FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period (16 weeks) ended June 20, 2009.
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 1-5418
SUPERVALU INC.
(Exact name of
registrant as specified in its charter)
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DELAWARE
(State or other jurisdiction of incorporation or organization)
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41-0617000
(I.R.S. Employer Identification No.) |
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11840 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA
(Address of principal executive offices)
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55344
(Zip Code) |
(952) 828-4000
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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
þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of
July 24, 2009, there were 211,988,647 shares of the issuers common stock outstanding.
SUPERVALU INC. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
1
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED SEGMENT FINANCIAL INFORMATION
(Unaudited)
(In millions, except percent data)
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First Quarter Ended |
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June 20, |
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June 14, |
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2009 |
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2008 |
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Net sales |
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Retail food |
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$ |
9,900 |
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$ |
10,346 |
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% of total |
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77.9 |
% |
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77.5 |
% |
Supply chain services |
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2,815 |
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3,001 |
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% of total |
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22.1 |
% |
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22.5 |
% |
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Total net sales |
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$ |
12,715 |
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$ |
13,347 |
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100.0 |
% |
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100.0 |
% |
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Operating earnings |
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Retail food |
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$ |
311 |
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$ |
399 |
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% of sales |
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3.1 |
% |
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3.9 |
% |
Supply chain services |
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82 |
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86 |
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% of sales |
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2.9 |
% |
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2.9 |
% |
Corporate |
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(31 |
) |
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(29 |
) |
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Total operating earnings |
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362 |
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456 |
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% of sales |
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2.8 |
% |
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3.4 |
% |
Interest expense, net |
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177 |
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190 |
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Earnings before income taxes |
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185 |
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266 |
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Income tax provision |
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72 |
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104 |
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Net earnings |
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$ |
113 |
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$ |
162 |
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The Companys business is classified by management into two reportable segments: Retail food and
Supply chain services. These reportable segments are two distinct businesses, one retail and one
wholesale, each with a different customer base, marketing strategy and management structure. The
Retail food reportable segment is an aggregation of the Companys retail operating segments, which
are primarily organized based on geography. The Retail food reportable segment derives revenues
from the sale of groceries at retail locations operated by the Company (both the Companys own
stores and stores licensed by the Company). The Supply chain services reportable segment derives
revenues from wholesale distribution to independently-owned retail food stores, mass merchants and
other customers (collectively referred to as independent retail customers) and logistics support
services. Substantially all of the Companys operations are domestic.
See Notes to Condensed Consolidated Financial Statements.
2
SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In millions, except percent and per share data)
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First Quarter Ended |
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% of |
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% of |
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June 20, |
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Net |
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June 14, |
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Net |
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2009 |
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sales |
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2008 |
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sales |
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Net sales |
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$ |
12,715 |
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100.0 |
% |
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$ |
13,347 |
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100.0 |
% |
Cost of sales |
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9,868 |
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77.6 |
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10,282 |
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77.0 |
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Gross profit |
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2,847 |
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22.4 |
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3,065 |
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23.0 |
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Selling and administrative expenses |
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2,485 |
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19.6 |
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2,609 |
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19.6 |
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Operating earnings |
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362 |
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2.8 |
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456 |
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3.4 |
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Interest expense, net |
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177 |
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1.4 |
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190 |
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1.4 |
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Earnings before income taxes |
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185 |
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1.5 |
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266 |
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2.0 |
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Income tax provision |
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72 |
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0.6 |
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104 |
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0.8 |
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Net earnings |
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$ |
113 |
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0.9 |
% |
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$ |
162 |
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1.2 |
% |
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Net earnings per sharebasic |
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$ |
0.53 |
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$ |
0.76 |
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Net earnings per sharediluted |
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$ |
0.53 |
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$ |
0.76 |
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Dividends declared per share |
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$ |
0.1725 |
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$ |
0.1700 |
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Weighted average number of shares outstanding: |
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Basic |
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212 |
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212 |
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Diluted |
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212 |
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214 |
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See Notes to Condensed Consolidated Financial Statements.
3
SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value data)
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June 20, |
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February 28, |
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2009 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
275 |
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$ |
240 |
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Receivables, net |
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870 |
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874 |
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Inventories |
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2,746 |
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2,709 |
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Other current assets |
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220 |
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282 |
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Total current assets |
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4,111 |
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4,105 |
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Property, plant and equipment, net |
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7,461 |
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7,528 |
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Goodwill |
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3,748 |
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3,748 |
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Intangible assets, net |
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1,567 |
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1,584 |
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Other assets |
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684 |
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639 |
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Total assets |
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$ |
17,571 |
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$ |
17,604 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Accounts payable and accrued liabilities |
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$ |
3,126 |
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$ |
3,067 |
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Current maturities of long-term debt and capital lease obligations |
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257 |
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516 |
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Other current liabilities |
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891 |
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889 |
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Total current liabilities |
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4,274 |
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4,472 |
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Long-term debt and capital lease obligations |
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8,105 |
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7,968 |
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Other liabilities |
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2,522 |
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2,583 |
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Commitments and contingencies
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Stockholders equity |
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Common
stock, $1.00 par value: 400 shares authorized; 230 shares issued |
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230 |
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230 |
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Capital in excess of par value |
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2,850 |
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2,853 |
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Accumulated other comprehensive loss |
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(498 |
) |
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(503 |
) |
Retained earnings |
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619 |
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542 |
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Treasury stock, at cost, 18 and 18 shares, respectively |
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(531 |
) |
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(541 |
) |
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Total stockholders equity |
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2,670 |
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2,581 |
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Total liabilities and stockholders equity |
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$ |
17,571 |
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$ |
17,604 |
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See Notes to Condensed Consolidated Financial Statements.
4
SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
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First Quarter Ended |
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June 20, |
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June 14, |
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2009 |
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2008 |
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Cash flows from operating activities |
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Net earnings |
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$ |
113 |
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$ |
162 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation and amortization |
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297 |
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322 |
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LIFO charge |
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18 |
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20 |
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Gain on sale of assets |
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(2 |
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(7 |
) |
Deferred income taxes |
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(5 |
) |
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14 |
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Stock-based compensation |
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13 |
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23 |
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Other |
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14 |
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(5 |
) |
Changes in operating assets and liabilities |
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44 |
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(131 |
) |
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Net cash provided by operating activities |
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492 |
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398 |
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Cash flows from investing activities |
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Proceeds from sale of assets |
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10 |
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41 |
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Purchases of property, plant and equipment |
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(238 |
) |
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(395 |
) |
Other |
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5 |
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(15 |
) |
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Net cash used in investing activities |
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(223 |
) |
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(369 |
) |
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Cash flows from financing activities |
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Proceeds from issuance of long-term debt |
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948 |
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272 |
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Payment of long-term debt and capital lease obligations |
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(1,106 |
) |
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(250 |
) |
Dividends paid |
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(73 |
) |
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(36 |
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Other |
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(3 |
) |
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1 |
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Net cash used in financing activities |
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(234 |
) |
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(13 |
) |
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Net increase in cash and cash equivalents |
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35 |
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16 |
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Cash and cash equivalents at beginning of year |
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240 |
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243 |
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Cash and cash equivalents at the end of period |
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$ |
275 |
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$ |
259 |
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See Notes to Condensed Consolidated Financial Statements.
5
SUPERVALU INC. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in millions, except per share data)
NOTE 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description
SUPERVALU INC. (SUPERVALU or the Company), a Delaware corporation, was organized in 1925 as the
successor of two wholesale grocery firms established in the 1870s. SUPERVALU is one of the largest
companies in the United States grocery channel. References to the Company refer to SUPERVALU INC.
and Subsidiaries.
The Company conducts its retail operations throughout the United States under three retail food
store formats: combination stores (defined as food and pharmacy), food stores and limited
assortment food stores. Additionally, the Company provides supply chain services, primarily
wholesale distribution, across the United States retail grocery channel.
Statement of Registrant
The accompanying condensed consolidated financial statements of the Company for the 16 weeks ended
June 20, 2009 and June 14, 2008 are unaudited and, in the opinion of management, contain all
adjustments that are of a normal and recurring nature necessary to present fairly the financial
condition and results of operations for such periods. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial statements and related
notes in the Companys Annual Report on Form 10-K for the fiscal year ended February 28, 2009. The
results of operations for the 16 weeks ended June 20, 2009 are not necessarily indicative of the
results expected for the full year. The Condensed Consolidated Balance Sheet as of February 28,
2009 has been derived from the audited Consolidated Balance Sheet as of that date.
Accounting Policies
The summary of significant accounting policies is included in the Notes to Consolidated Financial
Statements set forth in the Companys Annual Report on Form 10-K for the fiscal year ended February
28, 2009.
Fiscal Year
The Companys fiscal year ends on the last Saturday in February. The Companys first quarter
consists of 16 weeks, while the second, third and fourth quarters each consist of 12 weeks, except
for the fourth quarter of fiscal 2009 which included 13 weeks. Because of differences in the
accounting calendars of the Company and its wholly-owned subsidiary, New Albertsons, Inc., the
accompanying June 20, 2009 and February 28, 2009 Condensed Consolidated Balance Sheets include the
assets and liabilities related to New Albertsons, Inc. as of June 18, 2009 and February 26, 2009,
respectively.
Use of Estimates
The preparation of the Companys condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the
time of purchase to be cash equivalents. The Companys banking arrangements allow the Company to
fund outstanding checks when presented to the financial institution for payment, resulting in book
overdrafts. Book overdrafts are recorded in Accounts payable and accrued liabilities in the
Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed
Consolidated Statements of Cash Flows. As of June 20, 2009 and February 28, 2009, the Company had
net book overdrafts of $352 and $389, respectively.
6
Net Earnings Per Share
Basic net earnings per share is calculated using net earnings available to common stockholders
divided by the weighted average number of shares outstanding during the period. Diluted net
earnings per share is similar to basic net earnings per share except that the weighted average
number of shares outstanding is after giving effect to the dilutive impacts of stock options,
restricted stock awards and other dilutive securities.
