-----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, SrRIKGe6WtNw//5uIs0ucTT+YLnvx9IZ0Y0tiLIiV2s1HQ0S5ObpNN+LkMpugMf7 R5KVj1O2Q0SEWo/gXXYYyw== 0000037912-99-000027.txt : 19991027 0000037912-99-000027.hdr.sgml : 19991027 ACCESSION NUMBER: 0000037912-99-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990911 FILED AS OF DATE: 19991026 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: 99733873 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 September 11, 1999 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.(formerly Food Lion, 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 October 21, 1999. Class A Common Stock 79,929,952 Class B Common Stock 75,290,542 155,220,494 Page 1 of 24 DELHAIZE AMERICA, INC. INDEX TO FORM 10-Q September 11, 1999 Part I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Statements of Income for the 12 and 36 weeks ended September 11, 1999 and September 12, 1998 3-4 Consolidated Balance Sheets as of September 11, 1999, January 2, 1999 and September 12, 1998 5 Consolidated Statements of Cash Flows for 36 weeks ended September 11, 1999 and September 12, 1998 6 Notes to Consolidated Financial Statements 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-18 Part II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21 Exhibit Index 22 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements DELHAIZE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the 12 Weeks ended September 11, 1999 and September 12, 1998 (Dollars in thousands except per share data) Sept. 11, 1999 Sept. 12, 1998 Sept. 11, 1999 Sept. 12, 1998 % % Net sales $2,583,945 $2,378,922 100.00 100.00 Cost of goods sold 1,994,185 1,843,988 77.18 77.51 Selling and administrative expenses 447,404 411,820 17.31 17.32 Operating income 142,356 123,114 5.51 5.17 Interest expense 24,582 17,420 0.95 0.73 Income before income taxes 117,774 105,694 4.56 4.44 Provision for income taxes 44,755 32,925 1.73 1.38 Net income $ 73,019 $ 72,769 2.83 3.06 Basic earnings per share $ 0.47 $ 0.45 Diluted earnings per share $ 0.47 $ 0.45 Dividends per share $ 0.12 $ 0.11 Weighted average number of shares outstanding: Class A 80,533,813 83,579,425 Class B 75,608,705 77,575,788 Total 156,142,518 161,155,213 Number of shares outstanding are restated to reflect a one-for-three reverse stock split on September 9, 1999.
-3- PART I. FINANCIAL INFORMATION Item 1. Financial Statements DELHAIZE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For the 36 Weeks ended September 11, 1999 and September 12, 1998 (Dollars in thousands except per share data) Sept. 11, 1999 Sept. 12, 1998 Sept. 11, 1999 Sept. 12, 1998 % % Net sales $7,500,231 $7,037,655 100.00 100.00 Cost of goods sold 5,784,132 5,470,760 77.12 77.74 Selling and administrative expenses 1,319,233 1,207,154 17.59 17.15 Operating income 396,866 359,741 5.29 5.11 Interest expense 74,319 68,188 0.99 0.97 Income before income taxes 322,547 291,553 4.30 4.14 Provision for income taxes 122,569 103,517 1.63 1.47 Net income $ 199,978 $ 188,036 2.67 2.67 Basic earnings per share $ 1.27 $ 1.18 Diluted earnings per share $ 1.26 $ 1.18 Dividends per share $ 0.38 $ 0.34 Weighted average number of shares outstanding: Class A 81,624,679 81,316,772 Class B 76,324,182 77,575,788 Total 157,948,861 158,892,560 Number of shares outstanding are restated to reflect a one-for-three reverse stock split on September 9, 1999.
-4- DELHAIZE AMERICA, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) September 11, 1999 January 2, 1999 September 12, 1998 Assets Current assets: Cash and cash equivalents $ 150,099 $ 123,592 $ 197,857 Receivables 195,997 199,101 146,041 Inventories 1,109,487 1,103,635 1,005,866 Prepaid expenses 20,250 20,552 25,703 Deferred tax asset 65,397 65,397 73,604 Total current assets 1,541,230 1,512,277 1,449,071 Property, at cost, less accumulated depreciation 1,999,173 1,897,080 1,855,498 Deferred tax asset 4,707 4,707 37,645 Intangible assets 265,002 258,402 264,833 Other assets 3,272 3,495 3,995 Total assets $3,813,384 $3,675,961 $3,611,042 Liabilities and Shareholders' Equity Current Liabilities: Short-term borrowings $ - $ 61,000 $ - Accounts payable, trade 723,345 545,015 547,274 Accrued expenses 383,203 360,105 352,714 Capital lease obligations - current 22,868 21,940 20,549 Long term debt - current 21,230 42,518 37,638 Other liabilities - current 11,813 9,839 10,042 Income taxes payable 34,614 - 13,812 Total current liabilities 1,197,073 1,040,417 982,029 Long-term debt 427,063 429,763 435,168 Capital lease obligations 485,138 492,660 493,042 Other liabilities 105,638 114,199 118,613 Total liabilities 2,214,912 2,077,039 2,028,852 Shareholders' Equity: Class A non-voting common stock, $.50 par value 39,975 123,946 125,454 Class B voting common stock, $.50 par value 37,654 115,415 116,364 Additional capital 155,262 60,332 107,680 Retained earnings 1,365,581 1,299,229 1,232,692 Total shareholders' equity 1,598,472 1,598,922 1,582,190 Total liabilities and shareholders' equity $3,813,384 $3,675,961 $3,611,042
