-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sMLQcgVsEyxTvs5sXaTEVGhxOuVcjbDLcifelUliLuGTjVyO9SJJ+iL4N9XQRvSQ WSw91o49sS3t16RvOz7AZg== 0000045379-95-000002.txt : 19950615 0000045379-95-000002.hdr.sgml : 19950615 ACCESSION NUMBER: 0000045379-95-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950316 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANNAFORD BROTHERS CO CENTRAL INDEX KEY: 0000045379 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-GROCERY STORES [5411] IRS NUMBER: 010085930 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07603 FILM NUMBER: 95521265 BUSINESS ADDRESS: STREET 1: 145 PLEASANT HILL RD CITY: SCARBOROUGH STATE: ME ZIP: 04011 BUSINESS PHONE: 2078832911 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Number 1-7603 HANNAFORD BROS. CO. (Exact name of Registrant as specified in its charter) Maine 01-0085930 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 145 Pleasant Hill Road, Scarborough, Maine 04074 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (207) 883-2911 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.75 par value New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 in the past 90 days. Yes [X]. No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. The aggregate market value of the Common Stock, $.75 par value, held by non-affiliates as of March 3, 1995, was $761,856,581. This calculation assumes that all shares of Common Stock beneficially held by directors and executive officers of the Registrant are owned by "affiliates". As of March 3, 1995, there were 41,939,013 outstanding shares of Common Stock, $.75 par value, the only authorized class of common stock of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE PART III: Proxy Statement for Annual Meeting of Shareholders to be held on May 24, 1995. Exhibit Index on Page: 51 PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF THE BUSINESS Hannaford Bros. Co. (the "Registrant" or the "Company") was incorporated in Maine in 1902 as the successor to a business established by the Hannaford family in 1883. Its principal executive offices are located at 145 Pleasant Hill Road, Scarborough, Maine 04074. Its telephone number is (207) 883-2911. Approximately 25.6% of the outstanding shares of the Registrant's common stock, par value $.75 per share, is owned by certain members of the Sobey family of Stellarton, Nova Scotia, and certain companies and trusts controlled by them (the "Sobey Parties"). Consolidated sales and other revenues for 1994, including sales of $117.7 million from Wilson's Supermarkets acquired during that year (see below), were $2,292 million, an increase of 11.5% over last year's sales and other revenues of $2,055 million. Excluding the sales from Wilson's, the Registrant's sales and other revenues were up 5.8% for the fiscal year. Comparable same store sales were up 1.6% for fiscal year 1994 compared to 1993 when same store sales were down 2.0%. In July 1994, the Registrant acquired Wilson's Supermarkets based in Wilmington, North Carolina. The purchase included 20 food stores in North and South Carolina, five additional store sites and several shopping center properties. The purchase price, including assumed liabilities, was approximately $126.7 million. In addition to the acquisition, the Registrant has purchased or leased a number of other new store sites in the region. Together they represent a strategic approach to the Registrant's geographic diversification in the Southeast. The Registrant ships food and food-related products from its distribution centers to an additional 18 independent wholesale customers. Sales to these wholesale accounts amounted to 2.3% of total sales in 1994. Other revenues from such activities as trucking, real estate and retail services amounted to about 1.5% of total sales. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Registrant, through its operations and those of its subsidiaries, is principally involved in the retail food business. The Registrant considers its business a single segment under the applicable reporting rules. See Item 8, Financial Statements and Supplementary Data. NARRATIVE DESCRIPTION OF THE BUSINESS The Registrant is a multi-regional food retailer, with 118 supermarkets located throughout Maine and New Hampshire, and in parts of New York, Massachusetts, Vermont, North Carolina and South Carolina. Its stores are operated primarily under the names Shop 'n Save, Sun Foods and Wilson's. The Registrant's goal is to offer consumers very competitive prices with comprehensive product variety and outstanding freshness and quality in perishables from modern and convenient facilities. The Registrant no longer operates stand-alone drug stores, but operates 57 pharmacies within the Registrant's supermarkets and combination stores. The Registrant believes that one of the most important factors in the success of a store, in addition to location, is format. The Registrant views effective store formats as creating opportunities to enter new markets, expand its share of markets where it already operates, and strengthen its overall position. Of the Registrant's 97 supermarkets in the northeastern region of the United States, more than 75% are either new or have been expanded or relocated in the past 10 years. During this period, a number of smaller outdated facilities have been closed or sold. Since 1983, the Registrant has opened or acquired 62 combination stores with selling areas ranging from 22,300 to 61,700 square feet. These stores offer under one roof the traditional all-department supermarket, together with a bakery, video rental center and other services, as well as expanded lines of general merchandise. The new stores opened by the Registrant since 1983 also include four super warehouse stores with selling areas of 36,000 to 46,600 square feet. The Registrant operates 21 conventional supermarkets in North Carolina and South Carolina. Twenty of these stores were acquired by the Registrant in July 1994 and one new store has been opened since the acquisition. These stores range in size from 16,300 to 28,800 square feet of selling area. In 1995, the Registrant expects to open several new stores in North Carolina and Virginia and will introduce its newest store format to the region. The following tables set forth certain statistical information regarding the Registrant's operations at the dates indicated: FISCAL YEAR NUMBER OF STORES 1990 1991 1992 1993 1994 Supermarkets Beginning 76 89 88 93 93 Opened 4 3 7 4 10 Closed (2) (2) (2) (4) (5) Sold 0 (2) 0 0 0 Acquired 11 0 0 0 20 Ending 89 88 93 93 118 Drug Stores Beginning 41 41 42 6 3 Opened 0 1 1 0 0 Closed (3) (1) (3) (2) (3) Sold 0 0 (34) (1) 0 Acquired 3 1 0 0 0 Ending 41 42 6 3 0 FISCAL YEAR-END AVERAGE SQUARE FEET 1990 1991 1992 1993 1994 OF SELLING AREA PER STORE Supermarkets 25,100 26,700 28,200 29,800 30,100 Drug Stores 5,700 6,000 4,900 5,000 0 TOTAL SQUARE FEET OF SELLING AREA Supermarkets 2,238,000 2,347,000 2,619,000 2,771,000 3,547,000 Drug Stores 232,000 252,000 29,000 15,000 0 As illustrated by the foregoing tables, the Registrant has continued to expand its food store operations. During 1994, net selling square footage increased 28%. In addition to the acquisition of twenty Wilson's supermarkets, the Registrant opened seven new food stores with selling areas ranging from 28,800 square feet to 47,500 square feet. In addition, three existing stores were relocated to larger, new facilities. During 1995, the Registrant intends to open eleven new food stores, four of which will be located in the traditional northeastern market area and seven in the southeast. All of the seven new stores in the southeast will be located in new market areas of North Carolina and Virginia not currently served by the acquired Wilson's stores. The new stores will range from 29,000 square feet to 42,800 square feet of selling area. The Registrant will also relocate four of its existing stores in the northeast to new facilities. It is expected that net retail selling area will increase approximately 12% in 1995. It is also expected that most of the new stores anticipated for 1995 will open in the fourth quarter. As part of its ongoing expansion program, the Registrant will also consider the acquisition of one or more additional supermarkets, if attractive opportunities become available. Innovation in operating systems is an important component of the Registrant's strategy, and the Registrant is committed to investing in new technology and the development of new systems. The Registrant seeks to be an industry leader in the application of new technology and systems in its retail, distribution and administrative functions. The Registrant owns and operates a distribution facility in South Portland, Maine. This facility warehouses grocery, fresh fruits and vegetables, frozen foods, meat, and dairy products in approximately 521,000 square feet of floor area, and has dock facilities for 89 highway trailers. The distribution center has a dedicated on-line computerized warehouse management system, which efficiently controls the movement of product through the facility and schedules labor for greater efficiency and productivity. Productivity in the distribution facility also has been enhanced through the use of incentive payment programs. The Registrant also owns a distribution center and office facility in Schodack, New York, which services certain store locations in New York, Vermont, New Hampshire and Massachusetts. This facility warehouses grocery, fresh fruit and vegetables, meat, dairy and frozen food products in approximately 489,000 square feet of floor area and has dock facilities for 129 highway trailers. Although approvals have been received to expand this facility to approximately 1,200,000 square feet, the Registrant has no current plans to do so. This distribution center operates under a team management system which the Registrant calls Socio-Technical Systems. The Registrant believes this operation to be one of the first successful non-manufacturing uses of this type of team management concept in the country. The Registrant also owns a 200,000 square foot distribution facility in Winthrop, Maine. This facility distributes health and beauty care products, specialty foods, pharmaceuticals and some general merchandise to all of the Registrant's retail outlets. This facility has converted from a conventional management system to a team-based one similar to that used in the Schodack, New York, distribution center. Merchandise is transported from the Registrant's distribution facilities by Hannaford Trucking Company, a wholly-owned subsidiary, which is licensed as an irregular route common carrier with 48 state authority. Hannaford Trucking Company also hauls products for third-party customers, thereby reducing the number of miles that its trucks travel empty. Raw materials, as such, are not essential to the business of the Registrant. The Registrant sells private brand products under the names "Shop 'n Save," "Bonnie Maid" and "Green Meadow." During 1995, the Registrant intends to introduce a new private brand, under the name "Hannaford", for use throughout its marketing territory. Seasonal business affects the Registrant's operations in that sales are generally greater in the second half of the year than in the first. (See Note 11 of Notes to Consolidated Financial Statements.) Inventory levels are maintained at distribution centers and all retail locations in amounts adequate to minimize "out of stock" conditions. Backlog is not material to the Registrant's business. No material portion of the business of the Registrant is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. At the retail level, the Registrant's supermarkets are in direct competition with regional, national and local food and drug chains, some of which have greater resources than the Registrant, as well as with other independent operators. In addition, certain of the independent stores served by the Registrant as wholesale customers are located in the same trade areas as the Registrant's own stores and therefore compete with them. In its wholesale operations, the Registrant directly competes with numerous other regional wholesalers, some of which supply franchised retail outlets. The loss of any one or a few of the wholesale customers would not have a materially adverse effect on the Registrant. Wholesale sales are not material. No material expenditures were made during fiscal 1992, 1993 or 1994 on research activities relating to new or improved products, services or techniques. The Registrant does not foresee that material capital outlays will be needed nor that material increases in operating expenses will be incurred for the purpose of compliance with any statutory requirement respecting environmental quality. As of December 31, 1994, the Registrant had approximately 6,500 full-time and 10,000 part-time employees. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. Neither the Registrant nor any of its subsidiaries engages in any operations in foreign countries, nor is a material portion of sales and revenues derived from retail customers in foreign countries. ITEM 2. PROPERTIES The Registrant owns the locations of 49 of its 118 food stores and leases the remaining 69 stores. It owns all 3 of its distribution facilities and leases its general office facility in Scarborough, Maine. The Registrant's properties are located in Maine, New Hampshire, Vermont, northeastern Massachusetts, eastern upstate New York, North Carolina and northeastern South Carolina. The Registrant believes that its properties are well maintained and are appropriate for its business needs. The number of stores and facilities operated and the square feet of space at December 31, 1994, consisted of: Square Square Footage Footage Selling Units Gross Area Area (in thousands) Stores 118 5,035 3,547 Distribution and administrative facilities 4 1,420 -- Total 122 6,455 3,547 The following table sets forth expiration dates of leased facilities, assuming exercise of all renewal options: Lease Administrative Expiration Food stores Facilities 1995-2004 3 2005-2014 9 2015-thereafter 57 1 69 1 Further information concerning the Registrant's distribution facilities appears under Item 1 at pages 5-6 above, which information is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Registrant is a party or to which any of its property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1994. EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to the Executive Officers of the Registrant is set forth below. Under the by-laws of the Registrant, all Executive Officers hold office, at the pleasure of the Board of Directors, until the Annual Meeting of the Directors next following their election or until others are elected and qualified in their stead. There are no family relationships between any of the Executive Officers of the Registrant nor were there any special arrangements or understandings regarding the selection of any officer. SERVED AS AN EXECU- NAME AGE POSITION TIVE OFFICER SINCE: JAMES L. MOODY, JR. 63 Chairman of the Board 04/28/60 Mr. Moody was elected Chairman of the Board in 1984. He also served in the capacity of Chief Executive Officer from 1973 until 1992. He held the position of President for more than five years prior to his election as Chairman and has been employed by the Registrant in various supervisory and executive capacities since 1959. HUGH G. FARRINGTON 50 President 09/30/77 Chief Executive Officer Mr. Farrington was elected President in 1984 and designated Chief Executive Officer in 1992. He had held the position of Chief Operating Officer from 1984 to 1992. He had been Executive Vice President from 1981 until his election as President. He has been employed by the Registrant in various operating, supervisory and executive capacities since 1968. RICHARD A. ANICETTI 37 Senior Vice President, 08/10/94 Retail Operations Mr. Anicetti was elected Senior Vice President, Retail Operations in August 1994, and is assigned to the southeastern division. He had been Vice President - Retail Operations/General Manager, New Hampshire and Massachusetts from 1989 to 1994. He has been employed by the Registrant since 1980 in various retail management capacities. SERVED AS AN EXECU- NAME AGE POSITION TIVE OFFICER SINCE: NORMAN E. BRACKETT 65 Senior Vice President & 10/07/74 Chief Financial Officer Mr. Brackett was elected Senior Vice President in 1990 and designated Chief Financial Officer in 1992. He served as Chief Accounting Officer from 1990 to 1992. He joined the Registrant as Vice President, Management Services in 1974, and has directed the Registrant's accounting, auditing and technical information systems since that time. ROBERT E. DUNTON 53 Senior Vice President, 08/10/94 Retail Operations/ General Manager - Maine Mr. Dunton was elected Senior Vice President, Retail Operations/General Manager - Maine in 1992. He had been Senior Vice President - General Manager, Alexander's since 1990, Vice President - General Merchandise from 1987 to 1990, Vice President - Wellby Super Drug Stores from 1984 to 1987 and Vice President - Retail Operations from 1981 to 1984. PAUL A. FRITZSON 41 Senior Vice President, 01/02/92 Marketing Mr. Fritzson was elected Senior Vice President, Marketing in August 1994. He had been Vice President - Marketing from 1992 to 1994 and Vice President, General Merchandise from 1990 to 1992. He had served previously in various staff and merchandising capacities since 1978. RONALD C. HODGE 47 Senior Vice President, 08/10/94 Retail Operations Mr. Hodge was elected Senior Vice President, Retail Operations in August 1994, and is assigned to the western division. He had been Vice President - Retail Operations/General Manager, New York and Vermont since 1989. He has been employed by the Registrant in various retail management capacities since 1980. JAMES J. JERMANN 50 Senior Vice President, 08/05/83 Merchandising Mr. Jermann was elected Senior Vice President, Merchandising in 1990. He had been Vice President, Merchandising from 1983 to 1990. He has been employed by the Registrant since 1978 in various merchandising capacities. He was previously Director of Grocery Merchandising. SERVED AS AN EXECU- NAME AGE POSITION TIVE OFFICER SINCE: BLYTHE J. MCGARVIE 38 Senior Vice President, 11/14/94 Finance Ms. McGarvie joined the Registrant as Senior Vice President - Finance in November 1994. From 1991 to 1994 she was Chief Administrative Officer for the Pacific Rim Group of Sara Lee Corporation. From 1985 to 1991 she was employed by Kraft General Foods in various finance positions. LARRY A. PLOTKIN 44 Senior Vice President, 10/06/81 Development & Planning Mr. Plotkin was elected Senior Vice President, Development & Finance in 1990 and Senior Vice President, Development & Planning in 1992. He had been Vice President from 1989 to 1990. He previously served as Vice President, Corporate Development from 1981 to 1987 and Vice President, Wellby Super Drug Stores from 1987 to 1989. He has been employed by the Registrant since 1972 in various real estate capacities. MICHAEL J. STROUT 40 Senior Vice President, 12/19/94 Human Resources Mr. Strout rejoined the Registrant as Senior Vice President, Human Resources in December 1994. From 1990 through 1994 he was Vice President - Human Resources and later Senior Vice President - Human Resources at Topps Markets, Inc., Buffalo, New York. From 1985 to 1990 Mr. Strout had been employed by the Registrant in various Human Resource management positions. ANDREW P. GEOGHEGAN, ESQ. 44 Vice President, Secretary 09/14/87 & General Counsel Mr. Geoghegan joined the Registrant as Vice President, General Counsel in September 1987. He was elected Secretary in 1992. From 1979 to 1987 he was in private law practice with the firm of Kassoy, Lopez & Geoghegan Law Corporation, Beverly Hills, California, specializing in corporate, tax and real estate law. ANDREW N. WESTLUND 42 Vice President, 10/04/92 Distribution Mr. Westlund was elected Vice President, Distribution in 1992. He served as Vice President - Warehousing in 1992 after holding the position of Director, Warehouse Operations-New York since his employment in 1989. He was previously employed by Super Valu, Minneapolis, Minnesota as Warehouse Manager. LARRY A. WILSON 36 Vice President, Wilson's 08/10/94 Mr. Wilson was elected Vice President, Wilson's in August 1994. For more than five years he held various executive positions with Wilson's Supermarkets located in Wilmington, North Carolina. Part II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Registrant has been listed on the New York Stock Exchange since July 18, 1986. The following table sets forth the dividends per share and the high and low sales prices of the Common Stock on the New York Stock Exchange composite tapes during each quarter of 1993 and 1994. QUARTERLY SALE PRICE DIVIDENDS HIGH LOW PER SHARE 1st Quarter, 1993 $23.500 $20.500 .085 2nd Quarter, 1993 23.500 21.000 .085 3rd Quarter, 1993 24.250 20.250 .085 4th Quarter, 1993 25.000 20.000 .085 1st Quarter, 1994 $26.250 $21.000 .095 2nd Quarter, 1994 24.000 19.750 .095 3rd Quarter, 1994 24.625 21.375 .095 4th Quarter, 1994 26.625 23.000 .095 There are approximately 11,900 record holders of the Common Stock. Fiscal 1994 was the forty-sixth consecutive year that dividends were paid on the Common Stock and the thirty-second consecutive year that the aggregate dividend paid per share (after adjusting for stock splits) has increased. On February 7, 1995, the Board of Directors voted to increase the quarterly dividend to $.105 per share for the dividend due to be paid on March 23, 1995. Future dividends will depend on the Registrant's earnings and financial condition. Item 6. Selected Financial Data
