-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JRSEVtf6JO8tHC6H4Ocu7lgBwFD1PhK1l2Iucufj94U96hwlfk9CbeL80G2qWd36 eFIVbAvBKcO1eDB1xk6icg== 0000950131-95-002940.txt : 19951025 0000950131-95-002940.hdr.sgml : 19951025 ACCESSION NUMBER: 0000950131-95-002940 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950909 FILED AS OF DATE: 19951024 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05418 FILM NUMBER: 95583462 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/A 1 FORM 10-Q/A 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 September 9, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ....................... to ...................... Commission file number 1-5418 SUPERVALU INC. (Exact name of registrant as specified in its Charter) DELAWARE 41-0617000 ................................................................................ (State or other jurisdiction of (I.R.S. Employer 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 September 9, 1995 is as follows: Title of Each Class Shares Outstanding ------------------- ------------------ Common Shares 67,963,336
PART I - FINANCIAL INFORMATION -------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------- Item 1: Financial Statements - -------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS - -------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries - -------------------------------------------------------------------------------------- (In thousands, except per share data) Second Quarter (12 Weeks) Ended --------------------------------------------- September 9, 1995 September 10, 1994 - -------------------------------------------------------------------------------------- Net sales $3,779,397 $3,773,725 Costs and expenses: Cost of sales 3,427,689 3,437,488 Selling and administrative expenses 265,350 255,301 Amortization of goodwill 4,053 3,464 Interest Interest expense 32,771 29,658 Interest income 4,503 5,792 ------------------------------------- Interest expense, net 28,268 23,866 ------------------------------------- Total costs and expenses 3,725,360 3,720,119 ------------------------------------- Earnings before equity in earnings of ShopKo and income taxes 54,037 53,606 Equity in earnings of ShopKo 861 1,282 ------------------------------------- Earnings before income taxes 54,898 54,888 Provision for income taxes Current 5,562 18,888 Deferred 16,058 2,485 ------------------------------------- Income tax expense 21,620 21,373 ------------------------------------- Net earnings $ 33,278 $ 33,515 ===================================== Net earnings per common share $ 0.49 $ 0.47 Weighted average number of common shares outstanding 68,181 71,471 Dividends declared per common share $ 0.245 $ 0.235 Supplemental information: After-tax LIFO (expense) $ (2,525) $ (3,121) All data subject to year-end audit. See notes to consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF EARNINGS - -------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries - -------------------------------------------------------------------------------------- (In thousands, except per share data) Year-to-Date (28 Weeks) Ended --------------------------------------- September 9, 1995 September 10, 1994 - -------------------------------------------------------------------------------------- Net sales $8,752,434 $8,764,840 Costs and expenses: Cost of sales 7,940,385 7,990,435 Selling and administrative expenses 609,946 577,253 Amortization of goodwill 9,510 7,689 Interest Interest expense 76,890 67,955 Interest income 11,595 13,447 ----------------------------------- Interest expense, net 65,295 54,508 ----------------------------------- Total costs and expenses 8,625,136 8,629,885 ----------------------------------- Earnings before equity in earnings of ShopKo and income taxes 127,298 134,955 Equity in earnings of ShopKo 3,329 3,575 ----------------------------------- Earnings before income taxes 130,627 138,530 Provision for income taxes Current 31,266 45,996 Deferred 20,132 8,406 ----------------------------------- Income tax expense 51,398 54,402 ----------------------------------- Net earnings $ 79,229 $ 84,128 =================================== Net earnings per common share $ 1.15 $ 1.18 Weighted average number of common shares outstanding 68,795 71,563 Dividends declared per common share $ 0.480 $ 0.455 Supplemental information: After-tax LIFO (expense) $ (2,317) $ (1,412) All data subject to year-end audit. See notes to consolidated financial statements.
