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 June 29, 1996
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 July 22, 1996, there were 42,317,400 outstanding shares of
Common Stock, $.75 par value, the only authorized class of common stock
of the Registrant.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets, June 29, 1996 and
December 30, 1995 3-4
Consolidated Statements of Earnings, Three Months
Ended June 29, 1996 and July 1, 1995 5
Consolidated Statements of Earnings, Six Months
Ended June 29, 1996 and July 1, 1995 6
Consolidated Statements of Cash Flows, Six Months
Ended June 29, 1996 and July 1, 1995 7-8
Notes and Schedules to Consolidated Financial
Statements 9-11
Item 2. Management's Discussion and Analysis of
Second Quarter 1996 Results 12-18
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in thousands)
(UNAUDITED)
June 29, December 30,
1996 1995
Current assets:
Cash and cash items $ 44,359 $ 7,017
Accounts receivable, net 17,099 15,556
Inventories 160,391 157,968
Prepaid expenses 6,930 7,217
Deferred income taxes 6,515 6,584
Total current assets 235,294 194,342
Property, plant and equipment, net 632,745 577,126
Leased property under capital leases, net 54,749 56,691
Other assets:
Goodwill, net 90,988 93,348
Deferred charges, net 30,333 27,484
Computer software costs, net 12,002 10,063
Miscellaneous assets 3,111 2,776
Total other assets 136,434 133,671
$1,059,222 $961,830
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands except share amounts)
(UNAUDITED)
June 29, December 30,
1996 1995
Current liabilities:
Current maturities of long-term debt $ 10,280 $ 11,246
Obligations under capital leases 1,624 1,467
Accounts payable 119,461 113,846
Accrued payroll 21,280 20,652
Other accrued expenses 22,870 23,619
Income taxes 3,726 -
Total current liabilities 179,241 170,830
Deferred income tax liabilities 24,047 23,229
Other liabilities 37,426 28,699
Long-term debt 209,384 150,648
Obligations under capital leases 68,905 69,747
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;
June 29, 1996: Issued, 42,338,316
shares, outstanding 42,310,028 shares.
December 30, 1995: Issued and
outstanding 42,298,230 shares 31,754 31,724
Additional paid-in capital 120,353 121,974
Preferred stock purchase rights 423 423
Retained earnings 388,587 364,556
Less common stock in treasury
(28,288 shares at cost) 898 -
Total shareholders' equity 540,219 518,677
$1,059,222 $961,830
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
June 29, July 1,
1996 1995
Sales and other revenues $729,081 $634,798
Cost of sales 552,736 481,743
Gross margin 176,345 153,055
Selling, general and administrative
expenses 138,819 116,241
Operating profit 37,526 36,814
Interest expense, net 5,251 4,892
Earnings before income taxes 32,275 31,922
Income taxes 12,766 12,897
Net earnings $ 19,509 $ 19,025
Per share of common stock:
Net earnings $ .46 $ .45
Cash dividends $ .120 $ .105
Weighted average number of common shares
outstanding 42,314 42,049
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)
SIX MONTHS ENDED
June 29, July 1,
1996 1995
Sales and other revenues $1,419,606 $1,233,594
Cost of sales 1,075,425 934,585
Gross margin 344,181 299,009
Selling, general and administrative
expenses 276,882 232,397
Operating profit 67,299 66,612
Interest expense, net 10,719 10,287
Earnings before income taxes 56,580 56,325
Income taxes 22,397 22,736
Net earnings $ 34,183 $ 33,589
Per share of common stock:
Net earnings $ .81 $ .80
Cash dividends $ .24 $ .21
Weighted average number of common shares
outstanding 42,309 41,969
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
SIX MONTHS ENDED
June 29, July 1,
1996 1995
Cash flows from operating activities:
Net income $ 34,183 $ 33,589
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 36,551 33,741
Increase in inventories (2,423) (2,221)
(Increase) decrease in receivables
and prepayments (1,667) 3,618
Increase in accounts payable
and accrued expenses 14,221 14,713
Increase (decrease) in income taxes payable 3,726 (1,375)
Increase (decrease) in deferred taxes 887 (591)
Other operating activities 135 (50)
Net cash provided by operating
activities 85,613 81,424
Cash flows from investing activities:
Acquisition of property, plant and
equipment (88,067) (47,841)
Sale of property, plant and
equipment, net 2,863 1,894
Increase in deferred charges (4,454) (2,473)
Increase in computer software costs (3,057) (2,343)
Net cash used in investing activities (92,715) (50,763)
Cash flows from financing activities:
Principal payments under capital
lease obligations (685) (709)
Proceeds from issuance of long-term debt 75,000 -
Payments of long-term debt (17,230) (3,474)
Issuance of common stock 6,240 7,103
Purchase of Treasury stock (8,729) -
Dividends paid (10,152) (8,822)
Net cash used for financing activities 44,444 (5,902)
Net Increase in cash and cash items 37,342 24,759
Cash and cash items at beginning of period 7,017 40,955
Cash and cash items at end of period $ 44,359 $ 65,714
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)
SIX MONTHS ENDED
June 29, July 1,
Cash paid during the first six months for: 1996 1995
Interest (net of amount capitalized,
$1,291 in 1996 and $839 in 1995) $10,584 $11,667
Income taxes $16,542 $24,702
Disclosure of accounting policy
For the purposes of the Consolidated Statements of Cash Flows, the
Company considers all highly liquid debt instruments with
maturities of three months or less when purchased 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. The year-end consolidated balance sheet was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Earnings per share of common stock have been determined by dividing
net earnings 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.
