SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period (12 weeks) ended December 1, 2001.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-5418
SUPERVALU INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 41-0617000
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11840 VALLEY VIEW ROAD,
EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices) (Zip Code)
(952) 828-4000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of Common Stock
as of January 8, 2002 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 132,413,300
PART I - FINANCIAL INFORMATION
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Item 1: Consolidated 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)
Third quarter (12 weeks) ended
Dec. 1, 2001 % of sales Dec. 2, 2000 % of sales
-----------------------------------------------------------------------------------------------------------------------------
Net sales $4,610,293 100.00% $5,420,238 100.00%
Costs and expenses
Cost of sales 4,016,713 87.12 4,835,700 89.22
Selling and administrative expenses 455,488 9.88 461,281 8.50
Interest
Interest expense 43,666 0.95 49,092 0.91
Interest income 4,309 0.09 5,284 0.10
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Interest expense, net 39,357 0.86 43,808 0.81
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Total costs and expenses 4,511,558 97.86 5,340,789 98.53
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Earnings before income taxes 98,735 2.14 79,449 1.47
Provision for income taxes
Current 9,660 52,875
Deferred 30,031 (20,937)
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Income tax expense 39,691 0.86 31,938 0.59
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Net earnings $ 59,044 1.28% $ 47,511 0.88%
=====================================================================
Net earnings per common share- diluted $ 0.44 $ 0.36
Net earnings per common share- basic $ 0.44 $ 0.36
Weighted average number of common shares outstanding
Diluted 135,068 132,733
Basic 133,475 132,430
Dividends declared per common share $ 0.1400 $ 0.1375
All data subject to year-end audit. See notes to consolidated financial statements.
2
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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
Dec. 1, 2001 % of sales Dec. 2, 2000 % of sales
-----------------------------------------------------------------------------------------------------------------------------------
Net sales $ 16,257,118 100.00% $ 17,707,454 100.00%
Costs and expenses
Cost of sales 14,299,073 87.96 15,780,907 89.12
Selling and administrative expenses 1,537,093 9.46 1,488,425 8.40
Interest
Interest expense 152,265 0.94 162,597 0.92
Interest income 16,609 0.11 16,735 0.10
------------------------------------------------------------------------
Interest expense, net 135,656 0.83 145,862 0.82
------------------------------------------------------------------------
Total costs and expenses 15,971,822 98.25 17,415,194 98.35
------------------------------------------------------------------------
Earnings before income taxes 285,296 1.75 292,260 1.65
Provision for income taxes
Current 77,202 157,690
Deferred 37,488 (40,202)
------------------------------------------------------------------------
Income tax expense 114,690 0.70 117,488 0.66
------------------------------------------------------------------------
Net earnings $ 170,606 1.05% $ 174,772 0.99%
========================================================================
Net earnings per common share- diluted $ 1.28 $ 1.31
Net earnings per common share- basic $ 1.28 $ 1.32
Weighted average number of common shares outstanding
Diluted 133,826 132,956
Basic 132,979 132,220
Dividends declared per common share $ 0.4175 $ 0.4100
All data subject to year-end audit. See notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF NET SALES AND EARNINGS
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SUPERVALU INC and Subsidiaries
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(In thousands)
Third Quarter (12 weeks) ended Year-to-date (40 weeks) ended
Dec. 1, 2001 Dec. 2, 2000 Dec. 1, 2001 Dec. 2, 2000
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Net Sales
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Retail food $ 2,194,831 $ 2,158,273 $ 7,172,872 $ 6,998,570
% of total 47.6 % 39.8 % 44.1 % 39.5 %
Food distribution 2,415,462 3,261,965 9,084,246 10,708,884
% of total 52.4 % 60.2 % 55.9 % 60.5 %
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Total net sales $ 4,610,293 $ 5,420,238 $16,257,118 $17,707,454
100.0 % 100.0 % 100.0 % 100.0 %
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Earnings
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Retail food $ 93,484 $ 68,483 $ 278,795 $ 264,230
% of sales 4.3 % 3.2 % 3.9 % 3.8 %
Food distribution 54,931 63,722 173,316 201,206
% of sales 2.3 % 2.0 % 1.9 % 1.9 %
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Subtotal 148,415 132,205 452,111 465,436
% of sales 3.2 % 2.4 % 2.8 % 2.6 %
General corporate expenses (10,323) (8,948) (31,159) (27,314)
------------------------------------------------------------------------------------
Total operating earnings 138,092 123,257 420,952 438,122
% of sales 3.0 % 2.3 % 2.6 % 2.5 %
Interest income 4,309 5,284 16,609 16,735
Interest expense (43,666) (49,092) (152,265) (162,597)
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Earnings before income taxes 98,735 79,449 285,296 292,260
Provision for income taxes (39,691) (31,938) (114,690) (117,488)
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Net earnings $ 59,044 $ 47,511 $ 170,606 $ 174,772
==========================================================================================================================
All data subject to year-end audit. See notes to consolidated financial statements.