-5- DELHAIZE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the 36 Weeks ended September 11, 1999 and September 12, 1998 (Dollars in thousands) 36 Weeks Sept. 11, 1999 Sept. 12, 1998 Cash flows from operating activities Net income $199,978 $188,036 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 177,654 162,207 Gain on disposals of property and capital lease terminations (4,412) (1,746) Deferred income taxes - 3,854 Changes in operating assets and liabilities: Receivables 3,104 20,749 Inventories (5,852) (23,122) Prepaid expenses 302 (3,189) Other assets 223 1,725 Accounts payable and accrued expenses 201,428 50,908 Income taxes payable 34,614 13,812 Other liabilities (6,587) (5,981) Total adjustments 400,474 219,217 Net cash provided by operating activities 600,452 407,253 Cash flows from investing activities Capital expenditures (276,237) (219,449) Proceeds from disposal of property 4,465 74,702 Net cash used in investing activities (271,772) (144,747) Cash flows from financing activities Net payments under short-term borrowings (61,000) (80,000) Principal payments on long-term debt (23,988) (5,629) Principal payments under capital lease obligations (16,757) (22,884) Dividends paid (59,551) (53,259) Repurchase of common stock (142,667) - Proceeds from issuance of common stock 1,790 3,783 Net cash used in financing activities (302,173) (157,989) Net increase in cash and cash equivalents 26,507 104,517 Cash and cash equivalents at beginning of period 123,592 93,340 Cash and cash equivalents at end of period $150,099 $197,857 -6- 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. formerly known as Food Lion, 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 2, 1999 for further information. On September 7,1999, the shareholders of the Company approved various corporate realignment initiatives which included forming a holding company called Delhaize America, Inc. Delhaize America, Inc. will serve as the consolidating entity for all of the Company's supermarket chains, currently including stores carrying both the Food Lion and Kash n' Karry banners. The new corporate structure will promote greater flexibility in the daily operations of the different chains, and will better support future growth opportunities. In addition, the Company listed on the New York Stock Exchange beginning on September 9, 1999, after authorizing a one-for-three reverse stock split of all outstanding shares of common stock at the close of business 12:01 a.m. on September 9, 1999. As a result, the Company's two classes of stock are traded on the New York Stock Exchange under the symbols "DZA" and "DZB". 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: Sept. 11, 1999 Sept. 12,1998 Cash payments for income taxes $ 87,934 $96,941 Cash payments for interest, net of amounts capitalized 68,315 69,883 -7- Non-cash investing and financing activities: Capitalized lease obligations incurred for store properties 31,313 47,006 Capitalized lease obligations terminated for store properties 21,150 20,886 Conversion of long-term debt to stock 0 110,445 The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. 3) Inventories Inventories are stated at the lower of cost or market. Inventories valued using the last-in, first-out(LIFO) method comprised approximately 82% and 85% of inventories as of September 11, 1999 and September 12, 1998, 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 $142.4 million and $121.1 million greater as of September 11, 1999 and September 12, 1998, respectively. Application of the LIFO method resulted in increases in the cost of goods sold of $3.3 million and $6.7 million for the 36 weeks ended September 11, 1999 and September 12, 1998, 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 (156,142,518 and 161,155,213 for the third quarter of 1999 and 1998, respectively; 157,948,861 and 158,892,560 year to date for 1999 and 1998, 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 282,000 and 390,000 for outstanding stock options year to date for 1999 and 1998, respectively. -8- 6) Reverse stock split On September 9, 1999 the Company completed a one-for-three reverse stock split which resulted in reducing the number of Class A Common Stock shares outstanding from 239,853,334 shares to 79,951,083 shares, and reducing the number of Class B Common Stock shares outstanding from 225,922,064 shares to 75,307,355 shares. -9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS (12 and 36 weeks ended September 11, 1999 compared to 12 and 36 weeks ended September 12, 1998) The Company recorded net income for the third quarter and year to date for 1999 of $73.0 million and $200.0 million, respectively, resulting in increases of 0.3% and 6.4% over the corresponding periods of 1998. The third quarter of 1998 included a tax refund of $12 million (see discussion below). Excluding this refund, comparable net income increased 20.1% and 13.6% for third quarter and year to date, respectively. Net sales increased 8.6% and 6.6% for the third quarter and year to date, respectively. Same store sales increased 2.5% for the third quarter and 2.3% year to date. Year to date total sales for 1999 are not comparable to 1998 due to a change in the method of collecting sales tax on products discounted through the MVP customer ("MVP") and Preferred Customer Club ("PCC") loyalty card programs (see discussion below). On a comparable basis, 1999 year to date sales restated to exclude the impact of the