Supervalu 2004 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... union contract negotiations across the country; and moderate price inflation returned in some food categories. Today, we are witnessing transformation in the food retailing industry as companies embark on large-scale infrastructure initiatives to respond to more intense competition and drive sales...

  • Page 3
    ... its market share position by adding four new stores to its network. Cub Foods plans to open four more stores in Minnesota in fiscal 2005. We converted the Metro stores in Baltimore, Maryland, to Shoppers Food and Pharmacy, our strong price impact format in Washington, D.C., which promises to...

  • Page 4
    ...Chairman and Chief Executive Officer SUPERVALU Mission Statement Our mission at SUPERVALU always will be to serve our customers better than anyone else could serve them. We will provide our customers with value through our products and services, committing ourselves to providing the quality, variety...

  • Page 5
    ... INC PO Box 990 Minneapolis, MN 55440 Documents filed with the SEC may be accessed through the company's web site at www.supervalu.com. For investor relations inquiries, visit the company's web site at www.supervalu.com or contact: Yolanda Scharton, Vice President, Investor Relations & Corporate...

  • Page 6
    ...its charter) (State or other jurisdiction of incorporation or organization) Delaware (I.R.S. Employer Identification No.) 41-0617000 11840 Valley View Road Eden Prairie, Minnesota (Address of principal executive offices) 55344 (Zip Code) Registrant's telephone number, including area code: (952...

  • Page 7
    ...of Farm Fresh, Scott's and Hornbacher's. As of the close of the fiscal year, the company conducted its retail operations through 1,483 stores, including 821 licensed extreme value stores. SUPERVALU also provides food distribution and related logistics support services across the United States retail...

  • Page 8
    ... opening approximately 110 to 140 new extreme value stores and eight to 10 regional banner stores and continuing its store remodeling program. Extreme Value Stores. The company operates extreme value stores primarily under the Save-A-Lot banner. Save-A-Lot holds the number one market position...

  • Page 9
    ...; and economy products under the private label of SHOPPERS VALUE. SUPERVALU supplies private label merchandise over a broad range of products in the majority of departments in the store. These products are produced to the company's specifications by many suppliers. Logistics Network. The company has...

  • Page 10
    ADVANTAGE LOGISTICS, SENTRY, FESTIVAL FOODS, COUNTY MARKET, SHOP 'N SAVE, NEWMARKET, IGA, FOODLAND, JUBILEE, SUPERVALU and SUPERVALU PHARMACIES. The company registers a substantial number of its trademarks/service marks in the United States Patent and Trademark Office, including many of its private ...

  • Page 11
    ... (1), Michigan (1), Missouri (1), New York (1), Ohio (2), Tennessee (1), Texas (1), Wisconsin (1) 2 Cub Foods Illinois (29), Iowa (3), Minnesota (35), Wisconsin (9) Shop 'n Save Illinois (14), Missouri (21), Pennsylvania (19) Shoppers Food Delaware (1) Maryland (37), Virginia (20) Warehouse bigg...

  • Page 12
    ...) Region Location and Number of Distribution Centers Central Region Midwest Region Northern Region Northwest Region Southeast Region Eastern Region Indiana (1), Ohio (1), Pennsylvania (2), West Virginia (1) Illinois (2), Missouri (1), Texas (1), Wisconsin (2) Minnesota (1), North Dakota...

  • Page 13
    ...Treasurer Senior Vice President, Human Resources Vice President, Merchandising, Distribution Food Companies Vice President, Legal Vice President, Controller 1994 2002 1988 1998 2000 2004 Associate General Counsel, 19962000 The term of office of each executive officer is from one annual meeting of...

  • Page 14
    ..., he was Executive Vice President of Partner Alliances, 24K.com, a loyalty marketing company and affiliate of the Carlson Companies, Inc. From November 1992 to September 1999, he was presient and Chief Executive Officer of Cub Foods. Mr. Oliver was elected to his current position in April 2004. From...

  • Page 15
    ... April 24, 2004, there were 135,328,998 shares of common stock outstanding. At that date, there were 6,782 stockholders of record, excluding individual participants in security position listings. The information called for by Item 5 as to the sales price for the company's common stock on a quarterly...

  • Page 16
    ...profitability levels of the food industry and have become a pivotal issue in labor negotiations for unionized employees who bargain for health and retirement benefits in addition to wages. Approximately 42% of SUPERVALU's employees are unionized. In the St. Louis market, where we operate 21 regional...

