Exhibit 13-Portions of 1994 Annual Report
FINANCIAL REVIEW
SUPERVALU management decisions are guided by established policies covering
financial goals, capital structure, capital investment and dividends. The
company's long-term financial goals are arrived at by balancing two broad
objectives: increasing profitability levels and maintaining a strong capital
structure.
The profitability of the company is gauged by return on investment measures.
Achievement of targeted return levels in these areas is expected to lead to
excellent returns for the company's stockholders through increasing dividends
and higher valuations on their investment in the company. These measures are an
integral part of the company's planning process and are an integral part of
management incentive compensation.
CAPITAL STRUCTURE
SUPERVALU's financial objectives also include maintaining a strong capital
structure. Management believes that maintaining such financial flexibility
provides a significant competitive advantage and allows the company to be
opportunistic in terms of acquisitions.
The capital structure of SUPERVALU at each fiscal year-end included the
following:
- - - --------------------------------------------------------------------------
Summary of Capitalization
- - - --------------------------------------------------------------------------
(In millions) 1994 1993* 1992
- - - --------------------------------------------------------------------------
Short-term borrowings $ 23.1 $ 251.5 $ 133.6
Long-term debt 1,139.1 1,118.5 407.9
Present value of:
Capital leases 163.4 158.9 143.1
Operating leases 251.1 261.2 37.8
Retailer finance leases 88.4 95.8 85.1
- - - --------------------------------------------------------------------------
Total debt, including current maturities 1,665.1 1,885.9 807.5
Stockholders' equity 1,275.5 1,134.8 1,031.0
- - - --------------------------------------------------------------------------
Total capitalization $2,940.6 $3,020.7 $1,838.5
- - - --------------------------------------------------------------------------
Debt-to-total capitalization 57% 62% 44%
(*) The acquisition of Wetterau resulted in the increase in the debt-to-total
capitalization ratio.
LIQUIDITY
Internally-generated funds, principally from the company's food distribution
business, were the major source of capital for liquidity and growth in 1994. In
1993, such funds were supplemented by certain financing activities to complete
the Wetterau acquisition. Management expects that the company will continue to
replenish operating assets and reduce aggregate debt with internally-generated
funds and capital leases unless additional funds are necessary to complete
acquisitions. The company has adequate short-term and long-term financing
capabilities to fund acquisitions as the opportunities arise.
Cash provided from operations increased 7 percent in 1994 to $433 million. Total
debt was reduced by $220.8 million in 1994, as shown by the summary of
capitalization, and was a primary use of the cash provided from operations. Cash
generated in 1993 increased 67 percent to $404 million from cash generated in
1992. The cash generated in 1992 is before the gain on sale of ShopKo and
cumulative effect of change in accounting principle. The closing or
consolidation of five food distribution facilities in 1994 provided cash by
reducing inventory levels. The cash generated in 1993 was affected by a $120
million reduction in inventory levels. The decrease in inventory was primarily
due to the timing of the Wetterau acquisition, the sale of the Salem division
and the closing of the Kansas City division. Liquidity was affected in 1993 by
the acquisition of Wetterau and the treasury stock purchase program, and in 1992
by the acquisition of Scott's Food Stores, Inc. ("Scott's") and the ShopKo IPO.
The ShopKo IPO and the acquisition of Scott's generated net cash of
approximately $229 million for the company which was used initially to reduce
debt and later reinvested in Wetterau.
The company completed the acquisition of Wetterau as of October 31, 1992, for
approximately $700 million. To finance the acquisition, the company entered into
a $700 million 364-day credit revolver and a $400 million four-year credit
revolver (aggregately the "credit facilities") which were utilized to back up
commercial paper issued by the company. On November 17, 1992 the company
refinanced $700 million of its commercial paper borrowings through the sale of
$700 million of medium and long-term notes and simultaneously reduced the credit
facilities to an aggregate amount of $550 million. In October of 1993, $150
million of the credit facility expired. In addition, the company funded the
repayment of $200 million of Wetterau commercial paper, and approximately $266
million of additional Wetterau debt remained outstanding. This acquisition was
the principle reason for the increase in the company's debt-to-capital ratio in
1993.
SUPERVALU will continue to use short-term and long-term debt as a supplement to
internally-generated funds to finance its activities. To that end, the company
has a "shelf registration" in effect pursuant to which the company could sell an
additional $150 million of long-term debt without further registration. The use
of available short-term credit of $400 million, the shelf registration or any
other long-term debt will depend on management's views with respect to long-term
capital needs and the relative attractiveness of short-term versus long-term
interest rates.
The company's financial position is strong and its long-term debt ratings, after
the Wetterau acquisition remain strong, with an A rating from Standard and
Poor's and an A3 rating from Moody's. These strong ratings, the non-utilized
credit facilities and internally-generated funds provide the company with
financial flexibility relative to expected liquidity needs.
14
EXPANSION PLANS FOR FISCAL 1995
SUPERVALU's capital budget for fiscal 1995 is $500 million compared with the
$321 million and $235 million incurred during 1994 and 1993, respectively. The
budget provides sufficient funding for the growth and vitality of the expanded
company, including Wetterau.
Capital Expenditures (In Millions)
BAR GRAPH IN ORIGINAL--SEE GRAPHICS APPENDIX
Approximately $283 million of the 1995 capital budget is slated for use in the
company's food distribution activities for regular replacement, productivity and
capacity enhancement projects ($133 million) and for financing of the company's
independent retailers ($150 million). Retailer financing activities typically do
not require new cash outlays because they are leases or guarantees or funded by
the repayment of existing notes.
The retail food capital budget of $192 million ($62 million of which are capital
leases) covers corporately-owned retail food businesses. The increased level of
spending within the retail food segment represents a permanently higher level of
capital to that area. The balance of the 1995 capital budget is dedicated to the
corporate area and will be utilized principally for computer and communication
equipment.
These capital spending activities are not expected to result in an increase in
the company's debt-to-total-capital ratio as internal cash flow is expected to
support all spending requirements except leases. The capital budget does include
amounts for projects which are subject to change and for which firm commitments
have not been made.
On December 17, 1993, the company announced that an agreement in principle had
been entered into whereby the company would acquire all the outstanding stock of
Sweet Life Foods, Inc. ("Sweet Life"). Sweet Life, a wholesale distributor of
food products, with annual revenues of approximately $650 million, supplies
approximately 280 independent food retailers throughout New England and New York
from two distribution centers located in Suffield, Connecticut and Northboro,
Massachusetts. The transaction was completed on March 9, 1994 and funded through
the issuance of commercial paper.
The company has announced an agreement in principle to acquire all the assets of
Wetterau Properties, Inc. ("WPI"), a publicly owned real estate investment
trust. Most of the properties WPI owns were acquired from and leased back to
Wetterau. The transaction is expected to be completed in the second quarter of
1995.
Due to the size of the Sweet Life and WPI acquisitions, the company does not
expect such transactions to have a significant impact on liquidity.
DIVIDENDS
Cash dividends declared during fiscal 1994 amounted to 85 1/2 cents per common
share, an increase of 11.8 percent over the 76 1/2 cents per share declared in
the prior fiscal year. This was the 57th year of consecutive cash dividends and
the 22nd year of successive annual increases. Cash dividend payments have
increased since 1974 at an annual compounded rate of 12 percent. The company's
dividend policy will continue to emphasize a high level of earnings retention
reflecting the attractive returns available from reinvesting earnings.
COMMON STOCK PRICE
SUPERVALU's common stock is listed on the New York Stock Exchange under the
symbol SVU. At year-end, there were 8,233 stockholders of record compared with
8,511 at the end of fiscal 1993.
- - - ----------------------------------------------------------------------------
Common Stock Dividends Per
Price Range Share
Fiscal Quarter 1994 1993 1994 1993
- - - ----------------------------------------------------------------------------
High Low High Low
First $34 1/2 $29 7/8 $27 3/4 $23 3/8 $.195 $.180
Second 37 5/8 32 27 1/8 23 1/2 .220 .195
Third 35 3/4 32 34 3/8 26 3/4 .220 .195
Fourth 40 1/8 32 1/2 34 7/8 30 5/8 .220 .195
- - - ----------------------------------------------------------------------------
Year $40 1/8 $29 7/8 $34 7/8 $23 3/8 $.855 $.765
- - - ----------------------------------------------------------------------------
Dividend payment dates are on or about the 15th day of March, June, September
and December, subject to Board of Directors approval.