MVP sales tax change in the first and second quarters increased 7.6% over 1998 year to date. Beginning in May 1998, after receiving permission from all applicable state departments of revenue, the Company began collecting sales tax on the net sales price, after considering the MVP/PCC discount granted, rather than the full retail price of the MVP/PCC items. The related impact to the first and second quarters of 1999 was to reduce reported sales by approximately $70.4 million. This change does not impact the same store sales calculation or the Company's net income, as gross profit and expense dollars are the same under either method. The only difference is that under the new method the discount granted is reflected in sales rather than cost of goods sold under the original method. The Company's updated 1999 business plan includes opening 100 new stores, closing 29 existing stores (approximately 20 of these closings will be relocations) and renovating approximately 140 existing stores. With this growth plan, the Company anticipates a net increase in store square footage of approximately 10.0% in 1999. As of September 11, 1999, the Company had opened 77 new stores, closed 21 stores (of which 16 were relocations), and completed renovations at 95 existing stores. The Company recently announced its growth plan for 2000 which includes 85 new store openings, 18 store closings (of which all are relocations) and the renovation of approximately 150 existing stores. -10- Gross profits of 22.82% for the third quarter and 22.88% year to date (or 22.67% year to date adjusted to the original method of reporting sales tax) compared favorably against prior year gross profits of 22.49% of sales in the third quarter and 22.26% of sales year to date. The increase in gross profit is due to continued category management initiatives designed to maximize product selection and merchandising through increased variety (new items) and promotional activity through the Company's customer loyalty card programs. The third quarter LIFO charge was $1.0 million. The Company's internal testing for the third quarter indicated minimal inflation. The current LIFO provision ($3.3 million year to date) is adequate to cover the current level of inflation. During the fourth quarter, the Company anticipates an inflationary trend in cigarette prices resulting from an expected federal tax increase. For the third quarter of 1999, selling and administrative expenses (including $60.5 million in depreciation and amortization) were $447.4 million or 17.31% of sales as compared to $411.8 million (including $55.8 million in depreciation and amortization) or 17.32% of sales in the corresponding period of the prior year. Selling and administrative expense comparisons were positively influenced by strong sales posted during the quarter which facilitated improved leverage of fixed operating costs. The Company demonstrated good cost control in most expense categories despite the continued increase in store wages and benefits due to the tight labor market in most operating areas. Interest expense of $24.6 million for the third quarter of 1999 and $74.3 million year to date increased $7.2 million and $6.1 million, respectively, compared to the same periods in 1998. During the third quarter of 1998, the Company reached an agreement with the U.S. Internal Revenue Service regarding its examination of tax years 1991-1994. As a result of this agreement, the Company received a refund during the third quarter of 1998 related to tax paid in previous years. The refund includes $7.2 million in tax (recorded during the third quarter as a reduction to the Provision for Income Taxes) and related interest income totaling $7.6 million (recorded during the third quarter as a reduction to Interest Expense). Net income for the quarter was $73.0 million or 2.83% of net sales as compared to $72.8 million or 3.06% of net sales in the third quarter of the prior year. Basic and diluted earnings per share were $0.47 for the third quarter of 1999 compared to $0.45 last year. Excluding the impact of the tax refund recorded in the third quarter of 1998, net income for the third quarter of 1998 would have been $60.8 million or 2.56% of net sales, and basic and diluted earnings per share would have been $0.38. -11- Store Closing Costs (Dollars in millions) Reduction of Asset Lease Accrued Values Liabilities Expenses Total Balance at June 19, 1999 $16.0 $110.7 $.1 $126.8 Additions .3 1.1 .8 2.2 Reductions -1.5 -4.1 -1.1 -6.7 Reclassification -3.0 0.0 3.0 0.0 Balance at September 11, 1999 $11.8 $107.7 $2.8 $122.3 The Company recorded $2.0 million in store closing costs (included in Selling and Administrative Expenses on the Company's Consolidated Statement of Income) during the third quarter of 1999. These costs are included in the "Additions" line in the table above. Reductions include fees totaling $1.8 million related to the termination of two store leases. The remaining $4.9 million relates primarily to on-going rent payments made on lease obligations and payment of expenses arising from contractual obligations. During the third quarter of 1999, the Company closed 8 stores in the normal course of business. Four of these stores were closings related to