-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, QFUTgcJUumiTIEglxhIynEDi8OyZW8Yx1MJdoRh56tiZvUOlS6/dIrFAJMZRSGxn mc/MuUF1TEQ7HeoN7qWYkg== 0000950131-95-000043.txt : 19950509 0000950131-95-000043.hdr.sgml : 19950508 ACCESSION NUMBER: 0000950131-95-000043 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941203 FILED AS OF DATE: 19950117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPERVALU INC CENTRAL INDEX KEY: 0000095521 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 410617000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0224 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05418 FILM NUMBER: 95501671 BUSINESS ADDRESS: STREET 1: 11840 VALLEY VIEW RD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 6128284000 MAIL ADDRESS: STREET 1: 11840 VALLEY VIEW ROAD CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 FORMER COMPANY: FORMER CONFORMED NAME: SUPER VALU STORES INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q DEC. 03, 1994 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 3, 1994 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 January 1, 1995 is as follows: Title of Each Class Shares Outstanding ------------------- ------------------ Common Shares 71,071,157 PART I - FINANCIAL INFORMATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Item 1: Financial Statements - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS - -------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries - -------------------------------------------------------------------------------- (In thousands, except per share data)
Third Quarter (12 Weeks) Ended ------------------------------------ December 3, 1994 December 4, 1993 - -------------------------------------------------------------------------------- Net sales $3,908,194 $3,670,298 Costs and expenses Cost of sales 3,547,301 3,339,028 Selling and administrative expenses 279,559 243,553 Amortization of goodwill 4,588 2,715 Restructuring and other charges 244,000 -- Interest Interest expense 32,563 27,103 Interest income 5,463 6,913 ------------------------------ Interest expense, net 27,100 20,190 ------------------------------ Total costs and expenses 4,102,548 3,605,486 ------------------------------ Earnings (loss) before equity in earnings of ShopKo and income taxes (194,354) 64,812 Equity in earnings of ShopKo 5,194 6,474 ------------------------------ Earnings (loss) before income taxes (189,160) 71,286 Provision for income taxes Current 37,572 19,224 Deferred (142,609) 6,824 ------------------------------ Income taxes (105,037) 26,048 ------------------------------ Net earnings (loss) $ (84,123) $ 45,238 ============================== Net earnings (loss) per common share $(1.18) $0.63 Weighted average number of common shares outstanding 71,487 71,937 Dividends declared per common share $0.235 $0.220 Supplemental information: After-tax LIFO (expense) $(2,670) $(2,919)
All data subject to year-end audit. See notes to consolidated financial statements. 2 CONSOLIDATED STATEMENT OF EARNINGS
- ---------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries - ---------------------------------------------------------------------------------------- (in thousands, except per share data) Year-to-Date (40 Weeks) Ended --------------------------------------- December 3, 1994 December 4, 1993 - ---------------------------------------------------------------------------------------- Net sales $12,673,034 $12,249,905 Costs and expenses Cost of sales 11,537,736 11,188,502 Selling and administrative expenses 856,812 777,844 Amortization of goodwill 12,277 9,050 Restructuring and other charges 244,000 -- Interest Interest expense 100,518 93,529 Interest income 18,910 22,626 ---------------------------------- Interest expense, net 81,608 70,903 ---------------------------------- Total costs and expenses 12,732,433 12,046,299 ---------------------------------- Earnings (loss) before equity in earnings of ShopKo and income taxes (59,399) 203,606 Equity in earnings of ShopKo 8,769 10,084 ---------------------------------- Earnings (loss) before income taxes (50,630) 213,690 Provision for income taxes Current 83,568 75,652 Deferred (134,203) 5,392 ---------------------------------- Income taxes (50,635) 81,044 ---------------------------------- Net earnings $ 5 $ 132,646 ================================== Net earnings per common share -- $1.85 Weighted average number of common shares outstanding 71,540 71,760 Dividends declared per common share $0.690 $0.635 Supplemental information: After-tax LIFO income (expense) ($4,082) $16 All data subject to year-end audit. See notes to consolidated financial statements.
