Filed by SUPERVALU INC.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: SUPERVALU INC., File #1-5418
CONFERENCE CALL TRANSCRIPT
SVU - Q4 2006 Supervalu Inc. Earnings Conference Call
Event Date/Time: Apr. 18. 2006 / 10:00AM ET
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CORPORATE PARTICIPANTS
PAM KNOUS
SUPERVALU INC. - EVP, CFO
YOLANDA SCHARTON
SUPERVALU INC. - VP, IR
JEFF NODDLE
SUPERVALU INC. - CHAIRMAN, CEO
CONFERENCE CALL PARTICIPANTS
JOHN HEINBOCKEL
GOLDMAN SACHS - ANALYST
JASON WHITMER
FTN MIDWEST RESEARCH - ANALYST
MARK HUSSON
HSBC INVESTMENT BANK - ANALYST
LOUIS SARKES
CHESAPEAKE PARTNERS - ANALYST
STEVE CHICK
J.P. MORGAN - ANALYST
MEREDITH ADLER
LEHMAN BROTHERS - ANALYST
AJAY JAIN
UBS WARBURG - ANALYST
SCOTT FROST
HSBC INVESTMENT BANK - ANALYST
ERIC LARSON
PIPER JAFFRAY - ANALYST
PRESENTATION
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OPERATOR
Good morning ladies and gentlemen. Welcome to SUPERVALU's fiscal 2006 fourth
quarter and year end conference call. At this time, all participants are in a
listen-only mode. Later we will conduct a question and answer session. Please
note that this conference is being recorded.
I will now turn the call over to Ms. Yolanda Scharton, Vice President, Investor
Relations.
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YOLANDA SCHARTON - SUPERVALU INC. - VP, IR
Thank you and welcome everyone. On today's call are Jeff Noddle, SUPERVALU's
Chairman and Chief Executive Officer, and Pam Knous, Corporate Executive Vice
President and Chief Financial Officer.
I remind you as always that the information presented and discussed today
includes forward-looking statements, which are made under the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995. The risks
and uncertainties related to such statements are detailed in our fiscal 2005
10-K, as well as subsequent filings related to SUPERVALU's proposed acquisition
of certain assets of Albertson's.
Before I turn over the call to Jeff, a quick note about today's call. We plan to
keep our prepared remarks to a minimum today, and as you know, we are in the
final stages of completing the acquisition of premier retail properties of
Albertson's, and we're close to achieving a number of additional milestones as
we work towards closing the deal. The merger proxy is being reviewed by the SEC,
and we are hopeful it will be finalized and declared effective by mid-May at the
latest. Coincident with that, we would be in a position to file our 10-K, and we
would reach out to shareholders to discuss the merits of the acquisition, and
the prospects of the combined company.
Finally, we expect to close by mid-June. Given this timeline and the intense
focus on these activities, we will not be providing any fiscal 2007 guidance for
SUPERVALU today, until we are farther along in our transition planning efforts.
Rather, we will follow the timeline I have just mapped out. After today's call,
we will have a Q&A session at the end. Please limit yourself to one question so
we can accommodate everyone. As always, I will be available after the call for
additional questions.
Here is Jeff.
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Thank you, Yolanda and good morning to everyone, and thank you for joining us.
As Yolanda mentioned, the transaction is moving along as planned, and we fully
expect to close this transforming acquisition by mid-June. SUPERVALU and
Albertson's, as well as CVS and Cerberus, are working to complete the extensive
documentation and regulatory filings to allow this very complex transaction to
be closed as structurally required, to effect the sale of the standalone drug
operations to CVS, the premier retail properties of Jewel, Shaw's and Star
Markets, Acme, Bristol Farms and the standalone Albertson's stores in southern
California and the northwestern United States, as well as the in-store
pharmacies under the names of Sav-on and Osco, and then the other properties to
Cerberus.
The opportunity to acquire some of the best retail grocery properties in the
Company and create a retail business model, where approximately 73% of our
combined retail revenues are derived from markets with a #1 or #2 share is
unprecedented, and we're well prepared to seize this opportunity.
To reemphasize some of the information we shared with you in our March investor
presentation, which can still be found on our website, we believe we paid the
right price for these premier properties, which for the most recently completed
year delivered EBITDA to sales of 7.2%, as reported by Albertson's management.
On a simple combination basis for last year, excluding synergies, the
transaction is double-digit accretive. We firmly believe the synergies are
achievable, but more on that later.
The cash flow characteristics of the business allow for the use of leverage to
effect the transaction, while continuing to make the necessary investments in
the business, and steadily improving the credit characteristics. Similarly the
opportunity to create an executive management team from the bench of two
successful premier organizations, is something we seldom have the chance to do,
and I have that opportunity today.
To that end, I am in the process of finalizing my direct reports who will
represent the executive leadership team of the new SUPERVALU. I plan to announce
this new team, which will begin to shape the identity of the new SUPERVALU by
early May. This new team will deepen and broaden both our retail and supply
chain bench.
I also recently visited all of the new operating divisions of Albertson's, and
met with all of their leadership. The strength of those teams is impressive, and
remember that we have no overlap in the operating territories whatsoever.
I am very confident that the new SUPERVALU will be uniquely positioned in the
retail grocery industry, with a premier leadership team to not only leverage the
scale of the new combined company, but to deliver the most effective and
innovative locally-driven merchandising model, allowing us to be successful in
today's competitive landscape.
As Yolanda mentioned, we have a host of items that we're working to finalize.
The merger proxy is being reviewed by the SEC, and we are hopeful that it will
be finalized and declared effective by mid-May at the latest. We continue to
work on our transition plans, and we plan to provide earnings guidance as soon
as possible. Once these transition plans are further along, hopefully again by
mid-May. At that time, we would reach out to shareholders to discuss the merits
of the acquisition and the prospects for the new combined company. Last, as
Yolanda mentioned, we should close by mid-June.
I would now like to update you on the efforts to combine the Albertson's
acquired properties with SUPERVALU. There have been 10 transition teams across
critical functions formed, ranging from Retail operations, Merchandising,
Marketing, Logistics, Finance, IT, HR, Communications, and more, and are
identifying the Best Practices to leverage across both organizations.
