SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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 September 8, 2001.
[_] 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)
(952) 828-4000
(Registrant's telephone number, including area code)
(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 October 5, 2001 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 133,299,913
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)
Second quarter (12 weeks) ended
Sept. 8, 2001 % of sales Sept. 9, 2000 % of sales
-----------------------------------------------------------------------------------------------------------------------
Net sales $ 4,715,257 100.00% $ 5,333,823 100.00%
Costs and expenses
Cost of sales 4,121,684 87.41 4,740,086 88.87
Selling and administrative expenses 455,194 9.65 442,102 8.29
Amortization of goodwill 11,106 0.24 11,383 0.21
Interest
Interest expense 45,942 0.97 49,869 0.93
Interest income 5,870 0.12 5,430 0.10
------------------------------------------------------------------------
Interest expense, net 40,072 0.85 44,439 0.83
------------------------------------------------------------------------
Total costs and expenses 4,628,056 98.15 5,238,010 98.20
------------------------------------------------------------------------
Earnings before income taxes 87,201 1.85 95,813 1.80
Provision for income taxes
Current 30,648 50,462
Deferred 4,408 (11,945)
------------------------------------------------------------------------
Income tax expense 35,056 0.74 38,517 0.72
------------------------------------------------------------------------
Net earnings $ 52,145 1.11% $ 57,296 1.07%
========================================================================
Net earnings per common share- diluted $ 0.39 $ 0.43
Net earnings per common share- basic $ 0.39 $ 0.43
Weighted average number of common
shares outstanding
Diluted 134,249 133,096
Basic 133,130 132,321
Dividends declared per common share $ 0.1400 $ 0.1375
All data subject to year-end audit. See notes to consolidated financial
statements.
2
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CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------------------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
-----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Year-to-date (28 weeks) ended
Sept. 8, 2001 % of sales Sept. 9, 2000 % of sales
-----------------------------------------------------------------------------------------------------------------------
Net sales $11,646,825 100.00% $12,287,216 100.00%
Costs and expenses
Cost of sales 10,282,360 88.28 10,945,207 89.08
Selling and administrative expenses 1,055,634 9.06 1,000,696 8.14
Amortization of goodwill 25,971 0.22 26,448 0.22
Interest
Interest expense 108,599 0.93 113,505 0.92
Interest income 12,300 0.11 11,451 0.09
------------------------------------------------------------------------
Interest expense, net 96,299 0.83 102,054 0.83
------------------------------------------------------------------------
Total costs and expenses 11,460,264 98.40 12,074,405 98.27
------------------------------------------------------------------------
Earnings before income taxes 186,561 1.60 212,811 1.73
Provision for income taxes
Current 67,542 104,815
Deferred 7,457 (19,265)
------------------------------------------------------------------------
Income tax expense 74,999 0.64 85,550 0.70
------------------------------------------------------------------------
Net earnings $ 111,562 0.96% $ 127,261 1.04%
========================================================================
Net earnings per common share- diluted $ 0.84 $ 0.96
Net earnings per common share- basic $ 0.84 $ 0.96
Weighted average number of common
shares outstanding
Diluted 133,293 133,068
Basic 132,766 132,130
Dividends declared per common share $ 0.2775 $ 0.2725
All data subject to year-end audit. See notes to consolidated financial
statements.