3 CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries Third Quarter as of Fiscal Year End - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands) December 3, December 4, February 26, Assets 1994 1993 1994 - ---------------------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 3,923 $ 2,536 $ 2,846 Receivables, less allowance for losses of $37,164 at December 3, 1994, $43,331 at December 4, 1993 and $33,820 at February 26, 1994 412,789 386,962 352,151 Inventories 1,309,453 1,255,632 1,113,937 Other current assets 128,562 79,425 94,379 -------------------------------------------- Total current assets 1,854,727 1,724,555 1,563,313 Long-term notes receivable 61,580 93,401 66,568 Long-term investment in direct financing leases 80,689 75,364 81,574 Property, plant and equipment Land 194,577 157,226 172,241 Buildings 868,352 786,825 769,036 Property under construction 68,389 78,057 73,950 Leasehold improvements 128,896 119,579 114,724 Equipment 948,479 834,753 890,050 Assets under capital leases 197,570 165,891 175,891 -------------------------------------------- 2,406,263 2,142,331 2,195,892 Less accumulated depreciation and amortization Owned property, plant and equipment 820,926 730,741 746,027 Assets under capital leases 38,217 30,607 39,742 -------------------------------------------- Net property, plant and equipment 1,547,120 1,380,983 1,410,123 Investment in ShopKo 175,875 170,482 173,567 Goodwill 529,071 427,445 427,559 Other assets 250,086 308,502 319,647 -------------------------------------------- Total assets $4,499,148 $4,180,732 $4,042,351 ============================================ Liabilities and Stockholders' Equity - ---------------------------------------------------------------------------------------------------------------------------------- Current Liabilities Notes payable $ 365,288 $ 204,556 $ 23,082 Accounts payable 1,045,766 945,131 883,088 Current maturities of long-term debt 10,451 6,716 108,728 Current obligations under capital leases 18,624 18,775 19,222 Other current liabilities 166,739 185,259 190,305 -------------------------------------------- Total current liabilities 1,606,868 1,360,437 1,224,425 Long-term debt 1,196,340 1,108,918 1,030,378 Long-term obligations under capital leases 265,566 223,830 232,617 Deferred income taxes -- 90,196 99,734 Other liabilities 233,136 166,912 179,739 Commitments and contingencies -- -- -- Stockholders' equity Preferred stock 5,908 -- 5,908 Common stock 75,335 75,335 75,335 Capital in excess of par value 13,254 12,785 12,966 Retained earnings 1,209,792 1,231,438 1,268,117 Treasury stock, at cost (107,051) (89,119) (86,868) -------------------------------------------- Total stockholders' equity 1,197,238 1,230,439 1,275,458 -------------------------------------------- Total liabilities and stockholders' equity $4,499,148 $4,180,732 $4,042,351 ============================================ Quarterly data subject to year-end audit. See notes to consolidated financial statements.
4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------- SUPERVALUE INC. and Subsidiaries - --------------------------------------------------------------------------------------------------------------------------------- (in thousands, except per share data) Capital in Preferred Common Excess of Treasury Retained Stock Stock Par Value Stock Earnings Total - --------------------------------------------------------------------------------------------------------------------------------- BALANCES AT FEBRUARY 27, 1993 $ -- $75,335 $12,584 $(97,473) $1,144,374 $1,134,820 Net earnings -- -- -- -- 185,253 185,253 Sales of common stock under option plans -- -- 225 10,838 -- 11,063 Cash dividends declared on common stock - $.855 per share -- -- -- -- (61,510) (61,510) Issuance of preferred stock 5,908 -- -- -- -- 5,908 Compensation under employee incentive plans -- -- 157 (233) -- (76) ---------------------------------------------------------------------------------------------- BALANCES AT FEBRUARY 26, 1994 5,908 75,335 12,966 (86,868) 1,268,117 1,275,458 Net earnings -- -- -- -- 5 5 Sales of common stock under option plans -- -- 31 (129) -- (98) Cash dividends declared on common stock - $.69 per share -- -- -- -- (49,410) (49,410) Compensation under employee incentive plans -- -- 257 639 -- 896 Puchase of 500 shares for treasury -- -- -- (20,693) -- (20,693) Other -- -- -- -- (8,920) (8,920) ------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 3, 1994 $5,908 $75,335 $13,254 $(107,051) $1,209,792 $1,197,238 =========================================================================================== Interim data subject to year-end audit. See notes to consolidated financial statements.
