<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 (12 weeks) ended November 30, 1996.
[ ] 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
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(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
- --------------------------------------------------------------------------------
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
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The number of shares outstanding of each of the issuer's classes of Common Stock
as of November 30, 1996 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 66,917,997
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<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------
(In thousands, except per share data)
Third Quarter (12 Weeks) Ended
---------------------------------------
November 30, 1996 December 2, 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 3,904,841 $ 3,886,595
Costs and expenses:
Cost of sales 3,519,631 3,519,750
Selling and administrative expenses 291,940 279,502
Amortization of goodwill 4,488 4,060
Interest
Interest expense 32,523 31,076
Interest income 3,233 4,750
------------------------------------
Interest expense, net 29,290 26,326
------------------------------------
Total costs and expenses 3,845,349 3,829,638
------------------------------------
Earnings before equity in earnings
of ShopKo and income taxes 59,492 56,957
Equity in earnings of ShopKo 5,023 4,661
------------------------------------
Earnings before income taxes 64,515 61,618
Provision for income taxes
Current 22,624 5,333
Deferred 1,674 17,840
------------------------------------
Income tax expense 24,298 23,173
------------------------------------
Net earnings $ 40,217 $ 38,445
====================================
Net earnings per common share $ .60 $ .57
Weighted average number of common
shares outstanding 67,110 67,841
Dividends declared per common share $ .250 $ .245
Supplemental information:
After-tax LIFO expense $ (3,300) $ (2,897)
All data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
2
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<TABLE>
<CAPTION>
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)
Year-to-date (40 Weeks) Ended
--------------------------------------
November 30, 1996 December 2, 1995
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<S> <C> <C>
Net sales $ 12,662,347 $ 12,639,029
Costs and expenses:
Cost of sales 11,417,484 11,460,135
Selling and administrative expenses 948,000 889,448
Amortization of goodwill 14,272 13,570
Interest
Interest expense 105,057 107,966
Interest income 11,861 16,345
------------------------------------
Interest expense, net 93,196 91,621
------------------------------------
Total costs and expenses 12,472,952 12,454,774
------------------------------------
Earnings before equity in earnings
of ShopKo and income taxes 189,395 184,255
Equity in earnings of ShopKo 9,469 7,990
-----------------------------------
Earnings before income taxes 198,864 192,245
Provision for income taxes
Current 68,401 36,599
Deferred 8,400 37,972
-----------------------------------
Income tax expense 76,801 74,571
-----------------------------------
Net earnings $ 122,063 $ 117,674
===================================
Net earnings per common share $ 1.81 $ 1.72
Weighted average number of common
shares outstanding 67,366 68,509
Dividends declared per common share $ .745 $ .725
Supplemental information:
After-tax LIFO expense $ (1,630) $ (5,214)
All data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
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SUPERVALU INC. and Subsidiaries Third Quarter as of Fiscal Year End
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(In thousands) November 30, December 2, February 24,
Assets 1996 1995 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $ 7,134 $ 5,396 $ 5,215
Receivables, less allowance for losses of $17,554 at
November 30, 1996, $25,848 at December 2, 1995, and
$22,064 at February 24, 1996 440,422 419,162 380,611
Inventories 1,285,973 1,179,209 1,029,911
Other current assets 126,973 125,134 137,972
---------------------------------------------
Total current assets 1,860,502 1,728,901 1,553,709
Long-term notes receivable 56,719 67,816 36,731
Long-term investment in direct financing leases 70,672 71,460 74,185
Property, plant and equipment
Land 143,438 163,046 146,535
Buildings 960,780 921,502 903,621
Property under construction 21,841 58,747 53,775
Leasehold improvements 148,009 135,097 137,551
Equipment 1,072,010 982,428 988,963
Assets under capital leases 303,614 219,103 270,549
---------------------------------------------
2,649,692 2,479,923 2,500,994
Less accumulated depreciation and amortization
Owned property, plant and equipment 958,874 859,230 855,429
Assets under capital leases 55,211 42,118 45,399
---------------------------------------------
Net property, plant and equipment 1,635,607 1,578,575 1,600,166
Investment in ShopKo 198,582 185,967 193,975
Goodwill 495,528 503,689 499,688
Other assets 248,589 202,261 225,049
---------------------------------------------
Total assets $4,566,199 $4,338,669 $4,183,503
=============================================
Liabilities and Stockholders' Equity
- ----------------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 291,095 $ 239,125 $ 158,027
Accounts payable 1,071,508 1,061,845 965,444
Current maturities of long-term debt 62,941 10,181 8,483
Current obligations under capital leases 21,313 18,030 17,955
