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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2004

OR

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)

Registrant’s telephone number, including area code: (952) 828-4000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  x    No  ¨

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 6, 2003 was approximately $3,257,057,854 (based upon the closing price of Registrant’s Common Stock on the New York Stock Exchange on September 5, 2003).

Number of shares of $1.00 par value Common Stock outstanding as of April 24, 2004: 135,328,998.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant’s definitive Proxy Statement filed for the Registrant’s 2004 Annual Meeting of Stockholders are incorporated by reference into Part III, as specifically set forth in Part III.

PART I

ITEM 1.    BUSINESS

General Development

SUPERVALU is one of the largest companies in the United States grocery channel. SUPERVALU conducts its retail operations under three retail food store formats: extreme value stores primarily under the retail banner Save-A-Lot; price superstores, under the regional retail banners of Cub Foods, Shop ’n Save, Shoppers Food Warehouse and bigg’s; and supermarkets, under the regional retail banners of Farm Fresh, Scott’s and Hornbacher’s. As of the close of the fiscal year, the company conducted its retail operations through 1,483 stores, including 821 licensed extreme value stores. SUPERVALU also provides food distribution and related logistics support services across the United States retail grocery channel. As of the close of the fiscal year, the company served as the primary grocery supplier to approximately 2,470 retail food stores in 48 states, in addition to its own regional banner store network, and as a secondary supplier to approximately 660 stores.

SUPERVALU is focused on retail growth through targeted new store development, remodel activities, licensee growth and acquisitions. During fiscal 2004, the company added 66 net new stores through new store development. The company’s plans also include leveraging its distribution operations by providing logistics and service solutions through an efficient supply chain, which will allow it to affiliate new independent customers and expand its recently launched Advantage Logistics third party logistics business. Consolidation opportunities in the food distribution industry may provide another avenue for growth.

In September 2003, the company acquired certain grocery distribution operations in the Midwest, formerly owned by Fleming, in exchange for its New England operations, pursuant to an Asset Exchange Agreement with C&S Wholesale Grocers (the “Asset Exchange”). Overall revenues declined as a result of the Asset Exchange, but the efficiency of the company’s operations were enhanced as the new business was absorbed by the company’s existing Midwestern facilities. The company has estimated that the Asset Exchange will benefit full year fiscal 2005 earnings by $0.07 to $0.10 per share.

SUPERVALU INC., a Delaware corporation, was organized in 1925 as the successor to two wholesale grocery firms established in the 1870’s. The company’s principal executive offices are located at 11840 Valley View Road, Eden Prairie, Minnesota 55344 (Telephone: 952-828-4000). Unless the discussion in this Annual Report on Form 10-K indicates otherwise, all references to the “company,” “SUPERVALU” or “Registrant” relate to SUPERVALU INC. and its majority-owned subsidiaries.

The company makes available free of charge at its internet website (www.supervalu.com) various corporate governance materials, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Information on the company’s website is not deemed to be incorporated by reference into this Annual Report on Form 10-K.

The company will also provide its SEC filings free of charge upon written request to the Corporate Secretary, SUPERVALU INC., P.O. Box 990, Minneapolis, MN 55440.

Additional description of the company’s business is found in Part II, Item 7 of this report.

Financial Information About Reportable Segments

The company’s business is classified by management into two reportable segments: Retail food and food distribution. Retail food operations include three retail food store formats: extreme value stores, regional price superstores and regional supermarkets. The retail formats include results of food stores owned and results of

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sales to extreme value stores licensed by the company. Food distribution operations include results of sales to affiliated food stores, mass merchants and other customers, and other logistics arrangements. Management utilizes more than one measurement and multiple views of data to assess segment performance and to allocate resources to the segments. However, the dominant measurements are consistent with the consolidated financial statements. The financial information concerning the company’s operations by reportable segment for the years ended February 28, 2004, February 22, 2003 and February 23, 2002 is contained on page F-5.

Retail Food Operations

Overview.    At February 28, 2004, the company conducted its retail food operations through a total of 1,483 retail stores, including 821 licensed extreme value stores. Its principal retail food formats include extreme value stores, regional price superstores and regional supermarkets. These diverse formats enable the company to operate in a variety of markets under widely differing competitive circumstances. Based on revenues, the company was the 11^th largest grocery retailer in the United States as of February 28, 2004. In fiscal 2005, the company anticipates opening approximately 110 to 140 new extreme value stores and eight to 10 regional banner stores and continuing its store remodeling program.

Extreme Value Stores.    The company operates extreme value stores primarily under the Save-A-Lot banner. Save-A-Lot holds the number one market position, based on revenues, in the extreme value grocery-retailing sector. Save-A-Lot food stores typically are approximately 15,000 square feet in size, and stock approximately 1,250 high volume food items generally in a single size for each product sold. At a Save-A-Lot store, the majority of the products offered for sale are custom branded products. The specifications for the Save-A-Lot custom branded product emphasize quality and characteristics that the company believes are comparable to national brands. The company’s attention to the packaging of Save-A-Lot products has resulted in the company registering a number of its custom labels.

After the company’s fiscal 2003 acquisition of a small dollar store general merchandise operator, Deal$ Nothing Over A Dollar (“Deals”), the company started testing several new prototypes of an extreme value combination store, offering both food and dollar-priced general merchandise. During fiscal 2004, the company converted or opened 166 combination stores.

At fiscal year end, there were 1,225 extreme value stores located in 37 states, of which 821 were licensed. These stores are supplied from 16 dedicated distribution centers.

Price Superstores.    The company’s price superstores hold the number one, two or three market position in most of their markets. The price superstore focus is on providing every day low prices and product selection across all departments. Most of the company’s price superstores offer traditional dry grocery departments, along with strong perishable departments and pharmacies. Price superstores carry over 45,000 items and generally range in size from 45,000 to 100,000 square feet with an average size of approximately 64,000 square feet.

At fiscal year end, the company owned and operated 199 price superstores under the Cub Foods, Shop ’n Save, Shoppers Food Warehouse and bigg’s banners in 12 states; an additional 29 stores were franchised to independent retailers under the Cub Foods banner. In-store pharmacies are operated in 176 of the price superstores.

The owned Cub Food stores operate primarily in the Minneapolis/St. Paul and Chicago markets; Shop ’n Save operates primarily in the St. Louis and Pittsburgh markets; Shoppers Food Warehouse operates in the Washington D.C. and Baltimore markets; and bigg’s operates primarily in the Cincinnati market.

Supermarkets.    The company’s traditional supermarkets hold the number one or two market positions in their principal markets. This format combines a grocery store that offers traditional dry grocery and fresh food departments, and a variety of specialty departments that may include floral, seafood, expanded health and beauty care, video rental, cosmetics, photo finishing, delicatessen, bakery, as well as an in-store bank and a traditional

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drug store that includes a pharmacy. A typical supermarket carries approximately 32,000 items and generally ranges in size from 30,000 to 65,000 square feet with an average size of approximately 50,000 square feet.

At fiscal year end, the company operated 59 supermarkets under the Farm Fresh, Scott’s and Hornbacher’s banners. The Farm Fresh stores operate primarily in the Virginia Beach, Virginia market; the Scott’s stores operate in the Fort Wayne, Indiana market; and the Hornbacher’s stores operate in the Fargo, North Dakota market. In-store pharmacies are operated in 29 of the supermarkets.

Food Distribution Operations

Overview.    SUPERVALU provides logistics and service solutions to retailers for food and non-food products and is the largest public company food wholesaler in the nation. At February 28, 2004, the company was affiliated with approximately 2,470 stores as their primary supplier, excluding the company’s own regional banner store network, and approximately 660 additional stores as a secondary supplier. SUPERVALU’s customers include single and multiple grocery store independent operators, regional and national chains, mass merchants and the military. Such customers are located in 48 states, and range in size from small convenience stores to 200,000 square foot supercenters.

Products Supplied.    The company offers and supplies its distribution customers with a wide variety and selection of food and non-food products, including groceries, meats, dairy products, frozen foods, deli, bakery, fresh fruits and vegetables, health and beauty aids, general merchandise, seasonal items and tobacco products. Such products include national and regional brands, the company’s own lines of private label products and the private label products of its independent customers. The company has no significant long-term purchase obligations and considers that it has adequate and alternative sources of supply for most of its purchased products.

