Item 1 Business - (Continued)
The combination stores and many of the supermarkets include departments such as delicatessens, bakeries, seafood departments and pharmacies. The Company's private label programs include such brands as "Lucky" at Lucky stores, "Lancaster" meats and "Acme" groceries at Acme stores, "Jewel" and "President's Choice" at Jewel stores and "Osco" and "Sav-on" at Osco and Sav-on stores, respectively. "American Premier" is used as the Company's premium brand while "Value Wise" is the budget brand in all stores.
COMPETITION The Company's business is highly competitive, with competition from local and national supermarket and drug store chains, as well as independent stores. Competition also includes such retailers as convenience stores, warehouse stores and membership or club stores. Some of the Company's largest competitors in various regions are Dominicks, Long's, Pathmark, Vons, Ralphs, Safeway, Rite Aid and Walgreens. Principal competitive factors in the industry are store location, price and quality of products, variety of selection, quality of service and store image, including cleanliness and promotions.
The Company's business is characterized by narrow profit margins and, accordingly, its successful financial performance depends primarily on its ability to maintain relatively high sales volume and control operating costs. The Company's geographic diversity allows it to reduce the risk that competitive pressures in individual markets may have on its overall operating results. The Company's stores collectively operate in 9 of the 25 largest U.S. metropolitan areas and hold a leading market position (generally first or second in overall market share) in each. These market areas include: Los Angeles-Long Beach (where the Company is third in overall market share), Chicago, Philadelphia, Boston, Riverside-San Bernardino, San Diego, Orange County, Phoenix and Oakland.
SEASONALITY 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.
EMPLOYEES At year-end 1997, the Company had approximately 121,000 full and part- time employees. Approximately 74% of the Company's employees are covered by collective bargaining agreements negotiated with local unions affiliated with one of seven different international unions. There are approximately 118 such agreements, typically having three to five-year terms. Accordingly, the Company renegotiates a significant number of these agreements every year. The Company considers its relationships with its employees to be good.
PART I - (Continued)
Item 1 Business - (Continued)
INCORPORATION BY REFERENCE The section entitled "Fiscal Year" in the Notes to Consolidated Financial Statements on page 20, the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 14 and the section entitled "Environmental" on page 30 of the Annual Report are incorporated herein by reference.
Item 2
Item 2 Properties
The Company categorizes its retail stores into the following types: supermarkets, stand-alone drug stores and combination food/drug stores. At year-end 1997, the Company operated 543 supermarkets, 752 stand-alone drug stores and 262 combination stores.
Combination stores are stores with 40,000 or more square feet; they include a pharmacy department and have an expanded selection of food, drug and general merchandise. The supermarket category includes stores with service departments that do not meet the definition of a combination store.
At year-end 1997, square footage by type of store and store count was as follows:
Super- Stand-alone Combination (Square footage in thousands)markets Drug Food/Drug Total
Total square footage 18,097 13,948 15,618 47,663 Average square footage 33 19 60 31 Store count 543 752 262 1,557
The Company owns approximately 30% of its retail locations; the remaining retail locations are leased under capitalized or operating leases. At year-end 1997, owned property with a net book value of approximately $232.3 million was collateralized by loans secured by real estate of approximately $69.6 million. The Company currently finances new construction of owned stores through internally generated funds and borrowings under existing credit facilities.
Throughout the country, the Company leases and owns distribution centers, fleet maintenance shops and warehouses for merchandise such as dry grocery, produce, frozen foods and general merchandise. These facilities support the Company's retail outlets.
PART I - (Continued)
Item 2 Properties - (Continued)
The Company also owns or leases office space, owns land for future development and operates dairies, bakeries and other manufacturing or processing facilities that supply many of its retail outlets with a variety of private label merchandise. Manufacturing facilities operate at levels of production required to meet the demands of customers at the Company's retail locations.