15
RESULTS OF OPERATIONS
The following table sets forth items from the company's Consolidated Statements
of Earnings as percentages of net sales:
- - - ---------------------------------------------------------------------------------------
Fiscal Year Ended
- - - ---------------------------------------------------------------------------------------
February 26, February 27, February 29,
1994 1993 1992
(52 weeks) (52 weeks) (53 weeks)
- - - ---------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of sales 91.1 91.8 92.2
Selling and administrative expenses 6.6 5.9 5.5
Interest expense .7 .6 .7
Interest income (.2) (.2) (.3)
Equity in earnings of ShopKo (.1) (.2) (.3)
Gain on sale of ShopKo stock - - (.8)
- - - ---------------------------------------------------------------------------------------
Earnings before income taxes and
accounting change 1.9 2.1 3.0
Income taxes .7 .8 1.1
- - - -------------------------------------------------------------------------------------------------------
Earnings before accounting change 1.2 1.3 1.9
Cumulative effect of change in
accounting principle - - .1
- - - -------------------------------------------------------------------------------------------------------
Net earnings 1.2% 1.3% 1.8%
=======================================================================================================
Fiscal 1994 and fiscal 1993 were 52-week years, fiscal 1992 contained 53 weeks.
The company's ownership of ShopKo was reduced to 46 percent effective with
ShopKo's October 1991 IPO. All ShopKo sales were eliminated from historical
results and net earnings and ShopKo operating results are now reflected on an
equity basis of 100 percent prior to October 1991 and 46 percent thereafter.
Wetterau was acquired in October 1992 and treated as a purchase; therefore,
earnings contributions are net of goodwill amortization of $10.8 million in 1994
and $3.4 million in 1993, as well as financing costs. Seventeen weeks of
Wetterau results were included in fiscal 1993 and 52 weeks in fiscal 1994.
NET SALES
Net sales increased 26.8 percent to $15.9 billion in fiscal 1994, from $12.6
billion in 1993. Net sales increased 18.2 percent in 1993 from $10.6 billion in
1992. The increase in net sales in 1994 and 1993 was principally due to the
acquisition of Wetterau. However, the increase in 1994 was impacted by the
January 1993 sale of the Salem division; lost sales from the closing or
consolidation of five divisions; purchase of two major customers by chains; and
the bankruptcy of a large customer. Sales for 1994 increased approximately 1
percent excluding the sales impact of the Wetterau acquisition and the sale of
the Salem division. Sales for 1993 would have increased approximately 3 percent
excluding the change in number of weeks and the Wetterau acquisition.
Food distribution sales increased $2.9 billion in 1994 to $14.4 billion, a 25.4
percent increase. The increase over 1993 net sales was due to the Wetterau
acquisition. Food inflation was negligible in both years. Food distribution
sales for 1993 increased 16.3 percent over 1992 net sales of $9.8 billion due to
the Wetterau acquisition. Both years were affected by increased competition,
slower retail development due to the inability of developers to obtain
financing, and low food inflation. The extra week in fiscal 1992 added about 2
percent to that year's sales.
Retail food sales in 1994 increased 36.9 percent to $3.7 billion, compared with
$2.7 billion in 1993. Sales in 1993 grew 34.8 percent over 1992 sales of $2.0
billion. The increase in 1994 was primarily due to the full year versus partial
year contribution from Wetterau's retail operations and new store openings.
However, this increase was partially offset by a decrease in same-store sales of
2 percent and a reduced sales contribution from Twin Valu due to competitive
pressures. The increase in 1993 was due to the acquisitions of Wetterau in
October 1992 and Scott's in November 1991.
GROSS PROFIT
Gross profit as a percentage of net sales increased to 8.9 percent in 1994,
compared with 8.2 percent in 1993 and 7.8 percent in 1992. These increases were
due principally to the growing proportion within the company's total sales mix
of the higher-margined retail food business. The Wetterau and Scott's
acquisitions and an increase in the number of corporately-owned Cub Foods stores
contributed to the higher gross profit percentage.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 6.6 percent of net sales in 1994,
compared with 5.9 percent in 1993, and 5.5 percent in 1992. The higher
percentage in 1994 was attributable primarily to the increased proportion of the
company's retail food operations. With the purchase of Wetterau late in fiscal
1993, the effect of the company's retail operations on selling and
administrative expenses has been more significant as a percent of sales. Also
contributing to the higher selling and administrative percentage were new store
costs associated with MAX CLUB, which is the company's entry into the wholesale
club market, and new store costs at Cub. Selling and administrative expenses as
a percent of net sales were higher due to reduced sales levels at the Twin Valu
and Laneco locations. The higher percentage in 1993 compared with 1992 was also
due principally to the increased proportion of the company's retail operations.
OPERATING EARNINGS
The company's pre-tax operating earnings (earnings before interest, corporate
expenses, equity in earnings of ShopKo, gain on sale of ShopKo stock, taxes and
change in accounting principle) increased 28.4 percent to $396.9 million after
increasing 21.6 percent in 1993. Sales were negatively impacted by the closedown
and consolidation of duplicative Wetterau facilities. However, operating
efficiencies from the closedowns and consolidations offset the operating
earnings lost from the reduced sales level. Food distribution operating earnings
increased 28.6 percent in 1994 to $365.5 million, following
16
a 17.7 percent gain over 1992. The increase in 1994 and 1993 was primarily due
to the acquisition of Wetterau; however, improved productivity and overall
improvements in expense control also contributed to the results.
Retail food operating earnings increased in 1994 to $31.4 million, from $24.8
million in 1993, which increased 98.5 percent from 1992. The increase in 1994
and 1993 was due to the addition of the Wetterau retail operations and the
increase in contribution from corporately-owned Cub stores and Scott's. The
increase in 1994 and 1993 was partially offset by a reduced contribution from
the Twin Valu operation due to competitive pressures.
INTEREST INCOME AND EXPENSE
Interest income for 1994 increased over 1993 due to the notes receivable
acquired in conjunction with the Wetterau acquisition offsetting the effect of
declining rates. Interest income in 1993 was below 1992 due primarily to
ShopKo's repayment of its indebtedness owed to the company. Interest expense for
1994 was $120.3 million compared with $83.1 million and $72.7 million in 1993
and 1992 respectively. The increase in the past two years was due primarily to
the Wetterau acquisition, partially offset by lower interest rates.
EQUITY IN EARNINGS OF SHOPKO
ShopKo reported net sales for 1994 increased 3.3 percent to $1.74 billion,
compared to 1993 of $1.68 billion. Sales for 1993 increased 2.1 percent over
1992, which was a 53 week year. On a comparable weeks basis, the 1993 sales
increase was 3.6 percent. ShopKo reported total net earnings of $32.1 million
for 1994, a decrease of 35.9 percent from 1993. Net earnings decreased due to
lower gross margins and higher selling, general and administrative expenses.
Competitive pricing pressures and clearance markdowns related to lower-than-
expected sales resulted in the decrease in gross margins. ShopKo's net earnings
were also negatively impacted by the cumulative effect of a change in accounting
for future post-retirement medical benefits (SFAS No. 106) and a higher tax
rate. Net earnings for 1993 were $50.1 million, a 1 percent increase over 1992.
The 1993 net sales and net earnings increases were limited due to the weak
economic environment, unfavorable weather and increased competitive pressures.
INCOME TAXES
The effective tax rate increased to 37 percent in 1994 from 36 percent in 1993
and 1992. The increase in the effective tax rate was principally due to the
Omnibus Budget Reconciliation Act of 1993.
ACCOUNTING CHANGES
Post-retirement Benefits
In fiscal 1992 the company adopted the provisions of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions." The company elected to immediately recognize the
accumulated post-retirement benefit obligation, resulting in a charge to net
earnings of $13.3 million, or 18 cents per share. The change did not have a
material effect on operating earnings.
Post-employment Benefits
Statement of Financial Accounting Standards No. 112 "Employers' Accounting for
Post-employment Benefits" was issued in November 1992 and must be adopted no
later than fiscal 1995. The company was in compliance with this new standard
prior to its issuance and therefore, no change in accounting policy was
necessary.
Income taxes
The company changed its method of accounting for income taxes to comply with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" from Statement of Financial Accounting Standard No. 96 which
was adopted in 1987. The change in accounting method was made in fiscal 1993.
The change did not have a material impact on results of operations.