The following table reflects the calculation of basic and diluted net earnings per share:
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First Quarter Ended |
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June 20, |
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June 14, |
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2009 |
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2008 |
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Net earnings per sharebasic |
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Net earnings available to common stockholders |
|
$ |
113 |
|
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$ |
162 |
|
Weighted average shares outstandingbasic |
|
|
212 |
|
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|
212 |
|
Net earnings per sharebasic |
|
$ |
0.53 |
|
|
$ |
0.76 |
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Net earnings per sharediluted |
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|
|
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|
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Net earnings available to common stockholders |
|
$ |
113 |
|
|
$ |
162 |
|
Weighted average shares outstandingbasic |
|
|
212 |
|
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|
212 |
|
Dilutive impact of options and restricted stock outstanding |
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2 |
|
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Weighted average shares outstandingdiluted |
|
|
212 |
|
|
|
214 |
|
Net earnings per sharediluted |
|
$ |
0.53 |
|
|
$ |
0.76 |
|
Options to purchase 22 and 13 shares of common stock were outstanding during the 16 weeks ended
June 20, 2009 and June 14, 2008, respectively, but were excluded from the computation of diluted
earnings per share because they were antidilutive.
Comprehensive Income
Comprehensive income consisted of the following:
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|
First Quarter Ended |
|
|
|
June 20, |
|
|
June 14, |
|
|
|
2009 |
|
|
2008 |
|
Net earnings |
|
$ |
113 |
|
|
$ |
162 |
|
Pension and other postretirement activity, net of tax |
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5 |
|
|
|
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|
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|
Comprehensive income |
|
$ |
118 |
|
|
$ |
162 |
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Subsequent Events
Events that have occurred subsequent to June 20, 2009 have been evaluated through July 29, 2009,
the date the Company filed this Quarterly Report on Form 10-Q with the Securities and Exchange
Commission.
NOTE 2 NEW ACCOUNTING STANDARDS
In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets. FSP FAS
132(R)-1 provides additional guidance regarding disclosures about plan assets of defined benefit
pension or other postretirement plans. FSP FAS 132(R)-1 will be effective for the Companys fiscal
year ending February 27, 2010. The adoption of FSP FAS 132(R)-1 will result in enhanced
disclosures, but will not otherwise have an impact on the Companys consolidated financial
statements.
7
NOTE 3 GOODWILL AND INTANGIBLE ASSETS
As of June 20, 2009, the Company had approximately $3,748 of Goodwill; $2,941 related to its Retail
food segment and $807 related to its Supply chain services segment.
Changes in the Companys Goodwill and Intangible assets consisted of the following:
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February 28, |
|
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Additions/ |
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Other net |
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|
June 20, |
|
|
|
2009 |
|
|
Amortization |
|
|
adjustments |
|
|
2009 |
|
Goodwill |
|
$ |
3,748 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames indefinite lived |
|
$ |
1,069 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,069 |
|
Favorable operating leases, customer lists,
customer relationships and other
(accumulated amortization of $213 and $197,
as of June 20, 2009 and February 28, 2009,
respectively) |
|
|
706 |
|
|
|
2 |
|
|
|
(3 |
) |
|
|
705 |
|
Non-compete agreements (accumulated
amortization of $4 and $4 as of June 20,
2009 and February 28, 2009, respectively) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
|
1,785 |
|
|
|
2 |
|
|
|
(3 |
) |
|
|
1,784 |
|
Accumulated amortization |
|
|
(201 |
) |
|
|
(19 |
) |
|
|
3 |
|
|
|
(217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net |
|
$ |
1,584 |
|
|
|
|
|
|
|
|
|
|
$ |
1,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of intangible assets with a definite life was $19 and $20 for the 16
weeks ended June 20, 2009 and June 14, 2008, respectively. Future amortization expense will be
approximately $51 per fiscal year for each of the next five fiscal years.
NOTE 4 RESERVES FOR CLOSED PROPERTIES
The Company maintains reserves for costs associated with closures of retail stores, distribution
centers and other properties that are no longer being utilized in current operations. The Company
provides for closed property operating lease liabilities using a discount rate to calculate the
present value of the remaining noncancellable lease payments after the closing date, reduced by
estimated subtenant rentals that could be reasonably obtained for the property. Adjustments to
closed property reserves primarily relate to changes in subtenant income or actual exit costs
differing from original estimates. Adjustments are made for changes in estimates in the period in
which the changes become known.
Changes in the Companys reserves for closed properties consisted of the following:
|
|
|
|
|
|
|
June 20, |
|
|
|
2009 |
|
Balance at beginning of year |
|
$ |
167 |
|
Additions |
|
|
1 |
|
Payments |
|
|
(18 |
) |
Adjustments |
|
|
3 |
|
|
|
|
|
Balance at end of quarter |
|
$ |
153 |
|
|
|
|
|
NOTE 5 FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. Assets
and liabilities recorded at fair value are categorized using defined hierarchical levels directly
related to the amount of subjectivity associated with the inputs to fair value measurements, as
follows:
|
|
Level 1 Quoted prices in active markets for identical assets or liabilities; |
|
|
Level 2 Inputs other than quoted prices included within Level 1 that are either directly or
indirectly observable; |
|
|
Level 3 Unobservable inputs in which little or no market activity exists, requiring
an entity to develop its own assumptions about the assumptions that market participants
would use in valuing. |
As of June
20, 2009, the Company had no material financial assets or liabilities
measured at fair value and no material nonfinancial assets or liabilities measured at fair value on a nonrecurring basis subsequent to their initial recognition.
8
Financial Instruments
For certain of the Companys financial instruments, including cash and cash equivalents,
receivables and accounts payable, the fair values approximate book values due to their short
maturities.
The estimated fair value of notes receivable was less than the book value by approximately $5 and
$8 as of June 20, 2009 and February 28, 2009, respectively. Notes receivable are valued based on a
discounted cash flow approach applying a rate that is comparable to publicly traded instruments of
similar credit quality.
The estimated fair value of the Companys long-term debt (including current maturities) was less
than the book value by approximately $281 and $452 as of June 20, 2009 and February 28, 2009,
respectively. The estimated fair value was based on market quotes, where available, or market
values for similar instruments.
NOTE 6 LONG-TERM DEBT
The Companys long-term debt and capital lease obligations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 20, |
|
|
February 28, |
|
|
|
2009 |
|
|
2009 |
|
1.19% to 3.25% Revolving Credit Facility and Variable Rate Notes due June 2011 June 2012 |
|
$ |
1,617 |
|
|
$ |
1,920 |
|
8.00% Notes due May 2016 |
|
|
1,000 |
|
|
|
|
|
7.50% Notes due February 2011 |
|
|
700 |
|
|
|
700 |
|
7.45% Debentures due August 2029 |
|
|
650 |
|
|
|
650 |
|
7.50% Notes due November 2014 |
|
|
500 |
|
|
|
500 |
|
6.34% to 7.15% Medium Term Notes due July 2009 June 2028 |
|
|
452 |
|
|
|
512 |
|
8.00% Debentures due May 2031 |
|
|
400 |
|
|
|
400 |
|
7.50% Notes due May 2012 |
|
|
300 |
|
|
|
300 |
|
8.00% Debentures due June 2026 |
|
|
272 |
|
|
|
272 |
|
8.70% Debentures due May 2030 |
|
|
225 |
|
|
|
225 |
|
7.75% Debentures due June 2026 |
|
|
200 |
|
|
|
200 |
|
7.25% Notes due May 2013 |
|
|
200 |
|
|
|
200 |
|
6.95% Notes due August 2009 |
|
|
173 |
|
|
|
350 |
|
8.35% Notes due May 2010 |
|
|
165 |
|
|
|
275 |
|
7.875% Notes due August 2009 |
|
|
118 |
|
|
|
350 |
|
7.90% Debentures due May 2017 |
|
|
96 |
|
|
|
96 |
|
7.50% Debentures due May 2037 |
|
|
|
|
|
|
191 |
|
Accounts
Receivable Securitization Facility, currently 1.41% |
|
|
125 |
|
|
|
120 |
|
Other |
|
|
90 |
|
|
|
97 |
|
Net discount on debt, using an effective interest rate of 6.28% to 8.97% |
|
|
(240 |
) |
|
|
(208 |
) |
Capital lease obligations |
|
|
1,319 |
|
|
|
1,334 |
|
|
|
|
|
|
|
|
Total debt and capital lease obligations |
|
|
8,362 |
|
|
|
8,484 |
|
Less current maturities of long-term debt and capital lease obligations |
|
|
(257 |
) |
|
|
(516 |
) |
|
|
|
|
|
|
|
Long-term debt and capital lease obligations |
|
$ |
8,105 |
|
|
$ |
7,968 |
|
|
|
|
|
|
|
|
Certain of the Companys credit facilities and long-term debt agreements have restrictive covenants
and cross-default provisions which generally provide, subject to the Companys right to cure, for
the acceleration of payments due in the event of a breach of the covenant or a default in the
payment of a specified amount of indebtedness due under certain other debt agreements. The Company
was in compliance with all such covenants and provisions for all periods presented.
9
In May 2009, the Company issued $1,000 in senior notes, which rank equally with all of the
Companys other senior unsecured indebtedness. In conjunction with the debt issuance, the Company
paid off $191 of 7.50% Debentures due May 2037 that contained put options exercised in May 2009,
early redeemed $60 of 6.77% Medium Term Notes due July 2009 and purchased pursuant to a tender
offer $232 of 7.875% Notes due August 2009, $177 of 6.95% Notes due August 2009 and $110 of 8.35%
Notes due May 2010 for an aggregate payment of $777 in cash. The remainder of the debt issuance
proceeds was used to reduce the Revolving Credit Facility.
In May 2009, the Company amended and extended its 364-day accounts receivable securitization
program. The Company can borrow up to $200 on a revolving basis, with borrowings secured by
eligible accounts receivable, which remain under the Companys control. Facility fees under this
program range from 0.75 percent to 2.50 percent, based on the Companys credit ratings. The
facility fee in effect on June 20, 2009, based on the Companys current credit ratings, is 1.00
percent. As of June 20, 2009, there were $353 of accounts receivable pledged as collateral,
classified in Receivables in the Condensed Consolidated Balance Sheet. Due to the Companys intent
to renew the facility or refinance it with the Revolving Credit Facility, the facility is
classified in Long-term debt in the Condensed Consolidated Balance Sheets.
As of June 20, 2009, the Company had $456 of debt, excluding the Accounts Receivable Securitization
Facility, with current maturities that are classified in Long-term debt in the Condensed
Consolidated Balance Sheets due to the Companys intent to refinance such obligations with the
Revolving Credit Facility or other long-term debt.