At year-end 1997, the location and type of the Company's warehouse, distribution and maintenance facilities and their respective sizes were as follows:
The Company operated 9 manufacturing or processing facilities at year- end 1997 as follows:
Type of Facility Number of Plants and Locations
Bakery 3-Melrose Park, Illinois; San Leandro, California; Buena Park, California Dairy 4-Sacramento, California; San Leandro, California; Buena Park, California; Escondido, California Ice Cream 1-Buena Park, California Fixture Shop 1-Payson, Utah
See also Item 1, Business, for Additional Information on Properties of the Registrant.
PART I - (Continued)
Item 2 Properties - (Continued)
The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 10 through 14 of the Annual Report is incorporated herein by reference.
Item 3
Item 3 Legal Proceedings
The section entitled "Legal Proceedings" on page 30 of the Annual Report is incorporated herein by reference.
Item 4
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted to the security holders of the Company for a vote during the fourth quarter ended January 31, 1998.
PART II
Item 5
Item 5 Market for the Registrant's Common Equity and Related Shareholder Matters
The section entitled "Common Stock Market Prices and Dividends" on the bottom of page 1 of the Annual Report is incorporated herein by reference.
Item 6
Item 6 Selected Financial Data
The section entitled "Selected Financial Data" on page 9 of the Annual Report is incorporated herein by reference.
Item 7
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations
The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operation" on pages 10 through 14 of the Annual Report is incorporated herein by reference.
Item 7A
Item 7A Quantitative and Qualitative Disclosures About Market Risk
The section entitled "Quantitative and Qualitative Disclosures About Market Risk" on page 12 and 13 of the Annual Report is incorporated herein by reference.
Item 8
Item 8 Financial Statements and Supplementary Data
The Company's consolidated financial statements and related notes thereto, together with the Report of Independent Auditors and the selected quarterly financial data of the Company presented on pages 15 to 31 of the Annual Report, are incorporated herein by reference.
PART II - (Continued)
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
The information under the caption "Proposal 1-Election of Directors: Information Regarding the Nominees Standing for Election in 1998" in the Proxy Statement is incorporated herein by reference.
Additional information regarding Executive Officers of the registrant as of March 17, 1998 is set forth below:
Officer Offices Held Age
Kent T. Anderson Chief Operating Officer - Strategy and 44 Development of the registrant since August 1995; Chief Strategy Officer from March 1995 to August 1995; Executive Vice President and General Manager - American Stores Properties, Inc. from March 1993 to March 1995.
Teresa Beck President of the registrant since March 1998; 43 Chief Financial Officer from March 1995 to March 1998; Executive Vice President and Chief Financial Officer from June 1994 to March 1995; Executive Vice President Finance from March 1994 to June 1994; Executive Vice President Administration from March 1992 to March 1994. Assistant Secretary from June 1989 until March 1995.
James R. Clark Chief Planning Officer of the registrant since 54 March 1995; Senior Vice President Strategy and Change Management from December 1993 to March 1995; Senior Vice President Marketing and Planning, Lucky Stores, Inc. from prior to February 1993 to December 1993.
Stephen L. Mannschreck Chief Human Resources Officer of the registrant 52 since March 1995; Executive Vice President Human Resources from June 1994 to March 1995; Executive Vice President and General Manager - Osco Drug from March 1993 to June 1994.
PART III - (Continued)
Item 10 Directors and Executive Officers of the Registrant - (Continued)
Officer Offices Held Age
Kathleen E. McDermott Chief Legal Officer of the registrant since 48 May 1995 and Assistant Secretary since June 1993; Executive Vice President and General Counsel from June 1993 to May 1995; Partner of the law firm of Collier, Shannon, Rill & Scott from prior to February 1993 to June 1993.
Edward J. McManus Chief Operating Officer - Procurement & 52 Logistics of the registrant since March 1997; Senior Vice President and General Manager - Jewel Food Stores from April 1995 to March 1997; Senior Vice President Operations of Jewel Food Stores, Inc. from July 1994 to April 1995; Vice President - Distribution of Jewel Food Stores, Inc. from April 1992 to July 1994.
Francis J. Raucci Chief Labor Officer of the registrant since 61 May 1995; Executive Vice President and Chief Labor Counsel from June 1994 to May 1995; Senior Vice President and Chief Labor Counsel from December 1993 to June 1994; Senior Vice President and Assistant General Counsel from prior to February 1993 to December 1993.