3
CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries Second Quarter as of Fiscal Year End - -------------------------------------------------------------------------------------------------------- (In thousands) September 9, September 10, February 25, Assets 1995 1994 1995 - -------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 5,469 $ 5,391 $ 4,839 Receivables, less allowance for losses of $27,884 at September 9, 1995, $35,633 at September 10, 1994, and $29,268 at February 25, 1995 406,794 403,348 383,458 Inventories 1,029,077 1,203,576 1,109,791 Other current assets 123,397 98,524 148,252 ---------------------------------------------- Total current assets 1,564,737 1,710,839 1,646,340 Long-term notes receivable 70,241 69,613 73,094 Long-term investment in direct financing leases 70,870 85,946 77,688 Property, plant and equipment Land 168,958 188,418 202,949 Buildings 900,827 871,003 868,379 Property under construction 45,939 82,239 51,640 Leasehold improvements 137,858 124,076 134,094 Equipment 966,161 926,907 970,779 Assets under capital leases 215,241 200,907 205,030 ---------------------------------------------- 2,434,984 2,393,550 2,432,871 Less accumulated depreciation and amortization Owned property, plant and equipment 844,745 776,268 825,546 Assets under capital leases 43,098 42,285 36,027 ---------------------------------------------- Net property, plant and equipment 1,547,141 1,574,997 1,571,298 Investment in ShopKo 182,927 173,901 182,839 Goodwill 505,196 569,003 515,009 Other assets 217,335 299,710 238,881 ---------------------------------------------- Total assets $4,158,447 $4,484,009 $4,305,149 ============================================== Liabilities and Stockholders' Equity - -------------------------------------------------------------------------------------------------------- Current Liabilities Notes payable $ 134,673 $ 214,358 $ 226,168 Accounts payable 990,019 980,783 1,003,106 Current maturities of long-term debt 10,181 10,454 9,277 Current obligations under capital leases 18,580 18,838 19,060 Other current liabilities 176,651 179,176 189,526 ---------------------------------------------- Total current liabilities 1,330,104 1,403,609 1,447,137 Long-term debt 1,208,042 1,198,902 1,215,184 Long-term obligations under capital leases 245,319 273,762 244,582 Deferred income taxes - 97,516 - Other liabilities 196,625 212,511 205,024 Stockholders' equity Preferred stock 5,908 5,908 5,908 Common stock 75,335 75,335 75,335 Capital in excess of par value 12,708 13,314 12,717 Retained earnings 1,282,949 1,310,745 1,236,507 Treasury stock, at cost (198,543) (107,593) (137,245) ---------------------------------------------- Total stockholders' equity 1,178,357 1,297,709 1,193,222 ---------------------------------------------- Total liabilities and stockholders' equity $4,158,447 $4,484,009 $4,305,149 ============================================== Quarterly data subject to year-end audit. See notes to consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------ SUPERVALU 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 26, 1994 $5,908 $75,335 $12,966 $ (86,868) $1,268,117 $1,275,458 Net earnings - - - - 43,334 43,334 Sales of common stock under option plans - - (290) 1,435 - 1,145 Cash dividends declared on common stock - $.925 per share - - - - (66,024) (66,024) Compensation under employee incentive plans - - 41 253 - 294 Purchase of shares for treasury - - - (52,065) - (52,065) Other - - - - (8,920) (8,920) - ------------------------------------------------------------------------------------------------------------ Balances at February 25, 1995 5,908 75,335 12,717 (137,245) 1,236,507 1,193,222 Net earnings - - - - 79,229 79,229 Sales of common stock under option plans - - (9) 1,679 - 1,670 Cash dividends declared on common stock - $.48 per share - - - - (32,787) (32,787) Compensation under employee incentive plans - - - (788) - (788) Purchase of shares for treasury - - - (62,189) - (62,189) - ------------------------------------------------------------------------------------------------------------ Balances at September 9, 1995 $5,908 $75,335 $12,708 $(198,543) $1,282,949 $1,178,357 ============================================================================================================ 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 (28 weeks ended) - --------------------------------------------------------------------------------------------------------- September 9, September 10, 1995 1994 - --------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net earnings $ 79,229 $ 84,128 Adjustments to reconcile net earnings to net cash provided by operating activities: Equity in earnings of ShopKo (3,329) (3,575) Dividends received from ShopKo 3,241 3,241 Depreciation and amortization 116,077 109,160 Provision for losses on receivables 1,811 2,993 Gain on sale of property, plant