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Form 10-Q SUPERVALU INC For: Jun 20

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July 28, 2015 4:37 PM EDT

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period (16 weeks) ended June 20, 2015.
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number: 1-5418
 
SUPERVALU INC.
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
41-0617000
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
11840 VALLEY VIEW ROAD
EDEN PRAIRIE, MINNESOTA
 
55344
(Address of principal executive offices)
 
(Zip Code)
(952) 828-4000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x
As of July 23, 2015, there were 264,906,804 shares of the issuer’s common stock outstanding.
 


SUPERVALU INC. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Item
 
Page
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
5.
 
 
 
6.
 
 
 
 



PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED SEGMENT FINANCIAL INFORMATION
(Unaudited)
(In millions, except percent data)
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net sales
 
 
 
Independent Business
$
2,462

 
$
2,420

% of total
45.6
%
 
46.0
%
Save-A-Lot
1,408

 
1,356

% of total
26.0
%
 
25.7
%
Retail Food
1,473

 
1,430

% of total
27.2
%
 
27.2
%
Corporate
64

 
58

% of total
1.2
%
 
1.1
%
Total net sales
$
5,407

 
$
5,264

 
100.0
%
 
100.0
%
Operating earnings
 
 
 
Independent Business
$
77

 
$
66

% of Independent Business sales
3.1
%
 
2.8
%
Save-A-Lot
51

 
46

% of Save-A-Lot sales
3.6
%
 
3.4
%
Retail Food
33

 
30

% of Retail Food sales
2.2
%
 
2.1
%
Corporate
(3
)
 
(7
)
Total operating earnings
158

 
135

% of total net sales
2.9
%
 
2.6
%
Interest expense, net
59

 
64

Equity in earnings of unconsolidated affiliates
(2
)
 
(1
)
Earnings from continuing operations before income taxes
101

 
72

Income tax provision
38

 
24

Net earnings from continuing operations
63

 
48

Income (loss) from discontinued operations, net of tax
1

 
(3
)
Net earnings including noncontrolling interests
64

 
45

Less net earnings attributable to noncontrolling interests
(3
)
 
(2
)
Net earnings attributable to SUPERVALU INC.
$
61

 
$
43

See Notes to Condensed Consolidated Financial Statements.

1

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share data)
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net sales
$
5,407

 
$
5,264

Cost of sales
4,597

 
4,509

Gross profit
810

 
755

Selling and administrative expenses
652

 
620

Operating earnings
158

 
135

Interest expense, net
59

 
64

Equity in earnings of unconsolidated affiliates
(2
)
 
(1
)
Earnings from continuing operations before income taxes
101

 
72

Income tax provision
38

 
24

Net earnings from continuing operations
63

 
48

Income (loss) from discontinued operations, net of tax
1

 
(3
)
Net earnings including noncontrolling interests
64

 
45

Less net earnings attributable to noncontrolling interests
(3
)
 
(2
)
Net earnings attributable to SUPERVALU INC.
$
61

 
$
43

 
 
 
 
Basic net earnings (loss) per share attributable to SUPERVALU INC.:
Continuing operations
$
0.23

 
$
0.18

Discontinued operations
$
—

 
$
(0.01
)
Basic net earnings per share
$
0.23

 
$
0.17

Diluted net earnings (loss) per share attributable to SUPERVALU INC.:
Continuing operations
$
0.23

 
$
0.18

Discontinued operations
$
—

 
$
(0.01
)
Diluted net earnings per share
$
0.23

 
$
0.17

Weighted average number of shares outstanding:
 
 
 
Basic
262

 
260

Diluted
268

 
262

See Notes to Condensed Consolidated Financial Statements.

2

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In millions)
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net earnings including noncontrolling interests
$
64

 
$
45

Other comprehensive income:
 
 
 
Recognition of pension and other postretirement benefit obligations, net of tax of $8 and $5, respectively
14

 
11

Change in fair value of cash flow hedges, net of tax of $1 and $0, respectively
(1
)
 
—

Comprehensive income including noncontrolling interests
77

 
56

Less comprehensive income attributable to noncontrolling interests
(3
)
 
(2
)
Comprehensive income attributable to SUPERVALU INC.
$
74

 
$
54

See Notes to Condensed Consolidated Financial Statements.


3

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except par value data)
 
June 20, 2015
 
February 28, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
137

 
$
114

Receivables, net
484

 
482

Inventories, net
1,011

 
984

Other current assets
94

 
120

Total current assets
1,726

 
1,700

Property, plant and equipment, net
1,433

 
1,470

Goodwill
865

 
865

Intangible assets, net
68

 
48

Deferred tax assets
266

 
265

Other assets
133

 
137

Total assets
$
4,491

 
$
4,485

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities
 
 
 
Accounts payable
$
1,130

 
$
1,121

Accrued vacation, compensation and benefits
182

 
204

Current maturities of long-term debt and capital lease obligations
305

 
35

Other current liabilities
186

 
173

Total current liabilities
1,803

 
1,533

Long-term debt
2,200

 
2,480

Long-term capital lease obligations
207

 
213

Pension and other postretirement benefit obligations
555

 
602

Long-term tax liabilities
112

 
119

Other long-term liabilities
175

 
174

Commitments and contingencies

 

Stockholders’ deficit
 
 
 
Common stock, $0.01 par value: 400 shares authorized; 265 and 262 shares issued, respectively
3

 
3

Capital in excess of par value
2,793

 
2,810

Treasury stock, at cost, 2 and 2 shares, respectively
(15
)
 
(33
)
Accumulated other comprehensive loss
(410
)
 
(423
)
Accumulated deficit
(2,942
)
 
(3,003
)
Total SUPERVALU INC. stockholders’ deficit
(571
)
 
(646
)
Noncontrolling interests
10

 
10

Total stockholders’ deficit
(561
)
 
(636
)
Total liabilities and stockholders’ deficit
$
4,491

 
$
4,485

See Notes to Condensed Consolidated Financial Statements.


4

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Unaudited)
(In millions)
 
Common
Stock
 
Capital in Excess of Par Value
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
Accumulated
Deficit
 
SUPERVALU INC.
Stockholders’
Deficit
 
Non-controlling
Interests
 
Total
Stockholders’
Deficit
Balances as of February 22, 2014
$
3

 
$
2,862

 
$
(101
)
 
$
(307
)
 
$
(3,195
)
 
$
(738
)
 
$
8

 
$
(730
)
Net earnings
—

 
—

 
—

 
—

 
43

 
43

 
2

 
45

Other comprehensive income, net of tax of $5
—

 
—

 
—

 
11

 
—

 
11

 
—

 
11

Sales of common stock under option plans
—

 
(32
)
 
34

 
—

 
—

 
2

 
—

 
2

Stock-based compensation
—

 
7

 
—

 
—

 
—

 
7

 
—

 
7

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(4
)
 
(4
)
Tax impact on stock-based awards and other
—

 
(13
)
 
—

 
—

 
—

 
(13
)
 
—

 
(13
)
Balances as of June 14, 2014
$
3

 
$
2,824

 
$
(67
)
 
$
(296
)
 
$
(3,152
)
 
$
(688
)
 
$
6

 
$
(682
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of February 28, 2015
$
3

 
$
2,810

 
$
(33
)
 
$
(423
)
 
$
(3,003
)
 
$
(646
)
 
$
10

 
$
(636
)
Net earnings
—

 
—

 
—

 
—

 
61

 
61

 
3

 
64

Other comprehensive income, net of tax of $7
—

 
—

 
—

 
13

 
—

 
13

 
—

 
13

Sales of common stock under option plans
—

 
(8
)
 
10

 
—

 
—

 
2

 
—

 
2

Stock-based compensation
—

 
7

 
—

 
—

 
—

 
7

 
—

 
7

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
(3
)
Tax impact on stock-based awards and other
—

 
(16
)
 
8

 
—

 
—

 
(8
)
 
—

 
(8
)
Balances as of June 20, 2015
$
3

 
$
2,793

 
$
(15
)
 
$
(410
)
 
$
(2,942
)
 
$
(571
)
 
$
10

 
$
(561
)
See Notes to Condensed Consolidated Financial Statements.


5

SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Cash flows from operating activities
 
 
 
Net earnings including noncontrolling interests
$
64

 
$
45

Income (loss) from discontinued operations, net of tax
1

 
(3
)
Net earnings from continuing operations
63

 
48

Adjustments to reconcile Net earnings from continuing operations to Net cash provided by operating activities – continuing operations:
 
 
 
Asset impairment and other charges
—

 
2

Net gain on sale of assets and exits of surplus leases
—

 
(7
)
Depreciation and amortization
83

 
89

LIFO charge
3

 
2

Deferred income taxes
(14
)
 
6

Stock-based compensation
7

 
7

Net pension and other postretirement benefits cost
11

 
9

Contributions to pension and other postretirement benefit plans
(37
)
 
(45
)
Other adjustments
9

 
6

Changes in operating assets and liabilities, net of effects from business acquisitions
(14
)
 
(60
)
Net cash provided by operating activities – continuing operations
111

 
57

Net cash provided by operating activities – discontinued operations
1

 
—

Net cash provided by operating activities
112

 
57

Cash flows from investing activities
 
 
 
Proceeds from sale of assets
1

 
4

Purchases of property, plant and equipment
(49
)
 
(37
)
Payments for business acquisitions
(1
)
 
(5
)
Other
(21
)
 
6

Net cash used in investing activities
(70
)
 
(32
)
Cash flows from financing activities
 
 
 
Proceeds from sale of common stock
2

 
2

Payments of debt and capital lease obligations
(17
)
 
(13
)
Distributions to noncontrolling interests
(3
)
 
(4
)
Payments of debt financing costs
(1
)
 
(3
)
Net cash used in financing activities
(19
)
 
(18
)
Net increase in cash and cash equivalents
23

 
7

Cash and cash equivalents at beginning of period
114

 
83

Cash and cash equivalents at the end of period
$
137

 
$
90

SUPPLEMENTAL CASH FLOW INFORMATION
The Company’s non-cash activities were as follows:
 
 
 
Purchases of property, plant and equipment included in Accounts payable
$
17

 
$
16

Capital lease asset additions
$
—

 
$
—

Interest and income taxes paid:
 
 
 
Interest paid, net of amounts capitalized
$
62

 
$
58

Income taxes paid (refunded), net
$
4

 
$
(3
)
See Notes to Condensed Consolidated Financial Statements.

6

SUPERVALU INC. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars and shares in millions, except per share data)

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Statement of Registrant
The accompanying Condensed Consolidated Financial Statements of SUPERVALU INC. (“SUPERVALU” or the “Company”) for the first quarters ended June 20, 2015 and June 14, 2014 are unaudited and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary to present fairly the financial condition and results of operations for such periods. The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015. The results of operations for the first quarter ended June 20, 2015 are not necessarily indicative of the results expected for the full year.
Accounting Policies
The summary of significant accounting policies is included in the Notes to Consolidated Financial Statements set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015.
Fiscal Year
The Company operates on a 52/53 week fiscal year basis, with its fiscal year ending on the last Saturday in February. References to the first quarters of fiscal 2016 and 2015 relate to the 16 week fiscal quarters ended June 20, 2015 and June 14, 2014, respectively.
Use of Estimates
The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. The Company’s banking arrangements allow the Company to fund outstanding checks when presented to the financial institution for payment. The Company funds all intraday bank balance overdrafts during the same business day. Checks outstanding in excess of bank balances create net book overdrafts, which are recorded in Accounts payable in the Condensed Consolidated Balance Sheets and are reflected as an operating activity in the Condensed Consolidated Statements of Cash Flows. As of June 20, 2015 and February 28, 2015, the Company had net book overdrafts of $122 and $145, respectively.
Inventories, Net
Inventories are valued at the lower of cost or market. Substantially all of the Company’s inventories consist of finished goods and a substantial portion of the Company’s inventories have a last-in, first-out (“LIFO”) reserve applied. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs, as the actual valuation of inventory under the LIFO method is computed at the end of each year based on the inventory levels and costs at that time. If the first-in, first-out method had been used, Inventories, net would have been higher by approximately $214 at June 20, 2015 and $211 at February 28, 2015. The Company recorded a LIFO charge of $3 and $2 for the first quarters ended June 20, 2015 and June 14, 2014, respectively.
Presentation Revision
In the first quarter of fiscal 2016, the Company completed an assessment of its revenue and expense presentation primarily related to professional services and certain other transactions. Expenses related to transactions in which the Company determined it was the principal were previously presented net of related revenues within Net sales in the Condensed

7

Consolidated Statements of Operations. The presentation of these expenses has been revised to include them within Cost of sales and Selling and administrative expenses. These revisions had the effect of increasing Net sales with a corresponding increase to Cost of sales and Selling and administrative expenses. These revisions did not impact Operating earnings, Earnings from continuing operations before income taxes, Net earnings attributable to SUPERVALU INC., cash flows, or financial position for any period reported. These revisions have similarly impacted the Company's financial statements across fiscal periods. Management determined that these revisions are not material to any period reported. Prior period amounts have been revised to conform to the current period presentation as shown below.
The following tables present the impact of these revisions to the Company's previously reported results as reported in this Quarterly Report on Form 10-Q:
 
 
First Quarter Ended June 14, 2014
 
 
As Originally Reported
 
Revision
 
As Revised
Net sales
 
$
5,234

 
$
30

 
$
5,264

Cost of sales
 
4,482

 
27

 
4,509

Gross profit
 
752

 
3

 
755

Selling and administrative expenses
 
617

 
3

 
620

Operating earnings
 
$
135

 
$
—

 
$
135

 
 
First Quarter Ended June 14, 2014
 
 
As Originally Reported
 
Revision
 
As Revised
Net sales
 
 
 
 
 
 
Independent Business
 
$
2,400

 
$
20

 
$
2,420

% of total
 
45.9
%
 
0.1
 %
 
46.0
%
Save-A-Lot
 
1,348

 
8

 
1,356

% of total
 
25.7
%
 
—
 %
 
25.7
%
Retail Food
 
1,428

 
2

 
1,430

% of total
 
27.3
%
 
(0.1
)%
 
27.2
%
Corporate
 
58

 
—

 
58

% of total
 
1.1
%
 
—
 %
 
1.1
%
Total net sales
 
$
5,234

 
$
30

 
$
5,264

 
 
100.0
%
 
—
 %
 
100.0
%
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance under accounting standard update (“ASU”) 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes existing revenue recognition requirements and provides a new comprehensive revenue recognition model that requires entities to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The new authoritative guidance will likely be adopted during the first quarter of fiscal 2019, with the Company using the recently approved one year deferral of the ASU's effective date. Adoption is allowed by either the full retrospective or modified retrospective approach. The Company is currently evaluating which approach it will apply and the potential adoption impact on its financial statements.

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt obligation. This ASU will be effective retrospectively for fiscal years beginning after December 15, 2015, and interim periods within those years. Debt issuance costs included in Other assets were approximately $56 as of June 20, 2015.


8

NOTE 2—GOODWILL AND INTANGIBLE ASSETS
Changes in the Company’s Goodwill and Intangible assets, net consisted of the following:
 
February 28,
2015
 
Additions
 
Impairments
 
Other net
adjustments
 
June 20,
2015
Goodwill:
 
 
 
 
 
 
 
 
 
Independent Business goodwill
$
710

 
$
—

 
$
—

 
$
—

 
$
710

Save-A-Lot goodwill
141

 
—

 
—

 
—

 
141

Retail Food goodwill
14

 
—

 
—

 
—

 
14

Total goodwill
$
865

 
$
—

 
$
—

 
$
—

 
$
865

 
 
 
 
 
 
 
 
 
 
Intangible assets:
 
 
 
 
 
 
 
 
 
Favorable operating leases, prescription files, customer lists and other (accumulated amortization of $89 and $86 as of June 20, 2015 and February 28, 2015, respectively)
$
124

 
$
23

 
$
—

 
$
—

 
$
147

Trademarks and tradenames – indefinite useful lives
9

 
—

 
—

 
—

 
9

Non-compete agreements (accumulated amortization of $2 and $2 as of June 20, 2015 and February 28, 2015, respectively)
3

 
—

 
—

 
—

 
3

Total intangible assets
136

 
23

 
—

 
—

 
159

Accumulated amortization
(88
)
 
(3
)
 
—

 
—

 
(91
)
Total intangible assets, net
$
48

 
 
 
 
 
 
 
$
68

Amortization of intangible assets with definite useful lives was $3 for each of the first quarters ended June 20, 2015 and June 14, 2014. Future amortization expense is anticipated to average approximately $5 per fiscal year for each of the next five fiscal years.
In the first quarter ended June 20, 2015, the Company recorded intangible assets using valuations based on Level 3 inputs consisting primarily of certain distribution center operation rights, purchase options and other intangibles received by the Company under the letter agreement the Company entered into with Albertson's dated May 28, 2015, as described in Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements.

NOTE 3—RESERVES FOR CLOSED PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT-RELATED IMPAIRMENT CHARGES
Reserves for Closed Properties
The Company maintains reserves for costs associated with closures of retail stores, distribution centers and other properties that are no longer being utilized in current operations. The Company provides for closed property operating lease liabilities using a discount rate to calculate the present value of the remaining noncancellable lease payments after the closing date, reduced by estimated subtenant rentals that could be reasonably obtained for the property. Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. The calculation of the closed property charges requires significant judgments and estimates including estimated subtenant rentals, discount rates and future cash flows based on the Company’s experience and knowledge of the market in which the closed property is located, previous efforts to dispose of similar assets and the assessment of existing market conditions.

9

Changes in the Company’s reserves for closed properties consisted of the following:
 
June 20, 
 2015 
 (16 weeks)
Reserves for closed properties at beginning of the fiscal year
$
34

Additions
1

Payments
(4
)
Adjustments
—

Reserves for closed properties at the end of period
$
31

Property, Plant and Equipment Impairment Charges
Property, plant and equipment impairment charges are recorded as a component of Selling and administrative expenses in the Condensed Consolidated Statements of Operations.
The following table presents impairment charges related to property, plant and equipment measured at fair value on a non-recurring basis:
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Property, plant and equipment:
 
 
 
Carrying value
$
2

 
$
—

Fair value measured using Level 3 inputs
2

 
—

Impairment charge
$
—

 
$
—


NOTE 4—FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:
Level 1 -
Quoted prices in active markets for identical assets or liabilities;
Level 2 -
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
Level 3 -
Unobservable inputs in which little or no market activity exists, requiring an entity to develop its own assumptions that market participants would use to value the asset or liability.
Non-recurring Fair Value Measurements
Acquired intangible assets discussed in Note 2—Goodwill and Intangible Assets were measured at fair value using Level 3 inputs. Impairment charges related to property, plant and equipment discussed in Note 3—Reserves for Closed Properties and Property, Plant and Equipment-related Impairment Charges were also measured at fair value using Level 3 inputs.
Financial Instruments not Measured at Fair Value
For certain of the Company’s financial instruments, including cash and cash equivalents, receivables, accounts payable, accrued salaries and other current assets and liabilities, the fair values approximate carrying amounts due to their short maturities.
The estimated fair value of notes receivable was greater than their carrying amount by approximately $1 and $2 as of June 20, 2015 and February 28, 2015, respectively. Notes receivable are valued based on a discounted cash flow approach applying a market rate for similar instruments using Level 3 inputs.
The estimated fair value of the Company’s long-term debt (including current maturities) was greater than the carrying amount by approximately $44 and $59 as of June 20, 2015 and February 28, 2015, respectively. The estimated fair value was based on market quotes, where available, or market values for similar instruments, using Level 2 and Level 3 inputs.

10

Fair Value Measurements - Recurring Basis
On February 24, 2015, the Company entered into a forward starting interest rate swap agreement in effect converting $300 of variable rate debt under the Company's Secured Term Loan Facility (defined below) to a fixed rate of 5.5075 percent. The agreement goes into effect beginning in February 2016, and extends through the Secured Term Loan Facility's maturity in March 2019. This transaction was entered into to reduce the Company's exposure to changes in market interest rates associated with its variable rate debt. The Company designated this derivative as a cash flow hedge of the variability in expected cash outflows of interest payments attributable to future changes in interest rates. The fair value of the interest rate swap was a liability of $2 and $0 as of June 20, 2015 and February 28, 2015, respectively, and is included within Other long-term liabilities and Other current liabilities. The fair value of the interest rate swap is measured using Level 2 inputs. The interest rate swap agreement is valued using an income approach interest rate swap valuation model incorporating observable market inputs including interest rates, LIBOR swap rates and credit default swap rates. As of June 20, 2015, a 100 basis point increase in forward LIBOR interest rates would increase the fair value of the interest rate swap by approximately $7. A 100 basis point decrease in forward LIBOR interest rates would decrease the fair value of the interest rate swap by approximately $6.
The fair value of the Company’s fuel derivatives was a liability of $1 as of June 20, 2015 and February 28, 2015, and fuel derivative gains and losses were insignificant for the first quarters of fiscal 2016 and 2015.

NOTE 5—LONG-TERM DEBT
The Company’s long-term debt consisted of the following:
 
June 20,
2015
 
February 28,
2015
4.50% Secured Term Loan Facility due March 2019
$
1,459

 
$
1,469

6.75% Senior Notes due June 2021
400

 
400

7.75% Senior Notes due November 2022
350

 
350

8.00% Senior Notes due May 2016
278

 
278

3.75% Revolving ABL Credit Facility due September 2019
—

 
—

Net discount on debt, using an effective interest rate of 4.63% to 8.56%
(8
)
 
(8
)
Total debt
2,479

 
2,489

Less current maturities of long-term debt
(279
)
 
(9
)
Long-term debt
$
2,200

 
$
2,480

The Company’s credit facilities and certain 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 a 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.
Senior Secured Credit Agreements
As of June 20, 2015 and February 28, 2015, the Company had outstanding borrowings of $1,459 and $1,469, respectively, under its six-year $1,500 term loan facility (the “Secured Term Loan Facility”), which is secured by substantially all of the Company’s real estate, equipment and certain other assets, and bears interest at the rate of LIBOR plus 3.50 percent subject to a floor on LIBOR of 1.00 percent. The Secured Term Loan Facility is guaranteed by the Company’s material subsidiaries (together with the Company, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility, the Company granted a perfected first-priority security interest for the benefit of the facility lenders in the Term Loan Parties’ equity interests in Moran Foods, LLC, the main operating entity of the Company’s Save-A-Lot business, and the Term Loan Parties granted a perfected first priority security interest in substantially all of their intellectual property and a first priority mortgage lien and security interest in certain owned or ground-leased real estate and associated equipment pledged as collateral. As of June 20, 2015 and February 28, 2015, there was $768 and $776, respectively, of owned or ground-leased real estate and associated equipment pledged as collateral, which was included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets. In addition, the obligations of the Term Loan Parties under the Secured Term Loan Facility are secured by second-priority security interests in the collateral securing the Company’s five-year $1,000 asset-based revolving ABL credit facility (the “Revolving ABL Credit Facility”). Including the original issue discount, $2 and $9 of the Secured Term Loan Facility was classified as current as of June 20, 2015 and February 28, 2015, respectively.

