Albertsons 2004 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...2004 was a year of changing industry dynamics. A long-time wholesale competitor declared bankruptcy; health care costs and pension expenses continued to increase at double-digit rates, which challenged union contract negotiations across the country; and moderate price inflation returned in some food...

  • Page 3
    ... category management and banner branding enhanced our excellent foothold in key markets where we continue to invest with new stores and remodels. A few examples are: ‰ ‰ Cub Foods in Minnesota improved its market share position by adding four new stores to its network. Cub Foods plans to open...

  • Page 4
    ... our time and resources to preserve our role as a partner, neighbor and friend. Our responsibility to our investors is clear - continuous profit growth while ensuring our future success. SUPERVALU will prosper through a balance of innovation and good business decisions that enhances our operations...

  • Page 5
    ... Investor Information Transfer Agent and Registrar For general inquiries about SUPERVALU common stock, such as: ‰ Dividend reinvestment ‰ Automatic deposit of dividend checks ‰ Certificate replacements ‰ Account maintenance ‰ Transfer of shares ‰ Name or address changes Please contact...

  • Page 6
    ... offices) 55344 (Zip Code) Registrant's telephone number, including area code: (952) 828-4000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $1.00 per share Preferred Share Purchase Rights New York...

  • Page 7
    ... 'n Save, Shoppers Food Warehouse and bigg's; and supermarkets, under the regional retail banners 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...

  • Page 8
    ... the packaging of Save-A-Lot products has resulted in the company registering a number of its custom labels. After the company's fiscal 2003 acquisition of a small dollar store general merchandise operator, Deal$ Nothing Over A Dollar ("Deals"), the company started testing several new prototypes of...

  • Page 9
    ...deliver lower costs of operations. Deliveries to retail stores are made from the company's distribution centers by company-owned trucks, third party independent trucking companies or customer-owned trucks. In addition, many types of meats, dairy products, bakery and other products purchased from the...

  • Page 10
    ...in fiscal 2004 was a 28-day strike in the third quarter in the St. Louis market where the company operates 21 regional banner stores. In fiscal 2005, 22 collective bargaining agreements covering approximately 9,300 employees will expire. The company believes that it has generally good relations with...

  • Page 11
    ... (6), West Virginia (1), Wisconsin (1) Save-A-Lot California (1), Florida (1), Georgia (1), Distribution Illinois (1), Indiana (1), Kentucky (1), Centers Louisiana (1), Maryland (1), Michigan (1), Missouri (1), New York (1), Ohio (2), Tennessee (1), Texas (1), Wisconsin (1) 2 Cub Foods Illinois (29...

  • Page 12
    ... for the company's present needs and businesses. ITEM 3. LEGAL PROCEEDINGS In July and August 2002, several class action lawsuits were filed against the company and certain of its officers and directors in the United States District Court for the District of Minnesota on behalf of purchasers of the...

  • 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...

  • Page 14
    ...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 November 1999 to April 2004, he was Chief Financial Officer, Arden...

  • Page 15
    ... Hormel Foundation (a charitable foundation controlling 46.2% of Hormel Foods Corporation), 1995present; Director of ING America Insurance Holdings, Inc. General Partner, LoneTree Capital Management (a private equity company), 2000-present; Chairman, President and Chief Executive Officer of MediaOne...

  • Page 16
    ... 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 supermarkets, we experienced a 28-day strike in the third quarter of...

  • Page 17
    ...53 week fiscal year, resulting in an extra week in the fourth quarter, which generated approximately $360.0 million in net sales and contributed approximately $.07 to diluted earnings per share. Fiscal 2004 operating results include the impact of the Asset Exchange, the sale or closure of its Denver...

  • Page 18
    ... of net sales. The increase in retail food operating earnings was primarily due to growth of new stores, improved merchandising execution and the benefit of the extra week which were substantially offset by increases in employee benefit and incentive related costs, costs associated with the Denver...

  • Page 19
    ..., 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 merchandising execution. Gross profit in...

  • Page 20
    ... due to growth of new stores and improved merchandising execution in retail. Food distribution 2003 operating earnings decreased 24.4 percent to $171.6 million, or 1.8 percent of net sales, from 2002 operating earnings of $227.0 million, or 2.1 percent of net sales. Fiscal 2002 food distribution...

  • Page 21
    ... exited 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...

  • 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
    ... 2001 restructure plan has been completed. Remaining reserves represent future payments on exited real estate and employee benefit related costs from previously exited food distribution facilities. Details of the fiscal 2001 restructure activity for fiscal 2004 are as follows: Balance February 22...

  • Page 24
    ... Years Adjustments in Prior Years Balance February 23, 2002 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...

  • Page 25
    ... 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 income or actual exit costs...

  • Page 26
    ... actual results due to changing market and economic conditions, higher or lower withdrawal rates, and longer or shorter life spans of participants. Goodwill Management assesses the valuation of goodwill for each of the company's reporting units on an annual basis through the comparison of the fair...

