SUPERVALU is one of the largest grocery chains in the United States. Its February 28, 2009, statement of cash flows included the following (dollars in thousands);

Required(a) Depreciation and amortization are added back to net earnings in the computation of net cash provided by operations. Does this mean that deprecation and amortization are sources of cash?(b) What is meant by "impairment charges"? What event would lead to such an expense?(c) Explain why the "gain on the sale" of assets is subtracted from net earnings, while "loss on sale" is added. Describe the entries that led to these disclosures.(d) Comment on the trends across time of the company's current accounts, especially inventory and receivables.(e) Comment on the quality of the company's earnings over the three-year period.

Transcribed Image Text:

SUPERVALU INC. and Subsidiaries Consolidated Statements of Cash Flows (in millions) February 28, 2009 February 23, 2008 February 24, 2007 (53 weeks) (52 weeks) (52 weeks) Cash flows from operating activities Net earnings (loss) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Goodwill and intangible asset impairment charges Asset impairment and other charges Depreciation and amortization LIFO charge Gain on sale of assets Deferred income taxes, net of effects from acquisition and dispositions of businesses Stock-based compensation S 593 S 452 S(2,855) 3,524 169 1,057 78 (9) 14 1,017 30 (23) 26 879 18 (15) (118) (74) 44 44 52 42 (25) Other (15) (6) Changes in operating assets and liabilities, net of effects from acquisition and dispositions of businesses: Receivables Inventories 103 (20) (278) 258 28 (683) (224) (18) 801 68 (12) (216) (83) (88) 1,534 Accounts payable and acerued liabilities Income taxes and currently payable Other 319 14 1,732 Net cash provided by operating activities Cash flows from investing activities Proceeds from sale of assets Purchases of property, plant and equipment Business acquisitions, net of cash acquired Release of restricted cash 195 117 189 (1,186) (1,191) (837) (2,402) 238 14 Other 55 14 52 (1,014) (968) (2,760) Net cash used investing activities Cash flows from financing activities Proceeds from issuance of long-term debt Payment of long-term debt and capital lease obligations Proceeds from settlement of mandatory convertible securities 215 (581) 41 (692) 3,313 (1,490) 52 (113) Dividends paid Net proceeds from the sale of common stock under option plans and related tax benefits Payment for purchase of treasury shares Payment of Albertsons standalone drug business payables Net cash (used in) provided by financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (145) (142) %31 (23) 153 (218) 252 (220) (299) 1.443 (516) 801 S 285 (523) (3) 243 (806) (42) 285 S 243 S 2 40