SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 11, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........to...........
Commission File number 0-6080
DELHAIZE AMERICA, INC.(formerly Food Lion, Inc.)
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0660192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1330, 2110 Executive Drive, Salisbury, NC 28145-1330
(Address of principal executive office) (Zip Code)
(704) 633-8250
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Outstanding shares of common stock of the Registrant as of October 21, 1999.
Class A Common Stock 79,929,952
Class B Common Stock 75,290,542
155,220,494
Page 1 of 24
DELHAIZE AMERICA, INC.
INDEX TO FORM 10-Q
September 11, 1999
Part I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Income for the 12 and
36 weeks ended September 11, 1999 and September
12, 1998 3-4
Consolidated Balance Sheets as of September 11,
1999, January 2, 1999 and September 12, 1998 5
Consolidated Statements of Cash Flows for
36 weeks ended September 11, 1999 and September
12, 1998 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security
Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended September 11, 1999 and September 12, 1998
(Dollars in thousands except per share data)
Sept. 11, 1999 Sept. 12, 1998 Sept. 11, 1999 Sept. 12, 1998
% %
<S> <C> <C> <C> <C>
Net sales $2,583,945 $2,378,922 100.00 100.00
Cost of goods sold 1,994,185 1,843,988 77.18 77.51
Selling and administrative expenses 447,404 411,820 17.31 17.32
Operating income 142,356 123,114 5.51 5.17
Interest expense 24,582 17,420 0.95 0.73
Income before income taxes 117,774 105,694 4.56 4.44
Provision for income taxes 44,755 32,925 1.73 1.38
Net income $ 73,019 $ 72,769 2.83 3.06
Basic earnings per share $ 0.47 $ 0.45
Diluted earnings per share $ 0.47 $ 0.45
Dividends per share $ 0.12 $ 0.11
Weighted average number
of shares outstanding:
Class A 80,533,813 83,579,425
Class B 75,608,705 77,575,788
Total 156,142,518 161,155,213
Number of shares outstanding are restated to reflect a one-for-three reverse stock split on September 9, 1999.
</TABLE>
-3-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 36 Weeks ended September 11, 1999 and September 12, 1998
(Dollars in thousands except per share data)
Sept. 11, 1999 Sept. 12, 1998 Sept. 11, 1999 Sept. 12, 1998
% %
<S> <C> <C> <C> <C>
Net sales $7,500,231 $7,037,655 100.00 100.00
Cost of goods sold 5,784,132 5,470,760 77.12 77.74
Selling and administrative expenses 1,319,233 1,207,154 17.59 17.15
Operating income 396,866 359,741 5.29 5.11
Interest expense 74,319 68,188 0.99 0.97
Income before income taxes 322,547 291,553 4.30 4.14
Provision for income taxes 122,569 103,517 1.63 1.47
Net income $ 199,978 $ 188,036 2.67 2.67
Basic earnings per share $ 1.27 $ 1.18
Diluted earnings per share $ 1.26 $ 1.18
Dividends per share $ 0.38 $ 0.34
Weighted average number
of shares outstanding:
Class A 81,624,679 81,316,772
Class B 76,324,182 77,575,788
Total 157,948,861 158,892,560
Number of shares outstanding are restated to reflect a one-for-three reverse stock split on September 9, 1999.
