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 9, 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 1-15275
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 October 20,
2000.
Class A Common Stock 105,820,355
Class B Common Stock 75,290,542
181,110,897
Page 1 of 23
DELHAIZE AMERICA, INC.
INDEX TO FORM 10-Q
September 9, 2000
Part I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Income for the 12 and
36 weeks ended September 9, 2000 and September 11,
1999 3-4
Consolidated Balance Sheets as of September 9,
2000, January 1, 2000 and September 11, 1999 5
Consolidated Statements of Cash Flows for the
36 weeks ended September 9, 2000 and September
11, 1999 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
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 19
Signatures 20
Exhibit Index 21
-2-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 12 Weeks ended September 9, 2000 and September 11, 1999
(Dollars in thousands except per share data)
<TABLE>
Sept. 9, 2000 Sept. 11, 1999 Sept. 9, 2000 Sept. 11, 1999
% %
<S> <C> <C> <C> <C>
Net sales and other revenues $3,054,192 $2,586,835 100.00 100.00
Cost of goods sold 2,326,612 1,955,860 76.18 75.61
Selling and administrative expenses 610,007 486,609 19.97 18.81
Store closing provision 49,120 2,010 1.61 0.08
Asset impairment provision 15,716 - 0.51 0.00
Merger and other non-recurring 3,932 - 0.13 0.00
Operating income 48,805 142,356 1.60 5.50
Interest expense 61,610 24,582 2.02 0.95
Income/(loss)before income taxes (12,805) 117,774 (0.42) 4.55
Provision for income taxes ( 2,167) 44,755 (0.07) 1.73
Net income/(loss) $ (10,638) $ 73,019 (0.35) 2.82
Basic earnings(loss) per share $ (0.06) $ 0.47
Diluted earnings(loss) per share $ (0.06) $ 0.47
Dividends per share $ 0.14 $ 0.12
Weighted average number
of shares outstanding:
Class A 92,786,343 80,533,813
Class B 75,290,542 75,608,705
Total 168,076,885 156,142,518
</TABLE>
-3-
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 36 Weeks ended September 9, 2000 and September 11, 1999
(Dollars in thousands except per share data)
<TABLE>
Sept. 9, 2000 Sept. 11, 1999 Sept. 9, 2000 Sept. 11, 1999
% %
<S> <C> <C> <C> <C>
Net sales and other revenues $8,185,747 $7,508,901 100.00 100.00
Cost of goods sold 6,191,471 5,679,119 75.64 75.63
Selling and administrative expenses 1,609,323 1,423,886 19.66 18.97
Store closing provision 57,117 9,030 0.70 0.12
Asset impairment provision 15,716 - 0.19 0.00
Merger and other non-recurring 6,876 - 0.08 0.00
Operating income 305,244 396,866 3.73 5.28
Interest expense 116,984 74,319 1.43 0.99
Income before income taxes 188,260 322,547 2.30 4.29
Provision for income taxes 74,241 122,569 0.91 1.63
Net income $ 114,019 $ 199,978 1.39 2.66
Basic earnings per share $ 0.71 $ 1.27
Diluted earnings per share $ 0.70 $ 1.26
Dividends per share $ 0.43 $ 0.38
Weighted average number
of shares outstanding:
Class A 84,222,814 81,624,679
Class B 75,290,542 76,324,182
Total 159,513,356 157,948,861
</TABLE>
-4-
DELHAIZE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
Sept. 9, 2000 Jan. 1, 2000 Sept. 11, 1999
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 139,635 $ 195,502 $ 150,099
Receivables 261,034 235,457 195,997
Inventories 1,237,936 1,157,695 1,109,487
Prepaid expenses 76,524 28,407 20,250
Deferred tax assets 55,611 55,611 65,397
Total current assets 1,770,740 1,672,672 1,541,230
Property, at cost, less accumulated
depreciation 2,785,053 2,039,314 1,999,173
Intangible assets, less accumulated
amortization 3,305,540 254,276 265,002
Other assets 33,415 7,150 7,979
Total assets $7,894,748 $3,973,412 $3,813,384
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings $2,693,000 $ 302,000 $ -
Accounts payable 736,996 569,592 723,345
Accrued expenses 432,667 369,230 383,203
Capital lease obligations - current 28,925 23,877 22,868
Long term debt - current 78,787 2,834 21,230