and equipment (7,458) (4,253) Deferred income taxes 20,132 4,735 Treasury shares contributed to employee incentive plan 66 - Changes in assets and liabilities: Receivables (25,147) (27,275) Inventory 80,714 (6,929) Other current assets 14,120 2,986 Direct finance leases 4,317 4,920 Accounts payable (2,269) 23,372 Other liabilities (21,578) (30,133) - --------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 259,926 163,370 - --------------------------------------------------------------------------------------------------------- Cash flows from investing activities Additions to long-term notes receivable (16,739) (11,410) Payments received on long-term notes receivable 19,592 8,365 Proceeds from sale of property, plant and equipment 69,874 18,445 Purchase of property, plant and equipment (120,121) (119,243) Business acquisitions, net of cash acquired - (111,083) Other investing activities (10,270) (728) - --------------------------------------------------------------------------------------------------------- Net cash used in investing activities (57,664) (215,654) - --------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net issuance (reduction) of short-term notes payable (91,495) 187,720 Proceeds from issuance of long-term debt - 150,000 Repayment of long-term debt (6,238) (220,334) Reduction of obligations under capital leases (9,721) (9,518) Proceeds (payments) for purchase of common stock under option plans 747 (676) Dividends paid (32,736) (31,670) Payments for purchase of treasury stock (62,189) (20,693) - --------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (201,632) 54,829 - --------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 630 2,545 Cash and cash equivalents at beginning of year 4,839 2,846 - --------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of second quarter $ 5,469 $ 5,391 ========================================================================================================= 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 1995 annual report of SUPERVALU INC. ("SUPERVALU" or the "company"). Restructuring and Other Charges - ------------------------------- In December 1994, restructuring and other charges totaling $244.0 million were incurred for the implementation of the ADVANTAGE project, the sale, closure or restructure of certain retail businesses and the recognition of certain asset impairments. The aggregate charges included $204.8 million for activities under the restructuring plan. The restructuring charges do not cover certain aspects of the plan, including new information systems, anticipated operating losses on retail business units to be exited, implementation costs associated with the ADVANTAGE project, employee relocation and training. These costs are not considered exit activities and are recognized as incurred. Management's objective under the ADVANTAGE project is to fundamentally change its business processes by improving the effectiveness and efficiency of the company's food distribution system, thus lowering the cost of goods to the company's customers. Its retail food objective is to improve retail performance by eliminating certain operations and assets that do not add shareholder value and focusing on building its successful retail formats. The charges included $53.1 million for severance, pension and outplacement based on the projected impact of the plan on employee levels in both food distribution and retail food. The company expected approximately 4,300 employees to be eliminated over an 18-month period under the re-engineering efforts, 1,700 of which are employed in retail food operations. Approximately 998 positions have been eliminated which resulted in severance and outplacement payments of $1.8 million year-to-date. Also included in the charge is a $20.0 million provision in food distribution which represents expected losses on the sale of tangible assets and expenses under non-cancelable leases as a result of the strategic shift. Expenditures of $1.7 million year-to-date have been incurred in connection with such non-cancelable leases and losses on disposition of assets. The restructuring charges included an $87.8 million provision for property and lease discontinuances at retail locations, resulting primarily from various exit strategies and payment of portions of non-cancelable lease obligations. Approximately 30 retail stores were expected to be sold or closed, primarily in fiscal 1995 and 1996. At the end of fiscal 1995, six stores had been closed and during fiscal 1996, an additional ten stores have been closed. Charges against the reserve were $17.3 million year-to-date which related to the closedown of retail locations. The retail units covered by the reserve had year-to-date aggregate sales and pre-tax losses of $80.0 and $5.8 million, respectively, compared with $148.3 and $7.9 million last year. 7 The final component of the