-----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, RO1wBwEHwF74+7QvSMG0w5HwVe8OMK6sOm7toyYt2I6cgYKKaPYZHJ+JE2bKuowp WVJsLzOmvKa6kXWy5jYosw== 0000950131-96-000084.txt : 19960117 0000950131-96-000084.hdr.sgml : 19960117 ACCESSION NUMBER: 0000950131-96-000084 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951202 FILED AS OF DATE: 19960116 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: 96503778 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 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 2, 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 December 2, 1995 is as follows: Title of Each Class Shares Outstanding ------------------- ------------------ Common Shares 67,804,122
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 2, 1995 December 3, 1994 - ---------------------------------------------------------------------------------- Net sales $3,886,595 $3,908,194 Costs and expenses: Cost of sales 3,519,750 3,547,301 Selling and administrative expenses 279,502 279,559 Amortization of goodwill 4,060 4,588 Restructuring and other charges - 244,000 Interest Interest expense 31,076 32,563 Interest income 4,750 5,463 ------------------------------- Interest expense, net 26,326 27,100 ------------------------------- Total costs and expenses 3,829,638 4,102,548 ------------------------------- Earnings (loss) before equity in earnings of ShopKo and income taxes 56,957 (194,354) Equity in earnings of ShopKo 4,661 5,194 ------------------------------- Earnings (loss) before income taxes 61,618 (189,160) Provision for income taxes Current 5,333 37,572 Deferred 17,840 (142,609) ------------------------------- Income taxes 23,173 (105,037) ------------------------------- Net earnings (loss) $ 38,445 $ (84,123) =============================== Net earnings (loss) per common share $ 0.57 $ (1.18) Weighted average number of common shares outstanding 67,841 71,487 Dividends declared per common share $ 0.245 $ 0.235 Supplemental information: After-tax LIFO (expense) $ (2,897) $ (2,670) All data subject to year-end audit. See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF EARNINGS - --------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries - --------------------------------------------------------------------------- (In thousands, except per share data) Year-to-Date (40 Weeks) Ended ---------------------------------------------- December 2, 1995 December 3, 1994 - --------------------------------------------------------------------------------------- Net sales $12,639,029 $12,673,034 Costs and expenses: Cost of sales 11,460,135 11,537,736 Selling and administrative expenses 889,448 856,812 Amortization of goodwill 13,570 12,277 Restructuring and other charges - 244,000 Interest Interest expense 107,966 100,518 Interest income 16,345 18,910 ---------------------------------------- Interest expense, net 91,621 81,608 ---------------------------------------- Total costs and expenses 12,454,774 12,732,433 ---------------------------------------- Earnings (loss) before equity in earnings of ShopKo and income taxes 184,255 (59,399) Equity in earnings of ShopKo 7,990 8,769 ---------------------------------------- Earnings (loss) before income taxes 192,245 (50,630) Provision for income taxes Current 36,599 83,568 Deferred 37,972 (134,203) ---------------------------------------- Income taxes 74,571 (50,635) ---------------------------------------- Net earnings $ 117,674 $ 5 ======================================== Net earnings per common share $ 1.72 $ - Weighted average number of common shares outstanding 68,509 71,540 Dividends declared per common share $ 0.725 $ 0.690 Supplemental information: After-tax LIFO (expense) $ (5,214) $ (4,082) All data subject to year-end audit. See notes to consolidated financial statements.