Fiscal Year 1994 1993 1992 1991 1990 (In thousands except per share amounts) EARNINGS STATEMENT DATA: Sales and other revenues................................. $2,291,755 $2,054,889 $2,066,023 $2,007,960 $1,687,649 Cost of sales............................................ 1,728,499 1,543,932 1,552,155 1,513,130 1,281,099 Gross margin............................................. 563,256 510,957 513,868 494,830 406,550 Selling, general and administrative expense.............. 437,548 399,437 411,487 401,451 323,853 Operating profit......................................... 125,708 111,520 102,381 93,379 82,697 Interest expense, net.................................... 21,360 19,337 20,711 20,743 12,955 Earnings before income taxes............................. 104,348 92,183 81,670 72,636 69,742 Income taxes............................................. 42,060 37,578 32,476 29,286 27,523 Earnings before cumulative effect of change in accounting principle...................... 62,288 54,605 49,194 43,350 42,219 Cumulative effect of accounting change................. - 2,100 - - - Net earnings............................................. $ 62,288 $ 56,705 $ 49,194 $ 43,350 $ 42,219 Per common share(1): Earnings before cumulative effect of accounting change $ 1.50 $ 1.33 $ 1.21 $ 1.08 $ 1.06 Cumulative effect of accounting change.............. - .05 - - - Net earnings........................................ $ 1.50 $ 1.38 $ 1.21 $ 1.08 $ 1.06 Cash dividends...................................... $ .38 $ .34 $ .30 $ .26 $ .22 Weighted average number of common shares outstanding(1).. 41,544 41,049 40,520 39,939 39,435 December January January December December 31, 1994 1, 1994 2, 1993 28, 1991 29, 1990 Balance Sheet Data: (Dollar amounts in thousands except per share data) Working capital.......................................... $ 42,707 $ 118,830 $ 105,187 $ 68,140 $ 54,467 Total assets............................................. 877,605 795,355 768,596 705,516 629,239 Current maturities: Long-term debt...................................... 14,409 7,180 7,015 6,006 5,301 Obligations under capital leases.................... 1,382 1,412 1,387 1,480 1,616 Long-term debt, excluding current maturities............. 153,687 156,716 171,578 165,252 159,521 Obligations under capital leases, excluding current maturities............................................. 69,552 58,835 54,930 49,315 49,036 Redeemable preferred stock of a subsidiary............... - 1,883 2,781 2,781 2,781 Shareholders' equity..................................... 454,475 396,715 345,796 297,801 256,036 Book value per share(1).................................. $ 10.88 $ 9.63 $ 8.48 $ 7.42 $ 6.46 (1)Restated for the effect of a two-for-one stock split in the form of a 100% stock dividend paid on March 10, 1992. /TABLE ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION This analysis of the Company's results of operations and financial condition should be read in conjunction with the accompanying consolidated financial statements, including the notes thereto, and the information presented in the summary of selected financial data. All footnote references are to Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS Overview In 1994, the Company achieved increased sales and earnings while continuing to experience significant competitive pressures in the majority of its marketing territories. Sales for 1994 were $2,291.8 million, an increase of $236.9 million or 11.5% over last year's sales of $2,054.9 million. The sales increase is attributable to an increase in comparable store sales, the acquisition of Wilson's Supermarkets (Note 4), and the Company's store construction program. Net earnings for 1994 were $62.3 million, an increase of 9.8% over net earnings in 1993 of $56.7 million. During 1993, the Company adopted STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES. The cumulative effect of this adjustment, which increased net earnings by $2.1 million, is included in 1993 results. Excluding the change in accounting, 1994 net earnings increased 14.1% over 1993 results. Despite continuing competitive pressures throughout the Company's marketing territories, the Company posted a comparable store sales increase of 1.6% for the year and 3.0% when comparing the fourth quarter of 1994 with the fourth quarter of 1993. The Company has been effective at increasing its profitability while reducing its overall gross margins. This resulted from continuing cost containment efforts coupled with operating synergies that have been created by internal growth and the acquisition of Wilson's Supermarkets. The acquisition has enabled the Company to diversify geographically and to secure a portion of the market in the growing and vibrant Southeastern region. Including the acquisition, the Company added approximately 28% to its supermarket selling area in 1994 and currently expects to add approximately 12% in 1995. The following table sets forth for the years indicated the percentages which selected items in the consolidated statements of earnings are to net sales and other revenues and the percentage change in the dollar values of such items as compared to the indicated prior year: PERCENTAGE OF SALES YEAR-TO-YEAR PERCENTAGE AND OTHER REVENUES CHANGE IN DOLLAR VALUES EXCEPT PER SHARE AMOUNTS Fiscal 1994 Fiscal 1993 Fiscal Year Compared to Compared to 1994 1993 1992 Fiscal 1993 Fiscal 1992 100.0% 100.0% 100.0% Sales and other revenues 11.5 (0.5)% 24.6 24.9 24.9 Gross margin 10.2 (0.6) Selling, general and 19.1 19.4 19.9 administrative expenses 9.5 (2.9) 5.5 5.5 5.0 Operating profit 12.7 8.9 1.0 1.0 1.0 Interest expense, net 10.5 (6.6) 4.5 4.5 4.0 Earnings before income taxes 13.2 12.9 1.8 1.8 1.6 Income taxes 11.9 15.7 Earnings before cumulative effect of change in 2.7 2.7 2.4 accounting principle 14.1 11.0 Cumulative effect of change -- 0.1 -- in income tax accounting -- -- 2.7% 2.8% 2.4% Net earnings 9.8 15.3 $1.50 $1.38 $1.21 Earnings per common share 8.7 14.0 Fiscal 1992 includes 53 weeks of operations. Sales Sales and other revenues rose 11.5% in 1994, to $2,291.8 million, an increase of $236.9 million over 1993 results. Retail sales increased $240.9 million or 12.3% to $2,204.2 million, reflecting an increase of $29.1 million or 1.6% in sales from supermarkets that were open and not expanded or remodeled in both periods presented ("comparable store sales") and additional sales of $211.8 million from the net impact of new, expanded and closed stores as well as the acquisition of Wilson's Supermarkets. Excluding the sales and other revenues from Wilson's Supermarkets, the Company's sales and other revenues were up 5.8% for the year. Other sales and revenues, which include trucking, wholesale, real estate and miscellaneous retail operations, decreased $4.0 million in 1994. The comparable store sales increase of 1.6% is the continuation of a positive trend that started in late 1993. This is a significant reversal in the trend of comparable store sales, as they had been running negative since the latter part of 1991. Fourth quarter 1994 comparable store sales increased 3.0% in comparison to fourth quarter 1993 due principally to unusually strong sales during the Christmas holiday season. However, management does not expect this high rate of increase to continue into 1995. These increases were achieved despite low overall food inflation, deflation in some product lines, intense supermarket competition in most of the Company's marketing territories and expanding supercenter competition in some of its markets. In 1993 (52 weeks), sales and other revenues were $2,054.9 million, a decrease of $11.1 million from 1992 (53 weeks) results. Retail sales decreased $7.0 million or 0.4%. This decrease is the result of the 53rd week of operations included in 1992 coupled with the loss of sales from the 34 Wellby Super Drug stores that were sold in May 1992 (Note 5). Had the sales from these 34 drug stores and the 53rd week been excluded from 1992 results, sales would have increased 3.3% in 1993. Comparable store sales on a 52-week basis decreased 2.0% in 1993. Other sales and revenues, which include trucking, wholesale, real estate and miscellaneous retail operations, decreased $4.1 million in 1993. Gross Margin Gross margin decreased in 1994 to 24.6% of sales and other revenues in comparison to 24.9% in 1993. This decrease in margins continues a trend that began in the second half of 1993. The Company continues to focus on maintaining a competitive pricing strategy in its marketing areas by passing operating efficiencies on to its customers in the form of lower prices. The Company intends to continue this activity in 1995. In both 1993 and 1992, gross margin was 24.9% of sales and other revenues. In comparing 1993 with 1992, decreased margins in certain product categories were offset by increased margins in other product categories. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased to 19.1% of sales and other revenues in 1994 as compared to 19.4% in 1993. This continues a downward trend that began in 1992. Payroll and payroll related expenses, which exceeded 50% of selling, general and administrative expenses in both years, decreased as a percentage of sales in 1994 as compared to 1993. This resulted from continuing cost containment efforts relating to salaries and wages and employee-related insurance costs. The 1994 reduction of selling, general and administrative expenses expressed as a percentage of sales was also favorably impacted by the operations of Wilson's Supermarkets. Selling, general and administrative expenses decreased to 19.4% of sales and other revenues in 1993 as compared to 19.9% in 1992. The Company achieved this substantial decrease despite lower comparable store sales. This achievement was a reflection of ongoing cost containment programs combined with the restructuring that occurred following the sale of the Wellby Super Drug store chain in May 1992. Payroll and payroll related expenses were primarily responsible for this decrease. Included in 1992 selling, general and administrative expenses was a nonrecurring gain from the sale of the Wellby Super Drug store chain of $4.5 million and a charge for restructuring of $4.0 million, the net of which amounted to a reduction in selling, general and administrative expenses of $0.5 million (Note 5). Interest Expense, Net Net interest expense expressed as a percentage of sales and other revenues was 1.0% in all years presented. Net interest expense consists of the following: (In thousands) 1994 1993 1992 Interest on debt $16,508 $17,249 $17,975 Capital lease interest 8,615 7,230 6,509 Capitalized interest (1,669) (1,530) (1,264) Interest income (2,094) (3,612) (2,509) $21,360 $19,337 $20,711 Net interest expense in 1994 was $21.4 million, an increase of 10.5% from 1993 net interest expense of $19.3 million, reflecting a decrease in interest income coupled with an increase in capital lease interest. The decrease in interest income in 1994 is the result of a lower level of invested funds in 1994 as compared to 1993. The Company utilized the majority of its invested funds when it acquired Wilson's Supermarkets in July 1994. The increased capital lease interest resulted from the Company entering into several long- term leases for new supermarkets. Net interest expense in 1993 was $19.3 million, a decrease of 6.6% from 1992 net interest expense of $20.7 million, reflecting an increase in interest income coupled with a decrease in debt interest. The increase in interest income in 1993 is the result of a higher average level of invested funds in 1993 as compared to 1992. The lower debt interest was caused by decreased debt levels resulting from scheduled as well as early paydowns of the Company's debt instruments. Income Taxes The provision for income taxes includes both federal and state income taxes. The effective tax rate decreased in 1994 to 40.3% from 40.8% in 1993. The higher effective tax rate in 1993 was due primarily to a temporary reduction in 1993 of certain state income tax credits. The effective tax rate increased in 1993 to 40.8% from 39.8% in 1992. This increase was primarily the result of an increase in the federal corporate income tax rate. The Revenue Reconciliation Act of 1993 was signed into law in August 1993, and among other items, increased the federal corporate income tax rate by 1% to 35%, retroactive to January 1, 1993. Assuming there are no additional federal or state income tax rate increases, the Company expects the effective rate for 1995 and forward to be approximately 40.5%. During the first quarter of 1993, the Company adopted SFAS NO. 109 - ACCOUNTING FOR INCOME TAXES (Note 9). The cumulative effect of this adjustment, which increased net earnings by $2.1 million, is reflected in 1993 results. Net Earnings and Earnings Per Common Share Net earnings increased 9.8% in 1994 to $62.3 million or 2.7% of sales and other revenues, an increase of $5.6 million from 1993 earnings of $56.7 million or 2.8% of sales and other revenues. Excluding the change in accounting for income taxes, 1994 net earnings increased 14.1% over those reported in 1993. This increase is the result of increased sales and reduced selling, general and administrative expenses expressed as a percentage of sales, offset by a reduction in gross margin percentage. Net earnings rose 15.3% in 1993 (52 weeks) to $56.7 million, an increase of $7.5 million over 1992 (53 weeks) earnings of $49.2 million. Net earnings were 2.8% of sales and other revenues in 1993 as compared to 2.4% in 1992. This increase is the result of significantly reduced selling, general and administrative expenses coupled with the cumulative effect of the change in income tax accounting and offset by the current year income tax provision. Net earnings per common share in 1994 were $1.50 as compared to $1.38 in 1993, an increase of 8.7%. Excluding the change in accounting for income taxes, net earnings per common share in 1994 increased 12.8% over 1993 results. Net earnings per common share increased 14.0% in 1993 (52 weeks) to $1.38 from $1.21 in 1992 (53 weeks). The cumulative effect of the change in income tax accounting increased 1993 net earnings by $.05 per share. Management estimates that the extra week of operations in 1992 increased net earnings by $.03 per share. Other Items and Impact of Inflation Seasonal business affects the Company's operations in that sales are generally greater in the second half of the year (Note 11). In recent years, the impact of inflation on the Company's operating results has been minimal, reflecting generally lower rates of inflation in the economy. The Company's business is characterized by large purchases and high sales volumes extended across diverse product lines, rapid inventory turns and low profit margins. In this environment, vendor price changes are typically passed on immediately to the customer. The Company does not believe inflation or deflation has significantly affected its competitive position in the industry. However, since price changes do cause sales dollars to fluctuate more than sales quantities, the use of the LIFO method of accounting for inventories reduces the impact of price changes on earnings by matching current costs with current revenues. CAPITAL RESOURCES AND LIQUIDITY Overview Measures of liquidity for each of the last three fiscal years are as follows: December 31, January 1, January 2, 1994 1994 1993 Cash and cash items $ 41.0 million $ 77.5 million $ 94.8 million Short-term investments -- $ 19.9 million $ 5.0 million Working capital (FIFO inventory) $ 57.1 million $133.6 million $120.8 million Current ratio (FIFO inventory) 1.36 1.98 1.83 Unused lines of revolving credit $ 50.0 million $ 50.0 million $ 79.0 million Unused lines of short-term credit $ 28.0 million $ 30.0 million $ 31.0 million The Company maintained a solid capital structure at the end of fiscal 1994 despite the decreases in overall liquidity. The decreases in cash and cash items, short-term investments, working capital and current ratio when comparing year-end 1994 with year-end 1993, are the result of the Company's acquisition of Wilson's Supermarkets (Note 4). Lines of credit represent a continuing source of capital and remain available for contingency purposes. The Company is in a solid financial position to carry out its current retail expansion plans in 1995 and beyond. The Company has used internally generated funds, bank borrowings, capital leases, and proceeds from the sale of its drug stores (Note 5), to finance its continuing operations and growth. In February 1993, the Company announced a stock repurchase program authorizing the purchase of up to $55 million in shares of Hannaford common stock over the next three years. The program authorizes purchases on the open market and through privately negotiated transactions if special market opportunities arise. As of December 31, 1994, the Company had not repurchased any shares under this program. Cash Flows from Operating Activities Cash provided by operating activities was $143.9 million in 1994, an increase of $52.4 million over the $91.5 million provided in 1993. This increase is primarily attributable to improved results of operations and higher depreciation and amortization coupled with a decreased investment in working capital. Excluding the acquisition of Wilson's Supermarkets, inventories decreased $6.4 million in 1994 versus a $5.0 million increase in 1993. This decrease is the result of a reduction in warehouse inventories of $13.7 million, offset by an increase in retail inventories of $7.3 million. Management expects to maintain these lowered levels of inventories in its warehouses as it applies buying practices designed to meet its product distribution needs in a more efficient and cost effective manner. This cash inflow is expected to continue supporting the Company's capital spending program, dividend payments to shareholders, and other capital needs. Cash provided by operating activities was $91.5 million in 1993, a decrease of $18.9 million from the 1992 amount of $110.4 million. This decrease was due primarily to an increased investment in working capital. Cash Flows from Investing Activities Cash used in investing activities increased $82.7 million during 1994 to $169.7 million from $86.9 million in 1993. This increase is primarily the result of acquiring Wilson's Supermarkets. The acquisition, net of the reduction in short-term investments used to finance it, accounted for $75.5 million of the increase. Total capital investments totalled $209.7 million in 1994 and were composed of $84.0 million in additions to property, plant and equipment, $67.2 million of goodwill and $41.0 million of property, plant and equipment in the acquisition of Wilson's Supermarkets, $12.5 million in non- cash capital lease additions and $5.0 million in deferred charges and computer software costs. These 1994 capital investments were primarily composed of costs incurred in acquiring Wilson's Supermarkets and in building