  • Page 17
    ... and distribution operations. Save-A-Lot, our extreme value format, has nationwide potential, and currently operates in 37 states. After our fiscal 2003 acquisition of Deals, we tested in fiscal 2004 several new prototypes of an extreme value combination store, offering both food and dollar general...

  • Page 18
    ... merchandising execution for retail, including the expansion of general merchandise in the extreme value format, and the growing proportion of our retail food business, which operates at a higher gross profit margin as a percentage of net sales than does the food distribution business. Selling...

  • Page 19
    ... of the company's retail food business, which operates at a higher gross profit margin as a percentage of net sales than does the food distribution business, including the higher gross profit margin of the recently acquired and opened Deals stores. Gross profit in retail benefited from improved...

  • Page 20
    ... selling and administrative expense as a percentage of net sales than does the food distribution business, including the higher selling and administrative expense ratio of the recently acquired and opened Deals stores. Operating Earnings The company's operating earnings were $569.9 million for 2003...

  • Page 21
    ...real estate and employee related costs, net of after-tax proceeds from the sale of owned properties. Cash outflows will be funded by cash from operations. Restructure 2002 In fiscal 2002, the company identified additional efforts that would allow it to extend its food distribution efficiency program...

  • Page 22
    ...reserve increase of $11.7 million was a result of changes in estimates on employee benefit related costs from previously exited food distribution facilities and changes in estimates on exited real estate in certain markets for food distribution properties. Included in the asset impairment charges in...

  • Page 23
    ... of $2.9 million was a result of changes in estimates on exited real estate primarily due to the continued softening of real estate marketed for sale, sublease or assignment in certain markets and higher than anticipated employee related costs. In fiscal 2004, the fiscal 2000 restructure and other...

  • Page 24
    ... Employees 2,517 (1,693) (824) - CRITICAL ACCOUNTING POLICIES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts...

  • Page 25
    ... assets' carrying value. The company estimates net future cash flows based on its experience and knowledge of the market in which the closed property is located and, when necessary, utilizes local real estate brokers. Adjustments to closed property reserves primarily relate to changes in subtenant...

  • Page 26
    ..., benefit level changes and claim settlement patterns. A 100 basis point change in discount rates, based on changes in market rates would increase the company's liability by approximately $1.1 million. Retirement Plans The company sponsors non-union pension and other post retirement plans in...

  • Page 27
    ...and the purchase of treasury shares of $42.2 million. On April 1, 2004, the company completed the sale of its minority ownership interest in WinCo Foods, Inc., a privately-held regional grocery chain that operates stores in Idaho, Oregon, Nevada, Washington and California. The company received after...

  • Page 28
    ...94 per share as part of the 5.0 million share repurchase program authorized in fiscal 2002. SFAS No. 87, "Employers' Accounting for Pension", requires that a prepaid pension asset or minimum pension liability, based on the current market value of plan assets and the accumulated benefit obligation of...

  • Page 29
    ... extreme value general merchandise combination stores and approximately 30 regional banner major store remodels. The balance of the fiscal 2005 capital budget relates to distribution maintenance capital and information technology related items. In addition, the company will continue to support store...

  • Page 30
    ... that have annual purchase commitments of $1 million or greater. At the end of fiscal 2004, future purchase obligations of $69.0 million existed that primarily related to technology and advertising. In the ordinary course of business, the company enters into supply contracts to purchase products for...

  • Page 31
    COMMON STOCK PRICE SUPERVALU's common stock is listed on the New York Stock Exchange under the symbol SVU. At fiscal 2004 year end, there were 6,839 shareholders of record compared with 6,960 at the end of fiscal 2003. Common Stock Price Range 2004 2003 High Low High Low Dividends Per Share 2004 ...

  • Page 32
    ... for the federal subsidy is issued. Authoritative guidance on the accounting for the federal subsidy is pending and, when issued, could require information previously reported in the company's financial statements to change. The company is currently investigating the impacts of SFAS 106-1's initial...

  • Page 33
    ... to Consolidated Financial Statements for further information) and as such, carries notes receivable in the normal course of business. The notes generally bear fixed interest rates negotiated with each retail customer. The market value of the fixed rate notes is subject to change due to fluctuations...

  • Page 34
    ...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, statements of our plans and objectives, forecasts of market trends and other...

