FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1994
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 1-7603
HANNAFORD BROS. CO.
(Exact name of Registrant as specified in its charter)
Maine 01-0085930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
145 Pleasant Hill Road, Scarborough, Maine 04074
(Address of principal executive offices; Zip Code)
Registrant's telephone number, including area code: (207) 883-2911
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 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 .
As of May 9, 1994, there were 41,474,933 outstanding shares of Common
Stock, $.75 par value, the only authorized class of common stock of the
Registrant.
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TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets, April 2, 1994 and
January 1, 1994 3-4
Consolidated Statements of Earnings, Three Months
Ended April 2, 1994 and April 3, 1993 5
Consolidated Statements of Cash Flows,
Three Months Ended April 2, 1994
and April 3, 1993 6-7
Notes and Schedules to Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of
First Quarter 1994 Results 11-13
PART II
Item 5. Other Information and Signatures 14
Item 6. Exhibit 15 - Letter from Coopers & Lybrand
regarding Quarterly Review 15
Exhibit 23 - Letter from Coopers & Lybrand
regarding Form S-8 Consent 16
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in thousands)
(UNAUDITED)
April 2, January 1,
1994 1994
Current assets:
Cash and cash items $ 97,106 $ 77,496
Short-term investments 14,885 19,855
Accounts receivable, net 16,724 15,765
Inventories 119,102 129,934
Prepaid expenses 4,048 4,695
Deferred income taxes 7,620 7,920
Total current assets 259,485 255,665
Property, plant and equipment, net 436,832 437,606
Leased property under capital leases, net 52,249 50,070
Investment in financing leases 1,779 1,787
Other assets:
Notes receivable 531 2,395
Deferred charges, net 39,075 38,416
Computer software costs, net 8,652 8,790
Miscellaneous assets 664 626
Total other assets 48,922 50,227
$799,267 $795,355
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in thousands)
(UNAUDITED)
April 2, January 1,
1994 1994
Current liabilities:
Current maturities of long-term debt $ 7,470 $ 7,180
Obligations under capital leases 1,423 1,412
Accounts payable 73,620 79,679
Accrued payroll 15,296 17,323
Other accrued expenses 27,333 29,348
Income taxes 6,855 1,893
Total current liabilities 131,997 136,835
Deferred income tax liabilities 23,036 23,753
Other liabilities 20,526 20,618
Long-term debt 153,010 156,716
Obligations under capital leases 61,513 58,835
Redeemable preferred stock of a subsidiary,
par value $100 per share 1,883 1,883
Shareholders' equity:
Class A Serial Preferred stock, no par,
authorized 2,000,000 shares - -
Class B Serial Preferred stock,
par value $.01 per share,
authorized 28,000,000 shares - -
Common stock, par value $.75 per share:
Authorized 110,000,000 shares;
issued and outstanding 41,401,060
shares at April 2, 1994, and
41,210,774 shares at January 1, 1994 31,051 30,908
Additional paid-in capital 103,112 99,748
Preferred stock purchase rights 414 412
Retained earnings 272,725 265,647
Total shareholders' equity 407,302 396,715
$799,267 $795,355
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands except per share data)
(UNAUDITED)
THREE MONTHS ENDED
April 2, April 3,
1994 1993
Sales and other revenues $519,078 $490,565
Cost of sales 393,333 369,031
Gross margin 125,745 121,534
Selling, general and administrative expenses 102,396 100,113
Operating profit 23,349 21,421
Interest expense, net 4,735 4,984
Earnings before income taxes 18,614 16,437
Income taxes 7,555 6,668
Earnings before cumulative effect of change
in accounting principle 11,059 9,769
Cumulative effect to January 3, 1993 of
change in income tax accounting - 2,100
Net earnings $ 11,059 $ 11,869
Per share of common stock:
Earnings before cumulative effect of
change in accounting principle $ .27 $ .24
Cumulative effect to January 3, 1993 of
change in income tax accounting - .05
Net earnings $ .27 $ .29
Cash dividends $ .095 $ .085
Weighted average number of common shares
outstanding (000's) 41,316 40,859
See accompanying notes to consolidated financial statements.<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
THREE MONTHS ENDED
April 2, April 3,
1994 1993
Cash flows from operating activities:
Net income $ 11,059 $ 11,869
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 14,443 13,736
Cumulative effect of accounting change - (2,100)
(Increase) decrease in inventories 10,832 (2,775)
Decrease in receivables and prepayments 1,553 2,231
Decrease in accounts payable
