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 July 4, 1998
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 31, 1998, there were 42,272,113 outstanding shares of Common
Stock, $.75 par value, the only authorized class of common stock of the
Registrant.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets, July 4, 1998 and
January 3, 1998 3-4
Consolidated Statements of Earnings, Three Months
Ended July 4, 1998 and June 28, 1997 5
Consolidated Statements of Earnings, Six Months
Ended July 4, 1998 and June 28, 1997 6
Consolidated Statements of Cash Flows, Six Months
Ended July 4, 1998 and June 28, 1997 7-8
Notes and Schedules to Consolidated Financial
Statements 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20-21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
(UNAUDITED)
July 4, January 3,
1998 1998
------------ --------
Current assets:
Cash and cash equivalents $ 50,052 $ 57,663
Accounts receivable, net 13,726 14,918
Inventories 192,289 188,767
Prepaid expenses 7,160 7,801
Deferred income taxes 4,826 6,912
---------- ----------
Total current assets 268,053 276,061
Property, plant and equipment, net 809,334 777,909
Leased property under capital leases, net 57,013 58,516
Other assets:
Goodwill, net 65,581 67,552
Deferred charges, net 28,063 28,724
Computer software costs, net 18,158 16,551
Miscellaneous assets 1,770 1,877
---------- ----------
Total other assets 113,572 114,704
---------- ----------
$1,247,972 $1,227,190
See accompanying notes to consolidated financial statements.
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands except per share amounts)
(UNAUDITED)
July 4, January 3,
1998 1998
------------ --------
Current liabilities:
Current maturities of long-term debt $ 18,292 $ 18,155
Obligations under capital leases 1,852 1,873
Accounts payable 189,956 182,252
Accrued payroll 25,106 25,526
Other accrued expenses 21,973 24,553
Income taxes 3,675 2,829
---------- ----------
Total current liabilities 260,854 255,188
Deferred income tax liabilities 19,485 18,265
Other liabilities 39,853 41,171
Long-term debt 227,102 235,850
Obligations under capital leases 74,997 75,687
Shareholders' equity:
Class A Serial Preferred stock, no par,
authorized 2,000 shares - -
Class B Serial Preferred stock,
par value $.01 per share,
authorized 28,000 shares - -
Common stock, par value $.75 per share:
Authorized 110,000 shares;
42,288 and 42,279 shares outstanding 31,754 31,754
Additional paid-in capital 111,507 115,130
Preferred stock purchase rights 423 423
Retained earnings 484,207 456,063
---------- ----------
627,891 603,370
Less common stock in treasury
50 and 59 shares 2,210 2,341
---------- ----------
Total shareholders' equity 625,681 601,029
---------- ----------
$1,247,972 $1,227,190
See accompanying notes to consolidated financial statements.
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
(UNAUDITED)
THREE MONTHS ENDED
July 4, June 28,
1998 1997
------------ --------
Sales and other revenues $830,371 $775,687
Cost of sales 622,757 581,072
-------- --------
Gross margin 207,614 194,615
Selling, general and administrative
expenses 163,865 155,243
-------- --------
Operating profit 43,749 39,372
Interest expense, net 6,618 7,110
-------- --------
Earnings before income taxes 37,131 32,262
Income taxes 14,112 12,384
-------- --------
Net earnings $ 23,019 $ 19,878
======== ========
Earnings per share:
Basic $ .54 $ .47
======== ========
Diluted $ .54 $ .47
======== ========
Cash dividends per share $ .150 $ .135
======== ========
Weighted average number of common shares
outstanding Basic 42,297 42,303
======== ========
Diluted 42,944 42,727
======== ========
See accompanying notes to consolidated financial statements.