3
CONSOLIDATED STATEMENTS OF NET SALES AND EARNINGS
-----------------------------------------------------------------------------------------------------------------------------
SUPERVALU INC and Subsidiaries
-----------------------------------------------------------------------------------------------------------------------------
(In thousands)
Second Quarter (12 weeks) ended Year-to-date (28 weeks) ended
Sept. 8, 2001 Sept. 9, 2000 Sept. 8, 2001 Sept. 9, 2000
-----------------------------------------------------------------------------------------------------------------------------
Net Sales
-----------------------------------------------------------------------------------------------------------------------------
Retail food $ 2,157,842 $ 2,141,789 $ 4,978,041 $ 4,840,297
% of total 45.8% 40.2% 42.7% 39.4%
Food distribution 2,557,415 3,192,034 6,668,784 7,446,919
% of total 54.2% 59.8% 57.3% 60.6%
-----------------------------------------------------------------------------------------------
Total net sales $ 4,715,257 $ 5,333,823 $ 11,646,825 $ 12,287,216
100.0% 100.0% 100.0% 100.0%
-----------------------------------------------------------------------------------------------------------------------------
Earnings
-----------------------------------------------------------------------------------------------------------------------------
Retail food $ 93,695 $ 86,350 $ 185,311 $ 195,747
% of sales 4.3% 4.0% 3.7% 4.0%
Food distribution 42,598 62,575 118,385 137,484
% of sales 1.7% 2.0% 1.8% 1.8%
-----------------------------------------------------------------------------------------------
Subtotal 136,293 148,925 303,696 333,231
% of sales 2.9% 2.8% 2.6% 2.7%
General corporate expenses (9,020) (8,673) (20,836) (18,366)
-----------------------------------------------------------------------------------------------
Total operating earnings 127,273 140,252 282,860 314,865
% of sales 2.7% 2.6% 2.4% 2.6%
Interest income 5,870 5,430 12,300 11,451
Interest expense (45,942) (49,869) (108,599) (113,505)
-----------------------------------------------------------------------------------------------
Earnings before income taxes 87,201 95,813 186,561 212,811
Provision for income taxes (35,056) (38,517) (74,999) (85,550)
-----------------------------------------------------------------------------------------------
Net earnings $ 52,145 $ 57,296 $ 111,562 $ 127,261
=============================================================================================================================
All data subject to year-end audit. See notes to consolidated financial
statements.
4
CONDENSED CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries Second Quarter Fiscal Year End
----------------------------------------------------------------------------------------------------------------
(In thousands) September 8, February 24,
2001 2001
Assets
----------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 22,383 $ 10,396
Receivables, net 487,471 582,923
Inventories 1,170,420 1,350,061
Other current assets 138,009 148,296
---------------------------------------------
Total current assets 1,818,283 2,091,676
Long-term receivables 162,336 161,388
Property, plant and equipment, net 2,162,576 2,232,794
Goodwill 1,545,773 1,576,780
Other assets 347,624 344,534
---------------------------------------------
Total assets $ 6,036,592 $6,407,172
=============================================
Liabilities and Stockholders' Equity
----------------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 386,384 $ 579,039
Accounts payable 1,191,376 1,396,011
Current debt and obligations under capital leases 55,665 54,668
Other current liabilities 291,945 311,452
---------------------------------------------
Total current liabilities 1,925,370 2,341,170
Long-term debt and obligations under capital leases 1,955,892 2,008,474
Other liabilities and deferred income taxes 279,927 264,033
Total stockholders' equity 1,875,403 1,793,495
---------------------------------------------
Total liabilities and stockholders' equity $ 6,036,592 $6,407,172
=============================================
All data subject to year-end audit. See notes to consolidated financial
statements.
5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
-----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Capital in
Common Stock Excess of Treasury Stock Retained Other
Shares Amount Par Value Shares Amount Earnings Comprehensive Loss Total
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
FEBRUARY 26, 2000 150,670 $150,670 $132,226 (16,008) ($308,788) $1,847,371 $1,821,479
Net earnings - - - - - 81,965 81,965
Sales of common
stock under option
plans - - (3,538) 279 7,095 - 3,557
Cash dividends
declared on common
stock- $.5475 per
share - - - - - (72,903) (72,903)
Compensation under
employee incentive
plans - - (196) 366 8,271 - 8,075
Purchase of shares
for treasury - - - (2,933) (48,678) - (48,678)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
FEBRUARY 24, 2001 150,670 $150,670 $128,492 (18,296) $ (342,100) $1,856,433 $1,793,495
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - - - 111,562 111,562
Sales of common
stock
Under option plans - - (1,356) 457 8,339 - 6,983
Cash dividends
declared on common
stock- $0.2775 per
share - - - - - (36,987) (36,987)
Compensation under
employee incentive
plans - - (2,251) 550 9,833 - 7,582
Other comprehensive
loss - - - - - - (7,232) (7,232)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
SEPTEMBER 8, 2001 150,670 $150,670 $124,885 (17,289) $ (323,928) $1,931,008 $(7,232) $1,875,403
===================================================================================================================================
All data subject to year-end audit See notes to consolidated financial
statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
--------------------------------------------------------------------------------
