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 December 4, 1999.
[_] 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 January 14, 2000 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 139,612,847
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)
Third Quarter (12 weeks) ended
Dec. 4, 1999 % of sales Dec. 5, 1998 % of sales
- ------------------------------------------------------------------------------------------------------------
Net sales $ 5,361,732 100.00% $ 4,079,696 100.00%
Costs and expenses:
Cost of sales 4,780,026 89.15 3,665,933 89.86
Selling and administrative expenses 432,089 8.06 312,668 7.66
Amortization of goodwill 10,893 0.20 4,875 0.12
Interest
Interest expense 44,738 0.83 28,749 0.70
Interest income 4,927 0.09 5,872 0.14
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Interest expense, net 39,811 0.74 22,877 0.56
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Total costs and expenses 5,262,819 98.16 4,006,353 98.20
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Earnings before income taxes 98,913 1.84 73,343 1.80
Provision for income taxes
Current 36,959 26,327
Deferred 3,300 1,756
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Income tax expense 40,259 0.75 28,083 0.69
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Net earnings $ 58,654 1.09% $ 45,260 1.11%
====================================================================
Net earnings per common share - diluted $ .42 $ .37
Net earnings per common share - basic $ .42 $ .38
Weighted average number of common
shares outstanding
Diluted 140,469 121,861
Basic 139,635 120,191
Dividends declared per common share $ .1350 $ .1325
All data subject to year-end audit.
See notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF EARNINGS
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
Year-to-date (40 weeks) ended
----------------------------------------------------------------------
Dec. 4, 1999 % of sales Dec. 5, 1998 % of sales
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Net sales $ 14,797,227 100.00% $13,219,590 100.00%
Costs and expenses:
Cost of sales 13,224,512 89.37 11,884,239 89.90
Selling and administrative expenses 1,189,807 8.04 1,014,846 7.68
Amortization of goodwill 23,743 0.16 15,970 0.12
(Gain) Loss on sale (163,662) 1.11 - -
Restructuring and other charges 103,596 0.70 - -
Interest
Interest expense 107,747 0.73 94,345 0.71
Interest income 14,826 0.10 16,162 0.12
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Interest expense, net 92,921 0.63 78,183 0.59
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Total costs and expenses 14,470,917 97.79 12,993,238 98.29
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Earnings before income taxes 326,310 2.21 226,352 1.71
Provision for income taxes
Current 202,273 83,826
Deferred (46,820) 5,568
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Income tax expense 155,453 1.06 89,394 0.67
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Net earnings $ 170,857 1.15% $ 136,958 1.04%
================================================================
Net earnings per common share - diluted $ 1.34 $ 1.12
Net earnings per common share - basic $ 1.35 $ 1.14
Weighted average number of common
shares outstanding
Diluted 127,553 122,069
Basic 126,488 120,509
Dividends declared per common share $ .4025 $ .3950
All data subject to year-end audit.
See notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF NET SALES AND EARNINGS
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SUPERVALU INC. and Subsidiaries
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(In thousands)
Third Quarter (12 weeks) ended Year-to-Date (40 weeks) ended
---------------------------------- ------------------------------------
Net sales Dec. 4, 1999 Dec. 5, 1998 Dec. 4, 1999 Dec. 5, 1998
- -------------------------------------------------------------------------- ------------------------------------
Retail food $ 1,711,094 $ 1,158,982 $ 4,669,709 $ 3,711,984
31.9 % 28.4 % 31.6 % 28.1 %
Food distribution 4,656,726 3,638,591 12,791,710 11,697,580
86.9 % 89.2 % 86.4 % 88.5 %
Sales eliminations (1,006,088) (717,877) (2,664,192) (2,189,974)
(18.8)% (17.6)% (18.0)% (16.6)%
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Total net sales $ 5,361,732 $ 4,079,696 $14,797,227 $13,219,590
100.0 % 100.0 % 100.0 % 100.0 %
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Earnings
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Retail food $ 41,925 $ 28,474 $ 115,556 $ 91,659
Food distribution 106,519 75,210 271,367 235,483
Gain on sale - - 163,662 -
Restructuring and other charges (1) - - (103,596) -
-----------------------------------------------------------------------
Total operating earnings 148,444 103,684 446,989 327,142
Interest income 4,927 5,872 14,826 16,162
Interest expense (44,738) (28,749) (107,747) (94,345)
General corporate expenses (9,720) (7,464) (27,758) (22,607)
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Earnings before income taxes 98,913 73,343 326,310 226,352
Provision for income taxes (40,259) (28,083) (155,453) (89,394)
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Net earnings $ 58,654 $ 45,260 $ 170,857 $ 136,958
==============================================================================================================
All data subject to year-end audit.