11

The loans under the Secured Term Loan Facility may be voluntarily prepaid in certain minimum principal amounts, subject to the payment of breakage or similar costs. Pursuant to the Secured Term Loan Facility, the Company must, subject to certain customary reinvestment rights, apply 100 percent of Net Cash Proceeds (as defined in the facility) from certain types of asset sales (excluding proceeds of the collateral security of the Revolving ABL Credit Facility and other secured indebtedness) to prepay the loans outstanding under the Secured Term Loan Facility. The Company must also prepay loans outstanding under the facility no later than 90 days after the fiscal year end in an aggregate principal amount equal to a percentage (which percentage ranges from 0 to 50 percent depending on the Company’s Total Secured Leverage Ratio (as defined in the facility) as of the last day of such fiscal year) of Excess Cash Flow (as defined in the facility) for the fiscal year then ended minus any voluntary prepayments made during such fiscal year with Internally Generated Cash (as defined in the facility). Based on the Company's Excess Cash Flow for the fiscal year ended February 28, 2015, no prepayment was required. The potential amount of prepayment from Excess Cash Flow that will be required for fiscal 2016 is not reasonably estimable as of June 20, 2015.
As of June 20, 2015 and February 28, 2015, there were no outstanding borrowings under the Revolving ABL Credit Facility. As of June 20, 2015, letters of credit outstanding under the Revolving ABL Credit Facility were $73 at fees of 1.625 percent, and the unused available credit under this facility was $903 with facility fees of 0.375 percent. As of February 28, 2015, letters of credit outstanding under the Revolving ABL Credit Facility were $76 at fees of 1.625 percent, and the unused available credit under this facility was $871 with facility fees of 0.375 percent. As of June 20, 2015, the Revolving ABL Credit Facility was secured on a first priority basis by $1,215 of certain inventory assets included in Inventories, net, $239 of certain receivables included in Receivables, net, $30 of certain amounts included in Cash and cash equivalents and all of the Company’s pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets. As of February 28, 2015, the Revolving ABL Credit Facility was secured on a first-priority basis by $1,188 of certain inventory assets included in Inventories, net, $220 of certain receivables included in Receivables, net, $28 of certain amounts included in Cash and cash equivalents and all of the Company's pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets.
The revolving loans under the Revolving ABL Credit Facility may be voluntarily prepaid in certain minimum principal amounts, in whole or in part, without premium or penalty, subject to breakage or similar costs. The Company and those subsidiaries named as borrowers under the Revolving ABL Credit Facility are required to repay the revolving loans in cash and provide cash collateral under this facility to the extent that the revolving loans and letters of credit exceed the lesser of the borrowing base then in effect or the aggregate amount of the lenders’ commitments under the Revolving ABL Credit Facility. During the first quarter ended June 20, 2015, the Company borrowed $234 and repaid $234 under its Revolving ABL Credit Facility. During the first quarter ended June 14, 2014, the Company borrowed $870 and repaid $870 under its Revolving ABL Credit Facility and its previous revolving credit facility due March 2018. Certain of the Company’s material subsidiaries are co-borrowers under the Revolving ABL Credit Facility, and this facility is guaranteed by the rest of the Company’s material subsidiaries (the Company and those subsidiaries named as borrowers and guarantors under the Revolving ABL Credit Facility, the “ABL Loan Parties”). To secure their obligations under this facility, the ABL Loan Parties have granted a perfected first-priority security interest for the benefit of the facility lenders in their present and future inventory, credit card, wholesale trade, pharmacy and certain other receivables, prescription files and related assets. In addition, the obligations under the Revolving ABL Credit Facility are secured by second-priority liens on and security interests in the collateral securing the Secured Term Loan Facility, subject to certain limitations to ensure compliance with the Company’s outstanding debt instruments and leases.
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit the Company’s ability to make Restricted Payments (as defined in both the Secured Term Loan Facility and the Revolving ABL Credit Facility), which include dividends to stockholders. The Secured Term Loan Facility caps the aggregate amount of Restricted Payments that may be made over the life of the Secured Term Loan Facility. That aggregate cap can fluctuate over time and the cap could be reduced by certain other actions taken by the Company, including certain debt prepayments and Permitted Investments (as defined in the Secured Term Loan Facility). As of June 20, 2015, the aggregate cap on Restricted Payments was approximately $298. The Revolving ABL Credit Facility permits regularly scheduled dividends up to $50 in aggregate per fiscal year as long as no Cash Dominion Event (as defined in the Revolving ABL Credit Facility) exists. The Revolving ABL Credit Facility permits other Restricted Payments as long as the Payment Conditions (as defined in the Revolving ABL Credit Facility) are met.
Debentures

The $400 of 6.75 percent Senior Notes due June 2021, the $350 of 7.75 percent Senior Notes due November 2022 and the remaining $278 of 8.00 percent Senior Notes due May 2016 contain operating covenants, including limitations on liens and on sale and leaseback transactions. The Company was in compliance with all such covenants and provisions for all periods presented.


12

NOTE 6—INCOME TAXES
The tax provision for each of the first quarters ended June 20, 2015 and June 14, 2014 included certain discrete tax benefits.
During the first quarter ended June 20, 2015, unrecognized tax benefits decreased by $1 to total $93. The Company does not anticipate that its total unrecognized tax benefits will change significantly in the next 12 months.
As of June 20, 2015, the Company is no longer subject to federal income tax examinations for fiscal years prior to 2011, and in most states, is no longer subject to state income tax examinations for fiscal years before 2006.

NOTE 7—STOCK-BASED AWARDS
The Company recognized pre-tax stock-based compensation expense (included primarily in Selling and administrative expenses in the Condensed Consolidated Statements of Operations) related to stock options, restricted stock units and restricted stock awards (collectively referred to as “stock-based awards”) of $7 for each of the first quarters of fiscal 2016 and 2015.
Stock Options
In April 2015 and May 2014, the Company granted 4 and 5 non-qualified stock options, respectively, to certain employees under the Company’s 2012 Stock Plan with weighted average grant date fair values of $3.67 per share and $3.28 per share, respectively. The stock options vest over a period of three years, and were awarded as part of a broad-based employee incentive program designed to retain and motivate employees across the Company.
The Company used the Black-Scholes option pricing model to estimate the fair value of the options at grant date based upon the following assumptions:
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Dividend yield
—%
 
—%
Volatility rate
49.0—50.6%
 
50.8—53.2%
Risk-free interest rate
1.2—1.4%
 
1.2—1.6%
Expected life
4.0—5.0 years
 
4.0—5.0 years
Restricted Stock and Restricted Stock Units
In the first quarter of fiscal 2016, the Company granted 2 restricted stock awards ("RSAs") to certain employees under the 2012 Stock Plan. The RSAs vest over a three year period from the date of the grant and were granted at a fair value of $8.79 per award. In the first quarter of fiscal 2015, the Company granted 2 restricted stock units (“RSUs”) to certain employees under the 2012 Stock Plan. The RSUs vest over a three year period from the date of grant and were granted at a fair value of $7.50 per unit.


13

NOTE 8—BENEFIT PLANS
Net periodic benefit expense (income) and contributions for defined benefit pension and other postretirement benefit plans consisted of the following:
 
First Quarter Ended
Pension Benefits
 
Other Postretirement Benefits
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Service cost
$
—

 
$
—

 
$
—

 
$
—

Interest cost
33

 
39

 
1

 
1

Expected return on assets
(44
)
 
(47
)
 
—

 
—

Amortization of prior service benefit
—

 
—

 
(4
)
 
(4
)
Amortization of net actuarial loss
24

 
19

 
2

 
1

Net periodic benefit expense (income)
$
13

 
$
11

 
$
(1
)
 
$
(2
)
Contributions to benefit plans
$
(26
)
 
$
(45
)
 
$
(11
)
 
$
—

Multiemployer Pension Plans
During the first quarters ended June 20, 2015 and June 14, 2014, the Company contributed $11 and $13, respectively, to various multiemployer pension plans, primarily defined benefit pension plans, under collective bargaining agreements.
Pension Contributions
No minimum pension contributions are required in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) to the Company's pension plans in fiscal 2016. The Company anticipates fiscal 2016 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $65 to $75.

NOTE 9—NET EARNINGS (LOSS) PER SHARE
Basic net earnings (loss) per share is calculated using net earnings (loss) attributable to SUPERVALU INC. divided by the weighted average number of shares outstanding during the period. Diluted net earnings (loss) per share is similar to basic net earnings (loss) per share except that the weighted average number of shares outstanding is computed after giving effect to the dilutive impacts of stock-based awards.

14

The following table reflects the calculation of basic and diluted net earnings (loss) per share:
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net earnings from continuing operations
$
63

 
$
48

Less net earnings attributable to noncontrolling interests
(3
)
 
(2
)
Net earnings from continuing operations attributable to SUPERVALU INC.
60

 
46

Income (loss) from discontinued operations, net of tax
1

 
(3
)
Net earnings attributable to SUPERVALU INC.
$
61

 
$
43

 
 
 
 
Weighted average number of shares outstanding—basic
262

 
260

Dilutive impact of stock-based awards
6

 
2

Weighted average number of shares outstanding—diluted(1)
268

 
262

 
 
 
 
Basic net earnings (loss) per share attributable to SUPERVALU INC.:
Continuing operations
$
0.23

 
$
0.18

Discontinued operations
$
—

 
$
(0.01
)
Basic net earnings per share
$
0.23

 
$
0.17

Diluted net earnings (loss) per share attributable to SUPERVALU INC.:
Continuing operations
$
0.23

 
$
0.18

Discontinued operations(1)
$
—

 
$
(0.01
)
Diluted net earnings per share
$
0.23

 
$
0.17

(1)
Weighted average number of shares outstanding—diluted was equal to Weighted average number of shares outstanding—basic for the computation of diluted net loss per share from discontinued operations for the first quarter ended June 14, 2014.
Stock-based awards of 6 and 17 that were outstanding during the first quarters ended June 20, 2015 and June 14, 2014, respectively, were excluded from the calculation of diluted net earnings per share from continuing operations for the periods because their inclusion would be antidilutive.

NOTE 10—COMPREHENSIVE INCOME AND ACCUMULATED COMPREHENSIVE LOSS
The Company reports comprehensive income in the Condensed Consolidated Statements of Comprehensive Income. Comprehensive income includes all changes in stockholders’ deficit during the reporting period, other than those resulting from investments by and distributions to stockholders. The Company’s comprehensive income is calculated as net earnings (loss) including noncontrolling interests, plus or minus adjustments for pension and other postretirement benefit obligations, net of tax, and changes in the fair value of cash flow hedges, net of tax, less comprehensive income attributable to noncontrolling interests.
Accumulated other comprehensive loss represents the cumulative balance of other comprehensive income (loss), net of tax, as of the end of the reporting period and relates to pension and other postretirement benefit obligation adjustments, net of tax.

15

Changes in Accumulated other comprehensive loss by component for the first quarter ended June 20, 2015 are as follows:
 
Benefit Plans
 
Interest Rate Swap
 
Total
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
$
(423
)
 
$
—

 
$
(423
)
Other comprehensive loss before reclassifications, net of tax benefit of $1
—

 
(1
)
 
(1
)
Amortization of amounts included in net periodic benefit cost, net of tax expense of $8
14

 
—

 
14

Net current-period Other comprehensive income (loss), net of tax expense of $7
14

 
(1
)
 
13

Accumulated other comprehensive loss at the end of period, net of tax
$
(409
)
 
$
(1
)
 
$
(410
)
Changes in Accumulated other comprehensive loss by component for the first quarter ended June 14, 2014 are as follows:
 
Benefit Plans
Accumulated other comprehensive loss at beginning of the fiscal year, net of tax
$
(307
)
Other comprehensive loss before reclassifications, net of tax benefit of ($0)
—

Amortization of amounts included in net periodic benefit cost, net of tax expense of $5
11

Net current-period Other comprehensive income, net of tax expense of $5
11

Accumulated other comprehensive loss at the end of period, net of tax
$
(296
)
Items reclassified out of pension and postretirement benefit plan accumulated other comprehensive loss had the following impact on the Condensed Consolidated Statements of Operations:
 
First Quarter Ended
 
 
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
 
Affected Line Item on Condensed Consolidated Statement of Operations
Pension and postretirement benefit plan obligations:
 
 
 
 
 
Amortization of amounts included in net periodic benefit expense(1)
$
20

 
$
12

 
Selling and administrative expenses
Amortization of amounts included in net periodic benefit expense(1)
2

 
4

 
Cost of sales
Total reclassifications
22

 
16

 
 
Income tax benefit
(8
)
 
(5
)
 
Income tax provision
Total reclassifications, net of tax
$
14

 
$
11

 
 
(1)
Amortization of amounts included in net periodic benefit cost include amortization of prior service benefit and amortization of net actuarial loss as reflected in Note 8—Benefit Plans.
No amounts were reclassified out of Accumulated other comprehensive loss related to the interest rate swap designated as a cash flow hedge.

NOTE 11—COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
The Company has outstanding guarantees related to certain leases, fixture financing loans and other debt obligations of various retailers as of June 20, 2015. 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 15 years, with a weighted average remaining term of approximately eight 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.

16

The Company reviews performance risk related to its guarantees of independent retail customer obligations based on internal measures of credit performance. As of June 20, 2015, the maximum amount of undiscounted payments the Company would be required to make in the event of default of all guarantees was $71 ($57 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.
The Company is a party to a variety of contractual agreements under which it may be obligated to indemnify the other party for certain matters in the ordinary course of business, which indemnities may be secured by operation of law or otherwise. These agreements primarily relate to the Company’s commercial contracts, the TSA (as defined below), the transition service agreements with Haggen, contracts entered into for the purchase and sale of stock or assets, 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 not aware of any matters that are expected to result in a material liability.
Following the sale of New Albertson’s, Inc. (“NAI”), the Company remains contingently liable with respect to certain self-insurance commitments and other guarantees as a result of parental guarantees issued by SUPERVALU INC. with respect to the obligations of NAI that were incurred while NAI was a subsidiary of the Company. As of June 20, 2015, using actuarial estimates as of December 31, 2014, the total undiscounted amount of all such guarantees was estimated at $190 ($170 on a discounted basis). Based on the expected settlement of the self-insurance claims that underlie the Company’s commitments, the Company believes that such contingent liabilities will continue to decline. Subsequent to the sale of NAI, NAI collateralized most of these obligations with letters of credit and surety bonds to numerous states. Because NAI remains a primary obligor on these self-insurance and other obligations and has collateralized most of the self-insurance obligations for which the Company remains contingently liable, the Company believes that 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 guarantees.
Agreements with AB Acquisition LLC and Affiliates
In connection with the sale of NAI on March 21, 2013, the Company entered into various agreements with AB Acquisition LLC and its affiliates related to on-going operations, including a Transition Services Agreement with each of NAI and Albertson’s LLC (collectively, the “TSA”) and operating and supply agreements. At the time of the sale of NAI, these arrangements had initial terms ranging from 12 months to five years, and are generally subject to renewal upon mutual agreement by the parties thereto and also include termination provisions that can be exercised by each party. The Company operates a distribution center owned by NAI for an initial term of five years, subject to renewal at the Company's option for two additional five years-year terms and certain termination rights for each of the Company and NAI.
On April 16, 2015, following discussions with NAI and Albertson’s LLC regarding the impact of the acquisition by Albertson's of Safeway, Inc. (the “Safeway Acquisition”) and their plans around winding down the TSA, the Company entered into a letter agreement regarding the TSA with NAI and Albertson’s LLC pursuant to which the Company will provide services to NAI and Albertson’s LLC as needed to transition and wind down the TSA. In exchange for these transition and wind down services, the Company will receive eight payments of approximately $6 every six months for aggregate fees of $50. These payments are separate from and incremental to the fixed and variable fees the Company receives under the TSA. The Company estimates that the complete transition and wind down of the TSA could take approximately three to four years.
On May 28, 2015, the Company entered into a letter agreement with NAI and Albertson's LLC pursuant to which the Company received certain additional rights and benefits and the Company and NAI and Albertson's LLC (and certain of their affiliates, including Safeway, with respect to provisions of the letter agreement applicable to them) agreed to resolve several issues. Among other matters resolved, NAI, Albertson's LLC and AB Acquisition agreed to no longer challenge, and waive all rights relating to, the Company's filing with the IRS in fiscal 2015 for a change in accounting method for NAI and its subsidiaries pursuant to the tangible property repair regulations. In consideration for the granting of the additional rights and benefits to the Company and the resolution of the various matters under the letter agreement, the Company paid $35 to AB Acquisition, the parent entity of NAI and Albertson's LLC.

17

Information Technology Intrusions
Computer Network Intrusions – The Company announced during fiscal 2015 that it had experienced two separate criminal intrusions into the portion of its computer network that processes payment card transactions for some of its owned and franchised retail stores, including some of its associated stand-alone liquor stores. An investigation of those intrusions supported by third-party data forensics experts is ongoing. Given the continuing nature of the investigation, it is possible that it will be determined that information was stolen from the Company during one or both of these intrusions or that new or different time frames, locations, at-risk data, and/or other facts will be identified in the future.
Some stores owned and operated by Albertson's LLC and NAI experienced related criminal intrusions. The Company provides information technology services to these Albertson's LLC and NAI stores pursuant to the TSA, and the Company has been working together with Albertson's LLC and NAI to respond to the intrusions into their stores. The Company believes that any losses incurred by Albertson's LLC or NAI as a result of the intrusions affecting their stores would not be the Company's responsibility.
Investigations and Proceedings – As a result of the criminal intrusions, the payment card brands are conducting investigations and, although the Company’s network has previously been found to be compliant with applicable data security standards, the forensic investigator working on behalf of the payment card brands has concluded that the Company was not in compliance at the time of the intrusions and that the alleged non-compliance caused at least some portion of the compromise of payment card data that allegedly occurred during the intrusions. As a result, the Company expects the payment card brands to allege that the Company was not compliant with the applicable data security standards at the time of the intrusions and that such alleged non-compliance caused the compromise of payment card data during the intrusions. The Company believes the payment card brands will make claims against the Company for non-ordinary course operating expenses and incremental counterfeit fraud losses allegedly incurred by them or their issuers by reason of the intrusions and the Company expects to dispute those claims. While the Company does not believe that a loss is probable by reason of these as yet unasserted claims, the Company believes that a loss in connection with these claims, should they be asserted, is reasonably possible; however, at this time the Company cannot reasonably estimate a range of possible losses because the payment card brands’ investigation is ongoing and the payment card brands have not alleged what payment cards they consider to have been compromised, what data from those cards they consider to have been compromised, or the amount of their and/or their issuers' claimed losses. The Company does not currently believe that the amount, if any, paid on any payment card brand claims that might be asserted would be material to the Company’s consolidated results of operations, cash flows or financial condition.
While the Company is not aware of any investigation into the intrusions having been initiated by any regulatory authority, it is possible that regulatory investigations into the intrusions could be initiated in the future and, were that to occur, it is possible that such investigations could result in claims being made against the Company by the regulatory authorities in question. If that were to occur, the Company expects to dispute those claims.
As discussed in more detail below in this Note 11 under Legal Proceedings, four class action complaints related to the intrusions have been filed against the Company and consolidated into one action and are currently pending. As indicated in Note 11 below, the Company believes that the likelihood of a material loss from the consolidated class action is remote. It is possible that other similar complaints by consumers, banks or others may be filed against the Company in connection with the intrusions.
Insurance Coverage – The Company had $50 of cyber threat insurance above a per incident deductible of $1 at the time of the intrusions, which it believes should mitigate the financial effect of these intrusions, including claims made or that might be made against the Company based on these intrusions. The Company now maintains $75 of cyber threat insurance above a per incident deductible of approximately $3, in each case subject to certain sublimits.
Expenses – Anticipated insurance proceeds recorded for the insurance receivable were based on the Company’s insurance recovery assessment. This assessment included the review of applicable insurance policies, correspondence with the insurance carriers and analysis by legal counsel.
Other Contractual Commitments
In the ordinary course of business, the Company enters into supply contracts to purchase products for resale and purchase and service contracts for fixed asset and information technology commitments. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of June 20, 2015, the Company had approximately $361 of non-cancelable future purchase obligations.
Legal Proceedings

18

The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently-available facts, it is remote that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on the overall results of the Company’s operations, its cash flows or its financial position.
In September 2008, a class action complaint was filed against the Company, as well as International Outsourcing Services, LLC (“IOS”); Inmar, Inc.; Carolina Manufacturer’s Services, Inc.; Carolina Coupon Clearing, Inc. and Carolina Services in the United States District Court in the Eastern District of Wisconsin. The plaintiffs in the case are a consumer goods manufacturer, a grocery co-operative and a retailer marketing services company that allege on behalf of a purported class that the Company and the other defendants (i) conspired to restrict the markets for coupon processing services under the Sherman Act and (ii) were part of an illegal enterprise to defraud the plaintiffs under the Federal Racketeer Influenced and Corrupt Organizations Act. The plaintiffs seek monetary damages, attorneys’ fees and injunctive relief. The Company intends to vigorously defend this lawsuit; however, all proceedings have been stayed in the case pending the result of the criminal prosecution of certain former officers of IOS.
In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against the Company alleging that a 2003 transaction between the Company and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, the Company purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain assets of the Company to C&S that were located in New England. Since December 2008, three other retailers have filed similar complaints in other jurisdictions. The cases were consolidated and are proceeding in the United States District Court in Minnesota. The complaints allege that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that the Company and C&S purchased from each other. Plaintiffs are seeking monetary damages, injunctive relief and attorneys’ fees. On July 5, 2011, the District Court granted the Company’s Motion to Compel Arbitration for those plaintiffs with arbitration agreements and plaintiffs appealed. On July 16, 2012, the District Court denied plaintiffs’ Motion for Class Certification and on January 11, 2013, the District Court granted the Company’s Motion for Summary Judgment and dismissed the case regarding the non-arbitration plaintiffs. On February 12, 2013, the 8th Circuit reversed the District Court decision requiring plaintiffs with arbitration agreements to arbitrate and remanded to the District Court. On October 30, 2013, the parties attended a District Court ordered mandatory mediation, which was not successful in resolving the matter. On May 21, 2014, a panel of the 8th Circuit (1) reversed the District Court’s decision granting summary judgment in favor of the Company, and (2) affirmed the District Court’s decision denying class certification of a class consisting of all retailers located in the States of Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin that purchased wholesale grocery products from the Company between December 31, 2004 and September 13, 2008, but remanded the case for the District Court to consider whether to certify a narrower class of purchasers supplied from the Company’s Champaign, Illinois distribution center and potentially other distribution centers. On January 16, 2015, the Company filed a Petition for Certiorari to the United States Supreme Court seeking to appeal certain aspects of the 8th Circuit decision and on June 8, 2015, the United States Supreme Court denied the Petition. On June 19, 2015, the District Court Magistrate Judge entered an order that decided a number of matters including granting plaintiffs' request to seek class certification for certain Midwest Distribution Centers and denying plaintiffs' request to add an additional New England plaintiff. All parties have appealed the Magistrate Judge's order.
In August and November 2014, four class action complaints were filed against the Company relating to the criminal intrusions into its computer network announced by the Company in fiscal 2015 (the "Criminal Intrusion"). The cases have been consolidated as In Re: Supervalu Inc. Customer Data Security Breach Litigation and are proceeding in the United States District Court in Minnesota. On June 26, 2015, the plaintiffs filed a Consolidated Complaint. The Company's response is due August 10, 2015.
In December 2014, the United States Department of Labor (the “DOL”), in connection with an audit of the SUPERVALU Group Health Plan, the SUPERVALU Retiree Benefit Plan, and the SUPERVALU Group Benefit Plan, under the Employee Retirement Income Security Act (“ERISA”), alleged 3 violations of its regulations relating to loan transactions between the active and retiree plans, the Company’s treatment of three rebates it had received from insurance carriers and a description of the Newborns’ and Mothers’ Health Protection Act by the Company’s third party administrator in its written materials. In connection with closing out the audit, the Company determined it would make additional contributions and pay interest totaling $19 to the trusts that fund the three aforementioned plans, resulting in a benefit plan charge of $5 before tax in fiscal 2015. No penalties were assessed by the DOL. The payments were made on March 5, 2015.
Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. The Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures.

19

With respect to the IOS, C&S, and Criminal Intrusion matters discussed above, the Company believes the chance of a material loss is remote. It is possible, although management believes it is remote, that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

NOTE 12—SEGMENT INFORMATION
Refer to the Condensed Consolidated Segment Financial Information for the Company’s segment information.
Segment operating earnings include revenues and costs attributable to each of the respective business segments and allocated corporate overhead, based on the segment's estimated consumption of corporately managed resources. Variances to planned corporate overhead allocated to business segments remain in Corporate because allocated corporate overhead affecting segment operating profit is centrally managed. Reported segment information is presented on the same basis as it is reviewed by executive management.

NOTE 13—DISCONTINUED OPERATIONS
The following is a summary of the Company’s operating results and certain other directly attributable expenses that are included in discontinued operations:
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net sales
$
—

 
$
—

(Loss) income before income taxes from discontinued operations
(3
)
 
2

Income tax (benefit) provision
(4
)
 
5

Income (loss) from discontinued operations, net of tax
$
1

 
$
(3
)
Income (loss) from discontinued operations, net of tax for the first quarters ended June 20, 2015 and June 14, 2014 primarily reflects tax settlement matters, including pre-tax resolution matters and discrete tax benefits and expenses.