and accrued expenses (10,194) (10,798)
Increase (decrease) in income taxes payable 4,963 (600)
Decrease in deferred taxes (418) (222)
Other operating activities 314 101
Net cash provided by operating
activities 32,552 11,442
Cash flows from investing activities:
Acquisition of property, plant and
equipment (12,425) (14,375)
Sale of property, plant and
equipment, net 1,361 536
(Increase) decrease in deferred charges (1,225) 337
Increase in computer software costs (645) (1,050)
(Increase) decrease in short-term investments 4,970 (6,826)
Net cash used in investing activities (7,964) (21,378)
Cash flows from financing activities:
Principal payments under capital
lease obligations (340) (335)
Issuance of common stock 3,506 3,394
Payments of long-term debt (4,166) (3,258)
Dividends paid (3,978) (3,517)
Net cash used for
financing activities (4,978) (3,716)
Net increase (decrease) in cash and cash items 19,610 (13,652)
Cash and cash items at beginning of period 77,496 94,789
Cash and cash items at end of period $ 97,106 $ 81,137
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information
(Dollars in thousands)
(UNAUDITED)
THREE MONTHS ENDED
April 2, April 3,
Cash paid during the first quarter for: 1994 1993
Interest (net of amount capitalized,
$514 in 1994 and $383 in 1993) $4,644 $4,596
Income taxes $3,010 $7,490
Supplemental disclosure of non-cash investing and financing activities
A capital lease obligation of $3,030,000 was incurred during the three
month period ended April 2, 1994.
Disclosure of accounting policy
For the purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid debt instruments purchased with maturities of
three months or less to be cash items.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the amounts shown
reflect all adjustments necessary to present fairly the financial position
and results of operations for the periods presented. All such adjustments
are of a normal recurring nature.
Earnings per share of common stock have been determined by dividing net
earnings available to common shareholders by the weighted average number of
shares of common stock outstanding. The assumed exercise of existing
employee stock options has been excluded since it does not result in any
material dilution. Net earnings available to common shareholders is equal
to net earnings reduced by preferred stock dividends of $47,000 for the
three months ended April 2, 1994 and $70,000 for the three months ended
April 3, 1993.
It is suggested that the financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's latest
annual report.
2. CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES
Effective January 3, 1993, the Company adopted STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS (SFAS) NO. 109 - ACCOUNTING FOR INCOME TAXES (The
Statement). The Statement requires a liability method be used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected
to reverse. Prior to the adoption of the Statement, income tax expense was
determined using the deferred method. Deferred tax expense was based on
items of income and expense reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in
the year the difference originated.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
As permitted by the Statement, the Company has elected not to restate the
financial statements of any prior periods, the impact of which would not be
material. In addition, the change does not impact pretax income from
continuing operations for the three months ended April 2, 1994 and April 3,
1993. The cumulative effect of this change for periods prior to January 3,
1993 is $2.1 million or $.05 per share and is shown separately in the
Consolidated Statement of Earnings for the quarter ended April 3, 1993.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
(In thousands)
(Unaudited)
April 2, January 1,
1994 1994
Land and improvements $ 55,424 $ 55,699
Buildings 174,888 175,894
Furniture, fixtures & equipment 259,283 252,474
Leasehold interests & improvements 149,601 145,595
Construction in progress 15,876 16,789
655,072 646,451
Less accumulated depreciation and
amortization 218,240 208,845
$436,832 $437,606
4. LEASED PROPERTY
Leased property under capital leases consists of the following:
(In thousands)
(Unaudited)
April 2, January 1,
1994 1994
Real property $68,181 $65,151
Less accumulated amortization 15,932 15,081
$52,249 $50,070
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. LONG-TERM DEBT
During the first quarter of 1994, the Company extinguished certain debt,
secured by real estate and held by insurance companies, totalling
$1,866,000. This debt had a term of 25 years and an interest rate of
8.75%.
