<PAGE>
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 (16 weeks) ended June 14, 1997.
[ ] 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
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(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
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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 July 12, 1997 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 60,600,000
<PAGE>
PART I - FINANCIAL INFORMATION
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Item 1: Financial Statements
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CONSOLIDATED STATEMENTS OF EARNINGS
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
<TABLE>
<CAPTION>
First Quarter (16 Weeks) Ended
-------------------------------------
June 14, 1997 June 15, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 5,033,303 $ 4,978,761
Costs and expenses:
Cost of sales 4,532,174 4,499,348
Selling and administrative expenses 380,302 364,444
Amortization of goodwill 6,037 5,591
Interest
Interest expense 41,321 41,363
Interest income 5,118 5,027
-------------------------------------
Interest expense, net 36,203 36,336
-------------------------------------
Total costs and expenses 4,954,716 4,905,719
-------------------------------------
Earnings before equity in earnings
of ShopKo and income taxes 78,587 73,042
Equity in earnings of ShopKo 3,330 2,648
-------------------------------------
Earnings before income taxes 81,917 75,690
Provision for income taxes
Current 28,631 27,485
Deferred 3,520 2,223
-------------------------------------
Income tax expense 32,151 29,708
-------------------------------------
Net earnings $ 49,766 $ 45,982
=====================================
Net earnings per common share $ .74 $ .68
Weighted average number of common
shares outstanding 66,977 67,482
Dividends declared per common share $ .250 $ .245
Supplemental information:
After-tax LIFO income (expense) $ (405) $ 2,790
All data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
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SUPERVALU INC. and Subsidiaries First Quarter as of Fiscal Year End
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(In thousands) June 14, June 15, February 22,
Assets 1997 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 7,317 $ 5,082 $ 6,539
Receivables, less allowance for losses of $17,159 at
June 14, 1997, $18,694 at June 15, 1996 and
$17,806 at February 22, 1997 398,234 366,406 403,835
Inventories 1,121,396 1,083,672 1,091,805
Other current assets 94,419 125,485 98,620
-------------------------------------------------------------
Total current assets 1,621,366 1,580,645 1,600,799
Long-term notes receivable 63,658 54,494 45,588
Long-term investment in direct financing leases 88,090 71,287 84,350
Property, plant and equipment
Land 140,390 147,149 140,427
Buildings 940,612 934,301 957,815
Property under construction 24,435 37,413 28,030
Leasehold improvements 147,047 140,679 150,040
Equipment 1,130,134 1,023,569 1,113,486
Assets under capital leases 281,543 291,096 298,757
-------------------------------------------------------------
2,664,161 2,574,207 2,688,555
Less accumulated depreciation and amortization
Owned property, plant and equipment 1,003,269 894,167 983,229
Assets under capital leases 55,098 49,566 56,802
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Net property, plant and equipment 1,605,794 1,630,474 1,648,524
Investment in ShopKo 213,118 193,382 209,789
Goodwill 503,555 503,748 491,427
Other assets 214,148 245,277 202,849
-------------------------------------------------------------
Total assets $ 4,309,729 $ 4,279,307 $ 4,283,326
=============================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 150,541 $ 154,484 $ 134,272
Accounts payable 966,867 1,001,728 923,958
Accrued vacation, compensation and benefits 78,934 77,031 89,458
Current maturities of long-term debt 137,197 11,765 72,905
Current obligations under capital leases 21,763 20,990 21,544
Other current liabilities 104,906 92,718 126,941
-------------------------------------------------------------
Total current liabilities 1,460,208 1,358,716 1,369,078
Long-term debt 995,896 1,149,427 1,087,162
Long-term obligations under capital leases 322,222 315,030 333,429
Deferred income taxes 41,574 39,407 38,054
Other liabilities 141,701 169,142 148,180
Stockholders' equity
Preferred stock 5,908 5,908 5,908
Common stock 75,335 75,335 75,335
Capital in excess of par value 13,211 12,956 13,296
Retained earnings 1,477,889 1,366,470 1,444,755
Treasury stock, at cost (224,215) (213,084) (231,871)
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Total stockholders' equity 1,348,128 1,247,585 1,307,423
-------------------------------------------------------------
Total liabilities and stockholders' equity $ 4,309,729 $ 4,279,307 $ 4,283,326
=============================================================
Quarterly data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
<TABLE>
<CAPTION>
Capital in
Preferred Common Excess of Treasury Retained
Stock Stock Par Value Stock Earnings Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 24, 1996 $ 5,908 $ 75,335 $ 12,737 $ (214,746) $ 1,336,942 $ 1,216,176
Net earnings - - - - 175,044 175,044
Sales of common stock
under option plans - - 378 3,786 - 4,164
Cash dividends declared
on common stock -
$.995 per share - - - - (67,231) (67,231)
Compensation under employee
incentive plans - - 181 650 - 831