See notes to consolidated financial statements.
(1) In the first quarter, the company incurred restructuring and other charges
for retail food and food distribution of $19.4 and $84.2 million,
respectively.
4
CONDENSED CONSOLIDATED BALANCE SHEETS
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SUPERVALU INC. and Subsidiaries Third Quarter as of Fiscal Year End
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(In thousands) December 4, February 27,
Assets 1999 1999
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Current Assets
Cash and cash equivalents $ 10,548 $ 7,608
Receivables, less allowance for losses of $30,705 at
December 4, 1999 and $18,983 at February 27, 1999 670,948 410,799
Inventories 1,663,354 1,067,837
Other current assets 145,062 96,283
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Total current assets 2,489,912 1,582,527
Long-term notes receivable 188,486 161,273
Property, plant and equipment, net 2,052,829 1,699,024
Goodwill 1,576,895 567,890
Other assets 387,490 255,235
-------------------------------------------
Total assets $6,695,612 $4,265,949
===========================================
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 495,542 $ 89,157
Accounts payable 1,638,978 981,961
Current debt and obligations under capital leases 117,989 232,928
Other current liabilities 338,709 217,861
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Total current liabilities 2,591,218 1,521,907
Long-term debt and obligations under capital leases 2,063,839 1,246,269
Other liabilities and deferred income taxes 183,503 192,134
Total stockholders' equity 1,857,052 1,305,639
-------------------------------------------
Total liabilities and stockholders' equity $6,695,612 $4,265,949
===========================================
All data subject to year-end audit.
See notes to consolidated financial statements.
5
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 28, 1998 $ 5,908 $ 150,670 $ 2,927 $ (507,296) $ 1,549,696 $ 1,201,905
Net earnings - - - - 191,338 191,338
Sales of common stock
under option plans - - (5,902) 35,497 (3,667) 25,928
Cash dividends declared
on common stock -
$.5275 per share - - - - (63,985) (63,985)
Compensation under employee
incentive plans - - 1,057 10,914 - 11,971
Treasury shares exchanged for
acquisition - - 1,918 2,167 - 4,085
Purchase of shares for treasury - - - (65,603) - (65,603)
- -----------------------------------------------------------------------------------------------------------------------
Balances at February 27, 1999 5,908 150,670 - (524,321) 1,673,382 1,305,639
Net earnings - - - - 170,857 170,857
Sales of common stock
under option plans - - (4,145) 8,736 - 4,591
Cash dividends declared
on common stock -
$.4025 per share - - - - (50,800) (50,800)
Compensation under employee
incentive plans - - (390) 6,087 - 5,697
Treasury shares exchanged for - - 138,988 306,066 - 445,054
acquisition
Redemption of preferred stock (5,908) - - - - (5,908)
Purchase of shares for treasury - - - (18,078) - (18,078)
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Balances at December 4, 1999 $ - $ 150,670 $ 134,453 $ (221,510) $ 1,793,439 $ 1,857,052
=======================================================================================================================
All data subject to year-end audit.
See notes to consolidated financial statements.