6. REDEEMABLE PREFERRED STOCK OF A SUBSIDIARY
On April 21, 1994, the Company redeemed 18,834 shares of a Series B Voting
Preferred Stock of its subsidiary. The shares had a par value of $100 and
were redeemed at $108 per share, or a total of $2,034,000.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIRST QUARTER 1994 RESULTS
RESULTS OF OPERATIONS
Sales and other revenues increased in the first quarter of 1994 to $519.1
million, an increase of $28.5 million or 5.8% over the first quarter of
1993. Retail sales for supermarkets and drug stores increased $29.9
million or 6.4% to $498.3 million, reflecting an increase of $9.0 million
or 2.1% in sales from supermarkets that were open in both quarters
presented ("comparable store sales") and additional sales of $20.9 million
from the net impact of the remaining drug stores and new, expanded and
closed supermarkets. Other sales and revenues, which include trucking,
wholesale, real estate and miscellaneous retail operations, decreased $1.4
million.
Comparable store sales were up 0.9%, when excluding sales from the Easter
holiday which were included in the first quarter this year, but were in the
second quarter of 1993. Comparable store sales for the quarter were up
2.1% if the Easter sales are included. This increase sustains a positive
trend in comparable store sales that began in November of 1993.
During the first three months of 1994, gross margins decreased to 24.2% of
sales and other revenues in comparison to 24.8% for the comparable 1993
period. This decrease is a reflection of the increased competition
throughout the Company's marketing territory. The Company continues to
focus on maintaining a competitive pricing strategy in its marketing areas
by passing operating efficiencies on to the customer in the form of lower
prices.
Selling, general and administrative expenses decreased to 19.7% of sales
and other revenues in the first quarter of 1994 as compared to 20.4% in the
first quarter of 1993. This continues a downward trend that began in 1992.
Payroll and payroll related expenses, which exceeded 50% of total selling,
general and administrative expenses in both periods presented, were
primarily responsible for this decrease. This resulted from cost
containment efforts as evidenced by specific programs that reduced salaries
and wages and employer related insurance costs expressed as a percentage of
sales and other revenues.
Interest expense, net, decreased in the first quarter of 1994 to 0.9% of
sales and other revenues from 1.0% in the first quarter of 1993. This
decrease is a reflection of an increase in interest income coupled with a
decrease in average debt levels. The increase in interest income is the
result of a higher average level of invested funds in the first quarter of
1994 as compared to the first quarter of 1993. The decreased debt levels
are the result of scheduled as well as early paydowns of the Company's debt
instruments.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIRST QUARTER 1994 RESULTS
Net earnings of $11.1 million for the first quarter of 1994 represents a
decrease of 6.8% from net earnings of $11.9 million for the first quarter
of 1993. During the first quarter of 1993, the Company adopted, as
required, SFAS NO. 109 - ACCOUNTING FOR INCOME TAXES (Note 2). The
cumulative effect of this adjustment, which increased earnings by $2.1
million or $.05 per share, was reflected in the 1993 first quarter results.
Excluding the change in accounting, net earnings for the first quarter of
1994 increased 13.2% over 1993 first quarter results.
Net earnings for the first quarter of 1994 were 2.1% of sales and other
revenues versus 2.0% in 1993 before the impact of the accounting change.
This improvement reflects the impact of reduced selling, general and
administrative expenses and net interest expense expressed as a percentage
of sales, offset by a reduction in gross margins.
CAPITAL RESOURCES AND LIQUIDITY
The Company remained in a strong liquidity position at April 2, 1994. The
current ratio (FIFO basis) on April 2, 1994 was 2.08 while working capital
(FIFO basis) was $142.4 million, or 17.8% of total assets. On January 1,
1994, the current ratio (FIFO basis) was 1.98 while working capital (FIFO
basis) was $133.6 million, or 16.8% of total assets. The Company values
the majority of its inventories using the LIFO method. The current cost of
inventories exceeded the LIFO valuation by approximately $14.9 million on
April 2, 1994 and $14.8 million on January 1, 1994. The Company's
liquidity position is stronger than indicated by stated working capital and
current ratios because of available unused lines of revolving credit of $50
million and available unused lines of short-term credit of $30 million on
April 2, 1994. Cash and cash items increased $19.6 million to $97.1
million at April 2, 1994 from $77.5 million at January 1, 1994. This
increase is primarily the result of an increase in cash provided by
operating activities combined with a decrease in cash used in investing
activities.
Cash provided by operating activities was $32.5 million in the first
quarter of 1994, an increase of $21.2 million over the $11.4 million
provided in the first quarter of 1993. This increase is due primarily to
decreases in inventories and increases in income taxes payable.