Purchase of shares for treasury - - - (21,561) - (21,561)
- ------------------------------------------------------------------------------------------------------------------------
Balances at February 22, 1997 5,908 75,335 13,296 (231,871) 1,444,755 1,307,423
Net earnings - - - - 49,766 49,766
Sales of common stock
under option plans - - (691) 5,028 - 4,337
Cash dividends declared
on common stock -
$.250 per share - - - - (16,632) (16,632)
Compensation under employee
incentive plans - - 606 5,913 - 6,519
Purchase of shares for treasury - - - (3,285) - (3,285)
- ------------------------------------------------------------------------------------------------------------------------
Balances at June 14, 1997 $ 5,908 $ 75,335 $ 13,211 $ (224,215) $ 1,477,889 $ 1,348,128
========================================================================================================================
Interim data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SUPERVALU INC. and Subsidiaries
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(In thousands)
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<TABLE>
<CAPTION>
Year-to-date
(16 weeks ended)
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June 14, June 15,
1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 49,766 $ 45,982
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in earnings of ShopKo (3,330) (2,648)
Dividends received from ShopKo - 3,241
Depreciation and amortization 69,444 68,542
Provision for losses on receivables 2,016 1,788
Gain on sale of property, plant and equipment (7,400) (1,020)
Deferred income taxes 3,520 2,223
Treasury shares contributed to employee incentive plan 117 68
Changes in assets and liabilities:
Receivables 663 13,983
Inventory (29,164) (50,525)
Other current assets 5,787 12,917
Direct finance leases 3,099 2,869
Accounts payable 45,181 34,387
Accrued vacation, compensation and benefits (10,524) (5,024)
Other liabilities (6,742) 22,345
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 122,433 149,128
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Cash flows from investing activities
Additions to long-term notes receivable (26,868) (20,487)
Proceeds received on long-term notes receivable 8,798 2,724
Proceeds from sale of property, plant and equipment 31,627 8,633
Purchase of property, plant and equipment (59,786) (66,225)
Business acquisitions, net of cash acquired (23,523) (4,996)
Other investing activities (14,999) (19,039)
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Net cash used in investing activities (84,751) (99,390)
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Cash flows from financing activities
Net decrease in checks outstanding, net of deposits (2,485) (5,558)
Net issuance (reduction) of short-term notes payable 16,269 (3,543)
Repayment of long-term debt (26,974) (3,294)
Reduction of obligations under capital leases (7,492) (7,114)
Proceeds from the sale of common stock under option plans 3,861 1,130
Dividends paid (16,798) (31,492)
Payments for purchase of treasury stock (3,285) -
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (36,904) (49,871)
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Net increase (decrease) in cash and cash equivalents 778 (133)
Cash and cash equivalents at beginning of year 6,539 5,215
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of first quarter $ 7,317 $ 5,082
================================================================================================================================
All data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
- -------------------
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1997 annual report of SUPERVALU INC.
("SUPERVALU" or the "company").
ShopKo Stores, Inc. Sale
- ------------------------
In April, the company announced that it planned to exit its 46 percent
investment in ShopKo through two simultaneous and cross-conditional
transactions: selling 8,174,387 shares back to ShopKo for an aggregate of $150
million and a secondary public offering of 6,557,280 shares. The transactions
were completed on July 2, 1997 resulting in proceeds of $305 million and a net
gain of $53.7 million. Proceeds were primarily used to repurchase shares of
SUPERVALU stock.
Treasury Stock Purchase Program
- -------------------------------
On June 11, 1997, the Board of Directors approved an additional treasury stock
purchase program authorizing the company to repurchase up to 8.5 million shares
in anticipation of the sale of its ShopKo holdings. The company did not
repurchase any shares under the plan in the first quarter but did repurchase 6.9
million shares in July in conjunction with the ShopKo stock sale. These shares
were purchased at a cost of $236.5 million. Six million of these shares were
purchased from a financial intermediary through an accelerated stock purchase
transaction, subject to a market price adjustment provision. In order to
complete the transaction, the financial intermediary has borrowed SUPERVALU
common shares and will be purchasing replacement shares in the open market.
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 June 14, 1997 and June
15, 1996 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.
6
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Results of Operations
- ---------------------
The company recorded record sales for the quarter and net earnings increased
8.2% in the quarter, driven by strong performance in the retail food segment.
