FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period (16 weeks) ended June 14, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ......................... to ...................
Commission file number 1-5418
SUPERVALU INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 41-0617000
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11840 VALLEY VIEW ROAD, EDEN PRAIRIE, MINNESOTA 55344
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 828-4000
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Former name, former address and former fiscal year, if changed since last
report:
N/A
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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
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The number of shares outstanding of each of the issuer's classes of Common Stock
as of July 12, 1997 is as follows:
Title of Each Class Shares Outstanding
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Common Shares 60,600,000
PART I - FINANCIAL INFORMATION
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Item 1: Financial Statements
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CONSOLIDATED STATEMENTS OF EARNINGS
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
First Quarter (16 Weeks) Ended
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June 14, 1997 June 15, 1996
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Net sales $ 5,033,303 $ 4,978,761
Costs and expenses:
Cost of sales 4,532,174 4,499,348
Selling and administrative expenses 380,302 364,444
Amortization of goodwill 6,037 5,591
Interest
Interest expense 41,321 41,363
Interest income 5,118 5,027
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Interest expense, net 36,203 36,336
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Total costs and expenses 4,954,716 4,905,719
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Earnings before equity in earnings
of ShopKo and income taxes 78,587 73,042
Equity in earnings of ShopKo 3,330 2,648
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Earnings before income taxes 81,917 75,690
Provision for income taxes
Current 28,631 27,485
Deferred 3,520 2,223
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Income tax expense 32,151 29,708
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Net earnings $ 49,766 $ 45,982
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Net earnings per common share $ .74 $ .68
Weighted average number of common
shares outstanding 66,977 67,482
Dividends declared per common share $ .250 $ .245
Supplemental information:
After-tax LIFO income (expense) $ (405) $ 2,790
All data subject to year-end audit. See notes to consolidated financial statements.
2
CONSOLIDATED BALANCE SHEETS
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SUPERVALU INC. and Subsidiaries First Quarter as of Fiscal Year End
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(In thousands) June 14, June 15, February 22,
Assets 1997 1996 1997
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Current Assets
Cash and cash equivalents $ 7,317 $ 5,082 $ 6,539
Receivables, less allowance for losses of $17,159 at
June 14, 1997, $18,694 at June 15, 1996 and
$17,806 at February 22, 1997 398,234 366,406 403,835
Inventories 1,121,396 1,083,672 1,091,805
Other current assets 94,419 125,485 98,620
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Total current assets 1,621,366 1,580,645 1,600,799
Long-term notes receivable 63,658 54,494 45,588
Long-term investment in direct financing leases 88,090 71,287 84,350
Property, plant and equipment
Land 140,390 147,149 140,427
Buildings 940,612 934,301 957,815
Property under construction 24,435 37,413 28,030
Leasehold improvements 147,047 140,679 150,040
Equipment 1,130,134 1,023,569 1,113,486
Assets under capital leases 281,543 291,096 298,757
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2,664,161 2,574,207 2,688,555
Less accumulated depreciation and amortization
Owned property, plant and equipment 1,003,269 894,167 983,229
Assets under capital leases 55,098 49,566 56,802
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Net property, plant and equipment 1,605,794 1,630,474 1,648,524
Investment in ShopKo 213,118 193,382 209,789
Goodwill 503,555 503,748 491,427
Other assets 214,148 245,277 202,849
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Total assets $ 4,309,729 $ 4,279,307 $ 4,283,326
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Liabilities and Stockholders' Equity
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Current Liabilities
Notes payable $ 150,541 $ 154,484 $ 134,272
Accounts payable 966,867 1,001,728 923,958
Accrued vacation, compensation and benefits 78,934 77,031 89,458
Current maturities of long-term debt 137,197 11,765 72,905
Current obligations under capital leases 21,763 20,990 21,544
Other current liabilities 104,906 92,718 126,941
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Total current liabilities 1,460,208 1,358,716 1,369,078