6
CONDENSED 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
(40 weeks ended)
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December 4, December 5,
1999 1998
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Net cash provided by operating activities $ 20,381 $ 243,985
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Cash flows from investing activities
Additions to long-term notes receivable (36,935) (40,454)
Proceeds received on long-term notes receivable 28,889 92,325
Proceeds from sale of assets 368,076 55,017
Purchase of property, plant and equipment (249,722) (194,669)
Business acquisition, net of cash acquired (469,185) (37,438)
Increase in other non-current assets (8,442) (18,511)
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Net cash used in investing activities (367,319) (143,730)
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Cash flows from financing activities
Net increase in checks outstanding, net of deposits 99,018 39,042
Net issuance of short-term notes payable 391,699 140,456
Proceeds from issuance of long-term debt 594,485 83,500
Repayment of long-term debt (645,483) (258,483)
Dividends paid (48,061) (48,099)
Payment for purchase of treasury stock (18,078) (53,465)
Other cash used in financing activities (23,702) (3,042)
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Net cash provided by (used in) financing activities 349,878 (100,091)
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Net increase in cash and cash equivalents 2,940 164
Cash and cash equivalents at beginning of year 7,608 6,100
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Cash and cash equivalents at end of third quarter $ 10,548 $ 6,264
===============================================================================================
Supplemental Information:
Pretax LIFO income (expense) $ (5,952) $ 1,729
Pretax depreciation and amortization $201,900 $174,837
All data subject to year-end audit.
See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
- -------------------
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1999 annual report of SUPERVALU INC.
("SUPERVALU" or the "company").
Richfood Acquisition
- --------------------
On August 31, 1999, the company acquired, in a merger, all of the outstanding
common stock of Richfood Holdings, Inc. ("Richfood"), a major food retailer and
distributor operating primarily in the Mid-Atlantic region of the United States.
The acquisition is being accounted for as a purchase. The company issued
approximately 19.7 million shares of SUPERVALU common stock with a market value
of approximately $443 million and paid $443 million in cash for the common stock
of Richfood. In addition, the company repaid approximately $394 million of
outstanding Richfood debt. Approximately $291 million of Richfood debt remained
outstanding immediately after the acquisition. The allocation of the
consideration paid for Richfood to the consolidated assets and liabilities is
based on preliminary estimates of their respective fair values. The excess of
the purchase price over the fair value of net assets acquired of approximately
$1.1 billion is being amortized on a straight line basis over 40 years. The
results of Richfood's operations from August 31, 1999 have been included in the
company's financial statements. One-time charges related to the merger of $10 to
$15 million after tax are expected within the first eighteen months following
the close.
Unaudited pro forma consolidated results of continuing operations, as though the
companies had been combined at the beginning of the periods presented, are as
follows:
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Year-to-date (40 weeks) ended
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(In thousands, except per share data) December 4, 1999 December 5, 1998
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Net sales $ 16,767,209 $ 16,031,280
Net earnings $ 189,322(a) $ 143,041(b)
Net earnings per common share - diluted $ 1.34(a) $ 1.01(b)
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(a) Amounts include a net gain of $10.9 million or $.08 per share from the
gain on the sale of Hazelwood Farms Bakeries and from restructuring and
other charges.
(b) Amounts include a restructuring charge at Richfood of $14.5 million or
$ .10 per share.
8
Special Charges
- ---------------
In the first quarter of fiscal 2000, the company recorded one-time, pre-tax
restructuring and other charges of $103.6 million as a result of an extensive
review to reduce costs and enhance efficiency. Included in this total is $14.9
million for asset impairment costs. The restructuring charges include costs for
facility consolidation, non-core store disposal, and rationalization of
redundant and certain decentralized administrative functions. Due to the above
restructuring items, the company expects approximately 2,500 employees to be
terminated. Details of the restructuring activity follow.
