Albertsons 2014 Annual Report Download - page 32

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT OVERVIEW
On March 21, 2013, the Company completed the sale of its wholly-owned subsidiary, New Albertson’s, Inc.
(“NAI”), including the Acme, Albertsons, Jewel-Osco, Shaw’s and Star Market retail banners (the “NAI
Banners”), to AB Acquisition LLC (“AB Acquisition”), an affiliate of a Cerberus Capital Management, L.P.
(“Cerberus”)-led consortium (the “NAI Banner Sale”). As a result of the NAI Banner Sale, the Company has
classified the operations attributable to NAI as discontinued operations for all fiscal years presented.
In connection with the NAI Banner Sale, the Company entered into various agreements with regard to on-going
operations, including a Transition Services Agreement with each of NAI and Albertson’s LLC (collectively, the
“TSA”) and operating and supply agreements. These agreements have initial terms that range from 12 months to
5 years, are generally subject to renewal upon mutual agreement by the parties thereto and also include
termination provisions that can be exercised by each party. The TSA with Albertson’s LLC includes a one-year
transitional fee of $60 payable during the first year which has been reflected in Net sales for fiscal 2014.
On March 26, 2013, the Company also announced reductions to its workforce by an estimated 1,100 positions,
including current positions and open jobs. This reduction was completed by the end of fiscal 2014.
During fiscal 2014, the Company recast the segment presentation of certain corporate administrative expenses
and revised the presentation of related fees earned under the TSA, pension and other postretirement plan
expenses for inactive and corporate participants in the SUPERVALU Retirement Plan and certain other corporate
costs to reflect the structure under which the Company is now being managed. These changes primarily resulted
in the recast of net expenses from Retail Food to Corporate for all periods presented.
In addition, during fiscal 2014, the Company revised its presentation of fees earned under the TSA. The
Company historically presented fees earned under its transition services agreements as a reduction of Selling and
administrative expenses. Those fees are now reflected as revenue, within Net sales of Corporate, for all periods.
The revision had the effect of increasing both Net sales and Gross profit, with a corresponding increase in Selling
and administrative expenses. These revisions did not impact Operating earnings, Earnings (loss) from continuing
operations before income taxes, Net earnings (loss), cash flows or financial position for any period reported.
SUPERVALU is one of the largest wholesale distributors to independent retail customers across the United
States. The Company leverages its distribution operations by providing wholesale distribution and logistics
service solutions to its independent retail customers through its Independent Business segment. The Independent
Business segment directly and indirectly serves approximately 2,240 stores across the country and continues to
target business growth through affiliating new customers while managing expenses, including the organization of
our distribution network.
The Company’s Save-A-Lot format is one of the nation’s largest hard discount grocery retailers by store count,
with approximately 1,330 owned and licensed stores. The Company is focused on the expansion of the Save-A-
Lot format through new store development and growth of its licensee network. Within the existing store network,
Save-A-Lot continues to drive sales through its meat and produce programs and other enhancements, while
working to strengthen its relationships with its licensees.
As of February 22, 2014 SUPERVALU’s Retail Food business operated 190 traditional grocery stores under five
regionally-based banners: Cub Foods, Shoppers Food & Pharmacy, Shop ‘n Save, Farm Fresh and Hornbacher’s.
To better address customer needs at the local level, management has introduced a de-centralized model. The
initial phase of the model store program within the Retail Food segment is now complete, which the Company
believes has improved the overall customer shopping experience.
Management continues to focus on simplifying the Company’s operations with a view towards driving top-line
sales while managing the Company’s cost structure. These actions are being done as part of the continued focus
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