Neal J. Rider Chief Financial Officer of the registrant 36 since March 1998; Senior Vice President Supply Chain Planning and Administration - American Procurement and Logistics Company from July 1997 to March 1998; Senior Vice President - Health Care Operations of the registrant from June 1995 to July 1997; Senior Vice President and Treasurer from March 1994 to June 1995; Vice President and Controller from prior to February 1993 to March 1994.
Martin A. Scholtens Chief Operating Officer - Retail of the 55 registrant since March 1995; Executive Vice President and General Manager - Lucky Southern California Division from March 1994 to March 1995; Executive Vice President and General Manager - Acme Markets from March 1993 to March 1994.
PART III - (Continued)
Item 10 Directors and Executive Officers of the Registrant - (Continued)
Officer Offices Held Age
J. Greg Spencer Senior Vice President, Treasurer and Assistant 41 Secretary of the registrant since June 1995; Vice President, Corporate Transactions and Senior Counsel from March 1992 to June 1995.
Bradley M. Vierig Senior Vice President of the registrant since 40 June 1995 and Controller since March 1994; Vice President and Assistant Treasurer from August 1992 to March 1994.
Item 11
Item 11 Executive Compensation
The information under the captions "Directors' Compensation," "Executive Compensation," "Options/SAR Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Value," "Long-Term Incentive Plans-Awards in Last Fiscal Year," "Pension Plans," "Employment Agreements" and "Certain Relationships and Related Transactions" in the Proxy Statement is incorporated herein by reference.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management
The information under the caption "Beneficial Ownership of Securities" in the Proxy Statement is incorporated herein by reference.
Item 13
Item 13 Certain Relationships and Related Transactions
The information under the captions "Proposal 1-Election of Directors: Information Regarding the Nominees Standing for Election in 1998," "Footnotes to the Foregoing Information Regarding Nominees for Director of the Company," "Directors' Compensation" and "Certain Relationships and Related Transactions" in the Proxy Statement is incorporated herein by reference.
PART IV
Item 14
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Item 14(a)(1) - Financial Statements
The following consolidated financial statements of the registrant and its subsidiaries, included in the Annual Report, have been incorporated by reference in Item 8 of this report:
Consolidated Statements of Earnings for the fiscal years 1997, 1996 and 1995;
PART IV - (Continued)
Item 14(a)(1) - Financial Statements - (Continued)
Consolidated Balance Sheets as of the end of fiscal years 1997, 1996 and 1995;
Consolidated Statements of Cash Flows for the fiscal years 1997, 1996 and 1995;
Consolidated Statements of Shareholders' Equity for the fiscal years 1997, 1996 and 1995;
Notes to Consolidated Financial Statements.
Item 14(a)(2) - Supplementary Data and Financial Statement Schedules
The supplementary data entitled "Quarterly Results (unaudited)" on page 31 of the Annual Report is incorporated by reference in Item 8.
In response to Item 14(d), all schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
Item 14(a)(3) - Exhibits
The following exhibits are filed with this report:
3.1 The restated Certificate of Incorporation of American Stores Company, as amended, is incorporated herein by reference to Exhibit 3.1 of the Company's Form 10-K for the fiscal year ended February 3, 1996 as filed with the Commission on April 14, 1996, and to Exhibit 1 of the Company's Form 8-K as filed with the Commission on July 10, 1997.
3.2 The By-Laws of American Stores Company as amended on September 17, 1997.
4.1 Senior Indenture dated May 1, 1995 between the Company and the First National Bank of Chicago, as Trustee, is incorporated herein by reference to Exhibit 4.1 of Form 10-Q filed with the Commission on June 12, 1995.
4.2 Form of 7.9% Debenture due 2017.
4.3 Form of 7.5% Debenture due 2037.
10.1 Credit Agreement ($1.5 billion five-year revolving credit facility) dated as of March 28, 1997 among the Company, the banks listed therein and Morgan Guaranty Trust Company of New York as Agent is incorporated herein by reference to Form 10-K filed with the Commission on April 14, 1997.