The following table sets forth items from the company's Consolidated Statements
of Earnings as percentages of net sales:
<TABLE>
<CAPTION>
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First Quarter (16 weeks) Ended
- --------------------------------------------------------------------------------
Fiscal Fiscal
1998 1997
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<S> <C> <C>
Net sales 100.00% 100.00%
Cost of sales (90.04) (90.37)
Selling and administrative expenses (7.68) (7.43)
Interest expense (.82) (.83)
Interest income .10 .10
- --------------------------------------------------------------------------------
Earnings before equity in earnings of ShopKo,
and income taxes 1.56 1.47
Equity in earnings of ShopKo .07 .05
Provision for income taxes (.64) (.60)
- --------------------------------------------------------------------------------
Net earnings .99% .92%
- --------------------------------------------------------------------------------
</TABLE>
Net sales
Net sales for the first quarter of $5.0 billion were favorable compared to last
year. Sales were positively impacted by a 3.0% increase in retail food sales
and a 0.6% increase in food distribution sales. Retail food sales increased
over the first quarter of last year due to new store openings, offset somewhat
by the closing of underperforming stores and a decrease in same-store sales of
1.8%. The same-store sales decrease was due to a strike/lockout last year
affecting competitors in the Denver market and the ongoing competitive situation
in the Cincinnati market. Food distribution sales increased due to the addition
of new retail customers, the growth of Save-A-Lot and food price inflation, as
measured by the company, of 0.7%. This effect was partially mitigated by the
planned discontinuance of service to a major customer in the Southeast and
competitive market conditions at the wholesale and retail levels.
<TABLE>
<CAPTION>
Net Sales by Segment
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(In thousands) First Quarter (16 weeks)
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June 14, 1997 June 15, 1996
Net Sales % of Total Net Sales % of Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food distribution $4,446,880 88.3 % $4,418,911 88.8 %
Retail food 1,364,853 27.1 % 1,324,986 26.6 %
Less: Eliminations (778,430) (15.4)% (765,136) (15.4)%
- --------------------------------------------------------------------------------
Total net sales $5,033,303 100.0 % $4,978,761 100.0 %
- --------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Gross profit
Gross profit as a percentage of net sales increased to 9.9% in the first
quarter, compared with 9.6% in the first quarter of last year. The increase was
due principally to a strong retail gross profit margin resulting from an
increased gross profit margin at Cub Foods due to changed promotional practices.
The higher gross profit margin was also caused by an improved food distribution
gross profit margin impacted by merchandising initiatives, partially offset by
an adverse swing in LIFO compared to last year's first quarter. LIFO expense
was impacted by increases in coffee prices in the current year compared to LIFO
income in the prior year caused by a decrease in cereal prices. In addition,
the growing proportion within the company's total sales mix of the higher-
margined retail food business favorably impacted the gross profit percentage.
The retail food segment represented 27.1% of total sales in the first quarter of
fiscal 1998, compared with 26.6% in the first quarter of last year.
Selling and administrative expenses
Selling and administrative expenses were 7.7% of net sales for the quarter
compared with 7.4% in the first quarter last year. The higher percentage was
primarily due to an increase in food distribution selling and administrative
expenses and 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 higher than last year due to higher
technology related spending in support of the ADVANTAGE program and to make
systems Year 2000 compliant.
During the first quarter of fiscal 1998, the company achieved the following
under ADVANTAGE: completed testing and began installation of a new promotion
accounting system, completed reconfiguring two distribution centers in the
Southeast region with three more in process, began servicing customers in an
additional region from the National Customer Service Center in Denver, began
testing category management allowance programs which are planned for pilot late
in the second quarter, began category management service offerings in the
Southeast region and continued implementation of category management activities
across six of seven regions.
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 $123.0 million in the quarter from $116.5 million last year. Food
distribution operating earnings decreased 1.9% to $86.8 million due to higher
technology related spending in support of the ADVANTAGE program and an adverse
swing in LIFO for the quarter. Retail food operating earnings increased 29.0%
to $36.2 million in the quarter due to the strong gross margin as well as an
increase in sales.
8
<PAGE>
Interest expense and income
Interest expense decreased slightly to $41.3 million in the quarter, compared
with $41.4 million in the prior year. Interest income increased slightly to
$5.1 million in the first quarter, compared with $5.0 million in the prior year.
Equity in earnings of ShopKo
At the end of the first quarter, SUPERVALU's ownership in ShopKo was 46% and was
accounted for under the equity method. Equity in earnings of ShopKo increased
to $3.3 million in the first quarter from $2.6 million in the first quarter of
last year. As reported by ShopKo, sales increased 17.9% to $720.0 million and
net earnings increased 25.7% for the first quarter compared to last year. The
increase in net earnings was due to a strong retail store gross margin rate
caused by a shift in the sales mix away from lower gross margin promotional
sales.
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 for the first quarter was $122.4 million
compared with $149.1 million last year. The decrease was primarily due to the
timing of income tax payments. Cash provided from operations of $122.4 million
and proceeds from the sale of property plant and equipment of $31.6 million was
used to finance capital expenditures of $59.8 million, repay long-term debt of
$27.0 million, invest in long-term notes receivable of $26.9 million and finance
$23.5 million for the acquisition of Signature Breads.