4
CONDENSED CONSOLIDATED BALANCE SHEETS
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SUPERVALU INC. and Subsidiaries Third Quarter Fiscal Year End
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(In thousands) December 1, February 24,
2001 2001
Assets
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Current Assets
Cash and cash equivalents $ 11,322 $ 10,396
Receivables, net 461,782 582,923
Inventories 1,322,430 1,350,061
Other current assets 137,376 148,296
-------------------------------------------
Total current assets 1,932,910 2,091,676
Long-term receivables 165,224 161,388
Property, plant and equipment, net 2,193,703 2,232,794
Goodwill 1,534,956 1,576,780
Other assets 339,444 344,534
-------------------------------------------
Total assets $ 6,166,237 $ 6,407,172
===========================================
Liabilities and Stockholders' Equity
----------------------------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 231,217 $ 579,039
Accounts payable 1,164,117 1,396,011
Current debt and obligations under capital leases 356,594 54,668
Other current liabilities 311,521 311,452
-------------------------------------------
Total current liabilities 2,063,449 2,341,170
Long-term debt and obligations under capital leases 1,883,692 2,008,474
Other liabilities and deferred income taxes 299,111 264,033
Total stockholders' equity 1,919,985 1,793,495
-------------------------------------------
Total liabilities and stockholders' equity $ 6,166,237 $ 6,407,172
===========================================
All data subject to year-end audit. See notes to consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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SUPERVALU INC. and Subsidiaries
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(In thousands, except per share data)
Capital in
Common Stock Excess of Treasury Stock Retained Other
Shares Amount Par Value Shares Amount Earnings Comprehensive Loss Total
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BALANCES AT
FEBRUARY 26, 2000 150,670 $ 150,670 $132,226 (16,008) $ (308,788) $1,847,371 $ 1,821,479
Net earnings - - - - - 81,965 81,965
Sales of common stock
under option plans - - (3,538) 279 7,095 - 3,557
Cash dividends declared
on common stock-
$0.5475 per share - - - - - (72,903) (72,903)
Compensation under
employee incentive plans - - (196) 366 8,271 - 8,075
Purchase of shares for
treasury - - - (2,933) (48,678) - (48,678)
--------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
FEBRUARY 24, 2001 150,670 $ 150,670 $128,492 (18,296) $ (342,100) $1,856,433 $ 1,793,495
--------------------------------------------------------------------------------------------------------------------------------
Net earnings 170,606 170,606
Sales of common stock
under option plans (2,862) 900 17,122 14,260
Cash dividends declared
on common stock-
$0.4175 per share (55,703) (55,703)
Compensation under (2,246) 547 9,726 7,480
employee incentive plans
Purchase of shares for
treasury - - - (150) (3,000) - (3,000)
Other comprehensive loss $ (7,153) (7,153)
--------------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 1, 2001 150,670 $ 150,670 $123,384 (16,999) $ (318,252) $1,971,336 $ (7,153) $1,919,985
================================================================================================================================
All data subject to year-end audit. See notes to consolidated financial statements.
