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Executives

Steve Bloomquist - Director, IR

Wayne Sales - President, CEO and Chairman

Sherry Smith - EVP and CFO

Analysts

Tiffany Koenig - Citigroup

Mark Wiltamuth - Morgan Stanley

Edward Kelly - Credit Suisse

Ajay Jain - Cantor Fitzgerald

Jason DeRise - UBS

John Heinbockel - Guggenheim Securities LLC

Karen Short - BMO Capital Markets

Scott Mushkin - Jefferies & Company

Stephen Grambling - Goldman Sachs

SUPERVALU (SVU) Q3 2013 Earnings Call January 10, 2013 10:00 AM ET

Operator

Good morning. My name is Mandy and I will be your conference operator today. At this time, I would like to welcome everyone to the SUPERVALU Third Quarter Earnings Call. (Operator Instructions) After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to your host, Steve Bloomquist, Director of Investor Relations. Sir, you may begin.

Steve Bloomquist

Thank you, Mandy, and good morning, everyone. I want to welcome everybody to this morning’s conference call. With me are Wayne Sales, President, Chief Executive Officer and Chairman; and Sherry Smith, Executive Vice President and Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. So that we can accommodate as many people as possible, I would ask that you limit yourself to one question with one follow-up.

The information presented and discussed today includes forward-looking statements which are made under Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our most recent 10-K filing. A replay of today's call will be available on our corporate website at www.supervalu.com.

With that, I will turn the call over to Wayne.

Wayne Sales

Thank you Steve and good morning everyone and thanks for joining us today. Earlier this morning we announced a definitive agreement under which SUPERVALU will sell its Albertsons, Acme, Jewel-Osco, Shaw's, and Star Market banners and related in-store pharmacies, Osco and Sav-On to AB Acquisition LLC an affiliate of Cerberus Capital Management LP, in a transaction valued at $3.3 billion. The sale will consist of the acquisition by AB Acquisition of stock of New Albertsons Incorporated NAI, a wholly-owned subsidiary of SUPERVALU, for $100 million in cash. NAI will be sold to AB Acquisition subject to approximately $3.2 billion in debt which will be retained by NAI. We’ll refer to this transaction as the sale.

As many of you know Albertsons LLC is an affiliate of Cerberus and currently owns and operates 192 Albertsons stores across the south and southwest as part of the transaction which includes 877 stores across the banners, AB Acquisition owned Albertsons LLC will reunite its Albertsons stores with the acquired NAI Albertsons stores. For detailed breakdown regarding the mechanics of the sales, I would like to refer you back to our press release.

This morning we also announced a Cerberus led investors consortium named Symphony Investors will initiate a tender offer to purchase up to 30% of SUPERVALU common stock for $4 per share. I am not going to go into the nuances of this tender offer on this call. Again, we provided more specifics in our press release this morning. However, Symphony Investors will provide details about the tender offer within the next 10 business days. This tender offer would result in the immediate cash value to shareholders as well as an opportunity for shareholders to maintain an equity stake in SUPERVALU moving forward. Both the sale and tender offer are subject to customary closing conditions and the completion of the fully underwritten refinancing of SUPERVALU’s debt.

Additionally, the closing the sale is conditioned on successful completion of the tender offer and vice versa. Finally, both the sale and the tender offer are expected to close in the first calendar quarter of 2013 and neither require SUPERVALU shareholder approval.

When we announced our review of strategic alternatives this past summer, our goals were to improve our business, better position the company for the future and create the best opportunity to deliver a significant shareholder value. I believe we have accomplished these goals.

SUPERVALU will emerge from the review process focused on three strong businesses. Our legacy and Independent Business, Save-A-Lot and retail food operations including five regional banners which include Cub, Farm Fresh, Hornbacher's, Shop 'n Save and Shoppers. By focusing on these core grocery businesses, we will create short and long term value for all shareholders.

As for the divested banners, they will become part of a company with financial resources, leadership and an experience necessary to help them improve their business. The divested banners are complementary to current Albertsons LLC operations focused primarily on traditional retail grocery and I believe that today's announcement provides these banners with the best opportunity for future success.

Since the coming CEO this past summer, SUPERVALU has made substantial headway in cost reduction initiatives by maximizing efficiencies and laying the groundwork for improving sales trends and the overall customer experience. Going forward, SUPERVALU will be led by highly respected and experienced interested veteran Sam Duncan who will become the new President and CEO. Sam has over 40 years of retail experience and most recently served as Chairman, CEO and President of OfficeMax. At the same time Bob Miller, will assume the role of the newly appointed non-executive chair of the board. I am confident that Sam will be able to build on our progress and help SUPERVALU fully realize its potential for improved results as a sustained shareholder value.