In April, the company announced that it planned to exit its 46 percent
investment in ShopKo through two simultaneous and cross-conditional
transactions: selling 8,174,387 shares back to ShopKo for an aggregate of $150
million and a secondary public offering of 6,557,280 shares. On June 11, 1997,
the Board of Directors approved an additional treasury stock purchase program
authorizing the company to repurchase up to 8.5 million shares in anticipation
of the sale of its ShopKo holdings. The company did not repurchase any shares
under this plan in the quarter.
The two simultaneous and cross-conditional transactions were completed on July
2, 1997 resulting in a net gain of $53.7 million and cash proceeds of $305
million. The company used $236.5 million of proceeds from these transactions to
repurchase 6.9 million shares of its common stock. Six million of these shares
were from a financial intermediary through an accelerated stock purchase
transaction, subject to a market price adjustment provision. In order to
complete the transaction, the financial intermediary has borrowed SUPERVALU
common shares and will be purchasing replacement shares in the open market.
9
<PAGE>
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 pursuant to which the company could issue
$242.5 million of additional debt securities. A $400 million revolving credit
agreement also is in place and expires in May 2000. Short-term commercial paper
totaling $100 million has been classified as long-term debt as the company has
the ability and intent to renew these obligations past fiscal 1998 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 remain strong, with
long-term debt ratings of BBB+ from Standard and Poor's Ratings Group and Baa1
from Moody's Investors Services, Inc. The company's investment grade ratings,
the available credit facilities and internally-generated funds provide the
company with the financial flexibility to meet liquidity needs.
Cautionary statements for purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
The information in this 10Q includes forward-looking statements. Important
risks and uncertainties that could cause actual results to differ materially
from those discussed in such forward looking statements are detailed in Exhibit
99.1; other risks or uncertainties may be detailed from time to time in the
company's future Securities and Exchange Commission filings.
10
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ---------------------------------------------------
The Registrant held its Annual Meeting of Stockholders on June 26,
1997 at which the stockholders took the following actions:
(a) elected Lawrence A. Del Santo, William A. Hodder and Harriet
Perlmutter to the Board of Directors for terms expiring in 2000.
The votes cast for and withheld with respect to each such
Director was as follows:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Lawrence A. Del Santo 55,761,191 1,072,906
William A. Hodder 55,586,644 1,247,453
Harriet Perlmutter 55,586,695 1,247,402
</TABLE>
The Directors whose terms continued after the meeting are as
follows: Herman Cain, Stephen I. D'Agostino, Edwin C. Gage,
Garnett L, Keith, Jr., Richard L. Knowlton, Charles M. Lillis,
Carol St. Mark and Michael Wright.
(b) ratified, by a vote of 56,624,356 for, 77,038 against, and
132,703 abstaining, the appointment of Deloitte & Touche LLP as
the independent auditors of Registrant for the fiscal year ending
February 27, 1998.
(c) approved by a vote of 54,304,322 for, 2,082,932 against, and
446,843 abstaining, the adoption of certain amendments to the
SUPERVALU INC. 1993 Stock Plan.
(d) approved by a vote of 54,704,548 for, 1,681,880 against, and
447,669 abstaining, the adoption of certain amendments to the
SUPERVALU INC. 1983 Employee Stock Option Plan.
(e) approved by a vote of 54,751,968 for, 1,659,237 against, and
422,892 abstaining, the adoption of certain amendments to the
SUPERVALU INC. Long Term Incentive Plan.
(f) approved by a vote of 33,566,493 for, 17,346,328 against, and
718,270 abstaining, the adoption of the shareholder proposal
relating to the Company's Preferred Share Purchase Rights Plan.
11
<PAGE>
<TABLE>
<CAPTION>
Item 6. Exhibits and Reports on Form 8-K.
- ------- ---------------------------------
<S> <C>
(a) Exhibits filed with this Form 10-Q:
(10)a. Separation Agreement and General Release dated February 26,
1997 between Laurence Anderson and SUPERVALU INC.
(15) Letters from Deloitte & Touche regarding unaudited interim
financial information.
(27) Financial Data Schedule.
(99.1) Cautionary Statements pursuant to the Securities Litigation
Reform Act.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
</TABLE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERVALU INC. (Registrant)
Dated: July 29, 1997 By: /s/ Kim M. Erickson
------------------------
Kim M. Erickson
Senior Vice President, Finance
(Authorized officer of Registrant)
12
<PAGE>
EXHIBIT (10)a.
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Separation Agreement and General Release ("Agreement") is entered into
by and between Laurence Anderson ("Anderson") and SUPERVALU INC. ("SUPERVALU").
