Albertsons 2005 Annual Report Download

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Table of contents

  • Page 1
    F al c s i 5 Annual Report 0 0 2

  • Page 2
    ..., cost-effective operations. Companies seeking proven third-party logistics solutions draw on SUPERVALU's expanded supply chain capabilities to do anything from transport a single load or outsource entire parts of their supply chain operations. Fiscal 2005 Supply Chain highlights • Acquired Total...

  • Page 3
    ... perishable categories such as meat, dairy, bakery and deli. Against this backdrop, SUPERVALU kept its strategic focus and fiscal discipline, delivering another strong year. In fiscal 2005, we reported Sales of $19.5 billion Net earnings of $385.8 million Diluted earnings per share of $2.71 Debt-to...

  • Page 4
    ...-store strategy, and private-label product programs to our industry-leading SVHarbor business-to-business tool-continues to differentiate our offerings and underscore our value as a supplier. During fiscal 2005, we made a high-profile step to extend our position in the non-asset based supply chain...

  • Page 5
    ... the financial flexibility to invest for future growth. Business Outlook During fiscal 2006, we'll build upon our core strategies by forging ahead with a number of programs that represent SUPERVALU's next-generation approach to the market. • We'll further sharpen our regional retail excellence...

  • Page 6
    ...communities in which our employees and customers live and work. We will use 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...

  • Page 7
    ... market value of the voting stock held by non-affiliates of the Registrant as of September 11, 2004 was approximately $3,603,630,697 (based upon the closing price of Registrant's Common Stock on the New York Stock Exchange on September 10, 2004). Number of shares of $1.00 par value Common Stock...

  • Page 8
    ... accretive to fiscal year 2006 earnings. The Total Logistics acquisition also included its Zero Zone subsidiary, a manufacturer of refrigeration cases and systems, which will be divested in fiscal 2006 as it is non-core to the company's food retail and supply chain service businesses. On April...

  • Page 9
    ...extreme value stores, including 466 combination food and general merchandise stores, located in 39 states of which 879 were licensed. These stores are supplied from 16 dedicated distribution centers. Price Superstores. The company's price superstores hold the number one, two or three market position...

  • Page 10
    ... party transportation networks for customers of its third party logistics business. Products Supplied. The company offers and supplies its distribution customers with a wide variety and selection of food and non-food products, including groceries, meats, dairy products, frozen foods, deli, bakery...

  • Page 11
    ... private label product trademarks and service marks. See "Retail Food Operations-Extreme Value Stores" and "Food Distribution Operations- Products Supplied" for further information. U.S. trademark and service mark registrations are generally for a term of 10 years, renewable every 10 years as long...

  • Page 12
    ... (Approximate) Retail Format Banner Location and Number of Corporate Stores ExtremeValue Stores Save-A-Lot1 Deals Save-A-Lot Distribution Centers Price Superstores Cub Foods2 Shoppers Food & Pharmacy Shop 'n Save bigg's Farm Fresh Scott's Hornbacher's Alabama (1), Arkansas (1), California...

  • Page 13
    ... to have a material adverse impact on the company's consolidated statement of earnings or consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no matter submitted during the fourth quarter of fiscal year 2005 to a vote of the security holders of the...

  • Page 14
    ...issuance of shares over time under the company's employee benefit plans. As of February 26, 2005, 4,588,300 shares remained available for purchase under that program. ITEM 6. SELECTED FINANCIAL DATA The information called for by Item 6 is found within the Five Year Financial and Operating Summary on...

  • Page 15
    ... will benefit from our efficient and low-cost supply chain and economies of scale as we leverage our retail and distribution operations. Save-A-Lot, our extreme value format, has nationwide potential, and currently operates in 39 states. In fiscal 2005 and in the future, the majority of our new...

  • Page 16
    ... nine retail stores and a food distribution facility (Denver Disposition) and in St. Louis, where we operate 21 regional supermarkets, we experienced a 28-day strike in fiscal 2004 (St. Louis Strike). Net Sales Net sales for fiscal 2005 were $19.5 billion compared with $20.2 billion last year...

  • Page 17
    ..., or 4.2 percent of net sales. The increase in retail food operating earnings primarily reflects the benefits of retail merchandising execution, which offset the absence of last year's extra week and WinCo earnings. Food distribution operating earnings for fiscal 2005 increased 5.4 percent to $234...

  • Page 18
    ...due to the benefit of the extra week. The remainder of the increase was due to net new store and same store sales growth, which accounted for approximately 70 percent and 30 percent of the increase, respectively. Fiscal 2004 same store retail sales, defined as stores operating for four full quarters...

  • Page 19
    ... 4.4 percent 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...