We have over 200 people engaged with equal representation from both SUPERVALU
and Albertson's. Regular oversight is provided by the enterprise office, staffed
by select executives, again from both companies. We have already invested many
hours in this process and just held our third steering committee meeting last
Friday in Boise. I am very pleased with the progress made to date since we
announced this transaction just in late January.
As we have described for you our efforts to combine these organizations is a
very collaborative process with key management of both companies. Also remember
again that this transaction is structured in such a way that there is no end
market overlap thereby focusing the synergy efforts on lower risk, back
office-related activities and public company, and not operations. I am pleased
to report that all the work to-date supports our original synergy estimates and
time frames, as well as estimates for one-time costs relating to the combination
activities. We have yet seen nothing that changes that perspective.
Our efforts have been focused on ensuring that day 1 of the new enterprise will
be smooth, the right path has been set to deliver the economics of the combined
enterprise, and the organization structure is positioned to harness the
collective strength that our combined expertise will offer.
Before I turn the call over to Pam, who will cover the fourth quarter results, I
want to emphasize that at the operations level, we continue to focus on
day-to-day execution. Since there will be again virtually no overlap with our
existing retail network, our retail banners and local management team can stay
focused on their programs, competitive environment, and serving customers.
Fiscal year 2006 was the year we invested in new growth initiatives, and then
turned our energies on what we believe will be a truly transformational
acquisition for SUPERVALU.
At SUPERVALU, while some of the initiatives we implemented in fiscal 2006 were
small in comparison to what we have ahead of us with the combination of these
two companies, we believe they demonstrate our commitment to create innovative
retailing solutions and services. Here is a few examples.
The launch of W. Newell & Company, our new special produce company, addresses
the growing consumer demand for fresher higher quality produce, including
organics. We now serve more than 500 customers and ship more than 300,000 cases
per week. It took a while, but I am very pleased that our service levels now
exceed 96%, and inventory turn on the top 100 fresh items is below 1.5 days.
The launch of a new retail format, Sunflower Market, represents a new value
priced natural and organic retail format, that leverages our small box retail
expertise, to make naturals and organic products available to a much wider
spectrum of shoppers at attractive price points. This is just but one example of
our unique multi-format retail strategy that leverages the strong supply chain
backbone, and empowers our associate team through customized and innovative
local merchandising. Our first store is performing well, and at least three new
stores are coming on-stream by October.
Another activity launched this year is the introduction of SUPERVALU's Nature's
Best brand of private label natural and organic products across the SUPERVALU
network. These proprietary products will not only be featured in Sunflower, but
will also be available to all of our corporate stores and our supply chain
customers. Nearly 100 SKUs will be on store shelves next week, and we expect to
have more than 40 additional products rolled out by this fall.
In fiscal 2006 we continued our focus on further enhancing the competitiveness
of our store fleet through on-going remodeling initiatives. Our corporate owned
regional store fleet finished the fiscal year in strong condition, with roughly
80% of the stores, new or newly remodeled within the last seven years. At
Save-A-Lot, 50 licensed stores were remodeled this past year, updating earlier
generations of Save-A-Lot stores to current new store standards, including
equipment and branding image. A commitment to remodeling provides the platform
from which to launch new, innovative, regionally-tailored merchandising programs
that respond to our changing demographics.
In fiscal 2006, we also aggressively invested in future state supply chain
technologies to enhance our supply chain potential. This next generation
logistics and material handling technology is an example of our unparalleled
supply chain expertise and commitment to separating ourselves from our
competitors, that can be leveraged across a wider network of both company-owned
stores as well as our independent supply chain customers.
While Pam will cover this in more depth, fiscal 2006 was a year where we also
divested nonstrategic assets, most notably Shop 'n Save stores in Pittsburgh,
the standalone Deals stores, as well as the Cub stores in Chicago, as we
continue to drive to enhance our return on invested capital.
Now I would like the turn the call over to Pam to walk through your fiscal 2006
fourth quarter and full year results.
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PAM KNOUS - SUPERVALU INC. - EVP, CFO
Thanks, Jeff and good morning. I will quickly discuss the landscape and our
results for the quarter and full year. During our fourth quarter which ran from
early December until late February, higher fuel prices continued to pressure the
sales environment, and consumers maintained a relatively defensive spending
posture. Also the competitive landscape remained promotional, as retailers
invested in gross margins to cultivate sales. The retailing industry has also
stepped up its remodeling activity, and product cost increases or food
inflation, increased over the prior year by more than 2%, with the produce and
grocery categories generating the largest year-over-year increases.
Now to our results, we reported fourth quarter total net sales of 4.6 billion,
relatively unchanged in comparison to last year's fourth quarter. Total net
sales reflected disposition of our Cub properties in Chicago, and sale of
certain individual Pittsburgh stores late in the quarter. When you include the
March sale of Deals, these divestitures would represent approximately 900
million in sales on an annual basis.
The decrease in retail sales in the fourth quarter was offset by improved sales
performance in our supply chain services segment, including sales from the
acquisition of TLC. The Company reported fourth quarter diluted earnings per
share of $0.04, which reflected a host of items during the quarter, totaling
approximately 72 million after tax, or $0.51 per diluted share, related to our
sale of 26 Cub Chicago stores, which had a $0.42 per diluted share impact, and
as you know, these stores were sold to facilitate our pending acquisition.
The Q1 fiscal '07 sale of 138 Deals stores for which we incurred a $0.06 per
share impairment charge, related to technology investments, the sale of
Pittsburgh stores to independent retailers, which accounts for approximately
$0.02 per share, primarily for store sales occurring in Q4, and as well as
approximately $0.01 per share of incremental cost, relating to our ongoing
efficiency and automation initiatives in our supply chain segment.
Gross profit as a percent of sales was 14.7%, down approximately 60 basis points
from last year's fourth quarter, primarily reflecting the change in customer
mix, higher LIFO expense, and losses incurred related to minority-owned
investments. Selling and administrative as a percent of sales increased to
13.9%, approximately 210 basis points higher than last year's fourth quarter.