Long-term debt 995,896 1,149,427 1,087,162
Long-term obligations under capital leases 322,222 315,030 333,429
Deferred income taxes 41,574 39,407 38,054
Other liabilities 141,701 169,142 148,180
Stockholders' equity
Preferred stock 5,908 5,908 5,908
Common stock 75,335 75,335 75,335
Capital in excess of par value 13,211 12,956 13,296
Retained earnings 1,477,889 1,366,470 1,444,755
Treasury stock, at cost (224,215) (213,084) (231,871)
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Total stockholders' equity 1,348,128 1,247,585 1,307,423
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Total liabilities and stockholders' equity $ 4,309,729 $ 4,279,307 $ 4,283,326
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Quarterly data subject to year-end audit. See notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
Capital in
Preferred Common Excess of Treasury Retained
Stock Stock Par Value Stock Earnings Total
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Balances at February 24, 1996 $ 5,908 $ 75,335 $ 12,737 $ (214,746) $ 1,336,942 $ 1,216,176
Net earnings - - - - 175,044 175,044
Sales of common stock
under option plans - - 378 3,786 - 4,164
Cash dividends declared
on common stock -
$.995 per share - - - - (67,231) (67,231)
Compensation under employee
incentive plans - - 181 650 - 831
Purchase of shares for treasury - - - (21,561) - (21,561)
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Balances at February 22, 1997 5,908 75,335 13,296 (231,871) 1,444,755 1,307,423
Net earnings - - - - 49,766 49,766
Sales of common stock
under option plans - - (691) 5,028 - 4,337
Cash dividends declared
on common stock -
$.250 per share - - - - (16,632) (16,632)
Compensation under employee
incentive plans - - 606 5,913 - 6,519
Purchase of shares for treasury - - - (3,285) - (3,285)
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Balances at June 14, 1997 $ 5,908 $ 75,335 $ 13,211 $ (224,215) $ 1,477,889 $ 1,348,128
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Interim data subject to year-end audit. See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SUPERVALU INC. and Subsidiaries
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(In thousands)
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Year-to-date
(16 weeks ended)
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June 14, June 15,
1997 1996
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Cash flows from operating activities
Net earnings $ 49,766 $ 45,982
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in earnings of ShopKo (3,330) (2,648)
Dividends received from ShopKo - 3,241
Depreciation and amortization 69,444 68,542
Provision for losses on receivables 2,016 1,788
Gain on sale of property, plant and equipment (7,400) (1,020)
Deferred income taxes 3,520 2,223
Treasury shares contributed to employee incentive plan 117 68
Changes in assets and liabilities:
Receivables 663 13,983
Inventory (29,164) (50,525)
Other current assets 5,787 12,917
Direct finance leases 3,099 2,869
Accounts payable 45,181 34,387
Accrued vacation, compensation and benefits (10,524) (5,024)
Other liabilities (6,742) 22,345
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Net cash provided by operating activities 122,433 149,128
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Cash flows from investing activities
Additions to long-term notes receivable (26,868) (20,487)
Proceeds received on long-term notes receivable 8,798 2,724
Proceeds from sale of property, plant and equipment 31,627 8,633
Purchase of property, plant and equipment (59,786) (66,225)
Business acquisitions, net of cash acquired (23,523) (4,996)
Other investing activities (14,999) (19,039)
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Net cash used in investing activities (84,751) (99,390)
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Cash flows from financing activities
Net decrease in checks outstanding, net of deposits (2,485) (5,558)
Net issuance (reduction) of short-term notes payable 16,269 (3,543)
Repayment of long-term debt (26,974) (3,294)
Reduction of obligations under capital leases (7,492) (7,114)
Proceeds from the sale of common stock under option plans 3,861 1,130
Dividends paid (16,798) (31,492)
Payments for purchase of treasury stock (3,285) -
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Net cash used in financing activities (36,904) (49,871)
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Net increase (decrease) in cash and cash equivalents 778 (133)
Cash and cash equivalents at beginning of year 6,539 5,215
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Cash and cash equivalents at end of first quarter $ 7,317 $ 5,082
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All data subject to year-end audit. See notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
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The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1997 annual report of SUPERVALU INC.