WHEREAS, Anderson's duties with SUPERVALU as Executive Vice President will
terminate upon his retirement at the close of business March 2, 1997; and
WHEREAS, Anderson and SUPERVALU desire to fully and finally settle all
issues, differences and actual and potential claims between them, including, but
in no way limited to, any claim that might arise out of Anderson's employment
with SUPERVALU and the termination thereof;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
Anderson and SUPERVALU agree as follows:
1. Anderson represents, understands and agrees that his duties with
SUPERVALU will terminate upon the close of business March 2, 1997, except that
Anderson agrees to complete certain projects to which he and SUPERVALU's Chief
Executive Officer have agreed.
2. SUPERVALU agrees to provide Anderson the following payments and
benefits:
(a) SUPERVALU will continue to pay on its normal pay days Anderson's
current gross salary of $420,000 per year, less all customary
SUPERVALU deductions, and will continue to provide Anderson with his
customary SUPERVALU benefits (except for qualified retirement and
qualified employee insurance plans) and bonus at norm eligibility, for
a period of six months commencing on March 2, 1997.
(b) SUPERVALU will continue to pay on its normal pay days Anderson's
current gross salary of $420,000 per year, less all customary
SUPERVALU deductions, and will continue to provide Anderson with his
customary SUPERVALU benefits (except for qualified retirement and
qualified employee insurance plans) and bonus at norm eligibility, for
an additional period of six months thereafter, on the condition that
Anderson does not, within the continental United States, directly or
indirectly, own, manage, operate, join, control, be employed by or
participate in ownership, management, operation or control of, or be
connected in any manner with any business that competes with SUPERVALU
in any products which are developed (or in the process of
development), sold, licensed or marketed by SUPERVALU, or services
which are performed, at the time of separation from employment. If
Anderson should so compete with SUPERVALU, his right to this
additional period of salary and benefits shall cease immediately. It
is understood that ownership
1
<PAGE>
by Anderson of less than 1% of any publicly-held company, any
investment by Anderson of less than $100,000 in any privately-owned
company, or any activity by Anderson as a SUPERVALU licensee, shall
not be deemed an act of competition.
(c) SUPERVALU agrees to pay Anderson a lump sum of his earned vacation of
30 days, plus 30 days of banked vacation, for a total of 60 days, less
all customary SUPERVALU deductions, twenty days following Anderson's
execution of this Agreement.
(d) SUPERVALU agrees that Anderson shall remain eligible for benefits
under SUPERVALU's Executive Long Term Incentive Plan and an annual
bonus relating to the fiscal year ending February 22, 1997.
(e) SUPERVALU will bear the cost of Anderson's Mayo Clinic physical
examination, to be taken in March 1997.
(f) Anderson shall be entitled to the payout of half of his SUPERVALU
restricted stock (5000 shares) on or about August 23, 1997.
(g) Anderson shall be entitled to the payout of his remaining SUPERVALU
restricted stock (5000 shares) at the end of SUPERVALU's 1998 fiscal
year.
(h) All of Anderson's stock options (including price vesting options)
previously granted to Anderson shall be fully vested as of the date of
this Agreement. The term of all such options shall be amended to
provide that each option may be exercised no later than February 22,
2000, provided that no option may be exercised after its expiration
date as specified in the applicable option agreement. All SUPERVALU
price vesting options previously granted to Anderson are hereby
amended to provide that such options shall be fully exercisable from
the date of this Agreement up to and including February 22, 2000,
provided that the price vesting requirements as defined in paragraph 3
(ii) of the price vesting option agreement shall have been satisfied
prior to such exercise.
Notwithstanding the foregoing:
(i) if Anderson should compete with SUPERVALU as described in (P) 2
(b) of this Agreement, any right to exercise options will
terminate 30 days after Anderson begins such acts of competition;
and
(ii) if Anderson should divulge any material proprietary or
confidential information or trade secrets as described in
paragraph 3 (a) of this Agreement, or make any disparaging
statement which has any material adverse impact on SUPERVALU as
described in paragraph 10 of this Agreement:
2
<PAGE>
(A) any right to exercise options granted before 1993 will
terminate 30 days after such action by Anderson; and
(B) any right to exercise options granted in 1993 or thereafter
will terminate immediately upon such action by Anderson.
(i) SUPERVALU agrees to bear the cost of Anderson's financial planning, up
to a maximum of $8,000.
(j) SUPERVALU agrees to pay Anderson $6,000 for miscellaneous benefit
expenses on February 22, 1997.
(k) All other items of compensation not mentioned in subparagraphs 2(a)
through 2(j) above have been resolved, and Anderson shall have no
further claim to any other items of compensation or benefits.
(l) Anderson agrees that he was not entitled to all of the payments and
benefits outlined in this paragraph 2 as a result of his employment
with SUPERVALU, but that the payments and benefits are being provided
as consideration for his acceptance and execution of this Agreement.