Other liabilities - current 13,147 12,660 11,813
Income taxes payable - - 34,614
Total current liabilities 3,983,522 1,280,193 1,197,073
Long-term debt 511,389 426,930 427,063
Capital lease obligations 588,786 478,942 485,138
Deferred income taxes 153,493 7,421 -
Other liabilities 235,526 101,060 105,638
Total liabilities 5,472,716 2,294,546 2,214,912
Shareholders' equity:
Class A non-voting common stock,
$.50 par value 52,836 39,965 39,975
Class B voting common stock, $.50
par value 37,645 37,645 37,654
Additional capital 838,374 155,280 155,262
Retained earnings 1,493,177 1,445,976 1,365,581
Total shareholders' equity 2,422,032 1,678,866 1,598,472
Total liabilities and
shareholders' equity $7,894,748 $3,973,412 $3,813,384
</TABLE>
-5-
DELHAIZE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 36 Weeks ended September 9, 2000 and September 11, 1999
(Dollars in thousands)
36 Weeks Ended
Sept. 9, 2000 Sept. 11, 1999
Cash flows from operating activities
Net income $ 114,019 $ 199,978
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 220,952 177,654
Loss(gain) on disposals of property and
capital lease terminations 667 (4,412)
Store closing reserves 49,120 -
Asset impairment reserves 15,716 -
Deferred income taxes 11,657 -
Other 1,767 -
Changes in operating assets and liabilities:
(Net of effects of acquired company)
Receivables 10,993 3,104
Inventories 123,194 (5,852)
Prepaid expenses (20,945) 302
Other assets 2,636 223
Accounts payable and accrued expenses (46,233) 201,428
Income taxes payable - 34,614
Other liabilities (3,218) (6,587)
Total adjustments 366,306 400,474
Net cash provided by operating activities 480,325 600,452
Cash flows from investing activities
Capital expenditures (242,802) (276,237)
Proceeds from disposal of property 71,818 4,465
Investment in Hannaford,net of cash received
and stock issued (2,633,156) -
Other investment activity (9,508) -
Net cash used in investing activities (2,813,648) (271,772)
Cash flows from financing activities
Net proceeds(pymts)under short-term borrowings 2,391,000 (61,000)
Principal payments on long-term debt (7,766) (23,988)
Principal pymts under capital lease obligations (19,380) (16,757)
Direct financing costs (21,086) -
Dividends paid (66,818) (59,551)
Repurchase of common stock - (142,667)
Proceeds from issuance of common stock 1,506 1,790
Net cash provided by (used in)
financing activities 2,277,456 (302,173)
Net (decrease) increase in cash and cash
equivalents (55,867) 26,507
Cash and cash equivalents at beginning
of period 195,502 123,592
Cash and cash equivalents at end of period $ 139,635 $ 150,099
-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 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. 9, 2000 Sept. 11, 1999
Cash payments for income taxes $83,068 $87,934
Cash payments for interest,
net of amounts capitalized 99,823 68,315
Non-cash investing and financing activities:
Capitalized lease obligations
incurred for store properties 65,664 31,313
Capitalized lease obligations
terminated for store properties 4,968 21,150
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% of inventories for the periods ending September 9,
2000 and September 11, 1999. 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 $147.3 million and
$142.4 million greater as of September 9, 2000 and September 11,
1999, respectively. Application of the LIFO method resulted in
increases in the cost of goods sold of $4.4 million and $3.3 million
for the 36 weeks ended September 9, 2000 and September 11, 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 (168,076,885 and 156,142,518 for the third
quarter of 2000 and 1999, respectively; 159,513,356 and
157,948,861 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 earnings per share were 2,392,000 and 282,000 for
outstanding stock options year to date for 2000 and 1999,
respectively.
6) Acquisition
The Company completed its acquisition of Hannaford Bros.