Other current liabilities 203,772 175,856 176,793
---------------------------------------------
Total current liabilities 1,650,629 1,505,037 1,326,702
Long-term debt 1,099,130 1,202,572 1,144,600
Long-term obligations under capital leases 322,543 251,595 300,962
Deferred income taxes 56,201 - 37,076
Other liabilities 165,671 184,224 157,987
Stockholders' equity
Preferred stock 5,908 5,908 5,908
Common stock 75,335 75,335 75,335
Capital in excess of par value 13,010 12,704 12,737
Retained earnings 1,408,715 1,304,853 1,336,942
Treasury stock, at cost (230,943) (203,559) (214,746)
---------------------------------------------
Total stockholders' equity 1,272,025 1,195,241 1,216,176
---------------------------------------------
Total liabilities and stockholders' equity $4,566,199 $4,338,669 $4,183,503
=============================================
Quarterly data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
4
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
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 25, 1995 $5,908 $75,335 $12,717 $(137,245) $1,236,507 $1,193,222
Net earnings - - - - 166,433 166,433
Sales of common stock
under option plans - - (84) 3,458 - 3,374
Cash dividends declared
on common stock -
$.970 per share - - - - (65,998) (65,998)
Compensation under employee
incentive plans - - 104 (869) - (765)
Purchase of shares for treasury - - - (80,090) - (80,090)
- --------------------------------------------------------------------------------------------------
Balances at February 24, 1996 5,908 75,335 12,737 (214,746) 1,336,942 1,216,176
Net earnings - - - - 122,063 122,063
Sales of common stock
under option plans - - 159 2,322 - 2,481
Cash dividends declared
on common stock -
$.745 per share - - - - (50,290) (50,290)
Compensation under employee
incentive plans - - 114 326 - 440
Purchase of shares for treasury - - - (18,845) - (18,845)
- --------------------------------------------------------------------------------------------------
Balances at November 30, 1996 $5,908 $75,335 $13,010 $(230,943) $1,408,715 $1,272,025
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
Interim data subject to year-end audit.
5
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
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SUPERVALU INC. and Subsidiaries
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(In thousands)
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Year-to-date
(40 weeks ended)
- ---------------------------------------------------------------------------------------------------------------------------------
November 30, December 2,
1996 1995
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<S> <C> <C>
Cash flows from operating activities
Net earnings $ 122,063 $ 117,674
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Equity in earnings of ShopKo (9,469) (7,990)
Dividends received from ShopKo 4,862 4,862
Depreciation and amortization 176,906 168,097
Provision for losses on receivables 6,138 1,938
Gain on sale of property, plant and equipment (1,410) (13,322)
Deferred income taxes 8,400 37,972
Treasury shares contributed to employee incentive plan 23 (64)
Changes in assets and liabilities:
Receivables (64,383 (37,642)
Inventory (252,826) (69,418)
Other current assets 21,226 (3,176)
Direct finance leases 7,244 6,451
Accounts payable 102,639 54,855
Other liabilities 29,037 (34,545)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 150,450 225,692
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Additions to long-term notes receivable (41,209) (23,488)
Payments received on long-term notes receivable 21,221 28,766
Proceeds from sale of property, plant and equipment 39,171 88,255
Purchase of property, plant and equipment (177,237) (186,366)
Business acquisitions, net of cash acquired (4,996) -
Other investing activities (31,777) (3,432)
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Net cash used in investing activities (194,827) (96,265)
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Cash flows from financing activities
Net issuance of short-term notes payable 133,068 12,957
Proceeds from issuance of long-term debt 3,193 147,500
Repayment of long-term debt (5,608) (159,208)
Reduction of obligations under capital leases (17,562) (14,280)
Proceeds for purchase of common stock under option plans 2,159 1,431
Dividends paid (50,109) (49,449)
Payments for purchase of treasury stock (18,845) (67,821)
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Net cash provided by (used in) financing activities 46,296 (128,870)
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Net increase in cash and cash equivalents 1,919 557
Cash and cash equivalents at beginning of year 5,215 4,839
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of third quarter $ 7,134 $ 5,396
==================================================================================================================================
All data subject to year-end audit. See notes to consolidated financial statements.
</TABLE>
6
<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 1996 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 1997, the company utilized
approximately $10 million of the reserve primarily for losses on disposition of
property and carrying costs in both the food distribution and retail food
segments as well as employee separation costs. Losses on disposition of property
included the disposal of land and building for previously closed retail stores.
