FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period (16 weeks) ended June 15, 1996.
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 Identification No.)
incorporation or organization)
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 13, 1996 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 67,527,498
PART 1 - 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
------------------------------------
June 15, 1996 June 17, 1995
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NET SALES $ 4,978,761 $ 4,973,037
COSTS AND EXPENSES:
Cost of sales 4,499,348 4,512,696
Selling and administrative expenses 364,444 344,596
Amortization of goodwill 5,591 5,457
Interest
Interest expense 41,363 44,119
Interest income 5,027 7,092
------------------------------------
Interest expense, net 36,336 37,027
------------------------------------
Total costs and expenses 4,905,719 4,899,776
====================================
EARNINGS BEFORE EQUITY IN EARNINGS
OF SHOPKO AND INCOME TAXES 73,042 73,261
EQUITY IN EARNINGS OF SHOPKO 2,648 2,468
------------------------------------
EARNINGS BEFORE INCOME TAXES 75,690 75,729
Provision for income taxes
Current 27,485 25,542
Deferred 2,223 4,236
------------------------------------
Income tax expense 29,708 29,778
------------------------------------
NET EARNINGS $ 45,982 $ 45,951
====================================
NET EARNINGS PER COMMON SHARE $ .68 $ .66
Weighted average number of common
shares outstanding 67,482 69,225
Dividends declared per common share $ .245 $ .235
Supplemental information:
After-tax LIFO income $ 2,790 $ 208
All data subject to year-end audit.
See notes to consolidated financial statements.
2
CONSOLIDATED BALANCE SHEETS
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SUPERVALU INC. and Subsidiaries First Quarter as of Fiscal Year End
- --------------------------------------------------------------------------------------------------------------------------
(In thousands) June 15, June 17, February 24,
Assets 1996 1995 1996
- --------------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 5,082 $ 6,109 $ 5,215
Receivables, less allowance for losses of $18,694 at
June 15, 1996, $28,929 at June 17, 1995, and
$22,064 at February 24, 1996 366,406 405,755 380,611
Inventories 1,083,672 1,093,752 1,029,911
Other current assets 125,485 137,405 137,972
---------------------------------------------------------
Total current assets 1,580,645 1,643,021 1,553,709
Long-term notes receivable 54,494 69,138 36,731
Long-term investment in direct financing leases 71,287 72,246 74,185
Property, plant and equipment
Land 147,149 175,347 146,535
Buildings 934,301 905,384 903,621
Property under construction 37,413 40,316 53,775
Leasehold improvements 140,679 137,886 137,551
Equipment 1,023,569 951,370 988,963
Assets under capital leases 291,096 217,587 270,549
---------------------------------------------------------
2,574,207 2,427,890 2,500,994
Less accumulated depreciation and amortization
Owned property, plant and equipment 894,167 830,303 855,429
Assets under capital leases 49,566 40,170 45,399
---------------------------------------------------------
Net property, plant and equipment 1,630,474 1,557,417 1,600,166
Investment in ShopKo 193,382 182,066 193,975
Goodwill 503,748 509,251 499,688
Other assets 245,277 235,206 225,049
---------------------------------------------------------
Total assets $ 4,279,307 $ 4,268,345 $ 4,183,503
=========================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 154,484 $ 255,146 $ 158,027
Accounts payable 1,001,728 978,639 965,444
Current maturities of long-term debt 11,765 10,181 8,483
Current obligations under capital leases 20,990 18,587 17,955
Other current liabilities 169,749 156,443 176,793
---------------------------------------------------------
Total current liabilities 1,358,716 1,418,996 1,326,702
Long-term debt 1,149,427 1,212,835 1,144,600
Long-term obligations under capital leases 315,030 249,949 300,962
Deferred income taxes 39,407 - 37,076
Other liabilities 169,142 210,290 157,987
Stockholders' equity
Preferred stock 5,908 5,908 5,908
Common stock 75,335 75,335 75,335
Capital in excess of par value 12,956 12,688 12,737
Retained earnings 1,366,470 1,266,403 1,336,942
Treasury stock, at cost (213,084) (184,059) (214,746)
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Total stockholders' equity 1,247,585 1,176,275 1,216,176
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Total liabilities and stockholders' equity $ 4,279,307 $ 4,268,345 $ 4,183,503
=========================================================
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 25, 1995 $ 5,908 $ 75,335 $ 12,717 $ (137,245) $ 1,236,507 $ 1,193,222
Net earnings - - - - 166,433 166,433
Sales of common stock
under option plans - - (84) 3,458 - 3,374
Cash dividends declared
on common stock -
$.970 per share - - - - (65,998) (65,998)
Compensation under employee
incentive plans - - 104 (869) - (765)
Purchase of shares for treasury - - - (80,090) - (80,090)
- --------------------------------------------------------------------------------------------------------------------------
Balances at February 24, 1996 5,908 75,335 12,737 (214,746) 1,336,942 1,216,176
Net earnings - - - - 45,982 45,982
Sales of common stock
under option plans - - 102 1,269 - 1,371
Cash dividends declared
on common stock -
$.245 per share - - - - (16,454) (16,454)
Compensation under employee
incentive plans - - 117 393 - 510
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Balances at June 15, 1996 $ 5,908 $ 75,335 $ 12,956 $ (213,084) $ 1,366,470 $ 1,247,585