6
CONDENSED 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)
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December 1, December 2,
2001 2000
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Net cash provided by operating activities $ 437,079 $ 338,742
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Cash flows from investing activities
Additions to long-term receivables (36,471) (55,254)
Proceeds received on long-term receivables 30,831 34,672
Proceeds from sale of assets 73,243 31,519
Purchase of property, plant and equipment (197,578) (275,972)
Other cash used in investing activities (32,709) (48,264)
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Net cash used in investing activities (162,684) (313,299)
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Cash flows from financing activities
Net (decrease) increase in checks outstanding (63,927) 42,871
Net (reduction) issuance of short-term notes payable (347,822) 215,496
Proceeds from issuance of long-term debt 218,014 -
Repayment of long-term debt (12,416) (163,460)
Dividends paid (55,195) (54,338)
Payment for purchase of treasury stock (3,000) (48,604)
Other cash used in financing activities (9,123) (18,714)
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Net cash used in financing activities (273,469) (26,749)
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Net increase (decrease) in cash and cash equivalents 926 (1,306)
Cash and cash equivalents at beginning of period 10,396 10,920
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Cash and cash equivalents at the end of period $ 11,322 $ 9,614
======================================================================================================
Supplemental information:
Pretax LIFO expense $ 4,372 $ 3,293
Pretax depreciation and amortization $ 257,816 $ 253,422
Cash paid during the period for:
Income taxes $ 80,351 $ 48,244
Interest $ 147,644 $ 135,170
All data subject to year-end audit. See notes to consolidated financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
-------------------
The summary of significant accounting policies is included in the notes to
consolidated financial statements set forth in the Annual Report on Form 10-K of
SUPERVALU INC. ("SUPERVALU" or the "Company") for its fiscal year ended February
24, 2001 ("fiscal 2001").
Statement of Financial Accounting Standard 133, "Accounting for Derivative
Instruments and Hedging Activities," became effective for the Company on
February 25, 2001. At that date, the Company's interest rate swap agreements
were recorded on its balance sheet at fair value, resulting in recognition of a
liability of $23.5 million, a non-current asset of $10.8 million, a debit to
other comprehensive loss of $7.7 million, and a deferred tax liability of $5.0
million. On July 6, 2001, the swaps were terminated, which had no material
impact to the Company's consolidated financial statements.
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 condensed
consolidated financial position of the Company and its subsidiaries at December
1, 2001 and December 2, 2000, and the results of the Company's operations and
condensed cash flows for the periods then ended. These interim results are not
necessarily indicative of the results of the fiscal years as a whole.
Restructure and Other Charges
-----------------------------
In the fourth quarter of fiscal 2001, the Company completed a company-wide asset
review to identify assets that did not meet return objectives, provide long-term
strategic opportunities, or justify additional capital investment. As a result,
the Company recorded restructure and other charges of $171.3 million including
$89.7 million for asset impairment charges, $52.1 million for lease subsidies,
lease cancellation fees, future payments on exited leased facilities and
guarantee obligations and $39.8 million for severance and employee related
costs, offset by a reduction in the fiscal 2000 reserve of $10.3 million for
lease subsidies and future payments on exited leased facilities. These actions
include a net reduction of approximately 4,500 employees throughout the
organization. Management expects that these actions will be substantially
completed by the end of fiscal 2002.
Details of the fiscal 2001 restructure balances, after-tax, for fiscal 2002
follow:
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Balance Balance
(In thousands, except for employees) February 24, Fiscal 2002 December 1,
2001 Usage 2001
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Consolidation of distribution centers $41,499 $ 5,957 $35,542
Exit of non-core retail markets 33,735 19,251 14,484
Disposal of non-core assets and other administrative reductions 16,619 5,444 11,175
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Total restructure and other charges $91,853 $30,652 $61,201
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Employees 4,500 3,000 1,500
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The reserve at the end of third quarter fiscal 2002 for fiscal 2001 restructure
charges was $61.2 million, including $45.7 million for lease subsidies, lease
terminations and future payments on exited leased facilities and $15.5 million
for employee related costs.
In fiscal 2000, the Company recorded pre-tax restructure and other charges of
$103.6 million as a result of an extensive review to reduce costs and enhance
efficiencies. This amount was reduced by $10.3 million in fiscal 2001, primarily
for a change in estimate for the closure of a remaining facility, which occurred
in the second quarter of fiscal 2002. The restructure charges include costs for
facility consolidation, non-core store disposal, and rationalization of
redundant and certain decentralized administrative functions.