  • Page 20
    ... for employee benefit related costs for multiemployer plan liabilities resulting from withdrawal notices received in fiscal 2005 for previously exited distribution facilities and changes in estimates on exited real estate of $18.0 million and $4.3 million, respectively. CRITICAL ACCOUNTING POLICIES...

  • Page 21
    ... stores, distribution warehouses and other properties that are no longer being utilized in current operations. The company provides for closed property lease liabilities using a discount rate to calculate the present value of the remaining noncancellable lease payments after the closing date, net...

  • Page 22
    ...-insured for workers' compensation, health care for certain employees and general and automobile liability costs. It is the company's policy to record its self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported, discounted at a risk free interest rate...

  • Page 23
    ... 2004 investing activities primarily reflect capital spending to fund retail store expansion, store remodeling and technology enhancements. Fiscal 2005 activities also include the acquisition of Total Logistics and the proceeds from the sale of WinCo. Net cash used in financing activities was $457...

  • Page 24
    ...purchase under the 5.0 million share repurchase program authorized by the Board of Directors in May 2004. 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...

  • Page 25
    ...ordinary course of business. These contracts primarily relate to the company's 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...

  • Page 26
    ... expiration date, termination provisions and other standard contractual considerations. These supply contracts are cancelable and therefore no amounts have been included above. COMMON STOCK PRICE SUPERVALU's common stock is listed on the New York Stock Exchange under the symbol SVU. At fiscal 2005...

  • Page 27
    ... for fiscal years beginning after June 15, 2005, requires all share-based payments to employees to be recognized in the financial statements based on their fair values. The company currently accounts for its share-based payments to employees under the intrinsic value method of accounting set...

  • Page 28
    ... in such models. The company plans to adopt the revised statement in its first quarter of its fiscal year 2007, which begins on February 26, 2006. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to market pricing risk consisting of interest rate risk related to debt...

  • Page 29
    ...Labor Relations and Employee 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...

  • Page 30
    ... our retail and distribution businesses through 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...

  • Page 31
    ... and total net sales represented less than 1% of consolidated total assets and less than 1% of consolidated net sales of the company as of and for the fiscal year ended February 26, 2005. Companies are allowed to exclude acquisitions from their assessment of internal control over financial reporting...

  • Page 32
    ... and Chief Operating Officer, Distribution Food Companies Executive Vice President and Chief Financial Officer Senior Vice President, Chief Information Officer Senior Vice President; Chief Operating Officer, Retail Food Companies Senior Vice President; Executive Vice President, Retail Pharmacies...

  • Page 33
    ... to April 2000, he was Vice President of Wholesale Strategies for the company. Mr. Oliver was elected to his current position in April 2004. From November 1999 to April 2004, he was Chief Financial Officer, Arden Group, Inc., a holding company with supermarket operations in Southern California. 27

  • Page 34
    ... Practice, 1980-2002; Director of Phoenix House Foundation, Beall's Inc., Equinox Holdings, Inc. and SmartBargains, Inc. Formerly, Chief Executive Officer and President of Oc ´ e USA Holding, Inc., a subsidiary of Oc ´ e N.V. (a supplier of digital document management technology services), 2002...

  • Page 35
    ... accounting officer or controller, or persons performing similar functions, and all other employees and non-employee directors of the company. This code of ethics is posted on the company's website (www.supervalu.com). The company intends to satisfy the disclosure requirement under Item 5.05 of Form...

  • Page 36
    ...'s 2005 Annual Meeting of Stockholders under the headings "Security Ownership of Certain Beneficial Owners," "Security Ownership of Management" and "Proposal to Amend the SUPERVALU INC. 2002 Stock Plan (Item 3)-Equity Compensation Plan Information." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED...

  • Page 37
    ... of Selected Financial Data and Financial Statements and Schedules" together with the report of KPMG LLP, independent registered public accountants, are filed as part of this report. (2) Financial Statement Schedules: The consolidated financial statement schedules of the Registrant listed in the...

  • Page 38
    ...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 39
    ...'s Quarterly Report on Form 10-Q for the quarterly period (16 weeks) ended June 15, 2002.* 10.11. SUPERVALU INC. Deferred Compensation Plan for Non-Employee Directors, as amended, is incorporated by reference to Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the year ended...

  • Page 40
    .... 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 41
    ... Criteria for Awards Under the Company's Annual Cash Bonus Plan for Designated Corporate Officers and the Executive Incentive Bonus Plan is incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period (12 weeks) ended December 4, 2004.* 10.39...

  • Page 42
    ...NODDLE Jeffrey Noddle Chairman of the Board; Chief Executive Officer; President; and Director (principal executive officer) Executive Vice President, Chief Financial Officer (principal financial and accounting officer) Director Director Director Director Director Director Director Director Director...