Co.("Hannaford"), effective July 31, 2000,by merging (the "Merger") FL
Acquisition Sub, Inc., a Maine corporation wholly owned by the
Company, with and into Hannaford. The amounts and
components of the estimated purchase price reflected in the
financial information are as follows: (i) approximately $2.3
billion in cash and approximately 13.7 million shares of Delhaize
America Class A common stock valued at approximately $352 million
exchanged in the Merger for all the outstanding shares of Hannaford
common stock, (ii) fully vested options to purchase approximately
4.2 million shares of Delhaize America Class A common stock valued
at approximately $40 million, which were converted from options to
acquire shares of Hannaford common stock, and (iii) approximately
$0.5 billion in cash and 11.9 million shares of Delhaize America
Class A common stock valued at approximately $306 million paid to
-8-
Empire Company Limited and E.C.L. Investments Limited (collectively
the "Empire Group") in a transaction immediately preceding the
Merger in exchange for all of the shares of Hannaford common stock
held by the Empire Group. This acquisition was accounted for using
the purchase method of accounting and, therefore, the purchase
price has been allocated to assets acquired and liabilities assumed
based on estimated fair values. The results of operations of
Hannaford are included in the consolidated results of the Company
from the effective date of the acquisition.
The estimated fair value of assets acquired and liabilities assumed
relating to the acquisition is summarized below:
Consideration and Acquisition Costs
Cash consideration $2,772,294
Stock consideration 658,269
Fair value of options exchanged 39,861
Other acquisition costs 17,441
$3,487,865
Allocation of Purchase Price
Current assets $ 401,776
Property, plant and equipment 727,025
Goodwill 2,570,388
Identified intangible and other (non-
current) 531,761
Current liabilities (293,074)
Non-current liabilities (450,011)
$3,487,865
The following unaudited pro forma consolidated results of operations
are presented as if the acquisition of Hannaford had been made at the
beginning of the periods presented.
-9-
12 weeks ended 36 weeks ended
9/9/00 9/11/99 9/9/00 9/11/99
Net sales and
other revenues $3,456,947 $3,289,776 $9,983,932 $9,568,552
Net income (24,103) 42,257 27,382 96,850
Basic earnings
per share (.12) .23 .15 .53
Diluted earning
per share (.12) .23 .15 .52
The pro forma consolidated results of operations include adjustments to
give effect to the sale of Hannaford's operations in the Southeastern
United States, amortization of identified intangible assets and
goodwill, interest expense on acquisition debt and certain other
adjustments, together with related income tax effects. The unaudited
pro forma financial information is presented for illustrative purposes
only and is not necessarily indicative of the results of operations
that would have occurred had the purchase been made at the beginning of
the periods presented nor is it indicative of the future results of the
combined operations.
The Company has made a preliminary allocation of the purchase price
under purchase accounting, the purchase price is allocated to acquired
assets and liabilities based on their estimated fair values at the date
of acquisition, and any excess is allocated to goodwill. The
acquisition resulted in goodwill of approximately $2.6 billion, which
will be amortized over 40 years. Such allocations are subject to adjustment.
Management does not expect the final allocations to differ materially
from the amounts presented herein.
7) Asset Impairment
The Company periodically reviews the recorded value of its long-lived
assets to determine if the future cash flows to be derived from these
properties will be sufficient to recover the remaining recorded asset
values. In accordance with SFAS 121, during the third quarter of 2000,
based upon a comprehensive review of the Company's long-lived assets,
the Company recorded a non-cash charge of $9.7 million (net of tax)
related to the write-down of a portion of the recorded assets and
related lease obligation values of the Company's stores that were
operating as of September 9, 2000. Projected future undiscounted cash
flows were used to determine whether the assets were impaired and the
assets were adjusted to their estimated fair market values.
8) Store Closing Provision
The Company undertook a strategic review of its total operations to
-10-
identify stores that did not meet its long-term performance
expectations. As a result of this review, the Company has elected to
dedicate its resources to grow its three primary banners, Food Lion,
Hannaford and Kash n' Karry and to discontinue its Save n' Pack banner
in Florida. Of the 18 Save n' Pack stores, 13 locations will close and
5 locations will be converted to the Kash n' Karry banner. A store
closing charge of $30.5 million (net of tax) has been recognized during
the third quarter related to the closing of 15 locations, including the
13 Save n' Pack stores, two Food Lion stores and the relocation of 14
stores. The store closing charge includes charges related to reduction
of asset values, lease liabilities and other operating expenses.
9) Pending transaction with majority shareholders
The Company received an offer on September 6, 2000 from its largest
shareholder, Etablissements Delhaize Freres et Cie "Le Lion" S. A.