NOTE 7 INCOME TAXES
During the 16 weeks ended June 20, 2009 there were no material changes to the unrecognized tax
benefits disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended February,
28, 2009. The Company does not anticipate that its total unrecognized tax benefits will change
significantly in the next 12 months.
NOTE 8 STOCK-BASED AWARDS
The Company recognized pre-tax stock-based compensation expense (included primarily in Selling and
administrative expenses in the Condensed Consolidated Statements of Earnings) related to
stock-based awards of $13 and $23 for the 16 weeks ended June 20, 2009 and June 14, 2008,
respectively.
During the 16 weeks ended June 20, 2009 and June 14, 2008, the Company granted approximately 3 and
4 stock options, respectively. To calculate the fair value of stock options, the Company uses the
Black-Scholes option pricing model. The significant weighted average assumptions relating to the
valuation of the Companys stock options consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 20, |
|
June 14, |
|
|
2009 |
|
2008 |
Dividend yield |
|
|
2.0 |
% |
|
|
2.0 |
% |
Volatility rate |
|
|
41.3 42.2 |
% |
|
|
28.1 36.4 |
% |
Risk-free interest rate |
|
|
1.9 2.0 |
% |
|
|
2.0 3.4 |
% |
Expected option life |
|
4.0 4.5 years |
|
|
1.0 5.4 years |
|
The weighted average grant date fair value of the stock options granted during the 16 weeks ended
June 20, 2009 and June 14, 2008 was $4.93 and $7.93, respectively.
NOTE 9 TREASURY STOCK PURCHASE PROGRAM
On May 28, 2009, the Board of Directors of the Company adopted and announced a new annual share
repurchase program authorizing the Company to purchase up to $70 of the Companys common stock.
Stock purchases will be made primarily from the cash generated from the settlement of stock
options. This annual authorization program replaced the previously existing share repurchase
program and continues through June 2010. The Company did not repurchase any shares during the 16
weeks ended June 20, 2009. As of June 20, 2009, there remained $70 available to repurchase the
Companys common stock.
The Company did not repurchase any shares during the 16 weeks ended June 20, 2009 under the
previously existing share repurchase program. During the 16 weeks ended June 14, 2008 the Company
purchased 0.2 shares under a previously existing program at an average cost of $30.01 per share.
NOTE 10 BENEFIT PLANS
Substantially all employees of the Company are covered by various contributory and non-contributory
pension, profit sharing or 401(k) plans. Union employees participate in multi-employer retirement
plans under collective bargaining agreements, unless the collective bargaining agreement provides
for participation in plans sponsored by the Company. In addition to sponsoring both defined
10
benefit and defined contribution pension plans, the Company provides healthcare and life insurance
benefits for eligible retired employees under postretirement benefit plans and short-term and
long-term disability benefits to former and inactive employees prior to retirement under
post-employment benefit plans. The terms of the postretirement benefit plans vary based on
employment history, age and date of retirement. For most retirees, the Company provides a fixed
dollar contribution and retirees pay contributions to fund the remaining cost.
Net periodic benefit expense (income) for defined benefit pension plans and other postretirement
benefit plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter Ended |
|
|
|
Pension Benefits |
|
|
Other Postretirement Benefits |
|
|
|
June 20, |
|
|
June 14, |
|
|
June 20, |
|
|
June 14, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Service cost |
|
$ |
2 |
|
|
$ |
2 |
|
|
$ |
1 |
|
|
$ |
|
|
Interest cost |
|
|
42 |
|
|
|
40 |
|
|
|
2 |
|
|
|
3 |
|
Expected return on assets |
|
|
(39 |
) |
|
|
(43 |
) |
|
|
|
|
|
|
|
|
Amortization of prior service benefit |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
Amortization of net actuarial loss |
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense (income) |
|
$ |
8 |
|
|
$ |
(1 |
) |
|
$ |
2 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the 16 weeks ended June 20, 2009, the Company made contributions of approximately $26 to its
pension plans and $2 to its other postretirement benefit plans.
NOTE 11 COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
The Company has guaranteed certain leases, fixture financing loans and other debt obligations of
various retailers as of June 20, 2009. These guarantees were generally made to support the business
growth of independent retail customers. The guarantees are generally for the entire terms of the
leases or other debt obligations with remaining terms that range from less than one year to 21
years, with a weighted average remaining term of approximately 10 years. For each guarantee issued,
if the independent retail customer defaults on a payment, the Company would be required to make
payments under its guarantee. Generally, the guarantees are secured by indemnification agreements
or personal guarantees of the independent retail customer. The Company reviews performance risk
related to its guarantees of independent retail customers based on internal measures of credit
performance. As of June 20, 2009, the maximum amount of undiscounted payments the Company would be
required to make in the event of default of all of these guarantees was approximately $160 and represented
approximately $107 on a discounted basis. Based on the indemnification agreements, personal
guarantees and results of the reviews of performance risk, the Company believes the likelihood that
it will be required to assume a material amount of these obligations is remote. Accordingly, no
amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent
obligations under the Companys guarantee arrangements.
The Company is contingently liable for leases that have been assigned to various third parties in
connection with facility closings and dispositions. The Company could be required to satisfy the
obligations under the leases if any of the assignees are unable to fulfill their lease obligations.
Due to the wide distribution of the Companys assignments among third parties, and various other
remedies available, the Company believes the likelihood that it will be required to assume a
material amount of these obligations is remote.
In the ordinary course of business, the Company enters into supply contracts to purchase products
for resale. These contracts typically include either volume commitments or fixed expiration dates,
termination provisions and other standard contractual considerations. As of June 20, 2009, the
Company had approximately $1,662 of non-cancelable future purchase obligations primarily related to
supply contracts.
The Company is a party to a variety of contractual agreements under which the Company may be
obligated to indemnify the other party for certain matters, which indemnities may be secured by
operation of law or otherwise, in the ordinary course of business. These contracts primarily relate
to the Companys commercial contracts, operating leases and other real estate contracts, financial
agreements, agreements to provide services to the Company and agreements to indemnify officers,
directors and employees in the performance of their work. While the Companys aggregate
indemnification obligation could result in a material liability, the Company is aware of no current
matter that it expects to result in a material liability.
Legal Proceedings
The Company is subject to various lawsuits, claims and other legal matters that arise in the
ordinary course of conducting business, none of which, in managements opinion, is expected to have
a material adverse impact on the Companys financial condition, results of operations or cash
flows.
11
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. (Sav-on Drug Stores) and Lucky
Stores, Inc. (Lucky Stores), wholly-owned subsidiaries of Albertsons, 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 based on the plaintiffs allegation that they were
improperly classified as exempt under California law. In May 2001, the Court certified a class with
respect to Sav-on Drug Stores assistant managers. A case with very similar claims, involving the
Sav-on Drug Stores assistant managers and operating managers, was also filed in April 2000 against
Sav-on Drug Stores in the Superior Court for the County of Los Angeles, California (Rocher, Dahlin,
et al. v. Sav-on Drug Stores, Inc.), and was certified as a class action in June 2001 with respect
to assistant managers and operating managers. The two cases were consolidated in December 2001. New
Albertsons was added as a named defendant in November 2006. Plaintiffs seek overtime wages, meal
and rest break penalties, other statutory penalties, punitive damages, interest, injunctive relief
and the attorneys fees and costs. The parties have entered into a memorandum of understanding
regarding settlement of this matter and are currently negotiating terms of a preliminary settlement
agreement. 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 lawsuit will have a material adverse effect on the Companys
financial condition, results of operations or cash flows.
In September 2008, a class action complaint was filed against the Company, as well as International
Outsourcing Services, LLC (IOS), Inmar, Inc., Carolina Manufacturers Services, Inc., Carolina
Coupon Clearing, Inc. and Carolina Services, in the United States District Court in the Eastern
District of Wisconsin. The plaintiffs in the case are a consumer goods manufacturer, a grocery
co-operative and a retailer marketing services company who allege on behalf of a purported class
that the Company and the other defendants (i) conspired to restrict the markets for coupon
processing services under the Sherman Act and (ii) were part of an illegal enterprise to defraud
the plaintiffs under the Federal Racketeer Influenced and Corrupt Organizations Act. The
plaintiffs seek monetary damages, attorneys fees and injunctive relief. The Company intends to
vigorously defend this lawsuit, however all proceedings have been stayed in the case pending the
result of the criminal prosecution of certain former officers of IOS. 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 lawsuit
will have a material adverse effect on the Companys financial condition, results of operations or
cash flows.
In December 2008, a class action complaint was filed in the United States District Court for the
Western District of Wisconsin against the Company alleging that a 2003 transaction between the
Company and C&S Wholesale Grocers, Inc. (C&S) was a conspiracy to restrain trade and allocate
markets. In the 2003 transaction, the Company purchased certain assets of the Fleming Corporation
as part of Fleming Corporations bankruptcy proceedings and sold certain assets of the
Company to C&S which were located in New England. The complaint alleges that the conspiracy was
concealed and continued through the use of non-compete and non-solicitation agreements and the
closing down of the distribution facilities that the Company and C&S purchased from the other.
Plaintiffs are seeking monetary damages, injunctive relief and attorneys fees. The Company is
vigorously defending this lawsuit. 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 lawsuit will have a material adverse effect on
the Companys financial condition, results of operations or cash flows.
In July 2009, a putative class action complaint was filed in the United States District Court for
the Southern District of New York against the Company and an officer and the Executive Chairman of
the Board alleging fraud under Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5.
The complaint alleges that the Company withheld negative information from the market by inflating
its fiscal year 2010 guidance in order to complete the Companys Note Offering which closed on May
7, 2009. The purported class period runs between April 23, 2009 and June 23, 2009. Plaintiff is
seeking class certification, monetary damages and attorneys fees and costs. The Company intends
to vigorously defend this lawsuit. 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 lawsuit will have a material adverse effect on
the Companys financial condition, results of operations or cash flows.
The Company is also involved in routine legal proceedings incidental to its operations. Some of
these routine proceedings involve class allegations, many of which are ultimately dismissed.
Management does not expect that the ultimate resolution of these legal proceedings will have a
material adverse effect on the Companys financial condition, results of operations or cash flows.
The statements above reflect managements 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 involves 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 and believes recorded reserves are adequate. It is possible, although
management believes it is remote, 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 Companys financial condition, results of
operations or cash flows.