- -------------------------------------- ---------------- ----------------------- ------------------ -------------------
Initial Current Quarter Year-to-Date Balance at
(In thousands) Restructure Activity Activity Dec. 4, 1999
- -------------------------------------- ---------------- ----------------------- ------------------ -------------------
Facility consolidation $ 34,143 $ 840 $ 1,496 $ 32,647
Non-core store disposal 39,978 3,072 5,376 34,602
Infrastructure realignment 14,591 121 538 14,053
- -------------------------------------- ---------------- ----------------------- ------------------ -------------------
Total restructure $ 88,712 $ 4,033 $ 7,410 $ 81,302
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Employees 2,517 307 480 2,037
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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 condensed
consolidated financial position of the company and its subsidiaries at December
4, 1999 and December 5, 1998, and the results of the company's operations and
condensed cash flows for the periods then ended. These interim results are not
necessarily indicative of the results of the fiscal years as a whole.
9
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
RESULTS FOR THE QUARTER:
The company recorded record sales of $5.4 billion, net earnings of $58.7 million
and diluted earnings per share of $.42. Last year sales were $4.1 billion, net
earnings were $45.3 million and diluted earnings per share were $.37. The
results of operations include the impacts from the acquisition of Richfood,
which was acquired during the second quarter of this year.
Net sales
Net sales increased 31.4 percent compared to last year primarily reflecting the
acquisition of Richfood. Retail food and food distribution sales increased 47.6
percent and 28.0 percent, respectively.
Retail food sales increased over last year primarily due to the Richfood
acquisition in addition to other smaller acquisitions and new store openings
over the past twelve months. Same-store sales were essentially flat compared to
last year, impacted by low inflation, competitive activities and cannibalization
in certain markets. Food distribution sales increased from last year primarily
due to the Richfood acquisition, growth of the retail operations and the ramp up
of a new $2.3 billion annual supply agreement with Kmart Corporation ("Kmart"),
fully offsetting the loss of sales resulting from the sale of Hazelwood Farms
Bakeries which occurred in the first quarter of this year.
Gross profit
Gross profit as a percentage of net sales was 10.9 percent compared to 10.1
percent last year. The increase was primarily due to the Richfood acquisition
which increased the proportion of the higher margin retail food business of the
company. Retail food gross profit as a percent of net sales increased from last
year primarily due to higher margins associated with the Richfood retail
markets. This increase was partially offset by a decrease in food distribution
gross profit as a percent of net sales, primarily due to the sale of Hazelwood
Farms Bakeries, which had higher margins.
Selling and administrative expenses
Selling and administrative expenses were 8.3 percent of net sales compared to
7.8 percent last year. The increase was primarily due to the growing proportion
of the company's retail food business, which operates at a higher selling and
administrative expense as a percentage of net sales than the food distribution
business. Retail food selling and administrative expenses as a percentage of net
sales increased, primarily reflecting higher labor and occupancy costs of the
Richfood retail food operations. The food distribution business incurred certain
start up costs associated with the ramp
10
up of the new supply agreement with Kmart during the quarter. These increases
were partially offset by lower selling and administrative expenses as a percent
of net sales for food distribution due to the lower expense levels of the
Richfood food distribution operations and the sale of Hazelwood Farms Bakeries,
which had higher selling and administrative expenses.
Operating earnings
The company's operating earnings (earnings before interest and taxes) increased
to $138.7 million compared with $96.2 million last year, a 44.2 percent
increase. Operating earnings before depreciation and amortization increased to
$210.2 million compared with $148.9 million last year, a 41.2 percent increase.
Retail food operating earnings increased 47.2 percent to $41.9 million from last
year's $28.5 million. Food distribution operating earnings increased 41.6
percent to $106.5 million from $75.2 million last year. The increase in
operating earnings was primarily due to increased sales as a result of the
Richfood acquisition. Operating earnings as a percent to sales was 2.6 percent,
compared to 2.4 percent last year, primarily reflecting the acquired Richfood
operations.