5 CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries - ------------------------------------------------------------------------------------------------------------- (In thousands) Year-to-date (40 weeks ended) ------------------------- December 3, December 4, 1994 1993 - ------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net earnings $ 5 $ 132,646 Adjustments to reconcile net earnings to net cash provided from (used in) operating activities: Equity in earnings of ShopKo (8,769) (10,084) Dividends received from ShopKo 4,862 4,863 Depreciation and amortization 155,089 143,039 Provision for losses on receivables 4,212 6,027 Restructuring and other charges 244,000 -- Gain on sale of property, plant and equipment (5,162) (174) Deferred income taxes (137,874) 5,393 Treasury shares contributed to employee incentive plans -- 18 Change in assets and liabilities: Receivables (39,160) (35,280) Inventories (140,806) (121,573) Other current assets 4,744 (1,540) Direct financing leases 7,371 6,590 Accounts payable 46,213 80,214 Other liabilities (46,843) (2,298) - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 87,882 207,841 - ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Additions to long-term notes receivable (15,818) (30,822) Payments received on long-term notes receivable 21,158 19,955 Proceeds from sale of property, plant and equipment 37,908 10,103 Purchase of property, plant and equipment (232,576) (138,826) Business acquisitions, net of cash acquired (111,083) -- Other investing activities 31,374 31,712 - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (269,037) (107,878) - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net issuance (reduction) of short-term notes payable 338,650 (46,940) Proceeds from issuance of long-term debt 150,000 3,000 Repayment of long-term debt (222,899) (5,901) Reduction of obligations under capital leases (14,160) (13,503) Proceeds (payments) from the sale or purchase of common stock under option plans (134) 7,907 Dividends paid (48,532) (43,763) Payment for purchase of treasury stock (20,693) -- - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 182,232 (99,200) - ------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 1,077 763 Cash and cash equivalents at beginning of year 2,846 1,773 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of third quarter $ 3,923 $ 2,536 ============================================================================================================ All data subject to year-end audit. See notes to consolidated financial statements.
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Accounting Policies - ------------------- The summary of significant accounting policies is included in the notes to consolidated financial statements in the 1994 annual report of SUPERVALU INC. ("SUPERVALU" or the "company"). Restructure and Other Charges - ----------------------------- The third quarter results include restructuring and other charges totaling $244.0 million which provide for the implementation of the plan formulated under SUPERVALU ADVANTAGE, the sale, closure or restructure of certain retail businesses and the recognition of certain asset impairments. The aggregate charges include $204.8 million for activities under the restructuring plan and an additional $39.2 million for asset impairment. The asset impairment charge covers intangibles in businesses where future undiscounted cash flow is not sufficient to recover the book value of the recorded intangible. The aggregate charges include $53.1 million for severance, pension and outplacement which is based on the projected impact of the plan on employee levels in both food distribution and retail food. The company expects approximately 4,300 employees to be eliminated over the next 18 months under the re-engineering efforts, 1,700 of which are employed in retail food operations. Also included in the charge is a $20.0 million provision in food distribution which represents expected losses on the sale of tangible assets and expenses under non-cancelable leases as a result of the strategic shift. The restructuring charges include $87.8 million provision for property and lease discontinuances at retail locations, resulting primarily from various exit strategies and payment of portions of non-cancelable lease obligations. Approximately 30 retail stores are expected to be sold or closed, primarily in fiscal 1995 and 1996. The retail units covered by the reserve had aggregate sales and pre-tax losses of $67.2 and $6.2 million, respectively, for the third quarter compared with $65.3 and $5.8 million for the same period last year. Year-to-date, the retail units covered by the reserve had aggregate sales and pre-tax losses of $215.6 and $14.1 million, respectively, compared