-1-
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 3, 1999
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, 1999, there were 42,171,401 outstanding shares of Common
Stock, $.75 par value, the only authorized class of common stock of the
Registrant.
<PAGE>
FORM 10-Q HANNAFORD BROS. CO. 1-7603 JULY 3, 1999
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets, July 3, 1999 and
January 2, 1999 3-4
Consolidated Statements of Earnings, Three Months
Ended July 3, 1999 and July 4, 1998 5
Consolidated Statements of Earnings, Six Months
Ended July 3, 1999 and July 4, 1998 6
Consolidated Statements of Cash Flows, Six Months
Ended July 3, 1999 and July 4, 1998 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 12-22
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
(UNAUDITED)
July 3, January 2,
1999 1999
------------ ------------
Current assets:
Cash and cash equivalents $ 53,197 $ 59,722
Accounts receivable, net 19,978 22,869
Inventories 208,930 201,219
Prepaid expenses 4,972 6,116
Deferred income taxes 5,700 5,952
---------- ----------
Total current assets 292,777 295,878
Property, plant and equipment, net 825,380 818,106
Leased property under capital leases, net 55,461 54,911
Other assets:
Goodwill, net 61,427 63,517
Deferred charges, net 25,020 25,074
Computer software costs, net 25,144 24,580
Miscellaneous assets 1,977 2,472
---------- ----------
Total other assets 113,568 115,643
---------- ----------
$1,287,186 $1,284,538
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands except per share amounts)
(UNAUDITED)
July 3, January 2,
1999 1999
------------ ------------
Current liabilities:
Current maturities of long-term debt $ 21,236 $ 19,296
Obligations under capital leases 2,317 2,108
Accounts payable 201,996 186,626
Accrued payroll 28,444 27,254
Other accrued expenses 21,632 23,873
Income taxes 2,427 442
---------- ----------
Total current liabilities 278,052 259,599
Deferred income tax liabilities 27,372 28,859
Other liabilities 39,397 38,734
Long-term debt 183,500 220,130
Obligations under capital leases 75,339 73,866
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;
42,338 and 42,338 shares issued 31,754 31,754
Additional paid-in capital 104,122 109,664
Preferred stock purchase rights 423 423
Retained earnings 556,802 525,344
---------- ----------
693,101 667,185
Less common stock in treasury
185 and 85 shares 9,575 3,835
---------- ----------
Total shareholders' equity 683,526 663,350
---------- ----------
$1,287,186 $1,284,538
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
July 3, July 4,
1999 1998
------------ ------------
Sales and other revenues $854,325 $830,371
Cost of sales 628,109 622,757
-------- --------
Gross margin 226,216 207,614
Selling, general and administrative
expenses 179,222 163,865
-------- --------
Operating profit 46,994 43,749
Interest expense, net 5,780 6,618
-------- --------
Earnings before income taxes 41,214 37,131
Income taxes 15,800 14,112
-------- --------
Net earnings $ 25,414 $ 23,019
======== ========
Earnings per share:
Basic $ .60 $ .54
======== ========
Diluted $ .59 $ .54
======== ========
Cash dividends per share $ .165 $ .150
======== ========
Weighted average number of common shares
outstanding Basic 42,208 42,297
======== ========
Diluted 42,868 42,944
======== ========
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
July 3, July 4,
1999 1998
------------ ------------
Sales and other revenues $1,693,449 $1,618,667
Cost of sales 1,249,509 1,212,736
---------- ----------
Gross margin 443,940 405,931
Selling, general and administrative
expenses 358,470 326,860
---------- ----------
Operating profit 85,470 79,071
Interest expense, net 12,045 13,152
---------- ----------
Earnings before income taxes 73,425 65,919
Income taxes 28,021 25,085
---------- ----------
Net earnings $ 45,404 $ 40,834
========== ==========
Earnings per share:
Basic $ 1.08 $ .97
========== ==========
Diluted $ 1.06 $ .95
========== ==========
Cash dividends per share $ .33 $ .30
========== ==========
Weighted average number of common shares
outstanding Basic 42,223 42,289
========== ==========
Diluted 42,865 42,902
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED
July 3, July 4,
1999 1998
----------- ----------
Cash flows from operating activities:
Net income $ 45,404 $ 40,834
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 51,182 46,699
Increase in inventories (7,711) (3,522)