8
Details of the fiscal 2000 restructure balances, after-tax, for fiscal 2002
follow:
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Balance Balance
(In thousands, except for employees) February 24, Fiscal 2002 December 1,
2001 Usage 2001
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Facility consolidation $11,472 $4,322 $ 7,150
Non-core store disposal 4,404 1,817 2,587
Infrastructure realignment 1,980 557 1,423
------------------------------------------------------------------------------------------------
Total restructure and other charges $17,856 $6,696 $11,160
------------------------------------------------------------------------------------------------
Employees 463 371 92
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The reserve at the end of third quarter fiscal 2002 for fiscal 2000 restructure
charges was $11.2 million, including $7.1 million for lease subsidies, lease
terminations and future payments on exited leased facilities and $4.1 million
for employee related costs.
Notes Payable
-------------
On August 16, 2001, the Company entered into an accounts receivable
securitization program, under which the Company can borrow up to $200 million on
a revolving basis, with borrowings secured by eligible accounts receivable. As
of December 1, 2001, the Company had $137.3 million of borrowings outstanding
under this program and $194.8 million in eligible receivables pledged as
collateral.
In November 2001, the Company sold zero-coupon convertible debentures having an
aggregate initial principal amount at maturity of $811 million. The proceeds
from the offering, net of approximately $5 million of expenses, were $208
million. The debentures mature in 30 years and are callable at the Company's
option on or after October 1, 2006. Holders may require the Company to purchase
all or a portion of their debentures on October 1, 2003, October 1, 2006, or
October 1, 2011 at a purchase price equal to the accreted value of the
debentures, which includes accrued and unpaid cash interest. Each $1,000
debenture will be convertible into 9.6434 shares of the Company's common stock
at an initial conversion price of $27.29 per share, if the closing price of the
Company's common stock exceeds a specified price (initially, 120% of the
conversion price, or $32.75 per share) for a specified period of time in any
quarter beginning after February 23, 2002, or otherwise upon the occurrence of
certain events. The debentures have an initial yield to maturity of 4.5%, which
is being accreted over the life of the debentures using the effective interest
method. The Company may pay contingent cash interest for the six-month period
commencing November 3, 2006 and for any six-month period thereafter if the
average market price of the debentures for a five trading day measurement
preceding the applicable six-month period equals 120% or more of the sum of the
issue price and accrued original issue discount for the debentures.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Results of Operations
---------------------
RESULTS FOR THE QUARTER:
For the third quarter of fiscal 2002, the Company achieved sales of $4.6
billion, net earnings of $59.0 million and diluted earnings per share of $0.44.
Last year, sales were $5.4 billion, net earnings were $47.5 million and diluted
earnings per share were $0.36.
Net sales
Net sales decreased 14.9 percent compared to last year. Retail food sales
increased 1.7 percent and food distribution sales decreased 26.0 percent. Retail
food sales increased over last year primarily due to new store openings. In
addition, same-store sales were positive 0.7 percent for the quarter. Food
distribution sales decreased from last year reflecting customer losses,
primarily the exit of the Kmart business. The Kmart supply agreement was
terminated June 30, 2001. In addition, sales decreased as a result of the impact
of restructuring activities.
9
Gross profit
Gross profit, as a percentage of net sales, was 12.9 percent compared to 10.8
percent last year. The increase was primarily due to the growing proportion of
the Company's retail business, which operates at a higher gross profit margin as
a percentage of net sales than does the food distribution business. In addition,
improved merchandising execution in retail and benefits of restructuring and
reconfiguration activities in distribution added to the gross profit percent
increase.
Selling and administrative expenses
Selling and administrative expenses as a percentage of net sales, were 9.9
percent for the current quarter compared to 8.5 percent last year. The increase
in selling and administrative expenses as a percent of sales was due to the
growing proportion of the Company's retail business, which operates at a higher
selling and administrative expense as a percentage of sales than does the food
distribution business, as well as increases in labor and employee benefit costs.
