial Equivalent of the vested account balance in a Participant's Company Contribution on Pay Account in ASRE II and ASRE Makeup Plan, the account balance at termination of employment with the Employer plus the Actuarial Equivalent of all prior distributions from the account) shall be projected forward to the Participant's Normal Retirement Date and divided by the Annuity Conversion Factor based on age at Normal Retirement Date using an 8% annual interest rate. If the Participant has attained his Normal Retirement Date, the account balance shall not be projected forward but shall be divided by the Annuity Conversion Factor based on his attained age at the Annuity Starting Date. No mortality shall be assumed in determining the Actuarial Equivalent of any prior distributions from the Participant's Company Contributions on Pay Account or for periods prior to the benefit commencement date under the Plan. 5. In determining the single, lump amount for a Beneficiary, paragraph 1 above shall apply. 6. For purposes of determining an alternate payee's benefits pursuant to a qualified domestic relations order under Section 414(p) of the Code, Actuarial Equivalent shall be determined as follows: WORD491137v3 7 (a) For determining the Single-Life Annuity payable to the alternate payee: Interest: 8% compounded annually. Participant mortality: unisex rates based upon 90% of the Male 1983 Group Annuity Mortality Table and 10% of the Female 1983 Group Annuity Mortality Table. Alternate payee mortality: unisex rates based upon 10% of the Male 1983 Group Annuity Mortality Table and 90% of the Female 1983 Group Annuity Mortality Table. (b) For determining the amounts under all alternative forms of benefit available to the alternate payee, paragraph 1 above shall apply. 7. For all other purposes under the Plan, Actuarial Equivalent shall be based on the following assumptions: Interest: 5% compounded annually. Participant mortality: unisex rates based upon 90% of the Male 1983 Group Annuity Mortality Table and 10% of the Female 1983 Group Annuity Mortality Table. Beneficiary mortality: unisex rates based upon 90% of the Female 1983 Group Annuity Mortality Table and 10% of the Male 1983 Group Annuity Mortality Table. WORD491137v3 8 EX-10 8 abs10kexhib10-141.txt 1ST AMENDMENT TO EXECUTIVE ASRE MAKEUP PLAN Exhibit 10.14.1 FIRST AMENDMENT TO THE ALBERTSON'S, INC. EXECUTIVE ASRE MAKEUP PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Executive ASRE Makeup Plan effective September 26, 1999 (the Plan"); Whereas, the Corporation, pursuant to Section 9.1 of the Plan, retained the right to amend the Plan and Section 9.1 provides that the Plan may be amended by the Grantor Trust Committee ("Committee") appointed by the Board of Directors of Albertson's, Inc. ("Board"), and the Board has granted the authority to amend the Plan to the Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan. AMENDMENT The Plan is amended, as of May 1, 2001, in the following respects: 1. The last sentence of Section 6.1 shall be amended to read as follows: A Participant may select any or all of the following distribution events: (a) termination of employment, (b) Total Disability and (c) attainment of a specified age on or after age 59 1/2. 2. A new sentence shall be added to Section 6.1 which shall read as follows: Notwithstanding the foregoing, distributions shall begin no later than the year in which the Participant attains age 65. 3. Section 6.3(a) shall be amended to read as follows: Except as otherwise provided in this Section 6.3, the entire amount credited to a Participant's Account shall be paid in one or more of the following forms selected on the Participant's distribution form: (i) a single lump sum, (ii) a 5-year payout in 60 approximately equal monthly installments or 5 (five) equal annual installments, but not both, (iii) a 10-year payout in 120 approximately equal monthly installments or 10 (ten) equal annual installments, but not both, or (iv) a 15-year payout in 180 approximately equal monthly installments or 15 equal annual installments, but not both, or a combination of the foregoing to the extent administratively practicable as the Participant shall elect in any distribution form, provided, however, that in the absence of such election in any distribution form, the respective amounts credited to the Participant's Account shall be payable in 120 approximately equal monthly installments. If installment payments are elected, the Account shall be amortized with an assumed Rate of Return of six percent (6%) unless the Participant selects, and the Committee approves, an alternative assumed Rate of Return. As of each January 1, the amount to be distributed in installment payments for that year shall be determined by amortizing the Participant's Account balance as of the preceding December 31 over the remainder of the installment period, using the assumed Rate of Return which was fixed under the preceding sentence at the time installment payments were elected. The Participant shall not be entitled to select a different form of distribution with respect to the amounts