Decrease in receivables
and prepayments 3,846 1,866
Increase in accounts payable
and accrued expenses 14,981 3,385
Increase in income taxes payable 1,985 847
Increase (decrease) in deferred taxes (1,234) 3,306
Other operating activities (417) (367)
-------- -------
Net cash provided by operating
activities 108,036 93,048
-------- --------
Cash flows from investing activities:
Acquisition of property, plant and
equipment (54,927) (76,878)
Sale of property, plant and
equipment, net 6,441 6,326
Increase in deferred charges (1,249) (702)
Increase in computer software costs (3,928) (3,748)
-------- --------
Net cash used in investing activities (53,663) (75,002)
-------- --------
Cash flows from financing activities:
Principal payments under capital
lease obligations (981) (864)
Proceeds from issuance of long-term debt - 20,000
Payments of long-term debt (34,690) (28,611)
Issuance of common stock 8,630 6,941
Purchase of treasury stock (19,912) (10,433)
Dividends paid (13,945) (12,690)
-------- --------
Net cash used in financing activities (60,898) (25,657)
-------- --------
Net decrease in cash and cash equivalents (6,525) (7,611)
Cash and cash equivalents at beginning of period 59,722 57,663
-------- --------
Cash and cash equivalents at end of period $ 53,197 $ 50,052
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosures of cash flow information
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED
July 3, July 4,
Cash paid during the first six months for: 1999 1998
------------ -----------
Interest (net of amount capitalized,
$886 in 1999 and $1,371 in 1998) $12,655 $13,366
======= =======
Income taxes $24,580 $20,918
======= =======
Supplemental disclosure of non-cash investing and financing activity
Capital lease obligations of $2,663,000 and $1,166,000 were incurred during
the six-month periods ended July 3, 1999 and July 4, 1998, respectively,
when the Company entered into real estate leases.
<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.
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 preparation of the Company's 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 reporting date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates.
<PAGE>
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. RECLASSIFICATION
Certain reclassifications have been made in the prior year's balance sheet
to conform to classifications used in the current year.
4. 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 $.9 million in the first half of 1999 and $.8 million in the
first half of 1998. LIFO expense was $.4 million in both the second quarter
of 1999 and the second quarter of 1998.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
(In thousands)
(Unaudited)
July 3, January 2,
1999 1999
Land and improvements $ 150,014 $ 141,706
Buildings 308,388 300,708
Furniture, fixtures & equipment 491,632 501,250
Leasehold interests & improvements 320,795 324,106
Construction in progress 21,135 8,790
---------- ----------
1,291,964 1,276,560
Less accumulated depreciation and
amortization 466,584 458,454
---------- ----------
$ 825,380 $ 818,106
========== ==========
6. LEASED PROPERTY
Leased property under capital leases consists of the following:
(In thousands)
(Unaudited)
July 3, January 2,
1999 1999
Real property $85,163 $82,500
Less accumulated amortization 29,702 27,589
------- -------
$55,461 $54,911
======= =======
<PAGE>
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 4.6% in the first half of 1999, to $1.693
billion, an increase of $74 million over the first half of 1998. Supermarket
sales increased $70 million or 4.5%. Other sales and revenues, which include
wholesale, trucking, home delivery, real estate and miscellaneous retail
operations, increased $4 million. Sales from supermarkets that were open in
both periods reported ("identical store sales") were up 0.8%. Comparable
store sales, which included results from expanded and relocated supermarkets,
increased 1.4% in the first half of 1999.
In the second quarter of 1999, sales and other revenues were $854 million, an
increase of $24 million or 2.9% over those reported for the same period of
1998. Sales and other revenues from the Easter holiday occurred in the first
quarter this year and the second quarter last year. Adjusting for Easter
sales, identical store sales increased 0.4% and comparable store sales
increased 1.1% in the second quarter of 1999.