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CONSOLIDATED BALANCE SHEETS - ---------------------------------------------------------------------------------------------------------- SUPERVALU INC. and Subsidiaries Third Quarter as of Fiscal Year End - ---------------------------------------------------------------------------------------------------------- (In thousands) December 2, December 3, February 25, Assets 1995 1994 1995 - ---------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents $ 5,396 $ 3,923 $ 4,839 Receivables, less allowance for losses of $25,848 at December 2, 1995, $37,164 at December 3, 1994, and $29,268 at February 25, 1995 419,162 412,789 383,458 Inventories 1,179,209 1,309,453 1,109,791 Other current assets 125,134 128,562 148,252 ----------------------------------------------- Total current assets 1,728,901 1,854,727 1,646,340 Long-term notes receivable 67,816 61,580 73,094 Long-term investment in direct financing leases 71,460 80,689 77,688 Property, plant and equipment Land 163,046 194,577 202,949 Buildings 921,502 868,352 868,379 Property under construction 58,747 68,389 51,640 Leasehold improvements 135,097 128,896 134,094 Equipment 982,428 948,479 970,779 Assets under capital leases 219,103 197,570 205,030 ----------------------------------------------- 2,479,923 2,406,263 2,432,871 Less accumulated depreciation and amortization Owned property, plant and equipment 859,230 820,926 825,546 Assets under capital leases 42,118 38,217 36,027 ----------------------------------------------- Net property, plant and equipment 1,578,575 1,547,120 1,571,298 Investment in ShopKo 185,967 175,875 182,839 Goodwill 503,689 529,071 515,009 Other assets 202,261 250,086 238,881 ----------------------------------------------- Total assets 4,338,669 $ 4,499,148 $ 4,305,149 =============================================== Liabilities and Stockholders' Equity - ---------------------------------------------------------------------------------------------------------- Current Liabilities Notes payable 239,125 $ 365,288 $ 226,168 Accounts payable 1,061,845 1,045,766 1,003,106 Current maturities of long-term debt 10,181 10,451 9,277 Current obligations under capital leases 18,030 18,624 19,060 Other current liabilities 175,856 166,739 189,526 ----------------------------------------------- Total current liabilities 1,505,037 1,606,868 1,447,137 Long-term debt 1,202,572 1,196,340 1,215,184 Long-term obligations under capital leases 251,595 265,566 244,582 Other liabilities 184,224 233,136 205,024 Stockholders' equity Preferred stock 5,908 5,908 5,908 Common stock 75,335 75,335 75,335 Capital in excess of par value 12,704 13,254 12,717 Retained earnings 1,304,853 1,209,792 1,236,507 Treasury stock, at cost (203,559) (107,051) (137,245) ----------------------------------------------- Total stockholders' equity 1,195,241 1,197,238 1,193,222 ----------------------------------------------- Total liabilities and stockholders' equity 4,338,669 $ 4,499,148 $ 4,305,149 =============================================== Quarterly data subject to year-end audit. See notes to consolidated financial statements.
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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 - - - - 117,674 117,674 Sales of common stock under option plans - - (13) 2,443 - 2,430 Cash dividends declared on common stock - $.725 per share - - - - (49,328) (49,328) Compensation under employee incentive plans - - - (936) - (936) Purchase of shares for treasury - - - (67,821) - (67,821) - ----------------------------------------------------------------------------------------------------------------------------- Balances at December 2, 1995 $5,908 $75,335 $12,704 $(203,559) $1,304,853 $1,195,241 ============================================================================================================================= Interim data subject to year-end audit. See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------ SUPERVALU INC. and Subsidiaries - ------------------------------------------------------------------------------------------------------------------ (In thousands) - ------------------------------------------------------------------------------------------------------------------ Year-to-date (40 weeks ended) - ------------------------------------------------------------------------------------------------------------------ December 2, December 3, 1995 1994 - ------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities Net earnings $ 117,674 $ 5 Adjustments to reconcile net earnings to net cash provided by operating activities: Equity in earnings of ShopKo (7,990) (8,769) Dividends received from ShopKo 4,862 4,862 Depreciation and amortization 168,097 155,089 Provision for losses on receivables 1,938 4,212 Restructuring and other charges - 244,000 Gain on sale of property, plant and equipment (13,322) (5,162) Deferred income taxes 37,972 (137,874) Treasury shares contributed to employee incentive plan (64) - Changes in assets and liabilities: Receivables (37,642) (39,160) Inventory (69,418) (140,806) Other current assets (3,176) 4,744 Direct finance leases 6,451 7,371 Accounts payable 54,855 46,213 Other liabilities (34,545) (46,843) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 225,692 87,882 - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities Additions to long-term notes receivable (23,488) (15,818) Payments received on long-term notes receivable 28,766 21,158 Proceeds from sale of property, plant and equipment 88,255 37,908 Purchase of property, plant and equipment (186,366) (232,576) Business acquisitions, net of cash acquired - (111,083) Other investing activities (3,432) 31,374 - ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (96,265) (269,037) - ------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities Net issuance of short-term notes payable 12,957 338,650 Proceeds from issuance of long-term debt 300,000 150,000 Repayment of long-term debt (311,708) (222,899) Reduction of obligations under capital leases (14,280) (14,160) Proceeds (payments) for purchase of common stock under option plans 1,431 (134) Dividends paid (49,449) (48,532) Payments for purchase of treasury stock (67,821) (20,693) - ------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (128,870) 182,232 - ------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 557 1,077 Cash and cash equivalents at beginning of year 4,839 2,846 - ------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of third quarter $ 5,396 $ 3,923 ================================================================================================================== 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 - ------------- A restructuring charge of $204.8 million was recognized in the third quarter of fiscal 1995. During the third quarter of fiscal 1996, the company utilized $14.0 million of the reserve leaving a balance of $129.7 million. The primary use of the reserve in the third quarter was for the closedown and disposal of assets at underperforming corporate retail stores which resulted in a $10.4 million charge against the reserve. 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 2, 1995 and December 3, 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. -7- Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations In December 1994, the company recorded restructuring and other charges totaling $244 million. The charge was incurred primarily for implementation of the ADVANTAGE project, the sale, closure or restructure of certain retail food businesses and the recognition of certain asset impairment. The aggregate charges included $204.8 million for activities under the ADVANTAGE and retail restructuring plans. 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. The retail food restructuring objectives are to improve retail performance by eliminating certain operations and assets that do not add shareholder value and to focus on building its successful retail formats. Comparisons of the fiscal 1996 financial information to last year's third quarter and year-to-date periods are difficult because of operational, business process and other changes related to the ADVANTAGE project and the retail food restructuring which are discussed later in greater detail. Expenses related to the ADVANTAGE project are significant and have impacted earnings for the quarter and year-to-date, costing $15.6 million pre-tax this year versus $9.9 million pre-tax last year over the first three quarters. Last year the ADVANTAGE expenses represented the cost of studying the changing fundamentals of our business and the industry and formulating a plan. Accordingly, the expenses were reported in unallocated corporate expenses. This year the company has moved into the implementation phase and the ADVANTAGE expenses have been charged to the appropriate operating segment. The retail restructuring has resulted in the closing of 18 stores during the last four quarters which has reduced sales but has eliminated the losses of these underperforming corporate retail stores. This also has affected the comparison of operating results in the retail segment. 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 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------ Net sales 100.00% 100.00% 100.00% 100.00% Cost of sales (90.56) (90.77) (90.67) (91.04) Selling and administrative expenses (7.29) (7.27) (7.15) (6.86) Restructuring and other charges -- (6.24) -- (1.93) Interest expense (.80) (.83) (.85) (.79) Interest income .12 .14 .13 .15 - ------------------------------------------------------------------------------------------ Earnings before equity in earnings of ShopKo, and income taxes 1.47 (4.97) 1.46 (.47) Equity in earnings of ShopKo .12 .13 .06 .07 Provision for income taxes (.60) 1.65 (.59) .08 ShopKo deferred tax credit -- 1.04 -- .32 - ------------------------------------------------------------------------------------------ Net earnings .99% (2.15)% .93% --% - ------------------------------------------------------------------------------------------
-8- NET SALES Net sales decreased .6% and .3% compared with last year for the third quarter and year-to-date periods, respectively. Food price inflation, as measured by the company, was 1.6% and .8% for the quarter and year-to-date periods, respectively, compared with deflation of .4% and .7% for the same periods last year. Food distribution sales increased slightly over last year for the quarter but decreased 1.0% year-to-date. In both periods, sales were affected by competitive market conditions at the wholesale and retail levels and the continuing but diminishing effect of last year's facility consolidations. This effect was partially mitigated by the addition of new retail customers in food distribution. Sales were also affected by the closing of corporate retail stores under the restructuring plan announced in last year's third quarter. Retail food sales decreased 2.3% for the quarter yet increased 6.9% year-to- date. The sales decline was caused by the closing of underperforming corporate retail stores. Same-store sales increased 2.3% for the quarter and 1.2% year-to- date. The increase in sales year-to-date was the result of the acquisition of Hyper Shoppes, Inc. in August 1994 and the inclusion of its sales for 40 weeks this year compared with 13 weeks last year. The company also opened 4 stores in the quarter and 13 year-to-date.