ShopKo Stores, Inc. Sale
- ------------------------
On September 9, 1996 the company announced that it had agreed to sell its 14.7
million shares of ShopKo Stores, Inc. under an agreement to combine ShopKo and
Phar-Mor, Inc. under a holding company, Cabot Noble, Inc. Under the terms of the
agreement, the company will receive approximately $223 million in cash and
approximately $25 million in common stock, which represents approximately a 6
percent interest in Cabot Noble. The company expects to realize a gain on the
transaction which is expected to close late in the fourth quarter, fiscal 1997,
or early in the first quarter, fiscal 1998.
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 November 30, 1996 and
December 2, 1995 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
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
- ---------------------
Net earnings increased 5% in the quarter, driven by strong performance in the
retail food segment. Net sales were even with last year as the company continued
significant focus and investment in ADVANTAGE related activities. 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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Third Quarter Year-to-Date
(12 weeks) Ended (40 weeks) Ended
- ---------------------------------------------------------------------------------------------
Fiscal Fiscal Fiscal Fiscal
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 100.00%
Cost of sales (90.14) (90.56) (90.17) (90.67)
Selling and administrative expenses (7.59) (7.29) (7.60) (7.15)
Interest expense (.83) (.80) (.83) (.85)
Interest income .08 .12 .10 .13
- ---------------------------------------------------------------------------------------------
Earnings before equity in earnings of ShopKo,
and income taxes 1.52 1.47 1.50 1.46
Equity in earnings of ShopKo .13 .12 .07 .06
Provision for income taxes (.62) (.60) (.61) (.59)
- ---------------------------------------------------------------------------------------------
Net earnings 1.03% .99% .96% .93%
=============================================================================================
</TABLE>
NET SALES
Net sales were even with last year for the quarter and year-to-date. Retail food
sales increased 7.8% and 6.7% for the quarter and year-to-date, respectively,
offset by a 1.0% decline in food distribution segment sales for both the quarter
and year-to-date.
Food distribution sales decreased slightly due to competitive market conditions
at the wholesale and retail levels, the planned discontinuance of service to a
major customer in the Southeast and the continuing impact of the liquidation of
a major customer in the Northeast. This effect was partially mitigated by the
addition of new retail customers in food distribution and the growth of Save-A-
Lot limited assortment stores. Save-A-Lot acquired 21 limited assortment stores
and a distribution facility during the quarter, marking its entry into the
California market. Food price inflation, as measured by the company, was 1.4%
and 1.1% for the quarter and year-to-date, respectively.
Retail food sales increased over last year due primarily to new store openings.
The increase in retail sales was partially offset by the closing of
underperforming corporate-owned retail stores in the prior fiscal year pursuant
to the restructuring plan. Same store sales increased .8% and 2.8% for the
quarter and year-to-date, respectively. The same-store sales trend was caused by
improved performance in the limited assortment stores and strong merchandising
refocus in certain operations, offset somewhat by increased competition in the
Cincinnati market.
8
<PAGE>
<TABLE>
<CAPTION>
Net Sales by Segment
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(In thousands) Third Quarter (12 weeks)
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November 30, 1996 December 2, 1995
Net Sales % of Total Net Sales % of Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food distribution $3,473,122 88.9% $3,509,225 90.3%
Retail food 1,084,109 27.8 1,006,001 25.9
Less: Eliminations (652,390) (16.7) (628,631) (16.2)
- -------------------------------------------------------------------------------
Total net sales $3,904,841 100.0% $3,886,595 100.0%
===============================================================================
Net Sales by Segment
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(In thousands) Year-to-Date (40 weeks)
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November 30, 1996 December 2, 1995
Net Sales % of Total Net Sales % of Total
- -------------------------------------------------------------------------------
Food distribution $11,202,722 88.5% $11,317,590 89.6%
Retail food 3,494,220 27.6 3,275,281 25.9
Less: Eliminations (2,034,595) (16.1) (1,953,842) (15.5)
- -------------------------------------------------------------------------------
Total net sales $12,662,347 100.0% $12,639,029 100.0%
===============================================================================
</TABLE>
GROSS PROFIT
Gross profit as a percentage of net sales increased to 9.9% and 9.8% in the
quarter and year-to-date, respectively, compared with 9.4% and 9.3%,
respectively for the same periods last year. The increases were due principally
to the growing proportion within the company's total sales mix of the higher-
margined retail food business. Food distribution gross profit margin increased
for the quarter and year-to-date due primarily to certain merchandising
initiatives. Year-to-date gross profit margin also increased due to favorable
LIFO expense. Retail food gross profit margin increased for the quarter and
year-to-date as a result of pricing adjustments from price modeling, changed
promotional practices, improved product mix and the closing of underperforming
corporate-owned retail stores.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses were 7.6% of net sales for both the quarter
and year-to-date, compared with 7.3% and 7.2% for the same periods last year.