Cash used in investing activities decreased $13.4 million during the first
quarter of 1994 to $8.0 million from $21.4 million in the first quarter of
1993. This decrease is primarily the result of a decrease in short-term
investments as the Company shifted funds to highly liquid investments that
are classified as cash and cash items.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIRST QUARTER 1994 RESULTS
Cash used in investing activities was $8.0 million in the first quarter of
1994. Total capital expenditures totalled $15.5 million during the quarter
and were composed of $12.4 million in acquisitions of property, plant and
equipment and $3.1 million in a non-cash capital lease addition. In
January 1994, the Company opened a new supermarket in Saratoga Springs, New
York, with approximately 48,000 square feet of retail selling space. In
February 1994, the Company opened a new supermarket in Rotterdam, New York,
with approximately 47,000 square feet of retail selling space. During the
next three quarters, the Company expects to open seven new supermarkets.
In addition, the Company expects to close five outdated facilities.
Cash used for financing activities was $5.0 million in the first quarter of
1994 as compared to $3.7 million in the first quarter of 1993. The Company
continues to maintain a strong capital structure. Management believes that
maintaining such financial flexibility provides a significant competitive
advantage and allows the Company to be opportunistic in terms of
acquisitions and expansions.
The Company is negotiating the purchase of certain supermarkets in an area
outside of, and not contiguous to, the Company's present marketing
territories of northern New England and upstate New York. However, the
Company has not yet executed a purchase and sale agreement, and
consummation of the transaction would in any event be subject to various
contingencies. The potential acquisition would be financed by cash and
cash items, short-term investments and existing lines of credit, with no
adverse impact on the Company's ability to fund other planned capital
expenditures. The acquired supermarkets would increase the Company's
anticipated sales and other revenues by approximately 10%. The Company
does not expect that the acquisition would have a material impact on
fiscal 1994 earnings. In addition to this potential acquisition, the
Company has been negotiating options to control other possible
supermarket sites in the same general geographic region.
Excluding this potential geographic expansion, the Company expects to spend
in the range of $90 million in 1994 for capital expenditures. This
program, which is subject to continuing change and review, is primarily
made up of new supermarket construction and the expansion or relocation of
currently existing supermarkets. Net square footage of retail selling
space is expected to increase by approximately 10% by year-end 1994 as a
result of this program. The 1994 capital program is expected to be
financed by cash and cash items, short-term investments, internally
generated funds, lines of credit and leases.<PAGE>
PART II
Item 5: Other Information
A limited review was made of the results of the three-month period ended
April 2, 1994, by Coopers & Lybrand. No adjustments were proposed by Coopers
& Lybrand during the course of their review.
Item 6: Exhibits and Reports on Form 8-K
A letter from Coopers & Lybrand furnished pursuant to Regulation S-X is
filed as Exhibit 15.
A letter from Coopers & Lybrand furnished pursuant to Rule 436(c) under the
Securities Act of 1933 is filed as Exhibit 23.
There were no reports on Form 8-K filed during the first quarter.
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.
HANNAFORD BROS. CO.
Date May 17, 1994 s/Norman E. Brackett
Norman E. Brackett
Senior Vice President
(Chief Financial Officer)
Date May 17, 1994 s/Charles H. Crockett
Charles H. Crockett
Assistant Secretary
Exhibit 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Hannaford Bros. Co.:
We have reviewed the accompanying consolidated balance sheet of Hannaford Bros.
Co. and subsidiaries as of April 2, 1994, and the related consolidated
statements of earnings and cash flows for the three month periods ended
April 2, 1994 and April 3, 1993. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
Portland, Maine s/Coopers & Lybrand
April 19, 1994
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Hannaford Bros. Co.
Registrations on Form S-8
We are aware that our report dated April 19, 1994, on our review of interim
financial information of Hannaford Bros. Co. and subsidiaries for the three
month period ended April 2, 1994 and included in the Company's quarterly
report on Form 10-Q for the quarter then ended is incorporated by reference
in the Registration Statements on Form S-8 (Numbers 2-77902, 2-77903,
2-98387, 33-1281, 33-22666, 33-31624 and 33-45273). Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a
part of the Registration Statements prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
Portland, Maine s/Coopers & Lybrand
May 13, 1994