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
(UNAUDITED)
SIX MONTHS ENDED
July 4, June 28,
1998 1997
------------ --------
Sales and other revenues $1,618,667 $1,535,610
Cost of sales 1,212,736 1,155,345
---------- ----------
Gross margin 405,931 380,265
Selling, general and administrative
expenses 326,860 309,117
---------- ----------
Operating profit 79,071 71,148
Interest expense, net 13,152 13,585
---------- ----------
Earnings before income taxes 65,919 57,563
Income taxes 25,085 22,095
---------- ----------
Net earnings $ 40,834 $ 35,468
========== ==========
Earnings per share:
Basic $ .97 $ .84
========== ==========
Diluted $ .95 $ .84
========== ==========
Cash dividends per share $ .30 $ .27
========== ==========
Weighted average number of common shares
outstanding Basic 42,289 42,287
========== ==========
Diluted 42,902 42,704
========== ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED
July 4, June 28,
1998 1997
----------- -------
Cash flows from operating activities:
Net income $ 40,834 $ 35,468
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 46,699 44,284
(Increase) decrease in inventories (3,522) 15,535
Decrease in receivables
and prepayments 1,866 2,062
Increase (decrease) in accounts payable
and accrued expenses 3,385 (2,348)
Increase (decrease) in income taxes payable 847 (317)
Increase (decrease) in deferred taxes 3,306 (1,353)
Other operating activities (367) 41
-------- -------
Net cash provided by operating
activities 93,048 93,372
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (76,878) (82,331)
Sale of property, plant and
equipment, net 6,326 1,097
Increase in deferred charges (702) (4,601)
Increase in computer software costs (3,748) (3,863)
-------- --------
Net cash used in investing activities (75,002) (89,698)
-------- --------
Cash flows from financing activities:
Principal payments under capital
lease obligations (864) (871)
Proceeds from issuance of long-term debt 20,000 24,100
Payments of long-term debt (28,611) (15,197)
Issuance of common stock 6,941 6,325
Purchase of treasury stock (10,433) (7,903)
Dividends paid (12,690) (11,426)
-------- --------
Net cash used in financing activities (25,657) (4,972)
-------- --------
Net decrease in cash and cash equivalents (7,611) (1,298)
Cash and cash equivalents at beginning of period 57,663 42,505
-------- --------
Cash and cash equivalents at end of period $ 50,052 $ 41,207
======== ========
See accompanying notes to consolidated financial statements.
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED
July 4, June 28,
Cash paid during the first six months for: 1998 1997
------------ --------
Interest (net of amount capitalized,
$1,371 in 1998 and $1,264 in 1997) $13,366 13,465
======= =======
Income taxes $20,918 $18,152
======= =======
Supplemental disclosure of non-cash investing and financing activity
Capital lease obligations of $1,166,000 and $4,550,000 were incurred during
the six-month periods ended July 4, 1998 and June 28, 1997, respectively,
when the Company entered into real estate leases.
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
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.
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.
The prepraration of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
2. EARNINGS PER COMMON SHARE
Basic earnings per share of common stock have been determined by dividing
net earnings by the weighted average number of shares of common stock
outstanding during the periods presented. Diluted earnings per share reflect
the potential dilution that would occur if existing stock options were
exercised.
3. INVENTORIES
Inventories consist primarily of groceries, meat, produce, general
merchandise and pharmaceuticals. The majority of grocery, pharmaceutical and
general merchandise inventories are valued at the lower of cost, determined
on the last-in, first-out (LIFO) method, or market. Net income reflects the
application of the LIFO method based upon estimated annual inflation. LIFO
expense was $.8 million in the first half of 1998 and $.4 million in the
first half of 1997. In the second quarter of 1998, LIFO expense was $.4
million as compared to $.1 million in the second quarter of 1997.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
(In thousands)
(Unaudited)
July 4, January 3,
1998 1998
Land and improvements $ 136,435 $ 129,752
Buildings 296,328 279,310
Furniture, fixtures & equipment 480,527 454,564
Leasehold interests & improvements 306,099 277,560
Construction in progress 12,826 29,124
---------- ----------
1,232,215 1,170,310
Less accumulated depreciation and
amortization 422,881 392,401
---------- ----------
$ 809,334 $ 777,909
========== ==========
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. LONG-TERM DEBT
In April 1998, the Company received the proceeds of a $20 million senior
uncollateralized debt financing. The term of the debt is 10 years with an
average life of 7 years and an interest rate of 6.3%.
6. ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130 Reporting Comprehensive
Income, which requires the separate reporting of all changes to
shareholders' equity, and SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information, which revises existing guidelines about
the level of financial disclosure of a Company's operations. Both statements
are effective for financial statements issued for fiscal years beginning
after December 15, 1997. The Company has determined that the new standards
will not necessitate any changes to existing financial reporting.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES
Sales and other revenues rose 5.4% for the first half of 1998, to $1.619
billion, an increase of $83 million over the first half of 1997. Supermarket
sales increased $80 million or 5.4%. Other sales and revenues, which include
wholesale, trucking, home delivery, real estate and miscellaneous retail
operations, increased $3 million. Sales from supermarkets that were open in
both periods reported ("identical store sales") were up 1.0%. Comparable
store sales, which includes results from expanded and relocated stores,
increased 1.8% in the first half of 1998.
