Item 1. Business
The Registrant, Albertson's, Inc. ("Albertson's" or the "Company"), is incorporated under the laws of the State of Delaware and is the successor to a business founded by J. A. Albertson in 1939.
On August 2, 1998, Albertson's and American Stores Company ("ASC") entered into a definitive merger agreement whereby Albertson's would acquire ASC by exchanging 0.63 share of Albertson's common stock for each share of outstanding ASC common stock, with cash being paid in lieu of fractional shares (the "Merger") and ASC would become a wholly owned subsidiary of Albertson's. The Merger was approved by the stockholders of Albertson's and ASC on November 12, 1998.
The Merger was consummated on June 23, 1999, with the issuance of approximately 177 million shares of Albertson's common stock. The Merger constituted a tax-free reorganization and has been accounted for as a pooling of interests for accounting and financial reporting purposes. The pooling of interests method of accounting is intended to present as a single interest, two or more common stockholders' interests that were previously independent; accordingly, the consolidated financial statements of Albertson's restate the historical financial statements as though the companies had always been combined. The restated consolidated financial statements are adjusted to conform accounting policies and financial statement presentations.
In connection with the Merger, the Company entered into agreements with the Attorneys General of California, Nevada and New Mexico and the Federal Trade Commission to enable the Merger to proceed under applicable antitrust, competition and trade regulation law. The agreements required the Company to divest a total of 117 stores in California, 19 stores in Nevada and 9 stores in New Mexico. Of the stores required to be divested, 40 were ASC locations operated primarily under the Lucky name, and 105 were Albertson's stores operated primarily under the Albertson's name. In addition, the Company divested four supermarket real estate sites as required by the agreements. The Company divested 144 of the required 145 stores as of February 3, 2000.
The Company is one of the largest retail food-drug chains in the United States. As of February 3, 2000, the Company operated 2,492 stores in 37 Northeastern, Western, Midwestern and Southern states. These stores consist of 1,326 combination food-drug stores, 802 stand-alone drug stores, 335 conventional supermarkets, 28 warehouse stores and one e-commerce retail site. Retail operations are supported by 21 major Company distribution centers. The Company's distribution centers provide product exclusively to the Company's retail stores.
The Company's combination food-drug stores are super grocery/super drugstores under one roof and range in size from 35,000 to 82,000 square feet. Most of these stores offer prescription drugs and an expanded section of cosmetics and general merchandise in addition to specialty departments such as service seafood and meat, bakery, lobby/video, service delicatessen, liquor and floral. Many also offer meal centers, party supply centers, coffee bars, in-store banks, photo processing and, destination categories for beverages, snacks, pet care products, paper products and baby care merchandise. All shopping areas are served by a common set of checkstands.
The Company's stand-alone drugstores are free-standing store sites that average 18,300 square feet. These stores offer convenient shopping and prescription pickup as well as a wide assortment of general merchandise, health and beauty care, over-the-counter medication, greeting cards and photo processing. The Company's new drugstores are typically located on corners and many offer a drive-thru pharmacy.
The Company's conventional supermarkets range in size from 8,000 to 35,000 square feet. These stores offer a full selection in the basic departments of grocery, meat, produce, dairy and limited general merchandise. Many locations have a pharmacy, in-store bakery and service delicatessen.
The Company's warehouse stores are operated primarily under the names "Max Food and Drug" and "Super Saver." These no-frills stores range in size from 17,000 to 73,000 square feet and offer significant savings with special emphasis on discounted meat and produce.
The Company's e-commerce retail site located in Bellevue, Washington, is the Company's first location which combines a gourmet store (17,000 square feet) with a fulfillment center (14,000 square feet). Employees fill online orders, which can then be delivered to, or picked up by, the customer. Albertsons.com accepts on-line orders to be filled either by the Bellevue site or through the fulfillment center in Fort Worth, Texas.
Sav-ondrugs.com, was piloted in October 1999, for online orders from customers in the Las Vegas, Nevada and Kansas City, Missouri areas. It offers a full range of basic sundry items, prescription refills and consumer health information.
All of the Company's stores carry a broad range of national brands and offer private label brand products in many merchandise categories. The Company's stores provide consumer information such as: nutritional signing in the meat and produce departments, freshness code dating, unit pricing, meal ideas and food information pamphlets. The Company also offers a choice of recyclable paper or plastic bags and collection bins for plastic bag recycling.
As of February 3, 2000, the Company operated 76 fuel centers, in six states, which are located near existing stores. These centers feature three to six fuel pumps and a small building, ranging in size from a pay-only kiosk to a small convenience store, featuring such items as candy, soft drinks and snack foods.
The Company's operations are within a single operating segment, the retail sale of food and drug merchandise. The Company's stores operate primarily under the names of Albertson's, Acme Markets, Jewel Food Stores, Seessel's, Super Saver, Max, Osco Drug and Sav-On.