with $213.4 and $14.1 million for the same period last year. The final component of the aggregate charges is a $43.9 million impairment provision representing the effect of the strategic shift on the recoverability of certain assets. The company holds land for development, transition stores for wholesale market share, certain warehouse properties and miscellaneous sites which will be disposed of as soon as practicable. Income Taxes - ------------ The Internal Revenue Service ("IRS") completed its review for the tax years ending 1991 and 1992. The IRS review concluded that the 7 partial disposition of ShopKo in October, 1991, was a non-taxable transaction. Therefore, the $40.8 million of taxes provided by the company in the financial statements was reversed and reflected in the consolidated statement of earnings. Treasury Stock Purchase Program - ------------------------------- In December 1994, the Board of Directors instituted a new treasury stock purchase program. The company may repurchase up to 5.0 million shares in open market purchases. No shares were repurchased under the program during the third quarter. 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 December 3, 1994 and December 4, 1993 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. 8 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:
Third Quarter Year-to-Date (12 weeks) Ended (40 weeks) Ended -------------------------------------- Fiscal Fiscal Fiscal Fiscal 1995 1994 1995 1994 -------- -------- -------- ------ Net sales 100.00% 100.00% 100.00% 100.00% Cost of sales (90.77) (90.97) (91.04) (91.34) Selling and administrative (7.27) (6.71) (6.86) (6.42) Restructuring and other charges (6.24) -- (1.93) -- Interest expense (.83) (.74) (.79) (.76) Interest income .14 .18 .15 .18 -------- -------- -------- ------ Earnings before equity in earnings of ShopKo and income taxes (4.97) 1.76 (.47) 1.66 Equity in earnings of ShopKo .13 .18 .07 .08 Provision for income taxes 1.65 (.71) .08 (.66) ShopKo deferred tax credit 1.04 -- .32 -- -------- -------- -------- ------ Net earnings (2.15%) 1.23% --% 1.08% ======== ======== ======== ======
NET SALES: Net sales increased 6.5% and 3.5% over last year for the third quarter and year- to-date periods, respectively. The increase was achieved despite year-to-date deflation as measured by the company of .7% compared with inflation of .2% for the same period last year and a continuing competitive market. Food distribution net sales increased 4.0% and 2.8% over last year for the quarter and year-to-date, respectively. Sales were favorably impacted by the acquisition of Sweet Life Foods and Texas T Stores during the year. New store openings in the company's retail food chains also contributed to the sales increase over last year. The added sales contributions from acquisitions and new store openings were partially offset by lost sales due to wholesale consolidation and competitive market conditions at the retail level. While recent acquisitions and new store openings will favorably impact the company's sales in the future, continuing consolidation activity in several locations will affect sales comparisons until the projects are completed and the impact cycled. Retail food net sales increased 21.0% and 12.0% over last year for the third quarter and year-to-date periods, respectively. The increase was primarily due to the acquisition of Hyper Shoppes, Inc. New store openings and the acquisition of the Texas T Stores also contributed to the increase in sales over last year. Same-store corporate retail sales for the third quarter and year-to- date declined 1% compared with last year. 9 Net Sales by Segment - ------------------------------------------------------------------------------ (In thousands)
Third Quarter (12 weeks) --------------------------------------------------- December 3, 1994 December 4, 1993 ------------------------ ----------------------- Net Sales % of total Net Sales % of total ---------- ---------- ----------- ---------- Food distribution $3,502,119 89.6% $3,366,030 91.7% Retail food 1,029,474 26.4% 850,843 23.2% Sales eliminations (623,399) (16.0%) (546,575) (14.9%) ----------- ----- ----------- ----- $3,908,194 100.0% $3,670,298 100.0% =========== ===== ========== ===== Year-to-date (40 weeks) ------------------------------------------------------ December 3, 1994 December 4, 1993 ---------------------- ------------------------- Net Sales % of total Net Sales % of total ----------- ---------- ------------- --------- Food distribution $11,437,020 90.2% $11,121,820 90.8% Retail food 3,064,648 24.2% 2,736,533 22.3% Sales eliminations (1,828,634) (14.4%) (1,608,448) (13.1%) ----------- ----- ----------- ----- $12,673,034 100.0% $12,249,905 100.0% =========== ===== =========== =====