In the second quarter of 1998, sales and revenues were $830 million, an
increase of $55 million or 7.0% over those reported for the same period of
1997. Identical store sales increased 1.2% in the second quarter, while
comparable store sales were up 1.7%
Sales from both the Easter and the Independence Day holiday periods were
included in the second quarter this year. The Easter holiday sales were
reported in the first quarter and the Independence Day sales in the third
quarter of 1997. Both the second quarter and the first half of 1998 identical
and comparable store sales increases noted above have been adjusted to
include Independence Day sales in the 1997 comparative periods. Identical and
comparable store sales benefited from the Easter shift by approximately 1.4%
in the second quarter of 1998.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GROSS MARGIN
During the first six months of 1998, gross margins increased to 25.1% of
sales and other revenues in comparison to 24.8% for the comparable 1997
period. For the second quarter of 1998, gross margin was 25.0% versus 25.1%
for the second quarter of 1997. The 1998 first half increase is generally the
result of improved selling margins in certain of the Company's marketing
territories. In the second quarter of 1998, increased selling margins were
offset by a decrease in other revenues resulting in a slight decrease in
gross margin as a percent of sales and other revenues. The Company continues
to focus on maintaining a competitive pricing strategy.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 20.2% of sales and
other revenues in the first half of 1998 as compared to 20.1% in the first
half of 1997. Payroll and payroll related expenses, which exceeded 50% of
selling, general and administrative expenses in both years, increased as a
percentage of sales in the first half of 1998.
For the second quarter of 1998, selling, general and administrative expenses
decreased to 19.7% of sales and other revenues as compared to 20.0% in the
second quarter of 1997. This decrease reflects cost containment efforts
within several components of operating costs partially offset by slightly
higher payroll costs.
INTEREST EXPENSE, NET
Net interest expense expressed as a percentage of sales and other revenues
was 0.8% in both the second quarter and first half of 1998 versus 0.9% in
both the second quarter and first half of 1997. These decreases are primarily
the result of a decrease in average debt levels and lower interest rates.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INCOME TAXES
The effective income tax rate decreased in the first half of 1998 to 38.1%
from 38.4% in the corresponding period of 1997. In the second quarter of 1998
the effective income tax rate decreased to 38.0% from 38.4% in the second
quarter of 1997. These lower rates are the result of a reduction in the
Company's overall state income tax rate. Assuming there are no federal or
state income tax rate changes, the Company expects the effective tax rate for
fiscal 1998 to be in the 37.8% to 38.2% range.
NET EARNINGS AND EARNINGS PER COMMON SHARE
Net earnings increased 15.1% in the first half of 1998 to $41 million or 2.5%
of sales and other revenues, an increase of approximately $5 million from
1997 first half earnings of $36 million or 2.3% of sales and other revenues.
Expressed as a percentage of sales, net earnings increased in the first half
as increased sales and margins, coupled with reduced interest expense and
income taxes, were partially offset by higher selling, general and
administrative expenses.
Net earnings increased 15.8% in the second quarter of 1998 to $23 million or
2.8% of sales and other revenues, an increase of approximately $3 million
from 1997 second quarter earnings of $20 million or 2.6% of sales and other
revenues. Expressed as a percentage of sales, this increase is the result of
increased sales and decreased selling, general and administrative expenses,
interest expense and income taxes.
Basic earnings per common share in the first half of 1998 were $.97 as
compared to $.84 in the first half of 1997, an increase of 15.5%. Diluted
earnings per common share (Note 2) were $.95 in the first half of 1998 as
compared to $.84 in the first half of 1997.