NET EARNINGS
Net earnings for 1994 increased 13 percent to $185.3 million, compared with net
earnings for 1993 of $164.5 million and $194.4 million reported in 1992. Overall
earnings in 1994 improved because of the Wetterau acquisition and tight expense
controls. Reflected in 1992 amounts are the cumulative effect charge of adopting
SFAS No. 106, the company's 100 percent equity in ShopKo's net earnings through
October 16, 1991, the gain on the partial divestiture of ShopKo and the benefit
of the extra week. After adjusting 1992's net earnings to reflect the company's
current ownership interest in ShopKo, excluding the charge for SFAS No. 106, the
gain on the sale of ShopKo stock and the extra week, net earnings would have
shown an increase of about 15 percent in 1993 over 1992. The net earnings
increase in 1993 over 1992 was due to the Wetterau acquisition, tight expense
controls and a significant improvement in retail operations.
INFLATION
Inflation has not had a significant effect on the company's operating results or
its external sources of liquidity. The impact of negligible food inflation on
the company's sales was partially offset by retail development and marketing
activities. As operating expenses and inventory costs have increased, the
company has been able to identify operating efficiencies to minimize the impact.
17
TEN YEAR FINANCIAL AND OPERATING SUMMARY
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SUPERVALU INC. and Subsidiaries
- - - --------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 (b) 1991
- - - --------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF EARNINGS DATA (a)
Net sales $15,936,925 $12,568,000 $10,632,301 $10,104,899
Cost of sales 14,523,434 11,531,394 9,807,633 9,360,886
Selling and administrative expense 1,044,433 746,857 583,789 531,972
Interest, net 89,767 54,203 34,320 31,441
Equity in earnings of ShopKo 14,789 23,072 32,176 45,080
Earnings before taxes and accounting change 294,080 258,618 322,840 226,680
Provision for income taxes 108,827 94,092 115,175 70,544
Net earnings 185,253 164,526 194,377 155,136
Earnings per common share before accounting change 2.58 2.31 2.78 2.06
Net earnings per common share 2.58 2.31 2.60 2.06
- - - --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (a)
Inventories (FIFO) $ 1,227,170 $ 1,247,337 $ 862,621 $ 785,395
Working capital (d) 452,121 361,093 534,182 196,217
Net property, plant and equipment 1,410,123 1,384,241 879,186 789,443
Total assets 4,042,351 4,064,189 2,484,300 2,401,357
Long-term debt (e) 1,262,995 1,347,386 608,241 567,444
Stockholders' equity 1,275,458 1,134,820 1,030,981 978,678
- - - --------------------------------------------------------------------------------------------------------------------------------
OTHER STATISTICS (a)
Earnings before accounting change as a
percent of net sales 1.16% 1.31% 1.95% 1.54%
Return on average stockholders' equity 15.40% 15.32% 20.17% 16.82%
Book value per common share $ 17.70 $ 15.84 $ 14.35 $ 13.01
Current ratio (d) 1.37:1 1.27:1 1.72:1 1.24:1
Debt to capital ratio (f) 57% 62% 44% 47%
Dividends declared per common share $ .85 1/2 $ .76 1/2 $ .70 1/2 $ .64 1/2
Weighted average common shares outstanding 71,817 71,341 74,700 75,165
Depreciation and amortization $ 186,261 $ 140,790 $ 111,488 $ 105,582
Capital expenditures, excluding retailer financing $ 239,602 $ 164,728 $ 175,624 $ 203,199
================================================================================================================================
NOTES:
(a) Amounts for all years prior to 1992 have been restated to reflect the sale
of a 54 percent interest in ShopKo, effective October 16, 1991. Fiscal 1992
and 1987 contained 53 weeks; all other years cover 52 weeks. Dollars in
thousands except per share and percentage data.
(b) The cumulative effect of adopting Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions," resulted in a decrease in net earnings of $13,288,000 ($.18
per share). A $51,304,000 after-tax gain on the sale of a 54 percent
interest in ShopKo was included in fiscal 1992 net earnings ($.69 per
share). All statistics include the results of both transactions.
(c) The cumulative effect of adopting Statement of Financial Accounting
Standards No. 96, "Accounting for Income Taxes," resulted in a decrease in
net earnings of $13,640,000 ($.18 per share). A repeal of the investment
tax credit under the Tax Reform Act of 1986 resulted in a reduction in
earnings of approximately $6.0 million ($.08 per share).
(d) Working capital and current ratio are calculated after adding back the LIFO
reserve.
(e) Total long-term debt includes long-term debt and long-term obligations
under capital leases.
(f) For this ratio calculation, debt also includes the present value of
operating leases.
18
- - - -----------------------------------------------------------------------------------------------------
1990 1989 1988 1987 (c) 1986 1985
- - - -----------------------------------------------------------------------------------------------------
$9,734,811 $9,061,176 $8,331,333 $8,172,099 $7,164,463 $5,947,655
9,043,953 8,429,692 7,751,172 7,620,235 6,727,338 5,561,686
484,586 433,177 399,504 381,822 286,259 249,697
33,104 34,532 30,089 23,288 10,727 5,069
42,562 36,943 27,122 21,594 16,122 13,647
215,730 200,718 177,690 168,348 156,261 144,850
67,984 63,250 64,678 81,837 65,014 61,588
147,746 137,468 113,012 72,871 91,247 83,262
1.97 1.84 1.51 1.16 1.23 1.13
1.97 1.84 1.51 .98 1.23 1.13
- - - -----------------------------------------------------------------------------------------------------
$ 726,194 $ 688,947 $ 618,545 $ 588,646 $ 524,184 $ 384,618
188,139 165,887 217,320 169,526 250,372 122,641
701,162 666,508 518,197 474,296 450,803 352,452
2,239,900 2,116,202 1,844,918 1,641,401 1,410,739 1,059,763
549,694 557,828 529,894 415,907 412,966 211,644
869,891 763,706 660,720 578,275 534,830 469,170
- - - -----------------------------------------------------------------------------------------------------
1.52% 1.52% 1.36% 1.06% 1.27% 1.40%
18.12% 19.31% 18.28% 15.55% 18.06% 19.14%
$ 11.59 $ 10.20 $ 8.84 $ 7.76 $ 7.20 $ 6.33
1.25:1 1.22:1 1.35:1 1.28:1 1.56:1 1.32:1
47% 47% 50% 46% 41% 37%
$ .58 1/2 $ .48 1/2 $ .43 1/2 $ .41 $ .37 $ .33
74,972 74,785 74,634 74,387 74,184 73,975
$ 95,593 $ 86,944 $ 85,179 $ 71,955 $ 61,092 $ 47,847
$ 142,899 $ 193,218 $ 137,533 $ 214,314 $ 172,346 $ 155,578
=====================================================================================================
19
CONSOLIDATED COMPOSITION OF NET SALES AND OPERATING EARNINGS
- - - --------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- - - --------------------------------------------------------------------------------
The following table sets forth, for each of the last five fiscal years, the
composition of the company's net sales and operating earnings.
- - - --------------------------------------------------------------------------------
(In thousands, except
percent data) 1994 1993 1992 1991 1990
- - - ----------------------------------------------------------------------------------------------------------
Net sales
- - - ----------------------------------------------------------------------------------------------------------
Food distribution $14,361,255 $11,448,148 $ 9,841,033 $ 9,523,719 $ 9,264,336
90.1% 91.1% 92.6% 94.2% 95.2%
Retail food 3,696,145 2,699,075 2,002,923 1,764,745 1,591,346
23.2% 21.5% 18.8% 17.5% 16.3%
Less: Eliminations (2,120,475) (1,579,223) (1,211,655) (1,183,565) (1,120,871)
(13.3)% (12.6)% (11.4)% (11.7)% (11.5)%
Total net sales $15,936,925 $12,568,000 $10,632,301 $10,104,899 $ 9,734,811
100.0% 100.0% 100.0% 100.0% 100.0%
- - - ----------------------------------------------------------------------------------------------------------
Operating earnings
- - - ----------------------------------------------------------------------------------------------------------
Food distribution $ 365,527 $ 284,337 $ 241,666 $ 214,155 $ 217,334
Retail food 31,366 24,842 12,512 11,761 2,471
---------------------------------------------------------------------------
Total operating earnings 396,893 309,179 254,178 225,916 219,805
Interest expense, net (89,767) (54,203) (34,320) (31,441) (33,104)
General corporate expenses (27,835) (19,430) (13,299) (13,875) (13,533)
---------------------------------------------------------------------------
Earnings before equity in
earnings of ShopKo, gain on
sale of ShopKo stock and
income taxes 279,291 235,546 206,559 180,600 173,168
Equity in earnings of
ShopKo 14,789 23,072 32,176 45,080 42,562
Gain on sale of ShopKo
stock -- -- 84,105 -- --
---------------------------------------------------------------------------
Earnings before income
taxes $ 294,080 $ 258,618 $ 322,840 $ 225,680 $ 215,730
- - - ----------------------------------------------------------------------------------------------------------
Identifiable assets
- - - ----------------------------------------------------------------------------------------------------------
Food distribution $ 2,644,670 $ 2,830,400 $ 1,594,003 $ 1,542,859 $ 1,422,087
Retail food 948,551 837,148 508,441 328,383 312,610
Corporate 449,130 396,641 381,856 530,115 505,203
---------------------------------------------------------------------------
Total $ 4,042,351 $ 4,064,189 $ 2,484,300 $ 2,401,357 $ 2,239,900
- - - ----------------------------------------------------------------------------------------------------------
Depreciation and
amortization
- - - ----------------------------------------------------------------------------------------------------------
Food distribution $ 105,763 $ 83,686 $ 71,326 $ 72,009 $ 67,134
Retail food 64,924 48,303 35,360 27,433 22,116
Corporate 15,574 8,801 4,802 6,140 6,343
---------------------------------------------------------------------------
Total $ 186,261 $ 140,790 $ 111,488 $ 105,582 $ 95,593
- - - ----------------------------------------------------------------------------------------------------------
Capital expenditures
- - - ----------------------------------------------------------------------------------------------------------
Food distribution $ 131,322 $ 60,408 $ 94,835 $ 129,518 $ 69,166
Retail food 69,939 78,715 68,562 64,594 64,853
Corporate 38,341 25,605 12,227 9,087 8,880
---------------------------------------------------------------------------
Total $ 239,602 $ 164,728 $ 175,624 $ 203,199 $ 142,899
==========================================================================================================
The company's food distribution operations include sales to independently owned
and operated food stores, sales to food stores owned by the company, and the
operations of several allied service operations throughout the United States.