GROSS PROFIT: Gross profit as a percentage of net sales increased to 9.2% and 9.0% for the third quarter and year-to-date periods, respectively, compared with 9.0% and 8.7% for last year. The increases were due primarily to the growing proportion of the higher margined retail food business within the company's total sales mix. Food distribution gross margin was affected by an increase in insurance expense, a LIFO expense year-to-date compared with a LIFO credit last year, a reduction in off invoice allowances offered by certain vendors and an increase in expenses associated with the company's wholesale consolidation activities. These effects were partially offset by increases in other components of gross profit. Retail food gross margins were down slightly for the third quarter, but consistent year-to-date compared with last year. Competitive pressures continuing in certain regions and recent retail acquisitions resulted in lower gross margins for the quarter. SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses as a percentage of net sales were 7.3% and 6.9% for the third quarter and year-to-date, respectively, compared with 6.7% and 6.4% for the same periods last year. The higher percentages were primarily due to a growing proportion of the company's retail food segment which operates at a higher selling and administrative expense percentage than the food distribution segment. Also affecting the third quarter and year-to-date selling and administrative expenses were the acquisition of Sweet Life, wholesale consolidation activity in several markets, expenses related to new store openings and the SUPERVALU Advantage project ("SUPERVALU ADVANTAGE"). Expenses under SUPERVALU ADVANTAGE totaling $3.2 million and $9.9 million have been incurred in the quarter and year-to-date, primarily for studying 10 the fundamentals of our business and the industry and developing a restructuring plan. It is expected that expenses on this project should approximate $4.0 to $5.0 million for the remainder of the year. The company anticipates a modest increase in expenses related to this initiative next year, however, a net earnings contribution from this initiative is anticipated in fiscal 1997. RESTRUCTURING AND OTHER CHARGES On December 2, 1994 the company announced a change in operating strategy which included the decision to restructure certain of its operations and reassess the recoverability of underlying assets. Restructuring and other charges totaling $244.0 million were recorded to provide for the implementation of the plan formulated under SUPERVALU ADVANTAGE, and the sale, closure or restructure of certain retail businesses. The aggregate charges also include the recognition of certain asset impairments based on the company's established process of reviewing intangibles on a periodic recurring basis. Management's objective under SUPERVALU ADVANTAGE is to fundamentally change its business processes to improve the effectiveness and efficiency of the company's food distribution system thus lowering the cost of goods to the company's customers. Its retail food objective is to improve retail performance by eliminating certain operations and assets that do not add shareholder value and focusing on building its winning retail formats. The restructuring plan, which was approved by the Board of Directors, resulted from a comprehensive review of industry trends and company operations, and represents a new business vision for the company. The restructuring plan anticipates four main initiatives: creation of three regional "upstream" distribution facilities; resets and mechanized inventory sort at "downstream" distribution facilities; elimination of certain retail businesses and assets; and a re-engineering of both food distribution and retail food organizations and operations. Under the plan, food distribution costs are expected to be reduced through enhanced logistic and warehousing procedures. This is expected to be accomplished by better balancing the trade-offs of lower prices from volume buying against handling, storage and transportation expenses. Planned upstream facilities will provide regional distribution of general merchandise, health and beauty care products and slow-moving grocery items. Construction of the Anniston, Alabama prototype "upstream" facility is underway. A second facility, a 530,000 square-foot distribution center in Perryman, MD has been acquired and will be used both for relocation of the company's Maryland division and for selected upstream functions. The company believes that the regional upstream facilities will allow better price brackets for certain items and categories plus reduced freight expenses. Extensive mechanization is planned for most facilities and inventory levels are expected to decline substantially. Changes in the pricing of goods and services are also planned. It is management's belief that when fully implemented, SUPERVALU will have the ability to deliver product into the marketplace on a competitively advantageous basis. The retail changes involve a refocusing of the company's corporate retail efforts on formats which it believes will produce the best results in the future. The Twin Valu supercenters are being closed and Laneco will re-focus on food-driven formats and exit certain non-food operations. 