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 March 25, 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 May 2, 2000.
Class A Common Stock 79,945,141
Class B Common Stock 75,290,542
155,235,683
Page 1 of 17
DELHAIZE AMERICA, INC.
INDEX TO FORM 10-Q
March 25, 2000
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Income for the 12
weeks ended March 25, 2000 and March 27, 1999 3
Consolidated Balance Sheets as of March 25,
2000, January 1, 2000 and March 27, 1999 4
Consolidated Statements of Cash Flows for
the 12 weeks ended March 25, 2000 and March
27, 1999 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security
Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended March 25, 2000 and March 27, 1999
(Dollars in thousands except per share data)
<TABLE>
Mar. 25, 2000 Mar. 27, 1999 Mar. 25, 2000 Mar. 27, 1999
% %
<S> <C> <C> <C> <C>
Net sales $2,479,234 $2,407,046 100.00 100.00
Cost of goods sold 1,889,341 1,856,862 76.21 77.14
Selling and administrative expenses 457,276 431,301 18.44 17.92
Operating income 132,617 118,883 5.35 4.94
Interest expense 27,030 24,353 1.09 1.01
Income before income taxes 105,587 94,530 4.26 3.93
Provision for income taxes 40,123 35,922 1.62 1.50
Net income $ 65,464 $ 58,608 2.64 2.43
Basic earnings per share $ 0.42 $ 0.37
Diluted earnings per share $ 0.42 $ 0.37
Dividends per share $ 0.14 $ 0.12
Weighted average number
of shares outstanding:
Class A 79,931,395 82,635,504
Class B 75,290,542 76,943,455
Total 155,221,937 159,578,959
Number of shares outstanding for the twelve weeks ended March 27, 1999 are restated to reflect a one-for-three
reverse stock split on September 9, 1999.
</TABLE>
-3-
DELHAIZE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
March 25, 2000 January 1, 2000 March 27, 1999
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 100,155 $ 195,502 $ 184,690
Receivables 227,549 235,457 186,423
Inventories 1,178,488 1,157,695 1,090,980
Prepaid expenses 38,416 28,407 19,302
Deferred tax asset 55,611 55,611 65,397
Total current assets 1,600,219 1,672,672 1,546,792
Property, at cost, less accumulated
depreciation 2,046,220 2,039,314 1,926,031
Deferred tax asset - - 4,707
Intangible assets, less accumulated
amortization 252,298 254,276 256,524
Other assets 18,745 7,150 3,421
Total assets $3,917,482 $3,973,412 $3,737,475
Liabilities and Shareholders' Equity
Current Liabilities:
Short-term borrowings $ 178,000 $ 302,000 $ -
Accounts payable 557,649 569,592 545,480
Accrued expenses 372,972 369,230 418,308
Capital lease obligations - current 24,038 23,877 22,149
Long term debt - current 2,415 2,834 42,403
Other liabilities - current 12,702 12,660 10,136
Income taxes payable 37,436 - 35,262
Total current liabilities 1,185,212 1,280,193 1,073,738
Long-term debt 426,794 426,930 429,208
Capital lease obligations 475,053 478,942 486,220
Deferred income taxes 7,421 7,421 -
Other liabilities 100,918 101,060 110,635
Total liabilities 2,195,398 2,294,546 2,099,801
Shareholders' Equity:
Class A non-voting common stock, $.50 par value 39,966 39,965 123,957
Class B voting common stock, $.50 par value 37,645 37,645 115,415
Additional capital 155,304 155,280 60,457
Retained earnings 1,489,169 1,445,976 1,337,845
Total shareholders' equity 1,722,084 1,678,866 1,637,674
Total liabilities and shareholders' equity $3,917,482 $3,973,412 $3,737,475
</TABLE>
-4-
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 12 Weeks ended March 25, 2000 and March 27, 1999
(Dollars in thousands)
12 Weeks
Mar. 25, 2000 Mar. 27, 1999
Cash flows from operating activities
Net income $ 65,464 $ 58,608
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 64,133 57,459
Loss(gain) on disposals of property and
capital lease terminations 372 (312)
Changes in operating assets and liabilities:
Receivables 7,908 12,678
Inventories (20,793) 12,655
Prepaid expenses (558) 1,250
Other assets 53 74
Accounts payable and accrued expenses (8,201) 58,668
Income taxes payable 37,436 35,262
Other liabilities (100) (3,267)
Total adjustments 80,250 174,467
Net cash provided by operating activities 145,714 233,075
Cash flows from investing activities
Capital expenditures (68,264) (86,084)
Proceeds from disposal of property 998 900
Direct costs associated with acquisition (2,159) -
Other investment activity (9,489) -
Net cash used in investing activities (78,914) (85,184)
Cash flows from financing activities
Net payments under short-term borrowings (124,000) (61,000)
Principal payments on long-term debt (555) (670)
Principal payments under capital lease obligations (5,895) (5,267)
Other financing payments (9,451) -
Dividends paid (22,271) (19,992)
Proceeds from issuance of common stock 25 136
Net cash used in financing activities (162,147) (86,793)
Net (decrease) increase in cash and cash
equivalents (95,347) 61,098
Cash and cash equivalents at beginning
of period 195,502 123,592
Cash and cash equivalents at end of period $100,155 $184,690
-5-
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:
Mar. 25, 2000 Mar. 27, 1999
Cash payments for income taxes $ 2,684 $ 658
Cash payments for interest,
net of amounts capitalized 19,656 16,145
Non-cash investing and financing activities:
Capitalized lease obligations
incurred for store properties 3,287 0
Capitalized lease obligations
terminated for store properties 1,120 964
The Company considers all highly liquid investment instruments
purchased with an original maturity of three months or less to
be cash equivalents.