The higher 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, and the
increase in direct and indirect costs related to the transformation of the
distribution operations through the ADVANTAGE program. Food distribution selling
and administrative expenses as a percent of net sales were higher than last year
due to
9
<PAGE>
increased expenses associated with ADVANTAGE and the impact of fixed expenses as
a percent of slightly decreased sales. Retail food selling and administrative
expenses as a percent of net sales were lower than last year due primarily to
fixed expenses as a percent of higher sales and tight expense control.
The continuing ADVANTAGE expenses were incurred in connection with project
implementation costs including, but not limited to, increased systems
development costs, regional organizational realignment costs, employee training
and relocation, consulting fees and retailer training and promotional programs.
Substantial progress has been made in the company's ADVANTAGE initiatives.
During fiscal 1997 the company has opened the Anniston, Alabama regional
distribution facility and has begun the following: distributing general
merchandise and health and beauty care products from the Anniston facility to
most of the customers in the Southeast region; reconfiguring the existing local
distribution centers in the Southeast region to achieve additional cost
efficiencies; commencing construction of the Midwest regional distribution
facility; training retailers for the category management program in the Midwest
and Central regions; and category management program efforts in various phases
of implementation across four of seven regions. Activity Based Sell efforts in
the Midwest region have been rescheduled due to holidays and the company's
desire to add new functionality with activities planned to resume in the Spring
of fiscal 1998.
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 $93.5 million in the quarter from $88.5 million last year and were
$299.6 million year-to-date compared with $294.7 million last year. Food
distribution operating earnings decreased 1.5% to $78.6 million and 8.5% to
$237.6 million in the quarter and year-to-date, respectively, due to higher
ADVANTAGE related expenses and the general softness in sales, partially offset
by favorable bakery manufacturing earnings, increased sales at Save-A-Lot and
for the year-to-date only a reduction in LIFO expense. Retail food operating
earnings increased 71.3% to $14.9 million and 76.8% to $62.0 million in the
quarter and year-to-date, respectively, due to strong gross margin resulting
from pricing, promotional and product mix changes and the closing of
underperforming corporate-owned retail stores, as well as an increase in sales.
INTEREST EXPENSE AND INCOME
Interest expense increased to $32.5 million for the third quarter compared with
$31.1 million last year due to increased levels of short-term debt utilized to
fund increased inventory levels. Interest expense decreased to $105.1 million
year-to-date compared with $108.0 million for the same period last year,
reflecting a reduction in debt levels earlier in the year and slightly lower
short-term interest rates. Interest income decreased to $3.2 and $11.8 million
for the quarter and year-to-date, respectively, compared with $4.7 and $16.3
million for the same periods last year, primarily due to the reduction of notes
receivable as a result of the February, 1996 sale of notes in the ordinary
course of business.
10
<PAGE>
EQUITY IN EARNINGS OF SHOPKO
SUPERVALU's share of ShopKo net earnings increased to $5.0 million and $9.5
million in the quarter and year-to-date, respectively, compared with $4.7
million and $8.0 million for the same periods last year. As reported by ShopKo,
sales increased 20.4% to $591.2 million and net earnings increased 7.9% for the
third quarter compared with last year. The increase in net earnings was
primarily the result of increased sales related to the ProVantage prescription
benefit management business.
INCOME TAXES
The effective tax rate was 37.7% and 38.6% in the quarter and year-to-date,
respectively, compared with 37.6% and 38.8% for the same periods last year.
NET EARNINGS
Net earnings were $40.2 and $122.1 million for the quarter and year-to-date,
respectively, compared with $38.4 and $117.7 million for the same periods last
year. Net earnings were positively impacted by improved gross margin which more
than offset increased expenses related to the ADVANTAGE project. The year-to-
date variance was also positively impacted by decreased LIFO expense in the
current year. Although ADVANTAGE initiatives are generating benefits, the
company anticipates spending under ADVANTAGE to exceed benefits through fiscal
1997 and late into fiscal 1998, primarily due to information technology related
expenses. The company is currently undergoing its annual budget and planning
process and will further assess the costs and benefits anticipated under the
ADVANTAGE program and the costs to address year 2000 issues. The company is
utilizing a third party to assist in the assessment of the year 2000 expenses
and potential business impact, either of which could affect the timing of
certain ongoing ADVANTAGE efforts.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Internally generated funds, principally from the company's food distribution
business, plus the issuance of short-term notes payable provided the major
source of capital for liquidity and capital growth. Cash provided from
operations year-to-date was $150.5 million compared with $225.7 million last
year. The decrease was due to increased inventory levels caused by timing of the
Thanksgiving holiday and new store openings, partially offset by a corresponding
increase in accounts payable and increased levels of other liabilities. Cash
provided from the issuance of short-term notes payable year-to-date was $133.1
million compared with $13.0 million last year. Cash generated was primarily used
to finance capital expenditures of $177.2 million, pay dividends of $50.1
million and invest in long-term notes receivable of $41.2 million.