Operating earnings
The Company's pretax operating earnings (earnings before interest and taxes)
were $138.1 million compared to $123.3 million last year, a 12.0 percent
increase. Operating earnings before depreciation and amortization were $215.6
million compared with $201.4 million last year, a 7.1 percent increase. Retail
food operating earnings increased 36.5 percent to $93.5 million, or 4.3 percent
of sales, from last year's $68.5 million, or 3.2 percent of sales. The increase
was primarily a result of higher gross profit margins, partially offset by
increases in labor and employee benefit costs. Retail food operating earnings
before depreciation and amortization increased 24.7 percent to $134.4 million,
or 6.1 percent of sales, from last year's $107.8 million, or 5.0 percent of
sales. Food distribution operating earnings decreased 13.8 percent to $54.9
million from last year's $63.7 million. The decrease reflects customer losses,
primarily the exit of the Kmart business. Operating earnings for distribution,
as a percentage of net sales, increased to 2.3 percent this quarter from 2.0
percent in the prior year reflecting the benefits of restructuring and
reconfiguration activities. Food distribution operating earnings before
depreciation and amortization decreased 10.7 percent to $90.9 million, or 3.8
percent of sales, from last year's $101.8 million, or 3.1 percent of sales.
Interest expense
Interest expense decreased to $43.7 million compared with $49.1 million last
year due to lower overall borrowing levels and lower interest rates.
Income taxes
The effective tax rate was 40.2 percent in the third quarter, comparable to last
year.
Net earnings
Net earnings increased 24.3 percent to $59.0 million or $0.44 per share -
diluted compared with last year's net earnings of $47.5 million or $0.36 per
share - diluted. Weighted average shares - diluted increased to 135.1 million
compared with last year's 132.7 million.
RESULTS FOR THE YEAR:
Year-to-date for fiscal 2002, the Company achieved sales of $16.3 billion, net
earnings of $170.6 million and diluted earnings per share of $1.28. Last year,
net sales were $17.7 billion, net earnings were $174.8 million and diluted
earnings per share were $1.31.
Net sales
Net sales decreased 8.2 percent compared to last year. Retail food sales
increased 2.5 percent, and food distribution sales decreased 15.2 percent.
Retail food sales increased over last year primarily due to new store openings.
Food distribution sales
10
decreased from last year reflecting customer losses, primarily the exit of the
Kmart business in the second quarter. In addition, distribution sales decreased
as a result of the impact of restructuring activities.
Gross profit
Gross profit as a percentage of net sales was 12.0 percent compared to 10.9
percent last year. This increase was primarily due to the growing proportion of
the Company's retail business, which operates at a higher gross profit margin,
as a percentage of net sales, than does the food distribution business. In
addition, improved merchandising execution in retail and benefits of
restructuring and reconfiguration activities in distribution contributed to the
increase in the gross profit percent.
Selling and administrative expenses
Selling and administrative expenses as a percentage of sales were 9.5 percent,
compared to 8.4 percent last year. The increase in selling and administrative
expenses as a percent of sales was due to the growing proportion of the
Company's retail business, which operates at a higher selling and administrative
expense as a percentage of sales than does the food distribution business, as
well as increases in labor and employee benefit costs.
Operating earnings
The Company's pretax operating earnings (earnings before interest and taxes)
decreased 3.9 percent to $421.0 million, compared with $438.1 million last year.
Operating earnings before depreciation and amortization decreased to $678.8
million compared with $691.5 million last year, a 1.8 percent decrease. Retail
food operating earnings increased 5.5 percent to $278.8 million, or 3.9 percent
of sales, from last year's $264.2 million, or 3.8 percent of sales. This
increase in retail earnings was attributable to improved merchandising execution
resulting in an improvement in gross margins. Retail food operating earnings
before depreciation and amortization increased 5.0 percent to $410.7 million, or
5.7 percent of sales, from last year's $391.2 million, or 5.6 percent of sales.