<PAGE>
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 1999, gross margins increased to 26.2% of
sales and other revenues in comparison to 25.1% for the comparable 1998
period. For the second quarter of 1999, gross margins were 26.5% versus 25.0%
for the second quarter of 1998. These increases are the result of improved
selling margins in most of the Company's marketing territories coupled with
the results of an inventory shrinkage reduction initiative. The Company
continues to focus on maintaining a competitive pricing strategy.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to 21.2% of sales and
other revenues in the first half of 1999 as compared to 20.2% in the first
half of 1998. For the second quarter of 1999, selling, general and
administrative expenses were 21.0% of sales and other revenues versus 19.7%
in the second quarter of 1998. These increases are primarily the result of
higher payroll and payroll related expenses, which exceeded 50% of selling,
general and administrative expenses in all periods presented. In addition,
the Company incurred increased advertising costs in both the second quarter
and first half of 1999, as it undertook programs to build sales in several of
its marketing areas.
INTEREST EXPENSE, NET
Net interest expense expressed as a percentage of sales and other revenues
was 0.7% in both the second quarter and first half of 1999 versus 0.8% in
both the second quarter and first half of 1998. These decreases are primarily
the result of a decrease in average debt levels partially offset by a
decrease in capitalized interest resulting from reduced construction
activity.
<PAGE>
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 increased slightly in the first half of 1999 to
38.2% from 38.1% in the corresponding period of 1998. In the second quarter
of 1999 the effective income tax rate increased to 38.3% from 38.0% in the
second quarter of 1998. Assuming there are no federal or state income tax
rate changes, the Company expects the effective tax rate for fiscal 1999 to
be in the 37.9% to 38.3% range.
NET EARNINGS AND EARNINGS PER COMMON SHARE
Net earnings increased 11.2% in the first half of 1999 to $45 million or 2.7%
of sales and other revenues, an increase of approximately $4 million from
1998 first half earnings of $41 million or 2.5% of sales and other revenues.
Expressed as a percentage of sales and other revenues, net earnings increased
in the first half of 1999 as increased sales and margins, coupled with
reduced interest expense, were partially offset by higher selling, general
and administrative expenses.
Net earnings increased 10.4% in the second quarter of 1999 to $25 million or
3.0% of sales and other revenues, an increase of approximately $2 million
from 1998 second quarter earnings of $23 million or 2.8% of sales and other
revenues.
Basic earnings per common share in the first half of 1999 were $1.08 as
compared to $.97 in the first half of 1998, an increase of 11.3%. Diluted
earnings per common share (Note 2) were $1.06 in the first half of 1999 as
compared to $.95 in the first half of 1998.
Basic earnings per common share were $.60 in the second quarter of 1999
versus $.54 in the second quarter of 1998, an increase of 11.1%. Diluted
earnings per common share (Note 2) were $.59 in the second quarter of 1999 as
compared to $.54 in the second quarter of 1998.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company is continuing to test an internet-based home shopping service in
the Boston, Massachusetts market called HomeRuns.com (formerly Hannaford's
HomeRuns(R)). This service generated a net loss of approximately $.11 per
share in the first half of 1999 versus a net loss of approximately $.06 in
the first half of 1998. During the second quarter of 1999 this service
generated a net loss of $.06 versus a net loss of $.03 in the second quarter
of 1998. The Company previously announced that it was seeking a strategic
partner to promote and expand this business undertaking.
YEAR 2000 ISSUES
Through its readiness plan which was initiated in 1996, the Company has been
addressing computer software and hardware modifications or replacements to
enable transactions to process properly in the Year 2000 (Y2K). Included in
this plan is an examination of critical IT and non-IT systems, including
embedded chip technology at supermarket and distribution facilities.
The Company currently expects to complete all phases of its
readiness plan as follows:
IT Systems
Mainframe Completed
Network Completed
PC-Desktop August, 1999
In-store August, 1999
Facilities Systems Completed
The readiness plan for IT and Facilities Systems has progressed on
schedule. As of the end of the second quarter of 1999, the Company
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
had completed the correction, testing and implementation of all critical
systems that involve its core business. The Company expects to be fully Y2K
compliant by August 1999.
As part of its readiness plan, the Company has contacted all of its critical
business partners in order to ascertain their status on Y2K readiness. Based
on management's assessment of their responses, the Company believes that the
majority of its business partners are taking action to be Y2K complaint.