Interest expense and income
Interest expense increased to $44.7 million compared with $28.7 million last
year, primarily reflecting increased borrowings resulting from the Richfood
acquisition. Interest income decreased to $4.9 million compared with $5.9
million last year.
Income taxes
The effective tax rate was 40.7 percent, an increase from last year's effective
tax rate of 38.3 percent as a result of non-deductible goodwill expense
associated with the Richfood acquisition.
Net earnings
Net earnings were $58.7 million or $.42 per share compared with last year's net
earnings of $45.3 million or $.37 per share. Weighted average shares increased
to 140.5 million compared with last year's 121.9 million due to the
approximately 19.7 million shares issued in connection with the Richfood
acquisition.
YEAR-TO-DATE RESULTS:
Net sales
Net sales increased 11.9 percent to $14.8 billion compared with $13.2 billion
last year, primarily reflecting the acquisition of Richfood. Retail food sales
increased 25.8 percent over last year and food distribution sales increased 9.4
percent over last year.
11
Retail food sales increased over last year primarily due to the Richfood
acquisition in addition to other smaller acquisitions and new store openings
over the past twelve months. Same-store sales were essentially flat compared to
last year, impacted by low inflation, competitive activities and cannibalization
in certain markets. Food distribution sales increased from last year primarily
due to the Richfood acquisition, growth of the retail operations and the ramp up
of a new supply agreement with Kmart, fully offsetting the loss of sales
resulting from the sale of Hazelwood Farms Bakeries in the first quarter of this
year.
Gross profit
Gross profit as a percentage of net sales was 10.6 percent compared to 10.1
percent last year. The growing proportion within the company's total sales mix
of the higher margin retail food business favorably impacted the gross profit
percentage. Retail food and food distribution gross profit margins were
comparable to last year.
Selling and administrative expenses
Selling and administrative expenses were 8.2 percent of net sales compared to
7.8 percent last year. The higher percentage was primarily due to the growing
proportion of the company's retail food business, which operates at a higher
selling and administrative expense as a percentage of net sales than the food
distribution business. Retail food and food distribution selling and
administrative expenses were comparable to last year, as a percent of net sales.
Sale of Business
In the first quarter, the company sold Hazelwood Farms Bakeries, which resulted
in a pre-tax gain of $163.7 million. The company had identified Hazelwood Farms
Bakeries as a non-strategic asset to be liquidated to allow the redeployment of
capital. The transaction resulted in $248.2 million of after-tax cash proceeds.
Special Charges
In the first quarter, the company recorded one-time, pre-tax restructuring and
other charges of $103.6 million as a result of an extensive review to reduce
costs and enhance efficiency by the end of fiscal 2001. Included in this total
is $14.9 million for asset impairment costs. The charge by segment was $19.4
million for retail and $84.2 million for food distribution. The restructuring
charges include costs for facility consolidation, non-core store disposals, and
rationalization of redundant and certain decentralized administrative functions.
A total of $7.4 million has been offset against the restructuring reserve
year-to-date.
Facility consolidation costs were $47.2 million and primarily include losses for
the sale or writedown of assets and leases. Holding costs are also included in
this total. Non-core store disposals include the sale or closure of retail
locations currently operated in the distribution business and other retail
stores that are located in non-strategic markets. These costs total $41.8
million and include losses to be incurred upon the sale or closure of the stores
and
12
related assets, costs for future lease obligations and lease buy-outs.
Rationalization of redundant and certain decentralized administrative functions
consists primarily of severance for staff reductions as a result of both
standardizing and consolidating business support functions across the company's
home office, retail and distribution operating regions. These costs amount to
$14.6 million. Due to the above restructuring items, the company expects
approximately 2,500 employees to be terminated. Approximately 480 employees have
been terminated year-to-date.