11 The aggregate charges include $204.8 million for activities under the restructuring plan and an additional $39.2 million for asset impairment. The asset impairment charge covers intangibles in businesses where future undiscounted cash flow is not sufficient to recover the book value of the recorded intangible. The restructuring charges do not cover certain aspects of the plan, including new information systems, anticipated operating losses, implementation costs associated with SUPERVALU ADVANTAGE, employee relocation and training. These costs are not considered exit activities and will be recognized as incurred. Cash expenditures related to the aggregate charges are estimated at $2.3 million during the fourth quarter of fiscal 1995, $31.2 million in fiscal 1996, and $24.3 million thereafter. These cash expenditures cover severance, pension, outplacement and carrying costs of impaired food distribution real estate. Management anticipates that the cash requirements will be funded through internally generated cash, principally from inventory and property reductions, and existing credit facilities. The aggregate charges include $53.1 million for severance, pension and outplacement which is based on the projected impact of the plan on employee levels in both food distribution and retail food. The company expects approximately 4,300 positions will be eliminated over the next 18 months under the re-engineering efforts, 1,700 of which are employed in retail food operations. Also included is a $20.0 million provision in food distribution which represents expected losses on the sale of tangible assets and expenses under non-cancelable leases as a result of the strategic shift. The restructuring charges include a $87.8 million provision for property and lease discontinuances at retail locations, resulting primarily from various exit strategies and payment of portions of non-cancelable lease obligations. A portion of this amount was established to provide for the exiting of the company's Twin Valu business. The company has a purchase and sale agreement covering one Twin Valu supercenter and a vacant parcel which had been acquired for another supercenter. The second operating supercenter will be closed. Another portion of this provision covers a substantial restructuring of the company's Laneco division. This will involve the sale or other disposition of 7 stores, including all department store retail units. The company is involved in active negotiation for certain of these units. The retail related reserves also will provide for the sale or closing of certain other retail units which have not been publicly identified at this time. The company intends to sell these units on a going-concern basis. The timing of individual retail transactions will vary. Because operating losses are not covered by any reserve, the effect on the balance of fiscal 1995 or fiscal 1996 is not possible to predict. The retail units covered by the reserve had aggregate sales and pre-tax losses of $67.2 and $6.2 million, respectively, for the third quarter compared with $65.3 and $5.8 million for the same period last year. Year-to-date, the retail units covered by the reserve had aggregate sales and pre-tax losses of $215.6 and $14.1 million, respectively, compared with $213.4 and $14.1 million for the same period last year. Approximately 30 retail stores are expected to be sold or closed, primarily in fiscal 1995 and 1996. The final component of the aggregate charges is a $43.9 million impairment provision representing the effect of the strategic shift on the recoverability of certain assets. The company holds land for development, 12 transition stores for wholesale market share, certain warehouse properties and miscellaneous sites which will be disposed of as soon as practicable. OPERATING EARNINGS: The company's pre-tax operating earnings (earnings before interest, corporate expenses, equity in earnings of ShopKo Stores, Inc. ("ShopKo"), and taxes) resulted in an operating loss of $146.9 million for the third quarter compared with operating earnings of $90.4 million for last year. Year-to-date operating earnings were $59.5 million compared with $294.7 million for last