SUPERVALU offers two tiers of private label products to its customers: first quality products under such private labels as CUB, FLAVORITE, HOMEBEST, IGA, RICHFOOD, SHOP ’N SAVE, SUPERCHILL, HEALTHY GENERATIONS, DAILY SOURCE, NUTRIPLAN and CHEF’S CIRCLE; and economy products under the private label of SHOPPERS VALUE. SUPERVALU supplies private label merchandise over a broad range of products in the majority of departments in the store. These products are produced to the company’s specifications by many suppliers.

Logistics Network.    The company has established a network of strategically located distribution centers utilizing a multi-tiered logistics system. The network includes facilities that carry slow turn or fast turn groceries, perishables, general merchandise and health and beauty care products. The network comprises 24 distribution facilities. The company believes that its multi-tiered distribution network increases buying scale, improves operating efficiencies and lowers costs of operations. The company is continuing to work on business initiatives that will deliver lower costs of operations. Deliveries to retail stores are made from the company’s distribution centers by company-owned trucks, third party independent trucking companies or customer-owned trucks. In addition, many types of meats, dairy products, bakery and other products purchased from the company are delivered directly by suppliers to retail stores under programs established by the company.

The company also offers third party logistics solutions, primarily to the grocery industry, through its Advantage Logistics operation which was formed in 2002.

Trademarks

The company offers some customers the opportunity to franchise a concept or license a service mark. This program helps the customer compete by providing, as part of the franchise or license program, a complete business concept, group advertising, private label products and other benefits. The company is the franchisor or licensor of certain service marks such as CUB FOODS, SAVE-A-LOT, DEAL$ NOTHING OVER A DOLLAR,

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ADVANTAGE LOGISTICS, SENTRY, FESTIVAL FOODS, COUNTY MARKET, SHOP ’N SAVE, NEWMARKET, IGA, FOODLAND, JUBILEE, SUPERVALU and SUPERVALU PHARMACIES. The company registers a substantial number of its trademarks/service marks in the United States Patent and Trademark Office, including many of its private label product trademarks and service marks. See “Retail Food Operations—Extreme Value Stores” and “Food Distribution Operations—Products Supplied” for further information. The company considers certain of its trademarks and service marks to be of material importance to its business and actively defends and enforces such trademarks and service marks.

Competition

The company’s retail food and food distribution businesses are highly competitive. The company believes that the success of its retail food and food distribution businesses are dependent upon the ability of the company’s retail food operations, and the retail food stores with whom it is affiliated as a supplier, to compete successfully with other retail food stores in a consolidating market. Principal competition comes from local, regional and national chains operating under a variety of formats that devote square footage to selling food (i.e. supercenters, supermarkets, extreme value stores, membership warehouse clubs, dollar stores, drug stores, convenience stores, various formats selling prepared foods, and other specialty and discount retailers), as well as from independent food stores. The company believes that the principal competitive factors that face its owned stores, as well as the stores owned by retailers it supplies, include the location and image of the store, the price, quality and variety of products, and the quality and consistency of service.

The food distribution business competes directly with a number of food wholesalers. The company believes it competes in this supply chain on the basis of product price, quality and assortment, schedule and reliability of deliveries, the range and quality of services provided, service fees, and the location of distribution facilities.

Employees

At February 28, 2004, the company had approximately 55,200 employees. Approximately 23,600 employees are covered by collective bargaining agreements. During fiscal 2004, 15 collective bargaining agreements covering 3,500 employees were re-negotiated. The only work stoppage in fiscal 2004 was a 28-day strike in the third quarter in the St. Louis market where the company operates 21 regional banner stores. In fiscal 2005, 22 collective bargaining agreements covering approximately 9,300 employees will expire. The company believes that it has generally good relations with its employees.

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ITEM 2.    PROPERTIES

Retail Food Operations

The following table is a summary of the corporate retail stores operated by the company under its principal retail formats as of February 28, 2004:

The extreme value stores that are leased by the company generally have terms of 5 to 10 years plus renewal options. The price superstores and supermarkets that are leased by the company generally have terms of 15 to 25 years plus renewal options.

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Food Distribution Operations

The following table is a summary of the company’s principal distribution centers and office space utilized in the company’s food distribution operations as of February 28, 2004:

Additional Property

The company’s principal executive offices are located in a 180,000 square foot corporate headquarters facility located in Eden Prairie, Minnesota, a western suburb of Minneapolis, Minnesota. This headquarters facility is located on a site of 140 acres owned by the company. Other facilities allocated for corporate use, include approximately 189,000 square feet of leased office space located in Chanhassen, Minnesota, 53,000 square feet of owned office space located in Stillwater, Minnesota and 35,000 square feet of leased office space in Denver, Colorado.

Additional information on the company’s properties can be found on pages F-24 through F-26 in the Leases note in the accompanying Notes to Consolidated Financial Statements. Management of the company believes its physical facilities and equipment are adequate for the company’s present needs and businesses.

ITEM 3.    LEGAL PROCEEDINGS

In July and August 2002, several class action lawsuits were filed against the company and certain of its officers and directors in the United States District Court for the District of Minnesota on behalf of purchasers of the company’s securities between July 11, 1999 and June 26, 2002. The lawsuits have been consolidated into a single action, in which it is alleged that the company and certain of its officers and directors violated Federal securities laws by issuing materially false and misleading statements relating to its financial performance. On April 29, 2004, the District Court for the District of Minnesota granted preliminary approval to a stipulation of settlement between the company and plaintiffs. A hearing for final approval of the settlement is scheduled for August 16, 2004. The settlement will have no material impact to the company’s consolidated statement of earnings or consolidated financial position.

The company is a party to various other legal proceedings arising from the normal course of business activities, none of which, in management’s opinion, is expected to have a material adverse impact on the company’s consolidated statement of earnings or consolidated financial position.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There was no matter submitted during the fourth quarter of fiscal year 2004 to a vote of the security holders of the Registrant.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table provides certain information concerning the executive officers of the company as of April 15, 2004.

The term of office of each executive officer is from one annual meeting of the directors until the next annual meeting of directors or until a successor for each is elected. There are no arrangements or understandings between any of the executive officers of the company and any other person pursuant to which any of the executive officers were selected as an officer of the company. There are no family relationships between or among any of the executive officers of the company.

Each of the executive officers of the company has been in the employ of the company or its subsidiaries for more than five consecutive years, except for John H. Hooley and David M. Oliver.

Mr. Hooley was elected to his current position in April 2002. From November 2000 to April 2002, he was Senior Vice President and President and Chief Executive Officer, Cub Foods. From February 2000 to September

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2000, he was Executive Vice President of Partner Alliances, 24K.com, a loyalty marketing company and affiliate of the Carlson Companies, Inc. From November 1992 to September 1999, he was presient and Chief Executive Officer of Cub Foods.

Mr. Oliver was elected to his current position in April 2004. From November 1999 to April 2004, he was Chief Financial Officer, Arden Group, Inc. From August 1998 until joining Arden Group, Inc. in November 1999, he was an independent consultant.

DIRECTORS OF THE REGISTRANT

The following table provides certain information concerning the directors of the company as of April 15, 2004.

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PART II

The company’s common stock is listed on the New York Stock Exchange under the symbol SVU. As of April 24, 2004, there were 135,328,998 shares of common stock outstanding. At that date, there were 6,782 stockholders of record, excluding individual participants in security position listings. The information called for by Item 5 as to the sales price for the company’s common stock on a quarterly basis during the last two fiscal years and dividend information is found under the heading “Common Stock Price” in Part II, Item 7 below.

During the fiscal year ended February 28, 2004, the company issued 17,000 shares of unregistered restricted common stock as stock bonuses to certain employees. The issuance of such shares did not constitute a “sale” within the meaning of Section 2(3) of the Securities Act of 1933, as amended.

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The information called for by Item 6 is found within the Five Year Financial and Operating Summary on page F-2.