aggregate restructuring charges was a $43.9 million impairment provision representing the effect of the strategic shift on the recoverability of certain assets. The company holds land for development, transition stores for wholesale market share, certain warehouse properties and miscellaneous sites. The company completed a bulk sale of property in the second quarter which resulted in a charge against the reserve of $9.3 million. The majority of the properties yet to be disposed of have signed purchase agreements and will be disposed of as soon as practicable. An additional $2.2 million year-to-date was charged against the reserve for carrying costs and losses on disposition of property excluded from the bulk sale. Cash expenditures related to the restructuring plan were $4.9 million year-to- date. 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 September 9, 1995 and September 10, 1994 and the results of the company's operations and cash flows for the periods then ended. These interim results are not necessarily indicative of the results of the fiscal years as a whole. A limited review of this data has been performed by the company's independent certified public accountants, Deloitte & Touche LLP. A copy of their report is attached as an exhibit to this report. 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:
- ----------------------------------------------------------------------------------------------- Second Quarter Year-to-Date (12 weeks) Ended (28 weeks) Ended - ----------------------------------------------------------------------------------------------- Fiscal Fiscal Fiscal Fiscal 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------- Net sales 100.00% 100.00% 100.00% 100.00% Cost of sales (90.69) (91.09) (90.72) (91.16) Selling and administrative expenses (7.13) (6.86) (7.08) (6.67) Interest expense (.87) (.79) (.88) (.78) Interest income .12 .16 .13 .15 - ----------------------------------------------------------------------------------------------- Earnings before equity in earnings of ShopKo, and income taxes 1.43 1.42 1.45 1.54 Equity in earnings of ShopKo .02 .03 .04 .04 Provision for income taxes (.57) (.56) (.58) (.62) - ----------------------------------------------------------------------------------------------- Net earnings .88% .89% .91% .96% ===============================================================================================
NET SALES Net sales for the second quarter and year-to-date were even with last year. Food price inflation, as measured by the company, was 1% for the quarter and .4% year-to-date compared with deflation of .8% for both periods last year. The flat sales trend was the result of a significant increase in retail food sales, offset by a moderate decline in food distribution sales. Retail food sales represented 27% and 26% of total sales for the quarter and year-to-date, respectively. Food distribution sales decreased 1.1% and 1.6% over last year for the quarter and year-to-date, respectively. Sales were affected by the continuing but diminishing effect of last year's facility consolidations, the soft retail environment and the closing of corporate retail stores. Retail food sales increased 11.5% for both the quarter and year-to-date periods compared with last year. The increase was primarily due to the acquisition of Hyper Shoppes, Inc. in August 1994, new store openings and an increase in same- store sales of 2% for the quarter and .1% year-to-date. The increase in sales was partially offset by the closing of underperforming retail stores under the previously announced restructuring plan. 9
Sales by Segment - ----------------------------------------------------------------------------------------------------------- (In thousands) Second Quarter (12 weeks) - ----------------------------------------------------------------------------------------------------------- September 9, 1995 September 10, 1994 Net Sales % of Total Net Sales % of Total - ----------------------------------------------------------------------------------------------------------- Food distribution $ 3,362,238 89.0 % $ 3,400,992 90.1 % Retail food 1,008,391 26.6 % 904,063 24.0 % Less: Eliminations* (591,232) (15.6)% (531,330) (14.1)% - ----------------------------------------------------------------------------------------------------------- Total net sales $ 3,779,397 100.0 % $ 3,773,725 100.0 % =========================================================================================================== Sales by Segment - ----------------------------------------------------------------------------------------------------------- (In thousands) Year-to-Date (28 weeks) - ----------------------------------------------------------------------------------------------------------- September 9, 1995 September 10, 1994 Net Sales % of Total Net Sales % of Total - ----------------------------------------------------------------------------------------------------------- Food distribution $ 7,808,365 89.2 % $ 7,934,901 90.5 % Retail food 2,269,280 25.9 % 2,035,174 23.2 % Less: Eliminations* (1,325,211) (15.1)% (1,205,235) (13.7)% - ----------------------------------------------------------------------------------------------------------- Total net sales $ 8,752,434 100.0 % $ 8,764,840 100.0 % ===========================================================================================================