12
Pension Plan / Health and Welfare Plan Contingencies
The Company contributes to various multi-employer pension plans under collective bargaining
agreements, primarily defined benefit pension plans. These plans generally provide retirement
benefits to participants based on their service to contributing employers. Based on available
information, the Company believes that some of the multi-employer plans to which it contributes are
underfunded. Company contributions to these plans could increase in the near term. However, the
amount of any increase or decrease in contributions will depend on a variety of factors, including
the results of the Companys collective bargaining efforts, investment returns on the assets held
in the plans, actions taken by the trustees who manage the plans and requirements under the Pension
Protection Act and Section 412(e) of the Internal Revenue Code. Furthermore, if the Company were to
significantly reduce contributions, exit certain markets or otherwise cease making contributions to
these plans, it could trigger a partial or complete withdrawal that would require the Company to
fund its proportionate share of a plans unfunded vested benefits.
The Company also makes contributions to multi-employer health and welfare plans in amounts set
forth in the related collective bargaining agreements. The majority of the Companys collective
bargaining agreements fix or limit the Companys contributions to multi-employer health and welfare
plans. The remaining agreements contain requirements that could result in additional
contributions, increasing the Companys Selling and administrative expenses in the future.
NOTE 12 SEGMENT INFORMATION
Refer to page 2 for the Companys segment information.
NOTE 13 SUBSEQUENT EVENT
On July 28, 2009, the Company announced that it reached an agreement for
the sale of 36 Albertsons stores located in Utah. The transaction, which is subject to regulatory approval,
is expected to realize approximately $150 in after-tax net proceeds and is not expected to have
a material effect on the Companys results of operations for fiscal 2010.
13
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
(Dollars and shares in millions, except per share data)
OVERVIEW
SUPERVALU is one of the largest grocery companies in the United States grocery channel. The Company
operates in two segments of the grocery industry, Retail food and Supply chain services, primarily
wholesale distribution. As of June 20, 2009, the Company conducted its retail operations through a
total of 2,418 retail stores of which 866 are licensed locations.
Weakness in the economy continued to negatively impact consumer confidence and spending in early
fiscal 2010. If this continues, it could lead to further reduced consumer spending, trading down
by consumers to a less expensive mix of products or trading down by consumers to discounters for
grocery items, all of which could impact the Companys sales growth. Food deflation could reduce
sales growth, while food inflation, combined with reduced consumer spending, could reduce gross
profit margins.
RESULTS OF OPERATIONS
In the first quarter of fiscal 2010, net sales were $12,715 and net earnings were $113, or $0.53
per basic and diluted share. In the first quarter of fiscal 2009, net sales were $13,347 and net
earnings were $162, or $0.76 per basic and diluted share. Results for the first quarter of fiscal
2009 included acquisition-related costs (defined as one-time transaction costs associated with the
acquisition of New Albertsons, Inc., which primarily include supply chain consolidation costs,
employee-related benefit costs and consultant fees) of $6 after tax, or $0.03 per diluted share.
FIRST QUARTER RESULTS
Net Sales
Net sales for the first quarter of fiscal 2010 were $12,715 compared with $13,347 last year,
reflecting decreased sales in both the Retail food and Supply chain services segments. Retail food
sales were 77.9 percent of Net sales and Supply chain services sales were 22.1 percent of Net sales
for the first quarter of fiscal 2010, compared with 77.5 percent and 22.5 percent, respectively,
last year.
Retail food net sales for the first quarter of fiscal 2010 were $9,900 compared with $10,346 last
year. New store sales growth was more than offset by the impact of store closures and negative
identical store retail sales. Identical store retail sales growth
(defined as stores operating for four full quarters, including store expansions and excluding fuel and planned store closures)
for the first quarter of fiscal
2010 compared to last year was negative 3.2 percent primarily as a result of a challenging economic
environment, heightened competitive activity, additional investments in price and higher levels of
promotional spending.
Total retail square footage at the end of the first quarter of fiscal 2010 was approximately 69
million. Total retail square footage decreased 3.2 percent from the first quarter of fiscal 2009.
Total retail square footage, excluding store closures, increased 0.8 percent over the first quarter
of fiscal 2009.
Supply chain services net sales for the first quarter of fiscal 2010 were $2,815 compared with
$3,001 last year, reflecting the on-going transition of a national retailers volume to
self-distribution and customer attrition, which was partially offset by new business growth.
Gross Profit
Gross profit, as a percent of Net sales, decreased 60 basis points to 22.4 percent in the first
quarter of fiscal 2010 compared to 23.0 percent last year, primarily reflecting increased
investments in price and promotional spending.
Selling and Administrative Expenses
Selling and administrative expenses, as a percent of Net sales, were 19.6 percent in the first
quarter of fiscal 2010 compared with 19.6 percent last year, primarily reflecting effective expense
management with the decrease in Net sales from last year.
Operating Earnings
Operating earnings for the first quarter of fiscal 2010 were $362 compared with $456 last year.
Retail food operating earnings for the first quarter of fiscal 2010 were $311 compared with $399
last year, primarily reflecting the impact of a challenging economic environment, heightened
competitive activity, additional investments in price and higher levels of promotional spending.
Supply chain services operating earnings for the first quarter of fiscal 2010 were $82, or 2.9
percent of Supply chain services net sales, compared with $86, or 2.9 percent of Supply chain
services net sales last year.
14
Net Interest Expense
Net interest expense was $177 in the first quarter of fiscal 2010 compared with $190 last year,
primarily reflecting lower interest rates and debt levels in the first quarter of fiscal 2010
compared to last year.
Income Tax Provision
The income tax expense was $72, or 38.7 percent of earnings before income taxes, in the first
quarter of fiscal 2010 compared with income tax expense of $104, or 39.0 percent of earnings before
income taxes, last year.
Net Earnings
Net earnings were $113, or $0.53 per basic and diluted share, in the first quarter of fiscal 2010
compared with net earnings of $162, or $0.76 per basic and diluted share last year.
SUBSEQUENT EVENT
On July 28, 2009, the Company announced that it reached an agreement for the sale of 36 Albertsons stores
located in Utah. The transaction, which is subject to regulatory approval, is expected to realize
approximately $150 in after-tax net proceeds and is not expected to have a material effect on the
Companys results of operations for fiscal 2010.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $492 for the first quarter of fiscal 2010 compared
with $398 last year, primarily attributable to changes in working capital partially offset by
decreased Net earnings and Depreciation and amortization.
Net cash used in investing activities was $223 for the first quarter of fiscal 2010 compared with
$369 last year. The decrease is primarily attributable to lower capital spending in the first 16
weeks of fiscal 2010 compared to last year.
Net cash used in financing activities was $234 for the first quarter of fiscal 2010 compared with
$13 last year. Fiscal 2010 first quarter financing activities primarily reflect net payments of
long-term debt and capital lease obligations and payment of dividends.
Management expects that the Company will continue to replenish operating assets with internally
generated funds. There can be no assurance, however, that the Companys business will continue to
generate cash flow at current levels. The Company will continue to obtain short-term or long-term
financing from its credit facilities. Long-term financing will be maintained through existing and
new debt issuances. The Companys short-term and long-term financing abilities are believed to be
adequate as a supplement to internally generated cash flows to fund capital expenditures and
acquisitions as opportunities arise. Maturities of debt issued will depend on managements views
with respect to the relative attractiveness of interest rates at the time of issuance and other
debt maturities.
Certain of the Companys credit facilities and long-term debt agreements have restrictive
covenants and cross-default provisions which generally provide, subject to the Companys right to
cure, for the acceleration of payments due in the event of a breach of the covenant or a default in
the payment of a specified amount of indebtedness due under certain other debt agreements. The
Company was in compliance with all such covenants and provisions for all periods presented.
In May 2009, the Company issued $1,000 in senior notes, which rank equally with all of the
Companys other senior unsecured indebtedness. In conjunction with the debt issuance, the Company
paid off $191 of 7.50% Debentures due May 2037 that contained put options exercised in May 2009,
early redeemed $60 of 6.77% Medium Term Notes due July 2009 and purchased pursuant to a tender
offer $232 of 7.875% Notes due August 2009, $177 of 6.95% Notes due August 2009 and $110 of 8.35%
Notes due May 2010 for an aggregate payment of $777 in cash. The remainder of the debt issuance
proceeds was used to reduce the Revolving Credit Facility.
The Company has senior secured credit facilities in the amount of $4,000. These facilities were
provided by a group of lenders and consist of a $2,000 five-year revolving credit facility (the
Revolving Credit Facility), a $750 five-year term loan (Term Loan A) and a $1,250 six-year term
loan (Term Loan B). The rates in effect under the facilities as of June 20, 2009, based on the
Companys current credit ratings, were 0.20 percent for the facility fees, LIBOR plus 0.875 percent
for Term Loan A, LIBOR plus 1.25 percent for Term Loan B, LIBOR plus 1.00 percent for revolving
advances and Prime Rate for base rate advances.
All obligations under the senior secured credit facilities are guaranteed by each material
subsidiary of the Company. The obligations are also secured by a pledge of the equity interests in
those same material subsidiaries, limited as required by the existing public indentures of the
Company, such that the respective debt issued need not be equally and ratably secured.
The senior secured credit facilities also contain various financial covenants, including a minimum
interest expense coverage ratio and a maximum debt leverage ratio. The interest expense coverage
ratio shall not be less than 2.25 to 1 for each of the fiscal quarters ending up through
December 30, 2009, and moves to a ratio of not less than 2.30 to 1 for the fiscal quarters ending
after December 30, 2009. The debt leverage ratio shall not exceed 4.00 to 1 for each of the fiscal
quarters ending up through December 30, 2009 and moves to a ratio not to exceed 3.75 to 1 for each
of the fiscal quarters ending after December 30, 2009.
15
Borrowings under Term Loan A and Term Loan B may be repaid, in full or in part, at any time without
penalty. Term Loan A has required repayments, payable quarterly, equal to 2.50 percent of the
initial drawn balance for the first four quarterly payments (year one) and 3.75 percent of the
initial drawn balance for each quarterly payment in years two through five, with the entire
remaining balance due at the five year anniversary of the inception date, June 1, 2006. Term Loan B
has required repayments, payable quarterly, equal to 0.25 percent of the initial drawn balance,
with the entire remaining balance due at the six year anniversary of the inception date.
Prepayments shall be applied pro rata to the remaining amortization payments.
As of June 20, 2009, there were $26 of outstanding borrowings under the Revolving Credit Facility.
