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 (12 weeks) ended June 17, 1995.
OR
[_] 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
................................................................................
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11840 Valley View Road, Eden Prairie, Minnesota 55344
................................................................................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 828-4000
................................................................................
Former name, former address and former fiscal year, if changed since last
report:
N.A.
................................................................................
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
........... ...........
The number of shares outstanding of each of the issuer's classes of Common Stock
as of July 15, 1995 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 68,223,494
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 17, 1995 June 18, 1994
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Net sales $ 4,973,037 $ 4,991,115
Costs and expenses:
Cost of sales 4,512,696 4,552,947
Selling and administrative expenses 344,596 321,952
Amortization of goodwill 5,457 4,225
Interest
Interest expense 44,119 38,297
Interest income 7,092 7,655
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Interest expense, net 37,027 30,642
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Total costs and expenses 4,899,776 4,909,766
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Earnings before equity in earnings
of ShopKo and income taxes 73,261 81,349
Equity in earnings of ShopKo 2,468 2,293
-------------------------------------
Earnings before income taxes 75,729 83,642
Provision for income taxes
Current 25,542 27,108
Deferred 4,236 5,921
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Income tax expense 29,778 33,029
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Net earnings $ 45,951 $ 50,613
=====================================
Net earnings per common share $ 0.66 $ 0.71
Weighted average number of common
shares outstanding 69,225 71,633
Dividends declared per common share $ 0.235 $ 0.220
Supplemental information:
After-tax LIFO income $ 208 $ 1,709
All data subject to year-end audit. See notes to consolidated financial statements.
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 17, June 18, February 25,
Assets 1995 1994 1995
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Current Assets
Cash and cash equivalents $ 6,109 $ 3,672 $ 4,839
Receivables, less allowance for losses of $28,929 at
June 17, 1995, $35,592 at June 18, 1994, and
$29,268 at February 25, 1995 405,755 399,900 383,458
Inventories 1,093,752 1,199,843 1,109,791
Other current assets 137,405 91,955 148,252
-------------------------------------------
Total current assets 1,643,021 1,695,370 1,646,340
Long-term notes receivable 69,138 67,902 73,094
Long-term investment in direct financing leases 72,246 80,146 77,688
Property, plant and equipment
Land 175,347 179,246 202,949
Buildings 905,384 823,998 868,379
Property under construction 40,316 85,961 51,640
Leasehold improvements 137,886 120,506 134,094
Equipment 951,370 915,034 970,779
Assets under capital leases 217,587 199,659 205,030
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2,427,890 2,324,404 2,432,871
Less accumulated depreciation and amortization
Owned property, plant and equipment 830,303 776,363 825,546
Assets under capital leases 40,170 38,679 36,027
-------------------------------------------
Net property, plant and equipment 1,557,417 1,509,362 1,571,298
Investment in ShopKo 182,066 172,619 182,839
Goodwill 509,251 480,587 515,009
Other assets 235,206 342,606 238,881
-------------------------------------------
Total assets $4,268,345 $4,348,592 $4,305,149
===========================================
Liabilities and Stockholders' Equity
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Current Liabilities
Notes payable $ 255,146 $ 239,226 $ 226,168
Accounts payable 978,639 935,190 1,003,106
Current maturities of long-term debt 10,181 9,060 9,277
Current obligations under capital leases 18,587 18,440 19,060
Other current liabilities 156,443 152,513 189,526
-------------------------------------------
Total current liabilities 1,418,996 1,354,429 1,447,137
Long-term debt 1,212,835 1,154,678 1,215,184
Long-term obligations under capital leases 249,949 253,895 244,582
Deferred income taxes -- 108,874 --
Other liabilities 210,290 187,037 205,024
Stockholders' equity
Preferred stock 5,908 5,908 5,908
Common stock 75,335 75,335 75,335
Capital in excess of par value 12,688 13,224 12,717
Retained earnings 1,266,403 1,302,957 1,236,507
Treasury stock, at cost (184,059) (107,745) (137,245)
-------------------------------------------
Total stockholders' equity 1,176,275 1,289,679 1,193,222
-------------------------------------------
Total liabilities and stockholders' equity $4,268,345 $4,348,592 $4,305,149
===========================================
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 26, 1994 $5,908 $75,335 $12,966 $ (86,868) $1,268,117 $1,275,458
Net earnings -- -- -- -- 43,334 43,334
Sales of common stock
under option plans -- -- (290) 1,435 -- 1,145
Cash dividends declared
on common stock -
$.925 per share -- -- -- -- (66,024) (66,024)
Compensation under employee
incentive plans -- -- 41 253 -- 294
Purchase of shares for treasury -- -- -- (52,065) -- (52,065)
Other -- -- -- -- (8,920) (8,920)
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Balances at February 25, 1995 5,908 75,335 12,717 (137,245) 1,236,507 1,193,222
Net earnings -- -- -- -- 45,951 45,951
Sales of common stock