Sales by Segment - ---------------------------------------------------------------------------------- (In thousands) Third Quarter (12 weeks) - ---------------------------------------------------------------------------------- December 2, 1995 December 3, 1994 Net Sales % of Total Net Sales % of Total - ---------------------------------------------------------------------------------- Food distribution $ 3,509,225 90.3 % $ 3,502,119 89.6 % Retail food 1,006,001 25.9 % 1,029,474 26.4 % Less: Eliminations (628,631) (16.2)% (623,399) (16.0)% - ---------------------------------------------------------------------------------- Total net sales $ 3,886,595 100.0% $ 3,908,194 100.0 % ================================================================================== Sales by Segment - ---------------------------------------------------------------------------------- (In thousands) Year-to-Date (40 weeks) - ---------------------------------------------------------------------------------- December 2, 1995 December 3, 1994 Net Sales % of Total Net Sales % of Total - ---------------------------------------------------------------------------------- Food distribution $11,317,590 89.6 % $11,437,020 90.2 % Retail food 3,275,281 25.9 % 3,064,648 24.2 % Less: Eliminations (1,953,842) (15.5)% (1,828,634) (14.4)% - ---------------------------------------------------------------------------------- Total net sales $12,639,029 100.0% $12,673,034 100.0 % ==================================================================================
-9- GROSS PROFIT Gross profit as a percentage of net sales increased to 9.4% and 9.3% for the quarter and year-to-date periods, respectively, compared with 9.2% and 9.0% for the same periods last year. The increase in the year-to-date percentage was principally caused by the growing proportion within the company's total sales mix of the higher-margined retail food business. The increase in the percentage for the quarter was due to favorable gross profit margins in both food distribution and retail food. Food distribution gross profit margin was positively impacted by favorable warehouse expense, primarily worker's compensation costs. However, this positive trend was partially offset by the competitive retail environment. The retail food gross profit margin increased for the quarter and year-to-date due to the closing of underperforming retail stores and the improved mix from higher gross margin items. SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses as a percentage of net sales were 7.3% and 7.2% for the quarter and year-to-date, respectively, compared with 7.3% and 6.9% for the same periods last year. The higher year-to-date percentage was primarily due to the increased proportion of the company's retail food segment which operates at a higher selling and administrative expense percentage than the food distribution segment. Pre-tax expenses of $4.9 and $15.6 million related to the ADVANTAGE project were incurred during the third quarter and year-to-date, respectively, compared with $3.2 and $9.9 million for the same periods last year. The ADVANTAGE expenses incurred relate to implementation costs associated under the project and other activities. These expenses include, but are not limited to, systems development, employee training, relocation, consultants costs and retailer training and promotional programs. Under ADVANTAGE the company has accomplished the following to date: substantially completed the construction of the Anniston, Alabama prototype "upstream" facility; tested its new pricing strategy, Activity Based Sell, which charges retailers on a cost-to-serve basis and is intended to encourage optimum economic behavior at both retail and wholesale; tested a new computerized promotional system; designated and begun staffing marketing regions; and initiated comprehensive business process redesign to support on-going cost reduction. 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, the restructuring and retraining of retail operations field staff has been completed and the company is beginning implementation of the new retail technology initiative. Food distribution selling and administrative expenses as a percent of net sales were higher than last year for the quarter, but lower year-to-date. The higher percentage in the quarter was the result of ADVANTAGE implementation expenses totaling $4.3 million charged to this segment. Last year ADVANTAGE expenses totaling $3.2 million represented the costs of studying the changing fundamentals of our business and the industry and developing a restructuring plan, and accordingly were reported in unallocated corporate expenses. Favorable insurance experience and cost reductions