OVERVIEW

SUPERVALU is one of the largest grocery companies in the United States. We operate within two complementary businesses in the grocery food industry, grocery retail and food distribution. At February 28, 2004, we conducted our retail operations through a total of 1,483 stores, including 821 licensed locations. Principal formats include extreme value stores, regional price superstores and regional supermarkets. Our food distribution operations network spans 48 states and we serve as primary grocery supplier to approximately 2,470 stores, in addition to our own regional banner store network, as well as serving as secondary grocery supplier to approximately 660 stores.

For the past several years, the approximate $500 billion revenue grocery food industry has been consolidating. As a result, market share has been concentrated in the larger grocery food companies. We participated in that consolidation through selective acquisition activities and the exit of certain markets. Based on revenues today, we would be ranked as the largest extreme value food retailer, 11th largest grocery retailer, and largest public company food wholesaler in the United States.

In addition to consolidation activities, the grocery industry has experienced store saturation driven primarily by the continued increase in square footage devoted to food in supercenters, club stores, mass merchandisers, dollar stores, drug stores and other alternate formats as well as organic growth by traditional supermarket operators. As a result, same-store sales growth for the industry has been soft, pressuring profitability levels in the industry as operating costs continue to rise at a rate faster than sales growth. We expect this industry environment to continue for the foreseeable future.

In fiscal 2004, our businesses benefited from the bankruptcy of Fleming Companies, Inc., formerly one of our largest food wholesale competitors. By entering into an asset exchange with C&S, we were able to affiliate certain former Fleming distribution operations in the Midwest in exchange for our New England operations. Even though overall revenues declined, approximately $200 million on an annual basis, as a result of the Asset Exchange, the efficiencies of our remaining operations were greatly enhanced as volume was concentrated in our existing facilities. It is expected that this transaction will provide incremental net earnings per share in fiscal 2005 of $.07 to $.10 per share.

The grocery industry is also affected by the general economic environment and its impact on consumer spending behavior. In fiscal 2003, we experienced moderate deflation in our product costs in a weak economic environment. We would characterize fiscal 2004 as a year with a modestly improving economy and more normal levels of consumer spending and product cost inflation. For fiscal 2005, we expect a modest inflationary environment and further economic recovery.

In fiscal 2004, most US businesses, including the labor intensive grocery industry were impacted by another year of rapidly rising health care and pension costs. These rising costs impacted the overall profitability levels of the food industry and have become a pivotal issue in labor negotiations for unionized employees who bargain for health and retirement benefits in addition to wages. Approximately 42% of SUPERVALU’s employees are unionized. In the St. Louis market, where we operate 21 regional supermarkets, we experienced a 28-day strike in the third quarter of fiscal 2004 (the “St. Louis Strike”). Approximately 40% of our unionized workforce are represented by contracts that are up for renewal in fiscal 2005.

All of these industry factors impact our food distribution customer base. As a result, we continue to experience revenue attrition in our food distribution operations in a historical range of approximately 2% to 4%.

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All the above factors will continue to impact our industry and our company in fiscal 2005.

We believe we can be successful against this industry backdrop with our regional retail formats that focus on local execution, merchandising, and consumer knowledge. In addition, our operations benefit from our efficient and low-cost supply chain and economies of scale as we leverage our retail and distribution operations. Save-A-Lot, our extreme value format, has nationwide potential, and currently operates in 37 states. After our fiscal 2003 acquisition of Deals, we tested in fiscal 2004 several new prototypes of an extreme value combination store, offering both food and dollar general merchandise. We are pleased with the performance of the new prototypes and the majority of our new extreme value food stores will be a type of combination store in the future. We plan to expand regional retail banner square footage through selective new store growth in key markets where we have significant market share. In addition, we will supplement regional retail store growth with continued focus on remodel activities. Given the life cycle maturity of our distribution business with its inherent attrition rate, future growth in food distribution will be modest and primarily achieved through serving new independent customers, net growth from existing customers and further consolidation opportunities. We will remain committed to streamlining our operations and improving our return on invested capital through a variety of initiatives.

RESULTS OF OPERATIONS

Highlights of results of operations as reported were as follows:

In fiscal 2003, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”, which required it to cease amortizing goodwill and test annually for impairment. Goodwill amortization of $48.4 million was included in fiscal 2002.

Comparison of fifty-three weeks ended February 28, 2004 (2004) with fifty-two weeks ended February 22, 2003 (2003):

In fiscal 2004, the company achieved net sales of $20.2 billion compared with $19.2 billion last year. Net earnings for fiscal 2004 were $280.1 million and diluted earnings per share were $2.07 compared with net earnings of $257.0 million and diluted earnings per share of $1.91 last year. Fiscal 2004 was a 53 week fiscal year, resulting in an extra week in the fourth quarter, which generated approximately $360.0 million in net sales and contributed approximately $.07 to diluted earnings per share. Fiscal 2004 operating results include the impact of the Asset Exchange, the sale or closure of its Denver based operations that included nine retail stores and a food distribution facility (the “Denver Disposition”) and the St. Louis Strike.

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Net Sales

Net sales for fiscal 2004 were $20.2 billion, an increase of 5.5 percent from last year. Retail food sales were 52.2 percent of net sales for fiscal 2004 compared with 51.4 percent last year. Food distribution sales were 47.8 percent of net sales for fiscal 2004 compared with 48.6 percent last year.

Retail food sales for fiscal 2004 increased 7.1 percent compared with last year, primarily reflecting new store openings, increases in same-store sales and the benefit of the extra week. Same-store retail sales for fiscal 2004 were positive 2.1 percent.

Fiscal 2004 store activity, including licensed units, resulted in 107 new stores opened and 41 stores closed, including the sale or closure of our Denver based stores, for a total of 1,483 stores at year end. Total square footage increased approximately 3.8 percent over the prior year.

Food distribution sales for fiscal 2004 increased 3.7 percent compared with last year, primarily reflecting the impact of new customer affiliations and the benefit of the extra week, which more than offset customer attrition, and the net revenue loss as a result of the Asset Exchange.

Gross Profit

Gross profit (calculated as net sales less cost of sales), as a percent of net sales, was 14.1 percent for fiscal 2004 compared with 13.5 percent last year. The increase in gross profit, as a percent of net sales, primarily reflects improved merchandising execution for retail, including the expansion of general merchandise in the extreme value format, and the growing proportion of our retail food business, which operates at a higher gross profit margin as a percentage of net sales than does the food distribution business.

Selling and Administrative Expenses

Selling and administrative expenses, as a percentage of net sales, were 11.0 percent for fiscal 2004 compared with 10.5 percent last year. The increase in selling and administrative expenses, as a percent of net sales, primarily reflects increases in employee benefit and incentive related costs, costs associated with the Denver Disposition, including related reserves for closed stores, $10.8 million in additional reserves for non-operating properties and approximately $5 million in net litigation settlements.

Restructure and Other Charges

In fiscal 2004, the company incurred $15.5 million, or 0.1 percent of net sales, in pre-tax restructure and other charges, consisting of $8.5 million for changes in estimates on exited real estate in certain markets for food distribution and $7.0 million for increased liabilities associated with employee benefit related costs from previously exited food distribution facilities.

Operating Earnings

Operating earnings for fiscal 2004 increased 5.5 percent to $601.4 million compared with $569.9 million last year. Fiscal 2004 operating earnings include $15.5 million in pre-tax restructure and other charges. Fiscal 2003 operating earnings include $2.9 million in pre-tax restructure and other charges. Retail food operating earnings for fiscal 2004 increased 1.7 percent to $444.0 million, or 4.2 percent of net sales, from last year’s operating earnings of $436.5 million, or 4.4 percent of net sales. The increase in retail food operating earnings was primarily due to growth of new stores, improved merchandising execution and the benefit of the extra week which were substantially offset by increases in employee benefit and incentive related costs, costs associated with the Denver Disposition, including related reserves for closed stores and the impact of the St. Louis Strike. Food distribution operating earnings for fiscal 2004 increased 29.6 percent to $222.5 million, or 2.3 percent of net sales, from last year’s operating earnings of $171.6 million, or 1.8 percent of net sales. The increase in food distribution operating earnings primarily reflects the increase in sales volume, benefits of efficiency initiatives implemented during the course of the prior year and the benefit of the extra week.