and equipping new and expanded supermarkets. Net retail selling space for food stores increased 28% in 1994 to 3,547,000 square feet at year-end, an increase of 776,000 square feet over 1993 year-end sales area. The Company added twenty supermarkets or 448,000 square feet of retail selling space when it acquired Wilson's Supermarkets in July 1994. In addition, the Company opened ten new supermarkets and one expanded supermarket while closing five smaller, outdated facilities. A number of 1994 supermarket construction starts will not be completed until 1995. The number of supermarkets and square footage of selling area at year-ends 1994, 1993 and 1992 are summarized below: FOOD STORES Number of Square Footage Units Selling Area 1994 118 3,547,000 1993 93 2,771,000 1992 93 2,619,000 Newly constructed supermarkets in 1994, excluding those acquired from Wilson's, together with their square footage of selling area, are listed below: Square Footage Location Selling Area Saratoga Springs, NY 48,000 Rotterdam, NY 47,000 Bennington, VT 40,000 Kingston, NY 47,000 Oxford, ME 38,000 Fayetteville, NC 29,000 Houlton, ME 22,000 Lunenburg, MA 39,000 Calais, ME 22,000 Oneonta, NY 38,000 Cash used in investing activities increased $33.4 million in 1993 to $86.9 million from $53.5 million in 1992. This increase is primarily the result of the Company's sale of the Wellby Super Drug store chain in 1992. Net proceeds of $29.8 million were realized from this divestiture. In addition, the Company's short-term investments increased by $14.9 million in 1993. The Company's short-term investment objectives were to maximize yields while minimizing risk and maintaining liquidity. Cash Flows from Financing Activities The Company continues to maintain a strong capital structure. Management believes that maintaining such financial flexibility provides a significant competitive advantage and allows the Company to be opportunistic in terms of acquisitions and expansions. Cash used in financing activities was $10.8 million in 1994 as compared to $21.8 million in 1993. This decrease is primarily the result of proceeds of $25.5 million from the issuance of long-term debt in 1994 offset by an increase of $11.9 million in payments on long-term debt. In December 1994, the Company received $25.0 million in senior unsecured debt financings with terms of 8 and 12 years and interest rates of 8.4% and 8.5%, respectively. During 1994, the Company made debt payments of $19.3 million in early extinguishments and prepayments on certain debt in addition to regular debt payments (Note 2). The Company paid $15.9 million in dividends to both common and preferred shareholders in 1994. These amounts were offset by proceeds of $9.3 million received during 1994 from the issuance of approximately 475,000 shares of common stock. The majority of these shares were issued under certain employee stock plans (Note 8) and per agreement with the Sobey Parties (Note 6). The acquisition of Wilson's Supermarkets (Note 4) was financed by cash and cash items, the Company's common stock and a promissory note. This acquisition will have no adverse impact on the Company's ability to fund its 1995 capital program. In addition to this acquisition, the Company is constructing additional supermarkets in North Carolina and Virginia. Quarterly cash dividends declared during 1994 totalled $.38 per common share, an increase of 11.8% over the $.34 per share declared during 1993. This was the thirty-second consecutive year that the aggregate dividend paid per common share, after adjustment for stock splits and stock dividends, has increased. Common stock dividend payments in 1994 represented 25.4% of net earnings available to common shareholders. In February 1995, the Company declared an increased quarterly dividend on its common stock of $.105 per share, payable March 23, 1995. The new quarterly dividend of $.105 per share represents an increase of 10.5% over the $.095 per share paid in March 1994. Cash used for financing activities totalled $21.8 million in 1993 as the Company did not issue any long-term debt during the year. The Company experienced a decrease in its long-term debt of $14.7 million during 1993 as it made early extinguishments and prepayments on certain debt secured by real estate and equipment, totalling $7.8 million. The Company paid $14.2 million in dividends to both common and preferred shareholders in 1993. These amounts were offset by proceeds of $8.4 million received during 1993 from the issuance of approximately 435,000 shares of common stock. 1995 Capital Program Total capital expenditure commitments are projected to be in the range of $170 million in 1995, primarily for new, expanded and relocated store construction, equipment, vehicles and other asset expenditures. During 1995, this program will be subject to continuing change and review as conditions warrant. Net square footage of retail selling space is expected to increase by approximately 12% during 1995. In addition, a number of projects scheduled to start in 1995 will not be completed until 1996. The 1995 capital program is expected to be financed by cash and cash items, internally generated funds and leases. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Presented below are the Registrant's Consolidated Balance Sheets, Consolidated Statements of Earnings, Consolidated Statements of Changes in Shareholders' Equity, Consolidated Statements of Cash Flows and accompanying Notes to Consolidated Financial Statements. REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders of Hannaford Bros. Co.: We have audited the consolidated financial statements and the financial statement schedules of Hannaford Bros. Co. and subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hannaford Bros. Co. and subsidiaries as of December 31, 1994 and January 1, 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in Note 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993. s/Coopers & Lybrand Portland, Maine January 23, 1995 HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (In thousands) December 31, January 1, 1994 1994 Current assets: Cash and cash items $ 40,955 $ 77,496 Short-term investments (note 1C) - 19,855 Accounts receivable, net 14,240 15,765 Inventories (note 1D) 132,423 129,934 Prepaid expenses 6,210 4,695 Deferred income taxes (note 9) 7,519 7,920 Total current assets 201,347 255,665 Property, plant and equipment, net 503,941 437,606 (notes 1E and 2) Leased property under capital leases, net 58,821 50,070 (note 3) Investment in financing leases 1,753 1,787 Other assets: Deferred charges, net (note 1G) 101,548 38,416 Computer software costs, net (note 1H) 8,382 8,790 Notes receivable 1,229 2,395 Miscellaneous assets 584 626 Total other assets 111,743 50,227 $877,605 $795,355 See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands except share amounts) December 31, January 1, 1994 1994 Current liabilities: Current maturities of long-term debt (note 2) $ 14,409 $ 7,180 Obligations under capital leases (note 3) 1,382 1,412 Accounts payable 89,927 79,679 Accrued payroll 19,017 17,323 Other accrued expenses 29,738 29,348 Income taxes 4,167 1,893 Total current liabilities 158,640 136,835 Deferred income tax liabilities (note 9) 21,886 23,753 Other liabilities 19,365 20,618 Long-term debt (note 2) 153,687 156,716 Obligations under capital leases (note 3) 69,552 58,835 Redeemable preferred stock of a subsidiary, par value $100 per share - 1,883 Shareholders' equity (notes 6 and 8): Class A Serial Preferred stock, no par, authorized 2,000,000 shares - - Class B Serial Preferred stock, par value $.01 per share, authorized 28,000,000 shares - - Common stock, par value $.75 per share: Authorized 110,000,000 shares; issued and outstanding 41,779,342 shares at December 31, 1994, and 41,210,774 shares at January 1, 1994 31,335 30,908 Additional paid-in capital 110,669 99,748 Preferred stock purchase rights 418 412 Retained earnings 312,053 265,647 Total shareholders' equity 454,475 396,715 $877,605 $795,355 See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except per share amounts) FISCAL YEAR 1994 1993 1992 Sales and other revenues $2,291,755 $2,054,889 $2,066,023 Cost of sales 1,728,499 1,543,932 1,552,155 Gross margin 563,256 510,957 513,868 Selling, general and administrative expenses 437,548 399,437 411,487 Operating profit 125,708 111,520 102,381 Interest expense, net (notes 1I and 2) 21,360 19,337 20,711 Earnings before income taxes 104,348 92,183 81,670 Income taxes (notes 1J and 9) 42,060 37,578 32,476 Earnings before cumulative effect of change in accounting principle 62,288 54,605 49,194 Cumulative effect to January 3, 1993 of change in income tax accounting -- 2,100 -- Net earnings $ 62,288 $ 56,705 $ 49,194 Per share of common stock: Earnings before cumulative effect of change in accounting principle $ 1.50 $ 1.33 $ 1.21 Cumulative effect to January 3, 1993 of change in income tax accounting -- .05 -- Net earnings $ 1.50 $ 1.38 $ 1.21 Cash dividends $ .38 $ .34 $ .30 Weighted average number of common shares outstanding 41,544 41,049 40,520 See accompanying notes to consolidated financial statements.
HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands) Additional Common Stock Paid-in Retained Preferred Stock Shares Amount Capital Earnings Purchase Rights Balance, December 28, 1991 40,148 $30,111 $ 80,896 $186,393 $402 Net earnings 49,194 Cash dividends: Redeemable preferred stock (278) Common stock (12,170) Preferred stock purchase rights (6) 6 Shares issued to certain shareholders per agreement 151 113 3,200 Shares issued under employee benefit plans 477 358 7,577 Balance, January 2, 1993 40,776 30,582 91,673 223,133 408 Net earnings 56,705 Cash dividends: Redeemable preferred stock (220) Common stock (13,967) Preferred stock purchase rights (4) 4 Shares issued to certain shareholders per agreement 127 95 2,660 Shares issued under employee benefit plans 268 201 4,548 Shares issued through redemption of preferred stock 40 30 867 Balance, January 1, 1994 41,211 30,908 99,748 265,647 412 Net earnings 62,288 Cash dividends: Redeemable preferred stock (74) Common stock (15,802) Preferred stock purchase rights (6) 6 Shares issued to certain shareholders per agreement 143 108 3,152 Shares issued under employee benefit plans 332 249 5,839 Shares issued in the acquisition of Wilson's Supermarkets 93 70 1,930 Balance, December 31, 1994 41,779 $31,335 $110,669 $312,053 $418 See accompanying notes to consolidated financial statements.
HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 1994 1993 1992 Cash flows from operating activities: Net income $ 62,288 $ 56,705 $ 49,194 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 62,756 56,353 54,914 Cumulative effect of accounting change - (2,100) - Gain on divestiture - - (4,556) Decrease (increase) in inventories 6,372 (5,060) 13,875 Decrease (increase) in receivables and prepayments 6,903 (4,232) (1,029) Increase (decrease) in accounts payable and accrued expenses 4,988 (6,038) (978) Increase (decrease) in income taxes payable 2,274 (4,652) 2,004 Increase (decrease) in deferred taxes (1,466) 1,619 (2,762) Other operating activities (178) (1,097) (254) Net cash provided by operating activities 143,937 91,498 110,408 Cash flows from investing activities: Acquisition of Wilson's Supermarkets, net of cash acquired (110,201) - - Acquisition of property, plant and equipment (83,969) (70,891) (73,101) Net proceeds from divestiture - - 29,814 Sale of property, plant and equipment, net 9,641 6,498 1,363 Increase in deferred charges (2,308) (4,569) (3,655) Increase in computer software costs (2,676) (3,133) (2,956) Decrease (increase) in short-term investments 19,855 (14,852) (5,003) Net cash used in investing activities (169,658) (86,947) (53,538) Cash flows from financing activities: Principal payments under capital lease obligations (1,359) (1,362) (1,375) Proceeds from issuance of long- term debt 25,500 - 18,252 Payments of long-term debt (26,550) (14,697) (10,916) Issuance of common stock 9,348 8,402 11,248 Dividends paid (15,876) (14,187) (12,448) Redemption of preferred stock (1,883) - - Net cash provided by (used in) financing activities (10,820) (21,844) 4,761 Net increase (decrease) in cash and cash items (36,541) (17,293) 61,631 Cash and cash items at beginning of year 77,496 94,789 33,158 Cash and cash items at end of year $ 40,955 $ 77,496 $ 94,789 See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental disclosure of cash flow information Acquisition of Wilson's Supermarkets, net of cash acquired: (In thousands) Working capital, other than cash $ 9,894 Property, plant and equipment 41,044 Goodwill 67,160 Other liabilities (1,397) Note payable (4,500) Issuance of common stock (2,000) Net cash used to acquire Wilson's Supermarkets $110,201 Cash paid during the year for: (In thousands) 1994 1993 1992 Interest (net of amount capitalized, $1,669 in 1994, $1,530 in 1993 and $1,264 in 1992) $24,205 $23,468 $22,993 Income taxes 41,286 40,529 33,151 Supplemental disclosure of noncash investing and financing activities Capital lease obligations totalling $12,480,000, $5,404,000 and $7,490,000 were incurred during 1994, 1993 and 1992, respectively, when the Company entered into leases for certain improved real estate. Non-cash debt obligations totalling $5,250,000 were incurred during 1994 primarily in the Company's acquisition of Wilson's Supermarkets. In addition, the Company issued $2,000,000 in common stock in the acquisition of Wilson's Supermarkets. Disclosure of accounting policy For the purposes of the Consolidated Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash items. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. NATURE OF BUSINESS The Company and its subsidiaries are principally involved in the distribution and retail sale of food, prescription drugs and related products through supermarkets and combination stores. The Company's stores are located in Maine, New Hampshire, Vermont, Massachusetts, upstate New York, North Carolina and South Carolina. B. PRINCIPLES OF CONSOLIDATION The Company's fiscal year ends on the Saturday closest to December 31. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as of December 31, 1994, for fiscal year 1994 (52 weeks), January 1, 1994, for fiscal year 1993 (52 weeks) and January 2, 1993, for fiscal year 1992 (53 weeks). All significant intercompany accounts and transactions have been eliminated in consolidation. C. SHORT-TERM INVESTMENTS Short-term investments are highly liquid investments with original maturities of more than three months and are stated at cost which approximates fair market value. D. INVENTORIES Inventories consist primarily of groceries, meat, produce, general merchandise and pharmaceuticals. Grocery, pharmaceutical and general merchandise inventories are valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market. Approximately 86% of inventories were valued using the LIFO method in 1994 and in 1993. Other inventories are stated at the lower of cost (first-in, first-out) or market. The current cost of groceries, general merchandise and pharmaceuticals exceeded the LIFO valuation by $14,343,000 at December 31, 1994 and $14,805,000 at January 1, 1994. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) E. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold interests and improvements are amortized on the straight-line method over the shorter of estimated useful life or lease term. The costs of repairs and maintenance are expensed as incurred; renewals and betterments are capitalized. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain or loss is included in the results of operations. Property, plant and equipment consists of the following: AVERAGE DEPRECIATION (In thousands) RATE 1994 1993 2% Land and improvements $ 81,667 $ 55,699 3% Buildings 203,645 175,894 13% Furniture, fixtures and equipment 294,792 252,474 4% Leasehold interests and improvements 169,178 145,595 Construction in progress 6,193 16,789 755,475 646,451 Less accumulated depreciation and amortization 251,534 208,845 $503,941 $437,606 F. STORE OPENING AND CLOSING COSTS The noncapital expenditures incurred in opening new stores or remodelling existing stores are expensed in the year in which they are incurred. When the decision is made to close a store, the remaining investment in fixtures and leasehold improvements is expensed over its remaining productive life. The present value of any remaining liability under the lease, net of expected sublease recovery, is also expensed on the same basis. G. DEFERRED CHARGES, NET Deferred charges consist of the following: (In thousands) 1994 1993 Goodwill $ 78,075 $13,447 Acquisition costs 21,925 22,948 Other 1,548 2,021 $101,548 $38,416 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Goodwill, which represents the excess of costs of companies acquired over the fair value of their net assets at dates of acquisition, is being amortized on the straight-line method over various periods not exceeding 20 years. The Company evaluates, on an ongoing basis, the carrying value of goodwill and makes a specific provision when impairment is identified. Impairment would include for an ongoing business, the inability to generate operating income sufficient to cover the amortization of goodwill, and in management's judgement, the business will not recover from this position. Impairment would also be identified in the event of an unexpected loss on the sale of a business. The Company has not recognized any provision for impairment of goodwill. Acquisition costs consist primarily of costs of obtaining new store sites, covenants-not-to-compete, tradenames and initial direct lease costs. Costs of obtaining new store sites, if ultimately developed, are capitalized and depreciated over the estimated useful lives of the related assets. Other intangible assets acquired in connection with acquisitions are being amortized on the straight-line method over periods ranging from five to ten years. Lease costs are being amortized on the straight-line method over the base lease terms. Amortization expense charged to operations for all deferred charges was $8,016,000 in 1994, $5,787,000 in 1993 and $5,268,000 in 1992. H. CAPITALIZED COMPUTER SOFTWARE COSTS Capitalized computer software costs consist of costs to purchase and develop software. The Company capitalizes internally developed software costs based on a project-by-project analysis of each project's significance to the Company and its estimated useful life. All capitalized software costs are amortized on a straight-line method over a period of five years. Amortization expense charged to operations was $3,085,000 in 1994, $3,116,000 in 1993 and $3,251,000 in 1992. I. CAPITALIZED INTEREST The Company capitalizes interest as a part of the cost of acquiring and constructing certain assets. Capitalized interest was $1,669,000 in 1994, $1,530,000 in 1993 and $1,264,000 in 1992. J. INCOME TAXES The Company accounts for income taxes under the provisions of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES (Note 9). HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) K. EARNINGS PER COMMON SHARE Earnings per share of common stock have been determined by dividing net earnings available to common shareholders by the weighted average number of shares of common stock outstanding. The assumed exercise of existing employee stock options has been excluded since it does not result in any material dilution. Net earnings available to common shareholders is equal to net earnings reduced by dividends paid of $74,000 in 1994, $220,000 in 1993 and $278,000 in 1992 on redeemable preferred stock of a subsidiary. L. FAIR VALUE DISCLOSURES ABOUT FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash items, short-term investments and notes receivable: The carrying amounts reported in the balance sheet for these items approximate their fair value. Long-term debt: The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying amount of the Company's long-term debt, including current maturities was approximately $168,100,000 at December 31, 1994. The fair value of the long-term debt is estimated to be $171,660,000 at December 31, 1994. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. EXTERNAL FINANCING At December 31, 1994, the Company had revolving credit lines with several banks totalling $50 million with interest rates determined by different borrowing options including prime, quoted money market or LIBOR plus a premium. At December 31, 1994, there were no outstanding borrowings under these credit lines. The agreements provide for conversion of revolving credit loans to term loans with principal payments due in quarterly installments over a period of four years. The loan agreements contain certain restrictive covenants, which among other provisions, require maintenance of certain levels of working capital, debt and tangible net worth. The lines require a commitment fee of from 1/4 to 3/8 of 1% on the unused portion of the line. There are no compensating balances required during the commitment period. In addition, the Company had unused, uncommitted short-term lines of credit with four banks totalling $28 million at December 31, 1994. Of this amount, approximately $6.4 million is reserved to support outstanding standby letters of credit which guarantee payment of certain insurance claims and premiums. During 1994, the Company extinguished certain debt, collateralized by real estate and equipment and held by insurance companies, totalling $17,190,000. These loans had terms ranging from 7 to 26 years and interest rates between 8.75% and 13.7%. Also, during 1994, the Company made prepayments on certain debt, collateralized by real estate and equipment, totalling $2,127,000. These loans had terms ranging from 7 to 20 years and interest rates between 9.5% and 10.2%. In December 1994, the Company received $25,000,000 in a senior uncollateralized debt financing consisting of $15,000,000 of 8.54% notes due in 2006 and $10,000,000 of 8.42% notes due in 2002. Principal payments vary over the term of the loans and are due annually on November 15. At December 31, 1994, real estate and equipment with a net book value of approximately $95,987,000 was pledged as collateral for debt of approximately $99,783,000. Net interest expense was as follows: (In thousands) 1994 1993 1992 Interest on debt $16,508 $17,249 $17,975 Capital lease interest 8,615 7,230 6,509 Capitalized interest (1,669) (1,530) (1,264) 23,454 22,949 23,220 Less interest income (2,094) (3,612) (2,509) Interest expense, net $21,360 $19,337 $20,711 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Long-term debt consists of the following: (In thousands) 1994 1993 Collateralized by equipment, due in varying installments through 1999 with interest from 6.3% to 10% $ 13,006 $ 18,991 Collateralized by real estate, due in varying installments through 2011 with interest from 7.55% to 10.35% 86,777 93,389 Collateralized by real estate with interest at 13.7% in 1993. - 13,758 Sale-leasebacks of improved real estate accounted for as financings, due in varying installments through 2013 with interest from 13.2% to 14.1% 3,460 3,498 Uncollateralized senior notes due in varying annual installments through 2006 with interest from 8.42% to 8.97%. 59,000 34,000 Uncollateralized note due in equal annual install- ments through 1999 with interest at 6%. 4,500 - Other 1,353 260 168,096 163,896 Less current portion 14,409 7,180 $153,687 $156,716 The uncollateralized senior note agreements contain certain restrictive covenants, which among other provisions, require maintenance of certain levels of debt and tangible net worth. Maturities of long-term debt at December 31, 1994, are as follows: (In thousands) 1995 $ 14,409 1996 12,537 1997 14,714 1998 15,605 1999 17,136 2000 and thereafter 93,695 $168,096 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 3. LEASED ASSETS AND LEASE COMMITMENTS The Company's financial structure includes leases of certain stores, office facilities, transportation vehicles and equipment. Initial lease terms range from 5 to 45 years with the majority of lease terms between 20 and 25 years. Substantially all leases contain renewal options. Certain leases contain a provision for the payment of contingent rentals based on a percentage of sales in excess of stipulated amounts. Most of the real estate leases provide that the Company pay taxes, insurance and maintenance applicable to the leased premises. The Company's investment in real property under capital leases was as follows: (In thousands) 1994 1993 Real property $76,552 $65,151 Less accumulated amortization 17,731 15,081 Net real property under capital leases $58,821 $50,070 Amortization of property under capital leases was $3,526,000 in 1994, $3,132,000 in 1993 and $3,001,000 in 1992. Future minimum rental payments under capital lease obligations and operating leases at December 31, 1994, are as follows: (In thousands) Capital Operating Leases Leases 1995 $ 11,015 $ 11,417 1996 10,929 10,202 1997 11,028 9,095 1998 11,011 8,329 1999 11,204 8,383 2000 and thereafter 135,413 90,618 Total minimum lease payments 190,600 138,044 Less: Imputed interest (at rates from 6.50% to 21.13%) 119,662 Estimated executory costs 4 Present value of net mini- mum lease payments 70,934 Less current obligations 1,382 Long-term obligations $ 69,552 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Minimum payments for capital and operating leases have not been reduced by minimum sublease rentals of $114,000 and $1,390,000, respectively, due in the future under noncancellable subleases. They also do not include contingent rentals that may be payable under certain leases. Total rent expense, net of executory costs, was as follows: (In thousands) 1994 1993 1992 Capital leases: Contingent rentals $ 379 $ 650 $ 727 Operating leases: Minimum rentals 11,578 12,409 13,114 Contingent rentals 291 435 470 Rentals from subleases (344) (344) (140) 11,525 12,500 13,444 $11,904 $13,150 $14,171 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. ACQUISITION OF WILSON'S SUPERMARKETS In July 1994, the Company acquired Boney Wilson & Sons, Inc. (Wilson's) and the majority of assets owned by Wilson Brothers Partnership, a partnership which owned certain real estate, the majority of which was leased to Wilson's and used in the ordinary course of business. Wilson's operates 20 supermarkets in southeastern North Carolina and northeastern South Carolina. The purchase also included sites for additional supermarkets, one of which was opened in September 1994, and two of which are under construction. The acquisition has been accounted for as a purchase, and accordingly the assets acquired and liabilities assumed have been recorded at their estimated fair values on the date of acquisition. The total cost of the acquisition, including assumed liabilities was $126,739,000, which exceeded the fair value of the acquired net assets by $67,160,000. The excess has been recorded as goodwill and amortized utilizing the straight line method over 20 years. Included within the assets acquired was $3,947,000 of cash and $4,570,000 of cash advances to certain wholesalers. Proforma unaudited results of operations of the Company, assuming the acquisition had occurred on January 1, 1994, and January 2, 1993, are as follows: Unaudited (In thousands except per share data) 1994 1993 Net sales $2,385,837 $2,242,741 Earnings before cumulative effect of change in accounting principle $ 63,124 $ 56,907 Net earnings $ 63,124 $ 59,007 Per share of common stock: Earnings before cumulative effect of change in accounting principle $ 1.52 $ 1.38 Cumulative effect of change in accounting principle -- .05 Net earnings $ 1.52 $ 1.43 The foregoing proforma data is not necessarily indicative of what would have occurred had the acquisition been consummated at the beginning of each year, nor of future operations of the combined companies. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 5. SALE OF WELLBY SUPER DRUG STORES AND RESTRUCTURING CHARGES In May 1992, the Company sold the majority of its stores in the Wellby Super Drug store chain for $29,814,000 resulting in a gain of $4,556,000. The drug stores represented less than 5% of the total sales and other revenues of the Company, and the divestiture did not have a material impact on 1992 net earnings. Also in July 1992, the Company offered special early retirement and voluntary resignation programs to reduce expenses. The charges associated with these programs were $4,012,000. These charges, when combined with the gain on the sale of the Wellby Super Drug store chain, generated a net gain of $544,000. This amount was included as a reduction of 1992 selling, general and administrative expenses. 6. CAPITAL STOCK In February 1988, an existing "standstill" agreement with certain shareholders ("the Sobey Parties") was amended and extended to December 31, 1992. This agreement contains a provision for five one-year extensions provided that neither party notifies the other at least five months in advance of a scheduled termination date of its desire to terminate the agreement. Since neither party gave such written notice, the term of the agreement has been automatically extended to December 31, 1995. Pursuant to the terms of the agreement, the Sobey Parties have agreed, among other things, not to increase their percentage ownership of the Company's voting stock above 25.6%, except in certain circumstances specified by the agreement. Under the agreement, whenever the Company issues shares of voting stock to third parties, the Sobey Parties generally have the right to purchase sufficient shares from the Company to maintain a 25.6% level of ownership. Since 1992 the Company has issued to the Sobey Parties the following shares of common stock pursuant to their purchase rights under the agreement: 1994, 143,316 shares; 1993, 126,803 shares; and 1992, 150,906 shares. All sales to the Sobey Parties pursuant to the standstill agreement have been made at market prices. In February 1988, the Company declared a dividend of one preferred stock purchase right (a "Right") for each outstanding share of common stock. Pursuant to the Rights agreement each share of common stock issued subsequent to the dividend declaration date will carry with it a Right. Each Right entitles its holder to purchase, under certain circumstances, one one-hundredth of a share of Series A Junior Participating Preferred Stock of the Company at an exercise price of $125, subject to certain adjustments, or under other circumstances, common stock or other securities and/or assets. Such Rights are not currently exercisable and expire February 4, 1998. The Rights become exercisable upon the occurrence of certain events and are redeemable by the Company under certain circumstances, all as described in the Rights agreement. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. PENSION PLANS The majority of the employees of the Company participate in non-contributory, defined benefit pension plans. The plans provide benefits based on the participants' years of service and compensation in later years or stated amounts for each year of service. The Company only funds amounts deductible for federal income tax purposes. Net pension cost included the following components: (In thousands) 1994 1993 1992 Service cost - benefits earned during the year $ 4,547 $ 3,197 $ 3,203 Interest cost on projected benefit obligation 4,882 3,993 3,472 Actual return on plan assets (682) (5,229) (3,650) Net amortization and deferral (3,670) 1,454 382 Net pension cost before special items 5,077 3,415 3,407 Sale of Wellby Super Drug stores - - (517) Early retirement program - - 1,304 Net pension cost $ 5,077 $ 3,415 $ 4,194 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following sets forth the funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and January 1, 1994: (In thousands) 1994 1993 Actuarial present value of benefit obligations: Vested benefit obligation $43,340 $43,387 Accumulated benefit obligation $44,756 $45,668 Projected benefit obligation $62,041 $65,863 Plan assets, at fair value, consisting of equities, fixed-income securities, real estate and cash and cash equivalents 56,894 52,351 Plan assets less than projected benefit obligation 5,147 13,512 Unrecognized net asset at transition 440 485 Unrecognized net loss (5,254) (12,512) Unrecognized prior service cost (2,160) (2,353) Prepaid pension cost $(1,827) $ (868) The actuarial valuation was calculated using the Projected Unit Credit Cost Method. The increase in the plans' liabilities is primarily due to a change in actuarial assumptions. Assumptions used in determining the funded status of the pension plans are as follows: 1994 1993 Discount rate 8.0% 7.5% Average rate of increase in compensation levels 4.5% 4.5% Expected long-term rate of return on assets 9.0% 8.5% The Company also administers certain defined contribution plans for eligible employees and a supplemental executive retirement plan. The cost of these plans was not significant. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. EMPLOYEE STOCK PLANS The 1985 Incentive Stock Option Plan and the 1988 Stock Plan provide for the granting to officers and other key employees options to purchase common stock at 100% of the market price on the date of grant. The 1988 Stock Plan allows the granting of both incentive stock options and non-qualified stock options. Under the Incentive Stock Option Plans, options for 50% of any grant are exercisable after one year and the remainder after two years. Non-qualified options may have various vesting schedules, but generally none are exercisable until one year following the grant. All options may be exercised for cash or by exchanging currently owned shares, or both. Under the 1988 Plan, exchanged shares may be regranted as non-qualified options. Original option grants expire from seven to ten years from the date of grant. Non-qualified stock option activity was not material. Incentive stock option activity for the fiscal years ended December 31, 1994 and January 1, 1994, was as follows: 1994 1993 Shares Option Price Shares Option Price Outstanding at beginning of year 986,720 $10.59-22.63 885,049 $ 9.22-22.63 Granted 367,501 21.63-23.38 247,504 22.25 Exercised (142,361) 10.59-22.63 (115,423) 9.22-22.63 Cancelled (23,788) 10.59-22.63 (30,410) 13.50-22.63 Outstanding at end of year 1,188,072 10.59-23.38 986,720 10.59-22.63 Exercisable at end of year 718,628 10.59-22.63 653,339 10.59-22.63 Available for future grants 222,257 - 950,292 - The 1982 Employee Stock Purchase Plan enables participating employees to purchase common stock through payroll deduction of up to 5% of eligible compensation. The Company pays interest on the accumulated withholdings. These amounts may be used to purchase shares of company stock at the option price (lesser of: (a) 85% of the fair market value at the date of grant or (b) the greater of the market price at the close of business on the exercise date or $10.00 per share). During 1994, employees purchased 102,171 shares, for which $1,781,000 was paid to the Company. As of December 31, 1994, grants had been exercised by employees for the purchase of 95,119 shares. As of February 1995, $1,880,000 had been received by the Company upon issuance of these shares. All shares issued under this Plan are from previously unissued reserves. At December 31, 1994, 402,778 shares remain available for issuance under the Plan. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. INCOME TAXES In 1993, The Company changed its method of accounting for income taxes from the deferred method to the liability method required by STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109 - ACCOUNTING FOR INCOME TAXES (the Statement). Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of the Statement, income tax expense was determined using the deferred method. Under this method, deferred tax expense was based on items of income and expense reported in different years of the financial statements and tax returns and was measured using the tax rate in effect in the year the difference originated. As permitted by the Statement, the Company elected not to restate the financial statements of any prior periods, the impact of which would not be material. The cumulative effect of adopting the Statement for periods prior to January 3, 1993 is $2.1 million or $.05 per share and is shown separately in the Consolidated Statement of Earnings for 1993. The change did not impact pretax income in 1993. Significant components of the Company's deferred tax assets and liabilities for the fiscal years ended December 31, 1994 and January 1, 1994 were as follows: (In thousands) 1994 1993 Deferred Tax Liabilities: Depreciation and amortization $32,113 $31,877 Other 2,325 1,894 34,438 33,771 Deferred Tax Assets: Capital leases (5,072) (4,350) Insurance reserves (9,742) (9,918) Employee benefit plans (3,576) (2,342) Other (1,681) (1,328) (20,071) (17,938) 14,367 15,833 Net current deferred tax assets 7,519 7,920 Net non-current deferred tax liabilities $21,886 $23,753 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The Company expects to realize the deferred tax assets in the ordinary course of business operations in subsequent years, and, accordingly, has not established a valuation reserve relative to these amounts. The components of the provision for income taxes were as follows: (In thousands) Deferred Liability Method Method 1994 1993 1992 Current Federal $34,585 $29,118 $27,848 State 9,100 6,732 7,390 43,685 35,850 35,238 Deferred Federal (1,209) 842 (1,591) State (416) 886 (1,171) (1,625) 1,728 (2,762) Total income tax expense $42,060 $37,578 $32,476 The components of the provision for deferred income tax expense for 1992 were as follows: (In thousands) 1992 Depreciation $ 931 Insurance reserves (2,037) Other (1,656) $(2,762) HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The reconciliation of income tax computed at the United States Federal statutory tax rates to income tax expense is: (In thousands) Deferred Liability Method Method 1994 1993 1992 Amount Percent Amount Percent Amount Percent Tax at U.S. statutory rate $36,522 35.00% $32,264 35.00% $27,768 34.00% State income taxes, net of federal tax benefit 5,645 5.41 4,973 5.39 4,104 5.02 Other - net (107) (.10) 341 .37 604 .74 $42,060 40.31% $37,578 40.76% $32,476 39.76% HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 10. RETIREE INSURANCE BENEFITS The Company provides certain health care and life insurance benefits for retired employees. Generally, employees became eligible for these benefits if they retired in accordance with the Company's established retirement policy. The Company has reserved the right to modify or terminate these plans. Effective January 3, 1993, the Company adopted SFAS NO. 106 - EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. This Statement generally requires the Company to accrue the cost of retiree health and other postretirement benefits during the working careers of active employees. The Company elected the prospective transition approach and is amortizing the transition obligation on a straight-line basis over a 20-year period. The impact of this change on fiscal years 1994 and 1993 and the pro forma effect on fiscal year 1992 was not material. The following sets forth the plan's status at December 31, 1994 and January 1, 1994: (In thousands) 1994 1993 Accumulated postretirement benefit obligation (APBO): Retirees $ 7,403 $ 9,098 Actives - eligible to retire 461 340 Actives - not eligible to retire 1,230 1,710 Total APBO 9,094 11,148 Plan assets at fair value 0 0 Accumulated postretirement benefit obligation in excess of plan assets 9,094 11,148 Unrecognized transition obligation (9,952) (10,505) Unrecognized net gain 1,918 - Accrued postretirement benefit liability $ 1,060 $ 643 Net periodic postretirement benefit cost for 1994 and 1993 included the following components: Service Cost $ 82 $ 117 Interest Cost 686 901 Amortization of transition obligation over 20 years 497 553 Net periodic postretirement benefit cost $ 1,265 $ 1,571 HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) An 8% annual rate of increase in the per capita costs of covered health care benefits was assumed for 1995, gradually decreasing to 5% by the year 2003. Increasing the assumed health care cost trends by one percentage point in each year would increase the accumulated post retirement benefit obligation as of December 31, 1994 by $0.8 million and increase the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for fiscal 1994 by $0.1 million. Discount rates of 8.0% and 7.5% were used to determine the accumulated postretirement benefit obligation in 1994 and 1993, respectively.
HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a presentation of selected financial data for each of the four quarters of fiscal years 1994, 1993 and 1992. During 1993, the Company adopted SFAS NO. 109 - ACCOUNTING FOR INCOME TAXES (Note 9). The cumulative effect of this adjustment, which increased net earnings by $2,100,000, is reflected in the first quarter of 1993. Fourth Quarter 1992 results are for 14 weeks of operations while all other quarters presented are for 13 weeks. In addition, Fourth Quarter 1992 includes a LIFO credit of $1,865,000 (before income taxes) primarily due to a decrease in inventory levels and a change to management's estimated inflation during the first three quarters of the year. (In thousands except per share amounts) First Second Third Fourth Quarter Quarter Quarter Quarter 1994 Sales and other revenues...... $519,078 $538,216 $622,554 $611,907 Gross margin...................... 125,745 134,132 151,612 151,767 Net earnings...................... 11,059 15,409 19,102 16,718 Per common share............. $ .27 $ .37 $ .46 $ .40 Weighted average common shares outstanding..................... 41,316 41,463 41,655 41,745 1993 Sales and other revenues...... $490,565 $517,974 $530,064 $516,286 Gross margin...................... 121,534 129,462 133,125 126,836 Net earnings...................... 11,869 14,486 16,000 14,350 Per common share............. $ .29 $ .35 $ .39 $ .35 Weighted average common shares outstanding..................... 40,859 41,044 41,121 41,175 1992 Sales and other revenues...... $486,769 $512,475 $526,438 $540,341 Gross margin...................... 121,281 126,813 131,606 134,168 Net earnings...................... 8,812 12,578 14,432 13,372 Per common share............. $ .22 $ .31 $ .35 $ .33 Weighted average common shares outstanding..................... 40,275 40,473 40,602 40,715
ITEM 9: DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None Part III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This item, except for certain information relating to Executive Officers included in Part I, is incorporated by reference to the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 24, 1995. ITEM 11. EXECUTIVE COMPENSATION This item is incorporated by reference to the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 24, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This item is incorporated by reference to the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 24, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This item is incorporated by reference to the Registrant's definitive proxy statement for the Annual Meeting of Shareholders to be held on May 24, 1995. Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents are filed as a part of this report: (a) 1., 2. Consolidated Financial Statements and Related Schedules PAGES Report of Independent Accountants............................. 24 Consolidated Balance Sheets - December 31, 1994 and January 1, 1994............................................ 25-26 Consolidated Statements of Earnings - Fiscal Years Ended, December 31, 1994, January 1, 1994 and January 2, 1993..... 27 Consolidated Statements of Changes in Shareholders' Equity - Fiscal Years Ended, December 31, 1994, January 1, 1994, and January 2, 1993....................... 28 Consolidated Statements of Cash Flows - Fiscal Years Ended, December 31, 1994, January 1, 1994, and January 2, 1993....................... 29-30 Notes to Consolidated Financial Statements.................... 31-49 Schedules I, II, III and IV are not included as they are not applicable. 3. Exhibits Required by Item 601 of Regulation S-K SEQUENTIAL PAGE NUMBER IN ORIGINAL 10-K 3.1 - Articles of Incorporation Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 3.2 - By-Laws of the Registrant Incorporated by reference to Exhibit 3.2 to the PAGES Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603). 4.1 - Instruments Defining the Rights of Included in Security Holders Exhibit 3 4.2 - There are incorporated herein by reference a (i) Rights Agreement dated as of February 4, 1988 between the Registrant and The First National Bank of Boston, as Rights Agent, a copy of which was filed as Exhibit 2 to the Registrant's Current Report on Form 8-K, dated February 16, 1988 (SEC File No. 1-7603) and (ii) an Appointment and Amendment Agreement dated September 22, 1992 to said Rights Agreement, substituting Continental Stock Transfer & Trust Company as Rights Agent, a copy of which was filed as Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1- 7603). 10.1 - There are incorporated herein by reference (i) an Amended and Restated Agreement, dated as of February 4, 1988, among the Registrant and various Sobey Parties, a copy of which was filed as Exhibit 1 to the Registrant's Current Report on Form 8-K, dated February 16, 1988 (SEC File No. 1-7603) and (ii) an Amendment Agreement dated as of January 1, 1992 to said Agreement with the Sobey Parties, substituting certain Sobeys Inc. employee benefit plans as parties thereto, a copy of which was filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). NOTE: Compensatory plans and arrangements and management contracts are filed as Exhibits 10.2 through 10.29 below. 10.2 - There are incorporated herein by reference (i) the amended and restated Hannaford Bros. Co. Employees' Retirement Plan, a copy of which was filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603) and (ii) the First Amendment to the Hannaford Bros. Co. Employees' Retirement Plan, effective on or before January 1, 1994, a copy of which was filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603). PAGES 10.3 - Second Amendment to the Hannaford Bros. Co. Employees' 59-69 Retirement Plan, effective on or after January 1, 1994. 10.4 - There is incorporated herein by reference the amended and restated Supplemental Executive Retirement Plan, a copy of which was filed as Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.5 - First Amendment to the Hannaford Bros. Co. Supplemental 70 Executive Retirement Plan, effective June 1, 1994. 10.6 - Amended and restated Hannaford Bros. Co. Employee 71-78 Stock Purchase Plan, effective October 19, 1994. 10.7 - There are incorporated herein by reference (i) the Registrant's 1985 Incentive Stock Option Plan, a copy of which was filed as Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 (Registration No. 2-98387); (ii) a First Amendment to said Plan, a copy of which was filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1988 (SEC File No. 1-7603); and (iii) a Second Amendment to said Plan, a copy of which was filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (SEC File No. 1-7603). 10.8 - There are incorporated herein by reference (i) the Registrant's 1993 Long Term Incentive Plan, effective January 3, 1993, a copy of which was filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603) and (ii) the First Amendment to the Registrant's 1993 Long Term Incentive Plan, effective January 2, 1994, a copy of which was filed as Exhibit 10.9 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603). 10.9 - There are incorporated herein by reference (i) the Registrant's 1980 Long Term Incentive Plan, a copy of which was filed as Exhibit 10B to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, 1981 (SEC File No. 1-7603); (ii) an Amendment to said Plan, a copy of which was filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 3, PAGES 1987 (SEC File No. 1-7603); (iii) the Second Amendment to said Plan, a copy of which was filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1988 (SEC File No. 1-7603); (iv) the Third Amendment to said Plan, a copy of which was filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1988 (SEC File No. 1-7603); (v) the Fourth Amendment to said Plan, a copy of which was filed as Exhibit 10.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603); and (vi) the Fifth Amendment to said Plan, a copy of which was filed as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991 (SEC File No. 1-7603). 10.10 - There are incorporated herein by reference (i) the Registrant's Annual Incentive Plan, a copy of which was filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (SEC File No. 1-7603) and (ii) a First Amendment to said Plan, a copy of which was filed as Exhibit 10.12 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603). 10.11 - There are incorporated herein by reference (i) an Employment Continuity Agreement between the Registrant and James L. Moody, Jr., a copy of which was filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603) and (ii) an Amendment to said Agreement, dated April 28, 1992, a copy of which was filed as Exhibit 10.11 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.12 - Second Amendment to an Employment Continuity Agreement 79 between the Registrant and James L. Moody, Jr., dated March 13, 1995. 10.13 - There are incorporated herein by reference (i) an Employment Continuity Agreement between the Registrant and Hugh G. Farrington, a copy of which was filed as Exhibit 10.14 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603) and (ii) an Amendment to said Agreement, dated April 28, 1992, a copy of which was filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.14 - Second Amendment to an Employment Continuity Agreement 80 between the Registrant and Hugh G. Farrington, dated March 13, 1995. PAGES 10.15 - There are incorporated herein by reference (i) a standard form of Employment Continuity Agreement between the Registrant and various of its executive officers, a copy of which was filed as Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603) and (ii) Amendment to Form of said Agreement, dated April 28, 1992, a copy of which was filed as Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.16 - Second Amendment to a standard form of Employment Continuity 81 Agreement between the Registrant and various of its executive officers. 10.17 - There is incorporated herein by reference a standard form Deferred Compensation Agreement available to outside directors of the Registrant, a copy of which was filed as Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1984 (SEC File No. 1-7603). 10.18 - There is incorporated herein by reference the Amended and Restated Savings and Investment Plan of the Registrant, a copy of which was filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.19 - First Amendment to the Amended and Restated Savings & 82-89 Investment Plan of the Registrant, effective on or after January 1, 1994. 10.20 - There are incorporated herein by reference (i) the Registrant's Amended and Restated Deferred Compensation Plan available to certain management employees of the Registrant, a copy of which was filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1988 (SEC File No. 1-7603) and (ii) the First Amendment to the Amended and Restated Deferred Compensation Plan, adopted October 11, 1993, a copy of which was filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603). 10.21 - There is incorporated herein by reference a standard form of Deferred Compensation Agreement available to certain management employees pursuant to the Registrant's Amended and Restated Deferred Compensation Plan, a copy of which was filed as Exhibit 10.19 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). PAGES 10.22 - There are incorporated herein by reference (i) the Registrant's 1988 Stock Plan, a copy of which was filed as Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 (Registration No. 33-22666); (ii) the First Amendment to said Plan, a copy of which was filed as Exhibit 10.23 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603); (iii) the Second Amendment to said Plan, a copy of which was filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991 (SEC File No. 1-7603); (iv) the Third Amendment to the Registrant's 1988 Stock Plan, effective January 3, 1993, a copy of which was filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603); and (v) the Fourth Amendment to the Registrant's 1988 Stock Plan, effective January 1, 1994, a copy of which was filed as Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1994 (SEC File No. 1-7603). 10.23 - Fifth Amendment to the Registrant's 1988 Stock Plan, 90 effective January 1, 1994. 10.24 - There are incorporated herein by reference (i) a Retirement Plan for Outside Directors of the Registrant, effective December 30, 1990, a copy of which was filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603) and (ii) the First Amendment to said Plan, a copy of which was filed as Exhibit 10.21 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 28, 1991 (SEC File No. 1-7603). 10.25 - There are incorporated herein by reference (i) an Agreement, dated February 11, 1991, between the Registrant and James L. Moody, Jr., a copy of which was filed as Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 29, 1990 (SEC File No. 1-7603) and (ii) an Amendment to said Agreement, dated May 14, 1992, a copy of which was filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.26 - There is incorporated herein by reference a letter agreement between the Registrant and Norman E. Brackett, dated September 9, 1992, a copy of which was filed as Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). PAGES 10.27 - There is incorporated herein by reference a letter agreement between the Registrant and Roger W. Hoyt, dated September 9, 1992, a copy of which was filed as Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 1993 (SEC File No. 1-7603). 10.28 - Letter Agreement between the Registrant and Roger W. Hoyt, 91-92 dated June 1, 1994. 10.29 - Letter Agreement between the Registrant and Roger W. Hoyt, 93-94 dated August 15, 1994. 21 - Subsidiaries of the Registrant............................ 95 23 - Consents of Accountants................................... 96 27 - Financial Data Schedule 97 (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 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. HANNAFORD BROS. CO. s/Norman E. Brackett Norman E. Brackett Sr. Vice President, Chief Financial Officer (Principal Financial Officer) March 8, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. s/James L. Moody, Jr. s/Laurel Cutler s/David F. Sobey James L. Moody, Jr. Laurel Cutler David F. Sobey Chairman of the Board Director Director Director March 8, 1995 March 8, 1995 March 8, 1995 s/Walter J. Salmon s/Robert L. Strickland s/Norman E. Brackett Walter J. Salmon Robert L. Strickland Norman E. Brackett Director Director Sr. Vice President, March 8, 1995 March 8, 1995 Chief Financial Officer (Principal Accounting Officer) March 8, 1995 s/Richard K. Lochridge Richard K. Lochridge Claudine B. Malone s/Hugh G. Farrington Director Director Hugh G. Farrington March 8, 1995 President Chief Executive Officer Director March 8, 1995 s/Robert D. Bolinder Robert D. Bolinder William A. Andres Director Director s/Bruce G. Allbright March 8, 1995 Bruce G. Allbright Director March 8, 1995 s/William T. End s/James W. Gogan William T. End James W. Gogan Director Director March 8, 1995 March 8, 1995 EX-10 2 Exhibit 10.3 SECOND AMENDMENT TO THE HANNAFORD BROS. CO. EMPLOYEES' RETIREMENT PLAN The Hannaford Bros. Co. Employees' Retirement Plan (the "Plan") was last amended and restated effective January 1, 1993. The Plan was thereafter amended as of the same date and is hereby further amended in the following respects: 1. The terms used in this Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Section 1.11 is hereby amended to read as follows: "1.11 'Compensation' shall mean the basic compensation paid, before any reduction pursuant to a deferral election under the Hannaford Bros. Co. Savings and Investment Plan or a benefit election under the Hannaford Bros. Co. Flexible Benefits Plan, to a Participant by an Employer, excluding reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation, welfare benefits, unguaranteed overtime pay, bonuses and other irregular payments. Notwithstanding the preceding sentence to the contrary, for benefits accruing in Plan Years beginning on or after January 1, 1989, the annual Compensation of any Participant in excess of Two Hundred Thousand Dollars ($200,000), or such higher amount as the Secretary of the Treasury may prescribe, shall not be taken into account under the Plan; and for benefits accruing in Plan Years beginning on or after January 1, 1994, the annual Compensation of any Participant in excess of One Hundred Fifty Thousand Dollars ($150,000), or such higher amount as the Secretary of the Treasury may prescribe, shall not be taken into account under the Plan. In the event Compensation is determined for a period which contains fewer than twelve (12) calendar months, the annual Compensation limit shall be an amount equal to the annual Compensation limit for the calendar year in which the period begins multiplied by a fraction, the numerator of which is the number of calendar months in the period and the denominator of which is twelve (12). For purposes of the annual Compensation limit, any Compensation paid to a Participant who is the spouse or a lineal descendant (who has not attained age nineteen (19) by the close of the Plan Year) of a Participant who is a Five Percent Owner or one of the ten (10) highly compensated employees (within the meaning of Section 414(q) of the Code) paid the highest compensation (as defined in Section 13.07) for the Plan Year shall be treated as paid to or on behalf of such Five Percent Owner or highly compensated employee. If the annual Compensation limit is exceeded as a result of the application of the preceding sentence, then (except for purposes of determining the portion of Compensation not in excess of Covered Compensation) the limitation shall be prorated among the affected Participants' Compensation, as determined prior to the application of the annual Compensation limit. The rules of this paragraph are effective January 1, 1994. If the Secretary of the Treasury increases the annual Compensation limit for a calendar year, the increased limit shall apply to any period beginning in such calendar year over which Compensation is determined ("determination period"). If Compensation for a prior determination period is taken into account for a determination period beginning on or after January 1, 1994, such Compensation shall be subject to the annual Compensation limit (determined under this Section) in effect for such prior determination period. For purposes of this paragraph, the annual Compensation limit is $150,000 for determination periods beginning before January 1, 1994. Effective January 1, 1994, the Accrued Benefit of a Section 401(a)(17) Participant shall be equal to the greater of: (a) the Participant's Accrued Benefit based on his or her Average Annual Compensation, Covered Compensation and Years of Benefit Service as of the date such benefit is determined; or (b) the sum of: (i) the Participant's Accrued Benefit based on his or her Average Annual Compensation, Covered Compensation and Years of Benefit Service as of December 31, 1993, determined under the terms of the Plan in effect on that date; and (ii) the Participant's Accrued Benefit based on his or her Average Annual Compensation, Covered Compensation and Years of Benefit Service (disregarding Years of Benefit Service prior to January 1, 1994), determined under the benefit formula set forth in Section 4.01. 'Section 401(a)(17) Participant' means a Participant whose Accrued Benefit determined on or after January 1, 1994, is based on Annual Compensation for a period beginning before that date in excess of One Hundred Fifty Thousand Dollars ($150,000). In the event the Plan is amended after January 1, 1994, to add an optional form of benefit (within the meaning of Treasury Regulation Section 1.401(a)(4)-4(e)), such benefit, if subsidized, shall not available to a Section 401(a)(17) Participant." 3. Article I is hereby amended by redesignating Sections 1.22 through 1.57 as Sections 1.23 through 1.58, and by adding a new Section 1.22 to read as follows: "1.22 'Finance Committee' shall mean the Finance Committee of the Board of Directors." 4. Article I is hereby amended by deleting Section 1.26 (redesignated herein as Section 1.27) in its entirety and by redesignating Sections 1.27 through 1.57 (redesignated herein as Sections 1.28 through 1.58) as Sections 1.27 through 1.57. 5. Section 1.27 is hereby amended to read as follows: "1.27 'Investment Manager' shall mean any fiduciary (other than the Trustee or a named fiduciary as defined in Section 402(a)(2) of ERISA): (a) who is appointed by the Finance Committee to manage, acquire, or dispose of all or any portion of the Trust Fund; (b) who (i) is registered as an investment adviser under the Investment Advisers Act of 1940; (ii) is a bank, as defined in said Act; or (iii) is an insurance company qualified to manage, acquire, or dispose of all or any portion of the Trust Fund under the laws of more than one State; and (c) who has acknowledged, in writing, that he or she is a fiduciary with respect to the Plan." 6. Section 1.50 is hereby amended to read as follows: "1.50 'Trustee' shall mean the bank, trust company or individuals appointed by the Finance Committee to serve as the trustee of the Trust." 