Retail food operations include sales by food stores owned by the company, other
than transition retail food stores. Eliminations include food distribution sales
to food stores included in the retail food segment.
Industry segment operating earnings were computed as total revenue less
associated operating expenses, which exclude general corporate expenses, net
interest expense and income taxes.
Identifiable assets are those assets of the company directly associated with the
industry segments and exclude short-term investments, certain accumulated income
tax temporary differences and other corporate assets.
See notes following the Ten Year Financial and Operating Summary and notes to
the consolidated financial statements.
20
CONSOLIDATED STATEMENTS OF EARNINGS
- - - -------------------------------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- - - -------------------------------------------------------------------------------------------------------
(In thousands, except per share data) Fiscal Year Ended
- - - ---------------------------------------------------------------------------------------------------------
February 26, February 27, February 29,
1994 1993 1992
(52 Weeks) (52 Weeks) (53 Weeks)
- - - ---------------------------------------------------------------------------------------------------------
Net sales $15,936,925 $12,568,000 $10,632,301
Costs and expenses
Cost of sales 14,523,434 11,531,394 9,807,633
Selling and administrative expenses 1,044,433 746,857 583,789
Interest
Interest expense 120,292 83,066 72,693
Interest income 30,525 28,863 38,373
- - - ---------------------------------------------------------------------------------------------------------
Interest expense, net 89,767 54,203 34,320
- - - ---------------------------------------------------------------------------------------------------------
Total costs and expenses 15,657,634 12,332,454 10,425,742
- - - ---------------------------------------------------------------------------------------------------------
Earnings before equity in earnings of ShopKo, gain
on sale of ShopKo stock, income taxes and cumulative
effect of change in accounting principle 279,291 235,546 206,559
Equity in earnings of ShopKo 14,789 23,072 32,176
Gain on sale of ShopKo stock -- -- 84,105
- - - ---------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect of
change in accounting principle 294,080 258,618 322,840
Provision for income taxes
Current 110,717 79,980 82,308
Deferred (1,890) 14,112 32,867
- - - ---------------------------------------------------------------------------------------------------------
Income tax expense 108,827 94,092 115,175
- - - ---------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of change in
accounting principle 185,253 164,526 207,665
Cumulative effect of change in accounting principle -- -- (13,288)
- - - ---------------------------------------------------------------------------------------------------------
Net earnings $185,253 $164,526 $194,377
- - - ---------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 71,817 71,341 74,700
Net earnings per common share:
Earnings per common share before cumulative effect of
change in accounting principle $ 2.58 $ 2.31 $ 2.78
Cumulative effect of change in accounting principle -- -- (0.18)
- - - ---------------------------------------------------------------------------------------------------------
Net earnings per common share $ 2.58 $ 2.31 $ 2.60
=========================================================================================================
See notes to consolidated financial statements.
21
CONSOLIDATED BALANCE SHEETS
- - - -------------------------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- - - -------------------------------------------------------------------------------------------------
(In thousands, except per share data) February 26, 1994 February 27, 1993
- - - -------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 2,846 $ 1,773
Receivables, less allowance for losses of $33,820 in 1994
and $38,593 in 1993 352,151 357,709
Inventories 1,113,937 1,134,059
Other current assets 94,379 80,052
- - - -------------------------------------------------------------------------------------------------
Total current assets 1,563,313 1,573,593
- - - -------------------------------------------------------------------------------------------------
Long-term notes receivable 66,568 82,534
Long-term investment in direct financing leases 81,574 92,103
Property, plant and equipment
Land 172,241 162,451
Buildings 769,036 732,515
Property under construction 73,950 38,386
Leasehold improvements 114,724 103,620
Equipment 890,050 840,922
Assets under capital leases 175,891 183,236
- - - -------------------------------------------------------------------------------------------------
2,195,892 2,061,130
Less accumulated depreciation and amortization
Owned property, plant and equipment 746,027 647,735
Assets under capital leases 39,742 29,154
- - - -------------------------------------------------------------------------------------------------
Net property, plant and equipment 1,410,123 1,384,241
- - - -------------------------------------------------------------------------------------------------
Investment in ShopKo 173,567 165,464
Goodwill 427,559 436,215
Other assets 319,647 330,039
- - - -------------------------------------------------------------------------------------------------
Total assets $4,042,351 $4,064,189
=================================================================================================
See notes to consolidated financial statements.
22
- - - --------------------------------------------------------------------------------------------------------
February 26, 1994 February 27, 1993
- - - --------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 23,082 $ 251,496
Accounts payable 883,088 864,917
Current maturities of long-term debt 108,728 6,493
Current obligations under capital leases 19,222 19,348
Other current liabilities 190,305 183,524
- - - --------------------------------------------------------------------------------------------------------
Total current liabilities 1,224,425 1,325,778
- - - --------------------------------------------------------------------------------------------------------
Long-term debt 1,030,378 1,112,042
Long-term obligations under capital leases 232,617 235,344
Deferred income taxes 99,734 85,830
Other liabilities 179,739 170,375
Commitments and contingencies - -
Stockholders' equity
Preferred stock, no par value: Authorized 1,000 shares
Shares issued and outstanding, 6 in 1994 ($1,000 stated value) 5,908 -
Common stock, $1.00 par value: Authorized, 200,000 shares
Shares issued, 75,335, in 1994 and 1993 75,335 75,335
Capital in excess of par value 12,966 12,584
Retained earnings 1,268,117 1,144,374
Treasury stock, at cost, 3,276 shares in 1994 and 3,680 in 1993 (86,868) (97,473)
- - - --------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,275,458 1,134,820
- - - --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $4,042,351 $4,064,189
========================================================================================================
23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- - - -------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- - - -------------------------------------------------------------------------------
(In thousands, except per share data)
Capital in
Preferred Common Excess of Treasury Retained
Stock Stock Par Value Stock Earnings Total
- - - -------------------------------------------------------------------------------------------------------------
Balance at February 23, 1991 $ -- $75,225 $11,021 $ -- $ 892,432 $ 978,678
Net earnings -- -- -- -- 194,377 194,377
Sales of common stock under
option plans -- 110 1,734 2,127 -- 3,971
Cash dividends declared on common
stock--$.705 per share -- -- -- -- (52,422) (52,422)
Purchase of shares for treasury -- -- -- (93,623) -- (93,623)
- - - -------------------------------------------------------------------------------------------------------------
Balance at February 29, 1992 -- 75,335 12,755 (91,496) 1,034,387 1,030,981
Net earnings -- -- -- -- 164,526 164,526
Sales of common stock under
options plans -- -- (932) 8,321 -- 7,389
Cash dividends declared on common
stock--$.765 per share -- -- -- -- (54,539) (54,539)
Compensation under employee
incentive plan -- -- 761 6,003 -- 6,764
Purchase of shares for treasury -- -- -- (20,301) -- (20,301)
- - - -------------------------------------------------------------------------------------------------------------
Balance at February 27, 1993 -- 75,335 12,584 (97,473) 1,144,374 1,134,820
Net earnings -- -- -- -- 185,253 185,253
Sales of common stock under
option plans -- -- 225 10,838 -- 11,063
Cash dividends declared on common
stock--$.855 per share -- -- -- -- (61,510) (61,510)
Issuance of preferred stock 5,908 -- -- -- -- 5,908
Compensation under employee
incentive plan -- -- 157 (233) -- (76)
- - - -------------------------------------------------------------------------------------------------------------
Balance at February 26, 1994 $5,908 $75,335 $12,966 $(86,868) $1,268,117 $1,275,458
=============================================================================================================
See notes to consolidated financial statements.