NOTE 14—SUBSEQUENT EVENTS
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that process it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company, including engaging financial and legal advisors. No specific timetable for a separation has been set and there can be no assurance that a separation will be completed or that any other change in the Company’s overall structure or business model will occur.


20

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars and shares in millions, except per share data and stores)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q, the information contained under the caption “Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act” in this Quarterly Report on Form 10-Q and the information in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015.
MANAGEMENT OVERVIEW
First Quarter of Fiscal 2016 Highlights
Financial highlights for the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015 include:
•
Net sales were $5,407, an increase of $143 or 2.7 percent, primarily due to new store sales in Save-A-Lot and Retail Food, and sales to new stores and new affiliations within Independent Business.
•
Gross profit was $810, an increase of $55 or 7.3 percent, primarily due to higher base margins, higher sales volume and lower logistics costs.
•
Operating earnings were $158, an increase of $23 or 17.0 percent, primarily due to higher base margins, higher sales volume and lower logistics costs.
•
Net cash provided by operating activities of continuing operations was $111, an increase of $54, primarily due to lower levels of cash utilized in inventory build and benefit plan contributions.
•
Net cash used in investing activities was $70, an increase of $38, primarily due to an increase in cash paid for intangible assets of $23 and capital expenditures of $12, comprised of new retail stores, offset in part by $4 of cash paid for business combinations last year.
Business Strategy and Initiatives
Management continues to focus on sales, Adjusted EBITDA and operating cash flow, and improvements in the balance sheet.
Independent Business
Independent Business continues to target sales growth by affiliating new customers, driving sales to existing customers and enhancing professional service offerings while also improving the efficiency of its operations.
In the first quarter of fiscal 2016, under the Company's multi-year supply agreement with Haggen, the Company began wholesale distribution to 46 of the 64 Haggen stores in Washington and Oregon. The Company anticipates beginning to supply the remaining 18 Haggen stores in Washington and Oregon later this fiscal year.
Save-A-Lot
Save-A-Lot continues to drive sales and performance through its meat and produce programs, pricing enhancements and improved grocery and merchandise offerings. Save-A-Lot is focused on long-term sales and earnings growth through execution of these initiatives at existing locations and expansion through corporate and licensee store development.
In fiscal 2016, the Company expects to add corporate and licensed stores to the existing Save-A-Lot network, including in new geographic markets, with the majority of those stores expected to be corporate stores. In the first quarter of fiscal 2016, the Company added ten new Save-A-Lot stores, comprised of seven new licensee stores and three new corporate stores, and nine Save-A-Lot stores were closed, comprised of eight licensee stores and one corporate store.
Total Company-operated retail square footage for Save-A-Lot stores as of the first quarter of fiscal 2016 was approximately 7 million, an increase of approximately 0.5 percent from the fourth quarter of fiscal 2015, primarily attributable to new corporate stores.
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that process it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company, including engaging financial and legal advisors. No specific timetable for a separation has been set and there can be no assurance that a separation will be completed or that any other change in the Company’s overall structure or business model will occur.

21


Retail Food
Retail Food continues to focus on driving sales and performance through competitive pricing and promotional activities, enhanced perishable offerings, store remodels and resets. Private label product offerings, including organic products, and marketing investments continue to expand. Management believes the Company has a quality private label program that can continue to build customer loyalty and also drive profitable sales growth.
In the first quarter of fiscal 2016, the Company acquired two retail stores divested as part of the acquisition of Safeway, Inc. by Albertson’s, which the Company is operating as County Market stores in the state of Washington.
Total Retail Food square footage as of the first quarter of fiscal 2016 was approximately 11 million, an increase of approximately 1.3 percent from the first quarter of fiscal 2015.
Impact of Inflation and Deflation
The Company monitors product cost inflation and deflation and evaluates whether to pass on pricing changes or absorb cost increases or decreases. We experienced a mix of inflation and deflation across product categories within all three of our businesses, with higher deflation levels in produce, and certain meat and dairy categories.
In aggregate, we estimate our businesses experienced flat cost inflation when taking into account overall mix of products in the first quarter of fiscal 2016, however, Save-A-Lot experienced deflation in the low single digits, primarily due to deflation within certain meat and dairy categories. The impact of deflation was greater in the Save-A-Lot business compared to Independent Business and Retail Food due to product mix and product sourcing on private-label products.
Changes in merchandising, customer buying habits and competitive pressures create inherent difficulties in measuring the impact of inflation on Net sales and Gross profit.
Competitive Environment
The United States grocery channel is highly competitive and management expects operating results will continue to be impacted by the effects of operating in a highly competitive and price-sensitive marketplace.


22

Selected Financial Information
 
First Quarter Ended
Results of Operations
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net sales
$
5,407

 
$
5,264

Cost of sales
4,597

 
4,509

Gross profit
810

 
755

Selling and administrative expenses
652

 
620

Operating earnings
158

 
135

Interest expense, net
59

 
64

Equity in earnings of unconsolidated affiliates
(2
)
 
(1
)
Earnings from continuing operations before income taxes
101

 
72

Income tax provision
38

 
24

Net earnings from continuing operations
63

 
48

Income (loss) from discontinued operations, net of tax
1

 
(3
)
Net earnings including noncontrolling interests
64

 
45

Less net earnings attributable to noncontrolling interests
(3
)
 
(2
)
Net earnings attributable to SUPERVALU INC.
$
61

 
$
43

Diluted continuing operations net earnings per share attributable to SUPERVALU INC.
$
0.23

 
$
0.18

Weighted average shares outstanding—diluted
268

 
262

Financial Position
 
 
 
Working capital(1)
$
137

 
$
310

Total assets
$
4,491

 
$
4,354

Total debt and capital lease obligations
$
2,712

 
$
2,762

Other Statistics
 
 
 
Depreciation and amortization
$
83

 
$
89

Capital expenditures(2)
$
49

 
$
37

Adjusted EBITDA(3)
$
246

 
$
226

Stores Supplied and Operated:
 
 
 
Independent Business Primary Stores
1,857

 
1,805

Independent Business Secondary Stores
208

 
241

Save-A-Lot licensee stores
902

 
931

Save-A-Lot corporate stores
433

 
394

Retail Food stores
197

 
190

Total number of stores
3,597

 
3,561

(1)
Working capital of continuing operations is calculated using the first-in, first-out method (“FIFO”) for inventories, after adding back the last-in, first-out method (“LIFO”) reserve. The LIFO reserve was $214 and $204 as of June 20, 2015 and June 14, 2014, respectively.
(2)
Capital expenditures include cash payments for purchases of property, plant and equipment, excluding business acquisitions, and non-cash capital lease additions.
(3)
Adjusted EBITDA is a non-GAAP financial measure that the Company provides as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Refer to the “Non-GAAP Financial Measures” section below for additional information regarding the Company’s use of non-GAAP financial measures.


23

Transition Services Agreements
New Albertson's, Inc. and Albertson's LLC
In connection with the sale of NAI, the Company entered into various agreements with AB Acquisition LLC and its affiliates, including a Transition Services Agreement with each of New Albertson’s, Inc. (“NAI”) and Albertson’s LLC (collectively, the “TSA”) under which the Company provides certain services to each of NAI and Albertson’s LLC, and NAI and Albertson’s LLC provide certain services to the Company, in each case as described therein. On April 16, 2015, following discussions with NAI and Albertson’s LLC regarding the impact of their acquisition of Safeway, Inc. (the “Safeway Acquisition”) and their plans around winding down the TSA, the Company entered into a letter agreement regarding the TSA with NAI and Albertson’s LLC pursuant to which the Company will provide services to NAI and Albertson’s LLC as needed to transition and wind down the TSA. For additional discussion of the TSA and this letter agreement, see “Risk Factors—Changes in the Company’s relationships with NAI, Albertson’s LLC or Haggen could adversely impact the Company’s results of operations” in Part I, Item 1A of the Annual Report on Form 10-K for the fiscal year ended February 28, 2015.
Haggen
On December 6, 2014, the Company entered into a Transition Services Agreement with Haggen (the “Haggen TSA”) to provide certain services to all 164 Haggen stores owned and being acquired by Haggen in five states in connection with the Safeway Acquisition as the stores are acquired by Haggen. The Haggen TSA is similar to the TSA supporting NAI and Albertson’s LLC and has a term of two years with three one-year automatic renewal periods unless earlier notice of nonrenewal is given by either party. Approximately 100 of the stores being acquired by Haggen received services from the Company under the TSA with Albertson’s LLC.
Information Technology Intrusions
During fiscal 2015, the Company announced it had experienced two separate criminal intrusions into the portion of its computer network that processes payment card transactions for some of its owned and franchised retail stores, including some of its associated stand-alone liquor stores. The intrusions are discussed in more detail in Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements in Part I, Item 1 of this Quarterly Report on Form 10-Q.


24

FIRST QUARTER RESULTS OF OPERATIONS
The following discussion summarizes operating results in the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015:
Net Sales
Net sales for the first quarter of fiscal 2016 were $5,407, compared with $5,264 last year, an increase of $143 or 2.7 percent. Independent Business net sales were 45.6 percent of Net sales, Save-A-Lot net sales were 26.0 percent of Net sales, Retail Food net sales were 27.2 percent of Net sales and Corporate transition services agreement fees were 1.2 percent of Net sales for the first quarter of fiscal 2016, compared with 46.0 percent, 25.7 percent, 27.2 percent and 1.1 percent, respectively, for the first quarter of fiscal 2015.
Independent Business net sales for the first quarter of fiscal 2016 were $2,462, compared with $2,420 last year, an increase of $42 or 1.7 percent. The increase is primarily due to $151 from increased sales to new customers and accounts, offset in part by $109 from lost accounts and lower sales to existing customers.
Save-A-Lot net sales for the first quarter of fiscal 2016 were $1,408, compared with $1,356 last year, an increase of $52 or 3.8 percent. The increase is primarily due to $78 of sales from new store openings, and positive network identical store sales of 0.6 percent or $8 (defined as net sales from Company-operated stores and sales to licensee stores operating for four full quarters, including store expansions and excluding planned store dispositions), offset in part by a decrease of $37 due to store dispositions by licensees.
Save-A-Lot identical store sales for Company-operated stores (defined as net sales from Company-operated stores operating for four full quarters, including store expansions and excluding planned store dispositions) were positive 2.8 percent or $16 for the first quarter of fiscal 2016. Save-A-Lot corporate identical store sales performance was primarily the result of a 0.4 percent increase in customer count and a 2.4 percent increase in average basket size.
Retail Food net sales for the first quarter of fiscal 2016 were $1,473, compared with $1,430 last year, an increase of $43 or 3.0 percent. Retail Food net sales include a $54 increase in sales due to acquired and new stores, offset in part by $11 of lower sales from three closed stores and a $4 decrease from negative identical store sales of 0.3 percent (defined as net sales from stores operating for four full quarters, including store expansions and excluding fuel and planned store dispositions). Retail Food negative identical store sales performance was primarily the result of a 0.4 percent customer count decrease, offset in part by a 0.1 percent increase in average basket size.
Corporate net sales for the first quarter of fiscal 2016 include fees earned under transition services agreements of $64, compared with $58 last year, an increase of $6 primarily driven by Haggen TSA fees.
Gross Profit
Gross profit for the first quarter of fiscal 2016 was $810, compared with $755 last year, an increase of $55 or 7.3 percent. Gross profit as a percent of Net sales was 15.0 percent for the first quarter of fiscal 2016, compared with 14.4 percent last year. The $55 increase in Gross profit is primarily due to $21 from higher base margins, $21 of higher gross profit from increased sales, $13 of lower logistics costs and $6 of higher transition services agreements fees, offset in part by $3 of higher shrink.
Independent Business gross profit for the first quarter of fiscal 2016 was $122 or 4.9 percent of Independent Business net sales, compared with $113 or 4.7 percent last year. Independent Business gross profit increased $2 due to increased sales. The 20 basis point increase in Independent Business gross profit rate is primarily due to lower logistics costs and higher base margins.
Save-A-Lot gross profit for the first quarter of fiscal 2016 was $223 or 15.8 percent of Save-A-Lot net sales, compared with $199 or 14.7 percent last year. Save-A-Lot gross profit increased $8 due to increased sales. The 110 basis point increase in Save-A-Lot gross profit rate is primarily due to $12 of higher base margins and $5 of lower logistics costs.
Retail Food gross profit for the first quarter of fiscal 2016 was $400 or 27.2 percent of Retail Food net sales, compared with $385 or 26.9 percent last year. Retail Food gross profit increased $12 due to increased sales. The 30 basis point increase in Retail Food gross profit rate is primarily due to $5 of higher base margins, including the negative impact from pharmacy reimbursement rate pressure, offset in part by $2 of higher shrink.
Selling and Administrative Expenses
Selling and administrative expenses for the first quarter of fiscal 2016 were $652 or 12.1 percent of Net sales, compared with $620 or 11.8 percent of Net sales last year, an increase of $32 or 5.2 percent. Selling and administrative expenses for the first

25

quarter of fiscal 2016 include $3 of structural and tax planning fees associated with the possible separation of Save-A-Lot that the Company is exploring (the "Structural and Tax Planning Fees"). Selling and administrative expenses for the first quarter of fiscal 2015 included severance costs of $1. When adjusted for these items, the remaining $30 increase in Selling and administrative expenses is primarily due to $17 of higher expenses from increased sales, $7 of higher employee related costs primarily due to new stores and $6 of higher other administrative costs.
Operating Earnings
Operating earnings for the first quarter of fiscal 2016 were $158, compared with $135 last year, an increase of $23 or 17.0 percent. Operating earnings for the first quarter of fiscal 2016 include $3 of Structural and Tax Planning Fees. Operating earnings for the first quarter of fiscal 2015 included severance costs of $1. When adjusted for these items, the remaining $25 increase in Operating earnings is primarily due to $21 from higher base margins, $13 of lower logistics costs, $6 of higher transition services agreement fees and $4 from increased sales, offset in part by $8 of higher employee related costs primarily due to new stores, $6 of higher other administrative costs and $3 of higher shrink.
Independent Business operating earnings for the first quarter of fiscal 2016 were $77 or 3.1 percent of Independent Business net sales, compared with $66 or 2.8 percent last year. Independent Business operating earnings for the first quarter of fiscal 2015 included severance costs of $1. When adjusted for this item, the remaining $10 increase in Independent Business operating earnings is primarily due to lower logistics costs and higher base margins.
Save-A-Lot operating earnings for the first quarter of fiscal 2016 were $51 or 3.6 percent of Save-A-Lot net sales, compared with $46 or 3.4 percent last year. The $5 increase in Save-A-Lot’s operating earnings is primarily due to $12 of higher base margins and $5 of lower logistics costs, offset in part by $6 of higher occupancy costs and depreciation and $5 of higher employee costs primarily due to new stores.
Retail Food operating earnings for the first quarter of fiscal 2016 were $33 or 2.2 percent of Retail Food net sales, compared with $30 or 2.1 percent last year. The $3 increase in Retail Food operating earnings is primarily due to $7 of lower depreciation expense and $5 of higher base margins, including the negative impact from pharmacy reimbursement rate pressure, offset in part by $5 of higher employee costs and $2 of higher shrink.
Corporate operating loss for the first quarter of fiscal 2016 was $3, compared with $7 last year. Corporate operating loss for the first quarter of fiscal 2016 includes $3 of Structural and Tax Planning Fees. When adjusted for this item, the remaining $7 decrease in Corporate operating loss was primarily due to $6 of higher revenues from Haggen TSA fees and $5 of lower employee and occupancy costs, offset in part by $4 of higher net periodic pension expense.
Interest Expense, Net
Interest expense, net was $59 for the first quarter of fiscal 2016, compared with $64 last year. Interest expense, net for the first quarter of fiscal 2015 included $2 of unamortized financing cost charges.
Income Tax Provision
Income tax expense on continuing operations earnings for the first quarter of fiscal 2016 was $38 or 36.9 percent of earnings from continuing operations before income taxes, compared with income tax expense of $24 or 33.1 percent of earnings from continuing operations before income taxes last year. The tax rate for each of the first quarters of fiscal 2016 and 2015 reflects certain discrete tax benefits.
Net Earnings from Continuing Operations
Net earnings from continuing operations for the first quarter of fiscal 2016 were $63, compared with $48 last year. Net earnings from continuing operations for the first quarter of fiscal 2016 includes $2 of after tax Structural and Tax Planning Fees, and the first quarter of fiscal 2015 included $2 of after tax unamortized financing cost charges and severance costs. When adjusted for these items, the remaining $15 after-tax increase is due to the variances discussed in the Operating Earnings, Interest Expense, Net and Income Tax Provision sections above.

26

Income (Loss) from Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax, was $1 for the first quarter of fiscal 2016, compared with a loss from discontinued operations, net of tax, of $3 last year. Income from discontinued operations, net of tax, for the first quarter of fiscal 2016 reflects discrete tax benefits and property tax refunds and settlements, including pre-tax resolution matters. Income before income taxes from discontinued operations for the first quarter of fiscal 2015 included $2 of interest income from the settlement of income tax audits. The income tax provision included as a component of Loss from discontinued operations, net of tax for the first quarter of fiscal 2015 included $4 of discrete tax expenses.

NON-GAAP FINANCIAL MEASURES
The Company’s Condensed Consolidated Financial Statements are prepared and presented in accordance with generally accepted accounting principles (“GAAP”). In addition to the above analysis of results of operations, the Company also considers certain other non-GAAP financial measures to assess the performance of our businesses. The measures and items identified below, such as Adjusted EBITDA, are provided as a supplement to our results of operations and related analysis, and should not be considered superior to, a substitute for or an alternative to any financial measure of performance prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude certain items that are occasionally recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. All measurements are provided with a reconciliation from a GAAP measurement. The non-GAAP financial measures below should only be considered as an additional supplement to the Company’s financial results reported in accordance with GAAP and should be reviewed in conjunction with the Company’s results prepared in accordance with GAAP in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015.
The Company utilizes certain non-GAAP measures, including Adjusted EBITDA, to analyze underlying core business trends to understand operating performance. Adjusted EBITDA is a non-GAAP supplemental performance measure the Company uses to facilitate operating performance comparisons of our businesses on a consistent basis. In addition, management believes Adjusted EBITDA as a measure of business performance provides investors with useful supplemental information. Adjusted EBITDA provides additional understanding of other factors and trends affecting our business which are used in the business planning process to understand expected performance, to evaluate results against those expectations, and as one of the compensation performance measures under certain compensation programs and plans.
The Company defines Adjusted EBITDA as Net earnings (loss) from continuing operations, plus Interest expense, net and Income tax provision (benefit), less Net earnings attributable to noncontrolling interests calculated in accordance with GAAP, plus non-GAAP adjustments for Depreciation and amortization, LIFO charge (credit), certain non-recurring or unusual employee-related costs and pension related items (including severance costs, accelerated stock-based compensation charges, multiemployer pension withdrawal charges and other items), charges and costs related to debt financing activities, non-cash asset impairment and other charges and gains (including store closures, market exits and certain gains on the sale of property), goodwill and intangible asset impairment charges, legal settlement charges and gains, contract breakage costs and certain other non-cash charges or unusual items.
These items are omitted either because they are non-cash items or are items that are not considered in our supplemental assessment of on-going business performance. Certain of these adjustments are considered in similar supplemental analyses by other companies, such as Depreciation and amortization, LIFO charge (credit) and certain other adjustments. Adjusted EBITDA is less disposed to variances in actual performance resulting from depreciation, amortization and other non-cash charges and credits, and more reflective of other factors that affect the Company’s underlying operating performance.
There are significant limitations to using Adjusted EBITDA as a financial measure including, but not limited to, it not reflecting cash expenditures for capital assets or contractual commitments, changes in working capital, income taxes and debt service expenses that are recurring in our results of operations.
The following summarizes the calculation of Adjusted EBITDA for the first quarters of fiscal 2016 and 2015:

27

 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
Net earnings from continuing operations
$
63

 
$
48

Less net earnings attributable to noncontrolling interests
(3
)
 
(2
)
Income tax provision
38

 
24

Interest expense, net
59

 
64

Depreciation and amortization
83

 
89

LIFO charge
3

 
2

Unusual employee-related costs
—

 
1

Structural and Tax Planning Fees
3

 
—

Adjusted EBITDA
$
246

 
$
226

Comparison of Adjusted EBITDA for First Quarter Fiscal 2016 to First Quarter Fiscal 2015
Adjusted EBITDA for the first quarter of fiscal 2016 was $246 or 4.5 percent of Net sales, compared with $226 or 4.3 percent of Net sales last year, an increase of $20. The increase in Adjusted EBITDA is primarily due to $21 from higher base margins, $13 of lower logistics costs, $7 from increased sales and $6 of higher transition services agreement fees, offset in part by $8 of higher employee related costs primarily due to new stores, $6 of higher other administrative costs, $6 of higher occupancy and contracted services costs and $3 of higher shrink.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resource Highlights
•
Unused available credit under the Revolving ABL Credit Facility increased to $903 from $871 as of June 20, 2015 compared to February 28, 2015.
•
Working capital decreased $241 from $378 as of February 28, 2015 to $137 as of June 20, 2015, excluding the impacts of the LIFO reserve, primarily due to the classification of the $278 of Senior Notes due May 2016 as current, offset in part by an increase in Cash and cash equivalents.
•
Debt maturities due in the remainder of fiscal 2016 and fiscal 2017 were $0 and $293, respectively, as of June 20, 2015, exclusive of any potential Excess Cash Flow prepayment requirements under the Secured Term Loan Facility.
•
Management expects that it will be able to fund debt maturities through internally generated funds, borrowings under the Revolving ABL Credit Facility, additional term loans under the Secured Term Loan Facility (subject to identifying term loan lenders or other institutional lenders and satisfying certain terms and conditions) or through new debt issuances.
•
Payments to reduce Capital lease obligations are expected to total approximately $26 in both fiscal 2016 and 2017.
•
Total debt was $2,479 and $2,489 as of June 20, 2015 and February 28, 2015, respectively, under senior secured credit agreements and debentures.
•
No minimum pension contributions are required under ERISA for fiscal 2016, but the Company anticipates fiscal 2016 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $65 to $75.

Sources and Uses of Cash
Management expects that the Company will continue to replenish operating assets with internally generated funds and pay down debt obligations with internally generated funds and new debt issuances or existing credit facilities. A significant reduction in operating earnings or the incurrence of operating losses could have a negative impact on the Company’s operating cash flow, which may limit the Company’s ability to pay down its outstanding indebtedness as planned. The Company's credit facilities are secured by a substantial portion of the Company's total assets and certain subsidiary stock.
The Company’s primary sources of liquidity are from internally generated funds and from borrowing capacity under its credit facilities. 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 and its credit facilities. 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 debt obligations and to fund capital expenditures as opportunities arise. There can be no assurance, however, that the Company’s business will continue to generate cash flow at current levels or that it will continually have access to credit on acceptable terms. 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.