Following the completion of the transactions, SUPERVALU is expected to generate annual revenue in excess of $17 billion. SUPERVALU’s independent business division is one of the largest food wholesalers in the United States and we continue to serve our 1950 independent retailers nationwide with stable revenues. We expect this segment to capitalize on higher margin opportunities including providing more services and private label product offering to our customers. The independent business will represent approximately 47% of our go forward revenues.

Save-A-Lot will remain the nation’s largest discount grocery by store count with over 1,300 stores in 35 states in the Caribbean. Save-A-Lot will continue to represent a growth opportunity and higher discount grocery for SUPERVALU. Additionally, our 16 dedicated distribution centers have considerable capacity for growth which will further benefit the segment in the future. Without a doubt, Save-A-Lot provides the company an important presence in this fast growing segment of food retail. This business will represent approximately 25% of our go forward revenues. The company streamlined retail food division will consist of 191 stores in stable market leading legal banners which include Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's. This segment will represent approximately 28% of the company’s total revenues.

Today's agreement also brings new financing that will provide SUPERVALU with the flexibility necessary to implement its business plans going forward. The new financing includes a fully underwritten $900 million asset based revolving credit facility and a $1.5 billion term loan secured by a portion of the company’s real estate. The proceeds of these financing will be used to replace existing $16,500,000 asset based revolving credit facility. The existing $846 million term loan and the call and refinance, $490 million, a 7.5% bonds scheduled to mature in Tuesday, November 2014.

I cannot stress enough that the sale and the tender offer collectively makes SUPERVALU a strong company. I believe the substantial investment that Symphony investors will make in SUPERVALU through the tender offer is an absolute testament to the potential of the reposition company. Moreover, the benefits of having Cerberus as a substantial shareholder are significant as our board will undoubtedly benefit from its retail industry expertise including its current investment in Albertson LLC and its experience in helping turnaround retail companies.

The last piece of the sale that I wanted to discuss has to do with our board of directors. Prior to the closing of the transaction, five SUPERVALU directors will resign and the size of the board immediately following the closing of the transaction will be reduced to seven members. This initial seven member board will consist of five current SUPERVALU directors and two members designated by Symphony investors including Bob Miller who will serve as non-executive chairman of the board. Subsequently, the board will be increased to a size of 11 directors with the four new directors to consist of Sam Duncan, and an additional director appointed by Symphony investors and two additional independent board members selected by the initial seven directors.

With these strategic review process now completed, I am proud of all we have accomplished. It was a privilege to guide SUPERVALU through this particularly challenging time. But I will leave the CEO position knowing, we have made good progress in implementing the company’s turnaround effort and that following the transaction we announced today's SUPERVALU will be in good hands going forward. On a personal note, I want to extend a special thank you to all of our SUPERVALU team members who have been working hard on our turnaround efforts at the company as we've been focused on the strategic review. The continued focus on meeting the needs of our customers every day is recognized and truly appreciated.

And now we’ll turn the call over to Sherry, who will provide further details about our Q3 results. Following that, we’ll take questions. Sherry?

Sherry Smith

Thank you and good morning everyone. As outlined in this morning’s press release, total sales for the third quarter were 7.9 billion and our GAAP earnings per share $0.08 which included a gain from a cash settlement received from credit card companies as most charges from previously announced store closures the two netting to $0.05 of income. Adjusted earnings per share excluding these items amounted to $0.03. retail food I'd sales in the quarter were negative 4.5% compared to negative 4.3% last quarter. Customer accounts were down 2.8%, a 40 basis points sequential improvement from the second quarter. Basket size was down 1.7 driven largely by continued softness in items per basket. Network I'd sales at Save-A-Lot were negative 4.1% compared to negative 3.7% last quarter with incremental weakness slightly in our corporate stores due in part to those stores operating in more competitive markets than our licensees as well as our significant corporate presence in Florida which has led the national average in its unemployment rate.

Consolidated growth margin was down approximately 70 basis points when adjusted for the impact from the fuel center disposition. This year-over-year change was primarily due to shift in business mix and margin investments in our Save-A-A lot and independent business segments. Importantly, our retail food margins stabilized in Q3 being more in line with last year while absorbing a full quarter of the dual price investment. This was an important step that Wayne spoke to last quarter and was a key focus in its first several weeks as CEO.