7. Section 4.02 is hereby amended to read as follows: "4.02 BENEFITS FOR CERTAIN WAREHOUSE PARTICIPANTS. The benefits payable to or in respect of Warehouse Participants who retire or separate from service before March 20, 1994, shall be determined in accordance with the terms of the Plan as in effect on the date of each such Participant's retirement or separation from service. (a) The benefits payable to or in respect of Warehouse Participants who retire or separate from service on or after March 20, 1994, shall be determined as follows: (i) NORMAL RETIREMENT BENEFIT. A Warehouse Participant who retires or is deemed to retire on his or her Normal Retirement Date shall be entitled to receive a monthly retirement benefit ("Normal Retirement Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Normal Retirement Date by Twenty-Nine Dollars ($29.00). (ii) EARLY RETIREMENT BENEFIT. A Warehouse Participant who retires on an Early Retirement Date shall be entitled to receive a monthly retirement benefit ("Early Retirement Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Early Retirement Date by Twenty-Nine Dollars ($29.00). The amount determined in accordance with this subsection (ii) shall be reduced by 0.5952 of 1% for each month by which the commencement of such Warehouse Participant's Early Retirement Benefit precedes the first day of the month coinciding with or next following his or her Normal Retirement Date. (iii) DEFERRED RETIREMENT BENEFIT. A Warehouse Participant who retires or is deemed to retire on a Deferred Retirement Date shall be entitled to receive a monthly retirement benefit ("Deferred Retirement Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Deferred Retirement Date by Twenty-Nine Dollars ($29.00). (iv) VESTED BENEFIT. Effective January 1, 1989, a Terminated Warehouse Participant who is credited with at least five (5) Years of Vesting Service shall be entitled to a monthly retirement benefit ("Vested Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Termination of Employment Date by Twenty-Nine Dollars ($29.00). The amount determined in accordance with this subsection (iv) shall be reduced by 0.5952 of 1% for each month by which the commencement of such Warehouse Participant's Vested Benefit precedes the first day of the month coinciding with or next following his or her Normal Retirement Date. (b) The benefits payable to or in respect of Warehouse Participants who retire or separate from service on or after February 17, 1996, shall be determined as follows: (i) NORMAL RETIREMENT BENEFIT. A Warehouse Participant who retires or is deemed to retire on his or her Normal Retirement Date shall be entitled to receive a monthly retirement benefit ("Normal Retirement Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Normal Retirement Date by Thirty Dollars ($30.00). (ii) EARLY RETIREMENT BENEFIT. A Warehouse Participant who retires on an Early Retirement Date shall be entitled to receive a monthly retirement benefit ("Early Retirement Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Early Retirement Date by Thirty Dollars ($30.00). The amount determined in accordance with this subsection (ii) shall be reduced by 0.5952 of 1% for each month by which the commencement of such Warehouse Participant's Early Retirement Benefit precedes the first day of the month coinciding with or next following his or her Normal Retirement Date. (iii) DEFERRED RETIREMENT BENEFIT. A Warehouse Participant who retires or is deemed to retire on a Deferred Retirement Date shall be entitled to receive a monthly retirement benefit ("Deferred Retirement Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Deferred Retirement Date by Thirty Dollars ($30.00). (iv) VESTED BENEFIT. Effective January 1, 1989, a Terminated Warehouse Participant who is credited with at least five (5) Years of Vesting Service shall be entitled to a monthly retirement benefit ("Vested Benefit") equal to the amount determined by multiplying the number of such Warehouse Participant's Years of Benefit Service determined as of his or her Termination of Employment Date by Thirty Dollars ($30.00). The amount determined in accordance with this subsection (iv) shall be reduced by 0.5952 of 1% for each month by which the commencement of such Warehouse Participant's Vested Benefit precedes the first day of the month coinciding with or next following his or her Normal Retirement Date. (c) Notwithstanding the preceding to the contrary, the benefits payable to or in respect of a Warehouse Participant who retires or separates from service shall not be less than his or her Accrued Benefit determined in accordance with the terms of the Plan as in effect on April 10, 1982, based upon his or her Years of Benefit Service and Average Annual Compensation as of such date. 8. The last sentence of Sections 5.02, 6.02, 7.02, 8.03 and 9.01(b) is hereby amended to read as follows: "Such death benefit shall be paid in a lump sum unless the Beneficiary requests payment in the form of an annuity." 9. Section 12.03 is hereby amended to read as follows: "12.03 SMALL INSTALLMENTS AND CASH OUTS. (a) In the event that any payment under the Plan would be Fifty Dollars ($50.00) or less if paid monthly and the present value of all such payments as of the date distribution is to commence would exceed Three Thousand Five Hundred Dollars ($3,500.00), the Retirement Committee shall, with the written consent of the Participant and, if married, his or her spouse, direct the Trustee to pay such benefit in a lump sum. (b) Notwithstanding any provision of the Plan to the contrary, if the present value of the entire nonforfeitable benefit payable with respect to a Participant does not exceed Three Thousand Five Hundred Dollars ($3,500.00) as of the date distribution of such benefit is to commence, the Retirement Committee shall direct the Trustee to pay such benefit in a lump sum as soon as practicable following the Participant's retirement date, Termination of Employment Date or death, as the case may be. The present value of such benefit shall be calculated using an interest rate that does not exceed the lesser of (i) the rate set forth in Section 26.11, or (ii) the applicable PBGC rate in effect as of the first day of the Plan Year in which the distribution occurs. The term "applicable PBGC rate" means the appropriate deferred or immediate interest rate which would be used by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump sum distribution on plan termination. In no event shall a lump sum payment be made after the Annuity Starting Date without the written consent of the Participant (if living) and the Participant's spouse (if married) within the ninety-day period ending on the distribution date. (c) If the present value of the entire nonforfeitable benefit payable with respect to a Participant exceeds $3,500, but does not exceed $10,000, such Participant may, at any time prior to the Annuity Starting Date, elect to receive payment in the form of an immediate lump sum (in lieu of the form prescribed in Sections 5.02, 6.02, 7.02, 8.03 or 10.05); provided, if the Participant is married, his or her spouse must consent in writing to such election within the ninety (90) day period ending on the date of distribution. The present value of such benefit shall be calculated in the manner set forth in subsection (b) of this Section. Notwithstanding any provision of the Plan to the contrary, a Participant who is entitled to elect an immediate lump sum payment may elect within such ninety (90) day period, payment in the normal form prescribed in Articles V, VI, VII or VIII, as the case may be, commencing on the date such lump sum payment would be made. (d) Any election pursuant to this Section shall be in writing and shall be effective upon receipt by the Retirement Committee. A spouse's consent under this Section must meet the applicable requirements of Section 10.06. 10. Section 18.04 is hereby amended to read as follows: "18.04 TRUST. In order to establish a funding medium to carry out the provisions of the Plan, the Employers shall maintain a Trust with a bank or trust company as Trustee, as the Finance Committee shall appoint. Such Trust shall become a part of the Plan and shall provide that no part of the corpus or income of the Trust Fund shall, except as otherwise provided in this Plan, be used for, or diverted to, purposes other than the exclusive benefit of the Participants and their Beneficiaries. 11. Section 19.02 is hereby amended to read as follows: "19.02 APPOINTMENT, RESIGNATION AND REMOVAL. Any person appointed to serve as a member of the Retirement Committee shall serve at the pleasure of the Board of Directors and may be removed by delivery of written notice of removal which shall take effect at the date specified therein. Any member of the Retirement Committee may resign at any time be delivering to the Board of Directors a written notice of resignation which shall take effect at a date specified therein. The Board of Directors, as soon as practicable following delivery of a written notice of removal or receipt of a written notice of resignation of any member of the Retirement Committee, shall consider the appointment of a successor. 12. Section 19.03 is hereby amended to read as follows: "19.03 DUTIES. The Retirement Committee shall be a named fiduciary within the meaning of Section 402(a)(2) of ERISA with the following powers and complete discretionary authority to control and manage the operation and administration of the Plan: (a) to determine all questions concerning the eligibility of Employees to participate in and receive benefits under the Plan; (b) to compute the amount of benefits payable to any Participant or other person; (c) to authorize and direct the Trustee with respect to payment of benefits; (d) to interpret the provisions of the Plan and to make rules and regulations for the administration of the Plan; (e) to maintain all the necessary records for the administration of the Plan; (f) to monitor the performance of the Trustee and any Investment Managers and to report its findings to the Finance Committee not less often than semiannually; (g) to act as agent for service of legal process; and (h) to employ or retain counsel, accountants, actuaries or such other consultants as may be required to assist in administering the Plan. The interpretation of the Plan and the construction of Plan provisions that are made by the Retirement Committee shall be final, conclusive and binding on all affected parties. Except as provided in subsection (f) of this Section, the Retirement Committee shall have no power or authority over the investment of the assets of the Trust Fund. The Finance Committee, Trustee and/or any duly appointed investment manager or managers shall have exclusive authority and discretion to manage and control the Trust Fund in accordance with the terms of the Trust. 13. Article XX is hereby amended to read as follows: ARTICLE XX Finance Committee "20.01 DUTIES. The Finance Committee shall be a named fiduciary within the meaning of Section 402(a)(2) of ERISA and shall have the following duties and responsibilities: (a) to appoint and remove the Trustee and establish the terms of the Trust agreement; (b) to establish investment policies and objectives with regard to management of the Trust fund; and (c) to appoint one or more Investment Managers to direct the investment of the Trust Fund or such portion thereof as may be designated by the Finance Committee, to remove any Investment Manager, and to establish investment guidelines which shall be binding on such Investment Managers. The Finance Committee shall act by a majority of its members and such action may be taken by a vote at a meeting or in writing without a meeting. Any member may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. In carrying out its duties, the Finance Committee may employ or retain counsel, accountants, actuaries and such other consultants as it deems to be in the best interests of the Plan. The Finance Committee may, by a writing signed by a majority of its members, delegate to any member or members of the Committee or to any Employee or Employees, severally or jointly, the authority to perform any ministerial act in connection with the administration of the Plan. The Finance Committee shall have no power or authority to control the operation and administration of the Plan, apart from its duties as enumerated in this Section. 20.02 FIDUCIARY DUTIES. The Finance Committee shall discharge its duties under the Plan and Trust solely in the interest of the Participants and their Beneficiaries and: (a) for the exclusive purposes of (i) providing benefits to the Participants and Beneficiaries; and (ii) defraying reasonable expenses of administering the Plan and Trust; (b) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims; and (c) by diversifying the investments of the Trust so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 20.02 COMPENSATION AND REIMBURSEMENT OF EXPENSES. The members of the Finance Committee shall be entitled to reasonable compensation for services rendered, and to reimbursement of expenses properly and actually incurred, in the performance of their duties on behalf of the Plan, but no person so serving who already receives pay from an Affiliated Employer shall receive compensation for such services, except for reimbursement of expenses properly and actually incurred and not otherwise reimbursed. 20.04 RELIANCE ON REPORTS. The Finance Committee shall be entitled to rely upon all certificates and reports made by any counsel, accountant, actuary, investment manager or other consultant employed or retained to assist in administering the Plan and Trust. 20.05 MULTIPLE SIGNATURES. A majority of the members of the Finance Committee or any one member authorized by such Committee shall have authority to execute all documents, reports or other memoranda necessary or appropriate to carry out the actions and decisions of the Finance Committee. The Trustee, any investment manager or any other interested party may rely upon any document, report or other memorandum so executed as evidence of the Finance Committee action or decision indicated thereby. 14. Section 26.13 is hereby amended to read as follows: "26.13 DELEGATION OF AUTHORITY BY SUBSIDIARIES. Each subsidiary of Hannaford Bros. Co. that adopts the Plan hereby irrevocably grants to Hannaford Bros. Co., the Board of Directors, the Retirement Committee and the Finance Committee exclusive authority to exercise all of the powers conferred on them by the terms of the Plan, including the power vested in the Board of Directors to amend or terminate the Plan. Each such subsidiary shall automatically become a party to the Trust without further action on its part." 15. Section 26.16 is hereby amended to read as follows: "26.16 DIRECTED PAYMENTS. Effective January 1, 1994, a former Participant, surviving spouse or Beneficiary who is entitled to receive monthly benefit payments from the Plan and who is a participant in the Hannaford Bros. Co. Retiree Medical Plan ("Retiree Medical Plan") may direct the Trustee to deduct such portion of each monthly benefit payment as is necessary to satisfy his or her required monthly contribution under the Retiree Medical Plan and to remit such amount to the Hannaford Bros. Co. Tax Exempt Employee Benefits Trust ("Tax Exempt Trust"), provided the amount of each monthly benefit payment from the Plan is at least equal to the amount of his or her required monthly contribution under the Retiree Medical Plan. Such direction shall be made on such form and in such manner as the Retirement Committee may prescribe and shall be effective as of the first monthly benefit payment following receipt by the Retirement Committee, provided it is received at least fifteen (15) days in advance of such payment. Notwithstanding the foregoing to the contrary, any individual who is a former highly compensated employee (within the meaning of Section 414(q) of the Code) or who is a "party in interest" (as defined in Section 3(14) of ERISA) shall not be permitted to direct payments pursuant to this Section. A direction pursuant to this Section may be revoked, in writing, by the former Participant, surviving spouse or Beneficiary, as the case may be, at any time, and shall be effective as soon as practicable following receipt by the Retirement Committee. The Retirement Committee may terminate the availability of this direct payment provision upon thirty (30) days' prior written notice to the Trustee and each affected former Participant, surviving spouse and Beneficiary. The Retirement Committee shall maintain records sufficient to demonstrate that no payments have been made to the Tax Exempt Trust pursuant to this Section before the monthly benefit payment would have been otherwise made to the former Participant, surviving spouse or Beneficiary, as the case may be, and that no expense has been incurred by the Plan as a result of this Section." 16. This Amendment shall be effective, generally, January 1, 1994; provided, however, that Part 9 shall be effective January 1, 1995, and Parts 3 through 6 and 10 through 14 shall be effective May 19, 1994. EX-10 3 Exhibit 10.5 FIRST AMENDMENT TO THE HANNAFORD BROS. CO. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN The Hannaford Bros. Co. Supplemental Executive Retirement Plan ("Plan") was last amended and restated effective January 1, 1993. The Plan is hereby amended in the following respects: 1. The terms used in this Amendment shall have the meanings set forth in the Plan unless the context clearly indicates otherwise. 2. Section 3.1 is hereby amended by adding at the end thereof the following paragraph: "In addition to the annual benefit described in this section, Roger W. Hoyt shall be entitled to: (a) (i) a lump sum payment equal to the supplemental pension benefit described in Part 2, and (ii) a lump sum payment equal to the present value of the retiree medical coverage described in Part 3, of a certain letter agreement dated June 1, 1994, setting forth benefits the Company shall provided to Mr. Hoyt in lieu of benefits he would have received under the Company's Early Retirement Incentive Program, if he had retired in 1992; and (b) a lump sum payment in satisfaction of the Company's obligation to contribute to Mr. Hoyt's housing costs, as described in Part 3 of said Agreement." 3. This Amendment shall be effective June 1, 1994. EX-10 4 Exhibit 10.6 HANNAFORD BROS. CO. EMPLOYEE STOCK PURCHASE PLAN The Hannaford Bros. Co. Employee Stock Purchase Plan (formerly the Hannaford Bros. Co. 1982 Employee Stock Purchase Plan), originally adopted by the Executive Committee of the Board of Directors of the Corporation on March 23, 1982, and approved by the stockholders of the Corporation on May 28, 1982, and amended from time to time thereafter, is hereby amended and restated effective October 19, 1994. 1. PURPOSE. The purpose of this Plan is to encourage eligible employees to become stockholders in the Corporation and to afford them an opportunity to share in the profits and growth of the Corporation. 2. DEFINITIONS. As used in this Plan, the following words and phrases wherever capitalized shall have the following meanings, respectively, unless the context clearly indicates that a different meaning is intended: (a) "Acceptance Date" shall mean the date fixed by the Committee by which Employees may accept Options. (b) "Board" shall mean the Board of Directors of the Corporation. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Common Stock" shall mean common stock, par value $.75 per share, of the Corporation. (e) "Committee" shall mean the committee appointed pursuant to Section 3 which shall have the authority to control and manage the administration of the Plan. (f) "Compensation" shall mean the base salary or wages paid to an Employee by the Corporation or any Subsidiary, determined prior to any amounts being withheld under the Hannaford Bros. Co. Savings and Investment Plan or the Hannaford Bros. Co. Flexible Benefits Plan, excluding unguaranteed overtime pay, bonuses and other irregular payments. (g) "Corporation" shall mean Hannaford Bros. Co. (h) "Employee" shall mean an individual employed by the Corporation, a Parent, or any Subsidiary. (i) "Employee Stock Purchase Plan" shall mean a plan described in Sec. 423 of the Code. (j) "Exercise Date" shall mean the date fixed by the Committee on which Options may be exercised. (k) "Offering Date" shall mean the date fixed by the Committee on which Options are offered. (l) "Option" shall mean a stock option granted under the Plan. (m) "Option Agreement" shall mean a written instrument which specifies the terms and restrictions of an Option. (n) "Option Period" shall mean the period commencing on the Withholding Date and ending on the Exercise Date with respect to any Option. (o) "Parent" shall mean a parent corporation within the meaning of Sec. 424(e) and (g) of the Code. (p) "Plan" shall mean the Hannaford Bros. Co. Employee Stock Purchase Plan. (q) "Share" shall mean a share of Common Stock of the Corporation, as adjusted in accordance with Section 12. (r) "Subsidiary" shall mean a subsidiary corporation within the meaning of Sec. 424(f) and (g) of the Code. (s) "Withholding Date" shall mean the date fixed by the Committee as of which withholding of an Employee's Compensation shall commence under the Plan. 3. ADMINISTRATION. (a) COMMITTEE MEMBERS. The Plan shall be administered by the members of the Human Resources Committee of the Board who are not Employees. A majority of the members of the Committee shall constitute a quorum and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. Any member may participate in a meeting of the Committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Further, any action of the Committee may be taken without a meeting if all of the members of the Committee sign written consents setting forth the action taken or to be taken, at any time before or after the intended effective date of such action. (b) POWERS. The Committee shall have the power and authority to administer the Plan, including the following powers and authority which shall be exercised in accordance with the terms of the Plan: (i) to fix the Offering Date, Acceptance Date, Withholding Date and Exercise Date with respect to each offering of Options under the Plan; (ii) to fix the aggregate number of Shares which may be issued under Options offered as of each Offering Date, provided the maximum number of Shares which may be issued under Options granted under the Plan shall not exceed the limitation set forth in Section 4; (iii) to determine, from among the Corporation and its Subsidiaries, which corporation's (or corporations') Employees shall be offered Options on each Offering Date; (iv) to determine the maximum percentage of Compensation that an Employee may have withheld during an Option Period; (v) to determine which Employees have satisfied the eligibility requirements set forth in Section 5; (vi) to determine the terms and restrictions of each offering of Options; (vii) to make adjustments in accordance with Section 12; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan; (ix) to interpret the Plan and make all other determinations deemed necessary or advisable for the administration of the Plan. (c) DELEGATION OF MINISTERIAL DUTIES. The Committee may delegate to any other person or persons, severally or jointly, the authority to perform any ministerial act in connection with the administration of the Plan. (d) SIGNATURES. The Committee may authorize any member thereof to execute all instruments required in the administration of the Plan and such instruments may be executed by facsimile signature. 4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12, the maximum aggregate number of Shares which may be issued under Options granted under the Plan shall, effective February 2, 1989, be equal to the sum of the following: (a) the sixty thousand (60,000) Shares authorized when the Plan was first approved by stockholders, as such number was thereafter adjusted in accordance with Section 12; and (b) four hundred thousand (400,000) Shares. In the event that any Option granted under the Plan expires or terminates for any reason without having been exercised in full, the Shares subject to, but not issued under, such Option shall become available for other Options, unless the Plan shall have been terminated. 5. ELIGIBILITY. (a) REQUIREMENT. Each Employee of a corporation, the Employees of which are offered Options, shall be eligible to participate in such offering if such Employee has been employed by the Corporation or any Subsidiary for a period of six (6) months prior to the Offering Date. Options shall be granted only to Employees. (b) LIMITATION ON STOCK OWNERSHIP. An Employee shall not be granted an Option if such Employee, immediately after the Option is granted, owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation, a Parent or any Subsidiary. For purposes of applying the percentage limitation of the preceding sentence, the rules of Sec. 424(d) of the Code shall apply in determining the stock ownership of an individual, and stock which such Employee may purchase under outstanding options shall be treated as stock owned by such Employee. (c) LIMIT ON GRANTS. An Employee shall not be granted an Option which permits his or her rights to purchase stock under all Employee Stock Purchase Plans of the Corporation, its Parent and Subsidiaries, to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000.00) of fair market value of such stock (determined at the time such Option is granted) for each calendar year in which such Option is outstanding at any time. For purposes of this paragraph: (i) The right to purchase stock under an option accrues when the Option (or any portion thereof) first becomes exercisable during the calendar year; (ii) The right to purchase stock under an Option accrues at the rate provided in the Option, but in no case may such rate exceed Twenty-Five Thousand Dollars ($25,000.00) of fair market value of such stock (determined at the time such Option is granted) for any one calendar year; (iii) A right to purchase stock which has accrued under one Option granted pursuant to the Plan may not be carried over to any other Option. 