</TABLE>
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DELHAIZE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
September 11, 1999 January 2, 1999 September 12, 1998
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 150,099 $ 123,592 $ 197,857
Receivables 195,997 199,101 146,041
Inventories 1,109,487 1,103,635 1,005,866
Prepaid expenses 20,250 20,552 25,703
Deferred tax asset 65,397 65,397 73,604
Total current assets 1,541,230 1,512,277 1,449,071
Property, at cost, less accumulated
depreciation 1,999,173 1,897,080 1,855,498
Deferred tax asset 4,707 4,707 37,645
Intangible assets 265,002 258,402 264,833
Other assets 3,272 3,495 3,995
Total assets $3,813,384 $3,675,961 $3,611,042
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ - $ 61,000 $ -
Accounts payable, trade 723,345 545,015 547,274
Accrued expenses 383,203 360,105 352,714
Capital lease obligations - current 22,868 21,940 20,549
Long term debt - current 21,230 42,518 37,638
Other liabilities - current 11,813 9,839 10,042
Income taxes payable 34,614 - 13,812
Total current liabilities 1,197,073 1,040,417 982,029
Long-term debt 427,063 429,763 435,168
Capital lease obligations 485,138 492,660 493,042
Other liabilities 105,638 114,199 118,613
Total liabilities 2,214,912 2,077,039 2,028,852
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 39,975 123,946 125,454
Class B voting common stock, $.50 par value 37,654 115,415 116,364
Additional capital 155,262 60,332 107,680
Retained earnings 1,365,581 1,299,229 1,232,692
Total shareholders' equity 1,598,472 1,598,922 1,582,190
Total liabilities and shareholders' equity $3,813,384 $3,675,961 $3,611,042
</TABLE>
-5-
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 36 Weeks ended September 11, 1999 and September 12, 1998
(Dollars in thousands)
36 Weeks
Sept. 11, 1999 Sept. 12, 1998
Cash flows from operating activities
Net income $199,978 $188,036
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 177,654 162,207
Gain on disposals of property and
capital lease terminations (4,412) (1,746)
Deferred income taxes - 3,854
Changes in operating assets and liabilities:
Receivables 3,104 20,749
Inventories (5,852) (23,122)
Prepaid expenses 302 (3,189)
Other assets 223 1,725
Accounts payable and accrued expenses 201,428 50,908
Income taxes payable 34,614 13,812
Other liabilities (6,587) (5,981)
Total adjustments 400,474 219,217
Net cash provided by operating activities 600,452 407,253
Cash flows from investing activities
Capital expenditures (276,237) (219,449)
Proceeds from disposal of property 4,465 74,702
Net cash used in investing activities (271,772) (144,747)
Cash flows from financing activities
Net payments under short-term borrowings (61,000) (80,000)
Principal payments on long-term debt (23,988) (5,629)
Principal payments under capital lease obligations (16,757) (22,884)
Dividends paid (59,551) (53,259)
Repurchase of common stock (142,667) -
Proceeds from issuance of common stock 1,790 3,783
Net cash used in financing activities (302,173) (157,989)
Net increase in cash and cash
equivalents 26,507 104,517
Cash and cash equivalents at beginning
of period 123,592 93,340
Cash and cash equivalents at end of period $150,099 $197,857
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Notes to Consolidated Financial Statements (Dollars in thousands)
1) Basis of Presentation:
The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and, consequently, do not include all the
disclosures normally required by generally accepted accounting principles
or those normally made in the Annual Report on Form 10-K of Delhaize
America, Inc. formerly known as Food Lion, Inc. (the "Company").
Accordingly, the reader of this Form 10-Q should refer to the Company's
Form 10-K for the year ended January 2, 1999 for further information.
On September 7,1999, the shareholders of the Company approved various
corporate realignment initiatives which included forming a holding company
called Delhaize America, Inc. Delhaize America, Inc. will serve as the
consolidating entity for all of the Company's supermarket chains,
currently including stores carrying both the Food Lion and Kash n' Karry
banners. The new corporate structure will promote greater flexibility in
the daily operations of the different chains, and will better support
future growth opportunities.
In addition, the Company listed on the New York Stock Exchange beginning
on September 9, 1999, after authorizing a one-for-three reverse stock
split of all outstanding shares of common stock at the close of business
12:01 a.m. on September 9, 1999. As a result, the Company's two classes of
stock are traded on the New York Stock Exchange under the symbols "DZA"
and "DZB".
The financial information has been prepared in accordance with the
Company's customary accounting practices and has not been audited. In the
opinion of management, the financial information includes all adjustments
consisting of normal recurring adjustments necessary for a fair
presentation of interim results.
2) Supplemental Disclosure of Cash Flow Information:
Selected cash payments and non-cash activities during the period
were as follows:
Sept. 11, 1999 Sept. 12,1998
Cash payments for income taxes $ 87,934 $96,941
Cash payments for interest,
net of amounts capitalized 68,315 69,883
-7-
Non-cash investing and financing activities:
Capitalized lease obligations
incurred for store properties 31,313 47,006
Capitalized lease obligations
terminated for store properties 21,150 20,886
Conversion of long-term debt
to stock 0 110,445
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to
be cash equivalents.
3) Inventories
Inventories are stated at the lower of cost or market. Inventories
valued using the last-in, first-out(LIFO) method comprised
approximately 82% and 85% of inventories as of September 11,
1999 and September 12, 1998, respectively. Meat, produce and deli
inventories are valued on the first-in, first-out (FIFO) method.