The increase as a percent of sales primarily reflects the charges taken in the
quarter related to Cub Chicago, Deals, and Pittsburgh. Absent these items SG&A
was 11.5% versus 11.8% reflecting lower benefit and incentive related costs,
which more than offset higher expenses, primarily utilities and property taxes.
So to recap the year, on January 10th we updated full year fiscal '06 guidance
on a fully diluted basis, to $1.89 to $1.94 per share, which includes $0.43 per
share of charges through the first nine months of the year. Since that date, we
have separately announced the sale of our stores in Chicago, and an impairment
charge incurred as a result of our decision to sell the standalone Deals stores.
So let's reconcile for the full year. We reported diluted earnings per share of
$1.46. This included the following per share amounts: $0.42 for Cub Chicago,
$0.26 for Pittsburgh, $0.09 for growth initiatives, $0.06 for Deals, $0.02 for
Katrina, and $0.02 for terminated acquisition activities for a total of $0.87 in
charges. Therefore on an adjusted basis, this equates to $2.33 per diluted
share, which also includes $0.02 of restructuring charges. Excluding the
previously disclosed $0.09 of supply chain growth initiatives, results are $2.24
per share, matching consensus. In total, our full year results were in-line with
our guidance.
Several of these items will impact fiscal '07 results. As the sale of the
Pittsburgh stores and Deals are finalized, we expect to incur an additional
$0.03 to $0.04 per share of charges in the first half of fiscal 2007. In
addition we will continue to invest in the supply chain automation project
throughout fiscal 2007, and are hopeful of a launch after the year end holidays.
I would now like the turn my comments to the pending acquisition. As you know
one of our priorities is to appropriately deploy capital across our expanded
retail network. We wanted to share with you some of the anticipated capital
plans for next year.
As we shared with you on past investor calls, the CapEx spend for next year is a
combination of the two companies existing plans, or approximately 1.1 billion.
Many of these projects are well under way, but we thought we would highlight
just a few for you. Jewel is planning on six new stores, including 18 major
remodels. Shaw's is planning on five new stores, including 14 major remodels,
southern California Albertson's is planning on six new stores, 13 major
remodels, Farm Fresh is planning on five new stores, three major remodels. Shop
'n Save St. Louis, four
new stores, two major remodels. Acme, two new stores, eleven major remodels, and
Shopper's Food Warehouse, two new with seven major remodels.
This represents a total of 30 new stores before five stores for Sunflower, and
approximately 75 for Save-A-Lot, with approximately 35 corporate locations.
Save-A-Lot will actually be entering two new markets this next year, the Pacific
Northwest and south Texas, as well, their remodel program although rolling out
slower than originally anticipated, should result in a total of 250 remodel
locations by the end of fiscal '07.
We have also said on a go forward basis, we will have the opportunity to
prioritize the capital spend across the entire new combined company. As you are
aware, SUPERVALU has spent the last several years upgrading its entire fleet,
achieving 80% new or newly remodels in the last seven years, for the first time
in fiscal 2005. Albertson's currently estimates that its fleet age would be
approximately 85% new or newly remodeled over the last ten years.
We will be committed to investing across the entire network to achieve the 80%
goal of new or newly remodeled in the last seven years, over the next few years
with the majority of the capital spend being in projects that impact our
customer's in-store shopping experience. Our new store and remodeling plan
reinforces our commitment to our store fleet, but also positions us
competitively against our peers, in terms of capital spending as a percent of
retail sales. As we presented to you in our March road show.
In regards to financing for the acquisitions, we are very pleased with the
progress we have made to put in place our new $4 billion facility. We have
completed syndication through the agent phase, and expect to launch full
syndication in early May. The general terms, conditions, and structure are as
disclosed in our proxy statement, with the only security being the pledge of
stock in U.S. subsidiaries, subject to limitations in the existing indentures.
Many of you have probably seen Moody's recent rating actions lowering ratings
for both SUPERVALU and Albertson's. We certainly expected this action, and with
the transaction clearly headed towards closing in June, Moody's believed it
appropriate to lower the rating at this time.
At year end, I am very pleased to report our strong cash position of $686
million. It reflects strength of operations, a year-over-year 1 day reduction in
inventory day supply, no significant or unusual tax liabilities, and therefore
this cash is substantially available to fund a component of the total cash
required for the acquisition. Even though not associated with the acquisition,
the cash proceeds from the sale of Deals are also now available, along with any
positive cash flow we generate between now and closing.
You may have noted that the New York Stock Exchange has posted our tentative
shareholders meeting date as May 30, 2006. We are still in the SEC review
process, but as a matter of mechanics, we needed to select a record date, and a
corresponding meeting date. The May 30 date merely reflects the earliest
practical date, and is subject to change. The actual meeting date will depend on
how long it takes to complete the SEC review process. We are hopeful for an
early to mid-June closing date.
We are well positioned to close on the acquisition. We will apply a disciplined
approach to manage our assets to improve financial returns, and credit
statistics over time, with a goal to return to investment grade over the next
several years. Now I would like the turn the call back to Jeff.
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Thanks, Pam. To recap, SUPERVALU is poised to acquire the premier retail
properties of Albertson's, which totals more than 1100 stores. We believe that
this is indeed the right deal at the right time. The transaction would make
SUPERVALU the #3 grocery retailing company in the country, and we believe this
deal makes tremendous sense on many fronts.
First, it will strengthen the footing of both companies, as we address the
changing competitive environment and consumer preference. Grocery preferences
are intensely localized, and this deal will create a national grocery retail
footprint, with the end market intelligence and format flexibility to properly
cater to the customer, with the choice of merchandising, shopping experience,
and price.
Next this deal will be truly transformational in scope and scale. Retail revenue
will jump from just over 50% of our overall mix to date to roughly 80%. Today,
EBITDA derived from retail is about 67%. This deal will catapult that number to
nearly 90%. I will reiterate the new SUPERVALU will generate approximately 73%
of retail revenues from markets with #1 or #2 share positions.