Term Loan A had a remaining principal balance of $478, of which $113 was classified as current, and
Term Loan B had a remaining principal balance of $1,113, of which $11 was classified as current.
Letters of credit outstanding under the Revolving Credit Facility were $329 and the unused
available credit under the Revolving Credit Facility was $1,645. The Company also had $5 of
outstanding letters of credit issued under separate agreements with financial institutions. Letters
of credit primarily support workers compensation, merchandise import programs and payment
obligations. The Company pays fees, which vary by instrument, of up to 1.40 percent on the
outstanding balance of the letters of credit.
In May 2009, the Company amended and extended its 364-day accounts receivable securitization
program. The Company can borrow up to $200 on a revolving basis, with borrowings secured by
eligible accounts receivable, which remain under the Companys control. Facility fees under this
program range from 0.75 percent to 2.50 percent, based on the Companys credit ratings. The
facility fee in effect on June 20, 2009, based on the Companys current credit ratings, is 1.00
percent. As of June 20, 2009, there were $353 of accounts receivable pledged as collateral,
classified in Receivables in the Condensed Consolidated Balance Sheet. Due to the Companys intent
to renew the facility or refinance it with the Revolving Credit Facility, the facility is
classified in Long-term debt in the Condensed Consolidated Balance Sheets.
As of June 20, 2009, the Company had $456 of debt, excluding the Accounts Receivable Securitization
Facility, with current maturities that are classified in Long-term debt in the Condensed
Consolidated Balance Sheets due to the Companys intent to refinance such obligations with the
Revolving Credit Facility or other long-term debt.
Capital spending during the first quarter of fiscal 2010 was approximately $238. Capital spending
primarily included store remodeling activity and technology expenditures. The Companys capital
spending for fiscal 2010 is projected to be approximately $700, including capital leases.
Fiscal
2010 debt reduction is projected to be approximately $700, including the net proceeds from the sale of 36 Albertsons stores located in Utah.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
The Company has guaranteed certain leases, fixture financing loans and other debt obligations of
various retailers as of June 20, 2009. These guarantees were generally made to support the business
growth of independent retail customers. The guarantees are generally for the entire terms of the
leases or other debt obligations with remaining terms that range from less than one year to 21
years, with a weighted average remaining term of approximately 10 years. For each guarantee issued,
if the independent retail customer defaults on a payment, the Company would be required to make
payments under its guarantee. Generally, the guarantees are secured by indemnification agreements
or personal guarantees of the independent retail customer. The Company reviews performance risk
related to its guarantees of independent retail customers based on internal measures of credit
performance. As of June 20, 2009, the maximum amount of undiscounted payments the Company would be
required to make in the event of default of all of these guarantees was approximately $160 and represented
approximately $107 on a discounted basis. Based on the indemnification agreements, personal
guarantees and results of the reviews of performance risk, the Company believes the likelihood that
it will be required to assume a material amount of these obligations is remote. Accordingly, no
amount has been recorded in the Condensed Consolidated Balance Sheets for these contingent
obligations under the Companys guarantee arrangements.
The Company is contingently liable for leases that have been assigned to various third parties in
connection with facility closings and dispositions. The Company could be required to satisfy the
obligations under the leases if any of the assignees are unable to fulfill their lease obligations.
Due to the wide distribution of the Companys assignments among third parties, and various other
remedies available, the Company believes the likelihood that it will be required to assume a
material amount of these obligations is remote.
In the ordinary course of business, the Company enters into supply contracts to purchase products
for resale. These contracts typically include either volume commitments or fixed expiration dates,
termination provisions and other standard contractual considerations. As of June 20, 2009, the
Company had approximately $1,662 of non-cancelable future purchase obligations primarily related to
supply contracts.
The Company is a party to a variety of contractual agreements under which the Company may be
obligated to indemnify the other party for certain matters, which indemnities may be secured by
operation of law or otherwise, in the ordinary course of business. These contracts primarily relate
to the Companys commercial contracts, operating leases and other real estate contracts, financial
agreements, agreements to provide services to the Company and agreements to indemnify officers,
directors and employees in the performance of their work. While the Companys aggregate
indemnification obligation could result in a material liability, the
16
Company is aware of no current matter that it expects to result in a material liability.
The Company is a party to various legal proceedings arising from the normal course of business as
described in Part IIOther Information, Item 1, under the caption Legal Proceedings and in Note
11 Commitments, Contingencies and Off-Balance Sheet Arrangements, none of which, in managements
opinion, is expected to have a material adverse impact on the Companys financial condition,
results of operations or cash flows.
Pension Plan / Health and Welfare Plan Contingencies
The Company contributes to various multi-employer pension plans under collective bargaining
agreements, primarily defined benefit pension plans. These plans generally provide retirement
benefits to participants based on their service to contributing employers. Based on available
information, the Company believes that some of the multi-employer plans to which it contributes are
underfunded. Company contributions to these plans could increase in the near term. However, the
amount of any increase or decrease in contributions will depend on a variety of factors, including
the results of the Companys collective bargaining efforts, investment returns on the assets held
in the plans, actions taken by the trustees who manage the plans and requirements under the Pension
Protection Act and Section 412(e) of the Internal Revenue Code. Furthermore, if the Company were to
significantly reduce contributions, exit certain markets or otherwise cease making contributions to
these plans, it could trigger a partial or complete withdrawal that would require the Company to
fund its proportionate share of a plans unfunded vested benefits.
The Company also makes contributions to multi-employer health and welfare plans in amounts set
forth in the related collective bargaining agreements. The majority of the Companys collective
bargaining agreements fix or limit the Companys contributions to multi-employer health and welfare
plans. The remaining agreements contain requirements that could result in additional
contributions, increasing the Companys Selling and administrative expenses in the future.
Contractual Obligations
There have been no material changes in the Companys contractual obligations since the end of
fiscal 2009. Refer to Item 7 of the Companys Annual Report on Form 10-K for the fiscal year ended
February 28, 2009 for additional information regarding the Companys contractual obligations.
CRITICAL ACCOUNTING POLICIES
The description of critical accounting policies is included in Item 7 of the Companys Annual
Report on Form 10-K for the fiscal year ended February 28, 2009.
NEW ACCOUNTING STANDARDS
In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets. FSP FAS
132(R)-1 provides additional guidance regarding disclosures about plan assets of defined benefit
pension or other postretirement plans. FSP FAS 132(R)-1 will be effective for the Companys fiscal
year ending February 27, 2010. The adoption of FSP FAS 132(R)-1 will result in enhanced
disclosures, but will not otherwise have an impact on the Companys consolidated financial
statements.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE SECURITIES LITIGATION
REFORM ACT
Any statements contained in this report regarding the outlook for our businesses and their
respective markets, such as projections of future performance,
guidance, statements of our plans and
objectives, forecasts of market trends and other matters, are forward-looking statements based on
our assumptions and beliefs. Such statements may be identified by such words or phrases as will
likely result, are expected to, will continue, outlook, will benefit, is anticipated,
estimate, project, management believes or similar expressions. These forward-looking
statements are subject to certain risks and uncertainties that could cause actual results to differ
materially from those discussed in such statements and no assurance can be given that the results
in any forward-looking statement will be achieved. For these statements, SUPERVALU INC. claims the
protection of the safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995. Any forward-looking statement speaks only as of the date on which it
is made, and we disclaim any obligation to subsequently revise any forward-looking statement to
reflect events or circumstances after such date or to reflect the occurrence of anticipated or
unanticipated events.
Certain factors could cause our future results to differ materially from those expressed or implied
in any forward-looking statements contained in this report. These factors include the factors
discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading Risk
Factors, the factors discussed below and any other cautionary statements, written or oral, which
may be made or referred to in connection with any such forward-looking statements. Since it is not
possible to foresee all such factors, these factors should not be considered as complete or
exhaustive.
17
Economic and Industry Conditions
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Adverse changes in economic conditions that affect consumer spending or buying habits |
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Food and drug price inflation or deflation |
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Increases in energy costs and commodity prices, which could impact consumer spending
and buying habits and the cost of doing business |
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The availability of favorable credit and trade terms |
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Changes in interest rates |
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The outcome of negotiations with partners, governments, suppliers, unions or
customers |
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Narrow profit margins in the grocery industry |
Competitive Practices
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Our ability to attract and retain customers |
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Our ability to hire, train or retain employees |
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Competition from other food or drug retail chains, supercenters, non-traditional
competitors and emerging alternative formats in our retail markets |
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Declines in the retail sales activity of our Supply chain services customers due to
competition or increased self-distribution |
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Changes in demographics or consumer preferences that affect consumer spending habits |
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The impact of consolidation in the retail food and supply chain services industries |
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The success of our promotional and sales programs and our ability to respond to the
promotional practices of competitors |
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The ability to successfully improve buying practices and shrink |
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The increase in the penetration of our Own Brands private label program could impact
identical store retail sales growth |
Food Safety
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Events that give rise to actual or potential food contamination, drug contamination
or food-borne illness or any adverse publicity relating to these types of concern, whether
or not valid |
Integration of Acquired Businesses
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Our ability to successfully combine our operations with any businesses we have
acquired or may acquire, to achieve expected synergies and to minimize the diversion of
managements attention and resources |
Store Expansion and Remodeling
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Potential delays in the development, construction or start-up of planned projects |
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Our ability to locate suitable store or distribution center sites, negotiate
acceptable purchase or lease terms and build or expand facilities in a manner that
achieves appropriate returns on our capital investment |
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The adequacy of our capital resources for future acquisitions, the expansion of
existing operations or improvements to facilities |
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Our ability to make acquisitions at acceptable rates of return, assimilate acquired
operations and integrate the personnel of the acquired business |
Liquidity
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Additional funding requirements to meet anticipated debt payments and capital needs |
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The impact of acquisitions on our level of indebtedness, debt ratings, costs and
future financial flexibility |
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The impact of the recent turmoil in the financial markets on the availability and
cost of credit |
Labor Relations
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Potential work disruptions resulting from labor disputes |
Employee Benefit Costs
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Increased operating costs resulting from rising employee benefit costs or pension
funding obligations |
18
Regulatory Matters
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The ability to timely obtain permits, comply with government regulations or make
capital expenditures required to maintain compliance with government regulations |
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Changes in applicable laws and regulations that impose additional requirements or
restrictions on the operation of our businesses |
Self-Insurance
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Variability in actuarial projection regarding workers compensation and general and
automobile liability |
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Potential increase in the number or severity of claims for which we are self-insured |
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Significant volatility in the amount and timing of payments |
Legal and Administrative Proceedings
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Unfavorable outcomes in litigation, governmental or administrative proceedings or
other disputes |
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Adverse publicity related to such unfavorable outcomes |
Information Technology
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Difficulties in developing, maintaining or upgrading information technology systems |
Security
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Business disruptions or losses resulting from wartime activities, acts or threats of
terror, data theft, information espionage, or other criminal activity directed at the food
and drug industry, the transportation industry or computer or communications systems |
Severe Weather, Natural Disasters and Adverse Climate Changes
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Property damage or business disruption resulting from severe weather conditions and
natural disasters that affect us, our customers or suppliers |
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Unseasonably adverse climate conditions that impact the availability or cost of
certain products in the grocery supply chain |
Accounting Matters
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Changes in accounting standards that impact our financial statements |
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ITEM 3. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
There were no material changes in market risk for the Company in the period covered by this report.