-6-
3) Inventories
Inventories are stated at the lower of cost or market. Inventories
valued using the last-in, first-out (LIFO) method comprised
approximately 84% and 86% of inventories as of March 25, 2000
and March 27, 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
$144.8 million and $140.5 million greater as of March 25, 2000
and March 27, 1999, respectively. Application of the LIFO
method resulted in increases in the cost of goods sold of $1.9
million and $1.4 million for the 12 weeks ended March 25, 2000
and March 27, 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 (155,221,937 and 159,578,959 for the first
quarter of 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 159,000 and
255,000 for outstanding stock options year to date for 2000 and
1999, respectively.
-7-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 weeks ended March 25, 2000 compared to 12
weeks ended March 27, 1999)
The Company recorded net income of $65.5 million for the first
quarter of 2000, an increase of 11.7% over the corresponding period of
1999.
Net sales for the first quarter of 2000 were $2.5 billion, an
increase of 3.0% over the first quarter of 1999. Same store sales
decreased 1.8% over the first quarter of last year. The Company's same
store sales have been negatively impacted by the aggressive advertising
campaigns of many of its competitors and severe weather disruption
caused by unprecedented snowfall in some of our markets in late January
and early February. To meet this challenging environment, the Company
plans to enhance its communication of price leadership in all of its
markets and to continue offering customers a quality shopping
experience.
The Company announced in August 1999 its plan to acquire Hannaford
Bros. Co. for $3.6 billion, including the assumption of debt.
Shareholders of Hannaford approved the merger agreement at its
shareholder meeting on February 10, 2000. Delhaize America expects this
transaction to be completed in fiscal 2000. In addition, during the
first quarter, the Company invested $9.5 million for a 51 percent
ownership in a Thailand chain, which operates 13 supermarkets in
Thailand under the name of Food Lion Supermarkets. The investment
is immaterial to the Company's financial position and results of
operations.
Gross profit was 23.79% of sales for the first quarter this
year compared to 22.86% of sales for the same period last year.
The increase in 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. The first quarter LIFO charge of $1.9
million was primarily due to an increase in cigarette costs. The
Company's internal testing for the first quarter indicated
minimal inflation. The current LIFO provision is adequate to
cover this level of inflation.
Selling and administrative expenses were $457.3 million
(including $64.1 million in depreciation and amortization) or
18.44% of sales as compared to $431.3 million (including $57.5
million in depreciation and amortization) or 17.92% 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 and benefits, store rent and
depreciation. The Company has experienced increasing labor costs
-8-
due to the low unemployment rates in all operating markets, which
in turn has created higher turnover as well as wage and benefit
increases. Store rent has increased due to the new store openings
and expansions of existing stores since first quarter of last
year. Depreciation and amortization of $64.1 million increased
over the first quarter of last year of $57.5 million due to
leasehold improvements and equipment purchases for new stores and
renovations since the first quarter of last year. In the prior
year, a one-time charge of $3.9 million, pre-tax, related to
retirement benefits for the Company's former President and CEO
was included in selling and administrative expenses.
Interest expense of $27.0 million for the first quarter of
2000 increased from $24.4 million for the same period of 1999 due
to an increase in short-term borrowings.
Net income for the quarter was $65.5 million or 2.64% of
sales as compared to $58.6 million or 2.43% of sales in the first
quarter of 1999. Basic and diluted earnings per share were $0.42
for the first quarter of 2000 compared to $0.37 last year.
Store Closing Costs
(Dollars in millions)
Reduction
of Asset Lease Accrued
Values Liabilities Expenses Total
Balance at January 1, 2000 $8.5 $104.3 $2.4 $115.2
Additions 0.0 3.5 .9 4.4
Reductions -0.3 -3.5 -2.2 -6.0
Balance at March 25, 2000 $8.2 $104.3 $1.1 $113.6
The Company recorded $4.1 million in store closing costs (included
in Selling and Administrative Expenses on the Company's Consolidated
Statement of Income) during the first quarter of 2000. These costs are
included in the "Additions" line in the table above.
Reductions include fees totaling $1.0 million related to the
termination of two store leases. The remaining $5.0 million relates
primarily to on-going rent payments made on lease obligations and
payment of expenses arising from contractual obligations.