under option plans -- -- (29) 593 -- 564
Cash dividends declared
on common stock -
$.235 per share -- -- -- -- (16,055) (16,055)
Compensation under employee
incentive plans -- -- -- (788) -- (788)
Purchase of shares for treasury -- -- -- (46,619) -- (46,619)
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Balances at June 17, 1995 $5,908 $75,335 $12,688 $(184,059) $1,266,403 $1,176,275
=============================================================================================================
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 17, June 18,
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 45,951 $ 50,613
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in earnings of ShopKo (2,468) (2,293)
Dividends received from ShopKo 3,241 3,241
Depreciation and amortization 64,848 65,009
Provision for losses on receivables 1,699 1,425
Gain on sale of property, plant and equipment (1,587) (1,950)
Deferred income taxes 4,236 6,250
Treasury shares contributed to employee incentive plan 66 -
Changes in assets and liabilities:
Receivables (23,996) (21,550)
Inventory 16,039 (27,953)
Other current assets 10,656 8,399
Direct finance leases 2,536 2,529
Accounts payable (24,026) 4,274
Other liabilities (11,549) (34,153)
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Net cash provided from operating activities 85,646 53,841
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CASH FLOWS FROM INVESTING ACTIVITIES
Additions to long-term notes receivable (9,982) (7,919)
Payments received on long-term notes receivable 13,938 6,585
Proceeds from sale of property, plant and equipment 31,063 14,657
Purchase of property, plant and equipment (57,787) (61,619)
Business acquisitions, net of cash acquired - (58,697)
Other investing activities (4,393) (25,403)
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Net cash used in investing activities (27,161) (132,396)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net issuance of short-term notes payable 28,978 212,588
Repayment of long-term debt (1,445) (75,296)
Reduction of obligations under capital leases (5,100) (4,746)
Payments for purchase of common stock under option plans (309) (829)
Dividends paid (32,720) (31,643)
Payment for purchase of treasury stock (46,619) (20,693)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (57,215) 79,381
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Net increase in cash and cash equivalents 1,270 826
Cash and cash equivalents at beginning of year 4,839 2,846
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CASH AND CASH EQUIVALENTS AT END OF FIRST QUARTER $ 6,109 $ 3,672
=======================================================================================
All data subject to year-end audit.
See notes to consolidated financial statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
-------------------
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1995 annual report of SUPERVALU INC.
("SUPERVALU" or the "company").
Restructure and Other Charges
-----------------------------
In December 1994, restructuring and other charges totaling $244.0 million were
incurred for the implementation of the plan formulated under the ADVANTAGE
project, the sale, closure or restructure of certain retail businesses and the
recognition of certain asset impairments.
The aggregate charges included $204.8 million for activities under the
restructuring plan. Management's objective under the ADVANTAGE project is to
fundamentally change its business processes to improve the effectiveness and
efficiency of the company's food distribution system thus lowering the cost of
goods to the company's customers. Its retail food objective is to improve
retail performance by eliminating certain operations and assets that do not add
shareholder value and focusing on building its successful retail formats.
The charges included $53.1 million for severance, pension and outplacement which
is based on the projected impact of the plan on employee levels in both food
distribution and retail food. The company expects approximately 4,300 employees
to be eliminated over an 18 month period under the re-engineering efforts, 1,700
of which are employed in retail food operations. During the first quarter of
fiscal 1996, approximately 853 positions were eliminated which resulted in
severance and outplacement payments of $1.0 million. Also included in the
charge is a $20.0 million provision in food distribution which represents
expected losses on the sale of tangible assets and expenses under non-cancelable
leases as a result of the strategic shift. Expenditures of $1.4 million were
incurred during the first quarter of fiscal 1996 for non-cancelable leases and
losses on disposition of assets.
The restructuring charges included a $87.8 million provision for property and
lease discontinuances at retail locations, resulting primarily from various exit
strategies and payment of portions of non-cancelable lease obligations.
Approximately 30 retail stores were expected to be sold or closed, primarily in
fiscal 1995 and 1996. At the end of 1995, six of the stores had been closed and
during the first quarter of 1996, an additional two stores were closed and five
stores were in the process of closing. The company is in the process of closing
its four MAX CLUB warehouse membership stores which were announced to be closing
in May following a liquidation sale in each store. During the first quarter of
fiscal 1996, charges against the reserve were $12.5 million which related to the
closedown of retail locations. The retail units covered by the reserve had
aggregate sales and pre-tax losses of $54.9 and $2.6 million, respectively, for
the first quarter, compared with $83.6 and $4.0 million for the same period last
year.