("SUPERVALU" or the "company").
ShopKo Stores, Inc. Sale
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In April, the company announced that it planned to exit its 46 percent
investment in ShopKo through two simultaneous and cross-conditional
transactions: selling 8,174,387 shares back to ShopKo for an aggregate of $150
million and a secondary public offering of 6,557,280 shares. The transactions
were completed on July 2, 1997 resulting in proceeds of $305 million and a net
gain of $53.7 million. Proceeds were primarily used to repurchase shares of
SUPERVALU stock.
Treasury Stock Purchase Program
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On June 11, 1997, the Board of Directors approved an additional treasury stock
purchase program authorizing the company to repurchase up to 8.5 million shares
in anticipation of the sale of its ShopKo holdings. The company did not
repurchase any shares under the plan in the first quarter but did repurchase 6.9
million shares in July in conjunction with the ShopKo stock sale. These shares
were purchased at a cost of $236.5 million. Six million of these shares were
purchased from a financial intermediary through an accelerated stock purchase
transaction, subject to a market price adjustment provision. In order to
complete the transaction, the financial intermediary has borrowed SUPERVALU
common shares and will be purchasing replacement shares in the open market.
Statement of Registrant
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The data presented herein is unaudited but, in the opinion of management,
includes all adjustments necessary for a fair presentation of the consolidated
financial position of the company and its subsidiaries at June 14, 1997 and June
15, 1996 and the results of the company's operations and cash flows for the
periods then ended. These interim results are not necessarily indicative of the
results of the fiscal years as a whole.
A limited review of this data has been performed by the company's independent
certified public accountants, Deloitte & Touche LLP. A copy of their report is
attached as an exhibit to this report.
6
Item 2: Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Results of Operations
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The company recorded record sales for the quarter and net earnings increased
8.2% in the quarter, driven by strong performance in the retail food segment.
The following table sets forth items from the company's Consolidated Statements
of Earnings as percentages of net sales:
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First Quarter (16 weeks) Ended
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Fiscal Fiscal
1998 1997
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Net sales 100.00% 100.00%
Cost of sales (90.04) (90.37)
Selling and administrative expenses (7.68) (7.43)
Interest expense (.82) (.83)
Interest income .10 .10
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Earnings before equity in earnings of ShopKo,
and income taxes 1.56 1.47
Equity in earnings of ShopKo .07 .05
Provision for income taxes (.64) (.60)
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Net earnings .99% .92%
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Net sales
Net sales for the first quarter of $5.0 billion were favorable compared to last
year. Sales were positively impacted by a 3.0% increase in retail food sales
and a 0.6% increase in food distribution sales. Retail food sales increased
over the first quarter of last year due to new store openings, offset somewhat
by the closing of underperforming stores and a decrease in same-store sales of
1.8%. The same-store sales decrease was due to a strike/lockout last year
affecting competitors in the Denver market and the ongoing competitive situation
in the Cincinnati market. Food distribution sales increased due to the addition
of new retail customers, the growth of Save-A-Lot and food price inflation, as
measured by the company, of 0.7%. This effect was partially mitigated by the
planned discontinuance of service to a major customer in the Southeast and
competitive market conditions at the wholesale and retail levels.
Net Sales by Segment
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(In thousands) First Quarter (16 weeks)
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June 14, 1997 June 15, 1996
Net Sales % of Total Net Sales % of Total
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Food distribution $4,446,880 88.3 % $4,418,911 88.8 %
Retail food 1,364,853 27.1 % 1,324,986 26.6 %
Less: Eliminations (778,430) (15.4)% (765,136) (15.4)%
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Total net sales $5,033,303 100.0 % $4,978,761 100.0 %
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7
Gross profit
Gross profit as a percentage of net sales increased to 9.9% in the first
quarter, compared with 9.6% in the first quarter of last year. The increase was
due principally to a strong retail gross profit margin resulting from an
increased gross profit margin at Cub Foods due to changed promotional practices.