store relocations. The revenues and operating results of these stores were not significant to the Company's total revenues and operating results. During the third quarter of 1999, the Company completed disposition efforts related to 6 closed stores. At the end of the third quarter of 1999 the Company had $122.3 million in store closing costs related to 160 stores (157 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 $600.5 million for the 36 weeks ended September 11, 1999, compared with $407.3 million for the same period last year. The increase was primarily due to an increase in operating income and trade payables. The Company completed an accounts payable system conversion during the third quarter. The Company worked with its vendors to obtain extended payment terms during the system transition which resulted in increased trade payables. -12- Capital expenditures totaled $276.2 million for the 36 weeks ended September 11, 1999, compared with $219.4 million for the same period in 1998. The Company opened 77 new stores, closed 21 stores (including 16 relocations), and completed the renovation of 95 existing stores through the end of the third quarter of 1999. The Company plans to open a total of 100 new stores in 1999 and renovate approximately 140 stores. The Company anticipates that the majority of the new stores will be opened under conventional leasing arrangements. Capital expenditures currently estimated for 1999 are $390 million. Capital expenditures for 1999 will be financed through funds generated from operations and existing bank credit facilities. The Company expects capital expenditures for 2000 of approximately $460 million. The Company maintains the following bank and credit lines: $250.0 million commercial paper program under which no borrowings were outstanding during the 36 weeks ended September 11, 1999 and September 12, 1998. A revolving credit facility with a syndicate of commercial banks providing $625.0 million in committed lines of credit which expires in December 1999. There were no outstanding borrowings as of the end of the third quarter of 1999 or 1998. Additional short-term committed lines of credit totaling $20.0 million which are available when needed. The Company is not required to maintain compensating balances related to these lines of credit, and borrowings may occur periodically. There were no outstanding borrowings as of September 11, 1999 or September 12, 1998. During the third quarter of 1999, the Company had average borrowings of $11.1 million at a daily weighted average interest rate of 5.15% 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 third quarter were as follows: -13- Informal Credit Arrangements (Dollars in millions) 1999 1998 Outstanding borrowings at the end of the third quarter $0.0 $0.0 Average borrowings $19.8 $2.4 Maximum amount outstanding $90.0 $30.0 Daily weighted average interest rate 5.37% 5.76% As of September 11, 1999, the Company had repurchased $142.7 million of common stock, representing approximately 8.3 million Class A shares and approximately 4.9 million Class B shares. In July 1999, the Board of Directors approved $100 million as the amount available for share repurchases going forward of which $57.3 million is unused. During the third quarter, the Company suspended the share repurchase program as a result of the announced plan to acquire Hannaford Bros. Company. On August 18, 1999, the Company announced its 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 early 2000, pending regulatory approvals and a vote of Hannaford shareholders. Delhaize America estimates that the total amount of cash required to complete the merger with Hannaford will be approximately $2.7 billion. It is anticipated that the cash consideration required to complete the merger will be funded through the entering into of (i) a 364 day capital markets bridge facility for up to $2.5 billion; (ii) a $500 million 364-day syndicated revolving credit facility; and (iii) a $500 million five-year syndicated revolving credit facility. J.P. Morgan Securities Inc. is expected to be the lead arranger and book runner and Morgan Guaranty Trust Company of New York is expected to be the administrative agent in connection with both facilities. J.P. Morgan has previously delivered a fully-underwritten Commitment Letter to Delhaize America with respect to the financing. Year 2000 In 1996, the Company began evaluating both its information technology systems and non-information technology systems, and other systems and equipment, in order to identify and adjust date -14- sensitive systems for Year 2000 compliance. As part of this undertaking, the Company created a Year 2000 Project Team to address the issues related to Year 2000 compliance. The Year 2000 Team is led by representatives from the Company's Information Technology department and includes key representatives from other areas of the Company. The Year 2000 Team developed a three-phase plan to identify and remediate all existing systems to ensure the Company's readiness for the century change. These phases consist of assessment, system remediation and integration testing. Project Phase One primarily focused on assessing the business impact of the century change on the Company's