As G&A expense for the quarter was 19.5% of sales compared to 19.3% last year, both when adjusted for non-recurring items and the impact from the fuel center disposition. The slight unfavorable rate difference was driven by expense deleveraging which was partially offset by our cost reduction initiative. We have made very good progress in identifying more cost reduction efforts across the company through the business optimization work led by Janel Haugarth. These efforts will be leveraged to right size the organization to support the new entity and the TSA.

Adjusted consolidated operating earnings were 1.8% of sales compared to 2.4% last year primarily resulting from price investments across our business segments coupled with an overall shift in business mix. Retail improved this offer to the holiday season and generally was on plan for the quarter as we saw the margin stabilization and an emphasis on managing costs. Focus remains on improving profitable sales and the customer experience. Save-A-Lot operating earnings before charges were 3.9% of sales compared to 6.1% last year largely the result of investments at the retail and the wholesale level. I would also add Save-A-Lot has increased spending more on advertising to drive traffic and increase customer awareness which we expect to continue in the fourth quarter. Save-A-Lot continues to execute its business optimization plan including introducing more relevant items in to the assortment with 200 by the end of this fiscal year. In addition, Save-A-Lot has a test market where it’s implemented a new price program and has seen results in the double digit IDs consistently over the last few months. Implementing the repositioning plan will pressure margins in the near term while driving improving IDs as we roll out further. Distribution efficiencies and other merchandising initiatives are providing some funding for these efforts.

The independent business sales were 1.99 billion flat for last year. We continue to have a strong customer base and our teams continue to work very closely with our customers to help serve them better. Operating earnings were 2.5% of sales compared to 3.3% last year with the change almost entirely driven by investment in growth margin.

Moving to the balance sheet, at the end of the third quarter, our available capacity under our secured lines of credit was approximately 635 million. We expect to reduce outstanding borrowings in Q4 as we lower our inventory levels from the seasonal holiday peak at the end of third quarter. As of last Friday, January 4th, our available liquidity capacity was 767 million improving 132 million since the end of the quarter. We continue to be comfortable with our liquidity position and ability to meet all upcoming obligations.

Turning to fiscal ’13 cash flow, year-to-date, we have produced over 430 million in operating cash flow and asset proceeds and expect to generate approximately 900 for the full year including 100 million from assets from proceeds. We expect to make approximately 400 million in cash payments towards debt reduction this fiscal year including capital lease obligation.

Full year cash capital spending is still expected to be approximately 500 million and includes continuing investment in our existing store fleet including 40 storey models. We expect to add 20 net new stores to the Save-A-Lot network by the end of the fiscal year, a number which concludes the closures that were announced in September. We are also moving quickly on several customer facing merchandising initiatives that do not require significant amounts of capital but can still be implemented in a significant number of stores and help drive sales.

Finally, on a rolling fourth quarter period, SUPERVALU’s adjusted EBITDA for the past 52 weeks was 1.6 billion. We are excited about the completion of our strategic review process and the go forward plan. With that, we will open up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Deborah Weinswig with Citigroup.

Tiffany Koenig - Citigroup

Hi this is Tiffany Koenig filling in for Deborah Weinswig. Thanks so much for taking our call. We’d like to know, can you discuss the cost reduction initiatives in greater detail going forward at the new SUPERVALU?

Wayne Sales

Well it is broad ranging. You may recall (inaudible) into the organization a very small group of partners from AlixPartners, working with the executive leadership team. You saw in the fourth quarter, a reduced expenses and costs. The entire executive leadership team is engaged in this initiative and we think the vast majority of these cost reductions will come into play in terms of benefit in 2014 or F13 on a fiscal basis. It will also be instrumental in terms of strategic review process as we look at the separation of the divested banners that I spoke of in my opening remarks versus that of SUPERVALU and this will enable us to quickly identify what the go forward structure will be for both entities.

Tiffany Koenig - Citigroup

And the second question. Can you discuss in more detail how you're working towards increasing awareness around pricing and merchandising initiatives? Especially given Walmart's receipt comparison campaign?

Wayne Sales

Well in these markets we are doing some things a little bit different in Chicago. Earlier this year we launched what we call value transportation with a huge price investment to get our prices on strategy and coupled with that was a massive marking advertising and communications program both internally and in the stores and externally to our billboards and marketing efforts. When you look at banners such as Cub, we aggressively talking about not only our price versus key competitors but also other parts of the value proposition that we bring to our customers in addition to our price position.

Operator

Your next question comes from the line of Mark Wiltamuth with Morgan Stanley.