24
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - --------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- - - --------------------------------------------------------------------------------
(In thousands) Fiscal Year Ended
- - - ------------------------------------------------------------------------------------------------------------------
February 26, February 27, February 29,
1994 1993 1992
- - - ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net earnings $ 185,253 $ 164,526 $ 194,377
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in earnings of ShopKo (14,789) (23,072) (32,176)
Gain on sale of ShopKo stock - - (84,105)
Dividends received from ShopKo 6,483 6,490 -
Depreciation and amortization 186,261 140,790 111,488
Provision for losses on receivables 7,165 7,867 6,675
(Gain) loss on sale of property, plant and equipment (404) (2,734) 936
Deferred income taxes (1,890) 14,112 25,743
Treasury shares contributed to employee incentive plan 444 6,282 -
Changes in assets and liabilities, excluding effect from acquisitions:
Receivables (1,207) 21,917 (10,360)
Inventories 22,222 119,959 (68,779)
Other current assets 108 (908) (5,615)
Direct financing leases 9,183 12,881 3,102
Accounts payable 18,171 (19,968) 12,897
Other liabilities 15,745 (44,004) 22,758
- - - ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 432,745 404,138 176,941
- - - ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Net proceeds from sale of ShopKo stock - - 240,831
Additions to long-term notes receivable (35,591) (38,986) (51,698)
Proceeds received on long-term notes receivable 51,557 53,136 55,665
Net reductions to note receivable from ShopKo - 181,167 22,867
Proceeds from sale of property, plant and equipment 41,531 23,467 7,745
Purchase of property, plant and equipment (231,489) (152,498) (147,813)
Business acquisitions, net of cash acquired - (643,718) (11,847)
Other investing activities 44,249 (114,132) (26,402)
- - - ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (129,743) (691,564) 89,348
- - - ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net reductions of short-term notes payable (228,414) (108,910) (99,468)
Proceeds from issuance of long-term debt 4,365 701,363 12,931
Repayment of long-term debt (9,462) (219,320) (10,772)
Reduction of obligations under capital leases (18,377) (17,590) (27,427)
Proceeds from the sale of common stock under option plans 9,521 5,985 3,971
Dividends paid (59,562) (53,574) (51,902)
Payment for purchase of treasury stock - (20,301) (93,623)
- - - ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (301,929) 287,653 (266,290)
- - - ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,073 227 (1)
Cash at beginning of year 1,773 1,546 1,547
- - - ------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,846 $ 1,773 $ 1,546
==================================================================================================================
See notes to consolidated financial statements.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUPERVALU INC. and Subsidiaries
- - - --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The financial statements include the accounts of the company and all its
subsidiaries. All significant inter-company accounts and transactions have been
eliminated.
Revenue and Income Recognition:
Revenues from product sales are recognized upon shipment of the product for food
distribution and at the point of sale for retail food. Revenues from services
rendered are recognized immediately after such services have been provided.
Income is recognized upon the completion of the earnings process.
Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
through use of the last-in, first-out method (LIFO) for a major portion of
consolidated inventories: 82.0 percent for 1994 and 80.1 percent for 1993. The
first-in, first-out method (FIFO) is used to determine cost for remaining
inventories which are principally perishable products. Market is replacement
value. If the FIFO method had been used to determine cost of inventories for
which the LIFO method is used, the company's inventories would have been higher
by approximately $113.2 million at February 26, 1994 and $113.3 million at
February 27, 1993.
Property, plant and equipment:
Property, plant and equipment are carried at cost. Depreciation, as well as
amortization of assets under capital leases, is based on the estimated useful
lives of the assets using a straight-line method. Interest on property under
construction of $2.9, $4.0 and $2.4 million was capitalized in fiscal years
1994, 1993 and 1992, respectively.
Goodwill:
Amounts paid in excess of the fair value of acquired net assets are amortized on
a straight-line basis over 5 to 40 years. The recoverability of goodwill is
assessed by determining whether the goodwill balance can be recovered through
projected cash flows and operating results over its remaining life. Any
impairment of the asset would be recognized when it is probable that such future
undiscounted cash flows will be less than the carrying value of the asset.
Goodwill is shown net of accumulated amortization of $20.4 and $8.0 million for
1994 and 1993, respectively.
Accounts payable:
Accounts payable include $80.5 and $41.8 million at February 26, 1994 and
February 27, 1993, respectively, of issued checks which had not cleared the
company's bank accounts, reduced by deposits in transit and cash on deposit in
the company's depository banks.
Financial Instruments:
The company, from time to time, utilizes interest rate caps, collars and swaps
to manage interest costs and reduce exposure to interest rate changes. The
difference between amounts to be paid or received is accrued and recognized over
the life of such contracts.
Fair value disclosures of financial instruments:
The estimated fair value of significant financial instruments and the methods
and assumptions used to determine the value are disclosed in the notes
receivable and long-term debt notes.
Pre-opening costs:
Pre-opening costs of retail stores are charged against earnings as incurred.
Net earnings per share:
Net earnings per share are computed by dividing net earnings by the weighted
average number of common shares outstanding. Outstanding stock options do not
have a significant dilutive effect on earnings per share.
Reclassifications:
Certain reclassifications have been made to prior years' financial statements to
conform to 1994 presentation. These reclassifications did not affect results of
operations as previously reported.
ACQUISITIONS
As of October 31, 1992, the company completed the acquisition of Wetterau
Incorporated ("Wetterau"). The acquisition was accounted for as a purchase,
whereby the company acquired all of the outstanding common stock of Wetterau,
approximately 21.4 million shares, for $30.25 per share. In addition to the
approximately $647 million paid for the stock, the company funded the repayment
of approximately $200 million of Wetterau commercial paper. The company also
incurred additional costs of approximately $50 million for buyouts of Wetterau
stock options, fees and transaction expenses. Approximately $266 million of
additional Wetterau debt remained outstanding immediately after the acquisition.
The allocation of the purchase price for Wetterau was based on fair values at
the date of acquisition. The excess of the purchase price over the fair value of
the net assets acquired ("goodwill") of approximately $432 million is being
amortized on a straight-line basis over 40 years. The results of Wetterau's
operations from October 31, 1992 have been included with the company's
continuing operations.
The following unaudited pro forma results of operations for the year ended
February 27, 1993 assumes the acquisition occurred as of the beginning of the
respective period after giving effect to certain adjustments, including
amortization of goodwill, depreciation of
26
- - - -------------------------------------------------------------------------------
fixed asset write-ups, increased interest expense on acquisition debt and
related income tax effects. The pro forma results have been prepared for
comparative purposes only and do not purport to indicate the results of
operations which would actually have occurred had the combination been in effect
on the date indicated, or which may occur in the future.
- - - ----------------------------------------------------------
(In thousands, except per share amounts) 1993
- - - ----------------------------------------------------------
Net sales $16,446,508
Net earnings 167,499
Net earnings per common share 2.35
==========================================================
NOTES RECEIVABLE
Notes receivable arise from fixture and other financing related to independently
owned retail food operations. Loans to independent retailers, as well as trade
accounts receivable, are primarily collateralized by the retailers' inventory,
equipment and fixtures. The notes range in length from 1 to 20 years with the
average being 8 years, and may be non-interest bearing or bear interest at rates
ranging primarily from 6 to 13 percent. The estimated fair market value of the
notes receivable approximates the net carrying value at February 26, 1994 and
February 27, 1993, based on comparisons to publicly traded debt instruments of
similar credit quality.
Included in current receivables are notes receivable due within one year
totaling $10.9 and $19.3 million at February 26, 1994 and February 27, 1993,
respectively.