  • 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
    ... the choice of paying the holder in cash, common stock or a combination of the two. The debentures will generally be convertible if the closing price of the company's common stock on the New York Stock Exchange for twenty of the last thirty trading days of any fiscal quarter exceeds certain levels...

  • Page 29
    ... AND OFF-BALANCE SHEET ARRANGEMENTS The company has guaranteed certain leases, fixture financing loans and other debt obligations of various retailers at February 28, 2004. These guarantees were generally made to support the business growth of affiliated retailers. The guarantees are generally for...

  • Page 30
    .... The lawsuits have been consolidated into a single action, in which it is alleged that the company and certain of its officers and directors violated Federal securities laws by issuing materially false and misleading statements relating to its financial performance. On April 29, 2004, the District...

  • Page 31
    ... Board of Directors approval. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting and reporting for obligations associated with the retirement of tangible long...

  • Page 32
    .... 106-1 due to the lack of specific guidance. Therefore, the net postretirement benefit costs disclosed in the company's financial statements do not reflect the impacts of the Prescription Drug Act on the plans. The deferral will continue to apply until specific authoritative accounting guidance for...

  • Page 33
    ... business operations. Long-term debt with fixed interest rates is used to assist in managing debt maturities and to diversify sources of debt capital. The company makes long-term loans to certain retail customers (see Notes Receivable in the accompanying Notes to Consolidated Financial Statements...

  • Page 34
    ...provides information about the company's financial instruments that are sensitive to changes in interest rates, including notes receivable, debt obligations and interest rate swap agreements. For debt obligations, the table presents principal cash flows and related weighted average interest rates by...

  • Page 35
    ... new store openings, new affiliations and acquisitions, expansion is subject to a number of risks, including the adequacy of our capital resources, the location of suitable store or distribution center sites and the negotiation of acceptable purchase or lease terms; and the ability to hire and train...

  • Page 36
    ... principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and all other company employees and non-employee directors. This code of ethics is posted on the company's website (www.supervalu.com). The company intends...

  • Page 37
    ... "Long-Term Incentive Plans-Awards in Last Fiscal Year," "Pension Plans and Retirement Benefits," "Change in Control Agreements" and "Related Party Transactions, Compensation Committee Interlocks and Insider Participation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND...

  • Page 38
    ... Plan. The Board of Directors adopted the Restricted Stock Plan on April 10, 1991 to provide for the granting of restricted stock to management employees of the company or any of its subsidiaries who are not subject to the provisions of Section 16 of the Securities Exchange Act of 1934 at the time...

  • Page 39
    ... 4.3 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period (16 weeks) ended September 11, 1999. Letter of Representations dated November 12, 1992, between the Registrant, Bankers Trust Company, as Trustee, and The Depository Trust Company relating to certain outstanding 34...

  • 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
    10.8. SUPERVALU INC. Executive Incentive Bonus Plan is incorporated by reference to Exhibit (10)c. to the Registrant's Annual Report on Form 10-K for the year ended February 22, 1997.* SUPERVALU INC. Annual Cash Bonus Plan for Designated Corporate Officers, as amended, is incorporated by reference ...

  • 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
    ..., summarize 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...

  • Page 45
    ... that: 1. I have reviewed this annual report on Form 10-K of SUPERVALU INC. for the fiscal year ended February 28, 2004; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of...

  • Page 46
    ... of SUPERVALU INC. (the "company") certifies that the annual report on Form 10-K of the company for the fiscal year ended February 28, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-K fairly...

  • Page 47
    ... of SUPERVALU INC. (the "company") certifies that the annual report on Form 10-K of the company for the fiscal year ended February 28, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-K fairly...

  • 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
    .... and Subsidiaries FIVE YEAR FINANCIAL AND OPERATING SUMMARY 2004 2003 2002 2001 2000(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...

  • 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
    ..., and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended February 28, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when...

  • Page 52
    ...: extreme value stores, regional price superstores and regional supermarkets. The retail formats include results of food stores owned and results of sales to extreme value stores licensed by the company. Food distribution operations include results of sales to affiliated food stores, mass merchants...

  • Page 53
    ... CONSOLIDATED STATEMENTS 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...

  • 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
    ... Derivative financial instrumentunrealized loss, net of deferred taxes of $5.0 million Total comprehensive income Sales of common stock under option plans Cash dividends declared on common stock $0.5575 per share Compensation under employee incentive plans Purchase of shares for treasury BALANCES AT...

  • Page 56
    ... Accounts payable Income taxes currently payable Other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Additions to long-term notes receivable Proceeds received on long-term notes receivable Proceeds from sale of assets Purchases of property...

  • 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
    ... 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 income or actual exit costs...

