Add
SVU to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SVU > SEC Filings for SVU > Form 10-Q on 29-Jul-2009 | All Recent SEC Filings |
29-Jul-2009
Quarterly Report
(Dollars and shares in millions, except per share data)
OVERVIEW
SUPERVALU is one of the largest grocery companies in the United States grocery
channel. The Company operates in two segments of the grocery industry, Retail
food and Supply chain services, primarily wholesale distribution. As of June 20,
2009, the Company conducted its retail operations through a total of 2,418
retail stores of which 866 are licensed locations.
Weakness in the economy continued to negatively impact consumer confidence and
spending in early fiscal 2010. If this continues, it could lead to further
reduced consumer spending, trading down by consumers to a less expensive mix of
products or trading down by consumers to discounters for grocery items, all of
which could impact the Company's sales growth. Food deflation could reduce sales
growth, while food inflation, combined with reduced consumer spending, could
reduce gross profit margins.
RESULTS OF OPERATIONS
In the first quarter of fiscal 2010, net sales were $12,715 and net earnings
were $113, or $0.53 per basic and diluted share. In the first quarter of fiscal
2009, net sales were $13,347 and net earnings were $162, or $0.76 per basic and
diluted share. Results for the first quarter of fiscal 2009 included
acquisition-related costs (defined as one-time transaction costs associated with
the acquisition of New Albertsons, Inc., which primarily include supply chain
consolidation costs, employee-related benefit costs and consultant fees) of $6
after tax, or $0.03 per diluted share.
FIRST QUARTER RESULTS
Net Sales
Net sales for the first quarter of fiscal 2010 were $12,715 compared with
$13,347 last year, reflecting decreased sales in both the Retail food and Supply
chain services segments. Retail food sales were 77.9 percent of Net sales and
Supply chain services sales were 22.1 percent of Net sales for the first quarter
of fiscal 2010, compared with 77.5 percent and 22.5 percent, respectively, last
year.
Retail food net sales for the first quarter of fiscal 2010 were $9,900 compared
with $10,346 last year. New store sales growth was more than offset by the
impact of store closures and negative identical store retail sales. Identical
store retail sales growth (defined as stores operating for four full quarters,
including store expansions and excluding fuel and planned store closures) for
the first quarter of fiscal 2010 compared to last year was negative 3.2 percent
primarily as a result of a challenging economic environment, heightened
competitive activity, additional investments in price and higher levels of
promotional spending.
Total retail square footage at the end of the first quarter of fiscal 2010 was
approximately 69 million. Total retail square footage decreased 3.2 percent from
the first quarter of fiscal 2009. Total retail square footage, excluding store
closures, increased 0.8 percent over the first quarter of fiscal 2009.
Supply chain services net sales for the first quarter of fiscal 2010 were $2,815
compared with $3,001 last year, reflecting the on-going transition of a national
retailer's volume to self-distribution and customer attrition, which was
partially offset by new business growth.
Gross Profit
Gross profit, as a percent of Net sales, decreased 60 basis points to
22.4 percent in the first quarter of fiscal 2010 compared to 23.0 percent last
year, primarily reflecting increased investments in price and promotional
spending.
Selling and Administrative Expenses
Selling and administrative expenses, as a percent of Net sales, were
19.6 percent in the first quarter of fiscal 2010 compared with 19.6 percent last
year, primarily reflecting effective expense management with the decrease in Net
sales from last year.
Operating Earnings
Operating earnings for the first quarter of fiscal 2010 were $362 compared with
$456 last year. Retail food operating earnings for the first quarter of fiscal
2010 were $311 compared with $399 last year, primarily reflecting the impact of
a challenging economic environment, heightened competitive activity, additional
investments in price and higher levels of promotional spending. Supply chain
services operating earnings for the first quarter of fiscal 2010 were $82, or
2.9 percent of Supply chain services net sales, compared with $86, or
2.9 percent of Supply chain services net sales last year.
Net Interest Expense
Net interest expense was $177 in the first quarter of fiscal 2010 compared with
$190 last year, primarily reflecting lower interest rates and debt levels in the
first quarter of fiscal 2010 compared to last year.
