Supervalu 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
    ... supply chain operations. Fiscal 2005 Supply Chain highlights • Acquired Total Logistic Control (TLC), a leading third-party supply chain services provider. • Expanded SVHarbor, SUPERVALU's Web-enabled business-to-business portal, to better support product manufacturer and supplier efficiencies...

  • Page 3
    .... As always, a number of macro factors, both economic and industry-related, impacted our industry and put our strategic and operating discipline to the test. Fuel prices continued to hit new highs, impacting our customers' outlook, their budgets, and the mix of items purchased. Food inflation also...

  • Page 4
    ... in distribution, primarily from previously announced customer attrition, we achieved new business growth of five percent in fiscal 2005. And, our comprehensive range of services for the independent grocery retailer-from category management, center-store strategy, and private-label product programs...

  • Page 5
    ... 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 across multiple banners. Our regional...

  • Page 6
    ...is to support the 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...

  • Page 7
    ... 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) 828-4000 Securities registered pursuant to Section 12...

  • Page 8
    ... Part II, Item 7 of this report. Financial Information About Reportable Segments The company's business is classified by management into two reportable segments: Retail food and food distribution. Retail food operations include three retail food store formats: extreme value stores, regional price 2

  • Page 9
    ... under the Cub Foods, Shop 'n Save, Shoppers Food & Pharmacy and bigg's banners in 12 states; an additional 31 stores were franchised to independent retailers under the Cub Foods banner. In-store pharmacies are operated in 183 of the price superstores. The owned Cub Food stores operate primarily in...

  • Page 10
    ...the Fort Wayne, Indiana market; and the Hornbacher's stores operate in the Fargo, North Dakota market. In-store pharmacies are operated in 30 of the supermarkets. Food Distribution Operations Overview. SUPERVALU provides logistics and service solutions to retailers for food and non-food products and...

  • Page 11
    ... by retailers it supplies, include the location and image of the store; the price, quality and variety of products; and the quality and consistency of service. The food distribution business competes directly with a number of food wholesalers. The company believes it competes in this supply chain on...

  • Page 12
    ... 2005: Square Footage Owned (Approximate) Square Footage Leased (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...

  • Page 13
    ...) 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 14
    ... grocery food industry, grocery retail and food distribution. At February 26, 2005, we conducted our retail operations through a total of 1,549 stores of which 879 are licensed locations. Principal formats include extreme value stores, regional price superstores and regional supermarkets. Our food...

  • Page 15
    ... in 39 states. In fiscal 2005 and in the future, the majority of our new extreme value food stores will be a type of combination store offering both food and general merchandise. We plan to expand regional retail banner square footage through selective new store growth in key markets where we have...

  • Page 16
    ... based operations that included 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...

  • Page 17
    ... a higher gross profit margin as a percentage of net sales than does the food distribution business, benefits of retail merchandising execution and customer mix and the benefit of volume throughput including labor productivity improvements in distribution. Selling and Administrative Expenses Selling...

  • Page 18
    ... retail sales, defined as stores operating for four full quarters, including store expansions, increased 2.1 percent. Fiscal 2004 store activity, including licensed units, resulted in 107 new stores opened and 41 stores closed, including the sale or closure of our Denver based stores, for a total...

  • Page 19
    ... 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 and Administrative Expenses Selling and administrative expenses, as a percentage of net sales, were 11.0 percent for fiscal 2004 compared 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
    ...are recognized when expected net future cash flows are less than the 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...

  • 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
    ..., respectively. Fiscal 2005 and 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...

  • Page 24
    ... 90 to 110 new extreme value combination stores, including licensed sites, and approximately 20 regional banner major store remodels. The 2006 capital budget also includes capital for distribution projects, distribution maintenance capital and information technology related items. In addition, the...

  • 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
    ... STOCK PRICE SUPERVALU's common stock is listed on the New York Stock Exchange under the symbol SVU. At fiscal 2005 year end, there were 6,483 shareholders of record compared with 6,839 at the end of fiscal 2004. Common Stock Price Range 2005 2004 High Low High Low Dividends Per Share 2005 2004...

  • Page 27
    ...assets, benefit obligations, cash flows, benefit costs and related information. The effect of the revisions to SFAS No. 132 are included in the Benefit Plans note in the Notes to Consolidated Financial Statements. In May 2004, the FASB issued Financial Staff Position (FSP) No. 106-2, "Accounting and...