6. GRANTING OF OPTIONS. (a) EMPLOYEE RIGHTS. All Employees granted Options shall have the same rights and privileges, except that the amount of stock which may be purchased by Employees under the Options may bear a uniform relationship to Compensation. (b) OFFERING DATE. The Committee shall fix an initial Offering Date within six (6) months following the date the Plan is approved by the stockholders of the Corporation. From time to time thereafter, but not more frequently than once during any fiscal year of the Corporation, the Committee may fix additional Offering Dates. (c) OFFERS. On each Offering Date, the Committee shall offer Options by furnishing each eligible Employee with an Option Agreement and such other documents as it shall deem advisable. Each Option Agreement shall include the following: (i) the maximum percentage of the Employee's Compensation which may be withheld during the Option Period to be used to purchase Shares upon the exercise of an Option; (ii) the option price; (iii) the Acceptance Date; (iv) the Withholding Date; (v) the Exercise Date; (vi) the time and the manner in which an Option may be exercised; (vii) such other terms and restrictions, consistent with the terms of the Plan, as may be determined by the Committee. (d) OPTION PRICE. The option price for Shares to be issued under any Option shall be fixed by the Committee, provided the option price shall not be less than the lesser of (i) eighty-five percent (85%) of the fair market value of the Shares at the time the Options are granted; or (ii) the fair market value of the Shares on the Exercise Date. The fair market value of the Shares to be issued under any Option shall be determined in accordance with the requirements of Sec. 423(b)(6) of the Code and the regulations issued thereunder. (e) ACCEPTANCE. Each Employee may accept an offer only in such manner as the Committee shall prescribe in the Option Agreement. Any offer not accepted by the Acceptance Date shall expire thereon. Each Employee who accepts an offer, as a condition thereof, shall designate the percentage of his or her Compensation to be withheld each payroll period during the Option Period, provided that the percentage designated shall not exceed the maximum percentage prescribed in the Option Agreement. Amounts withheld from Employees shall be retained as general assets of the Corporation to be applied by it in accordance with the Plan. The Corporation shall maintain records of the amounts withheld and shall credit such amounts with interest, if any, at such rate as shall be prescribed in the Option Agreement. An Employee may not increase or decrease the percentage of Compensation designated to be withheld, but may terminate withholding at such time and in such manner as prescribed in the Option Agreement. An Employee who terminates withholding may, subject to the provisions of Section 8 through 11, elect to have the Corporation either (i) retain the amounts plus interest, if any, previously withheld, or (ii) return such amounts plus interest, if any, to the Employee. Such election shall be made when the Employee terminates withholding. If an Employee has the Corporation retain the amounts previously withheld, such Employee's Option shall continue, but may be exercised only to the extent of such amounts, plus any interest credited thereon. Alternatively, if an Employee elects to withdraw such amounts, such Employee's Option shall expire as of the date of such election. (f) NON-TRANSFERABILITY OF OPTIONS. Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Employee, only by such Employee. 7. EXERCISE OF OPTIONS. Each Employee may exercise an Option at such time and in such manner as the Committee shall prescribe in the Option Agreement, provided an Option cannot be exercised after the expiration of twenty-seven (27) months from the date such Option is granted. Any Option not exercised by the Exercise Date shall expire thereon. As of the Exercise Date, the Committee shall apply the amounts withheld from each Employee who exercises an Option, plus any interest credited thereon, toward the purchase of (i) the maximum number of Shares (including fractional Shares) determined by dividing such amounts, plus any interest, by the option price per Share; or (ii) such lesser number of whole Shares specified by the Employee at the time of exercise. Only amounts withheld during the Option Period, plus any interest thereon, may be used to purchase Shares. The amounts withheld, plus any interest, not used to purchase Shares shall be paid to the Employee in a lump sum in accordance with the Option Agreement. If as of any Exercise Date Employees exercise Options for Shares the aggregate number of which exceeds the aggregate number of Shares remaining which may be issued under Options in accordance with the limitation contained in Section 4, then each Employee shall receive that number of Shares determined by multiplying the number of Shares for which such Employee exercised an Option by a fraction, the numerator of which is the aggregate number of Shares remaining which may be issued in accordance with Section 4 and the denominator of which is the aggregate number of Shares for which all Employees exercised Options as of such Exercise Date. Until the date of issuance of the Shares, as recorded on the books of the Corporation, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to Options, notwithstanding the exercise thereof. No adjustment will be made for a dividend or other stockholder rights for which the record date is prior to the date Shares are issued except as provided in Section 12. In the event certificates are to be issued evidencing Shares purchased by the exercise of Options, they shall be issued by the Corporation and delivered in the normal course without undue delay. 8. TERMINATION OF EMPLOYMENT. In the event an Employee ceases to be employed by the Corporation or any Subsidiary, and is no longer employed by any of them, for any reason other than retirement, disability or death, any Option granted to such Employee shall expire on the date of termination. If an Option expires under this Section, the amounts withheld, plus any interest, shall be paid to the Employee in a lump sum as prescribed in the Option Agreement and the Employee shall have no further rights under this Plan. 9. RETIREMENT. In the event an Employee retires from the Corporation or any Subsidiary, and is no longer employed by any of them, and by reason thereof such Employee is entitled to receive an early, normal or deferred retirement benefit under the Hannaford Bros. Co. Employees' Retirement Plan, such Employee may exercise an Option at any time within the three (3) month period following retirement, but not later than the Exercise Date, provided such exercise shall be limited to the maximum number of Shares (including fractional Shares) determined by dividing the amounts withheld prior to retirement, plus any interest, by the option price per Share. Alternatively, such exercise may be for a lesser number of whole Shares specified by such Employee at the time of exercise. The amounts withheld, plus any interest, not used to purchase Shares shall be paid to the retired Employee in a lump sum in accordance with the Option Agreement. 10. DISABILITY. In the event an Employee who is disabled ceases to be employed by the Corporation or any Subsidiary and is no longer employed by any of them, such Employee may exercise an Option at any time within the three (3) month period following termination of employment, but not later than the Exercise Date, provided such exercise shall be limited to the maximum number of Shares (including fractional Shares) determined by dividing the amounts withheld prior to termination, plus any interest, by the option price per Share. Alternatively, such exercise may be for a lesser number of whole Shares specified by such Employee at the time of exercise. The amounts withheld, plus any interest, not used to purchase Shares shall be paid to the disabled Employee in a lump sum in accordance with the Option Agreement. An Employee is disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. However, an Employee shall not be considered disabled unless he or she furnishes proof in such form and manner, and at such times, as the Committee may require. 11. DEATH. In the event an Employee dies while in the employ of the Corporation or any Subsidiary, any Option granted to such Employee may be exercised on the Exercise Date by such Employee's estate or by such other person or persons to whom such Employee's rights hereunder pass by will or by the laws of descent and distribution, provided such exercise shall be limited to the maximum number of Shares (including fractional Shares) determined by dividing the amounts withheld prior to such Employee's death, plus any interest, by the option price per Share. Alternatively, such exercise may be for a lesser number of whole Shares specified by the estate or other person or persons with rights under the Plan at the time of exercise. The amounts withheld, plus any interest, not used to purchase Shares shall be paid in a lump sum to the Employee's estate or to such other person or persons to whom such Employee's rights pass by will or by the laws of descent and distribution. 12. ADJUSTMENTS. (a) STOCK SPLIT AND DIVIDENDS. If the number of Shares outstanding changes as a result of a stock split or stock dividend, the number of Shares to be issued under Options and the option price per Share shall be proportionately adjusted by the Committee so as to comply with Sec. 423 of the Code. (b) MERGER AND CONSOLIDATION. In the event of a merger or consolidation in which the Corporation is the surviving corporation, or the acquisition by the Corporation of property or stock of an acquired corporation, or any reorganization, the number and class of Shares to be issued under Options and the option price per Share shall be adjusted by the Committee so as to comply with Sec. 423 and Sec. 424 of the Code. A merger or consolidation in which the Corporation is not the surviving corporation shall terminate all Options, except that each Employee shall have the right to exercise outstanding Options immediately prior to the effective date of such merger or consolidation, provided such exercise shall be limited to the maximum number of Shares (including fractional Shares) determined by dividing the amounts withheld prior to such effective date, plus any interest, by the option price per Share. In such event, an Employee may exercise an option for a lesser number of whole Shares specified at the time of exercise. 13. AMENDMENT AND TERMINATION. (a) AMENDMENT. The Board, without further approval of the stockholders of the Corporation, may amend the Plan from time to time in such respects as the Board may deem advisable, provided that no amendment shall become effective prior to approval of the stockholders of the Corporation which: (i) increases the maximum number of Shares for which Options may be granted; or (ii) changes the provisions relating to Employees eligible to receive Options under the Plan. (b) TERMINATION. The Board, without further approval of the stockholders of the Corporation, may at any time terminate the Plan. (c) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if the Plan had not been amended or terminated. 14. EFFECTIVE DATE. The Plan, as amended and restated herein, shall be effective October 19, 1994. The Plan was originally effective on May 28, 1982. 15. MISCELLANEOUS. (a) EMPLOYMENT. The granting of an Option to an Employee shall not give the Employee any right to be retained in the employ of the Corporation or any Subsidiary. (b) TAX WITHHOLDING. The Corporation shall be authorized to take such action as may be necessary in the opinion of the Corporation to satisfy its legal obligations for the withholding and payment of taxes arising out of the operation of the Plan. (c) HEADINGS. The paragraph headings are included solely for convenience and shall in no event affect, or be used in connection with, the interpretation of the Plan. EX-10 5 Exhibit 10.12 SECOND AMENDMENT TO EMPLOYMENT CONTINUITY AGREEMENT THIS AMENDMENT made this 13th day of March, 1995, between HANNAFORD BROS. CO., a Maine corporation (the "Company") and JAMES L. MOODY, JR., of South Portland, Maine ("Officer"). WHEREAS, the Company and Officer have entered into an Employment Continuity Agreement ("Agreement") dated March 16, 1991, and thereafter amended on April 25, 1992; and WHEREAS, the parties desire to amend Section 3(d) of the Agreement to provide for accelerated payment of benefits under the Hannaford Bros. Co. 1993 Long Term Incentive Plan in the event of a change in control; and WHEREAS, Section 11 of the Agreement provides that the Agreement may be amended in writing by the parties; NOW, THEREFORE, in consideration of the mutual promises and other consideration recited in the Agreement, IT IS AGREED: 1. The terms of this Amendment shall have the meanings set forth in the Agreement. 2. Subsection (d) of Section 3 of the Agreement is hereby amended to read as follows: "(d) The Officer shall be entitled to such benefits and rights as are provided upon the occurrence of a Change in Control Event under the terms of the Company's 1988 Stock Plan, 1993 Long Term Incentive Plan, 1980 Long Term Incentive Plan and Supplemental Executive Retirement Plan (`SERP'). For purposes of calculating any benefit payable with respect to the Officer under the SERP, the number of the Officer's years of service shall be increased by three (3)." WITNESS HANNAFORD BROS. CO. s/Cheryl Welch By s/Andrew P. Geoghegan Its Vice President s/Laurene M. Odden s/James L. Moody, Jr. James L. Moody, Jr. EX-10 6 Exhibit 10.14 SECOND AMENDMENT TO EMPLOYMENT CONTINUITY AGREEMENT THIS AMENDMENT made this 13th day of March, 1995, between HANNAFORD BROS. CO., a Maine corporation (the "Company") and HUGH G. FARRINGTON, of Cape Elizabeth, Maine ("Officer"). WHEREAS, the Company and Officer have entered into an Employment Continuity Agreement ("Agreement") dated March 15, 1991, and thereafter amended on April 28, 1992; and WHEREAS, the parties desire to amend Section 3(d) of the Agreement to provide for accelerated payment of benefits under the Hannaford Bros. Co. 1993 Long Term Incentive Plan in the event of a change in control; and WHEREAS, Section 11 of the Agreement provides that the Agreement may be amended in writing by the parties; NOW, THEREFORE, in consideration of the mutual promises and other consideration recited in the Agreement, IT IS AGREED: 1. The terms of this Amendment shall have the meanings set forth in the Agreement. 2. Subsection (d) of Section 3 of the Agreement is hereby amended to read as follows: "(d) The Officer shall be entitled to such benefits and rights as are provided upon the occurrence of a Change in Control Event under the terms of the Company's 1988 Stock Plan, 1993 Long Term Incentive Plan, 1980 Long Term Incentive Plan and Supplemental Executive Retirement Plan (`SERP'). For purposes of calculating any benefit payable with respect to the Officer under the SERP, the number of the Officer's years of service shall be increased by three (3)." WITNESS HANNAFORD BROS. CO. s/Cheryl Welch By s/Andrew P. Geoghegan Its Vice President s/Laurene M. Odden s/Hugh G. Farrington Hugh G. Farrington EX-10 7 Exhibit 10.16 SECOND AMENDMENT TO EMPLOYMENT CONTINUITY AGREEMENT THIS AMENDMENT made this _______ day of _____________, 1995, between HANNAFORD BROS. CO., a Maine corporation (the "Company") and ______________, of ____________ ("Officer"). WHEREAS, the Company and Officer have entered into an Employment Continuity Agreement ("Agreement") dated _____________ and thereafter amended on ________________; and WHEREAS, the parties desire to amend Section 3(d) of the Agreement to provide for accelerated payment of benefits under the Hannaford Bros. Co. 1993 Long Term Incentive Plan in the event of a change in control; and WHEREAS, Section 11 of the Agreement provides that the Agreement may be amended in writing by the parties; NOW, THEREFORE, in consideration of the mutual promises and other consideration recited in the Agreement, IT IS AGREED: 1. The terms of this Amendment shall have the meanings set forth in the Agreement. 2. Subsection (d) of Section 3 of the Agreement is hereby amended to read as follows: "(d) The Officer shall be entitled to such benefits and rights as are provided upon the occurrence of a Change in Control Event under the terms of the Company's 1988 Stock Plan, 1993 Long Term Incentive Plan, 1980 Long Term Incentive Plan and Supplemental Executive Retirement Plan (`SERP'). For purposes of calculating any benefit payable with respect to the Officer under the SERP, the number of the Officer's years of service shall be increased by two (2)." WITNESS HANNAFORD BROS. CO. By Its Name: EX-10 8 Exhibit 10.19 FIRST AMENDMENT TO THE HANNAFORD BROS. CO. SAVINGS AND INVESTMENT PLAN The Hannaford Bros. Co. Savings and Investment Plan (the "Plan") was last amended and restated effective generally January 1, 1993. The Plan is hereby further amended in the following respects: 1. The terms used in this Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Section 2.11 of the Plan is hereby amended to read as follows: "Compensation" shall mean the basic compensation paid, before any reduction pursuant to a Deferral Election or a benefit election under the Hannaford Bros. Co. Flexible Benefits Plan, by an Employer to an Employee for services rendered while a Participant, excluding reimbursements or other expense allowances, fringe benefits (cash and noncash), moving expenses, deferred compensation and welfare benefits, unguaranteed overtime pay, bonuses, and other irregular payments. Notwithstanding the foregoing to the contrary, effective January 1, 1989, the annual Compensation of any Employee in excess of Two Hundred Thousand Dollars ($200,000.00) (or such higher amount as the Secretary of the Treasury may prescribe) shall not be taken into account under the Plan, and, effective January 1, 1994, the annual Compensation of any Employee in excess of One Hundred Fifty Thousand Dollars ($150,000.00) (or such higher amount as the Secretary of the Treasury may prescribe) shall not be taken into account under the Plan. In the event Compensation is determined based on a period which contains fewer than twelve (12) calendar months, the annual Compensation limit shall be an amount equal to the annual Compensation limit for the calendar year in which the period begins multiplied by a fraction, the numerator of which is the number of full calendar months in the period and the denominator of which is twelve (12). For purposes of the annual Compensation limit, any Compensation paid to an Employee who is the spouse or a lineal descendant (who has not attained age nineteen (19) by the close of the Plan Year) of an Employee who is a Five Percent Owner or one of the ten (10) Highly Compensated Employees paid the highest compensation (as defined in Section 7.05) for the Plan Year shall be treated as paid to or on behalf of such Five Percent Owner or Highly Compensated Employee. If the annual Compensation limit is exceeded as a result of the application of the preceding sentence, then the limit shall be prorated among the affected Employees' Compensation as determined prior to the application of the annual Compensation limit. If Compensation for a prior Plan Year is taken into account for any Plan Year, such Compensation shall be subject to the annual Compensation limit in effect for such prior Plan Year. The average percentage of total compensation (as defined in Regulation Section 1.414(s)-1(d)(3)(ii) included in the Compensation of Highly Compensated Employees as a group shall not exceed by more than a DE MINIMIS amount the average percentage of total compensation included in the Compensation of Non-Highly Compensated Employees as a group. This determination shall be made in accordance with the provisions of Regulation Section 1.414(s)-1(d)(3), which is incorporated herein by reference." 3. Article II is hereby amended by redesignating Sections 2.27 through 2.58 as Sections 2.28 through 2.59 and by adding a new Section 2.27 to read as follows: "2.27 'Finance Committee' shall mean the Finance Committee of the Board of Directors." 4. Article II is hereby amended by deleting Section 2.32 in its entirety and by redesignating Sections 2.33 through 2.58 (redesignated herein as Sections 2.34 through 2.59) as Section s.233 through 2.58. 5. Section 2.34 is hereby amended to read as follows: "2.34 'Investment Manager' shall mean any fiduciary, other than the Trustee or a named fiduciary (as defined in Section 402(a)(2) of ERISA): (a) who is appointed by the Finance Committee to manage, acquire, or dispose of all or any portion of the Trust Fund; (b) who is (i) registered as an investment adviser under the Investment Advisers Act of 1940; (ii) is a bank, as defined in said Act; or (iii) is an insurance company qualified to manage, acquire or dispose of all or any portion of the Trust Fund under the laws of more than one State; and (c) who has acknowledged, in writing, that he or she is a fiduciary with respect to the Plan." 6. Section 2.40 is hereby amended to read as follows: "2.40 'Named Fiduciary' shall mean, with respect to the operation and administration of the Plan, the Administrative Committee, and with respect to the management of the Trust Fund, the Finance Committee and the Trustee." 7. Section 2.55 is hereby amended to read as follows: "Trustee shall mean the person or persons appointed by the Finance Committee to serve as trustee(s) of the Trust." 8. Section 4.03 is hereby amended to read as follows: "4.03 'Form of Contribution'. Elective contributions shall be made in cash. Matching Contributions may, at the election of the Human Resources Committee of the Board of Directors, be made in cash or in Company Stock, or any combination thereof; provided any contribution in the form of Company Stock shall be valued at its fair market value as of the date of contribution." 9. Section 7.05 is hereby amended by adding the following new paragraph at the end thereof: "For Limitation Years beginning after December 31, 1991, for purposes of applying the limitations of this Article 'compensation' for a Limitation Year shall mean the compensation actually paid or includable in gross income during such Limitation Year. Notwithstanding the preceding sentence, 'compensation' with respect to a Participant who is permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code) shall mean the compensation such Participant would have received for the Limitation Year is he or she had been paid at the rate of compensation paid immediately before becoming permanently and totally disabled; provided, such imputed compensation may be taken into account only if the Participant is not a Highly Compensated Employee and contributions made on behalf of such Participant are nonforfeitable when made." 10. Section 8.03 is hereby amended to read as follows: "8.03 ALLOCATION OF EMPLOYER CONTRIBUTIONS. Employer Contributions made on behalf of each Participant for payroll period ending in any month shall be allocated to the Participant's Account as of the Valuation Date coinciding with or next following the end of such month; provided that any Matching Contributions shall be allocated based on such Participant's Elective Contributions (excluding Excess Elective Contributions) as the Human Resources Committee of the Board of Directors may determine." 