  • Page 43
    ... I, Jeffrey Noddle, certify that: 1. I have reviewed this annual report on Form 10-K of SUPERVALU INC. for the fiscal year ended February 26, 2005; 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...

  • Page 44
    ... that: 1. I have reviewed this annual report on Form 10-K of SUPERVALU INC. for the fiscal year ended February 26, 2005; 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 45
    ... Exchange Act of 1934 and the information contained in that Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the company for the period and as of the dates covered thereby. Dated: May 6, 2005 /s/ JEFFREY NODDLE Jeffrey Noddle Chief Executive...

  • 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 26, 2005, 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
    SUPERVALU 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: Reports of Independent Registered Public Accounting Firm ......

  • Page 48
    ... FIVE YEAR FINANCIAL AND OPERATING SUMMARY 2005 2004 2003 2002 2001 Statement of Earnings Data (a) Net sales Cost of sales Selling and administrative expenses Gain on sale of Winco Foods, Inc. Restructure and other charges Operating earnings Interest, net Earnings before income taxes Provision...

  • Page 49
    ...reduced diluted earnings per share by approximately $0.11, $0.06, $0.05 and $0.01 in fiscal 2005, fiscal 2004, fiscal 2003, and fiscal 2002, respectively. (c) Inventories (FIFO), working capital and current ratio are calculated after adding back the LIFO reserve. The LIFO reserve for each year is as...

  • Page 50
    ... fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SUPERVALU INC.'s internal control over financial reporting as of February 26, 2005...

  • Page 51
    ... of the Company whose total assets and net sales represented less than 1% of consolidated total assets and less than 1% of consolidated net sales of the Company as of and for the fiscal year ended February 26, 2005. Our audit of internal control over financial reporting of SUPERVALU INC. also...

  • Page 52
    ... the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of SUPERVALU INC. and subsidiaries as of February 26, 2005 and February 28, 2004, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the fiscal years in...

  • Page 53
    ... NET SALES AND OPERATING EARNINGS (In thousands, except percent data) February 26, 2005 (52 weeks) February 28, 2004 (53 weeks) February 22, 2003 (52 weeks) Net sales Retail food Food distribution Total net sales Operating earnings Retail food operating earnings Food distribution operating earnings...

  • Page 54
    ...52 weeks) Net sales Costs and expenses Cost of sales Selling and administrative expenses Gain on sale of WinCo Foods, Inc. Restructure and other charges Operating earnings Interest Interest expense Interest income Interest expense, net Earnings before income taxes Provision for income taxes Current...

  • Page 55
    ...payable Other current liabilities Total current liabilities Long-term debt Long-term obligations under capital leases Deferred income taxes Other liabilities Commitments and contingencies Stockholders' equity Common stock, $1.00 par value: Authorized 400,000 shares Shares issued, 150,670 in 2005 and...

  • Page 56
    ... 150,670 150,670 Net earnings - - Other comprehensive loss - - Sales of common stock under option plans - - Cash dividends declared on common stock $0.6025 per share - - Compensation under employee incentive plans - - Purchase of shares for treasury - - BALANCES AT FEBRUARY 26, 2005 150,670 $150,670...

  • Page 57
    ...business: Receivables Inventories Long-term notes receivable, net Accounts payable Income taxes currently payable Other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of assets Proceeds from sale of WinCo Foods, Inc. Purchases...

  • Page 58
    ... the primary obligor and amounts earned have little or no credit risk, the company generally records the net amounts as management fees earned. Cost of Sales: Cost of sales includes cost of inventory sold during the period, including purchasing and distribution costs and shipping and handling fees...

  • Page 59
    ... stores, distribution warehouses and other properties that are no longer being utilized in current operations. The company provides for closed property lease liabilities using a discount rate to calculate the present value of the remaining noncancellable lease payments after the closing date, net...

  • Page 60
    ... million was capitalized in fiscal years 2005, 2004 and 2003, respectively. Goodwill and Other Intangible Assets: Goodwill represents the excess of costs over fair value of assets of businesses acquired. The company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142...

  • Page 61
    ... that the employee is required to pay. In accordance with APB Opinion No. 25, no compensation expense was recognized for options issued under the stock option plans in fiscal 2005, 2004 or 2003 as the exercise price of all options granted was not less than 100 percent of fair market value of the...

  • Page 62
    ...to stock-based employee compensation: 2005 2004 2003 (In thousands, except per share data) Net earnings, as reported Add: stock-based compensation expense included in reported net earnings, net of related tax effect Deduct: total stock-based employee compensation expense determined under fair value...

  • Page 63
    ...: Certain reclassifications have been made to conform prior years' data to the current presentation. These reclassifications had no effect on reported earnings. New Accounting Standards In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) No. 46...