(In thousands)
--------------------------------------------------------------------------------
Year-to-date
(28 weeks ended)
---------------------------------------------------------------------------------------------
September 8, September 9,
2001 2000
---------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 479,209 $ 380,653
---------------------------------------------------------------------------------------------
Cash flows from investing activities
Additions to long-term receivables (21,658) (31,052)
Proceeds received on long-term receivables 19,112 18,200
Proceeds from sale of assets 50,562 20,510
Purchase of property, plant and equipment (125,972) (187,346)
Other cash used in investing activities (30,180) (72,148)
---------------------------------------------------------------------------------------------
Net cash used in investing activities (108,136) (251,836)
---------------------------------------------------------------------------------------------
Cash flows from financing activities
Net (decrease) increase in checks outstanding (119,808) 24,744
Net (reduction) issuance of short-term notes payable (192,655) 43,729
Proceeds from issuance of long-term debt 10,000 -
Repayment of long-term debt (11,973) (95,499)
Dividends paid (36,525) (36,119)
Payment for purchase of treasury stock - (48,604)
Other cash used in financing activities (8,125) (13,528)
---------------------------------------------------------------------------------------------
Net cash used in financing activities (359,086) (125,277)
---------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 11,987 3,540
Cash and cash equivalents at beginning of period 10,396 10,920
---------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of period $ 22,383 $ 14,460
=============================================================================================
Supplemental information:
Pretax LIFO expense $ 3,882 $ 1,292
Pretax depreciation and amortization $ 180,261 $ 175,312
Cash paid during the period for:
Income taxes $ 72,108 $ 44,386
Interest $ 110,511 $ 110,459
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 set forth in the Annual Report on Form 10-K of
SUPERVALU INC. ("SUPERVALU" or the "company") for its fiscal year ended February
24, 2001 ("fiscal 2001").
Statement of Financial Accounting Standard 133, "Accounting for Derivative
Instruments and Hedging Activities," became effective for the Company on
February 25, 2001. Therefore, at that date, the company's interest rate swap
agreements were recorded on its balance sheet at fair value, resulting in
recognition of a liability of $23.5 million, a non-current asset of $10.8
million, a debit to other comprehensive loss of $7.7 million, and a deferred tax
liability of $5.0 million. As of June 16, 2001, the swaps were revalued,
resulting in a decrease to the liability of $0.7 million, a decrease to deferred
taxes of $0.2 million and a decrease to other comprehensive income of $0.5
million. On July 6, 2001, the swaps were terminated, which had no material
impact to the company's consolidated financial statements.
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 September
8, 2001 and September 9, 2000, 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.
Restructure and Other Charges
-----------------------------
In the fourth quarter of fiscal 2001, the company completed a company-wide asset
review to identify assets that did not meet return objectives, provide long-term
strategic opportunities, or justify additional capital investment. As a result,
the company recorded restructure and other charges of $171.3 million including
$89.7 million for asset impairment charges, $52.1 million for lease subsidies,
lease cancellation fees, future payments on exited leased facilities and
guarantee obligations and $39.8 million for severance and employee related
costs, offset by a reduction in the fiscal 2000 reserve of $10.3 million for
lease subsidies and future payments on exited leased facilities. These actions
include a net reduction of approximately 4,500 employees throughout the
organization. Management expects the majority of these actions to be completed
by the end of fiscal 2002.
Details of the fiscal 2001 restructure activity, after-tax, for fiscal 2002
follow:
Balance Balance
(In thousands, except for employees) February 24, Fiscal 2002 September 8,
2001 Activity 2001
-------------------------------------------------------------------------------------------------------------
Consolidation of distribution centers $41,499 $ 4,568 $36,931
Exit of non-core retail markets 33,735 18,008 15,727
Disposal of non-core assets and other administrative reductions 16,619 585 16,034
-------------------------------------------------------------------------------------------------------------
Total restructure and other charges $91,853 $23,161 $68,692
-------------------------------------------------------------------------------------------------------------
Employees 4,500 2,900 1,600
-------------------------------------------------------------------------------------------------------------
The reserves at the end of second quarter fiscal 2002 for fiscal 2001
restructure charges were $68.7 million, including $47.6 million for lease
subsidies, lease terminations and future payments on exited leased facilities
and $21.1 million for employee related costs.
8
In fiscal 2000, the company recorded pre-tax restructure and other charges of
$103.6 million as a result of an extensive review to reduce costs and enhance
efficiencies. This amount was reduced by $10.3 million in fiscal 2001, primarily
for a change in estimate for the closure of a remaining facility, which occurred
in the second quarter of fiscal 2002. The restructure charges include costs for
facility consolidation, non-core store disposal, and rationalization of
redundant and certain decentralized administrative functions.