See the discussion of market risk in Item 7A of the Companys Annual Report on Form 10-K for the
fiscal year ended February 28, 2009.
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ITEM 4. |
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CONTROLS AND PROCEDURES |
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer,
have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934) as of June 20, 2009. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys
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
Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commissions rules and forms and (2) accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, in a manner that allows timely decisions regarding required disclosure.
In connection with the evaluation described above, there were no changes in the Companys internal
control over financial reporting that occurred during the Companys most recently completed fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
19
PART II OTHER INFORMATION
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ITEM 1. |
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LEGAL PROCEEDINGS |
The Company is subject to various lawsuits, claims and other legal matters that arise in the
ordinary course of conducting business, none of which, in managements opinion, is expected to have
a material adverse impact on the Companys 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. (Sav-on Drug Stores) and Lucky
Stores, Inc. (Lucky Stores), wholly-owned subsidiaries of Albertsons, 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 based on the plaintiffs allegation that they were
improperly classified as exempt under California law. In May 2001, the Court certified a class with
respect to Sav-on Drug Stores assistant managers. A case with very similar claims, involving the
Sav-on Drug Stores assistant managers and operating managers, was also filed in April 2000 against
Sav-on Drug Stores in the Superior Court for the County of Los Angeles, California (Rocher, Dahlin,
et al. v. Sav-on Drug Stores, Inc.), and was certified as a class action in June 2001 with respect
to assistant managers and operating managers. The two cases were consolidated in December 2001. New
Albertsons was added as a named defendant in November 2006. Plaintiffs seek overtime wages, meal
and rest break penalties, other statutory penalties, punitive damages, interest, injunctive relief
and the attorneys fees and costs. The parties have entered into a memorandum of understanding
regarding settlement of this matter and are currently negotiating terms of a preliminary settlement
agreement. 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 lawsuit will have a material adverse effect on the Companys
financial condition, results of operations or cash flows.
In September 2008, a class action complaint was filed against the Company, as well as International
Outsourcing Services, LLC (IOS), Inmar, Inc., Carolina Manufacturers Services, Inc., Carolina
Coupon Clearing, Inc. and Carolina Services, in the United States District Court in the Eastern
District of Wisconsin. The plaintiffs in the case are a consumer goods manufacturer, a grocery
co-operative and a retailer marketing services company who allege on behalf of a purported class
that the Company and the other defendants (i) conspired to restrict the markets for coupon
processing services under the Sherman Act and (ii) were part of an illegal enterprise to defraud
the plaintiffs under the Federal Racketeer Influenced and Corrupt Organizations Act. The
plaintiffs seek monetary damages, attorneys fees and injunctive relief. The Company intends to
vigorously defend this lawsuit, however all proceedings have been stayed in the case pending the
result of the criminal prosecution of certain former officers of IOS. 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 lawsuit
will have a material adverse effect on the Companys financial condition, results of operations or
cash flows.
In December 2008, a class action complaint was filed in the United States District Court for the
Western District of Wisconsin against the Company alleging that a 2003 transaction between the
Company and C&S Wholesale Grocers, Inc. (C&S) was a conspiracy to restrain trade and allocate
markets. In the 2003 transaction, the Company purchased certain assets of the Fleming Corporation
as part of Fleming Corporations bankruptcy proceedings and sold certain assets of the
Company to C&S which were located in New England. The complaint alleges that the conspiracy was
concealed and continued through the use of non-compete and non-solicitation agreements and the
closing down of the distribution facilities that the Company and C&S purchased from the other.
Plaintiffs are seeking monetary damages, injunctive relief and attorneys fees. The Company is
vigorously defending this lawsuit. 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 lawsuit will have a material adverse effect on
the Companys financial condition, results of operations or cash flows.
In July 2009, a putative class action complaint was filed in the United States District Court for
the Southern District of New York against the Company and an officer and the Executive Chairman of
the Board alleging fraud under Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5.
The complaint alleges that the Company withheld negative information from the market by inflating
its fiscal year 2010 guidance in order to complete the Companys Note Offering which closed on May
7, 2009. The purported class period runs between April 23, 2009 and June 23, 2009. Plaintiff is
seeking class certification, monetary damages and attorneys fees and costs. The Company intends
to vigorously defend this lawsuit. 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 lawsuit will have a material adverse effect on
the Companys financial condition, results of operations or cash flows.
The Company is also involved in routine legal proceedings incidental to its operations. Some of
these routine proceedings involve class allegations, many of which are ultimately dismissed.
Management does not expect that the ultimate resolution of these legal proceedings will have a
material adverse effect on the Companys financial condition, results of operations or cash flows.
The statements above reflect managements 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 involves substantial uncertainties that could cause actual outcomes,
costs and exposures to vary materially from current expectations. In addition, the Company
20
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 and believes recorded reserves are adequate. It is possible, although
management believes it is remote, 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 Companys financial condition, results of
operations or cash flows.
Various risks and uncertainties may affect the Companys business. Any of the risks described below
or elsewhere in this Quarterly Report on Form 10-Q or the Companys other SEC filings may have
a material impact on the Companys business, financial condition or results of operations.
General economic conditions, which are largely out of the Companys control, may adversely affect
the Companys financial condition and results of operations.
The Companys Retail food and Supply chain services businesses are sensitive to changes in general
economic conditions, both nationally and locally. Recessionary economic cycles, higher interest
rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels
of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or
other economic factors that may affect consumer spending or buying habits may adversely affect the
demand for products the Company sells in its stores or distributes to its independent retail
customers. The United States economy and financial markets have declined and experienced
volatility due to uncertainties related to energy prices, availability of credit, difficulties in
the banking and financial services sectors, the decline in the housing market, diminished market
liquidity, falling consumer confidence and rising unemployment rates. As a result, consumers are
more cautious. This may lead to additional reductions in consumer spending, to consumers trading
down to a less expensive mix of products or to consumers trading down to discounters for grocery
items, all of which may affect the Companys financial condition and results of operations. Food
deflation could reduce sales growth, while food inflation, combined with reduced consumer spending,
could reduce gross profit margins. We are unable to predict when the economy will improve. If the
economy does not improve, the Companys business, results of operations and financial condition may
be adversely affected.
Furthermore, the Company may experience additional reductions in traffic in its own stores or
stores of independent retail customers that it supplies, or limitations on the prices the Company
can charge for its products, either of which may reduce the Companys sales and profit margins and
have a material adverse affect on the Companys financial condition and results of operations.
Also, economic factors such as those listed above and increased transportation costs, inflation,
higher costs of labor, insurance and healthcare, and changes in other laws and regulations may
increase the Companys cost of sales and the Companys operating, selling, general and
administrative expenses, and otherwise adversely affect the financial condition and results of
operations of the Companys Retail food and Supply chain services businesses.
The Company faces a high level of competition in the Retail food and Supply chain services
businesses, which may adversely affect the Companys financial condition and results of operations.
The Companys Retail food business faces competition for customers, employees, store sites,
products and in other important areas from traditional grocery retailers, including regional and
national chains and independent food store operators, and non-traditional retailers, such as
supercenters, membership warehouse clubs, combination food and pharmacy stores, limited assortment
food stores, specialty supermarkets, drug stores, discount stores, dollar stores, convenience
stores and restaurants. The Companys ability to attract customers in this business is dependent,
in large part, upon a combination of product price, quality, assortment, brand recognition, store
location, in-store marketing and design, promotional strategies and continued growth into new
markets. In addition, the nature and extent to which our competitors implement various pricing and
promotional activities in response to increasing competition and the Companys response to these
competitive actions, can adversely affect profitability.
The Companys Supply chain services business is primarily wholesale distribution and includes a
third-party logistics component. The distribution component of the Companys Supply chain services
business competes with traditional grocery wholesalers on the basis of product price, quality,
assortment, schedule and reliability of deliveries, service fees and distribution facility
locations. The third-party logistics component of the Companys Supply chain services business
competes nationwide in a highly fragmented marketplace with a number of large international and
domestic companies and many smaller, regional companies on the basis of warehousing and
transportation logistics expertise, cost and the ability to offer asset and non-asset based
solutions and design and manage customer supply chains. Competitive pressures on the Companys
Retail food and Supply chain services businesses may cause the Company to experience:
(i) reductions in the prices at which the Company is able to sell products at its retail locations
or to its independent retail customers, (ii) decreases in sales volume due to increased difficulty
in selling the Companys products and (iii) difficulty in attracting and retaining customers. Any
of these outcomes may adversely affect the Companys financial condition and results of operations.
In addition, the nature and extent of consolidation in the retail food and food distribution
industries may affect the Companys
21
competitive position or that of the Companys independent retail customers in the markets the
Company serves. Although the retail food industry as a whole is highly fragmented, certain
segments are currently undergoing some consolidation, which may result in increased competition and
significantly alter the dynamics of the retail food marketplace. Such consolidation may result in
competitors with greatly improved financial resources, improved access to merchandise, greater
market penetration and other improvements in their competitive positions. Such business
combinations may result in the provision of a wider variety of products and services at competitive
prices by such consolidated companies, which may adversely affect the Companys financial condition
and results of operations.
The
Company has been subject to negative operating trends, which may
adversely affect the Companys results of
operations.