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.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
(In thousands)
(Unaudited)
June 29, December 30,
1996 1995
Land and improvements $ 91,924 $ 90,430
Buildings 229,589 228,858
Furniture, fixtures & equipment 366,124 333,492
Leasehold interests & improvements 218,281 188,730
Construction in progress 34,039 16,179
939,957 857,689
Less accumulated depreciation and
amortization 307,212 280,563
$632,745 $577,126
3. LEASED PROPERTY
Leased property under capital leases consists of the following:
(in thousands)
(Unaudited)
June 29, December 30,
1996 1995
Real property $76,457 $76,457
Less accumulated amortization 21,708 19,766
$54,749 $56,691
4. LONG-TERM DEBT
In February 1996, the Company received $36 million of proceeds of a
$75 million senior uncollateralized debt financing, with the balance
of $39 million received in May 1996. The terms of these notes range
from 7 to 20 years with a weighted average life of 9 years. Interest
rates on the notes vary from 6.25% to 7.1% with a weighted average
rate of 6.6%. The amounts of annual principal payments vary over the
terms of the loans.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. CAPITAL STOCK
In May 1996, the Company amended and extended its existing standstill
agreement with certain shareholders ("the Sobey Parties"). The
amendment extends the term of the standstill agreement to December
31, 1998, subject to automatic renewal for successive one-year
periods (but not beyond December 31, 2000) unless by July 31 of a
given year either the Company or any of the Sobey Parties gives
written notice of an intention not to further extend the term of the
standstill agreement.
The amendment also made technical changes to the agreement which will
allow the Company greater flexibility in the use of common stock to
compensate employees and directors and will permit renewal of
Hannaford's Shareholder Rights Plan through February 28, 2001. The
amendment maintains the Sobey Parties' ownership limit at
approximately 25.6% of the Company's voting stock, except in certain
circumstances specified by the agreement.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996
RESULTS
RESULTS OF OPERATIONS
SALES
Sales and other revenues rose 15.1% for the first half of 1996, to
$1,419.6 million, an increase of $186.0 million over the first half of
1995. Sales from supermarkets that were open in both periods
presented ("same store sales") increased $36.2 million or 3.3%.
Additional supermarket sales of $143.0 million resulted from the net
impact of new, expanded and closed stores. Other sales and revenues,
which include trucking, real estate and miscellaneous retail
operations, increased $6.8 million.
In the second quarter of 1996, sales and other revenues were $729.1
million, an increase of $94.3 million or 14.9% over those reported for
the same period of 1995. Same store sales increased $14.7 million
or 2.8%. Additional supermarket sales of $75.5 million resulted form
the net impact of new, expanded and closed stores. Other sales and
revenues increased $4.1 million.
Same store sales were up 3.3% this year as compared to 1.5% in the
first half of 1995 and 2.5% for the full year 1995. The Company
attributes a portion of this increase to the conversion of its private
brand products from the Shop n Save name to the Hannaford brand. The
1996 increase sustains a positive trend that started in late 1993.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996 RESULTS
GROSS MARGIN
Gross margins were 24.2% of sales and other revenues in both the first
half of 1996 and the first half of 1995. For the second quarter of
1996, gross margins were 24.2% versus 24.1% for the second quarter of
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 19.5% of
sales and other revenues in the first half of 1996 as compared to
18.8% in the first half of 1995. For the second quarter of 1996,
selling, general and administrative expenses were 19.0% of sales and
other revenues up from 18.3% for the second quarter of 1995, but down
from 20.0% reported in the first quarter of 1996. These increases are
principally the result of additional costs of establishing the
Company's position in its southeastern markets.
INCOME TAXES
The effective income tax rate decreased in both the first half and
second quarter of 1996 to 39.6% from 40.4% in the corresponding
periods of 1995. This lower rate is the result of a reduction in the
Company's overall state income tax rate. The Company expects the
effective tax rate to be in the 39% to 40% range for fiscal 1996.