Details of the fiscal 2000 restructure activity, after-tax, for fiscal 2002
follow:
-------------------------------------------------------------------------------
Balance Balance
(In thousands, except for employees) February 24, Fiscal 2002 September 8,
2001 Activity 2001
-------------------------------------------------------------------------------
Facility consolidation $11,472 $3,519 $ 7,953
Non-core store disposal 4,404 1,450 2,954
Infrastructure realignment 1,980 243 1,737
-------------------------------------------------------------------------------
Total restructure and other charges $17,856 $5,212 $12,644
-------------------------------------------------------------------------------
Employees 463 346 117
-------------------------------------------------------------------------------
The reserves at the end of second quarter fiscal 2002 for fiscal 2000
restructure charges were $12.6 million, including $8.1 million for lease
subsidies, lease terminations and future payments on exited leased facilities
and $4.5 million for severance and employee related costs.
Notes Payable
-------------
On August 16, 2001, the company entered into an accounts receivable
securitization program, under which the company can borrow up to $200 million on
a revolving basis, with borrowings secured by eligible accounts receivable. As
of September 8, 2001, the company had $158 million of borrowings outstanding
under this agreement and $224 million in eligible receivables pledged as
collateral.
Item 2: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS FOR THE QUARTER:
For the second quarter of fiscal 2002, the company achieved sales of $4.7
billion, net earnings of $52.1 million and diluted earnings per share of $0.39.
Last year, sales were $5.3 billion, net earnings were $57.3 million and diluted
earnings per share were $0.43.
Net sales
Net sales decreased 11.6 percent compared to last year. Retail food sales
increased 0.8 percent and food distribution sales decreased 19.9 percent.
Retail food sales increased over last year primarily due to new store openings,
partly offset by the closure of non-core and underperforming retail stores. In
addition, same-store sales turned slightly positive for the quarter. Food
distribution sales decreased from last year due to the exit of the Kmart
business and the impact of restructuring activities, offset in part by new
business. The supply agreement with Kmart terminated June 30, 2001.
Gross profit
Gross profit as a percentage of net sales was 12.6 percent compared to 11.1
percent last year. The increase was due to the growing proportion of the
company's retail business, which operates at a higher gross profit margin as a
percentage of net sales than the food distribution business, as well as improved
merchandising activities in retail, and the impacts of exiting Kmart in
distribution.
Selling and administrative expenses
Selling and administrative expenses, including goodwill amortization, as a
percentage of sales were 9.9 percent for the current quarter compared to 8.5
percent last year. The increase in selling and administrative expenses as a
9
percentage of sales was due to the growing proportion of the company's retail
business, which operates at a higher selling and administrative expense as a
percentage of net sales than the food distribution business as well as increases
in labor costs and employee benefits.
Operating earnings
The company's pretax operating earnings (earnings before interest and taxes)
were $127.3 million compared to $140.3 million last year, a 9.3 percent
decrease. Operating earnings before depreciation and amortization were $204.5
million compared with $219.2 million last year, a 6.7 percent decrease. Retail
food operating earnings increased 8.5 percent to $93.7 million, or 4.3 percent
of sales, from last year's $86.4 million, or 4.0 percent of sales. The increase
was primarily a result of higher gross profit margins due to category management
activities, partially offset by increases in labor costs and employee benefits.
Retail food operating earnings before depreciation and amortization increased
6.1 percent to $133.3 million, or 6.2 percent of sales, from last year's $125.7
million, or 5.9 percent of sales. Food distribution operating earnings decreased
31.9 percent to $42.6 million, or 1.7 percent of sales, from last year's $62.6
million, or 2.0 percent of sales, primarily due to the exit of the Kmart
business. Food distribution operating earnings before depreciation and
amortization decreased 21.8 percent to $79.4 million, or 3.2 percent of sales,
from last year's $101.5 million, or 3.2 percent of sales.
Interest expense
Interest expense decreased to $45.9 million compared with $49.9 million last
year due to lower overall borrowing levels and lower interest rates.
Income taxes
The effective tax rate was 40.2 percent in the second quarter, comparable to
last year.