If the FIFO method were used entirely, inventories would have been
$142.4 million and $121.1 million greater as of September 11, 1999
and September 12, 1998, respectively. Application of the LIFO
method resulted in increases in the cost of goods sold of $3.3
million and $6.7 million for the 36 weeks ended September 11, 1999
and September 12, 1998, respectively.
4) Reclassification
Certain financial statement items have been reclassified to
conform to the current year's format.
5) Earnings Per Share
Basic earnings per share is computed by dividing income available
to common shareholders by the weighted average number of common shares
outstanding (156,142,518 and 161,155,213 for the third quarter of 1999 and
1998, respectively; 157,948,861 and 158,892,560 year to date for 1999 and
1998, respectively). Diluted earnings per share is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding and the weighted average number of potential
common shares outstanding. The common stock equivalents that were added to
the weighted average shares outstanding for purposes of diluted EPS were
282,000 and 390,000 for outstanding stock options year to date for 1999 and
1998, respectively.
-8-
6) Reverse stock split
On September 9, 1999 the Company completed a one-for-three reverse
stock split which resulted in reducing the number of Class A
Common Stock shares outstanding from 239,853,334 shares to
79,951,083 shares, and reducing the number of Class B Common Stock
shares outstanding from 225,922,064 shares to 75,307,355 shares.
-9-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 36 weeks ended September 11, 1999 compared to 12
and 36 weeks ended September 12, 1998)
The Company recorded net income for the third quarter and year
to date for 1999 of $73.0 million and $200.0 million, respectively, resulting in
increases of 0.3% and 6.4% over the corresponding periods of 1998. The third
quarter of 1998 included a tax refund of $12 million (see discussion below).
Excluding this refund, comparable net income increased 20.1% and 13.6% for
third quarter and year to date, respectively.
Net sales increased 8.6% and 6.6% for the third quarter and year to
date, respectively. Same store sales increased 2.5% for the third
quarter and 2.3% year to date. Year to date total sales for 1999 are not
comparable to 1998 due to a change in the method of collecting sales tax
on products discounted through the MVP customer ("MVP") and Preferred
Customer Club ("PCC") loyalty card programs (see discussion below). On
a comparable basis, 1999 year to date sales restated to exclude the
impact of the MVP sales tax change in the first and second quarters
increased 7.6% over 1998 year to date.
Beginning in May 1998, after receiving permission from all
applicable state departments of revenue, the Company began collecting
sales tax on the net sales price, after considering the MVP/PCC discount
granted, rather than the full retail price of the MVP/PCC items. The
related impact to the first and second quarters of 1999 was to reduce
reported sales by approximately $70.4 million. This change does not
impact the same store sales calculation or the Company's net income, as
gross profit and expense dollars are the same under either method. The
only difference is that under the new method the discount granted is
reflected in sales rather than cost of goods sold under the original
method.
The Company's updated 1999 business plan includes opening 100 new
stores, closing 29 existing stores (approximately 20 of these closings
will be relocations) and renovating approximately 140 existing stores.
With this growth plan, the Company anticipates a net increase in store
square footage of approximately 10.0% in 1999. As of September 11, 1999,
the Company had opened 77 new stores, closed 21 stores (of which 16 were
relocations), and completed renovations at 95 existing stores. The Company
recently announced its growth plan for 2000 which includes 85 new store
openings, 18 store closings (of which all are relocations) and the
renovation of approximately 150 existing stores.
-10-
Gross profits of 22.82% for the third quarter and 22.88% year to date
(or 22.67% year to date adjusted to the original method of reporting sales
tax) compared favorably against prior year gross profits of 22.49% of
sales in the third quarter and 22.26% of sales year to date. The increase
in gross profit is due to continued category management initiatives
designed to maximize product selection and merchandising through increased
variety (new items) and promotional activity through the Company's
customer loyalty card programs. The third quarter LIFO charge was $1.0
million. The Company's internal testing for the third quarter indicated
minimal inflation. The current LIFO provision ($3.3 million year to date)
is adequate to cover the current level of inflation. During the fourth
quarter, the Company anticipates an inflationary trend in cigarette prices
resulting from an expected federal tax increase.