* Intercompany eliminations include sales to Hyper Shoppes, Inc. in fiscal 1996 of $53,771 and $121,925 for the quarter and year-to-date, respectively. In fiscal 1995, the company owned 31% of Hyper Shoppes, Inc.; therefore sales were not reported in the company's retail food results. GROSS PROFIT Gross profit as a percentage of net sales increased to 9.3% for both the quarter and year-to-date, compared with 8.9% and 8.8% for the same periods last year. The increases were due principally to the growing proportion within the company's total sales mix of the higher-margined retail food business. Food distribution gross profit margin decreased slightly due to the competitive retail environment. The retail food gross profit margin increased primarily due to the improved mix of higher gross margin items and the closing of underperforming retail stores. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses as a percentage of net sales were 7.1% for both the second quarter and year-to-date, compared with 6.9% and 6.7% for the same periods last year. The higher percentages were primarily due to the increased proportion of the company's retail food segment which operates at a higher selling and administrative expense percentage than the food distribution segment. Food distribution selling and administrative expenses as a percent of net sales were lower than last year for the quarter and year-to-date due to favorable insurance experience and cost reductions in other administrative areas. Retail food selling and administrative expenses as a percent of net sales were consistent with last year for the second 10 quarter, but higher year-to-date. The higher year-to-date percentage was primarily due to increased advertising expense in response to competitive pressures and higher promotional activity associated with new store openings. The increase in retail food expenses was also due to higher supply costs resulting from the increased cost of paper and packaging supplies. The elimination of underperforming retail stores reduced expenses in the second quarter and, to a lesser degree, also impacted year-to-date expenses. Pre-tax expenses of $5.2 and $10.7 million related to the ADVANTAGE project were incurred during the second quarter and year-to-date, respectively, compared with $2.9 and $6.7 million for the same periods last year. RESTRUCTURING AND OTHER CHARGES In December 1994, restructuring and other charges totaling $244.0 million were incurred for the implementation of the ADVANTAGE project, the sale, closure or restructure of certain retail businesses and the recognition of certain asset impairments. The aggregate charges included $204.8 million for activities under the restructuring plan. Management's objective under the ADVANTAGE project is to fundamentally change its business processes by improving the effectiveness and efficiency of the company's food distribution system, thus lowering the cost of goods to the company's customers, and by enhancing the market-driving support to retailer customers. Its retail food objective is to improve retail performance by eliminating certain operations and assets that do not add shareholder value and focusing on building its successful retail formats. Under the ADVANTAGE project, food distribution costs are expected to be reduced through enhanced logistic procedures and a new pricing strategy. Planned "upstream" facilities will provide regional distribution of general merchandise, health and beauty care products and slow-moving grocery items. The construction of the Anniston, Alabama prototype upstream facility is well underway and is scheduled for completion in February 1996. A cross dock material handling system is being installed in the upstream facility allowing faster moving product to flow across the dock from the vendor truck to the SUPERVALU truck without being stored in the warehouse. The company is currently testing its new pricing strategy, Activity Based Sell, which charges retailers on a cost-to-serve basis. The new pricing strategy, which is being tested in Denver, is intended to encourage optimum economic behavior at both retail and wholesale. The company is also developing market-driving capabilities to help independent retailers achieve new growth by offering new category management and other programs. Testing of the new category management and shelf management programs is being