-----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, KEJISj+yuwfCLdZkMOgqMRhTagJqru8r+IiiZ0bTDorDjeW2BnsJxdDwuUzYArie SQQQTPDVp3qJDGAIP5m7Gw== 0000003333-01-500017.txt : 20020412 0000003333-01-500017.hdr.sgml : 20020412 ACCESSION NUMBER: 0000003333-01-500017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011101 FILED AS OF DATE: 20011212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALBERTSONS INC /DE/ CENTRAL INDEX KEY: 0000003333 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 820184434 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06187 FILM NUMBER: 1812347 BUSINESS ADDRESS: STREET 1: 250 PARKCENTER BLVD STREET 2: P O BOX 20 CITY: BOISE STATE: ID ZIP: 83726 BUSINESS PHONE: 2083956200 MAIL ADDRESS: STREET 1: 250 PARKCENTER BLVD STREET 2: P O BOX 20 CITY: BOISE STATE: ID ZIP: 83726 10-Q 1 abs10q32001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For 39 Weeks Ended: November 1, 2001 Commission File Number: 1-6187 ALBERTSON'S, INC. ----------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 82-0184434 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho 83726 - ----------------------------------------------- ---------- (Address) (Zip Code) Registrant's telephone number, including area code: (208) 395-6200 -------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of Registrant's $1.00 par value common shares outstanding at December 5, 2001: 406,307,964 1 FORM 10-Q PART I. FINANCIAL INFORMATION ALBERTSON'S, INC. CONSOLIDATED EARNINGS (in millions except per share data) (unaudited)
13 WEEKS ENDED 39 WEEKS ENDED ---------------------------------- ---------------------------------- November 1, November 2, November 1, November 2, 2001 2000 2001 2000 ---------------- ----------------- ---------------- ----------------- Sales $ 9,363 $ 8,991 $ 28,271 $ 27,218 Cost of sales 6,708 6,438 20,243 19,507 ---------------- ----------------- ---------------- ----------------- Gross profit 2,655 2,553 8,028 7,711 Selling, general and administrative expenses 2,235 2,168 6,813 6,528 Restructuring charges and other 1 511 Merger-related charges (credits) 1 (15) 2 ---------------- ----------------- ---------------- ----------------- Operating profit 419 384 719 1,181 Other (expense) income: Interest, net (113) (99) (332) (281) Other, net (7) (1) (19) 3 ---------------- ----------------- ---------------- ----------------- Earnings before income taxes 299 284 368 903 Income tax expense 123 112 157 358 ---------------- ----------------- ---------------- ----------------- NET EARNINGS $ 176 $ 172 $ 211 $ 545 ================ ================= ================ ================= EARNINGS PER SHARE: Basic $ 0.43 $ 0.41 $ 0.52 $ 1.29 Diluted 0.43 0.41 0.52 1.29 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 406 417 406 421 Diluted 409 417 408 421
See Notes to Consolidated Financial Statements. 2 FORM 10-Q ALBERTSON'S, INC. CONSOLIDATED BALANCE SHEETS (in millions)
November 1, 2001 February 1, (unaudited) 2001 ---------------------- ------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 50 $ 57 Accounts and notes receivable 625 547 Inventories 3,511 3,364 Prepaid expenses 84 155 Property held for sale 242 113 Deferred income taxes 199 70 Refundable income taxes 39 36 ---------------------- ------------------- TOTAL CURRENT ASSETS 4,750 4,342 LAND, BUILDINGS AND EQUIPMENT (net of accumulated depreciation and amortization of $5,662 and $5,372, respectively) 9,340 9,580 GOODWILL AND INTANGIBLES, net 1,619 1,705 OTHER ASSETS 410 451 ---------------------- ------------------- $ 16,119 $ 16,078 ====================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 2,370 $ 2,163 Salaries and related liabilities 537 561 Taxes other than income taxes 198 141 Self-insurance 238 218 Unearned income 98 112 Merger related reserves 4 13 Restructuring reserves 47 Current portion of capitalized lease obligations 18 20 Current maturities of long-term debt 135 62 Other current liabilities 165 105 ---------------------- ------------------- TOTAL CURRENT LIABILITIES 3,810 3,395 LONG-TERM DEBT 5,347 5,715 CAPITALIZED LEASE OBLIGATIONS 258 227 SELF-INSURANCE 247 216 DEFERRED INCOME TAXES 80 116 OTHER LIABILITIES AND DEFERRED CREDITS 666 715 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - $1.00 par value; authorized - 10 shares; issued - none Common stock - $1.00 par value; authorized - 1,200 shares; issued - 406 shares and 405 shares, respectively 406 405 Capital in excess of par value 84 48 Retained earnings 5,221 5,241 ---------------------- ------------------- 5,711 5,694 ---------------------- ------------------- $ 16,119 $ 16,078 ====================== ===================
See Notes to Consolidated Financial Statements. 3 FORM 10-Q ALBERTSON'S, INC. CONSOLIDATED CASH FLOWS (in millions) (unaudited)
39 WEEKS ENDED ----------------------------------------------- November 1, November 2, 2001 2000 -------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 211 $ 545 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 737 695 Goodwill amortization 43 42 Noncash restructuring charges and other 450 Noncash merger-related (credits) charges (13) 6 Net loss on asset sales 15 1 Net deferred income taxes and other (149) 29 Decrease (increase) in cash surrender value of Company-owned life insurance 21 (3) Changes in operating assets and liabilities: Receivables and prepaid expenses 16 111 Inventories (183) (46) Accounts payable 206 310 Other current liabilities 131 (117) Self-insurance 51 (1) Unearned income (25) 14 Other long-term liabilities (37) (21) -------------------- -------------------- Net cash provided by operating activities 1,474 1,565 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net of proceeds from disposals (1,052) (1,167) Decrease in other assets 99 19 -------------------- -------------------- Net cash used in investing activities (953) (1,148) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 613 527 Payments on long-term borrowings (70) (371) Net commercial paper and bank line activity (859) (187) Proceeds from stock options exercised 19 5 Cash dividends paid (231) (237) Stock purchased and retired (350) -------------------- -------------------- Net cash used in financing activities (528) (613) -------------------- -------------------- NET DECREASE IN CASH AND CASH EQUIVALENTS (7) (196) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57 245 -------------------- -------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 50 $ 49 ==================== ====================
See Notes to Consolidated Financial Statements. 4 FORM 10-Q ALBERTSON'S, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in millions, except per share data) (unaudited) Description of Business Albertson's, Inc. (the Company) is incorporated under the laws of the State of Delaware and is the successor to a business founded by J.A. Albertson in 1939. Based on sales, the Company is one of the world's largest food and drug retailers. As of November 1, 2001, the Company operated 2,528 stores in 36 Western, Midwestern, Eastern and Southern states. Retail operations are supported by 19 major Company distribution operations, strategically located in the Company's operating markets. The Company continues to expand its fuel centers in existing and new stores. As of November 1, 2001, the Company operated 197 fuel centers. Basis of Presentation The accompanying unaudited consolidated financial statements include the results of operations, account balances and cash flows of the Company and its subsidiaries. All material intercompany balances have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly, in all material respects, the results of operations of the Company for the periods presented. The statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's 2000 Annual Report. The results of operations for the 39 weeks ended November 1, 2001, are not necessarily indicative of results for a full year. The balance sheet at February 1, 2001, has been taken from the audited consolidated financial statements at that date. The preparation of the Company's consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Inventory Net income reflects application of the LIFO method of valuing certain inventories, based upon estimated annual inflation ("LIFO Indices"). Albertson's recorded pretax LIFO expense of $23 and $20 for the 39 weeks ended November 1, 2001, and November 2, 2000, respectively. Actual LIFO Indices are calculated during the fourth quarter of the year based upon a statistical sampling of inventories. 5 FORM 10-Q Earnings Per Share ("EPS") Basic EPS is based on the weighted average outstanding common shares. Diluted EPS is based on the weighted average outstanding shares reduced by the dilutive effect of stock options(3.2 million and 40 thousand potential shares outstanding for the 13 weeks and 2.5 million and 109 thousand potential shares outstanding for the 39 weeks ended November 1, 2001, and November 2, 2000, respectively). Outstanding options excluded from the calculation because they were anti-dilutive amounted to 7.9 million and 16.6 million shares for the 13 weeks and 8.9 million and 16.3 million shares for the 39 weeks ended November 1, 2001, and November 2, 2000, respectively. Comprehensive Income Comprehensive income is net income adjusted for certain other items that are recorded directly to stockholders' equity. Comprehensive income consisted only of reported net earnings for the periods ended November 1, 2001, and November 2, 2000, as there were no significant items of other comprehensive income. Reclassifications Certain reclassifications have been made in prior year's financial statements to conform to classifications used in the current year. Reporting Periods The Company's quarterly reporting periods are generally 13 weeks and periodically consist of 14 weeks because the fiscal year ends on the Thursday nearest to January 31 each year. Goodwill Under the Company's current accounting policies, goodwill is allocated to certain markets based on prior acquisitions. As part of normal, on-going review of performance of markets, the Company reviews long-lived assets (including goodwill) for impairment whenever events and circumstances indicate that the carrying amount of the assets may not be recoverable. For example, significant assets removed from a market would trigger a review for possible impairment based on the future expected cash flows of the remaining assets. If the sum of the undiscounted expected future cash flows is less than the carrying amount of the assets, the Company recognizes an impairment loss. Impairments and costs incurred to close stores or markets, including lease termination costs, are recorded at the time executive management approves and commits to closing or relocating such assets. 6 FORM 10-Q Restructuring On July 17, 2001, the Company's Board of Directors approved a restructuring plan designed to improve future financial results and to drive future competitiveness. The plan includes certain exit costs and employee termination benefits, as described below, that will be incurred within approximately one year of the board approval date. Action Status Reduction in administrative and corporate overhead In Progress Closing of 165 underperforming retail stores In Progress Consolidation and elimination of four division Completed offices Process streamlining In Progress
As a result of the restructuring plan, the Company recorded pre-tax charges of $514 ($309 after tax or $0.76 per diluted share) for the 39 weeks ended November 1, 2001. In the current quarter, the Company recorded $4 of pre-tax charges related to restructuring, of which $3 was included with selling, general, and administrative expenses. The following table presents the pre-tax charges, incurred by category of expenditure, and related restructuring reserve accruals included in the Company's Consolidated Balance Sheets:
--------------- ------------------ ------------------- ---------- ---------- Employee Lease Severance Asset Termination Costs Impairments Costs Other Total --------------- ------------------ ------------------- ---------- ---------- Additions $ 44 $ 425 $ 37 $ 8 $514 Utilization 30 425 4 8 467 --------------- ------------------ ------------------- ---------- ---------- Balance at November 1, 2001 $ 14 $ $ 33 $ $ 47 =============== ================== =================== ========== ==========
Employee severance costs consist of severance pay, health care continuation costs, and outplacement service costs for employees who participated in the Company's Voluntary Separation Plan and for employees who were terminated or notified of termination under the Company's Involuntary Severance Plan. In accordance with the restructuring plan, 1,341 managerial and administrative positions above store level have been identified for termination. As of November 1, 2001, 951 positions have been terminated. As part of the Company's restructuring plan, all stores were reviewed utilizing a methodology based on return on invested capital. Based on this review, the Company identified and committed to close and dispose 165 underperforming stores in 25 states. All stores identified for closure were evaluated for asset impairment by comparing the fair value, less selling cost, to the recorded book value. Fair value used in the impairment calculation was based on third party offers or market value for comparable properties. For stores under operating lease agreements, the present values of any remaining liability under the lease, net of sublease recoveries, or lease termination costs were expensed. As of November 1, 2001, 43 stores have been closed. Assets to be disposed of include land, buildings, equipment, and leasehold improvements for stores and division offices that were included in the restructuring discussed above. These assets are recorded at their estimated fair value, less selling costs, and reported as property held for sale in the Company's Consolidated Balance Sheets. 7 FORM 10-Q Other costs include various expenses related to the Company's decision to exit certain insignificant businesses and the consolidation of the division offices. Closed Store Reserves When executive management approves and commits to closing or relocating a store, the remaining investment in land, building, leasehold, and equipment is reviewed for impairment and the difference between book value and fair market value, less selling costs, is expensed. For properties under operating lease agreements, the present value of any remaining liability under the lease, net of expected sublease recovery, is expensed. The following table shows the pre-tax expense, and related reserves, for closed stores and other surplus property:
--------------------- ---------------------- -------------------- Lease Asset Liabilities Impairments Total --------------------- ---------------------- -------------------- Balance at February 1, 2001 $22 $ $ 22 Additions 4 10 14 Adjustments 3 (10) (7) Adjustments - restructuring 22 26 48 Utilization (7) (26) (33) --------------------- ---------------------- -------------------- Balance at November 1, 2001 $44 $ $ 44 ===================== ====================== ====================
The restructuring plan included actions to accelerate the disposal of surplus property which included terminating leases through negotiated buyouts and selling owned properties through auctions. The $48 pre-tax restructuring adjustments recorded during the second quarter are the additional charges expected to be incurred as a result of these actions. This charge is included in selling, general and administrative expenses in the Company's Consolidated Earnings. $36 of the reserve balance as of November 1, 2001, is included with accounts payable and the remaining $8 is included with other liabilities and deferred credits in the Company's Consolidated Balance Sheets. The related assets are recorded at their estimated fair value, less selling costs, and reported as property held for sale in the Company's Consolidated Balance Sheets. Merger Related and Exit Costs As a result of the Company's merger with American Stores Company, results of operations for the 39 weeks ended November 1, 2001, include a net of $7 of merger-related credits ($4 after tax). The following table presents the pre-tax (credits) charges, incurred by category of expenditure, and merger-related accruals included in the Company's Consolidated Balance Sheets:
------------------ ---------------- ------------------- ----------- Asset Integration Impairments Severance And Other Total ------------------ ---------------- ------------------- ----------- Balance at February 1, 2001 $ $ 11 $ 2 $ 13 Additions 2 6 8 Adjustments (15) (15) Utilization 15 (9) (8) (2) ------------------ ---------------- ------------------- ----------- Balance at November 1, 2001 $ $ 4 $ $ 4 ================== ================ =================== ===========
8 FORM 10-Q Asset impairments include the loss on disposal of duplicate and abandoned facilities, including administrative offices, intangibles and information technology equipment which were abandoned by the Company. Operations for the 39 weeks ended November 1, 2001, included $15 of credits associated with the reversal of previous impairment charges related to the sale of the American Stores' Tower in Salt Lake City, Utah. The Company closed on the sale of this property on May 15, 2001, thus completing the asset dispositions resulting from the merger. Severance consists of retention costs for certain individuals and termination benefit liabilities for individuals who have already been terminated. Integration and other costs consist primarily of incremental transition and integration costs associated with integrating the operations of Albertson's and American Stores Company and are being expensed as incurred. These include such costs as labor associated with system conversions and training and relocation costs. Indebtedness The Company has two revolving credit agreements which provide for borrowings up to $1,650 and a committed bank line for $100. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth, as defined, of at least $2,100. As of November 1, 2001, $25 was outstanding under the committed bank line agreement and no amounts were outstanding under the revolving credit agreements. On May 1, 2001, the Company issued $600 of term notes and debentures under a shelf registration statement filed with the Securities and Exchange Commission in February 2001 (the "2001 Registration Statement"). The notes are comprised of $200 of principal bearing interest at 7.25% due May 2013 and the debentures are comprised of $400 of principal bearing interest at 8.00% due May 2031. Proceeds were used to repay amounts outstanding under the Company's commercial paper program and other general corporate purposes. Additional securities up to $2,400 of principal remain available for issuance under the Company's 2001 Registration Statement. Supplemental Cash Flow Information Selected cash payments and noncash activities were as follows:
39 Weeks Ended 39 Weeks Ended November 1, 2001 November 2, 2000 ------------------------ ------------------------ Cash payments for: Income taxes $ 324 $ 414 Interest, net of amounts capitalized 249 254 Noncash transactions: Capitalized leases incurred 55 50 Capitalized leases terminated 13 2 Tax effects related to stock options (3) (11) Decrease (increase) in cash surrender value of Company-owned life insurance 21 (3)
9 FORM 10-Q Capital Stock During fiscal 2000, the Company purchased and retired 18.7 million shares of its common stock at a total cost of $451, or an average price of $24.15 per share, under a Board authorization which expired on December 6, 2001. No purchases were made during the 39 weeks ended November 1, 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 7, 2001 through December 31, 2002. Certain Accounting Matters On February 2, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended. This new standard, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The adoption of this statement resulted in no transition adjustment or significant impact on financial results. The Company utilizes derivative contracts, such as treasury rate locks, for hedging interest rate risk associated with issuances of debt. During the 39 weeks ended November 1, 2001, there were no transactions. There were no outstanding derivative contracts as of November 1, 2001. In June 2001, the Financial Accounting Standards Board issued two new pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141, which is effective for acquisitions initiated after June 30, 2001, prohibits the use of the pooling-of-interest method for business combinations and establishes the accounting and financial reporting requirements for business combinations accounted for by the purchase method. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and measured based on its fair value. The statement also provides that goodwill should not be amortized, but shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment, through a comparison of fair value to its carrying amount. Existing goodwill will continue to be amortized through the remainder of fiscal 2001 at which time amortization will cease and the Company will perform a transitional goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning after December 15, 2001. The Company is currently evaluating the impact of the new accounting standards on existing goodwill and other intangible assets. While the ultimate impact of the new accounting standards has yet to be determined, goodwill amortization expense for the 39 weeks ended November 1, 2001, was $43, or $0.10 per diluted share. In July 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 will become effective for Albertson's on January 31, 2003. The Company is currently analyzing the effect that this standard will have on its financial statements. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 will become effective for Albertson's on February 1, 2002. The Company is currently analyzing the effect that this standard will have on its financial statements. 10 FORM 10-Q Legal Proceedings On April 5, 2000, a class action complaint was filed against Albertson's as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Mario Gardner, et al. v. American Stores Company, Albertson's, Inc., American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc.) seeking recovery of overtime due to plaintiffs' allegation that they were improperly classified as exempt under California law. A class action with respect to Sav-on Drug assistant managers was certified by the court. A case with very similar claims, also involving the assistant drug managers and operating managers, was filed against the Company's subsidiary Sav-on Drug Stores, Inc. in Los Angeles Superior Court (Rocher, Dahlein et. al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. The Company has strong defenses against these lawsuits, and is vigorously defending them. Although these lawsuits are subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of these actions to have a material adverse effect on the Company's financial condition. On August 23, 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 Finer Foods, Inc., Case No. 00L 009664) alleging milk price fixing. The Company has strong defenses against this lawsuit, and is vigorously defending it. Although this lawsuit is subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect the ultimate resolution of this action to have a material adverse effect on the Company's financial condition. An agreement has been reached, and court approval granted, to settle eight purported multi-state cases combined in the United States District Court in Boise, Idaho, which raise various issues including "off the clock" work allegations. Under the settlement agreement, current and former employees who meet eligibility criteria are in the process of presenting their claims to a settlement administrator. While the Company cannot specify the exact amount of their claims, the $37 pre-tax ($22 after-tax) charge recorded by the Company in 1999 is the Company's current estimate of the total monetary liability, including attorney fees, for all eight cases. During the first quarter of 2001 this liability was reduced by an $18 cash payment for legal expenses. The Company is also involved in routine litigation incidental to operations. The Company utilizes various methods of alternative dispute resolution, including settlement discussions, to manage the costs and uncertainties inherent in the litigation process. In the opinion of management, the ultimate resolution of these legal proceedings will not have a material adverse effect on the Company's financial condition. 11 FORM 10-Q Subsequent Event On December 5, 2001, the Company entered into a definitive agreement with Maxi Drug, Inc., a Delaware Corp., d/b/a Brooks Pharmacy. The agreement provides that Brooks will acquire from Albertson's eighty Osco Drug stores in Maine, Massachusetts, and New Hampshire, for approximately $240. Fiscal 2000 sales for these stores represent an insignificant percentage of the Company's consolidated sales. The sale of these stores is expected to close in January 2002, subject to government review and approvals. 12 FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in millions, except per share data) Results of Operations - Third Quarter The following table sets forth certain income statement components expressed as a percent to sales and the year-to-year percentage changes in the amounts of such components:
Percent to Sales Percentage 13 weeks ended Increase 11-1-01 11-2-00 (Decrease) ---------------- ---------------- ------------------ Sales 100.00% 100.00% 4.1% Gross profit 28.35 28.40 4.0 Selling, general and administrative expenses 23.87 24.11 3.1 Operating profit 4.47 4.28 8.8 Interest expense, net (1.20) (1.11) 12.8 Earnings before income taxes 3.19 3.16 5.3 Net earnings 1.88 1.91 2.6
Increases in sales are primarily attributable to the continued development of new stores and identical and comparable store sales increases. Identical store sales increased 1.7% and comparable store sales, which include replacement stores, increased 2.3%. During the quarter the Company opened 21 combination food and drug stores, 3 warehouse stores and 24 stand alone drugstores, while closing 15 combination food and drug stores, 15 conventional stores, 1 warehouse store and 29 drugstores. Of the total 60 store closings, 38 related to the Company's restructuring plan. Net retail square footage increased by 2.4% from the prior year. Management estimates that there was overall inflation in products the Company sells of slightly over 1.0% (annualized). Sales inflation is being primarily driven by pharmacy products. During fiscal year 2000, the Company changed the alignment of the marketing organizational structure. Benefits continue to be realized from this change as promotion and merchandising is tailored to fit individual markets. The Company-wide "Focus on Fresh," has become a principal marketing target for this year and has created a new level of satisfaction for shoppers who enter our supermarkets. The Company announced a new customer service program in March and finished the last rollout meeting in May. This program, "Service First, Second to None," puts best practices from across the Company into a brand new package and into tools the stores can use to achieve the highest standards of customer service. 13 FORM 10-Q Albertson's has also increased focus on loyalty programs such as the new Associate Advantage Loyalty Card Program, and has entered a national agreement with Catalina Marketing Corporation to extend their program to all Albertson's combination food and drug stores. Subsequent to November 1, 2001, a loyalty card program was launched in the Dallas/Fort Worth division. The Company is also expanding its dual branding concept (a food and drug store under one roof) by opening Albertson's/Osco combination food and drug stores in Tucson, AZ as well as Albertson's/Sav-on combo stores in Reno, NV. Gross profit, as a percent to sales, decreased as a result of the Company's initiative to drive sales through more aggressive promotional pricing. The continued utilization of Company distribution facilities and increased buying efficiencies partially offset this decrease. The pre-tax LIFO charge reduced gross profit by $8 (0.08% to sales) for the 13 weeks ended November 1, 2001, and for the 13 weeks ended November 2, 2000. Selling, general and administrative (SG&A) expenses, as a percent to sales, decreased due to the Company's increased emphasis on cost control. Decreases resulted from lower labor and impairment charges. These decreases were partially offset by increased health and welfare benefit costs. SG&A expenses for the 13 weeks ended November 1, 2001, included $5 of restructuring and merger-related costs as compared to $19 for the 13 weeks ended November 2, 2000. The increase in net interest expense for the 13 weeks ended November 1, 2001, resulted from higher average outstanding debt and higher average interest rates during the 13 weeks ended November 1, 2001, as compared to the 13 weeks ended November 2, 2000. 14 FORM 10-Q Due to the significance of the costs associated with the restructuring plan and merger-related costs and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these costs:
--------------------------------------------------- -------------------------------------------------- 13 Weeks Ended November 1, 2001 13 Weeks Ended November 2, 2000 --------------------------------------------------- -------------------------------------------------- Without Percent Without Percent As Adjust- adjust- To As Adjust- adjust- To Reported ments ments Sales Reported ments ments Sales ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Sales $9,363 $9,363 100.00% $8,991 $8,991 100.00% Cost of sales 6,708 6,708 71.65 6,438 $ (7) 6,431 71.52 ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Gross profit 2,655 2,655 28.35 2,553 7 2,560 28.48 Selling, general and administrative expenses 2,235 $ (4) 2,231 23.82 2,168 (18) 2,150 23.91 Restructuring charges and other 1 (1) Merger-related charges 1 (1) ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Operating profit 419 5 424 4.53 384 26 410 4.57 Interest, net (113) (113) (1.20) (99) (99) (1.11) Other (expense) income, net (7) (7) (0.08) (1) (1) (0.01) ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Earnings before income taxes 299 5 304 3.26 284 26 310 3.45 Income tax expense 123 1 124 1.33 112 11 123 1.36 ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Net earnings $ 176 $ 4 $ 180 1.92% $ 172 $ 15 $ 187 2.09% ============ ============ ============ ============ =========== =========== ============ ============= Earnings per share: Basic $0.43 $0.01 $0.44 $0.41 $0.04 $0.45 Diluted 0.43 0.01 0.44 0.41 0.04 0.45
15 FORM 10-Q Results of Operations - Year-to-Date The following table sets forth certain income statement components expressed as a percent to sales and the year-to-year percentage changes in the amounts of such components:
Percent to Sales Percentage 39 weeks ended Increase 11-1-01 11-2-00 (Decrease) ---------------- ---------------- ------------------ Sales 100.00% 100.00% 3.9% Gross profit 28.40 28.33 4.1 Selling, general and administrative expenses 24.10 23.98 4.4 Restructuring charges and other 1.81 n.m. Merger-related (credits) charges (0.05) 0.01 n.m. Operating profit 2.54 4.34 (39.2) Interest expense, net (1.17) (1.03) 17.9 Earnings before income taxes 1.30 3.32 (59.2) Net earnings 0.75 2.00 (61.3) n.m. - not meaningful
Increases in sales are primarily attributable to the continued development of new stores and identical and comparable store sales increases. Identical store sales increased 1.3% and comparable store sales, which include replacement stores, increased 1.7%. During the 39 weeks ended November 1, 2001, the Company opened 60 combination food and drug stores, 1 conventional store, 3 warehouse stores and 54 stand-alone drugstores, while closing 27 combination food and drug stores, 25 conventional stores, 5 warehouse stores and 45 drugstores. Of the total 102 store closings, 43 related to the Company's restructuring plan. The new stores include 6 stores that were acquired in three separate transactions. Net retail square footage increased by 2.4% from the prior year. Management estimates that there was overall inflation in products the Company sells of slightly over 1.0% (annualized). Sales inflation is being primarily driven by pharmacy products. Sales results for the 39 weeks ended November 1, 2001, were the results of trends and programs similar to those experienced for the 13 weeks ended November 1, 2001, which are discussed in Results of Operations - Third Quarter. Gross profit, as a percent to sales, increased as a result of the continued utilization of Company distribution facilities, increased buying efficiencies, and lower advertising costs due to the elimination of incremental advertising costs incurred in the prior year associated with the Lucky banner change. Gross margin increases were partially offset by the Company's initiative to drive sales through more aggressive promotional pricing. The pre-tax LIFO charge reduced gross profit by $23 (0.08% to sales) for the 39 weeks ended November 1, 2001, as compared to $20 (0.07% to sales) for the 39 weeks ended November 2, 2000. 16 FORM 10-Q Selling, general and administrative (SG&A) expenses, as a percent to sales, increased primarily due to costs associated with asset impairments and lease terminations related to the acceleration of the disposal of surplus property (refer to "Restructuring Plan" below). Increases in other components of SG&A, such as energy costs, health and welfare benefits, and depreciation expense associated with the Company's expansion program, were offset by lower labor, maintenance, supplies and travel costs. In addition, the increase was partially offset by a $20 charge recorded during first quarter 2000 for certain previously assigned leases and subleases to tenants who were in bankruptcy. The increase in net interest expense for the 39 weeks ended November 1, 2001, resulted primarily from higher average outstanding debt and higher average interest rates during the 39 weeks ended November 2, 2001, as compared to the 39 weeks ended November 2, 2000. This comparison also is impacted by a $16 interest expense reversal due to a favorable income tax settlement recorded in the first quarter of 2000. Restructuring Plan On July 17, 2001, the Company's Board of Directors approved a restructuring plan designed to improve future financial results and to drive future competitiveness. Major components of the plan include the closure of 165 underperforming retail stores, the reduction in administrative and corporate overhead, consolidating and eliminating four division offices and the acceleration of the disposal of surplus property. In accordance with the plan, the Company recorded pre-tax charges of $514 to cover employee severance costs, asset impairments, lease terminations, and other. In addition to these charges, the Company recorded (in selling, general and administrative expenses) pre-tax costs of $48 for asset impairments and lease terminations associated with the accelerated disposal of surplus property. These combined actions reduced operating profit for the 39 weeks ended November 1, 2001, by $562 and net earnings by $337. The Company expects to incur additional pre-tax charges of approximately $35 in future periods for certain actions related to the restructuring plan that have not yet been implemented. Merger-Related and Exit Costs Results of operations for the 39 weeks ended November 1, 2001, include a net of $7 of merger related credits ($4 after tax). The merger-related costs of integrating Albertson's, Inc. and American Stores Company have resulted in significant non-recurring charges and incremental expenses. These costs have had a significant effect on the prior two years' results of operations of the Company. Non-recurring charges and expenses of implementing integration actions were originally estimated to total $700 after income tax benefits. On an after-tax basis, and subsequent to the first quarter of 1999, the Company has incurred $634 of merger-related costs. With the exception of some system conversions, the integration is substantially complete and the Company does not expect to incur significant additional charges related to the merger. 17 FORM 10-Q Unusual Items During the quarter ended May 3, 2001, the Company recorded (in selling, general and administrative expenses) $9 of compensation related costs for the executive management changes. During the quarter ended May 4, 2000, a $20 charge was incurred and included in selling, general and administrative expenses for liabilities related to certain previously assigned leases and subleases to tenants who are in bankruptcy. Due to the significance of the costs associated with the restructuring plan and merger-related costs and other unusual items and their effect on operating results, the following table is presented to assist in the comparison of income statement components without these costs:
--------------------------------------------------- -------------------------------------------------- 39 Weeks Ended November 1, 2001 39 Weeks Ended November 2, 2000 --------------------------------------------------- -------------------------------------------------- Without Percent Without Percent As Adjust- adjust- To As Adjust- adjust- To Reported ments ments Sales Reported ments ments Sales ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Sales $28,271 $28,271 100.00% $27,218 $27,218 100.00% Cost of sales 20,243 20,243 71.60 19,507 $ (30) 19,477 71.56 ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Gross profit 8,028 8,028 28.40 7,711 30 7,741 28.44 Selling, general and administrative expenses 6,813 $ (67) 6,746 23.86 6,528 (97) 6,431 23.63 Restructuring charges and other 511 (511) Merger-related (credits) charges (15) 15 2 (2) ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Operating profit 719 563 1,282 4.54 1,181 129 1,310 4.81 Interest, net (332) (332) (1.17) (281) (281) (1.03) Other (expense) income, net (19) (19) (0.07) 3 3 0.01 ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Earnings before income taxes 368 563 931 3.29 903 129 1,032 3.79 Income taxes 157 224 381 1.35 358 50 408 1.50 ------------ ------------ ------------ ------------ ----------- ----------- ------------ ------------- Net Earnings $ 211 $ 339 $ 550 1.94% $ 545 $ 79 $ 624 2.29% ============ ============ ============ ============ =========== =========== ============ ============= Earnings per share: Basic $0.52 $0.83 $1.35 $1.29 $0.19 $1.48 Diluted 0.52 0.83 1.35 1.29 0.19 1.48
18 FORM 10-Q Liquidity and Capital Resources Cash provided by operating activities during the 39 weeks ended November 1, 2001 was $1,474 as compared to $1,565 in the prior year. Net earnings adjusted for noncash charges, changes in deferred income taxes and changes in income taxes payable for the 39 weeks ended November 1, 2001, was $497 as compared to $491 in the prior year. The increase in cash attributable to the adjusted operations is offset by the changes in operating assets and liabilities. The implementation of the strategic imperative to maximize return on invested capital (see Operational Initiatives) is expected to enhance working capital by eliminating unproductive assets, reducing inventory and accounts receivable levels and increasing accounts payable leverage. These improvements are expected to reduce the cash requirements of the business. Future sales of property held for sale over the next several quarters is expected to provide significant positive cash flow for the Company. During fiscal 2000, the Company purchased and retired 18.7 million shares of its common stock at a total cost of $451, or an average price of $24.15 per share, under a Board authorization which expired on December 6, 2001. No purchases were made during the 39 weeks ended November 1, 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 7, 2001 through December 31, 2002. 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 $294 of commercial paper and bank line borrowings outstanding as of November 1, 2001, compared to $1,153 as of February 1, 2001, and $1,441 as of November 1, 2000. The Company has two revolving credit agreements which provide for borrowings up to $1,650 and a committed bank line of $100. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth (CTNW), as defined, of at least $2,100. At the end of third quarter 2001, CTNW, as defined, was approximately $4,100. As of November 1, 2001, $25 was outstanding under the committed bank line agreement and no amounts were outstanding under the revolving credit agreements. On May 1, 2001, the Company issued $600 of term notes and debentures under a shelf registration statement filed with the Securities and Exchange Commission in February 2001 (the "2001 Registration Statement"). The notes are comprised of $200 of principal bearing interest at 7.25% due May 2013 and the debentures are comprised of $400 of principal bearing interest at 8.00% due May 2031. Proceeds were used to repay amounts outstanding under the Company's commercial paper program and for other general corporate purposes. Additional securities up to $2,400 of principal remain available for issuance under the Company's 2001 Registration Statement. 19 FORM 10-Q Operational Initiatives The Company is focused on five strategic imperatives with the goal of achieving the Company's full potential. 