For the third quarter of 1999, selling and administrative expenses
(including $60.5 million in depreciation and amortization) were $447.4
million or 17.31% of sales as compared to $411.8 million (including $55.8
million in depreciation and amortization) or 17.32% of sales in the
corresponding period of the prior year. Selling and administrative expense
comparisons were positively influenced by strong sales posted during the
quarter which facilitated improved leverage of fixed operating costs. The
Company demonstrated good cost control in most expense categories despite the
continued increase in store wages and benefits due to the tight labor
market in most operating areas.
Interest expense of $24.6 million for the third quarter of 1999 and
$74.3 million year to date increased $7.2 million and $6.1 million,
respectively, compared to the same periods in 1998. During the third
quarter of 1998, the Company reached an agreement with the U.S. Internal
Revenue Service regarding its examination of tax years 1991-1994. As a
result of this agreement, the Company received a refund during the third
quarter of 1998 related to tax paid in previous years. The refund includes
$7.2 million in tax (recorded during the third quarter as a reduction to
the Provision for Income Taxes) and related interest income totaling $7.6
million (recorded during the third quarter as a reduction to Interest
Expense).
Net income for the quarter was $73.0 million or 2.83% of net sales as
compared to $72.8 million or 3.06% of net sales in the third quarter of the
prior year. Basic and diluted earnings per share were $0.47 for the third
quarter of 1999 compared to $0.45 last year. Excluding the impact of the tax
refund recorded in the third quarter of 1998, net income for the third quarter
of 1998 would have been $60.8 million or 2.56% of net sales, and basic and
diluted earnings per share would have been $0.38.
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Store Closing Costs
(Dollars in millions)
Reduction
of Asset Lease Accrued
Values Liabilities Expenses Total
Balance at June 19, 1999 $16.0 $110.7 $.1 $126.8
Additions .3 1.1 .8 2.2
Reductions -1.5 -4.1 -1.1 -6.7
Reclassification -3.0 0.0 3.0 0.0
Balance at September 11, 1999 $11.8 $107.7 $2.8 $122.3
The Company recorded $2.0 million in store closing costs (included in
Selling and Administrative Expenses on the Company's Consolidated Statement of
Income) during the third quarter of 1999. These costs are included in the
"Additions" line in the table above.
Reductions include fees totaling $1.8 million related to the termination of
two store leases. The remaining $4.9 million relates primarily to on-going
rent payments made on lease obligations and payment of expenses arising from
contractual obligations.
During the third quarter of 1999, the Company closed 8 stores in the normal
course of business. Four of these stores were closings related to store
relocations. The revenues and operating results of these stores were not
significant to the Company's total revenues and operating results.
During the third quarter of 1999, the Company completed disposition efforts
related to 6 closed stores.
At the end of the third quarter of 1999 the Company had $122.3 million in
store closing costs related to 160 stores (157 leased and 3 owned) and one
distribution center. Disposition efforts on the properties related to these
facilities (leases, equipment, and buildings) will continue until all related
properties are disposed.
Liquidity and Capital Resources
Cash provided by operating activities totaled $600.5 million for the
36 weeks ended September 11, 1999, compared with $407.3 million for the
same period last year. The increase was primarily due to an increase in
operating income and trade payables. The Company completed an accounts
payable system conversion during the third quarter. The Company worked
with its vendors to obtain extended payment terms during the system
transition which resulted in increased trade payables.
-12-
Capital expenditures totaled $276.2 million for the 36 weeks ended
September 11, 1999, compared with $219.4 million for the same period in
1998. The Company opened 77 new stores, closed 21 stores (including 16
relocations), and completed the renovation of 95 existing stores through
the end of the third quarter of 1999. The Company plans to open a total
of 100 new stores in 1999 and renovate approximately 140 stores. The
Company anticipates that the majority of the new stores will be opened
under conventional leasing arrangements.
Capital expenditures currently estimated for 1999 are $390 million.
Capital expenditures for 1999 will be financed through funds generated
from operations and existing bank credit facilities. The Company expects
capital expenditures for 2000 of approximately $460 million.
The Company maintains the following bank and credit lines:
$250.0 million commercial paper program under which no borrowings were
outstanding during the 36 weeks ended September 11, 1999 and September 12, 1998.
A revolving credit facility with a syndicate of commercial banks providing
$625.0 million in committed lines of credit which expires in December 1999.
