-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DV+sWnB4pcbItSlm8VBSxMYojnIx1LGt5FRpndXlepvRTG7WnAjsnvvxdJF13F/I tAiwDzCfQaY9IgP1tDMYNg== 0000045379-99-000014.txt : 19990812 0000045379-99-000014.hdr.sgml : 19990812 ACCESSION NUMBER: 0000045379-99-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990811 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-Q SEC ACT: SEC FILE NUMBER: 001-07603 FILM NUMBER: 99683944 BUSINESS ADDRESS: STREET 1: 145 PLEASANT HILL RD CITY: SCARBOROUGH STATE: ME ZIP: 04074 BUSINESS PHONE: 2078832911 10-Q 1 SECOND QUARTER 1999 FORM 10Q -1- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 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 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of July 31, 1999, there were 42,171,401 outstanding shares of Common Stock, $.75 par value, the only authorized class of common stock of the Registrant. FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 3, 1999 INDEX PART I - FINANCIAL INFORMATION Page No. Item 1. Financial Statements Consolidated Balance Sheets, July 3, 1999 and January 2, 1999 3-4 Consolidated Statements of Earnings, Three Months Ended July 3, 1999 and July 4, 1998 5 Consolidated Statements of Earnings, Six Months Ended July 3, 1999 and July 4, 1998 6 Consolidated Statements of Cash Flows, Six Months Ended July 3, 1999 and July 4, 1998 7-8 Notes and Schedules to Consolidated Financial Statements 9-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-22 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 23 Item 5. Other Information 24 Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (In thousands) (UNAUDITED) July 3, January 2, 1999 1999 ------------ ------------ Current assets: Cash and cash equivalents $ 53,197 $ 59,722 Accounts receivable, net 19,978 22,869 Inventories 208,930 201,219 Prepaid expenses 4,972 6,116 Deferred income taxes 5,700 5,952 ---------- ---------- Total current assets 292,777 295,878 Property, plant and equipment, net 825,380 818,106 Leased property under capital leases, net 55,461 54,911 Other assets: Goodwill, net 61,427 63,517 Deferred charges, net 25,020 25,074 Computer software costs, net 25,144 24,580 Miscellaneous assets 1,977 2,472 ---------- ---------- Total other assets 113,568 115,643 ---------- ---------- $1,287,186 $1,284,538 See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands except per share amounts) (UNAUDITED) July 3, January 2, 1999 1999 ------------ ------------ Current liabilities: Current maturities of long-term debt $ 21,236 $ 19,296 Obligations under capital leases 2,317 2,108 Accounts payable 201,996 186,626 Accrued payroll 28,444 27,254 Other accrued expenses 21,632 23,873 Income taxes 2,427 442 ---------- ---------- Total current liabilities 278,052 259,599 Deferred income tax liabilities 27,372 28,859 Other liabilities 39,397 38,734 Long-term debt 183,500 220,130 Obligations under capital leases 75,339 73,866 Shareholders' equity: Class A Serial Preferred stock, no par, authorized 2,000 shares - - Class B Serial Preferred stock, par value $.01 per share, authorized 28,000 shares - - Common stock, par value $.75 per share: Authorized 110,000 shares; 42,338 and 42,338 shares issued 31,754 31,754 Additional paid-in capital 104,122 109,664 Preferred stock purchase rights 423 423 Retained earnings 556,802 525,344 ---------- ---------- 693,101 667,185 Less common stock in treasury 185 and 85 shares 9,575 3,835 ---------- ---------- Total shareholders' equity 683,526 663,350 ---------- ---------- $1,287,186 $1,284,538 See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands except per share data) (UNAUDITED) THREE MONTHS ENDED July 3, July 4, 1999 1998 ------------ ------------ Sales and other revenues $854,325 $830,371 Cost of sales 628,109 622,757 -------- -------- Gross margin 226,216 207,614 Selling, general and administrative expenses 179,222 163,865 -------- -------- Operating profit 46,994 43,749 Interest expense, net 5,780 6,618 -------- -------- Earnings before income taxes 41,214 37,131 Income taxes 15,800 14,112 -------- -------- Net earnings $ 25,414 $ 23,019 ======== ======== Earnings per share: Basic $ .60 $ .54 ======== ======== Diluted $ .59 $ .54 ======== ======== Cash dividends per share $ .165 $ .150 ======== ======== Weighted average number of common shares outstanding Basic 42,208 42,297 ======== ======== Diluted 42,868 42,944 ======== ======== See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands except per share data) (UNAUDITED) SIX MONTHS ENDED July 3, July 4, 1999 1998 ------------ ------------ Sales and other revenues $1,693,449 $1,618,667 Cost of sales 1,249,509 1,212,736 ---------- ---------- Gross margin 443,940 405,931 Selling, general and administrative expenses 358,470 326,860 ---------- ---------- Operating profit 85,470 79,071 Interest expense, net 12,045 13,152 ---------- ---------- Earnings before income taxes 73,425 65,919 Income taxes 28,021 25,085 ---------- ---------- Net earnings $ 45,404 $ 40,834 ========== ========== Earnings per share: Basic $ 1.08 $ .97 ========== ========== Diluted $ 1.06 $ .95 ========== ========== Cash dividends per share $ .33 $ .30 ========== ========== Weighted average number of common shares outstanding Basic 42,223 42,289 ========== ========== Diluted 42,865 42,902 ========== ========== See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED) SIX MONTHS ENDED July 3, July 4, 1999 1998 ----------- ---------- Cash flows from operating activities: Net income $ 45,404 $ 40,834 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 51,182 46,699 Increase in inventories (7,711) (3,522) Decrease in receivables and prepayments 3,846 1,866 Increase in accounts payable and accrued expenses 14,981 3,385 Increase in income taxes payable 1,985 847 Increase (decrease) in deferred taxes (1,234) 3,306 Other operating activities (417) (367) -------- ------- Net cash provided by operating activities 108,036 93,048 -------- -------- Cash flows from investing activities: Acquisition of property, plant and equipment (54,927) (76,878) Sale of property, plant and equipment, net 6,441 6,326 Increase in deferred charges (1,249) (702) Increase in computer software costs (3,928) (3,748) -------- -------- Net cash used in investing activities (53,663) (75,002) -------- -------- Cash flows from financing activities: Principal payments under capital lease obligations (981) (864) Proceeds from issuance of long-term debt - 20,000 Payments of long-term debt (34,690) (28,611) Issuance of common stock 8,630 6,941 Purchase of treasury stock (19,912) (10,433) Dividends paid (13,945) (12,690) -------- -------- Net cash used in financing activities (60,898) (25,657) -------- -------- Net decrease in cash and cash equivalents (6,525) (7,611) Cash and cash equivalents at beginning of period 59,722 57,663 -------- -------- Cash and cash equivalents at end of period $ 53,197 $ 50,052 ======== ======== See accompanying notes to consolidated financial statements. HANNAFORD BROS. CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Supplemental disclosures of cash flow information (In thousands) (UNAUDITED) SIX MONTHS ENDED July 3, July 4, Cash paid during the first six months for: 1999 1998 ------------ ----------- Interest (net of amount capitalized, $886 in 1999 and $1,371 in 1998) $12,655 $13,366 ======= ======= Income taxes $24,580 $20,918 ======= ======= Supplemental disclosure of non-cash investing and financing activity Capital lease obligations of $2,663,000 and $1,166,000 were incurred during the six-month periods ended July 3, 1999 and July 4, 1998, respectively, when the Company entered into real estate leases. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, the amounts shown reflect all adjustments necessary to present fairly the financial position and results of operations for the periods presented. All such adjustments are of a normal recurring nature. The year-end consolidated balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. It is suggested that the financial statements be read in conjunction with the financial statements and notes thereto included in the Company's latest annual report. The preparation of the Company's financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the reporting date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2. EARNINGS PER COMMON SHARE Basic earnings per share of common stock have been determined by dividing net earnings by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per share reflect the potential dilution that would occur if existing stock options were exercised. 3. RECLASSIFICATION Certain reclassifications have been made in the prior year's balance sheet to conform to classifications used in the current year. 4. INVENTORIES Inventories consist primarily of groceries, meat, produce, general merchandise and pharmaceuticals. The majority of grocery, pharmaceutical and general merchandise inventories are valued at the lower of cost, determined on the last-in, first-out (LIFO) method, or market. Net income reflects the application of the LIFO method based upon estimated annual inflation. LIFO expense was $.9 million in the first half of 1999 and $.8 million in the first half of 1998. LIFO expense was $.4 million in both the second quarter of 1999 and the second quarter of 1998. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: (In thousands) (Unaudited) July 3, January 2, 1999 1999 Land and improvements $ 150,014 $ 141,706 Buildings 308,388 300,708 Furniture, fixtures & equipment 491,632 501,250 Leasehold interests & improvements 320,795 324,106 Construction in progress 21,135 8,790 ---------- ---------- 1,291,964 1,276,560 Less accumulated depreciation and amortization 466,584 458,454 ---------- ---------- $ 825,380 $ 818,106 ========== ========== 6. LEASED PROPERTY Leased property under capital leases consists of the following: (In thousands) (Unaudited) July 3, January 2, 1999 1999 Real property $85,163 $82,500 Less accumulated amortization 29,702 27,589 ------- ------- $55,461 $54,911 ======= ======= HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS SALES Sales and other revenues rose 4.6% in the first half of 1999, to $1.693 