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 June 17, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........to...........
Commission File number 0-6080
DELHAIZE AMERICA, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0660192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1330, 2110 Executive Drive, Salisbury, NC 28145-1330
(Address of principal executive office) (Zip Code)
(704) 633-8250
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Outstanding shares of common stock of the Registrant as of July 20, 2000.
Class A Common Stock 79,965,968
Class B Common Stock 75,290,542
155,256,510
Page 1 of 56
DELHAIZE AMERICA, INC.
INDEX TO FORM 10-Q
June 17, 2000
Part I.FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Income for the 12 and
24 weeks ended June 17, 2000 and June 19, 1999 3-4
Consolidated Balance Sheets as of June 17,
2000, January 1, 2000 and June 19, 1999 5
Consolidated Statements of Cash Flows for
24 weeks ended June 17, 2000 and June
19, 1999 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security
Holders 14-15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
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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 June 17, 2000 and June 19, 1999
(Dollars in thousands except per share data)
June 17, 2000 June 19, 1999 June 17, 2000 June 19, 1999
% %
<S> <C> <C> <C> <C>
Net sales $2,647,124 $2,509,240 100.00 100.00
Cost of goods sold 2,054,739 1,933,085 77.62 77.04
Selling and administrative expenses 468,563 440,528 17.70 17.56
Operating income 123,822 135,627 4.68 5.40
Interest expense 28,344 25,384 1.07 1.01
Income before income taxes 95,478 110,243 3.61 4.39
Provision for income taxes 36,285 41,892 1.37 1.67
Net income $ 59,193 $ 68,351 2.24 2.72
Basic earnings per share $ 0.38 $ 0.43
Diluted earnings per share $ 0.38 $ 0.43
Dividends per share $ 0.14 $ 0.13
Weighted average number
of shares outstanding:
Class A 79,950,702 81,704,721
Class B 75,290,542 76,420,385
Total 155,241,244 158,125,106
Number of shares outstanding for the twelve weeks ended June 19, 1999 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 24 Weeks ended June 17, 2000 and June 19, 1999
(Dollars in thousands except per share data)
June 17, 2000 June 19, 1999 June 17, 2000 June 19, 1999
% %
<S> <C> <C> <C> <C>
Net sales $5,126,358 $4,916,286 100.00 100.00
Cost of goods sold 3,944,697 3,789,947 76.95 77.09
Selling and administrative expenses 925,222 871,829 18.05 17.74
Operating income 256,439 254,510 5.00 5.17
Interest expense 55,374 49,737 1.08 1.01
Income before income taxes 201,065 204,773 3.92 4.16
Provision for income taxes 76,408 77,814 1.49 1.58
Net income $ 124,657 $ 126,959 2.43 2.58
Basic earnings per share $ 0.80 $ 0.80
Diluted earnings per share $ 0.80 $ 0.80
Dividends per share $ 0.29 $ 0.25
Weighted average number
of shares outstanding:
Class A 79,941,049 82,170,112
Class B 75,290,542 76,681,920
Total 155,231,591 158,852,032
Number of shares outstanding for the 24 weeks ended June 19, 1999 are restated to reflect a one-for-three
reverse stock split on September 9, 1999.