NET EARNINGS
Net earnings increased 1.8% in the first half of 1996 to $34.2 million
or 2.4% of sales and other revenues, an increase of $0.6 million from
1995 first half earnings of $33.6 million or 2.7% of sales and other
revenues. Second quarter 1996 net earnings were $19.5 million or 2.7%
of sales and other revenues as compared to $19.0 million or 3.0% of
sales and other revenues in the second quarter of 1995. Expressed as
a percentage of sales, net earnings decreased in the first half and
second quarter of 1996 as increased selling, general and
administrative expenses were only partially offset by a reduction in
the Company's income tax provision.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996 RESULTS
These results were in line with the Company's financial plan as
reported, which included entering five new markets in the Southeast.
In 1995, the Company stated that its store opening schedule was
heavily weighted toward the end of the year and would change the
quarterly mix of earnings in 1995 from that of prior years. The
Company reported strong percentage increases in net earnings in the
first half of 1995 and lower percentage increases in net earnings in
the second half of 1995 than it would have under a more normal opening
schedule. Due to increased costs that continue to be incurred in the
establishment of supermarkets in new southeastern markets, the Company
anticipated 1996 first half net earnings comparisons to 1995 to be
relatively flat. The Company anticipates stronger comparative
performance in the second half of the year.
CAPITAL RESOURCES AND LIQUIDITY
GENERAL
The current ratio (FIFO basis) on June 29, 1996 was 1.40 while working
capital (FIFO basis) was $72.1 million, or 6.8% of total assets. On
December 30, 1995, the current ratio (FIFO basis) was 1.23 while
working capital (FIFO basis) was $39.1 million, or 4.1% 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 $16.1 million on June 29, 1996 and $15.6
million on December 30, 1995. 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 $75.0 million
and available unused lines of short-term credit of $43.9 million at
June 29, 1996. Cash and cash items increased $37.4 million to $44.4
million at June 29, 1996 from $7.0 million at December 30, 1995. This
increase is primarily the result of cash provided by operating
and financing activities partially offset by cash used in investing
activities.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996 RESULTS
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $85.6 million in the first
half of 1996, an increase of $4.2 million over the $81.4 million
provided in the first half of 1995. This increase is primarily
attributable to higher depreciation and amortization coupled with a
decreased investment in working capital.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used in investing activities increased $41.9 million during the
first half of 1996 to $92.7 million from $50.8 million during the
first half of 1995. This increase is primarily the result of
increased capital expenditures during the period. Total capital
expenditures totaled $95.6 million in the first half of 1996 and were
composed of $88.1 million in additions to property, plant and
equipment and $7.5 million in deferred charges and computer
software costs. These first half capital expenditures are primarily
composed of costs incurred in meeting the Company's 1996 capital
program. The Company expects to spend approximately $200 million on
new, relocated and expanded stores to open in 1996 and 1997, a new
distribution facility currently under construction in Butner, North
Carolina, and improvements necessary to maintain current facilities
and systems.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996 RESULTS
The Company's expansion plans for 1996 are well underway. So far this
year, the Company has opened five new stores, relocated one store,
sold one store and closed two small units. In March 1996, the Company
opened a new supermarket in Norfolk, Virginia, with 34,000 square feet
of retail selling space. This opening expanded the Company's presence
in the Tidewater area. In May 1996, new stores were opened in both
Cary and Charlotte, North Carolina. The Cary store increased the
Company's presence in the Raleigh market with 35,000 square feet of
retail selling space. The Charlotte store, with 41,000 square feet of
retail selling space, is the Company's second store in that market.
In June 1996, the Company opened two new supermarkets, one in
Williston, Vermont with 33,000 square feet of retail selling space and
one in Niskayuna, New York with approximately 47,000 square feet of
retail selling space. Earlier in the year, the Company opened a new
supermarket in South Burlington, Vermont, with 33,000 square feet of
retail selling space which replaced a smaller, outdated facility.
Also during the first half the Company sold a small supermarket in
Kennebunk, Maine and closed two stores in Madawaska and Fort Kent,
Maine.
During the second half of 1996, the Company expects to open 12
supermarkets including 4 new stores, 3 relocations and 1 expansion in
the Southeast as well as 1 new store, 1 relocation and 2 expansions in
the Northeast. In addition, the Company expects that its new 450,000
square foot distribution center in Butner, North Carolina, will be
distributing product to the southeastern states later this year.
This program is subject to continuing change and review as conditions
warrant. Net square footage of retail selling space is expected to
increase by over 10% in 1996. Also, construction will commence on a
number of stores to open in 1997 with emphasis on additional stores in
several southeastern markets. The 1996 capital program is being
financed by internally generated funds, long-term debt and leases.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996 RESULTS
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities was $44.4 million in the first
half of 1996 as compared to $(5.9) million in the first half of 1995.