Income Tax Provision
The income tax expense was $72, or 38.7 percent of earnings before income taxes,
in the first quarter of fiscal 2010 compared with income tax expense of $104, or
39.0 percent of earnings before income taxes, last year.
Net Earnings
Net earnings were $113, or $0.53 per basic and diluted share, in the first
quarter of fiscal 2010 compared with net earnings of $162, or $0.76 per basic
and diluted share last year.
SUBSEQUENT EVENT
On July 28, 2009, the Company announced that it reached an agreement for the
sale of 36 Albertsons stores located in Utah. The transaction, which is subject
to regulatory approval, is expected to realize approximately $150 in after-tax
net proceeds and is not expected to have a material effect on the Company's
results of operations for fiscal 2010.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $492 for the first quarter of
fiscal 2010 compared with $398 last year, primarily attributable to changes in
working capital partially offset by decreased Net earnings and Depreciation and
amortization.
Net cash used in investing activities was $223 for the first quarter of fiscal
2010 compared with $369 last year. The decrease is primarily attributable to
lower capital spending in the first 16 weeks of fiscal 2010 compared to last
year.
Net cash used in financing activities was $234 for the first quarter of fiscal
2010 compared with $13 last year. Fiscal 2010 first quarter financing activities
primarily reflect net payments of long-term debt and capital lease obligations
and payment of dividends.
Management expects that the Company will continue to replenish operating assets
with internally generated funds. There can be no assurance, however, that the
Company's business will continue to generate cash flow at current levels. The
Company will continue to obtain short-term or long-term financing from its
credit facilities. Long-term financing will be maintained through existing and
new debt issuances. The Company's short-term and long-term financing abilities
are believed to be adequate as a supplement to internally generated cash flows
to fund capital expenditures and acquisitions as opportunities arise. Maturities
of debt issued will depend on management's views with respect to the relative
attractiveness of interest rates at the time of issuance and other debt
maturities.
Certain of the Company's credit facilities and long-term debt agreements have
restrictive covenants and cross-default provisions which generally provide,
subject to the Company's right to cure, for the acceleration of payments due in
the event of a breach of the covenant or a default in the payment of a specified
amount of indebtedness due under certain other debt agreements. The Company was
in compliance with all such covenants and provisions for all periods presented.
In May 2009, the Company issued $1,000 in senior notes, which rank equally with
all of the Company's other senior unsecured indebtedness. In conjunction with
the debt issuance, the Company paid off $191 of 7.50% Debentures due May 2037
that contained put options exercised in May 2009, early redeemed $60 of 6.77%
Medium Term Notes due July 2009 and purchased pursuant to a tender offer $232 of
7.875% Notes due August 2009, $177 of 6.95% Notes due August 2009 and $110 of
8.35% Notes due May 2010 for an aggregate payment of $777 in cash. The remainder
of the debt issuance proceeds was used to reduce the Revolving Credit Facility.
The Company has senior secured credit facilities in the amount of $4,000. These
facilities were provided by a group of lenders and consist of a $2,000 five-year
revolving credit facility (the "Revolving Credit Facility"), a $750 five-year
term loan ("Term Loan A") and a $1,250 six-year term loan ("Term Loan B"). The
rates in effect under the facilities as of June 20, 2009, based on the Company's
current credit ratings, were 0.20 percent for the facility fees, LIBOR plus
0.875 percent for Term Loan A, LIBOR plus 1.25 percent for Term Loan B, LIBOR
plus 1.00 percent for revolving advances and Prime Rate for base rate advances.
All obligations under the senior secured credit facilities are guaranteed by
each material subsidiary of the Company. The obligations are also secured by a
pledge of the equity interests in those same material subsidiaries, limited as
required by the existing public indentures of the Company, such that the
respective debt issued need not be equally and ratably secured.
The senior secured credit facilities also contain various financial covenants,
including a minimum interest expense coverage ratio and a maximum debt leverage
ratio. The interest expense coverage ratio shall not be less than 2.25 to 1 for
each of the fiscal quarters ending up through December 30, 2009, and moves to a
ratio of not less than 2.30 to 1 for the fiscal quarters ending after
December 30, 2009. The debt leverage ratio shall not exceed 4.00 to 1 for each
of the fiscal quarters ending up through December 30, 2009 and moves to a ratio
not to exceed 3.75 to 1 for each of the fiscal quarters ending after
December 30, 2009.