3. As an essential inducement to SUPERVALU to enter into this Agreement,
and as consideration for the foregoing promises of SUPERVALU, Anderson agrees as
follows:
(a) Anderson confirms and agrees that he shall not at any time divulge to
others or use for his own benefit any proprietary or confidential
information or trade secrets of SUPERVALU obtained during the course
of his employment with SUPERVALU relating to sales, specific business
units, strategies, proposed or potential acquisitions, products,
customers, accounts, clients, technologies, formulas, ideas,
improvements, or inventions belonging to or relating to SUPERVALU, its
clients, its subsidiaries, affiliates, successors or associated
companies. Anderson acknowledges that in the event he divulges any
material proprietary or confidential information or trade secrets,
SUPERVALU shall have no further obligation to make any of the payments
set forth in paragraph 2(b) or 2(g) above. It is understood that this
restriction would not apply to the extent that Anderson were to
conduct business with SUPERVALU as one of its licensees.
(b) By this Agreement, Anderson and SUPERVALU intend to settle any and all
claims which Anderson has or may have against SUPERVALU as a result of
Anderson's employment with SUPERVALU and/or the cessation of
Anderson's employment with SUPERVALU. For the consideration expressed
herein, Anderson hereby releases and discharges SUPERVALU, its
officers, employees, agents, assigns, insurers, representatives,
counsel, administrators, successors, shareholders, and/or directors
from all liability for damages or claims of any kind and agrees not to
institute any claim for damages or otherwise, by charge or otherwise,
nor authorize any other party,
3
<PAGE>
governmental or otherwise, to institute any claim via administrative
or legal proceedings against SUPERVALU for any such claims including,
but not limited to, any claims arising under or based upon the
Minnesota Human Rights Act, Minn. Stat. (S)(S) 363.01 et seq.; Title
-- ---
VII of the Civil Rights Act, 42 U.S.C. (S)(S) 2000e et seq.; the Age
-- ---
Discrimination in Employment Act, 29 U.S.C. (S)(S) 621 et seq.; or the
-- ---
Americans With Disabilities Act, 42 U.S.C. (S)(S) 12101 et seq.; and
-- ---
any contract, quasi contract, or tort claims, whether developed or
undeveloped, arising from or related to Anderson's employment with
SUPERVALU, and/or the cessation of Anderson's employment with
SUPERVALU. Anderson and SUPERVALU agree that, by signing this
Agreement, Anderson does not waive any claims arising after the
execution of this Agreement.
4. Anderson has been informed of his right to rescind this Agreement as
far as it extends to potential claims under Minn. Stat. (S)(S) 363.01 et seq.
-- ---
(prohibiting discrimination in employment) by written notice to SUPERVALU within
fifteen (15) calendar days following his execution of this Agreement. To be
effective, such written notice must either be delivered by hand or sent by
certified mail, return receipt requested, addressed to Mr. Ronald Tortelli,
SUPERVALU INC., P. O. Box 990, Minneapolis, Minnesota 55440, delivered or post-
marked within such fifteen (15) day period. Anderson understands that SUPERVALU
will have no obligations under this Agreement in the event such notice is timely
delivered and any payments made as of that date by SUPERVALU pursuant to
paragraph 2, above, shall be immediately repaid by Anderson to SUPERVALU.
5. Anderson has been informed of his right to revoke this Agreement as
far as it extends to potential claims under the Age Discrimination in Employment
Act, 29 U.S.C. (S)(S) 621 et seq. by informing SUPERVALU of his intent to revoke
-- ---
this Agreement within seven (7) calendar days following his execution of this
Agreement. Anderson understands that SUPERVALU will have no obligations under
this Agreement in the event such notice is timely delivered and any payments
made as of that date by SUPERVALU pursuant to paragraph 2, above, shall be
immediately repaid by Anderson to SUPERVALU.
6. Anderson has also been informed that the terms of this Agreement shall
be open for acceptance by him for a period of twenty-one (21) days during which
time he may consider whether to accept this Agreement.
7. The terms of this Agreement shall remain strictly confidential between
the parties hereto, and shall not be disclosed to third persons unless required
by law.
8. Anderson understands and agrees that effective March 2, 1997, he is no
longer authorized to incur any expenses or obligations or liabilities on behalf
of SUPERVALU unless authorized in advance by SUPERVALU's CEO.
9. Anderson represents that he has no property of SUPERVALU in his
possession or control, other than that required to carry out specific
assignments to their completion.