  • Page 28
    ... accompanying Notes 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...

  • 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
    ... 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 employees...

  • Page 31
    ...company's internal control over financial reporting as of February 26, 2005, excluded Total Logistics, Inc., which was acquired by the company in February 2005 in a purchase business combination. Total Logistics, Inc. is a wholly-owned subsidiary of the company whose total assets and total net sales...

  • Page 32
    ... Officer Senior Vice President, Chief Information Officer Senior Vice President; Chief Operating Officer, Retail Food Companies Senior Vice President; Executive Vice President, Retail Pharmacies 2001 1997 1999 2004 Vice President, Wholesale Strategies, 1999-2000 Senior Vice President, Corporate...

  • Page 33
    ... David M. Oliver 43 48 63 47 2002 1998 2000 2004 Senior Vice President, Human Resources & Management Services of Save-A-Lot, from 2000 to 2004 Vice President, Corporate Controller, 1998-2002 Associate General Counsel, 19962000 The term of office of each executive officer is from one annual...

  • Page 34
    ... and Chief Executive Officer of Department 56, Inc. (a designer, importer and distributor of fine quality collectibles and other giftware products), 1997present; Director of Wells Fargo & Company Chairman and Chief Executive Officer of GAGE Marketing Group, L.L.C. (an integrated marketing services...

  • Page 35
    ...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. Information on the company's website is not deemed to be incorporated by reference into this Annual Report...

  • Page 36
    ... 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 TRANSACTIONS Not applicable. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information called for by Item 14 is...

  • Page 37
    ... public accountants, are filed as part of this report. (3) Exhibits: (3) Articles of Incorporation and Bylaws: (3)(i) Restated Certificate of Incorporation is incorporated by reference to Exhibit (3)(i) to the Registrant's Annual Report on Form 10-K for the year ended February 28, 2004. (3)(ii...

  • Page 38
    ...are not filed and, in lieu thereof, the Registrant agrees to furnish copies thereof to the Securities and Exchange Commission upon request. (10) Material Contracts: 10.1. SUPERVALU INC. 2002 Stock Plan is incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for...

  • Page 39
    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 40
    ... for Executive Officers is incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period (12 weeks) ended September 11, 2004.* 10.33 Form of SUPERVALU INC. 2002 Stock Plan Stock Option Agreement for Non-Employee Directors and Stock Option...

  • Page 41
    ...10.7 to the Registrant's Quarterly Report on Form 10-Q for the quarterly period (12 weeks) ended September 11, 2004.* 10.38 Performance 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...

  • Page 42
    ...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 Director May 6, 2005 /s/ PAMELA...

  • Page 43
    ..., process, 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 6, 2005 /s/ JEFFREY NODDLE Chief Executive Officer and...

  • 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 6, 2005 /s/ PAMELA K. KNOUS Executive Vice President, Chief Financial Officer...

  • Page 45
    ... 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 Officer and President 39

  • Page 46
    ...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 PAMELA K. KNOUS Pamela K. Knous Executive Vice President, Chief Financial Officer...

  • Page 47
    ... statements of cash flows for each of the three years ended February 26, 2005, February 28, 2004 and February 22, 2003 ...Notes to consolidated financial statements ...Unaudited quarterly financial information ...Financial Schedule: Schedule II: Valuation and qualifying accounts ...All other...

  • Page 48
    ... Subsidiaries 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...

  • Page 49
    ...2005, fiscal 2004, fiscal 2003, and fiscal 2002, respectively. (c) Inventories (FIFO), working capital and current...which includes notes payable, current debt, current obligations under capital...Financial Accounting Standards (SFAS) No. 142, goodwill and intangible assets acquired in a purchase business...

  • Page 50
    ... 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, based on criteria...

  • Page 51
    ... the Company's internal control over financial reporting as of February 26, 2005, excluded Total Logistics, Inc., which was acquired by the Company in February 2005 in a purchase business combination. Total Logistics, Inc., is a wholly owned subsidiary of the Company whose total assets and net sales...

  • Page 52
    ... the standards of 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...

  • Page 53
    ...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 54
    ... (In thousands, except per share data) February 26, 2005 (52 weeks) February 28, 2004 (53 weeks) February 22, 2003 (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...