The higher gross profit margin was also caused by an improved food distribution
gross profit margin impacted by merchandising initiatives, partially offset by
an adverse swing in LIFO compared to last year's first quarter. LIFO expense
was impacted by increases in coffee prices in the current year compared to LIFO
income in the prior year caused by a decrease in cereal prices. In addition,
the growing proportion within the company's total sales mix of the higher-
margined retail food business favorably impacted the gross profit percentage.
The retail food segment represented 27.1% of total sales in the first quarter of
fiscal 1998, compared with 26.6% in the first quarter of last year.
Selling and administrative expenses
Selling and administrative expenses were 7.7% of net sales for the quarter
compared with 7.4% in the first quarter last year. The higher percentage was
primarily due to an increase in food distribution selling and administrative
expenses and the increased proportion of the company's retail food segment
which operates at a higher selling and administrative expense percentage than
the food distribution segment. Food distribution selling and administrative
expenses as a percent of net sales were higher than last year due to higher
technology related spending in support of the ADVANTAGE program and to make
systems Year 2000 compliant.
During the first quarter of fiscal 1998, the company achieved the following
under ADVANTAGE: completed testing and began installation of a new promotion
accounting system, completed reconfiguring two distribution centers in the
Southeast region with three more in process, began servicing customers in an
additional region from the National Customer Service Center in Denver, began
testing category management allowance programs which are planned for pilot late
in the second quarter, began category management service offerings in the
Southeast region and continued implementation of category management activities
across six of seven regions.
Operating earnings
The company's pre-tax operating earnings (earnings before interest, corporate
expenses, equity in earnings of ShopKo Stores, Inc. ("ShopKo"), and taxes)
increased to $123.0 million in the quarter from $116.5 million last year. Food
distribution operating earnings decreased 1.9% to $86.8 million due to higher
technology related spending in support of the ADVANTAGE program and an adverse
swing in LIFO for the quarter. Retail food operating earnings increased 29.0%
to $36.2 million in the quarter due to the strong gross margin as well as an
increase in sales.
8
Interest expense and income
Interest expense decreased slightly to $41.3 million in the quarter, compared
with $41.4 million in the prior year. Interest income increased slightly to
$5.1 million in the first quarter, compared with $5.0 million in the prior year.
Equity in earnings of ShopKo
At the end of the first quarter, SUPERVALU's ownership in ShopKo was 46% and was
accounted for under the equity method. Equity in earnings of ShopKo increased
to $3.3 million in the first quarter from $2.6 million in the first quarter of
last year. As reported by ShopKo, sales increased 17.9% to $720.0 million and
net earnings increased 25.7% for the first quarter compared to last year. The
increase in net earnings was due to a strong retail store gross margin rate
caused by a shift in the sales mix away from lower gross margin promotional
sales.
Liquidity and Capital Resources
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Internally generated funds, principally from the company's food distribution
business, continue to be the major source of capital for liquidity and capital
growth. Cash provided from operations for the first quarter was $122.4 million
compared with $149.1 million last year. The decrease was primarily due to the
timing of income tax payments. Cash provided from operations of $122.4 million
and proceeds from the sale of property plant and equipment of $31.6 million was
used to finance capital expenditures of $59.8 million, repay long-term debt of
$27.0 million, invest in long-term notes receivable of $26.9 million and finance
$23.5 million for the acquisition of Signature Breads.
In April, the company announced that it planned to exit its 46 percent
investment in ShopKo through two simultaneous and cross-conditional
transactions: selling 8,174,387 shares back to ShopKo for an aggregate of $150
million and a secondary public offering of 6,557,280 shares. On June 11, 1997,
the Board of Directors approved an additional treasury stock purchase program
authorizing the company to repurchase up to 8.5 million shares in anticipation
of the sale of its ShopKo holdings. The company did not repurchase any shares
under this plan in the quarter.