1) Aggressive cost and process control has been implemented. Each main category of expense, including labor, is being rigorously monitored by a member of executive management. As a result of these actions, the Company will reduce administrative and corporate overhead through the Board approved Voluntary Separation Plan and Involuntary Severance Plan. As a result of these effects, the Company's SG&A as a percent to sales trended lower than prior year levels. The Company is still focused in driving costs out of the business. 2) A formal process to review and measure investments, starting with a review of significant assets in the Company and using a return on invested capital approach, has been implemented. This review resulted in the identification of 165 underperforming stores which the Company has committed to close and dispose of. The Company has closed 43 stores at the end of third quarter. The Company plans to sell or close the remaining 122 stores by the end of July, 2002. In addition, the Company has formulated plans to accelerate the disposal of surplus property through an auction process. 3) A customer-focused approach to growth is being implemented by examining elements of the customer proposition. The Company plans to re-direct non-value added dollars saved from the expense and process control programs back into the marketplace in order to impact customers and drive growth. Subsequent to November 1, 2001, the Company launched a loyalty card program in the Dallas/Fort Worth division. 4) The Company plans to commit a greater share of its capital expenditures to information and process technology over the next three to five years with the goal of becoming an industry leader in technology. 5) The Company will strive to make Albertson's an employer of choice with less bureaucracy, fewer layers of management, stronger communication, better training programs and exciting new reward programs. To instill a sense of ownership at the store level the Company announced that all store directors and pharmacy mangers are now eligible for stock options subsequent to November 1, 2001. Environmental The Company has identified environmental contamination sites related primarily to underground petroleum storage tanks and ground water contamination at various store, warehouse, office and manufacturing facilities (related to current operations as well as previously disposed of businesses). The Company conducts an ongoing program for the inspection and evaluation of new sites proposed to be acquired by the Company and the remediation/monitoring of contamination at existing and previously owned sites. Undiscounted reserves have been established for each environmental contamination site unless an unfavorable outcome is remote. Although the ultimate outcome and expense of environmental remediation is uncertain, the Company believes that required remediation and continuing compliance with environmental laws, in excess of current reserves, will not have a material adverse effect on the financial condition of the Company. Charges against earnings for environmental remediation were not material for the 39 weeks ended November 1, 2001, or the 39 weeks ended November 2, 2000. 20 FORM 10-Q Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995 From time to time, information provided by the Company, including written or oral statements made by its representatives, may contain forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as integration of the operations of acquired or merged companies, expansion and growth of the Company's business, future capital expenditures and the Company's business strategy, contain forward-looking information. In reviewing such information it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. This forward-looking information is based on various factors and was derived using numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include changes in the general economy, changes in consumer spending, competitive factors and other factors affecting the Company's business in or beyond the Company's control. These factors include changes in the rate of inflation, changes in state or federal legislation or regulation, adverse determinations with respect to litigation or other claims (including environmental matters), labor negotiations, the cost and stability of energy sources, the Company's ability to recruit and develop employees, its ability to develop new stores or complete remodels as rapidly as planned, its ability to implement new technology successfully, stability of product costs, the Company's ability to integrate the operations of acquired or merged companies, the Company's ability to execute its restructuring plan, and the Company's ability to achieve its five strategic imperatives. Other factors and assumptions not identified above could also cause the actual results to differ materially from those set forth in the forward-looking information. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes regarding the Company's market risk position from the information provided under the caption "Quantitative and Qualitative Disclosures About Market Risk" on pages 27 and 28 of the Company's 2000 Annual Report to Stockholders. PART II. OTHER INFORMATION Item 1. Legal Proceedings The information required under this item is included in the Notes to Consolidated Financial Statements under the caption "Legal Proceedings" on page 11 of Part I, Financial Information of this Report on Form 10-Q. This information is incorporated herein by this reference thereto. Item 2. Changes in Securities In accordance with the Company's $1,650 revolving credit agreement, the Company's consolidated tangible net worth, as defined, shall not be less than $2,100. 21 FORM 10-Q Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information On November 20, 2001, Robert J. Dunst, Jr. was named Executive Vice President and Chief Technology Officer. On September 17, 2001, Kathy Herbert was named as Executive Vice President of Human Resources. On December 3, 2001, to be effective on January 1, 2001, the size of the Board of Directors was increased to fourteen, and Bonnie G. Hill was appointed to the Board as a Class II Director to a term expiring on the date of the Annual Meeting of Shareholders in 2003. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10.41 Amended and Restated 1995 Stock Based Incentive Plan. 10.41.1 Form of 1995 Amended and Restated Stock-Based Incentive Plan Stock Option Agreement. 10.42 Employment agreement between the Company and Robert J. Dunst, Jr., dated November 16, 2001. b. There were no reports on Form 8-K filed during the quarter ended November 1, 2001. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALBERTSON'S, INC. ----------------------------------------- (Registrant) Date: December 12, 2001 /S/ Felicia D. Thornton ----------------------------------------- Felicia D. Thornton Executive Vice President and Chief Financial Officer 22 EX-10 3 abs10q32000exhibit10-41.txt EXHIBIT 10.41 ALBERTSON'S, INC. AMENDED AND RESTATED 1995 STOCK-BASED INCENTIVE PLAN Section 1. General Purposes of Plan. The name of this plan is the Albertson's, Inc. Amended and Restated 1995 Stock-Based Incentive Plan (the "Plan"). The Plan, as amended and restated, was adopted on March 15, 2001 by the Board of Directors and approved by the Company's stockholders on June 14, 2001. The Plan was originally adopted by the Board of Directors on April 5, 1995 and approved by the Company's stockholders on May 26, 1995 and was previously amended and restated on August 31, 1998 and approved by the Company's stockholders on November 12, 1998. The purposes of the Plan are to promote the growth and profitability of the Company and its Subsidiaries by enabling them to attract and retain the best available personnel for positions of substantial responsibility, to provide key employees and non-employee directors with an opportunity for investment in the Company's Common Stock, to give them an additional incentive to increase their efforts on behalf of the Company and its Subsidiaries, and to further align the long-term interests of key employees and non-employee directors with those of the stockholders. Awards granted under the Plan may be (a) options which may be designated as (i) Nonqualified Stock Options or (ii) Incentive Stock Options; (b) Stock Appreciation Rights; (c) Restricted or Deferred Stock; or (d) other forms of stock-based incentive awards. Section 2. Definitions. The terms defined in this Section 2 shall, for all purposes of this Plan, have the meanings herein specified: (a) "Act" shall mean the Securities Exchange Act of 1934, as amended. (b) "Administrator" shall mean the Board, or if the Board does not administer the Plan, the Committee in accordance with Section 4. (c) "Award Agreement" shall mean a Stock Option Agreement or other written agreement between the Company and a Participant evidencing the number of shares of Common Stock, SARs or Units subject to the Award and setting forth the terms and conditions of the Award as the Committee may deem appropriate which shall not be inconsistent with the Plan. (d) "Award Price" shall mean the Option Price in the case of an Option or the price to be paid for the shares of Common Stock, SARs or Units to be granted pursuant to an Award Agreement. (e) "Awards" shall mean, collectively, (i) Options which may be designated as (A) Nonqualified Stock Options or (B) Incentive Stock Options; (ii) Stock Appreciation Rights (SARs); (iii) Restricted or Deferred Stock; or (iv) other forms of stock-based incentive awards as described in Section 10 hereof. (f) "Board" or "Board of Directors" shall mean the Board of Directors of the Company. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (h) "Commission" shall be the Securities and Exchange Commission. (i) "Committee" shall mean the committee appointed by the Board of Directors pursuant to Section 4 hereof. (j) "Common Stock" shall mean the Company's presently authorized Common Stock, par value $1.00 per share, except as this definition may be modified pursuant to Section 14 hereof. (k) "Company" shall mean Albertson's, Inc., a Delaware corporation. (l) "Deferred Stock" shall mean deferred stock awards as described in Section 9 hereof. (m) "Demotion" shall mean the reduction of an Optionee's salary grade, job classification, or title (the Optionee's job classification or title shall govern in cases where said job classification or title are not defined by means of a salary grade) with the Company to a level at which Options under this Plan or any other option plan of the Company have not been granted within the three years preceding such demotion. (n) "Eligible Director" means a director of the Company who is not an employee of the Company or any Subsidiary or a Special Advisor to the Board. (o) "Employee" or "Employees" shall mean key persons (including, but not limited to, employee members of the Board of Directors and officers) employed by the Company, or a Subsidiary thereof, on a full-time basis and who are compensated for such employment by a regular salary. (p) "Fair Market Value" shall mean the last sale price of the Common Stock on the New York Stock Exchange Composite Tape on the date an Award is granted or exercised, as applicable, (or for purposes of determining the value of shares of Common Stock used in payment of the Award Price, the date the certificate is delivered) or, if there are no sales on such date, on the next following day on which there are sales. (q) "Incentive Stock Option" shall mean an "incentive stock option" as defined in Section 422 of the Code. (r) "Mature Stock" shall mean Common Stock which was obtained through the exercise of an option under this Plan or any other plan of the Company, which is delivered to the Company in order to exercise an Option and which has been held continuously by an Optionee for the longer of: (i) six months or more, or (ii) any other period that may in the future be recognized under Generally Accepted Accounting Principles for purposes of defining the term "Mature Stock" in connection with such an Option exercise. (s) "Nonqualified Stock Option" shall mean an Option that by its terms is designated as not being an Incentive Stock Option as defined above. (t) "Option" shall mean the option to purchase shares of Common Stock set forth in a Stock Option Agreement between the Company and an Optionee and which may be granted as a Nonqualified Stock Option or an Incentive Stock Option. (u) "Optionee" shall mean an eligible Employee or Eligible Director, as described in Section 5 hereof, who accepts an Option. (v) "Option Price" shall mean the price to be paid for the shares of Common Stock being purchased pursuant to a Stock Option Agreement. (w) "Option Period" shall mean the period from the date of grant of an Option to the date after which such Option may no longer be exercised. Nothing in this Plan shall be construed to extend the termination date of the Option Period beyond the date set forth in the Stock Option Agreement. (x) "Participant" shall be an Employee or Eligible Director who has been granted an Award under the Plan. (y) "Plan" shall mean the Albertson's, Inc. Amended and Restated 1995 Stock-Based Incentive Plan. (z) "Restricted Stock" shall mean restricted stock awards as described in Section 9 hereof. (aa) "SARs" shall mean stock appreciation rights as described in Section 8 hereof. - 2 - (bb) "Special Advisor" means an individual designated as such by the Board. (cc) "Stock Appreciation Rights" shall mean stock appreciation rights as described in Section 8 hereof. (dd) "Stock Option Agreement" shall mean the written agreement between the Company and Optionee setting forth the Option and the terms and conditions upon which it may be exercised. (ee) "Subsidiary" shall mean any corporation in which the Company owns, directly or indirectly through Subsidiaries, at least 50% of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the Company owns an interest of at least 50% of the total combined equity thereof. (ff) "Successor" or "Successors" shall have the meaning set forth in Subsection C3(d) of Section 7 hereof. (gg) "Unit" shall