credited to the Participant's Account in each Plan Year. Instead, the distribution form selected by the Participant shall apply to the entire balance of the Participant's Account. The Participant may modify the form of distribution or the time of commencement; provided that such modification is made on a validly executed and timely filed distribution form at least 12 months prior to the date on which the modification is to be effective. Notwithstanding the foregoing, distribution of the Participant's entire Account balance must be completed no later than the fifteenth year following the year in which distributions first commenced 4. Section 7.1 shall be amended to read as follows: The Participant may, at any time, designate a Beneficiary or Beneficiaries to receive the benefits payable in the event of his/her death and may designate a successor Beneficiary or Beneficiaries to receive any benefits payable in the event of the death of any other Beneficiary. Each Beneficiary designation shall become effective only when filed in writing with the Committee during the Participant's lifetime on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If no Beneficiary shall be designated by the Participant, or if the designated Beneficiary or Beneficiaries shall not survive the Participant, payment of the Participant's Account shall be made to the Participant's estate in a single lump sum payment. Notwithstanding any provision of this Plan to the contrary, any Beneficiary designation may be changed by a Participant by the written filing of such change on a form prescribed by the Committee. IN WITNESS WHEREOF, this instrument has been duly executed by the undersigned as of May 25, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------------------- Thomas R. Saldin Executive Vice President Administration and General Counsel makeupamdt2.doc EX-10 9 abs10kexhib10-142.txt 2ND AMENDMENT TO EXECUTIVE ASRE MAKEUP PLAN Exhibit 10.14.2 SECOND AMENDMENT TO THE ALBERTSON'S, INC. EXECUTIVE ASRE MAKEUP PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Executive ASRE Makeup Plan effective September 26, 1999 (the Plan"); Whereas, the Corporation, pursuant to Section 9.1 of the Plan, retained the right to amend the Plan and Section 9.1 provides that the Plan may be amended by the Administrative Committee of the Compensation Committee ("Committee") appointed by the Board of Directors of Albertson's, Inc. ("Board"), and the Board has granted the authority to amend the Plan to the Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan.; Now therefore be it resolved that the Plan is amended as of December 1, 2001 in the following respects: AMENDMENT 1. Section 1.14 shall be amended to read as follows: "Eligible Employee" means any employee of an Employer who (a) is a participant in ASRE, (b) (i) is a store director, a drug store general manager or a pharmacy manager or equivalent or (ii) is a non-store employee who is paid at Salary Grade 27 or above, and (c) satisfies such other criteria as may be established by the Committee. An employee shall cease to be an Eligible Employee if the employee does not receive Compensation for four (4) or more consecutive weeks. Notwithstanding the foregoing, no participant in the American Stores Company Supplemental Executive Retirement Plan shall be considered an Eligible Employee prior to January 1, 2000. In witness whereof, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 31st day of December, 2001. ALBERTSON'S, INC. By: /s/ Paul G. Rowan ---------------------- Paul G. Rowan Group Vice President & Acting General Counsel makeupamdt2.doc EX-10 10 abs10kexhib10-153.txt AMENDMENT TO SR EXEC DEFERRED COMPENSATION PLAN Exhibit 10.15.3 AMENDMENT TO THE ALBERTSON'S, INC. SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. Senior Executive Deferred Compensation Plan effective December 5, 1983 (the "Plan"); Whereas, the Corporation, pursuant to Section 8.01 of the Plan, retained the right to amend the Plan; Section 8.01 provides that the Plan may be amended by the Corporation so long as such amendments are non-monetary in their effect and do not materially alter plan benefits; pursuant to resolutions duly adopted by the Board of Directors of the Corporation, the Grantor Trust Committee of the Board of Directors was granted the authority to amend the Plan; and the Committee has been granted the authority to amend the Plan by the Grantor Trust Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth and that such amendment does not materially alter benefits. AMENDMENT Now therefore be it resolved that the Plan is amended, as of May 1, 2001, in the following respects: 1. Section 6.04(d) of the Plan shall be amended to read as follows: The Participant may modify the form of the distribution of all or part of the Participant's Deferred Benefit Account, provided that such modification is made on a validly executed and timely filed election form at least twelve (12) months prior to the date on which the modification is to be effective. Notwithstanding the foregoing, distribution of the Participant's entire Deferred Benefit Account must be completed no later than the fifteenth year following the year in which distributions commence. 