("Delhaize Group"), to exchange Delhaize Group stock for all of the
outstanding shares of the Class A and Class B common stock of Delhaize
America, Inc., not currently owned by the Delhaize Group (or its wholly
owned subsidiary Delhaize The Lion America, Inc.) Under the Delhaize
Group proposal, the consideration to be received by the public
shareholders of the Company would consist of 0.35 common shares of
Delhaize Group in exchange for each share of Class A and Class B common
stock of the Company. The Company has established a special committee
of independent directors to review the offer.
10) Recently issued accounting standards
In June of 1998, the Financial Accounting Standards Board issued FASB
No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires entities to report all derivatives at fair
value as assets and liabilities in their statements of financial
position. The Company will adopt FAS No. 133 as required by FAS 137,
"Deferral of the Effective Date of the FASB Statement No. 133,"
beginning in the first quarter of 2001. Although the Company has not
fully assessed the impact of this pronouncement, the Company currently
expects that, upon adoption, the unrealized loss on the interest rate
hedge in place related to the anticipated debt offering would be
required to be recorded as an adjustment to other comprehensive income,
net of deferred tax effects, within shareholders' equity.
-11-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS (12 and 36 weeks ended September 9, 2000
compared to 12 and 36 weeks ended September 11, 1999.)
The 12 weeks and 36 weeks ended September 9, 2000 include the
operating results of Hannaford, for six weeks since its acquisition on
July 31, 2000. Reclassifications have been made for all current and
historical information presented herein from that contained in prior
SEC filings on forms 10-Q, 10-K and 8-K for the Company.
Earnings before interest, taxes, depreciation and amortization and
other one-time charges (EBITDA) were $208.7 million or 6.8% of sales
for the third quarter.
After merger costs and one-time adjustments, the Company recorded
a net loss for the third quarter of $10.6 million (.35% of sales) or a
loss of $.06 per share compared to net income of $73.0 million or 2.82%
of sales and $.47 per share in the third quarter of the prior year. The
loss for the quarter reflected one-time adjustments of $30.5 million,
net of tax, for store closing charges, $9.7 million, net of tax, for
asset impairment charges, and $2.4 million, net of tax, in other merger
related costs. Before these one-time adjustments and merger costs, net
income was $32.0 million or $.19 per share in the third quarter of
2000. One-time adjustments and merger costs are discussed in detail
below.
On July 31, 2000 the Company completed its acquisition of
Hannaford applying the purchase method of accounting. The amounts and
components of the estimated purchase price reflected in the financial
information are as follows: (i) approximately $2.3 billion in cash and
approximately 13.7 million shares of Delhaize America Class A common
stock valued at approximately $352 million exchanged in the Merger for
all the outstanding shares of Hannaford common stock, (ii) fully vested
options to purchase approximately 4.2 million shares of Delhaize
America Class A common stock valued at approximately $40 million, which
were converted from options to acquire shares of Hannaford common
stock, and (iii) approximately $0.5 billion in cash and 11.9 million
shares of Delhaize America Class A common stock valued at approximately
$306 million paid to Empire Company Limited and E.C.L. Investments
Limited (the "Empire Group") in a transaction immediately preceding the
Merger in exchange for all of the shares of Hannaford common stock held
by the Empire Group. During the third quarter, the Company's net
income before one-time adjustments and merger costs was impacted by
higher interest expense, net of tax, of $23.0 million and amortization
of intangible assets related to the acquisition of $8.7 million, net of
tax.
Net sales and other revenues for the third quarter and year to
date for 2000 were $3.1 billion and $8.2 billion, respectively,
resulting in increases of 18.0% and 9.0% over the corresponding periods
-12-
of 1999. The sales increase was primarily due to the acquisition of
Hannaford during the third quarter and the opening of an additional 48
stores, net of 19 closings, and 165 renovations of existing stores.
Consolidated comparable store sales increased 1.0% for the third
quarter and 0.2% year to date.
Gross profit of 23.82% of sales for the third quarter of 2000 and
24.36% of sales year to date was lower compared to 24.39% of sales and
24.37% of sales for the respective periods of 1999. Gross margins were
affected by the cost of markdowns and changes in the mix of products
sold at our Food Lion stores, as we continue to be responsive to a
heightened competitive environment in the Southeastern United States.
We are implementing strategies for expanding gross margins, including
enhancing the merchandise offering, pursuing reduction in inventory
shrinkage, procurement opportunities and further refinements to our
retail pricing and promotional strategies.