Despite these documented efforts, the Company could potentially experience
disruptions to some aspects of its activities and operations. Therefore, in
conjunction with its readiness plan, management is formulating contingency
plans for critical functions and processes which may be implemented to
minimize the risk of interruption to its business in the event of a Y2K
disruption.
This contingency planning, which utilizes a business continuity approach,
focuses on the Company's ability to remain open for business with sufficient
inventories should some external infrastructure problems arise such as
electrical outages. Based on key assumptions concerning the readiness status
of public utilities, emergency response providers, federal, state and local
government agencies and the banking system, the Company has developed
business continuity strategies. Management is in the process of converting
these strategies to detailed contingency plans and expects to complete its
work by August 1999. For the balance of the year, the Company will continue
to review its key assumptions in order to validate its strategies and test
the capabilities of its contingency plans. In addition to its main focus of
developing strategies to address the Company's ability to purchase an
adequate supply of product from vendors, deliver it to its supermarkets and
sell it to customers, contingency plans have been established to address its
ability to pay employees, collect and remit on outstanding accounts, meet
other regulatory and administrative needs, and address various merchandising
objectives.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
In addition to its contingency plan, the Company has developed a Y2K
communication plan so that its customers and employees may understand the
Company's commitment to supply goods and services in its supermarkets before
and after the turn of the century. Employee communications are being planned
to inform associates that appropriate action has been taken to prepare for
Y2K. Consumer communications will focus on the Company's effort to support
its communities and customers with an adequate supply of products on a normal
retail schedule. The Company intends to be responsive to public inquiries
regarding Y2K through press releases between August and December of 1999. The
Company is also prepared to represent the food industry in its market areas
as required by public officials or as dictated by business needs.
The total cost associated with anticipated Y2K modifications is not material
to the Company's results of operations, financial condition or cash flows.
The total estimated cost of the readiness plan, including the cost of
internal resources, is $5 million, of which approximately $4.3 million has
been incurred through the end of the second quarter of 1999.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
OVERVIEW
Measures of liquidity for the periods presented are as follows:
(Dollars in millions)
July 3, January 2,
1999 1999
-------- ----------
Cash and cash equivalents $53 $60
Working capital (FIFO inventory) $35 $56
Unused lines of revolving credit $86 $58
Unused lines of short-term credit $ 1 $ 1
Current ratio (FIFO inventory) 1.13 1.22
The Company continued to maintain a strong capital position at July 3, 1999.
Cash and cash equivalents decreased $7 million to $53 million at the end of
the second quarter of 1999. This decrease was primarily 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 3,
1999, the Company had $6 million outstanding on its revolving lines of
credit. The Company is in a solid financial position to carry out its current
internal expansion and external growth plans in 1999.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $108 million in the first half of
1999, an increase of $15 million over the $93 million provided in the first
half of 1998. This increase is primarily attributable to an increase in cash
flows provided by net working capital items coupled with increased net
earnings and increased depreciation and amortization. The fluctuations within
working capital accounts are part of the Company's normal business
activities.
<PAGE>
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 $21 million in the first half of
1999 to $54 million from $75 million in the first half of 1998. This decrease
is the result of the Company's reduced capital investment during the period.
Capital investments totaled $63 million in the first half of 1999 and were
composed of $55 million in additions to property, plant and equipment, $5
million in deferred charges and computer software costs and $3 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 $150
million in 1999 on a capital program that will increase net retail selling
area by 3.7% in 1999. This program is subject to continuing change and review
as conditions warrant. Construction will also start on a number of stores to
be opened in 2000. The 1999 capital program is being financed by internally
generated funds, leases and long-term debt.
<PAGE>
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 1999, the Company opened 2 supermarkets including
one new store and one expansion. These supermarkets, together with their
square footage of selling area, are listed below:
Square Footage
Location Selling Area
Richmond, VA 38,000
Charlotte, NC 41,000
During the remainder of 1999, the Company expects to open 6 supermarkets (1
new store and 3 expansions in the Northeast and 2 new stores in the
Southeast). The 1999 capital program also includes eight major remodels, and
a number of minor ones, which will not add square footage, but are important
to the Company's presentation and its ability to build sales.
