-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KRzeKJtU6i3FaQOyCoEO4zsMr6bwNF+ylu7zeJ+7h4deTT+eErCJ9L5MKHfpCVLo 12vncqxr6VoxOdf+9qD98Q== 0000037912-00-000008.txt : 20000510 0000037912-00-000008.hdr.sgml : 20000510 ACCESSION NUMBER: 0000037912-00-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000325 FILED AS OF DATE: 20000509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELHAIZE AMERICA INC CENTRAL INDEX KEY: 0000037912 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 560660192 STATE OF INCORPORATION: NC FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15275 FILM NUMBER: 623022 BUSINESS ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 BUSINESS PHONE: 7046338250 MAIL ADDRESS: STREET 1: P O BOX 1330 STREET 2: 2110 EXECUTIVE DR CITY: SALISBURY STATE: NC ZIP: 28145 FORMER COMPANY: FORMER CONFORMED NAME: FOOD LION INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FOOD TOWN STORES INC DATE OF NAME CHANGE: 19830510 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 25, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ........to........... Commission File number 0-6080 DELHAIZE AMERICA, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0660192 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 1330, 2110 Executive Drive, Salisbury, NC 28145-1330 (Address of principal executive office) (Zip Code) (704) 633-8250 (Registrant's telephone number) 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Outstanding shares of common stock of the Registrant as of May 2, 2000. Class A Common Stock 79,945,141 Class B Common Stock 75,290,542 155,235,683 Page 1 of 17 DELHAIZE AMERICA, INC. INDEX TO FORM 10-Q March 25, 2000 Part I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Statements of Income for the 12 weeks ended March 25, 2000 and March 27, 1999 3 Consolidated Balance Sheets as of March 25, 2000, January 1, 2000 and March 27, 1999 4 Consolidated Statements of Cash Flows for the 12 weeks ended March 25, 2000 and March 27, 1999 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Part II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit Index 15 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements DELHAIZE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the 12 Weeks ended March 25, 2000 and March 27, 1999 (Dollars in thousands except per share data) Mar. 25, 2000 Mar. 27, 1999 Mar. 25, 2000 Mar. 27, 1999 % % Net sales $2,479,234 $2,407,046 100.00 100.00 Cost of goods sold 1,889,341 1,856,862 76.21 77.14 Selling and administrative expenses 457,276 431,301 18.44 17.92 Operating income 132,617 118,883 5.35 4.94 Interest expense 27,030 24,353 1.09 1.01 Income before income taxes 105,587 94,530 4.26 3.93 Provision for income taxes 40,123 35,922 1.62 1.50 Net income $ 65,464 $ 58,608 2.64 2.43 Basic earnings per share $ 0.42 $ 0.37 Diluted earnings per share $ 0.42 $ 0.37 Dividends per share $ 0.14 $ 0.12 Weighted average number of shares outstanding: Class A 79,931,395 82,635,504 Class B 75,290,542 76,943,455 Total 155,221,937 159,578,959 Number of shares outstanding for the twelve weeks ended March 27, 1999 are restated to reflect a one-for-three reverse stock split on September 9, 1999.
-3- DELHAIZE AMERICA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) March 25, 2000 January 1, 2000 March 27, 1999 Assets Current assets: Cash and cash equivalents $ 100,155 $ 195,502 $ 184,690 Receivables 227,549 235,457 186,423 Inventories 1,178,488 1,157,695 1,090,980 Prepaid expenses 38,416 28,407 19,302 Deferred tax asset 55,611 55,611 65,397 Total current assets 1,600,219 1,672,672 1,546,792 Property, at cost, less accumulated depreciation 2,046,220 2,039,314 1,926,031 Deferred tax asset - - 4,707 Intangible assets, less accumulated amortization 252,298 254,276 256,524 Other assets 18,745 7,150 3,421 Total assets $3,917,482 $3,973,412 $3,737,475 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $ 178,000 $ 302,000 $ - Accounts payable 557,649 569,592 545,480 Accrued expenses 372,972 369,230 418,308 Capital lease obligations - current 24,038 23,877 22,149 Long term debt - current 2,415 2,834 42,403 Other liabilities - current 12,702 12,660 10,136 Income taxes payable 37,436 - 35,262 Total current liabilities 1,185,212 1,280,193 1,073,738 Long-term debt 426,794 426,930 429,208 Capital lease obligations 475,053 478,942 486,220 Deferred income taxes 7,421 7,421 - Other liabilities 100,918 101,060 110,635 Total liabilities 2,195,398 2,294,546 2,099,801 Shareholders' Equity: Class A non-voting common stock, $.50 par value 39,966 39,965 123,957 Class B voting common stock, $.50 par value 37,645 37,645 115,415 Additional capital 155,304 155,280 60,457 Retained earnings 1,489,169 1,445,976 1,337,845 Total shareholders' equity 1,722,084 1,678,866 1,637,674 Total liabilities and shareholders' equity $3,917,482 $3,973,412 $3,737,475
