-----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, QfEPvmqUpKpfJ6pdl8Ie5QRB5fHa3c9VZ9c8gKgSrzU5k/eO+Av432evZV4xhmsJ ivhwzLLcC6VO9nWjyR5HsA== 0000003333-03-000094.txt : 20031209 0000003333-03-000094.hdr.sgml : 20031209 20031208205310 ACCESSION NUMBER: 0000003333-03-000094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20031030 FILED AS OF DATE: 20031209 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: 031043425 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 abs10q32003.txt 10-Q FOR QUARTER ENDED OCTOBER 30, 2003 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------- FORM 10-Q ------------------------------- Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For 13 Weeks Ended: October 30, 2003 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 of principal executive offices) (Zip Code) (208) 395-6200 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ---- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ----- ----- There were 366,920,089 shares with a par value of $1.00 per share outstanding at December 2, 2003. 1 ALBERTSON'S INC. INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Earnings Statements for the 13 weeks ended October 30, 2003 and October 31, 2002 3 Condensed Consolidated Earnings Statements for the 39 weeks ended October 30, 2003 and October 31, 2002 4 Condensed Consolidated Balance Sheets as of October 30, 2003 and January 30, 2003 5 Condensed Consolidated Cash Flow Statements for the 39 weeks ended October 30, 2003 and October 31, 2002 6 Notes to Condensed Consolidated Financial Statements 7 Independent Accountants' Report 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. Controls and Procedures 20 PART II OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 22 Item 3. Defaults upon Senior Securities 22 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22
2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ALBERTSON'S, INC. CONDENSED CONSOLIDATED EARNINGS STATEMENTS (in millions, except per share data) (unaudited)
13 weeks ended ------------------------------------------ October 30, October 31, 2003 2002 ------------------- ------------------- Sales $ 8,796 $ 8,657 Cost of sales 6,270 6,128 ------------------- ------------------- Gross profit 2,526 2,529 Selling, general and administrative expenses 2,267 2,151 Restructuring charges (credits) 4 (7) ------------------- ------------------- Operating profit 255 385 Other (expenses) income: Interest, net (99) (88) Other, net (7) 1 ------------------- ------------------- Earnings from continuing operations before income taxes 149 298 Income tax expense 57 108 ------------------- ------------------- Earnings from continuing operations 92 190 ------------------- ------------------- Discontinued operations: Operating loss - (10) Gain on disposal - 7 Income tax benefit - 1 ------------------- ------------------- Loss from discontinued operations - (2) ------------------- ------------------- Net earnings $ 92 $ 188 =================== =================== Earnings (loss) per share: Basic Continuing operations $ 0.25 $ 0.48 Discontinued operations - (0.01) ------------------- ------------------- Net earnings $ 0.25 $ 0.47 =================== =================== Diluted Continuing operations $ 0.25 $ 0.48 Discontinued operations - (0.01) ------------------- ------------------- Net earnings $ 0.25 $ 0.47 =================== =================== Weighted average number of common shares outstanding: Basic 368 396 Diluted 369 397
See Notes to Condensed Consolidated Financial Statements. 3 ALBERTSON'S, INC. CONDENSED CONSOLIDATED EARNINGS STATEMENTS (in millions, except per share data) (unaudited)
39 weeks ended ------------------------------------------ October 30, October 31, 2003 2002 ------------------- ------------------- Sales $ 26,789 $ 26,519 Cost of sales 19,063 18,736 ------------------- ------------------- Gross profit 7,726 7,783 Selling, general and administrative expenses 6,732 6,420 Restructuring credits (11) (29) ------------------- ------------------- Operating profit 1,005 1,392 Other (expenses) income: Interest, net (307) (296) Other, net (6) (16) ------------------- ------------------- Earnings from continuing operations before income taxes 692 1,080 Income tax expense 266 415 ------------------- ------------------- Earnings from continuing operations 426 665 ------------------- ------------------- Discontinued operations: Operating loss - (49) Loss on disposal - (388) Income tax benefit - 146 ------------------- ------------------- Loss from discontinued operations - (291) ------------------- ------------------- Earnings before cumulative effect of change in accounting principle 426 374 Cumulative effect of change in accounting principle (net of tax $60) - (94) ------------------- ------------------- Net earnings $ 426 $ 280 =================== =================== Earnings (loss) per share: Basic Continuing operations $ 1.16 $ 1.64 Discontinued operations - (0.72) Cumulative effect of change in accounting principle (net of tax $0.15) - (0.23) ------------------- ------------------- Net earnings $ 1.16 $ 0.69 =================== =================== Diluted Continuing operations $ 1.16 $ 1.64 Discontinued operations - (0.72) Cumulative effect of change in accounting principle (net of tax $0.15) - (0.23) ------------------- ------------------- Net earnings $ 1.16 $ 0.69 =================== =================== Weighted average number of common shares outstanding: Basic 368 403 Diluted 369 405
See Notes to Condensed Consolidated Financial Statements. 4 ALBERTSON'S, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in millions, except par values) (unaudited)
October 30, January 30, 2003 2003 ----------------- ----------------- ASSETS Current Assets: Cash and cash equivalents $ 43 $ 162 Accounts and notes receivable, net 660 647 Inventories 3,191 2,973 Assets held for sale 68 120 Prepaid and other 238 366 ----------------- ----------------- Total Current Assets 4,200 4,268 Land, buildings and equipment (net of accumulated depreciation and amortization of $6,682 and $6,158, respectively) 9,158 9,029 Goodwill, net 1,400 1,399 Intangibles, net 196 214 Other assets 293 301 ----------------- ----------------- Total Assets $ 15,247 $ 15,211 ================= ================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 1,898 $ 2,009 Salaries and related liabilities 565 599 Self-insurance 263 244 Current maturities of long-term debt and capital lease obligations 516 119 Other current liabilities 539 477 ----------------- ----------------- Total Current Liabilities 3,781 3,448 Long-term debt 4,448 4,950 Capital lease obligations 313 307 Self-insurance 428 367 Other long-term liabilities and deferred credits 951 942 Commitments and contingencies - - Stockholders' Equity Preferred stock - $1.00 par value; authorized - 10 shares; designated - 3 shares of Series A Junior Participating; issued - none - - Common stock - $1.00 par value; authorized - 1,200 shares; issued - 367 shares and 372 shares, respectively 367 372 Capital in excess of par 147 128 Accumulated other comprehensive loss (96) (96) Retained earnings 4,908 4,793 ----------------- ----------------- Total Stockholders' Equity 5,326 5,197 ----------------- ----------------- Total Liabilities and Stockholders' Equity $ 15,247 $ 15,211 ================= =================
See Notes to Condensed Consolidated Financial Statements. 5 ALBERTSON'S, INC. CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (in millions) (unaudited)
39 weeks ended -------------------------------------------- October 30, October 31, 2003 2002 ------------------ --------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 426 $ 280 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 729 708 Net deferred income taxes and other 18 41 Discontinued operations noncash charges - 372 Cumulative effect of change in accounting principle - 94 (Increase) decrease in cash surrender value of insurance (3) 17 Changes in operating assets and liabilities: Receivables, prepaid expenses and other 82 190 Inventories (218) 36 Accounts payable (102) - Other current liabilities 32 (39) Self-insurance 79 41 Other 17 (15) ------------------ --------------------- Net cash provided by operating activities 1,060 1,725 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (892) (1,050) Proceeds from disposal of land, buildings and equipment 56 91 Proceeds from disposal of assets held for sale 98 472 Other (8) 10 ------------------ --------------------- Net cash used in investing activities (746) (477) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid (210) (232) Payments on long-term borrowings (115) (116) Stock purchases and retirements (108) (547) Proceeds from stock options exercised - 16 ------------------ --------------------- Net cash used in financing activities (433) (879) Net (Decrease) Increase in Cash and Cash Equivalents (119) 369 Cash and Cash Equivalents at Beginning of Period 162 61 ------------------ --------------------- Cash and Cash Equivalents at End of Period $ 43 $ 430 ================== =====================
See Notes to Condensed Consolidated Financial Statements. 6 ALBERTSON'S, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (dollars and shares in millions, except per share data) (unaudited) NOTE A - THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES Description of Business Albertson's, Inc. ("Albertsons" or the "Company") is incorporated under the laws of the State of Delaware and is the successor to a business founded by J.A. Albertson in 1939. Based on sales, the Company is one of the largest retail food and drug chains in the world. As of October 30, 2003, the Company operated 2,312 stores in 31 states. Retail operations were supported by 17 major Company distribution operations, strategically located in the Company's operating markets. The Company also operated 227 fuel centers near existing stores. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the results of operations, financial position and cash flows of the Company and its subsidiaries. All material intercompany balances have been eliminated. In the opinion of management, the accompanying unaudited condensed 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. These condensed consolidated financial 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 have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company's 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 24, 2003. The results of operations for the 13 and 39 weeks ended October 30, 2003, are not necessarily indicative of results for a full year. The Company's operating results and cash flows for the quarter ended October 31, 2002 differ from the previously reported results due to the impact of the change in the Company's method of accounting for vendor funds, as discussed in the Company's 2002 Annual Report on Form 10-K. The information presented in the financial statements reflects the adoption of Emerging Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16"), in the fourth quarter of 2002, retroactive to the beginning of 2002. The Company's Condensed Consolidated Balance Sheet as of January 30, 2003, has been derived from the audited Consolidated Balance Sheet as of that date. Use of Estimates The preparation of the Company's consolidated financial statements, in conformity with accounting principles generally accepted in the United States, requires management to make estimates and assumptions. Some of these estimates require difficult, subjective or complex judgments about matters that are inherently uncertain. As a result, actual results could differ from these estimates. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Vendor Funds The Company receives funds from many of the vendors whose products the Company buys for resale in its stores. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of the vendor's products in the Company's advertising; placement of the vendor's products in prominent locations in the Company's stores; introduction of new products into the Company's distribution system and retail stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at retail stores. The Company also receives vendor funds for buying activities, such as volume commitment rebates and credits for purchasing products in advance of their need. The terms of vendor funds arrangements vary in length, from short term arrangements that are completed within a quarter, to long term arrangements that are expected to be completed within ten years. 7 Accounting for vendor funds is discussed in EITF 02-16, in which the EITF reached consensus on two issues in November 2002 and provided transition rules on those issues in January 2003 and March 2003. As a result of this guidance, the Company adopted a new method for recognizing the vendor funds for merchandising activities. As of the beginning of 2002, the Company recognizes as a reduction of cost of sales vendor funds for merchandising activities when the related products are sold. Under the previous accounting method for merchandising vendor funds, these credits were recognized as a reduction to cost of sales when the merchandising activity was performed in accordance with the underlying agreements. In connection with the implementation of this new accounting method, the Company recorded a charge in 2002 of $94, net of tax benefit of $60. The amount of vendor funds reducing the Company's inventory ("inventory offset") as of October 30, 2003 was $134, an increase of $3 from the end of the second quarter of 2003 and a decrease of $18 from the beginning of 2003. The vendor funds inventory offset as of October 31, 2002 was $143, an increase of $8 from the end of the second quarter of 2002 and a decrease of $15 from the beginning of 2002. The inventory offset was determined by estimating the average inventory turnover rates by product category for the Company's grocery, general merchandise and lobby departments (these departments received over three-quarters of the Company's vendor funds in 2002) and by average inventory turnover rates by department for the Company's remaining inventory. Inventory Net earnings reflects the application of the LIFO method of valuing certain inventories. Quarterly inventory determinations under LIFO are based on assumptions as to projected inventory levels at the end of the year and the rate of inflation for the year. Albertsons recorded pretax LIFO expense of $4 and $12 for the 13 week and 39 week periods ended October 30, 2003, respectively, and $0 and $10 for the 13 week and 39 week periods ended October 31, 2002, respectively. Procurement, Distribution and Merchandising Costs Cost of sales include, among other things, purchasing, inbound freight costs, product quality testing costs, warehousing costs, internal transfer costs, advertising, private label program costs and strategic sourcing program costs. Selling, general and administrative expenses include, among other things, merchandising planning and management costs, store-based purchasing and receiving costs and inventory management costs. Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and has adopted the disclosure-only alternative of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation," and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." The following table represents the effect on net earnings and earnings per share that would have resulted if the Company had applied the fair value based method and recognition provisions of SFAS No. 123 to stock-based employee compensation:
13 weeks ended 39 weeks ended October 30, October 31, October 30, October 31, 2003 2002 2003 2002 - --------------------------------------------- ----------------- --------------- ---------------- --------------- Net earnings as reported $ 92 $ 188 $ 426 $ 280 Add: Stock-based compensation expense included in reported net earnings, net of related tax effects 4 3 12 9 Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects (11) (11) (34) (35) - --------------------------------------------- ----------------- --------------- ---------------- --------------- Net earnings - pro forma $ 85 $ 180 $ 404 $ 254 ============================================= ================= =============== ================ =============== Basic earnings per share: As reported $ 0.25 $ 0.47 $ 1.16 $ 0.69 Pro forma 0.23 0.45 1.10 0.63 ============================================= ================= =============== ================ =============== Diluted earnings per share: As reported $ 0.25 $ 0.47 $ 1.16 $ 0.69 Pro forma 0.23 0.45 1.10 0.63 ============================================= ================= =============== ================ ===============
8 Reclassifications Certain reclassifications have been made to prior periods to conform to current year presentations. NOTE B - NEW AND RECENTLY ADOPTED ACCOUNTING STANDARDS In July 2001 the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 became effective for the Company on January 31, 2003, and did not have a material effect on the Company's condensed consolidated financial statements for the 39 weeks ended October 30, 2003. In January 2003 the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of this interpretation became effective for the Company on January 31, 2003, and did not have a material effect on the Company's condensed consolidated financial statements for the 39 weeks ended October 30, 2003. In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments, which under previous guidance could be accounted for as equity, be classified as liabilities in statements of financial position. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and was effective for the Company in the 13 week period ended October 30, 2003. The adoption of SFAS No. 150 did not have a material effect on the Company's condensed consolidated financial statements for the 13 weeks ended October 30, 2003. In November 2003 the EITF confirmed as a consensus EITF Issue No. 03-10, "Application of EITF Issue No. 02-16, 'Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,' by Resellers to Sales Incentives Offered to Consumers by Manufacturers" ("EITF 03-10"). EITF 03-10 will not impact the Company's existing accounting and reporting policies for manufacturers' coupons that can be presented at any retailer that accepts coupons. For arrangements with vendors that are entered into or modified after the start of fiscal year 2004, we will record the vendor reimbursement as a reduction of cost of sales (instead of sales) if the coupon can only be redeemed at a Company retail store. This modification to our accounting and reporting policies will only impact sales and cost of sales beginning in the Company's first quarter of 2004. NOTE C - RESERVES FOR RESTRUCTURING ACTIVITIES, MARKET EXITS AND CLOSED STORES In 2001 the Company recorded a pre-tax charge to earnings of $107 primarily for lease settlements and severance costs in connection with the closure of 165 stores and the reduction of overhead functions (the "2001 restructuring activities"). As of January 30, 2003, an accrual of $28 was recorded for these settlements and costs. During the 13 week and 39 week periods ended October 30, 2003, the Company paid $3 and $7, respectively, and had favorable lease termination settlements of $0 and $6, respectively, recorded in restructuring charges (credits) in the condensed consolidated earnings statements, leaving a balance of $15 as of October 30, 2003. In 2002 the Company recorded a pre-tax charge to earnings of $51 primarily for lease settlements and severance costs in connection with the exit from four underperforming markets (the "2002 market exits"). As of January 30, 2003, an accrual of $11 was recorded for these settlements and costs. During the 13 week and 39 week periods ended October 30, 2003, the Company paid $0 and $3, respectively, leaving a balance of $8 as of October 30, 2003. As of January 30, 2003, the Company had an accrual of $30 for closed store lease termination costs. During the 13 week period ended October 30, 2003, the Company recorded additional reserves of $3, had favorable lease termination settlements of $3 and paid $2. During the 39 week period ended October 30, 2003, the Company recorded additional reserves of $5, had favorable lease termination settlements of $9 and paid $8, leaving a balance of $18 as of October 30, 2003. The Company also sold certain closed stores in the 39 week period ended October 30, 2003 which resulted in a gain of $6 (reflected in "Selling, general and administrative expenses" in the condensed consolidated earnings statement). 9 NOTE D - INTANGIBLES The carrying amount of intangibles was as follows:
October 30, January 30, 2003 2003 -------------------- -------------------- Amortizing: Favorable acquired operating leases $215 $231 Customer lists and other contracts 56 53 -------------------- -------------------- 271 284 Accumulated amortization (179) (173) -------------------- -------------------- 92 111 Non-Amortizing: Liquor licenses 40 39 Pension related intangible assets 64 64 -------------------- -------------------- 104 103 -------------------- -------------------- $196 $214 ==================== ====================