Basic earnings per common share were $.54 in the second quarter of 1998
versus $.47 in the second quarter of 1997, an increase of 14.9%. Diluted
earnings per common share (Note 2) were also $.54 in the second quarter of
1998 as compared to $.47 in the second quarter of 1997.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Measures of liquidity for the periods presented are as follows:
(Dollars in millions)
July 4, January 3,
1998 1998
-------- -------
Cash and cash equivalents $50 $58
Working capital (FIFO inventory) $26 $39
Unused lines of revolving credit $79 $54
Unused lines of short-term credit $30 $30
Current ratio (FIFO inventory) 1.10 1.15
Cash and cash equivalents decreased $8 million to $50 million at the end of
the second quarter of 1998. This decrease was the result of cash used in
financing and investing activities partially offset by cash provided by
operating activities. Lines of credit represent a continuing source of
capital and are available for purposes of short-term financing. At July 4,
1998, the Company had $16 million outstanding on its revolving lines of
credit. Management believes that the Company is in a solid financial
position to carry out its current expansion and operating plans in 1998.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was approximately $93 million in both
the first half of 1998 and the first half of 1997. These similar cash flow
amounts are attributable to increased cash flows from higher earnings and
depreciation and amortization in 1998 offset by a reduction in cash flows
provided by net working capital items.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used in investing activities decreased $15 million in the first half of
1998 to $75 million from $90 million in the first half of 1997. This decrease
is the result of the Company's reduced capital investment and the net book
value of assets sold during the period. During the first half of 1998, the
Company completed the sale of certain assets relating to supermarkets that
were closed in January 1998 and that had been written down to their estimated
fair values in the fourth quarter of 1997.
Capital investments totaled $82 million in the first half of 1998 and were
composed of $77 million in additions to property, plant and equipment, $4
million in deferred charges and computer software costs and $1 million in
non-cash capital lease additions. These first half capital investments are
primarily composed of costs incurred in building and equipping new and
expanded supermarkets and in improvements necessary to maintain current
facilities and systems. The Company expects to spend in excess of $140
million on new, relocated and expanded stores to open in 1998 and 1999 and
improvements necessary to maintain current facilities and systems.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the first half of 1998, the Company opened 12 supermarkets including
7 new stores, 2 relocations and 3 expansions. These supermarkets, together
with their square footage of selling area, are listed below:
Square Footage
Location Selling Area
Northeast
Machias, ME (expansion) 18,000
Lincoln, ME (expansion) 19,000
Rindge, NH 39,000
Herkimer, NY 41,000
Southeast
Rocky Mount, NC 41,000
Gastonia, NC 42,000
Richmond, VA (expansion) 34,000
York County, VA 41,000
Virginia Beach, VA 40,000
Portsmouth, VA 41,000
Southport, NC (relocation) 30,000
Wilmington, NC (relocation) 34,000
In January 1998, the Company closed seven southeastern stores in non-core
markets with limited opportunity for profitable growth. These closures will
allow the Company to focus on its key southeastern market regions during
1998. The Company plans to invest approximately $50 million in new,
remodeled and expanded stores in its key southeastern markets in 1998.
During the remainder of 1998, the Company expects to open 2 supermarkets (1
new store and 1 expansion in the Northeast). This program is subject to
continuing change and review as conditions warrant. Net square footage of
retail selling space is expected to increase by approximately 4.2% in 1998.
Construction will also start on a number of stores to be opened in 1999. The
1998 capital program is being financed by internally generated funds, leases
and long-term debt.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CASH FLOWS FROM FINANCING ACTIVITIES
Cash used in financing activities was $26 million in the first half of 1998
as compared to $5 million in the first half of 1997. This reduction in cash
flows of $21 million is principally the result of increased payments of
long-term debt coupled with reduced proceeds from the issuance of long-term
debt. The Company purchased 249,000 shares of common stock during the first
half of 1998 at a cost of $10 million. The majority of this repurchased stock
was used to fund the Company's stock based benefit plans with the balance
being held in treasury. This amount was offset by proceeds of $7 million
received during the first half of 1998 from the issuance of 258,000 shares of
treasury stock. The Company paid $13 million in dividends to common
shareholders in the first half of 1998.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
From time to time, information provided by the Company or statements made by its
associates may contain forward-looking statements, 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 tax rates,
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 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 and closing of 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 the Company's 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.
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FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
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 19, 1998.
(b) Not applicable.
(c) The following issues were voted upon by shareholders. All matters were
approved as indicated:
1. ELECTION OF FOUR CLASS II DIRECTORS TO SERVE UNTIL THE ANNUAL MEETING OF
SHAREHOLDERS IN 2001.