Mark Wiltamuth - Morgan Stanley

Could you give us some idea of the remaining EBITDA splits for the three businesses that remain? And have you really determined how much corporate overhead will still be there for the business?

Sherry Smith

We’re not providing guidance on that level at this time. We have talked about this fact that the new industry going forward will generate approximately 175 million of cash available for debt pay down and over the next several weeks we will have more pro forma information provided.

Mark Wiltamuth - Morgan Stanley

And how much EBITDA left at business and what was paid for the retail stores that are leaving?

Sherry Smith

Well the total purchase price for the NAI was 300 million in cash and then the $3.2 billion of debt.

Mark Wiltamuth - Morgan Stanley

No, what I was getting at is what's the EV to EBITDA paid for the retail assets that are leaving?

Sherry Smith

We are not disclosing that information.

Mark Wiltamuth - Morgan Stanley

Okay. And could you give us an idea of the arc of the cash flows and earnings for the remaining assets, if you just looked at those by themselves? How has that been trending? I would think it would still be down.

Sherry Smith

Yes, generally right. So you see stabilized in the independent business. So if you think about the business going forward, you have all the information relating to those two segments and they do represent a little over 70% of the sales of the entity going forward and as well.

Mark Wiltamuth - Morgan Stanley

And can you talk a little bit; you said there was stability at the remaining regional banners. What's that profile look like now in terms of their performances?

Sherry Smith

So there are some regional based banners. They’ve got strong market presence, we've got Shoppers and Shop 'n Save are both value banners and they continue to focus on catering to that price sensitive customer. Cub is the number one leader in the Minneapolis twin cities market. Hornbacher's will be at five stores very strong market presence in Fargo, North Dakota and then certainly Farm Fresh is a very good operations with emphasis around perishables with a full traditional grocery shop.

Wayne Sales

Mark, I'd like to focus on the future and part of your question was around structure. As we work through the divestiture and the remaining SUPERVALU public company, we have very detailed plans and we continue to focus even more on the detailed plans between today and closing and we will be in an absolute position to move forward with the right size structure for both entities. The important thing that I'd like for everyone to focus on is what does this mean for each business on a go forward basis and let`s take the divested banners for example. Obviously we've been talking for a long, long time around the need to invest and price to invest in the customer experience to invest in Fresh. What the purchasing entity does, it brings a number of things. One, it brings a very strong balance sheet to be able to immediately invest in the price, to invest in Fresh and to invest in the customer experience. And it is able to do that not only financially but it brings to the party a very strong and experienced retail food leadership team. They have a very clear strategic plan to begin to implement changes immediately in the organization.

And then of course with the natural bandwidth of leadership and management, it allows this group to focus on a smaller company. So that’s why we viewed this as very beneficial to those divested banners that we can quickly implement a turnaround program there.

Secondly for SUPERVALU, we take SUPERVALU apart and you look at the most recent results, especially since I've been here and with the strategic review process underway, it provided some uncertainty for independent grocers. And what this transaction means for independent grocers is obviously the company is smaller, it goes back to providing more bandwidth and leadership focus on our legacy business and we exit with a much stronger balance sheet in terms of being able to ensure liquidity going forward and then when you look at our ability to focus on our Save-A-Lot business, our Save-A-Lot business, we've been working over the past 12 months in terms of strategies that we talked about on our last analyst call in terms of improving our in store experience, improving our pricing position, you see some deterioration in gross margins because we are focusing on making sure we maintain that price index that’s important for Save-A-Lot . we are making a radical shift in terms of the private label offering moving from 57% to a 70% level and simplification of the operations and doing things like cutting meat. So we are excited about our ability to invest in this banner, in this business both for our licensees and our corporate stores and that will be a huge growth opportunity for us. And reflecting back on the independent business, when you look at the uncertainty that we had in the organization and our ability even in this quarter to report flat sales, is a testament to how strong this business is and the relationship that we have with some tremendous independent grocers out there.

And then when you look at as Sherry has articulated, the remaining banners are smaller, they are more regional and they require less investment in price. So we have again less to distract us from because of the divested banners going away and we can put absolute focus on the 191 retail stores that we have left.

And then I don’t want to underscore the importance of bringing Sam in, who I've gotten to know quite well and he’s an operator. He understands the food business. He’s a veteran of this business and he ‘Save-A-Lot bring a lot to the party in terms of being able to quickly turn these businesses around, they require less investment and that’s why I am excited about all of our businesses and what it means for the future.

Mark Wiltamuth - Morgan Stanley

And is this a financially delivering transaction, once you are all said and done here, and the EBITDA that's left of the business?