NOTE E - CONTINGENCIES Lawsuits, claims and other legal matters In March 2000 a class action complaint was filed against Albertsons as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Gardner, et al. v. Albertson's, Inc., et al.) by bonus-eligible managers seeking recovery of additional bonus compensation based upon plaintiffs' allegation that the calculation of profits on which their bonuses were based improperly included expenses for workers' compensation costs, cash shortages, premises liability and "shrink" losses in violation of California law. In October 2001 the court granted summary judgment against Sav-on Drug Stores, finding one of its bonus plans unlawful under plaintiffs' liability theory. In August 2001 a class action complaint with very similar claims, also involving bonus-eligible managers, was filed against Albertsons as well as Lucky Stores, Inc. and American Stores Company, wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Petersen, et al. v. Lucky Stores, Inc., et al.). In June 2002 the cases were consolidated and in August 2002 a class action with respect to the consolidated case was certified by the court. The Company has strong defenses against this lawsuit and is vigorously defending it. Although this lawsuit is subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of this action will have a material adverse effect on the Company's financial condition, results of operations or cash flows. In April 2000 a class action complaint was filed against Albertsons as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Gardner, et al. v. American Stores Company, et al.) by assistant managers seeking recovery of overtime pay based upon plaintiffs' allegation that they were improperly classified as exempt under California law. In May 2001 a class action with respect to Sav-on Drug Stores assistant managers was certified by the court. A case with very similar claims, involving the Sav-on Drug Stores assistant managers and operating managers, was also filed in April 2000 against the Company's subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the County of Los Angeles, California (Rocher, Dahlin, et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. In April 2002 the Court of Appeal of the State of California Second Appellate District reversed the Rocher class certification, leaving only two plaintiffs. The California Supreme Court has accepted plaintiffs' request for review of this class decertification. The Gardner case is on hold pending the review of the Rocher class decertification issue by the California Supreme Court. The Company has strong defenses against these lawsuits and is vigorously defending them. Although these lawsuits are subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of these lawsuits will have a material adverse effect on the Company's financial condition, results of operations or cash flows. 10 An agreement was reached, and court approval granted, to settle eight purported class and/or collective actions which were consolidated in the United States District Court in Boise, Idaho, and which raised various issues including "off-the-clock" work allegations and allegations regarding certain salaried grocery managers' exempt status. Under the settlement agreement, current and former employees who met eligibility criteria have been allowed to present their off-the-clock work claims to a settlement administrator. Additionally, current and former grocery managers employed in the State of California have been allowed to present their exempt status claims to a settlement administrator. The Company mailed notices of the settlement and claims forms to approximately 80,000 associates and former associates. Approximately 6,000 claim forms were returned, of which approximately 5,000 were deemed by the settlement administrator to be incapable of valuation, presumed untimely, or both. The claims administrator was able to assign a value to approximately 1,000 claims, which amount to a total of approximately $14, although the value of many of those claims is still subject to challenge by the Company. A second claim process was ordered by the court, but the parties are still waiting for final instructions from the Court. The Company is presently unable to determine the number of individuals who may ultimately submit valid claims or the amounts that it may ultimately be required to pay with respect to such claims. Based on the information presently available to it, management does not expect that the satisfaction of valid claims submitted pursuant to the settlement will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is also involved in routine legal proceedings incidental to its operations. Management does not expect that the ultimate resolution of these legal proceedings will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The statements above reflect management's current expectations based on the information presently available to the Company. However, predicting the outcomes of claims and litigation and estimating related costs and exposures involve substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. In addition, the Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures. It is possible that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company's financial condition, results of operations or cash flows. Contingent Lease Obligations The Company is contingently liable for certain operating leases that were assigned to third parties in connection with various store closures and dispositions. If any of these third parties were to fail to perform their obligations under the lease, the Company could be responsible for the lease obligations. The Company was notified that certain of these third parties have become insolvent and are seeking bankruptcy protection. At October 30, 2003, approximately 23 store leases for which the Company is contingently liable were subject to the bankruptcy proceedings of such third parties and 20 of such had been rejected by the applicable third party. The Company has recorded pre-tax charges of $15 and $22 for the 13 week and 39 week periods ended October 30, 2003, respectively, which represents the remaining minimum lease payments and other payment obligations under the 20 rejected leases, less estimated sublease income and discounted at the Company's credit-adjusted risk free interest rate. Based on an internal analysis of the current status of the remaining assigned operating leases, the Company expects that any potential future losses for rejected assigned operating leases would not have a material adverse effect on its financial condition, results of operations or cash flows. 11 Note F- Computation of Earnings Per Share
13 weeks ended ------------------------------------------------------------------- October 30, 2003 October 31, 2002 Basic Diluted Basic Diluted ------------- ------------- --------------- ------------- Earnings (loss) from: Continuing operations $ 92 $ 92 $190 $190 Discontinued operations - - (2) (2) ------------- ------------- --------------- ------------- Net earnings $ 92 $ 92 $188 $188 ============= ============= =============== ============= Weighted average common shares outstanding 368 368 396 396 ============= =============== Potential common share equivalents 1 1 ------------- ------------- Weighted average shares outstanding 369 397 ============= ============= Earnings (loss) per common share and common share equivalents: Continuing operations $0.25 $0.25 $0.48 $0.48 Discontinued operations - - (0.01) (0.01) ------------- ------------- --------------- ------------- Net earnings $0.25 $0.25 $0.47 $0.47 ============= ============= =============== ============= Calculation of potential common share equivalents: Options to purchase potential common shares 3 7 Potential common shares assumed purchased with potential proceeds (2) (6) ------------- ------------- Potential common share equivalents 1 1 ============= ============= Calculation of potential common shares assumed purchased with potential proceeds Potential proceeds from exercise of options to purchase common shares $43 $147 Common stock price used under treasury stock method $20.54 $26.03 ------------- ------------- Potential common shares assumed purchased with potential proceeds 2 6 ============= ============= Anti-dilutive shares excluded from potential common share equivalents 29 20 ============= =============
12
39 weeks ended ------------------------------------------------------------------- October 30, 2003 October 31, 2002 Basic Diluted Basic Diluted ------------- ------------- --------------- ------------- Earnings (loss) from: Continuing operations $426 $426 $665 $665 Discontinued operations - - (291) (291) Cumulative effect of change in accounting principle - - (94) (94) ------------- ------------- --------------- ------------- Net earnings $426 $426 $280 $280 ============= ============= =============== ============= Weighted average common shares outstanding 368 368 403 403 ============= =============== Potential common share equivalents 1 2 ------------- ------------- Weighted average shares outstanding 369 405 ============= ============= Earnings (loss) per common share and common share equivalents: Continuing operations $1.16 $1.16 $1.64 $1.64 Discontinued operations - - (0.72) (0.72) Cumulative effect of change in accounting principle - - (0.23) (0.23) ------------- ------------- --------------- ------------- Net earnings $1.16 $1.16 $0.69 $0.69 ============= ============= =============== ============= Calculation of potential common share equivalents: Options to purchase potential common shares 3 9 Potential common shares assumed purchased with potential proceeds (2) (7) ------------- ------------- Potential common share equivalents 1 2 ============= ============= Calculation of potential common shares assumed purchased with potential proceeds Potential proceeds from exercise of options to purchase common shares $48 $215 Common stock price used under treasury stock method $19.90 $29.61 ------------- ------------- Potential common shares assumed purchased with potential proceeds 2 7 ============= ============= Anti-dilutive shares excluded from potential common share equivalents 30 19 ============= =============