The Company has provided a $.5 million LIFO provision in the third
quarter of 2000 due to minimal inflation, compared with a LIFO
provision of $.9 million last year. The current LIFO provision is
adequate to cover the anticipated level of inflation.
Selling and administrative expenses for the third quarter were
$610.0 million (including $90.6 million in depreciation and
amortization) or 19.97% of sales as compared to $486.6 million
(including $60.5 million in depreciation and amortization) or 18.81% of
sales in the corresponding period of the prior year. Third quarter
this year includes six weeks of general and administrative expenses
reported for Hannaford since its acquisition on July 31, 2000. The
increase in selling and administrative expenses was due primarily to
increases in store labor, store rent and depreciation and amortization.
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. The increase in
store rent and depreciation and amortization was due to 48 new store
openings, net of 19 closings, and 165 renovations of existing stores
since third quarter of last year and the acquisition of Hannaford.
Interest expense of $61.6 million for the third quarter of 2000
and $117.0 million year to date was higher compared to $24.6 million
and $74.3 million for the respective periods of 1999 due to borrowings
for the acquisition of Hannaford and for interest related to additional
capital leases.
-13-
Store Closing Costs
(Dollars in millions)
Reduction
Of Asset Lease Accrued
Values Liabilities Expenses Total
Balance at June 17, 2000 $8.1 $105.0 $1.4 $114.5
Additions from Hannaford 51.2 13.9 65.1
Acquisition July 31, 2000
Additions 5.5 41.2 2.9 49.6
Reductions -0.1 -3.2 -1.4 -4.7
Balance at September 9, 2000 $13.5 $194.2 $16.8 $224.5
The balance sheet for the Company reflects the addition of the
opening balances of Hannaford's store closing reserve of $65.1 million
for 29 closed stores and site locations acquired in the Merger
effective July 31, 2000.
During the third quarter, the Company undertook a strategic review
of its total operations to identify stores that were not in line with
it's long-term performance expectations. As a result of this review,
the Company has elected to dedicate its resources to grow its three
primary store banners, Food Lion, Hannaford and Kash n' Karry, and will
not continue to develop the Save n' Pack banner in Florida. Of the 18
Save n' Pack stores, 13 locations will close and 5 locations will be
converted to the Kash n' Karry banner. A store closing charge of $30.5
million, net of tax, has been recognized during the third quarter
related to the closing of 15 locations, including the 13 Save n' Pack
stores and two Food Lion stores, and the relocation of 14 stores. These
costs are included by category in the "Additions" line in the table
above. The revenues and operating results of these stores were not
significant to the Company's total revenues and operating results.
Reductions relate primarily to on-going rent payments made on
lease obligations.
During the third quarter of 2000, the Company closed four stores
and relocated two 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 third quarter of 2000, the Company completed
disposition efforts related to nine closed stores. At the end of the
third quarter of 2000 the Company had accrued $224.5 million in store
closing costs related to 171 stores, eight undeveloped sites 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.
-14-
Asset Impairment Charge
The Company periodically reviews the recorded value of its long-
lived assets to determine if the future cash flows to be derived from
these properties will be sufficient to recover the remaining recorded
asset values. During the third quarter, based on a strategic review of
the Company's long-lived assets the Company recorded a non-cash charge
of $9.7 million, net of tax, related to the write-down of a portion of
the recorded asset values of certain of the Company's operating stores
to estimated realizable values. Projected future undiscounted cash
flows were used to determine whether the assets were impaired.
Liquidity and Capital Resources
Cash provided by operating activities totaled $479.9 million
for the 36 weeks ended September 9, 2000, compared with $600.5
million for the same period last year. The decrease was primarily
due to a decrease in income tax payable, a decrease in net income
before store closing and asset impairment charges net of a
decrease in inventory levels.
Cash used in investing activities increased to $2.8 billion
for the 36 weeks ended September 9, 2000, compared with $271.8
million for the same period last year primarily due to its
acquisition of Hannaford during the quarter.
Capital expenditures totaled $242.4 million for September 9,
2000, compared with $276.2 million for the same period in 1999.
Year to date, the Company opened 45 new stores and completed the
renovation of 115 existing stores.
With its 2000 growth plan, the Company anticipates a net
increase in store square footage of approximately 17.7%. This
plan is subject to change and review as conditions warrant.