Third, the deal will create a significantly more profitable company, when
excluding one-time transaction costs we expect the transaction to be immediately
double-digit accretive, which is very unusual for a deal of this size, using
both leverage and additional equity.
Fourth, our commitment to managing this business for cash flow means that we
will have sufficient cash to both fuel the capital expenditure required to stay
competitive, and steadily pay down debt, as we march back to investment grade.
Finally, the combination of these two companies creates a bench of some of the
very best leaders in the grocery industry. I look forward to sharing the names
of our executive management with you very soon.
In summary, we end fiscal 2006 with the prospect of a very bright future, as we
look out toward creating a new enterprise that presents so much promise. The new
SUPERVALU will embody some of the industry's best regional name plates, a broad
based future growth potential, and the right formula to sustain grocery retail
success.
With that, I would now like to open it up to questions.
QUESTION AND ANSWER
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OPERATOR
Thank you. [OPERATOR INSTRUCTIONS] The first question is from John Heinbockel
from Goldman Sachs.
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JOHN HEINBOCKEL - GOLDMAN SACHS - ANALYST
Jeff, one large question, the fourth quarter was sort of a tough quarter. I
know the environment was not great. Can you talk a little bit about how the
environment maybe has changed more recently, obviously gas prices have gone
higher. What are you doing to combat the advantage some of guys with fuel
centers have, and finally, was there any distraction from the deal that would
have impacted the fourth quarter from your operating guys, or basically that's
not an issue?
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Well, John, for the second part of the question, I don't think the distraction
affected our operations in the field at all, to speak of. Obviously the
executive team was focused for certainly a period of time on the transaction,
but remember that not only today are they not affected by the deal, but more
importantly as the companies come together, there is just no overlap in the
field, and we think that's one of the great, one of the real pluses, and I know
there is a lot of concern has been expressed about what has been quoted as the
integration risk inherent, but I keep repeating that there is no overlap in the
field, and the divisions of both SUPERVALU and Albertson's will continue to
serve customers really unphased certainly in the early part of this, and
downstream will be affected very indirectly, if you will.
As far as the environment, I think the things that we have seen that I think
continue, and I expect to continue over the summer certainly, is that we are
seeing higher average sales per customer, generally across our businesses in
general, and the fact that people do seem to be more cautious in the number of
trips they take to shop. I think that's prevalent in not only in supermarket
retailing, but I am hearing that's prevalent in other forms of retailing as
well.
I think the advantage that you mentioned that some people have had in terms of
they have a lot of fuel stations and cross marketing, also I would note that
Albertson's has a number of, we'll be acquiring well over 100 fuel stations in
this transaction. I think initially that was a very powerful promotional tool. I
think that as time has worn on, our expense in the market is it has muted
somewhat, but these statistics are very, very hard to measure.
I think one thing is certain, that gas prices, I would anticipate us to see well
over $3 gas this summer, and we think the consumer will continue to be affected,
and again, we like our positioning by our multi-format approach in that regard.
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JOHN HEINBOCKEL - GOLDMAN SACHS - ANALYST
All right. So you don't think that the gas prices will get incrementally more
problematic than they have been? They're going to be higher but it doesn't sound
like that will be an incremental advantage for those that have fuel centers?
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
As I said, I think that's beginning to mute somewhat from what I see today, and
I don't think it is going to be a strong a promotional impact, as it was early
on when gas first started to move a little over a year ago.
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JOHN HEINBOCKEL - GOLDMAN SACHS - ANALYST
Okay. Thanks.
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OPERATOR
The next question comes from Jason Whitmer from FTN Midwest Research. Please go
ahead.
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JASON WHITMER - FTN MIDWEST RESEARCH - ANALYST
Good morning.
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Good morning, Jason.
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JASON WHITMER - FTN MIDWEST RESEARCH - ANALYST
Jeff, can you go through a lot of the feedback you've been hearing, not only
from investors, but maybe from your own people, Albertson's people, and maybe
the vendor community. What is the general chatter about, and how are you
addressing that?
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
There is a broad reaching question. Well, feedback, you know, the vendor
community certainly applauds this kind of transaction. That's been fairly
consistent, those that we have talked to say that the size, scale, their
questions relate to how are they going to best serve the new entity, and as we
give out more information over these next weeks, they will be able to form up
their plans on how to best serve the new entity.
Certainly a lot of people in the vendor community like the fact that this is a
multi-format kind of approach, and that we tailor things to local markets, and
that very much lines up with how they are trying to go to market, as the
demographics continue to segment in this country.
In terms of the I read everything, Jason, that the rest of you read. People
generally say that if there are concerns they're around the integration risk. I
think it has been paraphrased. We continue to be a little bit surprised by the
strength of that concern, simply because we are not disrupting and overturning
any markets whatsoever. Usually when you have an integration and you have a
transaction this size, you have overlaps in the field, and that's where you have
disruption to serving customers. We do not intend to have any disruption serving
customers.
Other people have said they're very bullish on the field, it's very unusual to
have double-digit accretion in a deal of this size as I mentioned particularly
with additional leverage and additional equity going out to still be
double-digit beyond one-time items, and I think when we are able shortly to
provide guidance, we'll be able to talk much more about that perspective.
As I mentioned on my comments, I have seen nothing yet in all of the work that
all the teams that are doing between both companies, nothing yet that says we
cannot achieve those synergies that we have laid out, or not achieve within the
one-time charges that we gave you guidance on earlier. I have met with employees
from across both companies rather extensively. There is a lot of excitement
about the future that we've created.
It was interesting to me that some of the younger people in both companies have
made comments, and this is interesting it came from a lot of people in
SUPERVALU. Some of the younger employees said, we appreciate the Company has
taken a real strong view of their future, meaning that this is something that's
going to last for years and years to come.
I guess I heard about everything you can expect to hear, Jason. I read what you
read, and I think until we can, what will be better is when we can in May,
really begin to talk about the new leadership team, begin in May to give
guidance on specifically for this fiscal year, which we will be prepared we
think by that time to do. We will have finished our initial work with all the
teams, and when we can begin then, to talk operationally how this will be formed
up, and really begin to fully fill in the rest of the vision for this, I look
forward to that very aggressively.