conducted in Denver. Retail changes under the restructuring plan include the closing of approximately 30 underperforming stores and the refocusing on preferred formats. To date, 16 stores have been closed or sold under the plan, and the company is in negotiations for the sale of several other stores. OPERATING EARNINGS The company's pre-tax operating earnings (earnings before interest, corporate expenses, equity in earnings of ShopKo Stores, Inc. ("ShopKo") and taxes) increased to $89.0 million in the second quarter from $85.4 million last year and were $206.2 million year-to-date compared with $206.5 million last year. Food 11 distribution operating earnings decreased to $78.5 million from $78.8 million and to $179.9 million from $183.3 million for the second quarter and year-to- date, respectively. Food distribution operating earnings were positively impacted by a lower selling and administrative expense rate. This positive impact was offset by slightly reduced gross margins, pre-tax expenses of $4.0 and $5.6 million for the second quarter and year-to-date, respectively, related to the ADVANTAGE project and charged to this segment and the softness in sales. Retail food operating earnings increased 59.8% to $10.5 million and 13.8% to $26.3 million in the second quarter and year-to-date, respectively. Retail food operating earnings increased due to the acquisition of Hyper Shoppes, Inc. and the elimination of operating losses from the closing of underperforming stores. INTEREST EXPENSE AND INCOME Interest expense increased to $32.8 and $76.9 million for the second quarter and year-to-date, respectively, compared with $29.7 and $68.0 for the same periods last year, reflecting higher short-term rates and increased debt levels. Interest income decreased to $4.5 and $11.6 million for the second quarter and year-to-date, respectively, compared with $5.8 and $13.4 million for the same periods last year. EQUITY IN EARNINGS OF SHOPKO SUPERVALU's share of ShopKo net earnings decreased to $.9 and $3.3 million in the second quarter and year-to-date, respectively, compared with $1.3 and $3.6 million for the same periods last year. As reported by ShopKo, sales increased 9.7% to $418.2 million and net earnings decreased 32% for the second quarter compared to last year. The decrease in net earnings was primarily due to a lower gross margin percentage due to a shift in the sales mix from regular sales to lower gross margin promotional sales and continued competitive pricing pressures in the discount general merchandise marketplace. Net earnings were also affected by increased interest expense due to last year's third quarter sale of long-term debentures. INCOME TAXES The effective tax rate increased to 39.38% and 39.35% in the second quarter and year-to-date, respectively, compared with 38.94% and 39.27% for the same periods last year. The increase in the effective tax rate was principally due to the decreased contribution from ShopKo and the increase in goodwill amortization. NET EARNINGS Net earnings were $33.3 and $79.2 million for the quarter and year-to-date, respectively, compared with $33.5 and $84.1 million for the same periods last year. The decrease in net earnings was primarily due to higher net interest expense and increased expenses related to the ADVANTAGE project. In relation to the ADVANTAGE project, the company anticipates that an additional $6 to $8 million after-tax will be expended for related costs during fiscal 1996. The company currently anticipates a contribution from this project in fiscal 1997. 12 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Internally generated funds, principally from the company's food distribution business, continue to be the major source of capital for liquidity and capital growth. Cash provided from operations year-to-date was $259.9 million compared with $163.4 million last year. The increase was primarily due to the planned reduction of inventory levels at wholesale distribution centers as well as the reduction of inventory related to the closing of retail stores. Cash provided from operations was primarily used to finance capital expenditures of $120.1 million, repay short-term notes payable of $91.5 million and pay dividends of $32.7 million. In December 1994, the Board of Directors approved a new treasury stock purchase program. The company may repurchase up to 5.0 million shares which may be used for any corporate purpose. The company has repurchased 2.3 million shares at a cost of approximately $62.2 million during the fiscal year and has purchased a total of 3.6 million shares under this program. The company financed the purchase of the treasury stock primarily from the sale of surplus and under- utilized property, plant and equipment. Capital expenditures related to the ADVANTAGE project were $23.1 million year- to-date. The company expects to invest approximately $100 million in