6
The final component of the aggregate restructuring charges was a $43.9 million
impairment provision representing the effect of the strategic shift on the
recoverability of certain assets. The company holds land for development,
transition stores for wholesale market share, certain warehouse properties and
miscellaneous sites the majority of which are expected to be disposed of by the
end of the second quarter. During the first quarter of fiscal 1996, $1.5
million was charged against the reserve for carrying costs and losses on
disposition of property.
Cash expenditures related to the restructuring plan were $2.9 million during the
first quarter of fiscal 1996.
Statement of Registrant
-----------------------
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 17, 1995 and June
18, 1994 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.
7
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
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RESULTS OF OPERATIONS
---------------------
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
1996 1995
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Net sales 100.00% 100.00%
Cost of sales (90.74) (91.22)
Selling and administrative expenses (7.04) (6.54)
Interest expense (.89) (.76)
Interest income .14 .15
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Earnings before equity in earnings of ShopKo,
and income taxes 1.47 1.63
Equity in earnings of ShopKo .05 .04
Provision for income taxes (.60) (.66)
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Net earnings .92% 1.01%
================================================================================
NET SALES
Net sales for the first quarter decreased .4% from the first quarter of last
year. Food distribution net sales decreased 1.9% from last year due to
competitive market conditions at the retail level and the sales reductions
arising from last year's three facility consolidations. Food price inflation,
as measured by the company, was zero for the quarter compared to deflation of
.8% last year. Retail food net sales increased 11.5% over the first quarter of
last year. The increase was primarily due to the acquisitions of Hyper Shoppes,
Inc. and Texas T Stores and new store openings. However, this increase was
partially offset by a decline in same-store sales of approximately 1% which was
primarily due to reduced sales in stores announced to be closing and competitive
pressures in certain markets.
Net Sales by Segment
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(In thousands) First Quarter (16 weeks)
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June 17, 1995 June 18, 1994
Net Sales % of Total Net Sales % of Total
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Food distribution $4,446,127 89.4 % $4,533,909 90.8 %
Retail food 1,260,889 25.4 % 1,131,111 22.7 %
Less: Eliminations (733,979) (14.8)% (673,905) (13.5)%
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Total net sales $4,973,037 100.0 % $4,991,115 100.0 %
================================================================================
8
GROSS PROFIT
Gross profit as a percentage of net sales increased to 9.3% in the first
quarter, compared with 8.8% in the first quarter of fiscal 1995. The increase
was due principally to the growing proportion within the company's total sales
mix of the higher-margined retail food business, which represented 25% of total
sales in the first quarter of fiscal 1996, compared with 23% in the first
quarter of last year. Food distribution gross profit margin was relatively
flat, positively affected by increased manufacturing allowances and the growth
of Save-A-Lot. These positive impacts were largely offset by a reduced LIFO
credit. The retail food gross profit margin increased from last year primarily
due to the improved mix of higher gross margin items at Cub Foods stores.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 7.0% of net sales for the quarter
compared with 6.5% in the first quarter last year. The higher percentage was
primarily due to 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. Retail food selling and administrative expenses
as a percent of net sales were higher than last year primarily due to increased
advertising expense resulting from competitive pressures and higher promotional
activity associated with new store openings. The increase in retail food
expenses was also due to higher supply costs resulting from the increased cost
of paper and packaging supplies. Expenses of $5.5 million related to the
ADVANTAGE project were incurred during the current quarter, compared with $3.8
million last year.
OPERATING EARNINGS
The company's pre-tax operating earnings (earnings before interest, corporate
expenses, equity in earnings of ShopKo Stores, Inc. ("ShopKo"), and taxes)
decreased 3.2% to $117.2 million for the first quarter of fiscal 1996. Food
distribution operating earnings decreased 3.0% in the first quarter from the
previous year due to a reduced LIFO credit, the softness in sales and pre-tax
expenses of $1.6 million related to the ADVANTAGE project and charged to this
segment. Retail food operating earnings decreased 4.5% in the first quarter
over last year due to restructuring activity at Laneco and competitive
pressures in certain markets.
INTEREST INCOME AND EXPENSE
Interest income was $7.1 million in the first quarter of fiscal 1996, down
slightly from last year's interest income of $7.7 million. Interest expense
increased to $44.1 million in the first quarter, compared with $38.3 million in
the prior year, reflecting higher short-term rates and increased debt levels.
9
EQUITY IN EARNINGS OF SHOPKO
SUPERVALU's share of ShopKo net earnings increased to $2.5 million in the first
quarter from $2.3 million in the first quarter of last year. Sales increased
8.9% primarily due to strong results from the prescription benefit management
business. ShopKo reported total net earnings of $5.4 million compared with $5.0
million last year. The increase in net earnings was due to strong sales and
expense control initiatives related to store and central retail operations.
These positive effects were partially offset by a reduced gross margin
percentage due to the impact of the lower gross margin prescription benefit
management sales and a heavier weighting toward promotional sales.