28

Primary uses of cash include debt servicing and maturities, capital expenditures, working capital maintenance, contributions to various retirement plans and income tax payments. The Company’s working capital needs are generally greater during the months leading up to high sales periods, such as the time period from prior to Thanksgiving through December. The Company typically finances these working capital needs with cash provided from operating activities and short-term borrowings. Inventories are managed primarily through demand forecasting and replenishing depleted inventories. Strategic and operational investments in the Company’s businesses are funded by cash provided from operating activities and on a short-term basis through available liquidity.
The Company’s continued access to short-term and long-term financing through credit markets depends on numerous factors including the condition of the credit markets and the Company’s results of operations, cash flows, financial position and credit ratings.
Cash Flow Information
The following summarizes our Condensed Consolidated Statements of Cash Flows:
 
First Quarter Ended
 
June 20, 
 2015 
 (16 weeks)
 
June 14, 
 2014 
 (16 weeks)
 
Change
Cash flow activities
 
 
 
 
 
Net cash provided by operating activities – continuing operations
$
111

 
$
57

 
$
54

Net cash used in investing activities
(70
)
 
(32
)
 
(38
)
Net cash used in financing activities
(19
)
 
(18
)
 
(1
)
Net cash provided by discontinued operations
1

 
—

 
1

Net increase in cash and cash equivalents
23

 
7

 
16

Cash and cash equivalents at beginning of period
114

 
83

 
31

Cash and cash equivalents at the end of period
$
137

 
$
90

 
$
47

The increase in net cash provided by operating activities from continuing operations in the first quarter of fiscal 2016 compared to last year is primarily attributable to lower levels of cash utilized in inventory build and benefit plan contributions.
The increase in cash used in investing activities in the first quarter of fiscal 2016 compared to last year is primarily attributable to purchases of intangible assets and increased payments for capital expenditures.
The increase in cash used in financing activities in the first quarter of fiscal 2016 compared to last year is primarily attributable to higher levels of payments of debt and capital lease obligations.
Credit Facilities and Debt Agreements
The Company’s credit facilities and certain 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 a 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. Refer to Note 5—Long-Term Debt in Part I, Item 1 of this Quarterly Report on Form 10-Q for a detailed discussion of the provisions of the Company's credit facilities and certain long-term debt agreements, and additional information.
As of June 20, 2015 and February 28, 2015, the Company had outstanding borrowings of $1,459 and $1,469, respectively, under its six-year $1,500 term loan facility (the “Secured Term Loan Facility”), which is secured by substantially all of the Company’s real estate, equipment and certain other assets, and bears interest at the rate of LIBOR plus 3.50 percent subject to a floor on LIBOR of 1.00 percent. The Secured Term Loan Facility is guaranteed by the Company’s material subsidiaries (together with the Company, the “Term Loan Parties”). To secure their obligations under the Secured Term Loan Facility, the Company granted a perfected first-priority security interest for the benefit of the facility lenders in the Term Loan Parties’ equity interests in Moran Foods, LLC, the main operating entity of the Company’s Save-A-Lot business, and the Term Loan Parties granted a perfected first priority security interest in substantially all of their intellectual property and a first priority mortgage lien and security interest in certain owned or ground-leased real estate and associated equipment pledged as collateral. As of June 20, 2015 and February 28, 2015, there was $768 and $776, respectively, of owned or ground-leased real estate and associated equipment pledged as collateral, which was included in Property, plant and equipment, net in the Condensed Consolidated Balance Sheets. In addition, the obligations of the Term Loan Parties under the Secured Term Loan

29

Facility are secured by second-priority security interests in the collateral securing the Company’s five-year $1,000 asset-based revolving ABL credit facility (the “Revolving ABL Credit Facility”). Including the original issue discount, $2 and $9 of the Secured Term Loan Facility was classified as current as of June 20, 2015 and February 28, 2015, respectively.
As of June 20, 2015 and February 28, 2015, there were no outstanding borrowings under the Revolving ABL Credit Facility. As of June 20, 2015, letters of credit outstanding under the Revolving ABL Credit Facility were $73 at fees of 1.625 percent, and the unused available credit under this facility was $903 with facility fees of 0.375 percent. As of February 28, 2015, letters of credit outstanding under the Revolving ABL Credit Facility were $76 at fees of 1.625 percent, and the unused available credit under this facility was $871 with facility fees of 0.375 percent. As of June 20, 2015, the Revolving ABL Credit Facility was secured on a first priority basis by $1,215 of certain inventory assets included in Inventories, net, $239 of certain receivables included in Receivables, net, $30 of certain amounts included in Cash and cash equivalents and all of the Company’s pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets. As of February 28, 2015, the Revolving ABL Credit Facility was secured on a first-priority basis by $1,188 of certain inventory assets included in Inventories, net, $220 of certain receivables included in Receivables, net, $28 of certain amounts included in Cash and cash equivalents and all of the Company's pharmacy scripts included in Intangible assets, net, in the Condensed Consolidated Balance Sheets.
Both the Secured Term Loan Facility and the Revolving ABL Credit Facility limit the Company’s ability to make Restricted Payments (as defined in both the Secured Term Loan Facility and the Revolving ABL Credit Facility), which include dividends to stockholders. The Secured Term Loan Facility caps the aggregate amount of Restricted Payments that may be made over the life of the Secured Term Loan Facility. That aggregate cap can fluctuate over time and the cap could be reduced by certain other actions taken by the Company, including certain debt prepayments and Permitted Investments (as defined in the Secured Term Loan Facility). As of June 20, 2015, the aggregate cap on Restricted Payments was approximately $298. The Revolving ABL Credit Facility permits regularly scheduled dividends up to $50 in aggregate per fiscal year as long as no Cash Dominion Event (as defined in the Revolving ABL Credit Facility) exists. The Revolving ABL Credit Facility permits other Restricted Payments as long as the Payment Conditions (as defined in the Revolving ABL Credit Facility) are met. In addition, the Revolving ABL Credit Facility, as amended, provides that the Company may incur additional term loans under the Secured Term Loan Facility in an aggregate principal amount of up to $500, subject to identifying term loan lenders or other institutional lenders willing to provide the additional loans and satisfying certain terms and conditions.
Capital Expenditures
Capital expenditures in the first quarter of fiscal 2016 were $49, excluding cash paid for business acquisitions, and primarily consisted of investments into new Retail Food and Save-A-Lot stores and information technology and Retail Food store remodels. In addition, during the first quarter of fiscal 2016 the Company paid $1 for two acquired stores. Capital expenditures and cash paid for business acquisitions for fiscal 2016 are projected to be approximately $300 to $320, including capital lease additions.
Pension and Other Postretirement Benefit Obligations
Cash contributions to defined benefit pension and other postretirement benefit plans were $37 and $45 in the first quarters of fiscal 2016 and 2015, respectively. First quarter fiscal 2016 contributions consist primarily of a $25 discretionary contribution and an $11 contribution in connection with the closing of a postretirement benefit plan audit.
No minimum pension contributions are required in accordance with Employee Retirement Income Security Act of 1974, as amended ("ERISA") to the Company's pension plans in fiscal 2016. The Company anticipates fiscal 2016 discretionary pension contributions and required minimum other postretirement benefit plan contributions will be approximately $65 to $75.
The Company’s funding policy for defined benefit pension plans is to contribute the minimum contribution amount required under ERISA and the Pension Protection Act of 2006 as determined by the Company’s external actuarial consultant. At the Company’s discretion, additional funds may be contributed to the pension plan. The Company may accelerate contributions or undertake contributions in excess of the minimum requirements from time to time subject to the availability of cash in excess of operating and financing needs or other factors as may be applicable. The Company assesses the relative attractiveness of the use of cash to accelerate contributions considering such factors as expected return on assets, discount rates, cost of debt, reducing or eliminating required Pension Benefit Guarantee Corporation variable rate premiums or in order to achieve exemption from participant notices of underfunding.


30

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS
Guarantees
The Company has outstanding guarantees to its independent retail customers and is contingently liable under other contractual arrangements. See Part I, Item I in Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements under the caption "Guarantees."
Legal Proceedings
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 Part I, Item I, Note 11—Commitments, Contingencies and Off-Balance Sheet Arrangements of this Quarterly Report on Form 10-Q, 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.
Multiemployer Pension Plans
The Company contributes to various multiemployer pension plans, which are primarily defined benefit pension plans, under collective bargaining agreements. During the first quarters ended June 20, 2015 and June 14, 2014, the Company contributed $11 and $13, respectively, to these multiemployer pension plans. There have been no material changes in the Company's multiemployer pension plan arrangements since the end of fiscal 2015. Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 for information regarding these arrangements.
Contractual Obligations
Except as described below and in Note 5—Long-Term Debt in Part I, Item 1, there have been no material changes in the Company’s contractual obligations since the end of fiscal 2015. Refer to Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 for additional information regarding the Company’s contractual obligations.
In the ordinary course of business, the Company enters into supply contracts to purchase products for resale and purchase and service contracts for fixed asset and information technology commitments. These contracts typically include either volume commitments or fixed expiration dates, termination provisions and other standard contractual considerations. As of June 20, 2015, the Company had approximately $361 of non-cancelable future purchase obligations.

CRITICAL ACCOUNTING POLICIES
There were no material changes in the Company’s critical accounting policies during the period covered by this Quarterly Report on Form 10-Q. Refer to the description of critical accounting policies included in Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
Any statements contained in this Quarterly Report on Form 10-Q regarding the outlook for the Company’s businesses and their respective markets, such as projections of future performance, guidance, statements of the Company’s plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on the Company’s 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,” “believes,” “intends” 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 the Company’s 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 I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015 under the heading “Risk Factors,” the factors discussed in Part II, Item 1A of this Quarterly Report on Form 10-Q under 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-

31

looking statements. Since it is not possible to foresee all such factors, these factors should not be considered as complete or exhaustive.
Competition
•
The Company’s ability to attract and retain customers, and the success of the Company’s independent retailers and licensees
•
Increased competition resulting from consolidation in the grocery industry, and the Company’s ability to effectively respond
•
Competition from other food or drug retail chains, supercenters, hard discount, dollar stores, online retailers, non-traditional competitors and alternative formats in the Company’s markets
•
Customer reaction to the increased presence of competitors, including non-traditional competitors, in the Company’s markets
•
Competition for employees, store sites and products
•
The ability of the Company’s Independent Business to maintain or increase sales due to wholesaler competition, increased competition faced by customers and increased customer self-distribution
•
Changes in economic conditions or consumer preferences that affect consumer spending or buying habits
•
The success of the Company’s promotional and sales programs and the Company’s ability to respond to the promotional and pricing practices of competitors
Execution of Initiatives
•
The Company’s ability to identify and effectively execute on performance improvement and customer service initiatives
•
The Company’s ability to offer competitive products and services at low prices and maintain high levels of productivity and efficiency
•
The ability to grow by driving sales, attracting new customers and new licensees and successfully opening new locations
•
The ability to successfully execute on initiatives involving acquisitions or dispositions
•
The Company’s ability to continue to become a more cost-efficient organization
•
The Company’s ability to respond appropriately to competitors’ initiatives
•
The Company’s ability to execute on its exploration process for a separation of Save-A-Lot and, to the extent any transaction or other change in the Company’s overall structure or business model is ultimately completed, to deliver anticipated benefits and enhanced shareholder value

Substantial Indebtedness
•
The impact of the Company’s substantial indebtedness, including the restrictive operating covenants in the underlying debt instruments, on its business and financial flexibility
•
The Company’s ability to comply with debt covenants or to refinance the Company’s debt obligations
•
A downgrade in the Company’s debt ratings, which may increase the cost of borrowing or adversely affect the Company’s ability to access one or more financial markets
•
The availability of favorable credit and trade terms

Labor Relations
•
The Company’s ability to renegotiate labor agreements with its unions
•
Resolution of issues associated with rising pension, healthcare and employee benefit costs
•
Potential for work disruption from labor disputes

Increased Employee Benefit Costs
•
Increased operating costs resulting from rising employee benefit costs
•
Potential increases in health plan costs resulting from health care reform
•
Pension funding obligations related to current and former employees of the Company and the Company’s divested operations
•
Required funding of multiemployer pension plans and any withdrawal liability
•
The effect of the financial condition of the Company’s pension plans on the Company’s debt ratings

Relationships with Albertson’s LLC, New Albertson’s, Inc. (“NAI”) and Haggen
•
Disruptions in current plans, operations and business relationships
•
Ability to effectively manage the Company’s cost structure to realize benefits from the Transition Services Agreement with each of Albertson’s LLC and NAI (collectively, the “TSA”) and the Transition Services Agreement with Haggen (the “Haggen TSA”)

32

•
Impact of the Safeway acquisition by Albertson’s on the Company’s relationships with Albertson’s LLC and NAI, including the transition and wind down of the TSA, certain supply relationships and the operating agreement under which the Company operates a distribution center owned by NAI
•
Ability to provide services and transition and wind down services to NAI and Albertson’s LLC under the TSA and the letter agreement regarding the TSA, as well as services to Haggen under the Haggen TSA, in an efficient manner that is not disruptive to the Company, while eliminating costs directly and not directly tied to providing these services
•
Ability to attract and retain qualified personnel to perform services under the TSA and the Haggen TSA
•
The effect of the information technology intrusions that also impacted Albertson’s LLC and NAI

Intrusions to and Disruptions of Information Technology Systems
•
Dependence of the Company’s businesses on computer hardware and software systems that are vulnerable to security breach by computer hackers and cyber terrorists
•
The intrusions into the Company’s information technology systems and the Company’s continued investigation to determine the full extent of their impact, if any, on its business and future operating results
•
Risk of misappropriation of sensitive data, including customer and employee data, as a result of the information technology intrusions or any future cyber-attack or breach and potential related claims
•
Costs of responding to inquiries, claims or enforcement actions in connection with the information technology intrusions or any future attack or breach resulting in fees and penalties, the loss, damage or misappropriation of information, and potential related damage to the Company’s reputation
•
Inability to timely obtain the Company’s PCI DSS report on compliance that could result in fines or assessments
•
Costs of complying with stricter privacy and information security laws
•
Ability of the information technology systems of the Company or its vendors to prevent, contain or detect cyber-attacks or security breaches
•
Difficulties in developing, maintaining or upgrading information technology systems
•
Major disasters, business disruptions or losses resulting from failure of these systems to perform as anticipated for any reason or data theft, information espionage, or other criminal activity directed at the Company’s computer or communications systems
•
Inability to keep pace with changing customer expectations and new developments and technology investments by the Company’s competitors

Economic Conditions
•
Worsening economic conditions, consumer confidence or unemployment rates, each of which affect consumer spending or buying habits
•
Increases in unemployment, insurance and healthcare costs, energy costs and commodity prices, which could impact consumer spending or buying habits and the cost of doing business
•
Increases in interest rates, labor costs and tax rates, and other changes in applicable law
•
Food and drug inflation or deflation

Governmental Regulation
•
Costs of compliance with existing laws and regulations and changes in applicable laws and regulations that impose additional requirements or restrictions on the operation of the Company’s businesses
•
The ability to timely obtain permits, comply with government regulations or make capital expenditures required to maintain compliance with government regulations, including those governing ethical, anti-bribery and similar business practices
•
Potential costs of compliance with additional foreign laws and regulations if the Company seeks and attains a larger international footprint
•
Potential costs of compliance with environmental laws and regulations, including relating to disposal of hazardous waste and any required removal or remediation of contamination at current or former locations

Food and Drug Safety
•
Events that give rise to actual or potential food contamination, drug contamination or foodborne illness or injury or any adverse publicity relating to these types of concerns, whether or not valid
•
Potential recall costs and product liability claims

Legal Proceedings
•
Unfavorable outcomes and the costs to defend litigation, governmental or administrative proceedings or other disputes, including those related to the information technology intrusions experienced by the Company
•
Adverse publicity related to such unfavorable outcomes


33

Severe Weather, Natural Disasters and Adverse Climate Changes
•
Property damage or business disruption resulting from severe weather conditions and natural disasters that affect the Company and the Company’s customers or suppliers
•
Unseasonably adverse climate conditions that impact the availability or cost of certain products in the grocery supply chain

Disruption to Supply Chain and Distribution Network
•
The Company’s ability to effectively maintain its supply chain and distribution network without interruption
•
Disruptions due to weather, product recalls, crop conditions, regulatory actions, supplier instability, transportation interruptions, labor supply or vendor disputes

Changes in Military Business
•
Competition in the Company’s military business
•
Changes in the commissary system, reductions in government expenditures or funding, or changes in military staffing levels or the locations of bases

Adequacy of Insurance
•
Variability in actuarial projections regarding workers’ compensation liability and associated medical costs and automobile and general liability
•
Potential increase in the number or severity of claims for which the Company is self-insured
•
Adequacy of cybersecurity insurance maintained by the Company to offset any losses or damages related to the information technology intrusions and any future intrusions experienced by the Company

Volatility in Fuel and Energy Costs
•
Availability and cost of energy and fuel to store and transport products
•
Volatility of fuel, energy and natural gas prices
•
Risks associated with possession of compressed natural gas equipment and a fueling station

Asset Impairment Charges
•
Unfavorable changes in the Company’s industry, the broader economy, market conditions, business operations, competition or the Company’s stock price and market capitalization that could require impairment to intangible assets, including goodwill, and tangible assets, including property, plant and equipment

Stock Price Volatility
•
Fluctuations in the Company’s stock price related to actual or perceived operating performance, any of the factors listed above or general stock market fluctuations

RECENTLY ISSUED ACCOUNTING STANDARDS

No recently issued accounting standards are expected to have a material impact on the Company's financial statements. Refer to Note 1—Summary of Significant Accounting Policies for a discussion of the anticipated impact of these standards.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in market risk for the Company in the period covered by this report. See the discussion of market risk in Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

ITEM 4. CONTROLS AND PROCEDURES
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of June 20, 2015. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

34

There has been no change to the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


35

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various lawsuits, claims and other legal matters that arise in the ordinary course of conducting business. In the opinion of management, based upon currently-available facts, it is remote that the ultimate outcome of any lawsuits, claims and other proceedings will have a material adverse effect on the overall results of the Company’s operations, its cash flows or its financial position.
In September 2008, a class action complaint was filed against the Company, as well as International Outsourcing Services, LLC (“IOS”); Inmar, Inc.; Carolina Manufacturer’s Services, Inc.; Carolina Coupon Clearing, Inc. and Carolina Services in the United States District Court in the Eastern District of Wisconsin. The plaintiffs in the case are a consumer goods manufacturer, a grocery co-operative and a retailer marketing services company that allege on behalf of a purported class that the Company and the other defendants (i) conspired to restrict the markets for coupon processing services under the Sherman Act and (ii) were part of an illegal enterprise to defraud the plaintiffs under the Federal Racketeer Influenced and Corrupt Organizations Act. The plaintiffs seek monetary damages, attorneys’ fees and injunctive relief. The Company intends to vigorously defend this lawsuit; however, all proceedings have been stayed in the case pending the result of the criminal prosecution of certain former officers of IOS.
In December 2008, a class action complaint was filed in the United States District Court for the Western District of Wisconsin against the Company alleging that a 2003 transaction between the Company and C&S Wholesale Grocers, Inc. (“C&S”) was a conspiracy to restrain trade and allocate markets. In the 2003 transaction, the Company purchased certain assets of the Fleming Corporation as part of Fleming Corporation’s bankruptcy proceedings and sold certain assets of the Company to C&S that were located in New England. Since December 2008, three other retailers have filed similar complaints in other jurisdictions. The cases were consolidated and are proceeding in the United States District Court in Minnesota. The complaints allege that the conspiracy was concealed and continued through the use of non-compete and non-solicitation agreements and the closing down of the distribution facilities that the Company and C&S purchased from each other. Plaintiffs are seeking monetary damages, injunctive relief and attorneys’ fees. On July 5, 2011, the District Court granted the Company’s Motion to Compel Arbitration for those plaintiffs with arbitration agreements and plaintiffs appealed. On July 16, 2012, the District Court denied plaintiffs’ Motion for Class Certification and on January 11, 2013, the District Court granted the Company’s Motion for Summary Judgment and dismissed the case regarding the non-arbitration plaintiffs. On February 12, 2013, the 8th Circuit reversed the District Court decision requiring plaintiffs with arbitration agreements to arbitrate and remanded to the District Court. On October 30, 2013, the parties attended a District Court ordered mandatory mediation, which was not successful in resolving the matter. On May 21, 2014, a panel of the 8th Circuit (1) reversed the District Court’s decision granting summary judgment in favor of the Company, and (2) affirmed the District Court’s decision denying class certification of a class consisting of all retailers located in the States of Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio and Wisconsin that purchased wholesale grocery products from the Company between December 31, 2004 and September 13, 2008, but remanded the case for the District Court to consider whether to certify a narrower class of purchasers supplied from the Company’s Champaign, Illinois distribution center and potentially other distribution centers. On January 16, 2015, the Company filed a Petition for Certiorari to the United States Supreme Court seeking to appeal certain aspects of the 8th Circuit decision and on June 8, 2015, the United States Supreme Court denied the Petition. On June 19, 2015, the District Court Magistrate Judge entered an order that decided a number of matters including granting plaintiffs' request to seek class certification for certain Midwest Distribution Centers and denying plaintiffs' request to add an additional New England plaintiff. All parties have appealed the Magistrate Judge's order.
In August and November 2014, four class action complaints were filed against the Company relating to the criminal intrusions into its computer network announced by the Company in fiscal 2015 (the "Criminal Intrusion"). The cases have been consolidated as In Re: Supervalu Inc. Customer Data Security Breach Litigation and are proceeding in the United States District Court in Minnesota. On June 26, 2015, the plaintiffs filed a Consolidated Complaint. The Company's response is due August 10, 2015.
In December 2014, the United States Department of Labor (the “DOL”), in connection with an audit of the SUPERVALU Group Health Plan, the SUPERVALU Retiree Benefit Plan, and the SUPERVALU Group Benefit Plan, under the Employee Retirement Income Security Act (“ERISA”), alleged three violations of its regulations relating to loan transactions between the active and retiree plans, the Company’s treatment of three rebates it had received from insurance carriers and a description of the Newborns’ and Mothers’ Health Protection Act by the Company’s third party administrator in its written materials. In connection with closing out the audit, the Company determined it would make additional contributions and pay interest totaling $19 to the trusts that fund the three aforementioned plans, resulting in a benefit plan charge of $5 before tax in fiscal 2015. No penalties were assessed by the DOL. The payments were made on March 5, 2015.

36

Predicting the outcomes of claims and litigation and estimating related costs and exposures involves substantial uncertainties that could cause actual outcomes, costs and exposures to vary materially from current expectations. The Company regularly monitors its exposure to the loss contingencies associated with these matters and may from time to time change its predictions with respect to outcomes and its estimates with respect to related costs and exposures.
With respect to the IOS, C&S, and Criminal Intrusion matters discussed above, the Company believes the chance of a material loss is remote. It is possible, although management believes it is remote, that material differences in actual outcomes, costs and exposures relative to current predictions and estimates, or material changes in such predictions or estimates, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the discussion of risk factors in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2015. Other than the risks described below, there were no material changes in risk factors for the Company in the period covered by this report.
The results and impact of the Company’s announcement that it is exploring a separation of its Save-A-Lot segment and that it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company are uncertain and cannot be determined.
On July 28, 2015, the Company announced that it is exploring a separation of its Save-A-Lot segment, and that as part of that process it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company, including engaging financial and legal advisors. No specific timetable for a separation has been set and there can be no assurance that a separation will be completed or that any other change in the Company’s overall structure or business model will occur. Any transaction or other change in the Company’s overall structure or business model that is ultimately completed may not deliver the anticipated benefits or enhance shareholder value. The Company has, and expects to continue to, incur expenses associated with preparing for a possible spin-off, and the process of considering, preparing for and implementing such a course of action may distract the Company’s management team from their day-to-day responsibilities and make it more difficult to retain employees, and may otherwise be disruptive to the Company’s business operations. Any of these risks or uncertainties could adversely affect the Company’s business, financial condition, results of operations or cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(in millions, except shares and per share amounts)
Period (1)
 
Total Number of Shares Purchased (2)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
First four weeks
 
 
 
 
 
 
 
 
March 1, 2015 to March 28, 2015
 
346

 
$
11.22

 
—

 
$
—

Second four weeks
 
 
 
 
 
 
 
 
March 29, 2015 to April 25, 2015
 
15,193

 
$
10.86

 
—

 
$
—

Third four weeks
 
 
 
 
 
 
 
 
April 26, 2015 to May 23, 2015
 
288,174

 
$
9.02

 
—

 
$
—

Fourth four weeks
 
 
 
 
 
 
 
 
May 24, 2015 to June 20, 2015
 
—

 
$
—

 
—

 
$
—

Totals
 
303,713

 
$
9.11

 
—

 
$
—


(1)
The reported periods conform to the Company's fiscal calendar composed of thirteen 28-day periods. The first quarter of fiscal 2016 contains four 28-day periods.
(2)
These amounts include the deemed surrender by participants in the Company's compensatory stock plans of 303,713 shares of previously issued common stock. These are in payment of the purchase price of shares acquired pursuant to the

37

exercise of stock options and satisfaction of tax obligations arising from such exercises, as well as from the vesting of restricted stock awards granted under such plans.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
None.