WITHHOLD
AUTHORITY BROKER
FOR FOR TOTAL NON-VOTES
Hugh G. Farrington 35,217,970 332,349 35,550,319 0
David F. Sobey 35,203,334 346,985 35,550,319 0
Robert L. Strickland 35,213,084 337,235 35,550,319 0
Robert J. Tarr, Jr. 35,220,103 330,216 35,550,319 0
2. ELECTION OF TWO CLASS I DIRECTORS TO SERVE UNTIL THE ANNUAL MEETING OF
SHAREHOLDERS IN 2000.
WITHHOLD
AUTHORITY BROKER
FOR FOR TOTAL NON-VOTES
Walter J. Salmon 35,209,474 340,845 35,550,319 0
John Robert Sobey 35,192,023 358,296 35,550,319 0
3. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS L.L.P. AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING
JANUARY 2, 1999.
BROKER
FOR AGAINST ABSTAIN NON-VOTES
TOTAL 35,437,737 37,796 74,786 0
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<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
4. A PROPOSAL TO APPROVE THE 1998 STOCK OPTION PLAN.
BROKER
FOR AGAINST ABSTAIN NON-VOTES
TOTAL 28,337,264 1,996,361 526,433 4,690,261
5. A PROPOSAL TO RE-APPROVE THE 1993 LONG TERM INCENTIVE PLAN.
BROKER
FOR AGAINST ABSTAIN NON-VOTES
TOTAL 34,479,465 523,807 547,047 0
(d) Not applicable
Item 5: Other Information
A limited review was made of the results of the three-month and six-month
periods ended July 4, 1998, by PricewaterhouseCoopers L.L.P.
Shareholder Proposals. Under Securities and Exchange Commission Rule 14a-8,
shareholders may submit proposals for inclusion in the Company's proxy materials
for the 1999 Annual Meeting of Shareholders. Any such proposal must be in proper
written form, addressed to the attention of the Secretary of the Company and
received at the Company's principal executive offices no later than December 5,
1998.
Shareholders may also raise for consideration at the Annual Meeting
proposals for which inclusion in the Company's proxy materials is not being
sought. Unless the proponent has satisfied the notice requirements of SEC Rule
14a-4(c), proxyholders named in the Company's proxy will be permitted to
exercise discretionary voting authority on any such proposal. For purposes of
this rule, notice of a proposal for the 1999 Annual Meeting must be received in
proper written form at the Company's principal executive offices no later than
February 14, 1999.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation SK
10.1 First Amendment to the Hannaford Cash Balance Plan, generally
effective February 18, 1998.
10.2 Consulting and Non-Competition Agreement between the Registrant
and Larry A. Plotkin, dated June 11, 1998.
15 Letter of PricewaterhouseCoopers L.L.P. furnished pursuant
to Regulation SX.
23 Letter of PricewaterhouseCoopers L.L.P. regarding
incorporation by reference to certain forms S-8 of the
Registrant.
27 Financial Data Schedule
(b) There were no reports filed on Form 8-K during the second quarter.
-21-
<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 4, 1998
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 10, 1998 s/Blythe J. McGarvie
--------------------- ---------------------
Blythe J. McGarvie
Executive Vice President
(Chief Financial Officer)
Date August 10, 1998 s/Charles H. Crockett
--------------------- ----------------------
Charles H. Crockett
Assistant Secretary
-22-
<PAGE>
Exhibit 10.1
FIRST AMENDMENT TO THE HANNAFORD CASH BALANCE PLAN
The Hannaford Cash Balance Plan, formerly named the Employee's Retirement
Plan, was last amended and restated effective generally January 1, 1998. The
Plan is hereby amended in the following respects:
1. The terms used in this Amendment shall have the meanings set forth in
the Plan unless the context indicates otherwise.
2. Section 3.1 is hereby amended to read as follows:
"3.1 NORMAL RETIREMENT DATE. Except as hereinafter provided, the Normal
Retirement Date of each Participant shall be the later of the date he or
she attains age 65 or the fifth anniversary of his or her Employment
Commencement Date. The Normal Retirement Date of each of the following
Participants shall be the date he or she attains age 62:
(a) a Driver Participant hired before January 1, 1995, with
respect to his or her Accrued Benefit as of December 31, 1997:
(b) a Driver Participant who attains age fifty-five (55) and
completes ten Years of Benefit Service on or before December 31, 1997; and
(c) a Warehouse Participant who attains age fifty-five (55) on or
before January 1, 2000.