INCOME TAXES
The effective tax rate decreased slightly in the first quarter of 1996 to 39.3%
from 39.5% in the first quarter of 1995. The slight decrease in the effective
tax rate was principally due to the increased contribution from ShopKo.
NET EARNINGS
Net earnings for the first quarter of fiscal 1996 were $46.0 million compared
with last year's earnings of $50.6 million. The decrease in net earnings was
primarily due to higher interest expense, a reduced LIFO credit, increased
expenses related to the ADVANTAGE project and the softness in sales. In
relation to the ADVANTAGE project, the company anticipates that an additional $9
to $11 million after-tax will be used for related costs during fiscal 1996. The
company currently anticipates a contribution from this project in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
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 $85.6 million
compared with $53.8 million last year. The increase was primarily due to the
reduction of inventory related to the closing of retail stores. Cash provided
from operations was primarily used to finance capital expenditures of $57.5
million and pay dividends of $32.7 million.
In December 1994, the Board of Directors approved a new treasury stock purchase
program. The company may repurchase up to 5.0 million shares which may be used
for any corporate purpose. During the first quarter of fiscal 1996, the company
repurchased 1.8 million shares at a cost of approximately $46.6 million. The
company has purchased a total of 3.3 million shares under this program. The
company financed the purchase of the treasury stock primarily from the sale of
surplus and under-utilized property, plant and equipment.
10
During the first quarter, capital expenditures related to the ADVANTAGE project
were $2.6 million. The company intends to invest approximately $100 million in
the project during fiscal 1996. The monies will be used to fund regional
facilities, technology and various mechanization systems. The company expects
that the investment in ADVANTAGE will be recovered by the reduction in inventory
and property levels.
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 $400 million of long-term debt without further registration. The
company has $300 million of debt due in November of 1995, which it intends to
refinance by utilizing the existing shelf registration or the available
revolving credit agreement. The use of available revolving 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. Management does
not anticipate the need for any additional long-term external financing except
for leases or if significant acquisitions are completed.
The company's financial position and long-term debt ratings are strong, with an
A3 rating from Moody's Investors Services, Inc. During the first quarter of
fiscal 1996, Standard and Poor's Ratings Group lowered its ratings on the
company's long-term debt to BBB+ from A and commercial paper to A-2 from A-1.
The Standard and Poor's Ratings Group announced that the downgrade reflected the
general decline in profitability of the food wholesaling industry, as well as
the company's higher debt levels and expenses related to the ADVANTAGE project.
These changes do not impair the company's ability to obtain financing and are
expected to have only a minimal impact on the company's borrowing costs in the
future. These strong ratings, the available credit facilities and internally-
generated funds provide the company with the financial flexibility to meet
unexpected liquidity needs.
11
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Registrant held its Annual Meeting of Stockholders on June 28, 1995
at which the stockholders took the following actions:
(a) elected Herman Cain, Stephen D. Agostino, Charles Lillis and
Michael Wright for terms expiring in 1998. The votes cast for and
withheld with respect to each such Director were as follows:
Votes For Votes Withheld
---------- --------------
Herman Cain 59,119,185 597,505
Stephen D'Agostino 59,103,711 612,979
Charles Lillis 59,073,240 643,450
Michael Wright 59,050,599 666,091
The Directors whose terms continued after the meeting are as
follows: Edwin C. Gage, Vernon H. Heath, William A. Hodder,
Garnett L. Keith, Jr., Richard L. Knowlton, Harriet Perlmutter,
Carole F. St. Mark and Winston R. Wallin.
(b) ratified, by a vote of 59,355,871 for, 100,856 against and 259,963
abstaining, the appointment of Deloitte & Touche LLP as the
independent auditors of Registrant for the fiscal year ending
February 24, 1996.
(c) approved by a vote of 35,673,498 for, 18,726,308 against and
1,027,085 abstaining the shareholder resolution relating to the
Company's Preferred Share Purchase Rights Plan.
Reference is hereby made to the Proxy Statement dated May 25, 1995,
filed with the Commission pursuant to Regulation 14A, for further
information regarding these proposals approved by the stockholders at
the Annual Meeting.
Item 6. Exhibits and Reports on Form 8-K.
------ --------------------------------
(a) Exhibits filed with this Form 10-Q:
12
15. Letters from Deloitte & Touche regarding unaudited interim
financial information.
27. Financial Data Schedule.
(b) Reports on Forms 8-K.
No reports were filed on Form 8-K during the quarter ended
June 17, 1995.
SIGNATURES
----------
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)
By: /s/ Isaiah Harris
---------------------------------------
Isaiah Harris
Date: August 1, 1995 Vice President and Controller
(Chief Accounting Officer and
duly authorized officer
of Registrant)
13