</TABLE>
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<TABLE>
DELHAIZE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
June 17, 2000 January 1, 2000 June 19, 1999
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 100,573 $ 195,502 $ 89,822
Receivables 222,586 235,457 167,358
Inventories 1,178,395 1,157,695 1,104,720
Prepaid expenses 57,812 28,407 27,215
Deferred tax assets 55,611 55,611 65,397
Total current assets 1,614,977 1,672,672 1,454,512
Property, at cost, less accumulated
depreciation 2,107,368 2,039,314 1,968,728
Deferred tax assets - - 4,707
Intangible assets, less accumulated
amortization 250,360 254,276 267,193
Other assets 20,775 7,150 3,346
Total assets $3,993,480 $3,973,412 $3,698,486
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $ 235,000 $ 302,000 $ 62,000
Accounts payable 590,038 569,592 559,399
Accrued expenses 327,880 369,230 353,137
Capital lease obligations - current 25,137 23,877 22,531
Long term debt - current 1,987 2,834 42,292
Other liabilities - current 13,100 12,660 11,272
Total current liabilities 1,193,142 1,280,193 1,050,631
Long-term debt 426,654 426,930 428,641
Capital lease obligations 505,322 478,942 492,327
Deferred income taxes 7,421 7,421 -
Other liabilities 101,124 101,060 109,576
Total liabilities 2,233,663 2,294,546 2,081,175
Shareholders' equity:
Class A non-voting common stock, $.50 par value 39,983 39,965 121,813
Class B voting common stock, $.50 par value 37,645 37,645 114,039
Additional capital 156,097 155,280 -
Retained earnings 1,526,092 1,445,976 1,381,459
Total shareholders' equity 1,759,817 1,678,866 1,617,311
Total liabilities and shareholders' equity $3,993,480 $3,973,412 $3,698,486
</TABLE>
-5-
<TABLE>
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 24 Weeks ended June 17, 2000 and June 19, 1999
(Dollars in thousands)
24 Weeks Ended
June 17, 2000 June 19, 1999
Cash flows from operating activities
<S> <C> <C>
Net income $ 124,657 $126,959
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 130,315 117,176
Loss(gain) on disposals of property and
capital lease terminations 584 (1,571)
Changes in operating assets and liabilities:
Receivables 12,871 31,743
Inventories (20,700) (1,085)
Prepaid expenses (9,163) (6,663)
Other assets (878) 149
Accounts payable and accrued expenses (20,904) 7,416
Other liabilities 504 (3,190)
Total adjustments 92,629 143,975
Net cash provided by operating activities 217,286 270,934
Cash flows from investing activities
Capital expenditures (156,343) (185,851)
Proceeds from disposal of property 1,292 1,279
Direct costs associated with acquisition (3,239) -
Other investment activity (9,508) -
Net cash used in investing activities (167,798) (184,572)
Cash flows from financing activities
Net(payments)proceeds under short-term borrowings (67,000) 1,000
Principal payments on long-term debt (1,122) (1,348)
Principal payments under capital lease obligations (12,347) (11,214)
Direct financing costs (20,242) -
Dividends paid (44,541) (39,884)
Repurchase of common stock - (69,546)
Proceeds from issuance of common stock 835 860
Net cash used in financing activities (144,417) (120,132)
Net decrease in cash and cash
equivalents (94,929) (33,770)
Cash and cash equivalents at beginning
of period 195,502 123,592
Cash and cash equivalents at end of period $100,573 $ 89,822
</TABLE>
-6-
Notes to Consolidated Financial Statements (Dollars in thousands)
1) Basis of Presentation:
The accompanying financial statements are presented in
accordance with the requirements of Form 10-Q and,
consequently, do not include all the disclosures normally required
by generally accepted accounting principles or those normally made in
the Annual Report on Form 10-K of Delhaize America, Inc. (the
"Company"). Accordingly, the reader of this Form 10-Q should refer
to the Company's Form 10-K for the year ended January 1, 2000 for
further information.
The financial information has been prepared in accordance with
the Company's customary accounting practices and has not been audited.
In the opinion of management, the financial information includes all
adjustments consisting of normal recurring adjustments necessary
for a fair presentation of interim results.
2) Supplemental Disclosure of Cash Flow Information:
Selected cash payments and non-cash activities during the period
were as follows:
June 17, 2000 June 19, 1999
Cash payments for income taxes $83,114 $86,923
Cash payments for interest,
net of amounts capitalized 55,734 51,332
Non-cash investing and financing activities:
Capitalized lease obligations
incurred for store properties 41,107 28,878
Capitalized lease obligations
terminated for store properties 1,120 17,406
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to
be cash equivalents.
-7-
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 June 17, 2000 and June 19, 1999,
respectively. Meat, produce and deli inventories are valued on the
first-in, first-out (FIFO) method. If the FIFO method were used entirely,
inventories would have been $146.8 million and $141.5 million greater as
of June 17, 2000 and June 19, 1999, respectively. Application of the LIFO
method resulted in increases in the cost of goods sold of $3.9 million
and $2.4 million for the 24 weeks ended June 17, 2000 and June 19, 1999,
respectively.
4) Reclassification
Certain financial statement items have been reclassified to
conform to the current year's format.