38

ITEM 6. EXHIBITS
3.1
 
Amended and Restated Bylaws of SUPERVALU INC., as amended July 22, 2015 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2015).
 
 
 
10.1
 
SUPERVALU INC. 2012 Stock Plan Form of Stock Option Agreement*
 
 
 
10.2
 
SUPERVALU INC. 2012 Stock Plan Form of Restricted Stock Award Agreement*
 
 
 
10.3
 
SUPERVALU INC. 2012 Stock Plan Form of Restricted Stock Unit Award Agreement (Stock-Settled)*
 
 
 
10.4
 
SUPERVALU INC. 2012 Stock Plan Form of Restricted Stock Unit Award Agreement (Cash-Settled) (incorporated by reference to Exhibit 10.70 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 28, 2015)*
 
 
 
10.5
 
Letter Agreement, dated April 16, 2015, to each of the Transition Services Agreement between SUPERVALU INC. and New Albertson’s, Inc. dated March 21, 2013, and the Transition Services Agreement between SUPERVALU INC. and Albertson’s LLC dated March 21, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
 
 
 
12.1
 
Ratio of earnings to fixed charges.
 
 
 
31.1
 
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101
 
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the fiscal quarter ended June 20, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Segment Financial Information, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Stockholders’ Deficit, (vi) the Condensed Consolidated Statements of Cash Flows and (vii) the Notes to Condensed Consolidated Financial Statements.

*
Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.



39

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
SUPERVALU INC. (Registrant)
 
 
 
 
Dated: July 28, 2015
 
 
/s/ BRUCE H. BESANKO
 
 
 
Bruce H. Besanko
Executive Vice President, Chief Financial Officer
(principal financial officer)
 
 
 
 
Dated: July 28, 2015
 
 
/s/ SUSAN S. GRAFTON
 
 
 
Susan S. Grafton
Senior Vice President, Finance, and Chief Accounting Officer
(principal accounting officer)

40

EXHIBIT INDEX
3.1
 
Amended and Restated Bylaws of SUPERVALU INC., as amended July 22, 2015 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 23, 2015).
 
 
 
10.1
 
SUPERVALU INC. 2012 Stock Plan Form of Stock Option Agreement*
 
 
 
10.2
 
SUPERVALU INC. 2012 Stock Plan Form of Restricted Stock Award Agreement*
 
 
 
10.3
 
SUPERVALU INC. 2012 Stock Plan Form of Restricted Stock Unit Award Agreement (Stock-Settled)*
 
 
 
10.4
 
SUPERVALU INC. 2012 Stock Plan Form of Restricted Stock Unit Award Agreement (Cash-Settled) (incorporated by reference to Exhibit 10.70 to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 28, 2015)*
 
 
 
10.5
 
Letter Agreement, dated April 16, 2015, to each of the Transition Services Agreement between SUPERVALU INC. and New Albertson’s, Inc. dated March 21, 2013, and the Transition Services Agreement between SUPERVALU INC. and Albertson’s LLC dated March 21, 2013 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 17, 2015)
 
 
 
12.1
 
Ratio of earnings to fixed charges.
 
 
 
31.1
 
Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
31.2
 
Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.1
 
Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
32.2
 
Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
101
 
The following information from the SUPERVALU INC. Quarterly Report on Form 10-Q for the fiscal quarter ended June 20, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Segment Financial Information, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Stockholders’ Deficit, (vi) the Condensed Consolidated Statements of Cash Flows and (vii) the Notes to Condensed Consolidated Financial Statements.

*
Indicates management contracts, compensatory plans or arrangements required to be filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.


41


Exhibit 10.1

SUPERVALU INC.
2012 STOCK PLAN

STOCK OPTION AGREEMENT

This agreement is made and entered into as of the grant date indicated below (the “Grant Date”), by and between SUPERVALU INC. (the “Company”) and the individual whose name appears below (“Optionee”).
 
The Company has established the 2012 Stock Plan (the “Plan”), under which directors and key employees of the Company and its Affiliates may be granted Options to purchase shares of the Company’s common stock. Optionee has been selected by the Company to receive an Option subject to the provisions of this agreement. Capitalized terms that are used in this agreement, that are not defined, shall have the meanings ascribed to them in the Plan.

In consideration of the foregoing, the Company and Optionee hereby agree as follows:

1.
Option Grant. The Company hereby grants to Optionee, subject to Optionee’s acceptance hereof, the right and option to purchase the number of Shares indicated below at the exercise price per Share indicated below (the “Exercise Price”), effective as of the Grant Date. The Option has been designated as a Non-Qualified Stock Option (“NQ”) for tax purposes, the consequences of which are set forth in the prospectus that describes the Plan.

2.
Acceptance of Option and Stock Option Terms and Conditions. The Option is subject to and governed by the Stock Option Terms and Conditions (“Terms and Conditions”) attached hereto, which is incorporated herein and made a part hereof, and the terms and provisions of the Plan. To accept the Option, this agreement must be delivered and accepted through an electronic medium in accordance with procedures established by the Company or Optionee must sign and return a copy of this agreement to the Company within sixty (60) days after the Grant Date. By so doing, Optionee acknowledges receipt of the accompanying Terms and Conditions and the Plan, and represents that Optionee has read and understands the same and agrees to be bound by the accompanying Terms and Conditions and the terms and provisions of the Plan. In the event that any provision of this agreement or the accompanying Terms and Conditions is inconsistent with the terms and provisions of the Plan, the terms and provisions of the Plan shall govern. Any question of administration or interpretation arising under this agreement or the accompanying Terms and Conditions shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.

3.
Vesting, Exercise Rights and Expiration. Except as otherwise provided in the accompanying Terms and Conditions: (i) the Option shall vest according the schedule below, (ii) the vested portion of the Option may be exercised in whole or part, and (iii) the Option will expire on the expiration date indicated below (the “Expiration Date”).

Option Number:         OPTION_NUMBER -
Grant Date:         OPTION_DATE,’Month DD, YYYY’ -
Number of Shares:    TOTAL_SHARES_GRANTED,’999,999,999’ -
Exercise Price:         OPTION_PRICE,’$999,999,999.99’ -
Expiration Date:         EXPIRE_DATE_PERIOD1,’Month DD, YYYY’ -
Vesting Schedule:    34%, 33% and 33% on each anniversary of the Grant Date

SUPERVALU INC.        RECIPIENT:
SUPERVALU INC.
 
RECIPIENT:
 
 
 
 
 
 
 
 
By:
 
 
 
 
Michele A. Murphy
 
FIRST_NAME_MIDDLE_NAME_LAST_NAME
 
Executive Vice President
 
EMPLOYEE_IDENTIFIER
 
Human Resources & Corporate Communications
 
 




SUPERVALU INC.
2012 STOCK PLAN

STOCK OPTION TERMS AND CONDITIONS
(FOR EMPLOYEES)

These Stock Option Terms and Conditions (“Terms and Conditions”) apply to the Option granted to you under the Plan, pursuant to the Stock Option Agreement (the “Agreement”) to which this document is attached. Capitalized terms that are used in this document, but are not defined, shall have the meanings ascribed to them in the Plan or the attached Agreement. See Section 21 for a list of defined terms.

1.
Vesting and Exercisability. The Option shall vest on the date or dates and in the amount or amounts set forth in the attached Agreement, or at such earlier time or times as may be provided in Sections 6 or 8 below.

The vested portion of the Option may be exercised at any time, or from time to time, during the term of the Option to purchase Shares. If in any year the full amount of Shares that may be purchased pursuant to the vested portion of the Option is not purchased, the remaining amount of such Shares shall be available for purchase during the remainder of the term of the Option. The term of the Option shall be for a period of ten (10) years from the Grant Date, terminating at the close of business on the Expiration Date, or such shorter period as is provided for herein.

2. Manner of Exercise. Except as provided in Section 6 or 8 below, you cannot exercise the Option unless at the time of exercise you are an employee of the Company or an Affiliate. Prior to your death or Disability (as set forth in Section 8 below), only you may exercise the Option. You may exercise the Option as follows:

a)
By delivering a “Notice of Exercise of Stock Option” to the Company at its principal office, attention: Vice President, Compensation, stating the number of Shares being purchased and accompanied by payment of the full purchase price for such Shares (determined by multiplying the Exercise Price by the number of Shares to be purchased). Note: In the event the Option is exercised by any person other than you pursuant to any of the provisions of Section 7 below, the Notice must be accompanied by appropriate proof of such person’s right to exercise the Option; or

b)
By entering an order to exercise the Option using E*TRADE’s website.

3. Method of Payment. The full purchase price for the Shares to be purchased upon exercise of the Option must be paid as follows:
a)
By delivering directly to the Company, cash or its equivalent (personal check, bank draft or money order) payable to the Company;
b)
By delivering indirectly to the Company, cash or its equivalent payable to the Company through E*TRADE under a broker-assisted sale and remittance program approved by the Company;
c)
By delivering directly to the Company Shares having a Fair Market Value as of the exercise date equal to the purchase price (commonly known as a “Stock Swap”);
d)
By delivering directly to the Company the full purchase price in a combination of cash and Shares; or
e)
By the Company delivering to you a number of Shares having an aggregate Fair Market Value (determined as of the date of exercise) equal to the excess, if positive, of the Fair Market Value (on the date of exercise) of the Shares as to which the Option is being exercised, over the aggregate exercise price for such Shares under the Option (commonly known as a “net exercise”).
If you pay all or a portion of the purchase price by means of a Stock Swap, you shall represent and warrant in writing that you are the owner of the Shares so delivered, free and clear of all liens, encumbrances, security interests and restrictions. To the extent that you possess Shares in certificated form, you shall duly endorse in blank all certificates delivered to the Company.

4. Delivery of Shares. You shall not have any of the rights of a stockholder with respect to any Shares subject to the Option until such Shares are purchased by you upon exercise of the Option. Such Shares shall then be issued and delivered to you by the Company as follows:
a)
In the form of a stock certificate registered in your name or your name and the name of another adult person (twenty-one (21) years of age or older) as joint tenants, and mailed to your address;
b)
In “book entry” form, that is, registered with the Company’s stock transfer agent, in your name or your name and the name of another adult person (twenty-one (21) years of age or older) as joint tenants, with a notice of issuance provided to you; or
c)
sent by electronic delivery to your brokerage account.




The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share. Delivery of Shares upon exercise of this Option is subject to the satisfaction of applicable withholding tax obligations and to Section 17 below.

5. Withholding Taxes. You are responsible for the payment of any federal, state, local or other taxes that are required to be withheld by the Company upon exercise of the Option and you must promptly remit such taxes to the Company. You may elect to remit these taxes by:
a)
Delivering directly to the Company, cash or its equivalent payable to the Company;
b)
Delivering indirectly to the Company, cash or its equivalent payable to the Company through E*TRADE’s website;
c)
Having the Company withhold a portion of the Shares to be issued upon exercise of the Option having a Fair Market Value as of the exercise date equal to the amount of taxes required to be withheld upon such exercise; or
d)
Delivering directly to the Company, Shares, other than the Shares issuable upon exercise of the Option, having a Fair Market Value as of the exercise date equal to the amount of taxes required to be withheld upon such exercise. You shall represent and warrant in writing that you are the owner of the Shares so delivered, free and clear of all liens, encumbrances, security interests and restrictions. To the extent that you possess Shares in certificated form, you shall duly endorse in blank all certificates delivered to the Company.
The Company shall be under no obligation to withhold taxes in excess of your minimum required tax withholding rate if you elect to satisfy your obligation to pay withholding taxes by either of the means specified in clauses 5(c) and 5(d) above.
6.    Change of Control.
a)
If, within two (2) years after a Change of Control, you experience an involuntary termination of employment initiated by the Company for reasons other than Cause, or a termination of employment for Good Reason, the unvested portion of the Option shall immediately vest and the Option shall become immediately exercisable in full and remain exercisable for one (1) year beginning on the date of your termination of employment. If the Option is replaced pursuant to subsection (d) below, the protections and rights granted under this subsection (a) shall transfer and apply to such replacement option.
b)
If, in the event of a Change of Control described in clause (ii) of Section 21(b) below, and to the extent the Option is not assumed by a successor corporation (or affiliate thereto) or other successor entity or person, or replaced with an award or grant that, solely in the discretionary judgment of the Committee preserves the existing intrinsic value of the Option at the time of the Change of Control, then the Option shall become fully vested and exercisable for such period of time prior to the effective time of the Change of Control as is deemed fair and equitable by the Committee to provide you with the opportunity to participate as a stockholder in the Change of Control transaction, and shall terminate at the effective time of the Change of Control. The Company will provide written notice of of the period of accelerated vesting and exercisability to you, and the exercise of this Option pursuant to such accelerated vesting and exercisability shall be conditioned upon the consummation of the Change of Control and shall be effective only immediately before such consummation.
c)
In the discretion of the Committee and notwithstanding subsection (b) above or any other provision, the Option (whether or not exercisable) may be cancelled at the time of the Change of Control in exchange for cash, property or a combination thereof that is determined by the Committee to be at least equal to the excess (if any) of the value of the consideration that would be received in such Change of Control by a holder of the number of Shares remaining subject to the Option (or the Fair Market Value of such number of Shares immediately prior to the Change of Control if the holders of Company common stock will not receive consideration in such Change of Control), over the aggregate Exercise Price under the Option for that number of Shares. For purposes of clarification, if application of the formula in the preceding sentence does not result in a positive number, then this Option is subject to cancellation without consideration. Furthermore, the Committee is under no obligation to treat Options and/or holders of Options uniformly and has the discretionary authority to treat Options and/or holders of Options disparately.
d)
If in the event of a Change of Control and to the extent that this Option is assumed by any successor corporation, affiliate thereof, person or other entity, or is replaced with awards that, solely in the discretionary judgment of the Committee preserve the existing intrinsic value of this Option at the time of the Change of Control and provide for vesting and settlement terms that are at least as favorable to you as the vesting and payout terms applicable to this Option, then the assumed Option or such substitute therefore shall remain outstanding and be governed by its respective terms.
7. Transferability. The Option shall not be transferable other than by will or the laws of descent and distribution. More particularly, the Option may not be assigned, transferred, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to these provisions, or the levy of an execution, attachment or similar process upon the Option, shall be void.





8. Effect of Termination of Employment. Subject to Section 6(a) above, following the termination of your employment with the Company and its Affiliates for any of the reasons set forth below, your right to exercise the Option, as well as that of your beneficiary or beneficiaries, shall be as follows:

a)
Voluntary. If you voluntarily terminate your employment, you may exercise the portion of the Option that was vested and exercisable as of the date of termination of your employment at any time until the earlier of (i) ninety (90) days after such termination of employment, or (ii) the Expiration Date.

b)
Involuntary. If your employment is terminated involuntarily for any reason other than death, Disability or Cause, you may exercise the portion of the Option that was vested and exercisable as of the date of termination of your employment at any time until the earlier of (i) one (1) year after such termination of employment, or (ii) the Expiration Date.

c)
Retirement. Notwithstanding paragraphs (a) and (b) above, if your employment terminates on or after reaching age 60 for any reason other than death or Disability, your termination shall be considered a “retirement” and the following provisions will apply:

(i)
If at the time of your retirement you have completed at least fifteen (15) years of service with the Company or an Affiliate, you may exercise the portion of the Option that was vested and exercisable as of the date of your retirement at any time until the earlier of (i) five (5) years after the date of your retirement, or (ii) the Expiration Date.

(ii)
If at the time of your retirement you have completed fewer than fifteen (15) years of service with the Company or an Affiliate, you may exercise the portion of the Option that was vested and exercisable as of the date of your retirement at any time until the earlier of (i) one (1) year after your retirement, or (ii) the Expiration Date.
 
d)
Death.

(i)
Prior to Age 60. If your employment terminates as a result of your death prior to reaching age 60, the unvested portion of the Option shall immediately vest and become exercisable in full. Thereafter, the Option may be exercised by your beneficiary(ies), or a legatee(s) under your last will, or your personal representative(s) or the distributee(s) of your estate, to the full extent of the Shares covered by the Option that were not previously purchased, until the earlier of (i) one (1) year after the date of your death, or (ii) the Expiration Date.

(ii)
On or After Age 60. If your employment terminates as a result of your death on or after you have reached age 60, the unvested portion of your Option shall immediately vest and become exercisable in full. Thereafter, the Option may be exercised by your beneficiary(ies), or a legatee(s) under your last will, or your personal representative(s) or the distributee(s) of your estate, to the full extent of the Shares covered by the Option that were not previously purchased, until the earlier of (i) five (5) years after the date of your death, or (ii) the Expiration Date.

e)
Disability.

(i)
Prior to Age 60. If your employment terminates prior to reaching age 60 as a result of your Disability, the unvested portion of the Option shall immediately vest and become exercisable in full. Thereafter, the Option may be exercised by you or by your personal representative(s), to the full extent of the Shares covered by the Option that were not previously purchased, until the earlier of (i) one (1) year after your employment terminates due to such Disability, or (ii) the Expiration Date.

(ii)
On or After Age 60. If your employment terminates on or after reaching age 60 as a result of your Disability, the unvested portion of the Option shall immediately vest and become exercisable in full. Thereafter, the Option may be exercised by you or by your personal representative(s), to the full extent of the Shares covered by the Option that were not previously purchased, until the earlier of (i) five (5) years after your employment terminates due to such Disability, or (ii) the Expiration Date.

You shall be considered subject to a “Disability” if you suffer from a medically determinable physical or mental impairment that renders you incapable of performing any substantial gainful employment, and is evidenced by a certification to such




effect by a doctor of medicine approved by the Company. In lieu of such certification, the Company shall accept, as proof of permanent disability, your eligibility for long-term disability payments under the applicable Long-Term Disability Plan of the Company.

f)
Cause. If your employment is terminated for Cause, or if you are determined to have engaged in conduct during a post-termination exercise period that would constitute Cause or be in violation of Section 10, any unexercised or unvested portion of this Option shall be immediately forfeited without consideration.

g)
Change in Duties/Leave of Absence. The Option shall not be affected by any change of your duties or position or by a temporary leave of absence approved by the Company, so long as you continue to be an employee of the Company or of an Affiliate.

9. Repurchase Rights. If your employment with the Company and its Affiliates is terminated for Cause, or if you breach any of the covenants contained in Section 10 below, the Company shall have the right and option to repurchase from you any Shares purchased by you upon any exercise of this Option that occurred within six (6) months prior to the date on which your employment with the Company and its Affiliates ended, or at any time thereafter, and you agree to sell such Shares to the Company.

The Company may exercise its repurchase rights by depositing in the United States mail a written notice addressed to you at the latest mailing address for you on the records of the Company within thirty (30) days following the termination of your employment for the repurchase of Shares purchased prior to such termination, and within thirty (30) days after the Company’s discovery of any breach of the covenants contained in Section 10. Within thirty (30) days after the mailing of such notice, you shall deliver to the Company the number of Shares the Company has elected to repurchase and the Company shall pay to you in cash, as the repurchase price for such Shares upon their delivery, an amount which shall be equal to the purchase price paid by you for the Shares. If you have disposed of the Shares, then in lieu of delivering an equivalent number of Shares to the Company, you must pay to the Company the difference between the amount realized by you from the disposition of the Shares (or the Fair Market Value of the Shares on the disposition date if greater) and the amount you originally paid for the Shares, exclusive of any taxes due and payable or commissions or fees arising from such disposition.

If the Company exercises its repurchase option prior to the actual issuance and delivery to you of any Shares pursuant to the exercise of the Option, no Shares need be issued or delivered. In lieu thereof, the Company shall return to you the purchase price you tendered upon the exercise of the Option to the extent that it was actually received from you by the Company.

10. Employee Covenants. In consideration of benefits described elsewhere in these Terms and Conditions and the attached Agreement, and in recognition of the fact that, as a result of your employment with the Company or any of its Affiliates, you have had or will have access to and gain knowledge of highly confidential or proprietary information or trade secrets pertaining to the Company or its Affiliates, as well as the customers, suppliers, joint ventures, licensors, licensees, distributors or other persons and entities with whom the Company or any of its Affiliates does business (“Confidential Information”), which the Company or its Affiliates have expended time, resources and money to obtain or develop and which have significant value to the Company and its Affiliates, you agree for the benefit of the Company and its Affiliates, and as a material condition to your receipt of benefits described elsewhere in these Terms and Conditions and the attached Agreement, as follows:

a)
Non-Disclosure of Confidential Information. You acknowledge that you will receive access or have received access to Confidential Information about the Company or its Affiliates, that this information was obtained or developed by the Company or its Affiliates at great expense and is zealously guarded by the Company and its Affiliates from unauthorized disclosure, and that your possession of this special knowledge is due solely to your employment with the Company or one (1) or more of its Affiliates. In recognition of the foregoing, you will not at any time during employment or following termination of employment for any reason, disclose, use or otherwise make available to any third party, any Confidential Information relating to the Company’s or any Affiliate’s business, products, services, customers, vendors, or suppliers; trade secrets, data, specifications, developments, inventions and research activity; marketing and sales strategies, information and techniques; long and short term plans; existing and prospective client, vendor, supplier and employee lists, contacts and information; financial, personnel and information system information and applications; and any other information concerning the business of the Company or its Affiliates which is not disclosed to the general public or known in the industry, except for disclosure necessary in the course of your duties or with the express written consent of the Company. All Confidential Information, including all copies, notes regarding and replications of such Confidential Information will remain the sole property of the Company or its Affiliate, as applicable, and must be returned to the Company or such Affiliate immediately upon termination of your employment.
b)
Return of Property. Upon termination of employment with the Company or any of its Affiliates, or at any other time at the request of the Company, you shall deliver to a designated Company representative all records, documents, hardware, software and all other property of the Company or its Affiliates and all copies of such property in your possession. You




acknowledge and agree that all such materials are the sole property of the Company or its Affiliates and that you will certify in writing to the Company at the time of delivery, whether upon termination or otherwise, that you have complied with this obligation.
c)
Non-Solicitation of Existing or Prospective Customers, Vendors and Suppliers. You specifically acknowledge that the Confidential Information described in Section 10(a) includes confidential data pertaining to existing and prospective customers, vendors and suppliers of the Company or its Affiliates; that such data is a valuable and unique asset of the business of the Company or its Affiliates; and that the success or failure of their businesses depends upon their ability to establish and maintain close and continuing personal contacts and working relationships with such existing and prospective customers, vendors and suppliers and to develop proposals which are specific to such existing and prospective customers, vendors and suppliers. Therefore, during your employment with the Company or any of its Affiliates and for the twelve (12) months following termination of employment for any reason, you agree that you will not, except on behalf of the Company or its Affiliates, or with the Company’s express written consent, solicit, approach, contact or attempt to solicit, approach or contact, either directly or indirectly, on your own behalf or on behalf of any other person or entity, any existing or prospective customers, vendors or suppliers of the Company or its Affiliates with whom you had contact or about whom you gained Confidential Information during your employment with the Company or its Affiliates for the purpose of obtaining business or engaging in any commercial relationship that would be competitive with the “Business of the Company” (as defined below in Section 10(e)(i)) or cause such customer, supplier or vendor to materially change or terminate its business or commercial relationship with the Company or its Affiliates.
d)
Non-Solicitation of Employees. You specifically acknowledge that the Confidential Information described in Section 10(a) also includes confidential data pertaining to employees and agents of the Company or its Affiliates, and you further agree that during your employment with the Company or its Affiliates and for the twelve (12) months following termination of employment for any reason, you will not, directly or indirectly, on your own behalf or on behalf of any other person or entity, solicit, contact, approach, encourage, induce or attempt to solicit, contact, approach, encourage or induce any of the employees or agents of the Company or its Affiliates to terminate their employment or agency with the Company or any of its Affiliates.
e)
Non-Competition. You covenant and agree that during your employment with the Company or any of its Affiliates and for the twelve (12) months following termination of employment for any reason, you will not, in any geographic market in which you worked on behalf of the Company or any of its Affiliates, or for which you had any sales, marketing, operational, logistical or other management or oversight responsibility, engage in or carry on, directly or indirectly, as an owner, employee, agent, associate, consultant, partner or in any other capacity, a business competitive with the Business of the Company.
i)
The “Business of the Company” shall mean any business or activity involved in grocery or general merchandise retailing and supply chain logistics, including but not limited to grocery distribution, business-to-business portal, retail support services and third-party logistics, of the type provided by the Company or its Affiliates, or presented in concept to you by the Company or its Affiliates at any time during your employment with the Company or any of its Affiliates.
ii)
To “engage in or carry on” shall mean to have ownership in such business (excluding ownership of up to one percent (1%) of the outstanding shares of a publicly-traded company) or to consult, work in, direct or have responsibility for any area of such business, including but not limited to operations, logistics, sales, marketing, finance, recruiting, sourcing, purchasing, information technology or customer service.
f)
No Disparaging Statements. You agree that you will not make any disparaging statements about the Company, its Affiliates, directors, officers, agents, employees, products, pricing policies or services.
g)
Remedies for Breach of These Covenants. Any breach of the covenants in this Section 10 likely will cause irreparable harm to the Company or its Affiliates for which money damages could not reasonably or adequately compensate the Company or its Affiliates. Accordingly, the Company or any of its Affiliates shall be entitled to all forms of injunctive relief (whether temporary, emergency, preliminary, prospective or permanent) to enforce such covenants, in addition to damages and other available remedies, and you consent to the issuance of such an injunction without the necessity of the Company or any such Affiliate posting a bond or, if a court requires a bond to be posted, with a bond of no greater than $500 in principal amount. In the event that injunctive relief or damages are awarded to the Company or any of its Affiliates for any breach by you of this Section 10, you further agree that the Company or such Affiliate shall be entitled to recover its costs and attorneys’ fees necessary to obtain such recovery. In addition, you agree that upon your breach of any covenant in this Section 10, the Option, and any other unexercised options issued under the Plan or any other stock option plans of the Company will immediately terminate and the Company shall have the right to exercise any and all of the rights described above including the provisions articulated in Section 9.
h)
Enforceability of These Covenants. It is further agreed and understood by you and the Company that if any part, term or provision of these Terms and Conditions should be held to be unenforceable, invalid or illegal under any applicable law or rule, the offending term or provision shall be applied to the fullest extent enforceable, valid or lawful under such law or rule, or, if that is not possible, the offending term or provision shall be struck and the remaining provisions of these Terms and Conditions shall not be affected or impaired in any way.