Borrowings under Term Loan A and Term Loan B may be repaid, in full or in part,
at any time without penalty. Term Loan A has required repayments, payable
quarterly, equal to 2.50 percent of the initial drawn balance for the first four
quarterly payments (year one) and 3.75 percent of the initial drawn balance for
each quarterly payment in years two through five, with the entire remaining
balance due at the five year anniversary of the inception date, June 1, 2006.
Term Loan B has required repayments, payable quarterly, equal to 0.25 percent of
the initial drawn balance, with the entire remaining balance due at the six year
anniversary of the inception date. Prepayments shall be applied pro rata to the
remaining amortization payments.
As of June 20, 2009, there were $26 of outstanding borrowings under the
Revolving Credit Facility. Term Loan A had a remaining principal balance of
$478, of which $113 was classified as current, and Term Loan B had a remaining
principal balance of $1,113, of which $11 was classified as current. Letters of
credit outstanding under the Revolving Credit Facility were $329 and the unused
available credit under the Revolving Credit Facility was $1,645. The Company
also had $5 of outstanding letters of credit issued under separate agreements
with financial institutions. Letters of credit primarily support workers'
compensation, merchandise import programs and payment obligations. The Company
pays fees, which vary by instrument, of up to 1.40 percent on the outstanding
balance of the letters of credit.
In May 2009, the Company amended and extended its 364-day accounts receivable
securitization program. The Company can borrow up to $200 on a revolving basis,
with borrowings secured by eligible accounts receivable, which remain under the
Company's control. Facility fees under this program range from 0.75 percent to
2.50 percent, based on the Company's credit ratings. The facility fee in effect
on June 20, 2009, based on the Company's current credit ratings, is 1.00
percent. As of June 20, 2009, there were $353 of accounts receivable pledged as
collateral, classified in Receivables in the Condensed Consolidated Balance
Sheet. Due to the Company's intent to renew the facility or refinance it with
the Revolving Credit Facility, the facility is classified in Long-term debt in
the Condensed Consolidated Balance Sheets.
As of June 20, 2009, the Company had $456 of debt, excluding the Accounts
Receivable Securitization Facility, with current maturities that are classified
in Long-term debt in the Condensed Consolidated Balance Sheets due to the
Company's intent to refinance such obligations with the Revolving Credit
Facility or other long-term debt.
Capital spending during the first quarter of fiscal 2010 was approximately $238.
Capital spending primarily included store remodeling activity and technology
expenditures. The Company's capital spending for fiscal 2010 is projected to be
approximately $700, including capital leases.
Fiscal 2010 debt reduction is projected to be approximately $700, including the
net proceeds from the sale of 36 Albertsons stores located in Utah.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
The Company has guaranteed certain leases, fixture financing loans and other
debt obligations of various retailers as of June 20, 2009. These guarantees were
generally made to support the business growth of independent retail customers.
The guarantees are generally for the entire terms of the leases or other debt
obligations with remaining terms that range from less than one year to 21 years,
with a weighted average remaining term of approximately 10 years. For each
guarantee issued, if the independent retail customer defaults on a payment, the
Company would be required to make payments under its guarantee. Generally, the
guarantees are secured by indemnification agreements or personal guarantees of
the independent retail customer. The Company reviews performance risk related to
its guarantees of independent retail customers based on internal measures of
credit performance. As of June 20, 2009, the maximum amount of undiscounted
payments the Company would be required to make in the event of default of all of
these guarantees was approximately $160 and represented approximately $107 on a
discounted basis. Based on the indemnification agreements, personal guarantees
and results of the reviews of performance risk, the Company believes the
likelihood that it will be required to assume a material amount of these
obligations is remote. Accordingly, no amount has been recorded in the Condensed
Consolidated Balance Sheets for these contingent obligations under the Company's
guarantee arrangements.