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JASON WHITMER - FTN MIDWEST RESEARCH - ANALYST
I don't want to jump ahead to what you have to say in May, but I hear a lot
that either your current retail expertise, or the lack of bandwidth within the
leadership teams today, is something that is a limiting factor. How would you
respond to that initially, and how do we move through that in the next six
months, twelve months, couple of years?
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Jason, this is a true combination of two companies, and Albertson's is a deep
retail company, deep in systems, deep in different competencies and different
areas. For example, they have extensive loyalty card marketing for example. We
don't have that in SUPERVALU. Their retail systems are designed a little bit
different than ours. Their operating divisions fit very well into our portfolio
style.
That's one of the things initially when we did our diligence on this that they
were very pleased to, and gave us a lot of comfort as we met with the leadership
of those teams. We're ready to go, I really look forward to being able to talk
more extensively about all of these matters.
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JASON WHITMER - FTN MIDWEST RESEARCH - ANALYST
Thanks.
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Thanks, Jason.
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OPERATOR
The next question comes from Mark Husson from HSBC. Please go ahead.
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MARK HUSSON - HSBC INVESTMENT BANK - ANALYST
Jeff, I wanted to focus back on the core business of SUPERVALU. It is firm, if
you look at the business in the fourth quarter, and you added back some of the
one-time items, you have got sort of flattish sales, and flattish operating
profits in both businesses.
Now, I know you're going to go through some guidance for the coming year and you
had some costs, and predeal costs and investments in the distribution businesses
this year.
But you have got some other costs coming up in the coming year. You have got
some stock options expenses, for instance. I haven't really heard anything from
what you're planning to do, other than the normal retail blocking and tackling,
that's going to lift this business up for a bit from a rather flat profile right
now?
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JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Well, there was a lot of noise in the quarter, Mark, and we tried to do the
best we can to lay it out as simply as we could. Pam in her comments really
walked you through the whole year, and as you have already commented, if you add
back the items for the full year, you do note an increase in earnings until you
apply the cost of the T squared, the supply chain initiative, and then it does
really bring it back to flat.
That was really probably the biggest item on a steady state operating basis,
other than the one-time items that affected us for last year, and a little
softer sales environment as well. A little bit softer at the end of the year
than we would have expected earlier in the year. We have not yet given specific
numbers out on stock option expensing. We'll be doing that when we provide
guidance, and as I said we're going to do that as quickly as we can do it. We
won't wait until the first quarter. We intend to do that in May.
We've got a lot of initiatives we talked about, which will create, had we not
done this transaction, we would be certainly talking more about the earnings
increases and the momentum that we had in SUPERVALU this year. Those would have
included talking about our produce initiative that really now is fully
operational and will mature this year.
We do still have some expense this year for the transformational technology
that's going here in the northern region, although we would be talking more
about starting to project out the benefits of that, as we move into fiscal '08
when it will be fully functional. Sunflower is a very exciting part for this
year. Sunflower is, as Pam mentioned, we should have at least five in this year,
hoping that we can commit to even more than that, and we'll talk about that
later on in the year.
We also haven't talked a lot about TLC, and TLC we just turned the first year on
TLC which for those who don't know is our logistics company, our third-party
management supply chain business that we acquired a year ago, and brought in
some existing SUPERVALU functions in. TLC we think is off to a very good start
this year.
I expect a real strong growth year out of TLC this year, and Save-A-Lot just by
the fact we're talking a lot about the acquisition, we haven't mentioned very
much about Save-A-Lot. Save-A-Lot as you well know in March, we sold off the
standalone dollar stores, the Deals stores. That affects Save-A-Lot in a lot of
positive ways this year. Save-A-Lot I expect to have a very strong year this
year, as Pam mentioned, we've got some very important new markets. South Texas.
As we go along the border of Mexico and open stores, and in the Pacific
Northwest. You will also note we're going to open 35, we hope, corporate stores
out of the 85 total, excuse me, 75 total, and that's a much higher ratio, which
we said last year that we would begin to do this year, so we can control the
timing of our growth in Save-A-Lot more directly.
We also mentioned as a part of the Sunflower, our private label move in organic
and natural with Nature's Best, and I won't repeat those numbers here. Had we
not been doing this market ,we would have talked a lot more about those, and I
think you would have seen a steady good solid increase in earnings and SUPERVALU
had we continued to stand alone.
--------------------------------------------------------------------------------
MARK HUSSON - HSBC INVESTMENT BANK - ANALYST
Okay. In the core retail businesses is sounds like you're a bit of a prisoner
still in the, of the external market environment?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Well, I wouldn't quite use as often, I wouldn't use your terminology directly,
as a prisoner. We have a couple markets that are tougher than others, and we
have some that look very strong this year, in terms of growth. Comp store sales
in some markets are going to be a little tougher, just simply because of the
amount of square footage that is being introduced initially into those markets.
In other markets we're turning the corner on those conditions from last year,
and I expect increases this year off of those.
--------------------------------------------------------------------------------
MARK HUSSON - HSBC INVESTMENT BANK - ANALYST
Final bit of color then, would it be fair to assume you would have positive
comp store sales in the retail businesses in SUPERVALU in this coming year?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
I am going to hold comment on that until we begin to talk about our outlook for
this year and our guidance. That's complicated in the fact of how the rules on
how you have to report comp sales with a transaction of this size, and before I
messed it up, I am going to wait and do that in May.
--------------------------------------------------------------------------------
MARK HUSSON - HSBC INVESTMENT BANK - ANALYST
Fair enough. Good luck.
--------------------------------------------------------------------------------
OPERATOR
The next question is from Louis Sarkes of Chesapeake Partners.
--------------------------------------------------------------------------------
LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
Jeff, have you noticed in any way that you can quantify, now that we've been
through two cycles of it with gasoline prices, on any of the different formats,
with the rise at the end of last summer, and then the respite, and now looks
like we're in a rising gas environment again. Is there any trends or effects
that you can pull out of this?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Well as I said earlier in the call, I think one trend that is clear to us is
that people are shopping less frequently, are trying to consolidate their
shopping trips more, and we see that being affected in average sales across most
of our businesses. We did report that Save-A-Lot had positive comp store sales.