This increase of $50.3 million is the result of proceeds from the
issuance of long-term debt (Note 4) partially offset by payments of
long-term debt and purchases of treasury stock. During the first half
of 1996 the Company utilized a portion of its debt proceeds to repay
$11.4 million on its revolving lines of credit. On June 29, 1996,
there were no borrowings on these lines of credit. The Company
repurchased 300,624 shares of common stock during the first half at a
cost of $8.7 million. Most of this repurchased stock was used to fund
the Company's stock based benefit plans, with the balance being held
in treasury. Previously, the Company used new shares to fund certain
benefit plans.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1996 RESULTS
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company or statements made
by its associates may contain forward-looking information, as defined in
the Private Securities Litigation Reform Act of 1995. Examples of such
statements in this report include those concerning the Company's expected
future earnings, construction schedules and capital expenditures. The
Company cautions investors that there can be no assurance that actual
results or business conditions will not differ materially from those
projected or suggested in such forward-looking statements as a result of
various factors and risks including, but not limited to the following:
(1) Hannaford's future operating results are dependent on its ability to
achieve increased sales and to control expenses. Factors such as lower
than expected inflation, product cost fluctuations particularly in
perishable categories, changes in product mix or the use of promotional
items, both of which may affect pricing strategy, continued or increased
competitive pressures from existing competitors and new entrants,
including price cutting strategies, and deterioration in general or
regional economic conditions are all factors which could adversely affect
sales projections. Other components of operating results could be
adversely affected by state or federal legislation or regulation that
increases costs, increases in interest rates or the Company's cost of
borrowing, increases in labor rates due to low unemployment or other
factors, unanticipated costs related to the opening of new stores or the
inability to control various expense categories.
(2) Hannaford's future growth is dependent on its ability to expand its
retail square footage. Increases in interest rates or the Company's cost
of capital, the unavailability of funds for capital expenditures and the
inability to develop new stores or convert existing stores as rapidly as
planned are all risks to our projected future expansion.
(3) Adverse determinations with respect to pending or future litigation
or other material claims against Hannaford could affect actual results.
Furthermore, the market price of Hannaford common stock could be subject
to fluctuations in response to quarter to quarter variations in operating
results, changes in analysts' earnings estimates, market conditions in
the retail sector, especially in the supermarket industry, as well as
general economic conditions and other factors external to Hannaford.
<PAGE>
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 14, 1996.
(b) Not applicable.
(c) The following issues were voted upon by shareholders. All
matters were approved as indicated:
1. ELECTION OF FIVE CLASS III DIRECTORS TO SERVE UNTIL THE ANNUAL
MEETING OF SHAREHOLDERS IN 1999.
WITHHOLD
AUTHORITY BROKER
FOR FOR TOTAL NON-VOTES
Robert D. Bolinder 36,810,123 415,294 37,225,417 0
Laurel Cutler 36,799,658 425,759 37,225,417 0
Richard K. Lochridge 36,809,985 415,432 37,225,417 0
Renee M. Love 36,784,162 441,255 37,225,417 0
James L. Moody, Jr. 36,803,813 421,604 37,225,417 0
2. RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 28, 1996.
BROKER
FOR AGAINST ABSTAIN NON-VOTES
TOTAL 36,917,056 48,374 259,987 0
<PAGE>
(d) Not applicable
Item 5: Other Information
A limited review was made of the results of the three-month and
six-month periods ended June 29, 1996, by Coopers & Lybrand.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation SK
10.1 Letter Agreement between the Registrant and James J.
Jermann, dated July 8, 1996.
15 Letter of Coopers & Lybrand L.L.P. furnished pursuant to
Regulation SX.
23 Letter of Coopers & Lybrand L.L.P. regarding incorporation
by reference to certain forms S-8 of the Registrant.
27 Financial Data Schedule
(b) A Form 8-K was filed on May 20, 1996, reporting under Item 5, an
amendment to an existing standstill agreement between the Registrant
and the Sobey Parties.
<PAGE>
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 August 8, 1996 s/Blythe J. McGarvie
Blythe J. McGarvie
Senior Vice President
(Chief Financial Officer)
Date August 8, 1996 s/Charles H. Crockett
Charles H. Crockett
Assistant Secretary
Exhibit 10.1
July 8, 1996
James J. Jermann
7 Hickory Lane
Gorham, Maine 04038
Re: SEPARATION FROM EMPLOYMENT
Dear Jim:
This letter confirms the terms of the agreement between you and
Hannaford Bros. Co. (the "Company") regarding your continued employment
relationship, anticipated leave of absence and eventual resignation from
employment with the Company, and the implementation of certain employment
benefits. This letter sets forth the terms of our agreement in order to
prevent any future misunderstandings and to protect both you and the
Company. We encourage you to read this agreement carefully, review it with
your attorney and other advisors of your choice, and ask us any questions
you may have.
1. REDUCED WORK SCHEDULE, LAST DAY OF WORK, AND LEAVE OF ABSENCE.
You have expressed your intent to resign from employment with Hannaford
effective December 31, 1997 (your "Resignation Date") and we have agreed
that you will resign on such date. Prior to your resignation, you have
requested a reduction in your work schedule through January 4, 1997, and a
subsequent paid leave of absence which Hannaford has agreed to grant you.