11. Arbitration. You and the Company agree that any controversy, claim or dispute arising out of or relating to the attached Agreement or the breach of any of these Terms and Conditions, or arising out of or relating to your employment relationship with the Company or any of its Affiliates, or the termination of such relationship, shall be resolved by final and binding arbitration under the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association, or other neutral arbitrator and rules as mutually agreed to by you and the Company, except for claims by the Company relating to your alleged breach of any of the employee covenants set forth in Section 10 above. This agreement to arbitrate specifically includes, but is not limited to, discrimination claims under Title VII of the Civil Rights Act of 1964 and under state and local laws prohibiting employment discrimination. Nothing in this Section 11 shall preclude the Company from pursuing a court action to obtain a temporary restraining order or a preliminary injunction relating to the alleged breach of any of the covenants set forth in Section 10. The agreement to arbitrate shall continue in full force and effect despite the expiration or termination of your Option or your employment relationship with the Company or any of its Affiliates. You and the Company agree that any award rendered by the arbitrator must be in writing and include the findings of fact and conclusions of law upon which it is based, shall be final and binding and that judgment upon the final award may be entered in any court having jurisdiction thereof. The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, including any remedy or relief that would have been available to you or the Company or any of its Affiliates had the matter been heard in court. All expenses of arbitration, including the required travel and other expenses of the arbitrator and any witnesses, and the costs relating to any proof produced at the direction of the arbitrator, shall be borne equally by you and the Company unless otherwise mutually agreed or unless the arbitrator directs otherwise in the award. The arbitrator’s compensation shall be borne equally by you and the Company unless otherwise mutually agreed or the law provides otherwise.

12. Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares covered by the Option such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under these Terms and Conditions and the attached Agreement, then the Committee administering the Plan shall, in such manner as it may deem equitable, adjust any or all of the number and type of Shares (or other securities or other property) covered by the Option and the Exercise Price of the Option.

13. Severability. In the event that any portion of these Terms and Conditions shall be held to be invalid, the same shall not affect in any respect whatsoever the validity and enforceability of the remainder of these Terms and Conditions.

14. Interpretations. These Terms and Conditions and the attached Agreement are subject in all respects to the Plan. A copy of the Plan is available upon your request. In the event that any provision of these Terms and Conditions or the attached Agreement is inconsistent with the terms of the Plan, the terms and provisions of the Plan shall govern. Any question of administration or interpretation arising under these Terms and Conditions or the attached Agreement shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.

15. No Right to Employment. Nothing in these Terms and Conditions or the attached Agreement or the Plan shall be construed as giving you the right to be retained as an employee of the Company. In addition, the Company may at any time dismiss you from employment, free from any liability or any claim under these Terms and Conditions or the attached Agreement, unless otherwise expressly provided in these Terms and Conditions or the attached Agreement.

16. Reservation of Shares. The Company shall at all times during the term of the Option reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of these Terms and Conditions and the attached Agreement.

17. Securities Matters. The Company shall not be required to deliver any Shares until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied.

18. Headings. Headings are given to the sections and subsections of these Terms and Conditions and the attached Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of these Terms and Conditions or the attached Agreement or any provision hereof or thereof.

19. Governing Law. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of these Terms and Conditions and the attached Agreement.

20. Notices. For purpose of the Agreement and these Terms and Conditions, notices and all other communications provided for in the Agreement, these Terms and Conditions or contemplated by either shall be in writing and shall be deemed to have




been duly given when personally delivered or when mailed United States certified or registered mail, return receipt requested, postage prepaid, and addressed, in the case of the Company, to the Company at:
P.O. Box 990
Minneapolis, MN 55440
Attention: Corporate Secretary

and in the case of you, to you at the most current address shown on your employment records. Either party may designate a different address by giving notice of change of address in the manner provided above, except that notices of change of address shall be effective only upon receipt.
a)
Notice of Termination by Company. Any purported termination of employment of you by the Company (whether for Cause or without Cause) shall be communicated by a Notice of Termination to you. No purported termination of employment of you by the Company shall be effective without a Notice of Termination having been given.
b)
Good Reason Notice by You. Any purported termination of employment by you for Good Reason shall be communicated by a Notice of Termination to the Company or successor. Your termination of employment will not be for Good Reason unless (i) you give the Company written notice of the event or circumstance which you claim is the basis for Good Reason within ninety (90) days of such event or circumstance first occurring, and (ii) the Company is given thirty (30) days from its receipt of such notice within which to cure or resolve the event or circumstance so noticed. If the circumstance is cured or resolved within said thirty (30) days, your termination of employment will not be for Good Reason.
21. Definitions. The following terms, and terms derived from the following terms, shall have the following meanings when used in these Terms and Conditions or the attached Agreement with initial capital letters unless, in the context, it would be unreasonable to do so.
a)
Cause shall mean:     
i)
your continued failure to perform your duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Board or an officer of the Company which specifically identifies the manner in which the Board or the officer believes that you have not substantially performed your duties;
ii)
the conviction of, or plea of guilty or nolo contendere to, a felony or the willful engaging by you in conduct which is materially and demonstrably injurious to the Company;
iii)
your commission of a material act or material acts of personal dishonesty intended to result in your substantial personal enrichment at the expense of the Company; or
iv)
your material violation of Company policies relating to Code of Business Conduct, Equal Employment Opportunities and Harassment or Workplace Violence;
provided, however, that in no event shall Cause exist by virtue of any action taken by you (A) in compliance with express written directions of the Board, the Company's Chief Executive Officer or the officer to whom you report, or (B) in reliance upon the express written consent of the Company's counsel.
In each case above, for a termination of employment to be for Cause, you must be provided with a Notice of Termination (as described in Section 20(a)) within six (6) months after the Company has actual knowledge of the act or omission constituting Cause. Whether a termination of employment is for Cause as provided above will be determined by the Company in its sole discretion based on all the facts and circumstances. For purposes hereof, the term “Company” shall include an Affiliate.
b)
Change of Control shall be deemed to have occurred upon any of the following events:
i)
the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of either (A) the then outstanding shares of common stock of the Company, or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company;
ii)
the consummation of any merger or other business combination of the Company, sale or lease of all or substantially all of the Company's assets or combination of the foregoing transactions (the "Transactions") other than a Transaction immediately following which the stockholders of the Company and any trustee or fiduciary of any Company employee benefit plan immediately prior to the Transaction own at least sixty percent (60%) of the




voting power, directly or indirectly, of (A) the surviving corporation in any such merger or other business combination; (B) the purchaser or lessee of the Company's assets, or (C) both the surviving corporation and the purchaser or lessee in the event of any combination of Transactions; or
iii)
within any 24‑month period, the persons who were directors immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of a successor to the Company. For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least three‑fourths of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
c)
Change of Control Date shall mean the date on which a Change of Control occurs.
d)
Good Reason shall mean any one (1) or more of the following events occurring during the two-year period following the Change of Control Date:
i)
your annual base salary is reduced below the amount in effect on the Change of Control Date;

ii)
your Target Bonus is reduced below the Target Bonus as it existed on the Change of Control Date;

iii)
your title is reduced from the title that you had on the Change of Control Date, or your duties and responsibilities are materially and adversely diminished in comparison to the duties and responsibilities that you had on the Change of Control Date other than in a general reduction of the number or scope of personnel for which you are responsible for supervising which reduction occurs in connection with a restructuring or recapitalization of the Company or the division of the Company in which you work;

iv)
the program of long term incentive compensation is materially and adversely diminished in comparison to the program of long term incentive compensation as it existed for you on the Change of Control Date (for purposes of this clause (iv), a reduction of fifteen percent (15%) or more of the target dollar amount of your long term incentive compensation as it existed for you on the Change of Control Date based on your most recent award of long term incentive compensation prior to the Change of Control Date shall be considered to be material and adverse); or

v)
you are required to be based at a location more than forty-five (45) miles from the location where you were based and performed services on the Change of Control Date;
 
provided, however, that any diminution of duties or responsibilities that occurs solely as a result of the fact that the Company ceases to be a public company or that the size of the Company has been reduced as a result of the Change of Control shall not, in and of itself, constitute Good Reason.

e)
Notice of Termination shall mean a written notice which shall indicate the specific provision in these Terms and Conditions relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for your termination of employment under the provisions so indicated.
f)
Target Bonus shall mean the target amount of bonus established under the annual bonus plan for you for the year in which the termination of employment occurs. When the context requires, it shall also mean the target amount of bonus established for any earlier or later year.

Original Approval






Exhibit 10.2
 
SUPERVALU INC.
2012 STOCK PLAN
RESTRICTED STOCK AWARD AGREEMENT
This agreement is made and entered into as of the grant date indicated below (the “Grant Date“), by and between SUPERVALU INC. (the “Company”), and the individual whose name appears below (“Recipient”).
The Company has established the 2012 Stock Plan (the “Plan”), under which key employees of the Company and its Affiliates may be granted Awards of Restricted Stock of the Company. Recipient has been selected by the Company to receive an Award of Restricted Stock subject to the provisions of this Restricted Stock Award Agreement (the “Agreement”). Capitalized terms that are used in this Agreement, that are not defined, shall have the meanings ascribed to them in the Plan.
In consideration of the foregoing, the Company and Recipient hereby agree as follows:
1. Grant. The Company hereby grants to Recipient, subject to Recipient’s acceptance hereof, an Award of Restricted Stock for the number of Shares indicated below, effective as of the Grant Date.
2. Acceptance of Award of Restricted Stock and Restricted Stock Award Terms and Conditions. The Award of Restricted Stock is subject to and governed by the Restricted Stock Award Terms and Conditions (“Terms and Conditions”) attached hereto, which is incorporated herein and made a part hereof, and the terms and provisions of the Plan. To accept the Award of Restricted Stock, this Agreement must be delivered and accepted through an electronic medium in accordance with procedures established by the Company, or Recipient must sign and return a copy of this Agreement to the Company within sixty (60) days after the Grant Date. By so doing, Recipient acknowledges receipt of the accompanying Terms and Conditions and the Plan, and represents that Recipient has read and understands the same and agrees to be bound by the accompanying Terms and Conditions and the terms and provisions of the Plan. In the event that any provision of this Agreement or the accompanying Terms and Conditions is inconsistent with the terms and provisions of the Plan, the terms and provisions of the Plan shall govern. Any question of administration or interpretation arising under this Agreement or the accompanying Terms and Conditions shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.
3. Vesting. Except as otherwise provided in the accompanying Terms and Conditions, this Restricted Stock Award shall vest according to the schedule below.


Award Number:             RSA_NUMBER -
Award Date:            RSA_DATE,’Month DD, YYYY’ -
Number of Shares Vesting:    SHARES_PERIOD1,’999,999,999’ - units will vest on VEST_DATE_PERIOD1 -

SUPERVALU INC.        RECIPIENT:
SUPERVALU INC.
 
RECIPIENT:
 
 
 
 
 
 
 
 
By:
 
 
 
 
Michele A. Murphy
 
FIRST_NAME_MIDDLE_NAME_LAST_NAME
 
Executive Vice President
 
EMPLOYEE_IDENTIFIER
 
Human Resources & Corporate Communications
 
 





SUPERVALU INC.
2012 STOCK PLAN
RESTRICTED STOCK AWARD TERMS AND CONDITIONS

These Restricted Stock Award Terms and Conditions (“Terms and Conditions”) apply to the Award of Restricted Stock granted to you under the 2012 Stock Plan (the “Plan”), pursuant to the Restricted Stock Award Agreement (the “Agreement”) to which this document is attached. Capitalized terms that are used in this document, but are not defined, shall have the meanings ascribed to them in the Plan or the attached Agreement. See Section 21 for a list of defined terms.
1.Award of Restricted Stock. SUPERVALU INC. (the “Company”) hereby grants to you an Award of Restricted Stock for the number of Shares set forth in the attached Agreement. Until such Shares vest as provided in the Agreement and these Terms and Conditions, they shall be referred to as “Restricted Shares.” The Award is effective as of the Grant Date.
2.    Rights with Respect to the Restricted Shares. With respect to the Restricted Shares, you shall be entitled to exercise the rights of a stockholder of the Company’s Common Stock, $0.01 par value (the “Common Stock”), including the right to vote the Restricted Shares and the right to receive cash dividends thereon as provided in Section 9 hereof, unless and until the Restricted Shares are forfeited pursuant to Section 5 hereof. Your rights with respect to the Restricted Shares shall remain forfeitable and subject to the restrictions of Sections 6 and 9 below at all times prior to the date on which such Restricted Shares vest, and the restrictions with respect to the Restricted Shares lapse, in accordance with Section 3, Section 4 or Section 5 hereof.
3.    Vesting. Except as otherwise provided below in these Terms and Conditions, the Restricted Shares shall vest in full and the restrictions on the Restricted Shares shall lapse on the date(s) and in the amount(s) set forth in the attached Agreement if you remain continuously employed by the Company or any of its Affiliates until the applicable vesting date(s) or until such earlier time(s) as may be provided in Sections 4 or 5 below.
4.    Change of Control.
a)
If, within two (2) years after a Change of Control, you experience an involuntary termination of employment initiated by the Company for reasons other than Cause, or a termination of employment for Good Reason, then you shall become immediately and unconditionally vested in all the Restricted Shares and the restrictions with respect to all the Restricted Shares shall lapse. If this Award of Restricted Stock is replaced pursuant to subsection (c) below, the protections and rights granted under this subsection (a) shall transfer and apply to such replacement grant.
b)
If, in the event of a Change of Control, and to the extent this Award of Restricted Stock is not assumed by a successor corporation (or affiliate thereto) or other successor entity or person, or replaced with an award or grant that, solely in the discretionary judgment of the Committee preserves the existing value of this Award of Restricted Stock at the time of the Change of Control, then you shall become immediately and unconditionally vested in all the Restricted Shares and the restrictions with respect to all the Restricted Shares shall lapse upon the Change of Control.
c)
If in the event of a Change of Control and to the extent that this Award of Restricted Stock is assumed by any successor corporation, affiliate thereof, person or other entity, or is replaced with awards that, solely in the discretionary judgment of the Committee preserve the existing value of this Award of Restricted Stock at the time of the Change of Control and provide for vesting and settlement terms that are at least as favorable to you as the vesting and payout terms applicable to this Award of Restricted Stock, then the assumed Award of Restricted Stock or such substitute therefor shall remain outstanding and be governed by its respective terms.  
5.    Effect of Termination of Employment. If you cease to be an employee of the Company and its Affiliates prior to the vesting of the Restricted Shares pursuant to Section 3 and the Agreement for any reason, other than pursuant to Section 4 or the following terms of this Section 5, then your rights to all of the unvested Restricted Shares shall be immediately and irrevocably forfeited, including the right to vote such Restricted Shares and the right to receive cash dividends on such Restricted Shares.
a)
Death. If your death occurs while you are employed by the Company or an Affiliate, the unvested portion of the Restricted Shares shall immediately vest in full.

b)
Disability. If your employment terminates as a result of a Disability, the unvested portion of the Restricted Shares shall immediately vest in full. You shall be considered subject to a “Disability” for these purposes if you suffer from a medically determinable physical or mental impairment that renders you incapable of performing any substantial gainful employment, and is evidenced by a certification to such effect by a doctor of medicine approved by the Company. In lieu of such




certification, the Company shall accept, as proof of permanent disability, your eligibility for long-term disability payments under the applicable Long-Term Disability Plan of the Company.

c)
Change in Duties/Leave of Absence. The Restricted Shares shall not be affected by any change of your duties or position or by a temporary leave of absence approved by the Company so long as you continue to be an employee of the Company or of an Affiliate.

d)
Cause Termination. Notwithstanding anything in the Agreement or the Terms and Conditions to the contrary, all Restricted Shares shall be terminated and forfeited immediately upon your termination of employment for Cause.

e)
Other Exceptions. The Committee may determine to accelerate the vesting of the Restricted Shares if you cease to be an employee of the Company and its Affiliates prior to the vesting of the Restricted Shares pursuant to the Agreement and Sections 3, 4 or 5 hereof for any reason.
6.    Restrictions on Transfer. Except as may otherwise be determined by the Committee, and except for transfer by will or the laws of descent and distribution in connection with Section 5(a) above, until the Restricted Shares vest pursuant to Section 3, Section 4 or Section 5 hereof, none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of or encumbered by you, and no attempt to transfer the Shares, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to the Shares. No transfer by will or the applicable laws of descent and distribution of any Restricted Shares which vest by reason of your death shall be effective to bind the Company unless the Committee administering the Plan shall have been furnished with written notice of such transfer and a copy of the will or such other evidence as the Committee may deem necessary to establish the validity of the transfer.
7.    Issuance and Custody of Restricted Shares.
a)
The Company shall, at its option, cause the Restricted Shares to be issued in book entry registration, in your name, or in the form of a certificate registered in your name, which certificate shall be held by the Company. The Restricted Shares shall be restricted from transfer and shall be subject to an appropriate stop-transfer order. If any certificate is issued, the certificate shall bear an appropriate legend referring to the restrictions applicable to the Restricted Shares.
b)
If any certificate is issued, you shall be required to execute and deliver to the Company a stock power relating to the Restricted Shares as a condition to the receipt of this Award of Restricted Stock.
c)
After Restricted Shares vest pursuant to Section 3, Section 4 or Section 5 hereof, and following payment of the applicable withholding taxes pursuant to Section 8 hereof, the Company shall promptly cause such vested Shares (less any Shares withheld to pay taxes), free of the restrictions and/or legend described in Section 7(a) hereof, to be delivered as follows:
1)
in the form of a stock certificate or certificates, registered in your name or in the name(s) of your legal representatives, beneficiaries or heirs, as the case may be;
2)
in “book entry” form, that is, registered with the Company’s stock transfer agent, in your name or in the name(s) of your legal representatives, beneficiaries or heirs, as the case may be, with a notice of issuance provided to you or such transferee(s); or
3)
sent by electronic delivery to your brokerage account.
Only whole Shares shall be issued pursuant to this Award. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share.
8.    Taxes.
a)
You acknowledge that you will consult with your personal tax advisor regarding the income tax consequences of the Award of Restricted Stock (including the advisability of making the election described in Section 8(b) below), the receipt of any payment of cash dividends, the vesting of the Restricted Shares and any other matters related to the Terms and Conditions and the attached Agreement. In order to comply with all applicable federal or state income, social security, payroll, withholding or other tax laws or regulations, the Company may take such action, and may require you to take such action, as it deems appropriate to ensure that all applicable federal or state income, social




security, payroll, withholding or other taxes, which are your sole and absolute responsibility, are withheld or collected from you.
b)
You may make and file with the Internal Revenue Service an election under Section 83(b) of the Internal Revenue Code with respect to the grant of the Restricted Shares hereunder, electing to include in your gross income as of the Grant Date the Fair Market Value of the Restricted Shares as of the Grant Date. You shall promptly provide a copy of any such election to the Company. If you make and file such an election, you shall make such arrangements as are satisfactory to the Company to provide for the timely payment of all applicable withholding taxes.
c)
In accordance with the terms of the Plan, and such rules as may be adopted by the Committee administering the Plan, you may elect to satisfy any applicable federal or state income tax withholding obligations arising from the vesting of, and the lapse of restrictions relating to, the Restricted Shares by (i) having the Company withhold a portion of the Shares otherwise to be delivered by you upon such vesting having a Fair Market Value equal to the amount of taxes required to be withheld on such vesting, or (ii) delivering to the Company shares of Common Stock, other than the Shares issuable upon such vesting, having a Fair Market Value equal to the amount of taxes required to be withheld on such vesting. You may elect to satisfy any tax withholding obligations arising prior to the vesting of any Restricted Shares pursuant to Section 3, Section 4 or Section 5 hereof by delivering to the Company shares of Common Stock other than the Shares issuable upon such vesting having a Fair Market Value equal to the amount of taxes required to be withheld.
9.    Distributions and Adjustments.
a)
If any Restricted Shares vest subsequent to any change in the number or character of the Common Stock through any recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event that affects the Restricted Shares covered by this Award of Restricted Stock, you shall then receive upon such vesting the number and type of securities or other consideration which you would have received if such Shares had vested prior to the event changing the number or character of the outstanding Common Stock. Any such securities or other consideration shall be subject to Section 9(b) below pending vesting of the underlying Restricted Shares.
b)
Any additional shares of Common Stock, any other securities of the Company and any other property (except for cash dividends or other cash distributions) distributed with respect to the Restricted Shares prior to the date the Restricted Shares vest shall be subject to the same restrictions, terms and conditions as the Restricted Shares and shall be promptly deposited with the Secretary of the Company or the custodian designated by the Secretary to be held in custody in accordance with Section 7(a) hereof. Any cash dividends or other cash distributions payable with respect to the Restricted Shares shall be distributed to you at the same time cash dividends or other cash distributions are distributed to stockholders of the Company generally.
10.    Recovery Rights. If your employment with the Company and its Affiliates is terminated for Cause, or if you breach any of the covenants contained in Section 11 below, any Restricted Shares shall immediately be forfeited and the Company shall have the right to recover any Shares received by you in connection with any vesting of Restricted Shares that occurred within six (6) months prior to the date on which your employment with the Company and its Affiliates ended, or at any time thereafter. The Company may exercise its rights to recover the Shares by depositing in the United States mail a written notice addressed to you at the latest mailing address for you on the records of the Company within thirty (30) days following the termination of your employment for the recovery of Shares attributable to Restricted Shares that vested prior to any termination for Cause, and within thirty (30) days after the Company’s discovery of any breach of the covenants contained in Section 11. Within thirty (30) days after the mailing of such notice, you shall deliver to the Company the number of Shares specified by the Company in the notice. If you have disposed of the Shares, then in lieu of delivering the specified number of Shares to the Company, you must pay to the Company the fair market value of the Shares, determined at the time of the disposition, exclusive of any taxes due and payable or commissions or fees arising from such disposition.
11.    Employee Covenants. In consideration of benefits described elsewhere in these Terms and Conditions and the attached Agreement, and in recognition of the fact that, as a result of your employment with the Company or any of its Affiliates, you have had or will have access to and gain knowledge of highly confidential or proprietary information or trade secrets pertaining to the Company or its Affiliates, as well as the customers, suppliers, joint ventures, licensors, licensees, distributors or other persons and entities with whom the Company or any of its Affiliates does business (“Confidential Information”), which the Company or its Affiliates have expended time, resources and money to obtain or develop and which have significant value to the Company and its Affiliates, you agree for the benefit of the Company and its Affiliates, and as a