We obviously think Save-A-Lot is a very good alternative in this environment,
although we we've seen Save-A-Lot perform really in all environments, but this
one we think it has the opportunity to stand out a little more if you will, as a
good alternative to value shopping and food. I haven't seen anything that tells
me that people are leaving for example, higher end shopping shores and trading
down necessarily.
We do see that a little bit I think in Save-A-Lot because it does cut across a
very large part of the demographic of our country, so I do think you see people
moving around at that spectrum, but I don't see we haven't seen anything that
indicates to me that people are abandoning more premium retailers, and trading
down into the middle, if I can use that terminology. We haven't seen anything
that indicates that.
If also seems like it takes a little time once things happen in the economy,
whether it be gas prices or other things, inflation rates, it takes three to six
months before you really see the trends filter down.
--------------------------------------------------------------------------------
LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
That is what I was wondering, now that we've seen six months since last summer,
fall, if there was anything you could really codify or conclude out of it yet?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Other than what I mentioned, I think that's what we see so far, Louis.
--------------------------------------------------------------------------------
LOUIS SARKES - CHESAPEAKE PARTNERS - ANALYST
Great. Thank you.
--------------------------------------------------------------------------------
OPERATOR
Our next question is from Steve Chick with J.P. Morgan. Please go ahead.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Thanks. A couple detail questions maybe for Pam, of your $0.51 in charges for
the current quarter, what portion of that is cash versus non-cash, and in your
cash balance at quarter end, how much asset sale proceeds did you receive during
the quarter?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Okay. I would say that the majority of the charges in the fourth quarter were
non-cash, and as far as the sale, Cub Chicago was sold in the fourth quarter.
Deals is actually selling in the first quarter, and we did comment that we sold
a couple of the Pittsburgh stores in the fourth quarter. Depending on which
items you're looking at, there would be cash or not.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
I guess I calculate you don't issue a cash flow statement, but I come up with
roughly 300 million in operating cash flow, and I am wondering what the missing
piece, as we try to calculate that as to what the asset sale proceeds might be?
Do you have a sense of what the proceeds were during the quarter for Cub and
those Pittsburgh stores? Was it material?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
We don't separately disclose those components, and when our cash flow is filed,
you will be able to see a total.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
When the 10-K is filed.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
When the 10-K is filed.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Okay. You don't I guess have it handy to tell me now.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
We haven't separately disclosed that, so you'll have to wait until the 10-K is
filed.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Just to reiterate because the Cub Chicago sales most of the charges in the
fourth quarter were non-cash.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Correct.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Yes, right, I was looking for what the proceeds might be coming, but okay.
Second thing and Pam, we talked about this when you were in town, do you have a
sense of the Albertson's stores that you're buying, what percentage of those
that you're buying are owned, and what the total square footage of this is of
the stores you're purchasing?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
I guess what I would say for you on that is the best thing to do at this time,
because this is still their data is to refer to their 10-K, and they actually do
reference in their 10-K owned versus leased.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Okay.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
And it's fine markets, so you can get to the markets that we're acquiring.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Yes, because it seemed like a lot of the owned ones went to CVS on the
standalone drug side.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
There is a higher percentage in the properties we are not taking. There is a
higher percentage of owned versus nonowned than in what we're taking. The actual
numbers by market ,you can get to that in their filing.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Clearly owned versus leased was not a component of our decision, because we
were looking for strategic markets, and so we acquired the markets we were
interested in, irrespective of whether it was predominantly owned or leased.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Okay. And second really, or kind of reeled to that, more separately, on
Save-A-Lot what is the total square footage of the Save-A-Lot banner, that is
under your operation right now? You guys give that out?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
About 16 million approximately I am told.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Okay. Great. Last two questions if I could, on your just to confirm on the data
you guys have provided for the EBITDA numbers as a combined company, it looks
like those are LIFO EBITDA and not FIFO. Is that right, Pam?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Yes. We have consistently done it that way.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
That's fair. It is actually on a FIFO basis it is even higher, probably
favorable but, and then in the other stuff you provided your free cash flow
guidance as a combined company, you were using 375 million in cash capital
expenditures for your business, and actually it looks like it is lower than
that, so your 540 million of free cash guidance as a combined company, could
that maybe even be higher?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
That's a good point. In the current year we did underspend on our capital
spending, some of that potentially is going to shift into next year. It is a
component of having higher cash at the end of this year versus not, but I
wouldn't view that as a permanent item. I would say that's just a shift between
calendars.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
We'll also be prioritizing the new capital spend differently, and again we'll
talk more about that as we give guidance.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Okay. Looks like you have a little flexibility to maybe spend a little more if
you wanted to on the cash capital side into the ops of the stores maybe, I don't
know.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
We'll reprioritize. So that would say we would have more flexibility, yes.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
And last one, I promise.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
You're about four questions over your limit.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
I know. The SEC review process I think is going to be completed in mid-May.
Anything unusual so far? Have they asked any questions that you've had to kind
of tackle, or pretty status quo at this point?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
I would say that we're very pleased with the progress we've made, and their
commence are as you would expect, and we're hopeful that we can respond to them
shortly. The process is moving quite well.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
We are more encouraged now that we could get this closed in early June, than we
might have been some weeks ago.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
We obviously spent a lot of time in the preparation of the preliminary proxy
filing and we're very pleased with the level of comments that we received back.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Steve, you might want to read the 400-plus page proxy to give yourself that
comfort.
--------------------------------------------------------------------------------
STEVE CHICK - J.P. MORGAN - ANALYST
Yes, I will do that. Thanks. I appreciate it.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
You're welcome.
--------------------------------------------------------------------------------
OPERATOR
The next question is from Meredith Adler from Lehman Brothers. Please go ahead.
--------------------------------------------------------------------------------
MEREDITH ADLER - LEHMAN BROTHERS - ANALYST
Hey, guys, do I get to ask as many questions as Steve.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
It is hard for me to say no, Meredith. Go ahead, shoot.