  • Page 35
    ... Benefit Costs. Potential work disruptions from labor disputes may affect sales at our stores as well as our ability to distribute products. We contribute to various multiemployer healthcare and pension plans covering certain union represented employees in both our retail and distribution operations...

  • Page 36
    ...and charters for each Committee of its Board of Directors, are also available on the company's website. The code of ethics, Corporate Governance Principles and charters are also available in print to any stockholder who submits a request to: SUPERVALU INC., P.O. Box 990, Minneapolis, Minnesota 55440...

  • Page 37
    ... the headings "Compensation of Directors," "Compensation of Executive Officers," "Option Grants in Last Fiscal Year," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values," "Long-Term Incentive Plans-Awards in Last Fiscal Year," "Pension Plans and Retirement Benefits...

  • Page 38
    ...the fair market value of the common stock on the date of the grant. Unless the Board otherwise specifies, restricted stock and restricted stock units will be forfeited and reacquired by the company if an employee is terminated. Performance awards granted under the plan may be payable in cash, shares...

  • Page 39
    ... LLP, independent auditors, are filed as part of this report. (2) Financial Statement Schedules: The consolidated financial statement schedules of the Registrant listed in the accompanying "Index of Selected Financial Data and Financial Statements and Schedules" together with the report of KPMG LLP...

  • Page 40
    ...29 to the Registrant's Annual Report on Form 10-K for the year ended February 24, 2001.* SUPERVALU INC. 1983 Employee Stock Option Plan, as amended, is incorporated by reference to Exhibit (10)a. to the Registrant's Quarterly Report on Form 10-Q for the quarterly period (12 weeks) ended September 12...

  • Page 41
    ...Executive Post Retirement Survivor Benefit Program, is incorporated by reference to Exhibit (10)i. to the Registrant's Quarterly Report on Form 10-Q for the quarterly period (12 weeks) ended September 12, 1998.* 10.17. Form of Change of Control Severance Agreements entered into with certain officers...

  • Page 42
    ... Fourth Amendment to SUPERVALU INC. Non-Qualified Supplement Executive Retirement Plan. is incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the year ended February 22, 2003.* 10.24. SUPERVALU INC. Non-Employee Directors Deferred Stock Plan, as amended, is...

  • Page 43
    ...by the undersigned, thereunto duly authorized. SUPERVALU INC. (Registrant) DATE: May 4, 2004 By: /s/ JEFFREY NODDLE Jeffrey Noddle Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 44
    ... and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 4, 2004 /s/ JEFFREY NODDLE Chief Executive Officer and President 39

  • Page 45
    ...and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 4, 2004 /s/ PAMELA K. KNOUS Executive Vice President, Chief Financial Officer...

  • Page 46
    ...this written statement required by Section 906 has been provided to SUPERVALU INC. and will be retained by SUPERVALU INC. and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 4, 2004 /s/ JEFFREY NODDLE Jeffrey Noddle Chief Executive Officer and President 41

  • Page 47
    ... statement required by Section 906 has been provided to SUPERVALU INC. and will be retained by SUPERVALU INC. and furnished to the Securities and Exchange Commission or its staff upon request. Dated: May 4, 2004 /s/ PAMELA K. KNOUS Pamela K. Knous Executive Vice President, Chief Financial Officer...

  • Page 48
    ... INC. Annual Report on Form 10-K Items 6, 8 and 15(a) Index of Selected Financial Data and Financial Statements and Schedules Page(s) Selected Financial Data: Five Year Financial and Operating Summary ...Financial Statements: Independent Auditors' Report ...Consolidated composition of net sales and...

  • Page 49
    ...(b) Statement of Earnings Data (a) Net sales Cost of sales Selling and administrative expenses Gain on sale of Hazelwood Farms Bakeries Restructure and other charges Operating earnings Interest, net Earnings before taxes Provision for income taxes Net earnings Net earnings per common share-diluted...

  • Page 50
    Notes: (a) Fiscal 2004 includes 53 weeks, all other years include 52 weeks. Dollars in thousands except per share and percentage data. (b) Fiscal 2000 net earnings include a net benefit of $10.9 million or $0.08 per diluted share from the gain on sale of Hazelwood Farms Bakeries and restructure ...

  • Page 51
    ... with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set...

  • Page 52
    ...The company's business is classified by management into two reportable segments: Retail food and Food distribution. Retail food operations include three retail formats: extreme value stores, regional price superstores and regional supermarkets. The retail formats include results of food stores owned...