mean a unit of measurement which is measured by the Fair Market Value of the Common Stock. Section 3. Effective Date and Term. The effective date of the Plan, as amended and restated, is March 15, 2001. No Award shall be granted pursuant to the Plan on or after the tenth anniversary of May 26, 1995, the original effective date of the Plan, but Awards theretofore granted may extend beyond that date. Section 4. Administration. The Plan shall be administered by the Board in accordance with the requirements of Rule 16b-3 as promulgated by the Commission under the Act, or by the Compensation Committee of the Board plus such additional individuals as the Board shall designate in order to fulfill the Non-Employee Directors requirement of Rule 16b-3 and as such Rule may be amended from time to time, or any successor definition adopted by the Commission, or any other committee the Board may subsequently appoint to administer the Plan. Any committee so designated shall be composed entirely of individuals who meet the qualifications referred to in Rule 16b-3. Any Awards under this Plan made to Eligible Directors are made to such non-employee directors solely in their capacity as directors. Members of the Committee shall serve at the pleasure of the Board of Directors. Vacancies occurring in the membership of the Committee shall be filled by appointment by the Board of Directors. The Committee shall keep minutes of its meetings. A majority of the Committee shall constitute a quorum thereof and the acts of a majority of the members present at any meeting of the Committee at which a quorum is present, or acts approved in writing by a majority of the entire Committee, shall be the acts of the Committee. If at any time the Board shall not administer the Plan, then the functions of the Board shall be exercised by the Committee. Section 5. Eligibility. Subject to the provisions of the Plan, the Administrator shall determine and designate from time to time those key Employees and/or Eligible Directors of the Company or its Subsidiaries to whom Awards are to be granted, the number of shares of Common Stock, SARs or Units to be awarded from time to time to any individual and the length of the term of any Award. In determining the eligibility of an Employee or Eligible Director to receive an Award, as well as in determining the size of the Award to be made to any Employee or Eligible Director, the Administrator shall consider the position and responsibilities of the Employee or Eligible Director being considered, the nature and value to the Company or a Subsidiary of the Employee's or Eligible Director's services and accomplishments, the Employee's or Eligible Director's present and potential contribution to the success of the Company or its Subsidiaries and such other - 3 - factors as the Administrator may deem relevant. An Employee or Eligible Director who has been granted an Award in one year shall not necessarily be entitled to be granted Awards in subsequent years. More than one Award may be granted to an individual, but the aggregate number of shares of Common Stock, SARs or Units with respect to which an Award is made to any individual, during the life of the Plan may not, subject to adjustment as provided in Section 14 hereof, exceed 10% of the shares of Common Stock reserved for purposes of the Plan, in accordance with the provisions of Section 6 hereof. Section 6. Number of Shares Subject to the Plan. Under the Plan the maximum number and kind of shares with respect to which Awards may be granted, subject to adjustment in accordance with Section 14 hereof, is fifty million (50,000,000) shares of Common Stock; provided, however, that in the aggregate, not more than one-tenth (1/10) of such allotted shares may be made the subject of Awards other than Options and Stock Appreciation Rights. The Common Stock to be offered under the Plan may be either authorized and unissued shares or issued shares reacquired by the Company and presently or hereafter held as treasury shares. The Board of Directors has reserved for the purposes of the Plan a total of fifty million (50,000,000) of the authorized but unissued shares of Common Stock, subject to adjustment in accordance with Section 14 hereof. If any shares as to which an Award granted under the Plan shall remain unvested and /or unexercised at the expiration thereof or shall be terminated unvested and/or unexercised, they may be the subject of further Awards provided that the Plan has not been terminated pursuant to Section 18 hereof. In addition, if any Option is exercised by tendering shares to the Company as full or partial payment of the exercise price in accordance with Subsection C of Section 7 hereof, the number of shares available under this Section 6 shall be increased by the number of shares so tendered. Section 7. Stock Options. The Administrator may grant Options which may be designated as (i) Nonqualified Stock Options or (ii) Incentive Stock Options. The grant of each Option shall be confirmed by a Stock Option Agreement (in a form prescribed by the Administrator) that shall be executed by the Company and by the Optionee as promptly as practicable after such grant. The Stock Option Agreement shall expressly state or incorporate by reference the applicable provisions of this Plan pertaining to the type of Option granted. A. Nonqualified Stock Options. A Nonqualified Stock Option is an Award in the form of an Option to purchase a specified number of shares of Common Stock during such specified time as the Administrator may determine, at a price determined by the Administrator that, unless approved by the stockholders of the Company, is not less than the Fair Market Value of the Common Stock on the date the Option is granted. B. Incentive Stock Options. An Incentive Stock Option is an Award in the form of an Option to purchase Common Stock that is identified as an Incentive Stock Option, complies with the requirements of Code Section 422 or any successor section. Eligible Directors shall not be granted Incentive Stock Options. C. Provisions Applicable to Either Nonqualified Stock Options or Incentive Stock Options 1. Option Periods The term of each Option granted under this Plan shall be for such period as the Administrator shall determine, but not more than 10 years from the date of grant thereof, or to earlier termination as herein after provided in Subsection 3 of this Subsection C. - 4 - 2. Exercise of Options Each Option granted under this Plan may be exercised on such date or dates during the Option Period for such number of shares as shall be prescribed by the provisions of the Stock Option Agreement evidencing such Option, provided that: (a) An Option may be exercised, (i) only by the Optionee during the continuance of the Optionee's employment by the Company or a Subsidiary, or (ii) after termination of the Optionee's employment by the Company or a Subsidiary in accordance with the provisions of Subsection 3 of this Subsection C. (b) An Option may be exercised by the Optionee or a Successor only by written notice (in the form prescribed by the Administrator) to the Company specifying the number of shares to be purchased. (c) The aggregate Option Price of the shares as to which an Option may be exercised shall be paid in full upon exercise by any one or any combination of the following: cash, personal check, wire transfer, certified or cashier's check or the transfer, either actually or by attestation, of certificates for Mature Stock or other Common Stock which was not obtained through the exercise of a stock option, endorsed in blank or accompanied by executed stock powers with signatures guaranteed by a national bank or trust company or a member of a national securities exchange. As soon as practicable after receipt by the Company of notice of exercise and of payment in full of the Option Price of the shares with respect to which an Option has been exercised and any applicable taxes, a certificate or certificates representing such shares shall be registered in the name of the Optionee or the Optionee's Successor and shall be delivered to the Optionee or the Optionee's Successor. An Optionee or Successor shall have no rights as a stockholder with respect to any shares covered by the Option until the Optionee or Successor shall have become the holder of record of such shares, and, except as provided in Section 14 hereof, no adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such shares for which the record date is prior to the date on which the Optionee or Successor shall have become the holder of record thereof. 3. Termination of Employment; Demotion The effect of the Demotion (as "Demotion" is defined in Subsection 2(m) of this Plan) of an Optionee by the Company or of the termination of an Optionee's employment or, in the case of an Eligible Director, service, with the Company or a Subsidiary shall be as follows: (a) Involuntary Termination or Demotion. If the employment or, in the case of Eligible Director, the service, of an Optionee is terminated involuntarily by the Company or a Subsidiary or if the Optionee receives a Demotion, the right to exercise any outstanding Options, to the extent exercisable, held by such Optionee shall terminate, notwithstanding any other provisions herein, on the date such Options expire or three months following such Demotion or involuntary termination, whichever first occurs, or such other period (not beyond the expiration date of the Option) as determined by the Committee and set forth in the Stock Option Agreement at the time such Option is granted or thereafter; it being understood, however, that such right to exercise any outstanding Options during such period shall only exist to the extent such Options were exercisable immediately preceding such Demotion or involuntary termination of employment or service under the provisions of the applicable agreements relating thereto, unless the Administrator, in its sole discretion, specifically waives in writing the restrictions relating to exercisability, if any, contained in such agreements. Upon expiration of such period, all of such Optionee's rights under any Option shall lapse and be without further force or effect. (b) Disability. If the employment or, in the case of an Eligible Director, the service, of an Optionee is interrupted by reason of a "disability," as defined in Albertson's, Inc. Employees' Disability Benefits Plan or a successor plan or Albertson's Southern Region - 5 - Employees' Disability Benefits Plan or a successor plan (collectively referred to herein as the "Disability Plan") and a determination has been made by the trustees under the Disability Plan that such Optionee is eligible to receive disability payments thereunder (or, in the case of an Eligible Director, would otherwise have been entitled to receive such disability payments thereunder if he or she was an employee) ("Disability Determination"), the right to exercise any outstanding Options, to the extent exercisable, held by such Optionee shall terminate, notwithstanding any other provisions herein, on the date such Options expire or within three years of the date that the first payment is made pursuant to the Disability Determination, whichever is the shorter period, or such other period (not beyond the expiration date of the Option) as determined by the Committee and set forth in the Stock Option Agreement at the time such Option is granted or thereafter; it being understood, however, that such right to exercise any outstanding Options during such period shall only exist to the extent such Options were exercisable immediately preceding the date of the Disability Determination under the provisions of the applicable agreements relating thereto, unless the Administrator in its sole discretion, specifically waives in writing the restrictions relating to exercisability, if any, contained in such agreements. Upon expiration of such period, all of such Optionee's rights under any Option shall lapse and be without further force or effect. (c) Retirement. If an Optionee's employment terminates as the result of retirement of the Optionee under any retirement plan of the Company or a Subsidiary or, in the case of an Eligible Director whose service terminates on or after attaining age 65, or age 55 with 10 years of service as a director, an Optionee with a Nonqualified Stock Option may exercise any outstanding Nonqualified Stock Option at any time prior to the expiration date of the Nonqualified Stock Option, or such other period as determined by the Committee and set forth in the Stock Option Agreement at the time such Option is granted or thereafter, and an Optionee with an Incentive Stock Option may exercise any outstanding Incentive Stock Option at any time prior to the expiration date of the Incentive Stock Option or within three months following the effective date of the Optionee's retirement, whichever is the shorter period; it being understood, however, that such right to exercise Options during such applicable periods shall only exist to the extent such Options were exercisable on the date of such termination under the provisions of the applicable agreements relating thereto, unless the Administrator, in its sole discretion, specifically waives in writing the restrictions relating to exercisability, if any, contained in such agreements. Upon expiration of such applicable period all of such Optionee's rights under the Option shall lapse and be without further force or effect. (d) Death. (i) If an Optionee shall die while an Employee or while serving as a director or within three months after the date that a determination is made under the Disability Plan that such Optionee is, or in the case of an Eligible Director, would have been, eligible to receive disability payments thereunder, the Optionee's Option or Options may be exercised by the person or persons entitled to do so under the Optionee's will or, if the Optionee shall have failed to