The Company's business is highly competitive. Competition is based primarily on price, product quality and variety, service and location. There is direct competition from many local, regional and national supermarket chains, supercenters, club stores, specialty retailers such as pet centers and toy stores and large-scale drug and pharmaceutical retailers. Increasing competition also exists from convenience stores, prepared food retailers, liquor and video stores, film developing outlets and Internet and mail-order retailers.
The Company is subject to effects of seasonality. Sales are higher in the Company's fourth quarter than other quarters due to the holiday season and the increase in cold and flu occurrences.
The Company has been able to efficiently supply its stores with merchandise through its distribution centers, outside suppliers or directly from manufacturers in an effort to obtain merchandise at the lowest possible cost. The Company believes that it is not dependent on any one supplier, and considers its relations with its suppliers to be satisfactory. The Company services all of its retail stores from Company distribution centers.
As of February 3, 2000, the Company employed approximately 235,000 people, many of whom are covered by collective bargaining agreements. The Company considers its present relations with employees to be good.
Item 2.
Item 2. Properties
The Company has actively pursued an expansion program of adding new retail stores, enlarging and remodeling existing stores and replacing smaller stores. During the past ten years, the Company has built or acquired 1,247 stores and approximately 89% of the Company's current retail square footage has been opened or remodeled during this period. The Company continues to follow the policy of closing stores that are obsolete or lack satisfactory profit potential.
Albertson's stores are located in 37 Northeastern, Western, Midwestern and Southern areas of the United States. The table on the following page is a summary of the stores by state and classification as of February 3, 2000:
The Company has expanded and improved its distribution facilities when opportunities exist to improve service to the retail stores and generate an adequate return on investment. During 1999 approximately 75% of the merchandise purchased for resale in Company retail stores was received from Company distribution centers.
Albertson's distribution system consists of 21 major Company centers located strategically throughout the Company's operating markets. The table on the following page is a summary of the Company's distribution facilities as of February 3, 2000:
The Company currently finances most retail store and distribution facilities internally, thus retaining ownership of most of its land and buildings. The Company's future expansion plans are expected to be financed primarily from cash provided by operating activities. The Company has and will continue to finance a portion of its new stores through lease transactions when it does not have the opportunity to own the property.
As of February 3, 2000, the Company held title to the land and buildings of 39% of the Company's stores and held title to the buildings on leased land of an additional 7% of the Company's stores. The Company also holds title to the land and buildings of most of its administrative offices and distribution facilities.
Item 3.
Item 3. Legal Proceedings
The information required under this item is included under the caption "Legal Proceedings" on page 50 of the Company's 1999 Annual Report to Stockholders. This information is incorporated herein by this reference thereto.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of fiscal 1999 to a vote of security holders through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The principal markets in which the Company's common stock is traded and the related security holder matters are set forth under the caption "Company Stock Information" on page 60 of the Company's 1999 Annual Report to Stockholders. This information is incorporated herein by this reference thereto. The market value of the Company's common stock at the close of trading on March 24, 2000, was $28.6875 per share. There were approximately 32,000 stockholders of record on March 24, 2000.
Item 6.
Item 6. Selected Financial Data
Selected financial data of the Company for the fiscal years 1995 through 1999 is included under the caption "Five-Year Summary of Selected Financial Data" on page 54 of the Company's 1999 Annual Report to Stockholders. This information is incorporated herein by this reference thereto.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required under this item is included on pages 21 to 28 of the Company's 1999 Annual Report to Stockholders. This information is incorporated herein by this reference thereto.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The information required under this item is included under the caption "Quantitative and Qualitative Disclosures about Market Risk" on page 27 of the Company's 1999 Annual Report to Stockholders. This information is incorporated herein by this reference thereto.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements and related notes thereto, together with the Independent Auditors' Reports and selected quarterly financial data of the Company are presented on pages 29 to 53 and page 55 of the Company's 1999 Annual Report to Stockholders and are incorporated herein by this reference thereto.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Directors
The information regarding directors and nominees for directors of the Company is presented under the heading "Election of Directors" in the Company's definitive proxy statement for use in connection with the 2000 Annual Meeting of Stockholders (the "Proxy Statement") to be filed within 120 days after the Company's fiscal year ended February 3, 2000, and is incorporated herein by this reference thereto.
Gary G. Michael has served as Chairman of the Board and Chief Executive Officer since 1991.
Peter L. Lynch became President and Chief Operating Officer on March 21, 2000. Previously he served as Executive Vice President, Operations from June 23, 1999; Executive Vice President and General Manager of the Acme Division of American Stores Company from 1998; Senior Vice President, Store Operations of the Jewel-Osco Division of American Stores Company from December 1995; Vice President, Delta of American Stores Company from April 1995; and Senior Vice President and General Manager of Star Market from 1994.
Michael F. Reuling became Vice Chairman of the Company on June 23, 1999. Previously he served as Executive Vice President, Development from January 1999 and as Executive Vice President, Store Development since 1986.
Thomas E. Brother was promoted to Executive Vice President, Distribution on January 29, 1999. Previously he served as Senior Vice President, Distribution from 1991.