3. Section 4.2 is hereby amended to read as follows:
"4.2 BENEFITS FOR CERTAIN WAREHOUSE PARTICIPANTS. The benefits payable
to or in respect of Warehouse Participants who retire or separate from
service before February 18, 1998, shall be determined in accordance with
the terms of the Plan as in effect on the date of each such Participant's
retirement or separation from service. The benefits payable to or in
respect of Warehouse Participants who retire or separate from service on or
after February 18, 1998, shall be determined as follows:
-23-
<PAGE>
(a) Normal Retirement Benefit. A Warehouse Participant who retires or
is deemed to retire on his or her Normal Retirement Date shall be entitled
to receive a monthly retirement benefit ("Normal Retirement Benefit") equal
to the amount determined by multiplying the number of such Warehouse
Participant's years of Benefit Service determined as of his or her Normal
Retirement Date by Thirty-Two Dollars ($32.00).
(b) Early Retirement Benefit. A Warehouse Participant who retires on
an Early Retirement Date shall be entitled to receive a monthly retirement
benefit ("Early Retirement Benefit") equal to the amount determined by
multiplying the number of such Warehouse Participant's Years of Benefit
Service determined as of his or her Early Retirement Date by Thirty-Two
Dollars ($32.00).
Except as hereinafter provided, the amount determined in accordance
with this subsection (b) shall be reduced by 0.5952 of 1% for each month by
which the commencement of such Warehouse Participant's Early Retirement
Benefit precedes the first day of the month coinciding with or next
following his or her Normal Retirement Date. Effective September 15, 1998,
with respect to a Warehouse Participant whose Normal Retirement Date is not
the date he or she attains age 62, such amount shall be reduced by 5/9 of 1%
for each of the first sixty (60) months by which the commencement of such
Warehouse Participant's Early Retirement Benefit precedes the first day of
the month coinciding with or next following his or her Normal Retirement
Date, and 5/18 of 1% for each additional month, up to sixty additional
months.
(c) Deferred Retirement Benefit. A Warehouse Participant who retires
or is deemed to retire on a Deferred Retirement Date shall be entitled to
receive a monthly retirement benefit ("Deferred Retirement Benefit") equal
to the amount determined by multiplying the number of such Warehouse
Participant's Years of Benefit Service determined as of his or her Deferred
Retirement Date by Thirty-Two Dollars ($32.00).
(d) Vested Benefit. A Terminated Warehouse Participant who is
credited with at least five (5) Years of Vesting Service shall be entitled
to a monthly retirement benefit ("Vested Benefit") equal to the amount
determined by multiplying the number of such Warehouse Participant's Years
of Benefit Service determined as of his or her Termination of Employment
Date by Thirty-Two Dollars ($32.00).
-24-
<PAGE>
Except as hereinafter provided, the amount determined in accordance
with this subsection (d) shall be reduced by 0.5952 of 1% for each month by
which the commencement of such Warehouse Participant's Vested Benefit
precedes the first day of the month coinciding with or next following his or
her Normal Retirement Date. Effective September 15, 1998, with respect to a
Warehouse Participant whose Normal Retirement Date is not the date he or she
attains age 62, such amount shall be reduced by 5/9 of 1% for each of the
first sixty (60) months by which the commencement of such Warehouse
Participant's Vested Benefit precedes the first day of the month coinciding
with or next following his or her Normal Retirement Date, and 5/18 of 1% for
each additional month, up to sixty additional months."
Notwithstanding the preceding to the contrary, the benefits payable to or in
respect of a Warehouse Participant who retires or separates from service after
February 18, 1998, shall not be less than his or her Accrued Benefit determined
in accordance with the terms of the Plan as in effect on February 17, 1998,
based upon his or her Years of Benefit Service and Average Annual Compensation
as of such date.
3. This Amendment generally shall be effective February 18, 1998, except that
Part 2 shall be effective September 15, 1998.
-25-
Exhibit 10.2
June 11, 1998
Larry A. Plotkin
32 Buttonwood Lane
Portland, Maine 04102
Re: Consulting and Non-Competition Agreement
Dear Larry:
Hannaford Bros. Co. (the "Company") and you executed a letter agreement
dated June 11, 1998, outlining our mutual understanding regarding your
resignation from employment with the Company. This letter sets forth our
further understanding relating to your consulting arrangements and non-
competition with the Company following your resignation from employment.