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Net Interest Expense

Interest expense was $165.6 million in fiscal 2004 compared with $182.5 million last year. The decrease primarily reflects lower borrowing levels that more than offset $5.8 million in pre-tax costs related to the early redemption of $100 million of debt at a price of 103.956 percent in the third quarter of fiscal 2004. Interest income was $19.1 million in fiscal 2004 compared with $20.6 million last year.

Income Taxes

The effective tax rate was 38.4 percent and 37.0 percent in fiscal 2004 and fiscal 2003, respectively. The increase in the effective tax rate in the current year was due to $7.6 million of taxes due on the Asset Exchange.

Net Earnings

Net earnings were $280.1 million, or $2.07 per diluted share, in fiscal 2004 compared with net earnings of $257.0 million, or $1.91 per diluted share last year.

Weighted average diluted shares increased to 135.4 million fiscal 2004 compared with 134.9 million shares last year, reflecting the net impact of stock option activity and shares repurchased under the treasury stock program.

Comparison of fifty-two weeks ended February 22, 2003 (2003) with fifty-two weeks ended February 23, 2002 (2002):

Net Sales

Net sales for 2003 were $19.2 billion, a decrease of 5.6 percent from 2002. Retail food sales were 51.4 percent of net sales for 2003 compared with 47.1 percent for 2002. Food distribution sales were 48.6 percent of net sales for 2003 compared with 52.9 percent for 2002.

Retail food sales for 2003 increased 3.1 percent compared to 2002, primarily as a result of new store growth. Same-store retail sales for 2003 were negative 1.1 percent, impacted by approximately 1.2 percent of planned in-market expansion. Other factors contributing to the decline in same store sales performance include a weakened economy and a more intense promotional environment.

Fiscal 2003 store activity, including licensed units, resulted in 198 new stores opened and acquired, including the acquisition of 50 Deals stores and 41 stores closed or sold for a total of 1,417 stores at year end. Total square footage increased approximately 6.6 percent over the prior year.

Food distribution sales for 2003 decreased 13.3 percent compared to 2002, primarily reflecting customers lost in 2002 including the exit of the Kmart supply contract and the loss of Genuardi’s as a customer and sales losses from restructure activities, which accounted for approximately eight percent, three percent and one percent, respectively, of the decrease in food distribution sales.

Gross Profit

Gross profit (calculated as net sales less cost of sales), as a percentage of net sales, was 13.5 percent for 2003 compared to 12.8 percent for 2002. The increase in gross profit, as a percentage of net sales, reflects the growing proportion of the company’s retail food business, which operates at a higher gross profit margin as a percentage of net sales than does the food distribution business, including the higher gross profit margin of the recently acquired and opened Deals stores. Gross profit in retail benefited from improved merchandising execution. Gross profit in distribution was negatively impacted by a change in our distribution customer mix.

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Selling and Administrative Expenses

Selling and administrative expenses, as a percentage of net sales, were 10.5 percent for 2003 compared to 10.1 percent for 2002. Selling and administrative expenses include $12.5 million in store closing reserves recorded in fiscal 2002. Fiscal 2002 also includes goodwill amortization of $48.4 million. The increase in selling and administrative expenses, as a percentage of net sales, reflects the growing proportion of the company’s retail food business, which operates at a higher selling and administrative expense as a percentage of net sales than does the food distribution business, including the higher selling and administrative expense ratio of the recently acquired and opened Deals stores.

Operating Earnings

The company’s operating earnings were $569.9 million for 2003 compared to $504.8 million for 2002, a 12.9 percent increase. Fiscal 2003 operating earnings include $2.9 million for restructure and other charges. Fiscal 2002 operating earnings include $46.3 million for restructure and other charges and $12.5 million in store closing reserves. Retail food 2003 operating earnings increased 20.2 percent to $436.5 million, or 4.4 percent of net sales, from 2002 operating earnings of $363.3 million, or 3.8 percent of net sales. Fiscal 2002 retail food operating earnings include goodwill amortization of $25.3 million. The remaining increase in retail food operating earnings was primarily due to growth of new stores and improved merchandising execution in retail. Food distribution 2003 operating earnings decreased 24.4 percent to $171.6 million, or 1.8 percent of net sales, from 2002 operating earnings of $227.0 million, or 2.1 percent of net sales. Fiscal 2002 food distribution operating earnings included goodwill amortization of $23.1 million. The decrease in food distribution operating earnings primarily reflects the decrease in sales volume and a change in our distribution customer mix.

Net Interest Expense

Interest expense decreased to $182.5 million in 2003 compared with $194.3 million in 2002, reflecting lower borrowing levels and lower average interest rates, largely due to the interest rate swap agreements entered into in 2003. Interest income decreased to $20.6 million in 2003 compared with $21.5 million in 2002.

Income Taxes

The effective tax rate was 37.0 percent in 2003 compared with 40.3 percent in 2002. The decrease in the effective tax rate was due to the discontinuation of goodwill amortization as of February 24, 2002, which is not deductible for income tax purposes.

Net Earnings

Net earnings were $257.0 million, or $1.91 per diluted share, in 2003 compared with net earnings of $198.3 million, or $1.48 per diluted share in 2002.

Weighted average diluted shares increased to 134.9 million in 2003 compared with 2002 weighted average diluted shares of 134.0 million, reflecting the net impact of stock option activity and shares repurchased under the treasury stock program.

RESTRUCTURE AND OTHER CHARGES

For fiscal 2004, the company recognized pre-tax restructure and other charges of $15.5 million. The charges reflect the net adjustments to the restructure reserves and asset impairment charges of $0.6 million, $14.4 million and $0.5 million for restructure 2002, 2001 and 2000, respectively. The increases are due to continued softening of real estate in certain markets and higher than anticipated employee benefit related costs.

The following information includes only those restructure and other charges that are the result of previously initiated restructure activities. In addition, the company maintains reserves and has recorded certain impairments for properties that have been closed as part of management’s ongoing operating decisions. Those reserves and impairment charges are disclosed within the Reserves for Closed Properties and Asset Impairment section.

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Fiscal 2004 net cash outflows relating to all restructure plans were approximately $20 million. Remaining future net cash outflows primarily relate to expected net future payments on exited real estate and employee related costs, net of after-tax proceeds from the sale of owned properties. Cash outflows will be funded by cash from operations.

Restructure 2002

In fiscal 2002, the company identified additional efforts that would allow it to extend its food distribution efficiency program that began early in fiscal 2001. The additional food distribution efficiency initiatives identified resulted in pre-tax restructure charges of $16.3 million, primarily related to personnel reductions in administrative and transportation functions. Management began the initiatives in fiscal 2003 and the majority of these actions were completed by the end of fiscal 2003.

In fiscal 2003, the fiscal 2002 restructure charges were decreased by $3.6 million, including a decrease of $1.4 million due to lower than anticipated lease related costs in transportation efficiency initiatives and a decrease of $2.2 million in employee related costs due to lower than anticipated severance costs.

In fiscal 2004, the fiscal 2002 restructure charges were increased by $0.6 million due to higher than anticipated severance costs for certain employees.

Remaining reserves for the fiscal 2002 restructure plan represent future lease payments. Details of the fiscal 2002 restructure activity for fiscal 2004 are as follows:

Details of the fiscal 2002 restructure activity as it relates to the number of terminated employees are as follows:

Restructure 2001

In fiscal 2001, the company completed a strategic review that identified certain assets that did not meet return objectives, provide long-term strategic opportunities or justify additional capital investments. This review process culminated in the company recording pre-tax restructure and other charges of $181.6 million, including $89.7 million for asset impairment charges, $52.1 million for lease subsidies, lease cancellation fees, future payments on exited real estate and guarantee obligations and $39.8 million for severance and employee related costs.

In fiscal 2002, the fiscal 2001 restructure and other charges were increased by $17.8 million as a result of changes in estimates primarily due to the softening real estate market, including $19.1 million for increased lease liabilities in exiting the non-core retail markets and the disposal of non-core assets, offset by a net decrease of $1.3 million in restructure reserves for the consolidation of distribution centers.