Robert C. Butler was promoted to Executive Vice President, Operations on March 21, 2000. Previously he served as Senior Vice President, Merchandising from June 23, 1999; Vice President, Southern California Division from 1996; and Vice President, Rocky Mountain Division from 1994.
Romeo R. Cefalo was promoted to Executive Vice President, Operations on March 21, 2000. Previously he served as President, Southern California Region from June 23, 1999; Executive Vice President and General Manager of the Lucky South Division of American Stores Company from 1997; Senior Vice President and General Manager of the same division from 1995; and Senior Vice President, Operations of the Acme Division of American Stores Company from 1992.
Wayne A. Denningham was promoted to Executive Vice President, Merchandising on March 21, 2000. Previously he served as President, Intermountain Region from June 23, 1999; Vice President, Florida Division from 1998; Vice President, Rocky Mountain Division from 1997; Division Manager of the same division from 1996; and District Sales Manager of the Southwest Division from 1993.
Craig R. Herkert was promoted to Executive Vice President, Marketing on March 21, 2000. Previously he served as President of the Eastern Region from June 23, 1999; Senior Vice President of the Acme Division of American Stores Company in a portion of 1998; Senior Vice President Fresh Food/Procurement of American Stores Company in a portion of 1998; Vice President, Grocery Procurement of American Stores Procurement and Logistics Group from 1996; Vice President, Meat and Farmstand Merchandising of the Jewel Food Stores Division of American Stores Company from 1995; and Merchandise Manager, Frozen and Refrigerated Foods of the same division from 1994.
A. Craig Olson was promoted to Executive Vice President and Chief Financial Officer on January 29, 1999. Previously he served as Senior Vice President, Finance and Chief Financial Officer from 1991.
Carl W. Pennington was promoted to Executive Vice President, Marketing on January 29, 1999. Previously he served as Executive Vice President, Corporate Merchandising from 1996; and Senior Vice President, Corporate Merchandising from 1994.
Thomas R. Saldin was promoted to Executive Vice President and General Counsel on January 29, 1999. Previously he served as Executive Vice President, Administration and General Counsel from 1991.
Patrick S. Steele was promoted to Executive Vice President, Information Systems and Technology on January 29, 1999. Previously he served as Senior Vice President, Information Systems and Technology from 1993.
Steven D. Young was promoted to Executive Vice President, Human Resources on January 29, 1999. Previously he served as Senior Vice President, Human Resources from 1993.
Richard J. Navarro was promoted to Senior Vice President and Controller on January 29, 1999. Previously he served as Group Vice President and Controller from 1993.
Item 11.
Item 11. Executive Compensation
Information concerning executive compensation is presented under the headings "Summary Compensation Table," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," and "Retirement Benefits" in the Proxy Statement. This information is incorporated herein by this reference thereto.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership of certain beneficial owners and management is set forth under the heading "Voting Securities and Principal Holders Thereof" in the Proxy Statement. This information is incorporated herein by this reference thereto.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information concerning related transactions is presented under the heading "Certain Transactions" in the Proxy Statement. This information is incorporated herein by this reference thereto.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1 Financial Statements:
The Independent Auditors' Reports, together with the Consolidated Financial Statements and the related notes thereto, are listed below and are incorporated herein by this reference thereto from pages 29 to 53 of the Company's Annual Report to Stockholders for the year ended February 3, 2000:
Consolidated Earnings -- years ended February 3, 2000; January 28, 1999; January 29, 1998.
Consolidated Balance Sheets -- February 3, 2000; January 28, 1999.
Consolidated Cash Flows -- years ended February 3, 2000; January 28, 1999; January 29, 1998.
Consolidated Stockholders' Equity -- years ended February 3, 2000; January 28, 1999; January 29, 1998.
Notes to Consolidated Financial Statements.
Independent Auditors' Reports.
Quarterly Financial Data:
Quarterly Financial Data for the years ended February 3, 2000, and January 28, 1999, is set forth on page 55 of the Annual Report to Stockholders for the year ended February 3, 2000, and is incorporated herein by this reference thereto.
(a)2 Schedules:
All schedules are omitted because they are not required or because the required information is included in the consolidated financial statements or notes thereto.
(a)3 Exhibits:
A list of the exhibits required to be filed as part of this report is set forth in the Index to Exhibits on page 16 hereof.
(b) The following reports on Form 8-K were filed:
There were no reports on Form 8-K filed during the fourteen week quarter ended February 3, 2000.
For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the Company hereby undertakes as follows, which undertaking shall be incorporated by reference into the Company's Registration Statements on Form S-8 Nos. 2-80776, 33-2139, 33-7901, 33-15062, 33-43635, 33-62799, 33-59803, 333-82157, 333-82161 and 333-87773.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the Act) may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Albertson's, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ALBERTSON'S, INC.
By /s/ GARY G. MICHAEL ------------------------- Gary G. Michael (Chairman of the Board and Chief Executive Officer)
Date: April 25, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of April 25, 2000.
Index to Exhibits Filed with the Annual Report on Form 10-K for the Year Ended February 3, 2000