Operating earnings
The company's operating earnings (earnings before interest and taxes) increased
17.9 percent to $359.2 million compared with $304.5 million last year excluding
the gain on the sale of Hazelwood Farms Bakeries and restructuring and other
charges. Excluding one-time items, operating earnings before depreciation and
amortization were $561.1 million, a 17.0 percent increase over last year. Retail
food operating earnings, excluding restructuring and other charges, increased
26.1 percent to $115.6 million from last year's $91.7 million. Food distribution
operating earnings, excluding the gain on the sale of Hazelwood Farms Bakeries
and restructuring and other charges, increased 15.2 percent to $271.4 million
from $235.5 million last year. Excluding one-time items, operating earnings as a
percent to sales was 2.4 percent, compared to 2.3 percent last year, primarily
reflecting the acquired Richfood operations. Including one-time items, operating
earnings were $419.2 million and operating earnings before depreciation and
amortization were $621.1 million. Operating earnings for retail food and food
distribution, including one-time items, increased 4.9 percent and 49.0 percent,
respectively.
Interest expense and income
Interest expense increased to $107.7 million compared with $94.3 million last
year. The increase was primarily due to increased borrowings resulting from the
Richfood acquisition partially offset by lower average borrowings as a result of
cash generated from the sale of Hazelwood Farms Bakeries in the first quarter.
Interest income decreased to $14.8 million compared with $16.2 million last
year, primarily due to the reduction of notes receivable as the result of the
sale of notes in the ordinary course of business.
Income taxes
The effective tax rate was 47.6 percent compared with 39.5 percent last year.
The higher effective tax rate is primarily the result of the gain on the sale of
Hazelwood Farms Bakeries. Excluding the impact of the gain on the sale of
Hazelwood Farms Bakeries, the effective tax rate was approximately 39.9 percent.
Net earnings
Excluding the gain on the sale of Hazelwood Farms Bakeries and restructuring and
other charges, net earnings increased 16.8 percent to $159.9 million or $1.25
per share compared to $137.0 million or $1.12 per share in the prior year. Net
earnings were $170.9 million or $1.34
13
per share including the one-time items. Weighted average shares increased to
127.6 million compared with last year's 122.1 million. In the second quarter of
fiscal 2000, the company issued approximately 19.7 million shares of SUPERVALU
common stock resulting from the Richfood acquisition.
Liquidity and Capital Resources
- -------------------------------
Internally generated funds from operations continued to be the major source of
liquidity and capital growth. Cash provided from operations year-to-date was
$20.4 million compared with $244.0 million last year, primarily due to the ramp
up of a new supply agreement with Kmart and changes in working capital timing.
Net cash used in investing activities was $367.3 million compared with $143.7
million last year. The change from the prior year reflects cash used for
business acquisitions of $469.2 million, including the cash portion of the
Richfood acquisition, and cash proceeds received on the sale of assets of $368.1
million, which includes the proceeds received from the sale of Hazelwood Farms
Bakeries.
In addition to the $400 million revolving credit agreement, the company put in
place a 364 day $300 million revolving credit agreement during the second
quarter of this year. The revolving credit agreements are available for general
corporate purposes and to support the company's commercial paper program. There
were no drawings on the revolving credit agreements during the quarter and $496
million of commercial paper was outstanding at the end of the quarter. A total
of $40.5 million of letters of credit were outstanding at the end of the quarter
under the $400 million revolving credit agreement.
On August 31, 1999, the company acquired, in a merger, all of the outstanding
common stock of Richfood. The company issued approximately 19.7 million shares
of SUPERVALU common stock with a market value of approximately $443 million and
paid $443 million in cash for the common stock of Richfood. In addition, the
company repaid approximately $394 million of outstanding Richfood debt. To
finance the acquisition and repay the Richfood debt the company used cash, a
portion of the proceeds from the issuance of $350 million of 7 7/8 percent notes
due 2009 and proceeds from the issuance of commercial paper. During the third
quarter, the company issued $250 million of 7 5/8 percent notes due 2004 and
used the proceeds to reduce commercial paper outstanding.