--------------------------------------------------------------------------------
MEREDITH ADLER - LEHMAN BROTHERS - ANALYST
My first question is, if you could maybe explain to us exactly what integration
process will be involved? Do you plan to change point-of-sale systems? Do you
change the merchandising systems? Will you change the systems at the
distribution centers? I think people know what you're not needing to do, because
there is no overlap, but it may not be clear to people, what integration and
process is necessary for you to get the synergies you want to get.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
I would comment this way. One of the reasons we formed this collaborative group
up between both companies is that we have people working on just those issues.
We will bring forward recommendations to our steering committee and to myself,
on what the best choices are on merchandising systems and distribution systems,
and other technology, what's the best practices, what's the best process.
Generally if I were to give you an overriding comment I would say this, that
Albertson's as a pure retail entity has a deeper set of retail systems probably
than SUPERVALU does, just on an early look. SUPERVALU on the other hand, being
more of a supply chain-oriented company has a deeper look of supply chain
technologies and processes. It might very well be that we might utilize more of
SUPERVALU on the supply chain, might very well use more of Albertson's on the
retail. Those are the things we are in-process now. The people from both
companies are giving us those recommendations. We're not trying to just fly by
and pick what looks the best. The people who really understand it and really
know it are working very well together.
As I said we have over 200 people working on it. We have been very quiet about
this, as we try to do a lot of things. There is a tremendous amount of work
going on that is not evident between people in both companies, and it has been a
very exciting process. Don't forget the synergies are not all resident in just
those items that you mentioned.
We have corporate level synergies, public company level synergies, I think 50 to
60 million is the number that we gave out earlier, and we got people working on
those taking a look at whose accounting systems, where is the best not only the
best function but where is the best place, the most efficient place, and
obviously in IT, there is a number of decisions across the same thing.
While all of this is going on, the people serving customers are not disrupted
whatsoever. That's very important.
--------------------------------------------------------------------------------
MEREDITH ADLER - LEHMAN BROTHERS - ANALYST
Great. Another question that I have been getting from investors is, if you
could talk a little bit about sort of what's happening competitively, very
broadly speaking. I know you won't go through every single market. Is the
expectation that there are substantial waves of new competition, whether it is
competitive openings or changes in sort of pricing behavior, people focusing on
Dominique's being revitalized.
When you look at what you're going to be acquiring, do you see substantial
changes coming at you? I have heard people say you just hit those stores hit a
high water mark and it is all downhill, and I am wondering if you could observe
on that, or comment on that.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Everything we have seen occurring is what we anticipated would occur as we
looked at these markets and stores, and decided on which markets we would select
and which markets we wouldn't.
Nothing has occurred in these markets in terms of supercenters, in terms of as
you mentioned Safeway's investments in certain key markets. We anticipated that
in Chicago. We anticipated that in southern California. Nothing has occurred
yet, that we have not anticipated. When we made this decision strategically to
do this, it was really based on several things.
#1 that we could go in and select out those that really fit and that were #1 or
#2 in every market, and that we thought had a good sustainability to it and a
good outlook, and secondly as I mentioned, we got very comfortable that the
division strength that they have, and the market presence that they have, and
the leadership that they have in these markets, fits very well into our kind of
environment.
It is very unusual to have three quarters almost of your retail properties in
markets where you're #1 and #2. We were very conservative when we put our
financial projections together for our internal use, as we made a decision to do
this transaction. We were very conservative looking out in terms of sales
growth, and we factored in these impacts. We were very conservative in terms of
EBITDA growth, other than the synergies which we have identified for you.
The only thing I can answer is, the markets are today I don't think are doing
anything differently than what we would have anticipated, yes, gas prices are
higher than we would have anticipated, but that has the same effect on everyone.
So that's my answer for the moment, Meredith.
--------------------------------------------------------------------------------
MEREDITH ADLER - LEHMAN BROTHERS - ANALYST
I think I just want to be a little clearer what the Albertson's that the market
knows was really an amalgam of bad and good. I think most people know Jewel and
its positioning, but I think there is much less understanding of some of the
Albertson's banners that you kept, maybe actually how Acme and Shaw's are doing.
They're really because all you ever saw was a [clubbeled] Albertson's as one
combined entity. I am trying to help people to see, what you thought you were
buying, what you saw because I don't think the market has that visibility.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Well, I will go to the facts once again. We're not going on give out
Albertson's information by market whatsoever. I would go back to the facts of
what we said is, we purchased markets with an EBITDA 7.2%, and I believe
Albertson's overall EBITDA is 5.8% if I recall correctly, which says that there
is a vast difference in the performance between those that we bought and those
that we did not buy.
In fact, that 7.2 is significantly higher than other competitors in the public
report as well. Certainly considerably higher than what SUPERVALU's was even on
a combined basis, or even a retail only basis, whatever way you want to look at
that.
The difference between the have's and have not's within Albertson's was
significant. That's whatever investors assessment of Albertson's is on their
performance, whatever that was, it looks much different when you go inside and
look at the various pieces. We have tried to make that point every which way
that we could possibly make it, and will continue to do that as we can provide
guidance later on in the year.
--------------------------------------------------------------------------------
MEREDITH ADLER - LEHMAN BROTHERS - ANALYST
Thank you very much.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Thanks, Meredith.
--------------------------------------------------------------------------------
OPERATOR
Next question is from Ajay Jain from UBS.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
Good morning.
--------------------------------------------------------------------------------
AJAY JAIN - UBS WARBURG - ANALYST
Good morning I don't know if you can comment on this or not, but since you
already highlighted the retention bonuses you expect to concur in relation to
Albertson's, is it fair to say that on top of those one-time costs, you will
also be absorbing some severance costs after the deal closes, or is severance
also included in the $145 million figure you already communicated?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
All the retention severance, all of those included in the one-time items we
have already given out.
--------------------------------------------------------------------------------
AJAY JAIN - UBS WARBURG - ANALYST
Secondly, I know Pam already went through the details behind the charges for
the most recent quarter. I want to clarify that the fourth quarter figure
related to Newell, and your other supply chain initiatives, was it $0.01 or
$0.02 per share that was allocated to growth initiatives?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
It was a penny in the fourth quarter, Ajay.