There were no outstanding borrowings as of the end of the third quarter of 1999
or 1998.
Additional short-term committed lines of credit totaling $20.0 million
which are available when needed. The Company is not required to maintain
compensating balances related to these lines of credit, and borrowings may occur
periodically. There were no outstanding borrowings as of September 11, 1999
or September 12, 1998. During the third quarter of 1999, the Company had
average borrowings of $11.1 million at a daily weighted average interest rate of
5.15% with a maximum amount outstanding of $20.0 million.
Periodic short-term borrowings may be placed under informal credit
arrangements, which are available to the Company at the discretion of the
lender. Borrowings for the third quarter were as follows:
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Informal Credit Arrangements
(Dollars in millions)
1999 1998
Outstanding borrowings
at the end of the third quarter $0.0 $0.0
Average borrowings $19.8 $2.4
Maximum amount outstanding $90.0 $30.0
Daily weighted average interest rate 5.37% 5.76%
As of September 11, 1999, the Company had repurchased $142.7 million of
common stock, representing approximately 8.3 million Class A shares and
approximately 4.9 million Class B shares. In July 1999, the Board of Directors
approved $100 million as the amount available for share repurchases going
forward of which $57.3 million is unused. During the third quarter, the Company
suspended the share repurchase program as a result of the announced plan to
acquire Hannaford Bros. Company.
On August 18, 1999, the Company announced its agreement to acquire
all of the outstanding shares of Hannaford Bros. Co. in a cash and stock
transaction valued at approximately $3.6 billion, including the assumption
of debt. Upon completion of the transaction, Hannaford will operate as a
subsidiary of Delhaize America, Inc. The Company expects to finalize the
acquisition in early 2000, pending regulatory approvals and a vote of
Hannaford shareholders.
Delhaize America estimates that the total amount of cash required to
complete the merger with Hannaford will be approximately $2.7 billion. It is
anticipated that the cash consideration required to complete the merger will be
funded through the entering into of (i) a 364 day capital markets bridge
facility for up to $2.5 billion; (ii) a $500 million 364-day syndicated
revolving credit facility; and (iii) a $500 million five-year syndicated
revolving credit facility. J.P. Morgan Securities Inc. is expected to be the
lead arranger and book runner and Morgan Guaranty Trust Company of New York is
expected to be the administrative agent in connection with both facilities. J.P.
Morgan has previously delivered a fully-underwritten Commitment Letter to
Delhaize America with respect to the financing.
Year 2000
In 1996, the Company began evaluating both its information technology
systems and non-information technology systems, and other systems and
equipment, in order to identify and adjust date
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sensitive systems for Year 2000 compliance. As part of this undertaking,
the Company created a Year 2000 Project Team to address the issues related
to Year 2000 compliance. The Year 2000 Team is led by representatives
from the Company's Information Technology department and includes key
representatives from other areas of the Company. The Year 2000 Team
developed a three-phase plan to identify and remediate all existing
systems to ensure the Company's readiness for the century change. These
phases consist of assessment, system remediation and integration testing.
Project Phase One primarily focused on assessing the business impact
of the century change on the Company's operating environment. This
assessment included information technology systems, non-information
technology systems and supply chain readiness. The assessment
was conducted based on an analysis of the Company's individual business
processes and the potential material risks associated with the Company's
operations. Project Phase Two primarily focused on code and system
conversion (remediation) of date impacted applications and systems.
Remediation or replacement was conducted for all information technology
and embedded systems impacted by Year 2000 issues. Project Phase Three
involves the execution of various testing protocols, analysis of test
results and the development of contingency plans for each of the impacted
systems.
The Company has completed Project Phase One and Project Phase Two for
all critical systems. As a result, the Company believes that all critical
systems and applications are now Year 2000 compliant. The Company will
continue its efforts in Project Phase Three, which includes testing and
validation of impacted systems, as well as development of contingency
plans, throughout 1999.
Except for the cost of replacement systems, the Company will expense
the cost of the Year 2000 Project as incurred. The Company is funding the
costs associated with the Year 2000 Project through operating cash flows
and has not deferred any Information Technology projects in order to
complete the Year 2000 Project.