11. Section 9.10 is hereby amended by adding the following new subsection (d) and existing subsection (d) is hereby redesignated as subsection (e): "(d) Notwithstanding subsection (b) to the contrary, if an individual after receiving the written explanation required by subsection (b), affirmatively elects to make or not make a direct rollover, an eligible rollover distribution may be made less than thirty (30) days after the date such written explanation was given, provided the Administrative Committee has informed such individual, in writing, of his or her right to a period of at least thirty (30) days to make such election." 12. Section 11.02 is hereby amended to read as follows: "11.02 Investment Funds. The Trustee shall establish a Company Stock Fund and one or more other Investments Funds as the Finance Committee may from time to time direct. The Finance Committee shall direct that each Investment Fund, other than the Company Stock Fund, shall be invested: (a) at the discretion of the Trustee in accordance with such investment guidelines and objectives as may be established by the Finance Committee for such Investment Fund; or (b) at the discretion of a duly appointed Investment Manager in accordance with such investment guidelines and objectives as may be established by the Finance Committee; or (c) in such investments as the Finance Committee may specify for such Investment Fund. The Finance Committee may from time to time change its direction with respect to any Investment Fund and may, at any time, eliminate any Investment Fund. Whenever an Investment Fund is eliminated, the Trustee shall promptly liquidate the assets of such Investment Fund and reinvest the proceeds thereof in accordance with the direction of the Finance Committee. The Trustee shall transfer to each Investment Fund such portion of the assets of the Trust as the Administrative Committee may from time to time direct in accordance with the terms of the Plan. All interest, dividends and other income received with respect to, and any proceeds realized from the sale or other disposition of, assets held in any Investment Fund shall be credited to and reinvested in such Investment Fund, and all expenses properly attributable to any Investment Fund shall be paid therefrom unless paid by the Employers." 13. Section 11.03 is hereby deleted in its entirety and Sections 11.04 through 11.09 are redesignated as Sections 11.03 through 11.08. 14. Section 11.09 (redesignated herein as 11.08) is hereby amended to read as follows: "11.08 Voting Rights. Stock held in the Company Stock Fund shall be voted by the Trustee." 15. Article XII is hereby amended to read as follows: "ARTICLE XII Finance Committee 12.01 DUTIES. The Finance Committee shall be a Named Fiduciary within the meaning of Section 402(a)(2) of ERISA and shall have the following powers and duties: (a) to appoint and remove the Trustee and establish the terms of the Trust agreement; (b) to direct the Trustee to establish one or more Investment Funds and to change or eliminate any Investment Fund other than the Company Stock Fund; (c) to appoint one or more Investment Managers to direct the investment of the assets of the Trust or such portion thereof as may be designated by the Finance Committee; to remove any Investment Manager; and to establish investment guidelines and objectives which shall be binding on such Investment Managers; (d) to limit the investment of one or more Investment Funds to such shares of stock, bonds, mortgages, notes, mutual fund shares, deposit administration, investment or group annuity contracts issued by a legal reserve life insurance company or other property of any kind, real or personal, as the Finance Committee may deem appropriate; (e) to establish investment guidelines and objectives which shall be binding on the Trustee; (f) to employ or retain counsel, accountants and other consultants, including professional investment advisers, as it deems to be in the best interests of the Plan; (g) to direct the Trustee to employ and transfer all of the assets of the Trust or such portion thereof as the Finance Committee may designate to one or more custodians selected by it; and (h) to approve and accept accounts rendered by the Trustee. The Finance Committee shall act by a majority of its members and such action may be taken by a vote at a meeting or in writing without a meeting. Any member may participate in a meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other." 12.02 DELEGATION OF MINISTERIAL DUTIES. The Finance Committee may, by a writing signed by a majority of its members, delegate to any member or members of the Committee or to any Employee or Employees, severally or jointly, the authority to perform any ministerial act in connection with the administration of the Plan. 12.03 COMPENSATION AND REIMBURSEMENT OF EXPENSES. The members of the Finance Committee shall be entitled to reasonable compensation for services rendered and to reimbursement of expenses properly and actually incurred, in the performance of their duties on behalf of the Plan, but no person so serving who already receives compensation from an Employer or any Related Employer for services rendered as an employee shall receive compensation for such services, except for reimbursement of expenses properly and actually incurred and not otherwise reimbursed. 12.04 RELIANCE ON REPORTS. The Finance Committee shall be entitled to rely upon all certificates and reports made by any agent, attorney, accountant, actuary or other consultant, including any investment adviser, employed to assist in the performance of its duties. 12.05 MULTIPLE SIGNATURES. A majority of the members of the Finance Committee or any one member authorized by such Committee shall have authority to execute all documents, reports or other memoranda necessary or appropriate to carry out the actions and decisions of the Finance Committee. The Trustee, any investment manager or any other interested party may rely upon any document, report or other memorandum so executed as evidence of the Finance Committee action or decision indicated thereby." 16. The first paragraph of Section 15.01 is hereby amended to read as follows: "15.01 AMENDMENT. The Company, through the Human Resources Committee of its Board of Directors, reserves the right to amend the Plan from time to time, provided that no amendment shall, except as otherwise provided in this Plan or authorized by law, permit any part of the Trust Fund to revert to an Employer or Related Employer or permit any part of the Trust Fund to be used for, or diverted to, purposes other than the exclusive benefit of the Participants, their surviving spouses and Beneficiaries. Each such amendment shall be effective with respect to a subsidiary of the Company that has adopted the Plan without further action by the subsidiary." 17. The first sentence of Section 15.03 is hereby amended to read as follows: "The Company, through the Human Resources Committee of its Board of Directors, may terminate the Plan at any time in its entirety or with respect to any Employer or any division by written notice delivered to the Trustee." 18. Section 17.01 is hereby amended to read as follows: "17.01 DELEGATION OF AUTHORITY BY SUBSIDIARIES. Each subsidiary of the Company that adopts the Plan hereby irrevocably grants to the Company, its Board of Directors, the Finance Committee and the Administrative Committee, exclusive authority to exercise all the powers conferred on them by the terms of the Plan, including the power vested in the Human Resources Committee of the Board of Directors to amend or terminate the Plan, and each adopting subsidiary irrevocably appoints the Company, its Board of Directors, the Finance Committee and the Administrative Committee as its agents for such purposes. In addition, each subsidiary of the Company that adopts the Plan shall automatically become a party to the Trust without further action on its part." 19. Section 18.02 is hereby amended to read as follows: "18.02 FIDUCIARY RESPONSIBILITY. (a) ALLOCATION OF RESPONSIBILITY. All fiduciaries with respect to the Plan and Trust shall be required to meet the prudence, diversification and other fiduciary responsibilities of applicable law to the extent such requirements and responsibilities apply to them, provided each fiduciary shall be responsible for carrying out only the requirements, responsibilities and duties placed upon such fiduciary by provisions of the Plan and Trust Agreement. In particular: (i) An Investment Manager shall have full investment responsibility with respect to the assets of the Trust for which it has the power of investment direction and except as otherwise provided by law, the other fiduciaries including, but not limited to, the Trustee and the Finance Committee, shall have no duty or responsibility with respect to the investment of such assets as long as they are subject to the investment direction of such Investment Manager; (ii) The Trustee shall have full investment responsibility with respect to the assets of the Trust which are not invested pursuant to the direction of the Finance Committee and are not subject to investment direction of an Investment Manager and, except as otherwise provided by law, the other fiduciaries including, but not limited to, the Finance Committee shall have no duty or responsibility with respect to the investment of such assets so long as they are not invested pursuant to the direction of the Finance Committee or subject to the investment direction of an Investment Manager; (iii) The Trustee shall have no duty or responsibility with respect to investment of assets of the Trust so long as they are invested at the direction of the Finance Committee or a duly appointed Investment Manager; (iv) The Administrative Committee shall have no duty or responsibility with respect to the investment of the assets of the Trust; and (v) The fiduciaries, including, but not limited to, the Trustee, the Finance Committee, the Administrative Committee and any Investment Manager shall have no responsibility for the investment elections made by Participants, except as otherwise provided by applicable law." 20. Section 18.03 is hereby amended to read as follows: "18.03 PROHIBITED TRANSACTIONS. Neither the Trustee, nor the Finance Committee, nor any Investment Manager, nor any Participant or Former Participant who directs the investment of his or her Account shall engage in a transaction which the Trustee, Finance Committee, Investment Manager, Participant or Former Participant knows or should know is prohibited by Section 406 or 407(a) of ERISA or by Section 4975 of the Code, unless an appropriate exemption or exemptions have been granted by the Department of Labor under Section 408 of ERISA and the Department of the Treasury under Section 4975(c)(2) of the Code." 21. This Amendment shall be effective generally January 1, 1994; provided, however, that parts 9 and 11 shall be effective January 1, 1993, and parts 3 through 7, 12, 13, 15, 18 and 19 shall be effective May 19, 1994. EX-10 9 Exhibit 10.23 FIFTH AMENDMENT TO THE HANNAFORD BROS. CO. 1988 STOCK PLAN The Hannaford Bros. Co. 1988 Stock Plan (the "Plan") was adopted by the Board of Directors, subject to shareholder approval, February 4, 1988, and approved by shareholders on May 25, 1988. The Plan was last amended effective January 1, 1994. The Plan is hereby amended in the following respects. 1. The terms used in this Amendment shall have the meanings set forth in the Plan unless the context indicates otherwise. 2. Subsection (i) of Section 2 is hereby amended to read as follows: "Employee' shall mean any person who is employed by the Corporation or any Subsidiary and who is (i) an officer of the Corporation or of any Subsidiary, (ii) responsible for the general management of a division or department of the Corporation, a Subsidiary, or a major portion of the consolidated operations of the Corporation, or (iii) any other salaried employee of the Corporation or any Subsidiary." 3. Section 11 is hereby amended by deleting the last paragraph thereof, which reads: "In order to further protect the Participants' rights under then outstanding Awards upon the occurrence of a 'Change in Control Event' as defined in this Section, the Committee, as constituted before such event, may, in its sole discretion, either at the time an Award is made or at any time thereafter, make such adjustments to an Award as it deems appropriate to reflect such event." 4. This Amendment shall be effective January 1, 1994. EX-10 10 Exhibit 10.28 June 1, 1994 Roger W. Hoyt 9 Woodgate Road Scarborough, ME 04074 Re: RETIREMENT Dear Roger: This letter confirms the terms of the agreement between you and Hannaford Bros. Co. (the "Company") regarding your retirement from the Company and the implementation of certain retirement benefits as outlined in a letter to you from Hugh Farrington dated September 9, 1992 (the "Prior Letter"). 1. Your last day of work as an employee of the Company will be June 30, 1994 (your "Retirement Date"). 2. On June 30, 1994, the Company will pay you out of the SERP a "lump sum" supplemental pension benefit in the gross amount of $99,041. This payment represents the value of the enhanced pension benefit you would have received had you elected to participate in the Early Retirement Incentive Program offered in 1992, pursuant to paragraph 2 of the Prior Letter. 3. In addition, on June 30, 1994, the Company will pay you out of the SERP the lump sum amount of $113,700. This amount is in lieu of retiree medical benefits and is intended to equal the present value of retiree medical coverage for you and your wife which you would have had available to you had you participated in the Early Retirement Incentive Program in 1992. 4. In lieu of the annual housing subsidy which you are currently receiving, on June 30, 1994, the Company will pay you out of the SERP the lump sum amount of $5,808.77. Upon payment of this amount, any and all obligations which the Company may have to contribute to your mortgage payments or housing costs will cease. 5. Upon retirement, you will be eligible to continue to participate in the Long-Term and Short-Term Incentive Plans provided by the Company for award periods commencing with, or prior to, the Company's current fiscal year. Accordingly, you will be entitled to receive payment from each Plan in accordance with its terms. 6. Upon retirement, you will no longer be eligible to receive awards under the Company's stock option plan. Any stock options you then hold must be exercised, under the terms of the plan, within ninety (90) days after your retirement. In the event that you elect to exercise any such options which contain a reload provision and were granted to you after 1990 by tendering shares of the Company's stock before your Retirement Date, you will receive a "reload" option for a number of shares equal to those tendered and having a term equal to the remainder of the term of the options being exercised (but in no event longer than three years following your Retirement Date). 7. All other accrued Company benefits (401(k), Pension Plan, SERP, Deferred Compensation Plan, etc.) will be paid to you in accordance with the provisions of those plans. After your Retirement Date, except as provided by the applicable plans, you will have no further accrual of Company benefits. 8. In consideration of the benefits extended to you under this agreement to which you would not otherwise be entitled, your signature below constitutes your agreement to hereby waive, release and forever discharge the Company, its subsidiaries and affiliates, and their respective shareholders, directors, officers, employees, agents, successors and assigns of and from any and all claims or causes of actions which you ever had or may hereafter claim to have and which are connected in any way, directly or indirectly, with your employment by the Company or its affiliates, including but not limited to claims arising out of the Prior Letter, but expressly excluding claims arising out of the failure of the amount paid in lieu of retiree medical benefits to adequately cover the cost of medical coverage as intended hereunder. This letter sets forth the entire agreement between you and the Company regarding your retirement from the Company (it being understood that you and the Company intend to negotiate and execute a separate Consulting Agreement relating to certain other matters, including the provisions of consulting services by you as an independent contractor). This agreement may be amended only by a written document signed by both you and the Company and will be governed by the laws of the State of Maine. If this letter sets forth our understanding and agreement accurately, would you please sign both copies, return one to me, and keep one for your files. Sincerely yours, s/Hugh G. Farrington Hugh G. Farrington President and Chief Executive Officer Seen and agreed to this 1st day of June, 1994 s/Roger W. Hoyt Roger W. Hoyt EX-10 11 Exhibit 10.29 August 15, 1994 Roger W. Hoyt 9 Woodgate Road Scarborough, ME 04074 Re: CONSULTING AND NONCOMPETITION AGREEMENT Dear Roger: Hannaford Bros. Co. (the "Company") and you have executed a letter agreement dated June 1, 1994 outlining our mutual understanding regarding certain matters, including supplemental retirement benefits which the Company provided to you upon your retirement. This letter sets forth our further understanding regarding your noncompetition with the Company following your retirement. 1. NONCOMPETITION AGREEMENT. Until the last to occur of December 31, 1997, or the expiration of any renewal periods hereof, as described in paragraph 2 below, you agree not to work for any competitors of the Company within any of the Company's present or future marketing areas without prior written approval from the Company's CEO, which approval may be granted or withheld in the CEO's absolute discretion. 2. RENEWAL. This agreement may be renewed for up to three additional one-year periods. After the expiration of the initial term on December 31, 1997, this agreement will renew automatically for each of such one-year periods unless either party sends written notice of termination to the other party no later than thirty (30) days prior to the expiration of the then current term. 3. COMPENSATION. In consideration of your agreement not to compete with the Company as described herein, the Company will pay you the amount of $75,000 per year, beginning January 1, 1995, and continuing for each year of the initial term of this agreement and any renewal periods. Compensation will be paid in equal installments of $18,750 per quarter on the first day of each fiscal quarter in which this agreement remains in effect. 4. TERMINATION. The Company shall have the right to terminate this agreement for cause if it determines, in good faith, that you have breached the provisions of paragraph 1 above. In the event the Company elects to terminate this agreement for cause, it will provide you with seven (7) days written notice. 5. CONSULTING SERVICES. Beginning on January 1, 1995, and so long as this agreement remains in effect, you agree to provide the Company, for no additional compensation, such consulting services on the topics of both existing and future supermarket operations and on store formatting and design as may be requested by the Company's CEO, but in no event will the provision of such services exceed a total of eight (8) weeks per year. In addition, you agree to attend FMI and certain industry conventions and other similar activities at the request of the Company's CEO. The Company will reimburse you for all reasonable out-of-pocket expenses incurred by you in connection with any such activities. Upon request by the Company, you agree to provide reasonable written documentation supporting such expenditures. We agree that any services rendered by you pursuant to this paragraph shall be rendered as an independent contractor and not as an employee, partner, joint venturer, agent, etc. You further agree that the Company shall have no responsibility to furnish any workers' compensation insurance and that you will provide reasonable amounts of automobile and liability insurance coverage at your own expense. You acknowledge that, in your capacity as an independent contractor, you will not be entitled to any of the employee benefits available to Hannaford associates nor will the Company supply you with an office, secretary, or any other technical or personnel support. 6. MISCELLANEOUS. Upon the written request of either you or the Company, the other party agrees to execute such other documents as you, the Company and our respective counsel reasonably deem necessary or advisable to implement the terms of this letter. This agreement sets forth the entire agreement between you and the Company regarding your agreement not to compete with the Company and any services you may render to the Company as an independent contractor. This agreement may be amended only by a written document signed by both you and the Company and will be governed by the laws of the State of Maine. If this letter accurately sets forth our understanding and agreement, would you please sign both copies, return one to me, and keep one for your records. Sincerely yours, s/Hugh G. Farrington Hugh G. Farrington President and Chief Executive Officer Seen and agreed to this 15th day of August, 1994. s/Roger W. Hoyt Roger W. Hoyt EX-21 12 Exhibit 21 Hannaford Bros. Co. Parents and Subsidiaries Percentage State of Voting of Securities Registrant Incorporation Owned Hannaford Bros. Co. Maine Subsidiaries (1) Analytical Services, Inc. Maine 100.00%(2) Athenian Real Estate Development, Inc. Virginia 100.00%(2) Boney Wilson & Sons, Inc. North Carolina 100.00%(2) Cottle's Shop 'n Save, Inc. Maine 100.00%(2) Hannaford Properties, Inc. Maine 100.00%(2) Hannaford Trucking Company Maine 100.00%(2) Martin's Foods of South Burlington, Inc. Vermont 100.00%(2) MB-New York, Inc. Maine 100.00%(2) MB-Save, Inc. Maine 100.00%(2) MB-Super, Inc. Maine 100.00%(2) Plain Street Properties, Inc. Maine 100.00%(2) Progressive Distributors, Inc. Maine 100.00%(2) Freezer Properties, Inc. Maine 100.00%(3) The Sampson Supermarkets, Inc. Maine 100.00%(2) Sun Foods, Inc. New Hampshire 100.00%(3) Shop 'n Save-Mass., Inc. Massachusetts 100.00%(2) Shop 'n Save Realty, Inc. Maine 100.00%(2) Shopping Center Properties, Inc. Maine 100.00%(2) Warehouse Properties, Inc. Maine 100.00%(2) (1) Each of the subsidiaries is included in the consolidated financial statements of the Registrant. (2) Percentage of voting securities shown is that owned by the Registrant. (3) Percentage of voting securities shown is that owned by the subsidiaries' immediate parent and not that owned by the Registrant. EX-23 13 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders of Hannaford Bros. Co.: We consent to the incorporation by reference in the registration statements of Hannaford Bros. Co. and subsidiaries on Form S-8 (File Nos. 2-77902, 2-77903, 2-98387, 33-1281, 33-22666, 33-31624 and 33-41273) of our report dated January 23, 1995, on our audits of the consolidated financial statements and financial statement schedules of Hannaford Bros. Co. and subsidiaries as of December 31, 1994 and January 1, 1994 and for each of the three years in the period ended December 31, 1994, which report is included in this Annual Report on Form 10-K. s/Coopers & Lybrand Portland, Maine March 16, 1995 EX-27 14 ART. 5 FDS FOR FISCAL YEAR 1994 10-K
5 1,000 YEAR DEC-31-1994 JAN-02-1994 DEC-31-1994 40,955 0 14,453 213 132,423 201,347 755,475 251,534 877,605 158,640 223,239 31,335 0 0 423,140 877,605 2,291,755 2,291,755 1,728,499 1,728,499 437,548 0 21,360 104,348 42,060 62,288 0 0 0 62,288 1.50 1.50
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