2. Section 7.02 shall be deleted in its entirety: 3. Section 7.03 shall be amended to read as follows: If a Participant fails to designate a Beneficiary as provided above, or if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant's benefits, then the Participant's designated Beneficiary shall be deemed to be the person or persons surviving him in the first of the following classes in which there is a survivor, share and share alike: (a) The surviving Spouse; (b) The Participant's natural or legally adopted children, except that if any of the children predecease the Participant but leave issue surviving, then such issue shall take by right of representation the share their parent would have taken if living; or (c) The Participant's personal representative (executor or administrator). IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 25 day of May, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------------------- Thomas R. Saldin Executive Vice President Administration and General Counsel F:\nancy\gen\seniorexecdefcompamd.doc 2 EX-10 11 abs10kexhib10-204.txt TERMINATION OF 1990 DEFERRED COMPENSATION PLAN Exhibit 10.20.4 TERMINATION OF ALBERTSON'S, INC. 1990 DEFERRED COMPENSATION PLAN This instrument terminating the Albertson's, Inc. 1990 Deferred Compensation Plan (the "1990 Plan") is made by Albertson's, Inc., a Delaware corporation (the "Corporation") effective December 31, 1999. RECITALS: A. The Board of Directors (the "Board") of the Corporation, pursuant to Section 10.2 of the Plan, retained the right to terminate the 1990 Plan. B. The Corporation has established the Albertson's, Inc. 2000 Deferred Compensation Plan and, as a result, the Board has determined that it is advisable to terminate the 1990 Plan and has terminated the 1990 Plan pursuant to a resolution duly adopted by the Board at a regularly scheduled meeting of the Board held on November 30, 1999, and such resolution continues in full force and effect. BOARD RESOLUTION WHEREAS, upon the recommendation of the Grantor Trust Committee, the Board of Directors of the Corporation deems it advisable to terminate the Albertson's, Inc. 1990 Deferred Compensation Plan ("1990 Plan") effective December 31, 1999 pursuant to Section 10.2 of the Plan; NOW, THEREFORE, BE IT HEREBY RESOLVED, (a) that the 1990 Plan be terminated effective December 31, 1999 pursuant to Section 10.2 of the 1990 Plan; (b) that Participant deferrals under the Plan cease as of such date; (c) that benefits payable under the 1990 Plan shall be paid at such times and pursuant to such terms and conditions as were effective immediately prior to the termination of the 1990 Plan; and (d) that the Board of Directors, the Grantor Trust Committee and their duly authorized delegates continue to have authority under Section 10.1 of the 1990 Plan to amend the Plan, in whole or in part, at anytime; provided, however, that no amendment shall be effective to decrease the benefits or rights of any Participant theretofore accrued. IN WITNESS WHEREOF, the Corporation has caused its officer, duly authorized by its Board of Directors, to execute this instrument this 1st day of December, 1999, to be effective as of December 31, 1999. ALBERTSON'S, INC. a Delaware corporation By: /s/ Thomas R. Saldin ------------------------ Thomas R. Saldin Executive Vice President and General Counsel EX-10 12 abs10kexhib10-205.txt AMENDMENT TO 1990 DEFERRED COMPENSATION PLAN Exhibit 10.20.5 AMENDMENT TO THE ALBERTSON'S, INC. 1990 DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. 1990 Deferred Compensation Plan effective January 1, 1990 (the "Plan"); Whereas, the Corporation, pursuant to Section 10.1 of the Plan, retained the right to amend the Plan and Section 10.1 provides that the Plan may be amended by the Grantor Trust Committee ("Committee") appointed by the Board of Directors of Albertson's, Inc. ("Board"), and the Board has granted the authority to amend the Plan to the Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth. AMENDMENT Now therefore be it resolved that the Plan is amended, as of May 1, 2001, in the following respects: 1. Section 6.4(a) shall be amended to read as follows: (i) Except as otherwise provided in this Section 6.4, the amount credited to a Participant's Account shall be paid in one or more of the following forms: (A) a single lump sum, (B) a 5-year payout in 60 approximately equal monthly installments or 5 (five) equal annual installments, but not both, (C) a 10-year payout in 120 approximately equal monthly installments or 10 (ten) equal annual installments, but not both or (D) a 15-year payout in 180 approximately equal monthly installments or 15 (fifteen) equal annual payments, but not both, or a combination of the foregoing, as the Participant shall elect in any Deferral Agreement; provided, however, that in the absence of such election in any Deferral Agreement, the respective amounts credited to the Participant's Account shall be payable in 120 approximately equal monthly