Subsequent to third quarter, the Board of Directors authorized a stock
repurchase program under which the company may acquire up to five percent, or
seven million shares, of its stock outstanding as of December 8, 1999. The
purchases will be made from time to time at prevailing market prices in the open
market or otherwise. The timing and volume of repurchases will vary depending on
market conditions and other factors. Such purchases may be commenced or
suspended at any time without notice.
14
YEAR 2000
- ---------
General
The final phase of SUPERVALU's company wide Year 2000 Project ("Project") is
being completed on schedule. The Project is addressing the issue of application
systems, information technology (IT) systems and technologies which include
embedded systems being able to distinguish between the year 1900 and the year
2000. In 1996, the company began establishing processes for evaluating and
managing the risks associated with the Project. The Project is divided into six
components. These components include program management, communications,
application conversions and technology upgrades, contingency planning, quality
assurance and external entities. The company is using both internal and external
resources to implement the Project. Year 2000 remediation, upgrade and testing
of critical applications and technology is complete and remediation, upgrade and
testing of most non-critical systems is complete. The company has developed
contingency plans for key business functions that could be impacted by year 2000
issues and the focus of the remaining year 2000 work has shifted to readying
contingency plans.
The company has relationships with a significant number of key business
partners. The company has had formal communications with its key business
partners and has developed formal contingency plans to mitigate the risk to the
company if the business partners are not prepared for the year 2000. The company
has continued to communicate with its key business partners on relevant issues
throughout 1999 and beyond. There can be no guarantee that the business partners
will successfully and timely reprogram or replace and test all of their own
computer hardware, software and process control systems. While the failure of a
single business partner to achieve year 2000 compliance should not have a
material adverse effect on the company's results of operations, the failure of
several key business partners could have such an effect.
Costs
The total costs associated with required modifications to become year 2000
compliant is not expected to be material to the company's financial position.
The company has incurred costs to date of $27.6 million, which is in line with
previous year 2000 spending forecasts. Estimated costs for the remainder of work
is $1.1 million for a total projected Project cost of $28.7 million. The
estimated remaining costs are primarily for monitoring and supporting the
transition and contingency plans.
Risks
While the efforts to assess and correct the company's year 2000 issues have been
substantially completed prior to related forecasted failure horizons, the
company has taken specific measures to assess risks and develop specific
contingency plans. Key business functions have
15
been assessed and action plans have been created which describe the
communications, operations and IT activities that will be conducted if the
contingency plans must be executed.
The costs of the Project and the completion dates are based on management's best
estimates, which were derived from assumptions of future events including the
availability of resources, key business partner modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could vary due to uncertainties.
The company's year 2000 efforts are ongoing and its overall Project will
continue to evolve as new information becomes available. The failure to correct
a material year 2000 problem could result in an interruption in certain normal
business activities and operations. Due to the general uncertainty inherent in
the year 2000 problem, resulting in part from the uncertainty of the year 2000
readiness of third parties on whom the company relies, the company is unable to
determine at this time whether the consequences of year 2000 failures will have
a material adverse impact on the company's results of operations. Nonetheless,
the company believes that, with the implementation of new business systems and
completion of the Project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
As of the time of the filing of this report, the company's computer systems have
rolled over to the year 2000 without any significant issues and there has been
no interruption of normal business activities and operations. The company will
continue to monitor its systems and contingency plans and will communicate with
its key business partners throughout 2000 and beyond.
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 10-K for the fiscal year ended February
27, 1999 and under the caption "Year 2000" in this Form 10-Q; other risks or
uncertainties may be detailed from time to time in the company's future
Securities and Exchange Commission filings.
16
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in market risk for the company in the
period covered by this report.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits filed with this Form 10-Q:
(11) Computation of Earnings Per Common share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
None
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)
Dated: January 18, 2000 By:/s/ Pamela K. Knous
------------------------------
Pamela K. Knous
Executive Vice President, Chief
Financial Officer
(Authorized officer of Registrant)