the project during fiscal 1996 to fund regional facilities, technology and various mechanization systems. The company expects that the investment in ADVANTAGE will be funded by the reduction in inventory. SUPERVALU will continue to use short-term and long-term debt as a supplement to internally generated funds to finance its activities. To that end, the company has a "shelf registration" in effect pursuant to which the company could issue $400 million of debt securities, including medium term notes with maturities ranging from 9 months to 30 years. Subsequent to the end of the second quarter, the company issued 6.5% notes due October 6, 2000 in the amount of $38.5 million and 6.15% notes due October 19, 1998 in the amount of $40 million under the shelf registration. The company also has in place a $400 million revolving credit agreement that expires in May 2000. The company has $300 million of debt due in November 1995 which it intends to refinance by utilizing the shelf registration or the available revolving credit agreement. Maturities of debt issued will depend on management's views with respect to the relative attractiveness of interest rates at the time of issuance. The company's financial position and long-term debt ratings are strong, with an A3 rating from Moody's Investors Services, Inc. and a BBB+ from Standard and Poor's Ratings Group. These strong ratings, the available credit facilities and internally-generated funds provide the company with the financial flexibility to meet unexpected liquidity needs. 13 PART II - OTHER INFORMATION --------------------------- Item 6. Exhibits and Reports on Form 8-K. - ------ -------------------------------- (a) Exhibits filed with this Form 10-Q: (4.1) Third Supplemental Indenture dated as of September 1, 1995 between the Registrant and Bankers Trust Company, as Trustee, to Indenture dated as of July 1, 1987 between the Registrant and Bankers Trust Company, as Trustee, is incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K Report dated October 2, 1995. (4.2) Credit Agreement dated as of May 26, 1995 among the Registrant, the Banks named therein and Citibank, N.A., as Agent, is incorporated by reference to Exhibit 10.1 to the Registrant's Form 8-K Report dated October 2, 1995. (15) Letters from Deloitte & Touche regarding unaudited interim financial information. (27) Financial Data Schedule containing a summary of financial information extracted from the Consolidated Balance Sheets as of September 9, 1995. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter. On October 2, 1995, the Registrant filed a Form 8-K Report (A) reporting under "Item 5 - Other Events" that on October 2, 1995, the Registrant entered into a Distribution Agreement dated October 2, 1995 between the Registrant and Goldman, Sachs & Co., BT Securities Corporation, Citicorp Securities, Inc. and J.P. Morgan Securities Inc., pursuant to which the Registrant may offer from time to time its Medium-Term Notes, Series B at an aggregate initial offering price not to exceed $400,000,000 and (B) filing as exhibits under "Item 7 - Financial Statements and Exhibits" a copy of certain exhibits relating thereto. 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: October 24, 1995 Vice President & Controller (Principal Financial Officer and duly authorized officer of Registrant) 14 EX-15 2 LETTERS FROM DELOITTE & TOUCHE Exhibit (15) to Quarterly Report on Form 10-Q Page 1 of 2 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 September 9, 1995 and September 10, 1994, as indicated in our report dated October 18, 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 September 9, 1995, is incorporated by reference in the 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 October 18, 1995 Exhibit (15) to Quarterly Report on Form 10-Q Page 2 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 September 9, 1995 and September 10, 1994 and the related consolidated statements of earnings and cash flows for the 12-week and 28-week periods then ended and the consolidated statements of stockholders' equity for the interim period ended September 9, 1995. 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 25, 1995 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 10, 1995, 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 25, 1995 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 October 18, 1995 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets as of September 9, 1995 and the Consolidated Statement of Earnings for the 28 weeks ended September 9, 1995 and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS FEB-24-1996 SEP-09-1995 5,469 0 434,678 (27,884) 1,029,077 1,564,737 2,434,984 (887,843) 4,158,447 1,330,104 1,453,361 75,335 0 5,908 1,097,114 4,158,447 8,752,434 8,752,434 7,940,385 7,940,385 0 1,811 76,890 130,627 51,398 79,229 0 0 0 79,229 1.15 1.15
-----END PRIVACY-ENHANCED MESSAGE-----