Your leave of absence will begin on January 5, 1997 (your "Leave Date") at
which time you will resign as an officer of the Company. Notwithstanding
your resignation as an officer and the grant of your leave of absence, you
will continue as a Hannaford associate until your Resignation Date, and
during your leave you will be available to work up to a maximum of ten (10)
hours per month on such matters as the Chief Executive Officer or Senior
Vice President - Marketing, Merchandising and Distribution may request.
You will be compensated for such work as described in paragraph 2 below.
From the effective date of this agreement until your Leave Date, you will
continue in your current position with the Company and will be expected to
work in accordance with the general schedule outlined on Exhibit A attached
hereto.
<PAGE>
James J. Jermann
Page 2
2. COMPENSATION.
Your compensation will continue at its current level through the end of
1996. Your 1997 salary will be One Hundred Thirty Thousand Dollars
($130,000.00) paid to you in weekly instalments of Two Thousand Five
Hundred Dollars ($2,500.00) each through the Company's regular payroll
system, subject to all required state and federal tax withholdings and FICA
and such other payroll deductions as you may elect for contributions to
such Company benefit plans (e.g., 401(k), medical and dental) for which you
may still be eligible according to the terms of such plans.
3. ACCRUAL AND PAYMENT OF BENEFITS.
During your leave of absence, you will not continue to accrue vacation or
holiday pay or benefits under any employee benefit plans except as
specifically described in those plans. In addition to the amount paid
under paragraph 2, the Company will pay to you, within seven (7) days
following your Leave Date, any accrued vacation pay due to you under
current company policies as of such date. Any other accrued benefits will
be paid to you only in accordance with the terms of, and at the times
provided by, the relevant employee benefit plan, as it may hereafter be
amended. Currently, the following plans include the following provisions:
(a) 401(K) PLAN. You may continue to have the Company make elective
contributions on your behalf under the Company's 401(k) Plan from your
Leave Date until your Resignation Date. Benefits accrued as of your
Resignation Date under the Plan will be paid to you following such date
in accordance with the provisions contained in the Plan Document. Any
loan outstanding against your 401(k) Plan balance at such time must be
paid in full upon your resignation.
(b) PENSION PLAN. Since the present value of your vested benefit
exceeds $10,000, it will be paid to you on retirement in accordance
with the terms of that Plan.
(c) EMPLOYEE STOCK PURCHASE PLAN. You may continue to participate in
the Employee Stock Purchase Plan until your Resignation Date. At such
time you will be entitled to elect to purchase shares of Company stock
with the balance in your Plan account or receive a check for the
balance according to the terms of the Plan.
<PAGE>
James J. Jermann
Page 3
(d) STOCK OPTIONS. You may exercise any of your qualified incentive
stock options that are exercisable as of your Resignation Date at any
time up to ninety (90) days after your Resignation Date. You may
exercise the nonqualified stock option granted to you in May, 1996, at
any time up to three (3) years after your Resignation Date. You will
not be granted any options in fiscal year 1997 or thereafter (other
than "reload" options for which you may qualify under the terms of
options you now hold by exercising such options while still an employee
of Hannaford).
(e) SUCCESS SHARE. You will be entitled to a Success Share payment in
the first quarter of 1997 (which payment you have previously elected to
defer pursuant to the Hannaford Bros. Co. Deferred Compensation Plan)
based on both Company performance in fiscal year 1996 and your 1996
base Hannaford compensation, subject to adjustment or disallowance by
the Company's Board of Directors in accordance with the terms of the
Plan and the following paragraph 4. You will not be entitled to or
receive a Success Share payment for fiscal year 1997 or any subsequent
year.
(f) LONG-TERM INCENTIVE PLAN. You will be entitled to a cash payout
from the Long-Term Incentive Plan ("LTIP") in 1997. Such payment will
be based on a combination of your compensation (i.e., base compensation
plus Success Share payments) and Company performance during the 1994-
1996 performance period, and is subject to adjustment or disallowance
by the Company's Board of Directors in accordance with the terms of the
Plan and the following paragraph 4.
(g) FINANCIAL PLANNING. You will not receive any accruals in fiscal
1997 towards your financial planning account. Any balance in your
financial planning account not used prior to your Resignation Date will
revert to the Company.
4. CERTAIN OTHER BENEFITS.
(a) LIMITATION ON CERTAIN BOARD ADJUSTMENTS. Any adjustment or
disallowance by the Company's Board of Directors of any Success Share
payment (under paragraph 3(e) above) or any LTIP payment (under
paragraph 3(f) above) will apply to you only to the same extent that it
applies to then-serving officers of the Company.
<PAGE>
James J. Jermann
Page 4
(b) ADDITIONAL PAYMENT. In March of 1997 you will also receive a lump
sum cash payment equal to the then present value of the March 1998 and
March 1999 payouts that you would have received from the LTIP if you
had retired from the Company on January 1, 1997 and the Company had
achieved the net earnings per share for 1997 and 1998 projected in its
then most current three year strategic plan. The method of calculation
of this payment is illustrated in the attached Exhibit C.