4
<PAGE>
10. Anderson agrees that he will refrain from making any statements,
whether written or oral, which are disparaging of SUPERVALU, its directors,
officers, employees, agents, or representatives. Anderson acknowledges that in
the event he makes any disparaging statements which have any material adverse
impact on SUPERVALU, SUPERVALU shall have no further obligation to make any of
the payments set forth in paragraph 2(b) or 2(g) above. SUPERVALU will provide
Anderson with ten days' written notice of its intent to terminate payments
pursuant to this paragraph. Anderson may, within that ten day period, advise
SUPERVALU of any information suggesting that he has not violated the terms of
this paragraph, provided that the ultimate determination as to whether Anderson
shall be entitled to continued salary and benefits shall be within the sole
discretion of SUPERVALU. SUPERVALU agrees that its officers and directors will
refrain from making any statements, whether written or oral, which are
disparaging of Anderson.
11. Anderson agrees that he will be available upon reasonable notice to
participate in the defense of any pertinent claims or litigation that may be
brought against SUPERVALU. SUPERVALU agrees that it will indemnify Anderson
with respect to such claims or litigation to the same extent that it is required
or permitted to indemnify its current officers.
12. Anderson will be entitled to request a prospective consent from
SUPERVALU with respect to any activity in which he proposes to engage, in order
to confirm that any such activity will not be deemed to violate paragraphs 2(b),
3(a), and/or 10 of this Agreement. Any such request shall be directed to Mr.
Ronald Tortelli, SUPERVALU INC., P. O. Box 990, Minneapolis, Minnesota 55440.
SUPERVALU will respond to any such request within ten days after its receipt.
13. Any dispute between the parties as to the interpretation or
application of paragraphs 2(b), 2(h), 3(a), and/or 10 of this Agreement shall be
resolved by binding arbitration before the American Arbitration Association in
Minneapolis, Minnesota, in accordance with that Association's rules for
commercial arbitration.
14. This Agreement shall not in any way be construed as an admission by
SUPERVALU that it has acted wrongfully with respect to Anderson or any other
person, or that Anderson has any rights whatsoever against SUPERVALU. SUPERVALU
specifically disclaims any liability to, or wrongful acts against, Anderson or
any other person, on the part of itself, its directors, its officers, its
employees, its representatives or its agents.
15. This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof. Anderson hereby affirms that his rights
to payments or benefits from SUPERVALU are specified exclusively and completely
in this Agreement. Any modification of, or addition to, this Agreement must be
in writing, signed by SUPERVALU and Anderson.
16. This Agreement is personal to Anderson and may not be assigned by
Anderson without the written agreement of SUPERVALU. All payments provided
herein to or for the benefit of Anderson and the maintenance of coverages as
herein provided, shall be made to his estate and for the benefit of his
dependents, heirs and beneficiaries in the event of his death prior to the
receipt thereof.
5
<PAGE>
17. This Agreement constitutes a contract enforceable against either party
and shall be construed and enforced in accordance with the laws of the State of
Minnesota. Nothing contained in this Agreement is intended to violate any
applicable law. If any part of this Agreement is construed to be in violation
of a state and/or federal law, then that part shall be null and void, but the
balance of the provisions of this Agreement shall remain in full force and
effect.
18. Anderson hereby affirms and acknowledges that he has read the
foregoing Agreement and that he has been advised to consult with an attorney
prior to signing this Agreement. Anderson agrees that the provisions set forth
in this Agreement are written in language understandable to him and further
affirms that he understands the meaning of the terms of this Agreement and their
effect. Anderson represents that he enters into this Agreement freely and
voluntarily.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
signatures below.
Dated: February 26, 1997 /s/ Laurence L. Anderson
------------------- ---------------------------------------
Laurence Anderson
Subscribed and sworn to before me
this 26th day of February, 1997.
/s/ Connie L. Mead
- -----------------------------
Notary Public
Dated: February 26, 1997 SUPERVALU INC.
-------------------
By /s/ Michael Wright
-------------------------------------
Its CEO
----------------------------------
Subscribed and sworn to before me
this 26th day of February, 1997.
/s/ Connie L. Mead
- -----------------------------
Notary Public
6
<PAGE>
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 June 14, 1997 and June
15, 1996, as indicated in our report dated July 25, 1997. Because we did not
perform an audit on such information, we expressed no opinion on it in our
report.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 14, 1997, is
incorporated by reference in the Registration Statements (No. 33-28310, No.
33-16934, No. 2-56896, No. 33-50071, No. 333-10151, and No. 333-24813 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 within the meaning of Sections
7 and 11 of that act.