13 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Stockholders of Albertson's, Inc. Boise, Idaho We have reviewed the accompanying condensed consolidated balance sheet of Albertson's, Inc. and subsidiaries ("Albertsons") as of October 30, 2003, and the related condensed consolidated earnings statements and cash flow statements for the thirteen and thirty-nine week periods ended October 30, 2003 and October 31, 2002. These interim financial statements are the responsibility of Albertson's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Albertsons as of January 30, 2003, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated March 20, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 30, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /S/ DELOITTE & TOUCHE LLP Boise, Idaho December 4, 2003 14 ALBERTSON'S, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (dollars in millions, except per share data) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Results of operations for the 13 week period ended October 30, 2003 were unfavorably impacted by two labor disputes, primarily the ongoing labor dispute in Southern California (the "Labor Dispute"), and, to a much lesser degree, a contract renewal at one of our Midwest distribution centers. These labor disputes resulted in decreased sales in our Southern California combination food and drug and conventional stores and decreased gross margin as a result of inventory shrink, sales mix changes and increased distribution costs. Pursuant to the terms of a multi-employer bargaining arrangement among the Company, The Kroger Co. and Safeway Inc. (the "Retailers"), the Company "locked out" its retail union associates in Southern California food stores on October 12, 2003. This followed the United Food and Commercial Workers' ("UFCW") decision to conduct a strike at Safeway Inc.'s Southern California Vons Supermarket stores on October 11, 2003. In connection with the decision of the Retailers to engage in multi-employer bargaining with the UFCW, the Retailers entered into agreements which provide for "lock outs" in the event that any Retailer is struck at any or all of its facilities when the other Retailers are not and contain a provision designed to prevent the union from placing disproportionate pressure on one or more Retailer by picketing such Retailer(s) but not the other Retailer(s). No payments are made or received under said provision of the agreements until the conclusion of the Labor Dispute, at which time only net amounts will be paid. Amounts accrued under these agreements during the current quarter did not have a material effect on the Company's financial position, results of operations or cash flows. However, there can be no assurance as to the future impact of these agreements on the Company. On November 26, 2003, the Company received notice from the State of California's Attorney General's Office that it had opened an investigation into possible antitrust violations related to the agreements referred to above. The Company believes that the agreements are lawful, and that similar agreements are not uncommon in joint bargaining situations. The Company intends to vigorously defend itself in any proceedings related to this investigation. Following the start of the "lock out", the Company implemented its labor dispute operations plan which included the hiring and training of temporary workers, temporarily reassigning key associates from other divisions and increasing store security. As of December 8, 2003 the Labor Dispute is on-going. 13 week period ended October 30, 2003 Sales were $8,796 and $8,657 in the 13 week periods ended October 30, 2003 and October 31, 2002, respectively. The sales growth for the 13 week period ended October 30, 2003 as compared to the prior year was generated primarily by sales at stores opened during the past year, partially offset by reductions in sales in Southern California as a result of the Labor Dispute. Comparable store sales for the total Company, which includes sales at replacement stores, decreased 0.8% and identical store sales decreased 1.1%. Excluding food and drug stores in our Southern California Division for the last 19 days of the 13 week periods ended October 30, 2003 and October 31, 2002, comparable store sales increased 0.7% and identical store sales increased 0.3%. The following table reconciles actual comparable store sales and identical store sales to adjusted comparable store sales and identical store sales as presented herein. The Company presents these non-GAAP financial measures because it believes a comparison of actual to adjusted store sales data is useful to investors to communicate management's belief of the impact of the Labor Dispute on trends in sales experienced during the majority of the third quarter. 15
Actual Labor Adjusted Comparable Dispute Comparable Store Sales Adjustment Store Sales - ------------------------------------------------------ ------------------ --------------- ----- ------------------ 13 weeks ended October 30, 2003 $ 8,460 $ (280) (1) $ 8,180 13 weeks ended October 31, 2002 8,528 (402) (2) 8,126 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Year to year change (68) 54 13 weeks ended October 31, 2002 8,528 8,126 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Comparable store sales percent (0.8)% 0.7% ====================================================== ================== =============== ===== ================== Actual Identical Labor Adjusted Store Sales Dispute Identical Adjustment Store Sales - ------------------------------------------------------ ------------------ --------------- ----- ------------------ 13 weeks ended October 30, 2003 $ 8,348 $ (274) (3) $ 8,074 13 weeks ended October 31, 2002 8,443 (397) (4) 8,046 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Year to year Change (95) 28 13 weeks ended October 31, 2002 8,443 8,046 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Identical store sales percent (1.1)% 0.3% ====================================================== ================== =============== ===== ==================
(1) Represents the change in comparable Southern California Division food and drug store sales in 2003 during the last 19 days of the third quarter. Includes the effect of minimal incremental benefits in Southern California drug store sales during the last 19 days of the quarter that the Company believes were due primarily to the Labor Dispute. The third quarter labor dispute outside of Southern California did not impact sales. (2) Represents the change in comparable Southern California Division food and drug store sales in 2002 during the last 19 days of the third quarter. (3) Represents the change in identical Southern California Division food and drug store sales in 2003 during the last 19 days of the third quarter. Includes the effect of minimal incremental benefits in Southern California drug store sales during the last 19 days of the quarter that the Company believes were due primarily to the Labor Dispute. The third quarter labor dispute outside of Southern California did not impact sales. (4) Represents the change in identical Southern California Division food and drug store sales in 2002 during the last 19 days of the third quarter. During the 13 week period ended October 30, 2003, the Company opened 12 combination food and drug stores, seven stand-alone drugstores and two fuel centers, while closing two combination food and drug stores, three conventional stores, and seven stand-alone drugstores. Management estimates that overall inflation in products the Company sells was approximately 1.1% over the twelve months ended October 30, 2003, as compared to deflation of 0.7% in the twelve months ended October 31, 2002. Gross profit, as a percentage of sales, in the 13 week period ended October 30, 2003 declined 49 basis points to 28.7% as compared to the 13 week period ended October 31, 2002. This was a result of decreased sales leverage due to the Labor Dispute and the Company's decision to invest gross margin in key product categories (primarily in the grocery and general merchandise departments) and selected geographic markets to maintain market share, as well as increased Company-wide promotional pricing. The effect of lower pricing was partially offset by realized cost savings as part of the Company's strategic sourcing program and private label sales growth. The pharmacy department's gross profit as a percentage of sales improved in 2003 versus 2002 primarily due to increased generic substitution. Selling, general and administrative expenses, as a percent of sales, increased to 25.8% for the 13 week period ended October 30, 2003, as compared to 24.9% for the 13 week period ended October 31, 2002. This increase was primarily attributable to the lack of sales leverage due to the Labor Dispute as well as higher employee benefit costs, depreciation, contingent lease charges, salaries and wages and workers' compensation costs. Labor Dispute costs were primarily related to the hiring and training of temporary workers, travel costs for temporarily reassigned key associates from other Company divisions, increased store security and legal costs. The higher benefit costs experienced during the quarter are due, in part, to increases in mandatory contributions to multi-employer health care and pension plans to which the Company contributes. Contribution amounts are established under the Company's collective bargaining agreements, which are up for renewal at varying times over the next several years. If the health care and pension plan provisions of certain of these collective bargaining agreements cannot be renegotiated in a manner that reduces the prospective health care and pension costs of the Company as the Company intends, the Company's selling, general and administrative expenses could continue to increase, possibly significantly, in the future. Restructuring charges during the 13 week period ended October 30, 2003 totaled $4 as compared to credits of $7 in the corresponding period in 2002. The increase in restructuring charges in 2003 as opposed to 2002 was primarily due to losses on disposition of assets and reductions in the estimated fair market values of assets to be sold related to the Company's 2001 restructuring activities. 16 The decrease in other (expenses) income, net of $8 for the 13 week period ended October 30, 2003, as compared to the corresponding period in 2002, relates to losses in the earnings of minority equity investments. Interest, net, during the 13 week period ended October 30, 2003 totaled $99 as compared with $88 for the corresponding period in the prior year. This increase was attributable to less interest being capitalized on construction projects during 2003. The decrease in capitalized interest was due to an overall reduction in capital expenditures, particularly for new stores. Earnings from continuing operations were $92 for the 13 week period ended October 30, 2003 compared to $190 for the 13 week period ended October 31, 2002. This decrease was due to a reduction in identical store sales of 1.1%, a decrease in gross margin, the impact of the labor disputes, and increases in employee benefit costs, depreciation, contingent lease charges, salaries and wages and workers' compensation costs. The Company's effective tax rate for the 13 week period ended October 30, 2003 was 38.4% as compared to 36.4% for the 13 week period ended October 31, 2002. For the 13 week period ended October 31, 2002, the rate was reduced to 36.4% to reflect updated estimates of federal and state taxes in 2002 which were lower than amounts previously estimated. Net earnings were $92 or $0.25 per diluted share for the 13 week period ended October 30, 2003, compared to net earnings of $188 or $0.47 per diluted share for the 13 week period ended October 31, 2002. This decline was the result of the decrease in earnings from continuing operations. 