5) Earnings Per Share
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding (155,241,244 and 158,125,106 for the second quarter of 2000
and 1999, respectively; 155,231,591 and 158,852,032 year to date
for 2000 and 1999, respectively). Diluted earnings per share is computed
by dividing income available to common shareholders by the weighted average
number of common shares outstanding and the weighted average number of
potential common shares outstanding. The common stock equivalents that
were added to the weighted average shares outstanding for purposes of
diluted EPS were 126,000 and 319,000 for outstanding stock options year to
date for 2000 and 1999, respectively. For 1999, basic earnings per share
and diluted earnings per share have been restated to reflect a
one-for-three reverse stock split on September 9, 1999.
-8-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 24 weeks ended June 17, 2000 compared to 12 and
24 weeks ended June 19, 1999)
The Company recorded net income for the second quarter and year to date for
2000 of $59.2 million and $124.7 million, respectively, resulting in decreases
of 13.4% and 1.8% over the corresponding periods of 1999.
Net sales for the second quarter and year to date of 2000 were $2.6 billion
and $5.1 billion, respectively, resulting in increases of 5.5% and 4.3% over the
corresponding periods of 1999. Same store sales increased 1.1% for the second
quarter and decreased 0.3% year to date. During the second quarter, the Company
introduced new promotional campaigns at its Food Lion and Kash n'Karry banners
to improve sales trends in response to a highly competitive sales environment in
the first six months of 2000.
Gross profit of 22.38% of sales for the second quarter this year was
below the second quarter of last year of 22.96% of sales. Gross margins
were adversely impacted in the second quarter by the cost of markdowns and
changes in the mix of products sold as a result of promotional campaigns
in a highly competitive sales environment. The Company's internal testing
for the second quarter indicated minimal inflation; however, the Company
has provided a $2.0 million LIFO provision in the second quarter of 2000
primarily due to an increase in paper products and cigarette costs. The
current LIFO provision is adequate to cover this level of inflation.
Year to date gross profit of 23.05% of sales compared favorably to
the corresponding period of last year of 22.91% of sales. This improved
gross profit was primarily due to continued category management
initiatives of margin blending and category mix, particularly in the
perishable (dairy and frozen) and grocery departments, partially offset by
promotional markdowns.
Selling and administrative expenses for the second quarter were
$468.6 million (including $66.2 million in depreciation and amortization)
or 17.70% of sales as compared to $440.5 million (including $59.7 million
in depreciation and amortization) or 17.56% of sales in the corresponding
period of the prior year. The increase in selling and administrative
expenses was due primarily to increases in store salaries, store rent and
depreciation. The Company has experienced increasing labor costs due to
the low unemployment rates in all its operating markets, which in turn has
created higher turnover as well as wage increases. Higher labor costs were
partially offset by adjustments to benefit and insurance reserves to reflect
-9-
current estimates. The increase in store rent was due to 76 new store
openings and 149 expansions of existing stores since second quarter of
last year. Depreciation and amortization of $66.2 million increased over
the second quarter of last year of $59.7 million due to leasehold
improvements and equipment purchases for new stores and renovations.
Selling and administrative expenses for the second quarter of 1999
included a one-time charge of $3.3 million (pre-tax) related to executive
post-employment benefits.
Interest expense of $28.3 million for the second quarter of 2000 and
$55.4 million year to date was higher as compared to $25.4 million and
$49.7 million for the respective periods of 1999 due to an increase in
short-term borrowings.
Net income for the quarter was $59.2 million or 2.24% of sales as
compared to $68.4 million or 2.72% of sales in the second quarter of the
prior year. Basic and diluted earnings per share were $0.38 for the second
quarter of 2000 compared to $0.43 last year.
Store Closing Costs
(Dollars in millions)
Reduction
of Asset Lease Accrued
Values Liabilities Expenses Total
Balance at March 25, 2000 $8.2 $104.3 $1.1 $113.6
Additions 0.2 3.1 .9 4.2
Reductions -0.3 -2.4 -.6 -3.3
Balance at June 17, 2000 $8.1 $105.0 $1.4 $114.5
The Company recorded $3.9 million in store closing costs (included in
Selling and Administrative Expenses on the Company's Consolidated Statement of
Income) during the second quarter of 2000. These costs are included in the
"Additions" line in the table above.