The Financial Accounting Standards Board issued SFAS No. 114--"Accounting by
Creditors for Impairment of a Loan" in 1994. This new standard must be adopted
no later than fiscal 1996. The impact of this new standard is being evaluated,
but is not expected to be material.
INVESTMENT IN SHOPKO
On October 16, 1991, ShopKo, the company's mass merchandise discount subsidiary,
completed its sale of 17,250,000 shares of its common stock at $15 per share in
an initial public offering. This sale generated net proceeds to the company of
$240.8 million and a gain of $84.1 million, reducing the company's ownership in
ShopKo from 100 to 46 percent. The company accounts for the investment in ShopKo
under the equity method.
The following table summarizes the significant transactions between the company
and ShopKo:
- - - --------------------------------------------------------
(In thousands) 1994 1993 1992
- - - --------------------------------------------------------
Sales to ShopKo $9,759 $16,645 $27,493
Interest income -- 509 16,838
========================================================
Summarized financial information of ShopKo is as follows:
- - - --------------------------------------------------------
(In thousands) 1994 1993 1992
- - - --------------------------------------------------------
Sales $1,738,746 $1,682,854 $1,648,427
Gross profit 449,488 454,423 449,701
Net earnings 32,122 50,059 49,589
========================================================
- - - --------------------------------------------------------
(In thousands) 1994 1993
- - - --------------------------------------------------------
Current assets $370,507 $ 296,328
Non-current assets 582,542 495,397
Current liabilities 251,743 214,552
Non-current liabilities 327,600 221,693
========================================================
LONG-TERM DEBT
- - - ----------------------------------------------------------------------
(In thousands, February 26, February 27,
except payment data) 1994 1993
- - - ----------------------------------------------------------------------
5.875%-8.875% promissory notes $700,000 $ 700,000
semi-annual interest payments of
$24.9 million; due 1995 to 2022
8.875%-9.64% promissory notes 170,000 170,000
semi-annual interest payments of
$7.9 million; due 1994 to 1999
9.67% senior subordinated notes due 1998 75,000 75,000
8.39%-11.5% promissory notes 33,317 34,409
due 1993 to 2004
8.28%-9.46% promissory notes due 2010 26,394 --
8.875% sinking fund debentures due 2016 22,110 22,110
3.0%-10.0% mortgages payable due 8,331 7,829
1993 to 2007 (secured by land and buildings)
2.05%-11.875% industrial revenue bonds 95,944 99,968
Other debt 8,010 9,219
- - - ----------------------------------------------------------------------
1,139,106 1,118,535
Less current maturities 108,728 6,493
- - - ----------------------------------------------------------------------
Long-term debt $1,030,378 $1,112,042
======================================================================
Aggregate maturities of long-term debt during the next five fiscal years are:
- - - -------------------------------------------
(In thousands)
- - - -------------------------------------------
1995 $108,728
1996 308,543
1997 5,505
1998 35,497
1999 91,014
===========================================
On October 26, 1992 the company's $300 million fully committed revolving credit
agreement was terminated and replaced with fully committed $700 million 364 day
and $400 million four year revolving credit agreements with a group of banks.
These credit agreements were subsequently reduced to $150 million and $400
million credit agreements, respectively. On October 25, 1993 the $150 million
364 day credit agreement expired leaving the company with a $400 million credit
agreement expiring in October 1997. The amounts available under the credit
agreement support the company's commercial paper program. If the company were to
borrow under the
27
credit agreements, the interest rate would be based on various money market
rates selected by the company at the time of borrowing. The company pays an
annual facility fee of .15 percent for the four year credit agreement.
The company issued unsecured notes of $22.8 million and $3.6 million on February
10, 1994 in connection with the company's acquisition of certain properties from
Wetterau Properties, Inc., a publicly owned real estate investment trust. The
notes, which bear interest at 9.46 percent and 8.28 percent, respectively,
replaced the company's obligations under debt contingent purchase agreements.
On November 17, 1992 the company completed the public offering of notes due
November 15, 1995, 2002 and 2022, bearing interest at 5.875 percent, 7.80
percent and 8.875 percent, respectively. The notes were issued in principal
amounts of $300, $300 and $100 million for the 1995, 2002 and 2022 maturities,
respectively. On July 15, 1992 the company redeemed $100 million of its 10.5
percent notes with an original maturity of July 15, 1995.
In connection with the company's acquisition of Wetterau Incorporated, the
company acquired certain long-term debt of Wetterau, including $75 million of
9.67 percent senior subordinated notes and various industrial revenue bonds. At
the time of the acquisition, Wetterau had outstanding a convertible subordinated
debt issue of $107.5 million which, pursuant to its terms, its holders could
require to be redeemed in connection with the acquisition. At February 26, 1994
substantially all of this debt had been retired.
The debt agreements contain various covenants, including minimum tangible net
worth requirements and maximum permitted leverage. Under the most restrictive
covenants, retained earnings of approximately $166 million were available at
year-end for payment of cash dividends.
The company periodically enters into interest rate caps, collars and swaps to
manage exposure to interest rate changes. The financial instruments are subject
to market risk as interest rates fluctuate. At February 26, 1994, the company
had notional amounts in effect of $20.6 million, all aimed at fixing interest
costs. The fair market value of these financial instruments was immaterial at
February 26, 1994.
As of February 26, 1994 and February 27, 1993 the estimated fair value of the
company's long-term debt (including current maturities) exceeded the carrying
value by approximately $69 and $81 million, respectively. The estimated fair
value was based on market quotes where available, discounted cash flows and
market yields for similar instruments. The estimated fair value of the company's
commercial paper outstanding as of February 26, 1994 and February 27, 1993
approximated the carrying value.
LEASES
Capital and operating leases:
The company leases certain food distribution warehouse and office facilities, as
well as corporate-owned and operated retail food stores. Many of these leases
include renewal options, and to a limited extent, include options to purchase.
Amortization of assets under capital leases was $13.6, $11.8 and $7.8 million in
1994, 1993 and 1992, respectively.
Future minimum obligations under capital leases in effect at February 26, 1994
are as follows:
- - - -------------------------------------------------------------
(In thousands) Lease
Year Obligations
- - - -------------------------------------------------------------
1995 $ 24,708
1996 23,517
1997 22,560
1998 21,421
1999 20,734
Later 188,899
- - - -------------------------------------------------------------
Total future minimum obligations 301,839
Less interest 138,411
- - - -------------------------------------------------------------
Present value of net future minimum obligations 163,428
Less current portion 9,992
- - - -------------------------------------------------------------
Long-term obligations $153,436
=============================================================
The present values of future minimum obligations shown are calculated based on
interest rates ranging from 7.1 percent to 13.8 percent, with a weighted average
of 9.8 percent, determined to be applicable at the inception of the leases.
Interest expense on the outstanding obligations under capital leases was $15.6,
$14.8 and $12.1 million in 1994, 1993 and 1992, respectively.
Contingent rent expense, based primarily on sales performance, for capital
leases was $.9, $.3 and $.1 million in 1994, 1993 and 1992, respectively.
In addition to its capital leases, the company is obligated under operating
leases, primarily for buildings, warehouse and computer equipment.
28
Future minimum obligations under operating leases in effect at February 26, 1994
are as follows:
- - - -----------------------------------------------
(In thousands) Lease
Year Obligations
- - - -----------------------------------------------
1995 $ 54,856
1996 49,570
1997 43,962
1998 36,087
1999 29,412
Later 129,782
- - - -----------------------------------------------
Total future minimum obligations $343,669
===============================================
Total rent expense, net of sublease income, relating to all operating leases
with terms greater than one year was $33.3, $13.0 and $2.8 million in 1994, 1993
and 1992, respectively.
Future minimum receivables under operating leases and subleases in effect at
February 26, 1994 are as follows:
- - - --------------------------------------------------------------------------
(In thousands) Owned Leased
Year Property Property Total
- - - --------------------------------------------------------------------------
1995 $ 6,473 $ 22,049 $ 28,522
1996 6,313 19,777 26,090
1997 6,192 16,918 23,110
1998 5,830 13,242 19,072
1999 5,462 10,061 15,523
Later 26,298 29,200 55,498
- - - --------------------------------------------------------------------------
Total future minimum receivables $56,568 $111,247 $167,815
==========================================================================
Owned property under operating leases is as follows:
- - - -----------------------------------------------------------------------------
(In thousands) February 26, February 27,
1994 1993
- - - -----------------------------------------------------------------------------
Land, buildings and equipment $70,491 $78,858
Less accumulated depreciation 15,754 12,030
- - - -----------------------------------------------------------------------------
Net land, buildings and equipment $54,737 $66,828
=============================================================================
Total rental income relating to property owned by the company and leased under
operating leases was $6.6, $5.4 and $3.7 million in 1994, 1993 and 1992,
respectively.