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In fiscal 2003, the fiscal 2001 restructure and other charges were increased by $8.1 million, including an $11.7 million increase to the restructure reserves offset by a decrease in asset impairment charges of $3.6 million. The reserve increase of $11.7 million was a result of changes in estimates on exited real estate primarily due to the continued softening of real estate marketed for sale, sublease or assignment in certain markets, including approximately $5 million relating to the consolidation of distribution centers, $6 million relating to the exit of non-core retail markets and $1.2 million in higher than anticipated employee related costs primarily in the exit of non-core retail markets.

For fiscal 2004, the fiscal 2001 restructure and other charges were increased by $14.4 million, including an $11.7 million increase to the restructure reserves and a $2.7 million increase in asset impairment charges. The reserve increase of $11.7 million was a result of changes in estimates on employee benefit related costs from previously exited food distribution facilities and changes in estimates on exited real estate in certain markets for food distribution properties.

Included in the asset impairment charges in fiscal 2001 of $89.7 million were $57.4 million of charges related to retail food properties and $32.3 million of charges related to food distribution properties. Writedowns for property, plant and equipment, goodwill and other intangibles, and other assets were $58.4 million, $21.8 million and $9.5 million, respectively, and were reflected in the “Restructure and other charges” line in the Consolidated Statements of Earnings for fiscal 2001. In fiscal 2003, the fiscal 2001 asset impairment charges for property, plant and equipment were decreased by $3.6 million primarily due to changes in estimates on exited real estate in certain markets and includes a decrease of $8.2 million in estimates related to certain food distribution properties offset by an increase of $4.6 million in estimates related to certain retail food properties. In fiscal 2004, the fiscal 2001 asset impairment charges for property, plant and equipment were increased by $2.7 million primarily due to changes in estimates on exited real estate in certain markets for food distribution properties. The impairment charges reflect the difference between the carrying value of the assets and the estimated fair values, which were based on the estimated market values for similar assets.

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All activity for the fiscal 2001 restructure plan has been completed. Remaining reserves represent future payments on exited real estate and employee benefit related costs from previously exited food distribution facilities. Details of the fiscal 2001 restructure activity for fiscal 2004 are as follows:

The number of actual employees terminated under the fiscal 2001 restructure plan was adjusted to a lower number than originally expected primarily due to higher than anticipated voluntary attrition. There was no activity in fiscal 2004. Details of the fiscal 2001 restructure activity as it relates to the number of terminated employees are as follows:

Restructure 2000

In fiscal 2000, the company recorded pre-tax restructure and other charges of $103.6 million as a result of an extensive review to reduce costs and enhance efficiencies. Included in this total was $17.4 million for asset impairment costs. The restructure and other charges include costs for facility consolidation, non-core store disposal, and rationalization of redundant and certain decentralized administrative functions. The original reserve amount was reduced by $10.3 million in fiscal 2001, primarily as a result of a change in estimate for the closure of a remaining facility. The reserve amount was subsequently increased $12.2 million in fiscal 2002, due to a change in estimate on a remaining facility primarily due to the softening real estate market.

In fiscal 2003, the fiscal 2000 restructure and other charges were decreased by $1.6 million, including a $2.9 million increase to the restructure reserves offset by a decrease in asset impairment charges of $4.5 million. The reserve increase of $2.9 million was a result of changes in estimates on exited real estate primarily due to the continued softening of real estate marketed for sale, sublease or assignment in certain markets and higher than anticipated employee related costs.

In fiscal 2004, the fiscal 2000 restructure and other charges were increased by $0.5 million as a result of changes in estimates on exited real estate due to the continued softening of real estate marketed for sale, sublease or assignment in certain markets.

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Included in the asset impairment charges in fiscal 2000 of $17.4 million were writedowns on food distribution assets of $10.6 million for property, plant and equipment, $5.6 million of goodwill and other intangibles, and $1.2 million for other assets that were reflected in the “Restructure and other charges” line in the Consolidated Statements of Earnings for fiscal 2000. In fiscal 2003, the fiscal 2000 asset impairment charges for property, plant and equipment on food distribution properties were decreased by $4.5 million primarily due to changes in estimates on exited real estate in certain markets. The impairment charges reflect the difference between the carrying value of the assets and the estimated fair values, which were based on the estimated market values for similar assets.

All activity for the fiscal 2000 restructure plan has been completed. Remaining reserves represent future payments on exited real estate. Details of the fiscal 2000 restructure activity for fiscal 2004 are as follows:

The number of actual employees terminated under the fiscal 2000 restructure plan was adjusted to a lower number than originally expected primarily due to higher than anticipated voluntary attrition. There was no activity in fiscal 2003 or fiscal 2004. Details of the fiscal 2000 restructure activity as it relates to the number of terminated employees are as follows:

CRITICAL ACCOUNTING POLICIES

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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.

Significant accounting policies are discussed in the Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements. Management believes the following critical accounting policies reflect its more subjective or complex judgments and estimates used in the preparation of the company’s consolidated financial statements.

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LIFO and Retail Inventory Method

For a significant portion of the company’s inventory, cost is determined through use of the last-in, first-out (LIFO) method. The Company utilized LIFO to value approximately 68 percent and 71 percent of the company’s consolidated inventories for fiscal 2004 and 2003, respectively.

The retail inventory method (RIM) is used to value retail inventory. The valuation of inventories are at cost and the resulting gross margins are calculated by applying a calculated cost-to-retail ratio to the retail value of inventories. RIM is an averaging method that has been widely used in the retail industry due to its practicality. Inherent in the RIM calculations are certain significant management judgments and estimates, including shrinkage, which significantly impact the ending inventory valuation at cost, as well as the resulting gross margins. These judgments and estimates, coupled with the fact that the RIM is an averaging process, can, under certain circumstances, produce results which differ from actual. Management believes that the company’s RIM provides an inventory valuation which reasonably approximates cost and results in carrying inventory at the lower of cost or market.

Allowances for Losses on Receivables

Management makes estimates of the uncollectibility of its accounts and notes receivable portfolios. In determining the adequacy of the allowances, management analyzes the value of the collateral, customer financial statements, historical collection experience, aging of receivables and other economic and industry factors. Although risk management practices and methodologies are utilized to determine the adequacy of the allowance, it is possible that the accuracy of the estimation process could be materially impacted by different judgments as to collectibility based on the information considered and further deterioration of accounts.

Reserves for Closed Properties and Asset Impairment Charges

The company maintains reserves for estimated losses on retail stores, distribution warehouses and other properties that are no longer being utilized in current operations. The company provides for closed property lease liabilities using a discount rate to calculate the present value of the remaining noncancellable lease payments after the closing date, net of estimated subtenant income. The closed property lease liabilities usually are paid over the remaining lease terms, which generally range from one to 20 years. The company estimates subtenant income and future cash flows based on the company’s experience and knowledge of the market in which the closed property is located, the company’s previous efforts to dispose of similar assets and current economic conditions.

Owned properties that are closed are reduced to their estimated net realizable value. Costs to reduce the carrying values of property, equipment and leasehold improvements are accounted for in accordance with our policy on impairment of long-lived assets. Impairment charges on long-lived assets are recognized when expected net future cash flows are less than the assets’ carrying value. The company estimates net future cash flows based on its experience and knowledge of the market in which the closed property is located and, when necessary, utilizes local real estate brokers.

Adjustments to closed property reserves primarily relate to changes in subtenant income or actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the changes become known. Closed property reserves are reviewed quarterly to ensure that any accrued amount that is not a sufficient estimate of future costs, or that no longer is needed for its originally intended purpose, is adjusted to income in the proper period.

The expectations on timing of disposition or sublease and the estimated sales price or sublease income associated with closed properties are impacted by variable factors such as inflation, the general health of the economy, resultant demand for commercial property, the ability to secure subleases, the creditworthiness of sublessees and the company’s success at negotiating early termination agreements with lessors. While management believes the current estimates on closed properties are adequate, it is possible that continued

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weakness in the real estate market could cause changes in the company’s assumptions and may require additional reserves and asset impairment charges to be recorded.