Reductions relate primarily to on-going rent payments made on lease
obligations.
During the second quarter of 2000, the Company closed four stores and
relocated three of these stores in the normal course of business. The
revenues and operating results of these stores were not significant to the
Company's total revenues and operating results.
During the second quarter of 2000, the Company completed disposition
efforts related to one closed store. At the end of the first quarter of 2000
the Company had $114.5 million in store closing costs related to 159 stores (156
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.
-10-
Liquidity and Capital Resources
Cash provided by operating activities totaled $217.3 million for the
24 weeks ended June 17, 2000, compared with $270.9 million for the same
period last year. The decrease was primarily due to an increase in
inventory levels, net of related accounts payable, and a decrease in
accrued expenses mainly as a result of increased payouts for 1999 benefit
plans.
Capital expenditures totaled $156.3 million for the 24 weeks ended
June 17, 2000, compared with $185.9 million for the same period in 1999.
Year to date the Company opened 29 new stores and completed the renovation
of 56 existing stores. In addition, during the 24 weeks of 2000, the
Company had merger costs of $3.2 million related to the acquisition of
Hannaford Bros. Co. and an investment of $9.5 million in a Thailand chain.
With its 2000 growth plan, the Company anticipates a net increase in
store square footage of approximately 8.0%. This plan is subject to
change and review as conditions warrant. Capital expenditures currently
estimated for 2000 are $360 million. Capital expenditures for 2000 will
be financed through funds generated from operations and existing bank
credit facilities.
Cash flows used in financing activities for the 24 weeks ended June
17, 2000 increased to $144.4 million from $120.1 million for the same
period of last year. The increase in cash used was primarily the result of
payments on short-term borrowings and bridge financing costs incurred for
the Company's announced Hannaford Bros. Co. acquisition.
The Company maintains the following bank and credit lines:
A revolving credit facility with a syndicate of commercial banks providing
$500.0 million in committed lines of credit, which expires in November
2000. As of June 17, 2000, the Company had $180.0 million in outstanding
borrowings. There were no outstanding borrowings as of the end of the
second quarter of 1999. During the second quarter of 2000, the Company had
average borrowings of $114.8 million at a daily weighted average interest
rate of 7.62%.
Additional short-term committed lines of credit totaling $20.0 million were
available when needed through May 29, 2000. The Company was not required to
maintain compensating balances related to these lines of credit, and
borrowings could occur
-11-
periodically. These lines were replaced with additional
uncommitted lines during the second quarter. The Company had no
borrowings outstanding at June 17, 2000 and $20.0 million outstanding
at the end of second quarter of 1999. During the second quarter while
this line was available, the Company had average borrowings of $20.0
million at a daily weighted average interest rate of 6.58% 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 second quarter were as follows:
Informal Credit Arrangements
(Dollars in millions)
2000 1999
Outstanding borrowings
at the end of the second quarter $55.0 $42.0
Average borrowings $66.3 $26.8
Maximum amount outstanding $125.0 $105.0
Daily weighted average interest rate 7.45% 5.09%
The Company completed its acquisition of all the outstanding shares
of Hannaford Bros. Co. in a cash and stock transaction valued at
approximately $3.6 billion, including the assumption of debt, on
July 31, 2000. Hannaford will operate as a subsidiary of Delhaize
America, Inc. The acquisition will result in a combined entity that will
include more than 1,400 stores on the Eastern seaboard and generate sales
in excess of $14 billion a year.
The Company estimates the total amount of cash required for the merger with
Hannaford to be approximately $2.7 billion. The cash consideration required to
complete the merger will be funded through (i) a 364-day capital markets bridge
facility for up to $2.5 billion and (ii) a $500 million five-year syndicated
revolving credit facility. The Company plans to commence a debt offering for
long term financing to replace the bridge facility within one year from
completion of the merger.