Food distribution operating earnings decreased 13.9 percent to $173.3 million,
or 1.9 percent of sales, from last year's $201.2 million, or 1.9 percent of
sales. The decrease in operating earnings reflects customer losses, primarily
the exit of the Kmart business. Food distribution operating earnings before
depreciation and amortization decreased 8.7 percent to $297.0 million, or 3.3
percent of sales, from last year's $325.3 million, or 3.0 percent of sales.
Interest expense
Interest expense decreased to $152.3 million compared with $162.6 million last
year due to lower overall borrowing levels and lower interest rates.
Income taxes
The effective tax rate was 40.2 percent, comparable to last year.
Net earnings
Net earnings decreased 2.4 percent to $170.6 million or $1.28 per share -
diluted compared with last year's net earnings of $174.8 million or $1.31 per
share - diluted. Weighted average shares - diluted increased to 133.8 million
compared with last year's 133.0 million.
Liquidity and Capital Resources
-------------------------------
Internally generated funds from operations continued to be the major source of
liquidity and capital growth. Cash provided from operations was $437.1 million
year-to-date, compared with $338.7 million last year. The increase is reflective
of positive impacts on working capital attributable to the exit of the Kmart
business as well as restructuring activities. Net cash used in investing
activities was $162.7 million, compared with $313.3 million last year. The
decrease was primarily due to lower purchases of fixed assets and higher
proceeds from sales of assets related to restructuring activities. Net cash used
in financing activities was $273.5 million, compared with $26.7 million last
year. The increase in cash used in financing activities reflects higher net debt
reduction in fiscal 2002.
11
Management expects that the Company will continue to replenish operating assets
and reduce aggregate debt with internally generated funds. The Company has
adequate short-term and long-term financing capabilities to fund its capital
expenditures plan and acquisitions as the opportunities arise. SUPERVALU will
continue to use short-term and long-term debt as a supplement to internally
generated funds to finance its activities. 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 has entered into revolving credit agreements with various financial
institutions, which are available for general corporate purposes and for the
issuance of letters of credit. A $400 million revolving credit agreement expires
in October 2002 and a $300 million 364-day agreement expires in August 2002.
Both credit facilities have rates tied to LIBOR plus 0.650 to 1.400 percent,
based on the Company's credit ratings. As of December 1, 2001, letters of credit
outstanding under the credit facilities were $111 million and the unused
available credit under these facilities was $548 million. The Company also has
$137.3 million outstanding under an accounts receivable securitization program.
Outstanding borrowings under the revolving credit facilities and the accounts
receivable securitization facility are reflected in Notes Payable on the
consolidated balance sheet.
In November 2001, the Company sold zero-coupon convertible debentures having an
aggregate initial principal amount at maturity of $811 million. The proceeds
from the offering, net of $5 million of expenses, were $208 million and were
used to pay down notes payable. The debentures mature in 30 years and are
callable at the Company's option on or after October 1, 2006. Holders may
require the Company to purchase all or a portion of their debentures on October
1, 2003, October 1, 2006, or October 1, 2011 at a purchase price equal to the
accreted value of the debentures, which includes accrued and unpaid cash
interest. The debentures have an initial yield to maturity of 4.5%, which is
being accreted over the life of the debentures using the effective interest
method. See Item 1 "Consolidated Financial Statements - Notes Payable" for a
further description of these debentures.
In the third quarter, the Board of Directors authorized the repurchase of up to
five million shares of the Company's common stock to offset the issuance of
shares over time under the Company's employee benefit plans and to replace the
1996 share repurchase program.
Company-Wide Asset Review
-------------------------
In the fourth quarter of fiscal 2001, the Company completed a company-wide asset
review to identify assets that did not meet return objectives, provide long-term
strategic opportunities, or justify additional capital investment. As a result,
the Company recorded charges of $240.1 million pre-tax, or $153.9 million after
tax. The charges are net of a $10.3 million reversal of the fiscal 2000
restructure charge.
The restructure and other charges of $171.3 million include $89.7 million for
asset impairment charges, $52.1 million for lease subsidies, lease cancellation
fees, future payments on exited leased facilities and guarantee obligations and
$39.8 million for severance and employee related costs, offset by a reduction in
the fiscal 2000 reserve of $10.3 million for lease subsidies and future payments
on exited leased facilities. These actions include a net reduction of
approximately 4,500 employees throughout the organization. Management expects
that these actions will be substantially completed by the end of fiscal 2002.