PART IV - (Continued)
Item 14(a)(3) - Exhibits (Continued)
10.2 Non-Employee Directors' Deferred Fee Plan is incorporated herein by reference to Exhibit 10.3 of Form 8 as filed with the Commission on July 12, 1991. *
10.3 Supplemental Executive Retirement Plan as amended and restated on June 24, 1994 is incorporated herein by reference to Exhibit 10.4 of Form 10-K as filed with the Commission on April 26, 1995. *
10.4 Third Amendment to the American Stores Company Supplemental Executive Retirement Plan dated August 16, 1996 is incorporated herein by reference to Exhibit 10.3 of Form 10-Q as filed with the Commission on September 17, 1996. *
10.5 1997 Key Management Annual Incentive Plan is incorporated herein by reference to Exhibit A of the Company's 1997 Proxy Statement filed with the Commission on May 2, 1997.
10.6 1997 Stock Option and Stock Award Plan is incorporated herein by reference to Exhibit B of the Company's 1997 Proxy Statement filed with the Commission on May 2, 1997.
10.7 1997 Stock Plan for Non-Employee Directors is incorporated herein by reference to Exhibit C of the Company's 1997 Proxy Statement filed with the Commission on May 2, 1997.
10.8 1989 Stock Option and Stock Award Plan is incorporated herein by reference to the Registrant's S-8 Registration Statement (Registration No. 33-32150) filed with the Commission on November 16, 1989. *
10.9 Amendment to the 1989 Stock Option and Stock Award Plan, dated as of September 17, 1996 is incorporated herein by reference to Exhibit 10.3 of Form 10-Q is filed with the Commission on December 17, 1996. *
10.10 Amendment to the 1989 Stock Option and Stock Award Plan, dated April 7, 1997 is incorporated herein by reference to Form 10-K filed with the Commission on April 14, 1997. *
10.11 The 1985 Stock Option and Stock Award Plan is incorporated herein by reference to the Registrant's S-8 Registration Statement (Registration No. 33-08801) filed with the Commission on September 22, 1986. *
* Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(a)(3) of Form 10-K.
PART IV - (Continued)
Item 14(a)(3) - Exhibits (Continued)
10.12 Amendment to the 1985 Stock Option and Stock Award Plan, dated as of September 17, 1996 is incorporated herein by reference to Exhibit 10.2 of Form 10-Q as filed with the Commission on December 17, 1996. *
10.13 American Stores Company Key Executive Stock Purchase Incentive Plan is incorporated herein by reference to Exhibit A of the Registrant's 1992 Proxy Statement filed with the Commission on May 7, 1992. *
10.14 American Stores Company Board of Directors Stock Purchase Incentive Plan as Amended and Restated is incorporated herein by reference to Exhibit 10.11 of Form 10-K as filed with the Commission on April 26, 1995. *
10.15 Description of Key Management Performance Incentive Plan (1998-2000). *
10.16 Form of Employment Agreement dated as of November 1, 1994 together with Schedule of eighteen officers who entered into such Employment Agreement with the Company are incorporated herein by reference to Exhibit 10.14 of Form 10-K filed with the Commission on April 26, 1995. *
10.17 Form of Amendment to Employment Agreement dated as of July 25, 1996 together with Schedule of fifteen officers who entered into such Amendment to Employment Agreement with the Company are incorporated herein by reference to Exhibit 10.4 of Form 10-Q filed with the Commission on September 17, 1996. *
10.18 Consulting Agreement between the Company and L.S. Skaggs dated as of August 1, 1995 is incorporated herein by reference to Exhibit 10.1 of Form 10-Q as filed with the Commission on December 11, 1995. *
10.19 Form of Employment Agreement (Change of Control) dated as of July 25, 1996 together with Schedule of eleven officers who entered into such Employment Agreement with the Company are incorporated herein by reference to Exhibit 10.5 of Form 10-Q filed with the Commission on September 17, 1996. *
10.20 Form of Employment Agreement dated as of July 25, 1996 together with Schedule of two executive officers who entered into Employment Agreements with the Company are incorporated herein by reference to Exhibit 10.7 of Form 10-Q filed with the Commission on September 17, 1996. *
* Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(a)(3) of Form 10-K.