installments. If installment payments are elected, the Account shall be amortized with an assumed rate of return of six percent (6%) unless the Participant selects, and the Committee approves, an alternative assumed rate of return. As of each January 1, the amount to be distributed in installment payments for that year shall be determined by amortizing the Participant's Account balance as of the preceding December 31 over the remainder of the installment period, using the assumed rate of return which was fixed under the preceding sentence at the time installment payments were elected. The Participant shall not be entitled to select a different form of distribution with respect to the amounts credited to the Participant's Account in each Plan Year. Instead, the distribution form(s) selected by the Participant shall apply to the entire balance of the Participant's Account. (ii) The Participant may modify the form of the distribution of all or part of the Participant's Account, provided that such modification is made on a validly executed and timely filed Deferral Agreement at least twelve (12) months prior to the date on which the modification is to be effective. Notwithstanding the foregoing, distribution of the Participant's entire Account balance must be completed no later than the fifteenth year following the year in which distributions commence. 2. Section 7.1 shall be amended to read as follows: The Participant may, at any time, designate a Beneficiary or Beneficiaries to receive the benefits payable in the event of his or her death and may designate a successor Beneficiary or Beneficiaries to receive any benefits payable in the event of the death of any other Beneficiary. Each Beneficiary designation shall become effective only when filed in writing with the Committee during the Participant's lifetime on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If no Beneficiary shall be designated by the Participant, or if his or her Beneficiary designation is revoked by marriage, divorce or otherwise without execution of another designation, or if the designated Beneficiary or Beneficiaries shall not survive the Participant, payment of the Participant's Account shall be made to the Participant's estate in a single lump sum payment. Notwithstanding any provision of this Plan to the contrary, any Beneficiary designation may be changed by a Participant by the written filing of such change on a form prescribed by the Committee. IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 25 day of May, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------------------- Thomas R. Saldin Executive Vice President Administration and General Counsel F:\nancy\gen\1990defcompamd.doc 2 EX-10 13 abs10kexhib10-206.txt AMENDMENT TO 1990 DEFERRED COMPENSATION PLAN Exhibit 10.20.6 AMENDMENT TO THE ALBERTSON'S, INC. 1990 DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. 1990 Deferred Compensation Plan effective January 1, 1990 (the "Plan"); Whereas, the Corporation, pursuant to Section 10.1 of the Plan, retained the right to amend the Plan and pursuant to Section 10.1 the Plan may be amended by the Administrative Committee of the Compensation Committee ("Committee") appointed by the Board of Directors of Albertson's, Inc. ("Board"), and the Board has granted the authority to amend the Plan to the Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth. Now therefore be it resolved that the Plan is amended, as of May 1, 2001, in the following respects: AMENDMENT 1. A new Section 1.26, "Total Disability," shall be added (and the sections renumbered accordingly) to read as follows: "Total Disability" means the complete inability of the Eligible Employee to perform each and every duty of his or her regular occupation as determined by the Committee in its sole and absolute discretion. 2. Section 6.3(a) shall be amended to read as follows: In the event any Participant terminates employment with the Employer prior to Retirement, for any reason other than death, the amount credited to such Participant's Account shall be distributed to such Participant in the form(s) provided for under this Article VI commencing as soon as administratively practicable effective as of the first day of the month immediately following the later of (a) date of termination, or (b) the date 1990defcompamd2(clean 12-31-01).doc specified in the Participant's Deferral Agreement which can in no event be later than the Participant's 65th birthday. A Participant may elect in his or her Deferral Agreement to have distribution of his or her Account commence effective as of the first day of the month following determination that the Participant has suffered a Total Disability, provided that distribution of the Participant's Account has not already commenced. 