The Company is contingently liable for leases that have been assigned to various
third parties in connection with facility closings and dispositions. The Company
could be required to satisfy the obligations under the leases if any of the
assignees are unable to fulfill their lease obligations. Due to the wide
distribution of the Company's assignments among third parties, and various other
remedies available, the Company believes the likelihood that it will be required
to assume a material amount of these obligations is remote.
In the ordinary course of business, the Company enters into supply contracts to
purchase products for resale. These contracts typically include either volume
commitments or fixed expiration dates, termination provisions and other standard
contractual considerations. As of June 20, 2009, the Company had approximately
$1,662 of non-cancelable future purchase obligations primarily related to supply
contracts.
The Company is a party to a variety of contractual agreements under which the
Company may be obligated to indemnify the other party for certain matters, which
indemnities may be secured by operation of law or otherwise, in the 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 of their work.
While the Company's aggregate indemnification obligation could result in a
material liability, the
Company is aware of no current matter that it expects to result in a material
liability.
The Company is a party to various legal proceedings arising from the normal
course of business as described in Part II-Other Information, Item 1, under the
caption "Legal Proceedings" and in Note 11 - Commitments, Contingencies and
Off-Balance Sheet Arrangements, none of which, in management's opinion, is
expected to have a material adverse impact on the Company's financial condition,
results of operations or cash flows.
Pension Plan / Health and Welfare Plan Contingencies
The Company contributes to various multi-employer pension plans under collective
bargaining agreements, primarily defined benefit pension plans. These plans
generally provide retirement benefits to participants based on their service to
contributing employers. Based on available information, the Company believes
that some of the multi-employer plans to which it contributes are underfunded.
Company contributions to these plans could increase in the near term. However,
the amount of any increase or decrease in contributions will depend on a variety
of factors, including the results of the Company's collective bargaining
efforts, investment returns on the assets held in the plans, actions taken by
the trustees who manage the plans and requirements under the Pension Protection
Act and Section 412(e) of the Internal Revenue Code. Furthermore, if the Company
were to significantly reduce contributions, exit certain markets or otherwise
cease making contributions to these plans, it could trigger a partial or
complete withdrawal that would require the Company to fund its proportionate
share of a plan's unfunded vested benefits.
The Company also makes contributions to multi-employer health and welfare plans
in amounts set forth in the related collective bargaining agreements. The
majority of the Company's collective bargaining agreements fix or limit the
Company's contributions to multi-employer health and welfare plans. The
remaining agreements contain requirements that could result in additional
contributions, increasing the Company's Selling and administrative expenses in
the future.
Contractual Obligations
There have been no material changes in the Company's contractual obligations
since the end of fiscal 2009. Refer to Item 7 of the Company's Annual Report on
Form 10-K for the fiscal year ended February 28, 2009 for additional information
regarding the Company's contractual obligations.
CRITICAL ACCOUNTING POLICIES
The description of critical accounting policies is included in Item 7 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
2009.
NEW ACCOUNTING STANDARDS
In December 2008, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position ("FSP") FAS 132(R)-1, "Employers' Disclosures about
Postretirement Benefit Plan Assets." FSP FAS 132(R)-1 provides additional
guidance regarding disclosures about plan assets of defined benefit pension or
other postretirement plans. FSP FAS 132(R)-1 will be effective for the Company's
fiscal year ending February 27, 2010. The adoption of FSP FAS 132(R)-1 will
result in enhanced disclosures, but will not otherwise have an impact on the
Company's consolidated financial statements.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE
SECURITIES LITIGATION REFORM ACT
Any statements contained in this report regarding the outlook for our businesses
and their respective markets, such as projections of future performance,
guidance, statements of our plans and objectives, forecasts of market trends and
other matters, are forward-looking statements based on our assumptions and
beliefs. Such statements may be identified by such words or phrases as "will
likely result," "are expected to," "will continue," "outlook," "will benefit,"
"is anticipated," "estimate," "project," "management believes" or similar
expressions. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
discussed in such statements and no assurance can be given that the results in
any forward-looking statement will be achieved. For these statements, SUPERVALU
INC. claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Any
forward-looking statement speaks only as of the date on which it is made, and we
disclaim any obligation to subsequently revise any forward-looking statement to
reflect events or circumstances after such date or to reflect the occurrence of
anticipated or unanticipated events.