Reserves for Self Insurance

The company is primarily self-insured for workers’ compensation and general and automobile liability costs. It is the company’s policy to record its self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported, discounted at a risk free interest rate. Any projection of losses concerning workers’ compensation and general and automobile liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns. A 100 basis point change in discount rates, based on changes in market rates would increase the company’s liability by approximately $1.1 million.

Retirement Plans

The company sponsors non-union pension and other post retirement plans in various forms covering substantially all employees who meet eligibility requirements. The determination of the company’s obligation and expense for non-union pension and other post retirement benefits is dependent, in part, on management’s selection of certain assumptions used by its actuaries in calculating these amounts. These assumptions include, among other things, the discount rate, the expected long-term rate of return on plan assets and the rates of increase in compensation and health care costs. In accordance with generally accepted accounting principles, actual results that differ from the company’s assumptions are accumulated and amortized over future periods and, therefore, affect its recognized expense and recorded obligation in such future periods. While the company believes that its assumptions are appropriate, significant differences in actual experience or significant changes in assumptions may materially impact pension and other post retirement obligations and future expenses.

The company lowered its expected return on plan assets used for fiscal 2004 pension expense by 25 basis points to 9.00 percent and by an additional 25 basis points to 8.75 percent for fiscal 2005 pension expense. The company also lowered its discount rate by 75 basis points to 6.25 percent for fiscal 2005 pension expense. For fiscal 2005, when not considering other changes in assumptions, the impact to pension expense of each 25 basis point reduction in the discount rate is to increase pension expense by approximately $3 million and the impact of each 25 basis point reduction in expected return on plan assets is to increase pension expense by approximately $1 million.

The assumed health care cost trend rate used in measuring the accumulated post retirement benefit obligation was 8.0 percent in fiscal 2004. The assumed health care cost trend rate will decrease by one percent each year for the next three years until it reaches the ultimate trend rate of 5.0 percent. The health care cost trend rate assumption has a significant impact on the amounts reported. A one percent increase in the trend rate would increase the accumulated post retirement benefit obligation by $7.0 million and the net periodic cost by $0.4 million in fiscal 2004. In contrast, a one percent decrease in the trend rate would decrease the accumulated post retirement benefit obligation by $6.6 million and the net periodic cost by $0.4 million in fiscal 2004. The weighted average discount rates used in determining the benefit obligation were 6.25% and 7.00% for fiscal 2004 and 2003, respectively.

The actuarial assumptions used by the company may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates, and longer or shorter life spans of participants.

Goodwill

Management assesses the valuation of goodwill for each of the company’s reporting units on an annual basis through the comparison of the fair value of the respective reporting unit with its carrying value. Fair value is

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determined primarily based on valuation studies performed by the company, which utilize a discounted cash flow methodology. Valuation analysis requires significant judgments and estimates to be made by management. The company’s estimates could be materially impacted by factors such as competitive forces, customer behaviors, changes in growth trends and specific industry conditions.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $832.2 million, $587.6 million, and $692.5 million in fiscal 2004, 2003 and 2002, respectively. The increase in cash from operating activities in fiscal 2004 from fiscal 2003 is primarily related to changes in assets and liabilities reflecting changes in working capital including timing differences for tax payments and increases in the minimum pension liability.

Net cash used in investing activities was $257.0 million, $334.7 million, and $224.7 million in fiscal 2004, 2003, and 2002, respectively. Fiscal 2004 investing activities primarily reflect capital spending to fund retail store expansion, store remodeling, extreme value distribution facilities and technology enhancements. Fiscal 2003 investing activities primarily reflect capital spending to fund retail store expansion, including the acquisition of Deals, store remodeling and technology enhancements.

Net cash used in financing activities was $312.5 million, $235.9 million, and $466.1 million in fiscal 2004, 2003 and 2002, respectively. Fiscal 2004 financing activities primarily reflect the early redemption of $100.0 million of the company’s 8.875% notes due in 2022 at the redemption price of 103.956% of the principal amount of the notes, the net reduction in notes payable of $80.0 million, the payment of dividends of $77.0 million and the purchase of treasury shares of $14.6 million. Fiscal 2003 financing activities primarily reflect the issuance of $300.0 million 10-year 7.50% Senior Notes, completed in May 2002, the early redemption of $173.0 million of the company’s 9.75% Senior Notes due in fiscal 2005 at the redemption price of 102.4375% of the principal amount of the Senior Notes, the retirement of a $300 million 7.80% notes that matured in November 2002, the payment of dividends of $75.6 million and the purchase of treasury shares of $42.2 million.

On April 1, 2004, the company completed the sale of its minority ownership interest in WinCo Foods, Inc., a privately-held regional grocery chain that operates stores in Idaho, Oregon, Nevada, Washington and California. The company received after-tax proceeds of approximately $150 million on the sale of WinCo. See Subsequent Events note on page F-36 of the accompanying Notes to Consolidated Financial Statements. The impact of this transaction to fiscal 2005 is estimated to reduce net earnings by approximately $0.10 per share, reflecting the elimination of WinCo’s non-cash equity earnings and increase net earnings by approximately $0.50 per share for the one-time after-tax gain on the sale.

Management expects that the company will continue to replenish operating assets with internally generated funds. There can be no assurance, however, that the company’s business will continue to generate cash flow at current levels. The company will continue to obtain short-term financing from its revolving credit agreement with various financial institutions, as well as through its accounts receivable securitization program. Long-term financing will be maintained through existing and new debt issuances. The company’s short-term and long-term financing abilities are believed to be adequate as a supplement to internally generated cash flows to fund its capital expenditures and acquisitions as opportunities arise. Maturities of debt issued will depend on management’s views with respect to the relative attractiveness of interest rates at the time of issuance and other debt maturities.

As of February 28, 2004, the company’s current portion of outstanding debt including obligations under capital leases was $305.9 million. The company had no outstanding borrowings under its unsecured $650.0 million revolving credit facility. Letters of credit outstanding under the credit facility were $120.1 million and the unused available credit under the facility was $529.9 million. The Company also had $25.6 million of outstanding letters of credit issued under separate agreements with financial institutions.

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On May 3, 2004, the company utilized after-tax WinCo proceeds and additional cash balances to voluntarily redeem $250 million of 7 5/8 percent Notes due September 15, 2004, in accordance with the note redemption provisions.

On September 13, 2003, the company acquired certain former Fleming Companies’ distribution operations in the Midwest pursuant to the Asset Exchange. This transaction had no material impact on liquidity or capital resources in fiscal 2004. This transaction is expected to contribute to fiscal 2005 earnings per share in the range of $0.07 to $0.10 on an approximately $200 million lower revenue stream.

In August 2003, the company renewed its annual accounts receivable securitization program, under which the company can borrow up to $200.0 million on a revolving basis, with borrowings secured by eligible accounts receivable. Outstanding borrowings under this program at February 28, 2004 and February 22, 2003, were $0 and $80.0 million, respectively, and are reflected as a component of “notes payable” in the accompanying Consolidated Balance Sheets. The average short-term interest rate was 1.32% for fiscal 2004.

In November 2001, the company sold zero-coupon convertible debentures having an aggregate principal amount at maturity of $811.0 million. The proceeds from the offering, net of approximately $5.0 million of expenses, were $208.0 million and were initially used to pay down notes payable and were later used to retire a portion of the $300.0 million in debt that matured in November 2002. The debentures mature in 30 years and are callable at the company’s option on or after October 1, 2006. Holders may require the company to purchase all or a portion of their debentures on October 1, 2003, October 1, 2006 or October 1, 2011 at a purchase price equal to the accreted value of the debentures, which includes accrued and unpaid cash interest. If the option is exercised, the company has the choice of paying the holder in cash, common stock or a combination of the two. The debentures will generally be convertible if the closing price of the company’s common stock on the New York Stock Exchange for twenty of the last thirty trading days of any fiscal quarter exceeds certain levels, at $36.58 per share for the quarter ending June 19, 2004, and rising to $113.29 per share at September 6, 2031. In the event of conversion, 9.6434 shares of the company’s common stock will be issued per $1,000 debenture. The debentures have an initial yield to maturity of 4.5%, which is being accreted over the life of the debentures using the effective interest method. The company may pay contingent cash interest for the six-month period commencing November 3, 2006, and for any six-month period thereafter if the average market price of the debentures for a five trading day measurement period preceding the applicable six-month period equals 120% or more of the sum of the issue price and accrued original issue discount for the debentures. The debentures are classified as long-term debt based on the company’s ability and intent to refinance the obligation with long-term debt if the company is required to repurchase the debentures.