3. Section 6.4(a)(i) shall be amended to read as follows: (i) Except as otherwise provided in this Section 6.4, the amount credited to a Participant's Account shall be paid in one or more of the following forms: (A) a single lump sum, (B) a 5-year payout in 60 approximately equal monthly installments or 5 (five) equal annual installments, but not both, (C) a 10-year payout in 120 approximately equal monthly installments or 10 (ten) equal annual installments, but not both or (D) a 15-year payout in 180 approximately equal monthly installments or 15 (fifteen) equal annual payments, but not both, or a combination of the foregoing, as the Participant shall elect in any Deferral Agreement; provided, however, that in the absence of such election in any Deferral Agreement, the respective amounts credited to the Participant's Account shall be payable in 120 approximately equal monthly installments. If installment payments are elected, the Account shall be amortized with the rate of return provided for in Article V of the Plan unless the Participant selects, and the Committee approves, an alternative assumed rate of return. The Participant shall not be entitled to select a different form of distribution with respect to the amounts credited to the Participant's Account in each Plan Year. Instead, the distribution form(s) selected by the Participant shall apply to the entire balance of the Participant's Account. IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 31st day of December, 2001. ALBERTSON'S, INC. By: /s/ Paul G. Rowan ---------------------- Paul G. Rowan Group Vice President & Acting General Counsel 2 F:\nancy\gen\1990defcompamd2(clean 12-31-01).doc EX-10 14 abs10kexhib10-213.txt AMENDMENT TO NONEMPLOYEE DIRECTORS DEF COMP PLAN Exhibit 10.21.3 AMENDMENT TO THE ALBERTSON'S, INC. NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN This Amendment is made by Albertson's, Inc., a Delaware corporation (the "Corporation"). RECITALS Whereas, the Corporation established the Albertson's Inc. Non-Employee Directors' Deferred Compensation Plan effective January 1, 1990 ("Plan"); Whereas, the Corporation, pursuant to Section 10.1 of the Plan, retained the right to amend the Plan; Section 10.1 provides that the Plan may be amended by the Non-Employee Directors' Deferred Compensation Committee appointed by the Board of Directors of Albertson's, Inc.; and the Committee has been granted the authority to amend the Plan by the Non-Employee Directors' Deferred Compensation Committee so long as such amendments do not materially alter benefits; and Whereas, the Committee has determined that it is advisable to amend the Plan in the manner hereinafter set forth and that such amendments do not materially alter benefits. AMENDMENT Now therefore be it resolved that the Plan is amended, as of May 1, 2001, in the following respects: 1. The last sentence of Section 6.4 (a) of the Plan shall be amended and a new sentence shall be added to the end thereof to read as follows: The Participant may modify the form of the distribution of all or part of the Participant's Account, provided that such modification is made on a validly executed and timely filed Deferral Agreement at least twelve (12) months prior to the date on which the modification is to be effective. Notwithstanding the foregoing, distribution of the Participant's entire Account must be completed no later than the fifteenth year in which distributions commence. 2. Section 7.1 shall be amended to read as follows: The Participant may, at any time, designate a Beneficiary or Beneficiaries to receive the benefits payable in the event of his or her death and may designate a successor Beneficiary or Beneficiaries to receive any benefits payable in the event of the death of any other Beneficiary. Each Beneficiary designation shall become effective only when filed in writing with the Committee during the Participant's lifetime on a form prescribed by the Committee. The filing of a new Beneficiary designation form will cancel all Beneficiary designations previously filed. If no Beneficiary shall be designated by the Participant, or if the designated Beneficiary or Beneficiaries shall not survive the Participant, payment of the Participant's Account shall be made to the Participant's estate in a single lump sum payment. Notwithstanding any provision of this Plan to the contrary, any Beneficiary designation may be changed by a Participant by the written filing of such change on a form prescribed by the Committee. IN WITNESS WHEREOF, Albertson's, Inc. has caused this instrument to be executed by its officer, duly authorized by its Board of Directors, this 25 day of May, 2001. ALBERTSON'S, INC. By: /s/ Thomas R. Saldin ---------------------------------- Thomas R. Saldin Executive Vice President Administration and General Counsel F:\nancy\gen\nonemployeedirdefcompamd.doc 2 EX-10 15 abs10kexhib10-29.txt AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 10.29 [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. SFRLIBI\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 SFRLIBI\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. SFRLIBI\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 subsection (d) shall be deemed instead to refer to (x) the last day of the most SFRLIBI\MMK\6146301.06 5 364-Day Credit Agreement 