SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Twelve Weeks ended August 15, 1998
Commission File Number 1-4434
Giant Food Inc.
(Exact name of Registrant as specified in its charter)
Delaware 53-0073545
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6300 Sheriff Road, Landover, Maryland 20785
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 341-4100
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant
(l) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to
file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares outstanding of each of the registrant's
classes of common stock as of this date is as follows:
Title of stock Number of shares
class ($l par) Outstanding
"A" non-voting 60,196,389
"AC" voting 125,000
"AL" voting 125,000
60,446,389
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GIANT FOOD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AUGUST 15, 1998 AND FEBRUARY 28, 1998
Dollar amounts in thousands
ASSETS
August 15, February 28,
1998 1998
(Unaudited)
Current assets:
Cash and cash equivalents $ 47,480 $ 28,857
Short-term investments (Note 2) 192,975 120,278
Receivables 64,856 63,560
Income taxes receivable 8,723
Inventories (Note 3) 252,789 274,137
Other current assets 25,856 26,518
Total current assets 583,956 522,073
Property, plant and equipment 1,558,037 1,589,938
Less accumulated depreciation 718,811 725,190
839,226 864,748
Property under capital leases, net
of accumulated amortization, (8/15/98,
$80,918; 2/28/98, $77,770) 113,563 116,711
Other assets 17,601 18,350
$ 1,554,346 $ 1,521,882
See notes to consolidated financial statements.
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GIANT FOOD INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - AUGUST 15, 1998 AND FEBRUARY 28, 1998
Dollar amounts in thousands
LIABILITIES AND SHAREHOLDERS' EQUITY
August 15, February 28,
1998 1998
(Unaudited)
Current liabilities:
Current portion of long-term debt $ 9,124 $ 8,523
Accounts payable 255,842 259,020
Accrued liabilities 86,785 69,440
Dividends payable 12,122 11,710
Total current liabilities 363,873 348,693
Long-term debt, net of current portion:
Notes and mortgages 25,566 27,134
Obligations under capital leases 152,989 156,041
178,555 183,175
Other liabilities 87,825 87,401
Shareholders' equity
Common stock, $1 par, all classes 60,506 60,257
Capital in excess of par value 7,606 2,299
Accumulated other comprehensive income (128) (243)
Retained earnings 857,958 843,402
925,942 905,715
Less class "A" stock held in
treasury, at cost (8/15/98, 60,000
Shares: 2/28/98, 100,627 shares) 1,849 3,102
924,093 902,613
$ 1,554,346 $ 1,521,882
See notes to consolidated financial statements.
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GIANT FOOD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
TWENTY-FOUR WEEKS ENDED AUGUST 15, 1998 AND AUGUST 9, 1997
(Unaudited)
Dollar amounts in thousands
except for per share data
Twenty-four Weeks Twelve Weeks
1998 1997 1998 1997
Sales $ 1,947,304 $ 1,863,718 $ 963,639 $ 934,782
Cost of sales 1,373,086 1,342,967 675,203 679,236
Selling, general and administrative
expenses 508,076 479,414 256,365 241,005
Interest:
Notes and mortgages 1,257 1,232 710 635
Lease obligations 7,937 7,612 3,968 3,806
Income (5,272) (4,696) (2,807) (2,493)
1,885,084 1,826,529 933,439 922,189
Income before provision
for income taxes 62,220 37,189 30,200 12,593
Provision for income
taxes 23,475 14,636 11,383 4,953
Net income $ 38,745 $ 22,553 $18,817 $ 7,640
Earnings per share:
Basic $ .64 $ .38 $ .31 $ .13
Diluted $ .64 $ .38 $ .31 $ .13
Dividends per share $ .40 $ .38 $ .20 $ .195
Weighted average number of shares:
Basic 60,388,000 60,037,000 60,469,000 60,082,000
Diluted 60,843,000 60,375,000 60,873,000 60,426,000
See notes to consolidated financial statements.