1. Consulting Arrangements.
1.1. Consulting Services to be Provided.
Following your resignation from employment with the Company (presently scheduled
to occur on January 5, 1999), you will provide Hannaford with 25 days of your
services during 1999 and 25 days of your services during 2000 (such days of
service to be selected by mutual agreement of you and the Company) as a real
estate development consultant in connection with such Company projects and tasks
as may be designated from time to time by the Company's Executive Vice President
- - Strategic Development. You agree to apply yourself diligently to these
projects. It is understood that these 25 working days need not be consecutive in
each calendar year and that you are free (except as provided in section 2 below,
relating to non-competition arrangements) to render your services to others
during the term of this agreement. You and the Company may mutually agree to
additional days of consulting services.
1.2. Compensation.
The Company will pay you One Thousand Dollars ($1,000) per day for your
consulting services rendered hereunder; provided, however, that any days of
service in excess of twenty-five (25) in 1999 or in 2000 (which may be
-26-
<PAGE>
mutually agreed to by you and the Company pursuant to section 1.1. above) will
be paid for at the rate of Two Thousand Dollars ($2,000) per day. If the Company
should request less than 25 days of service in either 1999 or 2000, the Company
will pay you, after the end of the applicable calendar year, for the "unused"
days at the rate of $1,000 per day. All payments under this section 1.2. will be
made within 30 days after your submission of an invoice therefor, containing a
reasonably detailed description of the services rendered.
1.3. Reimbursement of Expenses.
The Company will reimburse you for all out-of-pocket expenses reasonably
incurred by you in connection with your services hereunder. Upon request by the
Company, you agree to provide reasonable written documentation supporting such
expenditures. The Company will also pay your airfare, hotel, registration fee,
meals, and other reasonable expenses related to your attendance at the annual
ICSC conference in 1999 and 2000, but will not pay any consulting service fee
for your time spent attending that conference unless you are specifically
requested to perform services there on behalf of the Company as part of your
consulting arrangements as described herein.
1.4. Termination.
The consulting arrangements set forth in this section 1 shall terminate on the
first to occur of the following:
(a) December 31, 2000;
(b) Termination by you;
(c) Termination by the Company for cause (as defined below).
Upon termination, you will not be required to render any further services under
this section 1 (although you shall continue to be subject to the provisions of
sections 2 and 3 below) and the Company will have no further obligation to you
under this section 1 except to pay you for services rendered through, and
reimburse you for expenses incurred through, the date of termination in
accordance with the provisions of sections 1.2 and 1.3 above. The Company shall
have the right to terminate your consulting arrangement as described herein "for
cause" (a) if it determines, in good faith, that you have failed to apply
yourself diligently or that you have taken affirmative acts that are contrary to
the best interests of the Company, or (b) in the event that your death or
disability renders you unable to substantially complete the services required of
you hereunder.
-27-
<PAGE>
Except in the event of your death, any termination shall be effective only if
the terminating party gives written notice of such termination to the other
party at least fifteen (15) days prior to the effective date of such
termination.
1.5. Independent Contractor.
We agree that any services rendered by you under this agreement shall be
rendered as an independent contractor and not as an employee. In connection with
your services hereunder, you will provide all legally required worker's
compensation insurance and reasonable amounts of automobile and liability
insurance coverage, and Hannaford shall have no responsibility to furnish any
such insurance. You acknowledge that, in your capacity as an independent
contractor and consultant hereunder, you will not be entitled to any of the
employee benefits available to Hannaford associates.
2. Non-Competition Arrangements.
2.1. Non-Competition Agreement.
Beginning January 5, 1999, and until December 31, 2000, you agree, without prior
written approval from the Company's Chief Executive Officer (which approval may
be granted or withheld in his absolute discretion) not to:
(a) render services, either as an employee, officer, consultant, director,
adviser, or in any other capacity, to the owner or operator of any
supermarket, any "supercenter" (such as Kmart or Wal-Mart), any "box
store" (such as Aldi's or Sav-A-Lot), any wholesale club store (such as
Costco, BJ's, or Sam's), any drugstore, or any store or other facility
engaged primarily in the sale of food to consumers for off-premises
preparation (hereinafter, a "Competitor") with respect to any store or
facility location or prospective location within the Restricted Geographic
Area defined below; or
(b) render services, in any capacity, to any of the following supermarket
operators, regardless of the location with respect to which such services
might be sought: DeMoulas / Market Basket, Shaw's Supermarkets, Price
Chopper (based in Rotterdam, New York), Ukrop's, Harris-Teeter, and Farm
Fresh; or
(c) 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.