make testamentary disposition of such Options or shall have died intestate, by the Optionee's legal representative or representatives (such person, persons, representative or representatives are referred to herein as the "Successor" or "Successors" of an Optionee), in either case at any time prior to the expiration date of such Options or within three years of the date of the Optionee's death, whichever is the shorter period, or such other period (not beyond the expiration date of the Option) as determined by the Committee and set forth in the Stock Option Agreement at the time such Option is granted or thereafter; it being understood, however, that such right to exercise Options during such period shall only exist to the extent such Options were exercisable on the date of the Optionee's death under the provisions of the applicable agreements relating thereto, unless the Administrator, in its sole discretion, specifically waives in writing the restrictions relating to exercisability, if any, contained in such agreements. Upon expiration of such period, all of such Optionee's rights under any Option shall lapse and be without further force or effect. (ii) If an Optionee shall die within three months after the involuntary termination of the Optionee's employment, the Optionee's Options may be exercised by the Optionee's Successors at any time prior to the expiration date of such Options or within one year of the date of the Optionee's death, whichever is the shorter period, or such other period (not beyond the expiration date of the Option) as determined by the Committee and set forth in the Stock Option Agreement at the time such Option is granted or thereafter; it being - 6 - understood, however, that such right to exercise Options during such period shall only exist to the extent such Options were exercisable on the date of the Optionee's retirement or termination of employment under the provisions of the applicable agreements relating thereto, unless the Administrator, in its sole discretion, specifically waives in writing the restrictions relating to exercisability, if any, contained in such agreements. Upon expiration of such period all of such Optionee's rights under any Option shall lapse and be without further force or effect. (iii) If an Optionee shall die after the Optionee's retirement, the Optionee's Options may be exercised by the Optionee's Successors in accordance with Section 7(C)(3)(c) hereof. (e) Voluntary or Other Termination. If the employment or, in the case of an Eligible Director, the service, of an Optionee shall terminate voluntarily or for any reason other than as set forth in Paragraphs (a), (b), (c) or (d) above, the Optionee's rights under any then outstanding Options shall terminate on the date of such termination of employment or service; provided, however, the Administrator may, in its sole discretion, take such action as it considers appropriate to waive in writing such automatic termination and/or the restrictions, if any, contained in the applicable agreements relating thereto. (f) To the extent that an Option may be exercised during a period designated (expressly or pursuant to an action of the Administrator) in Subsection C3 of this Section 7, unless exercised within such designated period, the Option shall thereafter be null and void. (g) Notwithstanding anything to the contrary herein, service as a Special Advisor shall be treated as service as an Eligible Director for all purposes and no termination of service shall be deemed to occur in the event an Eligible Director is designated as a Special Advisor in connection with a Director's termination of directorship. 4. Other Terms The Administrator may not reduce the exercise price of an Option after the date of its grant. Options granted pursuant to the Plan may contain such other terms, restrictions, provisions and conditions not inconsistent herewith as may be determined by the Administrator. Section 8. Stock Appreciation Rights. (a) A stock appreciation right or SAR is a right to receive, upon surrender of the right, but without payment, an amount payable in cash. The amount payable with respect to each SAR shall be equal in value to the excess, if any, of the Fair Market Value of a share of Common Stock on the exercise date over the exercise price of the SAR. The exercise price of the SAR shall be determined by the Administrator and shall not be less than the Fair Market Value of a share of Common Stock on the date the SAR is granted. (b) In the case of an SAR granted in tandem with an Incentive Stock Option to an Employee who is a Ten Percent Shareholder on the date of such grant, the amount payable with respect to each SAR shall be equal in value to the excess, if any, of the Fair Market Value of a share of Common Stock on the exercise date over the exercise price of the SAR, which exercise price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date the SAR is granted. (c) The exercise price shall be established by the Administrator at the time the SAR is granted. A SAR may contain such other terms, restrictions, provisions and conditions not inconsistent herewith as may be determined by the Administrator. Section 9. Restricted Stock/Deferred Stock. (a) Restricted Stock is Common Stock of the Company that is issued to a Participant at a price determined by the Administrator, which price may be zero (if permitted by law), and is subject to restrictions on transfer and/or such - 7 - other restrictions on incidents of ownership as the Administrator may determine. Restricted Stock may contain such other terms, restrictions, provisions and conditions not inconsistent herewith as may be determined by the Administrator. (b) Deferred Stock is an Award of Common Stock which is made to a Participant at a price determined by the Administrator, which price may be zero (if permitted by law) and which is not issued to the Participant until all the restrictions on transfer and/or such other restrictions on incidents of ownership as the Administrator has determined have lapsed. Deferred Stock may contain such other terms, restrictions, provisions and conditions not inconsistent herewith as may be determined by the Administrator. (c) The Administrator may provide that the restrictions on shares of Restricted Stock or any other Award shall lapse upon the achievement by the Company of specified performance goals. Such performance goals may be expressed in terms of one or more financial or other objective goals listed below which may be Company-wide or otherwise, including on a division basis, regional basis or on an individual basis. Financial goals may be expressed in terms of sales, earnings per share, stock price, return on equity, net earnings growth, net earnings, related return ratios, cash flow, earnings before interest, taxes, depreciation and amortization (EBITDA), return on assets, total stockholder return, reductions in the Company's overhead ratio and/or expense to sales ratios, or any one or more of the foregoing. Any criteria may be measured in absolute terms or as compared to another company or companies. To the extent applicable, any such performance goal shall be determined (i) in accordance with the Company's audited financial statements and generally accepted accounting principles and reported upon by the Company's independent accountants or (ii) so that a third party having knowledge of the relevant facts could determine whether such performance goal is met. Section 10. Other Stock-Based Incentive Awards. The Administrator may from time to time grant Awards under this Plan that provide the Participant with the right to purchase Common Stock or that are valued by reference to the Fair Market Value of the Common Stock (including, but not limited to, phantom securities or dividend equivalents). Such Awards shall be in a form determined by the Administrator, provided that such Awards shall not be inconsistent with the terms and purposes of the Plan. The Administrator will determine the price of any Award and may accept any lawful consideration therefore. Such Awards may contain such other terms, restrictions, provisions and conditions not inconsistent herewith as may be determined by the Administrator. Section 11. No Right to Continued Employment. Neither the Plan nor any Awards granted under the Plan shall be deemed to confer upon any Employee any right to continued employment by the Company or any Subsidiary, and shall not interfere in any way with the right of the Company or any Subsidiary to demote or discharge the Employee for any reason at any time. Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. Section 12. Listing and Registration of Shares. If at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of any of the shares subject to Awards under the Plan upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the purchase or issuance of shares thereunder, no outstanding Awards may be exercised in whole or in part and/or shares so purchased or issued unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Board of Directors may require any person exercising an Award to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of the shares in compliance with applicable law and shall have the authority to cause the Company at its expense to take any action related to the Plan that may be required in connection with such listing, registration, qualification, consent or approval. - 8 - Section 13. Acceleration of Awards Upon Change in Control and Termination of Employment. (a) Notwithstanding anything to the contrary contained elsewhere in this Plan, unless the terms of the Award Agreement specifically provide otherwise or unless otherwise determined by the Administrator in writing at or after award, but prior to the occurrence of a Change in Control (as defined below), upon a Change in Control, each outstanding Award shall become immediately vested and/or exercisable for the total remaining number of shares of Common Stock, SARs or Units covered by the Award. (b) Notwithstanding anything to the contrary contained elsewhere in this Plan or under the terms of any Award Agreement, if any Participant's employment with the Company is terminated by the Company prior to a Change in Control without Cause (as defined below) at the direction of a "person" (as defined for purposes of Section 13(d) of the Act) who has entered into an agreement with the Company the consummation of which will constitute a Change in Control, the Award of such terminated Participant shall become immediately exercisable, as of the date immediately preceding such date of termination, for the total remaining number of shares of Common Stock, SARs or Units covered by the Award. For purposes of this Section, "Cause" shall mean (i) the willful and continued failure by the Participant to substantially perform his or her duties with the Company (other than due to incapacity due to physical or mental illness) or (ii) the willful engaging by the Participant in conduct which is demonstrably and materially injurious to the Company or its Subsidiaries. (c) For purposes of this Section, "Change in Control" shall mean the occurrence in a single transaction or series of transactions of any one of the following events or circumstances: (i) merger, consolidation or reorganization where the beneficial owners of the voting securities of the Company immediately preceding such merger, consolidation or reorganization beneficially own less than 80% of the securities possessing the right to vote to elect directors or to authorize a merger, consolidation or reorganization with respect to the survivor, after giving effect to such merger, consolidation or reorganization, (ii) merger, consolidation or reorganization of the Company where 20% or more of the incumbent directors of the Company are changed, (iii) acquisition by any person or group, as defined for purposes of Section 13(d) of the Act, other than a trustee or other fiduciary holding voting securities of the Company under an employee benefit plan of the Company (or a corporation owned, directly or indirectly, by the holders of voting securities of the Company in substantially the same proportion as their ownership of voting securities of the Company) of beneficial ownership of 20% or more of the voting securities of the Company (such amount to include any voting securities of the Company acquired prior to the effective date of this Plan), (iv) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (i), (ii), (iii) or (v) of this Subsection) whose election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (v) approval by the stockholders of the Company of a plan of liquidation or dissolution with respect to the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; provided, that in the event the exact date of a Change in Control cannot be determined, such Change in Control will be deemed to have occurred on the earliest date on which it could have occurred. For these purposes, the Administrator shall rely upon any notice from the Company that concludes that a Change in Control has occurred. In the absence of such a notice, the Administrator shall determine whether a Change in Control has occurred and shall specify the date on which the Change in Control occurred, or if an exact date cannot be determined, the earliest date on which such Change in Control could have occurred. Notwithstanding the foregoing, a Change in Control shall not include, with respect to an individual Participant, any event, circumstance or transaction described in clauses (i), (ii), (iii), (iv) or (v) of this Subsection which results, within the six-month period preceding such event, circumstance or transaction, from the action of any entity or group which includes, is affiliated with or is wholly or partly controlled by such individual Participant (a "Participant Group"), provided, however, that such action shall not be taken into account for this purpose if it occurs within such six-month period after the action of any person or group (within the meaning of clause (iii) of this Subsection) which is not a Participant Group. - 9 - Section 14. Adjustments. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, stock split-up, reverse stock split, combination of shares or other change in corporate structure affecting the Common Stock, a substitution or adjustment shall be made in (i) the aggregate number of shares reserved for issuance under the Plan, and (ii) the kind, number and Award Price of shares subject to outstanding Awards granted under the Plan as may be determined by the Administrator, in its sole discretion, provided that the number of shares subject to any Award shall always be a whole number. Such other substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. Upon any adjustment made pursuant to this Section 14 the Company will, upon request, deliver to the Participant or to the Participant's Successors a certificate of its Secretary setting forth the Award Price thereafter in effect and the number and kind of shares or other securities thereafter purchasable upon the exercise of such Award. Section 15. Use of Proceeds. The proceeds received by the Company from the sale of shares pursuant to Options granted under this Plan or from the exercise of other Awards shall be available for general corporate purposes. Section 16. Tax Withholding. The Administrator may establish such rules and procedures as it considers desirable in order to satisfy any obligation of the Company and any Subsidiary to withhold federal income taxes or other taxes with respect to any Award made under the Plan. Such rules and procedures may provide (i) in the case of Awards paid in shares of Common Stock, that the person receiving the Award may satisfy the withholding obligation by instructing the Company to withhold shares of Common Stock otherwise issuable upon exercise of such Award in order to satisfy such withholding obligation and (ii) in the case of an Award paid in cash, that the withholding obligation shall be satisfied by withholding the applicable amount and paying the net amount in cash to the Participant. Section 17. Nontransferability. No Award shall be transferable by the Participant otherwise than by will or by the laws of descent and distribution or, in the case of an Award other than an Incentive Stock Option, pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Act), and such Award shall be exercisable during the lifetime of an Participant only by the Participant or his or her guardian or legal representative. Notwithstanding the foregoing, the Administrator may set forth in the Award Agreement evidencing an Award (other than an Incentive Stock Option) at the time of grant or thereafter, that the Award may be transferred to members of the Participant's immediate family, to trusts solely for the benefit of such immediate family members and to partnerships in which such family members and/or trusts are the only partners, and for purposes of this Plan, a transferee of an Award shall be deemed to be the Participant. For this purpose, immediate family means the Participant's spouse, parents, children, stepchildren and grandchildren and the spouses of such parents, children, stepchildren and grandchildren. The terms of an Award shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Participant. Section 18. Interpretation, Amendments and Termination. The Administrator may make such rules and regulations and establish such procedures for the administration of the Plan as it deems appropriate. In the event of any dispute or disagreement as to the interpretation of this Plan or of any rule, regulation or procedure, or as to any question, right or obligation arising from or related to the Plan, the decision of the Administrator shall be final and binding upon all persons. The Board may amend, alter or discontinue the Plan, but no amendment, alteration, or discontinuation shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant's consent, or that, without the approval of the Company stockholders, would: (a) except as provided in Section 14, increase the total number of shares of Common Stock reserved for the purposes of the Plan; - 10 - (b) change the Employees or class of Employees eligible to participate in the Plan; (c) extend the maximum period during which Awards may be granted; or (d) change the provisions of subsections 7.A. and B. requiring stockholder approval of the grant of an Option at less than the Fair Market Value of the Common Stock on the date the Option is granted or of subsection 7.C.4. prohibiting the reduction in the exercise price of an Option after the date of its grant. Other than as set forth above, stockholder approval under this Section 18 shall be required only at such times and under such circumstances as stockholder approval would be required under Rule 16b-3 of the Act with respect to any material amendment to any employee benefit plan of the Company. The Administrator may amend the terms of any award theretofore granted, prospectively or retroactively, but, subject to Section 14 above, no such amendment shall impair the rights of any holder without his or her consent. The Board of Directors may, in its discretion, terminate this Plan at any time. Termination of the Plan shall not affect the rights of Participants or their Successors under any Awards outstanding and not exercised in full on the date of termination. Section 19. General Provisions. No Award may be exercised by the holder thereof if such exercise, and the receipt of cash or stock thereunder, would be, in the opinion of counsel selected by the Administrator, contrary to law or the regulations of any duly constituted authority having jurisdiction over the Plan. Absence on leave approved by a duly constituted officer of the Company or any of its Subsidiaries shall not be considered interruption or termination of service of any Employee for any purposes of the Plan or Awards granted thereunder, except that no Awards may be granted to an Employee while he or she is absent on leave. No Participant shall have any rights as a stockholder with respect to any shares subject to Awards granted to him or her under the Plan prior to the date as of which he or she is actually recorded as the holder of such shares upon the stock records of the Company. Nothing contained in the Plan or in Awards granted thereunder shall confer upon any Employee any right to continue in the employ of the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any of its Subsidiaries to terminate his or her employment at any time. Any Award Agreement may provide that stock issued upon exercise of any Award may be subject to such restrictions, including, without limitation, restrictions as to transferability and restrictions constituting substantial risks or forfeiture as the Committee may determine at the time such Award is granted. Section 20. Indemnification and Exculpation. Each person who is or shall have been a member of the Board of Directors or of the Committee administering the Plan shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be or become a party or in which such person may be or become involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof (with the Company's written approval) or paid by such person in satisfaction of a judgment in any such action, suit or proceeding, except a judgment in favor of the Company based upon a finding of such person's lack of good faith; subject, however, to the condition that, upon the institution of any claim, action, suit or proceeding against such person, such person shall in writing give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person's behalf. The foregoing right of indemnification shall not be exclusive of any other right to which such person may be entitled as a matter of law or otherwise, or any power that the - 11 - Company may have to indemnify or hold such person harmless. Each member of the Board of Directors or of the Committee administering the Plan, and each officer and employee of the Company, shall be fully justified in relying or acting in good faith upon any information furnished in connection with the administration of the Plan by any appropriate person or persons other than such person. In no event shall any person who is or shall have been a member of the Board of Directors or of the Committee administering the Plan, or an officer or employee of the Company be held liable for any determination made or other action taken or any omission to act in reliance upon any such information, or for any action (including the furnishing of information) taken or any failure to act, if in good faith. Section 21. Notices. All notices under the Plan shall be in writing, and if to the Company, shall be delivered to the Secretary of the Company or mailed to its principal office, 250 Parkcenter Blvd., Post Office Box 20, Boise, Idaho 83726, addressed to the attention of the Secretary; and if to a Participant, shall be delivered personally or mailed to the Participant at the address appearing in the payroll records of the Company or a Subsidiary. Such addresses may be changed at any time by written notice to the other party. - 12 - EX-10 4 abs10q32000exhibit10-411.txt EXHIBIT 10.41.1 ALBERTSON'S, INC. AMENDED AND RESTATED 1995 STOCK-BASED INCENTIVE PLAN NONQUALIFIED STOCK OPTION AGREEMENT THIS ALBERTSON'S, INC. 1995 STOCK-BASED INCENTIVE PLAN NONQUALIFIED STOCK OPTION AGREEMENT ("Agreement") is made between Albertson's, Inc., a Delaware corporation ("Company"), and ((First Name)) ((Last Name)) ("Optionee"), an employee of the Company or of one of the Company's subsidiaries. 1. The Company, pursuant to its Amended and Restated 1995 Stock-Based Incentive Plan ("Plan"), hereby confirms the grant to the Optionee on December 5, 2001 of an option ("Option") to purchase ((Share Award)) shares of the Company's Common Stock ("Common Stock") at a price of $35.44 per share, subject to the terms and conditions of the Plan including, but not limited to, the acceleration provisions of Section 13 and the antidilution provisions of Section 14 thereof. This Option is a Nonqualified Option as defined in the Plan. The Company has determined that the Optionee holds a position of substantial responsibility, has demonstrated special capabilities and has contributed substantially to fiscal performance. The Option granted pursuant to this Agreement is granted with the expectation that the Optionee will continue to hold a comparable or higher position, demonstrate such capabilities and contribute substantially to fiscal performance during the entire ten-year term of this Agreement. 2. This Option will expire on December 4, 2011 and, subject to the provisions of the Plan, is only exercisable prior to expiration of the Option as follows: (a) no portion of the Option may be exercised until one year after the date of this Agreement; (b) notwithstanding anything to the contrary in this Agreement, no portion of the Option may be exercised unless the Optionee shall have been continuously employed by the Company from the date of this Agreement to the date of such exercise or, after termination of the Optionee's employment by the Company, in accordance with Subsection C.3. of Section 7 of the Plan and paragraph 5 of this Agreement; (c) after one year from the date of this Agreement, the Optionee or the Optionee's "Successor" (as defined in Subsection C.3.(d) of Section 7 of the Plan), as the case may be, shall have the right, in accordance with Section 7 of the Plan, to purchase the shares covered by the Option in five annual twenty percent (20%) installments, the first of which installments may be purchased on the first anniversary of this Agreement and the second, third, fourth and fifth of which may be purchased on the second, third, fourth and fifth anniversaries of this Agreement, respectively; and (d) the right to purchase the shares under this Agreement shall be cumulative from year to year, to the extent previously unexercised, until the expiration of the Option so that, during the sixth through tenth years of the option, 100% of the shares will be exerciseable to the extent previously unexercised. For the purposes of this Agreement, "continuously employed" shall mean the absence of any interruption or termination of employment with the Company or with one of the Company's subsidiaries. Continuous employment shall not be considered interrupted or terminated in the case of sick leave, military leave or any other leave of absence approved by the Company or in the case of transfers between locations of the Company or its subsidiaries. 12/01 -1- 3. This Option or any part thereof may only be exercised by giving notice of exercise to the Corporate Secretary of the Company, specifying the number of shares to be purchased. The aggregate option price for all shares purchased pursuant to an exercise of this Option shall be paid by one or any combination of the following: cash, personal check, wire transfer, certified or cashier's check or delivery of Common Stock certificates in accordance with the Plan at the time of such purchase and prior to issuance of such shares. Any such Common Stock delivered to the Company in payment of the option price hereunder, if acquired by the Optionee from the Company upon the exercise of a stock option, shall consist of Mature Stock as defined in Section 2(r) of the Plan. For purposes of this Agreement, "Mature Stock" shall mean Common Stock which was obtained through the exercise of an option under the Plan or any other plan of the Company, which is delivered to the Company in order to exercise an Option and which has been held continuously by an Optionee for the longer of: (i) six months or more, or (ii) any other period that may in the future be recognized under Generally Accepted Accounting Principles for purposes of defining the term "Mature Stock" in connection with such an option exercise. The Optionee shall furnish with each notice of exercise of any portion of the Option such documents as the Company in its discretion may deem necessary to assure compliance with applicable regulations of any stock exchange or governmental authority. The Optionee or Optionee's Successor shall have no rights as a stockholder with respect to any share covered by the Option until the Optionee or Successor shall have become the holder of record of such share, and except as provided in Section 14 of the Plan, no adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights in respect of such share for which the record date is prior to the date on which the Optionee or Successor shall have become the holder of record thereof. 