Direct financing leases:
Under direct financing capital leases, the company leases buildings on behalf of
independent retailers with terms ranging from 5 to 25 years.
Future minimum rentals to be received under direct financing leases and the
related future minimum obligations under capital leases in effect at February
26, 1994 are as follows:
- - - -------------------------------------------------------------------------------
(In thousands) Direct Financing Capital Lease
Year Lease Receivables Obligations
- - - -------------------------------------------------------------------------------
1995 $ 19,181 $ 17,719
1996 17,900 16,594
1997 16,500 15,245
1998 14,842 13,743
1999 12,978 12,111
Later 74,576 70,195
- - - -------------------------------------------------------------------------
Total minimum lease payments 155,977 145,607
Less unearned income 65,317 --
Less interest -- 57,196
- - - -------------------------------------------------------------------------
Present value of net minimum lease payments 90,660 88,411
Less current portion 9,086 9,230
- - - -------------------------------------------------------------------------
Long-term portion $ 81,574 $ 79,181
=========================================================================
Contingent rental income earned, based primarily on sales performance, for
direct financing leases was $1.5, $1.5 and $1.4 million for 1994, 1993 and 1992,
respectively. Contingent rental expense paid, based primarily on sales
performance, for direct financing leases was $1.3, $1.8 and $1.0 million in
1994, 1993 and 1992, respectively.
INCOME TAXES
In 1993 the company changed its method of accounting for income taxes to comply
with the provisions of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes." The change in accounting method was applied
retroactively to the beginning of 1993. The change did not have a material
impact on results of operations.
The provision for federal and state income taxes includes the following:
- - - ---------------------------------------------------------------------
(In thousands) 1994 1993 1992
- - - ---------------------------------------------------------------------
Current
Federal $ 91,113 $66,699 $ 66,628
State 19,955 13,836 16,047
Tax credits (351) (555) (367)
Deferred
Statutory rate change 500 -- --
Other (2,390) 14,112 32,867
- - - ---------------------------------------------------------------------
Total provision $108,827 $94,092 $115,175
=====================================================================
The effective tax rate varies from the statutory federal income tax rate for the
following reasons:
- - - -------------------------------------------------------------------------
1994 1993 1992
- - - -------------------------------------------------------------------------
Statutory 35.0% 34.0% 34.0%
State income taxes, net of federal benefit 4.3 4.3 4.5
Benefit of dividends received deduction (.7) (.7) (2.4)
Other (1.6) (1.2) (.4)
- - - -------------------------------------------------------------------------
Effective income tax rate 37.0% 36.4% 35.7%
=========================================================================
29
Temporary differences which give rise to significant portions of the net
deferred tax liability as of February 26, 1994 and February 27, 1993, are as
follows:
- - - -------------------------------------------------------------------------------
(In thousands) 1994 1993
- - - -------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortization $ 89,522 $ 81,274
Acquisition assets adjustment to fair values 80,329 89,301
Earnings from ShopKo investment 44,623 42,445
Accelerated tax deductions for
benefits to be paid in future periods 17,986 12,215
Other 6,511 3,660
- - - -------------------------------------------------------------------------------
Total deferred tax liabilities 238,971 228,895
- - - -------------------------------------------------------------------------------
Deferred tax assets:
Depreciation and amortization (12,683) (8,578)
Provision for obligations and
contingencies to be settled in future periods (154,742) (153,900)
Other (15,439) (8,420)
- - - -------------------------------------------------------------------------------
Total deferred tax assets (182,864) (170,898)
- - - -------------------------------------------------------------------------------
Net deferred tax liability $ 56,107 $ 57,997
===============================================================================
Temporary differences attributable to obligations and contingencies consist
primarily of valuation allowances, accrued postretirement benefits and vacation
pay, and other expenses which are not deductible for income tax purposes until
paid.
SUPPLEMENTAL CASH FLOW INFORMATION
The company's non-cash investing and financing activities were as follows:
- - - -------------------------------------------------------------------------------
(In thousands) 1994 1993 1992
- - - -------------------------------------------------------------------------------
Leased asset additions and
related obligation $ 13,127 $ 12,797 $ 17,142
------------------------------
Acquisitions:
Fair value of assets acquired 35,482 1,837,693 63,870
Cash paid - 647,382 12,280
Preferred stock issued 5,908 - -
- - - -------------------------------------------------------------------------------
Liabilities assumed $ 29,574 $1,190,311 $ 51,590
===============================================================================
Payments for interest and income taxes were as follows:
- - - -------------------------------------------------------------------------------
(In thousands) 1994 1993 1992
- - - -------------------------------------------------------------------------------
Interest (net of amount capitalized) $123,457 $ 71,259 $ 73,729
Income taxes 107,891 99,658 103,740
===============================================================================
STOCK OPTION PLANS
The company's 1993, 1983 and 1976 stock option plans allow the granting of non-
qualified stock options and incentive stock options to key salaried executive
employees at prices not less than 100 percent of fair market value, determined
by averaging the open and close price on the date of grant. The plans provide
that the Board of Directors or the Executive Personnel and Compensation
Committee of the Board may determine at the time of granting whether each option
granted will be a non-qualified or incentive stock option under the Internal
Revenue Code. The term of each option will be determined by the Board of
Directors or the Committee, but shall not be for more than 10 years from the
date of grant. Options may be exercised in installments or otherwise, as the
Board of Directors or the Committee may determine.
Changes in options were as follows:
- - - -------------------------------------------------------------------------------
Shares Price
(In thousands) Range
- - - -------------------------------------------------------------------------------
Outstanding, February 23, 1991 2,210 $ 8.57-29.75
Granted 548 23.88-27.88
Exercised (191) 8.57-25.13
Cancelled and forfeited (214)
- - - -------------------------------------------------------------------------------
Outstanding, February 29, 1992 2,353 8.57-29.75
Granted 793 24.00-34.56
Exercised (495) 8.57-29.75
Cancelled and forfeited (23)
- - - -------------------------------------------------------------------------------
Outstanding, February 27, 1993 2,628 13.19-34.56
Granted 692 31.63-39.25
Exercised (482) 13.19-32.81
Cancelled and forfeited (73)
- - - -------------------------------------------------------------------------------
Outstanding, February 26, 1994 2,765 $15.25-39.25
===============================================================================
Options to purchase 1.7 million shares were exercisable at February 26, 1994 and
February 27, 1993. Option shares available for grant were 3.8 and 1.0 million at
February 26, 1994 and February 27, 1993, respectively. The company has reserved
6.1 million shares, in aggregate, for the plans.
As of February 26, 1994, limited stock appreciation rights have been granted and
are outstanding under the 1978 and 1989 Stock Appreciation Rights Plans. Such
rights relate to options granted to purchase 1.1 million shares of common stock
and are exercisable only upon a change of control as defined by the plan.
TREASURY STOCK PURCHASE PROGRAM
In February 1994, the Board of Directors rescinded the 1991 treasury stock
purchase program and instituted a new treasury stock purchase program. Under the
1994 program, which was primarily instituted in connection with the 1993 stock
option plan, the company may repurchase sufficient shares annually for
reissuance upon the exercise of employee stock options or for other compensation
programs. No shares were repurchased under either treasury stock program in
1994. The company repurchased .8 and 3.6 million shares at an average per share
cost of $25.78 and $26.34 during 1993 and 1992, respectively.
STOCKHOLDER RIGHTS PLAN
The company has a "Preferred Share Purchase Rights Plan," in which the Board of
Directors declared a dividend of one preferred share purchase right for each
outstanding share of common stock. The
30
rights, which expire on April 12, 1999, are exercisable only under certain
conditions, and when exercisable the holder will be entitled to purchase from
the company one one-thousandth of a share of a new series of preferred stock at
a price of $95 per one one-thousandth of a preferred share, subject to certain
adjustments. The rights will become exercisable 10 days after a person or group
acquires beneficial ownership of 20 percent or more of the company's shares, or
10 business days (or such later time as the Board of Directors may determine)
after a person or group announces an offer the consummation of which would
result in such person or group owning 20 percent or more of the shares.
RETIREMENT PLANS
Substantially all non-union employees of the company and its subsidiaries are
covered by various contributory and non-contributory pension or profit-sharing
plans. The company also participates in several multi-employer plans providing
defined benefits to union employees under the provisions of collective
bargaining agreements.