11
<PAGE>
During the year, the Board of Directors rescinded the previous treasury stock
purchase program and approved a new treasury stock purchase program authorizing
the company to repurchase up to 5.0 million shares to fund stock related
compensation plans. The company repurchased 395,900 and 653,900 shares at a cost
of $11.6 million and $18.8 million for the quarter and year-to-date,
respectively. There were no treasury stock purchases under the old program
during fiscal 1997.
On September 9, 1996 the company announced that it had agreed to sell its 14.7
million shares of ShopKo Stores, Inc. under an agreement to combine ShopKo and
Phar-Mor, Inc. under a holding company, Cabot Noble, Inc. Under the terms of the
agreement, the company will receive approximately $223 million in cash and
approximately $25 million in common stock, which represents approximately a 6
percent interest in Cabot Noble. The company expects to realize a gain on the
transaction which is expected to close late in the fourth quarter, fiscal 1997,
or early in the first quarter, fiscal 1998. The use of the proceeds from the
transaction may include growing the existing food distribution and retail
businesses through internal initiatives or acquisitions, buying back company
stock and paying off debt.
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 beyond one year. 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
a BBB+ rating from Standard and Poor's Ratings Group and a Baa1 long-term debt
rating 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.
12
<PAGE>
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
November 30, 1996.
(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.
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: January 14, 1997 By: /s/ Jeffrey C. Girard
--------------------------------------
Jeffrey C. Girard
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer and
duly authorized officer of Registrant)
Dated: January 14, 1997 By: /s/ Isaiah Harris
--------------------------------------
Isaiah Harris
Vice President and Controller
(Principal Accounting Officer and
duly authorized officer of Registrant)
<PAGE>
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 November 30, 1996 and
December 2, 1995, as indicated in our report dated January 1, 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 November 30, 1996, is
incorporated by reference in the Registration Statements (No. 33-28310, No. 33-
16934, No. 2-56896, No. 33-50071, and No. 333-10151 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
January 9, 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 November 30, 1996 and September 2, 1995 and
the related consolidated statements of earnings and cash flows for the 12-week
periods then ended and the consolidated statement of stockholders' equity for
the interim period ended November 30, 1996. 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 24, 1996 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 5, 1996, 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 24, 1996 and the consolidated statement of stockholders' equity for the
year then ended is fairly stated, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
January 9, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of November 30, 1996 and the Consolidated
Statement of Earnings for the 40 weeks ended November 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-22-1997
<PERIOD-START> FEB-25-1996
<PERIOD-END> NOV-30-1996
<CASH> 7,134
<SECURITIES> 0
<RECEIVABLES> 457,976
<ALLOWANCES> (17,554)
<INVENTORY> 1,285,973
<CURRENT-ASSETS> 1,860,502
<PP&E> 2,649,692
<DEPRECIATION> (1,014,085)
<TOTAL-ASSETS> 4,556,199
<CURRENT-LIABILITIES> 1,650,629
<BONDS> 1,421,673
<COMMON> 75,335
0
5,908
<OTHER-SE> 1,190,782
<TOTAL-LIABILITY-AND-EQUITY> 4,556,199
<SALES> 12,662,347
<TOTAL-REVENUES> 12,662,347
<CGS> 11,417,484
<TOTAL-COSTS> 11,417,484
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,138
<INTEREST-EXPENSE> 105,057
<INCOME-PRETAX> 198,864
<INCOME-TAX> 76,801
<INCOME-CONTINUING> 122,063
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,063
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</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 (12 weeks) ended November
30, 1996 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 acquisitions
involve a number of special risks, including: making acquisitions at acceptable
<PAGE>
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 anticipates that ADVANTAGE capital spending will be funded in
significant part through reductions in working capital. If ADVANTAGE capital
spending significantly exceeds working capital reductions or other capital needs
arise, additional funding could be required from cash flow or 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.