billion, an increase of $74 million over the first half of 1998. Supermarket sales increased $70 million or 4.5%. Other sales and revenues, which include wholesale, trucking, home delivery, real estate and miscellaneous retail operations, increased $4 million. Sales from supermarkets that were open in both periods reported ("identical store sales") were up 0.8%. Comparable store sales, which included results from expanded and relocated supermarkets, increased 1.4% in the first half of 1999. In the second quarter of 1999, sales and other revenues were $854 million, an increase of $24 million or 2.9% over those reported for the same period of 1998. Sales and other revenues from the Easter holiday occurred in the first quarter this year and the second quarter last year. Adjusting for Easter sales, identical store sales increased 0.4% and comparable store sales increased 1.1% in the second quarter of 1999. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GROSS MARGIN During the first six months of 1999, gross margins increased to 26.2% of sales and other revenues in comparison to 25.1% for the comparable 1998 period. For the second quarter of 1999, gross margins were 26.5% versus 25.0% for the second quarter of 1998. These increases are the result of improved selling margins in most of the Company's marketing territories coupled with the results of an inventory shrinkage reduction initiative. The Company continues to focus on maintaining a competitive pricing strategy. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to 21.2% of sales and other revenues in the first half of 1999 as compared to 20.2% in the first half of 1998. For the second quarter of 1999, selling, general and administrative expenses were 21.0% of sales and other revenues versus 19.7% in the second quarter of 1998. These increases are primarily the result of higher payroll and payroll related expenses, which exceeded 50% of selling, general and administrative expenses in all periods presented. In addition, the Company incurred increased advertising costs in both the second quarter and first half of 1999, as it undertook programs to build sales in several of its marketing areas. INTEREST EXPENSE, NET Net interest expense expressed as a percentage of sales and other revenues was 0.7% in both the second quarter and first half of 1999 versus 0.8% in both the second quarter and first half of 1998. These decreases are primarily the result of a decrease in average debt levels partially offset by a decrease in capitalized interest resulting from reduced construction activity. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME TAXES The effective income tax rate increased slightly in the first half of 1999 to 38.2% from 38.1% in the corresponding period of 1998. In the second quarter of 1999 the effective income tax rate increased to 38.3% from 38.0% in the second quarter of 1998. Assuming there are no federal or state income tax rate changes, the Company expects the effective tax rate for fiscal 1999 to be in the 37.9% to 38.3% range. NET EARNINGS AND EARNINGS PER COMMON SHARE Net earnings increased 11.2% in the first half of 1999 to $45 million or 2.7% of sales and other revenues, an increase of approximately $4 million from 1998 first half earnings of $41 million or 2.5% of sales and other revenues. Expressed as a percentage of sales and other revenues, net earnings increased in the first half of 1999 as increased sales and margins, coupled with reduced interest expense, were partially offset by higher selling, general and administrative expenses. Net earnings increased 10.4% in the second quarter of 1999 to $25 million or 3.0% of sales and other revenues, an increase of approximately $2 million from 1998 second quarter earnings of $23 million or 2.8% of sales and other revenues. Basic earnings per common share in the first half of 1999 were $1.08 as compared to $.97 in the first half of 1998, an increase of 11.3%. Diluted earnings per common share (Note 2) were $1.06 in the first half of 1999 as compared to $.95 in the first half of 1998. Basic earnings per common share were $.60 in the second quarter of 1999 versus $.54 in the second quarter of 1998, an increase of 11.1%. Diluted earnings per common share (Note 2) were $.59 in the second quarter of 1999 as compared to $.54 in the second quarter of 1998. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company is continuing to test an internet-based home shopping service in the Boston, Massachusetts market called HomeRuns.com (formerly Hannaford's HomeRuns(R)). This service generated a net loss of approximately $.11 per share in the first half of 1999 versus a net loss of approximately $.06 in the first half of 1998. During the second quarter of 1999 this service generated a net loss of $.06 versus a net loss of $.03 in the second quarter of 1998. The Company previously announced that it was seeking a strategic partner to promote and expand this business undertaking. YEAR 2000 ISSUES Through its readiness plan which was initiated in 1996, the Company has been addressing computer software and hardware modifications or replacements to enable transactions to process properly in the Year 2000 (Y2K). Included in this plan is an examination of critical IT and non-IT systems, including embedded chip technology at supermarket and distribution facilities. The Company currently expects to complete all phases of its readiness plan as follows: IT Systems Mainframe Completed Network Completed PC-Desktop August, 1999 In-store August, 1999 Facilities Systems Completed The readiness plan for IT and Facilities Systems has progressed on schedule. As of the end of the second quarter of 1999, the Company HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS had completed the correction, testing and implementation of all critical systems that involve its core business. The Company expects to be fully Y2K compliant by August 1999. As part of its readiness plan, the Company has contacted all of its critical business partners in order to ascertain their status on Y2K readiness. Based on management's assessment of their responses, the Company believes that the majority of its business partners are taking action to be Y2K complaint. Despite these documented efforts, the Company could potentially experience disruptions to some aspects of its activities and operations. Therefore, in conjunction with its readiness plan, management is formulating contingency plans for critical functions and processes which may be implemented to minimize the risk of interruption to its business in the event of a Y2K disruption. This contingency planning, which utilizes a business continuity approach, focuses on the Company's ability to remain open for business with sufficient inventories should some external infrastructure problems arise such as electrical outages. Based on key assumptions concerning the readiness status of public utilities, emergency response providers, federal, state and local government agencies and the banking system, the Company has developed business continuity strategies. Management is in the process of converting these strategies to detailed contingency plans and expects to complete its work by August 1999. For the balance of the year, the Company will continue to review its key assumptions in order to validate its strategies and test the capabilities of its contingency plans. In addition to its main focus of developing strategies to address the Company's ability to purchase an adequate supply of product from vendors, deliver it to its supermarkets and sell it to customers, contingency plans have been established to address its ability to pay employees, collect and remit on outstanding accounts, meet other regulatory and administrative needs, and address various merchandising objectives. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to its contingency plan, the Company has developed a Y2K communication plan so that its customers and employees may understand the Company's commitment to supply goods and services in its supermarkets before and after the turn of the century. Employee communications are being planned to inform associates that appropriate action has been taken to prepare for Y2K. Consumer communications will focus on the Company's effort to support its communities and customers with an adequate supply of products on a normal retail schedule. The Company intends to be responsive to public inquiries regarding Y2K through press releases between August and December of 1999. The Company is also prepared to represent the food industry in its market areas as required by public officials or as dictated by business needs. The total cost associated with anticipated Y2K modifications is not material to the Company's results of operations, financial condition or cash flows. The total estimated cost of the readiness plan, including the cost of internal resources, is $5 million, of which approximately $4.3 million has been incurred through the end of the second quarter of 1999. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY OVERVIEW Measures of liquidity for the periods presented are as follows: (Dollars in millions) July 3, January 2, 1999 1999 -------- ---------- Cash and cash equivalents $53 $60 Working capital (FIFO inventory) $35 $56 Unused lines of revolving credit $86 $58 Unused lines of short-term credit $ 1 $ 1 Current ratio (FIFO inventory) 1.13 1.22 The Company continued to maintain a strong capital position at July 3, 1999. Cash and cash equivalents decreased $7 million to $53 million at the end of the second quarter of 1999. This decrease was primarily the result of cash used in financing and investing activities partially offset by cash provided by operating activities. Lines of credit represent a continuing source of capital and are available for purposes of short-term financing. At July 3, 1999, the Company had $6 million outstanding on its revolving lines of credit. The Company is in a solid financial position to carry out its current internal expansion and external growth plans in 1999. CASH FLOWS FROM OPERATING ACTIVITIES Cash provided by operating activities was $108 million in the first half of 1999, an increase of $15 million over the $93 million provided in the first half of 1998. This increase is primarily attributable to an increase in cash flows provided by net working capital items coupled with increased net earnings and increased depreciation and amortization. The fluctuations within working capital accounts are part of the Company's normal business activities. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CASH FLOWS FROM INVESTING ACTIVITIES Cash used in investing activities decreased $21 million in the first half of 1999 to $54 million from $75 million in the first half of 1998. This decrease is the result of the Company's reduced capital investment during the period. Capital investments totaled $63 million in the first half of 1999 and were composed of $55 million in additions to property, plant and equipment, $5 million in deferred charges and computer software costs and $3 million in non-cash capital lease additions. These first half capital investments are primarily composed of costs incurred in building and equipping new and expanded supermarkets and in improvements necessary to maintain current facilities and systems. The Company expects to spend in excess of $150 million in 1999 on a capital program that will increase net retail selling area by 3.7% in 1999. This program is subject to continuing change and review as conditions warrant. Construction will also start on a number of stores to be opened in 2000. The 1999 capital program is being financed by internally generated funds, leases and long-term debt. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the first half of 1999, the Company opened 2 supermarkets including one new store and one expansion. These supermarkets, together with their square footage of selling area, are listed below: Square Footage Location Selling Area Richmond, VA 38,000 Charlotte, NC 41,000 During the remainder of 1999, the Company expects to open 6 supermarkets (1 new store and 3 expansions in the Northeast and 2 new stores in the Southeast). The 1999 capital program also includes eight major remodels, and a number of minor ones, which will not add square footage, but are important to the Company's presentation and its ability to build sales. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CASH FLOWS FROM FINANCING ACTIVITIES Cash used in financing activities was $61 million in the first half of 1999 as compared to $26 million in the first half of 1998. This reduction in cash flows of $35 million is the result of reduced proceeds from the issuance of long-term debt, increased purchases of treasury stock and increased payments on long-term debt. During the first half of 1999, the Company made $35 million in payments on its long-term debt as compared to $29 million in the first half of 1998. This increase is the result of the Company's repayment on its revolving lines of credit. The Company purchased 398,000 shares of common stock during the first half of 1999 at a cost of $20 million. The increased cost in 1999 is the result of a higher number of shares purchased coupled with a higher stock price. The majority of these repurchased shares were used to fund the Company's stock-based benefit plans with the balance being held in treasury. This amount was offset by proceeds of $9 million received during the first half of 1999 from the issuance of 297,000 shares of treasury stock. The Company paid $14 million in dividends to common shareholders in the first half of 1999. HANNAFORD BROS. CO. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) FORWARD-LOOKING STATEMENTS From time to time, information provided by the Company or statements made by its associates may contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Examples of such statements in this report include those concerning the Year 2000 issue, the Company's expected future tax rates, construction schedules and capital expenditures. The Company cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors and risks including, but not limited to the following: (1) Hannaford's future operating results are dependent on its ability to achieve increased sales and to control expenses. Factors such as lower-than-expected inflation, product cost fluctuations particularly in perishable categories, changes in product mix or the use of promotional items, both of which may affect pricing strategy, continued or increased competitive pressures from existing competitors and new entrants, including price cutting strategies, and deterioration in general or regional economic conditions are all factors which could adversely affect sales projections. Other components of operating results could be adversely affected by state or federal legislation or regulation that increases costs, interest rates or the Company's cost of borrowing, by increases in labor rates due to low unemployment or other factors, by unanticipated costs related to the opening and closing of stores or by the inability to control various expense categories. (2) Hannaford's future growth is dependent on its ability to expand its retail