Certain factors could cause our future results to differ materially from those
expressed or implied in any forward-looking statements contained in this report.
These factors include the factors discussed in Part II, Item 1A of this
Quarterly Report on Form 10-Q under the heading "Risk Factors," the factors
discussed below and any other cautionary statements, written or oral, which may
be made or referred to in connection with any such forward-looking statements.
Since it is not possible to foresee all such factors, these factors should not
be considered as complete or exhaustive.
Economic and Industry Conditions
• Adverse changes in economic conditions that affect consumer spending or
buying habits
• Food and drug price inflation or deflation
• Increases in energy costs and commodity prices, which could impact consumer spending and buying habits and the cost of doing business
• The availability of favorable credit and trade terms
• Changes in interest rates
• The outcome of negotiations with partners, governments, suppliers, unions or customers
• Narrow profit margins in the grocery industry
Competitive Practices
• Our ability to attract and retain customers
• Our ability to hire, train or retain employees
• Competition from other food or drug retail chains, supercenters, non-traditional competitors and emerging alternative formats in our retail markets
• Declines in the retail sales activity of our Supply chain services customers due to competition or increased self-distribution
• Changes in demographics or consumer preferences that affect consumer spending habits
• The impact of consolidation in the retail food and supply chain services industries
• The success of our promotional and sales programs and our ability to respond to the promotional practices of competitors
• The ability to successfully improve buying practices and shrink
• The increase in the penetration of our Own Brands private label program could impact identical store retail sales growth
Food Safety
• Events that give rise to actual or potential food contamination, drug
contamination or food-borne illness or any adverse publicity relating to
these types of concern, whether or not valid
Integration of Acquired Businesses
• Our ability to successfully combine our operations with any businesses we
have acquired or may acquire, to achieve expected synergies and to minimize
the diversion of management's attention and resources
Store Expansion and Remodeling
• Potential delays in the development, construction or start-up of planned
projects
• Our ability to locate suitable store or distribution center sites, negotiate acceptable purchase or lease terms and build or expand facilities in a manner that achieves appropriate returns on our capital investment
• The adequacy of our capital resources for future acquisitions, the expansion of existing operations or improvements to facilities
• Our ability to make acquisitions at acceptable rates of return, assimilate acquired operations and integrate the personnel of the acquired business
Liquidity
• Additional funding requirements to meet anticipated debt payments and
capital needs
• The impact of acquisitions on our level of indebtedness, debt ratings, costs and future financial flexibility
• The impact of the recent turmoil in the financial markets on the availability and cost of credit
Labor Relations
• Potential work disruptions resulting from labor disputes
Employee Benefit Costs
• Increased operating costs resulting from rising employee benefit costs or
pension funding obligations
Regulatory Matters
• The ability to timely obtain permits, comply with government regulations or
make capital expenditures required to maintain compliance with government
regulations
• Changes in applicable laws and regulations that impose additional requirements or restrictions on the operation of our businesses
Self-Insurance
• Variability in actuarial projection regarding workers' compensation and
general and automobile liability
• Potential increase in the number or severity of claims for which we are self-insured
• Significant volatility in the amount and timing of payments
Legal and Administrative Proceedings
• Unfavorable outcomes in litigation, governmental or administrative
proceedings or other disputes
• Adverse publicity related to such unfavorable outcomes
Information Technology
• Difficulties in developing, maintaining or upgrading information technology
systems
Security
• Business disruptions or losses resulting from wartime activities, acts or
threats of terror, data theft, information espionage, or other criminal
activity directed at the food and drug industry, the transportation industry
or computer or communications systems
Severe Weather, Natural Disasters and Adverse Climate Changes
• Property damage or business disruption resulting from severe weather
conditions and natural disasters that affect us, our customers or suppliers
• Unseasonably adverse climate conditions that impact the availability or cost of certain products in the grocery supply chain
Accounting Matters
• Changes in accounting standards that impact our financial statements
|
|