material condition to your receipt of benefits described elsewhere in these Terms and Conditions and the attached Agreement, as follows:
a)
Non-Disclosure of Confidential Information. You acknowledge that you will receive access or have received access to Confidential Information about the Company or its Affiliates, that this information was obtained or developed by the Company or its Affiliates at great expense and is zealously guarded by the Company and its Affiliates from unauthorized disclosure, and that your possession of this special knowledge is due solely to your employment with the Company or one or more of its Affiliates. In recognition of the foregoing, you will not at any time during employment or following termination of employment for any reason, disclose, use or otherwise make available to any third party, any Confidential Information relating to the Company’s or any Affiliate’s business, products, services, customers, vendors or suppliers; trade secrets, data, specifications, developments, inventions and research activity; marketing and sales strategies, information and techniques; long and short term plans; existing and prospective client, vendor, supplier and employee lists, contacts and information; financial, personnel and information system information and applications; and any other information concerning the business of the Company or its Affiliates which is not disclosed to the general public or known in the industry, except for disclosure necessary in the course of your duties or with the express written consent of the Company. All Confidential Information, including all copies, notes regarding and replications of such Confidential Information will remain the sole property of the Company or its Affiliates, as applicable, and must be returned to the Company or such Affiliates immediately upon termination of your employment.
b)
Return of Property. Upon termination of employment with the Company or any of its Affiliates, or at any other time at the request of the Company, you shall deliver to a designated Company representative all records, documents, hardware, software and all other property of the Company or its Affiliates and all copies of such property in your possession. You acknowledge and agree that all such materials are the sole property of the Company or its Affiliates and that you will certify in writing to the Company at the time of delivery, whether upon termination or otherwise, that you have complied with this obligation.
c)
Non-Solicitation of Existing or Prospective Customers, Vendors, and Suppliers. You specifically acknowledge that the Confidential Information described in Section 11(a) includes confidential data pertaining to existing and prospective customers, vendors and suppliers of the Company or its Affiliates; that such data is a valuable and unique asset of the business of the Company or its Affiliates; and that the success or failure of their businesses depends upon their ability to establish and maintain close and continuing personal contacts and working relationships with such existing and prospective customers, vendors and suppliers and to develop proposals which are specific to such existing and prospective customers, vendors and suppliers. Therefore, during your employment with the Company or any of its Affiliates and for the twelve (12) months following termination of employment for any reason, you agree that you will not, except on behalf of the Company or its Affiliates, or with the Company’s express written consent, solicit, approach, contact or attempt to solicit, approach or contact, either directly or indirectly, on your own behalf or on behalf of any other person or entity, any existing or prospective customers, vendors or suppliers of the Company or its Affiliates with whom you had contact or about whom you gained Confidential Information during your employment with the Company or its Affiliates for the purpose of obtaining business or engaging in any commercial relationship that would be competitive with the “Business of the Company” (as defined below in Section 11(e)(i)) or cause such customer, supplier or vendor to materially change or terminate its business or commercial relationship with the Company or its Affiliates.
d)
Non-Solicitation of Employees. You specifically acknowledge that the Confidential Information described in Section 11(a) also includes confidential data pertaining to employees and agents of the Company or its Affiliates, and you further agree that during your employment with the Company or its Affiliates and for the twelve (12) months following termination of employment for any reason, you will not, directly or indirectly, on your own behalf or on behalf of any other person or entity, solicit, contact, approach, encourage, induce or attempt to solicit, contact, approach, encourage or induce any of the employees or agents of the Company or its Affiliates to terminate their employment or agency with the Company or any of its Affiliates.
e)
Non-Competition. You covenant and agree that during your employment with the Company or any of its Affiliates and for the twelve (12) months following termination of employment for any reason, you will not, in any geographic market in which you worked on behalf of the Company or any of its Affiliates, or for which you had any sales, marketing, operational, logistical or other management or oversight responsibility, engage in or carry on, directly or indirectly, as an owner, employee, agent, associate, consultant, partner or in any other capacity, a business competitive with the Business of the Company.




i)
The “Business of the Company” shall mean any business or activity involved in grocery or general merchandise retailing and supply chain logistics, including but not limited to grocery distribution, business-to-business portal, retail support services and third-party logistics, of the type provided by the Company or its Affiliates, or presented in concept to you by the Company or its Affiliates at any time during your employment with the Company or any of its Affiliates.
ii)
To “engage in or carry on” shall mean to have ownership in such business (excluding ownership of up to one percent (1%) of the outstanding shares of a publicly-traded company) or to consult, work in, direct or have responsibility for any area of such business, including but not limited to operations, logistics, sales, marketing, finance, recruiting, sourcing, purchasing, information technology or customer service.
f)
No Disparaging Statements. You agree that you will not make any disparaging statements about the Company, its Affiliates, directors, officers, agents, employees, products, pricing policies or services.
g)
Remedies for Breach of These Covenants. Any breach of the covenants in this Section 11 likely will cause irreparable harm to the Company or its Affiliates for which money damages could not reasonably or adequately compensate the Company or its Affiliates. Accordingly, the Company or any of its Affiliates shall be entitled to all forms of injunctive relief (whether temporary, emergency, preliminary, prospective or permanent) to enforce such covenants, in addition to damages and other available remedies, and you consent to the issuance of such an injunction without the necessity of the Company or any such Affiliate posting a bond or, if a court requires a bond to be posted, with a bond of no greater than $500 in principal amount. In the event that injunctive relief or damages are awarded to Company or any of its Affiliates for any breach by you of this Section 11, you further agree that the Company or such Affiliate shall be entitled to recover its costs and attorneys’ fees necessary to obtain such recovery. In addition, you agree that upon your breach of any covenant in this Section 11, the unvested portion of this Award of Restricted Stock shall be immediately and irrevocably forfeited and the Company shall have the right to exercise any and all of the rights described above, including the provisions articulated in Section 10.
h)
Enforceability of These Covenants. It is further agreed and understood by you and the Company that if any part, term or provision of these Terms and Conditions and the attached Agreement should be held to be unenforceable, invalid or illegal under any applicable law or rule, the offending term or provision shall be applied to the fullest extent enforceable, valid or lawful under such law or rule, or, if that is not possible, the offending term or provision shall be struck and the remaining provisions of these Terms and Conditions and the attached Agreement shall not be affected or impaired in any way.
12. Arbitration. You and the Company agree that any controversy, claim or dispute arising out of or relating to the attached Agreement or the breach of any of these Terms and Conditions, or arising out of or relating to your employment relationship with the Company or any of its Affiliates, or the termination of such relationship, shall be resolved by final and binding arbitration under the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association, or other neutral arbitrator and rules as mutually agreed to by you and the Company, except for claims by the Company relating to your alleged breach of any of the employee covenants set forth in Section 11 above. This agreement to arbitrate specifically includes, but is not limited to, discrimination claims under Title VII of the Civil Rights Act of 1964 and under state and local laws prohibiting employment discrimination. Nothing in this Section 12 shall preclude the Company from pursuing a court action to obtain a temporary restraining order or a preliminary injunction relating to the alleged breach of any of the covenants set forth in Section 11. The agreement to arbitrate shall continue in full force and effect despite the forfeiture of this Award of Restricted Stock or the termination of your employment relationship with the Company or any of its Affiliates. You and the Company agree that any award rendered by the arbitrator must be in writing and include the findings of fact and conclusions of law upon which it is based, shall be final and binding, and that judgment upon the final award may be entered in any court having jurisdiction thereof. The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, including any remedy or relief that would have been available to you or the Company or any of its Affiliates had the matter been heard in court. All expenses of arbitration, including the required travel and other expenses of the arbitrator and any witnesses, and the costs relating to any proof produced at the direction of the arbitrator, shall be borne equally by you and the Company unless otherwise mutually agreed or unless the arbitrator directs otherwise in the award. The arbitrator’s compensation shall be borne equally by you and the Company unless otherwise mutually agreed or the law provides otherwise.
13. Severability. In the event that any portion of these Terms and Conditions and the attached Agreement shall be held to be invalid, the same shall not affect in any respect whatsoever the validity and enforceability of the remainder of these Terms and Conditions and the attached Agreement.




14. Interpretations. These Terms and Conditions and the attached Agreement are subject in all respects to the Plan. A copy of the Plan is available upon your request. In the event that any provision of these Terms and Conditions or the attached Agreement is inconsistent with the terms of the Plan, the terms and provisions of the Plan shall govern. Any question of administration or interpretation arising under these Terms and Conditions or the attached Agreement shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.
15. No Right to Employment. Nothing in these Terms and Conditions, the attached Agreement or the Plan shall be construed as giving you the right to be retained as an employee of the Company. In addition, the Company may at any time dismiss you from employment, free from any liability or any claim under these Terms and Conditions or the attached Agreement, unless otherwise expressly provided in these Terms and Conditions or the attached Agreement.
16. Compensation. Any compensation realized from the receipt or vesting of this Award of Restricted Stock shall constitute a special long-term incentive payment to you and whether or not it is taken into account as compensation in determining the amount of any benefit under any retirement or other employee benefit plan of the Company or any of its Affiliates will be determined solely under the terms of those benefit plans.
17. Securities Matters. The Company shall not be required to deliver any vested Shares subject to this Award until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied.
18. Headings. Headings are given to the sections and subsections of these Terms and Conditions and the attached Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of these Terms and Conditions or the attached Agreement or any provision hereof or thereof.
19. Governing Law. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of these Terms and Conditions and the attached Agreement.
20. Notices. For purpose of these Terms and Conditions and the attached Agreement, notices and all other communications provided for in the Agreement, these Terms and Conditions or contemplated by either shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed via United States certified or registered mail, return receipt requested, postage prepaid, and addressed, in the case of the Company, to the Company at:
P.O. Box 990
Minneapolis, MN 55440
Attention: Corporate Secretary
and in the case of you, to you at the most current address shown on your employment records. Either party may designate a different address by giving notice of change of address in the manner provided above, except that notices of change of address shall be effective only upon receipt.
a)
Notice of Termination by Company. Any purported termination of employment of you by the Company (whether for Cause or without Cause) shall be communicated by a Notice of Termination to you. No purported termination of employment of you by the Company shall be effective without a Notice of Termination having been given.
b)
Good Reason Notice by You. Any purported termination of employment by you for Good Reason shall be communicated by a Notice of Termination to the Company or successor. Your termination of employment will not be for Good Reason unless (i) you give the Company written notice of the event or circumstance which you claim is the basis for Good Reason within ninety (90) days of such event or circumstance first occurring and (ii) the Company is given thirty (30) days from its receipt of such notice within which to cure or resolve the event or circumstance so noticed. If the circumstance is cured or resolved within said thirty (30) days, your termination of employment will not be for Good Reason.
21. Definitions. The following terms, and terms derived from the following terms, shall have the following meanings when used in these Terms and Conditions or the attached Agreement with initial capital letters unless, in the context, it would be unreasonable to do so.
a)
Cause shall mean:     




i)
your continued failure to perform your duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Board or an officer of the Company which specifically identifies the manner in which the Board or the officer believes that you have not substantially performed your duties;
ii)
the conviction of, or plea of guilty or nolo contendere to, a felony or the willful engaging by you in conduct which is materially and demonstrably injurious to the Company;
iii)
your commission of a material act or material acts of personal dishonesty intended to result in your substantial personal enrichment at the expense of the Company; or
iv)
your material violation of Company policies relating to Code of Business Conduct, Equal Employment Opportunities and Harassment or Workplace Violence;
provided, however, that in no event shall Cause exist by virtue of any action taken by you (A) in compliance with express written directions of the Board, the Company's Chief Executive Officer or the officer to whom you report, or (B) in reliance upon the express written consent of the Company's counsel.
In each case above, for a termination of employment to be for Cause, you must be provided with a Notice of Termination (as described in Section 20(a)) within six (6) months after the Company has actual knowledge of the act or omission constituting Cause. Whether a termination of employment is for Cause as provided above will be determined by the Company in its sole discretion based on all the facts and circumstances. For purposes hereof, the term “Company” shall include an Affiliate.
b)
Change of Control shall be deemed to have occurred upon any of the following events:
i)
the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of beneficial ownership (within the meaning of Rule 13d‑3 promulgated under the Exchange Act) of more than fifty percent (50%) of either (A) the then outstanding shares of Common Stock or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company;
ii)
the consummation of any merger or other business combination of the Company, sale or lease of all or substantially all of the Company's assets or combination of the foregoing transactions (the "Transactions") other than a Transaction immediately following which the stockholders of the Company and any trustee or fiduciary of any Company employee benefit plan immediately prior to the Transaction own at least sixty percent (60%) of the voting power, directly or indirectly, of (A) the surviving corporation in any such merger or other business combination; (B) the purchaser or lessee of the Company's assets or (C) both the surviving corporation and the purchaser or lessee in the event of any combination of Transactions; or
iii)
within any 24‑month period, the persons who were directors immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of a successor to the Company. For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least three‑fourths of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
c)
Change of Control Date shall mean the date on which a Change of Control occurs.
d)
Good Reason shall mean any one (1) or more of the following events occurring during the two-year period following the Change of Control Date:
i)
your annual base salary is reduced below the amount in effect on the Change of Control Date;
ii)
your Target Bonus is reduced below the Target Bonus as it existed on the Change of Control Date;
iii)
your title is reduced from the title that you had on the Change of Control Date, or your duties and responsibilities are materially and adversely diminished in comparison to the duties and responsibilities that you had on the Change of Control Date other than in a general reduction of the number or scope of personnel for which you are responsible for supervising which reduction occurs in connection with a restructuring or recapitalization of the Company or the division of the Company in which you work;





iv)
the program of long term incentive compensation is materially and adversely diminished in comparison to the program of long term incentive compensation as it existed for you on the Change of Control Date (for purposes of this clause (iv), a reduction of fifteen percent (15%) or more of the target dollar amount of your long term incentive compensation as it existed for you on the Change of Control Date based on your most recent award of long term incentive compensation prior to the Change of Control Date shall be considered to be material and adverse); or
v)
you are required to be based at a location more than forty-five (45) miles from the location where you were based and performed services on the Change of Control Date;
provided, however, that any diminution of duties or responsibilities that occurs solely as a result of the fact that the Company ceases to be a public company or that the size of the Company has been reduced as a result of the Change of Control shall not, in and of itself, constitute Good Reason.
e)
Notice of Termination shall mean a written notice which shall indicate the specific provision in these Terms and Conditions relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for your termination of employment under the provisions so indicated.
f)
Target Bonus shall mean the target amount of bonus established under the annual bonus plan for you for the year in which the termination of employment occurs. When the context requires, it shall also mean the target amount of bonus established for any earlier or later year.

Original Approval:





Exhibit 10.3

SUPERVALU INC.
2012 STOCK PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
This agreement is made and entered into as of the grant date indicated below (the “Grant Date“), by and between SUPERVALU INC. (the “Company”), and the individual whose name appears below (“Recipient”).
The Company has established the 2012 Stock Plan (the “Plan”), under which key employees of the Company and its Affiliates may be granted Awards of Restricted Stock Units. Recipient has been selected by the Company to receive an Award of Restricted Stock Units subject to the provisions of this agreement. Capitalized terms that are used in this agreement, that are not defined, shall have the meanings ascribed to them in the Plan.
In consideration of the foregoing, the Company and Recipient hereby agree as follows:
1. Grant. The Company hereby grants to Recipient, subject to Recipient’s acceptance hereof, an Award of the number of Restricted Stock Units indicated below, effective as of the Grant Date. Each Restricted Stock Unit represents the right to receive one Share of the Company’s Common Stock, $0.01 par value (the “Common Stock”), following the vesting of the Restricted Stock Unit.
2. Acceptance of Award of Restricted Stock Units and Restricted Stock Unit Award Terms and Conditions. The Award of Restricted Stock Units is subject to and governed by the Restricted Stock Unit Award Terms and Conditions (“Terms and Conditions”) attached hereto, which is incorporated herein and made a part hereof, and the terms and provisions of the Plan. To accept the Award of Restricted Stock Units, this agreement must be delivered and accepted through an electronic medium in accordance with procedures established by the Company, or Recipient must sign and return a copy of this agreement to the Company within sixty (60) days after the Grant Date. By so doing, Recipient acknowledges receipt of the accompanying Terms and Conditions and the Plan, and represents that Recipient has read and understands the same and agrees to be bound by the accompanying Terms and Conditions and the terms and provisions of the Plan. In the event that any provision of this agreement or the accompanying Terms and Conditions is inconsistent with the terms and provisions of the Plan, the terms and provisions of the Plan shall govern. Any question of administration or interpretation arising under this agreement or the accompanying Terms and Conditions shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.
3. Vesting. Except as otherwise provided in the accompanying Terms and Conditions, this Restricted Stock Unit Award shall vest according to the schedule below.


Award Number:    RSU_NUMBER -
Grant Date:        GRANT_DATE,’Month DD, YYYY’ -
Vesting Schedule:    SHARES_PERIOD1,’999,999,999’ - units will vest on VEST_DATE_PERIOD1 -
SHARES_PERIOD2,’999,999,999’- units will vest on VEST_DATE_PERIOD2 -
SHARES_PERIOD3,’999,999,999’- units will vest on VEST_DATE_PERIOD3 -


SUPERVALU INC.        RECIPIENT:
SUPERVALU INC.
 
RECIPIENT:
 
 
 
 
 
 
 
 
By:
 
 
 
 
Michele A. Murphy
 
FIRST_NAME_MIDDLE_NAME_LAST_NAME
 
Executive Vice President
 
EMPLOYEE_IDENTIFIER
 
Human Resources & Corporate Communications
 
 





SUPERVALU INC.
2012 STOCK PLAN

RESTRICTED STOCK UNIT AWARD TERMS AND CONDITIONS
(For employees)

These Restricted Stock Unit Award Terms and Conditions (“Terms and Conditions”) apply to the Award of Restricted Stock Units granted to you under the 2012 Stock Plan (the “Plan”) pursuant to the Restricted Stock Unit Award Agreement (the “ Agreement”) to which this document is attached. Capitalized terms that are used in this document, but are not defined, shall have the meanings ascribed to them in the Plan or the attached Agreement. See Section 19 for a list of defined terms.

1.Vesting and Rights. Except as otherwise provided below in these Terms and Conditions, you shall vest in the Restricted Stock Units on the date or dates and in the amount or amounts set forth in the attached Agreement if you remain continuously employed by the Company or any of its Affiliates until the respective vesting dates, or until such earlier time or times as may be provided in Sections 4 or 6 below. The Restricted Stock Units granted pursuant to the attached Agreement do not and shall not give you any of the rights and privileges of a holder of Common Stock. Your rights with respect to the Restricted Stock Units shall remain forfeitable at all times prior to the date or dates on which such Units become vested and the restrictions with respect to the Restricted Stock Units lapse in accordance with the Agreement, this Section 1 and Sections 4 and 6 of these Terms and Conditions.    
2.    Delivery of Shares. No Shares of Common Stock shall be issued to you prior to the date on which the applicable Restricted Stock Units vest, in accordance with the terms and conditions of the attached Agreement and these Terms and Conditions. Furthermore, and except as otherwise provided in Sections 4(e) and 4(f), each Share of Common Stock to be issued to you in settlement of a Restricted Stock Unit shall be issued promptly after, but in no event later than sixty (60) calendar days after, the applicable Restricted Stock Unit vests, provided payment of the applicable withholding taxes pursuant to Section 3 hereof has been made. The Company shall cause such Shares (less any Shares withheld to pay taxes) to be delivered to you, free of any restrictions, as follows:
a)
In the form of a stock certificate registered in your name or your name and the name of another adult person (twenty-one (21) years of age or older) as joint tenants, and mailed to your address;
b)
In “book entry” form, that is, registered with the Company’s stock transfer agent, in your name or your name and the name of another adult person (twenty-one (21) years of age or older) as joint tenants, with a notice of issuance provided to you; or
c)
sent by electronic delivery to your brokerage account.
Only whole Shares of Common Stock shall be issued to you pursuant to this Agreement. The Company will not deliver any fractional Share but will pay, in lieu thereof, the Fair Market Value of such fractional Share.
3.    Taxes
a)
You acknowledge that you will consult with your personal tax advisor regarding the income tax consequences of the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units and the receipt of Shares in settlement of the Restricted Stock Units and any other matters related to the Terms and Conditions and the attached Agreement. In order to comply with all applicable federal or state income, social security, payroll, withholding or other tax laws or regulations, the Company may take such action, and may require you to take such action, as it deems appropriate to ensure that all applicable federal or state income, social security, payroll, withholding or other taxes, which are your sole and absolute responsibility, are withheld or collected from you.
b)
You acknowledge that you are responsible for the payment of any federal, state, local or other taxes that are required to be withheld by the Company upon vesting or settlement of the Restricted Stock Units, and authorize the Company to withhold from other compensation owed to you an amount or amounts sufficient to pay such taxes. In order to satisfy any applicable federal, state, local or other taxes that are required to be withheld in connection with the settlement of Restricted Stock Units, the Company shall withhold a portion of the Shares otherwise to be issued following vesting of the Restricted Stock Units having a Fair Market Value as of the settlement date equal to the amount of federal and state income tax required to be withheld upon such settlement (commonly referred to as a “Tax Swap” or “Stock for Tax”).
4.    Change of Control





a)
If, within two (2) years after a Change of Control, you experience an involuntary termination of employment initiated by the Company for reasons other than Cause, or a termination of employment for Good Reason, the unvested portion of the Restricted Stock Units shall immediately vest. If the Restricted Stock Units are replaced pursuant to subsection (d) below, the protections and rights granted under this subsection (a) shall transfer and apply to such replacement grant.
b)
If, in the event of a Change of Control, and to the extent the Restricted Stock Units are not assumed by a successor corporation (or affiliate thereto) or other successor entity or person, or replaced with an award or grant that, solely in the discretionary judgment of the Committee preserves the existing value of the Restricted Stock Units at the time of the Change of Control, then the unvested portion of the Restricted Stock Units shall immediately vest.
c)
In the discretion of the Committee and notwithstanding subsections (a) or (b) above or any other provision, the Committee may fully vest the Restricted Stock Units at the time of a Change of Control and deliver in exchange therefor cash, property or a combination thereof that is determined by the Committee to be at least equal to the value of the consideration that would be received in such Change of Control by the holders of Common Stock. The Committee is under no obligation to treat Recipients of Restricted Stock Units uniformly and has the discretionary authority to treat Recipients disparately.
d)
In the event of a Change of Control and to the extent that the Restricted Stock Units are assumed by any successor corporation, affiliate thereof, person or other entity, or are replaced with awards that, solely in the discretionary judgment of the Committee, preserve the existing value of the Restricted Stock Units at the time of the Change of Control and provide for vesting terms that are at least as favorable to you as the vesting terms applicable to the Restricted Stock Units, then the assumed Restricted Stock Units or such substitute therefore shall remain outstanding and be governed by its respective terms.
e)
Notwithstanding anything in this Section 4 to the contrary, if your right to receive payment of the Restricted Stock Units constitutes a “deferral of compensation” subject to Code Section 409A, and if the application of the other provisions of this Section 4 would cause a violation of such Code section, then the unvested portion of your Restricted Stock Units shall immediately vest at the time of the Change of Control and issuance and delivery of Shares in settlement of such Restricted Stock Units shall occur after such vesting no later than sixty (60) calendar days after the earliest of: (i) such vesting date if the Change of Control also constitutes a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Code Section 409A, (ii) your “separation from service” with the Company within the meaning of Code Section 409A, or (iii) the applicable vesting date or dates set forth in the attached Agreement.
f)
If the Restricted Stock Units become payable as a result of clause (ii) of subsection 4(e) and if you are a “specified employee” within the meaning of Code Section 409A (as determined in accordance with the Company’s policy for identifying specified employees) on the date of your separation from service, then the issuance and delivery of Shares in settlement of the Restricted Stock Units shall be made to you no later than sixty (60) calendar days after the first business day that is six months after the date of your separation from service (or if your death occurs during such six month period, within sixty (60) calendar days after your death).
5.    Transferability. The Restricted Stock Units shall not be transferable. More particularly, the Restricted Stock Units may not be assigned, transferred, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Restricted Stock Units contrary to these provisions, or the levy of an execution, attachment or similar process upon the Restricted Stock Units, shall be void.
6.    Effect of Termination of Employment. If you cease to be an employee of the Company and its Affiliates prior to the vesting of the Restricted Stock Units pursuant to Section 1 and the Agreement for any reason, other than pursuant to Section 4 or the following terms of this Section 6, then your rights to all of the unvested Restricted Stock Units shall be immediately and irrevocably forfeited.
a)
Death. If your death occurs while you are employed by the Company or an Affiliate, the unvested portion of the Restricted Stock Units shall immediately vest in full.

b)
Disability. If your employment terminates as a result of a permanent disability, the unvested portion of the Restricted Stock Units shall immediately vest in full. You shall be considered permanently disabled for these purposes if you suffer from a medically determinable physical or mental impairment that renders you incapable of performing any substantial gainful employment, and is evidenced by a certification to such effect by a doctor of medicine approved by the Company. In lieu of such certification, the Company shall accept, as proof of permanent disability, your eligibility for long-term disability payments under the applicable Long-Term Disability Plan of the Company. Notwithstanding anything in this Section 6(b) to the contrary, if your right to receive payment of the Restricted Stock Units constitutes a “deferral of




compensation” subject to Code Section 409A, your Restricted Stock Units shall immediately vest in full upon your disability. Solely for purposes of the preceding sentence, “disability” shall have the meaning set forth in Treasury Regulation 1.409A-3(i)(4).

c)
Change in Duties/Leave of Absence. The Restricted Stock Units shall not be affected by any change of your duties or position or by a temporary leave of absence approved by the Company so long as you continue to be an employee of the Company or of an Affiliate. The foregoing provisions shall not apply, however, if your right to receive payment of the Restricted Stock Units constitutes a “deferral of compensation” subject to Code Section 409A and your change in duties or position or temporary leave of absence would be considered a “separation from service” within the meaning of Code Section 409A. In such circumstances, you will be deemed to have ceased employment with the Company and its Affiliates and the other provisions of these Terms and Conditions and the provisions of the Agreement shall control.

d)
Cause Terminations. Notwithstanding anything in the Agreement or the Terms and Conditions to the contrary, all Restricted Stock Units shall be terminated and forfeited immediately upon your termination of employment for Cause.

e)
Other Exceptions. The Committee may determine to accelerate the vesting of the Restricted Stock Units if you cease to be an employee of the Company and its Affiliates prior to the vesting of the Restricted Stock Units pursuant to the Agreement and Sections 1, 4 or 6 hereof for any reason; provided, however, that if your right to receive payment of the Restricted Stock Units constitutes a “deferral of compensation” subject to Code Section 409A, no such acceleration will be permitted if the result of such acceleration would cause a violation of Code Section 409A, and in such case the other provisions of these Terms and Conditions and the provisions of the Agreement shall control.