Capital expenditures currently estimated for 2000 are $368
million. Capital expenditures for 2000 will be financed through
funds generated from operations and existing bank credit
facilities.
Cash provided by financing activities for the 36 weeks ended
September 9, 2000 was $2.3 billion compared to cash used in
financing activities of $302.2 million for the same period of
last year. The increase in cash was primarily the result of the
Company's short-term financing arrangements for its acquisition
of Hannaford in the form of a $2.5 billion, 364-day term loan
facility and two $500 million revolving credit facilities. The
Company plans to commence a debt offering for long term financing
to replace the bridge facility within one year from completion of
the acquisition.
-15-
The Company maintains the following bank and credit lines:
A revolving credit facility with a syndicate of commercial banks
providing $1.0 billion in committed lines of credit, of which $500.0
million will expire in November 2000 and the remaining $500.0 million
in July 2005. As of September 9, 2000, the Company had $195.0 million
in outstanding borrowings. During the third quarter of 2000, the
Company had average borrowings of $182.7 million at a daily weighted
average interest rate of 8.26%.
A 364-day term loan facility providing $2.5 billion that expires
in July 2001. As of September 9, 2000, the Company had $2.4 billion in
outstanding borrowings. During the third quarter of 2000, the Company
had average borrowings of $1.2 billion at daily weighted average
interest rate of 8.09%.
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:
Informal Credit Arrangements
(Dollars in millions)
2000 1999
Outstanding borrowings
at the end of the third quarter $83.0 $0.0
Average borrowings $53.7 $19.8
Maximum amount outstanding $123.0 $90.0
Daily weighted average interest rate 7.67% 5.37%
The Company has entered into certain agreements to hedge against a
potential increase in interest rates on planned bond issues related to
the acquisition of Hannaford. The notional amount of the agreements
totals $1.75 billion. At September 9, 2000, the unrealized pretax
loss related to these agreements was $124.5 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
agreements. The Company does not anticipate nonperformance by the
counterparties, which are major U.S. financial institutions.
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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, the ability to integrate and
achieve operating improvements at Hannaford as well as other
companies Delhaize America, Inc. acquires, 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.
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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
Since September 7, 2000, eight purported class action lawsuits
have been filed against the Company, all or certain members of the Board of
Directors of the Company, the Company's parent, Delhaize Group, and in
two of the lawsuits, Delhaize The Lion America, Inc., a wholly-owned
subsidiary of Delhaize Group, challenging the proposal received by the
Company on September 6, 2000 from Delhaize Group to acquire all of the
outstanding shares of the Class A and Class B common stock of the
Company not currently owned by Delhaize Group or Delhaize The Lion
America, Inc. in exchange for 0.35 common shares of Delhaize Group per
share (the "Exchange Offer"). Seven lawsuits are pending in the state
courts of North Carolina, and the eighth suit is pending in Maryland
state court. Each of the lawsuits was filed, based on information in
the complaints, by a shareholder of the Company, on behalf of all other
shareholders of the Company who are not either defendants or affiliates
thereof, and seeks to have the class certified and the shareholder
bringing the lawsuit named as representative of the class. The
lawsuits generally seek to enjoin the transaction contemplated by the
Exchange Offer, rescission, if the transaction is consummated, damages
and attorneys' fees. No specific allegations of wrongdoing on the part
of either the Company or its Board of Directors are made in the
complaints, other than the conclusory assertion that Delhaize Group is
engaging in self-dealing with the acquiescence of the Company's Board
of Directors. The Company believes that the suits are without merit
and will vigorously defend against the suits. The Company does not
believe that the ultimate outcome of such litigation will have a
material adverse effect on the Company's financial position or results
of operations.
Item 2. Change in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
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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 filed a report on Form 8-K pursuant to Item 2 and
Item 7 on August 15, 2000 in connection with the completion
of its acquisition of Hannaford Bros. Co.
The Company filed a report on Form 8-KA pursuant to Item 2
and Item 7 on October 16, 2000 in connection with the
completion of its acquisition of Hannaford Bros. Co.
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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: October 24, 2000 BY: Laura Kendall
Laura Kendall
Chief Financial Officer
Principal Accounting Officer
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Exhibit Index
Exhibit Description
27 Financial Data Schedule
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