The Company has entered into various agreements to hedge against a
potential increase in interest rates on planned bond issues related to the
announced acquisition of Hannaford Bros. Co. The notional amount of the
agreements totals $1.75 billion. At June 17, 2000, the unrealized loss related
to these agreements was $98.7 million as compared to the unrealized gain
totaling $7.2 million at January 1, 2000. The
-12-
differential to be paid or received will be recognized as an adjustment to
interest expense over the life of the underlying debt. The Company
is subject to risk of nonperformance by the counterparties to the agreement.
The Company does not anticipate nonperformance by the counterparties, who
are major U.S. financial institutions.
The Company finances its daily working capital requirements, when
necessary, through the use of its various committed and uncommitted lines of
credit. These financial instruments are sensitive to interest rate changes.
Outstanding borrowings under such agreements are discussed above.
Other
This report contains certain "forward-looking statements" within
the protection of the statutory safe-harbors of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, which address activities, events or
developments that the Company expects or anticipates will or may occur
in the future, including such things as expansion and growth of the
Company's business, future capital expenditures and the Company's
business strategy, are forward-looking statements. In reviewing such
information, it should be kept in mind that actual results may differ
materially from those projected or suggested in such forward-looking
statements. This forward-looking information is based on various factors
and was derived utilizing numerous assumptions. Many of these factors
have previously been identified in filings or statements made by or on
behalf of the Company, including filings with the Securities and Exchange
Commission of Forms 10-Q, 10-K and 8-K.
Important assumptions and other important factors that could cause
actual results to differ materially from those set forth in the forward-
looking statements include: changes in the general economy or in the
Company's primary markets, changes in consumer spending, competitive
factors, the nature and extent of continued consolidation in the industry,
changes in the rate of inflation and interest costs on borrowed funds,
changes in state or federal legislation or regulation, changes in the
availability and cost of labor, adverse determinations with respect to
litigation or other claims, inability to develop new stores or complete
remodels as rapidly as planned, and stability of product costs -- supply
or quality control problems with the Company's vendors detailed from time-
to-time in the Company's filings with the Securities and Exchange
Commission.
The Company does not undertake to update forward-looking information
contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
-13-
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
This information is set forth in Item 2 to this Form 10-Q and is
hereby incorporated by reference.
Part II OTHER INFORMATION
Item 1. Legal Proceedings
The Company has had no significant developments related to legal
matters since the Item 3 disclosure included in the Company's Form 10Q filed May
9, 2000 for the 12 weeks ended March 25, 2000.
Item 2. Change in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a). The Company held its Annual Meeting of Shareholders on May
4, 2000.
(b). Not applicable
(c). Matters voted upon at the meeting
Election of Directors For Withheld Broker
Non-Votes
Pierre-Olivier Beckers 62,034,416 3,048,545 10,207,581
Dr. J. Kelly Collamore 63,016,361 2,066,600 10,207,581
JC Coppieters`T Wallant 63,011,645 2,071,316 10,207,581
Pierre Dumont 62,971,571 2,111,390 10,207,581
William G. Ferguson 62,975,011 2,107,950 10,207,581
Dr. Bernard W. Franklin 63,014,506 2,068,455 10,207,581
Joseph C. Hall, Jr. 62,954,046 2,128,915 10,207,581
Margaret H. Kluttz 62,969,022 2,113,939 10,207,581
Bill McCanless 62,154,831 2,928,130 10,207,581
Dominique Raquez 62,066,357 3,016,604 10,207,581
-14-
Appointment of For Against Abstain Broker
Independent Accountants Non-votes
PricewaterhouseCoopers 64,683,909 312,254 86,798 10,207,581
LLP
For Against Abstain Broker
Non-votes
Amendments to the
bylaws of the Company 61,215,211 3,421,843 445,907 10,207,581
For Against Abstain Broker
Non-votes
Delhaize America,
Inc. 2000 Stock
Incentive Plan 51,479,101 3,775,822 582,955 19,542,664
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
27 Financial Data Schedule
(b). The Company did not file a report on Form 8-K during the
period ended June 17, 2000.
-15-
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: August 1, 2000 BY:Laura Kendall
Laura Kendall
Chief Financial Officer
Principal Accounting Officer
-16-
Exhibit Index
Exhibit Description Page
No.
3 Bylaws of Delhaize America 18-31
10a Shareholders' Agreement 32-39
10b Stock Incentive Plan 40-54
27 Financial Data Schedule 55-56
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