The two simultaneous and cross-conditional transactions were completed on July
2, 1997 resulting in a net gain of $53.7 million and cash proceeds of $305
million. The company used $236.5 million of proceeds from these transactions to
repurchase 6.9 million shares of its common stock. Six million of these shares
were from a financial intermediary through an accelerated stock purchase
transaction, subject to a market price adjustment provision. In order to
complete the transaction, the financial intermediary has borrowed SUPERVALU
common shares and will be purchasing replacement shares in the open market.
9
SUPERVALU will continue to use short-term and long-term debt as a supplement to
internally generated funds to finance its activities. The company has a $400
million "shelf registration" in effect pursuant to which the company could issue
$242.5 million of additional debt securities. A $400 million revolving credit
agreement also is in place and expires in May 2000. Short-term commercial paper
totaling $100 million has been classified as long-term debt as the company has
the ability and intent to renew these obligations past fiscal 1998 and into
future periods. Maturities of debt issued will depend on management's views
with respect to the relative attractiveness of interest rates at the time of
issuance.
The company's financial position and long-term debt ratings remain strong, with
long-term debt ratings of BBB+ from Standard and Poor's Ratings Group and Baa1
from Moody's Investors Services, Inc. The company's investment grade ratings,
the available credit facilities and internally-generated funds provide the
company with the financial flexibility to meet liquidity needs.
Cautionary statements for purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
The information in this 10Q includes forward-looking statements. Important
risks and uncertainties that could cause actual results to differ materially
from those discussed in such forward looking statements are detailed in Exhibit
99.1; other risks or uncertainties may be detailed from time to time in the
company's future Securities and Exchange Commission filings.
10
PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders.
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The Registrant held its Annual Meeting of Stockholders on June 26,
1997 at which the stockholders took the following actions:
(a) elected Lawrence A. Del Santo, William A. Hodder and Harriet
Perlmutter to the Board of Directors for terms expiring in 2000.
The votes cast for and withheld with respect to each such
Director was as follows:
Votes For Votes Withheld
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Lawrence A. Del Santo 55,761,191 1,072,906
William A. Hodder 55,586,644 1,247,453
Harriet Perlmutter 55,586,695 1,247,402
The Directors whose terms continued after the meeting are as
follows: Herman Cain, Stephen I. D'Agostino, Edwin C. Gage,
Garnett L, Keith, Jr., Richard L. Knowlton, Charles M. Lillis,
Carol St. Mark and Michael Wright.
(b) ratified, by a vote of 56,624,356 for, 77,038 against, and
132,703 abstaining, the appointment of Deloitte & Touche LLP as
the independent auditors of Registrant for the fiscal year ending
February 27, 1998.
(c) approved by a vote of 54,304,322 for, 2,082,932 against, and
446,843 abstaining, the adoption of certain amendments to the
SUPERVALU INC. 1993 Stock Plan.
(d) approved by a vote of 54,704,548 for, 1,681,880 against, and
447,669 abstaining, the adoption of certain amendments to the
SUPERVALU INC. 1983 Employee Stock Option Plan.
(e) approved by a vote of 54,751,968 for, 1,659,237 against, and
422,892 abstaining, the adoption of certain amendments to the
SUPERVALU INC. Long Term Incentive Plan.
(f) approved by a vote of 33,566,493 for, 17,346,328 against, and
718,270 abstaining, the adoption of the shareholder proposal
relating to the Company's Preferred Share Purchase Rights Plan.
11
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits filed with this Form 10-Q:
(10)a. Separation Agreement and General Release dated February 26,
1997 between Laurence Anderson and SUPERVALU INC.
(15) Letters from Deloitte & Touche regarding unaudited interim
financial information.
(27) Financial Data Schedule.
(99.1) Cautionary Statements pursuant to the Securities Litigation
Reform Act.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERVALU INC. (Registrant)
Dated: July 29, 1997 By: /s/ Kim M. Erickson
------------------------
Kim M. Erickson
Senior Vice President, Finance
(Authorized officer of Registrant)
12