  • Page 64
    ...The company recognized pre-tax restructure and other charges of $26.4 million, $15.5 million and $2.9 million for fiscal years 2005, 2004, and 2003 respectively. These charges reflect changes in liabilities associated with employee benefit related costs from previously exited distribution facilities...

  • Page 65
    ...for employee benefit related costs for multiemployer plan liabilities resulting from withdrawal notices received in fiscal 2005 for previously exited distribution facilities and changes in estimates on exited real estate of $18.0 million and $4.3 million, respectively. RESERVES FOR CLOSED PROPERTIES...

  • Page 66
    ...which will be divested in fiscal 2006 as it is non-core to the company's food retail and supply chain businesses. The results of Total Logistics for the period subsequent to the acquisition are immaterial to the fiscal 2005 consolidated financial statements. The purchase price allocation resulted in...

  • Page 67
    ... processing and coupon promotions processing and a 40 percent interest in Tidyman's, LLC, the owner and operator of retail supermarkets located in Montana, Idaho and Washington. The food distribution segment recognized $4.4 million, $10.0 million, and $9.4 million of equity in earnings from...

  • Page 68
    ... million at February 26, 2005. Notes receivable are valued based on a discounted cash flow approach applying a rate that is comparable to publicly traded debt instruments of similar credit quality. The estimated fair value of the company's long-term debt (including current maturities) was in excess...

  • Page 69
    ... to exercise their conversion rights until 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, or $38.13 per share for the quarter ending June 18, 2005, and rising to $113.29 per...

  • Page 70
    ...capital leases in effect at February 26, 2005 are as follows: Lease Obligations (In thousands) Fiscal Year 2006 2007 2008 2009 2010 Later Total future minimum obligations Less interest Present value of net future minimum obligations Less current obligations Long-term obligations $ 65,538 65,679 65...

  • Page 71
    ... company is party to a synthetic leasing program for one of its major warehouses. The lease qualifies for operating lease accounting treatment under SFAS No. 13, "Accounting for Leases." For additional information on the synthetic lease, refer to the Commitments, Contingencies and Off-Balance Sheet...

  • Page 72
    ... (In thousands) Fiscal Year 2006 2007 2008 2009 2010 Later Total minimum lease payments Less unearned income Less interest Present value of net minimum lease payments Less current portion Long-term portion INCOME TAXES The provision for income taxes consists of the following: 2005 $11,840 11...

  • Page 73
    ... and February 28, 2004 are as follows: 2005 2004 (In thousands) Deferred tax assets: Restructure Net operating loss from acquired subsidiaries Pension liability Other health and benefit plans Other Total deferred tax assets Deferred tax liabilities: Accelerated deductions primarily depreciation and...

  • Page 74
    ... 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 75
    ... and $1.7 million for fiscal 2005, 2004 and 2003, respectively. See Summary 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...

  • Page 76
    SUPERVALU INC. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) TREASURY STOCK PURCHASE PROGRAM In October 2001, the Board of Directors authorized a treasury stock purchase program under which the company was authorized to purchase up to 5.0 million shares of the company's ...

  • Page 77
    ...ordinary course of business. These contracts primarily relate to the company's 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...

  • Page 78
    ... and life insurance benefits for eligible retired employees upon meeting certain age and service requirements. The following tables set forth the changes in benefit obligations and plan assets, a reconciliation of the accrued benefit costs and total benefit costs for the fiscal years for the company...

  • Page 79
    SUPERVALU INC. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2005 Pension Benefits 2004 Post Retirement Benefits 2003 2005 2004 2003 (In thousands) NET BENEFIT COSTS FOR THE FISCAL YEAR Service cost Interest cost Expected return on plan assets Amortization of: Unrecognized...

  • Page 80
    ..., 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 81
    ... investment returns and benefit levels. SHAREHOLDER RIGHTS PLAN On April 24, 2000, the company announced that the Board of Directors adopted a Shareholder Rights Plan under which one preferred stock purchase right is distributed for each outstanding share of common stock. The rights, which expire on...

  • Page 82
    ... per share data) Unaudited quarterly financial information for SUPERVALU INC. and subsidiaries is as follows: Fiscal Year Ended February 26, 2005 Second Third Fourth (12 wks) (12 wks) (12 wks) First (16 wks) Year (52 wks) Net sales Gross profit Net earnings Net earnings per common share-basic Net...

  • Page 83
    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 26, 2005 February 28, 2004 ...

  • Page 84
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  • Page 87
    ... 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 change Please contact...

  • Page 88
    PO Box 990 Minneapolis, MN 55440 (952) 828-4000 www.SUPERVALU.com