- 4 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-FOUR WEEKS ENDED AUGUST 15, 1998 AND AUGUST 9, 1997
(Unaudited)
Dollar amounts in thousands
Twenty-four Weeks
1998 1997
Cash flows from operating activities:
Net income $ 38,745 $ 22,553
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 42,128 42,833
Amortization of property under capital leases 3,148 2,873
Other adjustments, net 1,800 750
Net change in cash from changes in operating
assets and liabilities, detailed below 43,958 15,241
Net cash provided by operating activities 129,779 84,250
Cash flows from investing activities:
Purchase of short-term investments (125,813) (41,780)
Sale of short-term investments 18,156 18,703
Maturity of short-term investments 35,149 17,993
Capital expenditures (16,058) (65,216)
Other investing activities (1,600) (271)
Net cash used in investing activities (90,166) (70,571)
Cash flows from financing activities:
Repayments of notes and mortgages (1,522) (1,481)
Repayments of obligations under capital leases (2,500) (2,178)
Issuance of common stock 6,820 3,583
Dividends paid (23,788) (23,113)
Net cash used in financing activities (20,990) (23,189)
Net increase in cash and cash equivalents 18,623 (9,510)
Cash and cash equivalents, beginning of year 28,857 40,981
Cash and cash equivalents, end of quarter $ 47,480 $ 31,471
Increase (decrease) in cash from changes in
operating assets and liabilities:
Accounts receivable $ 7,427 $ (6,068)
Inventory 21,348 44,112
Income taxes Receivable 2,383
Prepaid expenses 663 (602)
Accounts payable (3,178) (18,874)
Accrued expenses 11,184 (2,018)
Income taxes payable 6,164
Other liabilities 350 (3,692)
$ 43,958 $ 15,241
See notes to consolidated financial statements.
- 5 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWENTY-FOUR WEEKS ENDED AUGUST 15, 1998 AND AUGUST 9, 1997
(Unaudited)
Dollar amounts in thousands
1. Consolidated financial statements:
The accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods presented. The
unaudited interim financial information should be read in conjunction
with the consolidated financial statements contained in the 1998 Annual
Report to Shareholders.
Such results for the twenty-four weeks ended August 15, 1998 and August
9, 1997 are not necessarily indicative of results to be expected for
the full year.
2. Short-term investments and comprehensive income:
Maturities of short-term investments at August 15, 1998, were as
follows:
COST FAIR VALUE
Due within one year $176,721 $176,962
Due after one year through five years 16,465 16,013
$196,186 $192,975
- 6 -<PAGE>
The Company's comprehensive income includes net income and unrealized
security holding gains and losses, net of taxes. A summary of
comprehensive income for the periods presented is as follows:
Twenty-four weeks Twenty-four weeks
1998 1997
Net income $ 38,745 $ 22,553
Unrealized security
holding gains (losses) 115 84
Total comprehensive income $ 38,860 $ 22,637
3. Inventories:
The inventories using the LIFO method were valued at approximately 83%
of the Company's total inventories at August 15, 1998 and 84% at
February 28, 1998. Under the FIFO method, these inventories would have
been higher by $94,943 and $93,233, respectively. The pre-tax LIFO
charge was $1,710 for the twenty-four week period ended August 15, 1998
and $1,770 for the twenty-four week period ended August 9, 1997.
4. Stock purchase agreements:
On May 19, 1998, a tender offer was begun by Koninklijke Ahold N.V.
(Ahold) to purchase all of the outstanding Class A Non-voting Common
Stock of the Company for a cash price of $43.50 per share without
interest thereon. The expiration date of the offer is July 15, 1998,
unless the offer is extended. This offer is being made pursuant to the
terms of a Stock Purchase Agreement between Ahold and The 1224
Corporation, holder of all of the 125,000 outstanding shares of the
Company's Class AC Voting Common Stock. Under the Stock Purchase
Agreement, Ahold will also purchase all of the Class AC stock for
$43.50 per share. Also on May 19, 1998, Ahold reached agreement with
J Sainsbury plc (Sainsbury) to acquire its 125,000 shares of Class AL
Voting Common Stock for a total price of $100,000,000. A formal
purchase agreement was entered into between Ahold and Sainsbury on
May 28, 1998. On May 29, 1998, the Board of Directors of the Company
voted unanimously to recommend that the Class A stockholders accept the
offer from Ahold and tender all of their Class A shares pursuant to the
offer.
The consummation of this transaction is subject to certain regulatory
considerations which are currently pending. The Company has charged to
expense all costs incurred except contingent fees equal to .5% of the
aggregate consideration paid for the Company or $13,500,000, which
would be recognized at such time when consummation of the transaction
would be a perfunctory matter.
- 7 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations:
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's earnings and
financial condition during the periods included in the accompanying
Consolidated Balance Sheets and Consolidated Statements of Income.