  • Page 53
    ...OF EARNINGS (In thousands, except per share data) February 28, 2004 (53 weeks) February 22, 2003 (52 weeks) February 23, 2002 (52 weeks) Net sales Costs and expenses Cost of sales Selling and administrative expenses Restructure and other charges Operating earnings Interest Interest expense Interest...

  • Page 54
    ... Assets under capital leases Net property, plant and equipment Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable Accounts payable Accrued vacation, compensation and benefits Current maturities of long-term debt Current obligations under capital...

  • Page 55
    ... Minimum pension liability, net of deferred taxes of $17.1 million Total comprehensive income Sales of common stock under option plans Cash dividends declared on common stock $0.5775 per share Compensation under employee incentive plans Purchase of shares for treasury BALANCES AT FEBRUARY 28, 2004...

  • Page 56
    ... of notes payable Proceeds from issuance of long-term debt Repayment of long-term debt Reduction of obligations under capital leases Dividends paid Net proceeds from the sale of common stock under option plans Payment for purchase of treasury shares Net cash used in financing activities Net increase...

  • Page 57
    .... Cost of Sales: Cost of sales includes cost of inventory sold during the period, including purchasing and distribution costs and shipping and handling fees. The company receives allowances and credits from suppliers for volume incentives, promotional allowances and, to a lesser extent, new product...

  • Page 58
    ... assets' carrying value. The company estimates net future cash flows based on its experience and knowledge of the market in which the closed property is located and, when necessary, utilizes local real estate brokers. Adjustments to closed property reserves primarily relate to changes in subtenant...

  • Page 59
    ... to their estimated residual values, and be reviewed for impairment in accordance with SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets". Retirement Plans: The company sponsors pension and other retirement plans in various forms covering substantially all employees who meet...

  • Page 60
    .... 148, "Accounting for Stock-Based Compensation," to stock-based employee compensation: 2004 2003 2002 (In thousands, except per share data) Net earnings, as reported Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax...

  • Page 61
    ... FASB issued revisions to SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". These revisions require changes to existing disclosures as well as new disclosures related to pension and other postretirement benefit plans. The revisions to SFAS No. 132, except for...

  • Page 62
    ... the federal subsidy is issued. Authoritative guidance on the accounting for the federal subsidy is pending and, when issued, could require information previously reported in the company's financial statements to change. The company is currently investigating the impacts of SFAS No. 106-1's initial...

  • Page 63
    SUPERVALU INC. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) coupons should reflect the value of the coupon as revenue and not as a reduction in cost of sales...of real estate in certain markets and higher than anticipated employee benefit related costs. The information within...

  • Page 64
    ... of changes in estimates on exited real estate primarily due to the continued softening of real estate marketed for sale, sublease or assignment in certain markets, including approximately $5 million relating to the consolidation of distribution centers, $6 million relating to the exit of non-core...

  • Page 65
    ... FINANCIAL STATEMENTS-(Continued) reserve increase of $11.7 million was a result of changes in estimates on employee benefit related costs from previously exited food distribution facilities and changes in estimates on exited real estate in certain markets for food distribution properties...

  • Page 66
    ... of $2.9 million was a result of changes in estimates on exited real estate primarily due to the continued softening of real estate marketed for sale, sublease or assignment in certain markets and higher than anticipated employee related costs. In fiscal 2004, the fiscal 2000 restructure and other...

  • Page 67
    ... Employees 2,517 (1,693) (824) - RESERVES FOR CLOSED PROPERTIES AND ASSET IMPAIRMENT CHARGES Reserves for Closed Properties The company maintains reserves for estimated losses on retail stores, distribution warehouses and other properties that are no longer being utilized in current operations...

  • Page 68
    ... England operations. At February 28, 2004, the company had approximately $1.6 billion of goodwill of which $0.9 billion related to retail food and $0.7 billion related to food distribution. In the following table, the company has adjusted reported net earnings, diluted net earnings per common share...

  • Page 69
    ...Inc., a privately-held regional grocery chain that operates stores in Idaho, Oregon, Nevada, Washington and California, a 26% interest in International Data, LLC, a strategic outsourcing services provider, specializing in, among other things, data services, check and remittance processing and coupon...

  • Page 70
    ... credit quality. The estimated fair value of the company's long-term debt (including current maturities) was in excess of the carrying value by approximately $149.5 million and $86.1 million at February 28, 2004 and February 22, 2003, respectively. The estimated fair value was based on market quotes...