<PAGE>
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 $61 million in the first half of 1999
as compared to $26 million in the first half of 1998. This reduction in cash
flows of $35 million is the result of reduced proceeds from the issuance of
long-term debt, increased purchases of treasury stock and increased payments
on long-term debt. During the first half of 1999, the Company made $35
million in payments on its long-term debt as compared to $29 million in the
first half of 1998. This increase is the result of the Company's repayment on
its revolving lines of credit.
The Company purchased 398,000 shares of common stock during the first half of
1999 at a cost of $20 million. The increased cost in 1999 is the result of a
higher number of shares purchased coupled with a higher stock price. The
majority of these repurchased shares were used to fund the Company's
stock-based benefit plans with the balance being held in treasury. This
amount was offset by proceeds of $9 million received during the first half of
1999 from the issuance of 297,000 shares of treasury stock. The Company paid
$14 million in dividends to common shareholders in the first half of 1999.
<PAGE>
HANNAFORD BROS. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 Year 2000 issue, 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, interest rates or the Company's cost of borrowing, by increases
in labor rates due to low unemployment or other factors, by unanticipated costs
related to the opening and closing of stores or by the inability to control
various expense categories.
(2) Hannaford's future growth is dependent on its ability to expand its retail
square footage either de novo or through acquisitions. 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 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 19, 1999.
(b) Not applicable.
(c) The following issues were voted upon by shareholders. All matters were
approved as indicated:
1. ELECTION OF FOUR CLASS III DIRECTORS TO SERVE UNTIL THE ANNUAL MEETING OF
SHAREHOLDERS IN 2002.
WITHHOLD
AUTHORITY BROKER
FOR FOR TOTAL NON-VOTES
Robert D. Bolinder 35,976,807 53,789 36,030,596 0
Richard K. Lochridge 35,986,505 44,091 36,030,596 0
Renee M. Love 35,983,126 47,470 36,030,596 0
Robert J. Murray 35,988,196 42,400 36,030,596 0
2. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT
AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING JANUARY 1, 2000.
FOR AGAINST ABSTAIN BROKER
NON-VOTES
TOTAL 35,942,357 30,690 57,549 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 July 3, 1999, by PricewaterhouseCoopers LLP, whose
report is included in Item 6. Such report is not within the meaning of Section 7
& 11 of the 1933 Act and the independent accountant's liability under Section 11
does not extend to it.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation SK
15 Review report of PricewaterhouseCoopers LLP on interim results.
23 Letter of PricewaterhouseCoopers LLP regarding incorporation by
reference to certain forms S-8 of the Registrant.
27 Financial Data Schedule
(b) The following filings were made on Form 8-K during the second quarter:
1. On June 17, 1999, a Form 8-K was filed reporting amendments to
the bylaws of the Registrant.
2. On June 21, 1999, a Form 8-K was filed reporting the resignation of
the Chief Financial Officer and the promotions of two employees to
the positions of Chief Operating Officer and Chief Financial
Officer.
<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 11, 1999 /s/ Paul A. Fritzson
---------------------- ----------------------
Paul A. Fritzson
Executive Vice President
(Chief Financial Officer)
Date August 11, 1999 /s/ Charles H. Crockett
---------------------- -----------------------------
Charles H. Crockett
Assistant Secretary
Exhibit 15
REPORT OF INDEPENDENT ACCOUNTANTS
July 21, 1999
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 3, 1999, and the related consolidated statements
of earnings for each of the three month and six month periods ended July 3, 1999
and July 4, 1998, and the consolidated statements of cash flows for the six
month periods ended July 3, 1999 and July 4, 1998. 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.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of January 2, 1999, and the related
consolidated statements of earnings and changes in shareholders' equity, and of
cash flows for the year then ended (not presented herein), and in our report
dated January 21, 1999 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the accompanying consolidated balance
sheet information as of January 2, 1999, is fairly stated in all material
respects.
s/PricewaterhouseCoopers LLP
Portland, Maine
Exhibit 23
August 11, 1999
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 21, 1999 on our review of interim
financial information of Hannaford Bros. Co. and Subsidiaries as of July 3, 1999
and for the three month and six month periods ended July 3, 1999 and July 4,
1998, 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).
s/PricewaterhouseCoopers LLP
Portland, Maine
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<PERIOD-END> JUL-03-1999
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0
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