39 week period ended October 30, 2003 Sales were $26,789 and $26,519 for the 39 week periods ended October 30, 2003 and October 31, 2002, respectively. The sales growth for the 39 week period ended October 30, 2003 as compared to the prior year was generated primarily by sales at stores opened in the past year, partially offset by a decrease in comparable store sales of 0.9% and a decrease in identical store sales of 1.3% for the 39 week period ended October 30, 2003. Also impacting results were reduced sales in Southern California as a result of the Labor Dispute. Excluding food and drug stores in Southern California for the last 19 days of the 39 week periods ended October 30, 2003 and October 31, 2002, comparable store sales decreased 0.5% and identical store sales decreased 0.8%. The following table reconciles actual comparable store sales and identical store sales to adjusted comparable store sales and identical store sales as presented herein. The Company presents these non-GAAP financial measures because it believes a comparison of actual to adjusted store sales data is useful to investors to communicate management's belief of the impact of the Labor Dispute on trends in sales experienced during the majority of the third quarter.
Actual Labor Adjusted Comparable Dispute Comparable Store Sales Adjustment Store Sales - ------------------------------------------------------ ------------------ --------------- ----- ------------------ 39 weeks ended October 30, 2003 $ 25,586 $ (276) (1) $ 25,310 39 weeks ended October 31, 2002 25,824 (398) (2) 25,426 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Year to year change (238) (116) 39 weeks ended October 31, 2002 25,824 25,426 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Comparable store sales percent (0.9)% (0.5)% ====================================================== ================== =============== ===== ==================
Actual Identical Labor Adjusted Store Sales Dispute Identical Adjustment Store Sales - ------------------------------------------------------ ------------------ --------------- ----- ------------------ 39 weeks ended October 30, 2003 $ 25,172 $ (269) (3) $ 24,903 39 weeks ended October 31, 2002 25,504 (392) (4) 25,112 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Year to year change (332) (209) 39 weeks ended October 31, 2002 25,504 25,112 - ------------------------------------------------------ ------------------ --------------- ----- ------------------ Identical store sales percent (1.3)% (0.8)% ====================================================== ================== =============== ===== ==================
(1) Represents the change in comparable Southern California Division food and drug store sales in 2003 during the last 19 days of the third quarter. Includes the effect of minimal incremental benefits in Southern California drug store sales during the last 19 days of the quarter that the Company believes were due primarily to the Labor Dispute. The third quarter labor dispute outside of Southern California did not impact sales. (2) Represents the change in comparable Southern California Division food and drug store sales in 2002 during the last 19 days of the third quarter. (3) Represents the change in identical Southern California Division food and drug store sales in 2003 during the last 19 days of the third quarter. Includes the effect of minimal incremental benefits in Southern California drug store sales during the last 19 days of the quarter that the Company believes were due primarily to the Labor Dispute. The third quarter labor dispute outside of Southern California did not impact sales. (4) Represents the change in identical Southern California Division food and drug store sales in 2002 during the last 19 days of the third quarter. 17 For the 39 week period ended October 30, 2003, the Company opened 52 combination food and drug stores, 21 stand-alone drugstores and 28 fuel centers, while closing 11 combination food and drug stores, 17 conventional stores and 20 stand-alone drugstores. Gross profit, as a percentage of sales, decreased 51 basis points for the 39 week period ended October 30, 2003 to 28.8% as compared to the corresponding period in 2002. This decrease in gross profit resulted from the lack of sales leverage due to the Labor Dispute and the Company's decision to lower sales prices in key product categories (primarily in the grocery and general merchandise departments) and selected geographic markets to maintain market-share, as well as increased promotional pricing Company-wide. The effect of lower pricing was partially offset by realized cost savings as part of the Company's strategic sourcing program and private label sales growth. The pharmacy department's gross profit as a percentage of sales improved in 2003 versus 2002 primarily due to increased generic substitution. Selling, general and administrative expenses for the 39 week period ended October 30, 2003, as a percent of sales, increased to 25.1% as compared to 24.2% in the corresponding period in the prior year. This increase was primarily due to lack of sales leverage due to the Labor Dispute as well as increased depreciation, employee benefits, workers' compensation costs and contingent lease charges. Earnings from continuing operations were $426 for the 39 week period ended October 30, 2003, compared to earnings from continuing operations of $665 for the 39 week period ended October 31, 2002. This decrease was due to a decrease in identical store sales of 1.3%, a decrease in gross margin and an increase in depreciation, employee benefits, workers' compensation costs and contingent lease charges. The decrease in other expenses from $16 in 2002 to $6 in 2003 relates to unfavorable market adjustments in the prior year of $17 to the cash surrender value of company owned life insurance policies used to fund the Company's obligations under deferred compensation plans for its officers, key employees and directors, partially offset by increased losses in the earnings of minority interest equity investments in 2003. Interest, net, during the 39 week period ended October 30, 2003 totaled $307 as compared with $296 in the prior year. This increase was attributable to less interest being capitalized on construction projects during 2003. The decrease in capitalized interest was due to an overall reduction in the capital expenditures, particularly for new stores. Net earnings were $426 or $1.16 per diluted share for the 39 week period ended October 30, 2003, compared to net earnings of $280 or $0.69 per diluted share for the 39 week period ended October 31, 2002. The improvement in 2003 was a result of a charge of $291 in 2002 related to a strategic decision to exit underperforming markets and a charge of $94 in 2002 related to the adoption of a new accounting principle for the recognition of vendor funds, partially offset by the reduction in earnings from continuing operations in 2003. Critical Accounting Policies The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The accompanying condensed consolidated financial statements are prepared using the same critical accounting policies discussed in the Company's 2002 Annual Report on Form 10-K. Vendor Funds The Company receives funds from many of the vendors whose products the Company buys for resale in its stores. These vendor funds are provided to increase the sell-through of the related products. The Company receives funds for a variety of merchandising activities: placement of the vendor's products in the Company's advertising; placement of the vendor's products in prominent locations in the Company's stores; introduction of new products into the Company's distribution system and retail stores; exclusivity rights in certain categories that have slower-turning products; and to compensate for temporary price reductions offered to customers on products held for sale at retail stores. The Company also receives vendor funds for buying activities, such as volume commitment rebates and credits for purchasing products in advance of their need. The terms of vendor funds arrangements vary in length, from short term arrangements that are completed within a quarter, to long term arrangements that are expected to be completed within ten years. Accounting for vendor funds is discussed in EITF 02-16, in which the EITF reached consensus on two issues in November 2002 and provided transition rules on those issues in January 2003 and March 2003. As a result of this guidance, the Company adopted a new method for recognizing the vendor funds for merchandising activities. As of the beginning of 2002, the Company recognizes as a reduction of cost of sales vendor funds for merchandising activities when the related products are sold. Under the previous accounting method for merchandising vendor funds, these credits were recognized as a reduction to cost of sales when the merchandising activity was performed in accordance with the underlying agreements. In connection with the implementation of this new accounting method, the Company recorded a charge in 2002 of $94, net of tax benefit of $60. 18 The amount of vendor funds reducing the Company's inventory ("inventory offset") as of October 30, 2003 was $134, an increase of $3 from the end of the second quarter of 2003 and a decrease of $18 from the beginning of 2003. The vendor funds inventory offset as of October 31, 2002 was $143, an increase of $8 from the end of the second quarter of 2002 and a decrease of $15 from the beginning of 2002. The inventory offset was determined by estimating the average inventory turnover rates by product category for the Company's grocery, general merchandise and lobby departments (these departments received over three-quarters of the Company's vendor funds in 2002) and by average inventory turnover rates by department for the Company's remaining inventory. Recent Accounting Standards In July 2001 the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 became effective for the Company on January 31, 2003, and did not have a material effect on the Company's condensed consolidated financial statements for the 39 weeks ended October 30, 2003. In January 2003 the FASB issued Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The provisions of this interpretation became effective for the Company on January 31, 2003, and did not have a material effect on the Company's condensed consolidated financial statements for the 39 weeks ended October 30, 2003. In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires that certain financial instruments, which under previous guidance could be accounted for as equity, be classified as liabilities in statements of financial position. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and was effective for the Company in the 13 week period ended October 30, 2003. The adoption of SFAS No. 150 did not have a material effect on the Company's condensed consolidated financial statements for the 13 weeks ended October 30, 2003. In November 2003 the EITF confirmed as a consensus EITF Issue No. 03-10, "Application of EITF Issue No. 02-16, 'Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,' by Resellers to Sales Incentives Offered to Consumers by Manufacturers" ("EITF 03-10"). EITF 03-10 will not impact the Company's existing accounting and reporting policies for manufacturers' coupons that can be presented at any retailer that accepts coupons. For arrangements with vendors that are entered into or modified after the start of fiscal year 2004, we will record the vendor reimbursement as a reduction of cost of sales (instead of sales) if the coupon can only be redeemed at a Company retail store. This modification to our accounting and reporting policies will only impact sales and cost of sales beginning in the Company's first quarter of 2004. Liquidity and Capital Resources Cash provided by operating activities during the 39 weeks ended October 30, 2003 was $1,060 compared to $1,725 for the same period in the prior year. The decrease in 2003, as compared to 2002, was due primarily to a decrease in earnings from continuing operations; an increase in inventories due to increased store count and increased safety stock attributable to the Labor Dispute; and a decrease in accounts payable due to timing of disbursements. Cash flow used by investing activities during the 39 weeks ended October 30, 2003 increased to $746 compared to $477 in 2002. This increase was a result of 2002 investing activities that included proceeds from the sale of assets (associated with the 2001 restructuring activities and the 2002 market exits) that were $409 greater than asset sale proceeds received in 2003, partially offset by lower capital expenditures in 2003. The Company is continuing to implement its 2003 capital expenditure plan, which includes outlays for new stores, store remodels and information technology. The Company utilizes its commercial paper and bank line programs primarily to supplement cash required for seasonal fluctuations in working capital and to fund its capital expenditure program. Accordingly, commercial paper and bank line borrowings may fluctuate between reporting periods. The Company had no commercial paper borrowings outstanding at October 30, 2003 and January 30, 2003. The Company has three credit facilities totaling $1,400. These agreements contain certain covenants, the most restrictive of which requires the Company to maintain consolidated tangible net worth, as defined, of at least $3,000 and a fixed charge coverage, as defined, of no less than 2.7 times. As of October 30, 2003, the Company was in compliance with these requirements. No borrowings were outstanding under these credit facilities as of October 30, 2003. The Company filed a shelf registration statement with the Securities and Exchange Commission, which became effective in February 2001 (the "2001 Registration Statement"), to authorize the issuance of up to $3,000 in debt securities. The Company intends to use the net proceeds of any securities sold pursuant to the 2001 Registration Statement for retirement of debt and general 19 corporate purposes, including the potential purchase of outstanding shares of Albertsons common stock. As of October 30, 2003, up to $2,400 of debt securities remain available for issuance under the Company's 2001 Registration Statement. The Company's Board of Directors extended the Company's stock buyback program on December 9, 2002, authorizing, at management's discretion, the Company to purchase and retire up to $500 of the Company's common stock beginning January 1, 2003 and ending December 31, 2003. In the first quarter of 2003, the Company repurchased 5.3 million shares of its common stock for a total expenditure of $108 at an average price of $20.26 per share. During the first three quarters of 2002, 20.9 million shares were purchased and retired under the buyback program for a total expenditure of $547 at an average price of $26.18 per share. Since the first quarter of 2003 the Company has not repurchased any shares of its common stock. Contractual Obligations and Commercial Commitments The Company had outstanding letters of credit of $91 as of October 30, 2003, consisting of $76 of standby letters of credit covering primarily workers' compensation or performance obligations and $15 of commercial letters of credit supporting the Company's merchandise import program. Except as disclosed under "Contingent Lease Obligations" in Note E to the unaudited condensed consolidated financial statements included elsewhere in this report, there have been no other material changes regarding the Company's contractual obligations and commercial commitments from the information provided in Note Y "Contractual Obligations and Commitments" in the Company's 2002 Annual Report on Form 10-K. Off-Balance Sheet Arrangements The Company had no significant off-balance sheet arrangements (including equity method investments) as of October 30, 2003. Investments that are accounted for under the equity method have no liabilities associated with them that are material to the Company. Related Party Transactions There were no material related party transactions during the 39 week period ended October 30, 2003. Item 3. 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" in the Company's 2002 Annual Report on Form 10-K. Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e) as of October 30, 2003. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms. In October 2003, the Company implemented a new general ledger system, which included new hardware and software. This is the first phase of a multi-year effort to improve the Company's financial systems. This implementation has resulted in certain changes to business processes and internal controls impacting financial reporting. Management is taking the necessary steps to monitor and maintain appropriate internal controls during this period of change. These steps include deploying resources to mitigate internal control risks, processing the new system parallel with the legacy system for five months and performing multiple levels of reconciliations. Other than as described above, there were no changes in the Company's internal control over financial reporting that occurred during the Company's most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private Securities Litigation Reform Act of 1995 All statements other than statements of historical fact contained in this and other documents disseminated by the Company, including statements regarding the Company's expected financial performance, are forward-looking information as defined in the Private Securities Litigation Reform Act of 1995. In reviewing such information about the future performance of the Company, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information since predictions regarding future results of operations and other future events are subject to inherent uncertainties. These statements may relate to, among other things: non-GAAP financial measures included in this filing; statements of expectation regarding the third quarter 2003 results had the Labor Dispute in Southern California not occurred; investing to increase sales; changes in cash flow; increases in insurance and employee benefit costs; attainment of cost reduction goals; impacts of the Southern California Labor Dispute; achieving sales increases and 20 increases in comparable and identical sales; opening and remodeling stores; and the Company's five strategic imperatives. These statements are indicated by words or phrases such as "expects," "plans," "believes," "estimate," and "goal." In reviewing such information about the future performance of the Company, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking information. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking information include changes in consumer spending; actions taken by new or existing competitors (including nontraditional competitors), particularly those intended to improve their market share (such as pricing and promotional activities); labor negotiations, particularly the result of negotiations related to the current Labor Dispute in Southern California; adverse determinations with respect to litigation or other claims (including environmental matters); employee benefit costs; the Company's ability to recruit, retain and develop employees; the Company's ability to develop new stores or complete remodels as rapidly as planned; the Company's ability to implement new technology successfully; stability of product costs; the Company's ability to integrate the operations of acquired or merged companies; the Company's ability to execute its restructuring plans; the Company's ability to achieve its five strategic imperatives; and other factors affecting the Company's business in or beyond the Company's control. These other factors include changes in the rate of inflation; changes in state or federal legislation or regulation; the cost and stability of energy sources; changes in the general economy; and changes in interest rates. Other factors and assumptions not identified above could also cause the actual results to differ materially from those projected or suggested in the forward-looking information. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in predictions, assumptions, estimates or changes in other factors affecting such forward-looking information. Item 1. Legal Proceedings The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In March 2000 a class action complaint was filed against Albertsons as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Gardner, et al. v. Albertson's, Inc., et al.) by bonus-eligible managers seeking recovery of additional bonus compensation based upon plaintiffs' allegation that the calculation of profits on which their bonuses were based improperly included expenses for workers' compensation costs, cash shortages, premises liability and "shrink" losses in violation of California law. In October 2001 the court granted summary judgment against Sav-on Drug Stores, finding one of its bonus plans unlawful under plaintiffs' liability theory. In August 2001 a class action complaint with very similar claims, also involving bonus-eligible managers, was filed against Albertsons as well as Lucky Stores, Inc. and American Stores Company, wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Petersen, et al. v. Lucky Stores, Inc., et al.). In June 2002 the cases were consolidated and in August 2002 a class action with respect to the consolidated case was certified by the court. The Company has strong defenses against this lawsuit and is vigorously defending it. Although this lawsuit is subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of this action will have a material adverse effect on the Company's financial condition, results of operations or cash flows. In April 2000 a class action complaint was filed against Albertsons as well as American Stores Company, American Drug Stores, Inc., Sav-on Drug Stores, Inc. and Lucky Stores, Inc., wholly-owned subsidiaries of the Company, in the Superior Court for the County of Los Angeles, California (Gardner, et al. v. American Stores Company, et al.) by assistant managers seeking recovery of overtime pay based upon plaintiffs' allegation that they were improperly classified as exempt under California law. In May 2001 a class action with respect to Sav-on Drug Stores assistant managers was certified by the court. A case with very similar claims, involving the Sav-on Drug Stores assistant managers and operating managers, was also filed in April 2000 against the Company's subsidiary Sav-on Drug Stores, Inc. in the Superior Court for the County of Los Angeles, California (Rocher, Dahlin, et al. v. Sav-on Drug Stores, Inc.) and was also certified as a class action. In April 2002 the Court of Appeal of the State of California Second Appellate District reversed the Rocher class certification, leaving only two plaintiffs. The California Supreme Court has accepted plaintiffs' request for review of this class decertification. The Gardner case is on hold pending the review of the Rocher class decertification issue by the California Supreme Court. The Company has strong defenses against these lawsuits and is vigorously defending them. Although these lawsuits are subject to the uncertainties inherent in the litigation process, based on the information presently available to the Company, management does not expect that the ultimate resolution of these lawsuits will have a material adverse effect on the Company's financial condition, results of operations or cash flows. An agreement was reached, and court approval granted, to settle eight purported class and/or collective actions which were consolidated in the United States District Court in Boise, Idaho, and which raised various issues including "off-the-clock" work allegations and allegations regarding certain salaried grocery managers' exempt status. Under the settlement agreement, current and former employees who met eligibility criteria have been allowed to present their off-the-clock work claims to a settlement administrator. Additionally, current and former grocery managers employed in the State of California have been 21 allowed to present their exempt status claims to a settlement administrator. The Company mailed notices of the settlement and claims forms to approximately 80,000 associates and former associates. Approximately 6,000 claim forms were returned, of which approximately 5,000 were deemed by the settlement administrator to be incapable of valuation, presumed untimely, or both. The claims administrator was able to assign a value to approximately 1,000 claims, which amount to a total of approximately $14, although the value of many of those claims is still subject to challenge by the Company. A second claim process was ordered by the court, but the parties are still waiting for final instructions from the Court. The Company is presently unable to determine the number of individuals who may ultimately submit valid claims or the amounts that it may ultimately be required to pay with respect to such claims. Based on the information presently available to it, management does not expect that the satisfaction of valid claims submitted pursuant to the settlement will have a material adverse effect on the Company's financial condition, results of operations or cash flows. On November 1, 2001, the Environmental Protection Agency ("EPA") notified Jewel Food Stores, an indirect wholly-owned subsidiary of the Company, of alleged violations of the Clean Air Act. No notice of violation was issued, but the Company and the EPA entered into discussions that are expected to result in a consent decree establishing technical protocols for the refrigerant management program; setting a penalty of $0.1; and requiring the installation of and changes to a non-ozone depleting refrigerant. The Company is also involved in routine legal proceedings incidental to its operations. Management does not expect that the ultimate resolution of these legal proceedings will have a material adverse effect on the Company's financial condition, results of operations or cash flows. The statements above reflect management's current expectations based on the information presently available to the Company. However, predicting the outcomes of claims and litigation and estimating related costs and exposures involve substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. In addition, the Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures. It is possible that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company's financial condition, results of operations or cash flows. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K a. Exhibits 10.47 Form of Director Indemnification Agreement* 15 Letter re: Unaudited Interim Financial Statements 31.1 Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -------------- * Management contract required to be filed as an exhibit hereto. 22 b. The following reports on Form 8-K were filed or furnished during the quarter ended October 30, 2003. Current report on Form 8-K dated September 26, 2003 filed pursuant to Item 5, Other Events, regarding amendments to the Company's stockholder rights plan. Current report on Form 8-K dated September 4, 2003 furnished pursuant to Item 12, Results of Operations and Financial Condition, including the Company's press release which discussed the Company's sales and earnings for the second quarter of 2003. 23 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 8, 2003 /S/ Felicia D. Thornton ----------------------------------------------------- Felicia D. Thornton Executive Vice President and Chief Financial Officer 24 EX-10 3 abs10q32003exhibit10-47.txt FORM OF DIRECTOR INDEMNIFICATION AGREEMENT EXHIBIT 10.47 FORM OF DIRECTOR INDEMNIFICATION AGREEMENT THIS DIRECTOR INDEMNIFICATION AGREEMENT, dated as of __________ (this "Agreement"), is made by and between Albertson's, Inc., a Delaware corporation (the "Company"), and ____________ ("Indemnitee"). RECITALS A. It is important to the Company to attract and retain as directors the most capable persons reasonably available. B. Indemnitee is a director of the Company. C. Both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors of companies in today's environment. D. The Company's Restated Certificate of Incorporation and By-laws (the "Constituent Documents") provide that the Company will indemnify its directors and the Company's By-laws provide that the Company will advance expenses in connection therewith, and Indemnitee's willingness to serve as a director of the Company is based in part on Indemnitee's reliance on such provisions. E. In recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, and Indemnitee's reliance on the aforesaid provisions of the Constituent Documents, and to provide Indemnitee with express contractual indemnification (regardless of, among other things, any amendment to or revocation of such provisions or any change in the composition of the Company's Board of Directors (the "Board") or any acquisition or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancement of Expenses (as defined in Section 1(c)) to Indemnitee as set forth in this Agreement and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies. NOW, THEREFORE, the parties hereby agree as follows: 1. Certain Definitions. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters: (a) "Affiliate" has the meaning given to that term in Rule 405 under the Securities Act of 1933, provided, however, that for purposes of this Agreement the Company and its subsidiaries will not be deemed to constitute Affiliates of Indemnitee or the Indemnitee. (b) "Claim" means any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted, made or conducted by the Company or any other party, including without limitation any governmental entity, that Indemnitee determines might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative or other. (c) "Expenses" includes attorneys' and experts' fees, expenses and charges and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any Claim. (d) "Indemnifiable Losses" means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties and amounts paid in settlement (including without limitation all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing) (collectively, "Losses") relating to, resulting from or arising out of any act or failure to act by the Indemnitee, or his or her status as any person referred to in clause (i) of this sentence, (i) in his or her capacity as a director, officer, employee or agent of the Company, any of its Affiliates or any other entity as to which the indemnitee is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent of another corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit and (ii) in respect of any business, transaction or other activity of any entity referred to in clause (i) of this sentence. 2. Basic Indemnification Arrangement. The Company will indemnify and hold harmless Indemnitee, to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against all Indemnifiable Losses relating to, resulting from or arising out of any Claim. The failure by Indemnitee to notify the Company of such Claim will not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of the Claim and such failure results in forfeiture by the Company of substantial defenses, rights or insurance coverage. Except as provided in Section 17, however, Indemnitee will not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim. If so requested by Indemnitee, the Company will advance within two business days of such request any and all Expenses to Indemnitee which Indemnitee determines reasonably likely to be payable, provided, however, that Indemnitee will return, without interest, any such advance which remains unspent at the final conclusion of the Claim to which the advance related. 