5. HEALTH BENEFITS DURING LEAVE OF ABSENCE.
During your Leave of Absence, you will continue to be a Hannaford
associate. In accordance with Company policy relating to associates on
leaves of absence, for a period of six (6) months following your Leave Date
(the "Health Benefits Period"), you may continue your existing medical,
dental, prescription card, long-term disability, and life insurance
coverages and your health care and dependent care reimbursement
arrangements in accordance with their terms (collectively, your "Health
Benefits"). During this Health Benefits Period you will continue to
receive your currently elected Health Benefits at a cost no greater to you
than you would have paid if you had not taken a Leave of Absence. Your
share of the cost of these Health Benefits will be deducted from your
weekly salary as described in paragraph 2 above. At the end of the Health
Benefits Period, Hannaford will cease to provide any Health Benefits to you
unless you elect to continue certain Health Benefits in accordance with the
provisions of paragraph 6 below.
6. HEALTH BENEFIT CONTINUATION ("COBRA"); LIFE INSURANCE CONVERSION RIGHT.
Beginning six months after your Leave Date, you will have the right,
pursuant to federal law ("COBRA"), at your election and expense to continue
your medical, dental, prescription card, and health care reimbursement
account coverages at your expense for a period of eighteen months. You can
also elect to convert your group life insurance and supplemental life
insurance coverage to an individual policy, at your expense.
7. COMPANY CAR.
You will have the option to purchase your company car at any time prior to
your Resignation Date for the lesser of the book value or fair market value
at the time of your purchase. Until your Resignation Date, the Company
will continue to reimburse you for your automobile operating and
maintenance expenses in accordance with Company policy.
<PAGE>
James J. Jermann
Page 5
8. CONFIDENTIALITY.
You and Hannaford hereby agree not to publicize or disclose the contents of
this agreement to any third party prior to January 1, 2003, except for
disclosure to respective financial, legal and other advisors, your spouse,
and Hannaford's Board of Directors, and such other disclosures as may be
required by law, regulation, or rule. You agree not to disclose, prior to
January 1, 2003, any trade secrets, proprietary business information, or
other confidential information concerning Hannaford which you may have
received from your employment with Hannaford. You and Hannaford agree to
execute before your Resignation Date a separate non-competition agreement,
the provisions of which shall be in addition to, and not in lieu of, the
provisions of this paragraph, in substantially the form attached hereto as
Exhibit B. You and Hannaford further agree not to make any negative,
disparaging, or derogatory comments about the other party which are likely
to have a material adverse impact on that other party.
9. WORKERS' COMPENSATION.
You are not aware of any work related injuries that you have sustained
which are compensable under the provisions of any workers' compensation
act, nor are you receiving or contemplating receiving medical treatment for
any such injury. You acknowledge that your decision to take a Leave of
Absence and to resign from employment is unrelated to any injury at work or
any medical treatment for the same.
10. RELEASE.
In consideration of the benefits extended to you under paragraphs 1, 2, 3,
4 and 7 and to which you would not otherwise be entitled, your signature
below constitutes your agreement for yourself and your heirs, personal
representative and assigns to hereby waive, release and forever discharge
Hannaford, its subsidiaries and affiliates, and their respective
shareholders, directors, officers, employees, agents, successors and
assigns, of and from any and all actions, claims, causes of action, and
damages which you ever had, now have or may hereafter claim to have and
which arise out of, or are connected in any way directly or indirectly to,
your employment or the termination of your employment with Hannaford or its
affiliates, including but not limited to, any claim for (a) wrongful
discharge, (b) breach of contract, (c) defamation, or (d) employment
discrimination, including without limitation, any claim arising under the
Age Discrimination and Employment Act of 1967, as amended, up through the
effective date of this agreement.<PAGE>
James J. Jermann
Page 6
11. OTHER MATTERS.
This letter, together with Exhibits A, B, and C hereto, sets forth the
entire agreement between you and the Company regarding the subject matter
hereof. It may be amended only by a written document signed by both you
and Hannaford. This agreement will be governed by the laws of the State of
Maine. "Hannaford", "the Company", "we", and "us", as used in this letter,
refer to Hannaford Bros. Co. and its subsidiary corporations. In the event
that any one or more of the terms of this agreement is determined to be
invalid, illegal or unenforceable in any respect, the remaining terms will
not be affected thereby. This agreement shall be binding upon, and shall
inure to the benefit of you, your heirs, assigns, personal representative
and Hannaford's successors and assigns.
All payments to be made to you and notices to be given to you under this
agreement after your Leave Date will be mailed to you at your home address
on file with the Company unless we receive written directions to the
contrary.