7.    Recovery Rights. If your employment with the Company and its Affiliates is terminated for Cause, or if you breach any of the covenants contained in Section 8 below, the Company shall have the right to recover any Shares received by you in connection with any settlement of Restricted Stock Units that occurred within six (6) months prior to the date on which your employment with the Company and its Affiliates ended, or at any time thereafter. The Company may exercise its rights to recover the Shares by depositing in the United States mail a written notice addressed to you at the latest mailing address for you on the records of the Company within thirty (30) days following the termination of your employment for the recovery of Shares attributable to Restricted Stock Units that settled prior to any termination for Cause, and within thirty (30) days after the Company’s discovery of any breach of the covenants contained in Section 8. Within thirty (30) days after the mailing of such notice, you shall deliver to the Company the number of Shares specified by the Company in the notice. If you have disposed of the Shares, then in lieu of delivering the specified number of Shares to the Company, you must pay to the Company the fair market value of the Shares, determined at the time of the disposition, exclusive of any taxes due and payable or commissions or fees arising from such disposition. If the Company exercises its recovery rights prior to the actual issuance and delivery to you of any such Shares, no Shares need be issued or recovered. Rather, you shall immediately forfeit any rights to such Shares.

8.    Employee Covenants. In consideration of benefits described elsewhere in these Terms and Conditions and the attached Agreement, and in recognition of the fact that, as a result of your employment with the Company or any of its Affiliates, you have had or will have access to and gain knowledge of highly confidential or proprietary information or trade secrets pertaining to the Company or its Affiliates, as well as the customers, suppliers, joint ventures, licensors, licensees, distributors or other persons and entities with whom the Company or any of its Affiliates does business (“Confidential Information”), which the Company or its Affiliates have expended time, resources and money to obtain or develop and which have significant value to the Company and its Affiliates, you agree for the benefit of the Company and its Affiliates, and as a material condition to your receipt of benefits described elsewhere in these Terms and Conditions and the attached Agreement, as follows:

a)
Non-Disclosure of Confidential Information. You acknowledge that you will receive access or have received access to Confidential Information about the Company or its Affiliates, that this information was obtained or developed by the Company or its Affiliates at great expense and is zealously guarded by the Company and its Affiliates from unauthorized disclosure, and that your possession of this special knowledge is due solely to your employment with the Company or one (1) or more of its Affiliates. In recognition of the foregoing, you will not at any time during employment or following termination of employment for any reason, disclose, use or otherwise make available to any third party, any Confidential Information relating to the Company’s or any Affiliate’s business, products, services, customers, vendors, or suppliers; trade secrets, data, specifications, developments, inventions and research activity; marketing and sales strategies, information and techniques; long and short term plans; existing and prospective client, vendor, supplier and employee lists, contacts and information; financial, personnel and information system information and applications; and any other information concerning the business of the Company or its Affiliates which is not disclosed to the general public or known in the industry, except for disclosure necessary in the course of your duties or with the express written consent of the Company. All Confidential Information, including all copies, notes regarding and replications of such Confidential




Information will remain the sole property of the Company or its Affiliate, as applicable, and must be returned to the Company or such Affiliate immediately upon termination of your employment.
b)
Return of Property. Upon termination of employment with the Company or any of its Affiliates, or at any other time at the request of the Company, you shall deliver to a designated Company representative all records, documents, hardware, software and all other property of the Company or its Affiliates and all copies of such property in your possession. You acknowledge and agree that all such materials are the sole property of the Company or its Affiliates and that you will certify in writing to the Company at the time of delivery, whether upon termination or otherwise, that you have complied with this obligation.
c)
Non-Solicitation of Existing or Prospective Customers, Vendors and Suppliers. You specifically acknowledge that the Confidential Information described in Section 8(a) includes confidential data pertaining to existing and prospective customers, vendors and suppliers of the Company or its Affiliates; that such data is a valuable and unique asset of the business of the Company or its Affiliates; and that the success or failure of their businesses depends upon their ability to establish and maintain close and continuing personal contacts and working relationships with such existing and prospective customers, vendors and suppliers and to develop proposals which are specific to such existing and prospective customers, vendors and suppliers. Therefore, during your employment with the Company or any of its Affiliates and for the twelve (12) months following termination of employment for any reason, you agree that you will not, except on behalf of the Company or its Affiliates, or with the Company’s express written consent, solicit, approach, contact or attempt to solicit, approach or contact, either directly or indirectly, on your own behalf or on behalf of any other person or entity, any existing or prospective customers, vendors or suppliers of the Company or its Affiliates with whom you had contact or about whom you gained Confidential Information during your employment with the Company or its Affiliates for the purpose of obtaining business or engaging in any commercial relationship that would be competitive with the “Business of the Company” (as defined below in Section 8(e)(i)) or cause such customer, supplier or vendor to materially change or terminate its business or commercial relationship with the Company or its Affiliates.
d)
Non-Solicitation of Employees. You specifically acknowledge that the Confidential Information described in Section 8(a) also includes confidential data pertaining to employees and agents of the Company or its Affiliates, and you further agree that during your employment with the Company or its Affiliates and for the twelve (12) months following termination of employment for any reason, you will not, directly or indirectly, on your own behalf or on behalf of any other person or entity, solicit, contact, approach, encourage, induce or attempt to solicit, contact, approach, encourage or induce any of the employees or agents of the Company or its Affiliates to terminate their employment or agency with the Company or any of its Affiliates.
e)
Non-Competition. You covenant and agree that during your employment with the Company or any of its Affiliates and for the twelve (12) months following termination of employment for any reason, you will not, in any geographic market in which you worked on behalf of the Company or any of its Affiliates, or for which you had any sales, marketing, operational, logistical or other management or oversight responsibility, engage in or carry on, directly or indirectly, as an owner, employee, agent, associate, consultant, partner or in any other capacity, a business competitive with the Business of the Company.
i)
The “Business of the Company” shall mean any business or activity involved in grocery or general merchandise retailing and supply chain logistics, including but not limited to grocery distribution, business-to-business portal, retail support services and third-party logistics, of the type provided by the Company or its Affiliates, or presented in concept to you by the Company or its Affiliates at any time during your employment with the Company or any of its Affiliates.
ii)
To “engage in or carry on” shall mean to have ownership in such business (excluding ownership of up to one percent (1%) of the outstanding shares of a publicly-traded company) or to consult, work in, direct or have responsibility for any area of such business, including but not limited to operations, logistics, sales, marketing, finance, recruiting, sourcing, purchasing, information technology or customer service.
f)
No Disparaging Statements. You agree that you will not make any disparaging statements about the Company, its Affiliates, directors, officers, agents, employees, products, pricing policies or services.
g)
Remedies for Breach of These Covenants. Any breach of the covenants in this Section 8 likely will cause irreparable harm to the Company or its Affiliates for which money damages could not reasonably or adequately compensate the Company or its Affiliates. Accordingly, the Company or any of its Affiliates shall be entitled to all forms of injunctive relief (whether temporary, emergency, preliminary, prospective or permanent) to enforce such covenants, in addition to damages and other available remedies, and you consent to the issuance of such an injunction without the necessity of the Company or any such Affiliate posting a bond or, if a court requires a bond to be posted, with a bond of no greater than $500 in principal amount. In the event that injunctive relief or damages are awarded to the Company or any of its Affiliates for any breach by you of this Section 8, you further agree that the Company or such Affiliate shall be entitled to recover




its costs and attorneys’ fees necessary to obtain such recovery. In addition, you agree that upon your breach of any covenant in this Section 8, the Restricted Stock Units issued under the Plan or any other restricted stock unit plans of the Company will immediately terminate and the Company shall have the right to exercise any and all of the rights described above including the provisions articulated in Section 7.
h)
Enforceability of These Covenants. It is further agreed and understood by you and the Company that if any part, term or provision of these Terms and Conditions should be held to be unenforceable, invalid or illegal under any applicable law or rule, the offending term or provision shall be applied to the fullest extent enforceable, valid or lawful under such law or rule, or, if that is not possible, the offending term or provision shall be struck and the remaining provisions of these Terms and Conditions shall not be affected or impaired in any way.

9.    Arbitration. You and the Company agree that any controversy, claim or dispute arising out of or relating to the attached Agreement or the breach of any of these Terms and Conditions, or arising out of or relating to your employment relationship with the Company or any of its Affiliates, or the termination of such relationship, shall be resolved by final and binding arbitration under the Employment Arbitration Rules and Mediation Procedures of the American Arbitration Association, or other neutral arbitrator and rules as mutually agreed to by you and the Company, except for claims by the Company relating to your alleged breach of any of the employee covenants set forth in Section 8 above. This agreement to arbitrate specifically includes, but is not limited to, discrimination claims under Title VII of the Civil Rights Act of 1964 and under state and local laws prohibiting employment discrimination. Nothing in this Section 9 shall preclude the Company from pursuing a court action to obtain a temporary restraining order or a preliminary injunction relating to the alleged breach of any of the covenants set forth in Section 8. The agreement to arbitrate shall continue in full force and effect despite the expiration or termination of your Award or your employment relationship with the Company or any of its Affiliates. You and the Company agree that any award rendered by the arbitrator must be in writing and include the findings of fact and conclusions of law upon which it is based, shall be final and binding and that judgment upon the final award may be entered in any court having jurisdiction thereof. The arbitrator may grant any remedy or relief that the arbitrator deems just and equitable, including any remedy or relief that would have been available to you or the Company or any of its Affiliates had the matter been heard in court. All expenses of arbitration, including the required travel and other expenses of the arbitrator and any witnesses, and the costs relating to any proof produced at the direction of the arbitrator, shall be borne equally by you and the Company unless otherwise mutually agreed or unless the arbitrator directs otherwise in the award. The arbitrator’s compensation shall be borne equally by you and the Company unless otherwise mutually agreed or the law provides otherwise.

10.    Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares covered by the Restricted Stock Units such that an adjustment is necessary in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under these Terms and Conditions and the attached Agreement, then the Committee administering the Plan shall, in such manner as it may deem equitable, adjust any or all of the number and type of Shares (or other securities or other property) covered by the Restricted Stock Units.

11.    Severability. In the event that any portion of these Terms and Conditions shall be held to be invalid, the same shall not affect in any respect whatsoever the validity and enforceability of the remainder of these Terms and Conditions.

12.    Interpretations. These Terms and Conditions and the attached Agreement are subject in all respects to the Plan. A copy of the Plan is available upon your request. In the event that any provision of these Terms and Conditions or the attached Agreement is inconsistent with the terms of the Plan, the terms and provisions of the Plan shall govern. Any question of administration or interpretation arising under these Terms and Conditions or the attached Agreement shall be determined by the Committee administering the Plan, and such determination shall be final, conclusive and binding upon all parties in interest.

13.    No Right to Employment. Nothing in these Terms and Conditions or the attached Agreement or the Plan shall be construed as giving you the right to be retained as an employee of the Company. In addition, the Company may at any time dismiss you from employment, free from any liability or any claim under these Terms and Conditions or the attached Agreement, unless otherwise expressly provided in these Terms and Conditions or the attached Agreement.

14.    Reservation of Shares. The Company shall at all times during the term of the Restricted Stock Units reserve and keep available such number of Shares as will be sufficient to satisfy the requirements of these Terms and Conditions and the attached Agreement.





15.    Securities Matters. The Company shall not be required to deliver any Shares until the requirements of any federal or state securities or other laws, rules or regulations (including the rules of any securities exchange) as may be determined by the Company to be applicable are satisfied.

16.    Headings. Headings are given to the sections and subsections of these Terms and Conditions and the attached Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of these Terms and Conditions or the attached Agreement or any provision hereof or thereof.

17.    Governing Law. The internal law, and not the law of conflicts, of the State of Delaware will govern all questions concerning the validity, construction and effect of these Terms and Conditions and the attached Agreement.

18.    Notices. For purpose of the Agreement and these Terms and Conditions, notices and all other communications provided for in the Agreement, these Terms and Conditions or contemplated by either shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed United States certified or registered mail, return receipt requested, postage prepaid, and addressed, in the case of the Company, to the Company at:
P.O. Box 990
Minneapolis, MN 55440
Attention: Corporate Secretary

and in the case of you, to you at the most current address shown on your employment records. Either party may designate a different address by giving notice of change of address in the manner provided above, except that notices of change of address shall be effective only upon receipt.
a)
Notice of Termination by Company. Any purported termination of employment of you by the Company (whether for Cause or without Cause) shall be communicated by a Notice of Termination to you. No purported termination of employment of you by the Company shall be effective without a Notice of Termination having been given.
b)
Good Reason Notice by You. Any purported termination of employment by you for Good Reason shall be communicated by a Notice of Termination to the Company or successor. Your termination of employment will not be for Good Reason unless (i) you give the Company written notice of the event or circumstance which you claim is the basis for Good Reason within ninety (90) days of such event or circumstance first occurring, and (ii) the Company is given thirty (30) days from its receipt of such notice within which to cure or resolve the event or circumstance so noticed. If the circumstance is cured or resolved within said thirty (30) days, your termination of employment will not be for Good Reason.
19.    Definitions. The following terms, and terms derived from the following terms, shall have the following meanings when used in these Terms and Conditions or the attached Agreement with initial capital letters unless, in the context, it would be unreasonable to do so.
a)
Cause shall mean:     
i)
your continued failure to perform your duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by the Board or an officer of the Company which specifically identifies the manner in which the Board or the officer believes that you have not substantially performed your duties;
ii)
the conviction of, or plea of guilty or nolo contendere to, a felony or the willful engaging by you in conduct which is materially and demonstrably injurious to the Company;
iii)
your commission of a material act or material acts of personal dishonesty intended to result in your substantial personal enrichment at the expense of the Company; or
iv)
your material violation of Company policies relating to Code of Business Conduct, Equal Employment Opportunities and Harassment or Workplace Violence;
provided, however, that in no event shall Cause exist by virtue of any action taken by you (A) in compliance with express written directions of the Board, the Company's Chief Executive Officer or the officer to whom you report, or (B) in reliance upon the express written consent of the Company's counsel.
In each case above, for a termination of employment to be for Cause, you must be provided with a Notice of Termination (as described in Section 18(a)) within six (6) months after the Company has actual knowledge of the act or omission constituting Cause. Whether a termination of employment is for Cause as provided above will be




determined by the Company in its sole discretion based on all the facts and circumstances. For purposes hereof, the term “Company” shall include an Affiliate.
b)
Change of Control shall be deemed to have occurred upon any of the following events:
i)
the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of either (A) the then outstanding shares of common stock of the Company, or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, or (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company;
ii)
the consummation of any merger or other business combination of the Company, sale or lease of all or substantially all of the Company's assets or combination of the foregoing transactions (the "Transactions") other than a Transaction immediately following which the stockholders of the Company and any trustee or fiduciary of any Company employee benefit plan immediately prior to the Transaction own at least sixty percent (60%) of the voting power, directly or indirectly, of (A) the surviving corporation in any such merger or other business combination; (B) the purchaser or lessee of the Company's assets, or (C) both the surviving corporation and the purchaser or lessee in the event of any combination of Transactions; or
iii)
within any 24‑month period, the persons who were directors immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board or the board of directors of a successor to the Company. For this purpose, any director who was not a director at the beginning of such period shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least three‑fourths of the directors who then qualified as Incumbent Directors (so long as such director was not nominated by a person who has expressed an intent to effect a Change of Control or engage in a proxy or other control contest).
c)
Change of Control Date shall mean the date on which a Change of Control occurs.
d)
Good Reason shall mean any one (1) or more of the following events occurring during the two-year period following the Change of Control Date:
i)
your annual base salary is reduced below the amount in effect on the Change of Control Date;
ii)
your Target Bonus is reduced below the Target Bonus as it existed on the Change of Control Date;
iii)
your title is reduced from the title that you had on the Change of Control Date, or your duties and responsibilities are materially and adversely diminished in comparison to the duties and responsibilities that you had on the Change of Control Date other than in a general reduction of the number or scope of personnel for which you are responsible for supervising which reduction occurs in connection with a restructuring or recapitalization of the Company or the division of the Company in which you work;
iv)
the program of long term incentive compensation is materially and adversely diminished in comparison to the program of long term incentive compensation as it existed for you on the Change of Control Date (for purposes of this clause (iv), a reduction of fifteen percent (15%) or more of the target dollar amount of your long term incentive compensation as it existed for you on the Change of Control Date based on your most recent award of long term incentive compensation prior to the Change of Control Date shall be considered to be material and adverse); or
v)
you are required to be based at a location more than forty-five (45) miles from the location where you were based and performed services on the Change of Control Date;
provided, however, that any diminution of duties or responsibilities that occurs solely as a result of the fact that the Company ceases to be a public company or that the size of the Company has been reduced as a result of the Change of Control shall not, in and of itself, constitute Good Reason.
e)
Notice of Termination shall mean a written notice which shall indicate the specific provision in these Terms and Conditions relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for your termination of employment under the provisions so indicated.
f)
Target Bonus shall mean the target amount of bonus established under the annual bonus plan for you for the year in which the termination of employment occurs. When the context requires, it shall also mean the target amount of bonus established for any earlier or later year.





Original Approval





Exhibit 12.1 
Ratio of Earnings to Fixed Charges
(In millions, except ratios) 
 
First Quarter Ended
 
Fiscal Year Ended
 
June 20, 
 2015 
 (16 weeks)
 
February 28, 
 2015 
 (53 weeks)
 
February 22, 2014
(52 weeks)
 
February 23, 2013(1)
(52 weeks)
 
February 25, 2012(2)
(52 weeks)
 
February 26, 2011(3) 
 (52 weeks)
Earnings (loss) from continuing operations before income taxes
$
101

 
$
185

 
$
18

 
$
(416
)
 
$
(138
)
 
$
(253
)
Less net earnings attributable to noncontrolling interests
(3
)
 
(7
)
 
(7
)
 
(10
)
 
(13
)
 
(7
)
Net overdistributed earnings of less than fifty percent owned affiliates
1

 
—

 
1

 
1

 
—

 
—

Fixed charges
71

 
281

 
444

 
313

 
295

 
279

Amortized capitalized interest
—

 
(1
)
 
(1
)
 
(4
)
 
(6
)
 
(8
)
Earnings (loss) available to cover fixed charges
$
170

 
$
458

 
$
455

 
$
(116
)
 
$
138

 
$
11

 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
59

 
244

 
407

 
272

 
251

 
235

Capitalized interest
—

 
1

 
1

 
4

 
6

 
8

Interest on operating leases
12

 
36

 
36

 
37

 
38

 
36

Total fixed charges
$
71

 
$
281

 
$
444

 
$
313

 
$
295

 
$
279

 
 
 
 
 
 
 
 
 
 
 
 
Excess (deficiency) of earnings to fixed charges
$
99

 
$
177

 
$
11

 
$
(429
)
 
$
(157
)
 
$
(268
)
Ratio of earnings to fixed charges
2.39

 
1.63

 
1.02

 
N/A

 
N/A

 
N/A


N/A represents a ratio of less than one.
(1)         The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2013 due to $227 of non-cash asset impairment and other charges before tax, administrative expenses related to divested NAI operations, $36 of severance costs before tax, $22 of store closure charges and costs before tax, $22 of non-cash unamortized financing costs before tax and $6 of non-cash intangible asset impairment charges before tax, offset in part by $10 in a cash settlement received from credit card companies before tax.
(2)         The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2012 due to administrative expenses related to divested NAI operations, $92 of non-cash goodwill impairment charges before tax and severance costs of $15 before tax.
(3)         The Company’s earnings available to cover fixed charges were insufficient to cover fixed charges for fiscal 2011 due to administrative expenses related to divested NAI operations, $110 of non-cash goodwill impairment charges before tax, $49 of store closure charges and retail market exit charges and costs before tax and $38 of charges for severance, labor buyout and other costs before tax.





Exhibit 31.1
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Sam Duncan, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SUPERVALU INC. for the quarterly fiscal period ended June 20, 2015;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 28, 2015
 
/s/ SAM DUNCAN
 
 
Sam Duncan
Chief Executive Officer and President




Exhibit 31.2
Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
I, Bruce H. Besanko, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of SUPERVALU INC. for the quarterly fiscal period ended June 20, 2015;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: July 28, 2015
 
/s/ BRUCE H. BESANKO
 
 
Bruce H. Besanko
Executive Vice President, Chief Financial Officer




Exhibit 32.1
Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of SUPERVALU INC. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarterly fiscal period ended June 20, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period and as of the dates covered thereby.
Date: July 28, 2015
 
/s/ SAM DUNCAN
 
 
Sam Duncan
Chief Executive Officer and President




Exhibit 32.2
Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of SUPERVALU INC. (the “Company”) certifies that the Quarterly Report on Form 10-Q of the Company for the quarterly fiscal period ended June 20, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the period and as of the dates covered thereby.
Date: July 28, 2015
 
/s/ BRUCE H. BESANKO
 
 
Bruce H. Besanko
Executive Vice President, Chief Financial Officer



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