  • Page 71
    ... to Consolidated Financial Statements. LEASES Capital and operating leases: The company leases certain retail food stores, food distribution warehouses and office facilities. Many of these leases include renewal options, and to a limited extent, include options to purchase. Amortization of assets...

  • Page 72
    ... on interest rates ranging from 6.0 percent to 13.8 percent, with a weighted average rate of 8.1 percent, determined to be applicable at the inception of the leases. In addition to its capital leases, the company is obligated under operating leases, primarily for buildings, warehouses and computer...

  • Page 73
    ..., 2004, are as follows: Direct Direct Financing Financing Lease Capital Lease Receivables Obligations (In thousands) Fiscal Year 2005 2006 2007 2008 2009 Later Total minimum lease payments Less unearned income Less interest Present value of net minimum lease payments Less current portion Long-term...

  • Page 74
    ... federal income tax rate to earnings before taxes is attributable to the following: 2004 2003 (In thousands) 2002 Federal taxes based on statutory rate State income taxes, net of federal benefit Nondeductible goodwill Audit settlements Other Total provision $159,208 $142,801 $116,199 13,394 12,153...

  • Page 75
    ... incentive stock options to purchase shares of the company's common stock, to salaried employees at prices not less than 100 percent of their fair market value, determined based on the average of the opening and closing sale price of a share on the date of grant. The company's 1997 stock plan allows...

  • Page 76
    ..., 2004, the company has reserved 18.0 million shares, in aggregate, for the plans. As of February 28, 2004, limited stock appreciation rights have been granted and are outstanding under the 1989 stock appreciation rights plan and the 1993 stock plan. Such rights relate to options granted to purchase...

  • Page 77
    ... of Significant Accounting Policies in the Notes to Consolidated Financial Statements for the impact of stock based compensation on pro forma net earnings and earnings per common share. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model...

  • Page 78
    ... on the Company's consolidated statement of earnings or consolidated financial position. RETIREMENT PLANS Substantially all non-union employees of the company and its subsidiaries are covered by various contributory and non-contributory pension or profit sharing plans. The company also participates...

  • Page 79
    ...defined benefit pension plans for non-union eligible participants are generally based on years of service and the participants' highest compensation during five consecutive years of employment. Annual payments to the pension trust fund are determined in compliance with the Employee Retirement Income...

  • Page 80
    ... years for the company's non-union defined benefit pension plans and the post retirement benefit plans: Pension Benefits Post Retirement Benefits February 28, February 22, February 28, February 22, 2004 2003 2004 2003 (In thousands) CHANGES IN BENEFIT OBLIGATIONS Benefit obligations at beginning...

  • Page 81
    ... or minimum pension liability based on the current market value of plan assets and the accumulated benefit obligation of the plan. Based on both performance of the pension plan assets and plan assumption changes, the company recorded a net after-tax adjustment of $26.4 million in fiscal 2004 and $72...

  • Page 82
    ..., private equity and real estate are also used judiciously to enhance risk adjusted long-term returns while improving portfolio diversification. The overall investment strategy and policy has been developed based on the need to satisfy the long-term liabilities of the company's pension plans. Risk...

  • Page 83
    ... outstanding voting stock of the company. SUBSEQUENT EVENTS On April 1, 2004, the company completed the sale of its minority ownership interest in WinCo Foods, Inc., a privately-held regional grocery chain that operates stores in Idaho, Oregon, Nevada, Washington and California. The company received...

  • Page 84
    ... per share data) Unaudited quarterly financial information for SUPERVALU INC. and subsidiaries is as follows: First (16 wks) Fiscal Year Ended February 28, 2004 Second Third Fourth (12 wks) (12 wks) (13 wks) Year (53 wks) Net sales Gross profit Net earnings Net earnings per common share-diluted...

  • Page 85
    SUPERVALU INC. and Subsidiaries SCHEDULE II-Valuation and Qualifying Accounts COLUMN A COLUMN B Balance at beginning of year COLUMN C COLUMN D COLUMN E Balance at end of year Description Additions Deductions Allowance for doubtful accounts: Year ended: February 28, 2004 February 22, 2003 ...

  • Page 86
    ...as Trustee, and The Depository Trust Company relating to certain outstanding debt securities of the Registrant. Rights Agreement dated as of April 12, 2000, between SUPERVALU INC. and Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.) as Rights Agent, including as Exhibit B the...

  • Page 87