Contributions under the defined contribution profit sharing plans are determined
at the discretion of the Board of Directors and were $5.1, $4.4 and $4.3 million
for 1994, 1993 and 1992, respectively.
Amounts charged to union pension expense were $28.2, $21.5 and $16.7 million for
1994, 1993 and 1992, respectively.
Benefit calculations for the company's defined benefit pension plan are based on
years of service and the participants' highest compensation during five
consecutive years of employment. Annual payments to the pension trust fund are
determined in compliance with the Employee Retirement Income Security Act
(ERISA).
The following table sets forth the company's defined benefit pension plans'
funded status and the amounts recognized in the company's financial statements:
- - - ------------------------------------------------------------------
February 26, February 27,
(In thousands) 1994 1993
- - - ------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
Vested $ 156,508 $ 119,645
Total $ 173,420 $ 134,962
- - - ------------------------------------------------------------------
Projected benefit obligation $ 220,498 $ 181,637
Plan assets at fair value (160,205) (143,982)
- - - ------------------------------------------------------------------
Projected benefit obligation in
excess of plan assets 60,293 37,655
Unrecognized net loss (33,460) (9,488)
Unrecognized prior service cost (4,291) (5,036)
Unrecognized transition obligation (794) (921)
Adjustment to minimum liability 1,235 650
- - - ------------------------------------------------------------------
Pension liability $ 22,983 $ 22,860
==================================================================
Net pension expense included the following components:
- - - ------------------------------------------------------------------
(In thousands) 1994 1993 1992
- - - ------------------------------------------------------------------
Service cost $ 9,066 $ 6,154 $ 5,073
Interest cost 15,790 10,196 6,625
Actual return on plan assets (12,834) (6,518) (8,482)
Net amortization and deferral (941) (2,259) 2,887
- - - ------------------------------------------------------------------
Net pension expense $ 11,081 $ 7,573 $ 6,103
==================================================================
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were 7.5 percent and 4.5 percent, respectively for 1994, and 8.5
percent and 5.5 percent, respectively, for 1993. The expected long-term rate of
return on assets was 10 percent. The company computes pension expense using the
projected unit credit actuarial cost method.
Other Postretirement Benefits:
In addition to providing pension benefits, the company provides certain health
care and life insurance benefits for retired employees. Employees become
eligible for these benefits upon meeting certain age and service requirements.
The provisions of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," were
adopted in 1992. The statement requires accrual of the expected cost of
providing postretirement benefits other than pensions over the years that
employees render the necessary service. Prior to adopting this statement, the
company recognized expense when benefits were paid. The total cumulative effect
of this accounting change was to decrease net earnings by $13.3 million or $.18
per share for 1992. The periodic postretirement benefit cost and accumulated
postretirement benefit obligation are as follows:
- - - -------------------------------------------------------------------------
(In thousands)
Net periodic postretirement benefit cost 1994 1993 1992
- - - -------------------------------------------------------------------------
(Service cost-benefits attributed to service
during the period $1,783 $1,385 $ 868
Interest cost on accumulated
postretirement benefit obligation 3,686 2,648 1,785
Net amortization and deferral 340 - -
- - - -------------------------------------------------------------------------
Net periodic postretirement benefit cost $5,809 $4,033 $2,653
=========================================================================
- - - -------------------------------------------------------------------------
Accumulated postretirement benefit February 26, February 27,
obligation 1994 1993
- - - -------------------------------------------------------------------------
Retirees $17,617 $18,938
Active plan participants 34,930 28,778
- - - -------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 52,547 47,716
Unrecognized loss (5,984) -
Unrecognized prior service cost 839 -
- - - -------------------------------------------------------------------------
Postretirement benefit liability $47,402 $47,716
=========================================================================
31
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent in 1994 and 8.5 percent in
1993.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 12 percent per year through fiscal 1995, 9
percent through fiscal 1999 and 6 percent thereafter. The health care cost trend
rate assumption has a significant effect on the amounts reported. For example, a
1 percent increase in the health care trend rate would increase the accumulated
postretirement benefit obligation by $8.1 million and $4.1 million and the net
periodic cost by $.9 million and $.6 million for fiscal 1994 and 1993,
respectively.
The Financial Accounting Standards Board issued SFAS No. 112-"Employers'
Accounting for Postemployment Benefits" in 1992. The company was in compliance
with this new standard prior to its issuance and therefore, no change in
accounting policy was necessary.
INDUSTRY SEGMENT INFORMATION
Information concerning the company's continuing operations by business segment
for the years ended February 26, 1994, February 27, 1993 and February 29, 1992,
as required by Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise," is contained on page 20.
COMMITMENTS AND CONTINGENCIES
The company has guaranteed mortgage loan and other debt obligations of $19.2
million. The company has also guaranteed the leases and fixture financing loans
of various affiliated retailers with a present value of $34.4 and $11.9 million,
respectively. The company has provided limited recourse to purchasers of notes
receivable from affiliated retailers with outstanding note balances of $55.9 and
$52.3 million, $9.5 and $8.9 million of which the company has contingent
liability, at February 26, 1994 and February 27, 1993, respectively. In
addition, the company is contingently liable for bonds totaling $2.6 million.
The company has also entered into note repurchase agreements with various
lenders totaling $39.6 million, under which certain events require the company
to repurchase collateralized loans.
32
INDEPENDENT AUDITORS' REPORT
SUPERVALU INC.
Board of Directors and Stockholders
Eden Prairie, Minnesota
We have audited the accompanying consolidated balance sheets of SUPERVALU INC.
and subsidiaries as of February 26, 1994 and February 27, 1993, and the related
statements of earnings, stockholders' equity and cash flows for each of the
three years (52-53 weeks) in the period ended February 26, 1994. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SUPERVALU INC. and
subsidiaries as of February 26, 1994 and February 27, 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended February 26, 1994, in conformity with generally accepted accounting
principles.
As discussed in the notes to the consolidated financial statements, in fiscal
1992 the company changed its method of accounting for postretirement benefits to
conform with Statement of Financial Accounting Standards No. 106.
/s/Deloitte & Touche
Minneapolis, Minnesota
April 7, 1994
-33-
UNAUDITED QUARTERLY FINANCIAL INFORMATION
Quarterly unaudited financial information for SUPERVALU INC. and subsidiaries is
as follows:
- - - ----------------------------------------------------------------------------------------------------
(In thousands, except per share data) Fiscal Year (52 Weeks) Ended February 26, 1994
- - - ----------------------------------------------------------------------------------------------------
First Second Third Fourth Year
(16 wks) (12 wks) (12 wks) (12 wks) (52 wks)
- - - ----------------------------------------------------------------------------------------------------
Net sales $4,875,784 $3,703,823 $3,670,298 $3,687,020 $15,936,925
Gross profit 418,362 311,771 331,270 352,088 1,413,491
Net earnings 51,084 36,324 45,238 52,607 185,253
Net earnings per common
share .71 .51 .63 .73 2.58
Dividends declared per
common share .195 .220 .220 .220 .855
Weighted average shares 71,583 71,818 71,937 72,005 71,817
====================================================================================================
Fiscal Year (52 Weeks) Ended February 27, 1993
- - - ----------------------------------------------------------------------------------------------------
First Second Third Fourth Year
(16 wks) (12 wks) (12 wks) (12 wks) (52 wks)
- - - ----------------------------------------------------------------------------------------------------
Net sales $3,284,254 $2,469,609 $2,960,400 $3,853,737 $12,568,000
Gross profit 258,616 196,999 238,909 342,082 1,036,606
Net earnings 45,631 32,220 36,726 49,949 164,526
Net earnings per common
share .64 .45 .51 .70 2.31
Dividends declared per
common share .180 .195 .195 .195 .765
Weighted average shares 71,575 71,117 71,393 71,398 71,341
====================================================================================================
The results for the third quarter of 1993 include four weeks of Wetterau
Incorporated, which was acquired in October 1992 and accounted for as a
purchase. The fourth quarter of 1993 includes 13 weeks of results for Wetterau.
34
Stock Exchange
The company's common stock is listed on the New York Stock Exchange (trading
symbol SVU).
Stockholders of the Company
As of May 5, 1994, there were approximately 8,230 holders of the company's
common stock.
37
GRAPHICS APPENDIX
A bar graph on page 15 of the Annual Report appears under the caption
"Capital Expenditures (In Millions)" and graphs the following information:
1995 (BUDGET) 1994 1993
------------- ---- ----
Food Distribution $283 $204 $160
Retail Food 192 78 55
Corporate 25 39 20
---- ---- ----
TOTAL $500 $321 $235