The company is party to synthetic leasing programs for two of its major warehouses. The leases expire in September 2004 and April 2008. The lease that expires in September 2004 may be renewed with the lessor’s consent through September 2006, and has a purchase option of approximately $25 million. The lease that expires in April 2008 may be renewed with the lessor’s consent through April 2013, and has a purchase option of approximately $60 million.

During fiscal 2004, the company repurchased 0.6 million shares of common stock at an average cost of $23.80 per share as part of the 5.0 million share repurchase program authorized in fiscal 2003 for employee compensation-related programs. During fiscal 2003, the company repurchased 1.5 million shares of common stock at an average cost of $27.94 per share as part of the 5.0 million share repurchase program authorized in fiscal 2002.

SFAS No. 87, “Employers’ Accounting for Pension”, requires that a prepaid pension asset or minimum pension liability, based on the current market value of plan assets and the accumulated benefit obligation of the plan, be reflected. Based on both performance of the pension plan assets and plan assumption changes, the company recorded a net after-tax other comprehensive loss adjustment in the fourth quarter of fiscal 2004 of

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$26.4 million to reflect a minimum pension liability of $98.7 million after-tax as of February 28, 2004. This other comprehensive loss adjustment was a non-cash reduction of equity and did not impact earnings. This other comprehensive loss adjustment will be revised in future years depending upon market performance and interest rate levels.

The company’s capital budget for fiscal 2005, which includes capitalized leases, is projected at approximately $400.0 million to $425.0 million, compared with actual spending of $371.5 million in fiscal 2004. The capital budget for 2005 anticipates cash spending of $340.0 million to $365.0 million, in addition to $60.0 million for capital leases. Approximately $300.0 million of the fiscal 2005 budget has been identified for use in the company’s retail food business and includes approximately eight to 10 regional banner stores and approximately 110 to 140 new extreme value stores, including extreme value general merchandise combination stores and approximately 30 regional banner major store remodels. The balance of the fiscal 2005 capital budget relates to distribution maintenance capital and information technology related items. In addition, the company will continue to support store development and financing for the company’s independent retailers. Certain retailer financing activities may not require new cash outlays because they involve leases or guarantees. The capital budget does include amounts for projects which are subject to change and for which firm commitments have not been made.

Cash dividends declared during fiscal 2004, 2003, and 2002 totaled $0.5775, $0.5675 and $0.5575 per common share, respectively. The company’s dividend policy will continue to emphasize a high level of earnings retention for growth.

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS

The company has guaranteed certain leases, fixture financing loans and other debt obligations of various retailers at February 28, 2004. These guarantees were generally made to support the business growth of affiliated retailers. The guarantees are generally for the entire term of the lease or other debt obligation with remaining terms that range from less than one year to twenty-two years, with a weighted average remaining term of approximately ten years. For each guarantee issued, if the affiliated retailer 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 affiliated retailer. At February 28, 2004, the maximum amount of undiscounted payments the company would be required to make in the event of default of all guarantees was $290.4 million and represented $180.3 million on a discounted basis. No amount has been accrued for the company’s obligation under its guaranty arrangements. In addition, the company has guaranteed a construction loan on a warehouse of $1.5 million at February 28, 2004 that the company will purchase upon completion. The company has evaluated its agreements that contain guarantees and indemnification clauses in accordance with the guidance of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. As of February 28, 2004, the company did not have any material guarantees that were issued or modified since December 31, 2002.

The company is party to synthetic leasing programs for two of its major warehouses. The leases expire in September 2004 and April 2008. The lease that expires in September 2004 may be renewed with the lessor’s consent through September 2006, and has a purchase option of approximately $25 million. The lease that expires in April 2008 has a purchase option of $60.0 million. At February 28, 2004, the estimated market value of the properties underlying these leases equaled or exceeded the purchase options. The company’s obligation under its guaranty arrangements related to these synthetic leases had a carrying balance of $2.8 million, which is a component of “other liabilities” in the accompanying Consolidated Balance Sheet at February 28, 2004.

The company had $145.7 million of outstanding letters of credit as of February 28, 2004, of which $120.1 million were issued under the credit facility and $25.6 million were issued under separate agreements with financial institutions. These letters of credit primarily support workers’ compensation, merchandise import programs and payment obligations. The company pays fees, which vary by instrument, of up to 1.125% on the outstanding balance of the letter credit.

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In July and August 2002, several class action lawsuits were filed against the company and certain of its officers and directors in the United States District Court for the District of Minnesota on behalf of purchasers of the company’s securities between July 11, 1999 and June 26, 2002. The lawsuits have been consolidated into a single action, in which it is alleged that the company and certain of its officers and directors violated Federal securities laws by issuing materially false and misleading statements relating to its financial performance. On April 29, 2004, the District Court for the District of Minnesota granted preliminary approval to a stipulation of settlement between the company and plaintiffs. A hearing for final approval of the settlement is scheduled for August 16, 2004. The settlement will have no material impact to the company’s consolidated statement of earnings or consolidated financial position.

The company is a party to various legal proceedings arising from the normal course of business activities, none of which, in management’s opinion, is expected to have a material adverse impact on the Company’s consolidated statement of earnings or consolidated financial position.

The following table represents the company’s significant contractual obligations and off-balance sheet arrangements at February 28, 2004.

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COMMON STOCK PRICE

SUPERVALU’s common stock is listed on the New York Stock Exchange under the symbol SVU. At fiscal 2004 year end, there were 6,839 shareholders of record compared with 6,960 at the end of fiscal 2003.

Dividend payment dates are on or about the 15th day of March, June, September and December, subject to the Board of Directors approval.

NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The company adopted the provisions of SFAS No. 143 in the first quarter of fiscal 2004. The adoption of SFAS No. 143 did not have an impact on the company’s consolidated financial statements.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 allows only those gains and losses on the extinguishment of debt that meet the criteria of extraordinary items to be treated as such in the financial statements. SFAS No. 145 also requires sale-leaseback accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Certain provisions of SFAS No. 145 were effective for transactions occurring after May 15, 2002, while the remaining provisions were effective for the company in the second quarter of fiscal 2004. The adoption of SFAS No. 145 did not have an impact on the company’s consolidated financial statements.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments imbedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have an impact on the company’s consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on the company’s consolidated financial statements.

In December 2003, the FASB issued revisions to SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. These revisions require changes to existing disclosures as well as new disclosures related to pension and other postretirement benefit plans. The revisions to SFAS No. 132, except for those relating to expected future benefit payments, are effective for fiscal years ending after December 15, 2003

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and have been incorporated in the accompanying Notes to Consolidated Financial Statements. Additional disclosures about expected future benefit payments are required for fiscal years ending after June 15, 2004 and will be incorporated in the company’s fiscal 2005 consolidated financial statements.

In January 2004, the FASB issued SFAS No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This statement permits a sponsor to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, or the Prescription Drug Act. The Prescription Drug Act, signed into law in December 2003, establishes a prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. SFAS No. 106-1 does not provide specific guidance as to whether a sponsor should recognize the effects of the Prescription Drug Act in its financial statements. The Prescription Drug Act introduces two new features to Medicare that must be considered when measuring accumulated postretirement benefit costs. The new features include a subsidy to the plan sponsors that is based on 28% of an individual beneficiary’s annual prescription drug costs between $250 and $5,000 and an opportunity for a retiree to obtain a prescription drug benefit under Medicare. The Prescription Drug Act is not expected to reduce the company’s net postretirement benefit costs. The company has elected to defer adoption of SFAS No. 106-1 due to the lack of specific guidance. Therefore, the net postretirement benefit costs disclosed in the company’s financial statements do not reflect the impacts of the Prescription Drug Act on the plans. The deferral will continue to apply until specific authoritative accounting guidance for the federal subsidy is issued. Authoritative guidance on the accounting for the federal subsidy is pending and, when issued, could require information previously reported in the company’s financial statements to change. The company is currently investigating the impacts of SFAS 106-1’s initial recognition, measurement and disclosure provisions on its consolidated financial statements.