Wayne Sales

It is not a hugely deleveraging. It is still leveraged. But we believe that certainly the leverage that we have is much more manageable and the important thing here is risk. I think it is hugely de-risked because of the growth opportunities that we have at Save-A-Lot, the stability of our independent business and the leading market shares that we have with the remaining banners.

Mark Wiltamuth - Morgan Stanley

And can you tell us what the EBITDA is that's just left of the business?

Wayne Sales

No, we haven't published that information.

Operator

Your next question comes from the line of Edward Kelly with Credit Suisse.

Edward Kelly - Credit Suisse

Wayne, are you completely off the hook on the multi-employer pension liabilities now, for the assets that are being divested?

Wayne Sales

Completely off the hook. Sherry do you want to take that one?

Sherry Smith

Yes, essentially the multi-employer plans go with the banners and where they operate and it is a stock transaction and so those liabilities reside with NAI.

Edward Kelly - Credit Suisse

And related to distribution, will you continue to supply the businesses that you're selling, going forward? And I guess a broader question is, is there any negative leverage associated with what's going on, on the distribution side?

Wayne Sales

We have one overlapping distribution center in Lancaster and some other (inaudible) that will be a shared DC between Acme, our current banners and independent business outside of that distribution will be made and the distribution centers will go with the banners that are divested. However, we’ll continue to have a transition services agreement as we had with Albertsons, so this is a go forward TSA is what we call it internally and we will continue to manage our private label program for all entities be it the divested banners, the banners we keep and for independent business so we’ll continue to maintain that leverage and we'll continue to work cooperatively with the divested banners in terms of merchandising programs.

Edward Kelly - Credit Suisse

Okay. And then on IDs, industry sales in December look like they've deteriorated. I was hoping that you could give us just some color on what December ended up looking like for you, relative to how you were in the quarter. Did sales get worse in December?

Wayne Sales

They deteriorated a little bit in the Thanksgiving period because, we had a couple of markets in Southern California and Shaw’s where we were not as strong as we should have been from a proportional perspective. We went back in for the Christmas holiday season, really beefed that up and we saw positive results from our efforts.

Edward Kelly - Credit Suisse

So December was a little bit better? Is that what you're trying to say?

Wayne Sales

Yes.

Edward Kelly - Credit Suisse

Okay. And just a last question for you on Save-A-Lot. Can you just help us sort of understand where the weakness is coming from, if you had to attribute it to macro at the low end struggling, competition, or just internal issues? Where do you think the weakness in the ID is coming from each bucket? And then what do you think happens with the payroll tax increase? Do you think that will have some negative impact on that business?

Wayne Sales

Well first of all the I'd itself are licenses we’re performing better than on a corporate stores in the quarter, since that time our corporate stores have improved with some of the things that Sherry talked about in terms of increased marketing in key markets. What you’re seeing there is as we go through and reposition in the business with the things that I had previously spoke about, these are what I’ll call investing in the business for a period of time. Our expenses are a little higher than what we should be running on a run rate basis because of some of the strategic work that we have underway. The test markets that we have in St. Louise in Kansas City, we are expanding those, rolling those strategies out to Florida in the Jacksonville area and I expect that growth to improve near term and stabilize.

Edward Kelly - Credit Suisse

Payroll tax?

Wayne Sales

Payroll tax, I think it’s a wait and see. Obviously, in this segment it is very sensitive, in terms of disposable income. Certainly we see increases and decreases depend on EBT and to me it’s a wait and see.

Operator

Your next question is from the line of Ajay Jain with Cantor Fitzgerald.

Ajay Jain - Cantor Fitzgerald

Wayne, I know you don't want to comment on the earnings implications of the transaction, and obviously you're the outgoing CEO. But can you just comment on whether there is any plan to reinstate guidance, and even potentially the dividend at some point? And just can you talk in general about when you are going to be in a position to provide some financial disclosure on the transaction? Thanks.

Wayne Sales

Obviously, as we work to and get to closing, we’re announcing today and we’re going through customary conditions on closing, so that’s why we are a little hesitant to break this out at this point in time. But we’ll give guidance consideration as we close and as we go into giving you, as we finish our fiscal planning. Dividends is one that the board will deal with and that will ultimately depend on how fast we can turn the business around and growth the business in terms of how you spend your free cash flow.

Ajay Jain - Cantor Fitzgerald

Okay. And I do have a question on corporate governance. I was actually really pleased to see that Bob Miller is going to be appointed as the non-executive Chairman. So it looks like there will be at least two Boards each from Cerberus. But as far as the composition of the rest of the senior leadership team and the other Board members, how long will it take before there will be details provided on that process?

