Albertsons 2002 Annual Report Download - page 27

actuarial assumptions used by the Company may differ materially from
actual results due to changing market and economic conditions, higher
or lower withdrawal rates, and longer or shorter life spans of participants.
Financial Instruments The Company has only limited involvement with
derivative financial instruments and uses them only to manage well-defined
interest rate risks. The derivatives used have included interest rate caps,
collars and swap agreements. The Company does not use financial instru-
ments or derivatives for any trading or other speculative purposes. At fiscal
year end 2001, the Company had two interest rate swap agreements in
place which either exchanged a floating rate payment obligation for a fixed
rate payment obligation, or exchanged a fixed rate payment obligation for a
floating rate payment obligation.
SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities,” became effective for the Company on February 25, 2001. At
that date, the Company’s interest rate swap agreements were recorded on
its balance sheet at fair value, resulting in recognition of a liability of $23.5
million, a non-current asset of $10.8 million, a debit to other comprehensive
loss of $7.7 million, and a deferred tax liability of $5.0 million. On July 6,
2001, the swaps were terminated, which had no material impact to the
Company’s consolidated financial statements.
Fair Value Disclosures of Financial Instruments The estimated fair
value of notes receivable approximates the net carrying value at February
23, 2002 and February 24, 2001. Notes receivable are valued based on
comparisons to publicly traded debt instruments of similar credit quality.
The estimated fair market value of the Company’s long-term debt
(including current maturities) was in excess of the carrying value by approx-
imately $64.0 million at February 23, 2002, and was less than the carrying
value by approximately $43.3 million at February 24, 2001. The estimated
fair value was based on market quotes, where available, discounted cash
flows and market yields for similar instruments. The estimated fair market
value of the Company’s commercial paper and bank borrowings outstand-
ing as of February 24, 2001 approximated the carrying value.
Advertising Costs Advertising costs are expensed as incurred.
Stock-based Compensation The Company uses the “intrinsic value-
based method” for measuring the cost of compensation paid in Company
common stock. This method defines the Company’s cost as the excess of
the stock’s market value at the time of the grant over the amount that the
employee is required to pay.
Net Earnings Per Share Basic earnings per share (EPS) is calculated
using income available to common shareholders divided by the weighted
average of common shares outstanding during the year. Diluted EPS is
similar to Basic EPS except that the weighted average of common shares
outstanding is increased to include the number of additional common
shares that would have been outstanding if the dilutive potential common
shares, such as options, had been exercised.
Use of Estimates 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 assump-
tions that affect the reported amounts of assets and liabilities and disclo-
sure of contingent assets and liabilities at the date of the financial state-
ments and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications Certain reclassifications have been made to the prior
year’s financial statements to conform to the fiscal 2002 presentation. These
reclassifications did not affect results of operations previously reported.
Richfood Acquisition
On August 31, 1999, the Company acquired, in a merger, all of the out-
standing common stock of Richfood Holdings, Inc. (Richfood), a major
food retailer and distributor operating primarily in the Mid-Atlantic region of
the United States. The acquisition was accounted for as a purchase. The
Company issued approximately 19.7 million shares of SUPERVALU com-
mon stock with a market value of approximately $443 million, paid $443
million in cash for the common stock of Richfood and assumed approxi-
mately $685 million of debt in conjunction with the acquisition. In addition,
the Company repaid approximately $394 million of outstanding Richfood
debt, leaving approximately $291 million outstanding immediately after the
acquisition. The allocation of the consideration paid for Richfood to the
consolidated assets and liabilities is based on estimates of their respective
fair values. The excess of the purchase price over the fair value of net
assets acquired of approximately $1.1 billion is being amortized on a
straight-line basis over 40 years. Beginning in fiscal 2003, goodwill will no
longer be amortized and will instead be periodically evaluated for impair-
ment. The results of Richfood’s operations since August 31, 1999 have
been included in the Company’s consolidated financial statements.
Unaudited pro forma consolidated results of continuing operations, as
though the companies had been combined at the beginning of the periods
presented, are as follows:
(In thousands, except per share data) 2000
Net sales $22,309,061
Net earnings $ 261,406 (a)
Net earnings per common share – diluted $ 1.87(a)
(a) Amounts include a net gain of $10.9 million or $0.08 per diluted share from the gain on
the sale of Hazelwood Farms Bakeries and from restructure charges.
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