Net earnings
Net earnings decreased 9.0 percent to $52.1 million or $0.39 per share - diluted
compared with last year's net earnings of $57.3 million or $0.43 per share -
diluted. Cash earnings decreased to $0.46 per share - diluted compared with
last year's $0.51 per share - diluted. Weighted average shares - diluted
increased to 134.2 million compared with last year's 133.1 million.
YEAR TO DATE RESULTS:
Year-to-date for fiscal 2002, the company achieved sales of $11.6 billion, net
earnings of $111.6 million and diluted earnings per share of $0.84. Last year,
net sales were $12.3 billion, net earnings were $127.3 million and diluted
earnings per share were $0.96.
Net sales
Net sales decreased 5.2 percent compared to last year, primarily reflecting the
loss of the Kmart business in the second quarter. Retail food sales increased
2.9 percent, while food distribution sales decreased 10.5 percent.
Retail food sales increased over last year primarily due to 106 new store
openings over the past twelve months. Same-store sales also turned slightly
positive in the second quarter contributing to the retail food sales increase.
Food distribution sales decreased from last year primarily due to the Kmart
exit.
Gross profit
Gross profit as a percentage of net sales was 11.7 percent compared to 10.9
percent last year. The increase was due to the growing proportion of the
company's retail business, which operates at a higher gross profit margin as a
percentage of net sales than the food distribution business and distribution
expense reductions in the logistics operations.
Selling and administrative expenses
Selling and administrative expenses, including goodwill amortization, as a
percentage of sales were 9.3 percent, compared to 8.4 percent last year. The
increase in selling and administrative expenses as a percentage of sales was due
to the growing proportion of the company's retail business, which operates at a
higher selling and administrative expense as a percentage of net sales than the
food distribution business as well as increases in labor costs and employee
benefits.
Operating earnings
The company's pretax operating earnings (earnings before interest and taxes)
decreased 10.2 percent to $282.9 million, compared with $314.9 million last
year. Operating earnings before depreciation and amortization decreased to
10
$463.1 million compared with $490.2 million last year, a 5.5 percent decrease.
Retail food operating earnings decreased 5.3 percent to $185.3 million, or 3.7
percent of sales, from last year's $195.7 million, or 4.0 percent of sales. The
decrease primarily relates to higher promotional, selling and administrative
expenses. Retail food operating earnings before depreciation and amortization
decreased 2.5 percent to $276.3 million, or 5.5 percent of sales, from last
year's $283.4 million, or 5.9 percent of sales. Food distribution operating
earnings decreased 13.9 percent to $118.4 million, or 1.8 percent of sales, from
last year's $137.5 million, or 1.8 percent of sales primarily due to the exit of
the Kmart business. Food distribution operating earnings before depreciation and
amortization decreased 7.8 percent to $206.1 million, or 3.1 percent of sales,
from last year's $223.5 million, or 3.0 percent of sales.
Interest expense
Interest expense decreased to $108.6 million compared with $113.5 million last
year due to lower overall borrowing levels and lower interest rates since last
year.
Income taxes
The effective tax rate was 40.2 percent, comparable to last year.
Net earnings
Net earnings decreased 12.3 percent to $111.6 million or $0.84 per share -
diluted compared with last year's net earnings of $127.3 million or $0.96 per
share - diluted. Cash earnings decreased to $1.02 per share - diluted compared
to last year's $1.15 per share - diluted. Weighted average shares - diluted
increased to 133.3 million compared with last year's 133.1 million.
Liquidity and Capital Resources
-------------------------------
Internally generated funds from operations continued to be the major source of
liquidity and capital growth. Cash provided from operations was $479.2 million
year-to-date, compared with $380.7 million last year. The increase is reflective
of positive impacts on working capital attributable to the exit of the Kmart
business as well as restructuring activities. Net cash used in investing
activities was $108.1 million, compared with $251.8 million last year. The
decrease is due to lower purchases of fixed assets and higher proceeds from
sales of assets related to restructuring activities. Net cash used in financing
activities was $359.1 million, compared with $125.3 million last year. The
increase in cash used in financing activities reflects higher debt reduction in
fiscal 2002.
Management expects that the company will continue to replenish operating assets
and reduce aggregate debt with internally generated funds. The company has
adequate short-term and long-term financing capabilities to fund its capital
expenditures plan. SUPERVALU will continue to use short-term and long-term debt
as a supplement to internally generated funds to finance its activities.