4. The Option confirmed hereby is nontransferable by the Optionee except by will or the laws of descent or distribution, pursuant to a domestic relations order (within the meaning of Rule 16a-12 promulgated under the Securities Act of 1933) or to members of the Optionee's immediate family (as that term is defined in Section 17 of the Plan), to trusts solely for the benefit of such immediate family members or to partnerships in which such immediate family members and/or trusts are the only partners, and for purposes of this Option, such transferee shall be deemed to be the Optionee. This Option may be exercised only in accordance with the terms of the Plan and only by execution and delivery to the Company of the documents prescribed by the Compensation Committee of the Board of Directors of the Company. 5. The following post-termination vesting and exercise term provisions shall apply to this Option: (a) upon death or disability (as defined in Subsection C.3.(b) of Section 7 of the Plan) prior to age 55 and ten years of service with the Company, the portion of this Option which is exercisable immediately prior to the date of death or to the Disability Determination (as defined in subsection C.3.(b) of Section 7 of the Plan) may be exercised for three years or the remainder of the option term, whichever is shorter; (b) upon death or disability subsequent to age 55 and ten years of service with the Company, this Option shall become immediately exercisable for the total remaining shares of this Option and may be exercised for three years or the remainder of the option term, whichever is shorter; (c) upon retirement at or after age 55 and 10 years of service with the Company, this Option shall become immediately exercisable for the total remaining shares of this Option and may be exercised for five years or the remainder of the option term, whichever is shorter; (d) upon involuntary termination or demotion as set forth in Subsection C.3.(a) of Section 7 of the Plan, the portion of this Option which is exercisable immediately prior to the date of the involuntary termination or demotion may be exercised for three months or the remainder of the option term, whichever is shorter; and (e) upon voluntary termination or for any reason other than as set forth in subparagraphs (a), (b), (c) or (d) above, the portion of - 2 - this Option which is then exercisable shall terminate on the date of such termination of employment. 6. The Optionee agrees to pay to the Company, on demand, the amount of any taxes that may become applicable upon exercise of this Option. The Company shall not be required to issue any shares unless and until the Optionee's obligations under this Paragraph 6 have been satisfied. The tax withholding obligations may be satisfied by the Optionee instructing the Company to withhold shares of stock otherwise issuable upon exercise of this Option in order to satisfy the minimum tax withholding amount permissible under the method that results in the least amount withheld. 7. If at any time the Board of Directors of the Company shall determine, in its discretion, that the listing, registration or qualification of the shares covered by this Agreement upon any securities exchange or under any state or Federal law, or the consent or approval of any governmental regulatory authority, or evidence of the investment intent of the Optionee or Successor, is necessary or desirable as a condition of the exercise of this Option, the Option may not be exercised, in full or in part, unless and until such listing, registration, qualification, consent or approval or evidence shall have been effected or obtained free of any conditions not legally acceptable to the Company. 8. This Agreement shall not be construed as giving the Optionee any right to be retained in the employ of the Company or of a subsidiary, or to affect or limit in any way the right of the Company or of a subsidiary to demote the Optionee or to terminate the employment of the Optionee. 9. By execution of this Agreement, the Optionee acknowledges receipt of a copy of the Certain Information Regarding the Plan and the Optionee has reviewed such document. The Optionee agrees to comply with all of the terms and conditions of this Agreement and the Plan. IN WITNESS WHEREOF, this Agreement has been executed as of the 5th day of December, 2001. Albertson's, Inc., Optionee a Delaware corporation By: --------------------------- ---------------------------- Chairman of the Board By: --------------------------- Secretary This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933. A copy of the Albertson's, Inc. Amended and Restated 1995 Stock-Based Incentive Plan is available upon request to the Corporate Secretary's Department at 208-395-6999 or via email at stockoption@albertsons.com. The 2000 Albertson's, Inc. Annual Report to Stockholders is available on the Internet at albertsons.com or upon request to the Corporate Secretary's Department at 208-395-6999 or via email at stockoption@albertsons.com. EX-10 5 abs10q32000exhibit10-42.txt November 16, 2001 Mr. Robert Dunst 35551 Palomares Road Castro Valley, CA 94552 Dear Bob: I am pleased to confirm my verbal offer of employment for the position of Executive Vice President and Chief Technology Officer (CTO) for Albertson's, Inc. (the "Company"). In this assignment, you will report directly to Larry Johnston, our CEO. Your employment with the Company will commence on November 19, 2001 (the "Effective Date"). Your initial base salary ("Base Salary") will be $350,000 per annum, payable in accordance with the Company's policies relating to salaried employees. Your Base Salary may be increased (but not decreased) by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee") in its sole discretion. Commencing with the fiscal year of the Company ("Fiscal Year") in which the Effective Date occurs, you will have the opportunity to earn a bonus for each Fiscal Year as recommended by the Compensation Committee in accordance with the Company's annual bonus plan applicable to the Company's senior officers (the "Annual Bonus Plan"). The amount of each annual bonus shall be set by the Compensation Committee and is currently equal to seventy percent (70%) of Base Salary if the applicable "target" performance goals (as defined in the Annual Bonus Plan for such period) are met (the "Target Bonus"), except that the bonus cannot exceed one hundred five percent (105%) of Base Salary. The criteria for determining the amount of any Target Bonus and the bases upon which such Target Bonus shall be payable shall be no less favorable to you than those used for other senior executives of the Company, such criteria and bases to be determined in the sole discretion of the Compensation Committee. As of the Effective Date, you will be granted 40,000 shares of deferrable restricted stock units of the Company ("Restricted Stock Unit Award") in accordance with the form of grant used by the Company for grants made to its senior executive officers. Such grants shall vest at twenty percent (20%) per year on the first, second, third, fourth, and fifth anniversaries of the Effective Date; provided in each case that you have been continuously employed as a senior executive with the Company from the Effective Date through the applicable vesting date, except as otherwise provided in this letter agreement and in such deferrable restricted stock unit agreement. To the extent that dividends are paid on Company common stock after the Effective Date and prior to the date that the Company common stock that is subject to a Restricted Stock Mr. Robert Dunst November 16, 2001 Page 2 Unit Award is issued to you, you shall be entitled to receive a cash payment in an amount equal to the dividends you would have been entitled to receive had you been the owner of such unissued shares on the date such dividends are paid. Such cash payment shall be made at the same time payment of dividends are made to other shareholders of Company common stock. You will be entitled to receive grants of stock options to purchase shares of common stock of the Company from time to time as recommended by the Compensation Committee in its sole discretion in accordance with the Company's usual form of grant; provided that not later than December 31, 2001, the Compensation Committee will grant to you an option to purchase shares of Company common stock which has a value equal to three million dollars ($3,000,000), the number of shares of which shall be equal to three million dollars ($3,000,000) divided by the closing New York Stock Exchange price of the Company's stock on the date of such grant (which would be approximately 88,000 shares based on the current stock price), and vesting at the rate of twenty percent (20%) of the total shares granted on each of the first, second, third, fourth and fifth anniversaries of the date of such grant. Subsequent annual option awards otherwise shall be subject to the terms and conditions as generally apply to stock options granted to other senior executive officers who participate in the Company's equity incentive plans. The Company will maintain, for your benefit, officer liability insurance in a form it maintains for its other senior executive officers. You will be indemnified by the Company against liability as an officer of the Company and any subsidiary or affiliate of the Company to the same extent as the Company's other senior executive officers. Your rights to such indemnification and insurance will continue so long as you may be subject to liability, whether or not your employment may have terminated prior thereto. You will be provided with four (4) weeks of paid vacation per year beginning with the 2002 calendar year and sick leave and paid holidays in accordance with the Company's standard policy regarding these benefits for senior executive officers of the Company. You will also be eligible to participate in each fringe, welfare, retirement and incentive programs adopted from time to time by the Company for the benefit of, and which generally apply to, its highest level of senior executive officers from time to time, including the Company's 401(k) and profit sharing plans, in accordance with the terms of such plans and programs. The Company will waive any otherwise applicable waiting periods for its medical benefit and life insurance plans. The Company will reimburse you in accordance with the Company's relocation policy provided under its "Full Service Move Program for Senior Executive Officers" (the "Relocation Program"), a copy of which has been provided to you previously, in connection with your relocation to Boise, Idaho. Pursuant to the Relocation Program, you will be entitled to a "gross-up" payment with respect to those reimbursement payments described in the Relocation Program in an amount Mr. Robert Dunst November 16, 2001 Page 3 such that, after payment of all applicable taxes on such reimbursement payments and "gross-up" payment, you retain an amount equal to the amount of such reimbursement payments. In the event of your termination of employment by the Company within two (2) years of the Effective Date for any reason other than cause, you shall be entitled to receive : (a) Any earned, but unpaid, Base Salary; (b) Any earned, but unpaid, bonus for any Fiscal Year that ended prior to the Fiscal Year in which the date of termination occurs; (c) The cash equivalent of any accrued, but unused, vacation; and (d) Any accrued employee benefits, subject to the terms of the applicable employee benefit plans. In addition, if your employment is terminated by the Company for any reason other than cause, you shall be entitled to receive a lump sum severance payment equal to $595,000. Please understand that this offer is subject to the Company having completed to its satisfaction any background or reference checks as it may deem appropriate. Further, this letter shall not be construed to create an employment contract of any kind, express or implied, and your employment status shall be and remain "employment at will"; provided, however, that upon termination you shall be entitled to the benefits as set forth in this letter. As a condition to receipt of any severance payments or continued benefits under this letter upon your termination for any reason, you will execute a release agreement reasonably satisfactory to the Company releasing any and all claims arising out of your employment with the Company. In the event of any conflict between the terms of this letter agreement and the terms of any other agreement, award or arrangement contemplated hereby, the terms of this letter agreement shall control. If the terms outlined above reflect your understanding of our offer and you accept employment based on these terms, please indicate your acceptance by signing the two original letters provided. Please keep one letter for your records and return the other to me. Mr. Robert Dunst November 16, 2001 Page 4 We are extremely pleased to have you join the Albertson's team, and I look forward to our association with you in this important role at Albertson's. Sincerely, /s/ Kathy Herbert --------------------- Kathy Herbert Executive Vice President, Human Resources Accepted and agreed to this 19th day of November, 2001 -----END PRIVACY-ENHANCED MESSAGE-----