The Company estimates the total incremental cost of the Year 2000
Project is approximately $17 million which includes equipment and software
replacements, reprogramming, systems testing, and outside consulting
services. Approximately $4.0 million of the total cost for the Year 2000
Project is related to reprogramming or remediation of existing software and
new systems, while the remaining cost of approximately $13.0 million is
related to the implementation of certain replacement systems.
-15-
At the end of the third quarter of fiscal 1999, the Company had incurred
approximately $14.5 million of the total cost of the Year 2000 Project of
which $3.3 million had been expensed as incurred and $11.2 million had
been capitalized for replacement systems.
The Company has not materially increased the number of its employees
in order to complete the Year 2000 Project. Although the Company has
utilized external contractors in various phases of the Year 2000 Project,
the Company does not consider any of these contracts or relationships
material for the completion of the Year 2000 Project. The Company has
assigned certain employees from its Information Technology department to
the Year 2000 Project (averaging approximately 20 employees during Phase
One, 22 employees during Phase Two, and 19 employees during Phase
Three of the project and less than 15 employees from its user
departments). As discussed above, the Company has created a Year 2000
Project Team composed of representatives from all areas of the Company.
Members of the Year 2000 Project Team have completed the tasks associated
with the Year 2000 Project as part of their normal duties. Although the
Company has discussed its Year 2000 Project with certain of its consultants,
third parties were not retained to perform independent verification and
validation processes regarding the risks and cost estimates of the Year
2000 Project.
As part of the Year 2000 Project, the Company has identified
relationships with third parties, including vendors, suppliers, and
service providers, which the Company believes are critical to its business
operations. Although the Company considered several factors in
identifying these critical relationships, the Company has concentrated its
communication efforts, as discussed below, with suppliers and vendors from
whom the Company makes annual purchases in excess of $10 million. The
Company continues to communicate with these third parties through
questionnaires, letters, and interviews in an effort to determine the
extent to which they are addressing their Year 2000 compliance issues.
Based on the responses received to date from these efforts, the
Company understands that all critical suppliers have indicated they
anticipate being Year 2000 compliant. A substantial percentage of these
critical suppliers have indicated they are Year 2000 compliant while the
remaining suppliers have indicated they are still addressing Year 2000
issues. Where appropriate, the Company has developed strategies to work
with its suppliers to verify Year 2000 readiness and create contingency
plans as discussed below.
The Company cannot assure that there will not be an adverse impact on
the Company if third parties do not appropriately address their Year 2000
issues in a timely manner. Such other
-16-
possible consequences include, but are not limited to, loss of
communications with stores, loss of electric power, and an inability to
process customer transactions or otherwise engage in similar normal
business activities. As discussed below, the Company has developed
contingency plans with its critical suppliers in order to arrange for the
timely delivery of inventory. The Company will continue to communicate
with, assess and monitor the progress of these third parties in resolving
Year 2000 issues.
Although the Company does not believe the actual impact of any system
failures related to the century change will be material, the Company has
developed various contingency plans with its critical suppliers and
certain other vendors in order to assure the timely delivery of inventory
and prepare for normal business activities following the century change.
In the event the Company or a key supplier is adversely impacted by the
century change, the Company will implement its contingency plan for such
situation. These plans include alternate means of communication with
suppliers, such as facsimile, telephone and hand delivery, manual operation
of certain systems, as well as the implementation of certain established
ordering procedures. Under the terms of these established ordering
procedures, the Company's critical suppliers will provide inventory to
the Company based on historical ordering patterns. These suppliers will
also substitute products and adjust inventory levels of substitute items
based on the availability of certain products. In addition, the Company
will adjust inventory levels prior to the end of the year in order to meet
unusual customer demands related to the century change. The Company will
continue to develop and finalize the implementation of its contingency
plans with third parties throughout 1999.
These projections are based on management's best estimates and may be
updated from time to time as additional information becomes available.
This section discussing Year 2000 issues contains forward-looking
statements (refer to "Other" below which addresses forward-looking
statements made by the Company).
Other
Information provided by the Company, including written or oral
statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of
1995. All statements, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as
expansion and growth of the Company's business, future capital
expenditures and the Company's business strategy, are forward-looking
statements. In reviewing such information, it should be kept in mind that
actual results may differ materially from those projected or
-17-
suggested in such forward-looking statements. This forward-looking
information is based on various factors and was derived utilizing numerous
assumptions. Many of these factors have previously been identified in
filings or statements made by or on behalf of the Company, including
filings with the Securities and Exchange Commission of Forms 10-Q, 10-K
and 8-K.