in other administrative areas positively impacted expenses in the quarter and year-to-date. -10- Retail food selling and administrative expenses as a percent of net sales were consistent with last year for the quarter, but higher year-to-date. The higher year-to-date percentage was due to increased advertising expense in response to competitive pressures and higher promotional activity associated with new store openings. Additionally, the company experienced higher supply costs for paper and packaging supplies. The increases in promotion, store opening and supply costs were partially offset by the elimination of underperforming retail stores which reduced expenses in the quarter and year-to-date. OPERATING EARNINGS The company's pre-tax operating earnings (earnings before interest, corporate expenses, equity in earnings of ShopKo Stores, Inc. ("ShopKo") and taxes) were $88.5 million in the third quarter compared with an operating loss of $146.9 million for last year. Year-to-date operating earnings increased to $294.7 million from $59.5 million last year. The increase in operating earnings was principally due to the restructuring and other charges recorded in the third quarter of last year. Excluding the restructuring and other charges, operating earnings increased 4.7% and 1.3% over last year for the quarter and year-to-date periods, respectively. Food distribution operating earnings, before the restructuring and other charges, decreased slightly to $79.7 million from $80.0 million and to $259.6 million from $263.3 million for the third quarter and year-to-date, respectively. Food distribution operating earnings were positively impacted by favorable insurance experience. This positive impact was offset by pre-tax expenses of $4.3 and $9.9 million for the third quarter and year-to-date, respectively, related to ADVANTAGE expenses charged to this segment versus none last year and slightly reduced gross margins due to the competitive environment. Retail food operating earnings, before the restructuring and other charges, increased to $8.7 million from $4.5 million and to $35.0 million from $27.6 million for the third quarter and year-to-date, respectively. Retail food operating earnings increased in the quarter and year-to-date due to the elimination of operating losses from the closing of underperforming corporate retail stores. Year-to-date retail food operating earnings also increased due to the August 1994 acquisition of Hyper Shoppes, Inc. INTEREST EXPENSE AND INCOME Interest expense decreased to $31.1 million for the third quarter compared with $32.6 million last year due to lower short-term debt levels, partially offset by higher short-term rates. Interest expense increased to $108.0 million year-to- date compared with $100.5 million for the same period last year, reflecting higher short-term interest rates. Interest income decreased to $4.8 and $16.3 million for the third quarter and year-to-date, respectively, compared with $5.5 and $18.9 million for the same periods last year. EQUITY IN EARNINGS OF SHOPKO SUPERVALU's share of ShopKo net earnings were $4.7 and $8.0 million in the third quarter and year-to-date, respectively, compared with $5.2 and $8.8 million for the same periods last year. As reported by ShopKo, sales increased 4.3% to $491.0 million and net earnings decreased 10.4% for the third quarter compared with last year. The decrease in net earnings was primarily the result of a lower gross margin -11- 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. Year-to-date 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, before the restructuring and other charges last year, increased to 37.61% and 38.79% in the third quarter and year-to-date, respectively, compared with 37.10% and 38.70% for the same periods last year. The increase in the effective tax rate was principally due to the decreased contribution from ShopKo. The year-to-date effective tax rate was also impacted by the increase in goodwill amortization. NET EARNINGS Net earnings were $38.4 for the third quarter compared with a net loss of $84.1 million for last year. Year-to-date net earnings increased to $117.7 million from $5 thousand last year. The increase in net earnings was related principally to last year's third quarter restructuring and other charges which was partially offset by a one-time tax credit related to the partial disposition of ShopKo. After adjusting last years' earnings to exclude these special items, net earnings increased 11.5% for the quarter and decreased .8% year-to-date. Net earnings were positively impacted by the closing of underperforming retail stores and favorable insurance experience. The decrease in the year-to-date net earnings was