-28-
<PAGE>
The "Restricted Geographic Area" referred to in subsection 2.1(a) above includes
all of the states of Maine, New Hampshire, and Vermont; that portion of New York
state east of Interstate 81 and more than 20 miles from Syracuse; that portion
of South Carolina within 20 miles of Rock Hill; that portion of North Carolina
lying south and east of a straight line which passes through (and continues
beyond) the northernmost point in Raleigh and the northernmost point in
Charlotte; that portion of Virginia south of an east-west line located 50 miles
north of Richmond and east of a north-south line located 50 miles west of
Richmond; that portion of Massachusetts that is east of Interstate 91 and north
of Route 2 and outside Route 128; and that portion of Massachusetts within five
(5) miles of the Company's store in Peabody.
Notwithstanding anything to the contrary in section 2.1(a) above, the term
"Competitor" as used herein shall not include convenience stores (such as 7-11
and Cumberland Farms) and restaurants.
It is understood and agreed that nothing herein shall restrict your:
(i) speaking to trade associations and groups on topics of general
interest to the supermarket or drug store industry, even though employees
of Competitors may be present in the audience;
(ii) developing real estate for your own account and leasing or selling it
to a Competitor, provided that you have first offered that opportunity to
Hannaford on no less favorable terms and Hannaford, after being given a
period of no less that twenty business days to consider it, has declined
the opportunity; or
(iii) redeveloping, either for your own account or that of a developer to
whom you are rendering services, a shopping center or other retail project
within which a retail location of a Competitor is located, even if your
efforts may result in the expansion, modernization, or improvement of that
Competitor's location.
2.2. Consideration for Non-Competition.
In consideration for your agreement set forth in section 2.1 not to compete with
the Company, the Company will pay you Two Hundred Thirty Four Thousand Five
Hundred Sixty Eight Dollars ($234,568.00) on January 6, 1999 and Two Hundred
Thirty Four Thousand Five Hundred Sixty Eight Dollars ($234,568.00) on December
30, 1999. It is understood and agreed that these amounts shall be payable even
if you should die or become disabled before December 31, 2000, or otherwise be
unable to render any or all of the services contemplated in section 1 of this
agreement.
-29-
<PAGE>
2.3. Enforcement; Reasonableness.
You and the Company agree that the Company would be irreparably damaged by a
breach of the non-competition provision of this agreement set forth in section
2.1. It is accordingly agreed that the Company shall be entitled to injunctive
relief in order to prevent any breach of that provision and to specifically
enforce it, 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 your non-competition 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 determines that
any of the subject matter, duration, or geographic area of your covenant not to
compete is unreasonable in any respect, it shall be reduced, and not terminated,
as such court or body determines may be reasonable.
3. Miscellaneous Provisions.
Upon the written request of either you or the Company, the other party agrees to
execute such other documents as the requesting party or its 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
consulting arrangements and your agreement not to compete with the Company. This
agreement may be amended only by written document signed by both you and the
Company, and it 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,
HANNAFORD BROS. CO.
By: ___________________________
Hugh G. Farrington
President and Chief Executive Officer
Seen and agreed to this _____ day of June, 1998.
- -----------------------
Larry A. Plotkin
-30-
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 July 4, 1998, and the related consolidated statements
of earnings and cash flows for the three month and six month periods ended July
4, 1998 and June 28, 1997. 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 January 3, 1998 (not presented herein). In our
opinion, the information set forth in the accompanying balance sheet as of
January 3, 1998, 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/PricewaterhouseCoopers L.L.P.
Portland, Maine
July 22, 1998
-31-
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 22, 1998 on our review of interim
financial information of Hannaford Bros. Co. and Subsidiaries as of July 4, 1998
and for the three month and six month periods ended July 4, 1998 and June 28,
1997, and included in this Form 10-Q is incorporated by reference in the
Company's registration statements on Form S-8 (Numbers 2-77902, 2-98387,
33-1281, 33-22666, 33-31624, 33-41273, 33-60119, 33-60655, 33-60691, 333-41381
and 333-53109). 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/PricewaterhouseCoopers L.L.P.
Portland, Maine
August 6, 1998
-32-
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