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 has established credit facilities with various financial
institutions, which are available for general corporate purposes and for the
issuance of letters of credit. On August 16, 2001, the company executed a 364-
day $300 million revolving credit agreement that replaced the company's maturing
364-day credit agreement, and amended its existing $400 million credit facility
which expires in October 2002. As of September 8, 2001, the unused available
credit under these facilities was $385 million.
Both credit facilities have rates tied to LIBOR plus a spread of 0.650 to 1.400
percent based on the company's credit ratings as in effect from time to time,
and require the company to comply with certain financial and other covenants,
including interest expense coverage, leverage and asset coverage ratios. The
credit agreements also provide that if the company's long-term senior unsecured
debt rating is reduced to BB+ or below by Standard & Poor's or to Ba1 or below
by Moody's Investors Service, borrowings under these facilities will
automatically become secured by certain assets of the company and certain of its
subsidiaries and guaranteed by certain subsidiaries of the company.
Also on August 16, 2001, the company entered into an accounts receivable
securitization program, under which the company can borrow up to $200 million on
a revolving basis, with the borrowings secured by eligible accounts receivable.
As of September 8, 2001, the company had $158 million of borrowings outstanding
under this agreement and $224 million in eligible receivables pledged as
collateral.
11
Company-Wide Asset Review
-------------------------
In the fourth quarter of fiscal 2001, the company completed a company-wide asset
review to identify assets that did not meet return objectives, provide long-term
strategic opportunities, or justify additional capital investment. As a result
the company recorded charges of $240.1 million pre-tax, or $153.9 million after
tax. The charges are net of a $10.3 million reversal of the fiscal 2000
restructure charge.
The restructure and other charges of $171.3 million include $89.7 million for
asset impairment charges, $52.1 million for lease subsidies, lease cancellation
fees, future payments on exited leased facilities and guarantee obligations and
$39.8 million for severance and employee related costs, offset by a reduction in
the fiscal 2000 reserve of $10.3 million for lease subsidies and future payments
on exited leased facilities. These actions include a net reduction of
approximately 4,500 employees throughout the organization. Management expects
the majority of these actions to be completed by the end of fiscal 2002.
The reserves at the end of second quarter fiscal 2002 for fiscal 2001
restructure charges were $68.7 million, including $47.6 million for lease
subsidies, lease terminations and future payments on exited leased facilities
and $21.1 million for severance and employee related costs.
The reserves at the end of second quarter fiscal 2002 for fiscal 2000
restructure activities were $12.6 million, including $8.1 million for lease
subsidies, lease terminations and future payments on exited leased facilities
and $4.5 million for severance and employee related costs.
New accounting standards
------------------------
Statement of Financial Accounting Standard 133, "Accounting for Derivative
Instruments and Hedging Activities," became effective for the Company on
February 25, 2001. Therefore, at that date, the company's interest rate swap
agreements were recorded on its balance sheet at fair value, resulting in
recognition of a liability of $23.5 million, a non-current asset of $10.8
million, a debit to other comprehensive loss of $7.7 million, and a deferred tax
liability of $5.0 million. As of June 16, 2001, the swaps were revalued,
resulting in a decrease to the liability of $0.7 million, a decrease to deferred
taxes of $0.2 million and a decrease to other comprehensive income of $0.5
million. On July 6, 2001, the swaps were terminated, which had no material
impact to the company's consolidated financial statements.
In June 2001, the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 142 requires companies to cease amortizing goodwill that existed at
June 30, 2001. For the Company, this amortization of existing goodwill will
cease on February 23, 2002. Any goodwill resulting from an acquisition completed
after June 30, 2001 will not be amortized. SFAS No. 142 also establishes a new
method of testing goodwill for impairment on an annual basis or on an interim
basis if an event occurs or circumstances change that would reduce the fair
value of a reporting unit below its carrying value. The adoption of SFAS No. 142
will result in the discontinuation of amortization of goodwill and goodwill will
be tested for impairment under the new standard beginning in the first quarter
of fiscal 2003.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
standard applies to legal obligations associated with the retirement of long-
lived assets that result from the acquisition, construction, development and/or
normal use of the asset. Statement No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
Company is required and plans to adopt the provisions of Statement No. 143 in
the first quarter of fiscal 2003.