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Interim data subject to year-end audit. See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SUPERVALU INC. and Subsidiaries
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(In thousands)
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Year-to-date
(16 weeks ended)
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June 15, June 17,
1996 1995
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Cash flows from operating activities
Net earnings $ 45,982 $ 45,951
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in earnings of ShopKo (2,648) (2,468)
Dividends received from ShopKo 3,241 3,241
Depreciation and amortization 68,542 64,848
Provision for losses on receivables 1,788 1,699
Gain on sale of property, plant and equipment (1,020) (1,587)
Deferred income taxes 2,223 4,236
Treasury shares contributed to employee incentive plan 68 66
Changes in assets and liabilities:
Receivables 13,983 (23,996)
Inventory (50,525) 16,039
Other current assets 12,917 10,656
Direct finance leases 2,869 2,536
Accounts payable 28,829 (24,026)
Other liabilities 17,321 (11,549)
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Net cash provided by operating activities 143,570 85,646
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Cash flows from investing activities
Additions to long-term notes receivable (20,487) (9,982)
Payments received on long-term notes receivable 2,724 13,938
Proceeds from sale of property, plant and equipment 8,633 31,063
Purchase of property, plant and equipment (66,225) (57,787)
Business acquisitions, net of cash acquired (4,996) -
Other investing activities (19,039) (4,393)
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Net cash used in investing activities (99,390) (27,161)
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Cash flows from financing activities
Net (reduction) issuance of short-term notes payable (3,543) 28,978
Repayment of long-term debt (3,294) (1,445)
Reduction of obligations under capital leases (7,114) (5,100)
Proceeds (payments) for purchase of common stock under option plans 1,130 (309)
Dividends paid (31,492) (32,720)
Payments for purchase of treasury stock - (46,619)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (44,313) (57,215)
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Net increase (decrease) in cash and cash equivalents (133) 1,270
Cash and cash equivalents at beginning of year 5,215 4,839
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Cash and cash equivalents at end of first quarter $ 5,082 $ 6,109
===================================================================================================================
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 1996 annual report of SUPERVALU INC.
("SUPERVALU" or the "company").
Restructuring
- -------------
A restructuring charge of $204.8 million was recognized in the third quarter of
fiscal 1995. During the first quarter of fiscal 1997, the company utilized
approximately $4 million of the reserve leaving a balance of $109 million. The
primary use of the reserve in the first quarter was for carrying costs and
losses on disposition of property in both the food distribution and retail food
segments.
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 15, 1996 and June
17, 1995 and the results of the company's operations and cash flows for the
periods then ended. These interim results are not necessarily indicative of the
results of the fiscal years as a whole.
A limited review of this data has been performed by the company's independent
certified public accountants, Deloitte & Touche LLP. A copy of their report is
attached as an exhibit to this report.
6
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
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
1997 1996
- ---------------------------------------------------------------------------------------
Net sales 100.00% 100.00%
Cost of sales (90.37) (90.74)
Selling and administrative expenses (7.43) (7.04)
Interest expense (.83) (.89)
Interest income .10 .14
- ---------------------------------------------------------------------------------------
Earnings before equity in earnings of ShopKo,
and income taxes 1.47 1.47
Equity in earnings of ShopKo .05 .05
Provision for income taxes (.60) (.60)
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Net earnings .92% .92%
=======================================================================================
NET SALES
Net sales for the first quarter were even with last year, positively impacted by
a 5.1% increase in retail food sales, offset by a .6% decline in food
distribution sales. Food distribution sales decreased due to competitive market
conditions at the wholesale and retail levels, the liquidation of a major
customer and lost sales from the closing of underperforming corporate-owned
retail stores. This effect was partially mitigated by the addition of new retail
customers in food distribution, the growth of Save-A-Lot, and food price
inflation, as measured by the company, of 1.2%. Retail food sales increased over
the first quarter of last year due to new store openings and an increase in
same-store sales of 4.5%. The same-store sales increase was fueled by improved
performance in the price superstores and limited assortment stores, strong
merchandising refocus in certain operations and a strike/lockout affecting
competitors in the Denver market. The increase in retail sales was partially
offset by the closing of underperforming corporate-owned retail stores in the
prior fiscal year pursuant to the restructuring program.