operating environment. This assessment included information technology systems, non-information technology systems and supply chain readiness. The assessment was conducted based on an analysis of the Company's individual business processes and the potential material risks associated with the Company's operations. Project Phase Two primarily focused on code and system conversion (remediation) of date impacted applications and systems. Remediation or replacement was conducted for all information technology and embedded systems impacted by Year 2000 issues. Project Phase Three involves the execution of various testing protocols, analysis of test results and the development of contingency plans for each of the impacted systems. The Company has completed Project Phase One and Project Phase Two for all critical systems. As a result, the Company believes that all critical systems and applications are now Year 2000 compliant. The Company will continue its efforts in Project Phase Three, which includes testing and validation of impacted systems, as well as development of contingency plans, throughout 1999. Except for the cost of replacement systems, the Company will expense the cost of the Year 2000 Project as incurred. The Company is funding the costs associated with the Year 2000 Project through operating cash flows and has not deferred any Information Technology projects in order to complete the Year 2000 Project. The Company estimates the total incremental cost of the Year 2000 Project is approximately $17 million which includes equipment and software replacements, reprogramming, systems testing, and outside consulting services. Approximately $4.0 million of the total cost for the Year 2000 Project is related to reprogramming or remediation of existing software and new systems, while the remaining cost of approximately $13.0 million is related to the implementation of certain replacement systems. -15- At the end of the third quarter of fiscal 1999, the Company had incurred approximately $14.5 million of the total cost of the Year 2000 Project of which $3.3 million had been expensed as incurred and $11.2 million had been capitalized for replacement systems. The Company has not materially increased the number of its employees in order to complete the Year 2000 Project. Although the Company has utilized external contractors in various phases of the Year 2000 Project, the Company does not consider any of these contracts or relationships material for the completion of the Year 2000 Project. The Company has assigned certain employees from its Information Technology department to the Year 2000 Project (averaging approximately 20 employees during Phase One, 22 employees during Phase Two, and 19 employees during Phase Three of the project and less than 15 employees from its user departments). As discussed above, the Company has created a Year 2000 Project Team composed of representatives from all areas of the Company. Members of the Year 2000 Project Team have completed the tasks associated with the Year 2000 Project as part of their normal duties. Although the Company has discussed its Year 2000 Project with certain of its consultants, third parties were not retained to perform independent verification and validation processes regarding the risks and cost estimates of the Year 2000 Project. As part of the Year 2000 Project, the Company has identified relationships with third parties, including vendors, suppliers, and service providers, which the Company believes are critical to its business operations. Although the Company considered several factors in identifying these critical relationships, the Company has concentrated its communication efforts, as discussed below, with suppliers and vendors from whom the Company makes annual purchases in excess of $10 million. The Company continues to communicate with these third parties through questionnaires, letters, and interviews in an effort to determine the extent to which they are addressing their Year 2000 compliance issues. Based on the responses received to date from these efforts, the Company understands that all critical suppliers have indicated they anticipate being Year 2000 compliant. A substantial percentage of these critical suppliers have indicated they are Year 2000 compliant while the remaining suppliers have indicated they are still addressing Year 2000 issues. Where appropriate, the Company has developed strategies to work with its suppliers to verify Year 2000 readiness and create contingency plans as discussed below. The Company cannot assure that there will not be an adverse impact on the Company if third parties do not appropriately address their Year 2000 issues in a timely manner. Such other -16- possible consequences include, but are not limited to, loss of communications with stores, loss of electric power, and an inability to process customer transactions or otherwise engage in similar normal business activities. As discussed below, the Company has developed contingency plans with its critical suppliers in order to arrange for the timely delivery of inventory. The Company will continue to communicate with, assess and monitor the progress of these third parties in resolving Year 2000 issues. Although the Company