The reserve at the end of third quarter fiscal 2002 for fiscal 2001 restructure
charges was $61.2 million, including $45.7 million for lease subsidies, lease
terminations and future payments on exited leased facilities and $15.5 million
for employee related costs.
The reserve at the end of third quarter fiscal 2002 for fiscal 2000 restructure
charges was $11.2 million, including $7.1 million for lease subsidies, lease
terminations and future payments on exited leased facilities and $4.1 million
for employee related costs.
New accounting standards
------------------------
In June 2001, the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 141, "Business Combinations" and Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase
12
method and addresses the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination. SFAS No. 142
requires companies to cease amortizing goodwill that existed at June 30, 2001.
For the Company, this amortization of existing goodwill will cease on February
23, 2002. Any goodwill resulting from an acquisition completed after June 30,
2001 will not be amortized. SFAS No. 142 also establishes a new method of
testing goodwill for impairment on an annual basis or on an interim basis if an
event occurs or circumstances change that would reduce the fair value of a
reporting unit below its carrying value. The adoption of SFAS No. 142 will
result in the discontinuation of amortization of goodwill and goodwill will be
tested for impairment under the new standard beginning in the first quarter of
fiscal 2003. The Company is currently evaluating the provisions of SFAS No. 142
and has not yet determined the effect that adoption of this standard will have
on its consolidated financial statements.
In June 2001, the Financial Accounting Standards Board issued Statement No. 143,
"Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. The
Company is currently analyzing the effect this standard will have on its
consolidated financial statements and plans to adopt the provisions of Statement
No. 143 in the first quarter of fiscal 2004.
In August 2001, the Financial Accounting Standards Board approved Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company is currently analyzing the effect
this standard will have on its consolidated financial statements and plans to
adopt the provisions of SFAS No. 144 in the first quarter of fiscal 2003.
Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private
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Securities Litigation Reform Act of 1995
----------------------------------------
The information in this Quarterly Report includes forward-looking statements.
The Company's businesses are subject to certain risks and uncertainties that
could cause actual results to differ materially from those discussed in such
forward looking statements. These include, but are not limited to:
. competitive practices in the retail food and food distribution industries,
. the nature and extent of the consolidation of the retail food and food
distribution industries and our ability to grow through acquisitions and
assimilate acquired entities,
. our ability to attract and retain customers for our food distribution
business and to control food distribution costs,
. general economic or political conditions that affect consumer buying habits
generally or acts of terror directed at the food industry that affect
consumer behavior,
. potential work disruptions from labor disputes or national emergencies,
. the timing and implementation of certain restructuring activities we have
announced, including our consolidation of certain distribution facilities,
our exit from certain non-core markets and our disposition of
under-performing stores,
. the availability of favorable credit and trade terms, and
. other risk factors inherent in the food distribution and retail businesses.
These risks and uncertainties are set forth in further detail in Exhibit 99(i)
to this report. Any forward-looking statement speaks only as of the date on
which such statement is made, and we undertake no obligation to update such
statement to reflect events or circumstances arising after such date.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
There were no material changes in market risk for the Company in the period
covered by this report.
13
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
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There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Registrant.
Item 2. Changes in Securities and Use of Proceeds
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None
Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 5. Other Information
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None
Item 6. Exhibits and Reports on Form 8-K.
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(a) Exhibits filed with this Form 10-Q:
(11) Computation of Earnings Per Common Share.
(99)(i) Cautionary Statements for Purposes of the Safe Harbor
Provisions of the Securities Litigation Reform Act.
(b) Reports on Form 8-K:
None
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, 2002 By: /s/ Pamela K. Knous
---------------------------------------
Pamela K. Knous
Executive Vice President,
Chief Financial Officer
(Authorized officer of Registrant)
14
EXHIBIT INDEX
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Exhibit
(11) Computation of Earnings Per Common Share
(99)(i) Cautionary Statements for Purposes of the Safe Harbor Provisions of the
Securities Litigation Reform Act
15