Net Sales by Segment
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(In thousands) First Quarter (16 weeks)
- ---------------------------------------------------------------------------------------------
June 15, 1996 June 17, 1995
Net Sales % of Total Net Sales % of Total
- ---------------------------------------------------------------------------------------------
Food distribution $4,418,911 88.8% $4,446,127 89.4%
Retail food 1,324,986 26.6% 1,260,889 25.4%
Less: Eliminations (765,136) (15.4)% (733,979) (14.8)%
- ---------------------------------------------------------------------------------------------
Total net sales $4,978,761 100.0% $4,973,037 100.0%
=============================================================================================
7
GROSS PROFIT
Gross profit as a percentage of net sales increased to 9.6% in the first
quarter, compared with 9.3% in the first quarter of last year. The increase was
due principally to a strong retail gross profit margin resulting from improved
pricing and product mix and the closing of underperforming corporate-owned
retail stores. The higher gross profit margin was also caused by the growing
proportion within the company's total sales mix of the higher-margined retail
food business, which represented 26.6% of total sales in the first quarter of
fiscal 1997, compared with 25.4% in the first quarter of last year. Food
distribution gross profit margin decreased slightly due to the competitive
retail environment and the continuation of the industry's movement to every-day-
low pricing, partially offset by an increased LIFO credit over last year's first
quarter.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 7.4% of net sales for the quarter
compared with 7.0% 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, and to a lesser degree, increased ADVANTAGE
project expenses. Food distribution selling and administrative expenses as a
percent of net sales were higher than last year due to ADVANTAGE implementation
expenses charged to this segment totaling $8.6 million versus $1.6 million last
year. Retail food selling and administrative expenses as a percent of net sales
were consistent with last year.
ADVANTAGE Expenses by Segment
=========================================================================
(In thousands) First Quarter (16 weeks)
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June 15, 1996 June 17, 1995
- -------------------------------------------------------------------------
Food distribution $8,600 $1,600
Retail food 700 -
Corporate expenses - 3,900
- -------------------------------------------------------------------------
Total ADVANTAGE Expenses $9,300 $5,500
=========================================================================
Pre-tax expenses of $9.3 million related to the ADVANTAGE project were incurred
during the quarter, compared with $5.5 million last year. The expenses related
to project implementation costs including, but not limited to, systems
development, employee training and relocation, consultants costs and retailer
training and promotional programs. The increased ADVANTAGE expenses resulted
from heavy implementation activity in the current quarter and expenses incurred
for increased information systems support.
During the first quarter of fiscal 1997, the company achieved the following
under ADVANTAGE: opened the Anniston, Alabama prototype regional distribution
facility and began shipping to retailers; broke ground for the new Midwest
regional distribution facility; began implementing its new pricing strategy,
Activity Based Sell, in the Midwest region; and rolled out the newly developed
category management program in the Northern, Southeast and Midwest marketing
regions with category reviews, training and resets underway.
8
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 slightly to $116.5 million in the quarter from $117.2 million last
year. Food distribution operating earnings decreased 12.8% to $88.4 million due
to higher ADVANTAGE related expenses, reduced gross margin due to the
competitive market and the general softness in sales. Retail food operating
earnings increased 77.4% to $28.1 million in the quarter due to strong gross
margin resulting from improved pricing, product mix and the closing of
underperforming corporate-owned retail stores, as well as an increase in sales.
INTEREST EXPENSE AND INCOME
Interest expense decreased to $41.4 million in the quarter, compared with $44.1
million in the prior year, reflecting a reduction in debt levels and slightly
lower short-term interest rates. Interest income decreased to $5.0 million in
the first quarter, compared with $7.1 million in the prior year, primarily due
to the reduction of notes receivable as a result of the sale of notes in the
ordinary course of business.
EQUITY IN EARNINGS OF SHOPKO
SUPERVALU's share of ShopKo net earnings increased to $2.6 million in the first
quarter from $2.5 million in the first quarter of last year. As reported by
ShopKo, sales increased 9.0% to $610.9 million and net earnings increased 7.3%
for the first quarter compared to last year. The increase in net earnings was
due to strong sales related to the ProVantage prescription benefit management
business.
NET EARNINGS
Net earnings for the first quarter of fiscal 1997 were $46.0 million, even with
the prior year. Net earnings were positively impacted by improved retail food
gross margin, offsetting increased expenses related to the ADVANTAGE project.