Wayne Sales

It will be really close, close or at, probably at closing. We will begin the process of looking for the two new independent directors almost immediately. We’ll have an external search firm help us with that and so you would expect the full announcement and how that plays out at closing. It will be a good board.

Ajay Jain - Cantor Fitzgerald

Okay. And just final question. Can you confirm if the strategic review process is completely finished? I mean is Save-A-Lot and the non-Albertsons assets, are those off the table at this point?

Wayne Sales

The strategic process is never finished and nothing in retail is ever finished. But this describes the completion of the process as we see it. We’re not shopping any other assets.

Operator

And your next question is from the line of Jason DeRise with UBS.

Jason DeRise - UBS

I got a couple housekeeping questions, still. I want to try to get a sense of the remaining business, what the rent versus own status is for those properties. Obviously, you mentioned on the MEPs, there is still a portion that stays, that's in proportion to where they sit with the different stores. I was wondering if you can share maybe the employee split between what you sold and what you're keeping. And I guess another question to ask, has Sam Duncan been involved in the process of negotiating this deal?

Wayne Sales

Sam was not in the process of negotiating. Sam was an advisor to the process.

Jason DeRise - UBS

Okay.

Wayne Sales

In terms of the other details, I don’t think we have that detail broken out or published at this point in time.

Jason DeRise - UBS

Were the stores that you sold, did they come with a disproportionate share of your pension liabilities, or is there any reason to think otherwise?

Sherry Smith

So on the MEPA liabilities at year end we had disclosed a 1.8 and so approximately 1.2 goes with the NAI assets.

Jason DeRise - UBS

That definitely helps. And then the on balance sheet pensions, that split, is that available? Obviously, everybody is going to be trying to do the math and figure out what the actual equity is worth at the end, so all these things are actually pretty important.

Sherry Smith

The single employer pension is a SUPERVALU liability remaining.

Jason DeRise - UBS

Okay. So that relates to the overhead and not the store level employees? Is that the way to think about that? Or are you still paying their pension after it's been sold?

Sherry Smith

Yes, so a combination thereof. So that overall pension as you see in our footnotes for this single employer does remain with SUPERVALU.

Jason DeRise - UBS

Okay. I don't know if there is anything that you can comment about the tender process. But the $4 amount there, are you hoping that maybe people decide to pass that up and that you are willing to do the other step of it, where there is the dilution as a source of funds? Or how are you thinking about that?

Wayne Sales

We think first of all, we wanted this deal to create some immediate value for our shareholders and we will depend on those shareholders to make those decisions and but at the same time if they decide that they don’t want to tender those shares and they want to remain equity holders, then that’s their decision. But we also wanted to make sure that at the end of the day that we have at least 19.9% equity stake of Symphony in the business and we have an option that if it comes short to do a primary share (inaudible) to get them up to 30%. So, it’s a combination thereof but we wanted to create some immediate value for shareholders which we think we have. It’s about 50% premium over the 30 a day trading average, last 30 day trading average and so we hope they will take advantage of that.

Jason DeRise - UBS

And can I just clarify one thing that was said? I am sorry if I missed it, not quite right. But there was a comment about the remaining businesses have $175 million in cash for debt pay down. What period is that referring to?

Sherry Smith

That’s an annual period of time.

Jason DeRise - UBS

Okay. Like going forward from today? Or is there the fiscal 2013 period?

Sherry Smith

So once the transition closes.

Jason DeRise - UBS

Okay. Once it closes? Great.

Operator

Our next question is from the line of John Heinbockel with Guggenheim Securities.

John Heinbockel - Guggenheim Securities LLC

A couple of things guys. Going forward, what do you think the annual CapEx spend of the new SUPERVALU is?

Sherry Smith

So as we get to closing, we’ll provide out more details as Wayne said earlier as we think about the guidance that will be provided.

John Heinbockel - Guggenheim Securities LLC

Because two of the three businesses you have I guess would be capital-light, right? You would think going forward?

Sherry Smith

Yes and certainly as you think about the retail banners, they are well maintained banners in the market set they operate in. so it’s a business that again from the level of capital intensity is pretty balanced.