primarily due to higher net interest expense. In addition, increased expenses related to the ADVANTAGE project adversely impacted earnings for both the quarter and year-to-date. An additional $5 to $7 million after-tax is planned to be expended for ADVANTAGE related costs during the fourth quarter of fiscal 1996. The company is currently assessing the fiscal 1997 financial impact of the plan as a part of its annual budget and planning process. The company had anticipated a slight contribution from this project in fiscal 1997. Although ADVANTAGE initiatives are generating benefits, the company preliminarily anticipates spending under ADVANTAGE to exceed benefits through fiscal 1997 with a net contribution from this project in fiscal 1998. This is the result of the expansion and the acceleration in timing of certain ADVANTAGE programs which will drive expenses higher in fiscal 1997. 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 $225.7 million compared with $87.9 million last year, which was not affected by restructuring and other charges recorded 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 $186.4 million. -12- 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 2.5 million shares at a cost of approximately $67.8 million during the fiscal year and has purchased a total of 3.8 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 $34.5 million year- to-date. The company's budget for fiscal 1996 included $100 million to fund regional facilities, technology and various mechanization systems for the ADVANTAGE project. The company expects that the investment in the ADVANTAGE project will be funded principally by related reductions in inventory levels. SUPERVALU will continue to use short-term and long-term debt as a supplement to internally generated funds to finance its activities. The company has a $400 million "shelf registration" in effect of which $147.5 million of medium term notes were issued during the third quarter. Subsequent to the end of the third quarter, the company issued notes in the amount of $10 million under the shelf registration. The company also has in place a $400 million revolving credit agreement that expires in May, 2000. The company refinanced $300 million of debt due in November, 1995 by utilizing the shelf registration and $152.5 million of short-term commercial paper which has been classified as long-term debt as the company has the ability and intent to renew these obligations past 1996 and into future periods. Maturities of debt issued will depend on management's views with respect to the relative attractiveness of interest rates at the time of issuance. The company's financial position and long-term debt ratings 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: (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 December 2, 1995. (b) Reports on Form 8-K: As described in the Company's form 10-Q for the quarter ended September 9, 1995, a Form 8-K was filed on October 2, 1995. 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/ Jeffrey C. Girard ------------------------------------- Jeffrey C. Girard Executive Vice President and Chief Financial Officer (Principal Financial Officer and duly authorized officer of Registrant) By: /s/ Isaiah Harris ------------------------------------- Isaiah Harris Vice President & Controller (Chief Accounting Officer and duly authorized officer of Registrant) Date: January 16, 1996 -14- EX-15 2 LETTERS FROM DELOITTE & TOUCHE LLP EXHIBIT (15) to Quarterly Report on Form 10-Q Page 1 of 2 [DELOITTE & TOUCHE LLP LETTERHEAD] 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 2, 1995 and December 3, 1994, as indicated in our report dated January 11, 1996. 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 2, 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 January 11, 1996 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 December 2, 1995 and December 3, 1994 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 2, 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/ (Signature of DELOITTE & TOUCHE LLP) - ----------------------------------------- DELOITTE & TOUCHE LLP Minneapolis, Minnesota January 11, 1996 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets as of December 2, 1995 and the Consolidated Statement of Earnings for the 40 weeks ended December 2, 1995 and is qualified in its entirety by reference to such financial statements. 9-MOS FEB-24-1996 DEC-02-1995 5,396 0 445,010 (25,848) 1,179,209 1,728,901 2,479,923 (901,348) 4,338,669 1,505,037 1,454,167 75,335 0 5,908 1,113,998 4,338,669 12,639,029 12,639,029 11,460,135 11,460,135 0 1,938 107,966 192,245 74,571 117,674 0 0 0 117,674 1.72 1.72
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