Emerging Issues Task Force (EITF) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”, addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. EITF Issue No. 00-21 establishes three principles: revenue arrangements with multiple deliverables should be divided into separate units of accounting; arrangement consideration should be allocated among the separate units of accounting based on their relative fair values; and revenue recognition criteria should be considered separately for separate units of accounting. EITF Issue No. 00-21 was effective for all revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 did not have an impact on the company’s consolidated financial statements.

EITF Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease”, determines whether an arrangement conveying the right to use property, plant and equipment meets the definition of a lease within the scope of SFAS 13, “Accounting for Leases”. EITF Issue No. 01-8 was effective the first interim period beginning after May 28, 2003. The adoption of EITF Issue No. 01-8 did not have an impact on the company’s consolidated financial statements.

EITF Issue No. 03-1, “The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments”, addresses both qualitative and quantitative disclosures. These disclosures are required for marketable equity and debt securities accounted for under FASB Statements No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. The disclosure requirements were effective for fiscal years ending after December 15, 2003. The adoption of EITF Issue No. 03-1 did not have an impact on the company’s consolidated financial statements.

EITF Issue No. 03-10, “Application of EITF 02-16, ‘Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor,’ by Resellers to Sales Incentives Offered to Consumers by Manufacturers”, requires that when specified criteria are met, a retailer accepting manufacturers’ coupons should reflect the value of the coupon as revenue and not as a reduction in cost of sales. EITF Issue No. 03-10 was effective for the first interim period beginning after November 25, 2003. The adoption of EITF Issue No. 03-10 did not have an impact on the company’s consolidated financial statements.

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In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, “Guarantor’s Accounting and Disclosures Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires that upon issuance of a guarantee, a guarantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 were effective for guarantees issued after December 31, 2002, while the disclosure requirements were effective for financial statements for periods ending after December 15, 2002. The adoption of FIN 45 did not have a material effect on the company’s consolidated financial statements.

In December 2003, the FASB issued FIN 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46R), which addresses how a business should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaced FIN 46 which was issued in January 2003. FIN 46 or FIN 46R applied immediately to entities created after January 31, 2003 and no later than the end of the first reporting period that ended after December 15, 2003 to entities considered to be special-purpose entities (SPEs). FIN 46R is effective for all other entities no later than the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of the provisions of FIN 46 or FIN 46R relative to SPEs and for entities created after January 31, 2003 did not have an impact on the company’s consolidated financial statements. Additionally, the company does not expect the other provisions of FIN 46R to have an impact on the company’s consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The company is exposed to market pricing risk consisting of interest rate risk related to debt obligations outstanding, its investment in notes receivable and, from time to time, derivatives employed to hedge interest rate changes on variable and fixed rate debt. The company does not use financial instruments or derivatives for any trading or other speculative purposes.

The company manages interest rate risk through the strategic use of fixed and variable rate debt and, to a limited extent, derivative financial instruments. Variable interest rate debt (commercial paper, bank loans, industrial revenue bonds and other variable interest rate debt) is utilized to help maintain liquidity and finance business operations. Long-term debt with fixed interest rates is used to assist in managing debt maturities and to diversify sources of debt capital.

The company makes long-term loans to certain retail customers (see Notes Receivable in the accompanying Notes to Consolidated Financial Statements for further information) and as such, carries notes receivable in the normal course of business. The notes generally bear fixed interest rates negotiated with each retail customer. The market value of the fixed rate notes is subject to change due to fluctuations in market interest rates. At February 28, 2004, the estimated fair value of notes receivable approximates the net carrying value.

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The table below provides information about the company’s financial instruments that are sensitive to changes in interest rates, including notes receivable, debt obligations and interest rate swap agreements. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For notes receivable, the table presents the expected collection of principal cash flows and weighted average interest rates by expected maturity dates. For interest rate swap agreements, the table presents the estimate of the differentials between interest payable and interest receivable under the swap agreements implied by the yield curve utilized to compute the fair value of the interest rate swaps.

Cautionary Statements for Purposes of the Safe Harbor Provisions of the Securities Litigation Reform Act

Any statements contained in this report regarding the outlook for our businesses and their respective markets, such as projections of future performance, statements of our plans and objectives, forecasts of market trends and other matters, are forward-looking statements based on our assumptions and beliefs. Such statements may be identified by such words or phrases as “will likely result,” “are expected to,” “will continue,” “outlook,” “will benefit,” “is anticipated,” “estimate,” “project,” “management believes” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in such statements and no assurance can be given that the results in any forward-looking statement will be achieved. For these statements, the company 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.

The following is a summary of certain factors, the results of which could cause our future results to differ materially from those expressed or implied in any forward-looking statements contained in this report. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement; however, they should not be construed as exhaustive.

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Our retail food business faces competition from other retail chains, supercenters, non-traditional competitors and emerging alterative formats in the markets where we have retail operations. In our food distributions business, our success depends in part on the ability of our independent retailer customers to compete with these same formats, our ability to attract new customers, and our ability to supply products in a cost effective manner. Declines in the level of retail sales activity of our distribution customers due to competition; consolidations of retailers or competitors; increased self-distribution by our customers; or the entry of new or non-traditional distribution systems into the industry may adversely affect our revenues.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by Item 7A is found under the heading of “Quantitative and Qualitative Disclosure About Market Risk” under Part II, Item 7 above.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by Item 8 is found in a separate section of this report on pages F-1 through F-38. See “Index of Selected Financial Data and Financial Statements and Schedules” on page F-1.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

The company carried out an evaluation, under the supervision and with the participation of the company’s management, including the company’s chief executive officer and its chief financial officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”)) as of February 28, 2004 the end of the period covered by this report. Based upon that evaluation, the chief executive officer and chief financial officer concluded that as of the Evaluation Date, the company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

During the fiscal quarter ended February 28, 2004, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information called for by Item 10, as to compliance with Section 16(a) of the Securities Exchange Act of 1934, is incorporated by reference to the Registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the Registrant’s 2004 Annual Meeting of Stockholders under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.” The information called for by Item 10, as to the audit committee and the audit committee financial expert, is incorporated by reference to the Registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Committee pursuant to Regulation 14A in connection with the Registrant’s 2004 Annual Meeting of Stockholders under the headings “Meetings of the Board of Directors and Committees of the Board” and “Audit Committee.” Certain information regarding executive officers and directors of the Registrant is included in Part I immediately following Item 4 above.

The company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and all other company employees and non-employee directors. This code of ethics is posted on the company’s website (www.supervalu.com). The company intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or waiver from, a provision of the code of ethics that applies to the company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on the company’s website, at the address specified above.

The company’s Corporate Governance Principles and charters for each Committee of its Board of Directors, are also available on the company’s website. The code of ethics, Corporate Governance Principles and charters are also available in print to any stockholder who submits a request to: SUPERVALU INC., P.O. Box 990, Minneapolis, Minnesota 55440.

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Information on the company’s website is not deemed to be incorporated by reference into this Annual Report on Form 10-K.

ITEM 11.    EXECUTIVE COMPENSATION

The information called for by Item 11 is incorporated by reference to the Registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the Registrant’s 2004 Annual Meeting of Stockholders under the headings “Compensation of Directors,” “Compensation of Executive Officers,” “Option Grants in Last Fiscal Year,” “Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values,” “Long-Term Incentive Plans—Awards in Last Fiscal Year,” “Pension Plans and Retirement Benefits,” “Change in Control Agreements” and “Related Party Transactions, Compensation Committee Interlocks and Insider Participation.”

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Some of the information called for by Item 12 is incorporated by reference to the Registrant’s definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the Registrant’s 2004 Annual Meeting of Stockholders under the headings “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management.”

The following table sets forth information as of February 28, 2004 about the company’s common stock that may be issued under all of its equity compensation plans:

Equity Compensation Plan Information