square footage either de novo or through acquisitions. Increases in interest rates or the Company's cost of capital, the unavailability of funds for capital expenditures and the inability to develop new stores or convert existing stores as rapidly as planned are all risks to projected future expansion. (3) Adverse determinations with respect to pending or future litigation or other material claims against Hannaford could affect actual results. Furthermore, the market price of Hannaford common stock could be subject to fluctuations in response to quarter-to-quarter variations in operating results, changes in analysts' earnings estimates, market conditions in the retail sector, especially in the supermarket industry, as well as general economic conditions and other factors external to Hannaford. PART II - OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Shareholders was held on May 19, 1999. (b) Not applicable. (c) The following issues were voted upon by shareholders. All matters were approved as indicated: 1. ELECTION OF FOUR CLASS III DIRECTORS TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2002. WITHHOLD AUTHORITY BROKER FOR FOR TOTAL NON-VOTES Robert D. Bolinder 35,976,807 53,789 36,030,596 0 Richard K. Lochridge 35,986,505 44,091 36,030,596 0 Renee M. Love 35,983,126 47,470 36,030,596 0 Robert J. Murray 35,988,196 42,400 36,030,596 0 2. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING JANUARY 1, 2000. FOR AGAINST ABSTAIN BROKER NON-VOTES TOTAL 35,942,357 30,690 57,549 0 (d) Not applicable Item 5: Other Information A limited review was made of the results of the three-month and six-month periods ended July 3, 1999, by PricewaterhouseCoopers LLP, whose report is included in Item 6. Such report is not within the meaning of Section 7 & 11 of the 1933 Act and the independent accountant's liability under Section 11 does not extend to it. Item 6: Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation SK 15 Review report of PricewaterhouseCoopers LLP on interim results. 23 Letter of PricewaterhouseCoopers LLP regarding incorporation by reference to certain forms S-8 of the Registrant. 27 Financial Data Schedule (b) The following filings were made on Form 8-K during the second quarter: 1. On June 17, 1999, a Form 8-K was filed reporting amendments to the bylaws of the Registrant. 2. On June 21, 1999, a Form 8-K was filed reporting the resignation of the Chief Financial Officer and the promotions of two employees to the positions of Chief Operating Officer and Chief Financial Officer. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HANNAFORD BROS. CO. Date August 11, 1999 /s/ Paul A. Fritzson ---------------------- ---------------------- Paul A. Fritzson Executive Vice President (Chief Financial Officer) Date August 11, 1999 /s/ Charles H. Crockett ---------------------- ----------------------------- Charles H. Crockett Assistant Secretary EX-15 2 REVIEW REPORT OF INTERIM RESULTS Exhibit 15 REPORT OF INDEPENDENT ACCOUNTANTS July 21, 1999 To the Board of Directors and Shareholders of Hannaford Bros. Co.: We have reviewed the accompanying consolidated balance sheet of Hannaford Bros. Co. and Subsidiaries as of July 3, 1999, and the related consolidated statements of earnings for each of the three month and six month periods ended July 3, 1999 and July 4, 1998, and the consolidated statements of cash flows for the six month periods ended July 3, 1999 and July 4, 1998. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with generally accepted accounting principles. We previously audited in accordance with generally accepted auditing standards, the consolidated balance sheet as of January 2, 1999, and the related consolidated statements of earnings and changes in shareholders' equity, and of cash flows for the year then ended (not presented herein), and in our report dated January 21, 1999 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the accompanying consolidated balance sheet information as of January 2, 1999, is fairly stated in all material respects. s/PricewaterhouseCoopers LLP Portland, Maine EX-23 3 LETTER FROM PRICEWATERHOUSECOOPERS LLP Exhibit 23 August 11, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 RE: Hannaford Bros. Co. Registrations on Form S-8 We are aware that our report dated July 21, 1999 on our review of interim financial information of Hannaford Bros. Co. and Subsidiaries as of July 3, 1999 and for the three month and six month periods ended July 3, 1999 and July 4, 1998, and included in this Form 10-Q is incorporated by reference in the Company's registration statements on Form S-8 (Numbers 2-77902, 2-98387, 33-1281, 33-22666, 33-31624, 33-41273, 33-60119, 33-60655, 33-60691, 333-41381 and 333-53109). s/PricewaterhouseCoopers LLP Portland, Maine EX-27 4 ART 5 FDS FOR SECOND QUARTER 1999
5 1,000 YEAR JAN-02-1999 JUL-03-1999 53,197 0 21,068 1,090 208,930 292,777 1,291,964 466,584 1,287,186 278,052 325,608 0 0 31,754 651,772 1,287,186 854,325 854,325 628,109 628,109 179,222 0 5,780 41,214 15,800 25,414 0 0 0 25,414 0.60 0.59
-----END PRIVACY-ENHANCED MESSAGE-----