/s/ Deloitte & Touche LLP
July 25, 1997
<PAGE>
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 June 14, 1997 and June 15, 1996 and the
related consolidated statements of earnings and cash flows for the 16-week
period then ended and the consolidated statement of stockholders' equity for the
interim period ended June 14, 1997. 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 22, 1997 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 3, 1997 (April 25, 1997 as to the
Investment in Shopko Note), 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 22, 1997 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
July 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 14, 1997 AND THE CONSOLIDATED STATEMENT
OF EARNINGS FOR THE 16 WEEKS ENDED JUNE 14, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> JUN-14-1997
<CASH> 7,317
<SECURITIES> 0
<RECEIVABLES> 415,393
<ALLOWANCES> (17,159)
<INVENTORY> 1,121,396
<CURRENT-ASSETS> 1,621,366
<PP&E> 2,664,161
<DEPRECIATION> (1,058,367)
<TOTAL-ASSETS> 4,309,729
<CURRENT-LIABILITIES> 1,406,208
<BONDS> 1,318,118
0
5,908
<COMMON> 75,335
<OTHER-SE> 1,266,855
<TOTAL-LIABILITY-AND-EQUITY> 4,309,729
<SALES> 5,033,303
<TOTAL-REVENUES> 5,033,303
<CGS> 4,532,174
<TOTAL-COSTS> 4,532,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,016
<INTEREST-EXPENSE> 41,321
<INCOME-PRETAX> 81,917
<INCOME-TAX> 32,151
<INCOME-CONTINUING> 49,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,766
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
<PAGE>
EXHIBIT (99.1)
Cautionary Statements for Purposes of the Safe Harbor Provisions
of the Securities Litigation Reform Act
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 ("Act"), SUPERVALU INC. (the "Company") is filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in forward-
looking statements made by, or on behalf of the Company. When used in this
Quarterly Report on Form 10-Q for the quarterly period (16 weeks) ended June 14,
1997 and in future filings by the Company with the Securities and Exchange
Commission, in the Company's press releases, other communications, and in oral
statements made by or with the approval of an authorized executive officer, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify forward-looking statements within the meaning of the Act.
The following cautionary statements are for use as a reference to a readily
available written document in connection with forward looking statements as
defined in the Act. These factors are in addition to any other cautionary
statements, written or oral, which may be made or referred to in connection with
any such forward-looking statement.
Wholesale Business Risks
The Company's sales and earnings at wholesale are dependent on the Company's
ability to retain existing customers and attract new customers, as well as its
ability to control costs. While the Company believes that the ADVANTAGE
initiative, including its new Activity Based Sell ("ABS") pricing, new market
driving services, and regional logistics, will enable it to attain its goals,
certain factors could adversely impact the Company's results, including: decline
of its independent retailer customer base due to competition and other factors;
loss of corporate retail sales due to increased competition and other risks
detailed more fully below; consolidations of retailers or competitors; increased
self-distribution by chain retailers; increase in operating costs; the
possibility that the Company will incur additional costs and expenses due to
further rationalization or consolidation of distribution centers; entry of new
or non-traditional distribution systems into the industry; possible delays or
increased costs in implementing the ADVANTAGE initiative; manufacturers do not
change their pricing, transportation, and/or promotional programs in cooperation
with the Company's new pricing methods; and possible loss of retailer customers
who do not accept the ADVANTAGE changes. In addition, timing of certain
ADVANTAGE efforts could be impacted by the information technology related
expenses associated with addressing year 2000 issues.
Risks of Expansion and Acquisitions
The Company intends to continue to grow its retail and wholesale segments in
part through acquisitions. Expansion is subject to a number of risks, including
the adequacy of the Company's capital resources; the location of suitable store
or distribution center sites and the negotiation of acceptable lease terms;
ability to hire, train and integrate employees; and possible costs and other
risks of integrating or adapting operational systems. In addition,
1
<PAGE>
acquisitions involve a number of special risks, including: making acquisitions
at acceptable rates of return; the diversion of management's attention to
assimilation of the operations and personnel of the acquired business; potential
adverse short-term effects on the Company's operating results; and amortization
of acquired intangible assets.
Retail Business Risks
The Company's retail segment faces risks which may prevent the Company from
maintaining or increasing retail sales and earnings including: competition from
other retail chains, supercenters, non-traditional competitors, and emerging
alternative formats; operating risks of certain strategically important retail
operations; and adverse impact from the entry of other retail chains,
supercenters and non-traditional or emerging competitors into markets where the
Company has a retail concentration.
Liquidity
Management expects that the Company will continue to replenish operating assets
and reduce aggregate debt with internally generated funds and capital leases
unless additional funds are necessary to complete acquisitions. If capital
spending significantly exceeds anticipated capital needs, additional funding
could be required from other sources. In addition, acquisitions could affect
the Company's borrowing costs and future financial flexibility.
Litigation
While the Company believes that it is currently not subject to any material
litigation, the costs and other effects of legal and administrative cases and
proceedings and settlements are impossible to predict with certainty. The
current environment for litigation involving food wholesalers may increase the
risk of litigation being commenced against the Company. The Company would incur
the costs of defending any such litigation whether or not any claim had merit.
The foregoing should not be construed as exhaustive and the Company disclaims
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
2