Wayne Sales

And this is part of what I get excited about. When you look at Sherry is talking about, the retail stores themselves are in great shape. When you look at our infrastructure, especially at Save-A-Lot and the independent business and the retail business. The distribution centers we have sufficient capacity to support our growth. So it’s created a little new capital required there. It’s basically maintenance capital and then as we sort out our strategic repositioning of Save-A-Lot and build a proof of concept, we see a growth capital being a place in those businesses and then when you look at the strength of our retail banners, you look at Hornbacher's for example or Cub here in Minneapolis, St. Paul or any of the markets, when you look at Farm Fresh, I mean all of these are banners that I believe at some point in time have growth opportunities.

John Heinbockel - Guggenheim Securities LLC

I mean, given now their position, I would think they are performing better than what's really the old Albertsons you are divesting. Is that right, or no?

Wayne Sales

That’s correct. And then I’ll repeat myself but, the thing I like about what we've done here for those divested manners is they are now with an entity that has great leadership, very strong balance sheet and they know how to do this and they can focus on improving those stores.

John Heinbockel - Guggenheim Securities LLC

What can you do, if anything, going forward with Cerberus, in terms of purchasing or joint activities? And assuming you can't do anything, does losing that volume, does that make a material difference in terms of scale for what's left?

Wayne Sales

No, it’s not material. In fact, when we almost had since the Albertsons LLC, the original group of stores that they took with that transaction. We've always maintained a great relationship with them in terms of TSA services, joined buying activities and as I noted earlier SUPERVALU will continue to run the private label program. My initial call with analyst I talked about, how I feel about private label program that while we have some of our competitors that do a good job with it. When you look at companies like (inaudible) in Canada, the one in US is even closer and what they do and that would be my vision in terms of how we grow the business and certainly we get leverage from that our independent business. The retail business is that SUPERVALU retains and the businesses that we divest at.

John Heinbockel - Guggenheim Securities LLC

So you will do some joint buying with Cerberus? Did I hear that right, or no?

Wayne Sales

I think it depends on the supplier and the relationship that we have with them. A lot of the leverage comes from making sure you maximize your buy in terms of truckload deliveries versus less than truckloads and so we don’t see any material loss on leverage here.

John Heinbockel - Guggenheim Securities LLC

All right. And then just lastly, what's the timetable for Sam coming in, and when can he start? When can he start the planning process, when you and he can do the transition? How long do you stay around? How long do you think that's going to take?

Wayne Sales

Sam’s scheduled to become CEO at closing. Sam will be working very, very closely with the team here and myself. In terms of the detailed plan, that once its closed, he can push the button and go. He has as part of the process itself, he has a deep understanding of what the business looks like, the structure of the business, the people, he's very familiar with a lot of people here and he has a very clear sense of what he would like to accomplish and he and I share a very similar drivers if you will, like (inaudible) and he wants to get on with it.

John Heinbockel - Guggenheim Securities LLC

Yes. But he can't be in the building and go out and visit stores with you and get the process started before closing?

Wayne Sales

Yes, he's going to be doing that.

John Heinbockel - Guggenheim Securities LLC

He will be?

Wayne Sales

There is no conflict here at all.

Operator

Your next question is from the line of Karen Short with BMO Capital Markets.

Karen Short - BMO Capital Markets

Just to clarify, I didn't catch the answer to this, if you gave it. But in terms of the assets that are being sold, those are mostly almost entirely owned, or not? Because I am just trying to figure out what the pro forma rent expense might look like.

Wayne Sales

It’s a split. I don’t simply would have that detail this morning.

Sherry Smith

Generally about 60% leased and 40% owned.

Karen Short - BMO Capital Markets

Okay. And then in terms of, obviously the moving parts or the multi-employer pension, the rent expense, and the lost sales and EBITDA, but in terms of overhead, how should we think about the go forward overhead kind of run rate in terms of what might you be able to get rid of?

Sherry Smith

We think the plan as we need to determine what the right size of the organization is, that supports this entity going forward and then the size of what's necessary to service the TSA. But clearly the TSA provides revenues to those expenses and so the company will be good between now and closing and working here with Wayne and Sam and the team as to what those steps are and what that looks like so that we have an organization that is very efficient and very productive in regards to what a $17 billion sales organization would be.

Karen Short - BMO Capital Markets

Okay. And then you commented on a transition services agreement. Can you maybe just elaborate on that? What is it exactly? What kind of annual dollar expenses would you incur and for how long?

Wayne Sales

We are not disclosing that at this point in time.

Karen Short - BMO Capital Markets

Okay. And then just last question. If you gave inflation, what was inflation? I didn't catch it.

Sherry Smith

Inflation was about 2% within this quarter.