-4- DELHAIZE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the 12 Weeks ended March 25, 2000 and March 27, 1999 (Dollars in thousands) 12 Weeks Mar. 25, 2000 Mar. 27, 1999 Cash flows from operating activities Net income $ 65,464 $ 58,608 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 64,133 57,459 Loss(gain) on disposals of property and capital lease terminations 372 (312) Changes in operating assets and liabilities: Receivables 7,908 12,678 Inventories (20,793) 12,655 Prepaid expenses (558) 1,250 Other assets 53 74 Accounts payable and accrued expenses (8,201) 58,668 Income taxes payable 37,436 35,262 Other liabilities (100) (3,267) Total adjustments 80,250 174,467 Net cash provided by operating activities 145,714 233,075 Cash flows from investing activities Capital expenditures (68,264) (86,084) Proceeds from disposal of property 998 900 Direct costs associated with acquisition (2,159) - Other investment activity (9,489) - Net cash used in investing activities (78,914) (85,184) Cash flows from financing activities Net payments under short-term borrowings (124,000) (61,000) Principal payments on long-term debt (555) (670) Principal payments under capital lease obligations (5,895) (5,267) Other financing payments (9,451) - Dividends paid (22,271) (19,992) Proceeds from issuance of common stock 25 136 Net cash used in financing activities (162,147) (86,793) Net (decrease) increase in cash and cash equivalents (95,347) 61,098 Cash and cash equivalents at beginning of period 195,502 123,592 Cash and cash equivalents at end of period $100,155 $184,690 -5- Notes to Consolidated Financial Statements (Dollars in thousands) 1) Basis of Presentation: The accompanying financial statements are presented in accordance with the requirements of Form 10-Q and, consequently, do not include all the disclosures normally required by generally accepted accounting principles or those normally made in the Annual Report on Form 10-K of Delhaize America, Inc. (the "Company"). Accordingly, the reader of this Form 10-Q should refer to the Company's Form 10-K for the year ended January 1, 2000 for further information. The financial information has been prepared in accordance with the Company's customary accounting practices and has not been audited. In the opinion of management, the financial information includes all adjustments consisting of normal recurring adjustments necessary for a fair presentation of interim results. 2) Supplemental Disclosure of Cash Flow Information: Selected cash payments and non-cash activities during the period were as follows: Mar. 25, 2000 Mar. 27, 1999 Cash payments for income taxes $ 2,684 $ 658 Cash payments for interest, net of amounts capitalized 19,656 16,145 Non-cash investing and financing activities: Capitalized lease obligations incurred for store properties 3,287 0 Capitalized lease obligations terminated for store properties 1,120 964 The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. -6- 3) Inventories Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first-out (LIFO) method comprised approximately 84% and 86% of inventories as of March 25, 2000 and March 27, 1999, respectively. Meat, produce and deli inventories are valued on the first-in, first-out (FIFO) method. If the FIFO method were used entirely, inventories would have been $144.8 million and $140.5 million greater as of March 25, 2000 and March 27, 1999, respectively. Application of the LIFO method resulted in increases in the cost of goods sold of $1.9 million and $1.4 million for the 12 weeks ended March 25, 2000 and March 27, 1999, respectively. 4) Reclassification Certain financial statement items have been reclassified to conform to the current year's format. 5) Earnings Per Share Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding (155,221,937 and 159,578,959 for the first quarter of 2000 and 1999, respectively). Diluted earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding and the weighted average number of potential common shares outstanding. The common stock equivalents that were added to the weighted average shares outstanding for purposes of diluted EPS were 159,000 and 255,000 for outstanding stock options year to date for 2000 and 1999, respectively. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 weeks ended March 25, 2000 compared to 12 weeks ended March 27, 1999) The Company recorded net income of $65.5 million for the first quarter of 2000, an increase of 11.7% over the corresponding period of 1999. Net sales for the first quarter of 2000 were $2.5 billion, an increase of 3.0% over the first quarter of 1999. Same store sales decreased 1.8% over the first quarter of last year. The Company's same store sales have been negatively impacted by the aggressive advertising campaigns of many of its competitors and severe weather disruption caused by unprecedented snowfall in some of our markets in late January and early February. To meet this challenging environment, the Company plans to enhance its communication of price leadership in all of its markets and to continue offering customers a quality shopping experience. The Company announced in August 1999 its plan to acquire Hannaford Bros. Co. for $3.6 billion, including the assumption of debt. Shareholders of Hannaford approved the merger agreement at its shareholder meeting on February 10, 2000. Delhaize America expects this transaction to be completed in fiscal 2000. In addition, during the first quarter, the Company invested $9.5 million for a 51 percent ownership in a Thailand chain, which operates 13 supermarkets in Thailand under the name of Food Lion Supermarkets. The investment is immaterial to the Company's financial position and results of operations. Gross profit was 23.79% of sales for the first quarter this year compared to 22.86% of sales for the same period last year. The increase in gross profit was primarily due to continued category management initiatives of margin blending and category mix, particularly in the perishable (dairy and frozen) and grocery departments. The first quarter LIFO charge of $1.9 million was primarily due to an increase in cigarette costs. The Company's internal testing for the first quarter indicated minimal inflation. The current LIFO provision is adequate to cover this level of inflation. Selling and administrative expenses were $457.3 million (including $64.1 million in depreciation and amortization) or 18.44% of sales as compared to $431.3 million (including $57.5 million in depreciation and amortization) or 17.92% of sales in the corresponding period of the prior year. The increase in selling and administrative expenses was due primarily to increases in store salaries and benefits, store rent and depreciation. The Company has experienced increasing labor costs -8- due to the low unemployment rates in all operating markets, which in turn has created higher turnover as well as wage and benefit increases. Store rent has increased due to the new store openings and expansions of existing stores since first quarter of last year. Depreciation and amortization of $64.1 million increased over the first quarter of last year of $57.5 million due to leasehold improvements and equipment purchases for new stores and renovations since the first quarter of last year. In the prior year, a one-time charge of $3.9 million, pre-tax, related to retirement benefits for the Company's former President and CEO was included in selling and administrative expenses. Interest expense of $27.0 million for the first quarter of 2000 increased from $24.4 million for the same period of 1999 due to an increase in short-term borrowings. Net income for the quarter was $65.5 million or 2.64% of sales as compared to $58.6 million or 2.43% of sales in the first quarter of 1999. Basic and diluted earnings per share were $0.42 for the first quarter of 2000 compared to $0.37 last year. Store Closing Costs (Dollars in millions) Reduction of Asset Lease Accrued Values Liabilities Expenses Total Balance at January 1, 2000 $8.5 $104.3 $2.4 $115.2 Additions 0.0 3.5 .9 4.4 Reductions -0.3 -3.5 -2.2 -6.0 Balance at March 25, 2000 $8.2 $104.3 $1.1 $113.6 The Company recorded $4.1 million in store closing costs (included in Selling and Administrative Expenses on the Company's Consolidated Statement of Income) during the first quarter of 2000. These costs are included in the "Additions" line in the table above. Reductions include fees totaling $1.0 million related to the termination of two store leases. The remaining $5.0 million relates primarily to on-going rent payments made on lease obligations and payment of expenses arising from contractual obligations. During the first quarter of 2000, the Company closed one store in the normal course of business related to a relocation. The revenues and operating results of this store were not significant to the Company's total revenues and operating results. During the first quarter of 2000, the Company completed disposition efforts related to 2 closed