year. The decrease in operating earnings was due to the restructuring and other charges recorded in the third quarter. Excluding the restructuring and other charges, operating earnings decreased 6.5% to $84.5 million and 1.3% to $290.9 million for the third quarter and year-to-date, respectively. Food distribution operating earnings before the restructuring and other charges decreased 5.1% to $80.0 million and 4.0% to $263.3 million for the third quarter and year-to-date, respectively. The food distribution operating earnings trend was affected by increased insurance expenses, a LIFO charge, wholesale consolidation expenses and integration costs of recent acquisitions. Retail food operating earnings before the restructuring and other charges decreased 26.5% to $4.5 million for the third quarter and increased 34.3% to $27.6 million year-to-date. Retail food operating earnings for the quarter were affected primarily by reduced gross margins resulting from competitive pressures and expenses related to new store openings. The year-to-date increase is due to strong gross profit margins from the first quarter. The company expects spending on SUPERVALU ADVANTAGE, wholesale consolidation activities and acquisition integration efforts to impact its ability to show significant growth in operating earnings short-term. INTEREST INCOME AND EXPENSE: Interest income decreased to $5.5 and $18.9 million for the third quarter and year-to-date, respectively, compared with $6.9 and $22.6 million for the same periods last year. The decrease in interest income is due to the reduction in notes receivable as a result of the sale of notes in the ordinary course of business. Interest expense increased to $32.6 and $100.5 million for the third quarter and year-to-date, respectively, compared with $27.1 and $93.5 million for the same periods last year. The increase was due primarily to the issuance of $150 million in debt securities in July of 1994, part of which was used to repay a maturing issue in the amount of $100 million, and an increase in short- term borrowing rates. EQUITY IN EARNINGS OF SHOPKO: Equity in earnings of ShopKo decreased to $5.2 and $8.8 million in the third quarter and year-to-date compared with $6.5 and $10.1 million for the same periods last year. As reported by ShopKo, sales increased 5.5% to $470.9 million and net earnings decreased 19.7% for the third quarter compared with last year. For the quarter, net earnings were affected by decreased gross margins resulting from an increase in promotional sales mix 13 and continued competitive pressures. These effects were partially offset by an increase in income from prescription management services and a small decrease in selling and administrative expenses resulting from tight expense control. PROVISION FOR INCOME TAXES: The effective tax rate before the restructuring charges increased .6% in the third quarter compared with last year. This increase was due to the increase in goodwill resulting from recent acquisitions. The Internal Revenue Service ("IRS") completed its review for tax years ending in 1991 and 1992 during the third quarter. The IRS review period included the transaction and related tax expense recorded in connection with the partial disposition of ShopKo in October, 1991. Income taxes were provided for this disposition at the transaction date, although the company maintained that the transaction resulted in no tax for income tax purposes. Upon completion of their review, the IRS concluded that the partial disposition of ShopKo was a non- taxable transaction. Therefore, the $40.8 million of taxes provided by the company in the financial statements was reversed and reflected in the consolidated statement of earnings. LIQUIDITY AND CAPITAL RESOURCES Internally-generated funds, principally from the company's food distribution operations, continue to be the major source of capital for liquidity and capital growth. Cash provided from operations year-to-date, which was not affected by the restructuring charge, was $87.9 million compared with $207.8 million last year. The change in cash provided from operations was primarily affected by accounts payable trends. Last year the $207.8 million cash provided was impacted by the centralization of Wetterau accounts payable resulting in better cash management and a $34.0 million increase in accounts payable. Since the centralization of accounts payable, the payable trend has only been affected by inventory levels. Increasing levels of inventory and reductions in other liabilities also negatively impacted operating cash in the current year. Cash provided from operations and the issuance of short-term and long-term debt of $488.7 million was used to repay long-term debt and finance capital expenditures and