Results of Operations:
A summary of the principal income statement percentages are
tabulated below:
24 Weeks Ended 12 Weeks Ended
August 15, August 9, August 15, August 9,
1998 1997 1998 1997
% % % %
Gross Profit 29.49 27.94 29.93 27.34
Operating Expenses 26.09 25.72 26.60 25.78
Interest Expense:
Notes & Mortgages .06 .07 .07 .07
Lease Obligations .41 .40 .41 .41
Interest (Income) ( .27) ( .25) ( .29) ( .27)
Income Before Income Taxes 3.20 2.00 3.13 1.35
Provision for Income Taxes 1.21 0.79 1.18 0.53
Net Income 1.99 1.21 1.95 0.82
Below are the differences for the periods ended August 15, 1998
compared with August 9, 1997 in thousands of dollars and percentages:
Increase (Decrease) Increase (Decrease)
Twenty-four Weeks Twelve Weeks
$ % $ %
Sales 83,586 4.5% 28,857 3.1%
Gross Profit 53,467 10.3% 32,890 12.9%
Operating Expenses 28,662 6.0% 15,360 6.4%
Interest Expense:
Notes & Mortgages 25 2.0% 75 11.8%
Lease Obligations 325 4.3% 162 4.3%
Interest Income 576 12.3% 314 12.6%
Income Before Income Taxes 25,031 67.3% 17,607 139.8%
Provision for Income Taxes 8,839 60.4% 6,430 129.8%
Net Income 16,192 71.8% 11,177 146.3%
- 8 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued):
Results of Operations (Twenty-four weeks ended August 15, 1998 vs. Twenty-
four weeks ended August 9, 1997):
Sales increased $83.6 million or 4.5%. The change in sales for stores
in operation both years was an increase of 1.0%.
Gross profit increased $53.5 million. Gross profit as a percent of
sales was 29.49% compared to 27.94% for the prior year. The increase was
the result of beneficial changes in product mix in the current year. The
prior year's gross profit margin was impacted by promotional activity to
regain market share after a work stoppage in December 1996.
Operating expenses increased from 25.72% of sales to 26.09%.
Interest expense - notes and mortgages increased by $25 thousand.
Interest income increased by $.6 million because of higher balances of
investable cash and short term investments.
Pre-tax earnings increased $62.2 million, an increase of 67.3%. The
effective tax rate was 37.7% for the current year compared to 39.4% for the
prior year.
Net income was 1.99% of sales for the current period compared with
1.21% for the same period of the prior year.
- 9 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued):
Results of Operations (Twelve weeks ended August 15, 1998 vs. Twelve weeks
ended August 9, 1997):
Sales increased $28.96 million or 3.1%. The change in sales for
stores in operation both years was an decrease of 0.2%.
Gross profit increased $32.9 million. Gross profit as a percent of
sales was 29.93% compared to 27.34% for the prior year. The increase was
the result of beneficial changes in product mix in the current year. Along
with the prior year being affected by the promotional activity discussed on
the prior page.
Operating expenses increased from 25.78% of sales to 26.60%.
Interest expense - notes and mortgages increased by $75 thousand.
Interest income increased by $.2 million because of higher balances of
investable cash and short term investments.
Pre-tax earnings increased $17.6 million, an increase of 139.8%. The
effective tax rate was 37.7% for the current year compared to 39.3% for the
prior year.
Net income was 1.95% of sales for the current period compared with
.82% for the same period of the prior year.
- 10 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued):
LIQUIDITY:
Working capital increased $46.7 million from February 28, 1998.
At August 15, 1998 the working capital ratio was 1.60 to 1, compared
to 1.50 to 1 at February 28, 1998. Including LIFO reserves of $94.9
million at August 15, 1998, the working capital ratio was 1.87 to 1.
At August 15, 1998, cash and cash equivalents were $47.5 million and
short-term investments were $193.0 million totaling $240.5 million compared
with $149.1 million as at February 28, 1998. The higher balances are the
result of higher earnings and lower capital expenditures than the prior
year.
It is estimated that cash, cash equivalents and short-term investments,
together with cash flow from operations will be adequate to complete
planned capital expenditures, debt reduction and dividend requirements.
Capital expenditures include opening of one additional food-drug stores in
the balance of the current fiscal year.
CAPITALIZATION:
Shareholders' equity as a percentage of capitalization was 83.8%
on August 15, 1998, compared to 83.1% as of February 28, 1998 and 82.6% on
August 9, 1997.
- 11 -<PAGE>
GIANT FOOD INC. AND SUBSIDIARIES
OTHER INFORMATION
Item 5. Other Information:
Item 6. Exhibits and reports on Form 8-K:
The Company filed a Form 8-k on September 4, 1998. Koninklijke Ahold
N.V., ("Royal Ahold") requested a more detailed breakdown of registrant's
unaudited financial information for the 24-week periods ended August 15,
1998 and August 9, 1997 than appeared in registrant's press release dated
September 1, 1998. Registrant understands that Royal Ahold intends to use
the information in connection with its preparation of an amendment to Royal
Ahold's Form F-3 registration statement relating to a financing in
connection with its acquisition of registrant.
SIGNATURE
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.
Giant Food Inc.
(Registrant)
Date September 28, 1998 By /s/ Pete Manos
Pete Manos
President and Chief Executive Officer
Date September 28, 1998 By /s/ Mark Berey
Mark Berey
Senior Vice President - Finance
and Chief Financial Officer
- 12 -
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