BY YOUR ACCEPTANCE OF THIS AGREEMENT, YOU ACKNOWLEDGE AND AGREE:
THAT YOU HAVE BEEN GIVEN A REASONABLE PERIOD (NOT LESS THAN 21
DAYS) WITHIN WHICH TO CONSIDER THIS AGREEMENT;
THAT YOU HAVE BEEN ADVISED AND ENCOURAGED TO REVIEW THIS
AGREEMENT WITH AN ATTORNEY BEFORE SIGNING IT; AND
THAT YOU ARE VOLUNTARILY AND KNOWINGLY ENTERING INTO THIS
AGREEMENT.
FOR A PERIOD OF SEVEN DAYS FOLLOWING YOUR EXECUTION OF THIS AGREEMENT, YOU
MAY REVOKE IT. IF YOU DO NOT REVOKE IT IN WRITING WITHIN SEVEN DAYS, THIS
AGREEMENT WILL BECOME EFFECTIVE AND ENFORCEABLE ON THE EIGHTH DAY AFTER YOU
EXECUTE IT.
<PAGE>
James J. Jermann
Page 7
If this letter sets forth our understanding and agreement accurately, would
you please sign the enclosed copy and return it to me at your earliest
convenience. If you have any questions regarding any provision, please do
not hesitate to contact me.
On behalf of Hannaford, I want to thank you for your service to the company
and wish you every success in the future.
Sincerely,
HANNAFORD BROS. CO.
By: s/Hugh G. Farrington
Hugh G. Farrington
President and Chief Executive Officer
Accepted and agreed to this 8th day of July, 1996.
By: s/James J. Jermann
James J. Jermann
EXHIBIT A
(INFORMATION OMITTED)
EXHIBIT B
December ____, 1997
James J. Jermann
7 Hickory Lane
Gorham, Maine 04038
Re: NON-COMPETITION AGREEMENT
Dear Jim:
Hannaford Bros. Co., (the "Company") and you have executed a letter
agreement dated July 8, 1996, outlining our mutual understanding regarding
certain matters, including compensation arrangements and your eventual
resignation from employment with the Company. This letter sets forth our
further understanding regarding your non-competition with the Company
following your resignation.
1. NON-COMPETITION AGREEMENT.
Beginning January 1, 1998, and for a period of five years through December
31, 2002, you agree not to (a) work for any entity which in Hannaford's
reasonable opinion is currently a competitor of the Company in any of its
current market areas or which becomes a competitor of the Company in any of
the Company's market areas during the term hereof (hereinafter, a
"Competitor") without prior written approval from the Company's Chief
Executive Officer, which approval may be granted or withheld in the
absolute discretion of the CEO or (b) acquire directly or indirectly, any
interest in, as stockholder, director, officer, consultant, agent,
employee, or partner, or otherwise act for, any Competitor, with the
exception of minority stock holdings in companies whose shares are listed
for trading on the American or New York Stock Exchange, or traded "over the
counter" and regularly reported by NASDAQ. It is understood and agreed
that nothing herein shall restrict your speaking to trade associations and
groups on topics of general interest to the supermarket industry, even
though employees of Hannaford competitors may be present in the audience.
<PAGE>
James J. Jermann
Page 2
2. COMPENSATION.
In consideration of your agreement not to compete with the Company and
other consideration as described herein, the Company will pay you the total
amount of $70,600.00, which will be paid in forty (40) equal installments
of $1,765.00 each payable on the first day of each fiscal quarter beginning
January 1, 1998.
3. RELIEF; REASONABLENESS.
You and the Company agree that the Company would be irreparably damaged by
a breach of this agreement. It is accordingly agreed that the Company
shall be entitled to injunctive relief in order to prevent breaches of this
agreement and to specifically enforce the provisions hereof, in addition to
any other remedy to which the Company may be entitled.
You and the Company further agree that the subject matter, duration of, and
geographic area covered by this agreement are reasonable in light of the
facts as they exist on the date hereof. However, if at any time, a
court or other body having jurisdiction over this agreement shall determine
that any of the subject matter, duration, or geographic area hereof is
unreasonable in any respect, it shall be reduced, and not terminated, as
such court or body determines may be reasonable.
4. RELEASE.
As additional consideration for the payments made herein, your signature
below constitutes your agreement for yourself and your heirs, personal
representative and assigns to hereby waive, release and forever discharge
Hannaford, its subsidiaries and affiliates, and their respective
shareholders, directors, officers, employees, agents, successors and
assigns, except for those obligations set forth in this Agreement, of and
from any and all actions, claims, causes of action, and damages which you
ever had, now have or may hereafter claim to have and which arise out of,
or are connected in any way directly or indirectly to, your employment, the
termination of your employment or your retirement from Hannaford or its
affiliates, including but not limited to, any claim for (a) wrongful
discharge, (b) breach of contract, (c) defamation, or (d) employment
discrimination, including without limitation, any claim arising under the
Age Discrimination and Employment Act of 1967, as amended.