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. SFRLIBI\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. SFRLIBI\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] SFRLIBI\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: /s/ John F. Boyd ---------------------------------- Name: John F. Boyd ---------------------------------- Title: Group Vice President and Treasurer ---------------------------------- S-1 364-Day Credit Agreement BANK OF AMERICA, N.A., as Administrative Agent and as a Bank By: /s/ Dan Killian ---------------------------------- Name: Dan M. Killian ---------------------------------- Title: Managing Director ---------------------------------- S-2 364-Day Credit Agreement BANK ONE, N.A. as Syndication Agent and as a Bank By: /s/ Paul E. Rigby ---------------------------------- Name: Paul E. Rigby ---------------------------------- Title: Managing Director ---------------------------------- S-3 364-Day Credit Agreement UNION BANK OF CALIFORNIA, N.A. as Documentation Agent and as a Bank By: /s/ Richard A. Sutter ---------------------------------- Name: Richard A. Sutter ---------------------------------- Title: Vice President ---------------------------------- S-4 364-Day Credit Agreement WELLS FARGO BANK, N.A. as Documentation Agent and as a Bank By: /s/ Steven J. Anderson ---------------------------------- Name: Steven J. Anderson ---------------------------------- Title: Senior Vice President ---------------------------------- S-5 364-Day Credit Agreement BANK OF OKLAHOMA, N.A. By: /s/ John Tyson ---------------------------------- Name: John M. Tyson ---------------------------------- Title: Assistant Vice President ---------------------------------- S-6 364-Day Credit Agreement FIRST UNION NATIONAL BANK By: /s/ Anthony Braxton ---------------------------------- Name: Anthony D. Braxton ---------------------------------- Title: Director ---------------------------------- S-7 364-Day Credit Agreement KEYBANK NATIONAL ASSOCIATION By: /s/ Keven D. Smith ---------------------------------- Name: Keven D. Smith ---------------------------------- Title: Vice President ---------------------------------- S-8 364-Day Credit Agreement MERRILL LYNCH BANK USA By: /s/ D. Kevin Imlay ---------------------------------- Name: D. Kevin Imlay ---------------------------------- Title: Senior Credit Officer ---------------------------------- S-9 364-Day Credit Agreement THE NORTHERN TRUST COMPANY By: /s/ Christopher McKean ---------------------------------- Name: Christopher L. McKean ---------------------------------- Title: Second Vice President ---------------------------------- S-10 364-Day Credit Agreement TCF NATIONAL BANK By: /s/ Russell McMinn ---------------------------------- Name: Russell P. McMinn ---------------------------------- Title: Senior Vice President ---------------------------------- S-11 364-Day Credit Agreement UMB BANK, N.A. By: /s/ David Proffitt ---------------------------------- Name: David A. Proffitt ---------------------------------- Title: Senior Vice President ---------------------------------- 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.]
SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 SFRLIBI\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 statements of income, shareholders' equity and cash flows for the period SFRLIBI\MMK\6146301.06 C-1 364-Day Credit Agreement 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: --------------------------------- SFRLIBI\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 SFRLIBI\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. ___________ SFRLIBI\MMK\6146301.06 C-2 364-Day Credit Agreement EX-23 16 abs10kexhibit23.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 20, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to changes in methods of accounting for goodwill, closed stores and vendor funds) appearing in this Annual Report on Form 10-K of Albertson's, Inc. and subsidiaries for the year ended January 30, 2003. Deloitte & Touche LLP Boise, Idaho April 23, 2003 EX-99 17 abs10kexhibit99-1.txt CERTIFICATION SIGNED BY L R JOHNSTON EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Albertson's, Inc. (the "Company") on Form 10-K for the period ending January 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence R. Johnston, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. April 23, 2003 \S\ Lawrence R. Johnston - ----------------------------------------- Lawrence R. Johnston Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Albertson's, Inc. and will be returned by Albertson's, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 18 abs10kexhibit99-2.txt CERTIFICATION SIGNED BY F D THORNTON EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Albertson's, Inc. (the "Company") on Form 10-K for the period ending January 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Felicia D. Thornton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. April 23, 2003 \S\ Felicia D. Thornton - ----------------------------------------- Felicia D. Thornton Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Albertson's, Inc. and will be returned by Albertson's, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----