During the first quarter of 2000, the Company closed one store in
the normal course of business related to a relocation. The revenues
and operating results of this store were not significant to the
Company's total revenues and operating results.
During the first quarter of 2000, the Company completed
disposition efforts related to 2 closed stores. At the end of the first
quarter of 2000 the Company had $113.6 million in store closing costs
-9-
related to 156 stores (153 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 $145.7 million
for the 12 weeks ended March 25, 2000, compared with $233.1
million for the same period last year. The decrease was primarily
due to an increase in inventory levels net of trade payables.
Capital expenditures totaled $68.3 million for the 12 weeks
ended March 25, 2000, compared with $86.1 million for the same
period in 1999. During the first quarter of 2000, the Company
equipped ten new stores and completed the renovation of 17
existing stores. In addition, during the first quarter of 2000,
the Company had investment activity related to Hannaford Bros.
Co. and its Thailand chain. During the first quarter of 1999, the
Company equipped 21 new stores and completed the renovation of
eight existing stores.
The Company's 2000 business plan includes opening 85 new
stores, closing 18 existing stores (of which all will be
relocations) and renovating approximately 150 existing stores.
The Company anticipates that the majority of the new stores will
be opened under conventional leasing arrangements. With this 2000
growth plan, the Company anticipates a net increase in store
square footage of approximately 8.0%. 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 first
quarter of 2000 increased to $162.1 million from $86.8 million
for the same period 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.
During the first quarter of 2000, the Company did not
purchase any shares of Class A or Class B stock since the share
repurchase program was suspended in the third quarter of 1999 as
a result of the announced plan to acquire Hannaford Bros.
Company. If reinstated, the program allows for additional
purchases to be made in the open market as deemed in the best
interest of shareholders.
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,
-10-
which expires in November 2000. As of March 25, 2000, the
Company had $130.0 million in outstanding borrowings. There
were no outstanding borrowings as of the end of the first
quarter of 1999. During the first quarter of 2000, the Company
had average borrowings of $143.4 million at a daily weighted
average interest rate of 7.33%.
$250.0 million commercial paper program under which no borrowings
were outstanding during the 12 weeks ended March 25, 2000 and March 27,
1999.
Additional short-term committed lines of credit totaling $20.0
million are available when needed. The Company is not required to
maintain compensating balances related to these lines of credit, and
borrowings may occur periodically. The Company had $20.0 million
outstanding at March 25, 2000. There were no outstanding borrowings as
of March 27, 1999. During the first quarter of 2000, the Company had
average borrowings of $19.5 million at a daily weighted average
interest rate of 6.15% 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 first quarter were as follows:
Informal Credit Arrangements
(Dollars in millions)
2000 1999
Outstanding borrowings
at the end of the first quarter $28.0 $0.0
Average borrowings $48.8 $3.2
Maximum amount outstanding $110.0 $35.0
Daily weighted average interest rate 6.57% 5.09%
On August 17, 1999, the Company entered into a definitive
merger 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 fiscal 2000.
The Company estimates that the total amount of cash required to
complete the merger with Hannaford will be approximately $2.7 billion.
-11-
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 as long term
financing to replace the bridge facility.
The Company has entered into various agreements to hedge
against a potential increase in interest rates on future bond issues
related to the announced acquisition of Hannaford Bros. Co. The
notional amount of the agreements totals $1.75 billion. At March 25,
2000, the unrealized loss related to these agreements was $51.5
million as compared to the unrealized gain totaling $7.2 million
at January 1, 2000. The 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.
Delhaize America 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
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
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, changes in
-12-
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.
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 10K filed March 30, 2000 for the year ended January 1, 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
None.
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
twelve week period ended March 25, 2000.
-13-
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: May 9, 2000 BY:\s\Laura Kendall
Laura Kendall
Chief Financial Officer
Principal Accounting Officer
-14-
Exhibit Index
Exhibit Description Page
No.
27 Financial Data Schedule 16-17
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets, the Consolidated Statements of Income 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> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> MAR-25-2000
<CASH> 100,155
<SECURITIES> 0
<RECEIVABLES> 227,549
<ALLOWANCES> 0
<INVENTORY> 1,178,488
<CURRENT-ASSETS> 1,600,219
<PP&E> 3,395,563
<DEPRECIATION> 1,349,343
<TOTAL-ASSETS> 3,917,482
<CURRENT-LIABILITIES> 1,185,212
<BONDS> 426,794
0
0
<COMMON> 232,915
<OTHER-SE> 1,489,169
<TOTAL-LIABILITY-AND-EQUITY> 3,917,482
<SALES> 2,479,234
<TOTAL-REVENUES> 2,479,234
<CGS> 1,889,341
<TOTAL-COSTS> 1,889,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,030
<INCOME-PRETAX> 105,587
<INCOME-TAX> 40,123
<INCOME-CONTINUING> 65,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,464
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.42
</TABLE>