<PAGE>
James J. Jermann
Page 3
5. MISCELLANEOUS.
Upon the written request of either you or the Company, either party agrees
to execute such other documents as you, the Company and our respective
counsel reasonably deem necessary or advisable to implement the terms of
this letter. This letter sets forth the entire agreement between you and
the Company regarding your agreement not to compete with the Company. This
agreement may be amended only by written document from both you and the
Company and will be governed by the laws of the State of Maine.
If this letter accurately sets forth our understanding and agreement, would
you please sign both copies, return one to me, and keep one for your
records.
Sincerely yours,
_______________________________
Hugh G. Farrington
President and Chief Executive Officer
Seen and agreed to this _____ day of December, 1997.
By:_______________________
James J. Jermann
EXHIBIT C
EXAMPLE OF CALCULATION OF AMOUNT DUE UNDER PARAGRAPH 4(B) OF
AGREEMENT BETWEEN JAMES JERMANN AND HANNAFORD BROS. CO.
I. As a member of "Class of 95" (i.e., 1995-1997 performance period)
1995 Base Compensation $175,000
Success Share paid in 1995 88,732
1996 Base Compensation 182,000
Success Share paid in 1996 87,867
Success Share paid in 1997 91,000
Total $624,599
X 8%
$ 49,968
Company performance factor (see
1 below) X 79.7%
"Payable" March 1998 $ 39,824
Discount factor to reduce to present
value as of March 1997 (see note 2
below) / 1.08
Amount Payable March 1997 $ 36,874
II. As a member of "Class of 96" (i.e. 1996 - 1998 performance period)
1996 Base Compensation $182,000
Success Share paid in 1996 87,867
Success Share paid in 1997 91,000
Total $360,867
X 8%
$ 28,869
Company performance factor (see
1 below) X 100%
"Payable" March 1999 $ 28,869
Discount factor to reduce to present
value as of March 1997 (see note 2
below) / 1.1664
Amount Payable March 1997 $ 24,751
TOTAL AMOUNT PAYABLE MARCH 1997 $ 61,625
<PAGE>
NOTES:
1. The Company performance factor actually used in the calculation will
be
computed in March of 1997 based on the formula set forth in the Long
Term
Incentive Plan, using Board-approved "high" and "low" earnings targets
for each "class," actual Company earnings per share amounts for 1996
and
prior years, and earnings per share amounts for 1997 and 1998 as
projected in the Company's three year strategic plan for 1997-1999,
expected to be approved by the Board of Directors in the fall of 1996.
Performance factors shown here, for illustrative purposes, are based
on
the Company's spring 1996 projections of 1996, 1997, and 1998
earnings.
2. The actual discount rate to be used will be the T-bill rate in effect
in
March 1997 at the time the calculation is made. 8% is used here for
illustrative purposes.
Exhibit 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Hannaford Bros. Co.:
We have reviewed the accompanying consolidated balance sheet of Hannaford
Bros. Co. and Subsidiaries as of June 29, 1996, and the related consolidated
statements of earnings and cash flows for the three month and six month
periods ended Juen 29, 1996, and July 1, 1995 and the consolidated statements
of cash flows for the six month periods then ended. 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 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.
We previously audited and expressed an unqualified opinion on the Company's
consolidated financial statements for the year ended December 30, 1995 (not
presented herein). In our opinion, the information set forth in the
accompanying balance sheet as of December 30, 1995, is fairly stated in all
material respects, in relation to the statement of financial position from
which it has been derived.
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.
s/Coopers & Lybrand L.L.P.
Portland, Maine
July 17, 1996
Exhibit 23
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 July 17, 1996 on our review of interim
financial information of Hannaford Bros. Co. and Subsidiaries as of June 29,
1996 and for the three month and six month periods ended June 29, 1996 and
July 1, 1995, and included in this Form 10-Q is incorporated by reference in
the Company's registration statements on Form S-8 (Numbers 2-77902, 2-77903,
2-98387, 33-1281, 33-22666, 33-31624, 33-45273, 33-60119, 33-60655 and
33-60691). 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.
s/Coopers & Lybrand L.L.P.
Portland, Maine
August 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 44,359
<SECURITIES> 0
<RECEIVABLES> 17,312
<ALLOWANCES> 213
<INVENTORY> 160,391
<CURRENT-ASSETS> 235,294
<PP&E> 939,957
<DEPRECIATION> 307,212
<TOTAL-ASSETS> 1,059,222
<CURRENT-LIABILITIES> 179,241
<BONDS> 278,289
0
0
<COMMON> 31,754
<OTHER-SE> 508,465
<TOTAL-LIABILITY-AND-EQUITY> 1,059,222
<SALES> 1,419,606
<TOTAL-REVENUES> 1,419,606
<CGS> 1,075,425
<TOTAL-COSTS> 1,075,425
<OTHER-EXPENSES> 276,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,719
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<INCOME-TAX> 22,397
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<EPS-DILUTED> 0.81
</TABLE>