stores. At the end of the first quarter of 2000 the Company had $113.6 million in store closing costs -9- related to 156 stores (153 leased and 3 owned) and one distribution center. Disposition efforts on the properties related to these facilities (leases, equipment, and buildings) will continue until all related properties are disposed. Liquidity and Capital Resources Cash provided by operating activities totaled $145.7 million for the 12 weeks ended March 25, 2000, compared with $233.1 million for the same period last year. The decrease was primarily due to an increase in inventory levels net of trade payables. Capital expenditures totaled $68.3 million for the 12 weeks ended March 25, 2000, compared with $86.1 million for the same period in 1999. During the first quarter of 2000, the Company equipped ten new stores and completed the renovation of 17 existing stores. In addition, during the first quarter of 2000, the Company had investment activity related to Hannaford Bros. Co. and its Thailand chain. During the first quarter of 1999, the Company equipped 21 new stores and completed the renovation of eight existing stores. The Company's 2000 business plan includes opening 85 new stores, closing 18 existing stores (of which all will be relocations) and renovating approximately 150 existing stores. The Company anticipates that the majority of the new stores will be opened under conventional leasing arrangements. With this 2000 growth plan, the Company anticipates a net increase in store square footage of approximately 8.0%. Capital expenditures currently estimated for 2000 are $360 million. Capital expenditures for 2000 will be financed through funds generated from operations and existing bank credit facilities. Cash flows used in financing activities for the first quarter of 2000 increased to $162.1 million from $86.8 million for the same period last year. The increase in cash used was primarily the result of payments on short-term borrowings and bridge financing costs incurred for the Company's announced Hannaford Bros. Co. acquisition. During the first quarter of 2000, the Company did not purchase any shares of Class A or Class B stock since the share repurchase program was suspended in the third quarter of 1999 as a result of the announced plan to acquire Hannaford Bros. Company. If reinstated, the program allows for additional purchases to be made in the open market as deemed in the best interest of shareholders. The Company maintains the following bank and credit lines: A revolving credit facility with a syndicate of commercial banks providing $500.0 million in committed lines of credit, -10- which expires in November 2000. As of March 25, 2000, the Company had $130.0 million in outstanding borrowings. There were no outstanding borrowings as of the end of the first quarter of 1999. During the first quarter of 2000, the Company had average borrowings of $143.4 million at a daily weighted average interest rate of 7.33%. $250.0 million commercial paper program under which no borrowings were outstanding during the 12 weeks ended March 25, 2000 and March 27, 1999. Additional short-term committed lines of credit totaling $20.0 million are available when needed. The Company is not required to maintain compensating balances related to these lines of credit, and borrowings may occur periodically. The Company had $20.0 million outstanding at March 25, 2000. There were no outstanding borrowings as of March 27, 1999. During the first quarter of 2000, the Company had average borrowings of $19.5 million at a daily weighted average interest rate of 6.15% with a maximum amount outstanding of $20.0 million. Periodic short-term borrowings may be placed under informal credit arrangements, which are available to the Company at the discretion of the lender. Borrowings for the first quarter were as follows: Informal Credit Arrangements (Dollars in millions) 2000 1999 Outstanding borrowings at the end of the first quarter $28.0 $0.0 Average borrowings $48.8 $3.2 Maximum amount outstanding $110.0 $35.0 Daily weighted average interest rate 6.57% 5.09% On August 17, 1999, the Company entered into a definitive merger agreement to acquire all of the outstanding shares of Hannaford Bros. Co. in a cash and stock transaction valued at approximately $3.6 billion, including the assumption of debt. Upon completion of the transaction, Hannaford will operate as a subsidiary of Delhaize America, Inc. The Company expects to finalize the acquisition in fiscal 2000. The Company estimates that the total amount of cash required to complete the merger with Hannaford will be approximately $2.7 billion. -11- The cash consideration required to complete the merger will be funded through (i) a 364-day capital markets bridge facility for up to $2.5 billion and (ii) a $500 million five-year syndicated revolving credit facility. The Company plans to commence a debt offering as long term financing to replace the bridge facility. The Company has entered into various agreements to hedge against a potential increase in interest rates on future bond issues related to the announced acquisition of Hannaford Bros. Co. The notional amount of the agreements totals $1.75 billion. At March 25, 2000, the unrealized loss related to these agreements was $51.5 million as compared to the unrealized gain totaling $7.2 million at January 1, 2000. The differential to be paid or received will be recognized as an adjustment to interest expense over the life of the underlying debt. The Company is subject to risk of nonperformance by the counterparties to the agreement. The Company does not anticipate nonperformance by the counterparties, who are major U.S. financial institutions. Delhaize America finances its daily working capital requirements, when necessary, through the use of its various committed and uncommitted lines of credit. These financial instruments are sensitive to interest rate changes. Outstanding borrowings under such agreements are discussed above. Other Information provided by the Company, including written or oral statements made by its representatives, may contain forward- looking information as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events or developments that the Company expects or anticipates will or may occur in the future, including such things as expansion and growth of the Company's business, future capital expenditures and the Company's business strategy, are forward-looking statements. In reviewing such information, it should be kept in mind that actual results may differ materially from those projected or suggested in such forward-looking statements. This forward- looking information is based on various factors and was derived utilizing numerous assumptions. Many of these factors have previously been identified in filings or statements made by or on behalf of the Company, including filings with the Securities and Exchange Commission of Forms 10-Q, 10-K and 8-K. Important assumptions and other important factors that could cause actual results to differ materially from those set forth in the forward-looking statements include: changes in the general economy or in the Company's primary markets, changes in consumer spending, competitive factors, the nature and extent of continued consolidation in the industry, changes in the rate of inflation, changes in state or federal legislation or regulation, changes in -12- the availability and cost of labor, adverse determinations with respect to litigation or other claims, inability to develop new stores or complete remodels as rapidly as planned, and stability of product costs -- supply or quality control problems with the Company's vendors detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to update forward-looking information contained herein or elsewhere to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking information. Item 3. Quantitative and Qualitative Disclosures About Market Risk This information is set forth in Item 2 to this Form 10-Q and is hereby incorporated by reference. Part II OTHER INFORMATION Item 1. Legal Proceedings The Company has had no significant developments related to legal matters since the Item 3 disclosure included in the Company's Form 10K filed March 30, 2000 for the year ended January 1, 2000. Item 2. Change in Securities None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 27 Financial Data Schedule (b). The Company did not file a report on Form 8-K during the twelve week period ended March 25, 2000. -13- 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. DELHAIZE AMERICA, INC. Registrant DATE: May 9, 2000 BY:\s\Laura Kendall Laura Kendall Chief Financial Officer Principal Accounting Officer -14- Exhibit Index Exhibit Description Page No. 27 Financial Data Schedule 16-17 -15- EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statements of Income and the Consolidated Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JAN-01-2000 JAN-02-2000 MAR-25-2000 100,155 0 227,549 0 1,178,488 1,600,219 3,395,563 1,349,343 3,917,482 1,185,212 426,794 0 0 232,915 1,489,169 3,917,482 2,479,234 2,479,234 1,889,341 1,889,341 0 0 27,030 105,587 40,123 65,464 0 0 0 65,464 0.42 0.42
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