Important assumptions and other important factors that could cause
actual results to differ materially from those set forth in the forward-
looking statements include: changes in the general economy or in the
Company's primary markets, changes in consumer spending, competitive
factors, the nature and extent of continued consolidation in the industry,
changes in the rate of inflation, changes in state or federal legislation
or regulation, adverse determinations with respect to litigation or other
claims, inability to develop new stores or complete remodels as rapidly
as planned, stability of product costs -- supply or quality control problems
with the Company's vendors, and issues and uncertainties related to Year
2000 detailed from time-to-time in the Company's filings with the
Securities and Exchange Commission.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
Except as set forth below, The Company has had no other significant developments
related to legal matters since the Item 1 disclosure included in the Company's
Form 10Q filed July 30, 1999 for the quarter ended June 19, 1999.
Longman et al. v. Food Lion,Inc. and Tom E.Smith,4:92 CV 696
(M.D.N.C.)(complaint filed November 12, 1992, and amended January 23,
1993)("Longman");and
Feinman et al. v. Food Lion, Inc. and Tom E. Smith,4:92 CV
705(M.D.N.C.)(complaint filed November 13, 1992)("Feinman").
The Longman and Feinman actions asserted claims against the Company and Tom
E.Smith under Section 10(b) of the Securities Exchange Act of 1934, as amended,
and Rule 10b-5 for securities fraud and claims of common law fraud and negligent
misrepresentation. The actions had been consolidated for discovery and trial
purposes. On June 18, 1998, the court granted Food Lion's and Mr. Smith's
motions for summary judgment, and dismissed these actions in their entirety as
to both Food Lion and Mr.Smith. The plaintiffs appealed to the United States
Court of Appeals for the Fourth Circuit. On October 7, 1999 the Fourth Circuit
affirmed the decision of the District Court.
-18-
Item 2. Change in Securities
This item is not applicable.
Item 3. Defaults Upon Senior Securities
This item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(a). The Company held a special shareholders' meeting on September 7, 1999.
(b). Not applicable.
(c). Matters voted upon at the meeting.
The reverse stock split For Against Abstain Non-vote
proposal
Class A 150,065,243 15,989,261 609,212
Class B 157,127,972 13,385,162 1,478,748 270
The preferred stock
proposal
Class A 132,185,078 23,260,072 11,218,566
Class B 144,311,788 25,738,507 1,941,856 1
The holding company
proposal
Class B 165,566,538 4,694,539 1,730,805 270
The name change
proposal
Class B 164,832,674 5,368,177 1,791,031 270
The purpose clause
proposal
Class B 161,661,950 6,993,781 3,336,420 1
The director range
proposal
Class B 163,651,232 6,719,492 1,621,427 1
Item 5. Other Information
This item is not applicable.
-19-
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
27 Financial Data Schedule
(b). The Company filed a report on Form 8-K pursuant to Item 5 and
Item 7 on August 19, 1999 in connection with the proposed
acquisition of Hannaford Bros. Company.
-20-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DELHAIZE AMERICA, INC.
Registrant
DATE: 10/26/99 BY:Laura Kendall
Laura Kendall
Vice President of Finance
Chief Financial Officer
Principal Accounting Officer
-21-
Exhibit Index
Exhibit Description Page
No.
27 Financial Data Schedule 23
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Operations and the
Consolidated Statement of Cash Flows and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> SEP-11-1999
<CASH> 150,099
<SECURITIES> 0
<RECEIVABLES> 195,997
<ALLOWANCES> 0
<INVENTORY> 1,109,487
<CURRENT-ASSETS> 1,541,230
<PP&E> 3,250,316
<DEPRECIATION> 1,251,143
<TOTAL-ASSETS> 3,813,384
<CURRENT-LIABILITIES> 1,197,073
<BONDS> 427,063
0
0
<COMMON> 232,891
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<TOTAL-LIABILITY-AND-EQUITY> 3,813,384
<SALES> 7,500,231
<TOTAL-REVENUES> 7,500,231
<CGS> 5,784,132
<TOTAL-COSTS> 5,784,132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,319
<INCOME-PRETAX> 322,547
<INCOME-TAX> 122,569
<INCOME-CONTINUING> 199,978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 199,978
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.26
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