Operator

Your next question is from the line of Scott Mushkin with Jefferies & Company

Scott Mushkin - Jefferies & Company

Okay guys, I just wanted to follow up to make sure I understand exactly what you're saying. Joint buying, yes or no? And if there is joint buying, is the office going to be up in Minneapolis? I am just trying to understand or is Albertsons going to buy on its own, and you're going to buy on its own, and you hope maybe the vendors will be okay with that, and still give you the same deal?

Wayne Sales

The buying for SUPERVALU will be done by SUPERVALU team members. The buying itself for the divested banners will be done by team members within those banners. We will in terms of collaborating, we have a relationship with each other that we hope to be able to continue to leverage what each other is doing especially in the private label line. So the physical offices will be separated because they are separate companies, but in terms of collaboration with our supplier base we hope that we can continue to collaborate with each other.

Scott Mushkin - Jefferies & Company

Okay. Thank you for that clarification. Another clarification, I think, to Ed's question. You said the comps in December were better. What does that mean? I mean, is it significantly better? I mean I think you ran what, negative 4 and change? I mean are we talking negative 3, or are we talking a negative 4 was a smidge better? Most of the data I have seen on December is just awful, so I'm just trying to get some clarity there.

Wayne Sales

My comments in terms of that was really to those specific banners where we went in and changed the promotional program and aggregate is not materially different.

Scott Mushkin - Jefferies & Company

Okay, the comps of the remaining banners, I think you said to John Heinbockel's question, the comps of the banners are better again, but no quantification. So I just want to understand, where are they? Are they flat or are they negative 3? Are they positive?

Wayne Sales

As you know, we don’t segment those out and we’re not going to do it at this point in time. Obviously as we’ll close the deal, we’ll be providing all the financial information that you’re asking about as we determine how we segment.

Scott Mushkin - Jefferies & Company

Okay. And can you at least give us trending on those comps? You said they are better than the average. Have they been trending down? Trending up? Which way have they been trending?

Wayne Sales

They are trending about the same as they have been.

Scott Mushkin - Jefferies & Company

About the same as they have been. Okay. Is there any tax implications here with this deal at all?

Sherry Smith

Yes as part of the deal, any transaction of this size, there are different tax consequences and so there will be some benefit of a capital loss carry forward that SUPERVALU will have as part of the transaction.

Scott Mushkin - Jefferies & Company

Sherry, do you expect to be a cash tax payer?

Sherry Smith

Yes. We will be a cash tax payer because this is a capital loss that will be generated.

Scott Mushkin - Jefferies & Company

Okay. And then, I guess just a general statement. I guess I don't understand how you guys can not tell us the EBITDA multiple that Cerberus is paying. I mean, shareholders are going to obviously, make a decision to tender or not tender, but I think that information really needs to be out there, what's going away here, what Cerberus paid. I am having a hard time understanding how you cannot release that information.

Sherry Smith

To the extent that its required, it would be in the tender offer.

Operator

Your final question is from the line of Stephen Grambling with Goldman Sachs.

Stephen Grambling - Goldman Sachs

Just a few follow-ups. First, for the remaining assets, you referenced that they didn't need price investments. Is that because the investments were already made, or it's just a less competitive environment, and so they're not required? And then a couple other follow-ups.

Wayne Sales

I didn’t mean to imply they require no price investment. They require lower price investments, but they do require some.

Stephen Grambling - Goldman Sachs

And again is that because you had already been in the process of making those price investments? Or is it just a different competitive environment in those regions?

Wayne Sales

While the competitive environments are same but when you look at each banner for example, Shop 'n Save. The Shop 'n Save requires probably the lowest price investment because we have a market leading price index at Shop 'n Save. The same thing with Shoppers and to an extent here in Cub. And we’re very competitive at Hornbacher's. So it will vary market by market but requires a much more price investment than some of the divested banners.

Stephen Grambling - Goldman Sachs

And then on Save-a-Lot, you had referenced double-digit IDs, following some price investments. Can you talk about the level of margin investment that maybe is needed in some of those markets and how gross profit dollars looked afterwards?

Wayne Sales

Yes, we are not disclosing that at that level. This is in St. Louise in Kansas City. It’s a test market and we don’t want to divulge at it at this point of time.

Stephen Grambling - Goldman Sachs

Does the deal actually require approval from the Pension Benefit Guarantee Corp?

Wayne Sales

We've dealt with them as part of this process.

Okay, thank you everybody for joining us on the call today. I will be available later in my office if you have any follow-up questions. And with that, this concludes the call.

Operator

Thank you for participating in today's conference call. You may now disconnect.

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