Although ADVANTAGE initiatives are generating benefits, the company anticipates
spending under ADVANTAGE to exceed benefits through fiscal 1997 with a positive
contribution from this project in fiscal 1998. This is the result of the
expansion and the acceleration in timing of certain ADVANTAGE programs which
will drive expenses higher in fiscal 1997.
NEW ACCOUNTING STANDARDS
Impairment of long-lived assets
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
was issued in March 1995 and was adopted in the first quarter of fiscal 1997.
The adoption of SFAS No. 121 had no impact on the results of operations.
9
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 $143.6 million
compared with $85.6 million last year. The increase was primarily due to a
reduction in receivables and increased levels of other liabilities. Cash
provided by operations was impacted by increased inventory levels at retail
locations resulting from new store openings and increased sales, as well as
slightly higher inventory levels at wholesale distribution centers. This impact
was offset by a corresponding increase in accounts payable. Cash provided from
operations was primarily used to finance capital expenditures of $66.2 million
and pay dividends of $31.5 million. There were no treasury stock purchases in
the quarter.
SUPERVALU will continue to use short-term and long-term debt as a supplement to
internally generated funds to finance its activities. The company has a $400
million "shelf registration" in effect pursuant to which the company could issue
$242.5 million of additional debt securities. A $400 million revolving credit
agreement also is in place and expires in May 2000. Short-term commercial paper
totaling $100 million has been classified as long-term debt as the company has
the ability and intent to renew these obligations past fiscal 1997 and into
future periods. Maturities of debt issued will depend on management's views with
respect to the relative attractiveness of interest rates at the time of
issuance.
The company's financial position and long-term debt ratings remain strong, with
an A3 rating from Moody's Investors Services, Inc. and a BBB+ from Standard and
Poor's Ratings Group. Moody's Investors Services, Inc. announced on July 8, 1996
that it has placed the company's ratings under review. Management does not
believe a rating change by Moody's, if any, would have a significant impact on
the company's liquidity, borrowing cost or access to financial markets. The
company's strong current and anticipated investment grade ratings, the available
credit facilities and internally-generated funds provide the company with the
financial flexibility to meet liquidity needs.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The information in this 10Q includes forward-looking statements. Important risks
and uncertainties that could cause actual results to differ materially from
those discussed in such forward looking statements are detailed in Exhibit 99.1
to the company's Annual Report on Form 10K, for the Year Ended February 24,
1996; other risks or uncertainties may be detailed from time to time in the
company's future Securities and Exchange Commission filings.
10
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Registrant held its Annual Meeting of Stockholders on June 27, 1996
at which the stockholders took the following actions:
(a) elected Edwin C. Gage, Garnett L. Keith, Jr., Richard L. Knowlton,
and Carole F. St. Mark for terms expiring in 1999. The votes cast
for and withheld with respect to each such Director was as
follows:
Votes For Votes Withheld
---------- --------------
Edwin C. Gage 58,270,965 619,805
Garnett L. Keith, Jr. 58,219,816 670,954
Richard L. Knowlton 58,258,526 632,244
Carole F. St. Mark 58,273,190 617,580
The Directors whose terms continued after the meeting are as
follows: Herman Cain, Stephen D'Agostino, Vernon Heath, William
Hodder, Charles Lillis, Harriet Perlmutter, Winston Wallin and
Michael Wright.
(b) ratified, by a vote of 58,671,778 for, 102,357 against, and
116,635 abstaining, the appointment of Deloitte & Touche LLP as
the independent auditors of Registrant for the fiscal year ending
February 22, 1997.
(c) approved by a vote of 56,793,072 for, 1,789,406 against, and
308,292 abstaining, the adoption of the Non-Employee Directors
Deferred Stock Plan.
(d) approved by a vote of 49,202,420 for, 9,330,904 against, and
357,446 abstaining, the adoption of certain amendments to the 1983
Employee Stock Option Plan.
(e) approved by a vote of 34,761,053 for, 18,874,614 against, and
721,708 abstaining, the adoption of the shareholder proposal
relating to the Company's Preferred Share Purchase Rights Plan.
Reference is hereby made to the Proxy Statement dated May 24, 1996,
filed with the Commission pursuant to Regulation 14A, for further
information regarding these proposals approved by the stockholders at
the Annual Meeting.
11
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits filed with this Form 10-Q:
10(e) SUPERVALU INC. Deferred Compensation Plan for
Non-Employee Directors, as amended.
10(o) SUPERVALU INC. Directors Retirement Program, as amended.
15. Letters from Deloitte & Touche LLP 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 15, 1996.
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: July 30, 1996 Vice President and Controller
(Chief Accounting Officer and
duly authorized officer
of Registrant)
12