Add
SVU to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SVU > SEC Filings for SVU > Form 10-Q on 21-Oct-2009 | All Recent SEC Filings |
21-Oct-2009
Quarterly Report
Operating Earnings
Operating earnings for the second quarter of fiscal 2010 were $245 compared with
$342 last year. Retail food operating earnings for the second quarter of fiscal
2010 were $188, or 2.5 percent of Retail food net sales, compared with $284, or
3.6 percent of Retail food net sales last year. The decrease in Retail food
operating earnings as a percent of Retail food net sales primarily reflects the
impact of a challenging economic environment, heightened competitive activity,
the impact of a higher promotional sales mix, increased investments in price and
reduced sales leverage. Supply chain services operating earnings for the second
quarter of fiscal 2010 were $63, or 3.0 percent of Supply chain services net
sales, compared with $77, or 3.4 percent of Supply chain services net sales last
year. The decrease in Supply chain services operating earnings as a percent of
Supply chain services net sales primarily reflects the impact of reduced sales
leverage from the on-going transition of a national retail customer's volume to
self-distribution.
Net Interest Expense
Net interest expense was $131 in the second quarter of fiscal 2010 compared with
$141 last year, primarily reflecting lower interest rates and debt levels in the
second quarter of fiscal 2010 compared to last year.
Income Tax Provision
Income tax expense for the second quarter of fiscal 2010 was $40, or 35.1
percent of earnings before income taxes, compared with income tax expense of
$73, or 36.4 percent of earnings before income taxes, last year. The tax rate
for the second quarter of fiscal 2010 reflects the impact of a lower effective
state tax rate whereas the tax rate for the second quarter of fiscal 2009
reflects the impact of non-taxable life insurance proceeds.
Net Earnings
Net earnings were $74, or $0.35 per basic and diluted share, in the second
quarter of fiscal 2010 compared with net earnings of $128, or $0.60 per basic
and diluted share, last year.
YEAR-TO-DATE RESULTS
Net Sales
Net sales for fiscal 2010 year-to-date decreased to $22,176 compared with
$23,573 last year, reflecting decreased sales in both the Retail food and Supply
chain services segments. Retail food sales were 78.1 percent of Net sales and
Supply chain services sales were 21.9 percent of Net sales for fiscal
2010 year-to-date, compared with 77.7 percent and 22.3 percent, respectively,
last year.
Retail food net sales for fiscal 2010 year-to-date were $17,311 compared with
$18,307 last year. Identical store retail sales growth for fiscal
2010 year-to-date compared to last year was negative 3.8 percent, primarily as a
result of a challenging economic environment, heightened competitive activity
and investments in price and promotions.
Supply chain services net sales for fiscal 2010 year-to-date were $4,865
compared with $5,266 last year, primarily reflecting the on-going transition of
a national retail customer's volume to self-distribution.
Gross Profit
Gross profit, as a percent of Net sales, decreased 40 basis points to
22.3 percent for fiscal 2010 year-to-date compared to 22.7 percent last year,
primarily reflecting a higher promotional sales mix and increased investments in
price.
Selling and Administrative Expenses
Selling and administrative expenses, as a percent of Net sales, increased 20
basis points to 19.5 percent for fiscal 2010 year-to-date compared to
19.3 percent last year, primarily reflecting reduced sales leverage that more
than offset the savings achieved from ongoing cost reduction initiatives.
Operating Earnings
Operating earnings for fiscal 2010 year-to-date decreased to $607 compared with
$798 last year. Retail food operating earnings for fiscal 2010 year-to-date were
$499, or 2.9 percent of Retail food net sales, compared with $683, or
3.7 percent of Retail food net sales last year. The decrease in Retail food
operating earnings as a percent of Retail food net sales primarily reflects the
impact of a challenging economic environment, heightened competitive activity,
the impact of a higher promotional sales mix, increased investments in price and
reduced sales leverage. Supply chain services operating earnings for fiscal
2010 year-to-date were $145, or 3.0 percent of Supply chain services net sales,
compared with $163, or 3.1 percent of Supply chain services net sales last year.
The decrease in Supply chain services operating earnings as a percent of Supply
chain services net sales primarily reflects the impact of reduced sales leverage
from the on-going transition of a national retail customer's volume to
self-distribution.
Net Interest Expense
Net interest expense was $308 for fiscal 2010 year-to-date compared with $331
last year, primarily reflecting lower interest rates and debt levels in fiscal
2010 compared to last year.
Income Tax Provision
Income tax expense was $112, or 37.3 percent of earnings before income taxes,
for fiscal 2010 year-to-date compared with income tax expense of $177, or
37.9 percent of earnings before income taxes, last year.
Net Earnings
Net earnings were $187, or $0.88 per basic and diluted share, for fiscal
2010 year-to-date compared with Net earnings of $290, or $1.37 per basic share
and $1.36 per diluted share, last year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $840 for fiscal 2010 year-to-date
compared with $745 last year. The increase is primarily attributable to
improvements in working capital partially offset by decreased Net earnings.
Net cash used in investing activities was $369 for fiscal 2010 year-to-date
compared with $585 last year. The decrease is primarily attributable to lower
capital spending in fiscal 2010 year-to-date compared to last year.
Net cash used in financing activities was $442 for fiscal 2010 year-to-date
compared with $130 last year. The increase is primarily attributable to higher
levels of debt reduction compared to last year.
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 September 12, 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 September 12, 2009, there were $264 of outstanding borrowings under the
Revolving Credit Facility. Term Loan A had a remaining principal balance of
$450, of which $113 was classified as current, and Term Loan B had a remaining
principal balance of $1,111, of which $11 was classified as current. Letters of
credit outstanding under the Revolving Credit Facility were $330 and the unused
available credit under the Revolving Credit Facility was $1,406. The Company
also had $3 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 1.125 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. As of September 12, 2009, there were $35 of outstanding
borrowings under the 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 September 12, 2009, based on the Company's current
credit ratings, was 1.00 percent. As of September 12, 2009, there were $332 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 September 12, 2009, the Company had $165 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 second quarter of fiscal 2010 was $158. Capital
spending year-to-date for fiscal 2010 was $396. 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
approximately $150 in after tax 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 September 12, 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 September 12, 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 $156 and represented $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 September 12, 2009, the Company had $1,405 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 the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 20, 2009 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 . . .
|
|