In August 2001, the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
Statement of Financial Accounting Standard No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
However, this statement retains the fundamental provisions of SFAS No. 121 for
(a) recognition and measurement of the impairment of long-lived assets to be
held and used and (b) measurement of long-lived assets to be disposed of by
sale.
SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30 "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" for the disposal of a segment of a business.
However, this Statement retains the requirement of APB No. 30 to report
discontinued operations separately from continuing operations and extends that
12
reporting to a component of an entity that either has been disposed of or is
classified as held for sale. This statement also amends ARB No. 51,
"Consolidated Financial Statements" to eliminate the exception to consolidation
for a temporarily controlled subsidiary. The Company is required and plans to
adopt the provisions of SFAS No. 144 in the first quarter of fiscal 2003.
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private
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Securities Litigation Reform Act of 1995
----------------------------------------
The information in this Quarterly Report includes forward-looking statements.
The company's businesses are subject to certain risks and uncertainties that
could cause actual results to differ materially from those discussed in such
forward looking statements. These include, but are not limited to, the impact of
changing economic or business conditions, the impact of competition, the nature
and extent of the consolidation of the retail food and food distribution
industries, the ability to attract and retain customers for the company's
businesses, general economic or political conditions that affect consumer buying
habits generally, the ability to control food distribution costs, the ability of
the company to grow through acquisition and assimilate acquired entities, the
availability of favorable credit and trade terms, food price changes and other
risk factors inherent in the food wholesaling and retail businesses, all of
which are set forth in further detail in Exhibit 99(i) to this report. Any
forward-looking statement speaks only as of the date on which such statement is
made, and the company undertakes no obligation to update such statement to
reflect events or circumstances arising after such date. Other risks or
uncertainties may be detailed from time to time in the company's future
Securities and Exchange Commission filings.
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.
13
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
------- -----------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Registrant.
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
------- ---------------------------------------------------
The Registrant held its Annual Meeting of Stockholders on June 27,
2001 at which the stockholders took the following actions:
(a) elected Charles M. Lillis, Jeffrey Noddle, Steven S. Rogers and
Michael W. Wright to the Board of Directors for terms expiring
in 2004. The votes cast for and withheld with respect to each
such Director were as follows:
Votes For Votes Withheld
--------- --------------
Charles M. Lillis 112,385,768 2,557,137
Jeffrey Noddle 112,378,506 2,564,399
Steven S. Rogers 112,383,566 2,559,339
Michael W. Wright 112,240,515 2,702,390
The Directors whose terms continued after the meeting are as
follows: Lawrence A. Del Santo, Susan E. Engel, Edwin C. Gage,
William A. Hodder, Garnett L. Keith, Jr., Richard L. Knowlton,
Harriet Perlmutter, and Carole F. St. Mark.
(b) approved by a vote of 105,358,330 for, 7,926,490 against, and
1,658,085 abstaining, an amendment to the SUPERVALU/Richfood
Stock Incentive Plan.
(c) ratified by a vote of 112,434,367 for, 1,856,029 against, and
652,509 abstaining, the appointment of KPMG LLP as the
independent auditors of Registrant for the fiscal year ending
February 23, 2002.
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.
(99)(i) Cautionary Statements pursuant to the Securities
Litigation Reform Act.
(b) Exhibits to this Form 10-Q incorporated by reference:
(4) Form of Credit Agreement, dated as of October 8, 1997,
as amended and restated as of August 16, 2001, among
the Registrant, the Lenders named therein, the Chase
Manhattan Bank, as Agent, and Bank One, NA, as
Syndication Agent, is incorporated by reference to
Exhibit 4.8 to the Registrant's Current Report on Form
8-K dated August 17, 2001.
(c) Reports on Form 8-K:
On August 20, 2001 the Registrant filed a report on Form 8-K
reporting under Item 5. "Other Events" that it had amended its
existing $400 million credit facility and entered into a new
364-day $300 million revolving credit facility.
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: October 11, 2001 By: /s/ Pamela K. Knous
------------------------------
Pamela K. Knous
Executive Vice President,
Chief Financial Officer
(Authorized officer of
Registrant)
14
EXHIBIT INDEX
-------------
Exhibit
(11) Computation of Earnings Per Common Share
(99)(i) Cautionary Statements for Purposes of the Safe Harbor Provisions of
the Securities Litigation Reform Act
15