PART IV - (Continued)
Item 14(a)(3) - Exhibits (Continued)
10.21 Amended and Restated Employment Agreement of Victor L. Lund dated as of December 9, 1997. *
10.22 Amendment to the Employment Agreement (Change of Control)with Victor L. Lund dated as of December 9, 1997. *
10.23 Second Amendment to Employment Agreement dated as of December 9, 1997, together with schedule of 12 senior officers who entered into such Amendment. *
10.24 Amendment to Employment Agreement (Change of Control) dated as of December 9, 1997 together with schedule of 12 senior officers who entered into such Amendment. *
10.25 Employment Agreement with (Change of Control) Edward J. McManus dated as of December 9, 1997. *
12. Computation of ratio of earnings to fixed charges.
13. Exhibit 13 consists of pages 9 to 31 and page 1 of the Company's 1997 Annual Report to Shareholders which are numbered as pages 1 to 31 of Exhibit 13. Such report, except to the extent incorporated hereby by reference, has been sent to and furnished for the information of the Securities and Exchange Commission only and is not to be deemed filed as part of this Annual Report on Form 10-K. The references to the pages incorporated by reference are to the printed Annual Report. The references to the pages of Exhibit 13 are as follows: Item 1 - -pages 16, 3 through 10 and 30; Item 2 - -pages 3 through 10; Item 3 - -page 30; Item 5 - -page 1; Item 6 - -page 2; Item 7 - -pages 3 through 10; Item 7A - -pages 7 and 8; Item 8 - - pages 11 through 31; and Item 14 - -pages 12 through 31.
21. Subsidiaries of the Registrant.
23. Consent of Ernst & Young LLP.
27. Financial Data Schedule. All other exhibits for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instruction or are inapplicable, and therefore have been omitted.
Item 14(b) - No reports on Form 8-K were filed during the last quarter of the 1997 fiscal year.
* Constitutes a management contract or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 14(a)(3) of Form 10-K.
AMERICAN STORES COMPANY
FORM 10-K
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant): American Stores Company
By (Signature and Title): /s/Kathleen E. McDermott April 20, 1998
Kathleen E. McDermott, Chief Legal Officer and Assistant Secretary
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 and on the dates indicated.
/s/Victor L. Lund Chairman of the Board and April 20, 1998 Victor L. Lund Chief Executive Officer (Principal Executive Officer)
/s/Neal J. Rider Chief Financial Officer April 20, 1998 Neal J. Rider (Principal Financial Officer)
/s/Bradley M. Vierig Senior Vice President and April 20, 1998 Bradley M. Vierig Controller (Principal Accounting Officer)
AMERICAN STORES COMPANY
FORM 10-K
Signatures
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 and on the dates indicated.
/s/ Victor L. Lund Director, Chairman of April 20, 1998 Victor L. Lund the Board and Chief Executive Officer
/s/ Pamela G. Bailey Director April 20, 1998 Pamela G. Bailey
/s/ Henry I. Bryant Director April 20, 1998 Henry I. Bryant
/s/ Arden B. Engebretsen Director April 20, 1998 Arden B. Engebretsen
/s/ James B. Fisher Director April 20, 1998 James B. Fisher
/s/ Fernando R. Gumucio Director April 20, 1998 Fernando R. Gumucio
/s/ Leon G. Harmon Director April 20, 1998 Leon G. Harmon
/s/ John E. Masline Director April 20, 1998 John E. Masline
/s/ Barbara S. Preiskel Director April 20, 1998 Barbara S. Preiskel
/s/ J. L. Scott Director April 20, 1998 J. L. Scott
AMERICAN STORES COMPANY
FORM 10-K
Signatures (Continued)
/s/ Arthur K. Smith Director April 20, 1998 Arthur K. Smith
/s/ David L. Maher Director, Vice April 20, 1998 David L. Maher Chairman of the Board and Chief Operating Officer