does not believe the actual impact of any system failures related to the century change will be material, the Company has developed various contingency plans with its critical suppliers and certain other vendors in order to assure the timely delivery of inventory and prepare for normal business activities following the century change. In the event the Company or a key supplier is adversely impacted by the century change, the Company will implement its contingency plan for such situation. These plans include alternate means of communication with suppliers, such as facsimile, telephone and hand delivery, manual operation of certain systems, as well as the implementation of certain established ordering procedures. Under the terms of these established ordering procedures, the Company's critical suppliers will provide inventory to the Company based on historical ordering patterns. These suppliers will also substitute products and adjust inventory levels of substitute items based on the availability of certain products. In addition, the Company will adjust inventory levels prior to the end of the year in order to meet unusual customer demands related to the century change. The Company will continue to develop and finalize the implementation of its contingency plans with third parties throughout 1999. These projections are based on management's best estimates and may be updated from time to time as additional information becomes available. This section discussing Year 2000 issues contains forward-looking statements (refer to "Other" below which addresses forward-looking statements made by the Company). 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 -17- 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, adverse determinations with respect to litigation or other claims, inability to develop new stores or complete remodels as rapidly as planned, stability of product costs -- supply or quality control problems with the Company's vendors, and issues and uncertainties related to Year 2000 detailed from time-to-time in the Company's filings with the Securities and Exchange Commission. Part II OTHER INFORMATION Item 1. Legal Proceedings Except as set forth below, The Company has had no other significant developments related to legal matters since the Item 1 disclosure included in the Company's Form 10Q filed July 30, 1999 for the quarter ended June 19, 1999. Longman et al. v. Food Lion,Inc. and Tom E.Smith,4:92 CV 696 (M.D.N.C.)(complaint filed November 12, 1992, and amended January 23, 1993)("Longman");and Feinman et al. v. Food Lion, Inc. and Tom E. Smith,4:92 CV 705(M.D.N.C.)(complaint filed November 13, 1992)("Feinman"). The Longman and Feinman actions asserted claims against the Company and Tom E.Smith under Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 for securities fraud and claims of common law fraud and negligent misrepresentation. The actions had been consolidated for discovery and trial purposes. On June 18, 1998, the court granted Food Lion's and Mr. Smith's motions for summary judgment, and dismissed these actions in their entirety as to both Food Lion and Mr.Smith. The plaintiffs appealed to the United States Court of Appeals for the Fourth Circuit. On October 7, 1999 the Fourth Circuit affirmed the decision of the District Court. -18- Item 2. Change in Securities This item is not applicable. Item 3. Defaults Upon Senior Securities This item is not applicable. Item 4. Submission of Matters to a Vote of Security Holders (a). The Company held a special shareholders' meeting on September 7, 1999. (b). Not applicable. (c). Matters voted upon at the meeting. The reverse stock split For Against Abstain Non-vote proposal Class A 150,065,243 15,989,261 609,212 Class B 157,127,972 13,385,162 1,478,748 270 The preferred stock proposal Class A 132,185,078 23,260,072 11,218,566 Class B 144,311,788 25,738,507 1,941,856 1 The holding company proposal Class B 165,566,538 4,694,539 1,730,805 270 The name change proposal Class B 164,832,674 5,368,177 1,791,031 270 The purpose clause proposal Class B 161,661,950 6,993,781 3,336,420 1 The director range proposal Class B 163,651,232 6,719,492 1,621,427 1 Item 5. Other Information This item is not applicable. -19- Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 27 Financial Data Schedule (b). The Company filed a report on Form 8-K pursuant to Item 5 and Item 7 on August 19, 1999 in connection with the proposed acquisition of Hannaford Bros. Company. -20- 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: 10/26/99 BY:Laura Kendall Laura Kendall Vice President of Finance Chief Financial Officer Principal Accounting Officer -21- Exhibit Index Exhibit Description Page No. 27 Financial Data Schedule 23 -22- EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheets, the Consolidated Statements of Operations and the Consolidated Statement of Cash Flows and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS JAN-01-2000 JAN-03-1999 SEP-11-1999 150,099 0 195,997 0 1,109,487 1,541,230 3,250,316 1,251,143 3,813,384 1,197,073 427,063 0 0 232,891 1,365,581 3,813,384 7,500,231 7,500,231 5,784,132 5,784,132 0 0 74,319 322,547 122,569 199,978 0 0 0 199,978 1.27 1.26
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