--------------------------------------------------------------------------------
AJAY JAIN - UBS WARBURG - ANALYST
Great. Lastly as far as the lower share count, it looks like that was all
related to accounting for the convertible. I just want to confirm there was no
share buyback activity.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
You're absolutely right. It was the fact that the lines were not dilutive in
Q4.
--------------------------------------------------------------------------------
AJAY JAIN - UBS WARBURG - ANALYST
Got it. Thank you very much.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Thank you.
--------------------------------------------------------------------------------
OPERATOR
The next question is from Scott Frost from HSBC. Please go ahead.
--------------------------------------------------------------------------------
SCOTT FROST - HSBC INVESTMENT BANK - ANALYST
Just wanted to go over and make sure I understand where all the existing debt
versus the bank facility is. The proxy statement you guys have a rough outline
on page 6. The SUPERVALU and Albertson's and the core businesses. Where exactly
is the existing debt versus the bank facility?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Of SUPERVALU?
--------------------------------------------------------------------------------
SCOTT FROST - HSBC INVESTMENT BANK - ANALYST
Yes, the new acquisition facility, the revolver that's going to be outstanding,
plus the A&B loans that will be funded, where would they be?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
That will be at the new facility will be at the SUPERVALU holding company
level.
--------------------------------------------------------------------------------
SCOTT FROST - HSBC INVESTMENT BANK - ANALYST
Okay. So the existing debt of SUPERVALU will be -- ?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Also in that holding company.
--------------------------------------------------------------------------------
SCOTT FROST - HSBC INVESTMENT BANK - ANALYST
And Albertson's is a subsidiary there?
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
It is in the new Albertson's, which I know was somewhat difficult to follow in
the proxy. It is in the new Albertson's entity.
--------------------------------------------------------------------------------
SCOTT FROST - HSBC INVESTMENT BANK - ANALYST
Thank you.
--------------------------------------------------------------------------------
YOLANDA SCHARTON - SUPERVALU INC. - VP, IR
We will take one more question.
--------------------------------------------------------------------------------
OPERATOR
Thank you. The final question comes from Eric Larson from Piper Jaffray. Please
go ahead.
--------------------------------------------------------------------------------
ERIC LARSON - PIPER JAFFRAY - ANALYST
Hi, everyone. I promise I will make it just one question. All that you talked
about a lot of the uses of what you can do with some of the cash. Can you just
summarize, Jeff, for us how you will prioritize the use of cash, debt pay down,
will share buyback be part of the mix? How do dividends fit in? Could you
prioritize cash usage going forward, given the Albertson's transaction pending?
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
We'll be very clear on this. We are going to continue to be a dividend paying
company. I think we've given some indication before that the dividend would be
at a rate similar to what SUPERVALU's rate has been, and beyond that our free
cash flow from where we sit today is going to go to pay down debt, and we have
no share buybacks, other than what we do for normal compensation and incentive
plans, which we do all the time, but we will be funneling free cash flow into
debt pay down, as we move back toward investment grade over these next few
years.
--------------------------------------------------------------------------------
ERIC LARSON - PIPER JAFFRAY - ANALYST
Great. Thank you.
--------------------------------------------------------------------------------
JEFF NODDLE - SUPERVALU INC. - CHAIRMAN, CEO
You're welcome.
--------------------------------------------------------------------------------
YOLANDA SCHARTON - SUPERVALU INC. - VP, IR
Thank you, everyone. We'll be available for more calls after this. Thank you.
Have a great day.
--------------------------------------------------------------------------------
PAM KNOUS - SUPERVALU INC. - EVP, CFO
Thank you.
--------------------------------------------------------------------------------
OPERATOR
Thank you for participating in SUPERVALU's fiscal 2006 fourth quarter and year
end conference call. This concludes the conference for today. You may all
disconnect at this time.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
EXCEPT FOR THE HISTORICAL AND FACTUAL INFORMATION CONTAINED HEREIN, THE
MATTERS SET FORTH IN THIS FILING, INCLUDING STATEMENTS AS TO THE EXPECTED
BENEFITS OF THE ACQUISITION SUCH AS EFFICIENCIES, COST SAVINGS, MARKET PROFILE
AND FINANCIAL STRENGTH, AND THE COMPETITIVE ABILITY AND POSITION OF THE COMBINED
COMPANY, AND OTHER STATEMENTS IDENTIFIED BY WORDS SUCH AS "ESTIMATES,"
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EXPECTED, THE IMPACT OF COMPETITION AND OTHER RISK FACTORS RELATING TO OUR
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REPORTS FILED WITH THE SEC. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF THIS PRESS
RELEASE. UNLESS LEGALLY REQUIRED, SUPERVALU UNDERTAKES NO OBLIGATION TO UPDATE
PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE.
ADDITIONAL INFORMATION
SUPERVALU AND ALBERTSON'S HAVE FILED A PRELIMINARY JOINT PROXY
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INVESTORS ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS WHEN
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THE RESPECTIVE DIRECTORS AND EXECUTIVE OFFICERS OF SUPERVALU AND
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REGARDING SUPERVALU'S DIRECTORS AND EXECUTIVE OFFICERS IS AVAILABLE IN ITS PROXY
STATEMENT FILED WITH THE SEC BY SUPERVALU ON MAY 12, 2005, AND INFORMATION
REGARDING ALBERTSONS DIRECTORS AND EXECUTIVE OFFICERS IS AVAILABLE IN ITS PROXY
STATEMENT FILED WITH THE SEC BY ALBERTSONS ON MAY 6, 2005. OTHER INFORMATION
REGARDING THE PARTICIPANTS IN THE PROXY SOLICITATION AND A DESCRIPTION OF THEIR
DIRECT AND INDIRECT INTERESTS, BY SECURITY HOLDINGS OR OTHERWISE, WILL BE
CONTAINED IN THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT
MATERIALS TO BE FILED WITH THE SEC WHEN THEY BECOME AVAILABLE. INVESTORS SHOULD
READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN IT BECOMES
AVAILABLE BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS.
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