The Company has experienced negative operating trends, including negative identical store sales,
resulting from the unprecedented decline in the economy and
financial and credit market turmoil during fiscal
2009 and the beginning of fiscal 2010, which negatively affected consumer confidence and spending
and pressured trading down practices by customers. In addition, the operating trends were
impacted by lower margins resulting from certain ineffective pricing and promotional efforts to
address these trends. Additional reductions in consumer spending, consumers trading down to a less
expensive mix of products and consumers trading down to discounters for grocery items, all of which
impacted the Companys results for fiscal 2009 and the beginning of fiscal 2010, may continue to
negatively impact the Companys results. If the Companys merchandising and marketing initiatives
do not work as planned or if these negative operating trends continue or worsen, the Companys
business, results of operations and financial condition would be adversely affected.
Food and drug safety concerns and related unfavorable publicity may adversely affect the Companys
sales and results of operations.
There is increasing governmental scrutiny and public awareness regarding food and drug safety. The
Company may be adversely affected if consumers lose confidence in the safety and quality of the
Companys food and drug products. Any events that give rise to actual or potential food
contamination, drug contamination or food-borne illness may result in product liability claims and
a loss of consumer confidence. In addition, adverse publicity about these types of concerns
whether valid or not, may discourage consumers from buying the Companys products or cause
production and delivery disruptions, which may have an adverse effect on the Companys sales and
results of operations.
The Companys substantial indebtedness and lower credit rating may increase the Companys borrowing
costs, decrease the Companys business flexibility and adversely affect the Companys financial
condition and results of operations.
The Company has, and expects to continue to have, a substantial amount of debt and a significantly
lower debt coverage ratio as compared to what the Company had before the Acquisition. In addition,
as a result of the Acquisition, the Companys debt no longer has an investment-grade rating.
The Companys level of indebtedness and the reduction of its credit rating may have important
consequences to the operation of its businesses and may increase its vulnerability to general
adverse economic conditions. For example, they may:
|
|
|
require the Company to use a substantial portion of its cash flow from operations for
the payment of principal of, and interest on, its indebtedness, thereby reducing the
availability of the Companys cash flow to fund working capital, capital expenditures,
acquisitions, development efforts and other general corporate purposes; |
|
|
|
|
limit the Companys ability to obtain, or increase the cost at which the Company is
able to obtain, additional financing to fund working capital, capital expenditures,
additional acquisitions or general corporate requirements; and |
|
|
|
|
limit the Companys flexibility to adjust to changing business and market conditions
and place the Company at a competitive disadvantage relative to its competitors that
have less debt. |
In addition, the Companys ability to make scheduled payments or to refinance its obligations with
respect to its indebtedness will depend upon the Companys operating and financial performance,
which, in turn, is subject to prevailing economic conditions and to financial, business and other
factors beyond the Companys control. As a result, the Companys substantial indebtedness and
lower credit rating may increase the Companys borrowing costs, decrease the Companys business
flexibility and adversely affect the Companys financial condition and results of operations.
Furthermore, the turmoil in the financial markets, including the bankruptcy or restructuring of
certain financial institutions, may adversely impact the availability and cost of credit in the
future. There can be no assurances that government responses to the disruptions in the financial
markets will stabilize the markets or increase liquidity and the availability of credit.
The Companys inability to successfully negotiate with labor unions or to maintain good labor
relations may lead to labor disputes and the disruption of the Companys businesses, which may
adversely affect the Companys financial condition and results of operations.
A large number of the Companys employees are unionized, and the Companys relationship with
unions, including labor disputes or work stoppages, may affect the sale and distribution of the
Companys products and have an adverse impact on the Companys financial condition and results of
operations. As of February 28, 2009, the Company is a party to 266 collective bargaining
agreements covering approximately 110,000 of its employees, of which 47 covering approximately
37,000 employees are scheduled to expire in fiscal 2010. These expiring agreements cover
approximately 34 percent of the Companys union-affiliated employees. In addition, during fiscal
2009, 62 collective bargaining agreements covering approximately 4,500 employees expired without
their terms being renegotiated. Negotiations are expected to continue with the bargaining units
representing the employees subject to those agreements. In future negotiations with labor unions,
the Company expects that, among other issues, rising healthcare, pension and employee benefit costs
will be important topics for negotiation. There can be no assurance that the Company will be able
to negotiate the terms of any expiring or expired agreement in a manner acceptable to the Company.
Therefore, potential work disruptions from labor disputes may result, which may disrupt the
Companys businesses and adversely affect the Companys financial condition and
results of operations.
22
Escalating costs of providing employee benefits may adversely affect the Companys financial
condition and results of operations.
The Company provides health benefits to and sponsors defined pension and other post-retirement
plans for substantially all employees not participating in multi-employer health and pension plans.
The Companys costs to provide such benefits continue to increase annually. In addition, the
Company participates in various multi-employer health and pension plans for a majority of its
unionized employees, and the Company is required to make contributions to these plans in amounts
established under collective bargaining agreements. The costs of providing benefits through such
plans have escalated rapidly in recent years and contributions to these plans may continue to
create collective bargaining challenges. The amount of any increase or decrease in the Companys
required contributions to these multi-employer plans will depend upon many factors, including the
outcome of collective bargaining, actions taken by trustees who manage the plans, government
regulations, the actual return on assets held in the plans and the potential payment of a
withdrawal liability if the Company chooses to exit a market. Increases in the costs of benefits
under these plans coupled with adverse stock market developments that have reduced the return on
plan assets have caused some multi-employer plans in which the Company participates to be
underfunded. The unfunded liabilities of these plans may result in increased future payments by
the Company and the other participating employers, including costs that may arise with respect to
any potential litigation or that may cause the acceleration of payments to fund any underfunded
plan. The Companys risk of such increased payments may be greater if any of the participating
employers in these underfunded plans withdraws from the plan due to insolvency and is not able to
contribute an amount sufficient to fund the unfunded liabilities associated with its participants
of the plan. If the Company is unable to control healthcare and pension costs, the Company may
experience increased operating costs, which may have a material adverse effect on the Companys
financial condition and results of operations.
The Companys inability to open and remodel a significant number of stores as planned may have an
adverse effect on the Companys financial condition and results of operations.
In fiscal
2010, pursuant to the Companys 2010 capital plan, the Company expects to complete 65 to
70 major store remodels, 25 to 30 minor store remodels, three new combination and food stores, and
45 to 55 limited assortment stores, including licensed stores. If, as a result of labor relations
issues, supply issues or environmental and real estate delays, a significant portion of these
capital projects do not stay reasonably within the time and financial budgets that the Company has
forecasted, the Companys financial condition and results of operations may be adversely affected.
Furthermore, the Company cannot ensure that the new or remodeled stores will achieve anticipated
results. As a result, the Companys inability to open and remodel a significant number of stores
as planned may have an adverse effect on the Companys financial condition and results of
operations.
The industries in which the Company operates have narrow profit margins, which may adversely affect
the Companys business.
Profit margins in the grocery industry are very narrow. In order to increase or maintain the
Companys profit margins, strategies are used to reduce costs, such as productivity improvements,
shrink reduction, distribution center efficiencies, energy efficiency programs and other similar
strategies. Changes in product mix also may negatively affect certain financial measures. If the
Company is unable to achieve forecasted cost reductions there may be an adverse effect on the
Companys business.
If the Company is unable to comply with governmental regulations or if there are unfavorable
changes in such government regulations, the Companys financial condition and results of operations
may be adversely affected.
The Companys businesses are subject to various federal, state and local laws, regulations and
administrative practices. These laws require the Company to comply with numerous provisions
regulating health and sanitation standards, equal employment opportunity, minimum wages and
licensing for the sale of food, drugs and alcoholic beverages. The Companys inability to timely
obtain permits, comply with government regulations or make capital expenditures required to
maintain compliance with governmental regulations may affect the Companys ability to open new
stores or expand existing facilities, which may adversely impact the Companys business operations
and prospects for future growth. In addition, the Company cannot predict the nature of future
laws, regulations, interpretations or applications, nor can the Company determine the effect that
additional governmental regulations or administrative orders, when and if promulgated, or disparate
federal, state and local regulatory schemes would have on the Companys future business. They may,
however, impose additional requirements or restrictions on the products the Company sells or manner
in which the Company operates its businesses. Any or all of such requirements may have an adverse
effect on the Companys financial condition and results of operations.
If the number or severity of claims for which the Company is self-insured increases, or the Company
is required to accrue or pay additional amounts because the claims prove to be more severe than the
Companys recorded liabilities, the Companys financial condition and results of operations may be
adversely affected.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities
for workers compensation,
23
automobile and general liability, property insurance and employee healthcare benefits. The Company
estimates the liabilities associated with the risks retained by the Company, in part, by
considering historical claims experience, demographic and severity factors and other actuarial
assumptions which, by their nature, are subject to a degree of variability. Any actuarial
projection of losses concerning workers compensation and general and automobile liability is
subject to a degree of variability. Among the causes of this variability are unpredictable external
factors affecting future inflation rates, discount rates, litigation trends, legal interpretations,
benefit level changes and actual claim settlement patterns.
Some of the many sources of uncertainty in the Companys reserve estimates include changes in
benefit levels, medical fee schedules, medical utilization guidelines, vocation rehabilitation and
apportionment. If the number or severity of claims for which the Company is self-insured increases,
or the Company is required to accrue or pay additional amounts because the claims prove to be more
severe than the Companys original assessments, the Companys financial condition and results of
operations may be adversely affected.
The Companys policy is to discount its self-insurance liabilities at a risk-free interest rate,
which is appropriate based on the Companys ability to reliably estimate the amount and timing of
cash payments. If, in the future, the Company were to experience significant volatility in the
amount and timing of cash payments compared to the Companys earlier estimates, the Company would
assess whether it is appropriate to continue to discount these liabilities.
Litigation may adversely affect the Companys businesses, financial condition and results of
operations.
The Companys businesses are subject to the risk of litigation by employees, consumers, suppliers,
stockholders or others through private actions, class actions, administrative proceedings,
regulatory actions or other litigation. The outcome of litigation, particularly class action
lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of
lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the
potential loss relating to such lawsuits may remain unknown for substantial periods of time. The
cost to defend future litigation may be significant. There may also be adverse publicity
associated with litigation that may decrease consumer confidence in the Companys businesses,
regardless of whether the allegations are valid or whether the Company is ultimately found liable.
As a result, litigation may adversely affect the Companys businesses, financial condition and
results of operations.
Difficulties with the Companys information technology systems may adversely affect the Companys
results of operations.