acquisitions. The company financed $232.6 million in capital expenditures and repaid $117.5 million of long-term debt assumed as part of the acquisitions of Sweet Life Foods, Hyper Shoppes, Inc., Texas T Stores, Wetterau Properties Inc. and Delice de France. The company will continue to use short-term and long-term debt as a supplement to internally-generated funds to finance its activities. The company issued $150 million in debt securities in the second quarter. The proceeds were used to refund $100 million of notes due August 15, 1994; to repay $32 million of certain mortgage indebtedness assumed by the company in connection with the acquisition of Wetterau Properties; and the remaining proceeds were used to repay short-term borrowings. The company is in the process of registering $400 million of shelf debt securities which could be used to refinance existing debt or for other corporate purposes. Management does not anticipate the need for any additional long-term external financing except for leases or if significant acquisitions are completed. The company has $400 million of short-term credit available. 14 It is the company's intent to invest about $175 million into SUPERVALU Advantage with the majority of the expenditures occurring in fiscal 1996. The monies will be used to fund regional facilities, technology and various mechanization systems. The company expects that the investment in SUPERVALU ADVANTAGE will be recovered by the reduction in inventory and property levels, and existing credit facilities. At the end of the third quarter, the Board of Directors instituted a new treasury stock purchase program. The company may repurchase up to 5 million shares at market value. The company's long-term debt ratings are considered strong with an A rating from Standard and Poor's and an A3 rating from Moody's. These strong ratings, the available credit facilities and the internally generated funds provide the company with the financial flexibility to meet its anticipated liquidity needs. 15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits filed with this Form 10-Q: (15) Letters from Deloitte & Touche regarding unaudited interim financial information. (27) Financial Data Schedule. (b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter ended December 3, 1994. 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: January 17, 1995 Vice President and Controller (Chief Accounting Officer and duly authorized officer of Registrant) EX-15 2 LETTERS FROM DELOITTE & TOUCHE EXHIBIT 15 LETTER REGARDING UNAUDITED INFORMATION Stockholders and Board of Directors SUPERVALU INC. Eden Prairie, Minnesota We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim information of SUPERVALU INC. and subsidiaries for the periods ended December 3, 1994 and December 4, 1993, as indicated in our report dated January 6, 1995. Because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended December 3, 1994, is incorporated by reference in Registration Statements No. 33-28310, No. 33-16934, No. 2-56896, and No. 33-50071 on Form S-8 and No. 33-56415 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statements prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ Deloitte & Touche LLP - ------------------------- Minneapolis, Minnesota January 6, 1995 1 of 2 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Stockholders and Board of Directors SUPERVALU INC. Eden Prairie, Minnesota We have reviewed the accompanying consolidated balance sheets of SUPERVALU INC. (the Company) and subsidiaries as of December 3, 1994 and December 4, 1993 and the related consolidated statements of earnings and cash flows for the 12-week and 40-week periods then ended and the consolidated statement of stockholders' equity for the interim period ended December 3, 1994. These consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of SUPERVALU INC. and subsidiaries as of February 26, 1994 and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated April 7, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 26, 1994 and the consolidated statement of stockholders' equity for the year then ended is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. /s/ Deloitte & Touche LLP - ------------------------- Minneapolis, Minnesota January 6, 1995 2 of 2 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 3, 1994 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE 40 WEEKS ENDED DECEMBER 3, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS FEB-25-1995 DEC-03-1994 3,923 0 449,953 (37,164) 1,309,453 1,854,727 2,406,263 (820,926) 4,499,148 1,606,888 1,461,906 75,335 0 5,906 1,115,995 4,499,148 12,673,034 12,673,034 11,537,736 11,537,736 0 4,212 100,518 (50,630) (50,635) 5 0 0 0 5 0 0
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