  • Page 55
    ... Net property, plant and equipment Goodwill Other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable Accrued vacation, compensation and benefits Current maturities of long-term debt Current obligations under capital leases Income taxes currently payable...

  • Page 56
    ... 28, 2004 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...

  • Page 57
    ... 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 of property, plant and equipment Purchase of Total Logistics...

  • Page 58
    ... 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. Advertising expenses are a component of...

  • Page 59
    ...are recognized when expected net future cash flows are less than the 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...

  • Page 60
    ...-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 61
    ... excess of the stock's market value at the time of the grant over the amount 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...

  • Page 62
    ... 148, "Accounting for Stock-Based Compensation," 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...

  • Page 63
    ... plan assets, benefit obligations, cash flows, benefit costs and related information. The effect of the revisions to SFAS No. 132 is included in the Benefit Plan note in the Notes to Consolidated Financial Statements. In May 2004, the FASB issued Financial Staff Position (FSP) No. 106-2, "Accounting...

  • Page 64
    ...years 2005, 2004, and 2003 respectively. These charges reflect changes in liabilities associated with employee benefit related costs from previously exited distribution facilities as well as changes in estimates on exited real estate, including asset impairment. Fiscal 2005 charges related primarily...

  • 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
    ... 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 approximately $14.7 million of intangible assets related to...

  • Page 67
    ... 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 investments in unconsolidated subsidiaries in fiscal 2005, 2004, and 2003, respectively, with total investments...

  • Page 68
    ...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 of the carrying value...

  • Page 69
    ... of paying the holder in cash, common stock or a combination of the two. Generally, except upon the occurrence of specified events, holders of the debentures are not entitled to exercise their conversion rights until the closing price of the company's common stock on the New York Stock Exchange...

  • Page 70
    ... 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 under capital leases was $34.5 million, $35.1 million and $32.8 million in fiscal 2005, 2004 and...

  • Page 71
    ... 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 $115.6 million, $119.7 million and $113.7 million in fiscal 2005, 2004 and 2003, respectively. Future minimum receivables under operating...

  • Page 72
    ... computed by applying the statutory federal income tax rate to earnings before taxes is attributable to the following: 2005 2004 (In thousands) 2003 Federal taxes based on statutory rate State income taxes, net of federal benefit Audit settlements Other Total provision F-26 $210,302 $159,208 $142...

  • Page 73
    ... tax asset (liability) as of February 26, 2005 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...

  • Page 74
    ...the granting of non-qualified stock options and 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...

  • Page 75
    .... Compensation expense under these plans was $12.2 million, $2.2 million 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...

  • Page 76
    ... to 5.0 million shares of the company's common stock for reissuance upon the exercise of employee stock options and for other compensation programs utilizing the company's stock. In fiscal 2005, the company purchased approximately 0.4 million shares under the program at an average cost of $27.73 per...

  • 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
    ...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 Security Act (ERISA). Plan assets...

  • Page 79
    ... 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 net loss Unrecognized prior service cost Net benefit...

  • Page 80
    ... date as well as our target allocation. Asset Category Target Allocation Ranges Plan Assets Fiscal 2005 Plan Assets Fiscal 2004 Domestic Equity International Equity Domestic Fixed Income Cash and Other Total 45.0% 7.0% 25.0% 0.0% - - - - 70.0% 20.0% 35.0% 15.0% 60.7% 10.1% 23.5% 5.7% 100.0% 62...

  • Page 81
    ... expense related to the union pension plans of $37.0 million, $34.2 million and $35.2 million for fiscal 2005, 2004 and 2003, respectively. Currently, some of these plans are underfunded in that the present value of accrued liabilities exceeds the current value of the assets held in trust to pay...

  • 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...

  • Page 83
    ...Allowance for doubtful accounts: Year ended: February 26, 2005 February 28, 2004 February 22, 2003 Allowance for notes receivable accounts: Year ended: February 26, 2005 February 28, 2004 February 22, 2003 Closed properties reserves: Year ended: February 26, 2005 February 28, 2004 February 22, 2003...

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  • Page 87
    ... • Account maintenance • Transfer of shares • Name or address change Please contact: Wells Fargo Shareowner Services PO Box 64854 St. Paul, MN 55164-0854 Phone: 877-536-3555 www.wellsfargo.com/shareownerservices COMMON STOCK SUPERVALU's common stock is listed on the New York Stock Exchange...

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