The Company has complex information technology systems that are important to the operation of its
businesses. The Company may encounter difficulties in developing new systems or maintaining and
upgrading existing systems. Such difficulties may lead to significant expenses or losses due to
disruption in business operations and, as a result, may adversely affect the Companys results of
operations.
Threats or potential threats to security or the occurrence of a widespread health epidemic may
adversely affect the Companys financial condition and results of operations.
The Companys businesses may be severely impacted by wartime activities, threats or acts of terror
or a widespread regional, national or global health epidemic, such as pandemic flu. Such
activities, threats or epidemics may adversely impact the Companys businesses by disrupting
production and delivery of products to its stores or to its independent retail customers, by
affecting the Companys ability to appropriately staff its stores and by causing customers to avoid
public gathering places or otherwise change their shopping behaviors.
Additionally, data theft, information espionage or other criminal activity directed at the grocery
or drug store industry, the transportation industry, or computer or communications systems may
adversely affect the Companys businesses by causing the Company to implement costly security
measures in recognition of actual or potential threats, by requiring the Company to expend
significant time and expense developing, maintaining or upgrading its information technology
systems and by causing the Company to incur significant costs to reimburse third parties for
damages. Such activities may also adversely affect the Companys financial condition and results
of operations by reducing consumer confidence in the marketplace and by modifying consumer spending
habits.
Severe weather, natural disasters and adverse climate changes may adversely affect the Companys
financial condition and results of operations.
Severe weather conditions such as hurricanes, earthquakes or tornadoes, as well as other natural
disasters, in areas in which the Company has stores or distribution facilities or from which the
Company obtains products may adversely affect the Companys results of operations. Such conditions
may cause physical damage to the Companys properties, closure of one or more of the Companys
stores or distribution facilities, lack of an adequate work force in a market, temporary disruption
in the supply of products, disruption in the transport of goods, delays in the delivery of goods to
the Companys distribution centers or stores and a reduction in the availability of products in the
Companys stores. In addition, adverse climate conditions and adverse weather patterns, such as
drought or flood, that impact growing conditions and the quantity and quality of crops yielded by
food producers may adversely affect the availability or cost of certain products within the grocery
supply chain. Any of these factors may disrupt the Companys businesses and adversely affect the Companys financial condition and results of operations.
24
Changes in accounting standards may materially impact the Companys financial condition and results
of operations.
Accounting principles generally accepted in the Unites States and related accounting
pronouncements, implementation guidelines, and interpretations for many aspects of the Companys
business, such as accounting for insurance and self-insurance, inventories, goodwill and intangible
assets, store closures, leases, income taxes and stock-based compensation, are complex and involve
subjective judgments. Changes in these rules or their interpretation may significantly change or
add significant volatility to the Companys reported earnings without a comparable underlying
change in cash flow from operations. As a result, changes in accounting standards may materially
impact the Companys financial condition and results of operations.
An impairment in the carrying value of the Companys goodwill or other intangible assets may
adversely affect the Companys financial condition and results of operations.
The Company is required to annually test goodwill and intangible assets with indefinite lives,
including the goodwill associated with past acquisitions and any future acquisitions, to determine
if impairment has occurred. Additionally, interim reviews must be performed whenever events or
changes in circumstances indicate that impairment may have occurred. If the testing performed
indicates that impairment has occurred, the Company is required to record a non-cash impairment
charge for the difference between the carrying value of the goodwill or other intangible assets and
the implied fair value of the goodwill or other intangible assets in the period the determination
is made. The testing of goodwill and other intangible assets for impairment requires the Company
to make significant estimates about our future performance and cash flows, as well as other
assumptions. These estimates can be affected by numerous factors, including changes in economic,
industry or market conditions, changes in business operations, changes in competition or potential
changes in the Companys stock price and market capitalization. Changes in these factors, or
changes in actual performance compared with estimates of the Companys future performance, may
affect the fair value of goodwill or other intangible assets, which may result in an impairment
charge. The Company cannot accurately predict the amount and timing of any impairment of assets.
Should the value of goodwill or other intangible assets become impaired, there may be an adverse
effect on the Companys financial condition and results of operations.
25
|
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ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|
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|
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|
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|
Total Number of |
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|
Approximate |
|
|
|
|
|
|
|
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Shares Purchased |
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Dollar Value of |
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as Part of |
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Shares that May |
|
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|
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|
|
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Publicly |
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Yet be Purchased |
|
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|
|
|
|
|
|
|
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|
Announced |
|
|
Under the |
|
|
|
Total Number |
|
|
Average |
|
|
Treasury Stock |
|
|
Treasury Stock |
|
(in millions, except shares and
per share amounts) |
|
of Shares |
|
|
Price Paid |
|
|
Purchase |
|
|
Purchase |
|
Period (1) |
|
Purchased (2) |
|
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Per Share |
|
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Program (3) |
|
|
Program (3) |
|
First four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2009 to March 28, 2009 |
|
|
185,913 |
|
|
$ |
15.21 |
|
|
|
|
|
|
$ |
53 |
|
Second four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
March 29, 2009 to April 25, 2009 |
|
|
3,270 |
|
|
$ |
14.08 |
|
|
|
|
|
|
$ |
53 |
|
Third four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 26, 2009 to May 23, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
53 |
|
Fourth four weeks |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
May 24, 2009 to June 20, 2009 |
|
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808 |
|
|
$ |
15.90 |
|
|
|
|
|
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$ |
70 |
|
|
|
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|
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|
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Totals |
|
|
189,991 |
|
|
$ |
15.19 |
|
|
|
|
|
|
$ |
70 |
|
|
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|
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|
|
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|
|
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|
|
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(1) |
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The reported periods conform to the Companys fiscal calendar composed of thirteen 28-day
periods. The first quarter of fiscal 2010 contains four 28-day periods. |
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(2) |
|
These amounts include the deemed surrender by participants in the Companys compensatory
stock plans of 189,991 shares of previously issued common stock. These are in payment of the
purchase price for shares acquired pursuant to the exercise of stock options and satisfaction
of tax obligations arising from such exercises, as well as from the vesting of restricted
stock awards granted under such plans. |
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(3) |
|
On May 28, 2009, the Board of Directors of the Company adopted and announced a new annual
share repurchase program authorizing the Company to purchase up to $70 of the Companys common
stock. Stock purchases will be made primarily from the cash generated from the settlement of
stock options. This annual authorization program replaced the previously existing share
repurchase program and continues through June 2010. |
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ITEM 3. |
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DEFAULTS UPON SENIOR SECURITIES |
None.
26
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ITEM 4. |
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The Company held its Annual Meeting of Stockholders on June 25, 2009, at which the stockholders
took the following actions:
(i) elected Irwin S. Cohen, Ronald E. Daly, Lawrence A. Del Santo, Susan E. Engel, Craig R. Herkert
and Kathi P. Seifert to the Board of Directors for a one-year term expiring in 2010. The votes cast
for and withheld with respect to each such Director are set forth below. No broker non-votes
occurred with respect to any Director.
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|
|
|
|
|
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|
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For |
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Against |
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Abstain |
Irwin S. Cohen |
|
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180,681,841 |
|
|
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3,577,293 |
|
|
|
228,667 |
|
Ronald E. Daly |
|
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179,418,143 |
|
|
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4,830,493 |
|
|
|
239,165 |
|
Lawrence A. Del Santo |
|
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177,723,946 |
|
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6,358,704 |
|
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405,151 |
|
Susan E. Engel |
|
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179,334,462 |
|
|
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4,873,708 |
|
|
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279,631 |
|
Craig R. Herkert |
|
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179,765,547 |
|
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4,506,715 |
|
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215,539 |
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Kathi P. Seifert |
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177,268,803 |
|
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6,981,323 |
|
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237,675 |
|
The Directors whose terms continued after the meeting are as follows: A. Gary Ames, Philip L.
Francis, Edwin C. Gage, Garnett L. Keith, Jr., Charles M. Lillis, Jeffrey Noddle, Marissa T.
Peterson, Steven S. Rogers and Wayne C. Sales;
(ii) ratified by a vote of 179,188,730 for, 5,123,887 against, 175,184 abstaining and no broker
non-votes, for the appointment of KPMG LLP as independent registered public accountants of the
Company for the fiscal year ending February 27, 2010;
(iii) rejected by a vote of 132,778,546 against, 10,786,096 for, 21,040,293 abstaining and
19,882,866 broker non-votes, a stockholder proposal regarding tobacco drugstore sales; and
(iv) approved by a vote of 84,232,409 for, 75,504,716 against, 4,077,506 abstaining and 20,673,170
broker non-votes, a stockholder proposal regarding say-on-pay.
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ITEM 5. |
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OTHER INFORMATION |
None.
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3.1 |
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Restated Bylaws, as amended July 7, 2009, is incorporated herein by reference to Exhibit 3.1 to the Current Report on
Form 8-K of the Company filed with the SEC on July 13, 2009. |
|
10.1 |
|
|
Form of Change of Control Severance Agreement, as amended [Tiers I, II & III]* |
|
31.1 |
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Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
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Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
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|
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
101 |
|
|
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the quarter ended June 20, 2009,
filed with the SEC on July 29, 2009, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed
Consolidated Segment Financial Information, (ii) the Condensed Consolidated Statements of Earnings, (iii) the
Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to
Condensed Consolidated Financial Statements, tagged as blocks of text. |
|
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* |
|
Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K. |
27
SIGNATURES
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.
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SUPERVALU INC. (Registrant)
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Dated: July 29, 2009 |
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/s/ SHERRY SMITH |
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Sherry Smith |
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Senior Vice President,
Finance (principal accounting officer)
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28
EXHIBIT INDEX
|
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Exhibit |
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|
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|
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|
3.1 |
|
|
Restated Bylaws, as amended July 7, 2009, is incorporated herein by reference to Exhibit 3.1 to the Current Report on
Form 8-K of the Company filed with the SEC on July 13, 2009. |
|
10.1 |
|
|
Form of Change of Control Severance Agreement, as amended [Tiers I, II & III]* |
|
31.1 |
|
|
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
31.2 |
|
|
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
32.1 |
|
|
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
32.2 |
|
|
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
101 |
|
|
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the quarter ended June 20, 2009,
filed with the SEC on July 29, 2009, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed
Consolidated Segment Financial Information, (ii) the Condensed Consolidated Statements of Earnings, (iii) the
Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to
Condensed Consolidated Financial Statements, tagged as blocks of text. |
|
|
|
* |
|
Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K. |
29