  • Page 59
    ... in the Retirement Plans note in the Notes to Consolidated Financial Statements and include, among other things, the discount rate, the expected long-term rate of return on plan assets, and the rates of increases in compensation and healthcare costs. Financial Instruments: The company accounts for...

  • 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
    ... prior years' data to the current presentation. These reclassifications had no effect on reported earnings. New Accounting Standards In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations", which addresses financial accounting...

  • Page 62
    .... 106-1 due to the lack of specific guidance. Therefore, the net postretirement benefit costs disclosed in the company's financial statements do not reflect the impacts of the Prescription Drug Act on the plans. The deferral will continue to apply until specific authoritative accounting guidance for...

  • Page 63
    ...are due to continued softening of real estate in certain markets and higher than anticipated employee benefit related costs. The information within this note includes only those restructure and other charges that are the result of previously initiated restructure activities. In addition, the company...

  • Page 64
    ... 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, including approximately $5 million relating to the consolidation of distribution centers, $6 million relating to the...

  • 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
    ...increase 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...

  • Page 67
    ... as held for sale reflected as a component of other current assets in the Consolidated Balance Sheets. These assets are for closed distribution centers that the company is actively marketing for sale. The company anticipates selling or disposing of these assets within one year from the date...

  • Page 68
    ... the company's New 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...

  • Page 69
    ... interest in Tidyman's, LLC, the owner and operator of retail supermarkets located in Montana, Idaho and Washington. These investments primarily relate to the retail food segment. On April 1, 2004, the company completed the sale of its minority ownership interest in WinCo Foods, Inc. This investment...

  • Page 70
    ... Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The estimated fair value of notes receivable approximates the net carrying value at February 28, 2004 and February 22, 2003. Notes receivable are valued based on a discounted cash flow approach applying a rate that is comparable to...

  • Page 71
    ... the Notes 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...

  • Page 72
    ..., Contingencies and Off-Balance Sheet Arrangements note in the Notes to Consolidated Financial Statements. Total rent expense, net of sublease income, relating to all operating leases with terms greater than one year was $119.7 million, $113.7 million and $100.7 million in fiscal 2004, 2003 and 2002...

  • Page 73
    SUPERVALU INC. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Future minimum receivables under operating leases and subleases in effect at February 28, 2004 are as follows: Owned Property Leased Property (In thousands) Total Fiscal Year 2005 2006 2007 2008 2009 Later Total ...

  • Page 74
    SUPERVALU INC. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) INCOME TAXES The provision for income taxes consists of the following: 2004 2003 (In thousands) 2002 Current Federal State Tax credits Total current Deferred Total provision $110,031 $ 78,704 $ 50,152 14,495 12,...

  • Page 75
    ... the opening and closing sale price of a share on the date of grant. The company's 1997 stock plan allows only the granting of non-qualified stock options to purchase common shares to salaried employees at fair market value determined on the same basis. In April 2002, the Board of Directors reserved...

  • Page 76
    ...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 494,000 shares of common stock and are exercisable only upon a "change in control." F-29

  • Page 77
    ...using the Black-Scholes option pricing model with the following weighted-average assumptions and results: 2004 2003 2002 Dividend yield Risk free interest rate Expected life Expected volatility Estimated fair value of options granted per share TREASURY STOCK PURCHASE PROGRAM 2.00% 2.00% 2.00% 2.10...

  • Page 78
    ... obligations. The company pays fees, which vary by instrument, of up to 1.125% on the outstanding balance of the letter of credit. In July and August 2002, several class action lawsuits were filed against the company and certain of its officers and directors in the United States District Court...

  • Page 79
    ... managed accounts and publicly traded mutual funds holding equity, fixed income securities and alternative investment classes. In addition to providing pension benefits, the company provides certain health care and life insurance benefits for certain retired employees. Certain employees become...

  • Page 80
    ... of the accrued benefit costs and total benefit costs for the fiscal 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...

  • Page 81
    ... its post retirement medical health care benefit plan, primarily making changes to benefit coverage. This amendment resulted in a decrease in the plan's benefit obligation of approximately $4.5 million in fiscal 2004. SFAS No. 87, "Employers' Accounting for Pension", requires the balance sheet to...

  • Page 82
    ... 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 management is...

  • 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
    ...E Balance at end of year Description Additions Deductions Allowance for doubtful accounts: Year ended: February 28, 2004 February 22, 2003 February 23, 2002 Allowance for notes receivable accounts: Year ended: February 28, 2004 February 22, 2003 February 23, 2002 Closed properties reserves: Year...

  • Page 86
    ... Bank Minnesota, N.A.) as Rights Agent, including as Exhibit B the forms of Rights Certificate and Election to Exercise. Indenture dated as of November 2, 2001, between SUPERVALU INC. and The Chase Manhattan Bank, as Trustee, including form of Liquid Yield Optionâ„¢ Note due 2031 (Zero Coupon-Senior...

  • Page 87