3. Indemnification for Additional Expenses. Without limiting the generality or effect of the foregoing, the Company will indemnify Indemnitee against and, if requested by Indemnitee, will within two business days of such request advance to Indemnitee, any and all attorneys' fees and other Expenses paid or incurred by Indemnitee in connection with any Claim asserted or brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under any provision of the Company's Constituent Documents now or hereafter in effect relating to Claims for Indemnifiable Losses and/or (ii) recovery under any directors' and officers' - 2 - liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 4. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss but not for all of the total amount thereof, the Company will nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Loss or in defense of any issue or matter therein, including without limitation dismissal without prejudice, Indemnitee will be indemnified against all Expenses incurred in connection therewith. In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, there will be a presumption that Indemnitee is so entitled, which presumption the Company may overcome only by its adducing clear and convincing evidence to the contrary. 5. No Other Presumption. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 6. Non-Exclusivity, Etc. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the Company's jurisdiction of incorporation, any other contract or otherwise (collectively, "Other Indemnity Provisions"); provided, however, that (i) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (ii) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The Company will not adopt any amendment to any of the Constituent Documents the effect of which would be to deny, diminish or encumber Indemnitee's right to indemnification under this Agreement or any Other Indemnity Provision. 7. Liability Insurance and Funding. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee will be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director of the Company. The Company may, but will not be required to, create a trust fund, grant a security interest or use other means, including without limitation a letter of credit, to ensure the payment of such amounts as may be necessary to satisfy its obligations to indemnify and advance expenses pursuant to this Agreement. 8. Subrogation. In the event of payment under this Agreement, the Company will be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities (other than Indemnitee's successors). The Indemnitee will execute all papers reasonably required to evidence such rights of recovery (all of Indemnitee's reasonable Expenses, including attorneys' fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company). - 3 - 9. No Duplication of Payments. The Company will not be liable under this Agreement to make any payment in connection with any Indemnifiable Loss made against Indemnitee to the extent Indemnitee has otherwise actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise of the amounts otherwise indemnifiable hereunder. 10. Defense of Claims. The Company will be entitled to participate in the defense of any Claim or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee, provided that in the event that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (ii) the named parties in any such Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may be one or more legal defenses available to him or her that are different from or in addition to those available to the Company, or (iii) any such representation by the Company would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee will be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Claim) at the Company's expense. The Company will not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Claim which the Indemnitee is or could have been a party unless such settlement solely involves the payment of money and includes an unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Claim. 11. Successors and Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the "Company" for purposes of this Agreement), but will not otherwise be assignable or delegatable by the Company. (b) This Agreement will inure to the benefit of and be enforceable by the Indemnitee's personal or legal representatives, executors, administrators, successors, heirs, distributees, legatees and other successors. (c) This Agreement is personal in nature and neither of the parties hereto will, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 11(a) and 11(b). Without limiting the generality or effect of the foregoing, Indemnitee's right to receive payments hereunder will not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitee's will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 11(c), the Company will have no liability to pay any amount so attempted to be assigned or transferred. - 4 - 12. Notices. For all purposes of this Agreement, all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid or one business day after having been sent for next-day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the Secretary of the Company) and to the Indemnitee at the addresses shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt. 13. Governing Law. The validity, interpretation, construction and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Delaware, without giving effect to the principles of conflict of laws of such State. Each party consents to non-exclusive jurisdiction of any Delaware state or federal court or any court in any other jurisdiction in which a Claim is commenced by a third person for purposes of any action, suit or proceeding hereunder, waives any objection to venue therein or any defense based on forum non conveniens or similar theories and agrees that service of process may be effected in any such action, suit or proceeding by notice given in accordance with Section 12. 14. Validity. If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstance will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent, and only to the extent, necessary to make it enforceable, valid or legal. 15. Miscellaneous. No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. References to Sections are to references to Sections of this Agreement. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together will constitute one and the same agreement. 17. Legal Fees and Expenses. It is the intent of the Company that the Indemnitee not be required to incur legal fees and or other Expenses associated with the interpretation, enforcement or defense of Indemnitee's rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. Accordingly, without limiting the generality or effect of - 5 - any other provision hereof, if it should appear to the Indemnitee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of Indemnitee's choice, at the expense of the Company as hereafter provided, to advise and represent the Indemnitee in connection with any such interpretation, enforcement or defense, including without limitation the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, stockholder or other person affiliated with the Company, in any jurisdiction. Notwithstanding any existing or prior attorney-client relationship between the Company and such counsel, the Company irrevocably consents to the Indemnitee's entering into an attorney-client relationship with such counsel, and in that connection the Company and the Indemnitee agree that a confidential relationship shall exist between the Indemnitee and such counsel. Without respect to whether the Indemnitee prevails, in whole or in part, in connection with any of the foregoing, the Company will pay and be solely financially responsible for any and all attorneys' and related fees and expenses incurred by the Indemnitee in connection with any of the foregoing. 18. Certain Interpretive Matters. No provision of this Agreement will be interpreted in favor of, or against, either of the parties hereto by reason of the extent to which any such party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft hereof or thereof. [Signatures appear on following page.] - 6 - IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written. ALBERTSON'S, INC. 250 Parkcenter Boulevard Boise, Idaho 83706 By: ________________________ Name: Title: [INDEMNITEE] [Address] By: ________________________ [Indemnitee] EX-15 4 abs10q32003exhibit15.txt DELOITTE & TOUCHE LETTER EXHIBIT 15 December 8, 2003 Albertson's, Inc. Boise, Idaho We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Albertson's, Inc. and subsidiaries for the thirteen and thirty-nine week periods ended October 30, 2003 and October 31, 2002, as indicated in our report dated December 4, 2003; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the thirteen and thirty-nine week periods ended October 30, 2003, is incorporated by reference in Registration Statement No. 33-54998 on Form S-3 and Registration Statement Nos. 2-80776, 33-2139, 33-7901, 33-15062, 33-43635, 33-62799, 33-59803, 333-82157, 333-82161, 333-87773 and 333-73194 on Form S-8. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /S/DELOITTE & TOUCHE LLP Boise, Idaho EX-31 5 abs10q32003exhibit31-1.txt CERTIFICATION BY LAWRENCE R. JOHNSTON EXHIBIT 31.1 CERTIFICATIONS I, Lawrence R. Johnston, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Albertson's, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 8, 2003 /S/ Lawrence R. Johnston ---------------------------------------------- Lawrence R. Johnston Chairman of the Board and Chief Executive Officer EX-31 6 abs10q32003exhibit31-2.txt CERTIFICATION BY FELICIA D. THORNTON EXHIBIT 31.2 I, Felicia D. Thornton, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Albertson's, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 8, 2003 /S/ Felicia D. Thornton ---------------------------------------------- Felicia D. Thornton Executive Vice President and Chief Financial Officer EX-32 7 abs10q32003exhibit32.txt CERTIFICATION BY L R JOHNSTON AND F D THORNTON EXHIBIT 32 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Albertson's, Inc. (the "Company") for the period ended October 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Lawrence R. Johnston and Felicia D. Thornton, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. December 8, 2003 \S\ Lawrence R. Johnston - ----------------------------------------- Lawrence R. Johnston Chief Executive Officer \S\ Felicia D. Thornton - ----------------------------------------- Felicia D. Thornton Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----